N-30D 1 dt.txt JOHN HANCOCK DECLARATION TRUST SEMI ANNUAL REPORT John Hancock Declaration Trust 6.30.02 [A 2" x 1" John Hancock (Signature)/John Hancock Funds logo at bottom left center of page. A tag line below reads "JOHN HANCOCK FUNDS."] TABLE OF CONTENTS SECTOR FUNDS V.A. Financial Industries Fund Chairman's Message 3 Managers' Report 4 A Look at Performance 5 Growth of $10,000 5 Fund's Investments 6 Financial Statements 7 V.A. Technology Fund Chairman's Message 3 Managers' Report 4 A Look at Performance 5 Growth of $10,000 5 Fund's Investments 6 Financial Statements 8 EQUITY FUNDS V.A. Relative Value Fund Chairman's Message 3 Managers' Report 4 A Look at Performance 5 Growth of $10,000 5 Fund's Investments 6 Financial Statements 7 V.A. Sovereign Investors Fund Chairman's Message 3 Managers' Report 4 A Look at Performance 5 Growth of $10,000 5 Fund's Investments 6 Financial Statements 7 INCOME FUND V.A. Strategic Income Fund Chairman's Message 3 Managers' Report 4 A Look at Performance 5 Growth of $10,000 5 Fund's Investments 6 Financial Statements 11 SEMI ANNUAL REPORT John Hancock V.A. Financial Industries Fund A series of John Hancock Declaration Trust 6.30.02 [A 2" x 1" John Hancock (Signature)/John Hancock Funds logo at bottom left center of page. A tag line below reads "JOHN HANCOCK FUNDS."] FOR YOUR INFORMATION TRUSTEES Dennis S. Aronowitz Richard P. Chapman, Jr. William J. Cosgrove John M. DeCiccio Richard A. Farrell* Maureen R. Ford Gail D. Fosler* William F. Glavin Dr. John A. Moore* Patti McGill Peterson John W. Pratt *Members of the Audit Committee OFFICERS Maureen R. Ford Chairman, President and Chief Executive Officer William L. Braman Executive Vice President and Chief Investment Officer Richard A. Brown Senior Vice President and Chief Financial Officer Susan S. Newton Senior Vice President and Secretary William H. King Vice President and Treasurer Thomas H. Connors Vice President and Compliance Officer CUSTODIAN The Bank of New York One Wall Street New York, New York 10286 TRANSFER AGENT John Hancock Signature Services, Inc. 529 Main Street Charlestown, Massachusetts 02129 INVESTMENT ADVISER John Hancock Advisers, LLC 101 Huntington Avenue Boston, Massachusetts 02199-7603 INSURANCE PRODUCTS ISSUER John Hancock Life Insurance Company, John Hancock Variable Life Insurance Company* 200 Clarendon Street Boston, Massachusetts 02117 *Not licensed in New York FUND DISTRIBUTOR John Hancock Funds, LLC 101 Huntington Avenue Boston, Massachusetts 02199-7603 LEGAL COUNSEL Hale and Dorr LLP 60 State Street Boston, Massachusetts 02109-1803 HOW TO CONTACT US On the Internet www.jhancock.com By regular mail John Hancock Signature Services, Inc. 529 Main Street Charlestown, Massachusetts 02129 Customer service representatives 1-800-225-5291 24-hour automated information 1-800-338-8080 WELCOME [A photo of Maureen R. Ford, Chairman and CEO, flush right next to first paragraph.] Dear Shareholders, The first half of 2002 has been an extremely difficult period for the stock market. A steady stream of accounting scandals and corporate misdeeds has shaken investors' faith in corporate America. Plus, questions about the strength of the economic rebound and prospects for corporate earnings have hung over the financial markets, along with increased fears about Middle East tensions and terrorism. With all these concerns, the major stock market indexes have fallen significantly. In the first six months of 2002, the broad Standard & Poor's 500 Index is down 13%, the Dow Jones Industrial Average is off 7% and the technology-laden Nasdaq Composite Index has fallen 25%. Investors in equity mutual funds have been unable to escape the market's descent, as 89% of all U.S. diversified equity funds have produced negative results in the first six months of 2002, according to Lipper, Inc., and the average equity fund has lost 11.67%. Bonds, on the other hand, outperformed stocks and gained some ground, as often happens when investors seek safer havens. At such trying times as these, the impulse to flee is understandable, especially after the negative stock market returns in 2000 and 2001. But we urge you to stay the course and keep a well-diversified portfolio and a longer-term investment perspective. Working with your investment professional on your long-term plan is especially critical in turbulent times. Financial markets have always moved in cycles, and even though the current down cycle is painful, it comes after five straight years of 20%-plus returns between 1995 and 1999. As discouraging as conditions may seem in the short term, history shows us that the bad times do pass. We believe that remains the case today. The economy is sound and the vast majority of U.S. corporations are honest institutions striving to do their best for their shareholders. And the efforts of both the private sector and the U.S. government should address the current issues of corporate governance, so that corporate credibility and therefore investor confidence are restored. Sincerely, /S/ MAUREEN R. FORD Maureen R. Ford, Chairman and Chief Executive Officer Table of contents Managers' Report page 4 A Look at Performance page 5 Growth of $10,000 page 5 Fund's Investments page 6 Financial Statements page 7 BY JAMES K. SCHMIDT, CFA, AND THOMAS C. GOGGINS, PORTFOLIO MANAGERS John Hancock V.A. Financial Industries Fund MANAGERS' REPORT [Photos of Jim Schmidt and Tom Goggins.] Despite improving economic and corporate fundamentals, the first half of 2002 grew increasingly more difficult for the stock market. Investor confidence fell on a steady stream of bad corporate and geopolitical news, from high-profile bankruptcies, accounting scandals and other corporate misdeeds, to increased fears about Middle East tensions and the prospects of further terrorist attacks. With the increased volatility, the Standard & Poor's 500 Index and the Nasdaq Composite Index produced losses of 13.15% and 24.84%, respectively, in the first six months of 2002. Financial stocks continued to outperform the broad market in the period, due primarily to the strength of small and midsize regional bank stocks. They were bolstered by falling interest rates, better-than-expected news about problem loan levels, solid earnings growth, and relief that the recession appeared to be ending. With their less complicated structures and financial statements, they were also viewed as a safe haven. On the other hand, market-sensitive financial stocks, such as brokers, trust banks, life insurance companies and asset managers were hurt by the market's woes. FUND PERFORMANCE For the six months ended June 30, 2002, John Hancock V.A. Financial Industries Fund posted a total return of -9.55% at net asset value, compared with the 0.03% return of the average open-end financial services fund and the -22.90% return of the average variable annuity specialty/miscellaneous fund, according to Lipper, Inc. The Fund's performance, while better than the broader market, lagged the Lipper group of financial services funds because many of them focus more on small stocks and value stocks, which were the best places to be in the period. Our focus is more on high-quality large-cap and growth-oriented companies. Several of these, including Fannie Mae, Freddie Mac and American International Group (AIG), suffered during the period as the post-Enron market painted many large companies with the same brush simply for having complex financial statements. Being diversified also held us back, since we were invested in other financial services sectors that did not do as well as the banks. BANK RALLY CONTINUES FOR SMALL, MIDSIZE REGIONALS The Fund's regional banks were among its top performers, as interest rates remained at historic low levels, problem loans came in below expectations and bank earnings showed positive growth, compared with many sectors of the market where earnings have fallen off a cliff. Top contributors included Wells Fargo, Fifth Third Bancorp, Bank of America and BB&T Corp. However, our stake in banks was tilted more toward the large, market-sensitive banks, such as State Street, Bank of New York and Mellon Financial, which struggled in the market's downturn, while the smaller, more interest-sensitive banks thrived. [Table at bottom right hand column entitled "Top five stock holdings." The first listing is Fifth Third Bancorp 6.4%, the second is Wells Fargo 6.0%, the third Bank of America 5.4%, the fourth Fannie Mae 5.0% and the fifth American International Group 4.7%. A note below the table reads "As a percentage of net assets on 6-30-02."] INSURANCE FOCUS REMAINS ON PROPERTY AND CASUALTY Our insurance holdings continued to be focused on property and casualty companies, which are benefiting from a strong pricing cycle that became even more robust in the wake of September 11 and the Enron debacle, as the cost of specific types of insurance saw dramatic increases. We continue to be very selective, emphasizing those companies with the strongest and cleanest balance sheets that stand to be long-term winners in a good pricing environment. During the period we cut our two foreign property and casualty names -- Swiss Re and Munich Re -- because their financial disclosure was less transparent. We are keeping our stake in AIG, and think its strength will far outlast the current market turmoil over complex balance sheets. The other way we are playing the property and casualty market is by investing in insurance brokers Willis Group Holdings and Marsh & McLennan, which allows us to take advantage of the pricing cycle without the underwriting risk. FINANCE COMPANIES REBOUND; BROKERS FALL While Fannie Mae and Freddie Mac struggled, other consumer finance and credit card companies rallied during the period, as the consumer remained buoyant and the economy began its turnaround. That bolstered our consumer and mortgage-related holdings such as American Express, Countrywide, which we sold, and Washington Mutual. Brokerage companies actually reported good earnings results for the first quarter of 2002 as IPO activity picked up somewhat, although the level of trading and merger activity remained low. Even with improved results, the brokerage stocks performed poorly since they serve as a virtual proxy for the market itself. Among our biggest detractors were Goldman Sachs, Merrill Lynch and Charles Schwab. A LOOK AHEAD We remain optimistic about the prospects for financial stocks going forward. With the economy in a recovery mode, we expect that the stock market will eventually rebound, once investors' confidence is restored -- which remains the big variable. Whenever the market comes back, merger activity will pick up from its current snail's pace, benefiting investment banking firms in particular and financial stocks in general. We also expect interest rates to stay low, which will bolster the economy. Finally, after trailing small-cap and value-oriented stocks for several years, the valuations are now swinging in favor of large-cap and growth stocks. This commentary reflects the views of the portfolio managers through the end of the Fund's period discussed in this report. Of course, the managers' views are subject to change as market and other conditions warrant. Sector investing is subject to greater risks than the market as a whole. A LOOK AT PERFORMANCE For the period ended 6-30-02 Cumulative total returns Six months -9.55% One year -17.52% Five years 25.28% Since inception (4-30-97) 40.81% Average annual total returns One year -17.52% Five years 4.61% Since inception (4-30-97) 6.85% Total return measures the change in value of an investment from the beginning to the end of a period, assuming all distributions were reinvested. Performance figures reflect the effect of investment-related charges on the underlying funds, but do not include insurance and other charges levied at the separate account level. All figures represent past performance and are no guarantee of future results. Keep in mind that the total return and share price of the Fund's investments will fluctuate. As a result, your Fund's shares may be worth more or less than their original cost, depending on when you sell them. The Fund's performance results reflect any applicable expense reductions, without which the expenses would increase and results would have been less favorable. These reductions can be terminated in the future. See the prospectus for details. GROWTH OF $10,000 The chart to the left shows how much a $10,000 investment in the John Hancock V.A. Financial Industries Fund would be worth, assuming all distributions were reinvested for the period indicated. For comparison, we've shown the same $10,000 investment in two indexes: Standard & Poor's 500 Index, an unman- aged index that includes 500 widely traded common stocks and is often used as a meas- ure of stock market performance Standard & Poor's Financial Index, a capital ization-weighted index designed to measure the financial sector of the S&P 500. It is not possible to invest in an index. Line chart with the heading John Hancock V.A. Financial Industries Fund 4-30-97 - 6-30-02, representing the growth of a hypothetical $10,000 investment over the life of the fund. Within the chart are three lines. The first line represents the Standard & Poor's Financial Index and is equal to $16,811 as of June 30, 2002. The second line represents the value of the hypothetical $10,000 investment made in the John Hancock V.A. Financial Industries Fund on April 30, 1997 and is equal to $14,081 as of June 30, 2002. The third line represents the Standard & Poor's 500 Index and is equal to $13,270 as of June 30, 2002. FINANCIAL STATEMENTS Fund's Investments Securities owned by the Fund on 6-30-02 UNAUDITED
SHARES ISSUER VALUE COMMON STOCKS 99.43% $74,420,941 (Cost $79,650,580) Banks -- Foreign 2.58% $1,931,868 26,000 Credit Suisse Group (Switzerland) 825,438 22,000 UBS AG (Switzerland) 1,106,430 Banks -- Midwest 6.53% 4,887,685 72,342 Fifth Third Bancorp 4,821,595 1,500 Northern Trust Corp. 66,090 Banks -- Money Center 12.59% 9,422,730 57,500 Bank of America Corp. 4,045,700 87,000 Citigroup, Inc. 3,371,250 44,500 J.P. Morgan Chase & Co. 1,509,440 13,000 Wachovia Corp. 496,340 Banks -- Northeast 4.09% 3,056,490 1,500 M & T Bank Corp. 128,640 65,500 State Street Corp. 2,927,850 Banks -- Southeast 4.37% 3,266,940 80,900 BB&T Corp. 3,122,740 3,000 National Commerce Financial Corp. 78,900 2,500 SouthTrust Corp. 65,300 Banks -- Superregional 19.31% 14,455,839 68,000 Bank of New York Co., Inc. (The) 2,295,000 11,500 Bank One Corp. 442,520 2,000 Charter One Financial, Inc. 68,760 1,000 Comerica, Inc. 61,400 78,036 FleetBoston Financial Corp. 2,524,465 76,500 Mellon Financial Corp. 2,404,395 18,344 PNC Financial Services Corp. 959,024 6,500 SunTrust Banks, Inc. 440,180 17,500 U.S. Bancorp 408,625 10,000 Washington Mutual, Inc. 371,100 89,500 Wells Fargo & Co. 4,480,370 Banks -- West 0.28% 208,400 4,000 Zions Bancorp. 208,400 Broker Services 10.85% 8,119,026 34,700 Goldman Sachs Group, Inc. 2,545,245 47,000 Legg Mason, Inc. 2,318,980 45,500 Merrill Lynch & Co., Inc. 1,842,750 126,076 Schwab (Charles) Corp. (The) 1,412,051 Diversified Operations 2.54% 1,902,775 65,500 General Electric Co. 1,902,775 Finance -- Consumer Loans 6.13% 4,589,906 50,000 Household International, Inc. 2,485,000 63,650 MBNA Corp. 2,104,906 Finance -- Investment Management 1.40% 1,050,914 129,000 Amvescap Plc (United Kingdom) 1,050,914 Finance -- Misc. Services 4.23% 3,168,846 70,900 American Express Co. 2,575,088 19,700 Concord EFS, Inc.* 593,758 Insurance -- Brokers 4.24% 3,174,047 29,800 Marsh & McLennan Cos., Inc. 2,878,680 8,975 Willis Group Holdings Ltd.* 295,367 Insurance -- Diversified 2.54% 1,898,900 850 Berkshire Hathaway Inc.* 1,898,900 Insurance -- Multi Line 1.19% 893,223 6,660 Prudential Financial, Inc.* 222,178 50,000 Riunione Adriatica di Sicurta SpA (Italy) 671,045 Insurance -- Property & Casualty 7.57% 5,663,902 51,704 American International Group, Inc. 3,527,764 48,000 St. Paul Cos., Inc. (The) 1,868,160 15,140 Travelers Property Casualty Corp. (Class A)* 267,978 Mortgage & Real Estate Services 8.99% 6,729,450 51,000 Fannie Mae 3,761,250 48,500 Freddie Mac 2,968,200 ISSUER, DESCRIPTION, INTEREST PAR VALUE MATURITY DATE RATE (000s OMITTED) VALUE SHORT-TERM INVESTMENTS 1.08% $804,947 (Cost $804,947) Joint Repurchase Agreement 0.58% Investment in a joint repurchase agreement transaction with Barclays Capital, Inc. -- Dated 06-28-02, due 07-01-02 (Secured by U.S. Treasury Inflation index Bond 3.875% due 04-15-32 and 3.375% due 04-15-02 and, U.S. Treasury inflation Index Note 3.625% thru 3.875% due 07-15-07 thru 01-15-09) 1.92% $432 432,000 NUMBER OF SHARES Cash Equivalents 0.50% AIM Cash Investment Trust ** 372,947 372,947 TOTAL INVESTMENTS 100.51% $75,225,888 OTHER ASSETS AND LIABILITIES, NET (0.51%) ($379,303) TOTAL NET ASSETS 100.00% $74,846,585 * Non-income producing security. ** Represents investment of security lending collateral. Parenthetical disclosure of a country in the security description represents country of foreign issuer. The percentage shown for each investment category is the total value of that category as a percentage of the net assets of the Fund.
PORTFOLIO CONCENTRATION VALUE AS A% COUNTRY DIVERSIFICATION OF FUND NET ASSETS Italy 0.90% Switzerland 2.58 United Kingdom 1.40 United States 95.63 Total investments 100.51% See notes to financial statements. Statement of Assets and Liabilities 6-30-02 UNAUDITED ASSETS Investments at value (cost $80,455,527) $75,225,888 Cash 159 Dividends and interest receivable 118,403 Other assets 6,814 Total assets 75,351,264 LIABILITIES Due to custodian 3,324 Payable for securities on loan 372,947 Payable to affiliates 105,978 Other payables and accrued expenses 22,430 Total liabilities 504,679 NET ASSETS Capital paid-in 85,454,191 Accumulated net realized loss on investments and foreign currency transactions (5,687,948) Net unrealized depreciation of investments and translation of assets and liabilities in foreign currencies (5,229,328) Undistributed net investment income 309,670 Net assets $74,846,585 NET ASSET VALUE PER SHARE (Based on 5,685,245 shares of beneficial interest outstanding -- unlimited number of shares authorized with no par value) $13.17 Statement of Operations For the period ended 6-30-02 UNAUDITED 1 INVESTMENT INCOME Dividends (net of foreign withholding taxes of $5,559) $698,152 Interest (includes securities lending income of $194) 7,902 Total investment income 706,054 EXPENSES Investment management fee 332,559 Custodian fee 11,027 Auditing fee 9,051 Accounting and legal services fee 8,800 Trustees' fee 2,303 Printing 1,767 Miscellaneous 2,347 Legal fee 1,501 Registration and filing fee 5 Total expenses 369,360 Net investment income 336,694 REALIZED AND UNREALIZED GAIN (LOSS) Net realized gain (loss) on Investments (1,216,911) Foreign currency transactions 4,352 Change in unrealized appreciation (depreciation) of Investments (7,207,138) Translation of assets and liabilities in foreign currencies 311 Net realized and unrealized loss (8,419,386) Decrease in net assets from operations ($8,082,692) 1 Semiannual period from 1-1-02 through 6-30-02. See notes to financial statements. Statement of Changes in Net Assets YEAR PERIOD ENDED ENDED 12-31-01 6-30-02 1 INCREASE (DECREASE) IN NET ASSETS From operations Net investment income $525,836 $336,694 Net realized gain (loss) 2,883,241 (1,212,559) Change in net unrealized appreciation (depreciation) (17,546,190) (7,206,827) Decrease in net assets resulting from operations (14,137,113) (8,082,692) Distributions to shareholders From net investment income (499,736) -- From net realized gain (2,739,375) -- (3,239,111) -- From fund share transactions 34,929,896 (5,990,991) NET ASSETS Beginning of period 71,366,596 88,920,268 End of period 2 $88,920,268 $74,846,585 1 Semiannual period from 1-1-02 through 6-30-02. Unaudited. 2 Includes accumulated (distributions in excess of) net investment income of ($27,024) and $309,670, respectively.
Financial Highlights 12-31-97 1 12-31-98 12-31-99 12-31-00 12-31-01 6-30-02 2 PER SHARE OPERATING PERFORMANCE Net asset value, beginning of period $10.00 $13.44 $14.45 $14.46 $18.34 $14.56 Net investment income (loss) 3 0.11 0.18 0.11 0.06 (0.11) (0.06) Net realized and unrealized gain (loss) on investments 3.39 0.97 0.06 3.87 (3.11) (1.33) Total from investment operations 3.50 1.15 0.17 3.93 (3.22) (1.39) Less distributions From net investment income (0.05) (0.14) (0.10) (0.05) (0.09) -- From net realized gain (0.01) -- 4 (0.05) -- (0.47) -- Tax return of capital -- -- (0.01) -- -- -- (0.06) (0.14) (0.16) (0.05) (0.56) -- Net asset value, end of period $13.44 $14.45 $14.46 $18.34 $14.56 $13.17 Total return 5 (%) 35.05 6,7 8.55 1.23 27.16 (17.51) (9.55) 6 RATIOS AND SUPPLEMENTAL DATA Net assets, end of period (in millions) $18 $55 $49 $71 $89 $75 Ratio of expenses to average net assets % 1.05 8 0.92 0.90 0.90 0.89 0.89 8 Ratio of adjusted expenses to average net assets 9 % 1.39 8 -- -- -- -- -- Ratio of net investment income to average net assets % 1.32 8 1.25 0.77 0.36 0.71 0.81 8 Portfolio turnover % 11 38 72 41 97 10 65 1 Began operations on 4-30-97. 2 Semiannual period from 1-1-02 through 6-30-02. Unaudited. 3 Based on the average of the shares outstanding. 4 Less than $0.01 per share. 5 Assumes dividend reinvestment. 6 Not annualized. 7 Total return would have been lower had certain expenses not been reduced during the period shown. 8 Annualized. 9 Does not take into consideration expense reductions during the period shown. 10 Excludes merger activity. See notes to financial statements.
NOTES TO FINANCIAL STATEMENTS UNAUDITED NOTE A Accounting policies John Hancock V. A. Financial Industries Fund (the "Fund") is a diversified series of John Hancock Declaration Trust (the "Trust"), an open-end investment management company registered under the Investment Company Act of 1940. The Trustees may authorize the creation of additional series from time to time to satisfy various investment objectives. An insurance company issuing a Variable Contract that participates in the Trust will vote shares of the Fund held by the insurance company's separate accounts as required by law. In accordance with current law and interpretations thereof, participating insurance companies are required to request voting instructions from policy owners and must vote shares of the Fund in proportion to the voting instructions received. The investment objective of the Fund is to seek capital appreciation. The Fund has one class of shares with equal rights as to voting, redemption, dividends and liquidation. Significant accounting policies of the Fund are as follows: Valuation of investments Securities in the Fund's portfolio are valued on the basis of market quotations, valuations provided by independent pricing services or at fair value as determined in good faith in accordance with procedures approved by the Trustees. Short-term debt investments maturing within 60 days are valued at amortized cost, which approximates market value. All portfolio transactions initially expressed in terms of foreign currencies have been translated into U.S. dollars as described in "Foreign currency translation" below. Joint repurchase agreement Pursuant to an exemptive order issued by the Securities and Exchange Commission, the Fund, along with other registered investment companies having a management contract with John Hancock Advisers, LLC (the "Adviser"), a wholly owned subsidiary of The Berkeley Financial Group, LLC, may participate in a joint repurchase agreement transaction. Aggregate cash balances are invested in one or more large repurchase agreements, whose underlying securities are obligations of the U.S. government and/or its agencies. The Fund's custodian bank receives delivery of the underlying securities for the joint account on the Fund's behalf. The Adviser is responsible for ensuring that the agreement is fully collateralized at all times. Foreign currency translation All assets or liabilities initially expressed in terms of foreign currencies are translated into U.S. dollars based on London currency exchange quotations as of 5:00 p.m., London time, on the date of any determination of the net asset value of the Fund. Transactions affecting statement of operations accounts and net realized gain (loss) on investments are translated at the rates prevailing at the dates of the transactions. The Fund does not isolate that portion of the results of operations resulting from changes in foreign exchange rates on investments from the fluctuations arising from changes in market prices of securities held. Such fluctuations are included with the net realized and unrealized gain or loss from investments. Reported net realized foreign exchange gains or losses arise from sales of foreign currency, currency gains or losses realized between the trade and settlement dates on securities transactions and the difference between the amounts of dividends, interest and foreign withholding taxes recorded on the Fund's books and the U.S. dollar equivalent of the amounts actually received or paid. Net unrealized foreign exchange gains and losses arise from changes in the value of assets and liabilities, other than investments in securities, resulting from changes in the exchange rates. Investment transactions Investment transactions are recorded as of the date of purchase, sale or maturity. Net realized gains and losses on sales of investments are determined on the identified cost basis. Capital gains realized on some foreign securities are subject to foreign taxes, which are accrued as applicable. Expenses The majority of the expenses are directly identifiable to an individual fund. Expenses that are not readily identifiable to a specific fund will be allocated in such a manner as deemed equitable, taking into consideration, among other things, the nature and type of expense and the relative sizes of the funds. Bank borrowings The Fund is permitted to have bank borrowings for temporary or emergency purposes, including the meeting of redemption requests that otherwise might require the untimely disposition of securities. The Fund has entered into a syndicated line of credit agreement with various banks. This agreement enables the Fund to participate with other funds managed by the Adviser in an unsecured line of credit with banks, which permit borrowings up to $475 million, collectively. Interest is charged to each fund, based on its borrowing. In addition, a commitment fee is charged to each fund based on the average daily unused portion of the line of credit and is allocated among the participating funds. The Fund had no borrowing activity under the line of credit during the period ended June 30, 2002. Securities lending The Fund may lend securities to certain qualified brokers who pay the Fund negotiated lender fees. These fees are included in interest income. The loans are collateralized at all times with cash or securities with a market value at least equal to the market value of the securities on loan. As with other extensions of credit, the Fund may bear the risk of delay of the loaned securities in recovery or even loss of rights in the collateral, should the borrower of the securities fail financially. On June 30, 2002, the Fund loaned securities having a market value of $365,634 collateralized by securities in the amount of $372,947. The cash collateral was invested in a short-term instrument. Federal income taxes The Fund qualifies as a "regulated investment company" by complying with the applicable provisions of the Internal Revenue Code and will not be subject to federal income tax on taxable income that is distributed to shareholders. Therefore, no federal income tax provision is required. For federal income tax purposes, the Fund has $1,143,472 of a capital loss carryforward available, to the extent provided by regulations, to offset future net realized capital gains. To the extent that such carryforward is used by the Fund, no capital gain distributions will be made. The entire amount of the loss carryforward expires December 31, 2008. Dividends, interest and distributions Dividend income on investment securities is recorded on the ex-dividend date or, in the case of some foreign securities, on the date thereafter when the Fund identifies the dividend. Interest income on investment securities is recorded on the accrual basis. Foreign income may be subject to foreign withholding taxes, which are accrued as applicable. The Fund records distributions to shareholders from net investment income and realized gains on the ex-dividend date. Such distributions on a tax basis are determined in conformity with income tax regulations, which may differ from accounting principles generally accepted in the United States of America. Distributions in excess of tax basis earnings and profits, if any, are reported in the Fund's financial statements as a return of capital. Use of estimates The preparation of these financial statements, in accordance with accounting principles generally accepted in the United States of America, incorporates estimates made by management in determining the reported amount of assets, liabilities, revenues and expenses of the Fund. Actual results could differ from these estimates. NOTE B Management fee and transactions with affiliates and others The Fund has an investment management contract with the Adviser. Under the investment management contract, the Fund pays a monthly management fee to the Adviser at an annual rate of 0.80% of the Fund's average daily net asset value. The Adviser has agreed to limit the Fund's expenses, excluding the management fee, to 0.25% of the Fund's average daily net assets, at least until April 30, 2003. There was no expense reduction for the period ended June 30, 2002. The Adviser reserves the right to terminate this limitation in the future. The Fund has an agreement with the Adviser to perform necessary tax, accounting and legal services for the Fund. The compensation for the period was at an annual rate of 0.02% of the average net assets of the Fund. Ms. Maureen R. Ford and Mr. John M. DeCiccio are directors and/or officers of the Adviser and/or its affiliates, as well as Trustees of the Fund. The compensation of unaffiliated Trustees is borne by the Fund. The unaffiliated Trustees may elect to defer for tax purposes their receipt of this compensation under the John Hancock Group of Funds Deferred Compensation Plan. The Fund makes investments into other John Hancock funds, as applicable, to cover its liability for the deferred compensation. Investments to cover the Fund's deferred compensation liability are recorded on the Fund's books as an other asset. The deferred compensation liability and the related other asset are always equal and are marked to market on a periodic basis to reflect any income earned by the investment as well as any unrealized gains or losses. The Deferred Compensation Plan investments had no impact on the operations of the Fund. NOTE C Fund share transactions This listing illustrates the number of Fund shares sold, reinvested and repurchased during the last two periods, along with the corresponding dollar value. The Fund has an unlimited number of shares authorized with no par value.
YEAR ENDED 12-31-01 PERIOD ENDED 6-30-02 1 SHARES AMOUNT SHARES AMOUNT Shares sold 1,981,835 $42,063,445 174,220 $2,512,719 Issued in reorganization 675,457 9,888,426 -- -- Distributions reinvested 225,879 3,239,111 -- -- Repurchased (666,362) (20,261,086) (597,929) (8,503,710) NET INCREASE (DECREASE) 2,216,809 $34,929,896 (423,709) ($5,990,991) 1 Semiannual period from 1-1-02 through 6-30-02. Unaudited.
NOTE D Investment transactions Purchases and proceeds from sales of securities, other than short-term securities and obligations of the U.S. government, during the period ended June 30, 2002, aggregated $533,634 and $4,680,708, respectively. The cost of investments owned on June 30, 2002, including short-term investments, for federal income tax purposes was $80,676,901. Gross unrealized appreciation and depreciation of investments aggregated $4,633,620 and $10,084,633, respectively, resulting in net unrealized depreciation of $5,451,013. The difference between book basis and tax basis net unrealized depreciation of investments is attributable primarily to the tax deferral of losses on wash sales. NOTE E Reorganization On December 5, 2001, the shareholders of John Hancock V. A. Regional Bank Fund ("V.A. Regional Bank Fund") approved a plan of reorganization between V. A. Regional Bank Fund and the Fund providing for the transfer of substantially all of the assets and liabilities of the V. A. Regional Bank Fund to the Fund in exchange solely for shares of beneficial interest in the Fund. The acquisition of the V. A. Regional Bank Fund was accounted for as a tax-free exchange of 675,457 shares of the Fund for the net assets of V. A. Regional Bank Fund, which amounted to $9,888,426, including $523,082 of unrealized appreciation, after the close of business on December 14, 2001. JOHN HANCOCK FUNDS DECLARATION TRUST SEMIANNUAL REPORT [LOGO] John Hancock [Rings] World Wide Sponsor John Hancock Funds, LLC MEMBER NASD 101 Huntington Avenue Boston, MA 02199-7603 1-800-225-5291 1-800-554-6713 TDD 1-800-338-8080 EASI-Line www.jhfunds.com Mutual Funds Institutional Services Private Managed Accounts Retirement Plans This report is for the information of the shareholders of the Hancock V.A. Financial Industries Fund. NOT FDIC INSURED MAY LOSE VALUE NO BANK GUARANTEE 828SA 6/02 8/02 SEMI ANNUAL REPORT John Hancock V.A. Technology Fund A series of John Hancock Declaration Trust 6.30.02 [A 2" x 1" John Hancock (Signature)/John Hancock Funds logo at bottom left center of page. A tag line below reads "JOHN HANCOCK FUNDS."] FOR YOUR INFORMATION TRUSTEES Dennis S. Aronowitz Richard P. Chapman, Jr. William J. Cosgrove John M. DeCiccio Richard A. Farrell* Maureen R. Ford Gail D. Fosler* William F. Glavin Dr. John A. Moore* Patti McGill Peterson John W. Pratt *Members of the Audit Committee OFFICERS Maureen R. Ford Chairman, President and Chief Executive Officer William L. Braman Executive Vice President and Chief Investment Officer Richard A. Brown Senior Vice President and Chief Financial Officer Susan S. Newton Senior Vice President and Secretary William H. King Vice President and Treasurer Thomas H. Connors Vice President and Compliance Officer CUSTODIAN The Bank of New York One Wall Street New York, New York 10286 TRANSFER AGENT John Hancock Signature Services, Inc. 529 Main Street Charlestown, Massachusetts 02129 INVESTMENT ADVISER John Hancock Advisers, LLC 101 Huntington Avenue Boston, Massachusetts 02199-7603 SUB-INVESTMENT ADVISER American Fund Advisors, Inc. 1415 Kellum Place Garden City, New York 11530 INSURANCE PRODUCTS ISSUER John Hancock Life Insurance Company, John Hancock Variable Life Insurance Company* 200 Clarendon Street Boston, Massachusetts 02117 *Not licensed in New York FUND DISTRIBUTOR John Hancock Funds, LLC 101 Huntington Avenue Boston, Massachusetts 02199-7603 LEGAL COUNSEL Hale and Dorr LLP 60 State Street Boston, Massachusetts 02109-1803 HOW TO CONTACT US On the Internet www.jhancock.com By regular mail John Hancock Signature Services, Inc. 529 Main Street Charlestown, Massachusetts 02129 Customer service representatives 1-800-225-5291 24-hour automated information 1-800-338-8080 WELCOME [A photo of Maureen R. Ford, Chairman and CEO, flush right next to first paragraph.] Dear Shareholders, The first half of 2002 has been an extremely difficult period for the stock market. A steady stream of accounting scandals and corporate misdeeds has shaken investors' faith in corporate America. Plus, questions about the strength of the economic rebound and prospects for corporate earnings have hung over the financial markets, along with increased fears about Middle East tensions and terrorism. With all these concerns, the major stock market indexes have fallen significantly. In the first six months of 2002, the broad Standard & Poor's 500 Index is down 13%, the Dow Jones Industrial Average is off 7% and the technology-laden Nasdaq Composite Index has fallen 25%. Investors in equity mutual funds have been unable to escape the market's descent, as 89% of all U.S. diversified equity funds have produced negative results in the first six months of 2002, according to Lipper, Inc., and the average equity fund has lost 11.67%. Bonds, on the other hand, outperformed stocks and gained some ground, as often happens when investors seek safer havens. At such trying times as these, the impulse to flee is understandable, especially after the negative stock market returns in 2000 and 2001. But we urge you to stay the course and keep a well-diversified portfolio and a longer-term investment perspective. Working with your investment professional on your long-term plan is especially critical in turbulent times. Financial markets have always moved in cycles, and even though the current down cycle is painful, it comes after five straight years of 20%-plus returns between 1995 and 1999. As discouraging as conditions may seem in the short term, history shows us that the bad times do pass. We believe that remains the case today. The economy is sound and the vast majority of U.S. corporations are honest institutions striving to do their best for their shareholders. And the efforts of both the private sector and the U.S. government should address the current issues of corporate governance, so that corporate credibility and therefore investor confidence are restored. Sincerely, /S/ MAUREEN R. FORD Maureen R. Ford, Chairman and Chief Executive Officer Table of contents Managers' Report page 4 A Look at Performance page 5 Growth of $10,000 page 5 Fund's Investments page 6 Financial Statements page 8 MANAGERS' REPORT [Photos of Barry Gordon, Marc Klee and Alan Loewenstein.] John Hancock V.A. Technology Fund BY BARRY J. GORDON, MARC H. KLEE, CFA, AND ALAN LOEWENSTEIN, CFA, PORTFOLIO MANAGERS By the beginning of 2002, technology stocks seemingly had emerged from the grips of a bruising two-year bear market, on hopes that the economy would stage a rebound in 2002 and loosen the purse strings of both consumers and businesses. But even though the economic news steadily improved during the first six months of this year, the entire stock market struggled amid heightened market volatility. As investors fretted over the direction of the economy, the threat of higher interest rates, rising oil prices, corporate accounting practices and the conflict in the Middle East, tech stocks enjoyed several bouts of success. But as quickly as they started to look good, they fell out of favor and declined significantly for several reasons. First, the much-anticipated increase in corporate spending never materialized. Plus, several industry bellwether companies didn't deliver the first-quarter top-line results that Wall Street had hoped. Influential companies such as Microsoft, IBM, Oracle, Sun Microsystems and telecom giant AT&T confirmed that demand for technology had weakened as the pent-up demand in the post-September 11 period was satisfied. As a result, while earnings generally hit expectations, revenues fell short and expectations for future periods were lowered. Concerns about future earnings were exacerbated by concerns that a hoped-for strong economic rebound seemed less likely. That, coupled with worries about corporate accounting practices and corporate governance issues, brought tremendous pressure on the entire stock market, with tech stocks typically leading on the way down. FUND PERFORMANCE For the six-month period ended June 30, 2002, John Hancock V.A. Technology Fund posted a total return of -38.78% at net asset value. That compared with the -33.76% return of the average open-end science and technology fund and the -22.90% return of the average variable annuity specialty miscellaneous fund, according to Lipper, Inc. SLACK DEMAND HURTS TECH Ordinarily, an economic backdrop characterized by signs that a gradual recovery was finally underway would have helped boost technology stocks. But this time was different, because technology spending remained spotty, and was weaker than tech companies had predicted and investors had hoped. These difficult demand conditions weighed heavily on some software stocks, including VERITAS and Siebel Systems. [Table at bottom right hand column entitled "Top five holdings." The first listing is Dell Computer 4.7%, the second is KLA-Tencor 4.2%, the third Cisco Systems 4.1%, the fourth Microsoft 4.0% and the fifth Micron Technology 3.5%. A note below the table reads "As a percentage of net assets on 6-30-02."] INTERNET, TELECOM-RELATED HOLDINGS STRUGGLE The volatile market was particularly hard on Internet- and telecommunications-related companies. One of our biggest disappointments during the period was AOL Time Warner, the world's largest Internet and media company. It was hurt by a combination of a difficult advertising climate and slowing Internet subscriber growth. Like other telecommunications equipment firms, wireless technology company QUALCOMM suffered from the sluggish economy and lower industry spending. Other communications equipment companies -- including JDS Uniphase -- also struggled during the period. That said, one of the brightest spots of the portfolio was online retailer Amazon.com. Its stock soared after it announced in April that its first quarter losses were smaller than expected due to better sales and productivity improvements. SEMICONDUCTOR STOCKS RALLY, THEN FADE Throughout the period, the Fund remained well-diversified, with a focus on technology companies that historically have reaped the biggest benefits from an economic recovery. In particular, semiconductor chipmakers and semiconductor equipment stocks -- which generally outpaced the tech group overall during much of the period -- made up roughly one-third of net assets. As the economy improved, customers of these companies increased orders in an effort to replenish depleted inventories, and semiconductor-related stocks rallied. But when the economy's strength was called into doubt in May, these stocks started to lose ground. A few semiconductor holdings enjoyed positive gains and others suffered only modest losses, which says a lot for them, given the negative investment environment for tech stocks. Among our best-performing stocks in these groups were KLA-Tencor and Applied Materials, each leading manufacturers of equipment used in the production of semiconductor chips. In contrast, other holdings -- such as Micron Technology, a major producer of dynamic random access memory chips (DRAM), Cypress Semiconductor, Analog Devices, and Integrated Device Technology -- experienced significant declines. OUTLOOK We believe that technology stocks will perform better in the second half of 2002. A reasonable economic recovery should shore up demand for tech products. Furthermore, many tech companies have pared their expenses, positioning themselves to post surprisingly strong earnings when demand firms. We also expect the corporate personal computer upgrade cycle to begin later this year, and earnings comparisons to get much easier. With semiconductors and semiconductor equipment stocks at the beginning of what usually is an 18-month cycle, tech stock valuations appear to be at reasonable levels. That said, we think that the tech sector will have to contend with above-average volatility until earnings and the economy show sustained signs of improvement and investor confidence is restored. This commentary reflects the views of the portfolio managers through the end of the Fund's period discussed in this report. Of course, the managers' views are subject to change as market and other conditions warrant. Sector investing is subject to greater risks than the market as a whole. A LOOK AT PERFORMANCE For the period ended 6-30-02 Cumulative total returns Six months -38.78% One year -52.37% Since inception (5-1-00) -74.85% Average annual total returns One year -52.37% Since inception (5-1-00) -47.15% Total return measures the change in value of an investment from the beginning to the end of a period, assuming all distributions were reinvested. Performance figures reflect the effect of investment-related charges on the underlying funds, but do not include insurance and other charges levied at the separate account level. All figures represent past performance and are no guarantee of future results. Keep in mind that the total return and share price of the Fund's investments will fluctuate. As a result, your Fund's shares may be worth more or less than their original cost, depending on when you sell them. The Fund's performance results reflect any applicable expense reductions, without which the expenses would increase and results would have been less favorable. These reductions can be terminated in the future. See the prospectus for details. GROWTH OF $10,000 The chart to the left shows how much a $10,000 investment in the John Hancock V.A. Technology Fund would be worth, assuming all distributions were reinvested for the period indicated. For comparison, we've shown the same $10,000 invest- ment in two indexes: Standard & Poor's 500 Index, an unman aged index that includes 500 widely traded common stocks and is often used as a meas ure of stock market performance Russell 3000 Technology Index, a capitaliza tion-weighted index composed of companies that serve the electronics and computer industries. It is not possible to invest in an index. Line chart with the heading John Hancock V.A. Technology Fund 5-1-00 - 6-30-02, representing the growth of a hypothetical $10,000 investment over the life of the fund. Within the chart are three lines. The first line represents the Standard & Poor's 500 Index and is equal to $7,012 as of June 30, 2002. The second line represents the Russell 3000 Technology Index and is equal to $2,743 as of June 30, 2002. The third line represents the value of the hypothetical $10,000 investment made in the John Hancock V.A. Technology Fund on May 1, 2000 and is equal to $2,515 as of June 30, 2002. FINANCIAL STATEMENTS Fund's Investments Securities owned by the Fund on 6-30-02 UNAUDITED
SHARES ISSUER VALUE COMMON STOCKS 88.22% $12,157,811 (Cost $26,440,263) Aerospace/Aircraft Equipment 1.25% $171,650 100 MTC Technologies, Inc.* 1,900 2,500 United Technologies Corp. 169,750 Computer -- Graphics 2.22% 306,280 19,000 Cadence Design Systems, Inc.* 306,280 Computer -- Internet Security 2.38% 327,590 17,000 Networks Associates, Inc.* 327,590 Computer -- Internet Services 2.27% 313,370 15,000 Amazon.com, Inc.* 243,750 14,000 Infospace, Inc.* 6,300 22,000 Inktomi Corp.* 19,360 28,000 ScreamingMedia, Inc.* 43,960 Computer -- Memory Devices 6.98% 961,425 10,000 Brocade Communications Systems, Inc.* 174,800 33,000 EMC Corp.* 249,150 10,000 Emulex Corp.* 225,100 12,500 VERITAS Software Corp.* 247,375 20,000 Western Digital Corp.* 65,000 Computer -- Micro/Macro 6.26% 863,118 24,500 Dell Computer Corp.* 640,430 7,590 Hewlett-Packard Co. 115,975 21,300 Sun Microsystems, Inc.* 106,713 Computer -- Networking 4.28% 590,220 40,000 Cisco Systems, Inc.* 558,000 18,000 Redback Networks, Inc.* 32,220 Computer -- Services 3.54% 488,500 10,000 Electronic Data Systems Corp. 371,500 13,000 Unisys Corp.* 117,000 Computer -- Software 14.50% 1,998,910 5,000 Activision, Inc.* 145,300 30,000 BEA Systems, Inc.* 285,300 22,000 Citrix Systems, Inc.* 132,880 27,000 i2 Technologies, Inc.* 39,960 15,500 Mercury Interactive Corp.* 355,880 10,000 Microsoft Corp.* 547,000 35,000 Parametric Technology Corp.* 120,050 26,000 Rational Software Corp.* 213,460 12,000 SeeBeyond Technology Corp.* 37,200 12,000 TIBCO Software, Inc.* 66,720 28,000 Vignette Corp.* 55,160 Electronics -- Components Misc. 3.33% 458,650 35,000 Flextronics International Ltd.* (Singapore) 249,550 34,000 Solectron Corp.* 209,100 Electronics -- Semiconductor Components 31.31% 4,315,198 107 Agere Systems, Inc. (Class A)* 150 2,645 Agere Systems, Inc. (Class B)* 3,968 15,000 Altera Corp.* 204,000 36,000 Amkor Technology, Inc.* 223,920 13,000 Analog Devices, Inc.* 386,100 25,000 Applied Materials, Inc.* 475,500 13,000 ASM Lithography Holding N.V.* (Netherlands) 196,560 12,150 Conexant Systems, Inc.* 19,683 27,000 Cypress Semiconductor Corp.* 409,860 18,500 Integrated Device Technology, Inc.* 335,590 7,500 Intel Corp. 137,025 13,000 KLA-Tencor Corp.* 571,870 24,000 Micron Technology, Inc.* 485,280 15,500 MKS Instruments, Inc.* 311,085 11,000 RF Micro Devices, Inc.* 83,820 4,264 Skyworks Solutions, Inc. 23,665 34,394 Taiwan Semiconductor Manufacturing Co. Ltd.* American Depository Receipt (ADR) (Taiwan) 447,122 Fiber Optics 2.45% 337,510 26,000 Aeroflex, Inc.* 180,700 38,000 Finisar Corp.* 90,060 25,000 JDS Uniphase Corp.* 66,750 Media -- Cable TV 2.35% 323,620 22,000 AOL Time Warner, Inc.* 323,620 Telecom -- Equipment 5.05% 695,470 10,000 Lucent Technologies, Inc. 16,600 26,000 Nokia Corp. (ADR) (Finland) 376,480 11,000 QUALCOMM, Inc.* 302,390 Telecom -- Services 0.05% 6,300 9,000 Primus Telecommunications Group, Inc. * 6,300 RIGHTS 0.00% 0 (Cost $0) 5,200 Seagate Technology, Inc.* 0 ISSUER, DESCRIPTION, INTEREST PAR VALUE MATURITY DATE RATE (000s OMITTED) VALUE SHORT-TERM INVESTMENTS 20.45% $2,818,981 (Cost $2,818,981) Joint Repurchase Agreement 12.20% Investment in a joint repurchase agreement transaction with Barclays Capital, Inc. -- Dated 06-28-02, due 07-01-02 (Secured by U.S. Treasury Inflation Indexed Bonds, 3.375% thru 3.875%, due 04-15-29 thru 04-15-32 and U.S. Treasury Inflation Indexed Notes, 3.625% thru 3.875% due 07-15-02 thru 01-15-09) 1.92% $1,682 1,682,000 SHARES ISSUER VALUE Cash Equivalents 8.25% 1,136,981 AIM Cash Investment Trust** 1,136,981 TOTAL INVESTMENTS 108.67% $14,976,792 OTHER ASSETS AND LIABILITIES, NET (8.67%) ($1,195,453) TOTAL NET ASSETS 100.00% $13,781,339 * Non-income producing security. ** Represents investments of security lending collateral. Parenthetical disclosure of a foreign country in the security description represents country of foreign issuer. The percentage shown for each investment category is the total value of that category as a percentage of the net assets of the Fund. PORTFOLIO CONCENTRATION June 30, 2002 VALUE AS A % COUNTRY DIVERSIFICATION OF FUND NET ASSETS Finland 2.73% Netherlands 1.43 Singapore 1.81 Taiwan 3.24 United States 99.46 Total investments 108.67% See notes to financial statements.
Statement of Assets and Liabilities 6-30-02 UNAUDITED ASSETS Investments at value (cost $27,577,244) $13,294,792 Joint repurchase agreement (cost $1,682,000) 1,682,000 Cash 821 Dividends and interest receivable 876 Other assets 181 Total assets 14,978,670 LIABILITIES Payable for investments purchased 1,700 Payable for written call options (premium received $15,792) 6,500 Payable for securities on loan 1,136,981 Payable to affiliates 26,812 Other payables and accrued expenses 25,338 Total liabilities 1,197,331 NET ASSETS Capital paid-in 36,619,231 Accumulated net realized loss on investments and written options (8,496,155) Net unrealized depreciation of investments and written options (14,273,160) Accumulated net investment loss (68,577) Net assets $13,781,339 NET ASSET VALUE PER SHARE Based on 5,485,264 shares of beneficial interest outstanding -- unlimited number of shares authorized with no par value $2.51 Statement of Operations For the period ended 6-30-02 UNAUDITED 1 INVESTMENT INCOME Dividends (net of foreign withholding taxes of $922) $10,741 Interest 14,721 Securities lending income 5,547 Total investment income 31,009 EXPENSES Investment management fee 79,358 Custodian fee 7,225 Auditing fee 5,784 Printing 3,501 Accounting and legal services fee 2,100 Miscellaneous 766 Trustees' fee 658 Legal fee 146 Registration and filing fee 2 Total expenses 99,540 Net investment loss (68,531) REALIZED AND UNREALIZED GAIN (LOSS) Net realized gain (loss) on Investments (3,476,583) Written options 18,401 Change in unrealized depreciation of Investments (5,293,987) Written options 977 Net realized and unrealized loss (8,751,192) Decrease in net assets from operations ($8,819,723) 1 Semiannual period from 1-1-02 through 6-30-02. See notes to financial statements. Statement of Changes in Net Assets YEAR PERIOD ENDED ENDED 12-31-01 6-30-02 1 INCREASE (DECREASE) IN NET ASSETS From operations Net investment loss ($80,331) ($68,531) Net realized loss (4,844,378) (3,458,182) Change in net unrealized appreciation (depreciation) (5,091,058) (5,293,010) Decrease in net assets resulting from operations (10,015,767) (8,819,723) Distributions to shareholders From net investment income (1,272) -- From fund share transactions 17,904,330 671,727 NET ASSETS Beginning of period 14,042,044 21,929,335 End of period 2 $21,929,335 $13,781,339 1 Semiannual period from 1-1-02 through 6-30-02. Unaudited. 2 Includes accumulated net investment loss of $46 and $68,577, respectively. See notes to financial statements.
Financial Highlights 12-31-00 1 12-31-01 6-30-02 2 PER SHARE OPERATING PERFORMANCE Net asset value, beginning of period $10.00 $7.33 $4.10 Net investment income (loss) 3 0.03 (0.02) (0.01) Net realized and unrealized loss on investments (2.69) (3.21) (1.58) Total from investment operations (2.66) (3.23) (1.59) Less distributions: From net investment income (0.01) -- 4 -- Net asset value, end of period $7.33 $4.10 $2.51 Total return 5,6 (%) (26.56) 7 (44.06) (38.78)7 RATIOS AND SUPPLEMENTAL DATA Net assets, end of period (in millions) $14 $22 $14 Ratio of expenses to average net assets % 1.05 8 1.05 1.00 8 Ratio of adjusted expenses to average net assets 9 % 1.99 8 1.08 -- Ratio of net investment income (loss) to average net assets % 0.62 8 (0.45) (0.69) 8 Portfolio turnover % 75 29 17 1 Began operations on 5-1-00. 2 Semiannual period from 1-1-02 through 6-30-02. Unaudited. 3 Based on the average of the shares outstanding. 4 Less than 0.01 per share. 5 Assumes dividend reinvestment. 6 Total returns would have been lower had certain expenses not been reduced during the periods shown. 7 Not annualized. 8 Annualized. 9 Does not take into consideration expense reductions during the period shown. See notes to financial statements.
NOTES TO FINANCIAL STATEMENTS UNAUDITED NOTE A Accounting policies John Hancock V.A. Technology Fund (the "Fund") is a diversified series of John Hancock Declaration Trust (the "Trust"), an open-end investment management company registered under the Investment Company Act of 1940. The Trustees may authorize the creation of additional series from time to time to satisfy various investment objectives. An insurance company issuing a Variable Contract that participates in the Trust will vote shares of the Fund held by the insurance company's separate accounts as required by law. In accordance with current law and interpretations thereof, participating insurance companies are required to request voting instructions from policy owners and must vote shares of the Fund in proportion to the voting instructions received. The investment objective of the Fund is to seek long-term growth of capital. The Fund has one class of shares with equal rights as to voting, redemption, dividends and liquidation. Significant accounting policies of the Fund are as follows: Valuation of investments Securities in the Fund's portfolio are valued on the basis of market quotations, valuations provided by independent pricing services or at fair value as determined in good faith in accordance with procedures approved by the Trustees. Short-term debt investments maturing within 60 days are valued at amortized cost, which approximates market value. Joint repurchase agreement Pursuant to an exemptive order issued by the Securities and Exchange Commission, the Fund, along with other registered investment companies having a management contract with John Hancock Advisers, LLC (the "Adviser"), a wholly owned subsidiary of The Berkeley Financial Group, LLC, may participate in a joint repurchase agreement transaction. Aggregate cash balances are invested in one or more large repurchase agreements, whose underlying securities are obligations of the U.S. government and/or its agencies. The Fund's custodian bank receives delivery of the underlying securities for the joint account on the Fund's behalf. The Adviser is responsible for ensuring that the agreement is fully collateralized at all times. Investment transactions Investment transactions are recorded as of the date of purchase, sale or maturity. Net realized gains and losses on sales of investments are determined on the identified cost basis. Expenses The majority of the expenses are directly identifiable to an individual fund. Expenses that are not readily identifiable to a specific fund will be allocated in such a manner as deemed equitable, taking into consideration, among other things, the nature and type of expense and the relative sizes of the funds. Bank borrowings The Fund is permitted to have bank borrowings for temporary or emergency purposes, including the meeting of redemption requests that otherwise might require the untimely disposition of securities. The Fund has entered into a syndicated line of credit agreement with various banks. This agreement enables the Fund to participate with other funds managed by the Adviser in an unsecured line of credit with banks, which permit borrowings up to $475 million, collectively. Interest is charged to each fund, based on its borrowing. In addition, a commitment fee is charged to each fund based on the average daily unused portion of the line of credit and is allocated among the participating funds. The Fund had no borrowing activity under the line of credit during the period ended June 30, 2002. Options The Fund may enter into option contracts. Listed options will be valued at the last quoted sales price on the exchange on which they are primarily traded. Over-the-counter options are valued at the mean between the last bid and asked prices. Upon the writing of a call or put option, an amount equal to the premium received by the Fund will be included in the Statement of Assets and Liabilities as an asset and corresponding liability. The amount of the liability will be subsequently marked to market to reflect the current market value of the written option. The Fund may use option contracts to manage its exposure to the price volatility of financial instruments. Writing puts and buying calls will tend to increase the Fund's exposure to the underlying instrument and buying puts and writing calls will tend to decrease the Fund's exposure to the underlying instrument, or hedge other Fund investments. The maximum exposure to loss for any purchased options will be limited to the premium initially paid for the option. In all other cases, the face (or "notional") amount of each contract at value will reflect the maximum exposure of the Fund in these contracts, but the actual exposure will be limited to the change in value of the contract over the period the contract remains open. Risks may also arise if counterparties do not perform under the contracts' terms ("credit risk") or if the Fund is unable to offset a contract with a counterparty on a timely basis ("liquidity risk"). Exchange-traded options have minimal credit risk as the exchanges act as counterparties to each transaction, and only present liquidity risk in highly unusual market conditions. To minimize credit and liquidity risks in over-the-counter option contracts, the Fund will continuously monitor the creditworthiness of all its counterparties. At any particular time, except for purchased options, market or credit risk may involve amounts in excess of those reflected in the Fund's year-end statements of assets and liabilities. Written options for the period ended June 30, 2002 were as follows: NUMBER OF OPTIONS CONTRACTS PREMIUMS RECEIVED Outstanding, beginning of period 70 $12,570 Written 200 21,623 Expired (170) (18,401) Outstanding, end of period 100 $15,792 Summary of written options outstanding on June 30, 2002: NAME OF NUMBER OF EXERCISE EXPIRATION ISSUER CONTRACTS PRICE DATE VALUE CALLS Brocade 100 $20 July 02 $6,500 Total $6,500 Securities lending The Fund may lend securities to certain qualified brokers who pay the Fund negotiated lender fees. The loans are collateralized at all times with cash or securities with a market value at least equal to the market value of the securities on loan. As with other extensions of credit, the Fund may bear the risk of delay of the loaned securities in recovery or even loss of rights in the collateral, should the borrower of the securities fail financially. On June 30, 2002, the Fund loaned securities having a market value of $1,114,687 collateralized by securities in the amount of $1,136,981. The cash collateral was invested in a short-term investment. Federal income taxes The Fund qualifies as a "regulated investment company" by complying with the applicable provisions of the Internal Revenue Code and will not be subject to federal income tax on taxable income that is distributed to shareholders. Therefore, no federal income tax provision is required. For federal income tax purposes, the Fund has $3,722,037 of a capital loss carryforward available, to the extent provided by regulations, to offset future net realized capital gains. To the extent that such carryforward is used by the Fund, no capital gain distributions will be made. The loss carryforward expires as follows: December 31, 2008 -- $14,000, and December 31, 2009 -- $3,708,037. Dividends, interest and distributions Dividend income on investment securities is recorded on the ex-dividend date or, in the case of some foreign securities, on the date thereafter when the Fund identifies the dividend. Interest income on investment securities is recorded on the accrual basis. Foreign income may be subject to foreign withholding taxes, which are accrued as applicable. The Fund records distributions to shareholders from net investment income and realized gains on the ex-dividend date. Such distributions on a tax basis are determined in conformity with income tax regulations, which may differ from accounting principles generally accepted in the United States of America. Distributions in excess of tax basis earnings and profits, if any, are reported in the Fund's financial statements as a return of capital. Use of estimates The preparation of these financial statements, in accordance with accounting principles generally accepted in the United States of America, incorporates estimates made by management in determining the reported amount of assets, liabilities, revenues and expenses of the Fund. Actual results could differ from these estimates. NOTE B Management fee and transactions with affiliates and others The Fund has an investment management contract with the Adviser. Under the investment management contract, the Fund pays a monthly management fee to the Adviser at an annual rate of 0.80% of the Fund's average daily net asset value. The Adviser has a subadvisory agreement with American Fund Advisors, Inc. The Fund is not responsible for payment of the subadvisory fees. The Adviser has agreed to limit the Fund's expenses, excluding the management fee, to 0.25% of the Fund's average daily net assets, at least until April 30, 2003. There was no expense reduction for the period ended June 30, 2002. The Adviser reserves the right to terminate this limitation in the future. The Fund has an agreement with the Adviser to perform necessary tax, accounting and legal services for the Fund. The compensation for the period was at an annual rate of 0.02% of the average net assets of the Fund. Ms. Maureen R. Ford and Mr. John M. DeCiccio are directors and/or officers of the Adviser and/or its affiliates, as well as Trustees of the Fund. The compensation of unaffiliated Trustees is borne by the Fund. The unaffiliated Trustees may elect to defer for tax purposes their receipt of this compensation under the John Hancock Group of Funds Deferred Compensation Plan. The Fund makes investments into other John Hancock funds, as applicable, to cover its liability for the deferred compensation. Investments to cover the Fund's deferred compensation liability are recorded on the Fund's books as an other asset. The deferred compensation liability and the related other asset are always equal and are marked to market on a periodic basis to reflect any income earned by the investment as well as any unrealized gains or losses. The Deferred Compensation Plan investments had no impact on the operations of the Fund. NOTE C Fund share transactions This listing illustrates the number of Fund shares sold, reinvested and repurchased during the last two periods along with the corresponding dollar value.
YEAR ENDED 12-31-01 PERIOD ENDED 6-30-02 1 SHARES AMOUNT SHARES AMOUNT Shares sold 4,108,680 $21,017,046 708,627 $2,641,693 Distributions reinvested 296 1,272 -- -- Repurchased (677,090) (3,113,988) (571,503) (1,969,966) NET INCREASE 3,431,886 $17,904,330 137,124 $671,727 1 Semiannual period from 1-1-02 through 6-30-02. Unaudited.
NOTE D Investment transactions Purchases and proceeds from sales of securities other than short-term securities and obligations of the U.S. government, during the period ended June 30, 2002, aggregated $3,773,544 and $3,119,136, respectively. The cost of investments owned on June 30, 2002, including short-term investments, for federal income tax purposes was $29,338,001. Gross unrealized appreciation and depreciation of investments aggregated $104,240 and $14,465,449, respectively, resulting in net unrealized depreciation of $14,361,209. The difference between book basis and tax basis net unrealized depreciation of investments is attributable primarily to the tax deferral of losses on wash sales. JOHN HANCOCK FUNDS DECLARATION TRUST SEMIANNUAL REPORT [LOGO] John Hancock [Rings] World Wide Sponsor John Hancock Funds, LLC MEMBER NASD 101 Huntington Avenue Boston, MA 02199-7603 1-800-225-5291 1-800-554-6713 TDD 1-800-338-8080 EASI-Line www.jhfunds.com Mutual Funds Institutional Services Private Managed Accounts Retirement Plans This report is for the information of the shareholders of the John Hancock V.A. Technology Fund. NOT FDIC INSURED MAY LOSE VALUE NO BANK GUARANTEE 819SA 6/02 8/02 SEMI ANNUAL REPORT John Hancock V.A. Relative Value Fund A series of John Hancock Declaration Trust 6.30.02 [A 2" x 1" John Hancock (Signature)/John Hancock Funds logo at bottom left center of page. A tag line below reads "JOHN HANCOCK FUNDS."] FOR YOUR INFORMATION TRUSTEES Dennis S. Aronowitz Richard P. Chapman, Jr. William J. Cosgrove John M. DeCiccio Richard A. Farrell* Maureen R. Ford Gail D. Fosler* William F. Glavin Dr. John A. Moore* Patti McGill Peterson John W. Pratt *Members of the Audit Committee OFFICERS Maureen R. Ford Chairman, President and Chief Executive Officer William L. Braman Executive Vice President and Chief Investment Officer Richard A. Brown Senior Vice President and Chief Financial Officer Susan S. Newton Senior Vice President and Secretary William H. King Vice President and Treasurer Thomas H. Connors Vice President and Compliance Officer CUSTODIAN The Bank of New York One Wall Street New York, New York 10286 TRANSFER AGENT John Hancock Signature Services, Inc. 529 Main Street Charlestown, Massachusetts 02129 INVESTMENT ADVISER John Hancock Advisers, LLC 101 Huntington Avenue Boston, Massachusetts 02199-7603 INSURANCE PRODUCTS ISSUER John Hancock Life Insurance Company, John Hancock Variable Life Insurance Company* 200 Clarendon Street Boston, Massachusetts 02117 *Not licensed in New York FUND DISTRIBUTOR John Hancock Funds, LLC 101 Huntington Avenue Boston, Massachusetts 02199-7603 LEGAL COUNSEL Hale and Dorr LLP 60 State Street Boston, Massachusetts 02109-1803 HOW TO CONTACT US On the Internet www.jhancock.com By regular mail John Hancock Signature Services, Inc. 529 Main Street Charlestown, Massachusetts 02129 Customer service representatives 1-800-225-5291 24-hour automated information 1-800-338-8080 WELCOME [A photo of Maureen R. Ford, Chairman and CEO, flush right next to first paragraph.] Dear Shareholders, The first half of 2002 has been an extremely difficult period for the stock market. A steady stream of accounting scandals and corporate misdeeds has shaken investors' faith in corporate America. Plus, questions about the strength of the economic rebound and prospects for corporate earnings have hung over the financial markets, along with increased fears about Middle East tensions and terrorism. With all these concerns, the major stock market indexes have fallen significantly. In the first six months of 2002, the broad Standard & Poor's 500 Index is down 13%, the Dow Jones Industrial Average is off 7% and the technology-laden Nasdaq Composite Index has fallen 25%. Investors in equity mutual funds have been unable to escape the market's descent, as 89% of all U.S. diversified equity funds have produced negative results in the first six months of 2002, according to Lipper, Inc., and the average equity fund has lost 11.67%. Bonds, on the other hand, outperformed stocks and gained some ground, as often happens when investors seek safer havens. At such trying times as these, the impulse to flee is understandable, especially after the negative stock market returns in 2000 and 2001. But we urge you to stay the course and keep a well-diversified portfolio and a longer-term investment perspective. Working with your investment professional on your long-term plan is especially critical in turbulent times. Financial markets have always moved in cycles, and even though the current down cycle is painful, it comes after five straight years of 20%-plus returns between 1995 and 1999. As discouraging as conditions may seem in the short term, history shows us that the bad times do pass. We believe that remains the case today. The economy is sound and the vast majority of U.S. corporations are honest institutions striving to do their best for their shareholders. And the efforts of both the private sector and the U.S. government should address the current issues of corporate governance, so that corporate credibility and therefore investor confidence are restored. Sincerely, /S/ MAUREEN R. FORD Maureen R. Ford, Chairman and Chief Executive Officer Table of contents Managers' Report page 4 A Look at Performance page 5 Growth of $10,000 page 5 Fund's Investments page 6 Financial Statements page 7 BY PAUL J. BERLINGUET, ROBERT J. UEK, CFA, ROGER C. HAMILTON, AND JAMES S. YU, CFA, PORTFOLIO MANAGERS John Hancock V.A. Relative Value Fund MANAGERS' REPORT [Photos of Paul Berlinguet, Robert Uek, Roger Hamilton and James Yu.] Paul J. Berlinguet and Robert J. Uek recently joined the portfolio management team. Mr. Berlinguet has been with John Hancock for one year, before which he was at Baring America Asset Management. Mr. Uek has been at John Hancock for four years. They are also members of the management teams for John Hancock Large Cap Growth Fund and John Hancock Mid Cap Growth Fund. The stock market struggled during the first half of 2002, as accounting fraud at a succession of companies triggered a loss of confidence in corporate America. Geopolitical tensions, terrorism concerns and the weakening dollar added further pressures, causing investors to overlook more positive news about the economy. The Standard & Poor's 500 Index returned a disappointing -13.15% for the six months ended June 30, 2002. Technology and telecommunications were the worst-performing sectors, hurt by the continued downturn in corporate capital spending. Companies with high leverage (or debt) posted especially steep declines. By contrast, most consumer-related industries did well as consumer spending remained strong. PERFORMANCE REVIEW John Hancock V. A. Relative Value Fund's high stake in technology and telecom stocks, along with our investment in poorly performing pharmaceutical and media stocks, hurt performance. The Fund also had a below-average stake in the better-performing consumer staples sector where valuations looked high to us early in the year. Some of our best performers, however, came from this area, including CVS, a drug store chain that we subsequently sold, and McDonalds. These gains, however, were not enough to offset our losses. The Fund returned -33.90% at net asset value for the six months ended June 30, 2002, trailing the average variable annuity multi-cap value fund, which returned -8.37%, according to Lipper, Inc. STRATEGY REVISION The Fund maintained its focus on companies with improving fundamentals whose stocks seemed reasonably priced. Late in the spring, however, we implemented a more disciplined process to better control risk and reduce the volatility of returns going forward. We intensified our use of both quantitative screens and fundamental (or bottom-up) company research. We also began setting high and low price targets for each stock we own to improve our sell discipline. [Table at bottom right hand column entitled "Top five stock holdings." The first listing is Pharmacia 5.6%, the second is Citigroup 4.3%, the third Fannie Mae 3.6%, the fourth Gillette 3.3% and the fifth Liberty Media 3.1%. A note below the table reads "As a percentage of net assets on 6-30-02."] SALES IN TECH AND TELECOM Early in 2002, tech and telecom valuations looked attractive historically. As stock prices in these sectors continued to plummet during the first half of the year, however, we significantly pared our stake. We began selling major disappointments, such as Agere Systems, a highly-leveraged telecommunications equipment company, and Parametric Technology, a software design firm held back by weak corporate spending. However, we are keeping Nextel Communications, a wireless provider whose stock price tumbled even though the company met earnings expectations. CHANGES TO CONSUMER AND HEALTH-CARE We also reduced our consumer discretionary stake, selling out-of-favor, highly leveraged media stocks such as XM Satellite Radio and Pegasus Communications, a satellite television operator serving rural markets. We also trimmed our investment in AOL Time Warner, whose outlook and valuation were in question, and took profits in Cumulus Media, a radio company benefiting from increased efficiencies under new management. With the proceeds, we shifted toward more stable consumer companies, including traditional retailers, such as Target and Costco Wholesale, and select consumer staples, such as Gillette. In the health-care sector, our focus moved to higher quality pharmaceuticals, including Pfizer and Pharmacia, both of which had historically low valuations along with strong earnings growth prospects. We sold disappointments like Bristol-Myers Squibb, which tumbled following its decision to purchase ImClone Systems. We also pared our stake in Merck, which suffered as investors worried about its product pipeline and patent expirations. ADDITIONS TO FINANCIALS AND ENERGY We substantially increased our commitment to financials, adding large-cap stocks that benefit from low interest rates, such as Fannie Mae, the home financing agency, and insurers like American International Group, which should enjoy improved pricing. These names helped offset more market-sensitive investments, such as Citigroup, which has brokerage and merger and acquisition businesses. Another major addition was American Express, a company whose recent cost cuts should translate to the bottom line. We also increased our investment in energy, adding stable, well-known oil companies like Exxon Mobil that should see growing demand as the economy recovers. IMPROVED OUTLOOK We expect the economy to show gradual improvement in the second half of the year. Stable interest rates and relatively low unemployment should create a positive backdrop for stocks. However, we expect continued volatility until investor confidence, lost in the wake of recent accounting scandals, is restored. This commentary reflects the views of the portfolio managers through the end of the Fund's period discussed in this report. Of course, the managers' views are subject to change as market and other conditions warrant. A LOOK AT PERFORMANCE For the period ended 6-30-02 Cumulative total returns Six Months -33.90% One Year -39.32% Since inception (1-6-98) 16.29% Average annual total returns One Year -39.32% Since inception (1-6-98) 3.43% Total return measures the change in value of an investment from the beginning to the end of a period, assuming all distributions were reinvested. Performance figures reflect the effect of investment-related charges on the underlying funds, but do not include insurance and other charges levied at the separate account level. All figures represent past performance and are no guarantee of future results. Keep in mind that the total return and share price of the Fund's investments will fluctuate. As a result, your Fund's shares may be worth more or less than their original cost, depending on when you sell them. The Fund's performance results reflect any applicable expense reductions, without which the expenses would increase and results would have been less favorable. These reductions can be terminated in the future. See the prospectus for details. GROWTH OF $10,000 The chart to the left shows how much a $10,000 investment in the John Hancock V.A. Relative Value Fund would be worth, assuming all distributions were reinvested for the period indicated. For comparison, we've shown the same $10,000 investment in the Standard & Poor's 500 Index -- an unmanaged index that includes 500 widely traded common stocks and is often used as a measure of stock market performance. It is not possible to invest in an index. Line chart with the heading John Hancock V.A. Relative Value Fund 1-6-98 - 6-30-02, representing the growth of a hypothetical $10,000 investment over the life of the fund. Within the chart are two lines. The first line represents the value of the hypothetical $10,000 investment made in the John Hancock V.A. Relative Value Fund on January 6, 1998 and is equal to $11,629 as of June 30, 2002. The second line represents the Standard & Poor's 500 Index and is equal to $10,828 as of June 30, 2002. FINANCIAL STATEMENTS Fund's Investments Securities owned by the Fund on 6-30-02 UNAUDITED
SHARES ISSUER VALUE COMMON STOCKS 84.90% $34,710,115 (Cost $41,615,437) Automobiles/Trucks 2.35% $960,000 60,000 Ford Motor Co. 960,000 Banks -- United States 2.69% 1,099,150 6,000 Bank of America Corp. 422,160 7,000 FleetBoston Financial Corp. 226,450 9,000 Wells Fargo & Co. 450,540 Beverages 2.21% 904,000 8,000 Anheuser-Busch Co., Inc. 400,000 9,000 Coca-Cola Co. (The) 504,000 Broker Services 1.09% 448,000 40,000 Charles Schwab Corp. (The) 448,000 Chemicals 1.74% 711,850 11,500 PPG Industries, Inc. 711,850 Computers 3.41% 1,393,700 11,000 International Business Machines Corp. 792,000 11,000 Microsoft Corp.* 601,700 Cosmetics & Personal Care 3.31% 1,354,800 40,000 Gillette Co. (The) 1,354,800 Electronics 5.93% 2,425,663 46,100 Agere Systems, Inc. (Class B)* 69,150 20,000 General Electric Co. 581,000 12,000 Micron Technology, Inc. 242,640 1,000 MKS Instruments, Inc.* 20,070 40,000 Skyworks Solutions, Inc. 222,000 4,800 Sony Corp. (Japan) 253,496 42,500 Texas Instruments, Inc. 1,007,250 4,300 Vicor Corp.* 30,057 Finance 9.30% 3,801,644 25,000 American Express Co. 908,000 45,341 Citigroup, Inc. 1,756,964 17,000 J.P. Morgan Chase & Co. 576,640 13,000 Morgan Stanley Dean Witter & Co. 560,040 Food 1.14% 466,180 13,000 Kellogg Co. 466,180 Insurance 8.66% 3,539,846 12,000 ACE, Ltd. (Bermuda) 379,200 10,000 Ambac Financial Group, Inc. 672,000 18,000 American International Group, Inc. 1,228,140 5 Berkshire Hathaway, Inc. (Class A)* 334,000 23,480 Travelers Property Casualty Corp. (Class A)* 415,596 6,032 Xl Capital, Ltd. (Class A) (Bermuda) 510,910 Media 6.75% 2,758,726 25,000 Aol Time Warner, Inc.* 367,750 9,700 Cumulus Media, Inc. (Class A)* 133,666 128,000 Liberty Media Corp. (Class A)* 1,280,000 23,850 Pegasus Communications Corp.* 17,410 20,000 Viacom, Inc. (Class B)* 887,400 10,000 Xm Satellite Radio Holdings, Inc. (Class A)* 72,500 Medical 13.96% 5,708,068 13,000 Abbott Laboratories 489,450 10,000 Alpharma, Inc. (Class A) 169,800 180,000 I-Stat Corp.* 640,800 21,200 Merck & Co., Inc. 1,073,568 30,000 Pfizer, Inc. 1,050,000 61,000 Pharmacia Corp. 2,284,450 Mortgage Banking 3.61% 1,475,000 20,000 Fannie Mae 1,475,000 Office 1.23% 502,000 8,000 Avery Dennison Corp. 502,000 Oil & Gas 4.65% 1,901,340 9,000 ChevronTexaco Corp. 796,500 27,000 Exxon Mobil Corp. 1,104,840 Retail 4.78% 1,955,740 12,000 Costco Wholesale Corp. 463,440 25,000 McDonald's Corp. 711,250 20,500 Target Corp. 781,050 Schools 2.59% 1,057,698 46,309 DeVry, Inc.* 1,057,698 Telecommunications 3.50% 1,430,770 50,000 General Motors Corp. (Class H) Hughes 520,000 167,500 Nextel Communications, Inc. (Class A)* 537,675 5,000 SBA Communications Corp.* 7,050 34,500 Sprint Corp. 366,045 Tobacco 0.86% 349,440 8,000 Philip Morris Co., Inc. 349,440 Utilities 1.14% 466,500 15,000 Duke Energy Corp. 466,500 ISSUER, DESCRIPTION, INTEREST PAR VALUE MATURITY DATE RATE (000s OMITTED) SHORT-TERM INVESTMENTS 16.98% $6,940,700 (Cost $6,940,700) Joint Repurchase Agreement 14.29% Investment in a joint repurchase agreement transaction with Barclays Capital, Inc. -- Dated 06-28-02, due 07-01-02 (Secured by U.S. Treasury Inflation Indexed Bonds, 3.375% thru 3.875%, due 04-15-29 thru 04-15-32 and U.S. Treasury Inflation Indexed Notes, 3.625% thru 3.875%, due 07-15-02 thru 01-15-09) 1.92% $5,843 5,843,000 NUMBER OF SHARES Cash Equivalents 2.69% AIM Cash Investment Trust** 1,097,700 1,097,700 TOTAL INVESTMENTS 101.88% $41,650,815 OTHER ASSETS AND LIABILITIES, NET (1.88%) ($769,387) TOTAL NET ASSETS 100.00% $40,881,428 * Non-income producing security. ** Represents investment of security lending collateral. Parenthetical disclosure of a foreign country in the security description represents country of a foreign issuer. The percentage shown for each investment category is the total of that category as a percentage of the net assets of the Fund. See notes to financial statements.
Statement of Assets and Liabilities 6-30-02 UNAUDITED ASSETS Investments at value (cost $42,713,137) $35,807,815 Joint repurchase agreement (cost $5,843,000) 5,843,000 Cash 344 Receivable for investments sold 367,626 Dividends and interest receivable 20,435 Other assets 815 Total assets 42,040,035 LIABILITIES Payable for securities on loan 1,097,700 Payable to affiliates 47,330 Other payables and accrued expenses 13,577 Total liabilities 1,158,607 NET ASSETS Capital paid-in 71,095,333 Accumulated net realized loss on investments and foreign currency transactions (23,309,748) Net unrealized depreciation of investments (6,905,322) Accumulated net investment income 1,165 Net assets $40,881,428 NET ASSET VALUE PER SHARE Based on 6,380,536 shares of beneficial interest outstanding -- unlimited number of shares authorized with no par value $6.41 Statement of Operations For the period ended 6-30-02 UNAUDITED 1 INVESTMENT INCOME Dividends (net of foreign withholding taxes of $68) $209,428 Securities lending income 54,038 Interest 13,116 Total investment income 276,582 EXPENSES Investment management fee 158,664 Auditing fee 8,586 Custodian fee 6,537 Accounting and legal services fee 5,598 Printing 3,191 Miscellaneous 1,842 Trustees' fee 1,699 Legal fee 388 Registration and filing fee 2 Total expenses 186,507 Net investment income 90,075 REALIZED AND UNREALIZED GAIN (LOSS) Net realized gain (loss) on Investments (21,496,212) Foreign currency transactions 24 Change in unrealized appreciation (depreciation) of investments (289,289) Net realized and unrealized loss (21,785,477) Decrease in net assets from operations ($21,695,402) 1 Semiannual period from 1-1-02 through 6-30-02. See notes to financial statements. Statement of Changes in Net Assets YEAR PERIOD ENDED ENDED 12-31-01 6-30-02 1 INCREASE (DECREASE) IN NET ASSETS From operations Net investment income $109,779 $90,075 Net realized loss (461,403) (21,496,188) Change in net unrealized appreciation (depreciation) (929,271) (289,289) Decrease in net assets resulting from operations (1,280,895) (21,695,402) Distributions to shareholders From net investment income (103,992) (101,801) From net realized gain (3,603,363) -- (3,707,355) (101,801) From fund share transactions 30,011,640 (1,387,371) NET ASSETS Beginning of period 39,042,612 64,066,002 End of period 2 $64,066,002 $40,881,428 1 Semiannual period from 1-1-02 through 6-30-02. Unaudited. 2 Includes accumulated net investment income of $12,891 and $1,165 respectively.
Financial Highlights 12-31-98 1 12-31-99 12-31-00 13-31-01 6-30-02 2 PER SHARE OPERATING PERFORMANCE Net asset value, beginning of period $10.00 $12.03 $18.03 $10.64 $9.72 Net investment income 3 0.11 0.10 0.02 0.02 0.01 Net realized and unrealized gain (loss) on investments 2.02 6.65 (0.80) (0.32) (3.30) Total from investment operations 2.13 6.75 (0.78) (0.30) (3.29) Less distributions: From net investment income (0.10) (0.10) (0.02) (0.02) (0.02) From net realized gain -- (0.65) (6.59) (0.60) -- (0.10) (0.75) (6.61) (0.62) (0.02) Net asset value, end of period $12.03 $18.03 $10.64 $9.72 $6.41 Total return 4 (%) 21.39 5,6 56.65 (4.80) (2.81) (33.90) 5 RATIOS AND SUPPLEMENTAL DATA Net assets, end of period (in millions) $17 $39 $39 $64 $41 Ratio of expenses to average net assets % 0.85 7 0.77 0.79 0.74 0.71 7 Ratio of adjusted expenses to average net assets 8 1.03 7 -- -- -- -- Ratio of net investment income to average net assets % 1.17 7 0.66 0.13 0.23 0.34 7 Portfolio turnover % 242 166 164 59 56 1 Began operations on 1- 6-98. 2 Semiannual period from 1-1-02 through 6-30-02. Unaudited. 3 Based on the average of the shares outstanding. 4 Assumes dividend reinvestment. 5 Not annualized. 6 The total return would have been lower had certain expenses not been reduced during the period shown. 7 Annualized. 8 Does not take into consideration expense reductions during the period shown.
See notes to financial statements. NOTES TO FINANCIAL STATEMENTS UNAUDITED NOTE A Accounting policies John Hancock V. A. Relative Value Fund (the "Fund") is a diversified series of John Hancock Declaration Trust (the "Trust"), an open-end investment management company registered under the Investment Company Act of 1940. The Trustees may authorize the creation of additional series from time to time to satisfy various investment objectives. An insurance company issuing a Variable Contract that participates in the Trust will vote shares of the Fund held by the insurance company's separate accounts as required by law. In accordance with current law and interpretations thereof, participating insurance companies are required to request voting instructions from policy owners and must vote shares of the Fund in proportion to the voting instructions received. The investment objective of the Fund is to seek long-term capital appreciation. Prior to May 1, 2002, the Fund's investment objective was to seek the highest total return (capital appreciation plus income) consistent with reasonable safety of capital. The Fund's Board of Trustees has voted to change the Fund's investment objective to long-term capital appreciation effective May 1, 2002. The Fund has one class of shares with equal rights as to voting, redemption, dividends and liquidation. Significant accounting policies of the Fund are as follows: Valuation of investments Securities in the Fund's portfolio are valued on the basis of market quotations, valuations provided by independent pricing services or at fair value as determined in good faith in accordance with procedures approved by the Trustees. Short-term debt investments maturing within 60 days are valued at amortized cost, which approximates market value. Joint repurchase agreement Pursuant to an exemptive order issued by the Securities and Exchange Commission, the Fund, along with other registered investment companies having a management contract with John Hancock Advisers, LLC (the "Adviser"), a wholly owned subsidiary of The Berkeley Financial Group, LLC, may participate in a joint repurchase agreement transaction. Aggregate cash balances are invested in one or more large repurchase agreements, whose underlying securities are obligations of the U.S. government and/or its agencies. The Fund's custodian bank receives delivery of the underlying securities for the joint account on the Fund's behalf. The Adviser is responsible for ensuring that the agreement is fully collateralized at all times. Investment transactions Investment transactions are recorded as of the date of purchase, sale or maturity. Net realized gains and losses on sales of investments are determined on the identified cost basis. Expenses The majority of the expenses are directly identifiable to an individual fund. Expenses that are not readily identifiable to a specific fund will be allocated in such a manner as deemed equitable, taking into consideration, among other things, the nature and type of expense and the relative sizes of the funds. Bank borrowings The Fund is permitted to have bank borrowings for temporary or emergency purposes, including the meeting of redemption requests that otherwise might require the untimely disposition of securities. The Fund has entered into a syndicated line of credit agreement with various banks. This agreement enables the Fund to participate with other funds managed by the Adviser in an unsecured line of credit with banks, which permit borrowings up to $475 million, collectively. Interest is charged to each fund, based on its borrowing. In addition, a commitment fee is charged to each fund based on the average daily unused portion of the line of credit and is allocated among the participating funds. The Fund had no borrowing activity under the line of credit during the period ended June 30, 2002. Securities lending The Fund may lend securities to certain qualified brokers who pay the Fund negotiated lender fees. The loans are collateralized at all times with cash or securities with a market value at least equal to the market value of the securities on loan. As with other extensions of credit, the Fund may bear the risk of delay of the loaned securities in recovery or even loss of rights in the collateral, should the borrower of the securities fail financially. On June 30, 2002, the Fund loaned securities having a market value of $1,076,176 collateralized by cash in the amount of $1,097,700. The cash collateral was invested in a short-term instrument. Federal income taxes The Fund qualifies as a "regulated investment company" by complying with the applicable provisions of the Internal Revenue Code and will not be subject to federal income tax on taxable income that is distributed to shareholders. Therefore, no federal income tax provision is required. For federal income tax purposes, net currency gains and losses from sales of foreign debt securities may be treated as ordinary income even though such items are capital gains and losses for accounting purposes. Dividends, interest and distributions Dividend income on investment securities is recorded on the ex-dividend date or, in the case of some foreign securities, on the date thereafter when the Fund identifies the dividend. Interest income on investment securities is recorded on the accrual basis. Foreign income may be subject to foreign withholding taxes, which are accrued as applicable. The Fund records distributions to shareholders from net investment income and realized gains on the ex-dividend date. During the period ended June 30, 2002, the tax character of distributions paid was as follows: ordinary income $101,801. Such distributions are determined in conformity with income tax regulations, which may differ from accounting principles generally accepted in the United States of America. Distributions in excess of tax basis earnings and profits, if any, are reported in the Fund's financial statements as a return of capital. Use of estimates The preparation of these financial statements, in accordance with accounting principles generally accepted in the United States of America, incorporates estimates made by management in determining the reported amount of assets, liabilities, revenues and expenses of the Fund. Actual results could differ from these estimates. NOTE B Management fee and transactions with affiliates and others The Fund has an investment management contract with the Adviser. Under the investment management contract, the Fund pays a monthly management fee to the Adviser at an annual rate of 0.60% of the Fund's average daily net asset value. The Adviser has agreed to limit the Fund's expenses, excluding the management fee, to 0.25% of the Fund's average daily net assets, at least until April 30, 2003. There was no expense reduction during the period ended June 30, 2002. The Adviser reserves the right to terminate this limitation in the future. The Fund has an agreement with the Adviser to perform necessary tax, accounting and legal services for the Fund. The compensation for the period was at an annual rate of 0.02% of the average net assets of the Fund. Ms. Maureen R. Ford and Mr. John M. DeCiccio are directors and/or officers of the Adviser and/or its affiliates, as well as Trustees of the Fund. The compensation of unaffiliated Trustees is borne by the Fund. The unaffiliated Trustees may elect to defer for tax purposes their receipt of this compensation under the John Hancock Group of Funds Deferred Compensation Plan. The Fund makes investments into other John Hancock funds, as applicable, to cover its liability for the deferred compensation. Investments to cover the Fund's deferred compensation liability are recorded on the Fund's books as an other asset. The deferred compensation liability and the related other asset are always equal and are marked to market on a periodic basis to reflect any income earned by the investment as well as any unrealized gains or losses. The Deferred Compensation Plan investments had no impact on the operations of the Fund. NOTE C Fund share transactions This listing illustrates the number of Fund shares sold, reinvested and repurchased during the last two periods, along with the corresponding dollar value. The Fund has an unlimited number of shares authorized with no par value.
YEAR ENDED 12-31-01 PERIOD ENDED 6-30-02 1 SHARES AMOUNT SHARES AMOUNT Shares sold 5,398,455 $56,971,452 604,415 $5,159,731 Distributions reinvested 383,527 3,707,355 14,698 101,801 Repurchased (2,861,752) (30,667,167) (828,643) (6,648,903) NET INCREASE (DECREASE) 2,920,230 $30,011,640 (209,530) ($1,387,371) 1 Semiannual period from 1-1-02 through 6-30-02. Unaudited.
NOTE D Investment transactions Purchases and proceeds from sales of securities, other than short-term securities and obligations of the U.S. government, during the period ended June 30, 2002, aggregated $28,477,389 and $34,310,245, respectively. The cost of investments owned on June 30, 2002, including short-term investments, for federal income tax purposes was $48,556,137. Gross unrealized appreciation and depreciation of investments aggregated $1,243,727 and $8,149,049, respectively, resulting in net unrealized depreciation of $6,905,322. JOHN HANCOCK FUNDS DECLARATION TRUST SEMIANNUAL REPORT [LOGO] John Hancock [Rings] World Wide Sponsor John Hancock Funds, LLC MEMBER NASD 101 Huntington Avenue Boston, MA 02199-7603 1-800-225-5291 1-800-554-6713 TDD 1-800-338-8080 EASI-Line www.jhfunds.com Mutual Funds Institutional Services Private Managed Accounts Retirement Plans This report is for the information of the shareholders of the Hancock V.A. Relative Value Fund. NOT FDIC INSURED MAY LOSE VALUE NO BANK GUARANTEE 829SA 6/02 8/02 SEMI ANNUAL REPORT John Hancock V.A. Sovereign Investors Fund A series of John Hancock Declaration Trust 6.30.02 [A 2" x 1" John Hancock (Signature)/John Hancock Funds logo at bottom left center of page. A tag line below reads "JOHN HANCOCK FUNDS."] FOR YOUR INFORMATION TRUSTEES Dennis S. Aronowitz Richard P. Chapman, Jr. William J. Cosgrove John M. DeCiccio Richard A. Farrell* Maureen R. Ford Gail D. Fosler* William F. Glavin Dr. John A. Moore* Patti McGill Peterson John W. Pratt *Members of the Audit Committee OFFICERS Maureen R. Ford Chairman, President and Chief Executive Officer William L. Braman Executive Vice President and Chief Investment Officer Richard A. Brown Senior Vice President and Chief Financial Officer Susan S. Newton Senior Vice President and Secretary William H. King Vice President and Treasurer Thomas H. Connors Vice President and Compliance Officer CUSTODIAN The Bank of New York One Wall Street New York, New York 10286 TRANSFER AGENT John Hancock Signature Services, Inc. 529 Main Street Charlestown, Massachusetts 02129 INVESTMENT ADVISER John Hancock Advisers, LLC 101 Huntington Avenue Boston, Massachusetts 02199-7603 INSURANCE PRODUCTS ISSUER John Hancock Life Insurance Company, John Hancock Variable Life Insurance Company* 200 Clarendon Street Boston, Massachusetts 02117 *Not licensed in New York FUND DISTRIBUTOR John Hancock Funds, LLC 101 Huntington Avenue Boston, Massachusetts 02199-7603 LEGAL COUNSEL Hale and Dorr LLP 60 State Street Boston, Massachusetts 02109-1803 HOW TO CONTACT US On the Internet www.jhancock.com By regular mail John Hancock Signature Services, Inc. 529 Main Street Charlestown, Massachusetts 02129 Customer service representatives 1-800-225-5291 24-hour automated information 1-800-338-8080 WELCOME [A photo of Maureen R. Ford, Chairman and CEO, flush right next to first paragraph.] Dear Shareholders, The first half of 2002 has been an extremely difficult period for the stock market. A steady stream of accounting scandals and corporate misdeeds has shaken investors' faith in corporate America. Plus, questions about the strength of the economic rebound and prospects for corporate earnings have hung over the financial markets, along with increased fears about Middle East tensions and terrorism. With all these concerns, the major stock market indexes have fallen significantly. In the first six months of 2002, the broad Standard & Poor's 500 Index is down 13%, the Dow Jones Industrial Average is off 7% and the technology-laden Nasdaq Composite Index has fallen 25%. Investors in equity mutual funds have been unable to escape the market's descent, as 89% of all U.S. diversified equity funds have produced negative results in the first six months of 2002, according to Lipper, Inc., and the average equity fund has lost 11.67%. Bonds, on the other hand, outperformed stocks and gained some ground, as often happens when investors seek safer havens. At such trying times as these, the impulse to flee is understandable, especially after the negative stock market returns in 2000 and 2001. But we urge you to stay the course and keep a well-diversified portfolio and a longer-term investment perspective. Working with your investment professional on your long-term plan is especially critical in turbulent times. Financial markets have always moved in cycles, and even though the current down cycle is painful, it comes after five straight years of 20%-plus returns between 1995 and 1999. As discouraging as conditions may seem in the short term, history shows us that the bad times do pass. We believe that remains the case today. The economy is sound and the vast majority of U.S. corporations are honest institutions striving to do their best for their shareholders. And the efforts of both the private sector and the U.S. government should address the current issues of corporate governance, so that corporate credibility and therefore investor confidence are restored. Sincerely, /S/ MAUREEN R. FORD Maureen R. Ford, Chairman and Chief Executive Officer Table of contents Managers' Report page 4 A Look at Performance page 5 Growth of $10,000 page 5 Fund's Investments page 6 Financial Statements page 7 MANAGERS' REPORT [Photos of John Snyder, Barry Evans and Peter Schofield.] John Hancock V.A. Sovereign Investors Fund BY JOHN F. SNYDER, III, BARRY H. EVANS, CFA, AND PETER M. SCHOFIELD, CFA, PORTFOLIO MANAGERS In the last six months, we've experienced a disconnect between the economic situation and the stock market's performance. On the economic front, indicators suggest a recovery is slowly taking hold. Consumer spending has remained relatively strong, as evidenced by solid auto, home and retail sales, and the industrial sector appears to be on the mend. Although corporate earnings are still rather lackluster, they've started to tick up as companies have taken steps to cut costs, improve efficiencies and shore up the bottom line. Finally, interest rates are at 40-year lows and inflation is well under control. Unfortunately, the market hasn't celebrated these recent victories. Instead, a crisis of confidence has spooked investors and driven stock prices down sharply. The Standard & Poor's 500 Stock Index has declined 13.15% since the start of the year. Accounting scandals at Enron, Tyco and most recently WorldCom have left investors questioning the trustworthiness of corporate executives, Wall Street analysts and U.S. accounting firms. On top of that, the threat of terrorism at home and unrest in the Middle East has only further fueled investors' fears. PERFORMANCE REVIEW For the six months ended June 30, 2002, John Hancock V.A. Sovereign Investors Fund returned -12.60% at net asset value. By comparison, the average variable annuity equity-income fund returned -6.61%, for the same period, according to Lipper, Inc., and the S&P 500 Index returned -13.15%. TECHNOLOGY AND INDUSTRIALS IMPACT PERFORMANCE Our relative performance was negatively impacted by our technology and industrial holdings. Although the Fund has a smaller tech weighting than the general market, with all technology stocks taking a beating, the Fund's holdings have suffered too. Our biggest disappointments were IBM and Intel. In our opinion, these companies have excellent fundamentals, given their strong balance sheets and ability to grow market share in a challenging environment. Unfortunately, the market has painted all technology stocks with the same brush. In the industrial sector, two names have detracted from performance -- Tyco and General Electric. As mentioned above, Tyco's accounting issues drove the stock price way down. Although our position was hurt by the scandal, we sold our Tyco holdings before the stock really plummeted. Our long-time position in General Electric has fallen prey to investors' fears of accounting issues at major U.S. corporations, mainly because of GE's complex business and considerable acquisition growth. This is a case where perception is driving the stock price, not reality. In our view, GE is one of the best-managed companies in the world and its fundamentals are still very strong. [Table at bottom right hand column entitled "Top five holdings." The first listing is Bank of America 3.9%, the second is U.S. Treasury Note 3.8%, the third Citigroup 3.6%, the fourth Honeywell International 3.4% and the fifth Johnson & Johnson 3.2%. A note below the table reads "As a percentage of net assets on 6-30-02."] On a more positive note, stock selection helped performance in other sectors. Our consumer staples stocks -- such as Kraft Foods, Avon Products and PepsiCo -- continued to outperform by meeting or exceeding their earnings expectations in this difficult environment. Our basic material stocks -- particularly Air Products & Chemicals, 3M and Honeywell -- also posted solid results. New management at all three companies has resulted in significant cost-cutting, important productivity enhancements and a keen focus on high potential businesses. The result has been improving fundamentals and rising stock prices. FOCUS ON DIVIDEND PERFORMERS In this challenging market environment, where concerns about accounting practices, corporate earnings and corporate executives are running rampant, we're maintaining our unwavering focus on our long-term investment strategy. The vast majority of the Fund's equity holdings (roughly 80%) remain in "dividend performers" -- those companies that have raised their dividends for at least 10 consecutive years. Our "dividend performers" investment philosophy keeps us squarely focused on high-quality companies with reasonable valuations, steady earnings growth, strong cash flow and market leadership. In the last several months, we've added several new names to the portfolio. Industrial gas company Praxair is benefiting from industry consolidation, a sharp decrease in capacity and improving pricing power. With new management in place, we believe the company is well positioned to leverage the gradual upturn in the economy. Colgate-Palmolive is another addition. Not only has the stock's valuation come down to reasonable levels, but this global company -- with almost 80% of its revenues coming from overseas -- should do well as worldwide economies pick up steam. OUTLOOK In the short term, uncertainty and fear are likely to drive more volatility in the market. We believe the important thing right now is to stay calm and sit tight. After the market's prolonged downturn, there are real values emerging, the likes of which we haven't seen since 1973--74, when there was a very weak economy, high interest rates and gas lines -- a scenario far different from today's. With its focus on dividend performers, the Fund owns great companies that are now very attractively priced. While we don't know when the market will turn, we do know that historically, stock prices have followed earnings. So we remain optimistic that stock prices will eventually move higher, once investor confidence is restored and earnings rebound. This commentary reflects the views of the portfolio managers through the end of the Fund's period discussed in this report. Of course, the managers' views are subject to change as market and other conditions warrant. A LOOK AT PERFORMANCE For the period ended 6-30-02 Cumulative total returns Six months -12.60% One year -12.47% Five years 12.10% Since inception (8-29-96) 38.87% Average annual total returns One year -12.47% Five years 2.31% Since inception (8-29-96) 5.79% Yield SEC 30-day yield 1.28% Total return measures the change in value of an investment from the beginning to the end of a period, assuming all distributions were reinvested. Performance figures reflect the effect of investment-related charges on the underlying funds, but do not include insurance and other charges levied at the separate account level. All figures represent past performance and are no guarantee of future results. Keep in mind that the total return and share price of the Fund's investments will fluctuate. As a result, your Fund's shares may be worth more or less than their original cost, depending on when you sell them. The Fund's performance results reflect any applicable expense reductions, without which the expenses would increase and results would have been less favorable. These reductions can be terminated in the future. See the prospectus for details. GROWTH OF $10,000 The chart to the left shows how much a $10,000 investment in the John Hancock V.A. Sovereign Investors Fund would be worth, assuming all distributions were reinvested for the period indicated. For comparison, we've shown the same $10,000 investment in the Standard & Poor's 500 Index-- an unmanaged index that includes 500 widely traded common stocks and is often used as a measure of stock market performance. It is not possible to invest in an index. Line chart with the heading John Hancock V.A. Sovereign Investors Fund 8-29-96 - 6-30-02, representing the growth of a hypothetical $10,000 investment over the life of the fund. Within the chart are two lines. The first line represents the Standard & Poor's 500 Index and is equal to $16,522 as of June 30, 2002. The second line represents the value of the hypothetical $10,000 investment made in the John Hancock V.A. Sovereign Investors Fund on August 29, 1996 and is equal to $13,887 as of June 30, 2002. FINANCIAL STATEMENTS Fund's Investments Securities owned by the Fund on 6-30-02 UNAUDITED
SHARES ISSUER VALUE COMMON STOCKS 93.66% $48,989,981 (Cost $48,816,955) Banks -- United States 15.02% $7,857,509 29,000 Bank of America Corp. 2,040,440 25,000 Bank of New York Co., Inc. (The) 843,750 48,225 Citigroup, Inc. 1,868,719 19,000 FleetBoston Financial Corp. 614,650 10,000 J.P. Morgan Chase & Co. 339,200 12,000 Mellon Financial Corp. 377,160 10,000 State Street Corp. 447,000 26,500 Wells Fargo & Co. 1,326,590 Beverages 1.57% 819,400 17,000 PepsiCo, Inc. 819,400 Chemicals 7.32% 3,826,525 24,500 Air Products & Chemicals, Inc. 1,236,515 15,000 PPG Industries, Inc. 928,500 5,000 Praxair, Inc. 284,850 34,000 Rohm & Haas Co. 1,376,660 Computers 7.23% 3,779,400 8,000 Automatic Data Processing, Inc. 348,400 66,000 Cisco Systems, Inc.* 920,700 7,000 Electronic Data Systems Corp. 260,050 5,000 Hewlett-Packard Co. 76,400 20,000 International Business Machines Corp. 1,440,000 12,500 Microsoft Corp.* 683,750 10,000 Sun Microsystems, Inc.* 50,100 Cosmetics & Personal Care 2.00% 1,044,800 20,000 Avon Products, Inc. 1,044,800 Diversified Operations 8.62% 4,509,815 3,500 3M Co. 430,500 19,537 Emerson Electric Co. 1,045,425 43,800 General Electric Co. 1,272,390 50,000 Honeywell International, Inc. 1,761,500 Electronics 2.10% 1,096,200 60,000 Intel Corp. 1,096,200 Finance 2.08% 1,090,040 7,000 American Express Co. 254,240 10,000 Merrill Lynch & Co., Inc. 405,000 10,000 Morgan Stanley Dean Witter & Co. 430,800 Food 1.29% 673,013 16,435 Kraft Foods, Inc. (Class A) 673,013 Insurance 5.07% 2,652,809 36,800 AFLAC, Inc. 1,177,600 17,093 American International Group, Inc. 1,166,255 17,455 Travelers Property Casualty Corp. (Class A)* 308,954 Media 1.25% 656,700 11,000 McGraw-Hill Cos., Inc. (The) 656,700 Medical 12.64% 6,610,410 21,000 Abbott Laboratories 790,650 28,200 Baxter International, Inc. 1,253,490 10,000 Cardinal Health, Inc. 614,100 32,000 Johnson & Johnson 1,672,320 10,000 Medtronic, Inc. 428,500 19,250 Pfizer, Inc. 673,750 23,000 Wyeth 1,177,600 Mortgage Banking 4.57% 2,393,000 20,000 Fannie Mae 1,475,000 15,000 Freddie Mac 918,000 Office 0.72% 376,500 6,000 Avery Dennison Corp. 376,500 Oil & Gas 7.98% 4,173,469 5,000 BP Plc American Depositary Receipts (United Kingdom) 252,450 14,000 ChevronTexaco Corp. 1,239,000 40,000 Conoco, Inc. 1,112,000 38,368 Exxon Mobil Corp. 1,570,019 Retail 3.79% 1,980,200 17,000 Lowe's Cos., Inc. 771,800 15,000 SYSCO Corp. 408,300 21,000 Target Corp. 800,100 Soap & Cleaning Preparations 2.80% 1,466,600 7,000 Colgate-Palmolive Co. 350,350 12,500 Procter & Gamble Co. (The) 1,116,250 Telecommunications 2.53% 1,324,950 33,000 Verizon Communications, Inc. 1,324,950 Tobacco 2.09% 1,092,000 25,000 Philip Morris Cos., Inc. 1,092,000 Utilities 2.99% 1,566,641 10,000 BellSouth Corp. 315,000 17,000 Duke Energy Corp. 528,700 23,703 SBC Communications, Inc. 722,941 ISSUER, DESCRIPTION, INTEREST CREDIT PAR VALUE MATURITY DATE RATE RATING** (000s OMITTED) U.S. GOVERNMENT AND AGENCIES SECURITIES 3.85% $2,013,040 (Cost $2,002,031) Government -- U.S. 3.85% United States Treasury, Note 01-31-04 3.00% AAA $2,000 2,013,040 SHORT-TERM INVESTMENTS 3.21% $1,677,000 (Cost $1,677,000) Joint Repurchase Agreement 3.21% Investment in a joint repurchase agreement transaction with Barclays Capital, Inc. -- Dated 06-28-02 due 07-01-02 (Secured by U.S. Treasury Inflation Indexed Bonds 3.875% due 04-15-29 and 3.375% due 04-15-32 and, U.S. Treasury Inflation Indexed Notes 3.625% thru 3.875% due 07-15-02 thru 01-15-09) 1.92 1,677 1,677,000 TOTAL INVESTMENTS 100.72% $52,680,021 OTHER ASSETS AND LIABILITIES, NET (0.72%) ($379,106) TOTAL NET ASSETS 100.00% $52,300,915 * Non-income producing security. ** Credit ratings by Moody's Investors Service or John Hancock Advisers, LLC, where Standard & Poor's ratings are not available. Parenthetical disclosure of a foreign country in the security description represents country of a foreign issuer. The percentage shown for each investment category is the total value of that category as a percentage of the net assets of the Fund. See notes to financial statements.
Statement of Assets and Liabilities 6-30-02 UNAUDITED ASSETS Investments at value (cost $52,495,986) $52,680,021 Cash 385 Receivable for shares sold 243,261 Dividends and interest receivable 67,181 Other assets 1,201 Total assets 52,992,049 LIABILITIES Payable for shares repurchased 617,752 Payable to affiliates 57,962 Other payables and accrued expenses 15,420 Total liabilities 691,134 NET ASSETS Capital paid-in 60,174,976 Accumulated net realized loss on investments (8,057,687) Net unrealized appreciation of investments 184,035 Distributions in excess of net investment income (409) Net assets $52,300,915 NET ASSET VALUE PER SHARE (Based on 4,127,549 shares of beneficial interest outstanding -- unlimited number of shares authorized with no par value) $12.67 Statement of Operations For the period ended 6-30-02 UNAUDITED 1 INVESTMENT INCOME Dividends $459,947 Interest 48,864 Total investment income 508,811 EXPENSES Investment management fee 178,160 Auditing fee 8,831 Custodian fee 7,366 Accounting and legal services fee 6,286 Printing 2,798 Trustees' fee 1,808 Miscellaneous 1,197 Legal fee 388 Registration and filing fee 2 Total expenses 206,836 Net investment income 301,975 REALIZED AND UNREALIZED GAIN (LOSS) Net realized loss on investments (2,782,798) Change in unrealized appreciation (depreciation) of investments (5,289,415) Net realized and unrealized loss (8,072,213) Decrease in net assets from operations ($7,770,238) 1 Semiannual period from 1-1-02 through 6-30-02. See notes to financial statements. Statement of Changes in Net Assets YEAR PERIOD ENDED ENDED 12-31-01 6-30-02 1 INCREASE (DECREASE) IN NET ASSETS From operations Net investment income $1,021,555 $301,975 Net realized loss (3,019,394) (2,782,798) Change in net unrealized appreciation (depreciation) (1,296,552) (5,289,415) Decrease in net assets resulting from operations (3,294,391) (7,770,238) Distributions to shareholders From net investment income (1,041,147) (301,885) (1,041,147) (301,885) From fund share transactions 13,462,214 (4,081,736) NET ASSETS Beginning of period 55,328,098 64,454,774 End of period 2 $64,454,774 $52,300,915 1 Semiannual period from 1-1-02 through 6-30-02. Unaudited. 2 Includes distributions in excess of net investment income of $499 and $409, respectively.
Financial Highlights 12-31-97 12-31-98 12-31-99 12-31-00 12-31-01 6-30-02 1 PER SHARE OPERATING PERFORMANCE Net asset value, beginning of period $10.74 $13.59 $15.61 $15.96 $15.69 $14.57 Net investment income 2 0.22 0.27 0.24 0.21 0.24 0.07 Net realized and unrealized gain (loss) on investments 2.82 2.00 0.35 (0.27) (1.12) (1.90) Total from investment operations 3.04 2.27 0.59 (0.06) (0.88) (1.83) Less distributions From net investment income (0.18) (0.25) (0.24) (0.21) (0.24) (0.07) From net realized gain (0.01) -- -- -- -- -- Tax return of capital -- -- -- 3 -- -- -- (0.19) (0.25) (0.24) (0.21) (0.24) (0.07) Net asset value, end of period $13.59 $15.61 $15.96 $15.69 $14.57 $12.67 Total return 4 (%) 28.43 5 16.88 3.84 (0.33) (5.56) (12.60) 6 RATIOS AND SUPPLEMENTAL DATA Net assets, end of period (in millions) $12 $34 $50 $55 $64 $52 Ratio of expenses to average net assets % 0.85 0.74 0.70 0.72 0.70 0.70 7 Ratio of adjusted expenses to average net assets 8 1.16 -- -- -- -- -- Ratio of net investment income to average net assets % 1.81 1.88 1.57 1.37 1.63 1.02 7 Portfolio turnover % 11 19 26 46 77 21 1 Semiannual period from 1-1-02 through 6-30-02. Unaudited. 2 Based on the average of the shares outstanding. 3 Less than $0.01 per share. 4 Assumes dividend reinvestment. 5 Total return would have been lower had certain expenses not been reduced during the period shown. 6 Not annualized. 7 Annualized. 8 Does not take into consideration expense reductions during the period shown. See notes to financial statements.
NOTES TO FINANCIAL STATEMENTS UNAUDITED NOTE A Accounting policies John Hancock V. A. Sovereign Investors Fund (the "Fund") is a diversified series of John Hancock Declaration Trust (the "Trust"), an open-end investment management company registered under the Investment Company Act of 1940. The Trustees may authorize the creation of additional series from time to time to satisfy various investment objectives. An insurance company issuing a Variable Contract that participates in the Trust will vote shares of the Fund held by the insurance company's separate accounts as required by law. In accordance with current law and interpretations thereof, participating insurance companies are required to request voting instructions from policy owners and must vote shares of the Fund in proportion to the voting instructions received. The investment objective of the Fund is to seek long-term growth of capital and income without assuming undue market risks. The Fund has one class of shares with equal rights as to voting, redemption, dividends and liquidation. Significant accounting policies of the Fund are as follows: Valuation of investments Securities in the Fund's portfolio are valued on the basis of market quotations, valuations provided by independent pricing services or at fair value as determined in good faith in accordance with procedures approved by the Trustees. Short-term debt investments maturing within 60 days are valued at amortized cost, which approximates market value. Joint repurchase agreement Pursuant to an exemptive order issued by the Securities and Exchange Commission, the Fund, along with other registered investment companies having a management contract with John Hancock Advisers, LLC (the "Adviser"), a wholly owned subsidiary of The Berkeley Financial Group, LLC, may participate in a joint repurchase agreement transaction. Aggregate cash balances are invested in one or more large repurchase agreements, whose underlying securities are obligations of the U.S. government and/or its agencies. The Fund's custodian bank receives delivery of the underlying securities for the joint account on the Fund's behalf. The Adviser is responsible for ensuring that the agreement is fully collateralized at all times. Investment transactions Investment transactions are recorded as of the date of purchase, sale or maturity. Net realized gains and losses on sales of investments are determined on the identified cost basis. Discount and premium on securities The Fund accretes discount and amortizes premium from par value on securities from either the date of issue or the date of purchase over the life of the security. Expenses The majority of the expenses are directly identifiable to an individual fund. Expenses that are not readily identifiable to a specific fund will be allocated in such a manner as deemed equitable, taking into consideration, among other things, the nature and type of expense and the relative sizes of the funds. Bank borrowings The Fund is permitted to have bank borrowings for temporary or emergency purposes, including the meeting of redemption requests that otherwise might require the untimely disposition of securities. The Fund has entered into a syndicated line of credit agreement with various banks. This agreement enables the Fund to participate with other funds managed by the Adviser in an unsecured line of credit with banks, which permit borrowings up to $475 million, collectively. Interest is charged to each fund, based on its borrowing. In addition, a commitment fee is charged to each fund based on the average daily unused portion of the line of credit and is allocated among the participating funds. The Fund had no borrowing activity under the line of credit during the period ended June 30, 2002. Securities lending The Fund may lend securities to certain qualified brokers who pay the Fund negotiated lender fees. The loans are collateralized at all times with cash or securities with a market value at least equal to the market value of the securities on loan. As with other extensions of credit, the Fund may bear the risk of delay of the loaned securities in recovery or even loss of rights in the collateral, should the borrower of the securities fail financially. There were no securities loaned on June 30, 2002. Federal income taxes The Fund qualifies as a "regulated investment company" by complying with the applicable provisions of the Internal Revenue Code and will not be subject to federal income tax on taxable income that is distributed to shareholders. Therefore, no federal income tax provision is required. For federal income tax purposes, the Fund has $4,619,506 of a capital loss carryforward available, to the extent provided by regulations, to offset future net realized capital gains. To the extent that such carryforward is used by the Fund, no capital gain distributions will be made. The loss carryforwards expire as follows: December 31, 2006 -- $157,877, December 31, 2007 -- $101,159, December 31, 2008 -- $1,206,695 and December 31, 2009 -- $3,153,775. Dividends, interest and distributions Dividend income on investment securities is recorded on the ex-dividend date or, in the case of some foreign securities, on the date thereafter when the Fund identifies the dividend. Interest income on investment securities is recorded on the accrual basis. Foreign income may be subject to foreign withholding taxes, which are accrued as applicable. The Fund records distributions to shareholders from net investment income and realized gains on the ex-dividend date. During the period ended June 30, 2002, the tax character of distributions paid was as follows: ordinary income $301,885. Such distributions are determined in conformity with income tax regulations, which may differ from accounting principles generally accepted in the United States of America. Distributions in excess of tax basis earnings and profits, if any, are reported in the Fund's financial statements as a return of capital. Use of estimates The preparation of these financial statements, in accordance with accounting principles generally accepted in the United States of America, incorporates estimates made by management in determining the reported amount of assets, liabilities, revenues and expenses of the Fund. Actual results could differ from these estimates. NOTE B Management fee and transactions with affiliates and others The Fund has an investment management contract with the Adviser. Under the investment management contract, the Fund pays a monthly management fee to the Adviser at an annual rate of 0.60% of the Fund's average daily net asset value. The Adviser has agreed to limit the Fund's expenses, excluding the management fee, to 0.25% of the Fund's average daily net assets, at least until April 30, 2003. There was no expense reduction for the period ended June 30, 2002. The Adviser reserves the right to terminate this limitation in the future. The Fund has an agreement with the Adviser to perform necessary tax, accounting and legal services for the Fund. The compensation for the period was at an annual rate of 0.02% of the average net assets of the Fund. Ms. Maureen R. Ford and Mr. John M. DeCiccio are directors and/or officers of the Adviser and/or its affiliates, as well as Trustees of the Fund. The compensation of unaffiliated Trustees is borne by the Fund. The unaffiliated Trustees may elect to defer for tax purposes their receipt of this compensation under the John Hancock Group of Funds Deferred Compensation Plan. The Fund makes investments into other John Hancock funds, as applicable, to cover its liability for the deferred compensation. Investments to cover the Fund's deferred compensation liability are recorded on the Fund's books as an other asset. The deferred compensation liability and the related other asset are always equal and are marked to market on a periodic basis to reflect any income earned by the investment as well as any unrealized gains or losses. The Deferred Compensation Plan investments had no impact on the operations of the Fund. NOTE C Fund share transactions This listing illustrates the number of Fund shares sold, reinvested and repurchased during the last two periods, along with the corresponding dollar value. The Fund has an unlimited number of shares authorized with no par value.
YEAR ENDED 12-31-01 PERIOD ENDED 6-30-02 1 SHARES AMOUNT SHARES AMOUNT Shares sold 1,610,786 $23,800,498 52,278 $715,175 Distributions reinvested 73,840 1,041,147 21,749 301,885 Repurchased (788,014) (11,379,431) (368,763) (5,098,796) NET INCREASE (DECREASE) 896,612 $13,462,214 (294,736) ($4,081,736) 1 Semiannual period from 1-1-02 through 6-30-02. Unaudited.
NOTE D Investment transactions Purchases and proceeds from sales of securities, other than short-term securities and obligations of the U.S. government, during the period ended June 30, 2002 aggregated $9,621,168 and $14,207,444, respectively. The cost of investments owned on June 30, 2002, including short-term investments, for federal income tax purposes was $52,660,122. Gross unrealized appreciation and depreciation of investments aggregated $5,750,053 and $5,730,154, respectively, resulting in net unrealized appreciation of $19,899. The difference between book basis and tax basis net unrealized appreciation of investments is attributable primarily to the tax deferral of losses on wash sales. JOHN HANCOCK FUNDS DECLARATION TRUST SEMIANNUAL REPORT [LOGO] John Hancock [Rings] World Wide Sponsor John Hancock Funds, LLC MEMBER NASD 101 Huntington Avenue Boston, MA 02199-7603 1-800-225-5291 1-800-554-6713 TDD 1-800-338-8080 EASI-Line www.jhfunds.com Mutual Funds Institutional Services Private Managed Accounts Retirement Plans This report is for the information of the shareholders of the John Hancock V.A. Sovereign Investors Fund. NOT FDIC INSURED MAY LOSE VALUE NO BANK GUARANTEE 815SA 6/02 8/02 SEMI ANNUAL REPORT John Hancock V.A. Strategic Income Fund A series of John Hancock Declaration Trust 6.30.02 [A 2" x 1" John Hancock (Signature)/John Hancock Funds logo at bottom left center of page. A tag line below reads "JOHN HANCOCK FUNDS."] FOR YOUR INFORMATION TRUSTEES Dennis S. Aronowitz Richard P. Chapman, Jr. William J. Cosgrove John M. DeCiccio Richard A. Farrell* Maureen R. Ford Gail D. Fosler* William F. Glavin Dr. John A. Moore* Patti McGill Peterson John W. Pratt *Members of the Audit Committee OFFICERS Maureen R. Ford Chairman, President and Chief Executive Officer William L. Braman Executive Vice President and Chief Investment Officer Richard A. Brown Senior Vice President and Chief Financial Officer Susan S. Newton Senior Vice President and Secretary William H. King Vice President and Treasurer Thomas H. Connors Vice President and Compliance Officer CUSTODIAN The Bank of New York One Wall Street New York, New York 10286 TRANSFER AGENT John Hancock Signature Services, Inc. 529 Main Street Charlestown, Massachusetts 02129 INVESTMENT ADVISER John Hancock Advisers, LLC 101 Huntington Avenue Boston, Massachusetts 02199-7603 INSURANCE PRODUCTS ISSUER John Hancock Life Insurance Company, John Hancock Variable Life Insurance Company* 200 Clarendon Street Boston, Massachusetts 02117 *Not licensed in New York FUND DISTRIBUTOR John Hancock Funds, LLC 101 Huntington Avenue Boston, Massachusetts 02199-7603 LEGAL COUNSEL Hale and Dorr LLP 60 State Street Boston, Massachusetts 02109-1803 HOW TO CONTACT US On the Internet www.jhancock.com By regular mail John Hancock Signature Services, Inc. 529 Main Street Charlestown, Massachusetts 02129 Customer service representatives 1-800-225-5291 24-hour automated information 1-800-338-8080 WELCOME [A photo of Maureen R. Ford, Chairman and CEO, flush right next to first paragraph.] Dear Shareholders, The first half of 2002 has been an extremely difficult period for the stock market. A steady stream of accounting scandals and corporate misdeeds has shaken investors' faith in corporate America. Plus, questions about the strength of the economic rebound and prospects for corporate earnings have hung over the financial markets, along with increased fears about Middle East tensions and terrorism. With all these concerns, the major stock market indexes have fallen significantly. In the first six months of 2002, the broad Standard & Poor's 500 Index is down 13%, the Dow Jones Industrial Average is off 7% and the technology-laden Nasdaq Composite Index has fallen 25%. Investors in equity mutual funds have been unable to escape the market's descent, as 89% of all U.S. diversified equity funds have produced negative results in the first six months of 2002, according to Lipper, Inc., and the average equity fund has lost 11.67%. Bonds, on the other hand, outperformed stocks and gained some ground, as often happens when investors seek safer havens. At such trying times as these, the impulse to flee is understandable, especially after the negative stock market returns in 2000 and 2001. But we urge you to stay the course and keep a well-diversified portfolio and a longer-term investment perspective. Working with your investment professional on your long-term plan is especially critical in turbulent times. Financial markets have always moved in cycles, and even though the current down cycle is painful, it comes after five straight years of 20%-plus returns between 1995 and 1999. As discouraging as conditions may seem in the short term, history shows us that the bad times do pass. We believe that remains the case today. The economy is sound and the vast majority of U.S. corporations are honest institutions striving to do their best for their shareholders. And the efforts of both the private sector and the U.S. government should address the current issues of corporate governance, so that corporate credibility and therefore investor confidence are restored. Sincerely, /S/ MAUREEN R. FORD Maureen R. Ford, Chairman and Chief Executive Officer Table of contents Managers' Report page 4 A Look at Performance page 5 Growth of $10,000 page 5 Fund's Investments page 6 Financial Statements page 11 BY FREDERICK L. CAVANAUGH, JR., AND DANIEL S. JANIS, III, PORTFOLIO MANAGERS John Hancock V.A. Strategic Income Fund MANAGERS' REPORT [Photos of Fred Cavanaugh and Dan Janis.] Changing expectations about inflation, interest rates and the health of the economy had an uneven effect on various types of bonds during the six-month period ended June 30, 2002. In January and February, high-yield corporate securities enjoyed a short-term rebound, as hopes for an economic recovery fueled a rise in demand. Strong demand continued throughout the spring, although increased supply muted the high-yield market's progress, as one-time investment-grade companies -- such as WorldCom, Qwest and others -- were downgraded to high-yield credit ratings. Conditions worsened as growing concerns about corporate accounting practices and corporate governance issues weighed heavily on stocks and corporate bonds alike. U.S. Treasury bonds spent the period rotating in and out of investors' favor, but wound up producing strong returns overall, as concerns grew about the economic rebound and corporate accounting practices, fueling strong demand for safe-haven Treasuries. As a group, high-quality foreign government bonds performed well, as investors increasingly sought out higher-quality alternatives to global stocks. High-yielding bonds issued by emerging-market governments posted strong returns during the year, buoyed by stronger demand from yield-hungry investors who recognized improving financial conditions in many developing nations. That said, June proved difficult for emerging-market bonds when Brazil was hit by continued worries about the country's fiscal and political outlook. FUND PERFORMANCE For the six months ended June 30, 2002, John Hancock V.A. Strategic Income Fund had a total return of 1.82% at net asset value. This compared with the 2.41% return of the average variable annuity general bond fund, which has a greater emphasis on investment-grade bonds. Among our best performing holdings during the past six months were U.S. Treasury securities. But because the U.S. dollar showed some signs of weakness, as foreign investors responded to anemic economic conditions by taking some of their investments out of America, we also added to our foreign government holdings. In particular, we purchased non-U.S. dollar denominated holdings in foreign government bonds in Canada, Norway and some emerging markets. In choosing non-U.S. dollar investments, we selected those that could benefit from favorable currency trends as well as favorable bond fundamentals. [Table at bottom right hand column entitled "Top five industry groups." The first listing is Foreign governments 41%, the second is U.S. government 25%, the third Leisure 6%, the fourth Oil & gas 5% and the fifth Media 4%. A note below the table reads "As a percentage of net assets on 6-30-02."] Our relatively large weighting in emerging-market government bonds was a plus for performance. Our holdings in Russian government bonds benefited from the rising price of oil, that country's major export. And despite ongoing problems in Argentina, which we did not own during the period, our holdings in other Latin American countries, including Mexico, Colombia, Panama and Venezuela, performed quite well in the first five months of the year, thanks to improving economic fiscal conditions in those countries. However, concern over Brazil's political and economic challenges spilled over into other emerging markets, prompting us to reduce our holdings in Latin American bonds. HIGH-YIELD WINNERS AND LOSERS Our approach to security selection helped the high-yield portion of the Fund. In choosing individual securities, we use bottom-up research to identify securities that we believe are comparatively undervalued and whose issuers are in reasonable financial shape. Taking this bond-by-bond approach to investing helped us avoid some pitfalls. One of our best performers during the period was moving company North American Van Lines, which benefited from significantly improved operating performance and the ongoing boom in housing. Cable company Fox Family Worldwide also posted strong returns, due to the company's ability to continue to post strong subscriber growth and decent advertising revenues. Our holdings in Polish cellular company PTC Telecom performed well when that company received a credit rating upgrade. Some of our telecommunications holdings proved to be our biggest disappointments, most notably MetroNet, which slumped due to continued weakness in the telecommunications sector. We were also disappointed with satellite television re-seller Pegasus Communications, which was hurt by its pending litigation with Direct TV. OUTLOOK In our view, high-yield bonds are likely to face some ongoing, near-term challenges including a rather lackluster economic recovery, periodic struggles with increased supply and a general lack of liquidity in the market. That said, once economic conditions improve, liquidity could return to the high-yield market, which is priced quite attractively at present. As for U.S. Treasuries, we plan to maintain a cautious approach, given our concerns about further weakening of the dollar. This commentary reflects the views of the portfolio managers through the end of the Fund's period discussed in this report. Of course, the managers' views are subject to change as market and other conditions warrant. International investing involves special risks such as political, economic and currency risks and differences in accounting standards and financial reporting. See the prospectus for the risks of investing in high-yield bonds. A LOOK AT PERFORMANCE For the period ended 6-30-02 Cumulative total returns Six months 1.82% One year 4.53% Five years 25.38% Since inception (8-29-96) 41.22% Average annual total returns One year 4.53% Five years 4.63% Since inception (8-29-96) 6.09% Yield SEC 30-Day Yield 6.96% Total return measures the change in value of an investment from the beginning to the end of a period, assuming all distributions were reinvested. Performance figures reflect the effect of investment-related charges on the underlying funds, but do not include insurance and other charges levied at the separate account level. All figures represent past performance and are no guarantee of future results. Keep in mind that the total return and share price of the Fund's investments will fluctuate. As a result, your Fund's shares may be worth more or less than their original cost, depending on when you sell them. The Fund's performance results reflect any applicable expense reductions, without which the expenses would increase and results would have been less favorable. These reductions can be terminated in the future. See the prospectus for details. GROWTH OF $10,000 The chart to the left shows how much a $10,000 investment in the John Hancock V.A. Strategic Income Fund would be worth, assuming all distributions were reinvested for the period indicated. For comparison, we've shown the same $10,000 investment in four indexes: Lehman Brothers Government/Credit Bond Index, an index of U.S. government bonds, U.S. corporate bonds, and Yankee bonds The Merrill Lynch Government Master Index, an index of fixed-rate U.S. Treasury and agency securities The Merrill Lynch High Yield Master II Index, an index of Yankee and high yield bonds Salomon Smith Barney World Government Bond Index, an index of bonds issued by governments in the U.S., Europe and Asia It is not possible to invest in an index. Line chart with the heading John Hancock V.A. Strategic Income Fund 8-29-96 - 6-30-02, representing the growth of a hypothetical $10,000 investment over the life of the fund. Within the chart are five lines. The first line represents the Merrill Lynch Government Master Index and is equal to $15,503 as of June 30, 2002. The second line represents the Lehman Brothers Government/Credit Bond Index and is equal to $15,455 as of June 30, 2002. The third line represents the value of the hypothetical $10,000 investment made in the John Hancock V.A. Strategic Income Fund on August 29, 1996 and is equal to $14,124 as of June 30, 2002. The fourth line represents the Salomon Smith Barney World Government Bond Index and is equal to $12,567 as of June 30, 2002. The fifth line represents the Merrill Lynch High Yield Master II Index and is equal to $11,905 as of June 30, 2002. For future reports the Adviser has chosen to remove the Lehman Brothers Government/Credit Bond Index and will use the remaining indexes, which more closely represent the investment strategy of the Fund. FINANCIAL STATEMENTS Fund's Investments Securities owned by the Fund on 6-30-02 UNAUDITED
ISSUER, DESCRIPTION, INTEREST CREDIT PAR VALUE MATURITY DATE RATE RATING* (000s OMITTED) VALUE BONDS 91.86% $65,676,666 (Cost $67,806,856) Advertising 0.16% $114,952 Go Outdoor Systems Holding S.A., Sr Sub Note (France) 07-15-09 (E) 10.500% B- $100 114,952 Agricultural Operations 0.00% 3,551 Iowa Select Farms L.P./ ISF Finance, Inc. Jr Sec Sub Note, Payment-in-kind, 12-01-06 (R) 10.750 Ca 5 3,551 Automobiles/Trucks 0.67% 475,969 Dura Operating Corp., Sr Note 04-15-12 (R) 8.625 B+ 300 301,500 J.B. Poindexter & Co., Inc., Sr Note 05-15-04 12.500 B- 25 23,719 United Auto Group, Inc., Sr Sub Note 03-15-12 (R) 9.625 B 150 150,750 Banks -- United States 0.30% 215,478 Colonial Bank, Sub Note 06-01-11 9.375 BBB- 200 215,478 Building 0.46% 328,335 Amatek Industries Property Ltd., Sr Sub Note (Australia) 02-15-08 12.000 B 25 25,250 Celulosa Arauco y Constitucion S.A., Bond (Chile) 09-13-11 7.750 BBB+ 300 303,085 Chemicals 0.32% 227,238 American Pacific Corp., Sr Note 03-01-05 9.250 BB- 30 30,488 Huntsman ICI Holdings LLC, Sr Disc Note 12-31-09 Zero B+ 75 18,000 Trikem S.A., Bond (Brazil) 07-24-07 (R) 10.625 B+ 325 178,750 Consumer Products -- Misc. 0.01% 5,000 Diamond Brands Operating Corp., Sr Sub Note 04-15-08 (B) 10.125 D 100 5,000 Containers 1.02% 728,635 Kappa Beheer B.V., Gtd Sr Sub Note (Netherlands) 07-15-09 (E) (R) 10.625 B 150 161,910 Sr Sub Bond (Netherlands) 07-15-09 10.625 B 75 81,750 Owens-Brockway Glass Container, Inc., Sr Sec Note 02-15-09 (R) 8.875 BB 280 280,000 Riverwood International Corp., Gtd Sr Sub Note 04-01-08 10.875 CCC+ 70 72,975 Vicap S.A. de C.V., Gtd Sr Note (Mexico) 05-15-07 11.375 B+ 150 132,000 Cosmetics & Personal Care 0.01% 7,500 Global Health Sciences, Inc., Gtd Sr Note 05-01-08 (B) 11.000 D 75 7,500 Electronics 0.15% 104,000 UCAR Finance, Inc., Gtd Sr Note 02-15-12 (R) 10.250 B 100 104,000 Energy 1.39% 997,081 AEI Holding Co., Inc./AEI Resource Holding, Inc., Tranche Loan 12-31-03 Zero CCC+ 198 231,085 Tranche Loan 09-30-05 Zero CCC+ 219 255,873 Tranche Loan 09-30-05 Zero CCC+ 323 378,123 Great Lakes Acquisition Corp., Sr Disc Deb, Step Coupon (13.125%, 05-15-03) 05-15-09 (A) Zero B- 200 90,000 Great Lakes Carbon Corp., Gtd Sr Sub Note 05-15-08 10.250 B- 56 42,000 Finance 0.01% 4,800 Finova Group, Inc., Note 11-15-09 7.500 B2 15 4,800 Food 0.33% 237,676 Dean Foods Co., Sr Note 08-01-07 8.150 BB- 200 204,076 RAB Holdings, Inc., Sr Note 05-01-08 (R) 13.000 Ca 120 33,600 Government -- Foreign 40.95% 29,275,897 Bonos Y Oblig Del Estado, Bond (Spain) 07-30-04 (E) 4.500 AA+ 500 498,469 Bond (Spain) 10-31-11 (E) 5.350 AA+ 970 974,023 Brazil, Federative Republic of, Bond (Brazil) 04-02-09 (E) 11.500 B+ 240 139,838 Buoni Poliennali Del Tes, Bond (Italy) 08-01-11 (E) 5.250 AA 695 694,794 Canada, Government of, Bond (Canada) 12-01-02 # 6.000 AA+ 275 183,056 Bond (Canada) 09-01-05 # 6.000 AAA 1,000 686,824 Bond (Canada) 12-01-05 # 8.750 AAA 1,900 1,418,135 Bond (Canada) 12-01-06 # 7.000 AAA 2,300 1,651,746 Bond (Canada) 06-01-08 # 6.000 AAA 500 344,158 Bond (Canada) 06-01-09 # 5.500 AAA 2,500 1,669,045 Bond (Canada) 06-01-10 # 5.500 AA+ 1,675 1,111,872 Bond (Canada) 06-01-11 # 6.000 AAA 1,050 717,996 Bond (Canada) 06-01-29 # 5.750 AA+ 3,425 2,233,940 Chile, Republic of, Note (Chile) 01-11-12 7.125 A- 600 606,379 Colombia, Republic of, Note (Colombia) 01-31-08 (E) 11.375 BB 350 336,399 Note (Colombia) 04-09-11 9.750 BBB 726 744,502 Germany, Federal Republic of, Bond (Germany) 01-04-12 (E) 5.000 Aaa 750 743,852 Mexican, United States, Bond (Mexico) 02-17-09 10.375 BBB- 200 229,200 Note (Mexico) 01-14-11 8.375 BB+ 800 830,000 Note (Mexico) 08-15-31 8.300 BBB+ 300 292,050 New Zealand, Government of, Bond (New Zealand) 11-15-06 # 8.000 AAA 3,450 1,774,177 Bond (New Zealand) 11-15-11 # 6.000 AAA 2,525 1,171,294 Norway, Government of, Bond (Norway) 10-31-02 # 9.500 AAA 23,725 3,182,703 Panama, Republic of, Bond (Panama) 02-08-11 9.625 BB 700 679,000 Philippines, Republic of, Bond (Philippine Islands) 01-18-17 9.375 BB+ 400 408,000 Note (Philippine Islands) 03-12-09 8.375 BB+ 225 224,156 Russia, Federation of, Unsub Note (Russia) 06-26-07 10.000 B+ 1,715 1,817,042 Unsub Note (Russia) 03-31-10 8.250 B 725 713,037 Unsub Note (Russia) 07-24-18 11.000 B+ 850 919,615 Unsub Note (Russia) 06-24-28 12.750 B 600 720,030 Sweden, Government of, Bond (Sweden) 05-05-03 # 10.250 AAA 3,500 397,748 Bond (Sweden) 01-15-04 # 5.000 AAA 3,700 403,202 Uruguay, Republic of, Note (Uruguay) 09-26-05 (E) 7.000 BB- 400 268,615 Note (Uruguay) 03-25-09 7.875 BB- 200 114,000 Note (Uruguay) 01-20-12 7.625 BB- 100 57,000 Venezuela, Republic of, Bond (Venezuela) 09-15-27 9.250 B 500 320,000 Government -- U.S. 24.86% 17,776,779 United States Treasury, Bond 11-15-02 11.625 AAA 1,000 1,037,294 Bond 08-15-05 6.500 AAA 400 435,624 Bond 08-15-05 10.750 AAA 400 485,152 Bond 02-15-16 9.250 AAA 615 845,164 Bond 08-15-19 8.125 AAA 3,590 4,598,395 Bond 08-15-23 6.250 AAA 2,100 2,249,982 Bond 11-15-28 5.250 AAA 1,300 1,222,273 Note 08-15-04 7.250 AAA 2,240 2,436,336 Note 05-15-05 6.500 AAA 1,300 1,411,215 Note 08-15-07 6.125 AAA 940 1,024,544 Note 02-15-11 5.000 AAA 1,000 1,016,920 Note 08-15-11 5.000 AAA 1,000 1,013,880 Leisure 5.53% 3,951,844 Chumash Casino & Resort, Sr Note 07-15-10 (R) 9.000 BB- 200 202,000 Coast Hotels and Casinos, Inc., Sr Sub Deb 04-01-09 9.500 B 300 315,750 Fitzgeralds Gaming Corp., Gtd Sr Sec Note Ser B 12-15-04 (B) 12.250 D 50 3,500 HMH Properties, Inc., Sr Note Ser B 08-01-08 7.875 BB- 100 95,500 Hockey Co. (The)/Sport Maska, Inc., Unit (Sr Sec Note & Sr Sec Note) (Canada) 04-15-09 (R) 11.250 B 300 300,000 Isle of Capri Casinos, Inc., Sr Sub Note 03-15-12 (R) 9.000 B 300 303,000 Jacobs Entertainment, Inc., Sr Sec Note 02-01-09 (R) 11.875 B 300 307,500 Jupiters Ltd., Sr Note (Australia) 03-01-06 8.500 BB+ 150 153,000 Majestic Investor Holding LLC/ Majestic Investor Capital Co., Gtd Sr Sec Note 11-30-07 (R) 11.653 B 300 284,625 Mandalay Resort Group, Sr Sub Note 02-15-10 9.375 BB- 100 103,500 Mohegan Tribal Gaming Authority, Sr Sub Note 04-01-12 (R) 8.000 BB- 400 401,500 Penn National Gaming, Inc., Sr Sub Note 03-01-08 11.125 B- 225 242,719 Six Flags, Inc., Sr Note 02-01-10 8.875 B 100 99,500 Station Casinos, Inc., Sr Note 02-15-08 8.375 BB- 200 204,500 Sun International Hotels Ltd., Gtd Sr Sub Note (Bahamas) 12-15-07 8.625 B+ 55 56,237 Gtd Sr Sub Note (Bahamas) 08-15-11 8.875 B+ 110 112,338 Sr Sub Note (Bahamas) 08-15-11 (R) 8.875 B+ 90 92,025 Waterford Gaming LLC, Sr Note 03-15-10 (R) 9.500 B+ 455 468,650 Wheeling Island Gaming, Inc., Sr Note 12-15-09 10.125 B+ 200 206,000 Linen Supply and Related 0.32% 228,375 Coinmach Corp., Sr Note 02-01-10 (R) 9.000 B 225 228,375 Machinery 0.01% 7,500 Glasstech, Inc., Sr Note Ser B 07-01-04 12.750 D 25 7,500 Media 3.83% 2,737,320 Antenna TV S.A., Sr Note (Greece) 07-01-08 (E) 9.750 BB- 50 40,984 Callahan Nordrhein-Westfalen GmbH, Sr Note (Germany) 07-15-11 (E) 14.125 B- 320 18,961 Corus Entertainment, Inc. Sr Sub Note (Canada) 03-01-12 8.750 B+ 160 162,400 Fox Family Worldwide, Inc., Sr Disc Note, Step Coupon (10.25%, 11-15-02) 11-01-07 (A) Zero A- 400 420,000 Garden State Newspapers, Inc., Sr Sub Note Ser B 10-01-09 8.750 B+ 200 197,500 Sr Sub Note 07-01-11 8.625 B+ 200 201,500 Grupo Televisa S.A., Bond (Mexico) 03-11-32 (R) 8.500 BBB- 300 258,000 Note (Mexico) 09-13-11 8.000 BBB- 300 282,000 Innova S. de R.L., Sr Note (Mexico) 04-01-07 12.875 B- 600 468,000 Pegasus Communications Corp., Sr Note Ser B 08-01-07 12.500 CCC+ 435 241,425 Sinclair Broadcast Group, Gtd Sr Sub Note 03-15-12 8.000 B 375 371,250 Sr Sub Note 12-15-11 8.750 B 50 50,000 Sirius Satellite Radio, Inc., Sr Disc Note, Step Coupon (15.00%, 12-01-02) 12-01-07 (A) Zero CCC+ 110 25,300 Medical 0.66% 474,000 Advanced Medical Optics, Inc., Sr Sub Note 07-15-10 (R) 9.250 B 300 295,500 Select Medical Corp., Sr Sub Note 06-15-09 9.500 B 175 178,500 Metal 0.11% 77,875 Freeport-McMoRan Copper & Gold, Inc., Sr Note 11-15-06 7.500 B- 75 67,875 Golden Northwest Aluminum, Inc., 1st Mtg Note 12-15-06 12.000 CC 25 10,000 Oil & Gas 4.70% 3,363,179 Chesapeake Energy Corp., Sr Note 04-01-11 8.125 B+ 300 292,500 Comstock Resources, Inc., Gtd Sr Note 05-01-07 11.250 B- 175 180,687 Sr Note 05-01-07 (R) 11.250 B- 175 181,562 Giant Industries, Inc., Sr Sub Note 05-15-12 (R) 11.000 B 200 176,000 Key Energy Services, Inc., Sr Sub Note Ser B 01-15-09 14.000 B 68 78,880 Mariner Energy, Inc., Sr Sub Note Ser B 08-01-06 10.500 C 10 9,450 OAO Siberian Oil Co., Bond (Russia) 02-13-07 11.500 Ba3 335 335,000 Ocean Rig Norway A.S., Sr Sec Note (Norway) 06-01-08 10.250 CCC 255 224,400 Parker Drilling Co., Gtd Sr Note 11-15-09 10.125 B+ 300 313,500 Pemex Project Funding Master Trust, Gtd Note (Mexico) 02-15-08 8.500 BB+ 400 415,000 Note (Mexico) 02-01-09 (R) 7.875 BBB- 350 349,125 Pennzoil-Quaker State Co., Note 12-01-02 9.400 BB+ 250 255,700 Universal Compression, Inc., Sr Disc Note, Step Coupon (9.875%, 02-15-03) 02-15-08 (A) Zero B+ 100 95,000 Western Oil Sands, Inc., Sr Sec Note (Canada) 05-01-12 (R) 8.375 BB+ 150 150,375 XTO Energy, Inc., Sr Note 04-15-12 7.500 BB 300 306,000 Paper & Paper Products 1.78% 1,271,525 APP China Group Ltd., Sr Disc Note (Indonesia) 03-15-10 (B) (R) 14.000 D 250 60,000 APP Finance (VII) Mauritius Ltd., Gtd Note (Indonesia) 04-30-03 (B) (R) 3.500 D 10 800 Corporacion Durango S.A. de C.V., Sr Note (Mexico) 08-01-06 13.125 B- 631 536,350 Longview Fibre Co., Sr Sub Note 01-15-09 (R) 10.000 B+ 250 259,375 Stone Container Corp., Sr Note 02-01-11 9.750 B 200 214,000 Sr Note 07-01-12 (R) 8.375 B 200 201,000 Real Estate Operations 0.00% 4 Signature Resorts, Inc., Conv Sub Note 01-15-07 (B) 5.750 D 35 4 Retail 0.00% 125 Imperial Home Decor Group, Inc, Gtd Sr Sub Note 03-15-08 11.000 C 125 125 Steel 0.11% 76,745 Gulf States Steel, Inc. of Alabama, 1st Mtg Bond 04-15-03 (B) 13.500 Caa3 100 0 LTV Corp. (The) Gtd Sr Sub Note 11-15-09 (B) 11.750 Ca 50 3 Metallurg Holdings, Inc., Sr Disc Note, Step Coupon (12.75%, 07-15-03) 07-15-08 (A) Zero CCC+ 50 25,000 Metallurg, Inc., Gtd Sr Note Ser B 12-01-07 11.000 B- 30 27,900 NSM Steel, Inc./NSM Steel Ltd., Gtd Sr Sub Mtg Note Ser B 02-01-08 (B) (R) 12.250 D 75 0 Oregon Steel CF&I, Note 03-31-03 (r) 9.500 B 24 23,842 Telecommunications 2.19% 1,564,165 Crown Castle International Corp., Sr Disc Note, Step Coupon (10.625%, 11-15-02) 11-15-07 (A) Zero B 90 59,400 Grupo Iusacell S.A. de C.V., Sr Note (Mexico) 12-01-06 14.250 B+ 300 228,000 Ionica PLC, Sr Disc Note, Step Coupon (15.00%, 05-01-02) (United Kingdom) 05-01-07 (A) Zero Ca 200 0 Loral CyberStar, Inc., Gtd Sr Note 07-15-06 10.000 B 75 51,000 McCaw International Ltd., Sr Disc Note, Step Coupon (13.00%, 04-15-02) 04-15-07 (A) Zero D 500 20,000 MetroNet Communications Corp., Sr Disc Note, Step Coupon (10.75%, 11-01-02) (Canada) 11-01-07 (A) Zero CC 200 18,250 Sr Note (Canada) 08-15-07 12.000 CC 50 5,000 Nextel International, Inc., Sr Note 08-01-10 12.750 D 100 4,000 Nextel Partners, Inc., Sr Disc Note, Step Coupon (14.00%, 02-01-04) 02-01-09 (A) Zero CCC+ 405 137,700 ONO Finance Plc, Sr Sub Note (United Kingdom) 05-01-09 (E) 13.000 CCC+ 100 35,552 Sr Note (United Kingdom) 07-15-10 (E) 14.000 CCC+ 250 91,349 PanAmSat Corp., Gtd Sr Note 02-01-12 (R) 8.500 B 300 285,000 Pronet Inc., Sr Sub Note 06-15-05 11.875 D 280 28 PTC International Finance B.V., Gtd Sr Sub Disc Note, Step Coupon (10.75%, 07-01-02) (Netherlands) 07-01-07 (A) Zero B+ 200 204,000 PTC International Finance II S.A., Sr Sub Note (Luxembourg) 12-01-09 (E) 11.250 B+ 125 130,234 TeleCorp PCS, Inc., Sr Sub Disc Note, Step Coupon (11.625%, 04-15-04) 04-15-09 (A) Zero BBB 118 89,680 Tritel PCS, Inc., Sr Sub Disc Note, Step Coupon (12.75%, 05-15-04) 05-15-09 (A) Zero BBB 52 40,820 Versatel Telecom International NV, Sr Note (Netherlands) 05-15-08 13.250 D 100 31,500 Sr Note Ser EU (Netherlands) 07-15-09 (E) 11.875 D 100 27,652 VoiceStream Wireless Corp., Sr Note 09-15-09 11.500 BBB+ 100 105,000 Textile 0.05% 37,500 Coyne International Enterprises Corp., Sr Sub Note 06-01-08 11.250 Caa1 75 37,500 Steel Heddle Group, Inc., Sr Disc Deb, Step Coupon (13.75%, 06-01-03) 06-01-09 (A) (B) Zero Caa2 200 0 Steel Heddle Manufacturing Co., Gtd Sr Sub Note Ser B 06-01-08 (B) 10.625 Caa1 50 0 Transportation 0.90% 640,499 Cenargo International Plc, 1st Mtg Note (United Kingdom) 06-15-08 9.750 B+ 20 15,000 CHC Helicopter Corp., Sr Sub Note (Canada) 07-15-07 (E) 11.750 B 130 142,504 Fine Air Services, Inc., Sr Note 06-01-08 (B) 9.875 D 210 262 North American Van Lines, Inc., Sr Sub Note 12-01-09 (R) 13.375 B- 350 371,000 Pacific & Atlantic Holdings, Inc., Sr Sec Note (Greece) 12-31-07 (R) 10.500 CC 24 9,733 Petroleum Helicopters, Inc., Gtd Sr Note Ser B 05-01-09 9.375 BB- 100 102,000 Utilities 1.02% 732,919 AES Corp., Sr Note 06-01-09 9.500 BB- 100 65,000 Midland Funding Corp. II, Deb Ser A 07-23-05 11.750 BB+ 200 202,661 Deb Ser B 07-23-06 13.250 BB+ 150 153,000 Monterrey Power S.A. de C.V., Sr Sec Bond (Mexico) 11-15-09 (R) 9.625 BBB- 158 165,801 Niagara Mohawk Power Corp., Sec Fac Bond 01-01-18 8.770 A 141 146,457 Waste Disposal Service & Equip. 0.01% 10,200 Waste Systems International, Inc., Gtd Sr Note 01-15-06 (B) 11.500 C 15 10,200 SHARES ISSUER VALUE COMMON STOCK 0.65% $467,274 (Cost $821,661) Consumer Products -- Misc. 0.03% 20,550 3,448 ContinentalAFA Dispensing Co. ** 20,550 Energy 0.15% 105,018 8,476 Horizon Natural Resources Co. ** 105,018 Food 0.03% 19,675 1,046 Pathmark Stores, Inc. ** 19,675 Metal 0.25% 181,794 128,600 TVX Gold, Inc. (Canada) # ** 181,794 Oil & Gas 0.18% 131,475 1,872 Chesapeake Energy Corp. ** 13,478 28,850 Grey Wolf, Inc. ** 117,997 Retail 0.01% 8,487 660 SpinCycle, Inc. ** 8,487 Telecommunications 0.00% 227 2,417 International Wireless Communications Holdings, Inc. ** 0 2,696 PFB Telecom B.V., Class B (United Kingdom) ** 0 2,383 PFB Telecom B.V., Class B (Germany) # ** 227 111 Versatel Telecom International N.V., American Depositary Receipt (ADR) (Netherlands) ** 0 Waste Disposal Service & Equip. 0.00% 48 8,715 Waste Systems International, Inc. (B) ** 48 PREFERRED STOCKS AND WARRANTS 0.16% 115,775 (Cost $435,725) Manufacturing 0.00% 106 212 HF Holdings, Inc., Warrant ** 106 Media 0.00% 1 50 ONO Finance Plc, Warrant (United Kingdom) (E) (R) ** 0 100 ONO Finance Plc, Warrant (United Kingdom) (R) ** 1 Oil & Gas 0.00% 13 15 Chesapeake Energy Corp., Warrant ** 13 1,361 Chesapeake Energy Corp., Warrant ** 0 Paper & Paper Products 0.12% 83,028 250 Asia Pulp & Paper Co. Ltd., Warrant (R) ** 3 4,100 Smurfit-Stone Container Corp., 7.00%, Ser A, Preferred Stock 83,025 Retail 0.00% 3,737 35,000 Hills Stores Co., Warrant ** 0 740 Pathmark Stores, Inc., Warrant ** 3,737 Steel 0.00% 1 63,309 Nakornthai Strip Mill Plc, Warrant (Thailand) (R) ** 1 Telecommunications 0.03% 22,385 250 Allegiance Telecom, Inc., Warrant ** 2 100 Comunicacion Celular S.A., Warrant (Colombia) ** 1 100 Loral Space & Communications Ltd., Warrant ** 1 740 Loral Space & Communications Ltd., Warrant ** 925 2,682 XO Communications, Inc., 14.00%, Preferred Stock 21,456 Transport 0.01% 6,500 1,300 Pacific & Atlantic Holdings, Inc., 7.50%, Preferred Stock (Greece) 6,500 Waste Disposal Service & Equip. 0.00% 4 160 Waste Systems International, Inc., 8.00%, Ser E, Preferred Stock (B) ** 2 225 Waste Systems International, Inc., Warrant (B) (R) ** 2 ISSUER, DESCRIPTION, INTEREST PAR VALUE MATURITY DATE RATE (000S OMITTED) VALUE SHORT-TERM INVESTMENTS 0.51% $362,000 (Cost $362,000) Joint Repurchase Agreement 0.51% $362,000 Investment in a joint repurchase agreement transaction with Barclays Capital, Inc. -- Dated 06-28-02 due 07-01-02 (Secured by U.S. Treasury Inflation Indexed Bonds 3.875% due 04-15-29 and 3.375% due 04-15-32 and U.S. Treasury Inflation Indexed Notes 3.625% thru 3.875% due 07-15-02 thru 01-15-09) 1.92% $362 362,000 TOTAL INVESTMENTS 93.18% $66,621,715 OTHER ASSETS AND LIABILITIES, NET 6.82% $4,873,038 TOTAL NET ASSETS 100.00% $71,494,753 * Credit ratings are unaudited and rated by Moody's Investors Service or John Hancock Advisers, LLC where Standard & Poor's ratings are not available. ** Non-income producing security. # Par value of foreign bonds is expressed in local currency, as shown parenthetically in security description. (A) Cash interest will be paid on this obligation at the stated rate beginning on the stated date. (B) Non-income producing issuer, filed for protection under Federal Bankruptcy Code or is in default on interest payment. (E) Parenthetical disclosure of a country in the security description represents country of issuer; however, security is euro-denominated. (R) These securities are exempt from registration under Rule 144A of the Securities Act of 1933. Such securities may be resold, normally to qualified institutional buyers, in transactions exempt from registration. Rule 144A securities amounted to $6,588,856, or 9.22% of the Fund's net assets, as of June 30, 2002. (r) Direct placement securities are restricted to resale. They have been valued at fair value by the Trustees after considerations of restrictions as to resale, financial condition and prospects of the issuer, general market conditions and pertinent information in accordance with the Fund's By-Laws and the Investment Company Act of 1940, as amended. The Fund has limited rights to registration under the Securities Act of 1933 with respect to these restricted securities. Additional information on the restricted security is as follows: MARKET VALUE AS A VALUE ACQUISITION ACQUISITION % OF FUND'S AS OF ISSUER, DESCRIPTION DATE COST NET ASSETS 6-30-02 ----------------------------------------------------------------------------------- Oregon Steel CF&I 05-14-98 $34,696 0.03% $23,842 Parenthetical disclosure of a foreign country in the security description represents country of foreign issuer; however, security is U.S.-dollar-denominated, unless stated otherwise. The percentage shown for each investment category is the total value of that category as a percentage of the net assets of the Fund.
PORTFOLIO CONCENTRATION VALUE AS A PERCENTAGE COUNTRY DIVERSIFICATION OF FUND'S NET ASSETS Australia 0.25% Bahamas 0.36 Brazil 0.45 Canada 15.34 Chile 1.27 Colombia 1.51 France 0.16 Germany 1.07 Greece 0.08 Indonesia 0.08 Italy 0.97 Luxembourg 0.18 Mexico 5.85 Netherlands 0.71 New Zealand 4.12 Norway 4.76 Panama 0.95 Philippine Islands 0.88 Russia 6.29 Spain 2.06 Sweden 1.12 Thailand 0.00 United Kingdom 0.20 United States 43.46 Uruguay 0.61 Venezuela 0.45 Total investments 93.18% VALUE AS A PERCENTAGE QUALITY DISTRIBUTION OF FUND'S NET ASSETS AAA 44.67% AA 7.97 A 1.64 BBB 4.31 BB 9.26 B 21.19 CCC 2.45 CC 0.11 C 0.03 D 0.23 Total bonds 91.86% See notes to financial statements. Statement of Assets and Liabilities 6-30-02 UNAUDITED ASSETS Investments at value (cost $69,426,242) $66,621,715 Cash 2,716 Receivable for investments sold 4,882,664 Receivable for forward foreign currency exchange contracts 189 Dividends and interest receivable 1,575,249 Other assets 2,080 Total assets 73,084,613 LIABILITIES Dividends payable 43,340 Payable for investments purchased 859,881 Payable for forward foreign currency exchange contracts 606,843 Payable to affiliates 74,866 Other payables and accrued expenses 4,930 Total liabilities 1,589,860 NET ASSETS Capital paid-in 80,044,753 Accumulated net realized loss on investments and foreign currency transactions (4,245,912) Net unrealized depreciation of investments and translation of assets and liabilities in foreign currencies (3,368,530) Distributions in excess of net investment income (935,558) Net assets $71,494,753 NET ASSET VALUE PER SHARE (Based on 8,436,825 shares of beneficial interest outstanding -- unlimited number of shares authorized with no par value) $8.47 Statement of Operations For the period ended 6-30-02 UNAUDITED 1 INVESTMENT INCOME Interest $2,548,406 Dividends (net of foreign withholding taxes of $4,385) 52,792 Total investment income 2,601,198 EXPENSES Investment management fee 212,242 Custodian fee 26,182 Accounting and legal services fee 7,489 Auditing fee 6,774 Printing 2,955 Trustees' fee 1,488 Miscellaneous 1,232 Legal fee 278 Registration and filing fee 2 Total expenses 258,642 Net investment income 2,342,556 REALIZED AND UNREALIZED GAIN (LOSS) Net realized gain (loss) on Investments (2,121,421) Foreign currency transactions 579 Change in unrealized appreciation (depreciation) of Investments 1,525,154 Translation of assets and liabilities in foreign currencies (561,005) Net realized and unrealized loss (1,156,693) Increase in net assets from operations $1,185,863 1 Semiannual period from 1-1-02 through 6-30-02. See notes to financial statements. Statement of Changes in Net Assets YEAR PERIOD ENDED ENDED 12-31-01 6-30-02 1 INCREASE (DECREASE) IN NET ASSETS From operations Net investment income $3,568,274 $2,342,556 Net realized loss (1,354,183) (2,120,842) Change in net unrealized appreciation (depreciation) 64,757 964,149 Increase in net assets resulting from operations 2,278,848 1,185,863 Distributions to shareholders From net investment income (3,986,158) (2,624,017) (3,986,158) (2,624,017) From fund share transactions 36,129,909 4,038,509 NET ASSETS Beginning of period 34,471,799 68,894,398 End of period 2 $68,894,398 $71,494,753 1 Semiannual period from 1-1-02 through 6-30-02. Unaudited. 2 Includes distributions in excess of net investment income of $654,097 and $935,558, respectively. Financial Highlights 12-31-97 12-31-98 12-31-99 12-31-00 12-31-01 1 6-30-02 1,2 PER SHARE OPERATING PERFORMANCE Net asset value, beginning of period $10.30 $10.47 $10.10 $9.77 $8.97 $8.64 Net investment income 3 0.91 0.85 0.80 0.83 0.65 0.28 Net realized and unrealized gain (loss) on investments 0.26 (0.35) (0.33) (0.71) (0.26) (0.14) Total from investment operations 1.17 0.50 0.47 0.12 0.39 0.14 Less distributions From net investment income (0.91) (0.85) (0.80) (0.83) (0.72) (0.31) From net realized gain (0.09) (0.02) -- (0.09) -- -- (1.00) (0.87) (0.80) (0.92) (0.72) (0.31) Net asset value, end of period $10.47 $10.10 $9.77 $8.97 $8.64 $8.47 Total return 4 (%) 11.77 5 4.92 5 4.82 5 1.40 4.58 1.82 6 RATIOS AND SUPPLEMENTAL DATA Net assets, end of period (in millions) $6 $15 $22 $34 $69 $71 Ratio of expenses to average net assets % 0.85 0.85 0.85 0.76 0.71 0.73 7 Ratio of adjusted expenses to average net assets 8 % 1.37 0.93 0.87 -- -- -- Ratio of net investment income to average net assets % 8.77 8.19 8.06 8.91 8.00 6.62 7 Portfolio turnover % 110 92 53 9 53 101 9 37 1 As required, effective January 1, 2001 the Fund has adopted the provisions of the AICPA Audit and Accounting Guide for Investment Companies, as revised, relating to the amortization of premiums and accretion of discounts on debt securities. The effect of this change on per share amounts for the year ended December 31, 2001, was to decrease net investment income per share by $0.07, decrease net realized and unrealized losses per share by $0.07, and, had the Fund not made these changes to amortization and accretion, the ratio of net investment income to average net assets would have been 8.00%. The effect of this change on per share amounts for the period ended June 30, 2002 was to decrease net investment income per share by $0.03, decrease net realized and unrealized losses per share by $0.03, and, had the Fund not made these changes to amortization and accretion, the annualized ratio of net investment income to average net assets would have been 7.20%. Per share ratios and supplemental data for periods prior to January 1, 2001 have not been restated to reflect this change in presentation. 2 Semiannual period from 1-1-02 through 6-30-02. Unaudited. 3 Based on the average of the shares outstanding. 4 Assumes dividend reinvestment. 5 Total returns would have been lower had certain expenses not been reduced during the periods shown. 6 Not annualized. 7 Annualized. 8 Does not take into consideration expense reductions during the periods shown. 9 Excludes merger activity. See notes to financial statements.
NOTES TO FINANCIAL STATEMENTS UNAUDITED NOTE A Accounting policies John Hancock V. A. Strategic Income Fund (the "Fund") is a diversified series of John Hancock Declaration Trust (the "Trust"), an open-end investment management company registered under the Investment Company Act of 1940. The Trustees may authorize the creation of additional series from time to time to satisfy various investment objectives. An insurance company issuing a Variable Contract that participates in the Trust will vote shares of the Fund held by the insurance company's separate accounts as required by law. In accordance with current law and interpretations thereof, participating insurance companies are required to request voting instructions from policy owners and must vote shares of the Fund in proportion to the voting instructions received. The investment objective of the Fund is to seek a high level of current income. The Fund has one class of shares with equal rights as to voting, redemption, dividends and liquidation. Significant accounting policies of the Fund are as follows: Valuation of investments Securities in the Fund's portfolio are valued on the basis of market quotations, valuations provided by independent pricing services or, if quotations are not readily available, or the value has been materially affected by events occurring after the closing of a foreign market, at fair value as determined in good faith in accordance with procedures approved by the Trustees. Short-term debt investments maturing within 60 days are valued at amortized cost, which approximates market value. All portfolio transactions initially expressed in terms of foreign currencies have been translated into U.S. dollars as described in "Foreign currency translation" below. Joint repurchase agreement Pursuant to an exemptive order issued by the Securities and Exchange Commission, the Fund, along with other registered investment companies having a management contract with John Hancock Advisers, LLC (the "Adviser"), a wholly owned subsidiary of The Berkeley Financial Group, LLC, may participate in a joint repurchase agreement transaction. Aggregate cash balances are invested in one or more large repurchase agreements, whose underlying securities are obligations of the U.S. government and/or its agencies. The Fund's custodian bank receives delivery of the underlying securities for the joint account on the Fund's behalf. The Adviser is responsible for ensuring that the agreement is fully collateralized at all times. Foreign currency translation All assets or liabilities initially expressed in terms of foreign currencies are translated into U.S. dollars based on London currency exchange quotations as of 5:00 P.M., London time, on the date of any determination of the net asset value of the Fund. Transactions affecting statement of operations accounts and net realized gain (loss) on investments are translated at the rates prevailing at the dates of the transactions. The Fund does not isolate that portion of the results of operations resulting from changes in foreign exchange rates on investments from the fluctuations arising from changes in market prices of securities held. Such fluctuations are included with the net realized and unrealized gain or loss from investments. Reported net realized foreign exchange gains or losses arise from sales of foreign currency, currency gains or losses realized between the trade and settlement dates on securities transactions and the difference between the amounts of dividends, interest and foreign withholding taxes recorded on the Fund's books and the U.S. dollar equivalent of the amounts actually received or paid. Net unrealized foreign exchange gains and losses arise from changes in the value of assets and liabilities, other than investments in securities, resulting from changes in the exchange rates. Investment transactions Investment transactions are recorded as of the date of purchase, sale or maturity. Net realized gains and losses on sales of investments are determined on the identified cost basis. Capital gains realized on some foreign securities are subject to foreign taxes, which are accrued as applicable. Discount and premium on securities The Fund accretes discount and amortizes premium from par value on securities from either the date of issue or the date of purchase over the life of the security. Expenses The majority of the expenses are directly identifiable to an individual fund. Expenses that are not readily identifiable to a specific fund will be allocated in such a manner as deemed equitable, taking into consideration, among other things, the nature and type of expense and the relative sizes of the funds. Bank borrowings The Fund is permitted to have bank borrowings for temporary or emergency purposes, including the meeting of redemption requests that otherwise might require the untimely disposition of securities. The Fund has entered into a syndicated line of credit agreement with various banks. This agreement enables the Fund to participate with other funds managed by the Adviser in an unsecured line of credit with banks, which permit borrowings up to $475 million, collectively. Interest is charged to each fund, based on its borrowing. In addition, a commitment fee is charged to each fund based on the average daily unused portion of the line of credit and is allocated among the participating funds. The Fund had no borrowing activity under the line of credit during the period ended June 30, 2002. Securities lending The Fund may lend securities to certain qualified brokers who pay the Fund negotiated lender fees. The loans are collateralized at all times with cash or securities with a market value at least equal to the market value of the securities on loan. As with other extensions of credit, the Fund may bear the risk of delay of the loaned securities in recovery or even loss of rights in the collateral, should the borrower of the securities fail financially. There were no securities loaned on June 30, 2002. Forward foreign currency exchange contracts The Fund may enter into forward foreign currency exchange contracts as a hedge against the effect of fluctuations in currency exchange rates. A forward foreign currency exchange contract involves an obligation to purchase or sell a specific currency at a future date at a set price. The aggregate principal amounts of the contracts are marked to market daily at the applicable foreign currency exchange rates. Any resulting unrealized gains and losses are included in the determination of the Fund's daily net assets. The Fund records realized gains and losses at the time the forward foreign currency exchange contract is closed out. Risks may arise upon entering these contracts from the potential inability of counterparties to meet the terms of the contract and from unanticipated movements in the value of a foreign currency relative to the U.S. dollar. These contracts involve market or credit risk in excess of the unrealized gain or loss reflected in the Fund's statement of assets and liabilities. The Fund may also purchase and sell forward contracts to facilitate the settlement of foreign currency denominated portfolio transactions, under which it intends to take delivery of the foreign currency. Such contracts normally involve no market risk if they are offset by the currency amount of the underlying transaction. The Fund had the following forward foreign currency exchange contracts open on June 30, 2002: PRINCIPAL AMOUNT UNREALIZED COVERED BY EXPIRATION APPRECIATION CURRENCY CONTRACT MONTH (DEPRECIATION) ---------------------------------------------------------------- BUY Euro 178,995 July 02 $189 New Zealand Dollar 1,015,140 July 02 (562) ($373) SELLS Euro 173,911 July 02 ($184) Euro 817,000 Aug 02 (72,004) Pound Sterling 606,000 July 02 (55,582) Norwegian Krona 25,978,875 Oct 02 (478,511) ($606,281) Federal income taxes The Fund qualifies as a "regulated investment company" by complying with the applicable provisions of the Internal Revenue Code and will not be subject to federal income tax on taxable income that is distributed to shareholders. Therefore, no federal income tax provision is required. For federal income tax purposes, the Fund has $3,403,688 of a capital loss carryforward available, to the extent provided by regulations, to offset future net realized capital gains. To the extent that such carryforward is used by the Fund, no capital gain distributions will be made. The Fund's carryforwards expire as follows: December 31, 2006 -- $4,130, December 31, 2007 -- $136,493, December 31, 2008 --$1,506,009 and December 31, 2009 -- $1,757,056. Availability on $4,130 and $1,050,232 of capital loss carryforwards, which were acquired by the Fund from the mergers of the V.A. World Bond Fund on March 26, 1999 and the V.A. High Yield Bond Fund on December 14, 2001, may be limited in a given year. Dividends, interest and distributions Dividend income on investment securities is recorded on the ex-dividend date or, in the case of some foreign securities, on the date thereafter when the Fund identifies the dividend. Interest income on investment securities is recorded on the accrual basis. The Fund may place a debt obligation on non-accrual status and reduce related interest income by ceasing current accruals and writing off interest receivables when the collection of interest has become doubtful. Foreign income may be subject to foreign withholding taxes, which are accrued as applicable. The Fund records distributions to shareholders from net investment income and realized gains on the ex-dividend date. The Fund's net investment income is declared daily as dividends to shareholders of record as of the close of business on the preceding day, and distributed monthly. During the period ended June 30, 2002, the tax character of distributions paid was as follows: ordinary income $2,624,017. Such distributions on a tax basis are determined in conformity with income tax regulations, which may differ from accounting principles generally accepted in the United States of America. Distributions in excess of tax basis earnings and profits, if any, are reported in the Fund's financial statements as a return of capital. Use of estimates The preparation of these financial statements, in accordance with accounting principles generally accepted in the United States of America, incorporates estimates made by management in determining the reported amount of assets, liabilities, revenues and expenses of the Fund. Actual results could differ from these estimates. NOTE B Management fee and transactions with affiliates and others The Fund has an investment management contract with the Adviser. Under the investment management contract, the Fund pays a monthly management fee to the Adviser at an annual rate of 0.60% of the Fund's average daily net asset value. The Adviser has agreed to limit the Fund's expenses, excluding the management fee, to 0.25% of the Fund's average daily net assets, at least until April 30, 2003. There was no expense reduction for the period ended June 30, 2002. The Adviser reserves the right to terminate this limitation in the future. The Fund has an agreement with the Adviser to perform necessary tax, accounting and legal services for the Fund. The compensation for the period was at an annual rate of 0.02% of the average net assets of the Fund. Ms. Maureen R. Ford and Mr. John M. DeCiccio are directors and/or officers of the Adviser and/or its affiliates, as well as Trustees of the Fund. The compensation of unaffiliated Trustees is borne by the Fund. The unaffiliated Trustees may elect to defer for tax purposes their receipt of this compensation under the John Hancock Group of Funds Deferred Compensation Plan. The Fund makes investments into other John Hancock funds, as applicable, to cover its liability for the deferred compensation. Investments to cover the Fund's deferred compensation liability are recorded on the Fund's books as an other asset. The deferred compensation liability and the related other asset are always equal and are marked to market on a periodic basis to reflect any income earned by the investment as well as any unrealized gains or losses. The Deferred Compensation Plan investments had no impact on the operations of the Fund. NOTE C Fund share transactions This listing illustrates the number of Fund shares sold, reinvested and repurchased during the last two periods, along with the corresponding dollar value. The Fund has an unlimited number of shares authorized with no par value.
YEAR ENDED 12-31-01 PERIOD ENDED 6-30-02 1 SHARES AMOUNT SHARES AMOUNT Shares sold 4,745,566 $41,571,562 946,908 $7,968,026 Issued in reorganization 454,719 3,986,158 -- -- Distributions reinvested 402,919 3,482,022 347,050 2,580,675 Repurchased (1,475,346) (12,909,833) (826,762) (6,510,192) NET INCREASE 4,127,858 $36,129,909 467,196 $4,038,509 1 Semiannual period from 1-1-02 through 6-30-02. Unaudited.
NOTE D Investment transactions Purchases and proceeds from sales of securities, other than short-term securities and obligations of the U.S. government, during the period ended June 30, 2002, aggregated $29,083,783 and $18,636,322, respectively, and purchases and proceeds from sales of obligations of U.S. government aggregated $2,846,453 and $5,677,764, respectively. The cost of investments owned on June 30, 2002, including short-term investments, for federal income tax purposes was $69,694,011. Gross unrealized appreciation and depreciation of investments aggregated $2,551,311 and $5,623,607, respectively, resulting in net unrealized depreciation of $3,072,296. The difference between book basis and tax basis net unrealized depreciation of investments is attributable primarily to the tax deferral of losses on wash sales and amortization of premiums and accretion of discounts on debt securities. NOTE E Change in accounting principle Effective January 1, 2001, the Fund adopted the provisions of the AICPA Audit and Accounting Guide for Investment Companies, as revised, relating to the amortization of premiums and accretion of discounts on debt securities. The cumulative effect of this accounting change had no impact on the total net assets of the Fund, but resulted in a $230,438 reduction in the cost of investments and a corresponding decrease in net unrealized depreciation of investments, based on securities held as of December 31, 2000. The effect of this change for the year ended December 31, 2001 was to decrease net investment income by $417,884, increase unrealized depreciation on investments by $47,891 and decrease net realized loss on investments by $465,775. The effect of this change for the period ended June 30, 2002 was to decrease net investment income by $204,702, decrease unrealized depreciation of investments by $80,935 and decrease net realized loss on investments by $123,767. The statement of changes in net assets and the financial highlights for prior periods have not been restated to reflect this change in presentation. NOTE E Reorganization On December 5, 2001, the shareholders of John Hancock V.A. High Yield Bond Fund ("V.A. High Yield Bond Fund") approved a plan of reorganization between V.A. High Yield Bond Fund and the Fund providing for the transfer of substantially all of the assets and liabilities of the V.A. High Yield Bond Fund to the Fund in exchange solely for shares of beneficial interest in the Fund. The acquisition was accounted for as a tax-free exchange of 402,919 shares of the Fund for the net assets of V.A. High Yield Bond Fund, which amounted to $3,482,022, including $2,437,674 of unrealized depreciation of investments, after the close of business on December 14, 2001. JOHN HANCOCK FUNDS DECLARATION TRUST SEMIANNUAL REPORT [LOGO] John Hancock [Rings] World Wide Sponsor John Hancock Funds, LLC MEMBER NASD 101 Huntington Avenue Boston, MA 02199-7603 1-800-225-5291 1-800-554-6713 TDD 1-800-338-8080 EASI-Line www.jhfunds.com Mutual Funds Institutional Services Private Managed Accounts Retirement Plans This report is for the information of the shareholders of the Hancock V.A. Strategic Income Fund. NOT FDIC INSURED MAY LOSE VALUE NO BANK GUARANTEE 823SA 6/02 8/02 Not all of the funds described in this report are available on every product. Please refer to the prospectus for additional information about the investment options on your variable product. These reports may be used as sales literature when preceded or accompanied by the funds' current prospectus, which details charges, investment objectives and operating policies. John Hancock Variable Products are issued by John Hancock Life Insurance Company or its subsidiary, John Hancock Variable Life Insurance Company (not licensed in New York), Boston, MA 02117 and are distributed by Signator Investors, Inc., 200 Clarendon Street, John Hancock Place, Boston, MA 02117. DECSA 6/02