-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, QXNF0kz8dsOR8r983kiO9FPfrTAyUMk9ZSDcsehpb9MzwtrNYRGqxtny0JpQRcEh MLt+trJp1xkFwJXhv/wECA== 0000928816-03-000140.txt : 20030224 0000928816-03-000140.hdr.sgml : 20030224 20030224171820 ACCESSION NUMBER: 0000928816-03-000140 CONFORMED SUBMISSION TYPE: N-30D PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 20021231 FILED AS OF DATE: 20030224 EFFECTIVENESS DATE: 20030224 FILER: COMPANY DATA: COMPANY CONFORMED NAME: HANCOCK JOHN DECLARATION TRUST CENTRAL INDEX KEY: 0001003457 STATE OF INCORPORATION: MA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: N-30D SEC ACT: 1940 Act SEC FILE NUMBER: 811-07437 FILM NUMBER: 03578027 BUSINESS ADDRESS: STREET 1: 101 HUNTINGTON AVE CITY: BOSTON STATE: MA ZIP: 02199-7603 BUSINESS PHONE: 6173751702 MAIL ADDRESS: STREET 1: 101 HUNTINGTON AVE CITY: BOSTON STATE: MA ZIP: 02199-7603 N-30D 1 hdt.txt JOHN HANCOCK DECLARATION TRUST ANNUAL REPORT John Hancock Declaration Trust 12.31.02 [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 FUND 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 Auditors' Opinion 12 Trustees & Officers 13 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 8 Auditors' Opinion 13 Trustees & Officers 14 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 Auditors' Opinion 12 Trustees & Officers 13 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 Auditors' Opinion 17 Trustees & Officers 18 ANNUAL REPORT John Hancock V.A. Financial Industries Fund A series of John Hancock Declaration Trust 12.31.02 [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 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 INDEPENDENT AUDITORS Ernst & Young LLP 200 Clarendon Street Boston, Massachusetts 02116-5072 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 Ford, Chairman and CEO, flush right next to first paragraph.] Dear Shareholders, Investors were probably never happier to close out a year than they were in 2002, since it was the third consecutive year that the stock market declined -- something that hadn't occurred in 60 years. Driving the fall were fears of war, a weak economy, disappointing profits, rising oil prices and a string of corporate scandals. All market sectors and investment styles suffered. As a result, the broad Standard & Poor's 500 Index fell by 22.09% for the year, while the Dow Jones Industrial Average lost 15.04% and the technology laden Nasdaq Composite Index lost 31.53%. Despite a fourth-quarter rally, only 3.8% of U.S. stock mutual funds made money last year, and the average U.S. stock fund lost 22.42%, according to Lipper, Inc. Bond funds provided the only bright spot, producing mostly positive results, with the average long-term bond fund rising 7.9%. It was the third year in which bonds outperformed stocks and gained ground, confirming yet again the importance of having a portfolio well-diversified among stocks, bonds and cash. In fact, the disparity between stock and bond results over the last three years means that many investors' portfolios may have shifted substantially in their mix between stocks and bonds. We recommend working with your investment professional to rebalance your assets according to your long-term goals. After three down years, no one can predict when the bear market cycle will turn. Currently, uncertainties abound, as the good news seen in signs of improving economic and corporate data, and efforts by Washington to stimulate the economy, are offset by the possibility of war and other geopolitical risks. While all these factors are beyond our control, investors can take charge of how they maneuver through the inevitable bull and bear market cycles. We've said it before, but it bears repeating: the key is to keep a long-term perspective and work with your investment professional to develop and maintain a properly diversified portfolio. We believe this offers the best protection in the tough times and the best means to reach your long-term goals. 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 Auditors' Opinion page 12 Trustees & Officers page 13 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.] The stock market declined broadly during 2002. A combination of negative factors worked on investors, from accounting and other corporate scandals to growing fears of terrorism and war. Perhaps most important, the economy's rebound from recession stalled and corporate profits remained weak. As a result, the broad market, as measured by the Standard & Poor's 500 Index, returned -22.09% for the year ended December 31, 2002. Financial stocks continued to outperform the broad market, due largely to the strong performance of small and midsize bank stocks. They were bolstered by falling interest rates, solid earnings growth and little exposure to the problem areas that hurt the larger banks -- syndicated loans, capital markets activity and involvement with struggling Latin American countries. On the other hand, financial companies with exposure to the difficult stock market were hammered, from insurance companies to brokerage firms and money-center and trust banks. In the summer, several headline earnings misses, along with congressional testimony by Citigroup and J.P. Morgan Chase regarding their Enron connections, also soured investors on the sector despite good earnings news overall. FUND PERFORMANCE REVIEW For the year ended December 31, 2002, John Hancock V.A. Financial Industries Fund posted a total return of -19.46% at net asset value, compared with the -10.87% return for the average open-end financial services fund and the -30.90% return of the average variable annuity specialty/miscellaneous fund, according to Lipper, Inc. Although the Fund outperformed the broad market, it lagged the Lipper group of financial services funds because it had more of an emphasis on large-cap and growth-oriented financial companies during a time when small and value-oriented stocks did better. Several of these large companies were penalized by a heightened skepticism, in the face of several accounting scandals, surrounding any large company with complex financial statements. These included insurance giant American International Group (AIG), government-sponsored mortgage lenders Fannie Mae and Freddie Mac and money-center bank Citigroup. Citigroup and J.P. Morgan Chase were also hurt by regulatory scrutiny. LARGE BANK STAKE HELPS Our 49% stake in banks served us well during the year, as investors sought safety in companies with solid balance sheets and steady growth. Traditional retail banks, which tend to struggle in a weak economy, were shining lights. Asset quality was relatively good and there was a surprising growth in core deposits, as retail customers became increasingly wary of the market and more comfortable choosing the low-returning, but safe, bank savings products. As a result these banks posted double-digit earnings growth and outperformed larger banks by avoiding their market-related pitfalls. They were also our biggest contributors to performance, including Wells Fargo, Bank of America, BB&T and Wachovia. [Table at bottom right hand column entitled "Top five stock holdings." The first listing is Fifth Third Bancorp 7.4%, the second is Wells Fargo 7.3%, the third Bank of America 7.0%, the fourth Fannie Mae 5.7% and the fifth Citigroup 5.3%. A note below the table reads "As a percentage of net assets on 12-31-02."] INSURANCE FOCUS ON P&C'S Throughout the year we kept the Fund's insurance exposure focused on property and casualty companies, and insurance brokers such as Marsh & McLennan and Willis Group Holdings, to take advantage of the strong pricing cycle currently playing out. However, we became increasingly selective, avoiding companies with "legacy issues" such as asbestos claims, and focusing on companies with pristine balance sheets and solid credit ratings. CONSUMER LENDERS, BROKERS The Fund's biggest detractor, which we sold, was subprime lender Household International, which came under scrutiny from regulators concerned about practices that might take advantage of less creditworthy consumers. On the other hand, consumer finance companies such as American Express that deal mainly with higher credit quality borrowers benefited from consumers' continued spending in a low interest-rate and relatively low unemployment environment. Brokers and investment bankers were a disappointment for the most part, since the stagnant economy and fallout from Enron and WorldCom prevented an upsurge in the issuance of secondary equities that we had expected so corporations could reliquify their balance sheets. The Fund's holdings in Goldman Sachs and Merrill Lynch held us back. A LOOK AHEAD We continue to be optimistic about the prospects for financial stocks, although we think that we may be at an inflection point with respect to which sectors will be the best performers. The wind has been at the backs of many of the smaller banks as deposits have flowed in and interest margins have widened. The upcoming year could prove more rewarding for companies that can benefit from an improving economy. This includes not only stock market-related companies such as securities brokers and asset managers, but also commercial banks that have experienced credit problems or derive substantial revenue from capital market activities. 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 12-31-02 Cumulative total returns One year -19.46% Five years -7.16% Since inception (4-30-97) 25.38% Average annual total returns One year -19.46% Five years -1.48% Since inception (4-30-97) 4.07% 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. 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 unmanaged index that includes 500 widely traded common stocks and is often used as a measure 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 - 12-31-02, 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 $14,985 as of December 31, 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 $12,538 as of December 31, 2002. The third line represents the Standard & Poor's 500 Index and is equal to $11,904 as of December 31, 2002. FINANCIAL STATEMENTS Fund's Investments Securities owned by the Fund on 12-31-02
SHARES ISSUER VALUE COMMON STOCKS 96.95% $55,622,623 (Cost $63,132,328) Banks -- Midwest 7.38% $4,235,624 72,342 Fifth Third Bancorp 4,235,624 Banks -- Money Center 13.13% 7,535,525 57,500 Bank of America Corp. 4,000,275 87,000 Citigroup, Inc. 3,061,530 13,000 Wachovia Corp. 473,720 Banks -- Northeast 4.66% 2,673,525 1,500 M&T Bank Corp. 119,025 65,500 State Street Corp. 2,554,500 Banks -- Southeast 5.45% 3,126,166 80,900 BB&T Corp. 2,992,491 3,000 National Commerce Financial Corp. 71,550 2,500 SouthTrust Corp. 62,125 Banks -- Superregional 17.78% 10,200,702 68,000 Bank of New York Co., Inc. (The) 1,629,280 11,500 Bank One Corp. 420,325 2,100 Charter One Financial, Inc. 60,333 1,000 Comerica, Inc. 43,240 76,500 Mellon Financial Corp. 1,997,415 18,344 PNC Financial Services Group 768,614 6,500 SunTrust Banks, Inc. 369,980 17,500 U.S. Bancorp 371,350 10,000 Washington Mutual, Inc. 345,300 89,500 Wells Fargo & Co. 4,194,865 Banks -- West 0.27% 157,396 4,000 Zions Bancorp. 157,396 Broker Services 11.11% 6,371,175 34,700 Goldman Sachs Group, Inc. 2,363,070 47,000 Legg Mason, Inc. 2,281,380 45,500 Merrill Lynch & Co., Inc. 1,726,725 Diversified Operations 2.78% 1,594,925 65,500 General Electric Co. 1,594,925 Finance -- Consumer Loans 3.17% 1,815,935 95,475 MBNA Corp. 1,815,935 Finance -- Investment Management 1.44% 826,497 129,000 Amvescap Plc (United Kingdom) 826,497 Finance -- Services Misc. 4.91% 2,816,393 70,900 American Express Co. 2,506,315 19,700 Concord EFS, Inc.* 310,078 Insurance -- Brokers 5.25% 3,011,429 59,600 Marsh & McLennan Cos., Inc. 2,754,116 8,975 Willis Group Holdings Ltd.* 257,313 Insurance -- Diversified 3.59% 2,059,550 850 Berkshire Hathaway, Inc.* 2,059,550 Insurance -- Property & Casualty 5.32% 3,053,026 51,704 American International Group, Inc. 2,991,076 2,950 ProAssurance Corp. * 61,950 Mortgage & Real Estate Services 10.71% 6,144,755 51,000 Fannie Mae 3,280,830 48,500 Freddie Mac 2,863,925 ISSUER, DESCRIPTION, INTEREST PAR VALUE MATURITY DATE RATE (000s OMITTED) VALUE SHORT-TERM INVESTMENTS 3.34% $1,915,853 (Cost $1,915,853) Joint Repurchase Agreement 3.06% Investment in a Joint Repurchase Agreement Transaction with UBS Warburg, Inc. -- Dated 12-31-02, due 01-02-03 (Secured by U.S. Treasury Bond 8.500% due 02-15-20, U.S. Treasury Notes 4.625% due 02-28-02 and 5.375% due 06-30-03, U.S. Treasury Inflation Indexed Notes 3.500% due 01-15-11 and 3.000% due 07-15-12) 1.15% $1,759 1,759,000 SHARES Cash Equivalents 0.28% AIM Cash Investment Trust** 156,853 156,853 TOTAL INVESTMENTS 100.29% $57,538,476 OTHER ASSETS AND LIABILITIES, NET (0.29%) ($163,606) TOTAL NET ASSETS 100.00% $57,374,870 * 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 12-31-02 ASSETS Investments at value (Cost $65,048,181) including $153,461 of securities loaned $57,538,476 Foreign cash at value (Cost $8,719) 9,402 Dividends and interest receivable 69,476 Other assets 6,875 Total assets 57,624,229 LIABILITIES Due to custodian 18,943 Payable for securities on loan 156,853 Payable to affiliates 42,753 Other payables and accrued expenses 30,810 Total liabilities 249,359 NET ASSETS Capital paid-in 76,758,435 Accumulated net realized loss on investments and foreign currency transactions (11,874,296) Net unrealized depreciation of investments and translation of assets and liabilities in foreign currencies (7,508,641) Distributions in excess of net investment income (628) Net assets $57,374,870 NET ASSET VALUE PER SHARE Based on 4,944,287 shares of beneficial interest outstanding -- unlimited number of shares authorized with no par value $11.60 Statement of Operations For the year ended 12-31-02 INVESTMENT INCOME Dividends (net of foreign withholding taxes of $6,299) $1,271,802 Interest (includes securities lending income of $1,657) 26,109 Total investment income 1,297,911 EXPENSES Investment management fee 584,729 Auditing fee 20,146 Custodian fee 17,212 Accounting and legal services fee 15,420 Miscellaneous 5,712 Legal fee 5,405 Trustees' fee 5,123 Printing 3,626 Interest expense 1,760 Registration and filing fee 25 Total expenses 659,158 Net investment income 638,753 REALIZED AND UNREALIZED GAIN (LOSS) Net realized loss on Investments (7,399,086) Foreign currency transactions (4,693) Change in unrealized appreciation (depreciation) of Investments (9,487,204) Translation of assets and liabilities in foreign currencies 1,064 Net realized and unrealized loss (16,889,919) Decrease in net assets from operations ($16,251,166) See notes to financial statements. Statement of Changes in Net Assets YEAR YEAR ENDED ENDED 12-31-01 12-31-02 INCREASE (DECREASE) IN NET ASSETS From operations Net investment income $525,836 $638,753 Net realized gain (loss) 2,883,241 (7,403,779) Change in net unrealized appreciation (depreciation) (17,546,190) (9,486,140) Decrease in net assets resulting from operations (14,137,113) (16,251,166) Distributions to shareholders From net investment income (499,736) (641,124) From net realized gain (2,739,375) -- (3,239,111) (641,124) From Fund share transactions 34,929,896 (14,653,108) NET ASSETS Beginning of period 71,366,596 88,920,268 End of period 1 $88,920,268 $57,374,870 1 Includes distributions in excess of net investment income of $27,024 and $628, respectively. Financial Highlights
12-31-98 12-31-99 12-31-00 12-31-01 12-31-02 PER SHARE OPERATING PERFORMANCE Net asset value, beginning of period $13.44 $14.45 $14.46 $18.34 $14.56 Net investment income 1 0.18 0.11 0.06 0.11 0.12 Net realized and unrealized gain (loss) on investments 0.97 0.06 3.87 (3.33) (2.95) Total from investment operations 1.15 0.17 3.93 (3.22) (2.83) Less distributions From net investment income (0.14) (0.10) (0.05) (0.09) (0.13) From net realized gain -- 2 (0.05) -- (0.47) -- Tax return of capital -- (0.01) -- -- -- (0.14) (0.16) (0.05) (0.56) (0.13) Net asset value, end of period $14.45 $14.46 $18.34 $14.56 $11.60 Total return 3 (%) 8.55 1.23 27.16 (17.51) (19.46) RATIOS AND SUPPLEMENTAL DATA Net assets, end of period (in millions) $55 $49 $71 $89 $57 Ratio of expenses to average net assets % 0.92 0.90 0.90 0.89 0.90 Ratio of net investment income to average net assets % 1.25 0.77 0.36 0.71 0.87 Portfolio turnover % 38 72 41 97 4 2 1 Based on the average of the shares outstanding. 2 Less than $0.01 per share. 3 Assumes dividend reinvestment. 4 Excludes merger activity.
See notes to financial statements. NOTES TO FINANCIAL STATEMENTS 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 Trust, organized as a Massachusetts business trust in 1995, consists of five different series at December 31, 2002. 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. Investments in AIM Cash Investment Trust are valued at their net asset value each business day. 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. 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 of 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 year ended December 31, 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 December 31, 2002, the Fund loaned securities having a market value of $153,461 collateralized by cash in the amount of $156,853. 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 $10,714,626 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 amount of the loss carryforward expires as follows: December 31, 2008 -- $1,143,472 and December 31, 2010 -- $9,571,154. Net capital losses of $959,453 attributable to security transactions incurred after October 31, 2002, are treated as arising on January 1, 2003, the first day of the Fund's next taxable 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. 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 net realized gains on the ex-dividend date. During the year ended December 31, 2002, the tax character of distributions paid was as follows: ordinary income $641,124. As of December 31, 2002, there were no distributable earnings on a tax basis. Such distributions and distributable earnings, 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 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 year ended December 31, 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 year was at an annual rate of approximately 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 YEAR ENDED 12-31-02 SHARES AMOUNT SHARES AMOUNT Shares sold 1,981,835 $42,063,445 672,740 $8,600,419 Issued in reorganization 675,457 9,888,426 -- -- Distributions reinvested 225,879 3,239,111 53,471 641,124 Repurchased (666,362) (20,261,086) (1,890,878) (23,894,651) NET INCREASE (DECREASE) 2,216,809 $34,929,896 (1,164,667) ($14,653,108)
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 year ended December 31, 2002, aggregated $1,199,483 and $16,637,043, respectively. The cost of investments owned on December 31, 2002, including short-term investments, for federal income tax purposes was $65,248,399. Gross unrealized appreciation and depreciation of investments aggregated $2,928,276 and $10,638,199, respectively, resulting in net unrealized depreciation of $7,709,923. 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 Reclassification of accounts During the year ended December 31, 2002, the Fund reclassified amounts to reflect a decrease in accumulated net realized loss on investments of $4,872, a decrease in distributions in excess of net investment income of $28,767 and a decrease in capital paid-in of $33,639. This represents the amount necessary to report these balances on a tax basis, excluding certain temporary differences, as of December 31, 2002. Additional adjustments may be needed in subsequent reporting periods. These reclassifications, which have no impact on the net asset value of the Fund, are primarily attributable to treatment of foreign currency gains and losses in the computation of distributable income and capital gains under federal tax rules versus accounting principles generally accepted in the United States of America, book and tax differences in accounting for deferred compensation. The calculation of net investment income per share in the financial highlights excludes these adjustments. NOTE F 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. Report of Ernst & Young LLP, Independent Auditors To the Contract Owners and Trustees of John Hancock Declaration Trust, We have audited the accompanying statement of assets and liabilities of John Hancock V.A. Financial Industries Fund (the "Fund"), one of the portfolios constituting John Hancock Declaration Trust, including the schedule of investments, as of December 31, 2002, and the related statement of operations for the year then ended, the statement of changes in net assets for each of the two years in the period then ended and the financial highlights for each of the periods indicated therein. These financial statements and financial highlights are the responsibility of the Fund's management. Our responsibility is to express an opinion on these financial statements and financial highlights based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. Our procedures included confirmation of securities owned as of December 31, 2002, by correspondence with the custodian and brokers, or other appropriate auditing procedures where replies from brokers were not received. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements and financial highlights referred to above present fairly, in all material respects, the financial position of John Hancock V.A. Financial Industries Fund of the John Hancock Declaration Trust at December 31, 2002, the results of its operations for the year then ended, the changes in its net assets for each of the two years in the period then ended and the financial highlights for each of the periods indicated, in conformity with accounting principles generally accepted in the United States of America. /S/ ERNST & YOUNG Boston, Massachusetts February 7, 2003 Tax Information UNAUDITED For federal income tax purposes, the following information is furnished with respect to the distributions of the Fund paid, if any, during its taxable year ended December 31, 2002. With respect to the ordinary dividends paid by the Fund for the fiscal year ended December 31, 2002, 100% of the dividends qualify for the corporate dividends-received deduction. If the Fund had distributions, the shareholders will be mailed a 2002 U.S. Treasury Department Form 1099-DIV in January 2003. This will reflect the total of all distributions that are taxable for the calendar year 2002.
TRUSTEES & OFFICERS This chart provides information about the Trustees and Officers who oversee your John Hancock fund. Officers elected by the Trustees manage the day-to-day operations of the Fund and execute policies formulated by the Trustees. INDEPENDENT TRUSTEES NUMBER OF NAME, AGE TRUSTEE JOHN HANCOCK PRINCIPAL OCCUPATION(S) AND OTHER OF FUND FUNDS OVERSEEN DIRECTORSHIPS DURING PAST 5 YEARS SINCE 1 BY TRUSTEE Dennis S. Aronowitz, Born: 1931 1997 31 Professor of Law, Emeritus, Boston University School of Law (as of 1996); Director, Brookline Bancorp. Richard P. Chapman, Jr., Born: 1935 1997 31 President and Chief Executive Officer, Brookline Bancorp. (lending) (since 1972); Chairman and Director, Lumber Insurance Co. (insurance) (until 2000); Chairman and Director, Northeast Retirement Services, Inc. (retirement administration) (since 1998). William J. Cosgrove, Born: 1933 1997 31 Vice President, Senior Banker and Senior Credit Officer, Citibank, N.A. (retired 1991); Executive Vice President, Citadel Group Representatives, Inc.; Director, Hudson City Bancorp; Trustee, Scholarship Fund for Inner City Children (since 1986). Richard A. Farrell 2, Born: 1932 1997 31 President, Farrell, Healer & Co., Inc. (venture capital management firm) (since 1980) and General Partner of the Venture Capital Fund of NE (since 1980); prior to 1980, headed the venture capital group at Bank of Boston Corporation. William F. Glavin 2, Born: 1932 1997 31 President Emeritus, Babson College (as of 1998); Vice Chairman, Xerox Corporation (until 1989); Director, Reebok, Inc. (since 1994) and Inco Ltd. Patti McGill Peterson, Born: 1943 1997 39 Executive Director, Council for International Exchange of Scholars (since 1998), Vice President, Institute of International Education (since January 1998); Senior Fellow, Cornell Institute of Public Affairs, Cornell University (until 1997); President Emerita of Wells College and St. Lawrence University; Director, Niagara Mohawk Power Corporation (electric utility). John A. Moore 2, Born: 1939 1997 39 President and Chief Executive Officer, Institute for Evaluating Health Risks, (nonprofit institution) (until 2001); Senior Scientist, Sciences International (health research) (since 1998); Principal, Hollyhouse (consulting) (since 2000); Director, CIIT (nonprofit research) (since 2002). John W. Pratt, Born: 1931 1997 31 Professor of Business Administration Emeritus, Harvard University Graduate School of Business Administration (as of 1998). INTERESTED TRUSTEES 3 NAME, AGE NUMBER OF POSITION(S) HELD WITH FUND TRUSTEE JOHN HANCOCK PRINCIPAL OCCUPATION(S) AND OTHER OF FUND FUNDS OVERSEEN DIRECTORSHIPS DURING PAST 5 YEARS SINCE 1 BY TRUSTEE John M. DeCiccio, Born: 1948 2001 61 Trustee Executive Vice President and Chief Investment Officer, John Hancock Financial Services, Inc.; Director, Executive Vice President and Chief Investment Officer, John Hancock Life Insurance Company; Chairman of the Committee of Finance of John Hancock Life Insurance Company; Director, John Hancock Subsidiaries, LLC ("Subsidiaries, LLC"), Hancock Natural Resource Group, Independence Investment LLC, Independence Fixed Income LLC, John Hancock Advisers, LLC (the "Adviser") and The Berkeley Financial Group, LLC ("The Berkeley Group"), John Hancock Funds, LLC ("John Hancock Funds"), Massachusetts Business Development Corporation; Director, John Hancock Insurance Agency, Inc. ("Insurance Agency, Inc.") (until 1999). Maureen R. Ford, Born: 1955 2000 61 Trustee, Chairman, President and Chief Executive Officer, John Hancock Financial Services, Inc., John Hancock Life Insurance Company; Chairman, Director, President and Chief Executive Officer, the Adviser and The Berkeley Group; Chairman, Director, President and Chief Executive Officer, John Hancock Funds; Chairman, Director and Chief Executive Officer, Sovereign Asset Management Corporation ("SAMCorp."); Director, Independence Investment LLC, Subsidiaries, LLC, Independence Fixed Income LLC and Signature Services; Senior Vice President, MassMutual Insurance Co. (until 1999). PRINCIPAL OFFICERS WHO ARE NOT TRUSTEES NAME, AGE POSITION(S) HELD WITH FUND OFFICER PRINCIPAL OCCUPATION(S) AND OF FUND DIRECTORSHIPS DURING PAST 5 YEARS SINCE William L. Braman, Born: 1953 2000 Executive Vice President and Chief Investment Officer Executive Vice President and Chief Investment Officer, the Adviser and each of the John Hancock funds; Director, SAMCorp., Executive Vice President and Chief Investment Officer, Barring Asset Management, London UK (until 2000). Richard A. Brown, Born: 1949 2000 Senior Vice President and Chief Financial Officer Senior Vice President, Chief Financial Officer and Treasurer, the Adviser, John Hancock Funds, and The Berkeley Group; Second Vice President and Senior Associate Controller, Corporate Tax Department, John Hancock Financial Services, Inc. (until 2001). Thomas H. Connors, Born: 1959 1997 Vice President and Compliance Officer Vice President and Compliance Officer, the Adviser and each of the John Hancock funds; Vice President, John Hancock Funds. William H. King, Born: 1952 1997 Vice President and Treasurer Vice President and Assistant Treasurer, the Adviser; Vice President and Treasurer of each of the John Hancock funds; Assistant Treasurer of each of the John Hancock funds (until 2001). Susan S. Newton, Born: 1950 1997 Senior Vice President, Secretary and Chief Legal Officer Senior Vice President, Secretary and Chief Legal Officer, SAMCorp., the Adviser and each of the John Hancock funds, John Hancock Funds and The Berkeley Group; Vice President, Signature Services (until 2000); Director, Senior Vice President and Secretary, NM Capital.
The business address for all Trustees and Officers is 101 Huntington Avenue, Boston, Massachusetts 02199. The Statement of Additional Information of the Fund includes additional information about members of the board of Trustees of the Fund and is available, without charge, upon request, by calling 1-800-225-5291. 1 Each Trustee serves until resignation, retirement age or until his or her successor is elected. 2 Member of Audit Committee. 3 Interested Trustee holds positions with the Fund's investment adviser, underwriter and certain other affiliates. JOHN HANCOCK FUNDS DECLARATION TRUST ANNUAL REPORT [LOGO] John Hancock [Rings] Worldwide 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 8280A 12/02 2/03 ANNUAL REPORT John Hancock V.A. Relative Value Fund A series of John Hancock Declaration Trust 12.31.02 [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 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 INDEPENDENT AUDITORS Ernst & Young LLP 200 Clarendon Street Boston, Massachusetts 02116-5072 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 Ford, Chairman and CEO, flush right next to first paragraph.] Dear Shareholders, Investors were probably never happier to close out a year than they were in 2002, since it was the third consecutive year that the stock market declined -- something that hadn't occurred in 60 years. Driving the fall were fears of war, a weak economy, disappointing profits, rising oil prices and a string of corporate scandals. All market sectors and investment styles suffered. As a result, the broad Standard & Poor's 500 Index fell by 22.09% for the year, while the Dow Jones Industrial Average lost 15.04% and the technology laden Nasdaq Composite Index lost 31.53%. Despite a fourth-quarter rally, only 3.8% of U.S. stock mutual funds made money last year, and the average U.S. stock fund lost 22.42%, according to Lipper, Inc. Bond funds provided the only bright spot, producing mostly positive results, with the average long-term bond fund rising 7.9%. It was the third year in which bonds outperformed stocks and gained ground, confirming yet again the importance of having a portfolio well-diversified among stocks, bonds and cash. In fact, the disparity between stock and bond results over the last three years means that many investors' portfolios may have shifted substantially in their mix between stocks and bonds. We recommend working with your investment professional to rebalance your assets according to your long-term goals. After three down years, no one can predict when the bear market cycle will turn. Currently, uncertainties abound, as the good news seen in signs of improving economic and corporate data, and efforts by Washington to stimulate the economy, are offset by the possibility of war and other geopolitical risks. While all these factors are beyond our control, investors can take charge of how they maneuver through the inevitable bull and bear market cycles. We've said it before, but it bears repeating: the key is to keep a long-term perspective and work with your investment professional to develop and maintain a properly diversified portfolio. We believe this offers the best protection in the tough times and the best means to reach your long-term goals. 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 Auditors' Opinion page 13 Trustees & Officers page 14 BY PAUL J. BERLINGUET, ROBERT J. UEK, CFA, THOMAS P. NORTON, CFA, AND ROGER C. HAMILTON, PORTFOLIO MANAGERS John Hancock V.A. Relative Value Fund MANAGERS' REPORT [Photos of Paul Berlinguet, Robert Uek, Thomas Norton and Roger Hamilton.] Concerns about the strength of the economic recovery, weak corporate spending, faltering consumer confidence, accounting fraud and the possibility of war with Iraq caused stock market prices to tumble again in 2002. The market was especially volatile during the second half of the year as investors searched for stocks with cheap valuations. Some of the most beaten-down names, especially in the technology sector, rallied in the fall, but later retreated as investors took profits. Despite encouraging reports of marginal improvements in demand and capital spending near year-end, the Standard & Poor's 500 Index returned a disappointing -22.09% for 2002. Large-cap stocks were among the hardest hit due to the complex, diversified and global nature of their businesses. PERFORMANCE AND STRATEGY REVIEW John Hancock V.A. Relative Value Fund went through a major restructuring late last spring. We eliminated less established companies and focused exclusively on businesses with proven management teams and strong balance sheets whose shares were selling at attractive prices. We also increased the Fund's diversification and introduced a more rigorous sell discipline in an effort to better control risk and volatility. Performance improved in the second half of the year, but not enough to offset the losses incurred early on in the technology, finance, pharmaceuticals, media and industrials sectors. For the year ended December 31, 2002, the Fund returned -41.93% at net asset value, lagging the average variable annuity multi-cap core fund, which returned - -22.48% for the same period, according to Lipper, Inc. TECH AND TELECOM SHIFT Early in 2002, the Fund had sizable concentrations in the economically sensitive tech and telecom sectors, which sank as the recovery got off to a slow start. We cut the Fund's losses by substantially paring our stakes in these sectors late last spring. Our sales included Parametric Technology, a software developer; Agere Systems, a telecommunications equipment company; and Nextel Communications, a wireless provider. All were among the Fund's weakest performers. We began focusing on companies like Microsoft, which has a steady earnings stream, strong balance sheet and promising new .NET strategy that helps integrate applications on the Internet. It was one of our largest investments and strongest performers. Late in the year, we also began adding other well-known technology names, including Intel and Nokia, as well as established telecom service providers like Verizon Communications. [Table at bottom right hand column entitled "Top five stock holdings." The first listing is Microsoft 4.7%, the second is General Electronic 3.7%, the third American International Group 3.4%, the fourth ExxonMobil 3.1% and the fifth Kraft Foods 3.1%. A note below the table reads "As a percentage of net assets on 12-31-02."] ADDED DIVERSIFICATION We sold most of the Fund's stake in large pharmaceutical companies during the first half of the year, as concerns about patent expirations, the lack of promising new drugs and manufacturing problems hammered stock prices. Disappointments included Bristol-Myers Squibb, Schering-Plough and Merck. During the second half of the year, we added health insurers, such as Cigna and UnitedHealth Group, as well as medical equipment companies, such as Medtronic and Johnson & Johnson. Both Medtronic and Johnson & Johnson contributed positively to performance. Despite disappointing performance, we also kept a sizable stake in Pfizer, a well-run drug company with a strong pipeline of new drugs that should benefit from merging with Pharmacia. In the finance area, we exited from economically sensitive brokerage stocks, including J.P. Morgan Chase, Morgan Stanley Dean Witter and Charles Schwab. We also trimmed our large stake in Citigroup, a leading global financial services company whose near-term prospects weakened. Our focus shifted to diversified banks like Bank of America, Wells Fargo and Fifth Third Bancorp which tend to benefit in tough times as consumers flock to the safety of deposit accounts. We added as well to proven companies such as American International Group, a leading global insurer that came under pressure as investors shunned companies with complex business structures. CHANGES TO CONSUMER FOCUS Consumer staples stocks provided a safe haven for many investors. As prices rose, we sold CVS, a drug-store retail chain, and Gillette, a consumer care products company. We used the proceeds to buy Kraft Foods, a well-run company with steady market share gains that was recently spun-off from Philip Morris, and Coca-Cola, a brand name company in the midst of a promising restructuring. We significantly reduced our commitment to the consumer discretionary sector, selling Pegasus Communications, a highly leveraged satellite television company; Liberty Media, a complex media holding company; and McDonald's, a maturing company grappling with slower growth. We held on, however, to a large stake in Viacom, a well-run business with a great collection of media assets that has held up well. IMPROVED OUTLOOK We are cautiously optimistic that the U.S. economy will continue to show steady improvement, barring a prolonged war with Iraq or another terrorist attack. Most U.S. companies are well positioned for a recovery with little inventory backlog and improved productivity. Our strategy will be to run a diversified portfolio, buying good companies when their stock prices go on sale and then selling them when they approach full valuation. About 80% of the companies in the S&P 500 have strong balance sheets, and most valuations appear reasonable. We believe large-cap stocks are particularly attractively priced and offer strong long-term prospects as many of the regulatory, disclosure, and corporate governance issues that have plagued them this past year disappear. 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 12-31-02 Cumulative total returns One year -41.93% Since inception (1-6-98) 2.17% Average annual total returns One year -41.93% Since inception (1-6-98) 0.43% 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 John Hancock V.A. Relative Value Fund 1-6-98 -- 12-31-02 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 - 12-31-02, 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 $10,217 as of December 31, 2002. The second line represents the Standard & Poor's 500 Index and is equal to $9,713 as of December 31, 2002. FINANCIAL STATEMENTS Fund's Investments Securities owned by the Fund on 12-31-02
SHARES ISSUER VALUE COMMON STOCKS 92.15% $28,135,946 (Cost $31,279,320) Advertising 0.49% $148,580 2,300 Omnicom Group, Inc. 148,580 Banks -- United States 6.98% 2,131,880 10,500 Bank of America Corp. 730,485 4,200 Fifth Third Bancorp 245,910 11,000 State Street Corp. 429,000 15,500 Wells Fargo & Co. 726,485 Beverages 3.79% 1,158,036 6,000 Anheuser-Busch Cos., Inc. 290,400 19,800 Coca-Cola Co. (The) 867,636 Chemicals 2.14% 653,400 22,000 Dow Chemical Co. (The) 653,400 Computers 8.30% 2,534,785 5,500 Dell Computer Corp.* 147,070 84,000 EMC Corp. 515,760 3,750 International Business Machines Corp. 290,625 28,000 Microsoft Corp.* 1,447,600 43,000 Sun Microsystems, Inc.* 133,730 Cosmetics & Personal Care 1.42% 434,840 3,000 Gillette Co. (The) 91,080 4,000 Procter & Gamble Co. (The) 343,760 Diversified Operations 1.82% 554,850 4,500 3M Co. 554,850 Electronics 8.76% 2,673,025 21,000 Applied Materials, Inc.* 273,630 46,000 General Electric Co. 1,120,100 23,500 Intel Corp. 365,895 12,000 Micron Technology, Inc. 116,880 1,000 MKS Instruments, Inc.* 16,430 40,000 Skyworks Solutions, Inc. 344,800 29,000 Texas Instruments, Inc. 435,290 Finance 3.76% 1,146,475 17,500 American Express Co. 618,625 15,000 Citigroup, Inc. 527,850 Food 3.34% 1,019,995 2,500 Kellogg Co. 85,675 24,000 Kraft Foods, Inc. (Class A) 934,320 Household 1.69% 515,610 17,000 Newell Rubbermaid, Inc. 515,610 Insurance 10.09% 3,080,818 10,000 ACE, Ltd. (Bermuda) 293,400 7,000 Ambac Financial Group, Inc. 393,680 18,000 American International Group, Inc. 1,041,300 5 Berkshire Hathaway, Inc. (Class A)* 363,750 7,800 CIGNA Corp. 320,736 45,594 Travelers Property Casualty Corp. (Class A)* 667,952 Leisure 1.69% 517,050 27,000 Mattel, Inc. 517,050 Media 3.33% 1,017,582 9,700 Cumulus Media, Inc. (Class A)* 144,239 23,850 Pegasus Communications Corp.* 31,243 20,000 Viacom, Inc. (Class B)* 815,200 10,000 XM Satellite Radio Holdings, Inc. (Class A)* 26,900 Medical 16.85% 5,145,225 13,000 Abbott Laboratories 520,000 7,500 Aetna, Inc. 308,400 10,000 Alpharma, Inc. (Class A) 119,100 5,000 Anthem, Inc.* 314,500 7,000 Bard (C.R.), Inc. 406,000 6,260 Baxter International, Inc. 175,280 6,600 Gilead Sciences, Inc.* 224,400 180,000 I-STAT Corp.* 720,000 4,600 Johnson & Johnson 247,066 5,448 Medtronic, Inc. 248,429 26,000 Pfizer, Inc. 794,820 9,000 St. Jude Medical, Inc. 357,480 8,500 UnitedHealth Group, Inc. 709,750 Office 1.60% 488,640 8,000 Avery Dennison Corp. 488,640 Oil & Gas 6.51% 1,988,065 8,000 Anadarko Petroleum Corp. 383,200 7,500 BJ Services Co.* 242,325 10,500 EOG Resources, Inc. 419,160 27,000 ExxonMobil Corp. 943,380 Retail 6.36% 1,942,165 15,000 Bed Bath & Beyond, Inc.* 517,950 16,000 Home Depot, Inc. (The) 383,360 7,500 Lowe's Cos., Inc. 281,250 6,000 SYSCO Corp. 178,740 11,500 Wal-Mart Stores, Inc. 580,865 Telecommunications 2.23% 680,950 8,800 Nokia Corp., American Depositary Receipt (ADR) (Finland) 136,400 5,000 SBA Communications Corp.* 2,050 14,000 Verizon Communications, Inc. 542,500 Tobacco 1.00% 303,975 7,500 Philip Morris Cos., Inc. 303,975 ISSUER, DESCRIPTION, INTEREST PAR VALUE MATURITY DATE RATE (000s OMITTED) VALUE SHORT-TERM INVESTMENTS 12.39% $3,781,279 (Cost $3,781,279) Joint Repurchase Agreement 7.89% Investment in a joint repurchase agreement transaction with UBS Warburg, Inc. -- Dated 12-31-02, due 01-02-03 (Secured by U.S. Treasury Bond 8.500%, due 02-15-20, U.S. Treasury Inflation Indexed Notes, 3.000% thru 3.500%, due 01-15-11 thru 07-15-12, and U.S. Treasury Notes, 4.625% thru 5.375%, due 02-28-02 thru 06-30-03) 1.15% $2,408 2,408,000 ISSUER, DESCRIPTION SHARES VALUE Cash Equivalents 4.50% AIM Cash Investment Trust** 1,373,279 1,373,279 TOTAL INVESTMENTS 104.54% $31,917,225 OTHER ASSETS AND LIABILITIES, NET (4.54%) ($1,386,453) TOTAL INVESTMENTS 100.00% $30,530,772 * 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 12-31-02 ASSETS Investments at value (cost $35,060,599) including $1,346,352 of securities loaned $31,917,225 Dividends and interest receivable 44,976 Other assets 849 Total assets 31,963,050 LIABILITIES Due to custodian 15,742 Payable for securities on loan 1,373,279 Payable to affiliates 17,164 Other payables and accrued expenses 26,093 Total liabilities 1,432,278 NET ASSETS Capital paid-in 65,804,397 Accumulated net realized loss on investments and foreign currency transactions (32,132,370) Net unrealized depreciation of investments (3,143,374) Accumulated net investment income 2,119 Net assets $30,530,772 NET ASSET VALUE PER SHARE Based on 5,465,376 shares of beneficial interest outstanding -- unlimited number of shares authorized with no par value $5.59 Statement of Operations For the year ended 12-31-02 INVESTMENT INCOME Dividends (net of foreign withholding taxes of $141) $448,294 Securities lending income 58,678 Interest 41,799 Total investment income 548,771 EXPENSES Investment management fee 260,429 Auditing fee 18,000 Custodian fee 13,499 Accounting and legal services fee 9,160 Printing 6,831 Trustees' fee 3,494 Miscellaneous 3,350 Interest expense 1,976 Legal fee 661 Registration and filing fee 20 Total expenses 317,420 Net investment income 231,351 REALIZED AND UNREALIZED GAIN (LOSS) Net realized loss on Investments (30,227,736) Foreign currency transactions (716) Change in unrealized appreciation (depreciation) of investments 3,472,659 Net realized and unrealized gain (loss) (26,755,793) Decrease in net assets from operations ($26,524,442) See notes to financial statements. Statement of Changes in Net Assets YEAR YEAR ENDED ENDED 12-31-01 12-31-02 INCREASE (DECREASE) IN NET ASSETS From operations Net investment income $109,779 $231,351 Net realized loss (461,403) (30,228,452) Change in net unrealized appreciation (depreciation) (929,271) 3,472,659 Decrease in net assets resulting from operations (1,280,895) (26,524,442) Distributions to shareholders From net investment income (103,992) (241,442) From net realized gain (3,603,363) (91,252) (3,707,355) (332,694) From Fund share transactions 30,011,640 (6,678,094) NET ASSETS Beginning of period 39,042,612 64,066,002 End of period 1 $64,066,002 $30,530,772 1 Includes accumulated net investment income of $12,891 and $2,119, respectively. Financial Highlights
12-31-98 1 12-31-99 12-31-00 12-31-01 12-31-02 PER SHARE OPERATING PERFORMANCE Net asset value, beginning of period $10.00 $12.03 $18.03 $10.64 $9.72 Net investment income 2 0.11 0.10 0.02 0.02 0.04 Net realized and unrealized gain (loss) on investments 2.02 6.65 (0.80) (0.32) (4.11) Total from investment operations 2.13 6.75 (0.78) (0.30) (4.07) Less distributions From net investment income (0.10) (0.10) (0.02) (0.02) (0.04) From net realized gain -- (0.65) (6.59) (0.60) (0.02) (0.10) (0.75) (6.61) (0.62) (0.06) Net asset value, end of period $12.03 $18.03 $10.64 $9.72 $5.59 Total return 3 (%) 21.39 4,5 56.65 (4.80) (2.81) (41.93) RATIOS AND SUPPLEMENTAL DATA Net assets, end of period (in millions) $17 $39 $39 $64 $31 Ratio of expenses to average net assets (%) 0.85 6 0.77 0.79 0.74 0.73 Ratio of adjusted expenses to average net assets 7 (%) 1.03 6 -- -- -- -- Ratio of net investment income to average net assets (%) 1.17 6 0.66 0.13 0.23 0.53 Portfolio turnover (%) 242 166 164 59 136 1 Began operations on 1- 6-98. 2 Based on the average of the shares outstanding. 3 Assumes dividend reinvestment. 4 Not annualized. 5 Total return would have been lower had certain expenses not been reduced during the period shown. 6 Annualized. 7 Does not take into consideration expense reductions during the period shown.
NOTES TO FINANCIAL STATEMENTS 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 Trust, organized as a Massachusetts business trust in 1995, consists of five different series at December 31, 2002. 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 investment objective of the Fund was to seek the highest total return (capital appreciation plus current income) that was consistent with reasonable safety of capital. The Fund currently 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. Investments in AIM Cash Investment Trust are valued at their net asset value each business day. 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 of 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 year ended December 31, 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 December 31, 2002, the Fund loaned securities having a market value of $1,346,352 collateralized by cash in the amount of $1,373,279. 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 $31,801,591 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, 2010. 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 net realized gains on the ex-dividend date. During the year ended December 31, 2002, the tax character of distributions paid was as follows: ordinary income $330,278 and long-term capital gains $2,416. As of December 31, 2002, the components of distributable earnings on a tax basis included $2,523 of undistributed ordinary income. Such distributions and distributable earnings, 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 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 year ended December 31, 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 year was at an annual rate of approximately 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 YEAR ENDED 12-31-02 SHARES AMOUNT SHARES AMOUNT Shares sold 5,398,455 $56,971,452 890,182 $6,871,313 Distributions reinvested 383,527 3,707,355 55,738 332,694 Repurchased (2,861,752) (30,667,167) (2,070,610) (13,882,101) NET INCREASE (DECREASE) 2,920,230 $30,011,640 (1,124,690) ($6,678,094)
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 year ended December 31, 2002, aggregated $55,990,488 and $63,427,937 respectively. The cost of investments owned on December 31, 2002, including short-term investments, for federal income tax purposes was $35,391,379. Gross unrealized appreciation and depreciation of investments aggregated $692,316 and $4,166,470, respectively, resulting in net unrealized depreciation of $3,474,154. 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 Reclassification of accounts During the year ended December 31, 2002, the Fund reclassified amounts to reflect an decrease in accumulated net realized loss on investments of $894, a decrease in accumulated net investment income of $681 and a decrease in capital paid-in of $213. This represents the amount necessary to report these balances on a tax basis, excluding certain temporary differences, as of December 31, 2002. Additional adjustments may be needed in subsequent reporting periods. These reclassifications, which have no impact on the net asset value of the Fund, are primarily attributable to the treatment of foreign currency gains and losses in the computation of distributable income and capital gains under federal tax rules versus accounting principles generally accepted in the United States of America, book and tax differences in accounting for deferred compensation and foreign currency. The calculation of net investment income per share in the financial highlights excludes these adjustments. Report of Ernst & Young LLP, Independent Auditors To the Contract Owners and Trustees of John Hancock Declaration Trust, We have audited the accompanying statement of assets and liabilities of John Hancock V.A. Relative Value Fund (the "Fund"), one of the portfolios constituting John Hancock Declaration Trust, including the schedule of investments, as of December 31, 2002, and the related statement of operations for the year then ended, the statement of changes in net assets for each of the two years in the period then ended and the financial highlights for each of the periods indicated therein. These financial statements and financial highlights are the responsibility of the Fund's management. Our responsibility is to express an opinion on these financial statements and financial highlights based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. Our procedures included confirmation of securities owned as of December 31, 2002, by correspondence with the custodian and brokers, or other appropriate auditing procedures where replies from brokers were not received. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements and financial highlights referred to above present fairly, in all material respects, the financial position of John Hancock V.A. Relative Value Fund of the John Hancock Declaration Trust at December 31, 2002, the results of its operations for the year then ended, the changes in its net assets for each of the two years in the period then ended and the financial highlights for each of the periods indicated, in conformity with accounting principles generally accepted in the United States of America. /S/ ERNST & YOUNG Boston, Massachusetts February 7, 2003 Tax Information UNAUDITED For federal income tax purposes, the following information is furnished with respect to the distributions of the Fund paid, if any, during its taxable year ended December 31, 2002. The Fund has designated distributions to shareholders of $2,416 as long-term capital gain dividend. These amounts were reported on the 2002 U.S. Treasury Department Form 1099-DIV. With respect to the ordinary dividends paid by the Fund for the fiscal year ended December 31, 2002, 100% of the dividends qualify for the corporate dividends-received deduction. If the Fund had distributions, the shareholders will be mailed a 2002 U.S. Treasury Department Form 1099-DIV in January 2003. This will reflect the total of all distributions that are taxable for the calendar year 2002.
TRUSTEES & OFFICERS This chart provides information about the Trustees and Officers who oversee your John Hancock fund. Officers elected by the Trustees manage the day-to-day operations of the Fund and execute policies formulated by the Trustees. INDEPENDENT TRUSTEES NUMBER OF NAME, AGE TRUSTEE JOHN HANCOCK PRINCIPAL OCCUPATION(S) AND OTHER OF FUND FUNDS OVERSEEN DIRECTORSHIPS DURING PAST 5 YEARS SINCE 1 BY TRUSTEE Dennis S. Aronowitz, Born: 1931 1998 31 Professor of Law, Emeritus, Boston University School of Law (as of 1996); Director, Brookline Bancorp. Richard P. Chapman, Jr., Born: 1935 1998 31 President and Chief Executive Officer, Brookline Bancorp. (lending) (since 1972); Chairman and Director, Lumber Insurance Co. (insurance) (until 2000); Chairman and Director, Northeast Retirement Services, Inc. (retirement administration) (since 1998). William J. Cosgrove, Born: 1933 1998 31 Vice President, Senior Banker and Senior Credit Officer, Citibank, N.A. (retired 1991); Executive Vice President, Citadel Group Representatives, Inc.; Director, Hudson City Bancorp; Trustee, Scholarship Fund for Inner City Children (since 1986). Richard A. Farrell 2, Born: 1932 1998 31 President, Farrell, Healer & Co., Inc. (venture capital management firm) (since 1980) and General Partner of the Venture Capital Fund of NE (since 1980); prior to 1980, headed the venture capital group at Bank of Boston Corporation. William F. Glavin 2, Born: 1932 1998 31 President Emeritus, Babson College (as of 1998); Vice Chairman, Xerox Corporation (until 1989); Director, Reebok, Inc. (since 1994) and Inco Ltd. Patti McGill Peterson, Born: 1943 1998 39 Executive Director, Council for International Exchange of Scholars (since 1998), Vice President, Institute of International Education (since January 1998); Senior Fellow, Cornell Institute of Public Affairs, Cornell University (until 1997); President Emerita of Wells College and St. Lawrence University; Director, Niagara Mohawk Power Corporation (electric utility). John A. Moore 2, Born: 1939 1998 39 President and Chief Executive Officer, Institute for Evaluating Health Risks, (nonprofit institution) (until 2001); Senior Scientist, Sciences International (health research) (since 1998); Principal, Hollyhouse (consulting) (since 2000); Director, CIIT (nonprofit research) (since 2002). John W. Pratt 1, Born: 1931 1998 31 Professor of Business Administration Emeritus, Harvard University Graduate School of Business Administration (as of 1998). INTERESTED TRUSTEES 3 NAME, AGE NUMBER OF POSITION(S) HELD WITH FUND TRUSTEE JOHN HANCOCK PRINCIPAL OCCUPATION(S) AND OTHER OF FUND FUNDS OVERSEEN DIRECTORSHIPS DURING PAST 5 YEARS SINCE 1 BY TRUSTEE John M. DeCiccio, Born: 1948 2001 61 Trustee Executive Vice President and Chief Investment Officer, John Hancock Financial Services, Inc.; Director, Executive Vice President and Chief Investment Officer, John Hancock Life Insurance Company; Chairman of the Committee of Finance of John Hancock Life Insurance Company; Director, John Hancock Subsidiaries, LLC ("Subsidiaries, LLC"), Hancock Natural Resource Group, Independence Investment LLC, Independence Fixed Income LLC, John Hancock Advisers, LLC (the "Adviser") and The Berkeley Financial Group, LLC ("The Berkeley Group"), John Hancock Funds, LLC ("John Hancock Funds"), Massachusetts Business Development Corporation; Director, John Hancock Insurance Agency, Inc. ("Insurance Agency, Inc.") (until 1999). Maureen R. Ford, Born: 1955 2000 61 Trustee, Chairman, President and Chief Executive Officer, John Hancock Financial Services, Inc., John Hancock Life Insurance Company; Chairman, Director, President and Chief Executive Officer, the Adviser and The Berkeley Group; Chairman, Director, President and Chief Executive Officer, John Hancock Funds; Chairman, Director and Chief Executive Officer, Sovereign Asset Management Corporation ("SAMCorp."); Director, Independence Investment LLC, Subsidiaries, LLC, Independence Fixed Income LLC and Signature Services; Senior Vice President, MassMutual Insurance Co. (until 1999). PRINCIPAL OFFICERS WHO ARE NOT TRUSTEES NAME, AGE POSITION(S) HELD WITH FUND OFFICER PRINCIPAL OCCUPATION(S) AND OF FUND DIRECTORSHIPS DURING PAST 5 YEARS SINCE William L. Braman, Born: 1953 2000 Executive Vice President and Chief Investment Officer Executive Vice President and Chief Investment Officer, the Adviser and each of the John Hancock funds; Director, SAMCorp., Executive Vice President and Chief Investment Officer, Barring Asset Management, London UK (until 2000). Richard A. Brown, Born: 1949 2000 Senior Vice President and Chief Financial Officer Senior Vice President, Chief Financial Officer and Treasurer, the Adviser, John Hancock Funds, and The Berkeley Group; Second Vice President and Senior Associate Controller, Corporate Tax Department, John Hancock Financial Services, Inc. (until 2001). Thomas H. Connors, Born: 1959 1998 Vice President and Compliance Officer Vice President and Compliance Officer, the Adviser and each of the John Hancock funds; Vice President, John Hancock Funds. William H. King, Born: 1952 1998 Vice President and Treasurer Vice President and Assistant Treasurer, the Adviser; Vice President and Treasurer of each of the John Hancock funds; Assistant Treasurer of each of the John Hancock funds (until 2001). Susan S. Newton, Born: 1950 1998 Senior Vice President, Secretary and Chief Legal Officer Senior Vice President, Secretary and Chief Legal Officer, SAMCorp., the Adviser and each of the John Hancock funds, John Hancock Funds and The Berkeley Group; Vice President, Signature Services (until 2000); Director, Senior Vice President and Secretary, NM Capital.
The business address for all Trustees and Officers is 101 Huntington Avenue, Boston, Massachusetts 02199. The Statement of Additional Information of the Fund includes additional information about members of the board of Trustees of the Fund and is available, without charge, upon request, by calling 1-800-225-5291. 1 Each Trustee serves until resignation, retirement age or until his or her successor is elected. 2 Member of Audit Committee. 3 Interested Trustee holds positions with the Fund's investment adviser, underwriter and certain other affiliates. JOHN HANCOCK FUNDS DECLARATION TRUST ANNUAL REPORT [LOGO] John Hancock [Rings] Worldwide 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 8290A 12/02 2/03 ANNUAL REPORT John Hancock V.A. Sovereign Investors Fund A series of John Hancock Declaration Trust 12.31.02 [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 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 INDEPENDENT AUDITORS Ernst & Young LLP 200 Clarendon Street Boston, Massachusetts 02116-5072 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 Ford, Chairman and CEO, flush right next to first paragraph.] Dear Shareholders, Investors were probably never happier to close out a year than they were in 2002, since it was the third consecutive year that the stock market declined -- something that hadn't occurred in 60 years. Driving the fall were fears of war, a weak economy, disappointing profits, rising oil prices and a string of corporate scandals. All market sectors and investment styles suffered. As a result, the broad Standard & Poor's 500 Index fell by 22.09% for the year, while the Dow Jones Industrial Average lost 15.04% and the technology laden Nasdaq Composite Index lost 31.53%. Despite a fourth-quarter rally, only 3.8% of U.S. stock mutual funds made money last year, and the average U.S. stock fund lost 22.42%, according to Lipper, Inc. Bond funds provided the only bright spot, producing mostly positive results, with the average long-term bond fund rising 7.9%. It was the third year in which bonds outperformed stocks and gained ground, confirming yet again the importance of having a portfolio well-diversified among stocks, bonds and cash. In fact, the disparity between stock and bond results over the last three years means that many investors' portfolios may have shifted substantially in their mix between stocks and bonds. We recommend working with your investment professional to rebalance your assets according to your long-term goals. After three down years, no one can predict when the bear market cycle will turn. Currently, uncertainties abound, as the good news seen in signs of improving economic and corporate data, and efforts by Washington to stimulate the economy, are offset by the possibility of war and other geopolitical risks. While all these factors are beyond our control, investors can take charge of how they maneuver through the inevitable bull and bear market cycles. We've said it before, but it bears repeating: the key is to keep a long-term perspective and work with your investment professional to develop and maintain a properly diversified portfolio. We believe this offers the best protection in the tough times and the best means to reach your long-term goals. 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 Auditors' Opinion page 17 Trustees & Officers page 18 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 An anemic economic recovery, lackluster earnings and high-profile corporate scandals drove stock prices down throughout the year. There were few safe havens as the downturn hit virtually every sector of the market. With the Dow Jones Industrial Average down 15.04% and the Standard & Poor's 500 Index down 22.09%, stocks posted their third consecutive year of negative returns -- something that hasn't happened in 60 years. PERFORMANCE REVIEW In this difficult market environment, John Hancock V.A. Sovereign Investors Fund returned -21.29% at net asset value. By comparison, the average variable annuity equity-income fund returned -16.75%, according to Lipper, Inc. LARGE CAPS SUFFER; CONSUMER STAPLES STRONG The Fund's relative underperformance can be explained by its heavier emphasis on large-capitalization stocks. Many of our large-cap names were spared during the market's decline in 2001. As the end of a market downturn gets closer, however, there's often indiscriminate selling. That's what happened this year as many large-cap names fell in the last stages of the market's capitulation. What's more, in the wake of corporate scandals, many large-cap companies with complex balance sheets suffered as investors began to question their accounting practices. Citigroup and IBM were among the large-cap holdings that disappointed us. A combination of legal problems, difficulties overseas and the weak U.S. stock market took its toll on Citigroup. We believe, however, that the company's fundamentals are very strong, especially compared with its competitors. IBM has suffered from a lack of capital spending. In our opinion, management has done a great job refocusing the business through strategic divestitures and acquisitions. As a result, they've been able to gain market share in an extremely challenging business environment. On the flip side, our consumer staple stocks continued to perform strongly throughout the year. In particular, Procter & Gamble and Avon have been among the few companies that have met or exceeded their earnings projections. At P&G, new management has successfully streamlined the company's product line and in turn gained market share. The story was similar for Avon as new management grew sales -- especially in international markets -- with several successful new products. NEW OPPORTUNITIES In this challenging market environment, we've adhered to our long-term investment strategy. The vast majority of the Fund's holdings 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. [Table at bottom right hand column entitled "Top five holdings." The first listing is Bank of America 5.1%, the second is Johnson & Johnson 4.3%, the third International Business Machines 3.9%, the fourth ExxonMobil 3.4% and the fifth Citigroup 3.0%. A note below the table reads "As a percentage of net assets on 12-31-02."] Given the stock market's prolonged downturn, we've begun to see some compelling values that meet our strict investment standards. The decline has allowed us to add several new stocks to the portfolio that we've long admired, but haven't been able to purchase because of their high valuations. Omnicom -- one of the world's leading advertising agencies - -- was hit hard as investors worried that advertising spending would dry up in a slowing economy. The decline brought Omnicom's valuation down to a level where we felt comfortable buying the stock. With a solid balance sheet and strong client base throughout the world, we believe that Omnicom will be one of the biggest beneficiaries of an increase in advertising that will undoubtedly accompany a stronger economy. State Street Corp. is another new addition. Being one of the largest financial processors in the world, the market's downturn has taken a toll on State Street's revenues. That's because when stock market activity declines, so do processing needs. We've taken advantage of the company's recent drop to add the stock to the portfolio. Looking ahead, we believe the company will bounce back once the stock market turns around. OUTLOOK This year ended with a stock market rally that has left many investors wondering whether the downturn was over and stocks would finally turn around in 2003. Investors remain skeptical, however, remembering all too well the 2001 year-end rally, which quickly faded in 2002. As we look ahead, we believe that stock prices will move higher this year. After three straight years of losses, it would be unlikely for stocks to decline four years in a row. That's happened only once, from 1929-1932 during the Depression, and the situation is far different today. Although the economic recovery will gain momentum in 2003, we don't expect to see a sharp rebound. Since low interest rates have allowed the consumer to continue spending during this recession, there's not a significant pent-up demand. In addition, excess capacity in the industrial sector will continue to limit pricing power and keep pressure on corporate earnings. As a result, it will be critical to own high-quality companies with strong balance sheets, steady earnings growth and the ability to leverage a gradual upturn in the economy. 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 12-31-02 Cumulative total returns One year -21.29% Five years -10.09% Since inception (8-29-96) 25.05% Average annual total returns One year -21.29% Five years -2.10% Since inception (8-29-96) 3.59% 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. GROWTH OF $10,000 John Hancock V.A. Sovereign Investors Fund 8-29-96 -- 12-31-02 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 rein vested 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 - 12-31-02, 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 $14,821 as of December 31, 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 $12,505 as of December 31, 2002. FINANCIAL STATEMENTS Fund's Investments Securities owned by the Fund on 12-31-02
SHARES ISSUER VALUE COMMON STOCKS 96.47% $38,314,214 (Cost $39,095,548) Advertising 1.09% $432,820 6,700 Omnicom Group, Inc. 432,820 Banks -- United States 14.57% 5,788,968 29,000 Bank of America Corp. 2,017,530 25,000 Bank of New York Co., Inc. (The) 599,000 34,225 Citigroup, Inc. 1,204,378 20,000 Mellon Financial Corp. 522,200 10,000 State Street Corp. 390,000 10,000 U.S. Bancorp 212,200 18,000 Wells Fargo & Co. 843,660 Beverages 1.17% 464,420 11,000 PepsiCo, Inc. 464,420 Chemicals 3.47% 1,377,240 16,000 Air Products & Chemicals, Inc. 684,000 12,000 Praxair, Inc. 693,240 Computers 10.64% 4,224,350 8,000 Automatic Data Processing, Inc. 314,000 66,000 Cisco Systems, Inc.* 864,600 40,000 Hewlett-Packard Co. 694,400 20,000 International Business Machines Corp. 1,550,000 15,500 Microsoft Corp.* 801,350 Cosmetics & Personal Care 2.71% 1,077,400 20,000 Avon Products, Inc. 1,077,400 Diversified Operations 7.29% 2,894,106 6,300 3M Co. 776,790 10,937 Emerson Electric Co. 556,146 46,800 General Electric Co. 1,139,580 6,500 Illinois Tool Works, Inc. 421,590 Finance 3.15% 1,251,183 7,000 American Express Co. 247,450 19,191 MBNA Corp. 365,013 16,000 Morgan Stanley Dean Witter & Co. 638,720 Food 1.32% 523,025 13,435 Kraft Foods, Inc. (Class A) 523,025 Insurance 7.39% 2,934,708 30,000 AFLAC, Inc. 903,600 17,093 American International Group, Inc. 988,830 12,000 Hartford Financial Services Group, Inc. (The) 545,160 33,933 Travelers Property Casualty Corp. (Class A)* 497,118 Media 1.37% 543,960 9,000 McGraw-Hill Cos., Inc. (The) 543,960 Medical 12.34% 4,901,333 21,000 Abbott Laboratories 840,000 13,000 Baxter International, Inc. 364,000 11,000 Cardinal Health, Inc. 651,090 32,000 Johnson & Johnson 1,718,720 10,000 Medtronic, Inc. 456,000 5,000 Merck & Co., Inc. 283,050 19,250 Pfizer, Inc. 588,473 Mortgage Banking 4.34% 1,722,040 13,000 Fannie Mae 836,290 15,000 Freddie Mac 885,750 Office 1.38% 549,720 9,000 Avery Dennison Corp. 549,720 Oil & Gas 8.73% 3,467,498 8,000 Anadarko Petroleum Corp. 383,200 20,000 BP Plc American Depositary Receipts (ADR) (United Kingdom) 813,000 14,000 ChevronTexaco Corp. 930,720 38,368 Exxon Mobil Corp. 1,340,578 Retail 5.10% 2,026,450 10,000 Family Dollar Stores, Inc. 312,100 17,000 Lowe's Cos., Inc. 637,500 15,000 SYSCO Corp. 446,850 21,000 Target Corp. 630,000 Soap & Cleaning Preparations 2.79% 1,109,125 10,500 Colgate-Palmolive Co. 550,515 6,500 Procter & Gamble Co. 558,610 Telecommunications 1.95% 775,000 10,000 Nokia Oyj (ADR) (Finland) 155,000 16,000 Verizon Communications, Inc. 620,000 Tobacco 2.55% 1,013,250 25,000 Philip Morris Cos., Inc. 1,013,250 Utilities 3.12% 1,237,618 5,000 ALLTEL Corp. 255,000 10,000 BellSouth Corp. 258,700 26,703 SBC Communications, Inc. 723,918 ISSUER, DESCRIPTION, INTEREST PAR VALUE MATURITY DATE RATE (000s OMITTED) VALUE SHORT-TERM INVESTMENTS 8.16% $3,243,490 (Cost $3,243,490) Joint Repurchase Agreement 3.05% Investment in a joint repurchase agreement transaction with UBS Warburg, Inc. -- Dated 12-31-02, due 01-02-03 (Secured by U.S. Treasury Bond 8.500% due 02-15-20, U.S. Treasury Notes 4.625% due 02-28-02 and 5.375% due 06-30-03, U.S. Treasury Inflation Indexed Notes 3.500% due 01-15-11 and 3.000% due 07-15-12) 1.15% $1,213 1,213,000 SHARES Cash Equivalents 5.11% AIM Cash Investment Trust** 2,030,490 2,030,490 TOTAL INVESTMENTS 104.63% $41,557,704 OTHER ASSETS AND LIABILITIES, NET (4.63%) ($1,840,043) TOTAL NET ASSETS 100.00% $39,717,661 * 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 12-31-02 ASSETS Investments at value (cost $42,339,038) including $2,013,117 of securities loaned $41,557,704 Receivable for investments sold 172,046 Dividends and interest receivable 66,316 Other assets 1,244 Total assets 41,797,310 LIABILITIES Due to custodian 1,110 Payable for securities on loan 2,030,490 Payable to affiliates 26,093 Other payables and accrued expenses 21,956 Total liabilities 2,079,649 NET ASSETS Capital paid-in 53,102,309 Accumulated net realized loss on investments (12,604,142) Net unrealized depreciation of investments (781,334) Accumulated net investment income 828 Net assets $39,717,661 NET ASSET VALUE PER SHARE Based on 3,505,657 shares of beneficial interest outstanding -- unlimited number of shares authorized with no par value $11.33 Statement of Operations For the year ended 12-31-02 INVESTMENT INCOME Dividends (net of foreign withholding taxes of $1,140) $876,205 Interest (including securities lending income of $430) 78,808 Total investment income 955,013 EXPENSES Investment management fee 309,960 Auditing fee 18,000 Accounting and legal services fee 14,724 Custodian fee 12,458 Printing 5,578 Trustees' fee 3,645 Miscellaneous 2,234 Legal fee 549 Interest expense 461 Registration and filing fee 20 Total expenses 367,629 Net investment income 587,384 REALIZED AND UNREALIZED LOSS Net realized loss on investments (7,329,394) Change in unrealized appreciation (depreciation) of investments (6,254,784) Net realized and unrealized loss (13,584,178) Decrease in net assets from operations ($12,996,794) See notes to financial statements. Statement of Changes in Net Assets YEAR YEAR ENDED ENDED 12-31-01 12-31-02 INCREASE (DECREASE) IN NET ASSETS From operations Net investment income $1,021,555 $587,384 Net realized loss (3,019,394) (7,329,394) Change in net unrealized appreciation (depreciation) (1,296,552) (6,254,784) Decrease in net assets resulting from operations (3,294,391) (12,996,794) Distributions to shareholders From net investment income (1,041,147) (586,103) (1,041,147) (586,103) From Fund share transactions 13,462,214 (11,154,216) NET ASSETS Beginning of period 55,328,098 64,454,774 End of period 1 $64,454,774 $39,717,661 1 Includes distributions in excess of net investment income of $499 and accumulated net investment income of $828, respectively. Financial Highlights
12-31-98 12-31-99 12-31-00 12-31-01 12-31-02 PER SHARE OPERATING PERFORMANCE Net asset value, beginning of period $13.59 $15.61 $15.96 $15.69 $14.57 Net investment income 1 0.27 0.24 0.21 0.24 0.15 Net realized and unrealized gain (loss) on investments 2.00 0.35 (0.27) (1.12) (3.24) Total from investment operations 2.27 0.59 (0.06) (0.88) (3.09) Less distributions From net investment income (0.25) (0.24) (0.21) (0.24) (0.15) Tax return of capital -- -- 2 -- -- -- (0.25) (0.24) (0.21) (0.24) (0.15) Net asset value, end of period $15.61 $15.96 $15.69 $14.57 $11.33 Total return 3 (%) 16.88 3.84 (0.33) (5.56) (21.29) RATIOS AND SUPPLEMENTAL DATA Net assets, end of period (in millions) $34 $50 $55 $64 $40 Ratio of expenses to average net assets % 0.74 0.70 0.72 0.70 0.71 Ratio of net investment income to average net assets % 1.88 1.57 1.37 1.63 1.14 Portfolio turnover % 19 26 46 77 41 1 Based on the average of the shares outstanding. 2 Less than $0.01 per share. 3 Assumes dividend reinvestment.
See notes to financial statements. NOTES TO FINANCIAL STATEMENTS 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 Trust, organized as a Massachusetts business trust in 1995, consists of five different series at December 31, 2002. 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 currently 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. The cash collateral was invested in a short-term instrument. Investments in AIM Cash Investment Trust are valued at their net asset value each business day. 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 of 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 year ended December 31, 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 December 31, 2002, the Fund loaned securities having a market value of $2,013,117 collateralized by cash in the amount of $2,030,490. 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 $12,468,694 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 -- $157,877, December 31, 2007 -- $101,159, December 31, 2008 -- $1,206,695, December 31, 2009 -- $3,153,775, and December 31, 2010 -- $7,849,188. Net capital losses of $98,574 that are attributable to security transactions occurred after October 31, 2002, are treated as arising on January 1, 2003, the first day of the Fund's next taxable 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. 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 net realized gains on the ex-dividend date. During the year ended December 31, 2002, the tax character of distributions paid was as follows: ordinary income $586,103. As of December 31,2002, the components of distributable earnings on a tax basis included $1,450 of undistributed ordinary income. Such distributions and distributable earnings, 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 year ended December 31, 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 year was at an annual rate of approximately 0.03% 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 YEAR ENDED 12-31-02 SHARES AMOUNT SHARES AMOUNT Shares sold 1,610,786 $23,800,498 134,022 $1,666,677 Distributions reinvested 73,840 1,041,147 47,254 586,103 Repurchased (788,014) (11,379,431) (1,097,904) (13,406,996) NET INCREASE (DECREASE) 896,612 $13,462,214 (916,628) ($11,154,216)
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 year ended December 31, 2002, aggregated $20,199,560 and $29,960,775, respectively. The cost of investments owned on December 31, 2002, including short-term investments, for federal income tax purposes was $42,375,912. Gross unrealized appreciation and depreciation of investments aggregated $3,926,521 and $4,744,729, respectively, resulting in net unrealized depreciation of $818,208. 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. NOTE E Reclassification of accounts During the year ended December 31, 2002, the Fund reclassified amounts to reflect a decrease in accumulated net realized loss on investments of $141, an increase in accumulated net investment income of $46 and a decrease in capital paid-in of $187. This represents the amount necessary to report these balances on a tax basis, excluding certain temporary differences, as of December 31, 2002. Additional adjustments may be needed in subsequent reporting periods. These reclassifications, which have no impact on the net asset value of the Fund, are primarily attributable to certain differences in the computation of distributable income and capital gains under federal tax rules versus accounting principles generally accepted in the United States of America, book and tax differences in accounting for deferred compensation. The calculation of net investment income per share in the financial highlights excludes these adjustments. Report of Ernst & Young LLP, Independent Auditors To the Contract Owners and Trustees of John Hancock Declaration Trust, We have audited the accompanying statement of assets and liabilities of John Hancock V. A. Sovereign Investors Fund (the "Fund"), one of the portfolios constituting John Hancock Declaration Trust, including the schedule of investments, as of December 31, 2002, and the related statement of operations for the year then ended, the statement of changes in net assets for each of the two years in the period then ended and the financial highlights for each of the periods indicated therein. These financial statements and financial highlights are the responsibility of the Fund's management. Our responsibility is to express an opinion on these financial statements and financial highlights based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. Our procedures included confirmation of securities owned as of December 31, 2002, by correspondence with the custodian and brokers, or other appropriate auditing procedures where replies from brokers were not received. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements and financial highlights referred to above present fairly, in all material respects, the financial position of John Hancock V. A. Sovereign Investors Fund of the John Hancock Declaration Trust at December 31, 2002, the results of its operations for the year then ended, the changes in its net assets for each of the two years in the period then ended and the financial highlights for each of the periods indicated, in conformity with accounting principles generally accepted in the United States of America. /S/ ERNST & YOUNG Boston, Massachusetts February 7, 2003 Tax Information UNAUDITED For federal income tax purposes, the following information is furnished with respect to the distributions of the Fund paid, if any, during its taxable year ended December 31, 2002. With respect to the ordinary dividends paid by the Fund for the fiscal year ended December 31, 2002, 100% of the dividends qualify for the corporate dividends-received deduction. If the Fund had distributions, the shareholders will be mailed a 2002 U.S. Treasury Department Form 1099-DIV in January 2003. This will reflect the total of all distributions that are taxable for the calendar year 2002.
TRUSTEES & OFFICERS This chart provides information about the Trustees and Officers who oversee your John Hancock fund. Officers elected by the Trustees manage the day-to-day operations of the Fund and execute policies formulated by the Trustees. INDEPENDENT TRUSTEES NUMBER OF NAME, AGE TRUSTEE JOHN HANCOCK PRINCIPAL OCCUPATION(S) AND OTHER OF FUND FUNDS OVERSEEN DIRECTORSHIPS DURING PAST 5 YEARS SINCE 1 BY TRUSTEE Dennis S. Aronowitz, Born: 1931 1996 31 Professor of Law, Emeritus, Boston University School of Law (as of 1996); Director, Brookline Bancorp. Richard P. Chapman, Jr., Born: 1935 1996 31 President and Chief Executive Officer, Brookline Bancorp. (lending) (since 1972); Chairman and Director, Lumber Insurance Co. (insurance) (until 2000); Chairman and Director, Northeast Retirement Services, Inc. (retirement administration) (since 1998). William J. Cosgrove, Born: 1933 1996 31 Vice President, Senior Banker and Senior Credit Officer, Citibank, N.A. (retired 1991); Executive Vice President, Citadel Group Representatives, Inc.; Director, Hudson City Bancorp; Trustee, Scholarship Fund for Inner City Children (since 1986). Richard A. Farrell 2, Born: 1932 1996 31 President, Farrell, Healer & Co., Inc. (venture capital management firm) (since 1980) and General Partner of the Venture Capital Fund of NE (since 1980); prior to 1980, headed the venture capital group at Bank of Boston Corporation. William F. Glavin 2, Born: 1932 1996 31 President Emeritus, Babson College (as of 1998); Vice Chairman, Xerox Corporation (until 1989); Director, Reebok, Inc. (since 1994) and Inco Ltd. Patti McGill Peterson, Born: 1943 1996 39 Executive Director, Council for International Exchange of Scholars (since 1998), Vice President, Institute of International Education (since January 1998); Senior Fellow, Cornell Institute of Public Affairs, Cornell University (until 1997); President Emerita of Wells College and St. Lawrence University; Director, Niagara Mohawk Power Corporation (electric utility). John A. Moore 2, Born: 1939 1996 39 President and Chief Executive Officer, Institute for Evaluating Health Risks, (nonprofit institution) (until 2001); Senior Scientist, Sciences International (health research) (since 1998); Principal, Hollyhouse (consulting) (since 2000); Director, CIIT (nonprofit research) (since 2002). John W. Pratt, Born: 1931 1996 31 Professor of Business Administration Emeritus, Harvard University Graduate School of Business Administration (as of 1998). INTERESTED TRUSTEES 3 NAME, AGE NUMBER OF POSITION(S) HELD WITH FUND TRUSTEE JOHN HANCOCK PRINCIPAL OCCUPATION(S) AND OTHER OF FUND FUNDS OVERSEEN DIRECTORSHIPS DURING PAST 5 YEARS SINCE 1 BY TRUSTEE John M. DeCiccio, Born: 1948 2001 61 Trustee Executive Vice President and Chief Investment Officer, John Hancock Financial Services, Inc.; Director, Executive Vice President and Chief Investment Officer, John Hancock Life Insurance Company; Chairman of the Committee of Finance of John Hancock Life Insurance Company; Director, John Hancock Subsidiaries, LLC ("Subsidiaries, LLC"), Hancock Natural Resource Group, Independence Investment LLC, Independence Fixed Income LLC, John Hancock Advisers, LLC (the "Adviser") and The Berkeley Financial Group, LLC ("The Berkeley Group"), John Hancock Funds, LLC ("John Hancock Funds"), Massachusetts Business Development Corporation; Director, John Hancock Insurance Agency, Inc. ("Insurance Agency, Inc.") (until 1999). Maureen R. Ford, Born: 1955 2000 61 Trustee, Chairman, President and Chief Executive Officer, John Hancock Financial Services, Inc., John Hancock Life Insurance Company; Chairman, Director, President and Chief Executive Officer, the Adviser and The Berkeley Group; Chairman, Director, President and Chief Executive Officer, John Hancock Funds; Chairman, Director and Chief Executive Officer, Sovereign Asset Management Corporation ("SAMCorp."); Director, Independence Investment LLC, Subsidiaries, LLC, Independence Fixed Income LLC and Signature Services; Senior Vice President, MassMutual Insurance Co. (until 1999). PRINCIPAL OFFICERS WHO ARE NOT TRUSTEES NAME, AGE POSITION(S) HELD WITH FUND OFFICER PRINCIPAL OCCUPATION(S) AND OF FUND DIRECTORSHIPS DURING PAST 5 YEARS SINCE William L. Braman, Born: 1953 2000 Executive Vice President and Chief Investment Officer Executive Vice President and Chief Investment Officer, the Adviser and each of the John Hancock funds; Director, SAMCorp., Executive Vice President and Chief Investment Officer, Barring Asset Management, London UK (until 2000). Richard A. Brown, Born: 1949 2000 Senior Vice President and Chief Financial Officer Senior Vice President, Chief Financial Officer and Treasurer, the Adviser, John Hancock Funds, and The Berkeley Group; Second Vice President and Senior Associate Controller, Corporate Tax Department, John Hancock Financial Services, Inc. (until 2001). Thomas H. Connors, Born: 1959 1996 Vice President and Compliance Officer Vice President and Compliance Officer, the Adviser and each of the John Hancock funds; Vice President, John Hancock Funds. William H. King, Born: 1952 1996 Vice President and Treasurer Vice President and Assistant Treasurer, the Adviser; Vice President and Treasurer of each of the John Hancock funds; Assistant Treasurer of each of the John Hancock funds (until 2001). Susan S. Newton, Born: 1950 1996 Senior Vice President, Secretary and Chief Legal Officer Senior Vice President, Secretary and Chief Legal Officer, SAMCorp., the Adviser and each of the John Hancock funds, John Hancock Funds and The Berkeley Group; Vice President, Signature Services (until 2000); Director, Senior Vice President and Secretary, NM Capital.
The business address for all Trustees and Officers is 101 Huntington Avenue, Boston, Massachusetts 02199. The Statement of Additional Information of the Fund includes additional information about members of the board of Trustees of the Fund and is available, without charge, upon request, by calling 1-800-225-5291. 1 Each Trustee serves until resignation, retirement age or until his or her successor is elected. 2 Member of Audit Committee. 3 Interested Trustee holds positions with the Fund's investment adviser, underwriter and certain other affiliates. JOHN HANCOCK FUNDS DECLARATION TRUST ANNUAL REPORT [LOGO] John Hancock [Rings] Worldwide 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. Sovereign Investors Fund NOT FDIC INSURED MAY LOSE VALUE NO BANK GUARANTEE 8150A 12/02 2/03 ANNUAL REPORT John Hancock V.A. Strategic Income Fund A series of John Hancock Declaration Trust 12.31.02 [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 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 INDEPENDENT AUDITORS Ernst & Young LLP 200 Clarendon Street Boston, Massachusetts 02116-5072 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 Ford, Chairman and CEO, flush right next to first paragraph.] Dear Shareholders, Investors were probably never happier to close out a year than they were in 2002, since it was the third consecutive year that the stock market declined -- something that hadn't occurred in 60 years. Driving the fall were fears of war, a weak economy, disappointing profits, rising oil prices and a string of corporate scandals. All market sectors and investment styles suffered. As a result, the broad Standard & Poor's 500 Index fell by 22.09% for the year, while the Dow Jones Industrial Average lost 15.04% and the technology laden Nasdaq Composite Index lost 31.53%. Despite a fourth-quarter rally, only 3.8% of U.S. stock mutual funds made money last year, and the average U.S. stock fund lost 22.42%, according to Lipper, Inc. Bond funds provided the only bright spot, producing mostly positive results, with the average long-term bond fund rising 7.9%. It was the third year in which bonds outperformed stocks and gained ground, confirming yet again the importance of having a portfolio well-diversified among stocks, bonds and cash. In fact, the disparity between stock and bond results over the last three years means that many investors' portfolios may have shifted substantially in their mix between stocks and bonds. We recommend working with your investment professional to rebalance your assets according to your long-term goals. After three down years, no one can predict when the bear market cycle will turn. Currently, uncertainties abound, as the good news seen in signs of improving economic and corporate data, and efforts by Washington to stimulate the economy, are offset by the possibility of war and other geopolitical risks. While all these factors are beyond our control, investors can take charge of how they maneuver through the inevitable bull and bear market cycles. We've said it before, but it bears repeating: the key is to keep a long-term perspective and work with your investment professional to develop and maintain a properly diversified portfolio. We believe this offers the best protection in the tough times and the best means to reach your long-term goals. 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 Auditors' Opinion page 17 Trustees & Officers page 18 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.] Global bond markets turned in strong gains in 2002, although various sectors of the market performed far better than others. Among the top-performing fixed-income investments were foreign bonds, which benefited from both the global economic weakness that caused interest rates to fall and bond prices to rise, and the depreciation of the U.S. dollar compared with other major foreign currencies. U.S. Treasuries also performed well because of stock market volatility and strong demand for relatively safe investments. Falling interest rates also helped. That said, U.S. Treasury bonds and notes struggled in the fourth quarter as stocks rallied in response to a brief subsiding in war worries, the Republican mid-term election victories and a one-half percentage point cut in interest rates, which many felt could result in stronger economic conditions and higher inflation in 2003. High-yield corporate bonds took the opposite track, struggling in the first three quarters of 2002, but rebounding in the final quarter. High-yield bonds suffered in response to weak economic conditions. High-yield corporates are heavily dependent on corporate financial health and as such, are more correlated to the stock market's performance. More importantly, however, investors became increasingly skittish and risk-averse amid the financial scandals that engulfed companies such as Enron, Global Crossing, Adelphia Communications and WorldCom. But in the final months of the year, high-yield bond prices rallied with the stock market. FUND PERFORMANCE For the 12 months ended December 31, 2002, John Hancock V.A. Strategic Income Fund posted a total return of 7.87% at net asset value. This compared with the 8.47% return of the average variable annuity general bond fund. FOCUS ON QUALITY HELPS The Fund did well as the result of our asset allocation decisions, which resulted in the portfolio's gradually shifting toward higher-quality securities. We benefited from our increased stake in foreign government bonds, as well as from our relatively light exposure to high-yield corporates. Among foreign government bonds, our holdings in European government bonds, which we added to throughout the period, performed quite well. Bonds issued by Germany, Spain and Italy were attractive based on our expectations of interest-rate cuts amid growing economic weakness. Although the European Central Bank didn't cut rates until late in the period, the bonds in those countries generally rallied in anticipation of the cuts. We also focused on high-quality bonds issued by other developed countries, including Canada and New Zealand. [Table at bottom right hand column entitled "Top five industry groups." The first listing is Foreign governments 50%, the second is U.S. government 17%, the third Leisure 6%, the fourth Media 5% and the fifth Oil & gas 5%. A note below the table reads "As a percentage of net assets on 12-31-02."] Some of our purchases of foreign government bonds came as the result of our selling emerging-market bonds, which we felt had reached their full value. Others came from selling U.S. Treasury securities. While the Fund benefited from its stake in Treasury bonds early on, we sold some because we became more pessimistic about the U.S. dollar as the period progressed. The dollar seemed to us at the time to be overvalued, and we worried about the potential for further declines because of the record trade deficit and concerns that foreigners' interest in our stock and bond markets would wane given all the recent volatility. As the dollar continued to weaken, that positioning served the portfolio well. HIGH-QUALITY HIGH YIELD Our focus on the higher-quality names within the high-yield corporate bond sector also aided performance. Among the top-performing holdings were some oil companies, whose prices were driven higher in part by the prospects of rising energy prices in light of the oil workers strike in Venezuela and a potential U.S. war with Iraq. For similar reasons, our holdings in other energy companies -- such as Chesapeake Energy -- also did well. Mexico's leading television broadcaster, Grupo Televisa, continued to gain market share in the Mexican TV market and benefited from the continued solid performance of Univision and Innova, in which Televisa owns equity stakes. Innova, the Mexican platform for Sky International satellite television programming, also performed well by turning cash flow positive and continuing to take market share from its primary competitor, DirecTV Latin America. On the flip side, our holdings in paper company Corporacion Durango weakened when sales declined due to a boiler explosion at the company's Georgia paper mill. Coal company Horizon Natural Resources filed for bankruptcy, which obviously was a disappointment. OUTLOOK For now, we plan to maintain our high-quality focus. But we have begun to gradually increase our historically low exposure to high-yield corporate bonds and plan to continue to do so once we're more comfortable with the strength of economic activity, corporate earnings and the geopolitical situation. 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 12-31-02 Cumulative total returns One year 7.87% Five years 25.75% Since inception (8-29-96) 49.62% Average annual total returns One year 7.87% Five years 4.69% Since inception (8-29-96) 6.56% Yield SEC 30-Day Yield 5.88% 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 John Hancock V.A. Strategic Income Fund 8-29-96 -- 12-31-02 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 three indexes: Merrill Lynch AAA U.S. Treasury/Agency Master Index, an index of fixed-rate U.S. Treasury and agency securities 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 - 12-31-02, representing the growth of a hypothetical $10,000 investment over the life of the fund. Within the chart are four lines. The first line represents the Merrill Lynch AAA U.S. Treasury/Agency Master Index and is equal to $16,634 as of December 31, 2002. The second 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 $14,963 as of December 31, 2002. The fourth bar represents the Salomon Smith Barney World Government Bond Index and is equal to $13,670 as of December 31, 2002. The fifth bar represents the Merrill Lynch High Yield Master II Index and is equal to $12,342 as of December 31, 2002. FINANCIAL STATEMENTS Fund's Investments Securities owned by the Fund on 12-31-02
ISSUER, DESCRIPTION, INTEREST CREDIT PAR VALUE MATURITY DATE RATE RATING* (000s OMITTED) VALUE BONDS 98.20% $71,460,901 (Cost $69,709,227) Advertising 0.17% $120,055 Go Outdoor Systems Holding S.A., Sr Sub Note (France) 07-15-09 (E) 10.500 B- 100 120,055 Agricultural Operations 0.00% 3,402 Iowa Select Farms L.P./ISF Finance, Inc., Jr Sec Sub Note, Payment-In-Kind, 12-01-06 (R) 10.750 Ca 6 3,402 Automobile/Trucks 0.03% 20,500 J.B. Poindexter & Co., Inc., Sr Note 05-15-04 12.500 B- 25 20,500 Banks -- United States 0.30% 218,846 Colonial Bank, Sub Note 06-01-11 9.375 BBB- 200 218,846 Building 0.49% 358,041 Amatek Industries Property Ltd., Sr Sub Note (Australia) 02-15-08 12.000 CCC+ 25 27,000 Celulosa Arauco y Constitucion S.A., Bond (Chile) 09-13-11 7.750 BBB+ 300 331,041 Chemicals 0.33% 241,475 American Pacific Corp., Sr Note 03-01-05 9.250 BB- 30 30,600 Huntsman ICI Holdings LLC, Sr Disc Note 12-31-09 Zero B+ 75 16,875 Nova Chemicals Corp., Sr Note (Canada) 05-15-06 7.000 BB+ 200 194,000 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 1.44% 1,050,609 BWAY Corp., Sr Sub Note 10-15-10 (R) 10.000 B- 75 77,813 Kappa Beheer B.V., Gtd Sr Sub Note (Netherlands) 07-15-09 (E) 10.625 B 75 80,250 Sr Sub Bond (Netherlands) 07-15-09 10.625 B 150 167,646 Owens-Brockway Glass Container, Inc., Sr Sec Note 02-15-09 8.875 BB 280 288,400 Riverwood International Corp., Gtd Sr Sub Note 04-01-08 10.875 CCC+ 300 301,500 Vicap S.A. de C.V., Gtd Sr Note (Mexico) 05-15-07 11.375 B+ 150 135,000 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 0.22% 159,000 UCAR Finance, Inc., Gtd Sr Note 02-15-12 10.250 B 200 159,000 Energy 0.18% 131,890 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- 59 41,890 Food 0.42% 308,060 Dean Foods Co., Sr Note 08-01-07 8.150 BB- 200 210,500 Del Monte Corp., Sr Sub Note 12-15-12 (R) 8.625 B 63 64,260 RAB Holdings, Inc., Sr Note 05-01-08 (R) 13.000 Ca 120 33,300 Government -- Foreign 50.36% 36,648,337 Australia, Government of, Bond (Australia) 04-15-15 # 6.250 Aaa 1,000 606,373 Bonos Y Oblig Del Estado, Bond (Spain) 07-30-04 (E) 4.500 AA+ 500 538,792 Bond (Spain) 10-31-11 (E) 5.350 AA+ 1,420 1,612,979 Bond (Spain) 07-30-12 (E) 5.000 AA+ 500 554,187 Bundesrepublik Deutschland, Bond (Denmark) 07-04-12 (E) 5.000 AAA 1,200 1,334,872 Buoni Poliennali Del Tes, Bond (Italy) 08-01-11 (E) 5.250 AA 865 974,021 Bond (Italy) 05-01-31 (E) 6.000 AA 700 852,318 Canada, Government of, Bond (Canada) 02-01-03 # 11.750 AAA 1,000 637,074 Bond (Canada) 09-01-05 # 6.000 AAA 1,000 674,744 Bond (Canada) 12-01-05 # 8.750 AAA 1,900 1,377,398 Bond (Canada) 12-01-06 # 7.000 AAA 2,300 1,635,373 Bond (Canada) 09-01-07 # 4.500 AAA 280 181,225 Bond (Canada) 06-01-08 # 6.000 AAA 500 344,452 Bond (Canada) 06-01-09 # 5.500 AAA 2,500 1,680,798 Bond (Canada) 06-01-10 # 5.500 AA+ 1,675 1,121,830 Bond (Canada) 06-01-11 # 6.000 AAA 2,550 1,756,462 Bond (Canada) 06-01-29 # 5.750 AA+ 3,425 2,283,984 Chile, Republic of, Note (Chile) 01-11-12 7.125 A- 600 674,461 Colombia, Republic of, Bond (Colombia) 02-25-20 11.750 BB 400 428,000 Note (Colombia) 04-09-11 9.750 BBB 700 722,979 Germany, Federal Republic of, Bond (Germany) 01-04-12 (E) 5.000 AAA 950 1,057,572 Mexican, United States, Bond (Mexico) 09-15-16 11.375 BBB- 200 268,000 Note (Mexico) 01-14-11 8.375 BB+ 800 904,000 Note (Mexico) 08-15-31 8.300 BBB- 600 633,000 Unsub Note (Mexico) 03-13-08 7.375 BBB- 390 437,681 New Zealand, Government of, Bond (New Zealand) 11-15-06 # 8.000 AAA 3,450 1,938,089 Bond (New Zealand) 11-15-11 # 6.000 AAA 2,525 1,314,809 Norway, Government of, Bond (Norway) 11-30-04 # 5.750 AAA 9,500 1,382,668 Panama, Republic of, Bond (Panama) 02-08-11 9.625 BB 700 764,750 Bond (Panama) 01-16-23 9.375 BB 150 154,500 Peru, Republic of, Note (Peru) 01-15-08 9.125 BB- 275 277,750 Russia, Federation of, Unsub Note (Russia) 06-26-07 10.000 BB 1,715 1,952,956 Unsub Note (Russia) 03-31-10 8.250 B 725 767,050 Unsub Note (Russia) 07-24-18 11.000 BB 1,350 1,620,000 Unsub Note (Russia) 06-24-28 12.750 B 600 798,000 Sweden, Government of, Bond (Sweden) 05-05-03 # 10.250 AAA 3,500 410,514 Bond (Sweden) 01-15-04 # 5.000 AAA 3,700 430,371 Bond (Sweden) 02-09-05 # 6.000 AAA 4,500 539,161 Bond (Sweden) 08-15-07 # 8.000 AAA 5,000 665,144 Venezuela, Republic of, Bond (Venezuela) 09-15-27 9.250 CCC+ 500 340,000 Government -- U.S. 17.14% 12,468,927 United States Treasury, Bond 08-15-05 6.500 AAA 400 447,406 Bond 08-15-05 10.750 AAA 400 490,328 Bond 02-15-16 9.250 AAA 615 912,602 Bond 08-15-19 8.125 AAA 3,265 4,547,789 Note 08-15-04 7.250 AAA 2,240 2,450,262 Note 05-15-05 6.500 AAA 1,300 1,443,051 Note 08-15-07 6.125 AAA 940 1,080,927 Note 08-15-11 5.000 AAA 1,000 1,096,562 Government -- U.S. Agencies 1.79% 1,300,000 Government National Mortgage Assn., 30 Yr Pass Thru Ctf 01-01-32 6.000 AAA 1,250 1,300,000 Leisure 6.43% 4,678,705 AMC Entertainment, Inc., Sr Sub Note 02-01-11 9.500 CCC+ 300 295,500 Chukchansi Economic Development Authority, Sr Note 06-15-09 (R) 14.500 Caa1 125 125,000 Coast Hotels and Casinos, Inc., Sr Sub Deb 04-01-09 9.500 B 300 321,000 Fitzgeralds Gaming Corp., Gtd Sr Sec Note Ser B 12-15-04 (B) 12.250 D 50 2,500 HMH Properties, Inc., Sr Note Ser B 08-01-08 7.875 BB- 100 97,000 Hockey Co. (The)/Sport Maska, Inc., Unit (Sr Sec Note & Sr Sec Note) (Canada) 04-15-09 11.250 B 410 418,200 Isle of Capri Casinos, Inc, Sr Sub Note 03-15-12 9.000 B 300 312,000 Jacobs Entertaiment, Inc., Sr Sec Note 02-01-09 11.875 B 300 310,500 Jupiters Ltd., Sr Note (Australia) 03-01-06 8.500 BB+ 300 303,000 Majestic Investor Holding LLC/ Majestic Investor Capital Co., Gtd Sr Sec Note 11-30-07 11.653 B 300 277,500 Mandalay Resort Group, Sr Sub Note 02-15-10 9.375 BB- 100 107,500 Mohegan Tribal Gaming Authority, Sr Sub Note 04-01-12 8.000 BB- 400 417,000 Penn National Gaming, Inc., Sr Sub Note 03-01-08 11.125 B- 225 246,375 Station Casinos, Inc., Sr Note 02-15-08 8.375 BB- 200 212,500 Sun International Hotels Ltd., Gtd Sr Sub Note (Bahamas) 08-15-11 8.875 B+ 65 66,300 Turning Stone Casino Resort Enterprise, Sr Note 12-15-10 (R) 9.125 B+ 200 204,500 Waterford Gaming LLC Sr Note 03-15-10 (R) 9.500 B+ 438 453,330 Wheeling Island Gaming, Inc., Sr Note 12-15-09 10.125 B+ 200 206,000 Wynn Las Vegas LLC, 2nd Mtg Note 11-01-10 12.000 CCC+ 300 303,000 Linen Supply & Related 0.33% 235,969 Coinmach Corp., Sr Note 02-01-10 9.000 B 225 235,969 Machinery 0.01% 7,500 Glasstech, Inc., Sr Note Ser B 07-01-04 (B) 12.750 D 25 7,500 Media 5.41% 3,936,632 Allbritton Communications Co., Sr Sub Note 12-15-12 (R) 7.750 B- 200 200,250 Antenna TV S.A., Sr Note (Greece) 07-01-08 (E) 9.750 BB- 50 39,877 Callahan Nordrhein-Westfalen GmbH, Sr Note (Germany) 07-15-11 (E) 14.125 B- 320 10,075 Corus Entertainment, Inc., Sr Sub Note (Canada) 03-01-12 8.750 B+ 160 169,400 CSC Holdings, Inc., Sr Sub Deb 05-15-16 10.500 B+ 200 198,250 Sr Sub Deb 04-01-23 9.875 B+ 100 89,125 Garden State Newspapers, Inc., Sr Sub Note Ser B 10-01-09 8.750 B+ 200 203,000 Sr Sub Note 07-01-11 8.625 B+ 335 338,350 Grupo Televisa SA, Bond (Mexico) 03-11-32 8.500 BBB- 350 332,500 Note (Mexico) 09-13-11 8.000 BBB- 300 312,750 Hollinger International Publishing, Inc., Sr Note 12-15-10 (R) 9.000 B 300 302,625 Innova S. de R.L., Sr Note (Mexico) 04-01-07 12.875 B- 600 522,000 Paxson Communications Corp., Gtd Sr Sub Note 07-15-08 10.750 B- 205 202,181 Pegasus Communications Corp., Sr Note Ser B 08-01-07 12.500 CCC+ 435 230,550 Rogers Cablesystems Ltd., Sr Sec Deb (Canada) 01-15-14 # 9.650 BBB- 495 300,798 Sinclair Broadcast Group, Inc., Gtd Sr Sub Note 03-15-12 8.000 B 375 390,938 Sr Sub Note 12-15-11 8.750 B 50 53,813 Sirius Satellite Radio, Inc., Sr Disc Note 12-01-07 15.000 CCC- 110 40,150 Medical 0.67% 490,125 Advanced Medical Optics, Inc., Sr Sub Note 07-15-10 9.250 B 300 309,000 Select Medical Corp., Sr Sub Note 06-15-09 9.500 B 175 181,125 Metal 0.58% 419,625 Freeport-McMoRan Copper & Gold, Inc., Sr Note 11-15-06 7.500 B- 75 69,375 Golden Northwest Aluminum, Inc., 1st Mtg Note 12-15-06 12.000 CC 25 2,000 Great Central Mines Ltd., Sr Note (Australia) 04-01-08 8.875 BBB- 350 348,250 Oil & Gas 4.64% 3,376,508 Chesapeake Energy Corp., Sr Note 04-01-11 8.125 B+ 300 309,000 Sr Note 01-15-15 (R) 7.750 B+ 200 199,000 Comstock Resources, Inc., Gtd Sr Note 05-01-07 11.250 B- 350 371,000 Key Energy Services, Inc., Sr Sub Note Ser B 01-15-09 14.000 B+ 68 77,520 Mariner Energy, Inc., Sr Sub Note Ser B 08-01-06 10.500 C 10 9,700 OAO Siberian Oil Co., Bond (Russia) 02-13-07 11.500 Ba3 335 350,913 Ocean Rig Norway A.S., Sr Sec Note (Norway) 06-01-08 10.250 CCC 255 229,500 Parker Drilling Co., Gtd Sr Note 11-15-09 10.125 B+ 300 309,000 Pemex Project Funding Master Trust, Bond 12-15-14 (Mexico) (R) 7.375 BBB- 225 230,625 Note (Mexico) 02-15-08 8.500 BB+ 400 446,000 Note (Mexico) 02-01-09 (R) 7.875 BBB- 350 376,250 Western Oil Sands, Inc., Sr Sec Note (Canada) 05-01-12 8.375 BB+ 150 149,250 XTO Energy, Inc., Sr Note 04-15-12 7.500 BB 300 318,750 Paper & Paper Products 1.63% 1,184,605 APP China Group Ltd., Sr Disc Note (Indonesia) 03-15-10 (B) (R) 14.000 D 250 70,000 APP Finance (VII) Mauritius Ltd., Gtd Note (Indonesia) 04-30-03 (B) (R) 3.500 D 10 1,100 Corporacion Durango S.A. de C.V., Sr Note (Mexico) 08-01-06 13.125 B- 631 224,005 Longview Fibre Co., Sr Sub Note 01-15-09 10.000 B+ 250 262,500 MDP Acquisitions Plc, Sr Note (Ireland) 10-01-12 (R) 9.625 B 200 208,000 Stone Container Corp., Sr Note 02-01-11 9.750 B 200 214,000 Sr Note 07-01-12 8.375 B 200 205,000 Retail 0.00% 13 Imperial Home Decor Group, Inc., Gtd Sr Sub Note 03-15-08 11.000 C 125 13 Steel 0.05% 38,960 Gulf States Steel, Inc. of Alabama, 1st Mtg Bond 04-15-03 (B) 13.500 Caa3 100 10 LTV Corp. (The), Gtd Sr Sub Note 11-15-09 (B) 11.750 Ca 50 0 Metallurg Holdings, Inc., Sr Disc Note, Step Coupon (12.75%, 07-15-03) 07-15-08 (A) Zero CCC 50 17,500 Metallurg, Inc., Gtd Sr Note Ser B 12-01-07 11.000 CCC+ 30 21,450 NSM Steel, Inc./NSM Steel Ltd., Gtd Sr Sub Mtg Note Ser B 02-01-08 (B) (R) 12.250 D 75 0 Telecommunications 2.53% $1,841,813 AT&T Broadband Corp., Gtd Note 03-15-13 8.375 BBB 260 295,339 Crown Castle International Corp., Sr Disc Note, Step Coupon 11-15-07 10.625 B 90 81,000 Grupo Iusacell S.A. de C.V., Sr Note (Mexico) 12-01-06 14.250 CCC- 300 75,000 Ionica PLC, Sr Disc Note, Step Coupon (United Kingdom) 05-01-07 15.000 Ca 200 0 MetroNet Communications Corp., Sr Disc Note, Step Coupon (Canada) 11-01-07 10.750 D 200 32,000 Sr Note (Canada) 08-15-07 12.000 D 50 7,500 Mobile Telesystems Finance S.A., Gtd Bond (Luxembourg) 12-21-04 10.950 B+ 250 262,500 Nextel Partners, Inc., Sr Disc Note, Step Coupon (14.00%, 02-01-04) 02-01-09 (A) Zero CCC+ 405 303,750 PanAmSat Corp., Gtd Sr Note 02-01-12 8.500 B- 300 286,500 PTC International Finance B.V., Gtd Sr Sub Disc Note, Step Coupon (Netherlands) 07-01-07 10.750 B+ 90 93,600 PTC International Finance II S.A., Sr Sub Note (Luxembourg) 12-01-09 (E) 11.250 B+ 125 139,049 TeleCorp PCS, Inc., Sr Sub Disc Note, Step Coupon (11.625%, 04-15-04) 04-15-09 (A) Zero BBB 118 111,215 Tritel PCS, Inc., Gtd Note, Step Coupon (12.75%, 05-15-04) 05-15-09 Zero BBB 52 48,360 VoiceStream Wireless Corp., Sr Note 09-15-09 11.500 BBB+ 100 106,000 Textile 0.06% 45,000 Coyne International Enterprises Corp., Sr Sub Note 06-01-08 11.250 Caa1 75 45,000 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 0.84% 612,669 Cenargo International Plc, 1st Mtg Note (United Kingdom) 06-15-08 9.750 B+ 20 8,440 CHC Helicopter Corp., Sr Sub Note (Canada) 07-15-07 (E) 11.750 B 130 148,704 Fine Air Services, Inc., Sr Note 06-01-08 (B) 9.875 D 210 0 North American Van Lines, Inc., Sr Sub Note 12-01-09 13.375 B- 350 340,375 Pacific & Atlantic Holdings, Inc., Sr Sec Note (Greece) 12-31-07 (R) 10.500 CC 25 10,025 Petroleum Helicopters, Inc., Gtd Sr Note Ser B 05-01-09 9.375 BB- 100 105,125 Utilities 1.53% 1,113,385 Illinois Power Corp., 1st Mtg Bond 12-15-10 (R) 11.500 B 300 288,000 Midland Funding Corp. II, Deb Ser A 07-23-05 11.750 BB- 200 204,000 Deb Ser B 07-23-06 13.250 BB- 150 155,250 Monterrey Power S.A. de C.V., Sr Sec Bond (Mexico) 11-15-09 (R) 9.625 BBB- 158 178,434 Niagara Mohawk Power Corp., Sec Fac Bond 01-01-18 8.770 A 141 147,557 Salton Sea Funding Corp., Gtd Note Ser F 11-30-18 7.475 BB 98 90,924 Sr Sec Note Ser C 05-30-10 7.840 BB 50 49,220 Waste Disposal Service & Equip. 0.60% 437,750 Allied Waste North America, Inc., Gtd Sr Sec Note 09-01-12 (R) 9.250 BB- 185 189,625 Gtd Sr Sub Note Ser B 08-01-09 10.000 B+ 250 248,125 SHARES ISSUER VALUE COMMON STOCKS 0.97% $702,907 (Cost $1,781,169) Consumer Products 0.02% 16,206 3,448 Indesco International, Inc.** 16,206 Energy 0.00% 85 8,476 Horizon Natural Resources Co.** 85 Food 0.01% 5,303 1,046 Pathmark Stores, Inc.** 5,303 Leisure 0.00% 303 101 Sunterra Corp.** 303 Metal 0.72% 520,896 6,000 Barrick Gold Corp. (Canada) 92,460 3,700 Newmont Mining Corp. 107,411 15,000 Pan American Silver Corp. (Canada)** 117,600 12,860 TVX Gold (Canada) # ** 203,425 Oil & Gas 0.18% 129,600 1,872 Chesapeake Energy Corp. ** 14,489 28,850 Grey Wolf, Inc.** 115,111 Retail 0.01% 4,877 660 SpinCycle, Inc.** 4,877 Telecommunications 0.03% 25,637 2,417 International Wireless Communications Holdings, Inc. ** 0 255 Metrocall Holdings, Inc.** 64 989 NII Holdings, Inc. (Class B)** 11,621 2,383 PFB Telecom B.V., Class B (Germany) ** 241 2,696 PFB Telecom B.V., Class B (United Kingdom) ** 0 20,345 Versatel Telecom International NV, American Depositary Receipt (ADR) (Netherlands)** 6,192 2,059 Versatel Telecom International NV, ADR (Netherlands)** 7,519 WARRANTS 0.00% $1,428 (Cost $28,467) Leisure 0.00% $8 152 Sunterra Corp., Warrant** 8 Manufacturing 0.00% 212 212 HF Holdings, Inc., Warrant** 212 Media 0.00% 0 50 ONO Finance Plc, Warrant (United Kingdom) (E) (R)** 0 100 ONO Finance Plc, Warrant (United Kingdom) (R)** 0 Oil & Gas 0.00% 15 15 Chesapeake Energy Corp., Warrant** 15 1,361 Chesapeake Energy Corp., Warrant** 0 Paper & Paper Products 0.00% 0 250 Asia Pulp & Paper Co. Ltd., Warrant (R)** 0 Retail 0.00% 0 35,000 Hills Stores Co., Warrant** 0 740 Pathmark Stores, Inc., Warrant** 570 Steel 0.00% 1 63,309 Nakornthai Strip Mill Plc, Warrant (Thailand) (R)** 1 Telecommunications 0.00% 622 250 Allegiance Telecom, Inc., Warrant** 250 100 Comunicacion Celular S.A., Warrant (Colombia)** 1 100 Loral Space & Communications Ltd., Warrant** 1 740 Loral Space & Communications Ltd., Warrant** 370 111 Versatel Telecom International NV, Warrant (Netherlands)** 0 PREFERRED STOCKS 0.38% $274,090 (Cost $656,527) Media 0.26% 190,000 2,000 CSC Holdings, Inc., 11.75%, Ser H, Preferred Stock 190,000 Paper & Paper Products 0.12% 84,050 4,100 Smurfit-Stone Container Corp., 7.00%, Ser A, Preferred Stock 84,050 Telecommunications 0.00% 40 220 Metrocall Holdings, Inc., 15.00%, Ser A, Preferred Stock 13 2,682 XO Communications, Inc., 14.00%, Preferred Stock 27 Transportation 0.00% 0 1,400 Pacific & Atlantic Holdings, Inc., 7.50%, Preferred Stock (Greece)** 0 ISSUER, DESCRIPTION, INTEREST PAR VALUE MATURITY DATE RATE (000S OMITTED) VALUE SHORT-TERM INVESTMENTS 0.42% $307,000 (Cost $307,000) Joint Repurchase Agreement 0.42% Investment in a joint repurchase agreement transaction with UBS Warburg, Inc. Dated 12-31-02, due 01-02-03 (Secured by U.S. Treasury Bond 8.500% due 02-15-20, U.S. Treasury Notes 4.625% due 02-28-02 and 5.375% due 06-30-03, U.S. Treasury Inflation Indexed Notes 3.500% due 01-15-11 and 3.000% due 07-15-12) 1.15% $307 $307,000 TOTAL INVESTMENTS 99.97% $72,746,326 OTHER ASSETS AND LIABILITIES, NET 0.03% $24,059 TOTAL NET ASSETS 100.00% $72,770,385 * 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 $3,215,540 or 4.42% of the Fund's net assets as of December 31, 2002. Parenthetical disclosure of a foreign country in the security description represents country of foreign issuer, however, security is U. S. dollar-denominated, unless indicated 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 1.77% Bahamas 0.09 Canada 18.59 Chile 1.38 Colombia 1.58 Denmark 1.83 France 0.16 Germany 1.47 Greece 0.07 Indonesia 0.10 Ireland 0.29 Italy 2.51 Luxembourg 0.55 Mexico 6.97 Netherlands 0.49 New Zealand 4.47 Norway 2.22 Panama 1.26 Peru 0.38 Russia 7.54 Spain 3.72 Sweden 2.81 Thailand 0.00 United Kingdom 0.01 United States 39.24 Venezuela 0.47 Total bonds 99.97% TOTAL INVESTMENTS VALUE AS A PERCENTAGE QUALITY DISTRIBUTION OF FUND'S NET ASSETS AAA 43.61% AA 10.91 A 1.13 BBB 7.22 BB 13.83 B 18.01 CCC 3.23 CC 0.07 C 0.01 D 0.18 Total bonds 98.20% See notes to financial statements. Statement of Assets and Liabilities 12-31-02 ASSETS Investments at value (cost $72,482,390) $72,746,326 Cash 59 Foreign cash at value (cost $2) 2 Cash segregated for futures contracts 156,195 Receivable for investments sold 24,306 Receivable for shares sold 4,347 Receivable for forward foreign currency exchange contracts 21,245 Receivable for futures variation margin 19,470 Dividends and interest receivable 1,441,199 Other assets 2,142 Total assets 74,415,291 LIABILITIES Dividends payable 13,033 Payable for investments purchased 1,294,219 Payable for shares repurchased 581 Payable for forward foreign currency exchange contracts 257,129 Payable to affiliates 45,756 Other payables and accrued expenses 34,188 Total liabilities 1,644,906 NET ASSETS Capital paid-in 78,895,417 Accumulated net realized loss on investments, futures and foreign currency transactions (6,219,068) Net unrealized depreciation of investments, futures and translation of assets and liabilities in foreign currencies (130,039) Distributions in excess of net investment income 224,075 Net assets $72,770,385 NET ASSET VALUE PER SHARE (Based on 8,398,118 shares of beneficial interest outstanding -- unlimited number of shares authorized with no par value) $8.67 Statement of Operations For the year ended 12-31-02 INVESTMENT INCOME Interest (net of foreign withholding taxes of $5,528) $5,021,882 Dividends (net of foreign withholding taxes of $99) 21,349 Total investment income 5,043,231 EXPENSES Investment management fee 427,298 Custodian fee 82,968 Accounting and legal services fee 21,464 Auditing fee 19,480 Printing 11,725 Trustees' fee 4,328 Miscellaneous 4,176 Legal fee 677 Interest expense 249 Registration and filing fee 20 Total expenses 572,385 Net investment income 4,470,846 REALIZED AND UNREALIZED GAIN (LOSS) Net realized gain (loss) on Investments (2,329,378) Foreign currency transactions (697,942) Futures contracts (319,451) Change in unrealized appreciation (depreciation) of Investments 4,593,617 Translation of assets and liabilities in foreign currencies (215,831) Futures contracts (175,146) Net realized and unrealized gain 855,869 Increase in net assets from operations $5,326,715 See notes to financial statements. Statement of Changes in Net Assets YEAR YEAR ENDED ENDED 12-31-01 12-31-02 INCREASE (DECREASE) IN NET ASSETS From operations Net investment income $3,568,274 $4,470,846 Net realized loss (1,354,183) (3,346,771) Change in net unrealized appreciation (depreciation) 64,757 4,202,640 Increase in net assets resulting from operations 2,278,848 5,326,715 Distributions to shareholders From net investment income (3,986,158) (5,159,826) From Fund share transactions 36,129,909 3,709,098 NET ASSETS Beginning of period 34,471,799 68,894,398 End of period 1 $68,894,398 $72,770,385 1 Includes distributions in excess of net investment income of $654,097 and $224,075, respectively. Financial Highlights
12-31-98 12-31-99 12-31-00 12-31-01 1 12-31-02 1 PER SHARE OPERATING PERFORMANCE Net asset value, beginning of period $10.47 $10.10 $9.77 $8.97 $8.64 Net investment income 2 0.85 0.80 0.83 0.65 0.53 Net realized and unrealized gain (loss) on investments (0.35) (0.33) (0.71) (0.26) 0.11 Total from investment operations 0.50 0.47 0.12 0.39 0.64 Less distributions From net investment income (0.85) (0.80) (0.83) (0.72) (0.61) From net realized gain (0.02) -- (0.09) -- -- (0.87) (0.80) (0.92) (0.72) (0.61) Net asset value, end of period $10.10 $9.77 $8.97 $8.64 $8.67 Total return 3 (%) 4.92 4 4.82 4 1.40 4.58 7.87 RATIOS AND SUPPLEMENTAL DATA Net assets, end of period (in millions) $15 $22 $34 $69 $73 Ratio of expenses to average net assets % 0.85 0.85 0.76 0.71 0.80 Ratio of adjusted expenses to average net assets 5 % 0.93 0.87 -- -- -- Ratio of net investment income to average net assets % 8.19 8.06 8.91 7.16 6.28 Portfolio turnover% 92 53 6 53 101 6 73 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, and began amortizing premiums on debt securities. The effect of this change for the yea 2 Based on the average of the shares outstanding. 3 Assumes dividend reinvestment. 4 Total returns would have been lower had certain expenses not been reduced during the periods shown. 5 Does not take into consideration expense reductions during the periods shown. 6 Excludes merger activity.
See notes to financial statements. NOTES TO FINANCIAL STATEMENTS 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 Trust, organized as a Massachusetts business trust in 1995, consists of five different series at December 31, 2002. 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 permits borrowings of 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 year ended December 31, 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. There were no securities loaned on December 31, 2002. Financial futures contracts The Fund may buy and sell financial futures contracts. Buying futures tends to increase the Fund's exposure to the underlying instrument. Selling futures tends to decrease the Fund's exposure to the underlying instrument or hedge other Fund's instruments. At the time the Fund enters into a financial futures contract, it is required to deposit with its custodian a specified amount of cash or U.S. government securities, known as "initial margin," equal to a certain percentage of the value of the financial futures contract being traded. Each day, the futures contract is valued at the official settlement price of the board of trade or U.S. commodities exchange on which it trades. Subsequent payments to and from the broker, known as "variation margin," are made on a daily basis as the market price of the financial futures contract fluctuates. Daily variation margin adjustments, arising from this "mark to market," are recorded by the Fund as unrealized gains or losses. When the contracts are closed, the Fund recognizes a gain or loss. Risks of entering into futures contracts include the possibility that there may be an illiquid market and/or that a change in the value of the contracts may not correlate with changes in the value of the underlying securities. In addition, the Fund could be prevented from opening or realizing the benefits of closing out futures positions because of position limits or limits on daily price fluctuation imposed by an exchange. For federal income tax purposes, the amount, character and timing of the Fund's gains and/or losses can be affected as a result of futures contracts. At December 31, 2002, the Fund had deposited $156,195 in a segregated account to cover margin requirements on open futures contracts. The Fund had the following open financial futures contracts on December 31, 2002: NUMBER OF OPEN CONTRACTS CONTRACTS POSITION EXPIRATION DEPRECIATION - ---------------------------------------------------------------------------- U.S. 10 Year Treasury Note 89 Short March 03 ($175,146) 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 open forward foreign currency exchange contracts on December 31, 2002: PRINCIPAL AMOUNT UNREALIZED COVERED BY EXPIRATION APPRECIATION CURRENCY CONTRACT MONTH (DEPRECIATION) - ---------------------------------------------------------------- BUY Euro 500,000 Feb 03 $21,245 SELLS Euro 3,917,000 Feb 03 ($224,459) Pound Sterling 609,000 Feb 03 (32,670) ($257,129) 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 $6,668,699 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 and December 31, 2010 -- $3,265,011. Availability of a certain amount of these 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. Additionally, net capital losses of $588,881 and net foreign currency losses of $22,114 are attributable to security transactions incurred after October 31, 2002 and are treated as arising on the first day (January 1, 2003) of the fund's next taxable 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. 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 net 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 year ended December 31, 2002, the tax character of distributions paid was as follows: ordinary income $4,529,489 and return of capital $630,337. As of December 31, 2002, there were no distributable earnings on a tax basis. Such distributions and distributable earnings, 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 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 year ended December 31, 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 year was at an annual rate of approximately 0.03% 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 YEAR ENDED 12-31-02 SHARES AMOUNT SHARES AMOUNT Shares sold 4,745,566 $41,571,562 1,492,861 $12,603,802 Distributions reinvested 402,919 3,482,022 649,945 5,146,792 Issued in reorganization 454,719 3,986,158 -- -- Repurchased (1,475,346) (12,909,833) (1,714,317) (14,041,496) NET INCREASE 4,127,858 $36,129,909 428,489 $3,709,098
NOTE D Investment transactions Purchases and proceeds from sales or maturities of securities other than short-term securities and obligations of the U.S. government, during the year ended December 31, 2002, aggregated $55,009,764 and $38,113,853, respectively, and purchases and proceeds from maturities sales of obligations of the U.S. government aggregated $5,975,000 and $11,720,000, respectively, during the year ended December 31, 2002. The cost of investments owned on December 31, 2002, including short-term investments, for federal income tax purposes was $72,850,532. Gross unrealized appreciation and depreciation of investments aggregated $4,898,700 and $5,002,906, respectively, resulting in net unrealized depreciation of $104,206. 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 and the tax adjustment for the amortization of bond premium. NOTE E Reclassification of accounts During the year ended December 31, 2002, the Fund reclassified amounts to reflect an increase in accumulated net realized loss on investments of $747,227, an increase in accumulated net investment income of $1,567,152 and a decrease in capital paid-in of $819,925. This represents the amount necessary to report these balances on a tax basis, excluding certain temporary differences, as of December 31, 2002. Additional adjustments may be needed in subsequent reporting periods. These reclassifications, which have no impact on the net asset value of the Fund, are primarily attributable to foreign currency gains and losses, amortization of bond premiums and certain differences in the computation of distributable income and capital gains under federal tax rules versus accounting principles generally accepted in the United States of America. The calculation of net investment income (loss) per share in the financial highlights excludes these adjustments. NOTE F 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 of investments by $47,891 and decrease net realized loss on investments by $465,775. The effect of this change for the year ended December 31, 2002 was to decrease net investment income by $572,194, decrease unrealized depreciation of investments by $181,307 and decrease net realized loss on investments by $390,887. 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 G Reorganization On December 5, 2001, the shareholders of the 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 the 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. Report of Ernst & Young LLP, Independent Auditors To the Contract Owners and Trustees of John Hancock V.A. Strategic Income Fund We have audited the accompanying statement of assets and liabilities of John Hancock V.A. Strategic Income Fund (the "Fund"), one of the portfolios constituting John Hancock Declaration Trust, including the schedule of investments, as of December 31, 2002, and the related statement of operations for the year then ended, the statement of changes in net assets for each of the two years in the period then ended and the financial highlights for each of the periods indicated therein. These financial statements and financial highlights are the responsibility of the Fund's management. Our responsibility is to express an opinion on these financial statements and financial highlights based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. Our procedures included confirmation of securities owned as of December 31, 2002, by correspondence with the custodian and brokers, or other appropriate auditing procedures where replies from brokers were not received. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements and financial highlights referred to above present fairly, in all material respects, the financial position of John Hancock V.A. Strategic Income Fund, the results of its operations for the year then ended, the changes in its net assets for each of the two years in the period then ended and the financial highlights for each of the periods indicated, in conformity with accounting principles generally accepted in the United States of America. /S/ ERNST & YOUNG Boston, Massachusetts February 7, 2003 Tax Information UNAUDITED For federal income tax purposes, the following information is furnished with respect to the distributions of the Fund paid, if any, during its taxable year ended December 31, 2002. With respect to the ordinary dividends paid by the Fund for the fiscal year ended December 31, 2002, 0.32% of the dividends qualify for the corporate dividends-received deduction. If the Fund paid dividends for the fiscal year, shareholders will be mailed a 2002 U.S. Treasury Department Form 1099-DIV in January 2003. This will reflect the total of all distributions that are taxable for calendar year 2002.
TRUSTEES & OFFICERS This chart provides information about the Trustees and Officers who oversee your John Hancock fund. Officers elected by the Trustees manage the day-to-day operations of the Fund and execute policies formulated by the Trustees. INDEPENDENT TRUSTEES NUMBER OF NAME, AGE TRUSTEE JOHN HANCOCK PRINCIPAL OCCUPATION(S) AND OTHER OF FUND FUNDS OVERSEEN DIRECTORSHIPS DURING PAST 5 YEARS SINCE 1 BY TRUSTEE Dennis S. Aronowitz, Born: 1931 1996 31 Professor of Law, Emeritus, Boston University School of Law (as of 1996); Director, Brookline Bancorp. Richard P. Chapman, Jr., Born: 1935 1996 31 President and Chief Executive Officer, Brookline Bancorp. (lending) (since 1972); Chairman and Director, Lumber Insurance Co. (insurance) (until 2000); Chairman and Director, Northeast Retirement Services, Inc. (retirement administration) (since 1998). William J. Cosgrove, Born: 1933 1996 31 Vice President, Senior Banker and Senior Credit Officer, Citibank, N.A. (retired 1991); Executive Vice President, Citadel Group Representatives, Inc.; Director, Hudson City Bancorp; Trustee, Scholarship Fund for Inner City Children (since 1986). Richard A. Farrell 2, Born: 1932 1996 31 President, Farrell, Healer & Co., Inc. (venture capital management firm) (since 1980) and General Partner of the Venture Capital Fund of NE (since 1980); prior to 1980, headed the venture capital group at Bank of Boston Corporation. William F. Glavin 2, Born: 1932 1996 31 President Emeritus, Babson College (as of 1998); Vice Chairman, Xerox Corporation (until 1989); Director, Reebok, Inc. (since 1994) and Inco Ltd. Patti McGill Peterson, Born: 1943 1996 39 Executive Director, Council for International Exchange of Scholars (since 1998), Vice President, Institute of International Education (since January 1998); Senior Fellow, Cornell Institute of Public Affairs, Cornell University (until 1997); President Emerita of Wells College and St. Lawrence University; Director, Niagara Mohawk Power Corporation (electric utility). John A. Moore 2, Born: 1939 1996 39 President and Chief Executive Officer, Institute for Evaluating Health Risks, (nonprofit institution) (until 2001); Senior Scientist, Sciences International (health research) (since 1998); Principal, Hollyhouse (consulting) (since 2000); Director, CIIT (nonprofit research) (since 2002). John W. Pratt, Born: 1931 1996 31 Professor of Business Administration Emeritus, Harvard University Graduate School of Business Administration (as of 1998). INTERESTED TRUSTEES 3 NAME, AGE NUMBER OF POSITION(S) HELD WITH FUND TRUSTEE JOHN HANCOCK PRINCIPAL OCCUPATION(S) AND OTHER OF FUND FUNDS OVERSEEN DIRECTORSHIPS DURING PAST 5 YEARS SINCE 1 BY TRUSTEE John M. DeCiccio, Born: 1948 2001 61 Trustee Executive Vice President and Chief Investment Officer, John Hancock Financial Services, Inc.; Director, Executive Vice President and Chief Investment Officer, John Hancock Life Insurance Company; Chairman of the Committee of Finance of John Hancock Life Insurance Company; Director, John Hancock Subsidiaries, LLC ("Subsidiaries, LLC"), Hancock Natural Resource Group, Independence Investment LLC, Independence Fixed Income LLC, John Hancock Advisers, LLC (the "Adviser") and The Berkeley Financial Group, LLC ("The Berkeley Group"), John Hancock Funds, LLC ("John Hancock Funds"), Massachusetts Business Development Corporation; Director, John Hancock Insurance Agency, Inc. ("Insurance Agency, Inc.") (until 1999). Maureen R. Ford, Born: 1955 2000 61 Trustee, Chairman, President and Chief Executive Officer, John Hancock Financial Services, Inc., John Hancock Life Insurance Company; Chairman, Director, President and Chief Executive Officer, the Adviser and The Berkeley Group; Chairman, Director, President and Chief Executive Officer, John Hancock Funds; Chairman, Director and Chief Executive Officer, Sovereign Asset Management Corporation ("SAMCorp."); Director, Independence Investment LLC, Subsidiaries, LLC, Independence Fixed Income LLC and Signature Services; Senior Vice President, MassMutual Insurance Co. (until 1999). PRINCIPAL OFFICERS WHO ARE NOT TRUSTEES NAME, AGE POSITION(S) HELD WITH FUND OFFICER PRINCIPAL OCCUPATION(S) AND OF FUND DIRECTORSHIPS DURING PAST 5 YEARS SINCE William L. Braman, Born: 1953 2000 Executive Vice President and Chief Investment Officer Executive Vice President and Chief Investment Officer, the Adviser and each of the John Hancock funds; Director, SAMCorp., Executive Vice President and Chief Investment Officer, Barring Asset Management, London UK (until 2000). Richard A. Brown, Born: 1949 2000 Senior Vice President and Chief Financial Officer Senior Vice President, Chief Financial Officer and Treasurer, the Adviser, John Hancock Funds, and The Berkeley Group; Second Vice President and Senior Associate Controller, Corporate Tax Department, John Hancock Financial Services, Inc. (until 2001). Thomas H. Connors, Born: 1959 1996 Vice President and Compliance Officer Vice President and Compliance Officer, the Adviser and each of the John Hancock funds; Vice President, John Hancock Funds. William H. King, Born: 1952 1996 Vice President and Treasurer Vice President and Assistant Treasurer, the Adviser; Vice President and Treasurer of each of the John Hancock funds; Assistant Treasurer of each of the John Hancock funds (until 2001). Susan S. Newton, Born: 1950 1996 Senior Vice President, Secretary and Chief Legal Officer Senior Vice President, Secretary and Chief Legal Officer, SAMCorp., the Adviser and each of the John Hancock funds, John Hancock Funds and The Berkeley Group; Vice President, Signature Services (until 2000); Director, Senior Vice President and Secretary, NM Capital.
The business address for all Trustees and Officers is 101 Huntington Avenue, Boston, Massachusetts 02199. The Statement of Additional Information of the Fund includes additional information about members of the board of Trustees of the Fund and is available, without charge, upon request, by calling 1-800-225-5291. 1 Each Trustee serves until resignation, retirement age or until his or her successor is elected. 2 Member of Audit Committee. 3 Interested Trustee holds positions with the Fund's investment adviser, underwriter and certain other affiliates. JOHN HANCOCK FUNDS DECLARATION TRUST ANNUAL REPORT [LOGO] John Hancock [Rings] Worldwide 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. Strategic Income Fund NOT FDIC INSURED MAY LOSE VALUE NO BANK GUARANTEE 8230A 12/02 2/03 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 Insurance 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., 197 Clarendon Street, John Hancock Place, Boston, MA 02116. DECAREP 12/02 ANNUAL REPORT John Hancock V.A. Technology Fund A series of John Hancock Declaration Trust 12.31.02 [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 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 INDEPENDENT AUDITORS Ernst & Young LLP 200 Clarendon Street Boston, Massachusetts 02116-5072 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 Ford, Chairman and CEO, flush right next to first paragraph.] Dear Shareholders, Investors were probably never happier to close out a year than they were in 2002, since it was the third consecutive year that the stock market declined -- something that hadn't occurred in 60 years. Driving the fall were fears of war, a weak economy, disappointing profits, rising oil prices and a string of corporate scandals. All market sectors and investment styles suffered. As a result, the broad Standard & Poor's 500 Index fell by 22.09% for the year, while the Dow Jones Industrial Average lost 15.04% and the technology laden Nasdaq Composite Index lost 31.53%. Despite a fourth-quarter rally, only 3.8% of U.S. stock mutual funds made money last year, and the average U.S. stock fund lost 22.42%, according to Lipper, Inc. Bond funds provided the only bright spot, producing mostly positive results, with the average long-term bond fund rising 7.9%. It was the third year in which bonds outperformed stocks and gained ground, confirming yet again the importance of having a portfolio well-diversified among stocks, bonds and cash. In fact, the disparity between stock and bond results over the last three years means that many investors' portfolios may have shifted substantially in their mix between stocks and bonds. We recommend working with your investment professional to rebalance your assets according to your long-term goals. After three down years, no one can predict when the bear market cycle will turn. Currently, uncertainties abound, as the good news seen in signs of improving economic and corporate data, and efforts by Washington to stimulate the economy, are offset by the possibility of war and other geopolitical risks. While all these factors are beyond our control, investors can take charge of how they maneuver through the inevitable bull and bear market cycles. We've said it before, but it bears repeating: the key is to keep a long-term perspective and work with your investment professional to develop and maintain a properly diversified portfolio. We believe this offers the best protection in the tough times and the best means to reach your long-term goals. 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 Auditors' Opinion page 13 Trustees & Officers page 14 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 Weak economic conditions and investor uncertainty caused by heightened geopolitical concerns and corporate scandals resulted in crushing declines for all but a few technology stocks in 2002, continuing the unprecedented downturn the group has experienced since early 2000. Tech companies are cyclical growth enterprises and as such, their fortunes rise and fall in response to economic tides. While some external factors can and do come into play at various times -- such as the rush to purchase new equipment prior to Y2K -- the purchase of technology products and services can and will be deferred during economic weakness. This reflects the knowledge of both corporations and individuals that technology users will be able to function for some time even with equipment that may not be "state of the art." Given the past year's weakening global economy, it wasn't at all surprising that businesses around the world routinely cut back capital expenditures and dramatically tightened their purse strings by postponing or abandoning new information technology projects. Even though companies could borrow money cheaply thanks to low interest rates, they became very short-sighted, requiring that paybacks on technology be measured in months, rather than years, before they would spend discretionary dollars. One bright spot was the consumer, who kept on spending even as the economy weakened. FUND PERFORMANCE For the 12-month period ended December 31, 2002, John Hancock V.A. Technology Fund posted a total return of -46.83%, compared with the - -43.01% return of the average open-end science and technology fund, and the -30.91% return of the average variable annuity specialty miscellaneous fund, according to Lipper, Inc. SEMICONDUCTOR AND EQUIPMENT STOCKS STUMBLE Heading into 2002, there was a growing belief that the extraordinary actions taken by the Federal Reserve after the events of September 11, 2001 would lead to an economic recovery by mid-2002. Since technology is capital-spending intensive and therefore is reliant upon cash flow generation, the thinking was that a revival in the tech sector would occur one or two quarters after corporations started to see cash flows improve -- meaning by the second half of the year. Given our expectations of improving economic conditions, we favored stocks of "early cyclical" companies, such as semiconductors and semiconductor-capital equipment, early in the period. But when a healthy economic rebound failed to materialize, there were growing concerns that reduced corporate spending would hurt sales and that consumer spending on electronics would eventually decline. Among our semiconductor-related holdings that were hardest-hit were Integrated Device Technology, Cypress Semiconductor and Micron Technology. [Table at bottom right hand column entitled "Top five holdings." The first listing is Dell Computer 5.4%, the second is Microsoft 4.7%, the third Cisco Systems 3.9%, the fourth Citrix Systems 3.6% and the fifth Nokia 3.3%. A note below the table reads "As a percentage of net assets on 12-31-02."] A SHIFT TOWARD SOFTWARE In recent months, we have moderated our strategy in response to weaker-than-expected economic conditions. We repositioned the portfolio on a bottom-up basis to look for companies that we think are relatively well-positioned for a more modest recovery. While economic strength ultimately is critical for the entire sector, the types of companies we've targeted are better able to absorb a prolonged period of sluggish activity. In particular, we have reduced our holdings in semiconductor and related capital equipment companies in favor of software and hardware (especially personal computer-related) companies, initiating or adding to holdings such as Seibel Systems, Microsoft and Hewlett-Packard. BRIGHT SPOTS Despite the breadth of the 2002 tech stock rout, the portfolio did have its share of winners during the year. One of the best-performing holdings was Western Digital, the profitable maker of disk drives that go into personal computers, as well as gaming products such as Microsoft's X-Box. The stock benefited from strong consumer demand and the company's efforts to cut costs and boost production efficiencies. Some Internet-related companies also came roaring back this year. The stock price of Amazon.com, the world's largest online retailer, surged on news that sales and revenues increased and that it had seemingly stemmed its losses. Yahoo and E-Bay each jumped on better-than-expected earnings and sales. Although the makers of computers suffered, they generally held up better than the tech sector as a whole. Dell, the Fund's largest holding and a leading PC manufacturer, was one of our best performers, helped by strong execution and continued expansion into overseas markets. IBM held in a lot better than the hardware group as a whole, as investors moved in to take advantage of the stock's historically low valuation. OUTLOOK Although technology stocks have sorely tried investors' patience over the last three years, we're cautiously optimistic about their prospects. We believe an economic recovery eventually will take hold and ultimately boost corporate tech spending. What's more, most tech companies have slashed costs, which should help their bottom lines when growth resumes. And current tech stock valuations are very attractive, especially given the high cash positions many of these companies currently enjoy. If the sector's fundamentals improve, large institutional investors will likely start buying again, and that renewed interest could help stock prices move higher. 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 12-31-02 Cumulative total returns One year -46.83% Since inception (5-1-00) -78.16% Average annual total returns One year -46.83% Since inception (5-1-00) -43.45% 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 John Hancock V.A. Technology Fund 5-1-00 -- 12-31-02 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 investment in two indexes: 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 Russell 3000 Technology Index, is a capitalization-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 - 12-31-02, 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 $6,290 as of December 31, 2002. The second line represents the Russell 3000 Technology Index and is equal to $2,456 as of December 31, 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 $2,184 as of December 31, 2002. FINANCIAL STATEMENTS Fund's Investments Securities owned by the Fund on 12-31-02
SHARES ISSUER VALUE COMMON STOCKS 95.79% $11,665,591 (Cost $22,127,239) Computer -- Graphics 1.18% $143,744 12,192 Cadence Design Systems, Inc.* 143,744 Computer -- Internet Security 4.48% 546,175 24,000 Networks Associates, Inc.* 386,160 3,950 Symantec Corp.* 160,015 Computer -- Internet Services 6.28% 764,349 15,000 Amazon.com, Inc.* 283,350 25,000 Ariba, Inc.* 62,000 3,950 eBay, Inc* 267,889 22,000 Inktomi Corp.* 35,200 28,000 Pinnacor, Inc.* 34,160 5,000 Yahoo! Inc.* 81,750 Computer -- Memory Devices 5.56% 677,775 45,000 EMC Corp.* 276,300 3,350 Emulex Corp.* 62,142 4,826 Seagate Technology* (Cayman Islands) 51,783 45,000 Western Digital Corp.* 287,550 Computer -- Micro/Macro 10.21% 1,242,890 24,500 Dell Computer Corp.* 655,130 16,000 Hewlett-Packard Co. 277,760 4,000 International Business Machines Corp. 310,000 Computer -- Networking 3.87% 471,600 36,000 Cisco Systems, Inc.* 471,600 Computer -- Services 2.44% 297,000 30,000 Unisys Corp.* 297,000 Computer -- Software 22.16% 2,698,948 33,000 BEA Systems, Inc.* 378,510 14,000 Borland Software Corp.* 172,200 35,000 Citrix Systems, Inc.* 431,200 16,250 i2 Technologies, Inc.* 18,687 13,350 Mercury Interactive Corp.* 395,828 11,000 Microsoft Corp.* 568,700 30,550 Parametric Technology Corp.* 76,986 26,100 Rational Software Corp.* 271,179 8,000 SAP AG, American Depositary Receipt (ADR) (Germany) 156,000 12,000 SeeBeyond Technology Corp.* 29,160 18,250 Siebel Systems, Inc.* 136,510 52,150 Vignette Corp.* 63,988 Electronics -- Components Misc. 3.97% 482,975 42,500 Flextronics International Ltd.* (Singapore) 348,075 38,000 Solectron Corp.* 134,900 Electronics -- Semiconductor Components 20.10% 2,447,790 36,000 Amkor Technology, Inc.* 171,360 27,000 Applied Materials, Inc.* 351,810 10,000 ASM Lithography Holding N.V.* (Netherlands) 83,600 8,000 Broadcom Corp. (Class A)* 120,480 36,000 Cypress Semiconductor Corp.* 205,920 29,000 Integrated Device Technology, Inc.* 242,730 10,000 KLA - Tencor Corp.* 353,700 24,000 Micron Technology, Inc. 233,760 16,000 MKS Instruments, Inc.* 262,880 20,000 RF Micro Devices, Inc.* 146,600 39,000 Taiwan Semiconductor Manufacturing Co. Ltd.* (ADR) (Taiwan) 274,950 Fiber Optics 2.96% 360,605 33,000 Aeroflex, Inc.* 227,700 35,900 Finisar Corp.* 34,105 40,000 JDS Uniphase Corp.* 98,800 Media -- Cable TV 2.37% 288,200 22,000 AOL Time Warner, Inc.* 288,200 Telecom -- Equipment 6.70% 815,890 10,000 Lucent Technologies, Inc. 12,600 26,000 Nokia Corp. (ADR) (Finland) 403,000 11,000 QUALCOMM, Inc.* 400,290 Telecom -- Services 3.51% 427,650 37,000 AT&T Wireless Services, Inc.* 209,050 12,000 Nextel Communications, Inc. (Class A)* 138,600 40,000 Primus Telecommunications Group, Inc. * 80,000 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 16.41% $1,997,919 (Cost $1,997,919) Joint Repurchase Agreement 5.02% Investment in a joint repurchase agreement transaction with UBS Warburg, Inc. -- Dated 12-31-02, due 01-02-03 (Secured by U.S. Treasury Bond 8.500%, due 02-15-20, U.S. Treasury Inflation Indexed Notes, 3.000% thru 3.500%, due 01-15-11 thru 07-15-12, and U.S. Treasury Notes, 4.625% thru 5.375%, due 02-28-02 thru 06-30-03) 1.15% $611 611,000 SHARES Cash Equivalents 11.39% AIM Cash Investment Trust** 1,386,919 1,386,919 TOTAL INVESTMENTS 112.20% $13,663,510 OTHER ASSETS AND LIABILITIES, NET (12.20%) ($1,485,913) TOTAL NET ASSETS 100.00% $12,177,597 * 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 value of that category as a percentage of the net assets of the Fund.
See notes to financial statements. PORTFOLIO CONCENTRATION December 31, 2002 (unaudited) VALUE AS A % COUNTRY DIVERSIFICATION OF FUND NET ASSETS Cayman Islands 0.42% Finland 3.31 Germany 1.28 Netherlands 0.69 Singapore 2.86 Taiwan 2.26 United States 101.38 Total investments 112.20% See notes to financial statements. Statement of Assets and Liabilities 12-31-02 ASSETS Investments at value (cost $24,125,158, including $1,355,468 of securities loaned) $13,663,510 Receivable for investments sold 47,428 Cash 928 Receivable for shares sold 22,488 Dividends and interest receivable 1,300 Other assets 193 Total assets 13,735,847 LIABILITIES Payable for investments purchased 130,376 Payable for shares repurchased 58 Payable for securities on loan 1,386,919 Payable to affiliates 9,525 Other payables and accrued expenses 31,372 Total liabilities 1,558,250 NET ASSETS Capital paid-in 36,636,736 Accumulated net realized loss on investments and written options (13,997,380) Net unrealized depreciation of investments (10,461,648) Accumulated net investment loss (111) Net assets $12,177,597 NET ASSET VALUE PER SHARE Based on 5,589,617 shares of beneficial interest outstanding -- unlimited number of shares authorized with no par value $2.18 Statement of Operations For the period ended 12-31-02 INVESTMENT INCOME Interest $27,603 Dividends (net of foreign withholding taxes of $923) 15,376 Securities lending income 10,110 Total investment income 53,089 EXPENSES Investment management fee 127,778 Custodian fee 12,094 Auditing fee 12,000 Printing 6,576 Accounting and legal services fee 3,371 Miscellaneous 1,979 Trustees' fee 1,271 Interest expense 289 Legal fee 242 Registration and filing fee 25 Total expenses 165,625 Net investment loss (112,536) REALIZED AND UNREALIZED GAIN (LOSS) Net realized gain (loss) on Investments (9,010,321) Written options 50,866 Change in unrealized appreciation (depreciation) of Investments (1,473,183) Written options (8,315) Net realized and unrealized loss (10,440,953) Decrease in net assets from operations ($10,553,489) See notes to financial statements. Statement of Changes in Net Assets YEAR YEAR ENDED ENDED 12-31-01 12-31-02 INCREASE (DECREASE) IN NET ASSETS From operations Net investment loss ($80,331) ($112,536) Net realized loss (4,844,378) (8,959,455) Change in net unrealized appreciation (depreciation) (5,091,058) (1,481,498) Decrease in net assets resulting from operations (10,015,767) (10,553,489) Distributions to shareholders From net investment income (1,272) -- From Fund share transactions 17,904,330 801,751 NET ASSETS Beginning of period 14,042,044 21,929,335 End of period 1 $21,929,335 $12,177,597 1 Includes accumulated net investment loss of $46 and $111, respectively. Financial Highlights
12-31-00 1 12-31-01 12-31-02 PER SHARE OPERATING PERFORMANCE Net asset value, beginning of period $10.00 $7.33 $4.10 Net investment income (loss) 2 0.03 (0.02) (0.02) Net realized and unrealized loss on investments (2.69) (3.21) (1.90) Total from investment operations (2.66) (3.23) (1.92) From net investment income (0.01) -- 3 -- Net asset value, end of period $7.33 $4.10 $2.18 Total return 4 (%) (26.56) 5,6 (44.06) 6 (46.83) RATIOS AND SUPPLEMENTAL DATA Net assets, end of period (in millions) $14 $22 $12 Ratio of expenses to average net assets 1.05 7 1.05 1.04 Ratio of adjusted expenses to average net assets 8 1.99 7 1.08 -- Ratio of net investment income (loss) to average net assets 0.62 7 (0.45) (0.70) Portfolio turnover 75 29 47 1 Began operations on 5-1-00. 2 Based on the average of the shares outstanding. 3 Less than $0.01 per share. 4 Assumes dividend reinvestment. 5 Not annualized. 6 Total returns would have been lower had certain expenses not been reduced during the periods shown. 7 Annualized. 8 Does not take into consideration expense reductions during the periods shown.
See notes to financial statements. NOTES TO FINANCIAL STATEMENTS 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 Trust, organized as a Massachusetts business trust in 1995, consists of five different series at December 31, 2002. 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. Investments in AIM Cash Investment Trust are valued at their net asset value each business day. 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 of 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 year ended December 31, 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 December 31, 2002, the Fund loaned securities having a market value of $1,355,468 collateralized by cash in the amount of $1,386,919. The cash collateral was invested in a short-term instrument. 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. The Fund had no outstanding written options on December 31, 2002. NUMBER OF OPTIONS CONTRACTS PREMIUMS RECEIVED Outstanding, beginning of period 70 $12,570 Written 200 21,563 Expired (270) (34,133) Outstanding, end of period 0 $0 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 $12,906,836 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, 2008 -- $14,000, December 31, 2009 -- $3,708,037 and December 31, 2010 -- $9,184,799. Additionally, net capital losses of $825,922, attributable to security transactions incurred after October 31, 2002 are treated as arising on the first day (January 1, 2003) of the Fund's next taxable 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. 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 net realized gains on the ex-dividend date. As of December 31, 2002, there were no distributable earnings on a tax basis. Such distributions and distributable earnings, 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 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 year ended December 31, 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 year was at an annual rate of approximately 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 YEAR ENDED 12-31-02 SHARES AMOUNT SHARES AMOUNT Shares sold 4,108,680 $21,017,046 3,610,219 $9,245,936 Distributions reinvested 296 1,272 -- -- Repurchased (677,090) (3,113,988) (3,368,742) (8,444,185) NET INCREASE 3,431,886 $17,904,330 241,477 $801,751 NOTE D Investment transactions Purchases and proceeds from sales or maturities of securities other than short-term securities and obligations of the U.S. government, during the year ended December 31, 2002, aggregated $8,624,059 and $6,787,298, respectively. The cost of investments owned on December 31, 2002, including short-term investments, for federal income tax purposes was $24,389,780. Gross unrealized appreciation and depreciation of investments aggregated $506,161 and $11,232,431, respectively, resulting in net unrealized depreciation of $10,726,270. 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. NOTE E Reclassification of accounts During the year ended December 31, 2002, the Fund reclassified amounts to reflect a decrease in accumulated net realized loss on investments of $48, a decrease in accumulated net investment loss of $112,471 and a decrease in capital paid-in of $112,519. This represents the amount necessary to report these balances on a tax basis, excluding certain temporary differences, as of December 31, 2002. Additional adjustments may be needed in subsequent reporting periods. These reclassifications, which have no impact on the net asset value of the Fund, are primarily attributable to net operating loss and the computation of distributable income and capital gains under federal tax rules versus accounting principles generally accepted in the United States of America. Report of Ernst & Young LLP, Independent Auditors To the Contract Owners and Trustees of John Hancock V.A. Technology Fund, We have audited the accompanying statement of assets and liabilities of John Hancock V.A. Technology Fund (the "Fund"), one of the portfolios constituting John Hancock Declaration Trust, including the schedule of investments, as of December 31, 2002, and the related statement of operations for the year then ended, the statement of changes in net assets for each of the two years in the period then ended and the financial highlights for each of the periods indicated therein. These financial statements and financial highlights are the responsibility of the Fund's management. Our responsibility is to express an opinion on these financial statements and financial highlights based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. Our procedures included confirmation of securities owned as of December 31, 2002, by correspondence with the custodian and brokers, or other appropriate auditing procedures where replies from brokers were not received. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements and financial highlights referred to above present fairly, in all material respects, the financial position of John Hancock V.A. Technology Fund, the results of its operations for the year then ended, the changes in its net assets for each of the two years in the period then ended and the financial highlights for each of the periods indicated, in conformity with accounting principles generally accepted in the United States of America. /S/ ERNST & YOUNG Boston, Massachusetts February 7, 2003 Tax Information UNAUDITED For federal income tax purposes, the following information is furnished with respect to the distributions of the Fund paid, if any, during its taxable year ended December 31, 2002. With respect to the ordinary dividends paid by the Fund for the fiscal year ended December 31, 2002, none of the dividends qualify for the corporate dividends-received deduction. If the Fund paid dividends for the fiscal year, shareholders will be mailed a 2002 U.S. Treasury Department Form 1099-DIV in January 2003. This will reflect the total of all distributions that are taxable for calendar year 2002.
TRUSTEES & OFFICERS This chart provides information about the Trustees and Officers who oversee your John Hancock fund. Officers elected by the Trustees manage the day-to-day operations of the Fund and execute policies formulated by the Trustees. INDEPENDENT TRUSTEES NUMBER OF NAME, AGE TRUSTEE JOHN HANCOCK PRINCIPAL OCCUPATION(S) AND OTHER OF FUND FUNDS OVERSEEN DIRECTORSHIPS DURING PAST 5 YEARS SINCE 1 BY TRUSTEE Dennis S. Aronowitz, Born: 1931 2000 31 Professor of Law, Emeritus, Boston University School of Law (as of 1996); Director, Brookline Bancorp. Richard P. Chapman, Jr., Born: 1935 2000 31 President and Chief Executive Officer, Brookline Bancorp. (lending) (since 1972); Chairman and Director, Lumber Insurance Co. (insurance) (until 2000); Chairman and Director, Northeast Retirement Services, Inc. (retirement administration) (since 1998). William J. Cosgrove, Born: 1933 2000 31 Vice President, Senior Banker and Senior Credit Officer, Citibank, N.A. (retired 1991); Executive Vice President, Citadel Group Representatives, Inc.; Director, Hudson City Bancorp; Trustee, Scholarship Fund for Inner City Children (since 1986). Richard A. Farrell 2, Born: 1932 2000 31 President, Farrell, Healer & Co., Inc. (venture capital management firm) (since 1980) and General Partner of the Venture Capital Fund of NE (since 1980); prior to 1980, headed the venture capital group at Bank of Boston Corporation. William F. Glavin 2, Born: 1932 2000 31 President Emeritus, Babson College (as of 1998); Vice Chairman, Xerox Corporation (until 1989); Director, Reebok, Inc. (since 1994) and Inco Ltd. Patti McGill Peterson, Born: 1943 2000 39 Executive Director, Council for International Exchange of Scholars (since 1998), Vice President, Institute of International Education (since January 1998); Senior Fellow, Cornell Institute of Public Affairs, Cornell University (until 1997); President Emerita of Wells College and St. Lawrence University; Director, Niagara Mohawk Power Corporation (electric utility). John A. Moore 2, Born: 1939 2000 39 President and Chief Executive Officer, Institute for Evaluating Health Risks, (nonprofit institution) (until 2001); Senior Scientist, Sciences International (health research) (since 1998); Principal, Hollyhouse (consulting) (since 2000); Director, CIIT (nonprofit research) (since 2002). John W. Pratt, Born: 1931 2000 31 Professor of Business Administration Emeritus, Harvard University Graduate School of Business Administration (as of 1998). INTERESTED TRUSTEES 3 NAME, AGE NUMBER OF POSITION(S) HELD WITH FUND TRUSTEE JOHN HANCOCK PRINCIPAL OCCUPATION(S) AND OTHER OF FUND FUNDS OVERSEEN DIRECTORSHIPS DURING PAST 5 YEARS SINCE 1 BY TRUSTEE John M. DeCiccio, Born: 1948 2001 61 Trustee Executive Vice President and Chief Investment Officer, John Hancock Financial Services, Inc.; Director, Executive Vice President and Chief Investment Officer, John Hancock Life Insurance Company; Chairman of the Committee of Finance of John Hancock Life Insurance Company; Director, John Hancock Subsidiaries, LLC ("Subsidiaries, LLC"), Hancock Natural Resource Group, Independence Investment LLC, Independence Fixed Income LLC, John Hancock Advisers, LLC (the "Adviser") and The Berkeley Financial Group, LLC ("The Berkeley Group"), John Hancock Funds, LLC ("John Hancock Funds"), Massachusetts Business Development Corporation; Director, John Hancock Insurance Agency, Inc. ("Insurance Agency, Inc.") (until 1999). Maureen R. Ford, Born: 1955 2000 61 Trustee, Chairman, President and Chief Executive Officer, John Hancock Financial Services, Inc., John Hancock Life Insurance Company; Chairman, Director, President and Chief Executive Officer, the Adviser and The Berkeley Group; Chairman, Director, President and Chief Executive Officer, John Hancock Funds; Chairman, Director and Chief Executive Officer, Sovereign Asset Management Corporation ("SAMCorp."); Director, Independence Investment LLC, Subsidiaries, LLC, Independence Fixed Income LLC and Signature Services; Senior Vice President, MassMutual Insurance Co. (until 1999). PRINCIPAL OFFICERS WHO ARE NOT TRUSTEES NAME, AGE POSITION(S) HELD WITH FUND OFFICER PRINCIPAL OCCUPATION(S) AND OF FUND DIRECTORSHIPS DURING PAST 5 YEARS SINCE William L. Braman, Born: 1953 2000 Executive Vice President and Chief Investment Officer Executive Vice President and Chief Investment Officer, the Adviser and each of the John Hancock funds; Director, SAMCorp., Executive Vice President and Chief Investment Officer, Barring Asset Management, London UK (until 2000). Richard A. Brown, Born: 1949 2000 Senior Vice President and Chief Financial Officer Senior Vice President, Chief Financial Officer and Treasurer, the Adviser, John Hancock Funds, and The Berkeley Group; Second Vice President and Senior Associate Controller, Corporate Tax Department, John Hancock Financial Services, Inc. (until 2001). Thomas H. Connors, Born: 1959 2000 Vice President and Compliance Officer Vice President and Compliance Officer, the Adviser and each of the John Hancock funds; Vice President, John Hancock Funds. William H. King, Born: 1952 2000 Vice President and Treasurer Vice President and Assistant Treasurer, the Adviser; Vice President and Treasurer of each of the John Hancock funds; Assistant Treasurer of each of the John Hancock funds (until 2001). Susan S. Newton, Born: 1950 2000 Senior Vice President, Secretary and Chief Legal Officer Senior Vice President, Secretary and Chief Legal Officer, SAMCorp., the Adviser and each of the John Hancock funds, John Hancock Funds and The Berkeley Group; Vice President, Signature Services (until 2000); Director, Senior Vice President and Secretary, NM Capital.
The business address for all Trustees and Officers is 101 Huntington Avenue, Boston, Massachusetts 02199. The Statement of Additional Information of the Fund includes additional information about members of the board of Trustees of the Fund and is available, without charge, upon request, by calling 1-800-225-5291. 1 Each Trustee serves until resignation, retirement age or until his or her successor is elected. 2 Member of Audit Committee. 3 Interested Trustee holds positions with the Fund's investment adviser, underwriter and certain other affiliates. JOHN HANCOCK FUNDS DECLARATION TRUST ANNUAL REPORT [LOGO] John Hancock [Rings] Worldwide 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 8190A 12/02 2/03 -----END PRIVACY-ENHANCED MESSAGE-----