-----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, EH6JSo7n84RttkiQAu2RthbjmKcbgXtEaPI5QOk/yMOvWNj1wcz2mga46/0SizLj 0SUfsPIxrTBkMcRq4785xg== 0001010521-98-000228.txt : 19980317 0001010521-98-000228.hdr.sgml : 19980317 ACCESSION NUMBER: 0001010521-98-000228 CONFORMED SUBMISSION TYPE: N-30D PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 19971231 FILED AS OF DATE: 19980313 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: HANCOCK JOHN DECLARATION TRUST CENTRAL INDEX KEY: 0001003457 STANDARD INDUSTRIAL CLASSIFICATION: [] STATE OF INCORPORATION: MA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: N-30D SEC ACT: SEC FILE NUMBER: 811-07437 FILM NUMBER: 98565464 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 JOHN HANCOCK DECLERATION TRUST ANNUAL REPORT - -------------------------------------------------------------------------------- [GRAPHIC OMITTED] Declaration Trust Growth V.A. International Fund V.A. Financial Industries Fund V.A. Emerging Growth Fund V.A. Growth Fund (formerly V.A. Discovery Fund) ---------------------------------------------------------- Growth V.A. Independence Equity Fund & Income V.A. 500 Index Fund V.A. Sovereign Investors Fund ---------------------------------------------------------- Income V.A. World Bond Fund V.A. Strategic Income Fund V.A. Sovereign Bond Fund V.A. Money Market Fund DECEMBER 31, 1997 [LOGO] JOHN HANCOCK FUNDS A Global Investment Management Firm ================================Table of Contents=============================== John Hancock Funds - Declaration Trust Page 1) Chairman's Message..................................................... 3 2) Portfolio Manager Commentary This commentary reflects the views of the portfolio manager(s) or portfolio management team through the end of the Fund's period discussed in this report. Of course, the manager's or team's views are subject to change as market and other conditions warrant. Growth V.A. International Fund................................................ 4 V.A. Financial Industries Fund......................................... 7 V.A. Emerging Growth Fund.............................................. 10 V.A. Growth Fund (formerly V.A. Discovery Fund)........................ 13 Growth & Income V.A. Independence Equity Fund.......................................... 16 V.A. 500 Index Fund.................................................... 19 V.A. Sovereign Investors Fund.......................................... 22 Income V.A. World Bond Fund................................................... 25 V.A. Strategic Income Fund............................................. 28 V.A. Sovereign Bond Fund............................................... 31 V.A. Money Market Fund................................................. 34 3) Financial Statements................................................... 36 4) Notes To Financial Statements.......................................... 85 TRUSTEES EDWARD J. BOUDREAU, JR. DENNIS S. ARONOWITZ * RICHARD P. CHAPMAN, JR. * WILLIAM J. COSGROVE * DOUGLAS M. COSTLE * LELAND O. ERDAHL * RICHARD A. FARRELL * GAIL D. FOSLER * WILLIAM F. GLAVIN * ANNE C. HODSDON DR. JOHN A. MOORE * PATTI MCGILL PETERSON * JOHN W. PRATT * RICHARD S. SCIPIONE EDWARD J. SPELLMAN * * Members of the Audit Committee OFFICERS EDWARD J. BOUDREAU, JR. Chairman and Chief Executive Officer ROBERT G. FREEDMAN Vice Chairman and Chief Investment Officer ANNE C. HODSDON President JAMES B. LITTLE Senior Vice President and Chief Financial Officer SUSAN S. NEWTON Vice President and Secretary JAMES J. STOKOWSKI Vice President and Treasurer THOMAS H. CONNORS Second Vice President and Compliance Officer CUSTODIANS INVESTORS BANK & TRUST COMPANY 200 CLARENDON STREET BOSTON, MASSACHUSETTS 02116 V.A. Emerging Growth Fund V.A. Growth Fund V.A. Financial Industries Fund V.A. Independence Equity Fund V.A. Sovereign Investors Fund V.A. Strategic Income Fund V.A. Sovereign Bond Fund STATE STREET BANK AND TRUST COMPANY 225 FRANKLIN STREET BOSTON, MASSACHUSETTS 02110 V.A. International Fund V.A. 500 Index Fund V.A. World Bond Fund V.A. Money Market Fund TRANSFER AGENT JOHN HANCOCK SERVICING CENTER P.O. BOX 9298 BOSTON, MASSACHUSETTS 02205-9298 INVESTMENT ADVISER JOHN HANCOCK ADVISERS, INC. 101 HUNTINGTON AVENUE BOSTON, MASSACHUSETTS 02199-7603 SUB-INVESTMENT ADVISERS JOHN HANCOCK ADVISERS INTERNATIONAL LIMITED 34 DOVER STREET LONDON, ENGLAND W1X3RA V.A. International Fund INDEPENDENCE INVESTMENT ASSOCIATES, INC. 53 STATE STREET BOSTON, MASSACHUSETTS 02109 V.A. Independence Equity Fund SOVEREIGN ASSET MANAGEMENT CORP. 1235 WESTLAKES DRIVE BERWYN, PENNSYLVANIA 19312 V.A. Sovereign Investors Fund ISSUER JOHN HANCOCK MUTUAL LIFE INSURANCE COMPANY JOHN HANCOCK VARIABLE LIFE INSURANCE COMPANY* 200 CLARENDON STREET BOSTON, MASSACHUSETTS 02117 *Not Licensed in New York PRINCIPAL DISTRIBUTOR JOHN HANCOCK FUNDS, INC. 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 02116-5702 2 ===============================CHAIRMAN'S MESSAGE=============================== DEAR FELLOW SHAREHOLDERS: The financial markets in 1997 were anything but dull. Bond investors enjoyed the benefits of a strong economy with no inflation. Stock investors were treated to record-breaking performance by the Dow Jones Industrial Average, but with record-breaking volatility. After two years of strong advances with relatively minor swings, the stock market's recent sharp drops and enormous rebounds have caused a fair share of investor concern. The latest round began in October and was largely due to uncertainty in foreign markets. Southeast Asia sneezed and the rest of the world caught a cold. On October 27, the Dow experienced its largest one-day point decline, dropping 554 points. In percentage terms, however, that roughly 7% decline didn't even register on the list of 10 largest drops. The next day, the market bounced right back, as the Dow had a record one-day vault of 337 points. In short order, the U.S. market had bounced back, yet it and many markets remained edgy and more volatile as investors sorted out the Asian turmoil and its implications on economic growth, interest rates and corporate earnings. In the face of such uncertainty, a trusted investment professional can be your best ally. Now, more than ever, your investment professional can help you take the emotion out of investment decisions. At a time when your instincts might have you react to the heat of the market's moment, your investment professional can serve as an objective voice to put current events in a longer-term perspective. He or she can also help you evaluate your investments in any market environment to ensure that they fit your risk tolerance and time horizons. On an ongoing basis, your investment professional is there for you to check out new investment ideas or to get an informed opinion about current economic and market conditions. We encourage you to take advantage of this important resource. Working together, you can draw up a detailed road map to help reach your financial destination regardless of the conditions along the way. Sincerely, /s/ Edward J. Boudreau, Jr. EDWARD J. BOUDREAU, JR., CHAIRMAN AND CHIEF EXECUTIVE OFFICER [A 1 1/2" by 1 1/4" photo of Edward J. Boudreau Jr., Chairman and Chief Executive Officer, flush right, next to second paragraph.] 3 ================================================================================ BY MIREN ETCHEVERRY, JOHN L.F. WILLS AND GERARDO J. ESPINOZA, CO-PORTFOLIO MANAGERS John Hancock V.A. International Fund Chaos in Asia curtails overseas markets' advances "...we continued to up our stake in more stable, established markets." It was a gut-wrenching year for international investors, who watched their double-digit gains in the first half dwindle as turmoil in Asia shook world markets. Starting in late summer, Southeast Asian nations were hit with a wave of currency devaluations and growing financial ills. The crisis had a ripple effect on Latin America, then spread to the rest of the world in late October and has kept overseas markets in turmoil ever since. The developed worlds of Europe and North America managed to recover and many countries in Europe posted solid gains for the year. Even though the Asian chaos served to rein in the booming performance of the emerging markets of Latin America, many of them still advanced strongly. On the other hand, almost every Asian market, including Hong Kong and Japan, ended the year in negative territory for U.S. dollar investors, from Hong Kong's 24% fall to Thailand's 75% plunge. Overall, international fund investors ended the year eking out only small advances on average. John Hancock V.A. International Fund shared in the world's woes. Despite the Fund's better-than-average first-half performance, we later lost ground when the Asian contagion dealt blows to our strong weightings in Hong Kong, Singapore and Brazil, particularly in October. That was the height of the emerging-market turmoil, when several of these focus markets had drops in the 20% to 30% range. Indeed, the Fund fell 12% in the month of October alone, wiping out its previous gains. For the year ended December 31, 1997, the Fund posted a total return of -0.54% at net asset value, compared with the 5.17% return of the average variable annuity international fund, according to Lipper Analytical Services, Inc. Longer-term performance information can be found on page six. [A 1 3/4" by 3" photo of Fund management team. Caption reads "V.A. International Fund co-portfolio managers (l - r) Gerardo J. Espinoza, Miren Etcheverry and John L.F. Wills."] 4 ================================================================================ JOHN HANCOCK V.A. INTERNATIONAL FUND "In the near term, world markets will continue to be volatile..." Asia shrinks; safe havens grow We avoided the most vulnerable Asian markets, including Thailand, Indonesia and Malaysia, during the year, but the magnitude of the region's downfall was greater than expected, especially in fundamentally sound Hong Kong and traditionally stalwart Singapore. In the second half, we cut our stake in the Pacific Rim to 20% of net assets, down from 44%. Our underweighted 9% stake in Japan by the year's end remained focused on exporters, which did well during the year, but which could also feel the effects of the regional slowdown. In Hong Kong, Australia and Singapore, we still own several of each market's blue-chip stocks. With heightened turbulence elsewhere, we continued to up our stake in more stable, established markets. We added a 7% position in Canada and increased our stake in Europe from 28% to 49% of the Fund's net assets, with the U.K. the top weighting. Within each country, we focused on only the top-quality names, such as Carrefour in France, Royal & Sun Alliance Insurance in the U.K. and Royal Bank of Canada in Canada. With our 12% stake in Latin America, we stayed focused on companies that are prime candidates for privatization, such as utilities and telecommunications. They are also the least likely to feel the effects of economic slowdowns. Our largest bet there remains Brazil, at 8%, because of its continuing strides toward liberalization and privatization -- a process that may well accelerate as an indirect, and silver-lining, result of the Asian tumult. Looking ahead In the near term, world markets will continue to be volatile as investors wrestle with the implications of the Asian fallout. Until the dust settles, we will keep our emphasis on the more established markets of Europe, but will also stay with our reduced stake in emerging markets, most notably Hong Kong and Singapore. We believe they are among the best quality, and with the greatest potential for rebound, barring any further blow-ups. As for the rest of Asia, the risks remain too great until we see how serious those countries are about making needed reforms. We'll closely monitor developments there, and also keep a light stake in Japan, since its long economic slump and banking problems persist. - -------------------------------------------------------------------------------- International investing involves special risks such as political, economic and currency risks and differences in accounting standards and financial reporting. [Bar chart with heading "Fund Performance" at top of left hand column. Under the heading is the footnote "For the year ended December 31, 1997." The chart is scaled in increments of 2% from top to bottom with 6% at the top and -6% at the bottom. Within the chart, there are two solid bars. The first represents the - -0.54% total return for John Hancock V.A. International Fund. The second represents the 5.17% total return for the Average variable annuity international fund. Footnote below reads: "The total return for John Hancock V.A. International Fund is at net asset value with all distributions reinvested. The average variable annuity international fund is tracked by Lipper Analytical Services, Inc. See the following page for historical performance information."] 5 ================================================================================ JOHN HANCOCK V.A. INTERNATIONAL FUND A LOOK AT PERFORMANCE For the period ended December 31, 1997 SINCE ONE INCEPTION YEAR (8/29/96) ---- --------- Cumulative Total Returns (0.54%) 12.14% Average Annual Total Returns(1) (0.54%) 8.93% 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. Notes to Performance (1) The Adviser has agreed to limit the Fund's expenses to 0.25% (not including management fee) of the Fund's daily average net assets. Without the limitation of expenses, the average annual total return for the one-year period and since inception would have been (1.43%) and 7.76%, respectively. WHAT HAPPENED TO A $10,000 INVESTMENT... The chart below shows how much a $10,000 investment in the John Hancock V.A. International 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 Morgan Stanley EAFE Index--an unmanaged index that measures the performance of stock markets in Europe, Australia and the Far East. In addition, the Fund is compared to the Morgan Stanley All Country World-Ex U.S. Free Index, which measures the performance of a broad range of developed and emerging stock markets, and represents freely traded securities. The Adviser has chosen to remove the Morgan Stanley EAFE Index from future reports, but will continue comparing the Fund to the Morgan Stanley All Country World-Ex U.S. Free Index, which more closely represents the investment strategy of the Fund. [GRAPHIC OMITTED] [Line chart with the heading V.A. International Fund, 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 value of the Morgan Stanley All Country World-Ex U.S. Index and is equal to $12,582 as of December 31, 1997. The second line represents the hypothetical $10,000 investment made in the V.A. International Fund on August 29, 1996, before sales charge, and is equal to $11,214 as of December 31, 1997. The third line represents the value of the Morgan Stanley EAFE Index and is equal to $10,680 as of December 31, 1997.] 6 ================================================================================ BY JAMES K. SCHMIDT, CFA AND THOMAS FINUCANE, CO-PORTFOLIO MANAGERS John Hancock V.A. Financial Industries Fund Tame inflation, falling interest rates boost financial stocks in 1997 "...earnings results for most of the financial stocks have exceeded expectations." Financial stocks were among the leaders in 1997, as the stock market persisted in its bull market charge. The economy remained strong, while interest rates mostly fell after a spike in the spring, and inflation was nowhere to be seen. It was an ideal environment in which to launch John Hancock V.A. Financial Industries Fund on April 30, 1997. From inception through the year's end, the Fund posted a total return of 35.05% at net asset value. That compared to the 20.20% return of the average variable annuity specialty fund, and the 35.10% return of the average open-end financial services fund during the same period, according to Lipper Analytical Services, Inc. Longer-term performance can be found on page nine. Leaders and laggards Leading the pack over the last year have been the brokerage stocks. They were propelled by buoyant markets that boosted trading volume and new offerings, as well as by continued merger activity, most notably between Morgan Stanley and Dean Witter; Alex Brown and Bankers Trust and Montgomery Securities and NationsBank. Also climbing to new highs were the stocks of asset managers, driven by strong markets and robust mutual fund sales. Banks, insurance and REIT stocks also posted healthy 1997 returns in response to in-line earnings and continued consolidation activity. Nonetheless, their performance was overshadowed by the skyrocketing brokers and asset managers. In 1998, with the more market-sensitive brokers and asset managers trading at higher price to earnings multiples, we look to the more predictable and stable earnings streams in banking, insurance and REITs to spell any weakness in the more high-flying sectors. [A 2" by 3" photo of Fund management team. Caption reads "Fund management team members: (l - r) Jay McKelvey, Jim Schmidt, Tom Finucane and Patricia Ouimet."] 7 ================================================================================ JOHN HANCOCK V.A. FINANCIAL INDUSTRIES FUND "We expect the consolidation among and across the various financial services industries to continue..." Earnings and consolidations trend upward In 1997, earnings results for most of the financial stocks have exceeded expectations. Current macro-economic conditions are ideal for financial stocks: moderate growth, low inflation and stable to declining interest rates. Across the financial spectrum, loan/asset quality is excellent, margins remain adequate, management's attention to overhead levels and efficiency is paramount and stock buybacks counter excess capital build-up. In this environment, companies have reported 12% to 14% year-over-year earnings growth. As long as the climate doesn't change, our 1998 earnings models call for 10% increases over 1997. Even in the Fund's short eight-month existence, already one of its holdings announced their intent to be acquired. In general, financial deals have been spread across several industry combinations, including banks buying thrifts; banks buying brokers and life insurers buying each other. We expect the consolidation among and across the various financial services industries to continue and perhaps accelerate in the future. Portfolio strategy and outlook The Fund invests in relatively inexpensive financial stocks that have solid earnings fundamentals and may be in the path of consolidation. We feel that the economic and regulatory environment currently in place will provide many opportunities for us to make rewarding investments. In the United States, rules promulgated by the Federal Reserve and the Controller of the Currency have blurred the lines between banking, insurance, and securities brokerage. Repeal of the Glass-Steagall Act, which we expect within the next three years, will further this process and give new impetus to mergers among financial companies. We also feel that the advent of the European Community will result in restructuring activity among financial services providers in that continent. Many of the nations in eastern Asia have recently experienced weakness in their economies and currencies. This will result in slightly lower growth on a global basis than would otherwise have been the case. Nevertheless, we are anticipating increased economic activity in the countries in which we are invested and expect this to translate into higher earnings for well managed financial companies. - -------------------------------------------------------------------------------- Sector investing is subject to different, and sometimes greater, risks than the market as a whole. [Bar chart with heading "Fund Performance" at top of left hand column. Under the heading is the footnote "From April 30, 1997 to December 31, 1997." The chart is scaled in increments of 10% from top to bottom with 40% at the top and 0% at the bottom. Within the chart, there are three solid bars. The first represents the 35.05% total return for the John Hancock V.A. Financial Industries Fund. The second represents the 20.20% total return for the Average variable annuity specialty fund. The third represents the 35.10% total return for the Average open-end financial services fund. Footnote below reads: "The total return for John Hancock V.A. Financial Industries Fund is at net asset value with all distributions reinvested. The average variable annuity specialty fund and open-end financial services fund are tracked by Lipper Analytical Services, Inc. See the following page for historical performance information."] 8 ================================================================================ JOHN HANCOCK V.A. FINANCIAL INDUSTRIES FUND A LOOK AT PERFORMANCE For the period ended December 31, 1997 SINCE INCEPTION (4/30/97) --------- Cumulative Total Returns 35.05% Average Annual Total Returns(1) 35.05%(2) 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. Notes to Performance (1) The Adviser has agreed to limit the Fund's expenses to 0.25% (not including management fee) of the Fund's daily average net assets. Without the limitation of expenses the total return since inception would have been 34.71%. (2) Not Annualized. WHAT HAPPENED TO A $10,000 INVESTMENT... The chart below 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 the Standard & Poor's 500 Stock Index--an unmanaged index that includes 500 widely traded common stocks and is often used as a measure of stock market performance. [GRAPHIC OMITTED] [Line chart with the heading V.A. Financial Industries Fund, 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 V.A. Financial Industries Fund on April 30, 1997, before sales charge, and is equal to $13,505 as of December 31, 1997. The second line represents the value of the S&P 500 Stock Index and is equal to $12,255 as of December 31, 1997.] 9 ================================================================================ BY BERNICE S. BEHAR, CFA, PORTFOLIO MANAGER John Hancock V.A. Emerging Growth Fund Stock market charges ahead; small stocks advance less than their larger brethren "Some of our best performers...were energy and semiconductor stocks..." Thanks to steady U.S. economic growth and rising corporate profits, small-company stocks posted strong returns for 1997. However, their gains couldn't match the surprisingly good performance of their large-company counterparts. After getting off to a weak start, the onset of spring marked a turning point, as small companies, bolstered by a number of developments, began to knock large-company stocks off the leader board. Not only were many large-company stocks expensive in the eyes of many observers, but their earnings were curtailed by a strong U.S. dollar. That, coupled with the reduction in the capital gains tax made small caps -- which create most of their value through capital gains -- more appealing in the eyes of many investors. The tables turned again in the final three months of the year, when the uncertainty surrounding the Asian crisis incited a flight to safety. Large, well-known companies resumed their leadership and left their smaller counterparts -- typically a more volatile group -- languishing in their wake. Strategy and performance review For the 12-month period ended December 31, 1997, John Hancock V.A. Emerging Growth Fund had a total return of 11.06% at net asset value, compared to the average variable annuity small company fund's return of 18.95%, according to Lipper Analytical Services, Inc. Longer-term performance information can be found on page 12. The primary reason why the Fund lagged its counterparts was our emphasis on small-company growth stocks, which have above-average increases in revenues and earnings. With investors concerned about earnings growth at small companies, these stocks fell out of favor and small-company value stocks - -- which are sold on the basis of the value of a firm's assets -- led the small-cap pack. [A 2" x 3" photo of V.A. Emerging Growth Fund at bottom right. Caption below reads: "Bernice Behar (center) and Fund management team members Ben Hock (l) and Andrew Slabin (r)."] 10 ================================================================================ JOHN HANCOCK V.A. EMERGING GROWTH FUND "Small-company stocks are currently priced more attractively..." Some of our best performers during the year were energy and semiconductor stocks, which did extremely well in the second and third quarters. In the energy group, some of our biggest winners were oil service holdings -- including Maverick Tube, Lonestar Steel and National-Oilwell -- and energy driller Precision Drilling. Our best-performing semiconductor company was Semtech. By the fourth quarter, we thought it prudent to lock in some of our profits and we pared back or sold several of these holdings. That helped us sidestep the subsequent Asian currency and economic crisis that put pressure on both groups, although we didn't completely dodge the downturn. In our view, technology stocks will continue to offer some of the fastest-growing opportunities in the marketplace, so we maintained a relatively high weighting in the sector. We did, however, switch focus, concentrating less on hardware companies and more on software companies such as Symantec, CBT Group, Visio and Aspect Development. In the fourth quarter, our advertising and broadcasting holdings performed well. Lamar Advertising and Universal Outdoor Holdings benefited from price increases for their billboard space. The stocks of broadcasting companies serving the U.S. Spanish-speaking population -- such as radio company Heftel and television company Univision Communications -- saw impressive gains as advertisers agreed to pay higher prices to reach this fast-growing demographic. Given our concerns about a potential slowdown in global economic growth, we increased our stake in more domestically-oriented companies, including retailers that serve small-town America, such as Stage Stores and Hibbett Sporting Goods. We also increased our stake in environmental stocks such as American Disposal Services and Superior Services. Outlook Uncertainty surrounding the Asian crisis and its implications for the U.S. economy may cause continued stock volatility. In any case, we believe that small-company stocks stand a good chance to overtake their larger-company counterparts. Their recent lag has nothing to do with business fundamentals, but rather stems from the Southeast Asian contagion that sent investors fleeing toward more liquid, larger company stocks. When those fears are calmed, we would expect investors to once again focus on company fundamentals, a shift that we think will benefit the small-company sector. Small-company stocks are currently priced more attractively and are also posting faster growth rates. [Bar chart with the header "Fund Performance" at top left hand column. A footnote below states: "For the year ended December 31, 1997." The chart is scaled in increments of 5%, with 20% at the top and 0% at the bottom. Within the chart there are two solid bars. The first represents the 11.06% total return for John Hancock V.A. Emerging Growth Fund. The second represents the 18.95% total return for the Average variable annuity small company fund. A footnote below states: "The total return for John Hancock V.A. Emerging Growth Fund is at net asset value with all distributions reinvested. The average variable annuity small company fund is tracked by Lipper Analytical Services, Inc. See the following page for historical performance information."] 11 ================================================================================ JOHN HANCOCK V.A. EMERGING GROWTH FUND A LOOK AT PERFORMANCE For the period ended December 31, 1997 SINCE ONE INCEPTION YEAR (8/29/96) ---- --------- Cumulative Total Returns 11.06% 3.71% Average Annual Total Returns(1) 11.06% 2.76% 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. Notes to Performance (1) The Adviser has agreed to limit the Fund's expenses to 0.25% (not including management fee) of the Fund's daily average net assets. Without the limitation of expenses, the average annual total return for the one-year period and since inception would have been 9.34% and (0.41%), respectively. WHAT HAPPENED TO A $10,000 INVESTMENT... The chart below shows how much a $10,000 investment in the John Hancock V.A. Emerging Growth 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 Stock Index--an unmanaged index that includes 500 widely traded common stocks and is used to measure stock market performance. In addition, the Fund is compared to both the Russell 2000 Index and the Russell 2000 Growth Index. The Russell 2000 Index is an unmanaged small-cap index that is comprised of 2,000 U.S. stocks. The Russell 2000 Growth Index is an unmanaged index that contains Russell 2000 Index stocks with a greater-than-average growth orientation. The Adviser has chosen to remove the Standard & Poor's 500 Stock Index from future reports, but will continue to compare the Fund's performance to the broad-based Russell 2000 Index as well as the Russell 2000 Growth Index, which more closely represent the investment strategy of the Fund. [GRAPHIC OMITTED] [Line chart with the heading V.A. Emerging Growth Fund, 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 value of the S&P 500 Stock Index and is equal to $15,580 as of December 31, 1997. The second line represents the value of the Russell 2000 Growth Index and is equal to $14,153 as of December 31, 1997. The third line represents the value of the Russell 2000 Index and is equal to $12,779 as of December 31, 1997. The fourth line represents the value of a hypothetical $10,000 investment made in the V.A. Emerging Growth Fund on August 29, 1996, before sales charge, and is equal to $10,371 as of December 31, 1997.] 12 ================================================================================ BY ANURAG PANDIT, CFA, PORTFOLIO MANAGER John Hancock V.A. Growth Fund Stock market moves in new territory, dominated by largest companies "We continued to maintain a relatively high weighting in the technology sector..." Effective January 2, 1998, John Hancock V.A. Discovery Fund was re-named John Hancock V.A. Growth Fund, and leadership of the management team changed from the team's small-company specialist, Bernice Behar, to the team's large-company specialist, Anurag Pandit, CFA. These changes were made to reflect the Fund's shift in investment focus to stocks of larger, more established companies. Mr. Pandit has more than 13 years of investment management experience and has been a member of the team since the Fund's inception. The U.S. stock market surprised many observers by posting 1997 gains in excess of 20% for an unprecedented third straight year. The market's rise was fueled by a heady combination of strong corporate earnings, moderate inflation, healthy economic growth and relatively low and stable interest rates. But those impressive returns masked what was largely a two-tier market. The brand-name, diversified, large-company stocks were the leaders, leaving the majority of their smaller counterparts to post less impressive gains. Although stocks charged ahead for the majority of the year, currency and economic problems in Southeast Asia created a more volatile environment in the final quarter. Performance and strategy review For the 12 months that ended December 31, 1997, John Hancock V.A. Growth Fund had a total return of 14.27% at net asset value, compared to the 25.36% return of the average variable annuity growth fund, according to Lipper Analytical Services, Inc. Longer-term performance information can be found on page 15. The Fund's performance lag occurred mostly in the first and final quarters of the year, when large-company growth stocks far outpaced the performance of small-company stocks, which the Fund had emphasized during those periods. Furthermore, our relatively small stake in [A 2" x 3" photo of V.A. Emerging Growth Fund team at bottom right. Caption below reads: "Fund management team members (l - r) Rob Hallisey, Bernice Behar, Anurag Pandit and Andrew T. Slabin."] 13 ================================================================================ JOHN HANCOCK V.A. GROWTH FUND "We enter fiscal 1998 with cautious optimism..." good-performing financial stocks -- most of which didn't meet our high growth targets -- curtailed our performance in the first quarter of the year. During the second and third quarters, the Fund gained a lot of ground and outperformed the majority of its peers, thanks in part to strong performance in our energy service company holdings including Maverick Tube, Lonestar Steel, National-Oilwell and EVI. After their success had pushed prices to what we believed were expensive valuations, we pared back or sold some of these holdings. Subsequently, the Asian currency crisis and uncertainty surrounding OPEC production quotas put pressure on this sector. While our reduced stake helped us sidestep their fourth-quarter woes, we weren't able to completely dodge them and that hurt our performance in the last quarter. We continued to maintain a relatively high weighting in the technology sector, although we made some alterations in our holdings as the year wore on. Semiconductor stocks posted impressive gains during much of the year. However, these stocks are considered most vulnerable to a slump in Asian demand for high-tech goods and as a result, suffered badly in October, November and December. Fortunately, we had taken some profits and reduced our stake in these companies, although not enough to completely insulate the Fund from their fall. More recently, we've shifted our focus away from computer hardware stocks into more software names including Symantec, which makes the popular Norton anti-virus program. Cautious optimism The most recent turbulence has not convinced us to change our strategy of focusing on high-growth companies. However, in keeping with Fund's recent shift in investment focus, we plan to place more emphasis on mid-to-large company stocks. We believe the quality, fundamentals, and long-term growth opportunities presented by many larger companies best suit the Fund's growth objectives. By focusing on larger companies, the Fund will continue to seek long-term appreciation, but with the lower volatility that is typically associated with large-capitalization stocks. Furthermore, we will continue to seek out companies that offer defensible niches -- such as a differentiated product or service -- and that exhibit above-average growth potential for any environment. We'll likely continue to focus on companies that are not unduly exposed to foreign currency risk. We enter fiscal 1998 with cautious optimism, viewing the ongoing market gyrations as a potential positive for growth-stock investing. [Bar chart with the header "Fund Performance" at top left hand column. A footnote below states: "For the year ended December 31, 1997." The chart is scaled in increments of 10%, with 30% at the top and 0% at the bottom. Within the chart there are two solid bars. The first represents the 14.27% total return for the John Hancock V.A. Growth Fund. The second represents the 25.36% total return for the Average variable annuity growth fund. A footnote below states: "The total return for John Hancock V.A. Growth Fund is at net asset value with all distributions reinvested. The average variable annuity growth fund is tracked by Lipper Analytical Services, Inc. See the following page for historical performance information."] 14 ================================================================================ JOHN HANCOCK V.A. GROWTH FUND A LOOK AT PERFORMANCE For the period ended December 31, 1997 SINCE ONE INCEPTION YEAR (8/29/96) ---- --------- Cumulative Total Returns 14.27% 7.30% Average Annual Total Returns(1) 14.27% 5.40% 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. Notes to Performance (1) The Adviser has agreed to limit the Fund's expenses to 0.25% (not including management fee) of the Fund's daily average net assets. Without the limitation of expenses, the average annual total return for the one-year period and since inception would have been 12.90% and 3.42%, respectively. WHAT HAPPENED TO A $10,000 INVESTMENT... The chart below shows how much a $10,000 investment in the John Hancock V.A. Growth 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 Stock Index--an unmanaged index that includes 500 widely traded common stocks and is often used as a measure of stock market performance. [GRAPHIC OMITTED] [Line chart with the heading V.A. Growth Fund, 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 S&P 500 Stock Index on August 29, 1996, and is equal to $15,580 as of December 31, 1997. The second line represents the value of the V.A. Growth Fund, before sales charge, and is equal to $10,730 as of December 31, 1997.] 15 ================================================================================ BY STEPHEN LANZENDORF, FOR THE PORTFOLIO MANAGEMENT TEAM John Hancock V.A. Independence Equity Fund Large companies dominate small ones in 1997 stock-market surge "Financial stocks were among the biggest contributors to the Fund's performance." With the economy buoyant, and interest rates and inflation low, stocks continued their long bull-market run throughout 1997. Just as in 1996, the charge was led for much of the year by the well-known mega-cap stocks, which lured investors with their strong and stable earnings growth. Despite heightened volatility beginning in August due to worries of earnings slowdowns and economic turmoil in Asia, the market still managed to turn in an amazingly strong showing for a third straight year. For the year ended December 31, 1997, the Standard & Poor's 500 Stock Index, a broad measure of market performance, returned 33.36%, including reinvested dividends. John Hancock V.A. Independence Equity Fund also produced very strong results on both an absolute and relative basis. For calendar year 1997, the Fund posted a total return of 30.68% at net asset value, compared to the 27.21% return of the average variable annuity growth and income fund, according to Lipper Analytical Services, Inc. Longer-term performance information can be found on page 18. Finance, specialty retailers outperform Financial stocks were among the biggest contributors to the Fund's performance. The combination of falling interest rates, growing profits and heightened industry consolidations propelled such Fund holdings as insurance companies Travelers Group and General Re. We have continued to overweight the finance sector since the fundamentals remain attractive. Within the sector, we continued to emphasize insurance companies, since their prices remain relatively [A 2" x 3" photo of V.A. Independence Equity Fund management team at bottom right. Caption below reads: "V.A. Independence Equity Fund management team members: (l-r) Coreen Kraysler, David Canavan, Jane Shigley, Jeff Saef and Stephen Lanzendorf."] 16 ================================================================================ JOHN HANCOCK V.A. INDEPENDENCE EQUITY FUND "Investors would do well to scale back their expectations..." attractive, while many bank stocks have risen to a point that they currently reflect the value of any potential mergers. Within the banking sector, we look for high-quality regional names such as Norwest Corporation, as well as money center banks. For example, BankAmerica currently presents a good opportunity since its stock has recently been penalized disproportionately to its Asian exposure. Another good group was our specialty retail holdings, especially industry leader Home Depot, whose stock rose by 76% during the year as it maintained its clear market dominance and dependable growth. During the year, we sold or cut our positions in some stocks whose prices we felt had either gotten ahead of earnings expectations, such as Minnesota Mining, or had reached full valuation levels given their prospects for growth, such as Disney. With the cash, we added to our positions in companies whose prices we believed were too low for their earnings prospects. That included PepsiCo. whose sale of its restaurant divisions and return to its core bottling business bodes well for its stock. We also increased our stake in telecommunications equipment maker Lucent Technologies because of its strong competitive position and prospects for earnings growth. Finally, we added Bell Atlantic, a regional phone company which should benefit from cost savings following its merger with Nynex. Outlook As long as the economic picture of moderate growth and low interest rates doesn't change, we're keeping our outlook positive for 1998. That said, we do not believe it is reasonable to expect the market to produce a fourth straight year of 20% plus returns. Investors would do well to scale back their expectations for 1998. Historically, the market has produced results in the 8% to 10% range. The market should also remain more volatile as the Asian crisis plays out. No matter what happens next, we will stick to our disciplined strategy of buying companies with attractive stock prices and improving earnings prospects. We remain focused on providing shareholders with above-average total returns by investing in a diversified stock portfolio that has a risk level comparable to that of the S&P 500. [Bar chart with the header "Fund Performance" at top left hand column. A footnote below states: "For the year ended December 31, 1997." The chart is scaled in increments of 10%, with 40% at the top and 0% at the bottom. Within the chart there are two solid bars. The first represents the 30.68% total return for the John Hancock V.A. Independence Equity Fund. The second represents the 27.21% total return for the Average variable annuity growth and income fund. A footnote below states: "The total return for John Hancock V.A. Independence Equity Fund is at net asset value with all distributions reinvested. The average variable annuity growth and income fund is tracked by Lipper Analytical Services, Inc. See the following page for historical performance information."] 17 ================================================================================ JOHN HANCOCK V.A. INDEPENDENCE EQUITY FUND A LOOK AT PERFORMANCE For the period ended December 31, 1997 SINCE ONE INCEPTION YEAR (8/29/96) ---- --------- Cumulative Total Returns 30.68% 46.07% Average Annual Total Returns(1) 30.68% 32.69% 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. Notes to Performance (1) The Adviser has agreed to limit the Fund's expenses to 0.25% (not including management fee) of the Fund's daily average net assets. Without the limitation of expenses, the average annual total return for the one-year period and since inception would have been 30.04% and 31.38%, respectively. WHAT HAPPENED TO A $10,000 INVESTMENT... The chart below shows how much a $10,000 investment in the John Hancock V.A. Independence Equity 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 Stock Index--an unmanaged index that includes 500 widely traded common stocks and is often used as a measure of stock market performance. [GRAPHIC OMITTED] [Line chart with the heading V.A. Independence Equity Fund, 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 S&P 500 Stock Index on August 29, 1996, and is equal to $15,580 as of December 31, 1997. The second line represents the value of the V.A. Independence Equity Fund, before sales charge, and is equal to $14,607 as of December 31, 1997.] 18 ================================================================================ BY BARRY EVANS, CFA, AND ROGER HAMILTON, FOR THE RISK MANAGEMENT GROUP John Hancock V.A. 500 Index Fund S&P 500 Index shows its muscle for third straight year Financial stocks boost Fund performance. 1997 was an extremely good year for the S&P 500 Index. In what was often described as a "Goldilocks" economy characterized by low and falling interest rates, moderate inflation and decent economic growth, corporate earnings strengthened as productivity rose. But the index's gains weren't parceled out in equal measure. Big companies posted stellar returns and contributed most to the capitalization-weighted index's rise, while smaller companies posted only moderate gains. Strategy and performance review For the 12 months ended December 31, 1997, John Hancock V.A. 500 Index Fund had a total return of 29.51%. By comparison, the average variable annuity S&P 500 index objective fund had a total return of 32.55%, according to Lipper Analytical Services, Inc. Longer-term performance information can be found on page 21. The Fund normally invests at least 80% of its total assets in common stocks of the companies that comprise the Standard & Poor's 500 Stock Index. Our aim is to allocate the stocks held in the portfolio in approximately the same proportions as they are represented in the S&P 500 Stock Index. By pursuing that strategy, we are able to minimize the degree to which the Fund's investment results (before Fund expenses) differ from those of the index. The degree to which the Fund's performance correlates with that of the S&P 500 Stock Index depend upon the size and cash flows of the Fund, the liquidity of the securities represented in the index and the Fund's expenses, among other factors. In the early months of the period and of the Fund's existence, we bought S&P 500 Stock Index futures as a proxy for the stocks in the index. We did that because the futures allowed us to participate in the S&P 500's advance without incurring the high transaction costs associated with buying individual stocks with limited assets. To buy stocks -- specially in odd lots of less than 100 shares -- when the Fund's total [A 2" x 2 1/2" photo of Barry Evans and Roger Hamilton. Caption reads "Barry Evans (l) and Roger Hamilton (r)".] 19 ================================================================================ JOHN HANCOCK V.A. 500 INDEX FUND "...we wouldn't be surprised if the market paused to catch its breath in 1998..." assets were still small would have been more expensive and would have compromised its total return. But in mid-June, the Fund's total assets had grown to a level that allowed us to purchase individual stocks at reasonable costs. Keeping more fully invested in the second half of the year helped our performance more closely track that of the index. Using a strategy known as sampling, we assembled a portfolio of stocks that replicates the characteristics - -- including industry classification, volatility, earnings per share, and others - -- of the S&P 500 Stock Index. By the end of the period, the Fund held roughly 380 stocks. Financial service companies dominate; gold lags "Merger mania," falling interest rates and declining loan losses propelled bank stocks -- such as Fifth Third Bancorp, Norwest Corp. and State Street -- in 1997, making them some of the best performers for both the S&P 500 Index and the Fund. But it wasn't just banks that made the financial stocks the market's best-performing group of the year. Securities brokers also soared thanks to the quickening pace of acquisition activity as well as the strength of the stock market itself. In the broker category, the Fund's two performers were Charles Schwab and Merrill Lynch. Technology stocks made lots of news during the year, with the larger companies posting record gains, while smaller concerns were in a bear market for most of the year. While the Fund enjoyed gains from Dell Computer, Compaq Computer and Microsoft, companies such as Silicon Graphics and Novell proved to be laggards. One of the market's worst performing groups was gold stocks, which suffered as the price of the precious metal slumped. Our holdings in Barrick Gold and Newmont Mining detracted from our performance. Outlook We'll continue to choose stocks that will help us closely track the performance of the S&P Index. After posting gains in excess of 20% for an unprecedented third consecutive year, we wouldn't be surprised if the market paused to catch its breath in 1998, and investors would be wise to lower their expectations. Of course, given the Fund's strategy and objectives, its returns should track the performance of the S&P Index, whether it posts gains or incurs losses in 1998. [Bar chart with the header "Fund Performance" at top left hand column. A footnote below states: "For the year ended December 31, 1997." The chart is scaled in increments of 10%, with 40% at the top and 0% at the bottom. Within the chart there are two solid bars. The first represents the 29.51% total return for the John Hancock V.A. 500 Index Fund. The second represents the 32.55% total return for the Average variable annuity S&P 500 index objective fund. A footnote below states: "The total return for John Hancock V.A. 500 Index Fund is at net asset value with all distributions reinvested. The average variable annuity S&P 500 Index objective fund is tracked by Lipper Analytical Services, Inc. See the following page for historical performance information."] 20 ================================================================================ JOHN HANCOCK V.A. 500 INDEX FUND A LOOK AT PERFORMANCE For the period ended December 31, 1997 SINCE ONE INCEPTION YEAR (8/29/96) ---- --------- Cumulative Total Returns 29.51% 44.39% Average Annual Total Returns(1) 29.51% 31.55% 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. Notes to Performance (1) The Adviser has agreed to limit the Fund's expenses to 0.25% (not including management fee) of the Fund's daily average net assets. Without the limitation of expenses, the average annual total return for the one-year period and since inception would have been 29.27% and 31.19%, respectively. WHAT HAPPENED TO A $10,000 INVESTMENT... The chart below shows how much a $10,000 investment in the John Hancock V.A. 500 Index 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 Stock Index--an unmanaged index that includes 500 widely traded common stocks and is often used as a measure of stock market performance. [GRAPHIC OMITTED] [Line chart with the heading V.A. 500 Index Fund, 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 S&P 500 Stock Index on August 29, 1996, and is equal to $15,580 as of December 31, 1997. The second line represents the value of the the V.A. 500 Index Fund, before sales charge, and is equal to $14,439 as of December 31, 1997.] 21 ================================================================================ BY JOHN F. SNYDER III AND BARRY EVANS, CFA CO-PORTFOLIO MANAGERS John Hancock V.A. Sovereign Investors Fund Stocks rack up yet another great year of returns Retailers and banks contributed significantly to the Fund's performance. 1997 was yet another spectacular year for stock investors. The Dow Jones Industrial Average -- one of the most commonly-watched market indices -- ended the year up a healthy 22.64%. Following gains of 33% in 1995 and 26% gain in 1996, this year marked a record third-straight year in which stocks rose more than 20%. It also marked the seventh-consecutive year of market advances, making the current bull market the longest in the history. It wasn't, however, all smooth sailing for investors. Much of the market's gains came in the first half of the year. Then, as worries about corporate profits and Asia's financial woes heightened, investors become more nervous and the market traded in a volatile range for most of the second half. The big winners in this year's market advance were the large stocks. In a "flight-to-quality," investors sought out those large companies with reliable earnings and clear market leadership. Aside from a short-lived rally in the third quarter, small stocks lagged behind their larger brethren. Fund performance Our focus on "dividend performer" stocks -- those large stocks with consistent dividends and reliable earnings -- paid off in 1997. For the year ended December 31, 1997, the John Hancock V.A. Sovereign Investors Fund had a total return of 28.43% at net asset value. By comparison, the average equity income fund returned 29.13%, according to Lipper Analytical Services, Inc. Longer-term performance information can be found on page 24. Within Sovereign's investment universe, two important sectors contributed significantly to the Fund's performance: retailers and banks. Retail giants Wal-Mart and Home Depot rose more than 60% in 1997, thanks to market share gains and strong consumer confidence levels. A favorable interest-rate environment and strong loan demand helped banks' underlying fundamentals. Also, a sharp increase in merger activity has [A 2" x 3" photo of V.A. Sovereign Investors Fund management team at bottom right. Caption below reads: "V.A. Sovereign Investors Fund management team members: (l - r) John Snyder, Barry Evans, Jere Estes."] 22 ================================================================================ JOHN HANCOCK V.A. SOVEREIGN INVESTORS FUND "...we believe consistency will be rewarded." lifted the group. First Tennessee National Corp. was among our strongest performers, buoyed by a healthy balance sheet and increasing takeover speculation. Shift to growth cyclicals After strong gains, we felt that many of our consumer stocks were ripe for profit taking. We sold several core holdings -- such as Sara Lee -- in favor of companies that offered better growth potential and valuations. A perfect example is Grainger (W.W.) Inc, which is the leading distributor of electrical equipment. Market leadership is critical in this industry, as customers strive to limit the number of vendors they use. With its most recent acquisition of Ackland, Grainger has been able to strengthen its market position. Outlook A change from the generally ebullient stock market may be at hand. The expected slowdown in the Asian economies may slow the world economy. At first glance, the effect on the U.S. economy appears to be minimal, but the U.S. will not be immune. Furthermore, we believe that the impact will extend beyond those companies with direct exposure to Asia such as semiconductor manufacturers. Companies with extensive retailing operations in the Far East -- such as McDonald's and Coca-Cola -- are also likely to experience weaker demand. U.S. companies that are vulnerable to imports -- such as steel manufacturers and auto makers -- will face stiffer competition as Asian companies attempt to export their way out of trouble. In general, we believe top line revenue growth will be harder to come by, and that 1998 will be a more difficult year for earnings growth than any of the past five years. Pricing power is non-existent. Indeed, a number of economists believe prices could go down in 1998. While lower prices will benefit consumers, deflation is a difficult environment for corporate profitability. If an economic slowdown materializes, this will be the sweet spot of the market cycle for the Fund's "dividend performers" universe of companies. At a time when earnings disappointments are dealt with severely by the market, we believe consistency will be rewarded. Superior management and market dominance become even more critical for success. If the past is any guide, it will be a time when investors are likely to fully appreciate the investment quality of these stable growth companies and be willing to pay premium prices for them. [Bar chart with the header "Fund Performance" at top left hand column. A footnote below states: "For the year ended December 31, 1997." The chart is scaled in increments of 10%, with 30% at the top and 0% at the bottom. Within the chart there are two solid bars. The first represents the 28.43% total return for the John Hancock V.A. Sovereign Investors Fund. The second represents the 29.13% total return for the Average variable annuity equity income fund. A footnote below states: "The total return for John Hancock V.A. Sovereign Investors Fund is at net asset value with all distributions reinvested. The average variable annuity equity income fund is tracked by Lipper Analytical Services, Inc. See the following page for historical performance information."] 23 ================================================================================ JOHN HANCOCK V.A. SOVEREIGN INVESTORS FUND A LOOK AT PERFORMANCE For the period ended December 31, 1997 SINCE ONE INCEPTION YEAR (8/29/96) ---- --------- Cumulative Total Returns 28.43% 39.08% Average Annual Total Returns(1) 28.43% 27.92% 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. Notes to Performance (1) The Adviser has agreed to limit the Fund's expenses to 0.25% (not including management fee) of the Fund's daily average net assets. Without the limitation of expenses, the average annual total return for the one-year period and since inception would have been 28.12% and 26.94%, respectively. WHAT HAPPENED TO A $10,000 INVESTMENT... The chart below shows how much a $10,000 investment in the John Hancock V.A. Sovereign Investors Fund would be worth, assuming all distributions were reinvested for the period indicated. For comparison, we've shown the same $10,000 investment in the Standard & Poor's 500 Stock Index--an unmanaged index that includes 500 widely traded common stocks and is often used as a measure of stock market performance. [GRAPHIC OMITTED] [Line chart with the heading V.A. Sovereign Investors Fund, 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 S&P 500 Stock Index on August 29, 1996, and is equal to $15,580 as of December 31, 1997. The second line represents the value of the V.A. Sovereign Investors Fund, before sales charge, and is equal to $13,908 as of December 31, 1997.] 24 ================================================================================ BY LAWRENCE J. DALY, ANTHONY A. GOODCHILD AND JANET L. CLAY, CO-PORTFOLIO MANAGERS John Hancock V.A. World Bond Fund Flight to quality drives world bond markets following Asian financial crisis "...we shifted our focus toward U.S. government bonds..." Global bond investors struggled during 1997 through the cross-currents of U.S. interest rate fears early in the year and major volatility spikes later caused by Asian financial woes. The outcome was modest returns, but relief that results remained positive. Regionally, bond market results varied widely. The United States was one of the best-performing markets. After early interest-rate and inflation fears hurt U.S. bond prices and reverberated in other countries, the summer brought moderating growth and tame inflation. That sent U.S. Treasury bonds rallying right through the year's end. The boost in U.S. bonds was most dramatic at the end of the year, after market turmoil in Asia sent investors scurrying to safe havens. Starting in August and culminating in late October, a wave of currency devaluations swept through Southeast Asia and Korea, causing their financial pictures to darken and some countries' bonds to be downgraded to junk status. A mass exodus from all emerging Asian markets followed, hurting bond prices as far away as Latin America and putting an end to the banner year that emerging markets, especially in Latin America, had enjoyed until then. In Europe, bonds outperformed the U.S. earlier in the year, but then fears of rising European rates and the lure of more attractive U.S. yields caused their rally to stall. Performance and strategy review Despite this upheaval, the J.P. Morgan Global Government Bond Index -- a benchmark for global bond performance -- managed to close up 1.4% for the year ended December 31, 1997. In the same period, John Hancock V.A. World Bond Fund posted a total return of 1.37% at net asset value, compared to the 4.31% return of the average variable annuity global income fund, [A 2" x 3" photo of V.A. World Bond Fund team members. Caption reads: "Fund co-portfolio managers (l - r) Tony Goodchild, Janet Clay and Larry Daly."] 25 ================================================================================ JOHN HANCOCK V.A. WORLD BOND FUND "We expect continued fallout from the Southeast Asian crisis..." according to Lipper Analytical Services, Inc. Longer-term performance information can be found on page 27. The Fund benefited from investing in the United States, avoiding Asia and downplaying Europe and foreign currencies. The difference in performance was due to our exposure to emerging markets, which rose to about 30% of assets at several points during the year -- close to our 35% limit. That level was less than average, which held us back when those markets were performing well, yet was still enough to hurt us in October's tumult. During the year, as bond yields fell worldwide, the difference in yields between other countries and the United States narrowed to minimal levels. Many foreign bonds, therefore, no longer offered a significant yield advantage over U.S. Treasuries. With little prospect that overseas bond prices would rise, and with Asia's ills looming large, we shifted our focus toward U.S. government bonds in the five-year maturity horizon. These bonds benefited as investors increasingly chose high quality. By the end of the year, U.S. Treasury and government agency bonds accounted for three quarters of the Fund's net assets, up from 44% six months ago. At the same time, we opportunistically trimmed our emerging-market stake to 13% of assets, down from 31% six months ago. We've kept our focus on U.S. dollar-denominated government bonds from Latin America, including Ecuador, Mexico, Brazil, Panama and Venezuela. We also continued to pare our Europe holdings to 7%, keeping only our U.K. bonds because their yields were higher than the rest of Europe. A look ahead We expect continued fallout from the Southeast Asian crisis until we see more signs of government resolve to make needed structural changes, and until there's a clearer picture of how Asia's slowing economies will impact worldwide growth. In this environment, we plan to stick with our more conservative strategy of focusing on high-quality U.S. government bonds. In our view, they offer solid prospects, especially given the instability elsewhere. When the Asian crisis passes, we believe there will be significant upside potential in high-quality Latin American bonds. But for now, the highly unusual combination of economic and world circumstances compels us to keep the bulk of our global bond assets close to home. - -------------------------------------------------------------------------------- International investing involves special risks such as political, economic and currency risks and differences in accounting standards and financial reporting. [Bar chart with the header "Fund Performance" at top left hand column. A footnote below states: "For the year ended December 31, 1997." The chart is scaled in increments of 1%, with 5% at the top and 0% at the bottom. Within the chart there are two solid bars. The first represents the 1.37% total return for the John Hancock V.A. World Bond Fund. The second represents the 4.31% total return for the Average variable annuity global income fund. A footnote below states: "The total return for John Hancock V.A. World Bond Fund is at net asset value with all distributions reinvested. The average variable annuity global income fund is tracked by Lipper Analytical Services, Inc. See the following page for historical performance information."] 26 ================================================================================ JOHN HANCOCK V.A. WORLD BOND FUND A LOOK AT PERFORMANCE For the period ended December 31, 1997 SINCE ONE INCEPTION YEAR (8/29/96) ---- --------- Cumulative Total Returns 1.37% 5.47% Average Annual Total Returns(1) 1.37% 4.04% YIELD For the period ended December 31, 1997 SEC 30-DAY YIELD ---------- John Hancock V.A. World Bond Fund 5.48% 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. Notes to Performance (1) The Adviser has agreed to limit the Fund's expenses to 0.25% (not including management fee) of the Fund's daily average net assets. Without the limitation of expenses, the average annual total return for the one-year period and since inception would have been 0.07% and 2.52%, respectively. WHAT HAPPENED TO A $10,000 INVESTMENT... The chart below shows how much a $10,000 investment in the John Hancock V.A. World Bond 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 Salomon Brothers World Government Bond Index--an unmanaged index that provides a benchmark for bond market performance on a worldwide basis. [GRAPHIC OMITTED] [Line chart with the heading V.A. World Bond Fund, 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 V.A. World Bond Fund, before sales charge, and is equal to $10,547 as of December 31, 1997. The second line represents the value of the Salomon Brothers World Government Bond Index on August 29, 1996, and is equal to $10,344 as of December 31, 1997.] 27 ================================================================================ BY FREDERICK CAVANAUGH, PORTFOLIO MANAGER John Hancock V.A. Strategic Income Fund U.S. Treasuries, high-yield corporate bonds show strength amid global uncertainty "Our outperformance came from our relatively large stake in U.S. high-yield corporate bonds..." The past 12 months will go down as a good year for U.S. bonds, thanks primarily to low inflation and stable interest rates. U.S. Treasury yields -- which move in the opposite direction of bond prices -- fell to levels not seen in four years. Meanwhile, the U.S. high-yield corporate market, which is made up of companies with below-investment-grade credit ratings, also performed well. The continued strength of the nation's economy translated into improving earnings and cash flows for many high-yield companies and the demand for their bonds was exceptionally strong. Outside the U.S., the news was mixed. Emerging-market bonds posted good returns for the year, despite a fourth quarter sell-off that was triggered by economic and currency problems in Southeast Asia. Intermediate- and long-term government bonds issued by "dollar bloc" countries -- including Canada and New Zealand -- enjoyed gains as their interest rates declined, mirroring the fall in U.S. interest rates. However, many European bonds remained unattractive relative to other areas of the world as the continent struggled to meet the economic and fiscal conditions mandated by its progress toward a unified currency. Performance and strategy review For the year ended December 31, 1997, John Hancock V.A. Strategic Income Fund posted a total return of 11.77% at net asset value, surpassing the 9.53% return of the average variable annuity general bond fund, according to Lipper Analytical Services, Inc. For longer-term performance information, please see page 31. Our outperformance came from our relatively large stake in U.S. high-yield corporate bonds, which performed well. Among the Fund's top high-yield performers were telecommunications leader Nextel Communications, which continued to benefit from rising subscriber growth, and Casino [A 2" x 3" photo of V.A. Strategic Income Fund team members. Caption reads: "Frederick Cavanaugh (left) and Fund management team members (l - r) Linda Carter, Jamie Kellogg and Arthur Calavritinos."] 28 ================================================================================ JOHN HANCOCK V.A. STRATEGIC INCOME FUND "...we'll keep our stake in emerging-market bonds relatively low for now..." America which was boosted by growing revenues. Some of our high-yield corporate holdings from offshore companies proved disappointing. With the cloud of uncertainty hanging over emerging markets, high-yield bonds issued by Brazilian telecommunications concern Globo Communicaoes faltered. Early in the fourth quarter, we began to reduce our foreign exposure by selling some emerging-market holdings, which had enjoyed strong gains in the prior nine months of the year. We sold them out of concern that Thailand's currency problems in mid-summer would bode ominously for other emerging markets. As a result, we had significantly reduced our emerging markets positions by late October. We were not, however, able to sell all the emerging-market bonds we would have liked and some of our remaining holdings detracted from the Fund's performance. We maintained our position in U.S. Treasury bonds, ending the year at 14% of the Fund's net assets. In addition to U.S. bonds' offering "safe haven" status, U.S. interest rates remain high compared to the rest of the world. With possible slower economic growth in this country, bonds could rally if interest rates fall further. When interest rates resumed their decline in the fourth quarter of the year, our U.S. Treasury holdings rallied. Outlook In our view, there could be continued volatility in global bond markets resulting from further currency and economic problems in emerging markets. As a result, we'll keep our stake in emerging-market bonds relatively low for now, until we see signs to the contrary. Furthermore, we think there's a reasonable chance that recent and potential devaluations of emerging-market currencies will be the catalyst for slower worldwide economic growth, including a slowdown in the U.S. Even so, we believe that the U.S. economy will remain in positive territory. Given that outlook, we believe high-yield U.S. corporate bonds could post solid performance next year, although we expect that performance to come mostly from the bonds' interest payments, rather than from capital appreciation. Against a slower economic backdrop, U.S. interest rates could also continue to fall and U.S. Treasury securities could extend their rally. - -------------------------------------------------------------------------------- International investing involves special risks such as political, economic and currency risks and differences in accounting standards and financial reporting. [Bar chart with the header "Fund Performance" at top left hand column. A footnote below states: "For the year ended December 31, 1997." The chart is scaled in increments of 5%, with 15% at the top and 0% at the bottom. Within the chart there are two solid bars. The first represents the 11.77% total return for the John Hancock V.A. Strategic Income Fund. The second represents the 9.53% total return for the Average variable annuity general bond fund. A footnote below states: "The total return for John Hancock V.A. Strategic Income Fund is at net asset value with all distributions reinvested. The average variable annuity general bond fund is tracked by Lipper Analytical Services, Inc. See the following page for historical performance information."] 29 ================================================================================ JOHN HANCOCK V.A. STRATEGIC INCOME FUND A LOOK AT PERFORMANCE For the period ended December 31, 1997 SINCE ONE INCEPTION YEAR (8/29/96) ---- --------- Cumulative Total Returns 11.77% 18.96% Average Annual Total Returns(1) 11.77% 13.84% YIELD For the period ended December 31, 1997 SEC 30-DAY YIELD ---------- John Hancock V.A. Strategic Income Fund 8.56% 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. Notes to Performance (1) The Adviser has agreed to limit the Fund's expenses to 0.25% (not including management fee) of the Fund's daily average net assets. Without the limitation of expenses, the average annual total return for the one-year period and since inception would have been 11.25% and 13.11%, respectively. WHAT HAPPENED TO A $10,000 INVESTMENT... The chart below 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 the Lehman Brothers Government/Corporate Bond Index--an unmanaged index that measures the performance of U.S. government bonds, U.S. corporate bonds and Yankee bonds. [GRAPHIC OMITTED] [Line chart with the heading V.A. Strategic Income Fund, 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 V.A. Strategic Income Fund, before sales charge, and is equal to $12,011 as of December 31, 1997. The second line represents the value of the Lehman Government/Corporate Bond Index on August 29, 1996, and is equal to $11,484 as of December 31, 1997.] 30 ================================================================================ BY JAMES K. HO, CFA, PORTFOLIO MANAGER John Hancock V.A. Sovereign Bond Fund Bond investors fared well in 1997, despite heightened volatility "...we increased our stake in U.S. Treasury Bonds slightly." It was a good year for bonds, one marked by tame, even falling, inflation, a healthy economy, and rising prices on most types of bonds. The bond market's forward moves were most pronounced in the second half of the year, when fears that the vibrant economy would lead to higher inflation dissipated. The resulting surge reflected the market's growing belief that the Federal Reserve was not going to raise rates to slow down the economy. Bolstering the Fed's sidelines stance were a strong dollar eating into corporate profits and the currency and financial woes that struck Southeast Asia in the summer. These events further eased U.S. inflation fears -- a bond holder's worst enemy because of its corrosive effect on bonds' fixed-income payments. The Asian crisis did, however, cause a late-year selloff in both investment-grade and high-yield corporate bonds, as fearful investors gravitated toward U.S. Treasury bonds in a classic flight to safety. But the bond market had stabilized by year end, and corporate bonds' gains remained impressive. Performance and strategy review For the year ended December 31, 1997, John Hancock V.A. Sovereign Bond Fund posted a total return of 9.30% at net asset value. That compared to the 10.01% return of the average variable annuity corporate debt BBB-rated fund, according to Lipper Analytical Services, Inc. Longer-term performance information can be found on page 33. In seeking a high level of current income consistent with prudent investment risk, the Fund focuses on a blend of investment-grade corporate bonds, U.S. government bonds and, to a lesser extent, high-yield bonds whose credit ratings are below investment grade. Each sector in which we invested contributed to performance at various points, as did our timely moves [A 2" x 3" photo of V.A. Sovereign Bond Fund team members. Caption reads: "Jim Ho (seated) and Fund management team members (l - r) Lester Duke, Beverly Cleathero, Seth Robbins, Linda Carter."] 31 ================================================================================ JOHN HANCOCK V.A. SOVEREIGN BOND FUND "...there is still room for bonds to do well in 1998." that helped us successfully maneuver through the late-period pitfalls. Exposure to emerging-market corporate bonds served us well earlier in the year. At the same time, we fortunately managed to avoid the most volatile emerging markets, including Thailand, Malaysia and Korea, by selling our small positions there ahead of the worst turmoil. Naturally, volatility spilled over into Latin America, and we opportunistically sold out of our positions there as well after the first shock waves hit, anticipating further turmoil down the road. In their place, we increased our stake in U.S. Treasury Bonds slightly. For most of the year, we benefited from our 24% stake in corporate bonds, until their late-year price drops curtailed their advances. But the downward pressure that Asia's turmoil put on U.S. corporate bonds also presented us with some attractive buying opportunities. Believing that the fundamentals of many U.S. corporations remained solid, we bought on dips and added to such existing positions as Time Warner and TCI Communications. We also selectively bought several high-yield bonds, including Physician Sales & Services, Garden State Newspapers and Nextel Communications. The three main industry sectors we emphasized in the corporate arena included media, utilities and financial services. Going forward In our view, there is still room for bonds to do well in 1998. Recent worldwide events suggest that the trend is toward slower, rather than faster, economic growth. As the Asian countries try to export their way back to financial health, their weaker currencies and therefore less expensive products will keep the pricing pressure on -- and inflation low. Given this scenario, it's fairly certain that the Fed will not raise interest rates again for now. In fact, the next move could be a rate decrease. With this outlook, we'll keep the Fund's duration -- a measure of a bond price's sensitivity to changes in interest rates -- neutral or slightly longer to capture the benefits of any more rate drops. The longer the duration, the more the Fund's share price moves with changes in interest rates. We also will continue to upgrade the overall portfolio by moving into industry sectors such as utilities, media and health care, which we believe are less affected by changes in the economy. For now, we'll minimize our investments in the emerging markets until there are further signs that the crisis has passed. Until then, heavier exposure to this sector would present too much volatility for this type of fund. [Bar chart with the header "Fund Performance" at top left hand column. A footnote below states: "For the year ended December 31, 1997." The chart is scaled in increments of 5%, with 15% at the top and 0% at the bottom. Within the chart there are two solid bars. The first represents the 9.30% total return for the John Hancock V.A. Sovereign Bond Fund. The second represents the 10.01% total return for the Average variable annuity corporate debt BBB-rated fund. A footnote below states: "The total return for John Hancock V.A. Sovereign Bond Fund is at net asset value with all distributions reinvested. The average variable annuity corporate debt BBB-rated fund is tracked by Lipper Analytical Services, Inc. See the following page for historical performance information."] 32 ================================================================================ JOHN HANCOCK V.A. SOVEREIGN BOND FUND A LOOK AT PERFORMANCE For the period ended December 31, 1997 SINCE ONE INCEPTION YEAR (8/29/96) ---- --------- Cumulative Total Returns 9.30% 14.13% Average Annual Total Returns(1) 9.30% 10.37% YIELD For the period ended December 31, 1997 SEC 30-DAY YIELD ---------- John Hancock V.A. Sovereign Bond Fund 5.62% 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. Notes to Performance (1) The Adviser has agreed to limit the Fund's expenses to 0.25% (not including management fee) of the Fund's daily average net assets. Without the limitation of expenses, the average annual total return for the one-year period and since inception would have been 7.52% and 8.18%, respectively. WHAT HAPPENED TO A $10,000 INVESTMENT... The chart below shows how much a $10,000 investment in the John Hancock V.A. Sovereign Bond 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 Lehman Brothers Corporate Bond Index--an unmanaged index that mirrors the investment objectives and characteristics of the Fund. [GRAPHIC OMITTED] [Line chart with the heading V.A. Sovereign Bond Fund, 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 Lehman Brothers Corporate Bond Index on August 29, 1996, and is equal to $11,584 as of December 31, 1997. The second line represents the value of the V.A. Sovereign Bond Fund, before sales charge, and is equal to $11,413 as of December 31, 1997.] 33 ================================================================================ BY DAWN BAILLIE, FOR THE PORTFOLIO MANAGEMENT TEAM John Hancock V.A. Money Market Fund Moderate economy and dormant inflation keep money fund yields stable "...we were able to extend the Fund's maturity." Uncertainty was the watchword for money market funds during 1997, but status quo was the end result, as short-term interest rates remained fairly stable. Early in the year, all eyes were on the Federal Reserve, which everyone knew was just waiting to pounce at the first signs of rising inflation. In early spring, interest rates began to rise as the economy surged ahead and investors came to expect that the Fed would raise short-term interest rates to slow down the economy. Although that Fed hike in late March -- its first in two years -- turned out to be the only move the Fed made in 1997, money markets fretted all year over each set of monthly economic data. Fear remained about the strength of the economy and whether the low unemployment rate would inevitably translate into rising labor costs and higher inflation, as has been the case in past economic cycles. Despite all the concerns, the economy remained fairly moderate after the first quarter, and, in atypical fashion, inflation never budged. Fed chairman Alan Greenspan concluded that this economic cycle was different, and by the end of the year, the Fed had changed its stance. Instead of its earlier inclination to raise short-term interest rates, the Fed shifted to a more neutral, status quo policy. Its inclination was further bolstered by currency and financial turmoil in Asia which many believed would keep the U.S. economy's growth in check without the Fed's help. As a result, the federal funds rate, which banks charge each other for overnight loans and which serves as a pricing benchmark for money market securities, closed the year at 5.50%, where it had been since March. On December 31, 1997, John Hancock V.A. Money Market Fund had a 7-day effective yield [A 2" x 3" photo of V.A. Money Market Fund team members. Caption reads: "Fund management team members (l-r): Barry Evans, Dawn Baillie and Bill Larkin, Jr."] 34 ================================================================================ JOHN HANCOCK V.A. MONEY MARKET FUND "...the Fed is maintaining a neutral stance..." of 5.01%. By comparison, the average taxable money fund had a 7-day effective yield of 4.95%, according to Lipper Analytical Services, Inc. Longer-than-average maturity pays off During the first half of the year, the Fund's maturity remained shorter than average because its small size limited our ability to buy a range of money market securities. But in the second half, the Fund's assets had grown to a point where we were able to extend the Fund's maturity. It was also an opportune time to take an aggressive stance to lock in higher yields, since the economy had begun to moderate and we became more convinced of the Fed's hands-off approach. That only changed briefly as the year ended, so we could take advantage of the typically favorable buying environment for money market securities. By the end of the year, the Fund's maturity remained longer than average at 80 days. A word about Asia Money market funds have not felt the effects of currency and financial problems afflicting Asia, largely because most money funds stopped buying any short-term certificates of deposit from Japanese banks. In any event, the Fund had no exposure to the potential turmoil since we did not own any foreign securities. Status quo ahead Given the current near-perfect economic environment -- moderate growth and tame inflation -- it's unlikely that the Federal Reserve will make any moves for at least the next three months. For now, our view is that the Fed is maintaining a neutral stance, without a bias toward either raising or lowering short-term rates. Against that backdrop, we will continue to aggressively seek yield by keeping the Fund's maturity longer than average. We'll determine our next course of action after we evaluate the economic data in February and March. Above all else, we'll keep focused on providing shareholders with a competitive level of current income, while maintaining liquidity and stability of principal. - -------------------------------------------------------------------------------- The Fund is neither insured nor guaranteed by the U.S. government. There can be no assurances that the Fund will be able to maintain a net asset value of $1.00 per share. [Bar chart with the header "7-Day Effective Yield" at top left hand column. A footnote below states: "As of December 31, 1997." The chart is scaled in increments of 2%, with 6% at the top and 0% at the bottom. Within the chart there are two solid bars. The first represents the 5.01% total return for the John Hancock V.A. Money Market Fund. The second represents the 4.95% total return for the Average taxable money market fund. A footnote below states: "The average taxable money fund is tracked by Lipper Analytical Services, Inc. Past performance is no guarantee of future results."] 35 ==============================FINANCIAL STATEMENTS============================== John Hancock Funds - Declaration Trust Statements of Assets and Liabilities December 31, 1997 - --------------------------------------------------------------------------------
V.A. V.A. V.A. INTERNATIONAL FINANCIAL EMERGING FUND INDUSTRIES FUND GROWTH FUND ---- --------------- ----------- Assets: Investments at value - Note D: Common stocks (cost - $3,249,269, $15,218,242, $3,314,660, $3,063,484, $7,421,194 and $17,791,716, respectively) ................. $ 3,258,601 $ 16,773,825 $ 3,638,048 Preferred stocks (cost - $152,131, none, none, none, none and none, respectively) ................................................... 128,406 -- -- Joint repurchase agreements (cost - $345,000, $1,683,000, $222,000, $213,000, $835,000 and $1,265,000, respectively) ............ 345,000 1,683,000 222,000 Corporate savings account ............................................... -- 791 292 ------------ ------------ ------------ 3,732,007 18,457,616 3,860,340 Cash .................................................................... 29 -- -- Foreign currency, at value (cost - $137,150, none, $27, none, none and none, respectively) .......................................... 136,743 -- 27 Receivable for investments sold ......................................... 943 -- 8,968 Dividends and interest receivable ....................................... 2,509 39,816 1,507 Receivable from John Hancock Advisers, Inc. and affiliates - Note C ................................................... -- -- 2,249 Foreign tax receivable .................................................. 1,565 -- -- Deferred organization expenses - Note B ................................. 7,825 -- 7,825 ------------ ------------ ------------ Total Assets .................................... 3,881,621 18,497,432 3,880,916 ---------------------------------------------------------------------------------------------------- Liabilities: Payable for investments purchased ....................................... 72,418 5,695 24,868 Payable for forward foreign currency exchange contracts bought - Note B ....................................................... -- 131 -- Payable for variation margin - Note B ................................... -- -- -- Payable foreign withholding tax ......................................... 409 -- -- Payable to John Hancock Advisers, Inc. and affiliates - Note C .......... 815 11,914 -- Accounts payable and accrued expenses ................................... 15,975 14,251 15,238 ------------ ------------ ------------ Total Liabilities ............................... 89,617 31,991 40,106 ---------------------------------------------------------------------------------------------------- Net Assets: Capital paid-in ......................................................... 3,871,310 16,906,441 3,770,207 Accumulated net realized gain (loss) on investments, financial futures contracts and foreign currency transactions ................... ( 64,957) 1,353 ( 252,923) Net unrealized appreciation (depreciation) of investments, financial futures contracts and foreign currency transactions ................... ( 14,142) 1,555,572 323,393 Undistributed net investment income (distributions in excess of net investment income) ............................................. ( 207) 2,075 133 ------------ ------------ ------------ Net Assets ...................................... $ 3,792,004 $ 18,465,441 $ 3,840,810 ==================================================================================================== Net Asset Value Per Share: (based on 361,090, 1,374,087, 371,198, 347,815, 617,965 and 1,585,173 shares, respectively, of beneficial interest outstanding - unlimited number of shares authorized with no par value) .............. $ 10.50 $ 13.44 $ 10.35 ========================================================================================================================== V.A. V.A. V.A. GROWTH INDEPENDENCE 500 INDEX FUND EQUITY FUND FUND ---- ----------- ---- Assets: Investments at value - Note D: Common stocks (cost - $3,249,269, $15,218,242, $3,314,660, $3,063,484, $7,421,194 and $17,791,716, respectively) .............. $ 3,576,456 $ 8,050,558 $ 18,688,297 Preferred stocks (cost - $152,131, none, none, none, none and none, respectively) ................................................ -- -- -- Joint repurchase agreements (cost - $345,000, $1,683,000, $222,000, $213,000, $835,000 and $1,265,000, respectively) ......... 213,000 835,000 1,265,000 Corporate savings account ............................................ 576 157 -- ---------- ---------- ----------- 3,790,032 8,885,715 19,953,297 Cash ................................................................. -- -- 50,420 Foreign currency, at value (cost - $137,150, none, $27, none, none and none, respectively) ....................................... -- -- -- Receivable for investments sold ...................................... -- -- -- Dividends and interest receivable .................................... 1,115 11,964 24,254 Receivable from John Hancock Advisers, Inc. and affiliates - Note C ................................................ -- -- -- Foreign tax receivable ............................................... -- 59 105 Deferred organization expenses - Note B .............................. 7,825 7,825 7,825 ---------- ---------- ----------- Total Assets ................................. 3,798,972 8,905,563 20,035,901 --------------------------------------------------------------------------------------------- Liabilities: Payable for investments purchased .................................... 51,578 165,725 -- Payable for forward foreign currency exchange contracts bought - Note B .................................................... -- -- -- Payable for variation margin - Note B ................................ -- -- 250 Payable foreign withholding tax ...................................... -- -- -- Payable to John Hancock Advisers, Inc. and affiliates - Note C ....... 261 -- 3,663 Accounts payable and accrued expenses ................................ 14,421 20,746 24,171 ---------- ---------- ----------- Total Liabilities ............................ 66,260 186,471 28,084 --------------------------------------------------------------------------------------------- Net Assets: Capital paid-in ...................................................... 3,428,308 8,062,016 18,904,149 Accumulated net realized gain (loss) on investments, financial futures contracts and foreign currency transactions ................ ( 208,568) 27,317 197,882 Net unrealized appreciation (depreciation) of investments, financial futures contracts and foreign currency transactions ................ 512,972 629,364 903,905 Undistributed net investment income (distributions in excess of net investment income) .......................................... -- 395 1,881 ---------- ---------- ----------- Net Assets ................................... $ 3,732,712 $ 8,719,092 $ 20,007,817 ============================================================================================= Net Asset Value Per Share: (based on 361,090, 1,374,087, 371,198, 347,815, 617,965 and 1,585,173 shares, respectively, of beneficial interest outstanding - unlimited number of shares authorized with no par value) ........... $ 10.73 $ 14.11 $ 12.62 ===================================================================================================================
SEE NOTES TO FINANCIAL STATEMENTS. 36 ==============================FINANCIAL STATEMENTS============================== John Hancock Funds - Declaration Trust Statements of Assets and Liabilities (continued) December 31, 1997 - --------------------------------------------------------------------------------
V.A. V.A. V.A. SOVEREIGN WORLD BOND STRATEGIC INVESTORS FUND FUND INCOME FUND -------------- ---- ----------- Assets: Investments at value - Note D: Common stocks (cost - $9,790,642, none, $3,750, none and none, respectively) ...................................................... $10,902,694 $ -- $ 6,090 Preferred stocks and warrants (cost - none, none, $208,781, none and none, respectively) ...................................................... -- -- 229,386 Bonds (cost - none, $2,124,783, $3,821,647, $852,838 and none, respectively) ...................................................... -- 2,157,359 3,864,424 U.S. government obligations (cost - $630,453, none, $746,251, $2,412,519 and none, respectively) ....................................... 636,126 -- 754,937 Short-term investments (cost - none, none, none, none and $6,548,187, respectively) ................................................ -- -- -- Joint repurchase agreements (cost - $1,491,000, $128,000, $579,000, $595,000 and $1,729,000, respectively) ......................... 1,491,000 128,000 579,000 Corporate savings account .................................................. 161 -- 506 ---------- ---------- ---------- 13,029,981 2,285,359 5,434,343 Cash ....................................................................... -- 697 -- Receivable for investments sold ............................................ -- -- -- Receivable for forward foreign currency exchange contracts sold - Note B ... -- -- 8,030 Dividends and interest receivable .......................................... 23,779 29,831 104,292 Receivable from John Hancock Advisers, Inc. and affiliates - Note C ........ -- 1,495 -- Deferred organization expenses - Note B .................................... 7,825 7,825 7,825 ---------- ---------- ---------- Total Assets ....................................... 13,061,585 2,325,207 5,554,490 ----------------------------------------------------------------------------------------------- Liabilities: Distribution payable ....................................................... -- 209 446 Payable for investments purchased .......................................... 852,977 -- -- Payable for forward foreign currency exchange contracts purchased - Note B . -- 6,379 -- Payable for shares repurchased ............................................. -- 10 -- Payable to John Hancock Advisers, Inc. and affiliates - Note C ............. -- -- 2,849 Accounts payable and accrued expenses ...................................... 21,669 16,013 11,634 ---------- ---------- ---------- Total Liabilities .................................. 874,646 22,611 14,929 ----------------------------------------------------------------------------------------------- Net Assets: Capital paid-in ............................................................ 11,050,568 2,298,121 5,463,093 Accumulated net realized gain (loss) on investments and foreign currency transactions ............................................ 17,842 ( 3,341) ( 11,386) Net unrealized appreciation of investments and foreign currency transactions 1,117,725 26,171 81,385 Undistributed net investment income (distributions in excess of net investment income) ................................................... 804 ( 18,355) 6,469 ---------- ---------- ---------- Net Assets ......................................... $12,186,939 $ 2,302,596 $ 5,539,561 =============================================================================================== Net Asset Value Per Share: (based on 896,718, 236,469, 529,118, 355,545 and 8,377,058 shares, respectively, of beneficial interest outstanding - unlimited number of shares authorized with no par value) ..................................... $ 13.59 $ 9.74 $ 10.47 ===================================================================================================================== V.A. V.A. SOVEREIGN MONEY MARKET BOND FUND FUND --------- ---- Assets: Investments at value - Note D: Common stocks (cost - $9,790,642, none, $3,750, none and none, respectively) ...................................................... $ -- $ -- Preferred stocks and warrants (cost - none, none, $208,781, none and none, respectively) ...................................................... -- -- Bonds (cost - none, $2,124,783, $3,821,647, $852,838 and none, respectively) ...................................................... 868,083 -- U.S. government obligations (cost - $630,453, none, $746,251, $2,412,519 and none, respectively) ....................................... 2,444,212 -- Short-term investments (cost - none, none, none, none and $6,548,187, respectively) ................................................ -- 6,548,187 Joint repurchase agreements (cost - $1,491,000, $128,000, $579,000, $595,000 and $1,729,000, respectively) ......................... 595,000 1,729,000 Corporate savings account .................................................. 879 -- ----------- ----------- 3,908,174 8,277,187 Cash ....................................................................... -- 761 Receivable for investments sold ............................................ 1,000 -- Receivable for forward foreign currency exchange contracts sold - Note B ... -- -- Dividends and interest receivable .......................................... 56,076 113,562 Receivable from John Hancock Advisers, Inc. and affiliates - Note C ........ -- -- Deferred organization expenses - Note B .................................... 7,825 7,825 ----------- ----------- Total Assets ....................................... 3,973,075 8,399,335 ---------------------------------------------------- ----------- ----------- Liabilities: Distribution payable ....................................................... 607 1,173 Payable for investments purchased .......................................... 278,285 -- Payable for forward foreign currency exchange contracts purchased - Note B . -- -- Payable for shares repurchased ............................................. -- -- Payable to John Hancock Advisers, Inc. and affiliates - Note C ............. 1,583 7,288 Accounts payable and accrued expenses ...................................... 10,119 13,816 ----------- ----------- Total Liabilities .................................. 290,594 22,277 ---------------------------------------------------- ----------- ----------- Net Assets: Capital paid-in ............................................................ 3,622,539 8,377,058 Accumulated net realized gain (loss) on investments and foreign currency transactions ............................................ 12,995 -- Net unrealized appreciation of investments and foreign currency transactions 46,938 -- Undistributed net investment income (distributions in excess of net investment income) ................................................... 9 -- ----------- ----------- Net Assets ......................................... $ 3,682,481 $ 8,377,058 ==================================================== =========== =========== Net Asset Value Per Share: (based on 896,718, 236,469, 529,118, 355,545 and 8,377,058 shares, respectively, of beneficial interest outstanding - unlimited number of shares authorized with no par value) ..................................... $ 10.36 $ 1.00 ==========================================================================================================================
SEE NOTES TO FINANCIAL STATEMENTS. 37 ==============================FINANCIAL STATEMENTS============================== John Hancock Funds - Declaration Trust Statements of Operations Year ended December 31, 1997 - --------------------------------------------------------------------------------
V.A. V.A. V.A. INTERNATIONAL FINANCIAL EMERGING FUND INDUSTRIES FUND(1) GROWTH FUND ---- ------------------ ----------- Investment Income: Dividends (net of foreign withholding tax of $4,047, $635, $5, none, $354 and $572, respectively) ........................................ $ 35,141 $ 94,521 $ 7,073 Interest .............................................................. 11,533 27,049 9,343 ----------- ----------- ----------- 46,674 121,570 16,416 ----------- ----------- ----------- Expenses: Investment management fee - Note C .................................. 26,618 41,060 14,584 Auditing fee ........................................................ 11,772 15,772 11,772 Custodian fee ....................................................... 15,806 9,485 19,901 Printing ............................................................ 2,280 3,565 3,656 Organization expense - Note B ....................................... 2,011 -- 2,011 Registration and filing fees ........................................ 656 368 360 Legal fees .......................................................... 333 201 150 Financial services fee - Note C ..................................... 535 909 349 Miscellaneous ....................................................... 260 151 50 Trustees' fee ....................................................... 171 59 83 ----------- ----------- ----------- Total Expenses ................................ 60,442 71,570 52,916 Less Expense Reductions - Note C .............. ( 26,430) ( 17,678) ( 33,471) ----------- ----------- ----------- Net Expenses .................................. 34,012 53,892 19,445 ----------------------------------------------------------------------------------------------- Net Investment Income (Loss) .................. 12,662 67,678 ( 3,029) ----------------------------------------------------------------------------------------------- Realized and Unrealized Gain (Loss) on Investments, Financial Futures Contracts and Foreign Currency Transactions: Net realized gain (loss) on investments sold .......................... 224,405 16,030 (181,217) Net realized gain on financial futures contracts ...................... -- -- -- Net realized gain (loss) on foreign currency transactions ............. ( 84,248) ( 169) 102 Change in net unrealized appreciation/depreciation of investments ..... ( 261,947) 1,555,584 320,418 Change in net unrealized appreciation/depreciation of financial futures contracts ......................................... -- -- -- Change in net unrealized appreciation/depreciation of foreign currency transactions ....................................... ( 29) ( 12) -- ----------- ----------- ----------- Net Realized and Unrealized Gain (Loss) on Investments, Financial Futures Contracts and Foreign Currency Transactions ................. ( 121,819) 1,571,433 139,303 ----------------------------------------------------------------------------------------------- Net Increase (Decrease) in Net Assets Resulting from Operations ..................... ($ 109,157) $ 1,639,111 $ 136,274 =============================================================================================== V.A. V.A. V.A. GROWTH INDEPENDENCE 500 INDEX FUND EQUITY FUND FUND ---- ----------- ---- Investment Income: Dividends (net of foreign withholding tax of $4,047, $635, $5, none, $354 and $572, respectively) ........................................ $ 5,164 $ 63,918 $ 121,122 Interest .............................................................. 8,477 9,515 171,152 ----------- ----------- ----------- 13,641 73,433 292,274 ----------- ----------- ----------- Expenses: Investment management fee - Note C .................................. 16,677 23,457 11,552 Auditing fee ........................................................ 11,775 11,772 11,772 Custodian fee ....................................................... 17,402 12,222 26,639 Printing ............................................................ 3,510 2,300 3,640 Organization expense - Note B ....................................... 2,011 2,011 2,011 Registration and filing fees ........................................ 599 358 2,745 Legal fees .......................................................... 211 206 721 Financial services fee - Note C ..................................... 400 600 1,862 Miscellaneous ....................................................... 62 87 723 Trustees' fee ....................................................... 89 110 401 ----------- ----------- ----------- Total Expenses ................................ 52,736 53,123 62,066 Less Expense Reductions - Note C .............. ( 30,501) ( 21,288) ( 24,549) ----------- ----------- ----------- Net Expenses .................................. 22,235 31,835 37,517 ------------------------------------------------------------------------------------------------- Net Investment Income (Loss) .................. ( 8,594) 41,598 254,757 ------------------------------------------------------------------------------------------------- Realized and Unrealized Gain (Loss) on Investments, Financial Futures Contracts and Foreign Currency Transactions: Net realized gain (loss) on investments sold .......................... (111,668) 137,167 27,080 Net realized gain on financial futures contracts ...................... -- -- 785,683 Net realized gain (loss) on foreign currency transactions ............. -- -- -- Change in net unrealized appreciation/depreciation of investments ..... 477,636 544,516 896,580 Change in net unrealized appreciation/depreciation of financial futures contracts ......................................... -- -- 52,075 Change in net unrealized appreciation/depreciation of foreign currency transactions ....................................... -- -- -- ----------- ----------- ----------- Net Realized and Unrealized Gain (Loss) on Investments, Financial Futures Contracts and Foreign Currency Transactions ................. 365,968 681,683 1,761,418 ------------------------------------------------------------------------------------------------- Net Increase (Decrease) in Net Assets Resulting from Operations ..................... $ 357,374 $ 723,281 $ 2,016,175 =================================================================================================
(1) Period from April 30, 1997 (commencement of operations) to December 31, 1997. The Statement of Operations summarizes for each of the Funds the investment income earned and expenses incurred in operating each Fund. It also shows net gains (losses) for the period stated. SEE NOTES TO FINANCIAL STATEMENTS. 38 ==============================FINANCIAL STATEMENTS============================== John Hancock Funds - Declaration Trust Statements of Operations (continued) Year ended December 31, 1997 - --------------------------------------------------------------------------------
V.A. V.A. V.A. SOVEREIGN WORLD BOND STRATEGIC INVESTORS FUND FUND INCOME FUND -------------- ---- ----------- Investment Income: Dividends ......................................................................... $ 69,611 $ -- $ 15,005 Interest (net of foreign withholding tax of none, $381, none, none and none, respectively) ............................................................. 54,025 149,793 295,546 ----------- ----------- ----------- 123,636 149,793 310,551 ----------- ----------- ----------- Expenses: Investment management fee - Note C .............................................. 27,842 16,085 19,377 Auditing Fee .................................................................... 11,772 11,772 11,775 Custodian Fee ................................................................... 6,536 14,566 5,712 Printing ........................................................................ 3,892 3,227 3,652 Organization expense - Note B ................................................... 2,011 2,011 2,011 Registration and filing fees .................................................... 358 663 671 Legal fees ...................................................................... 254 316 287 Financial services fee - Note C ................................................. 829 390 583 Miscellaneous ................................................................... 128 107 80 Trustees' fee ................................................................... 124 153 169 ----------- ----------- ----------- Total Expenses ............................................ 53,746 49,290 44,317 Less Expense Reductions - Note C .......................... ( 14,303) ( 27,843) ( 16,865) ----------- ----------- ----------- Net Expenses .............................................. 39,443 21,447 27,452 ---------------------------------------------------------------------------------------------------- Net Investment Income ..................................... 84,193 128,346 283,099 ---------------------------------------------------------------------------------------------------- Realized and Unrealized Gain (Loss) on Investments and Foreign Currency Transactions: Net realized gain (loss) on investments sold ...................................... 17,842 121,671 ( 30,073) Net realized gain (loss) on foreign currency transactions ......................... -- ( 209,434) 36,291 Change in net unrealized appreciation/depreciation of investments ................. 1,050,550 ( 14,897) 48,041 Change in net unrealized appreciation/depreciation of foreign currency transactions ........................................................... -- 4,100 5,851 ----------- ----------- ----------- Net Realized and Unrealized Gain (Loss) on Investments and Foreign Currency Transactions ......................... 1,068,392 ( 98,560) 60,110 ---------------------------------------------------------------------------------------------------- Net Increase in Net Assets Resulting from Operations ...... $ 1,152,585 $ 29,786 $ 343,209 ==================================================================================================== V.A. V.A. SOVEREIGN MONEY MARKET BOND FUND FUND -------- ---- Investment Income: Dividends ......................................................................... $ -- $ -- Interest (net of foreign withholding tax of none, $381, none, none and none, respectively) ............................................................. 130,603 138,320 ---------- ---------- 130,603 138,320 ---------- ---------- Expenses: Investment management fee - Note C .............................................. 8,924 12,328 Auditing Fee .................................................................... 11,772 11,772 Custodian Fee ................................................................... 17,563 1,420 Printing ........................................................................ 4,078 3,128 Organization expense - Note B ................................................... 2,011 2,011 Registration and filing fees .................................................... 158 76 Legal fees ...................................................................... 219 81 Financial services fee - Note C ................................................. 322 439 Miscellaneous ................................................................... 46 67 Trustees' fee ................................................................... 86 26 ---------- ---------- Total Expenses ............................................ 45,179 31,348 Less Expense Reductions - Note C .......................... ( 31,793) ( 12,855) ---------- ---------- Net Expenses .............................................. 13,386 18,493 -------------------------------------------------------------------------------------- Net Investment Income ..................................... 117,217 119,827 -------------------------------------------------------------------------------------- Realized and Unrealized Gain (Loss) on Investments and Foreign Currency Transactions: Net realized gain (loss) on investments sold ...................................... 30,656 -- Net realized gain (loss) on foreign currency transactions ......................... -- -- Change in net unrealized appreciation/depreciation of investments ................. 33,037 -- Change in net unrealized appreciation/depreciation of foreign currency transactions ........................................................... -- -- ---------- ---------- Net Realized and Unrealized Gain (Loss) on Investments and Foreign Currency Transactions ......................... 63,693 -- -------------------------------------------------------------------------------------- Net Increase in Net Assets Resulting from Operations ...... $ 180,910 $ 119,827 ======================================================================================
SEE NOTES TO FINANCIAL STATEMENTS. 39 ==============================FINANCIAL STATEMENTS============================== John Hancock Funds - Declaration Trust Statements of Changes in Net Assets - --------------------------------------------------------------------------------
V.A FINANCIAL V.A. INTERNATIONAL FUND INDUSTRIES FUND ---------------------------- ----------- PERIOD ENDED YEAR ENDED PERIOD ENDED DECEMBER 31, DECEMBER 31, DECEMBER 31, 1996(1) 1997 1997(2) ------- ---- ------- Increase (Decrease) in Net Assets: From Operations: Net investment income (loss) ................................................... $ 14,426 $ 12,662 $ 67,678 Net realized gain (loss) on investments sold and foreign currency transactions ................................................ ( 7,426) 140,157 15,861 Change in net unrealized appreciation/depreciation of investments and foreign currency transactions ............................................ 247,834 ( 261,976) 1,555,572 ------------ ------------ ------------- Net Increase (Decrease) in Net Assets Resulting from Operations .............. 254,834 ( 109,157) 1,639,111 ------------ ------------ ------------- Distributions to Shareholders: * Dividends from net investment income ........................................... ( 8,697) ( 2,558) ( 65,434) Distributions from net realized gain on investments sold and foreign currency transactions ................................................ -- ( 213,871) ( 14,677) ------------ ------------ ------------- Total Distributions to Shareholders .......................................... ( 8,697) ( 216,429) ( 80,111) ------------ ------------ ------------- From Fund Share Transactions: ** Shares sold .................................................................... 2,012,294 1,809,166 18,526,866 Shares issued to shareholders in reinvestment of distributions ................. 8,697 216,428 80,111 ------------ ------------ ------------- 2,020,991 2,025,594 18,606,977 Less shares repurchased ........................................................ ( 7) ( 175,125) ( 1,700,536) ------------ ------------ ------------- Net Increase ................................................................. 2,020,984 1,850,469 16,906,441 ------------ ------------ ------------- Net Assets: Beginning of period ............................................................ -- 2,267,121 -- ------------ ------------ ------------- End of period (including undistributed net investment income (distributions in excess) of none, ($207), $2,075, $134 and $133, respectively) ............. $ 2,267,121 $ 3,792,004 $ 18,465,441 ============ ============ ============= * Distributions to Shareholders: Per share dividends from net investment income ................................. $ 0.0432 $ 0.0077 $ 0.0518 ------------ ------------ ------------- Per share distributions from net realized gain on investments sold and foreign currency transactions ................................................ -- $ 0.6422 $ 0.0116 ------------ ------------ ------------- ** Analysis of Fund Share Transactions: Shares sold .................................................................... 201,146 152,869 1,501,742 Shares issued to shareholders in reinvestment of distributions ................. 802 21,239 6,125 ------------ ------------ ------------- 201,948 174,108 1,507,867 Less shares repurchased ........................................................ ( 1) ( 14,965) ( 133,780) ------------ ------------ ------------- Net Increase ................................................................. 201,947 159,143 1,374,087 ============ ============ ============= V.A. EMERGING GROWTH FUND ------------------------------- PERIOD ENDED YEAR ENDED DECEMBER 31, DECEMBER 31, 1996(1) 1997 ------- ---- Increase (Decrease) in Net Assets: From Operations: Net investment income (loss) ...................................................... $ 2,016 $( 3,029) Net realized gain (loss) on investments sold and foreign currency transactions ................................................... ( 71,717) ( 181,115) Change in net unrealized appreciation/depreciation of investments and foreign currency transactions ............................................... 2,975 320,418 ---------- ------------- Net Increase (Decrease) in Net Assets Resulting from Operations ................. ( 66,726) 136,274 ---------- ------------- Distributions to Shareholders: * Dividends from net investment income .............................................. ( 1,882) ( 135) Distributions from net realized gain on investments sold and foreign currency transactions ................................................... -- -- ---------- ------------- Total Distributions to Shareholders ............................................. ( 1,882) ( 135) ---------- ------------- From Fund Share Transactions: ** Shares sold ....................................................................... 1,041,666 2,985,092 Shares issued to shareholders in reinvestment of distributions .................... 1,882 135 ---------- ------------- 1,043,548 2,985,227 Less shares repurchased ........................................................... ( 25) ( 255,471) ---------- ------------- Net Increase .................................................................... 1,043,523 2,729,756 --------- ------------- Net Assets: Beginning of period ............................................................... -- 974,915 ---------- ------------- End of period (including undistributed net investment income (distributions in excess) of none, ($207), $2,075, $134 and $133, respectively) ................ $ 974,915 $ 3,840,810 ========== ============= * Distributions to Shareholders: Per share dividends from net investment income .................................... $ 0.0180 $ 0.0004 ---------- ------------- Per share distributions from net realized gain on investments sold and foreign currency transactions ................................................... -- -- ---------- ------------- ** Analysis of Fund Share Transactions: Shares sold ....................................................................... 104,379 291,749 Shares issued to shareholders in reinvestment of distributions .................... 206 14 ---------- ------------- 104,585 291,763 Less shares repurchased ........................................................... ( 3) ( 25,147) ---------- ------------- Net Increase .................................................................... 104,582 266,616 ========== =============
(1) Commenced operations on August 29, 1996. (2) Commenced operations on April 30, 1997. The Statement of Changes in net assets shows how the value of each Fund's net assets have changed since the commencement of operations. The difference reflects net investment income, and any investment gains and losses, distributions paid to shareholders, if any and any increase or decrease in money shareholders invested in each Fund. The footnotes illustrate the number of Fund shares sold, reinvested and repurchased during the period, along with the per share of distributions made to shareholders of each Fund for the period indicated. SEE NOTES TO FINANCIAL STATEMENTS. 40 ==============================FINANCIAL STATEMENTS============================== John Hancock Funds - Declaration Trust Statements of Changes in Net Assets (continued) - --------------------------------------------------------------------------------
V.A. GROWTH FUND V.A. INDEPENDENCE EQUITY FUND --------------------------- ----------------------------- PERIOD ENDED YEAR ENDED PERIOD ENDED YEAR ENDED DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, 1996(1) 1997 1996(1) 1997 ------- ---- ------- ---- Increase (Decrease) in Net Assets: From Operations: Net investment income (loss) ........................................ ($ 795) ($ 8,594) $ 5,925 $ 41,598 Net realized gain (loss) on investments sold ........................ ( 96,900) ( 111,668) 27,151 137,167 Change in net unrealized appreciation/depreciation of investments ... 35,336 477,636 84,848 544,516 ----------- ----------- ----------- ----------- Net Increase (Decrease) in Net Assets Resulting from Operations ... ( 62,359) 357,374 117,924 723,281 ----------- ----------- ----------- ----------- Distributions to Shareholders: * Dividends from net investment income ................................ -- -- ( 6,035) ( 41,203) Distributions from net realized gain on investments sold ............ -- -- ( 961) ( 135,930) ----------- ----------- ----------- ----------- Total Distributions to Shareholders ............................... -- -- ( 6,996) ( 177,133) ----------- ----------- ----------- ----------- From Fund Share Transactions: ** Shares sold ......................................................... 1,056,861 2,597,730 1,030,749 7,299,605 Shares issued to shareholders in reinvestment of distributions ...... -- -- 6,996 177,133 ----------- ----------- ----------- ----------- 1,056,861 2,597,730 1,037,745 7,476,738 Less shares repurchased ............................................. ( 644) ( 216,250) ( 21) ( 452,446) ----------- ----------- ----------- ----------- Net Increase ...................................................... 1,056,217 2,381,480 1,037,724 7,024,292 ----------- ----------- ----------- ----------- Net Assets: Beginning of period ................................................. -- 993,858 -- 1,148,652 ----------- ----------- ----------- ----------- End of period (including undistributed net investment income of none, none, none and $395, respectively) ................ $ 993,858 $ 3,732,712 $ 1,148,652 $ 8,719,092 =========== =========== =========== =========== * Distributions to Shareholders: Per share dividends from net investment income ...................... -- -- $ 0.0587 $ 0.1376 ----------- ----------- ----------- ----------- Per share distributions from net realized gain on investments sold .. -- -- $ 0.0094 $ 0.2476 ----------- ----------- ----------- ----------- ** Analysis of Fund Share Transactions: Shares sold ......................................................... 105,902 263,298 102,751 534,688 Shares issued to shareholders in reinvestment of distributions ...... -- -- 626 13,023 ----------- ----------- ----------- ----------- 105,902 263,298 103,377 547,711 Less shares repurchased ............................................. ( 60) ( 21,325) ( 2) ( 33,121) ----------- ----------- ----------- ----------- Net Increase ...................................................... 105,842 241,973 103,375 514,590 =========== =========== =========== ===========
(1) Commenced operations on August 29, 1996. SEE NOTES TO FINANCIAL STATEMENTS. 41 ==============================FINANCIAL STATEMENTS============================== John Hancock Funds - Declaration Trust Statements of Changes in Net Assets (continued) - --------------------------------------------------------------------------------
V.A. 500 INDEX FUND V.A. SOVEREIGN INVESTORS FUND -------------------------- ----------------------- PERIOD ENDED YEAR ENDED PERIOD ENDED YEAR ENDED DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, 1996(1) 1997 1996(1) 1997 ---------- ----------- --------- ----------- Increase in Net Assets: From Operations: Net investment income ................................................... $ 59,702 $ 254,757 $ 6,933 $ 84,193 Net realized gain on investments sold and financial futures contracts ..................................................... 387,685 812,763 8,426 17,842 Change in net unrealized appreciation/depreciation of investments and financial futures contracts ........................................... ( 44,750) 948,655 67,175 1,050,550 ----------- ----------- ----------- ----------- Net Increase in Net Assets Resulting from Operations .................. 402,637 2,016,175 82,534 1,152,585 ----------- ----------- ----------- ----------- Distributions to Shareholders: * Dividends from net investment income .................................... ( 59,456) ( 253,122) ( 6,880) ( 83,445) Distributions from net realized gain on investments sold and financial futures contracts ........................................... ( 201,124) ( 801,442) ( 2,327) ( 6,096) ----------- ----------- ----------- ----------- Total Distributions to Shareholders ................................... ( 260,580) ( 1,054,564) ( 9,207) ( 89,541) ----------- ----------- ----------- ----------- From Fund Share Transactions: ** Shares sold ............................................................. 3,646,277 15,055,266 1,029,113 10,664,200 Shares issued to shareholders in reinvestment of distributions .......... 260,580 1,054,564 9,207 89,541 ----------- ----------- ----------- ----------- 3,906,857 16,109,830 1,038,320 10,753,741 Less shares repurchased ................................................. ( 221) ( 1,112,317) ( 516) ( 740,977) ----------- ----------- ----------- ----------- Net Increase .......................................................... 3,906,636 14,997,513 1,037,804 10,012,764 ----------- ----------- ----------- ----------- Net Assets: Beginning of period ..................................................... -- 4,048,693 -- 1,111,131 ----------- ----------- ----------- ----------- End of period (including undistributed net investment income of $246, $1,881, $53 and $804, respectively) ................... $ 4,048,693 $20,007,817 $ 1,111,131 $12,186,939 =========== =========== =========== =========== * Distributions to Shareholders: Per share dividends from net investment income .......................... $ 0.1637 $ 0.3006 $ 0.0670 $ 0.1769 ----------- ----------- ----------- ----------- Per share distributions from net realized gain on investments sold and financial futures contracts ........................................... $ 0.5538 $ 0.5445 $ 0.0227 $ 0.0072 ----------- ----------- ----------- ----------- ** Analysis of Fund Share Transactions: Shares sold ............................................................. 363,218 1,200,874 102,676 844,459 Shares issued to shareholders in reinvestment of distributions .......... 24,676 86,596 856 6,966 ----------- ----------- ----------- ----------- 387,894 1,287,470 103,532 851,425 Less shares repurchased ................................................. ( 20) ( 90,171) ( 50) ( 58,189) ----------- ----------- ----------- ----------- Net Increase .......................................................... 387,874 1,197,299 103,482 793,236 =========== =========== =========== ===========
(1) Commenced operations on August 29, 1996. SEE NOTES TO FINANCIAL STATEMENTS. 42 ==============================FINANCIAL STATEMENTS============================== John Hancock Funds - Declaration Trust Statements of Changes in Net Assets (continued) - --------------------------------------------------------------------------------
V.A. WORLD BOND FUND V.A. STRATEGIC INCOME FUND ------------------------- -------------------------- PERIOD ENDED YEAR ENDED PERIOD ENDED YEAR ENDED DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, 1996(1) 1997 1996(1) 1997 ----------- ----------- ----------- --------- Increase in Net Assets: From Operations: Net investment income ............................................... $ 40,768 $ 128,346 $ 55,619 $ 283,099 Net realized gain (loss) on investments sold and foreign currency transactions ............................................. 3,827 ( 87,763) 46,295 6,218 Change in net unrealized appreciation/depreciation of investments and foreign currency transactions .................. 36,968 ( 10,797) 27,493 53,892 ----------- ----------- ----------- ----------- Net Increase in Net Assets Resulting from Operations .............. 81,563 29,786 129,407 343,209 ----------- ----------- ----------- ----------- Distributions to Shareholders: * Dividends from net investment income ................................ ( 40,768) ( 46,497) ( 55,619) ( 283,099) Distribution in excess of net investment income ..................... -- ( 19,609) -- -- Tax return of capital ............................................... -- ( 62,240) -- -- Distributions from net realized gain on investments sold and foreign currency transactions ................................. -- -- ( 13,053) ( 44,377) ----------- ----------- ----------- ----------- Total Distributions to Shareholders ............................... ( 40,768) ( 128,346) ( 68,672) ( 327,476) ----------- ----------- ----------- ----------- From Fund Share Transactions: ** Shares sold ......................................................... 2,000,997 234,407 2,002,001 3,436,273 Shares issued to shareholders in reinvestment of distributions .................................................. 40,768 128,137 68,672 327,029 ----------- ----------- ----------- ----------- 2,041,765 362,544 2,070,673 3,763,302 Less shares repurchased ............................................. -- ( 43,948) -- ( 370,882) ----------- ----------- ----------- ----------- Net Increase ...................................................... 2,041,765 318,596 2,070,673 3,392,420 ----------- ----------- ----------- ----------- Net Assets: Beginning of period ................................................. -- 2,082,560 -- 2,131,408 ----------- ----------- ----------- ----------- End of period (including undistributed net investment (distributions in excess) income of none, ($18,355), none and $6,469, respectively) .................................... $ 2,082,560 $ 2,302,596 $ 2,131,408 $ 5,539,561 =========== =========== =========== =========== * Distributions to Shareholders: Per share dividends from net investment income ...................... $ 0.2015 $ 0.2134 $ 0.2739 $ 0.9083 ----------- ----------- ----------- ----------- Per share distributions in excess of net investment income .......... -- $ 0.0900 -- -- ----------- ----------- ----------- ----------- Tax return of capital ............................................... -- $ 0.2857 -- -- ----------- ----------- ----------- ----------- Per share distributions from net realized gain on investments sold and foreign currency transactions ............................ -- -- $ 0.0640 $ 0.0870 ----------- ----------- ----------- ----------- ** Analysis of Fund Share Transactions: Shares sold ......................................................... 200,098 23,767 200,193 326,163 Shares issued to shareholders in reinvestment of distributions ...... 4,008 13,037 6,694 31,206 ----------- ----------- ----------- ----------- 204,106 36,804 206,887 357,369 Less shares repurchased ............................................. -- ( 4,441) -- ( 35,138) ----------- ----------- ----------- ----------- Net Increase ...................................................... 204,106 32,363 206,887 322,231 =========== =========== =========== ===========
(1) Commenced operations on August 29, 1996. SEE NOTES TO FINANCIAL STATEMENTS. 43 ==============================FINANCIAL STATEMENTS============================== John Hancock Funds - Declaration Trust Statements of Changes in Net Assets (continued) - --------------------------------------------------------------------------------
V.A. SOVEREIGN BOND FUND V.A. MONEY MARKET FUND ---------------------------- -------------------------- PERIOD ENDED YEAR ENDED PERIOD ENDED YEAR ENDED DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, 1996(1) 1997 1996(1) 1997 ---------- ---------- ---------- --------- Increase in Net Assets: From Operations: Net investment income ............................................... $ 23,529 $ 117,217 $ 1,784 $ 119,827 Net realized gain on investments sold ............................... 6,419 30,656 -- -- Change in net unrealized appreciation/depreciation of investments ... 13,901 33,037 -- -- ----------- ----------- ----------- ----------- Net Increase in Net Assets Resulting from Operations .............. 43,849 180,910 1,784 119,827 ----------- ----------- ----------- ----------- Distributions to Shareholders: * Dividends from net investment income ................................ ( 23,529) ( 117,208) ( 1,784) ( 119,827) Distributions from net realized gain on investments sold ............ ( 1,795) ( 22,285) -- -- ----------- ----------- ----------- ----------- Total Distributions to Shareholders ............................... ( 25,324) ( 139,493) ( 1,784) ( 119,827) ----------- ----------- ----------- ----------- From Fund Share Transactions: ** Shares sold ......................................................... 1,012,301 2,851,276 104,907 9,748,620 Shares issued to shareholders in reinvestment of distributions ...... 25,324 138,885 1,784 118,655 ----------- ----------- ----------- ----------- 1,037,625 2,990,161 106,691 9,867,275 Less shares repurchased ............................................. ( 7) ( 405,240) ( 63) ( 1,696,845) ----------- ----------- ----------- ----------- Net Increase ...................................................... 1,037,618 2,584,921 106,628 8,170,430 ----------- ----------- ----------- ----------- Net Assets: Beginning of period ................................................. -- 1,056,143 100,000(2) 206,628 ----------- ----------- ----------- ----------- End of period (including undistributed net investment income of none, $9, none and none, respectively) .................. $ 1,056,143 $ 3,682,481 $ 206,628 $ 8,377,058 =========== =========== =========== =========== * Distributions to Shareholders: Per share dividends from net investment income ...................... $ 0.2327 $ 0.6766 $ 0.0160 $ 0.0478 ----------- ----------- ----------- ----------- Per share distributions from net realized gain on investments sold .. $ 0.0175 $ 0.0653 -- -- ----------- ----------- ----------- ----------- ** Analysis of Fund Share Transactions: Shares sold ......................................................... 101,202 277,867 104,907 9,748,620 Shares issued to shareholders in reinvestment of distributions ...... 2,483 13,553 1,784 118,655 ----------- ----------- ----------- ----------- 103,685 291,420 106,691 9,867,275 Less shares repurchased ............................................. ( 1) ( 39,559) ( 63) ( 1,696,845) ----------- ----------- ----------- ----------- Net Increase ...................................................... 103,684 251,861 106,628 8,170,430 =========== =========== =========== ===========
(1) Commenced operations on August 29, 1996. (2) On July 22, 1996, the Adviser made an initial investment of $100,000 (100,000 shares) in order to seed the Trust. SEE NOTES TO FINANCIAL STATEMENTS. 44 ==============================FINANCIAL STATEMENTS============================== John Hancock Funds - Declaration Trust Financial Highlights Selected data for a share of beneficial interest outstanding throughout each period indicated, investment returns, key ratios and supplemental data are as follows: - --------------------------------------------------------------------------------
V.A FINANCIAL V.A. INTERNATIONAL FUND INDUSTRIES FUND V.A. EMERGING GROWTH FUND ----------------------- --------------- ------------------------- PERIOD YEAR PERIOD PERIOD YEAR ENDED ENDED ENDED ENDED ENDED DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, 1996(1) 1997 1997(2) 1996(1) 1997 -------- -------- --------- --------- -------- Per Share Operating Performance Net Asset Value, Beginning of Period ................... $ 10.00 $ 11.23 $ 10.00 $ 10.00 $ 9.32 -------- -------- --------- --------- -------- Net Investment Income (Loss) (3) ....................... 0.07 0.05 0.11 0.02 ( 0.02) Net Realized and Unrealized Gain (Loss) on Investments and Foreign Currency Transactions ........ 1.20 ( 0.13) 3.39 ( 0.68) 1.05 -------- -------- --------- --------- -------- Total from Investment Operations ................... 1.27 ( 0.08) 3.50 ( 0.66) 1.03 -------- -------- --------- --------- -------- Less Distributions: Dividends from Net Investment Income ................. ( 0.04) ( 0.01) ( 0.05) ( 0.02) ( 0.00)(4) Distributions from Net Realized Gain on Investments Sold ................................... -- ( 0.64) ( 0.01) -- -- -------- -------- --------- --------- -------- Total Distributions ................................ ( 0.04) ( 0.65) ( 0.06) ( 0.02) 0.00 -------- -------- --------- --------- -------- Net Asset Value, End of Period ......................... $ 11.23 $ 10.50 $ 13.44 $ 9.32 $ 10.35 ======== ======== ========= ========= ======== Total Investment Return at Net Asset Value (5) ......... 12.75%(7) ( 0.54%) 35.05%(7) ( 6.62%)(7) 11.06% Total Adjusted Investment Return at Net Asset Value (5,6) .......................................... 12.07%(7) ( 1.43%) 34.71%(7) ( 8.05%)(7) 9.34% Ratios and Supplemental Data Net Assets, End of Period (000s omitted) ............... $ 2,267 $ 3,792 $ 18,465 $ 975 $ 3,841 Ratio of Expenses to Average Net Assets ................ 1.15%(8) 1.15% 1.05%(8) 1.00%(8) 1.00% Ratio of Adjusted Expenses to Average Net Assets (9) ... 3.13%(8) 2.04% 1.39%(8) 5.19%(8) 2.72% Ratio of Net Investment Income (Loss) to Average Net Assets ........................................... 2.03%(8) 0.43% 1.32%(8) 0.62%(8) ( 0.16%) Ratio of Adjusted Net Investment Income (Loss) to Average Net Assets (9) ............................... 0.05%(8) ( 0.46%) 0.98%(8) ( 3.57%)(8) ( 1.88%) Portfolio Turnover Rate ................................ 14% 273% 11% 31% 79% Fee Reduction Per Share (3) ............................ $ 0.07 $ 0.10 $ 0.03 $ 0.14 $ 0.17 Average Brokerage Commission Rate (10) ................. $ 0.0162 $ 0.0221 $ 0.0696 $ 0.0694 $ 0.0687
(1) Commenced operations on August 29, 1996. (2) Commenced operations on April 30, 1997. (3) Based on the average of the shares outstanding at the end of each month. (4) Less than $0.01 per share. (5) Assumes dividend reinvestment and does not reflect the effect of sales charges. (6) An estimated total return calculation which does not take into consideration fee reductions by the Adviser during the periods shown. (7) Not annualized. (8) Annualized. (9) Unreimbursed, without fee reduction. (10) Per portfolio share traded. The Financial Highlights summarizes the impact of the following factors on a single share for each period indicated: net investment income, gains (losses), dividends and total investment return of the Fund. It shows how the Fund's net asset value for a share has changed since the commencement of operations. Additionally, important relationships between some items presented in the financial statements are expressed in ratio form. SEE NOTES TO FINANCIAL STATEMENTS. 45 ==============================FINANCIAL STATEMENTS============================== John Hancock Funds - Declaration Trust Financial Highlights (continued) Selected data for a share of beneficial interest outstanding throughout each period indicated, investment returns, key ratios and supplemental data are listed as follows: - --------------------------------------------------------------------------------
V.A. GROWTH FUND V.A. INDEPENDENCE EQUITY FUND ----------------------------- ----------------------------- PERIOD YEAR PERIOD YEAR ENDED ENDED ENDED ENDED DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, 1996(1) 1997 1996(1) 1997 --------- --------- --------- --------- Per Share Operating Performance Net Asset Value, Beginning of Period .......................... $ 10.00 $ 9.39 $ 10.00 $ 11.11 --------- --------- --------- --------- Net Investment Income (Loss) (2) .............................. ( 0.01) ( 0.04) 0.06 0.16 Net Realized and Unrealized Gain (Loss) on Investments ........ ( 0.60) 1.38 1.12 3.23 --------- --------- --------- --------- Total from Investment Operations .......................... ( 0.61) 1.34 1.18 3.39 --------- --------- --------- --------- Less Distributions: Dividends from Net Investment Income ........................ -- -- ( 0.06) ( 0.14) Distributions from Net Realized Gain on Investments Sold .......................................... -- -- ( 0.01) ( 0.25) --------- --------- --------- --------- Total Distributions ....................................... -- -- ( 0.07) ( 0.39) --------- --------- --------- --------- Net Asset Value, End of Period ................................ $ 9.39 $ 10.73 $ 11.11 $ 14.11 ========= ========= ========= ========= Total Investment Return at Net Asset Value (3) ................ ( 6.10%)(5) 14.27% 11.78%(5) 30.68% Total Adjusted Investment Return at Net Asset Value (3,4) ( 7.39%)(5) 12.90% 10.66%(5) 30.04% Ratios and Supplemental Data Net Assets, End of Period (000s omitted) ...................... $ 994 $ 3,733 $ 1,149 $ 8,719 Ratio of Expenses to Average Net Assets ....................... 1.00%(6) 1.00% 0.95%(6) 0.95% Ratio of Adjusted Expenses to Average Net Assets (7) .......... 4.76%(6) 2.37% 4.23%(6) 1.59% Ratio of Net Investment Income (Loss) to Average Net Assets ... ( 0.23%)(6) ( 0.39%) 1.60%(6) 1.24% Ratio of Adjusted Net Investment Income (Loss) to Average Net Assets (7) .............................................. ( 3.99%)(6) ( 1.76%) ( 1.68%)(6) 0.60% Portfolio Turnover Rate ....................................... 68% 136% 24% 53% Fee Reduction Per Share (2) ................................... $ 0.13 $ 0.13 $ 0.12 $ 0.08 Average Brokerage Commission Rate (8) ......................... $ 0.0691 $ 0.0694 $ 0.0210 $ 0.0249
(1) Commenced operations on August 29, 1996. (2) Based on the average of the shares outstanding at the end of each month. (3) Assumes dividend reinvestment and does not reflect the effect of sales charges. (4) An estimated total return calculation which does not take into consideration fee reductions by the Adviser during the periods shown. (5) Not annualized. (6) Annualized. (7) Unreimbursed, without fee reduction. (8) Per portfolio share traded. SEE NOTES TO FINANCIAL STATEMENTS. 46 ==============================FINANCIAL STATEMENTS============================== John Hancock Funds - Declaration Trust Financial Highlights (continued) Selected data for a share of beneficial interest outstanding throughout each period indicated, investment returns, key ratios and supplemental data are listed as follows: - --------------------------------------------------------------------------------
V.A. 500 INDEX FUND V.A. SOVEREIGN INVESTORS FUND ----------------------------- ----------------------------- PERIOD YEAR PERIOD YEAR ENDED ENDED ENDED ENDED DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, 1996(1) 1997 1996(1) 1997 --------- --------- --------- --------- Per Share Operating Performance Net Asset Value, Beginning of Period .................... $ 10.00 $ 10.44 $ 10.00 $ 10.74 ------------ ------------ ------------ ------------ Net Investment Income (2) ............................... 0.17 0.30 0.07 0.22 Net Realized and Unrealized Gain on Investments and Financial Futures Contracts ........................... 0.98 2.72 0.76 2.82 ------------ ------------ ------------ ------------ Total from Investment Operations .................... 1.15 3.02 0.83 3.04 ------------ ------------ ------------ ------------ Less Distributions: Dividends from Net Investment Income .................. ( 0.16) ( 0.30) ( 0.07) ( 0.18) Distributions from Net Realized Gain on Investments Sold .................................... ( 0.55) ( 0.54) ( 0.02) ( 0.01) ------------ ------------ ------------ ------------ Total Distributions ................................. ( 0.71) ( 0.84) ( 0.09) ( 0.19) ------------ ------------ ------------ ------------ Net Asset Value, End of Period .......................... $ 10.44 $ 12.62 $ 10.74 $ 13.59 ============ ============ ============ ============ Total Investment Return at Net Asset Value (3) .......... 11.49%(5) 29.51% 8.30%(5) 28.43% Total Adjusted Investment Return at Net Asset Value (3,4) ..................................... 11.25%(5) 29.27% 7.30%(5) 28.12% Ratios and Supplemental Data Net Assets, End of Period (000s omitted) ................ $ 4,049 $ 20,008 $ 1,111 $ 12,187 Ratio of Expenses to Average Net Assets ................. 0.60%(6) 0.36% 0.85%(6) 0.85% Ratio of Adjusted Expenses to Average Net Assets (7) .... 1.31%(6) 0.60% 3.78%(6) 1.16% Ratio of Net Investment Income to Average Net Assets .... 4.57%(6) 2.45% 1.90%(6) 1.81% Ratio of Adjusted Net Investment Income (Loss) to Average Net Assets (7) ................................ 3.86%(6) 2.21% ( 1.03%)(6) 1.50% Portfolio Turnover Rate ................................. -- 9% 17% 11% Fee Reduction Per Share (2) ............................. $ 0.03 $ 0.03 $ 0.11 $ 0.04 Average Brokerage Commission Rate (8) ................... $ 0.0500 $ 0.0357 $ 0.0235 $ 0.0700
(1) Commenced operations on August 29, 1996. (2) Based on the average of the shares outstanding at the end of each month. (3) Assumes dividend reinvestment and does not reflect the effect of sales charges. (4) An estimated total return calculation which does not take into consideration fee reductions by the Adviser during the periods shown. (5) Not annualized. (6) Annualized. (7) Unreimbursed, without fee reduction. (8) Per portfolio share traded. SEE NOTES TO FINANCIAL STATEMENTS. 47 ==============================FINANCIAL STATEMENTS============================== John Hancock Funds - Declaration Trust Financial Highlights (continued) Selected data for a share of beneficial interest outstanding throughout each period indicated, investment returns, key ratios and supplemental data are listed as follows: - --------------------------------------------------------------------------------
V.A. WORLD BOND FUND V.A. STRATEGIC INCOME FUND ----------------------------- ----------------------------- PERIOD YEAR PERIOD YEAR ENDED ENDED ENDED ENDED DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, 1996(1) 1997 1996(1) 1997 --------- --------- --------- --------- Per Share Operating Performance Net Asset Value, Beginning of Period ......................... $ 10.00 $ 10.20 $ 10.00 $ 10.30 --------- -------- --------- --------- Net Investment Income (2) .................................... 0.20 0.59 0.27 0.91 Net Realized and Unrealized Gain (Loss) on Investments and Foreign Currency Transactions .......................... 0.20 ( 0.46) 0.36 0.26 --------- -------- --------- --------- Total from Investment Operations ......................... 0.40 0.13 0.63 1.17 --------- -------- --------- --------- Less Distributions: Dividends from Net Investment Income ....................... ( 0.20) ( 0.21) ( 0.27) ( 0.91) Distributions in Excess of Net Investment Income ........... -- ( 0.09) -- -- Tax Return of Capital ...................................... -- ( 0.29) -- -- Distributions from Net Realized Gain on Investments Sold ... -- -- ( 0.06) ( 0.09) --------- -------- --------- --------- Total Distributions ...................................... ( 0.20) ( 0.59) ( 0.33) ( 1.00) --------- -------- --------- --------- Net Asset Value, End of Period ............................... $ 10.20 $ 9.74 $ 10.30 $ 10.47 ========= ======== ========= ========= Total Investment Return at Net Asset Value (3) ............... 4.05%(5) 1.37% 6.45%(5) 11.77% Total Adjusted Investment Return at Net Asset Value (3,4) .... 3.30%(5) 0.07% 5.96%(5) 11.25% Ratios and Supplemental Data Net Assets, End of Period (000s omitted) ..................... $ 2,083 $ 2,303 $ 2,131 $ 5,540 Ratio of Expenses to Average Net Assets ...................... 1.00%(6) 1.00% 0.85%(6) 0.85% Ratio of Adjusted Expenses to Average Net Assets (7) ......... 3.19%(6) 2.30% 2.28%(6) 1.37% Ratio of Net Investment Income to Average Net Assets ......... 5.83%(6) 5.98% 7.89%(6) 8.77% Ratio of Adjusted Net Investment Income to Average Net Assets (7) ............................................ 3.64%(6) 4.68% 6.46%(6) 8.25% Portfolio Turnover Rate ...................................... 30% 176% 73% 110% Fee Reduction Per Share (2) .................................. $ 0.08 $ 0.13 $ 0.05 $ 0.05
(1) Commenced operations on August 29, 1996. (2) Based on the average of the shares outstanding at the end of each month. (3) Assumes dividend reinvestment and does not reflect the effect of sales charges. (4) An estimated total return calculation which does not take into consideration fee reductions by the Adviser during the periods shown. (5) Not annualized. (6) Annualized. (7) Unreimbursed, without fee reduction. SEE NOTES TO FINANCIAL STATEMENTS. 48 ==============================FINANCIAL STATEMENTS============================== John Hancock Funds - Declaration Trust Financial Highlights (continued) Selected data for a share of beneficial interest outstanding throughout each period indicated, investment returns, key ratios and supplemental data are listed as follows: - --------------------------------------------------------------------------------
V.A. SOVEREIGN BOND FUND V.A. MONEY MARKET FUND ----------------------------- ----------------------------- PERIOD YEAR PERIOD YEAR ENDED ENDED ENDED ENDED DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, 1996(1) 1997 1996(1) 1997 --------- --------- --------- --------- Per Share Operating Performance Net Asset Value, Beginning of Period .......................... $ 10.00 $ 10.19 $ 1.00 $ 1.00 --------- --------- ------------ ------------ Net Investment Income (2) ..................................... 0.23 0.68 0.02 0.05 Net Realized and Unrealized Gain on Investments ............... 0.21 0.24 -- -- --------- --------- ------------ ------------ Total from Investment Operations .......................... 0.44 0.92 0.02 0.05 --------- --------- ------------ ------------ Less Distributions: Dividends from Net Investment Income ........................ ( 0.23) ( 0.68) ( 0.02) ( 0.05) Distributions from Net Realized Gain on Investments Sold .... ( 0.02) ( 0.07) -- -- --------- --------- ------------ ------------ Total Distributions ....................................... ( 0.25) ( 0.75) ( 0.02) ( 0.05) --------- --------- ------------ ------------ Net Asset Value, End of Period ................................ $ 10.19 $ 10.36 $ 1.00 $ 1.00 ========= ========= ============ ============ Total Investment Return at Net Asset Value (3) ................ 4.42%(5) 9.30% 1.61%(5) 4.88% Total Adjusted Investment Return at Net Asset Value (3,4) ..... 3.25%(5) 7.52% ( 7.55%)(5) 4.36% Ratios and Supplemental Data Net Assets, End of Period (000s omitted) ...................... $ 1,056 $ 3,682 $ 207 $ 8,377 Ratio of Expenses to Average Net Assets ....................... 0.75%(6) 0.75% 0.75%(6) 0.75% Ratio of Adjusted Expenses to Average Net Assets (7) .......... 4.15%(6) 2.53% 27.48%(6) 1.27% Ratio of Net Investment Income to Average Net Assets .......... 6.69%(6) 6.57% 4.68%(6) 4.86% Ratio of Adjusted Net Investment Income (Loss) to Average Net Assets (7) .............................................. 3.29%(6) 4.79% ( 22.05%)(6) 4.34% Portfolio Turnover Rate ....................................... 45% 193% -- -- Fee Reduction Per Share (2) ................................... $ 0.12 $ 0.18 $ 0.08 $ 0.00(8)
(1) Commenced operations on August 29, 1996. (2) Based on the average of the shares outstanding at the end of each month. (3) Assumes dividend reinvestment and does not reflect the effect of sales charges. (4) An estimated total return calculation which does not take into consideration fee reductions by the Adviser during the periods shown. (5) Not annualized. (6) Annualized. (7) Unreimbursed, without fee reduction. (8) Less than $0.01 per share. SEE NOTES TO FINANCIAL STATEMENTS. 49 ==============================FINANCIAL STATEMENTS============================== John Hancock Funds - Declaration Trust -- V.A. International Fund Schedule of Investments December 31, 1997 - -------------------------------------------------------------------------------- NUMBER OF MARKET ISSUER, DESCRIPTION SHARES VALUE - ------------------- ------ ----- COMMON STOCKS Australia (3.09%) Normandy Mining Ltd. (Metal) .......................... 120,600 $ 117,116 ----------- Brazil (4.54%) Centrais Electricas Brasileiras S/A, American Depository Receipt (ADR) (Utilities) ................... 3,100 77,081 Companhia Paranaense de Energia-Copel (ADR) (Utilities) ...................................... 1,600 21,900 Telecomunicacoes Brasileiras S/A (ADR) (Telecommunications) ................................... 630 73,356 ----------- 172,337 ----------- Canada (6.57%) Royal Bank of Canada (Banks - Foreign) ................. 2,585 137,005 Toronto-Dominion Bank (Banks - Foreign) ................ 2,978 112,233 ----------- 249,238 ----------- Chile (0.32%) Maderas y Sinteticos SA (ADR) (Building) ............... 1,300 12,350 ----------- France (6.33%) Axa-UAP SA (Insurance) ................................. 840 64,998 Carrefour SA (Retail) .................................. 170 88,693 France Telecom SA (ADR) (Telecommunications)* .................................. 2,400 86,400 ----------- 240,091 ----------- Germany (4.24%) Bayerische Motoren Werke AG (Automobile Trucks) .................................... 40 104,672 Volkswagen AG (Automobile / Trucks) .................... 100 56,255 ----------- 160,927 ----------- Hong Kong (4.74%) China Resources Enterprise Ltd. (Real Estate Operations) ............................... 28,000 62,511 Hutchison Whampoa Ltd. (Diversified Operations) ............................... 12,000 75,261 Sun Hung Kai Properties Ltd. (Real Estate Operations) ............................... 6,000 41,812 ----------- 179,584 ----------- India (1.72%) Reliance Industries Ltd. Global Depository Receipt (GDR) (Diversified Operations) (R) ............. 1,900 16,340 Reliance Industries Ltd. (GDR) (Diversified Operations)* ........................................... 1,650 14,190 The Schedule of Investments is a complete list of all securities owned by the V.A. International Fund on December 31, 1997. It's divided into three main categories: common stocks, preferred stock and short-term investments. Common stocks and preferred stock are further broken down by country. Short-term investments, which represent the Fund's "cash" position, are listed last. NUMBER OF MARKET ISSUER, DESCRIPTION SHARES VALUE - ------------------- ------ ----- India (continued) State Bank of India (GDR) (Banks - Foreign) ............ 1,900 $ 34,580 ----------- 65,110 ----------- Ireland (4.95%) Allied Irish Banks PLC (ADR) (Banks - Foreign) ......... 3,234 187,572 ----------- Japan (9.00%) Ito-Yokado Co., Ltd. (Retail) .......................... 2,000 101,861 Sony Corp. (Electronics) ............................... 1,000 88,841 TDK Corp. (Electronics) ................................ 2,000 150,724 ----------- 341,426 ----------- Mexico (3.66%) Grupo Industrial Maseca SA de CV (ADR) (Food) ........................................... 2,000 31,000 Panamerican Beverages, Inc. (Beverages) ................ 3,300 107,662 ----------- 138,662 ----------- Netherlands (7.71%) ABN Amro Holdings NV (ADR) (Banks - Foreign) ...................................... 5,254 102,453 ING Groep NV (ADR) (Banks - Foreign) ................... 3,130 132,438 Ispat International NV (Steel)* ....................... 2,665 57,631 ----------- 292,522 ----------- Norway (0.23%) Saga Petroleum ASA (Oil & Gas) ......................... 500 8,598 ----------- Singapore (1.60%) NatSteel Ltd. (Steel) .................................. 19,000 25,702 Oversea-Chinese Banking Corp., Ltd. .................... (Banks - Foreign) ....................................... 6,000 34,886 ----------- 60,588 ----------- Sweden (3.73%) Investor AB (Diversified Operations) ................... 2,795 136,232 Nordbanken Holding AB (Banks - Foreign)* ............... 900 5,089 ----------- 141,321 ----------- Switzerland (7.03%) Novartis AG (Medical) .................................. 85 137,866 Zurich Versicherungs-Gesellschaft (Insurance) ............................................. 270 128,607 ----------- 266,473 ----------- SEE NOTES TO FINANCIAL STATEMENTS. 50 ==============================FINANCIAL STATEMENTS============================== John Hancock Funds - Declaration Trust -- V.A. International Fund NUMBER OF MARKET ISSUER, DESCRIPTION SHARES VALUE - ------------------- ------ ----- United Kingdom (14.43%) EMAP PLC (Media) ....................................... 6,000 $ 89,286 Marks & Spencer PLC (Retail) ........................... 7,500 74,170 Northern Rock PLC (Banks - Foreign)* ................... 10,000 98,057 Pearson PLC (Media) .................................... 8,000 103,937 Regal Hotel Group PLC (Leisure) ....................... 100,000 73,913 Royal & Sun Alliance Insurance Group PLC (Insurance) ............................................ 7,085 71,336 Royal Bank of Scotland Group PLC (Banks - Foreign) ...................................... 2,860 36,462 ----------- 547,161 ----------- United States (2.04%) Carnival Corp. (Class A) (Leisure) ..................... 1,400 77,525 ----------- TOTAL COMMON STOCKS (Cost $3,249,269) ( 85.93%) 3,258,601 -------- ----------- PREFERRED STOCK Brazil (3.39%) Compania Riograndense de Telecomunicaciones SA (Telecommunications) ................................... 104,224 128,406 ----------- TOTAL PREFERRED STOCK (Cost $152,131) ( 3.39%) 128,406 -------- ----------- TOTAL COMMON AND PREFERRED STOCKS (Cost $3,401,400) ( 89.32%) 3,387,007 -------- ----------- INTEREST PAR VALUE RATE (000s OMITTED) ---- -------------- SHORT-TERM INVESTMENTS Joint Repurchase Agreement (9.10%) Investment in a joint repurchase agreement transaction with HSBC Securities, Inc. - Dated 12-31-97, Due 01-02-98 (Secured by U.S. Treasury Bonds, 11.25% Due 02-15-15 and 9.25% Due 02-15-16) - Note A................................. 6.60% $345 345,000 ----------- TOTAL SHORT-TERM INVESTMENTS ( 9.10%) 345,000 ------- ----------- TOTAL INVESTMENTS ( 98.42%) 3,732,007 ------- ----------- OTHER ASSETS AND LIABILITIES, NET ( 1.58%) 59,997 ------- ----------- TOTAL NET ASSETS ( 100.00%) $ 3,792,004 ======= =========== Industry Diversification - -------------------------------------------------------------------------------- The Fund primarily invests in securities issued by companies of other countries. The performance of the Fund is closely tied to the economic conditions within the countries it invests. The concentration of investments by country for individual securities held by the Fund is shown in the schedule of investments. In addition, the concentration of investments can be aggregated by various industry groups. The table below shows the percentages of the Fund's Investments at December 31, 1997 assigned to the various investment categories. MARKET VALUE OF SECURITIES INVESTMENT CATEGORIES AS A % OF FUND NET ASSETS - --------------------- ------------------------- Automobile/Trucks........................ 4.24% Banks - Foreign.......................... 23.23 Beverages................................ 2.84 Building................................. 0.32 Diversified Operations................... 6.38 Electronics.............................. 6.32 Food..................................... 0.82 Insurance................................ 6.99 Leisure.................................. 3.99 Media.................................... 5.09 Medical.................................. 3.64 Metal.................................... 3.09 Oil & Gas................................ 0.23 Real Estate Operations................... 2.75 Retail................................... 6.98 Steel.................................... 2.20 Telecommunications....................... 7.60 Utilities................................ 2.61 Short-Term Investments................... 9.10 ----- TOTAL INVESTMENTS 98.42% ===== * Non-income producing security. (R) Security is 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 $16,340 or 0.43% of the Fund's net assets, as of December 31, 1997. 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. 51 ==============================FINANCIAL STATEMENTS============================== John Hancock Funds - Declaration Trust -- V.A. Financial Industries Fund Schedule of Investments December 31, 1997 - -------------------------------------------------------------------------------- NUMBER OF MARKET ISSUER, DESCRIPTION SHARES VALUE - ------------------- ------ ----- COMMON STOCKS Banks - Foreign (7.89%) Allied Irish Banks PLC, (American Depository Receipt), (ADR) (Ireland) ................. 7,500 $435,000 ING Groep N.V. (ADR) (Netherlands) ..................... 4,174 176,612 Nordbanken Holding AB * (Sweden) ....................... 4,200 23,767 Royal Bank of Canada (Canada) .......................... 15,500 821,500 ----------- 1,456,879 ----------- Banks - Money Center (4.15%) Chase Manhattan Corp. .................................. 7,000 766,500 ----------- Banks - Southeast (2.86%) First Tennessee National Corp. ......................... 7,900 527,325 ----------- Banks - Super Regional (7.10%) BankBoston Corp. ....................................... 8,200 770,287 Norwest Corp. .......................................... 14,000 540,750 ----------- 1,311,037 ----------- Banks - West (2.71%) Westamerica Bancorp .................................... 4,900 501,025 ----------- Broker Services (13.77%) Edwards (A.G.), Inc. ................................... 22,250 884,437 Friedman, Billings, Ramsey Group, Inc. (Class A) * ............................................ 2,000 35,875 Legg Mason, Inc. ....................................... 14,166 792,411 McDonald & Co., Investments ............................ 12,600 357,525 Morgan Stanley, Dean Witter, Discover & Co. ............ 8,000 473,000 ----------- 2,543,248 ----------- Computer - Services (4.34%) Fiserv, Inc.* .......................................... 16,300 800,737 ----------- Finance - Consumer Loan (6.70%) American Express Co. ................................... 8,500 758,625 Imperial Credit Industries, Inc.* ...................... 7,200 147,600 MBNA Corp. ............................................. 9,650 263,566 New Century Financial Corp. * .......................... 6,500 66,625 ----------- 1,236,416 ----------- Finance - Investment Management (8.75%) Affiliated Managers Group, Inc. * ...................... 1,500 43,500 Conning Corp. * ........................................ 1,500 25,125 Franklin Resources, Inc. ............................... 8,400 730,275 Price (T. Rowe) Associates, Inc. ....................... 13,000 817,375 ----------- 1,616,275 ----------- The Schedule of Investments is a complete list of all securities owned by the V.A. Financial Industries Fund on December 31, 1997. It's divided into three main categories: common stocks, right and short-term investments. Common stocks and right are further broken down by industry groups. Short-term investments, which represent the Fund's "cash" position, are listed last. NUMBER OF MARKET ISSUER, DESCRIPTION SHARES VALUE - ------------------- ------ ----- Finance - Savings & Loan (0.96%) InterWest Bancorp, Inc. ................................ 4,700 $ 177,425 ----------- Finance - SBIC & Commercial (0.70%) CIT Group, Inc. (The) (Class A) * ...................... 4,000 129,000 ----------- Insurance - Accident & Health (2.89%) Provident Cos., Inc. ................................... 13,000 502,125 Summit Holdings Southeast, Inc. * ...................... 1,400 31,325 ----------- 533,450 ----------- Insurance - Life (1.67%) ARM Financial Group, Inc. (Class A) .................... 11,700 308,588 ----------- Insurance - Multi Line (3.00%) Allmerica Financial Corp. .............................. 11,100 554,306 ----------- Insurance - Property & Casualty (15.20%) Aetna, Inc. ............................................ 5,500 388,094 Commerce Group, Inc. ................................... 2,000 65,250 Donegal Group, Inc. .................................... 5,000 110,625 Frontier Insurance Group, Inc. ......................... 4,800 109,800 General Re Corp. ....................................... 2,000 424,000 Penn-America Group, Inc. ............................... 4,800 98,400 RLI Corp. .............................................. 5,000 249,063 SAFECO Corp. ........................................... 10,500 511,875 St. Paul Cos., Inc. .................................... 6,600 541,613 Travelers Property Casualty Corp. (Class A) ............ 7,000 308,000 ----------- 2,806,720 ----------- REIT - Equity Trust (7.43%) Brandywine Realty Trust ................................ 8,000 201,000 Excel Realty Trust, Inc. ............................... 8,000 252,000 Glenborough Realty Trust, Inc. ......................... 1,500 44,437 Prentiss Properties Trust .............................. 7,200 201,150 SL Green Realty Corp. .................................. 4,500 116,719 Spieker Properties, Inc. ............................... 13,000 557,375 ----------- 1,372,681 ----------- TOTAL COMMON STOCKS (Cost $15,087,930) ( 90.12%) 16,641,612 -------- ----------- SEE NOTES TO FINANCIAL STATEMENTS. 52 ==============================FINANCIAL STATEMENTS============================== John Hancock Funds - Declaration Trust -- V.A. Financial Industries Fund NUMBER OF MARKET ISSUER, DESCRIPTION SHARES VALUE - ------------------- ------ ----- RIGHT Finance - SBIC & Commercial (0.72%) Newcourt Credit Group, Inc. ............................ 4,000 $ 132,213 ----------- TOTAL RIGHT (Cost $130,312) ( 0.72%) 132,213 ------- ----------- TOTAL COMMON STOCKS AND RIGHT (Cost $15,218,242) (90.84%) 16,773,825 -------- ----------- INTEREST PAR VALUE RATE (000s OMITTED) ---- -------------- SHORT-TERM INVESTMENTS Joint Repurchase Agreements (9.12%) Investment in a joint repurchase agreement transaction with HSBS Securities, Inc. - Dated 12-31-97, Due 01-02-98 (Secured by U.S. Treasury Bonds, 7.25% thru 13.25% due 11-15-08 thru 11-15-16, and U.S. Treasury Note 6.50% due 04-30-99) - Note A................ 6.60% $1,683 1,683,000 ---------- Corporate Savings Account (0.00%) Investors Bank & Trust Company Daily Interest Savings Account Current Rate 4.95%............................... 791 ----------- TOTAL SHORT-TERM INVESTMENTS ( 9.12%) 1,683,791 ------- ----------- TOTAL INVESTMENTS ( 99.96%) 18,457,616 ------- ----------- OTHER ASSETS AND LIABILITIES, NET ( 0.04%) 7,825 ------- ----------- TOTAL NET ASSETS (100.00%) $18,465,441 ======= =========== * Non-Income producing security. 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. 53 ==============================FINANCIAL STATEMENTS============================== John Hancock Funds - Declaration Trust -- V.A. Emerging Growth Fund Schedule of Investments December 31, 1997 - -------------------------------------------------------------------------------- NUMBER OF MARKET ISSUER, DESCRIPTION SHARES VALUE - ------------------- ------ ----- COMMON STOCKS Advertising (2.03%) Lamar Advertising Co.* ............................... 900 $ 35,775 Outdoor Systems, Inc.* ............................... 450 17,269 Princeton Video Image, Inc.* ......................... 1,000 9,375 Universal Outdoor Holdings, Inc.* .................... 300 15,600 ----------- 78,019 ----------- Aerospace (0.51%) AAR Corp. ............................................ 500 19,375 ----------- Agricultural Operations (0.59%) Scheid Vineyards, Inc. (Class A)* .................... 2,500 22,812 ----------- Automobile/Trucks (1.59%) Avis Rent A Car, Inc.* ............................... 700 22,356 Budget Group, Inc. (Class A)* ........................ 700 24,194 Special Devices, Inc.* ............................... 300 8,775 United Rentals, Inc.* ................................ 300 5,794 ----------- 61,119 ----------- Beverages (1.16%) Beringer Wine Estates Holdings, Inc. (Class B)* ...... 400 15,200 Mondavi (Robert) Corp. (Class A)* .................... 600 29,250 ----------- 44,450 ----------- Broker Services (0.77%) E*TRADE Group, Inc.* ................................. 700 16,100 Interra Financial, Inc. .............................. 200 13,800 ----------- 29,900 ----------- Building (0.61%) UNIFAB International, Inc.* .......................... 100 1,925 Vari-Lite International, Inc.* ....................... 1,800 21,487 ----------- 23,412 ----------- Business Services - Misc (6.62%) Abacus Direct Corp.* ................................. 700 28,700 Caribiner International, Inc.* ....................... 500 22,250 Coinstar, Inc.* ...................................... 1,600 14,600 CORESTAFF, Inc.* ..................................... 750 19,875 Hagler Bailly, Inc.* ................................. 1,200 27,000 Hall, Kinion & Associates, Inc.* ..................... 100 2,187 Mac-Gray Corp.* ...................................... 1,400 21,875 Market Facts, Inc.* .................................. 1,300 21,775 MAXIMUS, Inc.* ....................................... 100 2,419 On Assignment, Inc.* ................................. 1,100 29,150 Pre-Paid Legal Services, Inc.* ....................... 700 23,931 The Schedule of Investments is a complete list of all securities owned by the V.A. Emerging Growth Fund on December 31, 1997. It's divided into three main categories: common stocks, unit and short-term investments. Common stocks and unit are further broken down by industry groups. Short-term investments, which represent the Fund's "cash" position, are listed last. NUMBER OF MARKET ISSUER, DESCRIPTION SHARES VALUE - ------------------- ------ ----- Business Services - Misc (continued) ProBusiness Services, Inc.* .......................... 1,000 $ 22,875 Securacom, Inc.* ..................................... 1,800 17,550 ----------- 254,187 ----------- Computers (9.01%) Advent Software, Inc.* ............................... 700 20,037 Aris Corp.* .......................................... 1,100 23,100 Aspect Development, Inc.* ............................ 400 20,800 Box Hill Systems Corp.* .............................. 1,000 10,438 CBT Group PLC, (American Depository Receipt)* (Ireland) ................................. 300 24,638 Concord Communications, Inc.* ........................ 100 2,075 Discreet Logic, Inc.* ................................ 700 15,356 FlexiInternational Software, Inc.* ................... 100 1,550 Information Management Resources, Inc.* .............. 750 28,125 JDA Software Group, Inc.* ............................ 500 17,500 National Computer Systems, Inc. ...................... 600 21,150 National Instruments Corp.* .......................... 600 17,400 Network Appliance, Inc.* ............................. 1,200 42,600 PRT Group, Inc.* ..................................... 900 10,237 SCM Microsystems, Inc.* .............................. 800 19,200 SPR, Inc.* ........................................... 1,000 17,000 Symantec Corp.* ...................................... 1,300 28,519 Visio Corp.* ......................................... 600 23,025 Xionics Document Technologies, Inc.* ................. 900 3,431 ----------- 346,181 ----------- Consumer Products Misc. (0.33%) Samsonite Corp.* ..................................... 400 12,650 ----------- Containers (0.19%) Ivex Packaging Corp.* ................................ 300 7,200 ----------- Electronics (5.35%) Aavid Thermal Technologies, Inc.* ................... 800 19,200 Aeroflex, Inc.* ...................................... 1,600 14,000 Aseco Corp * ......................................... 600 5,118 ATMI, Inc.* .......................................... 600 14,550 Aztec Manufacturing Co. .............................. 1,100 15,400 SEE NOTES TO FINANCIAL STATEMENTS. 54 ==============================FINANCIAL STATEMENTS============================== John Hancock Funds - Declaration Trust -- V.A. Emerging Growth Fund NUMBER OF MARKET ISSUER, DESCRIPTION SHARES VALUE - ------------------- ------ ----- Electronics (continued) FARO Technologies, Inc.* ............................... 1,000 $ 11,625 Integrated Circuit Systems, Inc.* ..................... 600 17,100 Level One Communications, Inc.* ........................ 600 16,950 Metromedia Fiber Network, Inc. (Class A)* .............. 1,600 26,600 MMC Networks, Inc.* .................................... 100 1,700 PRI Automation, Inc.* .................................. 400 11,550 Sawtek, Inc.* .......................................... 600 15,825 SeaMED Corp.* .......................................... 1,300 24,050 Semtech Corp.* ......................................... 300 11,737 ----------- 205,405 ----------- Finance (1.92%) FIRSTPLUS Financial Group, Inc.* ....................... 400 15,350 LINC Capital, Inc.* .................................... 1,400 27,475 Medallion Financial Corp. .............................. 1,400 30,800 ----------- 73,625 ----------- Food (1.61%) American Italian Pasta Co. (Class A)* .................. 900 22,500 Fine Host Corp.* ....................................... 900 9,112 Suiza Foods Corp.* ..................................... 510 30,377 ----------- 61,989 ----------- Funeral Services & Related (0.57%) Rock of Ages Corp.* .................................... 1,400 21,700 ----------- Insurance (3.85%) Capital Re Corp. ....................................... 200 12,412 CMAC Investment Corp. .................................. 500 30,188 ESG Re Ltd.* (Bermuda) ................................. 200 4,700 Hartford Life, Inc. (Class A) .......................... 500 22,656 Healthcare Recoveries, Inc.* ........................... 1,100 24,475 Life Re Corp. .......................................... 500 32,594 Western National Corp. ................................. 700 20,737 ----------- 147,762 ----------- Lasers - Systems / Components (0.36%) General Scanning, Inc.* ................................ 800 13,800 ----------- Leasing Companies (0.74%) Rollins Truck Leasing Corp. ............................ 1,600 28,600 ----------- Leisure (3.66%) Ballantyne of Omaha, Inc.* ............................. 1,500 27,000 Cinar Films, Inc. (Class B)* (Canada) .................. 700 27,213 GameTech International Inc.* ........................... 900 9,675 Premier Parks, Inc.* ................................... 700 28,350 Silverleaf Resorts, Inc.* .............................. 1,100 26,950 Travel Services International, Inc.* ................... 900 21,375 ----------- 140,563 ----------- NUMBER OF MARKET ISSUER, DESCRIPTION SHARES VALUE - ------------------- ------ ----- Machinery (1.51%) Applied Power Inc. (Class A) ........................... 400 $ 27,600 Gardner Denver Machinery, Inc.* ........................ 1,200 30,375 ----------- 57,975 ----------- Media (3.07%) Central Newspapers, Inc. (Class A) ..................... 300 22,181 CMP Media, Inc. (Class A)* ............................. 600 10,350 Heftel Broadcasting Corp. (Class A)* ................... 800 37,400 Jacor Communications, Inc.* ............................ 200 10,625 Network Event Theater, Inc.* ........................... 3,000 14,250 Petersen Cos., Inc. (The) (Class A)* ................... 100 2,300 Univision Communications, Inc. (Class A)* .............. 300 20,944 ----------- 118,050 ----------- Medical (11.57%) Affymetrix, Inc.* ...................................... 800 24,900 American Healthcorp, Inc.* ............................. 1,800 12,600 Amsurg Corp. (Class A)* ................................ 165 1,238 Amsurg Corp. (Class B)* ................................ 1,068 8,277 Andrx Corp.* ........................................... 800 27,400 ESC Medical Systems Ltd.* (Israel) ..................... 500 19,375 Health Care & Retirement Corp.* ........................ 500 20,125 Incyte Pharmaceuticals, Inc.* .......................... 600 27,000 Mentor Corp. ........................................... 800 29,200 MiniMed, Inc.* ......................................... 700 27,213 Monarch Dental Corp.* .................................. 1,000 13,250 Myriad Genetics, Inc.* ................................. 700 16,975 Ocular Sciences, Inc.* ................................. 900 23,625 PAREXEL International Corp.* ........................... 700 25,900 PathoGenesis Corp.* .................................... 600 22,275 Perclose, Inc.* ........................................ 700 13,475 Protein Design Labs, Inc.* ............................. 400 16,000 Sano Corp.* ............................................ 600 19,875 SONUS Pharmaceuticals, Inc.* ........................... 700 23,188 Sunrise Assisted Living, Inc.* ......................... 700 30,187 Universal Health Services, Inc. (Class B)* ............. 300 15,112 Wesley Jessen VisionCare, Inc.* ........................ 700 27,300 ----------- 444,490 ----------- Metal (0.49%) Maverick Tube Corp.* ................................... 700 17,719 Prudential Steel Ltd. (Canada) ......................... 100 978 ----------- 18,697 ----------- Office (0.52%) Shelby Williams Industries, Inc. ....................... 1,200 19,800 ----------- SEE NOTES TO FINANCIAL STATEMENTS. 55 ==============================FINANCIAL STATEMENTS============================== John Hancock Funds - Declaration Trust -- V.A. Emerging Growth Fund NUMBER OF MARKET ISSUER, DESCRIPTION SHARES VALUE - ------------------- ------ ----- Oil & Gas (5.18%) Brown (Tom) Inc.* ...................................... 900 $ 17,325 Core Laboratories N.V.* (Netherlands) .................. 600 10,838 Dawson Production Services, Inc.* ..................... 700 12,162 Dril-Quip, Inc.* ....................................... 100 3,513 Eagle Geophysical, Inc.* ............................... 900 11,700 IRI International Corp.* ............................... 200 2,800 Key Energy Group, Inc.* ................................ 700 15,181 National-Oilwell, Inc.* ................................ 700 23,931 Ocean Energy, Inc.* .................................... 300 14,794 Precision Drilling Corp.* (Canada) ..................... 700 17,062 Pride International, Inc.* ............................. 600 15,150 Santa Fe Energy Resources, Inc.* ....................... 1,900 21,375 Stone Energy Corp.* .................................... 600 20,100 TransCoastal Marine Services, Inc.* .................... 100 1,425 Vintage Petroleum, Inc. ................................ 600 11,400 ----------- 198,756 ----------- Pollution Control (4.83%) American Disposal Services, Inc.* ..................... 700 25,550 Eastern Environmental Services, Inc.* .................. 800 17,600 Innovative Valve Technologies, Inc.* ................... 1,400 28,350 ITEQ, Inc.* ............................................ 2,800 32,200 Newpark Resources, Inc.* ............................... 1,800 31,500 Philip Services Corp.* (Canada) ........................ 2,100 30,188 Superior Services, Inc.* ............................... 700 20,213 ----------- 185,601 ----------- Printing - Commercial (0.47%) Mail-Well, Inc.* ....................................... 450 18,225 ----------- Real Estate Investment Trust (3.01%) Arden Realty Group, Inc. ............................... 800 24,600 Crescent Real Estate Equities Co. ...................... 400 15,750 Equity Office Properties Trust ......................... 563 17,754 Glenborough Realty Trust, Inc. ......................... 1,000 29,625 Mack-Cali Realty Corp. ................................. 400 16,400 Starwood Lodging Trust ................................. 200 11,575 ----------- 115,704 ----------- Retail (12.34%) Abercrombie & Fitch Co.* ............................... 800 25,000 Arbor Drugs, Inc. ...................................... 1,200 22,200 Big Dog Holdings, Inc.* ................................ 1,200 6,750 Brylane Inc.* .......................................... 500 24,625 CKE Restaurants, Inc. .................................. 500 21,063 Concepts Direct, Inc.* ................................. 800 16,800 Cost Plus, Inc.* ....................................... 800 23,200 NUMBER OF MARKET ISSUER, DESCRIPTION SHARES VALUE - ------------------- ------ ----- Retail (continued) Dominick's Supermarkets, Inc.* ......................... 700 $ 25,550 Famous Dave's of America, Inc.* ........................ 1,100 9,830 Fresh America Corp.* ................................... 800 15,400 Furniture Brands International, Inc.* .................. 1,200 24,600 Genovese Drug Stores, Inc. (Class A) ................... 660 11,303 Hibbett Sporting Goods, Inc.* .......................... 1,000 22,000 Il Fornaio (America) Corp.* ............................ 1,000 14,875 Keystone Automotive Industries, Inc.* .................. 1,000 23,750 Linens `N Things, Inc.* ................................ 500 21,813 Meadowcraft, Inc. ...................................... 800 9,400 99 Cents Only Stores* .................................. 975 28,763 Peapod, Inc.* .......................................... 1,700 11,050 Proffitt's, Inc.* ...................................... 800 22,750 Quality Food Centers, Inc.* ............................ 500 33,500 Rainforest Cafe, Inc.* ................................. 600 19,800 Stage Stores, Inc.* .................................... 600 22,425 Track `n Trail Inc.* ................................... 1,600 14,200 U.S.A. Floral Products, Inc.* .......................... 100 1,575 White Cap Industries, Inc.* ............................ 100 1,862 ----------- 474,084 ----------- Schools/Education (1.31%) EduTrek International, Inc. (Class A)* ................. 700 18,200 ITI Education Corp.* (Canada) .......................... 2,000 12,159 Strayer Education, Inc. ................................ 600 19,800 ----------- 50,159 ----------- Shoes & Related Apparel (0.41%) Wolverine World Wide, Inc. ............................. 700 15,838 ----------- Telecommunications (2.87%) Comverse Technology, Inc.* ............................. 500 19,500 Innova Corp.* .......................................... 1,200 18,300 MRV Communications, Inc.* .............................. 700 16,713 REMEC, Inc.* ........................................... 950 21,375 Tel-Save Holdings, Inc.* ............................... 600 11,925 WinStar Communications, Inc.* .......................... 900 22,443 ----------- 110,256 ----------- Textile (1.80%) Culp, Inc. ............................................. 1,200 24,000 Cutter & Buck, Inc.* ................................... 1,300 24,213 Tefron Ltd.* (Israel) .................................. 900 20,700 ----------- 68,913 ----------- Transport (3.40%) C.H. Robinson Worldwide, Inc. .......................... 1,100 24,613 Carey International, Inc.* ............................. 1,000 15,125 SEE NOTES TO FINANCIAL STATEMENTS. 56 ==============================FINANCIAL STATEMENTS============================== John Hancock Funds - Declaration Trust -- V.A. Emerging Growth Fund NUMBER OF MARKET ISSUER, DESCRIPTION SHARES VALUE - ------------------- ------ ----- Transport (continued) Eagle USA Airfreight, Inc.* ............................ 600 $ 17,100 Jevic Transportation, Inc.* ............................ 1,500 24,188 MotivePower Industries, Inc.* .......................... 1,100 25,575 Simon Transportation Services Inc.* .................... 1,000 24,000 ----------- 130,601 ----------- TOTAL COMMON STOCKS (Cost $3,298,160) (94.25%) 3,619,898 ------- ----------- UNIT Real Estate Investment Trust (0.47%) Hanover Capital Mortgage Holdings, Inc.* ............... 1,100 18,150 ----------- TOTAL UNIT (Cost $16,500) ( 0.47%) 18,150 ------- ----------- TOTAL COMMON STOCKS AND UNIT (Cost $3,314,660) (94.72%) 3,638,048 ------- ----------- INTEREST PAR VALUE MARKET ISSUER, DESCRIPTION RATE (000s OMITTED) VALUE - ------------------- ---- -------------- ----- SHORT-TERM INVESTMENTS Joint Repurchase Agreement (5.78%) Investment in a joint repurchase agreement transaction with HSBC Securities, Inc. - Dated 12-31-97, Due 01-02-98 (Secured by U.S. Treasury Bonds 7.25% thru 13.25% Due 11-15-08 thru 11-15-16, and U.S. Treasury Note 6.50% due 04-30-99 - Note A 6.60% $222 $ 222,000 ----------- Corporate Savings Account (0.01%) Investors Bank & Trust Company Daily Interest Savings Account Current Rate 4.95%............... 292 ----------- TOTAL SHORT-TERM INVESTMENTS ( 5.79%) 222,292 ------- ----------- TOTAL INVESTMENTS (100.51%) 3,860,340 ------- ----------- OTHER ASSETS AND LIABILITIES, NET ( 0.51%) ( 19,529) ------- ----------- TOTAL NET ASSETS ( 100%) $ 3,840,811 ======= =========== * Non-income producing security 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. 57 ==============================FINANCIAL STATEMENTS============================== John Hancock Funds - Declaration Trust -- V.A. Growth Fund Schedule of Investments December 31, 1997 - -------------------------------------------------------------------------------- NUMBER OF MARKET ISSUER, DESCRIPTION SHARES VALUE - ------------------- ------ ----- COMMON STOCKS Advertising (1.90%) Outdoor Systems, Inc.* ................................. 1,850 $ 70,994 ----------- Beverages (1.71%) Beringer Wine Estates Holdings, Inc. (Class B)* ........ 400 15,200 Mondavi (Robert) Corp. (Class A)* ..................... 1,000 48,750 ----------- 63,950 ----------- Commercial Services (3.03%) Corrections Corporation of America* .................... 1,700 63,006 EduTrek International, Inc. (Class A)* ................. 200 5,200 Market Facts, Inc. ..................................... 400 6,700 Securacom, Inc.* ....................................... 3,900 38,025 ----------- 112,931 ----------- Computers (19.38%) Advantage Learning Systems, Inc.* ..................... 100 2,137 America Online, Inc.* .................................. 700 62,431 BMC Software, Inc.* .................................... 900 59,063 CBT Group Plc, American Depository Receipt (Ireland)* .......................... 800 65,700 Discreet Logic, Inc.* .................................. 2,000 43,875 E*TRADE Group, Inc.* ................................... 1,500 34,500 Edwards (J.D.) & Co.* .................................. 1,100 32,450 EMC Corp.* ............................................. 1,400 38,413 HBO & Co. .............................................. 1,200 57,600 Iomega Corp.* .......................................... 4,400 54,725 Network Appliance, Inc.* ............................... 2,600 92,300 SCM Microsystems, Inc.* ................................ 100 2,400 Security Dynamics Technologies, Inc.* .................. 1,800 64,350 SPR Inc.* .............................................. 100 1,700 Symantec Corp.* ........................................ 3,000 65,813 Visio Corp.* ........................................... 1,200 46,050 ----------- 723,507 ----------- Electronics (6.13%) ATMI, Inc.* ............................................ 1,600 38,800 General Scanning, Inc.* ................................ 100 1,725 Level One Communications, Inc.* ........................ 1,250 35,313 Metromedia Fiber Network, Inc. (Class A)* .............. 3,800 63,175 Semtech Corp.* ......................................... 1,000 39,125 Teradyne, Inc.* ........................................ 400 12,800 Vitesse Semiconductor Corp.* ........................... 1,000 37,750 ----------- 228,688 ----------- Finance (2.09%) FIRSTPLUS Financial Group, Inc.* ....................... 600 23,025 The Schedule of Investments is a complete list of all securities owned by the V. A. Growth Fund on December 31, 1997. It's divided into two main categories: common stocks and short-term investments. Common stocks are further broken down by industry groups. Short-term investments, which represent the Fund's "cash" position, are listed last. NUMBER OF MARKET ISSUER, DESCRIPTION SHARES VALUE - ------------------- ------ ----- Finance (continued) Medallion Financial Corp. .............................. 2,500 $ 55,000 ----------- 78,025 ----------- Food (1.90%) Suiza Foods Corp.* ..................................... 1,190 70,879 ----------- Insurance (2.58%) Ace, Ltd. (Bermuda) .................................... 500 48,250 Progressive Corp. ...................................... 400 47,950 ----------- 96,200 ----------- Leisure (3.78%) Carnival Corp. (Class A) ............................... 1,300 71,987 Royal Caribbean Cruises Ltd. ........................... 1,300 69,306 ----------- 141,293 ----------- Machinery (1.42%) Gardner Denver Machinery, Inc.* ........................ 2,100 53,156 ----------- Media (8.29%) Central Newspapers, Inc. (Class A) ..................... 1,100 81,331 Clear Channel Communications, Inc.* .................... 900 71,494 Heftel Broadcasting Corp. (Class A)* ................... 1,600 74,800 Jacor Communications, Inc.* ............................ 1,500 79,687 Petersen Companies, Inc. (The) (Class A)* .............. 100 2,300 ----------- 309,612 ----------- Medical (7.56%) Health Care & Retirement Corp.* ........................ 1,400 56,350 Health Management Associates, Inc. (Class A)* .......... 2,250 56,813 Sunrise Assisted Living, Inc.* ......................... 1,500 64,687 Warner-Lambert Co. ..................................... 400 49,600 Wesley Jessen VisionCare, Inc.* ........................ 1,400 54,600 ----------- 282,050 ----------- Office (1.58%) HON INDUSTRIES, Inc. ................................... 1,000 59,000 ----------- Oil & Gas (7.21%) ENSCO International, Inc. .............................. 1,500 50,250 EVI, Inc.* ............................................. 600 31,050 Falcon Drilling Company, Inc.* ......................... 1,600 56,100 IRI International Corp.* ............................... 200 2,800 Marine Drilling Companies, Inc.* ....................... 1,600 33,200 National-Oilwell, Inc.* ................................ 1,800 61,537 Precision Drilling Corp.* (Canada) ..................... 1,400 34,125 ----------- 269,062 ----------- SEE NOTES TO FINANCIAL STATEMENTS. 58 ==============================FINANCIAL STATEMENTS============================== John Hancock Funds - Declaration Trust -- V.A. Growth Fund NUMBER OF MARKET ISSUER, DESCRIPTION SHARES VALUE - ------------------- ------ ----- Pollution Control (5.89%) ITEQ, Inc.* ........................................... 4,300 $ 49,450 Newpark Resources, Inc.* .............................. 4,400 77,000 Philip Services Corp.* (Canada) ....................... 4,000 57,500 US Filter Corp.* ...................................... 1,200 35,925 ----------- 219,875 ----------- Retail (11.77%) Borders Group, Inc. * ................................. 1,200 37,575 Consolidated Stores Corp.* ............................ 1,375 60,414 Costco Companies, Inc.* ............................... 1,300 58,013 Dollar General Corp. .................................. 1,650 59,813 Home Depot, Inc. (The) ................................ 1,150 67,706 Meyer (Fred), Inc. * .................................. 1,600 58,200 Pier 1 Imports, Inc. .................................. 1,600 36,200 Starbucks Corp.* ...................................... 1,600 61,400 ----------- 439,321 ----------- Schools / Education (1.90%) Apollo Group, Inc. (Class A)*` ........................ 1,500 70,875 ----------- Telecommunications (7.69%) Comverse Technology, Inc.* ............................ 1,300 50,700 Innova Corp.* ......................................... 2,000 30,500 Nextel Communications, Inc. (Class A)* ................ 2,100 54,600 Qwest Communications International, Inc.* ............. 900 53,550 Teligent, Inc. (Class A)* ............................. 100 2,463 Tellabs, Inc.* ........................................ 1,000 52,875 WorldCom, Inc.* ....................................... 1,400 42,350 ----------- 287,038 ----------- TOTAL COMMON STOCKS (Cost $3,063,484) (95.81%) 3,576,456 ------- ----------- INTEREST PAR VALUE ISSUER, DESCRIPTION RATE (000s OMITTED) - ------------------- ---- -------------- SHORT-TERM INVESTMENTS Joint Repurchase Agreement (5.71%) Investment in a joint repurchase agreement transaction with HSBC Securities, Inc. - Dated 12-31-97, Due 01-02-98 (Secured by U.S. Treasury Bonds, 7.25% thru 13.25% due 11-15-08 thru 11-15-16, and U.S. Treasury Note, 6.50% Due 04-30-99), - Note A............. 6.60% $213 213,000 --------- MARKET ISSUER, DESCRIPTION VALUE - ------------------- ----- Corporate Savings Account (0.02%) Investors Bank & Trust Company Daily Interest Savings Account Current Rate 4.95%......... $ 576 ----------- TOTAL SHORT-TERM INVESTMENTS ( 5.73%) 213,576 ------- ----------- TOTAL INVESTMENTS (101.54%) 3,790,032 ------- ----------- OTHER ASSETS AND LIABILITIES, NET ( 1.54%) ( 57,320) ------- ----------- TOTAL NET ASSETS (100.00%) $ 3,732,712 ======= =========== *Non-income producing security. 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 (Unaudited) - -------------------------------------------------------------------------------- The V. A. Growth Fund invests primarily in securities issued in the United States of America. The performance of the Fund is closely tied to the economic and financial conditions of the countries within which it invests. The concentration of investments by individual securities held by the Fund is shown in the schedule of investments. In addition, concentration of investments can be aggregated by various countries. The table below shows the percentages of the Fund's investments at December 31, 1997 assigned to country categories. MARKET VALUE AS A COUNTRY DIVERSIFICATION PERCENTAGE OF FUND'S NET ASSETS - ----------------------- ------------------------------- Bermuda........................... 1.29% Canada............................ 2.45 Ireland........................... 1.76 United States..................... 96.04 ------ TOTAL INVESTMENTS 101.54% ====== SEE NOTES TO FINANCIAL STATEMENTS. 59 ==============================FINANCIAL STATEMENTS============================== John Hancock Funds - Declaration Trust -- V.A. Independence Equity Fund Schedule of Investments December 31, 1997 - -------------------------------------------------------------------------------- NUMBER OF MARKET ISSUER, DESCRIPTION SHARES VALUE - ------------------- ------ ----- COMMON STOCKS Aerospace (2.05%) Northrop Grumman Corp. ................................ 200 $ 23,000 Raytheon Co. (Class A) ................................ 64 3,145 United Technologies Corp. ............................. 2,100 152,906 ----------- 179,051 ----------- Automobile/Trucks (3.10%) Dana Corp. ............................................ 500 23,750 Ford Motor Co. ........................................ 3,700 180,144 General Motors Corp. .................................. 1,100 66,688 ----------- 270,582 ----------- Banks - United States (7.28%) BankAmerica Corp. ..................................... 1,700 124,100 Bankers Trust New York Corp. .......................... 600 67,462 Citicorp .............................................. 1,500 189,656 Comerica, Inc. ........................................ 1,400 126,350 Norwest Corp. ......................................... 3,000 115,875 U.S. Bancorp .......................................... 100 11,194 ----------- 634,637 ----------- Beverages (2.38%) PepsiCo, Inc. ......................................... 5,700 207,694 ----------- Building (0.71%) Centex Corp. .......................................... 100 6,294 Clayton Homes, Inc. ................................... 250 4,500 Masco Corp. ........................................... 1,000 50,875 ----------- 61,669 ----------- Business Services - Misc (0.18%) Dun & Bradstreet Corp. ................................ 500 15,469 ----------- Chemicals (2.05%) Air Products & Chemicals, Inc. ........................ 1,200 98,700 Millennium Chemicals, Inc. ............................ 1,100 25,919 Praxair, Inc. ......................................... 1,200 54,000 ----------- 178,619 ----------- Computers (4.91%) Cadence Design Systems, Inc.* ......................... 1,000 24,500 Compaq Computer Corp.* ................................ 1,500 84,656 Computer Associates International, Inc. ............... 1,250 66,094 Hewlett-Packard Co. ................................... 700 43,750 Microsoft Corp.* ...................................... 1,400 180,950 Oracle Corp.* ......................................... 1,250 27,891 ----------- 427,841 ----------- The Schedule of Investments is a complete list of all securities owned by the V. A. Independence Equity Fund on December 31, 1997. It is divided into two main catagories: common stocks and short-term investments. Common stocks are further broken down by industry group. Short-term investments, which represent the Fund's "cash" position, are listed last. NUMBER OF MARKET ISSUER, DESCRIPTION SHARES VALUE - ------------------- ------ ----- Containers (0.17%) Owens-Illinois, Inc.* ................................. 400 $ 15,175 ----------- Cosmetics & Personal Care (1.67%) Avon Products, Inc. ................................... 1,100 67,512 Dial Corp. (The) ...................................... 3,100 64,519 Revlon, Inc. (Class A) * .............................. 400 14,125 ----------- 146,156 ----------- Diversified Operations (3.31%) Canadian Pacific, Ltd. (Canada) ....................... 600 16,350 Corning, Inc. ......................................... 1,400 51,975 Du Pont (E.I.) De Nemours & Co. ....................... 2,000 120,125 National Service Industries, Inc. ..................... 600 29,738 Ogden Corp. ........................................... 300 8,456 Textron, Inc. ......................................... 1,000 62,500 ----------- 289,144 ----------- Electronics (5.47%) General Electric Co. .................................. 2,700 198,113 Honeywell, Inc. ....................................... 2,000 137,000 Intel Corp. ........................................... 500 35,125 Parker-Hannifin Corp. ................................. 600 27,525 Raychem Corp. ......................................... 900 38,756 Texas Instruments, Inc. ............................... 900 40,500 ----------- 477,019 ----------- Finance (2.95%) American Express Co. .................................. 900 80,325 Household International, Inc. ......................... 500 63,781 MBNA Corp. ............................................ 1,100 30,044 Morgan Stanley, Dean Witter, Discover & Co. ........... 1,400 82,775 ----------- 256,925 ----------- Food (1.36%) ConAgra, Inc. ......................................... 1,200 39,375 Quaker Oats Co. ....................................... 1,500 79,125 ----------- 118,500 ----------- SEE NOTES TO FINANCIAL STATEMENTS. 60 ==============================FINANCIAL STATEMENTS============================== John Hancock Funds - Declaration Trust -- V.A. Independence Equity Fund NUMBER OF MARKET ISSUER, DESCRIPTION SHARES VALUE - ------------------- ------ ----- Household (0.32%) Tupperware Corp. ...................................... 1,000 $ 27,875 ----------- Instruments - Scientific (0.32%) Perkin-Elmer Corp. .................................... 400 28,425 ----------- Insurance (7.74%) American International Group, Inc. .................... 1,450 157,687 CIGNA Corp. ........................................... 300 51,919 Equitable Cos., Inc. (The) ............................ 600 29,850 General Re Corp. ...................................... 800 169,600 Hartford Financial Services Group, Inc. (The) ......... 500 46,781 Marsh & McLennan Cos., Inc. ........................... 1,200 89,475 Travelers Group, Inc. ................................. 2,400 129,300 ----------- 674,612 ----------- Leisure (1.15%) Cendant Corp. ......................................... 2,922 100,460 ----------- Machinery (1.02%) Cooper Industries, Inc. ............................... 1,100 53,900 Deere & Co. ........................................... 600 34,987 ----------- 88,887 ----------- Medical (10.74%) Abbott Laboratories ................................... 1,800 118,012 Allegiance Corp. ...................................... 600 21,262 Becton, Dickinson & Co. ............................... 1,000 50,000 Bristol-Myers Squibb Co. .............................. 1,400 132,475 Cardinal Health, Inc. ................................. 1,000 75,125 Glaxo Wellcome PLC American Depository Receipt (ADR) (United Kingdom) ....................... 500 23,938 Health Management Associates, Inc. (Class A)* ........................................... 1,000 25,250 HEALTHSOUTH Corp.* .................................... 2,700 74,925 Johnson & Johnson ..................................... 1,800 118,575 Merck & Co., Inc. ..................................... 1,800 191,250 Schering-Plough Corp. ................................. 1,700 105,613 ----------- 936,425 ----------- Mortgage Banking (0.91%) Fannie Mae ............................................ 1,400 79,888 ----------- Office (1.40%) Avery Dennison Corp. .................................. 300 13,425 Danka Business Systems PLC (ADR) (United Kingdom) ..................................... 600 9,562 Pitney Bowes, Inc. .................................... 1,100 98,931 ----------- 121,918 ----------- NUMBER OF MARKET ISSUER, DESCRIPTION SHARES VALUE - ------------------- ------ ----- Oil & Gas (9.73%) Anadarko Petroleum Corp. .............................. 200 $ 12,137 Atlantic Richfield Co. ................................ 1,100 88,137 Baker Hughes, Inc. .................................... 700 30,537 British Petroleum Co. PLC (ADR) (United Kingdom) ..................................... 1,000 79,687 Chevron Corp. ......................................... 1,400 107,800 Dresser Industries, Inc. .............................. 700 29,356 El Paso Natural Gas Co. ............................... 300 19,950 Halliburton Co. ....................................... 300 15,581 Mobil Corp. ........................................... 1,300 93,844 Phillips Petroleum Co. ................................ 2,100 102,113 Schlumberger, Ltd. .................................... 1,100 88,550 Texaco Inc. ........................................... 2,200 119,625 USX - Marathon Group .................................. 1,800 60,750 ----------- 848,067 ----------- Paper & Paper Products (1.21%) Fort James Corp. ...................................... 1,300 49,725 International Paper Co. ............................... 1,300 56,063 ----------- 105,788 ----------- Pollution Control (0.83%) Browning-Ferris Industries, Inc. ...................... 1,000 37,000 USA Waste Services, Inc.* ............................. 900 35,325 ----------- 72,325 ----------- Retail (4.60%) Costco Cos., Inc.* .................................... 700 31,237 Dayton Hudson Corp. ................................... 1,000 67,500 Home Depot, Inc. ...................................... 2,200 129,525 Lowe's Cos., Inc. ..................................... 1,200 57,225 Staples, Inc.* ........................................ 1,100 30,525 TJX Cos., Inc. ........................................ 1,200 41,250 Wal-Mart Stores, Inc. ................................. 1,100 43,381 ----------- 400,643 ----------- Soap & Cleaning Preparations (0.92%) Proctor & Gamble Co. (The) ............................ 1,000 79,813 ----------- Steel (0.47%) British Steel PLC (ADR) (United Kingdom) .............. 1,900 40,731 ----------- Telecommunications (2.78%) Harris Corp. .......................................... 1,000 45,875 Lucent Technologies, Inc. ............................. 2,459 196,413 ----------- 242,288 ----------- SEE NOTES TO FINANCIAL STATEMENTS. 61 ==============================FINANCIAL STATEMENTS============================== John Hancock Funds - Declaration Trust -- V.A. Independence Equity Fund NUMBER OF MARKET ISSUER, DESCRIPTION SHARES VALUE - ------------------- ------ ----- Textile (1.10%) Jones Apparel Group, Inc.* ............................ 700 $ 30,100 Liz Claiborne, Inc. ................................... 900 37,631 Tommy Hilfiger Corp.* ................................. 800 28,100 ----------- 95,831 ----------- Tobacco (0.41%) Philip Morris Cos., Inc. .............................. 700 31,719 Universal Corp. ....................................... 100 4,113 ----------- 35,832 ----------- Transport (1.93%) Burlington Northern Santa Fe .......................... 900 83,644 Norfolk Southern Corp. ................................ 900 27,731 Southwest Airlines Co. ................................ 2,300 56,638 ----------- 168,013 ----------- Utilities (7.16%) Baltimore Gas & Electric Co. .......................... 700 23,844 Bell Atlantic Corp. ................................... 2,000 182,000 Consolidated Natural Gas Co. .......................... 400 24,200 Dominion Resources, Inc. .............................. 1,400 59,587 Entergy Corp. ......................................... 400 11,975 Florida Progress Corp. ................................ 1,700 66,725 FPL Group, Inc. ....................................... 1,800 106,537 GTE Corp. ............................................. 2,700 141,075 Texas Utilities Co. ................................... 200 8,313 ----------- 624,256 ----------- TOTAL COMMON STOCKS (Cost $7,421,194) (92.33%) 8,050,558 ------- ----------- INTEREST PAR VALUE MARKET ISSUER, DESCRIPTION RATE (000s OMITTED) VALUE - ------------------- ---- -------------- ----- SHORT-TERM INVESTMENTS Joint Repurchase Agreement (9.58%) Investment in a joint repurchase agreement transaction with HSBC Securities, Inc. - Dated 12-31-97, Due 01-02-98 (Secured by U. S. Treasury Bonds, 7.25% thru 13.25%, due 11-15-08 thru 11-15-16, and by U.S. Treasury Note, 6.50% due 04-30-99 - Note A............... 6.60% $835 $ 835,000 ---------- Corporate Savings Account (0.00%) Investors Bank & Trust Company Daily Interest Savings Account Current Rate 4.95%.................. 157 --------- TOTAL SHORT-TERM INVESTMENTS ( 9.58%) 835,157 ------- ----------- TOTAL INVESTMENTS (101.91%) 8,885,715 ------- ----------- OTHER ASSETS AND LIABILITIES, NET ( 1.91%) ( 166,623) ------- ----------- TOTAL NET ASSETS ( 100%) $ 8,719,092 ======= =========== * Non-income producing security 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. 62 ==============================FINANCIAL STATEMENTS============================== John Hancock Funds - Declaration Trust -- V.A. 500 Index Fund Schedule of Investments December 31, 1997 - -------------------------------------------------------------------------------- NUMBER OF MARKET ISSUER, DESCRIPTION SHARES VALUE - ------------------- ------ ----- COMMON STOCKS Advertising (0.10%) Interpublic Group, Inc. ............................... 400 $ 19,925 ----------- Aerospace (1.19%) Boeing Co. (The) ...................................... 2,400 117,450 General Dynamics Corp. ................................ 200 17,288 Northrop Grumman Corp. ................................ 200 23,000 Raytheon Co. (Class A) ................................ 114 5,622 Raytheon Co. (Class B) ................................ 600 30,300 United Technologies Corp. ............................. 600 43,687 ----------- 237,347 ----------- Agricultural Operations (0.11%) Pioneer Hi-Bred International, Inc. ................... 200 21,450 ----------- Automobile/Trucks (1.87%) Chrysler Corp. ........................................ 1,800 63,337 Dana Corp. ............................................ 400 19,000 Eaton Corp. ........................................... 300 26,775 Ford Motor Co. ........................................ 3,000 146,062 General Motors Corp. .................................. 1,800 109,125 PACCAR, Inc. .......................................... 200 10,500 ----------- 374,799 ----------- Banks - United States (7.78%) Banc One Corp. ........................................ 1,400 76,037 Bank of New York Co., Inc. ............................ 900 52,031 BankAmerica Corp. ..................................... 1,700 124,100 BankBoston Corp. ...................................... 400 37,575 Bankers Trust New York Corp. .......................... 300 33,731 Barnett Banks, Inc. ................................... 500 35,937 Chase Manhattan Corp. ................................. 1,000 109,500 Citicorp .............................................. 1,100 139,081 Comerica, Inc. ........................................ 300 27,075 CoreStates Financial Corp. ............................ 500 40,031 Fifth Third Bancorp ................................... 400 32,700 First Chicago NBD Corp. ............................... 700 58,450 First Union Corp. ..................................... 1,500 76,875 Fleet Financial Group, Inc. ........................... 600 44,962 Huntington Bancshares, Inc. ........................... 600 21,600 KeyCorp ............................................... 600 42,487 Mellon Bank Corp. ..................................... 600 36,375 Morgan (J.P.) & Co., Inc. ............................. 400 45,150 National City Corp. ................................... 600 39,450 The Schedule of Investments is a complete list of all securities owned by the V. A. 500 Index Fund on December 31, 1997. It is divided into two main catagories: common stocks and short-term investments. Common stocks are further broken down by industry group. Short-term investments, which represent the Fund's "cash" position, are listed last. NUMBER OF MARKET ISSUER, DESCRIPTION SHARES VALUE - ------------------- ------ ----- Banks - United States (continued) NationsBank Corp. ..................................... 1,700 $ 103,381 Norwest Corp. ......................................... 1,800 69,525 PNC Bank Corp. ........................................ 800 45,650 Republic New York Corp. ............................... 200 22,838 State Street Corp. .................................... 400 23,275 SunTrust Banks, Inc. .................................. 500 35,687 Synovus Financial Corp. ............................... 500 16,375 U.S. Bancorp .......................................... 600 67,162 Wachovia Corp. ........................................ 400 32,450 Wells Fargo & Co. ..................................... 200 67,887 ----------- 1,557,377 ----------- Beverages (3.10%) Anheuser-Busch Cos., Inc. ............................. 1,200 52,800 Coca-Cola Co. (The) ................................... 6,000 399,750 PepsiCo, Inc. ......................................... 3,700 134,819 Seagram Co. Ltd. (The) (Canada) ....................... 1,000 32,312 ----------- 619,681 ----------- Broker Services (0.44%) Merrill Lynch & Co. ................................... 800 58,350 Schwab (Charles) Corp. ................................ 700 29,356 ----------- 87,706 ----------- Building (0.78%) Black & Decker Corp. .................................. 400 15,625 Fluor Corp. ........................................... 300 11,213 Georgia-Pacific Group ................................. 300 18,225 Georgia Pacific Timber Group* ......................... 300 6,806 Masco Corp. ........................................... 600 30,525 Sherwin-Williams Co. .................................. 600 16,650 Stanley Works (The) ................................... 300 14,156 Weyerhauser Co. ....................................... 600 29,438 Willamette Industries, Inc. ........................... 400 12,875 ----------- 155,513 ----------- SEE NOTES TO FINANCIAL STATEMENTS. 63 ==============================FINANCIAL STATEMENTS============================== John Hancock Funds - Declaration Trust -- V.A. 500 Index Fund NUMBER OF MARKET ISSUER, DESCRIPTION SHARES VALUE - ------------------- ------ ----- Business Services - Misc (0.23%) Block, H & R, Inc. .................................... 300 $ 13,444 Dun & Bradstreet Corp. (The) .......................... 600 18,563 Equifax, Inc. ......................................... 400 14,175 ----------- 46,182 ----------- Chemicals (1.51%) Air Products & Chemicals, Inc. ........................ 300 24,675 Dow Chemical Co. ...................................... 600 60,900 Eastman Chemical Co. .................................. 300 17,869 Grace (W. R.) & Co. ................................... 200 16,088 Hercules, Inc. ........................................ 300 15,019 Monsanto Co. .......................................... 1,500 63,000 Morton International, Inc. ............................ 500 17,188 PPG Industries, Inc. .................................. 500 28,563 Praxair, Inc. ......................................... 500 22,500 Rohm & Haas Co. ....................................... 200 19,150 Union Carbide Corp. ................................... 400 17,175 ----------- 302,127 ----------- Computers (7.84%) Adobe Systems, Inc. ................................... 200 8,250 Apple Computer, Inc. * ................................ 500 6,563 Automatic Data Processing, Inc. ....................... 700 42,962 Bay Networks, Inc.* ................................... 600 15,338 Cabletron Systems, Inc.* .............................. 500 7,500 Ceridian Corp.* ....................................... 200 9,163 Cisco Systems, Inc.* .................................. 2,400 133,800 Cognizant Corp. ....................................... 400 17,825 Compaq Computer Corp.* ................................ 1,900 107,231 Computer Associates International, Inc. ............... 1,300 68,737 Computer Sciences Corp.* .............................. 200 16,700 Dell Computer Corp.* .................................. 800 67,200 Digital Equipment Corp.* .............................. 400 14,800 EMC Corp.* ............................................ 1,200 32,925 First Data Corp. ...................................... 1,100 32,175 HBO & Co. ............................................. 500 24,000 Hewlett-Packard Co. ................................... 2,600 162,500 International Business Machines Corp. ................. 2,400 250,950 Microsoft Corp.* ...................................... 2,900 374,825 Novell, Inc.* ......................................... 1,100 8,250 Oracle Corp.* ......................................... 2,400 53,550 Parametric Technology Corp.* .......................... 300 14,213 Seagate Technology, Inc.* ............................. 700 13,475 Silicon Graphics, Inc.* ............................... 500 6,219 Sun Microsystems, Inc.* ............................... 900 35,887 NUMBER OF MARKET ISSUER, DESCRIPTION SHARES VALUE - ------------------- ------ ----- Computers (continued) 3Com Corp.* ........................................... 900 $ 31,444 Unisys Corp. * ........................................ 500 6,938 UNOVA, Inc. * ......................................... 300 4,931 ----------- 1,568,351 ----------- Containers (0.18%) Crown Cork & Seal Co., Inc. ........................... 400 20,050 Owens-Illinois, Inc.* ................................. 400 15,175 ----------- 35,225 ----------- Cosmetics & Personal Care (0.93%) Avon Products, Inc. ................................... 400 24,550 Gillette Co. .......................................... 1,400 140,612 International Flavors & Fragrances, Inc. .............. 400 20,600 ----------- 185,762 ----------- Diversified Operations (3.08%) AlliedSignal, Inc. .................................... 1,400 54,512 Corning, Inc. ......................................... 600 22,275 Du Pont (E.I.) De Nemours & Co. ....................... 2,700 162,169 Fortune Brands, Inc. .................................. 600 22,238 IKON Office Solutions, Inc. ........................... 400 11,250 ITT Industries, Inc. .................................. 500 15,688 Johnson Controls, Inc. ................................ 400 19,100 Laidlaw, Inc. (Canada) ................................ 1,100 14,988 Lockheed Martin Corp. ................................. 500 49,250 Loews Corp. ........................................... 300 31,837 Minnesota Mining & Manufacturing Co. .................. 1,000 82,062 Tenneco, Inc. ......................................... 500 19,750 Textron, Inc. ......................................... 500 31,250 TRW, Inc. ............................................. 400 21,350 Tyco International Ltd. ............................... 1,300 58,581 ----------- 616,300 ----------- Electronics (6.74%) Advanced Micro Devices, Inc.* ......................... 400 7,175 AMP, Inc. ............................................. 600 25,200 Applied Materials, Inc.* .............................. 900 27,113 CBS Corp. ............................................. 2,800 82,425 Emerson Electric Co. .................................. 1,100 62,081 General Electric Co. .................................. 8,000 587,000 Grainger (W.W.), Inc. ................................. 200 19,438 Honeywell, Inc. ....................................... 400 27,400 Intel Corp. ........................................... 4,000 281,000 KLA-Tencor Corp.* ..................................... 200 7,725 LSI Logic Corp.* ...................................... 400 7,900 Micron Technology, Inc. * ............................. 600 15,600 SEE NOTES TO FINANCIAL STATEMENTS. 64 ==============================FINANCIAL STATEMENTS============================== John Hancock Funds - Declaration Trust -- V.A. 500 Index Fund NUMBER OF MARKET ISSUER, DESCRIPTION SHARES VALUE - ------------------- ------ ----- Electronics (continued) Motorola, Inc. ........................................ 1,500 $ 85,594 National Semiconductor Corp.* ......................... 400 10,375 Parker- Hannifin Corp. ................................ 400 18,350 Raychem Corp. ......................................... 200 8,613 Rockwell International Corp. .......................... 600 31,350 Texas Instruments, Inc. ............................... 1,000 45,000 ----------- 1,349,339 ----------- Finance (1.67%) Ahmanson (H.F.) & Co. ................................. 300 20,081 American Express Co. .................................. 1,100 98,175 Household International, Inc. ......................... 300 38,269 MBNA Corp. ............................................ 1,300 35,506 Morgan Stanley, Dean Witter, Discover & Co. ........... 1,400 82,775 SunAmerica, Inc. ...................................... 500 21,375 Washington Mutual, Inc. ............................... 600 38,287 ----------- 334,468 ----------- Food (2.84%) Archer-Daniels-Midland Co. ............................ 1,500 32,531 Campbell Soup Co. ..................................... 1,100 63,937 ConAgra, Inc. ......................................... 1,200 39,375 CPC International, Inc. ............................... 400 43,100 General Mills, Inc. ................................... 400 28,650 Heinz (H.J.) Co. ...................................... 900 45,731 Hershey Foods Corp. ................................... 400 24,775 Kellogg Co. ........................................... 1,000 49,625 Quaker Oats Co. ....................................... 400 21,100 Ralston Purina Group .................................. 300 27,881 Sara Lee Corp. ........................................ 1,200 67,575 Unilever N.V. PLC (Netherlands) ....................... 1,600 99,900 Wrigley (WM) Jr. Co. .................................. 300 23,869 ----------- 568,049 ----------- Funeral Services & Related (0.13%) Service Corporation International ..................... 700 25,856 ----------- Household (0.16%) Newell Co. ............................................ 500 21,250 Whirlpool Corp. ....................................... 200 11,000 ----------- 32,250 ----------- Instruments - Scientific (0.11%) Thermo Electron Corp.* ................................ 500 22,250 ----------- Insurance (4.62%) Aetna, Inc. ........................................... 400 28,225 Allstate Corp. ........................................ 1,000 90,875 American General Corp. ................................ 600 32,437 NUMBER OF MARKET ISSUER, DESCRIPTION SHARES VALUE - ------------------- ------ ----- Insurance (continued) American International Group, Inc. .................... 1,700 $ 184,875 Aon Corp. ............................................. 500 29,313 Chubb Corp. ........................................... 400 30,250 CIGNA Corp. ........................................... 200 34,612 Conseco, Inc. ......................................... 500 22,719 General Re Corp. ...................................... 200 42,400 Hartford Financial Services Group, Inc. (The) ......... 300 28,069 Humana, Inc.* ......................................... 600 12,450 Jefferson Pilot Corp. ................................. 200 15,575 Lincoln National Corp. ................................ 300 23,438 Marsh & McLennan Cos., Inc. ........................... 400 29,825 MBIA, Inc. ............................................ 300 20,044 MGIC Investment Corp. ................................. 300 19,950 Progressive Corp. ..................................... 200 23,975 SAFECO Corp. .......................................... 400 19,500 St. Paul Cos., Inc. ................................... 300 24,619 Torchmark Corp. ....................................... 400 16,825 Transamerica Corp. .................................... 200 21,300 Travelers Group, Inc. ................................. 2,800 150,850 UNUM Corp. ............................................ 400 21,750 ----------- 923,876 ----------- Leisure (2.09%) Cendant Corp. * ....................................... 2,061 70,847 Disney (Walt) Co., (The) .............................. 1,700 168,406 Eastman Kodak Co. ..................................... 800 48,650 Hasbro, Inc. .......................................... 400 12,600 Hilton Hotels Corp. ................................... 700 20,825 ITT Corp.* ............................................ 300 24,863 Marriott International, Inc. .......................... 400 27,700 Mattel, Inc. .......................................... 800 29,800 Mirage Resorts, Inc. * ................................ 600 13,650 ----------- 417,341 ----------- Machinery (0.84%) Case Corp. ............................................ 300 18,131 Caterpiller Tractor, Inc. ............................. 1,000 48,562 Cooper Industries, Inc. ............................... 400 19,600 Deere & Co. ........................................... 700 40,819 Dover Corp. ........................................... 600 21,675 Ingersoll-Rand Co. .................................... 500 20,250 ----------- 169,037 ----------- Media (1.88%) Clear Channel Communications, Inc.* ................... 300 23,831 Comcast Corp. ......................................... 900 28,406 SEE NOTES TO FINANCIAL STATEMENTS. 65 ==============================FINANCIAL STATEMENTS============================== John Hancock Funds - Declaration Trust -- V.A. 500 Index Fund NUMBER OF MARKET ISSUER, DESCRIPTION SHARES VALUE - ------------------- ------ ----- Media (continued) Dow Jones & Co., Inc. ................................. 300 $ 16,106 Gannett Co., Inc. ..................................... 700 43,269 Knight-Ridder, Inc. ................................... 300 15,600 McGraw-Hill Cos., Inc. ................................ 300 22,200 New York Times Co. (Class A) .......................... 300 19,838 Tele-Communications, Inc. (Class A)* .................. 1,300 36,319 Time Warner, Inc. ..................................... 1,400 86,800 Times Mirror Co. (Class A) ............................ 300 18,450 Tribune Co. ........................................... 400 24,900 Viacom, Inc. (Class B)* ............................... 1,000 41,437 ----------- 377,156 ----------- Medical (10.34%) Abbott Laboratories ................................... 1,900 124,569 ALZA Corp.* ........................................... 300 9,544 American Home Products Corp. .......................... 1,600 122,400 Amgen, Inc.* .......................................... 700 37,887 Baxter International, Inc. ............................ 800 40,350 Becton, Dickinson & Co. ............................... 400 20,000 Boston Scientific Corp.* .............................. 500 22,938 Bristol-Myers Squibb Co. .............................. 2,400 227,100 Cardinal Health, Inc. ................................. 300 22,538 Columbia/HCA Healthcare Corp. ......................... 1,700 50,362 Guidant Corp. ......................................... 400 24,900 HEALTHSOUTH Corp.* .................................... 1,000 27,750 Johnson & Johnson ..................................... 3,300 217,387 Lilly (Eli) & Co. ..................................... 2,700 187,988 Mallinckrodt, Inc. .................................... 400 15,200 Medtronic, Inc. ....................................... 1,200 62,775 Merck & Co., Inc. ..................................... 3,000 318,750 Pfizer, Inc. .......................................... 3,200 238,600 Pharmacia & Upjohn, Inc. .............................. 1,300 47,612 Schering-Plough Corp. ................................. 1,800 111,825 Tenet Healthcare Corp.* ............................... 800 26,500 United Healthcare Corp. ............................... 500 24,844 Warner-Lambert Co. .................................... 700 86,800 ----------- 2,068,619 ----------- Metal (0.95%) Alcan Aluminium Ltd. (Canada) ......................... 700 19,338 Aluminum Co. of America ............................... 500 35,187 Barrick Gold Corp. (Canada) ........................... 1,200 22,350 Freeport-McMoRan Copper & Gold, Inc. .................. 800 12,600 Illinois Tool Works, Inc. ............................. 700 42,087 Inco, Ltd. (Canada) ................................... 600 10,200 Newmont Mining Corp. .................................. 600 17,625 NUMBER OF MARKET ISSUER, DESCRIPTION SHARES VALUE - ------------------- ------ ----- Metal (continued) Phelps Dodge Corp. .................................... 200 $ 12,450 Reynolds Metals Co. ................................... 300 18,000 ----------- 189,837 ----------- Mortgage Banking (1.22%) Countrywide Credit Industries, Inc. ................... 300 12,863 Fannie Mae ............................................ 2,600 148,362 Federal Home Loan Mortgage Corp. ...................... 1,700 71,294 Green Tree Financial Corp. ............................ 400 10,475 ----------- 242,994 ----------- Office (0.56%) Avery Dennison Corp. .................................. 400 17,900 Pitney Bowes, Inc. .................................... 400 35,975 Xerox Corp. ........................................... 800 59,050 ----------- 112,925 ----------- Oil & Gas (8.29%) Amerada Hess Corp. .................................... 300 16,463 Amoco Corp. ........................................... 1,200 102,150 Anadarko Petroleum Corp. .............................. 200 12,138 Apache Corp. .......................................... 400 14,025 Ashland, Inc. ......................................... 300 16,106 Atlantic Richfield Co. ................................ 800 64,100 Baker Hughes, Inc. .................................... 500 21,813 Burlington Resources, Inc. ............................ 600 26,888 Chevron Corp. ......................................... 1,600 123,200 Coastal Corp. (The) ................................... 300 18,581 Dresser Industries, Inc. .............................. 600 25,163 Enron Corp. ........................................... 800 33,250 Exxon Corp. ........................................... 6,000 367,125 Halliburton Co. ....................................... 700 36,356 Mobil Corp. ........................................... 1,900 137,156 Occidental Petroleum Corp. ............................ 900 26,381 Pennzoil Co. .......................................... 200 13,363 Phillips Petroleum Co. ................................ 800 38,900 Rowan Cos., Inc.* ..................................... 300 9,150 Royal Dutch Petroleum Co. (Netherlands) ............... 5,200 281,775 Schlumberger, Ltd. .................................... 1,200 96,600 Texaco, Inc. .......................................... 1,400 76,125 Union Pacific Resources Group ......................... 800 19,400 Unocal Corp. .......................................... 700 27,169 USX - Marathon Group .................................. 800 27,000 Williams Cos., Inc. (The) ............................. 1,000 28,375 ----------- 1,658,752 ----------- SEE NOTES TO FINANCIAL STATEMENTS. 66 ==============================FINANCIAL STATEMENTS============================== John Hancock Funds - Declaration Trust -- V.A. 500 Index Fund NUMBER OF MARKET ISSUER, DESCRIPTION SHARES VALUE - ------------------- ------ ----- Paper & Paper Products (0.78%) Champion International Corp. .......................... 300 $ 13,594 Fort James Corp. ...................................... 600 22,950 International Paper Co. ............................... 800 34,500 Kimberly-Clark Corp. .................................. 1,400 69,037 Union Camp Corp. ...................................... 300 16,106 ----------- 156,187 ----------- Pollution Control (0.26%) Browning-Ferris Industries, Inc. ...................... 500 18,500 Waste Management, Inc. ................................ 1,200 33,000 ----------- 51,500 ----------- Printing - Commercial (0.09%) Donnelley (R.R.) & Sons ............................... 500 18,625 ----------- Retail (5.30%) Albertson's, Inc. ..................................... 700 33,162 American Stores Co. ................................... 800 16,450 AutoZone, Inc.* ....................................... 400 11,600 Circuit City Stores, Inc. ............................. 300 10,669 Costco Cos., Inc.* .................................... 600 26,775 CVS Corp. ............................................. 500 32,031 Dayton Hudson Corp. ................................... 600 40,500 Dillards, Inc. ........................................ 400 14,100 Federated Department Stores, Inc.* .................... 600 25,838 Gap, Inc. (The) ....................................... 1,050 37,209 Genuine Parts Co. ..................................... 700 23,756 Home Depot, Inc. ...................................... 1,800 105,975 Kmart Corp.* .......................................... 1,400 16,188 Kroger Co. * .......................................... 700 25,856 Limited, Inc. (The) ................................... 800 20,400 Lowe's Cos., Inc. ..................................... 500 23,844 May Department Stores ................................. 600 31,612 McDonald's Corp. ...................................... 1,700 81,175 Nordstrom, Inc. ....................................... 200 12,075 Penney (J. C.) Co., Inc. .............................. 600 36,187 Rite Aid Corp. ........................................ 300 17,606 Sears, Roebuck & Co. .................................. 1,000 45,250 Sysco Corp. ........................................... 500 22,781 Tandy Corp. ........................................... 300 11,569 TJX Cos., Inc. ........................................ 400 13,750 Toys "R" Us, Inc.* .................................... 800 25,150 Tricon Global Restaurants, Inc.* ..................... 500 14,531 Wal-Mart Stores, Inc. ................................. 5,500 216,906 Walgreen Co. .......................................... 1,200 37,650 NUMBER OF MARKET ISSUER, DESCRIPTION SHARES VALUE - ------------------- ------ ----- Retail (continued) Winn-Dixie Stores, Inc. ............................... 500 $ 21,844 Woolworth Corp. * ..................................... 400 8,150 ----------- 1,060,589 ----------- Rubber - Tires & Misc (0.13%) Goodyear Tire & Rubber Co. (The) ..................... 400 25,450 ----------- Shoes & Related Apparel (0.14%) Nike, Inc. (Class B) .................................. 700 27,475 ----------- Soap & Cleaning Preparations (1.69%) Clorox Co. ............................................ 300 23,719 Colgate-Palmolive Co. ................................. 700 51,450 Proctor & Gamble Co. (The) ............................ 3,300 263,381 ----------- 338,550 ----------- Steel (0.15%) Allegheny Teledyne, Inc. .............................. 600 15,525 Nucor Corp. ........................................... 300 14,494 ----------- 30,019 ----------- Telecommunications (3.87%) A T & T Corp. ......................................... 4,000 245,000 Airtouch Communications, Inc. * ....................... 1,300 54,031 DSC Communications Corp. .............................. 400 9,600 Lucent Technologies, Inc. ............................. 1,600 127,800 MCI Communications Corp. .............................. 1,700 72,781 Northern Telecom Ltd. (Canada) ........................ 700 62,300 Sprint Corp. .......................................... 1,100 64,487 Tellabs, Inc.* ........................................ 500 26,438 U.S. West Media Group* ................................ 1,600 46,200 WorldCom, Inc.* ....................................... 2,200 66,550 ----------- 775,187 ----------- Textile (0.16%) Liz Claiborne, Inc. ................................... 300 12,544 V.F. Corp. ............................................ 400 18,375 ----------- 30,919 ----------- Tobacco (1.47%) Philip Morris Cos., Inc. .............................. 5,900 267,344 UST, Inc. ............................................. 700 25,856 ----------- 293,200 ----------- Transport (1.16%) AMR Corp.* ............................................ 200 25,700 Burlington Northern Santa Fe .......................... 400 37,175 CSX Corp. ............................................. 600 32,400 Delta Air Lines, Inc. ................................. 200 23,800 Federal Express Corp. * ............................... 300 18,319 Norfolk Southern Corp. ................................ 1,000 30,812 SEE NOTES TO FINANCIAL STATEMENTS. 67 ==============================FINANCIAL STATEMENTS============================== John Hancock Funds - Declaration Trust -- V.A. 500 Index Fund NUMBER OF MARKET ISSUER, DESCRIPTION SHARES VALUE - ------------------- ------ ----- Transport (continued) Southwest Airlines Co. ................................ 600 $ 14,775 Union Pacific Corp. ................................... 600 37,462 US Airways Group, Inc.* ............................... 200 12,500 ----------- 232,943 ----------- Utilities (6.63%) Alltel Corp. .......................................... 600 24,638 American Electric Power Co., Inc. ..................... 600 30,975 Ameritech Corp. ....................................... 1,400 112,700 Bell Atlantic Corp. ................................... 1,900 172,900 BellSouth Corp. ....................................... 2,400 135,150 Central & South West Corp. ............................ 800 21,650 Consolidated Edison Co. of NY, Inc. ................... 700 28,700 Consolidated Natural Gas Co. .......................... 300 18,150 Dominion Resources, Inc. .............................. 600 25,538 Duke Energy Corp. ..................................... 900 49,838 Edison International .................................. 1,100 29,906 Entergy Corp. ......................................... 900 26,944 FirstEnergy Corp. * ................................... 800 23,200 FPL Group, Inc. ....................................... 500 29,594 Frontier Corp. ........................................ 600 14,438 GTE Corp. ............................................. 2,400 125,400 Houston Industries, Inc. .............................. 1,000 26,688 PacifiCorp ............................................ 1,100 30,044 PECO Energy Co. ....................................... 900 21,825 PG&E Corp. ............................................ 1,200 36,525 Public Service Enterprise Group, Inc. ................. 800 25,350 SBC Communications, Inc. .............................. 2,200 161,150 Southern Co. .......................................... 1,800 46,575 Texas Utilities Co. ................................... 700 29,094 Unicom Corp. .......................................... 700 21,525 US WEST Communications Group .......................... 1,300 58,662 ----------- 1,327,159 ----------- TOTAL COMMON STOCKS (Cost $17,791,716) (93.41%) 18,688,297 ------- ----------- INTEREST PAR VALUE MARKET ISSUER, DESCRIPTION RATE (000s OMITTED) VALUE - ------------------- ---- -------------- ----- SHORT-TERM INVESTMENTS Joint Repurchase Agreement (6.32%) Investment in a joint repurchase agreement transaction with HSBC Securities, Inc. - Dated 12-31-97, Due 01-02-98 (Secured by U.S. Treasury Bonds, 11.25% due 02-15-15 and 9.25% due 02-15-16) - Note A.................. 6.60% $1,265 $ 1,265,000 ----------- TOTAL SHORT-TERM INVESTMENTS ( 6.32%) 1,265,000 ------- ----------- TOTAL INVESTMENTS ( 99.73%) 19,953,297 ------- ----------- OTHER ASSETS AND LIABILITIES, NET ( 0.27%) 54,520 ------- ----------- TOTAL NET ASSETS (100.00%) $20,007,817 ======= =========== * Non-income producing security. 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. 68 ==============================FINANCIAL STATEMENTS============================== John Hancock Funds - Declaration Trust -- V.A. Sovereign Investors Fund Schedule of Investments December 31, 1997 Per share earnings and dividends and their compound growth rates are shown for the most recently reported ten year periods on common stocks, and are not audited. - --------------------------------------------------------------------------------
COMPOUND NUMBER GROWTH MARKET OF SHARES RATE VALUE --------- -------- ------ COMMON STOCKS Advertising (1.39%) 3,400 Interpublic Group, Inc. @ 49 13/16......................................... $ 169,363 ---------- One of the largest advertising agencies in the world Earnings P/S.......$ .60, .70, .79, .87, 1.00, 1.11, 1.25, 1.11, 1.71, 1.82 13.1% Dividends P/S............$ .17, .21, .25, .27, .30, .33, .36, .40, .44, .50 12.7% Price/Earnings Ratio...................................................27.4 Banks (7.21%) 2,600 Banc One Corp. @ 54 5/16................................................... 141,212 Ohio-based bank holding company Earnings P/S...$ 1.43, 1.45, 1.66, 1.72, 2.08, 2.62, 2.20, 2.91, 3.23, 2.25 5.2% Dividends P/S........$ .50, .57, .63, .70, .81, .98, 1.13, 1.24, 1.36, 1.52 13.1% Price/Earnings Ratio...................................................24.7 1,300 BB&T Corp. @ 64 1/16....................................................... 83,281 Full-service commercial and retail bank Earnings P/S....$ .95, 1.13, 1.19, 1.01, 1.36, 1.84, 2.13, 2.21, 2.34, 2.54 11.5% Dividends P/S...........$ .34, .36, .38, .42, .46, .50, .64, .74, .86, 1.00 12.7% Price/Earnings Ratio...................................................23.4 700 First Tennessee National Corp. @ 66 3/4.................................... 46,725 Tennessee-based bank holding company Earnings P/S....$ 1.10, .61, 1.00, 1.32, 1.60, 1.66, 2.15, 2.42, 2.68, 2.97 11.7% Dividends P/S..........$ .43, .49, .54, .57, .63, .75, .87, .97, 1.10, 1.23 12.4% Price/Earnings Ratio...................................................22.3 2,200 First Union Corp. @ 51 1/4................................................. 112,750 North Carolina-based bank holding company Earnings P/S...$ 1.38, 1.20, 1.26, 1.28, 1.12, 2.37, 2.29, 2.52, 2.68, 3.43 10.6% Dividends P/S..........$ .43, .50, .54, .56, .64, .75, .86, .98, 1.10, 1.22 12.3% Price/Earnings Ratio...................................................14.9 2,500 KeyCorp. @ 70 13/16........................................................ 177,031 Bank holding company with offices from coast to coast. Earnings P/S....$ 2.10, 2.32, 2.32, 1.31, 2.39, 2.89, 3.45, 3.3, 3.37, 3.73 6.6% Dividends P/S.......$ .68, .80, .88, .92, .98, 1.12, 1.28, 1.44, 1.52, 1.68 10.6% Price/Earnings Ratio...................................................18.9 3,000 NationsBank Corp. @ 60 13/16............................................... 182,438 Largest superregional bank in the Southeast Earnings P/S....$ 1.44, 2.22, 1.31, .38, 2.30, 2.50, 3.06, 3.57, 4.00, 4.22 12.7% Dividends P/S.........$ .47, .55, .71, .74, .76, .82, .94, 1.04, 1.20, 1.32 12.2% Price/Earnings Ratio...................................................14.4 3,500 Norwest Corp. @ 38 5/8..................................................... 135,188 The 12th largest bank holding company in the U.S. Earnings P/S.........$ .57, .63, .22, .73, .71, .95, 1.23, 1.38, 1.54, 1.69 12.8% Dividends P/S............$ .16, .19, .21, .24, .27, .32, .38, .45, .53, .62 16.2% Price/Earnings Ratio...................................................22.5 ---------- 878,625 ---------- The Schedule of Investments is a complete list of all securities owned by the V. A. Sovereign Investors Fund on December 31, 1997. It is divided into three main catagories: common stocks, U.S. government and agencies obligations and short-term investments. Common stocks are further broken down by industry group. Short-term investments, which represent the Fund's "cash" position, are listed last. Beverages (0.45%) 1,500 PepsiCo, Inc. @ 36 7/16.................................................... $ 54,656 ---------- Second largest soft drink company Earnings P/S..........$ .48, .57, .69, .68, .81, .98, 1.11, 1.00, .72, 1.07 9.3% Dividends P/S............$ .12, .15, .18, .21, .23, .28, .32, .36, .41, .47 16.4% Price/Earnings Ratio...................................................33.6 Building (1.63%) 3,900 Masco Corp. @ 50 7/8....................................................... 198,413 ---------- Manufactures buildings, home improvement and consumer products Earnings P/S.....$ 2.03, 1.42, .91, .30, 1.21, 1.45, 1.09, 1.25, 1.84, 2.23 1.1% Dividends P/S............$ .44, .50, .54, .57, .61, .65, .69, .73, .77, .81 7.0% Price/Earnings Ratio...................................................22.7 Chemicals (12.51%) 5,000 Air Products & Chemicals, Inc. @ 82 1/4.................................... 411,250 Producer of industrial gases Earnings P/S...$ 1.95, 2.02, 2.08, 2.23, 2.45, 1.76, 2.05, 3.29, 3.73, 3.90 8.0% Dividends P/S.........$ .55, .63, .69, .75, .83, .89, .95, 1.01, 1.07, 1.15 8.5% Price/Earnings Ratio...................................................21.4 5,900 BetzDearborn,Inc. @ 61 1/16................................................ 360,269 Produces and markets a wide range of engineered programs and specialty chemical products for process systems Earnings P/S...$ 1.58, 1.77, 2.12, 2.47, 2.71, 2.05, 2.43, 2.27, 2.10, 2.47 5.1% Dividends P/S....$ .80, .89, 1.01, 1.16, 1.30, 1.38, 1.42, 1.46, 1.49, 1.51 7.3% Price/Earnings Ratio...................................................24.9 17,000 RPM, Inc. @ 15 1/4......................................................... 259,250 Manufacturer of specialty chemicals and coatings to waterproof and rustproof structures Earnings P/S.............$ .30, .37, .34, .44, .47, .47, .60, .68, .72, .80 11.5% Dividends P/S............$ .20, .22, .24, .27, .29, .31, .34, .36, .39, .42 8.6% Price/Earnings Ratio...................................................19.2 7,000 Schulman (A), Inc. @ 25 1/8................................................ 175,875 Manufactures proprietary and custom plastic compounds, buys and sells plastic resins and distributes plastic products and synthetic rubber for prime producers in domestic and international markets Earnings P/S......$ .73, .82, .64, 1.15, 1.18, 1.04, 1.19, 1.43, 1.12, 1.37 7.2% Dividends P/S............$ .11, .14, .16, .19, .22, .26, .30, .34, .38, .42 16.1% Price/Earnings Ratio...................................................16.3
SEE NOTES TO FINANCIAL STATEMENTS. 69 ==============================FINANCIAL STATEMENTS============================== John Hancock Funds - Declaration Trust -- V.A. Sovereign Investors Fund
COMPOUND NUMBER GROWTH MARKET OF SHARES RATE VALUE --------- -------- ------ Chemicals (continued) 8,000 Sigma - Aldrich Corp. @ 39 3/4............................................. $ 318,000 Manufacturer of biochemical and organic products used for research and diagnostics Earnings P/S........$ .57, .65, .72, .80, .96, 1.08, 1.11, 1.32, 1.48, 1.61 12.2% Dividends P/S............$ .08, .09, .10, .11, .13, .15, .17, .19, .23, .26 14.0% Price/Earnings Ratio...................................................24.7 ---------- 1,524,644 ---------- Computers (4.06%) 4,000 Automatic Data Processing, Inc. @ 61 3/8................................... 245,500 Largest independent computing services firm in the U.S. Earnings P/S........$ .55, .63, .72, .82, .92, 1.04, 1.19, 1.38, 1.57, 1.76 13.8% Dividends P/S............$ .13, .15, .17, .20, .23, .26, .29, .35, .42, .48 15.6% Price/Earnings Ratio...................................................33.3 4,000 Hewlett-Packard Co. @ 62 1/2............................................... 250,000 Manufactures and services electronic measurement, analysis and computation instruments Earnings P/S........$ .84, .88, .77, .76, .87, 1.16, 1.54, 2.32, 2.46, 2.95 15.0% Dividends P/S............$ .07, .10, .11, .13, .20, .24, .29, .38, .46, .54 25.5% Price/Earnings Ratio...................................................21.9 ---------- 495,500 ---------- Containers (5.48%) 5,700 Bemis Company, Inc. @ 44 1/16.............................................. 251,156 Producer of a broad range of flexible packaging and equipment and pressure sensitive materials Earnings P/S.......$ .74, .90, .99, 1.03, 1.10, .89, 1.40, 1.63, 1.90, 1.93 11.2% Dividends P/S............$ .22, .30, .36, .42, .46, .50, .54, .64, .72, .80 15.4% Price/Earnings Ratio...................................................22.7 12,000 Sonoco Products Corp. @ 34 11/16........................................... 416,250 Leading manufacturer of containers, paper products and packaging Earnings P/S.....$ 1.05, 1.12, .55, 1.05, .89, 1.29, 1.33, 1.72, 1.81, 1.81 6.2% Dividends P/S............$ .30, .39, .43, .44, .48, .50, .53, .59, .65, .71 10.0% Price/Earnings Ratio...................................................18.9 ---------- 667,406 ---------- Diversified Operations (3.47%) 3,300 DuPont (E.I.) De Nemours & Co. @ 60 1/16................................... 198,206 Nation's largest chemical manufacturer Earnings P/S.....$ 1.52, 1.77, 1.70, 1.04, .72, .42, 2.00, 2.81, 3.24, 2.65 6.4% Dividends P/S.........$ .62, .73, .81, .84, .87, .88, .91, 1.02, 1.12, 1.23 7.9% Price/Earnings Ratio...................................................22.9 8,000 Ikon Office Solutions, Inc. @ 28 1/8....................................... 225,000 Distributor of office and paper products Earnings P/S.......$ 1.06, 1.14, .88, .85, 1.11, (.02), .55, .86, 1.12, .77 NMF Dividends P/S..$ .080, .089, .097, .103, .106, .111, .117, .123, .129, .160 8.0% Price/Earnings Ratio...................................................36.3 ---------- 423,206 ---------- Electronics (9.95%) 6,000 AMP, Inc. @ 42 ......................................................... $ 252,000 World's largest manufacturer of electrical/electronic connectors Earnings P/S.........$ 1.48, 1.32, 1.35, 1.23, 1.38, 1.42, 1.72, 1.96, 1.31 NMF Dividends P/S..........$ .50, .60, .68, .72, .76, .80, .84, .92, 1.00, 1.04 8.5% Price/Earnings Ratio...................................................32.0 3,200 Emerson Electric Co. @ 56 7/16............................................. 180,600 Produces and sells electrical/electronic products and systems Earnings P/S...$ 1.16, 1.32, 1.38, 1.42, 1.48, 1.58, 2.02, 2.08, 2.28, 2.52 9.0% Dividends P/S..........$ .52, .58, .64, .67, .70, .74, .80, .92, 1.01, 1.11 8.8% Price/Earnings Ratio...................................................22.5 600 General Electric Co. @ 73 3/8.............................................. 44,025 Dominant force in home appliances, electrical power, and financial services Earnings P/S....$ .94, 1.09, 1.21, 1.28, 1.26, 1.23, 1.73, 1.95, 2.20. 2.42 11.1% Dividends P/S...........$ .35, .41, .47, .51, .56, .63, .72, .82, .92, 1.04 12.9% Price/Earnings Ratio...................................................30.6 3,600 Grainger (W.W.), Inc. @ 97 3/16............................................ 349,875 Leading distributor of electrical equipment Earnings P/S...$ 1.96, 2.20, 2.31, 2.37, 2.58, 2.88, 2.50, 3.64, 4.04, 4.36 9.3% Dividends P/S...........$ .43, .50, .57, .61, .65, .71, .78, .89, .98, 1.06 10.5% Price/Earnings Ratio...................................................22.4 4,500 Honeywell, Inc. @ 68 1/2................................................... 308,250 Makes automation and control systems. Earnings P/S.$ (2.73), 3.12, 2.45, 2.35, 2.89, 2.40, 2.15, 2.62, 3.18, 3.51 NMF Dividends P/S.........$ .51, .55, .69, .77, .84, .91, .97, 1.01, 1.06, 1.09 8.8% Price/Earnings Ratio...................................................19.9 1,500 Rockwell International Corp. @ 52 1/4...................................... 78,375 Leading producer of aerospace, automotive and electronics products Earnings P/S...$ 2.23, 3.01, 2.84, 2.47, 2.20, 2.47, 2.80, 3.15, 3.79, 2.74 2.3% Dividends P/S...........$ .58, .63, .68, .72, .77, .81, .84, .91, .97, 1.02 6.5% Price/Earnings Ratio...................................................16.9 ---------- 1,213,125 ---------- Food (1.34%) 6,300 Archer-Daniel Midland Co. @ 21 11/16....................................... 136,631 Processes and merchandises agricultural products Earnings P/S...........$ .53, .65, .74, .71, .81, .86, .81, 1.34, 1.20, .66 2.5% Dividends P/S..$ .028, .033, .046, .048, .050, .053, .063, .110, .184, .193 23.9% Price/Earnings Ratio...................................................24.2 800 ConAgra, Inc. @ 32 13/16................................................... 26,250 Leader in frozen & processed foods, and distributes agricultural supplies Earnings P/S...........$ .43, .54, .62, .71, .75, .79, .91, 1.03, .40, 1.34 13.5% Dividends P/S............$ .15, .18, .21, .24, .28, .32, .37, .43, .49, .57 16.0% Price/Earnings Ratio...................................................23.4 ---------- 162,881 ----------
SEE NOTES TO FINANCIAL STATEMENTS. 70 ==============================FINANCIAL STATEMENTS============================== John Hancock Funds - Declaration Trust -- V.A. Sovereign Investors Fund
COMPOUND NUMBER GROWTH MARKET OF SHARES RATE VALUE --------- -------- ------ Furniture (2.75%) 8,000 Leggett & Platt, Inc. @ 41 7/8............................................. $ 335,000 ---------- Produces intermediate products for the home furnishings industry Earnings P/S........$ .35, .66, .42, .56, .82, 1.05, 1.39, 1.49, 1.67, 2.08 21.9% Dividends P/S............$ .16, .19, .21, .22, .23, .27, .31, .38, .46, .54 14.5% Price/Earnings Ratio...................................................20.4 Insurance (6.04%) 700 AFLAC Corp. @ 51 1/8....................................................... 35,787 Global specialty insurer Earnings P/S.......$ .72, .53, .77, .97, 1.19, 1.55, 1.89, 2.33, 2.73, 4.39 22.2% Dividends P/S............$ .13, .15, .18, .20, .23, .26, .30, .34, .39, .45 14.8% Price/Earnings Ratio...................................................11.4 300 American International Group @ 108 3/4..................................... 32,625 Broadly based property-casualty insurance organization Earnings P/S...$ 1.74, 1.97, 2.05, 2.16, 2.27, 2.68, 3.05, 3.53, 4.10, 4.57 11.3% Dividends P/S............$ .08, .10, .12, .14, .16, .17, .19, .22, .25, .28 14.9% Price/Earnings Ratio...................................................24.1 3,000 Chubb Corp. @ 75 5/8....................................................... 226,875 Property and casualty insurance. Earnings P/S...$ 2.14, 2.46, 3.04, 3.16, 3.48, 1.96, 2.98, 3.70, 2.75, 3.46 5.5% Dividends P/S..........$ .54, .58, .66, .74, .80, .86, .92, .98, 1.08, 1.16 8.9% Price/Earnings Ratio...................................................22.0 350 General RE Corp. @ 212..................................................... 74,200 Broadly based re-insurance organization Earnings P/S..$ 5.09, 6.52, 6.89, 7.46, 6.84, 8.11, 7.97, 9.92, 11.0, 11.91 9.9% Dividends P/S..$ 1.20, 1.36, 1.52, 1.68, 1.80, 1.88, 1.92, 1.96, 2.04, 2.20 7.0% Price/Earnings Ratio...................................................17.8 4,000 Reliastar Financial Corp. @ 41 3/16........................................ 164,750 Financial services company engaged in life/health insurance and consumer finance Earnings P/S.....$ 1.04, 1.00, .98, .86, 1.04, 1.32, 1.65, 2.18, 2.52, 2.57 10.6% Dividends P/S............$ .29, .30, .32, .35, .37, .39, .44, .49, .55, .61 8.6% Price/Earnings Ratio...................................................16.0 3,750 Travelers Group, Inc. @ 53 7/8............................................. 202,031 Diversified financial services company Earnings P/S......$ .91, .71, .82, 1.07, 1.67, 1.94, 1.93, 2.75, 3.50, 3.00 14.2% Dividends P/S..........$ .045, .048, .06, .08, .12, .16, .19, .27, .30, .40 27.5% Price/Earnings Ratio...................................................17.8 ---------- 736,268 ---------- Machinery (5.41%) 8,000 Dover Corp. @ 36 1/8....................................................... 289,000 Manufactures a variety of specialized industrial products Earnings P/S..........$ .56, .57, .64, .54, .56, .69, .89, 1.23, 1.72, 1.73 13.4% Dividends P/S............$ .16, .18, .19, .21, .22, .23, .25, .28, .32, .36 9.4% Price/Earnings Ratio...................................................20.8 10,300 Pentair, Inc. @ 35 15/16................................................... $ 370,156 Manufactures enclosures for electrical, electronic, woodworking and power tool equipment Earnings P/S.....$ 1.23, .99, .84, 1.10, 1.07, 1.13, 1.21, 1.48, 1.83, 2.07 6.0% Dividends P/S............$ .22, .27, .29, .31, .33, .34, .36, .40, .50, .54 10.5% Price/Earnings Ratio...................................................16.8 ---------- 659,156 ---------- Media (0.93%) 400 Gannett Co., Inc. @ 61 13/16............................................... 24,725 Publishes 81 daily/50 nondaily newspapers, operates 10 TV , 8 FM and 7 AM stations Earnings P/S...$ 1.13, 1.24, 1.18, 1.00, 1.20, 1.36, 1.62, 1.64, 2.22, 2.74 10.3% Dividends P/S............$ .51, .56, .61, .62, .63, .65, .67, .69, .71, .74 4.2% Price/Earnings Ratio...................................................22.1 1,200 McGraw-Hill Companies, Inc. @ 74........................................... 88,800 Provides informational products and services for business and industry Earnings P/S.....$ 1.92, .41, 1.77, 1.52, 1.57, .12, 2.05, 2.28, 4.96, 5.32 12.0% Dividends P/S...$ .92, 1.00, 1.08, 1.10, 1.12, 1.14, 1.16, 1.20, 1.32, 1.44 5.1% Price/Earnings Ratio...................................................13.6 ---------- 113,525 ---------- Medical (9.22%) 3,000 Abbott Laboratories @ 65 9/16.............................................. 196,687 Major pharmaceutical and healthcare firm Earnings P/S.....$ .83, .96, 1.11, 1.28, 1.47, 1.69, 1.87, 2.12, 2.41, 2.64 13.7% Dividends P/S...........$ .29, .34, .40, .48, .58, .66, .74, .82, .93, 1.05 15.4% Price/Earnings Ratio...................................................25.5 2,000 American Home Products Corp. @ 76 1/2...................................... 153,000 Pharmaceutical and healthcare company Earnings P/S...$ 1.61, 1.77, 3.01, 2.18, 1.83, 2.37, 2.49, 2.71, 2.96, 3.08 7.5% Dividends P/S....$ .90, .98, 1.08, 1.19, 1.33, 1.43, 1.47, 1.51, 1.57, 1.66 7.0% Price/Earnings Ratio...................................................25.0 4,600 Baxter International, Inc. @ 50 7/16....................................... 232,012 The company operates four divisions: renal, biotech, cardiovascular and intravenous systems and international distribution Earnings P/S..$ 1.31, 1.50, (.05), 1.73, 1.99, (.97), 1.45, 1.34, 2.11. .99 NMF Dividends P/S.........$ .47, .52, .60, .69, .80, .93, .95, 1.03, 1.11, 1.14 10.3% Price/Earnings Ratio...................................................50.6 5,000 Becton, Dickinson & Co. @ 50............................................... 250,000 Manufactures broad line of medical supplies Earnings P/S....$ .92, 1.00, 1.17, 1.22, 1.29, 1.36, 1.53, 1.79, 2.11, 2.30 10.7% Dividends P/S............$ .22, .26, .28, .29, .31, .34, .38, .42, .48, .54 10.5% Price/Earnings Ratio...................................................21.7 3,000 Johnson & Johnson @ 65 7/8................................................. 197,625 Major producer of prescription and non-prescription drugs, toiletries, medical instruments and supplies Earnings P/S......$ .72, .81, .86, 1.10, 1.23, 1.37, 1.56, 1.86, 2.17, 2.42 14.4% Dividends P/S............$ .24, .28, .33, .39, .45, .51, .57, .64, .74, .85 15.1% Price/Earnings Ratio...................................................26.9
SEE NOTES TO FINANCIAL STATEMENTS. 71 ==============================FINANCIAL STATEMENTS============================== John Hancock Funds - Declaration Trust -- V.A. Sovereign Investors Fund
COMPOUND NUMBER GROWTH MARKET OF SHARES RATE VALUE --------- -------- ------ Medical (continued) 600 Lilly (Eli) & Co. @ 69 5/8................................................. $ 41,775 Major producer of prescription and non-prescription drugs, health products Earnings P/S........$ .67, .80, .98, 1.13, .70, .40, 1.03, 1.15, 1.39, 1.61 10.2% Dividends P/S............$ .29, .34, .41, .50, .55, .61, .63, .65, .69, .74 11.0% Price/Earnings Ratio...................................................42.8 1,000 Medtronic, Inc. @ 52 5/16.................................................. 52,313 Leading manufacturer of medical devices and instruments Earnings P/S............$ .20, .23, .24, .28, .34, .45, .51, .64, .94, 1.11 21.0% Dividends P/S..........$ .035, .045, .05, .06, .07, .09, .11, .13, .16, .21 22.0% Price/Earnings Ratio...................................................41.7 ---------- 1,123,412 ---------- Metal (0.54%) 4,000 Worthington Industries, Inc. @ 16 1/2...................................... 66,000 ---------- Manufactures metal and plastic products Earnings P/S...........$ .61, .70, .61, .50, .63, .76, .94, 1.29, 1.05, .97 5.3% Dividends P/S............$ .19, .23, .26, .28, .32, .34, .39, .43, .47, .51 11.6% Price/Earnings Ratio...................................................18.6 Office (0.74%) 1,000 Pitney Bowes, Inc. @ 89 15/16.............................................. 89,938 ---------- Manufactures office automation equipment Earnings P/S...$ 1.50, 1.13, 1.30, 1.80, 1.96, 1.92, 2.21, 2.68, 3.12, 3.43 9.6% Dividends P/S........$ .46, .52, .60, .68, .78, .90, 1.04, 1.20, 1.38, 1.60 14.9% Price/Earnings Ratio...................................................26.1 Oil & Gas (1.90%) 600 Exxon Corp. @ 61 3/16...................................................... 36,713 Major factor in the crude oil, natural gas and chemical industry Earnings P/S...$ 1.98, 1.16, 1.98, 2.23, 1.91, 2.11, 2.04, 2.59, 3.01, 3.40 6.2% Dividends P/S..$ 1.08, 1.15, 1.24, 1.34, 1.42, 1.44, 1.46, 1.50, 1.56, 1.63 4.7% Price/Earnings Ratio...................................................18.2 2,700 Mobil Corp. @ 72 3/16...................................................... 194,906 One of the largest integrated, international oil companies with interest in petro-chemicals and plastics Earnings P/S...$ 2.47, 2.20, 2.30, 2.33, 1.57, 2.54, 2.14, 2.94, 3.69, 4.05 5.6% Dividends P/S..$ 1.18, 1.28, 1.41, 1.56, 1.60, 1.63, 1.70, 1.81, 1.96, 2.12 6.7% Price/Earnings Ratio...................................................17.9 ---------- 231,619 ---------- Retail (4.57%) 2,500 Dayton Hudson Corp. @ 67 1/2............................................... 168,750 General merchandiser selling through Target and Marvyn stores Earnings P/S....$ .80, 1.15, 1.79, 1.80, 1.29, 1.67, 1.66, 1.92, 1.34, 2.07 11.1% Dividends P/S............$ .34, .37, .44, .48, .51, .53, .56, .58, .61, .66 7.6% Price/Earnings Ratio...................................................23.5 3,000 Home Depot, Inc. @ 58 7/8.................................................. $ 176,625 Operates a chain of retail building supply/home improvement "warehouse" stores Earnings P/S..........$ .15, .21, .30, .40, .55, .67, .88, 1.03, 1.29, 1.50 29.2% Dividends P/S............$ .01, .02, .03, .04, .06, .08, .10, .13, .15, .19 38.7% Price/Earnings Ratio.....................................................39 3,600 Sysco Corp. @ 45 9/16...................................................... 164,025 Largest distributor of food service products Earnings P/S........$ .45, .60, .73, .84, .93, 1.08, 1.18, 1.38, 1.52, 1.71 16.0% Dividends P/S............$ .08, .09, .10, .14, .22, .28, .36, .44, .52, .60 25.1% Price/Earnings Ratio...................................................25.3 1,200 Wal-Mart Stores, Inc. @ 39 7/16............................................ 47,325 Operates chain of discount department stores Earnings P/S........$ .37, .48, .57, .70, .87, 1.02, 1.17, 1.19, 1.33, 1.47 16.6% Dividends P/S............$ .04, .06, .07, .09, .11, .13, .17, .20, .21, .27 23.6% Price/Earnings Ratio...................................................26.8 ---------- 556,725 ---------- Soap & Cleaning Preparations (0.68%) 1,500 Ecolab, Inc. @ 55 7/16..................................................... 83,156 ---------- Develops and markets premium institutional cleansing, sanitizing and maintenance products and services Earnings P/S......$ .82, .05, 1.07, .96, 1.03, 1.23, 1.25, 1.50, 1.75, 2.01 10.5% Dividends P/S............$ .32, .33, .34, .35, .36, .40, .46, .52, .58, .67 8.6% Price/Earnings Ratio...................................................27.6 Steel (0.63%) 1,600 Nucor Corp. @ 48 5/16...................................................... 77,300 ---------- Manufactures steel and steel products Earnings P/S........$ .84, .68, .88, .75, .92, 1.42, 2.60, 3.14, 2.83, 3.42 16.9% Dividends P/S.............$ .10, .11, .12, .13, .14, .16, .18, 28, .32, .40 16.6% Price/Earnings Ratio...................................................14.4 Utilities (8.56%) 3,000 Ameritech Corp. @ 80 1/2................................................... 241,500 Provider of local telephone service Earnings P/S...$ 2.27, 2.30, 2.37, 2.20, 2.51, 2.78, 2.13, 3.63, 3.87, 4.10 6.8% Dividends P/S..$ 1.35, 1.46, 1.58, 1.70, 1.76, 1.84, 1.92, 2.00, 2.12, 2.26 5.9% Price/Earnings Ratio...................................................20.0 3,000 Century Telephone Enterprise, Inc. @ 49 13/16 ......................................................... 149,438 Louisiana based telecommunications company Earnings P/S.......$ .57, .49, .67, .80, 1.25, 1.35, 1.88, 1.97, 2.15, 3.11 20.7% Dividends P/S..$ .264, .272, .280, .287, .293, .310, .320, .330, .360, .370 3.8% Price/Earnings Ratio...................................................15.9 1,500 Duke Energy Corp. @ 55 3/8................................................. 83,063 Generates, transmits, distributes and sells electric energy in the Piedmont sections of North and South Carolina Earnings P/S...$ 1.95, 2.57, 2.40, 2.60, 2.21, 2.80, 2.88, 3.25, 3.37, 2.61 3.3% Dividends P/S..$ 1.42, 1.52, 1.60, 1.68, 1.76, 1.84, 1.92, 2.00, 2.08, 2.16 4.8% Price/Earnings Ratio...................................................21.2
SEE NOTES TO FINANCIAL STATEMENTS. 72 ==============================FINANCIAL STATEMENTS============================== John Hancock Funds - Declaration Trust -- V.A. Sovereign Investors Fund
COMPOUND NUMBER GROWTH MARKET OF SHARES RATE VALUE --------- -------- ------ Utilities (continued) 4,400 National Fuel Gas Co. @ 48 11/16........................................... $ 214,225 Integrated natural gas system serving N.Y., P.A. and O.H. Earnings P/S...$ 1.65, 1.93, 1.83, 1.63, 1.94, 2.15, 2.23, 2.03, 2.78, 3.01 6.9% Dividends P/S..$ 1.25, 1.32, 1.40, 1.45, 1.49, 1.53, 1.57, 1.61, 1.67, 1.73 0.5% Price/Earnings Ratio...................................................16.0 2,200 Questar Corp. @ 44 5/8..................................................... 98,175 Diversified holding company for Utah, Wyoming and Colorado natural gas transmission, distribution and storage Earnings P/S....$ .64, 1.28, 1.46, 1.63, 1.85, 2.10, 1.21, 2.05, 2.39, 2.55 16.6% Dividends P/S.....$ .94, .95, .97, 1.01, 1.04, 1.09, 1.13, 1.16, 1.19, 1.24 3.1% Price/Earnings Ratio...................................................17.2 3,500 SBC Communications, Inc. @ 73 1/4.......................................... 256,375 Provides telephone service throughout the United States and internationally Earnings P/S...$ 1.74, 1.76, 1.82, 1.84, 1.93, 2.17, 2.39, 2.74, 3.10, 3.46 7.9% Dividends P/S.$ 1..22, 1.29, 1.36, 1.41, 1.45, 1.50, 1.56, 1.63, 1.70, 1.77 4.2% Price/Earnings Ratio...................................................20.5 ---------- 1,042,776 ---------- TOTAL COMMON STOCKS (Cost $9,790,642) (89.46%) 10,902,694 ---------- PAR VALUE (000s OMITTED) -------- UNITED STATES GOVERNMENT AND AGENCIES OBLIGATIONS $100 United States Treasury, Bond 10.750%, 08-15-05 @ 130.0940........................................................ 130,094 100 United States Treasury, Note 7.875%, 11-15-99 @ 103.8440........................................................ 103,844 400 United States Treasury, Note 5.875%, 09-30-02 @ 100.5470........................................................ 402,188 ---------- TOTAL UNITED STATES GOVERNMENT AND AGENCIES OBLIGATIONS (Cost $630,453) (5.22%) 636,126 ---------- PAR VALUE (000s INTEREST MARKET OMITTED) RATE VALUE -------- -------- ------ SHORT-TERM INVESTMENTS $1,491 Joint Repurchase Agreement (12.24%) Investment in a joint repurchase agreement transaction with HSBC Securities, Inc. - Dated 12-31-97, Due 01-02-98 (Secured by U. S. Treasury Bonds,7.25% thru 13.25%, due 11-15-08 thru 11-15-16 and by U.S. Treasury Note 6.50% due 04-30-99 - Note A .................................................................... 6.60% $ 1,491,000 ----------- Corporate Savings Account (0.00%) Investors Bank & Trust Company Daily Interest Savings Account Current Rate 4.95% ........................................................ 161 ----------- TOTAL SHORT-TERM INVESTMENTS ( 12.24%) 1,491,161 ------- ----------- TOTAL INVESTMENTS (106.92%) 13,029,981 ------- ----------- OTHER ASSETS AND LIABILITIES, NET ( 6.92%) (843,042) ------- ----------- TOTAL NET ASSETS (100.00%) $12,186,939 ======= ===========
NMF = No Meaningful Figure 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. 73 ==============================FINANCIAL STATEMENTS============================== John Hancock Funds - Declaration Trust -- V.A. World Bond Fund Schedule of Investments December 31, 1997 - -------------------------------------------------------------------------------- PAR VALUE INTEREST (000s MARKET ISSUER, DESCRIPTION RATE OMITTED) VALUE - ------------------- ---- --------- ----- BONDS British Pound Sterling (6.51%) United Kingdom Treasury, Bond 11-06-01# ......................... 7.000% 90 $ 149,857 ---------- U.S. Dollar (87.18%) Federal Home Loan Bank, Bond 10-15-03 .......................... 5.440 $150 146,179 Bond 03-26-07 .......................... 6.945 100 106,269 Federal National Mortgage Assn., Note Ser MTN 10-23-02 .................. 6.080 250 251,399 Federative Republic of Brazil, (Brazil), Global Bond 11-05-01 ................... 8.875 50 49,625 Republic of Ecuador, (Ecuador), Unsub Deb 04-25-02 (R) ................. 11.250 50 51,625 Republic of Panama, (Panama), Note Ser REGS 02-13-02 ................. 7.875 50 48,375 Republic of South Africa, (South Africa), Note 06-23-17 .......................... 8.500 50 47,500 Republic of Venezuela, (Venezuela), Floating Rate Note Ser C 12-30-03 ...... 7.188* 50 47,000 United Mexican States, (Mexico), Global Bond 02-06-01 ................... 9.750 50 52,000 United States Treasury, Bond 08-15-27 .......................... 6.375 150 158,203 Note 05-31-02 .......................... 6.500 550 566,071 Note 07-31-02 .......................... 6.000 200 202,094 Note 05-15-07 .......................... 6.625 120 127,013 Note 08-15-07 .......................... 6.125 150 154,149 ---------- 2,007,502 ---------- TOTAL BONDS (Cost $2,124,783) (93.69%) 2,157,359 ------ ---------- The Schedule of Investments is a complete list of all securities owned by V.A. World Bond Fund on December 31, 1997. It's divided into two main categories: bonds and short-term investments. The bonds are further broken down by currency denomination. Short-term investments, which represent the Fund's "cash" position, are listed last. SHORT-TERM INVESTMENTS Joint Repurchase Agreement (5.56%) Investment in a joint repurchase agreement transaction with HSBC Securities, Inc. - Dated 12-31-97, Due 01-02-98 (Secured by U.S. Treasury Bonds, 11.25% Due 02-15-15 and 9.25% Due 02-15-16) - Note A ................. 6.60% $128 $ 128,000 ---------- TOTAL SHORT-TERM INVESTMENTS ( 5.56%) 128,000 ------- ---------- TOTAL INVESTMENTS ( 99.25%) 2,285,359 ------- ---------- OTHER ASSETS AND LIABILITIES, NET ( 0.75%) 17,237 ------- ---------- TOTAL NET ASSETS (100.00%) $2,302,596 ======= ========== * Represents rate in effect on December 31, 1997. # Par value of non U.S. dollar denominated foreign bonds is expressed in local currency for each country listed. (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 $51,625 or 2.24% of the Fund's net assets as of December 31, 1997. MTN = Medium Term Note. 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. 74 ==============================FINANCIAL STATEMENTS============================== John Hancock Funds - Declaration Trust -- V.A. World Bond Fund Portfolio Concentration (Unaudited) - -------------------------------------------------------------------------------- The Fund primarily invests in bonds issued by the U.S. government, its agencies or instrumentalities, foreign governments and companies. The performance of the Fund is closely tied to the economic condition within the countries in which it invests. The concentration of investments by currency denomination for individual securities held by the Fund is shown in the schedule of investments. In addition, concentration of investments can be aggregated by various investment categories. The table below shows the percentages of the Fund's investments at December 31, 1997 assigned to the various investment categories. MARKET VALUE AS A INVESTMENT CATEGORIES % OF FUND'S NET ASSETS - --------------------- ---------------------- Government - Foreign ................................... 19.37% Government - U.S. ...................................... 52.44 Government - U.S. Agencies ............................. 21.88 Short-term Investments ................................. 5.56 ----- TOTAL INVESTMENTS 99.25% ===== SEE NOTES TO FINANCIAL STATEMENTS. 75 ==============================FINANCIAL STATEMENTS============================== John Hancock Funds - Declaration Trust -- V.A. Strategic Income Fund Schedule of Investments December 31, 1997 - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -- INTEREST CREDIT PAR VALUE MARKET ISSUER, DESCRIPTION RATE RATING* (000s OMITTED) VALUE - ------------------- ---- ------- -------------- ----- BONDS Advertising (1.92%) Outdoor Systems, Inc., Sr Sub Note 10-15-06 ........... 9.375% B1 $100 $ 106,500 ---------- Banks - Foreign (1.85%) International Bank for Reconstruction & Development, Sr Note (South Africa) 07-21-98# ....... 15.000 AAA 500 102,332 ---------- Containers (3.57%) Riverwood International Corp., Gtd Sr Sub Note 04-01-08 .................. 10.875 CCC+ 100 94,500 Stone Container Corp., Unit (Sr Sub Deb & Supplemental Interest Cert) 04-01-02 ....................... 12.250 B- 100 103,500 ---------- 198,000 ---------- Diversified Operations (1.95%) Euramax International Plc, Sr Sub Note (United Kingdom) 10-01-06 (Y) ................... 11.250 B 100 108,250 ---------- Electronics (1.83%) Delco Remy International, Inc. Sr Note 12-15-07 ............... 8.625 B+ 100 101,250 ---------- Government - Foreign (4.32%) Australia, Commonwealth of, Government Bond (Australia) 11-15-06# ...................... 6.750 AAA 350 239,321 ---------- Government - U.S. (10.38%) United States Treasury, Bond 02-15-16 .................. 9.250 Aaa 200 271,374 Note 05-15-98 .................. 9.000 Aaa 300 303,750 ---------- 575,124 ---------- Government - U.S. Agencies (3.25%) Federal National Mortgage Assn., Global Bond (Australia) 07-10-02## ................... 6.500 Aaa 100 66,709 Global Bond (New Zealand) 09-26-00## ................... 7.000 Aaa 200 113,104 ---------- 179,813 ---------- The Schedule of Investments is a complete list of all securities owned by the V. A. Strategic Income Fund on December 31, 1997. It is divided into three main catagories: bonds, common and preferred stocks and warrants and short-term investments. Bonds are further broken down by industry group. Short-term investments, which represent the Fund's "cash" position, are listed last. INTEREST CREDIT PAR VALUE MARKET ISSUER, DESCRIPTION RATE RATING* (000s OMITTED) VALUE - ------------------- ---- ------- -------------- ----- Leisure (12.56%) Ascent Entertainment Group, Inc., Sr Sec Disc Note, Step Coupon (11.875%, 12-15-02) 12-15-04 (R) ......... Zero B- $200 $ 115,500 Casino America, Inc., Sr Sec Note 08-01-03 ........... 12.500% B 250 271,250 Cinemark USA, Inc., Sr Sub Note Ser D 08-01-08 ....................... 9.625 B2 100 103,500 Riddell Sports, Inc., Gtd Sr Note 07-15-07 ........... 10.500 B2 100 103,750 Sun International Hotels Ltd., Sr Sub Note (Bahamas) 12-15-07 (Y) ................... 8.625 B+ 100 101,500 ---------- 695,500 ---------- Media (5.95%) Intermedia Capital Partners, Sr Note 08-01-06 ............... 11.250 B2 100 111,125 Katz Media Corp., Gtd Sr Sub Note 01-15-07 ....... 10.500 B2 100 110,500 STC Broadcasting, Inc., Sr Sub Note 03-15-07 ........... 11.000 B3 100 108,000 ---------- 329,625 ---------- Oil & Gas (1.82%) Canadian Forest Oil Ltd., Sr Sub Note (Canada) 09-15-07 (R), (Y) .............. 8.750 B 100 101,000 ---------- Printing - Commercial (2.04%) Goss Graphic Systems, Inc., Sr Sub Note 10-15-06 ........... 12.000 B 100 113,000 ---------- Retail (1.89%) Southern Foods Group L.P., Sr Sub Note 09-01-07 (R) ....... 9.875 B 100 104,500 ---------- SEE NOTES TO FINANCIAL STATEMENTS. 76 ==============================FINANCIAL STATEMENTS============================== John Hancock Funds - Declaration Trust -- V.A. Strategic Income Fund INTEREST CREDIT PAR VALUE MARKET ISSUER, DESCRIPTION RATE RATING* (000s OMITTED) VALUE - ------------------- ---- ------- -------------- ----- Telecommunications (30.06%) COLT Telecom Group Plc, Sr Note (United Kingdom) 11-30-07# ...................... 10.125% B $ 75 $ 125,100 Comunicacion Celular S.A., Bond, Step Coupon (13.125%, 11-15-00) (Colombia) 11-15-03 (A), (Y) .............. Zero B3 100 75,750 Crown Castle International Corp., Sr Disc Note, Step Coupon (10.625%, 11-01-02) 11-15-07 (A), (R) .............. Zero B 150 94,125 Esprit Telecom Group Plc, Sr Note (United Kingdom) 12-15-07 (Y) ................... 11.500 B- 100 103,000 Globalstar L.P./Globalstar Capital Corp., Sr Note 06-15-04 ....................... 11.250 B3 100 100,421 Innova S. de R.L., Sr Note (Mexico) 04-01-07 (Y) .......... 12.875 B- 100 99,000 Intercel, Inc., Unit (Sr Discount Note & Warrant), Step Coupon (12.00%, 02-01-01) 02-01-06 (A) ................... Zero B 200 146,000 Ionica, Plc, Sr Disc Note, Step Coupon (15.00%, 05-01-02) (United Kingdom) 05-01-07 (A), (Y) .............. Zero B 200 80,000 Iridium LLC/Iridium Capital Corp., Gtd Sr Note Ser A 07-15-05 ....................... 13.000 B- 100 105,000 MetroNet Communications Corp., Sr Disc Note, Step Coupon (10.75%, 11-01-02) (Canada) 11-01-07 (A), (R), (Y) ......... Zero B 100 61,000 Nextel Communications, Inc., Sr Disc Note, Step Coupon (9.75%, 02-15-99) 08-15-04 (A) ................... Zero CCC 150 133,500 Orion Network Systems, Inc., Sr Note 01-15-07 ............... 11.250 B2 100 113,000 Qwest Communications International, Inc., Sr Note Ser B 04-01-07 ................. 10.875% B+ $100 $ 113,750 RCN Corp., Sr Note 10-15-07 (R) ........... 10.000 B3 100 103,750 Teligent, Inc., Sr Note 12-01-07 ............... 11.500 CCC 100 100,250 Winstar Equipment Corp., Gtd Sec Note 03-15-04 .......... 12.500 B3 100 111,500 ---------- 1,665,146 ---------- TOTAL BONDS (Cost $4,567,898) (83.39%) 4,619,361 -------- --------- NUMBER OF SHARES ------ COMMON AND PREFERRED STOCKS AND WARRANTS Comunicacion Celular S.A. Warrant (Colombia) (Y)** ..................................... 1,000 7,000 Ionica, Plc, Warrant (United Kingdom)#** .............. 200 -- Nextel Communications, Inc. (Class A), Common Stock** ....................................... 232 6,090 Nextlink Communications, Inc., 14.00%, Preferred Stock ...................................... 1,552 97,000 Orion Network Systems, Inc., Warrant** ................ 100 1,000 SFX Broadcasting, Inc., 12.625%, Ser E, Preferred Stock ...................................... 1,063 124,386 ---------- TOTAL COMMON AND PREFERRED STOCKS AND WARRANTS (Cost $212,531) (4.25%) 235,476 ------ ---------- SEE NOTES TO FINANCIAL STATEMENTS. 77 ==============================FINANCIAL STATEMENTS============================== John Hancock Funds - Declaration Trust -- V.A. Strategic Income Fund INTEREST PAR VALUE MARKET ISSUER, DESCRIPTION RATE (000s OMITTED) VALUE - ------------------- ---- -------------- ----- SHORT-TERM INVESTMENTS Joint Repurchase Agreement (10.45%) Investment in a joint repurchase agreement transaction with HSBC Securities, Inc. - Dated 12-31-97, Due 01-02-98 (Secured by U.S. Treasury Bonds, 7.25% thru 13.25% Due 11-15-08 thru 11-15-16 and U.S. Treasury Note, 6.50% Due 04-30-99) - Note A ... 6.60% $579 $ 579,000 --------- Corporate Savings Account (0.01%) Investors Bank & Trust Company Daily Interest Savings Account Current Rate 4.95%............ 506 --------- TOTAL SHORT-TERM INVESTMENTS ( 10.46%) 579,506 ------- --------- TOTAL INVESTMENTS ( 98.10%) 5,434,343 ------- --------- OTHER ASSETS AND LIABILITIES, NET ( 1.90%) 105,218 ------- --------- TOTAL NET ASSETS (100.00%) $5,539,561 ======= ========= * Credit Ratings are unaudited and rated by Moody's Investor Service or John Hancock Advisers, Inc. 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. ## Parenthetical disclosure of a foreign country in the security description represents country of local currency and par value is expressed in local currency. (A) Cash interest will be paid on this obligation at the stated rate beginning on the stated date. (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. See Note A of the Notes to Financial Statements for valuation policy. Rule 144A securities amounted to $579,875 or 10.47% of net assets as of December 31, 1997. (Y) Parenthetical disclosure of a foreign country in the security description represents country of foreign issuer; however, security is U.S. dollar denominated. Portfolio Concentration (Unaudited) - - - - - - - - - - - - - - - - - - - - -- - - - - - - - - - - - - - - - - - - - - The V.A. Strategic Income Fund invests primarily in securities issued in the United States of America. The performance of this Fund is closely tied to the economic and financial conditions of the countries within which it invests. The concentration of investments by industry category for individual securities held by the Fund is shown in the Schedule of Investments. In addition, concentration of investments can be aggregated by various countries. The table below shows the percentages of the Fund's investments at December 31, 1997 assigned to country categories. MARKET VALUE AS A PERCENTAGE OF COUNTRY DIVERSIFICATION FUND'S NET ASSETS - ----------------------- ----------------- Australia.................................. 5.52% Bahamas.................................... 1.83 Canada..................................... 2.92 Colombia................................... 1.49 Mexico..................................... 1.79 New Zealand................................ 2.04 South Africa............................... 1.85 United Kingdom............................. 7.52 United States.............................. 73.14 ----- TOTAL INVESTMENTS 98.10% ===== Additionally, the concentration of investments can be aggregated by the quality rating for each debt security. QUALITY DISTRIBUTION - -------------------- AAA........................................ 19.80 B.......................................... 57.66 CCC........................................ 5.93 ----- TOTAL BONDS 83.39% ===== SEE NOTES TO FINANCIAL STATEMENTS. 78 ==============================FINANCIAL STATEMENTS============================== John Hancock Funds - Declaration Trust -- V.A. Sovereign Bond Fund Schedule of Investments December 31, 1997 - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -- INTEREST CREDIT PAR VALUE MARKET ISSUER, DESCRIPTION RATE RATING* (000s OMITTED) VALUE - ------------------- ---- ------- -------------- ----- BONDS Banks - Foreign (1.57%) Landeskreditbank Baden - Wuerttemberg, Sub Note (Germany) 02-01-23 (Y) ......... 7.625% AAA $ 15 $ 17,000 RBSG Capital Corp., Gtd Cap Note 03-01-04 .......... 10.125 A+ 15 17,766 Scotland International Finance No. 2 B.V., Gtd Sub Note (United Kingdom) 11-01-06 (R) (Y) ............... 8.850 A+ 20 22,998 ---------- 57,764 ---------- Banks - United States (0.59%) Banque National de Paris - New York Branch, Sub Note 01-15-07 ....................... 7.200 A1 5 5,169 National Westminster Bank Plc - New York Branch, Sub Note 05-01-01 .............. 9.450 AA- 5 5,462 NB Capital Trust IV, Gtd Cap Security 04-15-27 ....................... 8.250 A- 10 10,913 ---------- 21,544 ---------- Broker Services (0.27%) Salomon Smith Barney Holdings, Inc., Note 10-15-02 ............ 6.500 A 10 10,036 ---------- Building (0.14%) Georgia-Pacific Corp., Deb 01-15-18 ................... 9.750 BBB- 5 5,198 ---------- Containers (0.10%) Riverwood International Corp., Gtd Sr Sub Note 04-01-08 ....................... 10.875 CCC+ 4 3,780 ---------- Energy (0.59%) AES Corp., Sr Sub Note 07-15-06 ........... 10.250 B+ 10 10,825 CalEnergy Company, Inc., Sr Note 09-15-06 ............... 9.500 BB- 10 10,927 ---------- 21,752 ---------- The Schedule of Investments is a complete list of all securities owned by the V. A. Sovereign Bond Fund on December 31, 1997. It is divided into two main catagories: bonds and short-term investments. Bonds are further broken down by industry group. Short-term investments, which represent the Fund's "cash" position, are listed last. INTEREST CREDIT PAR VALUE MARKET ISSUER, DESCRIPTION RATE RATING* (000s OMITTED) VALUE - ------------------- ---- ------- -------------- ----- Finance (3.35%) Constitution Capital Trust I, Cap Security 04-15-27 (R) ................... 9.150% BBB $ 3 $ 3,377 ContiFinancial Corp., Sr Note 08-15-03 ............... 8.375 BB+ 5 5,175 DR Investments, Sr Note 05-15-07 (R) ........... 7.450 A- 10 10,640 Ford Motor Credit Co., Note 12-08-05 .................. 6.250 A 5 4,946 Industrial Credit Investment Corporation of India Ltd., Bond (India) 08-15-07 (R) (Y) ............... 7.550 BB+ 10 8,292 JCP Master Credit Card Trust, Pass Thru Ctf Ser C Class A 06-15-00 ....................... 9.625 AA+ 25 26,928 MBNA Master Credit Card Trust, Ser 1995-D Class A 11-15-02 ....................... 6.050 AAA 50 50,063 SUSA Partnership, L.P. Note 12-01-07 .................. 7.000 BBB 5 5,026 United Companies Financial Corp., Note 01-15-04 ........... 7.700 BBB- 5 5,033 Yanacocha Receivables, Pass Thru Cert Ser 1997-A 06-15-05 (R) ................... 8.400 BBB- 4 3,920 ---------- 123,400 ---------- Funeral Services & Related (0.42%) Loewen Group International, Inc., Gtd Sr Note Ser 4 10-15-03 ....................... 8.250 BB+ 15 15,356 ---------- Glass Products (0.09%) VICAP S.A. de C.V., Gtd Sr Note (Mexico) 05-15-07 (R) (Y) ............... 11.375 B+ 3 3,202 ---------- SEE NOTES TO FINANCIAL STATEMENTS. 79 ==============================FINANCIAL STATEMENTS============================== John Hancock Funds - Declaration Trust -- V.A. Sovereign Bond Fund INTEREST CREDIT PAR VALUE MARKET ISSUER, DESCRIPTION RATE RATING* (000s OMITTED) VALUE - ------------------- ---- ------- -------------- ----- Government - Foreign (0.60%) Croatia, Republic of, Sr Note (Croatia) 02-27-02 (R) (Y) ............. 7.000% BBB- $ 10 $ 10,017 Panama, Republic of, Note (Panama) 02-13-02 (R) (Y) ............. 7.875 BB+ 7 6,738 Quebec, Province of, Deb (Canada) 07-15-23 (Y) ................. 7.500 A+ 5 5,373 ---------- 22,128 ---------- Government - U.S. (55.72%) United States Treasury, Bond 08-15-17 ................ 8.875 AAA 38 50,439 Bond 02-15-23 ................ 7.125 AAA 497 567,355 Note 02-15-99 ................ 8.875 AAA 205 212,079 Note 11-30-99 ................ 7.750 AAA 142 147,258 Note 05-15-01 ................ 8.000 AAA 70 74,780 Note 05-15-02 ................ 7.500 AAA 553 590,156 Note 02-15-05 ................ 7.500 AAA 373 409,949 ---------- 2,052,016 ---------- Government - U.S. Agencies (10.65%) Federal National Mortgage Assn., 30 Yr Pass Thru Ctf 03-01-24 + ................... 6.500 AAA 230 227,125 30 Yr Pass Thru Ctf 09-01-27 ..................... 7.000 AAA 25 25,032 Pass Thru Ctf Ser 1997-M8 Class A-1 01-25-22 ........... 6.940 AAA 3 3,087 Government National Mortgage Assn., 30 Yr Pass Thru Ctf 02-15-25 + .......... 7.500 AAA 50 51,219 30 Yr Pass thru Ctf 07-15-26 to 08-15-27 .................. 8.000 AAA 83 85,733 ---------- 392,196 ---------- Insurance (1.76%) Conseco, Inc., Sr Note 12-15-04 ............... 10.500 BBB 5 6,016 Fairfax Financial Holdings Ltd., Note (Canada) 04-15-26 (Y) ................... 8.300 BBB+ 15 16,634 Liberty Mutual Insurance Co., Surplus Note 05-04-07 (R) ................. 8.200 A+ 5 5,517 Surplus Note 10-15-26 (R) ...... 7.875% A2 $ 5 $ 5,503 Massachusetts Mutual Life Insurance Co., Surplus Note 11-15-23 (R) .............. 7.625 AA 5 5,464 NAC Re Corp., Note 06-15-99 .................. 8.000 A- 5 5,117 New York Life Insurance Co., Surplus Note 12-15-23 (R) ................... 7.500 AA- 5 5,077 Phoenix Home Life Mutual Insurance Co., Surplus Note 12-01-06 (R) ................... 6.950 A+ 5 5,084 Sun Canada Financial Co., Gtd Sub Note 12-15-07 (R) ................... 6.625 AA 5 5,093 URC Holdings Corp., Sr Note 06-30-06 (R) ........... 7.875 A- 5 5,394 ---------- 64,899 ---------- Leisure (0.29%) Sun International Hotels Ltd., Sr Sub Note (Bahamas) 12-15-07 (Y) ................... 8.625 B+ 5 5,075 Trump Hotels & Casino Resorts Funding, Inc./Holdings, L.P., Sr Note 06-15-05 ............... 15.500 B- 5 5,725 ---------- 10,800 ---------- Media (2.07%) Adelphia Communications Corp., Sr Note Ser B 10-01-02 ....................... 9.250 B3 8 8,160 Clear Channel Communications, Inc., Deb 10-15-27 ............. 7.250 BBB- 7 7,042 Comcast Cable Communications Inc., Note 05-01-17 ........... 8.875 BBB- 5 5,921 Comcast Corp., Sr Sub Deb 07-15-12 ....................... 10.625 BB+ 4 4,954 Garden State Newspapers, Inc., Sr Sub Note 10-01-09 (R) ................... 8.750 B+ 9 9,045 Hearst-Argyle Television, Inc., Note 11-15-07 .................. 7.000 Baa3 5 5,037 News America Holdings Inc., Gtd Sr Deb 08-10-18 ........... 8.250 BBB- 8 8,734 SEE NOTES TO FINANCIAL STATEMENTS. 80 ==============================FINANCIAL STATEMENTS============================== John Hancock Funds - Declaration Trust -- V.A. Sovereign Bond Fund INTEREST CREDIT PAR VALUE MARKET ISSUER, DESCRIPTION RATE RATING* (000s OMITTED) VALUE - ------------------- ---- ------- -------------- ----- Media (continued) SFX Broadcasting, Inc., Sr Sub Note Ser B 05-15-06 ....................... 10.750% B- $ 5 $ 5,488 TeleWest Communications Plc, Sr Deb (United Kingdom) 10-01-06 (Y) ................... 9.625 B+ 2 2,110 Time Warner, Inc., Deb 01-15-13 ................... 9.125 BBB- 9 10,717 TKR Cable I, Inc., Sr Deb 10-30-07 ................ 10.500 BBB- 8 9,018 ---------- 76,226 ---------- Medical (0.70%) Integrated Health Services, Inc., Sr Sub Note 01-15-08 (R) ....... 9.250 B- 10 10,200 Physician Sales & Services, Inc., Sr Sub Note 10-01-07 (R) ................... 8.500 B 3 3,060 Quest Diagnostics, Inc., Sr Sub Note 12-15-06 ........... 10.750 B+ 3 3,270 Tenet Healthcare Corp., Sr Sub Note 01-15-07 ........... 8.625 B+ 9 9,293 ---------- 25,823 ---------- Mortgage Banking (2.66%) EQCC Home Equity Loan Trust, Pass Thru Ctf Ser 1997-3 Class A-9 02-15-29 ............. 6.570 AAA 25 25,036 First Plus Home Loan Trust, Pass Thru Ctf Ser 1997-1 Class A6 12-10-15 .............. 6.950 AAA 5 5,078 GMAC Commercial Mortgage Securities, Inc., Pass Thru Ctf Ser 1997-C2 Class A3 11-15-07 ....................... 6.566 AAA 25 25,281 Money Store Home Equity Trust (The), Pass Thru Ctf Ser 1997-D Class AF-7 12-15-38 ....................... 6.485 AAA 16 16,065 Money Store Residential Trust (The), Pass Thru Ctf Ser 1997-I Class A-3 08-15-12 ....................... 6.680 AAA 10 9,953 Salomon Brothers Mortgage Securities VII, Inc., Mtg Pass Thru Ctf Ser 1997-HUD2 Class A-2 07-25-24 ............. 6.750% AAA $ 6 $ 6,050 UCFC Home Equity Loan Trust, Pass Thru Ctf Ser 1997-A1 Class A8 06-15-28 ....................... 7.220 AAA 10 10,345 ---------- 97,808 ---------- Oil & Gas (0.48%) Camuzzi Gas Pampeana S.A., Bond (Argentina) 12-15-01 (Y) ................... 9.250 BBB- 2 2,000 Norsk Hydro ASA, Deb (Norway) 10-01-16 (Y) .......... 7.500 A 5 5,386 Transgas de Occidenta S.A., Sr Note (Colombia) 11-01-10 (R) (Y) ............... 9.790 BBB- 10 10,211 ---------- 17,597 ---------- Paper & Paper Products (0.82%) Celulosa Arauco Y Constitucion S.A., Note (Chile) 09-15-09 (Y) ................... 7.200 Baa3 10 9,790 Fort James Corp., Sr Note 09-15-02 ............... 6.500 BBB- 5 5,023 Indah Kiat International Finance Co., Gtd Sec Bond Ser C (Indonesia) 06-15-06 (Y) ................... 12.500 BB 4 3,880 Indah Kiat Pulp & Paper Corp. (P.T.), Sr Sec Deb (Indonesia) 11-01-00 (R) ....... 8.875 BB 9 8,100 S.D. Warren Co., Sr Sub Note Ser B 12-15-04 ....................... 12.000 B+ 3 3,352 ---------- 30,145 ---------- Real Estate Investment Trust (0.28%) American Health Properties, Inc., Note 01-15-07 ............ 7.500 BBB- 5 5,211 TriNet Corporate Realty Trust, Inc., Note 05-15-01 ............ 7.300 BBB- 5 5,112 ---------- 10,323 ---------- SEE NOTES TO FINANCIAL STATEMENTS. 81 ==============================FINANCIAL STATEMENTS============================== John Hancock Funds - Declaration Trust -- V.A. Sovereign Bond Fund INTEREST CREDIT PAR VALUE MARKET ISSUER, DESCRIPTION RATE RATING* (000s OMITTED) VALUE - ------------------- ---- ------- -------------- ----- Retail (0.20%) Southern Foods Group, L.P., Sr Sub Note 09-01-07 (R) ....... 9.875% B $ 7 $ 7,315 ---------- Steel (0.09%) IVACO Inc., Sr Note (Canada) 09-15-05 (Y) .......... 11.500 B+ 3 3,262 ---------- Telecommunications (1.28%) Iridium LLC/Iridium Capital Corp., Gtd Sr Note Ser A 07-15-05 ....................... 13.000 B- 11 11,550 MetroNet Communications Corp., Unit (Sr Note & Warrant) (Canada) 08-15-07 (Y) ................... 12.000 B- 5 5,775 Nextel Communications, Inc., Sr Disc Note, Step Coupon (9.75%, 02-15-99) 08-15-04 (A) ................... Zero CCC 12 10,680 Qwest Communications International Inc., Sr Note Ser B 04-01-07 ................. 10.875 B+ 4 4,550 TCI Communications, Inc., Sr Deb 08-01-15 ................ 8.750 BBB- 9 10,431 Teligent, Inc., Sr Note 12-01-07 ............... 11.500 CCC 4 4,010 ---------- 46,996 ---------- Tobacco (0.59%) Philip Morris, Note 08-15-02 .................. 7.125 A 10 10,248 RJR Nabisco, Inc., Note 12-01-02 .................. 8.625 BBB- 6 6,388 Note 09-15-03 .................. 7.625 BBB- 5 5,111 ---------- 21,747 ---------- Transport (0.66%) America West Airlines, Inc. Pass Thru Ctf Ser B 01-02-08 ....................... 6.930 A- 5 5,007 Northwest Airlines Inc., Gtd Note 03-15-04 .............. 8.375 BB- 4 4,118 Pass Thru Ctf Ser 1996-1 01-02-15 ....................... 8.970 BBB- 5 5,452 NWA Trust, Sr Note Ser A 06-21-14 ......... 9.250% A2 $ 4 $ 4,379 U.S. Air, Inc., Pass Thru Ctf Ser 1989-A2 01-01-13 ....................... 9.820 A- 5 5,531 ---------- 24,487 ---------- Utilities (3.98%) Avon Energy Partners Holdings, Sr Note (United Kingdom) 12-11-07 (R) (Y) ............... 7.050 A- 7 7,128 BVPS II Funding Corp., Collateralized Lease Bond 06-01-17 .................. 8.890 BB- 5 5,595 Calpine Corp., Sr Note 07-15-07 (R) ........... 8.750 BB- 8 8,160 CE Electric UK Funding Co., Sr Note 12-30-07 (R) ........... 6.995 BBB+ 10 10,095 Cleveland Electric Illuminating Co. & Toledo Edison Co., Sec Note Ser B 07-01-04 ........ 7.670 Ba1 5 5,206 Cleveland Electric Illuminating Co., 1st Mtg Ser B 05-15-05 ......... 9.500 BB+ 23 25,507 CMS Energy Corp., Sr Note 05-15-02 ............... 8.125 BB 5 5,141 Enersis S.A., Note (Cayman Islands) 12-01-16 (Y) ................... 7.400 A- 5 4,961 First PV Funding Corp., Deb Ser 86B 01-15-16 ........... 10.150 BB- 3 3,247 Hydro-Quebec, Gtd Bond (Canada) 02-01-21 (Y) .......... 9.400 A+ 15 19,368 Iberdrola International B.V., Note 10-01-02 .................. 7.500 AA- 15 15,787 Long Island Lighting Co., Deb 07-15-19 ................... 8.900 BB+ 3 3,192 Gen Ref Mtg 05-01-21 ........... 9.750 BBB 10 10,250 North Atlantic Energy Corp., 1st Mtg Bond 06-01-02 .......... 9.050 B+ 8 8,221 SEE NOTES TO FINANCIAL STATEMENTS. 82 ==============================FINANCIAL STATEMENTS============================== John Hancock Funds - Declaration Trust -- V.A. Sovereign Bond Fund INTEREST CREDIT PAR VALUE MARKET ISSUER, DESCRIPTION RATE RATING* (000s OMITTED) VALUE - ------------------- ---- ------- -------------- ----- Utilities (continued) Philippine Long Distance Telephone Co., Note (Philippines) 03-06-07, (Y) .... 7.850% BB+ $ 6 $ 5,228 Waterford 3 Funding Corp., Sec Lease Obligation Bond 01-02-17 .................. 8.090 BBB- 9 9,409 ---------- 146,495 ---------- TOTAL BONDS (Cost $3,265,357) (89.95%) 3,312,295 ------- ----------- INTEREST PAR VALUE MARKET ISSUER, DESCRIPTION RATE (000s OMITTED) VALUE - ------------------- ---- -------------- ----- SHORT-TERM INVESTMENTS Joint Repurchase Agreement (16.16%) Investment in a joint repurchase agreement transaction with HSBC Securities, Inc. - Dated 12-31-97, Due 01-02-98 (Secured by U.S. Treasury Bonds, 7.25% thru 13.25% due 11-15-08 thru 11-15-16, and U.S. Treasury Note, 6.50% Due 04-30-99), - Note A..................... 6.60% $595 $ 595,000 --------- Corporate Savings Account ( 0.02%) Investors Bank & Trust Company Daily Interest Savings Account Current Rate 4.95%......... 879 --------- TOTAL SHORT-TERM INVESTMENTS ( 16.18%) 595,879 ------- --------- TOTAL INVESTMENTS (106.13%) 3,908,174 ------- --------- OTHER ASSETS AND LIABILITIES, NET ( 6.13%) ( 225,693) ------- --------- TOTAL NET ASSETS (100.00%) $3,682,481 ======== ========== NOTES TO THE SCHEDULE OF INVESTMENTS * Credit ratings are unaudited and rated by Standard & Poor's where available, or Moody's Investor Services or John Hancock Advisers, Inc. where Standard & Poor's ratings are not available. + A portion of these securities having an aggregate value of $278,344 or 7.56% of the Fund's net assets, have been purchased on a when issued basis. The purchase price and the interest rate of such securities are fixed at trade date, although the Fund does not earn any interest on such securities until settlement date. The Fund has instructed its Custodian Bank to segregate assets with current values at least equal to the amounts of its when issued commitments. Accordingly, the market values of $54,224 of United States Treasury Bond 7.125%, 02-15-23 and $58,695 of United States Treasury Note 7.50%, 05-15-02 have been segregated to the when issued commitments. (A) Cash interest will be paid on this obligation at the stated rate beginning on the stated date. (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 $179,630 or 4.88% of net assets as of December 31, 1997. (Y) Parenthetical disclosure of a foreign country in the security description represents country of a foreign issuer; however, security is U.S. dollar denominated. 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. 83 ==============================FINANCIAL STATEMENTS============================== John Hancock Funds - Declaration Trust -- V.A. Money Market Fund Schedule of Investments December 31, 1997 - -------------------------------------------------------------------------------- The Schedule of Investments is a complete list of all securities owned by the V.A. Money Market Fund on December 31, 1997. INTEREST QUALITY PAR VALUE MARKET ISSUER, DESCRIPTION RATE RATINGS* (000s OMITTED) VALUE - ------------------- ---- ------- -------------- ----- COMMERCIAL PAPER Broker Services (4.73%) Merrill Lynch & Co., Inc., 02/25/98 ....................... 5.700% Tier 1 $400 $ 396,517 ---------- Mortgage Banking (4.78%) Countrywide Home Loans, 01/02/98 ....................... 6.350 Tier 1 400 399,929 ---------- Utilities - Telephone (4.76%) Bell Atlantic Network Funding Corp. 01/22/98 ................. 5.800 Tier 1 400 398,647 ---------- TOTAL COMMERCIAL PAPER (Cost $1,195,093) (14.27%) 1,195,093 ------- ---------- CORPORATE INTEREST BEARING OBLIGATIONS Automotive (3.59) Chrysler Financial Corp., 06/23/98 ....................... 6.300 Tier 1 300 300,617 ---------- Finance (4.19%) CIT Group Holdings, Inc., 07/31/98 ....................... 6.350 Tier 1 350 350,673 ---------- Retail Stores (3.61) Sears Roebuck Acceptance Corp., 04/15/98 ................ 9.250 Tier 1 300 302,884 ---------- TOTAL CORPORATE INTEREST BEARING OBLIGATIONS (Cost $954,174) (11.39%) 954,174 ------- ---------- U.S. GOVERNMENT OBLIGATIONS Governmental - U.S. Agencies (52.51%) Federal Farm Credit Bank 02/02/98 ....................... 5.650 Tier 1 1,000 999,665 Federal Home Loan Bank 02/26/98 ....................... 5.875 Tier 1 1,000 999,673 Federal National Mortgage Association, 01/15/1998 ........ 5.520 Tier 1 1,000 999,748 Private Export Funding Corp., 04/30/98 ....................... 5.750% Tier 1 $500 $ 499,834 Student Loan Marketing Association, 12/04/98 .......... 5.910 Tier 1 500 500,000 Student Loan Marketing Association, 12/10/98 .......... 5.900 Tier 1 400 400,000 ---------- 4,398,920 ---------- TOTAL U.S. GOVERNMENT OBLIGATIONS (Cost $4,398,920) (52.51%) 4,398,920 ------- ---------- JOINT REPURCHASE AGREEMENT Investment in a joint repurchase agreement transaction with HSBC Securities, Inc. - Dated 12-31-97, due 01-02-98 (Secured by U.S. Treasury Bonds 11.25% due 02-15-15 and 9.25% due 02-15-16), - Note A ... 6.60% 1,729 1,729,000 ---------- TOTAL JOINT REPURCHASE AGREEMENT (20.64%) 1,729,000 ------- ---------- TOTAL INVESTMENTS (98.81%) 8,277,187 ------- ---------- OTHER ASSETS AND LIABILITIES, NET (1.19%) 99,871 ------- ---------- TOTAL NET ASSETS (100.00%) $8,377,058 ======= ========== * Quality ratings indicate the categories of eligible securities, as defined by Rule 2a-7 of the Investment Company Act of 1940, owned by the Fund. The percentage shown for each investment category is the total value of that category expressed as a percentage of the net assets of the Fund. SEE NOTES TO FINANCIAL STATEMENTS. 84 ==========================NOTES TO FINANCIAL STATEMENTS========================= John Hancock Funds - Declaration Trust NOTE A -- ORGANIZATION John Hancock V.A. International Fund ("V.A. International Fund"), John Hancock V.A. Financial Industries Fund (which commenced operations on April 30, 1997) ("V.A. Financial Industries Fund"), John Hancock V.A. Emerging Growth Fund ("V.A. Emerging Growth Fund"), John Hancock V.A. Growth Fund ("V.A. Growth Fund"), John Hancock V.A. Independence Equity Fund ("V.A. Independence Equity Fund"), John Hancock V.A. 500 Index Fund ("V.A. 500 Index Fund"), John Hancock V.A. Sovereign Investors Fund ("V.A. Sovereign Investors Fund"), John Hancock V.A. World Bond Fund ("V.A. World Bond Fund"), John Hancock V.A. Strategic Income Fund ("V.A. Strategic Income Fund"), John Hancock V.A. Sovereign Bond Fund ("V.A. Sovereign Bond Fund"), John Hancock V.A. Money Market Fund ("V.A. Money Market Fund"), (each a "Fund" collectively, the "Funds") are separate series of John Hancock Declaration Trust (the "Trust") an open-end management investment company, registered under the Investment Company Act of 1940. Prior to January 2, 1998, V.A. Growth Fund was known as John Hancock V.A. Discovery Fund. The Trust, organized as a Massachusetts business trust in 1995, consisted of eleven different series at December 31, 1997. Each Fund currently has one class of shares with equal rights as to voting, redemption, dividends, and liquidation within their respective Fund. The Trustees may authorize the creation of additional series from time to time to satisfy various investment objectives. The Trustees approved the organization of three new series of John Hancock Declaration Trust: John Hancock V.A. High Yield Bond Fund, John Hancock V.A. Growth and Income Fund and John Hancock V.A. Special Opportunities Fund, effective January 2, 1998. An insurance company issuing a Variable Contract that participates in the Trust will vote shares of the Funds 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 Funds in proportion to the voting instructions received. The investment objective of the V.A. International Fund is to seek long-term growth of capital by primarily investing in equity securities of foreign companies and governments. The investment objective of the V.A. Financial Industries Fund is to seek capital appreciation primarily through investments in equity securities of financial services companies throughout the world. The investment objective of the V.A. Emerging Growth Fund is to seek long-term growth of capital. The investment objective of the V.A. Growth Fund is to seek long-term capital appreciation by investing primarily in common stocks of companies which the Fund's management believes offer outstanding growth potential over both the intermediate and long term. The investment objective of the V.A. Independence Equity Fund is to seek above-average total return, consisting of capital appreciation and income by focusing on stocks of companies that management believes are undervalued and have improving fundamentals over both the intermediate and long-term. The investment objective of the V.A. 500 Index Fund is to provide investment results that correspond to the total return performance of the Standard & Poor's 500 Stock Price Index (the "S&P 500 Index"). The investment objective of the V.A. Sovereign Investors Fund is to seek long term growth of capital and income without assuming undue market risks by investing primarily in common stocks of seasoned companies in sound financial condition with a long record of paying increasing dividends. The investment objective of the V.A. World Bond Fund is to seek a high total investment return, a combination of current income and capital appreciation, by investing primarily in a global portfolio of fixed income securities. The investment objective of the V.A. Strategic Income Fund is to seek a high level of current income by primarily investing in foreign government and corporate fixed income securities, U.S. Government securities and lower-rated high yield, high risk, fixed income securities of U.S. issuers. The investment objective of the V.A. Sovereign Bond Fund is to seek a high level of current income consistent with prudent investment risk by investing primarily in a diversified portfolio of investment grade fixed income securities of U.S. and foreign issuers, although the Fund may invest up to 25% of its total assets in lower-rated high yield, high risk, fixed income securities. The investment objective of the V.A. Money Market Fund is to seek maximum current income consistent with 85 ==========================NOTES TO FINANCIAL STATEMENTS========================= John Hancock Funds - Declaration Trust capital preservation and liquidity by investing primarily in high-quality money market instruments. NOTE B -- ACCOUNTING POLICIES VALUATION OF INVESTMENTS Securities in the Funds' portfolios (except for the V.A. Money Market Fund) 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. The Funds may invest in indexed securities whose value is linked either directly or inversely to changes in foreign currencies, interest rates, commodities, indices or other reference instruments. Indexed securities may be more volatile than the reference instrument itself, but any loss is limited to the amount of the original investment. The V.A. Money Market Fund's portfolio of securities is valued at amortized cost, in accordance with Rule 2a-7 of the Investment Company Act of 1940, which approximates market value. The amortized cost method involves valuing a security at its cost on the date of purchase and thereafter assuming a constant amortization to maturity of the difference between the principal amount due at maturity and the cost of the security to the Fund. Interest income on certain portfolio securities such as negotiable bank certificates of deposit and interest bearing notes is accrued daily and included in interest receivable. 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, Inc. (the "Adviser"), a wholly-owned subsidiary of The Berkeley Financial Group, 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 Funds' custodian bank receives delivery of the underlying securities for the joint account on the Funds' 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. Capital gains realized on some foreign securities are subject to foreign taxes and are accrued, as applicable. FEDERAL INCOME TAXES The Funds' policy is to comply with the requirements of the Internal Revenue Code that are applicable to regulated investment companies. They will not be subject to federal income tax on taxable earnings which are distributed to shareholders. For federal income tax purposes, net currency exchange gains and losses from sales of foreign debt securities may be treated as ordinary income even though such items are capital gains and losses for accounting purposes. For federal income tax purposes, the following funds had capital loss carryforwards available. These carryforwards are available to offset future net realized capital gains to the extent provided by regulations. Additionally, net capital losses attributable to security transactions occurring after October 31, 1997 are treated as arising on the first day (January 1, 1998) of the Funds next taxable year. CAPITAL LOSS CAPITAL LOSS POST 10/31/1997 CARRYFORWARD CARRYFORWARD LOSS TREATED AS FUND EXPIRES 12/31/2004 EXPIRES 12/31/2005 ARISING 1/1/98 - ---- ------------------ ------------------ -------------- V.A. International Fund .... $ -- $ -- $65,667 V.A. Financial Industries Fund...................... -- -- -- V.A. Emerging Growth Fund 18,937 167,508 66,172 V.A. Growth Fund............ 11,062 197,206 -- V.A. Independence Equity Fund............... -- -- -- V.A. 500 Index Fund. ....... -- -- -- V.A. Sovereign Investors Fund...................... -- -- -- V.A. World Bond Fund ....... -- -- 27,755 V.A. Strategic Income Fund . -- 2,482 8,904 V.A. Sovereign Bond Fund ... -- -- -- V.A. Money Market Fund ..... -- -- -- 86 ==========================NOTES TO FINANCIAL STATEMENTS========================= John Hancock Funds - Declaration Trust 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 Funds are notified of 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 Funds record all distributions to shareholders from net investment income and realized gains on the ex-dividend date. Such distributions are determined in conformity with income tax regulations, which may differ from generally accepted accounting principles. EXPENSES The majority of the expenses of the Trust are directly identifiable to an individual Fund. Expenses which are not readily identifiable to a specific Fund are 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. USE OF ESTIMATES The preparation of these financial statements in accordance with generally accepted accounting principles incorporates estimates made by management in determining the reported amounts of assets, liabilities, revenues, and expenses of the Funds. Actual results could differ from these estimates. ORGANIZATION EXPENSES Expenses incurred in connection with the organization of the Funds have been capitalized and are being charged to the Funds' operations ratably over a five year period that commenced with the investment operations of each Fund. BANK BORROWINGS The Funds are 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. These agreements enable the Funds to participate with other Funds managed by the Adviser in unsecured lines of credit with banks which permit borrowings up to $600 million, collectively. Interest is charged to each of the Funds, based on its borrowings, at a rate equal to 0.50% over the Fed Funds Rate. In addition, a commitment fee, at a rate of 0.075% per annum based on the average daily unused portion of the line of credit, is allocated among the participating Funds. The Funds had no borrowing activity for the year ended December 31, 1997. FOREIGN CURRENCY TRANSLATION All assets and 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 Funds. 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 Funds do 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 Funds' books and the U.S. dollar equivalent of the amounts actually received or paid. Net unrealized foreign exchange gains or losses arise from changes in the value of assets and liabilities other than investments in securities at fiscal year end, resulting from changes in the exchange rate. FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS The Funds (except for the V.A. Independence Equity Fund, V.A. 500 Index Fund, V.A. Sovereign Investors Fund, and V.A. Money Market 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 each of the Fund's daily net assets. The Funds record realized gains and losses at the time the forward foreign currency contract is closed out or offset by a matching contract. Risks may arise upon 87 ==========================NOTES TO FINANCIAL STATEMENTS========================= John Hancock Funds - Declaration Trust entering these contracts from 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 Funds' Statement of Assets and Liabilities. The Funds 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. Open forward foreign currency contracts for the Trust at December 31, 1997 were as follows: UNREALIZED PRINCIPAL AMOUNT EXPIRATION APPRECIATION/ CURRENCY COVERED BY CONTRACT MONTH (DEPRECIATION) - -------- ------------------- ----- -------------- V.A. WORLD BOND FUND Buy German Deutsche Mark............ 800,000 Jan 98 ($6,379) ====== V.A. STRATEGIC INCOME FUND Sells Australian Dollar............... 106,000 Jan 98 $8,179 Australian Dollar............... 182,000 Mar 98 (149) ------ $8,030 ====== V.A. FINANCIAL INDUSTRIES FUND Buy Swedish Krona................... 45,193 Jan 98 ($ 131) ====== FINANCIAL FUTURES CONTRACTS The Funds (except V.A. Money Market Fund) may buy and sell financial futures contracts to hedge against the effects of fluctuations in interest rates, currency exchange rates and other market conditions. Buying futures tends to increase the Funds' exposure to the underlying instrument. Selling futures tends to decrease the Funds' exposure to the underlying instrument or hedge other Funds instruments. At the time each Fund enters into a financial futures contract, it will be required to deposit with its custodian a specified amount of cash or U.S. government securities, known as "initial margin," 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 on the board of trade or U.S. commodities exchange on which it trades. Subsequent payments, known as "variation margin," to and from the broker 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," will be recorded by the Funds as unrealized gains or losses. When the contracts are closed, the Funds recognize 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 Funds 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 Funds' gains and/or losses can be affected as a result of futures contracts. Open financial futures contracts for the Trust at December 31, 1997 were as follows: UNREALIZED OPEN APPRECIATION/ EXPIRATION CONTRACTS POSITION (DEPRECIATION) - ---------- --------- -------- -------------- V.A. 500 INDEX FUND Mar 98................. 2 S&P 500 Long ($6,075) Mar 98................. 3 S&P 500 Long 13,400 ------ $7,325 ====== OPTIONS The Funds (except V.A. Money Market Fund) may purchase options contracts. Listed options will be valued at the last quoted sales price on the exchange on which they are primarily traded. Purchased put or call over-the-counter options will be valued at the average of the "bid" prices obtained from two independent brokers. Written put or call over-the-counter options will be valued at the average of the "asked" prices obtained from two independent brokers. 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 88 ==========================NOTES TO FINANCIAL STATEMENTS========================= John Hancock Funds - Declaration Trust 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 Funds may use option contracts to manage their exposure to changing security prices. Writing puts and buying calls will tend to increase the Funds' exposure to the underlying instrument and buying puts and writing calls will tend to decrease the Funds' 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 Funds 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 contract's terms, or if the Funds are 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 Funds 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 Statement of Assets and Liabilities. There were no written option transactions for the year ended December 31, 1997, for all Funds. NOTE C -- MANAGEMENT FEE AND TRANSACTIONS WITH AFFILIATES AND OTHERS Under the present investment management contract, each Fund pays a monthly management fee to the Adviser, for a continuous investment program equivalent, on an annual basis as follows: FUND RATE - ---- ---- V.A. International Fund 0.90% of average daily net assets V.A. Financial Industries Fund 0.80% of average daily net assets V.A. Emerging Growth Fund 0.75% of average daily net assets V.A. Growth Fund 0.75% of average daily net assets V.A. Independence Equity Fund 0.70% of average daily net assets V.A. 500 Index Fund 0.10% of average daily net assets V.A. Sovereign Investors Fund 0.60% of average daily net assets V.A. World Bond Fund 0.75% of average daily net assets V.A. Strategic Income Fund 0.60% of average daily net assets V.A. Sovereign Bond Fund 0.50% of average daily net assets V.A. Money Market Fund 0.50% of average daily net assets John Hancock Advisers International Limited ("JHAI") serves as the sub-adviser to the V.A. International Fund pursuant to a sub-adviser agreement among the Fund, the Adviser, and JHAI. JHAI was formed in 1987 and is a wholly owned subsidiary of the Adviser. JHAI provides international investment research and advisory services to investment companies and institutional clients. The Adviser pays JHAI a portion of its advisory fee from the V.A. International Fund to JHAI at the following rate: 70% of the advisory fee payable by the Fund. The Adviser compensated the V.A. International Fund during the year in the amount of $435,961 for a loss incurred as a result of an inaccurate execution of a trade. Independence Investment Associates, Inc. ("IIA") serves as the sub-adviser to the V.A. Independence Equity Fund pursuant to a separate sub-adviser agreement among the Fund, the Adviser, and IIA. IIA was organized in 1982 and is a wholly owned indirect subsidiary of John Hancock Mutual Life Insurance Company ("JHMLICo"). IIA provides investment advice and advisory services to investment companies and institutional accounts. The Adviser pays IIA a portion of its advisory fee from the V.A. Independence Equity Fund to IIA at the following rate: 55% of the advisory fee payable by the Fund. Sovereign Asset Management Corporation ("SAMCorp") serves as the sub-adviser of the V.A. Sovereign Investors Fund pursuant to a sub-advisery agreement among the Fund, the Adviser, and SAMCorp. SAMCorp was organized in 1992 and is a wholly owned indirect subsidiary of JHMLICo. SAMCorp provides investment advice and advisory services to investment companies and private and 89 ==========================NOTES TO FINANCIAL STATEMENTS========================= John Hancock Funds - Declaration Trust institutional accounts. The Adviser pays SAMCorp a portion of its advisory fee from the V.A. Sovereign Investors Fund to SAMCorp at the following rate: 40% of the advisory fee payable by the Fund. The V.A. 500 Index Fund has an agreement with Standard & Poor's ("S & P") to license certain trademarks and trade names of S & P and of the S & P 500 Index, which is determined, composed and calculated by S & P without regard to the Adviser or the V.A. 500 Index Fund. (Requisite disclosure regarding the use of the Standard & Poor's name is included in the Trust's prospectus.) Effective February 10, 1997, the Adviser agreed to limit its management fee on the V.A. 500 Index Fund to 0.10% of the Fund's average daily net assets. The Adviser may terminate this limitation in the future. The Adviser has voluntarily agreed to limit each of the Fund's expenses, excluding the management fee, to 0.25% of each Fund's average daily net assets. Accordingly, the reductions in expenses for the year ended December 31, 1997 were as follows: FUND FEE REDUCTION - ---- ------------- V.A. International Fund........................ $26,430 V.A. Financial Industries Fund................. 17,678 V.A. Emerging Growth Fund...................... 33,471 V.A. Growth Fund............................... 30,501 V.A. Independence Equity Fund.................. 21,288 V.A. 500 Index Fund............................ 24,549 V.A. Sovereign Investors Fund.................. 14,303 V.A. World Bond Fund........................... 27,843 V.A. Strategic Income Fund..................... 16,865 V.A. Sovereign Bond Fund....................... 31,793 V.A. Money Market Fund......................... 12,855 The Adviser reserves the right to terminate this limitation in the future. The Funds have an agreement with the Adviser to perform necessary tax and financial management services for the Funds. The compensation for the year was at an annual rate of less than 0.02% of the average net assets of the Funds. Mr. Edward J. Boudreau, Jr., Mr. Richard S. Scipione, and Ms. Anne C. Hodsdon are directors and/or officers of the Adviser and/or its affiliates, as well as Trustees of the Funds. The compensation of unaffiliated Trustees is borne by the Fund. The Adviser and other subsidiaries of John Hancock Mutual Life Insurance Company owned the following shares of beneficial interest of the Funds as of December 31, 1997: FUND SHARES OF BENEFICIAL INTEREST - ---- ----------------------------- V.A. International Fund............. 213,604 V.A. Financial Industries Fund...... -- V.A. Emerging Growth Fund........... 100,201 V.A. Growth Fund.................... 100,000 V.A. Independence Equity Fund....... 103,519 V.A. 500 Index Fund................. 830,646 V.A. Sovereign Investors Fund....... 102,343 V.A. World Bond Fund................ 216,509 V.A. Strategic Income Fund.......... 226,576 V.A. Sovereign Bond Fund............ 109,809 V.A. Money Market Fund.............. 105,798 NOTE D -- INVESTMENT TRANSACTIONS: Purchases and proceeds from sales of securities, excluding short-term securities, during the year ended December 31, 1997, for the Funds were as follows: FUND PURCHASES SALES - ---- --------- ----- V.A. International Fund.................. $ 9,319,894 $7,460,987 V.A. Financial Industries Fund........... 16,107,447 905,236 V.A. Emerging Growth Fund................ 4,077,138 1,440,195 V.A. Growth Fund......................... 5,242,258 2,967,350 V.A. Independence Equity Fund............ 8,026,973 1,775,199 V.A. 500 Index Fund...................... 19,013,544 1,248,907 V.A. Sovereign Investors Fund U.S. Government Securities.............. 515,734 -- Other Investments....................... 9,345,623 462,178 V.A. World Bond Fund U.S. Government Securities.............. 2,250,113 982,197 Other Investments....................... 1,518,874 2,553,728 V.A. Strategic Income Fund U.S. Government Securities.............. 2,423,924 2,394,565 Other Investments....................... 4,377,175 1,677,088 V.A. Sovereign Bond Fund U.S. Government Securities.............. 3,866,896 2,180,635 Other Investments....................... 1,493,781 936,209 90 ==========================NOTES TO FINANCIAL STATEMENTS========================= John Hancock Funds - Declaration Trust At December 31, 1997, the cost (excluding the corporate savings account) and gross unrealized appreciation and depreciation in value of investments owned by the Funds, as computed on a federal income tax basis, were as follows:
NET UNREALIZED AGGREGATE GROSS UNREALIZED GROSS UNREALIZED APPRECIATION/ FUND COST APPRECIATION DEPRECIATION DEPRECIATION - ---- ---- ------------ ------------ ------------ V.A. International Fund...................... $ 3,746,400 $ 285,308 $299,701 ($ 14,393) V.A. Financial Industries Fund...................... 16,911,261 1,868,063 322,499 1,545,564 V.A. Emerging Growth Fund............... 3,536,833 568,582 245,367 323,215 V.A. Growth Fund...................... 3,276,784 625,832 113,160 512,672 V.A. Independence Equity Fund............... 8,256,498 816,806 187,746 629,060 V.A. 500 Index Fund...................... 19,056,716 1,478,926 582,345 896,581 V.A. Sovereign Investors Fund............ 11,912,095 1,228,310 110,585 1,117,725 V.A. World Bond Fund................. 2,253,103 39,985 7,729 32,256 V.A. Strategic Income Fund............... 5,359,429 164,532 90,124 74,408 V.A. Sovereign Bond Fund................. 3,861,652 55,159 9,516 45,643 V.A. Money Market Fund............... 8,277,187 -- -- --
NOTE E -- RECLASSIFICATION OF ACCOUNT During the year ended December 31, 1997, reclassifications have been made in each Fund's capital accounts to report these balances on a tax basis, excluding certain temporary differences, as of December 31, 1997. Additional adjustments may be needed in subsequent reporting periods. These reclassifications, which have no impact on the net asset value of the Funds, are primarily attributable to differences in the treatment of net operating losses, foreign currency gain and losses and return of capital under federal tax rules versus generally accepted accounting principle. The calculation of net investment income per share in the financial highlights excludes these adjustments.
CAPITAL UNDISTRIBUTED NET ACCUMULATED NET FUND PAID-IN INVESTMENT INCOME/(LOSS) REALIZED GAIN (LOSS) - ---- ------- ------------------------ -------------------- V.A. International Fund....................... $ -- ($10,311) $10,311 V.A. Financial Industries Fund............ -- ( 169) 169 V.A. Emerging Growth Fund................ ( 3,072) 3,163 ( 91) V.A. Growth Fund....................... ( 8,594) 8,594 -- V.A. Independence Equity Fund................ -- -- -- V.A. 500 Index Fund....................... -- -- -- V.A. Sovereign Investors Fund............. -- 3 ( 3) V.A. World Bond Fund.................. (62,240) ( 18,355) 80,595 V.A. Strategic Income Fund............... -- 6,469 ( 6,469) V.A. Sovereign Bond Fund.................. -- -- -- V.A. Money Market Fund................ -- -- --
91 ================================================================================ John Hancock Funds - Declaration Trust REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS To The Contract owners, Policyholders and Trustees of John Hancock Declaration Trust We have audited the accompanying statements of assets and liabilities, including the schedules of investments, of John Hancock Declaration Trust (the "Trust") (comprising, respectively, V.A. International Fund, V.A. Financial Industries Fund, V.A. Emerging Growth Fund, V.A. Growth Fund (formerly V.A. Discovery Fund), V.A. Independence Equity Fund, V.A. 500 Index Fund, V.A. Sovereign Investors Fund, V.A. World Bond Fund, V.A. Strategic Income Fund, V.A. Sovereign Bond Fund, and V.A. Money Market Fund) (collectively "the Funds") as of December 31, 1997, and the related statements of operations for the year then ended, statements of changes in net assets for each of the two years in the period then ended, and the financial highlights for the periods indicated therein. These financial statements and financial highlights are the responsibility of the Funds' 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 generally accepted auditing standards. 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 and financial highlights. Our procedures included confirmation of securities owned as of December 31, 1997, by correspondence with the custodian and brokers, and 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 each of the respective Funds constituting John Hancock Declaration Trust as of December 31, 1997, the results of their operations for the year then ended, the changes in their net assets for each of the two years in the period then ended, and the financial highlights for each of the periods indicated therein, in conformity with generally accepted accounting principles. /s/ Ernst & Young LLP Boston, Massachusetts February 6, 1998 TAX INFORMATION (Unaudited) The Funds designated the following as long-term capital gain dividends during the fiscal year ended December 31, 1997. The capital gain dividends are further broken down into two capital gain tax rates, 28% and 20%, respectively. Additionally, the following dividend distributions qualify for the dividends received deduction available to corporations. TOTAL 28% 20% DIVIDENDS CAPITAL RATE RATE RECEIVED GAINS GAINS GAINS DEDUCTION ----- ----- ----- --------- V.A. International Fund.... $20,365 $20,365 $ -- --% V.A. Financial Industries Fund..................... -- -- -- 92.42 V.A. Emerging Growth Fund.............. -- -- -- 28.42 V.A. Growth Fund........... -- -- -- -- V.A. Independence Equity Fund.............. 4,084 4,084 -- 32.50 V.A. 500 Index Fund........ 479,305 226,529 252,776 17.22 V.A. Sovereign Investors Fund........... -- -- -- 65.85 V.A. World Bond Fund....... 6,656 6,656 -- -- V.A. Strategic Income Fund.............. -- -- -- 4.36 V.A. Sovereign Bond Fund................ 7,357 7,357 -- -- V.A. Money Market Fund.............. -- -- -- -- 92 ================================================================================ John Hancock Funds - Declaration Trust -- V.A. Sovereign Investors Fund Dividend Increases (Unaudited) Listed below are the most recent dividend increases for the common stocks held in the V.A. Sovereign Investors Fund as of December 31, 1997 - -------------------------------------------------------------------------------- PERCENT OF COMPANY DIVIDEND INCREASE - ------- ----------------- AFLAC Corp. .................................................. 15.0 Abbott Laboratories, Inc. .................................... 12.5 Air Products & Chemicals ..................................... 9.1 American Home Products ....................................... 4.9 American International Group ................................. 12.4 Ameritech Corp. .............................................. 6.2 AMP, Inc. .................................................... 4.0 Archer-Daniel Midland Co. .................................... 5.0 Automatic Data Processing, Inc. .............................. 15.2 BB & T Corp. ................................................. 16.3 BankOne Corp. ................................................ 11.7 Baxter International, Inc. ................................... 3.0 Becton Dickinson & Co. ....................................... 11.5 Bemis Company, Inc. .......................................... 11.1 Betz Laboratories ............................................ 1.3 Century Telephone Enterprise, Inc. ........................... 2.8 Chubb Corp. .................................................. 7.4 Conagra, Inc. ................................................ 14.7 Dayton Hudson Corp. .......................................... 12.5 Dover Corp. .................................................. 11.5 DuPont (E.I.) De Nemours & Co. ............................... 10.5 Duke Energy Corp. ............................................ 3.8 Ecolab, Inc. ................................................. 18.8 Emerson Electric Co. ......................................... 9.3 Exxon Corp. .................................................. 3.8 First Tennessee National Corp. ............................... 10.0 First Union Corp. ............................................ 15.6 Gannett Co., Inc. ............................................ 5.6 General Electric Co. ......................................... 15.4 General RE Corp. ............................................. 7.8 Grainger (W.W.), Inc. ........................................ 8.0 Hewlett Packard Co. .......................................... 16.7 Home Depot, Inc. ............................................. 25.0 Honeywell, Inc. .............................................. 3.7 Ikon Office Solutions, Inc. .................................. 24.0 Interpublic Group, Inc. ...................................... 14.7 Johnson & Johnson ............................................ 15.8 Johnson Controls ............................................. 7.0 Key Corp. .................................................... 10.5 Leggett & Platt, Inc. ........................................ 7.7 Lilly (Eli) & Co. ............................................ 11.1 Masco Corp. .................................................. 5.0 McGraw-Hill Companies, Inc. .................................. 9.1 Medtronic, Inc. .............................................. 15.8 Mobil Corp. .................................................. 6.0 National Fuel Gas Co. ........................................ 3.6 NationsBank Corp. ............................................ 15.2 Norwest Corp. ................................................ 10.0 Nucor Corp. .................................................. 25.0 Pentair, Inc. ................................................ 11.1 Pep Boys - Manny, Moe, & Jack (The) .......................... 14.3 PepsiCo, Inc. ................................................ 8.8 Pitney Bowes, Inc. ........................................... 15.9 Questar Corp. ................................................ 3.3 Reliastar Financial Corp. .................................... 10.7 Rockwell International Corp. ................................. 5.2 RPM, Inc. .................................................... 7.7 SBC Communications, Inc. ..................................... 4.1 Schulman A., Inc. ............................................ 10.5 Sigma-Aldrich Corp. .......................................... 12.0 Sonoco Products Corp. ........................................ 9.1 Sysco Corp. .................................................. 13.3 Travelers, Inc. .............................................. 25.0 Wal-Mart Stores, Inc. ........................................ 28.6 Worthington Industries, Inc. ................................. 8.3 ---- The average dividend increase for this group was 11.1% ==== Historical Data (Unaudited) The table below shows the record for the V.A. Sovereign Investors Fund during the past periods. - -------------------------------------------------------------------------------- PER SHARE YEAR ------------------------------------------------------- ENDED SHARES DIVIDENDS NET ASSET CAPITAL GAINS DEC. 31 OUTSTANDING FROM INCOME VALUE DISTRIBUTION ------- ----------- ----------- ----- ------------ 1996 103,482 $.07 $10.74 $.02 1997 896,718 $.18 $13.59 $.01 93 ======================================NOTES===================================== John Hancock Funds - Declaration Trust 94 ======================================NOTES===================================== John Hancock Funds - Declaration Trust 95 ================================================================================ ------------------ [LOGO] JOHN HANCOCK FUNDS First Class A Global Investment Management Firm U.S. Postage PAID 101 HUNTINGTON AVENUE, BOSTON, MA 02199-7603 Boston, MA 1-800-824-0335 Permit No. 53176 INTERNET: www.jhancock.com/funds ------------------ - -------------------------------------------------------------------------------- This report is for the information of shareholders of the John Hancock Declaration Trust. It may be used as sales literature when preceded or accompanied by the current prospectus, which details charges, investment objectives and operating policies. [LOGO] Printed on Recycled Paper DEC0A 12/97 2/98 [A 1/2" x 1/2" John Hancock Funds logo in upper left hand corner of the page. A box sectioned in quadrants with a triangle in upper left, a circle in upper right, a cube in lower left and a diamond in lower right. A tag line below reads "A Global Investment Management Firm."] [A recycled logo in lower left hand corner with caption "Printed on Recycled Paper."] -----END PRIVACY-ENHANCED MESSAGE-----