-----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, NThGHPHs5SH/RewzhiCKTuzZeOUAjlSjO3uPoiB/yxSPXWNS3KFw/t7E1Yuzo24Y Uepe5OP752ehX4qfgkJaxg== 0001010521-98-000319.txt : 19980911 0001010521-98-000319.hdr.sgml : 19980911 ACCESSION NUMBER: 0001010521-98-000319 CONFORMED SUBMISSION TYPE: N-30D PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 19980630 FILED AS OF DATE: 19980910 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: 98706590 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 FUNDS DECLARATION TRUST SEMIANNUAL REPORT - -------------------------------------------------------------------------------- [GRAPHIC] Declaration Trust Growth V.A. International Fund V.A. Regional Bank Fund V.A. Financial Industries Fund V.A. Emerging Growth Fund V.A. Special Opportunities Fund V.A. Growth Fund --------------------------------------------------------------- Growth V.A. Growth & Income Fund & Income V.A. Independence Equity Fund V.A. Sovereign Investors Fund V.A. 500 Index Fund --------------------------------------------------------------- Income V.A. Sovereign Bond Fund V.A. Strategic Income Fund V.A. High Yield Bond Fund V.A. World Bond Fund V.A. Money Market Fund JUNE 30, 1998 [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. Regional Bank Fund................................................ 7 V.A. Financial Industries Fund......................................... 10 V.A. Emerging Growth Fund.............................................. 13 V.A. Special Opportunities Fund........................................ 16 V.A. Growth Fund....................................................... 19 Growth & Income V.A. Growth & Income Fund.............................................. 22 V.A. Independence Equity Fund.......................................... 25 V.A. Sovereign Investors Fund.......................................... 28 V.A. 500 Index Fund.................................................... 31 Income V.A. Sovereign Bond Fund............................................... 34 V.A. Strategic Income Fund............................................. 37 V.A. High Yield Bond Fund.............................................. 40 V.A. World Bond Fund................................................... 43 V.A. Money Market Fund................................................. 46 3) Financial Statements..................................................... 48 4) Notes To Financial Statements............................................ 117 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 and Chief Operating Officer 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. Growth & Income Fund V.A. High Yield Bond Fund V.A. Independence Equity Fund V.A. Regional Bank Fund V.A. Sovereign Investors Fund V.A. Special Opportunities 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 2 ===============================CHAIRMAN'S MESSAGE=============================== DEAR FELLOW SHAREHOLDERS: During the last decade, investors have become used to seeing stock market returns averaging 15% or so each year. In the past three years, the stock market has treated us to a record run, producing annual returns in excess of 20%. After such a long and remarkable performance, many began this year wondering what the market would do for an encore in 1998. The answer through the end of June was more of the same. But tremors from Asia have also sparked increased volatility, as corporate earnings and the U.S. economy have shown signs of slowing. What's more, a good part of the market's advance has come from just a small group of the largest companies in the major stock market indexes. - -------------------------------------------------------------------------------- [A 1 1/4" x 1" photo of Edward J. Boudreau Jr., Chairman and Chief Executive Officer, flush right, next to second paragraph.] - -------------------------------------------------------------------------------- The move ahead has been so narrow that some observers believe that most stocks have actually been in a bear market this year. The bond market had its pockets of volatility as well, although U.S. Treasury bonds benefited from their safe-haven status. While we don't make a practice of opining on what the market will do next, we believe that after such a long run up, it would be wise for investors to set more realistic expectations. Over the long term, the market's historical results have been more in the 10% per year range, which is still a solid result, considering it has been produced despite wars, depressions and other social upheavals along the way. In addition to adjusting, or at least re-examining, expectations, now could also be a good time to review with your investment professional how your assets are diversified, perhaps with an eye toward a more conservative approach. Stocks, especially with their outsized gains of the last three years, might have grown to represent a larger piece of your portfolio than you had originally intended, given your objectives, time horizon and risk level. At John Hancock Funds, our goal is to help you reach your financial objectives and maintain wealth. One way we can do that is by helping you keep your feet on the ground as you pursue your dreams. Sincerely, /s/ Edward J. Boudreau, Jr. EDWARD J. BOUDREAU, JR., CHAIRMAN AND CHIEF EXECUTIVE OFFICER 3 ================================================================================ BY MIREN ETCHEVERRY, JOHN L.F. WILLS AND GERARDO J. ESPINOZA, PORTFOLIO MANAGERS John Hancock V.A. International Fund Europe dominates overseas markets during last six months "International markets parted ways over the last six months..." International markets parted ways over the last six months, with Europe taking the high road and Asia and Latin America the low. In the first quarter of the year, most markets worldwide were rallying, rebounding from late last year's Asian currency and financial earthquakes. Even the Southeast Asian countries that caused the consternation had started to rebound, bringing emerging Latin American markets along. Japan's market also rose on expectations that the government was about to jumpstart the barely breathing economy. But the world divided sharply in the second quarter. As Japan's hopes for recovery faded and its longstanding problems came to the forefront, particularly in the banking sector, its currency weakened further and its economy slipped back into recession. That prompted fears of a second round of regional currency devaluations and the prospect of global economic slowdowns. As if that weren't enough, Russia's economy and currency later erupted as further trouble spots. It was the last straw for all emerging markets, including Latin America, which gave up all their earlier ground and then some, when investors left in droves for safer havens. Europe was the clear overseas winner, where markets kept rising because of both the flight to quality and strong economic forces, not the least of which was anticipation of the long-awaited formation of the European Monetary Union (EMU). Despite the divergence in regional results, international investors fared well over the last six months. John Hancock V.A. International Fund was no exception. For the six months ended June 30, 1998, the Fund posted a total return of 15.81% at net asset value. That was in line with the 16.25% return of the average variable annuity international fund, according to Lipper Analytical Services, Inc. See page 6 for historical performance information. Europe overweighted; Fund restructured The Fund benefited from its large position in Europe, which rose from 49% to 72% of the Fund's net assets. We kept building our stake there because of the compelling investment environment. Inflation and interest rates are at historic lows, as EMU member countries are putting their economic houses in order. At the corporate level, restructuring and - -------------------------------------------------------------------------------- Pie chart at the bottom left column titled "Portfolio Diversification" There are six listings. Beginning from the top right the first represents Continental Europe 56%, the second represents U.K. & Ireland 16%, the third represents Pacific Rim 15%, The fourth represents Latin America 4%, the fifth represents Canada 5%, the sixth represents Short-Term Investments & Other 4%. - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- [A 2 1/4" x 3 1/2" photo of fund management team. Caption reads: V.A. International Fund Portfolio managers. (l-r): Gerardo J. Espinoza, Miren Etcheverry, and John L.F. Wills.] - -------------------------------------------------------------------------------- 4 ================================================================================ JOHN HANCOCK V.A. INTERNATIONAL FUND - -------------------------------------------------------------------------------- ["Bar Chart with the heading "Fund Performance" at the top of left hand column. Under the heading is the footnote: "For the six months ended June 30, 1998." The chart is scaled in increments of 5% with 20% at the top and 0% at the bottom. The first represents the 15.81% total return for John Hancock V.A. International Fund. The second represents the 16.25% total return for Average variable annuity international fund. A 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."] - -------------------------------------------------------------------------------- merger activity have increased as companies work to remain competitive in the more open EMU corporate environment. Earnings outlooks also remain favorable. France was among our top country weightings, at 13% of the Fund, up from 6% six months ago, and it was the main contributor to the Fund's performance. Our top stock there was France Telecom. In the U.K., consumer magazine publishing company EMAP saw its stock rise on the strength of the British economy and an economic rebound in France, where EMAP derives a large portion of its revenues. Our European financial stocks also served us well, top among them Allied Irish Banks, Netherlands insurer ING Groep and French insurer Axa. In the last six months, we established positions in several new attractive markets, including Italy, Spain, Portugal, Finland and Denmark. This growing list also reflect the results of a gradual Fund restructuring undertaken to better manage the Fund's risk level by making it more diversified and balanced. We achieved this by significantly increasing the number of stocks in the portfolio and by reducing the percentage of the Fund's assets held in the top 10 positions. Caution on emerging-markets and Japan We became even more conservative in our approach to emerging markets worldwide, further cutting our stake in Asia to 15% by the end of June from 20% six months ago. Latin America has also suffered from the flight to quality, falling commodity prices and rising interest rates. While we believe in the longer-term story of privatization and burgeoning growth there, we cut our stake from 12% to 4% for now, until the emerging-market backlash abates. We've held our underweighted stake in Japan fairly steady at around 10%, however, reasoning that the unprecedented international pressure on the Japanese government should result in some steps toward addressing the country's major structural problems and preventing a greater regional crisis. Outlook We remain encouraged about the outlook for European stock markets, particularly the EMU countries and the single "euro" currency that bodes well for European businesses. We will keep our focus there, and closely monitor stock valuation levels and the effects that implementation of the EMU will have on liquidity flows among various European markets. By contrast, the prospects for Asia and Japan remain far murkier, given the weak yen and heightened prospects for further currency woes in the region. Until the signs are more encouraging, we will stay underweighted in both the developed and emerging countries of Asia, and in Latin America, given the taint on the entire emerging-market asset class. "The Fund benefited from its large position in Europe..." International investing involves special risks such as political, economic and currency risks and differences in accounting standards and financial reporting. 5 ================================================================================ JOHN HANCOCK V.A. INTERNATIONAL FUND A LOOK AT PERFORMANCE For the period ended June 30, 1998 SINCE ONE INCEPTION YEAR (8/29/96) ---- --------- Cumulative Total Returns 1.22% 29.87% Average Annual Total Returns(1) 1.22% 15.30% 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 (0.65%) and 13.68%, 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 Capital International (MSCI) All Country World-Ex U.S. Free Index, which measures the performance of securities that are freely traded in a broad range of developed and emerging stock markets. - -------------------------------------------------------------------------------- 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 two lines. The first line represents the value of the Morgan Stanley Capital International (MSCI) All Country World-Ex U.S. Free Index and is equal to $14,441 as of June 30, 1998. 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 $12,987 as of June 30, 1998. - -------------------------------------------------------------------------------- 6 ================================================================================ BY JAMES K. SCHMIDT, CFA, PORTFOLIO MANAGEMENT TEAM LEADER AND THOMAS FINUCANE AND THOMAS GOGGINS, PORTFOLIO MANAGERS John Hancock V.A. Regional Bank Fund After strong fourth-quarter finish, small and mid-sized bank stocks languish in 1998 The stock market posted strong gains in the first six months of 1998, but the going got tougher as the period progressed. After rebounding in the first quarter from the Asian financial woes that hit world markets late last year, the market began to stall again in the spring. Once it became clear that Asia's problems were not solved, and that the U.S. economy, and corporate profits, might slow, stocks gave back some ground and mostly moved sideways in the second quarter. Following last year's pattern, large-company blue chip stocks were the biggest winners, as investors both foreign and domestic chose them as safe-haven investments. As a result, the small and mid-sized banks that are the Fund's focus lagged the market. What's more, some blockbuster mega-mergers took industry focus temporarily off merger potential among regional banks. The lag among small and mid-sized banks became greater just as John Hancock V.A. Regional Bank Fund was launched on May 1, 1998. That, plus higher-than-average levels of cash as we established positions, caused the Fund to lose ground. In the two months from inception through June 30, 1998, the Fund posted a total return of -4.13% at net asset value, compared with the Standard & Poor's Regional Bank Index's return of -3.28%. In the same period, the average open-end financial services fund stayed flat, returning 0.00% and the average variable annuity specialty fund returned -0.31%, according to Lipper Analytical Services, Inc. Fund strategy The Fund seeks capital appreciation by investing primarily in regional bank and thrift stocks that have healthy fundamentals and may stand in the path of consolidation -- an ongoing trend in the banking industry. In the Fund's first two months, we began building positions in a range of banks around the country, with emphasis on quality banks with assets ranging between $5 billion and $30 billion. This size of institution offers healthy earnings prospects in - -------------------------------------------------------------------------------- TOP FIVE COMMON STOCK HOLDINGS 1. ALBANK Financial 2.4% 2. Comerica 2.3% 3. Imperial Bancorp 2.3% 4. CCB Financial 2.3% 5. Firstar Corp. 2.2% As a percentage of net assets on June 30, 1998 - -------------------------------------------------------------------------------- "...the small and mid-sized banks that are the Fund's focus lagged the market." - -------------------------------------------------------------------------------- [A 2 1/4" x 3 1/2" photo of fund management team at the bottom right column. Caption reads - Fund management team members. Standing (l-r): Jay McKelvey, Tom Goggins and Tom Finucane. Sitting (l-r): Lisa Welch, Jim Schmidt and Patricia Ouimet.] - -------------------------------------------------------------------------------- 7 ================================================================================ JOHN HANCOCK V.A. REGIONAL BANK FUND "We expect the wave of consolidations sweeping the industry to continue..." - -------------------------------------------------------------------------------- ["Bar Chart with the heading "Fund Performance" at the top of left hand column. Under the heading is the footnote: "From May 1, 1998 to June 30, 1998." The chart is scaled in increments of 2% with the 6% at the top and -6% at the bottom. The first represents the -4.13% total return for John Hancock V.A. Regional Bank Fund. The second represents the 0.00% total return for Average open-end financial services fund. The third represents the 0.31% total return for Average variable annuity specialty fund. A Footnote below reads "The total return for John Hancock V.A. Regional Bank Fund is at net asset value with all distributions reinvested. The average open-end financial services fund and variable annuity specialty fund are tracked by Lipper Analytical Services, Inc."] - -------------------------------------------------------------------------------- the near term and what we believe will be a high mortality rate over the next five to seven years. In other words, as the U.S. banking system becomes dominated by a handful of massive, national players, we believe these regional banks will be taken out at premium prices. Examples include Compass Bancshares, FirstMerit Corp. and First Security Corp. The Fund was initiated immediately following a period of frenzied merger activity. April 13th became the most dramatic date in the annals of bank consolidation as two mega-deals were announced. The proposed merger of NationsBank and BankAmerica would create by far the largest bank in the United States. The "other" merger of April 13, which would have dominated banking news on any other day, was between Banc One and First Chicago. This deal will create a banking company with approximately $240 billion in assets that will rank as the nation's sixth largest. These deals, coupled with the merger of Citicorp and Travelers into Citigroup that was announced a week earlier, substantially increase the pressure for industry consolidation. Already in the Fund's first two months, one of its holdings, Firstar Corp., announced its takeover by Star Bancorp. We also expect numerous transactions in the coming months, believing that "mergers beget mergers" and that a few landmark deals serve as incentive to others. The timing of such mergers is likely to be affected by the need to revamp computer systems for the year 2000 changeover ("Y2K"). For the next six months, activity could increase as institutions scrambling to meet their Y2K deadlines will be induced to strike deals and avoid the problem totally. Then in early 1999, we could witness a brief hiatus in mergers because systems would have to be combined perilously close to the magic date. Earnings on track Following a fruitful 1997, earnings in 1998 have generally equaled or surpassed expectations even though regional bank stock prices have not reflected this recently. The nearly ideal economic conditions -- moderate, sustainable growth, low inflation and stable interest rates -- have enabled our companies to report 12% year-over-year earnings growth in the first quarter and 11% thus far in the second quarter of 1998. Across the gamut of banks and thrifts, loan quality is very good, margins, while under pressure, are wide by historic standards, expense controls have been excellent and stock repurchases continue to counter capital buildup. Outlook There are several factors contributing to our continued positive outlook for financial stocks. We expect the wave of consolidations sweeping the industry to continue, both here and starting in earnest abroad. However, there could be a temporary slowdown as we approach the year 2000 and its attendant technical issues. Furthermore, with the U.S. economy solid, interest rates low and inflation invisible, the environment remains right for financial stocks to advance. Should the U.S. economy slow and corporate profits shrink due to fallout from Asian economic problems, we'll also be watching for signs of increasing problem loans, which are currently at very low levels. - -------------------------------------------------------------------------------- Sector investing is subject to greater risks than the market as a whole. 8 ================================================================================ JOHN HANCOCK V.A. REGIONAL BANK FUND A LOOK AT PERFORMANCE For the period ended June 30, 1998 SINCE INCEPTION (5/1/98) -------- Cumulative Total Return (4.13%) Average Annual Total Return(1) (4.13%)(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 (4.20%). (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. Regional Bank 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. - -------------------------------------------------------------------------------- Line chart with the heading V.A. Regional Bank 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 May 1, 1998, and is equal to $10,748 as of June 30, 1998. The second line represents the value of the V.A. Regional Bank Fund, before sales charge, and is equal to $9,587 as of June 30, 1998. - -------------------------------------------------------------------------------- 9 ================================================================================ BY JAMES K. SCHMIDT, CFA, PORTFOLIO MANAGEMENT TEAM LEADER AND THOMAS FINUCANE,CFA, AND THOMAS GOGGINS, PORTFOLIO MANAGERS John Hancock V.A. Financial Industries Fund Steady interest rates, solid earnings boost stocks, including financials "Earnings for financial companies in 1998 have generally met or exceeded expectations." In the first three months of 1998, the stock market moved sharply forward, overcoming both fears that Asia's financial woes would leave their mark on the U.S. economy and jitters about earnings prospects. The economy surprised many by its robustness, and inflation remained tame, which sparked the rally, primarily among the large-company stocks perceived to be safe havens. However, the second quarter turned more volatile. A second round of Asian fears was not so easily dismissed and second quarter earnings reports and economic data suggested the economy could be slowing. Despite the stall, the Standard & Poor's 500 Stock Index still advanced by 17.71% in the first six months of the year. Banks and other financial stocks lagged the market somewhat, pausing after a very strong year-end rally. Mirroring the broader market, the larger banks and financial companies outperformed their smaller counterparts. John Hancock V.A. Financial Industries Fund also participated in the market's advance. For the six months ended June 30, 1998, the Fund posted a total return of 12.35% at net asset value. That compared to the 12.19% return of the average open-end financial services fund and the 15.38% return of the average variable annuity specialty fund, according to Lipper Analytical Services, Inc. Historical performance information can be found on page 12. Performance and strategy review Earnings for financial companies in 1998 have generally met or exceeded expectations. Among lending institutions, loan volumes have been strong while the level of non-performing loans has remained low, interest margins have been relatively stable, expenses have been under control, and stock buy backs have bolstered returns on equity. Even better conditions have been present for the securities brokers, where earnings gains of 15% to 30% have been the norm. Commissions, underwriting volume, and merger and acquisition fees have all been running at record levels. We are satisfied with the earnings of the real estate investment trusts (REITs); however, their share prices have generally been flat or down making - -------------------------------------------------------------------------------- TOP FIVE COMMON STOCK HOLDINGS 1. Legg Mason 4.4% 2. Fiserv 4.1% 3. American Express Co. 3.9% 4. General Re 3.9% 5. A.G. Edwards 3.8% As a percentage of net assets on June 30, 1998 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- [A 2 1/4" x 3 1/2" photo of fund management team at the bottom right column. Caption reads - Fund management team members. Standing (l-r): Jay McKelvey, Tom Goggins and Tom Finucane. Sitting (l-r): Lisa Welch, Jim Schmidt and Patricia Ouimet.] - -------------------------------------------------------------------------------- 10 ================================================================================ JOHN HANCOCK V.A. FINANCIAL INDUSTRIES FUND - -------------------------------------------------------------------------------- ["Bar Chart with the heading "Fund Performance" at the top of left hand column. Under the heading is the footnote: "For the six months ended June 30, 1998." The chart is scaled in increments of 5% with the 20% at the top and 0% at the bottom. The first represents the 12.35% total return for John Hancock V.A. Financial Industries Fund. The second represents the 12.19% total return for Average open-end financial services fund. The third represents the 15.38% total return for Average variable annuity specialty fund. A 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 open-end financial services fund and variable annuity specialty fund are tracked by Lipper Analytical Services, Inc. See the following page for historical performance information."] - -------------------------------------------------------------------------------- them our worst performing group of stocks. These stocks appear to offer unusually good value now as they are selling at low ratios of price to funds from operations. We witnessed mixed results from our insurance holdings, which represented our largest sector concentration at 25% of the Fund's net assets at the end of June. Two of our larger insurers, Travelers and General Re Corp., advanced in price as they announced mergers. Companies that derive significant revenue from annuity sales showed good results, while some of the property and casualty companies were afflicted with greater than expected losses from weather-related catastrophies. Consolidation continues The most important development this year in the financial services area was the announcement on April 6 that Travelers and Citicorp would merge to form Citigroup. This transaction is a low-risk merger that will create the world's largest financial services company, producing clear cost-cutting opportunities. It also has enormous implication for the future of the industry, with the greatest significance lying in the impact it may have on financial reform legislation. A bill that would allow cross-ownership between banks, securities brokers and insurance underwriters had been languishing in Congress. This merger, which ultimately requires such legislation, creates a sense of urgency to work out the compromises needed to pass the reform. Europe's potential grows The process of streamlining the financial services sector in Europe is many years behind that of the United States. However, with the European Monetary Union (EMU) coming into effect with 11 initial member countries and the euro as the common currency, we expect to see changes in the years ahead. As the EMU promotes further economic cooperation among European nations, we believe consolidation among financial institutions and the development of globally competitive, shareholder-oriented dominant firms will be the eventual outcome. Currently, the Fund's small European investments (less than 5% of the Fund) are concentrated on the most progressive banks in Ireland, the Netherlands and Sweden. We intend to increase our allocation as we gain confidence that U.S.-style restructuring is beginning to take hold. A look ahead We remain encouraged about the prospects for financial stocks over the long term. We expect the wave of consolidations sweeping the industry to continue, both here and starting in earnest abroad. We could, however, see a temporary slowdown as we approach the year 2000 and its attendant technical issues. Furthermore, with the U.S. economy solid, interest rates low and inflation invisible, the environment remains right for financial stocks to advance. Should the U.S. economy slow and corporate profits shrink due to fallout from Asian economic problems, however, we'll be watching for signs of increasing problem loans, which are currently at very low levels. "We witnessed mixed results from our insurance holdings..." - -------------------------------------------------------------------------------- Sector investing is subject to greater risks than the market as a whole. 11 ================================================================================ JOHN HANCOCK V.A. FINANCIAL INDUSTRIES FUND A LOOK AT PERFORMANCE For the period ended June 30, 1998 SINCE ONE INCEPTION YEAR (4/30/97) ---- --------- Cumulative Total Returns 34.99% 51.73% Average Annual Total Returns(1) 34.99% 43.06% 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 34.82% and 42.77%, respectively. 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. - -------------------------------------------------------------------------------- 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 $15,173 as of June 30, 1998. The second line represents the value of the S&P 500 Stock Index and is equal to $14,427 as of June 30, 1998. - -------------------------------------------------------------------------------- 12 ================================================================================ BY BERNICE S. BEHAR, CFA, PORTFOLIO MANAGER John Hancock V.A. Emerging Growth Fund Small-company stocks post moderate gains in first half in a split personality market Small-company stocks trudged higher over the past six months, although their gains were overshadowed by the progress of their larger-company counterparts. For the first half of 1998, the Russell 2000 Index of small-company stocks gained only 4.7%, compared to the 17.71% rise of the Standard & Poor's 500 Stock Index. That divergence confounded many observers, especially given all that small companies had going for them during the period: double-digit earnings increases, limited exposure to the turmoil in Asia and historically low stock prices relative to their large cousins. But several factors conspired to mute small-company stocks' returns. In light of the economic problems in Asia, investors increasingly sought out the liquidity -- the ease with which a stock can be bought or sold -- of large, well-known companies. Furthermore, foreign buyers bought record amounts of U.S. stocks, but overwhelmingly embraced the names they knew, like Coca-Cola, General Electric and Gillette. For the six-month period ended June 30, 1998, John Hancock V.A. Emerging Growth Fund had a total return of 9.18% at net asset value, compared to the average variable annuity small-cap fund's return of 7.06%, according to Lipper Analytical Services, Inc. Historical performance information can be found on page 15. Retailers, "CLECS" outperform; health care lags As U.S. consumer demand boomed, retailers -- whose main business lies in the U.S. -- were among the biggest contributors to the Fund's performance during the period. A robust job market helped ignite strong consumer spending and boosted the performance of department store chain Stage Stores and sporting goods retailer Hibbetts. Both retailers have found success by serving small-town America. Competitive local exchange carriers -- dubbed "CLECs" -- were another of the Fund's best-performing groups. These telecommunications companies have quickly grabbed market share away from their regional Bell operating company competitors, because they provide small and mid-sized businesses with better services, such as sophisticated data transmission, at reduced prices. "...gains were overshadowed by the progress of their larger-company counterparts." - -------------------------------------------------------------------------------- TOP FIVE COMMON STOCK HOLDINGS 1. Metromedia Fiber Network 1.1% 2. Micromuse 1.1% 3. Medallion Financial 1.0% 4. ProBusiness Services 1.0% 5. VeriSign 1.0% As a percentage of net assets on June 30, 1998 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- [A 2 1/4" x 3 1/2" photo of fund management team at the bottom right column. Caption reads - Fund management team members (l-r): Anurag Pandit, Bernice Behar and Lauren Allen.] - -------------------------------------------------------------------------------- 13 ================================================================================ JOHN HANCOCK V.A. EMERGING GROWTH FUND "...small-cap stocks remain quite cheap." - -------------------------------------------------------------------------------- ["Bar Chart with the heading "Fund Performance" at the top of left hand column. Under the heading is the footnote: "For the six months ended June 30, 1998." The chart is scaled in increments of 2% with the 10% at the top and 0% at the bottom. The first represents the 9.18% total return for John Hancock V.A. Emerging Growth Fund. The second represents the 7.06% total return for the Average variable annuity small-cap fund. A Footnote below reads "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-cap fund is tracked by Lipper Analytical Services, Inc. See the following page for historical performance information."] - -------------------------------------------------------------------------------- The stock price of industry leader Intermedia Communications, for example, rose substantially during the period. On the other side of the scale were our health-care companies, which proved to be disappointing during the period. Often within the small-stock universe, bad news at one company can taint a larger group of stocks. In addition, one of our holdings, Respironix, a maker of respiratory devices, faltered because of changes in insurance reimbursement schedules. We sold the stock during the period. Shift in technology holdings We made some strategic changes among our technology holdings over the past six months. While we've maintained some hardware holdings that we think are market leaders, we've reduced our overall hardware stake and shifted our technology focus more toward software and service companies. While problems in Asia have dampened global computer sales, we project that the demand for software will continue to grow. Companies continue to emphasize software as a means to boost productivity, and that has helped our holdings in Advent Software, a maker of programs for financial analysis, and CBT group, which teaches businesses how to use various software programs through its training software. Another favorite is Aris Corp., a consulting company that provides implementation and training for Oracle-based programs. Outlook We remain optimistic about the prospects for stocks in general, and small-company stocks in particular. All the factors that have propelled the stock market over the past several years appear to remain in place -- economic growth is healthy, inflation is tame and consumer confidence is strong. We believe that for the balance of the year, interest rates may rise or fall in fits and starts, but the longer-term trend is for them to go lower. Interest rates are a critical factor for small growth companies since they tend to borrow to finance their growth. Lower interest costs, in turn, could translate into better profitability. As for small-company stocks, we think they are attractively priced and offer superior earnings growth rates relative to their large-company counterparts. Growth rates for small-company stocks are expected to be double those of the S&P 500 in 1998. Although small-cap stocks have the higher growth potential, they are currently trading at roughly the same price-earnings ratio as large-cap stocks. From a historical perspective, small-cap stocks remain quite cheap. We've said it before, and we continue to believe, that it's only a question of when, not if, the market ultimately rewards small companies for their higher growth potential and low prices. 14 ================================================================================ JOHN HANCOCK V.A. EMERGING GROWTH FUND A LOOK AT PERFORMANCE For the period ended June 30, 1998 SINCE ONE INCEPTION YEAR (8/29/96) ---- --------- Cumulative Total Returns 16.74% 13.23% Average Annual Total Returns(1) 16.74% 7.00% 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 returns for the one-year period and since inception would have been 15.50% and 5.08%, 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 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. - -------------------------------------------------------------------------------- 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 three lines. The first line represents the value of the Russell 2000 Index and is equal to $14,850 as of June 30, 1998. The second line represents the value of the Russell 2000 Growth Index and is equal to $13,487 as of June 30, 1998. The third 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 $11,323 as of June 30, 1998. - -------------------------------------------------------------------------------- 15 ================================================================================ BY BARBARA FRIEDMAN, CFA, PORTFOLIO MANAGER John Hancock V.A. Special Opportunities Fund Stocks advance amid volatility; mid-caps lag larger stocks "...three largest concentrations in the financial, technology and health-care sectors." Stocks continued their forward march over the last six months, overcoming stiff headwinds later in the period. In fact, most of the market's gains came in the first quarter, when the market shrugged off fears of fallout from Asia's financial ills and the remained ideal. But after rallying to new highs in April, stocks retrenched amid concerns that prices were too high and in reaction to renewed concerns about Asian contagion. In this nervous environment, investors both foreign and domestic flocked to the large, blue-chip stocks that were viewed as the safest haven. As a result, mid-cap stocks -- which are the Fund's primary focus -- lagged the overall market, returning 9.13%, as measured by the Russell Midcap Index, compared to the Standard & Poor's 500 Stock Index's 17.71% advance, including reinvested dividends. It was a good environment in which to launch John Hancock V.A. Special Opportunities Fund on January 2, 1998. Mid-cap stocks were attractively priced after lagging the market, and as we began initiating positions in January, stocks were tumbling in reaction to Asian fears. That helped us buy low and participate fully in the subsequent rally. From inception through June 30, 1998, the Fund posted a total return of 14.00% at net asset value, compared to the 13.40% return of the average variable annuity mid-cap fund, according to Lipper Analytical Services, Inc. Strategy and sector choices The Fund seeks long-term capital appreciation by investing in stocks within industry sectors that we believe have the potential for above-average earnings growth. Under normal circumstances, at least 75% of the Fund will be invested in five or fewer sectors. Within these sectors, the Fund targets predominately mid-sized companies with market capitalizations between $750 million and $6 billion that offer solid earnings prospects. In considering our sectors, we generally view the top three groups as longer-term areas of concentration, although individual stocks within those sectors will change depending on specific company fundamentals and stock valuations. The other two sectors could rotate more frequently, depending on market and economic dynamics. To date, we have established our three largest concentrations in the financial, technology and - -------------------------------------------------------------------------------- TOP FIVE COMMON STOCK HOLDINGS 1. EMC Corp. 1.9% 2. NEXTLINK Communications 1.6% 3. Unisys 1.6% 4. Keane 1.6% 5. Cambridge Technology Partners 1.6% As a percentage of net assets on June 30, 1998 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- [A 2 1/4" x 3 1/2" photo of fund management team at the bottom right column. Caption reads - Fund management team members (l-r): Barbara Friedman, Ben Hock, Lisa Welch and John Golden.] - -------------------------------------------------------------------------------- 16 ================================================================================ JOHN HANCOCK V.A. SPECIAL OPPORTUNITIES FUND - -------------------------------------------------------------------------------- ["Bar Chart with the heading "Fund Performance" at the top of left hand column. Under the heading is the footnote: "From January 2, 1998 to June 30, 1998." The chart is scaled in increments of 5% with the 15% at the top and 0% at the bottom. The first represents the 14.00% total return for John Hancock V.A. Special Opportunities Fund. The second represents the 13.40% total return for Average variable annuity mid-cap fund. A footnote at the bottom reads: The total return for John Hancock V.A. Special Opportunity Fund is at net asset value with all distributions reinvested. The average variable annuity mid-cap fund is tracked by Lipper Analytical Services, Inc."] - -------------------------------------------------------------------------------- health-care sectors. Together they accounted for more than 65% of the Fund's net assets. We also focused to a lesser degree on retail and consumer cyclical stocks, mainly media companies. Across the Fund, we also kept our sights on domestically oriented stocks that were less vulnerable to Asia's economic slowdown. Technology, financials, healthcare By the end of June, technology was our largest sector, at 31% of net assets. We focused on software companies and avoided the semiconductor and computer makers that have suffered from Asia's slowdown, a decline in personal computer demand and increased pricing pressures. Conversely, software companies continued to benefit from companies' use of technology software to realize productivity gains and cost savings. Among our top performers were EMC Corp., a leading computer storage company and Keane, Inc., a software company helping corporations deal with year 2000 compliance issues. In the financial sector, at 22% of the Fund, we had a diverse array of stocks, including regional banks, insurance companies --both life and property and casualty -- and financial service companies. We believe the ongoing industry consolidation bodes well for this sector. Financial stocks lagged the market in the last six months, taking a breather after a strong year-end run-up and a lack of takeover activity in the mid-cap arena. But we had a few good performers, such as Bermuda-based insurer Mid Ocean that was acquired by another company. A disappointment was Selective Insurance Group, which has yet to gain market recognition. Health-care stocks, at 13% of the portfolio, did particularly well. This sector has strong prospects, given that health-care spending will most likely rise as baby boomers age. Here, too, we held a broadly diverse basket of stocks, including pharmaceuticals, hospital companies, vitamin manufacturers and nursing home companies. One of our top choices was Mylan Laboratories, a generic drug company whose earnings are reflecting the rise in generic drug prices. Its stock price has risen by 50% since we bought it. A look ahead We are encouraged by the prospects for mid-cap stocks. Their earnings outlook is better than that of the large-cap universe, where stock prices have risen to expensive levels. At the same time, mid-cap stocks remain attractively valued, selling at a modest discount to the broader market. In our view, that combination represents a compelling scenario bound to attract investors' attention eventually. No matter what the market does next, we will continue to look for solid companies that have the potential to generate strong and consistent earnings growth. "...mid-cap stocks remain attractively valued..." - -------------------------------------------------------------------------------- Sector investing is subject to greater risks than the market as a whole. 17 ================================================================================ JOHN HANCOCK V.A. SPECIAL OPPORTUNITIES FUND A LOOK AT PERFORMANCE For the period ended June 30, 1998 SINCE INCEPTION (1/2/98) -------- Cumulative Total Return 14.00% Average Annual Total Return(1) 14.00%(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 12.49%. (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. Special Opportunities Fund would be worth, assuming all distributions were reinvested for the period indicated. For comparison, we've shown the same $10,000 investment in both the Standard & Poor's 500 Stock Index and the Russell Midcap Growth Index. The Standard & Poor's 500 Stock Index is an unmanaged index that includes 500 widely traded common stocks and is a commonly used measure of stock market performance. The Russell Midcap Growth Index is an unmanaged index that contains those securities from the Russell Midcap Index with a greater-than-average growth orientation. - -------------------------------------------------------------------------------- Line chart with the heading V.A. Special Opportunities 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 Standard & Poor's 500 Stock Index and is equal to $14,446 as of June 30, 1998. The second line represents the value of the Russell Midcap Growth Index and is equal to $13,784 as of June 30, 1998. The third line represents the value of a hypothetical $10,000 investment made in the V.A. Special Opportunities Fund on January 2, 1998, before sales charge, and is equal to $11,400 as of June 30, 1998. - -------------------------------------------------------------------------------- 18 ================================================================================ BY BENJAMIN A. HOCK, JR., PORTFOLIO MANAGER John Hancock V.A. Growth Fund Market advances, with strong first quarter gains and second quarter strife Recently, Benjamin A. Hock, Jr. assumed leadership of John Hancock V.A. Growth Fund's management team. Mr. Hock, a senior vice president at John Hancock Funds since 1994, has more than 24 years of experience in the investment business. The stock market kept marching forward over the last six months, again reaching record highs. The real strides, however, took place mostly in the first quarter of 1998 in a relief rally that occurred after Asia's ills did not slow the economy down, as many feared it would. But Asian concerns permeated the second quarter, and the market moved mostly backward or in side steps instead of its earlier giant steps. In this period, the market consolidated its first quarter gains and analysts revised down corporate earnings estimates. Volatility increased as the dollar strengthened and the Japanese yen plummeted, rekindling worries that Asia's financial turmoil would indeed slow the U.S. economy and corporate profits in the second half of the year. Despite the market's fluctuations, the broad market as measured by the Standard & Poor's 500 Stock Index returned 17.71%, including reinvested dividends, through June. For the six months ended June 30, 1998, John Hancock V.A. Growth Fund posted a total return of 12.49% at net asset value, compared to the 16.23% return of the average variable annuity growth fund, according to Lipper Analytical Services, Inc. Historical performance information can be found on page 21. We attribute the Fund's underperformance to its higher-than-average small-cap stock weighting. By the period's end, we had decreased the number of small-cap stocks in the Fund and increased its average capitalization. But having had small-cap exposure hurt us in the period, because these companies significantly lagged their larger brethren. Three key sectors pay off Over the last six months, the Fund maintained concentrations in three broad areas: consumer stocks, drug and technology companies, which together accounted for more than 60% of the Fund's net assets. In hindsight, the Fund would have benefited from an even bigger weighting in these - -------------------------------------------------------------------------------- TOP FIVE COMMON STOCK HOLDINGS 1. Cisco Systems 3.4% 2. Microsoft 3.2% 3. American Express 3.2% 4. Schering-Plough 3.1% 5. General Electric 3.0% As a percentage of net assets on June 30, 1998 - -------------------------------------------------------------------------------- "...concentrations in three broad areas: consumer stocks, drug and technology companies..." - -------------------------------------------------------------------------------- [A 2 1/4" x 3 1/2" photo of fund management team at the bottom right column. Caption reads - Fund management team members (l-r): Lisa welch, Ben Hock, John Golden and Linda Miller.] - -------------------------------------------------------------------------------- 19 ================================================================================ JOHN HANCOCK V.A. GROWTH FUND "In this volatile environment, the winners and losers are more likely than ever to part company." - -------------------------------------------------------------------------------- ["Bar Chart with the heading "Fund Performance" at the top of left hand column. Under the heading is the footnote: "For the six months ended June 30, 1998." The chart is scaled in increments of 5% with the 20% at the top and 0% at the bottom. The first represents the 12.49% total return for John Hancock V.A. Growth Fund. The second represents the 16.23% total return for Average variable annuity growth fund. A footnote at the bottom reads: 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."] - -------------------------------------------------------------------------------- sectors. Consumer stocks such as Coca-Cola, PepsiCo., Gillette and Colgate-Palmolive, as well as retail holdings like department store Dayton Hudson, rode the crest of the strong U.S. economy, historically low unemployment and the rise in personal income. Steady consumer buying habits and declining commodity costs have also helped our food stocks, including Suiza and new additions Quaker Oats and Flowers Industries. After lagging the market for a long period, their valuations were also very attractive. The large drug companies, such as Merck and Schering-Plough, continued to see their fortunes boosted by an ongoing wave of new product offerings. In addition to their solid potential for steady earnings growth, these two sectors helped shelter the Fund from Asian fallout, since our consumer stocks are domestically oriented and the major drug companies derive much more of their revenues from the U.S. and Europe than they do from Asia. This focus helped the Fund, especially in the last two months of the period, both avoid major blowups and benefit from these sectors' gains. We kept our technology sights on software companies, avoiding the personal computer makers and semiconductor companies that are more vulnerable to the slowing demand for personal computers, pricing pressures from the sub-$1,000 personal computer market and the slowdown in Asia. By contrast, the demand keeps growing for software technology to help companies increase their productivity. Companies such as Cisco Systems, an important player in the world of networking; and Computer Sciences, an information technology consultant and systems integration specialist, have done well. Outlook We remain optimistic about the prospects for the economy, corporate profits and the stock market this year. The economy shows signs of continued growth, even if it does so at a slower rate as Asia's slowdown rubs off. Inflation shows no signs of emerging from hibernation and we believe it will remain that way. Within this positive context, however, we inject a note of caution. In this volatile environment, the winners and losers are more likely than ever to part company. We will keep our focus sharp and our hand selective in our choices both of individual stocks and sectors. 20 ================================================================================ JOHN HANCOCK V.A. GROWTH FUND A LOOK AT PERFORMANCE For the period ended June 30, 1998 SINCE ONE INCEPTION YEAR (8/29/96) ---- --------- Cumulative Total Returns 28.27% 20.70% Average Annual Total Returns(1) 28.27% 10.79% 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 27.37% and 9.24%, 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. - -------------------------------------------------------------------------------- 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 $18,341 as of June 30, 1998. The second line represents the value of the V.A. Growth Fund, before sales charge, and is equal to $12,070 as of June 30, 1998. - -------------------------------------------------------------------------------- 21 ================================================================================ BY TIMOTHY KEEFE, CFA, PORTFOLIO MANAGER John Hancock V.A. Growth and Income Fund Led by large-company stocks, U.S. market gets off to strong start in 1998 "Among the Fund's top contributors to performance were technology stocks." Falling interest rates, continued low inflation, and a healthy economy added up to a near-perfect environment that sent stocks soaring in the first quarter of 1998. With Southeast Asia's financial problems causing few problems for U.S. companies, investors were optimistic. But volatility increased in the second quarter, as several companies announced weaker-than-expected earnings forecasts. Skittish investors once again headed for the safety of large-company stocks with predictable earnings growth. For the rest of the period, stocks moved sideways. But gains made early on were enough to push the Standard & Poor's 500 Stock Index -- a broad measure of market performance -- to a 17.71% return for the first half of the year. Value strategy pays off John Hancock V.A. Growth & Income Fund, which opened on January 2, 1998, also got off to a good start. A focus on large-company stocks helped the Fund deliver a 15.09% return, at net asset value, from inception through June 30, 1998. This was ahead of the average variable annuity growth and income fund, which returned 12.26% for the same period, according to Lipper Analytical Services, Inc. The key to these results was our disciplined value strategy. In managing the Fund, we look for companies that are poised to post impressive earnings, whose stocks are selling for less than we think they're worth. We particularly like stocks with substantial and sustainable cash flow that have the potential for a catalyst that would unleash the stock's full potential. Our focus is on stocks with outstanding shares worth more than $1 billion that we can hold for long-term appreciation. During the Fund's first six months of operation, new assets came in quickly. Our discrimination and long-term focus meant we had higher cash levels than normal throughout the period. While this lowered risk, it also held back performance somewhat. But our stock picks helped us make up ground, allowing us to outperform our peers for the six-month period. Technology and insurance lead Among the Fund's top contributors to performance were technology stocks. We focused pri- - -------------------------------------------------------------------------------- TOP FIVE COMMON STOCK HOLDINGS 1. Triton Energy Ltd. 5.7% 2. KLM Royal Dutch Airlines 5.3% 3. Washington Post Co. 4.8% 4. Camco International 4.7% 5. Niagara Mohawk Power Corp. 4.5% As a percentage of net assets on June 30, 1998 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- [A 2 1/4" x 3 1/2" photo of fund management team at the bottom right column. Caption reads - Fund management team members (l-r): Tim Keefe, Tim Quinlisk and Lisa Welch.] - -------------------------------------------------------------------------------- 22 ================================================================================ JOHN HANCOCK V.A. GROWTH AND INCOME FUND - -------------------------------------------------------------------------------- ["Bar Chart with the heading "Fund Performance" at the top of left hand column. Under the heading is the footnote: "From January 2, 1998 to June 30, 1998." The chart is scaled in increments of 5% with the 20% at the top and 0% at the bottom. The first represents the 15.09% total return for John Hancock V.A. Growth and Income Fund. The second represents the 12.26% total return for Average variable annuity growth and income fund. A footnote at the bottom reads: The total return for John Hancock V.A. Growth and Income 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."] - -------------------------------------------------------------------------------- marily on software and service companies, avoiding hardware companies that faced problems related to Southeast Asia's turmoil. One of our larger investments was Electronic Data Systems (EDS), a leading provider of outsourced technology services. We bought the stock when it was down because of short-term problems with its largest client. The stock bounced back as the other 75% of its business continued to hit on all cylinders. Galileo International, another large position, is a leader in computer airline reservation systems. Fears that Southeast Asia's troubles would result in fewer bookings temporarily hurt the stock price. When this never happened, the stock took off. Insurance stocks -- 17% of the Fund's net assets -- also did well for us. We focused on strong companies whose stock prices were unfairly hurt by weak pricing in the industry. Among them were Executive Risk, a specialty insurer that was spun off from Aetna; Mercury General, a low-cost provider of auto insurance; and Ace Ltd., a Bermuda-based reinsurer. Energy stocks turned in disappointing results. However, historically low valuations -- stock prices relative to earnings and other measures -- along with the prospect of rising oil prices made the sector attractive from a buying perspective. We chose companies like Triton Energy Ltd., our number one stock holding. Triton is an exploration and production company with two major discovery fields in emerging-market countries. Both emerging-market fears and the rapid drop in oil prices have hurt the stock's price. But we're optimistic that investors will recognize the stock's true worth now that the company's assets are up for sale. More volatility ahead We expect the market to remain choppy for the rest of 1998. Business conditions are becoming more challenging, as price competition stiffens and Asia's problems spread. And earnings growth -- while still strong -- is not as good as it has been. With the market near all-time highs, investors are quickly punishing the stocks of companies that fail to meet earnings expectations. Fortunately, increased volatility benefits bargain hunters. Short-term events and industry-wide problems can easily cloud the outlook for companies with great prospects. But this gives us a chance to acquire these companies at compelling valuations. Especially in times of heightened uncertainty, we believe our disciplined value-oriented strategy will help provide shareholders with above-average returns at below-average risk. "Fortunately, increased volatility benefits bargain hunters." 23 ================================================================================ JOHN HANCOCK V.A. GROWTH AND INCOME FUND A LOOK AT PERFORMANCE For the period ended June 30, 1998 SINCE INCEPTION (1/2/98) -------- Cumulative Total Return 15.09% Average Annual Total Return(1) 15.09%(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 14.76%. (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. Growth and 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 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. - -------------------------------------------------------------------------------- Line chart with the heading V.A. Growth and 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 S&P 500 Stock Index on January 2, 1998, and is equal to $14,446 as of June 30, 1998. The second line represents the value of the V.A. Growth and Income Fund, before sales charge, and is equal to $11,509 as of June 30, 1998. - -------------------------------------------------------------------------------- 24 ================================================================================ BY STEPHEN LANZENDORF, FOR THE PORTFOLIO MANAGEMENT TEAM John Hancock V.A. Independence Equity Fund Stocks surge forward in the first quarter, stall in the second on Asian fears The same positive forces that have propelled the stock market for the last several years remained at work over the last six months. The U.S. economy grew more strongly than expected, calming investors' concerns about Asia, at least in the first quarter. Interest rates were stable and inflation was non-existent. However, the last two months of the period proved to be more challenging. Asian financial markets had once again become shaky, and U.S. companies with exposure to Asia began to report disappointing earnings. Between mid-May and mid-June, the major market indexes fell by 4% to 7%, then rallied briefly to end the second quarter with only slight advances. The first quarter rally, however, enabled the Standard & Poor's 500 Stock Index to return 17.71% in the last six months, including reinvested dividends, a performance many did not expect for the entire year. John Hancock V.A. Independence Equity Fund participated fully in the market's advance. In addition to strong stock selection, the Fund was helped by the fact that the S&P 500 outperformed the Dow Jones Industrial Average, which returned 14.13%. Although investors still favored large-capitalization stocks, the better relative performance by the S&P indicated some broadening of investor preferences that benefited the Fund's diversified holdings. For the six months ended June 30, 1998, the Fund posted a total return of 19.86% at net asset value, outpacing both the S&P and the 12.26% return of the average variable annuity growth and income fund, according to Lipper Analytical Services, Inc. Historical performance information can be found on page 27. Consumer stocks pay off The Fund's objectives of growth and income continued to be well served by its disciplined investment strategy, combining in-depth fundamental analysis with computer modeling to identify companies with improving fundamentals and inexpensive stock prices. Many consumer-related companies met these criteria in the first half of 1998, just as consumer confidence was high. Auto manufacturers Ford and Chrysler were strong contributors to Fund performance, as were apparel companies like Tommy Hilfiger and Jones Apparel. Specialty retailers like Home Depot, Staples and Lowe's benefited not only from strong consumer spending, - -------------------------------------------------------------------------------- TOP FIVE COMMON STOCK HOLDINGS 1. Procter & Gamble 3.5% 2. Microsoft 2.7% 3. General Electric 2.6% 4. United Technologies 2.3% 5. Travelers Group 2.2% As a percentage of net assets on June 30, 1998 - -------------------------------------------------------------------------------- High consumer confidence boosted consumer-related stocks. - -------------------------------------------------------------------------------- [A 2 1/4" x 3 1/2" photo of fund management team at the bottom right column. Caption reads - Fund management team members (l-r): Coreen Kraysler, David Canavan, Jane Shigley, Jeff Saef and Stephen Lanzendorf.] - -------------------------------------------------------------------------------- 25 ================================================================================ JOHN HANCOCK V.A. INDEPENDENCE EQUITY FUND "...we expect the trend of broader participation in market rallies to continue..." - -------------------------------------------------------------------------------- ["Bar Chart with the heading "Fund Performance" at the top of left hand column. Under the heading is the footnote: "For the six months ended June 30, 1998." The chart is scaled in increments of 5% with the 20% at the top and 0% at the bottom. The first represents the 19.86% total return for John Hancock V.A. Independence Equity Fund. The second represents the 12.26% total return for Average variable annuity growth and income fund. A footnote at the bottom reads: 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."] - -------------------------------------------------------------------------------- but also from the fact that their revenues are derived mainly in the United States. In the technology area, we were able to avoid some of the semiconductor and other computer hardware companies that might be hurt by the slowdown in Asia. Instead, we owned software companies like Lucent Technologies, which has maintained a strong market position in a very competitive environment. Finally, many of our financial stocks performed well, buoyed by industry consolidation, including the recently announced mega-merger of Travelers and Citicorp., both Fund holdings. Other strong performers included merger candidate General Re, as well as Morgan Stanley, Dean Witter, Discover. Energy, chemicals disappoint The Fund's performance was hurt by our energy investments in such stocks as Arco, which we sold during the period, and Phillips Petroleum, because of weak crude oil prices. The chemical industry also suffered from weak commodity prices. Our interest in the sector was limited to specialty chemical companies, such as Air Products & Chemicals, which performed well relative to other stocks in the industry, but was disappointing on an absolute basis. Regulatory uncertainty clouded the prospects of many telecommunications companies, including AT&T. Its recently announced merger got a lukewarm reception and weakened its stock, because it was unclear how quickly regulators would allow the company to implement its plans to enter the local telephone service markets. Outlook We believe the stock market can continue to do well if the economy continues to grow and interest rates and inflation stay roughly at current levels. That said, we expect to see more companies announce lower-than-expected results for the third quarter and therefore believe it's still too early to buy companies with significant exposure to Asia. However, the more domestically oriented sectors that did well in the first half of the year, such as healthcare, specialty retailing and financial services, should continue that trend in the second half. We're watching the energy sector. If, as we suspect, the weakness in energy prices is only temporary, energy stocks might be reaching attractive levels. Finally, we expect the trend of broader participation in market rallies to continue, as investors recognize the discrepancy in value between smaller and mid-sized company stocks and the leading large-company names. This scenario would be favorable for broadly diversified portfolios like John Hancock V.A. Independence Equity Fund. Regardless of the market's moves, we will stay focused on companies whose stock prices are attractive and whose business prospects are improving. 26 ================================================================================ JOHN HANCOCK V.A. INDEPENDENCE EQUITY FUND A LOOK AT PERFORMANCE For the period ended June 30, 1998 SINCE ONE INCEPTION YEAR (8/29/96) ---- --------- Cumulative Total Returns 34.71% 75.08% Average Annual Total Returns(1) 34.71% 35.68% 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 34.34% and 34.70%, 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. - -------------------------------------------------------------------------------- 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 $18,341 as of June 30, 1998. The second line represents the value of the V.A. Independence Equity Fund, before sales charge, and is equal to $17,508 as of June 30, 1998. - -------------------------------------------------------------------------------- 27 ================================================================================ BY JOHN F. SNYDER, III, AND BARRY EVANS, CFA, PORTFOLIO MANAGERS John Hancock V.A. Sovereign Investors Fund With difficulty, market moves up on the strength of a narrow group of stocks "It's particularly important to own strong companies in the current economic environment." The first half of the year has been challenging for both the economy and the investment markets due to political and economic unrest in Asia, the recession and corrupt business practices in Japan and Russia, and price deflation for many commodities. On the positive side, however, high U.S. employment levels and strong wage growth have driven consumer confidence to high levels. Despite the volatility, the equity market has provided strong returns for investors. Since the start of the year, the Standard & Poor's 500 Stock Index has gained 17.71%. The market's strong upward trend, however, has not been driven by the broad market, but instead by a narrow group of stocks. Technology stocks, in particular, have been one of the market's strongest sectors, rebounding sharply after their dismal fourth-quarter performance. Dell Computer, for example, is up 120%, Apple Computer, 119%, Lucent Technologies, 108% and Unisys, 104%. Performance review John Hancock V.A. Sovereign Investors Fund turned in solid returns during the first half of 1998. However, the Fund's performance trailed the average variable annuity equity income fund, primarily because we own almost no technology stocks, unlike many of our peers. It's not that we don't like technology stocks, they simply don't meet our primary investment criterion. The Fund focuses on companies with a long record of increasing their dividends, and most technology stocks simply don't meet this criterion. For the six months ended June 30, 1998, John Hancock V.A. Sovereign Investors Fund returned 8.43% at net asset value, compared to the 10.64% return of the average variable annuity equity income fund, according to Lipper Analytical Services, Inc. Historical performance information can be found on page 30. Focus on industry leaders Companies that make up the "dividend performers" universe share one common characteristic: they dominate the markets in which they compete. As the economy slows, it will become more difficult for companies with poor fundamentals to show attractive sales and earnings growth. Conversely, these dominant companies will be - -------------------------------------------------------------------------------- TOP FIVE COMMON STOCK HOLDINGS 1. Dayton Hudson 2.9% 2. Unum 2.9% 3. Masco 2.7% 4. Ameritech 2.5% 5. Pentair 2.4% As a percentage of net assets on June 30, 1998 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- [A 2 1/4" x 3 1/2" photo of fund management team at the bottom right column. Caption reads - V.A. Sovereign Investors Fund management team members (l-r):.John Snyder, Barry Evans and Jere Estes.] - -------------------------------------------------------------------------------- 28 ================================================================================ JOHN HANCOCK V.A. SOVEREIGN INVESTORS FUND - -------------------------------------------------------------------------------- ["Bar Chart with the heading "Fund Performance" at the top of left hand column. Under the heading is the footnote: "For the six months ended June 30, 1998." The chart is scaled in increments of 5% with the 15% at the top and 0% at the bottom. The first represents the 8.43% total return for John Hancock V.A. Sovereign Investors Fund. The second represents the 10.64% total return for Average variable annuity equity income fund. A footnote at the bottom reads: 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."] - -------------------------------------------------------------------------------- able to take market share, control industry pricing, expand into new markets, acquire new lines of business, develop new products and services, and grow earnings faster than their industry cohorts. It's particularly important to own strong companies in the current economic environment. Below are examples of companies that we believe will be the winners in a slowing economy. Home Depot is the world's largest home-improvement retailer and is among the top 10 retailers in the United States Home Depot's dominance is obvious when compared to its nearest competitor, which had less than half of Home Depot's sales in 1997. Even with such a dominant market position, Home Depot's market share is only approximately 25% of the domestic do-it-yourself market, providing significant growth opportunities. Interpublic Group is the second largest advertising holding company worldwide. In addition to owning premier ad agencies like McCann-Erickson, Interpublic has branched out into non-traditional businesses like direct marketing, public relations and sports marketing. The U.S. advertising industry is in the midst of a long expansion, and growth in Europe is also picking up. Interpublic has achieved an impressive acceleration of new business wins over the past three years and has grown earnings 14% annually over the past five years. Outlook With the market flirting with new highs, it does not take much courage to predict that the upward spiral will continue for a while. The economy has been stronger than expected and so has the flow of funds into stocks from both domestic and foreign sources. Inflation has been -- and will continue to be -- benign. However, we do believe that the strong economic underpinnings that provided good corporate earnings last year are disappearing. If this is the case, the market expansion will not be able to continue. Valuations are already extended in a number of areas, including those companies that have been driving the S&P 500 and Nasdaq indexes. The reasons for benign inflation are the very same reasons for our concern about corporate profits in the second half of the year. Global competition has taken almost all of the power to set prices away from corporations and given it to the consumer. Therefore, growth in corporate profits will have to come from increased efficiencies. This suggests substantially slower profit growth. We continue to believe that this is the sweet spot of the economic cycle for the stable growth companies. As corporate earnings growth abates, the economy is likely to show signs of slowing in the second half of 1998. We believe companies that historically have been able to grow their earnings consistently -- that is, "dividend performers" -- will be able to do so through an economic slowdown. "...this is the sweet spot of the economic cycle for the stable growth companies." 29 ================================================================================ JOHN HANCOCK V.A. SOVEREIGN INVESTORS FUND A LOOK AT PERFORMANCE For the period ended June 30, 1998 SINCE ONE INCEPTION YEAR (8/29/96) Cumulative Total Returns 21.73% 50.81% Average Annual Total Returns(1) 21.73% 25.08% 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 21.57% and 24.37%, 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. - -------------------------------------------------------------------------------- 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 $18,341 as of June 30, 1998. The second line represents the value of the V.A. Sovereign Investors Fund, before sales charge, and is equal to $15,081 as of June 30, 1998. - -------------------------------------------------------------------------------- 30 ================================================================================ BY BARRY EVANS, CFA, AND ROGER HAMILTON, CFA, FOR THE RISK MANAGEMENT GROUP John Hancock V.A. 500 Index Fund Index posts strong returns, stocks uneven returns The S&P 500 Index -- a broad measure of the stock market's performance -- did extremely well during the first half of 1998, posting a 17.71% gain, including reinvested dividends. In a repeat of 1997, the environment for S&P 500 stocks was quite favorable. Inflation remained low, interest rates drifted lower and the U.S. economy showed impressive resilience in the face of Asian economic turmoil. In fact, it was a surprise to many observers that the Asian fallout turned out to be beneficial, rather than harmful, for a handful of stocks that make up the S&P 500 Index. Investors worried that a slowdown in the Far East would translate into slower economic growth here at home and slower corporate earnings. Despite recent evidence that earnings have slowed somewhat, global investors fleeing overseas stocks increasingly sought out the large, well-known S&P 500 names in what amounted to a classic "flight to quality." However, there was a widening gap between the handful of stocks reaping fat rewards --such as the most liquid, recognizable companies -- and those left behind in a narrowing market. The companies comprising the largest 10% by market value rose nearly 26% during the first half, while the remainder gained just 9.5%. Performance and strategy review For the six months that ended June 30, 1998, John Hancock V.A. 500 Index Fund had a total return of 17.59% at net asset value. By comparison, the average variable annuity S&P 500 Index objective fund had a total return of 17.42%, according to Lipper Analytical Services, Inc. Historical performance information can be found on page 33. Our goal is to have the Fund's holdings closely track that of the S&P 500 Index, and minimize transaction costs -- the costs associated with buying and selling shares of stock. Shareholders may recall that the Fund's small size prevented us from buying all 500 stocks contained in the Index in the early months of its existence last year. To do so would have burdened the Fund with fairly high transaction costs, potentially curtailing its performance. By January 1998, however, the Fund had grown enough to invest efficiently in all 500 component stocks. This more complete basket of stocks meant that the Fund's performance more closely tracked the S&P 500 Index over the past six months. - -------------------------------------------------------------------------------- TOP FIVE COMMON STOCK HOLDINGS 1. General Electric 2.9% 2. Microsoft 2.6% 3. Coca-Cola 2.0% 4. Exxon 1.7% 5. Merck 1.5% As a percentage of net assets on June 30, 1998 - -------------------------------------------------------------------------------- "...several computer makers were at the top of the leader board." - -------------------------------------------------------------------------------- [A 2 1/4" x 3 1/2" photo of fund management team at the bottom right column. Barry Evans (l) and Roger Hamilton (r).] - -------------------------------------------------------------------------------- 31 ================================================================================ JOHN HANCOCK V.A. 500 INDEX FUND "Our long-term outlook for S&P 500 stocks is fairly optimistic." - -------------------------------------------------------------------------------- ["Bar Chart with the heading "Fund Performance" at the top of left hand column. Under the heading is the footnote: "For the six months ended June 30, 1998." The chart is scaled in increments of 5% with the 20% at the top and 0% at the bottom. The first represents the 17.59% total return for John Hancock V.A. 500 Index Fund. The second represents the 17.42% total return for Average variable annuity S&P 500 Index objective fund. A footnote at the bottom reads: 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 fund is tracked by Lipper Analytical Services, Inc. See the following page for historical performance information."] - -------------------------------------------------------------------------------- Although there are almost daily changes in the Index's composition, we re-balance the Fund's holdings less frequently to keep our transaction costs at a minimum. When money comes into the Fund that cannot immediately be deployed into the S&P 500 components in a cost-effective manner, we buy S&P 500 Stock Index futures. These securities serve as a proxy for stocks in the Index and allow us to participate in the Index's performance without the transaction costs that would be incurred in buying individual stocks. S&P winners, losers Despite slowing demand for computers worldwide, several computer makers were at the top of the leader board. Dell Computer's stock price surged more than 120% in the first half of 1998, thanks to fast-growing market share gains. A close second was Apple Computer stock, which saw a 119% rebound after suffering a miserable 1997. The rising demand for communications equipment helped boost the number three and five best performers, Lucent Technologies and Ascend Communications. Rounding out the top 10 were Unisys in fourth place, with Beneficial, Ford Motor, Gap, Providian Financial and Lowe's in the sixth through tenth places. The biggest disappointment during the period was National Semiconductor, which fell almost 50% as a worldwide inventory glut of semiconductor chips kept a lid on demand. Another bad performer was Cendant, which was down roughly 40% due in large part to questions about accounting practices. Outlook Our long-term outlook for S&P 500 stocks is fairly optimistic. We expect interest rates and inflation -- which have been primary ingredients in the recent bull market -- to remain low. In addition, we believe that baby boomers will continue to invest money in the market as they prepare for their retirements. But we wouldn't rule out the chance of a more near-term stock market correction. It's been a rather long time since we've had one, and history shows that market corrections do tend to occur with some regularity. As for the Fund, we'll continue to seek to closely track the performance of the S&P 500 Index -- whether it posts further gains, remains flat or experiences losses. 32 ================================================================================ JOHN HANCOCK V.A. 500 INDEX FUND A LOOK AT PERFORMANCE For the period ended June 30, 1998 SINCE ONE INCEPTION YEAR (8/29/96) ---- --------- Cumulative Total Returns 28.97% 69.78% Average Annual Total Returns(1) 28.97% 33.43% Total return measures the change in value of an investment from the beginning to the end of a period, assuming all distributions were reinvested. Performance figures reflect the effect of investment-related charges on the underlying funds, but do not include insurance and other charges levied at the separate account level. All figures represent past performance and are no guarantee of future results. Keep in mind that the total return and share price of the Fund's investments will fluctuate. As a result, your Fund's shares may be worth more or less than their original cost, depending on when you sell them. 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 28.72% and 33.10%, 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. - -------------------------------------------------------------------------------- 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 $18,341 as of June 30, 1998. The second line represents the value of the V.A. 500 Index Fund, before sales charge, and is equal to $16,978 as of June 30, 1998. - -------------------------------------------------------------------------------- 33 ================================================================================ BY JAMES K. HO, CFA, PORTFOLIO MANAGER John Hancock V.A. Sovereign Bond Fund Pockets of uncertainty challenge the bond market, but bonds still gain ground "...we steered the Fund toward a more defensive orientation..." Investing in fixed-income securities presented some interesting challenges during the past six months. At a quick glance, the investment environment for bonds seemed ideal. Indeed, there were many favorable factors at work on the home front -- inflation was subdued, interest rates remained low, the economy continued to grow at a healthy pace, corporate earnings were strong, job creation was high and wage inflation remained moderate. A closer look, however, revealed pockets of uncertainty amid frequently unsettled world markets. The ongoing economic and currency woes of many Asian nations affected bonds across the fixed-income spectrum, both positively and negatively. Emerging-market bonds around the globe were the most sensitive to the Far East's volatility, and prices plunged with each new wave of political unrest and fiscal weakness. U.S. investment-grade corporate bonds and high-yield issues also experienced spells of downward pressure. Heavy new issuance supply met at times with lackluster demand as investors grew increasingly concerned that Asia's troubles might adversely affect corporate profitability and credit quality down the road. The prices of U.S. Treasury securities soared, on the other hand, as investors worldwide flocked to the relative safety of U.S. debt. In fact, near the period's end, the yield on the bellwether 30-year Treasury bond, which moves in the opposite direction of its price, traded below 5.6% -- the lowest it had been since the mid-1970s. Against this backdrop, the John Hancock V.A. Sovereign Bond Fund closed the semiannual period with positive results. For the six months ended June 30, 1998, the Fund posted a total return of 4.20% at net asset value. In comparison, the average variable annuity corporate debt A-rated fund returned 3.97%, according to Lipper Analytical Services, Inc. Historical performance information can be found on page 36. Conservative strategies favored Throughout the period, we steered the Fund toward a more defensive orientation in several ways. We adopted a relatively neutral duration stance, keeping the Fund's average duration -- a measure of - -------------------------------------------------------------------------------- Pie chart at the bottom left column titled "Portfolio Diversification" There are four listings. Beginning from the top right the first represents Corporate bonds 34%, the second represents U.S. government & agencies 58%, the third represents Foreign governments 1%, The fourth represents Short-term Investments & other 7%. A footnote at the bottom states "As a percentage of net assets on June 30, 1998." - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- [A 2 1/4" x 3 1/2" photo of fund management team at the bottom right column. The caption reads Jim ho (seated) and Fund management team members (l-r): Lester Duke, Beverly Cleathero and Seth Robbins] - -------------------------------------------------------------------------------- 34 ================================================================================ JOHN HANCOCK V.A. SOVEREIGN BOND FUND - -------------------------------------------------------------------------------- ["Bar Chart with the heading "Fund Performance" at the top of left hand column. Under the heading is the footnote: "For the six months ended June 30, 1998." The chart is scaled in increments of 1% with the 5% at the top and 0% at the bottom. The first represents the 4.20% total return for John Hancock V.A. Sovereign Bond Fund. The second represents the 3.97% total return for Average variable annuity corporate debt A-rated fund. A footnote at the bottom reads: 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 A-rated fund is tracked by Lipper Analytical Services, Inc. See the following page for historical performance information."] - -------------------------------------------------------------------------------- how sensitive a bond's price is to interest rate changes -- in line with its benchmark and peer group. When an opportunity presented itself, we upgraded our credit exposure on the corporate bond side, which accounted for 34% of the Fund's net assets. We also favored corporate bonds in sectors that stand to perform well regardless of economic swings, such as healthcare, utilities, media, and telecommunications. Merger and acquisition activity, deregulation, and consolidation have been the catalysts of change and opportunity in these industries. Holdings that have performed well for the Fund include Time Warner, TCI Communications -- the recent beneficiary of a merger with AT&T -- Nextel Communications, News America Holdings, Integrated Health Services, Cleveland Electric Illuminating, and Niagara Mohawk Power Corp. We've also lightened up on capital goods and cyclical credits, maintaining very little exposure to paper, steel, oil, and gas issues. As the period progressed, we slightly increased our emphasis on high-quality asset-backed securities, such as home equity loans, which have performed well. Our focus in the mortgage-backed securities area was on discount coupon mortgages -- those whose coupons are below current market rates -- as they tend to be relatively insulated from price swings in a declining rate environment. Avoiding minefields Clearly, the areas we avoided contributed to performance as much as the sectors in which we chose to invest. In-depth research played a critical role in our investment decisions and, ultimately, in how the Fund performed. For example, we had opportunistically sold most of the Fund's Asian positions late last summer when the turmoil had only just begun, leaving the Fund with very little exposure to emerging market bonds issued from the Far East as we entered fiscal 1998. Although the Fund was not immune to the effects of the currency debacle, we were able to sidestep much of the troubled debt. While the Fund's small investment in Latin American bonds has come under pressure in sympathy with Asian bonds, our research suggests that these portfolio holdings are well positioned to fully recover once investors' fears dissipate. Outlook As we enter the second half of fiscal 1998, we are upbeat about the prospects for fixed-income securities. The crisis in Asia may begin to put a drag on the domestic economy if exports begin to slow, and this, combined with a strong U.S. dollar, should help keep inflation low -- always a positive for bond investors. In fact, we would not be surprised if the Federal Reserve Board moves to cut short-term rates some time later this year, should the U.S. economy slow and require stimulation. Given such a possibility, we expect to maintain a duration- neutral strategy. The wild card continues to be the emerging markets and how their performance may influence that of domestic investment-grade corporate and high-yield bonds. "...we are upbeat about the prospects for fixed-income securities." 35 ================================================================================ JOHN HANCOCK V.A. SOVEREIGN BOND FUND A LOOK AT PERFORMANCE For the period ended June 30, 1998 SINCE ONE INCEPTION YEAR (8/29/96) ---- --------- Cumulative Total Returns 10.82% 18.92% Average Annual Total Returns(1) 10.82% 9.90% YIELD For the period ended June 30, 1998 SEC 30-DAY YIELD ----- John Hancock V.A. Sovereign Bond Fund 5.46% 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 9.54% and 8.09%, 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. - -------------------------------------------------------------------------------- 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 V.A. Sovereign Bond Fund, before sales charge on August 29, 1996, and is equal to $11,892 as of June 30, 1998. The second line represents the value of the hypothetical $10,000 investment made in the Lehman Brothers Corporate Bond Index and is equal to $11,762 as of June 30, 1998. - -------------------------------------------------------------------------------- 36 ================================================================================ BY FREDERICK CAVANAUGH, PORTFOLIO MANAGER John Hancock V.A. Strategic Income Fund Muted inflation and lower interest rates spur global bonds U.S. bonds of many types outpaced the global markets during the first six months of this year. The U.S. Treasury bond market was one of the world's top performers, thanks in part to low inflation, falling interest rates and strong demand, as investors increasingly sought them out as a safe haven against deepening economic problems in Asia. High-yield U.S. corporate bonds also enjoyed decent success, propelled by low interest rates, a healthy domestic economy and reasonably healthy corporate earnings. What's more, the demand for domestic high-yield corporates remained fairly strong even as supply grew to near-record levels. The period was witness to a historic development when 11 countries united to form the European Monetary Union (EMU) and a unified European currency -- the euro. And despite concerns to the contrary, EMU proved to be a positive for many European bonds. At the other end of the spectrum was emerging-market debt. As the Asian crisis deepened, money fled not only from the Pacific Rim bond markets, but from all emerging markets, whether linked to Asia or not. Performance and strategy review For the six months ended June 30, 1998, John Hancock V.A. Strategic Income Fund posted a total return of 4.61% at net asset value, surpassing the 3.58% return of the average variable annuity general bond fund, according to Lipper Analytical Services, Inc. For historical performance information, please see page 39. Our relatively large stake in high-yield corporate bonds was the main reason for our outperformance. In particular, Nextel Communications, a cellular/paging/dispatch company, and Casino America were among our biggest winners. Despite carrying the burden of being issued in an emerging market, Colombian cellular company Comunicacion Celular posted strong gains thanks to huge demand for its products and services. On the flip side, Goss Graphic Systems bonds suffered losses, despite having a record-breaking backlog for its products, when the company closed its French operations. Because we believe that U.S. economic growth could slow in the second half of the year, we've somewhat reduced our stake in high-yield U.S. corporate bonds. In particular, we've sold or pared back our holdings in lower-quality companies that we think may suffer declining profits during an economic downswing. - -------------------------------------------------------------------------------- TOP FIVE BOND SECTORS 1. Telecommunications 29% 2. U.S. government 20% 3. Media 8% 4. Foreign governments 7% 5. Leisure 5% As a percentage of net assets on June 30, 1998 - -------------------------------------------------------------------------------- "Our relatively large stake in high-yield corporate bonds was the main reason for our outperformance." - -------------------------------------------------------------------------------- [A 2 1/4" x 3 1/2" photo of fund management team at the bottom right column. Caption reads - Fund management team members. Standing (l-r): Lee Crockett, Roger Hamilton, Ted Hines and Carolee Bongiovi. Seated (l-r)- Beverly Cleathero and Fred Cavanaugh.] - -------------------------------------------------------------------------------- 37 ================================================================================ JOHN HANCOCK V.A. STRATEGIC INCOME FUND - -------------------------------------------------------------------------------- ["Bar Chart with the heading "Fund Performance" at the top of left hand column. Under the heading is the footnote: "For the six months ended June 30, 1998." The chart is scaled in increments of 1% with the 5% at the top and 0% at the bottom. The first represents the 4.61% total return for John Hancock V.A. Strategic Income Fund. The second represents the 3.58% total return for Average variable annuity general bond fund. A footnote at the bottom reads: 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."] - -------------------------------------------------------------------------------- Another positive for the Fund's performance was our small stake in emerging-market debt. While we didn't dodge all the pain these markets suffered, we did sidestep a fair amount of the price decline that came this year. We've eliminated our stake in Brazilian bonds because inflation there is quite high and there's a lot of uncertainty surrounding the upcoming presidential election. We did, however, maintain our holdings in Argentina and Mexico, which have reasonable economic growth and manageable inflation rates. As a result of our sales of high-yield corporate bonds, our stake in U.S. Treasuries -- where we deployed the proceeds from the sales -- rose to 20% at the end of the period, up from 14% six months ago. Unfortunately, our stake in Western European bonds was limited primarily to those issued in the United Kingdom. While we saw strong gains from both corporate and government bonds there, the real action was in EMU countries. As they cut their deficits and lowered interest rates to meet the conditions of the monetary union, the prices of bonds in France, Spain and other member countries posted strong gains. With only one German bond in the portfolio, we missed most of the action there. Outlook In our view, the financial crisis in Asia will continue to plague the emerging markets. Although emerging-market bond prices have fallen dramatically, we don't yet see many compelling values arising in either Southeast Asia or Latin America. Until we do, we'll likely keep our emerging-market holdings at a low level. We also believe that continued weakness in Asia will ultimately mute economic growth in the U.S., although we feel that a recession is unlikely. Slower economic growth here at home will probably mean that inflation will stay in check. If a weaker-than-expected U.S. economy does materialize, the demand for high-yield corporate debt will most likely slow. In that event, we'll probably reduce our stake in high-yield U.S. corporate bonds in favor of further increasing our stake in U.S. Treasury securities. "...continued weakness in Asia will ultimately mute economic growth in the U.S..." 38 ================================================================================ JOHN HANCOCK V.A. STRATEGIC INCOME FUND A LOOK AT PERFORMANCE For the period ended June 30, 1998 SINCE ONE INCEPTION YEAR (8/29/96) ---- --------- Cumulative Total Returns 10.50% 24.44% Average Annual Total Returns(1) 10.50% 12.65% YIELD For the period ended June 30, 1998 SEC 30-DAY YIELD ----- John Hancock V.A. Strategic Income Fund 8.01% 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 been10.20% and 12.07%, 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. - -------------------------------------------------------------------------------- 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 $12,444 as of June 30, 1998. The second line represents the value of the Lehman Government/Corporate Bond Index on August 29, 1996, and is equal to $11,963 as of June 30, 1998. - -------------------------------------------------------------------------------- 39 ================================================================================ BY ARTHUR CALAVRITINOS, CFA, PORTFOLIO MANAGER John Hancock V.A. High Yield Bond Fund High-yield bonds advance in a volatile six months "...we began establishing positions across many industries..." High-yield bonds rode a roller coaster over the last six months, but ended the period posting decent gains. Driving the ups and downs were the Asia currency and financial woes that began hitting world markets late last year. As 1998 began, investors were just calming down from their year-end jitters, and high-yield bonds were boosted in February and March by the robust U.S. economy and tame inflation. With interest rates staying low, and even falling, demand for high-yield bonds grew as investors sought higher levels of current income. But high-yield bonds, both foreign and domestic, came under pressure again in May and June. Asian uncertainties grew, marked by a change in government in Indonesia and the falling Japanese yen, and Russia emerged as another currency and economic weak point. With all the turmoil, investors preferred the safe-haven status of U.S. Treasury bonds. Despite the turbulence, high-yield bonds returned 4.50% during the period, as measured by the Lehman Brothers High-Yield Bond Index. Into this volatile environment, which is often typical in this higher-risk sector of the bond market, John Hancock V.A. High Yield Bond Fund was launched on January 2, 1998. From inception through June 30, 1998, the Fund posted a total return of 1.94% at net asset value, compared to the average variable annuity high current yield fund's 4.58% return, according to Lipper Analytical Services, Inc. The Fund's lag can be attributed to higher-than-usual levels of cash during these early months in the life of the Fund. Strategy The Fund seeks a high level of current income and a competitive total return by investing in companies across the broad high-yield bond market. We look for companies whose business prospects make them worth the extra risk we're taking. High-yield companies pay investors a greater yield to compensate for the added risk of buying bonds rated below investment grade (BB or lower). These companies receive a lower rating because they are considered more likely to encounter difficulties servicing their debt. We take a value-based approach to investing, preferring to buy companies at times when their bonds are relatively underpriced. We emphasize companies with real assets and solid earnings potential. We also look for companies and industries where there - -------------------------------------------------------------------------------- TOP FIVE SECURITIES 1. P&L Coal Holdings 3.4% 2. Waste Systems International 3.4% 3. Gaylord Container Corp. 3.2% 4. Abitibi-Consolidated 2.7% 5. Nextel Communications 2.6% As a percentage of net assets on June 30, 1998 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- [A 2 1/4" x 3 1/2" photo of fund management team at the bottom right column. Caption reads - Fund management team members. Standing (l-r): Janet Clay, Fred Cavanaugh, Jamie Kellogg and Lester Duke. Seated (l-r)- Geoff Plume and Arthur Calavritinos.] - -------------------------------------------------------------------------------- 40 ================================================================================ JOHN HANCOCK V.A. HIGH YIELD BOND FUND - -------------------------------------------------------------------------------- ["Bar Chart with the heading "Fund Performance" at the top of left hand column. Under the heading is the footnote: "From January 2, 1998 to June 30, 1998." The chart is scaled in increments of 1% with the 5% at the top and 0% at the bottom. The first represents the 1.94% total return for John Hancock V.A. High Yield Bond Fund. The second represents the 4.58% total return for Average variable annuity high current yield fund. A footnote at the bottom reads: The total return for John Hancock V.A. High Yield Bond Fund is at net asset value with all distributions reinvested. The average variable annuity high current yield fund is tracked by Lipper Analytical Services, Inc."] - -------------------------------------------------------------------------------- are catalysts at work to help unlock potential, such as mergers and industry consolidation. Our strength lies in our rigorous fundamental research and our in-depth knowledge of the industries in which our companies operate. Sometimes, that leads us to companies that do not issue high-yield bonds, at which point we may selectively choose to take advantage of the Fund's ability to own stock. During the Fund's first six months, we began establishing positions across many industries, including telecommunications, steel, gaming and airlines. An example of our strategy at work is in our paper holdings, where we believe in the long-term potential of the group. There, we've focused on two areas: the world-class, low-cost pulp producers such as Indonesian producer Asia Pulp & Paper, (APP International Finance) and companies with niche paper products, such as Repap New Brunswick, a producer of lightweight coated paper for magazines. It has just the profile we look for: great tangible assets, solid niche positions, the potential for mergers and acquisitions and increasing cash flow. Another niche market with perhaps the most attractive fundamentals is newsprint -- a consolidating industry with no new source of supply. As a result, companies such as Abitibi-Consolidated have tremendous pricing power. Indeed, shortly after the period ended, Abitibi announced a strategic alliance with a South Korean newsprint company that should further enhance its position. Outlook We are keeping our outlook cautious for high-yield bonds. We remain encouraged by the prospects of strong demand for high-yield bonds and by the vibrant U.S economy. Yet the horizon is not without its potential storm clouds. More high-yield companies are missing their earnings targets and there has been an uptick in defaults, albeit off a very low base. We're also monitoring the impact of Asia on the U.S. economy this year. In this environment, we will continue to search for solid companies that we can buy at attractive prices and hold, with an eye toward both high current income and appreciation potential. "We are keeping our outlook cautious for high-yield bonds." - -------------------------------------------------------------------------------- See the Fund's prospectus for a detailed discussion of the risks of investing in high-yield bonds. 41 ================================================================================ JOHN HANCOCK V.A. HIGH YIELD BOND FUND A LOOK AT PERFORMANCE For the period ended June 30, 1998 SINCE INCEPTION (1/2/98) -------- Cumulative Total Return 1.94% Average Annual Total Return(1) 1.94%(2) YIELD For the period ended June 30, 1998 SEC 30-DAY YIELD ----- John Hancock V.A. High Yield Bond Fund 9.64% 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 1.69%. (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. High Yield 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 High Yield Bond Index--an unmanaged index of fixed-income securities that are similar, but not identical to the bonds in the Fund's portfolio. Past performance is not indicative of future results. - -------------------------------------------------------------------------------- Line chart with the heading V.A. High Yield 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 High Yield Bond Index and is equal to $13,005 as of June 30, 1998. The second line represents the value of the V.A. High Yield Bond Fund, before sales charge on January 2, 1998, and is equal to $10,194 as of June 30, 1998. - -------------------------------------------------------------------------------- 42 ================================================================================ BY LAWRENCE J. DALY AND ANTHONY A. GOODCHILD, PORTFOLIO MANAGERS John Hancock V.A. World Bond Fund Global bonds produce mixed results in increasingly volatile environment World bond markets turned in a mixed performance over the last six months amid heightened turbulence. Continental Europe surprised investors by gaining significant ground, even though many expected otherwise after interest rates fell significantly there last year. But with the imminence of the European Monetary Union, countries working to gain entry continued lowering rates to spur their economies. The U.S. bond market also rallied, although not to Europe's extent. U.S. Treasuries in particular reaped the benefits of the flight to quality prompted by ongoing Asian financial turmoil. Near-perfect economic conditions, including a robust economy but tame inflation, also kept U.S. bond prices and interest rates fairly stable. Emerging-market bonds everywhere had begun to rebound from their Asian tumble as the year began, but were buffeted again as the period progressed by further currency problems in Asia, Russia and South Africa. Performance and strategy review Against this mixed backdrop, John Hancock V.A. World Bond Fund posted a total return of 1.72% at net asset value for the six months ended June 30, 1998, slightly below the 2.31% return of the average variable annuity global income fund, according to Lipper Analytical Services, Inc. Historical performance information can be found on page 45. The Fund's underperformance was mainly because we were not invested in continental Europe when bonds there rallied in the first quarter. In addition, because the U.S. economy remained surprisingly strong, the Federal Reserve Board did not lower interest rates as we had thought it would in response to Asia. Although U.S. Treasuries -- where we had a good part of the Fund's assets -- performed well and protected us in the Asian aftermath, the European rally was greater. In currency terms, the Fund benefited from keeping the bulk of its assets -- 70% at the end of June -- in U.S. dollar-denominated bonds. This boosted performance as the dollar appreciated against most major currencies in a volatile time for currency markets. But we lost some ground in - -------------------------------------------------------------------------------- Pie chart at the bottom left column titled "Portfolio Diversification" There are five listings. Beginning from the top right the first represents United States 65%, the second represents Europe 15%, the third represents Latin America 11%, The fourth represents South Africa 2%. The fifth represents Short-Term Investments & Other 7%. A footnote at the bottom states "As a percentage of net assets on June 30, 1998." - -------------------------------------------------------------------------------- "...we kept our emphasis on U.S. bonds, although to a lesser degree than six months ago." - -------------------------------------------------------------------------------- [A 2 1/4" x 3 1/2" photo of fund management team at the bottom right column. Anthony Goodchild (l) and Lawrence Daly (R), Portfolio Managers.] - -------------------------------------------------------------------------------- 43 ================================================================================ JOHN HANCOCK V.A. WORLD BOND FUND "We remain cautious... about emerging markets." - -------------------------------------------------------------------------------- ["Bar Chart with the heading "Fund Performance" at the top of left hand column. Under the heading is the footnote: "For the six months ended June 30, 1998." The chart is scaled in increments of 1% with the 4% at the top and 0% at the bottom. The first represents the 1.72% total return for John Hancock V.A. World Bond Fund. The second represents the 2.31% total return for Average variable annuity global income fund. A footnote at the bottom reads: 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."] - -------------------------------------------------------------------------------- recent currency trades involving the Japanese yen. Our first position was against the yen and that served us well as the currency plunged for most of the period. We gave back all our gains, however, after the Federal Reserve unexpectedly intervened to prop up Japan's currency. Believing this action signaled true reform ahead, we established a small stake in yen, only to see no meaningful plans emerge and the yen start to slide again. We ended the period with a minimal and hedged yen position. Bias toward U.S. bonds Given the volatility in world markets, and the fact that Europe's markets didn't seem as attractive, with interest rates at low levels and poised to rise, we kept our emphasis on U.S. bonds, although to a lesser degree than six months ago. With real interest rates higher here than in Europe, and with the potential for them to move down further as the economy slows, we're hoping that by year-end, U.S. bonds will have gained enough ground to compensate us for missing the short-term opportunity in Europe. At the end of the period, 57% of the Fund's net assets -- down from 75% six months ago -- were invested in U.S. Treasuries and mortgage-backed securities issued by several U.S. government agencies. Toward the end of the period, we redeployed 18% of the Fund's net assets to Germany and its currency by buying a government bond and a U.S. bond issued by Ford Motor Credit Company and denominated in deutschemarks. We did this because we were able to get interest rates comparable to those of U.S. Treasuries and at the same time increase our exposure to the deutschmark. We believe that with German inflation low, and the new euro currency poised to keep European economic growth strong even as the U.S. potentially weakened, there is an opportunity for the mark to appreciate versus the dollar. We also kept a stake in the U.K. because yields there remain higher than in the rest of Europe. Our emerging-market stake stayed fairly steady at 13%, comprised of only dollar-denominated government bonds. Mixed outlook Our outlook for global bond markets is mixed. As Asia's troubles begin to more fully register, we expect the U.S. economy to slow, possibly allowing rates to fall further. Low inflation and interest rates and solid growth appear to remain the order of the day for Europe, with the new euro potentially posing an attractive counterpart to the dollar. We remain cautious, however, about emerging markets. While this year's currency and financial upheavals have created tremendous opportunities for selective investors, the waters remain very choppy. Our main concern is whether Japan can, and will, implement real structural reform to move its economy out of recession and aid the rest of Asia. Until prospects improve further, we'll maintain a defensive strategy. - -------------------------------------------------------------------------------- International investing involves special risks such as political, economic and currency risks and differences in accounting standards and financial reporting. 45 ================================================================================ JOHN HANCOCK V.A. WORLD BOND FUND A LOOK AT PERFORMANCE For the period ended June 30, 1998 SINCE ONE INCEPTION YEAR (8/29/96) ---- --------- Cumulative Total Returns 3.35% 7.28% Average Annual Total Returns(1) 3.35% 3.90% YIELD For the period ended June 30, 1998 SEC 30-DAY YIELD ----- John Hancock V.A. World Bond Fund 5.31% 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 2.20% and 2.51%, 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. - -------------------------------------------------------------------------------- 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 $10,729 as of June 30, 1998. The second line represents the value of the Salomon Brothers World Government Bond Index on August 29, 1996, and is equal to $10,632 as of June 30, 1998. - -------------------------------------------------------------------------------- 45 ================================================================================ BY DAWN BAILLIE, FOR THE PORTFOLIO MANAGEMENT TEAM John Hancock V.A. Money Market Fund Dormant inflation, Asia turmoil keep Federal Reserve on the sidelines "To the extent we were able, we kept the Fund's maturity longer than average..." When the Fund's semiannual period began in January, the economy was growing at a healthy clip and seemed to shrug off the effects of financial turmoil in Asia. As a result, investors grew more concerned that the Federal Reserve would raise interest rates at its March meeting in order to cool the economy's jets and prevent an inflation outbreak. But the Fed held back, and chairman Alan Greenspan later made it clear that he would not make any changes to U.S. monetary policy without taking worldwide events into account. Indeed, as the period progressed, conditions in the Far East remained unsettled, including floundering Asian markets and Japan's plummeting currency and recession-bound economy. The region became the focal point of market concerns. Fears heightened that the worst wasn't over yet and that the U.S. economy would slow in the second half. That scenario would further bolster the Fed's sideline stance. As a result of the Fed's inaction in the last six months, money market yields remained fairly steady during the period, as the federal funds rate, which banks charge each other for overnight loans and which serves as a pricing benchmark for money market securities, remained at 5.50%. In June, however, money market yields fell somewhat along with all bonds in a rally prompted by foreign investors' increasingly seeking the safe haven of U.S. Treasury bonds. On June 30, 1998, John Hancock V.A. Money Market Fund had a 7-day effective yield of 5.01%. By comparison, the average taxable money market fund had a 7-day effective yield of 4.92%, according to Lipper Analytical Services, Inc. Staying long To the extent we were able, we kept the Fund's maturity longer than average throughout the entire six-month period. We took this aggressive stance because we continued to believe that inflation would remain in check and that the Fed would not take any action as long as Asia remained a wild card. Because the Fund's small size limited our ability to buy the full range of money market securities, we were not always able to maintain a longer-than-average maturity. Nonetheless, over the last six months we managed to keep the Fund's maturity in the range of two days shorter to five days longer than average. This strategy served us well by allowing us to lock in higher rates, especially before last month's rally when interest rates on longer-maturity bonds tumbled to their lowest level in years and also put pressure on money market yields. A look ahead As long as the economy remains in its near perfect mode -- solid growth, low interest rates and benign inflation -- and Asia still looms large over the market and the economy, we believe the Fed - -------------------------------------------------------------------------------- [A 2 1/4" x 3 1/2" photo of fund management team at the bottom right column. Fund management team members (l-r): Jeff Given, Dawn Baillie, Bill Larkin, Jr. and Barry Evans.] - -------------------------------------------------------------------------------- 46 ================================================================================ JOHN HANCOCK V.A. MONEY MARKET FUND - -------------------------------------------------------------------------------- ["Bar Chart with the heading "7-DAY EFFECTIVE YIELD" at the top of left hand column. Under the heading is the footnote: "As of June 30, 1998." The chart is scaled in increments of 2% with the 6% at the top and 0% at the bottom. The first represents the 5.01% total return for John Hancock V.A. Money Market Fund. The second represents the 4.92% total return for the Average taxable money market fund. A footnote at the bottom reads: "The average taxable money market fund is tracked by Lipper Analytical Services, Inc. Past performance is no guarantee of future results."] - -------------------------------------------------------------------------------- will stay on the sidelines. Above all else, further events in Asia and the U.S. economy's growth rate hold the keys to the Fed's next moves. If the U.S. economy slows down in the second half of the year, we also could see some further decline in both interest rates and money market yields. In this environment, we will keep the Fund's maturity longer than average, believing the Fed will take no further action this year. Globally, we'll be watching Japan and the yen, whose continued fall could spell more trouble for other Asian currencies and economies worldwide. Domestically, we'll take our cues from the monthly economic data, including the important employment cost index number, which is an accurate measure of if and how a tight labor market and wage pressures are translating into inflation. As always, we'll stay focused on our goal of providing a competitive level of current income, while preserving stability of principal. "...further events in Asia and the U.S. economy's growth rate hold the keys to the Fed's next moves." - -------------------------------------------------------------------------------- The Fund is neither insured nor guaranteed by the U.S. government. There can be no assurance that the Fund will be able to maintain a net asset value of $1.00 per share. 47 ==============================FINANCIAL STATEMENTS============================== John Hancock Funds - Declaration Trust Statements of Assets and Liabilities June 30, 1998 (Unaudited) - --------------------------------------------------------------------------------
V.A. V.A. V.A. INTERNATIONAL REGIONAL FINANCIAL FUND BANK FUND(1) INDUSTRIES FUND ----------- ------------ --------------- Assets: Investments at value - Note D: Common stocks (cost - $4,856,049, $11,105,909, $40,397,984, $5,428,002, $1,091,350 and $5,538,991, respectively) ............. $5,376,970 $10,872,763 $44,939,742 Preferred stocks and rights (cost - $178,308, none, none, none, none and none, respectively) ..................................... 177,677 -- -- Joint repurchase agreements (cost - $206,000, $1,420,000, $3,975,000, $41,000, $54,000 and $284,000, respectively) ......... 206,000 1,420,000 3,975,000 Corporate savings account ......................................... -- 790 661 ----------- ------------ ----------- 5,760,647 12,293,553 48,915,403 Cash .............................................................. 367 -- -- Foreign currency, at value (cost - $63,048, none, none, none, none and none, respectively) ..................................... 63,074 -- -- Receivable for investments sold ................................... 7,185 87,906 293,818 Dividends and interest receivable ................................. 8,038 14,178 87,209 Foreign tax receivable ............................................ 8,163 -- -- Receivable from John Hancock Advisers, Inc. and affiliates - Note C .......................................................... 52,380 -- -- Deferred organization expenses - Note B ........................... 6,766 -- -- Other assets ...................................................... 38 -- 761 ----------- ------------ ----------- Total Assets .................................... 5,906,658 12,395,637 49,297,191 --------------------------------------------------------------------------------------------- Liabilities: Payable for forward foreign currency exchange contracts sold - Note B ................................................... 108 -- -- Payable for investments purchased ................................. 46,183 861,389 79,945 Payable foreign withholding tax ................................... 766 -- -- Payable to John Hancock Advisers, Inc. and affiliates - Note C .... -- 4,656 32,429 Accounts payable and accrued expenses ............................. 30,062 4,914 4,339 ----------- ------------ ----------- Total Liabilities ............................... 77,119 870,959 116,713 --------------------------------------------------------------------------------------------- Net Assets: Capital paid-in ................................................... 5,237,968 11,755,165 44,354,896 Accumulated net realized gain (loss) on investments, financial futures contracts and foreign currency transactions ............................................ 33,934 3,050 79,474 Net unrealized appreciation (depreciation) of investments, financial futures contracts and foreign currency transactions .................................... 520,392 (233,146) 4,541,762 Undistributed net investment income (distributions in excess of net investment income) .............................. 37,245 (391) 204,346 ----------- ------------ ----------- Net Assets ...................................... $5,829,539 $11,524,678 $49,180,478 ============================================================================================= Net Asset Value Per Share: (Based on 479,309, 1,204,218, 3,257,688, 582,701, 106,728 and 536,460 shares, respectively, of beneficial interest outstanding - unlimited number of shares authorized with no par value) .................................................... $12.16 $9.57 $15.10 ================================================================================================================= V.A. V.A. SPECIAL V.A. EMERGING OPPORTUNITIES GROWTH GROWTH FUND FUND(2) FUND ----------- ------------- ----------- Assets: Investments at value - Note D: Common stocks (cost - $4,856,049, $11,105,909, $40,397,984, $5,428,002, $1,091,350 and $5,538,991, respectively) ............. $6,470,129 $1,165,023 $6,272,698 Preferred stocks and rights (cost - $178,308, none, none, none, none and none, respectively) ..................................... -- -- -- Joint repurchase agreements (cost - $206,000, $1,420,000, $3,975,000, $41,000, $54,000 and $284,000, respectively) ......... 41,000 54,000 284,000 Corporate savings account ......................................... 211 223 103 ----------- ---------- ----------- 6,511,340 1,219,246 6,556,801 Cash .............................................................. -- -- -- Foreign currency, at value (cost - $63,048, none, none, none, none and none, respectively) ..................................... -- -- -- Receivable for investments sold ................................... 94,761 13,121 2,500 Dividends and interest receivable ................................. 967 684 2,889 Foreign tax receivable ............................................ -- -- 7 Receivable from John Hancock Advisers, Inc. and affiliates - Note C .......................................................... 9,083 -- Deferred organization expenses - Note B ........................... 6,766 -- 6,766 Other assets ...................................................... 22 -- 23 ----------- ---------- ----------- Total Assets .................................... 6,614,526 1,242,134 6,568,986 ----------------------------------------------------------------------------------------- Liabilities: Payable for forward foreign currency exchange contracts sold - Note B ................................................... -- -- -- Payable for investments purchased ................................. 21,517 12,585 83,042 Payable foreign withholding tax ................................... -- -- -- Payable to John Hancock Advisers, Inc. and affiliates - Note C .... -- -- 1,359 Accounts payable and accrued expenses ............................. 10,119 12,884 8,018 ----------- ---------- ----------- Total Liabilities ............................... 31,636 25,469 92,419 ----------------------------------------------------------------------------------------- Net Assets: Capital paid-in ................................................... 6,076,763 1,129,878 5,627,360 Accumulated net realized gain (loss) on investments, financial futures contracts and foreign currency transactions ............................................ (522,962) 11,668 119,322 Net unrealized appreciation (depreciation) of investments, financial futures contracts and foreign currency transactions .................................... 1,042,127 73,673 733,707 Undistributed net investment income (distributions in excess of net investment income) .............................. (13,038) 1,446 (3,822) ----------- ---------- ----------- Net Assets ...................................... $6,582,890 $1,216,665 $6,476,567 ========================================================================================= Net Asset Value Per Share: (Based on 479,309, 1,204,218, 3,257,688, 582,701, 106,728 and 536,460 shares, respectively, of beneficial interest outstanding - unlimited number of shares authorized with no par value) .................................................... $11.30 $11.40 $12.07 =============================================================================================================
(1) Commenced operations on May 1, 1998. (2) Commenced operations on January 2, 1998. The Statement of Assets and Liabilities is the Fund's balance sheet and shows the value of what the Fund owns, is due and owes on June 30, 1998. You'll also find the net asset value per share as of that date. SEE NOTES TO FINANCIAL STATEMENTS. 48 ==============================FINANCIAL STATEMENTS============================== John Hancock Funds - Declaration Trust Statements of Assets and Liabilities (continued) June 30, 1998 (Unaudited) - --------------------------------------------------------------------------------
V.A. V.A. V.A. V.A. GROWTH AND INDEPENDENCE SOVEREIGN 500 INDEX INCOME FUND(1) EQUITY FUND INVESTORS FUND FUND ------------ ------------ -------------- ----------- Assets: Investments at value - Note D: Common stocks (cost - $7,051,373, $13,498,567, $17,005,817 and $12,298,015, respectively) ................................... $7,401,092 $15,663,409 $19,328,049 $15,610,740 U.S. government obligations (cost - none, none $2,446,719 and none, respectively) ......................................... -- -- 2,459,697 -- Short-term investments (cost - $2,199,670, none, none and none, respectively) ............................................. 2,199,670 -- -- -- Joint repurchase agreements (cost - $55,000, $676,000, $2,288,000 and $2,355,000, respectively) ......................... 55,000 676,000 2,288,000 2,355,000 Corporate savings account ......................................... 283 181 524 -- ------------ ----------- ------------ ----------- 9,656,045 16,339,590 24,076,270 17,965,740 Cash .............................................................. -- -- -- 91,067 Receivable for investments sold ................................... -- 85,941 -- -- Receivable for forward foreign currency exchange contracts sold - Note B ................................................... 1,027 -- -- -- Dividends and interest receivable ................................. 3,723 19,125 91,714 16,254 Foreign tax receivable ............................................ 9 74 -- 188 Receivable from John Hancock Advisers, Inc. and affiliates - Note C .......................................................... 734 -- -- 12,472 Deferred organization expenses - Note B ........................... -- 6,766 6,766 6,766 Other assets ...................................................... -- 39 48 113 ------------ ----------- ------------ ----------- Total Assets .................................... 9,661,538 16,451,535 24,174,798 18,092,600 -------------------------------------------------------------------------------------------------------------- Payable for investments purchased ................................. 1,288,215 226,697 994,700 -- Payable for variation margin - Note B ............................. -- -- -- 19,125 Payable foreign withholding tax ................................... -- -- -- 17 Payable to John Hancock Advisers, Inc. and affiliates - Note C .... -- 10,548 11,873 -- Accounts payable and accrued expenses ............................. 6,085 5,860 12,773 489 ------------ ----------- ------------ ----------- Total Liabilities ............................... 1,294,300 243,105 1,019,346 19,631 -------------------------------------------------------------------------------------------------------------- Net Assets: Capital paid-in ................................................... 8,001,455 13,452,720 20,936,771 13,509,306 Accumulated net realized gain (loss) on investments, financial futures contracts and foreign currency transactions .............. 15,199 589,863 (122,002) 1,208,483 Net unrealized appreciation of investments, financial futures contracts and foreign currency transactions ...................... 350,747 2,164,842 2,335,210 3,354,351 Undistributed net investment income (distributions in excess of net investment income) ....................................... (163) 1,005 5,473 829 ------------ ----------- ------------ ----------- Net Assets ...................................... $8,367,238 $16,208,430 $23,155,452 $18,072,969 ============================================================================================================== Net Asset Value Per Share: (Based on 729,837, 961,385, 1,582,585 and 1,226,191 shares, respectively, of beneficial interest outstanding - unlimited number of shares authorized with no par value) ................... $11.46 $16.86 $14.63 $14.74 ==================================================================================================================================
(1) Commenced operations on January 2, 1998. SEE NOTES TO FINANCIAL STATEMENTS. 49 ==============================FINANCIAL STATEMENTS============================== John Hancock Funds - Declaration Trust Statements of Assets and Liabilities (continued) June 30, 1998 (Unaudited) - --------------------------------------------------------------------------------
V.A. V.A. V.A. V.A. V.A. SOVEREIGN STRATEGIC HIGH YIELD WORLD BOND MONEY MARKET BOND FUND INCOME FUND BOND FUND(1) FUND FUND ----------- ----------- ----------- ------------ ----------- Assets: Investments at value - Note D: Common stocks (cost - none, $21,030, $484,148, none and none, respectively) ............................... $-- $26,240 $395,203 $-- $-- Bonds (cost - $5,947,492, $10,431,144, $4,838,575, $2,261,749 and none, respectively) ......................... 5,988,229 10,427,284 4,760,648 2,292,968 -- Preferred stocks and warrants (cost - $51, $220,978, $190,740, none and none, respectively) ..................... 240 242,827 186,093 -- -- Options (cost - none, none, none, $2,450 and none, respectively) ............................................. -- -- -- 4,774 -- Short-term investments (cost - none, none, none, none and $9,937,513, respectively) ......................... -- -- -- -- 9,937,513 Joint repurchase agreements (cost - $1,008,000, $56,000, $650,000, $153,000 and $838,000, respectively) .... 1,008,000 56,000 650,000 153,000 838,000 Corporate savings account ................................... 881 617 107 -- -- ----------- ----------- ----------- ------------ ----------- 6,997,350 10,752,968 5,992,051 2,450,742 10,775,513 Cash ........................................................ -- -- -- 487 396 Foreign currency, at value (cost - none, none, $33,460, none and none, respectively) ...................... -- -- 33,248 -- -- Receivable for investments sold ............................. 744,502 174,031 29,344 259,546 -- Receivable for forward foreign currency exchange contracts purchased - Note B ............................... -- 118 -- 1,468 -- Dividends and interest receivable ........................... 95,897 208,504 110,144 29,875 138,268 Receivable from John Hancock Advisers, Inc. and affiliates - Note C .................................................... 2,739 -- 1,465 918 -- Deferred organization expenses - Note B ..................... 6,766 6,766 -- 6,766 6,766 Other assets ................................................ 22 41 -- 31 24 ----------- ----------- ----------- ------------ ----------- Total Assets .............................. 7,847,276 11,142,428 6,166,252 2,749,833 10,920,967 --------------------------------------------------------------------------------------------------------------- Liabilities: Distribution payable ........................................ 1,075 2,393 1,796 373 1,465 Payable for closed forward foreign currency exchange contracts - Note B ........................................ -- -- -- 10,719 -- Payable for forward foreign currency exchange contracts purchased - Note B ......................................... -- -- -- 8,586 -- Payable for forward foreign currency exchange contracts sold - Note B ............................................. -- 4,176 39 3,412 -- Payable for investments purchased ........................... 1,383,911 279,531 127,416 260,697 -- Payable to John Hancock Advisers, Inc. and affiliates - Note C .................................................... -- 3,521 -- -- 3,532 Accounts payable and accrued expenses ....................... 8,987 8,474 7,863 8,440 5,832 ----------- ----------- ----------- ------------ ----------- Total Liabilities ......................... 1,393,973 298,095 137,114 292,227 10,829 --------------------------------------------------------------------------------------------------------------- Net Assets: Capital paid-in ............................................. 6,342,418 10,801,036 6,214,267 2,477,696 10,910,138 Accumulated net realized gain (loss) on investments, futures contracts and foreign currency transactions ........ 69,341 20,812 (10,239) (12,618) -- Net unrealized appreciation (depreciation) of investments, financial futures contracts and foreign currency transactions ............................................... 40,925 16,016 (171,447) 10,883 -- Undistributed net investment income (distributions in excess of net investment income) ........................... 619 6,469 (3,443) (18,355) -- ----------- ----------- ----------- ------------ ----------- Net Assets ................................ $6,453,303 $10,844,333 $6,029,138 $2,457,606 $10,910,138 =============================================================================================================== Net Asset Value Per Share: (Based on 616,463, 1,032,151, 617,308, 254,904 and 10,910,138 shares, respectively, of beneficial interest outstanding - unlimited number of shares authorized with no par value) .............................. $10.47 $10.51 $9.77 $9.64 $1.00 ===================================================================================================================================
(1) Commenced operations on January 2, 1998. SEE NOTES TO FINANCIAL STATEMENTS. 50 ==============================FINANCIAL STATEMENTS============================== John Hancock Funds - Declaration Trust Statements of Operations Six months ended June 30, 1998 (Unaudited) - --------------------------------------------------------------------------------
V.A. V.A. V.A. V.A. INTERNATIONAL REGIONAL FINANCIAL EMERGING FUND BANK FUND(1) INDUSTRIES FUND GROWTH FUND --------- ------------ --------------- ----------- Investment Income: Dividends (net of foreign withholding tax of $7,870, none, $3,767, none, $5 and $134, respectively) ......... $56,458 $20,405 $264,463 $5,072 Interest ................................................ 8,741 11,093 89,694 7,654 --------- --------- ---------- -------- 65,199 31,498 354,157 12,726 --------- --------- ---------- -------- Expenses: Investment management fee - Note C ..................... 21,705 9,742 128,515 19,415 Custodian fee .......................................... 65,775 4,784 11,998 15,811 Auditing fee ........................................... 5,818 2,921 5,818 5,818 Printing ............................................... 1,506 265 1,328 2,366 Organization expense - Note B .......................... 1,059 -- -- 1,059 Financial services fee - Note C ........................ 426 215 2,839 457 Trustees' fee .......................................... 117 16 579 117 Miscellaneous .......................................... 334 135 636 307 Legal fees ............................................. 44 8 161 37 Registration and filing fees ........................... 19 -- 12 12 --------- --------- ---------- -------- Total Expenses ............................ 96,803 18,086 151,886 45,399 Less Expense Reductions - Note C .......... (69,056) (5,300) -- (19,502) --------- --------- ---------- -------- Net Expenses .............................. 27,747 12,786 151,886 25,897 --------------------------------------------------------------------------------------------------- Net Investment Income (Loss) .............. 37,452 18,712 202,271 (13,171) --------------------------------------------------------------------------------------------------- Realized and Unrealized Gain (Loss) on Investments and Foreign Currency Transactions: Net realized gain (loss) on investments sold ............ 164,705 3,050 78,583 (270,041) Net realized gain (loss) on foreign currency transactions .......................................... (65,814) -- (462) 2 Change in net unrealized appreciation/depreciation of investments ........................................ 534,785 (233,146) 2,986,174 718,734 Change in net unrealized appreciation/depreciation of foreign currency transactions ......................... (251) -- 16 -- --------- --------- ---------- -------- Net Realized and Unrealized Gain (Loss) on Investments and Foreign Currency Transactions .............................. 633,425 (230,096) 3,064,311 448,695 --------------------------------------------------------------------------------------------------- Net Increase (Decrease) in Net Assets Resulting from Operations ................. $670,877 ($211,384) $3,266,582 $435,524 =================================================================================================== V.A. SPECIAL V.A. OPPORTUNITIES GROWTH FUND(2) FUND ------------- --------- Investment Income: Dividends (net of foreign withholding tax of $7,870, none, $3,767, none, $5 and $134, respectively) ......... $2,288 $12,675 Interest ................................................ 2,959 7,474 ------- --------- 5,247 20,149 ------- --------- Expenses: Investment management fee - Note C ..................... 2,851 17,970 Custodian fee .......................................... 5,850 5,786 Auditing fee ........................................... 5,743 6,251 Printing ............................................... 1,019 2,434 Organization expense - Note B .......................... -- 1,059 Financial services fee - Note C ........................ 67 423 Trustees' fee .......................................... 10 114 Miscellaneous .......................................... 239 303 Legal fees ............................................. 23 47 Registration and filing fees ........................... -- 3 ------- --------- Total Expenses ............................ 15,802 34,390 Less Expense Reductions - Note C .......... (12,001) (10,419) ------- --------- Net Expenses .............................. 3,801 23,971 -------------------------------------------------------------------- Net Investment Income (Loss) .............. 1,446 (3,822) --------------------------------------------------------------------- Realized and Unrealized Gain (Loss) on Investments and Foreign Currency Transactions: Net realized gain (loss) on investments sold ............ 11,668 327,890 Net realized gain (loss) on foreign currency transactions .......................................... -- -- Change in net unrealized appreciation/depreciation of investments ........................................ 73,673 220,735 Change in net unrealized appreciation/depreciation of foreign currency transactions ......................... -- -- ------- --------- Net Realized and Unrealized Gain (Loss) on Investments and Foreign Currency Transactions .............................. 85,341 548,625 -------------------------------------------------------------------- Net Increase (Decrease) in Net Assets Resulting from Operations ................. $86,787 $544,803 ====================================================================
(1) Commenced operations on May 1, 1998. (2) Commenced operations on January 2, 1998. The Statement of Operations summarizes for each of the Funds the investment income earned and expenses incurred in operating the Fund. It also shows net gains (losses) for the period stated. SEE NOTES TO FINANCIAL STATEMENTS. 51 ==============================FINANCIAL STATEMENTS============================== John Hancock Funds - Declaration Trust Statements of Operations (continued) Six months ended June 30, 1998 (Unaudited) - --------------------------------------------------------------------------------
V.A. V.A. V.A. V.A. GROWTH AND INDEPENDENCE SOVEREIGN 500 INDEX INCOME FUND(1) EQUITY FUND INVESTORS FUND FUND -------------- ------------ -------------- --------- Investment Income: Dividends (net of foreign withholding tax of $41, $485, none and $762, respectively) ................................. $10,573 $90,525 $130,781 $138,658 Interest ............................................................. 25,065 12,656 104,454 35,415 --------- ---------- ---------- ---------- 35,638 103,181 235,235 174,073 --------- ---------- ---------- ---------- Expenses: Investment management fee - Note C .................................. 9,346 43,378 55,498 9,872 Auditing fee ........................................................ 6,163 5,818 5,818 5,818 Custodian fee ....................................................... 5,743 8,432 7,970 29,362 Printing ............................................................ 1,005 1,813 2,568 2,396 Legal fees .......................................................... 786 61 137 139 Financial services fee - Note C ..................................... 275 1,095 1,634 1,744 Trustees' fee ....................................................... 10 254 535 588 Registration and filing fees ........................................ 3 12 18 -- Miscellaneous ....................................................... 264 335 3,416 9,946 Organization expense - Note B ....................................... -- 1,059 1,059 1,059 --------- ---------- ---------- ---------- Total Expenses ..................................... 23,595 62,257 78,653 60,924 Less Expense Reductions - Note C ................... (10,355) (3,364) -- (26,314) --------- ---------- ---------- ---------- Net Expenses ....................................... 13,240 58,893 78,653 34,610 ------------------------------------------------------------------------------------------------------------- Net Investment Income .............................. 22,398 44,288 156,582 139,463 ------------------------------------------------------------------------------------------------------------- Realized and Unrealized Gain (Loss) on Investments, Financial Futures Contracts and Foreign Currency Transactions: Net realized gain (loss) on investments sold ......................... 15,479 562,546 (139,843) 851,001 Net realized gain on financial futures contracts ..................... -- -- -- 159,600 Net realized loss on foreign currency transactions ................... (280) -- -- -- Change in net unrealized appreciation/depreciation of investments .... 349,720 1,535,478 1,217,485 2,416,146 Change in net unrealized appreciation/depreciation of financial futures contracts ........................................ 1,027 -- -- 34,300 --------- ---------- ---------- ---------- Net Realized and Unrealized Gain on Investments, Financial Futures Contracts and Foreign Currency Transactions .............................. 365,946 2,098,024 1,077,642 3,461,047 ------------------------------------------------------------------------------------------------------------- Net Increase in Net Assets Resulting from Operations $388,344 $2,142,312 $1,234,224 $3,600,510 =============================================================================================================
(1) Commenced operations on January 2, 1998. SEE NOTES TO FINANCIAL STATEMENTS. 52 ==============================FINANCIAL STATEMENTS============================== John Hancock Funds - Declaration Trust Statements of Operations (continued) Six months ended June 30, 1998 (Unaudited) - --------------------------------------------------------------------------------
V.A. V.A. V.A. V.A. V.A. SOVEREIGN STRATEGIC HIGH YIELD WORLD BOND MONEY MARKET BOND FUND INCOME FUND BOND FUND(1) FUND FUND --------- ----------- ------------ ---------- ------------ Investment Income: Dividends (net of foreign withholding tax of none, none, $127, none and none, respectively) ....................... $-- $12,252 $5,020 $-- $-- Interest ........................................................ 179,374 367,023 181,545 77,088 250,150 --------- --------- --------- --------- --------- 179,374 379,275 186,565 77,088 250,150 --------- --------- --------- --------- --------- Expenses: Investment management fee - Note C ............................. 12,919 24,703 11,079 8,879 22,114 Custodian fee .................................................. 16,246 4,838 5,002 5,830 3,137 Auditing fee ................................................... 5,818 5,818 5,689 5,818 5,818 Printing ....................................................... 1,871 2,452 1,476 1,638 1,624 Organization expense - Note B .................................. 1,059 1,059 -- 1,059 1,059 Financial services fee - Note C ................................ 456 728 326 222 781 Registration and filing fees ................................... 391 552 -- 19 10 Legal fees ..................................................... 131 185 897 19 173 Trustees' fee .................................................. 112 172 17 71 227 Miscellaneous .................................................. 297 321 759 409 356 --------- --------- --------- --------- --------- Total Expenses ................................ 39,300 40,828 25,245 23,964 35,299 Less Expense Reductions - Note C .............. (19,913) (5,817) (9,549) (12,118) (2,112) --------- --------- --------- --------- --------- Net Expenses .................................. 19,387 35,011 15,696 11,846 33,187 -------------------------------------------------------------------------------------------------------------- Net Investment Income ......................... 159,987 344,264 170,869 65,242 216,963 -------------------------------------------------------------------------------------------------------------- Realized and Unrealized Gain (Loss) on Investments, Financial Futures Contracts andForeign Currency Transactions: Net realized gain (loss) on investments sold .................... 56,346 24,886 (9,951) 23,935 -- Net realized gain (loss) on foreign currency transactions ....... -- 7,312 (288) (33,212) -- Change in net unrealized appreciation/depreciation of investments ................................................... (6,013) (58,044) (171,519) (1,358) -- Change in net unrealized appreciation/depreciation of financial futures contracts ................................... -- (7,325) -- -- Change in net unrealized appreciation/depreciation of foreign currency transactions ................................. -- -- 72 (13,930) -- --------- --------- --------- --------- --------- Net Realized and Unrealized Gain (Loss) on Investments, Financial Futures Contracts and Foreign Currency Transactions ............. 50,333 (33,171) (181,686) (24,565) -- -------------------------------------------------------------------------------------------------------------- Net Increase (Decrease) in Net Assets Resulting from Operations ..................... $210,320 $311,093 ($10,817) $40,677 $216,963 ==============================================================================================================
(1) Commenced operations on January 2, 1998. SEE NOTES TO FINANCIAL STATEMENTS. 53 ==============================FINANCIAL STATEMENTS============================== John Hancock Funds - Declaration Trust Statements of Changes in Net Assets - --------------------------------------------------------------------------------
V.A REGIONAL V.A. INTERNATIONAL FUND BANK FUND ----------------------------- -------------- YEAR ENDED SIX MONTHS ENDED PERIOD ENDED DECEMBER 31, JUNE 30, 1998 JUNE 30, 1998 1997 (UNAUDITED) (UNAUDITED)(1) ---------- ---------------- -------------- Increase (Decrease) in Net Assets: From Operations: Net investment income .......................................... $12,662 $37,452 $18,712 Net realized gain on investments sold and foreign currency transactions ......................................... 140,157 98,891 3,050 Change in net unrealized appreciation/depreciation of investments and foreign currency transactions ................. (261,976) 534,534 (233,146) ---------- ---------- ----------- Net Increase (Decrease) in Net Assets Resulting from Operations (109,157) 670,877 (211,384) ---------- ---------- ----------- Distributions to Shareholders: * Dividends from net investment income ........................... (2,558) -- (19,103) Distributions from net realized gain on investments sold and foreign currency transactions ............................. (213,871) -- -- ---------- ---------- ----------- Total Distributions to Shareholders ........................... (216,429) -- (19,103) ---------- ---------- ----------- From Fund Share Transactions: ** Shares sold .................................................... 1,809,166 1,717,013 11,795,202 Shares issued to shareholders in reinvestment of distributions . 216,428 -- 19,103 ---------- ---------- ----------- 2,025,594 1,717,013 11,814,305 Less shares repurchased ........................................ (175,125) (350,355) (59,140) ---------- ---------- ----------- Net Increase .................................................. 1,850,469 1,366,658 11,755,165 ---------- ---------- ----------- Net Assets: Beginning of period ............................................ 2,267,121 3,792,004 -- ---------- ---------- ----------- End of period (including undistributed net investment income (distributions in excess) of ($207), $37,245, ($391), $2,075 and $204,346, respectively) ............................ $3,792,004 $5,829,539 $11,524,678 ========== ========== =========== * Distributions to Shareholders Per share dividends from net investment income ................. $0.0077 $-- $0.0169 ---------- ---------- ----------- Per share distributions from net realized gain on investments sold and foreign currency transactions ............ $0.6422 $-- $-- ---------- ---------- ----------- ** Analysis of Fund Share Transactions: Shares sold ................................................... 152,869 148,755 1,208,351 Shares issued to shareholders in reinvestment of distributions ............................................... 21,239 -- 2,043 ---------- ---------- ----------- 174,108 148,755 1,210,394 Less shares repurchased ........................................ (14,965) (30,536) (6,176) ---------- ---------- ----------- Net Increase .................................................. 159,143 118,219 1,204,218 ========== ========== =========== V.A. FINANCIAL INDUSTRIES FUND PERIOD ENDED SIX MONTHS ENDED DECEMBER 31, JUNE 30, 1998 1997(2) (UNAUDITED) ------------ ---------------- Increase (Decrease) in Net Assets: From Operations: Net investment income .......................................... $67,678 $202,271 Net realized gain on investments sold and foreign currency transactions ......................................... 15,861 78,121 Change in net unrealized appreciation/depreciation of investments and foreign currency transactions ................. 1,555,572 2,986,190 ----------- ----------- Net Increase (Decrease) in Net Assets Resulting from Operations 1,639,111 3,266,582 ----------- ----------- Distributions to Shareholders: * Dividends from net investment income ........................... (65,434) -- Distributions from net realized gain on investments sold and foreign currency transactions ............................. (14,677) -- ----------- ----------- Total Distributions to Shareholders ........................... (80,111) -- ----------- ----------- From Fund Share Transactions: ** Shares sold .................................................... 18,526,866 28,518,012 Shares issued to shareholders in reinvestment of distributions . 80,111 -- ----------- ----------- 18,606,977 28,518,012 Less shares repurchased ........................................ (1,700,536) (1,069,557) ----------- ----------- Net Increase .................................................. 16,906,441 27,448,455 ----------- ----------- Net Assets: Beginning of period ............................................ -- 18,465,441 ----------- ----------- End of period (including undistributed net investment income (distributions in excess) of ($207), $37,245, ($391), $2,075 and $204,346, respectively) ............................ $18,465,441 $49,180,478 =========== =========== * Distributions to Shareholders Per share dividends from net investment income ................. $0.0518 $-- ----------- ----------- Per share distributions from net realized gain on investments sold and foreign currency transactions ............ $0.0116 $-- ----------- ----------- ** Analysis of Fund Share Transactions: Shares sold ................................................... 1,501,742 1,955,822 Shares issued to shareholders in reinvestment of distributions ............................................... 6,125 -- ----------- ----------- 1,507,867 1,955,822 Less shares repurchased ........................................ (133,780) (72,221) ----------- ----------- Net Increase .................................................. 1,374,087 1,883,601 =========== ===========
(1) Commenced operations on May 1, 1998. (2) Commenced operation 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 end of the previous period. The difference reflects earnings less expenses, any investment and foreign currency 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 last two periods, along with the per share amount of distributions made to shareholders of each Fund for the period indicated. SEE NOTES TO FINANCIAL STATEMENTS. 54 ==============================FINANCIAL STATEMENTS============================== John Hancock Funds - Declaration Trust Statements of Changes in Net Assets (continued) - --------------------------------------------------------------------------------
V.A. SPECIAL OPPORTUNITIES V.A. EMERGING GROWTH FUND FUND ------------------------------ -------------- YEAR ENDED SIX MONTHS ENDED PERIOD ENDED DECEMBER 31, JUNE 30, 1998 JUNE 30, 1998 1997 (UNAUDITED) (UNAUDITED)(1) ------------ ---------------- -------------- Increase (Decrease) in Net Assets: From Operations: Net investment income (loss) ................................. ($3,029) ($13,171) $1,446 Net realized gain (loss) on investments sold and foreign currency transactions ............................... (181,115) (270,039) 11,668 Change in net unrealized appreciation/depreciation of investments and foreign currency transactions ............... 320,418 718,734 73,673 ---------- ---------- ---------- Net Increase in Net Assets Resulting from Operations ........ 136,274 435,524 86,787 ---------- ---------- ---------- Distributions to Shareholders: * Dividends from net investment income ......................... (135) -- -- ---------- ---------- ---------- From Fund Share Transactions: ** Shares sold .................................................. 2,985,092 2,901,669 1,191,009 Shares issued to shareholders in reinvestment of distributions ............................................... 135 -- -- ---------- ---------- ---------- 2,985,227 2,901,669 1,191,009 Less shares repurchased ...................................... (255,471) (595,113) (61,131) ---------- ---------- ---------- Net Increase ................................................ 2,729,756 2,306,556 1,129,878 ---------- ---------- ---------- Net Assets: Beginning of period .......................................... 974,915 3,840,810 -- ---------- ---------- ---------- End of period (including undistributed net investment income (distributions in excess) of $133, ($13,038), $1,446, none and ($3,822), respectively) .................... $3,840,810 $6,582,890 $1,216,665 ========== ========== ========== * Distributions to Shareholders: Per share dividends from net investment income ............... $0.0004 $-- $-- ---------- ---------- ---------- ** Analysis of Fund Share Transactions: Shares sold ................................................. 291,749 265,175 112,280 Shares issued to shareholders in reinvestment of distributions .............................................. 14 -- -- ---------- ---------- ---------- 291,763 265,175 112,280 Less shares repurchased ...................................... (25,147) (53,672) (5,552) ---------- ---------- ---------- Net Increase ................................................ 266,616 211,503 106,728 ========== ========== ========== V.A. GROWTH FUND ------------------------------ YEAR ENDED SIX MONTHS ENDED DECEMBER 31, JUNE 30, 1998 1997 (UNAUDITED) ------------ ---------------- Increase (Decrease) in Net Assets: From Operations: Net investment income (loss) ................................. ($8,594) ($3,822) Net realized gain (loss) on investments sold and foreign currency transactions ............................... (111,668) 327,890 Change in net unrealized appreciation/depreciation of investments and foreign currency transactions ............... 477,636 220,735 ---------- ---------- Net Increase in Net Assets Resulting from Operations ........ 357,374 544,803 ---------- ---------- Distributions to Shareholders: * Dividends from net investment income ......................... -- -- ---------- ---------- From Fund Share Transactions: ** Shares sold .................................................. 2,597,730 2,450,394 Shares issued to shareholders in reinvestment of distributions ............................................... -- -- ---------- ---------- 2,597,730 2,450,394 Less shares repurchased ...................................... (216,250) (251,342) ---------- ---------- Net Increase ................................................ 2,381,480 2,199,052 ---------- ---------- Net Assets: Beginning of period .......................................... 993,858 3,732,712 ---------- ---------- End of period (including undistributed net investment income (distributions in excess) of $133, ($13,038), $1,446, none and ($3,822), respectively) .................... $3,732,712 $6,476,567 ========== ========== * Distributions to Shareholders: Per share dividends from net investment income ............... $-- $-- ---------- ---------- ** Analysis of Fund Share Transactions: Shares sold ................................................. 263,298 210,406 Shares issued to shareholders in reinvestment of distributions .............................................. -- -- ---------- ---------- 263,298 210,406 Less shares repurchased ...................................... (21,325) (21,761) ---------- ---------- Net Increase ................................................ 241,973 188,645 ========== ==========
(1) Commenced operations on January 2, 1998. SEE NOTES TO FINANCIAL STATEMENTS. 55 ==============================FINANCIAL STATEMENTS============================== John Hancock Funds - Declaration Trust Statements of Changes in Net Assets (continued) - --------------------------------------------------------------------------------
V.A. GROWTH AND INCOME FUND V.A. INDEPENDENCE EQUITY FUND -------------- ------------------------------ PERIOD ENDED YEAR ENDED SIX MONTHS ENDED JUNE 30, 1998 DECEMBER 31, JUNE 30, 1998 (UNAUDITED)(1) 1997 (UNAUDITED) -------------- ------------ ------------ Increase (Decrease) in Net Assets: From Operations: Net investment income ..................................................... $22,398 $41,598 $44,288 Net realized gain (loss) on investments sold and foreign currency transactions ............................................................. 15,199 137,167 562,546 Change in net unrealized appreciation/depreciation of investments and foreign currency transactions ............................................ 350,747 544,516 1,535,478 ------------ ------------ ------------ Net Increase in Net Assets Resulting from Operations ..................... 388,344 723,281 2,142,312 ------------ ------------ ------------ Distributions to Shareholders: * Dividends from net investment income ...................................... (22,561) (41,203) (43,678) Distributions from net realized gain on investments sold and foreign currency transactions .................................................... -- (135,930) -- ------------ ------------ ------------ Total Distributions to Shareholders ...................................... (22,561) (177,133) (43,678) ------------ ------------ ------------ From Fund Share Transactions: ** Shares sold ............................................................... 8,168,750 7,299,605 7,389,950 Shares issued to shareholders in reinvestment of distributions ............ 22,561 177,133 43,678 ------------ ------------ ------------ 8,191,311 7,476,738 7,433,628 Less shares repurchased ................................................... (189,856) (452,446) (2,042,924) ------------ ------------ ------------ Net Increase ............................................................. 8,001,455 7,024,292 5,390,704 ------------ ------------ ------------ Net Assets: Beginning of period ....................................................... -- 1,148,652 8,719,092 ------------ ------------ ------------ End of period (including undistributed net investment income (distributions in excess) of ($163), $395, $1,005, $804 and $5,473, respectively) ....... $8,367,238 $8,719,092 $16,208,430 ============ ============ ============ * Distributions to Shareholders: Per share dividends from net investment income ............................ $0.0475 $0.1376 $0.0514 ------------ ------------ ------------ Per share distributions from net realized gain on investments sold and foreign currency transactions ............................................ $-- $0.2476 $-- ------------ ------------ ------------ ** Analysis of Fund Share Transactions: Shares sold .............................................................. 744,826 534,688 466,379 Shares issued to shareholders in reinvestment of distributions ........... 2,025 13,023 2,647 ------------ ------------ ------------ 746,851 547,711 469,026 Less shares repurchased ................................................... (17,014) (33,121) (125,606) ------------ ------------ ------------ Net Increase ............................................................. 729,837 514,590 343,420 ============ ============ ============ V.A. SOVEREIGN INVESTORS FUND ------------------------------ YEAR ENDED SIX MONTHS ENDED DECEMBER 31, JUNE 30, 1998 1997 (UNAUDITED) ------------ ------------ Increase (Decrease) in Net Assets: From Operations: Net investment income ..................................................... $84,193 $156,582 Net realized gain (loss) on investments sold and foreign currency transactions ............................................................. 17,842 (139,843) Change in net unrealized appreciation/depreciation of investments and foreign currency transactions ............................................ 1,050,550 1,217,485 ------------ ------------ Net Increase in Net Assets Resulting from Operations ..................... 1,152,585 1,234,224 ------------ ------------ Distributions to Shareholders: * Dividends from net investment income ...................................... (83,445) (151,914) Distributions from net realized gain on investments sold and foreign currency transactions .................................................... (6,096) -- ------------ ------------ Total Distributions to Shareholders ...................................... (89,541) (151,914) ------------ ------------ From Fund Share Transactions: ** Shares sold ............................................................... 10,664,200 11,878,429 Shares issued to shareholders in reinvestment of distributions ............ 89,541 151,914 ------------ ------------ 10,753,741 12,030,343 Less shares repurchased ................................................... (740,977) (2,144,140) ------------ ------------ Net Increase ............................................................. 10,012,764 9,886,203 ------------ ------------ Net Assets: Beginning of period ....................................................... 1,111,131 12,186,939 ------------ ------------ End of period (including undistributed net investment income (distributions in excess) of ($163), $395, $1,005, $804 and $5,473, respectively) ....... $12,186,939 $23,155,452 ============ ============ * Distributions to Shareholders: Per share dividends from net investment income ............................ $0.1769 $0.1061 ------------ ------------ Per share distributions from net realized gain on investments sold and foreign currency transactions ............................................ $0.0072 $-- ------------ ------------ ** Analysis of Fund Share Transactions: Shares sold .............................................................. 844,459 821,310 Shares issued to shareholders in reinvestment of distributions ........... 6,966 10,323 ------------ ------------ 851,425 831,633 Less shares repurchased ................................................... (58,189) (145,766) ------------ ------------ Net Increase ............................................................. 793,236 685,867 ============ ============
(1) Commenced operations on January 2, 1998. SEE NOTES TO FINANCIAL STATEMENTS. 56 ==============================FINANCIAL STATEMENTS============================== John Hancock Funds - Declaration Trust Statements of Changes in Net Assets (continued) - --------------------------------------------------------------------------------
V.A. 500 INDEX FUND V.A. SOVEREIGN BOND FUND ---------------------------- ---------------------------- YEAR ENDED SIX MONTHS ENDED YEAR ENDED SIX MONTHS ENDED DECEMBER 31, JUNE 30, 1998 DECEMBER 31, JUNE 30, 1998 1997 (UNAUDITED) 1997 (UNAUDITED) ------------ ------------ ------------ ------------ Increase (Decrease) in Net Assets: From Operations: Net investment income ........................................ $254,757 $139,463 $117,217 $159,987 Net realized gain on investments sold and foreign currency transactions ................................................ 812,763 1,010,601 30,656 56,346 Change in net unrealized appreciation/depreciation of investments and foreign currency transactions ............... 948,655 2,450,446 33,037 (6,013) ------------ ------------ ------------ ------------ Net Increase in Net Assets Resulting from Operations ........ 2,016,175 3,600,510 180,910 210,320 ------------ ------------ ------------ ------------ Distributions to Shareholders: * Dividends from net investment income ......................... (253,122) (140,515) (117,208) (159,377) Distributions from net realized gain on investments sold and foreign currency transactions ............................... (801,442) -- (22,285) -- ------------ ------------ ------------ ------------ Total Distributions to Shareholders ......................... (1,054,564) (140,515) (139,493) (159,377) ------------ ------------ ------------ ------------ From Fund Share Transactions: ** Shares sold .................................................. 15,055,266 7,890,438 2,851,276 3,111,590 Shares issued to shareholders in reinvestment of distributions 1,054,564 140,515 138,885 158,909 ------------ ------------ ------------ ------------ 16,109,830 8,030,953 2,990,161 3,270,499 Less shares repurchased ...................................... (1,112,317) (13,425,796) (405,240) (550,620) ------------ ------------ ------------ ------------ Net Increase (Decrease) ..................................... 14,997,513 (5,394,843) 2,584,921 2,719,879 ------------ ------------ ------------ ------------ Net Assets: Beginning of period .......................................... 4,048,693 20,007,817 1,056,143 3,682,481 ------------ ------------ ------------ ------------ End of period (including undistributed net investment income of $1,881, $829, $9, $619, $6,469 and $6,469, respectively) . $20,007,817 $18,072,969 $3,682,481 $6,453,303 ============ ============ ============ ============ * Distributions to Shareholders: Per share dividends from net investment income ............... $0.3006 $0.0972 $0.6766 $0.3167 ------------ ------------ ------------ ------------ Per share distributions from net realized gain on investments sold and foreign currency transactions ...................... $0.5445 $-- $0.0653 $-- ------------ ------------ ------------ ------------ ** Analysis of Fund Share Transactions: Shares sold .................................................. 1,200,874 561,285 277,867 298,614 Shares issued to shareholders in reinvestment of distributions 86,596 9,739 13,553 15,291 ------------ ------------ ------------ ------------ 1,287,470 571,024 291,420 313,905 Less shares repurchased ...................................... (90,171) (930,006) (39,559) (52,987) ------------ ------------ ------------ ------------ Net Increase (Decrease) ..................................... 1,197,299 (358,982) 251,861 260,918 ============ ============ ============ ============ V.A. STRATEGIC INCOME FUND ---------------------------- YEAR ENDED SIX MONTHS ENDED DECEMBER 31, JUNE 30, 1998 1997 (UNAUDITED) ------------ ------------ Increase (Decrease) in Net Assets: From Operations: Net investment income ........................................ $283,099 $344,264 Net realized gain on investments sold and foreign currency transactions ................................................ 6,218 32,198 Change in net unrealized appreciation/depreciation of investments and foreign currency transactions ............... 53,892 (65,369) ------------ ------------ Net Increase in Net Assets Resulting from Operations ........ 343,209 311,093 ------------ ------------ Distributions to Shareholders: * Dividends from net investment income ......................... (283,099) (344,264) Distributions from net realized gain on investments sold and foreign currency transactions ............................... (44,377) -- ------------ ------------ Total Distributions to Shareholders ......................... (327,476) (344,264) ------------ ------------ From Fund Share Transactions: ** Shares sold .................................................. 3,436,273 5,481,199 Shares issued to shareholders in reinvestment of distributions 327,029 342,316 ------------ ------------ 3,763,302 5,823,515 Less shares repurchased ...................................... (370,882) (485,572) ------------ ------------ Net Increase (Decrease) ..................................... 3,392,420 5,337,943 ------------ ------------ Net Assets: Beginning of period .......................................... 2,131,408 5,539,561 ------------ ------------ End of period (including undistributed net investment income of $1,881, $829, $9, $619, $6,469 and $6,469, respectively) . $5,539,561 $10,844,333 ============ ============ * Distributions to Shareholders: Per share dividends from net investment income ............... $0.9083 $0.4359 ------------ ------------ Per share distributions from net realized gain on investments sold and foreign currency transactions ...................... $0.0870 $-- ------------ ------------ ** Analysis of Fund Share Transactions: Shares sold .................................................. 326,163 516,438 Shares issued to shareholders in reinvestment of distributions 31,206 32,341 ------------ ------------ 357,369 548,779 Less shares repurchased ...................................... (35,138) (45,746) ------------ ------------ Net Increase (Decrease) ..................................... 322,231 503,033 ============ ============
SEE NOTES TO FINANCIAL STATEMENTS. 57 ==============================FINANCIAL STATEMENTS============================== John Hancock Funds - Declaration Trust Statements of Changes in Net Assets (continued) - --------------------------------------------------------------------------------
V.A. HIGH YIELD BOND FUND V.A. WORLD BOND FUND ------------ ---------------------------- PERIOD ENDED YEAR ENDED SIX MONTHS ENDED JUNE 30, 1998 DECEMBER 31, JUNE 30, 1998 (UNAUDITED)(1) 1997 (UNAUDITED) ------------ ------------ ------------ Increase (Decrease) in Net Assets: From Operations: Net investment income ........................................................... $170,869 $128,346 $65,242 Net realized loss on investments sold and foreign currency transactions ......... (10,239) (87,763) (9,277) Change in net unrealized appreciation/depreciation of investments and foreign currency transactions .................................................. (171,447) (10,797) (15,288) ------------ ------------ ------------ Net Increase (Decrease) in Net Assets Resulting from Operations ................ (10,817) 29,786 40,677 ------------ ------------ ------------ Distributions to Shareholders: * Dividends from net investment income ............................................ (174,312) (46,497) (65,242) Distribution in excess of net investment income ................................. -- (19,609) -- Tax return of capital ........................................................... -- (62,240) -- ------------ ------------ ------------ Total Distributions to Shareholders ............................................ (174,312) (128,346) (65,242) ------------ ------------ ------------ From Fund Share Transactions: ** Shares sold ..................................................................... 6,286,678 234,407 185,778 Shares issued to shareholders in reinvestment of distributions .................. 172,516 128,137 65,079 ------------ ------------ ------------ 6,459,194 362,544 250,857 Less shares repurchased ......................................................... (244,927) (43,948) (71,282) ------------ ------------ ------------ Net Increase ................................................................... 6,214,267 318,596 179,575 ------------ ------------ ------------ Net Assets: Beginning of period ............................................................. -- 2,082,560 2,302,596 ------------ ------------ ------------ End of period (including distributions in excess of net investment income of $3,443, $18,355, $18,355, none and none, respectively) ............... $6,029,138 $2,302,596 $2,457,606 ============ ============ ============ * Distributions to Shareholders: Per share dividends from net investment income .................................. $0.4264 $0.2134 $0.2663 ------------ ------------ ------------ Per share distributions in excess of net investment income ...................... $-- $0.0900 $-- ------------ ------------ ------------ Tax return of capital ........................................................... $-- $0.2857 $-- ------------ ------------ ------------ ** Analysis of Fund Share Transactions: Shares sold .................................................................... 624,421 23,767 19,068 Shares issued to shareholders in reinvestment of distributions ................. 17,215 13,037 6,703 ------------ ------------ ------------ 641,636 36,804 25,771 Less shares repurchased ......................................................... (24,328) (4,441) (7,336) ------------ ------------ ------------ Net Increase ................................................................... 617,308 32,363 18,435 ============ ============ ============ V.A. MONEY MARKET FUND ---------------------------- YEAR ENDED SIX MONTHS ENDED DECEMBER 31, JUNE 30, 1998 1997 (UNAUDITED) ------------ ------------ Increase (Decrease) in Net Assets: From Operations: Net investment income ........................................................... $119,827 $216,963 Net realized loss on investments sold and foreign currency transactions ......... -- -- Change in net unrealized appreciation/depreciation of investments and foreign currency transactions .................................................. -- -- ------------ ------------ Net Increase (Decrease) in Net Assets Resulting from Operations ................ 119,827 216,963 ------------ ------------ Distributions to Shareholders: * Dividends from net investment income ............................................ (119,827) (216,963) Distribution in excess of net investment income ................................. -- -- Tax return of capital ........................................................... -- -- ------------ ------------ Total Distributions to Shareholders ............................................ (119,827) (216,963) ------------ ------------ From Fund Share Transactions: ** Shares sold ..................................................................... 9,748,620 14,069,444 Shares issued to shareholders in reinvestment of distributions .................. 118,655 216,670 ------------ ------------ 9,867,275 14,286,114 Less shares repurchased ......................................................... (1,696,845) (11,753,034) ------------ ------------ Net Increase ................................................................... 8,170,430 2,533,080 ------------ ------------ Net Assets: Beginning of period ............................................................. 206,628 8,377,058 ------------ ------------ End of period (including distributions in excess of net investment income of $3,443, $18,355, $18,355, none and none, respectively) ............... $8,377,058 $10,910,138 ============ ============ * Distributions to Shareholders: Per share dividends from net investment income .................................. $0.0478 $0.0244 ------------ ------------ Per share distributions in excess of net investment income ...................... $-- $-- ------------ ------------ Tax return of capital ........................................................... $-- $-- ------------ ------------ ** Analysis of Fund Share Transactions: Shares sold .................................................................... 9,748,620 14,069,444 Shares issued to shareholders in reinvestment of distributions ................. 118,655 216,670 ------------ ------------ 9,867,275 14,286,114 Less shares repurchased ......................................................... (1,696,845) (11,753,034) ------------ ------------ Net Increase ................................................................... 8,170,430 2,533,080 ============ ============
(1) Commenced operations on January 2, 1998. SEE NOTES TO FINANCIAL STATEMENTS. 58 ==============================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. INTERNATIONAL FUND ------------------------------------------ PERIOD YEAR SIX MONTHS ENDED ENDED ENDED DECEMBER 31, DECEMBER 31, JUNE 30, 1998 1996(1) 1997 (UNAUDITED) --------- --------- --------- Per Share Operating Performance Net Asset Value, Beginning of Period ........................................... $10.00 $11.23 $10.50 --------- --------- --------- Net Investment Income (2) ...................................................... 0.07 0.05 0.09 Net Realized and Unrealized Gain (Loss) on Investments and Foreign Currency Transactions ................................................................. 1.20 (0.13) 1.57 --------- --------- --------- Total from Investment Operations ............................................ 1.27 (0.08) 1.66 --------- --------- --------- Less Distributions: Dividends from Net Investment Income .......................................... (0.04) (0.01) -- Distributions from Net Realized Gain on Investments Sold ...................... -- (0.64) -- --------- --------- --------- Total Distributions ......................................................... (0.04) (0.65) -- --------- --------- --------- Net Asset Value, End of Period ................................................. $11.23 $10.50 $12.16 ========= ========= ========= Total Investment Return at Net Asset Value (3) ................................. 12.75%(5) (0.54%) 15.81%(5) Total Adjusted Investment Return at Net Asset Value (3,4) ...................... 12.07%(5) (1.43%) 14.39%(5) Ratios and Supplemental Data Net Assets, End of Period (000s omitted) ....................................... $2,267 $3,792 $5,830 Ratio of Expenses to Average Net Assets ........................................ 1.15%(6) 1.15% 1.15%(6) Ratio of Adjusted Expenses to Average Net Assets (7) ........................... 3.13%(6) 2.04% 4.01%(6) Ratio of Net Investment Income to Average Net Assets ........................... 2.03%(6) 0.43% 1.56%(6) Ratio of Adjusted Net Investment Income (Loss) to Average Net Assets (7) ....... 0.05%(6) (0.46%) (1.30%)(6) Portfolio Turnover Rate ........................................................ 14% 273% 64% Fee Reduction Per Share (2) .................................................... $0.07 $0.10 $0.16
(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. The Financial Highlights summarizes the impact of the following factors on a single share for each period indicated: net investment income, gains (losses), distributions and total investment return of the Fund. It shows how the Fund's net asset value for a share has changed since the end of the previous period. Additionally, important relationships between some items presented in the financial statements are expressed in ratio form. SEE NOTES TO FINANCIAL STATEMENTS. 59 ==============================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 as follows: - -------------------------------------------------------------------------------- V.A. REGIONAL BANK FUND ----------------------- PERIOD ENDED JUNE 30, 1998 (UNAUDITED)(1) -------------- Per Share Operating Performance Net Asset Value, Beginning of Period ..................... $10.00 ---------- Net Investment Income (2) ................................ 0.02 Net Realized and Unrealized Loss on Investments .......... (0.43) ---------- Total from Investment Operations ...................... (0.41) ---------- Less Distributions: Dividends from Net Investment Income .................... (0.02) ---------- Net Asset Value, End of Period ........................... $9.57 ========== Total Investment Return at Net Asset Value (3) ........... (4.13%)(5) Total Adjusted Investment Return at Net Asset Value (3,4) ............................................ (4.20%)(5) Ratios and Supplemental Data Net Assets, End of Period (000s omitted) ................. $11,525 Ratio of Expenses to Average Net Assets .................. 1.05%(6) Ratio of Adjusted Expenses to Average Net Assets (7) ..... 1.49%(6) Ratio of Net Investment Income to Average Net Assets ..... 1.54%(6) Ratio of Adjusted Net Investment Income to Average Net Assets (7) ......................................... 1.10%(6) Portfolio Turnover Rate .................................. 5% Fee Reduction Per Share (2) .............................. $0.01 (1) Commenced operations on May 1, 1998. (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. 60 ==============================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 as follows: - --------------------------------------------------------------------------------
V.A. FINANCIAL INDUSTRIES FUND ------------------------------ PERIOD SIX MONTHS ENDED ENDED DECEMBER 31, JUNE 30, 1998 1997(1) (UNAUDITED) ---------- ---------- Per Share Operating Performance Net Asset Value, Beginning of Period ...................... $10.00 $13.44 ---------- ---------- Net Investment Income (2) ................................. 0.11 0.09 Net Realized and Unrealized Gain on Investments and Foreign Currency Transactions ................................... 3.39 1.57 ---------- ---------- Total from Investment Operations ....................... 3.50 1.66 ---------- ---------- Less Distributions: Dividends from Net Investment Income ..................... (0.05) -- Distributions from Net Realized Gain on Investments Sold . (0.01) -- ---------- ---------- Total Distributions .................................... (0.06) -- ---------- ---------- Net Asset Value, End of Period ............................ $13.44 $15.10 ========== ========== Total Investment Return at Net Asset Value (3) ............ 35.05%(5) 12.35%(5) Total Adjusted Investment Return at Net Asset Value (3,4).. 34.71%(5) -- Ratios and Supplemental Data Net Assets, End of Period (000s omitted) .................. $18,465 $49,180 Ratio of Expenses to Average Net Assets ................... 1.05%(6) 0.95%(6) Ratio of Adjusted Expenses to Average Net Assets (7) ...... 1.39%(6) -- Ratio of Net Investment Income to Average Net Assets ...... 1.32%(6) 1.26%(6) Ratio of Adjusted Net Investment Income to Average Net Assets (7) .............................................. 0.98%(6) -- Portfolio Turnover Rate ................................... 11% 22% Fee Reduction Per Share (2) ............................... $0.03 --
(1) Commenced operations on April 30, 1997. (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. 61 ==============================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 as follows: - --------------------------------------------------------------------------------
V.A. EMERGING GROWTH FUND --------------------------------------------- PERIOD YEAR SIX MONTHS ENDED ENDED ENDED DECEMBER 31, DECEMBER 31, JUNE 30, 1998 1996(1) 1997 (UNAUDITED) ------------ ------------ ------------- Per Share Operating Performance Net Asset Value, Beginning of Period ......................................... $10.00 $9.32 $10.35 --------- --------- --------- Net Investment Income (Loss) (2) ............................................. 0.02 (0.02) (0.03) Net Realized and Unrealized Gain (Loss) on Investments ....................... (0.68) 1.05 0.98 --------- --------- --------- Total from Investment Operations .......................................... (0.66) 1.03 0.95 --------- --------- --------- Less Distributions: Dividends from Net Investment Income ........................................ (0.02) (0.00)(3) -- --------- --------- --------- Net Asset Value, End of Period ............................................... $9.32 $10.35 $11.30 ========= ========= ========= Total Investment Return at Net Asset Value (4) ............................... (6.62%)(6) 11.06% 9.18%(6) Total Adjusted Investment Return at Net Asset Value (4,5) .................... (8.05%)(6) 9.34% 8.81%(6) Ratios and Supplemental Data Net Assets, End of Period (000s omitted) ..................................... $975 $3,841 $6,583 Ratio of Expenses to Average Net Assets ...................................... 1.00%(7) 1.00% 1.00%(7) Ratio of Adjusted Expenses to Average Net Assets (8) ......................... 5.19%(7) 2.72% 1.75%(7) Ratio of Net Investment Income (Loss) to Average Net Assets .................. 0.62%(7) (0.16%) (0.51%)(7) Ratio of Adjusted Net Investment Loss to Average Net Assets (8) .............. (3.57%)(7) (1.88%) (1.26%)(7) Portfolio Turnover Rate ...................................................... 31% 79% 48% Fee Reduction Per Share (2) .................................................. $0.14 $0.17 $0.04
(1) Commenced operations on August 29, 1996. (2) Based on the average of the shares outstanding at the end of each month. (3) Less than $0.01 per share. (4) Assumes dividend reinvestment and does not reflect the effect of sales charges. (5) An estimated total return calculation which does not take into consideration fee reductions by the Adviser during the periods shown. (6) Not annualized. (7) Annualized. (8) Unreimbursed, without fee reduction. SEE NOTES TO FINANCIAL STATEMENTS. 62 ==============================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 as follows: - -------------------------------------------------------------------------------- V.A. SPECIAL OPPORTUNITIES FUND ------------------ PERIOD ENDED JUNE 30, 1998 (UNAUDITED)(1) ------------- Per Share Operating Performance Net Asset Value, Beginning of Period ....................... $10.00 --------- Net Investment Income (2) .................................. 0.02 Net Realized and Unrealized Gain on Investments ............ 1.38 --------- Total from Investment Operations ........................ 1.40 --------- Net Asset Value, End of Period ............................. $11.40 ========= Total Investment Return at Net Asset Value (3) ............. 14.00%(5) Total Adjusted Investment Return at Net Asset Value (3,4) .. 12.49%(5) Ratios and Supplemental Data Net Assets, End of Period (000s omitted) ................... $1,217 Ratio of Expenses to Average Net Assets .................... 1.00%(6) Ratio of Adjusted Expenses to Average Net Assets (7) ....... 4.14%(6) Ratio of Net Investment Income to Average Net Assets ....... 0.38%(6) Ratio of Adjusted Net Investment Loss to Average Net Assets (7) (2.76%)(6) Portfolio Turnover Rate .................................... 40% Fee Reduction Per Share (2) ................................ $0.16 (1) Commenced operations on January 2, 1998. (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. 63 ==============================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 ------------------------------------------ PERIOD YEAR SIX MONTHS ENDED ENDED ENDED DECEMBER 31, DECEMBER 31, JUNE 30, 1998 1996(1) 1997 (UNAUDITED) --------- --------- --------- Per Share Operating Performance Net Asset Value, Beginning of Period .......................... $10.00 $9.39 $10.73 --------- --------- --------- Net Investment Loss (2) ....................................... (0.01) (0.04) (0.01) Net Realized and Unrealized Gain (Loss) on Investments ........ (0.60) 1.38 1.35 --------- --------- --------- Total from Investment Operations ........................... (0.61) 1.34 1.34 --------- --------- --------- Net Asset Value, End of Period ................................ $9.39 $10.73 $12.07 ========= ========= ========= Total Investment Return at Net Asset Value (3) ................ (6.10%)(5) 14.27% 12.49%(5) Total Adjusted Investment Return at Net Asset Value (3,4) ..... (7.39%)(5) 12.90% 12.27%(5) Ratios and Supplemental Data Net Assets, End of Period (000s omitted) ...................... $994 $3,733 $6,477 Ratio of Expenses to Average Net Assets ....................... 1.00%(6) 1.00% 1.00%(6) Ratio of Adjusted Expenses to Average Net Assets (7) .......... 4.76%(6) 2.37% 1.43%(6) Ratio of Net Investment Loss to Average Net Assets ............ (0.23%)(6) (0.39%) (0.16%)(6) Ratio of Adjusted Net Investment Loss to Average Net Assets (7) .............................................. (3.99%)(6) (1.76%) (0.59%)(6) Portfolio Turnover Rate ....................................... 68% 136% 108% Fee Reduction Per Share (2) ................................... $0.13 $0.13 $0.02
(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. 64 ==============================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 as follows: - -------------------------------------------------------------------------------- V.A. GROWTH & INCOME FUND ----------- PERIOD ENDED JUNE 30, 1998 (UNAUDITED)(1) -------------- Per Share Operating Performance Net Asset Value, Beginning of Period ......................... $10.00 --------- Net Investment Income (2) .................................... 0.05 Net Realized and Unrealized Gain on Investments and financial futures contracts ................................ 1.46 --------- Total from Investment Operations .......................... 1.51 --------- Less Distributions: Dividends from Net Investment Income ........................ (0.05) --------- Net Asset Value, End of Period ............................... $11.46 ========= Total Investment Return at Net Asset Value (3) ............... 15.09%(5) Total Adjusted Investment Return at Net Asset Value (3,4) .... 14.77%(5) Ratios and Supplemental Data Net Assets, End of Period (000s omitted) ..................... $8,367 Ratio of Expenses to Average Net Assets ...................... 0.85%(6) Ratio of Adjusted Expenses to Average Net Assets (7) ......... 1.51%(6) Ratio of Net Investment Income to Average Net Assets ......... 1.42%(6) Ratio of Adjusted Net Investment Income to Average Net Assets (7) ................................................. 0.76%(6) Portfolio Turnover Rate ...................................... 62% Fee Reduction Per Share (2) .................................. $0.03 (1) Commenced operations on January 2, 1998. (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. 65 ==============================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. INDEPENDENCE EQUITY FUND ------------------------------------------- PERIOD YEAR SIX MONTHS ENDED ENDED ENDED DECEMBER 31, DECEMBER 31, JUNE 30, 1998 1996(1) 1997 (UNAUDITED) ---------- ---------- ---------- Per Share Operating Performance Net Asset Value, Beginning of Period ................................... $10.00 $11.11 $14.11 ---------- ---------- ---------- Net Investment Income (2) .............................................. 0.06 0.16 0.05 Net Realized and Unrealized Gain on Investments ........................ 1.12 3.23 2.75 ---------- ---------- ---------- Total from Investment Operations .................................... 1.18 3.39 2.80 ---------- ---------- ---------- Less Distributions: Dividends from Net Investment Income .................................. (0.06) (0.14) (0.05) Distributions from Net Realized Gain on Investments Sold .............. (0.01) (0.25) -- ---------- ---------- ---------- Total Distributions ................................................. (0.07) (0.39) (0.05) ---------- ---------- ---------- Net Asset Value, End of Period ......................................... $11.11 $14.11 $16.86 ========== ========== ========== Total Investment Return at Net Asset Value (3) ......................... 11.78%(5) 30.68% 19.86%(5) Total Adjusted Investment Return at Net Asset Value (3,4) .............. 10.66%(5) 30.04% 19.83%(5) Ratios and Supplemental Data Net Assets, End of Period (000s omitted) ............................... $1,149 $8,719 $16,208 Ratio of Expenses to Average Net Assets ................................ 0.95%(6) 0.95% 0.95%(6) Ratio of Adjusted Expenses to Average Net Assets (7) ................... 4.23%(6) 1.59% 1.00%(6) Ratio of Net Investment Income to Average Net Assets ................... 1.60%(6) 1.24% 0.71%(6) Ratio of Adjusted Net Investment Income (Loss) to Average Net Assets (7) ........................................................... (1.68%)(6) 0.60% 0.66%(6) Portfolio Turnover Rate ................................................ 24% 53% 32% Fee Reduction Per Share (2) ............................................ $0.12 $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. 66 ==============================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 INVESTORS FUND ------------------------------------------- PERIOD YEAR SIX MONTHS ENDED ENDED ENDED DECEMBER 31, DECEMBER 31, JUNE 30, 1998 1996(1) 1997 (UNAUDITED) ---------- ---------- ---------- Per Share Operating Performance Net Asset Value, Beginning of Period ................................... $10.00 $10.74 $13.59 ---------- ---------- ---------- Net Investment Income (2) .............................................. 0.07 0.22 0.12 Net Realized and Unrealized Gain on Investments ........................ 0.76 2.82 1.03 ---------- ---------- ---------- Total from Investment Operations .................................... 0.83 3.04 1.15 ---------- ---------- ---------- Less Distributions: Dividends from Net Investment Income .................................. (0.07) (0.18) (0.11) Distributions from Net Realized Gain on Investments Sold .............. (0.02) (0.01) -- ---------- ---------- ---------- Total Distributions ................................................. (0.09) (0.19) (0.11) ---------- ---------- ---------- Net Asset Value, End of Period ......................................... $10.74 $13.59 $14.63 ========== ========== ========== Total Investment Return at Net Asset Value (3) ......................... 8.30%(5) 28.43% 8.43%(5) Total Adjusted Investment Return at Net Asset Value (3,4) .............. 7.30%(5) 28.12% -- Ratios and Supplemental Data Net Assets, End of Period (000s omitted) ............................... $1,111 $12,187 $23,155 Ratio of Expenses to Average Net Assets ................................ 0.85%(6) 0.85% 0.85%(6) Ratio of Adjusted Expenses to Average Net Assets (7) ................... 3.78%(6) 1.16% -- Ratio of Net Investment Income to Average Net Assets ................... 1.90%(6) 1.81% 1.69%(6) Ratio of Adjusted Net Investment Income (Loss) to Average Net Assets (7) (1.03%)(6) 1.50% -- Portfolio Turnover Rate ................................................ 17% 11% 12% Fee Reduction Per Share (2) ............................................ $0.11 $0.04 --
(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. 67 ==============================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 ------------------------------------------- PERIOD YEAR SIX MONTHS ENDED ENDED ENDED DECEMBER 31, DECEMBER 31, JUNE 30, 1998 1996(1) 1997 (UNAUDITED) ---------- ---------- ---------- Per Share Operating Performance Net Asset Value, Beginning of Period .......................................... $10.00 $10.44 $12.62 ---------- ---------- ---------- Net Investment Income (2) ..................................................... 0.17 0.30 0.10 Net Realized and Unrealized Gain on Investments and Financial Futures Contracts 0.98 2.72 2.12 ---------- ---------- ---------- Total from Investment Operations ........................................... 1.15 3.02 2.22 ---------- ---------- ---------- Less Distributions: Dividends from Net Investment Income ......................................... (0.16) (0.30) (0.10) Distributions from Net Realized Gain on Investments Sold ..................... (0.55) (0.54) -- ---------- ---------- ---------- Total Distributions ........................................................ (0.71) (0.84) (0.10) ---------- ---------- ---------- Net Asset Value, End of Period ................................................ $10.44 $12.62 $14.74 ========== ========== ========== Total Investment Return at Net Asset Value (3) ................................ 11.49%(5) 29.51% 17.59%(5) Total Adjusted Investment Return at Net Asset Value (3,4) ..................... 11.25%(5) 29.27% 17.46%(5) Ratios and Supplemental Data Net Assets, End of Period (000s omitted) ...................................... $4,049 $20,008 $18,073 Ratio of Expenses to Average Net Assets ....................................... 0.60%(6) 0.36% 0.35%(6) Ratio of Adjusted Expenses to Average Net Assets (7) .......................... 1.31%(6) 0.60% 0.62%(6) Ratio of Net Investment Income to Average Net Assets .......................... 4.57%(6) 2.45% 1.41%(6) Ratio of Adjusted Net Investment Income to Average Net Assets (7) ............. 3.86%(6) 2.21% 1.14%(6) Portfolio Turnover Rate ....................................................... -- 9% 13% Fee Reduction Per Share (2) ................................................... $0.03 $0.03 $0.02
(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. 68 ==============================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 ------------------------------------------- PERIOD YEAR SIX MONTHS ENDED ENDED ENDED DECEMBER 31, DECEMBER 31, JUNE 30, 1998 1996(1) 1997 (UNAUDITED) ---------- ---------- ---------- Per Share Operating Performance Net Asset Value, Beginning of Period ............................ $10.00 $10.19 $10.36 --------- --------- --------- Net Investment Income (2) ....................................... 0.23 0.68 0.32 Net Realized and Unrealized Gain on Investments ................. 0.21 0.24 0.11 --------- --------- --------- Total from Investment Operations ............................. 0.44 0.92 0.43 --------- --------- --------- Less Distributions: Dividends from Net Investment Income ........................... (0.23) (0.68) (0.32) Distributions from Net Realized Gain on Investments Sold ....... (0.02) (0.07) -- --------- --------- --------- Total Distributions .......................................... (0.25) (0.75) (0.32) --------- --------- --------- Net Asset Value, End of Period .................................. $10.19 $10.36 $10.47 ========= ========= ========= Total Investment Return at Net Asset Value (3) .................. 4.42%(5) 9.30% 4.20%(5) Total Adjusted Investment Return at Net Asset Value (3,4) ....... 3.25%(5) 7.52% 3.82%(5) Ratios and Supplemental Data Net Assets, End of Period (000s omitted) ........................ $1,056 $3,682 $6,453 Ratio of Expenses to Average Net Assets ......................... 0.75%(6) 0.75% 0.75%(6) Ratio of Adjusted Expenses to Average Net Assets (7) ............ 4.15%(6) 2.53% 1.52%(6) Ratio of Net Investment Income to Average Net Assets ............ 6.69%(6) 6.57% 6.19%(6) Ratio of Adjusted Net Investment Income to Average Net Assets (7) 3.29%(6) 4.79% 5.42%(6) Portfolio Turnover Rate ......................................... 45% 193% 201% Fee Reduction Per Share (2) ..................................... $0.12 $0.18 $0.04
(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. 69 ==============================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. STRATEGIC INCOME FUND ------------------------------------------- PERIOD YEAR SIX MONTHS ENDED ENDED ENDED DECEMBER 31, DECEMBER 31, JUNE 30, 1998 1996(1) 1997 (UNAUDITED) ---------- ---------- ---------- Per Share Operating Performance Net Asset Value, Beginning of Period .......................................... $10.00 $10.30 $10.47 ---------- ---------- ---------- Net Investment Income (2) ..................................................... 0.27 0.91 0.44 Net Realized and Unrealized Gain on Investments and financial futures contracts ........................................................... 0.36 0.26 0.04 ---------- ---------- ---------- Total from Investment Operations ........................................... 0.63 1.17 0.48 ---------- ---------- ---------- Less Distributions: Dividends from Net Investment Income ......................................... (0.27) (0.91) (0.44) Distributions from Net Realized Gain on Investments Sold ..................... (0.06) (0.09) -- ---------- ---------- ---------- Total Distributions ........................................................ (0.33) (1.00) (0.44) ---------- ---------- ---------- Net Asset Value, End of Period ................................................ $10.30 $10.47 $10.51 ========== ========== ========== Total Investment Return at Net Asset Value (3) ................................ 6.45%(5) 11.77% 4.61%(5) Total Adjusted Investment Return at Net Asset Value (3,4) ..................... 5.96%(5) 11.25% 4.54%(5) Ratios and Supplemental Data Net Assets, End of Period (000s omitted) ...................................... $2,131 $5,540 $10,844 Ratio of Expenses to Average Net Assets ....................................... 0.85%(6) 0.85% 0.85%(6) Ratio of Adjusted Expenses to Average Net Assets (7) .......................... 2.28%(6) 1.37% 0.99%(6) Ratio of Net Investment Income to Average Net Assets .......................... 7.89%(6) 8.77% 8.36%(6) Ratio of Adjusted Net Investment Income to Average Net Assets (7) ............. 6.46%(6) 8.25% 8.22%(6) Portfolio Turnover Rate ....................................................... 73% 110% 53% Fee Reduction Per Share (2) ................................................... $0.05 $0.05 $0.01
(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. 70 ==============================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. HIGH YIELD BOND FUND --------------- PERIOD ENDED JUNE 30, 1998 (UNAUDITED)(1) --------------- Per Share Operating Performance Net Asset Value, Beginning of Period ......................... $10.00 --------- Net Investment Income (2) .................................... 0.43 Net Realized and Unrealized Loss on Investments and foreign currency transactions ...................................... (0.23) --------- Total from Investment Operations .......................... 0.20 --------- Less Distributions: Dividends from Net Investment Income ........................ (0.43) --------- Net Asset Value, End of Period ............................... $9.77 ========= Total Investment Return at Net Asset Value (3) ............... 1.94%(5) Total Adjusted Investment Return at Net Asset Value (3,4) .... 1.69%(5) Ratios and Supplemental Data Net Assets, End of Period (000s omitted) ..................... $6,029 Ratio of Expenses to Average Net Assets ...................... 0.85%(6) Ratio of Adjusted Expenses to Average Net Assets (7) ......... 1.37%(6) Ratio of Net Investment Income to Average Net Assets ......... 9.25%(6) Ratio of Adjusted Net Investment Income to Average Net Assets (7) ................................................. 8.73%(6) Portfolio Turnover Rate ...................................... 92% Fee Reduction Per Share (2) .................................. $0.03 (1) Commenced operations on January 2, 1998. (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. 71 ==============================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 ------------------------------------------- PERIOD YEAR SIX MONTHS ENDED ENDED ENDED DECEMBER 31, DECEMBER 31, JUNE 30, 1998 1996(1) 1997 (UNAUDITED) --------- --------- --------- Per Share Operating Performance Net Asset Value, Beginning of Period .......................................... $10.00 $10.20 $9.74 --------- --------- --------- Net Investment Income (2) ..................................................... 0.20 0.59 0.27 Net Realized and Unrealized Gain (Loss) on Investments and Foreign Currency Transactions ............................................... 0.20 (0.46) (0.10) --------- --------- --------- Total from Investment Operations ........................................... 0.40 0.13 0.17 --------- --------- --------- Less Distributions: Dividends from Net Investment Income ......................................... (0.20) (0.21) (0.27) Distributions in Excess of Net Investment Income ............................. -- (0.09) -- Tax Return of Capital ........................................................ -- (0.29) -- --------- --------- --------- Total Distributions ........................................................ (0.20) (0.59) (0.27) --------- --------- --------- Net Asset Value, End of Period ................................................ $10.20 $9.74 $9.64 ========= ========= ========= Total Investment Return at Net Asset Value (3) ................................ 4.05%(5) 1.37% 1.72%(5) Total Adjusted Investment Return at Net Asset Value (3,4) ..................... 3.30%(5) 0.07% 1.21%(5) Ratios and Supplemental Data Net Assets, End of Period (000s omitted) ...................................... $2,083 $2,303 $2,458 Ratio of Expenses to Average Net Assets ....................................... 1.00%(6) 1.00% 1.00%(6) Ratio of Adjusted Expenses to Average Net Assets (7) .......................... 3.19%(6) 2.30% 2.02%(6) Ratio of Net Investment Income to Average Net Assets .......................... 5.83%(6) 5.98% 5.51%(6) Ratio of Adjusted Net Investment Income to Average Net Assets (7) ............. 3.64%(6) 4.68% 4.49%(6) Portfolio Turnover Rate ....................................................... 30% 176% 53% Fee Reduction Per Share (2) ................................................... $0.08 $0.13 $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. 72 ==============================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. MONEY MARKET FUND --------------------------------------------- PERIOD YEAR SIX MONTHS ENDED ENDED ENDED DECEMBER 31, DECEMBER 31, JUNE 30, 1998 1996(1) 1997 (UNAUDITED) ---------- ---------- ---------- Per Share Operating Performance Net Asset Value, Beginning of Period ................................... $1.00 $1.00 $1.00 ---------- ---------- ---------- Net Investment Income (2) .............................................. 0.02 0.05 0.02 Less Distributions: Dividends from Net Investment Income .................................. (0.02) (0.05) (0.02) ---------- ---------- ---------- Net Asset Value, End of Period ......................................... $1.00 $1.00 $1.00 ========== ========== ========== Total Investment Return at Net Asset Value (3) ......................... 1.61%(5) 4.88% 2.47%(5) Total Adjusted Investment Return at Net Asset Value (3,4) .............. (7.55%)(5) 4.36% 2.45%(5) Ratios and Supplemental Data Net Assets, End of Period (000s omitted) ............................... $207 $8,377 $10,910 Ratio of Expenses to Average Net Assets ................................ 0.75%(6) 0.75% 0.75%(6) Ratio of Adjusted Expenses to Average Net Assets (7) ................... 27.48%(6) 1.27% 0.80%(6) Ratio of Net Investment Income to Average Net Assets ................... 4.68%(6) 4.86% 4.91%(6) Ratio of Adjusted Net Investment Income (Loss) to Average Net Assets (7) ............................................... (22.05%)(6) 4.34% 4.86%(6) Fee Reduction Per Share (2) ............................................ $0.08 $0.00(8) $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. 73 ==============================FINANCIAL STATEMENTS============================== John Hancock Funds - Declaration Trust -- V.A. International Fund Schedule of Investments June 30, 1998 (Unaudited) - -------------------------------------------------------------------------------- The Schedule of Investments is a complete list of all securities owned by the V.A. International Fund on June 30, 1998. It's divided into four main categories: common stocks, preferred stocks, rights and short-term investments. Common stocks, preferred stocks and rights 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 - ------------------- ------ ----- COMMON STOCKS Australia (1.80%) Australia & New Zealand Banking Group Ltd., American Depositary Receipts (ADR) (Banks - Foreign) ....................................... 2 $68 National Australia Bank Ltd. (Banks - Foreign) ........... 1,794 23,720 News Corp. Ltd. (The) (Media) ............................ 2,000 16,363 News Corp. Ltd. (The) (ADR) (Media) ...................... 476 15,292 Normandy Mining Ltd. (Metal) ............................. 15,439 12,651 Telstra Corp., Ltd. (Telecommunications) ................. 9,508 24,435 Westpac Banking Corp. (Banks - Foreign) .................. 2,000 12,229 ---------- 104,758 ---------- Belgium (2.60%) Electrabel SA (Utilities) ................................ 141 39,999 Fortis AG (Insurance) .................................... 84 21,457 PetroFina SA (Oil & Gas) ................................. 70 28,751 Tractebel SA (Utilities) ................................. 420 61,549 ---------- 151,756 ---------- Brazil (0.02%) Telecomunicacoes Brasileiras S/A (ADR) (Telecommunications) .................................... 10 1,092 ---------- Canada (4.60%) BCE, Inc. (Telecommunications) ........................... 315 13,507 Bombardier Inc. (Diversified Operations) ................. 1,613 43,955 Northern Telecom Ltd. (Telecommunications) ............... 845 47,890 Royal Bank of Canada (Banks - Foreign) .................. 1,156 69,794 Toronto-Dominion Bank (Banks - Foreign) .................. 2,055 93,117 ---------- 268,263 ---------- Denmark (1.11%) Novo Nordisk A/S (Medical) ............................... 330 45,540 Tele Danmark A/S (Telecommunications) .................... 200 19,215 ---------- 64,755 ---------- Finland (1.38%) Nokia AB (Telecommunications) ............................ 1,090 80,243 ---------- France (13.34%) Accor SA (Leisure) ....................................... 95 26,587 Alcatel Alsthom SA (Telecommunications) .................. 332 67,600 Alstom SA (Machinery)* ................................... 1,362 44,832 Axa SA (Insurance) ....................................... 531 59,725 Cap Gemini SA (Computers) ................................ 462 72,597 Carrefour SA (Retail) .................................... 46 29,103 Compagnie de Saint Gobain SA (Building) .................. 85 15,761 Compagnie Generale des Eaux (Diversified Operations) ..... 263 56,161 Danone SA (Food) ......................................... 139 38,327 Elf Aquitaine SA (Oil & Gas) ............................. 494 69,454 France Telecom SA (ADR) (Telecommunications)* ............ 750 52,172 L'Air Liquide SA (Chemicals) ............................. 74 12,240 L'Oreal SA (Cosmetics & Personal Care) .................. 51 28,369 Legrand SA (Electronics) ................................. 55 14,556 Paribas SA (Banks - Foreign) ............................. 339 36,279 Pinault-Printemps-Redoute SA (Retail) .................... 17 14,228 Schneider SA (Machinery) ................................. 165 13,158 Suez Lyonnaise des Eaux (Diversified Operations) ......... 320 52,666 Synthelabo SA (Medical) .................................. 174 29,356 Total SA (Oil & Gas) ..................................... 101 13,131 Valeo SA (Automobile / Trucks) ........................... 308 31,484 ---------- 777,786 ---------- Germany (6.87%) Allianz AG (Insurance) ................................... 170 56,700 Allianz AG (New shares) (Insurance)* ..................... 5 1,654 Bayerische Motoren Werke AG (Automobile / Trucks) ........ 60 60,717 Bayerische Motoren Werke AG (New shares) (Automobile / Trucks)* .................................. 19 19,227 Bayerische Vereinsbank AG (Banks - Foreign) .............. 328 27,827 Daimler-Benz AG (Automobile / Trucks) .................... 150 14,763 Deutsche Bank AG (Banks - Foreign) ....................... 888 75,139 Deutsche Telekom AG (Telecommunications) ................. 1,043 28,570 Fresenius AG (Medical) ................................... 59 10,142 Mannesmann AG (Machinery) ................................ 370 38,058 Muenchener Rueckversicherungs-Gesellschaft AG (Insurance) .......................................... 45 22,357 Siemens AG (Diversified Operations) ...................... 419 25,591 VEBA AG (Diversified Operations) ......................... 293 19,715 ---------- 400,460 ---------- Hong Kong (2.64%) Cheung Kong Holdings Ltd. (Real Estate Operations) ....... 4,000 19,670 China Telecom Ltd. (Telecommunications)* ................. 18,000 31,247 China Telecom Ltd. (ADR) (Telecommunications)* ........... 225 7,777 Hong Kong Telecommunications Ltd. (Telecommunications) .................................... 13,921 26,142 HSBC Holdings Ltd. (Banks - Foreign) ..................... 800 19,566 Hutchison Whampoa Ltd. (Diversified Operations) .......... 4,554 24,040 Sun Hung Kai Properties Ltd. (Real Estate Operations) .... 6,000 25,478 ---------- 153,920 ---------- India (0.35%) State Bank of India, Global Depositary Receipts (Banks - Foreign) ....................................... 1,721 20,394 ---------- Ireland (2.37%) Allied Irish Banks PLC (ADR) (Banks - Foreign) ........... 1,472 126,316 CRH PLC (Building) ....................................... 840 11,922 ---------- 138,238 ---------- Italy (4.45%) Assicurazioni Generali SpA (Insurance) .................. 450 14,639 Banca Popolare di Brescia SpA (Banks - Foreign) .......... 1,400 26,475 Credito Italiano SpA (Banks - Foreign) .................. 8,670 45,406 Ente Nazionale Idrocarburi SpA (Oil & Gas) ............... 3,773 24,739 Istituto Nazionale delle Assicurazioni SpA (Insurance) ... 11,876 33,755 Telecom Italia Mobile SpA (Telecommunications) ........... 7,379 45,144 Telecom Italia SpA (Telecommunications) .................. 9,405 69,264 ---------- 259,422 ---------- SEE NOTES TO FINANCIAL STATEMENTS. 74 ==============================FINANCIAL STATEMENTS============================== John Hancock Funds - Declaration Trust -- V.A. International Fund NUMBER OF MARKET ISSUER, DESCRIPTION SHARES VALUE - ------------------- ------ ----- Japan (9.85%) Bank of Tokyo-Mitsubishi, Ltd. (Banks - Foreign) ......... 3,000 $31,872 Bridgestone Corp. (Rubber - Tires & Misc.) ............... 1,000 23,722 Fuji Photo Film Co., Ltd. (Leisure) ...................... 1,000 34,932 Fujitsu Ltd. (Computers) ................................. 2,000 21,118 Honda Motor Co., Ltd. (Automobile / Trucks) .............. 2,000 71,454 Ito-Yokado Co., Ltd. (Retail) ............................ 1,000 47,226 Kansai Electric Power Co., Inc. (Utilities) .............. 2,000 34,859 Matsushita Electric Industrial Co., Ltd. (Electronics) ... 3,000 48,384 Nippon Telephone & Telegraph Corp. (Telecommunications) .................................... 6 49,902 Nomura Securities Co., Ltd. (Finance) .................... 4,000 46,720 Shin-Etsu Chemical Co., Ltd. (Chemicals) ................. 2,000 34,715 Sony Corp. (Electronics) ................................. 400 34,570 TDK Corp. (Electronics) .................................. 1,000 74,130 Tokio Marine & Fire Insurance Co. (Insurance) ............ 2,000 20,626 ---------- 574,230 ---------- Mexico (1.61%) Panamerican Beverages, Inc. (Beverages) .................. 2,978 93,621 ---------- Netherlands (6.28%) ABN AMRO Holding NV (ADR) (Banks - Foreign) .............. 3,489 81,773 AEGON NV (Insurance) ..................................... 402 35,004 Akzo Nobel NV (Chemicals) ................................ 130 28,919 ING Groep NV (ADR) (Banks - Foreign) ..................... 1,125 73,547 KPN NV (Utilities) ....................................... 500 19,260 Royal Dutch Petroleum Co. (Oil & Gas) .................... 1,037 57,545 Royal Philips Electronics NV (Electronics) ............... 684 57,540 TNT Post groep NV (Transport)* ........................... 500 12,791 ---------- 366,379 ---------- Norway (1.14%) Norsk Hydro ASA (Oil & Gas) .............................. 500 22,017 Orkla ASA (Diversified Operations) ....................... 1,900 44,249 ---------- 66,266 ---------- Portugal (1.46%) Cimpor-Cimentos de Portugal SA (Building) ................ 1,000 35,157 Electricidade de Portugal SA (Utilities) ................. 821 19,097 Portugal Telecom SA (Telecommunications) ................. 577 30,600 ---------- 84,854 ---------- Singapore (0.30%) Oversea-Chinese Banking Corp., Ltd. (Banks - Foreign) .... 3,050 10,408 Singapore Telecommunications, Ltd. (Telecommunications) .................................... 5,000 7,122 ---------- 17,530 ---------- Spain (3.80%) Argentaria Corp. BC (Banks - Foreign) .................... 1,020 22,881 Banco Bilbao Vizcaya SA (Banks - Foreign) ................ 806 41,364 Banco Santander SA (Banks - Foreign) ..................... 1,634 41,822 Endesa SA (Utilities) .................................... 2,543 55,636 Iberdrola SA (Utilities) ................................. 742 12,048 Repsol SA (Oil & Gas) .................................... 227 12,508 Telefonica de Espana SA (Telecommunications) ............. 762 35,230 ---------- 221,489 ---------- Sweden (3.39%) Astra AB (Medical) ....................................... 986 20,150 Ericsson (LM) Telefonaktiebolaget (Telecommunications) .................................... 2,006 58,601 Investor AB (Diversified Operations) ..................... 1,364 79,607 Sweden (continued) Nordbanken Holding AB (Banks - Foreign) .................. 4,912 36,027 Saab AB (Aerospace)* ..................................... 278 2,928 ---------- 197,313 ---------- Switzerland (9.10%) Adecco SA (Business Services - Misc.) .................... 63 28,457 Alusuisse-Lonza Holding AG (Containers)* ................. 10 12,706 Barry Callebaut AG (Food)* ............................... 73 15,764 Credit Suisse Group (Banks - Foreign) .................... 266 59,285 Nestle SA (Food) ......................................... 43 92,173 Novartis AG (Medical) .................................... 52 86,672 Roche Holding AG (Medical) ............................... 2 19,672 Schweizerische Rueckversicherungs-Gesellschaft (Insurance) ............................................. 20 50,664 Union Bank of Switzerland AG (Banks - Foreign) ........... 207 77,097 Zurich Versicherungs-Gesellschaft (Insurance) ............ 138 88,215 ---------- 530,705 ---------- United Kingdom (13.78%) B.A.T. Industries PLC (Tobacco) .......................... 1,667 16,700 British Petroleum Co. PLC (Oil & Gas) .................... 3,506 51,164 British Telecommunications PLC (Telecommunications) ...... 2,500 30,889 Diageo PLC (Beverages) ................................... 1,593 18,885 EMAP PLC (Media) ......................................... 1,498 30,315 Glaxo Wellcome PLC (Medical) ............................. 2,018 60,616 Granada Group PLC (Diversified Operations) ............... 3,000 55,200 Kingfisher PLC (Retail) .................................. 1,500 24,169 Lloyds TSB Group PLC (Banks - Foreign) .................. 5,622 78,710 Marks & Spencer PLC (Retail) ............................. 3,041 27,698 Pearson PLC (Media) ...................................... 1,584 29,040 Regal Hotel Group PLC (Leisure) .......................... 50,000 35,899 Royal & Sun Alliance Insurance Group PLC (Insurance) ..... 3,665 37,910 Royal Bank of Scotland Group PLC (Banks - Foreign) ....... 2,306 40,043 SmithKline Beecham PLC (Medical) ......................... 4,247 51,872 Thames Water PLC (Utilities) ............................. 1,000 18,216 Unilever PLC (Consumer Products - Misc.) ................. 7,900 84,156 WPP Group PLC (Advertising) .............................. 9,000 59,020 Zeneca Group PLC (Medical) ............................... 1,234 52,994 ---------- 803,496 ---------- TOTAL COMMON STOCKS (Cost $4,856,049) (92.24%) 5,376,970 ------- ---------- PREFERRED STOCKS Brazil (2.08%) Compania Riograndense de Telecomunicacoes SA (Telecommunications) ................................. 11,971 13,052 Petroleo Brasileiro SA (Oil & Gas) ....................... 242,000 44,987 Telecomunicacoes de Sao Paulo SA (Telecommunications) ................................. 197,897 46,542 Telesp Celular SA (Telecommunications)* .................. 197,897 16,427 ---------- 121,008 ---------- Germany (0.97%) Henkel KGaA (Chemicals) .................................. 173 17,123 SAP AG (Computers) ....................................... 58 39,397 ---------- 56,520 ---------- TOTAL PREFERRED STOCKS (Cost $178,308) (3.05%) 177,528 ------- ---------- SEE NOTES TO FINANCIAL STATEMENTS. 75 ==============================FINANCIAL STATEMENTS============================== John Hancock Funds - Declaration Trust -- V.A. International Fund NUMBER OF MARKET ISSUER, DESCRIPTION SHARES VALUE - ------------------- ------ ----- RIGHT Brazil (0.00%) Telecomunicacoes de Sao Paulo SA (Telecommunications)* ................................ 9,300 $149 ---------- TOTAL RIGHT (Cost $0) (0.00%) 149 ------- ---------- TOTAL PREFERRED STOCKS AND RIGHT (Cost $178,308) (3.05%) 177,677 ------- ---------- INTEREST PAR VALUE RATE (000s OMITTED) ---- -------------- SHORT-TERM INVESTMENTS Joint Repurchase Agreement (3.53%) Investment in a joint repurchase agreement transaction with Toronto Dominion Securities USA, Inc. - Dated 06-30-98, due 07-01-98 (Secured by U.S. Treasury Notes, 5.00% thru 7.50% due 02-15-99 thru 11-15-01) - Note B.................... 5.750% $206 206,000 ---------- TOTAL SHORT-TERM INVESTMENTS (3.53%) 206,000 -------- ---------- TOTAL INVESTMENTS (98.82%) 5,760,647 -------- ---------- OTHER ASSETS AND LIABILITIES, NET (1.18%) 68,892 -------- ---------- TOTAL NET ASSETS (100.00%) $5,829,539 ======== ========== * 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. Industry Diversification (Unaudited) - -------------------------------------------------------------------------------- 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 in which 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 June 30, 1998 assigned to the various investment categories. MARKET VALUE INVESTMENT CATEGORIES AS A % OF FUND NET ASSETS - --------------------- ------------------------- Advertising................................ 1.01% Aerospace ................................. 0.05 Automobiles / Trucks....................... 3.39 Banks - Foreign............................ 20.09 Beverages.................................. 1.93 Building .................................. 1.08 Business Services - Misc. ................. 0.49 Chemicals.................................. 1.60 Computers.................................. 2.28 Consumer Products - Misc. ................. 1.44 Containers................................. 0.22 Cosmetics & Personal Care.................. 0.49 Diversified Operations..................... 6.88 Electronics................................ 3.93 Finance ................................... 0.80 Food....................................... 2.51 Insurance.................................. 7.59 Leisure.................................... 1.67 Machinery.................................. 1.65 Media...................................... 1.56 Medical.................................... 6.47 Metal ..................................... 0.22 Oil & Gas.................................. 5.56 Real Estate Operations..................... 0.78 Retail..................................... 2.44 Rubber - Tire & Misc. ..................... 0.41 Telecommunications......................... 13.77 Tobacco.................................... 0.29 Transport ................................. 0.22 Utilities.................................. 4.47 Short-Term Investments..................... 3.53 ----- TOTAL INVESTMENTS 98.82% ===== SEE NOTES TO FINANCIAL STATEMENTS. 76 ==============================FINANCIAL STATEMENTS============================== John Hancock Funds - Declaration Trust -- V.A. Regional Bank Fund Schedule of Investments June 30, 1998 (Unaudited) - -------------------------------------------------------------------------------- The Schedule of Investments is a complete list of all securities owned by the V.A. Regional Bank Fund on June 30, 1998. 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 - ------------------- ------ ----- COMMON STOCKS Superregional Banks (4.17%) KeyCorp. (OH ) .......................................... 2,200 $78,375 Mellon Bank Corp. (PA ) ................................. 1,300 90,512 NationsBank Corp. (NC ) ................................. 2,000 153,000 Norwest Corp. (MN ) ..................................... 4,250 158,844 ---------- 480,731 ---------- Banks - United States (81.79%) Associated Banc-Corp. (WI ) ............................. 5,719 215,168 BancFirst Corp. (OK ) ................................... 3,800 176,700 BancorpSouth, Inc. (MS ) ................................ 9,325 195,825 Bank of the Ozarks, Inc. (AR ) .......................... 5,700 176,700 BB&T Corp. (NC ) ........................................ 3,650 246,831 CCB Financial Corp. (NC ) ............................... 2,450 260,312 Centura Banks, Inc. (NC ) ............................... 3,350 209,375 Chittenden Corp. (VT ) .................................. 6,250 218,750 City National Corp. (CA ) ............................... 6,700 247,481 CNB Bancshares, Inc. (IN ) .............................. 5,000 240,000 Colonial BancGroup, Inc. (AL ) .......................... 6,350 204,787 Comerica, Inc. (MI ) .................................... 4,000 265,000 Commerce Bancshares, Inc. (MO ) ......................... 3,800 185,487 Community First Bankshares, Inc. (ND ) .................. 7,600 199,025 Compass Bancshares, Inc. (AL ) .......................... 5,425 244,803 Crestar Financial Corp. (VA ) ........................... 3,800 207,338 Cullen / Frost Bankers, Inc. (TX ) ...................... 4,000 217,000 First Hawaiian, Inc. (HI ) .............................. 4,300 156,412 First Security Corp. (UT ) .............................. 11,600 248,312 First Tennessee National Corp. (TN ) .................... 6,875 216,992 First Virginia Banks, Inc. (VA ) ........................ 4,750 242,844 First Western Bancorp., Inc. (PA ) ...................... 6,150 181,041 Firstar Corp. (WI ) ..................................... 6,750 256,500 FirstMerit Corp. (OH ) .................................. 8,225 239,553 HUBCO, Inc. (NJ ) ....................................... 6,500 232,781 Imperial Bancorp. * (CA ) ............................... 8,700 261,000 Marshall & Ilsley Corp. (WI ) ........................... 4,200 214,463 Mercantile Bankshares Corp. (MD ) ....................... 6,450 224,541 Mississippi Valley Bancshares, Inc. (MO ) ............... 4,700 185,650 North Fork Bancorp., Inc. (NY ) ......................... 3,750 91,641 Old Kent Financial Corp. (MI ) .......................... 1,288 46,310 Regions Financial Corp. (AL ) ........................... 5,625 230,977 Santa Barbara Bancorp. (CA ) ............................ 8,650 248,688 Security Bank Holding Co. (OR ) ......................... 4,000 40,000 Silicon Valley Bancshares* (CA ) ........................ 2,950 105,001 SouthTrust Corp. (AL ) .................................. 4,250 184,875 Southwest Bancorp. of Texas, Inc.* (TX ) ................ 6,950 130,747 Star Banc Corp. (OH ) ................................... 2,800 178,850 Sterling Bancshares, Inc. (TX ) ......................... 10,400 163,800 Summit Bancshares, Inc. (TX ) ........................... 10,525 223,656 TCF Financial Corp. (MN ) ............................... 7,600 224,200 Texas Regional Bancshares, Inc. (Class A) (TX ) ......... 5,700 186,675 UST Corp. (MA ) ......................................... 9,050 239,825 Westamerica Bancorp. (CA ) .............................. 5,150 165,444 West Coast Bancorp. (OR ) ............................... 7,600 187,150 Whitney Holding Corp. (LA ) ............................. 3,850 195,388 Zions Bancorp. (UT ) .................................... 4,000 212,500 ---------- 9,426,398 ---------- Thrifts (8.38%) ALBANK Financial Corp. (NY ) ............................ 4,000 $282,250 Charter One Financial, Inc. (OH ) ....................... 4,975 167,595 First Financial Holdings, Inc. (SC ) .................... 7,600 180,500 InterWest Bancorp., Inc. (WA ) .......................... 4,250 184,344 Washington Mutual, Inc. (WA ) ........................... 3,475 150,945 ---------- 965,634 ---------- TOTAL COMMON STOCKS (Cost $11,105,909) (94.34%) 10,872,763 ------- ---------- INTEREST PAR VALUE RATE (000s OMITTED) ---- -------------- SHORT-TERM INVESTMENTS Joint Repurchase Agreement (12.32%) Investment in a joint repurchase agreement transaction with Toronto Dominion Securities USA, Inc. Dated 06-30-98, due 07-01-98 (Secured by U.S. Treasury Bond, 9.125% due 05-15-18, and U.S. Treasury Notes, 5.00% thru 8.75% due 12-31-98 thru 04-30-03) - Note B........................................ 5.750% $1,420 1,420,000 ----------- Corporate Savings Account (0.01%) Investors Bank & Trust Company Daily Interest Savings Account Current Rate 4.95%............................ 790 ----------- TOTAL SHORT-TERM INVESTMENTS (12.33%) 1,420,790 -------- ----------- TOTAL INVESTMENTS (106.67%) 12,293,553 -------- ----------- OTHER ASSETS AND LIABILITIES, NET (6.67%) (768,875) -------- ----------- TOTAL NET ASSETS (100.00%) $11,524,678 ======== =========== *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. 77 ==============================FINANCIAL STATEMENTS============================== John Hancock Funds - Declaration Trust -- V.A. Financial Industries Fund Schedule of Investments June 30, 1998 (Unaudited) - -------------------------------------------------------------------------------- The Schedule of Investments is a complete list of all securities owned by the V.A. Financial Industries Fund on June 30, 1998. 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 - ------------------- ------ ----- COMMON STOCKS Banks - Foreign (6.22%) Allied Irish Banks PLC, (American Depositary Receipt), (ADR) (Ireland) ............................. 9,500 $815,219 Anglo Irish Bank Corp., PLC (Ireland) .................. 5,000 13,431 Corporacion Bancaria de Espana S.A. (ADR) (Spain) ......................................... 10,430 470,654 ING Groep N.V. (ADR) (Netherlands) ..................... 8,000 523,000 Nordbanken Holding AB (Sweden) ......................... 20,200 148,175 Royal Bank of Canada (Canada) .......................... 18,000 1,086,750 ---------- 3,057,229 ---------- Banks - Money Center (1.54%) Chase Manhattan Corp. .................................. 10,040 758,020 ---------- Banks - Southeast (1.30%) First Tennessee National Corp. ......................... 20,300 640,719 ---------- Banks - Super Regional (5.85%) BankBoston Corp. ....................................... 19,450 1,081,906 Norwest Corp. .......................................... 48,000 1,794,000 ---------- 2,875,906 ---------- Banks - West (1.75%) Westamerica Bancorp .................................... 26,700 857,737 ---------- Broker Services (15.94%) Edwards (A.G.), Inc. ................................... 43,725 1,866,511 Freedom Securities Corp.* .............................. 10,000 181,250 Friedman, Billings, Ramsey Group, Inc. (Class A)* ...... 3,000 43,313 Legg Mason, Inc. ....................................... 37,166 2,139,368 McDonald & Co., Investments ............................ 16,350 536,484 Morgan Stanley, Dean Witter, Discover & Co. ............ 17,500 1,599,062 Stifel Financial Corp. ................................. 17,100 259,706 Travelers Group, Inc. .................................. 20,000 1,212,500 ---------- 7,838,194 ---------- Computer - Services (4.96%) BISYS Group, Inc. (The)* ............................... 10,000 410,000 Fiserv, Inc.* .......................................... 47,737 2,027,328 Fundtech Ltd.* ......................................... 200 3,775 ---------- 2,441,103 ---------- Finance - Consumer Loans (6.29%) American Express Co. ................................... 16,990 1,936,860 MBNA Corp. ............................................. 35,100 1,158,300 ---------- 3,095,160 ---------- Finance - Investment Management (10.15%) Affiliated Managers Group, Inc.* ....................... 7,500 278,438 Conning Corp. .......................................... 10,500 204,750 Federated Investors, Inc. (Class B)* ................... 7,500 138,750 Franklin Resources, Inc. ............................... 24,690 1,333,260 John Nuveen Co. (The) (Class A) ........................ 13,000 515,938 Price (T. Rowe) Associates, Inc. ....................... 41,000 1,540,062 Waddell & Reed Financial, Inc. (Class A) ............... 41,000 981,437 ---------- 4,992,635 ---------- Finance - Savings & Loan (0.50%) InterWest Bancorp., Inc. ............................... 5,700 247,238 ---------- Finance - SBIC & Commercial (1.13%) CIT Group, Inc. (The) (Class A) ........................ 14,825 555,937 ---------- Insurance - Accident & Health (1.71%) Provident Cos., Inc. ................................... 24,350 840,075 ---------- Insurance - Brokers (1.84%) Marsh & McLennan Cos., Inc. ............................ 15,000 906,562 ---------- Insurance - Diversified (2.01%) Aetna, Inc. ............................................ 13,000 989,625 ---------- Insurance - Life (2.80%) Annuity and Life Re (Holdings), Ltd.* .................. 150 3,319 ARM Financial Group, Inc. (Class A) .................... 15,000 331,875 Reinsurance Group of America, Inc.* .................... 10,010 513,638 Torchmark Corp. ........................................ 11,500 526,125 ---------- 1,374,957 ---------- Insurance - Multi Line (2.00%) Allmerica Financial Corp. .............................. 15,100 981,500 ---------- Insurance - Property & Casualty (15.06%) Commerce Group, Inc. ................................... 17,475 677,156 Donegal Group, Inc. .................................... 24,633 461,863 Frontier Insurance Group, Inc. ......................... 9,735 219,646 General Re Corp. ....................................... 7,500 1,901,250 Penn-America Group, Inc. ............................... 16,000 216,000 RLI Corp. .............................................. 22,469 914,197 SAFECO Corp. ........................................... 31,340 1,424,011 St. Paul Cos., Inc. .................................... 18,200 765,538 Summit Holdings Southeast, Inc.* ....................... 1,900 60,563 Travelers Property Casualty Corp. (Class A) ............ 17,900 767,462 ---------- 7,407,686 ---------- Leasing Companies (0.46 %) Newcourt Credit Group, Inc. (Canada) ................... 4,600 226,263 ---------- Mortgage & RE Services (1.24%) Fannie Mae ............................................. 10,000 607,500 ---------- REIT - Equity Trust (8.63%) Brandywine Realty Trust ................................ 35,225 788,159 Corporate Office Properties Trust, Inc. ................ 700 6,213 Excel Realty Trust, Inc. ............................... 12,000 345,750 General Growth Properties .............................. 24,000 897,000 Glenborough Realty Trust, Inc. ......................... 11,500 303,313 Macerich Co. (The) ..................................... 11,000 322,438 Prentiss Properties Trust .............................. 26,440 642,823 SL Green Realty Corp. .................................. 12,500 281,250 Spieker Properties, Inc. ............................... 17,000 658,750 ---------- 4,245,696 ---------- TOTAL COMMON STOCKS (Cost $40,397,984) (91.38%) 44,939,742 ------- ---------- SEE NOTES TO FINANCIAL STATEMENTS. 78 ==============================FINANCIAL STATEMENTS============================== John Hancock Funds - Declaration Trust -- V.A. Financial Industries Fund INTEREST PAR VALUE MARKET ISSUER, DESCRIPTION RATE (000s OMITTED) VALUE - ------------------- ---- -------------- ----- SHORT-TERM INVESTMENTS Joint Repurchase Agreement (8.08%) Investment in a joint repurchase agreement transaction with Toronto Dominion Securities USA, Inc. Dated 06-30-98, due 07-01-98 (Secured by U.S. Treasury Bond, 9.125% due 05-15-18, and U.S Treasury Notes, 5.00% thru 8.75% due 12-31-98 thru 04-30-03) - Note B................................... 5.750% $3,975 $3,975,000 ----------- Corporate Savings Account (0.00%) Investors Bank & Trust Company Daily Interest Savings Account Current Rate 4.95%....................... 661 ----------- TOTAL SHORT-TERM INVESTMENTS (8.08%) 3,975,661 -------- ----------- TOTAL INVESTMENTS (99.46%) 48,915,403 -------- ----------- OTHER ASSETS AND LIABILITIES, NET (0.54%) 265,075 -------- ----------- TOTAL NET ASSETS (100.00%) $49,180,478 ======== =========== *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. 79 ==============================FINANCIAL STATEMENTS============================== John Hancock Funds - Declaration Trust -- V.A. Emerging Growth Fund Schedule of Investments June 30, 1998 (Unaudited) - -------------------------------------------------------------------------------- The Schedule of Investments is a complete list of all securities owned by the V.A. Emerging Growth Fund on June 30, 1998. 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 - ------------------- ------ ----- COMMON STOCKS Advertising (1.44%) Getty Images, Inc.* .................................... 2,200 $48,950 Outdoor Systems, Inc.* ................................. 1,012 28,336 Princeton Video Image, Inc.* ........................... 3,800 17,575 ---------- 94,861 ---------- Aerospace (0.34%) AAR Corp. .............................................. 750 22,172 ---------- Agricultural Operations (0.35%) Scheid Vineyards, Inc. (Class A)* ...................... 3,300 22,894 ---------- Automobile / Trucks (1.76%) Gentex Corp.* .......................................... 1,800 32,625 Special Devices, Inc.* ................................. 800 28,300 United Rentals, Inc. * ................................. 1,300 54,600 ---------- 115,525 ---------- Beverages (0.34%) Beringer Wine Estates Holdings, Inc. (Class B)* ........ 500 22,031 ---------- Broker Services (1.13%) Dain Rauscher Corp. .................................... 400 21,900 E*TRADE Group, Inc.* ................................... 2,300 52,756 ---------- 74,656 ---------- Building (1.50%) Crossmann Communities, Inc.* ........................... 1,100 33,412 D R Horton, Inc. ....................................... 1,300 27,138 SMED International, Inc.* (Canada) ..................... 1,700 30,600 Vari-Lite International, Inc.* ......................... 1,200 7,500 ---------- 98,650 ---------- Business Services - Misc. (8.97%) Abacus Direct Corp.* ................................... 700 36,356 Charles River Associates, Inc.* ........................ 1,800 45,000 Coinstar, Inc.* ........................................ 4,000 37,000 Forrester Research, Inc.* .............................. 1,100 43,725 Hagler Bailly, Inc.* ................................... 1,500 38,812 ICON PLC, (American Depositary Receipts), (ADR) (United Kingdom) * .............................. 100 2,525 INSpire Insurance Solutions, Inc.* ..................... 1,300 43,225 Lason, Inc.* ........................................... 1,000 54,500 Mac-Gray Corp.* ........................................ 1,600 20,400 MAXIMUS, Inc.* ......................................... 100 2,875 META Group, Inc. * ..................................... 1,800 39,825 Metamor Worldwide, Inc.* ............................... 750 26,390 Metzler Group, Inc. (The)* ............................. 1,600 58,600 On Assignment, Inc.* ................................... 1,100 38,431 ProBusiness Services, Inc.* ............................ 1,400 65,450 Professional Detailing, Inc.* .......................... 1,500 37,313 ---------- 590,427 ---------- Computers (22.78%) Advent Software, Inc.* ................................. 1,300 54,600 AnswerThink Consulting Group * ......................... 2,500 53,750 Aris Corp.* ............................................ 1,800 50,400 Aspect Development, Inc.* .............................. 600 45,375 BARRA, Inc.* ........................................... 1,400 34,300 CBT Group PLC Ltd., ADR (Ireland) ...................... 800 42,800 CCC Information Services Group, Inc. * ................ 1,800 29,700 CheckFree Holdings Corp.* .............................. 1,400 41,212 Cognizant Technology Solutions Corp. * ................ 3,300 39,806 Concord Communications, Inc.* .......................... 100 2,556 Dendrite International, Inc.* .......................... 1,500 56,437 Exodus Communications, Inc.* ........................... 600 26,850 Fundtech Ltd. * ........................................ 2,700 50,963 Hyperion Software Corp.* ............................... 600 17,100 IDX Systems Corp. ...................................... 1,100 50,668 Information Management Resources, Inc.* ................ 1,475 49,873 Inktomi Corp.* ......................................... 100 3,975 International Integration, Inc. * ...................... 200 3,450 International Network Services, Inc.* .................. 1,300 53,300 JDA Software Group, Inc.* .............................. 500 21,875 Manhattan Associates, Inc. * ........................... 1,600 33,300 Micromuse, Inc. * ...................................... 1,800 73,462 MicroStrategy, Inc. (Class A) * ........................ 300 8,475 MIPS Technologies, Inc. * .............................. 200 2,687 National Computer Systems, Inc. ........................ 1,900 45,600 National Instruments Corp.* ............................ 1,300 46,475 Network Appliance, Inc.* ............................... 1,400 54,512 Pegasystems, Inc. * .................................... 1,200 32,550 Real Networks, Inc. * .................................. 1,100 41,043 SCM Microsystems, Inc.* ................................ 600 37,500 Software.net Corp.* .................................... 2,800 53,550 SPR, Inc.* ............................................. 1,000 31,125 Symantec Corp.* ........................................ 1,500 39,187 THINK New Ideas, Inc.* ................................. 500 13,062 Transition Systems, Inc. * ............................. 1,900 20,187 Verio, Inc.* ........................................... 1,800 44,775 VeriSign, Inc.* ........................................ 1,700 63,537 Visio Corp.* ........................................... 1,100 52,525 Whittman-Hart, Inc. * .................................. 700 33,862 Wind River Systems* .................................... 1,200 43,050 ---------- 1,499,454 ---------- Containers (0.39%) Ivex Packaging Corp.* .................................. 1,100 25,575 ---------- Electronics (2.71%) Aavid Thermal Technologies, Inc.* ...................... 800 23,400 ATMI, Inc.* ............................................ 2,000 30,000 Flextronics International Ltd. * ....................... 800 34,800 Level One Communications, Inc.* ........................ 1,700 39,950 MMC Networks, Inc. ..................................... 100 3,187 Rambus, Inc.* .......................................... 600 36,675 Semtech Corp.* ......................................... 600 10,612 ---------- 178,624 ---------- Finance (3.37%) AmeriCredit Corp.* ..................................... 1,600 57,100 Financial Federal Corp.* ............................... 1,500 40,218 FIRSTPLUS Financial Group, Inc.* ....................... 800 28,800 SEE NOTES TO FINANCIAL STATEMENTS. 80 ==============================FINANCIAL STATEMENTS============================== John Hancock Funds - Declaration Trust -- V.A. Emerging Growth Fund NUMBER OF MARKET ISSUER, DESCRIPTION SHARES VALUE - ------------------- ------ ----- Finance (continued) Medallion Financial Corp. .............................. 2,400 $66,000 Waddell & Reed Financial, Inc. (Class A) ............... 1,250 29,922 ---------- 222,040 ---------- Food (2.07%) American Italian Pasta Co. (Class A)* .................. 1,500 55,875 Dreyer's Grand Ice Cream, Inc. ......................... 1,900 38,238 Suiza Foods Corp.* ..................................... 710 42,378 ---------- 136,491 ---------- Funeral Services & Related (0.87%) Carriage Services, Inc. (Class A)* ..................... 1,400 35,175 Rock of Ages Corp.* .................................... 1,400 21,700 ---------- 56,875 ---------- Insurance (2.29%) AmerUs Life Holdings, Inc. (Class A) ................... 600 19,425 Capital Re Corp. ....................................... 200 14,325 CMAC Investment Corp. .................................. 500 30,750 Hartford Life, Inc. (Class A) .......................... 800 45,550 Life Re Corp. .......................................... 500 41,000 ---------- 151,050 ---------- Leasing Companies (1.05%) LINC Capital, Inc.* .................................... 2,000 34,500 Rollins Truck Leasing Corp. ............................ 2,800 34,650 ---------- 69,150 ---------- Leisure (3.25%) Cinar Films, Inc. (Class B)* (Canada) .................. 2,600 50,700 Premier Parks, Inc.* ................................... 700 46,637 ResortQuest International, Inc. * ...................... 300 4,894 Silverleaf Resorts, Inc.* .............................. 1,500 22,875 Steiner Leisure Ltd.* .................................. 1,750 52,938 Travel Services International, Inc.* ................... 1,100 36,163 ---------- 214,207 ---------- Machinery (1.69%) Applied Power, Inc. (Class A) .......................... 1,200 41,250 Gardner Denver Machinery, Inc.* ........................ 1,200 33,150 Terex Corp.* ........................................... 1,300 37,050 ---------- 111,450 ---------- Media (4.66%) Adelphia Communications Corp. (Class A)* ............... 1,600 59,400 Central Newspapers, Inc. (Class A) ..................... 500 34,875 Clear Channel Communications, Inc.* .................... 201 21,934 Heftel Broadcasting Corp. (Class A)* ................... 900 40,275 Jacor Communications, Inc.* ............................ 400 23,600 Network Event Theater, Inc.* ........................... 5,500 23,375 Petersen Cos., Inc. (The) (Class A)* ................... 1,500 38,438 Univision Communications, Inc. (Class A)* .............. 600 22,350 Wiley (John) & Sons, Inc. (Class A) .................... 700 42,612 ---------- 306,859 ---------- Medical (6.04%) Alkermes, Inc. * ....................................... 1,000 17,875 American Healthcorp, Inc.* ............................. 2,100 20,738 Hanger Orthopedic Group, Inc. * ........................ 2,300 46,863 Human Genome Sciences, Inc. * .......................... 500 17,844 IDEC Pharmaceuticals Corp.* ............................ 900 21,206 Impath, Inc. * ......................................... 900 21,881 Incyte Pharmaceuticals, Inc.* .......................... 600 20,475 MiniMed, Inc.* ......................................... 700 36,663 Ocular Sciences, Inc.* ................................. 900 29,250 Perclose, Inc.* ........................................ 800 22,600 Renal Care Group, Inc. * ............................... 800 35,250 Res-Care, Inc.* ........................................ 1,800 33,188 Symphonix Devices, Inc.* ............................... 2,300 26,450 Ventana Medical Systems, Inc.* ......................... 1,700 47,600 ---------- 397,883 ---------- Metal (0.43%) CompX International, Inc.* ............................. 1,300 28,113 ---------- Oil & Gas (2.15%) Core Laboratories N.V.* (Netherlands) .................. 1,600 34,600 Dril-Quip, Inc.* ....................................... 1,100 28,875 National-Oilwell, Inc.* ................................ 1,000 26,813 Stone Energy Corp.* .................................... 600 21,338 Tuboscope, Inc.* ....................................... 1,500 29,625 ---------- 141,251 ---------- Pollution Control (2.71%) American Disposal Services, Inc.* ...................... 1,000 46,875 Eastern Environmental Services, Inc.* .................. 1,500 51,000 ITEQ, Inc.* ............................................ 2,800 20,825 Newpark Resources, Inc.* ............................... 2,100 23,363 Superior Services, Inc.* ............................... 1,200 36,075 ---------- 178,138 ---------- Printing - Commercial (0.56%) Mail-Well, Inc.* ....................................... 1,700 36,869 ---------- Real Estate Investment Trust (0.52%) Glenborough Realty Trust, Inc. ......................... 1,000 26,375 Hanover Capital Mortgage Holdings, Inc. ................ 800 7,600 ---------- 33,975 ---------- Real Estate Operations (0.62%) Central Parking Corp. * ................................ 900 40,950 ---------- Retail (10.88%) 99 Cents Only Stores* .................................. 1,075 44,613 Abercrombie & Fitch Co. (Class A)* ..................... 1,000 44,000 Brylane, Inc.* ......................................... 500 23,000 CDnow, Inc.* ........................................... 1,400 28,175 CSK Auto Corp.* ........................................ 1,600 40,400 Dominick's Supermarkets, Inc.* ......................... 900 40,106 Duane Reade, Inc.* ..................................... 1,600 48,000 Eagle Hardware & Garden, Inc. * ........................ 1,600 37,000 Ethan Allen Interiors, Inc. ............................ 500 24,969 Furniture Brands International, Inc.* .................. 1,200 33,675 Garden Fresh Restaurant Corp.* ......................... 2,000 36,000 Genovese Drug Stores, Inc. (Class A) ................... 1,760 34,540 Hibbett Sporting Goods, Inc.* .......................... 1,300 52,000 Linens `N Things, Inc.* ................................ 1,000 30,563 Meyer (Fred), Inc. * ................................... 650 27,625 Proffitt's, Inc.* ...................................... 800 32,300 Stage Stores, Inc.* .................................... 1,300 58,825 White Cap Industries, Inc.* ............................ 2,100 37,800 Wild Oats Markets, Inc.* ............................... 1,400 42,525 ---------- 716,116 ---------- Schools / Education (1.27%) EduTrek International, Inc. (Class A)* ................ 1,300 31,850 ITI Education Corp.* (Canada) .......................... 2,000 11,968 Strayer Education, Inc. ................................ 1,100 39,875 ---------- 83,693 ---------- SEE NOTES TO FINANCIAL STATEMENTS. 81 ==============================FINANCIAL STATEMENTS============================== John Hancock Funds - Declaration Trust -- V.A. Emerging Growth Fund NUMBER OF MARKET ISSUER, DESCRIPTION SHARES VALUE - ------------------- ------ ----- Service (0.78%) Interim Services, Inc. * .............................. 1,600 $51,400 ---------- Telecommunications (6.65%) Com21, Inc.* .......................................... 200 4,250 Concentric Network Corp. * ............................ 1,600 48,500 Global TeleSystems Group, Inc.* ....................... 1,000 48,750 Hyperion Telecommunications, Inc. (Class A) * ......... 1,300 20,394 ICG Communications, Inc.* ............................. 1,200 43,875 Intermedia Communications, Inc.* ...................... 1,200 50,325 L-3 Communications Holdings, Inc.* .................... 200 6,538 Metromedia Fiber Network, Inc. (Class A)* ............. 1,600 74,600 NEXTLINK Communications, Inc. (Class A)* .............. 700 26,513 Primus Telecommunications Group, Inc. * ............... 2,400 45,450 STAR Telecommunications, Inc. * ....................... 1,335 29,871 WinStar Communications, Inc.* ......................... 900 38,644 ---------- 437,710 ---------- Textile (2.43%) Ashworth, Inc.* ....................................... 2,300 31,913 Cutter & Buck, Inc.* .................................. 1,800 48,600 Interface, Inc. ....................................... 2,200 44,413 Tefron Ltd.* (Israel) ................................. 1,600 35,200 ---------- 160,126 ---------- Transport (1.75%) Carey International, Inc.* ............................ 1,400 39,200 MotivePower Industries, Inc.* ......................... 1,700 41,650 Westinghouse Air Brake Co. ............................ 1,300 34,288 ---------- 115,138 ---------- Waste Disposal Service & Equip (0.54%) Waste Connections, Inc.* .............................. 1,800 35,776 ---------- TOTAL COMMON STOCKS (Cost $5,428,002) (98.29%) 6,470,129 ------- ---------- INTEREST PAR VALUE MARKET ISSUER, DESCRIPTION RATE (000s OMITTED) VALUE - ------------------- ---- -------------- ----- SHORT-TERM INVESTMENTS Joint Repurchase Agreement (0.62%) Investment in a joint repurchase agreement transaction with Toronto Dominion Securities USA, Inc. Dated 06-30-98, due 07-01-98 (Secured by U.S. Treasury Bond, 9.125% due 05-15-18, and U.S. Treasury Notes, 5.00% thru 8.75% due 12-31-98 thru 04-30-03) - Note B................... 5.750% $41 $41,000 ---------- Corporate Savings Account (0.00%) Investors Bank & Trust Company Daily Interest Savings Account Current Rate 4.95%............................... 211 ---------- TOTAL SHORT-TERM INVESTMENTS (0.62%) 41,211 -------- ---------- TOTAL INVESTMENTS (98.91%) 6,511,340 -------- ---------- OTHER ASSETS AND LIABILITIES, NET (1.09%) 71,550 -------- ---------- TOTAL NET ASSETS (100.00%) $6,582,890 ======== ========== *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. 82 ==============================FINANCIAL STATEMENTS============================== John Hancock Funds - Declaration Trust -- V.A. Special Opportunities Fund Schedule of Investments June 30, 1998 (Unaudited) - -------------------------------------------------------------------------------- The Schedule of Investments is a complete list of all securities owned by the V.A. Special Opportunities Fund on June 30, 1998. 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 - ------------------- ------ ----- COMMON STOCKS Advertising (2.06%) Lamar Advertising Co.* ................................ 250 $8,969 Outdoor Systems, Inc.* ................................ 575 16,100 ---------- 25,069 ---------- Automobile / Trucks (1.78%) Avis Rent-A-Car, Inc.* ................................ 570 14,107 Tower Automotive, Inc.* ............................... 175 7,503 ---------- 21,610 ---------- Banks - United States (4.13%) First American Corp. .................................. 250 12,031 Northern Trust Corp. .................................. 175 13,344 Regions Financial Corp. ............................... 300 12,319 Republic New York Corp. ............................... 200 12,587 ---------- 50,281 ---------- Business Services - Misc (2.08%) Personnel Group of America, Inc. * .................... 600 12,000 Select Appointments Holdings PLC, (American Depositary Receipts), (ADR) (United Kingdom) ......... 450 13,275 ---------- 25,275 ---------- Computers (19.88%) Ascend Communications, Inc.* .......................... 225 11,151 Aspen Technologies, Inc.* ............................. 210 10,605 BEA Systems, Inc.* .................................... 665 15,253 Cambridge Technology Partners, Inc.* .................. 350 19,119 Citrix Systems, Inc.* ................................. 225 15,384 Compuware Corp.* ...................................... 275 14,059 EMC Corp.* ............................................ 525 23,526 Excite, Inc.* ......................................... 155 14,492 Gartner Group, Inc. (Class A)* ........................ 400 14,000 Keane, Inc.* .......................................... 350 19,600 Lexmark International Group, Inc. (Class A)* .......... 270 16,470 Network Associates, Inc. * ............................ 325 15,559 Quantum Corp. * ....................................... 150 3,112 Saville Systems Ireland PLC (ADR) (Ireland)* .......... 275 13,784 Sterling Commerce, Inc.* .............................. 250 12,125 Sungard Data Systems, Inc. ............................ 100 3,837 Unisys Corp.* ......................................... 700 19,775 ---------- 241,851 ---------- Containers (0.68%) EarthShell Corp.* ..................................... 50 487 Owens-Illinois, Inc.* ................................. 175 7,831 ---------- 8,318 ---------- Cosmetics & Personal Care (2.09%) Rexall Sundown, Inc.* ................................. 350 12,337 Twinlab Corp.* ........................................ 300 13,106 ---------- 25,443 ---------- Electronics (3.79%) Artesyn Technologies, Inc.* ........................... 600 9,600 Berg Electronics Corp.* ............................... 600 11,737 Jabil Circuit, Inc.* .................................. 350 11,572 Waters Corp.* ......................................... 225 13,261 ---------- 46,170 ---------- Finance (4.51%) Charter One Financial, Inc. ........................... 340 11,454 CIT Group, Inc. (The) (Class A) ....................... 350 13,125 Price (T. Rowe) Associates, Inc. ...................... 300 11,269 Sovereign Bancorp., Inc. .............................. 710 11,604 TCF Financial Corp. ................................... 250 7,375 ---------- 54,827 ---------- Food (2.08%) Aurora Foods, Inc. * .................................. 200 4,225 International Home Foods, Inc.* ....................... 400 9,100 Suiza Foods Corp.* .................................... 200 11,937 ---------- 25,262 ---------- Furniture (0.92%) Leggett & Platt, Inc. ................................. 450 11,250 ---------- Insurance (10.43%) Ace, Ltd. (Bermuda) ................................... 325 12,675 Allmerica Financial Corp. ............................. 225 14,625 CMAC Investment Corp. ................................. 225 13,838 Executive Risk, Inc. .................................. 200 14,750 Life Re Corp. ......................................... 200 16,400 Mid Ocean Ltd. (Bermuda) .............................. 200 15,700 Mutual Risk Management Ltd. ........................... 350 12,753 Reinsurance Group of America, Inc. * .................. 100 5,131 ReliaStar Financial Corp. ............................. 300 14,400 Selective Insurance Group, Inc. ....................... 200 4,481 Vesta Insurance Group, Inc. ........................... 100 2,131 ---------- 126,884 ---------- Leisure (0.52%) Hasbro, Inc. .......................................... 160 6,290 ---------- Media (4.03%) Central Newspapers, Inc. (Class A) .................... 200 13,950 Clear Channel Communications, Inc.* ................... 100 10,913 Sinclair Broadcast Group, Inc. (Class A)* ............. 450 12,938 Univision Communications, Inc. (Class A)* ............. 300 11,175 ---------- 48,976 ---------- Medical (11.26%) Dura Pharmaceuticals, Inc.* ........................... 250 5,594 Elan Corp., PLC (ADR) (Ireland)* ...................... 250 16,078 Forest Laboratories, Inc.* ............................ 500 17,875 Genesis Health Ventures, Inc.* ........................ 200 5,000 Genzyme Corp.* ........................................ 450 11,503 Health Care & Retirement Corp.* ....................... 60 2,366 Health Management Associates, Inc. (Class A)* ......... 475 15,883 HEALTHSOUTH Corp.* .................................... 475 12,677 Manor Care, Inc. ...................................... 150 5,766 Mylan Laboratories, Inc. .............................. 525 15,783 Omnicare, Inc. ........................................ 260 9,913 Quorum Health Group, Inc.* ............................ 375 9,938 Sofamor Danek Group, Inc.* ............................ 100 8,656 ---------- 137,032 ---------- SEE NOTES TO FINANCIAL STATEMENTS. 83 ==============================FINANCIAL STATEMENTS============================== John Hancock Funds - Declaration Trust -- V.A. Special Opportunities Fund NUMBER OF MARKET ISSUER, DESCRIPTION SHARES VALUE - ------------------- ------ ----- Office (1.08%) OfficeMax, Inc. * ..................................... 800 $13,200 ---------- Oil & Gas (3.02%) BJ Services Co.* ...................................... 200 5,813 Columbia Energy Group ................................. 225 12,516 Cooper Cameron Corp.* ................................. 125 6,375 El Paso Natural Gas Co. ............................... 150 5,738 Mitchell Energy & Development Corp.* .................. 200 4,000 Santa Fe International Corp. .......................... 75 2,269 ---------- 36,711 ---------- Pollution Control (1.12%) USA Waste Services, Inc.* ............................. 275 13,578 ---------- Real Estate Investment Trust (2.47%) FelCor Suite Hotels, Inc. ............................. 275 8,628 Spieker Properties, Inc. .............................. 150 5,813 Starwood Hotels & Resorts ............................. 200 9,663 Vornado Realty Trust .................................. 150 5,953 ---------- 30,057 ---------- Retail (6.96%) Costco Cos., Inc.* .................................... 75 4,730 CVS Corp. ............................................. 300 11,681 Furniture Brands International, Inc.* ................. 380 10,664 Meyer (Fred), Inc. * .................................. 325 13,813 Pier 1 Imports, Inc. .................................. 500 11,938 Rite Aid Corp. ........................................ 350 13,147 Ruddick Corp. ......................................... 250 4,531 Safeway, Inc.* ........................................ 350 14,241 ---------- 84,745 ---------- Service (1.32%) Interim Services, Inc. * .............................. 500 16,063 ---------- Telecommunications (7.44%) Advanced Fibre Communications* ........................ 220 8,814 American Tower Corp. (Class A)* ....................... 300 7,481 ICG Communications, Inc.* ............................. 400 14,625 Intermedia Communications, Inc.* ...................... 390 16,356 McLeodUSA, Inc. (Class A)* ............................ 375 14,578 NEXTLINK Communications, Inc. (Class A)* ............. 525 19,884 Tel-Save Holdings, Inc.* .............................. 600 8,850 ---------- 90,588 ---------- Utilities (2.10%) KN Energy Inc. ........................................ 225 12,192 MCN Energy Group, Inc. ................................ 300 7,463 Questar Corp. ......................................... 300 5,888 ---------- 25,543 ---------- TOTAL COMMON STOCKS (Cost $1,091,350) (95.75%) 1,165,023 ------- ---------- INTEREST PAR VALUE MARKET ISSUER, DESCRIPTION RATE (000s OMITTED) VALUE - ------------------- ---- -------------- ----- SHORT-TERM INVESTMENTS Joint Repurchase Agreement (4.44%) Investment in a joint repurchase agreement transaction with Toronto Dominion Securities USA, Inc. Dated 06-30-98, due 07-01-98 (Secured by U.S. Treasury Bond, 9.125% due 05-15-18, and U.S. Treasury Notes, 5.00% thru 8.75% due 12-31-98 thru 04-30-03) - Note B................................. 5.750% $54 $54,000 ---------- Corporate Savings Account (0.02%) Investors Bank & Trust Company Daily Interest Savings Account Current Rate 4.95%................................ 223 ---------- TOTAL SHORT-TERM INVESTMENTS (4.46%) 54,223 -------- ---------- TOTAL INVESTMENTS (100.21%) 1,219,246 -------- ---------- OTHER ASSETS AND LIABILITIES, NET (0.21%) (2,581) -------- ---------- TOTAL NET ASSETS (100.00%) $1,216,665 ======== ========== *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. 84 ==============================FINANCIAL STATEMENTS============================== John Hancock Funds - Declaration Trust -- V.A. Growth Fund Schedule of Investments June 30, 1998 (Unaudited) - -------------------------------------------------------------------------------- The Schedule of Investments is a complete list of all securities owned by the V. A. Growth Fund on June 30, 1998. 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 - ------------------- ------ ----- COMMON STOCKS Advertising (1.10%) Interpublic Group of Companies, Inc. (The) ............ 500 $30,344 Outdoor Systems, Inc.* ................................ 1,462 40,936 ---------- 71,280 ---------- Agricultural Operations (1.02%) Pioneer Hi-Bred International, Inc. ................... 1,600 66,200 ---------- Banks - United States (1.24%) Chase Manhattan Corp. ................................. 600 45,300 Mellon Bank Corp. ..................................... 500 34,813 ---------- 80,113 ---------- Beverages (3.23%) Coca-Cola Co. (The) ................................... 1,000 85,500 PepsiCo, Inc. ......................................... 3,000 123,562 ---------- 209,062 ---------- Building (0.75%) Masco Corp. ........................................... 800 48,400 ---------- Business Services - Misc (0.81%) Paychex, Inc. ......................................... 600 24,412 Robert Half International, Inc.* ...................... 500 27,938 ---------- 52,350 ---------- Computers (21.73%) Automatic Data Processing, Inc. ....................... 600 43,725 BMC Software, Inc.* ................................... 1,800 93,487 CBT Group PLC, American Depositary Receipts (ADR) (Ireland)* ..................................... 800 42,800 Cisco Systems, Inc.* .................................. 2,400 220,950 Computer Sciences Corp.* .............................. 1,200 76,800 Compuware Corp.* ...................................... 2,000 102,250 EMC Corp.* ............................................ 2,600 116,512 HBO & Co. ............................................. 2,400 84,600 International Business Machines Corp. ................. 1,200 137,775 Microsoft Corp.* ...................................... 1,900 205,913 Novell, Inc.* ......................................... 8,000 102,000 Unisys Corp.* ......................................... 6,300 177,975 Verio Inc.* ........................................... 100 2,488 ---------- 1,407,275 ---------- Cosmetics & Personal Care (1.93%) Gillette Co. .......................................... 2,200 124,712 ---------- Diversified Operations (2.19%) Du Pont (E.I.) de Nemours & Co. ....................... 1,900 141,787 ---------- Electronics (2.95%) General Electric Co. .................................. 2,100 191,100 ---------- Finance (3.17%) American Express Co. .................................. 1,800 205,200 ---------- Food (6.87%) Flowers Industries, Inc. .............................. 9,200 188,025 Quaker Oats Co. ....................................... 2,500 137,344 Suiza Foods Corp.* .................................... 2,000 119,375 ---------- 444,744 ---------- Furniture (0.46%) Leggett & Platt, Inc. ................................. 1,200 30,000 ---------- Insurance (3.30%) Progressive Corp. ..................................... 1,000 141,000 Travelers Group, Inc. ................................. 1,200 72,750 ---------- 213,750 ---------- Leisure (1.84%) Carnival Corp. (Class A) .............................. 1,600 63,400 Royal Caribbean Cruises Ltd. .......................... 700 55,650 ---------- 119,050 ---------- Media (4.80%) CBS Corp.* ............................................ 4,100 130,175 Clear Channel Communications, Inc.* ................... 500 54,562 Gannett Co., Inc. ..................................... 1,100 78,169 Tribune Co. ........................................... 700 48,169 ---------- 311,075 ---------- Medical (11.00%) Abbott Laboratories ................................... 2,300 94,012 Johnson & Johnson ..................................... 1,000 73,750 Medtronic, Inc. ....................................... 800 51,000 Merck & Co., Inc. ..................................... 1,200 160,500 Schering-Plough Corp. ................................. 2,200 201,575 SmithKline Beecham PLC (ADR) (United Kingdom) ......... 800 48,400 Warner-Lambert Co. .................................... 1,200 83,250 ---------- 712,487 ---------- Office (0.74%) Pitney Bowes, Inc. .................................... 1,000 48,125 ---------- Oil & Gas (2.47%) Enron Corp. ........................................... 1,400 75,687 Williams Cos., Inc. (The) ............................. 2,500 84,375 ---------- 160,062 ---------- Retail (19.77%) Costco Cos., Inc.* .................................... 1,300 81,981 Dayton Hudson Corp. ................................... 3,700 179,450 Dollar General Corp. .................................. 2,062 81,578 Home Depot, Inc. (The) ................................ 1,450 120,441 Meyer (Fred), Inc.* ................................... 1,600 68,000 Penney (J.C.) Co., Inc. ............................... 1,800 130,162 Rite Aid Corp. ........................................ 5,000 187,813 Sears, Roebuck & Co. .................................. 2,600 158,763 Starbucks Corp.* ...................................... 1,600 85,500 Wal-Mart Stores, Inc. ................................. 2,400 145,800 Walgreen Co. .......................................... 1,000 41,312 ---------- 1,280,800 ---------- SEE NOTES TO FINANCIAL STATEMENTS. 85 ==============================FINANCIAL STATEMENTS============================== John Hancock Funds - Declaration Trust -- V.A. Growth Fund NUMBER OF MARKET ISSUER, DESCRIPTION SHARES VALUE - ------------------- ------ ----- Soap & Cleaning Preparations (2.72%) Colgate-Palmolive Co. ................................. 2,000 $176,000 ---------- Telecommunications (2.76%) Nokia Corp. (ADR) (Finland) ........................... 1,000 72,563 WorldCom, Inc.* ....................................... 2,200 106,563 ---------- 179,126 ---------- TOTAL COMMON STOCKS (Cost $5,538,991) (96.85%) 6,272,698 ------- ---------- INTEREST PAR VALUE RATE (000s OMITTED) ---- -------------- SHORT-TERM INVESTMENTS Joint Repurchase Agreement (4.39%) Investment in a joint repurchase agreement transaction with Toronto Dominion Securities USA, Inc. - Dated 06-30-98, due 07-01-98 (Secured by U.S. Treasury Bond, 9.125% due 05-15-18, and U.S. Treasury Notes, 5.00% thru 8.75% due 12-31-98 thru 04-30-03) - Note B.................. 5.750% $284 284,000 ---------- Corporate Savings Account (0.00%) Investors Bank & Trust Company Daily Interest Savings Account Current Rate 4.95%................................ 103 ---------- TOTAL SHORT-TERM INVESTMENTS (4.39%) 284,103 -------- ---------- TOTAL INVESTMENTS (101.24%) 6,556,801 -------- ---------- OTHER ASSETS AND LIABILITIES, NET (1.24%) (80,234) -------- ---------- TOTAL NET ASSETS (100.00%) $6,476,567 ======== ========== * Non-income producing security. The percentage shown for each investment category is the total of that category as a percentage of the net assets of the Fund. SEE NOTES TO FINANCIAL STATEMENTS. 86 ==============================FINANCIAL STATEMENTS============================== John Hancock Funds - Declaration Trust -- V.A. Growth & Income Fund Schedule of Investments June 30, 1998 (Unaudited) - -------------------------------------------------------------------------------- The Schedule of Investments is a complete list of all securities owned by the V. A. Growth & Income Fund on June 30, 1998. 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 - ------------------- ------ ----- COMMON STOCKS Aerospace (0.35%) Northrop Grumman Corp. ................................ 148 $15,263 United Technologies Corp. ............................. 152 14,060 ---------- 29,323 ---------- Automobile / Trucks (0.07%) Lear Corp.* ........................................... 119 6,106 ---------- Banks - United States (3.40%) Citicorp .............................................. 102 15,223 PNC Bank Corp. ........................................ 5,000 269,062 ---------- 284,285 ---------- Beverages (0.31%) Anheuser-Busch Cos., Inc. ............................. 557 26,283 ---------- Building (2.00%) Hussmann International, Inc. .......................... 9,000 167,062 ---------- Business Services - Misc (0.89%) ACNielsen Corp. * ..................................... 1,091 27,548 Block, H & R, Inc. .................................... 434 18,282 Diebold, Inc. ......................................... 1,000 28,875 ---------- 74,705 ---------- Chemicals (3.56%) Solutia, Inc. ......................................... 10,375 297,633 ---------- Computers (6.11%) Bay Networks, Inc.* ................................... 292 9,417 Computer Associates International, Inc. ............... 1,509 83,844 Computer Sciences Corp.* .............................. 452 28,928 Electronic Data Systems Corp. ......................... 9,000 360,000 International Business Machines Corp. ................. 255 29,277 ---------- 511,466 ---------- Electronics (2.73%) SCI Systems, Inc.* .................................... 6,070 228,384 ---------- Energy (0.14%) CalEnergy Co., Inc.* .................................. 399 11,995 ---------- Finance (4.59%) Astoria Financial Corp. ............................... 373 19,955 Charter One Financial, Inc. ........................... 1,212 40,829 FIRSTPLUS Financial Group, Inc.* ...................... 116 4,176 Heller Financial, Inc.* ............................... 100 3,000 Morgan Stanley, Dean Witter, Discover & Co. ........... 286 26,133 Safeguard Scientifics, Inc.* .......................... 4,200 175,087 Sovereign Bancorp., Inc. .............................. 1,348 22,031 TCF Financial Corp. ................................... 3,150 92,925 ---------- 384,136 ---------- Food (0.07%) IBP, Inc. ............................................. 306 5,546 ---------- Insurance (16.66%) Ace, Ltd. (Bermuda) ................................... 5,094 198,666 Allstate Corp. (The) .................................. 282 25,821 Everest Reinsurance Holdings, Inc. .................... 4,000 153,750 Executive Risk, Inc. .................................. 3,000 221,250 Financial Security Assurance Holdings Ltd. ............ 260 15,275 Lincoln National Corp. ................................ 1,600 146,200 Mercury General Corp. ................................. 3,437 221,472 Mitsui Marine and Fire Insurance Co, Ltd. (Japan) ..... 18,000 90,398 PMI Group, Inc. (The) ................................. 1,200 88,050 Progressive Corp. ..................................... 405 57,105 Reinsurance Group of America, Inc. .................... 2,500 147,812 Travelers Group, Inc. ................................. 466 28,251 ---------- 1,394,050 ---------- Leisure (2.83%) Galileo International, Inc. ........................... 5,185 233,649 Hilton Hotels Corp. ................................... 100 2,850 ---------- 236,499 ---------- Media (12.80%) Cable Michigan, Inc. * ................................ 784 30,576 Central Newspapers, Inc. (Class A) .................... 2,300 160,425 Harcourt General, Inc. ................................ 2,349 139,765 Scripps (E.W.) Co. (The) (Class A) .................... 6,000 328,875 Viacom, Inc. (Class B)* ............................... 148 8,621 Washington Post Co. (The) (Class B) ................... 700 403,200 ---------- 1,071,462 ---------- Medical (2.88%) American Home Products Corp. .......................... 522 27,013 Becton, Dickinson & Co. ............................... 172 13,351 Johnson & Johnson ..................................... 186 13,718 Lilly (Eli) & Co. ..................................... 318 21,008 Pharmacia & Upjohn, Inc. .............................. 325 14,991 Shire Pharmaceuticals Group PLC (United Kingdom)* ..... 4,000 28,164 Warner-Lambert Co. .................................... 678 47,036 Wellpoint Health Networks, Inc.* ...................... 1,020 75,480 ---------- 240,761 ---------- Mortgage Banking (0.30%) Fannie Mae ............................................ 201 12,211 Federal Home Loan Mortgage Corp. ...................... 267 12,566 ---------- 24,777 ---------- Oil & Gas (11.17%) British Petroleum Co. PLC, American Depositary Receipts (ADR) (United Kingdom) ...................... 242 21,357 Camco International, Inc. ............................. 5,000 389,375 El Paso Natural Gas Co. ............................... 240 9,180 Mobil Corp. ........................................... 272 20,842 Phillips Petroleum Co. ................................ 174 8,385 Triton Energy Ltd.* ................................... 13,300 474,644 YPF Sociedad Anonima (ADR) (Argentina) ................ 352 10,582 ---------- 934,365 ---------- Retail (3.03%) McDonald's Corp. ...................................... 493 34,017 Penney (J.C.) Co., Inc. ............................... 191 13,812 Sysco Corp. ........................................... 544 13,940 Tiffany & Co. ......................................... 3,500 168,000 Wal-Mart Stores, Inc. ................................. 389 23,632 ---------- 253,401 ---------- SEE NOTES TO FINANCIAL STATEMENTS. 87 ==============================FINANCIAL STATEMENTS============================== John Hancock Funds - Declaration Trust -- V.A. Growth & Income Fund NUMBER OF MARKET ISSUER, DESCRIPTION SHARES VALUE - ------------------- ------ ----- Telecommunications (1.34%) Commonwealth Telephone Enterprises, Inc.* ............. 1,500 $39,562 Lucent Technologies, Inc. ............................. 382 31,778 MCI Communications Corp. .............................. 406 23,599 Southern New England Telecommunications Corp. ......... 125 8,188 360(degree) Communications Co.* ....................... 275 8,800 ---------- 111,927 ---------- Tobacco (0.24%) Philip Morris Cos., Inc. .............................. 520 20,475 ---------- Transport (7.91%) Burlington Northern Santa Fe Corp. .................... 133 13,059 GATX Corp. ............................................ 4,336 190,242 KLM Royal Dutch Airlines N.V. (Netherlands) ........... 10,900 446,219 Northwest Airlines Corp. (Class A)* ................... 328 12,649 ---------- 662,169 ---------- Utilities (5.07%) CMS Energy Corp. ...................................... 370 16,280 Duke Energy Corp. ..................................... 283 16,768 MarketSpan Corp.* ..................................... 463 13,861 New England Electric System ........................... 91 3,936 Niagara Mohawk Power Corp.* ........................... 25,000 373,437 ---------- 424,282 ---------- TOTAL COMMON STOCKS (Cost $7,051,373) (88.45%) 7,401,092 ------- --------- INTEREST PAR VALUE MARKET ISSUER, DESCRIPTION RATE (000s OMITTED) VALUE - ------------------- ---- -------------- ----- SHORT-TERM INVESTMENTS Joint Repurchase Agreement (0.66%) Investment in a joint repurchase agreement transaction with Toronto Dominion Securities USA, Inc. Dated 06-30-98, due 07-01-98 (Secured by U.S. Treasury Bond, 9.125% due 05-15-18, and U.S. Treasury Notes, 5.00% thru 8.75% due 12-31-98 thru 04-30-03) - Note B.......... 5.750% $55 $55,000 ---------- Short-Term Note (26.29%) Federal Home Loan Bank due 07-01-98............................. 5.400 2,200 2,199,670 ---------- Corporate Savings Account (0.00%) Investors Bank & Trust Company Daily Interest Savings Account Current Rate 4.95%................................ 283 ---------- TOTAL SHORT-TERM INVESTMENTS (26.95%) 2,254,953 -------- ---------- TOTAL INVESTMENTS (115.40%) 9,656,045 -------- ---------- OTHER ASSETS AND LIABILITIES, NET (15.40%) (1,288,807) -------- ---------- TOTAL NET ASSETS (100.00%) $8,367,238 ======== ========== * Non-income producing security. The percentage shown for each investment category is the total of that category as a percentage of the net assets of the Fund. SEE NOTES TO FINANCIAL STATEMENTS. 88 ==============================FINANCIAL STATEMENTS============================== John Hancock Funds - Declaration Trust -- V.A. Independence Equity Fund Schedule of Investments June 30, 1998 (Unaudited) - -------------------------------------------------------------------------------- The Schedule of Investments is a complete list of all securities owned by the V. A. Independence Equity Fund on June 30, 1998. 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 - ------------------- ------ ----- COMMON STOCKS Advertising (0.22%) Omnicom Group, Inc. ................................... 700 $34,913 ---------- Aerospace (3.57%) Goodrich (B.F.) Co. ................................... 2,100 104,213 Northrop Grumman Corp. ................................ 200 20,625 Sundstrand Corp. ...................................... 1,300 74,425 United Technologies Corp. ............................. 4,100 379,250 ---------- 578,513 ---------- Automobile / Trucks (2.81%) Chrysler Corp. ........................................ 900 50,737 Dana Corp. ............................................ 800 42,800 Ford Motor Co. ........................................ 4,300 253,700 Lear Corp.* ........................................... 1,300 66,706 Ryder System, Inc. .................................... 1,300 41,031 ---------- 454,974 ---------- Banks - United States (7.98%) BankAmerica Corp. ..................................... 1,900 164,231 Chase Manhattan Corp. ................................. 600 45,300 Citicorp .............................................. 900 134,325 Comerica, Inc. ........................................ 3,400 225,250 First Union Corp. ..................................... 4,900 285,425 NationsBank Corp. ..................................... 3,000 229,500 Norwest Corp. ......................................... 5,600 209,300 ---------- 1,293,331 ---------- Beverages (1.96%) PepsiCo, Inc. ......................................... 7,700 317,144 ---------- Building (0.49%) Masco Corp. ........................................... 1,300 78,650 ---------- Chemicals (1.84%) Air Products & Chemicals, Inc. ........................ 6,200 248,000 Millennium Chemicals, Inc. ............................ 1,500 50,813 ---------- 298,813 ---------- Computers (7.11%) Autodesk, Inc. ........................................ 1,800 69,525 Cadence Design Systems, Inc.* ......................... 1,000 31,250 Cisco Systems, Inc.* .................................. 2,100 193,331 Computer Associates International, Inc. ............... 1,700 94,456 Hewlett-Packard Co. ................................... 1,500 89,813 International Business Machines Corp. ................. 600 68,888 Microsoft Corp.* ...................................... 4,000 433,500 Oracle Corp.* ......................................... 1,650 40,528 Parametric Technology Corp.* .......................... 2,100 56,963 Sun Microsystems, Inc.* ............................... 1,700 73,844 ---------- 1,152,098 ---------- Cosmetics & Personal Care (1.34%) Avon Products, Inc. ................................... 1,500 116,250 Dial Corp. (The) ...................................... 3,100 80,406 Revlon, Inc. (Class A)* ............................... 400 20,550 ---------- 217,206 ---------- Diversified Operations (2.53%) National Service Industries, Inc. ..................... 700 35,613 Ogden Corp. ........................................... 2,600 71,988 Textron, Inc. ......................................... 800 57,350 Tyco International Ltd. ............................... 3,900 245,700 ---------- 410,651 ---------- Electronics (5.42%) General Electric Co. .................................. 4,700 427,700 Honeywell, Inc. ....................................... 400 33,425 Intel Corp. ........................................... 3,700 274,263 Linear Technology Corp. ............................... 900 54,281 Maxim Intergrated Products, Inc.* ..................... 1,500 47,531 Parker Hannifin Corp. ................................. 1,100 41,938 ---------- 879,138 ---------- Finance (2.00%) American Express Co. .................................. 300 34,200 Associates First Capital Corp. (Class A) .............. 1,400 107,625 Morgan Stanley, Dean Witter, Discover & Co. ........... 2,000 182,750 ---------- 324,575 ---------- Food (1.68%) Flowers Industries, Inc. .............................. 1,900 38,831 General Mills, Inc. ................................... 900 61,537 Heinz (H.J.) Co. ...................................... 1,900 106,638 Quaker Oats Co. ....................................... 1,200 65,925 ---------- 272,931 ---------- Household (0.23%) Tupperware Corp. ...................................... 1,300 36,562 ---------- Instruments - Scientific (0.27%) Perkin-Elmer Corp. .................................... 700 43,531 ---------- Insurance (9.38%) Allstate Corp. (The) .................................. 2,300 210,594 American International Group, Inc. .................... 1,750 255,500 CIGNA Corp. ........................................... 600 41,400 Equitable Companies., Inc. (The) ...................... 600 44,962 General Re Corp. ...................................... 300 76,050 Hartford Financial Services Group, Inc. (The) ......... 2,500 285,938 Marsh & McLennan Companies., Inc. ..................... 2,700 163,181 Travelers Group, Inc. ................................. 5,900 357,687 Travelers Property Casualty Corp. (Class A) ........... 2,000 85,750 ---------- 1,521,062 ---------- Machinery (0.57%) Cooper Industries, Inc. ............................... 1,000 54,937 Deere & Co. ........................................... 700 37,012 ---------- 91,949 ---------- Media (0.76%) Viacom, Inc. (Class B)* ............................... 2,100 122,325 ---------- Medical (11.38%) Abbott Laboratories ................................... 3,600 147,150 Becton Dickinson & Co. ................................ 1,400 108,675 Bristol-Myers Squibb Co. .............................. 2,200 252,862 Cardinal Health, Inc. ................................. 2,300 215,625 Glaxo Wellcome PLC, (American Depositary Receipts), (ADR) (United Kingdom) .................... 500 29,906 Guidant Corp. ......................................... 1,600 114,100 SEE NOTES TO FINANCIAL STATEMENTS. 89 ==============================FINANCIAL STATEMENTS============================== John Hancock Funds - Declaration Trust -- V.A. Independence Equity Fund NUMBER OF MARKET ISSUER, DESCRIPTION SHARES VALUE - ------------------- ------ ----- Medical (continued) Health Management Associates, Inc. (Class A)* ......... 1,400 $46,813 HEALTHSOUTH Corp.* .................................... 4,100 109,419 Johnson & Johnson ..................................... 1,000 73,750 Merck & Co., Inc. ..................................... 1,200 160,500 Mylan Laboratories, Inc. .............................. 1,400 42,088 Pfizer, Inc. .......................................... 2,000 217,375 Schering-Plough Corp. ................................. 1,300 119,112 Tenet Healthcare Corp.* ............................... 1,200 37,500 Universal Health Services, Inc. (Class B)* ............ 600 35,025 Warner-Lambert Co. .................................... 1,200 83,250 Wellpoint Health Networks, Inc.* ...................... 700 51,800 ---------- 1,844,950 ---------- Mortgage Banking (1.57%) Fannie Mae ............................................ 4,200 255,150 ---------- Office (3.17%) Avery Dennison Corp. .................................. 500 26,875 Pitney Bowes, Inc. .................................... 5,900 283,938 Xerox Corp. ........................................... 2,000 203,250 ---------- 514,063 ---------- Oil & Gas (5.15%) Baker Hughes, Inc. .................................... 1,400 48,387 British Petroleum Co. PLC (ADR) (United Kingdom) ...... 1,500 132,375 Dresser Industries, Inc. .............................. 3,400 149,812 El Paso Natural Gas Co. ............................... 2,000 76,500 Halliburton Co. ....................................... 2,100 93,581 Mobil Corp. ........................................... 800 61,300 Phillips Petroleum Co. ................................ 2,100 101,194 Schlumberger, Ltd. .................................... 800 54,650 Sun Co., Inc. ......................................... 1,600 62,100 USX - Marathon Group .................................. 1,600 54,900 ---------- 834,799 ---------- Paper & Paper Products (0.41%) Fort James Corp. ...................................... 1,500 66,750 ---------- Pollution Control (1.08%) Browning-Ferris Industries, Inc. ...................... 1,200 41,700 USA Waste Services, Inc.* ............................. 2,700 133,312 ---------- 175,012 ---------- Retail (4.80%) Albertson's, Inc. ..................................... 3,100 160,619 Costco Cos., Inc.* .................................... 500 31,531 Dayton Hudson Corp. ................................... 1,200 58,200 Home Depot, Inc. (The) ................................ 4,100 340,556 Lowe's Companies., Inc. ............................... 2,400 97,350 Staples, Inc.* ........................................ 1,100 31,831 TJX Companies., Inc. .................................. 2,400 57,900 ---------- 777,987 ---------- Rubber - Tires & Misc. (1.19%) Goodyear Tire & Rubber Co. (The) ...................... 3,000 193,313 ---------- Soap & Cleaning Preparations (3.48%) Procter & Gamble Co. (The) ............................ 6,200 564,588 ---------- Telecommunications (4.61%) AT&T Corp. ............................................ 3,500 199,937 Bell Atlantic Corp. ................................... 4,000 182,500 Harris Corp. .......................................... 1,000 44,688 Lucent Technologies, Inc. ............................. 3,300 274,519 Northern Telecom Ltd. (Canada) ........................ 800 45,400 ---------- 747,044 ---------- Textile (0.92%) Jones Apparel Group, Inc.* ............................ 1,400 51,188 Liz Claiborne, Inc. ................................... 900 47,025 Tommy Hilfiger Corp.* ................................. 800 50,000 ---------- 148,213 ---------- Tobacco (0.68%) Philip Morris Companies., Inc. ........................ 2,800 110,250 ---------- Transport (2.77%) Burlington Northern Santa Fe Corp. .................... 1,800 176,737 Delta Air Lines, Inc. ................................. 500 64,625 Northwest Airlines Corp. (Class A)* ................... 1,000 38,563 Southwest Airlines Co. ................................ 2,300 68,137 UAL Corp.* ............................................ 1,300 101,400 ---------- 449,462 ---------- Utilities (5.27%) Baltimore Gas & Electric Co. .......................... 700 21,744 Carolina Power & Light Co. ............................ 700 30,362 Consolidated Natural Gas Co. .......................... 400 23,550 Dominion Resources, Inc. .............................. 2,000 81,500 Florida Progress Corp. ................................ 2,600 106,925 FPL Group, Inc. ....................................... 1,800 113,400 GTE Corp. ............................................. 4,900 272,562 New Century Energies, Inc. ............................ 2,100 95,419 SBC Communications, Inc. .............................. 2,700 108,000 ---------- 853,462 ---------- TOTAL COMMON STOCKS (Cost $13,498,567) (96.64%) 15,663,409 ------- ---------- INTEREST PAR VALUE RATE (000s OMITTED) ---- -------------- SHORT-TERM INVESTMENTS Joint Repurchase Agreement (4.17%) Investment in a joint repurchase agreement transaction with Toronto Dominion Securities USA, Inc. - Dated 06-30-98, due 07-01-98 (Secured by U.S. Treasury Bond, 9.125% due 05-15-18, and U.S. Treasury Notes, 5.00% thru 8.75% due 12-31-98 thru 04-30-03) - Note B.................. 5.750% $676 676,000 ----------- Corporate Savings Account (0.00%) Investors Bank & Trust Company Daily Interest Savings Account Current Rate 4.95%....................... 181 ----------- TOTAL SHORT-TERM INVESTMENTS (4.17%) 676,181 -------- ----------- TOTAL INVESTMENTS (100.81%) 16,339,590 -------- ----------- OTHER ASSETS AND LIABILITIES, NET (0.81%) (131,160) -------- ----------- TOTAL NET ASSETS (100.00%) $16,208,430 ======== =========== * 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. 90 ==============================FINANCIAL STATEMENTS============================== John Hancock Funds - Declaration Trust -- V.A. Sovereign Investors Fund Schedule of Investments June 30, 1998 (Unaudited) Per share earnings and dividends and their compound growth rates are shown for the most recently reported ten year periods on common stocks. - -------------------------------------------------------------------------------- The Schedule of Investments is a complete list of all securities owned by the V. A. Sovereign Investors Fund on June 30, 1998. 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.
COMPOUND NUMBER GROWTH MARKET OF SHARES RATE VALUE - --------- ---- ----- COMMON STOCKS (83.47%) Advertising (0.89%) 3,400 Interpublic Group, Inc. @ 60 11/16................................................ $206,338 ---------- One of the largest advertising agencies in the world Earnings P/S...............$ .70, .79, .78, .88, .93, 1.13, 1.26, 1.12, 1.79, 2.00 12.4% Dividends P/S...................$ .17, .21, .25, .27, .30, .33, .36, .40, .44, .50 12.7% Price/Earnings Ratio..........................................................30.4 Banks (8.05%) 5,860 Banc One Corp. @ 55 13/16......................................................... 327,061 Ohio-based bank holding company Earnings P/S..........$ 1.29, 1.37, 1.51, 1.75, 1.96, 2.09, 1.80, 2.20, 2.52, 1.99 4.9% Dividends P/S...............$ .46, .52, .57, .63, .73, .89, 1.02, 1.12, 1.24, 1.38 13.0% Price/Earnings Ratio..........................................................16.3 2,000 BankAmerica Corp. @ 86 7/16....................................................... 172,875 Third largest bank holding company in the U.S. Earnings P/S...........$ .76, 1.03, 2.08, 2.39, 2.12, 2.44, 2.78, 3.42, 3.86, 4.60 22.1% Dividends P/S................$ .30, .50, .60, .65, .70, .80, .92, 1.08, 1.22, 1.38 18.5% Price/Earnings Ratio..........................................................20.8 1,300 BB&T Corp. @ 67 5/8............................................................... 87,912 Operates the second largest banking network in North Carolina Earnings P/S...........$ 1.13, 1.19, 1.06, 1.51, 2.03, .13, 1.61, 2.45, 2.55, 2.87 10.9% Dividends P/S.................$ .36, .38, .42, .46, .50, .64, .74, .86, 1.00, 1.16 13.9% Price/Earnings Ratio..........................................................24.3 9,000 First Tennessee National Corp. @ 31 9/16.......................................... 284,062 Tennessee-based bank holding company Earnings P/S................$ .31, .50, .61, .75, .81, .88, 1.04, 1.24, 1.36, 1.60 20.0% Dividends P/S...................$ .21, .24, .27, .29, .32, .38, .43, .49, .55, .62 12.8% Price/Earnings Ratio..........................................................20.4 3,200 First Union Corp. @ 58 1/4........................................................ 186,400 North Carolina-based bank holding company Earnings P/S..........$ 1.38, 1.20, 1.26, 1.28, 1.86, 2.09, 2.25, 2.38, 2.59, 2.99 9.0% Dividends P/S.................$ .43, .50, .54, .56, .64, .75, .86, .98, 1.10, 1.22 12.3% Price/Earnings Ratio..........................................................38.0 5,000 KeyCorp. @ 35 5/8................................................................. 178,125 Bank holding company with offices from coast to coast Earnings P/S..........$ 1.05, 1.16, 1.18, 1.23, 1.20, 1.43, 1.70, 1.71, 1.67, 2.07 7.8% Dividends P/S...................$ .34, .40, .44, .46, .49, .56, .64, .72, .76, .84 10.6% Price/Earnings Ratio..........................................................16.1 6,500 NationsBank Corp. @ 76 1/2........................................................ 497,250 Largest superregional bank in the Southeast Earnings P/S............$ 2.22, 1.31, .38, .70, 2.21, 2.71, 3.10, 3.63, 4.05, 3.83 6.2% Dividends P/S................$ .47, .55, .71, .74, .76, .82, .94, 1.04, 1.20, 1.37 12.6% Price/Earnings Ratio..........................................................22.2 3,500 Norwest Corp. @ 37 3/8............................................................ 130,813 The 12th largest bank holding company in the U.S. Earnings P/S...............$ .63, .22, .23, .74, .77, 1.00, 1.26, 1.43, 1.60, 1.83 12.6% Dividends P/S...................$ .16, .19, .21, .24, .27, .32, .38, .45, .53, .62 16.2% Price/Earnings Ratio..........................................................20.9 ---------- 1,864,498 ---------- Beverages (0.80%) 4,500 PepsiCo, Inc. @ 41 3/16........................................................... 185,344 ---------- Second largest soft drink company Earnings P/S................$ .57, .69, .70, .69, .82, 1.00, 1.14, 1.05, .72, 1.02 6.7% Dividends P/S...................$ .12, .15, .18, .21, .23, .28, .32, .36, .41, .47 16.4% Price/Earnings Ratio..........................................................41.5 Building (2.72%) 10,400 Masco Corp. @ 60 1/2.............................................................. 629,200 ---------- Manufactures buildings, home improvement and consumer products Earnings P/S.......$ 2.03, 1.42, .91, .57, .46, 1.30, 1.48, 1.14, 1.20, 2.01, 2.53 2.5% Dividends P/S...................$ .44, .50, .54, .57, .61, .65, .69, .73, .77, .81 7.0% Price/Earnings Ratio..........................................................25.0 Chemicals (5.61%) 14,000 Air Products & Chemicals, Inc. @ 40............................................... 560,000 Producer of industrial gases Earnings P/S...........$ 1.01, 1.04, 1.11, 1.16, 1.25, .63, 1.42, 1.87, 1.80, 2.31 9.6% Dividends P/S...................$ .28, .32, .35, .38, .42, .45, .48, .51, .54, .58 8.4% Price/Earnings Ratio..........................................................16.9 27,000 RPM, Inc. @ 17.................................................................... 459,000 Manufacturer of specialty chemicals and coatings to waterproof and rustproof structures Earnings P/S....................$ .37, .34, .32, .40, .35, .58, .65, .71, .66, .84 9.5% Dividends P/S...................$ .20, .22, .24, .27, .29, .31, .34, .36, .39, .42 8.6% Price/Earnings Ratio..........................................................19.2 8,000 Sigma - Aldrich Corp. @ 35 1/8.................................................... 281,000 Manufacturer of biochemical and organic products used for research and diagnostics Earnings P/S...............$ .65, .72, .59, .84, .99, 1.11, 1.14, 1.36, 1.52, 1.69 12.8% Dividends P/S...................$ .08, .09, .10, .11, .13, .15, .17, .19, .23, .26 14.0% Price/Earnings Ratio..........................................................20.5 ---------- 1,300,000 ---------- Computers (3.07%) 4,000 Automatic Data Processing, Inc. @ 72 7/8.......................................... 291,500 Largest independent computing services firm in the U.S. Earnings P/S..............$ .63, .72, .79, .90, 1.01, 1.15, 1.34, 1.53, 1.74, 1.94 13.3% Dividends P/S...................$ .13, .15, .17, .20, .23, .26, .29, .35, .42, .48 15.6% Price/Earnings Ratio..........................................................38.1 7,000 Hewlett-Packard Co. @ 59 7/8...................................................... 419,125 Manufactures and services electronic measurement, analysis and computation instruments Earnings P/S...............$ .88, .77, .83, .93, .86, 1.31, 1.92, 2.63, 2.69, 2.88 14.1% Dividends P/S...................$ .07, .10, .11, .13, .20, .24, .29, .38, .46, .54 25.5% Price/Earnings Ratio..........................................................20.7 ---------- 710,625 ---------- Containers (3.90%) 10,700 Bemis Company, Inc. @ 40 7/8...................................................... 437,362 Producer of a broad range of flexible packaging and equipment and pressure sensitive materials Earnings P/S..............$ .90, .99, .97, 1.08, 1.10, .94, 1.45, 1.73, 1.86, 2.05 9.6% Dividends P/S...................$ .22, .30, .36, .42, .46, .50, .54, .64, .72, .80 15.4% Price/Earnings Ratio..........................................................19.4 15,400 Sonoco Products Corp. @ 30 1/4.................................................... 465,850 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...................$ .28, .35, .39, .40, .43, .46, .48, .54, .59, .64 9.6% Price/Earnings Ratio..........................................................16.5 ---------- 903,212 ---------- Diversified Operations (2.05%) 3,300 DuPont (E.I.) De Nemours & Co. @ 74 5/8........................................... 246,263 Nation's largest chemical manufacturer Earnings P/S.............$ 1.77, 1.70, 1.69, .92, .76, .52, 2.23, 2.90, 3.35, 2.02 1.5% Dividends P/S................$ .62, .73, .81, .84, .87, .88, .91, 1.02, 1.12, 1.23 7.9% Price/Earnings Ratio..........................................................33.7
SEE NOTES TO FINANCIAL STATEMENTS. 91 ==============================FINANCIAL STATEMENTS============================== John Hancock Funds - Declaration Trust -- V.A. Sovereign Investors Fund
COMPOUND NUMBER GROWTH MARKET OF SHARES RATE VALUE - --------- ---- ----- Diversified Operations (continued) 4,000 Johnson Controls, Inc. @ 57 3/16.................................................. $228,750 Manufactures automotive systems and building controls Earnings P/S..........$ 1.28, 1.07, 1.04, 1.22, 1.50, 1.72, 2.03, 2.35, 2.21, 3.25 10.9% Dividends P/S...................$ .56, .59, .61, .63, .65, .69, .74, .79, .83, .88 5.2% Price/Earnings Ratio..........................................................17.3 ---------- 475,013 ---------- Electronics (6.54%) 8,700 Emerson Electric Co. @ 60 3/8..................................................... 525,262 Produces and sells electrical/electronic products and systems Earnings P/S..........$ 1.32, 1.38, 1.40, 1.44, 1.53, 1.91, 1.95, 2.15, 2.39, 2.66 8.1% Dividends P/S.................$ .52, .58, .64, .67, .70, .74, .80, .92, 1.01, 1.11 8.8% Price/Earnings Ratio..........................................................23.4 600 General Electric Co. @ 91......................................................... 54,600 Dominant force in home appliances, electrical power and financial services Earnings P/S..........$ 1.09, 1.21, 1.26, 1.28, 1.12, 1.57, 1.84, 2.08, 2.34, 2.67 10.5% Dividends P/S..................$ .35, .41, .47, .51, .56, .63, .72, .82, .92, 1.04 12.9% Price/Earnings Ratio..........................................................35.1 11,200 Grainger (W.W.), Inc. @ 49 13/16.................................................. 557,900 Leading distributor of electrical equipment Earnings P/S..........$ 1.10, 1.15, 1.16, 1.19, 1.35, 1.52, 1.31, 1.85, 2.07, 2.37 8.9% Dividends P/S...................$ .22, .25, .28, .31, .33, .35, .39, .45, .49, .53 10.3% Price/Earnings Ratio..........................................................21.6 4,500 Honeywell, Inc. @ 83 9/16......................................................... 376,031 Makes automation and control systems Earnings P/S..........$ 3.12, 2.45, 2.39, 2.66, 2.52, 2.34, 2.22, 2.70, 3.27, 3.87 2.4% Dividends P/S................$ .51, .55, .69, .77, .84, .91, .97, 1.01, 1.06, 1.09 8.8% Price/Earnings Ratio..........................................................22.9 ---------- 1,513,793 ---------- Food (1.74%) 9,300 Archer Daniels Midland Co. @ 19 3/8............................................... 180,188 Processes and merchandises agricultural products Earnings P/S..................$ .65, .74, .70, .75, .83, .77, 1.19, 1.33, .69, .83 2.8% Dividends P/S.........$ .028, .033, .046, .048, .050, .053, .063, .110, .184, .193 23.9% Price/Earnings Ratio..........................................................21.9 4,000 Sara Lee Corp. @ 55 15/16......................................................... 223,750 Manufactures brand name packaged foods and consumer products Earnings P/S...........$ .88, .31, 1.03, 1.49, 1.36, 1.47, .52, 1.76, 1.99, (1.20) NMF Dividends P/S....................$ .32, .38, .43, .48, .52, .60, .65, .70 .78, .86 11.6% Price/Earnings Ratio..........................................................N.A. ---------- 403,938 ---------- Furniture (1.73%) 16,000 Leggett & Platt, Inc. @ 25........................................................ 400,000 ---------- Produces intermediate products for the home furnishings industry Earnings P/S...................$ .33, .21, .17, .32, .44, .56, .73, .81, .90, 1.13 14.7% Dividends P/S.................$ .08, .095, .105, .11, .12, .14, .16, .19, .23, .27 14.5% Price/Earnings Ratio..........................................................24.3 Insurance (9.73%) 7,400 AFLAC Corp. @ 30 5/16............................................................. 224,312 Global specialty insurer Earnings P/S................$ .27, .39, .41, .52, .63, .82, 1.00, 1.20, 1.44, 2.42 27.6% Dividends P/S...................$ .07, .08, .09, .10, .12, .13, .15, .17, .20, .23 14.1% Price/Earnings Ratio..........................................................15.4 300 American International Group @ 146................................................ 43,800 Broadly based property-casualty insurance organization Earnings P/S..........$ 1.97, 2.05, 2.06, 2.20, 2.36, 2.73, 3.15, 3.67, 4.27, 4.91 10.7% Dividends P/S...................$ .08, .10, .12, .14, .16, .17, .19, .22, .25, .28 14.9% Price/Earnings Ratio..........................................................30.4 5,000 Chubb Corp. @ 80 3/8.............................................................. 401,875 Property and casualty insurance Earnings P/S..........$ 2.46, 3.04, 3.15, 3.22, 3.49, 1.55, 3.39, 3.91, 3.09, 4.51 7.0% 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. @ 253 1/2........................................................ 88,725 Broadly based re-insurance organization Earnings P/S.......$ 6.52, 6.89, 6.96, 7.44, 7.07, 7.38, 9.02, 10.59, 11.08, 12.56 7.6% 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..........................................................20.4 10,000 Reliastar Financial Corp. @ 48.................................................... 480,000 Financial services company engaged in life/health insurance and consumer finance Earnings P/S.............$ 1.00, .98, .98, .83, 1.13, 1.42, 1.74, 2.32, 2.55, 2.66 11.5% Dividends P/S...................$ .29, .30, .32, .35, .37, .39, .44, .49, .55, .61 8.6% Price/Earnings Ratio..........................................................18.9 5,750 Travelers Group, Inc. @ 60 5/8.................................................... 348,594 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..........................................................23.6 12,000 UNUM Corp. @ 55 1/2............................................................... 666,000 Holding company for UNUM Life Insurance Company of America Earnings P/S............$ .98, 1.15, 1.40, 1.65, 1.87, 2.01, .96, 1.99, 1.94, 2.52 11.1% Dividends P/S...................$ .12, .14, .19, .25, .31, .38, .46, .52, .55, .57 18.9% Price/Earnings Ratio..........................................................23.4 ---------- 2,253,306 ---------- Leisure (1.19%) 7,000 Hasbro, Inc. @ 39 5/16............................................................ 275,188 ---------- Designs, manufactures and markets toys, games and interactive software Earnings P/S...............$ .55, .68, .70, .63, 1.36, 1.48, 1.32, 1.21, 1.56, .91 5.8% Dividends P/S...................$ .05, .07, .08, .10, .13, .15, .18, .21, .25, .31 22.5% Price/Earnings Ratio..........................................................43.9 Machinery (3.92%) 10,000 Dover Corp. @ 34 1/4.............................................................. 342,500 Manufactures a variety of specialized industrial products Earnings P/S.................$ .57, .64, .61, .54, .58, .73, .97, 1.30, 1.73, 1.87 14.1% Dividends P/S...................$ .16, .18, .19, .21, .22, .23, .25, .28, .32, .36 9.4% Price/Earnings Ratio..........................................................18.0 13,300 Pentair, Inc. @ 42 1/2............................................................ 565,250 Manufactures enclosures for electrical, electronic, woodworking and power tool equipment Earnings P/S.............$ .99, .84, .89, 1.11, 1.11, 1.14, 1.32, 1.55, 1.93, 2.39 10.3% Dividends P/S...................$ .22, .27, .29, .31, .33, .34, .36, .40, .50, .54 10.5% Price/Earnings Ratio..........................................................17.4 ---------- 907,750 ---------- Media (0.54%) 400 Gannett Co., Inc. @ 71 1/16....................................................... 28,425 Publishes 81 daily/50 nondaily newspapers, operates 10 TV, 8 FM and 7 AM stations Earnings P/S..........$ 1.24, 1.18, 1.11, 1.03, 1.24, 1.41, 1.67, 1.64, 2.37, 3.25 11.3% Dividends P/S...................$ .51, .56, .61, .62, .63, .65, .67, .69, .71, .74 4.2% Price/Earnings Ratio..........................................................22.2 1,200 McGraw-Hill Companies, Inc. @ 81 9/16............................................. 97,875 Provides informational products and services for business and industry Earnings P/S............$ .41, 1.77, 1.73, 1.51, 1.60, .11, 2.04, 2.31, 4.98, 2.99 24.7% 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..........................................................27.8 ---------- 126,300 ---------- Medical (8.77%) 6,000 Abbott Laboratories @ 40 7/8...................................................... 245,250 Major pharmaceutical and healthcare firm Earnings P/S................$ .48, .56, .59, .69, .79, .89, 1.01, 1.14, 1.29, 1.44 13.0% Dividends P/S...................$ .15, .17, .20, .24, .29, .33, .37, .41, .47, .53 15.1% Price/Earnings Ratio..........................................................30.5 4,000 American Home Products @ 51 3/4................................................... 207,000 Manufactures pharmaceuticals and medical devices Earnings P/S.............$ .89, 1.51, 1.53, .92, 1.13, 1.20, 1.74, .92, 1.55, 1.88 8.7% Dividends P/S...................$ .45, .49, .54, .60, .67, .72, .74, .76, .79, .83 7.0% Price/Earnings Ratio..........................................................26.3
SEE NOTES TO FINANCIAL STATEMENTS. 92 ==============================FINANCIAL STATEMENTS============================== John Hancock Funds - Declaration Trust -- V.A. Sovereign Investors Fund
COMPOUND NUMBER GROWTH MARKET OF SHARES RATE VALUE - --------- ---- ----- Medical (continued) 4,600 Baxter International, Inc. @ 53 13/16............................................. $247,538 The company operates four divisions: renal, biotech, cardiovascular and intravenous systems and international distribution Earnings P/S.........$ 1.50, (.05), 1.91, 1.81, 1.73, (.70), 2.01, 1.50, .86, 2.39 5.3% Dividends P/S................$ .47, .52, .60, .69, .80, .93, .95, 1.03, 1.11, 1.14 10.3% Price/Earnings Ratio..........................................................22.9 5,000 Becton Dickinson & Co. @ 77 5/8................................................... 388,125 Manufactures broad line of medical supplies Earnings P/S..........$ 1.00, 1.17, 1.20, 1.19, 1.32, 1.40, 1.67, 1.98, 2.35, 2.50 10.7% Dividends P/S...................$ .22, .26, .28, .29, .31, .34, .38, .42, .48, .54 10.5% Price/Earnings Ratio..........................................................34.2 4,000 Bristol-Myers Squibb Co. @ 114 15/16.............................................. 459,750 Produces pharmaceuticals, medical devices and non-prescription health products Earnings P/S..........$ 1.70, 1.67, 1.75, 2.00, 1.53, 1.92, 1.95, 1.86, 2.93, 3.34 7.8% Dividends P/S..........$ .84, 1.00, 1.06, 1.20, 1.38, 1.44, 1.46, 1.48, 1.50, 1.52 6.8% Price/Earnings Ratio..........................................................35.8 6,000 Johnson & Johnson @ 73 3/4........................................................ 442,500 Major producer of prescription and non-prescription drugs, toiletries, medical instruments and supplies Earnings P/S.............$ .81, .86, .99, 1.12, 1.28, 1.41, 1.65, 1.94, 2.26, 2.54 13.5% Dividends P/S...................$ .24, .28, .33, .39, .45, .51, .57, .64, .74, .85 15.1% Price/Earnings Ratio..........................................................28.3 600 Lilly, Eli, Co. @ 66 1/16......................................................... 39,637 Manufactures and markets pharmaceutical products Earnings P/S.............$ .80, .98, 1.02, 1.17, .65, .36, 1.09, 1.18, 1.43, (.27) NMF Dividends P/S...................$ .29, .34, .41, .50, .55, .61, .63, .65, .69, .74 11.0% Price/Earnings Ratio..........................................................N.A. ---------- 2,029,800 ---------- Office (2.29%) 11,000 Pitney Bowes, Inc. @ 48 1/8....................................................... 529,375 ---------- Manufactures office automation equipment Earnings P/S..............$ .57, 1.15, .68, .90, .99, 1.00, 1.17, 1.38, 1.63, 1.87 14.1% Dividends P/S...................$ .23, .26, .30, .34, .39, .45, .52, .60, .69, .80 14.9% Price/Earnings Ratio..........................................................13.5 Oil & Gas (2.87%) 2,700 Chevron Corp. @ 83 1/16........................................................... 224,269 One of the largest integrated, international oil companies with interest in petrochemicals Earnings P/S..........$ 2.81, 3.05, 3.18, 1.54, 3.57, 1.77, 2.70, 1.67, 4.32, 4.47 5.3% Dividends P/S.........$ 1.28, 1.40, 1.48, 1.63, 1.65, 1.75, 1.85, 1.93, 2.08, 2.28 6.6% Price/Earnings Ratio..........................................................18.3 600 Exxon Corp. @ 71 5/16............................................................. 42,788 Major integrated oil and gas company Earnings P/S..........$ 2.15, 1.17, 2.37, 1.87, 1.85, 2.10, 2.24, 2.69, 3.12, 3.31 4.9% 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..........................................................21.7 5,200 Mobil Corp. @ 76 5/8.............................................................. 398,450 One of the largest integrated, international oil companies with interest in petrochemicals and plastics Earnings P/S..........$ 2.20, 2.30, 2.70, 1.60, 2.02, 2.60, 2.27, 3.07, 3.81, 3.94 6.7% 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..........................................................19.0 ---------- 665,507 ---------- Retail (7.52%) 14,000 Dayton Hudson Corp. @ 48 1/2...................................................... 679,000 General merchandiser selling through Target and Marvyn stores Earnings P/S............$ 1.15, .56, .93, .85, .65, .83, .85, .90, .74, 1.24, 1.88 14.4% Dividends P/S...................$ .17, .19, .22, .24, .26, .27, .28, .29, .31, .33 7.6% Price/Earnings Ratio..........................................................26.6 3,000 Home Depot, Inc. @ 83 1/16........................................................ 249,187 Operates a chain of retail building supply/home improvement "warehouse" stores Earnings P/S....................$ .11, .12, .16, .22, .29, .36, .45, .54, .70, .85 25.5% Dividends P/S.................$ .005, .01, .015, .02, .03, .04, .05, .07, .08, .10 39.5% Price/Earnings Ratio..........................................................57.4 3,000 May Department Stores @ 65 1/2.................................................... 196,500 Department store retailer operating 365 stores in 30 states Earnings P/S............1.75, 1.83, 1.99, 2.03, 2.42, 2.83, 2.96, 2.77, 2.97, 3.33 7.4% Dividends P/S................$ .56, .63, .70, .73, .75, .81, .91, 1.01, 1.13, 1.20 8.8% Price/Earnings Ratio..........................................................20.4 21,200 Sysco Corp. @ 25 5/8.............................................................. 543,250 Largest distributor of food service products Earnings P/S....................$ .30, .37, .40, .45, .50, .58, .67, .74, .82, .93 5.0% Dividends P/S..................$ .04, .045, .05, .07, .11, .14, .18, .22, .26, .30 25.1% Price/Earnings Ratio..........................................................27.2 1,200 Wal-Mart Stores, Inc. @ 60 3/4.................................................... 72,900 Operates chain of discount department stores Earnings P/S...............$ .48, .50, .59, .73, .90, 1.05, 1.20, 1.21, 1.38, 1.64 14.6% Dividends P/S...................$ .04, .06, .07, .09, .11, .13, .17, .20, .21, .27 23.6% Price/Earnings Ratio..........................................................39.1 ---------- 1,740,837 ---------- Soap & Cleaning Preparations (0.40%) 3,000 Ecolab, Inc. @ 31................................................................. 93,000 ---------- Develops and markets premium institutional cleansing, sanitizing and maintenance products and services Earnings P/S...................$ .03, .54, .46, .50, .52, .63, .64, .77, .92, 1.07 40.5% Dividends P/S.................$ .16, .165, .17, .175, .18, .20, .23, .26, .29, .34 8.7% Price/Earnings Ratio..........................................................30.6 Tobacco (0.85%) 5,000 Philip Morris Cos., Inc. @ 39 3/8................................................. 196,875 ---------- Global tobacco, brewing and food company Earnings P/S..........$ 1.06, 1.28, 1.33, 1.48, 1.88, 1.34, 1.90, 2.27, 2.66, 2.45 9.8% Dividends P/S...............$ .34, .42, .52, .64, .78, .87, 1.01, 1.22, 1.47, 1.60 18.8% Price/Earnings Ratio..........................................................16.3 Transport (0.54%) 5,000 C.H. Robinson Worldwide, Inc. @ 24 7/8............................................ 124,375 ---------- Provides intermodal transportation services Earnings P/S.............................................$ .28, .36, .52, .67, .78 NMF Dividends P/S....$ .036, .045, .058, .062, .067, .073, .087, .108, .130, .185, .20 21.0% Price/Earnings Ratio..........................................................25.5 Utilities (7.75%) 13,000 Ameritech Corp. @ 44 7/8.......................................................... 583,375 One of the world's largest communications companies Earnings P/S..........$ 1.15, 1.18, 1.17, 1.15, 1.21, 1.15, 1.55, 1.72, 1.99, 2.06 6.7% Dividends P/S................$ .69, .75, .81, .86, .89, .93, .97, 1.02, 1.08, 1.15 5.8% Price/Earnings Ratio..........................................................22.9 1,500 Duke Energy Corp. @ 59 1/4........................................................ 88,875 Generates, transmits, distributes and sells electric energy in the Piedmont sections of North and South Carolina Earnings P/S..........$ 2.57, 2.40, 2.44, 2.44, 2.39, 2.96, 3.01, 3.11, 2.96, 2.92 1.4% 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..........................................................20.1 4,400 National Fuel Gas Co. @ 43 9/16................................................... 191,675 Integrated natural gas system serving N.Y., PA. and Ohio Earnings P/S...........$ 1.93, 1.83, 1.95, 1.89, 1.88, 2.05, 2.27, 2.40, 2.96, .90 NMF 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..........................................................47.2 8,000 Northern States Power Co. @ 28 5/8................................................ 229,000 Provides electric, utility, and gas services to Mid-western states Earnings P/S..........$ 1.62, 1.42, 1.39, 1.42, 1.25, 1.58, 1.74, 1.94, 1.89, 1.52 NMF Dividends P/S.........$ 1.05, 1.10, 1.15, 1.20, 1.25, 1.28, 1.31, 1.34, 1.37, 1.40 3.2% Price/Earnings Ratio..........................................................18.5 4,400 Questar Corp. @ 19 5/8............................................................ 86,350 Diversified holding company for Utah, Wyoming and Colorado natural gas transmission, distribution and storage Earnings P/S................$ .64, .73, .78, .77, 1.00, .99, .56, 1.12, 1.27, 1.27 7.9% Dividends P/S...................$ .47, .48, .49, .51, .52, .55, .57, .58, .60, .62 3.1% Price/Earnings Ratio..........................................................14.8
SEE NOTES TO FINANCIAL STATEMENTS. 93 ==============================FINANCIAL STATEMENTS============================== John Hancock Funds - Declaration Trust -- V.A. Sovereign Investors Fund
COMPOUND NUMBER GROWTH MARKET OF SHARES RATE VALUE - --------- ---- ----- Utilities (continued) 10,000 SBC Communications, Inc. @ 40..................................................... $400,000 Provides telephone service throughout the United States and internationally Earnings P/S...........$ .88, .91, .92, .90, 1.09, (1.37), 1.53, (1.66), 1.77, .80 NMF Dividends P/S...................$ .61, .65, .68, .71, .73, .75, .78, .82, .85, .89 4.3% Price/Earnings Ratio..........................................................48.1 8,000 Teco Energy, Inc. @ 26 13/16...................................................... 214,500 Holding company for Tampa Electric, which provides regulated electric utility services in Florida Earnings P/S..........$ 1.21, 1.23, 1.22, 1.28, 1.29, 1.38, 1.34, 1.68, 1.68, 1.46 5.9% Dividends P/S...............$ .70, .75, .80, .85, .90, .95, 1.00, 1.05, 1.11, 1.17 2.1% Price/Earnings Ratio..........................................................18.3 ---------- 1,793,775 ---------- TOTAL COMMON STOCKS (Cost $17,005,817) 19,328,049 ---------- PAR VALUE (000s OMITTED) -------- UNITED STATES GOVERNMENT AND AGENCIES OBLIGATIONS (10.63%) $ 100 United States Treasury, Note 7.875%, 11-15-99 @ 103.062................................................................ 103,062 400 United States Treasury, Note 6.25%, 01-31-02 @ 101.250................................................................ 405,000 1,500 United States Treasury, Bond 10.750%, 08-15-05 @ 130.109................................................................ 1,951,635 ---------- TOTAL UNITED STATES GOVERNMENT AND AGENCIES OBLIGATIONS (Cost $2,446,719) 2,459,697 ---------- PAR VALUE (000s INTEREST MARKET OMITTED) RATE VALUE -------- ---- ----- SHORT-TERM INVESTMENTS (9.88%) $2,288 Joint Repurchase Agreement (9.88%) Investment in a joint repurchase agreement transaction with Toronto Dominion Securities USA, Inc. - Dated 06-30-98, due 07-01-98 (Secured by U. S. Treasury Bond, 9.125% due 05-15-18 and U.S. Treasury Notes, 5.00% thru 8.75% due 12-31-98 thru 04-30-03) - Note B.......................................................................... 5.750% $2,288,000 ----------- Corporate Savings Account (0.00%) Investors Bank & Trust Company Daily Interest Savings Account Current Rate 4.95%................................................................ 524 ----------- TOTAL SHORT-TERM INVESTMENTS (9.88%) 2,288,524 -------- ----------- TOTAL INVESTMENTS (103.98%) 24,076,270 -------- ----------- OTHER ASSETS AND LIABILITIES, NET (3.98%) (920,818) -------- ----------- TOTAL NET ASSETS (100.00%) $23,155,452 ======== ===========
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. 94 ==============================FINANCIAL STATEMENTS============================== John Hancock Funds - Declaration Trust -- V.A. 500 Index Fund Schedule of Investments June 30, 1998 (Unaudited) - -------------------------------------------------------------------------------- The Schedule of Investments is a complete list of all securities owned by the V. A. 500 Index Fund on June 30, 1998. 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 - ------------------- ------ ----- COMMON STOCKS Advertising (0.15%) Interpublic Group of Cos., Inc. (The) ................. 220 $13,351 Omnicom Group, Inc. ................................... 283 14,115 ---------- 27,466 ---------- Aerospace (1.19%) Boeing Co. (The) ...................................... 1,746 77,806 General Dynamics Corp. ................................ 220 10,230 Goodrich (B.F.) Co. (The) ............................. 125 6,203 Lockheed Martin Corp. ................................. 340 35,997 Northrop Grumman Corp. ................................ 117 12,066 Raytheon Co. (Class B) ................................ 592 35,002 United Technologies Corp. ............................. 407 37,647 ---------- 214,951 ---------- Agricultural Operations (0.08%) Agribrands International, Inc. * ...................... 30 908 Pioneer Hi-Bred International, Inc. ................... 345 14,274 ---------- 15,182 ---------- Automobile / Trucks (1.72%) Chrysler Corp. ........................................ 1,133 63,873 Cummins Engine Co., Inc. .............................. 67 3,434 Dana Corp. ............................................ 183 9,791 Eaton Corp. ........................................... 135 10,496 Echlin, Inc. .......................................... 110 5,397 Ford Motor Co. ........................................ 2,096 123,664 General Motors Corp. .................................. 1,235 82,513 PACCAR, Inc. .......................................... 136 7,106 Ryder System, Inc. .................................... 134 4,229 ---------- 310,503 ---------- Banks - United States (7.46%) Banc One Corp. ........................................ 1,128 62,956 Bank of New York Co., Inc. ............................ 658 39,932 BankAmerica Corp. ..................................... 1,211 104,676 BankBoston Corp. ...................................... 508 28,257 Bankers Trust New York Corp. .......................... 171 19,847 BB&T Corp. ............................................ 249 16,839 Chase Manhattan Corp. ................................. 1,472 111,136 Citicorp .............................................. 798 119,101 Comerica, Inc. ........................................ 275 18,219 Fifth Third Bancorp ................................... 406 25,578 First Chicago NBD Corp. ............................... 508 45,021 First Union Corp. ..................................... 1,689 98,384 Fleet Financial Group, Inc. ........................... 476 39,746 Huntington Bancshares, Inc. ........................... 334 11,189 KeyCorp ............................................... 767 27,324 Mellon Bank Corp. ..................................... 445 30,983 Mercantile Bancorp., Inc. ............................. 229 11,536 Morgan (J.P.) & Co., Inc. ............................. 310 36,309 National City Corp. ................................... 574 40,754 NationsBank Corp. ..................................... 1,642 125,613 Northern Trust Corp. .................................. 195 14,869 Norwest Corp. ......................................... 1,319 49,298 PNC Bank Corp. ........................................ 533 28,682 Providian Financial Corp. ............................. 166 13,041 Republic New York Corp. ............................... 190 11,958 State Street Corp. .................................... 281 19,530 Summit Bancorp ........................................ 307 14,582 SunTrust Banks, Inc. .................................. 368 29,923 Synovus Financial Corp. ............................... 459 10,901 U.S. Bancorp .......................................... 1,287 55,341 Wachovia Corp. ........................................ 360 30,420 Wells Fargo & Co. ..................................... 151 55,719 ---------- 1,347,664 ---------- Beverages (3.07%) Anheuser-Busch Cos., Inc. ............................. 856 40,392 Brown-Forman Corp. .................................... 121 7,774 Coca-Cola Co. (The) ................................... 4,320 369,360 Coors (Adolph) Co. (Class B) .......................... 65 2,210 PepsiCo, Inc. ......................................... 2,650 109,147 Seagram Co. Ltd. (The) (Canada) ....................... 623 25,504 ---------- 554,387 ---------- Broker Services (0.46%) Lehman Brothers Holdings, Inc. ........................ 178 13,806 Merrill Lynch & Co., Inc. ............................. 582 53,689 Schwab (Charles) Corp. ................................ 464 15,080 ---------- 82,575 ---------- Building (0.61%) Armstrong World Industries, Inc. ...................... 71 4,784 Black & Decker Corp. .................................. 166 10,126 Centex Corp. .......................................... 104 3,926 Fleetwood Enterprises, Inc. ........................... 64 2,560 Fluor Corp. ........................................... 146 7,446 Georgia-Pacific Corp. ................................. 162 9,548 Kaufman & Broad Home Corp. ............................ 68 2,159 Louisiana-Pacific Corp. ............................... 191 3,486 Masco Corp. ........................................... 289 17,484 Owens Corning ......................................... 93 3,796 Pulte Corp. ........................................... 74 2,211 Sherwin-Williams Co. .................................. 302 10,004 Snap-on, Inc. ......................................... 106 3,843 Stanley Works (The) ................................... 156 6,484 Weyerhauser Co. ....................................... 349 16,119 Willamette Industries, Inc. ........................... 194 6,208 ---------- 110,184 ---------- Business Services - Misc. (0.16%) Block, H & R, Inc. .................................... 183 7,709 Dun & Bradstreet Corp. ................................ 297 10,729 Equifax, Inc. ......................................... 262 9,514 ---------- 27,952 ---------- Chemicals (1.20%) Air Products & Chemicals, Inc. ........................ 412 16,480 Dow Chemical Co. ...................................... 396 38,288 Eastman Chemical Co. .................................. 137 8,528 Engelhard Corp. ....................................... 252 5,103 FMC Corp. * ........................................... 64 4,364 SEE NOTES TO FINANCIAL STATEMENTS. 95 ==============================FINANCIAL STATEMENTS============================== John Hancock Funds - Declaration Trust -- V.A. 500 Index Fund NUMBER OF MARKET ISSUER, DESCRIPTION SHARES VALUE - ------------------- ------ ----- Chemicals (continued) Grace (W.R.) & Co. .................................... 130 $2,218 Great Lakes Chemical Corp. ............................ 105 4,141 Hercules, Inc. ........................................ 169 6,950 Monsanto Co. .......................................... 1,036 57,886 Morton International, Inc. ............................ 228 5,700 Nalco Chemical Co. .................................... 116 4,075 Octel Corp. * ......................................... 26 517 PPG Industries, Inc. .................................. 311 21,634 Praxair, Inc. ......................................... 275 12,873 Rohm & Haas Co. ....................................... 107 11,121 Sigma-Aldrich Corp. ................................... 175 6,147 Union Carbide Corp. ................................... 215 11,476 ---------- 217,501 ---------- Computers (8.36%) Adobe Systems, Inc. ................................... 120 5,093 Apple Computer, Inc. * ................................ 232 6,656 Autodesk, Inc. ........................................ 81 3,129 Automatic Data Processing, Inc. ....................... 522 38,041 Bay Networks, Inc.* ................................... 384 12,384 Cabletron Systems, Inc.* .............................. 276 3,709 Ceridian Corp.* ....................................... 133 7,814 Cisco Systems, Inc.* .................................. 1,778 163,687 Cognizant Corp. ....................................... 283 17,829 Compaq Computer Corp. ................................. 2,885 81,862 Computer Associates International, Inc. ............... 954 53,007 Computer Sciences Corp.* .............................. 272 17,408 Data General Corp. * .................................. 85 1,270 Dell Computer Corp.* .................................. 1,140 105,806 EMC Corp.* ............................................ 866 38,808 First Data Corp. ...................................... 748 24,918 HBO & Co. ............................................. 736 25,944 Hewlett-Packard Co. ................................... 1,817 108,793 International Business Machines Corp. ................. 1,698 194,952 Microsoft Corp.* ...................................... 4,253 460,919 Novell, Inc.* ......................................... 613 7,816 Oracle Corp.* ......................................... 1,719 42,223 Parametric Technology Corp.* .......................... 448 12,152 Seagate Technology, Inc.* ............................. 423 10,073 Shared Medical Systems Corp. .......................... 44 3,231 Silicon Graphics, Inc.* ............................... 328 3,977 Sun Microsystems, Inc.* ............................... 659 28,625 3Com Corp.* ........................................... 619 18,996 Unisys Corp.* ......................................... 436 12,317 ---------- 1,511,439 ---------- Consumer Products Misc. (0.04%) American Greetings Corp. (Class A) .................... 127 6,469 Jostens, Inc. ......................................... 68 1,624 ---------- 8,093 ---------- Containers (0.17%) Bemis Co., Inc. ....................................... 93 3,801 Crown Cork & Seal Co., Inc. ........................... 224 10,640 Owens-Illinois, Inc.* ................................. 245 10,964 Sealed Air Corp. * .................................... 144 5,292 ---------- 30,697 ---------- Cosmetics & Personal Care (0.77%) Alberto Culver Co. (Class B) .......................... 99 2,871 Avon Products, Inc. ................................... 231 17,902 Gillette Co. .......................................... 1,956 110,881 International Flavors & Fragrances, Inc. .............. 191 8,297 ---------- 139,951 ---------- Diversified Operations (2.40%) AlliedSignal, Inc. .................................... 985 43,709 Corning, Inc. ......................................... 404 14,039 Crane Co. ............................................. 80 3,885 Du Pont (E.I.) De Nemours & Co. ....................... 1,976 147,459 Fortune Brands, Inc. .................................. 300 11,531 IKON Office Solutions, Inc. ........................... 235 3,422 ITT Industries, Inc. .................................. 207 7,737 Johnson Controls, Inc. ................................ 147 8,407 Laidlaw, Inc. (Canada) ................................ 574 6,996 Loews Corp. ........................................... 201 17,512 Minnesota Mining & Manufacturing Co. .................. 714 58,682 National Service Industries, Inc. ..................... 75 3,816 Tenneco, Inc. ......................................... 297 11,305 Textron, Inc. ......................................... 287 20,574 TRW, Inc. ............................................. 215 11,744 Tyco International Ltd. ............................... 999 62,937 ---------- 433,755 ---------- Electronics (5.75%) Advanced Micro Devices, Inc.* ......................... 248 4,232 AMP, Inc. ............................................. 384 13,200 Applied Materials, Inc.* .............................. 639 18,850 CBS Corp. ............................................. 1,242 39,433 Emerson Electric Co. .................................. 774 46,730 General Electric Co. .................................. 5,716 520,156 General Signal Corp. .................................. 87 3,132 Grainger (W.W.), Inc. ................................. 174 8,667 Honeywell, Inc. ....................................... 222 18,551 Intel Corp. ........................................... 2,857 211,775 KLA-Tencor Corp.* ..................................... 147 4,070 LSI Logic Corp.* ...................................... 247 5,696 Micron Technology, Inc. ............................... 370 9,181 Motorola, Inc. ........................................ 1,043 54,823 National Semiconductor Corp.* ......................... 287 3,785 Parker Hannifin Corp. ................................. 194 7,396 Raychem Corp. ......................................... 148 4,375 Rockwell International Corp. .......................... 351 16,870 Tektronix, Inc. ....................................... 88 3,113 Texas Instruments, Inc. ............................... 682 39,769 Thomas & Betts Corp. .................................. 96 4,728 ---------- 1,038,532 ---------- Finance (2.45%) Ahmanson (H.F.) & Co. ................................. 191 13,561 American Express Co. .................................. 812 92,568 Associates First Capital Corp. (Class A) .............. 1,443 110,931 Beneficial Corp. ...................................... 93 14,246 Golden West Financial Corp. ........................... 99 10,525 Household International, Inc. ......................... 561 27,910 MBNA Corp. ............................................ 875 28,875 Morgan Stanley, Dean Witter, Discover & Co. ........... 1,035 94,573 SunAmerica, Inc. ...................................... 341 19,586 Washington Mutual, Inc. ............................... 673 29,233 ---------- 442,008 ---------- SEE NOTES TO FINANCIAL STATEMENTS. 96 ==============================FINANCIAL STATEMENTS============================== John Hancock Funds - Declaration Trust -- V.A. 500 Index Fund NUMBER OF MARKET ISSUER, DESCRIPTION SHARES VALUE - ------------------- ------ ----- Food (2.24%) Archer Daniels Midland Co. ............................ 998 $19,336 Bestfoods ............................................. 502 29,147 Campbell Soup Co. ..................................... 797 42,341 ConAgra, Inc. ......................................... 831 26,332 General Mills, Inc. ................................... 276 18,871 Heinz (H.J.) Co. ...................................... 638 35,808 Hershey Foods Corp. ................................... 250 17,250 Kellogg Co. ........................................... 718 26,970 Quaker Oats Co. ....................................... 242 13,295 Ralston Purina Group .................................. 187 21,844 Sara Lee Corp. ........................................ 826 46,204 Unilever N.V. PLC (Netherlands) ....................... 1,118 88,252 Wrigley (Wm.) Jr. Co. ................................. 203 19,894 ---------- 405,544 ---------- Funeral Services & Related (0.10%) Service Corp. International ........................... 440 18,865 ---------- Household (0.24%) Maytag Corp. .......................................... 166 8,196 Newell Co. ............................................ 278 13,848 Rubbermaid, Inc. ...................................... 262 8,695 Tupperware Corp. ...................................... 107 3,009 Whirlpool Corp. ....................................... 131 9,006 ---------- 42,754 ---------- Instruments - Scientific (0.10%) EG&G, Inc. ............................................ 79 2,370 Millipore Corp. ....................................... 76 2,071 Perkin-Elmer Corp. (The) .............................. 85 5,286 Thermo Electron Corp.* ................................ 264 9,026 ---------- 18,753 ---------- Insurance (4.08%) Aetna, Inc. ........................................... 260 19,792 Allstate Corp. (The) .................................. 749 68,580 American General Corp. ................................ 443 31,536 American International Group, Inc. .................... 1,225 178,850 Aon Corp. ............................................. 293 20,583 Chubb Corp. (The) ..................................... 297 23,871 CIGNA Corp. ........................................... 387 26,703 Cincinnati Financial Corp. ............................ 288 11,052 Conseco, Inc. ......................................... 329 15,381 General Re Corp. ...................................... 137 34,729 Hartford Financial Services Group Inc. (The) .......... 206 23,561 Jefferson Pilot Corp. ................................. 186 10,776 Lincoln National Corp. ................................ 179 16,356 Marsh & McLennan Cos., Inc. ........................... 445 26,895 MBIA, Inc. ............................................ 171 12,804 MGIC Investment Corp. ................................. 199 11,355 Progressive Corp. ..................................... 126 17,766 SAFECO Corp. .......................................... 247 11,223 St. Paul Cos., Inc. ................................... 402 16,909 Torchmark Corp. ....................................... 245 11,209 Transamerica Corp. .................................... 110 12,664 Travelers Group, Inc. ................................. 2,003 121,432 UNUM Corp. ............................................ 242 13,431 ---------- 737,458 ---------- Leisure (1.35%) Brunswick Corp. ....................................... 174 4,307 Disney (Walt) Co. (The) ............................... 1,179 123,869 Eastman Kodak Co. ..................................... 567 41,426 Harrah's Entertainment, Inc. * ........................ 176 4,092 Hasbro, Inc. .......................................... 221 8,688 Hilton Hotels Corp. ................................... 437 12,454 King World Productions, Inc. * ........................ 129 3,290 Marriott International, Inc. (Class A) ................ 446 14,439 Mattel, Inc. .......................................... 508 21,495 Mirage Resorts, Inc. * ................................ 313 6,671 Polaroid Corp. ........................................ 78 2,774 ---------- 243,505 ---------- Machinery (0.63%) Aeroquip-Vickers, Inc. ................................ 49 2,860 Briggs & Stratton Corp. ............................... 43 1,610 Case Corp. ............................................ 131 6,321 Caterpiller Tractor, Inc. ............................. 650 34,369 Cincinnati Milacron, Inc. ............................. 70 1,702 Cooper Industries, Inc. ............................... 211 11,592 Deere & Co. ........................................... 436 23,053 Dover Corp. ........................................... 388 13,289 Foster Wheeler Corp. .................................. 71 1,522 Harnischfeger Industries, Inc. ........................ 84 2,378 Ingersoll-Rand Co. .................................... 289 12,734 NACCO Industries, Inc. (Class A) ...................... 14 1,810 ---------- 113,240 ---------- Media (1.77%) Clear Channel Communications, Inc.* ................... 215 23,462 Comcast Corp. ......................................... 610 24,762 Dow Jones & Co., Inc. ................................. 168 9,366 Gannett Co., Inc. ..................................... 495 35,176 Harcourt General, Inc. ................................ 124 7,378 Knight-Ridder, Inc. ................................... 139 7,654 McGraw-Hill Cos., Inc. (The) .......................... 173 14,110 Meredith Corp. ........................................ 92 4,318 New York Times Co. (Class A) .......................... 168 13,314 Tele-Communications, Inc. (Class A)* .................. 886 34,056 Time Warner, Inc. ..................................... 1,010 86,292 Times Mirror Co. (Class A) ............................ 155 9,746 Tribune Co. ........................................... 215 14,795 Viacom, Inc. (Class B)* ............................... 617 35,940 ---------- 320,369 ---------- Medical (10.21%) Abbott Laboratories ................................... 2,672 109,218 Allergan, Inc. ........................................ 114 5,287 ALZA Corp.* ........................................... 149 6,444 American Home Products Corp. .......................... 2,270 117,472 Amgen, Inc.* .......................................... 460 30,073 Bard (C.R.), Inc. ..................................... 99 3,768 Bausch & Lomb, Inc. ................................... 97 4,862 Baxter International, Inc. ............................ 489 26,314 Becton Dickinson & Co. ................................ 213 16,534 Biomet, Inc. .......................................... 195 6,447 Boston Scientific Corp.* .............................. 340 24,352 Bristol-Myers Squibb Co. .............................. 1,737 199,646 Cardinal Health, Inc. ................................. 192 18,000 Columbia/HCA Healthcare Corp. ......................... 1,131 32,940 Guidant Corp. ......................................... 263 18,755 HEALTHSOUTH Corp.* .................................... 688 18,361 Humana, Inc.* ......................................... 286 8,920 SEE NOTES TO FINANCIAL STATEMENTS. 97 ==============================FINANCIAL STATEMENTS============================== John Hancock Funds - Declaration Trust -- V.A. 500 Index Fund NUMBER OF MARKET ISSUER, DESCRIPTION SHARES VALUE - ------------------- ------ ----- Medical (continued) Johnson & Johnson ..................................... 2,349 $173,239 Lilly (Eli) & Co. ..................................... 1,938 128,029 Mallinckrodt, Inc. .................................... 128 3,800 Manor Care, Inc. ...................................... 111 4,267 Medtronic, Inc. ....................................... 819 52,211 Merck & Co., Inc. ..................................... 2,093 279,939 Pall Corp. ............................................ 218 4,469 Pfizer, Inc. .......................................... 2,259 245,525 Pharmacia & Upjohn, Inc. .............................. 886 40,867 Schering-Plough Corp. ................................. 1,279 117,188 St. Jude Medical, Inc. * .............................. 160 5,890 Tenet Healthcare Corp.* ............................... 535 16,719 United Healthcare Corp. ............................... 329 20,891 United States Surgical Corp. .......................... 132 6,023 Warner-Lambert Co. .................................... 1,428 99,067 ---------- 1,845,517 ---------- Metal (0.69%) Alcan Aluminium Ltd. (Canada) ......................... 397 10,967 Aluminum Co. of America ............................... 301 19,847 Armco, Inc. * ......................................... 189 1,205 ASARCO, Inc. .......................................... 70 1,558 Barrick Gold Corp. (Canada) ........................... 651 12,491 Battle Mountain Gold Co. .............................. 401 2,381 Bethlehem Steel Corp. * ............................... 197 2,450 Cyprus Amax Minerals Co. .............................. 163 2,160 Freeport-McMoRan Copper & Gold, Inc. .................. 338 5,133 Homestake Mining Co. .................................. 256 2,656 Illinois Tool Works, Inc. ............................. 436 29,076 Inco, Ltd. (Canada) ................................... 292 3,979 Newmont Mining Corp. .................................. 273 6,450 Phelps Dodge Corp. .................................... 103 5,890 Placer Dome, Inc. (Canada) ............................ 432 5,076 Reynolds Metals Co. ................................... 129 7,216 Timken Co. (The) ...................................... 110 3,389 Worthington Industries, Inc. .......................... 169 2,546 ---------- 124,470 ---------- Mortgage Banking (1.05%) Countrywide Credit Industries, Inc. ................... 190 9,643 Fannie Mae ............................................ 1,853 112,570 Federal Home Loan Mortgage Corp. ...................... 1,214 57,134 Green Tree Financial Corp. ............................ 238 10,189 ---------- 189,536 ---------- Office (0.55%) Avery Dennison Corp. .................................. 179 9,621 Deluxe Corp. .......................................... 142 5,085 Moore Corp., Ltd. (Canada) ............................ 155 2,054 Pitney Bowes, Inc. .................................... 506 24,351 Xerox Corp. ........................................... 569 57,825 ---------- 98,936 ---------- Oil & Gas (6.77%) Amerada Hess Corp. .................................... 160 8,690 Amoco Corp. ........................................... 1,700 70,763 Anadarko Petroleum Corp. .............................. 105 7,055 Apache Corp. .......................................... 167 5,261 Ashland, Inc. ......................................... 131 6,763 Atlantic Richfield Co. ................................ 560 43,750 Baker Hughes, Inc. .................................... 296 10,231 Burlington Resources, Inc. ............................ 308 13,263 Chevron Corp. ......................................... 1,147 95,273 Coastal Corp. (The) ................................... 185 12,915 Columbia Energy Group ................................. 145 8,066 Dresser Industries, Inc. .............................. 307 13,527 Enron Corp. ........................................... 544 29,410 Exxon Corp. ........................................... 4,307 307,143 Halliburton Co. ....................................... 458 20,410 Helmerich & Payne, Inc. ............................... 88 1,958 Kerr-McGee Corp. ...................................... 83 4,804 McDermott International, Inc. ......................... 98 3,375 Mobil Corp. ........................................... 1,370 104,976 Occidental Petroleum Corp. ............................ 592 15,984 Oryx Energy Co.* ...................................... 185 4,093 Pennzoil Co. .......................................... 83 4,202 Phillips Petroleum Co. ................................ 460 22,166 Rowan Cos., Inc.* ..................................... 151 2,935 Royal Dutch Petroleum Co. (Netherlands) ............... 3,745 205,273 Schlumberger, Ltd. .................................... 869 59,364 Sonat, Inc. ........................................... 192 7,416 Sun Co., Inc. ......................................... 125 4,852 Texaco, Inc. .......................................... 957 57,121 Union Pacific Resources Group ......................... 443 7,780 Unocal Corp. .......................................... 431 15,408 USX - Marathon Group .................................. 504 17,293 Western Atlas, Inc. * ................................. 95 8,063 Williams Cos., Inc. (The) ............................. 718 24,232 ---------- 1,223,815 ---------- Paper & Paper Products (0.69%) Ball Corp. ............................................ 53 2,130 Boise Cascade Corp. ................................... 98 3,210 Champion International Corp. .......................... 168 8,264 Fort James Corp. ...................................... 365 16,242 International Paper Co. ............................... 528 22,704 Kimberly-Clark Corp. .................................. 971 44,545 Mead Corp. (The) ...................................... 183 5,810 Potlatch Corp. ........................................ 51 2,142 Stone Container Corp. * ............................... 174 2,719 Temple-Inland, Inc. ................................... 99 5,334 Union Camp Corp. ...................................... 122 6,054 Westvaco Corp. ........................................ 178 5,029 ---------- 124,183 ---------- Pollution Control (0.22%) Browning-Ferris Industries, Inc. ...................... 339 11,780 Waste Management, Inc. ................................ 795 27,825 ---------- 39,605 ---------- Printing - Commercial (0.06%) Donnelley (R.R.) & Sons ............................... 255 11,666 ---------- Retail (5.70%) Abercrombie & Fitch Co. (Class A)* .................... 6 264 Albertson's, Inc. ..................................... 429 22,227 American Stores Co. ................................... 477 11,537 AutoZone, Inc.* ....................................... 266 8,495 Cendant Corp. * ....................................... 1,415 29,538 Circuit City Stores, Inc. ............................. 172 8,063 Consolidated Stores Corp.* ............................ 188 6,815 Costco Cos., Inc.* .................................... 374 23,585 CVS Corp. ............................................. 668 26,010 Darden Restaurants, Inc. .............................. 259 4,112 SEE NOTES TO FINANCIAL STATEMENTS. 98 ==============================FINANCIAL STATEMENTS============================== John Hancock Funds - Declaration Trust -- V.A. 500 Index Fund NUMBER OF MARKET ISSUER, DESCRIPTION SHARES VALUE - ------------------- ------ ----- Retail (continued) Dayton Hudson Corp. ................................... 764 $37,054 Dillards, Inc. ........................................ 194 8,039 Federated Department Stores, Inc.* .................... 366 19,695 Gap, Inc. (The) ....................................... 691 42,583 Genuine Parts Co. ..................................... 312 10,784 Giant Foods, Inc. (Class A) ........................... 105 4,522 Great Atlantic & Pacific Tea Co., Inc. ................ 67 2,215 Home Depot, Inc. (The) ................................ 1,278 106,154 Kmart Corp.* .......................................... 852 16,401 Kroger Co.* ........................................... 445 19,079 Limited, Inc. (The) ................................... 476 15,767 Longs Drug Stores Corp. ............................... 67 1,935 Lowe's Cos., Inc. ..................................... 610 24,743 May Department Stores ................................. 404 26,462 McDonald's Corp. ...................................... 1,203 83,007 Mercantile Stores Co., Inc. ........................... 64 5,052 Nordstrom, Inc. ....................................... 135 10,429 Penney (J.C.) Co., Inc. ............................... 437 31,601 Pep Boys - Manny, Moe & Jack (The) .................... 111 2,102 Reebok International Ltd. * ........................... 98 2,713 Rite Aid Corp. ........................................ 450 16,903 Sears, Roebuck & Co. .................................. 685 41,828 SUPERVALU, Inc. ....................................... 105 4,659 Sysco Corp. ........................................... 594 15,221 Tandy Corp. ........................................... 181 9,604 TJX Cos., Inc. ........................................ 564 13,606 Toys "R" Us, Inc.* .................................... 496 11,687 Tricon Global Restaurants, Inc.* ...................... 265 8,397 Venator Group, Inc. * ................................. 236 4,514 Wal-Mart Stores, Inc. ................................. 3,923 238,322 Walgreen Co. .......................................... 865 35,735 Wendy's International, Inc. ........................... 231 5,429 Winn-Dixie Stores, Inc. ............................... 260 13,309 ---------- 1,030,197 ---------- Rubber - Tires & Misc (0.11%) Cooper Tire & Rubber Co ............................... 138 2,846 Goodyear Tire & Rubber Co. (The) ...................... 273 17,591 ---------- 20,437 ---------- Shoes & Related Apparel (0.14%) Nike, Inc. (Class B) .................................. 508 24,733 ---------- Soap & Cleaning Preparations (1.57%) Clorox Co. ............................................ 181 17,263 Colgate-Palmolive Co. ................................. 517 45,496 Ecolab, Inc. .......................................... 225 6,975 Procter & Gamble Co. (The) ............................ 2,345 213,542 ---------- 283,276 ---------- Steel (0.12%) Allegheny Teledyne, Inc. .............................. 342 7,823 Inland Steel Industries, Inc. ......................... 86 2,424 Nucor Corp. ........................................... 154 7,084 USX-U.S. Steel Group, Inc. ............................ 150 4,950 ---------- 22,281 ---------- Telecommunications (5.21%) A T & T Corp. ......................................... 2,837 162,064 Airtouch Communications, Inc. * ....................... 986 57,619 Andrew Corp.* ......................................... 155 2,800 Bell Atlantic Corp. ................................... 2,712 123,735 DSC Communications Corp. * ............................ 206 6,180 General Instrument Corp. * ............................ 258 7,014 Harris Corp. .......................................... 140 6,256 Lucent Technologies, Inc. ............................. 2,273 189,085 MCI Communications Corp. .............................. 1,217 70,738 MediaOne Group, Inc. * ................................ 1,060 46,574 Nextel Communications, Inc. (Class A)* ................ 459 11,418 Northern Telecom Ltd. (Canada) ........................ 909 51,586 Scientific-Atlanta, Inc. .............................. 138 3,502 Sprint Corp. .......................................... 751 52,946 Tellabs, Inc.* ........................................ 317 22,705 U S WEST, Inc. ........................................ 872 40,984 WorldCom, Inc.* ....................................... 1,769 85,686 ---------- 940,892 ---------- Textile (0.14%) Fruit of the Loom, Inc. (Class A)* .................... 128 4,248 Liz Claiborne, Inc. ................................... 117 6,113 Russell Corp. ......................................... 64 1,932 Springs Industries, Inc. .............................. 35 1,614 VF Corp. .............................................. 213 10,970 ---------- 24,877 ---------- Tobacco (0.97%) Philip Morris Cos., Inc. .............................. 4,235 166,753 UST, Inc. ............................................. 322 8,694 ---------- 175,447 ---------- Transport (0.94%) AMR Corp.* ............................................ 318 26,473 Burlington Northern Santa Fe Corp. .................... 273 26,805 CSX Corp. ............................................. 381 17,335 Delta Air Lines, Inc. ................................. 130 16,802 FDX Corp. * ........................................... 256 16,064 Navistar International Corp. * ........................ 126 3,638 Norfolk Southern Corp. ................................ 659 19,646 Southwest Airlines Co. ................................ 386 11,435 Union Pacific Corp. ................................... 432 19,062 US Airways Group, Inc.* ............................... 159 12,601 ---------- 169,861 ---------- Utilities (4.69%) Alltel Corp. .......................................... 321 14,926 Ameren Corp. .......................................... 240 9,540 American Electric Power Co., Inc. ..................... 331 15,019 Ameritech Corp. ....................................... 1,912 85,801 Baltimore Gas & Electric Co. .......................... 258 8,014 BellSouth Corp. ....................................... 1,732 116,260 Carolina Power & Light Co. ............................ 263 11,408 Central & South West Corp. ............................ 371 9,971 Cinergy Corp. ......................................... 275 9,625 Consolidated Edison, Inc. ............................. 410 18,886 Consolidated Natural Gas Co. .......................... 167 9,832 Dominion Resources, Inc. .............................. 338 13,773 DTE Energy Co. ........................................ 253 10,215 Duke Energy Corp. ..................................... 629 37,268 Eastern Enterprises ................................... 36 1,544 Edison International .................................. 666 19,689 Entergy Corp. ......................................... 426 12,248 FirstEnergy Corp. * ................................... 402 12,362 FPL Group, Inc. ....................................... 318 20,034 Frontier Corp. ........................................ 287 9,041 SEE NOTES TO FINANCIAL STATEMENTS. 99 ==============================FINANCIAL STATEMENTS============================== John Hancock Funds - Declaration Trust -- V.A. 500 Index Fund NUMBER OF MARKET ISSUER, DESCRIPTION SHARES VALUE - ------------------- ------ ----- Utilities (continued) GPU, Inc. ............................................. 222 $8,394 GTE Corp. ............................................. 1,672 93,005 Houston Industries, Inc. .............................. 494 15,252 Niagara Mohawk Power Corp. * .......................... 252 3,764 NICOR, Inc. ........................................... 84 3,371 Northern States Power Co. ............................. 260 7,443 ONEOK, Inc. ........................................... 54 2,153 PP&L Resources, Inc. .................................. 290 6,579 PacifiCorp ............................................ 518 11,720 PECO Energy Co. ....................................... 389 11,354 People's Energy Corp. ................................. 62 2,395 PG&E Corp. ............................................ 766 24,177 Public Service Enterprise Group, Inc. ................. 405 13,947 SBC Communications, Inc. .............................. 3,202 128,080 Sempra Energy* ........................................ 219 6,077 Southern Co. .......................................... 1,205 33,363 Texas Utilities Co. ................................... 430 17,899 Unicom Corp. .......................................... 378 13,254 ---------- 847,683 ---------- TOTAL COMMON STOCKS (Cost $12,298,015) (86.38%) 15,610,740 ------- ---------- INTEREST PAR VALUE MARKET ISSUER, DESCRIPTION RATE (000s OMITTED) VALUE - ------------------- ---- -------------- ----- SHORT-TERM INVESTMENTS Joint Repurchase Agreement (13.03%) Investment in a joint repurchase agreement transaction with Toronto Dominion Securities USA, Inc. - Dated 06-30-98, due 07-01-98 (Secured by U.S. Treasury Notes, 5.00% thru 7.50% due 02-15-99 thru 11-15-01) - Note B.................. 5.75% $2,355 $2,355,000 ----------- TOTAL SHORT-TERM INVESTMENTS (13.03%) 2,355,000 -------- ----------- TOTAL INVESTMENTS (99.41%) 17,965,740 -------- ----------- OTHER ASSETS AND LIABILITIES, NET (0.59%) 107,229 -------- ----------- TOTAL NET ASSETS (100.00%) $18,072,969 ======== =========== * 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. 100 ==============================FINANCIAL STATEMENTS============================== John Hancock Funds - Declaration Trust -- V.A. Sovereign Bond Fund Schedule of Investments June 30, 1998 (Unaudited) - -------------------------------------------------------------------------------- The Schedule of Investments is a complete list of all securities owned by the V. A. Sovereign Bond Fund on June 30, 1998. It is divided into three main catagories: bonds, warrants and short-term investments. Bonds and warrants 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 - ------------------- ---- ------- -------------- ----- BONDS Automobile / Trucks (0.62%) ERAC USA Finance Co., Note 02-15-05 (R) ............... 6.625% BBB $19 $18,825 Ford Motor Co., Bond 02-15-28 ................... 6.625 A 5 5,004 Deb 11-15-25 .................... 7.125 A 15 15,964 ----------- 39,793 ----------- Banks - Foreign (0.91%) Landeskreditbank Baden- Wuerttemberg, Sub Note (Germany) 02-01-23 (Y) .......... 7.625 AAA 15 17,412 RBSG Capital Corp., Gtd Cap Note 03-01-04 ........... 10.125 A+ 15 17,778 Scotland International Finance No. 2 B.V., Gtd Sub Note (Netherlands) 11-01-06 (R) (Y) .. 8.850 A+ 20 23,223 ----------- 58,413 ----------- Banks - United States (1.23%) Banc One Corp., Sub Deb 10-15-26 ................ 7.625 A+ 10 11,133 BankBoston NA, Sub Note 03-25-08 ............... 6.375 A2 15 14,992 Fleet Financial Group, Inc., Sub Note 05-15-08 ............... 6.375 A- 20 20,201 National Westminster Bank Plc - New York Branch, Sub Note 05-01-01 ............... 9.450 AA- 5 5,427 NB Capital Trust IV, Gtd Cap Security 04-15-27 ...... 8.250 A- 25 27,921 ----------- 79,674 ----------- Broker Services (0.16%) Salomon Smith Barney Holdings, Inc., Note 10-15-02 ................... 6.500 A 10 10,113 ----------- Building (0.15%) M.D.C. Holdings, Inc., Sr Note 02-01-08 ................ 8.375 BB- 10 10,000 ----------- Computers (0.40%) Dell Computer Corp., Sr Deb 04-15-28 ................. 7.100 BBB 25 25,535 ----------- Cosmetics & Personal Care (0.15%) Global Health Sciences, Inc., Sr Note 05-01-08 (R) ............ 11.000 B+ 10 9,875 ----------- Electronics (0.14%) Zilog, Inc., Sr Sec Note 03-01-05 (R) ........ 9.500 B 12 8,760 ----------- Energy (0.81%) AES Corp., Sr Sub Note 07-15-06 ............ 10.250 B+ 10 10,877 Sr Sub Note 08-15-07 ............ 8.375 B+ 23 23,230 CalEnergy Company, Inc., Sr Note 09-15-06 ................ 9.500 BB+ 10 10,857 P & L Coal Holdings Corp., Sr Sub Note 05-15-08 (R) ........ 9.625 B 7 7,192 ----------- 52,154 ----------- Finance (4.79%) Constitution Capital Trust I, Gtd Cap Security 04-15-27 (R) ... 9.150 BBB 3 3,375 DR Investments, Sr Note 05-15-07 (R) ............ 7.450 A- 20 21,214 EES Coke Battery Co. Inc., Sr Sec Note Ser A 04-15-12 (R) .. 7.125 BBB 8 8,678 Ford Capital, B.V., Gtd Deb (Netherlands) 05-15-02 (Y) .................... 9.875 A 50 56,185 General Motors Acceptance Corp., Medium Term Note 04-06-00 ...... 5.850 A2 45 44,953 JCP Master Credit Card Trust, Pass Thru Ctf Ser C Class A 06-15-00 ........................ 9.625 AA+ 95 100,663 United Companies Financial Corp., Sr Note 01-15-04 ................ 7.700 BB+ 5 4,948 WMC Finance USA, Gtd Note (Australia) 11-15-03 (Y) 6.500 A 65 65,116 Yanacocha Receivables Master Trust, Pass Thru Cert Ser 1997-A 06-15-05 (R) .................... 8.400 BBB- 4 3,739 ----------- 308,871 ----------- Funeral Services & Related (0.40%) Loewen Group International, Inc., Gtd Sr Note Ser 4 10-15-03 ...... 8.250 BB+ 25 25,625 ----------- Glass Products (0.05%) VICAP S.A. de C.V., Gtd Sr Note (Mexico) 05-15-07 (R) (Y) ................ 11.375 B+ 3 3,075 ----------- Government - Foreign (0.56%) Federative Republic of Brazil, Global Bond (Brazil) 04-07-08 (Y) 9.375 BB- 15 13,331 Panama, Republic of, Note (Panama) 02-13-02 (R) (Y) .. 7.875 BB+ 23 22,540 ----------- 35,871 ----------- Government - U.S. (42.72%) United States Treasury, Bond 08-15-17 ................... 8.875 AAA 77 104,972 Bond 02-15-23 ................... 7.125 AAA 620 733,441 Note 11-30-99 ................... 7.750 AAA 67 68,999 Note 05-15-01 ................... 8.000 AAA 417 443,975 Note 05-15-02 ................... 7.500 AAA 256 273,201 Note 08-15-03 ................... 5.750 AAA 133 134,412 Note 02-15-05 ................... 7.500 AAA 442 489,237 Note 07-15-06 ................... 7.000 AAA 466 508,886 ----------- 2,757,123 ----------- SEE NOTES TO FINANCIAL STATEMENTS. 101 ==============================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 - U.S. Agencies (15.01%) Federal National Mortgage Assn., 30 Yr Pass Thru Ctf 03-01-24 + .. 6.500% AAA $355 $353,555 30 Yr Pass Thru Ctf 01-01-28 .... 6.000 AAA 25 24,152 Note 02-15-11 + ................. 6.500 AAA 45 45,253 Pass Thru Ctf 01-20-08 + ........ 6.000 AAA 125 121,679 Pass Thru Ctf Ser 1997-M8 Class A-1 01-25-22 ............. 6.940 AAA 3 3,041 Government National Mortgage Assn , 30 Yr Pass Thru Ctf 08-01-24 + .. 7.000 AAA 355 360,655 30 Yr Pass Thru Ctf 07-15-26 to 08-15-27 .................... 8.000 AAA 58 60,103 ----------- 968,438 ----------- Household (0.23%) WestPoint Stevens Inc., Sr Note 06-15-05 (R) ............ 7.875 BB 15 15,113 ----------- Insurance (1.98%) Conseco, Inc., Note 06-15-05 ................... 6.800 BBB 15 15,025 Equitable Life Assurance Society of the United States, Surplus Note 12-01-05 (R) ....... 6.950 A 15 15,572 Fairfax Financial Holdings Ltd., Note (Canada) 04-15-26 (Y) ...... 8.300 BBB+ 15 17,022 Liberty Mutual Insurance Co., Surplus Note 05-04-07 (R) ....... 8.200 A+ 5 5,640 Surplus Note 10-15-26 (R) ....... 7.875 A2 15 16,929 Massachusetts Mutual Life Insurance Co., Surplus Note 11-15-23 (R) ....... 7.625 AA 5 5,670 NAC Re Corp., Note 06-15-99 ................... 8.000 A- 5 5,084 New York Life Insurance Co., Surplus Note 12-15-23 (R) ....... 7.500 AA- 5 5,224 Phoenix Home Life Mutual Insurance Co., Surplus Note 12-01-06 (R) ....... 6.950 A+ 15 15,434 Sun Canada Financial Co., Gtd Sub Note 12-15-07 (R) ....... 6.625 AA 20 20,710 URC Holdings Corp., Sr Note 06-30-06 (R) ............ 7.875 A- 5 5,393 ----------- 127,703 ----------- Leisure (0.30%) Sun International Hotels Ltd., Gtd Sr Sub Note (Bahamas) 03-15-07 (Y) ................... 9.000 B+ 8 8,380 Gtd Sr Sub Note (Bahamas) 12-15-07 (Y) ................... 8.625 B+ 5 5,150 Trump Hotels & Casino Resorts Funding, Inc./Holdings, L.P., Sr Note 06-15-05 ................ 15.500 B- 5 5,625 ----------- 19,155 ----------- Media (2.77%) Adelphia Communications Corp., Sr Note 07-15-03 (R) ............ 8.125 B 12 11,932 Sr Note Ser B 10-01-02 .......... 9.250 B2 17 17,595 Clear Channel Communications, Inc., Deb 10-15-27 .............. 7.250 BBB- 25 25,758 Comcast Corp., Sr Sub Deb 07-15-12 ............. 10.625 BB+ 4 5,160 Cumulus Media Inc., Sr Sub Note 07-01-08 ............ 10.375 CCC+ 5 5,069 Garden State Newspapers, Inc., Sr Sub Note 10-01-09 ............ 8.750 B+ 7 7,105 Le Groupe Videotron Ltee, Sr Note (Canada) 02-15-05 (Y) ... 10.625 BBB- 19 20,867 News America Holdings, Inc., Gtd Sr Deb 08-10-18 ............. 8.250 BBB- 18 20,309 OpTel, Inc., Sr Note 07-01-08 (R) + .......... 11.500 B- 10 10,000 Rogers Cablesystems Ltd., Sec Second Priority Note (Canada) 08-01-02 (Y) ........... 9.625 BB+ 21 22,470 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- 18 21,907 TKR Cable I, Inc., Sr Deb 10-30-07 ................. 10.500 BBB- 8 8,801 ----------- 179,083 ----------- Medical (1.53%) Dynacare Inc., Sr Note (Canada) 01-15-06 (Y) ... 10.750 B+ 7 7,403 Fresenius Medical Care Capital Trust II, Trust Preferred Security 02-01-08 ........................ 7.875 B+ 10 9,900 Integrated Health Services Inc., Sr Sub Note 01-15-08 ............ 9.250 B- 16 16,620 PharMerica, Inc., Sr Sub Note 04-01-08 (R) ........ 8.375 B 6 6,030 Physician Sales & Service, Inc., Gtd Sr Sub Note 10-01-07 ........ 8.500 B+ 9 9,270 Quest Diagnostics, Inc., Sr Sub Note 12-15-06 ............ 10.750 B+ 3 3,353 Sola International, Inc., Note 03-15-08 ................... 6.875 BBB- 10 9,994 Tenet Healthcare Corp., Sr Sub Note 01-15-07 ............ 8.625 BB- 13 13,325 Sr Sub Note 12-01-08 (R) ........ 8.125 BB- 8 8,010 Vencor, Inc., Sr Sub Note 05-01-05 (R) ........ 9.875 B- 5 4,888 Watson Pharmaceuticals, Inc., Sr Note 05-15-08 ................ 7.125 BBB- 10 10,138 ----------- 98,931 ----------- Metal (0.12%) Freeport-McMoRan Copper & Gold, Inc., Sr Note 11-15-26 ................ 7.200 CCC+ 10 8,044 ----------- Mortgage Banking (5.47%) Citibank Credit Card Master Trust I, Pass Thru Ctf Ser 1997-7 Class A 08-15-02 ........................ 6.350 AAA 45 45,359 ContiFinancial Corp., Sr Note 03-15-02 ................ 7.500 BB+ 18 18,061 SEE NOTES TO FINANCIAL STATEMENTS. 102 ==============================FINANCIAL STATEMENTS============================== John Hancock Funds - Declaration Trust -- V.A. Sovereign Bond Fund INTEREST CREDIT PAR VALUE MARKET ISSUER, DESCRIPTION RATE RATING* (000s OMITTED) VALUE - ------------------- ---- ------- -------------- ----- Mortgage Banking (continued) ContiMortgage Home Equity Loan Trust, Pass Thru Ctf Ser 1995-2 Class A-5 08-15-25 .............. 8.100% AAA $10 $10,405 CS First Boston Mortgage Securities Corp., Commercial Mtg Pass Thru Ctf Ser 1998-C1 Class A-1A 12-17-07 ............. 6.260 AAA 25 25,191 EQCC Home Equity Loan Trust, Pass Thru Ctf Ser 1997-3 Class A-9 02-15-29 .............. 6.570 AAA 25 25,401 First Plus Home Loan Trust, Pass Thru Ctf Ser 1997-1 Class A-6 12-10-15 .............. 6.950 AAA 5 5,047 GMAC Commercial Mortgage Securities, Inc., Pass Thru Ctf Ser 1997-C2 Class A-3 11-15-07 .............. 6.566 AAA 25 25,609 Homeside Lending Inc., Med Term Sr Note 05-15-03 ....... 6.200 A+ 25 24,925 IMC Home Equity Loan Trust, Pass Thru Ctf Ser 1998-1 Class A-4 03-20-25 .............. 6.600 Aaa 15 15,017 Money Store Home Equity Trust (The), Pass Thru Ctf Ser 1997-D Class AF-7 12-15-38 ............. 6.485 AAA 16 16,230 Morgan Stanley Capital I, Inc., Pass Thru Ctf Ser 1997-WF1 Class A1 10-15-06 (R) ........... 6.830 AAA 107 110,352 Nomura Asset Securities Corp., Pass Thru Ctf Ser 1998-D6 Class A-1A 03-17-28 ............. 6.280 AAA 15 14,891 Salomon Brothers Mortgage Securities VII, Inc., Mtg Pass Thru Ctf Ser 1997-HUD2 Class A-2 07-25-24 .............. 6.750 Aaa 6 6,098 UCFC Home Equity Loan Trust, Pass Thru Ctf Ser 1997-A1 Class A-8 06-15-28 .............. 7.220 AAA 10 10,238 ----------- 352,824 ----------- Oil & Gas (1.19%) Camuzzi Gas Pampeana S.A., Bond (Argentina) 12-15-01 (Y) ... 9.250 BBB- 10 10,075 Norsk Hydro ASA, Deb (Norway) 10-01-16 (Y) ....... 7.500 A 20 22,371 Petroleum Geo-Services, Sr Note (Norway) 03-30-08 (Y) ... 6.625 BBB 15 15,027 Union Pacific Resources Group, Inc., Deb 05-15-28 .................... 7.150 BBB 15 15,002 YPF Sociedad Anonima, Sr Note (Argentina) 03-15-03 (Y) 7.250 BBB- 15 14,576 ----------- 77,051 ----------- Paper & Paper Products (0.21%) Fort James Corp., Sr Note 09-15-02 ................ 6.500 BBB- 5 5,035 Repap New Brunswick, Sr Note (Canada) 04-15-05 (Y) ... 10.625 CCC+ 5 5,050 S.D. Warren Co., Sr Sub Note Ser B 12-15-04 ...... 12.000 B+ 3 3,315 ----------- 13,400 ----------- Real Estate Investment Trust (0.55%) American Health Properties, Inc., Note 01-15-07 ................... 7.500 BBB- 20 20,512 Liberty Property L.P., Med Term Note 06-05-02 .......... 6.600 BBB- 10 10,010 TriNet Corporate Realty Trust, Inc., Note 05-15-01 ................... 7.300 BBB- 5 5,079 ----------- 35,601 ----------- Retail (0.11%) Southern Foods Group L.P., Sr Sub Note 09-01-07 (R) ........ 9.875 B 7 7,298 ----------- Steel (0.20%) Bayou Steel Corp., 1st Mtg Bond 05-15-08 (R) ....... 9.500 B 10 9,913 IVACO, Inc., Sr Note (Canada) 09-15-05 (Y) ... 11.500 B+ 3 3,293 ----------- 13,206 ----------- Telecommunications (3.54%) Compagnie De Radiocomunicaciones Moviles S.A., Bond (Argentina) 05-08-08 (R) (Y) ................ 9.250 BBB- 3 2,880 Esprit Telecom Group Plc, Sr Note (United Kingdom) 06-15-08 (R) (Y) ................ 10.875 B- 10 9,900 Facilicom International, Sr Note 01-15-08 (R) ............ 10.500 B- 10 9,800 FLAG Ltd., Sr Note (Bermuda) 01-30-08 (R) (Y) ................ 8.250 B+ 16 16,120 GTE Corp., Deb 04-15-28 .................... 6.940 A 35 35,438 MCI Communications Corp., Sr Note 04-15-10 ................ 6.500 A 20 20,025 McLeodUSA Inc., Sr Note 03-15-08 (R) ............ 8.375 B+ 13 13,033 MetroNet Communications Corp., Sr Note (Canada) 08-15-07 (Y) ... 12.000 B 5 5,750 Nextel Communications, Inc., Sr Disc Note, Step Coupon (9.75%, 02-15-99) 08-15-04 (A) ......... Zero CCC+ 31 30,148 Sr Disc Note, Step Coupon (9.95%, 02-15-03) 02-15-08 (A) (R) ..... Zero CCC+ 10 6,375 NEXTLINK Communications, Inc., Sr Note 10-01-07 ................ 9.625 B 7 7,140 Sr Note 03-15-08 (R) ............ 9.000 B 6 6,000 Paging Network, Inc., Sr Sub Note 10-15-08 ............ 10.000 B 10 10,325 Qwest Communications International, Inc., Sr Note Ser B 04-01-07 .......... 10.875 BB+ 4 4,610 Satelites Mexicanos S.A. de C.V., Sr Note (Mexico) 11-01-04 (R) (Y) 10.125 B- 5 4,875 TCI Communications, Inc., Sr Deb 08-01-15 ................. 8.750 BBB- 22 26,486 Teligent, Inc., Sr Note 12-01-07 ................ 11.500 CCC 11 11,138 SEE NOTES TO FINANCIAL STATEMENTS. 103 ==============================FINANCIAL STATEMENTS============================== John Hancock Funds - Declaration Trust -- V.A. Sovereign Bond Fund INTEREST CREDIT PAR VALUE MARKET ISSUER, DESCRIPTION RATE RATING* (000s OMITTED) VALUE - ------------------- ---- ------- -------------- ----- Telecommunications (continued) Viatel, Inc., Unit (Sr Note & Preferred Stock Ser A) 04-15-08 (R) ............. 11.250% Caa1 $8 $8,380 ----------- 228,423 ----------- Textile (0.62%) Tommy Hilfiger USA, Gtd Note 06-01-03 ............... 6.500 BBB- 15 15,056 Tropical Sportswear International Corp., Sr Sub Note 06-15-08 (R) ........ 11.000 B- 10 10,025 Unifi, Inc., Note 02-01-08 ................... 6.500 A- 15 14,831 ----------- 39,912 ----------- Tobacco (0.65%) Philip Morris, Note 08-15-02 ................... 7.125 A 10 10,259 RJR Nabisco, Inc., Note 12-01-02 ................... 8.625 BBB- 21 21,676 Note 09-15-03 ................... 7.625 BBB- 10 9,943 ----------- 41,878 ----------- Transport (1.64%) America West Airlines, Inc., Pass Thru Ctf Ser B 01-02-08 .... 6.930 A- 5 4,902 Continental Airlines, Inc., Pass Thru Ctf Ser 972C 06-30-04 . 7.206 BBB 20 20,588 Enterprises Shipholding Corp., Sr Note (Greece) 05-01-08 (R) (Y) 8.875 BB 8 7,840 Fine Air Services, Inc., Sr Note 06-01-08 (R) ............ 9.875 B 15 14,663 Northwest Airlines, Inc., Gtd Note 03-15-04 ............... 8.375 BB 15 15,467 Pass Thru Ctf Ser 1996-1D 01-02-15 ........................ 8.970 BBB- 5 5,508 NWA Trust, Sr Note Ser A 06-21-14 .......... 9.250 A2 4 4,385 U.S. Airways, Inc., Pass Thru Ctf Ser 1990-A1 03-19-05 ........................ 11.200 BB 22 24,853 Wisconsin Central Transportation Corp., Note 04-15-08 ................... 6.625 BBB- 8 7,948 ----------- 106,154 ----------- Utilities (3.58%) Beaver Valley Funding Corp., Sec Lease Oblig Bond 06-01-17 ... 9.000 BB- 23 26,302 BVPS II Funding Corp., Collateralized Lease Bond 06-01-17 ........................ 8.890 BB- 5 5,781 Calpine Corp., Sr Note 07-15-07 ................ 8.750 BB- 8 8,220 Cleveland Electric Illuminating Co., 1st Mtg Ser B 05-15-05 .......... 9.500 BB+ 23 25,405 Sr Sec Note 11-01-17 ............ 7.880 BB+ 20 21,830 CMS Energy Corp., Sr Note 05-15-02 ................ 8.125 BB 5 5,144 First PV Funding Corp., Deb Ser 86B 01-15-16 ............ 10.150 BB- 2 2,130 Hydro-Quebec, Gtd Bond (Canada) 02-01-21 (Y) .. 9.400 A+ 15 19,945 Gtd Bond (Canada) 01-15-22 (Y) .. 8.400 A+ 20 24,419 Iberdrola International B.V., Note 10-01-02 ................... 7.500 AA- 15 15,695 Long Island Lighting Co., Deb 07-15-19 .................... 8.900 A- 3 3,179 Deb 11-01-22 .................... 9.000 A- 10 11,406 Niagara Mohawk Power Corp., Sr Note Ser G 10-01-08 .......... 7.750 BB- 10 10,238 North Atlantic Energy Corp., 1st Mtg Ser A 06-01-02 .......... 9.050 B+ 8 8,223 Puget Sound Energy Capital Trust I, Gtd Cap Security Ser B 06-01-27 . 8.231 Baa2 15 15,594 U.S. West Capital Funding Inc., Gtd Bond 07-15-28 ............... 6.875 A- 10 10,001 Waterford 3 Funding Corp., Sec Lease Obligation Bond 01-02-17 ........................ 8.090 BBB- 17 17,621 ----------- 231,133 ----------- TOTAL BONDS (Cost $5,947,492) (92.79%) 5,988,229 ------- ----------- NUMBER OF SHARES ------ WARRANTS Telecommunications (0.00%) MetroNet Communications Corp. (Canada) (Y) (R).. 5 240 ----------- TOTAL WARRANTS (Cost $51) (0.00%) 240 ------- ----------- SEE NOTES TO FINANCIAL STATEMENTS. 104 ==============================FINANCIAL STATEMENTS============================== John Hancock Funds - Declaration Trust -- V.A. Sovereign Bond Fund INTEREST PAR VALUE MARKET ISSUER, DESCRIPTION RATE (000s OMITTED) VALUE - ------------------- ---- -------------- ----- SHORT-TERM INVESTMENTS Joint Repurchase Agreement (15.62%) Investment in a joint repurchase agreement transaction with Toronto Dominion Securities USA, Inc. - Dated 06-30-98, due 07-01-98 (Secured by U.S. Treasury Bond, 9.125%, due 05-15-18 and U.S. Treasury Notes, 5.000% thru 8.750%, due 12-31-98 thru 04-30-03) - Note B..................... 5.750% $1,008 $1,008,000 ---------- Corporate Savings Account (0.02%) Investors Bank & Trust Company Daily Interest Savings Account Current Rate 4.950%............................ 881 ---------- TOTAL SHORT-TERM INVESTMENTS (15.64%) 1,008,881 -------- ---------- TOTAL INVESTMENTS (108.43%) 6,997,350 -------- ---------- OTHER ASSETS AND LIABILITIES, NET (8.43%) (544,047) -------- ---------- TOTAL NET ASSETS (100.00%) $6,453,303 ======== ========== NOTES TO THE SCHEDULE OF INVESTMENTS * Credit Ratings are rated by Moody's Investors Service or John Hancock Advisers, Inc. where Standard and Poor's ratings are not available. + A portion of these securities having an aggregate value of $891,142 or 13.81% 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 $586,753 of United States Treasury Bonds 7.125%, 02/15/23 and $359,179 of United States Treasury Notes 7.500%, 02/15/05 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 $514,735 or 7.98% of net assets as of June 30, 1998. (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. 105 ==============================FINANCIAL STATEMENTS============================== John Hancock Funds - Declaration Trust -- V.A. Strategic Income Fund Schedule of Investments June 30, 1998 (Unaudited) - -------------------------------------------------------------------------------- The Schedule of Investments is a complete list of all securities owned by the V. A. Strategic Income Fund on June 30, 1998. It is divided into four main catagories: bonds, common stocks, 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 - ------------------- ---- ------- -------------- ----- BONDS Advertising (1.92%) Outdoor Systems, Inc., Sr Sub Note 10-15-06 ............ 9.375% B $100 $106,250 R.H. Donnelly, Inc. Sr Sub Note 06-01-08 (R) ....... 9.125 B+ 100 101,625 ----------- 207,875 ----------- Banks - Foreign (1.84%) International Bank for Reconstruction & Development, Sr Note (South Africa) 07-21-98 # ....... 15.000 AAA 500 83,917 Landeskreditbank Baden- Wuerttemberg, Sub Note (Germany) 02-01-23 (Y) .......... 7.625 AAA 100 116,083 ----------- 200,000 ----------- Computers (1.07%) Unisys Corp., Sr Note 10-15-04 ................ 11.750 BB- 100 115,500 ----------- Containers (0.94%) Stone Container Corp., Unit (Sr Sub Deb & Supplemental Interest Cert) 04-01-02 ......... 12.250 B- 100 102,000 ----------- Cosmetics & Personal Care (0.91%) Global Health Sciences, Inc., Sr Note 05-01-08 (R) ............ 11.000 B+ 100 98,750 ----------- Diversified Operations (1.00%) Euramax International Plc, Sr Sub Note (United Kingdom) 10-01-06 (Y) .................... 11.250 B 100 108,250 ----------- Electronics (1.61%) Communications Instruments, Inc., Gtd Sr Sub Note Ser B 09-15-04 .. 10.000 B- 100 102,000 Zilog, Inc., Sr Sec Note 03-01-05 (R) ....... 9.500 B 100 73,000 ----------- 175,000 ----------- Energy (1.89%) P & L Coal Holdings Corp., Sr Sub Note 05-15-08 (R) ....... 9.625 B 200 205,500 ----------- Finance (0.92%) AEI Holding Co., Sr Note 11-15-07 (R) ............ 10.000 B- 100 99,500 ----------- Government - Foreign (6.74%) Australia, Commonweath of, Government Bond (Australia) 08-15-08 # ...................... 8.750 AAA 400 307,559 Government Bond (Australia) 11-15-06 # ...................... 6.750 AAA 200 133,907 United Kingdom of Great Britain Treasury Gilts, Government Bond (United Kingdom) 06-07-21 # ..... 8.000 AAA 50 108,870 Government Bond (United Kingdom) 12-07-28 # ..... 6.000 AAA 100 180,737 ----------- 731,073 ----------- Government - U.S. (20.05%) United States Treasury, Bond 02-15-16 ................... 9.250 AAA 200 278,188 Bond 08-15-19 ................... 8.125 AAA 500 645,310 Bond 08-15-23 ................... 6.250 AAA 200 214,124 Bond 11-15-27 ................... 6.125 AAA 500 535,780 Note 08-15-04 ................... 7.250 AAA 225 244,793 Note 08-31-02 ................... 6.250 AAA 250 256,523 ----------- 2,174,718 ----------- Leisure (4.50%) Casino America, Inc., Sr Sec Note 08-01-03 ............ 12.500 B+ 250 282,500 Cinemark USA, Inc., Sr Sub Note Ser D 08-01-08 ...... 9.625 B 100 103,000 Sun International Hotels Ltd., Gtd Sr Sub Note (Bahamas) 12-15-07 (Y) .................... 8.625 B+ 100 103,000 ----------- 488,500 ----------- Machinery (1.84%) Columbus McKinnon Corp., Sr Sub Note 04-01-08 (R) ....... 8.500 B 100 98,750 Newcor, Inc., Sr Sub Note 03-01-08 (R) ....... 9.875 B- 100 101,250 ----------- 200,000 ----------- Media (8.40%) Chancellor Media Corp., Gtd Sr Sub Note 01-15-07 ....... 10.500 Ba3 100 111,000 Cumulus Media, Inc., Sr Sub Note 07-01-08 ............ 10.375 CCC+ 100 101,375 Falcon Holding Group L.P./Falcon Funding Corp., Sr Deb 04-15-10 (R) .................... 8.375 B 200 201,500 Intermedia Capital Partners, Sr Note 08-01-06 ................ 11.250 B 100 111,750 Regional Independent Media Group Plc, Sr Note (United Kingdom) 07-01-08 (R), (Y) ............... 10.500 B- 175 177,625 SFX Entertainment, Inc., Sr Sub Note 02-01-08 (R) ....... 9.125 CCC+ 100 98,000 STC Broadcasting, Inc., Sr Sub Note 03-15-07 ............ 11.000 B- 100 109,250 ----------- 910,500 ----------- Medical (0.91%) Fresenius Medical Care Capital Trust II, Trust Preferred Security 02-01-08 ............... 7.875 B+ 100 99,000 ----------- SEE NOTES TO FINANCIAL STATEMENTS. 106 ==============================FINANCIAL STATEMENTS============================== John Hancock Funds - Declaration Trust -- V.A. Strategic Income Fund INTEREST CREDIT PAR VALUE MARKET ISSUER, DESCRIPTION RATE RATING* (000s OMITTED) VALUE - ------------------- ---- ------- -------------- ----- Metal (1.99%) GS Technologies Operating Co., Sr Note 10-01-05 ................ 12.250% B $100 $114,000 Koppers Industries, Inc., Gtd Sr Sub Note 12-01-07 ....... 9.875 B- 100 102,000 ----------- 216,000 ----------- Oil & Gas (1.47%) Canadian Forest Oil Ltd., Gtd Sr Sub Note (Canada) 09-15-07 (Y) .................... 8.750 B 100 96,750 Universal Compression, Inc., Sr Disc Note, Step Coupon (9.875%, 02-15-03) 02-15-08 (A), (R) ............... Zero B 100 62,500 ----------- 159,250 ----------- Paper & Paper Products (0.93%) Repap New Brunswick, Sr Note (Canada) 04-15-05 (Y) ... 10.625 CCC+ 100 101,000 ----------- Printing - Commercial (0.98%) Goss Graphic Systems, Inc., Sr Sub Note 10-15-06 ............ 12.000 B 100 105,750 ----------- Retail (1.38%) United Stationers, Inc., Sr Sub Note 04-15-08 (R) ....... 8.375 B 150 150,000 ----------- Steel (0.92%) Ameristeel Corp., Sr Note 04-15-08 (R) ............ 8.750 B+ 100 100,000 ----------- Telecommunications (28.77%) Allegiance Telecom, Inc., Sr Disc Note, Step Coupon (11.75%, 02-15-03) 02-15-08 (A), (R) ............... Zero B- 250 125,000 American Mobile Satellite Corp./AMSC Acquisition Co. Inc., Unit (Sr Note & Warrant) 04-01-08 (R) ........... 12.250 B- 100 93,000 Clearnet Communications, Inc., Sr Disc Note, Step Coupon (10.40%, 05-15-03) (Canada) 05-15-08 # ...................... Zero B3 150 60,428 COLT Telecom Group Plc, Sr Note (United Kingdom) 11-30-07 # ...................... 10.125 B 75 132,582 Comunicacion Celular S.A., Bond, Step Coupon (13.125%, 11-15-00) (Colombia) 11-15-03 (A), (Y) .... Zero B3 100 77,000 Crown Castle International Corp., Sr Disc Note, Step Coupon (10.625%, 11-01-02) 11-15-07 (A), (R) ............... Zero B 150 102,375 Diva Systems Corp., Unit (Sr Disc Note & Warrants), Step Coupon (12.625%, 03-01-03) 03-01-08 (A), (R) ............... Zero B- 250 117,500 DTI Holdings, Inc., Unit (Sr Disc Note & Warrants), Step Coupon (12.500%, 03-01-03) 03-01-08 (A), (R) ............... Zero B- 150 81,000 Esprit Telecom Group Plc, Sr Note (United Kingdom) 12-15-07 (Y) .................... 11.500 B- 100 103,000 Sr Note (United Kingdom) 06-15-08 (R), (Y) ............... 10.875 B- 100 99,000 FLAG Ltd., Sr Note (Bermuda) 01-30-08 (R), (Y) ............... 8.250 B+ 100 100,750 Global Crossing Holdings Ltd., Sr Note 05-15-08 (R) ............ 9.625 B 100 104,250 Globalstar L.P./Globalstar Capital Corp., Sr Note 06-01-05 (R) ..... 11.500 B 100 97,375 Hermes Europe Railtel B.V., Sr Note (Netherlands) 08-15-07 (Y) .................... 11.500 B 100 113,000 Innova S. de R.L., Sr Note (Mexico) 04-01-07 (Y) ........... 12.875 B- 100 101,500 Intercel, Inc., Unit (Sr Discount Note & Warrant), Step Coupon (12.00%, 02-01-01) 02-01-06 (A) .................... Zero B 200 158,000 Ionica Plc, Sr Disc Note, Step Coupon (15.00%, 05-01-02) (United Kingdom) 05-01-07 (A), (Y) ............... Zero Caa3 200 48,000 Iridium LLC/Iridium Capital Corp., Gtd Sr Note Ser A 07-15-05 ...... 13.000 B- 100 106,500 IXC Communications, Inc., Sr Sub Note 04-15-08 (R) ....... 9.000 CCC+ 100 99,000 MetroNet Communications Corp., Sr Disc Note, Step Coupon (9.95%, 06-15-03) (Canada) 06-15-08 (A), (Y) ............... Zero B 200 123,750 Sr Discount Note, Step Coupon (10.75%, 11-01-02) (Canada) 11-01-07 (A), (Y) ............... Zero B 100 66,000 Nextel Communications, Inc., Sr Disc Note, Step Coupon (9.75%, 02-15-99) 08-15-04 (A) .. Zero CCC+ 75 72,937 Sr Disc Note, Step Coupon (9.95%, 02-15-03) 02-15-08 (A), (R) ............... Zero CCC+ 125 79,688 NTL, Inc., Sr Note 04-01-08 (R) ............ 9.500 B- 60 103,064 Orion Network Systems, Sr Note 01-15-07 ................ 11.250 B+ 100 111,500 Qwest Communications International, Inc., Sr Note Ser B 04-01-07 .................. 10.875 BB+ 100 115,250 RCN Corp., Sr Note 10-15-07 ................ 10.000 B3 100 103,000 Teligent, Inc., Sr Note 12-01-07 ................ 11.500 CCC 100 101,250 Viatel, Inc., Unit (Sr Note & Preferred Stock) 04-15-08 (R) ... 11.250 Caa1 200 209,500 Winstar Equipment Corp., Gtd Sec Note 03-15-04 ........... 12.500 B3 100 114,000 ----------- 3,119,199 ----------- SEE NOTES TO FINANCIAL STATEMENTS. 108 ==============================FINANCIAL STATEMENTS============================== John Hancock Funds - Declaration Trust -- V.A. Strategic Income Fund INTEREST CREDIT PAR VALUE MARKET ISSUER, DESCRIPTION RATE RATING* (000s OMITTED) VALUE - ------------------- ---- ------- -------------- ----- Textile (1.39%) Tropical Sportswear International Corp., Sr Sub Note 06-15-08 (R) .................... 11.000% B- $150 $150,375 ----------- Transport (1.81%) Enterprises Shipholding Corp., Sr Note (Greece) 05-01-08 (R), (Y) ............... 8.875 BB 100 98,000 Fine Air Services, Inc., Sr Note 06-01-08 (R) ............ 9.875 B 100 97,750 ----------- 195,750 ----------- Utilities (1.97%) Midland Funding Corp. II, Deb Ser A 07-23-05 .............. 11.750 B 100 120,294 Monterrey Power S.A. de C.V., Sr Sec Bond (Mexico) 11-15-09 (R), (Y) ............... 9.625 BB 100 93,500 ----------- 213,794 ----------- TOTAL BONDS (Cost $10,431,144) (96.15%) 10,427,284 ------- ----------- NUMBER OF SHARES ------ COMMON STOCKS KLM Royal Dutch Air Lines N.V., Common Stock (Netherlands)..................... 500 20,469 Nextel Communications, Inc. (Class A), Common Stock**................................. 232 5,771 ---------- TOTAL COMMON STOCKS (Cost $21,030) (0.24%) 26,240 ------- ---------- PREFERRED STOCKS AND WARRANTS Allegiance Telecom, Inc., Warrant** ............ 250 625 Comunicacion Celular S.A., Warrant (Colombia) (Y)** .............................. 1,000 7,000 Loral Space & Communications Ltd., Warrant** ... 100 1,000 NEXTLINK Communications, Inc., 14.00%, Preferred Stock ............................... 1,662 99,720 SFX Broadcasting, Inc., 12.625%, Ser E, Preferred Stock ............................... 1,130 134,482 ---------- TOTAL PREFERRED STOCKS AND WARRANTS (Cost $220,978) (2.24%) 242,827 ------- ---------- INTEREST PAR VALUE MARKET ISSUER, DESCRIPTION RATE (000s OMITTED) VALUE - ------------------- ---- -------------- ----- SHORT-TERM INVESTMENTS Joint Repurchase Agreement (0.52%) Investment in a joint repurchase agreement transaction with Toronto Dominion Securities USA, Inc. - Dated 06-30-98, due 07-01-98 (Secured by U.S. Treasury Bond, 9.125%, due 05-15-18 and U.S. Treasury Notes, 5.000% thru 8.750%, due 12-13-98 thru 04-30-03) - Note B.... 5.750% $56 $56,000 ----------- Corporate Savings Account (0.00%) Investors Bank & Trust Company Daily Interest Savings Account Current Rate 4.95%............................. 617 ----------- TOTAL SHORT-TERM INVESTMENTS (0.52%) 56,617 -------- ----------- TOTAL INVESTMENTS (99.15%) 10,752,968 -------- ----------- OTHER ASSETS AND LIABILITIES, NET (0.85%) 91,365 -------- ----------- TOTAL NET ASSETS (100.00%) $10,844,333 ======== =========== * Credit Ratings are unaudited and rated by Moody's Investors 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. (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 B of the Notes to Financial Statements for valuation policy. Rule 144A securities amounted to $3,419,127 or 31.53% of the Fund's net assets as of June 30, 1998. (Y) Parenthetical disclosure of a foreign country in the security description represents country of 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. 108 ==============================FINANCIAL STATEMENTS============================== John Hancock Funds - Declaration Trust -- V.A. Strategic Income Fund Portfolio Concentration June 30, 1998 (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 June 30, 1998 assigned to country categories. MARKET VALUE AS A % OF COUNTRY DISTRIBUTION FUND NET ASSETS - -------------------- --------------- Australia.................................. 4.07% Bahamas.................................... 0.95 Bermuda.................................... 0.93 Canada..................................... 4.13 Colombia................................... 0.77 Germany.................................... 1.07 Greece..................................... 0.90 Mexico..................................... 1.80 Netherlands................................ 1.23 South Africa............................... 0.77 United Kingdom............................. 8.83 United States.............................. 73.70 ----- TOTAL INVESTMENTS 99.15% ===== Additionally, the concentration of investments can be aggregated by the quality rating for each debt security. QUALITY DISTRIBUTION - -------------------- AAA........................................ 28.64 BB......................................... 4.92 B.......................................... 54.19 CCC........................................ 8.40 ----- TOTAL BONDS 96.15% ===== SEE NOTES TO FINANCIAL STATEMENTS. 109 ==============================FINANCIAL STATEMENTS============================== John Hancock Funds - Declaration Trust -- V.A. High Yield Bond Fund Schedule of Investments June 30, 1998 (Unaudited) - -------------------------------------------------------------------------------- The Schedule of Investments is a complete list of all securities owned by the V. A. High Yield Bond Fund on June 30, 1998. It is divided into four main catagories: bonds, common stocks, preferred stocks 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 - ------------------- ---- ------- -------------- ----- BONDS Agricultural Operations (0.17%) Iowa Select Farms L.P./ISF Finance, Inc., Sr Sub Note 12-01-05 (R) .................... 10.750% B3 $10 $10,050 ----------- Automobile / Trucks (0.42%) J.B. Poindexter & Co., Inc., Sr Note 05-15-04 ................ 12.500 B- 25 25,125 ----------- Banks - Foreign (1.98%) Fuji JGB Inv LLC, Pfd., Bond Ser A 12-31-49 (R) ** ...... 9.870 BB+ 135 119,475 ----------- Chemicals (2.54%) American Pacific Corp., Sr Note 03-01-05 (R) ............ 9.250 BB- 50 51,625 Trikem S.A., Bond (Brazil) 07-24-07 (R) (Y) .. 10.625 BB- 125 101,250 ----------- 152,875 ----------- Computers (2.09%) Exodus Communications, Inc., Sr Note 07-01-08 (R) ............ 11.250 B- 24 24,060 PSINet, Inc., Sr Note Ser B 02-15-05 .......... 10.000 B- 100 102,000 ----------- 126,060 ----------- Consumer Products Misc. (0.82%) Indesco International, Inc., Sr Sub Note 04-15-08 (R) ........ 9.750 B- 50 49,250 ----------- Containers (6.49%) Gaylord Container Corp., Sr Note Ser B 06-15-07 .......... 9.375 B 25 24,062 Sr Sub Note Ser B 02-15-08 ...... 9.875 B 200 194,000 Riverwood International Corp., Gtd Sr Sub Note 04-01-08 ........ 10.875 CCC+ 20 20,375 Stone Container Corp., Unit (Sr Sub Deb & Supplemental Interest Cert) 04-01-02 ......... 12.250 B- 150 153,000 ----------- 391,437 ----------- Cosmetics & Personal Care (1.51%) AKI, Inc., Sr Note 07-01-08 (R) ............ 10.500 B+ 7 7,070 Global Health Sciences, Inc., Sr Note 05-01-08 (R) ............ 11.000 B+ 75 74,063 Styling Technology Corp., Sr Sub Note 07-01-08 (R) ........ 10.875 B- 10 10,025 ----------- 91,158 ----------- Energy (3.41%) P & L Coal Holdings Corp., Sr Sub Note 05-15-08 (R) ........ 9.625 B 200 205,500 ----------- Finance (3.01%) Advance Agro Public Co., Sr Note (Thailand) 11-15-07 (R) (Y) ..... 13.000 CCC+ 50 50,000 Polysindo International Finance B.V., Gtd Note (Indonesia) 02-12-99 (Y) ** ................. 8.648 CCC- 10 5,500 Sampoerna International Finance Co., B.V., Gtd Yankee Bond (Indonesia) 06-15-06 (R) (Y) .... 8.375 CCC- 50 26,500 Sumitomo Bank Treasury Co. LLC, Bond Ser A 12-29-49 (R) ** ...... 9.400 BBB- 100 99,500 ----------- 181,500 ----------- Food (4.00%) Del Monte Foods Co., Sr Disc Note, Step Coupon (12.50%, 12-15-02) 12-15-07 (A) (R) ................ Zero B- 70 45,675 Mastellone Hermanos S.A., Sr Bond (Argentina) 04-01-08 (R) (Y) ................ 11.750 B+ 150 150,000 Specialty Foods Acquisition Corp., Sr Sub Note Ser B 08-15-03 ...... 11.250 CCC 50 45,250 ----------- 240,925 ----------- Government - Foreign (0.41%) Government of Jamaica, Note (Jamaica) 06-10-05 (R) (Y) . 10.875 Ba3 25 25,000 ----------- Leisure (5.26%) Claridge Hotel and Casino Corp., 1st Mtg Note 02-01-02 ........... 11.750 CC 50 49,124 Clearview Cinema Group, Inc., Sr Note 06-01-08 (R) ............ 10.875 B 10 10,200 Fitzgeralds Gaming Corp., Gtd Sr Sec Note 12-15-04 (R) .... 12.250 B- 50 48,500 IHF Holdings, Inc., Sr Sub Disc Note Ser B, Step Coupon (15.00%, 11-15-99) 11-15-04 (A) .................... Zero Caa2 25 20,750 Premier Parks, Inc., Sr Disc Note, Step Coupon (10.00%, 04-01-03) 04-01-08 (A) .................... Zero B- 200 132,750 SC International Services, Inc., Gtd Sr Sub Note Ser B 09-01-07 .. 9.250 B 55 56,100 ----------- 317,424 ----------- Machinery (0.41%) Glasstech, Inc., Sr Note Ser B 07-01-04 .......... 12.750 B+ 25 24,500 ----------- Manufacturing (5.73%) AP Holdings, Inc., Sr Disc Note, Step Coupon (11.25%, 03-15-03) 03-15-08 (A) (R) ................ Zero B- 200 119,000 Coyne International Enterprises Corp., Sr Sub Note 06-01-08 (R) . 11.250 B- 16 16,040 Doe Run Resources Corp., Sr Note 03-15-05 (R) ............ 11.250 B+ 10 10,000 Sr Sub Note 03-15-03 (R) ** ..... 12.009 B+ 25 25,000 SEE NOTES TO FINANCIAL STATEMENTS. 110 ==============================FINANCIAL STATEMENTS============================== John Hancock Funds - Declaration Trust -- V.A. High Yield Bond Fund INTEREST CREDIT PAR VALUE MARKET ISSUER, DESCRIPTION RATE RATING* (000s OMITTED) VALUE - ------------------- ---- ------- -------------- ----- Manufacturing (continued) Icon Health & Fitness, Inc., Sr Sub Note Ser B 07-15-02 ...... 13.000% CCC+ $50 $54,875 RAB Holdings, Inc., Sr Note 05-01-08 (R) ............ 13.000 CCC+ 120 120,600 ----------- 345,515 ----------- Media (1.38%) CD Radio, Inc., Sr Disc Note, Step Coupon (15.00%, 12-01-02) 12-01-07 (A) .................... Zero Caa1 10 5,850 Cumulus Media, Inc., Sr Sub Note 07-01-08 ........................ 10.375 CCC+ 14 14,193 Digital Television Services LLC, Gtd Sr Sub Note 08-01-07 ........ 12.500 CCC 35 39,900 Regional Independent Media Group Plc, Sr Disc Note, Step Coupon (12.875%, 07-01-03) (United Kingdom) 07-01-08 (A) (R) *** ............ Zero B- 20 18,178 Sr Note (United Kingdom) 07-01-08 (R) (Y) ................ 10.500 B- 5 5,075 ----------- 83,196 ----------- Metal (0.65%) Freeport-McMoRan Copper & Gold, Inc., Sr Note 11-15-06 .... 7.500 CCC+ 10 7,800 Metallurg, Inc., Sr Note 12-01-07 (R) ............ 11.000 B- 30 31,350 ----------- 39,150 ----------- Oil & Gas (6.58%) Gothic Energy Corp., Unit (Sr Sec Disc Note & Warrants) 05-01-06 (R) .................... 14.125 CCC 10 5,700 Gothic Production Corp., Sr Sec Note 05-01-05 (R) ........ 11.125 B- 150 144,000 Great Lakes Acquisition, Sr Disc Deb, Step Coupon (13.125%, 05-15-03) 05-15-09 (A) (R) ................ Zero B- 200 109,000 Key Energy Group, Inc., Conv Sub Note 09-15-04 (R) ...... 5.000 B 80 62,400 Conv Sub Note 09-15-04 .......... 5.000 B 50 39,000 Mariner Energy, Inc., Sr Sub Note Ser B 08-01-06 ...... 10.500 B- 10 10,250 Ocean Rig Norway AS, Gtd Sr Note (Norway) 06-01-08 (R) (Y) ................ 10.250 B- 11 10,450 PANACO, Inc., Gtd Sr Sub Note Ser B 10-01-04 .................. 10.625 B- 10 9,950 Universal Compression, Inc., Sr Disc Note, Step Coupon (9.875%, 02-15-03) 02-15-08 (A) (R) ................ Zero B 10 6,250 ----------- 397,000 ----------- Paper & Paper Products (4.76%) American Pad & Paper Co., Sr Sub Note Ser B 11-15-05 ...... 13.000 B- 10 10,400 APP International Finance Co. B.V , Gtd Sec Note (Indonesia) 10-01-05 (Y) .................... 11.750 CCC+ 150 132,000 Bear Island Paper Co. LLC, Sr Sec Note Ser B 12-01-07 ...... 10.000 B 25 25,750 Repap New Brunswick, Sr Note (Canada) 04-15-05 (Y) ... 10.625 CCC+ 100 101,000 Sappi BVI Finance Ltd., Gtd Conv Bond (South Africa) 08-01-02 (R) (Y) ................ 7.500 BB- 20 18,000 ----------- 287,150 ----------- Real Estate Operations (0.14%) Signature Resorts, Inc., Conv Sub Note 01-15-07 .......... 5.750 B 10 8,250 ----------- Retail (4.57%) American Restaurant Group, Inc., Sr Sec Note 02-15-03 (R) ........ 11.500 B 50 50,250 Corporate Express, Inc., Conv Note 07-01-00 .............. 4.500 B 11 10,160 Frank's Nursery & Crafts, Sr Sub Note 03-01-08 (R) ........ 10.250 B- 25 25,188 Hills Stores Co., Sr Note Ser B 07-01-03 .......... 12.500 B- 60 60,000 Imperial Home Decor Group, Inc., Sr Sub Note 03-15-08 (R) ........ 11.000 B- 125 129,688 ----------- 275,286 ----------- Steel (5.56%) Acindar Industria Argentina de Aceros S.A., Bond (Argentina) 02-15-04 (Y) ........ 11.250 B+ 10 10,025 CSN Iron S.A., Gtd Note (Brazil) 06-01-07 (Y) .................... 9.125 B1 50 40,500 Gulf States Steel, Inc. of Alabama, 1st Mtg 04-15-03 ................ 13.500 B- 100 98,000 NSM Steel Inc./NSM Steel Ltd., Unit (Sr Sub Mtg Note Ser B & Warrant) (Thailand) 02-01-08 (R) (Y) ................ 12.250 CCC 100 90,000 Oregon Steel CF&I, Note 03-31-03 (r) ............... 9.500 B 100 96,881 ----------- 335,406 ----------- Telecommunications (6.95%) American Mobile Satellite Corp./ AMSC Acquisition Co., Inc., Unit (Sr Note & Warrant) 04-01-08 (R) .................... 12.250 B- 40 37,200 Esprit Telecom Group Plc, Sr Note (United Kingdom) 06-15-08 (R) (Y) ................ 11.000 B- 60 32,915 FaciliCom International, Sr Note 01-15-08 (R) ............ 10.500 B- 25 24,500 International Wireless Communications, Inc., Sr Sec Disc Note 08-15-01 ...... Zero B- 50 14,000 SEE NOTES TO FINANCIAL STATEMENTS. 111 ==============================FINANCIAL STATEMENTS============================== John Hancock Funds - Declaration Trust -- V.A. High Yield Bond Fund INTEREST CREDIT PAR VALUE MARKET ISSUER, DESCRIPTION RATE RATING* (000s OMITTED) VALUE - ------------------- ---- ------- -------------- ----- Telecommunications (continued) Ionica Plc, Sr Disc Note, Step Coupon (15.00%, 05-01-02) (United Kingdom) 05-01-07 (A) (Y) ................ Zero% Caa3 $40 $9,600 Sr Note (United Kingdom) 08-15-06 (Y) .................... 13.500 Caa3 110 66,000 Long Distance International, Inc., Unit (Sr Note & Warrant) 04-15-08 (R) .................... 12.250 B- 100 99,000 Telefonica de Argentina S.A., Note (Argentina) 11-01-04 (Y) ... 11.875 BBB- 25 26,875 Viatel, Inc., Unit (Sr Note & Jr Sub Deb) 04-15-08 (R) .................... 11.150 Caa1 170 98,676 Unit (Sr Note & Preferred Stock Ser A) 04-15-08 (R) ............. 11.250 Caa1 10 10,475 ----------- 419,241 ----------- Textile (2.87%) Steel Heddle Group, Inc., Sr Disc Deb, Step Coupon (13.75%, 06-01-03) 06-01-09 (A) (R) ...... Zero CCC+ 200 103,000 Steel Heddle Manufacturing Co., Sr Sub Note 06-01-08 (R) ........ 10.625 CCC+ 50 50,125 Tropical Sportswear International Corp., Sr Sub Note 06-15-08 (R) .................... 11.000 B- 20 20,050 ----------- 173,175 ----------- Transport (2.76%) Cenargo International Plc, 1st Mtg Note (United Kingdom) 06-15-08 (R) (Y) ................ 9.750 BB- 20 19,750 Fine Air Services, Inc., Sr Note 06-01-08 (R) ............ 9.875 B 100 97,750 Pacific & Atlantic Holding, Inc., 1st Mtg Note (Greece) 05-30-08 (R) (Y) ................ 11.500 B 50 48,750 ----------- 166,250 ----------- Utilities (1.12%) Empire Gas Corp., Gtd Sr Sec Note 07-15-04 ........ 7.000 CC 50 46,250 Espirito Santo Centrais Electric, Sr Note (Brazil) 07-15-07 (R) (Y) 10.000 BB- 25 21,500 ----------- 67,750 ----------- Waste Disposal Service & Equip (3.37%) Waste Systems International, Inc., Conv Sub Note 05-13-05 (R) ...... 7.000 CCC+ 200 203,000 ----------- TOTAL BONDS (Cost $4,838,575) (78.96%) 4,760,648 ------- ----------- NUMBER OF MARKET ISSUER, DESCRIPTION SHARES OR WARRANTS VALUE - ------------------- ------------------ ----- COMMON STOCKS Abitibi-Consolidated, Inc., Common Stock (Canada) (Y) ..................................... 12,500 $160,156 American Pacific Corp., Common Stock .............. 5,000 49,375 Gaylord Container Corp. (Class A), Common Stock ... 4,000 30,750 KLM Royal Dutch Airlines N.V., Common Stock (Netherlands) (Y) ................................ 100 4,094 Northwest Airlines Corp. (Class A), Common Stock .. 3,250 125,328 Repap Enterprises Inc., Common Stock (Canada) *** ..................................... 150,000 25,500 ---------- TOTAL COMMON STOCKS (Cost $484,148) (6.55%) 395,203 ------- ---------- PREFERRED STOCKS Cumulus Media, Inc., 13.75%, Ser A, Preferred Stock .................................. 27 27,473 Nextel Communications, Inc., 11.125%, Ser E, Payment-In-Kind, Preferred Stock (R) ............. 154 158,620 ---------- TOTAL PREFERRED STOCKS (Cost $190,740) (3.09%) 186,093 ------- ---------- SEE NOTES TO FINANCIAL STATEMENTS. 112 ==============================FINANCIAL STATEMENTS============================== John Hancock Funds - Declaration Trust -- V.A. High Yield Bond Fund INTEREST PAR VALUE MARKET ISSUER, DESCRIPTION RATE (000s OMITTED) VALUE - ------------------- ---- -------------- ----- SHORT-TERM INVESTMENTS Joint Repurchase Agreement (10.78%) Investment in a joint repurchase agreement transaction with Toronto Dominion Securities USA, Inc. - Dated 06-30-98, due 07-01-98 (secured by U.S. Treasury Bond, 9.125%, due 05-15-18 and U.S. Treasury Notes, 5.000% thru 8.750%, due 12-31-98 thru 04-30-03) - Note B....................... 5.750% $650 $650,000 ---------- Corporate Savings Account (0.00%) Investors Bank & Trust Company Daily Interest Savings Account Current Rate 4.950%.............................. 107 ---------- TOTAL SHORT-TERM INVESTMENTS (10.78%) 650,107 -------- ---------- TOTAL INVESTMENTS (99.38%) 5,992,051 -------- ---------- OTHER ASSETS AND LIABILITIES, NET (0.62%) 37,087 -------- ---------- TOTAL NET ASSETS (100.00%) $6,029,138 ======== ========== * Credit ratings are rated by Moody's Investors Service or John Hancock Advisers, Inc. where Standard and Poor's ratings are not available. ** Represents rate in effect on June 30, 1998. *** Par value of foreign bonds and shares outstanding of common stocks is expressed in local currency, as shown parenthetically in security description. (A) Cash interest will be paid on this obligation at the stated rate beginning on the stated date. (R) These securities are exempt from registration under Rule 144A of the Securities Act of 1933. Such securities may be resold, normally to qualified institutional buyers, in transactions exempt from registration. Rule 144A securities amounted to $3,129,223 or 51.90% of net assets as of June 30, 1998. (Y) Parenthetical disclosure of a foreign country in the security description represents country of a foreign issuer, however, security is U.S. dollar denominated. (r) Direct placement securities are restricted as to resale. They have been valued in accordance with procedures approved by the Trustees after consideration of restrictions as to resale, financial condition and prospects of the issuer, general market conditions and pertinent information in accordance with the Fund's By-Laws and the Investment Company Act of 1940, as amended. The Fund has limited rights to registration under the Securities Act of 1933 with respect to these restricted securities. Additional information on these securities is as follows: MARKET VALUE MARKET VALUE ACQUISITION ACQUISITION AS A %OF AS OF ISSUER, DESCRIPTION DATE COST FUND NET ASSETS JUNE 30, 1998 - ------------------- ----------- ----------- -------------- ------------- Oregon Steel CF&I 5/14/98 $98,069 1.61% $96,881 The percentage shown for each investment category is the total value of that category as a percentage of the net assets of the Fund. Portfolio Concentration June 30, 1998 (Unaudited) - -------------------------------------------------------------------------------- The V. A. High Yield Bond 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 June 30, 1998 assigned to country categories. MARKET VALUE AS A % OF COUNTRY DIVERSIFICATION FUND NET ASSETS - ----------------------- --------------- Argentina......................................... 3.10% Brazil............................................ 2.71 Canada............................................ 4.76 Greece............................................ 0.81 Indonesia......................................... 2.72 Jamaica........................................... 0.42 Netherlands....................................... 0.07 Norway............................................ 0.17 South Africa...................................... 0.30 Thailand.......................................... 2.32 United Kingdom.................................... 2.51 United States..................................... 79.49 ----- TOTAL INVESTMENTS 99.38% ===== Additionally, the concentration of investments can be aggregated by the quality rating for each debt security. QUALITY DISTRIBUTION - -------------------- BBB............................................... 2.10% BB................................................ 5.91 B................................................. 48.12 CCC............................................... 21.25 CC................................................ 1.58 ----- TOTAL BONDS 78.96% ===== SEE NOTES TO FINANCIAL STATEMENTS. 113 ==============================FINANCIAL STATEMENTS============================== John Hancock Funds - Declaration Trust -- V.A. World Bond Fund Schedule of Investments June 30, 1998 (Unaudited) - -------------------------------------------------------------------------------- The Schedule of Investments is a complete list of all securities owned by V.A. World Bond Fund on June 30, 1998. It's divided into three main categories: bonds, options and short-term investments. The bonds and options are further broken down by currency denomination. Short-term investments, which represent the Fund's "cash" position, are listed last. PAR VALUE INTEREST (000s MARKET ISSUER, DESCRIPTION RATE OMITTED) VALUE - ------------------- ---- -------- ----- BONDS British Pound Sterling (4.80%) United Kingdom Treasury, Bond 11-06-01# ............................ 7.000% 70 $118,106 ---------- Deutsche Mark (18.21%) Federal Republic of Germany, Bond Ser 98 01-04-08# ..................... 5.250 442 253,889 Ford Motor Credit Company, (United States), Bond 06-16-08# ............................ 5.250 350 193,626 ---------- 447,515 ---------- U.S. Dollar (70.29%) Federal Home Loan Bank, Bond 10-15-03 ............................. 5.440 $150 147,961 Bond 03-26-07 ............................. 6.945 100 107,109 Federal Home Loan Mortgage Corp., Giant Mtg Part Cert 07-01-12 .............. 7.000 122 124,341 Federal National Mortgage Assn., Note Ser MTN 10-23-02 ..................... 6.080 250 253,555 Federative Republic of Brazil, (Brazil), Global Bond 11-05-01 ...................... 8.875 50 50,125 Government of Jamaica, (Jamaica), Note 06-09-05 (R) ......................... 10.875 10 10,000 Republic of Costa Rica, (Costa Rica), Deb 05-01-03 (R) .......................... 8.000 25 25,188 Republic of Equador, (Equador), Deb 04-25-02 (R) .......................... 11.250 50 51,000 Republic of Panama, (Panama), Note Ser REGS 02-13-02 .................... 7.875 50 48,925 Republic of South Africa, (South Africa), Note 06-23-17 ............................. 8.500 50 47,313 Republic of Venezuela, (Venezuela), Floating Rate Note Ser C 12-30-03 ......... 7.000* 50 45,500 United Mexican States, (Mexico), Global Bond 02-06-01 ...................... 9.750 50 52,550 United States Treasury, Bond 08-15-27 ............................. 6.375 75 82,359 Bond 11-15-27 ............................. 6.125 250 267,890 Note 05-31-02 ............................. 6.500 100 103,328 Note 04-30-03 ............................. 5.750 25 25,246 Note 05-15-07 ............................. 6.625 120 128,887 Note 08-15-07 ............................. 6.125 150 156,070 ---------- 1,727,347 ---------- TOTAL BONDS (Cost $2,261,749) (93.30%) 2,292,968 ------- ---------- EXPIRATION CURRENCY DATE/STRIKE MARKET CURRENCY PURCHASED SOLD PRICE VALUE - ------------------ -------- ----------- ------ OPTIONS Japanese Yen..................... USD 5,765,000 March 99/140-150 $4,774 ---------- TOTAL OPTIONS (Premium Paid $2,450) (0.19%) 4,774 ------- ---------- PAR VALUE INTEREST (000s ISSUER, DESCRIPTION RATE OMITTED) - ------------------- ---- -------- SHORT-TERM INVESTMENTS Joint Repurchase Agreement (6.23%) Investment in a joint repurchase agreement transaction with Toronto Dominion Securities USA, Inc. - Dated 06-30-98, due 07-01-98 (Secured by U.S. Treasury Notes, 5.00% thru 7.50% due 2-15-99 thru 11-15-01) - Note B.......................... 5.750% $153 153,000 -------- ---------- TOTAL SHORT-TERM INVESTMENTS (6.23%) 153,000 -------- ---------- TOTAL INVESTMENTS (99.72%) 2,450,742 -------- ---------- OTHER ASSETS AND LIABILITIES, NET (0.28%) 6,864 -------- ---------- TOTAL NET ASSETS (100.00%) $2,457,606 ======== ========== * Represents rate in effect on June 30, 1998. # Par value of non US$ 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 $86,188 or 3.51% of the Fund's net assets as of June 30, 1998. 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. 114 ==============================FINANCIAL STATEMENTS============================== John Hancock Funds - Declaration Trust -- V.A. World Bond Fund Portfolio Concentration (Unaudited) June 30, 1998 - -------------------------------------------------------------------------------- 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 June 30, 1998 assigned to the various investment categories. MARKET VALUE AS A INVESTMENT CATEGORIES % OF FUND NET ASSETS - --------------------- -------------------- Finance........................................ 7.88% Government - Foreign........................... 28.59 Government - U.S............................... 31.08 Government - U.S. Agencies..................... 25.75 Options........................................ 0.19 Short-Term Investments......................... 6.23 ----- TOTAL INVESTMENTS 99.72% ===== SEE NOTES TO FINANCIAL STATEMENTS. 115 ==============================FINANCIAL STATEMENTS============================== John Hancock Funds - Declaration Trust -- V.A. Money Market Fund Schedule of Investments June 30, 1998 (Unaudited) - -------------------------------------------------------------------------------- The Schedule of Investments is a complete list of all securities owned by the V.A. Money Market Fund on June 30, 1998.
PAR VALUE INTEREST QUALITY (000s MARKET ISSUER, DESCRIPTION RATE RATINGS* OMITTED) VALUE - ------------------- ---- --------- -------- ----- NEGOTIABLE BANK CERTIFICATES OF DEPOSIT U.S Branches of Foreign Banks (3.66%) Abbey National Treasury Services, 01-19-99.................. 5.375% Tier 1 $ 400 $399,289 ----------- TOTAL NEGOTIABLE BANK CERTIFICATES OF DEPOSIT (Cost $399,289) (3.66%) 399,289 -------- ----------- CORPORATE INTEREST BEARING OBLIGATIONS Automotive (9.17%) Chrysler Financial Corp., 08-13-98.................. 6.310 Tier 1 500 500,293 General Motors Acceptance Corp., 09-08-98.................. 6.250 Tier 1 500 500,222 ----------- 1,000,515 ----------- Banking (8.09%) Norwest Corp., 10-13-98.................. 6.000 Tier 1 500 500,283 Security Pacific Corp., 05-15-99.................. 9.750 Tier 1 370 382,178 ----------- 882,461 ----------- Finance (3.21%) CIT Group Holdings, Inc., 07-31-98.................. 6.350 Tier 1 350 350,096 ----------- Retail Stores (4.62%) Sears Roebuck Acceptance Corp., 11-01-98.................. 8.450 Tier 1 500 503,993 ----------- Tobacco (2.80%) Philip Morris Cos., Inc., 03-01-99.................. 8.625 Tier 1 300 305,189 ----------- TOTAL CORPORATE INTEREST BEARING OBLIGATIONS (Cost $3,042,254) (27.89%) 3,042,254 -------- ----------- U.S.GOVERNMENT OBLIGATIONS Governmental - U.S.Agencies (59.54%) Federal Farm Credit Bank, 11-02-98 ............................... 5.373%** Tier 1 2,000 1,998,846 Federal Home Loan Bank, 08-20-98 ............................... 5.442** Tier 1 1,500 1,499,824 Federal Home Loan Bank, 08-27-98 # ............................. 5.860 Tier 1 200 200,000 Federal Home Loan Bank, 09-02-98 # ............................. 5.610 Tier 1 300 300,000 Federal National Mortgage Association, 05-05-99 .................. 5.630 Tier 1 500 499,726 Student Loan Marketing Association, 02-22-99 .................. 5.331** Tier 1 2,000 1,997,574 ----------- 6,495,970 ----------- TOTAL U.S. GOVERNMENT OBLIGATIONS (Cost $6,495,970) (59.54%) 6,495,970 -------- ----------- TOTAL SHORT-TERM INVESTMENTS (Cost $9,937,513) (91.09%) 9,937,513 -------- ----------- JOINT REPURCHASE AGREEMENT Investment in a joint repurchase agreement transaction with Toronto Dominion Securities USA, Inc. - Dated 06-30-98, due 07-01-98 (Secured by U.S. Treasury Notes, 5.00% thru 7.50%, due 02-15-99 thru 11-15-01) - Note B................. 5.750% 838 838,000 ----------- TOTAL JOINT REPURCHASE AGREEMENT (7.68%) 838,000 -------- ----------- TOTAL INVESTMENTS (98.77%) 10,775,513 -------- ----------- OTHER ASSETS AND LIABILITIES, NET (1.23%) 134,625 -------- ----------- TOTAL NET ASSETS (100.00%) $10,910,138 ======== ===========
* 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. ** Floating rate note, interest rate effective June 30, 1998. # Call date. 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. 116 ==========================NOTES TO FINANCIAL STATEMENTS========================= John Hancock Funds - Declaration Trust (UNAUDITED) NOTE A -- ORGANIZATION John Hancock V.A. International Fund ("V.A. International Fund"), John Hancock V.A. Regional Bank Fund (which commenced operations on May 1, 1998) ("V.A. Regional Bank Fund"), John Hancock V.A. Financial Industries Fund ("V.A. Financial Industries Fund"), John Hancock V.A. Emerging Growth Fund ("V.A. Emerging Growth Fund"), John Hancock V.A. Special Opportunities Fund (which commenced operations on January 2, 1998) ("V.A. Special Opportunities Fund"), John Hancock V.A. Growth Fund ("V.A. Growth Fund"), John Hancock V.A. Growth and Income Fund (which commenced operations on January 2, 1998) ("V.A. Growth and Income Fund"), John Hancock V.A. Independence Equity Fund ("V.A. Independence Equity Fund"), John Hancock V.A. Sovereign Investors Fund ("V.A. Sovereign Investors Fund"), John Hancock V.A. 500 Index Fund ("V.A. 500 Index Fund"), John Hancock V.A. Sovereign Bond Fund ("V.A. Sovereign Bond Fund"), John Hancock V.A. Strategic Income Fund ("V.A. Strategic Income Fund"), John Hancock V.A. High Yield Bond Fund (which commenced operations on January 2, 1998) ("V.A. High Yield Bond Fund"), John Hancock V.A. World Bond Fund ("V.A. World Bond Fund") and, 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 fifteen different series at June 30, 1998. Each Fund currently has one class of shares with equal rights as to voting, redemption, dividends and liquidation within its respective Fund. The Trustees may authorize the creation of additional series from time to time to satisfy various investment objectives. An insurance company issuing a Variable Contract that participates in the Trust will vote shares of the 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 investing primarily in equity securities of foreign companies and governments. The investment objective of the V.A. Regional Bank Fund is to seek long-term capital appreciation by investing primarily in regional banks and lending institutions. The investment objective of the V.A. Financial Industries Fund is to seek capital appreciation by investing primarily 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. Special Opportunities Fund is to seek long-term capital appreciation by investing primarily in equity securities of domestic and foreign issuers in various economic sectors. 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. Growth and Income Fund is to seek the highest total return (capital appreciation plus current income) that is consistent with reasonable safety of capital. 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. 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. 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 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. Strategic Income Fund is to seek a high level of current income by investing primarily 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. High Yield Bond Fund is to seek maximum current income without assuming undue risk, investing primarily in lower-rated, higher-yielding debt securities. 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. Money Market Fund is to seek maximum current income consistent with capital preservation and liquidity by investing only 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 117 ==========================NOTES TO FINANCIAL STATEMENTS========================= John Hancock Funds - Declaration Trust into U.S. dollars as described in "Foreign Currency Translation." 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 Funds, 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, Inc., may participate in joint repurchase agreement transactions. 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 OCTOBER 31, 1997 CARRYFORWARD CARRYFORWARD LOSS TREATED AS FUND EXPIRING 12/31/2004 EXPIRING 12/31/2005 ARISING JANUARY 1, 1998 - ---- ------------------- ------------------- ----------------------- V.A. International Fund..... $ -- $ -- $65,667 V.A. Regional Bank Fund..... -- -- -- V.A. Financial Industries Fund........... -- -- -- V.A. Emerging Growth Fund............... 18,937 167,508 66,172 V.A. Special Opportunities Fund........ -- -- -- V.A. Growth Fund............ 11,062 197,206 -- V.A. Growth and Income Fund............... -- -- -- V.A. Independence Equity Fund............... -- -- -- V.A. Sovereign Investors Fund............ -- -- -- V.A. 500 Index Fund......... -- -- -- V.A. Sovereign Bond Fund.... -- -- -- V.A. Strategic Income Fund............... -- 2,482 8,904 V.A. High Yield Bond Fund... -- -- -- V.A. World Bond Fund........ -- -- 27,755 V.A. Money Market Fund...... -- -- --
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. 118 ==========================NOTES TO FINANCIAL STATEMENTS========================= John Hancock Funds - Declaration Trust 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 $800 million, collectively. V.A. Money Market is permitted to borrow from the uncommitted portion of the unsecured lines of credit, which is $400 million. 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 rates ranging from 0.070% to 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 period ended June 30, 1998. 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 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 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' Statements 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 they intend 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 June 30, 1998 were as follows: UNREALIZED PRINCIPAL AMOUNT EXPIRATION APPRECIATION/ CURRENCY COVERED BY CONTRACT MONTH (DEPRECIATION) - -------- ------------------- ---------- -------------- V.A. INTERNATIONAL FUND Sells French Franc................... 93,602 JULY 98 ($ 63) Japanese Yen................... 191,674 JULY 98 ( 45) ------ ($ 108) ====== V.A. GROWTH AND INCOME FUND Sell Japanese Yen................... 11,919,000 DEC 98 $1,027 ====== V.A. STRATEGIC INCOME FUND Buy British Pound.................. 63,000 JULY 98 $ 118 ====== Sells Australian Dollar.............. 107,000 JULY 98 $4,168 Australian Dollar.............. 660,000 AUG 98 ( 2,217) British Pound.................. 128,000 JULY 98 (904) British Pound.................. 84,000 AUG 98 ( 3,081) British Pound.................. 68,000 SEPT 98 ( 2,142) ------ ($4,176) ====== V.A. HIGH YIELD BOND FUND Sell British Pound.................. 11,000 AUG 98 ($ 39) ====== V.A. WORLD BOND Buys Deutsche Mark.................. 470,398 JULY 98 $1,468 Japanese Yen................... 40,113,000 JULY 98 (8,586) ------ ($7,118) ====== Sell Japanese Yen................... 20,056,500 JULY 98 ($3,412) ====== 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 119 ==========================NOTES TO FINANCIAL STATEMENTS========================= John Hancock Funds - Declaration Trust 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 June 30, 1998 were as follows: OPEN UNREALIZED EXPIRATION CONTRACTS POSITION DEPRECIATION - ---------- --------- -------- ------------ V.A. 500 INDEX FUND Sept 98............................. 9 S&P 500 Long $19,125 ======= 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 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 ("credit risk"), 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 Funds' Statements of Assets and Liabilities. The were no written option transactions for the period ended June 30, 1998, for the 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. Regional Bank Fund 0.80% 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. Special Opportunities Fund 0.75% of average daily net assets V.A. Growth Fund 0.75% of average daily net assets V.A. Growth And Income Fund 0.60% of average daily net assets V.A. Independence Equity Fund 0.70% of average daily net assets V.A. Sovereign Investors Fund 0.60% of average daily net assets V.A. 500 Index Fund 0.10% of average daily net assets V.A. Sovereign Bond Fund 0.50% of average daily net assets V.A. Strategic Income Fund 0.60% of average daily net assets V.A. High Yield Bond Fund 0.60% of average daily net assets V.A. World Bond Fund 0.75% 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-advisory 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 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. Independence Investment Associates, Inc. ("IIA") serves as the sub-adviser to the V.A. Independence Equity Fund pursuant to a separate sub-advisory 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 a portion of its advisory fee from the V.A. Independence 120 ==========================NOTES TO FINANCIAL STATEMENTS========================= John Hancock Funds - Declaration Trust 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-advisor of the V.A. Sovereign Investors Fund pursuant to a separate sub-advisory 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 institutional accounts. The Adviser pays 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 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 period ended June 30, 1998 were as follows: FUND FEE REDUCTION - ---- ------------- V.A. International Fund............................ $69,056 V.A. Regional Bank Fund............................ 5,300 V.A. Financial Industries Fund..................... -- V.A. Emerging Growth Fund.......................... 19,502 V.A. Special Opportunities Fund.................... 12,001 V.A. Growth Fund................................... 10,419 V.A. Growth and Income Fund........................ 10,355 V.A. Independence Equity Fund...................... 3,364 V.A. Sovereign Investors Fund...................... -- V.A. 500 Index Fund................................ 26,314 V.A. Sovereign Bond Fund........................... 19,913 V.A. Strategic Income Fund......................... 5,817 V.A. High Yield Bond Fund.......................... 9,549 V.A. World Bond Fund............................... 12,118 V.A. Money Market Fund............................. 2,112 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 period 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 unaffiliated Trustees may elect to defer, for tax purposes, their receipt of this compensation under the John Hancock Group of Funds Deferred Compensation Plan. The Funds make investments into other John Hancock funds, as applicable, to cover their liability for the deferred compensation. Investments to cover the Funds' deferred compensation liability are recorded on the Funds books as an other asset. The deferred compensation liability and the related other asset are always equal and are marked to market on a periodic basis to reflect any income earned by the investment as well as any unrealized gains or losses. The Adviser and other subsidiaries of John Hancock Mutual Life Insurance Company owned the following shares of beneficial interest of the Funds as of June 30, 1998: FUND SHARES OF BENEFICIAL INTEREST - ---- ----------------------------- V.A. International Fund........................ 213,604 V.A. Regional Bank Fund........................ 50,090 V.A. Financial Industries Fund................. -- V.A. Emerging Growth Fund...................... 100,201 V.A. Special Opportunities Fund................ 50,000 V.A. Growth Fund............................... 100,000 V.A. Growth and Income Fund.................... 50,213 V.A. Independence Equity Fund.................. -- V.A. Sovereign Investors Fund.................. -- V.A. 500 Index Fund............................ -- V.A. Sovereign Bond Fund....................... 113,038 V.A. Strategic Income Fund..................... 235,590 V.A. High Yield Bond Fund...................... 207,829 V.A. World Bond Fund........................... 222,474 V.A. Money Market Fund......................... 108,303 121 ==========================NOTES TO FINANCIAL STATEMENTS========================= John Hancock Funds - Declaration Trust NOTE D -- INVESTMENT TRANSACTIONS: Purchases and proceeds from sales of securities for the Funds, excluding short-term securities, during the period ended June 30, 1998, were as follows: FUND PURCHASES SALES - ---- --------- ----- V.A. International Fund.................... $ 4,462,556 $2,941,336 V.A. Regional Bank Fund.................... 11,406,819 303,959 V.A. Financial Industries Fund............. 31,750,919 6,649,533 V.A. Emerging Growth Fund.................. 4,809,966 2,426,583 V.A. Special Opportunities Fund............ 1,352,122 272,439 V.A. Growth Fund........................... 7,096,208 4,948,591 V.A. Growth and Income Fund................ 9,016,990 1,981,097 V.A. Independence Equity Fund.............. 9,344,673 3,829,846 V.A. Sovereign Investors Fund U.S. Government Securities............... 1,816,266 - Other Investments........................ 9,408,573 2,053,555 V.A. 500 Index Fund........................ 2,458,266 8,800,274 V.A. Sovereign Bond Fund U.S. Government Securities............... 7,448,345 6,167,857 Other Investments........................ 4,728,336 3,356,452 V.A. Strategic Income Fund U.S. Government Securities............... 1,849,953 301,039 Other Investments........................ 8,122,437 3,861,208 V.A. High Yield Bond Fund U.S. Government Securities............... 753,281 752,633 Other Investments........................ 7,486,163 1,990,663 V.A. World Bond Fund U.S. Government Securities............... 365,875 822,508 Other Investments........................ 931,955 355,016 At June 30, 1998, 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: GROSS GROSS NET UNREALIZED AGGREGATE UNREALIZED UNREALIZED APPRECIATION/ FUND COST APPRECIATION DEPRECIATION (DEPRECIATION) - ---- ---- ------------ ------------ -------------- V.A. International Fund.............. $ 5,240,357 $ 778,604 $258,315 $ 520,289 V.A. Regional Bank Fund.............. 18,348,900 141,701 374,847 233,146 V.A. Financial Industries Fund... 44,383,003 5,477,159 945,420 4,531,739 V.A. Emerging Growth Fund....... 5,469,002 1,280,943 238,816 1,042,127 V.A. Special Opportunities Fund.............. 1,145,350 120,849 47,176 73,673 V.A. Growth Fund.... 5,822,991 812,908 79,201 733,707 V.A. Growth and Income Fund....... 9,306,043 538,913 189,194 349,719 V.A. Independence Equity Fund....... 14,174,567 2,400,385 235,543 2,164,842 V.A. Sovereign Investors Fund.... 21,740,536 2,524,215 189,005 2,335,210 V.A. 500 Index Fund.............. 14,653,015 3,575,093 262,367 3,312,726 V.A. Sovereign Bond Fund......... 6,955,718 56,751 16,000 40,751 V.A. Strategic Income Fund ...... 10,729,152 276,103 252,905 23,198 V.A High Yield Bond Fund......... 6,163,463 62,356 233,876 (171,520) V.A. World Bond Fund.............. 2,417,199 40,919 7,376 33,543 V.A. Money Market Fund....... 10,775,513 -- -- -- 122 ================================================================================ 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 June 30, 1998. - -------------------------------------------------------------------------------- PERCENT OF COMPANY DIVIDEND INCREASE - ------- ----------------- Abbott Laboratories, Inc.......................... 11.1% AFLAC Corp........................................ 13.0 Air Products & Chemicals, Inc..................... 13.3 American Home Products Corp....................... 4.9 American International Group, Inc................. 12.4 Ameritech Corp.................................... 6.2 Archer Daniels Midland Co......................... 5.0 Automatic Data Processing, Inc.................... 15.2 BB&T Corp......................................... 12.9 Banc One Corp..................................... 10.0 BankAmerica Corp.................................. 13.1 Baxter International, Inc......................... 3.0 Becton Dickinson & Co............................. 11.5 Bemis Company, Inc................................ 10.0 Bristol-Myers Squibb Co........................... 2.6 C.H. Robinson Worldwide, Inc...................... 8.1 Chevron Corp...................................... 5.2 Chubb Corp........................................ 6.9 Dayton Hudson Corp................................ 12.5 Dover Corp........................................ 11.8 DuPont (E.I.) De Nemours & Co..................... 11.1 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.................................. 13.5 Gannett Co., Inc.................................. 5.6 General Electric Co............................... 15.4 General RE Corp................................... 7.3 Grainger (W.W.), Inc.............................. 11.1 Hasbro, Inc....................................... 19.9 Hewlett-Packard Co................................ 14.3 Home Depot, Inc................................... 20.0 Honeywell, Inc.................................... 3.7 Interpublic Group of Companies, Inc............... 15.4 Johnson & Johnson................................. 13.6 Johnson Controls, Inc............................. 7.0 KeyCorp........................................... 11.9 Leggett & Platt, Inc.............................. 6.7 Lilly (Eli) & Co.................................. 11.1 Masco Corp........................................ 4.8 May Department Stores............................. 5.8 McGraw-Hill Companies, Inc........................ 8.3 Mobil Corp........................................ 7.5 National Fuel Gas Co.............................. 3.4 NationsBank Corp.................................. 15.2 Northern States Power Co.......................... 1.4 Norwest Corp...................................... 10.0 Pentair, Inc...................................... 11.1 PepsiCo, Inc...................................... 4.0 Philip Morris Cos., Inc........................... 20.0 Pitney Bowes, Inc................................. 12.5 Questar Corp...................................... 4.8 Reliastar Financial Corp.......................... 19.4 RPM, Inc.......................................... 7.7 Sara Lee Corp..................................... 9.5 SBC Communications, Inc........................... 0.04 Sigma-Aldrich Corp................................ 12.0 Sonoco Products Corp.............................. 10.0 Sysco Corp........................................ 5.9 Teco Energy, Inc.................................. 5.1 Travelers Group, Inc.............................. 25.0 UNUM Corp......................................... 3.5 Wal-Mart Stores, Inc.............................. 14.8 ---- The average dividend increase for this group was 9.9% ==== 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 1998(1) 1,582,585 .11 14.63 -- (1) For the period ended June 30, 1998 123 ======================================NOTES===================================== John Hancock Funds - Declaration Trust 124 ======================================NOTES===================================== John Hancock Funds - Declaration Trust 125 ======================================NOTES===================================== John Hancock Funds - Declaration Trust 126 ======================================NOTES===================================== John Hancock Funds - Declaration Trust 127 ================================================================================ [LOGO] JOHN HANCOCK FUNDS A Global Investment Management Firm 101 HUNTINGTON AVENUE, BOSTON, MA 02199-7603 1-800-824-0335 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. [RECYCLE LOGO] Printed on Recycled Paper DECSA 6/98 8/98 -----END PRIVACY-ENHANCED MESSAGE-----