EX-99.(17)(B) 6 dex9917b.txt FUNDAMENTAL GROWTH FUND ANNUAL REPORT FOR THE YEAR ENDED 12/31/2003 Annual Report for John Hancock Variable Series Trust I December 31, 2003 [LOGO] John Hancock -------------------------------------------------------------------------------- Not FDIC Insured Not Bank Guaranteed May Lose Value -------------------------------------------------------------------------------- Not a Deposit Not Insured by Any Federal Government Agency -------------------------------------------------------------------------------- Inception: August 31, 1999 -------------------------------------------------------------------------------- FUNDAMENTAL GROWTH FUND INDEPENDENCE INVESTMENT LLC M. Lapman/J. Forelli -------------------------------------------------------------------------------- . In 2003, the Fund returned 31.77%, underperforming its benchmark, the Russell MidCap Growth Index. . The Fund underperformed its benchmark primarily due to unfavorable stock selection decisions broadly across sectors, while sector allocation exposures modestly added value. Stock selection detracted the most significantly within the information technology, health care and consumer discretionary sectors. . The Fund's exposure to information technology was the largest contributor to absolute performance, followed by its exposure to health care. Nearly all sectors produced positive absolute returns during the year. . Stocks that detracted from performance included Newell Rubbermaid, King Pharmaceutical and Concord EFS. . Independence Investment LLC assumed management of the Fund effective December 15th. Independence implemented an investment strategy for the Fund that is substantially the same as the investment strategy it now employs for the Large Cap Growth Fund. Under that strategy, the Fund will invest primarily in large cap growth stocks. . The manager uses both fundamental equity research and quantitative portfolio construction to identify stocks having both favorable valuations and improving earnings growth prospects. The Fund is broadly diversified across sectors with sector weights similar to the benchmark. [CHART] Line Chart Historical Fund Return $10,000 Investment made 8/31/99 (Fund Inception Date) Fundamental Russell Mid Cap(TM) Growth Fund Growth Index ----------- ------------------- 8/31/1999 $10,000.00 $10,000.00 9/30/1999 10,000.46 9,915.00 10/31/1999 10,835.61 10,681.43 11/30/1999 12,529.18 11,788.03 12/31/1999 15,457.31 13,828.53 1/31/2000 15,971.69 13,825.77 2/29/2000 22,029.65 16,731.94 3/31/2000 18,800.95 16,748.68 4/30/2000 16,531.98 15,122.38 5/31/2000 14,460.68 14,019.96 6/30/2000 18,224.49 15,507.48 7/31/2000 17,401.55 14,525.85 8/31/2000 18,979.45 16,716.35 9/30/2000 18,950.32 15,898.92 10/31/2000 17,464.99 14,811.43 11/30/2000 13,822.29 11,592.91 12/31/2000 14,988.72 12,203.86 1/31/2001 15,137.52 12,900.70 2/28/2001 12,556.69 10,668.88 3/31/2001 10,435.26 9,142.16 4/30/2001 12,128.32 10,666.16 5/31/2001 12,013.25 10,616.03 6/30/2001 11,811.06 10,621.33 7/31/2001 10,738.12 9,905.46 8/31/2001 9,931.85 9,187.31 9/30/2001 8,117.67 7,668.65 10/31/2001 8,823.48 8,474.62 11/30/2001 9,770.93 9,387.34 12/31/2001 10,157.18 9,744.06 1/31/2002 9,836.37 9,427.38 2/28/2002 9,289.70 8,892.85 3/31/2002 9,876.64 9,571.37 4/30/2002 9,496.82 9,065.04 5/31/2002 9,201.30 8,794.91 6/30/2002 8,207.97 7,823.95 7/31/2002 7,477.24 7,063.46 8/31/2002 7,370.59 7,038.74 9/30/2002 6,735.15 6,479.16 10/31/2002 7,239.79 6,981.29 11/30/2002 7,585.64 7,527.93 12/31/2002 7,081.49 7,073.24 1/31/2003 6,987.19 7,003.92 2/28/2003 6,808.34 6,942.99 3/31/2003 6,916.32 7,072.13 4/30/2003 7,320.41 7,553.74 5/31/2003 7,919.05 8,280.41 6/30/2003 8,036.15 8,398.82 7/31/2003 8,319.73 8,698.66 8/31/2003 8,735.77 9,177.96 9/30/2003 8,540.77 8,999.90 10/31/2003 9,219.67 9,725.30 11/30/2003 9,397.98 9,985.93 12/31/2003 9,331.06 10,094.78 Value on 12/31/03: ----------------- $9,331 Fundamental Growth Fund $10,095 Russell MidCap(TM) Growth Index TOP TEN HOLDINGS (as of December 31, 2003) % of Assets ------ General Electric Co. 5.9% Pfizer, Inc. 5.6% Intel Corp. 4.7% Microsoft Corp. 4.7% Cisco Systems, Inc. 3.6% Texas Instruments, Inc. 2.5% Home Depot, Inc. 2.5% Dell, Inc. 2.0% 3M Co. 2.0% Amgen, Inc. 2.0% AVERAGE ANNUAL TOTAL RETURNS* Fundamental Russell MidCap(TM) Growth Fund Growth Index ----------- ------------------ 1 Year 31.77% 42.72% 3 Years -14.61 -6.13 Since Inception (8/31/99) -1.58 0.22 SECTOR/INDUSTRY ALLOCATION (as of December 31, 2003) % of Assets ------ Information Technology 34.13% Health Care 20.71% Industrials 12.76% Consumer Discretionary 11.41% Financials 9.03% Consumer Staples 8.99% Energy 1.80% Telecommunication Services 0.75% Materials 0.41% * Total returns are for the period ended December 31, 2003. Returns represent past performance, assume reinvestment of all distributions and are not indicative of future performance. Investment returns and principal value of fund shares will fluctuate so that shares, when redeemed, may be worth more or less than their original cost. The performance of the fund on this page is reported net of Trust level charges (i.e. investment management fees and operating expenses). It does not reflect expense and charges of the applicable separate accounts and variable products, all of which vary to a considerable extent and are described in your product prospectus. Performance would be lower if expenses and charges of the separate accounts and products were reflected. + Source: MorningStar, Inc. Data as of 12/31/03. VL represents Variable Life subaccounts, VUL represents Variable Universal Life subaccounts and VA represents Variable Annuity subaccounts Hancock VL/VUL subaccounts were rated against 480 VL/VUL subaccounts and 787 VA subaccounts in the Morningstar Mid Cap Growth category. This represents the Morningstar 3 year rating. STATEMENT OF ASSETS AND LIABILITIES JOHN HANCOCK VARIABLE SERIES TRUST I December 31, 2003 -------------------------------------------------------------------------------- (000's Omitted) ASSETS Long term investments at cost ...................................... $ 24,732 Net unrealized appreciation of investments ......................... 1,215 Short-term investments at value .................................... 159 -------- Total investments ............................................ 26,106 Cash ............................................................... 84 Receivable for: Fund shares sold ................................................ 7 Dividends ....................................................... 19 -------- Total assets ....................................................... 26,216 -------- LIABILITIES Payables for: Investments purchased ........................................... 153 Other liabilities ............................................... 6 -------- Total liabilities .................................................. 159 -------- Net assets ......................................................... $ 26,057 ======== Shares of beneficial interest outstanding .......................... 3,653 -------- Net asset value per share .......................................... $ 7.13 ======== Composition of net assets: Capital paid-in ................................................. $ 58,344 Accumulated net realized loss on investments, futures and foreign currency transactions .................... (33,502) Net unrealized appreciation of investments ...................... 1,215 -------- Net assets ......................................................... $ 26,057 ======== STATEMENT OF OPERATIONS JOHN HANCOCK VARIABLE SERIES TRUST I For the Year Ended December 31, 2003 -------------------------------------------------------------------------------- (000's Omitted) INVESTMENT INCOME Interest ....................................................... $ 7 Dividends ...................................................... 129 Securities lending ............................................. 1 ------ Total investment income .............................................. 137 ------ EXPENSES Investment advisory fee ........................................ 202 Auditors fees .................................................. 3 Custodian fees ................................................. 10 Legal fees ..................................................... 6 Printing & mailing fees ........................................ 1 Trustees' fees ................................................. 1 ------ Total expenses ....................................................... 223 ------ Net investment loss .................................................. (86) ------ REALIZED AND UNREALIZED GAIN Net realized gain on investments .................................. 1,982 Change in unrealized appreciation on investments .................. 4,240 ------ Net realized and unrealized gain ..................................... 6,222 ------ Net increase in net assets resulting from operations ........................................................ $6,136 ====== See notes to financial statements. STATEMENT OF CHANGES IN NET ASSETS JOHN HANCOCK VARIABLE SERIES TRUST I December 31, 2003 -------------------------------------------------------------------------------- (000's Omitted)
Year Ended Year Ended December 31, December 31, 2003 2002 ------------ ------------ INCREASE (DECREASE) IN NET ASSETS From operations Net investment loss .................................................. $ (86) $ (145) Net realized gain (loss) ............................................. 1,982 (9,185) Change in net unrealized appreciation (depreciation) ................. 4,240 (1,424) ------- -------- Net increase (decrease) in net assets resulting from operations ... 6,136 (10,754) Distributions to shareholders from: Realized gains ....................................................... (2,176) ------- Decrease in net assets resulting from distributions ............... (2,176) From fund share transactions: Proceeds from shares sold ............................................ 6,270 6,642 Distributions reinvested ............................................. 2,176 Payment for shares redeemed .......................................... (6,414) (13,720) ------- -------- Increase (decrease) in net assets from fund share transactions .... 2,032 (7,078) ------- -------- NET INCREASE (DECREASE) IN NET ASSETS ................................... 5,992 (17,832) NET ASSETS Beginning of Period .................................................. 20,065 37,897 ------- -------- End of Period ........................................................ $26,057 $ 20,065 ======= ======== Analysis of fund share transactions: Sold ................................................................. 907 999 Reinvested ........................................................... 309 Redeemed ............................................................. (956) (2,073) ------- -------- Net increase (decrease) in fund shares outstanding ...................... 260 (1,074) ======= ========
See notes to financial statements. FINANCIAL HIGHLIGHTS JOHN HANCOCK VARIABLE SERIES TRUST I -------------------------------------------------------------------------------- Selected data for each fund share of beneficial interest outstanding throughout the year end indicated:
Fundamental Growth Fund ----------------------------------------------------------------- Year Ended December 31, ----------------------------------------------------------------- Period from August 31(g), to December 31, 2003(i) 2002 2001 2000(e) 1999 ------- ------- ------- ------- --------------- Net Assets Value at Beginning of Period ................ $ 5.91 $ 8.48 $ 12.52 $ 14.42 $10.00 Income from Investment Operations: Net Investment Loss ................................. (0.01) (0.06) (0.03) (0.02) (0.02) Net Realized and Unrealized Gain (Loss) on Investments(a) ................................... 1.88 (2.51) (4.01) (0.44) 5.34 ------- ------- ------- ------- ------ Total From Investment Operations .................... 1.87 (2.57) (4.04) (0.46) 5.32 Less Distributions: Distribution from Net Realized Gains on Investments ...................................... (0.65) (0.76) (0.90) Distribution from Excess of Net Investment Income/Gains ..................................... (0.65) Distribution from Capital Paid-in ................... (0.03) ------- ------- ------ Total Distributions ................................. (0.65) (1.44) (0.90) ------- ------- ------- ------- ------ Net Assets Value at End of Period ...................... $ 7.13 $ 5.91 $ 8.48 $ 12.52 $14.42 ======= ======= ======= ======= ====== Total Investment Return(b) ............................. 31.77% (30.28)% (32.23)% (3.03)% 54.57%(c) Ratios/Supplemental Data: Ratio of Operating Expenses to Average Net Assets ... 1.00% 1.00%(f) 1.00%(f) 0.96%(f) 0.95%(d)(f) Ratio of Net Investment Loss to Average Net Assets ........................................... (0.38)% (0.52)% (0.46)% (0.38)% (0.55)%(d) Portfolio Turnover Rate ............................. 201.18% 93.77% 118.01%(h) 250.46% 61.66%(c) Net Assets End of Period (000s Omitted) ................ $26,057 $20,065 $37,897 $46,114 $9,175
(a) The amount shown at this caption for each share outstanding throughout the year may not accord with the change in the aggregate gains and losses in the portfolio securities for the year because of the timing of the purchases and withdrawals of the shares in relation to the fluctuating market values of the portfolio. (b) The performance does not reflect expenses and charges of the applicable separate accounts and variable products, all of which vary to a considerable extent and are described in your product's prospectus. (c) Not annualized. (d) Annualized. (e) The fund entered into a new Sub-Advisory Agreement with Putnam Investment Management, Inc. during the period shown. (f) Expense ratio is net of expense reimbursements. Had such reimbursements not been made the expense ratio would have been 1.16%, 1.19%, 1.00%, and 1.09% for the years ended December 31, 2002, 2001, 2000, and 1999, respectively. (g) Commencement of investment operations. (h) Excludes merger activity. (i) The Fund entered into a new Sub-Advisory Agreement with Independence Investment LLC during the period shown. SCHEDULE OF INVESTMENTS JOHN HANCOCK VARIABLE SERIES TRUST I December 31, 2003 -------------------------------------------------------------------------------- FUNDAMENTAL GROWTH FUND Market Name of Issuer Shares Value -------------- ------ ------- (000's) COMMON STOCK Aerospace & Defense - 1.0% Boeing Co. *.............................................. 6,100 $ 257 Air Freight & Couriers - 0.3% United Parcel Service, Inc. - Cl. B....................... 1,100 82 Beverages - 2.5% Anheuser-Busch Cos., Inc.................................. 3,900 206 PepsiCo, Inc. *........................................... 9,400 438 ------- 644 Biotechnology - 2.0% Amgen, Inc. *............................................. 8,300 513 Chemicals - 0.4% Rohm & Haas Co............................................ 2,500 107 Commercial Services & Supplies - 0.4% Ceridian Corp. *.......................................... 4,600 96 Communications Equipment - 4.0% Cisco Systems, Inc. *..................................... 38,200 928 Comverse Technology, Inc. *............................... 6,000 105 ------- 1,033 Computers & Peripherals - 9.9% Dell, Inc. *.............................................. 15,400 523 EMC Corp. *............................................... 31,400 406 Intel Corp................................................ 38,200 1,230 International Business Machines Corp. .................... 3,100 287 Network Appliance, Inc. *................................. 6,000 123 ------- 2,569 Diversified Financials - 4.6% Capital One Financial Corp................................ 2,300 141 Citigroup, Inc. *......................................... 6,100 296 Goldman Sachs Group, Inc.................................. 3,100 306 Merrill Lynch & Co., Inc. *............................... 5,400 317 Wells Fargo & Co. *....................................... 2,300 135 ------- 1,195 Diversified Telecommunication Services - 0.7% Nextel Communications, Inc. - Cl. A *..................... 6,900 194 Electrical Equipment - 1.6% United Technologies Corp. *............................... 4,500 427 Electronic Equipment & Instruments - 0.6% Sanmina Corp. *........................................... 12,200 154 Energy Equipment & Services - 0.5% Halliburton Co. *......................................... 5,400 140 Food & Drug Retailing - 0.5% Whole Foods Market, Inc. *................................ 1,800 121 Health Care Equipment & Supplies - 3.3% Boston Scientific Corp. *................................. 7,000 257 Guidant Corp.............................................. 3,600 217 St. Jude Medical, Inc. *.................................. 2,500 154 Health Care Equipment & Supplies - Continued Zimmer Holdings, Inc. *................................... 3,400 $ 239 ------- 867 Health Care Providers & Services - 3.1% Anthem, Inc. *............................................ 4,200 315 PacifiCare Health Systems, Inc. *......................... 3,400 230 UnitedHealth Group, Inc. *................................ 1,500 87 Wellpoint Health Networks, Inc. *......................... 1,800 175 ------- 807 Hotels Restaurants & Leisure - 0.5% International Game Technology *........................... 3,800 136 Household Products - 1.5% Procter & Gamble Co. *.................................... 4,000 400 Industrial Conglomerates - 9.0% 3M Co. ................................................... 6,100 519 General Electric Co. * ................................... 49,000 1,518 Tyco International, Ltd. * ............................... 11,600 307 ------- 2,344 Insurance - 2.7% American International Group, Inc. * ..................... 3,600 239 Everest Re Group, Ltd. ................................... 1,400 118 Hartford Financial Services Group, Inc. * . .............. 2,000 118 Metlife, Inc. *........................................... 3,100 104 Progressive Corp.......................................... 1,600 134 ------- 713 IT Consulting & Services - 2.3% Accenture, Ltd. - Cl. A *................................. 12,600 332 Computer Sciences Corp. *................................. 3,100 137 Electronic Data Systems Corp. *........................... 5,400 132 ------- 601 Machinery - 0.8% Danaher Corp. *........................................... 2,200 202 Media - 4.7% Clear Channel Communications, Inc......................... 2,200 103 Comcast Corp. - Cl. A..................................... 11,200 368 Interactive Corp.......................................... 4,700 159 Omnicom Group, Inc. ...................................... 1,500 131 The Walt Disney Co. *..................................... 10,400 243 Time Warner, Inc. *....................................... 12,400 223 ------- 1,227 Multiline Retail - 2.4% BJ's Wholesale Club, Inc. *............................... 7,700 177 Wal-Mart Stores, Inc. *................................... 8,700 461 ------- 638 Oil & Gas - 1.3% Murphy Oil Corp........................................... 2,600 170 SCHEDULE OF INVESTMENTS--Continued JOHN HANCOCK VARIABLE SERIES TRUST I December 31, 2003 -------------------------------------------------------------------------------- FUNDAMENTAL GROWTH FUND Market Name of Issuer Shares Value -------------- ------ ------- (000's) COMMON STOCK - Continued Oil & Gas - Continued Newfield Exploration Co. *................................ 3,500 $ 156 ------- 326 Personal Products - 0.9% Avon Products, Inc........................................ 3,600 243 Pharmaceuticals - 12.2% Abbott Laboratories *..................................... 10,900 508 Johnson & Johnson......................................... 9,100 470 Merck & Co., Inc. *....................................... 7,100 328 Pfizer, Inc. *............................................ 41,100 1,452 Watson Pharmaceuticals, Inc. *............................ 4,000 184 Wyeth *................................................... 5,800 246 ------- 3,188 Semiconductor Equipment & Products - 6.9% Analog Devices, Inc. *.................................... 3,400 155 Applied Materials, Inc. *................................. 12,400 279 Maxim Integrated Products, Inc. *......................... 3,400 169 Novellus Systems, Inc. *.................................. 6,300 265 QLogic Corp. *............................................ 5,200 269 Texas Instruments, Inc. *................................. 22,100 649 ------- 1,786 Software - 8.3% Electronic Arts, Inc. *................................... 7,100 339 Mercury Interactive Corp. *............................... 3,100 151 Microsoft Corp. *......................................... 44,200 1,217 Symantec Corp. *.......................................... 3,400 118 Veritas Software Corp. *.................................. 9,000 335 ------- 2,160 Specialty Retail - 5.2% Best Buy Co., Inc. *...................................... 2,700 141 Home Depot, Inc. *........................................ 18,100 643 Kohl's Corp. *............................................ 3,100 139 Lowe's Cos., Inc. *....................................... 3,700 205 Staples, Inc. *........................................... 4,700 128 Tiffany & Co. *........................................... 2,200 100 ------- 1,356 Textiles & Apparel - 0.9% Coach, Inc. *............................................. 3,700 139 Nike, Inc. - Cl. B........................................ 1,500 103 ------- 242 Tobacco - 1.1% Altria Group, Inc......................................... 5,300 288 Trading Companies & Distributors - 1.8% CDW Corp.................................................. 7,900 456 U.S. Government Agencies - 1.7% Federal National Mortgage Assoc. *........................ 5,800 435 ------- TOTAL COMMON STOCK- 99.6% 25,947 Par Market Name of Issuer Value Value -------------- ------- ------- (000's) (000's) SHORT-TERM INVESTMENTS - 0.6% Investment in joint trading account (Note B) 1.061% due 01/02/04................................. $ 159 $ 159 ------ ------- TOTAL INVESTMENTS- ........................... 100.2% 26,106 Payables, less cash and receivables- ............ (0.2)% (49) ------ ------- NET ASSETS- ............................... 100.0% $26,057 ====== ======= * Non-income producing security. See notes to financial statements. NOTES TO FINANCIAL STATEMENTS JOHN HANCOCK VARIABLE SERIES TRUST I December 31, 2003 -------------------------------------------------------------------------------- (000's Omitted) NOTE A--ORGANIZATION John Hancock Fundamental Growth Fund (the "Fund") is a diversified series of John Hancock Variable Series Trust I (the "Trust"), an open-end investment management company registered under the Investment Company Act of 1940. The Trust is organized as a Massachusetts business trust and consists of thirty different funds as of December 31, 2003. The results of this Fund are included in this report. The results of the other Funds in the Trust are presented under separate cover. The Trust may add or delete Funds in the future to accommodate various investment objectives. The Trust has issued shares of beneficial interest exclusively to John Hancock Variable Life Account U ("JHVLAU"), John Hancock Variable Life Account V ("JHVLAV"), John Hancock Variable Life Account S ("JHVLAS"), and John Hancock Variable Annuity Account I ("JHVAAI") to fund policies and contracts issued by the John Hancock Variable Life Insurance Company ("JHVLICO"), and to John Hancock Variable Annuity Account U ("JHVAAU"), John Hancock Variable Annuity Account V ("JHVAAV"), John Hancock Variable Life Account UV ("JHVLAUV"), John Hancock Variable Annuity Account H ("JHVAAH"), and John Hancock Variable Annuity Account JF ("JHVAAJF") to fund contracts and policies issued by John Hancock Life Insurance Company ("John Hancock" or "JHLICO"), to John Hancock Variable Life Account PPM-1 ("PPM-1"), and to John Hancock Variable Life Account PPM-2 ("PPM-2"). NOTE B--ACCOUNTING POLICIES Valuation of investments: Common stocks and other such securities traded on national exchanges are normally valued on the basis of closing prices. Securities traded in the over-the-counter market and securities with no sales on the day of valuation are normally valued at their last available bid price. Short-term investments, with a maturity not to exceed 60 days, are valued at amortized cost, which approximates market value. Investment securities for which no current market quotations are readily available, including certain foreign securities, when held by the Fund, are valued at fair value as determined in good faith by the Board of Trustees. Investment security transactions are recorded on the date of purchase or sale. Repurchase agreements: The Fund may enter into repurchase agreements which are contracts under which the Fund would acquire a security for a relatively short period (usually not more than 7 days) subject to the obligation of the seller to repurchase and the Fund to resell such security at a fixed time and price (representing the Fund's cost plus interest). The Fund will enter into repurchase agreements only with member banks of the Federal Reserve System and with "primary dealers" in United States Government Securities. The underlying securities, which represent the collateral of the agreement, must be marked to market daily to ensure that each repurchase agreement is fully collateralized at all times. The Fund will not invest more than 10% of its net assets in repurchase agreements maturing in more than 7 days. Joint trading account: Pursuant to an exemptive order issued by the Securities and Exchange Commission, the order permits the Fund to pool daily uninvested cash balances into a joint account for the purpose of investing the cash balances in short-term repurchase agreements, commercial paper and other short-term investments which in no event will have a maturity in excess of 7 days. Joint account holdings as of December 31, 2003 are as follows: Name of Issuer Market Value -------------- ------------ Alpine Securitization Corp., 1.12%, due 01/07/04 $29,995 Alpine Securitization Corp., 1.12%, due 01/06/04 19,998 Barclays US Fund, 1.10%, due 01/05/04 29,997 Cargill Asia Pacific, 1.06%, due 01/02/04 20,000 Cargill Asia Pacific, 1.05%, due 01/02/04 25,000 Danske Corp., 1.07%, due 01/05/04 49,996 NOTES TO FINANCIAL STATEMENTS--Continued JOHN HANCOCK VARIABLE SERIES TRUST I December 31, 2003 -------------------------------------------------------------------------------- (000's Omitted) NOTE B--ACCOUNTING POLICIES--Continued Name of Issuer Market Value -------------- ------------ Greenwich CPL Holding Funding, 0.95%, due 01/02/04 $ 17,654 Merrill Lynch & Co., Inc., 1.04%, due 01/05/04 18,838 Merrill Lynch & Co., Inc., 1.05%, due 01/06/04 31,156 Mortgage Int. Networking, 0.98%, due 01/02/04 50,000 Three Pillars Funding Corp., 1.08%, due 01/06/04 49,994 UBS Finance LLC, 1.02%, due 01/02/04 3,917 UBS Finance LLC, 1.05%, due 01/02/04 4,088 UBS Finance LLC, 0.96%, due 01/02/04 35,000 -------- Joint Trading Account Totals $385,633 ======== Expenses: Expenses directly attributable to the Fund are charged to that Fund. Expenses not directly attributed to the Fund are allocated on the basis of relative net assets of the Trust. Bank borrowings: The Fund is permitted to have bank borrowings for temporary or emergency purposes, including the meeting of redemption requests that otherwise might require the untimely disposition of securities. The Fund has entered into syndicated line of credit agreements with State Street Bank and Trust Company ("SSBT"), the Trust's record keeper and custodian and the Bank of New York. These agreements enable the Fund to participate in an unsecured line of credit, which permits borrowings up to $125 and $75 million, respectively. Interest is charged to the Fund, based on its borrowing. In addition, a commitment fee is charged to the Fund based on the average daily unused portion of the line of credit and is allocated among the participating Funds in the Trust. Interest expense paid under the line of credit is included under the caption "Other fees" in the Statement of Operations. The Fund had borrowings under the line of credit during the year ended December 31, 2003 as follows: Average Daily Loan Balance During the Period for which Weighted Average Loans were Outstanding Interest Rate Interest Expense --------------------------- ---------------- ---------------- $178 1.68% $-- Forward foreign currency contracts: The Fund may use forward foreign currency contracts to facilitate transactions in foreign securities and to manage the Fund's currency exposure. Contracts to buy generally are used to acquire exposure to foreign currencies, while contracts to sell are used to hedge the Fund's investments against currency fluctuations. Neither type of forward foreign currency transaction will eliminate fluctuations in the prices of the Fund's securities or prevent loss if the price of such securities should decline. The U.S. dollar value of a forward foreign currency contract is determined using forward exchange rates supplied by a quotation service. Realized gain (loss) on the purchases and sales of forward foreign currency contracts is recognized on settlement date. At December 31, 2003, the Fund had no open forward foreign currency contracts. Federal income taxes: The Fund intends to comply with the requirements of Subchapter M of the Internal Revenue Code applicable to regulated investment companies and to distribute substantially all of its taxable income to shareholders. Therefore, no federal income tax provision is required. As of December 31, 2003, the Fund had approximate net tax basis capital loss carryforwards, which may be applied against any net taxable gains, as follows: $171, $3,440, $20,156 and $9,696 which expire in 2007, 2008, 2009 and 2010, respectively. NOTES TO FINANCIAL STATEMENTS--Continued JOHN HANCOCK VARIABLE SERIES TRUST I December 31, 2003 -------------------------------------------------------------------------------- (000's Omitted) NOTE B--ACCOUNTING POLICIES--Continued Certain of the above losses may be limited under sections 382-384 of the Internal Revenue Code, as amended. In addition, from the period November 1, 2003 through December 31, 2003, the Fund incurred no net realized capital losses. Dividends, Interest and Distributions: Dividend income is recorded on the ex-dividend date and interest income is recorded on the accrual basis. Realized gains and losses from security transactions are determined on the basis of identified cost. Dividends of net investment income will be declared and distributed monthly by the Fund. The Fund will distribute all of its net realized capital gains annually, at the end of its fiscal year. Estimates: The preparation of the financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. NOTE C--INVESTMENT ADVISORY AGREEMENT AND OTHER TRANSACTIONS WITH AFFILIATES On February 5, 2003, the Board of Trustees of the Trust renewed its Investment Advisory Agreement with John Hancock. For its services, John Hancock receives monthly compensation at the following rate on an annual basis of the Fund's net assets: Excess Over First $250 Million $250 Million ------------------ ------------ 0.90% 0.85% In the event that normal operating expenses of the Fund, exclusive of investment advisory fees, taxes, interest, brokerage commissions and extraordinary expenses, shall exceed 0.10% of the Fund's daily net asset value, John Hancock and JHVLICO will reimburse the Fund for such excess. For the year ended December 31, 2003, there were no reimbursements paid to the Fund. As of December 15, 2003, John Hancock has entered into a Sub-Advisory Agreement with Independence Investment LLC, with respect to the Fund. Independence Investment LLC is an affiliate of John Hancock, and under its supervision, is responsible for the day-to-day investment management of the Fund. Signator Investors, Inc., a wholly owned subsidiary of John Hancock is the principal underwriter and transfer agent of the Trust. Certain officers and trustees of the Trust are officers and directors of JHVLICO, JHVLAU, JHVLAV, JHVLAS, JHVAAI, JHVLAUV, JHVAAV, JHVAAU, JHVAAH, JHVAAJF, PPM-1, and PPM-2, and some are also officers of John Hancock. Fees for independent trustees are paid by the Trust. NOTES TO FINANCIAL STATEMENTS--Continued JOHN HANCOCK VARIABLE SERIES TRUST I December 31, 2003 -------------------------------------------------------------------------------- (000's Omitted) NOTE D--INVESTMENT TRANSACTIONS Purchases and proceeds from sales and maturities of investments, excluding short-term securities and obligations of the U.S. government, for the Fund for the year ended December 31, 2003 were as follows: Purchases Sales and Maturities --------- -------------------- $44,550 $44,421 The identified cost of investments owned by the Fund (including earned discount on corporate short-term notes, and commercial paper) and their respective gross unrealized appreciation and depreciation for Federal income tax purposes at December 31, 2003 were as follows: Identified Unrealized Unrealized Net Unrealized Cost Appreciation Depreciation Appreciation ---------- ------------ ------------ -------------- $24,929 $1,193 $(17) $1,176 Distribution of Income and Gains: Distributions of net investment income, if any, are made at least annually. Net realized gains from investment transactions, in excess of available capital loss carryforwards, would be taxable to the Fund if not distributed, and, therefore, will be distributed to shareholders at least annually. Earnings and profits distributed to shareholders on redemption of fund shares may be utilized by the Fund, to the extent permissible, as part of the Fund's dividends paid deduction on its federal income tax return. The timing and characterization of certain income and capital gains distributions are determined annually in accordance with federal tax regulations. As a result, net investment income (loss) and net realized gain (loss) on investment transactions for a reporting period may differ significantly from distributions during such period. These differences primarily relate to certain securities sold at a loss. Additionally, as a result, net investment income (loss) and net realized gain (loss) on investment transactions for a reporting period may differ significantly from distributions during such period. Accordingly, the Fund may periodically make reclassifications among certain of its capital accounts without impacting the net asset value of the Fund. At December 31, 2003, the Fund's components of distributable earnings on a tax basis were as follows: Undistributed Undistributed Ordinary Net Long-Term Capital Loss Net Unrealized Income Capital Gain Carryforwards Appreciation ------------- ------------- ------------- -------------- $-- $-- $33,461 $1,176 In addition, the tax character of distributions paid by the Fund are summarized as follows: Distributions from Distributions from Year Ordinary Income Long-Term Capital Gain Return of Capital ---- ------------------- ---------------------- ----------------- 2003 $569 $-- $1,607 2002 -- -- -- Included in the Fund's 2003 distributions from ordinary income is $569 in excess of investment company taxable income, which in accordance with applicable US tax law, is taxable to shareholders as ordinary income distributions. NOTES TO FINANCIAL STATEMENTS--Continued JOHN HANCOCK VARIABLE SERIES TRUST I December 31, 2003 -------------------------------------------------------------------------------- NOTE E--BOARD OF TRUSTEES AND OFFICERS OF THE TRUST (UNAUDITED) The Board of Trustees of the Trust is responsible for overall management of the Trust. The Board may exercise all powers of the Trust, except those powers which are conferred solely upon or reserved to the shareholders. The Trust's Statement of Additional Information (SAI) includes additional information about the Trustees and is available without charge, upon request, by calling toll-free at 1-800-576-2227. The following table provides information about the members of the Board of Trustees and the officers of the Trust: Disinterested Trustees
Positions Held Principal Occupation(s) Name, Address and Age With Trust During Past Five Years -------------------------------- ------------------- ---------------------------- Elizabeth G. Cook (age 66) Trustee Expressive Arts Therapist, c/o John Hancock Variable Series Dana-Farber Cancer Trust I Institute; President, The John Hancock Place Advertising Club of Greater Boston, Massachusetts 02117 Boston Diane C. Kessler (age 57) Trustee Executive Director, c/o John Hancock Variable Series Massachusetts Council of Trust I Churches John Hancock Place Boston, Massachusetts 02117 Robert Verdonck (age 58) Trustee President and Chief c/o John Hancock Variable Series Executive Officer, East Trust I Boston Savings Bank John Hancock Place Boston, Massachusetts 02117 Hassell H. McClellan (age 58) Trustee Associate Professor and c/o John Hancock Variable Series Graduate Dean, The Trust I Graduate School of the John Hancock Place Wallace G. Carroll Boston, Massachusetts 02117 School of Management, Boston College
NOTES TO FINANCIAL STATEMENTS--Continued JOHN HANCOCK VARIABLE SERIES TRUST I December 31, 2003 -------------------------------------------------------------------------------- NOTE E--BOARD OF TRUSTEES AND OFFICERS OF THE TRUST (UNAUDITED)--Continued Trustees Affiliated with the Trust and Officers of the Trust
Positions Held Principal Occupation(s) Name, Address and Age With Trust During Past Five Years ------------------------------ ---------------------------- ---------------------------- Michele G. Van Leer* (age 46) Chairman and Trustee Senior Vice President, John Hancock Place Product Management, John Boston, Massachusetts 02117 Hancock Life Insurance Company; Vice Chairman, President & Director, John Hancock Variable Life Insurance Company Kathleen F. Driscoll* (age 47) Vice Chairman, President Senior Vice President, John Hancock Place and Trustee Signator Brokerage, John Boston, Massachusetts 02117 Hancock Life Insurance Company; Vice President Corporate Communications, John Hancock Life Insurance Company Jude A. Curtis (age 45) Compliance Officer Vice President and Chief John Hancock Place Investment Compliance Boston, Massachusetts 02117 Officer, John Hancock Life Insurance Company; formerly Second Vice President and Counsel, Office of Business Conduct; John Hancock Life Insurance Company; formerly a Partner at Hale and Dorr LLP (law firm) Janet Wang (age 35) Assistant Compliance Officer Compliance Specialist, John John Hancock Place Hancock Life Insurance Boston, Massachusetts 02117 Company Raymond F. Skiba (age 58) Treasurer Director of Fund Operations, John Hancock Place John Hancock Life Insurance Boston, Massachusetts 02117 Company Gladys C. Millan (age 57) Assistant Treasurer Manager of Fund Operations, John Hancock Place John Hancock Life Insurance Boston, Massachusetts 02117 Company
NOTES TO FINANCIAL STATEMENTS--Continued JOHN HANCOCK VARIABLE SERIES TRUST I December 31, 2003 -------------------------------------------------------------------------------- NOTE E--BOARD OF TRUSTEES AND OFFICERS OF THE TRUST (UNAUDITED)--Continued Trustees Affiliated with the Trust and Officers of the Trust--Continued
Positions Held Principal Occupation(s) Name, Address and Age With Trust During Past Five Years -------------------------------- ------------------- ---------------------------- Karen Q. Visconti (age 50) Secretary Director, Product & Market John Hancock Place Management, John Hancock Boston, Massachusetts 02117 Life Insurance Company Arnold R. Bergman (age 53) Assistant Secretary Senior Counsel, Law John Hancock Place Department, John Boston, Massachusetts 02117 Hancock Life Insurance company; formerly Vice President, General Counsel and Secretary, First Variable Life Insurance Company
*Trustee who is an "interested person" as defined in the 1940 Act, due to her position with John Hancock Life Insurance Company (or its affiliates), the ultimate controlling parent of the investment advisor. Because the Trust does not hold regular annual shareholders meetings, each Trustee holds office for an indefinite term until his successor is duly elected and qualified or until he dies, retires, resigns, is removed or becomes disqualified. None of the Trustees is a director of other complexes except noted above. REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS To the Contractowners, Policyholders, and Board of Trustees of John Hancock Variable Series Trust I We have audited the accompanying statement of assets and liabilities, including the schedule of investments, of the Fundamental Growth Fund (a portfolio included in the series of John Hancock Variable Series Trust I {the "Trust"}) as of December 31, 2003, and the related statement of operations for the year then ended, the statements of changes in net assets for each of the two years in the period then ended, and the financial highlights for each of the periods indicated therein. These financial statements and financial highlights are the responsibility of the Trust's management. Our responsibility is to express an opinion on these financial statements and financial highlights based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. Our procedures included confirmation of securities owned as of December 31, 2003, by correspondence with the custodian and brokers, or by other appropriate auditing procedures where replies from brokers were not received. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements and financial highlights referred to above present fairly, in all material respects, the financial position of the Fundamental Growth Fund of John Hancock Variable Series Trust I at December 31, 2003, the results of its operations for the year then ended, the changes in its net assets for each of the two years in the period then ended, and the financial highlights for each of the periods indicated, in conformity with accounting principles generally accepted in the United States. /s/ Ernst & Young LLP Boston, Massachusetts February 6, 2004 Officers and Trustees Investment Adviser Michele G. Van Leer, John Hancock Life Insurance Company Chairman of the Board of Trustees John Hancock Place Kathleen F. Driscoll, P.O. Box 111 President and Vice Chairman Boston, MA 02117 of the Board of Trustees Elizabeth G. Cook, Trustee Reverend Diane C. Kessler, Trustee Hassell H. McClellan, Trustee Independent Auditors Robert F. Verdonck, Trustee Ernst & Young LLP Karen Q. Visconti, Secretary 200 Clarendon Street Arnold R. Bergman, Assistant Secretary Boston, MA 02116 Raymond F. Skiba, Treasurer Gladys C. Millan, Assistant Treasurer Ronald J. Bocage, Chief Legal Officer Jude A. Curtis, Compliance Officer Janet Wang, Assistant Compliance Officer Sub-Investment Advisers Capital Guardian Trust Company Pacific Investment Management Company LLC Los Angeles, CA 90071 Newport Beach, CA 92660 Declaration Management & Research LLC RREEF America LLC McLean, VA 22102 Chicago, IL 60611 Fidelity Management & Research Company SSgA Funds Management, Inc. Boston, MA 02109 Boston, MA 02110 Goldman Sachs Asset Management, LP Standish Mellon Asset New York, NY 10005 Management Company LLC Pittsburgh, PA 15258 Independence Investment LLC T. Rowe Price Associates, Inc. Boston, MA 02109 Baltimore, MD 21202 John Hancock Advisers, LLC T. Rowe Price International, Inc. Boston, MA 02199 Baltimore, MD 21202 Morgan Stanley Investment Management Inc. Wellington Management Company, LLP New York, NY 10020 Boston, MA 02109
The John Hancock Variable Series Trust I consists of funds used as investment options for various John Hancock variable life and variable annuity contracts. Investors are not able to invest directly in the John Hancock Variable Series Trust I. If the total investment return for any fund for any given year appears unusually high, the return may be attributable to unusually favorable market conditions which will probably not be sustainable. For instance, a high total investment return may reflect participation in IPOs, "hot" industries (e.g., internet-related companies), private placements, and/or leveraging investment techniques during the period indicated. There is no assurance that any of those methods, or any other investment technique will continue to have the same impact on the fund's total investment returns. All of the funds (except bond funds and equity index funds) may participate in initial public offerings (IPOs). Under certain market conditions, such participation could significantly improve a fund's total investment return. There is no assurance that such market conditions will continue and provide the same favorable impact on future investment returns. Please refer to the prospectus for your product for additional information about the investment options available. Variable life insurance and variable annuities are sold by prospectus. These reports may be used as sales literature when preceeded or accompanied by the funds' prospectus, which detail charges, investment objectives, and operating policies. Insurance products are issued by John Hancock Life Insurance Company, or John Hancock Variable Life Insurance Company* (*not licensed in New York), Boston, MA 02117. Securities products are distributed by Signator Investors, Inc., Member NASD, SIPC, 197 Clarendon Street, Boston, MA 02116. John Hancock [GRAPHIC] [LOGO] WORLDWIDE SPONSOR [LOGO] IMSA INSURANCE MARKETPLACE STANDARD ASSOCIATION