EX-99.(17)(E) 9 dex9917e.txt MID CAP VALUE 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: May 1, 2003 -------------------------------------------------------------------------------- Mid Cap Value Fund T. Rowe Price Associates, Inc. David J. Wallack -------------------------------------------------------------------------------- . Since its inception in May, 2003, the Fund returned 36.77% outperforming its benchmark, the Russell Mid Cap Value Index. . The Fund outperformed its benchmark due to both favorable stock selection with modestly favorable sector allocation decisions. Stock selection in the materials sector was the biggest contributor, followed by the telecommunication services sector. The underweight to financials was the biggest sector allocation contributor. . The Fund's exposure to consumer discretionary was the largest contributor to absolute performance, followed by financials. No sector detracted from absolute returns, as all sectors had positive absolute returns. . The top and bottom contributors to absolute returns came from a variety of sectors. The biggest contributors to performance were Reuters group, Newmont Mining Corp., and Agilent Technologies. The main detractors included Bisys Group Inc and Lincare Hldgs. . The portfolio is currently overweight the energy sector, while underweight in the financials sector. . The Fund employs a bottom-up, value-oriented investment approach, focusing on companies with attractive valuations, strong cash flow generation and sound balance sheets. The Fund's sector allocations are broadly diversified but are primarily driven by stock selection. [CHART] Line Chart Historical Fund Return $10,000 Investment made 5/1/03 (Fund Inception Date) Mid Cap Value Russell Mid Cap(R) Value Equity Fund Value Benchmark (1) ------------- ------------------------ 5/1/2003 10,000.00 10,000.00 5/30/2003 11,069.40 10,880.00 6/30/2003 11,242.39 10,956.16 7/31/2003 11,563.36 11,296.90 8/29/2003 11,951.02 11,697.94 9/30/2003 11,723.37 11,606.69 10/31/2003 12,618.96 12,458.62 11/30/2003 12,909.25 12,819.92 12/31/2003 13,677.10 13,373.74 Value on 12/31/03: ------------------ $13,677 Mid Cap Value Fund $13,374 Russell Mid Cap(R) Value Benchmark (1) MORNINGSTAR CATEGORY+: . Mid Cap Value MORNINGSTAR RISK+: . (VL/VUL)NA . (VA) NA MORNINGSTAR RATING+: . (VL/VUL) N/A . (VA) N/A TOP TEN HOLDINGS (as of December 31, 2003) % of Assets ------ Diamond Offshore Drilling, Inc. 2.3% Molex, Inc. 1.8% Firstenergy Corp. 1.7% BMC Software, Inc. 1.5% Amerada Hess Corp. 1.5% Safeco Corp. 1.4% Giant Prideco 1.4% Scholastic Corp. 1.4% Cablevision System Corp. 1.4% Loews Corp. 1.4% AVERAGE ANNUAL TOTAL RETURNS* Russell Mid Cap Mid Cap(R) Value Value Fund Index(1) ---------- ---------------- Since Inception (5/1/03) 36.77% 33.74% SECTOR/INDUSTRY ALLOCATION (as of December 31, 2003) % of Assets ------ Financials 18.59% Consumer 15.33% Discretionary Information 11.91% Technology Utilities 10.62% Energy 9.59% Materials 8.18% Industrials 7.65% Health Care 7.64% Consumer Staples 5.99% Telecommunication Services 4.50% (1) The Russell Midcap(R)Valve Index measures the performance of those Russell Midcap companies with lower price-to-book nation and lower forecasted growth values. The stocks are also members of the Russell 1000(R)Value Index. * 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 this fund is not yet rated. STATEMENT OF ASSETS AND LIABILITIES JOHN HANCOCK VARIABLE SERIES TRUST I December 31, 2003 -------------------------------------------------------------------------------- (000's Omitted) ASSETS Long term investments at cost ....................................... $20,418 Net unrealized appreciation of investments .......................... 2,918 Short-term investments at value ..................................... 1,081 ------- Total investments ............................................. 24,417 Receivable for: Investments sold ................................................. 86 Fund shares sold ................................................. 18 Dividends ........................................................ 29 ------- Total assets ........................................................ 24,550 ------- LIABILITIES Payables for: Investments purchased ............................................ 58 Other liabilities ................................................ 2 ------- Total liabilities ................................................... 60 ------- Net assets .......................................................... $24,490 ======= Shares of beneficial interest outstanding ........................... 1,854 ------- Net asset value per share ........................................... $ 13.21 ======= Composition of net assets: Capital paid-in .................................................. $21,513 Accumulated net realized gain on investments, futures and foreign currency transactions ................................. 56 Undistributed net investment income .............................. 3 Net unrealized appreciation of investments ....................... 2,918 ------- Net assets .......................................................... $24,490 ======= STATEMENT OF OPERATIONS JOHN HANCOCK VARIABLE SERIES TRUST I For the Period from May 1, 2003 (Commencement of Operations) to December 31, 2003 -------------------------------------------------------------------------------- (000's Omitted) INVESTMENT INCOME Interest ...................................................... $ 8 Dividends ..................................................... 131 ------ Total investment income ............................................. 139 ------ EXPENSES Investment advisory fee ....................................... 87 Auditors fees ................................................. 1 Custodian fees ................................................ 28 Printing & mailing fees ....................................... 1 ------ Total expenses ...................................................... 117 Less expenses reimbursed ...................................... (22) Less custodian expense reduction offset by commission recapture arrangement (Note C) ............................. (1) ------ Net expenses ........................................................ 94 ------ Net investment income ............................................... 45 ------ REALIZED AND UNREALIZED GAIN Net realized gain on investments ................................. 816 Change in unrealized appreciation on investments ................. 2,918 ------ Net realized and unrealized gain .................................... 3,734 ------ Net increase in net assets resulting from operations ....................................................... $3,779 ====== See notes to financial statements. STATEMENT OF CHANGES IN NET ASSETS JOHN HANCOCK VARIABLE SERIES TRUST I December 31, 2003 -------------------------------------------------------------------------------- (000's Omitted) Period from May 1, 2003(*) to December 31, 2003 -------------- INCREASE (DECREASE) IN NET ASSETS From operations Net investment income ..................................... $ 45 Net realized gain ......................................... 816 Change in net unrealized appreciation ..................... 2,918 ------- Net increase in net assets resulting from operations ... 3,779 Distributions to shareholders from: Net investment income ..................................... (42) Realized gains ............................................ (760) ------- Decrease in net assets resulting from distributions .... (802) From fund share transactions: Proceeds from shares sold ................................. 23,951 Distributions reinvested .................................. 802 Payment for shares redeemed ............................... (3,240) ------- Increase in net assets from fund share transactions .... 21,513 ------- NET INCREASE IN NET ASSETS ................................... 24,490 NET ASSETS Beginning of Period ....................................... ------- End of Period ............................................. $24,490 ======= Analysis of fund share transactions: Sold ...................................................... 2,073 Reinvested ................................................ 62 Redeemed .................................................. (281) ------- Net increase in fund shares outstanding ...................... 1,854 ======= See notes to financial statements. *Commencement of Operations. FINANCIAL HIGHLIGHTS JOHN HANCOCK VARIABLE SERIES TRUST I -------------------------------------------------------------------------------- Selected data for each share of beneficial interest outstanding throughout the period indicated:
Mid Cap Value -------------- Period from May 1, to December 31, 2003(e) -------------- Net Assets Value at Beginning of Period .................. $ 10.00 Income from Investment Operations: Net Investment Income ................................. 0.04 Net Realized and Unrealized Gain on Investments(a)..... 3.64 ------- Total From Investment Operations ...................... 3.68 Less Distributions: Distribution from Net Investment Income ............... (0.04) Distribution from Net Realized Gains on Investments ... (0.43) ------- Total Distributions ................................... (0.47) ------- Net Assets Value at End of Period ........................ $ 13.21 ======= Total Investment Return(b) ............................... 36.77%(c) Ratios/Supplemental Data: Ratio of Operating Expenses to Average Net Assets ..... 1.20%(d)(f)(g) Ratio of Net Investment Income to Average Net Assets... 0.58%(d) Portfolio Turnover Rate ............................... 56.93%(c) Net Assets End of Period (000s Omitted) .................. $24,490
(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) Commencement of operations. (f) Expense ratio is net of expense reimbursements. Had such reimbursements not been made, the expense ratio would have been 1.47% for the years ended December 31, 2003. (g) The Fund is required to calculate an expense ratio without taking into consideration any expense reductions related to expense offset arrangements. SCHEDULE OF INVESTMENTS JOHN HANCOCK VARIABLE SERIES TRUST I December 31, 2003 -------------------------------------------------------------------------------- MID CAP VALUE FUND Market Name of Issuer Shares Value -------------- ------ ------- COMMON STOCK (000's) Aerospace & Defense - 1.9% Raytheon Co. * .......................................... 8,600 $ 259 Rockwell Collins, Inc.* ................................. 7,000 210 ------ 469 Air Freight & Couriers - 1.1% CNF Transportation, Inc. * .............................. 7,700 261 Banks - 6.1% Charter One Financial, Inc............................... 4,600 159 Citizens Banking Corp.* ................................. 5,100 167 Commerce Bancshares, Inc ................................ 4,725 232 Huntington Bancshares, Inc.* ............................ 11,000 247 National Commerce Financial Corp. ....................... 4,800 131 Northern Trust Corp. .................................... 5,600 260 Synovus Financial Corp.* ................................ 8,000 231 TCF Financial Corp. ..................................... 1,300 67 ------ 1,494 Biotechnology - 2.2% Biogen IDEC, Inc.* ...................................... 2,500 92 MedImmune, Inc.* ........................................ 10,200 259 Protein Design Labs, Inc.* .............................. 4,900 88 Vertex Pharmaceuticals, Inc.* ........................... 9,500 97 ------ 536 Chemicals - 1.7% Great Lakes Chemical Corp................................ 10,700 291 IMC Global, Inc. ........................................ 13,600 135 ------ 426 Commercial Services & Supplies - 4.2% Ceridian Corp. * ........................................ 9,600 201 Equifax, Inc. * ......................................... 4,800 118 Hewitt Associates, Inc. * ............................... 3,800 114 Manpower, Inc. * ........................................ 3,300 155 The Bisys Group, Inc. * ................................. 17,000 253 Viad Corp. .............................................. 7,400 185 ------ 1,026 Communications Equipment - 0.6% Tellabs, Inc. * ......................................... 18,200 153 Construction & Engineering - 1.0% ServiceMaster Co. ....................................... 20,700 241 Construction Materials - 1.0% Nucor Corp. ............................................. 4,500 252 Diversified Financials - 1.7% Janus Capgroup, Inc. .................................... 12,100 199 LaBranche & Co., Inc. * ................................. 18,300 213 ------ 412 Diversified Telecommunication Services - 3.0% AT&T Corp. * ............................................ 9,600 195 Commonwealth Telephone Enterprises, Inc. ................ 2,100 79 Crown Castle International Corp. * ...................... 11,400 126 Qwest Communications International, Inc. ................ 53,000 $ 229 Sprint PCS * ............................................ 19,900 112 ------ 741 Electric Utilities - 7.2% CMS Energy Corp. * ...................................... 14,200 121 Edison International * .................................. 3,100 68 El Paso Electric Co. * .................................. 14,800 198 Firstenergy Corp. * ..................................... 11,000 387 Pinnacle West Capital Corp. * ........................... 6,500 260 Teco Energy, Inc. * ..................................... 10,200 147 TXU Corp. ............................................... 11,400 270 Unisource Energy Corp. .................................. 7,605 188 Xcel Energy, Inc. ....................................... 7,300 124 ------ 1,763 Electrical Equipment - 2.2% Harris Corp. ............................................ 1,800 69 Littelfuse, Inc. * ...................................... 2,300 66 Molex, Inc. - CL A ...................................... 14,100 414 ------ 549 Electronic Equipment & Instruments - 1.8% Agilent Technologies, Inc. * ............................ 5,800 170 AVX Corp. ............................................... 16,500 274 ------ 444 Energy Equipment & Services - 1.7% Baker Hughes, Inc. * .................................... 9,000 289 Hanover Compressor Co. .................................. 11,000 123 ------ 412 Food & Drug Retailing - 0.6% Winn-Dixie Stores, Inc. * ............................... 15,300 152 Food Products - 4.8% Archer Daniels Midland Co. * ............................ 17,400 265 Campbell Soup Co. * ..................................... 8,000 214 ConAgra, Inc. ........................................... 7,800 206 H.J. Heinz Co. .......................................... 6,700 244 Potash Corp. of Saskatchewan, Inc ....................... 2,700 234 ------ 1,163 Health Care Equipment & Supplies - 1.7% Amerisource Bergen Corp. * .............................. 3,100 174 Guidant Corp ............................................ 2,600 156 Neighborcare, Inc. * .................................... 4,200 83 ------ 413 Health Care Providers & Services - 2.5% Aetna US Healthcare, Inc. * ............................. 2,000 135 Laboratory Corporation of America Holdings * ............ 2,900 107 Lincare Holdings, Inc. * ................................ 6,300 189 SCHEDULE OF INVESTMENTS--Continued JOHN HANCOCK VARIABLE SERIES TRUST I December 31, 2003 -------------------------------------------------------------------------------- MID CAP VALUE FUND Market Name of Issuer Shares Value -------------- ------- ------- (000's) COMMON STOCK - Continued Health Care Providers & Services - Continued Tenet Healthcare Corp. * ............................... 10,800 $ 174 ------- 605 Household Durables - 2.2% Herman Miller, Inc. * .................................. 9,500 231 Newell Rubbermaid, Inc.................................. 13,200 300 ------- 531 Insurance - 8.9% Cincinnati Financial Corp. * ........................... 3,100 130 Conseco, Inc............................................ 9,900 216 Hartford Financial Services Group, Inc. * .............. 2,500 148 Loews Corp. * .......................................... 6,600 326 Ohio Casualty Corp. * .................................. 11,800 205 Protective Life Corp.................................... 5,300 179 Safeco Corp. * ......................................... 8,600 335 St. Paul Cos., Inc...................................... 7,000 277 Travelers Property Casualty Corp. - Cl. A .............. 12,200 205 UnumProvident Corp. * .................................. 10,000 158 ------- 2,179 IT Consulting & Services - 0.7% BearingPoint, Inc. * ................................... 18,100 183 Leisure Equipment & Products - 1.5% Brunswick Corp. * ...................................... 5,400 172 Eastman Kodak Co. * .................................... 4,100 105 Hasbro, Inc. * ......................................... 4,800 102 ------- 379 Machinery - 1.6% Grant Prideco, Inc. * .................................. 25,200 328 Joy Global, Inc......................................... 2,500 65 ------- 393 Media - 9.7% Cablevision Systems Corp. - Cl. A * .................... 14,000 327 Cox Radio, Inc. - Cl. A * .............................. 5,200 131 Dow Jones & Co., Inc. * ................................ 5,900 294 Lamar Advertising Co. * ................................ 7,000 261 Meredith Corp. * ....................................... 3,400 166 New York Times Co. - Cl. A * ........................... 4,000 191 Pearson plc - ADR ...................................... 16,800 188 Reuters Group plc - ADR ................................ 10,900 277 Scholastic Corp. * ..................................... 9,600 327 Washington Post Co. - Cl. B ............................ 266 211 ------- 2,373 Metals & Mining - 1.6% Meridian Gold, Inc. * .................................. 16,600 243 Noranda, Inc............................................ 9,300 147 ------- 390 Multi-Utilities - 2.3% Duke Energy Co.......................................... 15,500 317 NiSource, Inc. * ....................................... 11,200 $ 246 ------- 563 Multiline Retail - 1.8% Costco Wholesale Corp................................... 6,200 231 Dillard's, Inc. - Cl. A * .............................. 12,600 207 ------- 438 Oil & Gas - 6.7% Amerada Hess Corp. * ................................... 6,400 340 BG plc - ADR ........................................... 5,300 138 Diamond Offshore Drilling, Inc. * ...................... 25,700 527 Kerr-McGee Corp. * ..................................... 5,200 242 Marathon Oil Corp. * ................................... 7,400 245 NRG Energy, Inc. * ..................................... 6,700 147 ------- 1,639 Paper & Forest Products - 2.5% Bowater, Inc............................................ 2,500 116 MeadWestvaco Corp. * ................................... 6,600 196 Potlatch Corp........................................... 8,400 292 ------- 604 Pharmaceuticals - 1.3% Andrx Corp. * .......................................... 3,700 89 King Pharmaceuticals, Inc. * ........................... 14,300 218 ------- 307 Real Estate Investment Trust - 1.0% Apartment Investment & Management Co.................... 5,400 186 Reckson Associates Realty Corp.......................... 2,400 59 ------- 245 Road & Rail - 0.2% Ryder System, Inc....................................... 1,700 58 Software - 3.1% BMC Software, Inc. * ................................... 18,500 345 Cadence Design Systems, Inc. * ......................... 11,200 201 Network Associates, Inc. * ............................. 14,800 223 ------- 769 Specialty Retail - 0.7% Gap, Inc................................................ 4,900 114 KMart Holding Corp...................................... 2,700 64 ------- 178 Textiles & Apparel - 0.5% Unifi, Inc. * .......................................... 20,500 132 Trading Companies & Distributors - 0.5% CDW Corp................................................ 1,900 110 Wireless Telecommunications Services - 1.3% Telephone and Data Systems, Inc......................... 4,900 306 ------- TOTAL COMMON STOCK- ................................. 95.1% 23,289 SCHEDULE OF INVESTMENTS--Continued JOHN HANCOCK VARIABLE SERIES TRUST I December 31, 2003 -------------------------------------------------------------------------------- MID CAP VALUE FUND Par Market Name of Issuer Value Value -------------- ------- ------- (000's) (000's) PUBLICLY-TRADED BONDS Electric Utilities - 0.0% Xcel Energy, Inc. - Sr. Notes 144A (a) 7.5% due 11/21/07 ...................................... $ 7 $ 11 Wireless Telecommunications Services - 0.2% United States Cellular Corp. - Notes 0.0% due 06/15/15 ...................................... 75 36 ------- TOTAL PUBLICLY-TRADED BONDS- ........................ 0.2% 47 SHORT-TERM INVESTMENTS - 4.4% Investment in joint trading account (Note B) 1.061% due 01/02/04 .................................... 1,081 1,081 ------ ------- TOTAL INVESTMENTS- .................................. 99.7% 24,417 Cash and Receivables, less payables- ................ 0.3% 73 ------ ------- NET ASSETS- ......................................... 100.0% $24,490 ====== ======= * Non-income producing security. (a) Pursuant to Rule 144A under the Securities Act of 1993, these securities may be resold in transactions exempt from registration, normally to qualified institutional buyers. At December 31, 2002, securities aggregated $11 or 0.0% of net assets of the Portfolio. ADR-American Depository Receipts. 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 Mid Cap Value Fund (the "Fund"), which commenced operations on May 1, 2003, 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 ("JHV-LAUV"), 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 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 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 -------------- ------------ 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 the Fund. Expenses not directly attributed to the Fund are allocated on the basis of relative net assets of the Fund. 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. For the year ended December 31, 2003, the Fund had no bank borrowings. 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 no capital loss carryforwards on a tax basis to be applied against any future taxable gains. 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. Dividend income for the Fund is shown net of foreign taxes withheld of $1. Realized gains and losses from security transactions are determined on the basis of identified cost. NOTES TO FINANCIAL STATEMENTS--Continued JOHN HANCOCK VARIABLE SERIES TRUST I December 31, 2003 -------------------------------------------------------------------------------- (000's Omitted) NOTE B--ACCOUNTING POLICIES--Continued 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: Between $50 Million and Excess Over First $50 Million $100 Million $100 Million ----------------- --------------- ------------ 1.10% 1.00% 0.95% 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. Accordingly, for the period ended December 31, 2003, the reimbursements paid from John Hancock and JHVLICO were $22 to the Fund. The Fund entered into a commission recapture program, which enables it to pay some of its operational expenses by recouping a portion of the commissions it pays to a broker that is not a related party of the Fund. Expenses paid through this program may include costs of custodial, transfer agency or accounting services. The impact of this arrangement was a reduction of $1. John Hancock has entered into a Sub-Advisory Agreement with T. Rowe Price Associates, Inc., with respect to the Fund. T. Rowe Price Associates, Inc. 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. NOTE D--INVESTMENT TRANSACTIONS Purchases and proceeds from sales and maturities of investments, excluding short-term securities and obligations of NOTES TO FINANCIAL STATEMENTS--Continued JOHN HANCOCK VARIABLE SERIES TRUST I December 31, 2003 -------------------------------------------------------------------------------- (000's Omitted) NOTE D--INVESTMENT TRANSACTIONS--Continued the U.S. government, for the Fund for the year ended December 31, 2003 were as follows: Purchases Sales and Maturities --------- -------------------- $24,214 $4,613 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 ---------- ------------ ------------ -------------- $21,501 $2,949 $(33) $2,916 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 returns. 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 ------------- ------------- ------------- -------------- $91 $-- $-- $2,916 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 $803 $-- $-- 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, Dana- c/o John Hancock Variable Series Farber Cancer Institute; President, Trust I The Advertising Club of Greater John Hancock Place Boston Boston, Massachusetts 02117 Diane C. Kessler (age 57) Trustee Executive Director, Massachusetts c/o John Hancock Variable Series Council of Churches Trust I John Hancock Place Boston, Massachusetts 02117 Robert Verdonck (age 58) Trustee President and Chief Executive c/o John Hancock Variable Series Officer, East Boston Savings Bank Trust I John Hancock Place Boston, Massachusetts 02117 Hassell H. McClellan (age 58) Trustee Associate Professor and Graduate c/o John Hancock Variable Series Dean, The Graduate School of the Trust I Wallace G. Carroll School of John Hancock Place Management, Boston College Boston, Massachusetts 02117
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, Product John Hancock Place Management, John Hancock Life Boston, Massachusetts 02117 Insurance Company; Vice Chairman, President & Director, John Hancock Variable Life Insurance Company Kathleen F. Driscoll* (age 47) Vice Chairman, President Senior Vice President, Signator John Hancock Place and Trustee Brokerage, John Hancock Life Boston, Massachusetts 02117 Insurance Company; Vice President Corporate Communications, John Hancock Life Insurance Company Jude A. Curtis (age 45) Compliance Officer Vice President and Chief Investment John Hancock Place Compliance Officer, John Hancock Boston, Massachusetts 02117 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 Company Boston, Massachusetts 02117 Raymond F. Skiba (age 58) Treasurer Director of Fund Operations, John John Hancock Place Hancock Life Insurance Company Boston, Massachusetts 02117 Gladys C. Millan (age 57) Assistant Treasurer Manager of Fund Operations, John John Hancock Place Hancock Life Insurance Company Boston, Massachusetts 02117
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 Trustee 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 Life Boston, Massachusetts 02117 Insurance Company Arnold R. Bergman (age 53) Assistant Secretary Senior Counsel, Law Department, John Hancock Place John Hancock Life Insurance Boston, Massachusetts 02117 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 Mid Cap Value 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, changes in net assets and the financial highlights for the period from May 1, 2003 (commencement of operations) to December 31, 2003. 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 Mid Cap Value Fund of John Hancock Variable Series Trust I at December 31, 2003, the results of its operations, the changes in its net assets and the financial highlights for the period from May 1, 2003 (commencement of operations) to December 31, 2003, 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