================================================================================
John Hancock Funds
- --------------------------------------------------------------------------------
Declaration
Trust
Growth
V.A. INTERNATIONAL FUND
V.A. EMERGINGGROWTHFUND
V.A. DISCOVERYFUND
Growth and Income
V.A. INDEPENDENCE EQUITY FUND
V.A. 500 INDEX FUND
V.A. SOVEREIGN INVESTORS FUND
Income
V.A. WORLD BOND FUND
V.A. STRATEGIC INCOME FUND
V.A. SOVEREIGN BOND FUND
V.A. MONEY MARKET FUND
ANNUAL REPORT
December 31, 1996
<PAGE>
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Table of Contents
John Hancock Funds - Declaration Trust
Page
1) Chairman's Message.................................................... 3
2) Financial Statements.................................................. 4
3) Schedules of Investments
Growth
V.A. International Fund.............................................. 12
V.A. Emerging Growth Fund............................................ 13
V.A. Discovery Fund.................................................. 15
Growth & Income
V.A. Independence Equity Fund........................................ 17
V.A. 500 Index Fund.................................................. 19
V.A. Sovereign Investors Fund........................................ 20
Income
V.A. World Bond Fund................................................. 23
V.A. Strategic Income Fund........................................... 24
V.A. Sovereign Bond Fund............................................. 25
V.A. Money Market Fund............................................... 27
4) Notes To Financial Statements......................................... 28
TRUSTEES
EDWARD J. BOUDREAU, JR.
DENNIS S. ARONOWITZ *
RICHARD P. CHAPMAN, JR. *
WILLIAM J. COSGROVE *
DOUGLAS M. COSTLE *
LELAND O. ERDAHL *
RICHARD A. FARRELL *
GAIL D. FOSLER *
WILLIAM F. GLAVIN *
ANNE C. HODSDON
DR. JOHN A. MOORE *
PATTI MCGILL PETERSON *
JOHN W. PRATT *
RICHARD S. SCIPIONE
EDWARD J. SPELLMAN *
* Members of the Audit Committee
OFFICERS
EDWARD J. BOUDREAU, JR.
Chairman and Chief Executive Officer
ROBERT G. FREEDMAN
Vice Chairman and
Chief Investment Officer
ANNE C. HODSDON
President
JAMES B. LITTLE
Senior Vice President and
Chief Financial Officer
SUSAN S. NEWTON
Vice President and Secretary
JAMES J. STOKOWSKI
Vice President and Treasurer
THOMAS H. CONNORS
Second Vice President and
Compliance Officer
CUSTODIANS
INVESTORS BANK & TRUST COMPANY
89 SOUTH STREET
BOSTON, MASSACHUSETTS 02111
V.A. Emerging Growth Fund
V.A. Discovery Fund
V.A. Independence Equity Fund
V.A. Sovereign Investors Fund
V.A. Strategic Income Fund
V.A. Sovereign Bond Fund
STATE STREET BANK AND TRUST COMPANY
225 FRANKLIN STREET
BOSTON, MASSACHUSETTS 02110
V.A. International Fund
V.A. 500 Index Fund
V.A. World Bond Fund
V.A. Money Market Fund
TRANSFER AGENT
JOHN HANCOCK SIGNATURE SERVICES, INC.
P.O. BOX 9298
BOSTON, MASSACHUSETTS 02205-9298
INVESTMENT ADVISER
JOHN HANCOCK ADVISERS, INC.
101 HUNTINGTON AVENUE
BOSTON, MASSACHUSETTS 02199-7603
SUB-INVESTMENT ADVISERS
JOHN HANCOCK ADVISERS INTERNATIONAL LIMITED
34 DOVER STREET
LONDON, ENGLAND W1X3RA
V.A. International Fund
INDEPENDENCE INVESTMENT ASSOCIATES, INC.
53 STATE STREET
BOSTON, MASSACHUSETTS 02109
V.A. Independence Equity Fund
SOVEREIGN ASSET MANAGEMENT CORP.
1235 WESTLAKES DRIVE
BERWYN, PENNSYLVANIA 19312
V.A. Sovereign Investors Fund
PRINCIPAL DISTRIBUTOR
JOHN HANCOCK FUNDS, INC.
101 HUNTINGTON AVENUE
BOSTON, MASSACHUSETTS 02199-7603
LEGAL COUNSEL
HALE AND DORR LLP
60 STATE STREET
BOSTON, MASSACHUSETTS 02109
INDEPENDENT AUDITORS
ERNST & YOUNG LLP
200 CLARENDON STREET
BOSTON, MASSACHUSETTS 02116-5702
2
<PAGE>
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CHAIRMAN'S MESSAGE
DEAR FELLOW SHAREHOLDERS:
Most analysts agree that the Social Security system will run out of money by the
year 2030 unless Congress makes some changes. Although it seems a long way off,
the issue is serious enough that at least one group has already studied the
problem, and experts and politicians alike have weighed in with a slew of
prescriptions. Legislative action could be in the offing in 1997.
[A 1 1/2" X 1 1/4" photo of Edward J. Boudreau Jr., Chairman and Chief Executive
Officer, flush right, next to second paragraph.]
The problem stems from demographic and societal changes. The number of
retirees collecting Social Security is growing rapidly, while the number of
workers supporting the system is shrinking. Consider this: in 1950, there were
16 workers paying into the Social Security system for each retiree collecting
benefits. Today, there are three workers for each retiree and by 2019 there will
be two. Starting then, the Social Security Administration estimates that the
amount paid out in Social Security benefits will start to be greater than the
amount collected in Social Security taxes. Compounding the issue is the fact
that people are retiring earlier and living longer.
The state of the system has already left many people, especially younger and
middle-aged workers, feeling insecure about Social Security. A recent survey by
the Employee Benefits Research Institute (EBRI) found that 79% of current
workers polled had little confidence in the ability of Social Security to
maintain the same level of benefits as those received by today's retirees.
Instead, they said they expect to use their own savings or employer-sponsored
pensions for their retirement. Yet, remarkably, another EBRI survey revealed
that only slightly more than half of America's current workers are saving money
for retirement. Fewer than half own IRAs or participate in employer-sponsored
pension or savings plans.
No matter how Social Security's problems get solved, one thing is clear.
Americans need to rely on themselves for accumulating the bulk of their
retirement savings. There's no law that says you should have to reduce your
standard of living once you stop working. So we encourage you to save all that
you can now, so you can live the way you'd like later.
Sincerely,
/s/ Edward J. Boudreau, Jr.
EDWARD J. BOUDREAU, JR., CHAIRMAN AND CHIEF EXECUTIVE OFFICER
3
<PAGE>
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FINANCIAL STATEMENTS
John Hancock Funds - Declaration Trust
Statements of Assets and Liabilities
December 31, 1996
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
V.A. V.A. V.A. V.A. V.A.
INTERNATIONAL EMERGING DISCOVERY INDEPENDENCE 500 INDEX
FUND GROWTH FUND FUND EQUITY FUND FUND
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Assets:
Investments at value - Note D:
Common stocks (cost - $1,827,986; $858,831; $900,245; $1,032,243
and none, respectively) ......................................... $2,075,791 $ 861,806 $ 935,581 $1,117,091 $ --
Short-term investments (cost - none; none; none; none and
$3,984,280, respectively) ..................................... -- -- -- -- 3,984,280
Joint Repurchase Agreements (cost - $196,000; $133,000; $106,000;
$38,000 and none, respectively) ............................... 196,000 133,000 106,000 38,000 --
Corporate savings account ....................................... -- 61 586 180 --
---------- ---------- ---------- ---------- ----------
2,271,791 994,867 1,042,167 1,155,271 3,984,280
Cash ............................................................. 331 -- -- -- 3,644
Foreign currency, at value (cost - $1,730; none; none; none and
none, respectively) ............................................ 1,730 -- -- -- --
Receivable for investments sold .................................. -- 17,856 11,045 12 --
Dividends and interest receivable ................................ 989 365 244 2,526 --
Foreign tax receivable ........................................... 151 -- -- -- --
Segregated assets for financial futures contracts ................ -- -- -- -- 148,500
Deferred organization expenses - Note B .......................... 9,836 9,836 9,836 9,836 9,836
---------- ---------- ---------- ---------- ----------
Total Assets ................................... 2,284,828 1,022,924 1,063,292 1,167,645 4,146,260
---------------------------------------------------------------------------------------------------------------
Liabilities:
Payable for investments purchased ................................ -- 31,097 51,006 -- --
Payable for futures variation margin - Note B .................... -- -- -- -- 80,300
Payable to John Hancock Advisers, Inc. and affiliates - Note C ... 6,581 7,306 8,721 9,286 8,036
Accounts payable and accrued expenses ............................ 11,126 9,606 9,707 9,707 9,231
---------- ---------- ---------- ---------- ----------
Total Liabilities .............................. 17,707 48,009 69,434 18,993 97,567
---------------------------------------------------------------------------------------------------------------
Net Assets:
Capital paid-in .................................................. 2,020,841 1,043,523 1,055,422 1,037,724 3,906,636
Accumulated net realized gain (loss) on investments,
financial futures contracts and foreign currency transactions ... (1,554) (71,717) (96,900) 26,080 186,561
Net unrealized appreciation (depreciation) of investments,
financial futures contracts and foreign currency transactions ... 247,834 2,975 35,336 84,848 (44,750)
Undistributed net investment income .............................. -- 134 -- -- 246
---------- ---------- ---------- ---------- ----------
Net Assets ..................................... $2,267,121 $ 974,915 $ 993,858 $1,148,652 $4,048,693
===============================================================================================================
Net Asset Value Per Share:
(based on 201,947; 104,582; 105,842; 103,375 and 387,874 shares,
respectively, of beneficial interest outstanding - unlimited number
of shares authorized with no par value) .......................... $ 11.23 $ 9.32 $ 9.39 $ 11.11 $ 10.44
===================================================================================================================================
</TABLE>
The Statement of Assets and Liabilities is each Fund's balance sheet and shows
the value of what each Fund owns, is due and owes as of December 31, 1996.
You'll also find the net asset value per share as of that date.
SEE NOTES TO FINANCIAL STATEMENTS.
4
<PAGE>
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FINANCIAL STATEMENTS
John Hancock Funds - Declaration Trust
Statements of Assets and Liabilities
December 31, 1996
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
V.A. V.A. V.A. V.A. V.A.
SOVEREIGN WORLD BOND STRATEGIC SOVEREIGN MONEY MARKET
INVESTORS FUND FUND INCOME FUND BOND FUND FUND
-------------- ---------- ----------- --------- ------------
<S> <C> <C> <C> <C> <C>
Assets:
Investments at value - Note D:
Common stocks (cost - $889,356; none; none; none and none,
respectively) ................................................. $ 954,718 $ -- $ -- $ -- $ --
Bonds (cost - $114,719; $1,941,597; $2,043,644; $990,249
and none, respectively) ....................................... 116,532 1,982,665 2,068,958 1,004,150 --
U.S. government obligations (cost - none; none; none;
none and $209,962, respectively) ............................ -- -- -- -- 209,962
Joint repurchase agreements (cost - $61,000; $66,000; none;
$41,000 and none, respectively) ............................. 61,000 66,000 -- 41,000 --
Corporate savings account ..................................... 718 -- 8,728 313 --
---------- ---------- ---------- ---------- --------
1,132,968 2,048,665 2,077,686 1,045,463 209,962
Cash ........................................................... -- -- -- -- 3,708
Receivable for shares sold ..................................... -- 477 -- -- --
Receivable for investments sold ................................ 28,482 -- -- -- --
Receivable for forward foreign currency exchange contracts
sold - Note B ................................................ -- 1,955 2,134 -- --
Dividends receivable ........................................... 1,025 -- -- -- --
Interest receivable ............................................ 2,556 42,414 57,984 16,329 --
Deferred organization expenses - Note B ........................ 9,836 9,836 9,836 9,836 9,836
---------- ---------- ---------- ---------- --------
Total Assets ................................. 1,174,867 2,103,347 2,147,640 1,071,628 223,506
--------------------------------------------------------------------------------------------------------------
Liabilities:
Payable for foreign withholding tax ............................ -- 188 -- -- --
Payable for closed forward foreign currency exchange
contracts - Note B ........................................... -- 2,265 -- -- --
Payable for forward foreign currency exchange contracts
bought - Note B .............................................. -- 3,343 -- -- --
Payable for investments purchased .............................. 46,356 -- -- -- --
Payable to John Hancock Advisers, Inc. and affiliates - Note C 8,184 3,711 7,532 6,554 8,258
Accounts payable and accrued expenses .......................... 9,196 11,280 8,700 8,931 8,620
---------- ---------- ---------- ---------- --------
Total Liabilities ............................ 63,736 20,787 16,232 15,485 16,878
--------------------------------------------------------------------------------------------------------------
Net Assets:
Capital paid-in ................................................ 1,037,804 2,041,765 2,070,673 1,037,618 206,628
Accumulated net realized gain on investments and foreign
currency transactions ........................................ 6,099 3,827 33,242 4,624 --
Net unrealized appreciation of investments and foreign
currency transactions ........................................ 67,175 36,968 27,493 13,901 --
Undistributed net investment income ............................ 53 -- -- -- --
---------- ---------- ---------- ---------- --------
Net Assets ................................... $1,111,131 $2,082,560 $2,131,408 $1,056,143 $206,628
==============================================================================================================
Net Asset Value Per Share:
(based on 103,482; 204,106; 206,887; 103,684 and 206,628 shares,
respectively, of beneficial interest outstanding - unlimited
number of shares authorized with no par value) ................. $ 10.74 $ 10.20 $ 10.30 $ 10.19 $ 1.00
==================================================================================================================================
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
5
<PAGE>
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FINANCIAL STATEMENTS
John Hancock Funds - Declaration Trust
Statements of Operations
Period from August 29, 1996 (commencement of operations) to December 31, 1996
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
V.A. V.A. V.A. V.A. V.A.
INTERNATIONAL EMERGING DISCOVERY INDEPENDENCE 500 INDEX
FUND GROWTH FUND FUND EQUITY FUND FUND
--------- -------- -------- --------- ---------
<S> <C> <C> <C> <C> <C>
Investment Income:
Dividends (net of foreign withholding tax of $648; none; none;
$38 and none, respectively) ....................................... $ 12,385 $ 675 $ 501 $ 8,232 $ --
Interest .......................................................... 10,220 4,730 2,180 1,214 67,535
--------- -------- -------- --------- ---------
22,605 5,405 2,681 9,446 67,535
Expenses:
Investment management fee - Note C ............................... 6,402 2,542 2,607 2,594 4,569
Auditing fee ..................................................... 7,500 7,500 7,500 7,500 7,500
Custodian fee .................................................... 5,487 4,953 3,847 2,937 1,538
Printing ......................................................... 1,439 1,439 1,439 1,439 1,439
Organization expense - Note B .................................... 855 855 855 855 855
Legal fees ....................................................... 475 226 233 265 897
Financial services fee - Note C .................................. 133 64 65 70 245
Miscellaneous .................................................... 2 1 1 1 3
Trustees' fee .................................................... 1 1 1 1 18
--------- -------- -------- --------- ---------
Total Expenses .................................. 22,294 17,581 16,548 15,662 17,064
Less expense reductions - Note C ................ (14,115) (14,192) (13,072) (12,141) (9,231)
--------- -------- -------- --------- ---------
Net Expenses .................................... 8,179 3,389 3,476 3,521 7,833
----------------------------------------------------------------------------------------------------------------
Net Investment Income (Loss) .................... 14,426 2,016 (795) 5,925 59,702
----------------------------------------------------------------------------------------------------------------
Realized and Unrealized Gain (Loss) on Investments, Financial
Futures Contracts and Foreign Currency Transactions:
Net realized gain (loss) on investments sold ...................... (1,554) (71,717) (96,900) 27,151 --
Net realized gain on financial futures contracts .................. -- -- -- -- 387,685
Net realized loss on foreign currency transactions ................ (5,872) -- -- -- --
Change in net unrealized appreciation/depreciation of investments 247,805 2,975 35,336 84,848 --
Change in net unrealized appreciation/depreciation of financial
futures contracts ............................................... -- -- -- -- (44,750)
Change in net unrealized appreciation/depreciation of foreign
currency transactions ........................................... 29 -- -- -- --
--------- -------- -------- --------- ---------
Net Realized and Unrealized Gain (Loss) on
Investments, Financial Futures Contracts and
Foreign Currency Transactions ................... 240,408 (68,742) (61,564) 111,999 342,935
----------------------------------------------------------------------------------------------------------------
Net Increase (Decrease) in Net Assets Resulting
from Operations ............................... $ 254,834 ($66,726) ($62,359) $ 117,924 $ 402,637
================================================================================================================
</TABLE>
The Statement of Operations summarizes for each of the Funds, the investment
income earned and expenses incurred in operating each Fund. It also shows net
gains (losses) for the period stated.
SEE NOTES TO FINANCIAL STATEMENTS.
6
<PAGE>
================================================================================
FINANCIAL STATEMENTS
John Hancock Funds - Declaration Trust
Statements of Operations
Period from August 29, 1996 (commencement of operations) to December 31, 1996
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
V.A. V.A. V.A. V.A. V.A.
SOVEREIGN WORLD BOND STRATEGIC SOVEREIGN MONEY MARKET
INVESTORS FUND FUND INCOME FUND BOND FUND FUND
-------------- ---------- ----------- --------- ------------
<S> <C> <C> <C> <C> <C>
Investment Income:
Dividends ....................................................... $ 5,175 $ -- $ -- $ -- $ --
Interest (net of foreign withholding tax of none;
$838; none; none and none, respectively) ...................... 4,861 47,761 61,610 26,166 2,070
-------- -------- --------- -------- --------
10,036 47,761 61,610 26,166 2,070
Expenses:
Investment management fee - Note C ............................. 2,190 5,245 4,229 1,758 191
Audit Fee ...................................................... 7,500 7,500 7,500 7,500 7,500
Custodian Fee .................................................. 1,496 6,682 1,375 2,710 443
Printing ....................................................... 1,439 1,439 1,439 1,165 1,439
Organization expense - Note B .................................. 855 855 855 855 855
Legal fees ..................................................... 248 428 552 222 36
Financial services fee - Note C ................................ 68 131 132 66 7
Miscellaneous .................................................. 2 2 2 200 1
Trustees' fee .................................................. 1 1 1 123 1
-------- -------- --------- -------- --------
Total Expenses ................................ 13,799 22,283 16,085 14,599 10,473
Less expense reductions - Note C .............. (10,696) (15,290) (10,094) (11,962) (10,187)
-------- -------- --------- -------- --------
Net Expenses .................................. 3,103 6,993 5,991 2,637 286
----------------------------------------------------------------------------------------------------------------
Net Investment Income ......................... 6,933 40,768 55,619 23,529 1,784
----------------------------------------------------------------------------------------------------------------
Realized and Unrealized Gain (Loss) on Investments and
Foreign Currency Transactions:
Net realized gain on investments sold ........................... 8,426 9,912 41,601 6,419 --
Net realized gain (loss) on foreign currency transactions ....... -- (6,085) 4,694 -- --
Change in net unrealized appreciation/depreciation of investments 67,175 41,068 25,314 13,901 --
Change in net unrealized appreciation/depreciation of foreign
currency transactions ......................................... -- (4,100) 2,179 -- --
-------- -------- --------- -------- --------
Net Realized and Unrealized Gain on Investments
and Foreign Currency Transactions ............. 75,601 40,795 73,788 20,320 --
----------------------------------------------------------------------------------------------------------------
Net Increase in Net Assets Resulting from
Operations .................................... $ 82,534 $ 81,563 $ 129,407 $ 43,849 $ 1,784
================================================================================================================
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
7
<PAGE>
================================================================================
FINANCIAL STATEMENTS
John Hancock Funds - Declaration Trust
Statements of Changes in Net Assets
Period from August 29, 1996 (commencement of operations) to December 31, 1996
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
V.A. V.A. V.A. V.A. V.A.
INTERNATIONAL EMERGING DISCOVERY INDEPENDENCE 500 INDEX
FUND GROWTH FUND FUND EQUITY FUND FUND
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Increase (Decrease) in Net Assets:
From Operations:
Net investment income (loss) ............................. $ 14,426 $ 2,016 ($ 795) $ 5,925 $ 59,702
Net realized gain (loss) on investments sold, financial
futures contracts and foreign currency transactions .... (7,426) (71,717) (96,900) 27,151 387,685
Change in net unrealized appreciation/depreciation of
investments, financial futures contracts and foreign
currency transactions .................................. 247,834 2,975 35,336 84,848 (44,750)
---------- ---------- ---------- ---------- ----------
Net Increase (Decrease) in Net Assets Resulting
from Operations .................................... 254,834 (66,726) (62,359) 117,924 402,637
---------- ---------- ---------- ---------- ----------
Distributions to Shareholders: *
Dividends from net investment income ..................... (8,697) (1,882) -- (6,035) (59,456)
Distributions from net realized gain on investments
sold, financial futures contracts and foreign
currency transactions .................................. -- -- -- (961) (201,124)
---------- ---------- ---------- ---------- ----------
Total Distributions to Shareholders .................. (8,697) (1,882) -- (6,996) (260,580)
---------- ---------- ---------- ---------- ----------
From Fund Share Transactions: **
Shares sold .............................................. 2,012,294 1,041,666 1,056,861 1,030,749 3,646,277
Shares issued to shareholders in reinvestment of
distributions .......................................... 8,697 1,882 -- 6,996 260,580
---------- ---------- ---------- ---------- ----------
2,020,991 1,043,548 1,056,861 1,037,745 3,906,857
Less shares repurchased .................................. (7) (25) (644) (21) (221)
---------- ---------- ---------- ---------- ----------
Net Increase .......................................... 2,020,984 1,043,523 1,056,217 1,037,724 3,906,636
---------- ---------- ---------- ---------- ----------
Net Assets:
Beginning of period ...................................... -- -- -- -- --
---------- ---------- ---------- ---------- ----------
End of period (including undistributed net investment
income of none; $134; none; none and $246, respectively) $2,267,121 $ 974,915 $ 993,858 $1,148,652 $4,048,693
========== ========== ========== ========== ==========
* Distributions to Shareholders
Per share dividends from net investment income ........... $ 0.0432 $ 0.0180 -- $ 0.0587 $ 0.1637
---------- ---------- ---------- ---------- ----------
Per share distributions from net relaized gain on
investments sold, financial futures contracts and
foreign currency transactions .......................... -- -- -- $ 0.0094 $ 0.5538
---------- ---------- ---------- ---------- ----------
** Analysis of Fund Share Transactions:
Shares sold .............................................. 201,146 104,379 105,902 102,751 363,218
Shares issued to shareholders in reinvestment of
distributions .......................................... 802 206 -- 626 24,676
---------- ---------- ---------- ---------- ----------
201,948 104,585 105,902 103,377 387,894
Less shares repurchased .................................. (1) (3) (60) (2) (20)
---------- ---------- ---------- ---------- ----------
Net Increase ............................................. 201,947 104,582 105,842 103,375 387,874
========== ========== ========== ========== ==========
</TABLE>
The Statement of Changes in Net Assets shows how the value of each Fund's net
assets have changed since the commencement of operations. The difference
reflects net investment income, any investment gains and losses, distributions
paid to shareholders, if any, and any increase or decrease in money shareholders
invested in each Fund. The footnotes illustrate the number of Fund shares sold,
reinvested and repurchased during the period, along with the per share amount of
distributions made to shareholders of each Fund for the period indicated.
SEE NOTES TO FINANCIAL STATEMENTS.
8
<PAGE>
================================================================================
FINANCIAL STATEMENTS
John Hancock Funds - Declaration Trust
Statements of Changes in Net Assets
Period from August 29, 1996 (commencement of operations) to December 31, 1996
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
V.A. V.A. V.A. V.A. V.A.
SOVEREIGN WORLD BOND STRATEGIC SOVEREIGN MONEY MARKET
INVESTORS FUND FUND INCOME FUND BOND FUND FUND
-------------- ---------- ----------- --------- ------------
<S> <C> <C> <C> <C> <C>
Increase (Decrease) in Net Assets:
From Operations:
Net investment income .................................. $ 6,933 $ 40,768 $ 55,619 $ 23,529 $ 1,784
Net realized gain on investments sold and foreign
currency transactions ................................ 8,426 3,827 46,295 6,419 --
Change in net unrealized appreciation/depreciation
of investments and foreign currency transactions ..... 67,175 36,968 27,493 13,901 --
---------- ---------- ---------- ---------- ----------
Net Increase in Net Assets Resulting from Operations .. 82,534 81,563 129,407 43,849 1,784
---------- ---------- ---------- ---------- ----------
Distributions to Shareholders: *
Dividends from net investment income ................... (6,880) (40,768) (55,619) (23,529) (1,784)
Distributions from net realized gain on investments
sold and foreign currency transactions ............... (2,327) -- (13,053) (1,795) --
---------- ---------- ---------- ---------- ----------
Total Distributions to Shareholders ................... (9,207) (40,768) (68,672) (25,324) (1,784)
---------- ---------- ---------- ---------- ----------
From Fund Share Transactions: **
Shares sold ............................................ 1,029,113 2,000,997 2,002,001 1,012,301 104,907
Shares issued to shareholders in reinvestment of
distributions ........................................ 9,207 40,768 68,672 25,324 1,784
---------- ---------- ---------- ---------- ----------
1,038,320 2,041,765 2,070,673 1,037,625 106,691
Less shares repurchased ................................ (516) -- -- (7) (63)
---------- ---------- ---------- ---------- ----------
Net Increase ......................................... 1,037,804 2,041,765 2,070,673 1,037,618 106,628
---------- ---------- ---------- ---------- ----------
Net Assets:
Beginning of period .................................... -- -- -- -- 100,000(1)
---------- ---------- ---------- ---------- ----------
End of period (including undistributed net investment
income of $53; none; none; none and none, respectively) $1,111,131 $2,082,560 $2,131,408 $1,056,143 $ 206,628
========== ========== ========== ========== ==========
* Distributions to Shareholders
Per share dividends from net investment income ......... $ 0.0670 $ 0.2015 $ 0.2739 $ 0.2327 $ 0.0160
---------- ---------- ---------- ---------- ----------
Per share distributions from net relaized gain
on investments sold and foreign currency transactions $ 0.0227 -- $ 0.0640 $ 0.0175 --
---------- ---------- ---------- ---------- ----------
** Analysis of Fund Share Transactions:
Shares sold ............................................ 102,676 200,098 200,193 101,202 104,907
Shares issued to shareholders in reinvestment of
distributions ........................................ 856 4,008 6,694 2,483 1,784
---------- ---------- ---------- ---------- ----------
103,532 204,106 206,887 103,685 106,691
Less shares repurchased ................................ (50) -- -- (1) (63)
---------- ---------- ---------- ---------- ----------
Net Increase ........................................... 103,482 204,106 206,887 103,684 106,628
========== ========== ========== ========== ==========
</TABLE>
(1) On July 22, 1996, the Adviser made an initial investment of $100,000
(100,000 shares) in order to seed the Trust.
SEE NOTES TO FINANCIAL STATEMENTS.
9
<PAGE>
================================================================================
FINANCIAL STATEMENTS
John Hancock Funds - Declaration Trust
Financial Highlights
Selected data for a share of beneficial interest outstanding throughout each
period indicated, investment returns, key ratios and supplemental data are as
follows:
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
PERIOD FROM AUGUST 29, 1996 (COMMENCEMENT OF OPERATIONS) TO DECEMBER 31, 1996
---------------------------------- ------------------------------------------
V.A. V.A. V.A. V.A. V.A.
INTERNATIONAL EMERGING DISCOVERY INDEPENDENCE 500 INDEX
FUND GROWTH FUND FUND EQUITY FUND FUND
---------- ---------- --------- ---------- ---------
<S> <C> <C> <C> <C> <C>
Per Share Operating Performance
Net Asset Value, Beginning of Period ............... $ 10.00 $ 10.00 $ 10.00 $ 10.00 $ 10.00
--------- --------- --------- --------- ---------
Net Investment Income (Loss) (1) ................... 0.07 0.02 (0.01) 0.06 0.17
Net Realized and Unrealized Gain (Loss) on
Investments, Financial Futures Contracts
and Foreign Currency Transactions ................ 1.20 (0.68) (0.60) 1.12 0.98
--------- --------- --------- --------- ---------
Total from Investment Operations ................ 1.27 (0.66) (0.61) 1.18 1.15
--------- --------- --------- --------- ---------
Less Distributions:
Dividends from Net Investment Income .............. (0.04) (0.02) -- (0.06) (0.16)
Distributions from Net Realized Gain on
Investments Sold, Financial Futures Contracts
and Foreign Currency Transactions ............... -- -- -- (0.01) (0.55)
--------- --------- --------- --------- ---------
Total Distributions ............................ (0.04) (0.02) -- (0.07) (0.71)
--------- --------- --------- --------- ---------
Net Asset Value, End of Period ..................... $ 11.23 $ 9.32 $ 9.39 $ 11.11 $ 10.44
========= ========= ========= ========= =========
Total Investment Return at Net Asset Value (2) ..... 12.75%(5) (6.62%)(5) (6.10%)(5) 11.78%(5) 11.49%(5)
Total Adjusted Investment Return at Net Asset
Value (2)(3) ..................................... 12.07%(5) (8.05%)(5) (7.39%)(5) 10.66%(5) 11.25%(5)
Ratios and Supplemental Data
Net Assets, End of Period (000's omitted) .......... $ 2,267 $ 975 $ 994 $ 1,149 $ 4,049
Ratio of Expenses to Average Net Assets ............ 1.15%(6) 1.00%(6) 1.00%(6) 0.95%(6) 0.60%(6)
Ratio of Adjusted Expenses to Average Net Assets (4) 3.13%(6) 5.19%(6) 4.76%(6) 4.23%(6) 1.31%(6)
Ratio of Net Investment Income (Loss) to Average
Net Assets ....................................... 2.03%(6) 0.62%(6) (0.23%)(6) 1.60%(6) 4.57%(6)
Ratio of Adjusted Net Investment Income (Loss)
to Average Net Assets (4) ........................ 0.05%(6) (3.57%)(6) (3.99%)(6) (1.68%)(6) 3.86%(6)
Portfolio Turnover Rate ............................ 14% 31% 68% 24% --
Fee Reduction Per Share (1) ........................ $ 0.07 $ 0.14 $ 0.13 $ 0.12 $ 0.03
Average Brokerage Commission Rate (7) .............. $ 0.0162 $ 0.0694 $ 0.0691 $ 0.0210 --
</TABLE>
(1) Based on the average of the shares outstanding at the end of each month.
(2) Assumes dividend reinvestment and does not reflect the effect of sales
charges.
(3) An estimated total return calculation which does not take into consideration
fee reductions by the adviser during the periods shown.
(4) Unreimbursed, without fee reductions.
(5) Not annualized.
(6) Annualized.
(7) Per portfolio share traded.
The Financial Highlights summarizes the impact of the following factors on a
single share for each period indicated: net investment income, gains (losses),
dividends and total investment return of the Fund. It shows how the Fund's net
asset value for a share has changed since the commencement of operations.
Additionally, important relationships between some items presented in the
financial statements are expressed in ratio form.
SEE NOTES TO FINANCIAL STATEMENTS.
10
<PAGE>
================================================================================
FINANCIAL STATEMENTS
John Hancock Funds - Declaration Trust
Financial Highlights
Selected data for a share of beneficial interest outstanding throughout each
period indicated, investment returns, key ratios and supplemental data are
listed as follows:
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
PERIOD FROM AUGUST 29, 1996 (COMMENCEMENT OF OPERATIONS) TO DECEMBER 31, 1996
-----------------------------------------------------------------------------
V.A. V.A. V.A. V.A. V.A.
SOVEREIGN WORLD BOND STRATEGIC SOVEREIGN MONEY MARKET
INVESTORS FUND FUND INCOME FUND BOND FUND FUND
-------------- ---------- ----------- --------- ------------
<S> <C> <C> <C> <C> <C>
Per Share Operating Performance
Net Asset Value, Beginning of Period ............... $ 10.00 $ 10.00 $ 10.00 $ 10.00 $ 1.00
--------- --------- --------- --------- ---------
Net Investment Income (1) .......................... 0.07 0.20 0.27 0.23 0.02
Net Realized and Unrealized Gain on Investments
and Foreign Currency Transactions ................ 0.76 0.20 0.36 0.21 --
--------- --------- --------- --------- ---------
Total from Investment Operations .................. 0.83 0.40 0.63 0.44 0.02
--------- --------- --------- --------- ---------
Less Distributions:
Dividends from Net Investment Income .............. (0.07) (0.20) (0.27) (0.23) (0.02)
Distributions from Net Realized Gain on Investments
Sold and Foreign Currency Transactions .......... (0.02) -- (0.06) (0.02) --
--------- --------- --------- --------- ---------
Total Distributions ............................. (0.09) (0.20) (0.33) (0.25) (0.02)
--------- --------- --------- --------- ---------
Net Asset Value, End of Period ..................... $ 10.74 $ 10.20 $ 10.30 $ 10.19 $ 1.00
========= ========= ========= ========= =========
Total Investment Return at Net Asset Value (2) ..... 8.30%(5) 4.05%(5) 6.45%(5) 4.42%(5) 1.61%(5)
Total Adjusted Investment Return at Net Asset
Value (2)(3) ..................................... 7.30%(5) 3.30%(5) 5.96%(5) 3.25%(5) (7.55%)(5)
Ratios and Supplemental Data
Net Assets, End of Period (000's omitted) .......... $ 1,111 $ 2,083 $ 2,131 $ 1,056 $ 207
Ratio of Expenses to Average Net Assets ............ 0.85%(6) 1.00%(6) 0.85%(6) 0.75%(6) 0.75%(6)
Ratio of Adjusted Expenses to Average Net Assets (4) 3.78%(6) 3.19%(6) 2.28%(6) 4.15%(6) 27.48%(6)
Ratio of Net Investment Income to Average Net Assets 1.90%(6) 5.83%(6) 7.89%(6) 6.69%(6) 4.68%(6)
Ratio of Adjusted Net Investment Income (Loss)
to Average Net Assets (4) ........................ (1.03%)(6) 3.64%(6) 6.46%(6) 3.29%(6) (22.05%)(6)
Portfolio Turnover Rate ............................ 17% 30% 73% 45% --
Fee Reduction Per Share (1) ........................ $ 0.11 $ 0.08 $ 0.05 $ 0.12 $ 0.08
Average Brokerage Commission Rate (7) .............. $ 0.0235 N/A N/A N/A N/A
</TABLE>
(1) Based on the average of the shares outstanding at the end of each month.
(2) Assumes dividend reinvestment and does not reflect the effect of sales
charges.
(3) An estimated total return calculation which does not take into consideration
fee reductions by the adviser during the periods shown.
(4) Unreimbursed, without fee reductions.
(5) Not annualized.
(6) Annualized.
(7) Per portfolio share traded.
SEE NOTES TO FINANCIAL STATEMENTS.
11
<PAGE>
================================================================================
FINANCIAL STATEMENTS
John Hancock Funds - Declaration Trust -- V.A. International Fund
Schedule of Investments
December 31, 1996
- --------------------------------------------------------------------------------
NUMBER OF
ISSUER, DESCRIPTION SHARES MARKET VALUE
- ------------------- ------ ------------
COMMON STOCKS
Australia (6.29%)
Newcrest Mining Ltd. (Metal) ....................... 20,000 $ 79,485
WMC Ltd. (Metal) ................................... 10,000 63,031
----------
142,516
----------
France (6.98%)
LVMH Moet Hennessy Louis Vuitton (Beverages) ....... 400 111,708
Lyonnaise des Eaux SA (Diversified Operations) ..... 500 46,536
----------
158,244
----------
Germany (2.75%)
Volkswagen AG (Automobile / Trucks) ................ 150 62,386
----------
Hong Kong (21.94%)
China Resources Enterprise Ltd.
(Real Estate Operations) .......................... 100,000 224,966
First Sign International Holdings Ltd. (Textile) ... 250,000 79,999
Hong Kong & Shanghai Hotels Ltd. (Leisure) ......... 50,000 94,382
Sun Hung Kai Properties Ltd.
(Real Estate Operations) .......................... 8,000 98,002
----------
497,349
----------
Japan (30.36%)
Bridgestone Corp. (Rubber - Tires & Misc) .......... 5,000 94,983
Honda Motor Co., Ltd. (Automobile / Trucks) ........ 2,000 57,163
Matsushita Communication Industrial Co., Ltd.
(Telecommunications) .............................. 2,000 51,809
Matsushita-Kotobuki Electronics Industries, Ltd.
(Electronics) ..................................... 3,000 78,232
Mitsubishi Heavy Industries, Ltd. (Machinery) ...... 10,000 79,440
Nippon Steel Corp. (Steel) ......................... 25,000 73,828
Sharp Corp. (Electronics) .......................... 4,000 56,990
Sony Corp. (Electronics) ........................... 1,000 65,538
TDK Corp. (Electronics) ............................ 2,000 130,386
----------
688,369
----------
Malaysia (2.43%)
Genting Berhad (Leisure) ........................... 8,000 55,118
----------
Norway (2.19%)
Saga Petroleum ASA (Oil & Gas) ..................... 3,000 49,588
----------
United Kingdom (18.62%)
British Petroleum PLC (Oil & Gas) .................. 10,000 119,925
Marks & Spencer PLC (Retail) ....................... 10,000 84,290
Pearson PLC (Media) ................................ 10,000 127,634
PizzaExpress PLC (Retail) .......................... 10,000 90,372
----------
422,221
----------
TOTAL COMMON STOCKS
(Cost $1,827,986) ............. (91.56%) 2,075,791
-------- ----------
The Schedule of Investments is a complete list of all securities owned by the
V.A. International Fund on December 31, 1996. It's divided into two main
categories: common stocks and short-term investments. Common stocks are further
broken down by country. Short-term investments, which represent the Fund's
"cash" position, are listed last.
PAR VALUE
INTEREST (000's
ISSUER, DESCRIPTION RATE OMITTED) MARKET VALUE
- ------------------- ---- -------- ------------
SHORT-TERM INVESTMENTS
Joint Repurchase Agreement (8.65%)
Investment in a joint repurchase agreement
transaction with Lehman Brothers, Inc. ...
Dated 12-31-96, Due 01-02-97 (secured
by U.S. Treasury Bonds, 8.75% thru 13.25%,
due 11-15-08 thru 11-15-18 and by U.S. ...
Treasury Note, 6.25% due 06-30-98) -
Note A ................................... 6.70% $ 196 $ 196,000
----------
TOTAL SHORT-TERM INVESTMENTS .... (8.65%) 196,000
------- ----------
TOTAL INVESTMENTS .... (100.21%) $2,271,791
======= ==========
The percentage shown for each investment category is the total value of that
category as a percentage of the net assets of the Fund.
Industry Diversification
- --------------------------------------------------------------------------------
The Fund primarily invests in securities issued by companies of other countries.
The performance of the Fund is closely tied to the economic conditions within
the countries it invests. The concentration of investments by country for
individual securities held by the Fund is shown in the schedule of investments.
In addition, the concentration of investments can be aggregated by various
industry groups. The table below shows the percentages of the Fund's Investments
at December 31, 1996 assigned to the various investment categories.
MARKET VALUE OF SECURITIES
INVESTMENT CATEGORIES AS A % OF FUND NET ASSETS
- --------------------- -------------------------
Automobile/Trucks............................... 5.27%
Beverages....................................... 4.93
Diversified Operations.......................... 2.05
Electronics..................................... 14.60
Leisure......................................... 6.59
Machinery....................................... 3.50
Media........................................... 5.63
Metal........................................... 6.29
Oil & Gas....................................... 7.48
Real Estate Operations.......................... 14.25
Retail.......................................... 7.70
Rubber - Tires & Misc........................... 4.19
Steel........................................... 3.26
Telecommunications.............................. 2.29
Textile......................................... 3.53
Short-Term Investments.......................... 8.65
------
TOTAL INVESTMENTS 100.21%
======
SEE NOTES TO FINANCIAL STATEMENTS.
12
<PAGE>
================================================================================
FINANCIAL STATEMENTS
John Hancock Funds - Declaration Trust -- V.A. Emerging Growth Fund
Schedule of Investments
December 31, 1996
- --------------------------------------------------------------------------------
NUMBER OF MARKET
ISSUER, DESCRIPTION SHARES VALUE
- ------------------- ------ -----
COMMON STOCKS
Advertising (3.60%)
Catalina Marketing Corp.* ............................... 200 $ 11,025
Lamar Advertising Co.* .................................. 200 4,850
Outdoor Systems, Inc.* .................................. 300 8,437
Snyder Communications, Inc.* ............................ 400 10,800
--------
35,112
--------
Agricultural Operations (.94%)
Northland Cranberries, Inc. (Class A) .................. 400 9,200
--------
Automobile / Trucks (1.58%)
Cross-Continent Auto Retailers, Inc.* .................. 300 6,263
Gentex Corp.* ........................................... 400 8,050
Lithia Motors, Inc. (Class A)* .......................... 100 1,113
--------
15,426
--------
Broker Services (2.12%)
Alex Brown, Inc. ........................................ 100 7,250
E* TRADE Group, Inc.* ................................... 600 6,900
Hambrecht & Quist Group* ................................ 300 6,487
--------
20,637
--------
Business Services - Misc (3.61%)
AccuStaff, Inc.* ........................................ 200 4,225
COREStaff, Inc.* ........................................ 150 3,553
CRA Managed Care, Inc.* ................................. 100 4,500
On Assignment, Inc.* .................................... 300 8,850
RMH Teleservices, Inc.* ................................. 400 3,100
Sitel Corp.* ............................................ 600 8,475
Superior Consultant Holdings Corp.* ..................... 100 2,475
--------
35,178
--------
Computers (11.33%)
Aspect Development, Inc.* ............................... 200 5,450
Aspen Technologies, Inc.* ............................... 100 8,025
Aurum Software, Inc.* ................................... 100 2,313
Baan Co., N.V. (Netherlands)* ........................... 300 10,425
BISYS Group, Inc. (The)* ................................ 300 11,119
CBT Group PLC (American Depositary
Receipts) (Ireland)* ................................... 100 5,425
CyberMedia, Inc.* ....................................... 100 1,575
HNC Software, Inc.* ..................................... 400 12,500
Intelligroup, Inc.* ..................................... 100 1,100
JDA Software Group, Inc.* ............................... 300 8,550
National TechTeam, Inc.* ................................ 200 4,000
Network Appliance, Inc.* ................................ 200 10,175
Project Software & Development, Inc.* .................. 200 8,475
Puma Technology, Inc.* .................................. 200 3,450
Transaction Systems Architects, Inc. (Class A)* ......... 200 6,650
Versant Object Technology Corp* ......................... 300 5,588
Versatility, Inc.* ...................................... 100 1,500
Xionics Document Technologies, Inc.* .................... 100 1,250
XLConnect Solutions, Inc.* .............................. 100 2,875
--------
110,445
--------
Consumer Products Misc. (.94%)
Blyth Industries, Inc.* ................................. 200 9,125
--------
Diversified Operations (.55%)
Special Devices, Inc.* .................................. 300 5,325
--------
The Schedule of Investments is a complete list of all securities owned by the
V.A. Emerging Growth Fund on December 31, 1996. It's divided into two main
categories: common stocks and short-term investments. Common stocks are further
broken down by industry groups. Short-Term investments, which represent the
Fund's "cash" position are listed last.
NUMBER OF MARKET
ISSUER, DESCRIPTION SHARES VALUE
- ------------------- ------ -----
Electronics (5.00%)
DuPont Photomasks, Inc.* ................................ 300 $ 13,612
Novellus Systems, Inc.* ................................. 100 5,419
Proxim, Inc.* ........................................... 300 6,900
SRS Labs, Inc.* ......................................... 800 6,900
Ultrak, Inc.* ........................................... 400 12,200
Xilinx, Inc.* ........................................... 100 3,681
--------
48,712
--------
Finance (5.13%)
Aames Financial Corp. ................................... 100 3,588
Checkfree Corp.* ........................................ 600 10,275
Concord EFS, Inc.* ...................................... 200 5,650
Delta Financial Corp.* .................................. 200 3,600
First USA Paymentech, Inc.* ............................. 200 6,775
Inter-Regional Financial Group, Inc. .................... 200 7,050
Medallion Financial Corp. ............................... 400 6,100
PMT Services, Inc.* ..................................... 400 7,000
--------
50,038
--------
Insurance (1.48%)
HCC Insurance Holdings, Inc. ........................ 600 14,400
--------
Leisure (5.68%)
Cinar Films, Inc. (Class B) (Canada)* .............. 300 7,800
Dover Downs Entertainment* .......................... 300 5,363
Family Golf Centers, Inc.* .......................... 300 9,037
Premier Parks, Inc.* ................................ 400 12,850
Regal Cinemas, Inc.* ................................ 400 12,300
Silicon Gaming, Inc.* ............................... 500 8,062
--------
55,412
--------
Media (4.67%)
Cox Radio Inc.(Class A)* ............................ 300 5,250
Gray Communications Systems, Inc. (Class B) ......... 400 6,800
Heftel Broadcasting Corp. (Class A)* ................ 200 6,300
Jacor Communications, Inc.* ......................... 200 5,475
Lin Television Corp.* ............................... 200 8,450
Telemundo Group, Inc. (Class A)* .................... 200 5,800
Univision Communications, Inc.* ..................... 200 7,400
--------
45,475
--------
Medical (11.99%)
Alkermes, Inc.* ..................................... 400 9,300
Dura Pharmaceuticals, Inc.* ......................... 300 14,325
ESC Medical Systems, Ltd. (Israel)* ................. 200 5,100
Health Care & Retirement Corp.* ..................... 200 5,725
Incyte Pharmaceuticals, Inc.* ....................... 100 5,150
National Surgery Centers, Inc.* ..................... 200 7,600
NCS HealthCare, Inc. (Class A)* ..................... 400 11,650
Parexel International Corp.* ........................ 100 5,163
PhyCor, Inc.* ....................................... 200 5,675
Renal Care Group, Inc.* ............................. 200 6,325
Renal Treatment Centers, Inc.* ...................... 300 7,650
Safeskin Corp.* ..................................... 200 9,750
Schein (Henry), Inc.* ............................... 300 10,312
SEE NOTES TO FINANCIAL STATEMENTS.
13
<PAGE>
================================================================================
FINANCIAL STATEMENTS
John Hancock Funds - Declaration Trust -- V.A. Emerging Growth Fund
NUMBER OF MARKET
ISSUER, DESCRIPTION SHARES VALUE
- ------------------- ------ -----
Medical (continued)
Sonus Pharmaceuticals, Inc.* ........................ 200 $ 5,950
Total Renal Care Holdings, Inc.* .................... 200 7,250
--------
116,925
--------
Office (.84%)
Daisytek International Corp.* ....................... 200 8,200
--------
Oil & Gas (3.15%)
Benton Oil & Gas Co.* ............................... 400 9,050
Chesapeake Energy Corp.* ............................ 100 5,563
Forcenergy, Inc.* ................................... 300 10,875
Nuevo Energy Co.* ................................... 100 5,200
--------
30,688
--------
Paper & Paper Products (.70%)
American Pad & Paper Co.* ........................... 300 6,787
--------
Pollution Control (1.27%)
Newpark Resources, Inc.* ............................ 100 3,725
Philip Environmental, Inc. (Canada)* ................ 600 8,700
--------
12,425
--------
Real Estate Operations (4.85%)
Arden Realty Group, Inc. ............................ 300 8,325
Beacon Properties Corp. ............................. 200 7,325
Central Parking Corp. ............................... 300 10,050
Crescent Real Estate Equities, Inc. ................. 200 10,550
Starwood Lodging Trust .............................. 200 11,025
--------
47,275
--------
Retail (11.78%)
CompUSA, Inc.* ...................................... 400 8,250
Cost Plus, Inc.* .................................... 200 3,825
Eckerd (Jack) Corp.* ................................ 79 2,528
Gucci Group, NV (Netherlands) ....................... 200 12,775
Hibbett Sporting Goods, Inc.* ....................... 400 5,800
Hot Topic, Inc.* .................................... 300 5,925
Insight Enterprises, Inc* ........................... 200 5,600
Landry's Seafood Restaurants, Inc.* ................. 400 8,550
Marks Bros. Jewelers, Inc.* ......................... 400 4,650
Men's Wearhouse, Inc. (The)* ........................ 200 4,900
Papa John's International, Inc.* .................... 250 8,437
PETsMART, Inc.* ..................................... 200 4,375
Quality Food Centers, Inc.* ......................... 200 6,750
Seattle Filmworks, Inc.* ............................ 300 6,113
Stage Stores, Inc.* ................................. 300 5,475
Starbucks Corp.* .................................... 300 8,587
Tiffany & Co. ....................................... 200 7,325
Vans, Inc.* ......................................... 400 5,000
--------
114,865
--------
Schools / Education (1.37%)
Apollo Group, Inc. (Class A)* .................... 400 13,375
--------
Shoes & Related Apparel (.87%)
Converse, Inc.* .................................. 500 8,500
--------
Telecommunications (3.21%)
ACC Corp.* ....................................... 200 6,050
Advanced Fibre Communications* ................... 100 5,562
Comverse Technology, Inc.* ....................... 300 11,344
McLeod, Inc. (Class A)* .......................... 100 2,550
Tel-Save Holdings, Inc.* ......................... 200 5,800
--------
31,306
--------
Textile (1.23%)
Cutter & Buck, Inc.* ............................. 600 $ 6,975
Nautica Enterprises, Inc.* ....................... 200 5,050
--------
12,025
--------
Tobacco (0.51%)
Consolidated Cigar Holdings, Inc.* ............... 200 4,950
--------
TOTAL COMMON STOCKS
(Cost $858,831) ........... (88.40%) 861,806
------ --------
PAR VALUE
INTEREST (000'S
RATE OMITTED)
---- --------
SHORT-TERM INVESTMENTS
Joint Repurchase Agreement (13.64%)
Investment in a joint repurchase agreement
transaction with Lehman Brothers,
Inc. Dated 12-31-96, Due 01-02-97
(Secured by U.S. Treasury Bonds, 7.25% thru
12.50%, due 08-15-14 thru 08-15-22) - Note A.... 6.70% $133 133,000
--------
Corporate Savings Account (0.01%)
Investors Bank & Trust Company
Daily Interest Savings Account
Current Rate 4.75%.............................. 61
--------
TOTAL SHORT-TERM INVESTMENTS (13.65%) 133,061
------- --------
TOTAL INVESTMENTS (102.05%) $994,867
======= ========
* Non-income producing security.
The percentage shown for each investment category is the total value of that
category as a percentage of the net assets of the Fund.
SEE NOTES TO FINANCIAL STATEMENTS.
14
<PAGE>
================================================================================
FINANCIAL STATEMENTS
John Hancock Funds - Declaration Trust -- V.A. Discovery Fund
Schedule of Investments
December 31, 1996
- --------------------------------------------------------------------------------
NUMBER OF MARKET
ISSUER, DESCRIPTION SHARES VALUE
- ------------------- ------ -----
COMMON STOCKS
Advertising (1.46%)
Lamar Advertising Co.* ................................ 600 $ 14,550
--------
Agricultural Operations (1.39%)
Northland Cranberries, Inc. (Class A) ................ 600 13,800
--------
Automobile / Trucks (0.11%)
Lithia Motors, Inc. (Class A)* ........................ 100 1,112
--------
Broker Services (2.08%)
E* TRADE Group, Inc.* ................................. 1,800 20,700
--------
Computers (21.38%)
Aspect Development, Inc.* ............................. 800 21,800
Aurum Software, Inc.* ................................. 100 2,313
Baan Co., N.V. (Netherlands)* ......................... 600 20,850
CBT Group PLC American Depositary
Receipts (Ireland)* .................................. 400 21,700
CyberMedia, Inc.* ..................................... 100 1,575
HNC Software, Inc.* ................................... 600 18,750
National TechTeam, Inc.* .............................. 300 6,000
Netscape Communications Corp.* ........................ 400 22,750
Network Appliance, Inc.* .............................. 300 15,263
Project Software & Development, Inc.* ................ 600 25,425
Puma Technology, Inc.* ................................ 100 1,725
Rogue Wave Software* .................................. 100 1,575
Transaction Systems Architects, Inc. (Class A)* ....... 600 19,950
Versant Object Technology Corp* ....................... 800 14,900
Versatility, Inc.* .................................... 1,000 15,000
XLConnect Solutions, Inc.* ............................ 100 2,875
--------
212,451
--------
Electronics (9.31%)
Altera Corp.* ......................................... 300 21,806
Novellus Systems, Inc.* ............................... 200 10,838
SRS Labs, Inc.* ....................................... 1,600 13,800
Ultrak, Inc.* ......................................... 800 24,400
VLSI Technology, Inc.* ................................ 600 14,325
Xilinx, Inc.* ......................................... 200 7,363
--------
92,532
--------
Finance (5.10%)
Concord EFS, Inc.* .................................... 400 11,300
Delta Financial Corp.* ................................ 100 1,800
Medallion Financial Corp. ............................. 1,000 15,250
Metris Companies, Inc.* ............................... 200 4,800
PMT Services, Inc.* ................................... 1,000 17,500
--------
50,650
--------
Leasing Companies (0.78%)
Leasing Solutions, Inc.* .............................. 300 7,725
--------
Leisure (6.70%)
Cinar Films, Inc. (Class B) (Canada)* ................ 800 20,800
Family Golf Centers, Inc.* ............................ 600 18,075
Regal Cinemas, Inc.* .................................. 900 27,675
--------
66,550
--------
Media (1.70%)
Lin Television Corp.* ................................. 400 16,900
--------
Medical (13.26%)
Dura Pharmaceuticals, Inc.* ........................... 400 19,100
National Surgery Centers, Inc.* ....................... 400 15,200
NCS HealthCare, Inc. (Class A)* ....................... 600 17,475
The Schedule of Investments is a complete list of all securities owned by the
V.A. Discovery Fund on December 31, 1996. It's divided into two main categories:
common stocks and short-term investments. Common stocks are further broken down
by industry groups. Short-term investments, which represent the Fund's "cash"
position are listed last.
NUMBER OF MARKET
ISSUER, DESCRIPTION SHARES VALUE
- ------------------- ------ -----
Medical (continued)
Omnicare, Inc. ........................................ 600 $ 19,275
Parexel International Corp.* .......................... 400 20,650
Safeskin Corp.* ....................................... 400 19,500
Schein (Henry), Inc.* ................................. 600 20,625
--------
131,825
--------
Oil & Gas (7.90%)
Benton Oil & Gas Co.* ................................. 1,000 22,625
Forcenergy, Inc.* ..................................... 700 25,375
Newpark Resources, Inc.* .............................. 400 14,900
Nuevo Energy Co. * .................................... 300 15,600
--------
78,500
--------
Pollution Control (3.59%)
Philip Environmental, Inc. (Canada)* .................. 1,600 23,200
Republic Industries, Inc.* ............................ 400 12,475
--------
35,675
--------
Real Estate Operations (2.02%)
Central Parking Corp. ................................. 600 20,100
--------
Retail (8.91%)
CompUSA, Inc.* ........................................ 1,000 20,625
CUC International, Inc. * ............................. 700 16,625
Hibbett Sporting Goods, Inc.* ......................... 100 1,450
Papa John's International, Inc. * ..................... 600 20,250
PETsMART, Inc.* ....................................... 700 15,312
Starbucks Corp.* ...................................... 500 14,312
--------
88,574
--------
Schools / Education (2.69%)
Apollo Group, Inc. (Class A)* ......................... 800 26,750
--------
Telecommunications (2.80%)
Comverse Technology, Inc.* ............................ 600 22,687
McLeod, Inc. (Class A)* ............................... 200 5,100
--------
27,787
--------
Textile (0.97%)
Tommy Hilfiger Corp.* ................................. 200 9,600
--------
Tobacco (1.99%)
Consolidated Cigar Holdings, Inc.* .................... 800 19,800
--------
TOTAL COMMON STOCKS
(Cost $900,245) ................ (94.14%) 935,581
------ --------
SEE NOTES TO FINANCIAL STATEMENTS.
15
<PAGE>
================================================================================
FINANCIAL STATEMENTS
John Hancock Funds - Declaration Trust -- V.A. Discovery Fund
INTEREST PAR VALUE MARKET
ISSUER, DESCRIPTION RATE (000'S OMITTED) VALUE
- ------------------- ---- --------------- -----
SHORT-TERM INVESTMENTS
Joint Repurchase Agreement (10.66%)
Investment in a joint repurchase
agreement transaction with Lehman
Brothers, Inc. Dated 12-31-96,
Due 01-02-97 (Secured by U.S.
Treasury Bonds, 7.25% thru 12.50%,
due 08-15-14 thru 08-15-22) - Note A 6.70% $106 $ 106,000
---------
Corporate Savings Account (0.06%)
Investors Bank & Trust Company
Daily Interest Savings Account
Current Rate 4.75%................... 586
---------
TOTAL SHORT-TERM INVESTMENTS (10.72%) 106,586
------- ---------
TOTAL INVESTMENTS (104.86%) $1,042,167
======= =========
* Non-income producing security
The percentage shown for each investment category is the total value of that
category as a percentage of the net assets of the Fund.
Portfolio Concentration
- --------------------------------------------------------------------------------
The V.A. Discovery Fund invests primarily in securities issued in the United
States of America. The performance of the Fund is closely tied to the economic
and financial conditions within the countries in which it invests. The
concentration of investments by individual securities held by the Fund is shown
in the schedule of investments. In addition, concentration of investments can be
aggregated by various countries. The table below shows the percentages of the
Fund's investments at December 31, 1996 assigned to country categories.
MARKET VALUE AS A
COUNTRY DIVERSIFICATION PERCENTAGE OF FUND'S NET ASSETS
- ----------------------- -------------------------------
Canada................................... 4.43%
Ireland.................................. 2.18
Netherlands.............................. 2.10
United States............................ 96.15
------
TOTAL INVESTMENTS 104.86%
======
SEE NOTES TO FINANCIAL STATEMENTS.
16
<PAGE>
================================================================================
FINANCIAL STATEMENTS
John Hancock Funds - Declaration Trust -- V.A. Independence Equity Fund
Schedule of Investments
December 31, 1996
- --------------------------------------------------------------------------------
NUMBER OF MARKET
ISSUER, DESCRIPTION SHARES VALUE
- ------------------- ------ -----
COMMON STOCKS
Aerospace (3.78%)
Boeing Co. (The) ..................................... 100 $10,637
McDonnell Douglas Corp. .............................. 100 6,400
United Technologies Corp. ............................ 400 26,400
---------
43,437
---------
Automobile / Trucks (1.92%)
Chrysler Corp. ....................................... 400 13,200
Dana Corp. ........................................... 100 3,263
General Motors Corp. ................................. 100 5,575
---------
22,038
---------
Banks - United States (5.19%)
BankAmerica Corp. .................................... 200 19,950
Chase Manhattan Corp. ................................ 100 8,925
First Bank Systems, Inc. ............................. 100 6,825
NationsBank Corp. .................................... 200 19,550
Norwest Corp. ........................................ 100 4,350
---------
59,600
---------
Building (0.62%)
Centex Corp. ......................................... 100 3,763
Clayton Homes, Inc. .................................. 250 3,375
---------
7,138
---------
Chemicals (3.88%)
Hercules, Inc. ....................................... 100 4,325
Imperial Chemical Industries PLC (American
Depositary Receipts) (ADR) (United Kingdom) ......... 100 5,200
Monsanto Co. ......................................... 300 11,662
Morton International, Inc. ........................... 300 12,225
PPG Industries, Inc. ................................. 200 11,225
---------
44,637
---------
Computers (4.93%)
Cisco Systems, Inc.* ................................. 100 6,362
Computer Associates International, Inc. .............. 100 4,975
Hewlett-Packard Co. .................................. 300 15,075
International Business Machines Corp. ................ 200 30,200
---------
56,612
---------
Cosmetics & Personal Care (0.50%)
Avon Products, Inc. .................................. 100 5,712
---------
Diversified Operations (2.11%)
Du Pont (E.I.) De Nemours and Co. .................... 100 9,437
Lockheed Martin Corp. ................................ 100 9,150
Ogden Corp. .......................................... 300 5,625
---------
24,212
---------
Electronics (6.26%)
General Electric Co. ................................. 300 29,662
Intel Corp. .......................................... 200 26,187
Raychem Corp. ........................................ 200 16,025
---------
71,874
---------
Finance (3.12%)
American Express Co. ................................. 400 22,600
Dean Witter Discover & Co. ........................... 200 13,250
---------
35,850
---------
Food (1.96%)
ConAgra, Inc. ........................................ 100 4,975
Unilever N.V. (ADR) (Netherlands) .................... 100 17,525
---------
22,500
---------
The Schedule of Investments is a complete list of all securities owned by the
V.A. Independence Equity Fund on December 31, 1996. It's divided into two main
categories: common stocks and short-term investments. Common stocks are further
broken down by industry group. Short-term investments, which represent the
Fund's "cash" position, are listed last.
NUMBER OF MARKET
ISSUER, DESCRIPTION SHARES VALUE
- ------------------- ------ -----
Household (0.39%)
Rubbermaid, Inc. ..................................... 200 $ 4,550
---------
Instruments - Scientific (0.51%)
Perkin-Elmer Corp. ................................... 100 5,887
---------
Insurance (6.87%)
American International Group, Inc. ................... 100 10,825
CIGNA Corp. .......................................... 200 27,325
Equitable Cos., Inc. ................................. 100 2,463
General Re Corp. ..................................... 200 31,550
ITT Hartford Group, Inc. ............................. 100 6,750
---------
78,913
---------
Leisure (3.73%)
Disney (Walt) Co., (The) ............................. 200 13,925
Eastman Kodak Co. .................................... 200 16,050
HFS, Inc.* ........................................... 100 5,975
Hilton Hotels Corp. .................................. 100 2,613
ITT Corp.* ........................................... 100 4,338
---------
42,901
---------
Machinery (1.10%)
Cooper Industries, Inc. .............................. 300 12,637
---------
Media (1.11%)
McGraw-Hill Cos., Inc. ............................... 200 9,225
Viacom, Inc. (Class B)* .............................. 100 3,488
---------
12,713
---------
Medical (11.43%)
Abbott Laboratories .................................. 400 20,300
Allegiance Corp. ..................................... 300 8,287
Amgen, Inc.* ......................................... 100 5,438
Becton, Dickinson & Co. .............................. 200 8,675
Glaxo Wellcome PLC (ADR) (United Kingdom) ............ 500 15,875
HEALTHSOUTH Corp.* ................................... 100 3,863
Johnson & Johnson .................................... 600 29,850
Mallinckrodt, Inc. ................................... 100 4,413
Merck & Co., Inc. .................................... 200 15,850
Pfizer, Inc. ......................................... 100 8,287
Pharmacia & Upjohn, Inc. ............................. 100 3,963
Schering-Plough Corp. ................................ 100 6,475
---------
131,276
---------
Mortgage Banking (0.65%)
Federal National Mortgage Assn ....................... 200 7,450
---------
Office (1.88%)
Avery Dennison Corp. ................................. 200 7,075
Pitney Bowes, Inc. ................................... 200 10,900
Staples, Inc.* ....................................... 200 3,613
---------
21,588
---------
Oil & Gas (10.28%)
Anadarko Petroleum Corp. ............................. 100 6,475
Atlantic Richfield Co. ............................... 100 13,250
Baker Hughes, Inc. ................................... 200 6,900
British Petroleum Co. PLC (ADR) (United Kingdom) ..... 100 14,137
Chevron Corp. ........................................ 200 13,000
Dresser Industries, Inc. ............................. 300 9,300
SEE NOTES TO FINANCIAL STATEMENTS.
17
<PAGE>
================================================================================
FINANCIAL STATEMENTS
John Hancock Funds - Declaration Trust -- V.A. Independence Equity Fund
NUMBER OF MARKET
ISSUER, DESCRIPTION SHARES VALUE
- ------------------- ------ -----
Oil & Gas (continued)
Kerr - McGee Corp. ................................... 100 $ 7,200
Phillips Petroleum Co. ............................... 400 17,700
Texaco Inc. .......................................... 100 9,812
Unocal Corp. ......................................... 500 20,312
---------
118,086
---------
Paper & Paper Products (1.66%)
Kimberly-Clark Corp. ................................. 200 19,050
---------
Retail (4.94%)
Cracker Barrel Old Country Store, Inc. ............... 100 2,538
Federated Department Stores, Inc.* ................... 100 3,413
Home Depot, Inc. ..................................... 300 15,037
Lowe's Cos., Inc. .................................... 200 7,100
Price/Costco, Inc.* .................................. 200 5,025
TJX Cos., Inc. ....................................... 100 4,738
Toys "R" Us, Inc.* ................................... 400 12,000
Wal-Mart Stores, Inc. ................................ 300 6,862
---------
56,713
---------
Shoes & Related Apparel (0.40%)
Nine West Group, Inc.* ............................... 100 4,638
---------
Telecommunications (4.45%)
A T & T Corp. ........................................ 900 39,150
Lucent Technologies, Inc. ............................ 259 11,979
---------
51,129
---------
Textile (0.66%)
Fruit of the Loom, Inc. (Class A)* ................... 200 7,575
---------
Tobacco (4.35%)
Philip Morris Cos., Inc. ............................. 300 33,787
Universal Corp. ...................................... 100 3,213
UST, Inc. ............................................ 400 12,950
---------
49,950
---------
Transport (1.84%)
CSX Corp. ............................................ 100 4,225
Norfolk Southern Corp. ............................... 100 8,750
Southwest Airlines Co. ............................... 200 4,425
Trinity Industries, Inc. ............................. 100 3,750
---------
21,150
---------
Utilities (6.73%)
BellSouth Corp. ...................................... 300 12,112
Consolidated Edison Co. of New York, Inc. ............ 200 5,850
Consolidated Natural Gas Co. ......................... 200 11,050
Entergy Corp. ........................................ 500 13,875
GTE Corp. ............................................ 200 9,100
SBC Communications, Inc. ............................. 200 10,350
Texas Utilities Co. .................................. 300 12,225
Unicom Corp. ......................................... 100 2,713
---------
77,275
---------
TOTAL COMMON STOCKS
(Cost $1,032,243) ............... (97.25%) 1,117,091
------ ---------
INTEREST PAR VALUE MARKET
ISSUER, DESCRIPTION RATE (000'S OMITTED) VALUE
- ------------------- ---- --------------- -----
SHORT-TERM INVESTMENTS
Joint Repurchase Agreement (3.31%)
Investment in a joint repurchase agreement
transaction with Lehman Brothers, Inc.
Dated 12-31-96, Due 01-02-97 (Secured
by U.S. Treasury Bonds, 7.25% thru
12.50%, due 08-15-14 thru 08-15-22)
- Note A.................................. 6.70% $ 38 $ 38,000
---------
Corporate Savings Account (0.02%)
Investors Bank & Trust Company
Daily Interest Savings Account
Current Rate 4.75%........................ 180
---------
TOTAL SHORT-TERM INVESTMENTS (3.33%) 38,180
------- ---------
TOTAL INVESTMENTS (100.58%) $1,155,271
======= =========
* Non-income producing security.
The percentage shown for each investment category is the total value of that
category as a percentage of the net assets of the Fund.
SEE NOTES TO FINANCIAL STATEMENTS.
18
<PAGE>
================================================================================
FINANCIAL STATEMENTS
John Hancock Funds - Declaration Trust -- V.A. 500 Index Fund
Schedule of Investments
December 31, 1996
- --------------------------------------------------------------------------------
INTEREST PAR VALUE MARKET
ISSUER, DESCRIPTION RATE (000'S OMITTED) VALUE
- ------------------- ---- --------------- -----
SHORT-TERM INVESTMENTS
Short Term Note
Federal Home Loan Bank
due 01-02-97......................... 6.50% 3,985 $3,984,280
----------
TOTAL SHORT TERM INVESTMENTS (98.41%) 3,984,280
----- ----------
TOTAL INVESTMENTS (98.41%) $3,984,280
===== ==========
The percentage shown for each investment category is the total value of that
category as a percentage of the net assets of the fund.
SCHEDULE OF OPEN FINANCIAL FUTURES CONTRACTS
NUMBER FUTURES
OF CONTRACTS UNDERLYING FACE UNREALIZED
CONTRACTS PURCHASED EXPIRATION AMOUNT AT VALUE DEPRECIATION
- --------- --------- ---------- --------------- ------------
11 S&P 500 Stock
Index Contracts March 1997 $4,094,750 ($44,750)
-------
The face value of futures purchased as a percentage of total net assets is
101.1%.
At December 31, 1996, the Fund had cash and/or securities to cover any margin
requirements on open financial futures contracts.
SEE NOTES TO FINANCIAL STATEMENTS.
19
<PAGE>
================================================================================
FINANCIAL STATEMENTS
John Hancock Funds - Declaration Trust -- V.A. Sovereign Investors Fund
Schedule of Investments
December 31, 1996
Per share earnings and dividends and their compound growth rates are shown for
the most recently reported ten year periods on common stocks, and are not
audited.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
COMPOUND
NUMBER GROWTH MARKET
OF SHARES COMMON STOCKS (85.92%) RATE VALUE
- --------- ---- -----
<S> <C> <C>
Advertising (2.56%)
600 Interpublic Group, Inc. @ 47 1/2 ........................................... $ 28,500
--------
One of the largest advertising agencies in the world
Earnings P/S $ .75, .91, 1.05, 1.12, 1.23, 1.43, 1.49, 1.79, 2.04, 1.97 11.3%
Dividends P/S.......$ .22, .26, .32, .37, .41, .45, .49, .55, .61, .67 13.2%
Price/Earnings Ratio..........24.6
Aerospace (2.74%)
500 Rockwell International Corp. @ 60 7/8 ...................................... 30,438
--------
Leading producer of aerospace, automotive and electronics products
Earnings P/S $1.98, 2.23, 3.01, 2.84, 2.47, 2.20, 2.47, 2.80, 3.15, 3.79 7.5%
Dividends P/S....$ .66, .72, .77, .82, .88, .92, .96, 1.04, 1.10, 1.16 6.5%
Price/Earnings Ratio..........14.7
Banks (2.36%)
700 First Tennessee National Corp. @ 37 1/2 .................................... 26,250
--------
Tennessee-based bank holding company
Earnings P/S $ .78, 1.10, .65, .98, 1.26, 1.76, 1.52, 2.02, 2.24, 2.55 14.1%
Dividends P/S......$ .40, .43, .49, .54, .57, .63, .75, .87, .97, 1.10 11.9%
Price/Earnings Ratio..........14.8
Capital Goods (6.65%)
400 Dover Corp. @ 50 1/4 ....................................................... 20,100
Manufactures a variety of specialized industrial products
Earnings P/S $ .83, 1.11, 1.14, 1.28, 1.12, 1.08, 1.32, 1.66, 2.34, 3.33 16.7%
Dividends P/S.......$ .26, .31, .35, .38, .41, .43, .45, .49, .56, .64 10.5%
Price/Earnings Ratio..........14.8
1,100 Pall Corp. @ 25 1/2 ........................................................ 28,050
Manufactures filtration and separation devices
Earnings P/S......$ .50, .50, .50, .58, .68, .81, .69, .88, 1.08, 1.23 10.5%
Dividends P/S.......$ .11, .13, .16, .19, .22, .27, .32, .37, .42, .49 18.1%
Price/Earnings Ratio..........20.8
800 Pentair, Inc. @ 32 1/4 ..................................................... 25,800
Manufactures enclosures for electrical, electronic, woodworking and
power tool equipment
Earnings P/S $ .65, 1.12, .95, .80, 1.01, 1.06, 1.19, 1.20, 1.40, 1.72 11.4%
Dividends P/S.......$ .21, .22, .27, .29, .31, .33, .34, .36, .40, .50 10.1%
Price/Earnings Ratio..........17.1
--------
73,950
--------
Chemicals (5.36%)
300 E.I. du Pont de Nemours and Co. @ 94 3/8 ................................... 28,313
Nation's largest chemical manufacturer
Earnings P/S $ 2.46, 3.03, 3.53, 3.40, 3.13, 1.32, .23, 3.40, 5.43, 6.08 10.6%
Dividends P/S $ 1.10, 1.23, 1.45, 1.62, 1.68, 1.74, 1.76, 1.82, 2.03, 2.23 8.2%
Price/Earnings Ratio..........16.7
500 Sigma - Aldrich Corp. @ 62 7/16 ............................................ 31,219
Manufacturer of biochemical and organic products used for research and
diagnostics
Earnings P/S $ .425, .575, .65, .72, .62, .93, 1.04, 1.11, 1.26, 1.44 14.5%
Dividends P/S $ .075, .085, .095, .10, .115, .13, .15, .17, .19, .2275 13.1%
Price/Earnings Ratio..........20.6
--------
59,532
--------
Commercial Services (2.35%)
800 Sysco Corp. @ 32 5/8 ....................................................... 26,100
--------
Largest distributor of food service products
Earnings P/S....$ .45, .60, .73, .76, .86, .95, 1.10, 1.24, 1.42, 1.57 14.9%
Dividends P/S.......$ .07, .08, .09, .10, .14, .22, .28, .36, .44, .52 25.0%
Price/Earnings Ratio..........20.6
The Schedule of Investments is a complete list of all securities owned by V.A.
Sovereign Investors Fund on December 31, 1996. It's divided into three main
categories: common stocks, U.S. government and short-term investments. The
common stocks are further broken down by industry groups. Short-term
Investments, which represent the Fund's "cash" position are listed last.
<CAPTION>
COMPOUND
NUMBER GROWTH MARKET
OF SHARES COMMON STOCKS RATE VALUE
- --------- ---- -----
<S> <C> <C>
Computer & Office Equipment (5.24%)
600 Alco Standard Corp @ 51 5/8 ................................................ $ 30,975
Distributor of office and paper products
Earnings P/S $ .84, 1.15, 1.96, .91, .98, 1.11, (.025), .56, 1.82, 1.13 3.4%
Dividends P/S.......$ .26, .28, .31, .34, .36, .37, .39, .41, .43, .45 6.3%
Price/Earnings Ratio..........36.1
500 Pitney Bowes, Inc. @ 54 1/2 ................................................ 27,250
Manufactures office automation equipment
Earnings P/S $ 1.27, 1.54, 1.19, 1.34, 1.77, 1.87, 1.89, 2.23, 2.55, 3.01 10.1%
Dividends P/S....$ .38, .46, .52, .60, .68, .78, .90, 1.04, 1.20, 1.38 15.4%
Price/Earnings Ratio..........18.4
--------
58,225
--------
Consumer Durables (4.55%)
800 Masco Corp. @ 36 ........................................................... 28,800
Manufactures buildings, home improvement and consumer products
Earnings P/S $ 1.65, 2.10, 1.42, .91, .27, .73, 1.36, 1.57, 1.09, 1.38 NMF
Dividends P/S.......$ .38, .44, .50, .54, .57, .61, .65, .69, .73, .77 8.2%
Price/Earnings Ratio..........25.4
1,200 Worthington Industries, Inc. @ 18 1/8 ...................................... 21,750
Manufactures metal and plastic products
Earnings P/S......$ .61, .70, .61, .64, .52, .68, .86, 1.10, 1.23, .93 4.8%
Dividends P/S.......$ .17, .19, .23, .26, .28, .32, .34, .39, .43, .47 20.8%
Price/Earnings Ratio..........20.7
--------
50,550
--------
Consumer Non-Durables (3.88%)
400 ConAgra, Inc. @ 49 3/4 ..................................................... 19,900
Leader in frozen & processed foods, and distributes agricultural supplies
Earnings P/S $ .85, 1.08, 1.25, 1.33, 1.45, 1.55, 1.62, 1.92, 2.20, .95 1.2%
Dividends P/S.......$ .27, .31, .36, .42, .48, .56, .65, .75, .86, .99 15.5%
Price/Earnings Ratio..........52.2
300 CPC International, Inc. @ 77 1/2 ........................................... 23,250
Major international food processor
Earnings P/S $ 2.17, 1.84, 2.11, 2.42, 2.56, 2.73, 2.90, 2.17, 3.54, 3.65 6.0%
Dividends P/S $ .65, .76, .88, 1.00, 1.10, 1.20, 1.28, 1.38, 1.48, 1.58 10.4%
Price/Earnings Ratio..........21.3
--------
43,150
--------
Diversified Operations (2.33%)
1,000 Federal Signal Corp. @ 25 7/8 .............................................. 25,875
--------
Manufactures fire trucks and street sweepers, as well as public
safety, signaling and communications equipment
Earnings P/S......$.32, .41, .50, .66, .65, .73, .74, .97, 1.18, 1.22 16.0%
Dividends P/S.......$ .15, .16, .19, .22, .27, .32, .36, .42, .50, .58 16.2%
Price/Earnings Ratio..........20.7
Electrical Equipment (9.21%)
300 AMP, Inc. @ 38 3/8 ......................................................... 11,512
World's largest manufacturer of electrical/
electronic connectors
Earnings P/S $ 1.16, 1.48, 1.32, 1.35, 1.24, 1.26, 1.41, 1.59, 1.91, 2.01 6.3%
Dividends P/S......$ .43, .50, .60, .68, .72, .76, .80, .84, .92, 1.00 9.8%
Price/Earnings Ratio..........19.9
300 Emerson Electric Co. @ 96 3/4 .............................................. 29,025
Produces and sells electrical/electronic products
and systems
Earnings P/S $ 2.00, 2.31, 2.63, 2.75, 2.83, 2.96, 3.15, 4.04, 4.16, 4.55 9.6%
Dividends P/S $ .98, 1.03, 1.16, 1.28, 1.34, 1.40, 1.47, 1.60, 1.84, 2.01 8.3%
Price/Earnings Ratio..........22.1
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
20
<PAGE>
================================================================================
FINANCIAL STATEMENTS
John Hancock Funds - Declaration Trust -- V.A. Sovereign Investors Fund
<TABLE>
<CAPTION>
COMPOUND
NUMBER GROWTH MARKET
OF SHARES COMMON STOCKS RATE VALUE
- --------- ---- -----
<S> <C> <C>
Electrical Equipment (continued)
300 General Electric Co. @ 98 7/8 .............................................. $ 29,662
Dominant force in home appliances, electrical power, and financial services
Earnings P/S $ 1.60, 1.88, 2.18, 2.43, 2.54, 2.54, 2.33, 3.31, 3.78, 4.26 11.5%
Dividends P/S $ .65, .70, .82, .94, 1.02, 1.12, 1.26, 1.44, 1.64, 1.84 12.3%
Price/Earnings Ratio..........23.4
400 W.W. Grainger, Inc. @ 80 1/4 ............................................... 32,100
Leading distributor of electrical equiptment
Earnings P/S $ 1.48, 1.57, 1.96, 2.19, 2.36, 2.55, 2.76, 3.28, 2.67, 3.95 11.5%
Dividends P/S.......$ .39, .43, .50, .57, .61, .65, .71, .78, .89, .98 10.8%
Price/Earnings Ratio..........20.4
--------
102,299
--------
Energy (4.96%)
300 Exxon Corp. @ 98 ........................................................... 29,400
Major factor in the crude oil, natural gas and chemical industry
Earnings P/S $ 3.43, 4.01, 3.43, 3.10, 4.79, 3.59, 4.13, 3.74, 5.36, 5.37 5.1%
Dividends P/S $ 1.90, 2.15, 2.30, 2.47, 2.68, 2.83, 2.88, 2.91, 3.00, 3.12 5.7%
Price/Earnings Ratio..........18.5
700 Questar Corp. @ 36 3/4 ..................................................... 25,725
Diversified holding company for Utah, Wyoming and Colorado natural gas
transmission, distribution and storage
Earnings P/S $ .67, .64, 1.27, 1.46, 1.69, 1.59, 2.24, 1.97, 1.19, 2.29 14.6%
Dividends P/S $ .91, .94, .95, .97, 1.01, 1.04, 1.09, 1.13, 1.16, 1.19 3.0%
Price/Earnings Ratio..........16.7
--------
55,125
--------
Healthcare (6.82%)
300 Eli Lilly & Co. @ 73 ....................................................... 21,900
Major producer of prescription and non-prescription drugs, health products
Earnings P/S $ 1.11, 1.34, 1.60, 1.95, 2.18, 1.41, 2.26, .70, 2.19, 2.67 10.2%
Dividends P/S $ .50, .57, .67, .82, 1.00, 1.10, 1.21, 1.25, 1.31, 1.37 11.9%
Price/Earnings Ratio..........28.0
400 Johnson & Johnson @ 49 3/4 ................................................. 19,900
Major producer of prescription and non-prescription drugs, toiletries,
medical instruments and supplies
Earnings P/S..$ .59, .71, .80, .86, 1.07, 1.20, 1.35, 1.53, 1.80, 2.12 15.3%
Dividends P/S.......$ .20, .24, .28, .33, .39, .45, .51, .57, .64, .74 15.7%
Price/Earnings Ratio..........24.2
500 Medtronic, Inc. @ 68 ....................................................... 34,000
Leading manufacturer of medical devices and instruments
Earnings P/S....$ .79, .92, 1.01, .51, .63, .81, .92, 1.13, 1.55, 2.08 11.4%
Dividends P/S.......$ .06, .07, .09, .10, .12, .14, .17, .21, .26, .32 20.4%
Price/Earnings Ratio..........33.5
--------
75,800
--------
Information Processing (2.32%)
600 Automatic Data Processing, Inc. @ 42 7/8 ................................... 25,725
--------
Largest independent computing services firm in the U.S.
Earnings P/S....$ .54, .62, .72, .74, .83, .94, 1.07, 1.22, 1.43, 1.61 12.9%
Dividends P/S.......$ .11, .13, .15, .17, .20, .23, .26, .29, .35, .42 16.1%
Price/Earnings Ratio..........27.1
Insurance (9.37%)
700 AFLAC Corp. @ 42 3/4 ....................................................... 29,925
Global specialty insurer
Earnings P/S...$ .62, .72, .53, .77, .92, 1.15, 1.44, 1.81, 2.28, 2.37 16.1%
Dividends P/S.......$ .12, .13, .15, .18, .20, .23, .26, .30, .34, .39 14.0%
Price/Earnings Ratio..........18.2
200 American International Group @ 108 1/4 ..................................... 21,650
Broadly based property-casualty insurance organization
Earnings P/S $ 3.92, 4.42, 4.61, 4.86, 3.20, 3.28, 3.92, 4.43, 5.10, 5.94 4.7%
Dividends P/S.......$ .09, .13, .16, .18, .21, .24, .26, .29, .32, .37 17.0%
Price/Earnings Ratio..........18.5
150 General RE Corp. @ 157 3/4 ................................................. 23,662
Broadly based re-insurance organization
Earnings P/S $ 5.04, 5.04, 6.52, 6.89, 7.12, 7.20, 7.88, 7.56, 9.58, 10.73 8.8%
Dividends P/S $ 1.00, 1.20, 1.36, 1.52, 1.68, 1.80, 1.88, 1.92, 1.96, 2.04 8.2%
Price/Earnings Ratio..........14.3
500 Reliastar Financial Corp. @ 57 3/4. ........................................ 28,875
Financial services company engaged in life/health insurance and
consumer finance
Earnings P/S $ 1.86, 1.58, 2.07, 1.99, 1.71, 1.92, 2.44, 3.05, 4.15, 4.86 11.3%
Dividends P/S......$ .47, .57, .59, .65, .69, .73, .79, .88, .98, 1.09 9.8%
Price/Earnings Ratio..........11.5
--------
104,112
--------
Media and Information Services (5.78%)
500 Electronic Data Systems Corp. @ 43 1/4 ..................................... 21,625
Provides information technology services to companies worldwide
Earnings P/S..$ .66, .79, .91, 1.04, 1.10, 1.29, 1.46, 1.64, 1.89, .89 3.4%
Dividends P/S.......$ .13, .17, .24, .28, .32, .36, .40, .48, .52, .60 18.5%
Price/Earnings Ratio..........53.0
200 Gannett Co., Inc. @ 74 7/8 ................................................. 14,975
Publishes 81 daily/50 nondaily newspapers, operates 10 TV , 8 FM
and 7 AM stations
Earnings P/S $ 1.98, 2.26, 2.47, 2.36, 2.08, 2.26, 2.64, 3.06, 3.34, 3.64 7.0%
Dividends P/S $ .94, 1.02, 1.11, 1.21, 1.24, 1.26, 1.30, 1.34, 1.38, 1.42 4.7%
Price/Earnings Ratio..........19.7
600 McGraw-Hill Companies, Inc. @ 46 1/8 ....................................... 27,675
Provides informational products and services for business and industry
Earnings P/S $ 1.64, 1.92, .91, 1.77, 1.58, 1.58, .12, 2.00, 2.24, 2.43 4.5%
Dividends P/S $ .84, .92, 1.00, 1.08, 1.10, 1.12, 1.14, 1.16, 1.20, 1.32 5.2%
Price/Earnings Ratio..........19.2
--------
64,275
--------
Packaging (1.86%)
800 Sonoco Products Corp. @ 25 7/8 ............................................. 20,700
--------
Leading manufacturer of containers, paper products and packaging
Earnings P/S $ .77, 1.10, 1.18, .52, 1.07, 1.13, .99, 1.24, 1.65, 1.81 10.0%
Dividends P/S........$.21, .30, .39, .43, .44, .48, .50, .53, .59, .65 13.4%
Price/Earnings Ratio..........14.7
Retail (4.00%)
700 Pep Boys - Manny, Moe & Jack (The) @ 303/4 21,525 Retailer of
automotive parts and accessories
Earnings P/S....$ .62, .76, .63, .70, .64, .87, 1.01, 1.27, 1.33, 1.57 10.9%
Dividends P/S.......$ .08, .09, .11, .12, .13, .14, .15, .17, .19, .21 11.3%
Price/Earnings Ratio..........18.3
1,000 Wal-Mart Stores, Inc. @ 22 7/8 ............................................. 22,875
Operates chain of discount department stores
Earnings P/S.....$ .28, .37, .48, .55, .64, .80, .97, 1.11, 1.24, 1.27 18.3%
Dividends P/S.......$ .03, .04, .06, .07, .09, .11, .13, .17, .20, .21 24.1%
Price/Earnings Ratio..........18.8
--------
44,400
--------
Telecommunications (3.58%)
700 Century Telephone Enterprise, Inc. @ 30 7/8 ................................ 21,612
Louisiana based telecommunications company
Earnings P/S $ .60, .58, .51, .67, .63, .72, 1.09, 1.39, 1.59, 2.12, 2.15 15.2%
Dividends P/S $ .253, .264, .272, .280, .287, .293, .310, .320, .330, .360 9.0%
Price/Earnings Ratio..........14.2
800 Frontier Corp. @ 22 5/8 .................................................... 18,100
Fifth largest long distance tehephone company
Earnings P/S..$ .93, 1.06, .99, .96, 1.14, 1.01, 1.15, 1.44, .89, 1.87 8.1%
Dividends P/S.......$ .66, .68, .71, .73, .75, .77, .79, .81, .83, .85 2.9%
Price/Earnings Ratio..........12.1
--------
39,712
--------
TOTAL COMMON STOCKS
(Cost $889,356) 954,718
--------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
21
<PAGE>
================================================================================
FINANCIAL STATEMENTS
John Hancock Funds - Declaration Trust -- V.A. Sovereign Investors Fund
PAR VALUE
(000'S MARKET
OMITTED) UNITED STATES GOVERNMENT (10.49%) VALUE
- -------- -----
$50 United States Treasury, Bond 7.875%,
11-15-99 @ 104.7660 ................................ $ 52,383
50 United States Treasury, Bond 10.75%,
08-15-05 @ 128.297 ................................. 64,149
----------
TOTAL UNITED STATES GOVERNMENT
(Cost $114,719) 116,532
----------
INTEREST
SHORT-TERM INVESTMENTS RATE
61 Joint Repurchase Agreement (5.49%) --------
Investment in a joint repurchase agreement
transaction with Lehman Brothers, Inc. -
Dated 12-31-96, Due 01-02-97 (Secured by
U.S. Treasury Bonds, 7.25% thru 12.50%,
due 08-15-14 thru 08-15-22), - Note A .... 6.70% 61,000
----------
Corporate Savings Account (0.06%)
Investors Bank & Trust Company
Daily Interest Savings Account
Current Rate 4.75% 718
----------
TOTAL SHORT-TERM INVESTMENTS ........... (5.55%) 61,718
------- ----------
TOTAL INVESTMENTS ........... (101.96%) $1,132,968
======= ==========
NMF No Meaningful Figure
The percentage shown for each investment category is the total value of that
category as a percentage of the net assets of the Fund.
Dividend Increases (Unaudited)
Listed below are the most recent dividend increases for the common stocks held
in the V.A. Sovereign Investors Fund as of December 31, 1996
- --------------------------------------------------------------------------------
PERCENT OF
COMPANY DIVIDEND INCREASE
- ------- -----------------
AFLAC Corp. .............................................. 15.3%
Alco Standard Corp. ...................................... 7.7
American International Group ............................. 17.6
AMP, Inc. ................................................ 8.7
Automatic Data Processing, Inc. .......................... 15.0
Century Telephone Enterprise, Inc. ....................... 9.1
ConAgra, Inc. ............................................ 14.7
CPC International, Inc. .................................. 7.9
Dover Corp. .............................................. 13.3
E I DuPont De Nemours & Co. .............................. 9.6
Electronic Data Systems Corp. ............................ 15.4
Emerson Electric Co. ..................................... 10.2
Exxon Corp. .............................................. 5.3
Federal Signal Corp. ..................................... 15.5
First Tennessee National Corp. ........................... 13.2
Frontier Corp. ........................................... 2.4
Gannett Co., Inc. ........................................ 2.9
General Electric Co. ..................................... 13.0
General RE Corp. ......................................... 4.1
Interpublic Group, Inc. .................................. 9.7
Johnson & Johnson ........................................ 15.2
Eli Lilly Co. ............................................ 5.1
Masco Corp. .............................................. 5.3
McGraw-Hill Companies, Inc. .............................. 10.0
Medtronic, Inc. .......................................... 46.2
Pall Corp. ............................................... 16.7
Pentair, Inc. ............................................ 8.0
Pep Boys - Manny, Moe, & Jack (The) ...................... 10.5
Pitney Bowes, Inc. ....................................... 15.0
Questar Corp. ............................................ 3.4
Reliastar Financial Corp. ................................ 12.0
Rockwell International Corp. ............................. 7.4
Sigma-Aldrich Corp. ...................................... 13.6
Sonoco Products Corp. .................................... 10.0
Sysco Corp. .............................................. 15.4
W.W. Grainger, Inc. ...................................... 8.7
Wal-Mart Stores, Inc. .................................... 5.0
Worthington Industries, Inc. ............................. 9.1
----
The average dividend increase for this group was 11.2%
====
SEE NOTES TO FINANCIAL STATEMENTS.
22
<PAGE>
================================================================================
FINANCIAL STATEMENTS
John Hancock Funds - Declaration Trust -- V.A. World Bond Fund
Schedule of Investments
December 31, 1996
- --------------------------------------------------------------------------------
PAR VALUE
INTEREST (000'S
ISSUER, DESCRIPTION RATE OMITTED)# MARKET VALUE
- ------------------- ---- --------- ------------
BONDS
Australian Dollar (1.16%)
Commonwealth of Australia,
Bond Ser 400 04-15-00 ................... 7.000% 30 $ 24,053
---------
British Pound Sterling (6.75%)
United Kingdom Treasury,
Bond 11-06-01 ........................... 7.000 83 140,661
---------
Canadian Dollar (3.03%)
Government of Canada,
Deb 12-01-03 ............................ 7.500 80 63,147
---------
Danish Krone (1.96%)
Kingdom of Denmark,
Bond-Bullet 12-15-04 .................... 7.000 230 40,783
---------
Deutsche Mark (16.06%)
Federal Republic of Germany,
Bond Ser 119 05-21-01 ................... 5.000 100 66,333
Bond Ser 96 04-26-06 .................... 6.250 400 268,113
---------
334,446
---------
French Franc (7.82%)
Republic of France,
Deb 10-25-03 ............................ 6.750 780 162,808
---------
Italian Lira (5.59%)
Republic of Italy,
Bond 05-01-01 ........................... 9.500 160,000 116,412
---------
Japanese Yen (6.92%)
Government of Japan,
Bond Ser 182 09-20-05 ................... 3.000 16,200 144,215
---------
Spanish Peseta (3.03%)
Kingdom of Spain,
Deb 05-30-04 ............................ 8.000 7,550 63,099
---------
Swedish Krona (2.57%)
Kingdom of Sweden,
Bond Ser 1033 05-05-03 .................. 10.250 300 53,541
---------
U.S. Dollar (40.31%)
Federative Republic of Brazil, (Brazil),
Floating Rate Bond 04-15-09 ............ 6.563* 100 81,250
Global Bond 11-05-01 .................... 8.875 50 49,438
Phillippine Long Distance Telephone Co.,
(Philippines), Note Ser EMTN
06-30-06 .............................. 9.250 50 54,000
Republic of Argentina, (Argentina),
Global Bond 02-23-01 .................... 9.250 100 101,375
Republic of Venezuela, (Venezuela),
Floating Rate Note Ser C 12-31-03 ....... 6.813* 50 45,500
United Mexican States, (Mexico),
Bond 05-15-26 ........................... 11.500 50 53,125
Note 02-06-01 ........................... 9.750 50 51,750
United States Treasury,
Note 08-31-98 ........................... 6.125 200 200,874
Note 08-31-01 ........................... 6.500 200 202,188
---------
839,500
---------
TOTAL BONDS
(Cost $1,941,597) (95.20%) 1,982,665
----- ---------
The Schedule of Investments is a complete list of all securities owned by the
V.A. World Bond Fund on December 31, 1996. It's divided into two main
categories: bonds, and short-term investments. The bonds are further broken down
by currency denomination.
PAR VALUE
INTEREST (000'S
ISSUER, DESCRIPTION RATE OMITTED)# MARKET VALUE
- ------------------- ---- --------- ------------
SHORT-TERM INVESTMENTS
U.S. Dollar (3.17%)
Investment in a joint repurchase
agreement transaction with Lehman
Brothers, Inc. Dated 12-31-96,
Due 01-02-97 (secured by U.S.
Treasury Bonds, 8.75% thru 13.25%
due 11-15-08 thru 11-15-18 and by
U.S. Treasury Note, 6.25% due
06-30-98) - Note A................... 6.700% $ 66 $ 66,000
----------
TOTAL SHORT-TERM INVESTMENTS
(Cost $66,000) (3.17%) 66,000
------ ----------
TOTAL INVESTMENTS (98.37%) $2,048,665
====== ==========
NOTES TO SCHEDULE OF INVESTMENTS
* Represents rate in effect on December 31, 1996.
# Par value of non US$ denominated foreign bonds is expressed in local currency
for each country listed.
The percentage shown for each investment category is the total value of that
category as a percentage of the net assets of the Fund.
Portfolio Concentration
- --------------------------------------------------------------------------------
The Fund primarily invests in bonds issued by companies and governments of other
countries. The performance of the Fund is closely tied to the economic condition
within the countries in which it invests. The concentration of investments by
currency denomination for individual securities held by the Fund is shown in the
schedule of investments. In addition, concentration of investments can be
aggregated by various investment categories. The table below shows the
percentages of the Fund's investments at December 31, 1996 assigned to the
various investment categories.
MARKET VALUE AS A
% OF THE FUND'S
INVESTMENT CATEGORIES NET ASSETS
- --------------------- ----------
Governmental - Foreign............................ 73.26
Governmental - U.S................................ 19.35
Utility - Foreign................................. 2.59
Short-term Investments............................ 3.17
-----
TOTAL INVESTMENTS 98.37%
=====
SEE NOTES TO FINANCIAL STATEMENTS.
23
<PAGE>
================================================================================
FINANCIAL STATEMENTS
John Hancock Funds - Declaration Trust -- V.A. Strategic Income Fund
Schedule of Investments
December 31, 1996
- --------------------------------------------------------------------------------
PAR
VALUE
INTEREST S&P (000'S MARKET
ISSUER, DESCRIPTION RATE RATING* OMITTED) VALUE
- ------------------- ---- ------- -------- -----
BONDS
Automobile / Trucks (4.93%)
Speedy Muffler King, Inc.,
(Canada), Company Guaranty
10-01-06 (Y) .................... 10.875% B+ $ 100 $105,000
--------
Energy (2.43%)
AES China Generating Co. Ltd.,
Sr Note 12-15-06 ................ 10.125 BB- 50 51,750
--------
Government - Foreign (29.88%)
Commonwealth of Australia,
(Australia), Government
Bond 08-15-03# .................. 9.500 AAA 300 266,296
Kingdom of Spain, (Spain),
Government Bond
02-28-01# ....................... 10.100 AAA 15,000 133,016
Republic of Ireland Treasury
Gilts, (Ireland), Government
Bond 08-18-06# .................. 8.000 AAA 100 184,840
United Mexican States, (Mexico),
Government Bond
09-15-16 (Y) .................... 11.375 BB 50 52,750
--------
636,902
--------
Government - U.S. (34.69%)
United States Treasury,
Bond 02-15-16 ................... 9.250 AAA 200 253,906
Note 05-15-97 ................... 8.500 AAA 480 485,400
--------
739,306
--------
Leisure (11.11%)
Casino America, Inc.,
Sr Note 08-01-03 ................ 12.500 B 250 236,875
--------
Oil & Gas (4.94%)
Costilla Energy Inc., Sr Note
10-01-06 ........................ 10.250 B 100 105,250
--------
Paper (4.29%)
Riverwood International USA, Inc.,
Sr Sub Note 04-01-08 ............ 10.875 B 100 91,500
--------
Telecommunications (4.80%)
Nextel Communications, Inc.,
Sr Discount Note, Step
Coupon (9.75%, 02-15-99),
08-15-04 ........................ Zero CCC- 150 102,375
--------
TOTAL BONDS
(Cost $2,043,644) (97.07%) 2,068,958
------ ---------
The Schedule of Investments is a complete list of all securities owned by the
V.A. Strategic Income Fund on December 31, 1996. It's divided into two main
categories: bonds and short-term investments. The bonds are further broken down
by industry groups. Short-term investments, which represent the Fund's `cash'
position, are listed last.
ISSUER, DESCRIPTION MARKET VALUE
- ------------------- ------------
SHORT-TERM INVESTMENTS
Corporate Savings Account (0.41%)
Investors Bank & Trust Company
Daily Interest Savings Account
Current Rate 4.75%................. $ 8,728
----------
TOTAL SHORT-TERM INVESTMENTS (0.41%) 8,728
------ ----------
TOTAL INVESTMENTS (97.48%) $2,077,686
====== ==========
* Credit Ratings are rated by Moody's Investors Service or John Hancock
Advisers, Inc. where Standard & Poor's ratings are not available.
# Par value of foreign bonds is expressed in local currency, as shown
parenthetically in security description.
(Y) Parenthetical disclosure of a foreign country in the security description
represents country of foreign issuer, however, security is U. S. Dollar
denominated.
The percentage shown for each investment category is the total value of that
category as a percentage of the net assets of the Fund.
Portfolio Concentration
- --------------------------------------------------------------------------------
MARKET VALUE
AS A PERCENTAGE
OF FUNDS
COUNTRY DIVERSIFICATION: NET ASSETS
- ------------------------ ----------
Australia .................................................... 12.49%
Canada ....................................................... 4.93
Ireland ...................................................... 8.67
Mexico ....................................................... 2.47
Spain ........................................................ 6.24
United States ................................................ 62.68
-----
TOTAL INVESTMENTS 97.48%
=====
QUALITY DISTRIBUTION:
AAA .......................................................... 62.09%
BB ........................................................... 4.90
B ............................................................ 25.28
C ............................................................ 4.80
-----
TOTAL BONDS 97.07%
=====
SEE NOTES TO FINANCIAL STATEMENTS.
24
<PAGE>
================================================================================
FINANCIAL STATEMENTS
John Hancock Funds - Declaration Trust -- V.A. Sovereign Bond Fund
Schedule of Investments
December 31, 1996
- --------------------------------------------------------------------------------
PAR
VALUE
INTEREST S&P* (000'S MARKET
ISSUER, DESCRIPTION RATE RATING OMITTED) VALUE
- ------------------- ---- ------ -------- -----
BONDS
Banks (1.87%)
Banco Nacional de Obras y
Servicios Publicos, SNC,
Note 11-15-03 (Mexico) (Y) .............. 9.625% BB 5 $ 5,025
Chase Capital I, Gtd Cap Sec
Ser A 12-01-26 .......................... 7.670 BBB+ 4 3,911
Landeskreditbank Baden -
Wurttenberg, Sub Note
02-01-23 (Germany) (Y) .................. 7.625 AAA 5 5,307
National Westminster Bank PLC -
New York Branch,
Sub Note 05-01-01 ....................... 9.450 AA- 5 5,532
-------
19,775
-------
Broadcasting (2.18%)
Cablevision Systems Corp.,
Sr Sub Deb 04-01-04 ..................... 10.750 B 5 5,200
Continental Cablevision, Inc.,
Sr Note 05-15-06 ........................ 8.300 BBB+ 5 5,326
SFX Broadcasting, Inc.,
Sr Sub Note Ser B 05-15-06 .............. 10.750 B- 5 5,250
TKR Cable I, Inc.,
Sr Deb 10-30-07 ......................... 10.500 BBB- 5 5,255
TeleWest PLC,
Sr Deb 10-01-06
(United Kingdom) (Y) .................... 9.625 BB 2 2,040
-------
23,071
-------
Commercial Real Estate (0.48%)
Trinet Corp Realty Trust,
Note 05-15-01 ........................... 7.300 BBB- 5 5,062
-------
Finance (6.61%)
Access Financial Mortgage
Loan Trust, Class A4 Pass Thru
Ctf Ser 1996-4, 03-18-20 ................ 6.775 AAA 5 4,998
MBNA Master Credit Card Trust,
Class A Ser 1995-D 11-15-02 ............. 6.050 AAA 50 49,594
United Companies Financial Corp.,
Sr Note 01-15-04 ........................ 7.700 BBB- 5 4,994
UCFC Home Equity Loan,
Class A6 Pass Thru Ctf
Ser 1996-C1 01-15-28 .................... 7.825 AAA 10 10,214
-------
69,800
-------
Funeral Services (0.48%)
Loewen Group International, Inc.,
Sr Gtd Note, 10-15-03 (R) ............... 8.250 BB+ 5 5,069
-------
Glass Products (0.53%)
Owens-Illinois, Inc.,
Sr Deb 12-01-03 ......................... 11.000 BB 5 5,563
-------
The Schedule of Investments is a complete list of all securities owned by the
V.A. Sovereign Bond Fund on December 31, 1996. It is divided into two main
categories: bonds and short-term investments. The bonds are further broken down
by industry group. Short-term investments, which represent the Fund's "cash"
position, are listed last.
PAR
VALUE
INTEREST S&P* (000'S MARKET
ISSUER, DESCRIPTION RATE RATING OMITTED) VALUE
- ------------------- ---- ------ -------- -----
Government - U.S. (57.80%)
United States Treasury,
Bond 08-15-17 ........................ 8.875% AAA 55 $ 67,934
Bond 02-15-23 ........................ 7.125 AAA 85 88,745
Note 05-15-98 ........................ 9.000 AAA 205 213,649
Note 02-15-99 ........................ 8.875 AAA 20 21,159
Note 11-30-99 ........................ 7.750 AAA 10 10,448
Note 05-15-01 ........................ 8.000 AAA 90 96,173
Note 02-15-05 ........................ 7.500 AAA 105 112,301
--------
610,409
--------
Government - U.S. Agencies (9.54%)
Government National Mortgage
Association, 30 Yr SF Pass
Thru Ctf 07-15-26 .................... 8.000 AAA 99 100,765
--------
Insurance (3.45%)
Conseco, Inc.,
Sr Note 12-15-04 ..................... 10.500 BBB 5 5,901
Fairfax Financial Holdings Ltd.,
Note 04-15-26 (Canada) (Y) ........... 8.300 BBB+ 5 5,239
Liberty Mutual Insurance Co.,
Surplus Note 10-15-26 (R) ............ 7.875 A+ 5 5,019
Surplus Note 05-04-07 (R) ............ 8.200 A+ 5 5,310
Massachusetts Mutual Life
Insurance Co., Surplus
Note 11-15-23 (R) .................... 7.625 AA 5 5,004
NAC Re Corp.,
Note 06-15-99 ........................ 8.000 A- 5 5,159
Sun Canada Financial Co.,
Note 12-15-07 (R) .................... 6.625 AA 5 4,795
--------
36,427
--------
Leasing Companies (0.20%)
Ryder TRS Inc.,
Sr Sub Note 12-01-06 (R) ............. 10.000 B+ 2 2,080
--------
Leisure & Recreation (0.54%)
Trump Hotels & Casinos Resort
Funding, Inc.,
Sr Note 06-15-05 ..................... 15.500 B+ 5 5,700
--------
Oil & Gas (1.14%)
Camuzzi Gas, Pampeana S.A.,
Bond 12-15-01
(Argentina) (R) (Y) .................. 9.250 BB- 2 2,020
Enserch Exploration, Inc.,
Pass Thru Ctf 01-02-09 (R) ........... 7.540 BBB 5 4,913
Norsk Hydro AS,
Deb 10-01-16 (Norway) (Y) ............ 7.500 A 5 5,119
--------
12,052
--------
Paper (0.80%)
Georgia Pacific Corp.,
Deb 01-15-18 ......................... 9.750 BBB- 5 5,216
S.D. Warren Co.,
Sr Sub Note Ser B 12-15-04 ........... 12.000 B+ 3 3,240
--------
8,456
--------
SEE NOTES TO FINANCIAL STATEMENTS.
25
<PAGE>
================================================================================
FINANCIAL STATEMENTS
John Hancock Funds - Declaration Trust -- V.A. Sovereign Bond Fund
Publishing (1.00%)
News America Holdings, Inc.,
Sr Deb 08-10-18 ...................... 8.250% BBB 5 $ 5,048
Time Warner, Inc.,
Deb 01-15-13 ......................... 9.125 BBB- 5 5,459
--------
10,507
--------
Retail (0.34%)
Flagstar Corp.,
Sr Note 09-15-01 ..................... 10.750 B- 4 3,620
--------
Steel (0.47%)
IVACO, Inc.,
Sr Note 09-15-05
(Canada) (Y) ......................... 11.500 B+ 5 4,981
--------
Telecommunications (0.94%)
Paging Network, Inc.,
Sr Sub Note 10-15-08 (R) ............. 10.000 B 5 5,025
TCI Communications, Inc.,
Sr Deb 08-01-15 ...................... 8.750 BBB- 5 4,939
--------
9,964
--------
Transportation (1.40%)
America West Airlines,
Pass Thru Ctf Ser B 01-02-08 ......... 6.930 A- 5 4,956
Northwest Airlines Inc.,
Pass Thru Cert Ctf Ser 96-1
01-02-15 ............................. 8.970 BBB- 5 5,450
NWA Trust,
Sr Note Ser A 06-21-14 ............... 9.250 AA 4 4,328
--------
14,734
--------
Utilities (5.31%)
CSW Investments,
Sr Note 08-01-01
(United Kingdom) (R) (Y) ............. 6.950 A- 5 5,026
Enersis S.A.,
Note 12-01-16
(Cayman Islands) (Y) ................. 7.400 A- 5 4,868
First PV Funding Corp.,
Deb Ser 86B 01-15-16 ................. 10.150 BB- 4 4,250
Hydro-Quebec,
Deb 02-01-21 (Canada) (Y) ............ 9.400 A+ 15 18,089
Long Island Lighting Co.,
Deb 03-15-03 ......................... 7.050 BB+ 5 4,885
Deb 07-15-19 ......................... 8.900 BB+ 3 3,061
Gen Ref Mtg 05-01-21 ................. 9.750 BBB- 10 10,679
Tenaga Nasional Berhad,
Note 06-15-04
(Malaysia) (R) (Y) ................... 7.875 A+ 5 5,257
---------
56,115
---------
TOTAL BONDS
(Cost $990,249) .... (95.08%) 1,004,150
------ ---------
PAR
VALUE
INTEREST (000'S MARKET
ISSUER, DESCRIPTION RATE OMITTED) VALUE
- ------------------- ---- -------- -----
SHORT-TERM INVESTMENTS
Joint Repurchase Agreement (3.88%)
Investment in a joint repurchase
agreement transaction with Lehman
Brothers, Inc.Dated 12-31-96, Due
01-02-97 (secured by U.S. Treasury
Bonds, 7.25% thru 12.50%, due 08-15-14
thru 08-15-22) - Note A 6.700% $ 41 $ 41,000
----------
Corporate Savings Account (0.03%)
Investors Bank & Trust Company
Daily Interest Savings Account
Current Rate 4.75%.... 313
----------
TOTAL SHORT-TERM INVESTMENTS (3.91%) 41,313
------ ----------
TOTAL INVESTMENTS (98.99%) $1,045,463
====== ==========
NOTES TO THE SCHEDULE OF INVESTMENTS
(R) These securites are exempt from registration under Rule 144A of the
Securities Act of 1933. Such securities may be resold, normally to qualified
institutional buyers, in transactions exempt from registration. Rule 144A
securites amounted to $49,518 as of December 31, 1996.
(Y) Parenthetical disclosure of a foreign country in the security description
represents country of a foreign issuer, however, security is U.S. dollar
denominated.
* Credit ratings are rated by Moody's Investor Services, Fitch or John Hancock
Advisers, Inc. where Standard and Poors ratings are not available. These
ratings are unaudited.
The percentage shown for each investment category is the total value of that
category as a percentage of the net assets of the Fund.
SEE NOTES TO FINANCIAL STATEMENTS.
26
<PAGE>
================================================================================
FINANCIAL STATEMENTS
John Hancock Funds - Declaration Trust -- V.A. Money Market Fund
Schedule of Investments
December 31, 1996
- --------------------------------------------------------------------------------
The Schedule of Investments is a complete list of all securities owned by the
V.A. Money Market Fund on December 31, 1996.
PAR VALUE
INTEREST QUALITY (000'S
ISSUER, DESCRIPTION RATE RATINGS* OMITTED) VALUE
- ------------------- ---- -------- -------- -----
U.S.GOVERNMENT OBLIGATIONS
Governmental - U.S.Agencies
(101.61%)
Federal Home Loan Bank
01-02-97.................. 6.500% Tier 1 210 $209,962
--------
TOTAL U.S. GOVERNMENT
OBLIGATIONS
(Cost $209,962) (101.61%) 209,962
------- --------
TOTAL INVESTMENTS (101.61%) $209,962
======= ========
* Quality ratings indicate the categories of eligible securities, as defined by
Rule 2a-7 of the Investment Company Act of 1940, owned by the Fund.
The percentage shown is the total value of that security expressed as a
percentage of the net assets of the Fund. SEE NOTES TO FINANCIAL STATEMENTS.
SEE NOTES TO FINANCIAL STATEMENTS.
27
<PAGE>
================================================================================
NOTES TO FINANCIAL STATEMENTS
John Hancock Funds - Declaration Trust
NOTE A --
ORGANIZATION
John Hancock V.A. International Fund ("V.A. International Fund"), John Hancock
V.A. Emerging Growth Fund ("V.A. Emerging Growth Fund"), John Hancock V.A.
Discovery Fund ("V.A. Discovery Fund"), John Hancock V.A. Independence Equity
Fund ("V.A. Independence Equity Fund"), John Hancock V.A. 500 Index Fund ("V.A.
500 Index Fund"), John Hancock V.A. Sovereign Investors Fund ("V.A. Sovereign
Investors Fund"), John Hancock V.A. World Bond Fund ("V.A. World Bond Fund"),
John Hancock V.A. Strategic Income Fund ("V.A. Strategic Income Fund"), John
Hancock V.A. Sovereign Bond Fund ("V.A. Sovereign Bond Fund"), John Hancock V.A.
Money Market Fund ("V.A. Money Market Fund", (each a "Fund" collectively, the
"Funds") are separate series of John Hancock Declaration Trust (the "Trust") an
open-end management investment company, registered under the Investment Company
Act of 1940. The Trust, organized as a Massachusetts business trust in 1995,
consists of ten different series. Each Fund currently has one class of shares
with equal rights as to voting, redemption, dividends, and liquidation within
their respective Fund. The Trustees may authorize the creation of additional
series from time to time to satisfy various investment objectives. An insurance
company issuing a Variable Contract that participates in the Trust will vote
shares of the Funds held by the insurance company's separate accounts as
required by law. In accordance with current law and interpretations thereof,
participating insurance companies are required to request voting instructions
from policy owners and must vote shares of the Funds in proportion to the voting
instructions received.
The investment objective of the V.A. International Fund is to seek long-term
growth of capital by primarily investing in equity securities of foreign
companies and governments. The investment objective of the V.A. Emerging Growth
Fund is to seek long-term growth of capital. The investment objective of the
V.A. Discovery Fund is to seek long-term growth of capital by primarily
investing in common stocks of companies of all levels of capitalization which
are believed by the Fund's managers to offer superior prospects for growth. The
investment objective of the V.A. Independence Equity Fund is to seek
above-average total return, consisting of capital appreciation and income by
focusing on stocks of companies that management believes are undervalued and
have improving fundamentals over both the intermediate and long-term. The
investment objective of the V.A. 500 Index Fund is to provide investment results
that correspond to the total return performance of the Standard & Poor's 500
Stock Price Index (the "S&P 500 Index"). The investment objective of the V.A.
Sovereign Investors Fund is to seek long term growth of capital and income
without assuming undue market risks by investing primarily in common stocks of
seasoned companies in sound financial condition with a long record of paying
increasing dividends. The investment objective of the V.A. World Bond Fund is to
seek a high total investment return, a combination of current income and capital
appreciation, by investing primarily in a global portfolio of fixed income
securities. The investment objective of the V.A. Strategic Income Fund is to
seek a high level of current income by primarily investing in foreign government
and corporate fixed income securities, U.S. Government securities and
lower-rated high yield, high risk, fixed income securities of U.S. issuers. The
investment objective of the V.A. Sovereign Bond Fund is to seek a high level of
current income consistent with prudent investment risk by investing primarily in
a diversified portfolio of investment grade fixed income securities of U.S. and
foreign issuers, although the Fund may invest up to 25% of its total assets in
lower-rated high yield, high risk, fixed income securities. The investment
objective of the V.A. Money Market Fund is to seek maximum current income
consistent with capital preservation and liquidity by investing primarily in
high-quality money market instruments.
NOTE B --
ACCOUNTING POLICIES
VALUATION OF INVESTMENTS Securities in the Funds' portfolios (except for the
V.A. Money Market Fund) are valued on the basis of market quotations, valuations
provided by independent pricing services or, at fair value as determined in good
faith in accordance with procedures approved by the Trustees. Short-term debt
investments maturing within 60 days are valued at amortized cost which
approximates market value. All portfolio transactions initially expressed in
terms of foreign currencies have been translated into U.S. dollars as described
in "Foreign Currency Translation" below. The Funds may invest in indexed
securities whose value is linked either directly or inversely to changes in
foreign currencies, interest rates, commodities, indices or other reference
instruments. Indexed securities may be more volatile than the reference
instrument itself, but any loss is limited to the amount of the original
investment.
The V.A. Money Market Fund's portfolio of securities is valued at amortized
cost, in accordance with Rule 2a-7 of the Investment Company Act of 1940, which
approximates market value. The amortized cost method involves valuing a security
at its cost on the date of purchase and thereafter assuming a constant
amortization to maturity of the difference between the principal amount due at
maturity and the cost of the security to the Fund. Interest income on certain
portfolio securities such as negotiable bank certificates of deposit and
interest bearing notes is accrued daily and included in interest receivable.
JOINT REPURCHASE AGREEMENT Pursuant to an exemptive order issued by the
Securities and Exchange Commission, the Fund, along with other registered
investment companies having a management contract with John Hancock Advisers,
Inc. (the "Adviser"), a wholly-owned subsidiary of The Berkeley Financial Group,
may participate in a joint repurchase agreement transaction. Aggregate cash
balances are invested in one or more large repurchase agreements, whose
underlying securities are obligations of the U.S. government and/or its
agencies. The Funds' custodian bank receives delivery of the underlying
securities for the joint account on the Funds' behalf. The Adviser is
responsible for ensuring that the agreement is fully collateralized at all
times.
28
<PAGE>
================================================================================
NOTES TO FINANCIAL STATEMENTS
John Hancock Funds - Declaration Trust
INVESTMENT TRANSACTIONS Investment transactions are recorded as of the
date of purchase, sale or maturity. Net realized gains and losses on sales of
investments are determined on the identified cost basis. Capital gains realized
on some foreign securities are subject to foreign taxes and are accrued, as
applicable.
FEDERAL INCOME TAXES The Funds' policy is to comply with the requirements of the
Internal Revenue Code that are applicable to regulated investment companies.
They will not be subject to federal income tax on taxable earnings which are
distributed to shareholders. For federal income tax purposes, net currency
exchange gains and losses from sales of foreign debt securities may be treated
as ordinary income even though such items are capital gains and losses for
accounting purposes.
For federal income tax purposes, the following funds had capital loss
carryforwards available. These carryforwards are to the extent provided by
regulations.
Expired capital loss carryforwards are reclassified to capital paid-in, in
the year of expiration. Additionally, net capital losses attributable to
security transactions occuring after October 31, 1996 are treated as arising on
the first day (January 1, 1997) of the Funds next taxable year.
CAPITAL LOSS POST OCTOBER 31, 1996
CARRYFORWARD LOSS TREATED AS
FUND EXPIRES 12-31-2004 ARISING JANUARY 1, 1997
- ---- ------------------ -----------------------
V.A. INTERNATIONAL FUND ......... $ 1,554 --
V.A. EMERGING GROWTH FUND ....... 18,937 $52,780
V.A. DISCOVERY FUND ............. 11,062 85,538
V.A. INDEPENDENCE EQUITY FUND ... -- --
V.A. 500 INDEX FUND FUND ........ -- --
V.A. SOVEREIGN INVESTORS FUND ... -- --
V.A. WORLD BOND FUND ............ -- --
V.A. STRATEGIC INCOME FUND ...... -- --
V.A. SOVEREIGN BOND FUND ........ -- --
V.A. MONEY MARKET FUND .......... -- --
DIVIDENDS, INTEREST AND DISTRIBUTIONS Dividend income on investment securities
is recorded on the ex-dividend date or, in the case of some foreign securities,
on the date thereafter when the Fund identifies the dividend. Interest income on
investment securities is recorded on the accrual basis. Foreign income may be
subject to foreign withholding taxes which are accrued as applicable.
The Funds record all distributions to shareholders from net investment income
and realized gains on the ex-dividend date. Such distributions are determined in
conformity with income tax regulations, which may differ from generally accepted
accounting principles.
EXPENSES The majority of the expenses of the Trust are directly identifiable to
an individual fund. Expenses which are not readily identifiable to a specific
fund are allocated in such a manner as deemed equitable, taking into
consideration, among other things, the nature and type of expense and the
relative sizes of the funds.
USE OF ESTIMATES The preparation of these financial statements in accordance
with generally accepted accounting principles incorporates estimates made by
management in determining the reported amounts of assets, liabilities, revenues,
and expenses of the Funds. Actual results could differ from these estimates.
ORGANIZATION EXPENSES Expenses incurred in connection with the organization of
the Funds have been capitalized and are being charged to the Funds' operations
ratably over a five year period that commenced with the investment operations of
each Fund.
FOREIGN CURRENCY TRANSLATION All assets and liabilities initially expressed in
terms of foreign currencies are translated into U.S. dollars based on London
currency exchange quotations as of 5:00 p.m., London time, on the date of any
determination of the net asset value of the Funds. Transactions affecting
statement of operations accounts and net realized gain/(loss) on investments are
translated at the rates prevailing at the dates of the transactions.
The Funds do not isolate that portion of the results of operations resulting
from changes in foreign exchange rates on investments from the fluctuations
arising from changes in market prices of securities held. Such fluctuations are
included with the net realized and unrealized gain or loss from investments.
Reported net realized foreign exchange gains or losses arise from sales of
foreign currency, currency gains or losses realized between the trade and
settlement dates on securities transactions and the difference between the
amounts of dividends, interest, and foreign withholding taxes recorded on the
Funds' books and the U.S. dollar equivalent of the amounts actually received or
paid. Net unrealized foreign exchange gains or losses arise from the impact of
changes in exchange rates on the value of assets and liabilities other than
investments in securities at fiscal year end.
FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS The Funds (except for the V.A.
Independence Equity Fund, V.A. 500 Index Fund, V.A. Sovereign Investors Fund,
and V.A. Money Market Fund) may enter into forward foreign currency exchange
contracts as a hedge against the effect of fluctuations in currency exchange
rates. A forward foreign currency exchange contract involves an obligation to
purchase or sell a specific currency at a future date at a set price. The
aggregate principal amounts of the contracts are marked-to-market daily at the
applicable foreign currency exchange rates. Any resulting unrealized gains and
losses are included in the determination of each of the Fund's daily net assets.
The Funds record realized gains and losses at the time the forward foreign
currency contract is closed out or offset by a matching contract. Risks may
arise upon entering these contracts from potential inability of counterparties
to meet the terms of the contract and from unanticipated movements in the value
of a foreign currency relative to the U.S. dollar. These contracts involve
market or credit risk in excess of the unrealized gain or loss reflected in the
Funds' Statement of Assets and Liabilities.
The Funds may also purchase and sell forward contracts to facilitate the
settlement of foreign currency denominated portfolio transactions, under which
it intends to take delivery of the foreign currency. Such contracts normally
involve no market risk other than that offset by the currency amount of the
underlying transaction.
29
<PAGE>
================================================================================
NOTES TO FINANCIAL STATEMENTS
John Hancock Funds - Declaration Trust
Open foreign currency forward contracts for the Trust at December 31, 1996
were as follows:
UNREALIZED
PRINCIPAL AMOUNT EXPIRATION APPRECIATION
CURRENCY COVERED BY CONTRACT MONTH (DEPRECIATION)
- -------- ------------------- ----- --------------
SELLS
V.A. World Bond Fund
French Franc................... 450,000 Jan 97 $1,955
------
V.A. Strategic Income Fund
German Deutsche Mark........... 269,000 Jan 97 $ 769
German Deutsche Mark........... 220,000 Feb 97 $1,365
------
$2,134
BUY
V.A. World Bond Fund
Japanese Yen................... 16,000,000 Jan 97 ($3,343)
------
There were no open forward foreign currency exchange contracts at December
31, 1996 for all other funds.
FINANCIAL FUTURES CONTRACTS The Funds (except V.A. Money Market Fund) may buy
and sell financial futures contracts to hedge against the effects of
fluctuations in interest rates, currency exchange rates and other market
conditions. Buying futures tends to increase the Funds' exposure to the
underlying instrument. Selling futures tends to decrease the Funds' exposure to
the underlying instrument or hedge other Funds instruments. At the time each
Fund enters into a financial futures contract, it will be required to deposit
with its custodian a specified amount of cash or U.S. government securities,
known as "initial margin", equal to a certain percentage of the value of the
financial futures contract being traded. Each day, the futures contract is
valued at the official settlement price on the board of trade or U.S.
commodities exchange on which it trades. Subsequent payments, known as
"variation margin", to and from the broker are made on a daily basis as the
market price of the financial futures contract fluctuates. Daily variation
margin adjustments, arising from this "mark to market", will be recorded by the
Funds as unrealized gains or losses.
When the contracts are closed, the Funds recognizes a gain or loss. Risks of
entering into futures contracts include the possibility that there may be an
illiquid market and/or that a change in the value of the contracts may not
correlate with changes in the value of the underlying securities. In addition,
the Funds could be prevented from opening or realizing the benefits of closing
out futures positions because of position limits or limits on daily price
fluctuation imposed by an exchange.
For Federal income tax purposes, the amount, character and timing of the
Funds' gains and/or losses can be affected as a result of futures contracts.
Open financial futures contracts for the V.A. 500 Index Fund are presented in
the schedule of investments. There were no other open financial futures
contracts at December 31, 1996 for all other funds.
OPTIONS The Funds (except V.A. Money Market Fund) may purchase options
contracts. Listed options will be valued at the last quoted sales price on the
exchange on which they are primarily traded. Purchased put or call
over-the-counter options will be valued at the average of the "bid" prices
obtained from two independent brokers. Written put or call over-the-counter
options will be valued at the average of the "asked" prices obtained from two
independent brokers. Upon the writing of a call or put option, an amount equal
to the premium received by the Fund will be included in the Statement of Assets
and Liabilities as an asset and corresponding liability. The amount of the
liability will be subsequently marked-to-market to reflect the current market
value of the written option.
The Funds may use option contracts to manage their exposure to changing
security prices. Writing puts and buying calls will tend to increase the Funds'
exposure to the underlying instrument and buying puts and writing calls will
tend to decrease the Funds' exposure to the underlying instrument, or hedge
other Fund investments.
The maximum exposure to loss for any purchased options will be limited to the
premium initially paid for the option. In all other cases, the face (or
"notional") amount of each contract at value will reflect the maximum exposure
of the Funds in these contracts, but the actual exposure will be limited to the
change in value of the contract over the period the contract remains open.
Risks may also arise if counterparties do not perform under the contract's
terms, or if the Funds are unable to offset a contract with a counterparty on a
timely basis ("liquidity risk"). Exchange-traded options have minimal credit
risk as the exchanges act as counterparties to each transaction, and only
present liquidity risk in highly unusual market conditions. To minimize credit
and liquidity risks in over-the-counter option contracts, the Funds will
continuously monitor the creditworthiness of all its counterparties.
At any particular time, except for purchased options, market or credit risk
may involve amounts in excess of those reflected in the Fund's Statement of
Assets and Liabilities.
There were no open written options contracts at December 31, 1996.
NOTE C --
MANAGEMENT FEE AND TRANSACTIONS
WITH AFFILIATES AND OTHERS
Under the present investment management contract, each Fund pays a monthly
management fee to the Adviser, for a continuous investment program equivalent,
on an annual basis as follows:
FUND RATE
- ---- ----
V.A. International Fund................... 0.90% of average daily net assets
V.A. Emerging Growth Fund................. 0.75% of average daily net assets
V.A. Discovery Fund....................... 0.75% of average daily net assets
V.A. Independence Equity Fund............. 0.70% of average daily net assets
V.A. 500 Index Fund....................... 0.35% of average daily net assets
V.A. Sovereign Investors Fund............. 0.60% of average daily net assets
V.A. World Bond Fund...................... 0.75% of average daily net assets
V.A. Strategic Income Fund................ 0.60% of average daily net assets
V.A. Sovereign Bond Fund.................. 0.50% of average daily net assets
V.A. Money Market Fund.................... 0.50% of average daily net assets
30
<PAGE>
================================================================================
NOTES TO FINANCIAL STATEMENTS
John Hancock Funds - Declaration Trust
John Hancock Advisers International Limited ("JHAI") serves as the
sub-adviser to the V.A. International Fund pursuant to a sub-advisor agreement
among the Fund, the Adviser, and JHAI. JHAI was formed in 1987 and is a wholly
owned subsidiary of the Adviser. JHAI provides international investment research
and advisory services to investment companies and institutional clients. The
Adviser pays JHAI a portion of its advisory fee from the V.A. International Fund
to JHAI at the following rate: 70% of the advisory fee payable by the Fund.
Independence Investment Associates, Inc. ("IIA") serves as the sub-adviser to
the V.A. Independence Equity Fund pursuant to a separate sub-advisor agreement
among the Fund, the Adviser, and IIA. IIA was organized in 1982 and is a wholly
owned indirect subsidiary of John Hancock Mutual Life Insurance Company
("JHMLICo"). IIA provides investment advice and advisory services to investment
companies and institutional accounts. The Adviser pays IIA a portion of its
advisory fee from the V.A. Independence Equity Fund to IIA at the following
rate: 55% of the advisory fee payable by the Fund.
Sovereign Asset Management Corporation ("SAMCorp") serves as the sub-advisor
of the V.A. Sovereign Investors Fund pursuant to a sub-advisory agreement among
the Fund, the Adviser, and SAMCorp. SAMCorp was organized in 1992 and is a
wholly owned indirect subsidiary of JHMLICo. SAMCorp provides investment advice
and advisory services to investment companies and private and institutional
accounts. The Adviser pays SAMCorp a portion of its advisory fee from the V.A.
Sovereign Investors Fund to SAMCorp at the following rate: 40% of the advisory
fee payable by the Fund.
The V.A. 500 Index Fund has an agreement with Standard & Poor's ("S&P") to
license certain trademarks and trade names of S & P and of the S & P 500 Index,
which is determined, composed and calculated by S & P without regard to the
Adviser or the V.A. 500 Index Fund. (Requisite disclosure regarding the use of
the Standard & Poor's name is included in the Trust's prospectus.)
The Adviser has voluntarily agreed to limit each Fund's expenses, excluding
the management fee, to 0.25% of each Fund's average daily net assets.
Accordingly, the reductions in expenses for the period ended December 31, 1996
were as follows:
FUND FEE REDUCTION
- ---- -------------
V.A. International Fund..................................... $14,115
V.A. Emerging Growth Fund................................... $14,192
V.A. Discovery Fund......................................... $13,072
V.A. Independence Equity Fund............................... $12,141
V.A. 500 Index Fund......................................... $ 9,231
V.A. Sovereign Investors Fund............................... $10,696
V.A. World Bond Fund........................................ $15,290
V.A. Strategic Income Fund.................................. $10,094
V.A. Sovereign Bond Fund.................................... $11,962
V.A. Money Market Fund...................................... $10,187
The Adviser reserves the right to terminate this limitation in the future.
The Funds have an agreement with the Adviser to perform necessary tax and
financial management services for the Funds. The compensation for 1996 was at an
annual rate of 0.01875% of the average net assets of the Funds.
Mr. Edward J. Boudreau, Jr., Mr. Richard S. Scipione, and Ms. Anne C. Hodsdon
are directors and/or officers of the Adviser and/or its affiliates, as well as
Trustees of the Funds. The compensation of unaffiliated Trustees is borne by the
Fund. The Adviser and other subsidiaries of JHMLICo owned the following shares
of beneficial interest of the Funds as of December 31, 1996:
FUND SHARES OF BENEFICIAL INTEREST
- ---- -----------------------------
V.A. International Fund..................... 200,798
V.A. Emerging Growth Fund................... 100,197
V.A. Discovery Fund......................... 100,000
V.A. Independence Equity Fund............... 100,610
V.A. 500 Index Fund......................... 373,779
V.A. Sovereign Investors Fund............... 100,834
V.A. World Bond Fund........................ 204,009
V.A. Strategic Income Fund.................. 206,689
V.A. Sovereign Bond Fund.................... 102,466
V.A. Money Market Fund...................... 101,468
NOTE D --
INVESTMENT TRANSACTIONS:
Purchases and proceeds from sales of securities, excluding short-term
securities, during the period ended December 31, 1996, for the Funds were as
follows:
FUND PURCHASES SALES
- ---- --------- -----
V.A. International Fund .............. $2,080,380 $ 250,840
V.A. Emerging Growth Fund ............ $1,155,939 $ 225,290
V.A. Discovery Fund .................. $1,601,883 $ 604,738
V.A. Independence Equity Fund ........ $1,259,952 $ 254,860
V.A. Sovereign Investors Fund
U.S. Government Securities ......... $ 114,719 --
Other Investments .................. $1,020,176 $ 139,246
V.A. World Bond Fund
U.S. Government Securities ......... $ 398,844 --
Other Investments .................. $2,099,584 $ 568,210
V.A. Strategic Income Fund
U.S. Government Securities ......... $ 495,207 --
Other Investments .................. $2,570,121 $1,066,608
V.A. Sovereign Bond Fund
U.S. Government Securities ......... $1,000,837 $ 300,682
Other Investments .................. $ 417,474 $ 133,950
31
<PAGE>
================================================================================
NOTES TO FINANCIAL STATEMENTS
John Hancock Funds - Declaration Trust
At December 31, 1996, the cost (excluding the corporate savings account) and
gross unrealized appreciation and depreciation in value of investments owned by
the Funds, as computed on a federal income tax basis, were as follows:
<TABLE>
<CAPTION>
AGGREGATE GROSS UNREALIZED GROSS UNREALIZED NET UNREALIZED
FUND COST APPRECIATION DEPRECIATION APPRECIATION
- ---- ---- ------------ ------------ ------------
<S> <C> <C> <C> <C>
V.A. International Fund $2,023,986 $269,995 $22,190 $247,805
V.A. Emerging Growth
Fund ................ 991,831 74,412 71,437 2,975
V.A. Discovery Fund ... 1,006,545 67,440 32,404 35,036
V.A. Independence
Equity Fund ......... 1,070,243 100,813 15,965 84,848
V.A. 500 Index Fund
Fund ................ 3,984,280 -- -- --
V.A. Sovereign
Investors Fund ...... 1,065,075 91,832 24,657 67,175
V.A. World Bond Fund .. 2,007,597 47,387 6,319 41,068
V.A. Strategic Income
Fund ................ 2,043,644 41,118 15,804 25,314
V.A. Sovereign Bond
Fund ................ 1,031,376 15,999 2,225 13,774
V.A. Money Market
Fund ................ 209,962 -- -- --
</TABLE>
NOTE E --
RECLASSIFICATION OF ACCOUNTS
During the period ended December 31, 1996, reclassifications have been made in
each Fund's capital accounts to report these balances on a tax basis, excluding
certain temporary differences, as of December 31, 1996. Additional adjustments
may be needed in subsequent reporting periods. These reclassifications, which
have no impact on the net asset value of the Funds, are primarily attributable
to differences in the treatment of net operating losses and foreign currency
gains and losses under federal tax rules versus generally accepted accounting
principle. The calculation of net investment income per share in the financial
highlights excludes these adjustments.
CAPITAL UNDISTRIBUTED NET ACCUMULATED NET
FUND PAID-IN INVESTMENT INCOME REALIZED GAIN
/ (LOSS) (LOSS)
-------- ------
V.A. International Fund ..... ($143) ($5,729) $ 5,872
V.A. Emerging Growth Fund ... -- -- --
V.A. Discovery Fund ......... (795) 795 --
V.A. Independence Equity Fund -- 110 (110)
V.A. 500 Index Fund Fund .... -- -- --
V.A. Sovereign Investors Fund -- -- --
V.A. World Bond Fund ........ -- -- --
V.A. Strategic Income Fund .. -- -- --
V.A. Sovereign Bond Fund .... -- -- --
V.A. Money Market Fund ...... -- -- --
32
<PAGE>
================================================================================
NOTES TO FINANCIAL STATEMENTS
John Hancock Funds - Declaration Trust
REPORT OF ERNST & YOUNG LLP,
INDEPENDENT AUDITORS
To the Contract owners, Policyholders, and Trustees of
John Hancock Declaration Trust
We have audited the accompanying statements of assets and liabilities, including
the schedule of investments, of John Hancock Declaration Trust (the "Trust")
(comprising respectively V.A. International Fund, V.A. Emerging Growth Fund,
V.A. Discovery Fund, V.A. Independence Equity Fund, V.A. 500 Index Fund, V.A.
Sovereign Investors Fund, V.A. World Bond Fund, V.A. Strategic Income Fund, V.A.
Sovereign Bond Fund, and V.A. Money Market Fund) (collectively "the Funds") as
of December 31, 1996, and the related statements of operations, changes in net
assets, and the financial highlights for the period from August 29, 1996
(commencement of operations) to December 31, 1996. These financial statements
and financial highlights are the responsibility of the Funds' management Our
responsibility is to express an opinion on these financial statements based on
our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements and financial highlights. Our procedures included confirmation of
securities owned at December 31, 1996 by correspondence with the custodian and
brokers, and other appropriate auditing procedures when 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 audit provides a
reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of each
of the respective Funds constituting the John Hancock Declaration Trust as of
December 31, 1996, the results of their operations, the changes in their net
assets, and the financial highlights for the period from August 29, 1996 to
December 31, 1996, in conformity with generally accepted accounting principles.
/s/ Ernst & Young LLP
Boston, Massachusetts
February 7, 1996
33
<PAGE>
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box sectioned in quadrants with a triangle in upper left, a circle in upper
right, a cube in lower left and a diamond in lower right. A tag line below reads
"A Global Investment Management Firm."]
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Permit No. 75
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This report is for the information of shareholders of the John Hancock
Declaration Trust. It may be used as sales literature when preceded or
accompanied by the current prospectus, which details charges, investment
objectives and operating policies.
[A recycled logo in lower left hand corner with caption "Printed on Recycled
Paper."]
DECOA 12/96
2/97
