SEMIANNUAL REPORT
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Declaration Trust
Growth V.A. International Fund
V.A. Financial Industries Fund
V.A. Emerging Growth Fund
V.A. Discovery Fund
---------------------------------------------
Growth V.A. Independence Equity Fund
& Income V.A. 500 Index Fund
V.A. Sovereign Investors Fund
---------------------------------------------
Income V.A. World Bond Fund
V.A. Strategic Income Fund
V.A. Sovereign Bond Fund
V.A. Money Market Fund
JUNE 30, 1997
[LOGO] JOHN HANCOCK FUNDS
A Global Investment Management Firm
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Table of Contents
John Hancock Funds - Declaration Trust
Page
1) Chairman's Message......................................................
2) Portfolio Manager Commentary
This commentary reflects the views of the portfolio manager(s) or portfolio
management team through the end of the Fund's period discussed in this report.
Of course, the manager's or team's views are subject to change as market and
other conditions warrant.
Growth
V.A. International Fund............................................... 4
V.A. Financial Industries Fund........................................ 7
V.A. Emerging Growth Fund............................................. 10
V.A. Discovery Fund................................................... 13
Growth & Income
V.A. Independence Equity Fund......................................... 16
V.A. 500 Index Fund................................................... 19
V.A. Sovereign Investors Fund......................................... 22
Income
V.A. World Bond Fund.................................................. 25
V.A. Strategic Income Fund............................................ 28
V.A. Sovereign Bond Fund.............................................. 31
V.A. Money Market Fund................................................ 34
3) Financial Statements.................................................... 36
4) Notes To Financial Statements........................................... 81
TRUSTEES
EDWARD J. BOUDREAU, JR.
DENNIS S. ARONOWITZ *
RICHARD P. CHAPMAN, JR. *
WILLIAM J. COSGROVE *
DOUGLAS M. COSTLE *
LELAND O. ERDAHL *
RICHARD A. FARRELL *
GAIL D. FOSLER *
WILLIAM F. GLAVIN *
ANNE C. HODSDON
DR. JOHN A. MOORE *
PATTI MCGILL PETERSON *
JOHN W. PRATT *
RICHARD S. SCIPIONE
EDWARD J. SPELLMAN *
* Members of the Audit Committee
OFFICERS
EDWARD J. BOUDREAU, JR.
Chairman and Chief Executive Officer
ROBERT G. FREEDMAN
Vice Chairman and Chief Investment Officer
ANNE C. HODSDON
President
JAMES B. LITTLE
Senior Vice President and
Chief Financial Officer
SUSAN S. NEWTON
Vice President and Secretary
JAMES J. STOKOWSKI
Vice President and Treasurer
THOMAS H. CONNORS
Second Vice President and
Compliance Officer
CUSTODIANS
INVESTORS BANK & TRUST COMPANY
200 CLARENDON STREET
BOSTON, MASSACHUSETTS 02116
V.A. Emerging Growth Fund
V.A. Discovery Fund
V.A. Financial Industries
V.A. Independence Equity Fund
V.A. Sovereign Investors Fund
V.A. Strategic Income Fund
V.A. Sovereign Bond Fund
STATE STREET BANK AND TRUST COMPANY
225 FRANKLIN STREET
BOSTON, MASSACHUSETTS 02110
V.A. International Fund
V.A. 500 Index Fund
V.A. World Bond Fund
V.A. Money Market Fund
TRANSFER AGENT
JOHN HANCOCK SERVICING CENTER
P.O. BOX 9298
BOSTON, MASSACHUSETTS 02205-9298
INVESTMENT ADVISER
JOHN HANCOCK ADVISERS, INC.
101 HUNTINGTON AVENUE
BOSTON, MASSACHUSETTS 02199-7603
SUB-INVESTMENT ADVISERS
JOHN HANCOCK ADVISERS INTERNATIONAL LIMITED
34 DOVER STREET
LONDON, ENGLAND W1X3RA
V.A. International Fund
INDEPENDENCE INVESTMENT ASSOCIATES, INC.
53 STATE STREET
BOSTON, MASSACHUSETTS 02109
V.A. Independence Equity Fund
SOVEREIGN ASSET MANAGEMENT CORP.
1235 WESTLAKES DRIVE
BERWYN, PENNSYLVANIA 19312
V.A. Sovereign Investors Fund
ISSUER
JOHN HANCOCK MUTUAL
LIFE INSURANCE COMPANY
JOHN HANCOCK VARIABLE
LIFE INSURANCE COMPANY*
200 CLARENDON STREET
BOSTON, MASSACHUSETTS 02117
*Not Licensed in New York
PRINCIPAL DISTRIBUTOR
JOHN HANCOCK FUNDS, INC.
101 HUNTINGTON AVENUE
BOSTON, MASSACHUSETTS 02199-7603
LEGAL COUNSEL
HALE AND DORR LLP
60 STATE STREET
BOSTON, MASSACHUSETTS 02109
2
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CHAIRMAN'S MESSAGE
DEAR FELLOW SHAREHOLDERS:
The stock market has certainly put on a show since the start of the year.
Stocks began 1997 on the high wires, bolstered by a near-perfect "Goldilocks"
economy -- not too hot, not too cold. In almost a straight shot, the Dow Jones
Industrial Average soared through the 7000 level for the first time in early
March. Just days later, stocks lost their footing and staged a month-long
free-fall in a nervous reaction to rising interest rates and economic data that
showed the economy was picking up steam. Stocks gave back all of their year's
gain and suffered their worst decline since 1990 during this period. No sooner
had real fears begun to beset investors then they were gone, erased in a
euphoric rally caused by strong earnings and no signs of inflation. By the end
of June, both the Dow and the broader Standard & Poor's 500 Stock Index had
risen by 20% -- a level not many thought the market would reach all year, let
alone in six months. Bondholders have not enjoyed the same bounty, as the bond
market has mostly stayed worried about the strength of the economy, the
direction of interest rates, and the Federal Reserve's next moves to pre-empt
inflation.
But the stock market's latest advance has amazed many analysts and left
them pondering their valuation models, since the market is now more expensive
than it has been in decades. It's impossible to know what will happen next in
the markets. But whether it's another strong move forward or a retreat, we
recommend keeping a long-term perspective, rather than over-focusing on the
market's daily twists and turns. While the economic backdrop seems to remain
near perfect, the one thing we believe investors should be prepared for is more
market volatility. It also makes sense to do something we've always advocated:
set realistic expectations, since, as we've also seen this year, markets can
move down as fast as they go up.
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A 1 1/4" x 1" photo of Edward J. Boudreau Jr., Chairman and Chief Executive
Officer, flush right, next to second paragraph.
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Use this time of heightened volatility as an opportunity to review your
portfolio's asset allocations with your investment professional. After such a
strong advance in equities over the last two and a half years, it could be time
to rebalance your portfolio, if you haven't already, to maintain your desired
targets of diversification. As part of that process, make sure that your
investment strategies still reflect your individual time horizons, objectives
and risk tolerance. Despite turbulence, one thing remains constant. A
well-constructed plan and a cool head can be the best tools for reaching your
financial goals.
Sincerely,
/s/ EDWARD J. BOUDREAU, JR.
EDWARD J. BOUDREAU, JR., CHAIRMAN AND CHIEF EXECUTIVE OFFICER
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BY MIREN ETCHEVERRY, JOHN L.F. WILLS AND
GERARDO J. ESPINOZA, CO-PORTFOLIO MANAGERS
John Hancock
V.A. International Fund
Foreign markets post strong six-month performance;
Latin America leads the way
"Our two largest country holdings remain Japan and Hong Kong."
Many overseas markets produced solid results over the last six months, driven by
moderate economies, mostly steady interest rates and a strong U.S. stock market.
Leading the way were the reform-minded emerging-market countries of Latin
America, followed by Europe. Conversely, much of Asia, particularly the
developing countries of south Asia, remained mired in slow growth and local
banking, property and currency problems.
For the six months ended June 30, 1997, John Hancock V.A. International
Fund posted a total return of 13.80% at net asset value, compared with the
12.13% return of the average variable annuity international fund, according to
Lipper Analytical Services, Inc. Longer-term performance information can be
found on page six.
Hong Kong and Japan
Our two largest country holdings remain Japan and Hong Kong. They both lagged in
the first half of the period, Japan due to continued economic woes, banking
problems and government tax increases, and Hong Kong in response to rising U.S.
rates and fears about the imminent transition to Chinese rule. But both markets
rallied in April, Japan's sparked by the return of domestic pensions and
international fund managers to the equity market after a lengthy absence. In
Hong Kong, transition concerns dissipated and investors became encouraged about
the longer term for both Hong Kong and its impact on China. During the period,
we cut our stakes in both countries, remaining slightly overweighted, compared
to our peers, but taking Japan from 30% in January to 21% in June, and Hong Kong
from 22% to 13%, in order to more broadly diversify the portfolio.
Latin American growth; European selectivity
We benefited from establishing a significant position -- 18% by the end of June
- -- in the
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A 1 3/4" x 3" photo of V.A. International Fund managers. Caption reads: "V.A.
International Fund co-portfolio managers (l-r) Gerardo J. Espinoza, Miren
Etcheverry and John L.F. Wills".
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4
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JOHN HANCOCK V.A. INTERNATIONAL FUND
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Bar chart with the heading "Fund Performance" at top left hand column. A
footnote below states "For the six months ended June 30, 1997." The chart is
scaled in increments of 5% from bottom to top, with 15% at the top and 0% at the
bottom. Within the chart are two solid bars. The first represents the 13.80%
total return for John Hancock V.A. International Fund. The second represents
12.13% total return for theAverage variable annuity international fund." A
footnote below reads: "The total return for John Hancock V.A. International Fund
is at net asset value with all distributions reinvested. The average variable
annuity international fund is tracked by Lipper Analytical Services, Inc. See
the following page for historical performance information.
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emerging markets of Latin America that have embraced economic reform and, in so
doing, unleashed significant investment opportunities. Our largest stake is
Brazil at 9%. Its stock market has soared this year as the positive combination
of political stability, moves toward privatization and economic reform play out.
In Europe, we are being more selective given the increased market
volatility around the move to monetary union. But there are still compelling
opportunities in companies that have embraced the notion of corporate
restructuring. Auto maker Volkswagen is a perfect example. Of the Fund's 28%
stake in Europe, the U.K. is our largest country at 10% of the Fund.
Investment strategy
The Fund seeks long-term growth by investing in stocks of foreign companies
worldwide. In managing the portfolio, we combine top-down country allocation
with bottom-up stock picking. The cornerstone of our process is in-depth
fundamental research, which involves substantial travel to the countries in
which the Fund invests. We have gained an important edge by having a team of
analysts who combined speak more than a dozen languages. In country allocation,
our emphasis is on selecting countries with favorable political trends, growing
economies and improving liquidity dynamics. In stock selection, we emphasize
management quality, sustainable earnings growth and attractive valuations.
Looking ahead
We are optimistic about the prospects for foreign markets over the next year.
Worldwide growth is projected to be 4.5% in 1998, according to International
Monetary Fund data, and that bodes well for foreign stock markets. Going
forward, we plan to diversify the Fund into countries that have less correlation
to moves in the U.S. market as a way to manage risk. We'll stay invested in
emerging markets, which should continue to provide attractive appreciation
potential. In Europe, we will continue to look for good restructuring plays. As
for Asia, we are comfortable with our weightings in Hong Kong and Japan.
Although Japan still faces challenges, we are adequately positioned to capture
any near-term positive developments stemming from the increased attention Japan
is receiving from local and foreign investors. Should Hong Kong's incorporation
into China continue smoothly, that will enhance its position as a major
worldwide financial center.
"We are optimistic about the prospects for foreign markets over the next year."
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International investing involves special risks such as political and currency
risks and differences in accounting standards and financial reporting.
5
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JOHN HANCOCK V.A. INTERNATIONAL FUND
CUMULATIVE TOTAL RETURNS
For the period ended June 30, 1997
LIFE OF
FUND
----
John Hancock V.A. International Fund 28.31%(1,2)
Total return is a performance measure that equals the sum of all income and
capital gains dividends, assuming reinvestment of these distributions, and the
change in price of the Fund's shares, expressed as a percentage of the Fund's
net asset value per share. Performance figures reflect the effects of
investment-related charges on the underlying funds, but do not include insurance
and other charges levied at the separate account level. Remember that all
figures represent past performance and are no guarantee of how the Fund will
perform in the future. Also, keep in mind that the total return and share price
of the Fund's investments will fluctuate. As a result, your Fund's shares may be
worth more or less than their original cost, depending on when you sell them.
Notes to Performance
(1) Commenced operations on August 29, 1996.
(2) The Adviser has agreed to limit the Fund's expenses to 0.25% (not
including management fee) of the Fund's daily average net assets. Without
the limitation of expenses the total return since inception would have
been 27.35%.
WHAT HAPPENED TO
A $10,000 INVESTMENT...
The chart below shows how much a $10,000 investment in the John Hancock V.A.
International Fund would be worth on June 30, 1997, assuming you invested on the
day the Fund started and have reinvested all distributions. For comparison,
we've shown the same $10,000 investment in the Morgan Stanley EAFE Index--an
unmanaged index that measures the performance of stock markets in Europe,
Australia and the Far East.
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Line chart with the heading V.A. International Fund, representing the growth of
a hypothetical $10,000 investment over the life of the fund. Within the chart
are two lines.
The first line represents the value of the hypothetical $10,000 investment made
in the V.A. International Fund on August 29, 1996, before sales charge, and is
equal to $12,831 as of June 30, 1997. The second line represents the value of
the Morgan Stanley EAFE Index and is equal to $11,654 as of June 30, 1997.
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6
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BY JAMES K. SCHMIDT, CFA AND THOMAS FINUCANE,
CO-PORTFOLIO MANAGERS
John Hancock
V.A. Financial Industries Fund
Stock market keeps rising, despite month-long breather;
financial stocks perform well
The stock market astounded many by continuing to climb to record highs during
the first six months of 1997. Despite a month-long downturn sparked by rising
interest rates and inflation fears following the economy's blistering first
quarter growth, the market still managed to post double-digit returns. Stocks,
including financial stocks, were boosted by strong corporate earnings, benign
inflation despite the fears, and a moderate economy overall. For the six months
ended June 30, 1997, the Standard & Poor's Stock Index gained 20.60% including
reinvested dividends.
It was in this ideal environment that we launched John Hancock V.A.
Financial Industries Fund on April 30, 1997. For the two months from inception
through June 30, 1997, the Fund posted a total return of 12.40%. That compared
with the average variable annuity specialty and miscellaneous fund's 10.89%
return for the same period, according to Lipper Analytical Services, Inc.
Investment concept and strategy
The Fund aims for long-term growth of capital by investing in a broad range of
financial services companies worldwide. We look for companies with a positive
earnings outlook that are selling at reasonable valuations. We also seek to
profit from the enormous amount of consolidation occurring across several
industries. National interstate banking regulations have sparked a wave of bank
mergers that we believe will continue. Banks are buying thrifts and brokers, and
brokers are buying each other, as the regulatory environment continues to favor
such moves. In March, for example, the Federal Reserve allowed banks to derive
25% of their business from underwriting stocks and bonds, up from the prior 10%
limit. In fact, we expect the majority of publicly traded brokerage firms will
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A 2 x 3" photo of V.A. Financial Industries Fund management team at bottom
right. Caption below reads: "Fund management team members: (l-r) James Boyd, Jim
Schmidt, Thomas Finucane, Patricia Oimet, Gerard Cronin."
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Fund management team members: (l-r) James Boyd, Jim Schmidt, Thomas Finucane,
Patricia Ouimet, Gerard Gronin
"We seek to profit from the enormous amount of consolidation occurring across
several industries."
7
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JOHN HANCOCK V.A. FINANCIAL INDUSTRIES FUND
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Bar chart with the header "Fund Performance" at top left hand column. A footnote
below states: "For the period April 30, 1997 to June 30, 1997." The chart is
scaled in increments of 5%, with 15% at the top and 0% at the bottom. Within the
chart there are two solid bars. The first represents the 12.40% total return for
John Hancock V.A. Financial Industries Fund. The second represents the10.89%
total return for the Average variable annuity specialty fund. A footnote below
states: "The total return for John Hancock V.A. Financial Industries Fund is at
net asset value with all distributions reinvested. The average variable annuity
specialty and miscellaneous funds are tracked by Lipper Analytical Services,
Inc."
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"Our long-term outlook for financial stocks is very positive."
be acquired by the major commercial banks during the next five years. We think
the trend is toward a repeal or substantial alteration of the Glass-Steagall
Act, thereby allowing a single corporate entity to operate a bank, securities
broker, insurer or finance company. We believe the best way to "play" this
financial deregulation is by investing in a broad spectrum of financial
companies. Consolidation is also beginning to occur in selected countries
overseas, and we expect more opportunities to arise with the increased pace of
privatization of major financial institutions abroad.
Building the Fund
The Fund commenced operations on April 30, 1997 and grew to $2.8 million in
assets by the end of June. We endeavored to invest funds promptly and were
therefore able to take advantage of the general increase in market values during
this two month period. By the end of June, approximately 98% of the Fund's
assets were invested in the common stock of 32 companies. We anticipate the
number of positions to grow to perhaps 100 stocks as the Fund's assets increase.
Despite the short time frame and small number of positions, we have already
experienced a benefit from such consolidation as Unionamerica Holdings, a
London-based specialty property-casualty underwriter that announced an agreement
to be purchased by MMI Companies on June 26.
The biggest sectors in the Fund are commercial banks, insurance and
securities brokers which on a combined basis account for about 73% of our
assets. The stocks in the brokerage industry have been particularly active
lately as they have benefited not only from favorable capital market conditions,
but also from growing interest on the part of banks in making brokerage
acquisitions, as we mentioned above.
Outlook
Our long-term outlook for financial stocks is very positive. We believe the
ongoing consolidation and homogenization of the financial services industry will
continue into the future, and it will remain one of the Fund's driving forces.
This should work to the long-term benefit of our shareholders. In the near term,
financial stocks continue to benefit from the favorable combination of moderate
growth and low inflation. As long as that climate continues, which we expect, we
expect solid earnings growth for the financial group of about 10% this year.
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Sector investing is subject to different, and sometimes greater, risks than the
market as a whole.
8
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JOHN HANCOCK V.A. FINANCIAL INDUSTRIES FUND
CUMULATIVE TOTAL RETURNS
For the period ended June 30, 1997
LIFE OF
FUND
----
John Hancock V.A. Financial Industries Fund 12.40%(1,2)
Total return is a performance measure that equals the sum of all income and
capital gains dividends, assuming reinvestment of these distributions, and the
change in price of the Fund's shares, expressed as a percentage of the Fund's
net asset value per share. Performance figures reflect the effects of
investment-related charges on the underlying funds, but do not include insurance
and other charges levied at the separate account level. Remember that all
figures represent past performance and are no guarantee of how the Fund will
perform in the future. Also, keep in mind that the total return and share price
of the Fund's investments will fluctuate. As a result, your Fund's shares may be
worth more or less than their original cost, depending on when you sell them.
Notes to Performance
(1) Commenced operations on April 30, 1997.
(2) The Adviser has agreed to limit the Fund's expenses to 0.25% (not
including management fee) of the Fund's daily average net assets. Without
the limitation of expenses the total return since inception would have
been 12.12%.
WHAT HAPPENED TO
A $10,000 INVESTMENT...
The chart below shows how much a $10,000 investment in the John Hancock V.A.
Financial Industries Fund would be worth on June 30, 1997, assuming you invested
on the day the Fund started and have reinvested all distributions. For
comparison, we've shown the same $10,000 investment in the Standard & Poor's 500
Stock Index--an unmanaged index that includes 500 widely traded common stocks
and is often used as a measure of stock market performance.
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Line chart with the heading V.A. Financial Industries Fund, representing the
growth of a hypothetical $10,000 investment over the life of the fund. Within
the chart are two lines.
The first line represents the value of the hypothetical $10,000 investment made
in the V.A. Financial Industries Fund on April 30, 1997, before sales charge,
and is equal to $11,240 as of June 30, 1997. The second line represents the
value of the S&P 500 Stock Index and is equal to $11,083 as of June 30, 1997.
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9
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BY BERNICE S. BEHAR, CFA, PORTFOLIO MANAGER
John Hancock
V.A. Emerging Growth Fund
Stock market advances strongly in the last six months;
small-cap stocks lag, then rally
"Small-company growth stocks... experienced a bout of volatility..."
Small-company growth stocks -- which are the focus of John Hancock V.A. Emerging
Growth Fund -- experienced a bout of volatility during the first half of 1997.
With the double threat of higher interest rates and a slower economy looming,
investors were not willing to pay the high prices that small, fast-growing
companies were commanding. Instead, investors migrated toward the more
predictable, largest companies in the Standard & Poor's 500 Stock Index and the
Dow Jones Industrial Average. These stocks accounted for much of the market's
advance for the first four months of the year. But beginning in May, the tide
began to turn for small stocks, as higher interest-rate fears subsided and
economic growth -- although slowing -- appeared to be adequate enough to keep
company profits strong.
Strategy and performance review
The Fund seeks growth by investing primarily in the stocks of rapidly growing
small companies -- those with a total market capitalization of up to $1 billion
- -- with revenue and earnings growth of at least 25% that is consistent or
accelerating. We also look for companies to possess some or all of the following
characteristics: an established record of profitability, a strong financial
position, unique products or services distributed via unique channels, a
dominant or leadership position in their industry and a visionary management
team with a significant equity stake in its company.
For the first four months of the period, this aggressive-growth strategy was
not favored by investors, even though the fundamentals of many of our small
companies remained sound and they met or exceeded their earnings expectations.
The best performing small-company funds were those with a value-oriented
approach. For the six month period ended June 30, 1997, John
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A 2" x 3" photo of V.A. Emerging Growth Fund at bottom right. Caption below
reads: "Bernice Behar (center) and Fund management team members Ben Hock (l) and
Andrew Slabin (r)."
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10
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JOHN HANCOCK V.A. EMERGING GROWTH FUND
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Bar chart with the header "Fund Performance" at top left hand column. A footnote
below states: "For the six months ended June 30, 1997." The chart is scaled in
increments of 2%, with 10% at the top and 0% at the bottom. Within the chart
there are two solid bars. The first represents the 3.86% total return for John
Hancock V.A. Emerging Growth Fund. The second represents 8.11% total return for
the Average variable annuity small company fund. A footnote below states: "The
total return for John Hancock V.A. Emerging Growth Fund is at net asset value
with all distributions reinvested. The average variable annuity small company
fund is tracked by Lipper Analytical Services, Inc. See the following for
historical performance information."
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Hancock V.A. Emerging Growth Fund had a total return of 3.86% at net asset
value, compared with the average variable annuity small company fund's return of
8.11%, according to Lipper Analytical Services, Inc. Longer-term performance
information can be found on page 12. While our growth strategy wasn't recently
in vogue, we have not changed our belief that pursuing fast-growing companies
with steady earnings growth is the best way to realize good results over the
long term.
Our relatively light weighting in financial stocks also curtailed our
performance, since we did not fully participate in the sector's strong showing
during the period. Many financial stocks just don't fit our aggressive-growth
criteria. Those that did were some of our strongest performers, including online
discount broker E*TRADE and money manager Alex Brown & Co., which was recently
acquired by Bankers Trust. We also saw impressive gains from our real
estate-related holdings, including Redwood Trust, which acquires and manages
real-estate mortgage assets, and Starwood Lodging, a hotel REIT.
We kept a relatively heavy weighting in technology stocks, many of which
faltered in the first part of the period only to rebound in May and June. But we
continued to hold onto many of our tech stocks through tough times, because we
believe that they offer some of the most dynamic growth prospects available in
the marketplace today. We were rewarded for our patience with a late spring tech
sector rebound. Comverse Technology, a producer of special purpose computer and
telecommunications systems, came under pressure during the tech sector sell-off,
but rebounded to new highs by the end of June. Another strong performer was
Semtech, which makes components used in the manufacture of semi-conductors. We
also took advantage of the tech sector's weakness to buy some attractive tech
stocks at relatively cheap prices including Advent Software and Visio.
Outlook and strategy
In our view, even with the recent upturn in small-cap stocks many are still
available at compelling prices given their prospects for fast earnings growth.
Since stock prices inevitably follow earnings, we have always believed it was
just a matter of time before investors turned back to these fast-growing
companies. We remain encouraged that the rally that began in May could be the
beginning of a longer, and long overdue, small-cap rebound.
"We kept a relatively heavy weighting in technology stocks..."
11
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JOHN HANCOCK V.A. EMERGING GROWTH FUND
CUMULATIVE TOTAL RETURNS
For the period ended June 30, 1997
LIFE OF
FUND
----
John Hancock V.A. Emerging Growth Fund (3.01%)(1,2)
Total return is a performance measure that equals the sum of all income and
capital gains dividends, assuming reinvestment of these distributions, and the
change in price of the Fund's shares, expressed as a percentage of the Fund's
net asset value per share. Performance figures reflect the effects of
investment-related charges on the underlying funds, but do not include insurance
and other charges levied at the separate account level. Remember that all
figures represent past performance and are no guarantee of how the Fund will
perform in the future. Also, keep in mind that the total return and share price
of the Fund's investments will fluctuate. As a result, your Fund's shares may be
worth more or less than their original cost, depending on when you sell them.
Notes to Performance
(1) Commenced operations on August 29, 1996.
(2) The Adviser has agreed to limit the Fund's expenses to 0.25% (not
including management fee) of the Fund's daily average net assets. Without
the limitation of expenses the total return since inception would have
been (5.60%).
WHAT HAPPENED TO
A $10,000 INVESTMENT...
The chart below shows how much a $10,000 investment in the John Hancock V.A.
Emerging Growth Fund would be worth on June 30, 1997, assuming you invested on
the day the Fund started and have reinvested all distributions. For comparison,
we've shown the same $10,000 investment in the Standard & Poor's 500 Stock
Index--an unmanaged index that includes 500 widely traded common stocks and is
often used as a measure of stock market performance.
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Line chart with the heading V.A. Emerging Growth Fund, representing the growth
of a hypothetical $10,000 investment over the life of the fund. Within the chart
are two lines.
The first line represents the value of the S&P 500 Stock Index and is equal to
$14,090 as of June 30, 1997. The second line represents the value of the
hypothetical $10,000 investment made in the V.A. Emerging Growth Fund on August
29, 1996, before sales charge, and is equal to $9,699 as of June 30, 1997.
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12
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BY BERNICE S. BEHAR, CFA, PORTFOLIO MANAGER
John Hancock
V.A. Discovery Fund
Strong corporate earnings, moderate growth propel
stock market in 1997
Over the last six months, the stock market continued to soar to new heights,
with the Standard & Poor's 500 Stock Index gaining a remarkable 20.60% through
June 30, 1997. Except for a month-long downturn between mid-March and mid-April
when interest rates and inflation fears rose on signs of the economy's
blistering first quarter growth, the climb was ever upward. For the first four
months, the market's advance was restricted mainly to the largest companies in
the S&P and Dow Jones Industrial Average. But after investors' fears about
inflation and rising interest rates subsided in April and the economy's growth
appeared more moderate, the market's bounty broadened.
Strategy and performance review
The Fund seeks growth by investing primarily in the stocks of rapidly growing
companies of all sizes that have superior prospects for revenue and earnings
growth that is consistent or accelerating. We also look for companies that
possess some or all of the following characteristics: an established record of
profitability, a strong financial position, unique products or services
distributed through unique channels, a dominant or leadership position in their
industry and a management team with a significant equity stake in its company.
During much of the period, this strategy of targeting rapidly growing
companies was less in favor than a more value-oriented investment approach, and
that held back the Fund's performance relative to its peers. For the six months
ended June 30, 1997, the Fund had a total return of 0.21% at net asset value,
trailing the average variable annuity growth fund's return of 13.57%, according
to Lipper Analytical Services, Inc. Longer-term performance information can be
found on page 15. We also attribute the Fund's modest result to our much
- --------------------------------------------------------------------------------
A 2" x 3" photo of V.A. Discovery Fund team at bottom right. Caption below
reads: "Bernice Behar and Fund management team members (l-r) Rob Hallisey,
Anurag Pandit, Andrew T. Slabin."
- --------------------------------------------------------------------------------
"Our overweighted technology position proved to be a mixed bag."
13
<PAGE>
================================================================================
JOHN HANCOCK V.A. DISCOVERY FUND
"We'll continue our search for fast-growing companies of all sizes..."
- --------------------------------------------------------------------------------
Bar chart with the header "Fund Performance" at top left hand column. A footnote
below states: "For the six months ended June 30, 1997." The chart is scaled in
increments of 5%, with 15% at the top and 0% at the bottom. Within the chart
there are two solid bars. The first represents the 0.21% total return for the
John Hancock V.A. Discovery Fund. The second represents the 13.57% total return
for the Average variable annuity growth fund. A footnote below states: "The
total return for John Hancock V.A. Discovery Fund is at net asset value with all
distributions reinvested. The average variable annuity growth fund is tracked by
Lipper Analytical Services, Inc. See the following page for historical
performance information."
- --------------------------------------------------------------------------------
smaller weighting than many of our peers in financial stocks. Many financial
companies aren't growing fast enough to meet our earnings growth criteria, so we
didn't participate fully in this group's strong performance. But we did have
some winners including E*TRADE, a fast-growing on-line brokerage company, and
Medallion Financial, which lends money to taxi owners and sells advertising
space in those taxis.
Our overweighted technology position proved to be a mixed bag. Technology
stocks suffered earlier in the year -- and held back the Fund's performance --
due to fears that the demand for networking products and services was slowing.
That, coupled with a strong U.S. dollar causing unfavorable currency trends for
technology exporters, called the growth prospects of the entire tech sector into
question. Despite the turbulence, we held onto many of our tech stocks and added
new holdings at attractive prices, since we believe that the technology group
continues to offer some of the market's most exciting growth prospects. Our
patience was rewarded when the dollar weakened in May and investors became more
enthusiastic about the group. A good example was Comverse Technology, which
produces special-purpose computer and telecommunication systems and was one of
our top holdings. It came under pressure in the first several months of 1997,
but had rebounded to new highs by the end of the period. Other strong technology
performers included Semtech Corp., which makes components for semiconductor
manufacturing companies, and America OnLine, which enjoyed a spring rebound
after we had bought it at cheap levels.
Throughout the period we looked for companies with above-average earnings
growth that we believe can benefit from continued strong -- albeit slightly
weaker -- economic growth. They included Newpark Resources, which cleans up
industrial and oil drilling sites, ITEQ, manufacturer of air-pollution-control
systems and components and Central Newspapers, one of the fastest-growing
publicly held newspaper companies. We also added Home Depot, the building
materials and home-improvement product retailer that dominates its market.
Outlook
We believe many growth stocks are currently priced at attractive levels given
their earnings growth rates. We'll continue our search for fast-growing
companies of all sizes that meet our requirements for strong and steady earnings
growth.
14
<PAGE>
================================================================================
JOHN HANCOCK V.A. DISCOVERY FUND
CUMULATIVE TOTAL RETURNS
For the period ended June 30, 1997
LIFE OF
FUND
----
John Hancock V.A. Discovery Fund (5.90%)(1,2)
Total return is a performance measure that equals the sum of all income and
capital gains dividends, assuming reinvestment of these distributions, and the
change in price of the Fund's shares, expressed as a percentage of the Fund's
net asset value per share. Performance figures reflect the effects of
investment-related charges on the underlying funds, but do not include insurance
and other charges levied at the separate account level. Remember that all
figures represent past performance and are no guarantee of how the Fund will
perform in the future. Also, keep in mind that the total return and share price
of the Fund's investments will fluctuate. As a result, your Fund's shares may be
worth more or less than their original cost, depending on when you sell them.
Notes to Performance
(1) Commenced operations on August 29, 1996.
(2) The Adviser has agreed to limit the Fund's expenses to 0.25% (not including
management fee) of the Fund's daily average net assets. Without the
limitation of expenses the total return since inception would have been
(7.92%).
WHAT HAPPENED TO
A $10,000 INVESTMENT...
The chart below shows how much a $10,000 investment in the John Hancock V.A.
Discovery Fund would be worth on June 30, 1997, assuming you invested on the day
the Fund started and have reinvested all distributions. For comparison, we've
shown the same $10,000 investment in the Standard & Poor's 500 Stock Index--an
unmanaged index that includes 500 widely traded common stocks and is often used
as a measure of stock market performance.
- --------------------------------------------------------------------------------
Line chart with the heading V.A. Discovery Fund, representing the growth of a
hypothetical $10,000 investment over the life of the fund. Within the chart are
two lines.
The first line represents the value of the hypothetical $10,000 investment made
in the S&P 500 Stock Index on August 29, 1996, and is equal to $14,090 as of
June 30, 1997. The second line represents the value of the V.A. Discovery Fund,
before sales charge, and is equal to $9,410 as of June 30, 1997.
- --------------------------------------------------------------------------------
15
<PAGE>
================================================================================
BY STEPHEN LANZENDORF, FOR THE PORTFOLIO MANAGEMENT TEAM
John Hancock V.A.
Independence Equity Fund
Stock market surges ahead over the last six months,
dominated by largest companies
"...the Fund benefited from its holdings in some of the larger company
stocks..."
Stocks continued their bull market charge over the last six months to the
amazement of many, coming on the heels of a record-breaking 1996. Prompted by
near-ideal economic conditions -- moderate growth and benign inflation -- both
the Dow Jones Industrial Average and the Standard & Poor's 500 Stock Index
advanced to record levels by the end of June. The market's strong performance,
however, was dominated by the largest companies of the Dow and the S&P.
Investors were drawn to these predictable and liquid companies in the face of
uncertainties about the direction of the economy and interest rates.
For the first six months of the year, the S&P 500 advanced 20.60%, including
reinvested dividends. John Hancock V.A. Independence Equity Fund also produced
very strong returns. For the six months ended June 30, 1997, the Fund posted a
total return of 16.27% at net asset value, compared with 15.81% for the average
variable annuity growth and income fund, according to Lipper Analytical
Services, Inc. Longer-term performance information can be found on page 18.
Strategy and performance review
The Fund seeks above-average total return, consisting of capital appreciation
and income. Using a disciplined investment strategy that combines computer
modeling and fundamental research analysis, we strive to create a diversified
portfolio one stock at a time that has a risk profile comparable to that of the
S&P 500. Our goal is to find companies with improving earnings prospects and
inexpensive stock prices. In our in-depth research process, we look at measures
like earnings growth, sales projections,
- --------------------------------------------------------------------------------
A 2" x 3" photo of V.A. Independence Equity Fund management team at bottom
right. Caption below reads: "V.A. Independence Equity Fund management team
members: (l-r) Coreen Kraysler, David Canavan, Jane Shigley, Jeff Saef and
Stephen Lanzendorf."
- --------------------------------------------------------------------------------
16
<PAGE>
================================================================================
JOHN HANCOCK V.A. INDEPENDENCE EQUITY FUND
- --------------------------------------------------------------------------------
Bar chart with the header "Fund Performance" at top left hand column. A footnote
below states: "For the six months ended June 30, 1997." The chart is scaled in
increments of 5%, with 20% at the top and 0% at the bottom. Within the chart
there are two solid bars. The first represents the 16.27% total return for the
John Hancock V.A. Independence Equity Fund. The second represents the 15.81%
total return for the Average variable annuity growth and income fund. A footnote
below states: "The total return for John Hancock V.A. Independence Equity Fund
is at net asset value with all distributions reinvested. The average variable
annuity growth and income fund is tracked by Lipper Analytical Services, Inc.
See the following page for historical performance information."
- --------------------------------------------------------------------------------
cash flow and dividends. From that, we come up with earnings and growth
estimates. Then, our computer modeling digests this data to generate a ranking
of stocks from most to least attractive, based on both cheapness and improving
fundamentals.
Over the last six months, the Fund benefited from its holdings in some of the
larger company stocks that were among the market leaders, including Home Depot
and Procter & Gamble. Other top Fund performers included United Technologies,
Pitney Bowes and technology company Lucent Technologies, an AT&T spin-off.
The financial and health-care sectors were two of the largest contributors to
the Fund's performance. The financial area -- including banks, insurance
companies and brokerage firms -- was boosted by continuing industry
consolidation, strong earnings growth and the more positive interest-rate
environment that followed a brief rate spike in the spring. Some of our best
performers were the larger banks including BankAmerica, NationsBank and Norwest,
and insurance company CIGNA. Our large pharmaceutical company stocks continue to
be propelled by strong new product flow and industry consolidation. Companies
such as Johnson & Johnson, Merck, Abbot Labs and Glaxo Wellcome have seen strong
and predictable growth in both sales and earnings.
On the other hand, our energy stocks, including Phillips Petroleum and
Unocal, were lackluster during the period due to a milder-than-expected winter
that kept demand and oil prices down. By far our biggest disappointment was
AT&T, which we sold after concluding that far more time and money would be
needed to see the telephone giant reach the results it had expected after its
breakup more than a year ago.
A look ahead
Our outlook for stocks is mostly positive, with a note of caution. Assuming that
the economic backdrop remains the same -- moderate growth, steady interest rates
and low inflation -- we believe there's still room for the market to advance.
But our short-term caution comes from the fact that the market is more
vulnerable now to any unexpected changes, given that stock prices already
reflect a nirvana-like environment. No matter what the market does next, we'll
stick to creating a diversified portfolio of stocks that are inexpensive with
improving fundamentals. We believe it is the best way to manage risk and produce
results for investors over the long term.
"Our outlook for stocks is mostly positive..."
17
<PAGE>
================================================================================
JOHN HANCOCK V.A. INDEPENDENCE EQUITY FUND
CUMULATIVE TOTAL RETURNS
For the period ended June 30, 1997
LIFE OF
FUND
----
John Hancock V.A. Independence Equity Fund 29.97%(1,2)
Total return is a performance measure that equals the sum of all income and
capital gains dividends, assuming reinvestment of these distributions, and the
change in price of the Fund's shares, expressed as a percentage of the Fund's
net asset value per share. Performance figures reflect the effects of
investment-related charges on the underlying funds, but do not include insurance
and other charges levied at the separate account level. Remember that all
figures represent past performance and are no guarantee of how the Fund will
perform in the future. Also, keep in mind that the total return and share price
of the Fund's investments will fluctuate. As a result, your Fund's shares may be
worth more or less than their original cost, depending on when you sell them.
Notes to Performance
(1) Commenced operations on August 29, 1996.
(2) The Adviser has agreed to limit the Fund's expenses to 0.25% (not including
management fee) of the Fund's daily average net assets. Without the
limitation of expenses the total return since inception would have been
28.38%.
WHAT HAPPENED TO
A $10,000 INVESTMENT...
The chart below shows how much a $10,000 investment in the John Hancock V.A.
Independence Equity Fund would be worth on June 30, 1997, assuming you invested
on the day the Fund started and have reinvested all distributions. For
comparison, we've shown the same $10,000 investment in the Standard & Poor's 500
Stock Index--an unmanaged index that includes 500 widely traded common stocks
and is often used as a measure of stock market performance.
- --------------------------------------------------------------------------------
Line chart with the heading V.A. Independence Equity Fund, representing the
growth of a hypothetical $10,000 investment over the life of the fund. Within
the chart are two lines.
The first line represents the value of the hypothetical $10,000 investment made
in the S&P 500 Stock Index on August 29, 1996, and is equal to $14,090 as of
June 30, 1997. The second line represents the value of the V.A. Independence
Equity Fund, before sales charge, and is equal to $12,997 as of June 30, 1997.
- --------------------------------------------------------------------------------
18
<PAGE>
================================================================================
BY ANNE MCDONLEY, FOR THE RISK MANAGEMENT GROUP
John Hancock
V.A. 500 Index Fund
Standard & Poor's 500 Stock Index reaches new highs
The performance of the S&P 500 Stock Index defied many market observers by
continuing to post successive new highs in the first half of 1997. From December
31, 1996 through June 30, 1997, the S&P 500 Stock Index gained 20.60%. Except
for a brief period in March and April, its climb was uninterrupted. Fueled by a
combination of strong corporate earnings, moderate economic growth and a
relatively benign inflation outlook and their popularity among both individual
and institutional investors, the large company S&P 500 stocks handily outpaced
their small-company counterparts. While all stocks pulled back between mid-March
and mid-April when investors worried that inflation was going to be more of a
problem than it had been, they quickly snapped back in May and continued rising
through the end of June. But not all stocks in the index shared equally in the
index's success. Because the S&P 500 is a capitalization-weighted index, the
larger companies accounted for more of its performance. And during the past six
months, it was the best-known, largest companies that performed exceedingly
well, while some lesser-known large and mid-sized companies posted less
impressive gains or languished.
For the six month period ending June 30, 1997, John Hancock V.A. 500 Index
Fund had a total return of 18.08%. By comparison, the average variable annuity
S&P 500 index objective fund had a total return of 20.20%, according to Lipper
Analytical Services, Inc. Longer-term performance information can be found on
page 21.
Strategy explained
The Fund normally invests at least 80% of its total assets in common stocks of
the companies that comprise the Standard & Poor's 500 Stock Index. The Fund
tries to allocate the stocks held in its portfolio in approximately the same
proportions as they are represented in the S&P 500 Stock Index. That helps to
minimize the degree to which the Fund's investment results (before Fund
expenses) differ from those of the index. The degree to which the Fund's
performance correlates with that of the S&P Stock Index will depend upon the
size and cash flows of the
- --------------------------------------------------------------------------------
A 2" x 2 1/2" photo of Anne McDonley. Caption reads: "Anne McDonley".
- --------------------------------------------------------------------------------
"...it was the best-known, largest companies that performed exceedingly well."
19
<PAGE>
================================================================================
JOHN HANCOCK V.A. 500 INDEX FUND
"...our strategy is to choose stocks that will help
us closely track the performance of the S&P 500 Stock Index."
- --------------------------------------------------------------------------------
Bar chart with the header "Fund Performance" at top left hand column. A footnote
below states: "For the six months ended June 30, 1997." The chart is scaled in
increments of 5%, with 25% at the top and 0% at the bottom. Within the chart
there are two solid bars. The first represents the 18.08% total return for the
John Hancock V.A. 500 Index Fund. The second represents the 20.20% total return
for the Average variable annuity S&P 500 Index fund. A footnote below states:
"The total return for John Hancock V.A. 500 Index Fund is at net asset value
with all distributions reinvested. The average variable annuity S&P 500 Index
objective fund is tracked by Lipper Analytical Services, Inc. See the following
page for historical performance information."
- --------------------------------------------------------------------------------
Fund, the liquidity of the securities represented in the index and the Fund's
expenses, among other factors. There is no fixed number of stocks in which the
Fund will invest, and we generally rebalance the portfolio monthly or when there
are changes to the underlying index.
Throughout the past six months, the Fund was still in its early stages,
building up assets as new money came in. During most of that period, the
transaction costs associated with buying individual stocks would have
significantly eaten away at the Fund's total return. So until the Fund got large
enough to efficiently buy stocks, we bought S&P 500 Stock Index futures as a
proxy for the stocks in the index. By using futures, we were able to participate
in the S&P 500 Stock Index's advance without incurring excess costs.
In mid-June, the Fund's total assets had grown to a level that allowed us to
purchase individual holdings at reasonable costs. We do not buy each of the 500
stocks that comprise the index, again because the costs of doing so likely would
compromise our total return -- even with a larger asset base. What's more, the
cost of buying odd lots -- less than 100 shares -- of smaller index components
typically are quite high. So we use a strategy known as sampling, which entails
assembling a portfolio of individual stocks that replicates the characteristics
of the S&P 500 Stock Index -- including industry classification, volatility,
earnings per share, and other factors. During the past six months we bought 370
stocks; 220 of those are considered "core holdings" and are generally the
largest-weighted stocks in the group. As such, they account for a large portion
of the index's return. The other 146 stocks we bought were added based on their
ability to replicate the remaining 280 stocks in the S&P.
Outlook
As always, the Fund's returns will be dictated by the performance of the S&P 500
Stock Index. It's important for shareholders to realize that the S&P 500 Stock
Index's performance so far this year has been extremely strong, especially when
viewed from a historical basis. S&P index mutual funds aren't immune to market
downdrafts, and they will go up and down with the underlying index. But no
matter what the market environment, our strategy is to choose stocks that will
help us closely track the performance of the S&P 500 Stock Index.
20
<PAGE>
================================================================================
JOHN HANCOCK V.A. 500 INDEX FUND
CUMULATIVE TOTAL RETURNS
For the period ended June 30, 1997
LIFE OF
FUND
----
John Hancock V.A. 500 Index Fund 31.65%(1,2)
Total return is a performance measure that equals the sum of all income and
capital gains dividends, assuming reinvestment of these distributions, and the
change in price of the Fund's shares, expressed as a percentage of the Fund's
net asset value per share. Performance figures reflect the effects of
investment-related charges on the underlying funds, but do not include insurance
and other charges levied at the separate account level. Remember that all
figures represent past performance and are no guarantee of how the Fund will
perform in the future. Also, keep in mind that the total return and share price
of the Fund's investments will fluctuate. As a result, your Fund's shares may be
worth more or less than their original cost, depending on when you sell them.
Notes to Performance
(1) Commenced operations on August 29, 1996.
(2) The Adviser has agreed to limit the Fund's expenses to 0.25% (not including
management fee) of the Fund's daily average net assets. Without the
limitation of expenses the total return since inception would have been
31.30%.
WHAT HAPPENED TO
A $10,000 INVESTMENT...
The chart below shows how much a $10,000 investment in the John Hancock V.A. 500
Index Fund would be worth on June 30, 1997, assuming you invested on the day the
Fund started and have reinvested all distributions. For comparison, we've shown
the same $10,000 investment in the Standard & Poor's 500 Stock Index--an
unmanaged index that includes 500 widely traded common stocks and is often used
as a measure of stock market performance.
- --------------------------------------------------------------------------------
Line chart with the heading V.A. 500 Index Fund, representing the growth of a
hypothetical $10,000 investment over the life of the fund. Within the chart are
two lines.
The first line represents the value of the hypothetical $10,000 investment made
in the S&P 500 Stock Index on August 29, 1996, and is equal to $14,090 as of
June 30, 1997. The second line represents the value of the the V.A. 500 Index
Fund, before sales charge, and is equal to $13,165 as of June 30, 1997.
- --------------------------------------------------------------------------------
21
<PAGE>
================================================================================
BY JOHN F. SNYDER III AND BARRY EVANS, CFA
CO-PORTFOLIO MANAGERS
John Hancock
V.A. Sovereign Investors Fund
Fund debuts in strong market environment
"...moderate growth and tame inflation... fueled a stock market rally..."
It doesn't get much better than this for stock investors. Halfway into 1997, the
Standard & Poor's 500 Stock Index and the Dow Jones Industrial Average have
racked up gains of nearly 21%. And that comes on the heels of a spectacular year
in 1996 when most major market indices posted returns well in excess of 20%. The
year got off to a bumpy start as investors fretted that a robust U.S. economy
and spiraling inflation would prompt a series of interest-rate increases by the
Federal Reserve Bank. Following the Fed's initial rate hike in March, however,
strong evidence of a slowing economy helped investors shake off their
inflationary fears. The potent combination of moderate growth and tame inflation
- -- in addition to ample market liquidity and continued strong corporate earnings
- -- fueled a stock market rally that lasted through the end of the period.
Investment strategy
John Hancock V.A. Sovereign Investors Fund's stock investments are exclusively
in what we call "dividend achievers" -- that is, companies that have raised
their dividends consecutively for at least the last 10 years. The theory is
simple. Rising dividends are usually a result of rising earnings, which are the
best indicator of a stock's price over the long term. We believe that "dividend
achievers" companies offer consistent, predictable and visible earnings growth.
There are fewer than 400 companies that meet these investment criteria. From
this universe, we target companies that are -- and will remain -- leaders in
their industry. As competitive forces diminish pricing power, companies must
find other ways to grow earnings. We look for those companies that are gaining
market share, aggressively restructuring their businesses, or expanding
globally.
Performance scorecard
For the six months ended June 30, 1997, John Hancock V.A. Sovereign Investors
Fund returned
- --------------------------------------------------------------------------------
A 2" x 3" photo of V.A. Sovereign Investors Fund management team at bottom
right. Caption below reads: "V.A. Sovereign Investors Fund management team
members: (l-r) John Snyder, Barry Evans, Jere Estes."
- --------------------------------------------------------------------------------
22
<PAGE>
================================================================================
JOHN HANCOCK V.A. SOVEREIGN INVESTORS FUND
- --------------------------------------------------------------------------------
Bar chart with the header "Fund Performance" at top left hand column. A footnote
below states: "For the six months ended June 30, 1997." The chart is scaled in
increments of 5%, with 20% at the top and 0% at the bottom. Within the chart
there are two solid bars. The first represents the 14.40% total return for the
John Hancock V.A. Sovereign Investors Fund. The second represents the 16.83%
total return for the Average variable annuity equity income fund. A footnote
below states: "The total return for John Hancock V.A. Sovereign Investors Fund
is at net asset with all distributions reinvested. The average variable annuity
equity income fund is tracked by Lipper Analytical Serivices, Inc. See the
following page for historical performance information."
- --------------------------------------------------------------------------------
14.40% at net asset value. By comparison, the average variable annuity equity
income fund returned 16.83%, according to Lipper Analytical Services, Inc.
Please see page 24 for longer-term performance information.
Given the strong performance of stocks in the first half of the year, our 6%
position in bonds, while providing stability, detracted somewhat from the Fund's
overall performance. In addition, Ikon Office Solutions and Rockwell
International disappointed us. Ikon, which was recently spun off from former
office supply company Alco Standard, has suffered from higher-than-expected
transition costs and employee turnover in some foreign operations. For Rockwell
International, heavy publicity surrounding price competition in the company's
semiconductor business has put pressure on the stock. However, semiconductors
comprise only about 20% of Rockwell's revenues. Once investors recognize this,
we are confident that the stock will bounce back.
The Fund's largest holdings, however, were among our best performers. Buoyed
by successful new product developments and strong underlying fundamentals,
pharmaceutical giants Eli Lilly and Johnson & Johnson posted attractive returns.
Gannett Co., the publisher of USA Today, was another winner. The media giant
benefited not only from increased advertising revenues, but also declining paper
costs.
Outlook
Looking ahead, we're still optimistic about stocks, even at their current
levels. Having said that, however, we caution investors to temper their
expectations for the future. It is unrealistic to expect that stocks will
continue to rack up returns of 20% and more -- as we saw in 1996 and the first
half of 1997. Eventually, stock returns will drop back to their historical
levels of 8% to 10% annually.
Now more than ever, investors will have to be more selective in their stock
selection. If higher interest rates begin to take hold in the second half of the
year, we expect that the economy and, in turn, corporate profits will start to
weaken. In that event, we're likely to see more earnings disappointments as 1997
progresses. Companies that can grow earnings in the double digits will be few
and far between. It will be critical to invest in those stable, high-quality
growth companies with clear industry leadership. In this economic environment,
our "dividend achievers" are likely to maintain an important competitive
advantage.
"...we're still optimistic about stocks, even at their current levels."
23
<PAGE>
================================================================================
JOHN HANCOCK V.A. SOVEREIGN INVESTORS FUND
CUMULATIVE TOTAL RETURNS
For the period ended June 30, 1997
LIFE OF
FUND
----
John Hancock V.A. Sovereign Investors Fund 23.89%(1,2)
Total return is a performance measure that equals the sum of all income and
capital gains dividends, assuming reinvestment of these distributions, and the
change in price of the Fund's shares, expressed as a percentage of the Fund's
net asset value per share. Performance figures reflect the effects of
investment-related charges on the underlying funds, but do not include insurance
and other charges levied at the separate account level. Remember that all
figures represent past performance and are no guarantee of how the Fund will
perform in the future. Also, keep in mind that the total return and share price
of the Fund's investments will fluctuate. As a result, your Fund's shares may be
worth more or less than their original cost, depending on when you sell them.
Notes to Performance
(1) Commenced operations on August 29, 1996.
(2) The Adviser has agreed to limit the Fund's expenses to 0.25% (not including
management fee) of the Fund's daily average net assets. Without the
limitation of expenses the total return since inception would have been
22.68%.
WHAT HAPPENED TO
A $10,000 INVESTMENT...
The chart below shows how much a $10,000 investment in the John Hancock V.A.
Sovereign Investors Fund would be worth on June 30, 1997, assuming you invested
on the day the Fund started and have reinvested all distributions. For
comparison, we've shown the same $10,000 investment in the Standard & Poor's 500
Stock Index--an unmanaged index that includes 500 widely traded common stocks
and is often used as a measure of stock market performance.
- --------------------------------------------------------------------------------
Line chart with the heading V.A. Sovereign Investors Fund, representing the
growth of a hypothetical $10,000 investment over the life of the fund. Within
the chart are two lines.
The first line represents the value of the hypothetical $10,000 investment made
in the S&P 500 Stock Index on August 29, 1996, and is equal to $14,090 as of
June 30, 1997. The second line represents the value of the V.A. Sovereign
Investors Fund, before sales charge, and is equal to $12,389 as of June 30,
1997.
- --------------------------------------------------------------------------------
24
<PAGE>
================================================================================
BY LAWRENCE J. DALY, ANTHONY A. GOODCHILD AND
JANET L. CLAY, CO-PORTFOLIO MANAGERS
John Hancock
V.A. World Bond Fund
Lackluster six months for world bond markets
Global bond markets continued their roller coaster ride of interest-rate
uncertainty during the first half of the year -- led primarily by the U.S. bond
market. Early on, moderate growth and tame inflation provided a strong tailwind
for U.S. bonds. Signs of stronger economic growth in early March, however,
rekindled inflation fears and sent bond prices falling. Things got worse when
the Federal Reserve raised interest rates on March 25, 1997. Then in mid-April,
the bond market reversed course once again in response to more positive
inflation news. U.S. bonds staged a remarkable recovery, erasing almost all of
their losses.
The U.S. bond market's woes reverberated through many emerging markets. The
Fed's interest-rate hike interrupted the nearly year-long rally in emerging
markets and sparked a wave of selling. The pressure, however, subsided with the
recovery in the U.S.
European markets not only suffered from the U.S. sell-off, but also from
concerns about the outcome of the European Economic and Monetary Union (EMU). In
addition, elections in France and the U.K. -- both of which ousted long-standing
incumbent parties -- added to market volatility.
Performance review
The net result of the market volatility was lackluster performance for global
bond investors. For the six months ended June 30,1997, John Hancock V.A. World
Bond Fund returned -0.23% at net asset value. By comparison, the average
variable annuity global income fund had a total return of 1.73%, according to
Lipper Analytical Services, Inc. Longer-term performance can be found on page
27.
The difference in performance was due to our relatively small position in
emerging markets. Although we increased our emerging-market stake during the
period, prospectus limitations prohibit us from investing as much as other
global income funds. In addition, the Fund's holdings
- --------------------------------------------------------------------------------
A 2" x 3" photo of V.A. World Bond Fund team members. Caption reads: "Tony
Goodchild, Janet Clay, Larry Daly, co-portfolio managers."
- --------------------------------------------------------------------------------
"The net result of the market volatility was lackluster performance..."
25
<PAGE>
================================================================================
JOHN HANCOCK V.A. WORLD BOND FUND
"...we look for opportunities in bonds around the globe."
- --------------------------------------------------------------------------------
Bar chart with the header "Fund Performance" at top left hand column. A footnote
below states: "For the six months ended June 30, 1997." The chart is scaled in
increments of 1%, with 2% at the top and -2% at the bottom. Within the chart
there are two solid bars. The first represents the -0.23% total return for the
John Hancock V.A. World Bond Fund. The second represents the 1.73% total return
for the Average variable annuity global income fund. A footnote below states:
"The total return for John Hancock V.A. World Bond Fund is at net asset with all
distributions reinvested. The average variable annuity global income fund is
tracked by Lipper Analytical Services, Inc. See the following page for
historical performance information."
- --------------------------------------------------------------------------------
in Japanese bonds underperformed and were subsequently eliminated from the
portfolio.
Investment strategy
In selecting investments, we look for opportunities in bonds around the globe.
We assess the global economic environment to determine the relative
attractiveness of different countries and to establish global bond and currency
scenarios. From there, we determine the optimal country mix for the portfolio.
o EUROPE. We've pared our position in Europe in favor of the U.S., Australia,
New Zealand and emerging markets. In particular, we've cut back on so-called
"peripheral" markets -- such as Italy and Spain -- which are most likely to
be impacted by the uncertainty surrounding the outcome of the EMU. We have,
however, maintained a strong 7% position in the U.K., which will remain
outside the economic union.
o EMERGING MARKETS. By the end of June, emerging markets totaled 31% of the
portfolio, up from 19% at the start of the year. We believe that the
long-term trends of increasing political stability and improving fiscal
conditions clearly favor these markets. Our focus is on U.S.
dollar-denominated government bonds in Latin American markets such as Mexico,
Argentina, Brazil and Venezuela.
o UNITED STATES. The convergence in yields between Europe and the U.S. has
swung the risk/reward balance in favor of the U.S. As a result, we've beefed
up our U.S. Treasury holdings to 44% -- mostly in the five-year maturity
range.
o AUSTRALIA/NEW ZEALAND. Bonds in these markets not only offer an attractive
yield advantage over U.S. bonds, but they're also benefiting from falling
interest rates. As a result, we've invested roughly 11% of the Fund in
Australia and New Zealand.
Outlook
Overall, we are relatively optimistic about the worldwide inflationary outlook.
The inflation rate in the U.S. -- which is one of the highest in the developed
world -- is running around 3%. Inflation is much lower throughout Europe, mostly
in the 2% to 3% range. As for emerging markets, steady economic growth and
responsible fiscal policies have kept a lid on inflation. With growth slowing in
the U.S. and many European economies just emerging from recession, there's
little upward pressure on prices around the world. That bodes well for world
bond investors.
- --------------------------------------------------------------------------------
International investing involves special risks such as political and currency
risks and differences in accounting standards and financial reporting.
26
<PAGE>
================================================================================
JOHN HANCOCK V.A. WORLD BOND FUND
CUMULATIVE TOTAL RETURNS
For the period ended June 30, 1997
LIFE OF
FUND
----
John Hancock V.A. World Bond Fund 3.80%(1,2)
Total return is a performance measure that equals the sum of all income and
capital gains dividends, assuming reinvestment of these distributions, and the
change in price of the Fund's shares, expressed as a percentage of the Fund's
net asset value per share. Performance figures reflect the effects of
investment-related charges on the underlying funds, but do not include insurance
and other charges levied at the separate account level. Remember that all
figures represent past performance and are no guarantee of how the Fund will
perform in the future. Also, keep in mind that the total return and share price
of the Fund's investments will fluctuate. As a result, your Fund's shares may be
worth more or less than their original cost, depending on when you sell them.
Notes to Performance
(1) Commenced operations on August 29, 1996.
(2) The Adviser has agreed to limit the Fund's expenses to 0.25% (not including
management fee) of the Fund's daily average net assets. Without the
limitation of expenses the total return since inception would have been
2.59%.
WHAT HAPPENED TO
A $10,000 INVESTMENT...
The chart below shows how much a $10,000 investment in the John Hancock V.A.
World Bond Fund would be worth on June 30, 1997, assuming you invested on the
day the Fund started and have reinvested all distributions. For comparison,
we've shown the same $10,000 investment in the Salomon Brothers World Government
Bond Index--an unmanaged index that provides a benchmark bond market performance
on a worldwide basis.
- --------------------------------------------------------------------------------
Line chart with the heading V.A. World Bond Fund, representing the growth of a
hypothetical $10,000 investment over the life of the fund. Within the chart are
two lines.
The first line represents the value of the hypothetical $10,000 investment made
in the V.A. World Bond Fund, before sales charge, and is equal to $10,381 as of
June 30, 1997. The second line represents the value of the Salmon Brothers World
Government Bond Index on August 29, 1996, and is equal to $10,193 as of June 30,
1997.
- --------------------------------------------------------------------------------
27
<PAGE>
================================================================================
BY FREDERICK CAVANAUGH, PORTFOLIO MANAGER
John Hancock
V.A. Strategic Income Fund
High-yield bonds, emerging markets outpace U.S. Treasuries
"...a flexible investment strategy allows us to invest across three bond
categories..."
High-yield corporate bonds -- issued by companies whose credit ratings are
deemed below investment grade -- were the bond market's big winners over the
past six months. The demand for high-yield bonds was quite good, thanks in part
to the impressive earnings gains posted by many high-yield companies.
Emerging-market government and corporate bonds also posted strong gains as these
countries continued to make economic and policy advances. U.S. Treasury bonds,
on the other hand, made little progress because they were plagued by fears of
rising interest rates and higher inflation.
Performance and strategy review
For the six month period ended June 30, 1997, John Hancock V. A. Strategic
Income Fund posted a total return of 5.81% at net asset value. According to
Lipper Analytical Services, those returns beat the average variable annuity
general bond fund's return of 3.64%. For longer-term performance information,
please see page 30.
The Fund seeks to attain a high level of current income, with relative price
stability, through a flexible investment strategy that allows us to invest
across three bond categories -- higher-yielding, lower-rated corporate bonds;
foreign bonds and U.S. government securities. That level of diversity helps the
Fund in its efforts to maximize income and manage interest-rate, credit and
currency risk. We manage the Fund to have an average credit rating of
investment-grade, using U.S. Treasury securities and high-quality foreign bonds
to offset lower-rated corporate and emerging-market holdings.
High-yield bonds post strong gains
Throughout the period, we built our stake in high-yield corporate bonds. One of
our best performers was Nextel, a telecommunications company that experienced
strong subscriber growth and rising demand for its combination paging, cellular
and dispatch unit. We also found opportunities in high-yield bonds issued by
- --------------------------------------------------------------------------------
A 2" x 3" photo of V.A. Strategic Income Fund team members. Caption reads:
"Frederick Cavanaugh (left) and Fund management team members (l-r) Linda
Carteer, Jamie kellog and Arthur Calavatrinos."
- --------------------------------------------------------------------------------
28
<PAGE>
================================================================================
JOHN HANCOCK V.A. STRATEGIC INCOME FUND
- --------------------------------------------------------------------------------
Bar chart with the header "Fund Performance" at top left hand column. A footnote
below states: "For the six months ended June 30, 1997." The chart is scaled in
increments of 2%, with 6% at the top and 0% at the bottom. Within the chart
there are two solid bars. The first represents the 5.81% total return for the
John Hancock V.A. Strategic Income Fund. The second represents the 3.64% total
return for the Average variable annuity general bond fund. A footnote below
states: "The total return for John Hancock V.A. Strategic Income Fund is at net
asset value with all distributions reinvested. The average variable annuity
general bond fund is tracked by Lipper Analytical Services, Inc. See the
following page for historical performance information."
- --------------------------------------------------------------------------------
foreign companies, who often turn to the U.S. high-yield market for their debt
financing needs. Many of these high-quality companies would likely carry an
investment- grade rating if they were based in the U.S. However, credit rating
protocol dictates that a company can't have a higher credit rating than the
country in which it is based. Colombian cellular company Comunicacion Celular is
one example. The company is helping Colombia bypass the traditional
time-consuming and expensive process of building telephone lines and is filling
the country's rapidly growing communications needs by putting a cellular
infrastructure in place.
Foreign governments: Focus on U.K., dollar-bloc and emerging markets
Among foreign government bonds, we emphasized United Kingdom bonds which we
believe offer a good mix of price appreciation potential and income. We
generally avoided other areas across Europe because we are concerned about how
they might fare during the process of converting to a single European currency.
The U.K., on the other hand, currently has no plans to become part of a unified
currency. Throughout the period, we built up our stake in dollar-bloc countries
including Australia, Canada and New Zealand and in dollar-denominated debt from
emerging markets, primarily with investments in Argentina, Brazil and Mexico.
Outlook
We remain optimistic about the prospects of the high-yield market, but with a
note of caution. A continued strong economy should help keep earnings growth
healthy and cash flow -- which is used to pay back debt -- strong. From a
technical standpoint, we believe that the high-yield market will continue to be
favored by an attractive supply and demand scenario. On the other hand, the
healthy demand for high-yield corporate debt has driven the yield spread -- the
difference between the interest rates earned on Treasuries and high-yield bonds
- -- to historically low levels. When spreads are as tight as they are now,
high-yield bond prices can be more vulnerable to negative developments, such as
an economic slowdown. As far as our foreign holdings go, we expect to continue
our focus on the U.K., dollar-bloc and emerging markets where we feel the
rewards are attractive enough to warrant their added risk relative to U.S.
Treasuries.
- --------------------------------------------------------------------------------
International investing involves special risks such as political and currency
risks and differences in accounting standards and financial reporting.
"Throughout the period, we built our stake in high-yield corporate bonds..."
29
<PAGE>
================================================================================
JOHN HANCOCK V.A. STRATEGIC INCOME FUND
CUMULATIVE TOTAL RETURNS
For the period ended June 30, 1997
LIFE OF
FUND
----
John Hancock V.A. Strategic Income Fund 12.63%(1,2)
Total return is a performance measure that equals the sum of all income and
capital gains dividends, assuming reinvestment of these distributions, and the
change in price of the Fund's shares, expressed as a percentage of the Fund's
net asset value per share. Performance figures reflect the effects of
investment-related charges on the underlying funds, but do not include insurance
and other charges levied at the separate account level. Remember that all
figures represent past performance and are no guarantee of how the Fund will
perform in the future. Also, keep in mind that the total return and share price
of the Fund's investments will fluctuate. As a result, your Fund's shares may be
worth more or less than their original cost, depending on when you sell them.
Notes to Performance
(1) Commenced operations on August 29, 1996.
(2) The Adviser has agreed to limit the Fund's expenses to 0.25% (not including
management fee) of the Fund's daily average net assets. Without the
limitation of expenses the total return since inception would have been
11.95%.
WHAT HAPPENED TO
A $10,000 INVESTMENT...
The chart below shows how much a $10,000 investment in the John Hancock V.A.
Strategic Income Fund would be worth on June 30, 1997, assuming you invested on
the day the Fund started and have reinvested all distributions. For comparison,
we've shown the same $10,000 investment in the Lehman Government/Corporate Bond
Index--an unmanaged index that measures the performance of U.S. government
bonds, U.S. corporate bonds, and Yankee bonds.
- --------------------------------------------------------------------------------
Line chart with the heading V.A. Strategic Income Fund, representing the growth
of a hypothetical $10,000 investment over the life of the fund. Within the chart
are two lines.
The first line represents the value of the hypothetical $10,000 investment made
in the V.A. Strategic Income Fund, before sales charge, and is equal to $11,264
as of June 30, 1997. The second line represents the value of the Lehman
Government/Corporate Bond Index on August 29, 1996, and is equal to $10,750 as
of June 30, 1997.
- --------------------------------------------------------------------------------
30
<PAGE>
================================================================================
BY JAMES K. HO, CFA, PORTFOLIO MANAGER
John Hancock
V.A. Sovereign Bond Fund
Conservative stance taken during uncertain period
for bond market
John Hancock V.A. Sovereign Bond Fund entered its first full fiscal year amid
an atmosphere of unease. Investors had a pronounced case of inflation angst,
remaining on edge throughout the first quarter as they awaited each new release
of economic data and speculated on the actions of the Federal Reserve Board. The
broad fixed-income market had a difficult time making headway, particularly in
March when the Fed raised interest rates. By the end of the second quarter,
however, fixed-income investments had recovered nicely on the heels of new
statistics reflecting modest economic growth and subdued inflation.
Against this backdrop, the Fund closed the semiannual period with a
respectable total return of 2.77% at net asset value. In comparison, the average
corporate debt BBB-rated fund, as tracked by Lipper Analytical Services, Inc.,
produced a gain of 3.07%.
Longer-term performance information can be found on page 33.
Careful duration management
Throughout the period, we kept the Fund defensively positioned, keeping its
average duration -- a measure of the Fund's sensitivity to interest-rate changes
- -- shorter than the competition and its benchmark, the Lehman Brothers
Government/Corporate Bond Index. In this uncertain environment, our main
strategy has been to "barbell" the Fund's holdings by aligning assets at
opposite ends of the yield curve to maximize total return potential. Near the
period's end, however, market conditions appeared more favorable and we moved
toward a slightly more neutral position. We redeployed some assets in
intermediate-term securities thereby matching the benchmark's average duration
more closely.
- --------------------------------------------------------------------------------
A 2" x 3" photo of V.A. Sovereign Bond Fund team members. Caption reads: "Jim Ho
(seated) and Fund management team members (l-r) Lester Duke, Beverly Cleathero,
Seth Robbins, Linda Carter."
- --------------------------------------------------------------------------------
"Throughout the period, we kept the Fund defensively positioned."
31
<PAGE>
================================================================================
JOHN HANCOCK V.A. SOVEREIGN BOND FUND
- --------------------------------------------------------------------------------
Bar chart with the header "Fund Performance" at top left hand column. A footnote
below states: "For the six months ended June 30, 1997." The chart is scaled in
increments of 1%, with 4% at the top and 0% at the bottom. Within the chart
there are two solid bars. The first represents the 2.77% total return for the
John Hancock V.A. Sovereign Bond Fund. The second represents the 3.07% total
return for the Average variable annuity corporate debt BBB-rated fund. A
footnote below states: "The total return for John Hancock V.A. Sovereign Bond
Fund is at net asset value with all distributions reinvested. The average
variable annuity corporate debt BBB-rated fund is tracked by Lipper Analytical
Services, Inc. See the following page for historical performance information."
- --------------------------------------------------------------------------------
Believing the Fed will stand pat on interest rates throughout the summer, we
anticipate maintaining this neutral positioning for the time being.
Media, financial companies and utilities are top sectors
While nearly 20 industry sectors are well represented in the Fund's portfolio,
media, financial services and utility companies are three areas we've emphasized
over the period. The deregulation and consolidation that is taking place in the
media sector has created numerous opportunities for debt issuers to receive
credit upgrades. TCI Communications, Inc. is one Fund holding that has performed
extremely well.
Deregulation is also a theme in the utility industry, where many companies
with below investment-grade ratings are being acquired by more financially
sound, better managed firms. Long Island Lighting, a high-yield bond the Fund
owns, is in the process of being purchased by investment-grade rated Brooklyn
Union Gas. The bonds issued by Long Island Lighting have enjoyed substantial
price appreciation in anticipation of that event.
Three types of financial securities have also helped boost the Fund's
performance: Yankee bonds, surplus notes and bank capital notes. Yankee bonds
are high-quality foreign bank securities issued in the Unites States; surplus
notes are highly rated debt issued by insurance companies and bank capital notes
are junior subordinated debt of a bank that is carried on balance sheets as
equity, yet interest is deductible. These securities have not been widely
followed by analysts, either because they are fairly new to the market or
misunderstood. By conducting extensive research, we have been able to understand
their potential and the Fund has benefited as a result.
Outlook
We enter the second half of 1997 with cautious optimism. At present, economic
activity and inflation appear favorable and we do not anticipate that the Fed
will raise short-term interest rates in the near term. However, with a strong
labor market and high consumer confidence, inflation worries will likely remain
and the Fed may well raise rates before year's end. We will continue to monitor
the Fund's duration closely and emphasize careful credit selection.
32
<PAGE>
================================================================================
JOHN HANCOCK V.A. SOVEREIGN BOND FUND
CUMULATIVE TOTAL RETURNS
For the period ended June 30, 1997
LIFE OF
FUND
----
John Hancock V.A. Sovereign Bond Fund 7.32%(1,2)
Total return is a performance measure that equals the sum of all income and
capital gains dividends, assuming reinvestment of these distributions, and the
change in price of the Fund's shares, expressed as a percentage of the Fund's
net asset value per share. Performance figures reflect the effects of
investment-related charges on the underlying funds, but do not include insurance
and other charges levied at the separate account level. Remember that all
figures represent past performance and are no guarantee of how the Fund will
perform in the future. Also, keep in mind that the total return and share price
of the Fund's investments will fluctuate. As a result, your Fund's shares may be
worth more or less than their original cost, depending on when you sell them.
Notes to Performance
(1) Commenced operations on August 29, 1996.
(2) The Adviser has agreed to limit the Fund's expenses to 0.25% (not including
management fee) of the Fund's daily average net assets. Without the
limitation of expenses the total return since inception would have been
5.38%.
WHAT HAPPENED TO
A $10,000 INVESTMENT...
The chart below shows how much a $10,000 investment in the John Hancock V.A.
Sovereign Bond Fund would be worth on June 30, 1997, assuming you invested on
the day the Fund started and have reinvested all distributions. For comparison,
we've shown the same $10,000 investment in the Lehman Brothers Corporate Bond
Index--an unmanaged index that mirrors the investment objectives and
characteristics of the Fund.
- --------------------------------------------------------------------------------
Line chart with the heading V.A. Sovereign Bond Fund, representing the growth of
a hypothetical $10,000 investment over the life of the fund. Within the chart
are two lines.
The first line represents the value of the hypothetical $10,000 investment made
in the Lehman Brothers Corporate Bond Index on August 29, 1996, and is equal to
$10,858 as of June 30, 1997. The second line represents the value of the V.A.
Sovereign Bond Fund, before sales charge, and is equal to $10,731 as of June 30,
1997.
- --------------------------------------------------------------------------------
33
<PAGE>
================================================================================
BY DAWN BAILLIE, FOR THE PORTFOLIO MANAGEMENT TEAM
John Hancock
V.A. Money Market Fund
Strong economy prompts Fed rate hike,
rising money market yields
"...early in March, money market yields began to rise..."
When the Fund's semiannual period began in January, money market yields were
relatively stable, reflecting the interest-rate environment. But early in March,
money market yields began to rise, along with interest rates, in response to
economic data that showed the economy growing at a pace considered uncomfortably
fast and poised to spark inflation. The market had begun to anticipate a
much-promised move by the Federal Reserve to hold the economy down to a moderate
growth path and pre-empt inflation. That's exactly what happened in March, when
the Fed raised the federal funds rate -- which banks charge each other for
overnight loans -- by one quarter percentage point to 5.50%. The federal funds
rate is not only a key short-term interest rate, but is also a benchmark for
pricing money market securities.
In raising rates for the first time in two years, the Fed also left the door
open to further rate hikes to prevent an inflation outbreak. But shortly after
its March move, interest rates and money market yields stabilized after signs
emerged in May and June that inflation remained tame and that the economy's pace
was slowing.
Strategy
The Fund's objective is to provide current income at a level that is consistent
with liquidity and stability of principal. We seek to accomplish this goal by
investing in the highest-quality money market instruments including, among
others, U.S. government, municipal and foreign government securities; corporate
obligations and obligations of foreign and U.S. banks.
- --------------------------------------------------------------------------------
A 2" x 3" photo of V.A. Money Market Fund team members. Caption reads: "Fund
management team members (l-r): Barry Evans, Jamie Kellogg, Bruce Pickett and
Dawn Baillie."
- --------------------------------------------------------------------------------
34
<PAGE>
================================================================================
JOHN HANCOCK V.A. MONEY MARKET FUND
[The following table was represented as a bar graph in the printed material.]
- --------------------------------------------------------------------------------
7-DAY EFFECTIVE YIELD
As of June 30, 1997
John Hancock V.A. Money Market Fund 4.77%
Past performance is no guarantee of future results.
- --------------------------------------------------------------------------------
Because the Fund is still in the early stages of building assets, we have
been limited in our ability to purchase a range of money market securities. As a
result, the Fund has remained invested in very short-term money market
instruments over the last six months. That has accounted for the Fund's much
shorter- than-average maturity. We expect the Fund's average maturity to
increase as the Fund's asset size grows. On June 30, 1997, John Hancock V.A.
Money Market Fund had a 7-day effective yield of 4.77%.
Outlook
Given the current near-perfect economic environment -- steady growth and tame
inflation -- in our view it appears likely that the Federal Reserve will not
feel compelled to raise interest rates in the very near term. But because the
Fed remains hyper-vigilant for the first hint of inflation, we believe there
will be another pre-emptive move to rein in the economy before the year ends.
We'll be watching the monthly economic and inflation data for guidance. As
always, we'll keep focused on maintaining liquidity and stability of principal,
while seeking to enhance the Fund's yield.
"...the Fed remains hyper-vigilant for the first hint of inflation..."
- --------------------------------------------------------------------------------
The Fund is neither insured nor guaranteed by the U.S. government. There can be
no assurances that the Fund will be able to maintain a net asset value of $1.00
per share.
35
<PAGE>
================================================================================
FINANCIAL STATEMENTS
John Hancock Funds - Declaration Trust
Statements of Assets and Liabilities
June 30, 1997 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
V.A. V.A. V.A.
INTERNATIONAL FINANCIAL EMERGING
FUND INDUSTRIES FUND GROWTH FUND
----------- --------------- -----------
<S> <C> <C> <C>
Assets:
Investments at value - Note C:
Common stocks (cost - $2,215,326, $2,640,237,
$1,325,593, $1,527,226, $2,087,730 and
$10,888,255, respectively) .................................. $ 2,801,834 $2,759,494 $ 1,531,336
Preferred stocks (cost - $53,046, none, none, none,
none and none, respectively) ................................ 62,394 -- --
Joint Repurchase Agreements (cost - $395,000,
$150,000, $205,000, $315,000, $69,000 and
$508,000, respectively) ..................................... 395,000 150,000 205,000
Corporate savings account .................................... -- 497 549
----------- ---------- -----------
3,259,228 2,909,991 1,736,885
Cash ......................................................... 743 -- --
Foreign currency, at value (cost - $875, none, none,
none, none and none, respectively) .......................... 868 -- --
Receivable for investments sold .............................. -- 13,357 5,499
Dividends and interest receivable ............................ 8,663 5,322 334
Receivable from John Hancock Advisers, Inc. ..................
and affiliates - Note B ..................................... -- 1,760 1,591
Foreign tax receivable ....................................... 739 -- --
Deferred organization expenses - Note A ...................... 8,839 -- 8,839
----------- ---------- -----------
Total Assets ............................... 3,279,080 2,930,430 1,753,148
-----------------------------------------------------------------------------------------
Liabilities:
Payable for investments purchased ............................ 71,043 125,072 7,491
Payable to John Hancock Advisers, Inc. and affiliates - Note B 2,717 -- --
Accounts payable and accrued expenses ........................ 6,826 3,351 6,552
----------- ---------- -----------
Total Liabilities .......................... 80,586 128,423 14,043
-----------------------------------------------------------------------------------------
Net Assets:
Capital paid-in .............................................. 2,597,540 2,670,541 1,718,281
Accumulated net realized gain (loss) on investments, and
foreign currency transactions ............................... (8,020) 6,526 (184,990)
Net unrealized appreciation (depreciation) of investments,
and foreign currency transactions ........................... 596,024 119,257 205,743
Undistributed net investment income (loss) ................... 12,950 5,683 71
----------- ---------- -----------
Net Assets ................................. $ 3,198,494 $2,802,007 $ 1,739,105
=========================================================================================
Net Asset Value Per Share:
(based on 250,337, 249,218, 179,588, 224,981,
188,953 and 926,815 shares, respectively,
of beneficial interest outstanding - unlimited number
of shares authorized with no par value) ..................... $ 12.78 $ 11.24 $ 9.68
=============================================================================================================
<CAPTION>
V.A. V.A. V.A.
DISCOVERY INDEPENDENCE 500 INDEX
FUND EQUITY FUND FUND
----------- ----------- ------------
<S> <C> <C> <C>
Assets:
Investments at value - Note C:
Common stocks (cost - $2,215,326, $2,640,237,
$1,325,593, $1,527,226, $2,087,730 and
$10,888,255, respectively) .................................. $ 1,797,431 $ 2,351,607 $ 10,716,966
Preferred stocks (cost - $53,046, none, none, none,
none and none, respectively) ................................ -- -- --
Joint Repurchase Agreements (cost - $395,000,
$150,000, $205,000, $315,000, $69,000 and
$508,000, respectively) ..................................... 315,000 69,000 508,000
Corporate savings account .................................... 11,845 259 --
----------- ----------- ------------
2,124,276 2,420,866 11,224,966
Cash ......................................................... -- -- 166,884
Foreign currency, at value (cost - $875, none, none,
none, none and none, respectively) .......................... -- -- --
Receivable for investments sold .............................. 3,676 -- --
Dividends and interest receivable ............................ 494 3,488 3,273
Receivable from John Hancock Advisers, Inc. ..................
and affiliates - Note B ..................................... 3,834 1,343 4,783
Foreign tax receivable ....................................... -- -- --
Deferred organization expenses - Note A ...................... 8,831 8,839 8,839
----------- ----------- ------------
Total Assets ............................... 2,141,111 2,434,536 11,408,745
-------------------------------------------------------------------------------------------
Liabilities:
Payable for investments purchased ............................ 17,678 -- 166,140
Payable to John Hancock Advisers, Inc. and affiliates - Note B -- -- --
Accounts payable and accrued expenses ........................ 6,835 7,102 12,009
----------- ----------- ------------
Total Liabilities .......................... 24,513 7,102 178,149
-------------------------------------------------------------------------------------------
Net Assets:
Capital paid-in .............................................. 2,122,450 2,097,409 10,471,550
Accumulated net realized gain (loss) on investments, and
foreign currency transactions ............................... (274,146) 65,679 926,924
Net unrealized appreciation (depreciation) of investments,
and foreign currency transactions ........................... 270,205 263,877 (171,289)
Undistributed net investment income (loss) ................... (1,911) 469 3,411
----------- ----------- ------------
Net Assets ................................. $ 2,116,598 $ 2,427,434 $ 11,230,596
===========================================================================================
Net Asset Value Per Share:
(based on 250,337, 249,218, 179,588, 224,981,
188,953 and 926,815 shares, respectively,
of beneficial interest outstanding - unlimited number
of shares authorized with no par value) ..................... $ 9.41 $ 12.85 $ 12.12
===============================================================================================================
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
36
<PAGE>
================================================================================
FINANCIAL STATEMENTS
John Hancock Funds - Declaration Trust
Statements of Assets and Liabilities (continued)
June 30, 1997 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
V.A. V.A. V.A.
SOVEREIGN WORLD BOND STRATEGIC
INVESTORS FUND FUND INCOME FUND
-------------- ----------- ----------
<S> <C> <C> <C>
Assets:
Investments at value - Note C:
Common stocks (cost - $2,680,326, none, none, none and
none, respectively) ....................................................... $2,993,419 $ -- $ --
Bonds (cost - $228,641, $2,064,012, $2,559,500, $1,396,500 and
none, respectively) ....................................................... 229,844 2,095,891 2,603,338
Preferred stocks and warrants (cost - none, none, $106,125, none and
none, respectively) ....................................................... -- -- 114,500
Short-term investments (cost - none, none, none, none and
$1,222,197, respectively) ................................................. -- -- --
Joint repurchase agreements (cost - $560,000, $43,000, $436,000,
$216,000 and none, respectively) .......................................... 560,000 43,000 436,000
Corporate savings account .................................................. 860 -- 273
---------- ----------- ----------
3,784,123 2,138,891 3,154,111
Cash ....................................................................... -- 53,166 --
Receivable for shares sold ................................................. -- -- --
Receivable for investments sold ............................................ -- -- --
Receivable for forward foreign currency exchange contracts sold - Note A ... -- 1,096 --
Dividends receivable ....................................................... 2,776 -- 6,067
Interest receivable ........................................................ 5,156 30,598 64,141
Receivable from John Hancock Advisers, Inc. and affiliates - Note B ........ -- -- 17
Deferred organization expenses - Note A .................................... 8,838 8,839 8,830
---------- ----------- ----------
Total Assets ............................................... 3,800,893 2,232,590 3,233,166
--------------------------------------------------------------------------------------------------
Liabilities:
Payable foreign withholding tax ............................................ -- -- --
Distribution payable ....................................................... -- 1,171 2,022
Payable for forward foreign currency exchange contracts sold - Note A ...... -- 653 --
Payable for forward foreign currency exchange contracts bought - Note A .... -- 10,627 --
Payable for investments purchased .......................................... -- 53,094 178,384
Payable to John Hancock Advisers, Inc. and affiliates - Note B ............. 564 138 --
Accounts payable and accrued expenses ...................................... 5,948 6,623 5,437
---------- ----------- ----------
Total Liabilities .......................................... 6,512 72,306 185,843
--------------------------------------------------------------------------------------------------
Net Assets:
Capital paid-in ............................................................ 3,467,529 2,184,662 2,953,457
Accumulated net realized gain (loss) on investments and
foreign currency transactions ............................................. 11,515 (45,990) 42,075
Net unrealized appreciation of investments and foreign currency transactions 314,296 21,612 51,791
Undistributed net investment income ........................................ 1,041 -- --
---------- ----------- ----------
Net Assets ................................................. $3,794,381 $ 2,160,284 $3,047,323
==================================================================================================
Net Asset Value Per Share:
(based on 311,119, 218,605, 292,300, 154,647 and 1,231,973 shares,
respectively, of beneficial interest outstanding - unlimited number of
shares authorized with no par value) ...................................... $ 12.20 $ 9.88 $ 10.43
====================================================================================================================
<CAPTION>
V.A. V.A.
SOVEREIGN MONEY MARKET
BOND FUND FUND
---------- ----------
<S> <C> <C>
Assets:
Investments at value - Note C:
Common stocks (cost - $2,680,326, none, none, none and
none, respectively) ....................................................... $ -- $ --
Bonds (cost - $228,641, $2,064,012, $2,559,500, $1,396,500 and
none, respectively) ....................................................... 1,407,708 --
Preferred stocks and warrants (cost - none, none, $106,125, none and
none, respectively) ....................................................... -- --
Short-term investments (cost - none, none, none, none and
$1,222,197, respectively) ................................................. -- 1,222,197
Joint repurchase agreements (cost - $560,000, $43,000, $436,000,
$216,000 and none, respectively) .......................................... 216,000 --
Corporate savings account .................................................. 319 --
---------- ----------
1,624,027 1,222,197
Cash ....................................................................... -- 462
Receivable for shares sold ................................................. -- --
Receivable for investments sold ............................................ 5,151 --
Receivable for forward foreign currency exchange contracts sold - Note A ... -- --
Dividends receivable ....................................................... -- --
Interest receivable ........................................................ 27,478 7,822
Receivable from John Hancock Advisers, Inc. and affiliates - Note B ........ 3,042 --
Deferred organization expenses - Note A .................................... 8,830 8,839
---------- ----------
Total Assets ............................................. 1,668,528 1,239,320
----------------------------------------------------------------------------------
Liabilities:
Payable foreign withholding tax ............................................ -- --
Distribution payable ....................................................... 850 160
Payable for forward foreign currency exchange contracts sold - Note A ...... -- --
Payable for forward foreign currency exchange contracts bought - Note A .... -- --
Payable for investments purchased .......................................... 97,184 --
Payable to John Hancock Advisers, Inc. and affiliates - Note B ............. -- 1,179
Accounts payable and accrued expenses ...................................... 6,159 6,008
---------- ----------
Total Liabilities ........................................ 104,193 7,347
----------------------------------------------------------------------------------
Net Assets:
Capital paid-in ............................................................ 1,550,423 1,231,973
Accumulated net realized gain (loss) on investments and
foreign currency transactions ............................................. 2,636 --
Net unrealized appreciation of investments and foreign currency transactions 11,208 --
Undistributed net investment income ........................................ 68 --
---------- ----------
Net Assets ............................................... $1,564,335 $1,231,973
==================================================================================
Net Asset Value Per Share:
(based on 311,119, 218,605, 292,300, 154,647 and 1,231,973 shares,
respectively, of beneficial interest outstanding - unlimited number of
shares authorized with no par value) ...................................... $ 10.12 $ 1.00
======================================================================================================
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
37
<PAGE>
================================================================================
FINANCIAL STATEMENTS
John Hancock Funds - Declaration Trust
Statements of Operations
Six months ended June 30, 1997 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
V.A. V.A. V.A.
INTERNATIONAL FINANCIAL EMERGING
FUND INDUSTRIES FUND GROWTH FUND
----------- --------------- -----------
<S> <C> <C> <C>
Investment Income:
Dividends (net of foreign withholding tax of $2,268, none, none,
none, $70 and none, respectively) ................................ $ 21,572 $ 7,946 $ 1,913
Interest .......................................................... 5,005 -- 3,333
--------- --------- ---------
26,577 7,946 5,246
--------- --------- ---------
Expenses:
Investment management fee - Note B ................................ 10,664 1,724 3,982
Auditing fee ...................................................... 3,719 1,890 3,719
Custodian fee ..................................................... 5,070 1,726 7,914
Printing .......................................................... 180 290 326
Organization expense - Note A ..................................... 997 -- 997
Legal fees ........................................................ 496 108 221
Financial services fee - Note B ................................... 222 40 100
Miscellaneous ..................................................... 371 5 177
Trustees' fee ..................................................... 77 4 41
--------- --------- ---------
Total Expenses .................................. 21,796 5,787 17,477
Less Expense Reductions - Note B ................ (8,169) (3,524) (12,168)
--------- --------- ---------
Net Expenses .................................... 13,627 2,263 5,309
------------------------------------------------------------------------------------------
Net Investment Income (Loss) .................... 12,950 5,683 (63)
------------------------------------------------------------------------------------------
Realized and Unrealized Gain (Loss) on Investments,
Financial Futures Contracts and Foreign Currency Transactions:
Net realized gain (loss) on investments sold ...................... (2,039) 6,526 (113,273)
Net realized gain on financial futures contracts .................. -- -- --
Net realized loss on foreign currency transactions ................ (4,427) -- --
Change in net unrealized appreciation/depreciation of investments . 348,051 119,257 202,768
Change in net unrealized appreciation/depreciation of
financial futures contracts ...................................... -- -- --
Change in net unrealized appreciation/depreciation of
foreign currency transactions .................................... 139 -- --
--------- --------- ---------
Net Realized and Unrealized Gain on Investments,
Financial Futures Contracts and Foreign
Currency Transactions .......................... 341,724 125,783 89,495
-----------------------------------------------------------------------------------------
Net Increase in Net Assets Resulting
from Operations ................................. $ 354,674 $ 131,466 $ 89,432
=========================================================================================
<CAPTION>
V.A. V.A. V.A.
DISCOVERY INDEPENDENCE 500 INDEX
FUND EQUITY FUND FUND
----------- ----------- ---------
<S> <C> <C> <C>
Investment Income:
Dividends (net of foreign withholding tax of $2,268, none, none,
none, $70 and none, respectively) ................................ $ 1,367 $ 14,024 $ 119,868
Interest .......................................................... 3,370 2,199 3,190
--------- --------- ---------
4,737 16,223 123,058
--------- --------- ---------
Expenses:
Investment management fee - Note B ................................ 4,986 5,041 3,644
Auditing fee ...................................................... 3,471 3,719 3,471
Custodian fee ..................................................... 9,111 3,994 3,268
Printing .......................................................... 458 888 463
Organization expense - Note A ..................................... 1,006 997 997
Legal fees ........................................................ 482 463 534
Financial services fee - Note B ................................... 125 135 465
Miscellaneous ..................................................... 178 175 1,350
Trustees' fee ..................................................... 39 49 172
--------- --------- ---------
Total Expenses .................................. 19,856 15,461 14,364
Less Expense Reductions - Note B ................ (13,208) (8,620) (4,526)
--------- --------- ---------
Net Expenses .................................... 6,648 6,841 9,838
---------------------------------------------------------------------------------------
Net Investment Income (Loss) .................... (1,911) 9,382 113,220
---------------------------------------------------------------------------------------
Realized and Unrealized Gain (Loss) on Investments,
Financial Futures Contracts and Foreign Currency Transactions:
Net realized gain (loss) on investments sold ...................... (177,246) 39,599 --
Net realized gain on financial futures contracts .................. -- -- 740,363
Net realized loss on foreign currency transactions ................ -- -- --
Change in net unrealized appreciation/depreciation of investments . 234,869 179,029 (171,289)
Change in net unrealized appreciation/depreciation of
financial futures contracts ...................................... -- -- 44,750
Change in net unrealized appreciation/depreciation of
foreign currency transactions .................................... -- -- --
--------- --------- ---------
Net Realized and Unrealized Gain on Investments,
Financial Futures Contracts and Foreign
Currency Transactions .......................... 57,623 218,628 613,824
--------------------------------------------------------------------------------------
Net Increase in Net Assets Resulting
from Operations ................................. $ 55,712 $ 228,010 $ 727,044
======================================================================================
</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.
38
<PAGE>
================================================================================
FINANCIAL STATEMENTS
John Hancock Funds - Declaration Trust
Statements of Operations (continued)
Six months ended June 30, 1997 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
V.A. V.A. V.A.
SOVEREIGN WORLD BOND STRATEGIC
INVESTORS FUND FUND INCOME FUND
-------------- ----------- ----------
<S> <C> <C> <C>
Investment Income:
Dividends ................................................................................ $ 12,029 $ -- $ 6,068
Interest (net of foreign withholding tax of none, $380, none, none and none, respectively) 11,876 70,799 109,022
--------- --------- ---------
23,905 70,799 115,090
--------- --------- ---------
Expenses:
Investment management fee - Note B ....................................................... 4,954 7,623 6,999
Audit Fee ................................................................................ 3,471 3,471 3,471
Custodian Fee ............................................................................ 1,863 6,541 2,204
Printing ................................................................................. 809 210 531
Organization expense - Note A ............................................................ 997 997 1,006
Legal fees ............................................................................... 285 454 589
Financial services fee - Note B .......................................................... 155 191 219
Miscellaneous ............................................................................ 176 327 331
Trustees' fee ............................................................................ 40 77 79
--------- --------- ---------
Total Expenses ..................................................................... 12,750 19,891 15,429
Less Expense Reductions - Note B ................................................... (5,730) (9,728) (5,512)
--------------------------------------------------------------------------------------------------------------------------
Net Expenses ....................................................................... 7,020 10,163 9,917
--------------------------------------------------------------------------------------------------------------------------
Net Investment Income .............................................................. 16,885 60,636 105,173
Realized and Unrealized Gain (Loss) on Investments and Foreign Currency Transactions:
Net realized gain (loss) on investments sold ............................................. 5,416 (49,043) (14,813)
Net realized gain (loss) on foreign currency transactions ................................ -- (774) 23,646
Change in net unrealized appreciation/depreciation of investments ........................ 247,121 (9,189) 26,899
Change in net unrealized appreciation/depreciation of foreign currency transactions ...... -- (6,167) (2,601)
--------- --------- ---------
Net Realized and Unrealized Gain (Loss) on Investments and
Foreign Currency Transactions ...................................................... 252,537 (65,173) 33,131
--------------------------------------------------------------------------------------------------------------------------
Net Increase (Decrease) in Net Assets Resulting from Operations .................... $ 269,422 ($ 4,537) $ 138,304
==========================================================================================================================
<CAPTION>
V.A. V.A.
SOVEREIGN MONEY MARKET
BOND FUND FUND
---------- ----------
<S> <C> <C>
Investment Income:
Dividends ................................................................................ $ -- $ --
Interest (net of foreign withholding tax of none, $380, none, none and none, respectively) 47,035 14,350
-------- --------
47,035 14,350
-------- --------
Expenses:
Investment management fee - Note B ....................................................... 3,064 1,306
Audit Fee ................................................................................ 3,471 3,471
Custodian Fee ............................................................................ 6,823 102
Printing ................................................................................. 668 361
Organization expense - Note A ............................................................ 1,006 997
Legal fees ............................................................................... 390 103
Financial services fee - Note B .......................................................... 115 49
Miscellaneous ............................................................................ 77 37
Trustees' fee ............................................................................ 42 9
-------- --------
Total Expenses ..................................................................... 15,656 6,435
Less Expense Reductions - Note B ................................................... (11,060) (4,476)
-------- --------
Net Expenses ....................................................................... 4,596 1,959
-----------------------------------------------------------------------------------------------------------
Net Investment Income .............................................................. 42,439 12,391
-----------------------------------------------------------------------------------------------------------
Realized and Unrealized Gain (Loss) on Investments and Foreign Currency Transactions:
Net realized gain (loss) on investments sold ............................................. (1,988) --
Net realized gain (loss) on foreign currency transactions ................................ -- --
Change in net unrealized appreciation/depreciation of investments ........................ (2,693) --
Change in net unrealized appreciation/depreciation of foreign currency transactions ...... -- --
-------- --------
Net Realized and Unrealized Gain (Loss) on Investments and
Foreign Currency Transactions ...................................................... (4,681) --
-----------------------------------------------------------------------------------------------------------
Net Increase (Decrease) in Net Assets Resulting from Operations .................... $ 37,758 $ 12,391
===========================================================================================================
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
39
<PAGE>
================================================================================
FINANCIAL STATEMENTS
John Hancock Funds - Declaration Trust
Statements of Changes in Net Assets
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
V.A FINANCIAL
V.A. INTERNATIONAL FUND INDUSTRIES FUND
-------------------------- ---------------
SIX MONTHS PERIOD
PERIOD ENDED ENDED
ENDED JUNE 30, JUNE 30,
DECEMBER 31, 1997 1997(2)
1996(1) (UNAUDITED) (UNAUDITED)
----------- ----------- -----------
<S> <C> <C> <C>
Increase (Decrease) in Net Assets:
From Operations:
Net investment income (loss) ....................................... $ 14,426 $ 12,950 $ 5,683
Net realized gain (loss) on investments sold, financial
futures contracts and foreign currency transactions ............... (7,426) (6,466) 6,526
Change in net unrealized appreciation/depreciation of investments,
financial futures contracts and foreign currency transactions ..... 247,834 348,190 119,257
----------- ----------- -----------
Net Increase (Decrease) in Net Assets Resulting from Operations .... 254,834 354,674 131,466
----------- ----------- -----------
Distributions to Shareholders: *
Dividends from net investment income ............................... (8,697) -- --
Distributions from net realized gain on investments sold,
financial futures contracts and foreign currency transactions ..... -- -- --
----------- ----------- -----------
Total Distributions to Shareholders ............................... (8,697) -- --
----------- ----------- -----------
From Fund Share Transactions: **
Shares sold ........................................................ 2,012,294 624,693 2,731,009
Shares issued to shareholders in reinvestment of distributions ..... 8,697 -- --
----------- ----------- -----------
2,020,991 624,693 2,731,009
Less shares repurchased ............................................ (7) (47,994) (60,468)
----------- ----------- -----------
Net Increase ...................................................... 2,020,984 576,699 2,670,541
----------- ----------- -----------
Net Assets:
Beginning of period ................................................ -- 2,267,121 --
----------- ----------- -----------
End of period (including undistributed net investment
income (loss) of none, $12,950, $5,683, $134 and $71, respectively) $ 2,267,121 $ 3,198,494 $ 2,802,007
=========== =========== ===========
* Distributions to Shareholders:
Per share dividends from net investment income ..................... $ 0.0432 -- --
----------- ----------- -----------
Per share distributions from net realized gain on investments sold,
financial futures contracts and foreign currency transactions ..... -- -- --
----------- ----------- -----------
** Analysis of Fund Share Transactions:
Shares sold ........................................................ 201,146 52,446 254,838
Shares issued to shareholders in reinvestment of distributions ..... 802 -- --
----------- ----------- -----------
201,948 52,446 254,838
Less shares repurchased ............................................ (1) (4,056) (5,620)
----------- ----------- -----------
Net Increase ....................................................... 201,947 48,390 249,218
=========== =========== ===========
<CAPTION>
V.A. EMERGING GROWTH FUND
--------------------------
SIX MONTHS
PERIOD ENDED
ENDED JUNE 30,
DECEMBER 31, 1997
1996(1) (UNAUDITED)
----------- -----------
<S> <C> <C>
Increase (Decrease) in Net Assets:
From Operations:
Net investment income (loss) ....................................... $ 2,118 ($ 63)
Net realized gain (loss) on investments sold, financial
futures contracts and foreign currency transactions ............... (71,717) (113,273)
Change in net unrealized appreciation/depreciation of investments,
financial futures contracts and foreign currency transactions ..... 2,873 202,768
----------- -----------
Net Increase (Decrease) in Net Assets Resulting from Operations .... (66,726) 89,432
----------- -----------
Distributions to Shareholders: *
Dividends from net investment income ............................... (1,882) --
Distributions from net realized gain on investments sold,
financial futures contracts and foreign currency transactions ..... -- --
----------- -----------
Total Distributions to Shareholders ............................... (1,882) --
----------- -----------
From Fund Share Transactions: **
Shares sold ........................................................ 1,041,666 748,094
Shares issued to shareholders in reinvestment of distributions ..... 1,882 --
----------- -----------
1,043,548 748,094
Less shares repurchased ............................................ (25) (73,336)
----------- -----------
Net Increase ...................................................... 1,043,523 674,758
----------- -----------
Net Assets:
Beginning of period ................................................ -- 974,915
----------- -----------
End of period (including undistributed net investment
income (loss) of none, $12,950, $5,683, $134 and $71, respectively) $ 974,915 $ 1,739,105
=========== ===========
* Distributions to Shareholders:
Per share dividends from net investment income ..................... $ 0.0180 --
----------- -----------
Per share distributions from net realized gain on investments sold,
financial futures contracts and foreign currency transactions ..... -- --
----------- -----------
** Analysis of Fund Share Transactions:
Shares sold ........................................................ 104,379 83,181
Shares issued to shareholders in reinvestment of distributions ..... 206 --
----------- -----------
104,585 83,181
Less shares repurchased ............................................ (3) (8,175)
----------- -----------
Net Increase ....................................................... 104,582 75,006
=========== ===========
</TABLE>
(1) Commenced operations on August 29, 1996.
(2) Commenced operations on April 30, 1997.
SEE NOTES TO FINANCIAL STATEMENTS.
40
<PAGE>
================================================================================
FINANCIAL STATEMENTS
John Hancock Funds - Declaration Trust
Statements of Changes in Net Assets (continued)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
V.A. DISCOVERY FUND V.A. INDEPENDENCE EQUITY FUND
-------------------------- -----------------------------
SIX MONTHS SIX MONTHS
PERIOD ENDED PERIOD ENDED
ENDED JUNE 30, ENDED JUNE 30,
DECEMBER 31, 1997 DECEMBER 31, 1997
1996(1) (UNAUDITED) 1996(1) (UNAUDITED)
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Increase (Decrease) in Net Assets:
From Operations:
Net investment income (loss) ...................................... ($ 795) ($ 1,911) $ 5,925 $ 9,382
Net realized gain (loss) on investments sold, financial
futures contracts and foreign currency transactions .............. (96,900) (177,246) 27,151 39,599
Change in net unrealized appreciation/depreciation of investments,
financial futures contracts and foreign currency transactions .... 35,336 234,869 84,848 179,029
----------- ----------- ----------- -----------
Net Increase (Decrease) in Net Assets Resulting from Operations ... (62,359) 55,712 117,924 228,010
----------- ----------- ----------- -----------
Distributions to Shareholders: *
Dividends from net investment income .............................. -- -- (6,035) (8,913)
Distributions from net realized gain on investments sold,
financial futures contracts and foreign currency transactions .... -- -- (961) --
----------- ----------- ----------- -----------
Total Distributions to Shareholders ............................... -- -- (6,996) (8,913)
----------- ----------- ----------- -----------
From Fund Share Transactions: **
Shares sold ....................................................... 1,056,861 1,113,320 1,030,749 1,154,204
Shares issued to shareholders in reinvestment of distributions .... -- -- 6,996 8,913
----------- ----------- ----------- -----------
1,056,861 1,113,320 1,037,745 1,163,117
Less shares repurchased ........................................... (644) (46,292) (21) (103,432)
----------- ----------- ----------- -----------
Net Increase ..................................................... 1,056,217 1,067,028 1,037,724 1,059,685
----------- ----------- ----------- -----------
Net Assets:
Beginning of period ............................................... -- 993,858 -- 1,148,652
----------- ----------- ----------- -----------
End of period (including undistributed net investment
income (loss) of none, ($1,911), none and $469, respectively) .... $ 993,858 $ 2,116,598 $ 1,148,652 $ 2,427,434
=========== =========== =========== ===========
* Distributions to Shareholders:
Per share dividends from net investment income .................... -- -- $ 0.0587 $ 0.0651
----------- ----------- ----------- -----------
Per share distributions from net realized gain on investments sold,
financial futures contracts and foreign currency transactions .... -- -- $ 0.0094 --
----------- ----------- ----------- -----------
** Analysis of Fund Share Transactions:
Shares sold ....................................................... 105,902 124,322 102,751 92,935
Shares issued to shareholders in reinvestment of distributions .... -- -- 626 730
----------- ----------- ----------- -----------
105,902 124,322 103,377 93,665
Less shares repurchased ........................................... (60) (5,183) (2) (8,087)
----------- ----------- ----------- -----------
Net Increase ...................................................... 105,842 119,139 103,375 85,578
=========== =========== =========== ===========
</TABLE>
(1) Commenced operations on August 29, 1996.
SEE NOTES TO FINANCIAL STATEMENTS.
41
<PAGE>
================================================================================
FINANCIAL STATEMENTS
John Hancock Funds - Declaration Trust
Statements of Changes in Net Assets (continued)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
V.A. 500 INDEX FUND V.A. SOVEREIGN INVESTORS FUND
-------------------------- -----------------------------
SIX MONTHS SIX MONTHS
PERIOD ENDED PERIOD ENDED
ENDED JUNE 30, ENDED JUNE 30,
DECEMBER 31, 1997 DECEMBER 31, 1997
1996(1) (UNAUDITED) 1996(1) (UNAUDITED)
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Increase (Decrease) in Net Assets:
From Operations:
Net investment income (loss) ...................................... $ 59,702 $ 113,220 $ 6,933 $ 16,885
Net realized gain (loss) on investments sold, financial
futures contracts and foreign currency transactions .............. 387,685 740,363 8,426 5,416
Change in net unrealized appreciation/depreciation of investments,
financial futures contracts and foreign currency transactions .... (44,750) (126,539) 67,175 247,121
----------- ------------ ----------- -----------
Net Increase (Decrease) in Net Assets Resulting from Operations .. 402,637 727,044 82,534 269,422
----------- ------------ ----------- -----------
Distributions to Shareholders: *
Dividends from net investment income .............................. (59,456) (110,055) (6,880) (15,897)
Distributions from net realized gain on investments sold,
financial futures contracts and foreign currency transactions .... (201,124) -- (2,327) --
----------- ------------ ----------- -----------
Total Distributions to Shareholders .............................. (260,580) (110,055) (9,207) (15,897)
----------- ------------ ----------- -----------
From Fund Share Transactions: **
Shares sold ....................................................... 3,646,277 6,522,575 1,029,113 2,561,164
Shares issued to shareholders in reinvestment of distributions .... 260,580 110,055 9,207 15,897
----------- ------------ ----------- -----------
3,906,857 6,632,630 1,038,320 2,577,061
Less shares repurchased ........................................... (221) (67,716) (516) (147,336)
----------- ------------ ----------- -----------
Net Increase ..................................................... 3,906,636 6,564,914 1,037,804 2,429,725
----------- ------------ ----------- -----------
Net Assets:
Beginning of period ............................................... -- 4,048,693 -- 1,111,113
----------- ------------ ----------- -----------
End of period (including undistributed net investment
income of $246, $3,411, $53 and $1,041, respectively) ............ $ 4,048,693 $ 11,230,596 $ 1,111,131 $ 3,794,381
=========== ============ =========== ===========
* Distributions to Shareholders:
Per share dividends from net investment income .................... $ 0.1637 $ 0.1929 $ 0.0670 $ 0.0817
----------- ------------ ----------- -----------
Per share distributions from net realized gain on investments sold,
financial futures contracts and foreign currency transactions .... $ 0.5538 -- $ 0.0227 --
----------- ------------ ----------- -----------
** Analysis of Fund Share Transactions:
Shares sold ....................................................... 363,218 535,179 102,676 218,999
Shares issued to shareholders in reinvestment of distributions .... 24,676 9,547 856 1,347
----------- ------------ ----------- -----------
387,894 544,726 103,532 220,346
Less shares repurchased ........................................... (20) (5,785) (50) (12,708)
----------- ------------ ----------- -----------
Net Increase ...................................................... 387,874 538,941 103,482 207,638
=========== ============ =========== ===========
</TABLE>
(1) Commenced operations on August 29, 1996.
SEE NOTES TO FINANCIAL STATEMENTS.
42
<PAGE>
================================================================================
FINANCIAL STATEMENTS
John Hancock Funds - Declaration Trust
Statements of Changes in Net Assets (continued)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
V.A. WORLD BOND FUND V.A. STRATEGIC INCOME FUND
-------------------------- --------------------------
SIX MONTHS SIX MONTHS
PERIOD ENDED PERIOD ENDED
ENDED JUNE 30, ENDED JUNE 30,
DECEMBER 31, 1997 DECEMBER 31, 1997
1996(1) (UNAUDITED) 1996(1) (UNAUDITED)
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Increase (Decrease) in Net Assets:
From Operations:
Net investment income (loss) ...................................... $ 40,768 $ 60,636 $ 55,619 $ 105,173
Net realized gain (loss) on investments sold, financial
futures contracts and foreign currency transactions .............. 3,827 (49,817) 46,295 8,833
Change in net unrealized appreciation/depreciation of investments,
financial futures contracts and foreign currency transactions .... 36,968 (15,356) 27,493 24,298
----------- ----------- ----------- -----------
Net Increase (Decrease) in Net Assets Resulting from Operations .. 81,563 (4,537) 129,407 138,304
----------- ----------- ----------- -----------
Distributions to Shareholders: *
Dividends from net investment income .............................. (40,768) (60,636) (55,619) (105,173)
Distributions from net realized gain on investments sold,
financial futures contracts and foreign currency transactions .... -- -- (13,053) --
----------- ----------- ----------- -----------
Total Distributions to Shareholders .............................. (40,768) (60,636) (68,672) (105,173)
----------- ----------- ----------- -----------
From Fund Share Transactions: **
Shares sold ....................................................... 2,000,997 84,490 2,002,001 930,504
Shares issued to shareholders in reinvestment of distributions .... 40,768 59,464 68,672 103,399
----------- ----------- ----------- -----------
2,041,765 143,954 2,070,673 1,033,903
Less shares repurchased ........................................... -- (1,057) -- (151,119)
----------- ----------- ----------- -----------
Net Increase ..................................................... 2,041,765 142,897 2,070,673 882,784
----------- ----------- ----------- -----------
Net Assets:
Beginning of period ............................................... -- 2,082,560 -- 2,131,408
----------- ----------- ----------- -----------
End of period (including undistributed net investment
income of none, none, none and none, respectively) ............... $ 2,082,560 $ 2,160,284 $ 2,131,408 $ 3,047,323
=========== =========== =========== ===========
* Distributions to Shareholders:
Per share dividends from net investment income .................... $ 0.2015 $ 0.2914 $ 0.2739 $ 0.4474
----------- ----------- ----------- -----------
Per share distributions from net realized gain on investments sold,
financial futures contracts and foreign currency transactions .... -- -- $ 0.0640 --
----------- ----------- ----------- -----------
** Analysis of Fund Share Transactions:
Shares sold ....................................................... 200,098 8,553 200,193 89,875
Shares issued to shareholders in reinvestment of distributions .... 4,008 6,052 6,694 10,044
----------- ----------- ----------- -----------
204,106 14,605 206,887 99,919
Less shares repurchased ........................................... -- (106) -- (14,506)
----------- ----------- ----------- -----------
Net Increase ...................................................... 204,106 14,499 206,887 85,413
=========== =========== =========== ===========
</TABLE>
(1) Commenced operations on August 29, 1996.
SEE NOTES TO FINANCIAL STATEMENTS.
43
<PAGE>
================================================================================
FINANCIAL STATEMENTS
John Hancock Funds - Declaration Trust
Statements of Changes in Net Assets (continued)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
V.A. SOVEREIGN BOND FUND V.A. MONEY MARKET FUND
-------------------------- ----------------------------
SIX MONTHS SIX MONTHS
PERIOD ENDED PERIOD ENDED
ENDED JUNE 30, ENDED JUNE 30,
DECEMBER 31, 1997 DECEMBER 31, 1997
1996(1) (UNAUDITED) 1996(1) (UNAUDITED)
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Increase (Decrease) in Net Assets:
From Operations:
Net investment income (loss) ...................................... $ 23,529 $ 42,439 $ 1,784 $ 12,391
Net realized gain (loss) on investments sold, financial futures
contracts and foreign currency transactions ...................... 6,419 (1,988) -- --
Change in net unrealized appreciation/depreciation of investments,
financial futures contracts and foreign currency transactions .... 13,901 (2,693) -- --
----------- ----------- ----------- -----------
Net Increase (Decrease) in Net Assets Resulting from Operations .. 43,849 37,758 1,784 12,391
----------- ----------- ----------- -----------
Distributions to Shareholders: *
Dividends from net investment income .............................. (23,529) (42,371) (1,784) (12,391)
Distributions from net realized gain on investments sold, financial
futures contracts and foreign currency transactions .............. (1,795) -- -- --
----------- ----------- ----------- -----------
Total Distributions to Shareholders .............................. (25,324) (42,371) (1,784) (12,391)
----------- ----------- ----------- -----------
From Fund Share Transactions: **
Shares sold ....................................................... 1,012,301 638,897 104,907 1,248,273
Shares issued to shareholders in reinvestment of distributions .... 25,324 41,715 1,784 12,229
----------- ----------- ----------- -----------
1,037,625 680,612 106,691 1,260,502
Less shares repurchased ........................................... (7) (167,807) (63) (235,157)
----------- ----------- ----------- -----------
Net Increase ..................................................... 1,037,618 512,805 106,628 1,025,345
----------- ----------- ----------- -----------
Net Assets:
Beginning of period ............................................... -- 1,056,143 100,000(2) 206,628
----------- ----------- ----------- -----------
End of period (including undistributed net investment
income of none, $68, none and none, respectively) ................ $ 1,056,143 $ 1,564,335 $ 206,628 $ 1,231,973
=========== =========== =========== ===========
* Distributions to Shareholders:
Per share dividends from net investment income .................... $ 0.2327 $ 0.3445 $ 0.0160 $ 0.0234
----------- ----------- ----------- -----------
Per share distributions from net realized gain on investments sold,
financial futures contracts and foreign currency transactions .... $ 0.0175 -- -- --
----------- ----------- ----------- -----------
** Analysis of Fund Share Transactions:
Shares sold ....................................................... 101,202 63,479 204,907 1,248,274
Shares issued to shareholders in reinvestment of distributions .... 2,483 4,152 1,784 12,229
----------- ----------- ----------- -----------
103,685 67,631 206,691 1,260,503
Less shares repurchased ........................................... (1) (16,668) (63) (235,157)
----------- ----------- ----------- -----------
Net Increase ...................................................... 103,684 50,963 206,628 1,025,346
=========== =========== =========== ===========
</TABLE>
(1) Commenced operations on August 29, 1996.
(2) On July 26, 1996, the Adviser made an initial investment of $100,000
(100,000 shares) in order to seed the Trust.
SEE NOTES TO FINANCIAL STATEMENTS.
44
<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>
V.A FINANCIAL
V.A. INTERNATIONAL FUND INDUSTRIES FUND
---------------------------- ---------------
SIX MONTHS PERIOD
PERIOD ENDED ENDED
ENDED JUNE 30, JUNE 30,
DECEMBER 31, 1997 1997(2)
1996(1) (UNAUDITED) (UNAUDITED)
----------- ----------- -----------
<S> <C> <C> <C>
Per Share Operating Performance
Net Asset Value, Beginning of Period ............................ $ 10.00 $ 11.23 $ 10.00
----------- ----------- -----------
Net Investment Income (3) ....................................... 0.07 0.06 0.04
Net Realized and Unrealized Gain (Loss) on Investments
and Foreign Currency Transactions .............................. 1.20 1.49 1.20
----------- ----------- -----------
Total from Investment Operations ............................... 1.27 1.55 1.24
----------- ----------- -----------
Less Distributions:
Dividends from Net Investment Income ............................ (0.04) -- --
Distributions from Net Realized Gain on Investments Sold ........ -- -- --
----------- ----------- -----------
Total Distributions ............................................ (0.04) 0.00 0.00
----------- ----------- -----------
Net Asset Value, End of Period .................................. $ 11.23 $ 12.78 $ 11.24
=========== =========== ===========
Total Investment Return at Net Asset Value (5) .................. 12.75%(7) 13.80%(7) 12.40%(7)
Total Adjusted Investments Return at Net Asset Value (5,6) ...... 12.07%(7) 13.46%(7) 12.12%(7)
Ratios and Supplemental Data
Net Assets, End of Period (000s omitted) ........................ $ 2,267 $ 3,198 $ 2,802
Ratio of Expenses to Average Net Assets ......................... 1.15%(8) 1.15%(8) 1.05%(8)
Ratio of Adjusted Expenses to Average Net Assets (9) ............ 3.13%(8) 1.84%(8) 2.69%(8)
Ratio of Net Investment Income to Average Net Assets ............ 2.03%(8) 1.09%(8) 2.64%(8)
Ratio of Adjusted Net Investment Income to Average Net Assets (9) 0.05%(8) 0.40%(8) 1.00%(8)
Portfolio Turnover Rate ......................................... 14% 30% 13%
Fee Reduction Per Share (3) ..................................... $ 0.07 $ 0.04 $ 0.03
Average Brokerage Commission Rate (10) .......................... $ 0.0162 $ 0.0000 $ 0.0700
<CAPTION>
V.A. EMERGING GROWTH FUND
-----------------------------
SIX MONTHS
PERIOD ENDED
ENDED JUNE 30,
DECEMBER 31, 1997
1996(1) (UNAUDITED)
----------- -----------
<S> <C> <C>
Per Share Operating Performance
Net Asset Value, Beginning of Period ............................ $ 10.00 $ 9.32
----------- -----------
Net Investment Income (3) ....................................... 0.02 (0.00)(4)
Net Realized and Unrealized Gain (Loss) on Investments
and Foreign Currency Transactions .............................. (0.68) 0.36
----------- -----------
Total from Investment Operations ............................... (0.66) 0.36
----------- -----------
Less Distributions:
Dividends from Net Investment Income ............................ (0.02) --
Distributions from Net Realized Gain on Investments Sold ........ -- --
----------- -----------
Total Distributions ............................................ (0.02) --
----------- -----------
Net Asset Value, End of Period .................................. $ 9.32 $ 9.68
=========== ===========
Total Investment Return at Net Asset Value (5) .................. (6.62%)(7) 3.86%(7)
Total Adjusted Investments Return at Net Asset Value (5,6) ...... (8.05%)(7) 2.72%(7)
Ratios and Supplemental Data
Net Assets, End of Period (000s omitted) ........................ $ 975 $ 1,739
Ratio of Expenses to Average Net Assets ......................... 1.00%(8) 1.00%(8)
Ratio of Adjusted Expenses to Average Net Assets (9) ............ 5.19%(8) 3.29%(8)
Ratio of Net Investment Income to Average Net Assets ............ 0.62%(8) (0.01%)(8)
Ratio of Adjusted Net Investment Income to Average Net Assets (9) (3.57%)(8) (2.30%)(8)
Portfolio Turnover Rate ......................................... 31% 60%
Fee Reduction Per Share (3) ..................................... $ 0.14 $ 0.10
Average Brokerage Commission Rate (10) .......................... $ 0.0694 $ 0.0695
</TABLE>
(1) Commenced operations on August 29, 1996.
(2) Commenced operations on April 30, 1997.
(3) Based on the average of the shares outstanding at the end of each month.
(4) Less than $0.01 per share.
(5) Assumes dividend reinvestment.
(6) An estimated total return calculation which does not take into consideration
fee reductions by the Adviser during the periods shown.
(7) Not annualized.
(8) Annualized.
(9) Unreimbursed, without fee reduction.
(10) Per portfolio share traded.
The Financial Highlights summarizes the impact of the following factors on a
single share for each period indicated: net investment income, gains (losses),
dividends and total investment return of the Fund. It shows how the Fund's net
asset value for a share has changed since the commencement of operations.
Additionally, important relationships between some items presented in the
financial statements are expressed in ratio form.
SEE NOTES TO FINANCIAL STATEMENTS.
45
<PAGE>
================================================================================
FINANCIAL STATEMENTS
John Hancock Funds - Declaration Trust
Financial Highlights (continued)
Selected data for a share of beneficial interest outstanding throughout each
period indicated, investment returns, key ratios and supplemental data are
listed as follows:
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
V.A. DISCOVERY FUND
-----------------------------
SIX MONTHS
PERIOD ENDED
ENDED JUNE 30,
DECEMBER 31, 1997
1996(1) (UNAUDITED)
----------- -----------
<S> <C> <C>
Per Share Operating Performance
Net Asset Value, Beginning of Period ............................ $ 10.00 $ 9.39
----------- -----------
Net Investment Income (2) ....................................... (0.01) (0.01)
Net Realized and Unrealized Gain on Investments and Foreign
Currency Transactions .......................................... (0.60) 0.03
----------- -----------
Total from Investment Operations ............................... (0.61) 0.02
----------- -----------
Less Distributions:
Dividends from Net Investment Income ............................ -- --
Distributions from Net Realized Gain on Investments Sold ........ -- --
----------- -----------
Total Distributions ............................................ 0.00 0.00
----------- -----------
Net Asset Value, End of Period .................................. $ 9.39 $ 9.41
=========== ===========
Total Investment Return at Net Asset Value (3) .................. (6.10%)(5) 0.21%(5)
Total Adjusted Investments Return at Net Asset Value (3,4) ...... (7.39%)(5) (0.78%)(5)
Ratios and Supplemental Data
Net Assets, End of Period (000s omitted) ........................ $ 994 $ 2,117
Ratio of Expenses to Average Net Assets ......................... 1.00%(6) 1.00%(6)
Ratio of Adjusted Expenses to Average Net Assets (7) ............ 4.76%(6) 2.99%(6)
Ratio of Net Investment Income to Average Net Assets ............ (0.23%)(6) (0.29%)(6)
Ratio of Adjusted Net Investment Income to Average Net Assets (7) (3.99%)(6) (2.28%)(6)
Portfolio Turnover Rate ......................................... 68% 110%
Fee Reduction Per Share (2) ..................................... $ 0.13 $ 0.09
Average Brokerage Commission Rate (8) ........................... $ 0.0691 $ 0.0699
<CAPTION>
V.A. INDEPENDENCE EQUITY FUND
-----------------------------
SIX MONTHS
PERIOD ENDED
ENDED JUNE 30,
DECEMBER 31, 1997
1996(1) (UNAUDITED)
----------- -----------
<S> <C> <C>
Per Share Operating Performance
Net Asset Value, Beginning of Period ............................ $ 10.00 $ 11.11
----------- -----------
Net Investment Income (2) ....................................... 0.06 0.07
Net Realized and Unrealized Gain on Investments and Foreign
Currency Transactions .......................................... 1.12 1.74
----------- -----------
Total from Investment Operations ............................... 1.18 1.81
----------- -----------
Less Distributions:
Dividends from Net Investment Income ............................ (0.06) (0.07)
Distributions from Net Realized Gain on Investments Sold ........ (0.01) --
----------- -----------
Total Distributions ............................................. (0.07) (0.07)
----------- -----------
Net Asset Value, End of Period .................................. $ 11.11 $ 12.85
=========== ===========
Total Investment Return at Net Asset Value (3) .................. 11.78%(5) 16.27%(5)
Total Adjusted Investments Return at Net Asset Value (3,4) ...... 10.66%(5) 15.68%(5)
Ratios and Supplemental Data
Net Assets, End of Period (000s omitted) ........................ $ 1,149 $ 2,427
Ratio of Expenses to Average Net Assets ......................... 0.95%(6) 0.95%(6)
Ratio of Adjusted Expenses to Average Net Assets (7) ............ 4.23%(6) 2.15%(6)
Ratio of Net Investment Income to Average Net Assets ............ 1.60%(6) 1.30%(6)
Ratio of Adjusted Net Investment Income to Average Net Assets (7) (1.68%)(6) 0.10%(6)
Portfolio Turnover Rate ......................................... 24% 31%
Fee Reduction Per Share (2) ..................................... $ 0.12 $ 0.07
Average Brokerage Commission Rate (8) ........................... $ 0.0210 $ 0.0225
</TABLE>
(1) Commenced operations on August 29, 1996.
(2) Based on the average of the shares outstanding at the end of each month.
(3) Assumes dividend reinvestment.
(4) An estimated total return calculation which does not take into consideration
fee reductions by the Adviser during the periods shown.
(5) Not annualized.
(6) Annualized.
(7) Unreimbursed, without fee reduction.
(8) Per portfolio share traded.
SEE NOTES TO FINANCIAL STATEMENTS.
46
<PAGE>
================================================================================
FINANCIAL STATEMENTS
John Hancock Funds - Declaration Trust
Financial Highlights (continued)
Selected data for a share of beneficial interest outstanding throughout each
period indicated, investment returns, key ratios and supplemental data are
listed as follows:
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
V.A. 500 INDEX FUND
-------------------------------
SIX MONTHS
PERIOD ENDED
ENDED JUNE 30,
DECEMBER 31, 1997
1996(1) (UNAUDITED)
------------ ------------
<S> <C> <C>
Per Share Operating Performance
Net Asset Value, Beginning of Period ............................ $ 10.00 $ 10.44
------------ ------------
Net Investment Income (2) ....................................... 0.17 0.24
Net Realized and Unrealized Gain on Investments and
Foreign Currency Transactions .................................. 0.98 1.63
------------ ------------
Total from Investment Operations .............................. 1.15 1.87
------------ ------------
Less Distributions:
Dividends from Net Investment Income ............................ (0.16) (0.19)
Distributions from Net Realized Gain on Investments Sold ........ (0.55) --
------------ ------------
Total Distributions ............................................ (0.71) (0.19)
------------ ------------
Net Asset Value, End of Period .................................. $ 10.44 $ 12.12
============ ============
Total Investment Return at Net Asset Value (3) .................. 11.49%(5) 18.08%(5)
Total Adjusted Investments Return at Net Asset Value (3,4) ...... 11.25%(5) 17.99%(5)
Ratios and Supplemental Data
Net Assets, End of Period (000s omitted) ........................ $ 4,049 $ 11,231
Ratio of Expenses to Average Net Assets ......................... 0.60%(6) 0.40%(6)
Ratio of Adjusted Expenses to Average Net Assets (7) ............ 1.31%(6) 0.58%(6)
Ratio of Net Investment Income to Average Net Assets ............ 4.57%(6) 4.57%(6)
Ratio of Adjusted Net Investment Income to Average Net Assets (7) 3.86%(6) 4.39%(6)
Portfolio Turnover Rate ......................................... 0% 0%
Fee Reduction Per Share (2) ..................................... $ 0.03 $ 0.01
Average Brokerage Commission Rate (8) ........................... $ 0.0000 $ 0.0000
<CAPTION>
V.A. SOVEREIGN INVESTORS FUND
-------------------------------
SIX MONTHS
PERIOD ENDED
ENDED JUNE 30,
DECEMBER 31, 1997
1996(1) (UNAUDITED)
------------ ------------
<S> <C> <C>
Per Share Operating Performance
Net Asset Value, Beginning of Period ............................ $ 10.00 $ 10.74
------------ ------------
Net Investment Income (2) ....................................... 0.07 0.11
Net Realized and Unrealized Gain on Investments and
Foreign Currency Transactions .................................. 0.76 1.43
------------ ------------
Total from Investment Operations .............................. 0.83 1.54
------------ ------------
Less Distributions:
Dividends from Net Investment Income ............................ (0.07) (0.08)
Distributions from Net Realized Gain on Investments Sold ........ (0.02) --
------------ ------------
Total Distributions ............................................ (0.09) (0.08)
------------ ------------
Net Asset Value, End of Period .................................. $ 10.74 $ 12.20
============ ============
Total Investment Return at Net Asset Value (3) .................. 8.30%(5) 14.40
Total Adjusted Investments Return at Net Asset Value (3,4) ...... 7.30%(5) 14.06%(5)
Ratios and Supplemental Data
Net Assets, End of Period (000s omitted) ........................ $ 1,111 $ 3,794
Ratio of Expenses to Average Net Assets ......................... 0.85%(6) 0.85%(6)
Ratio of Adjusted Expenses to Average Net Assets (7) ............ 3.78%(6) 1.54%(6)
Ratio of Net Investment Income to Average Net Assets ............ 1.90%(6) 2.04%(6)
Ratio of Adjusted Net Investment Income to Average Net Assets (7) (1.03%)(6) 1.35%(6)
Portfolio Turnover Rate ......................................... 17% 10%
Fee Reduction Per Share (2) ..................................... $ 0.11 $ 0.04
Average Brokerage Commission Rate (8) ........................... $ 0.0235 $ 0.0700
</TABLE>
(1) Commenced operations on August 29, 1996.
(2) Based on the average of the shares outstanding at the end of each month.
(3) Assumes dividend reinvestment.
(4) An estimated total return calculation which does not take into consideration
fee reductions by the Adviser during the periods shown.
(5) Not annualized.
(6) Annualized.
(7) Unreimbursed, without fee reduction.
(8) Per portfolio share traded.
SEE NOTES TO FINANCIAL STATEMENTS.
47
<PAGE>
================================================================================
FINANCIAL STATEMENTS
John Hancock Funds - Declaration Trust
Financial Highlights (continued)
Selected data for a share of beneficial interest outstanding throughout each
period indicated, investment returns, key ratios and supplemental data are
listed as follows:
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
V.A. WORLD BOND FUND
---------------------------
SIX MONTHS
PERIOD ENDED
ENDED JUNE 30,
DECEMBER 31, 1997
1996(1) (UNAUDITED)
----------- -----------
<S> <C> <C>
Per Share Operating Performance
Net Asset Value, Beginning of Period ............................................ $ 10.00 $ 10.20
--------- ---------
Net Investment Income (2) ....................................................... 0.20 0.29
Net Realized and Unrealized Gain on Investments and Foreign Currency Transactions 0.20 (0.32)
--------- ---------
Total from Investment Operations ............................................... 0.40 (0.03)
--------- ---------
Less Distributions:
Dividends from Net Investment Income ........................................... (0.20) (0.29)
Distributions from Net Realized Gain on Investments Sold ....................... -- --
--------- ---------
Total Distributions ........................................................... (0.20) (0.29)
--------- ---------
Net Asset Value, End of Period .................................................. $ 10.20 $ 9.88
========= =========
Total Investment Return at Net Asset Value (3) .................................. 4.05%(5) ( 0.23%)(5)
Total Adjusted Investments Return at Net Asset Value (3,4) ...................... 3.30%(5) ( 0.70%)(5)
Ratios and Supplemental Data
Net Assets, End of Period (000s omitted) ........................................ $ 2,083 $ 2,160
Ratio of Expenses to Average Net Assets ......................................... 1.00%(6) 1.00%(6)
Ratio of Adjusted Expenses to Average Net Assets (7) ............................ 3.19%(6) 1.96%(6)
Ratio of Net Investment Income to Average Net Assets ............................ 5.83%(6) 5.97%(6)
Ratio of Adjusted Net Investment Income to Average Net Assets (7) ............... 3.64%(6) 5.01%(6)
Portfolio Turnover Rate ......................................................... 30% 100%
Fee Reduction Per Share (2) ..................................................... $ 0.08 $ 0.05
<CAPTION>
V.A. STRATEGIC INCOME FUND
---------------------------
SIX MONTHS
PERIOD ENDED
ENDED JUNE 30,
DECEMBER 31, 1997
1996(1) (UNAUDITED)
----------- -----------
<S> <C> <C>
Per Share Operating Performance
Net Asset Value, Beginning of Period ............................................ $ 10.00 $ 10.30
--------- ---------
Net Investment Income (2) ....................................................... 0.27 0.45
Net Realized and Unrealized Gain on Investments and Foreign Currency Transactions 0.36 0.13
--------- ---------
Total from Investment Operations ............................................... 0.63 0.58
--------- ---------
Less Distributions:
Dividends from Net Investment Income ........................................... (0.27) (0.45)
Distributions from Net Realized Gain on Investments Sold ....................... (0.06) --
--------- ---------
Total Distributions ........................................................... (0.33) (0.45)
--------- ---------
Net Asset Value, End of Period .................................................. $ 10.30 $ 10.43
========= =========
Total Investment Return at Net Asset Value (3) .................................. 6.45%(5) 5.81%(5)
Total Adjusted Investments Return at Net Asset Value (3,4) ...................... 5.96%(5) 5.58%(5)
Ratios and Supplemental Data
Net Assets, End of Period (000s omitted) ........................................ $ 2,131 $ 3,047
Ratio of Expenses to Average Net Assets ......................................... 0.85%(6) 0.85%(6)
Ratio of Adjusted Expenses to Average Net Assets (7) ............................ 2.28%(6) 1.32%(6)
Ratio of Net Investment Income to Average Net Assets ............................ 7.89%(6) 9.02%(6)
Ratio of Adjusted Net Investment Income to Average Net Assets (7) ............... 6.46%(6) 8.55%(6)
Portfolio Turnover Rate ......................................................... 73% 77%
Fee Reduction Per Share (2) ..................................................... $ 0.05 $ 0.02
</TABLE>
(1) Commenced operations on August 29, 1996.
(2) Based on the average of the shares outstanding at the end of each month.
(3) Assumes dividend reinvestment.
(4) An estimated total return calculation which does not take into consideration
fee reductions by the Adviser during the periods shown.
(5) Not annualized.
(6) Annualized.
(7) Unreimbursed, without fee reduction.
SEE NOTES TO FINANCIAL STATEMENTS.
48
<PAGE>
================================================================================
FINANCIAL STATEMENTS
John Hancock Funds - Declaration Trust
Financial Highlights (continued)
Selected data for a share of beneficial interest outstanding throughout each
period indicated, investment returns, key ratios and supplemental data are
listed as follows:
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
V.A. SOVEREIGN BOND FUND V.A. MONEY MARKET FUND
-------------------------- -------------------------
SIX MONTHS SIX MONTHS
PERIOD ENDED PERIOD ENDED
ENDED JUNE 30, ENDED JUNE 30,
DECEMBER 31, 1997 DECEMBER 31, 1997
1996(1) (UNAUDITED) 1996(1) (UNAUDITED)
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Per Share Operating Performance
Net Asset Value, Beginning of Period ............................ $ 10.00 $ 10.19 $ 1.00 $ 1.00
--------- --------- --------- ---------
Net Investment Income (2) ....................................... 0.23 0.34 0.02 0.02
Net Realized and Unrealized Gain on Investments and Foreign
Currency Transactions .......................................... 0.21 (0.07) -- --
--------- --------- --------- ---------
Total from Investment Operations .............................. 0.44 0.27 0.02 0.02
--------- --------- --------- ---------
Less Distributions:
Dividends from Net Investment Income ........................... (0.23) (0.34) (0.02) (0.02)
Distributions from Net Realized Gain on Investments Sold ....... (0.02) -- -- --
--------- --------- --------- ---------
Total Distributions ........................................... (0.25) (0.34) (0.02) (0.02)
--------- --------- --------- ---------
Net Asset Value, End of Period .................................. $ 10.19 $ 10.12 $ 1.00 $ 1.00
========= ========= ========= =========
Total Investment Return at Net Asset Value (3) .................. 4.42%(5) 2.77%(5) 1.61%(5) 2.36%(5)
Total Adjusted Investments Return at Net Asset Value (3,4) ...... 3.25%(5) 1.88%(5) ( 7.55%)(5) 1.51%(5)
Ratios and Supplemental Data
Net Assets, End of Period (000s omitted) ........................ $ 1,056 $ 1,564 $ 207 $ 1,232
Ratio of Expenses to Average Net Assets ......................... 0.75%(6) 0.75%(6) 0.75%(6) 0.75%(6)
Ratio of Adjusted Expenses to Average Net Assets (7) ............ 4.15%(6) 2.55%(6) 27.48%(6) 2.46%(6)
Ratio of Net Investment Income to Average Net Assets ............ 6.69%(6) 6.93%(6) 4.68%(6) 4.74%(6)
Ratio of Adjusted Net Investment Income to Average Net Assets (7) 3.29%(6) 5.13%(6) (22.05%)(6) 3.03%(6)
Portfolio Turnover Rate ......................................... 45% 94% -- --
Fee Reduction Per Share (2) ..................................... $ 0.12 $ 0.09 $ 0.08 $ 0.01
</TABLE>
(1) Commenced operations on August 29, 1996.
(2) Based on the average of the shares outstanding at the end of each month.
(3) Assumes dividend reinvestment.
(4) An estimated total return calculation which does not take into consideration
fee reductions by the Adviser during the periods shown.
(5) Not annualized.
(6) Annualized.
(7) Unreimbursed, without fee reduction.
SEE NOTES TO FINANCIAL STATEMENTS.
49
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================================================================================
FINANCIAL STATEMENTS
John Hancock Funds - Declaration Trust -- V.A. International Fund
Schedule of Investments
June 30, 1997 (Unaudited)
- --------------------------------------------------------------------------------
The Schedule of Investments is a complete list of all securities owned by the
V.A. International Fund on June 30, 1997. It's divided into three main
categories: common stocks, preferred stocks and short-term investments. Common
stocks and preferred stocks are further broken down by country. Short-term
investments, which represent the Fund's "cash" position, are listed last.
NUMBER OF MARKET
ISSUER, DESCRIPTION SHARES VALUE
- ------------------- ------ -----
COMMON STOCKS
Argentina (2.06%)
Perez Companc S.A. (American
Depositary Receipts) (ADR) (Oil & Gas)................. 4,126 $ 65,858
----------
Australia (3.70%)
Newcrest Mining Ltd. (Metal)............................ 20,000 55,306
WMC Ltd. (Metal)........................................ 10,000 63,105
----------
118,411
----------
Brazil (7.53%)
Centrais Electricas Brasileiras S/A
(ADR) (Utilities)...................................... 3,100 89,125
Telecomunicacoes Brasileiras S/A
(ADR) (Telecommunications)............................. 1,000 151,750
----------
240,875
----------
Chile (0.78%)
Maderas y Sinteticos SA (ADR) (Building)................ 1,500 24,938
----------
China (0.66%)
First Tractor Co., Ltd. (Machinery)*.................... 32,000 21,065
----------
France (4.94%)
LVMH Moet Hennessy
Louis Vuitton (Beverages).............................. 400 107,543
Lyonnaise des Eaux SA
(Diversified Operations)............................... 500 50,368
----------
157,911
----------
Germany (2.40%)
Volkswagen AG (Automobile / Trucks)..................... 100 76,658
----------
Hong Kong (13.23%)
China Resources Enterprise Ltd.
(Real Estate Operations)............................... 70,000 343,345
Hong Kong & Shanghai Hotels Ltd.
(Leisure).............................................. 50,000 79,705
----------
423,050
----------
India (1.57%)
State Bank of India, Global Depositary
Receipts (Banks - Foreign)*............................ 1,900 50,350
----------
Japan (21.26%)
Fujitsu Ltd. (Computers)................................ 6,000 83,232
Ito-Yokado Co., Ltd. (Retail)........................... 2,000 116,036
Matsushita Communication Industrial Co.,
Ltd. (Telecommunications).............................. 2,000 67,527
Matsushita-Kotobuki Electronics Industries,
Ltd. (Electronics)..................................... 3,000 99,459
Nippon Steel Corp. (Steel).............................. 25,000 79,829
Sony Corp. (Electronics)................................ 1,000 87,158
TDK Corp. (Electronics)................................. 2,000 146,746
----------
679,987
----------
Mexico (5.77%)
Empresas La Moderna S.A. de C.V.
(ADR) (Tobacco)........................................ 1,400 29,925
Grupo Industrial Maseca SA de CV
(ADR) (Food)........................................... 2,800 46,200
Panamerican Beverages, Inc. (Beverages)................. 3,300 108,488
----------
184,613
----------
Netherlands (4.62%)
Gucci Group NV (Retail)................................. 1,070 68,881
ING Groep N.V. (ADR) (Banks - Foreign).................. 1,700 78,837
----------
147,718
----------
Norway (1.78%)
Saga Petroleum ASA (Oil & Gas).......................... 3,000 56,896
----------
Portugal (1.91%) Electricidade de Portugal, S.A.
(ADR) (Utilities)*..................................... 1,700 61,200
----------
Singapore (3.42%)
DBS Land Ltd. (Real Estate Operations).................. 15,000 47,423
Oversea-Chinese Banking Corp.,
Ltd. (Banks - Foreign)................................. 6,000 62,111
----------
109,534
----------
Sweden (2.47%)
Investor AB (Diversified Operations).................... 1,500 79,019
----------
SEE NOTES TO FINANCIAL STATEMENTS.
50
<PAGE>
================================================================================
FINANCIAL STATEMENTS
John Hancock Funds - Declaration Trust -- V.A. International Fund
NUMBER OF MARKET
ISSUER, DESCRIPTION SHARES VALUE
- ------------------- ------ -----
United Kingdom (9.50%)
Marks & Spencer PLC (Retail)............................ 10,000 $ 82,932
Pearson PLC (Media)..................................... 10,000 115,905
PizzaExpress PLC (Retail)............................... 10,000 104,914
----------
303,751
----------
TOTAL COMMON STOCKS
(Cost $2,215,326) (87.60%) 2,801,834
------ ----------
PREFERRED STOCKS
Brazil (1.95%)
Compania Riograndense de
Telecomunicaciones SA
(Telecommunications)................................... 40,000 60,564
Compania Riograndense de
Telecomunicaciones SA
(Telecommunications)................................... 1,424 1,830
----------
62,394
----------
TOTAL PREFERRED STOCKS
(Cost $53,046) (1.95%) 62,394
------ ----------
TOTAL COMMON AND PREFERRED STOCKS
(Cost $2,268,372) (89.55%) 2,864,228
====== =========
INTEREST PAR VALUE MARKET
RATE (000s OMITTED) VALUE
---- -------------- -----
SHORT-TERM INVESTMENTS
Joint Repurchase Agreement (12.35%)
Investment in a joint repurchase agreement
with Toronto Dominion Securities USA,
Inc. - Dated 06-30-97, Due 07-01-97
(secured by U.S. Treasury Notes,
5.625% thru 6.375% Due 04-30-99
thru 06-30-02) - Note A....................... 5.97% $395 395,000
----------
TOTAL SHORT-TERM INVESTMENTS (12.35%) 395,000
------ ----------
TOTAL INVESTMENTS (101.90%) $3,259,228
====== =========
*Non-income producing security.
The percentage shown for each investment category is the total value of that
category as a percentage of the net assets of the Fund.
Industry Diversification
- --------------------------------------------------------------------------------
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 June 30, 1997 assigned to the various investment categories.
MARKET VALUE OF SECURITIES
INVESTMENT CATEGORIES AS A % OF FUND NET ASSETS
- --------------------- -------------------------
Automobile/Trucks........................ 2.40%
Banks - Foreign.......................... 5.98
Beverages................................ 6.75
Building................................. 0.78
Computers................................ 2.60
Diversified Operations................... 4.05
Electronics.............................. 10.42
Food..................................... 1.44
Leisure.................................. 2.49
Machinery................................ 0.66
Media.................................... 3.62
Metal.................................... 3.70
Oil & Gas................................ 3.84
Real Estate Operations................... 12.22
Retail................................... 11.65
Steel.................................... 2.50
Telecommunications....................... 8.81
Tobacco.................................. 0.94
Utilities................................ 4.70
Short-Term Investments................... 12.35
------
TOTAL INVESTMENTS 101.90%
======
SEE NOTES TO FINANCIAL STATEMENTS.
51
<PAGE>
================================================================================
FINANCIAL STATEMENTS
John Hancock Funds - Declaration Trust -- V.A. Financial Industries Fund
Schedule of Investments
June 30, 1997 (Unaudited)
- --------------------------------------------------------------------------------
The Schedule of Investments is a complete list of all securities owned by the
V.A. Financial Industries Fund on June 30, 1997. It's divided into two main
categories: common stocks and short-term investments. Common stocks are further
broken down by industry groups. Short-term investments, which represent the
Fund's "cash" position, are listed last.
NUMBER OF MARKET
ISSUER, DESCRIPTION SHARES VALUE
- ------------------- ------ -----
COMMON STOCKS
Banks - Foreign (11.50%)
Allied Irish Banks plc, American
Depositary Receipt, ADR (Ireland)...................... 3,500 $ 163,406
Royal Bank of Canada (Canada)........................... 3,500 158,812
---------
322,218
---------
Banks - Money Center (5.20%)............................
Chase Manhattan Corp.................................... 1,500 145,594
---------
Banks - Southeast (2.57%)...............................
First Tennessee National Corp........................... 1,500 72,000
---------
Banks - Super Regional (7.38%)..........................
BankBoston Corp......................................... 1,700 122,506
Norwest Corp............................................ 1,500 84,375
---------
206,881
---------
Banks - West (2.44%)....................................
Westamerica Bancorp..................................... 900 68,400
---------
Broker Services (11.28%)................................
Edwards (A.G.), Inc..................................... 2,000 85,500
Legg Mason, Inc......................................... 2,000 107,625
McDonald & Co., Investments............................. 800 36,700
Morgan Stanley, Dean Witter, Discover & Co.............. 2,000 86,125
---------
315,950
---------
Computer - Services (2.87%).............................
Fiserv, Inc.*........................................... 1,800 80,325
---------
Finance - Consumer Loan (8.99%).........................
American Express Co..................................... 1,500 111,750
Imperial Credit Industries, Inc.*....................... 3,200 65,800
Life Financial Corp..................................... 100 1,350
MBNA Corp............................................... 1,600 58,600
New Century Financial Corp.............................. 1,000 14,500
---------
252,000
---------
Finance - Investment Management (5.47%).................
Franklin Resources, Inc................................. 1,400 101,588
Price (T. Rowe) Associates, Inc......................... 1,000 51,625
---------
153,213
---------
Finance - Savings & Loan (1.69%)
InterWest Bancorp., Inc................................. 1,200 47,400
---------
Insurance - Accident & Health (5.62%)...................
Provident Cos., Inc..................................... 2,500 133,750
Summit Holdings Southeast, Inc.......................... 1,400 23,800
---------
157,550
---------
Insurance - Life (5.28%)................................
ARM Financial Group, Inc.* (Class A).................... 700 14,000
Equitable of Iowa Cos................................... 2,100 117,600
Unionamerica Holdings plc, ADR
(United Kingdom)....................................... 800 16,500
---------
148,100
---------
Insurance - Multi Line (3.70%)..........................
Allmerica Financial Corp................................ 2,600 103,675
---------
Insurance - Property & Casualty (18.71%)................
Aetna Inc............................................... 1,000 102,375
General Re Corp......................................... 1,000 182,000
St. Paul Cos., Inc...................................... 2,100 160,125
Travelers Property Casualty Corp. (Class A)............. 2,000 79,750
---------
524,250
---------
Mortgage - Equity REIT (5.78%)..........................
Prentiss Properties Trust............................... 2,200 56,375
Spieker Properties, Inc................................. 3,000 105,563
---------
161,938
---------
TOTAL COMMON STOCKS
(Cost $2,640,237) (98.48%) 2,759,494
-------- ---------
SEE NOTES TO FINANCIAL STATEMENTS.
52
<PAGE>
================================================================================
FINANCIAL STATEMENTS
John Hancock Funds - Declaration Trust -- V.A. Financial Industries Fund
INTEREST PAR VALUE MARKET
ISSUER, DESCRIPTION RATE (000s OMITTED) VALUE
- ------------------- ---- -------------- -----
SHORT-TERM INVESTMENTS
Joint Repurchase Agreements (5.35%)
Investment in a joint repurchase
agreement transaction with Toronto
Dominion Securities USA, Inc.
Dated 06-30-97, Due 07-01-97
(secured by U.S. Treasury Notes
5.625% thru 8.125% Due 07-31-97
thru 11-15-04), - Note A................... 5.970% $150 $ 150,000
----------
Corporate Savings Account ( 0.02%)
Investors Bank & Trust Company
Daily Interest Savings Account
Current Rate 4.95%......................... 497
----------
TOTAL SHORT-TERM INVESTMENTS (5.37%) 150,497
------- ----------
TOTAL INVESTMENTS (103.85%) $2,909,991
======= ==========
* Non-income producing security.
The percentage shown for each investment category is the total value of that
category as a percentage of the net assets of the Fund.
SEE NOTES TO FINANCIAL STATEMENTS.
53
<PAGE>
================================================================================
FINANCIAL STATEMENTS
John Hancock Funds - Declaration Trust -- V.A. Emerging Growth Fund
Schedule of Investments
June 30, 1997 (Unaudited)
- --------------------------------------------------------------------------------
The Schedule of Investments is a complete list of all securities owned by the
V.A. Emerging Growth Fund on June 30, 1997. It's divided into two main
categories: common stocks and short-term investments. Common stocks are further
broken down by industry groups. Short-term investments, which represent the
Fund's "cash" position, are listed last.
NUMBER OF MARKET
ISSUER, DESCRIPTION SHARES VALUE
- ------------------- ------ -----
COMMON STOCKS
Advertising (1.26%)
Outdoor Systems, Inc.* ............................. 300 $ 11,475
Universal Outdoor Holdings, Inc.* .................. 300 10,462
----------
21,937
----------
Aerospace (0.74%)
AAR Corp. .......................................... 400 12,925
----------
Automobile / Trucks (0.77%)
Budget Group, Inc. (Class A)* ...................... 200 6,900
Keystone Automotive Industries, Inc.* .............. 100 1,700
Special Devices, Inc. .............................. 300 4,725
----------
13,325
----------
Beverages (0.82%)
Mondavi (Robert) Corp. (Class A)* .................. 300 14,175
----------
Broker Services (1.09%)
Alex Brown, Inc. ................................... 150 10,594
Interra Financial, Inc. ............................ 200 8,388
----------
18,982
----------
Building (1.18%)
Royal Group Technologies Ltd. (Canada)* ............ 400 10,600
Watsco, Inc. ....................................... 400 10,000
----------
20,600
----------
Business Services - Misc (3.64%)
CORESTAFF, Inc.* ................................... 350 9,450
Fair Isaac & Co., Inc. ............................. 200 8,913
MAXIMUS, Inc.* ..................................... 100 1,788
On Assignment, Inc.* ............................... 300 11,700
Pre-Paid Legal Services, Inc.* ..................... 400 8,450
Sitel Corp.* ....................................... 600 12,375
StarTek, Inc.* ..................................... 700 10,544
----------
63,220
----------
Computers (10.58%)
Advent Software, Inc.* ............................. 500 13,312
Aris Corp.* ........................................ 100 2,188
Aspect Development, Inc.* .......................... 400 10,425
Baan Co., N.V. (Netherlands)* ...................... 100 6,888
BISYS Group, Inc. (The)* ........................... 300 12,525
Computer Management Sciences, Inc. * ............... 200 4,100
Discreet Logic, Inc.* .............................. 500 8,250
E* TRADE Group, Inc.* .............................. 800 15,700
Information Management Resources, Inc.* ............ 300 13,650
IONA Technologies PLC, American Depositary
Receipts (ADR) (Ireland)* ......................... 100 1,975
JDA Software Group, Inc.* .......................... 300 10,237
National Instruments Corp.* ........................ 300 10,575
National TechTeam, Inc.* ........................... 500 10,687
Network Appliance, Inc.* ........................... 300 11,400
Remedy Corp.* ...................................... 300 12,000
RWD Technologies, Inc.* ............................ 100 1,725
Transaction Systems Architects,
Inc. (Class A)* ................................... 200 6,900
Visio Corp.* ....................................... 300 21,150
Xionics Document Technologies, Inc.* ............... 700 10,325
----------
184,012
----------
Consumer Products Misc. (1.02%)
Samsonite Corp.* ................................... 400 17,650
----------
Electronics (5.49%)
Advanced Technology Materials, Inc.* ............... 600 17,625
Electroglas, Inc.* ................................. 300 7,556
Integrated Circuit Systems, Inc.* .................. 600 13,612
Level One Communications, Inc.* .................... 300 11,531
Novellus Systems, Inc.* ............................ 100 8,650
Sawtek, Inc.* ...................................... 400 13,500
SeaMED Corp.* ...................................... 100 2,025
Semtech Corp.* ..................................... 300 10,950
Unitrode Corp.* .................................... 200 10,075
----------
95,524
----------
Finance (1.91%)
Crescent Operating, Inc.* .......................... 40 480
FIRSTPLUS Financial Group, Inc.* ................... 200 6,800
Medallion Financial Corp. .......................... 800 15,300
PMT Services, Inc.* ................................ 700 10,675
----------
33,255
----------
SEE NOTES TO FINANCIAL STATEMENTS.
54
<PAGE>
================================================================================
FINANCIAL STATEMENTS
John Hancock Funds - Declaration Trust -- V.A. Emerging Growth Fund
NUMBER OF MARKET
ISSUER, DESCRIPTION SHARES VALUE
- ------------------- ------ -----
Food (1.74%)
Fine Host Corp.* .................................... 400 $ 12,600
Morningstar Group, Inc.* ............................ 600 17,625
----------
30,225
----------
Insurance (4.41%)
Ace, Ltd. (Bermuda) ................................. 200 14,775
Capital Re Corp. .................................... 200 10,700
CMAC Investment Corp. ............................... 200 9,550
HCC Insurance Holdings, Inc. ........................ 400 10,675
Life Re Corp. ....................................... 200 9,325
Philadelphia Consolidated Holding Corp.* ............ 400 13,600
Western National Corp. .............................. 300 8,044
----------
76,669
----------
Leasing Companies (0.68%)
Rollins Truck Leasing Corp. ......................... 800 11,900
----------
Leisure (3.13%)
Ballantyne of Omaha, Inc.* .......................... 300 5,400
Cinar Films, Inc. (Class B) (Canada)* ............... 500 16,250
Premier Parks, Inc.* ................................ 400 14,750
Silicon Gaming, Inc.* ............................... 800 10,400
Silverleaf Resorts, Inc.* ........................... 500 7,688
----------
54,488
----------
Machinery (1.78%)
Gardner Denver Machinery, Inc.* ..................... 500 14,875
ITEQ, Inc.* ......................................... 1,700 16,150
----------
31,025
----------
Media (5.29%)
American Radio Systems Corp.* ....................... 300 11,962
Central Newspapers, Inc. (Class A) .................. 200 14,325
Cox Radio, Inc. (Class A)* .......................... 400 10,250
Gray Communications Systems, Inc. (Class B) ......... 400 8,350
Heftel Broadcasting Corp. (Class A)* ................ 300 16,575
Jacor Communications, Inc.* ......................... 200 7,650
Mecklermedia Corp.* ................................. 300 5,700
Network Event Theater, Inc.* ........................ 1,200 5,475
Univision Communications, Inc.* (Class A) ........... 300 11,737
----------
92,024
----------
Medical (7.31%)
Affymetrix, Inc.* ................................... 300 10,425
Andrx Corp.* ........................................ 300 11,475
ESC Medical Systems Ltd. (Israel)* .................. 400 10,200
Health Care & Retirement Corp.* ..................... 200 6,675
Healthcare Recoveries, Inc.* ........................ 500 9,687
Incyte Pharmaceuticals, Inc.* ....................... 100 6,700
Kos Pharmaceuticals, Inc.* .......................... 300 8,325
Myriad Genetics, Inc.* .............................. 300 8,100
National Surgery Centers, Inc.* ..................... 400 14,150
Perclose, Inc.* ..................................... 400 10,000
Protein Design Labs, Inc.* .......................... 300 8,550
Sonus Pharmaceuticals, Inc.* ........................ 400 11,250
Universal Health Services, Inc.* (Class B) .......... 300 11,550
----------
127,087
----------
Metal (0.86%)
Maverick Tube Corp * ................................ 400 15,000
----------
Office (0 47%)
Shelby Williams Industries, Inc ..................... 600 8,175
----------
Oil & Gas (5 36%)
EVI, Inc * .......................................... 200 8,400
Forcenergy, Inc * ................................... 300 9,113
Key Energy Group Inc * .............................. 500 8,906
National-Oilwell, Inc * ............................. 200 11,500
Ocean Energy, Inc * ................................. 200 9,250
Offshore Logistics, Inc * ........................... 400 7,550
Precision Drilling Corp (Canada)* .................. 300 14,512
Pride International, Inc * .......................... 400 9,600
Stone Energy Corp * ................................. 300 8,213
Vintage Petroleum, Inc .............................. 200 6,150
----------
93,194
----------
Pollution Control (3 08%)
Newpark Resources, Inc * ............................ 600 20,250
Philip Services Corp (Canada)* ..................... 1,500 23,812
Superior Services, Inc * ............................ 400 9,500
----------
53,562
----------
Printing - Commercial (0 74%)
Mail-Well, Inc * .................................... 450 12,825
----------
Real Estate Investment Trust (3 86%)
Arden Realty Group, Inc ............................. 400 10,400
Beacon Properties Corp .............................. 200 6,675
Cali Realty Corp .................................... 200 6,800
Crescent Real Estate Equities Co .................... 400 12,700
Glenborough Realty Trust, Inc ....................... 500 12,625
Redwood Trust, Inc .................................. 200 9,350
Starwood Lodging Trust .............................. 200 8,538
----------
67,088
----------
SEE NOTES TO FINANCIAL STATEMENTS.
55
<PAGE>
================================================================================
FINANCIAL STATEMENTS
John Hancock Funds - Declaration Trust -- V.A. Emerging Growth Fund
NUMBER OF MARKET
ISSUER, DESCRIPTION SHARES VALUE
- ------------------- ------ -----
Retail (10.76%)
Arbor Drugs, Inc. ............................ 600 $ 12,075
Cost Plus, Inc.* ............................. 400 10,500
Dominick's Supermarkets, Inc.* ............... 600 15,975
Furniture Brands International, Inc.* ........ 700 13,562
Hibbett Sporting Goods, Inc.* ................ 400 7,200
Hot Topic, Inc.* ............................. 400 9,000
Linens `N Things, Inc.* ...................... 500 14,812
Logan's Roadhouse, Inc.* ..................... 400 9,500
99 Cents Only Stores* ........................ 400 12,050
Peapod, Inc.* ................................ 700 7,875
Proffitt's, Inc.* ............................ 200 8,775
Quality Food Centers, Inc.* .................. 500 19,000
Rainforest Cafe, Inc.* ....................... 400 10,150
Stage Stores, Inc.* .......................... 600 15,675
Starbucks Corp.* ............................. 300 11,681
Tiffany & Co. ................................ 200 9,237
----------
187,067
----------
Schools / Education (1.93%)
Computer Learning Centers, Inc.* ............. 300 12,600
Learning Tree International, Inc.* ........... 300 13,312
Strayer Education, Inc. ...................... 200 7,600
----------
33,512
----------
Shoes & Related Apparel (0.52%)
Wolverine World Wide, Inc. ................... 300 9,113
----------
Steel (0.99%)
Lone Star Technologies, Inc.* ................ 600 17,175
----------
Telecommunications (3.52%)
Comverse Technology, Inc.* ................... 400 20,800
MRV Communications Inc.* ..................... 400 11,800
REMEC, Inc.* ................................. 750 17,625
RF Micro Devices, Inc.* ...................... 100 1,913
Tel-Save Holdings, Inc.* ..................... 600 9,150
----------
61,288
----------
Textile (1.30%)
Culp, Inc. ................................... 600 10,875
Cutter & Buck, Inc.* ......................... 400 6,500
Nautica Enterprises, Inc.* ................... 200 5,288
----------
22,663
----------
Tobacco (0.34%)
General Cigar Holdings, Inc.* ................ 200 5,888
----------
Transport (1.48%)
Carey International, Inc.* ................... 800 12,200
Eagle USA Airfreight, Inc.* .................. 400 10,850
Ryanair Holdings PLC (ADR) (Ireland)* ........ 100 2,713
----------
25,763
----------
TOTAL COMMON STOCKS (88.05%)
(Cost $1,325,593) (88.05%) 1,531,336
------ ----------
INTEREST PAR VALUE MARKET
RATE (000s OMITTED) VALUE
---- -------------- -----
SHORT-TERM INVESTMENTS
Joint Repurchase Agreement (11.79%)
Investment in a joint repurchase
agreement transaction with
Toronto Dominion Securities
USA, Inc. - Dated 06-30-97,
Due 07-01-97 (secured by
U.S. Treasury Notes, 5.625%
thru 8.125%, Due 07-31-97
thru 11-15-04) - Note A ................... 5.97% $205 205,000
----------
Corporate Savings Account (0.03%)
Investors Bank & Trust Company
Daily Interest Savings Account
Current Rate 4.95% ........................ 549
----------
TOTAL SHORT-TERM INVESTMENTS ...................... (11.82%) 205,549
------ ----------
TOTAL INVESTMENTS ...................... (99.87%) $1,736,885
====== ==========
*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.
56
<PAGE>
================================================================================
FINANCIAL STATEMENTS
John Hancock Funds - Declaration Trust -- V.A. Discovery Fund
Schedule of Investments
June 30, 1997 (Unaudited)
- --------------------------------------------------------------------------------
The Schedule of Investments is a complete list of all securities owned by the V.
A. Discovery Fund on June 30, 1997. It's divided into two main categories:
common stock and short-term investments. Common stocks are further broken down
by industry groups. Short-term investments, which represent the Fund's "cash"
position, are listed last.
NUMBER OF MARKET
ISSUER, DESCRIPTION SHARES VALUE
- ------------------- ------ -----
COMMON STOCKS
Advertising (1.27%)
Outdoor Systems, Inc.* ............................ 700 $ 26,775
----------
Aerospace (1.37%)
AAR Corp. ......................................... 900 29,081
----------
Automobile / Trucks (0.42%)
Lear Corp.* ....................................... 200 8,875
----------
Beverages (1.56%)
Mondavi (Robert) Corp. (Class A)* ................. 700 33,075
----------
Building (0.88%)
Royal Group Technologies Ltd.* (Canada) ........... 700 18,550
----------
Business Services - Misc (1.74%)
Corrections Corporation of America* ............... 700 27,825
StarTek, Inc.* .................................... 600 9,038
----------
36,863
----------
Computers (11.59%)
America Online, Inc.* ............................. 500 27,813
Aspect Development, Inc.* ......................... 800 20,850
Baan Co., N.V. * (Netherlands) .................... 300 20,663
BMC Software, Inc.* ............................... 600 33,225
Cisco Systems, Inc.* .............................. 400 26,850
E* TRADE Group, Inc.* ............................. 1,800 35,325
Network Appliance, Inc.* .......................... 900 34,200
Oracle Corp.* ..................................... 500 25,187
Visio Corp.* ...................................... 300 21,150
----------
245,263
----------
Consumer Products Misc. (1.67%)
Samsonite Corp.* .................................. 800 35,300
----------
Electronics (8.56%)
Advanced Technology Materials, Inc.* .............. 1,000 29,375
Altera Corp.* ..................................... 500 25,250
ASM Lithography Holding N.V.* (Netherlands) ....... 400 23,400
Level One Communications, Inc.* ................... 600 23,062
Novellus Systems, Inc.* ........................... 300 25,950
SeaMED Corp.* ..................................... 100 2,025
Semtech Corp.* .................................... 600 21,900
Unitrode Corp.* ................................... 600 30,225
----------
181,187
----------
Finance (3.40%)
First Data Corp. ................................... 600 26,363
FIRSTPLUS Financial Group, Inc.* ................... 500 17,000
Medallion Financial Corp. .......................... 1,500 28,687
----------
72,050
----------
Food (2.22%)
Archer-Daniels-Midland Co. ......................... 1,000 23,500
Morningstar Group, Inc.* ........................... 800 23,500
----------
47,000
----------
Insurance (1.07%)
ARM Financial Group, Inc.* (Class A) ............... 200 4,000
HCC Insurance Holdings, Inc. ....................... 700 18,681
----------
22,681
----------
Leisure (1.87%)
Disney (Walt) Co., (The) ........................... 300 24,075
Silicon Gaming, Inc.* .............................. 1,200 15,600
----------
39,675
----------
Machinery (3.20%)
Gardner Denver Machinery, Inc.* .................... 1,000 29,750
ITEQ, Inc.* ........................................ 4,000 38,000
----------
67,750
----------
Media (3.43%)
Central Newspapers, Inc. (Class A) ................. 500 35,812
Clear Channel Communications, Inc.* ................ 600 36,900
----------
72,712
----------
Medical (4.95%)
Health Management Associates, Inc. (Class A)* ...... 800 22,800
Kos Pharmaceuticals, Inc.* ......................... 600 16,650
Merck & Co., Inc. .................................. 200 20,700
National Surgery Centers, Inc.* .................... 700 24,763
Protein Design Labs, Inc.* ......................... 700 19,950
----------
104,863
----------
Metal (0.89%)
Maverick Tube Corp.* ............................... 500 18,750
----------
Office (1.05%)
HON INDUSTRIES, Inc. ............................... 500 22,125
----------
Oil & Gas (9.01%)
ENSCO International, Inc.* ......................... 600 31,650
EVI, Inc.* ......................................... 600 25,200
SEE NOTES TO FINANCIAL STATEMENTS.
57
<PAGE>
================================================================================
FINANCIAL STATEMENTS
John Hancock Funds - Declaration Trust -- V.A. Discovery Fund
NUMBER OF MARKET
ISSUER, DESCRIPTION SHARES VALUE
- ------------------- ------ -----
Oil & Gas (continued)
Falcon Drilling Co., Inc.* .......................... 600 $ 34,575
Forcenergy, Inc.* ................................... 600 18,225
National-Oilwell, Inc.* ............................. 500 28,750
Ocean Energy, Inc.* ................................. 400 18,500
Precision Drilling Corp.* (Canada) .................. 700 33,862
----------
190,762
----------
Pollution Control (5.23%)
Newpark Resources, Inc.* ............................ 1,200 40,500
Philip Services Corp.* (Canada) ..................... 3,200 50,800
USA Waste Services, Inc.* ........................... 500 19,312
----------
110,612
----------
Printing - Commercial (1.08%)
Mail-Well, Inc.* .................................... 800 22,800
----------
Real Estate Investment Trust (0.88%)
Redwood Trust, Inc. ................................. 400 18,700
----------
Retail (9.11%)
Borders Group, Inc. * ............................... 900 21,712
Consolidated Stores Corp.* .......................... 875 30,406
Dollar General Corp. ................................ 600 22,500
Furniture Brands International, Inc.* ............... 1,200 23,250
Home Depot, Inc. .................................... 500 34,469
Hot Topic, Inc.* .................................... 800 18,000
Quality Food Centers, Inc.* ......................... 400 15,200
Starbucks Corp.* .................................... 700 27,256
----------
192,793
----------
Schools / Education (1.17%)
Apollo Group, Inc. (Class A)* ....................... 700 24,675
----------
Steel (1.76%)
Lone Star Technologies, Inc.* ....................... 1,300 37,213
----------
Telecommunications (3.91%)
Comverse Technology, Inc.* .......................... 900 46,800
QUALCOMM, Inc.* ..................................... 600 30,525
Qwest Communications International, Inc.* ........... 200 5,450
----------
82,775
----------
Textile (1.50%)
Culp, Inc. .......................................... 1,000 18,125
Polo Ralph Lauren Corp. (Class A)* .................. 500 13,688
----------
31,813
----------
INTEREST PAR VALUE MARKET
RATE (000s OMITTED) VALUE
---- -------------- -----
Transport (0.13%)
Ryanair Holdings PLC, American
Depositary Receipt (ADR),* (Ireland) ............... 100 2,713
----------
TOTAL COMMON STOCKS
(Cost $1,527,226) (84.92%) 1,797,431
------ ----------
SHORT-TERM INVESTMENTS
Joint Repurchase Agreement (14.88%)
Investment in a joint repurchase
agreement transaction with
Toronto-Dominion Securities USA, Inc.
Dated 06-30-97, Due 07-01-97
(secured by U.S. Treasury Notes,
5.625% thru 8.125% Due 07-31-97
thru 11-15-04) - Note A ....................... 5.97% $315 $ 315,000
----------
Corporate Savings Account (0.56%)
Investors Bank & Trust Company
Daily Interest Savings Account
Current Rate 4.95% ............................ 11,845
----------
TOTAL SHORT-TERM INVESTMENTS .. (15.44%) 326,845
------ ----------
TOTAL INVESTMENTS .. (100.36%) $2,124,276
======== ==========
* Non-income producing security.
Parenthetical disclosure of foreign country in the security description
represents country of a foreign issuer; however, the security is U.S. dollar
denominated.
The percentage shown for each investment category is the total of that category
as a percentage of net assets of the Fund.
Portfolio Concentration
June 30, 1997
- --------------------------------------------------------------------------------
MARKET VALUE AS A
COUNTRY DIVERSIFICATION PERCENTAGE OF FUND'S NET ASSETS
Canada .............................................. 4.88%
Ireland ............................................. 0.13
Netherlands ......................................... 2.08
United States ....................................... 93.27
------
TOTAL INVESTMENTS .................. 100.36%
======
SEE NOTES TO FINANCIAL STATEMENTS.
58
<PAGE>
================================================================================
FINANCIAL STATEMENTS
John Hancock Funds - Declaration Trust -- V.A. Independence Equity Fund
Schedule of Investments
June 30, 1997 (Unaudited)
- --------------------------------------------------------------------------------
The Schedule of Investments is a complete list of all securities owned by the V.
A. Independence Equity Fund on June 30, 1997. It's divided into two main
categories: common stocks and short-term investments. Common stocks are further
broken down by industry groups. Short-term investments, which represent the
Fund's "cash" position, are listed last.
NUMBER OF MARKET
ISSUER, DESCRIPTION SHARES VALUE
- ------------------- ------ -----
COMMON STOCKS
Aerospace (3.36%)
Northrop Grumman Corp. .............................. 200 $ 17,562
Rockwell International Corp. ........................ 100 5,900
United Technologies Corp. ........................... 700 58,100
----------
81,562
----------
Automobile / Trucks (3.78%)
Autoliv, Inc.* (Sweden) ............................. 136 5,321
Chrysler Corp. ...................................... 400 13,125
Dana Corp. .......................................... 100 3,800
Ford Motor Co. ...................................... 1,400 52,850
General Motors Corp. ................................ 300 16,706
----------
91,802
----------
Banks - United States (6.95%)
BankAmerica Corp. ................................... 800 51,650
BankBoston Corp. .................................... 100 7,206
Chase Manhattan Corp. ............................... 200 19,412
Citicorp ............................................ 400 48,225
First Bank System, Inc. ............................. 100 8,537
Morgan (J.P.) & Co., Inc. ........................... 100 10,437
NationsBank Corp. ................................... 100 6,450
Norwest Corp. ....................................... 300 16,875
----------
168,792
----------
Beverages (1.24%)
PepsiCo, Inc. ....................................... 800 30,050
----------
Broker Services (0.89%)
Morgan Stanley, Dean Witter, Discover & Co. ......... 500 21,531
----------
Building (0.32%)
Centex Corp. ........................................ 100 4,062
Clayton Homes, Inc. ................................. 250 3,562
----------
7,624
----------
Chemicals (2.59%)
Air Products & Chemicals, Inc. ...................... 600 48,750
Monsanto Co. ........................................ 200 8,612
Praxair, Inc. ....................................... 100 5,600
----------
62,962
----------
Computers (8.06%)
Adobe Systems, Inc. ................................. 100 3,506
Cadence Design Systems, Inc.* ....................... 300 10,050
Compaq Computer Corp.* .............................. 200 19,850
Computer Associates International, Inc. ............. 200 11,137
Electronic Data Systems Corp. ....................... 100 4,100
Hewlett-Packard Co. ................................. 400 22,400
International Business Machines Corp. ............... 200 18,037
Microsoft Corp.* .................................... 500 63,187
Oracle Corp.* ....................................... 300 15,112
Parametric Technology Corp.* ........................ 400 17,025
Sun Microsystems, Inc.* ............................. 300 11,166
----------
195,570
----------
Diversified Operations (6.29%)
AlliedSignal, Inc. .................................. 200 16,800
Canadian Pacific, Ltd. (Canada) ..................... 300 8,531
Du Pont (E.I.) De Nemours & Co. ..................... 800 50,300
Lockheed Martin Corp. ............................... 100 10,356
Ogden Corp. ......................................... 300 6,525
Textron, Inc. ....................................... 800 53,100
Tyco International Ltd. ............................. 100 6,956
----------
152,568
----------
Electronics (5.46%)
General Electric Co. ................................ 800 52,300
Honeywell, Inc. ..................................... 300 22,762
Intel Corp. ......................................... 300 42,544
Raychem Corp. ....................................... 200 14,875
----------
132,481
----------
Finance (0.92%)
American Express Co. ................................ 200 14,900
MBNA Corp. .......................................... 200 7,325
----------
22,225
----------
Food (1.59%)
ConAgra, Inc. ....................................... 500 32,062
General Mills, Inc. ................................. 100 6,512
----------
38,574
----------
Instruments - Scientific (0.66%)
Perkin-Elmer Corp. .................................. 200 15,913
----------
SEE NOTES TO FINANCIAL STATEMENTS.
59
<PAGE>
================================================================================
FINANCIAL STATEMENTS
John Hancock Funds - Declaration Trust -- V.A. Independence Equity Fund
NUMBER OF MARKET
ISSUER, DESCRIPTION SHARES VALUE
- ------------------- ------ -----
Insurance (7.07%)
American International Group, Inc. .................... 100 $ 14,938
CIGNA Corp. ........................................... 200 35,500
Equitable Cos., Inc. .................................. 100 3,325
General Re Corp. ...................................... 400 72,800
Hartford Financial Services Group Inc. (The) .......... 200 16,550
Marsh & McLennan Cos., Inc. ........................... 400 28,550
----------
171,663
----------
Leisure (1.57%)
Eastman Kodak Co. ..................................... 200 15,350
HFS, Inc.* ............................................ 300 17,400
Hilton Hotels Corp. ................................... 200 5,313
----------
38,063
----------
Machinery (0.61%)
Cooper Industries, Inc. ............................... 300 14,925
----------
Media (0.64%)
Time Warner, Inc. ..................................... 200 9,650
Viacom, Inc. (Class B)* ............................... 200 6,000
----------
15,650
----------
Medical (13.17%)
Abbott Laboratories ................................... 400 26,700
Allegiance Corp. ...................................... 300 8,175
Amgen, Inc.* .......................................... 100 5,813
Becton, Dickinson & Co. ............................... 200 10,125
Bristol-Myers Squibb Co. .............................. 700 56,700
Cardinal Health, Inc. ................................. 300 17,175
Columbia/HCA Healthcare Corp. ......................... 200 7,863
Glaxo Wellcome PLC American
Depositary Receipt (ADR) (United Kingdom) ............ 500 20,906
HEALTHSOUTH Corp.* .................................... 700 17,456
Johnson & Johnson ..................................... 600 38,625
Medtronic, Inc. ....................................... 100 8,100
Merck & Co., Inc. ..................................... 800 82,800
Schering-Plough Corp. ................................. 400 19,150
----------
319,588
----------
Office (1.64%)
Avery Dennison Corp. .................................. 300 12,038
Pitney Bowes, Inc. .................................... 400 27,800
----------
39,838
----------
Oil & Gas (10.19%)
Anadarko Petroleum Corp. .............................. 100 6,000
Atlantic Richfield Co. ................................ 200 14,100
Baker Hughes, Inc. .................................... 400 15,475
British Petroleum Co. PLC ADR (United Kingdom) ........ 400 29,950
Dresser Industries, Inc. .............................. 700 26,075
El Paso Natural Gas Co. ............................... 200 11,000
Halliburton Co. ....................................... 200 15,850
Kerr - McGee Corp. .................................... 200 12,675
Mobil Corp. ........................................... 200 13,975
Phillips Petroleum Co. ................................ 1,000 43,750
Texaco Inc. ........................................... 200 21,750
Unocal Corp. .......................................... 500 19,406
USX - Marathon Group .................................. 600 17,325
----------
247,331
----------
Paper & Paper Products (0.30%)
James River Corp. of Virginia ......................... 200 7,400
----------
Retail (4.44%)
Costco Cos., Inc.* .................................... 700 23,013
Home Depot, Inc. ...................................... 500 34,469
Lowe's Cos., Inc. ..................................... 600 22,275
Staples, Inc.* ........................................ 400 9,300
TJX Cos., Inc. ........................................ 200 5,275
Wal-Mart Stores, Inc. ................................. 400 13,525
----------
107,857
----------
Shoes & Related Apparel (0.88%)
Nike, Inc. (Class B) .................................. 300 17,513
Nine West Group, Inc.* ................................ 100 3,819
----------
21,332
----------
Soap & Cleaning Preparations (2.91%)
Procter & Gamble Co. (The) ............................ 500 70,625
----------
Steel (0.31%)
British Steel PLC ADR (United Kingdom) ................ 300 7,575
----------
Telecommunications (1.76%)
Harris Corp. .......................................... 200 16,800
Lucent Technologies, Inc. ............................. 359 25,870
----------
42,670
----------
Textile (0.97%)
Fruit of the Loom, Inc. (Class A)* .................... 200 6,200
Liz Claiborne, Inc. ................................... 200 9,325
Tommy Hilfiger Corp.* ................................. 200 8,038
----------
23,563
----------
Tobacco (1.41%)
Philip Morris Cos., Inc. .............................. 700 31,063
Universal Corp. ....................................... 100 3,175
----------
34,238
----------
SEE NOTES TO FINANCIAL STATEMENTS.
60
<PAGE>
================================================================================
FINANCIAL STATEMENTS
John Hancock Funds - Declaration Trust -- V.A. Independence Equity Fund
NUMBER OF MARKET
ISSUER, DESCRIPTION SHARES VALUE
- ------------------- ------ -----
Transport (0.73%)
Norfolk Southern Corp. .............................. 100 $ 10,075
Southwest Airlines Co. .............................. 300 7,763
----------
17,838
----------
Utilities (6.17%)
Baltimore Gas & Electric Co. ........................ 200 5,338
CINergy Corp. ....................................... 500 17,406
Consolidated Edison Co. of NY, Inc. ................. 200 5,888
Consolidated Natural Gas Co. ........................ 300 16,144
Dominion Resources, Inc. ............................ 500 18,313
DQE, Inc. ........................................... 200 5,650
Entergy Corp. ....................................... 400 10,950
FPL Group, Inc. ..................................... 200 9,213
GTE Corp. ........................................... 900 39,488
Houston Industries, Inc. ............................ 100 2,144
SBC Communications, Inc. ............................ 200 12,375
Texas Utilities Co. ................................. 200 6,888
----------
149,797
----------
TOTAL COMMON STOCKS
(Cost $2,087,730) (96.88%) 2,351,607
------ ----------
INTEREST PAR VALUE MARKET
RATE (000s OMITTED) VALUE
---- -------------- -----
SHORT-TERM INVESTMENTS
Joint Repurchase Agreement (2.84%)
Investment in a joint repurchase
agreement transaction with
Toronto Dominion Securities USA,
Inc. Dated 06-30-97, Due 07-01-97
(secured by U. S. Treasury Notes,
5.625% thru 8.125%, Due 07-31-97
thru 11-15-04) - Note A ....................... 5.97% $69 $ 69,000
----------
Corporate Savings Account (0.01%)
Investors Bank & Trust Company
Daily Interest Savings Account
Current Rate 4.95%............................. 259
----------
TOTAL SHORT-TERM INVESTMENTS (2.85%) 69,259
------- ----------
TOTAL INVESTMENTS (99.73%) $2,420,866
======= ==========
* 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.
61
<PAGE>
================================================================================
FINANCIAL STATEMENTS
John Hancock Funds - Declaration Trust -- V.A. 500 Index Fund
Schedule of Investments
June 30, 1997 (Unaudited)
- --------------------------------------------------------------------------------
NUMBER OF MARKET
ISSUER, DESCRIPTION SHARES VALUE
- ------------------- ------ -----
COMMON STOCKS
Advertising (0.11%)
Interpublic Group, Inc. ............................. 200 $ 12,263
----------
Aerospace (1.48%)
Boeing Co. (The) .................................... 1,100 58,369
General Dynamics Corp. .............................. 100 7,500
McDonnell Douglas Corp. ............................. 300 20,550
Northrop Grumman Corp. .............................. 100 8,781
Raytheon Co. ........................................ 400 20,400
Rockwell International Corp. ........................ 300 17,700
United Technologies Corp. ........................... 400 33,200
----------
166,500
----------
Agricultural Operations (0.14%)
Pioneer Hi-Bred International, Inc. ................. 200 16,000
----------
Automobile / Trucks (1.82%)
Chrysler Corp. ...................................... 1,100 36,094
Dana Corp. .......................................... 300 11,400
Eaton Corp. ......................................... 100 8,731
Ford Motor Co. ...................................... 1,900 71,725
General Motors Corp. ................................ 1,200 66,825
PACCAR, Inc. ........................................ 200 9,288
----------
204,063
----------
Banks - United States (6.82%)
Banc One Corp. ...................................... 700 33,906
Bank of New York Co., Inc. .......................... 600 26,100
BankAmerica Corp. ................................... 600 38,737
BankBoston Corp. .................................... 200 14,413
Bankers Trust New York Corp. ........................ 100 8,700
Barnett Banks, Inc. ................................. 300 15,750
Chase Manhattan Corp. ............................... 700 67,944
Citicorp ............................................ 700 84,394
Comerica, Inc. ...................................... 200 13,600
CoreStates Financial Corp. .......................... 400 21,500
Fifth Third Bancorp ................................. 200 16,412
First Bank System, Inc. ............................. 200 17,075
First Chicago NBD Corp. ............................. 500 30,250
First Union Corp. ................................... 400 37,000
Fleet Financial Group, Inc. ......................... 400 25,300
KeyCorp ............................................. 400 22,350
Mellon Bank Corp. ................................... 400 18,050
Morgan (J.P.) & Co., Inc. ........................... 300 31,312
National City Corp. ................................. 400 21,000
NationsBank Corp. ................................... 1,200 77,400
Norwest Corp. ....................................... 600 33,750
PNC Bank Corp. ...................................... 500 20,812
Republic New York Corp. ............................. 100 10,750
SunTrust Banks, Inc. ................................ 400 22,025
US Bancorp .......................................... 200 12,825
Wachovia Corp. ...................................... 300 17,494
Well Fargo & Co. .................................... 100 26,950
----------
765,799
----------
Beverages (3.78%)
Anheuser-Busch Cos., Inc. ........................... 800 33,550
Brown-Forman Corp. .................................. 200 9,763
Coca-Cola Co. (The) ................................. 3,900 263,250
PepsiCo, Inc. ....................................... 2,500 93,906
Seagram Co. Ltd. (The) (Canada) ..................... 600 24,150
----------
424,619
----------
Broker Services (0.82%)
Merrill Lynch & Co. ................................. 500 29,812
Morgan Stanley, Dean Witter, Discover & Co. ......... 900 38,756
Salomon, Inc. ....................................... 200 11,125
Schwab (Charles) Corp. .............................. 300 12,206
----------
91,899
----------
Building (0.78%)
Black & Decker Corp. ................................ 300 11,156
Fluor Corp. ......................................... 200 11,038
Georgia-Pacific Corp. ............................... 100 8,538
Masco Corp. ......................................... 300 12,525
Sherwin Williams Corp. .............................. 300 9,263
Stanley Works (The) ................................. 300 12,000
Weyerhauser Co. ..................................... 300 15,600
Willamette Industries, Inc. ......................... 100 7,000
----------
87,120
----------
Business Services - Misc (0.18%)
Block, H & R, Inc. .................................. 300 9,675
Dun & Bradstreet Corp. (The) ........................ 400 10,500
----------
20,175
----------
Chemicals (1.69%)
Air Products & Chemicals, Inc. ...................... 200 16,250
Dow Chemical Co. .................................... 400 34,850
Eastman Chemical Co. ................................ 200 12,700
Grace (W R) & Co. ................................... 200 11,025
Hercules, Inc. ...................................... 200 9,575
SEE NOTES TO FINANCIAL STATEMENTS.
62
<PAGE>
================================================================================
FINANCIAL STATEMENTS
John Hancock Funds - Declaration Trust -- V.A. 500 Index Fund
NUMBER OF MARKET
ISSUER, DESCRIPTION SHARES VALUE
- ------------------- ------ -----
Chemicals (continued)
Monsanto Co. ........................................ 900 $ 38,756
Morton International, Inc. .......................... 300 9,056
PPG Industries, Inc. ................................ 300 17,437
Praxair, Inc. ....................................... 200 11,200
Rohm & Haas Co. ..................................... 100 9,006
Sigma-Aldrich Corp. ................................. 300 10,519
Union Carbide Corp. ................................. 200 9,413
----------
189,787
----------
Computers (7.95%)
Adobe Systems, Inc. * ............................... 300 10,519
Automatic Data Processing, Inc. ..................... 500 23,500
Bay Networks, Inc.* ................................. 400 10,625
Cabletron Systems, Inc.* ............................ 300 8,494
Ceridian Corp.* ..................................... 300 12,675
Cisco Systems, Inc.* ................................ 1,000 67,125
Cognizant Corp. ..................................... 300 12,150
Compaq Computer Corp.* .............................. 400 39,700
Computer Associates International, Inc. ............. 600 33,412
Computer Sciences Corp.* ............................ 100 7,213
Dell Computer Corp.* ................................ 300 35,231
Digital Equipment Corp.* ............................ 300 10,631
EMC Corp.* .......................................... 400 15,600
Hewlett-Packard Co. ................................. 1,600 89,600
International Business Machines Corp. ............... 1,600 144,300
Microsoft Corp.* .................................... 1,900 240,112
Oracle Corp.* ....................................... 1,100 55,412
Parametric Technology Corp.* ........................ 200 8,513
Seagate Technology, Inc.* ........................... 400 14,075
Silicon Graphics, Inc.* ............................. 600 9,000
Sun Microsystems, Inc.* ............................. 600 22,331
3Com Corp.* ......................................... 500 22,500
----------
892,718
----------
Containers (0.10%)
Crown Cork & Seal Co., Inc. ......................... 200 10,688
----------
Cosmetics & Personal Care (0.97%)
Avon Products, Inc. ................................. 200 14,112
Gillette Co. ........................................ 900 85,275
International Flavors & Fragrances, Inc. ............ 200 10,100
----------
109,487
----------
Diversified Operations (3.56%)
AlliedSignal, Inc. .................................. 400 33,600
Corning, Inc. ....................................... 400 22,250
Du Pont (E.I.) De Nemours & Co. ..................... 1,800 113,175
Fortune Brands, Inc. ................................ 300 11,194
Ikon Office Solutions, Inc. ......................... 300 7,481
Johnson Controls, Inc. .............................. 300 12,319
Laidlaw, Inc. (Class B) (Canada) .................... 800 11,050
Lockheed Martin Corp. ............................... 300 31,069
Loews Corp. ......................................... 200 20,025
Minnesota Mining & Manufacturing Co. ................ 700 71,400
Tenneco, Inc. ....................................... 300 13,556
Textron, Inc. ....................................... 300 19,912
TRW, Inc. ........................................... 200 11,363
Tyco International Ltd. ............................. 300 20,869
----------
399,263
----------
Electronics (6.59%)
Advanced Micro Devices, Inc.* ....................... 300 10,800
AMP, Inc. ........................................... 300 12,525
Applied Materials, Inc.* ............................ 300 21,244
Emerson Electric Co. ................................ 700 38,544
General Electric Co. ................................ 5,200 339,950
Honeywell, Inc. ..................................... 200 15,175
Intel Corp. ......................................... 1,300 184,356
LSI Logic Corp.* .................................... 300 9,600
Micron Technology, Inc. ............................. 300 11,981
National Semiconductor Corp.* ....................... 400 12,250
Parker Hannifin Corp. ............................... 200 12,138
Raychem Corp. ....................................... 200 14,875
Texas Instruments, Inc. ............................. 300 25,219
W.W. Grainger, Inc. ................................. 100 7,819
Westinghouse Electric Corp. ......................... 1,000 23,125
----------
739,601
----------
Finance (1.60%)
Ahmanson (H.F.) & Co. ............................... 200 8,600
American Express Co. ................................ 800 59,600
Beneficial Corp. .................................... 200 14,212
First Data Corp. .................................... 700 30,756
Golden West Financial Corp. ......................... 200 14,000
Great Western Financial Corp. ....................... 200 10,750
Household International, Inc. ....................... 200 23,488
MBNA Corp. .......................................... 500 18,312
----------
179,718
----------
SEE NOTES TO FINANCIAL STATEMENTS.
63
<PAGE>
================================================================================
FINANCIAL STATEMENTS
John Hancock Funds - Declaration Trust -- V.A. 500 Index Fund
NUMBER OF MARKET
ISSUER, DESCRIPTION SHARES VALUE
- ------------------- ------ -----
Food (2.90%)
Archer-Daniels-Midland Co. .......................... 900 $ 21,150
Campbell Soup Co. ................................... 700 35,000
ConAgra, Inc. ....................................... 400 25,650
CPC International, Inc. ............................. 200 18,462
General Mills, Inc. ................................. 300 19,537
Heinz (H.J.) Co. .................................... 600 27,675
Hershey Foods Corp. ................................. 200 11,063
Kellogg Co. ......................................... 300 25,687
Quaker Oats Co. ..................................... 300 13,463
Ralston Purina Group ................................ 200 16,437
Sara Lee Corp. ...................................... 800 33,300
Unilever N.V. PLC (Netherlands) ..................... 300 65,400
Wrigley (WM) Jr Co. ................................. 200 13,400
----------
326,224
----------
Funeral Services & Related (0.12%)
Service Corporation International ................... 400 13,150
----------
Household (0.31%)
Newell Co. .......................................... 300 11,888
Rubbermaid, Inc. .................................... 400 11,900
Whirlpool Corp. ..................................... 200 10,913
----------
34,701
----------
Instruments - Scientific (0.16%)
Perkin-Elmer Corp. .................................. 100 7,956
Thermo Electron Corp.* .............................. 300 10,200
----------
18,156
----------
Insurance (4.41%)
Aetna, Inc. ......................................... 200 20,475
Allstate Corp. ...................................... 700 51,100
American General Corp. .............................. 400 19,100
American International Group, Inc. .................. 700 104,563
Aon Corp. ........................................... 300 15,525
Chubb Corp. ......................................... 300 20,062
CIGNA Corp. ......................................... 100 17,750
Conseco, Inc. ....................................... 300 11,100
General Re Corp. .................................... 100 18,200
Hartford Financial Services Group, Inc. (The) ....... 200 16,550
Humana, Inc.* ....................................... 500 11,563
Jefferson Pilot Corp. ............................... 200 13,975
Lincoln National Corp. .............................. 200 12,875
Marsh & McLennan Cos., Inc. ......................... 200 14,275
MBIA, Inc. .......................................... 100 11,281
MGIC Investment Corp. ............................... 200 9,588
Safeco Corp. ........................................ 200 9,338
St. Paul Cos., Inc. ................................. 100 7,625
Torchmark Corp. ..................................... 200 14,250
Transamerica Corp. .................................. 100 9,356
Travelers Group, Inc. ............................... 1,000 63,062
United Healthcare Corp. ............................. 300 15,600
UNUM Corp. .......................................... 200 8,400
----------
495,613
----------
Leisure (1.80%)
Disney (Walt) Co., (The) ............................ 1,100 88,275
Eastman Kodak Co. ................................... 500 38,375
Hasbro, Inc. ........................................ 400 11,350
HFS, Inc.* .......................................... 200 11,600
Hilton Hotels Corp. ................................. 400 10,625
ITT Corp.* .......................................... 200 12,213
Marriott International, Inc. ........................ 200 12,275
Mattel, Inc. ........................................ 500 16,938
----------
201,651
----------
Machinery (0.91%)
Case Corp. .......................................... 200 13,775
Caterpiller Tractor, Inc. ........................... 300 32,212
Cooper Industries, Inc. ............................. 200 9,950
Deere & Co. ......................................... 400 21,950
Dover Corp. ......................................... 200 12,300
Ingersoll-Rand Co. .................................. 200 12,350
----------
102,537
----------
Media (1.62%)
Comcast Corp. ....................................... 500 10,688
Dow Jones & Co., Inc. ............................... 300 12,056
Gannett Co., Inc. ................................... 200 19,750
Harcourt General, Inc. .............................. 200 9,525
Knight-Ridder, Inc. ................................. 200 9,813
McGraw-Hill Cos., Inc. .............................. 200 11,763
New York Times Co. .................................. 200 9,900
Tele-Communications, Inc. (Class A)* ................ 1,100 16,363
Time Warner, Inc. ................................... 900 43,425
Times Mirror Co. (Class A) .......................... 200 11,050
Tribune Co. ......................................... 200 9,613
Viacom, Inc. (Class B)* ............................. 600 18,000
----------
181,946
----------
SEE NOTES TO FINANCIAL STATEMENTS.
64
<PAGE>
================================================================================
FINANCIAL STATEMENTS
John Hancock Funds - Declaration Trust -- V.A. 500 Index Fund
NUMBER OF MARKET
ISSUER, DESCRIPTION SHARES VALUE
- ------------------- ------ -----
Medical (10.49%)
Abbott Laboratories ................................. 1,200 $ 80,100
American Home Products Corp. ........................ 1,000 76,500
Amgen, Inc.* ........................................ 400 23,250
Baxter International, Inc. .......................... 400 20,900
Becton, Dickinson & Co. ............................. 200 10,125
Boston Scientific Corp.* ............................ 300 18,431
Bristol-Myers Squibb Co. ............................ 1,600 129,600
Cardinal Health, Inc. ............................... 200 11,450
Columbia/HCA Healthcare Corp. ....................... 1,100 43,244
Guidant Corp. ....................................... 100 8,500
HEALTHSOUTH Corp.* .................................. 500 12,469
Johnson & Johnson ................................... 2,100 135,187
Lilly (Eli) & Co. ................................... 900 98,381
Medtronic, Inc. ..................................... 400 32,400
Merck & Co., Inc. ................................... 1,900 196,650
Pfizer, Inc. ........................................ 1,000 119,500
Pharmacia & Upjohn, Inc. ............................ 800 27,800
Schering-Plough Corp. ............................... 1,200 57,450
St. Jude Medical, Inc. * ............................ 300 11,700
Tenet Healthcare Corp.* ............................. 500 14,781
Warner-Lambert Co. .................................. 400 49,700
----------
1,178,118
----------
Metal (1.20%)
Alcan Aluminium Ltd. (Canada) ....................... 400 13,875
Aluminum Co. of America ............................. 300 22,612
Barrick Gold Corp. (Canada) ......................... 600 13,200
Freeport-McMoran Copper & Gold, Inc. ................ 400 12,450
Illinois Tool Works, Inc. ........................... 400 19,975
Inco, Ltd. (Canada) ................................. 300 9,019
Newmont Mining Corp. ................................ 300 11,700
Phelps Dodge Corp. .................................. 100 8,519
Placer Dome, Inc. (Canada) .......................... 600 9,825
Reynolds Metals Co. ................................. 200 14,250
----------
135,425
----------
Mortgage Banking (1.09%)
Fannie Mae .......................................... 1,700 74,162
Federal Home Loan Mortgage Corp. .................... 1,100 37,812
Green Tree Financial Corp. .......................... 300 10,688
----------
122,662
----------
Office (0.58%)
Avery Dennison Corp. ................................ 300 12,038
Pitney Bowes, Inc. .................................. 200 13,900
Xerox Corp. ......................................... 500 39,437
----------
65,375
----------
Oil & Gas (8.45%)
Amerada Hess Corp. .................................. 200 11,112
Amoco Corp. ......................................... 800 69,550
Ashland, Inc. ....................................... 200 9,275
Atlantic Richfield Co. .............................. 500 35,250
Baker Hughes, Inc. .................................. 300 11,606
Burlington Resources, Inc. .......................... 200 8,825
Chevron Corp. ....................................... 1,000 73,937
Dresser Industries, Inc. ............................ 300 11,175
Enron Corp. ......................................... 400 16,325
Exxon Corp. ......................................... 3,900 239,850
Halliburton Co. ..................................... 200 15,850
Mobil Corp. ......................................... 1,200 83,850
Occidental Petroleum Corp. .......................... 500 12,531
Phillips Petroleum Co. .............................. 400 17,500
Royal Dutch Petroleum Co. (Netherlands) ............. 3,200 174,000
Schlumberger, Ltd. .................................. 400 50,000
Sonat, Inc. ......................................... 200 10,250
Texaco, Inc. ........................................ 400 43,500
Union Pacific Resources Group ....................... 400 9,950
Unocal Corp. ........................................ 400 15,525
USX - Marathon Group ................................ 500 14,437
Western Atlas, Inc. * ............................... 200 14,650
----------
948,948
----------
Paper & Paper Products (1.19%)
Champion International Corp. ........................ 200 11,050
International Paper Co. ............................. 500 24,281
James River Corp. of Virginia ....................... 300 11,100
Kimberly-Clark Corp. ................................ 900 44,775
Mead Corp. .......................................... 200 12,450
Temple-Inland, Inc. ................................. 200 10,800
Union Camp Corp. .................................... 200 10,000
Westvaco Corp. ...................................... 300 9,431
----------
133,887
----------
SEE NOTES TO FINANCIAL STATEMENTS.
65
<PAGE>
================================================================================
FINANCIAL STATEMENTS
John Hancock Funds - Declaration Trust -- V.A. 500 Index Fund
NUMBER OF MARKET
ISSUER, DESCRIPTION SHARES VALUE
- ------------------- ------ -----
Pollution Control (0.09%)
Browning-Ferris Industries, Inc. .................... 300 $ 9,975
----------
Printing - Commercial (0.10%)
Donnelley (R.R.) & Sons ............................. 300 10,988
----------
Retail (5.22%)
Albertson's, Inc. ................................... 400 14,600
American Stores Co. ................................. 200 9,875
Circuit City Stores, Inc. ........................... 300 10,669
Costco Cos., Inc.* .................................. 300 9,863
CUC International, Inc. * ........................... 600 15,487
CVS Corp. ........................................... 300 15,375
Dayton Hudson Corp. ................................. 300 15,956
Dillards, Inc. ...................................... 300 10,388
Federated Department Stores, Inc.* .................. 300 10,425
Gap, Inc. (The) ..................................... 400 15,550
Genuine Parts Co. ................................... 300 10,163
Home Depot, Inc. .................................... 800 55,150
Kmart Corp.* ........................................ 800 9,800
Kroger Co. * ........................................ 400 11,600
Limited, Inc. (The) ................................. 600 12,150
Lowe's Cos., Inc. ................................... 300 11,138
May Department Stores ............................... 400 18,900
McDonald's Corp. .................................... 1,100 53,144
Nordstrom, Inc. ..................................... 200 9,813
Penney, J.C. Co., Inc. .............................. 400 20,875
Rite Aid Corp. ...................................... 200 9,975
Sears, Roebuck & Co. ................................ 600 32,250
Sysco Corp. ......................................... 300 10,950
TJX Cos., Inc. ...................................... 400 10,550
Toys "R" Us, Inc.* .................................. 500 17,500
Wal-Mart Stores, Inc. ............................... 3,600 121,725
Walgreen Co. ........................................ 400 21,450
Winn-Dixie Stores, Inc. ............................. 300 11,175
Woolworth Corp. * ................................... 400 9,600
----------
586,096
----------
Rubber - Tires & Misc (0.11%)
Goodyear Tire & Rubber Co. (The) .................... 200 12,663
----------
Shoes & Related Apparel (0.26%)
Nike, Inc. (Class B) ................................ 500 29,188
----------
Soap & Cleaning Preparations (1.79%)
Clorox Co. .......................................... 100 13,200
Colgate-Palmolive Co. ............................... 500 32,625
Procter & Gamble Co. (The) .......................... 1,100 155,375
----------
201,200
----------
Steel (0.20%)
Allegheny Teledyne, Inc. ............................ 400 10,800
Nucor Corp. ......................................... 200 11,300
----------
22,100
----------
Telecommunications (4.26%)
AT&T Corp. .......................................... 2,600 91,162
Airtouch Communications, Inc. * ..................... 800 21,900
DSC Communications Corp. * .......................... 400 8,900
General Instrument Corp.* ........................... 400 10,000
Harris Corp. ........................................ 100 8,400
Lucent Technologies, Inc. ........................... 1,000 72,062
MCI Communications Corp. ............................ 1,100 42,109
Motorola, Inc. ...................................... 900 68,400
Northern Telecom Ltd. (Canada) ...................... 400 36,400
Sprint Corp. ........................................ 700 36,837
Tellabs, Inc.* ...................................... 300 16,763
U.S. Media Group, Inc.* ............................. 1,000 20,250
WorldCom, Inc.* ..................................... 1,400 44,800
----------
477,983
----------
Textile (0.07%)
V.F. Corp. .......................................... 100 8,475
----------
Tobacco (1.64%)
Philip Morris Cos., Inc. ............................ 3,900 173,062
UST, Inc. ........................................... 400 11,100
----------
184,162
----------
Transport (1.09%)
AMR Corp.* .......................................... 100 9,250
Burlington Northern Santa Fe ........................ 200 17,975
CSX Corp. ........................................... 300 16,650
Delta Air Lines, Inc. ............................... 100 8,200
Federal Express Corp. * ............................. 200 11,550
Norfolk Southern Corp. .............................. 200 20,150
Southwest Airlines Co. .............................. 400 10,350
Union Pacific Corp. ................................. 400 28,200
----------
122,325
----------
Utilities (6.98%)
Alltel Corp. ........................................ 300 10,031
American Electric Power Co., Inc. ................... 300 12,600
Ameritech Corp. ..................................... 900 61,144
Baltimore Gas & Electric Co. ........................ 400 10,675
Bell Atlantic Corp. ................................. 700 53,112
BellSouth Corp. ..................................... 1,600 74,200
Carolina Power & Light Co. .......................... 300 10,763
SEE NOTES TO FINANCIAL STATEMENTS.
66
<PAGE>
================================================================================
FINANCIAL STATEMENTS
John Hancock Funds - Declaration Trust -- V.A. 500 Index Fund
NUMBER OF MARKET
ISSUER, DESCRIPTION SHARES VALUE
- ------------------- ------ -----
Utilities (continued)
Central & South West Corp. .......................... 500 $ 10,625
CINergy Corp. ....................................... 300 10,444
Coastal Corp. ....................................... 200 10,638
Columbia Gas System, Inc. ........................... 200 13,050
Consolidated Edison Co. of NY, Inc. ................. 400 11,775
Consolidated Natural Gas Co. ........................ 200 10,763
Dominion Resources, Inc. ............................ 300 10,988
DTE Energy Co. ...................................... 400 11,050
Duke Energy Corp. ................................... 300 14,381
Edison International ................................ 700 17,412
Entergy Corp. ....................................... 400 10,950
FPL Group, Inc. ..................................... 300 13,819
GPU, Inc. ........................................... 300 10,763
GTE Corp. ........................................... 1,500 65,812
Houston Industries, Inc. ............................ 500 10,719
Northern States Power Co. ........................... 200 10,350
NYNEX Corp. ......................................... 700 40,337
PacifiCorp .......................................... 500 11,000
PECO Energy Co. ..................................... 500 10,500
PG&E Corp. .......................................... 700 16,975
Public Service Enterprise Group, Inc. ............... 400 10,000
SBC Communications, Inc. ............................ 1,500 92,812
Southern Co. ........................................ 1,100 24,062
Texas Utilities Co. ................................. 400 13,775
Unicom Corp. ........................................ 500 11,125
Union Electric Co. .................................. 300 11,306
US WEST Communications Group ........................ 800 30,150
Waste Management, Inc. .............................. 700 22,487
Williams Cos., Inc. (The) ........................... 300 13,125
----------
783,718
----------
TOTAL COMMON STOCKS
(Cost $10,888,255) 95.43% 10,716,966
------ ----------
INTEREST PAR VALUE MARKET
RATE (000s OMITTED) VALUE
---- -------------- -----
SHORT-TERM INVESTMENTS
Joint Repurchase Agreement (4.52%)
Investment in a joint repurchase
agreement transaction with
Toronto Dominion Securities
USA, Inc. Dated 06-30-97,
Due 07-01-97 (secured by
U.S. Treasury Notes, 5.625%
thru 6.375% Due 04-30-99
thru 06-30-02) - Note A.................. 5.97% 508 508,000
-----------
TOTAL SHORT-TERM INVESTMENTS 4.52% 508,000
----- -----------
TOTAL INVESTMENTS 99.95% $11,224,966
====== ===========
* 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.
67
<PAGE>
================================================================================
FINANCIAL STATEMENTS
John Hancock Funds - Declaration Trust -- V.A. Sovereign Investors Fund
Schedule of Investments
June 30, 1997 (Unaudited)
Per share earnings and dividends and their compound growth rates are shown for
the most recently reported ten year periods on common stocks.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
COMPOUND
NUMBER GROWTH MARKET
OF SHARES COMMON STOCKS (78.89%) RATE VALUE
- --------- ---- -----
<S> <C> <C> <C>
Advertising (0.97%)
600 Interpublic Group, Inc. @ 61 5/16 $ 36,787
---------
One of the largest advertising agencies in the world
Earnings P/S.......$.91, 1.05, 1.12, 1.17, 1.32, 1.39, 1.69, 1.89, 1.69, 2.60 12.4%
Dividends P/S ............. $.22, .26, .32, .37, .41, .45, .49, .55, .61, .67 13.2%
Price/Earnings Ratio ....................................................24.6
Aerospace (1.55%)
1,000 Rockwell International Corp. @ 59............................................ 59,000
---------
Leading producer of aerospace, automotive and electronics products
Earnings P/S .....$1.98, 2.23, 3.01, 2.84, 2.47, 2.20, 2.47, 2.80, 3.15, 3.79 7.5%
Dividend P/S ............$.68, .72, .77, .82, .88, .92, .96, 1.04, 1.10, 1.16 6.5%
Price/Earnings Ratio.....................................................14.7
Banks (5.11%)
800 Banc One Corp. @ 48 7/16..................................................... 38,750
Ohio-based bank holding company
Earnings P/S......$ 1.56, 1.66, 1.83, 1.64, 1.75, 2.27, 2.70, 2.16, 3.00, 3.32 8.8%
Dividends P/S............$ .45, .50, .57, .63, .70, .81, .98, 1.13, 1.24, 1.36 13.1%
Price/Earnings Ratio......................................................14.7
1,000 BB&T Corp. @ 45............................................................... 45,000
Multi-regional bank holding company
Earnings P/S.......$ 1.14, 1.12, 1.33, 1.04, 1.43, 1.92, .09, 1.61, 2.43, 2.66 9.9%
Dividends P/S..............$ .34, .36, .39, .42, .46, .50, .64, .74, .86, 1.00 12.7%
Price/Earnings Ratio......................................................17.1
700 First Tennessee National Corp. @ 48........................................... 33,600
Tennessee-based bank holding company
Earnings P/S........$ 1.10, .65, .98, 1.23, 1.50, 1.62, 1.77, 2.08, 2.47, 2.72 10.6%
Dividends P/S..............$ .40, .43, .49, .54, .57, .63, .75, .87, .97, 1.10 11.9%
Price/Earnings Ratio......................................................17.9
400 First Union Corp. @ 92 1/2.................................................... 37,000
North Carolina-based bank holding company
Earnings P/S........$ 1.10, .65, .98, 2.52, 2.37, 2.92, 4.71, 4.62, 4.70, 6.17 21.1%
Dividends P/S.......$ .77, .86, 1.00, 1.08, 1.12, 1.28, 1.50, 1.72, 1.96, 2.20 12.4%
Price/Earnings Ratio......................................................15.7
700 Norwest Corp. @ 56 1/4........................................................ 39,375
The 12th largest bank holding company in the U.S.
Earnings P/S........$1.12, 1.25, 1.36, .46, 1.49, 1.53, 1.99, 2.52, 2.84, 3.17 12.3%
Dividends P/S...............$.30, .32, .38, .42, .47, .54, .64, .77, .90, 1.05 14.9%
Price/Earnings Ratio......................................................18.7
---------
193,725
---------
<CAPTION>
COMPOUND
NUMBER GROWTH MARKET
OF SHARES COMMON STOCKS RATE VALUE
- --------- ---- -----
<S> <C> <C> <C>
Beverages (0.99%)
1,000 PepsiCo, Inc. @ 37 9/16....................................................... $ 37,562
---------
Second largest soft drink company
Earnings P/S.............$ .49, .57, .68, .70, .69, .82, 1.00, 1.14, 1.04, .75 4.8%
Dividends P/S...............$ .11, .14, .16, .19, .23, .26, .31, .35, .39, .45 16.9%
Price/Earnings Ratio......................................................36.1
Building (5.22%)
2,100 Masco Corp. @ 41 3/4.......................................................... 87,675
Manufactures buildings, home improvement and consumer products
Earnings P/S ........$ 2.10, 1.42, .91, .57, .46, 1.30, 1.48, 1.14, 1.20, 1.97 NMF
Dividends P/S...............$ .38, .44, .50, .54, .57, .61, .65, .69, .73, .77 8.2%
Price/Earnings Ratio........................................................21
6,000 RPM, Inc. @ 18 3/8............................................................ 110,250
Manufacturer of specialty chemicals and coatings to
waterproof and rustproof structures
Earnings P/S................$ .38, .45, .42, .40, .50, .44, .73, .81, .89, .97 11.0%
Dividends P/S................$.21, .25, .27, .30, .34, .37, .39, .42, .46, .49 9.9%
Price/Earnings Ratio......................................................19.3
---------
197,925
---------
Chemicals (10.10%)
2,400 BetzDearborn, Inc. @ 66....................................................... 158,400
Produces and markets a wide range of engineered programs
and specialty chemical products for process systems
Earnings P/S......$ 1.58, 1.73, 2.02, 1.47, 2.53, 2.67, 2.04, 2.45, 2.30, 2.04 2.9%
Dividends P/S........$ .74, .80, .89, 1.01, 1.16, 1.30, 1.38, 1.42, 1.46, 1.49 8.1%
Price/Earnings Ratio......................................................30.9
4,000 Schulman (A), Inc. @ 24 5/8................................................... 98,500
Manufactures plastic compounds, buys and sells plastic resins
and distributes plastic products and synthetic rubber for
prime producers in domestic and international markets
Earnings P/S..........$ .73, .82, .95, .76, 1.11, 1.01, 1.14, 1.48, 1.07, 1.32 6.8%
Dividends P/S...............$ .09, .11, .14, .16, .19, .22, .26, .30, .34, .38 17.4%
Price/Earnings Ratio......................................................17.5
3,600 Sigma - Aldrich Corp. @ 35 1/16............................................... 126,225
Manufacturer of biochemical and organic products used for
research and diagnostics
Earnings P/S..........$ .575, .65, .72, .59, .84, .99, .1.11, 1.14, 1.36, 1.52 11.4%
Dividends P/S.........$ .075, .085, .095, .10, .115, .13, .15, .17, .19, .2275 13.1%
Price/Earnings Ratio......................................................22.9
---------
383,125
---------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
68
<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> <C>
Computers (3.60%)
800 Automatic Data Processing, Inc. @ 47.......................................... $ 37,600
Largest independent computing services firm in the U.S.
Earnings P/S...........$ .54, .62, .72, .79, .90, 1.01, 1.15, 1.34, 1.53, 1.74 13.9%
Dividends P/S...............$ .11, .13, .15, .17, .20, .23, .26, .29, .35, .42 16.1%
Price/Earnings Ratio......................................................27.6
500 Electronic Data Systems Corp. @ 41............................................ 20,500
Provides information technology services to companies worldwide
Earnings P/S.........$ .79, .91, 1.04, 1.03, 1.21, 1.37, 1.55, 1.77, 1.99, .84 0.7%
Dividends P/S...............$ .13, .17, .24, .28, .32, .36, .40, .48, .52, .60 18.5%
Price/Earnings Ratio......................................................50.5
1,400 Hewlett-Packard Co. @ 56...................................................... 78,400
Manufactures and services electronic measurement, analysis and
computation instruments
Earnings P/S..........$ 1.25, 1.68, 1.76, .77, .83, .93, .86, 1.31, 1.92, 2.63 8.6%
Dividends P/S...............$ .06, .07, .10, .11, .13, .20, .24, .29, .38, .46 25.4%
Price/Earnings Ratio......................................................22.1
---------
136,500
---------
Containers (3.19%)
2,800 Bemis Company, Inc. @ 43 1/4.................................................. 121,100
---------
Producer of a broad range of flexible packaging and equipment
and pressure sensitive materials
Earnings P/S...........$ .74, .90, .99, .97, 1.08, 1.10, .94, 1.45, 1.73, 1.86 10.8%
Dividends P/S................$.18, .22, .30, .36, .42, .46, .50, .54, .64, .72 16.7%
Price/Earnings Ratio......................................................24.4
Diversified Operations (3.63%)
1,400 DuPont (E.I.) De Nemours & Co. @ 62 7/8....................................... 88,025
Nation's largest chemical manufacturer
Earnings P/S.........$ 1.52, 1.77, 1.70, 1.69, .92, .76, .52, 2.23, 2.89, 3.35 9.2%
Dividends P/S.........$ .55, .625, .725, .81, .84, .87, .88, .91, 1.015, 1.115 8.2%
Price/Earnings Ratio......................................................19.1
2,000 Ikon Office Solutions, Inc. @ 24 15/16........................................ 49,875
Distributor of office and paper products
Earnings P/S...........$ 1.15, 1.96, .91, .81, 1.04, 1.18, .05, .74, 1.55, .97 NMF
Dividends P/S...............$ .26, .28, .31, .34, .36, .37, .39, .41, .43, .45 6.3%
Price/Earnings Ratio......................................................27.6
---------
137,900
---------
Electronics (8.12%)
2,800 AMP, Inc. @ 41 3/4............................................................ 116,900
World's largest manufacturer of electrical/electronic connectors
Earnings P/S......$ 1.48, 1.32, 1.35, 1.31, 1.23, 1.39, 1.44, 1.83, 2.01, 1.24 NMF
Dividends P/S..............$ .43, .50, .60, .68, .72, .76, .80, .84, .92, 1.00 9.8%
Price/Earnings Ratio......................................................36.7
1,200 Emerson Electric Co. @ 55 1/16................................................ 66,075
Produces and sells electrical/electronic products and systems
Earnings P/S......$ 1.16, 1.32, 1.38, 1.40, 1.44, 1.53, 1.91, 1.95, 2.15, 2.39 8.4%
Dividends P/S...........$ .49, .515, .58, .64, .67, .70, .735, .80, .92, 1.005 8.3%
Price/Earnings Ratio......................................................23.1
600 General Electric Co. @ 65 3/8................................................. 39,225
Dominant force in home appliances, electrical power,
and financial services
Earnings P/S.......$ .94, 1.09, 1.22, 1.26, 1.28, 1.12, 1.57, 1.84, 2.07, 2.34 10.7%
Dividends P/S..............$ .325, .35, .41, .47, .51, .56, .63, .72, .82, .92 12.3%
Price/Earnings Ratio......................................................29.7
1,100 Grainger (W.W.), Inc. @ 78 3/16............................................... 86,006
Leading distributor of electrical equipment
Earnings P/S......$ 1.57, 1.96, 2.19, 2.31, 2.38, 2.70, 3.04, 2.61, 3.70, 4.09 11.2%
Dividends P/S...............$ .39, .43, .50, .57, .61, .65, .71, .78, .89, .98 10.8%
Price/Earnings Ratio......................................................20.7
---------
308,206
---------
Food (2.53%)
3,000 Archer-Daniel Midland Co. @ 23 1/2............................................ 70,500
Processes and merchandises agricultural products
Earnings P/S..............$ .62, .75, .85, .73, .79, .87, .81, 1.25, 1.40, .74 2.0%
Dividends P/S......$ .028, .029, .034, .048, .05, .053, .056, .066, .116, .193 23.9%
Price/Earnings Ratio......................................................31.7
400 ConAgra, Inc. @ 64 1/8........................................................ 25,650
Leader in frozen & processed foods, and distributor of agricultural supplies
Earnings P/S........$ .85, 1.08, 1.25, 1.41, 1.49, 1.58, 1.81, 2.06, .79, 2.68 13.6%
Dividends P/S...............$ .27, .31, .36, .42, .48, .56, .65, .75, .86, .99 15.5%
Price/Earnings Ratio......................................................24.2
---------
96,150
---------
Insurance (4.31%)
700 AFLAC Corp. @ 47 1/4.......................................................... 33,075
Global specialty insurer
Earnings P/S..........$ .72, .53, .77, .82, 1.03, 1.26, 1.65, 2.01, 2.38, 2.78 16.2%
Dividends P/S...............$ .12, .13, .15, .18, .20, .23, .26, .30, .34, .39 14.0%
Price/Earnings Ratio......................................................18.4
200 American International Group @ 149 3/8........................................ 29,875
Broadly based property-casualty insurance organization
Earnings P/S......$ 4.42, 4.61, 4.86, 3.09, 3.31, 3.55, 4.09, 4.72, 5.52, 6.39 4.2%
Dividends P/S...............$ .09, .13, .16, .18, .21, .24, .26, .29, .32, .37 17.0%
Price/Earnings Ratio......................................................23.9
150 General RE Corp. @ 182........................................................ 27,300
Broadly based re-insurance organization
Earnings P/S.....$ 5.04, 6.52, 6.89, 6.96, 7.44, 7.07, 7.38, 9.02 10.59, 11.08 9.2%
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......................................................17.2
1,000 Reliastar Financial Corp. @ 73 1/8............................................ 73,125
Financial services company engaged in life/health insurance
and consumer finance
Earnings P/S......$ 1.58, 2.07, 1.99, 1.96, 1.67, 2.26, 2.83, 3.48, 4.62, 5.04 13.8%
Dividends P/S..............$ .47, .57, .59, .65, .69, .73, .79, .88, .98, 1.09 9.8%
Price/Earnings Ratio......................................................15.4
---------
163,375
---------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
69
<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> <C>
Machinery (4.00%)
1,400 Dover Corp. @ 61 1/2.......................................................... $ 86,100
Manufactures a variety of specialized industrial products
Earnings P/S......$ 1.11, 1.14, 1.28, 1.23, 1.09, 1.16, 1.46, 1.93, 2.60, 3.47 13.5%
Dividends P/S...............$ .26, .31, .35, .38, .41, .43, .45, .49, .56, .64 10.5%
Price/Earnings Ratio......................................................18.3
2,000 Pentair, Inc. @ 32 7/8........................................................ 65,750
Manufactures enclosures for electrical, electronic, woodworking
and power tool equipment
Earnings P/S.........$ 1.12, .95, .80, .89, 1.11, 1.11, 1.14, 1.32, 1.54, 1.91 6.1%
Dividends P/S...............$ .21, .22, .27, .29, .31, .33, .34, .36, .40, .50 10.1%
Price/Earnings Ratio......................................................18.1
---------
151,850
---------
Media (2.38%)
200 Gannett Co., Inc. @ 98 3/4.................................................... 19,750
Publishes 81 daily/50 nondaily newspapers, operates 10 TV , 8 FM
and 7 AM stations
Earnings P/S......$ 2.26, 2.47, 2.36, 2.21, 2.06, 2.48, 2.81, 3.33, 3.28, 4.90 9.0%
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......................................................21.1
1,200 McGraw-Hill Companies, Inc. @ 58 13/16........................................ $70,575
Provides informational products and services for business and industry
Earnings P/S........$ 1.92, .91, 1.77, 1.73, 1.51, 1.60, .11, 2.04, 2.30, 4.95 11.1%
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......................................................12.3
---------
90,325
---------
Medical (6.37%)
500 American Home Products Corp. @ 76 1/2......................................... 38,250
Leading manufacturer of ethical pharmaceuticals
Earnings P/S......$ 1.60, 1.77, 1.96, 3.07, 1.85, 2.26, 2.39, 3.48, 1.84, 3.09 7.6%
Dividends P/S........$ .83, .90, .98, 1.08, 1.19, 1.33, 1.43, 1.47, 1.51, 1.57 7.3%
Price/Earnings Ratio......................................................25.2
2,000 Baxter International, Inc. @ 52 1/4........................................... 104,500
The company operates four divisions: renal, biotech, cardiovascular and
intravenous systems and international distribution
Earnings P/S.....$ 1.30, 1.49, (.05), 1.91, 1.81, 1.73, (.70), 2.01, 1.50, .86 NMF
Dividends P/S.............$ .41, .47, .52, .60, .69, .80, .93, .95, 1.03, 1.11 11.7%
Price/Earnings Ratio......................................................67.1
400 Johnson & Johnson @ 64 3/8.................................................... 25,750
Major producer of prescription and non-prescription drugs, toiletries, medical
instruments and supplies
Earnings P/S..........$ .71, .80, .86, .99, 1.12, 1.28, 1.41, 1.65, 1.94, 2.26 13.7%
Dividends P/S...............$ .20, .24, .28, .33, .39, .45, .51, .57, .64, .74 15.7%
Price/Earnings Ratio......................................................27.7
300 Lilly (Eli) & Co. @ 109 5/16.................................................. 32,794
Major producer of prescription and non-prescription drugs, health products
Earnings P/S.......$ 1.34, 1.60, 1.95, 2.05, 2.33, 1.29, .73, 2.18, 2.36, 2.86 8.8%
Dividends P/S.........$ .50, .57, .67, .82, 1.00, 1.10, 1.21, 1.25, 1.31, 1.37 11.9%
Price/Earnings Ratio........................................................40
500 Medtronic, Inc. @ 81.......................................................... 40,500
Leading manufacturer of medical devices and instruments
Earnings P/S............$ .40, .46, .48, .56, .68, .89, 1.01, 1.28, 1.94, 2.23 21.0%
Dividends P/S...............$ .06, .07, .09, .10, .12, .14, .17, .21, .26, .32 20.4%
Price/Earnings Ratio......................................................41.2
---------
241,794
---------
Metal (0.58%)
1,200 Worthington Industries, Inc. @ 18 5/16........................................ 21,975
---------
Manufactures metal and plastic products
Earnings P/S..............$ .61, .70, .61, .50, .63, .74, .94, 1.29, 1.01, .96 5.2%
Dividends P/S...............$ .17, .19, .23, .26, .28, .32, .34, .39, .43, .47 20.8%
Price/Earnings Ratio......................................................20.4
Office (0.92%)
500 Pitney Bowes, Inc. @ 69 1/2................................................... 34,750
---------
Manufactures office automation equipment
Earnings P/S......$ 1.54, 1.19, 1.34, 1.35, 1.79, 1.98, 1.99, 2.33, 2.75, 3.23 8.6%
Dividends P/S............$ .38, .46, .52, .60, .68, .78, .90, 1.04, 1.20, 1.38 15.4%
Price/Earnings Ratio......................................................22.1
Oil & Gas (1.71%)
600 Exxon Corp. @ 61 1/2.......................................................... 36,900
Major factor in the crude oil, natural gas and chemical industry
Earnings P/S......$ 2.01, 2.15, 1.17, 2.37, 1.87, 1.85, 2.10, 2.24, 2.68, 3.13 5.0%
Dividends P/S..$ .95, 1.075, 1.15, 1.235, 1.34, 1.415, 1.44, 1.455, 1.50, 1.56 5.7%
Price/Earnings Ratio......................................................19.9
400 Mobil Corp. @ 69 7/8.......................................................... 27,950
One of the largest integrated, international oil companies with interest in
petrochemicals and plastics
Earnings P/S......$ 5.07, 4.40, 4.60, 4.65, 2.70, 1.60, 2.02, 2.60, 2.27, 3.07 NMF
Dividends P/S.....$ 1.10, 1.18, 1.28, 1.41, 1.56, 1.60, 1.63, 1.70, 1.81, 1.96 6.6%
Price/Earnings Ratio......................................................18.9
---------
64,850
---------
Retail (4.05%)
400 Home Depot, Inc. @ 68 15/16................................................... 27,575
Operates a chain of retail building supply/
home improvement "warehouse" stores
Earnings P/S..............$ .42, .46, .23, .32, .43, .59, .73, .91, 1.08, 1.38 14.1%
Dividends P/S.........$ .053, .06, .073, .08, .087, .093, .10, .113, .126, .14 11.4%
Price/Earnings Ratio......................................................32.5
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
70
<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> <C>
Retail (continued)
1,000 Pep Boys - Manny, Moe &
Jack (The) @ 34 1/16.......................................................... $ 34,063
Retailer of automotive parts and accessories
Earnings P/S............$ .76, .63, .66, .63, .75, .93, 1.13, 1.30, 1.40, 1.66 9.1%
Dividends P/S...............$ .08, .09, .11, .12, .13, .14, .15, .17, .19, .21 11.3%
Price/Earnings Ratio......................................................20.5
1,600 Sysco Corp. @ 36 1/2.......................................................... 58,400
Largest distributor of food service products
Earnings P/S...........$ .45, .60, .73, .81, .90, 1.00, 1.16, 1.33, 1.48, 1.65 15.5%
Dividends P/S...............$ .07, .08, .09, .10, .14, .22, .28, .36, .44, .52 25.0%
Price/Earnings Ratio......................................................22.8
1,000 Wal-Mart Stores, Inc. @ 33 13/16.............................................. 33,813
Operates chain of discount department stores
Earnings P/S............$ .37, .48, .50, .59, .73, .90, 1.05, 1.20, 1.21, 1.38 15.4%
Dividends P/S...............$ .03, .04, .06, .07, .09, .11, .13, .17, .20, .21 24.1%
Price/Earnings Ratio......................................................25.7
---------
153,851
---------
Soap & Cleaning Preparations (1.89%)
1,500 Ecolab, Inc. @ 47 3/4......................................................... 71,625
---------
Develops and markets premium institutional cleansing, sanitizing and
maintenance product and services
Earnings P/S.........$ .88, .18, 1.04, .93, 1.00, 1.05, 1.26, 1.27, 1.53, 1.85 8.6%
Dividends P/S...............$ .30, .32, .33, .34, .35, .36, .40, .46, .52, .58 7.6%
Price/Earnings Ratio......................................................26.5
Steel (0.89%)
600 Nucor Corp. @ 56 1/2.......................................................... 33,900
---------
Manufactures steel and steel products
Earnings P/S............$ .84, .68, .88, .86, .78, .98, 1.57, 2.97, 2.97, 2.97 15.1%
Dividends P/S................$ .09, .10, .11, .12, .13, .14, .16, .18, 28, .32 15.1%
Price/Earnings Ratio......................................................19.6
Utilities (6.78%)
1,500 Duke Energy Corp. @ 47 15/16.................................................. 71,906
Generates, transmits, distributes and sells electric energy in the Piedmont
sections of North and South Carolina
Earnings P/S......$ 2.57, 2.40, 2.60, 2.44, 2.44, 2.39, 2.96, 3.01, 3.21, 3.31 2.9%
Dividends P/S.....$ 1.37, 1.42, 1.52, 1.60, 1.68, 1.76, 1.84, 1.92, 2.00, 2.08 4.8%
Price/Earnings Ratio......................................................14.7
800 Frontier Corp. @ 19 15/16..................................................... 15,950
Fifth largest long distance telephone company
Earnings P/S.......$ 1.06, .99, .96, .87, 1.20, 1.09, 1.26, 1.56, .97, .85 NMF
Dividends P/S...............$ .66, .68, .71, .73, .75, .77, .79, .81, .83, .85 2.9%
Price/Earnings Ratio......................................................24.1
2,400 National Fuel Gas Co. @ 41 15/16.............................................. 100,650
Integrated natural gas system serving N.Y., PA., and OH
Earnings P/S......$ 1.65, 1.93, 1.83, 1.95, 1.89, 1.88, 2.05, 2.27, 2.40, 2.96 6.7%
Dividends P/S.....$ 1.19, 1.25, 1.32, 1.40, 1.45, 1.49, 1.53, 1.57, 1.61, 1.67 3.8%
Price/Earnings Ratio......................................................14.2
1,700 Questar Corp. @ 40 3/8........................................................ 68,638
Diversified holding company for Utah, Wyoming and Colorado natural gas
transmission, distribution and storage
Earnings P/S.......$ .64, 1.27, 1.46, 1.57, 1.53, 2.00, 1.97, 1.11, 2.23, 2.54 16.6%
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
---------
257,144
---------
TOTAL COMMON STOCKS
(Cost $2,680,326) 2,993,419
---------
<CAPTION>
(000s MARKET
OMITTED) UNITED STATES GOVERNMENT (6.06%) VALUE
- -------- -----
<S> <C> <C>
$100 United States Treasury, Bond 10.75%,
08-15-05 @ 126.125............................................................ 126,125
100 United States Treasury, Note 7.875%,
11-15-99 @ 103.719............................................................ 103,719
---------
TOTAL UNITED STATES GOVERNMENT
(Cost $228,641) 229,844
---------
INTEREST
RATE
----
SHORT-TERM INVESTMENTS (14.78%)
560 Joint Repurchase Agreement ( 14.76%)
Investment in a joint repurchase
agreement transaction with
Toronto Dominion Securities USA,
Inc. - Dated 06-30-97, Due 07-01-97
(secured by U.S. Treasury Notes,
5.625% thru 8.125% Due 07-31-97
thru 11-15-04) - Note A......................................................... 5.97% 560,000
Corporate Savings Account ( 0.02%)
Investors Bank & Trust Company
Daily Interest Savings Account
Current Rate 4.95%.............................................................. 860
----------
TOTAL SHORT-TERM INVESTMENTS (14.78%) 560,860
------ ----------
TOTAL INVESTMENTS (99.73%) $3,784,123
====== ==========
</TABLE>
NMF = No Meaningful Figure
The percentage shown for each investment category is the total value of that
category as a percentage of the net assets of the Fund.
SEE NOTES TO FINANCIAL STATEMENTS.
71
<PAGE>
================================================================================
FINANCIAL STATEMENTS
John Hancock Funds - Declaration Trust -- V.A. Sovereign Investors Fund
Dividend Increases (Unaudited)
Listed below are the most recent dividend increases for the common stocks held
in the V.A. Sovereign Investors Fund as of June 30, 1997.
- --------------------------------------------------------------------------------
PERCENT OF
COMPANY DIVIDEND INCREASE
- ------- -----------------
AFLAC Corp. ..................................................... 15.0
American Home Products Corp. .................................... 7.3
American International Group .................................... 17.6
AMP, Inc. ....................................................... 4.0
Archer-Daniel Midland Co. ....................................... 5.0
Automatic Data Processing, Inc. ................................. 15.0
BB&T Corp. ...................................................... 14.8
BankOne Corp. ................................................... 11.8
Baxter International, Inc. ...................................... 0.4
Bemis Company, Inc. ............................................. 11.1
BetzDearborn, Inc. .............................................. 1.4
ConAgra, Inc. ................................................... 14.7
Dover Corp. ..................................................... 13.3
DuPont (E.I.) De Nemours & Co. .................................. 10.5
Duke Energy Corp. ............................................... 3.9
Ecolab, Inc. .................................................... 14.3
Electronic Data Systems Corp. ................................... 15.4
Emerson Electric Co. ............................................ 10.2
Exxon Corp. ..................................................... 3.8
First Tennessee National Corp. .................................. 13.2
First Union Corp. ............................................... 11.5
Frontier Corp. .................................................. 2.4
Gannett Co., Inc. ............................................... 2.9
General Electric Co. ............................................ 13.0
General RE Corp. ................................................ 7.8
Grainger (W.W.), Inc. ........................................... 1.1
Hewlett Packard Co. ............................................. 16.7
Home Depot, Inc. ................................................ 1.3
Ikon Office Solutions, Inc. ..................................... 7.7
Interpublic Group, Inc. ......................................... 14.7
Johnson & Johnson ............................................... 15.8
Lilly (Eli) & Co. ............................................... 5.1
Masco Corp. ..................................................... 5.3
McGraw-Hill Companies, Inc. ..................................... 9.1
Medtronic, Inc. ................................................. 15.8
Mobil Corp. ..................................................... 6.0
National Fuel Gas Co. ........................................... 3.6
Norwest Corp. ................................................... 11.1
Nucor Corp. ..................................................... 25.0
Pentair, Inc. ................................................... 8.0
Pep Boys - Manny, Moe, & Jack (The) ............................. 14.3
PepsiCo, Inc. ................................................... 8.7
Pitney Bowes, Inc. .............................................. 15.9
Questar Corp. ................................................... 3.4
Reliastar Financial Corp. ....................................... 10.7
Rockwell International Corp. .................................... 5.5
RPM, Inc. ....................................................... 8.3
Schulman A., Inc. ............................................... 10.5
Sigma-Aldrich Corp. ............................................. 13.6
Sysco Corp. ..................................................... 15.4
Wal-Mart Stores, Inc. ........................................... 28.6
Worthington Industries, Inc. .................................... 8.3
----
The average dividend increase for this group was .......... 10.2%
====
SEE NOTES TO FINANCIAL STATEMENTS.
72
<PAGE>
================================================================================
FINANCIAL STATEMENTS
John Hancock Funds - Declaration Trust -- V.A. World Bond Fund
Schedule of Investments
June 30, 1997 (Unaudited)
- --------------------------------------------------------------------------------
The Schedule of Investments is a complete list of all securities owned by V.A.
World Bond Fund on June 30, 1997. It's divided into two main categories: bonds
and short-term investments. The bonds are further broken down by currency
denomination. Short-term investments, which represent the Fund's "cash"
position, are listed last.
INTEREST PAR VALUE MARKET
ISSUER, DESCRIPTION RATE (000s OMITTED) VALUE
- ------------------- ---- -------------- -----
BONDS
Australian Dollar (6.67%)
State of Queensland Treasury Corp.,
Global Note 08-14-01 ....................... 8.000% 180 $ 144,178
----------
British Pound Sterling (6.52%)
United Kingdom Treasury,
Bond 11-06-01 .............................. 7.000 85 140,938
----------
New Zealand Dollar (4.70%)
Government of New Zealand,
Bond 02-15-00 .............................. 6.500 150 101,493
----------
Swedish Krona (2.17%)
Kingdom of Sweden,
Bond Ser 1033 05-05-03 ..................... 9.000 300 46,786
----------
U.S. Dollar (76.96%)
Federative Republic of Brazil, (Brazil),
Floating Rate Bond 04-15-09 ................ 6.938* 100 87,250
Global Bond 11-05-01 ....................... 8.875 50 51,625
Philippine Long Distance
Telephone Co., (Philippines),
Note Ser EMTN 06-30-06 ..................... 9.250 50 52,375
Republic of Argentina, (Argentina),
Global Bond 02-23-01 ....................... 9.250 100 104,625
Republic of Ecuador, (Ecuador),
Unsub Deb 04-25-02 (R) ..................... 11.250 50 52,500
Republic of Panama, (Panama),
Note 02-13-02 .............................. 7.875 50 49,828
Republic of South Africa,
(South Africa), Note 06-23-17 .............. 8.500 50 49,391
Republic of Venezuela,
(Venezuela), Floating Rate
Note Ser C 12-30-03 ........................ 7.063* 50 48,250
Russian Federation Ministry of
Finance, (Russia), Unsub Deb Ser
REGS 11-27-01 .............................. 9.250 50 50,750
United Mexican States, (Mexico),
Global Bond 02-06-01 ....................... 9.750 50 52,812
Global Bond 05-15-26 ....................... 11.500 100 114,318
United States Treasury,
Note 08-31-01 .............................. 6.500% 200 $ 200,968
Note 02-28-02 .............................. 6.250 75 74,578
Note 05-31-02 .............................. 6.500 550 552,233
Note 05-15-07 .............................. 6.625 120 120,993
----------
1,662,496
----------
TOTAL BONDS
(Cost $2,064,012) (97.02%) 2,095,891
------ ----------
SHORT-TERM INVESTMENTS
U.S. Dollar (1.99%)
Investment in a joint repurchase
agreement with Toronto Dominion
Securities USA, Inc. - Dated 06-30-97,
Due 07-01-97 (secured by
U.S. Treasury Notes, 5.625%
thru 6.375% due 04-30-99
thru 06-30-02) - Note A .............. 5.97% 43 43,000
----------
TOTAL SHORT-TERM INVESTMENTS
(Cost $43,000) ......... -- (1.99%) 43,000
----------- ----------
TOTAL INVESTMENTS ......... -- (99.01%) $2,138,891
=========== ==========
* Represents rate in effect on June 30, 1997.
# Par value of non-U.S. dollar denominated foreign bonds is expressed in
local currency for each country listed.
(R) Security is exempt from registration under rule 144A of the Securities Act
of 1933. Such securities may be resold, normally to qualified
institutional buyers, in transactions exempt from registration. See Note A
of the Notes to Financial Statements for valuation policy. Rule 144A
securities amounted to $52,500 or 2.43% as of June 30, 1997.
EMTN = Euro Medium
Term Note. The percentage shown for each investment category is the total value
of that category as a percentage of the net assets of the Fund.
SEE NOTES TO FINANCIAL STATEMENTS.
73
<PAGE>
================================================================================
FINANCIAL STATEMENTS
John Hancock Funds - Declaration Trust -- V.A. World Bond 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 June 30, 1997 assigned to the various
investment categories.
MARKET VALUE AS A
INVESTMENT CATEGORIES % OF FUND'S NET ASSETS
- --------------------- ----------------------
Government - Foreign ................................. 50.68%
Government - U.S. .................................... 43.92
Utilities - Foreign .................................. 2.42
Short-term Investments ............................... 1.99
-----
TOTAL INVESTMENTS ............. 99.01%
=====
SEE NOTES TO FINANCIAL STATEMENTS.
74
<PAGE>
================================================================================
FINANCIAL STATEMENTS
John Hancock Funds - Declaration Trust -- V.A. Strategic Income Fund
Schedule of Investments
June 30, 1997 (Unaudited)
- --------------------------------------------------------------------------------
INTEREST S&P PAR VALUE MARKET
ISSUER, DESCRIPTION RATE RATING* (000s OMITTED) VALUE
- ------------------- ---- ------- -------------- -----
BONDS
Advertising (3.31%)
Outdoor Systems, Inc.,
Sr Sub Note 10-15-06 ......... 9.375% B $100 $ 101,000
----------
Containers (9.76%)
AMTROL, Inc.,
Sr Sub Note 12-31-06 ....... 10.625 B- 100 105,250
Riverwood International
Corp., Gtd Sr Sub Note
04-01-08.................... 10.875 CCC+ 100 90,250
Stone Container Corp.,
Unit (Sr Sub Deb &
Supplemental Interest
Cert) 04-01-02.............. 12.250 B- 100 102,000
----------
297,500
----------
Energy (1.73%)
AES China Generating Co.
Ltd., Note (Bermuda)
12-15-06 (Y)................ 10.125 BB- 50 52,750
----------
Government - Foreign (11.94%)
Australia, Commonwealth
of, Government Bond
(Australia) 11-15-06# ...... 6.750 AAA 350 259,719
Brazil, Federative Republic
of, Government Bond
(Brazil) 05-15-27 (Y) ...... 10.125 BB- 50 47,859
United Mexican States,
Government Bond
(Mexico) 09-15-16 (Y) ...... 11.375 BB 50 56,188
----------
363,766
----------
Government - U.S. (14.80%)
United States Treasury,
Bond 02-15-16............... 9.250 AAA 200 250,218
Note 08-15-97............... 8.625 AAA 200 200,782
----------
451,000
----------
Government - U.S. Agencies (2.47%)
Federal National Mortgage
Association, Global Bond
(Australia) 07-10-02# ...... 6.500 AAA 100 75,384
----------
Leisure (11.83%)
Casino America, Inc.,
Sr Sec Note 08-01-03 ....... 12.500 B 250 258,125
Riddell Sports, Inc.,
Sr Note 07-15-07 (R) ....... 10.500 B 100 102,500
----------
360,625
----------
Oil & Gas (3.39%)
Costilla Energy Inc.,
Sr Note 10-01-06............ 10.250 B 100 103,250
----------
Retail (3.17%)
Pueblo Xtra International,
Inc., Sr Note Ser B
08-01-03 (R)................ 9.500 B- 100 96,500
----------
Steel (3.46%)
Acindar Industria Argentina
de Aceros S.A., Bond
(Argentina) 02-15-04 (Y) ... 11.250 B+ 100 105,500
----------
Telecommunications (19.57%)
Comunicacion Celular S.A.,
Bond, Step Coupon
(13.125%, 11-15-00)
(Colombia) 11-15-03
(A), (Y).................... Zero B+ 100 70,500
Globalstar, L.P. / Capital,
Sr Note 06-15-04 (R) ....... 11.250 B 100 93,313
Innova S de R.L.,
Sr Note (Mexico)
04-01-07 (R), (Y)........... 12.875 B- 100 105,500
Nextel Communications,
Inc., Sr Disc Note, Step
Coupon (9.75%, 02-15-99)
08-15-04 (A)................ Zero CCC- 150 114,750
Orion Network Systems, Inc.,
Unit (Sr Note & Warrants)
01-15-07.................... 11.250 B 100 103,500
Qwest Communications
International, Inc.,
Sr Note 04-01-07 (R) ....... 10.875 B+ 100 108,500
----------
596,063
----------
TOTAL BONDS
(Cost $2,559,500) (85.43%) 2,603,338
------ ----------
SEE NOTES TO FINANCIAL STATEMENTS.
75
<PAGE>
================================================================================
FINANCIAL STATEMENTS
John Hancock Funds - Declaration Trust -- V.A. Strategic Income Fund
NUMBER OF MARKET
ISSUER, DESCRIPTION SHARES OR WARRANTS VALUE
- ------------------- ------------------ -----
PREFERRED STOCKS AND WARRANTS
Comunicacion Celular S.A.,
Warrant** (Colombia) (Y)............ 1,000 $ 5,500
SFX Broadcasting, Inc., 12.625%,
Ser E, Preferred Stock.............. 1,000 109,000
----------
TOTAL PREFERRED STOCKS AND WARRANTS
(Cost $106,125) (3.76%) 114,500
----- ----------
INTEREST PAR VALUE MARKET
RATE (000s OMITTED) VALUE
---- -------------- -----
SHORT-TERM INVESTMENTS
Joint Repurchase Agreement (14.31%)
Investment in a joint repurchase
agreement transaction with
Toronto-Dominion Securities USA,
Inc. Dated 6-30-97, Due 7-01-97
(secured by U.S. Treasury Notes,
5.625% thru 8.125% Due 07-31-97
thru 11-15-04) - Note A............. 5.970% $436 436,000
----------
Corporate Savings Account (0.00%)
Investors Bank & Trust Company
Daily Interest Savings Account
Current Rate 4.95%.................. 273
----------
TOTAL SHORT-TERM INVESTMENTS (14.31%) 436,273
------- ----------
TOTAL INVESTMENTS (103.50%) $3,154,111
======= ==========
* Credit ratings are unaudited and rated by Moody's Investors Service or
John Hancock Advisers, Inc. where Standard & Poor's ratings are not
available.
** Non-income producing security.
# Par value of foreign bonds is expressed in local currency, as shown
parenthetically in security description.
(A) Cash interest will be paid on this obligation at the stated rate beginning
on the stated date.
(R) These securities are exempt from registration under rule 144A of the
Securities Act of 1933. Such securities may be resold, normally to
qualified institutional buyers, in transactions exempt from registration.
Rule 144A securities amounted to $506,313 or 16.62% of net assets as of
June 30, 1997.
(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
Portfolio Concentration
- --------------------------------------------------------------------------------
MARKET VALUE
AS A PERCENTAGE OF
COUNTRY DIVERSIFICATION: FUNDS NET ASSETS
- ------------------------ ----------------
Argentina.................................. 3.46%
Australia.................................. 8.52
Bermuda.................................... 1.73
Brazil..................................... 1.57
Colombia................................... 2.49
Mexico..................................... 5.31
United States.............................. 80.42
------
TOTAL INVESTMENTS 103.50%
======
QUALITY DISTRIBUTION:
- ---------------------
AAA........................................ 25.80%
BB......................................... 5.15
B.......................................... 47.75
CCC........................................ 6.73
------
TOTAL BONDS 85.43%
======
SEE NOTES TO FINANCIAL STATEMENTS.
76
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================================================================================
FINANCIAL STATEMENTS
John Hancock Funds - Declaration Trust -- V.A. Sovereign Bond Fund
Schedule of Investments
June 30, 1997 (Unaudited)
- --------------------------------------------------------------------------------
INTEREST S&P PAR VALUE MARKET
ISSUER, DESCRIPTION RATE RATING* (000s OMITTED) VALUE
- ------------------- ---- ------- -------------- -----
BONDS
Banks - Foreign (0.33%)
Landeskreditbank Baden -
Wuerttemberg, Sub Note
(Germany) 02-01-23 (Y) ...... 7.625% AAA $ 5 $ 5,211
----------
Banks - United States (0.67%)
Banque National de Paris -
New York Branch, Sub Note
01-15-07 .................... 7.200 A 5 4,970
National Westminster Bank
PLC - New York Branch,
Sub Note 05-01-01 ........... 9.450 AA- 5 5,454
----------
10,424
----------
Finance (6.17%)
Constitution Capital Trust I,
Cap Security 04-15-27 (R) .. 9.150 BBB 3 3,008
ContiFinancial Corp.,
Sr Note 08-15-03 ........... 8.375 BB+ 5 5,106
Green Tree Home Improvement
Loan Trust, Pass Thru Ctf
Ser 1996-F Class HI:
A3 11-15-27 ................ 6.750 AAA 2 1,967
Pass Thru Ctf Ser 1997-A
Class HI: A3 08-15-23 ...... 7.050 AAA 5 5,020
MBNA Master Credit Card
Trust, Ser 1995-D Class A
11-15-02 ................... 6.050 AAA 50 49,468
Trump Hotels & Casino Resorts
Funding, Inc./Holdings, L.P.,
Sr Sec Note 06-15-05 ....... 15.500 B+ 5 5,800
UCFC Home Equity Loan Trust,
Pass Thru Ctf Ser 1997-A1
Class A8 06-15-28 .......... 7.220 AAA 10 10,094
United Companies Financial
Corp., Note 01-15-04 ....... 7.700 BBB- 5 4,929
Viasystems Inc.,
Sr Sub Note 06-01-07 (R) ... 9.750 B- 2 2,022
Wharf International Finance
Ltd., Gtd Note (Cayman
Islands) 03-13-07 (R) (Y) .. 7.625 A 5 4,978
Yanacocha Receivables,
Pass Thru Cert Ser 1997-A
06-15-05 (R) ................ 8.400 BBB- 4 4,090
----------
96,482
----------
Funeral Services & Related (0.33%)
Loewen Group International,
Inc., Gtd Sr Note Ser 4
10-15-03 ................... 8.250 BB+ 5 5,169
----------
Glass Products (0.20%)
VICAP S.A. de C.V.,
Gtd Sr Note (Mexico)
05-15-07 (R) (Y) ........... 11.375 B+ 3 3,133
----------
Government - Foreign (1.27%)
Croatia, Republic of, Sr Note
(Croatia) 02-27-02 (R) (Y) . 7.000 BBB- 10 9,737
----------
Moscow, City of,
Unsub Deb (Russia)
05-31-00 (R) (Y) ........... 9.500 NR 10 10,112
----------
19,849
----------
Government - U.S. (59.08%)
United States Treasury,
Bond 08-15-17 ............... 8.875 AAA 54 65,770
Bond 02-15-23 ............... 7.125 AAA 181 186,430
Note 02-15-99 ............... 8.875 AAA 225 234,774
Note 11-30-99 ............... 7.750 AAA 8 8,279
Note 05-15-01 ............... 8.000 AAA 82 86,612
Note 05-15-02 ............... 7.500 AAA 223 233,349
Note 02-15-05 ............... 7.500 AAA 103 108,986
----------
924,200
----------
Government - U.S. Agencies (6.40%)
Government National
Mortgage Assn.,
30 Yr Pass Thru Ctf
07-15-26 ................... 8.000 AAA 98 100,066
----------
Insurance (2.65%)
Conseco, Inc.,
Sr Note 12-15-04 ........... 10.500 BBB 5 5,865
Fairfax Financial Holdings
Ltd., Note (Canada)
04-15-26 (Y) ............... 8.300 BBB+ 5 5,190
SEE NOTES TO FINANCIAL STATEMENTS.
77
<PAGE>
================================================================================
FINANCIAL STATEMENTS
John Hancock Funds - Declaration Trust -- V.A. Sovereign Bond Fund
Schedule of Investments
June 30, 1997 (Unaudited)
- --------------------------------------------------------------------------------
INTEREST S&P PAR VALUE MARKET
ISSUER, DESCRIPTION RATE RATING* (000s OMITTED) VALUE
- ------------------- ---- ------- -------------- -----
Insurance (continued)
Liberty Mutual Insurance
Co., Surplus Note
05-04-07 (R) ............... 8.200% A+ $ 5 $ 5,326
Surplus Note 10-15-26 (R) .. 7.875 A+ 5 4,989
Massachusetts Mutual
Life Insurance Co.,
Surplus Note 11-15-23 (R) .. 7.625 AA 5 4,974
NAC Re Corp.,
Note 06-15-99 .............. 8.000 A- 5 5,137
Sun Canada Financial
Co., Gtd Sub Note
12-15-07 (R) ............... 6.625 AA 5 4,757
URC Holdings Corp.,
Sr Note 06-30-06 (R) ....... 7.875 A- 5 5,161
----------
41,399
----------
Media (2.53%)
Cablevision Systems Corp.,
Sr Sub Deb 04-01-04 ........ 10.750 B 5 5,169
Comcast Corp.,
Sr Sub Deb 07-15-12 ........ 10.625 BB+ 4 4,720
News America Holdings,
Inc., Gtd Sr Deb
08-10-18 ................... 8.250 BBB 6 6,051
SFX Broadcasting, Inc.,
Sr Sub Note Ser B
05-15-06 ................... 10.750 B- 5 5,400
TeleWest Communications
PLC, Sr Deb (United
Kingdom) 10-01-06 (Y) ...... 9.625 B+ 2 2,060
Time Warner, Inc.,
Deb 01-15-13 ............... 9.125 BBB- 4 4,423
TKR Cable I, Inc.,
Sr Deb 10-30-07 ............ 10.500 BBB- 8 8,823
Viacom Inc.,
Sr Note 06-01-05 ........... 7.750 BB+ 3 2,977
----------
39,623
----------
Medical (0.34%)
Quest Diagnostics, Inc.,
Sr Sub Note 12-15-06 ....... 10.750 B+ 3 3,263
Tenet Healthcare Corp.,
Sr Sub Note 01-15-07 ....... 8.625 B+ 2 2,040
----------
5,303
----------
Mortgage Banking (0.32%)
First Plus Home Loan Trust,
Pass Thru Ctf Ser 1997-1
Class A6 12-10-15 .......... 6.950 AAA 5 4,982
----------
Oil & Gas (0.77%)
Camuzzi Gas, Pampeana
S.A., Bond (Argentina)
12-15-01 (R) (Y) ........... 9.250 BBB- 2 2,085
Enserch Exploration, Inc.,
Pass Thru Ctf
01-02-09 (R) ............... 7.540 NR 5 4,951
Norsk Hydro ASA,
Deb (Norway)
10-01-16 (Y) ............... 7.500 A 5 5,055
----------
12,091
----------
Paper & Paper Products (0.69%)
Georgia-Pacific Corp.,
Deb 01-15-18 ............... 9.750 BBB- 5 5,219
Indah Kiat International
Finance Co., Gtd Sec Bond
Ser C (Netherlands)
06-15-06 (Y) ............... 12.500 BB 2 2,265
S.D. Warren Co.,
Sr Sub Note Ser B
12-15-04 ................... 12.000 B+ 3 3,330
----------
10,814
----------
Real Estate Investment Trust (0.65%)
American Health Properties,
Inc., Note 01-15-07 ........ 7.500 BBB- 5 5,075
TriNet Corporate Realty Trust,
Inc., Note 05-15-01 ........ 7.300 BBB- 5 5,050
----------
10,125
----------
Steel (0.21%)
IVACO, Inc., Sr Note
(Canada) 09-15-05 (Y) ...... 11.500 B+ 3 3,218
----------
Telecommunications (1.00%)
Impsat Corp., Gtd Sr Sec Note
07-15-03 ................... 12.125 BB- 3 3,218
Paging Network, Inc.,
Sr Sub Note 10-15-08 ....... 10.000 B 3 2,914
Qwest Communications
International Inc., Sr Note
04-01-07 (R) ............... 10.875 B+ 4 4,340
SEE NOTES TO FINANCIAL STATEMENTS.
78
<PAGE>
================================================================================
FINANCIAL STATEMENTS
John Hancock Funds - Declaration Trust -- V.A. Sovereign Bond Fund
Schedule of Investments
June 30, 1997 (Unaudited)
- --------------------------------------------------------------------------------
INTEREST S&P PAR VALUE MARKET
ISSUER, DESCRIPTION RATE RATING* (000s OMITTED) VALUE
- ------------------- ---- ------- -------------- -----
Telecommunications (continued)
TCI Communications, Inc.,
Sr Deb 08-01-15 ............ 8.750% BBB- $ 5 $ 5,241
----------
15,713
----------
Tobacco (0.39%)
RJR Nabisco, Inc.,
Note 12-01-02 .............. 8.625 BBB- 6 6,168
----------
Transport (1.32%)
America West Airlines, Pass
Thru Ctf Ser B 01-02-08 .... 6.930 A- 5 4,938
Northwest Airlines, Inc.,
Gtd Note 03-15-04........... 8.375 BB- 6 6,099
Pass Thru Ctf Ser 1996-1
01-02-15 ................... 8.970 BBB- 5 5,378
NWA Trust,
Sr Note Ser A 06-21-14 ..... 9.250 AA 4 4,236
----------
20,651
----------
Utilities (4.67%)
BVPS II Funding Corp.,
Collateralized Lease Bond
06-01-17 ................... 8.890 BB- 5 5,025
Cleveland Electric Illuminating
Co., 1st Mtg Ser B
05-15-05 ................... 9.500 BB+ 8 8,605
Sec Note Ser A 07-01-04 (R) 7.670 BB+ 5 5,050
CMS Energy Corp.,
Sr Note 05-15-02 ........... 8.125 BB 5 5,050
Enersis S.A., Note (Cayman
Islands) 12-01-16 (Y) ...... 7.400 A- 5 4,845
Entergy Louisiana, Inc.,
Sec Lease Oblig Bond
01-02-17 + ................. 8.090 BBB- 4 4,010
First PV Funding Corp.,
Deb Ser 86B 01-15-16 ....... 10.150 BB- 4 4,216
Hydro-Quebec, Gtd Bond
(Canada) 02-01-21 (Y) ...... 9.400 A+ 15 17,798
Long Island Lighting Co.,
Deb 07-15-19 ............... 8.900 BB+ 3 3,127
Gen Ref Mtg 05-01-21 ....... 9.750 BBB- 10 10,134
Tenaga Nasional Berhad,
Note (Malaysia)
06-15-04 (R) (Y) ........... 7.875 A+ 5 5,227
----------
73,087
----------
TOTAL BONDS
(Cost $1,396,500) (89.99%) 1,407,708
------ ----------
INTEREST PAR VALUE MARKET
ISSUER, DESCRIPTION RATE (000s OMITTED) VALUE
- ------------------- ---- -------------- -----
SHORT-TERM INVESTMENTS
Joint Repurchase Agreement (13.81%)
Investment in a joint repuchase
agreement transaction with
Toronto-Dominion Securities USA,
Inc. Dated 06-30-97, Due 07-01-97
(secured by U.S. Treasury
Notes, 5.625% thru 8.125%
due 07-31-97 thru 11-15-04)
- Note A ................... 5.97% $216 $ 216,000
----------
Corporate Savings Account (0.02%)
Investors Bank & Trust Company
Daily Interest Savings Account
Current Rate 4.95% ........... 319
----------
TOTAL SHORT-TERM INVESTMENTS (13.83%) 216,319
------- ----------
TOTAL INVESTMENTS (103.82%) $1,624,027
======= ==========
NOTES TO THE SCHEDULE OF INVESTMENTS
(R) These securities are exempt from registration under Rule 144A of the
Securities Act of 1933. Such securities may be resold, normally to
qualified institutional buyers, in transactions exempt from registration.
Rule 144A securities amounted to $83,940 or 5.37% of net assets as of June
30, 1997.
(Y) Parenthetical disclosure of a foreign country in the security description
represents country of a foreign issuer; however, security is U.S. dollar
denominated.
* Credit ratings are unaudited and are rated by Moody's Investor Services or
John Hancock Advisers, Inc. where Standard and Poor's ratings are not
available.
+ These securities having an aggregate value of $4,010 or 0.26% of the
Fund's net assets, have been purchased on a when-issued basis. The
purchase price and the interest rate of such securities are fixed at trade
date, although the Fund does not earn any interest on such securities
until settlement date. The Fund has instructed its custodian bank to
segregate assets with a current value at least equal to the amount of
when-issued commitments. Accordingly, the market value of $14,935 of U.S.
Treasury Bond, 7.125%, due 2-15-23 has been segregated to the when-issued
commitments.
The percentage shown for each investment category is the total value of that
category as a percentage of the net assets of the Fund.
SEE NOTES TO FINANCIAL STATEMENTS.
79
<PAGE>
================================================================================
FINANCIAL STATEMENTS
John Hancock Funds - Declaration Trust -- V.A. Money Market Fund
Schedule of Investments
June 30, 1997 (Unaudited)
- --------------------------------------------------------------------------------
The Schedule of Investments is a complete list of all securities owned by the
V.A. Money Market Fund on June 30, 1997.
PAR VALUE
INTEREST QUALITY (000s MARKET
ISSUER, DESCRIPTION RATE RATINGS* OMITTED) VALUE
- ------------------- ---- -------- -------- -----
U.S.GOVERNMENT OBLIGATIONS
Governmental - U.S. Agencies (82.00%)
Federal Farm Credit Bank
07-08-97 ..................... 5.390% Tier 1 250 $ 249,738
Federal Home Loan Bank
07-01-97 ..................... 5.500 Tier 1 250 250,000
Federal Home Loan Mortgage
Corp., 07-01-97 .............. 5.500 Tier 1 250 250,000
Federal National
Mortgage Association,
08-08-97 # ................... 7.540 Tier 1 260 260,459
----------
1,010,197
----------
TOTAL U.S. GOVERNMENT
OBLIGATIONS
(Cost $1,010,197) (82.00%) 1,010,197
----------
INTEREST PAR VALUE MARKET
ISSUER, DESCRIPTION RATE (000s OMITTED) VALUE
- ------------------- ---- -------------- -----
JOINT REPURCHASE AGREEMENT
Investment in a joint repurchase
agreement transaction with
Toronto Dominion Securities
USA, Inc. Dated 06-30-97,
Due 07-01-97 (secured by
U.S.Treasury Notes 5.625%
thru 6.375% Due 04-30-99
thru 06-30-02), - Note A .... 5.970% 212 $ 212,000
----------
TOTAL JOINT REPURCHASE AGREEMENT
(Cost $212,000) (17.21%) 212,000
------ ----------
TOTAL INVESTMENTS (99.21%) $1,222,197
====== ==========
* 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.
# Call date.
The percentage shown for each investment category is the total value of that
category expressed as a percentage of the net assets of the Fund.
SEE NOTES TO FINANCIAL STATEMENTS.
80
<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. Financial Industries Fund (which commenced operations on May 1, 1997)
("V.A. Financial Industries 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 eleven
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. Financial
Industries Fund is to seek capital appreciation primarily through investments in
equity securities of financial services companies throughout the world. The
investment objective of the V.A. Emerging Growth Fund is to seek long-term
growth of capital. The investment objective of the V.A. 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.
81
<PAGE>
================================================================================
NOTES TO FINANCIAL STATEMENTS
John Hancock Funds - Declaration Trust
NOTE B --
ACCOUNTING POLICIES
VALUATION OF INVESTMENTS Securities in the Funds' portfolios (except for the
V.A. Money Market Fund) are valued on the basis of market quotations, valuations
provided by independent pricing services or, at fair value as determined in good
faith in accordance with procedures approved by the Trustees. Short-term debt
investments maturing within 60 days are valued at amortized cost which
approximates market value. All portfolio transactions initially expressed in
terms of foreign currencies have been translated into U.S. dollars as described
in "Foreign Currency Translation" below. The Funds may invest in indexed
securities whose value is linked either directly or inversely to changes in
foreign currencies, interest rates, commodities, indices or other reference
instruments. Indexed securities may be more volatile than the reference
instrument itself, but any loss is limited to the amount of the original
investment.
The V.A. Money Market Fund's portfolio of securities is valued at
amortized cost, in accordance with Rule 2a-7 of the Investment Company Act of
1940, which approximates market value. The amortized cost method involves
valuing a security at its cost on the date of purchase and thereafter assuming a
constant amortization to maturity of the difference between the principal amount
due at maturity and the cost of the security to the Fund. Interest income on
certain portfolio securities such as negotiable bank certificates of deposit and
interest bearing notes is accrued daily and included in interest receivable.
JOINT REPURCHASE AGREEMENT Pursuant to an exemptive order issued by the
Securities and Exchange Commission, the Fund, along with other registered
investment companies having a management contract with John Hancock Advisers,
Inc. (the "Adviser"), a wholly owned subsidiary of The Berkeley Financial Group,
may participate in a joint repurchase agreement transaction. Aggregate cash
balances are invested in one or more large repurchase agreements, whose
underlying securities are obligations of the U.S. government and/or its
agencies. The Funds' custodian bank receives delivery of the underlying
securities for the joint account on the Funds' behalf. The Adviser is
responsible for ensuring that the agreement is fully collateralized at all
times.
INVESTMENT TRANSACTIONS Investment transactions are recorded as of the date of
purchase, sale or maturity. Net realized gains and losses on sales of
investments are determined on the identified cost basis. Capital gains realized
on some foreign securities are subject to foreign taxes and are accrued, as
applicable.
FEDERAL INCOME TAXES The Funds' policy is to comply with the requirements of the
Internal Revenue Code that are applicable to regulated investment companies.
They will not be subject to federal income tax on taxable earnings which are
distributed to shareholders. For federal income tax purposes, net currency
exchange gains and losses from sales of foreign debt securities may be treated
as ordinary income even though such items are capital gains and losses for
accounting purposes.
For federal income tax purposes, the following Funds had capital loss
carryforwards available. These carryforwards are 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 occurring after October 31, 1996 are treated as arising
on the first day (January 1, 1997) of the Funds, next taxable year.
CAPITAL LOSS POSTS OCTOBER 31, 1996
CARRYFORWARD LOSS TREATED AS
FUND EXPIRES 12-31-2004 ARISING JANUARY 1, 1997
- ---- ------------------ -----------------------
V.A. International Fund ......... $ 1,554 --
V.A. Financial Industries Fund .. -- --
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 ............. -- --
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
82
<PAGE>
================================================================================
NOTES TO FINANCIAL STATEMENTS
John Hancock Funds - Declaration Trust
the case of some foreign securities, on the date thereafter when the Fund is
identified of the dividend. Interest income on investment securities is recorded
on the accrual basis. Foreign income may be subject to foreign withholding taxes
which are accrued as applicable.
The Funds record all distributions to shareholders from net investment
income and realized gains on the ex-dividend date. Such distributions are
determined in conformity with income tax regulations, which may differ from
generally accepted accounting principles.
EXPENSES The majority of the expenses of the Trust are directly identifiable to
an individual Fund. Expenses which are not readily identifiable to a specific
Fund are allocated in such a manner as deemed equitable, taking into
consideration, among other things, the nature and type of expense and the
relative sizes of the Funds.
USE OF ESTIMATES The preparation of these financial statements in accordance
with generally accepted accounting principles incorporates estimates made by
management in determining the reported amounts of assets, liabilities, revenues
and expenses of the Funds. Actual results could differ from these estimates.
ORGANIZATION EXPENSES Expenses incurred in connection with the organization of
the Funds have been capitalized and are being charged to the Funds' operations
ratably over a five-year period that commenced with the investment operations of
each Fund.
BANK BORROWINGS The Fund is permitted to have bank borrowings for temporary or
emergency purposes, including the meeting of redemption requests that otherwise
might require the untimely disposition of securities. The Fund had no borrowing
activity for the period ended June 30, 1997.
FOREIGN CURRENCY TRANSLATION All assets and liabilities initially expressed in
terms of foreign currencies are translated into U.S. dollars based on London
currency exchange quotations as of 5:00 p.m., London time, on the date of any
determination of the net asset value of the Funds. Transactions affecting
statement of operations accounts and net realized gain/(loss) on investments are
translated at the rates prevailing at the dates of the transactions.
The Funds do not isolate that portion of the results of operations
resulting from changes in foreign exchange rates on investments from the
fluctuations arising from changes in market prices of securities held. Such
fluctuations are included with the net realized and unrealized gain or loss from
investments.
Reported net realized foreign exchange gains or losses arise from sales of
foreign currency, currency gains or losses realized between the trade and
settlement dates on securities transactions and the difference between the
amounts of dividends, interest and foreign withholding taxes recorded on the
Funds' books and the U.S. dollar equivalent of the amounts actually received or
paid. Net unrealized foreign exchange gains or losses arise from changes in the
value of assets and liabilities other than investments in securities at fiscal
year end, resulting from changes in the exchange rate.
FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS The Funds (except for the V.A.
Independence Equity Fund, V.A. 500 Index Fund, V.A. Sovereign Investors Fund and
V.A. Money Market Fund) may enter into forward foreign currency exchange
contracts as a hedge against the effect of fluctuations in currency exchange
rates. A forward foreign currency exchange contract involves an obligation to
purchase or sell a specific currency at a future date at a set price. The
aggregate principal amounts of the contracts are marked to market daily at the
applicable foreign currency exchange rates. Any resulting unrealized gains and
losses are included in the determination of each of the Funds' 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
83
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NOTES TO FINANCIAL STATEMENTS
John Hancock Funds - Declaration Trust
than that not offset by the currency amount of the underlying transaction.
Open foreign currency forward contracts for the Trust at June 30, 1997
were as follows:
UNREALIZED
PRINCIPAL AMOUNT EXPIRATION APPRECIATION
CURRENCY COVERED BY CONTRACT MONTH (DEPRECIATION)
- -------- ------------------- ----- --------------
WORLD BOND FUND
Sells
Australian Dollar.......... 159,865 July 97 $ (653)
New Zealand Dollar......... 150,279 July 97 1,096
--------
443
========
Buys
German Deutsche mark....... 530,000 July 97 (5,857)
Japanese Yen............... 28,211,888 July 97 (4,770)
--------
(10,627)
========
There were no open forward foreign currency exchange contracts at June 30,
1997 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 recognize a gain or loss. Risks
of entering into futures contracts include the possibility that there may be an
illiquid market and/or that a change in the value of the contracts may not
correlate with changes in the value of the underlying securities. In addition,
the Funds could be prevented from opening or realizing the benefits of closing
out futures positions because of position limits or limits on daily price
fluctuation imposed by an exchange.
For federal income tax purposes, the amount, character and timing of the
Funds' gains and/or losses can be affected as a result of futures contracts.
At June 30, 1997, there were no open positions in financial futures
contracts.
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.
84
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NOTES TO FINANCIAL STATEMENTS
John Hancock Funds - Declaration Trust
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 Funds' Statement of
Assets and Liabilities.
The were no written option transactions for the period ended June 30,
1997, for all Funds.
NOTE C --
MANAGEMENT FEE AND TRANSACTIONS WITH
AFFILIATES AND OTHERS
Under the present investment management contract, each Fund pays a monthly
management fee to the Adviser, for a continuous investment program equivalent,
on an annual basis as follows:
FUND RATE
- ---- ----
V.A. International Fund 0.90% of average daily net assets
V.A. Financial Industries Fund 0.80% of average daily net assets
V.A. Emerging Growth Fund 0.75% of average daily net assets
V.A. 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
John Hancock Advisers International Limited ("JHAI") serves as the
sub-adviser to the V.A. International Fund pursuant to a sub-adviser agreement
among the Fund, the Adviser, and JHAI. JHAI was formed in 1987 and is a wholly
owned subsidiary of the Adviser. JHAI provides international investment research
and advisory services to investment companies and institutional clients. The
Adviser pays JHAI a portion of its advisory fee from the V.A. International Fund
to JHAI at the following rate: 70% of the advisory fee payable by the Fund.
Independence Investment Associates, Inc. ("IIA") serves as the sub-adviser
to the V.A. Independence Equity Fund pursuant to a separate sub-adviser
agreement among the Fund, the Adviser, and IIA. IIA was organized in 1982 and is
a wholly owned indirect subsidiary of John Hancock Mutual Life Insurance Company
("JHMLICo"). IIA provides investment advice and advisory services to investment
companies and institutional accounts. The Adviser pays IIA a portion of its
advisory fee from the V.A. Independence Equity Fund to IIA at the following
rate: 55% of the advisory fee payable by the Fund.
Sovereign Asset Management Corporation ("SAMCorp") serves as the
sub-adviser of the V.A. Sovereign Investors Fund pursuant to a sub-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.)
Effective February 10, 1997, the Adviser had agreed to limit it's
management fee on the V.A. 500 Index Fund to 0.10% of the Fund's average daily
net assets. The Adviser may terminate this limitation in the future.
The Adviser has voluntarily agreed to limit each of the Fund's expenses,
excluding the management fee, to 0.25% of each Fund's average daily net assets.
Accordingly, the reductions in expenses for the period ended June 30, 1997 were
as follows:
85
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NOTES TO FINANCIAL STATEMENTS
John Hancock Funds - Declaration Trust
FUND FEE REDUCTION
- ---- -------------
V.A. International Fund...................... $ 8,169
V.A. Financial Industries Fund............... 3,524
V.A. Emerging Growth Fund.................... 12,168
V.A. Discovery Fund.......................... 13,208
V.A. Independence Equity Fund................ 8,620
V.A. 500 Index Fund.......................... 4,526
V.A. Sovereign Investors Fund................ 5,730
V.A. World Bond Fund......................... 9,728
V.A. Strategic Income Fund................... 5,512
V.A. Sovereign Bond Fund..................... 11,060
V.A. Money Market Fund....................... 4,476
The Adviser reserves the right to terminate this limitation in the future.
The Funds have an agreement with the Adviser to perform necessary tax and
financial management services for the Funds. The compensation for the period was
at an annual rate of 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 John Hancock Mutual
Life Insurance Company owned the following shares of beneficial interest of the
Funds as of June 30, 1997:
FUND SHARES OF BENEFICIAL INTEREST
- ---- -----------------------------
V.A. International Fund................ 200,798
V.A. Financial Industries Fund......... 50,000
V.A. Emerging Growth Fund.............. 100,197
V.A. Discovery Fund.................... 100,000
V.A. Independence Equity Fund.......... 101,142
V.A. 500 Index Fund.................... 788,573
V.A. Sovereign Investors Fund.......... 101,546
V.A. World Bond Fund................... 209,998
V.A. Strategic Income Fund............. 215,577
V.A. Sovereign Bond Fund............... 105,323
V.A. Money Market Fund................. 103,638
NOTE D --
INVESTMENT TRANSACTIONS:
Purchases and proceeds from sales of securities, excluding short-term
securities, during the period ended June 30, 1997, for the Funds were as
follows:
FUND PURCHASES SALES
- ---- --------- -----
V.A. International Fund........... $ 1,102,330 $ 659,904
V.A. Financial Industries Fund ... 2,880,299 246,588
V.A. Emerging Growth Fund......... 1,177,298 597,262
V.A. Discovery Fund............... 2,180,230 1,376,002
V.A. Independence Equity Fund..... 1,472,837 456,961
V.A. 500 Index Fund............... 10,888,255 --
V.A. Sovereign Investors Fund
U.S. Government Securities...... 123,822 --
Other Investments................. 1,923,300 147,647
V.A. World Bond Fund
U.S. Government Securities...... 1,647,214 400,859
Other Investments................. 479,062 1,556,082
V.A. Strategic Income Fund
U.S. Government Securities...... 406,500 595,004
Other Investments................. 1,947,637 1,132,825
V.A. Sovereign Bond Fund
U.S. Government Securities...... 992,325 774,994
Other Investments................. 473,800 283,147
86
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NOTES TO FINANCIAL STATEMENTS
John Hancock Funds - Declaration Trust
At June 30, 1997, the cost (excluding the corporate savings account) and
gross unrealized appreciation and depreciation in value of investments owned by
the Funds, as computed on a federal income tax basis, were as follows:
<TABLE>
<CAPTION>
NET UNREALIZED
AGGREGATE GROSS UNREALIZED GROSS UNREALIZED APPRECIATION/
FUND COST APPRECIATION DEPRECIATION DEPRECIATION
- ---- ---- ------------ ------------ ------------
<S> <C> <C> <C> <C>
V.A. International
Fund ............. $ 2,663,372 $638,322 $ 42,473 $595,849
V.A. Financial
Industries
Fund ............. 2,790,237 132,739 13,482 119,257
V.A. Emerging
Growth Fund ...... 1,530,593 230,702 24,959 205,743
V.A. Discovery
Fund ............. 1,842,226 289,849 19,644 270,205
V.A. Independence
Equity Fund ...... 2,156,730 273,342 9,465 263,877
V.A. 500 Index
Fund ............. 11,396,255 88,256 259,545 (171,289)
V.A. Sovereign
Investors Fund ... 3,468,967 342,455 28,159 314,296
V.A. World Bond
Fund ............... 2,107,012 36,868 4,989 31,879
V.A. Strategic
Income Fund ...... 3,101,625 67,804 15,591 52,213
V.A. Sovereign
Bond Fund ........ 1,612,500 15,323 4,115 11,208
V.A. Money
Market Fund ...... 1,222,197 -- -- --
</TABLE>
87
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----------------
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INTERNET: www.jhancock.com/funds ----------------
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This report is for the information of shareholders of the John Hancock
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accompanied by the current prospectus, which details charges, investment
objectives and operating policies.
[LOGO] Printed on Recycled Paper DECSA 6/97
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