ANNUAL REPORT
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[GRAPHIC OMITTED]
Declaration Trust
Growth V.A. International Fund
V.A. Financial Industries Fund
V.A. Emerging Growth Fund
V.A. Growth Fund (formerly V.A. Discovery Fund)
----------------------------------------------------------
Growth V.A. Independence Equity Fund
& Income V.A. 500 Index Fund
V.A. Sovereign Investors Fund
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Income V.A. World Bond Fund
V.A. Strategic Income Fund
V.A. Sovereign Bond Fund
V.A. Money Market Fund
DECEMBER 31, 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..................................................... 3
2) Portfolio Manager Commentary
This commentary reflects the views of the portfolio manager(s) or portfolio
management team through the end of the Fund's period discussed in this report.
Of course, the manager's or team's views are subject to change as market and
other conditions warrant.
Growth
V.A. International Fund................................................ 4
V.A. Financial Industries Fund......................................... 7
V.A. Emerging Growth Fund.............................................. 10
V.A. Growth Fund (formerly 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.......................................... 85
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. Growth Fund
V.A. Financial Industries Fund
V.A. Independence Equity Fund
V.A. Sovereign Investors Fund
V.A. Strategic Income Fund
V.A. Sovereign Bond Fund
STATE STREET BANK AND TRUST COMPANY
225 FRANKLIN STREET
BOSTON, MASSACHUSETTS 02110
V.A. International Fund
V.A. 500 Index Fund
V.A. World Bond Fund
V.A. Money Market Fund
TRANSFER AGENT
JOHN HANCOCK SERVICING CENTER
P.O. BOX 9298
BOSTON, MASSACHUSETTS 02205-9298
INVESTMENT ADVISER
JOHN HANCOCK ADVISERS, INC.
101 HUNTINGTON AVENUE
BOSTON, MASSACHUSETTS 02199-7603
SUB-INVESTMENT ADVISERS
JOHN HANCOCK ADVISERS INTERNATIONAL LIMITED
34 DOVER STREET
LONDON, ENGLAND W1X3RA
V.A. International Fund
INDEPENDENCE INVESTMENT ASSOCIATES, INC.
53 STATE STREET
BOSTON, MASSACHUSETTS 02109
V.A. Independence Equity Fund
SOVEREIGN ASSET MANAGEMENT CORP.
1235 WESTLAKES DRIVE
BERWYN, PENNSYLVANIA 19312
V.A. Sovereign Investors Fund
ISSUER
JOHN HANCOCK MUTUAL
LIFE INSURANCE COMPANY
JOHN HANCOCK VARIABLE
LIFE INSURANCE COMPANY*
200 CLARENDON STREET
BOSTON, MASSACHUSETTS 02117
*Not Licensed in New York
PRINCIPAL DISTRIBUTOR
JOHN HANCOCK FUNDS, INC.
101 HUNTINGTON AVENUE
BOSTON, MASSACHUSETTS 02199-7603
LEGAL COUNSEL
HALE AND DORR LLP
60 STATE STREET
BOSTON, MASSACHUSETTS 02109-1803
INDEPENDENT AUDITORS
ERNST & YOUNG LLP
200 CLARENDON STREET
BOSTON, MASSACHUSETTS 02116-5702
2
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===============================CHAIRMAN'S MESSAGE===============================
DEAR FELLOW SHAREHOLDERS:
The financial markets in 1997 were anything but dull. Bond investors enjoyed the
benefits of a strong economy with no inflation. Stock investors were treated to
record-breaking performance by the Dow Jones Industrial Average, but with
record-breaking volatility. After two years of strong advances with relatively
minor swings, the stock market's recent sharp drops and enormous rebounds have
caused a fair share of investor concern.
The latest round began in October and was largely due to uncertainty in
foreign markets. Southeast Asia sneezed and the rest of the world caught a cold.
On October 27, the Dow experienced its largest one-day point decline, dropping
554 points. In percentage terms, however, that roughly 7% decline didn't even
register on the list of 10 largest drops. The next day, the market bounced right
back, as the Dow had a record one-day vault of 337 points. In short order, the
U.S. market had bounced back, yet it and many markets remained edgy and more
volatile as investors sorted out the Asian turmoil and its implications on
economic growth, interest rates and corporate earnings.
In the face of such uncertainty, a trusted investment professional can be
your best ally. Now, more than ever, your investment professional can help you
take the emotion out of investment decisions. At a time when your instincts
might have you react to the heat of the market's moment, your investment
professional can serve as an objective voice to put current events in a
longer-term perspective. He or she can also help you evaluate your investments
in any market environment to ensure that they fit your risk tolerance and time
horizons. On an ongoing basis, your investment professional is there for you to
check out new investment ideas or to get an informed opinion about current
economic and market conditions.
We encourage you to take advantage of this important resource. Working
together, you can draw up a detailed road map to help reach your financial
destination regardless of the conditions along the way.
Sincerely,
/s/ Edward J. Boudreau, Jr.
EDWARD J. BOUDREAU, JR., CHAIRMAN AND CHIEF EXECUTIVE OFFICER
[A 1 1/2" by 1 1/4" photo of Edward J. Boudreau Jr., Chairman and Chief
Executive Officer, flush right, next to second paragraph.]
3
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BY MIREN ETCHEVERRY, JOHN L.F. WILLS AND
GERARDO J. ESPINOZA, CO-PORTFOLIO MANAGERS
John Hancock
V.A. International Fund
Chaos in Asia curtails overseas markets' advances
"...we continued to up our stake in more stable, established markets."
It was a gut-wrenching year for international investors, who watched their
double-digit gains in the first half dwindle as turmoil in Asia shook world
markets. Starting in late summer, Southeast Asian nations were hit with a wave
of currency devaluations and growing financial ills. The crisis had a ripple
effect on Latin America, then spread to the rest of the world in late October
and has kept overseas markets in turmoil ever since. The developed worlds of
Europe and North America managed to recover and many countries in Europe posted
solid gains for the year. Even though the Asian chaos served to rein in the
booming performance of the emerging markets of Latin America, many of them still
advanced strongly. On the other hand, almost every Asian market, including Hong
Kong and Japan, ended the year in negative territory for U.S. dollar investors,
from Hong Kong's 24% fall to Thailand's 75% plunge.
Overall, international fund investors ended the year eking out only small
advances on average. John Hancock V.A. International Fund shared in the world's
woes. Despite the Fund's better-than-average first-half performance, we later
lost ground when the Asian contagion dealt blows to our strong weightings in
Hong Kong, Singapore and Brazil, particularly in October. That was the height of
the emerging-market turmoil, when several of these focus markets had drops in
the 20% to 30% range. Indeed, the Fund fell 12% in the month of October alone,
wiping out its previous gains. For the year ended December 31, 1997, the Fund
posted a total return of -0.54% at net asset value, compared with the 5.17%
return of the average variable annuity international fund, according to Lipper
Analytical Services, Inc. Longer-term performance information can be found on
page six.
[A 1 3/4" by 3" photo of Fund management team. Caption reads "V.A. International
Fund co-portfolio managers (l - r) Gerardo J. Espinoza, Miren Etcheverry and
John L.F. Wills."]
4
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JOHN HANCOCK V.A. INTERNATIONAL FUND
"In the near term, world markets will continue to be volatile..."
Asia shrinks; safe havens grow
We avoided the most vulnerable Asian markets, including Thailand, Indonesia and
Malaysia, during the year, but the magnitude of the region's downfall was
greater than expected, especially in fundamentally sound Hong Kong and
traditionally stalwart Singapore. In the second half, we cut our stake in the
Pacific Rim to 20% of net assets, down from 44%. Our underweighted 9% stake in
Japan by the year's end remained focused on exporters, which did well during the
year, but which could also feel the effects of the regional slowdown. In Hong
Kong, Australia and Singapore, we still own several of each market's blue-chip
stocks.
With heightened turbulence elsewhere, we continued to up our stake in more
stable, established markets. We added a 7% position in Canada and increased our
stake in Europe from 28% to 49% of the Fund's net assets, with the U.K. the top
weighting. Within each country, we focused on only the top-quality names, such
as Carrefour in France, Royal & Sun Alliance Insurance in the U.K. and Royal
Bank of Canada in Canada.
With our 12% stake in Latin America, we stayed focused on companies that
are prime candidates for privatization, such as utilities and
telecommunications. They are also the least likely to feel the effects of
economic slowdowns. Our largest bet there remains Brazil, at 8%, because of its
continuing strides toward liberalization and privatization -- a process that may
well accelerate as an indirect, and silver-lining, result of the Asian tumult.
Looking ahead
In the near term, world markets will continue to be volatile as investors
wrestle with the implications of the Asian fallout. Until the dust settles, we
will keep our emphasis on the more established markets of Europe, but will also
stay with our reduced stake in emerging markets, most notably Hong Kong and
Singapore. We believe they are among the best quality, and with the greatest
potential for rebound, barring any further blow-ups. As for the rest of Asia,
the risks remain too great until we see how serious those countries are about
making needed reforms. We'll closely monitor developments there, and also keep a
light stake in Japan, since its long economic slump and banking problems
persist.
- --------------------------------------------------------------------------------
International investing involves special risks such as political, economic and
currency risks and differences in accounting standards and financial reporting.
[Bar chart with heading "Fund Performance" at top of left hand column. Under the
heading is the footnote "For the year ended December 31, 1997." The chart is
scaled in increments of 2% from top to bottom with 6% at the top and -6% at the
bottom. Within the chart, there are two solid bars. The first represents the
- -0.54% total return for John Hancock V.A. International Fund. The second
represents the 5.17% total return for the Average variable annuity international
fund. 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."]
5
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JOHN HANCOCK V.A. INTERNATIONAL FUND
A LOOK AT PERFORMANCE
For the period ended December 31, 1997
SINCE
ONE INCEPTION
YEAR (8/29/96)
---- ---------
Cumulative Total Returns (0.54%) 12.14%
Average Annual Total Returns(1) (0.54%) 8.93%
Total return measures the change in value of an investment from the beginning to
the end of a period, assuming all distributions were reinvested. Performance
figures reflect the effect of investment-related charges on the underlying
funds, but do not include insurance and other charges levied at the separate
account level.
All figures represent past performance and are no guarantee of future results.
Keep in mind that the total return and share price of the Fund's investments
will fluctuate. As a result, your Fund's shares may be worth more or less than
their original cost, depending on when you sell them.
Notes to Performance
(1) The Adviser has agreed to limit the Fund's expenses to 0.25% (not
including management fee) of the Fund's daily average net assets. Without
the limitation of expenses, the average annual total return for the
one-year period and since inception would have been (1.43%) and 7.76%,
respectively.
WHAT HAPPENED TO
A $10,000 INVESTMENT...
The chart below shows how much a $10,000 investment in the John Hancock V.A.
International Fund would be worth, assuming all distributions were reinvested
for the period indicated. For comparison, we've shown the same $10,000
investment in the Morgan Stanley EAFE Index--an unmanaged index that measures
the performance of stock markets in Europe, Australia and the Far East. In
addition, the Fund is compared to the Morgan Stanley All Country World-Ex U.S.
Free Index, which measures the performance of a broad range of developed and
emerging stock markets, and represents freely traded securities. The Adviser has
chosen to remove the Morgan Stanley EAFE Index from future reports, but will
continue comparing the Fund to the Morgan Stanley All Country World-Ex U.S. Free
Index, which more closely represents the investment strategy of the Fund.
[GRAPHIC OMITTED]
[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 three lines.
The first line represents the value of the Morgan Stanley All Country World-Ex
U.S. Index and is equal to $12,582 as of December 31, 1997. The second line
represents the hypothetical $10,000 investment made in the V.A. International
Fund on August 29, 1996, before sales charge, and is equal to $11,214 as of
December 31, 1997. The third line represents the value of the Morgan Stanley
EAFE Index and is equal to $10,680 as of December 31, 1997.]
6
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BY JAMES K. SCHMIDT, CFA AND THOMAS FINUCANE,
CO-PORTFOLIO MANAGERS
John Hancock
V.A. Financial Industries Fund
Tame inflation, falling interest rates boost
financial stocks in 1997
"...earnings results for most of the financial stocks have exceeded
expectations."
Financial stocks were among the leaders in 1997, as the stock market persisted
in its bull market charge. The economy remained strong, while interest rates
mostly fell after a spike in the spring, and inflation was nowhere to be seen.
It was an ideal environment in which to launch John Hancock V.A. Financial
Industries Fund on April 30, 1997. From inception through the year's end, the
Fund posted a total return of 35.05% at net asset value. That compared to the
20.20% return of the average variable annuity specialty fund, and the 35.10%
return of the average open-end financial services fund during the same period,
according to Lipper Analytical Services, Inc. Longer-term performance can be
found on page nine.
Leaders and laggards
Leading the pack over the last year have been the brokerage stocks. They were
propelled by buoyant markets that boosted trading volume and new offerings, as
well as by continued merger activity, most notably between Morgan Stanley and
Dean Witter; Alex Brown and Bankers Trust and Montgomery Securities and
NationsBank. Also climbing to new highs were the stocks of asset managers,
driven by strong markets and robust mutual fund sales.
Banks, insurance and REIT stocks also posted healthy 1997 returns in
response to in-line earnings and continued consolidation activity. Nonetheless,
their performance was overshadowed by the skyrocketing brokers and asset
managers. In 1998, with the more market-sensitive brokers and asset managers
trading at higher price to earnings multiples, we look to the more predictable
and stable earnings streams in banking, insurance and REITs to spell any
weakness in the more high-flying sectors.
[A 2" by 3" photo of Fund management team. Caption reads "Fund
management team members: (l - r) Jay McKelvey, Jim Schmidt, Tom
Finucane and Patricia Ouimet."]
7
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JOHN HANCOCK V.A. FINANCIAL INDUSTRIES FUND
"We expect the consolidation among and across the various financial services
industries to continue..."
Earnings and consolidations trend upward
In 1997, earnings results for most of the financial stocks have exceeded
expectations. Current macro-economic conditions are ideal for financial stocks:
moderate growth, low inflation and stable to declining interest rates. Across
the financial spectrum, loan/asset quality is excellent, margins remain
adequate, management's attention to overhead levels and efficiency is paramount
and stock buybacks counter excess capital build-up. In this environment,
companies have reported 12% to 14% year-over-year earnings growth. As long as
the climate doesn't change, our 1998 earnings models call for 10% increases over
1997.
Even in the Fund's short eight-month existence, already one of its
holdings announced their intent to be acquired. In general, financial deals have
been spread across several industry combinations, including banks buying
thrifts; banks buying brokers and life insurers buying each other. We expect the
consolidation among and across the various financial services industries to
continue and perhaps accelerate in the future.
Portfolio strategy and outlook
The Fund invests in relatively inexpensive financial stocks that have solid
earnings fundamentals and may be in the path of consolidation. We feel that the
economic and regulatory environment currently in place will provide many
opportunities for us to make rewarding investments. In the United States, rules
promulgated by the Federal Reserve and the Controller of the Currency have
blurred the lines between banking, insurance, and securities brokerage. Repeal
of the Glass-Steagall Act, which we expect within the next three years, will
further this process and give new impetus to mergers among financial companies.
We also feel that the advent of the European Community will result in
restructuring activity among financial services providers in that continent.
Many of the nations in eastern Asia have recently experienced weakness in
their economies and currencies. This will result in slightly lower growth on a
global basis than would otherwise have been the case. Nevertheless, we are
anticipating increased economic activity in the countries in which we are
invested and expect this to translate into higher earnings for well managed
financial companies.
- --------------------------------------------------------------------------------
Sector investing is subject to different, and sometimes greater, risks than the
market as a whole.
[Bar chart with heading "Fund Performance" at top of left hand column. Under the
heading is the footnote "From April 30, 1997 to December 31, 1997." The chart is
scaled in increments of 10% from top to bottom with 40% at the top and 0% at the
bottom. Within the chart, there are three solid bars. The first represents the
35.05% total return for the John Hancock V.A. Financial Industries Fund. The
second represents the 20.20% total return for the Average variable annuity
specialty fund. The third represents the 35.10% total return for the Average
open-end financial services fund. Footnote below reads: "The total return for
John Hancock V.A. Financial Industries Fund is at net asset value with all
distributions reinvested. The average variable annuity specialty fund and
open-end financial services fund are tracked by Lipper Analytical Services, Inc.
See the following page for historical performance information."]
8
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JOHN HANCOCK V.A. FINANCIAL INDUSTRIES FUND
A LOOK AT PERFORMANCE
For the period ended December 31, 1997
SINCE
INCEPTION
(4/30/97)
---------
Cumulative Total Returns 35.05%
Average Annual Total Returns(1) 35.05%(2)
Total return measures the change in value of an investment from the beginning to
the end of a period, assuming all distributions were reinvested. Performance
figures reflect the effect of investment-related charges on the underlying
funds, but do not include insurance and other charges levied at the separate
account level.
All figures represent past performance and are no guarantee of future results.
Keep in mind that the total return and share price of the Fund's investments
will fluctuate. As a result, your Fund's shares may be worth more or less than
their original cost, depending on when you sell them.
Notes to Performance
(1) The Adviser has agreed to limit the Fund's expenses to 0.25% (not
including management fee) of the Fund's daily average net assets. Without
the limitation of expenses the total return since inception would have
been 34.71%.
(2) Not Annualized.
WHAT HAPPENED TO
A $10,000 INVESTMENT...
The chart below shows how much a $10,000 investment in the John Hancock V.A.
Financial Industries Fund would be worth, assuming all distributions were
reinvested for the period indicated. For comparison, we've shown the same
$10,000 investment in the Standard & Poor's 500 Stock Index--an unmanaged index
that includes 500 widely traded common stocks and is often used as a measure of
stock market performance.
[GRAPHIC OMITTED]
[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 $13,505 as of December 31, 1997. The second line represents the
value of the S&P 500 Stock Index and is equal to $12,255 as of December 31,
1997.]
9
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BY BERNICE S. BEHAR, CFA, PORTFOLIO MANAGER
John Hancock
V.A. Emerging Growth Fund
Stock market charges ahead; small stocks advance less
than their larger brethren
"Some of our best performers...were energy and semiconductor stocks..."
Thanks to steady U.S. economic growth and rising corporate profits,
small-company stocks posted strong returns for 1997. However, their gains
couldn't match the surprisingly good performance of their large-company
counterparts. After getting off to a weak start, the onset of spring marked a
turning point, as small companies, bolstered by a number of developments, began
to knock large-company stocks off the leader board. Not only were many
large-company stocks expensive in the eyes of many observers, but their earnings
were curtailed by a strong U.S. dollar. That, coupled with the reduction in the
capital gains tax made small caps -- which create most of their value through
capital gains -- more appealing in the eyes of many investors. The tables turned
again in the final three months of the year, when the uncertainty surrounding
the Asian crisis incited a flight to safety. Large, well-known companies resumed
their leadership and left their smaller counterparts -- typically a more
volatile group -- languishing in their wake.
Strategy and performance review
For the 12-month period ended December 31, 1997, John Hancock V.A. Emerging
Growth Fund had a total return of 11.06% at net asset value, compared to the
average variable annuity small company fund's return of 18.95%, according to
Lipper Analytical Services, Inc. Longer-term performance information can be
found on page 12. The primary reason why the Fund lagged its counterparts was
our emphasis on small-company growth stocks, which have above-average increases
in revenues and earnings. With investors concerned about earnings growth at
small companies, these stocks fell out of favor and small-company value stocks
- -- which are sold on the basis of the value of a firm's assets -- led the
small-cap pack.
[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)."]
10
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JOHN HANCOCK V.A. EMERGING GROWTH FUND
"Small-company stocks are currently priced more attractively..."
Some of our best performers during the year were energy and semiconductor
stocks, which did extremely well in the second and third quarters. In the energy
group, some of our biggest winners were oil service holdings -- including
Maverick Tube, Lonestar Steel and National-Oilwell -- and energy driller
Precision Drilling. Our best-performing semiconductor company was Semtech. By
the fourth quarter, we thought it prudent to lock in some of our profits and we
pared back or sold several of these holdings. That helped us sidestep the
subsequent Asian currency and economic crisis that put pressure on both groups,
although we didn't completely dodge the downturn.
In our view, technology stocks will continue to offer some of the
fastest-growing opportunities in the marketplace, so we maintained a relatively
high weighting in the sector. We did, however, switch focus, concentrating less
on hardware companies and more on software companies such as Symantec, CBT
Group, Visio and Aspect Development.
In the fourth quarter, our advertising and broadcasting holdings performed
well. Lamar Advertising and Universal Outdoor Holdings benefited from price
increases for their billboard space. The stocks of broadcasting companies
serving the U.S. Spanish-speaking population -- such as radio company Heftel and
television company Univision Communications -- saw impressive gains as
advertisers agreed to pay higher prices to reach this fast-growing demographic.
Given our concerns about a potential slowdown in global economic growth,
we increased our stake in more domestically-oriented companies, including
retailers that serve small-town America, such as Stage Stores and Hibbett
Sporting Goods. We also increased our stake in environmental stocks such as
American Disposal Services and Superior Services.
Outlook
Uncertainty surrounding the Asian crisis and its implications for the U.S.
economy may cause continued stock volatility. In any case, we believe that
small-company stocks stand a good chance to overtake their larger-company
counterparts. Their recent lag has nothing to do with business fundamentals, but
rather stems from the Southeast Asian contagion that sent investors fleeing
toward more liquid, larger company stocks. When those fears are calmed, we would
expect investors to once again focus on company fundamentals, a shift that we
think will benefit the small-company sector. Small-company stocks are currently
priced more attractively and are also posting faster growth rates.
[Bar chart with the header "Fund Performance" at top left hand column. A
footnote below states: "For the year ended December 31, 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 11.06% total return for
John Hancock V.A. Emerging Growth Fund. The second represents the 18.95% 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 page for historical performance information."]
11
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JOHN HANCOCK V.A. EMERGING GROWTH FUND
A LOOK AT PERFORMANCE
For the period ended December 31, 1997
SINCE
ONE INCEPTION
YEAR (8/29/96)
---- ---------
Cumulative Total Returns 11.06% 3.71%
Average Annual Total Returns(1) 11.06% 2.76%
Total return measures the change in value of an investment from the beginning to
the end of a period, assuming all distributions were reinvested. Performance
figures reflect the effect of investment-related charges on the underlying
funds, but do not include insurance and other charges levied at the separate
account level.
All figures represent past performance and are no guarantee of future results.
Keep in mind that the total return and share price of the Fund's investments
will fluctuate. As a result, your Fund's shares may be worth more or less than
their original cost, depending on when you sell them.
Notes to Performance
(1) The Adviser has agreed to limit the Fund's expenses to 0.25% (not
including management fee) of the Fund's daily average net assets. Without
the limitation of expenses, the average annual total return for the
one-year period and since inception would have been 9.34% and (0.41%),
respectively.
WHAT HAPPENED TO
A $10,000 INVESTMENT...
The chart below shows how much a $10,000 investment in the John Hancock V.A.
Emerging Growth Fund would be worth, assuming all distributions were reinvested
for the period indicated. For comparison, we've shown the same $10,000
investment in the Standard & Poor's 500 Stock Index--an unmanaged index that
includes 500 widely traded common stocks and is used to measure stock market
performance. In addition, the Fund is compared to both the Russell 2000 Index
and the Russell 2000 Growth Index. The Russell 2000 Index is an unmanaged
small-cap index that is comprised of 2,000 U.S. stocks. The Russell 2000 Growth
Index is an unmanaged index that contains Russell 2000 Index stocks with a
greater-than-average growth orientation. The Adviser has chosen to remove the
Standard & Poor's 500 Stock Index from future reports, but will continue to
compare the Fund's performance to the broad-based Russell 2000 Index as well as
the Russell 2000 Growth Index, which more closely represent the investment
strategy of the Fund.
[GRAPHIC OMITTED]
[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 four lines.
The first line represents the value of the S&P 500 Stock Index and is equal to
$15,580 as of December 31, 1997. The second line represents the value of the
Russell 2000 Growth Index and is equal to $14,153 as of December 31, 1997. The
third line represents the value of the Russell 2000 Index and is equal to
$12,779 as of December 31, 1997. The fourth line represents the value of a
hypothetical $10,000 investment made in the V.A. Emerging Growth Fund on August
29, 1996, before sales charge, and is equal to $10,371 as of December 31, 1997.]
12
<PAGE>
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BY ANURAG PANDIT, CFA, PORTFOLIO MANAGER
John Hancock
V.A. Growth Fund
Stock market moves in new territory,
dominated by largest companies
"We continued to maintain a relatively high weighting in the technology
sector..."
Effective January 2, 1998, John Hancock V.A. Discovery Fund was re-named John
Hancock V.A. Growth Fund, and leadership of the management team changed from the
team's small-company specialist, Bernice Behar, to the team's large-company
specialist, Anurag Pandit, CFA. These changes were made to reflect the Fund's
shift in investment focus to stocks of larger, more established companies. Mr.
Pandit has more than 13 years of investment management experience and has been a
member of the team since the Fund's inception.
The U.S. stock market surprised many observers by posting 1997 gains in excess
of 20% for an unprecedented third straight year. The market's rise was fueled by
a heady combination of strong corporate earnings, moderate inflation, healthy
economic growth and relatively low and stable interest rates. But those
impressive returns masked what was largely a two-tier market. The brand-name,
diversified, large-company stocks were the leaders, leaving the majority of
their smaller counterparts to post less impressive gains. Although stocks
charged ahead for the majority of the year, currency and economic problems in
Southeast Asia created a more volatile environment in the final quarter.
Performance and strategy review
For the 12 months that ended December 31, 1997, John Hancock V.A. Growth Fund
had a total return of 14.27% at net asset value, compared to the 25.36% return
of the average variable annuity growth fund, according to Lipper Analytical
Services, Inc. Longer-term performance information can be found on page 15. The
Fund's performance lag occurred mostly in the first and final quarters of the
year, when large-company growth stocks far outpaced the performance of
small-company stocks, which the Fund had emphasized during those periods.
Furthermore, our relatively small stake in
[A 2" x 3" photo of V.A. Emerging Growth Fund team at bottom right. Caption
below reads: "Fund management team members (l - r) Rob Hallisey, Bernice Behar,
Anurag Pandit and Andrew T. Slabin."]
13
<PAGE>
================================================================================
JOHN HANCOCK V.A. GROWTH FUND
"We enter fiscal 1998 with cautious optimism..."
good-performing financial stocks -- most of which didn't meet our high growth
targets -- curtailed our performance in the first quarter of the year.
During the second and third quarters, the Fund gained a lot of ground and
outperformed the majority of its peers, thanks in part to strong performance in
our energy service company holdings including Maverick Tube, Lonestar Steel,
National-Oilwell and EVI. After their success had pushed prices to what we
believed were expensive valuations, we pared back or sold some of these
holdings. Subsequently, the Asian currency crisis and uncertainty surrounding
OPEC production quotas put pressure on this sector. While our reduced stake
helped us sidestep their fourth-quarter woes, we weren't able to completely
dodge them and that hurt our performance in the last quarter.
We continued to maintain a relatively high weighting in the technology
sector, although we made some alterations in our holdings as the year wore on.
Semiconductor stocks posted impressive gains during much of the year. However,
these stocks are considered most vulnerable to a slump in Asian demand for
high-tech goods and as a result, suffered badly in October, November and
December. Fortunately, we had taken some profits and reduced our stake in these
companies, although not enough to completely insulate the Fund from their fall.
More recently, we've shifted our focus away from computer hardware stocks into
more software names including Symantec, which makes the popular Norton
anti-virus program.
Cautious optimism
The most recent turbulence has not convinced us to change our strategy of
focusing on high-growth companies. However, in keeping with Fund's recent shift
in investment focus, we plan to place more emphasis on mid-to-large company
stocks. We believe the quality, fundamentals, and long-term growth opportunities
presented by many larger companies best suit the Fund's growth objectives. By
focusing on larger companies, the Fund will continue to seek long-term
appreciation, but with the lower volatility that is typically associated with
large-capitalization stocks. Furthermore, we will continue to seek out companies
that offer defensible niches -- such as a differentiated product or service --
and that exhibit above-average growth potential for any environment. We'll
likely continue to focus on companies that are not unduly exposed to foreign
currency risk. We enter fiscal 1998 with cautious optimism, viewing the ongoing
market gyrations as a potential positive for growth-stock investing.
[Bar chart with the header "Fund Performance" at top left hand column. A
footnote below states: "For the year ended December 31, 1997." The chart is
scaled in increments of 10%, with 30% at the top and 0% at the bottom. Within
the chart there are two solid bars. The first represents the 14.27% total return
for the John Hancock V.A. Growth Fund. The second represents the 25.36% total
return for the Average variable annuity growth fund. A footnote below states:
"The total return for John Hancock V.A. Growth Fund is at net asset value with
all distributions reinvested. The average variable annuity growth fund is
tracked by Lipper Analytical Services, Inc. See the following page for
historical performance information."]
14
<PAGE>
================================================================================
JOHN HANCOCK V.A. GROWTH FUND
A LOOK AT PERFORMANCE
For the period ended December 31, 1997
SINCE
ONE INCEPTION
YEAR (8/29/96)
---- ---------
Cumulative Total Returns 14.27% 7.30%
Average Annual Total Returns(1) 14.27% 5.40%
Total return measures the change in value of an investment from the beginning to
the end of a period, assuming all distributions were reinvested. Performance
figures reflect the effect of investment-related charges on the underlying
funds, but do not include insurance and other charges levied at the separate
account level.
All figures represent past performance and are no guarantee of future results.
Keep in mind that the total return and share price of the Fund's investments
will fluctuate. As a result, your Fund's shares may be worth more or less than
their original cost, depending on when you sell them.
Notes to Performance
(1) The Adviser has agreed to limit the Fund's expenses to 0.25% (not
including management fee) of the Fund's daily average net assets. Without
the limitation of expenses, the average annual total return for the
one-year period and since inception would have been 12.90% and 3.42%,
respectively.
WHAT HAPPENED TO
A $10,000 INVESTMENT...
The chart below shows how much a $10,000 investment in the John Hancock V.A.
Growth Fund would be worth, assuming all distributions were reinvested for the
period indicated. For comparison, we've shown the same $10,000 investment in the
Standard & Poor's 500 Stock Index--an unmanaged index that includes 500 widely
traded common stocks and is often used as a measure of stock market performance.
[GRAPHIC OMITTED]
[Line chart with the heading V.A. Growth Fund, representing the growth of a
hypothetical $10,000 investment over the life of the fund. Within the chart are
two lines.
The first line represents the value of the hypothetical $10,000 investment made
in the S&P 500 Stock Index on August 29, 1996, and is equal to $15,580 as of
December 31, 1997. The second line represents the value of the V.A. Growth Fund,
before sales charge, and is equal to $10,730 as of December 31, 1997.]
15
<PAGE>
================================================================================
BY STEPHEN LANZENDORF, FOR THE PORTFOLIO MANAGEMENT TEAM
John Hancock V.A. Independence Equity Fund
Large companies dominate small ones
in 1997 stock-market surge
"Financial stocks were among the biggest contributors to the Fund's
performance."
With the economy buoyant, and interest rates and inflation low, stocks continued
their long bull-market run throughout 1997. Just as in 1996, the charge was led
for much of the year by the well-known mega-cap stocks, which lured investors
with their strong and stable earnings growth. Despite heightened volatility
beginning in August due to worries of earnings slowdowns and economic turmoil in
Asia, the market still managed to turn in an amazingly strong showing for a
third straight year.
For the year ended December 31, 1997, the Standard & Poor's 500 Stock
Index, a broad measure of market performance, returned 33.36%, including
reinvested dividends. John Hancock V.A. Independence Equity Fund also produced
very strong results on both an absolute and relative basis. For calendar year
1997, the Fund posted a total return of 30.68% at net asset value, compared to
the 27.21% return of the average variable annuity growth and income fund,
according to Lipper Analytical Services, Inc. Longer-term performance
information can be found on page 18.
Finance, specialty retailers outperform
Financial stocks were among the biggest contributors to the Fund's performance.
The combination of falling interest rates, growing profits and heightened
industry consolidations propelled such Fund holdings as insurance companies
Travelers Group and General Re. We have continued to overweight the finance
sector since the fundamentals remain attractive. Within the sector, we continued
to emphasize insurance companies, since their prices remain relatively
[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
"Investors would do well to scale back their expectations..."
attractive, while many bank stocks have risen to a point that they currently
reflect the value of any potential mergers. Within the banking sector, we look
for high-quality regional names such as Norwest Corporation, as well as money
center banks. For example, BankAmerica currently presents a good opportunity
since its stock has recently been penalized disproportionately to its Asian
exposure.
Another good group was our specialty retail holdings, especially industry
leader Home Depot, whose stock rose by 76% during the year as it maintained its
clear market dominance and dependable growth.
During the year, we sold or cut our positions in some stocks whose prices
we felt had either gotten ahead of earnings expectations, such as Minnesota
Mining, or had reached full valuation levels given their prospects for growth,
such as Disney. With the cash, we added to our positions in companies whose
prices we believed were too low for their earnings prospects. That included
PepsiCo. whose sale of its restaurant divisions and return to its core bottling
business bodes well for its stock. We also increased our stake in
telecommunications equipment maker Lucent Technologies because of its strong
competitive position and prospects for earnings growth. Finally, we added Bell
Atlantic, a regional phone company which should benefit from cost savings
following its merger with Nynex.
Outlook
As long as the economic picture of moderate growth and low interest rates
doesn't change, we're keeping our outlook positive for 1998. That said, we do
not believe it is reasonable to expect the market to produce a fourth straight
year of 20% plus returns. Investors would do well to scale back their
expectations for 1998. Historically, the market has produced results in the 8%
to 10% range. The market should also remain more volatile as the Asian crisis
plays out.
No matter what happens next, we will stick to our disciplined strategy of
buying companies with attractive stock prices and improving earnings prospects.
We remain focused on providing shareholders with above-average total returns by
investing in a diversified stock portfolio that has a risk level comparable to
that of the S&P 500.
[Bar chart with the header "Fund Performance" at top left hand column. A
footnote below states: "For the year ended December 31, 1997." The chart is
scaled in increments of 10%, with 40% at the top and 0% at the bottom. Within
the chart there are two solid bars. The first represents the 30.68% total return
for the John Hancock V.A. Independence Equity Fund. The second represents the
27.21% 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."]
17
<PAGE>
================================================================================
JOHN HANCOCK V.A. INDEPENDENCE EQUITY FUND
A LOOK AT PERFORMANCE
For the period ended December 31, 1997
SINCE
ONE INCEPTION
YEAR (8/29/96)
---- ---------
Cumulative Total Returns 30.68% 46.07%
Average Annual Total Returns(1) 30.68% 32.69%
Total return measures the change in value of an investment from the beginning to
the end of a period, assuming all distributions were reinvested. Performance
figures reflect the effect of investment-related charges on the underlying
funds, but do not include insurance and other charges levied at the separate
account level.
All figures represent past performance and are no guarantee of future results.
Keep in mind that the total return and share price of the Fund's investments
will fluctuate. As a result, your Fund's shares may be worth more or less than
their original cost, depending on when you sell them.
Notes to Performance
(1) The Adviser has agreed to limit the Fund's expenses to 0.25% (not
including management fee) of the Fund's daily average net assets. Without
the limitation of expenses, the average annual total return for the
one-year period and since inception would have been 30.04% and 31.38%,
respectively.
WHAT HAPPENED TO
A $10,000 INVESTMENT...
The chart below shows how much a $10,000 investment in the John Hancock V.A.
Independence Equity Fund would be worth, assuming all distributions were
reinvested for the period indicated. For comparison, we've shown the same
$10,000 investment in the Standard & Poor's 500 Stock Index--an unmanaged index
that includes 500 widely traded common stocks and is often used as a measure of
stock market performance.
[GRAPHIC OMITTED]
[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 $15,580 as of
December 31, 1997. The second line represents the value of the V.A. Independence
Equity Fund, before sales charge, and is equal to $14,607 as of December 31,
1997.]
18
<PAGE>
================================================================================
BY BARRY EVANS, CFA, AND ROGER HAMILTON,
FOR THE RISK MANAGEMENT GROUP
John Hancock
V.A. 500 Index Fund
S&P 500 Index shows its muscle for third straight year
Financial stocks boost Fund performance.
1997 was an extremely good year for the S&P 500 Index. In what was often
described as a "Goldilocks" economy characterized by low and falling interest
rates, moderate inflation and decent economic growth, corporate earnings
strengthened as productivity rose. But the index's gains weren't parceled out in
equal measure. Big companies posted stellar returns and contributed most to the
capitalization-weighted index's rise, while smaller companies posted only
moderate gains.
Strategy and performance review
For the 12 months ended December 31, 1997, John Hancock V.A. 500 Index Fund had
a total return of 29.51%. By comparison, the average variable annuity S&P 500
index objective fund had a total return of 32.55%, according to Lipper
Analytical Services, Inc. Longer-term performance information can be found on
page 21.
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. Our
aim is to allocate the stocks held in the portfolio in approximately the same
proportions as they are represented in the S&P 500 Stock Index. By pursuing that
strategy, we are able 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 500 Stock Index
depend upon the size and cash flows of the Fund, the liquidity of the securities
represented in the index and the Fund's expenses, among other factors.
In the early months of the period and of the Fund's existence, we bought
S&P 500 Stock Index futures as a proxy for the stocks in the index. We did that
because the futures allowed us to participate in the S&P 500's advance without
incurring the high transaction costs associated with buying individual stocks
with limited assets. To buy stocks -- specially in odd lots of less than 100
shares -- when the Fund's total
[A 2" x 2 1/2" photo of Barry Evans and Roger Hamilton. Caption reads "Barry
Evans (l) and Roger Hamilton (r)".]
19
<PAGE>
================================================================================
JOHN HANCOCK V.A. 500 INDEX FUND
"...we wouldn't be surprised if the market paused to catch its breath in
1998..."
assets were still small would have been more expensive and would have
compromised its total return. But in mid-June, the Fund's total assets had grown
to a level that allowed us to purchase individual stocks at reasonable costs.
Keeping more fully invested in the second half of the year helped our
performance more closely track that of the index. Using a strategy known as
sampling, we assembled a portfolio of stocks that replicates the characteristics
- -- including industry classification, volatility, earnings per share, and others
- -- of the S&P 500 Stock Index. By the end of the period, the Fund held roughly
380 stocks.
Financial service companies dominate; gold lags
"Merger mania," falling interest rates and declining loan losses propelled bank
stocks -- such as Fifth Third Bancorp, Norwest Corp. and State Street -- in
1997, making them some of the best performers for both the S&P 500 Index and the
Fund. But it wasn't just banks that made the financial stocks the market's
best-performing group of the year. Securities brokers also soared thanks to the
quickening pace of acquisition activity as well as the strength of the stock
market itself. In the broker category, the Fund's two performers were Charles
Schwab and Merrill Lynch. Technology stocks made lots of news during the year,
with the larger companies posting record gains, while smaller concerns were in a
bear market for most of the year. While the Fund enjoyed gains from Dell
Computer, Compaq Computer and Microsoft, companies such as Silicon Graphics and
Novell proved to be laggards. One of the market's worst performing groups was
gold stocks, which suffered as the price of the precious metal slumped. Our
holdings in Barrick Gold and Newmont Mining detracted from our performance.
Outlook
We'll continue to choose stocks that will help us closely track the performance
of the S&P Index. After posting gains in excess of 20% for an unprecedented
third consecutive year, we wouldn't be surprised if the market paused to catch
its breath in 1998, and investors would be wise to lower their expectations. Of
course, given the Fund's strategy and objectives, its returns should track the
performance of the S&P Index, whether it posts gains or incurs losses in 1998.
[Bar chart with the header "Fund Performance" at top left hand column. A
footnote below states: "For the year ended December 31, 1997." The chart is
scaled in increments of 10%, with 40% at the top and 0% at the bottom. Within
the chart there are two solid bars. The first represents the 29.51% total return
for the John Hancock V.A. 500 Index Fund. The second represents the 32.55% total
return for the Average variable annuity S&P 500 index objective 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."]
20
<PAGE>
================================================================================
JOHN HANCOCK V.A. 500 INDEX FUND
A LOOK AT PERFORMANCE
For the period ended December 31, 1997
SINCE
ONE INCEPTION
YEAR (8/29/96)
---- ---------
Cumulative Total Returns 29.51% 44.39%
Average Annual Total Returns(1) 29.51% 31.55%
Total return measures the change in value of an investment from the beginning to
the end of a period, assuming all distributions were reinvested. Performance
figures reflect the effect of investment-related charges on the underlying
funds, but do not include insurance and other charges levied at the separate
account level.
All figures represent past performance and are no guarantee of future results.
Keep in mind that the total return and share price of the Fund's investments
will fluctuate. As a result, your Fund's shares may be worth more or less than
their original cost, depending on when you sell them.
Notes to Performance
(1) The Adviser has agreed to limit the Fund's expenses to 0.25% (not
including management fee) of the Fund's daily average net assets. Without
the limitation of expenses, the average annual total return for the
one-year period and since inception would have been 29.27% and 31.19%,
respectively.
WHAT HAPPENED TO
A $10,000 INVESTMENT...
The chart below shows how much a $10,000 investment in the John Hancock V.A. 500
Index Fund would be worth, assuming all distributions were reinvested for the
period indicated. For comparison, we've shown the same $10,000 investment in the
Standard & Poor's 500 Stock Index--an unmanaged index that includes 500 widely
traded common stocks and is often used as a measure of stock market performance.
[GRAPHIC OMITTED]
[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 $15,580 as of
December 31, 1997. The second line represents the value of the the V.A. 500
Index Fund, before sales charge, and is equal to $14,439 as of December 31,
1997.]
21
<PAGE>
================================================================================
BY JOHN F. SNYDER III AND BARRY EVANS, CFA
CO-PORTFOLIO MANAGERS
John Hancock
V.A. Sovereign Investors Fund
Stocks rack up yet another great year of returns
Retailers and banks contributed significantly to the Fund's performance.
1997 was yet another spectacular year for stock investors. The Dow Jones
Industrial Average -- one of the most commonly-watched market indices -- ended
the year up a healthy 22.64%. Following gains of 33% in 1995 and 26% gain in
1996, this year marked a record third-straight year in which stocks rose more
than 20%. It also marked the seventh-consecutive year of market advances, making
the current bull market the longest in the history.
It wasn't, however, all smooth sailing for investors. Much of the market's
gains came in the first half of the year. Then, as worries about corporate
profits and Asia's financial woes heightened, investors become more nervous and
the market traded in a volatile range for most of the second half. The big
winners in this year's market advance were the large stocks. In a
"flight-to-quality," investors sought out those large companies with reliable
earnings and clear market leadership. Aside from a short-lived rally in the
third quarter, small stocks lagged behind their larger brethren.
Fund performance
Our focus on "dividend performer" stocks -- those large stocks with consistent
dividends and reliable earnings -- paid off in 1997. For the year ended December
31, 1997, the John Hancock V.A. Sovereign Investors Fund had a total return of
28.43% at net asset value. By comparison, the average equity income fund
returned 29.13%, according to Lipper Analytical Services, Inc. Longer-term
performance information can be found on page 24.
Within Sovereign's investment universe, two important sectors contributed
significantly to the Fund's performance: retailers and banks. Retail giants
Wal-Mart and Home Depot rose more than 60% in 1997, thanks to market share gains
and strong consumer confidence levels. A favorable interest-rate environment and
strong loan demand helped banks' underlying fundamentals. Also, a sharp increase
in merger activity has
[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
"...we believe consistency will be rewarded."
lifted the group. First Tennessee National Corp. was among our strongest
performers, buoyed by a healthy balance sheet and increasing takeover
speculation.
Shift to growth cyclicals
After strong gains, we felt that many of our consumer stocks were ripe for
profit taking. We sold several core holdings -- such as Sara Lee -- in favor of
companies that offered better growth potential and valuations. A perfect example
is Grainger (W.W.) Inc, which is the leading distributor of electrical
equipment. Market leadership is critical in this industry, as customers strive
to limit the number of vendors they use. With its most recent acquisition of
Ackland, Grainger has been able to strengthen its market position.
Outlook
A change from the generally ebullient stock market may be at hand. The expected
slowdown in the Asian economies may slow the world economy. At first glance, the
effect on the U.S. economy appears to be minimal, but the U.S. will not be
immune. Furthermore, we believe that the impact will extend beyond those
companies with direct exposure to Asia such as semiconductor manufacturers.
Companies with extensive retailing operations in the Far East -- such as
McDonald's and Coca-Cola -- are also likely to experience weaker demand. U.S.
companies that are vulnerable to imports -- such as steel manufacturers and auto
makers -- will face stiffer competition as Asian companies attempt to export
their way out of trouble.
In general, we believe top line revenue growth will be harder to come by,
and that 1998 will be a more difficult year for earnings growth than any of the
past five years. Pricing power is non-existent. Indeed, a number of economists
believe prices could go down in 1998. While lower prices will benefit consumers,
deflation is a difficult environment for corporate profitability.
If an economic slowdown materializes, this will be the sweet spot of the
market cycle for the Fund's "dividend performers" universe of companies. At a
time when earnings disappointments are dealt with severely by the market, we
believe consistency will be rewarded. Superior management and market dominance
become even more critical for success. If the past is any guide, it will be a
time when investors are likely to fully appreciate the investment quality of
these stable growth companies and be willing to pay premium prices for them.
[Bar chart with the header "Fund Performance" at top left hand column. A
footnote below states: "For the year ended December 31, 1997." The chart is
scaled in increments of 10%, with 30% at the top and 0% at the bottom. Within
the chart there are two solid bars. The first represents the 28.43% total return
for the John Hancock V.A. Sovereign Investors Fund. The second represents the
29.13% 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 value with all distributions reinvested. The
average variable annuity equity income fund is tracked by Lipper Analytical
Services, Inc. See the following page for historical performance information."]
23
<PAGE>
================================================================================
JOHN HANCOCK V.A. SOVEREIGN INVESTORS FUND
A LOOK AT PERFORMANCE
For the period ended December 31, 1997
SINCE
ONE INCEPTION
YEAR (8/29/96)
---- ---------
Cumulative Total Returns 28.43% 39.08%
Average Annual Total Returns(1) 28.43% 27.92%
Total return measures the change in value of an investment from the beginning to
the end of a period, assuming all distributions were reinvested. Performance
figures reflect the effect of investment-related charges on the underlying
funds, but do not include insurance and other charges levied at the separate
account level.
All figures represent past performance and are no guarantee of future results.
Keep in mind that the total return and share price of the Fund's investments
will fluctuate. As a result, your Fund's shares may be worth more or less than
their original cost, depending on when you sell them.
Notes to Performance
(1) The Adviser has agreed to limit the Fund's expenses to 0.25% (not
including management fee) of the Fund's daily average net assets. Without
the limitation of expenses, the average annual total return for the
one-year period and since inception would have been 28.12% and 26.94%,
respectively.
WHAT HAPPENED TO
A $10,000 INVESTMENT...
The chart below shows how much a $10,000 investment in the John Hancock V.A.
Sovereign Investors Fund would be worth, assuming all distributions were
reinvested for the period indicated. For comparison, we've shown the same
$10,000 investment in the Standard & Poor's 500 Stock Index--an unmanaged index
that includes 500 widely traded common stocks and is often used as a measure of
stock market performance.
[GRAPHIC OMITTED]
[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 $15,580 as of
December 31, 1997. The second line represents the value of the V.A. Sovereign
Investors Fund, before sales charge, and is equal to $13,908 as of December 31,
1997.]
24
<PAGE>
================================================================================
BY LAWRENCE J. DALY, ANTHONY A. GOODCHILD AND
JANET L. CLAY, CO-PORTFOLIO MANAGERS
John Hancock
V.A. World Bond Fund
Flight to quality drives world bond markets
following Asian financial crisis
"...we shifted our focus toward U.S. government bonds..."
Global bond investors struggled during 1997 through the cross-currents of U.S.
interest rate fears early in the year and major volatility spikes later caused
by Asian financial woes. The outcome was modest returns, but relief that
results remained positive. Regionally, bond market results varied widely. The
United States was one of the best-performing markets. After early interest-rate
and inflation fears hurt U.S. bond prices and reverberated in other countries,
the summer brought moderating growth and tame inflation. That sent U.S. Treasury
bonds rallying right through the year's end. The boost in U.S. bonds was most
dramatic at the end of the year, after market turmoil in Asia sent investors
scurrying to safe havens. Starting in August and culminating in late October, a
wave of currency devaluations swept through Southeast Asia and Korea, causing
their financial pictures to darken and some countries' bonds to be downgraded to
junk status. A mass exodus from all emerging Asian markets followed, hurting
bond prices as far away as Latin America and putting an end to the banner year
that emerging markets, especially in Latin America, had enjoyed until then. In
Europe, bonds outperformed the U.S. earlier in the year, but then fears of
rising European rates and the lure of more attractive U.S. yields caused their
rally to stall.
Performance and strategy review
Despite this upheaval, the J.P. Morgan Global Government Bond Index -- a
benchmark for global bond performance -- managed to close up 1.4% for the year
ended December 31, 1997. In the same period, John Hancock V.A. World Bond Fund
posted a total return of 1.37% at net asset value, compared to the 4.31% return
of the average variable annuity global income fund,
[A 2" x 3" photo of V.A. World Bond Fund team members. Caption reads: "Fund
co-portfolio managers (l - r) Tony Goodchild, Janet Clay and Larry Daly."]
25
<PAGE>
================================================================================
JOHN HANCOCK V.A. WORLD BOND FUND
"We expect continued fallout from the Southeast Asian crisis..."
according to Lipper Analytical Services, Inc. Longer-term performance
information can be found on page 27.
The Fund benefited from investing in the United States, avoiding Asia and
downplaying Europe and foreign currencies. The difference in performance was due
to our exposure to emerging markets, which rose to about 30% of assets at
several points during the year -- close to our 35% limit. That level was less
than average, which held us back when those markets were performing well, yet
was still enough to hurt us in October's tumult.
During the year, as bond yields fell worldwide, the difference in yields
between other countries and the United States narrowed to minimal levels. Many
foreign bonds, therefore, no longer offered a significant yield advantage over
U.S. Treasuries. With little prospect that overseas bond prices would rise, and
with Asia's ills looming large, we shifted our focus toward U.S. government
bonds in the five-year maturity horizon. These bonds benefited as investors
increasingly chose high quality. By the end of the year, U.S. Treasury and
government agency bonds accounted for three quarters of the Fund's net assets,
up from 44% six months ago.
At the same time, we opportunistically trimmed our emerging-market stake
to 13% of assets, down from 31% six months ago. We've kept our focus on U.S.
dollar-denominated government bonds from Latin America, including Ecuador,
Mexico, Brazil, Panama and Venezuela. We also continued to pare our Europe
holdings to 7%, keeping only our U.K. bonds because their yields were higher
than the rest of Europe.
A look ahead
We expect continued fallout from the Southeast Asian crisis until we see more
signs of government resolve to make needed structural changes, and until there's
a clearer picture of how Asia's slowing economies will impact worldwide growth.
In this environment, we plan to stick with our more conservative strategy of
focusing on high-quality U.S. government bonds. In our view, they offer solid
prospects, especially given the instability elsewhere. When the Asian crisis
passes, we believe there will be significant upside potential in high-quality
Latin American bonds. But for now, the highly unusual combination of economic
and world circumstances compels us to keep the bulk of our global bond assets
close to home.
- --------------------------------------------------------------------------------
International investing involves special risks such as political, economic and
currency risks and differences in accounting standards and financial reporting.
[Bar chart with the header "Fund Performance" at top left hand column. A
footnote below states: "For the year ended December 31, 1997." The chart is
scaled in increments of 1%, with 5% at the top and 0% at the bottom. Within the
chart there are two solid bars. The first represents the 1.37% total return for
the John Hancock V.A. World Bond Fund. The second represents the 4.31% 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
value with all distributions reinvested. The average variable annuity global
income fund is tracked by Lipper Analytical Services, Inc. See the following
page for historical performance information."]
26
<PAGE>
================================================================================
JOHN HANCOCK V.A. WORLD BOND FUND
A LOOK AT PERFORMANCE
For the period ended December 31, 1997
SINCE
ONE INCEPTION
YEAR (8/29/96)
---- ---------
Cumulative Total Returns 1.37% 5.47%
Average Annual Total Returns(1) 1.37% 4.04%
YIELD
For the period ended December 31, 1997
SEC 30-DAY
YIELD
----------
John Hancock V.A. World Bond Fund 5.48%
Total return measures the change in value of an investment from the beginning to
the end of a period, assuming all distributions were reinvested. Performance
figures reflect the effect of investment-related charges on the underlying
funds, but do not include insurance and other charges levied at the separate
account level.
All figures represent past performance and are no guarantee of future results.
Keep in mind that the total return and share price of the Fund's investments
will fluctuate. As a result, your Fund's shares may be worth more or less than
their original cost, depending on when you sell them.
Notes to Performance
(1) The Adviser has agreed to limit the Fund's expenses to 0.25% (not
including management fee) of the Fund's daily average net assets. Without
the limitation of expenses, the average annual total return for the
one-year period and since inception would have been 0.07% and 2.52%,
respectively.
WHAT HAPPENED TO
A $10,000 INVESTMENT...
The chart below shows how much a $10,000 investment in the John Hancock V.A.
World Bond Fund would be worth, assuming all distributions were reinvested for
the period indicated. For comparison, we've shown the same $10,000 investment in
the Salomon Brothers World Government Bond Index--an unmanaged index that
provides a benchmark for bond market performance on a worldwide basis.
[GRAPHIC OMITTED]
[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 $10,547 as of
December 31, 1997. The second line represents the value of the Salomon Brothers
World Government Bond Index on August 29, 1996, and is equal to $10,344 as of
December 31, 1997.]
27
<PAGE>
================================================================================
BY FREDERICK CAVANAUGH, PORTFOLIO MANAGER
John Hancock
V.A. Strategic Income Fund
U.S. Treasuries, high-yield corporate bonds
show strength amid global uncertainty
"Our outperformance came from our relatively large stake in U.S. high-yield
corporate bonds..."
The past 12 months will go down as a good year for U.S. bonds, thanks primarily
to low inflation and stable interest rates. U.S. Treasury yields -- which move
in the opposite direction of bond prices -- fell to levels not seen in four
years. Meanwhile, the U.S. high-yield corporate market, which is made up of
companies with below-investment-grade credit ratings, also performed well. The
continued strength of the nation's economy translated into improving earnings
and cash flows for many high-yield companies and the demand for their bonds was
exceptionally strong. Outside the U.S., the news was mixed. Emerging-market
bonds posted good returns for the year, despite a fourth quarter sell-off that
was triggered by economic and currency problems in Southeast Asia. Intermediate-
and long-term government bonds issued by "dollar bloc" countries -- including
Canada and New Zealand -- enjoyed gains as their interest rates declined,
mirroring the fall in U.S. interest rates. However, many European bonds remained
unattractive relative to other areas of the world as the continent struggled to
meet the economic and fiscal conditions mandated by its progress toward a
unified currency.
Performance and strategy review
For the year ended December 31, 1997, John Hancock V.A. Strategic Income Fund
posted a total return of 11.77% at net asset value, surpassing the 9.53% return
of the average variable annuity general bond fund, according to Lipper
Analytical Services, Inc. For longer-term performance information, please see
page 31. Our outperformance came from our relatively large stake in U.S.
high-yield corporate bonds, which performed well. Among the Fund's top
high-yield performers were telecommunications leader Nextel Communications,
which continued to benefit from rising subscriber growth, and Casino
[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
Carter, Jamie Kellogg and Arthur Calavritinos."]
28
<PAGE>
================================================================================
JOHN HANCOCK V.A. STRATEGIC INCOME FUND
"...we'll keep our stake in emerging-market bonds relatively low for now..."
America which was boosted by growing revenues. Some of our high-yield corporate
holdings from offshore companies proved disappointing. With the cloud of
uncertainty hanging over emerging markets, high-yield bonds issued by Brazilian
telecommunications concern Globo Communicaoes faltered.
Early in the fourth quarter, we began to reduce our foreign exposure by
selling some emerging-market holdings, which had enjoyed strong gains in the
prior nine months of the year. We sold them out of concern that Thailand's
currency problems in mid-summer would bode ominously for other emerging markets.
As a result, we had significantly reduced our emerging markets positions by late
October. We were not, however, able to sell all the emerging-market bonds we
would have liked and some of our remaining holdings detracted from the Fund's
performance.
We maintained our position in U.S. Treasury bonds, ending the year at 14%
of the Fund's net assets. In addition to U.S. bonds' offering "safe haven"
status, U.S. interest rates remain high compared to the rest of the world. With
possible slower economic growth in this country, bonds could rally if interest
rates fall further. When interest rates resumed their decline in the fourth
quarter of the year, our U.S. Treasury holdings rallied.
Outlook
In our view, there could be continued volatility in global bond markets
resulting from further currency and economic problems in emerging markets. As a
result, we'll keep our stake in emerging-market bonds relatively low for now,
until we see signs to the contrary. Furthermore, we think there's a reasonable
chance that recent and potential devaluations of emerging-market currencies will
be the catalyst for slower worldwide economic growth, including a slowdown in
the U.S. Even so, we believe that the U.S. economy will remain in positive
territory. Given that outlook, we believe high-yield U.S. corporate bonds could
post solid performance next year, although we expect that performance to come
mostly from the bonds' interest payments, rather than from capital appreciation.
Against a slower economic backdrop, U.S. interest rates could also continue to
fall and U.S. Treasury securities could extend their rally.
- --------------------------------------------------------------------------------
International investing involves special risks such as political, economic and
currency risks and differences in accounting standards and financial reporting.
[Bar chart with the header "Fund Performance" at top left hand column. A
footnote below states: "For the year ended December 31, 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 11.77% total return for
the John Hancock V.A. Strategic Income Fund. The second represents the 9.53%
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."]
29
<PAGE>
================================================================================
JOHN HANCOCK V.A. STRATEGIC INCOME FUND
A LOOK AT PERFORMANCE
For the period ended December 31, 1997
SINCE
ONE INCEPTION
YEAR (8/29/96)
---- ---------
Cumulative Total Returns 11.77% 18.96%
Average Annual Total Returns(1) 11.77% 13.84%
YIELD
For the period ended December 31, 1997
SEC 30-DAY
YIELD
----------
John Hancock V.A. Strategic Income Fund 8.56%
Total return measures the change in value of an investment from the beginning to
the end of a period, assuming all distributions were reinvested. Performance
figures reflect the effect of investment-related charges on the underlying
funds, but do not include insurance and other charges levied at the separate
account level.
All figures represent past performance and are no guarantee of future results.
Keep in mind that the total return and share price of the Fund's investments
will fluctuate. As a result, your Fund's shares may be worth more or less than
their original cost, depending on when you sell them.
Notes to Performance
(1) The Adviser has agreed to limit the Fund's expenses to 0.25% (not
including management fee) of the Fund's daily average net assets. Without
the limitation of expenses, the average annual total return for the
one-year period and since inception would have been 11.25% and 13.11%,
respectively.
WHAT HAPPENED TO
A $10,000 INVESTMENT...
The chart below shows how much a $10,000 investment in the John Hancock V.A.
Strategic Income Fund would be worth, assuming all distributions were reinvested
for the period indicated. For comparison, we've shown the same $10,000
investment in the Lehman Brothers Government/Corporate Bond Index--an unmanaged
index that measures the performance of U.S. government bonds, U.S. corporate
bonds and Yankee bonds.
[GRAPHIC OMITTED]
[Line chart with the heading V.A. Strategic Income Fund, representing the growth
of a hypothetical $10,000 investment over the life of the fund. Within the chart
are two lines.
The first line represents the value of the hypothetical $10,000 investment made
in the V.A. Strategic Income Fund, before sales charge, and is equal to $12,011
as of December 31, 1997. The second line represents the value of the Lehman
Government/Corporate Bond Index on August 29, 1996, and is equal to $11,484 as
of December 31, 1997.]
30
<PAGE>
================================================================================
BY JAMES K. HO, CFA, PORTFOLIO MANAGER
John Hancock
V.A. Sovereign Bond Fund
Bond investors fared well in 1997, despite heightened volatility
"...we increased our stake in U.S. Treasury Bonds slightly."
It was a good year for bonds, one marked by tame, even falling, inflation, a
healthy economy, and rising prices on most types of bonds. The bond market's
forward moves were most pronounced in the second half of the year, when fears
that the vibrant economy would lead to higher inflation dissipated. The
resulting surge reflected the market's growing belief that the Federal Reserve
was not going to raise rates to slow down the economy. Bolstering the Fed's
sidelines stance were a strong dollar eating into corporate profits and the
currency and financial woes that struck Southeast Asia in the summer. These
events further eased U.S. inflation fears -- a bond holder's worst enemy because
of its corrosive effect on bonds' fixed-income payments. The Asian crisis did,
however, cause a late-year selloff in both investment-grade and high-yield
corporate bonds, as fearful investors gravitated toward U.S. Treasury bonds in a
classic flight to safety. But the bond market had stabilized by year end, and
corporate bonds' gains remained impressive.
Performance and strategy review
For the year ended December 31, 1997, John Hancock V.A. Sovereign Bond Fund
posted a total return of 9.30% at net asset value. That compared to the 10.01%
return of the average variable annuity corporate debt BBB-rated fund, according
to Lipper Analytical Services, Inc. Longer-term performance information can be
found on page 33.
In seeking a high level of current income consistent with prudent
investment risk, the Fund focuses on a blend of investment-grade corporate
bonds, U.S. government bonds and, to a lesser extent, high-yield bonds whose
credit ratings are below investment grade. Each sector in which we invested
contributed to performance at various points, as did our timely moves
[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."]
31
<PAGE>
================================================================================
JOHN HANCOCK V.A. SOVEREIGN BOND FUND
"...there is still room for bonds to do well in 1998."
that helped us successfully maneuver through the late-period pitfalls. Exposure
to emerging-market corporate bonds served us well earlier in the year. At the
same time, we fortunately managed to avoid the most volatile emerging markets,
including Thailand, Malaysia and Korea, by selling our small positions there
ahead of the worst turmoil. Naturally, volatility spilled over into Latin
America, and we opportunistically sold out of our positions there as well after
the first shock waves hit, anticipating further turmoil down the road. In their
place, we increased our stake in U.S. Treasury Bonds slightly.
For most of the year, we benefited from our 24% stake in corporate bonds,
until their late-year price drops curtailed their advances. But the downward
pressure that Asia's turmoil put on U.S. corporate bonds also presented us with
some attractive buying opportunities. Believing that the fundamentals of many
U.S. corporations remained solid, we bought on dips and added to such existing
positions as Time Warner and TCI Communications. We also selectively bought
several high-yield bonds, including Physician Sales & Services, Garden State
Newspapers and Nextel Communications. The three main industry sectors we
emphasized in the corporate arena included media, utilities and financial
services.
Going forward
In our view, there is still room for bonds to do well in 1998. Recent worldwide
events suggest that the trend is toward slower, rather than faster, economic
growth. As the Asian countries try to export their way back to financial health,
their weaker currencies and therefore less expensive products will keep the
pricing pressure on -- and inflation low. Given this scenario, it's fairly
certain that the Fed will not raise interest rates again for now. In fact, the
next move could be a rate decrease.
With this outlook, we'll keep the Fund's duration -- a measure of a bond
price's sensitivity to changes in interest rates -- neutral or slightly longer
to capture the benefits of any more rate drops. The longer the duration, the
more the Fund's share price moves with changes in interest rates. We also will
continue to upgrade the overall portfolio by moving into industry sectors such
as utilities, media and health care, which we believe are less affected by
changes in the economy. For now, we'll minimize our investments in the emerging
markets until there are further signs that the crisis has passed. Until then,
heavier exposure to this sector would present too much volatility for this type
of fund.
[Bar chart with the header "Fund Performance" at top left hand column. A
footnote below states: "For the year ended December 31, 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 9.30% total return for
the John Hancock V.A. Sovereign Bond Fund. The second represents the 10.01%
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."]
32
<PAGE>
================================================================================
JOHN HANCOCK V.A. SOVEREIGN BOND FUND
A LOOK AT PERFORMANCE
For the period ended December 31, 1997
SINCE
ONE INCEPTION
YEAR (8/29/96)
---- ---------
Cumulative Total Returns 9.30% 14.13%
Average Annual Total Returns(1) 9.30% 10.37%
YIELD
For the period ended December 31, 1997
SEC 30-DAY
YIELD
----------
John Hancock V.A. Sovereign Bond Fund 5.62%
Total return measures the change in value of an investment from the beginning to
the end of a period, assuming all distributions were reinvested. Performance
figures reflect the effect of investment-related charges on the underlying
funds, but do not include insurance and other charges levied at the separate
account level.
All figures represent past performance and are no guarantee of future results.
Keep in mind that the total return and share price of the Fund's investments
will fluctuate. As a result, your Fund's shares may be worth more or less than
their original cost, depending on when you sell them.
Notes to Performance
(1) The Adviser has agreed to limit the Fund's expenses to 0.25% (not
including management fee) of the Fund's daily average net assets. Without
the limitation of expenses, the average annual total return for the
one-year period and since inception would have been 7.52% and 8.18%,
respectively.
WHAT HAPPENED TO
A $10,000 INVESTMENT...
The chart below shows how much a $10,000 investment in the John Hancock V.A.
Sovereign Bond Fund would be worth, assuming all distributions were reinvested
for the period indicated. For comparison, we've shown the same $10,000
investment in the Lehman Brothers Corporate Bond Index--an unmanaged index that
mirrors the investment objectives and characteristics of the Fund.
[GRAPHIC OMITTED]
[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
$11,584 as of December 31, 1997. The second line represents the value of the
V.A. Sovereign Bond Fund, before sales charge, and is equal to $11,413 as of
December 31, 1997.]
33
<PAGE>
================================================================================
BY DAWN BAILLIE, FOR THE PORTFOLIO MANAGEMENT TEAM
John Hancock
V.A. Money Market Fund
Moderate economy and dormant inflation
keep money fund yields stable
"...we were able to extend the Fund's maturity."
Uncertainty was the watchword for money market funds during 1997, but status quo
was the end result, as short-term interest rates remained fairly stable. Early
in the year, all eyes were on the Federal Reserve, which everyone knew was just
waiting to pounce at the first signs of rising inflation. In early spring,
interest rates began to rise as the economy surged ahead and investors came to
expect that the Fed would raise short-term interest rates to slow down the
economy. Although that Fed hike in late March -- its first in two years --
turned out to be the only move the Fed made in 1997, money markets fretted all
year over each set of monthly economic data. Fear remained about the strength of
the economy and whether the low unemployment rate would inevitably translate
into rising labor costs and higher inflation, as has been the case in past
economic cycles.
Despite all the concerns, the economy remained fairly moderate after the
first quarter, and, in atypical fashion, inflation never budged. Fed chairman
Alan Greenspan concluded that this economic cycle was different, and by the end
of the year, the Fed had changed its stance. Instead of its earlier inclination
to raise short-term interest rates, the Fed shifted to a more neutral, status
quo policy. Its inclination was further bolstered by currency and financial
turmoil in Asia which many believed would keep the U.S. economy's growth in
check without the Fed's help. As a result, the federal funds rate, which banks
charge each other for overnight loans and which serves as a pricing benchmark
for money market securities, closed the year at 5.50%, where it had been since
March.
On December 31, 1997, John Hancock V.A. Money Market Fund had a 7-day
effective yield
[A 2" x 3" photo of V.A. Money Market Fund team members. Caption reads: "Fund
management team members (l-r): Barry Evans, Dawn Baillie and Bill Larkin, Jr."]
34
<PAGE>
================================================================================
JOHN HANCOCK V.A. MONEY MARKET FUND
"...the Fed is maintaining a neutral stance..."
of 5.01%. By comparison, the average taxable money fund had a 7-day effective
yield of 4.95%, according to Lipper Analytical Services, Inc.
Longer-than-average maturity pays off
During the first half of the year, the Fund's maturity remained shorter than
average because its small size limited our ability to buy a range of money
market securities. But in the second half, the Fund's assets had grown to a
point where we were able to extend the Fund's maturity. It was also an opportune
time to take an aggressive stance to lock in higher yields, since the economy
had begun to moderate and we became more convinced of the Fed's hands-off
approach. That only changed briefly as the year ended, so we could take
advantage of the typically favorable buying environment for money market
securities. By the end of the year, the Fund's maturity remained longer than
average at 80 days.
A word about Asia
Money market funds have not felt the effects of currency and financial problems
afflicting Asia, largely because most money funds stopped buying any short-term
certificates of deposit from Japanese banks. In any event, the Fund had no
exposure to the potential turmoil since we did not own any foreign securities.
Status quo ahead
Given the current near-perfect economic environment -- moderate growth and tame
inflation -- it's unlikely that the Federal Reserve will make any moves for at
least the next three months. For now, our view is that the Fed is maintaining a
neutral stance, without a bias toward either raising or lowering short-term
rates. Against that backdrop, we will continue to aggressively seek yield by
keeping the Fund's maturity longer than average. We'll determine our next course
of action after we evaluate the economic data in February and March. Above all
else, we'll keep focused on providing shareholders with a competitive level of
current income, while maintaining liquidity and stability of principal.
- --------------------------------------------------------------------------------
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.
[Bar chart with the header "7-Day Effective Yield" at top left hand column. A
footnote below states: "As of December 31, 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 5.01% total return for the
John Hancock V.A. Money Market Fund. The second represents the 4.95% total
return for the Average taxable money market fund. A footnote below states: "The
average taxable money fund is tracked by Lipper Analytical Services, Inc. Past
performance is no guarantee of future results."]
35
<PAGE>
==============================FINANCIAL STATEMENTS==============================
John Hancock Funds - Declaration Trust
Statements of Assets and Liabilities
December 31, 1997
- --------------------------------------------------------------------------------
<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 D:
Common stocks (cost - $3,249,269, $15,218,242, $3,314,660,
$3,063,484, $7,421,194 and $17,791,716, respectively) ................. $ 3,258,601 $ 16,773,825 $ 3,638,048
Preferred stocks (cost - $152,131, none, none, none, none and
none, respectively) ................................................... 128,406 -- --
Joint repurchase agreements (cost - $345,000, $1,683,000,
$222,000, $213,000, $835,000 and $1,265,000, respectively) ............ 345,000 1,683,000 222,000
Corporate savings account ............................................... -- 791 292
------------ ------------ ------------
3,732,007 18,457,616 3,860,340
Cash .................................................................... 29 -- --
Foreign currency, at value (cost - $137,150, none, $27, none,
none and none, respectively) .......................................... 136,743 -- 27
Receivable for investments sold ......................................... 943 -- 8,968
Dividends and interest receivable ....................................... 2,509 39,816 1,507
Receivable from John Hancock Advisers, Inc. and
affiliates - Note C ................................................... -- -- 2,249
Foreign tax receivable .................................................. 1,565 -- --
Deferred organization expenses - Note B ................................. 7,825 -- 7,825
------------ ------------ ------------
Total Assets .................................... 3,881,621 18,497,432 3,880,916
----------------------------------------------------------------------------------------------------
Liabilities:
Payable for investments purchased ....................................... 72,418 5,695 24,868
Payable for forward foreign currency exchange contracts
bought - Note B ....................................................... -- 131 --
Payable for variation margin - Note B ................................... -- -- --
Payable foreign withholding tax ......................................... 409 -- --
Payable to John Hancock Advisers, Inc. and affiliates - Note C .......... 815 11,914 --
Accounts payable and accrued expenses ................................... 15,975 14,251 15,238
------------ ------------ ------------
Total Liabilities ............................... 89,617 31,991 40,106
----------------------------------------------------------------------------------------------------
Net Assets:
Capital paid-in ......................................................... 3,871,310 16,906,441 3,770,207
Accumulated net realized gain (loss) on investments, financial
futures contracts and foreign currency transactions ................... ( 64,957) 1,353 ( 252,923)
Net unrealized appreciation (depreciation) of investments, financial
futures contracts and foreign currency transactions ................... ( 14,142) 1,555,572 323,393
Undistributed net investment income (distributions in excess
of net investment income) ............................................. ( 207) 2,075 133
------------ ------------ ------------
Net Assets ...................................... $ 3,792,004 $ 18,465,441 $ 3,840,810
====================================================================================================
Net Asset Value Per Share:
(based on 361,090, 1,374,087, 371,198, 347,815, 617,965 and
1,585,173 shares, respectively, of beneficial interest outstanding -
unlimited number of shares authorized with no par value) .............. $ 10.50 $ 13.44 $ 10.35
==========================================================================================================================
<CAPTION>
V.A. V.A. V.A.
GROWTH INDEPENDENCE 500 INDEX
FUND EQUITY FUND FUND
---- ----------- ----
<S> <C> <C> <C>
Assets:
Investments at value - Note D:
Common stocks (cost - $3,249,269, $15,218,242, $3,314,660,
$3,063,484, $7,421,194 and $17,791,716, respectively) .............. $ 3,576,456 $ 8,050,558 $ 18,688,297
Preferred stocks (cost - $152,131, none, none, none, none and
none, respectively) ................................................ -- -- --
Joint repurchase agreements (cost - $345,000, $1,683,000,
$222,000, $213,000, $835,000 and $1,265,000, respectively) ......... 213,000 835,000 1,265,000
Corporate savings account ............................................ 576 157 --
---------- ---------- -----------
3,790,032 8,885,715 19,953,297
Cash ................................................................. -- -- 50,420
Foreign currency, at value (cost - $137,150, none, $27, none,
none and none, respectively) ....................................... -- -- --
Receivable for investments sold ...................................... -- -- --
Dividends and interest receivable .................................... 1,115 11,964 24,254
Receivable from John Hancock Advisers, Inc. and
affiliates - Note C ................................................ -- -- --
Foreign tax receivable ............................................... -- 59 105
Deferred organization expenses - Note B .............................. 7,825 7,825 7,825
---------- ---------- -----------
Total Assets ................................. 3,798,972 8,905,563 20,035,901
---------------------------------------------------------------------------------------------
Liabilities:
Payable for investments purchased .................................... 51,578 165,725 --
Payable for forward foreign currency exchange contracts
bought - Note B .................................................... -- -- --
Payable for variation margin - Note B ................................ -- -- 250
Payable foreign withholding tax ...................................... -- -- --
Payable to John Hancock Advisers, Inc. and affiliates - Note C ....... 261 -- 3,663
Accounts payable and accrued expenses ................................ 14,421 20,746 24,171
---------- ---------- -----------
Total Liabilities ............................ 66,260 186,471 28,084
---------------------------------------------------------------------------------------------
Net Assets:
Capital paid-in ...................................................... 3,428,308 8,062,016 18,904,149
Accumulated net realized gain (loss) on investments, financial
futures contracts and foreign currency transactions ................ ( 208,568) 27,317 197,882
Net unrealized appreciation (depreciation) of investments, financial
futures contracts and foreign currency transactions ................ 512,972 629,364 903,905
Undistributed net investment income (distributions in excess
of net investment income) .......................................... -- 395 1,881
---------- ---------- -----------
Net Assets ................................... $ 3,732,712 $ 8,719,092 $ 20,007,817
=============================================================================================
Net Asset Value Per Share:
(based on 361,090, 1,374,087, 371,198, 347,815, 617,965 and
1,585,173 shares, respectively, of beneficial interest outstanding -
unlimited number of shares authorized with no par value) ........... $ 10.73 $ 14.11 $ 12.62
===================================================================================================================
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
36
<PAGE>
==============================FINANCIAL STATEMENTS==============================
John Hancock Funds - Declaration Trust
Statements of Assets and Liabilities (continued)
December 31, 1997
- --------------------------------------------------------------------------------
<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 D:
Common stocks (cost - $9,790,642, none, $3,750, none and
none, respectively) ...................................................... $10,902,694 $ -- $ 6,090
Preferred stocks and warrants (cost - none, none, $208,781, none and
none, respectively) ...................................................... -- -- 229,386
Bonds (cost - none, $2,124,783, $3,821,647, $852,838 and
none, respectively) ...................................................... -- 2,157,359 3,864,424
U.S. government obligations (cost - $630,453, none, $746,251,
$2,412,519 and none, respectively) ....................................... 636,126 -- 754,937
Short-term investments (cost - none, none, none, none and
$6,548,187, respectively) ................................................ -- -- --
Joint repurchase agreements (cost - $1,491,000, $128,000,
$579,000, $595,000 and $1,729,000, respectively) ......................... 1,491,000 128,000 579,000
Corporate savings account .................................................. 161 -- 506
---------- ---------- ----------
13,029,981 2,285,359 5,434,343
Cash ....................................................................... -- 697 --
Receivable for investments sold ............................................ -- -- --
Receivable for forward foreign currency exchange contracts sold - Note B ... -- -- 8,030
Dividends and interest receivable .......................................... 23,779 29,831 104,292
Receivable from John Hancock Advisers, Inc. and affiliates - Note C ........ -- 1,495 --
Deferred organization expenses - Note B .................................... 7,825 7,825 7,825
---------- ---------- ----------
Total Assets ....................................... 13,061,585 2,325,207 5,554,490
-----------------------------------------------------------------------------------------------
Liabilities:
Distribution payable ....................................................... -- 209 446
Payable for investments purchased .......................................... 852,977 -- --
Payable for forward foreign currency exchange contracts purchased - Note B . -- 6,379 --
Payable for shares repurchased ............................................. -- 10 --
Payable to John Hancock Advisers, Inc. and affiliates - Note C ............. -- -- 2,849
Accounts payable and accrued expenses ...................................... 21,669 16,013 11,634
---------- ---------- ----------
Total Liabilities .................................. 874,646 22,611 14,929
-----------------------------------------------------------------------------------------------
Net Assets:
Capital paid-in ............................................................ 11,050,568 2,298,121 5,463,093
Accumulated net realized gain (loss) on investments and
foreign currency transactions ............................................ 17,842 ( 3,341) ( 11,386)
Net unrealized appreciation of investments and foreign currency transactions 1,117,725 26,171 81,385
Undistributed net investment income (distributions in excess of
net investment income) ................................................... 804 ( 18,355) 6,469
---------- ---------- ----------
Net Assets ......................................... $12,186,939 $ 2,302,596 $ 5,539,561
===============================================================================================
Net Asset Value Per Share:
(based on 896,718, 236,469, 529,118, 355,545 and 8,377,058 shares,
respectively, of beneficial interest outstanding - unlimited number of
shares authorized with no par value) ..................................... $ 13.59 $ 9.74 $ 10.47
=====================================================================================================================
<CAPTION>
V.A. V.A.
SOVEREIGN MONEY MARKET
BOND FUND FUND
--------- ----
<S> <C> <C>
Assets:
Investments at value - Note D:
Common stocks (cost - $9,790,642, none, $3,750, none and
none, respectively) ...................................................... $ -- $ --
Preferred stocks and warrants (cost - none, none, $208,781, none and
none, respectively) ...................................................... -- --
Bonds (cost - none, $2,124,783, $3,821,647, $852,838 and
none, respectively) ...................................................... 868,083 --
U.S. government obligations (cost - $630,453, none, $746,251,
$2,412,519 and none, respectively) ....................................... 2,444,212 --
Short-term investments (cost - none, none, none, none and
$6,548,187, respectively) ................................................ -- 6,548,187
Joint repurchase agreements (cost - $1,491,000, $128,000,
$579,000, $595,000 and $1,729,000, respectively) ......................... 595,000 1,729,000
Corporate savings account .................................................. 879 --
----------- -----------
3,908,174 8,277,187
Cash ....................................................................... -- 761
Receivable for investments sold ............................................ 1,000 --
Receivable for forward foreign currency exchange contracts sold - Note B ... -- --
Dividends and interest receivable .......................................... 56,076 113,562
Receivable from John Hancock Advisers, Inc. and affiliates - Note C ........ -- --
Deferred organization expenses - Note B .................................... 7,825 7,825
----------- -----------
Total Assets ....................................... 3,973,075 8,399,335
---------------------------------------------------- ----------- -----------
Liabilities:
Distribution payable ....................................................... 607 1,173
Payable for investments purchased .......................................... 278,285 --
Payable for forward foreign currency exchange contracts purchased - Note B . -- --
Payable for shares repurchased ............................................. -- --
Payable to John Hancock Advisers, Inc. and affiliates - Note C ............. 1,583 7,288
Accounts payable and accrued expenses ...................................... 10,119 13,816
----------- -----------
Total Liabilities .................................. 290,594 22,277
---------------------------------------------------- ----------- -----------
Net Assets:
Capital paid-in ............................................................ 3,622,539 8,377,058
Accumulated net realized gain (loss) on investments and
foreign currency transactions ............................................ 12,995 --
Net unrealized appreciation of investments and foreign currency transactions 46,938 --
Undistributed net investment income (distributions in excess of
net investment income) ................................................... 9 --
----------- -----------
Net Assets ......................................... $ 3,682,481 $ 8,377,058
==================================================== =========== ===========
Net Asset Value Per Share:
(based on 896,718, 236,469, 529,118, 355,545 and 8,377,058 shares,
respectively, of beneficial interest outstanding - unlimited number of
shares authorized with no par value) ..................................... $ 10.36 $ 1.00
==========================================================================================================================
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
37
<PAGE>
==============================FINANCIAL STATEMENTS==============================
John Hancock Funds - Declaration Trust
Statements of Operations
Year ended December 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
V.A. V.A. V.A.
INTERNATIONAL FINANCIAL EMERGING
FUND INDUSTRIES FUND(1) GROWTH FUND
---- ------------------ -----------
<S> <C> <C> <C>
Investment Income:
Dividends (net of foreign withholding tax of $4,047, $635, $5, none,
$354 and $572, respectively) ........................................ $ 35,141 $ 94,521 $ 7,073
Interest .............................................................. 11,533 27,049 9,343
----------- ----------- -----------
46,674 121,570 16,416
----------- ----------- -----------
Expenses:
Investment management fee - Note C .................................. 26,618 41,060 14,584
Auditing fee ........................................................ 11,772 15,772 11,772
Custodian fee ....................................................... 15,806 9,485 19,901
Printing ............................................................ 2,280 3,565 3,656
Organization expense - Note B ....................................... 2,011 -- 2,011
Registration and filing fees ........................................ 656 368 360
Legal fees .......................................................... 333 201 150
Financial services fee - Note C ..................................... 535 909 349
Miscellaneous ....................................................... 260 151 50
Trustees' fee ....................................................... 171 59 83
----------- ----------- -----------
Total Expenses ................................ 60,442 71,570 52,916
Less Expense Reductions - Note C .............. ( 26,430) ( 17,678) ( 33,471)
----------- ----------- -----------
Net Expenses .................................. 34,012 53,892 19,445
-----------------------------------------------------------------------------------------------
Net Investment Income (Loss) .................. 12,662 67,678 ( 3,029)
-----------------------------------------------------------------------------------------------
Realized and Unrealized Gain (Loss) on Investments,
Financial Futures Contracts and Foreign Currency Transactions:
Net realized gain (loss) on investments sold .......................... 224,405 16,030 (181,217)
Net realized gain on financial futures contracts ...................... -- -- --
Net realized gain (loss) on foreign currency transactions ............. ( 84,248) ( 169) 102
Change in net unrealized appreciation/depreciation of investments ..... ( 261,947) 1,555,584 320,418
Change in net unrealized appreciation/depreciation of
financial futures contracts ......................................... -- -- --
Change in net unrealized appreciation/depreciation of
foreign currency transactions ....................................... ( 29) ( 12) --
----------- ----------- -----------
Net Realized and Unrealized Gain (Loss) on
Investments, Financial Futures Contracts and
Foreign Currency Transactions ................. ( 121,819) 1,571,433 139,303
-----------------------------------------------------------------------------------------------
Net Increase (Decrease) in Net Assets
Resulting from Operations ..................... ($ 109,157) $ 1,639,111 $ 136,274
===============================================================================================
<CAPTION>
V.A. V.A. V.A.
GROWTH INDEPENDENCE 500 INDEX
FUND EQUITY FUND FUND
---- ----------- ----
<S> <C> <C> <C>
Investment Income:
Dividends (net of foreign withholding tax of $4,047, $635, $5, none,
$354 and $572, respectively) ........................................ $ 5,164 $ 63,918 $ 121,122
Interest .............................................................. 8,477 9,515 171,152
----------- ----------- -----------
13,641 73,433 292,274
----------- ----------- -----------
Expenses:
Investment management fee - Note C .................................. 16,677 23,457 11,552
Auditing fee ........................................................ 11,775 11,772 11,772
Custodian fee ....................................................... 17,402 12,222 26,639
Printing ............................................................ 3,510 2,300 3,640
Organization expense - Note B ....................................... 2,011 2,011 2,011
Registration and filing fees ........................................ 599 358 2,745
Legal fees .......................................................... 211 206 721
Financial services fee - Note C ..................................... 400 600 1,862
Miscellaneous ....................................................... 62 87 723
Trustees' fee ....................................................... 89 110 401
----------- ----------- -----------
Total Expenses ................................ 52,736 53,123 62,066
Less Expense Reductions - Note C .............. ( 30,501) ( 21,288) ( 24,549)
----------- ----------- -----------
Net Expenses .................................. 22,235 31,835 37,517
-------------------------------------------------------------------------------------------------
Net Investment Income (Loss) .................. ( 8,594) 41,598 254,757
-------------------------------------------------------------------------------------------------
Realized and Unrealized Gain (Loss) on Investments,
Financial Futures Contracts and Foreign Currency Transactions:
Net realized gain (loss) on investments sold .......................... (111,668) 137,167 27,080
Net realized gain on financial futures contracts ...................... -- -- 785,683
Net realized gain (loss) on foreign currency transactions ............. -- -- --
Change in net unrealized appreciation/depreciation of investments ..... 477,636 544,516 896,580
Change in net unrealized appreciation/depreciation of
financial futures contracts ......................................... -- -- 52,075
Change in net unrealized appreciation/depreciation of
foreign currency transactions ....................................... -- -- --
----------- ----------- -----------
Net Realized and Unrealized Gain (Loss) on
Investments, Financial Futures Contracts and
Foreign Currency Transactions ................. 365,968 681,683 1,761,418
-------------------------------------------------------------------------------------------------
Net Increase (Decrease) in Net Assets
Resulting from Operations ..................... $ 357,374 $ 723,281 $ 2,016,175
=================================================================================================
</TABLE>
(1) Period from April 30, 1997 (commencement of operations) to December 31,
1997.
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)
Year ended December 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
V.A. V.A. V.A.
SOVEREIGN WORLD BOND STRATEGIC
INVESTORS FUND FUND INCOME FUND
-------------- ---- -----------
Investment Income:
<S> <C> <C> <C>
Dividends ......................................................................... $ 69,611 $ -- $ 15,005
Interest (net of foreign withholding tax of none, $381, none, none and
none, respectively) ............................................................. 54,025 149,793 295,546
----------- ----------- -----------
123,636 149,793 310,551
----------- ----------- -----------
Expenses:
Investment management fee - Note C .............................................. 27,842 16,085 19,377
Auditing Fee .................................................................... 11,772 11,772 11,775
Custodian Fee ................................................................... 6,536 14,566 5,712
Printing ........................................................................ 3,892 3,227 3,652
Organization expense - Note B ................................................... 2,011 2,011 2,011
Registration and filing fees .................................................... 358 663 671
Legal fees ...................................................................... 254 316 287
Financial services fee - Note C ................................................. 829 390 583
Miscellaneous ................................................................... 128 107 80
Trustees' fee ................................................................... 124 153 169
----------- ----------- -----------
Total Expenses ............................................ 53,746 49,290 44,317
Less Expense Reductions - Note C .......................... ( 14,303) ( 27,843) ( 16,865)
----------- ----------- -----------
Net Expenses .............................................. 39,443 21,447 27,452
----------------------------------------------------------------------------------------------------
Net Investment Income ..................................... 84,193 128,346 283,099
----------------------------------------------------------------------------------------------------
Realized and Unrealized Gain (Loss) on Investments and Foreign Currency Transactions:
Net realized gain (loss) on investments sold ...................................... 17,842 121,671 ( 30,073)
Net realized gain (loss) on foreign currency transactions ......................... -- ( 209,434) 36,291
Change in net unrealized appreciation/depreciation of investments ................. 1,050,550 ( 14,897) 48,041
Change in net unrealized appreciation/depreciation of foreign
currency transactions ........................................................... -- 4,100 5,851
----------- ----------- -----------
Net Realized and Unrealized Gain (Loss) on Investments
and Foreign Currency Transactions ......................... 1,068,392 ( 98,560) 60,110
----------------------------------------------------------------------------------------------------
Net Increase in Net Assets Resulting from Operations ...... $ 1,152,585 $ 29,786 $ 343,209
====================================================================================================
<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, $381, none, none and
none, respectively) ............................................................. 130,603 138,320
---------- ----------
130,603 138,320
---------- ----------
Expenses:
Investment management fee - Note C .............................................. 8,924 12,328
Auditing Fee .................................................................... 11,772 11,772
Custodian Fee ................................................................... 17,563 1,420
Printing ........................................................................ 4,078 3,128
Organization expense - Note B ................................................... 2,011 2,011
Registration and filing fees .................................................... 158 76
Legal fees ...................................................................... 219 81
Financial services fee - Note C ................................................. 322 439
Miscellaneous ................................................................... 46 67
Trustees' fee ................................................................... 86 26
---------- ----------
Total Expenses ............................................ 45,179 31,348
Less Expense Reductions - Note C .......................... ( 31,793) ( 12,855)
---------- ----------
Net Expenses .............................................. 13,386 18,493
--------------------------------------------------------------------------------------
Net Investment Income ..................................... 117,217 119,827
--------------------------------------------------------------------------------------
Realized and Unrealized Gain (Loss) on Investments and Foreign Currency Transactions:
Net realized gain (loss) on investments sold ...................................... 30,656 --
Net realized gain (loss) on foreign currency transactions ......................... -- --
Change in net unrealized appreciation/depreciation of investments ................. 33,037 --
Change in net unrealized appreciation/depreciation of foreign
currency transactions ........................................................... -- --
---------- ----------
Net Realized and Unrealized Gain (Loss) on Investments
and Foreign Currency Transactions ......................... 63,693 --
--------------------------------------------------------------------------------------
Net Increase in Net Assets Resulting from Operations ...... $ 180,910 $ 119,827
======================================================================================
</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
---------------------------- -----------
PERIOD ENDED YEAR ENDED PERIOD ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31,
1996(1) 1997 1997(2)
------- ---- -------
<S> <C> <C> <C>
Increase (Decrease) in Net Assets:
From Operations:
Net investment income (loss) ................................................... $ 14,426 $ 12,662 $ 67,678
Net realized gain (loss) on investments sold and
foreign currency transactions ................................................ ( 7,426) 140,157 15,861
Change in net unrealized appreciation/depreciation of investments
and foreign currency transactions ............................................ 247,834 ( 261,976) 1,555,572
------------ ------------ -------------
Net Increase (Decrease) in Net Assets Resulting from Operations .............. 254,834 ( 109,157) 1,639,111
------------ ------------ -------------
Distributions to Shareholders: *
Dividends from net investment income ........................................... ( 8,697) ( 2,558) ( 65,434)
Distributions from net realized gain on investments sold and
foreign currency transactions ................................................ -- ( 213,871) ( 14,677)
------------ ------------ -------------
Total Distributions to Shareholders .......................................... ( 8,697) ( 216,429) ( 80,111)
------------ ------------ -------------
From Fund Share Transactions: **
Shares sold .................................................................... 2,012,294 1,809,166 18,526,866
Shares issued to shareholders in reinvestment of distributions ................. 8,697 216,428 80,111
------------ ------------ -------------
2,020,991 2,025,594 18,606,977
Less shares repurchased ........................................................ ( 7) ( 175,125) ( 1,700,536)
------------ ------------ -------------
Net Increase ................................................................. 2,020,984 1,850,469 16,906,441
------------ ------------ -------------
Net Assets:
Beginning of period ............................................................ -- 2,267,121 --
------------ ------------ -------------
End of period (including undistributed net investment income (distributions
in excess) of none, ($207), $2,075, $134 and $133, respectively) ............. $ 2,267,121 $ 3,792,004 $ 18,465,441
============ ============ =============
* Distributions to Shareholders:
Per share dividends from net investment income ................................. $ 0.0432 $ 0.0077 $ 0.0518
------------ ------------ -------------
Per share distributions from net realized gain on investments sold and
foreign currency transactions ................................................ -- $ 0.6422 $ 0.0116
------------ ------------ -------------
** Analysis of Fund Share Transactions:
Shares sold .................................................................... 201,146 152,869 1,501,742
Shares issued to shareholders in reinvestment of distributions ................. 802 21,239 6,125
------------ ------------ -------------
201,948 174,108 1,507,867
Less shares repurchased ........................................................ ( 1) ( 14,965) ( 133,780)
------------ ------------ -------------
Net Increase ................................................................. 201,947 159,143 1,374,087
============ ============ =============
<CAPTION>
V.A. EMERGING GROWTH FUND
-------------------------------
PERIOD ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31,
1996(1) 1997
------- ----
<S> <C> <C>
Increase (Decrease) in Net Assets:
From Operations:
Net investment income (loss) ...................................................... $ 2,016 $( 3,029)
Net realized gain (loss) on investments sold and
foreign currency transactions ................................................... ( 71,717) ( 181,115)
Change in net unrealized appreciation/depreciation of investments
and foreign currency transactions ............................................... 2,975 320,418
---------- -------------
Net Increase (Decrease) in Net Assets Resulting from Operations ................. ( 66,726) 136,274
---------- -------------
Distributions to Shareholders: *
Dividends from net investment income .............................................. ( 1,882) ( 135)
Distributions from net realized gain on investments sold and
foreign currency transactions ................................................... -- --
---------- -------------
Total Distributions to Shareholders ............................................. ( 1,882) ( 135)
---------- -------------
From Fund Share Transactions: **
Shares sold ....................................................................... 1,041,666 2,985,092
Shares issued to shareholders in reinvestment of distributions .................... 1,882 135
---------- -------------
1,043,548 2,985,227
Less shares repurchased ........................................................... ( 25) ( 255,471)
---------- -------------
Net Increase .................................................................... 1,043,523 2,729,756
--------- -------------
Net Assets:
Beginning of period ............................................................... -- 974,915
---------- -------------
End of period (including undistributed net investment income (distributions
in excess) of none, ($207), $2,075, $134 and $133, respectively) ................ $ 974,915 $ 3,840,810
========== =============
* Distributions to Shareholders:
Per share dividends from net investment income .................................... $ 0.0180 $ 0.0004
---------- -------------
Per share distributions from net realized gain on investments sold and
foreign currency transactions ................................................... -- --
---------- -------------
** Analysis of Fund Share Transactions:
Shares sold ....................................................................... 104,379 291,749
Shares issued to shareholders in reinvestment of distributions .................... 206 14
---------- -------------
104,585 291,763
Less shares repurchased ........................................................... ( 3) ( 25,147)
---------- -------------
Net Increase .................................................................... 104,582 266,616
========== =============
</TABLE>
(1) Commenced operations on August 29, 1996.
(2) Commenced operations on April 30, 1997.
The Statement of Changes in net assets shows how the value of each Fund's net
assets have changed since the commencement of operations. The difference
reflects net investment income, and any investment gains and losses,
distributions paid to shareholders, if any and any increase or decrease in money
shareholders invested in each Fund. The footnotes illustrate the number of Fund
shares sold, reinvested and repurchased during the period, along with the per
share of distributions made to shareholders of each Fund for the period
indicated.
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. GROWTH FUND V.A. INDEPENDENCE EQUITY FUND
--------------------------- -----------------------------
PERIOD ENDED YEAR ENDED PERIOD ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31,
1996(1) 1997 1996(1) 1997
------- ---- ------- ----
<S> <C> <C> <C> <C>
Increase (Decrease) in Net Assets:
From Operations:
Net investment income (loss) ........................................ ($ 795) ($ 8,594) $ 5,925 $ 41,598
Net realized gain (loss) on investments sold ........................ ( 96,900) ( 111,668) 27,151 137,167
Change in net unrealized appreciation/depreciation of investments ... 35,336 477,636 84,848 544,516
----------- ----------- ----------- -----------
Net Increase (Decrease) in Net Assets Resulting from Operations ... ( 62,359) 357,374 117,924 723,281
----------- ----------- ----------- -----------
Distributions to Shareholders: *
Dividends from net investment income ................................ -- -- ( 6,035) ( 41,203)
Distributions from net realized gain on investments sold ............ -- -- ( 961) ( 135,930)
----------- ----------- ----------- -----------
Total Distributions to Shareholders ............................... -- -- ( 6,996) ( 177,133)
----------- ----------- ----------- -----------
From Fund Share Transactions: **
Shares sold ......................................................... 1,056,861 2,597,730 1,030,749 7,299,605
Shares issued to shareholders in reinvestment of distributions ...... -- -- 6,996 177,133
----------- ----------- ----------- -----------
1,056,861 2,597,730 1,037,745 7,476,738
Less shares repurchased ............................................. ( 644) ( 216,250) ( 21) ( 452,446)
----------- ----------- ----------- -----------
Net Increase ...................................................... 1,056,217 2,381,480 1,037,724 7,024,292
----------- ----------- ----------- -----------
Net Assets:
Beginning of period ................................................. -- 993,858 -- 1,148,652
----------- ----------- ----------- -----------
End of period (including undistributed net investment
income of none, none, none and $395, respectively) ................ $ 993,858 $ 3,732,712 $ 1,148,652 $ 8,719,092
=========== =========== =========== ===========
* Distributions to Shareholders:
Per share dividends from net investment income ...................... -- -- $ 0.0587 $ 0.1376
----------- ----------- ----------- -----------
Per share distributions from net realized gain on investments sold .. -- -- $ 0.0094 $ 0.2476
----------- ----------- ----------- -----------
** Analysis of Fund Share Transactions:
Shares sold ......................................................... 105,902 263,298 102,751 534,688
Shares issued to shareholders in reinvestment of distributions ...... -- -- 626 13,023
----------- ----------- ----------- -----------
105,902 263,298 103,377 547,711
Less shares repurchased ............................................. ( 60) ( 21,325) ( 2) ( 33,121)
----------- ----------- ----------- -----------
Net Increase ...................................................... 105,842 241,973 103,375 514,590
=========== =========== =========== ===========
</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
-------------------------- -----------------------
PERIOD ENDED YEAR ENDED PERIOD ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31,
1996(1) 1997 1996(1) 1997
---------- ----------- --------- -----------
<S> <C> <C> <C> <C>
Increase in Net Assets:
From Operations:
Net investment income ................................................... $ 59,702 $ 254,757 $ 6,933 $ 84,193
Net realized gain on investments sold and financial
futures contracts ..................................................... 387,685 812,763 8,426 17,842
Change in net unrealized appreciation/depreciation of investments and
financial futures contracts ........................................... ( 44,750) 948,655 67,175 1,050,550
----------- ----------- ----------- -----------
Net Increase in Net Assets Resulting from Operations .................. 402,637 2,016,175 82,534 1,152,585
----------- ----------- ----------- -----------
Distributions to Shareholders: *
Dividends from net investment income .................................... ( 59,456) ( 253,122) ( 6,880) ( 83,445)
Distributions from net realized gain on investments sold and
financial futures contracts ........................................... ( 201,124) ( 801,442) ( 2,327) ( 6,096)
----------- ----------- ----------- -----------
Total Distributions to Shareholders ................................... ( 260,580) ( 1,054,564) ( 9,207) ( 89,541)
----------- ----------- ----------- -----------
From Fund Share Transactions: **
Shares sold ............................................................. 3,646,277 15,055,266 1,029,113 10,664,200
Shares issued to shareholders in reinvestment of distributions .......... 260,580 1,054,564 9,207 89,541
----------- ----------- ----------- -----------
3,906,857 16,109,830 1,038,320 10,753,741
Less shares repurchased ................................................. ( 221) ( 1,112,317) ( 516) ( 740,977)
----------- ----------- ----------- -----------
Net Increase .......................................................... 3,906,636 14,997,513 1,037,804 10,012,764
----------- ----------- ----------- -----------
Net Assets:
Beginning of period ..................................................... -- 4,048,693 -- 1,111,131
----------- ----------- ----------- -----------
End of period (including undistributed net investment
income of $246, $1,881, $53 and $804, respectively) ................... $ 4,048,693 $20,007,817 $ 1,111,131 $12,186,939
=========== =========== =========== ===========
* Distributions to Shareholders:
Per share dividends from net investment income .......................... $ 0.1637 $ 0.3006 $ 0.0670 $ 0.1769
----------- ----------- ----------- -----------
Per share distributions from net realized gain on investments sold and
financial futures contracts ........................................... $ 0.5538 $ 0.5445 $ 0.0227 $ 0.0072
----------- ----------- ----------- -----------
** Analysis of Fund Share Transactions:
Shares sold ............................................................. 363,218 1,200,874 102,676 844,459
Shares issued to shareholders in reinvestment of distributions .......... 24,676 86,596 856 6,966
----------- ----------- ----------- -----------
387,894 1,287,470 103,532 851,425
Less shares repurchased ................................................. ( 20) ( 90,171) ( 50) ( 58,189)
----------- ----------- ----------- -----------
Net Increase .......................................................... 387,874 1,197,299 103,482 793,236
=========== =========== =========== ===========
</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
------------------------- --------------------------
PERIOD ENDED YEAR ENDED PERIOD ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31,
1996(1) 1997 1996(1) 1997
----------- ----------- ----------- ---------
<S> <C> <C> <C> <C>
Increase in Net Assets:
From Operations:
Net investment income ............................................... $ 40,768 $ 128,346 $ 55,619 $ 283,099
Net realized gain (loss) on investments sold and foreign
currency transactions ............................................. 3,827 ( 87,763) 46,295 6,218
Change in net unrealized appreciation/depreciation
of investments and foreign currency transactions .................. 36,968 ( 10,797) 27,493 53,892
----------- ----------- ----------- -----------
Net Increase in Net Assets Resulting from Operations .............. 81,563 29,786 129,407 343,209
----------- ----------- ----------- -----------
Distributions to Shareholders: *
Dividends from net investment income ................................ ( 40,768) ( 46,497) ( 55,619) ( 283,099)
Distribution in excess of net investment income ..................... -- ( 19,609) -- --
Tax return of capital ............................................... -- ( 62,240) -- --
Distributions from net realized gain on investments sold
and foreign currency transactions ................................. -- -- ( 13,053) ( 44,377)
----------- ----------- ----------- -----------
Total Distributions to Shareholders ............................... ( 40,768) ( 128,346) ( 68,672) ( 327,476)
----------- ----------- ----------- -----------
From Fund Share Transactions: **
Shares sold ......................................................... 2,000,997 234,407 2,002,001 3,436,273
Shares issued to shareholders in reinvestment
of distributions .................................................. 40,768 128,137 68,672 327,029
----------- ----------- ----------- -----------
2,041,765 362,544 2,070,673 3,763,302
Less shares repurchased ............................................. -- ( 43,948) -- ( 370,882)
----------- ----------- ----------- -----------
Net Increase ...................................................... 2,041,765 318,596 2,070,673 3,392,420
----------- ----------- ----------- -----------
Net Assets:
Beginning of period ................................................. -- 2,082,560 -- 2,131,408
----------- ----------- ----------- -----------
End of period (including undistributed net investment
(distributions in excess) income of none, ($18,355),
none and $6,469, respectively) .................................... $ 2,082,560 $ 2,302,596 $ 2,131,408 $ 5,539,561
=========== =========== =========== ===========
* Distributions to Shareholders:
Per share dividends from net investment income ...................... $ 0.2015 $ 0.2134 $ 0.2739 $ 0.9083
----------- ----------- ----------- -----------
Per share distributions in excess of net investment income .......... -- $ 0.0900 -- --
----------- ----------- ----------- -----------
Tax return of capital ............................................... -- $ 0.2857 -- --
----------- ----------- ----------- -----------
Per share distributions from net realized gain on investments
sold and foreign currency transactions ............................ -- -- $ 0.0640 $ 0.0870
----------- ----------- ----------- -----------
** Analysis of Fund Share Transactions:
Shares sold ......................................................... 200,098 23,767 200,193 326,163
Shares issued to shareholders in reinvestment of distributions ...... 4,008 13,037 6,694 31,206
----------- ----------- ----------- -----------
204,106 36,804 206,887 357,369
Less shares repurchased ............................................. -- ( 4,441) -- ( 35,138)
----------- ----------- ----------- -----------
Net Increase ...................................................... 204,106 32,363 206,887 322,231
=========== =========== =========== ===========
</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
---------------------------- --------------------------
PERIOD ENDED YEAR ENDED PERIOD ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31,
1996(1) 1997 1996(1) 1997
---------- ---------- ---------- ---------
<S> <C> <C> <C> <C>
Increase in Net Assets:
From Operations:
Net investment income ............................................... $ 23,529 $ 117,217 $ 1,784 $ 119,827
Net realized gain on investments sold ............................... 6,419 30,656 -- --
Change in net unrealized appreciation/depreciation of investments ... 13,901 33,037 -- --
----------- ----------- ----------- -----------
Net Increase in Net Assets Resulting from Operations .............. 43,849 180,910 1,784 119,827
----------- ----------- ----------- -----------
Distributions to Shareholders: *
Dividends from net investment income ................................ ( 23,529) ( 117,208) ( 1,784) ( 119,827)
Distributions from net realized gain on investments sold ............ ( 1,795) ( 22,285) -- --
----------- ----------- ----------- -----------
Total Distributions to Shareholders ............................... ( 25,324) ( 139,493) ( 1,784) ( 119,827)
----------- ----------- ----------- -----------
From Fund Share Transactions: **
Shares sold ......................................................... 1,012,301 2,851,276 104,907 9,748,620
Shares issued to shareholders in reinvestment of distributions ...... 25,324 138,885 1,784 118,655
----------- ----------- ----------- -----------
1,037,625 2,990,161 106,691 9,867,275
Less shares repurchased ............................................. ( 7) ( 405,240) ( 63) ( 1,696,845)
----------- ----------- ----------- -----------
Net Increase ...................................................... 1,037,618 2,584,921 106,628 8,170,430
----------- ----------- ----------- -----------
Net Assets:
Beginning of period ................................................. -- 1,056,143 100,000(2) 206,628
----------- ----------- ----------- -----------
End of period (including undistributed net investment
income of none, $9, none and none, respectively) .................. $ 1,056,143 $ 3,682,481 $ 206,628 $ 8,377,058
=========== =========== =========== ===========
* Distributions to Shareholders:
Per share dividends from net investment income ...................... $ 0.2327 $ 0.6766 $ 0.0160 $ 0.0478
----------- ----------- ----------- -----------
Per share distributions from net realized gain on investments sold .. $ 0.0175 $ 0.0653 -- --
----------- ----------- ----------- -----------
** Analysis of Fund Share Transactions:
Shares sold ......................................................... 101,202 277,867 104,907 9,748,620
Shares issued to shareholders in reinvestment of distributions ...... 2,483 13,553 1,784 118,655
----------- ----------- ----------- -----------
103,685 291,420 106,691 9,867,275
Less shares repurchased ............................................. ( 1) ( 39,559) ( 63) ( 1,696,845)
----------- ----------- ----------- -----------
Net Increase ...................................................... 103,684 251,861 106,628 8,170,430
=========== =========== =========== ===========
</TABLE>
(1) Commenced operations on August 29, 1996.
(2) On July 22, 1996, the Adviser made an initial investment of $100,000
(100,000 shares) in order to seed the Trust.
SEE NOTES TO FINANCIAL STATEMENTS.
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 V.A. EMERGING GROWTH FUND
----------------------- --------------- -------------------------
PERIOD YEAR PERIOD PERIOD YEAR
ENDED ENDED ENDED ENDED ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31,
1996(1) 1997 1997(2) 1996(1) 1997
-------- -------- --------- --------- --------
<S> <C> <C> <C> <C> <C>
Per Share Operating Performance
Net Asset Value, Beginning of Period ................... $ 10.00 $ 11.23 $ 10.00 $ 10.00 $ 9.32
-------- -------- --------- --------- --------
Net Investment Income (Loss) (3) ....................... 0.07 0.05 0.11 0.02 ( 0.02)
Net Realized and Unrealized Gain (Loss) on
Investments and Foreign Currency Transactions ........ 1.20 ( 0.13) 3.39 ( 0.68) 1.05
-------- -------- --------- --------- --------
Total from Investment Operations ................... 1.27 ( 0.08) 3.50 ( 0.66) 1.03
-------- -------- --------- --------- --------
Less Distributions:
Dividends from Net Investment Income ................. ( 0.04) ( 0.01) ( 0.05) ( 0.02) ( 0.00)(4)
Distributions from Net Realized Gain on
Investments Sold ................................... -- ( 0.64) ( 0.01) -- --
-------- -------- --------- --------- --------
Total Distributions ................................ ( 0.04) ( 0.65) ( 0.06) ( 0.02) 0.00
-------- -------- --------- --------- --------
Net Asset Value, End of Period ......................... $ 11.23 $ 10.50 $ 13.44 $ 9.32 $ 10.35
======== ======== ========= ========= ========
Total Investment Return at Net Asset Value (5) ......... 12.75%(7) ( 0.54%) 35.05%(7) ( 6.62%)(7) 11.06%
Total Adjusted Investment Return at Net Asset
Value (5,6) .......................................... 12.07%(7) ( 1.43%) 34.71%(7) ( 8.05%)(7) 9.34%
Ratios and Supplemental Data
Net Assets, End of Period (000s omitted) ............... $ 2,267 $ 3,792 $ 18,465 $ 975 $ 3,841
Ratio of Expenses to Average Net Assets ................ 1.15%(8) 1.15% 1.05%(8) 1.00%(8) 1.00%
Ratio of Adjusted Expenses to Average Net Assets (9) ... 3.13%(8) 2.04% 1.39%(8) 5.19%(8) 2.72%
Ratio of Net Investment Income (Loss) to Average
Net Assets ........................................... 2.03%(8) 0.43% 1.32%(8) 0.62%(8) ( 0.16%)
Ratio of Adjusted Net Investment Income (Loss) to
Average Net Assets (9) ............................... 0.05%(8) ( 0.46%) 0.98%(8) ( 3.57%)(8) ( 1.88%)
Portfolio Turnover Rate ................................ 14% 273% 11% 31% 79%
Fee Reduction Per Share (3) ............................ $ 0.07 $ 0.10 $ 0.03 $ 0.14 $ 0.17
Average Brokerage Commission Rate (10) ................. $ 0.0162 $ 0.0221 $ 0.0696 $ 0.0694 $ 0.0687
</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 and does not reflect the effect of sales
charges.
(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. GROWTH FUND V.A. INDEPENDENCE EQUITY FUND
----------------------------- -----------------------------
PERIOD YEAR PERIOD YEAR
ENDED ENDED ENDED ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31,
1996(1) 1997 1996(1) 1997
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Per Share Operating Performance
Net Asset Value, Beginning of Period .......................... $ 10.00 $ 9.39 $ 10.00 $ 11.11
--------- --------- --------- ---------
Net Investment Income (Loss) (2) .............................. ( 0.01) ( 0.04) 0.06 0.16
Net Realized and Unrealized Gain (Loss) on Investments ........ ( 0.60) 1.38 1.12 3.23
--------- --------- --------- ---------
Total from Investment Operations .......................... ( 0.61) 1.34 1.18 3.39
--------- --------- --------- ---------
Less Distributions:
Dividends from Net Investment Income ........................ -- -- ( 0.06) ( 0.14)
Distributions from Net Realized Gain on
Investments Sold .......................................... -- -- ( 0.01) ( 0.25)
--------- --------- --------- ---------
Total Distributions ....................................... -- -- ( 0.07) ( 0.39)
--------- --------- --------- ---------
Net Asset Value, End of Period ................................ $ 9.39 $ 10.73 $ 11.11 $ 14.11
========= ========= ========= =========
Total Investment Return at Net Asset Value (3) ................ ( 6.10%)(5) 14.27% 11.78%(5) 30.68%
Total Adjusted Investment Return at Net Asset
Value (3,4) ( 7.39%)(5) 12.90% 10.66%(5) 30.04%
Ratios and Supplemental Data
Net Assets, End of Period (000s omitted) ...................... $ 994 $ 3,733 $ 1,149 $ 8,719
Ratio of Expenses to Average Net Assets ....................... 1.00%(6) 1.00% 0.95%(6) 0.95%
Ratio of Adjusted Expenses to Average Net Assets (7) .......... 4.76%(6) 2.37% 4.23%(6) 1.59%
Ratio of Net Investment Income (Loss) to Average Net Assets ... ( 0.23%)(6) ( 0.39%) 1.60%(6) 1.24%
Ratio of Adjusted Net Investment Income (Loss) to Average
Net Assets (7) .............................................. ( 3.99%)(6) ( 1.76%) ( 1.68%)(6) 0.60%
Portfolio Turnover Rate ....................................... 68% 136% 24% 53%
Fee Reduction Per Share (2) ................................... $ 0.13 $ 0.13 $ 0.12 $ 0.08
Average Brokerage Commission Rate (8) ......................... $ 0.0691 $ 0.0694 $ 0.0210 $ 0.0249
</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 and does not reflect the effect of sales
charges.
(4) An estimated total return calculation which does not take into
consideration fee reductions by the Adviser during the periods shown.
(5) Not annualized.
(6) Annualized.
(7) Unreimbursed, without fee reduction.
(8) 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 V.A. SOVEREIGN INVESTORS FUND
----------------------------- -----------------------------
PERIOD YEAR PERIOD YEAR
ENDED ENDED ENDED ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31,
1996(1) 1997 1996(1) 1997
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Per Share Operating Performance
Net Asset Value, Beginning of Period .................... $ 10.00 $ 10.44 $ 10.00 $ 10.74
------------ ------------ ------------ ------------
Net Investment Income (2) ............................... 0.17 0.30 0.07 0.22
Net Realized and Unrealized Gain on Investments and
Financial Futures Contracts ........................... 0.98 2.72 0.76 2.82
------------ ------------ ------------ ------------
Total from Investment Operations .................... 1.15 3.02 0.83 3.04
------------ ------------ ------------ ------------
Less Distributions:
Dividends from Net Investment Income .................. ( 0.16) ( 0.30) ( 0.07) ( 0.18)
Distributions from Net Realized Gain on
Investments Sold .................................... ( 0.55) ( 0.54) ( 0.02) ( 0.01)
------------ ------------ ------------ ------------
Total Distributions ................................. ( 0.71) ( 0.84) ( 0.09) ( 0.19)
------------ ------------ ------------ ------------
Net Asset Value, End of Period .......................... $ 10.44 $ 12.62 $ 10.74 $ 13.59
============ ============ ============ ============
Total Investment Return at Net Asset Value (3) .......... 11.49%(5) 29.51% 8.30%(5) 28.43%
Total Adjusted Investment Return at Net
Asset Value (3,4) ..................................... 11.25%(5) 29.27% 7.30%(5) 28.12%
Ratios and Supplemental Data
Net Assets, End of Period (000s omitted) ................ $ 4,049 $ 20,008 $ 1,111 $ 12,187
Ratio of Expenses to Average Net Assets ................. 0.60%(6) 0.36% 0.85%(6) 0.85%
Ratio of Adjusted Expenses to Average Net Assets (7) .... 1.31%(6) 0.60% 3.78%(6) 1.16%
Ratio of Net Investment Income to Average Net Assets .... 4.57%(6) 2.45% 1.90%(6) 1.81%
Ratio of Adjusted Net Investment Income (Loss) to
Average Net Assets (7) ................................ 3.86%(6) 2.21% ( 1.03%)(6) 1.50%
Portfolio Turnover Rate ................................. -- 9% 17% 11%
Fee Reduction Per Share (2) ............................. $ 0.03 $ 0.03 $ 0.11 $ 0.04
Average Brokerage Commission Rate (8) ................... $ 0.0500 $ 0.0357 $ 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 and does not reflect the effect of sales
charges.
(4) An estimated total return calculation which does not take into
consideration fee reductions by the Adviser during the periods shown.
(5) Not annualized.
(6) Annualized.
(7) Unreimbursed, without fee reduction.
(8) 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 V.A. STRATEGIC INCOME FUND
----------------------------- -----------------------------
PERIOD YEAR PERIOD YEAR
ENDED ENDED ENDED ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31,
1996(1) 1997 1996(1) 1997
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Per Share Operating Performance
Net Asset Value, Beginning of Period ......................... $ 10.00 $ 10.20 $ 10.00 $ 10.30
--------- -------- --------- ---------
Net Investment Income (2) .................................... 0.20 0.59 0.27 0.91
Net Realized and Unrealized Gain (Loss) on Investments
and Foreign Currency Transactions .......................... 0.20 ( 0.46) 0.36 0.26
--------- -------- --------- ---------
Total from Investment Operations ......................... 0.40 0.13 0.63 1.17
--------- -------- --------- ---------
Less Distributions:
Dividends from Net Investment Income ....................... ( 0.20) ( 0.21) ( 0.27) ( 0.91)
Distributions in Excess of Net Investment Income ........... -- ( 0.09) -- --
Tax Return of Capital ...................................... -- ( 0.29) -- --
Distributions from Net Realized Gain on Investments Sold ... -- -- ( 0.06) ( 0.09)
--------- -------- --------- ---------
Total Distributions ...................................... ( 0.20) ( 0.59) ( 0.33) ( 1.00)
--------- -------- --------- ---------
Net Asset Value, End of Period ............................... $ 10.20 $ 9.74 $ 10.30 $ 10.47
========= ======== ========= =========
Total Investment Return at Net Asset Value (3) ............... 4.05%(5) 1.37% 6.45%(5) 11.77%
Total Adjusted Investment Return at Net Asset Value (3,4) .... 3.30%(5) 0.07% 5.96%(5) 11.25%
Ratios and Supplemental Data
Net Assets, End of Period (000s omitted) ..................... $ 2,083 $ 2,303 $ 2,131 $ 5,540
Ratio of Expenses to Average Net Assets ...................... 1.00%(6) 1.00% 0.85%(6) 0.85%
Ratio of Adjusted Expenses to Average Net Assets (7) ......... 3.19%(6) 2.30% 2.28%(6) 1.37%
Ratio of Net Investment Income to Average Net Assets ......... 5.83%(6) 5.98% 7.89%(6) 8.77%
Ratio of Adjusted Net Investment Income to Average
Net Assets (7) ............................................ 3.64%(6) 4.68% 6.46%(6) 8.25%
Portfolio Turnover Rate ...................................... 30% 176% 73% 110%
Fee Reduction Per Share (2) .................................. $ 0.08 $ 0.13 $ 0.05 $ 0.05
</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 and does not reflect the effect of sales
charges.
(4) An estimated total return calculation which does not take into
consideration fee reductions by the Adviser during the periods shown.
(5) Not annualized.
(6) Annualized.
(7) Unreimbursed, without fee reduction.
SEE NOTES TO FINANCIAL STATEMENTS.
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
----------------------------- -----------------------------
PERIOD YEAR PERIOD YEAR
ENDED ENDED ENDED ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31,
1996(1) 1997 1996(1) 1997
--------- --------- --------- ---------
<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 0.68 0.02 0.05
Net Realized and Unrealized Gain on Investments ............... 0.21 0.24 -- --
--------- --------- ------------ ------------
Total from Investment Operations .......................... 0.44 0.92 0.02 0.05
--------- --------- ------------ ------------
Less Distributions:
Dividends from Net Investment Income ........................ ( 0.23) ( 0.68) ( 0.02) ( 0.05)
Distributions from Net Realized Gain on Investments Sold .... ( 0.02) ( 0.07) -- --
--------- --------- ------------ ------------
Total Distributions ....................................... ( 0.25) ( 0.75) ( 0.02) ( 0.05)
--------- --------- ------------ ------------
Net Asset Value, End of Period ................................ $ 10.19 $ 10.36 $ 1.00 $ 1.00
========= ========= ============ ============
Total Investment Return at Net Asset Value (3) ................ 4.42%(5) 9.30% 1.61%(5) 4.88%
Total Adjusted Investment Return at Net Asset Value (3,4) ..... 3.25%(5) 7.52% ( 7.55%)(5) 4.36%
Ratios and Supplemental Data
Net Assets, End of Period (000s omitted) ...................... $ 1,056 $ 3,682 $ 207 $ 8,377
Ratio of Expenses to Average Net Assets ....................... 0.75%(6) 0.75% 0.75%(6) 0.75%
Ratio of Adjusted Expenses to Average Net Assets (7) .......... 4.15%(6) 2.53% 27.48%(6) 1.27%
Ratio of Net Investment Income to Average Net Assets .......... 6.69%(6) 6.57% 4.68%(6) 4.86%
Ratio of Adjusted Net Investment Income (Loss) to Average
Net Assets (7) .............................................. 3.29%(6) 4.79% ( 22.05%)(6) 4.34%
Portfolio Turnover Rate ....................................... 45% 193% -- --
Fee Reduction Per Share (2) ................................... $ 0.12 $ 0.18 $ 0.08 $ 0.00(8)
</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 and does not reflect the effect of sales
charges.
(4) An estimated total return calculation which does not take into
consideration fee reductions by the Adviser during the periods shown.
(5) Not annualized.
(6) Annualized.
(7) Unreimbursed, without fee reduction.
(8) Less than $0.01 per share.
SEE NOTES TO FINANCIAL STATEMENTS.
49
<PAGE>
==============================FINANCIAL STATEMENTS==============================
John Hancock Funds - Declaration Trust -- V.A. International Fund
Schedule of Investments
December 31, 1997
- --------------------------------------------------------------------------------
NUMBER OF MARKET
ISSUER, DESCRIPTION SHARES VALUE
- ------------------- ------ -----
COMMON STOCKS
Australia (3.09%)
Normandy Mining Ltd. (Metal) .......................... 120,600 $ 117,116
-----------
Brazil (4.54%)
Centrais Electricas Brasileiras S/A, American
Depository Receipt (ADR) (Utilities) ................... 3,100 77,081
Companhia Paranaense de Energia-Copel
(ADR) (Utilities) ...................................... 1,600 21,900
Telecomunicacoes Brasileiras S/A (ADR)
(Telecommunications) ................................... 630 73,356
-----------
172,337
-----------
Canada (6.57%)
Royal Bank of Canada (Banks - Foreign) ................. 2,585 137,005
Toronto-Dominion Bank (Banks - Foreign) ................ 2,978 112,233
-----------
249,238
-----------
Chile (0.32%)
Maderas y Sinteticos SA (ADR) (Building) ............... 1,300 12,350
-----------
France (6.33%)
Axa-UAP SA (Insurance) ................................. 840 64,998
Carrefour SA (Retail) .................................. 170 88,693
France Telecom SA (ADR)
(Telecommunications)* .................................. 2,400 86,400
-----------
240,091
-----------
Germany (4.24%)
Bayerische Motoren Werke AG
(Automobile Trucks) .................................... 40 104,672
Volkswagen AG (Automobile / Trucks) .................... 100 56,255
-----------
160,927
-----------
Hong Kong (4.74%)
China Resources Enterprise Ltd.
(Real Estate Operations) ............................... 28,000 62,511
Hutchison Whampoa Ltd.
(Diversified Operations) ............................... 12,000 75,261
Sun Hung Kai Properties Ltd.
(Real Estate Operations) ............................... 6,000 41,812
-----------
179,584
-----------
India (1.72%)
Reliance Industries Ltd. Global Depository
Receipt (GDR) (Diversified Operations) (R) ............. 1,900 16,340
Reliance Industries Ltd. (GDR) (Diversified
Operations)* ........................................... 1,650 14,190
The Schedule of Investments is a complete list of all securities owned by the
V.A. International Fund on December 31, 1997. It's divided into three main
categories: common stocks, preferred stock and short-term investments. Common
stocks and preferred stock 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
- ------------------- ------ -----
India (continued)
State Bank of India (GDR) (Banks - Foreign) ............ 1,900 $ 34,580
-----------
65,110
-----------
Ireland (4.95%)
Allied Irish Banks PLC (ADR) (Banks - Foreign) ......... 3,234 187,572
-----------
Japan (9.00%)
Ito-Yokado Co., Ltd. (Retail) .......................... 2,000 101,861
Sony Corp. (Electronics) ............................... 1,000 88,841
TDK Corp. (Electronics) ................................ 2,000 150,724
-----------
341,426
-----------
Mexico (3.66%)
Grupo Industrial Maseca SA de CV
(ADR) (Food) ........................................... 2,000 31,000
Panamerican Beverages, Inc. (Beverages) ................ 3,300 107,662
-----------
138,662
-----------
Netherlands (7.71%)
ABN Amro Holdings NV (ADR)
(Banks - Foreign) ...................................... 5,254 102,453
ING Groep NV (ADR) (Banks - Foreign) ................... 3,130 132,438
Ispat International NV (Steel)* ....................... 2,665 57,631
-----------
292,522
-----------
Norway (0.23%)
Saga Petroleum ASA (Oil & Gas) ......................... 500 8,598
-----------
Singapore (1.60%)
NatSteel Ltd. (Steel) .................................. 19,000 25,702
Oversea-Chinese Banking Corp., Ltd. ....................
(Banks - Foreign) ....................................... 6,000 34,886
-----------
60,588
-----------
Sweden (3.73%)
Investor AB (Diversified Operations) ................... 2,795 136,232
Nordbanken Holding AB (Banks - Foreign)* ............... 900 5,089
-----------
141,321
-----------
Switzerland (7.03%)
Novartis AG (Medical) .................................. 85 137,866
Zurich Versicherungs-Gesellschaft
(Insurance) ............................................. 270 128,607
-----------
266,473
-----------
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 (14.43%)
EMAP PLC (Media) ....................................... 6,000 $ 89,286
Marks & Spencer PLC (Retail) ........................... 7,500 74,170
Northern Rock PLC (Banks - Foreign)* ................... 10,000 98,057
Pearson PLC (Media) .................................... 8,000 103,937
Regal Hotel Group PLC (Leisure) ....................... 100,000 73,913
Royal & Sun Alliance Insurance Group PLC
(Insurance) ............................................ 7,085 71,336
Royal Bank of Scotland Group PLC
(Banks - Foreign) ...................................... 2,860 36,462
-----------
547,161
-----------
United States (2.04%)
Carnival Corp. (Class A) (Leisure) ..................... 1,400 77,525
-----------
TOTAL COMMON STOCKS
(Cost $3,249,269) ( 85.93%) 3,258,601
-------- -----------
PREFERRED STOCK
Brazil (3.39%)
Compania Riograndense de
Telecomunicaciones SA
(Telecommunications) ................................... 104,224 128,406
-----------
TOTAL PREFERRED STOCK
(Cost $152,131) ( 3.39%) 128,406
-------- -----------
TOTAL COMMON AND PREFERRED STOCKS
(Cost $3,401,400) ( 89.32%) 3,387,007
-------- -----------
INTEREST PAR VALUE
RATE (000s OMITTED)
---- --------------
SHORT-TERM INVESTMENTS
Joint Repurchase Agreement (9.10%)
Investment in a joint repurchase
agreement transaction with
HSBC Securities, Inc. - Dated 12-31-97,
Due 01-02-98 (Secured by U.S.
Treasury Bonds, 11.25% Due 02-15-15
and 9.25% Due 02-15-16) -
Note A................................. 6.60% $345 345,000
-----------
TOTAL SHORT-TERM INVESTMENTS ( 9.10%) 345,000
------- -----------
TOTAL INVESTMENTS ( 98.42%) 3,732,007
------- -----------
OTHER ASSETS AND LIABILITIES, NET ( 1.58%) 59,997
------- -----------
TOTAL NET ASSETS ( 100.00%) $ 3,792,004
======= ===========
Industry Diversification
- --------------------------------------------------------------------------------
The Fund primarily invests in securities issued by companies of
other countries. The performance of the Fund is closely tied to the economic
conditions within the countries it invests. The concentration of investments by
country for individual securities held by the Fund is shown in the schedule of
investments. In addition, the concentration of investments can be aggregated by
various industry groups. The table below shows the percentages of the Fund's
Investments at December 31, 1997 assigned to the various investment categories.
MARKET VALUE OF SECURITIES
INVESTMENT CATEGORIES AS A % OF FUND NET ASSETS
- --------------------- -------------------------
Automobile/Trucks........................ 4.24%
Banks - Foreign.......................... 23.23
Beverages................................ 2.84
Building................................. 0.32
Diversified Operations................... 6.38
Electronics.............................. 6.32
Food..................................... 0.82
Insurance................................ 6.99
Leisure.................................. 3.99
Media.................................... 5.09
Medical.................................. 3.64
Metal.................................... 3.09
Oil & Gas................................ 0.23
Real Estate Operations................... 2.75
Retail................................... 6.98
Steel.................................... 2.20
Telecommunications....................... 7.60
Utilities................................ 2.61
Short-Term Investments................... 9.10
-----
TOTAL INVESTMENTS 98.42%
=====
* Non-income producing security.
(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. Rule 144A
securities amounted to $16,340 or 0.43% of the Fund's net assets, as of
December 31, 1997.
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.
51
<PAGE>
==============================FINANCIAL STATEMENTS==============================
John Hancock Funds - Declaration Trust -- V.A. Financial Industries Fund
Schedule of Investments
December 31, 1997
- --------------------------------------------------------------------------------
NUMBER OF MARKET
ISSUER, DESCRIPTION SHARES VALUE
- ------------------- ------ -----
COMMON STOCKS
Banks - Foreign (7.89%)
Allied Irish Banks PLC, (American
Depository Receipt), (ADR) (Ireland) ................. 7,500 $435,000
ING Groep N.V. (ADR) (Netherlands) ..................... 4,174 176,612
Nordbanken Holding AB * (Sweden) ....................... 4,200 23,767
Royal Bank of Canada (Canada) .......................... 15,500 821,500
-----------
1,456,879
-----------
Banks - Money Center (4.15%)
Chase Manhattan Corp. .................................. 7,000 766,500
-----------
Banks - Southeast (2.86%)
First Tennessee National Corp. ......................... 7,900 527,325
-----------
Banks - Super Regional (7.10%)
BankBoston Corp. ....................................... 8,200 770,287
Norwest Corp. .......................................... 14,000 540,750
-----------
1,311,037
-----------
Banks - West (2.71%)
Westamerica Bancorp .................................... 4,900 501,025
-----------
Broker Services (13.77%)
Edwards (A.G.), Inc. ................................... 22,250 884,437
Friedman, Billings, Ramsey Group, Inc.
(Class A) * ............................................ 2,000 35,875
Legg Mason, Inc. ....................................... 14,166 792,411
McDonald & Co., Investments ............................ 12,600 357,525
Morgan Stanley, Dean Witter, Discover & Co. ............ 8,000 473,000
-----------
2,543,248
-----------
Computer - Services (4.34%)
Fiserv, Inc.* .......................................... 16,300 800,737
-----------
Finance - Consumer Loan (6.70%)
American Express Co. ................................... 8,500 758,625
Imperial Credit Industries, Inc.* ...................... 7,200 147,600
MBNA Corp. ............................................. 9,650 263,566
New Century Financial Corp. * .......................... 6,500 66,625
-----------
1,236,416
-----------
Finance - Investment Management (8.75%)
Affiliated Managers Group, Inc. * ...................... 1,500 43,500
Conning Corp. * ........................................ 1,500 25,125
Franklin Resources, Inc. ............................... 8,400 730,275
Price (T. Rowe) Associates, Inc. ....................... 13,000 817,375
-----------
1,616,275
-----------
The Schedule of Investments is a complete list of all securities owned by the
V.A. Financial Industries Fund on December 31, 1997. It's divided into three
main categories: common stocks, right and short-term investments. Common stocks
and right 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
- ------------------- ------ -----
Finance - Savings & Loan (0.96%)
InterWest Bancorp, Inc. ................................ 4,700 $ 177,425
-----------
Finance - SBIC & Commercial (0.70%)
CIT Group, Inc. (The) (Class A) * ...................... 4,000 129,000
-----------
Insurance - Accident & Health (2.89%)
Provident Cos., Inc. ................................... 13,000 502,125
Summit Holdings Southeast, Inc. * ...................... 1,400 31,325
-----------
533,450
-----------
Insurance - Life (1.67%)
ARM Financial Group, Inc. (Class A) .................... 11,700 308,588
-----------
Insurance - Multi Line (3.00%)
Allmerica Financial Corp. .............................. 11,100 554,306
-----------
Insurance - Property & Casualty (15.20%)
Aetna, Inc. ............................................ 5,500 388,094
Commerce Group, Inc. ................................... 2,000 65,250
Donegal Group, Inc. .................................... 5,000 110,625
Frontier Insurance Group, Inc. ......................... 4,800 109,800
General Re Corp. ....................................... 2,000 424,000
Penn-America Group, Inc. ............................... 4,800 98,400
RLI Corp. .............................................. 5,000 249,063
SAFECO Corp. ........................................... 10,500 511,875
St. Paul Cos., Inc. .................................... 6,600 541,613
Travelers Property Casualty Corp. (Class A) ............ 7,000 308,000
-----------
2,806,720
-----------
REIT - Equity Trust (7.43%)
Brandywine Realty Trust ................................ 8,000 201,000
Excel Realty Trust, Inc. ............................... 8,000 252,000
Glenborough Realty Trust, Inc. ......................... 1,500 44,437
Prentiss Properties Trust .............................. 7,200 201,150
SL Green Realty Corp. .................................. 4,500 116,719
Spieker Properties, Inc. ............................... 13,000 557,375
-----------
1,372,681
-----------
TOTAL COMMON STOCKS
(Cost $15,087,930) ( 90.12%) 16,641,612
-------- -----------
SEE NOTES TO FINANCIAL STATEMENTS.
52
<PAGE>
==============================FINANCIAL STATEMENTS==============================
John Hancock Funds - Declaration Trust -- V.A. Financial Industries Fund
NUMBER OF MARKET
ISSUER, DESCRIPTION SHARES VALUE
- ------------------- ------ -----
RIGHT
Finance - SBIC & Commercial (0.72%)
Newcourt Credit Group, Inc. ............................ 4,000 $ 132,213
-----------
TOTAL RIGHT
(Cost $130,312) ( 0.72%) 132,213
------- -----------
TOTAL COMMON STOCKS AND RIGHT
(Cost $15,218,242) (90.84%) 16,773,825
-------- -----------
INTEREST PAR VALUE
RATE (000s OMITTED)
---- --------------
SHORT-TERM INVESTMENTS
Joint Repurchase Agreements (9.12%)
Investment in a joint repurchase
agreement transaction with HSBS
Securities, Inc. - Dated 12-31-97,
Due 01-02-98 (Secured by U.S.
Treasury Bonds, 7.25% thru 13.25%
due 11-15-08 thru 11-15-16, and
U.S. Treasury Note 6.50%
due 04-30-99) - Note A................ 6.60% $1,683 1,683,000
----------
Corporate Savings Account (0.00%)
Investors Bank & Trust Company
Daily Interest Savings Account
Current Rate 4.95%............................... 791
-----------
TOTAL SHORT-TERM INVESTMENTS ( 9.12%) 1,683,791
------- -----------
TOTAL INVESTMENTS ( 99.96%) 18,457,616
------- -----------
OTHER ASSETS AND LIABILITIES, NET ( 0.04%) 7,825
------- -----------
TOTAL NET ASSETS (100.00%) $18,465,441
======= ===========
* 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
December 31, 1997
- --------------------------------------------------------------------------------
NUMBER OF MARKET
ISSUER, DESCRIPTION SHARES VALUE
- ------------------- ------ -----
COMMON STOCKS
Advertising (2.03%)
Lamar Advertising Co.* ............................... 900 $ 35,775
Outdoor Systems, Inc.* ............................... 450 17,269
Princeton Video Image, Inc.* ......................... 1,000 9,375
Universal Outdoor Holdings, Inc.* .................... 300 15,600
-----------
78,019
-----------
Aerospace (0.51%)
AAR Corp. ............................................ 500 19,375
-----------
Agricultural Operations (0.59%)
Scheid Vineyards, Inc. (Class A)* .................... 2,500 22,812
-----------
Automobile/Trucks (1.59%)
Avis Rent A Car, Inc.* ............................... 700 22,356
Budget Group, Inc. (Class A)* ........................ 700 24,194
Special Devices, Inc.* ............................... 300 8,775
United Rentals, Inc.* ................................ 300 5,794
-----------
61,119
-----------
Beverages (1.16%)
Beringer Wine Estates Holdings, Inc. (Class B)* ...... 400 15,200
Mondavi (Robert) Corp. (Class A)* .................... 600 29,250
-----------
44,450
-----------
Broker Services (0.77%)
E*TRADE Group, Inc.* ................................. 700 16,100
Interra Financial, Inc. .............................. 200 13,800
-----------
29,900
-----------
Building (0.61%)
UNIFAB International, Inc.* .......................... 100 1,925
Vari-Lite International, Inc.* ....................... 1,800 21,487
-----------
23,412
-----------
Business Services - Misc (6.62%)
Abacus Direct Corp.* ................................. 700 28,700
Caribiner International, Inc.* ....................... 500 22,250
Coinstar, Inc.* ...................................... 1,600 14,600
CORESTAFF, Inc.* ..................................... 750 19,875
Hagler Bailly, Inc.* ................................. 1,200 27,000
Hall, Kinion & Associates, Inc.* ..................... 100 2,187
Mac-Gray Corp.* ...................................... 1,400 21,875
Market Facts, Inc.* .................................. 1,300 21,775
MAXIMUS, Inc.* ....................................... 100 2,419
On Assignment, Inc.* ................................. 1,100 29,150
Pre-Paid Legal Services, Inc.* ....................... 700 23,931
The Schedule of Investments is a complete list of all securities owned by the
V.A. Emerging Growth Fund on December 31, 1997. It's divided into three main
categories: common stocks, unit and short-term investments. Common stocks and
unit 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
- ------------------- ------ -----
Business Services - Misc (continued)
ProBusiness Services, Inc.* .......................... 1,000 $ 22,875
Securacom, Inc.* ..................................... 1,800 17,550
-----------
254,187
-----------
Computers (9.01%)
Advent Software, Inc.* ............................... 700 20,037
Aris Corp.* .......................................... 1,100 23,100
Aspect Development, Inc.* ............................ 400 20,800
Box Hill Systems Corp.* .............................. 1,000 10,438
CBT Group PLC, (American Depository
Receipt)* (Ireland) ................................. 300 24,638
Concord Communications, Inc.* ........................ 100 2,075
Discreet Logic, Inc.* ................................ 700 15,356
FlexiInternational Software, Inc.* ................... 100 1,550
Information Management Resources, Inc.* .............. 750 28,125
JDA Software Group, Inc.* ............................ 500 17,500
National Computer Systems, Inc. ...................... 600 21,150
National Instruments Corp.* .......................... 600 17,400
Network Appliance, Inc.* ............................. 1,200 42,600
PRT Group, Inc.* ..................................... 900 10,237
SCM Microsystems, Inc.* .............................. 800 19,200
SPR, Inc.* ........................................... 1,000 17,000
Symantec Corp.* ...................................... 1,300 28,519
Visio Corp.* ......................................... 600 23,025
Xionics Document Technologies, Inc.* ................. 900 3,431
-----------
346,181
-----------
Consumer Products Misc. (0.33%)
Samsonite Corp.* ..................................... 400 12,650
-----------
Containers (0.19%)
Ivex Packaging Corp.* ................................ 300 7,200
-----------
Electronics (5.35%)
Aavid Thermal Technologies, Inc.* ................... 800 19,200
Aeroflex, Inc.* ...................................... 1,600 14,000
Aseco Corp * ......................................... 600 5,118
ATMI, Inc.* .......................................... 600 14,550
Aztec Manufacturing Co. .............................. 1,100 15,400
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
- ------------------- ------ -----
Electronics (continued)
FARO Technologies, Inc.* ............................... 1,000 $ 11,625
Integrated Circuit Systems, Inc.* ..................... 600 17,100
Level One Communications, Inc.* ........................ 600 16,950
Metromedia Fiber Network, Inc. (Class A)* .............. 1,600 26,600
MMC Networks, Inc.* .................................... 100 1,700
PRI Automation, Inc.* .................................. 400 11,550
Sawtek, Inc.* .......................................... 600 15,825
SeaMED Corp.* .......................................... 1,300 24,050
Semtech Corp.* ......................................... 300 11,737
-----------
205,405
-----------
Finance (1.92%)
FIRSTPLUS Financial Group, Inc.* ....................... 400 15,350
LINC Capital, Inc.* .................................... 1,400 27,475
Medallion Financial Corp. .............................. 1,400 30,800
-----------
73,625
-----------
Food (1.61%)
American Italian Pasta Co. (Class A)* .................. 900 22,500
Fine Host Corp.* ....................................... 900 9,112
Suiza Foods Corp.* ..................................... 510 30,377
-----------
61,989
-----------
Funeral Services & Related (0.57%)
Rock of Ages Corp.* .................................... 1,400 21,700
-----------
Insurance (3.85%)
Capital Re Corp. ....................................... 200 12,412
CMAC Investment Corp. .................................. 500 30,188
ESG Re Ltd.* (Bermuda) ................................. 200 4,700
Hartford Life, Inc. (Class A) .......................... 500 22,656
Healthcare Recoveries, Inc.* ........................... 1,100 24,475
Life Re Corp. .......................................... 500 32,594
Western National Corp. ................................. 700 20,737
-----------
147,762
-----------
Lasers - Systems / Components (0.36%)
General Scanning, Inc.* ................................ 800 13,800
-----------
Leasing Companies (0.74%)
Rollins Truck Leasing Corp. ............................ 1,600 28,600
-----------
Leisure (3.66%)
Ballantyne of Omaha, Inc.* ............................. 1,500 27,000
Cinar Films, Inc. (Class B)* (Canada) .................. 700 27,213
GameTech International Inc.* ........................... 900 9,675
Premier Parks, Inc.* ................................... 700 28,350
Silverleaf Resorts, Inc.* .............................. 1,100 26,950
Travel Services International, Inc.* ................... 900 21,375
-----------
140,563
-----------
NUMBER OF MARKET
ISSUER, DESCRIPTION SHARES VALUE
- ------------------- ------ -----
Machinery (1.51%)
Applied Power Inc. (Class A) ........................... 400 $ 27,600
Gardner Denver Machinery, Inc.* ........................ 1,200 30,375
-----------
57,975
-----------
Media (3.07%)
Central Newspapers, Inc. (Class A) ..................... 300 22,181
CMP Media, Inc. (Class A)* ............................. 600 10,350
Heftel Broadcasting Corp. (Class A)* ................... 800 37,400
Jacor Communications, Inc.* ............................ 200 10,625
Network Event Theater, Inc.* ........................... 3,000 14,250
Petersen Cos., Inc. (The) (Class A)* ................... 100 2,300
Univision Communications, Inc. (Class A)* .............. 300 20,944
-----------
118,050
-----------
Medical (11.57%)
Affymetrix, Inc.* ...................................... 800 24,900
American Healthcorp, Inc.* ............................. 1,800 12,600
Amsurg Corp. (Class A)* ................................ 165 1,238
Amsurg Corp. (Class B)* ................................ 1,068 8,277
Andrx Corp.* ........................................... 800 27,400
ESC Medical Systems Ltd.* (Israel) ..................... 500 19,375
Health Care & Retirement Corp.* ........................ 500 20,125
Incyte Pharmaceuticals, Inc.* .......................... 600 27,000
Mentor Corp. ........................................... 800 29,200
MiniMed, Inc.* ......................................... 700 27,213
Monarch Dental Corp.* .................................. 1,000 13,250
Myriad Genetics, Inc.* ................................. 700 16,975
Ocular Sciences, Inc.* ................................. 900 23,625
PAREXEL International Corp.* ........................... 700 25,900
PathoGenesis Corp.* .................................... 600 22,275
Perclose, Inc.* ........................................ 700 13,475
Protein Design Labs, Inc.* ............................. 400 16,000
Sano Corp.* ............................................ 600 19,875
SONUS Pharmaceuticals, Inc.* ........................... 700 23,188
Sunrise Assisted Living, Inc.* ......................... 700 30,187
Universal Health Services, Inc. (Class B)* ............. 300 15,112
Wesley Jessen VisionCare, Inc.* ........................ 700 27,300
-----------
444,490
-----------
Metal (0.49%)
Maverick Tube Corp.* ................................... 700 17,719
Prudential Steel Ltd. (Canada) ......................... 100 978
-----------
18,697
-----------
Office (0.52%)
Shelby Williams Industries, Inc. ....................... 1,200 19,800
-----------
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
- ------------------- ------ -----
Oil & Gas (5.18%)
Brown (Tom) Inc.* ...................................... 900 $ 17,325
Core Laboratories N.V.* (Netherlands) .................. 600 10,838
Dawson Production Services, Inc.* ..................... 700 12,162
Dril-Quip, Inc.* ....................................... 100 3,513
Eagle Geophysical, Inc.* ............................... 900 11,700
IRI International Corp.* ............................... 200 2,800
Key Energy Group, Inc.* ................................ 700 15,181
National-Oilwell, Inc.* ................................ 700 23,931
Ocean Energy, Inc.* .................................... 300 14,794
Precision Drilling Corp.* (Canada) ..................... 700 17,062
Pride International, Inc.* ............................. 600 15,150
Santa Fe Energy Resources, Inc.* ....................... 1,900 21,375
Stone Energy Corp.* .................................... 600 20,100
TransCoastal Marine Services, Inc.* .................... 100 1,425
Vintage Petroleum, Inc. ................................ 600 11,400
-----------
198,756
-----------
Pollution Control (4.83%)
American Disposal Services, Inc.* ..................... 700 25,550
Eastern Environmental Services, Inc.* .................. 800 17,600
Innovative Valve Technologies, Inc.* ................... 1,400 28,350
ITEQ, Inc.* ............................................ 2,800 32,200
Newpark Resources, Inc.* ............................... 1,800 31,500
Philip Services Corp.* (Canada) ........................ 2,100 30,188
Superior Services, Inc.* ............................... 700 20,213
-----------
185,601
-----------
Printing - Commercial (0.47%)
Mail-Well, Inc.* ....................................... 450 18,225
-----------
Real Estate Investment Trust (3.01%)
Arden Realty Group, Inc. ............................... 800 24,600
Crescent Real Estate Equities Co. ...................... 400 15,750
Equity Office Properties Trust ......................... 563 17,754
Glenborough Realty Trust, Inc. ......................... 1,000 29,625
Mack-Cali Realty Corp. ................................. 400 16,400
Starwood Lodging Trust ................................. 200 11,575
-----------
115,704
-----------
Retail (12.34%)
Abercrombie & Fitch Co.* ............................... 800 25,000
Arbor Drugs, Inc. ...................................... 1,200 22,200
Big Dog Holdings, Inc.* ................................ 1,200 6,750
Brylane Inc.* .......................................... 500 24,625
CKE Restaurants, Inc. .................................. 500 21,063
Concepts Direct, Inc.* ................................. 800 16,800
Cost Plus, Inc.* ....................................... 800 23,200
NUMBER OF MARKET
ISSUER, DESCRIPTION SHARES VALUE
- ------------------- ------ -----
Retail (continued)
Dominick's Supermarkets, Inc.* ......................... 700 $ 25,550
Famous Dave's of America, Inc.* ........................ 1,100 9,830
Fresh America Corp.* ................................... 800 15,400
Furniture Brands International, Inc.* .................. 1,200 24,600
Genovese Drug Stores, Inc. (Class A) ................... 660 11,303
Hibbett Sporting Goods, Inc.* .......................... 1,000 22,000
Il Fornaio (America) Corp.* ............................ 1,000 14,875
Keystone Automotive Industries, Inc.* .................. 1,000 23,750
Linens `N Things, Inc.* ................................ 500 21,813
Meadowcraft, Inc. ...................................... 800 9,400
99 Cents Only Stores* .................................. 975 28,763
Peapod, Inc.* .......................................... 1,700 11,050
Proffitt's, Inc.* ...................................... 800 22,750
Quality Food Centers, Inc.* ............................ 500 33,500
Rainforest Cafe, Inc.* ................................. 600 19,800
Stage Stores, Inc.* .................................... 600 22,425
Track `n Trail Inc.* ................................... 1,600 14,200
U.S.A. Floral Products, Inc.* .......................... 100 1,575
White Cap Industries, Inc.* ............................ 100 1,862
-----------
474,084
-----------
Schools/Education (1.31%)
EduTrek International, Inc. (Class A)* ................. 700 18,200
ITI Education Corp.* (Canada) .......................... 2,000 12,159
Strayer Education, Inc. ................................ 600 19,800
-----------
50,159
-----------
Shoes & Related Apparel (0.41%)
Wolverine World Wide, Inc. ............................. 700 15,838
-----------
Telecommunications (2.87%)
Comverse Technology, Inc.* ............................. 500 19,500
Innova Corp.* .......................................... 1,200 18,300
MRV Communications, Inc.* .............................. 700 16,713
REMEC, Inc.* ........................................... 950 21,375
Tel-Save Holdings, Inc.* ............................... 600 11,925
WinStar Communications, Inc.* .......................... 900 22,443
-----------
110,256
-----------
Textile (1.80%)
Culp, Inc. ............................................. 1,200 24,000
Cutter & Buck, Inc.* ................................... 1,300 24,213
Tefron Ltd.* (Israel) .................................. 900 20,700
-----------
68,913
-----------
Transport (3.40%)
C.H. Robinson Worldwide, Inc. .......................... 1,100 24,613
Carey International, Inc.* ............................. 1,000 15,125
SEE NOTES TO FINANCIAL STATEMENTS.
56
<PAGE>
==============================FINANCIAL STATEMENTS==============================
John Hancock Funds - Declaration Trust -- V.A. Emerging Growth Fund
NUMBER OF MARKET
ISSUER, DESCRIPTION SHARES VALUE
- ------------------- ------ -----
Transport (continued)
Eagle USA Airfreight, Inc.* ............................ 600 $ 17,100
Jevic Transportation, Inc.* ............................ 1,500 24,188
MotivePower Industries, Inc.* .......................... 1,100 25,575
Simon Transportation Services Inc.* .................... 1,000 24,000
-----------
130,601
-----------
TOTAL COMMON STOCKS
(Cost $3,298,160) (94.25%) 3,619,898
------- -----------
UNIT
Real Estate Investment Trust (0.47%)
Hanover Capital Mortgage Holdings, Inc.* ............... 1,100 18,150
-----------
TOTAL UNIT
(Cost $16,500) ( 0.47%) 18,150
------- -----------
TOTAL COMMON STOCKS AND UNIT
(Cost $3,314,660) (94.72%) 3,638,048
------- -----------
INTEREST PAR VALUE MARKET
ISSUER, DESCRIPTION RATE (000s OMITTED) VALUE
- ------------------- ---- -------------- -----
SHORT-TERM INVESTMENTS
Joint Repurchase Agreement (5.78%)
Investment in a joint repurchase
agreement transaction with
HSBC Securities, Inc. -
Dated 12-31-97, Due 01-02-98
(Secured by U.S. Treasury Bonds
7.25% thru 13.25% Due 11-15-08 thru
11-15-16, and U.S. Treasury Note
6.50% due 04-30-99 - Note A 6.60% $222 $ 222,000
-----------
Corporate Savings Account (0.01%)
Investors Bank & Trust Company
Daily Interest Savings Account
Current Rate 4.95%............... 292
-----------
TOTAL SHORT-TERM INVESTMENTS ( 5.79%) 222,292
------- -----------
TOTAL INVESTMENTS (100.51%) 3,860,340
------- -----------
OTHER ASSETS AND LIABILITIES, NET ( 0.51%) ( 19,529)
------- -----------
TOTAL NET ASSETS ( 100%) $ 3,840,811
======= ===========
* 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.
57
<PAGE>
==============================FINANCIAL STATEMENTS==============================
John Hancock Funds - Declaration Trust -- V.A. Growth Fund
Schedule of Investments
December 31, 1997
- --------------------------------------------------------------------------------
NUMBER OF MARKET
ISSUER, DESCRIPTION SHARES VALUE
- ------------------- ------ -----
COMMON STOCKS
Advertising (1.90%)
Outdoor Systems, Inc.* ................................. 1,850 $ 70,994
-----------
Beverages (1.71%)
Beringer Wine Estates Holdings, Inc. (Class B)* ........ 400 15,200
Mondavi (Robert) Corp. (Class A)* ..................... 1,000 48,750
-----------
63,950
-----------
Commercial Services (3.03%)
Corrections Corporation of America* .................... 1,700 63,006
EduTrek International, Inc. (Class A)* ................. 200 5,200
Market Facts, Inc. ..................................... 400 6,700
Securacom, Inc.* ....................................... 3,900 38,025
-----------
112,931
-----------
Computers (19.38%)
Advantage Learning Systems, Inc.* ..................... 100 2,137
America Online, Inc.* .................................. 700 62,431
BMC Software, Inc.* .................................... 900 59,063
CBT Group Plc, American
Depository Receipt (Ireland)* .......................... 800 65,700
Discreet Logic, Inc.* .................................. 2,000 43,875
E*TRADE Group, Inc.* ................................... 1,500 34,500
Edwards (J.D.) & Co.* .................................. 1,100 32,450
EMC Corp.* ............................................. 1,400 38,413
HBO & Co. .............................................. 1,200 57,600
Iomega Corp.* .......................................... 4,400 54,725
Network Appliance, Inc.* ............................... 2,600 92,300
SCM Microsystems, Inc.* ................................ 100 2,400
Security Dynamics Technologies, Inc.* .................. 1,800 64,350
SPR Inc.* .............................................. 100 1,700
Symantec Corp.* ........................................ 3,000 65,813
Visio Corp.* ........................................... 1,200 46,050
-----------
723,507
-----------
Electronics (6.13%)
ATMI, Inc.* ............................................ 1,600 38,800
General Scanning, Inc.* ................................ 100 1,725
Level One Communications, Inc.* ........................ 1,250 35,313
Metromedia Fiber Network, Inc. (Class A)* .............. 3,800 63,175
Semtech Corp.* ......................................... 1,000 39,125
Teradyne, Inc.* ........................................ 400 12,800
Vitesse Semiconductor Corp.* ........................... 1,000 37,750
-----------
228,688
-----------
Finance (2.09%)
FIRSTPLUS Financial Group, Inc.* ....................... 600 23,025
The Schedule of Investments is a complete list of all securities owned by the V.
A. Growth Fund on December 31, 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
- ------------------- ------ -----
Finance (continued)
Medallion Financial Corp. .............................. 2,500 $ 55,000
-----------
78,025
-----------
Food (1.90%)
Suiza Foods Corp.* ..................................... 1,190 70,879
-----------
Insurance (2.58%)
Ace, Ltd. (Bermuda) .................................... 500 48,250
Progressive Corp. ...................................... 400 47,950
-----------
96,200
-----------
Leisure (3.78%)
Carnival Corp. (Class A) ............................... 1,300 71,987
Royal Caribbean Cruises Ltd. ........................... 1,300 69,306
-----------
141,293
-----------
Machinery (1.42%)
Gardner Denver Machinery, Inc.* ........................ 2,100 53,156
-----------
Media (8.29%)
Central Newspapers, Inc. (Class A) ..................... 1,100 81,331
Clear Channel Communications, Inc.* .................... 900 71,494
Heftel Broadcasting Corp. (Class A)* ................... 1,600 74,800
Jacor Communications, Inc.* ............................ 1,500 79,687
Petersen Companies, Inc. (The) (Class A)* .............. 100 2,300
-----------
309,612
-----------
Medical (7.56%)
Health Care & Retirement Corp.* ........................ 1,400 56,350
Health Management Associates, Inc. (Class A)* .......... 2,250 56,813
Sunrise Assisted Living, Inc.* ......................... 1,500 64,687
Warner-Lambert Co. ..................................... 400 49,600
Wesley Jessen VisionCare, Inc.* ........................ 1,400 54,600
-----------
282,050
-----------
Office (1.58%)
HON INDUSTRIES, Inc. ................................... 1,000 59,000
-----------
Oil & Gas (7.21%)
ENSCO International, Inc. .............................. 1,500 50,250
EVI, Inc.* ............................................. 600 31,050
Falcon Drilling Company, Inc.* ......................... 1,600 56,100
IRI International Corp.* ............................... 200 2,800
Marine Drilling Companies, Inc.* ....................... 1,600 33,200
National-Oilwell, Inc.* ................................ 1,800 61,537
Precision Drilling Corp.* (Canada) ..................... 1,400 34,125
-----------
269,062
-----------
SEE NOTES TO FINANCIAL STATEMENTS.
58
<PAGE>
==============================FINANCIAL STATEMENTS==============================
John Hancock Funds - Declaration Trust -- V.A. Growth Fund
NUMBER OF MARKET
ISSUER, DESCRIPTION SHARES VALUE
- ------------------- ------ -----
Pollution Control (5.89%)
ITEQ, Inc.* ........................................... 4,300 $ 49,450
Newpark Resources, Inc.* .............................. 4,400 77,000
Philip Services Corp.* (Canada) ....................... 4,000 57,500
US Filter Corp.* ...................................... 1,200 35,925
-----------
219,875
-----------
Retail (11.77%)
Borders Group, Inc. * ................................. 1,200 37,575
Consolidated Stores Corp.* ............................ 1,375 60,414
Costco Companies, Inc.* ............................... 1,300 58,013
Dollar General Corp. .................................. 1,650 59,813
Home Depot, Inc. (The) ................................ 1,150 67,706
Meyer (Fred), Inc. * .................................. 1,600 58,200
Pier 1 Imports, Inc. .................................. 1,600 36,200
Starbucks Corp.* ...................................... 1,600 61,400
-----------
439,321
-----------
Schools / Education (1.90%)
Apollo Group, Inc. (Class A)*` ........................ 1,500 70,875
-----------
Telecommunications (7.69%)
Comverse Technology, Inc.* ............................ 1,300 50,700
Innova Corp.* ......................................... 2,000 30,500
Nextel Communications, Inc. (Class A)* ................ 2,100 54,600
Qwest Communications International, Inc.* ............. 900 53,550
Teligent, Inc. (Class A)* ............................. 100 2,463
Tellabs, Inc.* ........................................ 1,000 52,875
WorldCom, Inc.* ....................................... 1,400 42,350
-----------
287,038
-----------
TOTAL COMMON STOCKS
(Cost $3,063,484) (95.81%) 3,576,456
------- -----------
INTEREST PAR VALUE
ISSUER, DESCRIPTION RATE (000s OMITTED)
- ------------------- ---- --------------
SHORT-TERM INVESTMENTS
Joint Repurchase Agreement (5.71%)
Investment in a joint repurchase
agreement transaction with HSBC
Securities, Inc. - Dated 12-31-97,
Due 01-02-98 (Secured by U.S.
Treasury Bonds, 7.25% thru 13.25%
due 11-15-08 thru 11-15-16,
and U.S. Treasury Note, 6.50%
Due 04-30-99), - Note A............. 6.60% $213 213,000
---------
MARKET
ISSUER, DESCRIPTION VALUE
- ------------------- -----
Corporate Savings Account (0.02%)
Investors Bank & Trust Company
Daily Interest Savings Account
Current Rate 4.95%......... $ 576
-----------
TOTAL SHORT-TERM INVESTMENTS ( 5.73%) 213,576
------- -----------
TOTAL INVESTMENTS (101.54%) 3,790,032
------- -----------
OTHER ASSETS AND LIABILITIES, NET ( 1.54%) ( 57,320)
------- -----------
TOTAL NET ASSETS (100.00%) $ 3,732,712
======= ===========
*Non-income producing security.
The percentage shown for each investment category is the total value of that
category as a percentage of the net assets of the Fund.
Portfolio Concentration (Unaudited)
- --------------------------------------------------------------------------------
The V. A. Growth Fund invests primarily in securities issued in the United
States of America. The performance of the Fund is closely tied to the economic
and financial conditions of the countries within which it invests. The
concentration of investments by individual securities held by the Fund is shown
in the schedule of investments. In addition, concentration of investments can be
aggregated by various countries. The table below shows the percentages of the
Fund's investments at December 31, 1997 assigned to country categories.
MARKET VALUE AS A
COUNTRY DIVERSIFICATION PERCENTAGE OF FUND'S NET ASSETS
- ----------------------- -------------------------------
Bermuda........................... 1.29%
Canada............................ 2.45
Ireland........................... 1.76
United States..................... 96.04
------
TOTAL INVESTMENTS 101.54%
======
SEE NOTES TO FINANCIAL STATEMENTS.
59
<PAGE>
==============================FINANCIAL STATEMENTS==============================
John Hancock Funds - Declaration Trust -- V.A. Independence Equity Fund
Schedule of Investments
December 31, 1997
- --------------------------------------------------------------------------------
NUMBER OF MARKET
ISSUER, DESCRIPTION SHARES VALUE
- ------------------- ------ -----
COMMON STOCKS
Aerospace (2.05%)
Northrop Grumman Corp. ................................ 200 $ 23,000
Raytheon Co. (Class A) ................................ 64 3,145
United Technologies Corp. ............................. 2,100 152,906
-----------
179,051
-----------
Automobile/Trucks (3.10%)
Dana Corp. ............................................ 500 23,750
Ford Motor Co. ........................................ 3,700 180,144
General Motors Corp. .................................. 1,100 66,688
-----------
270,582
-----------
Banks - United States (7.28%)
BankAmerica Corp. ..................................... 1,700 124,100
Bankers Trust New York Corp. .......................... 600 67,462
Citicorp .............................................. 1,500 189,656
Comerica, Inc. ........................................ 1,400 126,350
Norwest Corp. ......................................... 3,000 115,875
U.S. Bancorp .......................................... 100 11,194
-----------
634,637
-----------
Beverages (2.38%)
PepsiCo, Inc. ......................................... 5,700 207,694
-----------
Building (0.71%)
Centex Corp. .......................................... 100 6,294
Clayton Homes, Inc. ................................... 250 4,500
Masco Corp. ........................................... 1,000 50,875
-----------
61,669
-----------
Business Services - Misc (0.18%)
Dun & Bradstreet Corp. ................................ 500 15,469
-----------
Chemicals (2.05%)
Air Products & Chemicals, Inc. ........................ 1,200 98,700
Millennium Chemicals, Inc. ............................ 1,100 25,919
Praxair, Inc. ......................................... 1,200 54,000
-----------
178,619
-----------
Computers (4.91%)
Cadence Design Systems, Inc.* ......................... 1,000 24,500
Compaq Computer Corp.* ................................ 1,500 84,656
Computer Associates International, Inc. ............... 1,250 66,094
Hewlett-Packard Co. ................................... 700 43,750
Microsoft Corp.* ...................................... 1,400 180,950
Oracle Corp.* ......................................... 1,250 27,891
-----------
427,841
-----------
The Schedule of Investments is a complete list of all securities owned by the V.
A. Independence Equity Fund on December 31, 1997. It is divided into two main
catagories: common stocks and short-term investments. Common stocks are further
broken down by industry group. Short-term investments, which represent the
Fund's "cash" position, are listed last.
NUMBER OF MARKET
ISSUER, DESCRIPTION SHARES VALUE
- ------------------- ------ -----
Containers (0.17%)
Owens-Illinois, Inc.* ................................. 400 $ 15,175
-----------
Cosmetics & Personal Care (1.67%)
Avon Products, Inc. ................................... 1,100 67,512
Dial Corp. (The) ...................................... 3,100 64,519
Revlon, Inc. (Class A) * .............................. 400 14,125
-----------
146,156
-----------
Diversified Operations (3.31%)
Canadian Pacific, Ltd. (Canada) ....................... 600 16,350
Corning, Inc. ......................................... 1,400 51,975
Du Pont (E.I.) De Nemours & Co. ....................... 2,000 120,125
National Service Industries, Inc. ..................... 600 29,738
Ogden Corp. ........................................... 300 8,456
Textron, Inc. ......................................... 1,000 62,500
-----------
289,144
-----------
Electronics (5.47%)
General Electric Co. .................................. 2,700 198,113
Honeywell, Inc. ....................................... 2,000 137,000
Intel Corp. ........................................... 500 35,125
Parker-Hannifin Corp. ................................. 600 27,525
Raychem Corp. ......................................... 900 38,756
Texas Instruments, Inc. ............................... 900 40,500
-----------
477,019
-----------
Finance (2.95%)
American Express Co. .................................. 900 80,325
Household International, Inc. ......................... 500 63,781
MBNA Corp. ............................................ 1,100 30,044
Morgan Stanley, Dean Witter, Discover & Co. ........... 1,400 82,775
-----------
256,925
-----------
Food (1.36%)
ConAgra, Inc. ......................................... 1,200 39,375
Quaker Oats Co. ....................................... 1,500 79,125
-----------
118,500
-----------
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
- ------------------- ------ -----
Household (0.32%)
Tupperware Corp. ...................................... 1,000 $ 27,875
-----------
Instruments - Scientific (0.32%)
Perkin-Elmer Corp. .................................... 400 28,425
-----------
Insurance (7.74%)
American International Group, Inc. .................... 1,450 157,687
CIGNA Corp. ........................................... 300 51,919
Equitable Cos., Inc. (The) ............................ 600 29,850
General Re Corp. ...................................... 800 169,600
Hartford Financial Services Group, Inc. (The) ......... 500 46,781
Marsh & McLennan Cos., Inc. ........................... 1,200 89,475
Travelers Group, Inc. ................................. 2,400 129,300
-----------
674,612
-----------
Leisure (1.15%)
Cendant Corp. ......................................... 2,922 100,460
-----------
Machinery (1.02%)
Cooper Industries, Inc. ............................... 1,100 53,900
Deere & Co. ........................................... 600 34,987
-----------
88,887
-----------
Medical (10.74%)
Abbott Laboratories ................................... 1,800 118,012
Allegiance Corp. ...................................... 600 21,262
Becton, Dickinson & Co. ............................... 1,000 50,000
Bristol-Myers Squibb Co. .............................. 1,400 132,475
Cardinal Health, Inc. ................................. 1,000 75,125
Glaxo Wellcome PLC American Depository
Receipt (ADR) (United Kingdom) ....................... 500 23,938
Health Management Associates, Inc.
(Class A)* ........................................... 1,000 25,250
HEALTHSOUTH Corp.* .................................... 2,700 74,925
Johnson & Johnson ..................................... 1,800 118,575
Merck & Co., Inc. ..................................... 1,800 191,250
Schering-Plough Corp. ................................. 1,700 105,613
-----------
936,425
-----------
Mortgage Banking (0.91%)
Fannie Mae ............................................ 1,400 79,888
-----------
Office (1.40%)
Avery Dennison Corp. .................................. 300 13,425
Danka Business Systems PLC (ADR)
(United Kingdom) ..................................... 600 9,562
Pitney Bowes, Inc. .................................... 1,100 98,931
-----------
121,918
-----------
NUMBER OF MARKET
ISSUER, DESCRIPTION SHARES VALUE
- ------------------- ------ -----
Oil & Gas (9.73%)
Anadarko Petroleum Corp. .............................. 200 $ 12,137
Atlantic Richfield Co. ................................ 1,100 88,137
Baker Hughes, Inc. .................................... 700 30,537
British Petroleum Co. PLC (ADR)
(United Kingdom) ..................................... 1,000 79,687
Chevron Corp. ......................................... 1,400 107,800
Dresser Industries, Inc. .............................. 700 29,356
El Paso Natural Gas Co. ............................... 300 19,950
Halliburton Co. ....................................... 300 15,581
Mobil Corp. ........................................... 1,300 93,844
Phillips Petroleum Co. ................................ 2,100 102,113
Schlumberger, Ltd. .................................... 1,100 88,550
Texaco Inc. ........................................... 2,200 119,625
USX - Marathon Group .................................. 1,800 60,750
-----------
848,067
-----------
Paper & Paper Products (1.21%)
Fort James Corp. ...................................... 1,300 49,725
International Paper Co. ............................... 1,300 56,063
-----------
105,788
-----------
Pollution Control (0.83%)
Browning-Ferris Industries, Inc. ...................... 1,000 37,000
USA Waste Services, Inc.* ............................. 900 35,325
-----------
72,325
-----------
Retail (4.60%)
Costco Cos., Inc.* .................................... 700 31,237
Dayton Hudson Corp. ................................... 1,000 67,500
Home Depot, Inc. ...................................... 2,200 129,525
Lowe's Cos., Inc. ..................................... 1,200 57,225
Staples, Inc.* ........................................ 1,100 30,525
TJX Cos., Inc. ........................................ 1,200 41,250
Wal-Mart Stores, Inc. ................................. 1,100 43,381
-----------
400,643
-----------
Soap & Cleaning Preparations (0.92%)
Proctor & Gamble Co. (The) ............................ 1,000 79,813
-----------
Steel (0.47%)
British Steel PLC (ADR) (United Kingdom) .............. 1,900 40,731
-----------
Telecommunications (2.78%)
Harris Corp. .......................................... 1,000 45,875
Lucent Technologies, Inc. ............................. 2,459 196,413
-----------
242,288
-----------
SEE NOTES TO FINANCIAL STATEMENTS.
61
<PAGE>
==============================FINANCIAL STATEMENTS==============================
John Hancock Funds - Declaration Trust -- V.A. Independence Equity Fund
NUMBER OF MARKET
ISSUER, DESCRIPTION SHARES VALUE
- ------------------- ------ -----
Textile (1.10%)
Jones Apparel Group, Inc.* ............................ 700 $ 30,100
Liz Claiborne, Inc. ................................... 900 37,631
Tommy Hilfiger Corp.* ................................. 800 28,100
-----------
95,831
-----------
Tobacco (0.41%)
Philip Morris Cos., Inc. .............................. 700 31,719
Universal Corp. ....................................... 100 4,113
-----------
35,832
-----------
Transport (1.93%)
Burlington Northern Santa Fe .......................... 900 83,644
Norfolk Southern Corp. ................................ 900 27,731
Southwest Airlines Co. ................................ 2,300 56,638
-----------
168,013
-----------
Utilities (7.16%)
Baltimore Gas & Electric Co. .......................... 700 23,844
Bell Atlantic Corp. ................................... 2,000 182,000
Consolidated Natural Gas Co. .......................... 400 24,200
Dominion Resources, Inc. .............................. 1,400 59,587
Entergy Corp. ......................................... 400 11,975
Florida Progress Corp. ................................ 1,700 66,725
FPL Group, Inc. ....................................... 1,800 106,537
GTE Corp. ............................................. 2,700 141,075
Texas Utilities Co. ................................... 200 8,313
-----------
624,256
-----------
TOTAL COMMON STOCKS
(Cost $7,421,194) (92.33%) 8,050,558
------- -----------
INTEREST PAR VALUE MARKET
ISSUER, DESCRIPTION RATE (000s OMITTED) VALUE
- ------------------- ---- -------------- -----
SHORT-TERM INVESTMENTS
Joint Repurchase Agreement (9.58%)
Investment in a joint repurchase
agreement transaction with
HSBC Securities, Inc. -
Dated 12-31-97, Due 01-02-98
(Secured by U. S. Treasury Bonds,
7.25% thru 13.25%, due
11-15-08 thru 11-15-16, and
by U.S. Treasury Note, 6.50%
due 04-30-99 - Note A............... 6.60% $835 $ 835,000
----------
Corporate Savings Account (0.00%)
Investors Bank & Trust Company
Daily Interest Savings Account
Current Rate 4.95%.................. 157
---------
TOTAL SHORT-TERM INVESTMENTS ( 9.58%) 835,157
------- -----------
TOTAL INVESTMENTS (101.91%) 8,885,715
------- -----------
OTHER ASSETS AND LIABILITIES, NET ( 1.91%) ( 166,623)
------- -----------
TOTAL NET ASSETS ( 100%) $ 8,719,092
======= ===========
* 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.
62
<PAGE>
==============================FINANCIAL STATEMENTS==============================
John Hancock Funds - Declaration Trust -- V.A. 500 Index Fund
Schedule of Investments
December 31, 1997
- --------------------------------------------------------------------------------
NUMBER OF MARKET
ISSUER, DESCRIPTION SHARES VALUE
- ------------------- ------ -----
COMMON STOCKS
Advertising (0.10%)
Interpublic Group, Inc. ............................... 400 $ 19,925
-----------
Aerospace (1.19%)
Boeing Co. (The) ...................................... 2,400 117,450
General Dynamics Corp. ................................ 200 17,288
Northrop Grumman Corp. ................................ 200 23,000
Raytheon Co. (Class A) ................................ 114 5,622
Raytheon Co. (Class B) ................................ 600 30,300
United Technologies Corp. ............................. 600 43,687
-----------
237,347
-----------
Agricultural Operations (0.11%)
Pioneer Hi-Bred International, Inc. ................... 200 21,450
-----------
Automobile/Trucks (1.87%)
Chrysler Corp. ........................................ 1,800 63,337
Dana Corp. ............................................ 400 19,000
Eaton Corp. ........................................... 300 26,775
Ford Motor Co. ........................................ 3,000 146,062
General Motors Corp. .................................. 1,800 109,125
PACCAR, Inc. .......................................... 200 10,500
-----------
374,799
-----------
Banks - United States (7.78%)
Banc One Corp. ........................................ 1,400 76,037
Bank of New York Co., Inc. ............................ 900 52,031
BankAmerica Corp. ..................................... 1,700 124,100
BankBoston Corp. ...................................... 400 37,575
Bankers Trust New York Corp. .......................... 300 33,731
Barnett Banks, Inc. ................................... 500 35,937
Chase Manhattan Corp. ................................. 1,000 109,500
Citicorp .............................................. 1,100 139,081
Comerica, Inc. ........................................ 300 27,075
CoreStates Financial Corp. ............................ 500 40,031
Fifth Third Bancorp ................................... 400 32,700
First Chicago NBD Corp. ............................... 700 58,450
First Union Corp. ..................................... 1,500 76,875
Fleet Financial Group, Inc. ........................... 600 44,962
Huntington Bancshares, Inc. ........................... 600 21,600
KeyCorp ............................................... 600 42,487
Mellon Bank Corp. ..................................... 600 36,375
Morgan (J.P.) & Co., Inc. ............................. 400 45,150
National City Corp. ................................... 600 39,450
The Schedule of Investments is a complete list of all securities owned by the V.
A. 500 Index Fund on December 31, 1997. It is divided into two main catagories:
common stocks and short-term investments. Common stocks are further broken down
by industry group. Short-term investments, which represent the Fund's "cash"
position, are listed last.
NUMBER OF MARKET
ISSUER, DESCRIPTION SHARES VALUE
- ------------------- ------ -----
Banks - United States (continued)
NationsBank Corp. ..................................... 1,700 $ 103,381
Norwest Corp. ......................................... 1,800 69,525
PNC Bank Corp. ........................................ 800 45,650
Republic New York Corp. ............................... 200 22,838
State Street Corp. .................................... 400 23,275
SunTrust Banks, Inc. .................................. 500 35,687
Synovus Financial Corp. ............................... 500 16,375
U.S. Bancorp .......................................... 600 67,162
Wachovia Corp. ........................................ 400 32,450
Wells Fargo & Co. ..................................... 200 67,887
-----------
1,557,377
-----------
Beverages (3.10%)
Anheuser-Busch Cos., Inc. ............................. 1,200 52,800
Coca-Cola Co. (The) ................................... 6,000 399,750
PepsiCo, Inc. ......................................... 3,700 134,819
Seagram Co. Ltd. (The) (Canada) ....................... 1,000 32,312
-----------
619,681
-----------
Broker Services (0.44%)
Merrill Lynch & Co. ................................... 800 58,350
Schwab (Charles) Corp. ................................ 700 29,356
-----------
87,706
-----------
Building (0.78%)
Black & Decker Corp. .................................. 400 15,625
Fluor Corp. ........................................... 300 11,213
Georgia-Pacific Group ................................. 300 18,225
Georgia Pacific Timber Group* ......................... 300 6,806
Masco Corp. ........................................... 600 30,525
Sherwin-Williams Co. .................................. 600 16,650
Stanley Works (The) ................................... 300 14,156
Weyerhauser Co. ....................................... 600 29,438
Willamette Industries, Inc. ........................... 400 12,875
-----------
155,513
-----------
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
- ------------------- ------ -----
Business Services - Misc (0.23%)
Block, H & R, Inc. .................................... 300 $ 13,444
Dun & Bradstreet Corp. (The) .......................... 600 18,563
Equifax, Inc. ......................................... 400 14,175
-----------
46,182
-----------
Chemicals (1.51%)
Air Products & Chemicals, Inc. ........................ 300 24,675
Dow Chemical Co. ...................................... 600 60,900
Eastman Chemical Co. .................................. 300 17,869
Grace (W. R.) & Co. ................................... 200 16,088
Hercules, Inc. ........................................ 300 15,019
Monsanto Co. .......................................... 1,500 63,000
Morton International, Inc. ............................ 500 17,188
PPG Industries, Inc. .................................. 500 28,563
Praxair, Inc. ......................................... 500 22,500
Rohm & Haas Co. ....................................... 200 19,150
Union Carbide Corp. ................................... 400 17,175
-----------
302,127
-----------
Computers (7.84%)
Adobe Systems, Inc. ................................... 200 8,250
Apple Computer, Inc. * ................................ 500 6,563
Automatic Data Processing, Inc. ....................... 700 42,962
Bay Networks, Inc.* ................................... 600 15,338
Cabletron Systems, Inc.* .............................. 500 7,500
Ceridian Corp.* ....................................... 200 9,163
Cisco Systems, Inc.* .................................. 2,400 133,800
Cognizant Corp. ....................................... 400 17,825
Compaq Computer Corp.* ................................ 1,900 107,231
Computer Associates International, Inc. ............... 1,300 68,737
Computer Sciences Corp.* .............................. 200 16,700
Dell Computer Corp.* .................................. 800 67,200
Digital Equipment Corp.* .............................. 400 14,800
EMC Corp.* ............................................ 1,200 32,925
First Data Corp. ...................................... 1,100 32,175
HBO & Co. ............................................. 500 24,000
Hewlett-Packard Co. ................................... 2,600 162,500
International Business Machines Corp. ................. 2,400 250,950
Microsoft Corp.* ...................................... 2,900 374,825
Novell, Inc.* ......................................... 1,100 8,250
Oracle Corp.* ......................................... 2,400 53,550
Parametric Technology Corp.* .......................... 300 14,213
Seagate Technology, Inc.* ............................. 700 13,475
Silicon Graphics, Inc.* ............................... 500 6,219
Sun Microsystems, Inc.* ............................... 900 35,887
NUMBER OF MARKET
ISSUER, DESCRIPTION SHARES VALUE
- ------------------- ------ -----
Computers (continued)
3Com Corp.* ........................................... 900 $ 31,444
Unisys Corp. * ........................................ 500 6,938
UNOVA, Inc. * ......................................... 300 4,931
-----------
1,568,351
-----------
Containers (0.18%)
Crown Cork & Seal Co., Inc. ........................... 400 20,050
Owens-Illinois, Inc.* ................................. 400 15,175
-----------
35,225
-----------
Cosmetics & Personal Care (0.93%)
Avon Products, Inc. ................................... 400 24,550
Gillette Co. .......................................... 1,400 140,612
International Flavors & Fragrances, Inc. .............. 400 20,600
-----------
185,762
-----------
Diversified Operations (3.08%)
AlliedSignal, Inc. .................................... 1,400 54,512
Corning, Inc. ......................................... 600 22,275
Du Pont (E.I.) De Nemours & Co. ....................... 2,700 162,169
Fortune Brands, Inc. .................................. 600 22,238
IKON Office Solutions, Inc. ........................... 400 11,250
ITT Industries, Inc. .................................. 500 15,688
Johnson Controls, Inc. ................................ 400 19,100
Laidlaw, Inc. (Canada) ................................ 1,100 14,988
Lockheed Martin Corp. ................................. 500 49,250
Loews Corp. ........................................... 300 31,837
Minnesota Mining & Manufacturing Co. .................. 1,000 82,062
Tenneco, Inc. ......................................... 500 19,750
Textron, Inc. ......................................... 500 31,250
TRW, Inc. ............................................. 400 21,350
Tyco International Ltd. ............................... 1,300 58,581
-----------
616,300
-----------
Electronics (6.74%)
Advanced Micro Devices, Inc.* ......................... 400 7,175
AMP, Inc. ............................................. 600 25,200
Applied Materials, Inc.* .............................. 900 27,113
CBS Corp. ............................................. 2,800 82,425
Emerson Electric Co. .................................. 1,100 62,081
General Electric Co. .................................. 8,000 587,000
Grainger (W.W.), Inc. ................................. 200 19,438
Honeywell, Inc. ....................................... 400 27,400
Intel Corp. ........................................... 4,000 281,000
KLA-Tencor Corp.* ..................................... 200 7,725
LSI Logic Corp.* ...................................... 400 7,900
Micron Technology, Inc. * ............................. 600 15,600
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
- ------------------- ------ -----
Electronics (continued)
Motorola, Inc. ........................................ 1,500 $ 85,594
National Semiconductor Corp.* ......................... 400 10,375
Parker- Hannifin Corp. ................................ 400 18,350
Raychem Corp. ......................................... 200 8,613
Rockwell International Corp. .......................... 600 31,350
Texas Instruments, Inc. ............................... 1,000 45,000
-----------
1,349,339
-----------
Finance (1.67%)
Ahmanson (H.F.) & Co. ................................. 300 20,081
American Express Co. .................................. 1,100 98,175
Household International, Inc. ......................... 300 38,269
MBNA Corp. ............................................ 1,300 35,506
Morgan Stanley, Dean Witter, Discover & Co. ........... 1,400 82,775
SunAmerica, Inc. ...................................... 500 21,375
Washington Mutual, Inc. ............................... 600 38,287
-----------
334,468
-----------
Food (2.84%)
Archer-Daniels-Midland Co. ............................ 1,500 32,531
Campbell Soup Co. ..................................... 1,100 63,937
ConAgra, Inc. ......................................... 1,200 39,375
CPC International, Inc. ............................... 400 43,100
General Mills, Inc. ................................... 400 28,650
Heinz (H.J.) Co. ...................................... 900 45,731
Hershey Foods Corp. ................................... 400 24,775
Kellogg Co. ........................................... 1,000 49,625
Quaker Oats Co. ....................................... 400 21,100
Ralston Purina Group .................................. 300 27,881
Sara Lee Corp. ........................................ 1,200 67,575
Unilever N.V. PLC (Netherlands) ....................... 1,600 99,900
Wrigley (WM) Jr. Co. .................................. 300 23,869
-----------
568,049
-----------
Funeral Services & Related (0.13%)
Service Corporation International ..................... 700 25,856
-----------
Household (0.16%)
Newell Co. ............................................ 500 21,250
Whirlpool Corp. ....................................... 200 11,000
-----------
32,250
-----------
Instruments - Scientific (0.11%)
Thermo Electron Corp.* ................................ 500 22,250
-----------
Insurance (4.62%)
Aetna, Inc. ........................................... 400 28,225
Allstate Corp. ........................................ 1,000 90,875
American General Corp. ................................ 600 32,437
NUMBER OF MARKET
ISSUER, DESCRIPTION SHARES VALUE
- ------------------- ------ -----
Insurance (continued)
American International Group, Inc. .................... 1,700 $ 184,875
Aon Corp. ............................................. 500 29,313
Chubb Corp. ........................................... 400 30,250
CIGNA Corp. ........................................... 200 34,612
Conseco, Inc. ......................................... 500 22,719
General Re Corp. ...................................... 200 42,400
Hartford Financial Services Group, Inc. (The) ......... 300 28,069
Humana, Inc.* ......................................... 600 12,450
Jefferson Pilot Corp. ................................. 200 15,575
Lincoln National Corp. ................................ 300 23,438
Marsh & McLennan Cos., Inc. ........................... 400 29,825
MBIA, Inc. ............................................ 300 20,044
MGIC Investment Corp. ................................. 300 19,950
Progressive Corp. ..................................... 200 23,975
SAFECO Corp. .......................................... 400 19,500
St. Paul Cos., Inc. ................................... 300 24,619
Torchmark Corp. ....................................... 400 16,825
Transamerica Corp. .................................... 200 21,300
Travelers Group, Inc. ................................. 2,800 150,850
UNUM Corp. ............................................ 400 21,750
-----------
923,876
-----------
Leisure (2.09%)
Cendant Corp. * ....................................... 2,061 70,847
Disney (Walt) Co., (The) .............................. 1,700 168,406
Eastman Kodak Co. ..................................... 800 48,650
Hasbro, Inc. .......................................... 400 12,600
Hilton Hotels Corp. ................................... 700 20,825
ITT Corp.* ............................................ 300 24,863
Marriott International, Inc. .......................... 400 27,700
Mattel, Inc. .......................................... 800 29,800
Mirage Resorts, Inc. * ................................ 600 13,650
-----------
417,341
-----------
Machinery (0.84%)
Case Corp. ............................................ 300 18,131
Caterpiller Tractor, Inc. ............................. 1,000 48,562
Cooper Industries, Inc. ............................... 400 19,600
Deere & Co. ........................................... 700 40,819
Dover Corp. ........................................... 600 21,675
Ingersoll-Rand Co. .................................... 500 20,250
-----------
169,037
-----------
Media (1.88%)
Clear Channel Communications, Inc.* ................... 300 23,831
Comcast Corp. ......................................... 900 28,406
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
- ------------------- ------ -----
Media (continued)
Dow Jones & Co., Inc. ................................. 300 $ 16,106
Gannett Co., Inc. ..................................... 700 43,269
Knight-Ridder, Inc. ................................... 300 15,600
McGraw-Hill Cos., Inc. ................................ 300 22,200
New York Times Co. (Class A) .......................... 300 19,838
Tele-Communications, Inc. (Class A)* .................. 1,300 36,319
Time Warner, Inc. ..................................... 1,400 86,800
Times Mirror Co. (Class A) ............................ 300 18,450
Tribune Co. ........................................... 400 24,900
Viacom, Inc. (Class B)* ............................... 1,000 41,437
-----------
377,156
-----------
Medical (10.34%)
Abbott Laboratories ................................... 1,900 124,569
ALZA Corp.* ........................................... 300 9,544
American Home Products Corp. .......................... 1,600 122,400
Amgen, Inc.* .......................................... 700 37,887
Baxter International, Inc. ............................ 800 40,350
Becton, Dickinson & Co. ............................... 400 20,000
Boston Scientific Corp.* .............................. 500 22,938
Bristol-Myers Squibb Co. .............................. 2,400 227,100
Cardinal Health, Inc. ................................. 300 22,538
Columbia/HCA Healthcare Corp. ......................... 1,700 50,362
Guidant Corp. ......................................... 400 24,900
HEALTHSOUTH Corp.* .................................... 1,000 27,750
Johnson & Johnson ..................................... 3,300 217,387
Lilly (Eli) & Co. ..................................... 2,700 187,988
Mallinckrodt, Inc. .................................... 400 15,200
Medtronic, Inc. ....................................... 1,200 62,775
Merck & Co., Inc. ..................................... 3,000 318,750
Pfizer, Inc. .......................................... 3,200 238,600
Pharmacia & Upjohn, Inc. .............................. 1,300 47,612
Schering-Plough Corp. ................................. 1,800 111,825
Tenet Healthcare Corp.* ............................... 800 26,500
United Healthcare Corp. ............................... 500 24,844
Warner-Lambert Co. .................................... 700 86,800
-----------
2,068,619
-----------
Metal (0.95%)
Alcan Aluminium Ltd. (Canada) ......................... 700 19,338
Aluminum Co. of America ............................... 500 35,187
Barrick Gold Corp. (Canada) ........................... 1,200 22,350
Freeport-McMoRan Copper & Gold, Inc. .................. 800 12,600
Illinois Tool Works, Inc. ............................. 700 42,087
Inco, Ltd. (Canada) ................................... 600 10,200
Newmont Mining Corp. .................................. 600 17,625
NUMBER OF MARKET
ISSUER, DESCRIPTION SHARES VALUE
- ------------------- ------ -----
Metal (continued)
Phelps Dodge Corp. .................................... 200 $ 12,450
Reynolds Metals Co. ................................... 300 18,000
-----------
189,837
-----------
Mortgage Banking (1.22%)
Countrywide Credit Industries, Inc. ................... 300 12,863
Fannie Mae ............................................ 2,600 148,362
Federal Home Loan Mortgage Corp. ...................... 1,700 71,294
Green Tree Financial Corp. ............................ 400 10,475
-----------
242,994
-----------
Office (0.56%)
Avery Dennison Corp. .................................. 400 17,900
Pitney Bowes, Inc. .................................... 400 35,975
Xerox Corp. ........................................... 800 59,050
-----------
112,925
-----------
Oil & Gas (8.29%)
Amerada Hess Corp. .................................... 300 16,463
Amoco Corp. ........................................... 1,200 102,150
Anadarko Petroleum Corp. .............................. 200 12,138
Apache Corp. .......................................... 400 14,025
Ashland, Inc. ......................................... 300 16,106
Atlantic Richfield Co. ................................ 800 64,100
Baker Hughes, Inc. .................................... 500 21,813
Burlington Resources, Inc. ............................ 600 26,888
Chevron Corp. ......................................... 1,600 123,200
Coastal Corp. (The) ................................... 300 18,581
Dresser Industries, Inc. .............................. 600 25,163
Enron Corp. ........................................... 800 33,250
Exxon Corp. ........................................... 6,000 367,125
Halliburton Co. ....................................... 700 36,356
Mobil Corp. ........................................... 1,900 137,156
Occidental Petroleum Corp. ............................ 900 26,381
Pennzoil Co. .......................................... 200 13,363
Phillips Petroleum Co. ................................ 800 38,900
Rowan Cos., Inc.* ..................................... 300 9,150
Royal Dutch Petroleum Co. (Netherlands) ............... 5,200 281,775
Schlumberger, Ltd. .................................... 1,200 96,600
Texaco, Inc. .......................................... 1,400 76,125
Union Pacific Resources Group ......................... 800 19,400
Unocal Corp. .......................................... 700 27,169
USX - Marathon Group .................................. 800 27,000
Williams Cos., Inc. (The) ............................. 1,000 28,375
-----------
1,658,752
-----------
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
- ------------------- ------ -----
Paper & Paper Products (0.78%)
Champion International Corp. .......................... 300 $ 13,594
Fort James Corp. ...................................... 600 22,950
International Paper Co. ............................... 800 34,500
Kimberly-Clark Corp. .................................. 1,400 69,037
Union Camp Corp. ...................................... 300 16,106
-----------
156,187
-----------
Pollution Control (0.26%)
Browning-Ferris Industries, Inc. ...................... 500 18,500
Waste Management, Inc. ................................ 1,200 33,000
-----------
51,500
-----------
Printing - Commercial (0.09%)
Donnelley (R.R.) & Sons ............................... 500 18,625
-----------
Retail (5.30%)
Albertson's, Inc. ..................................... 700 33,162
American Stores Co. ................................... 800 16,450
AutoZone, Inc.* ....................................... 400 11,600
Circuit City Stores, Inc. ............................. 300 10,669
Costco Cos., Inc.* .................................... 600 26,775
CVS Corp. ............................................. 500 32,031
Dayton Hudson Corp. ................................... 600 40,500
Dillards, Inc. ........................................ 400 14,100
Federated Department Stores, Inc.* .................... 600 25,838
Gap, Inc. (The) ....................................... 1,050 37,209
Genuine Parts Co. ..................................... 700 23,756
Home Depot, Inc. ...................................... 1,800 105,975
Kmart Corp.* .......................................... 1,400 16,188
Kroger Co. * .......................................... 700 25,856
Limited, Inc. (The) ................................... 800 20,400
Lowe's Cos., Inc. ..................................... 500 23,844
May Department Stores ................................. 600 31,612
McDonald's Corp. ...................................... 1,700 81,175
Nordstrom, Inc. ....................................... 200 12,075
Penney (J. C.) Co., Inc. .............................. 600 36,187
Rite Aid Corp. ........................................ 300 17,606
Sears, Roebuck & Co. .................................. 1,000 45,250
Sysco Corp. ........................................... 500 22,781
Tandy Corp. ........................................... 300 11,569
TJX Cos., Inc. ........................................ 400 13,750
Toys "R" Us, Inc.* .................................... 800 25,150
Tricon Global Restaurants, Inc.* ..................... 500 14,531
Wal-Mart Stores, Inc. ................................. 5,500 216,906
Walgreen Co. .......................................... 1,200 37,650
NUMBER OF MARKET
ISSUER, DESCRIPTION SHARES VALUE
- ------------------- ------ -----
Retail (continued)
Winn-Dixie Stores, Inc. ............................... 500 $ 21,844
Woolworth Corp. * ..................................... 400 8,150
-----------
1,060,589
-----------
Rubber - Tires & Misc (0.13%)
Goodyear Tire & Rubber Co. (The) ..................... 400 25,450
-----------
Shoes & Related Apparel (0.14%)
Nike, Inc. (Class B) .................................. 700 27,475
-----------
Soap & Cleaning Preparations (1.69%)
Clorox Co. ............................................ 300 23,719
Colgate-Palmolive Co. ................................. 700 51,450
Proctor & Gamble Co. (The) ............................ 3,300 263,381
-----------
338,550
-----------
Steel (0.15%)
Allegheny Teledyne, Inc. .............................. 600 15,525
Nucor Corp. ........................................... 300 14,494
-----------
30,019
-----------
Telecommunications (3.87%)
A T & T Corp. ......................................... 4,000 245,000
Airtouch Communications, Inc. * ....................... 1,300 54,031
DSC Communications Corp. .............................. 400 9,600
Lucent Technologies, Inc. ............................. 1,600 127,800
MCI Communications Corp. .............................. 1,700 72,781
Northern Telecom Ltd. (Canada) ........................ 700 62,300
Sprint Corp. .......................................... 1,100 64,487
Tellabs, Inc.* ........................................ 500 26,438
U.S. West Media Group* ................................ 1,600 46,200
WorldCom, Inc.* ....................................... 2,200 66,550
-----------
775,187
-----------
Textile (0.16%)
Liz Claiborne, Inc. ................................... 300 12,544
V.F. Corp. ............................................ 400 18,375
-----------
30,919
-----------
Tobacco (1.47%)
Philip Morris Cos., Inc. .............................. 5,900 267,344
UST, Inc. ............................................. 700 25,856
-----------
293,200
-----------
Transport (1.16%)
AMR Corp.* ............................................ 200 25,700
Burlington Northern Santa Fe .......................... 400 37,175
CSX Corp. ............................................. 600 32,400
Delta Air Lines, Inc. ................................. 200 23,800
Federal Express Corp. * ............................... 300 18,319
Norfolk Southern Corp. ................................ 1,000 30,812
SEE NOTES TO FINANCIAL STATEMENTS.
67
<PAGE>
==============================FINANCIAL STATEMENTS==============================
John Hancock Funds - Declaration Trust -- V.A. 500 Index Fund
NUMBER OF MARKET
ISSUER, DESCRIPTION SHARES VALUE
- ------------------- ------ -----
Transport (continued)
Southwest Airlines Co. ................................ 600 $ 14,775
Union Pacific Corp. ................................... 600 37,462
US Airways Group, Inc.* ............................... 200 12,500
-----------
232,943
-----------
Utilities (6.63%)
Alltel Corp. .......................................... 600 24,638
American Electric Power Co., Inc. ..................... 600 30,975
Ameritech Corp. ....................................... 1,400 112,700
Bell Atlantic Corp. ................................... 1,900 172,900
BellSouth Corp. ....................................... 2,400 135,150
Central & South West Corp. ............................ 800 21,650
Consolidated Edison Co. of NY, Inc. ................... 700 28,700
Consolidated Natural Gas Co. .......................... 300 18,150
Dominion Resources, Inc. .............................. 600 25,538
Duke Energy Corp. ..................................... 900 49,838
Edison International .................................. 1,100 29,906
Entergy Corp. ......................................... 900 26,944
FirstEnergy Corp. * ................................... 800 23,200
FPL Group, Inc. ....................................... 500 29,594
Frontier Corp. ........................................ 600 14,438
GTE Corp. ............................................. 2,400 125,400
Houston Industries, Inc. .............................. 1,000 26,688
PacifiCorp ............................................ 1,100 30,044
PECO Energy Co. ....................................... 900 21,825
PG&E Corp. ............................................ 1,200 36,525
Public Service Enterprise Group, Inc. ................. 800 25,350
SBC Communications, Inc. .............................. 2,200 161,150
Southern Co. .......................................... 1,800 46,575
Texas Utilities Co. ................................... 700 29,094
Unicom Corp. .......................................... 700 21,525
US WEST Communications Group .......................... 1,300 58,662
-----------
1,327,159
-----------
TOTAL COMMON STOCKS
(Cost $17,791,716) (93.41%) 18,688,297
------- -----------
INTEREST PAR VALUE MARKET
ISSUER, DESCRIPTION RATE (000s OMITTED) VALUE
- ------------------- ---- -------------- -----
SHORT-TERM INVESTMENTS
Joint Repurchase Agreement (6.32%)
Investment in a joint repurchase
agreement transaction with HSBC
Securities, Inc. - Dated 12-31-97,
Due 01-02-98 (Secured by U.S.
Treasury Bonds, 11.25% due
02-15-15 and 9.25% due
02-15-16) - Note A.................. 6.60% $1,265 $ 1,265,000
-----------
TOTAL SHORT-TERM INVESTMENTS ( 6.32%) 1,265,000
------- -----------
TOTAL INVESTMENTS ( 99.73%) 19,953,297
------- -----------
OTHER ASSETS AND LIABILITIES, NET ( 0.27%) 54,520
------- -----------
TOTAL NET ASSETS (100.00%) $20,007,817
======= ===========
* 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.
68
<PAGE>
==============================FINANCIAL STATEMENTS==============================
John Hancock Funds - Declaration Trust -- V.A. Sovereign Investors Fund
Schedule of Investments
December 31, 1997
Per share earnings and dividends and their compound growth rates are shown for
the most recently reported ten year periods on common stocks, and are not
audited.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
COMPOUND
NUMBER GROWTH MARKET
OF SHARES RATE VALUE
--------- -------- ------
<S> <C> <C> <C>
COMMON STOCKS
Advertising (1.39%)
3,400 Interpublic Group, Inc. @ 49 13/16......................................... $ 169,363
----------
One of the largest advertising agencies in the world
Earnings P/S.......$ .60, .70, .79, .87, 1.00, 1.11, 1.25, 1.11, 1.71, 1.82 13.1%
Dividends P/S............$ .17, .21, .25, .27, .30, .33, .36, .40, .44, .50 12.7%
Price/Earnings Ratio...................................................27.4
Banks (7.21%)
2,600 Banc One Corp. @ 54 5/16................................................... 141,212
Ohio-based bank holding company
Earnings P/S...$ 1.43, 1.45, 1.66, 1.72, 2.08, 2.62, 2.20, 2.91, 3.23, 2.25 5.2%
Dividends P/S........$ .50, .57, .63, .70, .81, .98, 1.13, 1.24, 1.36, 1.52 13.1%
Price/Earnings Ratio...................................................24.7
1,300 BB&T Corp. @ 64 1/16....................................................... 83,281
Full-service commercial and retail bank
Earnings P/S....$ .95, 1.13, 1.19, 1.01, 1.36, 1.84, 2.13, 2.21, 2.34, 2.54 11.5%
Dividends P/S...........$ .34, .36, .38, .42, .46, .50, .64, .74, .86, 1.00 12.7%
Price/Earnings Ratio...................................................23.4
700 First Tennessee National Corp. @ 66 3/4.................................... 46,725
Tennessee-based bank holding company
Earnings P/S....$ 1.10, .61, 1.00, 1.32, 1.60, 1.66, 2.15, 2.42, 2.68, 2.97 11.7%
Dividends P/S..........$ .43, .49, .54, .57, .63, .75, .87, .97, 1.10, 1.23 12.4%
Price/Earnings Ratio...................................................22.3
2,200 First Union Corp. @ 51 1/4................................................. 112,750
North Carolina-based bank holding company
Earnings P/S...$ 1.38, 1.20, 1.26, 1.28, 1.12, 2.37, 2.29, 2.52, 2.68, 3.43 10.6%
Dividends P/S..........$ .43, .50, .54, .56, .64, .75, .86, .98, 1.10, 1.22 12.3%
Price/Earnings Ratio...................................................14.9
2,500 KeyCorp. @ 70 13/16........................................................ 177,031
Bank holding company with offices from coast to coast.
Earnings P/S....$ 2.10, 2.32, 2.32, 1.31, 2.39, 2.89, 3.45, 3.3, 3.37, 3.73 6.6%
Dividends P/S.......$ .68, .80, .88, .92, .98, 1.12, 1.28, 1.44, 1.52, 1.68 10.6%
Price/Earnings Ratio...................................................18.9
3,000 NationsBank Corp. @ 60 13/16............................................... 182,438
Largest superregional bank in the Southeast
Earnings P/S....$ 1.44, 2.22, 1.31, .38, 2.30, 2.50, 3.06, 3.57, 4.00, 4.22 12.7%
Dividends P/S.........$ .47, .55, .71, .74, .76, .82, .94, 1.04, 1.20, 1.32 12.2%
Price/Earnings Ratio...................................................14.4
3,500 Norwest Corp. @ 38 5/8..................................................... 135,188
The 12th largest bank holding company in the U.S.
Earnings P/S.........$ .57, .63, .22, .73, .71, .95, 1.23, 1.38, 1.54, 1.69 12.8%
Dividends P/S............$ .16, .19, .21, .24, .27, .32, .38, .45, .53, .62 16.2%
Price/Earnings Ratio...................................................22.5
----------
878,625
----------
The Schedule of Investments is a complete list of all securities owned by the V.
A. Sovereign Investors Fund on December 31, 1997. It is divided into three main
catagories: common stocks, U.S. government and agencies obligations and
short-term investments. Common stocks are further broken down by industry group.
Short-term investments, which represent the Fund's "cash" position, are listed
last.
Beverages (0.45%)
1,500 PepsiCo, Inc. @ 36 7/16.................................................... $ 54,656
----------
Second largest soft drink company
Earnings P/S..........$ .48, .57, .69, .68, .81, .98, 1.11, 1.00, .72, 1.07 9.3%
Dividends P/S............$ .12, .15, .18, .21, .23, .28, .32, .36, .41, .47 16.4%
Price/Earnings Ratio...................................................33.6
Building (1.63%)
3,900 Masco Corp. @ 50 7/8....................................................... 198,413
----------
Manufactures buildings, home improvement and consumer products
Earnings P/S.....$ 2.03, 1.42, .91, .30, 1.21, 1.45, 1.09, 1.25, 1.84, 2.23 1.1%
Dividends P/S............$ .44, .50, .54, .57, .61, .65, .69, .73, .77, .81 7.0%
Price/Earnings Ratio...................................................22.7
Chemicals (12.51%)
5,000 Air Products & Chemicals, Inc. @ 82 1/4.................................... 411,250
Producer of industrial gases
Earnings P/S...$ 1.95, 2.02, 2.08, 2.23, 2.45, 1.76, 2.05, 3.29, 3.73, 3.90 8.0%
Dividends P/S.........$ .55, .63, .69, .75, .83, .89, .95, 1.01, 1.07, 1.15 8.5%
Price/Earnings Ratio...................................................21.4
5,900 BetzDearborn,Inc. @ 61 1/16................................................ 360,269
Produces and markets a wide range of engineered programs and specialty
chemical products for process systems
Earnings P/S...$ 1.58, 1.77, 2.12, 2.47, 2.71, 2.05, 2.43, 2.27, 2.10, 2.47 5.1%
Dividends P/S....$ .80, .89, 1.01, 1.16, 1.30, 1.38, 1.42, 1.46, 1.49, 1.51 7.3%
Price/Earnings Ratio...................................................24.9
17,000 RPM, Inc. @ 15 1/4......................................................... 259,250
Manufacturer of specialty chemicals and coatings to waterproof and
rustproof structures
Earnings P/S.............$ .30, .37, .34, .44, .47, .47, .60, .68, .72, .80 11.5%
Dividends P/S............$ .20, .22, .24, .27, .29, .31, .34, .36, .39, .42 8.6%
Price/Earnings Ratio...................................................19.2
7,000 Schulman (A), Inc. @ 25 1/8................................................ 175,875
Manufactures proprietary and custom 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, .64, 1.15, 1.18, 1.04, 1.19, 1.43, 1.12, 1.37 7.2%
Dividends P/S............$ .11, .14, .16, .19, .22, .26, .30, .34, .38, .42 16.1%
Price/Earnings Ratio...................................................16.3
</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 RATE VALUE
--------- -------- ------
<S> <C> <C> <C>
Chemicals (continued)
8,000 Sigma - Aldrich Corp. @ 39 3/4............................................. $ 318,000
Manufacturer of biochemical and organic products used for research and diagnostics
Earnings P/S........$ .57, .65, .72, .80, .96, 1.08, 1.11, 1.32, 1.48, 1.61 12.2%
Dividends P/S............$ .08, .09, .10, .11, .13, .15, .17, .19, .23, .26 14.0%
Price/Earnings Ratio...................................................24.7
----------
1,524,644
----------
Computers (4.06%)
4,000 Automatic Data Processing, Inc. @ 61 3/8................................... 245,500
Largest independent computing services firm in the U.S.
Earnings P/S........$ .55, .63, .72, .82, .92, 1.04, 1.19, 1.38, 1.57, 1.76 13.8%
Dividends P/S............$ .13, .15, .17, .20, .23, .26, .29, .35, .42, .48 15.6%
Price/Earnings Ratio...................................................33.3
4,000 Hewlett-Packard Co. @ 62 1/2............................................... 250,000
Manufactures and services electronic measurement, analysis and computation instruments
Earnings P/S........$ .84, .88, .77, .76, .87, 1.16, 1.54, 2.32, 2.46, 2.95 15.0%
Dividends P/S............$ .07, .10, .11, .13, .20, .24, .29, .38, .46, .54 25.5%
Price/Earnings Ratio...................................................21.9
----------
495,500
----------
Containers (5.48%)
5,700 Bemis Company, Inc. @ 44 1/16.............................................. 251,156
Producer of a broad range of flexible packaging and equipment and pressure sensitive materials
Earnings P/S.......$ .74, .90, .99, 1.03, 1.10, .89, 1.40, 1.63, 1.90, 1.93 11.2%
Dividends P/S............$ .22, .30, .36, .42, .46, .50, .54, .64, .72, .80 15.4%
Price/Earnings Ratio...................................................22.7
12,000 Sonoco Products Corp. @ 34 11/16........................................... 416,250
Leading manufacturer of containers, paper products and packaging
Earnings P/S.....$ 1.05, 1.12, .55, 1.05, .89, 1.29, 1.33, 1.72, 1.81, 1.81 6.2%
Dividends P/S............$ .30, .39, .43, .44, .48, .50, .53, .59, .65, .71 10.0%
Price/Earnings Ratio...................................................18.9
----------
667,406
----------
Diversified Operations (3.47%)
3,300 DuPont (E.I.) De Nemours & Co. @ 60 1/16................................... 198,206
Nation's largest chemical manufacturer
Earnings P/S.....$ 1.52, 1.77, 1.70, 1.04, .72, .42, 2.00, 2.81, 3.24, 2.65 6.4%
Dividends P/S.........$ .62, .73, .81, .84, .87, .88, .91, 1.02, 1.12, 1.23 7.9%
Price/Earnings Ratio...................................................22.9
8,000 Ikon Office Solutions, Inc. @ 28 1/8....................................... 225,000
Distributor of office and paper products
Earnings P/S.......$ 1.06, 1.14, .88, .85, 1.11, (.02), .55, .86, 1.12, .77 NMF
Dividends P/S..$ .080, .089, .097, .103, .106, .111, .117, .123, .129, .160 8.0%
Price/Earnings Ratio...................................................36.3
----------
423,206
----------
Electronics (9.95%)
6,000 AMP, Inc. @ 42 ......................................................... $ 252,000
World's largest manufacturer of electrical/electronic connectors
Earnings P/S.........$ 1.48, 1.32, 1.35, 1.23, 1.38, 1.42, 1.72, 1.96, 1.31 NMF
Dividends P/S..........$ .50, .60, .68, .72, .76, .80, .84, .92, 1.00, 1.04 8.5%
Price/Earnings Ratio...................................................32.0
3,200 Emerson Electric Co. @ 56 7/16............................................. 180,600
Produces and sells electrical/electronic products and systems
Earnings P/S...$ 1.16, 1.32, 1.38, 1.42, 1.48, 1.58, 2.02, 2.08, 2.28, 2.52 9.0%
Dividends P/S..........$ .52, .58, .64, .67, .70, .74, .80, .92, 1.01, 1.11 8.8%
Price/Earnings Ratio...................................................22.5
600 General Electric Co. @ 73 3/8.............................................. 44,025
Dominant force in home appliances, electrical power, and financial services
Earnings P/S....$ .94, 1.09, 1.21, 1.28, 1.26, 1.23, 1.73, 1.95, 2.20. 2.42 11.1%
Dividends P/S...........$ .35, .41, .47, .51, .56, .63, .72, .82, .92, 1.04 12.9%
Price/Earnings Ratio...................................................30.6
3,600 Grainger (W.W.), Inc. @ 97 3/16............................................ 349,875
Leading distributor of electrical equipment
Earnings P/S...$ 1.96, 2.20, 2.31, 2.37, 2.58, 2.88, 2.50, 3.64, 4.04, 4.36 9.3%
Dividends P/S...........$ .43, .50, .57, .61, .65, .71, .78, .89, .98, 1.06 10.5%
Price/Earnings Ratio...................................................22.4
4,500 Honeywell, Inc. @ 68 1/2................................................... 308,250
Makes automation and control systems.
Earnings P/S.$ (2.73), 3.12, 2.45, 2.35, 2.89, 2.40, 2.15, 2.62, 3.18, 3.51 NMF
Dividends P/S.........$ .51, .55, .69, .77, .84, .91, .97, 1.01, 1.06, 1.09 8.8%
Price/Earnings Ratio...................................................19.9
1,500 Rockwell International Corp. @ 52 1/4...................................... 78,375
Leading producer of aerospace, automotive and electronics products
Earnings P/S...$ 2.23, 3.01, 2.84, 2.47, 2.20, 2.47, 2.80, 3.15, 3.79, 2.74 2.3%
Dividends P/S...........$ .58, .63, .68, .72, .77, .81, .84, .91, .97, 1.02 6.5%
Price/Earnings Ratio...................................................16.9
----------
1,213,125
----------
Food (1.34%)
6,300 Archer-Daniel Midland Co. @ 21 11/16....................................... 136,631
Processes and merchandises agricultural products
Earnings P/S...........$ .53, .65, .74, .71, .81, .86, .81, 1.34, 1.20, .66 2.5%
Dividends P/S..$ .028, .033, .046, .048, .050, .053, .063, .110, .184, .193 23.9%
Price/Earnings Ratio...................................................24.2
800 ConAgra, Inc. @ 32 13/16................................................... 26,250
Leader in frozen & processed foods, and distributes agricultural supplies
Earnings P/S...........$ .43, .54, .62, .71, .75, .79, .91, 1.03, .40, 1.34 13.5%
Dividends P/S............$ .15, .18, .21, .24, .28, .32, .37, .43, .49, .57 16.0%
Price/Earnings Ratio...................................................23.4
----------
162,881
----------
</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 RATE VALUE
--------- -------- ------
<S> <C> <C> <C>
Furniture (2.75%)
8,000 Leggett & Platt, Inc. @ 41 7/8............................................. $ 335,000
----------
Produces intermediate products for the home furnishings industry
Earnings P/S........$ .35, .66, .42, .56, .82, 1.05, 1.39, 1.49, 1.67, 2.08 21.9%
Dividends P/S............$ .16, .19, .21, .22, .23, .27, .31, .38, .46, .54 14.5%
Price/Earnings Ratio...................................................20.4
Insurance (6.04%)
700 AFLAC Corp. @ 51 1/8....................................................... 35,787
Global specialty insurer
Earnings P/S.......$ .72, .53, .77, .97, 1.19, 1.55, 1.89, 2.33, 2.73, 4.39 22.2%
Dividends P/S............$ .13, .15, .18, .20, .23, .26, .30, .34, .39, .45 14.8%
Price/Earnings Ratio...................................................11.4
300 American International Group @ 108 3/4..................................... 32,625
Broadly based property-casualty insurance organization
Earnings P/S...$ 1.74, 1.97, 2.05, 2.16, 2.27, 2.68, 3.05, 3.53, 4.10, 4.57 11.3%
Dividends P/S............$ .08, .10, .12, .14, .16, .17, .19, .22, .25, .28 14.9%
Price/Earnings Ratio...................................................24.1
3,000 Chubb Corp. @ 75 5/8....................................................... 226,875
Property and casualty insurance.
Earnings P/S...$ 2.14, 2.46, 3.04, 3.16, 3.48, 1.96, 2.98, 3.70, 2.75, 3.46 5.5%
Dividends P/S..........$ .54, .58, .66, .74, .80, .86, .92, .98, 1.08, 1.16 8.9%
Price/Earnings Ratio...................................................22.0
350 General RE Corp. @ 212..................................................... 74,200
Broadly based re-insurance organization
Earnings P/S..$ 5.09, 6.52, 6.89, 7.46, 6.84, 8.11, 7.97, 9.92, 11.0, 11.91 9.9%
Dividends P/S..$ 1.20, 1.36, 1.52, 1.68, 1.80, 1.88, 1.92, 1.96, 2.04, 2.20 7.0%
Price/Earnings Ratio...................................................17.8
4,000 Reliastar Financial Corp. @ 41 3/16........................................ 164,750
Financial services company engaged in life/health insurance and consumer finance
Earnings P/S.....$ 1.04, 1.00, .98, .86, 1.04, 1.32, 1.65, 2.18, 2.52, 2.57 10.6%
Dividends P/S............$ .29, .30, .32, .35, .37, .39, .44, .49, .55, .61 8.6%
Price/Earnings Ratio...................................................16.0
3,750 Travelers Group, Inc. @ 53 7/8............................................. 202,031
Diversified financial services company
Earnings P/S......$ .91, .71, .82, 1.07, 1.67, 1.94, 1.93, 2.75, 3.50, 3.00 14.2%
Dividends P/S..........$ .045, .048, .06, .08, .12, .16, .19, .27, .30, .40 27.5%
Price/Earnings Ratio...................................................17.8
----------
736,268
----------
Machinery (5.41%)
8,000 Dover Corp. @ 36 1/8....................................................... 289,000
Manufactures a variety of specialized industrial products
Earnings P/S..........$ .56, .57, .64, .54, .56, .69, .89, 1.23, 1.72, 1.73 13.4%
Dividends P/S............$ .16, .18, .19, .21, .22, .23, .25, .28, .32, .36 9.4%
Price/Earnings Ratio...................................................20.8
10,300 Pentair, Inc. @ 35 15/16................................................... $ 370,156
Manufactures enclosures for electrical, electronic, woodworking and power tool equipment
Earnings P/S.....$ 1.23, .99, .84, 1.10, 1.07, 1.13, 1.21, 1.48, 1.83, 2.07 6.0%
Dividends P/S............$ .22, .27, .29, .31, .33, .34, .36, .40, .50, .54 10.5%
Price/Earnings Ratio...................................................16.8
----------
659,156
----------
Media (0.93%)
400 Gannett Co., Inc. @ 61 13/16............................................... 24,725
Publishes 81 daily/50 nondaily newspapers, operates 10 TV , 8 FM and 7 AM stations
Earnings P/S...$ 1.13, 1.24, 1.18, 1.00, 1.20, 1.36, 1.62, 1.64, 2.22, 2.74 10.3%
Dividends P/S............$ .51, .56, .61, .62, .63, .65, .67, .69, .71, .74 4.2%
Price/Earnings Ratio...................................................22.1
1,200 McGraw-Hill Companies, Inc. @ 74........................................... 88,800
Provides informational products and services for business and industry
Earnings P/S.....$ 1.92, .41, 1.77, 1.52, 1.57, .12, 2.05, 2.28, 4.96, 5.32 12.0%
Dividends P/S...$ .92, 1.00, 1.08, 1.10, 1.12, 1.14, 1.16, 1.20, 1.32, 1.44 5.1%
Price/Earnings Ratio...................................................13.6
----------
113,525
----------
Medical (9.22%)
3,000 Abbott Laboratories @ 65 9/16.............................................. 196,687
Major pharmaceutical and healthcare firm
Earnings P/S.....$ .83, .96, 1.11, 1.28, 1.47, 1.69, 1.87, 2.12, 2.41, 2.64 13.7%
Dividends P/S...........$ .29, .34, .40, .48, .58, .66, .74, .82, .93, 1.05 15.4%
Price/Earnings Ratio...................................................25.5
2,000 American Home Products Corp. @ 76 1/2...................................... 153,000
Pharmaceutical and healthcare company
Earnings P/S...$ 1.61, 1.77, 3.01, 2.18, 1.83, 2.37, 2.49, 2.71, 2.96, 3.08 7.5%
Dividends P/S....$ .90, .98, 1.08, 1.19, 1.33, 1.43, 1.47, 1.51, 1.57, 1.66 7.0%
Price/Earnings Ratio...................................................25.0
4,600 Baxter International, Inc. @ 50 7/16....................................... 232,012
The company operates four divisions: renal, biotech, cardiovascular
and intravenous systems and international distribution
Earnings P/S..$ 1.31, 1.50, (.05), 1.73, 1.99, (.97), 1.45, 1.34, 2.11. .99 NMF
Dividends P/S.........$ .47, .52, .60, .69, .80, .93, .95, 1.03, 1.11, 1.14 10.3%
Price/Earnings Ratio...................................................50.6
5,000 Becton, Dickinson & Co. @ 50............................................... 250,000
Manufactures broad line of medical supplies
Earnings P/S....$ .92, 1.00, 1.17, 1.22, 1.29, 1.36, 1.53, 1.79, 2.11, 2.30 10.7%
Dividends P/S............$ .22, .26, .28, .29, .31, .34, .38, .42, .48, .54 10.5%
Price/Earnings Ratio...................................................21.7
3,000 Johnson & Johnson @ 65 7/8................................................. 197,625
Major producer of prescription and non-prescription drugs,
toiletries, medical instruments and supplies
Earnings P/S......$ .72, .81, .86, 1.10, 1.23, 1.37, 1.56, 1.86, 2.17, 2.42 14.4%
Dividends P/S............$ .24, .28, .33, .39, .45, .51, .57, .64, .74, .85 15.1%
Price/Earnings Ratio...................................................26.9
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
71
<PAGE>
==============================FINANCIAL STATEMENTS==============================
John Hancock Funds - Declaration Trust -- V.A. Sovereign Investors Fund
<TABLE>
<CAPTION>
COMPOUND
NUMBER GROWTH MARKET
OF SHARES RATE VALUE
--------- -------- ------
<S> <C> <C> <C>
Medical (continued)
600 Lilly (Eli) & Co. @ 69 5/8................................................. $ 41,775
Major producer of prescription and non-prescription drugs, health products
Earnings P/S........$ .67, .80, .98, 1.13, .70, .40, 1.03, 1.15, 1.39, 1.61 10.2%
Dividends P/S............$ .29, .34, .41, .50, .55, .61, .63, .65, .69, .74 11.0%
Price/Earnings Ratio...................................................42.8
1,000 Medtronic, Inc. @ 52 5/16.................................................. 52,313
Leading manufacturer of medical devices and instruments
Earnings P/S............$ .20, .23, .24, .28, .34, .45, .51, .64, .94, 1.11 21.0%
Dividends P/S..........$ .035, .045, .05, .06, .07, .09, .11, .13, .16, .21 22.0%
Price/Earnings Ratio...................................................41.7
----------
1,123,412
----------
Metal (0.54%)
4,000 Worthington Industries, Inc. @ 16 1/2...................................... 66,000
----------
Manufactures metal and plastic products
Earnings P/S...........$ .61, .70, .61, .50, .63, .76, .94, 1.29, 1.05, .97 5.3%
Dividends P/S............$ .19, .23, .26, .28, .32, .34, .39, .43, .47, .51 11.6%
Price/Earnings Ratio...................................................18.6
Office (0.74%)
1,000 Pitney Bowes, Inc. @ 89 15/16.............................................. 89,938
----------
Manufactures office automation equipment
Earnings P/S...$ 1.50, 1.13, 1.30, 1.80, 1.96, 1.92, 2.21, 2.68, 3.12, 3.43 9.6%
Dividends P/S........$ .46, .52, .60, .68, .78, .90, 1.04, 1.20, 1.38, 1.60 14.9%
Price/Earnings Ratio...................................................26.1
Oil & Gas (1.90%)
600 Exxon Corp. @ 61 3/16...................................................... 36,713
Major factor in the crude oil, natural gas and chemical industry
Earnings P/S...$ 1.98, 1.16, 1.98, 2.23, 1.91, 2.11, 2.04, 2.59, 3.01, 3.40 6.2%
Dividends P/S..$ 1.08, 1.15, 1.24, 1.34, 1.42, 1.44, 1.46, 1.50, 1.56, 1.63 4.7%
Price/Earnings Ratio...................................................18.2
2,700 Mobil Corp. @ 72 3/16...................................................... 194,906
One of the largest integrated, international oil companies with interest
in petro-chemicals and plastics
Earnings P/S...$ 2.47, 2.20, 2.30, 2.33, 1.57, 2.54, 2.14, 2.94, 3.69, 4.05 5.6%
Dividends P/S..$ 1.18, 1.28, 1.41, 1.56, 1.60, 1.63, 1.70, 1.81, 1.96, 2.12 6.7%
Price/Earnings Ratio...................................................17.9
----------
231,619
----------
Retail (4.57%)
2,500 Dayton Hudson Corp. @ 67 1/2............................................... 168,750
General merchandiser selling through Target and Marvyn stores
Earnings P/S....$ .80, 1.15, 1.79, 1.80, 1.29, 1.67, 1.66, 1.92, 1.34, 2.07 11.1%
Dividends P/S............$ .34, .37, .44, .48, .51, .53, .56, .58, .61, .66 7.6%
Price/Earnings Ratio...................................................23.5
3,000 Home Depot, Inc. @ 58 7/8.................................................. $ 176,625
Operates a chain of retail building supply/home improvement "warehouse" stores
Earnings P/S..........$ .15, .21, .30, .40, .55, .67, .88, 1.03, 1.29, 1.50 29.2%
Dividends P/S............$ .01, .02, .03, .04, .06, .08, .10, .13, .15, .19 38.7%
Price/Earnings Ratio.....................................................39
3,600 Sysco Corp. @ 45 9/16...................................................... 164,025
Largest distributor of food service products
Earnings P/S........$ .45, .60, .73, .84, .93, 1.08, 1.18, 1.38, 1.52, 1.71 16.0%
Dividends P/S............$ .08, .09, .10, .14, .22, .28, .36, .44, .52, .60 25.1%
Price/Earnings Ratio...................................................25.3
1,200 Wal-Mart Stores, Inc. @ 39 7/16............................................ 47,325
Operates chain of discount department stores
Earnings P/S........$ .37, .48, .57, .70, .87, 1.02, 1.17, 1.19, 1.33, 1.47 16.6%
Dividends P/S............$ .04, .06, .07, .09, .11, .13, .17, .20, .21, .27 23.6%
Price/Earnings Ratio...................................................26.8
----------
556,725
----------
Soap & Cleaning Preparations (0.68%)
1,500 Ecolab, Inc. @ 55 7/16..................................................... 83,156
----------
Develops and markets premium institutional cleansing, sanitizing and
maintenance products and services
Earnings P/S......$ .82, .05, 1.07, .96, 1.03, 1.23, 1.25, 1.50, 1.75, 2.01 10.5%
Dividends P/S............$ .32, .33, .34, .35, .36, .40, .46, .52, .58, .67 8.6%
Price/Earnings Ratio...................................................27.6
Steel (0.63%)
1,600 Nucor Corp. @ 48 5/16...................................................... 77,300
----------
Manufactures steel and steel products
Earnings P/S........$ .84, .68, .88, .75, .92, 1.42, 2.60, 3.14, 2.83, 3.42 16.9%
Dividends P/S.............$ .10, .11, .12, .13, .14, .16, .18, 28, .32, .40 16.6%
Price/Earnings Ratio...................................................14.4
Utilities (8.56%)
3,000 Ameritech Corp. @ 80 1/2................................................... 241,500
Provider of local telephone service
Earnings P/S...$ 2.27, 2.30, 2.37, 2.20, 2.51, 2.78, 2.13, 3.63, 3.87, 4.10 6.8%
Dividends P/S..$ 1.35, 1.46, 1.58, 1.70, 1.76, 1.84, 1.92, 2.00, 2.12, 2.26 5.9%
Price/Earnings Ratio...................................................20.0
3,000 Century Telephone Enterprise,
Inc. @ 49 13/16 ......................................................... 149,438
Louisiana based telecommunications company
Earnings P/S.......$ .57, .49, .67, .80, 1.25, 1.35, 1.88, 1.97, 2.15, 3.11 20.7%
Dividends P/S..$ .264, .272, .280, .287, .293, .310, .320, .330, .360, .370 3.8%
Price/Earnings Ratio...................................................15.9
1,500 Duke Energy Corp. @ 55 3/8................................................. 83,063
Generates, transmits, distributes and sells electric energy
in the Piedmont sections of North and South Carolina
Earnings P/S...$ 1.95, 2.57, 2.40, 2.60, 2.21, 2.80, 2.88, 3.25, 3.37, 2.61 3.3%
Dividends P/S..$ 1.42, 1.52, 1.60, 1.68, 1.76, 1.84, 1.92, 2.00, 2.08, 2.16 4.8%
Price/Earnings Ratio...................................................21.2
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
72
<PAGE>
==============================FINANCIAL STATEMENTS==============================
John Hancock Funds - Declaration Trust -- V.A. Sovereign Investors Fund
<TABLE>
<CAPTION>
COMPOUND
NUMBER GROWTH MARKET
OF SHARES RATE VALUE
--------- -------- ------
<S> <C> <C> <C>
Utilities (continued)
4,400 National Fuel Gas Co. @ 48 11/16........................................... $ 214,225
Integrated natural gas system serving N.Y., P.A. and O.H.
Earnings P/S...$ 1.65, 1.93, 1.83, 1.63, 1.94, 2.15, 2.23, 2.03, 2.78, 3.01 6.9%
Dividends P/S..$ 1.25, 1.32, 1.40, 1.45, 1.49, 1.53, 1.57, 1.61, 1.67, 1.73 0.5%
Price/Earnings Ratio...................................................16.0
2,200 Questar Corp. @ 44 5/8..................................................... 98,175
Diversified holding company for Utah, Wyoming and Colorado
natural gas transmission, distribution and storage
Earnings P/S....$ .64, 1.28, 1.46, 1.63, 1.85, 2.10, 1.21, 2.05, 2.39, 2.55 16.6%
Dividends P/S.....$ .94, .95, .97, 1.01, 1.04, 1.09, 1.13, 1.16, 1.19, 1.24 3.1%
Price/Earnings Ratio...................................................17.2
3,500 SBC Communications, Inc. @ 73 1/4.......................................... 256,375
Provides telephone service throughout the United States and internationally
Earnings P/S...$ 1.74, 1.76, 1.82, 1.84, 1.93, 2.17, 2.39, 2.74, 3.10, 3.46 7.9%
Dividends P/S.$ 1..22, 1.29, 1.36, 1.41, 1.45, 1.50, 1.56, 1.63, 1.70, 1.77 4.2%
Price/Earnings Ratio...................................................20.5
----------
1,042,776
----------
TOTAL COMMON STOCKS
(Cost $9,790,642) (89.46%) 10,902,694
----------
<CAPTION>
PAR VALUE
(000s
OMITTED)
--------
UNITED STATES GOVERNMENT
AND AGENCIES OBLIGATIONS
$100 United States Treasury, Bond 10.750%,
08-15-05 @ 130.0940........................................................ 130,094
100 United States Treasury, Note 7.875%,
11-15-99 @ 103.8440........................................................ 103,844
400 United States Treasury, Note 5.875%,
09-30-02 @ 100.5470........................................................ 402,188
----------
TOTAL UNITED STATES GOVERNMENT
AND AGENCIES OBLIGATIONS
(Cost $630,453) (5.22%) 636,126
----------
<CAPTION>
PAR VALUE
(000s INTEREST MARKET
OMITTED) RATE VALUE
-------- -------- ------
<S> <C> <C> <C>
SHORT-TERM INVESTMENTS
$1,491 Joint Repurchase Agreement (12.24%)
Investment in a joint repurchase
agreement transaction with HSBC
Securities, Inc. - Dated 12-31-97,
Due 01-02-98 (Secured by U. S.
Treasury Bonds,7.25% thru
13.25%, due 11-15-08 thru
11-15-16 and by U.S. Treasury
Note 6.50% due 04-30-99 -
Note A .................................................................... 6.60% $ 1,491,000
-----------
Corporate Savings Account (0.00%)
Investors Bank & Trust Company
Daily Interest Savings Account
Current Rate 4.95% ........................................................ 161
-----------
TOTAL SHORT-TERM INVESTMENTS ( 12.24%) 1,491,161
------- -----------
TOTAL INVESTMENTS (106.92%) 13,029,981
------- -----------
OTHER ASSETS AND LIABILITIES, NET ( 6.92%) (843,042)
------- -----------
TOTAL NET ASSETS (100.00%) $12,186,939
======= ===========
</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.
73
<PAGE>
==============================FINANCIAL STATEMENTS==============================
John Hancock Funds - Declaration Trust -- V.A. World Bond Fund
Schedule of Investments
December 31, 1997
- --------------------------------------------------------------------------------
PAR VALUE
INTEREST (000s MARKET
ISSUER, DESCRIPTION RATE OMITTED) VALUE
- ------------------- ---- --------- -----
BONDS
British Pound Sterling (6.51%)
United Kingdom Treasury,
Bond 11-06-01# ......................... 7.000% 90 $ 149,857
----------
U.S. Dollar (87.18%)
Federal Home Loan Bank,
Bond 10-15-03 .......................... 5.440 $150 146,179
Bond 03-26-07 .......................... 6.945 100 106,269
Federal National Mortgage Assn.,
Note Ser MTN 10-23-02 .................. 6.080 250 251,399
Federative Republic of Brazil, (Brazil),
Global Bond 11-05-01 ................... 8.875 50 49,625
Republic of Ecuador, (Ecuador),
Unsub Deb 04-25-02 (R) ................. 11.250 50 51,625
Republic of Panama, (Panama),
Note Ser REGS 02-13-02 ................. 7.875 50 48,375
Republic of South Africa, (South Africa),
Note 06-23-17 .......................... 8.500 50 47,500
Republic of Venezuela, (Venezuela),
Floating Rate Note Ser C 12-30-03 ...... 7.188* 50 47,000
United Mexican States, (Mexico),
Global Bond 02-06-01 ................... 9.750 50 52,000
United States Treasury,
Bond 08-15-27 .......................... 6.375 150 158,203
Note 05-31-02 .......................... 6.500 550 566,071
Note 07-31-02 .......................... 6.000 200 202,094
Note 05-15-07 .......................... 6.625 120 127,013
Note 08-15-07 .......................... 6.125 150 154,149
----------
2,007,502
----------
TOTAL BONDS
(Cost $2,124,783) (93.69%) 2,157,359
------ ----------
The Schedule of Investments is a complete list of all securities owned by V.A.
World Bond Fund on December 31, 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.
SHORT-TERM INVESTMENTS
Joint Repurchase Agreement (5.56%)
Investment in a joint repurchase
agreement transaction with HSBC
Securities, Inc. - Dated 12-31-97,
Due 01-02-98 (Secured by U.S.
Treasury Bonds, 11.25%
Due 02-15-15 and 9.25%
Due 02-15-16) - Note A ................. 6.60% $128 $ 128,000
----------
TOTAL SHORT-TERM INVESTMENTS ( 5.56%) 128,000
------- ----------
TOTAL INVESTMENTS ( 99.25%) 2,285,359
------- ----------
OTHER ASSETS AND LIABILITIES, NET ( 0.75%) 17,237
------- ----------
TOTAL NET ASSETS (100.00%) $2,302,596
======= ==========
* Represents rate in effect on December 31, 1997.
# Par value of non U.S. dollar denominated foreign bonds is expressed in
local currency for each country listed.
(R) These securities are exempt from registration under rule 144A of the
Securities Act of 1933. Such securities may be resold, normally to
qualified institutional buyers, in transactions exempt from registration.
Rule 144A securities amounted to $51,625 or 2.24% of the Fund's net assets
as of December 31, 1997.
MTN = Medium Term Note.
The percentage shown for each investment category is the total value of that
category as a percentage of the net assets of the Fund.
SEE NOTES TO FINANCIAL STATEMENTS.
74
<PAGE>
==============================FINANCIAL STATEMENTS==============================
John Hancock Funds - Declaration Trust -- V.A. World Bond Fund
Portfolio Concentration (Unaudited)
- --------------------------------------------------------------------------------
The Fund primarily invests in bonds issued by the U.S. government, its agencies
or instrumentalities, foreign governments and companies. The performance of the
Fund is closely tied to the economic condition within the countries in which it
invests. The concentration of investments by currency denomination for
individual securities held by the Fund is shown in the schedule of investments.
In addition, concentration of investments can be aggregated by various
investment categories. The table below shows the percentages of the Fund's
investments at December 31, 1997 assigned to the various investment categories.
MARKET VALUE AS A
INVESTMENT CATEGORIES % OF FUND'S NET ASSETS
- --------------------- ----------------------
Government - Foreign ................................... 19.37%
Government - U.S. ...................................... 52.44
Government - U.S. Agencies ............................. 21.88
Short-term Investments ................................. 5.56
-----
TOTAL INVESTMENTS 99.25%
=====
SEE NOTES TO FINANCIAL STATEMENTS.
75
<PAGE>
==============================FINANCIAL STATEMENTS==============================
John Hancock Funds - Declaration Trust -- V.A. Strategic Income Fund
Schedule of Investments
December 31, 1997
- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - --
INTEREST CREDIT PAR VALUE MARKET
ISSUER, DESCRIPTION RATE RATING* (000s OMITTED) VALUE
- ------------------- ---- ------- -------------- -----
BONDS
Advertising (1.92%)
Outdoor Systems, Inc.,
Sr Sub Note 10-15-06 ........... 9.375% B1 $100 $ 106,500
----------
Banks - Foreign (1.85%)
International Bank for
Reconstruction &
Development, Sr Note
(South Africa) 07-21-98# ....... 15.000 AAA 500 102,332
----------
Containers (3.57%)
Riverwood International
Corp., Gtd Sr Sub
Note 04-01-08 .................. 10.875 CCC+ 100 94,500
Stone Container Corp.,
Unit (Sr Sub Deb &
Supplemental Interest Cert)
04-01-02 ....................... 12.250 B- 100 103,500
----------
198,000
----------
Diversified Operations (1.95%)
Euramax International Plc,
Sr Sub Note (United Kingdom)
10-01-06 (Y) ................... 11.250 B 100 108,250
----------
Electronics (1.83%)
Delco Remy International, Inc.
Sr Note 12-15-07 ............... 8.625 B+ 100 101,250
----------
Government - Foreign (4.32%)
Australia, Commonwealth of,
Government Bond (Australia)
11-15-06# ...................... 6.750 AAA 350 239,321
----------
Government - U.S. (10.38%)
United States Treasury,
Bond 02-15-16 .................. 9.250 Aaa 200 271,374
Note 05-15-98 .................. 9.000 Aaa 300 303,750
----------
575,124
----------
Government - U.S. Agencies (3.25%)
Federal National Mortgage Assn.,
Global Bond (Australia)
07-10-02## ................... 6.500 Aaa 100 66,709
Global Bond (New Zealand)
09-26-00## ................... 7.000 Aaa 200 113,104
----------
179,813
----------
The Schedule of Investments is a complete list of all securities owned by the V.
A. Strategic Income Fund on December 31, 1997. It is divided into three main
catagories: bonds, common and preferred stocks and warrants and short-term
investments. Bonds are further broken down by industry group. Short-term
investments, which represent the Fund's "cash" position, are listed last.
INTEREST CREDIT PAR VALUE MARKET
ISSUER, DESCRIPTION RATE RATING* (000s OMITTED) VALUE
- ------------------- ---- ------- -------------- -----
Leisure (12.56%)
Ascent Entertainment Group,
Inc., Sr Sec Disc Note,
Step Coupon (11.875%,
12-15-02) 12-15-04 (R) ......... Zero B- $200 $ 115,500
Casino America, Inc.,
Sr Sec Note 08-01-03 ........... 12.500% B 250 271,250
Cinemark USA, Inc.,
Sr Sub Note Ser D
08-01-08 ....................... 9.625 B2 100 103,500
Riddell Sports, Inc.,
Gtd Sr Note 07-15-07 ........... 10.500 B2 100 103,750
Sun International Hotels Ltd.,
Sr Sub Note (Bahamas)
12-15-07 (Y) ................... 8.625 B+ 100 101,500
----------
695,500
----------
Media (5.95%)
Intermedia Capital Partners,
Sr Note 08-01-06 ............... 11.250 B2 100 111,125
Katz Media Corp.,
Gtd Sr Sub Note 01-15-07 ....... 10.500 B2 100 110,500
STC Broadcasting, Inc.,
Sr Sub Note 03-15-07 ........... 11.000 B3 100 108,000
----------
329,625
----------
Oil & Gas (1.82%)
Canadian Forest Oil Ltd.,
Sr Sub Note (Canada)
09-15-07 (R), (Y) .............. 8.750 B 100 101,000
----------
Printing - Commercial (2.04%)
Goss Graphic Systems, Inc.,
Sr Sub Note 10-15-06 ........... 12.000 B 100 113,000
----------
Retail (1.89%)
Southern Foods Group L.P.,
Sr Sub Note 09-01-07 (R) ....... 9.875 B 100 104,500
----------
SEE NOTES TO FINANCIAL STATEMENTS.
76
<PAGE>
==============================FINANCIAL STATEMENTS==============================
John Hancock Funds - Declaration Trust -- V.A. Strategic Income Fund
INTEREST CREDIT PAR VALUE MARKET
ISSUER, DESCRIPTION RATE RATING* (000s OMITTED) VALUE
- ------------------- ---- ------- -------------- -----
Telecommunications (30.06%)
COLT Telecom Group Plc,
Sr Note (United Kingdom)
11-30-07# ...................... 10.125% B $ 75 $ 125,100
Comunicacion Celular S.A.,
Bond, Step Coupon (13.125%,
11-15-00) (Colombia)
11-15-03 (A), (Y) .............. Zero B3 100 75,750
Crown Castle International
Corp., Sr Disc Note, Step
Coupon (10.625%, 11-01-02)
11-15-07 (A), (R) .............. Zero B 150 94,125
Esprit Telecom Group Plc,
Sr Note (United Kingdom)
12-15-07 (Y) ................... 11.500 B- 100 103,000
Globalstar L.P./Globalstar
Capital Corp., Sr Note
06-15-04 ....................... 11.250 B3 100 100,421
Innova S. de R.L., Sr Note
(Mexico) 04-01-07 (Y) .......... 12.875 B- 100 99,000
Intercel, Inc.,
Unit (Sr Discount Note &
Warrant), Step Coupon
(12.00%, 02-01-01)
02-01-06 (A) ................... Zero B 200 146,000
Ionica, Plc, Sr Disc Note,
Step Coupon (15.00%,
05-01-02) (United Kingdom)
05-01-07 (A), (Y) .............. Zero B 200 80,000
Iridium LLC/Iridium Capital
Corp., Gtd Sr Note Ser A
07-15-05 ....................... 13.000 B- 100 105,000
MetroNet Communications
Corp., Sr Disc Note,
Step Coupon (10.75%,
11-01-02) (Canada)
11-01-07 (A), (R), (Y) ......... Zero B 100 61,000
Nextel Communications, Inc.,
Sr Disc Note, Step Coupon
(9.75%, 02-15-99)
08-15-04 (A) ................... Zero CCC 150 133,500
Orion Network Systems, Inc.,
Sr Note 01-15-07 ............... 11.250 B2 100 113,000
Qwest Communications
International, Inc., Sr Note
Ser B 04-01-07 ................. 10.875% B+ $100 $ 113,750
RCN Corp.,
Sr Note 10-15-07 (R) ........... 10.000 B3 100 103,750
Teligent, Inc.,
Sr Note 12-01-07 ............... 11.500 CCC 100 100,250
Winstar Equipment Corp.,
Gtd Sec Note 03-15-04 .......... 12.500 B3 100 111,500
----------
1,665,146
----------
TOTAL BONDS
(Cost $4,567,898) (83.39%) 4,619,361
-------- ---------
NUMBER OF
SHARES
------
COMMON AND PREFERRED STOCKS AND WARRANTS
Comunicacion Celular S.A. Warrant
(Colombia) (Y)** ..................................... 1,000 7,000
Ionica, Plc, Warrant (United Kingdom)#** .............. 200 --
Nextel Communications, Inc. (Class A),
Common Stock** ....................................... 232 6,090
Nextlink Communications, Inc., 14.00%,
Preferred Stock ...................................... 1,552 97,000
Orion Network Systems, Inc., Warrant** ................ 100 1,000
SFX Broadcasting, Inc., 12.625%, Ser E,
Preferred Stock ...................................... 1,063 124,386
----------
TOTAL COMMON AND PREFERRED
STOCKS AND WARRANTS
(Cost $212,531) (4.25%) 235,476
------ ----------
SEE NOTES TO FINANCIAL STATEMENTS.
77
<PAGE>
==============================FINANCIAL STATEMENTS==============================
John Hancock Funds - Declaration Trust -- V.A. Strategic Income Fund
INTEREST PAR VALUE MARKET
ISSUER, DESCRIPTION RATE (000s OMITTED) VALUE
- ------------------- ---- -------------- -----
SHORT-TERM INVESTMENTS
Joint Repurchase Agreement (10.45%)
Investment in a joint repurchase
agreement transaction with HSBC
Securities, Inc. - Dated 12-31-97,
Due 01-02-98 (Secured by U.S.
Treasury Bonds, 7.25% thru
13.25% Due 11-15-08 thru
11-15-16 and U.S. Treasury Note,
6.50% Due 04-30-99) - Note A ... 6.60% $579 $ 579,000
---------
Corporate Savings Account (0.01%)
Investors Bank & Trust Company
Daily Interest Savings Account
Current Rate 4.95%............ 506
---------
TOTAL SHORT-TERM INVESTMENTS ( 10.46%) 579,506
------- ---------
TOTAL INVESTMENTS ( 98.10%) 5,434,343
------- ---------
OTHER ASSETS AND LIABILITIES, NET ( 1.90%) 105,218
------- ---------
TOTAL NET ASSETS (100.00%) $5,539,561
======= =========
* Credit Ratings are unaudited and rated by Moody's Investor 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.
## Parenthetical disclosure of a foreign country in the security description
represents country of local currency and par value is expressed in local
currency.
(A) Cash interest will be paid on this obligation at the stated rate beginning
on the stated date.
(R) These securities are exempt from registration under rule 144A of the
Securities Act of 1933. Such securities may be resold, normally to
qualified institutional buyers, in transactions exempt from registration.
See Note A of the Notes to Financial Statements for valuation policy. Rule
144A securities amounted to $579,875 or 10.47% of net assets as of
December 31, 1997.
(Y) Parenthetical disclosure of a foreign country in the security description
represents country of foreign issuer; however, security is U.S. dollar
denominated.
Portfolio Concentration (Unaudited)
- - - - - - - - - - - - - - - - - - - - -- - - - - - - - - - - - - - - - - - - - -
The V.A. Strategic Income Fund invests primarily in securities issued in the
United States of America. The performance of this Fund is closely tied to the
economic and financial conditions of the countries within which it invests. The
concentration of investments by industry category for individual securities held
by the Fund is shown in the Schedule of Investments. In addition, concentration
of investments can be aggregated by various countries. The table below shows the
percentages of the Fund's investments at December 31, 1997 assigned to country
categories.
MARKET VALUE
AS A PERCENTAGE OF
COUNTRY DIVERSIFICATION FUND'S NET ASSETS
- ----------------------- -----------------
Australia.................................. 5.52%
Bahamas.................................... 1.83
Canada..................................... 2.92
Colombia................................... 1.49
Mexico..................................... 1.79
New Zealand................................ 2.04
South Africa............................... 1.85
United Kingdom............................. 7.52
United States.............................. 73.14
-----
TOTAL INVESTMENTS 98.10%
=====
Additionally, the concentration of investments can be aggregated by the quality
rating for each debt security.
QUALITY DISTRIBUTION
- --------------------
AAA........................................ 19.80
B.......................................... 57.66
CCC........................................ 5.93
-----
TOTAL BONDS 83.39%
=====
SEE NOTES TO FINANCIAL STATEMENTS.
78
<PAGE>
==============================FINANCIAL STATEMENTS==============================
John Hancock Funds - Declaration Trust -- V.A. Sovereign Bond Fund
Schedule of Investments
December 31, 1997
- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - --
INTEREST CREDIT PAR VALUE MARKET
ISSUER, DESCRIPTION RATE RATING* (000s OMITTED) VALUE
- ------------------- ---- ------- -------------- -----
BONDS
Banks - Foreign (1.57%)
Landeskreditbank Baden -
Wuerttemberg, Sub Note
(Germany) 02-01-23 (Y) ......... 7.625% AAA $ 15 $ 17,000
RBSG Capital Corp.,
Gtd Cap Note 03-01-04 .......... 10.125 A+ 15 17,766
Scotland International
Finance No. 2 B.V., Gtd
Sub Note (United Kingdom)
11-01-06 (R) (Y) ............... 8.850 A+ 20 22,998
----------
57,764
----------
Banks - United States (0.59%)
Banque National de Paris -
New York Branch, Sub Note
01-15-07 ....................... 7.200 A1 5 5,169
National Westminster Bank
Plc - New York Branch,
Sub Note 05-01-01 .............. 9.450 AA- 5 5,462
NB Capital Trust IV,
Gtd Cap Security
04-15-27 ....................... 8.250 A- 10 10,913
----------
21,544
----------
Broker Services (0.27%)
Salomon Smith
Barney Holdings,
Inc., Note 10-15-02 ............ 6.500 A 10 10,036
----------
Building (0.14%)
Georgia-Pacific Corp.,
Deb 01-15-18 ................... 9.750 BBB- 5 5,198
----------
Containers (0.10%)
Riverwood International
Corp., Gtd Sr Sub Note
04-01-08 ....................... 10.875 CCC+ 4 3,780
----------
Energy (0.59%)
AES Corp.,
Sr Sub Note 07-15-06 ........... 10.250 B+ 10 10,825
CalEnergy Company, Inc.,
Sr Note 09-15-06 ............... 9.500 BB- 10 10,927
----------
21,752
----------
The Schedule of Investments is a complete list of all securities owned by the V.
A. Sovereign Bond Fund on December 31, 1997. It is divided into two main
catagories: bonds and short-term investments. Bonds are further broken down by
industry group. Short-term investments, which represent the Fund's "cash"
position, are listed last.
INTEREST CREDIT PAR VALUE MARKET
ISSUER, DESCRIPTION RATE RATING* (000s OMITTED) VALUE
- ------------------- ---- ------- -------------- -----
Finance (3.35%)
Constitution Capital
Trust I, Cap Security
04-15-27 (R) ................... 9.150% BBB $ 3 $ 3,377
ContiFinancial Corp.,
Sr Note 08-15-03 ............... 8.375 BB+ 5 5,175
DR Investments,
Sr Note 05-15-07 (R) ........... 7.450 A- 10 10,640
Ford Motor Credit Co.,
Note 12-08-05 .................. 6.250 A 5 4,946
Industrial Credit Investment
Corporation of India
Ltd., Bond (India)
08-15-07 (R) (Y) ............... 7.550 BB+ 10 8,292
JCP Master Credit Card Trust,
Pass Thru Ctf Ser C Class A
06-15-00 ....................... 9.625 AA+ 25 26,928
MBNA Master Credit Card
Trust, Ser 1995-D Class A
11-15-02 ....................... 6.050 AAA 50 50,063
SUSA Partnership, L.P.
Note 12-01-07 .................. 7.000 BBB 5 5,026
United Companies Financial
Corp., Note 01-15-04 ........... 7.700 BBB- 5 5,033
Yanacocha Receivables,
Pass Thru Cert Ser 1997-A
06-15-05 (R) ................... 8.400 BBB- 4 3,920
----------
123,400
----------
Funeral Services & Related (0.42%)
Loewen Group International,
Inc., Gtd Sr Note Ser 4
10-15-03 ....................... 8.250 BB+ 15 15,356
----------
Glass Products (0.09%)
VICAP S.A. de C.V.,
Gtd Sr Note (Mexico)
05-15-07 (R) (Y) ............... 11.375 B+ 3 3,202
----------
SEE NOTES TO FINANCIAL STATEMENTS.
79
<PAGE>
==============================FINANCIAL STATEMENTS==============================
John Hancock Funds - Declaration Trust -- V.A. Sovereign Bond Fund
INTEREST CREDIT PAR VALUE MARKET
ISSUER, DESCRIPTION RATE RATING* (000s OMITTED) VALUE
- ------------------- ---- ------- -------------- -----
Government - Foreign (0.60%)
Croatia, Republic of,
Sr Note (Croatia)
02-27-02 (R) (Y) ............. 7.000% BBB- $ 10 $ 10,017
Panama, Republic of,
Note (Panama)
02-13-02 (R) (Y) ............. 7.875 BB+ 7 6,738
Quebec, Province of,
Deb (Canada)
07-15-23 (Y) ................. 7.500 A+ 5 5,373
----------
22,128
----------
Government - U.S. (55.72%)
United States Treasury,
Bond 08-15-17 ................ 8.875 AAA 38 50,439
Bond 02-15-23 ................ 7.125 AAA 497 567,355
Note 02-15-99 ................ 8.875 AAA 205 212,079
Note 11-30-99 ................ 7.750 AAA 142 147,258
Note 05-15-01 ................ 8.000 AAA 70 74,780
Note 05-15-02 ................ 7.500 AAA 553 590,156
Note 02-15-05 ................ 7.500 AAA 373 409,949
----------
2,052,016
----------
Government - U.S. Agencies (10.65%)
Federal National Mortgage Assn.,
30 Yr Pass Thru Ctf
03-01-24 + ................... 6.500 AAA 230 227,125
30 Yr Pass Thru Ctf
09-01-27 ..................... 7.000 AAA 25 25,032
Pass Thru Ctf Ser 1997-M8
Class A-1 01-25-22 ........... 6.940 AAA 3 3,087
Government National
Mortgage Assn., 30 Yr Pass
Thru Ctf 02-15-25 + .......... 7.500 AAA 50 51,219
30 Yr Pass thru Ctf 07-15-26
to 08-15-27 .................. 8.000 AAA 83 85,733
----------
392,196
----------
Insurance (1.76%)
Conseco, Inc.,
Sr Note 12-15-04 ............... 10.500 BBB 5 6,016
Fairfax Financial Holdings
Ltd., Note (Canada)
04-15-26 (Y) ................... 8.300 BBB+ 15 16,634
Liberty Mutual Insurance Co.,
Surplus Note
05-04-07 (R) ................. 8.200 A+ 5 5,517
Surplus Note 10-15-26 (R) ...... 7.875% A2 $ 5 $ 5,503
Massachusetts Mutual Life
Insurance Co., Surplus
Note 11-15-23 (R) .............. 7.625 AA 5 5,464
NAC Re Corp.,
Note 06-15-99 .................. 8.000 A- 5 5,117
New York Life Insurance
Co., Surplus Note
12-15-23 (R) ................... 7.500 AA- 5 5,077
Phoenix Home Life Mutual
Insurance Co., Surplus Note
12-01-06 (R) ................... 6.950 A+ 5 5,084
Sun Canada Financial Co.,
Gtd Sub Note
12-15-07 (R) ................... 6.625 AA 5 5,093
URC Holdings Corp.,
Sr Note 06-30-06 (R) ........... 7.875 A- 5 5,394
----------
64,899
----------
Leisure (0.29%)
Sun International Hotels Ltd.,
Sr Sub Note (Bahamas)
12-15-07 (Y) ................... 8.625 B+ 5 5,075
Trump Hotels & Casino Resorts
Funding, Inc./Holdings, L.P.,
Sr Note 06-15-05 ............... 15.500 B- 5 5,725
----------
10,800
----------
Media (2.07%)
Adelphia Communications
Corp., Sr Note Ser B
10-01-02 ....................... 9.250 B3 8 8,160
Clear Channel Communications,
Inc., Deb 10-15-27 ............. 7.250 BBB- 7 7,042
Comcast Cable Communications
Inc., Note 05-01-17 ........... 8.875 BBB- 5 5,921
Comcast Corp., Sr Sub Deb
07-15-12 ....................... 10.625 BB+ 4 4,954
Garden State Newspapers,
Inc., Sr Sub Note
10-01-09 (R) ................... 8.750 B+ 9 9,045
Hearst-Argyle Television, Inc.,
Note 11-15-07 .................. 7.000 Baa3 5 5,037
News America Holdings Inc.,
Gtd Sr Deb 08-10-18 ........... 8.250 BBB- 8 8,734
SEE NOTES TO FINANCIAL STATEMENTS.
80
<PAGE>
==============================FINANCIAL STATEMENTS==============================
John Hancock Funds - Declaration Trust -- V.A. Sovereign Bond Fund
INTEREST CREDIT PAR VALUE MARKET
ISSUER, DESCRIPTION RATE RATING* (000s OMITTED) VALUE
- ------------------- ---- ------- -------------- -----
Media (continued)
SFX Broadcasting, Inc.,
Sr Sub Note Ser B
05-15-06 ....................... 10.750% B- $ 5 $ 5,488
TeleWest Communications
Plc, Sr Deb (United Kingdom)
10-01-06 (Y) ................... 9.625 B+ 2 2,110
Time Warner, Inc.,
Deb 01-15-13 ................... 9.125 BBB- 9 10,717
TKR Cable I, Inc.,
Sr Deb 10-30-07 ................ 10.500 BBB- 8 9,018
----------
76,226
----------
Medical (0.70%)
Integrated Health Services, Inc.,
Sr Sub Note 01-15-08 (R) ....... 9.250 B- 10 10,200
Physician Sales & Services,
Inc., Sr Sub Note
10-01-07 (R) ................... 8.500 B 3 3,060
Quest Diagnostics, Inc.,
Sr Sub Note 12-15-06 ........... 10.750 B+ 3 3,270
Tenet Healthcare Corp.,
Sr Sub Note 01-15-07 ........... 8.625 B+ 9 9,293
----------
25,823
----------
Mortgage Banking (2.66%)
EQCC Home Equity Loan Trust,
Pass Thru Ctf Ser 1997-3
Class A-9 02-15-29 ............. 6.570 AAA 25 25,036
First Plus Home Loan Trust,
Pass Thru Ctf Ser 1997-1
Class A6 12-10-15 .............. 6.950 AAA 5 5,078
GMAC Commercial Mortgage
Securities, Inc., Pass Thru Ctf
Ser 1997-C2 Class A3
11-15-07 ....................... 6.566 AAA 25 25,281
Money Store Home Equity
Trust (The), Pass Thru Ctf
Ser 1997-D Class AF-7
12-15-38 ....................... 6.485 AAA 16 16,065
Money Store Residential
Trust (The), Pass Thru Ctf
Ser 1997-I Class A-3
08-15-12 ....................... 6.680 AAA 10 9,953
Salomon Brothers Mortgage
Securities VII, Inc., Mtg
Pass Thru Ctf Ser 1997-HUD2
Class A-2 07-25-24 ............. 6.750% AAA $ 6 $ 6,050
UCFC Home Equity Loan
Trust, Pass Thru Ctf
Ser 1997-A1 Class A8
06-15-28 ....................... 7.220 AAA 10 10,345
----------
97,808
----------
Oil & Gas (0.48%)
Camuzzi Gas Pampeana
S.A., Bond (Argentina)
12-15-01 (Y) ................... 9.250 BBB- 2 2,000
Norsk Hydro ASA, Deb
(Norway) 10-01-16 (Y) .......... 7.500 A 5 5,386
Transgas de Occidenta S.A.,
Sr Note (Colombia)
11-01-10 (R) (Y) ............... 9.790 BBB- 10 10,211
----------
17,597
----------
Paper & Paper Products (0.82%)
Celulosa Arauco Y Constitucion
S.A., Note (Chile)
09-15-09 (Y) ................... 7.200 Baa3 10 9,790
Fort James Corp.,
Sr Note 09-15-02 ............... 6.500 BBB- 5 5,023
Indah Kiat International
Finance Co., Gtd Sec Bond
Ser C (Indonesia)
06-15-06 (Y) ................... 12.500 BB 4 3,880
Indah Kiat Pulp & Paper
Corp. (P.T.), Sr Sec Deb
(Indonesia) 11-01-00 (R) ....... 8.875 BB 9 8,100
S.D. Warren Co.,
Sr Sub Note Ser B
12-15-04 ....................... 12.000 B+ 3 3,352
----------
30,145
----------
Real Estate Investment Trust (0.28%)
American Health Properties,
Inc., Note 01-15-07 ............ 7.500 BBB- 5 5,211
TriNet Corporate Realty Trust,
Inc., Note 05-15-01 ............ 7.300 BBB- 5 5,112
----------
10,323
----------
SEE NOTES TO FINANCIAL STATEMENTS.
81
<PAGE>
==============================FINANCIAL STATEMENTS==============================
John Hancock Funds - Declaration Trust -- V.A. Sovereign Bond Fund
INTEREST CREDIT PAR VALUE MARKET
ISSUER, DESCRIPTION RATE RATING* (000s OMITTED) VALUE
- ------------------- ---- ------- -------------- -----
Retail (0.20%)
Southern Foods Group, L.P.,
Sr Sub Note 09-01-07 (R) ....... 9.875% B $ 7 $ 7,315
----------
Steel (0.09%)
IVACO Inc., Sr Note
(Canada) 09-15-05 (Y) .......... 11.500 B+ 3 3,262
----------
Telecommunications (1.28%)
Iridium LLC/Iridium Capital
Corp., Gtd Sr Note Ser A
07-15-05 ....................... 13.000 B- 11 11,550
MetroNet Communications
Corp., Unit (Sr Note &
Warrant) (Canada)
08-15-07 (Y) ................... 12.000 B- 5 5,775
Nextel Communications,
Inc., Sr Disc Note, Step
Coupon (9.75%, 02-15-99)
08-15-04 (A) ................... Zero CCC 12 10,680
Qwest Communications
International Inc., Sr Note
Ser B 04-01-07 ................. 10.875 B+ 4 4,550
TCI Communications, Inc.,
Sr Deb 08-01-15 ................ 8.750 BBB- 9 10,431
Teligent, Inc.,
Sr Note 12-01-07 ............... 11.500 CCC 4 4,010
----------
46,996
----------
Tobacco (0.59%)
Philip Morris,
Note 08-15-02 .................. 7.125 A 10 10,248
RJR Nabisco, Inc.,
Note 12-01-02 .................. 8.625 BBB- 6 6,388
Note 09-15-03 .................. 7.625 BBB- 5 5,111
----------
21,747
----------
Transport (0.66%)
America West Airlines, Inc.
Pass Thru Ctf Ser B
01-02-08 ....................... 6.930 A- 5 5,007
Northwest Airlines Inc.,
Gtd Note 03-15-04 .............. 8.375 BB- 4 4,118
Pass Thru Ctf Ser 1996-1
01-02-15 ....................... 8.970 BBB- 5 5,452
NWA Trust,
Sr Note Ser A 06-21-14 ......... 9.250% A2 $ 4 $ 4,379
U.S. Air, Inc.,
Pass Thru Ctf Ser 1989-A2
01-01-13 ....................... 9.820 A- 5 5,531
----------
24,487
----------
Utilities (3.98%)
Avon Energy Partners
Holdings, Sr Note
(United Kingdom)
12-11-07 (R) (Y) ............... 7.050 A- 7 7,128
BVPS II Funding Corp.,
Collateralized Lease
Bond 06-01-17 .................. 8.890 BB- 5 5,595
Calpine Corp.,
Sr Note 07-15-07 (R) ........... 8.750 BB- 8 8,160
CE Electric UK Funding Co.,
Sr Note 12-30-07 (R) ........... 6.995 BBB+ 10 10,095
Cleveland Electric Illuminating
Co. & Toledo Edison Co.,
Sec Note Ser B 07-01-04 ........ 7.670 Ba1 5 5,206
Cleveland Electric
Illuminating Co.,
1st Mtg Ser B 05-15-05 ......... 9.500 BB+ 23 25,507
CMS Energy Corp.,
Sr Note 05-15-02 ............... 8.125 BB 5 5,141
Enersis S.A.,
Note (Cayman Islands)
12-01-16 (Y) ................... 7.400 A- 5 4,961
First PV Funding Corp.,
Deb Ser 86B 01-15-16 ........... 10.150 BB- 3 3,247
Hydro-Quebec, Gtd Bond
(Canada) 02-01-21 (Y) .......... 9.400 A+ 15 19,368
Iberdrola International B.V.,
Note 10-01-02 .................. 7.500 AA- 15 15,787
Long Island Lighting Co.,
Deb 07-15-19 ................... 8.900 BB+ 3 3,192
Gen Ref Mtg 05-01-21 ........... 9.750 BBB 10 10,250
North Atlantic Energy Corp.,
1st Mtg Bond 06-01-02 .......... 9.050 B+ 8 8,221
SEE NOTES TO FINANCIAL STATEMENTS.
82
<PAGE>
==============================FINANCIAL STATEMENTS==============================
John Hancock Funds - Declaration Trust -- V.A. Sovereign Bond Fund
INTEREST CREDIT PAR VALUE MARKET
ISSUER, DESCRIPTION RATE RATING* (000s OMITTED) VALUE
- ------------------- ---- ------- -------------- -----
Utilities (continued)
Philippine Long Distance
Telephone Co., Note
(Philippines) 03-06-07, (Y) .... 7.850% BB+ $ 6 $ 5,228
Waterford 3 Funding Corp.,
Sec Lease Obligation
Bond 01-02-17 .................. 8.090 BBB- 9 9,409
----------
146,495
----------
TOTAL BONDS
(Cost $3,265,357) (89.95%) 3,312,295
------- -----------
INTEREST PAR VALUE MARKET
ISSUER, DESCRIPTION RATE (000s OMITTED) VALUE
- ------------------- ---- -------------- -----
SHORT-TERM INVESTMENTS
Joint Repurchase Agreement (16.16%)
Investment in a joint repurchase
agreement transaction with HSBC
Securities, Inc. - Dated 12-31-97,
Due 01-02-98 (Secured by U.S.
Treasury Bonds, 7.25% thru 13.25%
due 11-15-08 thru 11-15-16, and
U.S. Treasury Note, 6.50% Due
04-30-99), -
Note A..................... 6.60% $595 $ 595,000
---------
Corporate Savings Account ( 0.02%)
Investors Bank & Trust Company
Daily Interest Savings Account
Current Rate 4.95%......... 879
---------
TOTAL SHORT-TERM INVESTMENTS ( 16.18%) 595,879
------- ---------
TOTAL INVESTMENTS (106.13%) 3,908,174
------- ---------
OTHER ASSETS AND LIABILITIES, NET ( 6.13%) ( 225,693)
------- ---------
TOTAL NET ASSETS (100.00%) $3,682,481
======== ==========
NOTES TO THE SCHEDULE OF INVESTMENTS
* Credit ratings are unaudited and rated by Standard & Poor's where
available, or Moody's Investor Services or John Hancock Advisers, Inc.
where Standard & Poor's ratings are not available.
+ A portion of these securities having an aggregate value of $278,344 or
7.56% of the Fund's net assets, have been purchased on a when issued
basis. The purchase price and the interest rate of such securities are
fixed at trade date, although the Fund does not earn any interest on such
securities until settlement date. The Fund has instructed its Custodian
Bank to segregate assets with current values at least equal to the amounts
of its when issued commitments. Accordingly, the market values of $54,224
of United States Treasury Bond 7.125%, 02-15-23 and $58,695 of United
States Treasury Note 7.50%, 05-15-02 have been segregated to the when
issued commitments.
(A) Cash interest will be paid on this obligation at the stated rate beginning
on the stated date.
(R) These securities are exempt from registration under rule 144A of the
Securities Act of 1933. Such securities may be resold, normally to
qualified institutional buyers, in transactions exempt from registration.
Rule 144A securities amounted to $179,630 or 4.88% of net assets as of
December 31, 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.
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.
83
<PAGE>
==============================FINANCIAL STATEMENTS==============================
John Hancock Funds - Declaration Trust -- V.A. Money Market Fund
Schedule of Investments
December 31, 1997
- --------------------------------------------------------------------------------
The Schedule of Investments is a complete list of all securities owned by the
V.A. Money Market Fund on December 31, 1997.
INTEREST QUALITY PAR VALUE MARKET
ISSUER, DESCRIPTION RATE RATINGS* (000s OMITTED) VALUE
- ------------------- ---- ------- -------------- -----
COMMERCIAL PAPER
Broker Services (4.73%)
Merrill Lynch & Co., Inc.,
02/25/98 ....................... 5.700% Tier 1 $400 $ 396,517
----------
Mortgage Banking (4.78%)
Countrywide Home Loans,
01/02/98 ....................... 6.350 Tier 1 400 399,929
----------
Utilities - Telephone (4.76%)
Bell Atlantic Network Funding
Corp. 01/22/98 ................. 5.800 Tier 1 400 398,647
----------
TOTAL COMMERCIAL PAPER
(Cost $1,195,093) (14.27%) 1,195,093
------- ----------
CORPORATE INTEREST BEARING OBLIGATIONS
Automotive (3.59)
Chrysler Financial Corp.,
06/23/98 ....................... 6.300 Tier 1 300 300,617
----------
Finance (4.19%)
CIT Group Holdings, Inc.,
07/31/98 ....................... 6.350 Tier 1 350 350,673
----------
Retail Stores (3.61)
Sears Roebuck Acceptance
Corp., 04/15/98 ................ 9.250 Tier 1 300 302,884
----------
TOTAL CORPORATE
INTEREST BEARING OBLIGATIONS
(Cost $954,174) (11.39%) 954,174
------- ----------
U.S. GOVERNMENT OBLIGATIONS
Governmental - U.S. Agencies (52.51%)
Federal Farm Credit Bank
02/02/98 ....................... 5.650 Tier 1 1,000 999,665
Federal Home Loan Bank
02/26/98 ....................... 5.875 Tier 1 1,000 999,673
Federal National Mortgage
Association, 01/15/1998 ........ 5.520 Tier 1 1,000 999,748
Private Export Funding Corp.,
04/30/98 ....................... 5.750% Tier 1 $500 $ 499,834
Student Loan Marketing
Association, 12/04/98 .......... 5.910 Tier 1 500 500,000
Student Loan Marketing
Association, 12/10/98 .......... 5.900 Tier 1 400 400,000
----------
4,398,920
----------
TOTAL U.S. GOVERNMENT OBLIGATIONS
(Cost $4,398,920) (52.51%) 4,398,920
------- ----------
JOINT REPURCHASE AGREEMENT
Investment in a joint repurchase
agreement transaction with HSBC
Securities, Inc. - Dated 12-31-97,
due 01-02-98 (Secured by U.S.
Treasury Bonds 11.25% due
02-15-15 and 9.25%
due 02-15-16), - Note A ... 6.60% 1,729 1,729,000
----------
TOTAL JOINT REPURCHASE AGREEMENT (20.64%) 1,729,000
------- ----------
TOTAL INVESTMENTS (98.81%) 8,277,187
------- ----------
OTHER ASSETS AND LIABILITIES, NET (1.19%) 99,871
------- ----------
TOTAL NET ASSETS (100.00%) $8,377,058
======= ==========
* Quality ratings indicate the categories of eligible securities, as defined
by Rule 2a-7 of the Investment Company Act of 1940, owned by the Fund. The
percentage shown 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.
84
<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 April 30, 1997)
("V.A. Financial Industries Fund"), John Hancock V.A. Emerging Growth Fund
("V.A. Emerging Growth Fund"), John Hancock V.A. Growth Fund ("V.A. Growth
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. Prior
to January 2, 1998, V.A. Growth Fund was known as John Hancock V.A. Discovery
Fund. The Trust, organized as a Massachusetts business trust in 1995, consisted
of eleven different series at December 31, 1997. 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. The Trustees approved the organization of three new series of John
Hancock Declaration Trust: John Hancock V.A. High Yield Bond Fund, John Hancock
V.A. Growth and Income Fund and John Hancock V.A. Special Opportunities Fund,
effective January 2, 1998. 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. Growth Fund is
to seek long-term capital appreciation by investing primarily in common stocks
of companies which the Fund's management believes offer outstanding growth
potential over both the intermediate and long term. The investment objective of
the V.A. 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
85
<PAGE>
==========================NOTES TO FINANCIAL STATEMENTS=========================
John Hancock Funds - Declaration Trust
capital preservation and liquidity by investing primarily in high-quality money
market instruments.
NOTE B --
ACCOUNTING POLICIES
VALUATION OF INVESTMENTS Securities in the Funds' portfolios (except for the
V.A. Money Market Fund) are valued on the basis of market quotations, valuations
provided by independent pricing services or at fair value as determined in good
faith in accordance with procedures approved by the Trustees. Short-term debt
investments maturing within 60 days are valued at amortized cost which
approximates market value. All portfolio transactions initially expressed in
terms of foreign currencies have been translated into U.S. dollars as described
in "Foreign Currency Translation" below. The Funds may invest in indexed
securities whose value is linked either directly or inversely to changes in
foreign currencies, interest rates, commodities, indices or other reference
instruments. Indexed securities may be more volatile than the reference
instrument itself, but any loss is limited to the amount of the original
investment.
The V.A. Money Market Fund's portfolio of securities is valued at
amortized cost, in accordance with Rule 2a-7 of the Investment Company Act of
1940, which approximates market value. The amortized cost method involves
valuing a security at its cost on the date of purchase and thereafter assuming a
constant amortization to maturity of the difference between the principal amount
due at maturity and the cost of the security to the Fund. Interest income on
certain portfolio securities such as negotiable bank certificates of deposit and
interest bearing notes is accrued daily and included in interest receivable.
JOINT REPURCHASE AGREEMENT Pursuant to an exemptive order issued by the
Securities and Exchange Commission, the Fund, along with other registered
investment companies having a management contract with John Hancock Advisers,
Inc. (the "Adviser"), a wholly-owned subsidiary of The Berkeley Financial Group,
may participate in a joint repurchase agreement transaction. Aggregate cash
balances are invested in one or more large repurchase agreements, whose
underlying securities are obligations of the U.S. government and/or its
agencies. The Funds' custodian bank receives delivery of the underlying
securities for the joint account on the Funds' behalf. The Adviser is
responsible for ensuring that the agreement is fully collateralized at all
times.
INVESTMENT TRANSACTIONS Investment transactions are recorded as of the date of
purchase, sale or maturity. Net realized gains and losses on sales of
investments are determined on the identified cost basis. Capital gains realized
on some foreign securities are subject to foreign taxes and are accrued, as
applicable.
FEDERAL INCOME TAXES The Funds' policy is to comply with the requirements of the
Internal Revenue Code that are applicable to regulated investment companies.
They will not be subject to federal income tax on taxable earnings which are
distributed to shareholders. For federal income tax purposes, net currency
exchange gains and losses from sales of foreign debt securities may be treated
as ordinary income even though such items are capital gains and losses for
accounting purposes.
For federal income tax purposes, the following funds had capital loss
carryforwards available. These carryforwards are available to offset future net
realized capital gains to the extent provided by regulations. Additionally, net
capital losses attributable to security transactions occurring after October 31,
1997 are treated as arising on the first day (January 1, 1998) of the Funds next
taxable year.
CAPITAL LOSS CAPITAL LOSS POST 10/31/1997
CARRYFORWARD CARRYFORWARD LOSS TREATED AS
FUND EXPIRES 12/31/2004 EXPIRES 12/31/2005 ARISING 1/1/98
- ---- ------------------ ------------------ --------------
V.A. International Fund .... $ -- $ -- $65,667
V.A. Financial Industries
Fund...................... -- -- --
V.A. Emerging Growth Fund 18,937 167,508 66,172
V.A. Growth Fund............ 11,062 197,206 --
V.A. Independence
Equity Fund............... -- -- --
V.A. 500 Index Fund. ....... -- -- --
V.A. Sovereign Investors
Fund...................... -- -- --
V.A. World Bond Fund ....... -- -- 27,755
V.A. Strategic Income Fund . -- 2,482 8,904
V.A. Sovereign Bond Fund ... -- -- --
V.A. Money Market Fund ..... -- -- --
86
<PAGE>
==========================NOTES TO FINANCIAL STATEMENTS=========================
John Hancock Funds - Declaration Trust
DIVIDENDS, INTEREST AND DISTRIBUTIONS Dividend income on investment securities
is recorded on the ex-dividend date or, in the case of some foreign securities,
on the date thereafter when the Funds are notified of the dividend. Interest
income on investment securities is recorded on the accrual basis. Foreign income
may be subject to foreign withholding taxes which are accrued as applicable.
The Funds record all distributions to shareholders from net investment
income and realized gains on the ex-dividend date. Such distributions are
determined in conformity with income tax regulations, which may differ from
generally accepted accounting principles.
EXPENSES The majority of the expenses of the Trust are directly identifiable to
an individual Fund. Expenses which are not readily identifiable to a specific
Fund are allocated in such a manner as deemed equitable, taking into
consideration, among other things, the nature and type of expense and the
relative sizes of the Funds.
USE OF ESTIMATES The preparation of these financial statements in accordance
with generally accepted accounting principles incorporates estimates made by
management in determining the reported amounts of assets, liabilities, revenues,
and expenses of the Funds. Actual results could differ from these estimates.
ORGANIZATION EXPENSES Expenses incurred in connection with the organization of
the Funds have been capitalized and are being charged to the Funds' operations
ratably over a five year period that commenced with the investment operations of
each Fund.
BANK BORROWINGS The Funds are permitted to have bank borrowings for temporary or
emergency purposes, including the meeting of redemption requests that otherwise
might require the untimely disposition of securities. These agreements enable
the Funds to participate with other Funds managed by the Adviser in unsecured
lines of credit with banks which permit borrowings up to $600 million,
collectively. Interest is charged to each of the Funds, based on its borrowings,
at a rate equal to 0.50% over the Fed Funds Rate. In addition, a commitment fee,
at a rate of 0.075% per annum based on the average daily unused portion of the
line of credit, is allocated among the participating Funds. The Funds had no
borrowing activity for the year ended December 31, 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 Fund's daily net assets.
The Funds record realized gains and losses at the time the forward foreign
currency contract is closed out or offset by a matching contract. Risks may
arise upon
87
<PAGE>
==========================NOTES TO FINANCIAL STATEMENTS=========================
John Hancock Funds - Declaration Trust
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 if they are offset by the currency amount of the
underlying transaction.
Open forward foreign currency contracts for the Trust at December 31, 1997
were as follows:
UNREALIZED
PRINCIPAL AMOUNT EXPIRATION APPRECIATION/
CURRENCY COVERED BY CONTRACT MONTH (DEPRECIATION)
- -------- ------------------- ----- --------------
V.A. WORLD BOND FUND
Buy
German Deutsche Mark............ 800,000 Jan 98 ($6,379)
======
V.A. STRATEGIC INCOME FUND
Sells
Australian Dollar............... 106,000 Jan 98 $8,179
Australian Dollar............... 182,000 Mar 98 (149)
------
$8,030
======
V.A. FINANCIAL INDUSTRIES FUND
Buy
Swedish Krona................... 45,193 Jan 98 ($ 131)
======
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.
Open financial futures contracts for the Trust at December 31, 1997 were
as follows:
UNREALIZED
OPEN APPRECIATION/
EXPIRATION CONTRACTS POSITION (DEPRECIATION)
- ---------- --------- -------- --------------
V.A. 500 INDEX FUND
Mar 98................. 2 S&P 500 Long ($6,075)
Mar 98................. 3 S&P 500 Long 13,400
------
$7,325
======
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
88
<PAGE>
==========================NOTES TO FINANCIAL STATEMENTS=========================
John Hancock Funds - Declaration Trust
Liabilities as an asset and corresponding liability. The amount of the liability
will be subsequently marked to market to reflect the current market value of the
written option.
The Funds may use option contracts to manage their exposure to changing
security prices. Writing puts and buying calls will tend to increase the Funds'
exposure to the underlying instrument and buying puts and writing calls will
tend to decrease the Funds' exposure to the underlying instrument, or hedge
other Fund investments.
The maximum exposure to loss for any purchased options will be limited to
the premium initially paid for the option. In all other cases, the face (or
"notional") amount of each contract at value will reflect the maximum exposure
of the Funds in these contracts, but the actual exposure will be limited to the
change in value of the contract over the period the contract remains open.
Risks may also arise if counterparties do not perform under the contract's
terms, or if the Funds are unable to offset a contract with a counterparty on a
timely basis ("liquidity risk"). Exchange-traded options have minimal credit
risk as the exchanges act as counterparties to each transaction, and only
present liquidity risk in highly unusual market conditions. To minimize credit
and liquidity risks in over-the-counter option contracts, the Funds will
continuously monitor the creditworthiness of all its counterparties.
At any particular time, except for purchased options, market or credit
risk may involve amounts in excess of those reflected in the Fund's Statement of
Assets and Liabilities.
There were no written option transactions for the year ended December 31,
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. Growth 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 0.10% 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.
The Adviser compensated the V.A. International Fund during the year in the
amount of $435,961 for a loss incurred as a result of an inaccurate execution of
a trade.
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-advisery
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
89
<PAGE>
==========================NOTES TO FINANCIAL STATEMENTS=========================
John Hancock Funds - Declaration Trust
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 agreed to limit its management
fee on the V.A. 500 Index Fund to 0.10% of the Fund's average daily net assets.
The Adviser may terminate this limitation in the future.
The Adviser has voluntarily agreed to limit each 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 year ended December 31, 1997
were as follows:
FUND FEE REDUCTION
- ---- -------------
V.A. International Fund........................ $26,430
V.A. Financial Industries Fund................. 17,678
V.A. Emerging Growth Fund...................... 33,471
V.A. Growth Fund............................... 30,501
V.A. Independence Equity Fund.................. 21,288
V.A. 500 Index Fund............................ 24,549
V.A. Sovereign Investors Fund.................. 14,303
V.A. World Bond Fund........................... 27,843
V.A. Strategic Income Fund..................... 16,865
V.A. Sovereign Bond Fund....................... 31,793
V.A. Money Market Fund......................... 12,855
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 year was
at an annual rate of less than 0.02% of the average net assets of the Funds.
Mr. Edward J. Boudreau, Jr., Mr. Richard S. Scipione, and Ms. Anne C.
Hodsdon are directors and/or officers of the Adviser and/or its affiliates, as
well as Trustees of the Funds. The compensation of unaffiliated Trustees is
borne by the Fund. The Adviser and other subsidiaries of John Hancock Mutual
Life Insurance Company owned the following shares of beneficial interest of the
Funds as of December 31, 1997:
FUND SHARES OF BENEFICIAL INTEREST
- ---- -----------------------------
V.A. International Fund............. 213,604
V.A. Financial Industries Fund...... --
V.A. Emerging Growth Fund........... 100,201
V.A. Growth Fund.................... 100,000
V.A. Independence Equity Fund....... 103,519
V.A. 500 Index Fund................. 830,646
V.A. Sovereign Investors Fund....... 102,343
V.A. World Bond Fund................ 216,509
V.A. Strategic Income Fund.......... 226,576
V.A. Sovereign Bond Fund............ 109,809
V.A. Money Market Fund.............. 105,798
NOTE D --
INVESTMENT TRANSACTIONS:
Purchases and proceeds from sales of securities, excluding short-term
securities, during the year ended December 31, 1997, for the Funds were as
follows:
FUND PURCHASES SALES
- ---- --------- -----
V.A. International Fund.................. $ 9,319,894 $7,460,987
V.A. Financial Industries Fund........... 16,107,447 905,236
V.A. Emerging Growth Fund................ 4,077,138 1,440,195
V.A. Growth Fund......................... 5,242,258 2,967,350
V.A. Independence Equity Fund............ 8,026,973 1,775,199
V.A. 500 Index Fund...................... 19,013,544 1,248,907
V.A. Sovereign Investors Fund
U.S. Government Securities.............. 515,734 --
Other Investments....................... 9,345,623 462,178
V.A. World Bond Fund
U.S. Government Securities.............. 2,250,113 982,197
Other Investments....................... 1,518,874 2,553,728
V.A. Strategic Income Fund
U.S. Government Securities.............. 2,423,924 2,394,565
Other Investments....................... 4,377,175 1,677,088
V.A. Sovereign Bond Fund
U.S. Government Securities.............. 3,866,896 2,180,635
Other Investments....................... 1,493,781 936,209
90
<PAGE>
==========================NOTES TO FINANCIAL STATEMENTS=========================
John Hancock Funds - Declaration Trust
At December 31, 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...................... $ 3,746,400 $ 285,308 $299,701 ($ 14,393)
V.A. Financial
Industries
Fund...................... 16,911,261 1,868,063 322,499 1,545,564
V.A. Emerging
Growth Fund............... 3,536,833 568,582 245,367 323,215
V.A. Growth
Fund...................... 3,276,784 625,832 113,160 512,672
V.A. Independence
Equity Fund............... 8,256,498 816,806 187,746 629,060
V.A. 500 Index
Fund...................... 19,056,716 1,478,926 582,345 896,581
V.A. Sovereign
Investors Fund............ 11,912,095 1,228,310 110,585 1,117,725
V.A. World
Bond Fund................. 2,253,103 39,985 7,729 32,256
V.A. Strategic
Income Fund............... 5,359,429 164,532 90,124 74,408
V.A. Sovereign
Bond Fund................. 3,861,652 55,159 9,516 45,643
V.A. Money
Market Fund............... 8,277,187 -- -- --
</TABLE>
NOTE E --
RECLASSIFICATION OF ACCOUNT
During the year ended December 31, 1997, reclassifications have been made in
each Fund's capital accounts to report these balances on a tax basis, excluding
certain temporary differences, as of December 31, 1997. Additional adjustments
may be needed in subsequent reporting periods. These reclassifications, which
have no impact on the net asset value of the Funds, are primarily attributable
to differences in the treatment of net operating losses, foreign currency gain
and losses and return of capital under federal tax rules versus generally
accepted accounting principle. The calculation of net investment income per
share in the financial highlights excludes these adjustments.
<TABLE>
<CAPTION>
CAPITAL UNDISTRIBUTED NET ACCUMULATED NET
FUND PAID-IN INVESTMENT INCOME/(LOSS) REALIZED GAIN (LOSS)
- ---- ------- ------------------------ --------------------
<S> <C> <C> <C>
V.A. International
Fund....................... $ -- ($10,311) $10,311
V.A. Financial
Industries Fund............ -- ( 169) 169
V.A. Emerging
Growth Fund................ ( 3,072) 3,163 ( 91)
V.A. Growth
Fund....................... ( 8,594) 8,594 --
V.A. Independence
Equity Fund................ -- -- --
V.A. 500 Index
Fund....................... -- -- --
V.A. Sovereign
Investors Fund............. -- 3 ( 3)
V.A. World
Bond Fund.................. (62,240) ( 18,355) 80,595
V.A. Strategic
Income Fund............... -- 6,469 ( 6,469)
V.A. Sovereign
Bond Fund.................. -- -- --
V.A. Money
Market Fund................ -- -- --
</TABLE>
91
<PAGE>
================================================================================
John Hancock Funds - Declaration Trust
REPORT OF ERNST & YOUNG LLP,
INDEPENDENT AUDITORS
To The Contract owners, Policyholders and Trustees of
John Hancock Declaration Trust
We have audited the accompanying statements of assets and liabilities, including
the schedules of investments, of John Hancock Declaration Trust (the "Trust")
(comprising, respectively, V.A. International Fund, V.A. Financial Industries
Fund, V.A. Emerging Growth Fund, V.A. Growth Fund (formerly V.A. Discovery
Fund), V.A. Independence Equity Fund, V.A. 500 Index Fund, V.A. Sovereign
Investors Fund, V.A. World Bond Fund, V.A. Strategic Income Fund, V.A. Sovereign
Bond Fund, and V.A. Money Market Fund) (collectively "the Funds") as of December
31, 1997, and the related statements of operations for the year then ended,
statements of changes in net assets for each of the two years in the period then
ended, and the financial highlights for the periods indicated therein. These
financial statements and financial highlights are the responsibility of the
Funds' management. Our responsibility is to express an opinion on these
financial statements and financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements and financial highlights. Our procedures included confirmation of
securities owned as of December 31, 1997, by correspondence with the custodian
and brokers, and other appropriate auditing procedures where replies from
brokers were not received. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred
to above present fairly, in all material respects, the financial position of
each of the respective Funds constituting John Hancock Declaration Trust as of
December 31, 1997, the results of their operations for the year then ended, the
changes in their net assets for each of the two years in the period then ended,
and the financial highlights for each of the periods indicated therein, in
conformity with generally accepted accounting principles.
/s/ Ernst & Young LLP
Boston, Massachusetts
February 6, 1998
TAX INFORMATION (Unaudited)
The Funds designated the following as long-term capital gain dividends during
the fiscal year ended December 31, 1997. The capital gain dividends are further
broken down into two capital gain tax rates, 28% and 20%, respectively.
Additionally, the following dividend distributions qualify for the
dividends received deduction available to corporations.
TOTAL 28% 20% DIVIDENDS
CAPITAL RATE RATE RECEIVED
GAINS GAINS GAINS DEDUCTION
----- ----- ----- ---------
V.A. International Fund.... $20,365 $20,365 $ -- --%
V.A. Financial Industries
Fund..................... -- -- -- 92.42
V.A. Emerging
Growth Fund.............. -- -- -- 28.42
V.A. Growth Fund........... -- -- -- --
V.A. Independence
Equity Fund.............. 4,084 4,084 -- 32.50
V.A. 500 Index Fund........ 479,305 226,529 252,776 17.22
V.A. Sovereign
Investors Fund........... -- -- -- 65.85
V.A. World Bond Fund....... 6,656 6,656 -- --
V.A. Strategic
Income Fund.............. -- -- -- 4.36
V.A. Sovereign
Bond Fund................ 7,357 7,357 -- --
V.A. Money
Market Fund.............. -- -- -- --
92
<PAGE>
================================================================================
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 December 31, 1997
- --------------------------------------------------------------------------------
PERCENT OF
COMPANY DIVIDEND INCREASE
- ------- -----------------
AFLAC Corp. .................................................. 15.0
Abbott Laboratories, Inc. .................................... 12.5
Air Products & Chemicals ..................................... 9.1
American Home Products ....................................... 4.9
American International Group ................................. 12.4
Ameritech Corp. .............................................. 6.2
AMP, Inc. .................................................... 4.0
Archer-Daniel Midland Co. .................................... 5.0
Automatic Data Processing, Inc. .............................. 15.2
BB & T Corp. ................................................. 16.3
BankOne Corp. ................................................ 11.7
Baxter International, Inc. ................................... 3.0
Becton Dickinson & Co. ....................................... 11.5
Bemis Company, Inc. .......................................... 11.1
Betz Laboratories ............................................ 1.3
Century Telephone Enterprise, Inc. ........................... 2.8
Chubb Corp. .................................................. 7.4
Conagra, Inc. ................................................ 14.7
Dayton Hudson Corp. .......................................... 12.5
Dover Corp. .................................................. 11.5
DuPont (E.I.) De Nemours & Co. ............................... 10.5
Duke Energy Corp. ............................................ 3.8
Ecolab, Inc. ................................................. 18.8
Emerson Electric Co. ......................................... 9.3
Exxon Corp. .................................................. 3.8
First Tennessee National Corp. ............................... 10.0
First Union Corp. ............................................ 15.6
Gannett Co., Inc. ............................................ 5.6
General Electric Co. ......................................... 15.4
General RE Corp. ............................................. 7.8
Grainger (W.W.), Inc. ........................................ 8.0
Hewlett Packard Co. .......................................... 16.7
Home Depot, Inc. ............................................. 25.0
Honeywell, Inc. .............................................. 3.7
Ikon Office Solutions, Inc. .................................. 24.0
Interpublic Group, Inc. ...................................... 14.7
Johnson & Johnson ............................................ 15.8
Johnson Controls ............................................. 7.0
Key Corp. .................................................... 10.5
Leggett & Platt, Inc. ........................................ 7.7
Lilly (Eli) & Co. ............................................ 11.1
Masco Corp. .................................................. 5.0
McGraw-Hill Companies, Inc. .................................. 9.1
Medtronic, Inc. .............................................. 15.8
Mobil Corp. .................................................. 6.0
National Fuel Gas Co. ........................................ 3.6
NationsBank Corp. ............................................ 15.2
Norwest Corp. ................................................ 10.0
Nucor Corp. .................................................. 25.0
Pentair, Inc. ................................................ 11.1
Pep Boys - Manny, Moe, & Jack (The) .......................... 14.3
PepsiCo, Inc. ................................................ 8.8
Pitney Bowes, Inc. ........................................... 15.9
Questar Corp. ................................................ 3.3
Reliastar Financial Corp. .................................... 10.7
Rockwell International Corp. ................................. 5.2
RPM, Inc. .................................................... 7.7
SBC Communications, Inc. ..................................... 4.1
Schulman A., Inc. ............................................ 10.5
Sigma-Aldrich Corp. .......................................... 12.0
Sonoco Products Corp. ........................................ 9.1
Sysco Corp. .................................................. 13.3
Travelers, Inc. .............................................. 25.0
Wal-Mart Stores, Inc. ........................................ 28.6
Worthington Industries, Inc. ................................. 8.3
----
The average dividend increase for this group was 11.1%
====
Historical Data (Unaudited)
The table below shows the record for the V.A. Sovereign Investors Fund during
the past periods.
- --------------------------------------------------------------------------------
PER SHARE
YEAR -------------------------------------------------------
ENDED SHARES DIVIDENDS NET ASSET CAPITAL GAINS
DEC. 31 OUTSTANDING FROM INCOME VALUE DISTRIBUTION
------- ----------- ----------- ----- ------------
1996 103,482 $.07 $10.74 $.02
1997 896,718 $.18 $13.59 $.01
93
<PAGE>
======================================NOTES=====================================
John Hancock Funds - Declaration Trust
94
<PAGE>
======================================NOTES=====================================
John Hancock Funds - Declaration Trust
95
<PAGE>
================================================================================
------------------
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