SEMIANNUAL REPORT
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[GRAPHIC]
Declaration Trust
Growth V.A. International Fund
V.A. Regional Bank Fund
V.A. Financial Industries Fund
V.A. Emerging Growth Fund
V.A. Special Opportunities Fund
V.A. Growth Fund
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Growth V.A. Growth & Income Fund
& Income V.A. Independence Equity Fund
V.A. Sovereign Investors Fund
V.A. 500 Index Fund
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Income V.A. Sovereign Bond Fund
V.A. Strategic Income Fund
V.A. High Yield Bond Fund
V.A. World Bond Fund
V.A. Money Market Fund
JUNE 30, 1998
[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. Regional Bank Fund................................................ 7
V.A. Financial Industries Fund......................................... 10
V.A. Emerging Growth Fund.............................................. 13
V.A. Special Opportunities Fund........................................ 16
V.A. Growth Fund....................................................... 19
Growth & Income
V.A. Growth & Income Fund.............................................. 22
V.A. Independence Equity Fund.......................................... 25
V.A. Sovereign Investors Fund.......................................... 28
V.A. 500 Index Fund.................................................... 31
Income
V.A. Sovereign Bond Fund............................................... 34
V.A. Strategic Income Fund............................................. 37
V.A. High Yield Bond Fund.............................................. 40
V.A. World Bond Fund................................................... 43
V.A. Money Market Fund................................................. 46
3) Financial Statements..................................................... 48
4) Notes To Financial Statements............................................ 117
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 and Chief Operating Officer
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. Growth & Income Fund
V.A. High Yield Bond Fund
V.A. Independence Equity Fund
V.A. Regional Bank Fund
V.A. Sovereign Investors Fund
V.A. Special Opportunities 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
2
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===============================CHAIRMAN'S MESSAGE===============================
DEAR FELLOW SHAREHOLDERS:
During the last decade, investors have become used to seeing stock market
returns averaging 15% or so each year. In the past three years, the stock market
has treated us to a record run, producing annual returns in excess of 20%.
After such a long and remarkable performance, many began this year wondering
what the market would do for an encore in 1998. The answer through the end of
June was more of the same. But tremors from Asia have also sparked increased
volatility, as corporate earnings and the U.S. economy have shown signs of
slowing. What's more, a good part of the market's advance has come from just a
small group of the largest companies in the major stock market indexes.
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[A 1 1/4" x 1" photo of Edward J. Boudreau Jr., Chairman and Chief Executive
Officer, flush right, next to second paragraph.]
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The move ahead has been so narrow that some observers believe that most
stocks have actually been in a bear market this year. The bond market had its
pockets of volatility as well, although U.S. Treasury bonds benefited from their
safe-haven status.
While we don't make a practice of opining on what the market will do next, we
believe that after such a long run up, it would be wise for investors to set
more realistic expectations. Over the long term, the market's historical results
have been more in the 10% per year range, which is still a solid result,
considering it has been produced despite wars, depressions and other social
upheavals along the way.
In addition to adjusting, or at least re-examining, expectations, now could
also be a good time to review with your investment professional how your assets
are diversified, perhaps with an eye toward a more conservative approach.
Stocks, especially with their outsized gains of the last three years, might have
grown to represent a larger piece of your portfolio than you had originally
intended, given your objectives, time horizon and risk level.
At John Hancock Funds, our goal is to help you reach your financial
objectives and maintain wealth. One way we can do that is by helping you keep
your feet on the ground as you pursue your dreams.
Sincerely,
/s/ Edward J. Boudreau, Jr.
EDWARD J. BOUDREAU, JR., CHAIRMAN AND CHIEF EXECUTIVE OFFICER
3
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BY MIREN ETCHEVERRY, JOHN L.F. WILLS AND
GERARDO J. ESPINOZA, PORTFOLIO MANAGERS
John Hancock
V.A. International Fund
Europe dominates overseas markets during last six months
"International markets parted ways over the last six months..."
International markets parted ways over the last six months, with Europe taking
the high road and Asia and Latin America the low. In the first quarter of the
year, most markets worldwide were rallying, rebounding from late last year's
Asian currency and financial earthquakes. Even the Southeast Asian countries
that caused the consternation had started to rebound, bringing emerging Latin
American markets along. Japan's market also rose on expectations that the
government was about to jumpstart the barely breathing economy. But the world
divided sharply in the second quarter. As Japan's hopes for recovery faded and
its longstanding problems came to the forefront, particularly in the banking
sector, its currency weakened further and its economy slipped back into
recession. That prompted fears of a second round of regional currency
devaluations and the prospect of global economic slowdowns. As if that weren't
enough, Russia's economy and currency later erupted as further trouble spots. It
was the last straw for all emerging markets, including Latin America, which gave
up all their earlier ground and then some, when investors left in droves for
safer havens. Europe was the clear overseas winner, where markets kept rising
because of both the flight to quality and strong economic forces, not the least
of which was anticipation of the long-awaited formation of the European Monetary
Union (EMU).
Despite the divergence in regional results, international investors fared
well over the last six months. John Hancock V.A. International Fund was no
exception. For the six months ended June 30, 1998, the Fund posted a total
return of 15.81% at net asset value. That was in line with the 16.25% return of
the average variable annuity international fund, according to Lipper Analytical
Services, Inc. See page 6 for historical performance information.
Europe overweighted; Fund restructured
The Fund benefited from its large position in Europe, which rose from 49% to 72%
of the Fund's net assets. We kept building our stake there because of the
compelling investment environment. Inflation and interest rates are at historic
lows, as EMU member countries are putting their economic houses in order. At the
corporate level, restructuring and
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Pie chart at the bottom left column titled "Portfolio Diversification" There are
six listings. Beginning from the top right the first represents Continental
Europe 56%, the second represents U.K. & Ireland 16%, the third represents
Pacific Rim 15%, The fourth represents Latin America 4%, the fifth represents
Canada 5%, the sixth represents Short-Term Investments & Other 4%.
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[A 2 1/4" x 3 1/2" photo of fund management team. Caption reads: V.A.
International Fund Portfolio managers. (l-r): Gerardo J. Espinoza, Miren
Etcheverry, and John L.F. Wills.]
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4
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JOHN HANCOCK V.A. INTERNATIONAL FUND
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["Bar Chart with the heading "Fund Performance" at the top of left hand column.
Under the heading is the footnote: "For the six months ended June 30, 1998." The
chart is scaled in increments of 5% with 20% at the top and 0% at the
bottom. The first represents the 15.81% total return for John Hancock V.A.
International Fund. The second represents the 16.25% total return for Average
variable annuity international fund. A Footnote below reads "The total return
for John Hancock V.A. International Fund is at net asset value with all
distributions reinvested. The average variable annuity international fund is
tracked by Lipper Analytical Services, Inc. See the following page for
historical performance information."]
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merger activity have increased as companies work to remain competitive in the
more open EMU corporate environment. Earnings outlooks also remain favorable.
France was among our top country weightings, at 13% of the Fund, up from 6% six
months ago, and it was the main contributor to the Fund's performance. Our top
stock there was France Telecom. In the U.K., consumer magazine publishing
company EMAP saw its stock rise on the strength of the British economy and an
economic rebound in France, where EMAP derives a large portion of its revenues.
Our European financial stocks also served us well, top among them Allied Irish
Banks, Netherlands insurer ING Groep and French insurer Axa.
In the last six months, we established positions in several new attractive
markets, including Italy, Spain, Portugal, Finland and Denmark. This growing
list also reflect the results of a gradual Fund restructuring undertaken to
better manage the Fund's risk level by making it more diversified and balanced.
We achieved this by significantly increasing the number of stocks in the
portfolio and by reducing the percentage of the Fund's assets held in the top 10
positions.
Caution on emerging-markets and Japan
We became even more conservative in our approach to emerging markets worldwide,
further cutting our stake in Asia to 15% by the end of June from 20% six months
ago. Latin America has also suffered from the flight to quality, falling
commodity prices and rising interest rates. While we believe in the longer-term
story of privatization and burgeoning growth there, we cut our stake from 12% to
4% for now, until the emerging-market backlash abates.
We've held our underweighted stake in Japan fairly steady at around 10%,
however, reasoning that the unprecedented international pressure on the Japanese
government should result in some steps toward addressing the country's major
structural problems and preventing a greater regional crisis.
Outlook
We remain encouraged about the outlook for European stock markets, particularly
the EMU countries and the single "euro" currency that bodes well for European
businesses. We will keep our focus there, and closely monitor stock valuation
levels and the effects that implementation of the EMU will have on liquidity
flows among various European markets. By contrast, the prospects for Asia and
Japan remain far murkier, given the weak yen and heightened prospects for
further currency woes in the region. Until the signs are more encouraging, we
will stay underweighted in both the developed and emerging countries of Asia,
and in Latin America, given the taint on the entire emerging-market asset class.
"The Fund benefited from its large position in Europe..."
International investing involves special risks such as political, economic and
currency risks and differences in accounting standards and financial reporting.
5
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JOHN HANCOCK V.A. INTERNATIONAL FUND
A LOOK AT PERFORMANCE
For the period ended June 30, 1998
SINCE
ONE INCEPTION
YEAR (8/29/96)
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Cumulative Total Returns 1.22% 29.87%
Average Annual Total Returns(1) 1.22% 15.30%
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 (0.65%) and 13.68%, 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 Capital International (MSCI) All Country
World-Ex U.S. Free Index, which measures the performance of securities that are
freely traded in a broad range of developed
and emerging stock markets.
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Line chart with the heading V.A. International Fund, representing the growth of
a hypothetical $10,000 investment over the life of the fund. Within the chart
are two lines.
The first line represents the value of the Morgan Stanley Capital International
(MSCI) All Country World-Ex U.S. Free Index and is equal to $14,441 as of June
30, 1998. 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 $12,987 as of June 30, 1998.
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6
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BY JAMES K. SCHMIDT, CFA, PORTFOLIO MANAGEMENT TEAM LEADER AND
THOMAS FINUCANE AND THOMAS GOGGINS, PORTFOLIO MANAGERS
John Hancock
V.A. Regional Bank Fund
After strong fourth-quarter finish, small and
mid-sized bank stocks languish in 1998
The stock market posted strong gains in the first six months of 1998, but the
going got tougher as the period progressed. After rebounding in the first
quarter from the Asian financial woes that hit world markets late last year, the
market began to stall again in the spring. Once it became clear that Asia's
problems were not solved, and that the U.S. economy, and corporate profits,
might slow, stocks gave back some ground and mostly moved sideways in the second
quarter. Following last year's pattern, large-company blue chip stocks were the
biggest winners, as investors both foreign and domestic chose them as safe-haven
investments. As a result, the small and mid-sized banks that are the Fund's
focus lagged the market. What's more, some blockbuster mega-mergers took
industry focus temporarily off merger potential among regional banks.
The lag among small and mid-sized banks became greater just as John Hancock
V.A. Regional Bank Fund was launched on May 1, 1998. That, plus
higher-than-average levels of cash as we established positions, caused the Fund
to lose ground. In the two months from inception through June 30, 1998, the Fund
posted a total return of -4.13% at net asset value, compared with the Standard &
Poor's Regional Bank Index's return of -3.28%. In the same period, the average
open-end financial services fund stayed flat, returning 0.00% and the average
variable annuity specialty fund returned -0.31%, according to Lipper Analytical
Services, Inc.
Fund strategy
The Fund seeks capital appreciation by investing primarily in regional bank and
thrift stocks that have healthy fundamentals and may stand in the path of
consolidation -- an ongoing trend in the banking industry. In the Fund's first
two months, we began building positions in a range of banks around the country,
with emphasis on quality banks with assets ranging between $5 billion and $30
billion. This size of institution offers healthy earnings prospects in
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TOP FIVE COMMON
STOCK HOLDINGS
1. ALBANK Financial 2.4%
2. Comerica 2.3%
3. Imperial Bancorp 2.3%
4. CCB Financial 2.3%
5. Firstar Corp. 2.2%
As a percentage of net assets on June 30, 1998
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"...the small and mid-sized banks that are the Fund's focus lagged the market."
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[A 2 1/4" x 3 1/2" photo of fund management team at the bottom right column.
Caption reads - Fund management team members. Standing (l-r): Jay McKelvey, Tom
Goggins and Tom Finucane. Sitting (l-r): Lisa Welch, Jim Schmidt and Patricia
Ouimet.]
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7
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JOHN HANCOCK V.A. REGIONAL BANK FUND
"We expect the wave of consolidations sweeping the industry to continue..."
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["Bar Chart with the heading "Fund Performance" at the top of left hand column.
Under the heading is the footnote: "From May 1, 1998 to June 30, 1998." The
chart is scaled in increments of 2% with the 6% at the top and -6% at the
bottom. The first represents the -4.13% total return for John Hancock V.A.
Regional Bank Fund. The second represents the 0.00% total return for Average
open-end financial services fund. The third represents the 0.31% total return
for Average variable annuity specialty fund. A Footnote below reads "The total
return for John Hancock V.A. Regional Bank Fund is at net asset value with all
distributions reinvested. The average open-end financial services fund and
variable annuity specialty fund are tracked by Lipper Analytical Services,
Inc."]
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the near term and what we believe will be a high mortality rate over the next
five to seven years. In other words, as the U.S. banking system becomes
dominated by a handful of massive, national players, we believe these regional
banks will be taken out at premium prices. Examples include Compass Bancshares,
FirstMerit Corp. and First Security Corp.
The Fund was initiated immediately following a period of frenzied merger
activity. April 13th became the most dramatic date in the annals of bank
consolidation as two mega-deals were announced. The proposed merger of
NationsBank and BankAmerica would create by far the largest bank in the United
States. The "other" merger of April 13, which would have dominated banking news
on any other day, was between Banc One and First Chicago. This deal will create
a banking company with approximately $240 billion in assets that will rank as
the nation's sixth largest. These deals, coupled with the merger of Citicorp and
Travelers into Citigroup that was announced a week earlier, substantially
increase the pressure for industry consolidation.
Already in the Fund's first two months, one of its holdings, Firstar Corp.,
announced its takeover by Star Bancorp. We also expect numerous transactions in
the coming months, believing that "mergers beget mergers" and that a few
landmark deals serve as incentive to others. The timing of such mergers is
likely to be affected by the need to revamp computer systems for the year 2000
changeover ("Y2K"). For the next six months, activity could increase as
institutions scrambling to meet their Y2K deadlines will be induced to strike
deals and avoid the problem totally. Then in early 1999, we could witness a
brief hiatus in mergers because systems would have to be combined perilously
close to the magic date.
Earnings on track
Following a fruitful 1997, earnings in 1998 have generally equaled or surpassed
expectations even though regional bank stock prices have not reflected this
recently. The nearly ideal economic conditions -- moderate, sustainable growth,
low inflation and stable interest rates -- have enabled our companies to report
12% year-over-year earnings growth in the first quarter and 11% thus far in the
second quarter of 1998. Across the gamut of banks and thrifts, loan quality is
very good, margins, while under pressure, are wide by historic standards,
expense controls have been excellent and stock repurchases continue to counter
capital buildup.
Outlook
There are several factors contributing to our continued positive outlook for
financial stocks. We expect the wave of consolidations sweeping the industry to
continue, both here and starting in earnest abroad. However, there could be a
temporary slowdown as we approach the year 2000 and its attendant technical
issues. Furthermore, with the U.S. economy solid, interest rates low and
inflation invisible, the environment remains right for financial stocks to
advance. Should the U.S. economy slow and corporate profits shrink due to
fallout from Asian economic problems, we'll also be watching for signs of
increasing problem loans, which are currently at very low levels.
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Sector investing is subject to greater risks than the market as a whole.
8
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JOHN HANCOCK V.A. REGIONAL BANK FUND
A LOOK AT PERFORMANCE
For the period ended June 30, 1998
SINCE
INCEPTION
(5/1/98)
--------
Cumulative Total Return (4.13%)
Average Annual Total Return(1) (4.13%)(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 (4.20%).
(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.
Regional Bank 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.
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Line chart with the heading V.A. Regional Bank 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 May 1, 1998, and is equal to $10,748 as of June
30, 1998. The second line represents the value of the V.A. Regional Bank Fund,
before sales charge, and is equal to $9,587 as of June 30, 1998.
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9
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BY JAMES K. SCHMIDT, CFA, PORTFOLIO MANAGEMENT TEAM LEADER AND
THOMAS FINUCANE,CFA, AND THOMAS GOGGINS, PORTFOLIO MANAGERS
John Hancock
V.A. Financial Industries Fund
Steady interest rates, solid earnings boost stocks, including financials
"Earnings for financial companies in 1998 have generally met or exceeded
expectations."
In the first three months of 1998, the stock market moved sharply forward,
overcoming both fears that Asia's financial woes would leave their mark on the
U.S. economy and jitters about earnings prospects. The economy surprised many by
its robustness, and inflation remained tame, which sparked the rally, primarily
among the large-company stocks perceived to be safe havens. However, the second
quarter turned more volatile. A second round of Asian fears was not so easily
dismissed and second quarter earnings reports and economic data suggested the
economy could be slowing. Despite the stall, the Standard & Poor's 500 Stock
Index still advanced by 17.71% in the first six months of the year. Banks and
other financial stocks lagged the market somewhat, pausing after a very strong
year-end rally. Mirroring the broader market, the larger banks and financial
companies outperformed their smaller counterparts.
John Hancock V.A. Financial Industries Fund also participated in the market's
advance. For the six months ended June 30, 1998, the Fund posted a total return
of 12.35% at net asset value. That compared to the 12.19% return of the average
open-end financial services fund and the 15.38% return of the average variable
annuity specialty fund, according to Lipper Analytical Services, Inc.
Historical performance information can be found on page 12.
Performance and strategy review
Earnings for financial companies in 1998 have generally met or exceeded
expectations. Among lending institutions, loan volumes have been strong while
the level of non-performing loans has remained low, interest margins have been
relatively stable, expenses have been under control, and stock buy backs have
bolstered returns on equity. Even better conditions have been present for the
securities brokers, where earnings gains of 15% to 30% have been the norm.
Commissions, underwriting volume, and merger and acquisition fees have all been
running at record levels. We are satisfied with the earnings of the real estate
investment trusts (REITs); however, their share prices have generally been flat
or down making
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TOP FIVE COMMON
STOCK HOLDINGS
1. Legg Mason 4.4%
2. Fiserv 4.1%
3. American Express Co. 3.9%
4. General Re 3.9%
5. A.G. Edwards 3.8%
As a percentage of net assets on June 30, 1998
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[A 2 1/4" x 3 1/2" photo of fund management team at the bottom right column.
Caption reads - Fund management team members. Standing (l-r): Jay McKelvey, Tom
Goggins and Tom Finucane. Sitting (l-r): Lisa Welch, Jim Schmidt and Patricia
Ouimet.]
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10
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JOHN HANCOCK V.A. FINANCIAL INDUSTRIES FUND
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["Bar Chart with the heading "Fund Performance" at the top of left hand column.
Under the heading is the footnote: "For the six months ended June 30, 1998." The
chart is scaled in increments of 5% with the 20% at the top and 0% at the
bottom. The first represents the 12.35% total return for John Hancock V.A.
Financial Industries Fund. The second represents the 12.19% total return for
Average open-end financial services fund. The third represents the 15.38% total
return for Average variable annuity specialty fund. A 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 open-end financial services
fund and variable annuity specialty fund are tracked by Lipper Analytical
Services, Inc. See the following page for historical performance information."]
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them our worst performing group of stocks. These stocks appear to offer
unusually good value now as they are selling at low ratios of price to funds
from operations.
We witnessed mixed results from our insurance holdings, which represented our
largest sector concentration at 25% of the Fund's net assets at the end of June.
Two of our larger insurers, Travelers and General Re Corp., advanced in price as
they announced mergers. Companies that derive significant revenue from annuity
sales showed good results, while some of the property and casualty companies
were afflicted with greater than expected losses from weather-related
catastrophies.
Consolidation continues
The most important development this year in the financial services area was the
announcement on April 6 that Travelers and Citicorp would merge to form
Citigroup. This transaction is a low-risk merger that will create the world's
largest financial services company, producing clear cost-cutting opportunities.
It also has enormous implication for the future of the industry, with the
greatest significance lying in the impact it may have on financial reform
legislation. A bill that would allow cross-ownership between banks, securities
brokers and insurance underwriters had been languishing in Congress. This
merger, which ultimately requires such legislation, creates a sense of urgency
to work out the compromises needed to pass the reform.
Europe's potential grows
The process of streamlining the financial services sector in Europe is many
years behind that of the United States. However, with the European Monetary
Union (EMU) coming into effect with 11 initial member countries and the euro as
the common currency, we expect to see changes in the years ahead. As the EMU
promotes further economic cooperation among European nations, we believe
consolidation among financial institutions and the development of globally
competitive, shareholder-oriented dominant firms will be the eventual outcome.
Currently, the Fund's small European investments (less than 5% of the Fund) are
concentrated on the most progressive banks in Ireland, the Netherlands and
Sweden. We intend to increase our allocation as we gain confidence that
U.S.-style restructuring is beginning to take hold.
A look ahead
We remain encouraged about the prospects for financial stocks over the long
term. We expect the wave of consolidations sweeping the industry to continue,
both here and starting in earnest abroad. We could, however, see a temporary
slowdown as we approach the year 2000 and its attendant technical issues.
Furthermore, with the U.S. economy solid, interest rates low and inflation
invisible, the environment remains right for financial stocks to advance. Should
the U.S. economy slow and corporate profits shrink due to fallout from Asian
economic problems, however, we'll be watching for signs of increasing problem
loans, which are currently at very low levels.
"We witnessed mixed results from our insurance holdings..."
- --------------------------------------------------------------------------------
Sector investing is subject to greater risks than the market as a whole.
11
<PAGE>
================================================================================
JOHN HANCOCK V.A. FINANCIAL INDUSTRIES FUND
A LOOK AT PERFORMANCE
For the period ended June 30, 1998
SINCE
ONE INCEPTION
YEAR (4/30/97)
---- ---------
Cumulative Total Returns 34.99% 51.73%
Average Annual Total Returns(1) 34.99% 43.06%
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 34.82% and 42.77%, respectively.
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.
- --------------------------------------------------------------------------------
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 $15,173 as of June 30, 1998. The second line represents the
value of the S&P 500 Stock Index and is equal to $14,427 as of June 30, 1998.
- --------------------------------------------------------------------------------
12
<PAGE>
================================================================================
BY BERNICE S. BEHAR, CFA, PORTFOLIO MANAGER
John Hancock
V.A. Emerging Growth Fund
Small-company stocks post moderate gains in first half
in a split personality market
Small-company stocks trudged higher over the past six months, although their
gains were overshadowed by the progress of their larger-company counterparts.
For the first half of 1998, the Russell 2000 Index of small-company stocks
gained only 4.7%, compared to the 17.71% rise of the Standard & Poor's 500 Stock
Index. That divergence confounded many observers, especially given all that
small companies had going for them during the period: double-digit earnings
increases, limited exposure to the turmoil in Asia and historically low stock
prices relative to their large cousins. But several factors conspired to mute
small-company stocks' returns. In light of the economic problems in Asia,
investors increasingly sought out the liquidity -- the ease with which a stock
can be bought or sold -- of large, well-known companies. Furthermore, foreign
buyers bought record amounts of U.S. stocks, but overwhelmingly embraced the
names they knew, like Coca-Cola, General Electric and Gillette.
For the six-month period ended June 30, 1998, John Hancock V.A. Emerging
Growth Fund had a total return of 9.18% at net asset value, compared to the
average variable annuity small-cap fund's return of 7.06%, according to Lipper
Analytical Services, Inc.
Historical performance information can be found on page 15.
Retailers, "CLECS" outperform; health care lags
As U.S. consumer demand boomed, retailers -- whose main business lies in the
U.S. -- were among the biggest contributors to the Fund's performance during the
period. A robust job market helped ignite strong consumer spending and boosted
the performance of department store chain Stage Stores and sporting goods
retailer Hibbetts. Both retailers have found success by serving small-town
America.
Competitive local exchange carriers -- dubbed "CLECs" -- were another of the
Fund's best-performing groups. These telecommunications companies have quickly
grabbed market share away from their regional Bell operating company
competitors, because they provide small and mid-sized businesses with better
services, such as sophisticated data transmission, at reduced prices.
"...gains were overshadowed by the progress of their larger-company
counterparts."
- --------------------------------------------------------------------------------
TOP FIVE COMMON
STOCK HOLDINGS
1. Metromedia Fiber Network 1.1%
2. Micromuse 1.1%
3. Medallion Financial 1.0%
4. ProBusiness Services 1.0%
5. VeriSign 1.0%
As a percentage of net assets on June 30, 1998
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
[A 2 1/4" x 3 1/2" photo of fund management team at the bottom right column.
Caption reads - Fund management team members (l-r): Anurag Pandit, Bernice Behar
and Lauren Allen.]
- --------------------------------------------------------------------------------
13
<PAGE>
================================================================================
JOHN HANCOCK V.A. EMERGING GROWTH FUND
"...small-cap stocks remain quite cheap."
- --------------------------------------------------------------------------------
["Bar Chart with the heading "Fund Performance" at the top of left hand column.
Under the heading is the footnote: "For the six months ended June 30, 1998." The
chart is scaled in increments of 2% with the 10% at the top and 0% at the
bottom. The first represents the 9.18% total return for John Hancock V.A.
Emerging Growth Fund. The second represents the 7.06% total return for the
Average variable annuity small-cap fund. A Footnote below reads "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-cap fund is tracked
by Lipper Analytical Services, Inc. See the following page for historical
performance information."]
- --------------------------------------------------------------------------------
The stock price of industry leader Intermedia Communications, for example, rose
substantially during the period. On the other side of the scale were our
health-care companies, which proved to be disappointing during the period. Often
within the small-stock universe, bad news at one company can taint a larger
group of stocks. In addition, one of our holdings, Respironix, a maker of
respiratory devices, faltered because of changes in insurance reimbursement
schedules. We sold the stock during the period.
Shift in technology holdings
We made some strategic changes among our technology holdings over the past six
months. While we've maintained some hardware holdings that we think are market
leaders, we've reduced our overall hardware stake and shifted our technology
focus more toward software and service companies. While problems in Asia have
dampened global computer sales, we project that the demand for software will
continue to grow. Companies continue to emphasize software as a means to boost
productivity, and that has helped our holdings in Advent Software, a maker of
programs for financial analysis, and CBT group, which teaches businesses how to
use various software programs through its training software. Another favorite is
Aris Corp., a consulting company that provides implementation and training for
Oracle-based programs.
Outlook
We remain optimistic about the prospects for stocks in general, and
small-company stocks in particular. All the factors that have propelled the
stock market over the past several years appear to remain in place -- economic
growth is healthy, inflation is tame and consumer confidence is strong. We
believe that for the balance of the year, interest rates may rise or fall in
fits and starts, but the longer-term trend is for them to go lower. Interest
rates are a critical factor for small growth companies since they tend to borrow
to finance their growth. Lower interest costs, in turn, could translate into
better profitability.
As for small-company stocks, we think they are attractively priced and offer
superior earnings growth rates relative to their large-company counterparts.
Growth rates for small-company stocks are expected to be double those of the S&P
500 in 1998. Although small-cap stocks have the higher growth potential, they
are currently trading at roughly the same price-earnings ratio as large-cap
stocks. From a historical perspective, small-cap stocks remain quite cheap.
We've said it before, and we continue to believe, that it's only a question of
when, not if, the market ultimately rewards small companies for their higher
growth potential and low prices.
14
<PAGE>
================================================================================
JOHN HANCOCK V.A. EMERGING GROWTH FUND
A LOOK AT PERFORMANCE
For the period ended June 30, 1998
SINCE
ONE INCEPTION
YEAR (8/29/96)
---- ---------
Cumulative Total Returns 16.74% 13.23%
Average Annual Total Returns(1) 16.74% 7.00%
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 returns for the one-year period and since
inception would have been 15.50% and 5.08%, 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 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.
- --------------------------------------------------------------------------------
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 three lines.
The first line represents the value of the Russell 2000 Index and is equal to
$14,850 as of June 30, 1998. The second line represents the value of the Russell
2000 Growth Index and is equal to $13,487 as of June 30, 1998. The third 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
$11,323 as of June 30, 1998.
- --------------------------------------------------------------------------------
15
<PAGE>
================================================================================
BY BARBARA FRIEDMAN, CFA, PORTFOLIO MANAGER
John Hancock
V.A. Special Opportunities Fund
Stocks advance amid volatility; mid-caps lag larger stocks
"...three largest concentrations in the financial, technology and health-care
sectors."
Stocks continued their forward march over the last six months, overcoming stiff
headwinds later in the period. In fact, most of the market's gains came in the
first quarter, when the market shrugged off fears of fallout from Asia's
financial ills and the remained ideal. But after rallying to new highs in April,
stocks retrenched amid concerns that prices were too high and in reaction to
renewed concerns about Asian contagion. In this nervous environment, investors
both foreign and domestic flocked to the large, blue-chip stocks that were
viewed as the safest haven. As a result, mid-cap stocks -- which are the Fund's
primary focus -- lagged the overall market, returning 9.13%, as measured by the
Russell Midcap Index, compared to the Standard & Poor's 500 Stock Index's 17.71%
advance, including reinvested dividends.
It was a good environment in which to launch John Hancock V.A. Special
Opportunities Fund on January 2, 1998. Mid-cap stocks were attractively priced
after lagging the market, and as we began initiating positions in January,
stocks were tumbling in reaction to Asian fears. That helped us buy low and
participate fully in the subsequent rally. From inception through June 30, 1998,
the Fund posted a total return of 14.00% at net asset value, compared to the
13.40% return of the average variable annuity mid-cap fund, according to Lipper
Analytical Services, Inc.
Strategy and sector choices
The Fund seeks long-term capital appreciation by investing in stocks within
industry sectors that we believe have the potential for above-average earnings
growth. Under normal circumstances, at least 75% of the Fund will be invested in
five or fewer sectors. Within these sectors, the Fund targets predominately
mid-sized companies with market capitalizations between $750 million and $6
billion that offer solid earnings prospects. In considering our sectors, we
generally view the top three groups as longer-term areas of concentration,
although individual stocks within those sectors will change depending on
specific company fundamentals and stock valuations. The other two sectors could
rotate more frequently, depending on market and economic dynamics.
To date, we have established our three largest concentrations in the
financial, technology and
- --------------------------------------------------------------------------------
TOP FIVE COMMON
STOCK HOLDINGS
1. EMC Corp. 1.9%
2. NEXTLINK Communications 1.6%
3. Unisys 1.6%
4. Keane 1.6%
5. Cambridge Technology Partners 1.6%
As a percentage of net assets on June 30, 1998
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
[A 2 1/4" x 3 1/2" photo of fund management team at the bottom right column.
Caption reads - Fund management team members (l-r): Barbara Friedman, Ben Hock,
Lisa Welch and John Golden.]
- --------------------------------------------------------------------------------
16
<PAGE>
================================================================================
JOHN HANCOCK V.A. SPECIAL OPPORTUNITIES FUND
- --------------------------------------------------------------------------------
["Bar Chart with the heading "Fund Performance" at the top of left hand column.
Under the heading is the footnote: "From January 2, 1998 to June 30, 1998." The
chart is scaled in increments of 5% with the 15% at the top and 0% at the
bottom. The first represents the 14.00% total return for John Hancock V.A.
Special Opportunities Fund. The second represents the 13.40% total return for
Average variable annuity mid-cap fund. A footnote at the bottom reads: The total
return for John Hancock V.A. Special Opportunity Fund is at net asset value with
all distributions reinvested. The average variable annuity mid-cap fund is
tracked by Lipper Analytical Services, Inc."]
- --------------------------------------------------------------------------------
health-care sectors. Together they accounted for more than 65% of the Fund's net
assets. We also focused to a lesser degree on retail and consumer cyclical
stocks, mainly media companies. Across the Fund, we also kept our sights on
domestically oriented stocks that were less vulnerable to Asia's economic
slowdown.
Technology, financials, healthcare
By the end of June, technology was our largest sector, at 31% of net assets. We
focused on software companies and avoided the semiconductor and computer makers
that have suffered from Asia's slowdown, a decline in personal computer demand
and increased pricing pressures. Conversely, software companies continued to
benefit from companies' use of technology software to realize productivity gains
and cost savings. Among our top performers were EMC Corp., a leading computer
storage company and Keane, Inc., a software company helping corporations deal
with year 2000 compliance issues.
In the financial sector, at 22% of the Fund, we had a diverse array of
stocks, including regional banks, insurance companies --both life and property
and casualty -- and financial service companies. We believe the ongoing industry
consolidation bodes well for this sector. Financial stocks lagged the market in
the last six months, taking a breather after a strong year-end run-up and a lack
of takeover activity in the mid-cap arena. But we had a few good performers,
such as Bermuda-based insurer Mid Ocean that was acquired by another company. A
disappointment was Selective Insurance Group, which has yet to gain market
recognition.
Health-care stocks, at 13% of the portfolio, did particularly well. This
sector has strong prospects, given that health-care spending will most likely
rise as baby boomers age. Here, too, we held a broadly diverse basket of stocks,
including pharmaceuticals, hospital companies, vitamin manufacturers and nursing
home companies. One of our top choices was Mylan Laboratories, a generic drug
company whose earnings are reflecting the rise in generic drug prices. Its stock
price has risen by 50% since we bought it.
A look ahead
We are encouraged by the prospects for mid-cap stocks. Their earnings outlook is
better than that of the large-cap universe, where stock prices have risen to
expensive levels. At the same time, mid-cap stocks remain attractively valued,
selling at a modest discount to the broader market. In our view, that
combination represents a compelling scenario bound to attract investors'
attention eventually. No matter what the market does next, we will continue to
look for solid companies that have the potential to generate strong and
consistent earnings growth.
"...mid-cap stocks remain attractively valued..."
- --------------------------------------------------------------------------------
Sector investing is subject to greater risks than the market as a whole.
17
<PAGE>
================================================================================
JOHN HANCOCK V.A. SPECIAL OPPORTUNITIES FUND
A LOOK AT PERFORMANCE
For the period ended June 30, 1998
SINCE
INCEPTION
(1/2/98)
--------
Cumulative Total Return 14.00%
Average Annual Total Return(1) 14.00%(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 12.49%.
(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.
Special Opportunities Fund would be worth, assuming all distributions were
reinvested for the period indicated. For comparison, we've shown the same
$10,000 investment in both the Standard & Poor's 500 Stock Index and the Russell
Midcap Growth Index. The Standard & Poor's 500 Stock Index is an unmanaged index
that includes 500 widely traded common stocks and is a commonly used measure of
stock market performance. The Russell Midcap Growth Index is an unmanaged index
that contains those securities from the Russell Midcap Index with a
greater-than-average growth orientation.
- --------------------------------------------------------------------------------
Line chart with the heading V.A. Special Opportunities 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 Standard & Poor's 500 Stock Index and
is equal to $14,446 as of June 30, 1998. The second line represents the value of
the Russell Midcap Growth Index and is equal to $13,784 as of June 30, 1998. The
third line represents the value of a hypothetical $10,000 investment made in the
V.A. Special Opportunities Fund on January 2, 1998, before sales charge, and is
equal to $11,400 as of June 30, 1998.
- --------------------------------------------------------------------------------
18
<PAGE>
================================================================================
BY BENJAMIN A. HOCK, JR., PORTFOLIO MANAGER
John Hancock
V.A. Growth Fund
Market advances, with strong first quarter gains
and second quarter strife
Recently, Benjamin A. Hock, Jr. assumed leadership of John Hancock V.A. Growth
Fund's management team. Mr. Hock, a senior vice president at John Hancock Funds
since 1994, has more than 24 years of experience in the investment business.
The stock market kept marching forward over the last six months, again reaching
record highs. The real strides, however, took place mostly in the first quarter
of 1998 in a relief rally that occurred after Asia's ills did not slow the
economy down, as many feared it would. But Asian concerns permeated the second
quarter, and the market moved mostly backward or in side steps instead of its
earlier giant steps. In this period, the market consolidated its first quarter
gains and analysts revised down corporate earnings estimates. Volatility
increased as the dollar strengthened and the Japanese yen plummeted, rekindling
worries that Asia's financial turmoil would indeed slow the U.S. economy and
corporate profits in the second half of the year. Despite the market's
fluctuations, the broad market as measured by the Standard & Poor's 500 Stock
Index returned 17.71%, including reinvested dividends, through June.
For the six months ended June 30, 1998, John Hancock V.A. Growth Fund posted
a total return of 12.49% at net asset value, compared to the 16.23% return of
the average variable annuity growth fund, according to Lipper Analytical
Services, Inc. Historical performance information can be found on page 21. We
attribute the Fund's underperformance to its higher-than-average small-cap stock
weighting. By the period's end, we had decreased the number of small-cap stocks
in the Fund and increased its average capitalization. But having had small-cap
exposure hurt us in the period, because these companies significantly lagged
their larger brethren.
Three key sectors pay off
Over the last six months, the Fund maintained concentrations in three broad
areas: consumer stocks, drug and technology companies, which together accounted
for more than 60% of the Fund's net assets. In hindsight, the Fund would have
benefited from an even bigger weighting in these
- --------------------------------------------------------------------------------
TOP FIVE COMMON
STOCK HOLDINGS
1. Cisco Systems 3.4%
2. Microsoft 3.2%
3. American Express 3.2%
4. Schering-Plough 3.1%
5. General Electric 3.0%
As a percentage of net assets on June 30, 1998
- --------------------------------------------------------------------------------
"...concentrations in three broad areas: consumer stocks, drug and technology
companies..."
- --------------------------------------------------------------------------------
[A 2 1/4" x 3 1/2" photo of fund management team at the bottom right column.
Caption reads - Fund management team members (l-r): Lisa welch, Ben Hock, John
Golden and Linda Miller.]
- --------------------------------------------------------------------------------
19
<PAGE>
================================================================================
JOHN HANCOCK V.A. GROWTH FUND
"In this volatile environment, the winners and losers are more likely than ever
to part company."
- --------------------------------------------------------------------------------
["Bar Chart with the heading "Fund Performance" at the top of left hand column.
Under the heading is the footnote: "For the six months ended June 30, 1998." The
chart is scaled in increments of 5% with the 20% at the top and 0% at the
bottom. The first represents the 12.49% total return for John Hancock V.A.
Growth Fund. The second represents the 16.23% total return for Average variable
annuity growth fund. A footnote at the bottom reads: 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."]
- --------------------------------------------------------------------------------
sectors. Consumer stocks such as Coca-Cola, PepsiCo., Gillette and
Colgate-Palmolive, as well as retail holdings like department store Dayton
Hudson, rode the crest of the strong U.S. economy, historically low unemployment
and the rise in personal income. Steady consumer buying habits and declining
commodity costs have also helped our food stocks, including Suiza and new
additions Quaker Oats and Flowers Industries. After lagging the market for a
long period, their valuations were also very attractive.
The large drug companies, such as Merck and Schering-Plough, continued to see
their fortunes boosted by an ongoing wave of new product offerings. In addition
to their solid potential for steady earnings growth, these two sectors helped
shelter the Fund from Asian fallout, since our consumer stocks are domestically
oriented and the major drug companies derive much more of their revenues from
the U.S. and Europe than they do from Asia. This focus helped the Fund,
especially in the last two months of the period, both avoid major blowups and
benefit from these sectors' gains.
We kept our technology sights on software companies, avoiding the personal
computer makers and semiconductor companies that are more vulnerable to the
slowing demand for personal computers, pricing pressures from the sub-$1,000
personal computer market and the slowdown in Asia. By contrast, the demand keeps
growing for software technology to help companies increase their productivity.
Companies such as Cisco Systems, an important player in the world of networking;
and Computer Sciences, an information technology consultant and systems
integration specialist, have done well.
Outlook
We remain optimistic about the prospects for the economy, corporate profits and
the stock market this year. The economy shows signs of continued growth, even if
it does so at a slower rate as Asia's slowdown rubs off. Inflation shows no
signs of emerging from hibernation and we believe it will remain that way.
Within this positive context, however, we inject a note of caution. In this
volatile environment, the winners and losers are more likely than ever to part
company. We will keep our focus sharp and our hand selective in our choices both
of individual stocks and sectors.
20
<PAGE>
================================================================================
JOHN HANCOCK V.A. GROWTH FUND
A LOOK AT PERFORMANCE
For the period ended June 30, 1998
SINCE
ONE INCEPTION
YEAR (8/29/96)
---- ---------
Cumulative Total Returns 28.27% 20.70%
Average Annual Total Returns(1) 28.27% 10.79%
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 27.37% and 9.24%, 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.
- --------------------------------------------------------------------------------
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 $18,341 as of
June 30, 1998. The second line represents the value of the V.A. Growth Fund,
before sales charge, and is equal to $12,070 as of June 30, 1998.
- --------------------------------------------------------------------------------
21
<PAGE>
================================================================================
BY TIMOTHY KEEFE, CFA, PORTFOLIO MANAGER
John Hancock
V.A. Growth and Income Fund
Led by large-company stocks, U.S. market
gets off to strong start in 1998
"Among the Fund's top contributors to performance were technology stocks."
Falling interest rates, continued low inflation, and a healthy economy added up
to a near-perfect environment that sent stocks soaring in the first quarter of
1998. With Southeast Asia's financial problems causing few problems for U.S.
companies, investors were optimistic. But volatility increased in the second
quarter, as several companies announced weaker-than-expected earnings forecasts.
Skittish investors once again headed for the safety of large-company stocks with
predictable earnings growth. For the rest of the period, stocks moved sideways.
But gains made early on were enough to push the Standard & Poor's 500 Stock
Index -- a broad measure of market performance -- to a 17.71% return for the
first half of the year.
Value strategy pays off
John Hancock V.A. Growth & Income Fund, which opened on January 2, 1998, also
got off to a good start. A focus on large-company stocks helped the Fund deliver
a 15.09% return, at net asset value, from inception through June 30, 1998. This
was ahead of the average variable annuity growth and income fund, which returned
12.26% for the same period, according to Lipper Analytical Services, Inc.
The key to these results was our disciplined value strategy. In managing the
Fund, we look for companies that are poised to post impressive earnings, whose
stocks are selling for less than we think they're worth. We particularly like
stocks with substantial and sustainable cash flow that have the potential for a
catalyst that would unleash the stock's full potential. Our focus is on stocks
with outstanding shares worth more than $1 billion that we can hold for
long-term appreciation. During the Fund's first six months of operation, new
assets came in quickly. Our discrimination and long-term focus meant we had
higher cash levels than normal throughout the period. While this lowered risk,
it also held back performance somewhat. But our stock picks helped us make up
ground, allowing us to outperform our peers for the six-month period.
Technology and insurance lead
Among the Fund's top contributors to performance were technology stocks. We
focused pri-
- --------------------------------------------------------------------------------
TOP FIVE COMMON
STOCK HOLDINGS
1. Triton Energy Ltd. 5.7%
2. KLM Royal Dutch Airlines 5.3%
3. Washington Post Co. 4.8%
4. Camco International 4.7%
5. Niagara Mohawk Power Corp. 4.5%
As a percentage of net assets on June 30, 1998
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
[A 2 1/4" x 3 1/2" photo of fund management team at the bottom right column.
Caption reads - Fund management team members (l-r): Tim Keefe, Tim Quinlisk and
Lisa Welch.]
- --------------------------------------------------------------------------------
22
<PAGE>
================================================================================
JOHN HANCOCK V.A. GROWTH AND INCOME FUND
- --------------------------------------------------------------------------------
["Bar Chart with the heading "Fund Performance" at the top of left hand column.
Under the heading is the footnote: "From January 2, 1998 to June 30, 1998." The
chart is scaled in increments of 5% with the 20% at the top and 0% at the
bottom. The first represents the 15.09% total return for John Hancock V.A.
Growth and Income Fund. The second represents the 12.26% total return for
Average variable annuity growth and income fund. A footnote at the bottom reads:
The total return for John Hancock V.A. Growth and Income 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."]
- --------------------------------------------------------------------------------
marily on software and service companies, avoiding hardware companies that faced
problems related to Southeast Asia's turmoil. One of our larger investments was
Electronic Data Systems (EDS), a leading provider of outsourced technology
services. We bought the stock when it was down because of short-term problems
with its largest client. The stock bounced back as the other 75% of its business
continued to hit on all cylinders. Galileo International, another large
position, is a leader in computer airline reservation systems. Fears that
Southeast Asia's troubles would result in fewer bookings temporarily hurt the
stock price. When this never happened, the stock took off.
Insurance stocks -- 17% of the Fund's net assets -- also did well for us. We
focused on strong companies whose stock prices were unfairly hurt by weak
pricing in the industry. Among them were Executive Risk, a specialty insurer
that was spun off from Aetna; Mercury General, a low-cost provider of auto
insurance; and Ace Ltd., a Bermuda-based reinsurer.
Energy stocks turned in disappointing results. However, historically low
valuations -- stock prices relative to earnings and other measures -- along with
the prospect of rising oil prices made the sector attractive from a buying
perspective. We chose companies like Triton Energy Ltd., our number one stock
holding. Triton is an exploration and production company with two major
discovery fields in emerging-market countries. Both emerging-market fears and
the rapid drop in oil prices have hurt the stock's price. But we're optimistic
that investors will recognize the stock's true worth now that the company's
assets are up for sale.
More volatility ahead
We expect the market to remain choppy for the rest of 1998. Business conditions
are becoming more challenging, as price competition stiffens and Asia's problems
spread. And earnings growth -- while still strong -- is not as good as it has
been. With the market near all-time highs, investors are quickly punishing the
stocks of companies that fail to meet earnings expectations. Fortunately,
increased volatility benefits bargain hunters. Short-term events and
industry-wide problems can easily cloud the outlook for companies with great
prospects. But this gives us a chance to acquire these companies at compelling
valuations. Especially in times of heightened uncertainty, we believe our
disciplined value-oriented strategy will help provide shareholders with
above-average returns at below-average risk.
"Fortunately, increased volatility benefits bargain hunters."
23
<PAGE>
================================================================================
JOHN HANCOCK V.A. GROWTH AND INCOME FUND
A LOOK AT PERFORMANCE
For the period ended June 30, 1998
SINCE
INCEPTION
(1/2/98)
--------
Cumulative Total Return 15.09%
Average Annual Total Return(1) 15.09%(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 14.76%.
(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.
Growth and 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 Standard & Poor's 500 Stock Index--an unmanaged index
that includes 500 widely traded common stocks and is often used as a measure of
stock market performance.
- --------------------------------------------------------------------------------
Line chart with the heading V.A. Growth and 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 S&P 500 Stock Index on January 2, 1998, and is equal to $14,446 as of
June 30, 1998. The second line represents the value of the V.A. Growth and
Income Fund, before sales charge, and is equal to $11,509 as of June 30, 1998.
- --------------------------------------------------------------------------------
24
<PAGE>
================================================================================
BY STEPHEN LANZENDORF, FOR THE PORTFOLIO MANAGEMENT TEAM
John Hancock V.A. Independence
Equity Fund
Stocks surge forward in the first quarter, stall in the second on Asian fears
The same positive forces that have propelled the stock market for the last
several years remained at work over the last six months. The U.S. economy grew
more strongly than expected, calming investors' concerns about Asia, at least in
the first quarter. Interest rates were stable and inflation was non-existent.
However, the last two months of the period proved to be more challenging. Asian
financial markets had once again become shaky, and U.S. companies with exposure
to Asia began to report disappointing earnings. Between mid-May and mid-June,
the major market indexes fell by 4% to 7%, then rallied briefly to end the
second quarter with only slight advances.
The first quarter rally, however, enabled the Standard & Poor's 500 Stock
Index to return 17.71% in the last six months, including reinvested dividends, a
performance many did not expect for the entire year. John Hancock V.A.
Independence Equity Fund participated fully in the market's advance. In addition
to strong stock selection, the Fund was helped by the fact that the S&P 500
outperformed the Dow Jones Industrial Average, which returned 14.13%. Although
investors still favored large-capitalization stocks, the better relative
performance by the S&P indicated some broadening of investor preferences that
benefited the Fund's diversified holdings.
For the six months ended June 30, 1998, the Fund posted a total return of
19.86% at net asset value, outpacing both the S&P and the 12.26% return of the
average variable annuity growth and income fund, according to Lipper Analytical
Services, Inc. Historical performance information can be found on page 27.
Consumer stocks pay off
The Fund's objectives of growth and income continued to be well served by its
disciplined investment strategy, combining in-depth fundamental analysis with
computer modeling to identify companies with improving fundamentals and
inexpensive stock prices. Many consumer-related companies met these criteria in
the first half of 1998, just as consumer confidence was high. Auto manufacturers
Ford and Chrysler were strong contributors to Fund performance, as were apparel
companies like Tommy Hilfiger and Jones Apparel. Specialty retailers like Home
Depot, Staples and Lowe's benefited not only from strong consumer spending,
- --------------------------------------------------------------------------------
TOP FIVE COMMON
STOCK HOLDINGS
1. Procter & Gamble 3.5%
2. Microsoft 2.7%
3. General Electric 2.6%
4. United Technologies 2.3%
5. Travelers Group 2.2%
As a percentage of net assets on June 30, 1998
- --------------------------------------------------------------------------------
High consumer confidence boosted consumer-related stocks.
- --------------------------------------------------------------------------------
[A 2 1/4" x 3 1/2" photo of fund management team at the bottom right column.
Caption reads - Fund management team members (l-r): Coreen Kraysler, David
Canavan, Jane Shigley, Jeff Saef and Stephen Lanzendorf.]
- --------------------------------------------------------------------------------
25
<PAGE>
================================================================================
JOHN HANCOCK V.A. INDEPENDENCE EQUITY FUND
"...we expect the trend of broader participation in market rallies to
continue..."
- --------------------------------------------------------------------------------
["Bar Chart with the heading "Fund Performance" at the top of left hand column.
Under the heading is the footnote: "For the six months ended June 30, 1998." The
chart is scaled in increments of 5% with the 20% at the top and 0% at the
bottom. The first represents the 19.86% total return for John Hancock V.A.
Independence Equity Fund. The second represents the 12.26% total return for
Average variable annuity growth and income fund. A footnote at the bottom reads:
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."]
- --------------------------------------------------------------------------------
but also from the fact that their revenues are derived mainly in the United
States.
In the technology area, we were able to avoid some of the semiconductor and
other computer hardware companies that might be hurt by the slowdown in Asia.
Instead, we owned software companies like Lucent Technologies, which has
maintained a strong market position in a very competitive environment.
Finally, many of our financial stocks performed well, buoyed by industry
consolidation, including the recently announced mega-merger of Travelers and
Citicorp., both Fund holdings. Other strong performers included merger candidate
General Re, as well as Morgan Stanley, Dean
Witter, Discover.
Energy, chemicals disappoint
The Fund's performance was hurt by our energy investments in such stocks as
Arco, which we sold during the period, and Phillips Petroleum, because of weak
crude oil prices. The chemical industry also suffered from weak commodity
prices. Our interest in the sector was limited to specialty chemical companies,
such as Air Products & Chemicals, which performed well relative to other stocks
in the industry, but was disappointing on an absolute basis.
Regulatory uncertainty clouded the prospects of many telecommunications
companies, including AT&T. Its recently announced merger got a lukewarm
reception and weakened its stock, because it was unclear how quickly regulators
would allow the company to implement its plans to enter the local telephone
service markets.
Outlook
We believe the stock market can continue to do well if the economy continues to
grow and interest rates and inflation stay roughly at current levels. That said,
we expect to see more companies announce lower-than-expected results for the
third quarter and therefore believe it's still too early to buy companies with
significant exposure to Asia. However, the more domestically oriented sectors
that did well in the first half of the year, such as healthcare, specialty
retailing and financial services, should continue that trend in the second half.
We're watching the energy sector. If, as we suspect, the weakness in energy
prices is only temporary, energy stocks might be reaching attractive levels.
Finally, we expect the trend of broader participation in market rallies to
continue, as investors recognize the discrepancy in value between smaller and
mid-sized company stocks and the leading large-company names. This scenario
would be favorable for broadly diversified portfolios like John Hancock V.A.
Independence Equity Fund. Regardless of the market's moves, we will stay focused
on companies whose stock prices are attractive and whose business prospects are
improving.
26
<PAGE>
================================================================================
JOHN HANCOCK V.A. INDEPENDENCE EQUITY FUND
A LOOK AT PERFORMANCE
For the period ended June 30, 1998
SINCE
ONE INCEPTION
YEAR (8/29/96)
---- ---------
Cumulative Total Returns 34.71% 75.08%
Average Annual Total Returns(1) 34.71% 35.68%
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 34.34% and 34.70%, 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.
- --------------------------------------------------------------------------------
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 $18,341 as of
June 30, 1998. The second line represents the value of the V.A. Independence
Equity Fund, before sales charge, and is equal to $17,508 as of June 30, 1998.
- --------------------------------------------------------------------------------
27
<PAGE>
================================================================================
BY JOHN F. SNYDER, III, AND BARRY EVANS, CFA, PORTFOLIO MANAGERS
John Hancock
V.A. Sovereign Investors Fund
With difficulty, market moves up on the strength
of a narrow group of stocks
"It's particularly important to own strong companies in the current economic
environment."
The first half of the year has been challenging for both the economy and the
investment markets due to political and economic unrest in Asia, the recession
and corrupt business practices in Japan and Russia, and price deflation for many
commodities. On the positive side, however, high U.S. employment levels and
strong wage growth have driven consumer confidence to high levels.
Despite the volatility, the equity market has provided strong returns for
investors. Since the start of the year, the Standard & Poor's 500 Stock Index
has gained 17.71%. The market's strong upward trend, however, has not been
driven by the broad market, but instead by a narrow group of stocks. Technology
stocks, in particular, have been one of the market's strongest sectors,
rebounding sharply after their dismal fourth-quarter performance. Dell Computer,
for example, is up 120%, Apple Computer, 119%, Lucent Technologies, 108% and
Unisys, 104%.
Performance review
John Hancock V.A. Sovereign Investors Fund turned in solid returns during the
first half of 1998. However, the Fund's performance trailed the average variable
annuity equity income fund, primarily because we own almost no technology
stocks, unlike many of our peers. It's not that we don't like technology stocks,
they simply don't meet our primary investment criterion. The Fund focuses on
companies with a long record of increasing their dividends, and most technology
stocks simply don't meet this criterion.
For the six months ended June 30, 1998, John Hancock V.A. Sovereign Investors
Fund returned 8.43% at net asset value, compared to the 10.64% return of the
average variable annuity equity income fund, according to Lipper Analytical
Services, Inc. Historical performance information can be found on page 30.
Focus on industry leaders
Companies that make up the "dividend performers" universe share one common
characteristic: they dominate the markets in which they compete. As the economy
slows, it will become more difficult for companies with poor fundamentals to
show attractive sales and earnings growth. Conversely, these dominant companies
will be
- --------------------------------------------------------------------------------
TOP FIVE COMMON
STOCK HOLDINGS
1. Dayton Hudson 2.9%
2. Unum 2.9%
3. Masco 2.7%
4. Ameritech 2.5%
5. Pentair 2.4%
As a percentage of net assets on June 30, 1998
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
[A 2 1/4" x 3 1/2" photo of fund management team at the bottom right column.
Caption reads - V.A. Sovereign Investors Fund management team members
(l-r):.John Snyder, Barry Evans and Jere Estes.]
- --------------------------------------------------------------------------------
28
<PAGE>
================================================================================
JOHN HANCOCK V.A. SOVEREIGN INVESTORS FUND
- --------------------------------------------------------------------------------
["Bar Chart with the heading "Fund Performance" at the top of left hand column.
Under the heading is the footnote: "For the six months ended June 30, 1998." The
chart is scaled in increments of 5% with the 15% at the top and 0% at the
bottom. The first represents the 8.43% total return for John Hancock V.A.
Sovereign Investors Fund. The second represents the 10.64% total return for
Average variable annuity equity income fund. A footnote at the bottom reads: 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."]
- --------------------------------------------------------------------------------
able to take market share, control industry pricing, expand into new markets,
acquire new lines of business, develop new products and services, and grow
earnings faster than their industry cohorts. It's particularly important to own
strong companies in the current economic environment. Below are examples of
companies that we believe will be the winners in a slowing economy.
Home Depot is the world's largest home-improvement retailer and is among the
top 10 retailers in the United States Home Depot's dominance is obvious when
compared to its nearest competitor, which had less than half of Home Depot's
sales in 1997. Even with such a dominant market position, Home Depot's market
share is only approximately 25% of the domestic do-it-yourself market, providing
significant growth opportunities.
Interpublic Group is the second largest advertising holding company
worldwide. In addition to owning premier ad agencies like McCann-Erickson,
Interpublic has branched out into non-traditional businesses like direct
marketing, public relations and sports marketing. The U.S. advertising industry
is in the midst of a long expansion, and growth in Europe is also picking up.
Interpublic has achieved an impressive acceleration of new business wins over
the past three years and has grown earnings 14% annually over the past five
years.
Outlook
With the market flirting with new highs, it does not take much courage to
predict that the upward spiral will continue for a while. The economy has been
stronger than expected and so has the flow of funds into stocks from both
domestic and foreign sources. Inflation has been -- and will continue to be --
benign. However, we do believe that the strong economic underpinnings that
provided good corporate earnings last year are disappearing. If this is the
case, the market expansion will not be able to continue. Valuations are already
extended in a number of areas, including those companies that have been driving
the S&P 500 and Nasdaq indexes.
The reasons for benign inflation are the very same reasons for our concern
about corporate profits in the second half of the year. Global competition has
taken almost all of the power to set prices away from corporations and given it
to the consumer. Therefore, growth in corporate profits will have to come from
increased efficiencies. This suggests substantially slower profit growth.
We continue to believe that this is the sweet spot of the economic cycle for
the stable growth companies. As corporate earnings growth abates, the economy is
likely to show signs of slowing in the second half of 1998. We believe companies
that historically have been able to grow their earnings consistently -- that is,
"dividend performers" -- will be able to do so through an economic slowdown.
"...this is the sweet spot of the economic cycle for the stable growth
companies."
29
<PAGE>
================================================================================
JOHN HANCOCK V.A. SOVEREIGN INVESTORS FUND
A LOOK AT PERFORMANCE
For the period ended June 30, 1998
SINCE
ONE INCEPTION
YEAR (8/29/96)
Cumulative Total Returns 21.73% 50.81%
Average Annual Total Returns(1) 21.73% 25.08%
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 21.57% and 24.37%, 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.
- --------------------------------------------------------------------------------
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 $18,341 as of
June 30, 1998. The second line represents the value of the V.A. Sovereign
Investors Fund, before sales charge, and is equal to $15,081 as of June 30,
1998.
- --------------------------------------------------------------------------------
30
<PAGE>
================================================================================
BY BARRY EVANS, CFA, AND ROGER HAMILTON, CFA,
FOR THE RISK MANAGEMENT GROUP
John Hancock
V.A. 500 Index Fund
Index posts strong returns, stocks uneven returns
The S&P 500 Index -- a broad measure of the stock market's performance -- did
extremely well during the first half of 1998, posting a 17.71% gain, including
reinvested dividends. In a repeat of 1997, the environment for S&P 500 stocks
was quite favorable. Inflation remained low, interest rates drifted lower and
the U.S. economy showed impressive resilience in the face of Asian economic
turmoil. In fact, it was a surprise to many observers that the Asian fallout
turned out to be beneficial, rather than harmful, for a handful of stocks that
make up the S&P 500 Index. Investors worried that a slowdown in the Far East
would translate into slower economic growth here at home and slower corporate
earnings. Despite recent evidence that earnings have slowed somewhat, global
investors fleeing overseas stocks increasingly sought out the large, well-known
S&P 500 names in what amounted to a classic "flight to quality." However, there
was a widening gap between the handful of stocks reaping fat rewards --such as
the most liquid, recognizable companies -- and those left behind in a narrowing
market. The companies comprising the largest 10% by market value rose nearly 26%
during the first half, while the remainder gained just 9.5%.
Performance and strategy review
For the six months that ended June 30, 1998, John Hancock V.A. 500 Index Fund
had a total return of 17.59% at net asset value. By comparison, the average
variable annuity S&P 500 Index objective fund had a total return of 17.42%,
according to Lipper Analytical Services, Inc. Historical performance information
can be found on page 33.
Our goal is to have the Fund's holdings closely track that of the S&P 500
Index, and minimize transaction costs -- the costs associated with buying and
selling shares of stock. Shareholders may recall that the Fund's small size
prevented us from buying all 500 stocks contained in the Index in the early
months of its existence last year. To do so would have burdened the Fund with
fairly high transaction costs, potentially curtailing its performance.
By January 1998, however, the Fund had grown enough to invest efficiently in
all 500 component stocks. This more complete basket of stocks meant that the
Fund's performance more closely tracked the S&P 500 Index over the past six
months.
- --------------------------------------------------------------------------------
TOP FIVE COMMON
STOCK HOLDINGS
1. General Electric 2.9%
2. Microsoft 2.6%
3. Coca-Cola 2.0%
4. Exxon 1.7%
5. Merck 1.5%
As a percentage of net assets on June 30, 1998
- --------------------------------------------------------------------------------
"...several computer makers were at the top of the leader board."
- --------------------------------------------------------------------------------
[A 2 1/4" x 3 1/2" photo of fund management team at the bottom right column.
Barry Evans (l) and Roger Hamilton (r).]
- --------------------------------------------------------------------------------
31
<PAGE>
================================================================================
JOHN HANCOCK V.A. 500 INDEX FUND
"Our long-term outlook for S&P 500 stocks is fairly optimistic."
- --------------------------------------------------------------------------------
["Bar Chart with the heading "Fund Performance" at the top of left hand column.
Under the heading is the footnote: "For the six months ended June 30, 1998." The
chart is scaled in increments of 5% with the 20% at the top and 0% at the
bottom. The first represents the 17.59% total return for John Hancock V.A. 500
Index Fund. The second represents the 17.42% total return for Average variable
annuity S&P 500 Index objective fund. A footnote at the bottom reads: 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 fund is
tracked by Lipper Analytical Services, Inc. See the following page for
historical performance information."]
- --------------------------------------------------------------------------------
Although there are almost daily changes in the Index's composition, we
re-balance the Fund's holdings less frequently to keep our transaction costs at
a minimum. When money comes into the Fund that cannot immediately be deployed
into the S&P 500 components in a cost-effective manner, we buy S&P 500 Stock
Index futures. These securities serve as a proxy for stocks in the Index and
allow us to participate in the Index's performance without the transaction costs
that would be incurred in buying individual stocks.
S&P winners, losers
Despite slowing demand for computers worldwide, several computer makers were at
the top of the leader board. Dell Computer's stock price surged more than 120%
in the first half of 1998, thanks to fast-growing market share gains. A close
second was Apple Computer stock, which saw a 119% rebound after suffering a
miserable 1997. The rising demand for communications equipment helped boost the
number three and five best performers, Lucent Technologies and Ascend
Communications. Rounding out the top 10 were Unisys in fourth place, with
Beneficial, Ford Motor, Gap, Providian Financial and Lowe's in the sixth through
tenth places. The biggest disappointment during the period was National
Semiconductor, which fell almost 50% as a worldwide inventory glut of
semiconductor chips kept a lid on demand. Another bad performer was Cendant,
which was down roughly 40% due in large part to questions about accounting
practices.
Outlook
Our long-term outlook for S&P 500 stocks is fairly optimistic. We expect
interest rates and inflation -- which have been primary ingredients in the
recent bull market -- to remain low. In addition, we believe that baby boomers
will continue to invest money in the market as they prepare for their
retirements. But we wouldn't rule out the chance of a more near-term stock
market correction. It's been a rather long time since we've had one, and history
shows that market corrections do tend to occur with some regularity. As for the
Fund, we'll continue to seek to closely track the performance of the S&P 500
Index -- whether it posts further gains, remains flat or experiences losses.
32
<PAGE>
================================================================================
JOHN HANCOCK V.A. 500 INDEX FUND
A LOOK AT PERFORMANCE
For the period ended June 30, 1998
SINCE
ONE INCEPTION
YEAR (8/29/96)
---- ---------
Cumulative Total Returns 28.97% 69.78%
Average Annual Total Returns(1) 28.97% 33.43%
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 28.72% and 33.10%, 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.
- --------------------------------------------------------------------------------
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 $18,341 as of
June 30, 1998. The second line represents the value of the V.A. 500 Index Fund,
before sales charge, and is equal to $16,978 as of June 30, 1998.
- --------------------------------------------------------------------------------
33
<PAGE>
================================================================================
BY JAMES K. HO, CFA, PORTFOLIO MANAGER
John Hancock
V.A. Sovereign Bond Fund
Pockets of uncertainty challenge the bond market,
but bonds still gain ground
"...we steered the Fund toward a more defensive orientation..."
Investing in fixed-income securities presented some interesting challenges
during the past six months. At a quick glance, the investment environment for
bonds seemed ideal. Indeed, there were many favorable factors at work on the
home front -- inflation was subdued, interest rates remained low, the economy
continued to grow at a healthy pace, corporate earnings were strong, job
creation was high and wage inflation remained moderate.
A closer look, however, revealed pockets of uncertainty amid frequently
unsettled world markets. The ongoing economic and currency woes of many Asian
nations affected bonds across the fixed-income spectrum, both positively and
negatively. Emerging-market bonds around the globe were the most sensitive to
the Far East's volatility, and prices plunged with each new wave of political
unrest and fiscal weakness. U.S. investment-grade corporate bonds and high-yield
issues also experienced spells of downward pressure. Heavy new issuance supply
met at times with lackluster demand as investors grew increasingly concerned
that Asia's troubles might adversely affect corporate profitability and credit
quality down the road. The prices of U.S. Treasury securities soared, on the
other hand, as investors worldwide flocked to the relative safety of U.S. debt.
In fact, near the period's end, the yield on the bellwether 30-year Treasury
bond, which moves in the opposite direction of its price, traded below 5.6% --
the lowest it had been since the mid-1970s.
Against this backdrop, the John Hancock V.A. Sovereign Bond Fund closed the
semiannual period with positive results. For the six months ended June 30, 1998,
the Fund posted a total return of 4.20% at net asset value. In comparison, the
average variable annuity corporate debt A-rated fund returned 3.97%, according
to Lipper Analytical Services, Inc. Historical performance information can be
found on page 36.
Conservative strategies favored
Throughout the period, we steered the Fund toward a more defensive orientation
in several ways. We adopted a relatively neutral duration stance, keeping the
Fund's average duration -- a measure of
- --------------------------------------------------------------------------------
Pie chart at the bottom left column titled "Portfolio Diversification" There are
four listings. Beginning from the top right the first represents Corporate bonds
34%, the second represents U.S. government & agencies 58%, the third represents
Foreign governments 1%, The fourth represents Short-term Investments & other 7%.
A footnote at the bottom states "As a percentage of net assets on June 30,
1998."
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
[A 2 1/4" x 3 1/2" photo of fund management team at the bottom right column. The
caption reads Jim ho (seated) and Fund management team members (l-r): Lester
Duke, Beverly Cleathero and Seth Robbins]
- --------------------------------------------------------------------------------
34
<PAGE>
================================================================================
JOHN HANCOCK V.A. SOVEREIGN BOND FUND
- --------------------------------------------------------------------------------
["Bar Chart with the heading "Fund Performance" at the top of left hand column.
Under the heading is the footnote: "For the six months ended June 30, 1998." The
chart is scaled in increments of 1% with the 5% at the top and 0% at the bottom.
The first represents the 4.20% total return for John Hancock V.A. Sovereign Bond
Fund. The second represents the 3.97% total return for Average variable annuity
corporate debt A-rated fund. A footnote at the bottom reads: 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 A-rated
fund is tracked by Lipper Analytical Services, Inc. See the following page for
historical performance information."]
- --------------------------------------------------------------------------------
how sensitive a bond's price is to interest rate changes -- in line with its
benchmark and peer group. When an opportunity presented itself, we upgraded our
credit exposure on the corporate bond side, which accounted for 34% of the
Fund's net assets. We also favored corporate bonds in sectors that stand to
perform well regardless of economic swings, such as healthcare, utilities,
media, and telecommunications. Merger and acquisition activity, deregulation,
and consolidation have been the catalysts of change and opportunity in these
industries. Holdings that have performed well for the Fund include Time Warner,
TCI Communications -- the recent beneficiary of a merger with AT&T -- Nextel
Communications, News America Holdings, Integrated Health Services, Cleveland
Electric Illuminating, and Niagara Mohawk Power Corp.
We've also lightened up on capital goods and cyclical credits, maintaining
very little exposure to paper, steel, oil, and gas issues. As the period
progressed, we slightly increased our emphasis on high-quality asset-backed
securities, such as home equity loans, which have performed well. Our focus in
the mortgage-backed securities area was on discount coupon mortgages -- those
whose coupons are below current market rates -- as they tend to be relatively
insulated from price swings in a declining rate environment.
Avoiding minefields
Clearly, the areas we avoided contributed to performance as much as the sectors
in which we chose to invest. In-depth research played a critical role in our
investment decisions and, ultimately, in how the Fund performed. For example, we
had opportunistically sold most of the Fund's Asian positions late last summer
when the turmoil had only just begun, leaving the Fund with very little exposure
to emerging market bonds issued from the Far East as we entered fiscal 1998.
Although the Fund was not immune to the effects of the currency debacle, we were
able to sidestep much of the troubled debt. While the Fund's small investment in
Latin American bonds has come under pressure in sympathy with Asian bonds, our
research suggests that these portfolio holdings are well positioned to fully
recover once investors' fears dissipate.
Outlook
As we enter the second half of fiscal 1998, we are upbeat about the prospects
for fixed-income securities. The crisis in Asia may begin to put a drag on the
domestic economy if exports begin to slow, and this, combined with a strong U.S.
dollar, should help keep inflation low -- always a positive for bond investors.
In fact, we would not be surprised if the Federal Reserve Board moves to cut
short-term rates some time later this year, should the U.S. economy slow and
require stimulation. Given such a possibility, we expect to maintain a duration-
neutral strategy. The wild card continues to be the emerging markets and how
their performance may influence that of domestic investment-grade corporate and
high-yield bonds.
"...we are upbeat about the prospects for fixed-income securities."
35
<PAGE>
================================================================================
JOHN HANCOCK V.A. SOVEREIGN BOND FUND
A LOOK AT PERFORMANCE
For the period ended June 30, 1998
SINCE
ONE INCEPTION
YEAR (8/29/96)
---- ---------
Cumulative Total Returns 10.82% 18.92%
Average Annual Total Returns(1) 10.82% 9.90%
YIELD
For the period ended June 30, 1998
SEC 30-DAY
YIELD
-----
John Hancock V.A. Sovereign Bond Fund 5.46%
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 9.54% and 8.09%, 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.
- --------------------------------------------------------------------------------
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 V.A. Sovereign Bond Fund, before
sales charge on August 29, 1996, and is equal to $11,892 as of June 30, 1998.
The second line represents the value of the hypothetical $10,000 investment made
in the Lehman Brothers Corporate Bond Index and is equal to $11,762 as of June
30, 1998.
- --------------------------------------------------------------------------------
36
<PAGE>
================================================================================
BY FREDERICK CAVANAUGH, PORTFOLIO MANAGER
John Hancock
V.A. Strategic Income Fund
Muted inflation and lower interest rates spur global bonds
U.S. bonds of many types outpaced the global markets during the first six months
of this year. The U.S. Treasury bond market was one of the world's top
performers, thanks in part to low inflation, falling interest rates and strong
demand, as investors increasingly sought them out as a safe haven against
deepening economic problems in Asia. High-yield U.S. corporate bonds also
enjoyed decent success, propelled by low interest rates, a healthy domestic
economy and reasonably healthy corporate earnings. What's more, the demand for
domestic high-yield corporates remained fairly strong even as supply grew to
near-record levels. The period was witness to a historic development when 11
countries united to form the European Monetary Union (EMU) and a unified
European currency -- the euro. And despite concerns to the contrary, EMU proved
to be a positive for many European bonds. At the other end of the spectrum was
emerging-market debt. As the Asian crisis deepened, money fled not only from the
Pacific Rim bond markets, but from all emerging markets, whether linked to Asia
or not.
Performance and strategy review
For the six months ended June 30, 1998, John Hancock V.A. Strategic Income Fund
posted a total return of 4.61% at net asset value, surpassing the 3.58% return
of the average variable annuity general bond fund, according to Lipper
Analytical Services, Inc. For historical performance information, please see
page 39.
Our relatively large stake in high-yield corporate bonds was the main reason
for our outperformance. In particular, Nextel Communications, a
cellular/paging/dispatch company, and Casino America were among our biggest
winners. Despite carrying the burden of being issued in an emerging market,
Colombian cellular company Comunicacion Celular posted strong gains thanks to
huge demand for its products and services. On the flip side, Goss Graphic
Systems bonds suffered losses, despite having a record-breaking backlog for its
products, when the company closed its French operations. Because we believe that
U.S. economic growth could slow in the second half of the year, we've somewhat
reduced our stake in high-yield U.S. corporate bonds. In particular, we've sold
or pared back our holdings in lower-quality companies that we think may suffer
declining profits during an economic downswing.
- --------------------------------------------------------------------------------
TOP FIVE BOND SECTORS
1. Telecommunications 29%
2. U.S. government 20%
3. Media 8%
4. Foreign governments 7%
5. Leisure 5%
As a percentage of net assets on June 30, 1998
- --------------------------------------------------------------------------------
"Our relatively large stake in high-yield corporate bonds was the main reason
for our outperformance."
- --------------------------------------------------------------------------------
[A 2 1/4" x 3 1/2" photo of fund management team at the bottom right column.
Caption reads - Fund management team members. Standing (l-r): Lee Crockett,
Roger Hamilton, Ted Hines and Carolee Bongiovi. Seated (l-r)- Beverly Cleathero
and Fred Cavanaugh.]
- --------------------------------------------------------------------------------
37
<PAGE>
================================================================================
JOHN HANCOCK V.A. STRATEGIC INCOME FUND
- --------------------------------------------------------------------------------
["Bar Chart with the heading "Fund Performance" at the top of left hand column.
Under the heading is the footnote: "For the six months ended June 30, 1998." The
chart is scaled in increments of 1% with the 5% at the top and 0% at the bottom.
The first represents the 4.61% total return for John Hancock V.A. Strategic
Income Fund. The second represents the 3.58% total return for Average variable
annuity general bond fund. A footnote at the bottom reads: 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."]
- --------------------------------------------------------------------------------
Another positive for the Fund's performance was our small stake in
emerging-market debt. While we didn't dodge all the pain these markets suffered,
we did sidestep a fair amount of the price decline that came this year. We've
eliminated our stake in Brazilian bonds because inflation there is quite high
and there's a lot of uncertainty surrounding the upcoming presidential election.
We did, however, maintain our holdings in Argentina and Mexico, which have
reasonable economic growth and manageable inflation rates. As a result of our
sales of high-yield corporate bonds, our stake in U.S. Treasuries -- where we
deployed the proceeds from the sales -- rose to 20% at the end of the period, up
from 14% six months ago.
Unfortunately, our stake in Western European bonds was limited primarily to
those issued in the United Kingdom. While we saw strong gains from both
corporate and government bonds there, the real action was in EMU countries. As
they cut their deficits and lowered interest rates to meet the conditions of the
monetary union, the prices of bonds in France, Spain and other member countries
posted strong gains. With only one German bond in the portfolio, we missed most
of the action there.
Outlook
In our view, the financial crisis in Asia will continue to plague the emerging
markets. Although emerging-market bond prices have fallen dramatically, we don't
yet see many compelling values arising in either Southeast Asia or Latin
America. Until we do, we'll likely keep our emerging-market holdings at a low
level. We also believe that continued weakness in Asia will ultimately mute
economic growth in the U.S., although we feel that a recession is unlikely.
Slower economic growth here at home will probably mean that inflation will stay
in check. If a weaker-than-expected U.S. economy does materialize, the demand
for high-yield corporate debt will most likely slow. In that event, we'll
probably reduce our stake in high-yield U.S. corporate bonds in favor of further
increasing our stake in U.S. Treasury securities.
"...continued weakness in Asia will ultimately mute economic growth in the
U.S..."
38
<PAGE>
================================================================================
JOHN HANCOCK V.A. STRATEGIC INCOME FUND
A LOOK AT PERFORMANCE
For the period ended June 30, 1998
SINCE
ONE INCEPTION
YEAR (8/29/96)
---- ---------
Cumulative Total Returns 10.50% 24.44%
Average Annual Total Returns(1) 10.50% 12.65%
YIELD
For the period ended June 30, 1998
SEC 30-DAY
YIELD
-----
John Hancock V.A. Strategic Income Fund 8.01%
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 been10.20% and 12.07%, 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.
- --------------------------------------------------------------------------------
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 $12,444
as of June 30, 1998. The second line represents the value of the Lehman
Government/Corporate Bond Index on August 29, 1996, and is equal to $11,963 as
of June 30, 1998.
- --------------------------------------------------------------------------------
39
<PAGE>
================================================================================
BY ARTHUR CALAVRITINOS, CFA, PORTFOLIO MANAGER
John Hancock
V.A. High Yield Bond Fund
High-yield bonds advance in a volatile six months
"...we began establishing positions across many industries..."
High-yield bonds rode a roller coaster over the last six months, but ended the
period posting decent gains. Driving the ups and downs were the Asia currency
and financial woes that began hitting world markets late last year. As 1998
began, investors were just calming down from their year-end jitters, and
high-yield bonds were boosted in February and March by the robust U.S. economy
and tame inflation. With interest rates staying low, and even falling, demand
for high-yield bonds grew as investors sought higher levels of current income.
But high-yield bonds, both foreign and domestic, came under pressure again in
May and June. Asian uncertainties grew, marked by a change in government in
Indonesia and the falling Japanese yen, and Russia emerged as another currency
and economic weak point. With all the turmoil, investors preferred the
safe-haven status of U.S. Treasury bonds. Despite the turbulence, high-yield
bonds returned 4.50% during the period, as measured by the Lehman Brothers
High-Yield Bond Index.
Into this volatile environment, which is often typical in this higher-risk
sector of the bond market, John Hancock V.A. High Yield Bond Fund was launched
on January 2, 1998. From inception through June 30, 1998, the Fund posted a
total return of 1.94% at net asset value, compared to the average variable
annuity high current yield fund's 4.58% return, according to Lipper Analytical
Services, Inc. The Fund's lag can be attributed to higher-than-usual levels of
cash during these early months in the life of the Fund.
Strategy
The Fund seeks a high level of current income and a competitive total return by
investing in companies across the broad high-yield bond market. We look for
companies whose business prospects make them worth the extra risk we're taking.
High-yield companies pay investors a greater yield to compensate for the added
risk of buying bonds rated below investment grade (BB or lower). These companies
receive a lower rating because they are considered more likely to encounter
difficulties servicing their debt.
We take a value-based approach to investing, preferring to buy companies at
times when their bonds are relatively underpriced. We emphasize companies with
real assets and solid earnings potential. We also look for companies and
industries where there
- --------------------------------------------------------------------------------
TOP FIVE SECURITIES
1. P&L Coal Holdings 3.4%
2. Waste Systems International 3.4%
3. Gaylord Container Corp. 3.2%
4. Abitibi-Consolidated 2.7%
5. Nextel Communications 2.6%
As a percentage of net assets on June 30, 1998
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
[A 2 1/4" x 3 1/2" photo of fund management team at the bottom right column.
Caption reads - Fund management team members. Standing (l-r): Janet Clay, Fred
Cavanaugh, Jamie Kellogg and Lester Duke. Seated (l-r)- Geoff Plume and Arthur
Calavritinos.]
- --------------------------------------------------------------------------------
40
<PAGE>
================================================================================
JOHN HANCOCK V.A. HIGH YIELD BOND FUND
- --------------------------------------------------------------------------------
["Bar Chart with the heading "Fund Performance" at the top of left hand column.
Under the heading is the footnote: "From January 2, 1998 to June 30, 1998." The
chart is scaled in increments of 1% with the 5% at the top and 0% at the bottom.
The first represents the 1.94% total return for John Hancock V.A. High Yield
Bond Fund. The second represents the 4.58% total return for Average variable
annuity high current yield fund. A footnote at the bottom reads: The total
return for John Hancock V.A. High Yield Bond Fund is at net asset value with all
distributions reinvested. The average variable annuity high current yield fund
is tracked by Lipper Analytical Services, Inc."]
- --------------------------------------------------------------------------------
are catalysts at work to help unlock potential, such as mergers and industry
consolidation. Our strength lies in our rigorous fundamental research and our
in-depth knowledge of the industries in which our companies operate. Sometimes,
that leads us to companies that do not issue high-yield bonds, at which point we
may selectively choose to take advantage of the Fund's ability to own stock.
During the Fund's first six months, we began establishing positions across
many industries, including telecommunications, steel, gaming and airlines. An
example of our strategy at work is in our paper holdings, where we believe in
the long-term potential of the group. There, we've focused on two areas: the
world-class, low-cost pulp producers such as Indonesian producer Asia Pulp &
Paper, (APP International Finance) and companies with niche paper products, such
as Repap New Brunswick, a producer of lightweight coated paper for magazines. It
has just the profile we look for: great tangible assets, solid niche positions,
the potential for mergers and acquisitions and increasing cash flow. Another
niche market with perhaps the most attractive fundamentals is newsprint -- a
consolidating industry with no new source of supply. As a result, companies such
as Abitibi-Consolidated have tremendous pricing power. Indeed, shortly after the
period ended, Abitibi announced a strategic alliance with a South Korean
newsprint company that should further enhance its position.
Outlook
We are keeping our outlook cautious for high-yield bonds. We remain encouraged
by the prospects of strong demand for high-yield bonds and by the vibrant U.S
economy. Yet the horizon is not without its potential storm clouds. More
high-yield companies are missing their earnings targets and there has been an
uptick in defaults, albeit off a very low base. We're also monitoring the impact
of Asia on the U.S. economy this year. In this environment, we will continue to
search for solid companies that we can buy at attractive prices and hold, with
an eye toward both high current income and appreciation potential.
"We are keeping our outlook cautious for high-yield bonds."
- --------------------------------------------------------------------------------
See the Fund's prospectus for a detailed discussion of the risks of investing in
high-yield bonds.
41
<PAGE>
================================================================================
JOHN HANCOCK V.A. HIGH YIELD BOND FUND
A LOOK AT PERFORMANCE
For the period ended June 30, 1998
SINCE
INCEPTION
(1/2/98)
--------
Cumulative Total Return 1.94%
Average Annual Total Return(1) 1.94%(2)
YIELD
For the period ended June 30, 1998
SEC 30-DAY
YIELD
-----
John Hancock V.A. High Yield Bond Fund 9.64%
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 1.69%.
(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.
High Yield 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 High Yield Bond Index--an unmanaged index of
fixed-income securities that are similar, but not identical to the bonds in the
Fund's portfolio. Past performance is not indicative of future results.
- --------------------------------------------------------------------------------
Line chart with the heading V.A. High Yield 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 High Yield Bond Index and is equal to $13,005 as of June
30, 1998. The second line represents the value of the V.A. High Yield Bond Fund,
before sales charge on January 2, 1998, and is equal to $10,194 as of June 30,
1998.
- --------------------------------------------------------------------------------
42
<PAGE>
================================================================================
BY LAWRENCE J. DALY AND ANTHONY A. GOODCHILD, PORTFOLIO MANAGERS
John Hancock
V.A. World Bond Fund
Global bonds produce mixed results in increasingly volatile environment
World bond markets turned in a mixed performance over the last six months amid
heightened turbulence. Continental Europe surprised investors by gaining
significant ground, even though many expected otherwise after interest rates
fell significantly there last year. But with the imminence of the European
Monetary Union, countries working to gain entry continued lowering rates to spur
their economies. The U.S. bond market also rallied, although not to Europe's
extent. U.S. Treasuries in particular reaped the benefits of the flight to
quality prompted by ongoing Asian financial turmoil. Near-perfect economic
conditions, including a robust economy but tame inflation, also kept U.S. bond
prices and interest rates fairly stable. Emerging-market bonds everywhere had
begun to rebound from their Asian tumble as the year began, but were buffeted
again as the period progressed by further currency problems in Asia, Russia and
South Africa.
Performance and strategy review
Against this mixed backdrop, John Hancock V.A. World Bond Fund posted a total
return of 1.72% at net asset value for the six months ended June 30, 1998,
slightly below the 2.31% return of the average variable annuity global income
fund, according to Lipper Analytical Services, Inc. Historical performance
information can be found on page 45. The Fund's underperformance was mainly
because we were not invested in continental Europe when bonds there rallied in
the first quarter. In addition, because the U.S. economy remained surprisingly
strong, the Federal Reserve Board did not lower interest rates as we had thought
it would in response to Asia. Although U.S. Treasuries -- where we had a good
part of the Fund's assets -- performed well and protected us in the Asian
aftermath, the European rally was greater.
In currency terms, the Fund benefited from keeping the bulk of its assets --
70% at the end of June -- in U.S. dollar-denominated bonds. This boosted
performance as the dollar appreciated against most major currencies in a
volatile time for currency markets. But we lost some ground in
- --------------------------------------------------------------------------------
Pie chart at the bottom left column titled "Portfolio Diversification" There are
five listings. Beginning from the top right the first represents United States
65%, the second represents Europe 15%, the third represents Latin America 11%,
The fourth represents South Africa 2%. The fifth represents Short-Term
Investments & Other 7%. A footnote at the bottom states "As a percentage of net
assets on June 30, 1998."
- --------------------------------------------------------------------------------
"...we kept our emphasis on U.S. bonds, although to a lesser degree than six
months ago."
- --------------------------------------------------------------------------------
[A 2 1/4" x 3 1/2" photo of fund management team at the bottom right column.
Anthony Goodchild (l) and Lawrence Daly (R), Portfolio Managers.]
- --------------------------------------------------------------------------------
43
<PAGE>
================================================================================
JOHN HANCOCK V.A. WORLD BOND FUND
"We remain cautious... about emerging markets."
- --------------------------------------------------------------------------------
["Bar Chart with the heading "Fund Performance" at the top of left hand column.
Under the heading is the footnote: "For the six months ended June 30, 1998." The
chart is scaled in increments of 1% with the 4% at the top and 0% at the bottom.
The first represents the 1.72% total return for John Hancock V.A. World Bond
Fund. The second represents the 2.31% total return for Average variable annuity
global income fund. A footnote at the bottom reads: 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."]
- --------------------------------------------------------------------------------
recent currency trades involving the Japanese yen. Our first position was
against the yen and that served us well as the currency plunged for most of the
period. We gave back all our gains, however, after the Federal Reserve
unexpectedly intervened to prop up Japan's currency. Believing this action
signaled true reform ahead, we established a small stake in yen, only to see no
meaningful plans emerge and the yen start to slide again. We ended the period
with a minimal and hedged yen position.
Bias toward U.S. bonds
Given the volatility in world markets, and the fact that Europe's markets didn't
seem as attractive, with interest rates at low levels and poised to rise, we
kept our emphasis on U.S. bonds, although to a lesser degree than six months
ago. With real interest rates higher here than in Europe, and with the potential
for them to move down further as the economy slows, we're hoping that by
year-end, U.S. bonds will have gained enough ground to compensate us for missing
the short-term opportunity in Europe. At the end of the period, 57% of the
Fund's net assets -- down from 75% six months ago -- were invested in U.S.
Treasuries and mortgage-backed securities issued by several U.S. government
agencies.
Toward the end of the period, we redeployed 18% of the Fund's net assets to
Germany and its currency by buying a government bond and a U.S. bond issued by
Ford Motor Credit Company and denominated in deutschemarks. We did this because
we were able to get interest rates comparable to those of U.S. Treasuries and at
the same time increase our exposure to the deutschmark. We believe that with
German inflation low, and the new euro currency poised to keep European economic
growth strong even as the U.S. potentially weakened, there is an opportunity for
the mark to appreciate versus the dollar. We also kept a stake in the U.K.
because yields there remain higher than in the rest of Europe. Our
emerging-market stake stayed fairly steady at 13%, comprised of only
dollar-denominated government bonds.
Mixed outlook
Our outlook for global bond markets is mixed. As Asia's troubles begin to more
fully register, we expect the U.S. economy to slow, possibly allowing rates to
fall further. Low inflation and interest rates and solid growth appear to remain
the order of the day for Europe, with the new euro potentially posing an
attractive counterpart to the dollar. We remain cautious, however, about
emerging markets. While this year's currency and financial upheavals have
created tremendous opportunities for selective investors, the waters remain very
choppy. Our main concern is whether Japan can, and will, implement real
structural reform to move its economy out of recession and aid the rest of Asia.
Until prospects improve further, we'll maintain a defensive strategy.
- --------------------------------------------------------------------------------
International investing involves special risks such as political, economic and
currency risks and differences in accounting standards and financial reporting.
45
<PAGE>
================================================================================
JOHN HANCOCK V.A. WORLD BOND FUND
A LOOK AT PERFORMANCE
For the period ended June 30, 1998
SINCE
ONE INCEPTION
YEAR (8/29/96)
---- ---------
Cumulative Total Returns 3.35% 7.28%
Average Annual Total Returns(1) 3.35% 3.90%
YIELD
For the period ended June 30, 1998
SEC 30-DAY
YIELD
-----
John Hancock V.A. World Bond Fund 5.31%
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 2.20% and 2.51%, 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.
- --------------------------------------------------------------------------------
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 $10,729 as of
June 30, 1998. The second line represents the value of the Salomon Brothers
World Government Bond Index on August 29, 1996, and is equal to $10,632 as of
June 30, 1998.
- --------------------------------------------------------------------------------
45
<PAGE>
================================================================================
BY DAWN BAILLIE, FOR THE PORTFOLIO MANAGEMENT TEAM
John Hancock
V.A. Money Market Fund
Dormant inflation, Asia turmoil keep Federal Reserve on the sidelines
"To the extent we were able, we kept the Fund's maturity longer than average..."
When the Fund's semiannual period began in January, the economy was growing at a
healthy clip and seemed to shrug off the effects of financial turmoil in Asia.
As a result, investors grew more concerned that the Federal Reserve would raise
interest rates at its March meeting in order to cool the economy's jets and
prevent an inflation outbreak. But the Fed held back, and chairman Alan
Greenspan later made it clear that he would not make any changes to U.S.
monetary policy without taking worldwide events into account. Indeed, as the
period progressed, conditions in the Far East remained unsettled, including
floundering Asian markets and Japan's plummeting currency and recession-bound
economy. The region became the focal point of market concerns. Fears heightened
that the worst wasn't over yet and that the U.S. economy would slow in the
second half. That scenario would further bolster the Fed's sideline stance.
As a result of the Fed's inaction in the last six months, money market yields
remained fairly steady during the period, as the federal funds rate, which banks
charge each other for overnight loans and which serves as a pricing benchmark
for money market securities, remained at 5.50%. In June, however, money market
yields fell somewhat along with all bonds in a rally prompted by foreign
investors' increasingly seeking the safe haven of U.S. Treasury bonds.
On June 30, 1998, John Hancock V.A. Money Market Fund had a 7-day effective
yield of 5.01%. By comparison, the average taxable money market fund had a 7-day
effective yield of 4.92%, according to Lipper Analytical Services, Inc.
Staying long
To the extent we were able, we kept the Fund's maturity longer than average
throughout the entire six-month period. We took this aggressive stance because
we continued to believe that inflation would remain in check and that the Fed
would not take any action as long as Asia remained a wild card. Because the
Fund's small size limited our ability to buy the full range of money market
securities, we were not always able to maintain a longer-than-average maturity.
Nonetheless, over the last six months we managed to keep the Fund's maturity in
the range of two days shorter to five days longer than average. This strategy
served us well by allowing us to lock in higher rates, especially before last
month's rally when interest rates on longer-maturity bonds tumbled to their
lowest level in years and also put pressure on money market yields.
A look ahead
As long as the economy remains in its near perfect mode -- solid growth, low
interest rates and benign inflation -- and Asia still looms large over the
market and the economy, we believe the Fed
- --------------------------------------------------------------------------------
[A 2 1/4" x 3 1/2" photo of fund management team at the bottom right column.
Fund management team members (l-r): Jeff Given, Dawn Baillie, Bill Larkin, Jr.
and Barry Evans.]
- --------------------------------------------------------------------------------
46
<PAGE>
================================================================================
JOHN HANCOCK V.A. MONEY MARKET FUND
- --------------------------------------------------------------------------------
["Bar Chart with the heading "7-DAY EFFECTIVE YIELD" at the top of left hand
column. Under the heading is the footnote: "As of June 30, 1998." The chart is
scaled in increments of 2% with the 6% at the top and 0% at the bottom. The
first represents the 5.01% total return for John Hancock V.A. Money Market Fund.
The second represents the 4.92% total return for the Average taxable money
market fund. A footnote at the bottom reads: "The average taxable money market
fund is tracked by Lipper Analytical Services, Inc. Past performance is no
guarantee of future results."]
- --------------------------------------------------------------------------------
will stay on the sidelines. Above all else, further events in Asia and the U.S.
economy's growth rate hold the keys to the Fed's next moves. If the U.S. economy
slows down in the second half of the year, we also could see some further
decline in both interest rates and money market yields.
In this environment, we will keep the Fund's maturity longer than average,
believing the Fed will take no further action this year. Globally, we'll be
watching Japan and the yen, whose continued fall could spell more trouble for
other Asian currencies and economies worldwide. Domestically, we'll take our
cues from the monthly economic data, including the important employment cost
index number, which is an accurate measure of if and how a tight labor market
and wage pressures are translating into inflation. As always, we'll stay focused
on our goal of providing a competitive level of current income, while preserving
stability of principal.
"...further events in Asia and the U.S. economy's growth rate hold the keys to
the Fed's next moves."
- --------------------------------------------------------------------------------
The Fund is neither insured nor guaranteed by the U.S. government. There can be
no assurance that the Fund will be able to maintain a net asset value of $1.00
per share.
47
<PAGE>
==============================FINANCIAL STATEMENTS==============================
John Hancock Funds - Declaration Trust
Statements of Assets and Liabilities
June 30, 1998 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
V.A. V.A. V.A.
INTERNATIONAL REGIONAL FINANCIAL
FUND BANK FUND(1) INDUSTRIES FUND
----------- ------------ ---------------
<S> <C> <C> <C>
Assets:
Investments at value - Note D:
Common stocks (cost - $4,856,049, $11,105,909, $40,397,984,
$5,428,002, $1,091,350 and $5,538,991, respectively) ............. $5,376,970 $10,872,763 $44,939,742
Preferred stocks and rights (cost - $178,308, none, none, none,
none and none, respectively) ..................................... 177,677 -- --
Joint repurchase agreements (cost - $206,000, $1,420,000,
$3,975,000, $41,000, $54,000 and $284,000, respectively) ......... 206,000 1,420,000 3,975,000
Corporate savings account ......................................... -- 790 661
----------- ------------ -----------
5,760,647 12,293,553 48,915,403
Cash .............................................................. 367 -- --
Foreign currency, at value (cost - $63,048, none, none, none,
none and none, respectively) ..................................... 63,074 -- --
Receivable for investments sold ................................... 7,185 87,906 293,818
Dividends and interest receivable ................................. 8,038 14,178 87,209
Foreign tax receivable ............................................ 8,163 -- --
Receivable from John Hancock Advisers, Inc. and affiliates -
Note C .......................................................... 52,380 -- --
Deferred organization expenses - Note B ........................... 6,766 -- --
Other assets ...................................................... 38 -- 761
----------- ------------ -----------
Total Assets .................................... 5,906,658 12,395,637 49,297,191
---------------------------------------------------------------------------------------------
Liabilities:
Payable for forward foreign currency exchange contracts
sold - Note B ................................................... 108 -- --
Payable for investments purchased ................................. 46,183 861,389 79,945
Payable foreign withholding tax ................................... 766 -- --
Payable to John Hancock Advisers, Inc. and affiliates - Note C .... -- 4,656 32,429
Accounts payable and accrued expenses ............................. 30,062 4,914 4,339
----------- ------------ -----------
Total Liabilities ............................... 77,119 870,959 116,713
---------------------------------------------------------------------------------------------
Net Assets:
Capital paid-in ................................................... 5,237,968 11,755,165 44,354,896
Accumulated net realized gain (loss) on investments,
financial futures contracts and foreign
currency transactions ............................................ 33,934 3,050 79,474
Net unrealized appreciation (depreciation) of
investments, financial futures contracts and
foreign currency transactions .................................... 520,392 (233,146) 4,541,762
Undistributed net investment income (distributions
in excess of net investment income) .............................. 37,245 (391) 204,346
----------- ------------ -----------
Net Assets ...................................... $5,829,539 $11,524,678 $49,180,478
=============================================================================================
Net Asset Value Per Share:
(Based on 479,309, 1,204,218, 3,257,688, 582,701, 106,728
and 536,460 shares, respectively, of beneficial interest
outstanding - unlimited number of shares authorized with
no par value) .................................................... $12.16 $9.57 $15.10
=================================================================================================================
<CAPTION>
V.A.
V.A. SPECIAL V.A.
EMERGING OPPORTUNITIES GROWTH
GROWTH FUND FUND(2) FUND
----------- ------------- -----------
<S> <C> <C> <C>
Assets:
Investments at value - Note D:
Common stocks (cost - $4,856,049, $11,105,909, $40,397,984,
$5,428,002, $1,091,350 and $5,538,991, respectively) ............. $6,470,129 $1,165,023 $6,272,698
Preferred stocks and rights (cost - $178,308, none, none, none,
none and none, respectively) ..................................... -- -- --
Joint repurchase agreements (cost - $206,000, $1,420,000,
$3,975,000, $41,000, $54,000 and $284,000, respectively) ......... 41,000 54,000 284,000
Corporate savings account ......................................... 211 223 103
----------- ---------- -----------
6,511,340 1,219,246 6,556,801
Cash .............................................................. -- -- --
Foreign currency, at value (cost - $63,048, none, none, none,
none and none, respectively) ..................................... -- -- --
Receivable for investments sold ................................... 94,761 13,121 2,500
Dividends and interest receivable ................................. 967 684 2,889
Foreign tax receivable ............................................ -- -- 7
Receivable from John Hancock Advisers, Inc. and affiliates -
Note C .......................................................... 9,083 --
Deferred organization expenses - Note B ........................... 6,766 -- 6,766
Other assets ...................................................... 22 -- 23
----------- ---------- -----------
Total Assets .................................... 6,614,526 1,242,134 6,568,986
-----------------------------------------------------------------------------------------
Liabilities:
Payable for forward foreign currency exchange contracts
sold - Note B ................................................... -- -- --
Payable for investments purchased ................................. 21,517 12,585 83,042
Payable foreign withholding tax ................................... -- -- --
Payable to John Hancock Advisers, Inc. and affiliates - Note C .... -- -- 1,359
Accounts payable and accrued expenses ............................. 10,119 12,884 8,018
----------- ---------- -----------
Total Liabilities ............................... 31,636 25,469 92,419
-----------------------------------------------------------------------------------------
Net Assets:
Capital paid-in ................................................... 6,076,763 1,129,878 5,627,360
Accumulated net realized gain (loss) on investments,
financial futures contracts and foreign
currency transactions ............................................ (522,962) 11,668 119,322
Net unrealized appreciation (depreciation) of
investments, financial futures contracts and
foreign currency transactions .................................... 1,042,127 73,673 733,707
Undistributed net investment income (distributions
in excess of net investment income) .............................. (13,038) 1,446 (3,822)
----------- ---------- -----------
Net Assets ...................................... $6,582,890 $1,216,665 $6,476,567
=========================================================================================
Net Asset Value Per Share:
(Based on 479,309, 1,204,218, 3,257,688, 582,701, 106,728
and 536,460 shares, respectively, of beneficial interest
outstanding - unlimited number of shares authorized with
no par value) .................................................... $11.30 $11.40 $12.07
=============================================================================================================
</TABLE>
(1) Commenced operations on May 1, 1998.
(2) Commenced operations on January 2, 1998.
The Statement of Assets and Liabilities is the Fund's balance sheet and shows
the value of what the Fund owns, is due and owes on June 30, 1998. You'll also
find the net asset value per share as of that date.
SEE NOTES TO FINANCIAL STATEMENTS.
48
<PAGE>
==============================FINANCIAL STATEMENTS==============================
John Hancock Funds - Declaration Trust
Statements of Assets and Liabilities (continued)
June 30, 1998 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
V.A. V.A. V.A. V.A.
GROWTH AND INDEPENDENCE SOVEREIGN 500 INDEX
INCOME FUND(1) EQUITY FUND INVESTORS FUND FUND
------------ ------------ -------------- -----------
<S> <C> <C> <C> <C>
Assets:
Investments at value - Note D:
Common stocks (cost - $7,051,373, $13,498,567, $17,005,817
and $12,298,015, respectively) ................................... $7,401,092 $15,663,409 $19,328,049 $15,610,740
U.S. government obligations (cost - none, none $2,446,719
and none, respectively) ......................................... -- -- 2,459,697 --
Short-term investments (cost - $2,199,670, none, none and
none, respectively) ............................................. 2,199,670 -- -- --
Joint repurchase agreements (cost - $55,000, $676,000,
$2,288,000 and $2,355,000, respectively) ......................... 55,000 676,000 2,288,000 2,355,000
Corporate savings account ......................................... 283 181 524 --
------------ ----------- ------------ -----------
9,656,045 16,339,590 24,076,270 17,965,740
Cash .............................................................. -- -- -- 91,067
Receivable for investments sold ................................... -- 85,941 -- --
Receivable for forward foreign currency exchange contracts
sold - Note B ................................................... 1,027 -- -- --
Dividends and interest receivable ................................. 3,723 19,125 91,714 16,254
Foreign tax receivable ............................................ 9 74 -- 188
Receivable from John Hancock Advisers, Inc. and affiliates -
Note C .......................................................... 734 -- -- 12,472
Deferred organization expenses - Note B ........................... -- 6,766 6,766 6,766
Other assets ...................................................... -- 39 48 113
------------ ----------- ------------ -----------
Total Assets .................................... 9,661,538 16,451,535 24,174,798 18,092,600
--------------------------------------------------------------------------------------------------------------
Payable for investments purchased ................................. 1,288,215 226,697 994,700 --
Payable for variation margin - Note B ............................. -- -- -- 19,125
Payable foreign withholding tax ................................... -- -- -- 17
Payable to John Hancock Advisers, Inc. and affiliates - Note C .... -- 10,548 11,873 --
Accounts payable and accrued expenses ............................. 6,085 5,860 12,773 489
------------ ----------- ------------ -----------
Total Liabilities ............................... 1,294,300 243,105 1,019,346 19,631
--------------------------------------------------------------------------------------------------------------
Net Assets:
Capital paid-in ................................................... 8,001,455 13,452,720 20,936,771 13,509,306
Accumulated net realized gain (loss) on investments, financial
futures contracts and foreign currency transactions .............. 15,199 589,863 (122,002) 1,208,483
Net unrealized appreciation of investments, financial futures
contracts and foreign currency transactions ...................... 350,747 2,164,842 2,335,210 3,354,351
Undistributed net investment income (distributions in excess
of net investment income) ....................................... (163) 1,005 5,473 829
------------ ----------- ------------ -----------
Net Assets ...................................... $8,367,238 $16,208,430 $23,155,452 $18,072,969
==============================================================================================================
Net Asset Value Per Share:
(Based on 729,837, 961,385, 1,582,585 and 1,226,191 shares,
respectively, of beneficial interest outstanding - unlimited
number of shares authorized with no par value) ................... $11.46 $16.86 $14.63 $14.74
==================================================================================================================================
</TABLE>
(1) Commenced operations on January 2, 1998.
SEE NOTES TO FINANCIAL STATEMENTS.
49
<PAGE>
==============================FINANCIAL STATEMENTS==============================
John Hancock Funds - Declaration Trust
Statements of Assets and Liabilities (continued)
June 30, 1998 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
V.A. V.A. V.A. V.A. V.A.
SOVEREIGN STRATEGIC HIGH YIELD WORLD BOND MONEY MARKET
BOND FUND INCOME FUND BOND FUND(1) FUND FUND
----------- ----------- ----------- ------------ -----------
<S> <C> <C> <C> <C> <C>
Assets:
Investments at value - Note D:
Common stocks (cost - none, $21,030, $484,148,
none and none, respectively) ............................... $-- $26,240 $395,203 $-- $--
Bonds (cost - $5,947,492, $10,431,144, $4,838,575,
$2,261,749 and none, respectively) ......................... 5,988,229 10,427,284 4,760,648 2,292,968 --
Preferred stocks and warrants (cost - $51, $220,978,
$190,740, none and none, respectively) ..................... 240 242,827 186,093 -- --
Options (cost - none, none, none, $2,450 and none,
respectively) ............................................. -- -- -- 4,774 --
Short-term investments (cost - none, none, none,
none and $9,937,513, respectively) ......................... -- -- -- -- 9,937,513
Joint repurchase agreements (cost - $1,008,000,
$56,000, $650,000, $153,000 and $838,000, respectively) .... 1,008,000 56,000 650,000 153,000 838,000
Corporate savings account ................................... 881 617 107 -- --
----------- ----------- ----------- ------------ -----------
6,997,350 10,752,968 5,992,051 2,450,742 10,775,513
Cash ........................................................ -- -- -- 487 396
Foreign currency, at value (cost - none, none,
$33,460, none and none, respectively) ...................... -- -- 33,248 -- --
Receivable for investments sold ............................. 744,502 174,031 29,344 259,546 --
Receivable for forward foreign currency exchange
contracts purchased - Note B ............................... -- 118 -- 1,468 --
Dividends and interest receivable ........................... 95,897 208,504 110,144 29,875 138,268
Receivable from John Hancock Advisers, Inc. and affiliates -
Note C .................................................... 2,739 -- 1,465 918 --
Deferred organization expenses - Note B ..................... 6,766 6,766 -- 6,766 6,766
Other assets ................................................ 22 41 -- 31 24
----------- ----------- ----------- ------------ -----------
Total Assets .............................. 7,847,276 11,142,428 6,166,252 2,749,833 10,920,967
---------------------------------------------------------------------------------------------------------------
Liabilities:
Distribution payable ........................................ 1,075 2,393 1,796 373 1,465
Payable for closed forward foreign currency exchange
contracts - Note B ........................................ -- -- -- 10,719 --
Payable for forward foreign currency exchange contracts
purchased - Note B ......................................... -- -- -- 8,586 --
Payable for forward foreign currency exchange contracts
sold - Note B ............................................. -- 4,176 39 3,412 --
Payable for investments purchased ........................... 1,383,911 279,531 127,416 260,697 --
Payable to John Hancock Advisers, Inc. and affiliates -
Note C .................................................... -- 3,521 -- -- 3,532
Accounts payable and accrued expenses ....................... 8,987 8,474 7,863 8,440 5,832
----------- ----------- ----------- ------------ -----------
Total Liabilities ......................... 1,393,973 298,095 137,114 292,227 10,829
---------------------------------------------------------------------------------------------------------------
Net Assets:
Capital paid-in ............................................. 6,342,418 10,801,036 6,214,267 2,477,696 10,910,138
Accumulated net realized gain (loss) on investments,
futures contracts and foreign currency transactions ........ 69,341 20,812 (10,239) (12,618) --
Net unrealized appreciation (depreciation) of investments,
financial futures contracts and foreign currency
transactions ............................................... 40,925 16,016 (171,447) 10,883 --
Undistributed net investment income (distributions in
excess of net investment income) ........................... 619 6,469 (3,443) (18,355) --
----------- ----------- ----------- ------------ -----------
Net Assets ................................ $6,453,303 $10,844,333 $6,029,138 $2,457,606 $10,910,138
===============================================================================================================
Net Asset Value Per Share:
(Based on 616,463, 1,032,151, 617,308, 254,904 and
10,910,138 shares, respectively, of beneficial
interest outstanding - unlimited number of shares
authorized with no par value) .............................. $10.47 $10.51 $9.77 $9.64 $1.00
===================================================================================================================================
</TABLE>
(1) Commenced operations on January 2, 1998.
SEE NOTES TO FINANCIAL STATEMENTS.
50
<PAGE>
==============================FINANCIAL STATEMENTS==============================
John Hancock Funds - Declaration Trust
Statements of Operations
Six months ended June 30, 1998 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
V.A. V.A. V.A. V.A.
INTERNATIONAL REGIONAL FINANCIAL EMERGING
FUND BANK FUND(1) INDUSTRIES FUND GROWTH FUND
--------- ------------ --------------- -----------
<S> <C> <C> <C> <C>
Investment Income:
Dividends (net of foreign withholding tax of $7,870,
none, $3,767, none, $5 and $134, respectively) ......... $56,458 $20,405 $264,463 $5,072
Interest ................................................ 8,741 11,093 89,694 7,654
--------- --------- ---------- --------
65,199 31,498 354,157 12,726
--------- --------- ---------- --------
Expenses:
Investment management fee - Note C ..................... 21,705 9,742 128,515 19,415
Custodian fee .......................................... 65,775 4,784 11,998 15,811
Auditing fee ........................................... 5,818 2,921 5,818 5,818
Printing ............................................... 1,506 265 1,328 2,366
Organization expense - Note B .......................... 1,059 -- -- 1,059
Financial services fee - Note C ........................ 426 215 2,839 457
Trustees' fee .......................................... 117 16 579 117
Miscellaneous .......................................... 334 135 636 307
Legal fees ............................................. 44 8 161 37
Registration and filing fees ........................... 19 -- 12 12
--------- --------- ---------- --------
Total Expenses ............................ 96,803 18,086 151,886 45,399
Less Expense Reductions - Note C .......... (69,056) (5,300) -- (19,502)
--------- --------- ---------- --------
Net Expenses .............................. 27,747 12,786 151,886 25,897
---------------------------------------------------------------------------------------------------
Net Investment Income (Loss) .............. 37,452 18,712 202,271 (13,171)
---------------------------------------------------------------------------------------------------
Realized and Unrealized Gain (Loss) on Investments and
Foreign Currency Transactions:
Net realized gain (loss) on investments sold ............ 164,705 3,050 78,583 (270,041)
Net realized gain (loss) on foreign currency
transactions .......................................... (65,814) -- (462) 2
Change in net unrealized appreciation/depreciation
of investments ........................................ 534,785 (233,146) 2,986,174 718,734
Change in net unrealized appreciation/depreciation of
foreign currency transactions ......................... (251) -- 16 --
--------- --------- ---------- --------
Net Realized and Unrealized Gain (Loss)
on Investments and Foreign Currency
Transactions .............................. 633,425 (230,096) 3,064,311 448,695
---------------------------------------------------------------------------------------------------
Net Increase (Decrease) in Net Assets
Resulting from Operations ................. $670,877 ($211,384) $3,266,582 $435,524
===================================================================================================
<CAPTION>
V.A.
SPECIAL V.A.
OPPORTUNITIES GROWTH
FUND(2) FUND
------------- ---------
<S> <C> <C>
Investment Income:
Dividends (net of foreign withholding tax of $7,870,
none, $3,767, none, $5 and $134, respectively) ......... $2,288 $12,675
Interest ................................................ 2,959 7,474
------- ---------
5,247 20,149
------- ---------
Expenses:
Investment management fee - Note C ..................... 2,851 17,970
Custodian fee .......................................... 5,850 5,786
Auditing fee ........................................... 5,743 6,251
Printing ............................................... 1,019 2,434
Organization expense - Note B .......................... -- 1,059
Financial services fee - Note C ........................ 67 423
Trustees' fee .......................................... 10 114
Miscellaneous .......................................... 239 303
Legal fees ............................................. 23 47
Registration and filing fees ........................... -- 3
------- ---------
Total Expenses ............................ 15,802 34,390
Less Expense Reductions - Note C .......... (12,001) (10,419)
------- ---------
Net Expenses .............................. 3,801 23,971
--------------------------------------------------------------------
Net Investment Income (Loss) .............. 1,446 (3,822)
---------------------------------------------------------------------
Realized and Unrealized Gain (Loss) on Investments and
Foreign Currency Transactions:
Net realized gain (loss) on investments sold ............ 11,668 327,890
Net realized gain (loss) on foreign currency
transactions .......................................... -- --
Change in net unrealized appreciation/depreciation
of investments ........................................ 73,673 220,735
Change in net unrealized appreciation/depreciation of
foreign currency transactions ......................... -- --
------- ---------
Net Realized and Unrealized Gain (Loss)
on Investments and Foreign Currency
Transactions .............................. 85,341 548,625
--------------------------------------------------------------------
Net Increase (Decrease) in Net Assets
Resulting from Operations ................. $86,787 $544,803
====================================================================
</TABLE>
(1) Commenced operations on May 1, 1998.
(2) Commenced operations on January 2, 1998.
The Statement of Operations summarizes for each of the Funds the investment
income earned and expenses incurred in operating the Fund. It also shows net
gains (losses) for the period stated.
SEE NOTES TO FINANCIAL STATEMENTS.
51
<PAGE>
==============================FINANCIAL STATEMENTS==============================
John Hancock Funds - Declaration Trust
Statements of Operations (continued)
Six months ended June 30, 1998 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
V.A. V.A. V.A. V.A.
GROWTH AND INDEPENDENCE SOVEREIGN 500 INDEX
INCOME FUND(1) EQUITY FUND INVESTORS FUND FUND
-------------- ------------ -------------- ---------
<S> <C> <C> <C> <C>
Investment Income:
Dividends (net of foreign withholding tax of $41,
$485, none and $762, respectively) ................................. $10,573 $90,525 $130,781 $138,658
Interest ............................................................. 25,065 12,656 104,454 35,415
--------- ---------- ---------- ----------
35,638 103,181 235,235 174,073
--------- ---------- ---------- ----------
Expenses:
Investment management fee - Note C .................................. 9,346 43,378 55,498 9,872
Auditing fee ........................................................ 6,163 5,818 5,818 5,818
Custodian fee ....................................................... 5,743 8,432 7,970 29,362
Printing ............................................................ 1,005 1,813 2,568 2,396
Legal fees .......................................................... 786 61 137 139
Financial services fee - Note C ..................................... 275 1,095 1,634 1,744
Trustees' fee ....................................................... 10 254 535 588
Registration and filing fees ........................................ 3 12 18 --
Miscellaneous ....................................................... 264 335 3,416 9,946
Organization expense - Note B ....................................... -- 1,059 1,059 1,059
--------- ---------- ---------- ----------
Total Expenses ..................................... 23,595 62,257 78,653 60,924
Less Expense Reductions - Note C ................... (10,355) (3,364) -- (26,314)
--------- ---------- ---------- ----------
Net Expenses ....................................... 13,240 58,893 78,653 34,610
-------------------------------------------------------------------------------------------------------------
Net Investment Income .............................. 22,398 44,288 156,582 139,463
-------------------------------------------------------------------------------------------------------------
Realized and Unrealized Gain (Loss) on Investments, Financial
Futures Contracts and Foreign Currency Transactions:
Net realized gain (loss) on investments sold ......................... 15,479 562,546 (139,843) 851,001
Net realized gain on financial futures contracts ..................... -- -- -- 159,600
Net realized loss on foreign currency transactions ................... (280) -- -- --
Change in net unrealized appreciation/depreciation of investments .... 349,720 1,535,478 1,217,485 2,416,146
Change in net unrealized appreciation/depreciation of
financial futures contracts ........................................ 1,027 -- -- 34,300
--------- ---------- ---------- ----------
Net Realized and Unrealized Gain on Investments,
Financial Futures Contracts and Foreign
Currency Transactions .............................. 365,946 2,098,024 1,077,642 3,461,047
-------------------------------------------------------------------------------------------------------------
Net Increase in Net Assets Resulting from Operations $388,344 $2,142,312 $1,234,224 $3,600,510
=============================================================================================================
</TABLE>
(1) Commenced operations on January 2, 1998.
SEE NOTES TO FINANCIAL STATEMENTS.
52
<PAGE>
==============================FINANCIAL STATEMENTS==============================
John Hancock Funds - Declaration Trust
Statements of Operations (continued)
Six months ended June 30, 1998 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
V.A. V.A. V.A. V.A. V.A.
SOVEREIGN STRATEGIC HIGH YIELD WORLD BOND MONEY MARKET
BOND FUND INCOME FUND BOND FUND(1) FUND FUND
--------- ----------- ------------ ---------- ------------
<S> <C> <C> <C> <C> <C>
Investment Income:
Dividends (net of foreign withholding tax of none,
none, $127, none and none, respectively) ....................... $-- $12,252 $5,020 $-- $--
Interest ........................................................ 179,374 367,023 181,545 77,088 250,150
--------- --------- --------- --------- ---------
179,374 379,275 186,565 77,088 250,150
--------- --------- --------- --------- ---------
Expenses:
Investment management fee - Note C ............................. 12,919 24,703 11,079 8,879 22,114
Custodian fee .................................................. 16,246 4,838 5,002 5,830 3,137
Auditing fee ................................................... 5,818 5,818 5,689 5,818 5,818
Printing ....................................................... 1,871 2,452 1,476 1,638 1,624
Organization expense - Note B .................................. 1,059 1,059 -- 1,059 1,059
Financial services fee - Note C ................................ 456 728 326 222 781
Registration and filing fees ................................... 391 552 -- 19 10
Legal fees ..................................................... 131 185 897 19 173
Trustees' fee .................................................. 112 172 17 71 227
Miscellaneous .................................................. 297 321 759 409 356
--------- --------- --------- --------- ---------
Total Expenses ................................ 39,300 40,828 25,245 23,964 35,299
Less Expense Reductions - Note C .............. (19,913) (5,817) (9,549) (12,118) (2,112)
--------- --------- --------- --------- ---------
Net Expenses .................................. 19,387 35,011 15,696 11,846 33,187
--------------------------------------------------------------------------------------------------------------
Net Investment Income ......................... 159,987 344,264 170,869 65,242 216,963
--------------------------------------------------------------------------------------------------------------
Realized and Unrealized Gain (Loss) on Investments,
Financial Futures Contracts andForeign Currency Transactions:
Net realized gain (loss) on investments sold .................... 56,346 24,886 (9,951) 23,935 --
Net realized gain (loss) on foreign currency transactions ....... -- 7,312 (288) (33,212) --
Change in net unrealized appreciation/depreciation of
investments ................................................... (6,013) (58,044) (171,519) (1,358) --
Change in net unrealized appreciation/depreciation of
financial futures contracts ................................... -- (7,325) -- --
Change in net unrealized appreciation/depreciation of
foreign currency transactions ................................. -- -- 72 (13,930) --
--------- --------- --------- --------- ---------
Net Realized and Unrealized Gain (Loss)
on Investments, Financial Futures Contracts
and Foreign Currency Transactions ............. 50,333 (33,171) (181,686) (24,565) --
--------------------------------------------------------------------------------------------------------------
Net Increase (Decrease) in Net Assets
Resulting from Operations ..................... $210,320 $311,093 ($10,817) $40,677 $216,963
==============================================================================================================
</TABLE>
(1) Commenced operations on January 2, 1998.
SEE NOTES TO FINANCIAL STATEMENTS.
53
<PAGE>
==============================FINANCIAL STATEMENTS==============================
John Hancock Funds - Declaration Trust
Statements of Changes in Net Assets
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
V.A REGIONAL
V.A. INTERNATIONAL FUND BANK FUND
----------------------------- --------------
YEAR ENDED SIX MONTHS ENDED PERIOD ENDED
DECEMBER 31, JUNE 30, 1998 JUNE 30, 1998
1997 (UNAUDITED) (UNAUDITED)(1)
---------- ---------------- --------------
<S> <C> <C> <C>
Increase (Decrease) in Net Assets:
From Operations:
Net investment income .......................................... $12,662 $37,452 $18,712
Net realized gain on investments sold and foreign
currency transactions ......................................... 140,157 98,891 3,050
Change in net unrealized appreciation/depreciation of
investments and foreign currency transactions ................. (261,976) 534,534 (233,146)
---------- ---------- -----------
Net Increase (Decrease) in Net Assets Resulting from Operations (109,157) 670,877 (211,384)
---------- ---------- -----------
Distributions to Shareholders: *
Dividends from net investment income ........................... (2,558) -- (19,103)
Distributions from net realized gain on investments sold
and foreign currency transactions ............................. (213,871) -- --
---------- ---------- -----------
Total Distributions to Shareholders ........................... (216,429) -- (19,103)
---------- ---------- -----------
From Fund Share Transactions: **
Shares sold .................................................... 1,809,166 1,717,013 11,795,202
Shares issued to shareholders in reinvestment of distributions . 216,428 -- 19,103
---------- ---------- -----------
2,025,594 1,717,013 11,814,305
Less shares repurchased ........................................ (175,125) (350,355) (59,140)
---------- ---------- -----------
Net Increase .................................................. 1,850,469 1,366,658 11,755,165
---------- ---------- -----------
Net Assets:
Beginning of period ............................................ 2,267,121 3,792,004 --
---------- ---------- -----------
End of period (including undistributed net investment income
(distributions in excess) of ($207), $37,245, ($391),
$2,075 and $204,346, respectively) ............................ $3,792,004 $5,829,539 $11,524,678
========== ========== ===========
* Distributions to Shareholders
Per share dividends from net investment income ................. $0.0077 $-- $0.0169
---------- ---------- -----------
Per share distributions from net realized gain on
investments sold and foreign currency transactions ............ $0.6422 $-- $--
---------- ---------- -----------
** Analysis of Fund Share Transactions:
Shares sold ................................................... 152,869 148,755 1,208,351
Shares issued to shareholders in reinvestment of
distributions ............................................... 21,239 -- 2,043
---------- ---------- -----------
174,108 148,755 1,210,394
Less shares repurchased ........................................ (14,965) (30,536) (6,176)
---------- ---------- -----------
Net Increase .................................................. 159,143 118,219 1,204,218
========== ========== ===========
V.A. FINANCIAL INDUSTRIES FUND
PERIOD ENDED SIX MONTHS ENDED
DECEMBER 31, JUNE 30, 1998
1997(2) (UNAUDITED)
------------ ----------------
<S> <C> <C>
Increase (Decrease) in Net Assets:
From Operations:
Net investment income .......................................... $67,678 $202,271
Net realized gain on investments sold and foreign
currency transactions ......................................... 15,861 78,121
Change in net unrealized appreciation/depreciation of
investments and foreign currency transactions ................. 1,555,572 2,986,190
----------- -----------
Net Increase (Decrease) in Net Assets Resulting from Operations 1,639,111 3,266,582
----------- -----------
Distributions to Shareholders: *
Dividends from net investment income ........................... (65,434) --
Distributions from net realized gain on investments sold
and foreign currency transactions ............................. (14,677) --
----------- -----------
Total Distributions to Shareholders ........................... (80,111) --
----------- -----------
From Fund Share Transactions: **
Shares sold .................................................... 18,526,866 28,518,012
Shares issued to shareholders in reinvestment of distributions . 80,111 --
----------- -----------
18,606,977 28,518,012
Less shares repurchased ........................................ (1,700,536) (1,069,557)
----------- -----------
Net Increase .................................................. 16,906,441 27,448,455
----------- -----------
Net Assets:
Beginning of period ............................................ -- 18,465,441
----------- -----------
End of period (including undistributed net investment income
(distributions in excess) of ($207), $37,245, ($391),
$2,075 and $204,346, respectively) ............................ $18,465,441 $49,180,478
=========== ===========
* Distributions to Shareholders
Per share dividends from net investment income ................. $0.0518 $--
----------- -----------
Per share distributions from net realized gain on
investments sold and foreign currency transactions ............ $0.0116 $--
----------- -----------
** Analysis of Fund Share Transactions:
Shares sold ................................................... 1,501,742 1,955,822
Shares issued to shareholders in reinvestment of
distributions ............................................... 6,125 --
----------- -----------
1,507,867 1,955,822
Less shares repurchased ........................................ (133,780) (72,221)
----------- -----------
Net Increase .................................................. 1,374,087 1,883,601
=========== ===========
</TABLE>
(1) Commenced operations on May 1, 1998.
(2) Commenced operation 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 end of the previous period. The difference
reflects earnings less expenses, any investment and foreign currency 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 last two periods,
along with the per share amount of distributions made to shareholders of each
Fund for the period indicated.
SEE NOTES TO FINANCIAL STATEMENTS.
54
<PAGE>
==============================FINANCIAL STATEMENTS==============================
John Hancock Funds - Declaration Trust
Statements of Changes in Net Assets (continued)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
V.A. SPECIAL
OPPORTUNITIES
V.A. EMERGING GROWTH FUND FUND
------------------------------ --------------
YEAR ENDED SIX MONTHS ENDED PERIOD ENDED
DECEMBER 31, JUNE 30, 1998 JUNE 30, 1998
1997 (UNAUDITED) (UNAUDITED)(1)
------------ ---------------- --------------
<S> <C> <C> <C> <C>
Increase (Decrease) in Net Assets:
From Operations:
Net investment income (loss) ................................. ($3,029) ($13,171) $1,446
Net realized gain (loss) on investments sold and
foreign currency transactions ............................... (181,115) (270,039) 11,668
Change in net unrealized appreciation/depreciation of
investments and foreign currency transactions ............... 320,418 718,734 73,673
---------- ---------- ----------
Net Increase in Net Assets Resulting from Operations ........ 136,274 435,524 86,787
---------- ---------- ----------
Distributions to Shareholders: *
Dividends from net investment income ......................... (135) -- --
---------- ---------- ----------
From Fund Share Transactions: **
Shares sold .................................................. 2,985,092 2,901,669 1,191,009
Shares issued to shareholders in reinvestment of
distributions ............................................... 135 -- --
---------- ---------- ----------
2,985,227 2,901,669 1,191,009
Less shares repurchased ...................................... (255,471) (595,113) (61,131)
---------- ---------- ----------
Net Increase ................................................ 2,729,756 2,306,556 1,129,878
---------- ---------- ----------
Net Assets:
Beginning of period .......................................... 974,915 3,840,810 --
---------- ---------- ----------
End of period (including undistributed net investment
income (distributions in excess) of $133, ($13,038),
$1,446, none and ($3,822), respectively) .................... $3,840,810 $6,582,890 $1,216,665
========== ========== ==========
* Distributions to Shareholders:
Per share dividends from net investment income ............... $0.0004 $-- $--
---------- ---------- ----------
** Analysis of Fund Share Transactions:
Shares sold ................................................. 291,749 265,175 112,280
Shares issued to shareholders in reinvestment of
distributions .............................................. 14 -- --
---------- ---------- ----------
291,763 265,175 112,280
Less shares repurchased ...................................... (25,147) (53,672) (5,552)
---------- ---------- ----------
Net Increase ................................................ 266,616 211,503 106,728
========== ========== ==========
<CAPTION>
V.A. GROWTH FUND
------------------------------
YEAR ENDED SIX MONTHS ENDED
DECEMBER 31, JUNE 30, 1998
1997 (UNAUDITED)
------------ ----------------
<S> <C> <C> <C>
Increase (Decrease) in Net Assets:
From Operations:
Net investment income (loss) ................................. ($8,594) ($3,822)
Net realized gain (loss) on investments sold and
foreign currency transactions ............................... (111,668) 327,890
Change in net unrealized appreciation/depreciation of
investments and foreign currency transactions ............... 477,636 220,735
---------- ----------
Net Increase in Net Assets Resulting from Operations ........ 357,374 544,803
---------- ----------
Distributions to Shareholders: *
Dividends from net investment income ......................... -- --
---------- ----------
From Fund Share Transactions: **
Shares sold .................................................. 2,597,730 2,450,394
Shares issued to shareholders in reinvestment of
distributions ............................................... -- --
---------- ----------
2,597,730 2,450,394
Less shares repurchased ...................................... (216,250) (251,342)
---------- ----------
Net Increase ................................................ 2,381,480 2,199,052
---------- ----------
Net Assets:
Beginning of period .......................................... 993,858 3,732,712
---------- ----------
End of period (including undistributed net investment
income (distributions in excess) of $133, ($13,038),
$1,446, none and ($3,822), respectively) .................... $3,732,712 $6,476,567
========== ==========
* Distributions to Shareholders:
Per share dividends from net investment income ............... $-- $--
---------- ----------
** Analysis of Fund Share Transactions:
Shares sold ................................................. 263,298 210,406
Shares issued to shareholders in reinvestment of
distributions .............................................. -- --
---------- ----------
263,298 210,406
Less shares repurchased ...................................... (21,325) (21,761)
---------- ----------
Net Increase ................................................ 241,973 188,645
========== ==========
</TABLE>
(1) Commenced operations on January 2, 1998.
SEE NOTES TO FINANCIAL STATEMENTS.
55
<PAGE>
==============================FINANCIAL STATEMENTS==============================
John Hancock Funds - Declaration Trust
Statements of Changes in Net Assets (continued)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
V.A. GROWTH AND
INCOME FUND V.A. INDEPENDENCE EQUITY FUND
-------------- ------------------------------
PERIOD ENDED YEAR ENDED SIX MONTHS ENDED
JUNE 30, 1998 DECEMBER 31, JUNE 30, 1998
(UNAUDITED)(1) 1997 (UNAUDITED)
-------------- ------------ ------------
<S> <C> <C> <C>
Increase (Decrease) in Net Assets:
From Operations:
Net investment income ..................................................... $22,398 $41,598 $44,288
Net realized gain (loss) on investments sold and foreign currency
transactions ............................................................. 15,199 137,167 562,546
Change in net unrealized appreciation/depreciation of investments and
foreign currency transactions ............................................ 350,747 544,516 1,535,478
------------ ------------ ------------
Net Increase in Net Assets Resulting from Operations ..................... 388,344 723,281 2,142,312
------------ ------------ ------------
Distributions to Shareholders: *
Dividends from net investment income ...................................... (22,561) (41,203) (43,678)
Distributions from net realized gain on investments sold and foreign
currency transactions .................................................... -- (135,930) --
------------ ------------ ------------
Total Distributions to Shareholders ...................................... (22,561) (177,133) (43,678)
------------ ------------ ------------
From Fund Share Transactions: **
Shares sold ............................................................... 8,168,750 7,299,605 7,389,950
Shares issued to shareholders in reinvestment of distributions ............ 22,561 177,133 43,678
------------ ------------ ------------
8,191,311 7,476,738 7,433,628
Less shares repurchased ................................................... (189,856) (452,446) (2,042,924)
------------ ------------ ------------
Net Increase ............................................................. 8,001,455 7,024,292 5,390,704
------------ ------------ ------------
Net Assets:
Beginning of period ....................................................... -- 1,148,652 8,719,092
------------ ------------ ------------
End of period (including undistributed net investment income (distributions
in excess) of ($163), $395, $1,005, $804 and $5,473, respectively) ....... $8,367,238 $8,719,092 $16,208,430
============ ============ ============
* Distributions to Shareholders:
Per share dividends from net investment income ............................ $0.0475 $0.1376 $0.0514
------------ ------------ ------------
Per share distributions from net realized gain on investments sold and
foreign currency transactions ............................................ $-- $0.2476 $--
------------ ------------ ------------
** Analysis of Fund Share Transactions:
Shares sold .............................................................. 744,826 534,688 466,379
Shares issued to shareholders in reinvestment of distributions ........... 2,025 13,023 2,647
------------ ------------ ------------
746,851 547,711 469,026
Less shares repurchased ................................................... (17,014) (33,121) (125,606)
------------ ------------ ------------
Net Increase ............................................................. 729,837 514,590 343,420
============ ============ ============
<CAPTION>
V.A. SOVEREIGN INVESTORS FUND
------------------------------
YEAR ENDED SIX MONTHS ENDED
DECEMBER 31, JUNE 30, 1998
1997 (UNAUDITED)
------------ ------------
<S> <C> <C>
Increase (Decrease) in Net Assets:
From Operations:
Net investment income ..................................................... $84,193 $156,582
Net realized gain (loss) on investments sold and foreign currency
transactions ............................................................. 17,842 (139,843)
Change in net unrealized appreciation/depreciation of investments and
foreign currency transactions ............................................ 1,050,550 1,217,485
------------ ------------
Net Increase in Net Assets Resulting from Operations ..................... 1,152,585 1,234,224
------------ ------------
Distributions to Shareholders: *
Dividends from net investment income ...................................... (83,445) (151,914)
Distributions from net realized gain on investments sold and foreign
currency transactions .................................................... (6,096) --
------------ ------------
Total Distributions to Shareholders ...................................... (89,541) (151,914)
------------ ------------
From Fund Share Transactions: **
Shares sold ............................................................... 10,664,200 11,878,429
Shares issued to shareholders in reinvestment of distributions ............ 89,541 151,914
------------ ------------
10,753,741 12,030,343
Less shares repurchased ................................................... (740,977) (2,144,140)
------------ ------------
Net Increase ............................................................. 10,012,764 9,886,203
------------ ------------
Net Assets:
Beginning of period ....................................................... 1,111,131 12,186,939
------------ ------------
End of period (including undistributed net investment income (distributions
in excess) of ($163), $395, $1,005, $804 and $5,473, respectively) ....... $12,186,939 $23,155,452
============ ============
* Distributions to Shareholders:
Per share dividends from net investment income ............................ $0.1769 $0.1061
------------ ------------
Per share distributions from net realized gain on investments sold and
foreign currency transactions ............................................ $0.0072 $--
------------ ------------
** Analysis of Fund Share Transactions:
Shares sold .............................................................. 844,459 821,310
Shares issued to shareholders in reinvestment of distributions ........... 6,966 10,323
------------ ------------
851,425 831,633
Less shares repurchased ................................................... (58,189) (145,766)
------------ ------------
Net Increase ............................................................. 793,236 685,867
============ ============
</TABLE>
(1) Commenced operations on January 2, 1998.
SEE NOTES TO FINANCIAL STATEMENTS.
56
<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 BOND FUND
---------------------------- ----------------------------
YEAR ENDED SIX MONTHS ENDED YEAR ENDED SIX MONTHS ENDED
DECEMBER 31, JUNE 30, 1998 DECEMBER 31, JUNE 30, 1998
1997 (UNAUDITED) 1997 (UNAUDITED)
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Increase (Decrease) in Net Assets:
From Operations:
Net investment income ........................................ $254,757 $139,463 $117,217 $159,987
Net realized gain on investments sold and foreign currency
transactions ................................................ 812,763 1,010,601 30,656 56,346
Change in net unrealized appreciation/depreciation of
investments and foreign currency transactions ............... 948,655 2,450,446 33,037 (6,013)
------------ ------------ ------------ ------------
Net Increase in Net Assets Resulting from Operations ........ 2,016,175 3,600,510 180,910 210,320
------------ ------------ ------------ ------------
Distributions to Shareholders: *
Dividends from net investment income ......................... (253,122) (140,515) (117,208) (159,377)
Distributions from net realized gain on investments sold and
foreign currency transactions ............................... (801,442) -- (22,285) --
------------ ------------ ------------ ------------
Total Distributions to Shareholders ......................... (1,054,564) (140,515) (139,493) (159,377)
------------ ------------ ------------ ------------
From Fund Share Transactions: **
Shares sold .................................................. 15,055,266 7,890,438 2,851,276 3,111,590
Shares issued to shareholders in reinvestment of distributions 1,054,564 140,515 138,885 158,909
------------ ------------ ------------ ------------
16,109,830 8,030,953 2,990,161 3,270,499
Less shares repurchased ...................................... (1,112,317) (13,425,796) (405,240) (550,620)
------------ ------------ ------------ ------------
Net Increase (Decrease) ..................................... 14,997,513 (5,394,843) 2,584,921 2,719,879
------------ ------------ ------------ ------------
Net Assets:
Beginning of period .......................................... 4,048,693 20,007,817 1,056,143 3,682,481
------------ ------------ ------------ ------------
End of period (including undistributed net investment income
of $1,881, $829, $9, $619, $6,469 and $6,469, respectively) . $20,007,817 $18,072,969 $3,682,481 $6,453,303
============ ============ ============ ============
* Distributions to Shareholders:
Per share dividends from net investment income ............... $0.3006 $0.0972 $0.6766 $0.3167
------------ ------------ ------------ ------------
Per share distributions from net realized gain on investments
sold and foreign currency transactions ...................... $0.5445 $-- $0.0653 $--
------------ ------------ ------------ ------------
** Analysis of Fund Share Transactions:
Shares sold .................................................. 1,200,874 561,285 277,867 298,614
Shares issued to shareholders in reinvestment of distributions 86,596 9,739 13,553 15,291
------------ ------------ ------------ ------------
1,287,470 571,024 291,420 313,905
Less shares repurchased ...................................... (90,171) (930,006) (39,559) (52,987)
------------ ------------ ------------ ------------
Net Increase (Decrease) ..................................... 1,197,299 (358,982) 251,861 260,918
============ ============ ============ ============
<CAPTION>
V.A. STRATEGIC INCOME FUND
----------------------------
YEAR ENDED SIX MONTHS ENDED
DECEMBER 31, JUNE 30, 1998
1997 (UNAUDITED)
------------ ------------
<S> <C> <C>
Increase (Decrease) in Net Assets:
From Operations:
Net investment income ........................................ $283,099 $344,264
Net realized gain on investments sold and foreign currency
transactions ................................................ 6,218 32,198
Change in net unrealized appreciation/depreciation of
investments and foreign currency transactions ............... 53,892 (65,369)
------------ ------------
Net Increase in Net Assets Resulting from Operations ........ 343,209 311,093
------------ ------------
Distributions to Shareholders: *
Dividends from net investment income ......................... (283,099) (344,264)
Distributions from net realized gain on investments sold and
foreign currency transactions ............................... (44,377) --
------------ ------------
Total Distributions to Shareholders ......................... (327,476) (344,264)
------------ ------------
From Fund Share Transactions: **
Shares sold .................................................. 3,436,273 5,481,199
Shares issued to shareholders in reinvestment of distributions 327,029 342,316
------------ ------------
3,763,302 5,823,515
Less shares repurchased ...................................... (370,882) (485,572)
------------ ------------
Net Increase (Decrease) ..................................... 3,392,420 5,337,943
------------ ------------
Net Assets:
Beginning of period .......................................... 2,131,408 5,539,561
------------ ------------
End of period (including undistributed net investment income
of $1,881, $829, $9, $619, $6,469 and $6,469, respectively) . $5,539,561 $10,844,333
============ ============
* Distributions to Shareholders:
Per share dividends from net investment income ............... $0.9083 $0.4359
------------ ------------
Per share distributions from net realized gain on investments
sold and foreign currency transactions ...................... $0.0870 $--
------------ ------------
** Analysis of Fund Share Transactions:
Shares sold .................................................. 326,163 516,438
Shares issued to shareholders in reinvestment of distributions 31,206 32,341
------------ ------------
357,369 548,779
Less shares repurchased ...................................... (35,138) (45,746)
------------ ------------
Net Increase (Decrease) ..................................... 322,231 503,033
============ ============
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
57
<PAGE>
==============================FINANCIAL STATEMENTS==============================
John Hancock Funds - Declaration Trust
Statements of Changes in Net Assets (continued)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
V.A. HIGH YIELD
BOND FUND V.A. WORLD BOND FUND
------------ ----------------------------
PERIOD ENDED YEAR ENDED SIX MONTHS ENDED
JUNE 30, 1998 DECEMBER 31, JUNE 30, 1998
(UNAUDITED)(1) 1997 (UNAUDITED)
------------ ------------ ------------
<S> <C> <C> <C>
Increase (Decrease) in Net Assets:
From Operations:
Net investment income ........................................................... $170,869 $128,346 $65,242
Net realized loss on investments sold and foreign currency transactions ......... (10,239) (87,763) (9,277)
Change in net unrealized appreciation/depreciation of investments and
foreign currency transactions .................................................. (171,447) (10,797) (15,288)
------------ ------------ ------------
Net Increase (Decrease) in Net Assets Resulting from Operations ................ (10,817) 29,786 40,677
------------ ------------ ------------
Distributions to Shareholders: *
Dividends from net investment income ............................................ (174,312) (46,497) (65,242)
Distribution in excess of net investment income ................................. -- (19,609) --
Tax return of capital ........................................................... -- (62,240) --
------------ ------------ ------------
Total Distributions to Shareholders ............................................ (174,312) (128,346) (65,242)
------------ ------------ ------------
From Fund Share Transactions: **
Shares sold ..................................................................... 6,286,678 234,407 185,778
Shares issued to shareholders in reinvestment of distributions .................. 172,516 128,137 65,079
------------ ------------ ------------
6,459,194 362,544 250,857
Less shares repurchased ......................................................... (244,927) (43,948) (71,282)
------------ ------------ ------------
Net Increase ................................................................... 6,214,267 318,596 179,575
------------ ------------ ------------
Net Assets:
Beginning of period ............................................................. -- 2,082,560 2,302,596
------------ ------------ ------------
End of period (including distributions in excess of net investment
income of $3,443, $18,355, $18,355, none and none, respectively) ............... $6,029,138 $2,302,596 $2,457,606
============ ============ ============
* Distributions to Shareholders:
Per share dividends from net investment income .................................. $0.4264 $0.2134 $0.2663
------------ ------------ ------------
Per share distributions in excess of net investment income ...................... $-- $0.0900 $--
------------ ------------ ------------
Tax return of capital ........................................................... $-- $0.2857 $--
------------ ------------ ------------
** Analysis of Fund Share Transactions:
Shares sold .................................................................... 624,421 23,767 19,068
Shares issued to shareholders in reinvestment of distributions ................. 17,215 13,037 6,703
------------ ------------ ------------
641,636 36,804 25,771
Less shares repurchased ......................................................... (24,328) (4,441) (7,336)
------------ ------------ ------------
Net Increase ................................................................... 617,308 32,363 18,435
============ ============ ============
<CAPTION>
V.A. MONEY MARKET FUND
----------------------------
YEAR ENDED SIX MONTHS ENDED
DECEMBER 31, JUNE 30, 1998
1997 (UNAUDITED)
------------ ------------
<S> <C> <C>
Increase (Decrease) in Net Assets:
From Operations:
Net investment income ........................................................... $119,827 $216,963
Net realized loss on investments sold and foreign currency transactions ......... -- --
Change in net unrealized appreciation/depreciation of investments and
foreign currency transactions .................................................. -- --
------------ ------------
Net Increase (Decrease) in Net Assets Resulting from Operations ................ 119,827 216,963
------------ ------------
Distributions to Shareholders: *
Dividends from net investment income ............................................ (119,827) (216,963)
Distribution in excess of net investment income ................................. -- --
Tax return of capital ........................................................... -- --
------------ ------------
Total Distributions to Shareholders ............................................ (119,827) (216,963)
------------ ------------
From Fund Share Transactions: **
Shares sold ..................................................................... 9,748,620 14,069,444
Shares issued to shareholders in reinvestment of distributions .................. 118,655 216,670
------------ ------------
9,867,275 14,286,114
Less shares repurchased ......................................................... (1,696,845) (11,753,034)
------------ ------------
Net Increase ................................................................... 8,170,430 2,533,080
------------ ------------
Net Assets:
Beginning of period ............................................................. 206,628 8,377,058
------------ ------------
End of period (including distributions in excess of net investment
income of $3,443, $18,355, $18,355, none and none, respectively) ............... $8,377,058 $10,910,138
============ ============
* Distributions to Shareholders:
Per share dividends from net investment income .................................. $0.0478 $0.0244
------------ ------------
Per share distributions in excess of net investment income ...................... $-- $--
------------ ------------
Tax return of capital ........................................................... $-- $--
------------ ------------
** Analysis of Fund Share Transactions:
Shares sold .................................................................... 9,748,620 14,069,444
Shares issued to shareholders in reinvestment of distributions ................. 118,655 216,670
------------ ------------
9,867,275 14,286,114
Less shares repurchased ......................................................... (1,696,845) (11,753,034)
------------ ------------
Net Increase ................................................................... 8,170,430 2,533,080
============ ============
</TABLE>
(1) Commenced operations on January 2, 1998.
SEE NOTES TO FINANCIAL STATEMENTS.
58
<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. INTERNATIONAL FUND
------------------------------------------
PERIOD YEAR SIX MONTHS
ENDED ENDED ENDED
DECEMBER 31, DECEMBER 31, JUNE 30, 1998
1996(1) 1997 (UNAUDITED)
--------- --------- ---------
<S> <C> <C> <C>
Per Share Operating Performance
Net Asset Value, Beginning of Period ........................................... $10.00 $11.23 $10.50
--------- --------- ---------
Net Investment Income (2) ...................................................... 0.07 0.05 0.09
Net Realized and Unrealized Gain (Loss) on Investments and Foreign Currency
Transactions ................................................................. 1.20 (0.13) 1.57
--------- --------- ---------
Total from Investment Operations ............................................ 1.27 (0.08) 1.66
--------- --------- ---------
Less Distributions:
Dividends from Net Investment Income .......................................... (0.04) (0.01) --
Distributions from Net Realized Gain on Investments Sold ...................... -- (0.64) --
--------- --------- ---------
Total Distributions ......................................................... (0.04) (0.65) --
--------- --------- ---------
Net Asset Value, End of Period ................................................. $11.23 $10.50 $12.16
========= ========= =========
Total Investment Return at Net Asset Value (3) ................................. 12.75%(5) (0.54%) 15.81%(5)
Total Adjusted Investment Return at Net Asset Value (3,4) ...................... 12.07%(5) (1.43%) 14.39%(5)
Ratios and Supplemental Data
Net Assets, End of Period (000s omitted) ....................................... $2,267 $3,792 $5,830
Ratio of Expenses to Average Net Assets ........................................ 1.15%(6) 1.15% 1.15%(6)
Ratio of Adjusted Expenses to Average Net Assets (7) ........................... 3.13%(6) 2.04% 4.01%(6)
Ratio of Net Investment Income to Average Net Assets ........................... 2.03%(6) 0.43% 1.56%(6)
Ratio of Adjusted Net Investment Income (Loss) to Average Net Assets (7) ....... 0.05%(6) (0.46%) (1.30%)(6)
Portfolio Turnover Rate ........................................................ 14% 273% 64%
Fee Reduction Per Share (2) .................................................... $0.07 $0.10 $0.16
</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.
The Financial Highlights summarizes the impact of the following factors on a
single share for each period indicated: net investment income, gains (losses),
distributions and total investment return of the Fund. It shows how the Fund's
net asset value for a share has changed since the end of the previous period.
Additionally, important relationships between some items presented in the
financial statements are expressed in ratio form.
SEE NOTES TO FINANCIAL STATEMENTS.
59
<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 as
follows:
- --------------------------------------------------------------------------------
V.A. REGIONAL BANK FUND
-----------------------
PERIOD ENDED
JUNE 30, 1998
(UNAUDITED)(1)
--------------
Per Share Operating Performance
Net Asset Value, Beginning of Period ..................... $10.00
----------
Net Investment Income (2) ................................ 0.02
Net Realized and Unrealized Loss on Investments .......... (0.43)
----------
Total from Investment Operations ...................... (0.41)
----------
Less Distributions:
Dividends from Net Investment Income .................... (0.02)
----------
Net Asset Value, End of Period ........................... $9.57
==========
Total Investment Return at Net Asset Value (3) ........... (4.13%)(5)
Total Adjusted Investment Return at Net Asset
Value (3,4) ............................................ (4.20%)(5)
Ratios and Supplemental Data
Net Assets, End of Period (000s omitted) ................. $11,525
Ratio of Expenses to Average Net Assets .................. 1.05%(6)
Ratio of Adjusted Expenses to Average Net Assets (7) ..... 1.49%(6)
Ratio of Net Investment Income to Average Net Assets ..... 1.54%(6)
Ratio of Adjusted Net Investment Income to Average
Net Assets (7) ......................................... 1.10%(6)
Portfolio Turnover Rate .................................. 5%
Fee Reduction Per Share (2) .............................. $0.01
(1) Commenced operations on May 1, 1998.
(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.
60
<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 as
follows:
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
V.A. FINANCIAL INDUSTRIES FUND
------------------------------
PERIOD SIX MONTHS
ENDED ENDED
DECEMBER 31, JUNE 30, 1998
1997(1) (UNAUDITED)
---------- ----------
<S> <C> <C>
Per Share Operating Performance
Net Asset Value, Beginning of Period ...................... $10.00 $13.44
---------- ----------
Net Investment Income (2) ................................. 0.11 0.09
Net Realized and Unrealized Gain on Investments and Foreign
Currency Transactions ................................... 3.39 1.57
---------- ----------
Total from Investment Operations ....................... 3.50 1.66
---------- ----------
Less Distributions:
Dividends from Net Investment Income ..................... (0.05) --
Distributions from Net Realized Gain on Investments Sold . (0.01) --
---------- ----------
Total Distributions .................................... (0.06) --
---------- ----------
Net Asset Value, End of Period ............................ $13.44 $15.10
========== ==========
Total Investment Return at Net Asset Value (3) ............ 35.05%(5) 12.35%(5)
Total Adjusted Investment Return at Net Asset Value (3,4).. 34.71%(5) --
Ratios and Supplemental Data
Net Assets, End of Period (000s omitted) .................. $18,465 $49,180
Ratio of Expenses to Average Net Assets ................... 1.05%(6) 0.95%(6)
Ratio of Adjusted Expenses to Average Net Assets (7) ...... 1.39%(6) --
Ratio of Net Investment Income to Average Net Assets ...... 1.32%(6) 1.26%(6)
Ratio of Adjusted Net Investment Income to Average Net
Assets (7) .............................................. 0.98%(6) --
Portfolio Turnover Rate ................................... 11% 22%
Fee Reduction Per Share (2) ............................... $0.03 --
</TABLE>
(1) Commenced operations on April 30, 1997.
(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.
61
<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 as
follows:
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
V.A. EMERGING GROWTH FUND
---------------------------------------------
PERIOD YEAR SIX MONTHS
ENDED ENDED ENDED
DECEMBER 31, DECEMBER 31, JUNE 30, 1998
1996(1) 1997 (UNAUDITED)
------------ ------------ -------------
<S> <C> <C> <C>
Per Share Operating Performance
Net Asset Value, Beginning of Period ......................................... $10.00 $9.32 $10.35
--------- --------- ---------
Net Investment Income (Loss) (2) ............................................. 0.02 (0.02) (0.03)
Net Realized and Unrealized Gain (Loss) on Investments ....................... (0.68) 1.05 0.98
--------- --------- ---------
Total from Investment Operations .......................................... (0.66) 1.03 0.95
--------- --------- ---------
Less Distributions:
Dividends from Net Investment Income ........................................ (0.02) (0.00)(3) --
--------- --------- ---------
Net Asset Value, End of Period ............................................... $9.32 $10.35 $11.30
========= ========= =========
Total Investment Return at Net Asset Value (4) ............................... (6.62%)(6) 11.06% 9.18%(6)
Total Adjusted Investment Return at Net Asset Value (4,5) .................... (8.05%)(6) 9.34% 8.81%(6)
Ratios and Supplemental Data
Net Assets, End of Period (000s omitted) ..................................... $975 $3,841 $6,583
Ratio of Expenses to Average Net Assets ...................................... 1.00%(7) 1.00% 1.00%(7)
Ratio of Adjusted Expenses to Average Net Assets (8) ......................... 5.19%(7) 2.72% 1.75%(7)
Ratio of Net Investment Income (Loss) to Average Net Assets .................. 0.62%(7) (0.16%) (0.51%)(7)
Ratio of Adjusted Net Investment Loss to Average Net Assets (8) .............. (3.57%)(7) (1.88%) (1.26%)(7)
Portfolio Turnover Rate ...................................................... 31% 79% 48%
Fee Reduction Per Share (2) .................................................. $0.14 $0.17 $0.04
</TABLE>
(1) Commenced operations on August 29, 1996.
(2) Based on the average of the shares outstanding at the end of each month.
(3) Less than $0.01 per share.
(4) Assumes dividend reinvestment and does not reflect the effect of sales
charges.
(5) An estimated total return calculation which does not take into consideration
fee reductions by the Adviser during the periods shown.
(6) Not annualized.
(7) Annualized.
(8) Unreimbursed, without fee reduction.
SEE NOTES TO FINANCIAL STATEMENTS.
62
<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 as
follows:
- --------------------------------------------------------------------------------
V.A. SPECIAL
OPPORTUNITIES FUND
------------------
PERIOD ENDED
JUNE 30, 1998
(UNAUDITED)(1)
-------------
Per Share Operating Performance
Net Asset Value, Beginning of Period ....................... $10.00
---------
Net Investment Income (2) .................................. 0.02
Net Realized and Unrealized Gain on Investments ............ 1.38
---------
Total from Investment Operations ........................ 1.40
---------
Net Asset Value, End of Period ............................. $11.40
=========
Total Investment Return at Net Asset Value (3) ............. 14.00%(5)
Total Adjusted Investment Return at Net Asset Value (3,4) .. 12.49%(5)
Ratios and Supplemental Data
Net Assets, End of Period (000s omitted) ................... $1,217
Ratio of Expenses to Average Net Assets .................... 1.00%(6)
Ratio of Adjusted Expenses to Average Net Assets (7) ....... 4.14%(6)
Ratio of Net Investment Income to Average Net Assets ....... 0.38%(6)
Ratio of Adjusted Net Investment Loss to Average Net
Assets (7) (2.76%)(6)
Portfolio Turnover Rate .................................... 40%
Fee Reduction Per Share (2) ................................ $0.16
(1) Commenced operations on January 2, 1998.
(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.
63
<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
------------------------------------------
PERIOD YEAR SIX MONTHS
ENDED ENDED ENDED
DECEMBER 31, DECEMBER 31, JUNE 30, 1998
1996(1) 1997 (UNAUDITED)
--------- --------- ---------
<S> <C> <C> <C>
Per Share Operating Performance
Net Asset Value, Beginning of Period .......................... $10.00 $9.39 $10.73
--------- --------- ---------
Net Investment Loss (2) ....................................... (0.01) (0.04) (0.01)
Net Realized and Unrealized Gain (Loss) on Investments ........ (0.60) 1.38 1.35
--------- --------- ---------
Total from Investment Operations ........................... (0.61) 1.34 1.34
--------- --------- ---------
Net Asset Value, End of Period ................................ $9.39 $10.73 $12.07
========= ========= =========
Total Investment Return at Net Asset Value (3) ................ (6.10%)(5) 14.27% 12.49%(5)
Total Adjusted Investment Return at Net Asset Value (3,4) ..... (7.39%)(5) 12.90% 12.27%(5)
Ratios and Supplemental Data
Net Assets, End of Period (000s omitted) ...................... $994 $3,733 $6,477
Ratio of Expenses to Average Net Assets ....................... 1.00%(6) 1.00% 1.00%(6)
Ratio of Adjusted Expenses to Average Net Assets (7) .......... 4.76%(6) 2.37% 1.43%(6)
Ratio of Net Investment Loss to Average Net Assets ............ (0.23%)(6) (0.39%) (0.16%)(6)
Ratio of Adjusted Net Investment Loss to Average
Net Assets (7) .............................................. (3.99%)(6) (1.76%) (0.59%)(6)
Portfolio Turnover Rate ....................................... 68% 136% 108%
Fee Reduction Per Share (2) ................................... $0.13 $0.13 $0.02
</TABLE>
(1) Commenced operations on August 29, 1996.
(2) Based on the average of the shares outstanding at the end of each month.
(3) Assumes dividend reinvestment 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.
64
<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 as
follows:
- --------------------------------------------------------------------------------
V.A. GROWTH &
INCOME FUND
-----------
PERIOD ENDED
JUNE 30, 1998
(UNAUDITED)(1)
--------------
Per Share Operating Performance
Net Asset Value, Beginning of Period ......................... $10.00
---------
Net Investment Income (2) .................................... 0.05
Net Realized and Unrealized Gain on Investments and
financial futures contracts ................................ 1.46
---------
Total from Investment Operations .......................... 1.51
---------
Less Distributions:
Dividends from Net Investment Income ........................ (0.05)
---------
Net Asset Value, End of Period ............................... $11.46
=========
Total Investment Return at Net Asset Value (3) ............... 15.09%(5)
Total Adjusted Investment Return at Net Asset Value (3,4) .... 14.77%(5)
Ratios and Supplemental Data
Net Assets, End of Period (000s omitted) ..................... $8,367
Ratio of Expenses to Average Net Assets ...................... 0.85%(6)
Ratio of Adjusted Expenses to Average Net Assets (7) ......... 1.51%(6)
Ratio of Net Investment Income to Average Net Assets ......... 1.42%(6)
Ratio of Adjusted Net Investment Income to Average Net
Assets (7) ................................................. 0.76%(6)
Portfolio Turnover Rate ...................................... 62%
Fee Reduction Per Share (2) .................................. $0.03
(1) Commenced operations on January 2, 1998.
(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.
65
<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. INDEPENDENCE EQUITY FUND
-------------------------------------------
PERIOD YEAR SIX MONTHS
ENDED ENDED ENDED
DECEMBER 31, DECEMBER 31, JUNE 30, 1998
1996(1) 1997 (UNAUDITED)
---------- ---------- ----------
<S> <C> <C> <C>
Per Share Operating Performance
Net Asset Value, Beginning of Period ................................... $10.00 $11.11 $14.11
---------- ---------- ----------
Net Investment Income (2) .............................................. 0.06 0.16 0.05
Net Realized and Unrealized Gain on Investments ........................ 1.12 3.23 2.75
---------- ---------- ----------
Total from Investment Operations .................................... 1.18 3.39 2.80
---------- ---------- ----------
Less Distributions:
Dividends from Net Investment Income .................................. (0.06) (0.14) (0.05)
Distributions from Net Realized Gain on Investments Sold .............. (0.01) (0.25) --
---------- ---------- ----------
Total Distributions ................................................. (0.07) (0.39) (0.05)
---------- ---------- ----------
Net Asset Value, End of Period ......................................... $11.11 $14.11 $16.86
========== ========== ==========
Total Investment Return at Net Asset Value (3) ......................... 11.78%(5) 30.68% 19.86%(5)
Total Adjusted Investment Return at Net Asset Value (3,4) .............. 10.66%(5) 30.04% 19.83%(5)
Ratios and Supplemental Data
Net Assets, End of Period (000s omitted) ............................... $1,149 $8,719 $16,208
Ratio of Expenses to Average Net Assets ................................ 0.95%(6) 0.95% 0.95%(6)
Ratio of Adjusted Expenses to Average Net Assets (7) ................... 4.23%(6) 1.59% 1.00%(6)
Ratio of Net Investment Income to Average Net Assets ................... 1.60%(6) 1.24% 0.71%(6)
Ratio of Adjusted Net Investment Income (Loss) to Average Net
Assets (7) ........................................................... (1.68%)(6) 0.60% 0.66%(6)
Portfolio Turnover Rate ................................................ 24% 53% 32%
Fee Reduction Per Share (2) ............................................ $0.12 $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.
66
<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 INVESTORS FUND
-------------------------------------------
PERIOD YEAR SIX MONTHS
ENDED ENDED ENDED
DECEMBER 31, DECEMBER 31, JUNE 30, 1998
1996(1) 1997 (UNAUDITED)
---------- ---------- ----------
<S> <C> <C> <C>
Per Share Operating Performance
Net Asset Value, Beginning of Period ................................... $10.00 $10.74 $13.59
---------- ---------- ----------
Net Investment Income (2) .............................................. 0.07 0.22 0.12
Net Realized and Unrealized Gain on Investments ........................ 0.76 2.82 1.03
---------- ---------- ----------
Total from Investment Operations .................................... 0.83 3.04 1.15
---------- ---------- ----------
Less Distributions:
Dividends from Net Investment Income .................................. (0.07) (0.18) (0.11)
Distributions from Net Realized Gain on Investments Sold .............. (0.02) (0.01) --
---------- ---------- ----------
Total Distributions ................................................. (0.09) (0.19) (0.11)
---------- ---------- ----------
Net Asset Value, End of Period ......................................... $10.74 $13.59 $14.63
========== ========== ==========
Total Investment Return at Net Asset Value (3) ......................... 8.30%(5) 28.43% 8.43%(5)
Total Adjusted Investment Return at Net Asset Value (3,4) .............. 7.30%(5) 28.12% --
Ratios and Supplemental Data
Net Assets, End of Period (000s omitted) ............................... $1,111 $12,187 $23,155
Ratio of Expenses to Average Net Assets ................................ 0.85%(6) 0.85% 0.85%(6)
Ratio of Adjusted Expenses to Average Net Assets (7) ................... 3.78%(6) 1.16% --
Ratio of Net Investment Income to Average Net Assets ................... 1.90%(6) 1.81% 1.69%(6)
Ratio of Adjusted Net Investment Income (Loss) to Average Net Assets (7) (1.03%)(6) 1.50% --
Portfolio Turnover Rate ................................................ 17% 11% 12%
Fee Reduction Per Share (2) ............................................ $0.11 $0.04 --
</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.
67
<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
-------------------------------------------
PERIOD YEAR SIX MONTHS
ENDED ENDED ENDED
DECEMBER 31, DECEMBER 31, JUNE 30, 1998
1996(1) 1997 (UNAUDITED)
---------- ---------- ----------
<S> <C> <C> <C>
Per Share Operating Performance
Net Asset Value, Beginning of Period .......................................... $10.00 $10.44 $12.62
---------- ---------- ----------
Net Investment Income (2) ..................................................... 0.17 0.30 0.10
Net Realized and Unrealized Gain on Investments and Financial Futures Contracts 0.98 2.72 2.12
---------- ---------- ----------
Total from Investment Operations ........................................... 1.15 3.02 2.22
---------- ---------- ----------
Less Distributions:
Dividends from Net Investment Income ......................................... (0.16) (0.30) (0.10)
Distributions from Net Realized Gain on Investments Sold ..................... (0.55) (0.54) --
---------- ---------- ----------
Total Distributions ........................................................ (0.71) (0.84) (0.10)
---------- ---------- ----------
Net Asset Value, End of Period ................................................ $10.44 $12.62 $14.74
========== ========== ==========
Total Investment Return at Net Asset Value (3) ................................ 11.49%(5) 29.51% 17.59%(5)
Total Adjusted Investment Return at Net Asset Value (3,4) ..................... 11.25%(5) 29.27% 17.46%(5)
Ratios and Supplemental Data
Net Assets, End of Period (000s omitted) ...................................... $4,049 $20,008 $18,073
Ratio of Expenses to Average Net Assets ....................................... 0.60%(6) 0.36% 0.35%(6)
Ratio of Adjusted Expenses to Average Net Assets (7) .......................... 1.31%(6) 0.60% 0.62%(6)
Ratio of Net Investment Income to Average Net Assets .......................... 4.57%(6) 2.45% 1.41%(6)
Ratio of Adjusted Net Investment Income to Average Net Assets (7) ............. 3.86%(6) 2.21% 1.14%(6)
Portfolio Turnover Rate ....................................................... -- 9% 13%
Fee Reduction Per Share (2) ................................................... $0.03 $0.03 $0.02
</TABLE>
(1) Commenced operations on August 29, 1996.
(2) Based on the average of the shares outstanding at the end of each month.
(3) Assumes dividend reinvestment 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.
68
<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
-------------------------------------------
PERIOD YEAR SIX MONTHS
ENDED ENDED ENDED
DECEMBER 31, DECEMBER 31, JUNE 30, 1998
1996(1) 1997 (UNAUDITED)
---------- ---------- ----------
<S> <C> <C> <C>
Per Share Operating Performance
Net Asset Value, Beginning of Period ............................ $10.00 $10.19 $10.36
--------- --------- ---------
Net Investment Income (2) ....................................... 0.23 0.68 0.32
Net Realized and Unrealized Gain on Investments ................. 0.21 0.24 0.11
--------- --------- ---------
Total from Investment Operations ............................. 0.44 0.92 0.43
--------- --------- ---------
Less Distributions:
Dividends from Net Investment Income ........................... (0.23) (0.68) (0.32)
Distributions from Net Realized Gain on Investments Sold ....... (0.02) (0.07) --
--------- --------- ---------
Total Distributions .......................................... (0.25) (0.75) (0.32)
--------- --------- ---------
Net Asset Value, End of Period .................................. $10.19 $10.36 $10.47
========= ========= =========
Total Investment Return at Net Asset Value (3) .................. 4.42%(5) 9.30% 4.20%(5)
Total Adjusted Investment Return at Net Asset Value (3,4) ....... 3.25%(5) 7.52% 3.82%(5)
Ratios and Supplemental Data
Net Assets, End of Period (000s omitted) ........................ $1,056 $3,682 $6,453
Ratio of Expenses to Average Net Assets ......................... 0.75%(6) 0.75% 0.75%(6)
Ratio of Adjusted Expenses to Average Net Assets (7) ............ 4.15%(6) 2.53% 1.52%(6)
Ratio of Net Investment Income to Average Net Assets ............ 6.69%(6) 6.57% 6.19%(6)
Ratio of Adjusted Net Investment Income to Average Net Assets (7) 3.29%(6) 4.79% 5.42%(6)
Portfolio Turnover Rate ......................................... 45% 193% 201%
Fee Reduction Per Share (2) ..................................... $0.12 $0.18 $0.04
</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.
69
<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. STRATEGIC INCOME FUND
-------------------------------------------
PERIOD YEAR SIX MONTHS
ENDED ENDED ENDED
DECEMBER 31, DECEMBER 31, JUNE 30, 1998
1996(1) 1997 (UNAUDITED)
---------- ---------- ----------
<S> <C> <C> <C>
Per Share Operating Performance
Net Asset Value, Beginning of Period .......................................... $10.00 $10.30 $10.47
---------- ---------- ----------
Net Investment Income (2) ..................................................... 0.27 0.91 0.44
Net Realized and Unrealized Gain on Investments and financial
futures contracts ........................................................... 0.36 0.26 0.04
---------- ---------- ----------
Total from Investment Operations ........................................... 0.63 1.17 0.48
---------- ---------- ----------
Less Distributions:
Dividends from Net Investment Income ......................................... (0.27) (0.91) (0.44)
Distributions from Net Realized Gain on Investments Sold ..................... (0.06) (0.09) --
---------- ---------- ----------
Total Distributions ........................................................ (0.33) (1.00) (0.44)
---------- ---------- ----------
Net Asset Value, End of Period ................................................ $10.30 $10.47 $10.51
========== ========== ==========
Total Investment Return at Net Asset Value (3) ................................ 6.45%(5) 11.77% 4.61%(5)
Total Adjusted Investment Return at Net Asset Value (3,4) ..................... 5.96%(5) 11.25% 4.54%(5)
Ratios and Supplemental Data
Net Assets, End of Period (000s omitted) ...................................... $2,131 $5,540 $10,844
Ratio of Expenses to Average Net Assets ....................................... 0.85%(6) 0.85% 0.85%(6)
Ratio of Adjusted Expenses to Average Net Assets (7) .......................... 2.28%(6) 1.37% 0.99%(6)
Ratio of Net Investment Income to Average Net Assets .......................... 7.89%(6) 8.77% 8.36%(6)
Ratio of Adjusted Net Investment Income to Average Net Assets (7) ............. 6.46%(6) 8.25% 8.22%(6)
Portfolio Turnover Rate ....................................................... 73% 110% 53%
Fee Reduction Per Share (2) ................................................... $0.05 $0.05 $0.01
</TABLE>
(1) Commenced operations on August 29, 1996.
(2) Based on the average of the shares outstanding at the end of each month.
(3) Assumes dividend reinvestment 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.
70
<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:
- --------------------------------------------------------------------------------
V.A. HIGH YIELD
BOND FUND
---------------
PERIOD
ENDED
JUNE 30, 1998
(UNAUDITED)(1)
---------------
Per Share Operating Performance
Net Asset Value, Beginning of Period ......................... $10.00
---------
Net Investment Income (2) .................................... 0.43
Net Realized and Unrealized Loss on Investments and foreign
currency transactions ...................................... (0.23)
---------
Total from Investment Operations .......................... 0.20
---------
Less Distributions:
Dividends from Net Investment Income ........................ (0.43)
---------
Net Asset Value, End of Period ............................... $9.77
=========
Total Investment Return at Net Asset Value (3) ............... 1.94%(5)
Total Adjusted Investment Return at Net Asset Value (3,4) .... 1.69%(5)
Ratios and Supplemental Data
Net Assets, End of Period (000s omitted) ..................... $6,029
Ratio of Expenses to Average Net Assets ...................... 0.85%(6)
Ratio of Adjusted Expenses to Average Net Assets (7) ......... 1.37%(6)
Ratio of Net Investment Income to Average Net Assets ......... 9.25%(6)
Ratio of Adjusted Net Investment Income to Average Net
Assets (7) ................................................. 8.73%(6)
Portfolio Turnover Rate ...................................... 92%
Fee Reduction Per Share (2) .................................. $0.03
(1) Commenced operations on January 2, 1998.
(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.
71
<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
-------------------------------------------
PERIOD YEAR SIX MONTHS
ENDED ENDED ENDED
DECEMBER 31, DECEMBER 31, JUNE 30, 1998
1996(1) 1997 (UNAUDITED)
--------- --------- ---------
<S> <C> <C> <C>
Per Share Operating Performance
Net Asset Value, Beginning of Period .......................................... $10.00 $10.20 $9.74
--------- --------- ---------
Net Investment Income (2) ..................................................... 0.20 0.59 0.27
Net Realized and Unrealized Gain (Loss) on Investments and
Foreign Currency Transactions ............................................... 0.20 (0.46) (0.10)
--------- --------- ---------
Total from Investment Operations ........................................... 0.40 0.13 0.17
--------- --------- ---------
Less Distributions:
Dividends from Net Investment Income ......................................... (0.20) (0.21) (0.27)
Distributions in Excess of Net Investment Income ............................. -- (0.09) --
Tax Return of Capital ........................................................ -- (0.29) --
--------- --------- ---------
Total Distributions ........................................................ (0.20) (0.59) (0.27)
--------- --------- ---------
Net Asset Value, End of Period ................................................ $10.20 $9.74 $9.64
========= ========= =========
Total Investment Return at Net Asset Value (3) ................................ 4.05%(5) 1.37% 1.72%(5)
Total Adjusted Investment Return at Net Asset Value (3,4) ..................... 3.30%(5) 0.07% 1.21%(5)
Ratios and Supplemental Data
Net Assets, End of Period (000s omitted) ...................................... $2,083 $2,303 $2,458
Ratio of Expenses to Average Net Assets ....................................... 1.00%(6) 1.00% 1.00%(6)
Ratio of Adjusted Expenses to Average Net Assets (7) .......................... 3.19%(6) 2.30% 2.02%(6)
Ratio of Net Investment Income to Average Net Assets .......................... 5.83%(6) 5.98% 5.51%(6)
Ratio of Adjusted Net Investment Income to Average Net Assets (7) ............. 3.64%(6) 4.68% 4.49%(6)
Portfolio Turnover Rate ....................................................... 30% 176% 53%
Fee Reduction Per Share (2) ................................................... $0.08 $0.13 $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.
72
<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. MONEY MARKET FUND
---------------------------------------------
PERIOD YEAR SIX MONTHS
ENDED ENDED ENDED
DECEMBER 31, DECEMBER 31, JUNE 30, 1998
1996(1) 1997 (UNAUDITED)
---------- ---------- ----------
<S> <C> <C> <C>
Per Share Operating Performance
Net Asset Value, Beginning of Period ................................... $1.00 $1.00 $1.00
---------- ---------- ----------
Net Investment Income (2) .............................................. 0.02 0.05 0.02
Less Distributions:
Dividends from Net Investment Income .................................. (0.02) (0.05) (0.02)
---------- ---------- ----------
Net Asset Value, End of Period ......................................... $1.00 $1.00 $1.00
========== ========== ==========
Total Investment Return at Net Asset Value (3) ......................... 1.61%(5) 4.88% 2.47%(5)
Total Adjusted Investment Return at Net Asset Value (3,4) .............. (7.55%)(5) 4.36% 2.45%(5)
Ratios and Supplemental Data
Net Assets, End of Period (000s omitted) ............................... $207 $8,377 $10,910
Ratio of Expenses to Average Net Assets ................................ 0.75%(6) 0.75% 0.75%(6)
Ratio of Adjusted Expenses to Average Net Assets (7) ................... 27.48%(6) 1.27% 0.80%(6)
Ratio of Net Investment Income to Average Net Assets ................... 4.68%(6) 4.86% 4.91%(6)
Ratio of Adjusted Net Investment Income (Loss) to
Average Net Assets (7) ............................................... (22.05%)(6) 4.34% 4.86%(6)
Fee Reduction Per Share (2) ............................................ $0.08 $0.00(8) $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.
73
<PAGE>
==============================FINANCIAL STATEMENTS==============================
John Hancock Funds - Declaration Trust -- V.A. International Fund
Schedule of Investments
June 30, 1998 (Unaudited)
- --------------------------------------------------------------------------------
The Schedule of Investments is a complete list of all securities owned by the
V.A. International Fund on June 30, 1998. It's divided into four main
categories: common stocks, preferred stocks, rights and short-term investments.
Common stocks, preferred stocks and rights are further broken down by country.
Short-term investments, which represent the Fund's "cash" position, are listed
last.
NUMBER OF MARKET
ISSUER, DESCRIPTION SHARES VALUE
- ------------------- ------ -----
COMMON STOCKS
Australia (1.80%)
Australia & New Zealand Banking Group Ltd.,
American Depositary Receipts (ADR)
(Banks - Foreign) ....................................... 2 $68
National Australia Bank Ltd. (Banks - Foreign) ........... 1,794 23,720
News Corp. Ltd. (The) (Media) ............................ 2,000 16,363
News Corp. Ltd. (The) (ADR) (Media) ...................... 476 15,292
Normandy Mining Ltd. (Metal) ............................. 15,439 12,651
Telstra Corp., Ltd. (Telecommunications) ................. 9,508 24,435
Westpac Banking Corp. (Banks - Foreign) .................. 2,000 12,229
----------
104,758
----------
Belgium (2.60%)
Electrabel SA (Utilities) ................................ 141 39,999
Fortis AG (Insurance) .................................... 84 21,457
PetroFina SA (Oil & Gas) ................................. 70 28,751
Tractebel SA (Utilities) ................................. 420 61,549
----------
151,756
----------
Brazil (0.02%)
Telecomunicacoes Brasileiras S/A (ADR)
(Telecommunications) .................................... 10 1,092
----------
Canada (4.60%)
BCE, Inc. (Telecommunications) ........................... 315 13,507
Bombardier Inc. (Diversified Operations) ................. 1,613 43,955
Northern Telecom Ltd. (Telecommunications) ............... 845 47,890
Royal Bank of Canada (Banks - Foreign) .................. 1,156 69,794
Toronto-Dominion Bank (Banks - Foreign) .................. 2,055 93,117
----------
268,263
----------
Denmark (1.11%)
Novo Nordisk A/S (Medical) ............................... 330 45,540
Tele Danmark A/S (Telecommunications) .................... 200 19,215
----------
64,755
----------
Finland (1.38%)
Nokia AB (Telecommunications) ............................ 1,090 80,243
----------
France (13.34%)
Accor SA (Leisure) ....................................... 95 26,587
Alcatel Alsthom SA (Telecommunications) .................. 332 67,600
Alstom SA (Machinery)* ................................... 1,362 44,832
Axa SA (Insurance) ....................................... 531 59,725
Cap Gemini SA (Computers) ................................ 462 72,597
Carrefour SA (Retail) .................................... 46 29,103
Compagnie de Saint Gobain SA (Building) .................. 85 15,761
Compagnie Generale des Eaux (Diversified Operations) ..... 263 56,161
Danone SA (Food) ......................................... 139 38,327
Elf Aquitaine SA (Oil & Gas) ............................. 494 69,454
France Telecom SA (ADR) (Telecommunications)* ............ 750 52,172
L'Air Liquide SA (Chemicals) ............................. 74 12,240
L'Oreal SA (Cosmetics & Personal Care) .................. 51 28,369
Legrand SA (Electronics) ................................. 55 14,556
Paribas SA (Banks - Foreign) ............................. 339 36,279
Pinault-Printemps-Redoute SA (Retail) .................... 17 14,228
Schneider SA (Machinery) ................................. 165 13,158
Suez Lyonnaise des Eaux (Diversified Operations) ......... 320 52,666
Synthelabo SA (Medical) .................................. 174 29,356
Total SA (Oil & Gas) ..................................... 101 13,131
Valeo SA (Automobile / Trucks) ........................... 308 31,484
----------
777,786
----------
Germany (6.87%)
Allianz AG (Insurance) ................................... 170 56,700
Allianz AG (New shares) (Insurance)* ..................... 5 1,654
Bayerische Motoren Werke AG (Automobile / Trucks) ........ 60 60,717
Bayerische Motoren Werke AG (New shares)
(Automobile / Trucks)* .................................. 19 19,227
Bayerische Vereinsbank AG (Banks - Foreign) .............. 328 27,827
Daimler-Benz AG (Automobile / Trucks) .................... 150 14,763
Deutsche Bank AG (Banks - Foreign) ....................... 888 75,139
Deutsche Telekom AG (Telecommunications) ................. 1,043 28,570
Fresenius AG (Medical) ................................... 59 10,142
Mannesmann AG (Machinery) ................................ 370 38,058
Muenchener Rueckversicherungs-Gesellschaft
AG (Insurance) .......................................... 45 22,357
Siemens AG (Diversified Operations) ...................... 419 25,591
VEBA AG (Diversified Operations) ......................... 293 19,715
----------
400,460
----------
Hong Kong (2.64%)
Cheung Kong Holdings Ltd. (Real Estate Operations) ....... 4,000 19,670
China Telecom Ltd. (Telecommunications)* ................. 18,000 31,247
China Telecom Ltd. (ADR) (Telecommunications)* ........... 225 7,777
Hong Kong Telecommunications Ltd.
(Telecommunications) .................................... 13,921 26,142
HSBC Holdings Ltd. (Banks - Foreign) ..................... 800 19,566
Hutchison Whampoa Ltd. (Diversified Operations) .......... 4,554 24,040
Sun Hung Kai Properties Ltd. (Real Estate Operations) .... 6,000 25,478
----------
153,920
----------
India (0.35%)
State Bank of India, Global Depositary Receipts
(Banks - Foreign) ....................................... 1,721 20,394
----------
Ireland (2.37%)
Allied Irish Banks PLC (ADR) (Banks - Foreign) ........... 1,472 126,316
CRH PLC (Building) ....................................... 840 11,922
----------
138,238
----------
Italy (4.45%)
Assicurazioni Generali SpA (Insurance) .................. 450 14,639
Banca Popolare di Brescia SpA (Banks - Foreign) .......... 1,400 26,475
Credito Italiano SpA (Banks - Foreign) .................. 8,670 45,406
Ente Nazionale Idrocarburi SpA (Oil & Gas) ............... 3,773 24,739
Istituto Nazionale delle Assicurazioni SpA (Insurance) ... 11,876 33,755
Telecom Italia Mobile SpA (Telecommunications) ........... 7,379 45,144
Telecom Italia SpA (Telecommunications) .................. 9,405 69,264
----------
259,422
----------
SEE NOTES TO FINANCIAL STATEMENTS.
74
<PAGE>
==============================FINANCIAL STATEMENTS==============================
John Hancock Funds - Declaration Trust -- V.A. International Fund
NUMBER OF MARKET
ISSUER, DESCRIPTION SHARES VALUE
- ------------------- ------ -----
Japan (9.85%)
Bank of Tokyo-Mitsubishi, Ltd. (Banks - Foreign) ......... 3,000 $31,872
Bridgestone Corp. (Rubber - Tires & Misc.) ............... 1,000 23,722
Fuji Photo Film Co., Ltd. (Leisure) ...................... 1,000 34,932
Fujitsu Ltd. (Computers) ................................. 2,000 21,118
Honda Motor Co., Ltd. (Automobile / Trucks) .............. 2,000 71,454
Ito-Yokado Co., Ltd. (Retail) ............................ 1,000 47,226
Kansai Electric Power Co., Inc. (Utilities) .............. 2,000 34,859
Matsushita Electric Industrial Co., Ltd. (Electronics) ... 3,000 48,384
Nippon Telephone & Telegraph Corp.
(Telecommunications) .................................... 6 49,902
Nomura Securities Co., Ltd. (Finance) .................... 4,000 46,720
Shin-Etsu Chemical Co., Ltd. (Chemicals) ................. 2,000 34,715
Sony Corp. (Electronics) ................................. 400 34,570
TDK Corp. (Electronics) .................................. 1,000 74,130
Tokio Marine & Fire Insurance Co. (Insurance) ............ 2,000 20,626
----------
574,230
----------
Mexico (1.61%)
Panamerican Beverages, Inc. (Beverages) .................. 2,978 93,621
----------
Netherlands (6.28%)
ABN AMRO Holding NV (ADR) (Banks - Foreign) .............. 3,489 81,773
AEGON NV (Insurance) ..................................... 402 35,004
Akzo Nobel NV (Chemicals) ................................ 130 28,919
ING Groep NV (ADR) (Banks - Foreign) ..................... 1,125 73,547
KPN NV (Utilities) ....................................... 500 19,260
Royal Dutch Petroleum Co. (Oil & Gas) .................... 1,037 57,545
Royal Philips Electronics NV (Electronics) ............... 684 57,540
TNT Post groep NV (Transport)* ........................... 500 12,791
----------
366,379
----------
Norway (1.14%)
Norsk Hydro ASA (Oil & Gas) .............................. 500 22,017
Orkla ASA (Diversified Operations) ....................... 1,900 44,249
----------
66,266
----------
Portugal (1.46%)
Cimpor-Cimentos de Portugal SA (Building) ................ 1,000 35,157
Electricidade de Portugal SA (Utilities) ................. 821 19,097
Portugal Telecom SA (Telecommunications) ................. 577 30,600
----------
84,854
----------
Singapore (0.30%)
Oversea-Chinese Banking Corp., Ltd. (Banks - Foreign) .... 3,050 10,408
Singapore Telecommunications, Ltd.
(Telecommunications) .................................... 5,000 7,122
----------
17,530
----------
Spain (3.80%)
Argentaria Corp. BC (Banks - Foreign) .................... 1,020 22,881
Banco Bilbao Vizcaya SA (Banks - Foreign) ................ 806 41,364
Banco Santander SA (Banks - Foreign) ..................... 1,634 41,822
Endesa SA (Utilities) .................................... 2,543 55,636
Iberdrola SA (Utilities) ................................. 742 12,048
Repsol SA (Oil & Gas) .................................... 227 12,508
Telefonica de Espana SA (Telecommunications) ............. 762 35,230
----------
221,489
----------
Sweden (3.39%)
Astra AB (Medical) ....................................... 986 20,150
Ericsson (LM) Telefonaktiebolaget
(Telecommunications) .................................... 2,006 58,601
Investor AB (Diversified Operations) ..................... 1,364 79,607
Sweden (continued)
Nordbanken Holding AB (Banks - Foreign) .................. 4,912 36,027
Saab AB (Aerospace)* ..................................... 278 2,928
----------
197,313
----------
Switzerland (9.10%)
Adecco SA (Business Services - Misc.) .................... 63 28,457
Alusuisse-Lonza Holding AG (Containers)* ................. 10 12,706
Barry Callebaut AG (Food)* ............................... 73 15,764
Credit Suisse Group (Banks - Foreign) .................... 266 59,285
Nestle SA (Food) ......................................... 43 92,173
Novartis AG (Medical) .................................... 52 86,672
Roche Holding AG (Medical) ............................... 2 19,672
Schweizerische Rueckversicherungs-Gesellschaft
(Insurance) ............................................. 20 50,664
Union Bank of Switzerland AG (Banks - Foreign) ........... 207 77,097
Zurich Versicherungs-Gesellschaft (Insurance) ............ 138 88,215
----------
530,705
----------
United Kingdom (13.78%)
B.A.T. Industries PLC (Tobacco) .......................... 1,667 16,700
British Petroleum Co. PLC (Oil & Gas) .................... 3,506 51,164
British Telecommunications PLC (Telecommunications) ...... 2,500 30,889
Diageo PLC (Beverages) ................................... 1,593 18,885
EMAP PLC (Media) ......................................... 1,498 30,315
Glaxo Wellcome PLC (Medical) ............................. 2,018 60,616
Granada Group PLC (Diversified Operations) ............... 3,000 55,200
Kingfisher PLC (Retail) .................................. 1,500 24,169
Lloyds TSB Group PLC (Banks - Foreign) .................. 5,622 78,710
Marks & Spencer PLC (Retail) ............................. 3,041 27,698
Pearson PLC (Media) ...................................... 1,584 29,040
Regal Hotel Group PLC (Leisure) .......................... 50,000 35,899
Royal & Sun Alliance Insurance Group PLC (Insurance) ..... 3,665 37,910
Royal Bank of Scotland Group PLC (Banks - Foreign) ....... 2,306 40,043
SmithKline Beecham PLC (Medical) ......................... 4,247 51,872
Thames Water PLC (Utilities) ............................. 1,000 18,216
Unilever PLC (Consumer Products - Misc.) ................. 7,900 84,156
WPP Group PLC (Advertising) .............................. 9,000 59,020
Zeneca Group PLC (Medical) ............................... 1,234 52,994
----------
803,496
----------
TOTAL COMMON STOCKS
(Cost $4,856,049) (92.24%) 5,376,970
------- ----------
PREFERRED STOCKS
Brazil (2.08%)
Compania Riograndense de Telecomunicacoes
SA (Telecommunications) ................................. 11,971 13,052
Petroleo Brasileiro SA (Oil & Gas) ....................... 242,000 44,987
Telecomunicacoes de Sao Paulo
SA (Telecommunications) ................................. 197,897 46,542
Telesp Celular SA (Telecommunications)* .................. 197,897 16,427
----------
121,008
----------
Germany (0.97%)
Henkel KGaA (Chemicals) .................................. 173 17,123
SAP AG (Computers) ....................................... 58 39,397
----------
56,520
----------
TOTAL PREFERRED STOCKS
(Cost $178,308) (3.05%) 177,528
------- ----------
SEE NOTES TO FINANCIAL STATEMENTS.
75
<PAGE>
==============================FINANCIAL STATEMENTS==============================
John Hancock Funds - Declaration Trust -- V.A. International Fund
NUMBER OF MARKET
ISSUER, DESCRIPTION SHARES VALUE
- ------------------- ------ -----
RIGHT
Brazil (0.00%)
Telecomunicacoes de Sao Paulo
SA (Telecommunications)* ................................ 9,300 $149
----------
TOTAL RIGHT
(Cost $0) (0.00%) 149
------- ----------
TOTAL PREFERRED STOCKS AND RIGHT
(Cost $178,308) (3.05%) 177,677
------- ----------
INTEREST PAR VALUE
RATE (000s OMITTED)
---- --------------
SHORT-TERM INVESTMENTS
Joint Repurchase Agreement (3.53%)
Investment in a joint repurchase
agreement transaction with
Toronto Dominion Securities USA, Inc. -
Dated 06-30-98, due 07-01-98
(Secured by U.S. Treasury Notes,
5.00% thru 7.50% due 02-15-99
thru 11-15-01) - Note B.................... 5.750% $206 206,000
----------
TOTAL SHORT-TERM INVESTMENTS (3.53%) 206,000
-------- ----------
TOTAL INVESTMENTS (98.82%) 5,760,647
-------- ----------
OTHER ASSETS AND LIABILITIES, NET (1.18%) 68,892
-------- ----------
TOTAL NET ASSETS (100.00%) $5,829,539
======== ==========
* Non-income producing security.
The percentage shown for each investment category is the total value of that
category as a percentage of the net assets of the Fund.
Industry Diversification (Unaudited)
- --------------------------------------------------------------------------------
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 in which it invests. The concentration of investments by country
for individual securities held by the Fund is shown in the schedule of
investments. In addition, the concentration of investments can be aggregated by
various industry groups. The table below shows the percentages of the Fund's
investments at June 30, 1998 assigned to the various investment categories.
MARKET VALUE
INVESTMENT CATEGORIES AS A % OF FUND NET ASSETS
- --------------------- -------------------------
Advertising................................ 1.01%
Aerospace ................................. 0.05
Automobiles / Trucks....................... 3.39
Banks - Foreign............................ 20.09
Beverages.................................. 1.93
Building .................................. 1.08
Business Services - Misc. ................. 0.49
Chemicals.................................. 1.60
Computers.................................. 2.28
Consumer Products - Misc. ................. 1.44
Containers................................. 0.22
Cosmetics & Personal Care.................. 0.49
Diversified Operations..................... 6.88
Electronics................................ 3.93
Finance ................................... 0.80
Food....................................... 2.51
Insurance.................................. 7.59
Leisure.................................... 1.67
Machinery.................................. 1.65
Media...................................... 1.56
Medical.................................... 6.47
Metal ..................................... 0.22
Oil & Gas.................................. 5.56
Real Estate Operations..................... 0.78
Retail..................................... 2.44
Rubber - Tire & Misc. ..................... 0.41
Telecommunications......................... 13.77
Tobacco.................................... 0.29
Transport ................................. 0.22
Utilities.................................. 4.47
Short-Term Investments..................... 3.53
-----
TOTAL INVESTMENTS 98.82%
=====
SEE NOTES TO FINANCIAL STATEMENTS.
76
<PAGE>
==============================FINANCIAL STATEMENTS==============================
John Hancock Funds - Declaration Trust -- V.A. Regional Bank Fund
Schedule of Investments
June 30, 1998 (Unaudited)
- --------------------------------------------------------------------------------
The Schedule of Investments is a complete list of all securities owned by the
V.A. Regional Bank Fund on June 30, 1998. It's divided into two main categories:
common stocks and short-term investments. Common stocks are further broken down
by industry groups. Short-term investments, which represent the Fund's "cash"
position, are listed last.
NUMBER OF MARKET
ISSUER, DESCRIPTION SHARES VALUE
- ------------------- ------ -----
COMMON STOCKS
Superregional Banks (4.17%)
KeyCorp. (OH ) .......................................... 2,200 $78,375
Mellon Bank Corp. (PA ) ................................. 1,300 90,512
NationsBank Corp. (NC ) ................................. 2,000 153,000
Norwest Corp. (MN ) ..................................... 4,250 158,844
----------
480,731
----------
Banks - United States (81.79%)
Associated Banc-Corp. (WI ) ............................. 5,719 215,168
BancFirst Corp. (OK ) ................................... 3,800 176,700
BancorpSouth, Inc. (MS ) ................................ 9,325 195,825
Bank of the Ozarks, Inc. (AR ) .......................... 5,700 176,700
BB&T Corp. (NC ) ........................................ 3,650 246,831
CCB Financial Corp. (NC ) ............................... 2,450 260,312
Centura Banks, Inc. (NC ) ............................... 3,350 209,375
Chittenden Corp. (VT ) .................................. 6,250 218,750
City National Corp. (CA ) ............................... 6,700 247,481
CNB Bancshares, Inc. (IN ) .............................. 5,000 240,000
Colonial BancGroup, Inc. (AL ) .......................... 6,350 204,787
Comerica, Inc. (MI ) .................................... 4,000 265,000
Commerce Bancshares, Inc. (MO ) ......................... 3,800 185,487
Community First Bankshares, Inc. (ND ) .................. 7,600 199,025
Compass Bancshares, Inc. (AL ) .......................... 5,425 244,803
Crestar Financial Corp. (VA ) ........................... 3,800 207,338
Cullen / Frost Bankers, Inc. (TX ) ...................... 4,000 217,000
First Hawaiian, Inc. (HI ) .............................. 4,300 156,412
First Security Corp. (UT ) .............................. 11,600 248,312
First Tennessee National Corp. (TN ) .................... 6,875 216,992
First Virginia Banks, Inc. (VA ) ........................ 4,750 242,844
First Western Bancorp., Inc. (PA ) ...................... 6,150 181,041
Firstar Corp. (WI ) ..................................... 6,750 256,500
FirstMerit Corp. (OH ) .................................. 8,225 239,553
HUBCO, Inc. (NJ ) ....................................... 6,500 232,781
Imperial Bancorp. * (CA ) ............................... 8,700 261,000
Marshall & Ilsley Corp. (WI ) ........................... 4,200 214,463
Mercantile Bankshares Corp. (MD ) ....................... 6,450 224,541
Mississippi Valley Bancshares, Inc. (MO ) ............... 4,700 185,650
North Fork Bancorp., Inc. (NY ) ......................... 3,750 91,641
Old Kent Financial Corp. (MI ) .......................... 1,288 46,310
Regions Financial Corp. (AL ) ........................... 5,625 230,977
Santa Barbara Bancorp. (CA ) ............................ 8,650 248,688
Security Bank Holding Co. (OR ) ......................... 4,000 40,000
Silicon Valley Bancshares* (CA ) ........................ 2,950 105,001
SouthTrust Corp. (AL ) .................................. 4,250 184,875
Southwest Bancorp. of Texas, Inc.* (TX ) ................ 6,950 130,747
Star Banc Corp. (OH ) ................................... 2,800 178,850
Sterling Bancshares, Inc. (TX ) ......................... 10,400 163,800
Summit Bancshares, Inc. (TX ) ........................... 10,525 223,656
TCF Financial Corp. (MN ) ............................... 7,600 224,200
Texas Regional Bancshares, Inc. (Class A) (TX ) ......... 5,700 186,675
UST Corp. (MA ) ......................................... 9,050 239,825
Westamerica Bancorp. (CA ) .............................. 5,150 165,444
West Coast Bancorp. (OR ) ............................... 7,600 187,150
Whitney Holding Corp. (LA ) ............................. 3,850 195,388
Zions Bancorp. (UT ) .................................... 4,000 212,500
----------
9,426,398
----------
Thrifts (8.38%)
ALBANK Financial Corp. (NY ) ............................ 4,000 $282,250
Charter One Financial, Inc. (OH ) ....................... 4,975 167,595
First Financial Holdings, Inc. (SC ) .................... 7,600 180,500
InterWest Bancorp., Inc. (WA ) .......................... 4,250 184,344
Washington Mutual, Inc. (WA ) ........................... 3,475 150,945
----------
965,634
----------
TOTAL COMMON STOCKS
(Cost $11,105,909) (94.34%) 10,872,763
------- ----------
INTEREST PAR VALUE
RATE (000s OMITTED)
---- --------------
SHORT-TERM INVESTMENTS
Joint Repurchase Agreement (12.32%)
Investment in a joint repurchase
agreement transaction with
Toronto Dominion Securities
USA, Inc. Dated 06-30-98,
due 07-01-98 (Secured by U.S.
Treasury Bond, 9.125% due
05-15-18, and U.S. Treasury
Notes, 5.00% thru 8.75% due
12-31-98 thru 04-30-03) -
Note B........................................ 5.750% $1,420 1,420,000
-----------
Corporate Savings Account (0.01%)
Investors Bank & Trust Company
Daily Interest Savings Account
Current Rate 4.95%............................ 790
-----------
TOTAL SHORT-TERM INVESTMENTS (12.33%) 1,420,790
-------- -----------
TOTAL INVESTMENTS (106.67%) 12,293,553
-------- -----------
OTHER ASSETS AND LIABILITIES, NET (6.67%) (768,875)
-------- -----------
TOTAL NET ASSETS (100.00%) $11,524,678
======== ===========
*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.
77
<PAGE>
==============================FINANCIAL STATEMENTS==============================
John Hancock Funds - Declaration Trust -- V.A. Financial Industries Fund
Schedule of Investments
June 30, 1998 (Unaudited)
- --------------------------------------------------------------------------------
The Schedule of Investments is a complete list of all securities owned by the
V.A. Financial Industries Fund on June 30, 1998. It's divided into two main
categories: common stocks and short-term investments. Common stocks are further
broken down by industry groups. Short-term investments, which represent the
Fund's "cash" position, are listed last.
NUMBER OF MARKET
ISSUER, DESCRIPTION SHARES VALUE
- ------------------- ------ -----
COMMON STOCKS
Banks - Foreign (6.22%)
Allied Irish Banks PLC, (American Depositary
Receipt), (ADR) (Ireland) ............................. 9,500 $815,219
Anglo Irish Bank Corp., PLC (Ireland) .................. 5,000 13,431
Corporacion Bancaria de Espana S.A.
(ADR) (Spain) ......................................... 10,430 470,654
ING Groep N.V. (ADR) (Netherlands) ..................... 8,000 523,000
Nordbanken Holding AB (Sweden) ......................... 20,200 148,175
Royal Bank of Canada (Canada) .......................... 18,000 1,086,750
----------
3,057,229
----------
Banks - Money Center (1.54%)
Chase Manhattan Corp. .................................. 10,040 758,020
----------
Banks - Southeast (1.30%)
First Tennessee National Corp. ......................... 20,300 640,719
----------
Banks - Super Regional (5.85%)
BankBoston Corp. ....................................... 19,450 1,081,906
Norwest Corp. .......................................... 48,000 1,794,000
----------
2,875,906
----------
Banks - West (1.75%)
Westamerica Bancorp .................................... 26,700 857,737
----------
Broker Services (15.94%)
Edwards (A.G.), Inc. ................................... 43,725 1,866,511
Freedom Securities Corp.* .............................. 10,000 181,250
Friedman, Billings, Ramsey Group, Inc. (Class A)* ...... 3,000 43,313
Legg Mason, Inc. ....................................... 37,166 2,139,368
McDonald & Co., Investments ............................ 16,350 536,484
Morgan Stanley, Dean Witter, Discover & Co. ............ 17,500 1,599,062
Stifel Financial Corp. ................................. 17,100 259,706
Travelers Group, Inc. .................................. 20,000 1,212,500
----------
7,838,194
----------
Computer - Services (4.96%)
BISYS Group, Inc. (The)* ............................... 10,000 410,000
Fiserv, Inc.* .......................................... 47,737 2,027,328
Fundtech Ltd.* ......................................... 200 3,775
----------
2,441,103
----------
Finance - Consumer Loans (6.29%)
American Express Co. ................................... 16,990 1,936,860
MBNA Corp. ............................................. 35,100 1,158,300
----------
3,095,160
----------
Finance - Investment Management (10.15%)
Affiliated Managers Group, Inc.* ....................... 7,500 278,438
Conning Corp. .......................................... 10,500 204,750
Federated Investors, Inc. (Class B)* ................... 7,500 138,750
Franklin Resources, Inc. ............................... 24,690 1,333,260
John Nuveen Co. (The) (Class A) ........................ 13,000 515,938
Price (T. Rowe) Associates, Inc. ....................... 41,000 1,540,062
Waddell & Reed Financial, Inc. (Class A) ............... 41,000 981,437
----------
4,992,635
----------
Finance - Savings & Loan (0.50%)
InterWest Bancorp., Inc. ............................... 5,700 247,238
----------
Finance - SBIC & Commercial (1.13%)
CIT Group, Inc. (The) (Class A) ........................ 14,825 555,937
----------
Insurance - Accident & Health (1.71%)
Provident Cos., Inc. ................................... 24,350 840,075
----------
Insurance - Brokers (1.84%)
Marsh & McLennan Cos., Inc. ............................ 15,000 906,562
----------
Insurance - Diversified (2.01%)
Aetna, Inc. ............................................ 13,000 989,625
----------
Insurance - Life (2.80%)
Annuity and Life Re (Holdings), Ltd.* .................. 150 3,319
ARM Financial Group, Inc. (Class A) .................... 15,000 331,875
Reinsurance Group of America, Inc.* .................... 10,010 513,638
Torchmark Corp. ........................................ 11,500 526,125
----------
1,374,957
----------
Insurance - Multi Line (2.00%)
Allmerica Financial Corp. .............................. 15,100 981,500
----------
Insurance - Property & Casualty (15.06%)
Commerce Group, Inc. ................................... 17,475 677,156
Donegal Group, Inc. .................................... 24,633 461,863
Frontier Insurance Group, Inc. ......................... 9,735 219,646
General Re Corp. ....................................... 7,500 1,901,250
Penn-America Group, Inc. ............................... 16,000 216,000
RLI Corp. .............................................. 22,469 914,197
SAFECO Corp. ........................................... 31,340 1,424,011
St. Paul Cos., Inc. .................................... 18,200 765,538
Summit Holdings Southeast, Inc.* ....................... 1,900 60,563
Travelers Property Casualty Corp. (Class A) ............ 17,900 767,462
----------
7,407,686
----------
Leasing Companies (0.46 %)
Newcourt Credit Group, Inc. (Canada) ................... 4,600 226,263
----------
Mortgage & RE Services (1.24%)
Fannie Mae ............................................. 10,000 607,500
----------
REIT - Equity Trust (8.63%)
Brandywine Realty Trust ................................ 35,225 788,159
Corporate Office Properties Trust, Inc. ................ 700 6,213
Excel Realty Trust, Inc. ............................... 12,000 345,750
General Growth Properties .............................. 24,000 897,000
Glenborough Realty Trust, Inc. ......................... 11,500 303,313
Macerich Co. (The) ..................................... 11,000 322,438
Prentiss Properties Trust .............................. 26,440 642,823
SL Green Realty Corp. .................................. 12,500 281,250
Spieker Properties, Inc. ............................... 17,000 658,750
----------
4,245,696
----------
TOTAL COMMON STOCKS
(Cost $40,397,984) (91.38%) 44,939,742
------- ----------
SEE NOTES TO FINANCIAL STATEMENTS.
78
<PAGE>
==============================FINANCIAL STATEMENTS==============================
John Hancock Funds - Declaration Trust -- V.A. Financial Industries Fund
INTEREST PAR VALUE MARKET
ISSUER, DESCRIPTION RATE (000s OMITTED) VALUE
- ------------------- ---- -------------- -----
SHORT-TERM INVESTMENTS
Joint Repurchase Agreement (8.08%)
Investment in a joint repurchase
agreement transaction with Toronto
Dominion Securities USA, Inc.
Dated 06-30-98, due 07-01-98
(Secured by U.S. Treasury Bond,
9.125% due 05-15-18, and U.S
Treasury Notes, 5.00% thru 8.75%
due 12-31-98 thru 04-30-03) -
Note B................................... 5.750% $3,975 $3,975,000
-----------
Corporate Savings Account (0.00%)
Investors Bank & Trust Company
Daily Interest Savings Account
Current Rate 4.95%....................... 661
-----------
TOTAL SHORT-TERM INVESTMENTS (8.08%) 3,975,661
-------- -----------
TOTAL INVESTMENTS (99.46%) 48,915,403
-------- -----------
OTHER ASSETS AND LIABILITIES, NET (0.54%) 265,075
-------- -----------
TOTAL NET ASSETS (100.00%) $49,180,478
======== ===========
*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.
79
<PAGE>
==============================FINANCIAL STATEMENTS==============================
John Hancock Funds - Declaration Trust -- V.A. Emerging Growth Fund
Schedule of Investments
June 30, 1998 (Unaudited)
- --------------------------------------------------------------------------------
The Schedule of Investments is a complete list of all securities owned by the
V.A. Emerging Growth Fund on June 30, 1998. It's divided into two main
categories: common stocks and short-term investments. Common stocks are further
broken down by industry groups. Short-term investments, which represent the
Fund's "cash" position, are listed last.
NUMBER OF MARKET
ISSUER, DESCRIPTION SHARES VALUE
- ------------------- ------ -----
COMMON STOCKS
Advertising (1.44%)
Getty Images, Inc.* .................................... 2,200 $48,950
Outdoor Systems, Inc.* ................................. 1,012 28,336
Princeton Video Image, Inc.* ........................... 3,800 17,575
----------
94,861
----------
Aerospace (0.34%)
AAR Corp. .............................................. 750 22,172
----------
Agricultural Operations (0.35%)
Scheid Vineyards, Inc. (Class A)* ...................... 3,300 22,894
----------
Automobile / Trucks (1.76%)
Gentex Corp.* .......................................... 1,800 32,625
Special Devices, Inc.* ................................. 800 28,300
United Rentals, Inc. * ................................. 1,300 54,600
----------
115,525
----------
Beverages (0.34%)
Beringer Wine Estates Holdings, Inc. (Class B)* ........ 500 22,031
----------
Broker Services (1.13%)
Dain Rauscher Corp. .................................... 400 21,900
E*TRADE Group, Inc.* ................................... 2,300 52,756
----------
74,656
----------
Building (1.50%)
Crossmann Communities, Inc.* ........................... 1,100 33,412
D R Horton, Inc. ....................................... 1,300 27,138
SMED International, Inc.* (Canada) ..................... 1,700 30,600
Vari-Lite International, Inc.* ......................... 1,200 7,500
----------
98,650
----------
Business Services - Misc. (8.97%)
Abacus Direct Corp.* ................................... 700 36,356
Charles River Associates, Inc.* ........................ 1,800 45,000
Coinstar, Inc.* ........................................ 4,000 37,000
Forrester Research, Inc.* .............................. 1,100 43,725
Hagler Bailly, Inc.* ................................... 1,500 38,812
ICON PLC, (American Depositary Receipts),
(ADR) (United Kingdom) * .............................. 100 2,525
INSpire Insurance Solutions, Inc.* ..................... 1,300 43,225
Lason, Inc.* ........................................... 1,000 54,500
Mac-Gray Corp.* ........................................ 1,600 20,400
MAXIMUS, Inc.* ......................................... 100 2,875
META Group, Inc. * ..................................... 1,800 39,825
Metamor Worldwide, Inc.* ............................... 750 26,390
Metzler Group, Inc. (The)* ............................. 1,600 58,600
On Assignment, Inc.* ................................... 1,100 38,431
ProBusiness Services, Inc.* ............................ 1,400 65,450
Professional Detailing, Inc.* .......................... 1,500 37,313
----------
590,427
----------
Computers (22.78%)
Advent Software, Inc.* ................................. 1,300 54,600
AnswerThink Consulting Group * ......................... 2,500 53,750
Aris Corp.* ............................................ 1,800 50,400
Aspect Development, Inc.* .............................. 600 45,375
BARRA, Inc.* ........................................... 1,400 34,300
CBT Group PLC Ltd., ADR (Ireland) ...................... 800 42,800
CCC Information Services Group, Inc. * ................ 1,800 29,700
CheckFree Holdings Corp.* .............................. 1,400 41,212
Cognizant Technology Solutions Corp. * ................ 3,300 39,806
Concord Communications, Inc.* .......................... 100 2,556
Dendrite International, Inc.* .......................... 1,500 56,437
Exodus Communications, Inc.* ........................... 600 26,850
Fundtech Ltd. * ........................................ 2,700 50,963
Hyperion Software Corp.* ............................... 600 17,100
IDX Systems Corp. ...................................... 1,100 50,668
Information Management Resources, Inc.* ................ 1,475 49,873
Inktomi Corp.* ......................................... 100 3,975
International Integration, Inc. * ...................... 200 3,450
International Network Services, Inc.* .................. 1,300 53,300
JDA Software Group, Inc.* .............................. 500 21,875
Manhattan Associates, Inc. * ........................... 1,600 33,300
Micromuse, Inc. * ...................................... 1,800 73,462
MicroStrategy, Inc. (Class A) * ........................ 300 8,475
MIPS Technologies, Inc. * .............................. 200 2,687
National Computer Systems, Inc. ........................ 1,900 45,600
National Instruments Corp.* ............................ 1,300 46,475
Network Appliance, Inc.* ............................... 1,400 54,512
Pegasystems, Inc. * .................................... 1,200 32,550
Real Networks, Inc. * .................................. 1,100 41,043
SCM Microsystems, Inc.* ................................ 600 37,500
Software.net Corp.* .................................... 2,800 53,550
SPR, Inc.* ............................................. 1,000 31,125
Symantec Corp.* ........................................ 1,500 39,187
THINK New Ideas, Inc.* ................................. 500 13,062
Transition Systems, Inc. * ............................. 1,900 20,187
Verio, Inc.* ........................................... 1,800 44,775
VeriSign, Inc.* ........................................ 1,700 63,537
Visio Corp.* ........................................... 1,100 52,525
Whittman-Hart, Inc. * .................................. 700 33,862
Wind River Systems* .................................... 1,200 43,050
----------
1,499,454
----------
Containers (0.39%)
Ivex Packaging Corp.* .................................. 1,100 25,575
----------
Electronics (2.71%)
Aavid Thermal Technologies, Inc.* ...................... 800 23,400
ATMI, Inc.* ............................................ 2,000 30,000
Flextronics International Ltd. * ....................... 800 34,800
Level One Communications, Inc.* ........................ 1,700 39,950
MMC Networks, Inc. ..................................... 100 3,187
Rambus, Inc.* .......................................... 600 36,675
Semtech Corp.* ......................................... 600 10,612
----------
178,624
----------
Finance (3.37%)
AmeriCredit Corp.* ..................................... 1,600 57,100
Financial Federal Corp.* ............................... 1,500 40,218
FIRSTPLUS Financial Group, Inc.* ....................... 800 28,800
SEE NOTES TO FINANCIAL STATEMENTS.
80
<PAGE>
==============================FINANCIAL STATEMENTS==============================
John Hancock Funds - Declaration Trust -- V.A. Emerging Growth Fund
NUMBER OF MARKET
ISSUER, DESCRIPTION SHARES VALUE
- ------------------- ------ -----
Finance (continued)
Medallion Financial Corp. .............................. 2,400 $66,000
Waddell & Reed Financial, Inc. (Class A) ............... 1,250 29,922
----------
222,040
----------
Food (2.07%)
American Italian Pasta Co. (Class A)* .................. 1,500 55,875
Dreyer's Grand Ice Cream, Inc. ......................... 1,900 38,238
Suiza Foods Corp.* ..................................... 710 42,378
----------
136,491
----------
Funeral Services & Related (0.87%)
Carriage Services, Inc. (Class A)* ..................... 1,400 35,175
Rock of Ages Corp.* .................................... 1,400 21,700
----------
56,875
----------
Insurance (2.29%)
AmerUs Life Holdings, Inc. (Class A) ................... 600 19,425
Capital Re Corp. ....................................... 200 14,325
CMAC Investment Corp. .................................. 500 30,750
Hartford Life, Inc. (Class A) .......................... 800 45,550
Life Re Corp. .......................................... 500 41,000
----------
151,050
----------
Leasing Companies (1.05%)
LINC Capital, Inc.* .................................... 2,000 34,500
Rollins Truck Leasing Corp. ............................ 2,800 34,650
----------
69,150
----------
Leisure (3.25%)
Cinar Films, Inc. (Class B)* (Canada) .................. 2,600 50,700
Premier Parks, Inc.* ................................... 700 46,637
ResortQuest International, Inc. * ...................... 300 4,894
Silverleaf Resorts, Inc.* .............................. 1,500 22,875
Steiner Leisure Ltd.* .................................. 1,750 52,938
Travel Services International, Inc.* ................... 1,100 36,163
----------
214,207
----------
Machinery (1.69%)
Applied Power, Inc. (Class A) .......................... 1,200 41,250
Gardner Denver Machinery, Inc.* ........................ 1,200 33,150
Terex Corp.* ........................................... 1,300 37,050
----------
111,450
----------
Media (4.66%)
Adelphia Communications Corp. (Class A)* ............... 1,600 59,400
Central Newspapers, Inc. (Class A) ..................... 500 34,875
Clear Channel Communications, Inc.* .................... 201 21,934
Heftel Broadcasting Corp. (Class A)* ................... 900 40,275
Jacor Communications, Inc.* ............................ 400 23,600
Network Event Theater, Inc.* ........................... 5,500 23,375
Petersen Cos., Inc. (The) (Class A)* ................... 1,500 38,438
Univision Communications, Inc. (Class A)* .............. 600 22,350
Wiley (John) & Sons, Inc. (Class A) .................... 700 42,612
----------
306,859
----------
Medical (6.04%)
Alkermes, Inc. * ....................................... 1,000 17,875
American Healthcorp, Inc.* ............................. 2,100 20,738
Hanger Orthopedic Group, Inc. * ........................ 2,300 46,863
Human Genome Sciences, Inc. * .......................... 500 17,844
IDEC Pharmaceuticals Corp.* ............................ 900 21,206
Impath, Inc. * ......................................... 900 21,881
Incyte Pharmaceuticals, Inc.* .......................... 600 20,475
MiniMed, Inc.* ......................................... 700 36,663
Ocular Sciences, Inc.* ................................. 900 29,250
Perclose, Inc.* ........................................ 800 22,600
Renal Care Group, Inc. * ............................... 800 35,250
Res-Care, Inc.* ........................................ 1,800 33,188
Symphonix Devices, Inc.* ............................... 2,300 26,450
Ventana Medical Systems, Inc.* ......................... 1,700 47,600
----------
397,883
----------
Metal (0.43%)
CompX International, Inc.* ............................. 1,300 28,113
----------
Oil & Gas (2.15%)
Core Laboratories N.V.* (Netherlands) .................. 1,600 34,600
Dril-Quip, Inc.* ....................................... 1,100 28,875
National-Oilwell, Inc.* ................................ 1,000 26,813
Stone Energy Corp.* .................................... 600 21,338
Tuboscope, Inc.* ....................................... 1,500 29,625
----------
141,251
----------
Pollution Control (2.71%)
American Disposal Services, Inc.* ...................... 1,000 46,875
Eastern Environmental Services, Inc.* .................. 1,500 51,000
ITEQ, Inc.* ............................................ 2,800 20,825
Newpark Resources, Inc.* ............................... 2,100 23,363
Superior Services, Inc.* ............................... 1,200 36,075
----------
178,138
----------
Printing - Commercial (0.56%)
Mail-Well, Inc.* ....................................... 1,700 36,869
----------
Real Estate Investment Trust (0.52%)
Glenborough Realty Trust, Inc. ......................... 1,000 26,375
Hanover Capital Mortgage Holdings, Inc. ................ 800 7,600
----------
33,975
----------
Real Estate Operations (0.62%)
Central Parking Corp. * ................................ 900 40,950
----------
Retail (10.88%)
99 Cents Only Stores* .................................. 1,075 44,613
Abercrombie & Fitch Co. (Class A)* ..................... 1,000 44,000
Brylane, Inc.* ......................................... 500 23,000
CDnow, Inc.* ........................................... 1,400 28,175
CSK Auto Corp.* ........................................ 1,600 40,400
Dominick's Supermarkets, Inc.* ......................... 900 40,106
Duane Reade, Inc.* ..................................... 1,600 48,000
Eagle Hardware & Garden, Inc. * ........................ 1,600 37,000
Ethan Allen Interiors, Inc. ............................ 500 24,969
Furniture Brands International, Inc.* .................. 1,200 33,675
Garden Fresh Restaurant Corp.* ......................... 2,000 36,000
Genovese Drug Stores, Inc. (Class A) ................... 1,760 34,540
Hibbett Sporting Goods, Inc.* .......................... 1,300 52,000
Linens `N Things, Inc.* ................................ 1,000 30,563
Meyer (Fred), Inc. * ................................... 650 27,625
Proffitt's, Inc.* ...................................... 800 32,300
Stage Stores, Inc.* .................................... 1,300 58,825
White Cap Industries, Inc.* ............................ 2,100 37,800
Wild Oats Markets, Inc.* ............................... 1,400 42,525
----------
716,116
----------
Schools / Education (1.27%)
EduTrek International, Inc. (Class A)* ................ 1,300 31,850
ITI Education Corp.* (Canada) .......................... 2,000 11,968
Strayer Education, Inc. ................................ 1,100 39,875
----------
83,693
----------
SEE NOTES TO FINANCIAL STATEMENTS.
81
<PAGE>
==============================FINANCIAL STATEMENTS==============================
John Hancock Funds - Declaration Trust -- V.A. Emerging Growth Fund
NUMBER OF MARKET
ISSUER, DESCRIPTION SHARES VALUE
- ------------------- ------ -----
Service (0.78%)
Interim Services, Inc. * .............................. 1,600 $51,400
----------
Telecommunications (6.65%)
Com21, Inc.* .......................................... 200 4,250
Concentric Network Corp. * ............................ 1,600 48,500
Global TeleSystems Group, Inc.* ....................... 1,000 48,750
Hyperion Telecommunications, Inc. (Class A) * ......... 1,300 20,394
ICG Communications, Inc.* ............................. 1,200 43,875
Intermedia Communications, Inc.* ...................... 1,200 50,325
L-3 Communications Holdings, Inc.* .................... 200 6,538
Metromedia Fiber Network, Inc. (Class A)* ............. 1,600 74,600
NEXTLINK Communications, Inc. (Class A)* .............. 700 26,513
Primus Telecommunications Group, Inc. * ............... 2,400 45,450
STAR Telecommunications, Inc. * ....................... 1,335 29,871
WinStar Communications, Inc.* ......................... 900 38,644
----------
437,710
----------
Textile (2.43%)
Ashworth, Inc.* ....................................... 2,300 31,913
Cutter & Buck, Inc.* .................................. 1,800 48,600
Interface, Inc. ....................................... 2,200 44,413
Tefron Ltd.* (Israel) ................................. 1,600 35,200
----------
160,126
----------
Transport (1.75%)
Carey International, Inc.* ............................ 1,400 39,200
MotivePower Industries, Inc.* ......................... 1,700 41,650
Westinghouse Air Brake Co. ............................ 1,300 34,288
----------
115,138
----------
Waste Disposal Service & Equip (0.54%)
Waste Connections, Inc.* .............................. 1,800 35,776
----------
TOTAL COMMON STOCKS
(Cost $5,428,002) (98.29%) 6,470,129
------- ----------
INTEREST PAR VALUE MARKET
ISSUER, DESCRIPTION RATE (000s OMITTED) VALUE
- ------------------- ---- -------------- -----
SHORT-TERM INVESTMENTS
Joint Repurchase Agreement (0.62%)
Investment in a joint repurchase
agreement transaction with Toronto
Dominion Securities USA, Inc. Dated
06-30-98, due 07-01-98 (Secured by
U.S. Treasury Bond, 9.125% due
05-15-18, and U.S. Treasury Notes,
5.00% thru 8.75% due 12-31-98 thru
04-30-03) - Note B................... 5.750% $41 $41,000
----------
Corporate Savings Account (0.00%)
Investors Bank & Trust Company
Daily Interest Savings Account
Current Rate 4.95%............................... 211
----------
TOTAL SHORT-TERM INVESTMENTS (0.62%) 41,211
-------- ----------
TOTAL INVESTMENTS (98.91%) 6,511,340
-------- ----------
OTHER ASSETS AND LIABILITIES, NET (1.09%) 71,550
-------- ----------
TOTAL NET ASSETS (100.00%) $6,582,890
======== ==========
*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.
82
<PAGE>
==============================FINANCIAL STATEMENTS==============================
John Hancock Funds - Declaration Trust -- V.A. Special Opportunities Fund
Schedule of Investments
June 30, 1998 (Unaudited)
- --------------------------------------------------------------------------------
The Schedule of Investments is a complete list of all securities owned by the
V.A. Special Opportunities Fund on June 30, 1998. It's divided into two main
categories: common stocks and short-term investments. Common stocks are further
broken down by industry groups. Short-term investments, which represent the
Fund's "cash" position, are listed last.
NUMBER OF MARKET
ISSUER, DESCRIPTION SHARES VALUE
- ------------------- ------ -----
COMMON STOCKS
Advertising (2.06%)
Lamar Advertising Co.* ................................ 250 $8,969
Outdoor Systems, Inc.* ................................ 575 16,100
----------
25,069
----------
Automobile / Trucks (1.78%)
Avis Rent-A-Car, Inc.* ................................ 570 14,107
Tower Automotive, Inc.* ............................... 175 7,503
----------
21,610
----------
Banks - United States (4.13%)
First American Corp. .................................. 250 12,031
Northern Trust Corp. .................................. 175 13,344
Regions Financial Corp. ............................... 300 12,319
Republic New York Corp. ............................... 200 12,587
----------
50,281
----------
Business Services - Misc (2.08%)
Personnel Group of America, Inc. * .................... 600 12,000
Select Appointments Holdings PLC, (American
Depositary Receipts), (ADR) (United Kingdom) ......... 450 13,275
----------
25,275
----------
Computers (19.88%)
Ascend Communications, Inc.* .......................... 225 11,151
Aspen Technologies, Inc.* ............................. 210 10,605
BEA Systems, Inc.* .................................... 665 15,253
Cambridge Technology Partners, Inc.* .................. 350 19,119
Citrix Systems, Inc.* ................................. 225 15,384
Compuware Corp.* ...................................... 275 14,059
EMC Corp.* ............................................ 525 23,526
Excite, Inc.* ......................................... 155 14,492
Gartner Group, Inc. (Class A)* ........................ 400 14,000
Keane, Inc.* .......................................... 350 19,600
Lexmark International Group, Inc. (Class A)* .......... 270 16,470
Network Associates, Inc. * ............................ 325 15,559
Quantum Corp. * ....................................... 150 3,112
Saville Systems Ireland PLC (ADR) (Ireland)* .......... 275 13,784
Sterling Commerce, Inc.* .............................. 250 12,125
Sungard Data Systems, Inc. ............................ 100 3,837
Unisys Corp.* ......................................... 700 19,775
----------
241,851
----------
Containers (0.68%)
EarthShell Corp.* ..................................... 50 487
Owens-Illinois, Inc.* ................................. 175 7,831
----------
8,318
----------
Cosmetics & Personal Care (2.09%)
Rexall Sundown, Inc.* ................................. 350 12,337
Twinlab Corp.* ........................................ 300 13,106
----------
25,443
----------
Electronics (3.79%)
Artesyn Technologies, Inc.* ........................... 600 9,600
Berg Electronics Corp.* ............................... 600 11,737
Jabil Circuit, Inc.* .................................. 350 11,572
Waters Corp.* ......................................... 225 13,261
----------
46,170
----------
Finance (4.51%)
Charter One Financial, Inc. ........................... 340 11,454
CIT Group, Inc. (The) (Class A) ....................... 350 13,125
Price (T. Rowe) Associates, Inc. ...................... 300 11,269
Sovereign Bancorp., Inc. .............................. 710 11,604
TCF Financial Corp. ................................... 250 7,375
----------
54,827
----------
Food (2.08%)
Aurora Foods, Inc. * .................................. 200 4,225
International Home Foods, Inc.* ....................... 400 9,100
Suiza Foods Corp.* .................................... 200 11,937
----------
25,262
----------
Furniture (0.92%)
Leggett & Platt, Inc. ................................. 450 11,250
----------
Insurance (10.43%)
Ace, Ltd. (Bermuda) ................................... 325 12,675
Allmerica Financial Corp. ............................. 225 14,625
CMAC Investment Corp. ................................. 225 13,838
Executive Risk, Inc. .................................. 200 14,750
Life Re Corp. ......................................... 200 16,400
Mid Ocean Ltd. (Bermuda) .............................. 200 15,700
Mutual Risk Management Ltd. ........................... 350 12,753
Reinsurance Group of America, Inc. * .................. 100 5,131
ReliaStar Financial Corp. ............................. 300 14,400
Selective Insurance Group, Inc. ....................... 200 4,481
Vesta Insurance Group, Inc. ........................... 100 2,131
----------
126,884
----------
Leisure (0.52%)
Hasbro, Inc. .......................................... 160 6,290
----------
Media (4.03%)
Central Newspapers, Inc. (Class A) .................... 200 13,950
Clear Channel Communications, Inc.* ................... 100 10,913
Sinclair Broadcast Group, Inc. (Class A)* ............. 450 12,938
Univision Communications, Inc. (Class A)* ............. 300 11,175
----------
48,976
----------
Medical (11.26%)
Dura Pharmaceuticals, Inc.* ........................... 250 5,594
Elan Corp., PLC (ADR) (Ireland)* ...................... 250 16,078
Forest Laboratories, Inc.* ............................ 500 17,875
Genesis Health Ventures, Inc.* ........................ 200 5,000
Genzyme Corp.* ........................................ 450 11,503
Health Care & Retirement Corp.* ....................... 60 2,366
Health Management Associates, Inc. (Class A)* ......... 475 15,883
HEALTHSOUTH Corp.* .................................... 475 12,677
Manor Care, Inc. ...................................... 150 5,766
Mylan Laboratories, Inc. .............................. 525 15,783
Omnicare, Inc. ........................................ 260 9,913
Quorum Health Group, Inc.* ............................ 375 9,938
Sofamor Danek Group, Inc.* ............................ 100 8,656
----------
137,032
----------
SEE NOTES TO FINANCIAL STATEMENTS.
83
<PAGE>
==============================FINANCIAL STATEMENTS==============================
John Hancock Funds - Declaration Trust -- V.A. Special Opportunities Fund
NUMBER OF MARKET
ISSUER, DESCRIPTION SHARES VALUE
- ------------------- ------ -----
Office (1.08%)
OfficeMax, Inc. * ..................................... 800 $13,200
----------
Oil & Gas (3.02%)
BJ Services Co.* ...................................... 200 5,813
Columbia Energy Group ................................. 225 12,516
Cooper Cameron Corp.* ................................. 125 6,375
El Paso Natural Gas Co. ............................... 150 5,738
Mitchell Energy & Development Corp.* .................. 200 4,000
Santa Fe International Corp. .......................... 75 2,269
----------
36,711
----------
Pollution Control (1.12%)
USA Waste Services, Inc.* ............................. 275 13,578
----------
Real Estate Investment Trust (2.47%)
FelCor Suite Hotels, Inc. ............................. 275 8,628
Spieker Properties, Inc. .............................. 150 5,813
Starwood Hotels & Resorts ............................. 200 9,663
Vornado Realty Trust .................................. 150 5,953
----------
30,057
----------
Retail (6.96%)
Costco Cos., Inc.* .................................... 75 4,730
CVS Corp. ............................................. 300 11,681
Furniture Brands International, Inc.* ................. 380 10,664
Meyer (Fred), Inc. * .................................. 325 13,813
Pier 1 Imports, Inc. .................................. 500 11,938
Rite Aid Corp. ........................................ 350 13,147
Ruddick Corp. ......................................... 250 4,531
Safeway, Inc.* ........................................ 350 14,241
----------
84,745
----------
Service (1.32%)
Interim Services, Inc. * .............................. 500 16,063
----------
Telecommunications (7.44%)
Advanced Fibre Communications* ........................ 220 8,814
American Tower Corp. (Class A)* ....................... 300 7,481
ICG Communications, Inc.* ............................. 400 14,625
Intermedia Communications, Inc.* ...................... 390 16,356
McLeodUSA, Inc. (Class A)* ............................ 375 14,578
NEXTLINK Communications, Inc. (Class A)* ............. 525 19,884
Tel-Save Holdings, Inc.* .............................. 600 8,850
----------
90,588
----------
Utilities (2.10%)
KN Energy Inc. ........................................ 225 12,192
MCN Energy Group, Inc. ................................ 300 7,463
Questar Corp. ......................................... 300 5,888
----------
25,543
----------
TOTAL COMMON STOCKS
(Cost $1,091,350) (95.75%) 1,165,023
------- ----------
INTEREST PAR VALUE MARKET
ISSUER, DESCRIPTION RATE (000s OMITTED) VALUE
- ------------------- ---- -------------- -----
SHORT-TERM INVESTMENTS
Joint Repurchase Agreement (4.44%)
Investment in a joint repurchase agreement
transaction with Toronto Dominion
Securities USA, Inc. Dated 06-30-98,
due 07-01-98 (Secured by U.S. Treasury
Bond, 9.125% due 05-15-18, and U.S.
Treasury Notes, 5.00% thru 8.75% due
12-31-98 thru 04-30-03) -
Note B................................. 5.750% $54 $54,000
----------
Corporate Savings Account (0.02%)
Investors Bank & Trust Company
Daily Interest Savings Account
Current Rate 4.95%................................ 223
----------
TOTAL SHORT-TERM INVESTMENTS (4.46%) 54,223
-------- ----------
TOTAL INVESTMENTS (100.21%) 1,219,246
-------- ----------
OTHER ASSETS AND LIABILITIES, NET (0.21%) (2,581)
-------- ----------
TOTAL NET ASSETS (100.00%) $1,216,665
======== ==========
*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.
84
<PAGE>
==============================FINANCIAL STATEMENTS==============================
John Hancock Funds - Declaration Trust -- V.A. Growth Fund
Schedule of Investments
June 30, 1998 (Unaudited)
- --------------------------------------------------------------------------------
The Schedule of Investments is a complete list of all securities owned by the V.
A. Growth Fund on June 30, 1998. It's divided into two main categories: common
stocks and short-term investments. Common stocks are further broken down by
industry groups. Short-term investments, which represent the Fund's "cash"
position, are listed last.
NUMBER OF MARKET
ISSUER, DESCRIPTION SHARES VALUE
- ------------------- ------ -----
COMMON STOCKS
Advertising (1.10%)
Interpublic Group of Companies, Inc. (The) ............ 500 $30,344
Outdoor Systems, Inc.* ................................ 1,462 40,936
----------
71,280
----------
Agricultural Operations (1.02%)
Pioneer Hi-Bred International, Inc. ................... 1,600 66,200
----------
Banks - United States (1.24%)
Chase Manhattan Corp. ................................. 600 45,300
Mellon Bank Corp. ..................................... 500 34,813
----------
80,113
----------
Beverages (3.23%)
Coca-Cola Co. (The) ................................... 1,000 85,500
PepsiCo, Inc. ......................................... 3,000 123,562
----------
209,062
----------
Building (0.75%)
Masco Corp. ........................................... 800 48,400
----------
Business Services - Misc (0.81%)
Paychex, Inc. ......................................... 600 24,412
Robert Half International, Inc.* ...................... 500 27,938
----------
52,350
----------
Computers (21.73%)
Automatic Data Processing, Inc. ....................... 600 43,725
BMC Software, Inc.* ................................... 1,800 93,487
CBT Group PLC, American Depositary Receipts
(ADR) (Ireland)* ..................................... 800 42,800
Cisco Systems, Inc.* .................................. 2,400 220,950
Computer Sciences Corp.* .............................. 1,200 76,800
Compuware Corp.* ...................................... 2,000 102,250
EMC Corp.* ............................................ 2,600 116,512
HBO & Co. ............................................. 2,400 84,600
International Business Machines Corp. ................. 1,200 137,775
Microsoft Corp.* ...................................... 1,900 205,913
Novell, Inc.* ......................................... 8,000 102,000
Unisys Corp.* ......................................... 6,300 177,975
Verio Inc.* ........................................... 100 2,488
----------
1,407,275
----------
Cosmetics & Personal Care (1.93%)
Gillette Co. .......................................... 2,200 124,712
----------
Diversified Operations (2.19%)
Du Pont (E.I.) de Nemours & Co. ....................... 1,900 141,787
----------
Electronics (2.95%)
General Electric Co. .................................. 2,100 191,100
----------
Finance (3.17%)
American Express Co. .................................. 1,800 205,200
----------
Food (6.87%)
Flowers Industries, Inc. .............................. 9,200 188,025
Quaker Oats Co. ....................................... 2,500 137,344
Suiza Foods Corp.* .................................... 2,000 119,375
----------
444,744
----------
Furniture (0.46%)
Leggett & Platt, Inc. ................................. 1,200 30,000
----------
Insurance (3.30%)
Progressive Corp. ..................................... 1,000 141,000
Travelers Group, Inc. ................................. 1,200 72,750
----------
213,750
----------
Leisure (1.84%)
Carnival Corp. (Class A) .............................. 1,600 63,400
Royal Caribbean Cruises Ltd. .......................... 700 55,650
----------
119,050
----------
Media (4.80%)
CBS Corp.* ............................................ 4,100 130,175
Clear Channel Communications, Inc.* ................... 500 54,562
Gannett Co., Inc. ..................................... 1,100 78,169
Tribune Co. ........................................... 700 48,169
----------
311,075
----------
Medical (11.00%)
Abbott Laboratories ................................... 2,300 94,012
Johnson & Johnson ..................................... 1,000 73,750
Medtronic, Inc. ....................................... 800 51,000
Merck & Co., Inc. ..................................... 1,200 160,500
Schering-Plough Corp. ................................. 2,200 201,575
SmithKline Beecham PLC (ADR) (United Kingdom) ......... 800 48,400
Warner-Lambert Co. .................................... 1,200 83,250
----------
712,487
----------
Office (0.74%)
Pitney Bowes, Inc. .................................... 1,000 48,125
----------
Oil & Gas (2.47%)
Enron Corp. ........................................... 1,400 75,687
Williams Cos., Inc. (The) ............................. 2,500 84,375
----------
160,062
----------
Retail (19.77%)
Costco Cos., Inc.* .................................... 1,300 81,981
Dayton Hudson Corp. ................................... 3,700 179,450
Dollar General Corp. .................................. 2,062 81,578
Home Depot, Inc. (The) ................................ 1,450 120,441
Meyer (Fred), Inc.* ................................... 1,600 68,000
Penney (J.C.) Co., Inc. ............................... 1,800 130,162
Rite Aid Corp. ........................................ 5,000 187,813
Sears, Roebuck & Co. .................................. 2,600 158,763
Starbucks Corp.* ...................................... 1,600 85,500
Wal-Mart Stores, Inc. ................................. 2,400 145,800
Walgreen Co. .......................................... 1,000 41,312
----------
1,280,800
----------
SEE NOTES TO FINANCIAL STATEMENTS.
85
<PAGE>
==============================FINANCIAL STATEMENTS==============================
John Hancock Funds - Declaration Trust -- V.A. Growth Fund
NUMBER OF MARKET
ISSUER, DESCRIPTION SHARES VALUE
- ------------------- ------ -----
Soap & Cleaning Preparations (2.72%)
Colgate-Palmolive Co. ................................. 2,000 $176,000
----------
Telecommunications (2.76%)
Nokia Corp. (ADR) (Finland) ........................... 1,000 72,563
WorldCom, Inc.* ....................................... 2,200 106,563
----------
179,126
----------
TOTAL COMMON STOCKS
(Cost $5,538,991) (96.85%) 6,272,698
------- ----------
INTEREST PAR VALUE
RATE (000s OMITTED)
---- --------------
SHORT-TERM INVESTMENTS
Joint Repurchase Agreement (4.39%)
Investment in a joint repurchase
agreement transaction with Toronto
Dominion Securities USA, Inc. -
Dated 06-30-98, due 07-01-98
(Secured by U.S. Treasury Bond, 9.125%
due 05-15-18, and U.S. Treasury Notes,
5.00% thru 8.75% due 12-31-98
thru 04-30-03) - Note B.................. 5.750% $284 284,000
----------
Corporate Savings Account (0.00%)
Investors Bank & Trust Company
Daily Interest Savings Account
Current Rate 4.95%................................ 103
----------
TOTAL SHORT-TERM INVESTMENTS (4.39%) 284,103
-------- ----------
TOTAL INVESTMENTS (101.24%) 6,556,801
-------- ----------
OTHER ASSETS AND LIABILITIES, NET (1.24%) (80,234)
-------- ----------
TOTAL NET ASSETS (100.00%) $6,476,567
======== ==========
* Non-income producing security.
The percentage shown for each investment category is the total of that category
as a percentage of the net assets of the Fund.
SEE NOTES TO FINANCIAL STATEMENTS.
86
<PAGE>
==============================FINANCIAL STATEMENTS==============================
John Hancock Funds - Declaration Trust -- V.A. Growth & Income Fund
Schedule of Investments
June 30, 1998 (Unaudited)
- --------------------------------------------------------------------------------
The Schedule of Investments is a complete list of all securities owned by the V.
A. Growth & Income Fund on June 30, 1998. It's divided into two main categories:
common stocks and short-term investments. Common stocks are further broken down
by industry groups. Short-term investments, which represent the Fund's "cash"
position, are listed last.
NUMBER OF MARKET
ISSUER, DESCRIPTION SHARES VALUE
- ------------------- ------ -----
COMMON STOCKS
Aerospace (0.35%)
Northrop Grumman Corp. ................................ 148 $15,263
United Technologies Corp. ............................. 152 14,060
----------
29,323
----------
Automobile / Trucks (0.07%)
Lear Corp.* ........................................... 119 6,106
----------
Banks - United States (3.40%)
Citicorp .............................................. 102 15,223
PNC Bank Corp. ........................................ 5,000 269,062
----------
284,285
----------
Beverages (0.31%)
Anheuser-Busch Cos., Inc. ............................. 557 26,283
----------
Building (2.00%)
Hussmann International, Inc. .......................... 9,000 167,062
----------
Business Services - Misc (0.89%)
ACNielsen Corp. * ..................................... 1,091 27,548
Block, H & R, Inc. .................................... 434 18,282
Diebold, Inc. ......................................... 1,000 28,875
----------
74,705
----------
Chemicals (3.56%)
Solutia, Inc. ......................................... 10,375 297,633
----------
Computers (6.11%)
Bay Networks, Inc.* ................................... 292 9,417
Computer Associates International, Inc. ............... 1,509 83,844
Computer Sciences Corp.* .............................. 452 28,928
Electronic Data Systems Corp. ......................... 9,000 360,000
International Business Machines Corp. ................. 255 29,277
----------
511,466
----------
Electronics (2.73%)
SCI Systems, Inc.* .................................... 6,070 228,384
----------
Energy (0.14%)
CalEnergy Co., Inc.* .................................. 399 11,995
----------
Finance (4.59%)
Astoria Financial Corp. ............................... 373 19,955
Charter One Financial, Inc. ........................... 1,212 40,829
FIRSTPLUS Financial Group, Inc.* ...................... 116 4,176
Heller Financial, Inc.* ............................... 100 3,000
Morgan Stanley, Dean Witter, Discover & Co. ........... 286 26,133
Safeguard Scientifics, Inc.* .......................... 4,200 175,087
Sovereign Bancorp., Inc. .............................. 1,348 22,031
TCF Financial Corp. ................................... 3,150 92,925
----------
384,136
----------
Food (0.07%)
IBP, Inc. ............................................. 306 5,546
----------
Insurance (16.66%)
Ace, Ltd. (Bermuda) ................................... 5,094 198,666
Allstate Corp. (The) .................................. 282 25,821
Everest Reinsurance Holdings, Inc. .................... 4,000 153,750
Executive Risk, Inc. .................................. 3,000 221,250
Financial Security Assurance Holdings Ltd. ............ 260 15,275
Lincoln National Corp. ................................ 1,600 146,200
Mercury General Corp. ................................. 3,437 221,472
Mitsui Marine and Fire Insurance Co, Ltd. (Japan) ..... 18,000 90,398
PMI Group, Inc. (The) ................................. 1,200 88,050
Progressive Corp. ..................................... 405 57,105
Reinsurance Group of America, Inc. .................... 2,500 147,812
Travelers Group, Inc. ................................. 466 28,251
----------
1,394,050
----------
Leisure (2.83%)
Galileo International, Inc. ........................... 5,185 233,649
Hilton Hotels Corp. ................................... 100 2,850
----------
236,499
----------
Media (12.80%)
Cable Michigan, Inc. * ................................ 784 30,576
Central Newspapers, Inc. (Class A) .................... 2,300 160,425
Harcourt General, Inc. ................................ 2,349 139,765
Scripps (E.W.) Co. (The) (Class A) .................... 6,000 328,875
Viacom, Inc. (Class B)* ............................... 148 8,621
Washington Post Co. (The) (Class B) ................... 700 403,200
----------
1,071,462
----------
Medical (2.88%)
American Home Products Corp. .......................... 522 27,013
Becton, Dickinson & Co. ............................... 172 13,351
Johnson & Johnson ..................................... 186 13,718
Lilly (Eli) & Co. ..................................... 318 21,008
Pharmacia & Upjohn, Inc. .............................. 325 14,991
Shire Pharmaceuticals Group PLC (United Kingdom)* ..... 4,000 28,164
Warner-Lambert Co. .................................... 678 47,036
Wellpoint Health Networks, Inc.* ...................... 1,020 75,480
----------
240,761
----------
Mortgage Banking (0.30%)
Fannie Mae ............................................ 201 12,211
Federal Home Loan Mortgage Corp. ...................... 267 12,566
----------
24,777
----------
Oil & Gas (11.17%)
British Petroleum Co. PLC, American Depositary
Receipts (ADR) (United Kingdom) ...................... 242 21,357
Camco International, Inc. ............................. 5,000 389,375
El Paso Natural Gas Co. ............................... 240 9,180
Mobil Corp. ........................................... 272 20,842
Phillips Petroleum Co. ................................ 174 8,385
Triton Energy Ltd.* ................................... 13,300 474,644
YPF Sociedad Anonima (ADR) (Argentina) ................ 352 10,582
----------
934,365
----------
Retail (3.03%)
McDonald's Corp. ...................................... 493 34,017
Penney (J.C.) Co., Inc. ............................... 191 13,812
Sysco Corp. ........................................... 544 13,940
Tiffany & Co. ......................................... 3,500 168,000
Wal-Mart Stores, Inc. ................................. 389 23,632
----------
253,401
----------
SEE NOTES TO FINANCIAL STATEMENTS.
87
<PAGE>
==============================FINANCIAL STATEMENTS==============================
John Hancock Funds - Declaration Trust -- V.A. Growth & Income Fund
NUMBER OF MARKET
ISSUER, DESCRIPTION SHARES VALUE
- ------------------- ------ -----
Telecommunications (1.34%)
Commonwealth Telephone Enterprises, Inc.* ............. 1,500 $39,562
Lucent Technologies, Inc. ............................. 382 31,778
MCI Communications Corp. .............................. 406 23,599
Southern New England Telecommunications Corp. ......... 125 8,188
360(degree) Communications Co.* ....................... 275 8,800
----------
111,927
----------
Tobacco (0.24%)
Philip Morris Cos., Inc. .............................. 520 20,475
----------
Transport (7.91%)
Burlington Northern Santa Fe Corp. .................... 133 13,059
GATX Corp. ............................................ 4,336 190,242
KLM Royal Dutch Airlines N.V. (Netherlands) ........... 10,900 446,219
Northwest Airlines Corp. (Class A)* ................... 328 12,649
----------
662,169
----------
Utilities (5.07%)
CMS Energy Corp. ...................................... 370 16,280
Duke Energy Corp. ..................................... 283 16,768
MarketSpan Corp.* ..................................... 463 13,861
New England Electric System ........................... 91 3,936
Niagara Mohawk Power Corp.* ........................... 25,000 373,437
----------
424,282
----------
TOTAL COMMON STOCKS
(Cost $7,051,373) (88.45%) 7,401,092
------- ---------
INTEREST PAR VALUE MARKET
ISSUER, DESCRIPTION RATE (000s OMITTED) VALUE
- ------------------- ---- -------------- -----
SHORT-TERM INVESTMENTS
Joint Repurchase Agreement (0.66%)
Investment in a joint repurchase agreement
transaction with Toronto Dominion
Securities USA, Inc. Dated 06-30-98,
due 07-01-98 (Secured by U.S. Treasury
Bond, 9.125% due 05-15-18, and U.S.
Treasury Notes, 5.00% thru 8.75% due
12-31-98 thru 04-30-03) - Note B.......... 5.750% $55 $55,000
----------
Short-Term Note (26.29%)
Federal Home Loan Bank
due 07-01-98............................. 5.400 2,200 2,199,670
----------
Corporate Savings Account (0.00%)
Investors Bank & Trust Company
Daily Interest Savings Account
Current Rate 4.95%................................ 283
----------
TOTAL SHORT-TERM INVESTMENTS (26.95%) 2,254,953
-------- ----------
TOTAL INVESTMENTS (115.40%) 9,656,045
-------- ----------
OTHER ASSETS AND LIABILITIES, NET (15.40%) (1,288,807)
-------- ----------
TOTAL NET ASSETS (100.00%) $8,367,238
======== ==========
* Non-income producing security.
The percentage shown for each investment category is the total of that category
as a percentage of the net assets of the Fund.
SEE NOTES TO FINANCIAL STATEMENTS.
88
<PAGE>
==============================FINANCIAL STATEMENTS==============================
John Hancock Funds - Declaration Trust -- V.A. Independence Equity Fund
Schedule of Investments
June 30, 1998 (Unaudited)
- --------------------------------------------------------------------------------
The Schedule of Investments is a complete list of all securities owned by the V.
A. Independence Equity Fund on June 30, 1998. 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
- ------------------- ------ -----
COMMON STOCKS
Advertising (0.22%)
Omnicom Group, Inc. ................................... 700 $34,913
----------
Aerospace (3.57%)
Goodrich (B.F.) Co. ................................... 2,100 104,213
Northrop Grumman Corp. ................................ 200 20,625
Sundstrand Corp. ...................................... 1,300 74,425
United Technologies Corp. ............................. 4,100 379,250
----------
578,513
----------
Automobile / Trucks (2.81%)
Chrysler Corp. ........................................ 900 50,737
Dana Corp. ............................................ 800 42,800
Ford Motor Co. ........................................ 4,300 253,700
Lear Corp.* ........................................... 1,300 66,706
Ryder System, Inc. .................................... 1,300 41,031
----------
454,974
----------
Banks - United States (7.98%)
BankAmerica Corp. ..................................... 1,900 164,231
Chase Manhattan Corp. ................................. 600 45,300
Citicorp .............................................. 900 134,325
Comerica, Inc. ........................................ 3,400 225,250
First Union Corp. ..................................... 4,900 285,425
NationsBank Corp. ..................................... 3,000 229,500
Norwest Corp. ......................................... 5,600 209,300
----------
1,293,331
----------
Beverages (1.96%)
PepsiCo, Inc. ......................................... 7,700 317,144
----------
Building (0.49%)
Masco Corp. ........................................... 1,300 78,650
----------
Chemicals (1.84%)
Air Products & Chemicals, Inc. ........................ 6,200 248,000
Millennium Chemicals, Inc. ............................ 1,500 50,813
----------
298,813
----------
Computers (7.11%)
Autodesk, Inc. ........................................ 1,800 69,525
Cadence Design Systems, Inc.* ......................... 1,000 31,250
Cisco Systems, Inc.* .................................. 2,100 193,331
Computer Associates International, Inc. ............... 1,700 94,456
Hewlett-Packard Co. ................................... 1,500 89,813
International Business Machines Corp. ................. 600 68,888
Microsoft Corp.* ...................................... 4,000 433,500
Oracle Corp.* ......................................... 1,650 40,528
Parametric Technology Corp.* .......................... 2,100 56,963
Sun Microsystems, Inc.* ............................... 1,700 73,844
----------
1,152,098
----------
Cosmetics & Personal Care (1.34%)
Avon Products, Inc. ................................... 1,500 116,250
Dial Corp. (The) ...................................... 3,100 80,406
Revlon, Inc. (Class A)* ............................... 400 20,550
----------
217,206
----------
Diversified Operations (2.53%)
National Service Industries, Inc. ..................... 700 35,613
Ogden Corp. ........................................... 2,600 71,988
Textron, Inc. ......................................... 800 57,350
Tyco International Ltd. ............................... 3,900 245,700
----------
410,651
----------
Electronics (5.42%)
General Electric Co. .................................. 4,700 427,700
Honeywell, Inc. ....................................... 400 33,425
Intel Corp. ........................................... 3,700 274,263
Linear Technology Corp. ............................... 900 54,281
Maxim Intergrated Products, Inc.* ..................... 1,500 47,531
Parker Hannifin Corp. ................................. 1,100 41,938
----------
879,138
----------
Finance (2.00%)
American Express Co. .................................. 300 34,200
Associates First Capital Corp. (Class A) .............. 1,400 107,625
Morgan Stanley, Dean Witter, Discover & Co. ........... 2,000 182,750
----------
324,575
----------
Food (1.68%)
Flowers Industries, Inc. .............................. 1,900 38,831
General Mills, Inc. ................................... 900 61,537
Heinz (H.J.) Co. ...................................... 1,900 106,638
Quaker Oats Co. ....................................... 1,200 65,925
----------
272,931
----------
Household (0.23%)
Tupperware Corp. ...................................... 1,300 36,562
----------
Instruments - Scientific (0.27%)
Perkin-Elmer Corp. .................................... 700 43,531
----------
Insurance (9.38%)
Allstate Corp. (The) .................................. 2,300 210,594
American International Group, Inc. .................... 1,750 255,500
CIGNA Corp. ........................................... 600 41,400
Equitable Companies., Inc. (The) ...................... 600 44,962
General Re Corp. ...................................... 300 76,050
Hartford Financial Services Group, Inc. (The) ......... 2,500 285,938
Marsh & McLennan Companies., Inc. ..................... 2,700 163,181
Travelers Group, Inc. ................................. 5,900 357,687
Travelers Property Casualty Corp. (Class A) ........... 2,000 85,750
----------
1,521,062
----------
Machinery (0.57%)
Cooper Industries, Inc. ............................... 1,000 54,937
Deere & Co. ........................................... 700 37,012
----------
91,949
----------
Media (0.76%)
Viacom, Inc. (Class B)* ............................... 2,100 122,325
----------
Medical (11.38%)
Abbott Laboratories ................................... 3,600 147,150
Becton Dickinson & Co. ................................ 1,400 108,675
Bristol-Myers Squibb Co. .............................. 2,200 252,862
Cardinal Health, Inc. ................................. 2,300 215,625
Glaxo Wellcome PLC, (American Depositary
Receipts), (ADR) (United Kingdom) .................... 500 29,906
Guidant Corp. ......................................... 1,600 114,100
SEE NOTES TO FINANCIAL STATEMENTS.
89
<PAGE>
==============================FINANCIAL STATEMENTS==============================
John Hancock Funds - Declaration Trust -- V.A. Independence Equity Fund
NUMBER OF MARKET
ISSUER, DESCRIPTION SHARES VALUE
- ------------------- ------ -----
Medical (continued)
Health Management Associates, Inc. (Class A)* ......... 1,400 $46,813
HEALTHSOUTH Corp.* .................................... 4,100 109,419
Johnson & Johnson ..................................... 1,000 73,750
Merck & Co., Inc. ..................................... 1,200 160,500
Mylan Laboratories, Inc. .............................. 1,400 42,088
Pfizer, Inc. .......................................... 2,000 217,375
Schering-Plough Corp. ................................. 1,300 119,112
Tenet Healthcare Corp.* ............................... 1,200 37,500
Universal Health Services, Inc. (Class B)* ............ 600 35,025
Warner-Lambert Co. .................................... 1,200 83,250
Wellpoint Health Networks, Inc.* ...................... 700 51,800
----------
1,844,950
----------
Mortgage Banking (1.57%)
Fannie Mae ............................................ 4,200 255,150
----------
Office (3.17%)
Avery Dennison Corp. .................................. 500 26,875
Pitney Bowes, Inc. .................................... 5,900 283,938
Xerox Corp. ........................................... 2,000 203,250
----------
514,063
----------
Oil & Gas (5.15%)
Baker Hughes, Inc. .................................... 1,400 48,387
British Petroleum Co. PLC (ADR) (United Kingdom) ...... 1,500 132,375
Dresser Industries, Inc. .............................. 3,400 149,812
El Paso Natural Gas Co. ............................... 2,000 76,500
Halliburton Co. ....................................... 2,100 93,581
Mobil Corp. ........................................... 800 61,300
Phillips Petroleum Co. ................................ 2,100 101,194
Schlumberger, Ltd. .................................... 800 54,650
Sun Co., Inc. ......................................... 1,600 62,100
USX - Marathon Group .................................. 1,600 54,900
----------
834,799
----------
Paper & Paper Products (0.41%)
Fort James Corp. ...................................... 1,500 66,750
----------
Pollution Control (1.08%)
Browning-Ferris Industries, Inc. ...................... 1,200 41,700
USA Waste Services, Inc.* ............................. 2,700 133,312
----------
175,012
----------
Retail (4.80%)
Albertson's, Inc. ..................................... 3,100 160,619
Costco Cos., Inc.* .................................... 500 31,531
Dayton Hudson Corp. ................................... 1,200 58,200
Home Depot, Inc. (The) ................................ 4,100 340,556
Lowe's Companies., Inc. ............................... 2,400 97,350
Staples, Inc.* ........................................ 1,100 31,831
TJX Companies., Inc. .................................. 2,400 57,900
----------
777,987
----------
Rubber - Tires & Misc. (1.19%)
Goodyear Tire & Rubber Co. (The) ...................... 3,000 193,313
----------
Soap & Cleaning Preparations (3.48%)
Procter & Gamble Co. (The) ............................ 6,200 564,588
----------
Telecommunications (4.61%)
AT&T Corp. ............................................ 3,500 199,937
Bell Atlantic Corp. ................................... 4,000 182,500
Harris Corp. .......................................... 1,000 44,688
Lucent Technologies, Inc. ............................. 3,300 274,519
Northern Telecom Ltd. (Canada) ........................ 800 45,400
----------
747,044
----------
Textile (0.92%)
Jones Apparel Group, Inc.* ............................ 1,400 51,188
Liz Claiborne, Inc. ................................... 900 47,025
Tommy Hilfiger Corp.* ................................. 800 50,000
----------
148,213
----------
Tobacco (0.68%)
Philip Morris Companies., Inc. ........................ 2,800 110,250
----------
Transport (2.77%)
Burlington Northern Santa Fe Corp. .................... 1,800 176,737
Delta Air Lines, Inc. ................................. 500 64,625
Northwest Airlines Corp. (Class A)* ................... 1,000 38,563
Southwest Airlines Co. ................................ 2,300 68,137
UAL Corp.* ............................................ 1,300 101,400
----------
449,462
----------
Utilities (5.27%)
Baltimore Gas & Electric Co. .......................... 700 21,744
Carolina Power & Light Co. ............................ 700 30,362
Consolidated Natural Gas Co. .......................... 400 23,550
Dominion Resources, Inc. .............................. 2,000 81,500
Florida Progress Corp. ................................ 2,600 106,925
FPL Group, Inc. ....................................... 1,800 113,400
GTE Corp. ............................................. 4,900 272,562
New Century Energies, Inc. ............................ 2,100 95,419
SBC Communications, Inc. .............................. 2,700 108,000
----------
853,462
----------
TOTAL COMMON STOCKS
(Cost $13,498,567) (96.64%) 15,663,409
------- ----------
INTEREST PAR VALUE
RATE (000s OMITTED)
---- --------------
SHORT-TERM INVESTMENTS
Joint Repurchase Agreement (4.17%)
Investment in a joint repurchase
agreement transaction with Toronto
Dominion Securities USA, Inc. -
Dated 06-30-98, due 07-01-98
(Secured by U.S. Treasury Bond, 9.125%
due 05-15-18, and U.S. Treasury Notes,
5.00% thru 8.75% due 12-31-98
thru 04-30-03) - Note B.................. 5.750% $676 676,000
-----------
Corporate Savings Account (0.00%)
Investors Bank & Trust Company
Daily Interest Savings Account
Current Rate 4.95%....................... 181
-----------
TOTAL SHORT-TERM INVESTMENTS (4.17%) 676,181
-------- -----------
TOTAL INVESTMENTS (100.81%) 16,339,590
-------- -----------
OTHER ASSETS AND LIABILITIES, NET (0.81%) (131,160)
-------- -----------
TOTAL NET ASSETS (100.00%) $16,208,430
======== ===========
* 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.
90
<PAGE>
==============================FINANCIAL STATEMENTS==============================
John Hancock Funds - Declaration Trust -- V.A. Sovereign Investors Fund
Schedule of Investments
June 30, 1998 (Unaudited)
Per share earnings and dividends and their compound growth rates are shown for
the most recently reported ten year periods on common stocks.
- --------------------------------------------------------------------------------
The Schedule of Investments is a complete list of all securities owned by the V.
A. Sovereign Investors Fund on June 30, 1998. 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.
<TABLE>
<CAPTION>
COMPOUND
NUMBER GROWTH MARKET
OF SHARES RATE VALUE
- --------- ---- -----
<C> <S> <C> <C>
COMMON STOCKS (83.47%)
Advertising (0.89%)
3,400 Interpublic Group, Inc. @ 60 11/16................................................ $206,338
----------
One of the largest advertising agencies in the world
Earnings P/S...............$ .70, .79, .78, .88, .93, 1.13, 1.26, 1.12, 1.79, 2.00 12.4%
Dividends P/S...................$ .17, .21, .25, .27, .30, .33, .36, .40, .44, .50 12.7%
Price/Earnings Ratio..........................................................30.4
Banks (8.05%)
5,860 Banc One Corp. @ 55 13/16......................................................... 327,061
Ohio-based bank holding company
Earnings P/S..........$ 1.29, 1.37, 1.51, 1.75, 1.96, 2.09, 1.80, 2.20, 2.52, 1.99 4.9%
Dividends P/S...............$ .46, .52, .57, .63, .73, .89, 1.02, 1.12, 1.24, 1.38 13.0%
Price/Earnings Ratio..........................................................16.3
2,000 BankAmerica Corp. @ 86 7/16....................................................... 172,875
Third largest bank holding company in the U.S.
Earnings P/S...........$ .76, 1.03, 2.08, 2.39, 2.12, 2.44, 2.78, 3.42, 3.86, 4.60 22.1%
Dividends P/S................$ .30, .50, .60, .65, .70, .80, .92, 1.08, 1.22, 1.38 18.5%
Price/Earnings Ratio..........................................................20.8
1,300 BB&T Corp. @ 67 5/8............................................................... 87,912
Operates the second largest banking network in North Carolina
Earnings P/S...........$ 1.13, 1.19, 1.06, 1.51, 2.03, .13, 1.61, 2.45, 2.55, 2.87 10.9%
Dividends P/S.................$ .36, .38, .42, .46, .50, .64, .74, .86, 1.00, 1.16 13.9%
Price/Earnings Ratio..........................................................24.3
9,000 First Tennessee National Corp. @ 31 9/16.......................................... 284,062
Tennessee-based bank holding company
Earnings P/S................$ .31, .50, .61, .75, .81, .88, 1.04, 1.24, 1.36, 1.60 20.0%
Dividends P/S...................$ .21, .24, .27, .29, .32, .38, .43, .49, .55, .62 12.8%
Price/Earnings Ratio..........................................................20.4
3,200 First Union Corp. @ 58 1/4........................................................ 186,400
North Carolina-based bank holding company
Earnings P/S..........$ 1.38, 1.20, 1.26, 1.28, 1.86, 2.09, 2.25, 2.38, 2.59, 2.99 9.0%
Dividends P/S.................$ .43, .50, .54, .56, .64, .75, .86, .98, 1.10, 1.22 12.3%
Price/Earnings Ratio..........................................................38.0
5,000 KeyCorp. @ 35 5/8................................................................. 178,125
Bank holding company with offices from coast to coast
Earnings P/S..........$ 1.05, 1.16, 1.18, 1.23, 1.20, 1.43, 1.70, 1.71, 1.67, 2.07 7.8%
Dividends P/S...................$ .34, .40, .44, .46, .49, .56, .64, .72, .76, .84 10.6%
Price/Earnings Ratio..........................................................16.1
6,500 NationsBank Corp. @ 76 1/2........................................................ 497,250
Largest superregional bank in the Southeast
Earnings P/S............$ 2.22, 1.31, .38, .70, 2.21, 2.71, 3.10, 3.63, 4.05, 3.83 6.2%
Dividends P/S................$ .47, .55, .71, .74, .76, .82, .94, 1.04, 1.20, 1.37 12.6%
Price/Earnings Ratio..........................................................22.2
3,500 Norwest Corp. @ 37 3/8............................................................ 130,813
The 12th largest bank holding company in the U.S.
Earnings P/S...............$ .63, .22, .23, .74, .77, 1.00, 1.26, 1.43, 1.60, 1.83 12.6%
Dividends P/S...................$ .16, .19, .21, .24, .27, .32, .38, .45, .53, .62 16.2%
Price/Earnings Ratio..........................................................20.9
----------
1,864,498
----------
Beverages (0.80%)
4,500 PepsiCo, Inc. @ 41 3/16........................................................... 185,344
----------
Second largest soft drink company
Earnings P/S................$ .57, .69, .70, .69, .82, 1.00, 1.14, 1.05, .72, 1.02 6.7%
Dividends P/S...................$ .12, .15, .18, .21, .23, .28, .32, .36, .41, .47 16.4%
Price/Earnings Ratio..........................................................41.5
Building (2.72%)
10,400 Masco Corp. @ 60 1/2.............................................................. 629,200
----------
Manufactures buildings, home improvement and consumer products
Earnings P/S.......$ 2.03, 1.42, .91, .57, .46, 1.30, 1.48, 1.14, 1.20, 2.01, 2.53 2.5%
Dividends P/S...................$ .44, .50, .54, .57, .61, .65, .69, .73, .77, .81 7.0%
Price/Earnings Ratio..........................................................25.0
Chemicals (5.61%)
14,000 Air Products & Chemicals, Inc. @ 40............................................... 560,000
Producer of industrial gases
Earnings P/S...........$ 1.01, 1.04, 1.11, 1.16, 1.25, .63, 1.42, 1.87, 1.80, 2.31 9.6%
Dividends P/S...................$ .28, .32, .35, .38, .42, .45, .48, .51, .54, .58 8.4%
Price/Earnings Ratio..........................................................16.9
27,000 RPM, Inc. @ 17.................................................................... 459,000
Manufacturer of specialty chemicals and coatings to waterproof and rustproof structures
Earnings P/S....................$ .37, .34, .32, .40, .35, .58, .65, .71, .66, .84 9.5%
Dividends P/S...................$ .20, .22, .24, .27, .29, .31, .34, .36, .39, .42 8.6%
Price/Earnings Ratio..........................................................19.2
8,000 Sigma - Aldrich Corp. @ 35 1/8.................................................... 281,000
Manufacturer of biochemical and organic products used for research and diagnostics
Earnings P/S...............$ .65, .72, .59, .84, .99, 1.11, 1.14, 1.36, 1.52, 1.69 12.8%
Dividends P/S...................$ .08, .09, .10, .11, .13, .15, .17, .19, .23, .26 14.0%
Price/Earnings Ratio..........................................................20.5
----------
1,300,000
----------
Computers (3.07%)
4,000 Automatic Data Processing, Inc. @ 72 7/8.......................................... 291,500
Largest independent computing services firm in the U.S.
Earnings P/S..............$ .63, .72, .79, .90, 1.01, 1.15, 1.34, 1.53, 1.74, 1.94 13.3%
Dividends P/S...................$ .13, .15, .17, .20, .23, .26, .29, .35, .42, .48 15.6%
Price/Earnings Ratio..........................................................38.1
7,000 Hewlett-Packard Co. @ 59 7/8...................................................... 419,125
Manufactures and services electronic measurement, analysis and computation instruments
Earnings P/S...............$ .88, .77, .83, .93, .86, 1.31, 1.92, 2.63, 2.69, 2.88 14.1%
Dividends P/S...................$ .07, .10, .11, .13, .20, .24, .29, .38, .46, .54 25.5%
Price/Earnings Ratio..........................................................20.7
----------
710,625
----------
Containers (3.90%)
10,700 Bemis Company, Inc. @ 40 7/8...................................................... 437,362
Producer of a broad range of flexible packaging and equipment and pressure sensitive materials
Earnings P/S..............$ .90, .99, .97, 1.08, 1.10, .94, 1.45, 1.73, 1.86, 2.05 9.6%
Dividends P/S...................$ .22, .30, .36, .42, .46, .50, .54, .64, .72, .80 15.4%
Price/Earnings Ratio..........................................................19.4
15,400 Sonoco Products Corp. @ 30 1/4.................................................... 465,850
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...................$ .28, .35, .39, .40, .43, .46, .48, .54, .59, .64 9.6%
Price/Earnings Ratio..........................................................16.5
----------
903,212
----------
Diversified Operations (2.05%)
3,300 DuPont (E.I.) De Nemours & Co. @ 74 5/8........................................... 246,263
Nation's largest chemical manufacturer
Earnings P/S.............$ 1.77, 1.70, 1.69, .92, .76, .52, 2.23, 2.90, 3.35, 2.02 1.5%
Dividends P/S................$ .62, .73, .81, .84, .87, .88, .91, 1.02, 1.12, 1.23 7.9%
Price/Earnings Ratio..........................................................33.7
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
91
<PAGE>
==============================FINANCIAL STATEMENTS==============================
John Hancock Funds - Declaration Trust -- V.A. Sovereign Investors Fund
<TABLE>
<CAPTION>
COMPOUND
NUMBER GROWTH MARKET
OF SHARES RATE VALUE
- --------- ---- -----
<C> <S> <C> <C>
Diversified Operations (continued)
4,000 Johnson Controls, Inc. @ 57 3/16.................................................. $228,750
Manufactures automotive systems and building controls
Earnings P/S..........$ 1.28, 1.07, 1.04, 1.22, 1.50, 1.72, 2.03, 2.35, 2.21, 3.25 10.9%
Dividends P/S...................$ .56, .59, .61, .63, .65, .69, .74, .79, .83, .88 5.2%
Price/Earnings Ratio..........................................................17.3
----------
475,013
----------
Electronics (6.54%)
8,700 Emerson Electric Co. @ 60 3/8..................................................... 525,262
Produces and sells electrical/electronic products and systems
Earnings P/S..........$ 1.32, 1.38, 1.40, 1.44, 1.53, 1.91, 1.95, 2.15, 2.39, 2.66 8.1%
Dividends P/S.................$ .52, .58, .64, .67, .70, .74, .80, .92, 1.01, 1.11 8.8%
Price/Earnings Ratio..........................................................23.4
600 General Electric Co. @ 91......................................................... 54,600
Dominant force in home appliances, electrical power and financial services
Earnings P/S..........$ 1.09, 1.21, 1.26, 1.28, 1.12, 1.57, 1.84, 2.08, 2.34, 2.67 10.5%
Dividends P/S..................$ .35, .41, .47, .51, .56, .63, .72, .82, .92, 1.04 12.9%
Price/Earnings Ratio..........................................................35.1
11,200 Grainger (W.W.), Inc. @ 49 13/16.................................................. 557,900
Leading distributor of electrical equipment
Earnings P/S..........$ 1.10, 1.15, 1.16, 1.19, 1.35, 1.52, 1.31, 1.85, 2.07, 2.37 8.9%
Dividends P/S...................$ .22, .25, .28, .31, .33, .35, .39, .45, .49, .53 10.3%
Price/Earnings Ratio..........................................................21.6
4,500 Honeywell, Inc. @ 83 9/16......................................................... 376,031
Makes automation and control systems
Earnings P/S..........$ 3.12, 2.45, 2.39, 2.66, 2.52, 2.34, 2.22, 2.70, 3.27, 3.87 2.4%
Dividends P/S................$ .51, .55, .69, .77, .84, .91, .97, 1.01, 1.06, 1.09 8.8%
Price/Earnings Ratio..........................................................22.9
----------
1,513,793
----------
Food (1.74%)
9,300 Archer Daniels Midland Co. @ 19 3/8............................................... 180,188
Processes and merchandises agricultural products
Earnings P/S..................$ .65, .74, .70, .75, .83, .77, 1.19, 1.33, .69, .83 2.8%
Dividends P/S.........$ .028, .033, .046, .048, .050, .053, .063, .110, .184, .193 23.9%
Price/Earnings Ratio..........................................................21.9
4,000 Sara Lee Corp. @ 55 15/16......................................................... 223,750
Manufactures brand name packaged foods and consumer products
Earnings P/S...........$ .88, .31, 1.03, 1.49, 1.36, 1.47, .52, 1.76, 1.99, (1.20) NMF
Dividends P/S....................$ .32, .38, .43, .48, .52, .60, .65, .70 .78, .86 11.6%
Price/Earnings Ratio..........................................................N.A.
----------
403,938
----------
Furniture (1.73%)
16,000 Leggett & Platt, Inc. @ 25........................................................ 400,000
----------
Produces intermediate products for the home furnishings industry
Earnings P/S...................$ .33, .21, .17, .32, .44, .56, .73, .81, .90, 1.13 14.7%
Dividends P/S.................$ .08, .095, .105, .11, .12, .14, .16, .19, .23, .27 14.5%
Price/Earnings Ratio..........................................................24.3
Insurance (9.73%)
7,400 AFLAC Corp. @ 30 5/16............................................................. 224,312
Global specialty insurer
Earnings P/S................$ .27, .39, .41, .52, .63, .82, 1.00, 1.20, 1.44, 2.42 27.6%
Dividends P/S...................$ .07, .08, .09, .10, .12, .13, .15, .17, .20, .23 14.1%
Price/Earnings Ratio..........................................................15.4
300 American International Group @ 146................................................ 43,800
Broadly based property-casualty insurance organization
Earnings P/S..........$ 1.97, 2.05, 2.06, 2.20, 2.36, 2.73, 3.15, 3.67, 4.27, 4.91 10.7%
Dividends P/S...................$ .08, .10, .12, .14, .16, .17, .19, .22, .25, .28 14.9%
Price/Earnings Ratio..........................................................30.4
5,000 Chubb Corp. @ 80 3/8.............................................................. 401,875
Property and casualty insurance
Earnings P/S..........$ 2.46, 3.04, 3.15, 3.22, 3.49, 1.55, 3.39, 3.91, 3.09, 4.51 7.0%
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. @ 253 1/2........................................................ 88,725
Broadly based re-insurance organization
Earnings P/S.......$ 6.52, 6.89, 6.96, 7.44, 7.07, 7.38, 9.02, 10.59, 11.08, 12.56 7.6%
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..........................................................20.4
10,000 Reliastar Financial Corp. @ 48.................................................... 480,000
Financial services company engaged in life/health insurance and consumer finance
Earnings P/S.............$ 1.00, .98, .98, .83, 1.13, 1.42, 1.74, 2.32, 2.55, 2.66 11.5%
Dividends P/S...................$ .29, .30, .32, .35, .37, .39, .44, .49, .55, .61 8.6%
Price/Earnings Ratio..........................................................18.9
5,750 Travelers Group, Inc. @ 60 5/8.................................................... 348,594
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..........................................................23.6
12,000 UNUM Corp. @ 55 1/2............................................................... 666,000
Holding company for UNUM Life Insurance Company of America
Earnings P/S............$ .98, 1.15, 1.40, 1.65, 1.87, 2.01, .96, 1.99, 1.94, 2.52 11.1%
Dividends P/S...................$ .12, .14, .19, .25, .31, .38, .46, .52, .55, .57 18.9%
Price/Earnings Ratio..........................................................23.4
----------
2,253,306
----------
Leisure (1.19%)
7,000 Hasbro, Inc. @ 39 5/16............................................................ 275,188
----------
Designs, manufactures and markets toys, games and interactive software
Earnings P/S...............$ .55, .68, .70, .63, 1.36, 1.48, 1.32, 1.21, 1.56, .91 5.8%
Dividends P/S...................$ .05, .07, .08, .10, .13, .15, .18, .21, .25, .31 22.5%
Price/Earnings Ratio..........................................................43.9
Machinery (3.92%)
10,000 Dover Corp. @ 34 1/4.............................................................. 342,500
Manufactures a variety of specialized industrial products
Earnings P/S.................$ .57, .64, .61, .54, .58, .73, .97, 1.30, 1.73, 1.87 14.1%
Dividends P/S...................$ .16, .18, .19, .21, .22, .23, .25, .28, .32, .36 9.4%
Price/Earnings Ratio..........................................................18.0
13,300 Pentair, Inc. @ 42 1/2............................................................ 565,250
Manufactures enclosures for electrical, electronic, woodworking and power
tool equipment
Earnings P/S.............$ .99, .84, .89, 1.11, 1.11, 1.14, 1.32, 1.55, 1.93, 2.39 10.3%
Dividends P/S...................$ .22, .27, .29, .31, .33, .34, .36, .40, .50, .54 10.5%
Price/Earnings Ratio..........................................................17.4
----------
907,750
----------
Media (0.54%)
400 Gannett Co., Inc. @ 71 1/16....................................................... 28,425
Publishes 81 daily/50 nondaily newspapers,
operates 10 TV, 8 FM and 7 AM stations
Earnings P/S..........$ 1.24, 1.18, 1.11, 1.03, 1.24, 1.41, 1.67, 1.64, 2.37, 3.25 11.3%
Dividends P/S...................$ .51, .56, .61, .62, .63, .65, .67, .69, .71, .74 4.2%
Price/Earnings Ratio..........................................................22.2
1,200 McGraw-Hill Companies, Inc. @ 81 9/16............................................. 97,875
Provides informational products and services for business and industry
Earnings P/S............$ .41, 1.77, 1.73, 1.51, 1.60, .11, 2.04, 2.31, 4.98, 2.99 24.7%
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..........................................................27.8
----------
126,300
----------
Medical (8.77%)
6,000 Abbott Laboratories @ 40 7/8...................................................... 245,250
Major pharmaceutical and healthcare firm
Earnings P/S................$ .48, .56, .59, .69, .79, .89, 1.01, 1.14, 1.29, 1.44 13.0%
Dividends P/S...................$ .15, .17, .20, .24, .29, .33, .37, .41, .47, .53 15.1%
Price/Earnings Ratio..........................................................30.5
4,000 American Home Products @ 51 3/4................................................... 207,000
Manufactures pharmaceuticals and medical devices
Earnings P/S.............$ .89, 1.51, 1.53, .92, 1.13, 1.20, 1.74, .92, 1.55, 1.88 8.7%
Dividends P/S...................$ .45, .49, .54, .60, .67, .72, .74, .76, .79, .83 7.0%
Price/Earnings Ratio..........................................................26.3
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
92
<PAGE>
==============================FINANCIAL STATEMENTS==============================
John Hancock Funds - Declaration Trust -- V.A. Sovereign Investors Fund
<TABLE>
<CAPTION>
COMPOUND
NUMBER GROWTH MARKET
OF SHARES RATE VALUE
- --------- ---- -----
<C> <S> <C> <C>
Medical (continued)
4,600 Baxter International, Inc. @ 53 13/16............................................. $247,538
The company operates four divisions: renal, biotech, cardiovascular and
intravenous systems and international distribution
Earnings P/S.........$ 1.50, (.05), 1.91, 1.81, 1.73, (.70), 2.01, 1.50, .86, 2.39 5.3%
Dividends P/S................$ .47, .52, .60, .69, .80, .93, .95, 1.03, 1.11, 1.14 10.3%
Price/Earnings Ratio..........................................................22.9
5,000 Becton Dickinson & Co. @ 77 5/8................................................... 388,125
Manufactures broad line of medical supplies
Earnings P/S..........$ 1.00, 1.17, 1.20, 1.19, 1.32, 1.40, 1.67, 1.98, 2.35, 2.50 10.7%
Dividends P/S...................$ .22, .26, .28, .29, .31, .34, .38, .42, .48, .54 10.5%
Price/Earnings Ratio..........................................................34.2
4,000 Bristol-Myers Squibb Co. @ 114 15/16.............................................. 459,750
Produces pharmaceuticals, medical devices and non-prescription health products
Earnings P/S..........$ 1.70, 1.67, 1.75, 2.00, 1.53, 1.92, 1.95, 1.86, 2.93, 3.34 7.8%
Dividends P/S..........$ .84, 1.00, 1.06, 1.20, 1.38, 1.44, 1.46, 1.48, 1.50, 1.52 6.8%
Price/Earnings Ratio..........................................................35.8
6,000 Johnson & Johnson @ 73 3/4........................................................ 442,500
Major producer of prescription and non-prescription drugs, toiletries, medical
instruments and supplies
Earnings P/S.............$ .81, .86, .99, 1.12, 1.28, 1.41, 1.65, 1.94, 2.26, 2.54 13.5%
Dividends P/S...................$ .24, .28, .33, .39, .45, .51, .57, .64, .74, .85 15.1%
Price/Earnings Ratio..........................................................28.3
600 Lilly, Eli, Co. @ 66 1/16......................................................... 39,637
Manufactures and markets pharmaceutical products
Earnings P/S.............$ .80, .98, 1.02, 1.17, .65, .36, 1.09, 1.18, 1.43, (.27) NMF
Dividends P/S...................$ .29, .34, .41, .50, .55, .61, .63, .65, .69, .74 11.0%
Price/Earnings Ratio..........................................................N.A.
----------
2,029,800
----------
Office (2.29%)
11,000 Pitney Bowes, Inc. @ 48 1/8....................................................... 529,375
----------
Manufactures office automation equipment
Earnings P/S..............$ .57, 1.15, .68, .90, .99, 1.00, 1.17, 1.38, 1.63, 1.87 14.1%
Dividends P/S...................$ .23, .26, .30, .34, .39, .45, .52, .60, .69, .80 14.9%
Price/Earnings Ratio..........................................................13.5
Oil & Gas (2.87%)
2,700 Chevron Corp. @ 83 1/16........................................................... 224,269
One of the largest integrated, international oil companies with interest in
petrochemicals
Earnings P/S..........$ 2.81, 3.05, 3.18, 1.54, 3.57, 1.77, 2.70, 1.67, 4.32, 4.47 5.3%
Dividends P/S.........$ 1.28, 1.40, 1.48, 1.63, 1.65, 1.75, 1.85, 1.93, 2.08, 2.28 6.6%
Price/Earnings Ratio..........................................................18.3
600 Exxon Corp. @ 71 5/16............................................................. 42,788
Major integrated oil and gas company
Earnings P/S..........$ 2.15, 1.17, 2.37, 1.87, 1.85, 2.10, 2.24, 2.69, 3.12, 3.31 4.9%
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..........................................................21.7
5,200 Mobil Corp. @ 76 5/8.............................................................. 398,450
One of the largest integrated, international oil companies with interest in
petrochemicals and plastics
Earnings P/S..........$ 2.20, 2.30, 2.70, 1.60, 2.02, 2.60, 2.27, 3.07, 3.81, 3.94 6.7%
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..........................................................19.0
----------
665,507
----------
Retail (7.52%)
14,000 Dayton Hudson Corp. @ 48 1/2...................................................... 679,000
General merchandiser selling through Target and Marvyn stores
Earnings P/S............$ 1.15, .56, .93, .85, .65, .83, .85, .90, .74, 1.24, 1.88 14.4%
Dividends P/S...................$ .17, .19, .22, .24, .26, .27, .28, .29, .31, .33 7.6%
Price/Earnings Ratio..........................................................26.6
3,000 Home Depot, Inc. @ 83 1/16........................................................ 249,187
Operates a chain of retail building supply/home improvement "warehouse" stores
Earnings P/S....................$ .11, .12, .16, .22, .29, .36, .45, .54, .70, .85 25.5%
Dividends P/S.................$ .005, .01, .015, .02, .03, .04, .05, .07, .08, .10 39.5%
Price/Earnings Ratio..........................................................57.4
3,000 May Department Stores @ 65 1/2.................................................... 196,500
Department store retailer operating 365 stores in 30 states
Earnings P/S............1.75, 1.83, 1.99, 2.03, 2.42, 2.83, 2.96, 2.77, 2.97, 3.33 7.4%
Dividends P/S................$ .56, .63, .70, .73, .75, .81, .91, 1.01, 1.13, 1.20 8.8%
Price/Earnings Ratio..........................................................20.4
21,200 Sysco Corp. @ 25 5/8.............................................................. 543,250
Largest distributor of food service products
Earnings P/S....................$ .30, .37, .40, .45, .50, .58, .67, .74, .82, .93 5.0%
Dividends P/S..................$ .04, .045, .05, .07, .11, .14, .18, .22, .26, .30 25.1%
Price/Earnings Ratio..........................................................27.2
1,200 Wal-Mart Stores, Inc. @ 60 3/4.................................................... 72,900
Operates chain of discount department stores
Earnings P/S...............$ .48, .50, .59, .73, .90, 1.05, 1.20, 1.21, 1.38, 1.64 14.6%
Dividends P/S...................$ .04, .06, .07, .09, .11, .13, .17, .20, .21, .27 23.6%
Price/Earnings Ratio..........................................................39.1
----------
1,740,837
----------
Soap & Cleaning Preparations (0.40%)
3,000 Ecolab, Inc. @ 31................................................................. 93,000
----------
Develops and markets premium institutional cleansing, sanitizing and
maintenance products and services
Earnings P/S...................$ .03, .54, .46, .50, .52, .63, .64, .77, .92, 1.07 40.5%
Dividends P/S.................$ .16, .165, .17, .175, .18, .20, .23, .26, .29, .34 8.7%
Price/Earnings Ratio..........................................................30.6
Tobacco (0.85%)
5,000 Philip Morris Cos., Inc. @ 39 3/8................................................. 196,875
----------
Global tobacco, brewing and food company
Earnings P/S..........$ 1.06, 1.28, 1.33, 1.48, 1.88, 1.34, 1.90, 2.27, 2.66, 2.45 9.8%
Dividends P/S...............$ .34, .42, .52, .64, .78, .87, 1.01, 1.22, 1.47, 1.60 18.8%
Price/Earnings Ratio..........................................................16.3
Transport (0.54%)
5,000 C.H. Robinson Worldwide, Inc. @ 24 7/8............................................ 124,375
----------
Provides intermodal transportation services
Earnings P/S.............................................$ .28, .36, .52, .67, .78 NMF
Dividends P/S....$ .036, .045, .058, .062, .067, .073, .087, .108, .130, .185, .20 21.0%
Price/Earnings Ratio..........................................................25.5
Utilities (7.75%)
13,000 Ameritech Corp. @ 44 7/8.......................................................... 583,375
One of the world's largest communications companies
Earnings P/S..........$ 1.15, 1.18, 1.17, 1.15, 1.21, 1.15, 1.55, 1.72, 1.99, 2.06 6.7%
Dividends P/S................$ .69, .75, .81, .86, .89, .93, .97, 1.02, 1.08, 1.15 5.8%
Price/Earnings Ratio..........................................................22.9
1,500 Duke Energy Corp. @ 59 1/4........................................................ 88,875
Generates, transmits, distributes and sells electric energy in the Piedmont
sections of North and South Carolina
Earnings P/S..........$ 2.57, 2.40, 2.44, 2.44, 2.39, 2.96, 3.01, 3.11, 2.96, 2.92 1.4%
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..........................................................20.1
4,400 National Fuel Gas Co. @ 43 9/16................................................... 191,675
Integrated natural gas system serving N.Y., PA. and Ohio
Earnings P/S...........$ 1.93, 1.83, 1.95, 1.89, 1.88, 2.05, 2.27, 2.40, 2.96, .90 NMF
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..........................................................47.2
8,000 Northern States Power Co. @ 28 5/8................................................ 229,000
Provides electric, utility, and gas services to Mid-western states
Earnings P/S..........$ 1.62, 1.42, 1.39, 1.42, 1.25, 1.58, 1.74, 1.94, 1.89, 1.52 NMF
Dividends P/S.........$ 1.05, 1.10, 1.15, 1.20, 1.25, 1.28, 1.31, 1.34, 1.37, 1.40 3.2%
Price/Earnings Ratio..........................................................18.5
4,400 Questar Corp. @ 19 5/8............................................................ 86,350
Diversified holding company for Utah, Wyoming and Colorado natural gas
transmission, distribution and storage
Earnings P/S................$ .64, .73, .78, .77, 1.00, .99, .56, 1.12, 1.27, 1.27 7.9%
Dividends P/S...................$ .47, .48, .49, .51, .52, .55, .57, .58, .60, .62 3.1%
Price/Earnings Ratio..........................................................14.8
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
93
<PAGE>
==============================FINANCIAL STATEMENTS==============================
John Hancock Funds - Declaration Trust -- V.A. Sovereign Investors Fund
<TABLE>
<CAPTION>
COMPOUND
NUMBER GROWTH MARKET
OF SHARES RATE VALUE
- --------- ---- -----
<C> <S> <C> <C>
Utilities (continued)
10,000 SBC Communications, Inc. @ 40..................................................... $400,000
Provides telephone service throughout the United States and internationally
Earnings P/S...........$ .88, .91, .92, .90, 1.09, (1.37), 1.53, (1.66), 1.77, .80 NMF
Dividends P/S...................$ .61, .65, .68, .71, .73, .75, .78, .82, .85, .89 4.3%
Price/Earnings Ratio..........................................................48.1
8,000 Teco Energy, Inc. @ 26 13/16...................................................... 214,500
Holding company for Tampa Electric, which provides regulated electric utility
services in Florida
Earnings P/S..........$ 1.21, 1.23, 1.22, 1.28, 1.29, 1.38, 1.34, 1.68, 1.68, 1.46 5.9%
Dividends P/S...............$ .70, .75, .80, .85, .90, .95, 1.00, 1.05, 1.11, 1.17 2.1%
Price/Earnings Ratio..........................................................18.3
----------
1,793,775
----------
TOTAL COMMON STOCKS
(Cost $17,005,817) 19,328,049
----------
<CAPTION>
PAR VALUE
(000s
OMITTED)
--------
<C> <S> <C>
UNITED STATES GOVERNMENT
AND AGENCIES OBLIGATIONS (10.63%)
$ 100 United States Treasury, Note 7.875%,
11-15-99 @ 103.062................................................................ 103,062
400 United States Treasury, Note 6.25%,
01-31-02 @ 101.250................................................................ 405,000
1,500 United States Treasury, Bond 10.750%,
08-15-05 @ 130.109................................................................ 1,951,635
----------
TOTAL UNITED STATES GOVERNMENT
AND AGENCIES OBLIGATIONS
(Cost $2,446,719) 2,459,697
----------
<CAPTION>
PAR VALUE
(000s INTEREST MARKET
OMITTED) RATE VALUE
-------- ---- -----
<C> <S> <C> <C>
SHORT-TERM INVESTMENTS (9.88%)
$2,288 Joint Repurchase Agreement (9.88%)
Investment in a joint repurchase
agreement transaction with Toronto
Dominion Securities USA, Inc. -
Dated 06-30-98, due 07-01-98
(Secured by U. S. Treasury Bond,
9.125% due 05-15-18 and U.S.
Treasury Notes, 5.00% thru 8.75%
due 12-31-98 thru 04-30-03) -
Note B.......................................................................... 5.750% $2,288,000
-----------
Corporate Savings Account (0.00%)
Investors Bank & Trust Company
Daily Interest Savings Account
Current Rate 4.95%................................................................ 524
-----------
TOTAL SHORT-TERM INVESTMENTS (9.88%) 2,288,524
-------- -----------
TOTAL INVESTMENTS (103.98%) 24,076,270
-------- -----------
OTHER ASSETS AND LIABILITIES, NET (3.98%) (920,818)
-------- -----------
TOTAL NET ASSETS (100.00%) $23,155,452
======== ===========
</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.
94
<PAGE>
==============================FINANCIAL STATEMENTS==============================
John Hancock Funds - Declaration Trust -- V.A. 500 Index Fund
Schedule of Investments
June 30, 1998 (Unaudited)
- --------------------------------------------------------------------------------
The Schedule of Investments is a complete list of all securities owned by the V.
A. 500 Index Fund on June 30, 1998. 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
- ------------------- ------ -----
COMMON STOCKS
Advertising (0.15%)
Interpublic Group of Cos., Inc. (The) ................. 220 $13,351
Omnicom Group, Inc. ................................... 283 14,115
----------
27,466
----------
Aerospace (1.19%)
Boeing Co. (The) ...................................... 1,746 77,806
General Dynamics Corp. ................................ 220 10,230
Goodrich (B.F.) Co. (The) ............................. 125 6,203
Lockheed Martin Corp. ................................. 340 35,997
Northrop Grumman Corp. ................................ 117 12,066
Raytheon Co. (Class B) ................................ 592 35,002
United Technologies Corp. ............................. 407 37,647
----------
214,951
----------
Agricultural Operations (0.08%)
Agribrands International, Inc. * ...................... 30 908
Pioneer Hi-Bred International, Inc. ................... 345 14,274
----------
15,182
----------
Automobile / Trucks (1.72%)
Chrysler Corp. ........................................ 1,133 63,873
Cummins Engine Co., Inc. .............................. 67 3,434
Dana Corp. ............................................ 183 9,791
Eaton Corp. ........................................... 135 10,496
Echlin, Inc. .......................................... 110 5,397
Ford Motor Co. ........................................ 2,096 123,664
General Motors Corp. .................................. 1,235 82,513
PACCAR, Inc. .......................................... 136 7,106
Ryder System, Inc. .................................... 134 4,229
----------
310,503
----------
Banks - United States (7.46%)
Banc One Corp. ........................................ 1,128 62,956
Bank of New York Co., Inc. ............................ 658 39,932
BankAmerica Corp. ..................................... 1,211 104,676
BankBoston Corp. ...................................... 508 28,257
Bankers Trust New York Corp. .......................... 171 19,847
BB&T Corp. ............................................ 249 16,839
Chase Manhattan Corp. ................................. 1,472 111,136
Citicorp .............................................. 798 119,101
Comerica, Inc. ........................................ 275 18,219
Fifth Third Bancorp ................................... 406 25,578
First Chicago NBD Corp. ............................... 508 45,021
First Union Corp. ..................................... 1,689 98,384
Fleet Financial Group, Inc. ........................... 476 39,746
Huntington Bancshares, Inc. ........................... 334 11,189
KeyCorp ............................................... 767 27,324
Mellon Bank Corp. ..................................... 445 30,983
Mercantile Bancorp., Inc. ............................. 229 11,536
Morgan (J.P.) & Co., Inc. ............................. 310 36,309
National City Corp. ................................... 574 40,754
NationsBank Corp. ..................................... 1,642 125,613
Northern Trust Corp. .................................. 195 14,869
Norwest Corp. ......................................... 1,319 49,298
PNC Bank Corp. ........................................ 533 28,682
Providian Financial Corp. ............................. 166 13,041
Republic New York Corp. ............................... 190 11,958
State Street Corp. .................................... 281 19,530
Summit Bancorp ........................................ 307 14,582
SunTrust Banks, Inc. .................................. 368 29,923
Synovus Financial Corp. ............................... 459 10,901
U.S. Bancorp .......................................... 1,287 55,341
Wachovia Corp. ........................................ 360 30,420
Wells Fargo & Co. ..................................... 151 55,719
----------
1,347,664
----------
Beverages (3.07%)
Anheuser-Busch Cos., Inc. ............................. 856 40,392
Brown-Forman Corp. .................................... 121 7,774
Coca-Cola Co. (The) ................................... 4,320 369,360
Coors (Adolph) Co. (Class B) .......................... 65 2,210
PepsiCo, Inc. ......................................... 2,650 109,147
Seagram Co. Ltd. (The) (Canada) ....................... 623 25,504
----------
554,387
----------
Broker Services (0.46%)
Lehman Brothers Holdings, Inc. ........................ 178 13,806
Merrill Lynch & Co., Inc. ............................. 582 53,689
Schwab (Charles) Corp. ................................ 464 15,080
----------
82,575
----------
Building (0.61%)
Armstrong World Industries, Inc. ...................... 71 4,784
Black & Decker Corp. .................................. 166 10,126
Centex Corp. .......................................... 104 3,926
Fleetwood Enterprises, Inc. ........................... 64 2,560
Fluor Corp. ........................................... 146 7,446
Georgia-Pacific Corp. ................................. 162 9,548
Kaufman & Broad Home Corp. ............................ 68 2,159
Louisiana-Pacific Corp. ............................... 191 3,486
Masco Corp. ........................................... 289 17,484
Owens Corning ......................................... 93 3,796
Pulte Corp. ........................................... 74 2,211
Sherwin-Williams Co. .................................. 302 10,004
Snap-on, Inc. ......................................... 106 3,843
Stanley Works (The) ................................... 156 6,484
Weyerhauser Co. ....................................... 349 16,119
Willamette Industries, Inc. ........................... 194 6,208
----------
110,184
----------
Business Services - Misc. (0.16%)
Block, H & R, Inc. .................................... 183 7,709
Dun & Bradstreet Corp. ................................ 297 10,729
Equifax, Inc. ......................................... 262 9,514
----------
27,952
----------
Chemicals (1.20%)
Air Products & Chemicals, Inc. ........................ 412 16,480
Dow Chemical Co. ...................................... 396 38,288
Eastman Chemical Co. .................................. 137 8,528
Engelhard Corp. ....................................... 252 5,103
FMC Corp. * ........................................... 64 4,364
SEE NOTES TO FINANCIAL STATEMENTS.
95
<PAGE>
==============================FINANCIAL STATEMENTS==============================
John Hancock Funds - Declaration Trust -- V.A. 500 Index Fund
NUMBER OF MARKET
ISSUER, DESCRIPTION SHARES VALUE
- ------------------- ------ -----
Chemicals (continued)
Grace (W.R.) & Co. .................................... 130 $2,218
Great Lakes Chemical Corp. ............................ 105 4,141
Hercules, Inc. ........................................ 169 6,950
Monsanto Co. .......................................... 1,036 57,886
Morton International, Inc. ............................ 228 5,700
Nalco Chemical Co. .................................... 116 4,075
Octel Corp. * ......................................... 26 517
PPG Industries, Inc. .................................. 311 21,634
Praxair, Inc. ......................................... 275 12,873
Rohm & Haas Co. ....................................... 107 11,121
Sigma-Aldrich Corp. ................................... 175 6,147
Union Carbide Corp. ................................... 215 11,476
----------
217,501
----------
Computers (8.36%)
Adobe Systems, Inc. ................................... 120 5,093
Apple Computer, Inc. * ................................ 232 6,656
Autodesk, Inc. ........................................ 81 3,129
Automatic Data Processing, Inc. ....................... 522 38,041
Bay Networks, Inc.* ................................... 384 12,384
Cabletron Systems, Inc.* .............................. 276 3,709
Ceridian Corp.* ....................................... 133 7,814
Cisco Systems, Inc.* .................................. 1,778 163,687
Cognizant Corp. ....................................... 283 17,829
Compaq Computer Corp. ................................. 2,885 81,862
Computer Associates International, Inc. ............... 954 53,007
Computer Sciences Corp.* .............................. 272 17,408
Data General Corp. * .................................. 85 1,270
Dell Computer Corp.* .................................. 1,140 105,806
EMC Corp.* ............................................ 866 38,808
First Data Corp. ...................................... 748 24,918
HBO & Co. ............................................. 736 25,944
Hewlett-Packard Co. ................................... 1,817 108,793
International Business Machines Corp. ................. 1,698 194,952
Microsoft Corp.* ...................................... 4,253 460,919
Novell, Inc.* ......................................... 613 7,816
Oracle Corp.* ......................................... 1,719 42,223
Parametric Technology Corp.* .......................... 448 12,152
Seagate Technology, Inc.* ............................. 423 10,073
Shared Medical Systems Corp. .......................... 44 3,231
Silicon Graphics, Inc.* ............................... 328 3,977
Sun Microsystems, Inc.* ............................... 659 28,625
3Com Corp.* ........................................... 619 18,996
Unisys Corp.* ......................................... 436 12,317
----------
1,511,439
----------
Consumer Products Misc. (0.04%)
American Greetings Corp. (Class A) .................... 127 6,469
Jostens, Inc. ......................................... 68 1,624
----------
8,093
----------
Containers (0.17%)
Bemis Co., Inc. ....................................... 93 3,801
Crown Cork & Seal Co., Inc. ........................... 224 10,640
Owens-Illinois, Inc.* ................................. 245 10,964
Sealed Air Corp. * .................................... 144 5,292
----------
30,697
----------
Cosmetics & Personal Care (0.77%)
Alberto Culver Co. (Class B) .......................... 99 2,871
Avon Products, Inc. ................................... 231 17,902
Gillette Co. .......................................... 1,956 110,881
International Flavors & Fragrances, Inc. .............. 191 8,297
----------
139,951
----------
Diversified Operations (2.40%)
AlliedSignal, Inc. .................................... 985 43,709
Corning, Inc. ......................................... 404 14,039
Crane Co. ............................................. 80 3,885
Du Pont (E.I.) De Nemours & Co. ....................... 1,976 147,459
Fortune Brands, Inc. .................................. 300 11,531
IKON Office Solutions, Inc. ........................... 235 3,422
ITT Industries, Inc. .................................. 207 7,737
Johnson Controls, Inc. ................................ 147 8,407
Laidlaw, Inc. (Canada) ................................ 574 6,996
Loews Corp. ........................................... 201 17,512
Minnesota Mining & Manufacturing Co. .................. 714 58,682
National Service Industries, Inc. ..................... 75 3,816
Tenneco, Inc. ......................................... 297 11,305
Textron, Inc. ......................................... 287 20,574
TRW, Inc. ............................................. 215 11,744
Tyco International Ltd. ............................... 999 62,937
----------
433,755
----------
Electronics (5.75%)
Advanced Micro Devices, Inc.* ......................... 248 4,232
AMP, Inc. ............................................. 384 13,200
Applied Materials, Inc.* .............................. 639 18,850
CBS Corp. ............................................. 1,242 39,433
Emerson Electric Co. .................................. 774 46,730
General Electric Co. .................................. 5,716 520,156
General Signal Corp. .................................. 87 3,132
Grainger (W.W.), Inc. ................................. 174 8,667
Honeywell, Inc. ....................................... 222 18,551
Intel Corp. ........................................... 2,857 211,775
KLA-Tencor Corp.* ..................................... 147 4,070
LSI Logic Corp.* ...................................... 247 5,696
Micron Technology, Inc. ............................... 370 9,181
Motorola, Inc. ........................................ 1,043 54,823
National Semiconductor Corp.* ......................... 287 3,785
Parker Hannifin Corp. ................................. 194 7,396
Raychem Corp. ......................................... 148 4,375
Rockwell International Corp. .......................... 351 16,870
Tektronix, Inc. ....................................... 88 3,113
Texas Instruments, Inc. ............................... 682 39,769
Thomas & Betts Corp. .................................. 96 4,728
----------
1,038,532
----------
Finance (2.45%)
Ahmanson (H.F.) & Co. ................................. 191 13,561
American Express Co. .................................. 812 92,568
Associates First Capital Corp. (Class A) .............. 1,443 110,931
Beneficial Corp. ...................................... 93 14,246
Golden West Financial Corp. ........................... 99 10,525
Household International, Inc. ......................... 561 27,910
MBNA Corp. ............................................ 875 28,875
Morgan Stanley, Dean Witter, Discover & Co. ........... 1,035 94,573
SunAmerica, Inc. ...................................... 341 19,586
Washington Mutual, Inc. ............................... 673 29,233
----------
442,008
----------
SEE NOTES TO FINANCIAL STATEMENTS.
96
<PAGE>
==============================FINANCIAL STATEMENTS==============================
John Hancock Funds - Declaration Trust -- V.A. 500 Index Fund
NUMBER OF MARKET
ISSUER, DESCRIPTION SHARES VALUE
- ------------------- ------ -----
Food (2.24%)
Archer Daniels Midland Co. ............................ 998 $19,336
Bestfoods ............................................. 502 29,147
Campbell Soup Co. ..................................... 797 42,341
ConAgra, Inc. ......................................... 831 26,332
General Mills, Inc. ................................... 276 18,871
Heinz (H.J.) Co. ...................................... 638 35,808
Hershey Foods Corp. ................................... 250 17,250
Kellogg Co. ........................................... 718 26,970
Quaker Oats Co. ....................................... 242 13,295
Ralston Purina Group .................................. 187 21,844
Sara Lee Corp. ........................................ 826 46,204
Unilever N.V. PLC (Netherlands) ....................... 1,118 88,252
Wrigley (Wm.) Jr. Co. ................................. 203 19,894
----------
405,544
----------
Funeral Services & Related (0.10%)
Service Corp. International ........................... 440 18,865
----------
Household (0.24%)
Maytag Corp. .......................................... 166 8,196
Newell Co. ............................................ 278 13,848
Rubbermaid, Inc. ...................................... 262 8,695
Tupperware Corp. ...................................... 107 3,009
Whirlpool Corp. ....................................... 131 9,006
----------
42,754
----------
Instruments - Scientific (0.10%)
EG&G, Inc. ............................................ 79 2,370
Millipore Corp. ....................................... 76 2,071
Perkin-Elmer Corp. (The) .............................. 85 5,286
Thermo Electron Corp.* ................................ 264 9,026
----------
18,753
----------
Insurance (4.08%)
Aetna, Inc. ........................................... 260 19,792
Allstate Corp. (The) .................................. 749 68,580
American General Corp. ................................ 443 31,536
American International Group, Inc. .................... 1,225 178,850
Aon Corp. ............................................. 293 20,583
Chubb Corp. (The) ..................................... 297 23,871
CIGNA Corp. ........................................... 387 26,703
Cincinnati Financial Corp. ............................ 288 11,052
Conseco, Inc. ......................................... 329 15,381
General Re Corp. ...................................... 137 34,729
Hartford Financial Services Group Inc. (The) .......... 206 23,561
Jefferson Pilot Corp. ................................. 186 10,776
Lincoln National Corp. ................................ 179 16,356
Marsh & McLennan Cos., Inc. ........................... 445 26,895
MBIA, Inc. ............................................ 171 12,804
MGIC Investment Corp. ................................. 199 11,355
Progressive Corp. ..................................... 126 17,766
SAFECO Corp. .......................................... 247 11,223
St. Paul Cos., Inc. ................................... 402 16,909
Torchmark Corp. ....................................... 245 11,209
Transamerica Corp. .................................... 110 12,664
Travelers Group, Inc. ................................. 2,003 121,432
UNUM Corp. ............................................ 242 13,431
----------
737,458
----------
Leisure (1.35%)
Brunswick Corp. ....................................... 174 4,307
Disney (Walt) Co. (The) ............................... 1,179 123,869
Eastman Kodak Co. ..................................... 567 41,426
Harrah's Entertainment, Inc. * ........................ 176 4,092
Hasbro, Inc. .......................................... 221 8,688
Hilton Hotels Corp. ................................... 437 12,454
King World Productions, Inc. * ........................ 129 3,290
Marriott International, Inc. (Class A) ................ 446 14,439
Mattel, Inc. .......................................... 508 21,495
Mirage Resorts, Inc. * ................................ 313 6,671
Polaroid Corp. ........................................ 78 2,774
----------
243,505
----------
Machinery (0.63%)
Aeroquip-Vickers, Inc. ................................ 49 2,860
Briggs & Stratton Corp. ............................... 43 1,610
Case Corp. ............................................ 131 6,321
Caterpiller Tractor, Inc. ............................. 650 34,369
Cincinnati Milacron, Inc. ............................. 70 1,702
Cooper Industries, Inc. ............................... 211 11,592
Deere & Co. ........................................... 436 23,053
Dover Corp. ........................................... 388 13,289
Foster Wheeler Corp. .................................. 71 1,522
Harnischfeger Industries, Inc. ........................ 84 2,378
Ingersoll-Rand Co. .................................... 289 12,734
NACCO Industries, Inc. (Class A) ...................... 14 1,810
----------
113,240
----------
Media (1.77%)
Clear Channel Communications, Inc.* ................... 215 23,462
Comcast Corp. ......................................... 610 24,762
Dow Jones & Co., Inc. ................................. 168 9,366
Gannett Co., Inc. ..................................... 495 35,176
Harcourt General, Inc. ................................ 124 7,378
Knight-Ridder, Inc. ................................... 139 7,654
McGraw-Hill Cos., Inc. (The) .......................... 173 14,110
Meredith Corp. ........................................ 92 4,318
New York Times Co. (Class A) .......................... 168 13,314
Tele-Communications, Inc. (Class A)* .................. 886 34,056
Time Warner, Inc. ..................................... 1,010 86,292
Times Mirror Co. (Class A) ............................ 155 9,746
Tribune Co. ........................................... 215 14,795
Viacom, Inc. (Class B)* ............................... 617 35,940
----------
320,369
----------
Medical (10.21%)
Abbott Laboratories ................................... 2,672 109,218
Allergan, Inc. ........................................ 114 5,287
ALZA Corp.* ........................................... 149 6,444
American Home Products Corp. .......................... 2,270 117,472
Amgen, Inc.* .......................................... 460 30,073
Bard (C.R.), Inc. ..................................... 99 3,768
Bausch & Lomb, Inc. ................................... 97 4,862
Baxter International, Inc. ............................ 489 26,314
Becton Dickinson & Co. ................................ 213 16,534
Biomet, Inc. .......................................... 195 6,447
Boston Scientific Corp.* .............................. 340 24,352
Bristol-Myers Squibb Co. .............................. 1,737 199,646
Cardinal Health, Inc. ................................. 192 18,000
Columbia/HCA Healthcare Corp. ......................... 1,131 32,940
Guidant Corp. ......................................... 263 18,755
HEALTHSOUTH Corp.* .................................... 688 18,361
Humana, Inc.* ......................................... 286 8,920
SEE NOTES TO FINANCIAL STATEMENTS.
97
<PAGE>
==============================FINANCIAL STATEMENTS==============================
John Hancock Funds - Declaration Trust -- V.A. 500 Index Fund
NUMBER OF MARKET
ISSUER, DESCRIPTION SHARES VALUE
- ------------------- ------ -----
Medical (continued)
Johnson & Johnson ..................................... 2,349 $173,239
Lilly (Eli) & Co. ..................................... 1,938 128,029
Mallinckrodt, Inc. .................................... 128 3,800
Manor Care, Inc. ...................................... 111 4,267
Medtronic, Inc. ....................................... 819 52,211
Merck & Co., Inc. ..................................... 2,093 279,939
Pall Corp. ............................................ 218 4,469
Pfizer, Inc. .......................................... 2,259 245,525
Pharmacia & Upjohn, Inc. .............................. 886 40,867
Schering-Plough Corp. ................................. 1,279 117,188
St. Jude Medical, Inc. * .............................. 160 5,890
Tenet Healthcare Corp.* ............................... 535 16,719
United Healthcare Corp. ............................... 329 20,891
United States Surgical Corp. .......................... 132 6,023
Warner-Lambert Co. .................................... 1,428 99,067
----------
1,845,517
----------
Metal (0.69%)
Alcan Aluminium Ltd. (Canada) ......................... 397 10,967
Aluminum Co. of America ............................... 301 19,847
Armco, Inc. * ......................................... 189 1,205
ASARCO, Inc. .......................................... 70 1,558
Barrick Gold Corp. (Canada) ........................... 651 12,491
Battle Mountain Gold Co. .............................. 401 2,381
Bethlehem Steel Corp. * ............................... 197 2,450
Cyprus Amax Minerals Co. .............................. 163 2,160
Freeport-McMoRan Copper & Gold, Inc. .................. 338 5,133
Homestake Mining Co. .................................. 256 2,656
Illinois Tool Works, Inc. ............................. 436 29,076
Inco, Ltd. (Canada) ................................... 292 3,979
Newmont Mining Corp. .................................. 273 6,450
Phelps Dodge Corp. .................................... 103 5,890
Placer Dome, Inc. (Canada) ............................ 432 5,076
Reynolds Metals Co. ................................... 129 7,216
Timken Co. (The) ...................................... 110 3,389
Worthington Industries, Inc. .......................... 169 2,546
----------
124,470
----------
Mortgage Banking (1.05%)
Countrywide Credit Industries, Inc. ................... 190 9,643
Fannie Mae ............................................ 1,853 112,570
Federal Home Loan Mortgage Corp. ...................... 1,214 57,134
Green Tree Financial Corp. ............................ 238 10,189
----------
189,536
----------
Office (0.55%)
Avery Dennison Corp. .................................. 179 9,621
Deluxe Corp. .......................................... 142 5,085
Moore Corp., Ltd. (Canada) ............................ 155 2,054
Pitney Bowes, Inc. .................................... 506 24,351
Xerox Corp. ........................................... 569 57,825
----------
98,936
----------
Oil & Gas (6.77%)
Amerada Hess Corp. .................................... 160 8,690
Amoco Corp. ........................................... 1,700 70,763
Anadarko Petroleum Corp. .............................. 105 7,055
Apache Corp. .......................................... 167 5,261
Ashland, Inc. ......................................... 131 6,763
Atlantic Richfield Co. ................................ 560 43,750
Baker Hughes, Inc. .................................... 296 10,231
Burlington Resources, Inc. ............................ 308 13,263
Chevron Corp. ......................................... 1,147 95,273
Coastal Corp. (The) ................................... 185 12,915
Columbia Energy Group ................................. 145 8,066
Dresser Industries, Inc. .............................. 307 13,527
Enron Corp. ........................................... 544 29,410
Exxon Corp. ........................................... 4,307 307,143
Halliburton Co. ....................................... 458 20,410
Helmerich & Payne, Inc. ............................... 88 1,958
Kerr-McGee Corp. ...................................... 83 4,804
McDermott International, Inc. ......................... 98 3,375
Mobil Corp. ........................................... 1,370 104,976
Occidental Petroleum Corp. ............................ 592 15,984
Oryx Energy Co.* ...................................... 185 4,093
Pennzoil Co. .......................................... 83 4,202
Phillips Petroleum Co. ................................ 460 22,166
Rowan Cos., Inc.* ..................................... 151 2,935
Royal Dutch Petroleum Co. (Netherlands) ............... 3,745 205,273
Schlumberger, Ltd. .................................... 869 59,364
Sonat, Inc. ........................................... 192 7,416
Sun Co., Inc. ......................................... 125 4,852
Texaco, Inc. .......................................... 957 57,121
Union Pacific Resources Group ......................... 443 7,780
Unocal Corp. .......................................... 431 15,408
USX - Marathon Group .................................. 504 17,293
Western Atlas, Inc. * ................................. 95 8,063
Williams Cos., Inc. (The) ............................. 718 24,232
----------
1,223,815
----------
Paper & Paper Products (0.69%)
Ball Corp. ............................................ 53 2,130
Boise Cascade Corp. ................................... 98 3,210
Champion International Corp. .......................... 168 8,264
Fort James Corp. ...................................... 365 16,242
International Paper Co. ............................... 528 22,704
Kimberly-Clark Corp. .................................. 971 44,545
Mead Corp. (The) ...................................... 183 5,810
Potlatch Corp. ........................................ 51 2,142
Stone Container Corp. * ............................... 174 2,719
Temple-Inland, Inc. ................................... 99 5,334
Union Camp Corp. ...................................... 122 6,054
Westvaco Corp. ........................................ 178 5,029
----------
124,183
----------
Pollution Control (0.22%)
Browning-Ferris Industries, Inc. ...................... 339 11,780
Waste Management, Inc. ................................ 795 27,825
----------
39,605
----------
Printing - Commercial (0.06%)
Donnelley (R.R.) & Sons ............................... 255 11,666
----------
Retail (5.70%)
Abercrombie & Fitch Co. (Class A)* .................... 6 264
Albertson's, Inc. ..................................... 429 22,227
American Stores Co. ................................... 477 11,537
AutoZone, Inc.* ....................................... 266 8,495
Cendant Corp. * ....................................... 1,415 29,538
Circuit City Stores, Inc. ............................. 172 8,063
Consolidated Stores Corp.* ............................ 188 6,815
Costco Cos., Inc.* .................................... 374 23,585
CVS Corp. ............................................. 668 26,010
Darden Restaurants, Inc. .............................. 259 4,112
SEE NOTES TO FINANCIAL STATEMENTS.
98
<PAGE>
==============================FINANCIAL STATEMENTS==============================
John Hancock Funds - Declaration Trust -- V.A. 500 Index Fund
NUMBER OF MARKET
ISSUER, DESCRIPTION SHARES VALUE
- ------------------- ------ -----
Retail (continued)
Dayton Hudson Corp. ................................... 764 $37,054
Dillards, Inc. ........................................ 194 8,039
Federated Department Stores, Inc.* .................... 366 19,695
Gap, Inc. (The) ....................................... 691 42,583
Genuine Parts Co. ..................................... 312 10,784
Giant Foods, Inc. (Class A) ........................... 105 4,522
Great Atlantic & Pacific Tea Co., Inc. ................ 67 2,215
Home Depot, Inc. (The) ................................ 1,278 106,154
Kmart Corp.* .......................................... 852 16,401
Kroger Co.* ........................................... 445 19,079
Limited, Inc. (The) ................................... 476 15,767
Longs Drug Stores Corp. ............................... 67 1,935
Lowe's Cos., Inc. ..................................... 610 24,743
May Department Stores ................................. 404 26,462
McDonald's Corp. ...................................... 1,203 83,007
Mercantile Stores Co., Inc. ........................... 64 5,052
Nordstrom, Inc. ....................................... 135 10,429
Penney (J.C.) Co., Inc. ............................... 437 31,601
Pep Boys - Manny, Moe & Jack (The) .................... 111 2,102
Reebok International Ltd. * ........................... 98 2,713
Rite Aid Corp. ........................................ 450 16,903
Sears, Roebuck & Co. .................................. 685 41,828
SUPERVALU, Inc. ....................................... 105 4,659
Sysco Corp. ........................................... 594 15,221
Tandy Corp. ........................................... 181 9,604
TJX Cos., Inc. ........................................ 564 13,606
Toys "R" Us, Inc.* .................................... 496 11,687
Tricon Global Restaurants, Inc.* ...................... 265 8,397
Venator Group, Inc. * ................................. 236 4,514
Wal-Mart Stores, Inc. ................................. 3,923 238,322
Walgreen Co. .......................................... 865 35,735
Wendy's International, Inc. ........................... 231 5,429
Winn-Dixie Stores, Inc. ............................... 260 13,309
----------
1,030,197
----------
Rubber - Tires & Misc (0.11%)
Cooper Tire & Rubber Co ............................... 138 2,846
Goodyear Tire & Rubber Co. (The) ...................... 273 17,591
----------
20,437
----------
Shoes & Related Apparel (0.14%)
Nike, Inc. (Class B) .................................. 508 24,733
----------
Soap & Cleaning Preparations (1.57%)
Clorox Co. ............................................ 181 17,263
Colgate-Palmolive Co. ................................. 517 45,496
Ecolab, Inc. .......................................... 225 6,975
Procter & Gamble Co. (The) ............................ 2,345 213,542
----------
283,276
----------
Steel (0.12%)
Allegheny Teledyne, Inc. .............................. 342 7,823
Inland Steel Industries, Inc. ......................... 86 2,424
Nucor Corp. ........................................... 154 7,084
USX-U.S. Steel Group, Inc. ............................ 150 4,950
----------
22,281
----------
Telecommunications (5.21%)
A T & T Corp. ......................................... 2,837 162,064
Airtouch Communications, Inc. * ....................... 986 57,619
Andrew Corp.* ......................................... 155 2,800
Bell Atlantic Corp. ................................... 2,712 123,735
DSC Communications Corp. * ............................ 206 6,180
General Instrument Corp. * ............................ 258 7,014
Harris Corp. .......................................... 140 6,256
Lucent Technologies, Inc. ............................. 2,273 189,085
MCI Communications Corp. .............................. 1,217 70,738
MediaOne Group, Inc. * ................................ 1,060 46,574
Nextel Communications, Inc. (Class A)* ................ 459 11,418
Northern Telecom Ltd. (Canada) ........................ 909 51,586
Scientific-Atlanta, Inc. .............................. 138 3,502
Sprint Corp. .......................................... 751 52,946
Tellabs, Inc.* ........................................ 317 22,705
U S WEST, Inc. ........................................ 872 40,984
WorldCom, Inc.* ....................................... 1,769 85,686
----------
940,892
----------
Textile (0.14%)
Fruit of the Loom, Inc. (Class A)* .................... 128 4,248
Liz Claiborne, Inc. ................................... 117 6,113
Russell Corp. ......................................... 64 1,932
Springs Industries, Inc. .............................. 35 1,614
VF Corp. .............................................. 213 10,970
----------
24,877
----------
Tobacco (0.97%)
Philip Morris Cos., Inc. .............................. 4,235 166,753
UST, Inc. ............................................. 322 8,694
----------
175,447
----------
Transport (0.94%)
AMR Corp.* ............................................ 318 26,473
Burlington Northern Santa Fe Corp. .................... 273 26,805
CSX Corp. ............................................. 381 17,335
Delta Air Lines, Inc. ................................. 130 16,802
FDX Corp. * ........................................... 256 16,064
Navistar International Corp. * ........................ 126 3,638
Norfolk Southern Corp. ................................ 659 19,646
Southwest Airlines Co. ................................ 386 11,435
Union Pacific Corp. ................................... 432 19,062
US Airways Group, Inc.* ............................... 159 12,601
----------
169,861
----------
Utilities (4.69%)
Alltel Corp. .......................................... 321 14,926
Ameren Corp. .......................................... 240 9,540
American Electric Power Co., Inc. ..................... 331 15,019
Ameritech Corp. ....................................... 1,912 85,801
Baltimore Gas & Electric Co. .......................... 258 8,014
BellSouth Corp. ....................................... 1,732 116,260
Carolina Power & Light Co. ............................ 263 11,408
Central & South West Corp. ............................ 371 9,971
Cinergy Corp. ......................................... 275 9,625
Consolidated Edison, Inc. ............................. 410 18,886
Consolidated Natural Gas Co. .......................... 167 9,832
Dominion Resources, Inc. .............................. 338 13,773
DTE Energy Co. ........................................ 253 10,215
Duke Energy Corp. ..................................... 629 37,268
Eastern Enterprises ................................... 36 1,544
Edison International .................................. 666 19,689
Entergy Corp. ......................................... 426 12,248
FirstEnergy Corp. * ................................... 402 12,362
FPL Group, Inc. ....................................... 318 20,034
Frontier Corp. ........................................ 287 9,041
SEE NOTES TO FINANCIAL STATEMENTS.
99
<PAGE>
==============================FINANCIAL STATEMENTS==============================
John Hancock Funds - Declaration Trust -- V.A. 500 Index Fund
NUMBER OF MARKET
ISSUER, DESCRIPTION SHARES VALUE
- ------------------- ------ -----
Utilities (continued)
GPU, Inc. ............................................. 222 $8,394
GTE Corp. ............................................. 1,672 93,005
Houston Industries, Inc. .............................. 494 15,252
Niagara Mohawk Power Corp. * .......................... 252 3,764
NICOR, Inc. ........................................... 84 3,371
Northern States Power Co. ............................. 260 7,443
ONEOK, Inc. ........................................... 54 2,153
PP&L Resources, Inc. .................................. 290 6,579
PacifiCorp ............................................ 518 11,720
PECO Energy Co. ....................................... 389 11,354
People's Energy Corp. ................................. 62 2,395
PG&E Corp. ............................................ 766 24,177
Public Service Enterprise Group, Inc. ................. 405 13,947
SBC Communications, Inc. .............................. 3,202 128,080
Sempra Energy* ........................................ 219 6,077
Southern Co. .......................................... 1,205 33,363
Texas Utilities Co. ................................... 430 17,899
Unicom Corp. .......................................... 378 13,254
----------
847,683
----------
TOTAL COMMON STOCKS
(Cost $12,298,015) (86.38%) 15,610,740
------- ----------
INTEREST PAR VALUE MARKET
ISSUER, DESCRIPTION RATE (000s OMITTED) VALUE
- ------------------- ---- -------------- -----
SHORT-TERM INVESTMENTS
Joint Repurchase Agreement (13.03%)
Investment in a joint repurchase
agreement transaction with Toronto
Dominion Securities USA, Inc. -
Dated 06-30-98, due 07-01-98
(Secured by U.S. Treasury Notes,
5.00% thru 7.50% due 02-15-99
thru 11-15-01) - Note B.................. 5.75% $2,355 $2,355,000
-----------
TOTAL SHORT-TERM INVESTMENTS (13.03%) 2,355,000
-------- -----------
TOTAL INVESTMENTS (99.41%) 17,965,740
-------- -----------
OTHER ASSETS AND LIABILITIES, NET (0.59%) 107,229
-------- -----------
TOTAL NET ASSETS (100.00%) $18,072,969
======== ===========
* 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.
100
<PAGE>
==============================FINANCIAL STATEMENTS==============================
John Hancock Funds - Declaration Trust -- V.A. Sovereign Bond Fund
Schedule of Investments
June 30, 1998 (Unaudited)
- --------------------------------------------------------------------------------
The Schedule of Investments is a complete list of all securities owned by the V.
A. Sovereign Bond Fund on June 30, 1998. It is divided into three main
catagories: bonds, warrants and short-term investments. Bonds and warrants 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
- ------------------- ---- ------- -------------- -----
BONDS
Automobile / Trucks (0.62%)
ERAC USA Finance Co.,
Note 02-15-05 (R) ............... 6.625% BBB $19 $18,825
Ford Motor Co.,
Bond 02-15-28 ................... 6.625 A 5 5,004
Deb 11-15-25 .................... 7.125 A 15 15,964
-----------
39,793
-----------
Banks - Foreign (0.91%)
Landeskreditbank Baden-
Wuerttemberg, Sub Note
(Germany) 02-01-23 (Y) .......... 7.625 AAA 15 17,412
RBSG Capital Corp.,
Gtd Cap Note 03-01-04 ........... 10.125 A+ 15 17,778
Scotland International Finance
No. 2 B.V., Gtd Sub Note
(Netherlands) 11-01-06 (R) (Y) .. 8.850 A+ 20 23,223
-----------
58,413
-----------
Banks - United States (1.23%)
Banc One Corp.,
Sub Deb 10-15-26 ................ 7.625 A+ 10 11,133
BankBoston NA,
Sub Note 03-25-08 ............... 6.375 A2 15 14,992
Fleet Financial Group, Inc.,
Sub Note 05-15-08 ............... 6.375 A- 20 20,201
National Westminster Bank Plc -
New York Branch,
Sub Note 05-01-01 ............... 9.450 AA- 5 5,427
NB Capital Trust IV,
Gtd Cap Security 04-15-27 ...... 8.250 A- 25 27,921
-----------
79,674
-----------
Broker Services (0.16%)
Salomon Smith Barney Holdings, Inc.,
Note 10-15-02 ................... 6.500 A 10 10,113
-----------
Building (0.15%)
M.D.C. Holdings, Inc.,
Sr Note 02-01-08 ................ 8.375 BB- 10 10,000
-----------
Computers (0.40%)
Dell Computer Corp.,
Sr Deb 04-15-28 ................. 7.100 BBB 25 25,535
-----------
Cosmetics & Personal Care (0.15%)
Global Health Sciences, Inc.,
Sr Note 05-01-08 (R) ............ 11.000 B+ 10 9,875
-----------
Electronics (0.14%)
Zilog, Inc.,
Sr Sec Note 03-01-05 (R) ........ 9.500 B 12 8,760
-----------
Energy (0.81%)
AES Corp.,
Sr Sub Note 07-15-06 ............ 10.250 B+ 10 10,877
Sr Sub Note 08-15-07 ............ 8.375 B+ 23 23,230
CalEnergy Company, Inc.,
Sr Note 09-15-06 ................ 9.500 BB+ 10 10,857
P & L Coal Holdings Corp.,
Sr Sub Note 05-15-08 (R) ........ 9.625 B 7 7,192
-----------
52,154
-----------
Finance (4.79%)
Constitution Capital Trust I,
Gtd Cap Security 04-15-27 (R) ... 9.150 BBB 3 3,375
DR Investments,
Sr Note 05-15-07 (R) ............ 7.450 A- 20 21,214
EES Coke Battery Co. Inc.,
Sr Sec Note Ser A 04-15-12 (R) .. 7.125 BBB 8 8,678
Ford Capital, B.V.,
Gtd Deb (Netherlands)
05-15-02 (Y) .................... 9.875 A 50 56,185
General Motors Acceptance Corp.,
Medium Term Note 04-06-00 ...... 5.850 A2 45 44,953
JCP Master Credit Card Trust,
Pass Thru Ctf Ser C Class A
06-15-00 ........................ 9.625 AA+ 95 100,663
United Companies Financial Corp.,
Sr Note 01-15-04 ................ 7.700 BB+ 5 4,948
WMC Finance USA,
Gtd Note (Australia) 11-15-03 (Y) 6.500 A 65 65,116
Yanacocha Receivables Master Trust,
Pass Thru Cert Ser 1997-A
06-15-05 (R) .................... 8.400 BBB- 4 3,739
-----------
308,871
-----------
Funeral Services & Related (0.40%)
Loewen Group International, Inc.,
Gtd Sr Note Ser 4 10-15-03 ...... 8.250 BB+ 25 25,625
-----------
Glass Products (0.05%)
VICAP S.A. de C.V.,
Gtd Sr Note (Mexico)
05-15-07 (R) (Y) ................ 11.375 B+ 3 3,075
-----------
Government - Foreign (0.56%)
Federative Republic of Brazil,
Global Bond (Brazil) 04-07-08 (Y) 9.375 BB- 15 13,331
Panama, Republic of,
Note (Panama) 02-13-02 (R) (Y) .. 7.875 BB+ 23 22,540
-----------
35,871
-----------
Government - U.S. (42.72%)
United States Treasury,
Bond 08-15-17 ................... 8.875 AAA 77 104,972
Bond 02-15-23 ................... 7.125 AAA 620 733,441
Note 11-30-99 ................... 7.750 AAA 67 68,999
Note 05-15-01 ................... 8.000 AAA 417 443,975
Note 05-15-02 ................... 7.500 AAA 256 273,201
Note 08-15-03 ................... 5.750 AAA 133 134,412
Note 02-15-05 ................... 7.500 AAA 442 489,237
Note 07-15-06 ................... 7.000 AAA 466 508,886
-----------
2,757,123
-----------
SEE NOTES TO FINANCIAL STATEMENTS.
101
<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 - U.S. Agencies (15.01%)
Federal National Mortgage Assn.,
30 Yr Pass Thru Ctf 03-01-24 + .. 6.500% AAA $355 $353,555
30 Yr Pass Thru Ctf 01-01-28 .... 6.000 AAA 25 24,152
Note 02-15-11 + ................. 6.500 AAA 45 45,253
Pass Thru Ctf 01-20-08 + ........ 6.000 AAA 125 121,679
Pass Thru Ctf Ser 1997-M8
Class A-1 01-25-22 ............. 6.940 AAA 3 3,041
Government National Mortgage Assn ,
30 Yr Pass Thru Ctf 08-01-24 + .. 7.000 AAA 355 360,655
30 Yr Pass Thru Ctf 07-15-26
to 08-15-27 .................... 8.000 AAA 58 60,103
-----------
968,438
-----------
Household (0.23%)
WestPoint Stevens Inc.,
Sr Note 06-15-05 (R) ............ 7.875 BB 15 15,113
-----------
Insurance (1.98%)
Conseco, Inc.,
Note 06-15-05 ................... 6.800 BBB 15 15,025
Equitable Life Assurance Society
of the United States,
Surplus Note 12-01-05 (R) ....... 6.950 A 15 15,572
Fairfax Financial Holdings Ltd.,
Note (Canada) 04-15-26 (Y) ...... 8.300 BBB+ 15 17,022
Liberty Mutual Insurance Co.,
Surplus Note 05-04-07 (R) ....... 8.200 A+ 5 5,640
Surplus Note 10-15-26 (R) ....... 7.875 A2 15 16,929
Massachusetts Mutual Life
Insurance Co.,
Surplus Note 11-15-23 (R) ....... 7.625 AA 5 5,670
NAC Re Corp.,
Note 06-15-99 ................... 8.000 A- 5 5,084
New York Life Insurance Co.,
Surplus Note 12-15-23 (R) ....... 7.500 AA- 5 5,224
Phoenix Home Life Mutual
Insurance Co.,
Surplus Note 12-01-06 (R) ....... 6.950 A+ 15 15,434
Sun Canada Financial Co.,
Gtd Sub Note 12-15-07 (R) ....... 6.625 AA 20 20,710
URC Holdings Corp.,
Sr Note 06-30-06 (R) ............ 7.875 A- 5 5,393
-----------
127,703
-----------
Leisure (0.30%)
Sun International Hotels Ltd.,
Gtd Sr Sub Note (Bahamas)
03-15-07 (Y) ................... 9.000 B+ 8 8,380
Gtd Sr Sub Note (Bahamas)
12-15-07 (Y) ................... 8.625 B+ 5 5,150
Trump Hotels & Casino Resorts
Funding, Inc./Holdings, L.P.,
Sr Note 06-15-05 ................ 15.500 B- 5 5,625
-----------
19,155
-----------
Media (2.77%)
Adelphia Communications Corp.,
Sr Note 07-15-03 (R) ............ 8.125 B 12 11,932
Sr Note Ser B 10-01-02 .......... 9.250 B2 17 17,595
Clear Channel Communications,
Inc., Deb 10-15-27 .............. 7.250 BBB- 25 25,758
Comcast Corp.,
Sr Sub Deb 07-15-12 ............. 10.625 BB+ 4 5,160
Cumulus Media Inc.,
Sr Sub Note 07-01-08 ............ 10.375 CCC+ 5 5,069
Garden State Newspapers, Inc.,
Sr Sub Note 10-01-09 ............ 8.750 B+ 7 7,105
Le Groupe Videotron Ltee,
Sr Note (Canada) 02-15-05 (Y) ... 10.625 BBB- 19 20,867
News America Holdings, Inc.,
Gtd Sr Deb 08-10-18 ............. 8.250 BBB- 18 20,309
OpTel, Inc.,
Sr Note 07-01-08 (R) + .......... 11.500 B- 10 10,000
Rogers Cablesystems Ltd.,
Sec Second Priority Note
(Canada) 08-01-02 (Y) ........... 9.625 BB+ 21 22,470
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- 18 21,907
TKR Cable I, Inc.,
Sr Deb 10-30-07 ................. 10.500 BBB- 8 8,801
-----------
179,083
-----------
Medical (1.53%)
Dynacare Inc.,
Sr Note (Canada) 01-15-06 (Y) ... 10.750 B+ 7 7,403
Fresenius Medical Care
Capital Trust II,
Trust Preferred Security
02-01-08 ........................ 7.875 B+ 10 9,900
Integrated Health Services Inc.,
Sr Sub Note 01-15-08 ............ 9.250 B- 16 16,620
PharMerica, Inc.,
Sr Sub Note 04-01-08 (R) ........ 8.375 B 6 6,030
Physician Sales & Service, Inc.,
Gtd Sr Sub Note 10-01-07 ........ 8.500 B+ 9 9,270
Quest Diagnostics, Inc.,
Sr Sub Note 12-15-06 ............ 10.750 B+ 3 3,353
Sola International, Inc.,
Note 03-15-08 ................... 6.875 BBB- 10 9,994
Tenet Healthcare Corp.,
Sr Sub Note 01-15-07 ............ 8.625 BB- 13 13,325
Sr Sub Note 12-01-08 (R) ........ 8.125 BB- 8 8,010
Vencor, Inc.,
Sr Sub Note 05-01-05 (R) ........ 9.875 B- 5 4,888
Watson Pharmaceuticals, Inc.,
Sr Note 05-15-08 ................ 7.125 BBB- 10 10,138
-----------
98,931
-----------
Metal (0.12%)
Freeport-McMoRan Copper &
Gold, Inc.,
Sr Note 11-15-26 ................ 7.200 CCC+ 10 8,044
-----------
Mortgage Banking (5.47%)
Citibank Credit Card Master Trust I,
Pass Thru Ctf Ser 1997-7 Class A
08-15-02 ........................ 6.350 AAA 45 45,359
ContiFinancial Corp.,
Sr Note 03-15-02 ................ 7.500 BB+ 18 18,061
SEE NOTES TO FINANCIAL STATEMENTS.
102
<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
- ------------------- ---- ------- -------------- -----
Mortgage Banking (continued)
ContiMortgage Home Equity
Loan Trust,
Pass Thru Ctf Ser 1995-2
Class A-5 08-15-25 .............. 8.100% AAA $10 $10,405
CS First Boston Mortgage
Securities Corp., Commercial
Mtg Pass Thru Ctf Ser 1998-C1
Class A-1A 12-17-07 ............. 6.260 AAA 25 25,191
EQCC Home Equity Loan Trust,
Pass Thru Ctf Ser 1997-3
Class A-9 02-15-29 .............. 6.570 AAA 25 25,401
First Plus Home Loan Trust,
Pass Thru Ctf Ser 1997-1
Class A-6 12-10-15 .............. 6.950 AAA 5 5,047
GMAC Commercial Mortgage
Securities, Inc.,
Pass Thru Ctf Ser 1997-C2
Class A-3 11-15-07 .............. 6.566 AAA 25 25,609
Homeside Lending Inc.,
Med Term Sr Note 05-15-03 ....... 6.200 A+ 25 24,925
IMC Home Equity Loan Trust,
Pass Thru Ctf Ser 1998-1
Class A-4 03-20-25 .............. 6.600 Aaa 15 15,017
Money Store Home Equity Trust
(The), Pass Thru Ctf Ser 1997-D
Class AF-7 12-15-38 ............. 6.485 AAA 16 16,230
Morgan Stanley Capital I, Inc.,
Pass Thru Ctf Ser 1997-WF1
Class A1 10-15-06 (R) ........... 6.830 AAA 107 110,352
Nomura Asset Securities Corp.,
Pass Thru Ctf Ser 1998-D6
Class A-1A 03-17-28 ............. 6.280 AAA 15 14,891
Salomon Brothers Mortgage
Securities VII, Inc.,
Mtg Pass Thru Ctf Ser 1997-HUD2
Class A-2 07-25-24 .............. 6.750 Aaa 6 6,098
UCFC Home Equity Loan Trust,
Pass Thru Ctf Ser 1997-A1
Class A-8 06-15-28 .............. 7.220 AAA 10 10,238
-----------
352,824
-----------
Oil & Gas (1.19%)
Camuzzi Gas Pampeana S.A.,
Bond (Argentina) 12-15-01 (Y) ... 9.250 BBB- 10 10,075
Norsk Hydro ASA,
Deb (Norway) 10-01-16 (Y) ....... 7.500 A 20 22,371
Petroleum Geo-Services,
Sr Note (Norway) 03-30-08 (Y) ... 6.625 BBB 15 15,027
Union Pacific Resources Group, Inc.,
Deb 05-15-28 .................... 7.150 BBB 15 15,002
YPF Sociedad Anonima,
Sr Note (Argentina) 03-15-03 (Y) 7.250 BBB- 15 14,576
-----------
77,051
-----------
Paper & Paper Products (0.21%)
Fort James Corp.,
Sr Note 09-15-02 ................ 6.500 BBB- 5 5,035
Repap New Brunswick,
Sr Note (Canada) 04-15-05 (Y) ... 10.625 CCC+ 5 5,050
S.D. Warren Co.,
Sr Sub Note Ser B 12-15-04 ...... 12.000 B+ 3 3,315
-----------
13,400
-----------
Real Estate Investment Trust (0.55%)
American Health Properties, Inc.,
Note 01-15-07 ................... 7.500 BBB- 20 20,512
Liberty Property L.P.,
Med Term Note 06-05-02 .......... 6.600 BBB- 10 10,010
TriNet Corporate Realty Trust, Inc.,
Note 05-15-01 ................... 7.300 BBB- 5 5,079
-----------
35,601
-----------
Retail (0.11%)
Southern Foods Group L.P.,
Sr Sub Note 09-01-07 (R) ........ 9.875 B 7 7,298
-----------
Steel (0.20%)
Bayou Steel Corp.,
1st Mtg Bond 05-15-08 (R) ....... 9.500 B 10 9,913
IVACO, Inc.,
Sr Note (Canada) 09-15-05 (Y) ... 11.500 B+ 3 3,293
-----------
13,206
-----------
Telecommunications (3.54%)
Compagnie De Radiocomunicaciones
Moviles S.A.,
Bond (Argentina)
05-08-08 (R) (Y) ................ 9.250 BBB- 3 2,880
Esprit Telecom Group Plc,
Sr Note (United Kingdom)
06-15-08 (R) (Y) ................ 10.875 B- 10 9,900
Facilicom International,
Sr Note 01-15-08 (R) ............ 10.500 B- 10 9,800
FLAG Ltd.,
Sr Note (Bermuda)
01-30-08 (R) (Y) ................ 8.250 B+ 16 16,120
GTE Corp.,
Deb 04-15-28 .................... 6.940 A 35 35,438
MCI Communications Corp.,
Sr Note 04-15-10 ................ 6.500 A 20 20,025
McLeodUSA Inc.,
Sr Note 03-15-08 (R) ............ 8.375 B+ 13 13,033
MetroNet Communications Corp.,
Sr Note (Canada) 08-15-07 (Y) ... 12.000 B 5 5,750
Nextel Communications, Inc.,
Sr Disc Note, Step Coupon (9.75%,
02-15-99) 08-15-04 (A) ......... Zero CCC+ 31 30,148
Sr Disc Note, Step Coupon (9.95%,
02-15-03) 02-15-08 (A) (R) ..... Zero CCC+ 10 6,375
NEXTLINK Communications, Inc.,
Sr Note 10-01-07 ................ 9.625 B 7 7,140
Sr Note 03-15-08 (R) ............ 9.000 B 6 6,000
Paging Network, Inc.,
Sr Sub Note 10-15-08 ............ 10.000 B 10 10,325
Qwest Communications
International, Inc.,
Sr Note Ser B 04-01-07 .......... 10.875 BB+ 4 4,610
Satelites Mexicanos S.A. de C.V.,
Sr Note (Mexico) 11-01-04 (R) (Y) 10.125 B- 5 4,875
TCI Communications, Inc.,
Sr Deb 08-01-15 ................. 8.750 BBB- 22 26,486
Teligent, Inc.,
Sr Note 12-01-07 ................ 11.500 CCC 11 11,138
SEE NOTES TO FINANCIAL STATEMENTS.
103
<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
- ------------------- ---- ------- -------------- -----
Telecommunications (continued)
Viatel, Inc.,
Unit (Sr Note & Preferred Stock
Ser A) 04-15-08 (R) ............. 11.250% Caa1 $8 $8,380
-----------
228,423
-----------
Textile (0.62%)
Tommy Hilfiger USA,
Gtd Note 06-01-03 ............... 6.500 BBB- 15 15,056
Tropical Sportswear International Corp.,
Sr Sub Note 06-15-08 (R) ........ 11.000 B- 10 10,025
Unifi, Inc.,
Note 02-01-08 ................... 6.500 A- 15 14,831
-----------
39,912
-----------
Tobacco (0.65%)
Philip Morris,
Note 08-15-02 ................... 7.125 A 10 10,259
RJR Nabisco, Inc.,
Note 12-01-02 ................... 8.625 BBB- 21 21,676
Note 09-15-03 ................... 7.625 BBB- 10 9,943
-----------
41,878
-----------
Transport (1.64%)
America West Airlines, Inc.,
Pass Thru Ctf Ser B 01-02-08 .... 6.930 A- 5 4,902
Continental Airlines, Inc.,
Pass Thru Ctf Ser 972C 06-30-04 . 7.206 BBB 20 20,588
Enterprises Shipholding Corp.,
Sr Note (Greece) 05-01-08 (R) (Y) 8.875 BB 8 7,840
Fine Air Services, Inc.,
Sr Note 06-01-08 (R) ............ 9.875 B 15 14,663
Northwest Airlines, Inc.,
Gtd Note 03-15-04 ............... 8.375 BB 15 15,467
Pass Thru Ctf Ser 1996-1D
01-02-15 ........................ 8.970 BBB- 5 5,508
NWA Trust,
Sr Note Ser A 06-21-14 .......... 9.250 A2 4 4,385
U.S. Airways, Inc.,
Pass Thru Ctf Ser 1990-A1
03-19-05 ........................ 11.200 BB 22 24,853
Wisconsin Central Transportation Corp.,
Note 04-15-08 ................... 6.625 BBB- 8 7,948
-----------
106,154
-----------
Utilities (3.58%)
Beaver Valley Funding Corp.,
Sec Lease Oblig Bond 06-01-17 ... 9.000 BB- 23 26,302
BVPS II Funding Corp.,
Collateralized Lease Bond
06-01-17 ........................ 8.890 BB- 5 5,781
Calpine Corp.,
Sr Note 07-15-07 ................ 8.750 BB- 8 8,220
Cleveland Electric Illuminating Co.,
1st Mtg Ser B 05-15-05 .......... 9.500 BB+ 23 25,405
Sr Sec Note 11-01-17 ............ 7.880 BB+ 20 21,830
CMS Energy Corp.,
Sr Note 05-15-02 ................ 8.125 BB 5 5,144
First PV Funding Corp.,
Deb Ser 86B 01-15-16 ............ 10.150 BB- 2 2,130
Hydro-Quebec,
Gtd Bond (Canada) 02-01-21 (Y) .. 9.400 A+ 15 19,945
Gtd Bond (Canada) 01-15-22 (Y) .. 8.400 A+ 20 24,419
Iberdrola International B.V.,
Note 10-01-02 ................... 7.500 AA- 15 15,695
Long Island Lighting Co.,
Deb 07-15-19 .................... 8.900 A- 3 3,179
Deb 11-01-22 .................... 9.000 A- 10 11,406
Niagara Mohawk Power Corp.,
Sr Note Ser G 10-01-08 .......... 7.750 BB- 10 10,238
North Atlantic Energy Corp.,
1st Mtg Ser A 06-01-02 .......... 9.050 B+ 8 8,223
Puget Sound Energy Capital Trust I,
Gtd Cap Security Ser B 06-01-27 . 8.231 Baa2 15 15,594
U.S. West Capital Funding Inc.,
Gtd Bond 07-15-28 ............... 6.875 A- 10 10,001
Waterford 3 Funding Corp.,
Sec Lease Obligation Bond
01-02-17 ........................ 8.090 BBB- 17 17,621
-----------
231,133
-----------
TOTAL BONDS
(Cost $5,947,492) (92.79%) 5,988,229
------- -----------
NUMBER OF
SHARES
------
WARRANTS
Telecommunications (0.00%)
MetroNet Communications Corp. (Canada) (Y) (R).. 5 240
-----------
TOTAL WARRANTS
(Cost $51) (0.00%) 240
------- -----------
SEE NOTES TO FINANCIAL STATEMENTS.
104
<PAGE>
==============================FINANCIAL STATEMENTS==============================
John Hancock Funds - Declaration Trust -- V.A. Sovereign Bond Fund
INTEREST PAR VALUE MARKET
ISSUER, DESCRIPTION RATE (000s OMITTED) VALUE
- ------------------- ---- -------------- -----
SHORT-TERM INVESTMENTS
Joint Repurchase Agreement (15.62%)
Investment in a joint repurchase
agreement transaction with Toronto
Dominion Securities USA, Inc. -
Dated 06-30-98, due 07-01-98
(Secured by U.S. Treasury Bond,
9.125%, due 05-15-18 and U.S.
Treasury Notes, 5.000% thru
8.750%, due 12-31-98 thru
04-30-03) - Note B..................... 5.750% $1,008 $1,008,000
----------
Corporate Savings Account (0.02%)
Investors Bank & Trust Company
Daily Interest Savings Account
Current Rate 4.950%............................ 881
----------
TOTAL SHORT-TERM INVESTMENTS (15.64%) 1,008,881
-------- ----------
TOTAL INVESTMENTS (108.43%) 6,997,350
-------- ----------
OTHER ASSETS AND LIABILITIES, NET (8.43%) (544,047)
-------- ----------
TOTAL NET ASSETS (100.00%) $6,453,303
======== ==========
NOTES TO THE SCHEDULE OF INVESTMENTS
* Credit Ratings are rated by Moody's Investors Service or John Hancock
Advisers, Inc. where Standard and Poor's ratings are not available.
+ A portion of these securities having an aggregate value of $891,142 or
13.81% 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 $586,753
of United States Treasury Bonds 7.125%, 02/15/23 and $359,179 of United
States Treasury Notes 7.500%, 02/15/05 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 $514,735 or 7.98% of net assets as of
June 30, 1998.
(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.
105
<PAGE>
==============================FINANCIAL STATEMENTS==============================
John Hancock Funds - Declaration Trust -- V.A. Strategic Income Fund
Schedule of Investments
June 30, 1998 (Unaudited)
- --------------------------------------------------------------------------------
The Schedule of Investments is a complete list of all securities owned by the V.
A. Strategic Income Fund on June 30, 1998. It is divided into four main
catagories: bonds, common stocks, 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
- ------------------- ---- ------- -------------- -----
BONDS
Advertising (1.92%)
Outdoor Systems, Inc.,
Sr Sub Note 10-15-06 ............ 9.375% B $100 $106,250
R.H. Donnelly, Inc.
Sr Sub Note 06-01-08 (R) ....... 9.125 B+ 100 101,625
-----------
207,875
-----------
Banks - Foreign (1.84%)
International Bank for Reconstruction
& Development, Sr Note
(South Africa) 07-21-98 # ....... 15.000 AAA 500 83,917
Landeskreditbank Baden-
Wuerttemberg, Sub Note
(Germany) 02-01-23 (Y) .......... 7.625 AAA 100 116,083
-----------
200,000
-----------
Computers (1.07%)
Unisys Corp.,
Sr Note 10-15-04 ................ 11.750 BB- 100 115,500
-----------
Containers (0.94%)
Stone Container Corp., Unit
(Sr Sub Deb & Supplemental
Interest Cert) 04-01-02 ......... 12.250 B- 100 102,000
-----------
Cosmetics & Personal Care (0.91%)
Global Health Sciences, Inc.,
Sr Note 05-01-08 (R) ............ 11.000 B+ 100 98,750
-----------
Diversified Operations (1.00%)
Euramax International Plc,
Sr Sub Note (United Kingdom)
10-01-06 (Y) .................... 11.250 B 100 108,250
-----------
Electronics (1.61%)
Communications Instruments, Inc.,
Gtd Sr Sub Note Ser B 09-15-04 .. 10.000 B- 100 102,000
Zilog, Inc.,
Sr Sec Note 03-01-05 (R) ....... 9.500 B 100 73,000
-----------
175,000
-----------
Energy (1.89%)
P & L Coal Holdings Corp.,
Sr Sub Note 05-15-08 (R) ....... 9.625 B 200 205,500
-----------
Finance (0.92%)
AEI Holding Co.,
Sr Note 11-15-07 (R) ............ 10.000 B- 100 99,500
-----------
Government - Foreign (6.74%)
Australia, Commonweath of,
Government Bond (Australia)
08-15-08 # ...................... 8.750 AAA 400 307,559
Government Bond (Australia)
11-15-06 # ...................... 6.750 AAA 200 133,907
United Kingdom of Great Britain
Treasury Gilts, Government Bond
(United Kingdom) 06-07-21 # ..... 8.000 AAA 50 108,870
Government Bond
(United Kingdom) 12-07-28 # ..... 6.000 AAA 100 180,737
-----------
731,073
-----------
Government - U.S. (20.05%)
United States Treasury,
Bond 02-15-16 ................... 9.250 AAA 200 278,188
Bond 08-15-19 ................... 8.125 AAA 500 645,310
Bond 08-15-23 ................... 6.250 AAA 200 214,124
Bond 11-15-27 ................... 6.125 AAA 500 535,780
Note 08-15-04 ................... 7.250 AAA 225 244,793
Note 08-31-02 ................... 6.250 AAA 250 256,523
-----------
2,174,718
-----------
Leisure (4.50%)
Casino America, Inc.,
Sr Sec Note 08-01-03 ............ 12.500 B+ 250 282,500
Cinemark USA, Inc.,
Sr Sub Note Ser D 08-01-08 ...... 9.625 B 100 103,000
Sun International Hotels Ltd.,
Gtd Sr Sub Note (Bahamas)
12-15-07 (Y) .................... 8.625 B+ 100 103,000
-----------
488,500
-----------
Machinery (1.84%)
Columbus McKinnon Corp.,
Sr Sub Note 04-01-08 (R) ....... 8.500 B 100 98,750
Newcor, Inc.,
Sr Sub Note 03-01-08 (R) ....... 9.875 B- 100 101,250
-----------
200,000
-----------
Media (8.40%)
Chancellor Media Corp.,
Gtd Sr Sub Note 01-15-07 ....... 10.500 Ba3 100 111,000
Cumulus Media, Inc.,
Sr Sub Note 07-01-08 ............ 10.375 CCC+ 100 101,375
Falcon Holding Group L.P./Falcon
Funding Corp., Sr Deb
04-15-10 (R) .................... 8.375 B 200 201,500
Intermedia Capital Partners,
Sr Note 08-01-06 ................ 11.250 B 100 111,750
Regional Independent Media Group
Plc, Sr Note (United Kingdom)
07-01-08 (R), (Y) ............... 10.500 B- 175 177,625
SFX Entertainment, Inc.,
Sr Sub Note 02-01-08 (R) ....... 9.125 CCC+ 100 98,000
STC Broadcasting, Inc.,
Sr Sub Note 03-15-07 ............ 11.000 B- 100 109,250
-----------
910,500
-----------
Medical (0.91%)
Fresenius Medical Care
Capital Trust II, Trust Preferred
Security 02-01-08 ............... 7.875 B+ 100 99,000
-----------
SEE NOTES TO FINANCIAL STATEMENTS.
106
<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
- ------------------- ---- ------- -------------- -----
Metal (1.99%)
GS Technologies Operating Co.,
Sr Note 10-01-05 ................ 12.250% B $100 $114,000
Koppers Industries, Inc.,
Gtd Sr Sub Note 12-01-07 ....... 9.875 B- 100 102,000
-----------
216,000
-----------
Oil & Gas (1.47%)
Canadian Forest Oil Ltd.,
Gtd Sr Sub Note (Canada)
09-15-07 (Y) .................... 8.750 B 100 96,750
Universal Compression, Inc.,
Sr Disc Note, Step Coupon
(9.875%, 02-15-03)
02-15-08 (A), (R) ............... Zero B 100 62,500
-----------
159,250
-----------
Paper & Paper Products (0.93%)
Repap New Brunswick,
Sr Note (Canada) 04-15-05 (Y) ... 10.625 CCC+ 100 101,000
-----------
Printing - Commercial (0.98%)
Goss Graphic Systems, Inc.,
Sr Sub Note 10-15-06 ............ 12.000 B 100 105,750
-----------
Retail (1.38%)
United Stationers, Inc.,
Sr Sub Note 04-15-08 (R) ....... 8.375 B 150 150,000
-----------
Steel (0.92%)
Ameristeel Corp.,
Sr Note 04-15-08 (R) ............ 8.750 B+ 100 100,000
-----------
Telecommunications (28.77%)
Allegiance Telecom, Inc.,
Sr Disc Note, Step Coupon
(11.75%, 02-15-03)
02-15-08 (A), (R) ............... Zero B- 250 125,000
American Mobile Satellite
Corp./AMSC Acquisition
Co. Inc., Unit (Sr Note &
Warrant) 04-01-08 (R) ........... 12.250 B- 100 93,000
Clearnet Communications, Inc.,
Sr Disc Note, Step Coupon
(10.40%, 05-15-03) (Canada)
05-15-08 # ...................... Zero B3 150 60,428
COLT Telecom Group Plc,
Sr Note (United Kingdom)
11-30-07 # ...................... 10.125 B 75 132,582
Comunicacion Celular S.A., Bond,
Step Coupon (13.125%, 11-15-00)
(Colombia) 11-15-03 (A), (Y) .... Zero B3 100 77,000
Crown Castle International Corp.,
Sr Disc Note, Step Coupon
(10.625%, 11-01-02)
11-15-07 (A), (R) ............... Zero B 150 102,375
Diva Systems Corp.,
Unit (Sr Disc Note & Warrants),
Step Coupon (12.625%, 03-01-03)
03-01-08 (A), (R) ............... Zero B- 250 117,500
DTI Holdings, Inc.,
Unit (Sr Disc Note & Warrants),
Step Coupon (12.500%, 03-01-03)
03-01-08 (A), (R) ............... Zero B- 150 81,000
Esprit Telecom Group Plc,
Sr Note (United Kingdom)
12-15-07 (Y) .................... 11.500 B- 100 103,000
Sr Note (United Kingdom)
06-15-08 (R), (Y) ............... 10.875 B- 100 99,000
FLAG Ltd., Sr Note (Bermuda)
01-30-08 (R), (Y) ............... 8.250 B+ 100 100,750
Global Crossing Holdings Ltd.,
Sr Note 05-15-08 (R) ............ 9.625 B 100 104,250
Globalstar L.P./Globalstar Capital
Corp., Sr Note 06-01-05 (R) ..... 11.500 B 100 97,375
Hermes Europe Railtel B.V.,
Sr Note (Netherlands)
08-15-07 (Y) .................... 11.500 B 100 113,000
Innova S. de R.L., Sr Note
(Mexico) 04-01-07 (Y) ........... 12.875 B- 100 101,500
Intercel, Inc., Unit (Sr Discount
Note & Warrant), Step Coupon
(12.00%, 02-01-01)
02-01-06 (A) .................... Zero B 200 158,000
Ionica Plc, Sr Disc Note, Step
Coupon (15.00%, 05-01-02)
(United Kingdom)
05-01-07 (A), (Y) ............... Zero Caa3 200 48,000
Iridium LLC/Iridium Capital Corp.,
Gtd Sr Note Ser A 07-15-05 ...... 13.000 B- 100 106,500
IXC Communications, Inc.,
Sr Sub Note 04-15-08 (R) ....... 9.000 CCC+ 100 99,000
MetroNet Communications Corp.,
Sr Disc Note, Step Coupon
(9.95%, 06-15-03) (Canada)
06-15-08 (A), (Y) ............... Zero B 200 123,750
Sr Discount Note, Step Coupon
(10.75%, 11-01-02) (Canada)
11-01-07 (A), (Y) ............... Zero B 100 66,000
Nextel Communications, Inc.,
Sr Disc Note, Step Coupon
(9.75%, 02-15-99) 08-15-04 (A) .. Zero CCC+ 75 72,937
Sr Disc Note, Step Coupon
(9.95%, 02-15-03)
02-15-08 (A), (R) ............... Zero CCC+ 125 79,688
NTL, Inc.,
Sr Note 04-01-08 (R) ............ 9.500 B- 60 103,064
Orion Network Systems,
Sr Note 01-15-07 ................ 11.250 B+ 100 111,500
Qwest Communications
International, Inc., Sr Note
Ser B 04-01-07 .................. 10.875 BB+ 100 115,250
RCN Corp.,
Sr Note 10-15-07 ................ 10.000 B3 100 103,000
Teligent, Inc.,
Sr Note 12-01-07 ................ 11.500 CCC 100 101,250
Viatel, Inc., Unit (Sr Note &
Preferred Stock) 04-15-08 (R) ... 11.250 Caa1 200 209,500
Winstar Equipment Corp.,
Gtd Sec Note 03-15-04 ........... 12.500 B3 100 114,000
-----------
3,119,199
-----------
SEE NOTES TO FINANCIAL STATEMENTS.
108
<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
- ------------------- ---- ------- -------------- -----
Textile (1.39%)
Tropical Sportswear International
Corp., Sr Sub Note
06-15-08 (R) .................... 11.000% B- $150 $150,375
-----------
Transport (1.81%)
Enterprises Shipholding Corp.,
Sr Note (Greece)
05-01-08 (R), (Y) ............... 8.875 BB 100 98,000
Fine Air Services, Inc.,
Sr Note 06-01-08 (R) ............ 9.875 B 100 97,750
-----------
195,750
-----------
Utilities (1.97%)
Midland Funding Corp. II,
Deb Ser A 07-23-05 .............. 11.750 B 100 120,294
Monterrey Power S.A. de C.V.,
Sr Sec Bond (Mexico)
11-15-09 (R), (Y) ............... 9.625 BB 100 93,500
-----------
213,794
-----------
TOTAL BONDS
(Cost $10,431,144) (96.15%) 10,427,284
------- -----------
NUMBER OF
SHARES
------
COMMON STOCKS
KLM Royal Dutch Air Lines N.V.,
Common Stock (Netherlands)..................... 500 20,469
Nextel Communications, Inc. (Class A),
Common Stock**................................. 232 5,771
----------
TOTAL COMMON STOCKS
(Cost $21,030) (0.24%) 26,240
------- ----------
PREFERRED STOCKS AND WARRANTS
Allegiance Telecom, Inc., Warrant** ............ 250 625
Comunicacion Celular S.A., Warrant
(Colombia) (Y)** .............................. 1,000 7,000
Loral Space & Communications Ltd., Warrant** ... 100 1,000
NEXTLINK Communications, Inc., 14.00%,
Preferred Stock ............................... 1,662 99,720
SFX Broadcasting, Inc., 12.625%, Ser E,
Preferred Stock ............................... 1,130 134,482
----------
TOTAL PREFERRED
STOCKS AND WARRANTS
(Cost $220,978) (2.24%) 242,827
------- ----------
INTEREST PAR VALUE MARKET
ISSUER, DESCRIPTION RATE (000s OMITTED) VALUE
- ------------------- ---- -------------- -----
SHORT-TERM INVESTMENTS
Joint Repurchase Agreement (0.52%)
Investment in a joint repurchase
agreement transaction with Toronto
Dominion Securities USA, Inc. - Dated
06-30-98, due 07-01-98 (Secured by U.S.
Treasury Bond, 9.125%, due 05-15-18 and
U.S. Treasury Notes, 5.000% thru 8.750%,
due 12-13-98 thru 04-30-03) - Note B.... 5.750% $56 $56,000
-----------
Corporate Savings Account (0.00%)
Investors Bank & Trust Company
Daily Interest Savings Account
Current Rate 4.95%............................. 617
-----------
TOTAL SHORT-TERM INVESTMENTS (0.52%) 56,617
-------- -----------
TOTAL INVESTMENTS (99.15%) 10,752,968
-------- -----------
OTHER ASSETS AND LIABILITIES, NET (0.85%) 91,365
-------- -----------
TOTAL NET ASSETS (100.00%) $10,844,333
======== ===========
* Credit Ratings are unaudited and rated by Moody's Investors Service or
John Hancock Advisers, Inc. where Standard & Poor's ratings are not
available.
** Non-income producing security.
# Par value of foreign bonds is expressed in local currency, as shown
parenthetically in security description.
(A) Cash interest will be paid on this obligation at the stated rate beginning
on the stated date.
(R) These securities are exempt from registration under rule 144A of the
Securities Act of 1933. Such securities may be resold, normally to
qualified institutional buyers, in transactions exempt from registration.
See Note B of the Notes to Financial Statements for valuation policy. Rule
144A securities amounted to $3,419,127 or 31.53% of the Fund's net assets
as of June 30, 1998.
(Y) Parenthetical disclosure of a foreign country in the security description
represents country of foreign issuer, however, security is U. S. dollar
denominated.
The percentage shown for each investment category is the total value of that
category as a percentage of the net assets of the Fund.
SEE NOTES TO FINANCIAL STATEMENTS.
108
<PAGE>
==============================FINANCIAL STATEMENTS==============================
John Hancock Funds - Declaration Trust -- V.A. Strategic Income Fund
Portfolio Concentration
June 30, 1998 (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 June 30, 1998 assigned to country
categories.
MARKET VALUE
AS A % OF
COUNTRY DISTRIBUTION FUND NET ASSETS
- -------------------- ---------------
Australia.................................. 4.07%
Bahamas.................................... 0.95
Bermuda.................................... 0.93
Canada..................................... 4.13
Colombia................................... 0.77
Germany.................................... 1.07
Greece..................................... 0.90
Mexico..................................... 1.80
Netherlands................................ 1.23
South Africa............................... 0.77
United Kingdom............................. 8.83
United States.............................. 73.70
-----
TOTAL INVESTMENTS 99.15%
=====
Additionally, the concentration of investments can be aggregated by the quality
rating for each debt security.
QUALITY DISTRIBUTION
- --------------------
AAA........................................ 28.64
BB......................................... 4.92
B.......................................... 54.19
CCC........................................ 8.40
-----
TOTAL BONDS 96.15%
=====
SEE NOTES TO FINANCIAL STATEMENTS.
109
<PAGE>
==============================FINANCIAL STATEMENTS==============================
John Hancock Funds - Declaration Trust -- V.A. High Yield Bond Fund
Schedule of Investments
June 30, 1998 (Unaudited)
- --------------------------------------------------------------------------------
The Schedule of Investments is a complete list of all securities owned by the V.
A. High Yield Bond Fund on June 30, 1998. It is divided into four main
catagories: bonds, common stocks, preferred stocks 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
- ------------------- ---- ------- -------------- -----
BONDS
Agricultural Operations (0.17%)
Iowa Select Farms L.P./ISF
Finance, Inc., Sr Sub Note
12-01-05 (R) .................... 10.750% B3 $10 $10,050
-----------
Automobile / Trucks (0.42%)
J.B. Poindexter & Co., Inc.,
Sr Note 05-15-04 ................ 12.500 B- 25 25,125
-----------
Banks - Foreign (1.98%)
Fuji JGB Inv LLC, Pfd.,
Bond Ser A 12-31-49 (R) ** ...... 9.870 BB+ 135 119,475
-----------
Chemicals (2.54%)
American Pacific Corp.,
Sr Note 03-01-05 (R) ............ 9.250 BB- 50 51,625
Trikem S.A.,
Bond (Brazil) 07-24-07 (R) (Y) .. 10.625 BB- 125 101,250
-----------
152,875
-----------
Computers (2.09%)
Exodus Communications, Inc.,
Sr Note 07-01-08 (R) ............ 11.250 B- 24 24,060
PSINet, Inc.,
Sr Note Ser B 02-15-05 .......... 10.000 B- 100 102,000
-----------
126,060
-----------
Consumer Products Misc. (0.82%)
Indesco International, Inc.,
Sr Sub Note 04-15-08 (R) ........ 9.750 B- 50 49,250
-----------
Containers (6.49%)
Gaylord Container Corp.,
Sr Note Ser B 06-15-07 .......... 9.375 B 25 24,062
Sr Sub Note Ser B 02-15-08 ...... 9.875 B 200 194,000
Riverwood International Corp.,
Gtd Sr Sub Note 04-01-08 ........ 10.875 CCC+ 20 20,375
Stone Container Corp.,
Unit (Sr Sub Deb & Supplemental
Interest Cert) 04-01-02 ......... 12.250 B- 150 153,000
-----------
391,437
-----------
Cosmetics & Personal Care (1.51%)
AKI, Inc.,
Sr Note 07-01-08 (R) ............ 10.500 B+ 7 7,070
Global Health Sciences, Inc.,
Sr Note 05-01-08 (R) ............ 11.000 B+ 75 74,063
Styling Technology Corp.,
Sr Sub Note 07-01-08 (R) ........ 10.875 B- 10 10,025
-----------
91,158
-----------
Energy (3.41%)
P & L Coal Holdings Corp.,
Sr Sub Note 05-15-08 (R) ........ 9.625 B 200 205,500
-----------
Finance (3.01%)
Advance Agro Public Co., Sr Note
(Thailand) 11-15-07 (R) (Y) ..... 13.000 CCC+ 50 50,000
Polysindo International Finance
B.V., Gtd Note (Indonesia)
02-12-99 (Y) ** ................. 8.648 CCC- 10 5,500
Sampoerna International Finance
Co., B.V., Gtd Yankee Bond
(Indonesia) 06-15-06 (R) (Y) .... 8.375 CCC- 50 26,500
Sumitomo Bank Treasury Co. LLC,
Bond Ser A 12-29-49 (R) ** ...... 9.400 BBB- 100 99,500
-----------
181,500
-----------
Food (4.00%)
Del Monte Foods Co., Sr Disc Note,
Step Coupon (12.50%, 12-15-02)
12-15-07 (A) (R) ................ Zero B- 70 45,675
Mastellone Hermanos S.A.,
Sr Bond (Argentina)
04-01-08 (R) (Y) ................ 11.750 B+ 150 150,000
Specialty Foods Acquisition Corp.,
Sr Sub Note Ser B 08-15-03 ...... 11.250 CCC 50 45,250
-----------
240,925
-----------
Government - Foreign (0.41%)
Government of Jamaica,
Note (Jamaica) 06-10-05 (R) (Y) . 10.875 Ba3 25 25,000
-----------
Leisure (5.26%)
Claridge Hotel and Casino Corp.,
1st Mtg Note 02-01-02 ........... 11.750 CC 50 49,124
Clearview Cinema Group, Inc.,
Sr Note 06-01-08 (R) ............ 10.875 B 10 10,200
Fitzgeralds Gaming Corp.,
Gtd Sr Sec Note 12-15-04 (R) .... 12.250 B- 50 48,500
IHF Holdings, Inc., Sr Sub
Disc Note Ser B, Step Coupon
(15.00%, 11-15-99)
11-15-04 (A) .................... Zero Caa2 25 20,750
Premier Parks, Inc., Sr Disc Note,
Step Coupon (10.00%, 04-01-03)
04-01-08 (A) .................... Zero B- 200 132,750
SC International Services, Inc.,
Gtd Sr Sub Note Ser B 09-01-07 .. 9.250 B 55 56,100
-----------
317,424
-----------
Machinery (0.41%)
Glasstech, Inc.,
Sr Note Ser B 07-01-04 .......... 12.750 B+ 25 24,500
-----------
Manufacturing (5.73%)
AP Holdings, Inc., Sr Disc Note,
Step Coupon (11.25%, 03-15-03)
03-15-08 (A) (R) ................ Zero B- 200 119,000
Coyne International Enterprises
Corp., Sr Sub Note 06-01-08 (R) . 11.250 B- 16 16,040
Doe Run Resources Corp.,
Sr Note 03-15-05 (R) ............ 11.250 B+ 10 10,000
Sr Sub Note 03-15-03 (R) ** ..... 12.009 B+ 25 25,000
SEE NOTES TO FINANCIAL STATEMENTS.
110
<PAGE>
==============================FINANCIAL STATEMENTS==============================
John Hancock Funds - Declaration Trust -- V.A. High Yield Bond Fund
INTEREST CREDIT PAR VALUE MARKET
ISSUER, DESCRIPTION RATE RATING* (000s OMITTED) VALUE
- ------------------- ---- ------- -------------- -----
Manufacturing (continued)
Icon Health & Fitness, Inc.,
Sr Sub Note Ser B 07-15-02 ...... 13.000% CCC+ $50 $54,875
RAB Holdings, Inc.,
Sr Note 05-01-08 (R) ............ 13.000 CCC+ 120 120,600
-----------
345,515
-----------
Media (1.38%)
CD Radio, Inc., Sr Disc Note,
Step Coupon (15.00%, 12-01-02)
12-01-07 (A) .................... Zero Caa1 10 5,850
Cumulus Media, Inc., Sr Sub Note
07-01-08 ........................ 10.375 CCC+ 14 14,193
Digital Television Services LLC,
Gtd Sr Sub Note 08-01-07 ........ 12.500 CCC 35 39,900
Regional Independent Media Group Plc,
Sr Disc Note, Step Coupon
(12.875%, 07-01-03)
(United Kingdom)
07-01-08 (A) (R) *** ............ Zero B- 20 18,178
Sr Note (United Kingdom)
07-01-08 (R) (Y) ................ 10.500 B- 5 5,075
-----------
83,196
-----------
Metal (0.65%)
Freeport-McMoRan Copper &
Gold, Inc., Sr Note 11-15-06 .... 7.500 CCC+ 10 7,800
Metallurg, Inc.,
Sr Note 12-01-07 (R) ............ 11.000 B- 30 31,350
-----------
39,150
-----------
Oil & Gas (6.58%)
Gothic Energy Corp., Unit
(Sr Sec Disc Note & Warrants)
05-01-06 (R) .................... 14.125 CCC 10 5,700
Gothic Production Corp.,
Sr Sec Note 05-01-05 (R) ........ 11.125 B- 150 144,000
Great Lakes Acquisition,
Sr Disc Deb, Step Coupon
(13.125%, 05-15-03)
05-15-09 (A) (R) ................ Zero B- 200 109,000
Key Energy Group, Inc.,
Conv Sub Note 09-15-04 (R) ...... 5.000 B 80 62,400
Conv Sub Note 09-15-04 .......... 5.000 B 50 39,000
Mariner Energy, Inc.,
Sr Sub Note Ser B 08-01-06 ...... 10.500 B- 10 10,250
Ocean Rig Norway AS,
Gtd Sr Note (Norway)
06-01-08 (R) (Y) ................ 10.250 B- 11 10,450
PANACO, Inc., Gtd Sr Sub Note
Ser B 10-01-04 .................. 10.625 B- 10 9,950
Universal Compression, Inc.,
Sr Disc Note, Step Coupon
(9.875%, 02-15-03)
02-15-08 (A) (R) ................ Zero B 10 6,250
-----------
397,000
-----------
Paper & Paper Products (4.76%)
American Pad & Paper Co.,
Sr Sub Note Ser B 11-15-05 ...... 13.000 B- 10 10,400
APP International Finance Co. B.V ,
Gtd Sec Note (Indonesia)
10-01-05 (Y) .................... 11.750 CCC+ 150 132,000
Bear Island Paper Co. LLC,
Sr Sec Note Ser B 12-01-07 ...... 10.000 B 25 25,750
Repap New Brunswick,
Sr Note (Canada) 04-15-05 (Y) ... 10.625 CCC+ 100 101,000
Sappi BVI Finance Ltd.,
Gtd Conv Bond (South Africa)
08-01-02 (R) (Y) ................ 7.500 BB- 20 18,000
-----------
287,150
-----------
Real Estate Operations (0.14%)
Signature Resorts, Inc.,
Conv Sub Note 01-15-07 .......... 5.750 B 10 8,250
-----------
Retail (4.57%)
American Restaurant Group, Inc.,
Sr Sec Note 02-15-03 (R) ........ 11.500 B 50 50,250
Corporate Express, Inc.,
Conv Note 07-01-00 .............. 4.500 B 11 10,160
Frank's Nursery & Crafts,
Sr Sub Note 03-01-08 (R) ........ 10.250 B- 25 25,188
Hills Stores Co.,
Sr Note Ser B 07-01-03 .......... 12.500 B- 60 60,000
Imperial Home Decor Group, Inc.,
Sr Sub Note 03-15-08 (R) ........ 11.000 B- 125 129,688
-----------
275,286
-----------
Steel (5.56%)
Acindar Industria Argentina
de Aceros S.A., Bond
(Argentina) 02-15-04 (Y) ........ 11.250 B+ 10 10,025
CSN Iron S.A., Gtd Note (Brazil)
06-01-07 (Y) .................... 9.125 B1 50 40,500
Gulf States Steel, Inc. of Alabama,
1st Mtg 04-15-03 ................ 13.500 B- 100 98,000
NSM Steel Inc./NSM Steel Ltd.,
Unit (Sr Sub Mtg Note
Ser B & Warrant) (Thailand)
02-01-08 (R) (Y) ................ 12.250 CCC 100 90,000
Oregon Steel CF&I,
Note 03-31-03 (r) ............... 9.500 B 100 96,881
-----------
335,406
-----------
Telecommunications (6.95%)
American Mobile Satellite Corp./
AMSC Acquisition Co., Inc.,
Unit (Sr Note & Warrant)
04-01-08 (R) .................... 12.250 B- 40 37,200
Esprit Telecom Group Plc,
Sr Note (United Kingdom)
06-15-08 (R) (Y) ................ 11.000 B- 60 32,915
FaciliCom International,
Sr Note 01-15-08 (R) ............ 10.500 B- 25 24,500
International Wireless
Communications, Inc.,
Sr Sec Disc Note 08-15-01 ...... Zero B- 50 14,000
SEE NOTES TO FINANCIAL STATEMENTS.
111
<PAGE>
==============================FINANCIAL STATEMENTS==============================
John Hancock Funds - Declaration Trust -- V.A. High Yield Bond Fund
INTEREST CREDIT PAR VALUE MARKET
ISSUER, DESCRIPTION RATE RATING* (000s OMITTED) VALUE
- ------------------- ---- ------- -------------- -----
Telecommunications (continued)
Ionica Plc, Sr Disc Note,
Step Coupon (15.00%,
05-01-02) (United Kingdom)
05-01-07 (A) (Y) ................ Zero% Caa3 $40 $9,600
Sr Note (United Kingdom)
08-15-06 (Y) .................... 13.500 Caa3 110 66,000
Long Distance International, Inc.,
Unit (Sr Note & Warrant)
04-15-08 (R) .................... 12.250 B- 100 99,000
Telefonica de Argentina S.A.,
Note (Argentina) 11-01-04 (Y) ... 11.875 BBB- 25 26,875
Viatel, Inc.,
Unit (Sr Note & Jr Sub Deb)
04-15-08 (R) .................... 11.150 Caa1 170 98,676
Unit (Sr Note & Preferred Stock
Ser A) 04-15-08 (R) ............. 11.250 Caa1 10 10,475
-----------
419,241
-----------
Textile (2.87%)
Steel Heddle Group, Inc., Sr Disc
Deb, Step Coupon (13.75%,
06-01-03) 06-01-09 (A) (R) ...... Zero CCC+ 200 103,000
Steel Heddle Manufacturing Co.,
Sr Sub Note 06-01-08 (R) ........ 10.625 CCC+ 50 50,125
Tropical Sportswear International
Corp., Sr Sub Note
06-15-08 (R) .................... 11.000 B- 20 20,050
-----------
173,175
-----------
Transport (2.76%)
Cenargo International Plc,
1st Mtg Note (United Kingdom)
06-15-08 (R) (Y) ................ 9.750 BB- 20 19,750
Fine Air Services, Inc.,
Sr Note 06-01-08 (R) ............ 9.875 B 100 97,750
Pacific & Atlantic Holding, Inc.,
1st Mtg Note (Greece)
05-30-08 (R) (Y) ................ 11.500 B 50 48,750
-----------
166,250
-----------
Utilities (1.12%)
Empire Gas Corp.,
Gtd Sr Sec Note 07-15-04 ........ 7.000 CC 50 46,250
Espirito Santo Centrais Electric,
Sr Note (Brazil) 07-15-07 (R) (Y) 10.000 BB- 25 21,500
-----------
67,750
-----------
Waste Disposal Service & Equip (3.37%)
Waste Systems International, Inc.,
Conv Sub Note 05-13-05 (R) ...... 7.000 CCC+ 200 203,000
-----------
TOTAL BONDS
(Cost $4,838,575) (78.96%) 4,760,648
------- -----------
NUMBER OF MARKET
ISSUER, DESCRIPTION SHARES OR WARRANTS VALUE
- ------------------- ------------------ -----
COMMON STOCKS
Abitibi-Consolidated, Inc., Common Stock
(Canada) (Y) ..................................... 12,500 $160,156
American Pacific Corp., Common Stock .............. 5,000 49,375
Gaylord Container Corp. (Class A), Common Stock ... 4,000 30,750
KLM Royal Dutch Airlines N.V., Common Stock
(Netherlands) (Y) ................................ 100 4,094
Northwest Airlines Corp. (Class A), Common Stock .. 3,250 125,328
Repap Enterprises Inc., Common Stock
(Canada) *** ..................................... 150,000 25,500
----------
TOTAL COMMON STOCKS
(Cost $484,148) (6.55%) 395,203
------- ----------
PREFERRED STOCKS
Cumulus Media, Inc., 13.75%, Ser A,
Preferred Stock .................................. 27 27,473
Nextel Communications, Inc., 11.125%, Ser E,
Payment-In-Kind, Preferred Stock (R) ............. 154 158,620
----------
TOTAL PREFERRED STOCKS
(Cost $190,740) (3.09%) 186,093
------- ----------
SEE NOTES TO FINANCIAL STATEMENTS.
112
<PAGE>
==============================FINANCIAL STATEMENTS==============================
John Hancock Funds - Declaration Trust -- V.A. High Yield Bond Fund
INTEREST PAR VALUE MARKET
ISSUER, DESCRIPTION RATE (000s OMITTED) VALUE
- ------------------- ---- -------------- -----
SHORT-TERM INVESTMENTS
Joint Repurchase Agreement (10.78%)
Investment in a joint repurchase agreement
transaction with Toronto Dominion Securities
USA, Inc. - Dated 06-30-98, due 07-01-98
(secured by U.S. Treasury Bond, 9.125%,
due 05-15-18 and U.S. Treasury Notes,
5.000% thru 8.750%, due 12-31-98 thru
04-30-03) - Note B....................... 5.750% $650 $650,000
----------
Corporate Savings Account (0.00%)
Investors Bank & Trust Company
Daily Interest Savings Account
Current Rate 4.950%.............................. 107
----------
TOTAL SHORT-TERM INVESTMENTS (10.78%) 650,107
-------- ----------
TOTAL INVESTMENTS (99.38%) 5,992,051
-------- ----------
OTHER ASSETS AND LIABILITIES, NET (0.62%) 37,087
-------- ----------
TOTAL NET ASSETS (100.00%) $6,029,138
======== ==========
* Credit ratings are rated by Moody's Investors Service or John Hancock
Advisers, Inc. where Standard and Poor's ratings are not available.
** Represents rate in effect on June 30, 1998.
*** Par value of foreign bonds and shares outstanding of common stocks is
expressed in local currency, as shown parenthetically in security
description.
(A) Cash interest will be paid on this obligation at the stated rate beginning
on the stated date.
(R) These securities are exempt from registration under Rule 144A of the
Securities Act of 1933. Such securities may be resold, normally to
qualified institutional buyers, in transactions exempt from registration.
Rule 144A securities amounted to $3,129,223 or 51.90% of net assets as of
June 30, 1998.
(Y) Parenthetical disclosure of a foreign country in the security description
represents country of a foreign issuer, however, security is U.S. dollar
denominated.
(r) Direct placement securities are restricted as to resale. They have been
valued in accordance with procedures approved by the Trustees after
consideration of restrictions as to resale, financial condition and
prospects of the issuer, general market conditions and pertinent
information in accordance with the Fund's By-Laws and the Investment
Company Act of 1940, as amended. The Fund has limited rights to
registration under the Securities Act of 1933 with respect to these
restricted securities.
Additional information on these securities is as follows:
MARKET VALUE MARKET VALUE
ACQUISITION ACQUISITION AS A %OF AS OF
ISSUER, DESCRIPTION DATE COST FUND NET ASSETS JUNE 30, 1998
- ------------------- ----------- ----------- -------------- -------------
Oregon Steel CF&I 5/14/98 $98,069 1.61% $96,881
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
June 30, 1998 (Unaudited)
- --------------------------------------------------------------------------------
The V. A. High Yield Bond 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 June 30, 1998 assigned to country
categories.
MARKET VALUE
AS A % OF
COUNTRY DIVERSIFICATION FUND NET ASSETS
- ----------------------- ---------------
Argentina......................................... 3.10%
Brazil............................................ 2.71
Canada............................................ 4.76
Greece............................................ 0.81
Indonesia......................................... 2.72
Jamaica........................................... 0.42
Netherlands....................................... 0.07
Norway............................................ 0.17
South Africa...................................... 0.30
Thailand.......................................... 2.32
United Kingdom.................................... 2.51
United States..................................... 79.49
-----
TOTAL INVESTMENTS 99.38%
=====
Additionally, the concentration of investments can be aggregated by the quality
rating for each debt security.
QUALITY DISTRIBUTION
- --------------------
BBB............................................... 2.10%
BB................................................ 5.91
B................................................. 48.12
CCC............................................... 21.25
CC................................................ 1.58
-----
TOTAL BONDS 78.96%
=====
SEE NOTES TO FINANCIAL STATEMENTS.
113
<PAGE>
==============================FINANCIAL STATEMENTS==============================
John Hancock Funds - Declaration Trust -- V.A. World Bond Fund
Schedule of Investments
June 30, 1998 (Unaudited)
- --------------------------------------------------------------------------------
The Schedule of Investments is a complete list of all securities owned by V.A.
World Bond Fund on June 30, 1998. It's divided into three main categories:
bonds, options and short-term investments. The bonds and options are further
broken down by currency denomination. Short-term investments, which represent
the Fund's "cash" position, are listed last.
PAR VALUE
INTEREST (000s MARKET
ISSUER, DESCRIPTION RATE OMITTED) VALUE
- ------------------- ---- -------- -----
BONDS
British Pound Sterling (4.80%)
United Kingdom Treasury,
Bond 11-06-01# ............................ 7.000% 70 $118,106
----------
Deutsche Mark (18.21%)
Federal Republic of Germany,
Bond Ser 98 01-04-08# ..................... 5.250 442 253,889
Ford Motor Credit Company, (United States),
Bond 06-16-08# ............................ 5.250 350 193,626
----------
447,515
----------
U.S. Dollar (70.29%)
Federal Home Loan Bank,
Bond 10-15-03 ............................. 5.440 $150 147,961
Bond 03-26-07 ............................. 6.945 100 107,109
Federal Home Loan Mortgage Corp.,
Giant Mtg Part Cert 07-01-12 .............. 7.000 122 124,341
Federal National Mortgage Assn.,
Note Ser MTN 10-23-02 ..................... 6.080 250 253,555
Federative Republic of Brazil, (Brazil),
Global Bond 11-05-01 ...................... 8.875 50 50,125
Government of Jamaica, (Jamaica),
Note 06-09-05 (R) ......................... 10.875 10 10,000
Republic of Costa Rica, (Costa Rica),
Deb 05-01-03 (R) .......................... 8.000 25 25,188
Republic of Equador, (Equador),
Deb 04-25-02 (R) .......................... 11.250 50 51,000
Republic of Panama, (Panama),
Note Ser REGS 02-13-02 .................... 7.875 50 48,925
Republic of South Africa, (South Africa),
Note 06-23-17 ............................. 8.500 50 47,313
Republic of Venezuela, (Venezuela),
Floating Rate Note Ser C 12-30-03 ......... 7.000* 50 45,500
United Mexican States, (Mexico),
Global Bond 02-06-01 ...................... 9.750 50 52,550
United States Treasury,
Bond 08-15-27 ............................. 6.375 75 82,359
Bond 11-15-27 ............................. 6.125 250 267,890
Note 05-31-02 ............................. 6.500 100 103,328
Note 04-30-03 ............................. 5.750 25 25,246
Note 05-15-07 ............................. 6.625 120 128,887
Note 08-15-07 ............................. 6.125 150 156,070
----------
1,727,347
----------
TOTAL BONDS
(Cost $2,261,749) (93.30%) 2,292,968
------- ----------
EXPIRATION
CURRENCY DATE/STRIKE MARKET
CURRENCY PURCHASED SOLD PRICE VALUE
- ------------------ -------- ----------- ------
OPTIONS
Japanese Yen..................... USD 5,765,000 March 99/140-150 $4,774
----------
TOTAL OPTIONS
(Premium Paid $2,450) (0.19%) 4,774
------- ----------
PAR VALUE
INTEREST (000s
ISSUER, DESCRIPTION RATE OMITTED)
- ------------------- ---- --------
SHORT-TERM INVESTMENTS
Joint Repurchase Agreement (6.23%)
Investment in a joint repurchase
agreement transaction with
Toronto Dominion Securities
USA, Inc. - Dated 06-30-98,
due 07-01-98 (Secured by U.S.
Treasury Notes, 5.00% thru
7.50% due 2-15-99 thru
11-15-01) - Note B.......................... 5.750% $153 153,000
-------- ----------
TOTAL SHORT-TERM INVESTMENTS (6.23%) 153,000
-------- ----------
TOTAL INVESTMENTS (99.72%) 2,450,742
-------- ----------
OTHER ASSETS AND LIABILITIES, NET (0.28%) 6,864
-------- ----------
TOTAL NET ASSETS (100.00%) $2,457,606
======== ==========
* Represents rate in effect on June 30, 1998.
# Par value of non US$ 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 $86,188 or 3.51% of the Fund's net assets
as of June 30, 1998.
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.
114
<PAGE>
==============================FINANCIAL STATEMENTS==============================
John Hancock Funds - Declaration Trust -- V.A. World Bond Fund
Portfolio Concentration (Unaudited)
June 30, 1998
- --------------------------------------------------------------------------------
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 June 30, 1998 assigned to the various investment categories.
MARKET VALUE AS A
INVESTMENT CATEGORIES % OF FUND NET ASSETS
- --------------------- --------------------
Finance........................................ 7.88%
Government - Foreign........................... 28.59
Government - U.S............................... 31.08
Government - U.S. Agencies..................... 25.75
Options........................................ 0.19
Short-Term Investments......................... 6.23
-----
TOTAL INVESTMENTS 99.72%
=====
SEE NOTES TO FINANCIAL STATEMENTS.
115
<PAGE>
==============================FINANCIAL STATEMENTS==============================
John Hancock Funds - Declaration Trust -- V.A. Money Market Fund
Schedule of Investments
June 30, 1998 (Unaudited)
- --------------------------------------------------------------------------------
The Schedule of Investments is a complete list of all securities owned by the
V.A. Money Market Fund on June 30, 1998.
<TABLE>
<CAPTION>
PAR VALUE
INTEREST QUALITY (000s MARKET
ISSUER, DESCRIPTION RATE RATINGS* OMITTED) VALUE
- ------------------- ---- --------- -------- -----
<S> <C> <C> <C> <C>
NEGOTIABLE BANK CERTIFICATES OF DEPOSIT
U.S Branches of Foreign Banks (3.66%)
Abbey National Treasury Services,
01-19-99.................. 5.375% Tier 1 $ 400 $399,289
-----------
TOTAL NEGOTIABLE BANK CERTIFICATES OF DEPOSIT
(Cost $399,289) (3.66%) 399,289
-------- -----------
CORPORATE INTEREST BEARING OBLIGATIONS
Automotive (9.17%)
Chrysler Financial Corp.,
08-13-98.................. 6.310 Tier 1 500 500,293
General Motors Acceptance Corp.,
09-08-98.................. 6.250 Tier 1 500 500,222
-----------
1,000,515
-----------
Banking (8.09%)
Norwest Corp.,
10-13-98.................. 6.000 Tier 1 500 500,283
Security Pacific Corp.,
05-15-99.................. 9.750 Tier 1 370 382,178
-----------
882,461
-----------
Finance (3.21%)
CIT Group Holdings, Inc.,
07-31-98.................. 6.350 Tier 1 350 350,096
-----------
Retail Stores (4.62%)
Sears Roebuck Acceptance Corp.,
11-01-98.................. 8.450 Tier 1 500 503,993
-----------
Tobacco (2.80%)
Philip Morris Cos., Inc.,
03-01-99.................. 8.625 Tier 1 300 305,189
-----------
TOTAL CORPORATE INTEREST BEARING OBLIGATIONS
(Cost $3,042,254) (27.89%) 3,042,254
-------- -----------
U.S.GOVERNMENT OBLIGATIONS
Governmental - U.S.Agencies (59.54%)
Federal Farm Credit Bank,
11-02-98 ............................... 5.373%** Tier 1 2,000 1,998,846
Federal Home Loan Bank,
08-20-98 ............................... 5.442** Tier 1 1,500 1,499,824
Federal Home Loan Bank,
08-27-98 # ............................. 5.860 Tier 1 200 200,000
Federal Home Loan Bank,
09-02-98 # ............................. 5.610 Tier 1 300 300,000
Federal National Mortgage
Association, 05-05-99 .................. 5.630 Tier 1 500 499,726
Student Loan Marketing
Association, 02-22-99 .................. 5.331** Tier 1 2,000 1,997,574
-----------
6,495,970
-----------
TOTAL U.S. GOVERNMENT OBLIGATIONS
(Cost $6,495,970) (59.54%) 6,495,970
-------- -----------
TOTAL SHORT-TERM INVESTMENTS
(Cost $9,937,513) (91.09%) 9,937,513
-------- -----------
JOINT REPURCHASE AGREEMENT
Investment in a joint repurchase
agreement transaction with
Toronto Dominion Securities USA,
Inc. - Dated 06-30-98, due
07-01-98 (Secured by U.S.
Treasury Notes, 5.00% thru
7.50%, due 02-15-99
thru 11-15-01) - Note B................. 5.750% 838 838,000
-----------
TOTAL JOINT REPURCHASE AGREEMENT (7.68%) 838,000
-------- -----------
TOTAL INVESTMENTS (98.77%) 10,775,513
-------- -----------
OTHER ASSETS AND LIABILITIES, NET (1.23%) 134,625
-------- -----------
TOTAL NET ASSETS (100.00%) $10,910,138
======== ===========
</TABLE>
* 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.
** Floating rate note, interest rate effective June 30, 1998.
# Call date.
The percentage shown for each investment category is the total value of that
category expressed as a percentage of the net assets of the Fund.
SEE NOTES TO FINANCIAL STATEMENTS.
116
<PAGE>
==========================NOTES TO FINANCIAL STATEMENTS=========================
John Hancock Funds - Declaration Trust
(UNAUDITED)
NOTE A --
ORGANIZATION
John Hancock V.A. International Fund ("V.A. International Fund"), John Hancock
V.A. Regional Bank Fund (which commenced operations on May 1, 1998) ("V.A.
Regional Bank Fund"), John Hancock V.A. Financial Industries Fund ("V.A.
Financial Industries Fund"), John Hancock V.A. Emerging Growth Fund ("V.A.
Emerging Growth Fund"), John Hancock V.A. Special Opportunities Fund (which
commenced operations on January 2, 1998) ("V.A. Special Opportunities Fund"),
John Hancock V.A. Growth Fund ("V.A. Growth Fund"), John Hancock V.A. Growth and
Income Fund (which commenced operations on January 2, 1998) ("V.A. Growth and
Income Fund"), John Hancock V.A. Independence Equity Fund ("V.A. Independence
Equity Fund"), John Hancock V.A. Sovereign Investors Fund ("V.A. Sovereign
Investors Fund"), John Hancock V.A. 500 Index Fund ("V.A. 500 Index Fund"), John
Hancock V.A. Sovereign Bond Fund ("V.A. Sovereign Bond Fund"), John Hancock V.A.
Strategic Income Fund ("V.A. Strategic Income Fund"), John Hancock V.A. High
Yield Bond Fund (which commenced operations on January 2, 1998) ("V.A. High
Yield Bond Fund"), John Hancock V.A. World Bond Fund ("V.A. World Bond Fund")
and, 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 fifteen
different series at June 30, 1998. Each Fund currently has one class of shares
with equal rights as to voting, redemption, dividends and liquidation within its
respective Fund. The Trustees may authorize the creation of additional series
from time to time to satisfy various investment objectives. An insurance company
issuing a Variable Contract that participates in the Trust will vote shares of
the Funds held by the insurance company's separate accounts as required by law.
In accordance with current law and interpretations thereof, participating
insurance companies are required to request voting instructions from policy
owners and must vote shares of the Funds in proportion to the voting
instructions received.
The investment objective of the V.A. International Fund is to seek long-term
growth of capital by investing primarily in equity securities of foreign
companies and governments. The investment objective of the V.A. Regional Bank
Fund is to seek long-term capital appreciation by investing primarily in
regional banks and lending institutions. The investment objective of the V.A.
Financial Industries Fund is to seek capital appreciation by investing primarily
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. Special Opportunities
Fund is to seek long-term capital appreciation by investing primarily in equity
securities of domestic and foreign issuers in various economic sectors. 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. Growth and
Income Fund is to seek the highest total return (capital appreciation plus
current income) that is consistent with reasonable safety of capital. 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. 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. 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 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. Strategic Income Fund is to
seek a high level of current income by investing primarily 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. High Yield Bond Fund is to seek maximum current
income without assuming undue risk, investing primarily in lower-rated,
higher-yielding debt securities. 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. Money Market Fund is to
seek maximum current income consistent with capital preservation and liquidity
by investing only 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
117
<PAGE>
==========================NOTES TO FINANCIAL STATEMENTS=========================
John Hancock Funds - Declaration Trust
into U.S. dollars as described in "Foreign Currency Translation." 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 Funds, 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,
Inc., may participate in joint repurchase agreement transactions. 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.
<TABLE>
<CAPTION>
CAPITAL LOSS CAPITAL LOSS POST OCTOBER 31, 1997
CARRYFORWARD CARRYFORWARD LOSS TREATED AS
FUND EXPIRING 12/31/2004 EXPIRING 12/31/2005 ARISING JANUARY 1, 1998
- ---- ------------------- ------------------- -----------------------
<S> <C> <C> <C>
V.A. International Fund..... $ -- $ -- $65,667
V.A. Regional Bank Fund..... -- -- --
V.A. Financial
Industries Fund........... -- -- --
V.A. Emerging
Growth Fund............... 18,937 167,508 66,172
V.A. Special
Opportunities Fund........ -- -- --
V.A. Growth Fund............ 11,062 197,206 --
V.A. Growth and
Income Fund............... -- -- --
V.A. Independence
Equity Fund............... -- -- --
V.A. Sovereign
Investors Fund............ -- -- --
V.A. 500 Index Fund......... -- -- --
V.A. Sovereign Bond Fund.... -- -- --
V.A. Strategic
Income Fund............... -- 2,482 8,904
V.A. High Yield Bond Fund... -- -- --
V.A. World Bond Fund........ -- -- 27,755
V.A. Money Market Fund...... -- -- --
</TABLE>
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.
118
<PAGE>
==========================NOTES TO FINANCIAL STATEMENTS=========================
John Hancock Funds - Declaration Trust
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 $800 million,
collectively. V.A. Money Market is permitted to borrow from the uncommitted
portion of the unsecured lines of credit, which is $400 million. 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 rates ranging from
0.070% to 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 period ended June 30, 1998.
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 Fund's daily net assets. The
Funds record realized gains and losses at the time the forward foreign currency
contract is closed out or offset by a matching contract. Risks may arise upon
entering these contracts from potential inability of counterparties to meet the
terms of the contract and from unanticipated movements in the value of a foreign
currency relative to the U.S. dollar. These contracts involve market or credit
risk in excess of the unrealized gain or loss reflected in the Funds' Statements
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
they intend 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 June 30, 1998 were
as follows:
UNREALIZED
PRINCIPAL AMOUNT EXPIRATION APPRECIATION/
CURRENCY COVERED BY CONTRACT MONTH (DEPRECIATION)
- -------- ------------------- ---------- --------------
V.A. INTERNATIONAL FUND
Sells
French Franc................... 93,602 JULY 98 ($ 63)
Japanese Yen................... 191,674 JULY 98 ( 45)
------
($ 108)
======
V.A. GROWTH AND INCOME FUND
Sell
Japanese Yen................... 11,919,000 DEC 98 $1,027
======
V.A. STRATEGIC INCOME FUND
Buy
British Pound.................. 63,000 JULY 98 $ 118
======
Sells
Australian Dollar.............. 107,000 JULY 98 $4,168
Australian Dollar.............. 660,000 AUG 98 ( 2,217)
British Pound.................. 128,000 JULY 98 (904)
British Pound.................. 84,000 AUG 98 ( 3,081)
British Pound.................. 68,000 SEPT 98 ( 2,142)
------
($4,176)
======
V.A. HIGH YIELD BOND FUND
Sell
British Pound.................. 11,000 AUG 98 ($ 39)
======
V.A. WORLD BOND
Buys
Deutsche Mark.................. 470,398 JULY 98 $1,468
Japanese Yen................... 40,113,000 JULY 98 (8,586)
------
($7,118)
======
Sell
Japanese Yen................... 20,056,500 JULY 98 ($3,412)
======
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
119
<PAGE>
==========================NOTES TO FINANCIAL STATEMENTS=========================
John Hancock Funds - Declaration Trust
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 June 30, 1998 were as
follows:
OPEN UNREALIZED
EXPIRATION CONTRACTS POSITION DEPRECIATION
- ---------- --------- -------- ------------
V.A. 500 INDEX FUND
Sept 98............................. 9 S&P 500 Long $19,125
=======
OPTIONS The Funds (except V.A. Money Market Fund) may purchase options
contracts. Listed options will be valued at the last quoted sales price on the
exchange on which they are primarily traded. Purchased put or call
over-the-counter options will be valued at the average of the "bid" prices
obtained from two independent brokers. Written put or call over-the-counter
options will be valued at the average of the "asked" prices obtained from two
independent brokers. Upon the writing of a call or put option, an amount equal
to the premium received by the Fund will be included in the Statement of Assets
and Liabilities as an asset and corresponding liability. The amount of the
liability will be subsequently marked to market to reflect the current market
value of the written option.
The Funds may use option contracts to manage their exposure to changing
security prices. Writing puts and buying calls will tend to increase the Funds'
exposure to the underlying instrument, and buying puts and writing calls will
tend to decrease the Funds' exposure to the underlying instrument, or hedge
other Fund investments.
The maximum exposure to loss for any purchased options will be limited to the
premium initially paid for the option. In all other cases, the face (or
"notional") amount of each contract at value will reflect the maximum exposure
of the Funds in these contracts, but the actual exposure will be limited to the
change in value of the contract over the period the contract remains open.
Risks may also arise if counterparties do not perform under the contract's
terms ("credit risk"), or if the Funds are unable to offset a contract with a
counterparty on a timely basis ("liquidity risk"). Exchange-traded options have
minimal credit risk as the exchanges act as counterparties to each transaction,
and only present liquidity risk in highly unusual market conditions. To minimize
credit and liquidity risks in over-the-counter option contracts, the Funds will
continuously monitor the creditworthiness of all its counterparties.
At any particular time, except for purchased options, market or credit risk
may involve amounts in excess of those reflected in the Funds' Statements of
Assets and Liabilities.
The were no written option transactions for the period ended June 30, 1998,
for the 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. Regional Bank Fund 0.80% 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. Special Opportunities Fund 0.75% of average daily net assets
V.A. Growth Fund 0.75% of average daily net assets
V.A. Growth And Income Fund 0.60% of average daily net assets
V.A. Independence Equity Fund 0.70% of average daily net assets
V.A. Sovereign Investors Fund 0.60% of average daily net assets
V.A. 500 Index Fund 0.10% of average daily net assets
V.A. Sovereign Bond Fund 0.50% of average daily net assets
V.A. Strategic Income Fund 0.60% of average daily net assets
V.A. High Yield Bond Fund 0.60% of average daily net assets
V.A. World Bond Fund 0.75% 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-advisory 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 a portion of its advisory fee from the V.A. International Fund to
JHAI at the following rate: 70% of the advisory fee payable by the Fund.
Independence Investment Associates, Inc. ("IIA") serves as the sub-adviser to
the V.A. Independence Equity Fund pursuant to a separate sub-advisory 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 a portion of its advisory
fee from the V.A. Independence
120
<PAGE>
==========================NOTES TO FINANCIAL STATEMENTS=========================
John Hancock Funds - Declaration Trust
Equity Fund to IIA at the following rate: 55% of the advisory fee payable by the
Fund.
Sovereign Asset Management Corporation ("SAMCorp") serves as the sub-advisor
of the V.A. Sovereign Investors Fund pursuant to a separate sub-advisory
agreement among the Fund, the Adviser, and SAMCorp. SAMCorp was organized in
1992 and is a wholly owned indirect subsidiary of JHMLICo. SAMCorp provides
investment advice and advisory services to investment companies and private and
institutional accounts. The Adviser pays 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 Fund's expenses, excluding
the management fee, to 0.25% of each Fund's average daily net assets.
Accordingly, the reductions in expenses for the period ended June 30, 1998 were
as follows:
FUND FEE REDUCTION
- ---- -------------
V.A. International Fund............................ $69,056
V.A. Regional Bank Fund............................ 5,300
V.A. Financial Industries Fund..................... --
V.A. Emerging Growth Fund.......................... 19,502
V.A. Special Opportunities Fund.................... 12,001
V.A. Growth Fund................................... 10,419
V.A. Growth and Income Fund........................ 10,355
V.A. Independence Equity Fund...................... 3,364
V.A. Sovereign Investors Fund...................... --
V.A. 500 Index Fund................................ 26,314
V.A. Sovereign Bond Fund........................... 19,913
V.A. Strategic Income Fund......................... 5,817
V.A. High Yield Bond Fund.......................... 9,549
V.A. World Bond Fund............................... 12,118
V.A. Money Market Fund............................. 2,112
The Adviser reserves the right to terminate this limitation in the future.
The Funds have an agreement with the Adviser to perform necessary tax and
financial management services for the Funds. The compensation for the period was
at an annual rate of 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 unaffiliated Trustees may elect to defer, for tax purposes, their
receipt of this compensation under the John Hancock Group of Funds Deferred
Compensation Plan. The Funds make investments into other John Hancock funds, as
applicable, to cover their liability for the deferred compensation. Investments
to cover the Funds' deferred compensation liability are recorded on the Funds
books as an other asset. The deferred compensation liability and the related
other asset are always equal and are marked to market on a periodic basis to
reflect any income earned by the investment as well as any unrealized gains or
losses.
The Adviser and other subsidiaries of John Hancock Mutual Life Insurance
Company owned the following shares of beneficial interest of the Funds as of
June 30, 1998:
FUND SHARES OF BENEFICIAL INTEREST
- ---- -----------------------------
V.A. International Fund........................ 213,604
V.A. Regional Bank Fund........................ 50,090
V.A. Financial Industries Fund................. --
V.A. Emerging Growth Fund...................... 100,201
V.A. Special Opportunities Fund................ 50,000
V.A. Growth Fund............................... 100,000
V.A. Growth and Income Fund.................... 50,213
V.A. Independence Equity Fund.................. --
V.A. Sovereign Investors Fund.................. --
V.A. 500 Index Fund............................ --
V.A. Sovereign Bond Fund....................... 113,038
V.A. Strategic Income Fund..................... 235,590
V.A. High Yield Bond Fund...................... 207,829
V.A. World Bond Fund........................... 222,474
V.A. Money Market Fund......................... 108,303
121
<PAGE>
==========================NOTES TO FINANCIAL STATEMENTS=========================
John Hancock Funds - Declaration Trust
NOTE D --
INVESTMENT TRANSACTIONS:
Purchases and proceeds from sales of securities for the Funds, excluding
short-term securities, during the period ended June 30, 1998, were as follows:
FUND PURCHASES SALES
- ---- --------- -----
V.A. International Fund.................... $ 4,462,556 $2,941,336
V.A. Regional Bank Fund.................... 11,406,819 303,959
V.A. Financial Industries Fund............. 31,750,919 6,649,533
V.A. Emerging Growth Fund.................. 4,809,966 2,426,583
V.A. Special Opportunities Fund............ 1,352,122 272,439
V.A. Growth Fund........................... 7,096,208 4,948,591
V.A. Growth and Income Fund................ 9,016,990 1,981,097
V.A. Independence Equity Fund.............. 9,344,673 3,829,846
V.A. Sovereign Investors Fund
U.S. Government Securities............... 1,816,266 -
Other Investments........................ 9,408,573 2,053,555
V.A. 500 Index Fund........................ 2,458,266 8,800,274
V.A. Sovereign Bond Fund
U.S. Government Securities............... 7,448,345 6,167,857
Other Investments........................ 4,728,336 3,356,452
V.A. Strategic Income Fund
U.S. Government Securities............... 1,849,953 301,039
Other Investments........................ 8,122,437 3,861,208
V.A. High Yield Bond Fund
U.S. Government Securities............... 753,281 752,633
Other Investments........................ 7,486,163 1,990,663
V.A. World Bond Fund
U.S. Government Securities............... 365,875 822,508
Other Investments........................ 931,955 355,016
At June 30, 1998, 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:
GROSS GROSS NET UNREALIZED
AGGREGATE UNREALIZED UNREALIZED APPRECIATION/
FUND COST APPRECIATION DEPRECIATION (DEPRECIATION)
- ---- ---- ------------ ------------ --------------
V.A. International
Fund.............. $ 5,240,357 $ 778,604 $258,315 $ 520,289
V.A. Regional Bank
Fund.............. 18,348,900 141,701 374,847 233,146
V.A. Financial
Industries Fund... 44,383,003 5,477,159 945,420 4,531,739
V.A. Emerging
Growth Fund....... 5,469,002 1,280,943 238,816 1,042,127
V.A. Special
Opportunities
Fund.............. 1,145,350 120,849 47,176 73,673
V.A. Growth Fund.... 5,822,991 812,908 79,201 733,707
V.A. Growth and
Income Fund....... 9,306,043 538,913 189,194 349,719
V.A. Independence
Equity Fund....... 14,174,567 2,400,385 235,543 2,164,842
V.A. Sovereign
Investors Fund.... 21,740,536 2,524,215 189,005 2,335,210
V.A. 500 Index
Fund.............. 14,653,015 3,575,093 262,367 3,312,726
V.A. Sovereign
Bond Fund......... 6,955,718 56,751 16,000 40,751
V.A. Strategic
Income Fund ...... 10,729,152 276,103 252,905 23,198
V.A High Yield
Bond Fund......... 6,163,463 62,356 233,876 (171,520)
V.A. World Bond
Fund.............. 2,417,199 40,919 7,376 33,543
V.A. Money
Market Fund....... 10,775,513 -- -- --
122
<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 June 30, 1998.
- --------------------------------------------------------------------------------
PERCENT OF
COMPANY DIVIDEND INCREASE
- ------- -----------------
Abbott Laboratories, Inc.......................... 11.1%
AFLAC Corp........................................ 13.0
Air Products & Chemicals, Inc..................... 13.3
American Home Products Corp....................... 4.9
American International Group, Inc................. 12.4
Ameritech Corp.................................... 6.2
Archer Daniels Midland Co......................... 5.0
Automatic Data Processing, Inc.................... 15.2
BB&T Corp......................................... 12.9
Banc One Corp..................................... 10.0
BankAmerica Corp.................................. 13.1
Baxter International, Inc......................... 3.0
Becton Dickinson & Co............................. 11.5
Bemis Company, Inc................................ 10.0
Bristol-Myers Squibb Co........................... 2.6
C.H. Robinson Worldwide, Inc...................... 8.1
Chevron Corp...................................... 5.2
Chubb Corp........................................ 6.9
Dayton Hudson Corp................................ 12.5
Dover Corp........................................ 11.8
DuPont (E.I.) De Nemours & Co..................... 11.1
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.................................. 13.5
Gannett Co., Inc.................................. 5.6
General Electric Co............................... 15.4
General RE Corp................................... 7.3
Grainger (W.W.), Inc.............................. 11.1
Hasbro, Inc....................................... 19.9
Hewlett-Packard Co................................ 14.3
Home Depot, Inc................................... 20.0
Honeywell, Inc.................................... 3.7
Interpublic Group of Companies, Inc............... 15.4
Johnson & Johnson................................. 13.6
Johnson Controls, Inc............................. 7.0
KeyCorp........................................... 11.9
Leggett & Platt, Inc.............................. 6.7
Lilly (Eli) & Co.................................. 11.1
Masco Corp........................................ 4.8
May Department Stores............................. 5.8
McGraw-Hill Companies, Inc........................ 8.3
Mobil Corp........................................ 7.5
National Fuel Gas Co.............................. 3.4
NationsBank Corp.................................. 15.2
Northern States Power Co.......................... 1.4
Norwest Corp...................................... 10.0
Pentair, Inc...................................... 11.1
PepsiCo, Inc...................................... 4.0
Philip Morris Cos., Inc........................... 20.0
Pitney Bowes, Inc................................. 12.5
Questar Corp...................................... 4.8
Reliastar Financial Corp.......................... 19.4
RPM, Inc.......................................... 7.7
Sara Lee Corp..................................... 9.5
SBC Communications, Inc........................... 0.04
Sigma-Aldrich Corp................................ 12.0
Sonoco Products Corp.............................. 10.0
Sysco Corp........................................ 5.9
Teco Energy, Inc.................................. 5.1
Travelers Group, Inc.............................. 25.0
UNUM Corp......................................... 3.5
Wal-Mart Stores, Inc.............................. 14.8
----
The average dividend increase for this group was 9.9%
====
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
1998(1) 1,582,585 .11 14.63 --
(1) For the period ended June 30, 1998
123
<PAGE>
======================================NOTES=====================================
John Hancock Funds - Declaration Trust
124
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======================================NOTES=====================================
John Hancock Funds - Declaration Trust
125
<PAGE>
======================================NOTES=====================================
John Hancock Funds - Declaration Trust
126
<PAGE>
======================================NOTES=====================================
John Hancock Funds - Declaration Trust
127
<PAGE>
================================================================================
[LOGO] JOHN HANCOCK FUNDS
A Global Investment Management Firm
101 HUNTINGTON AVENUE, BOSTON, MA 02199-7603
1-800-824-0335
INTERNET: www.jhancock.com/funds
- --------------------------------------------------------------------------------
This report is for the information of shareholders of the John Hancock
Declaration Trust. It may be used as sales literature when preceded or
accompanied by the current prospectus, which details charges, investment
objectives and operating policies.
[RECYCLE LOGO] Printed on Recycled Paper
DECSA 6/98
8/98
