ANNUAL REPORT
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[GRAPHIC OMITTED]
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. Bond Fund
(formerly 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
DECEMBER 31, 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 managers' 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. 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............................................ 116
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
* Members of the Audit Committee
OFFICERS
EDWARD J. BOUDREAU, JR.
Chairman and Chief Executive Officer
ANNE C. HODSDON
President, Chief Investment Officer and
Chief Operating Officer
OSBERT M. HOOD
Senior Vice President and
Chief Financial Officer
SUSAN S. NEWTON
Vice President and Secretary
JAMES J. STOKOWSKI
Vice President and Treasurer
THOMAS H. CONNORS
Vice President and Compliance Officer
CUSTODIANS
INVESTORS BANK & TRUST COMPANY
200 CLARENDON STREET
BOSTON, MASSACHUSETTS 02116
V.A. Bond Fund
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
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
ISSUER
JOHN HANCOCK MUTUAL
LIFE INSURANCE COMPANY
JOHN HANCOCK VARIABLE
LIFE INSURANCE COMPANY*
200 CLARENDON STREET
BOSTON, MASSACHUSETTS 02117
*Not Licensed in New York
PRINCIPAL DISTRIBUTOR
JOHN HANCOCK FUNDS, INC.
101 HUNTINGTON AVENUE
BOSTON, MASSACHUSETTS 02199-7603
LEGAL COUNSEL
HALE AND DORR LLP
60 STATE STREET
BOSTON, MASSACHUSETTS 02109-1803
INDEPENDENT AUDITORS
ERNST & YOUNG LLP
200 CLARENDON STREET
BOSTON, MASSACHUSETTS 02116-5702
2
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===============================CHAIRMAN'S MESSAGE===============================
DEAR FELLOW SHAREHOLDERS:
Nineteen ninety-eight was a year that gave even veteran financial market
investors pause -- and not a little heartburn. The stock market produced a
record fourth straight year of double-digit returns, but volatility was
breathtaking along the way. With the exception of the U.S. Treasury market, even
bonds -- considered a safer alternative to stocks -- went on a roller coaster
ride.
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[A 1" x 1 1/2" photo of Edward J. Boudreau, Jr., Chairman and Chief Executive
Officer, flush right next to first paragraph.]
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One lesson came through loud and clear this year: sticking out the tough
times paid off. After reaching new highs in mid-July, stocks plunged in August
in one of their worst sell-offs in years. The average U.S. diversified-equity
mutual fund fell 16.8% in the month of August alone. For many mutual fund
investors, it was the largest one-month loss they had ever experienced, since
the average equity fund had only had three such double-digit monthly losses in
the previous 20 years, most recently in October 1987. This year, in a dramatic
reversal of fortune, the market staged a stunning rebound in the fourth quarter.
The average U.S. diversified-equity fund made up all its August lost ground and
then some, returning 18.8% between October and December. The result for the
year: an average 14.52% return, as calculated by Lipper Analytical Services,
Inc.
Given the dramatic swings, investors who tried to time the market's ups
and downs encountered a sharp whipsaw. We are very encouraged to report that an
overwhelming majority of mutual fund investors sat tight during this summer of
discontent; some even used the market's drop to pick up bargains. It was a clear
sign that long-term investors are willing to accept the reality of shorter-term
volatility.
As we begin 1999, volatility remains on many investors' minds. But at this
time of year, many investors' thoughts also turn to more taxing matters. In our
view, now is a perfect time to focus on how much of your hard-earned money you
are able to keep. Part of a good tax-planning strategy should involve a review
of your portfolio to ensure that you are taking advantage of all available ways
to minimize and defer your tax payments -- in an effort to maximize investment
returns. After all, while it's every American's responsibility to pay taxes,
there's no reason to pay more than your fair share.
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 in a year of economic uncertainty
"Our increasing focus on Europe...served us well."
The last 12 months were a nerve-wracking year for international investors. One
of the defining events shaping financial markets worldwide was the economic
crisis in Asia, where currency devaluations and economic slowdowns plagued the
region's emerging markets all year. Compounding the problem was Japan's
inability to resuscitate its economy, further dimming prospects for the entire
region's recovery. These currency and economic fears worked their way through
other emerging-market regions as well, including Latin America. Brazil's market
collapsed after government steps to shore up the currency by boosting interest
rates caused the economy to stall and investors to lose faith. Market volatility
reached a crescendo in August when Russia's debt default and plunging currency
sent investors fleeing any security with perceived risk to the safety of U.S.
Treasury bonds. That was the death knell for all emerging markets, especially
after several prominent hedge funds quit these markets to meet lenders' demands
for collateral. After the summer's instability, the world calmed down in the
fourth quarter, thanks to interest-rate cuts by the U.S. Federal Reserve Board
and by more than 50 other central banks worldwide.
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[Pie chart at bottom left hand column with heading "Portfolio Diversification."
The chart is divided into five sections (from top to left): Continental Europe
58%, Short-Term Investments & Other 6%, Canada 4%, Pacific Rim 14% and U.K. &
Ireland 18%. A note below the chart reads "As a percentage of net assets on
December 31, 1998."]
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Throughout much of the year, Europe was the shining light, in part because
of its perception as a place to find quality in a turbulent world. More
importantly, however, it was the lure of the anticipated single European
currency, the euro, and its positive implications, which enticed a growing
number of international investors. Additionally, a convergence of interest rates
falling in anticipation of the event that would join 11 nations in an economic
and monetary union (EMU) made Europe the place to be. Even though the Continent
fell prey to the summer months of crisis, a strong last-quarter rebound caused
European markets to advance 27% for the year, bolstered as well by a growing
number of mergers, acquisitions and corporate privatizations.
European focus boosts performance
For the year ended December 31, 1998, John Hancock V.A. International Fund
posted a total return of 16.75% at net asset value, compared to the 13.26%
return of the average variable annuity
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[A 3" x 2 1/2" photo at bottom right side of page of John Hancock V.A.
International Fund. Caption below reads "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 at top of left hand column with heading "Fund Performance". Under the
heading is a note that reads "For the year ended December 31, 1998." The chart
is scaled in increments of 5% with 0% at the bottom and 20% at the top. The
first bar represents the 16.75% Total return for John Hancock V.A. International
Fund. The second bar represents the 13.26% total return for Average variable
annuity international fund. A note below the chart 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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international fund, according to Lipper Analytical Services, Inc. Historical
performance information can be found on page six. Our increasing focus on
Europe, where our stake rose from 49% a year ago to 76% of net assets by year
end, served us well. We also benefited from avoiding the emerging-market
countries of Russia and Southeast Asia.
France, our top country weighting at 18% of the Fund's net assets, was
also our top contributor to performance, given its market's 40% advance in 1998.
The privatization of France Telecom boosted that stock and also symbolized the
accelerating trend of restructuring, merger and privatization activity in
Europe, especially among the blue chip names. French insurer Axa gained by being
an active and smart participant in takeover activity.
Indeed, these merger trends, combined with a general environment of
declining interest rates, benefited companies in several of the market sectors
in which the Fund was overweighted, including finance, utilities, healthcare and
telecommuni cations. Cellular phone company Nokia, for example, one of our top
holdings, also saw its stock advance as it continued to grow its market share.
Allied Irish Banks, our top-performing stock, has a strong management team and
lacks exposure to emerging markets. The bank is also benefiting from the Irish
economy's solid growth and the potential for further rate cuts as part of EMU
unification. German automaker BMW benefited after a major re-engineering of the
company.
Asia, emerging markets hurt
During the year, we became even more conservative in our approach to Asia and
the emerging markets worldwide. By the end of the year, we were effectively out
of Latin America. Our stake in Asia was primarily an underweighted 11% position
in Japan and small interests in Australia, Hong Kong and Singapore. Despite the
cutback, we still were hurt by the few stocks we owned during the year in Hong
Kong, as well as in the emerging markets of Brazil and Mexico. These included
Hong Kong conglomerates China Resources Enterprises and Hutchison Whampoa,
Brazilian telephone company Telesp and Mexican bottler Panamerican Beverages.
While all are solid companies with strong fundamentals, they were simply in the
wrong countries, and we sold several of them.
Going forward
Although we acknowledge the prospect of ongoing volatility, we are optimistic
about the outlook for international equities. For the time being, our sights
remain on Europe. We believe it holds the best opportunities, given the broad
potential generated by the new euro, as well as Europe's growing attention to
corporate restructurings and consolidation and the potential for further rate
cuts both in Euroland and the U.K. However, we're watching the impact of the
euro on the U.S. dollar, since we believe an important risk in 1999 could come
from a substantially weakened dollar that would put a damper on the profits of
export-dependent companies in Europe and elsewhere.
Japan's economic situation remains grim, as it continues facing important
challenges, although it seems the worst is behind the emerging nations of Asia.
But there, as in the rest of the emerging world, 1998's economic problems still
exist, with Russia, China and Brazil the largest question marks. Until there is
less uncertainty, we'll keep our cautious stance on most emerging markets.
"...we are optimistic about the outlook for international equities."
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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 December 31, 1998
SINCE
ONE INCEPTION
YEAR (8/29/96)
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Cumulative Total Returns 16.75% 30.91%
Average Annual Total Returns(1) 16.75% 12.20%
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 14.77% and 10.70%,
respectively.
WHAT HAPPENED TO
A $10,000 INVESTMENT...
The chart below shows how much a $10,000 investment in the John Hancock V.A.
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 a broad range of
developed and emerging stock markets. The index represents securities that are
freely traded on a variety of equity exchanges.
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Line chart with the heading John Hancock 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 MSCI All Country
World-Ex U.S. Free Index and is equal to $15,346 as of December 31, 1998. The
second line represents the value of the hypothetical $10,000 investment made in
the John Hancock V.A. International Fund on August 29, 1996 and is equal to
$13,091 as of December 31, 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
Bank stocks, stung by global economic woes, trail the broad market
Volatility wreaked havoc with the stock market throughout 1998, although the
market wound up producing double-digit gains nonetheless. In the first half of
the year, the market advanced to new highs through mid-July, with a strong
economy and solid corporate earnings offsetting concerns about Asia's economic
problems. But in August, Russia's financial meltdown sent stocks plunging almost
into bear market territory. After being among the leaders last year, bank stocks
were particularly hard hit in the summer sell-off, due to concerns over the
potential impact on bank earnings of the economic turmoil in Asia and emerging
markets worldwide. The decline in bank stocks was indiscriminate, hurting many
regional banks with no exposure to overseas lending.
In October, the market staged an amazing rebound, propelled by three
interest-rate cuts by the Federal Reserve and generally favorable earnings
reports. Even the large money-center banks with direct exposure to emerging
markets rallied with the rate cuts. The rebound enabled the Standard & Poor's
500 Stock Index to produce a 29% return for the year, including reinvested
dividends. There was an even greater tendency in
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[Table at bottom left hand column entitled "Top Five Common Stock Holdings." The
first listing is Marshall & Iisley Corp. 3.3%, the second is M & T Bank Corp.
2.8%, the third Comerica, Inc. 2.6%, the fourth City National Corp. 2.5% and the
fifth FirstMerit Corp. 2.5%. A note below the table reads "As a percentage of
net assets on December 31, 1998."]
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1998, however, for larger companies to outperform smaller ones, as the Russell
2000 Index -- a measure of small-stock performance -- declined 2% for the year,
despite a late, strong rally.
Performance review
It was a difficult environment in which to launch John Hancock V.A. Regional
Bank Fund, and the performance results reflected the market climate. Its
inception on May 1, 1998 occurred just as turmoil was building and medium- and
smaller-sized stocks, such as those the Fund favors, were beginning to lag. As a
result, the Fund lost ground between May 1, 1998 and December 31, 1998, posting
a total return of -6.43% at net asset value. In the same period, the average
open-end financial services fund returned -4.90% and the average variable
annuity specialty fund returned 10.96%,
"In the Fund's first eight months, two of its holdings announced mergers."
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[A 3" x 2 1/2 " photo at bottom right side of page of John Hancock V.A. Regional
Bank Fund. Caption below 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
"...the trend toward fewer banks in the country is solidly in place and
inevitable."
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[Bar chart at top of left hand column with heading "Fund Performance". Under the
heading is a note that reads "From May 1, 1998 to December 31, 1998." The chart
is scaled in increments of 4% with -12% at the bottom and 12% at the top. The
first bar represents the -6.43% total return for John Hancock V.A. Regional Bank
Fund. The second bar represents the -4.90% total return for Average open-end
financial services fund. The third bar represents the 10.96% total return for
Average variable annuity specialty fund. A note below the chart 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
average variable annuity specialty fund are tracked by Lipper Analytical
Services, Inc. See the following page for additional information.
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according to Lipper Analytical Services, Inc. Additional performance information
can be found on page nine.
In addition to overseas turmoil, the Fund was hampered by its significant
weighting in small- and mid-capitalization banks and thrifts, which suffered
from the same "small stock effect" that took its toll on smaller issues in most
industries.
Consolidation ebbs and flows
In the Fund's first eight months, two of its holdings announced mergers. Yet the
number of deals abated as the year went on, in line with the sell-off in bank
stocks. In times of market volatility, it is much harder for buyer and seller to
set an agreeable exchange ratio. We believe that the uncertainty created by
fluctuations in the market caused a postponement of several merger discussions.
Nevertheless, a few of the Fund's important regional franchises were scooped up
in the last six months for hefty premiums, including Crestar Financial (by
SunTrust). We believe bank consolidation will wax and wane with the vagaries of
the market, but the enduring reason for mergers -- excess capacity in the U.S.
banking system -- will still serve as a catalyst for this process well into the
21st century.
Earnings steady at the regionals
Headlines in the fall were chock full of the travails of the large money-center
banks: lending miscues to hedge funds, trading losses in emerging markets and
revenue shortfalls in investment banking. Although these risks are not
insignificant to these banks, the companies do have other domestic engines to
power their earnings. Note that only 2% of the Fund's net assets are invested in
companies with material overseas businesses. Despite the machinations of the
market, the earnings environment for most regional banks has been fairly steady.
In third-quarter results, the median bank owned by the Fund posted 11% earnings
growth over the third quarter of 1997 and 3% growth when compared to the second
quarter of 1998. In general, we think our holdings will show average
earnings-per-share gains of about 8% in 1999, as the positive impact of share
buybacks will mitigate some loss in net interest margins. This profit forecast
reflects our belief that the U.S. economy will continue to grow in 1999, albeit
at a noticeably slower rate than in 1998.
Fund composition and outlook
Since the Fund's inception this year, we have established positions in regional
bank and thrift stocks with solid fundamentals that are selling at below-average
valuation levels. Our focus is on quality banks with assets ranging between $5
billion and $30 billion because we believe this size institution offers healthy
earnings prospects and good potential for consolidation. The decline in the
prices of many banks and thrifts this year has created more opportunities for us
as we build the Fund's portfolio. The relative price-earnings multiple between
the banking institutions and the S&P 500 is now 60%, below its long-term average
of 70%, even though we expect earnings growth for most banks to exceed that of
the market in 1999.
Our investment strategy is driven to a considerable extent by our
expectation of substantial consolidation among banks over the next decade.
Although this activity slowed this year, we believe that the trend toward fewer
banks in the country is solidly in place and inevitable. This should continue to
work in the favor of the Fund and its shareholders.
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Sector investing is subject to different, and sometimes greater, risks than the
market as a whole.
8
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JOHN HANCOCK V.A. REGIONAL BANK FUND
A LOOK AT PERFORMANCE
For the period ended December 31, 1998
SINCE
INCEPTION
(5/1/98)
---------
Cumulative Total Return (6.43%)
Average Annual Total Return(1) (6.43%)(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 (6.49%).
(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.
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 John Hancock 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 Standard & Poor's
500 Stock Index and is equal to $11,172 as of December 31, 1998. The second line
represents the value of the hypothetical $10,000 investment made in the John
Hancock V.A. Regional Bank Fund on May 1, 1998 and is equal to $9,357 as of
December 31, 1998.
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9
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BY JAMES K. SCHMIDT, CFA, MANAGEMENT TEAM LEADER, AND
THOMAS FINUCANE AND THOMAS GOGGINS, PORTFOLIO MANAGERS
John Hancock
V.A. Financial Industries Fund
Market volatility increases with global strife; financial stocks lag
"The banking and insurance areas accounted for nearly 50% of the Fund's net
assets..."
Volatility was the watchword of 1998, as the stock market reacted to growing
global economic uncertainty. At first, the market moved mostly higher, reaching
a record peak in July before a new wave of emerging-market currency troubles
brought stocks back down to earth. Financial stocks, which have led the market's
advance over the last several years, fell behind in 1998 as fears grew that the
U.S. economy would slow. The troubles peaked in August with Russia's debt
default and currency devaluation. Stock markets around the world fell in
response, and investors in droves sought the safety of Treasury bonds.
Especially hurt were the large money-center banks and investment brokerage firms
that had lending and trading exposure to emerging markets. The ensuing failure
of several prominent hedge funds compounded the problems. By the end of the
summer, the entire financial sector had been tainted, including regional banks,
savings and loans and retail brokerage firms with no direct overseas exposure.
The market began a dramatic turnaround in October as the Federal Reserve began a
series of three interest-rate cuts to avert a recession. Even with the rebound,
however, financial stocks wound up lagging the overall market.
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[Table at bottom left hand column entitled "Top Five Common Stock Holdings." The
first listing is Fiserv 4.4%, the second is Legg Mason 4.3%, the third Wells
Fargo 3.7%, the fourth American Express 3.7% and the fifth Berkshire Hathaway
3.4%. A note below the table reads "As a percentage of net assets on December
31, 1998."]
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Performance and strategy review
For the year ended December 31, 1998, John Hancock V.A. Financial Industries
Fund posted a total return of 8.55% at net asset value. That compared to the
6.92% return of the average open-end financial services fund and the 28.41%
return of the average variable annuity specialty fund, according to Lipper
Analytical Services, Inc. Historical performance information can be found on
page 12.
The Fund invests across the broad range of financial services sub-sectors,
targeting companies with both solid fundamentals and the potential to benefit
from the consolidation that we expect in the industry. Since the beginning of
1998, four of our holdings, predominantly insurers and securities brokers, have
announced agreements to be acquired.
The banking and insurance areas accounted for nearly 50% of the Fund's net
assets by year end. We are especially interested in regional banks with between
$10 billion and $30 billion in assets
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[A 3" x 2 1/2 " photo at bottom right side of page of John Hancock V.A.
Financial Industries Fund. Caption below 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 at top of left hand column with heading "Fund Performance". Under the
heading is a note that reads "For the year ended December 31, 1998." The chart
is scaled in increments of 10% with 0% at the bottom and 30% at the top. The
first bar represents the 8.55% total return for John Hancock V.A. Financial
Industries Fund. The second bar represents the 6.92% total return for Average
open-end financial services fund. The third bar represents the 28.41% total
return for Average variable annuity specialty fund. A note below the chart 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 average variable annuity specialty fund are tracked by Lipper
Analytical Services, Inc. See the following page for historical performance
information.
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because we believe that merger activity will be most intense in this size range
over the next several years. Our regional banks generally had good earnings
results, with a median gain of 11% in operating earnings over the first nine
months of 1998. Given these results and the relatively low-risk profile of most
of these banks, as they have no loans to Russia or the Pacific Rim nations, it
is disappointing to us that almost all of their stocks lagged the market. This
resulted, however, in an unusually attractive price-earnings ratio, currently
only 60% of that of the broader market.
Insurance mixed; REITs lag
Our insurance holdings produced varied results. During the summer we scored huge
gains with our holdings in General Re, which was purchased by Warren Buffet's
Berkshire Hathaway, Inc., and Provident Cos., Inc. which merged with UNUM Corp.
However, our financial guarantor companies were sidetracked by the offshore
turmoil, and property and casualty companies, as always exposed to the
randomness of nature, suffered unusually high catastrophe losses and also
continued to experience pricing pressures. One exception was auto insurer
Progressive Corp., whose stock rose on a strong third-quarter earnings report.
Real Estate Investment Trusts (REITs) had a disappointing year. While the income
from real estate, particularly office space, rose substantially this year due to
tight conditions in the rental market, REIT stocks did not perform nearly as
well as the underlying assets. We believe the managers of many REITs have proven
to be more knowledgeable about real estate than about representing shareholder
interests in a public company. As shareholders, we need to pressure them more to
use excess capital to repurchase stock rather than pursuing uneconomic property
acquisitions.
Europe holdings grow
Throughout the year, we added to our position in European banks. We believe
that, in a manner analogous to interstate banking deregulation in the U.S., the
new common currency (the euro) among the 11 member nations in the European
Monetary Union will serve as a major catalyst for consolidation and creation of
pan-European banks. Because the European banks are years behind their U.S.
counterparts in terms of realizing the benefits of restructuring, the
opportunity for gains in the future is commensurately higher.
We are fortunate that in our quest for solid European investments we are
able to take advantage of a strategic alliance that we have formed with Credit
Agricole -- France's largest bank and one of the ten largest banks in the world
- -- and its investment advisory arm -- Indocam International Investment Services.
By the end of December, 7% of the Fund's net assets were invested in European
financial institutions.
A look ahead
Despite the more modest returns of financial stocks this year, there are a
number of reasons why we maintain our positive outlook. The Federal Reserve's
latest rate cuts should help the United States and the rest of the developed
world to maintain economic growth in 1999. Our stocks should also benefit from
low levels of valuation, and from earnings growth that will in most cases exceed
that which we are expecting for the S&P 500 companies. We eventually expect
financial reform legislation, which will create a host of new opportunities for
mergers and acquisitions, as well as improved efficiency.
"...there are a number of reasons why we maintain our positive outlook."
- --------------------------------------------------------------------------------
Sector investing is subject to different, and sometimes 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 December 31, 1998
SINCE
ONE INCEPTION
YEAR (4/30/97)
---- ---------
Cumulative Total Returns 8.55% 46.58%
Average Annual Total Returns(1) 8.55% 25.76%
Total return measures the change in value of an investment from the beginning to
the end of a period, assuming all distributions were reinvested. Performance
figures reflect the effect of investment-related charges on the underlying
funds, but do not include insurance and other charges levied at the separate
account level.
All figures represent past performance and are no guarantee of future results.
Keep in mind that the total return and share price of the Fund's investments
will fluctuate. As a result, your Fund's shares may be worth more or less than
their original cost, depending on when you sell them.
Notes to Performance
(1) The Adviser has agreed to limit the Fund's expenses to 0.25% (not
including management fee) of the Fund's daily average net assets. For the
fiscal year ended December 31, 1998, the Fund's expenses did not exceed
0.25% (not including the 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 8.55%
and 25.62%, 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 rein
vested 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 John Hancock 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 Standard
& Poor's 500 Stock Index and is equal to $15,760 as of December 31, 1998. The
second line represents the value of the hypothetical $10,000 investment made in
the John Hancock V.A. Financial Industries Fund on April 30, 1997 and is equal
to $14,658 as of December 31, 1998.
- --------------------------------------------------------------------------------
12
<PAGE>
================================================================================
BY BERNICE S. BEHAR, CFA, PORTFOLIO MANAGEMENT TEAM LEADER, AND
LAURA ALLEN, CFA, AND ANURAG PANDIT, CFA, PORTFOLIO MANAGERS
John Hancock
V.A. Emerging Growth Fund
Fund outperforms peers in volatile year
Small-company stocks struggled through another hard year, beset by worries that
the U.S. economy and corporate earnings would falter because of economic
problems overseas. In early October, however, the group began a major comeback,
propelled by the Federal Reserve Board's interest-rate cuts and investors'
growing realization of small-cap stocks' attractive valuations. Small companies
benefit from low interest rates because they -- more than larger-cap companies
- -- fund their growth through borrowings. The Fed's actions also signaled to the
market that the economy was slowing. Given their reputation for outperforming
big-cap stocks during times of economic weakness, investors increasingly began
to seek out small-cap opportunities. The astounding fourth-quarter rally helped
the Russell 2000 Index -- a broad barometer of small-company performance --
rebound from double-digit losses earlier in the year to end 1998 down only 2%.
Growth stocks of all sizes were especially strong in the fourth quarter. That
enabled the Russell 2000 Growth Index, a subset of the Russell 2000 Index that
more closely resembles the types of stocks the Fund favors, to advance into
positive territory, returning 1.23% for the year. However, this late comeback
was nowhere near enough to compete with the 28.58% return, including reinvested
dividends, of the S&P 500, a widely watched barometer of larger stocks.
- --------------------------------------------------------------------------------
[Table at bottom left hand column entitled "Top Five Common Stock Holdings." The
first listing is Cognizant Technology Solutions 1.2%, the second is Network
Event Theater 1.1%, the third Network Appliance 1.1%, the fourth Flextronics
International 1.0% and the fifth Crown Castle International 1.0%. A note below
the table reads "As a percentage of net assets on December 31, 1998."]
- --------------------------------------------------------------------------------
Performance and strategy review
Given the difficult environment throughout much of the year, we're gratified
that the Fund produced a strong return and handily outpaced its benchmark and
its peers during the year. For the 12-month period that ended December 31, 1998,
John Hancock V.A. Emerging Growth Fund had a total return of 15.94% at net asset
value, compared to the average variable annuity small-cap fund's return of
1.48%, according to Lipper Analytical Services, Inc. Historical performance
information can be found on page 15.
Our outperformance was primarily due to two factors: security selection
and advantageous moves within the technology sector throughout the year. As for
security selection, our emphasis on companies with strong and sustainable
revenue and earnings growth, dominant market share and proven and effective
management led us to a number of companies that were consistently good
performers even during the most difficult periods of 1998. Telecommunications
provider Metromedia Fiber Network posted gains in excess of 700% as it signed on
big new clients. Another consistent winner was
"...strategic moves among various technology sub-sectors... proved
beneficial..."
- --------------------------------------------------------------------------------
[A 3" x 2 " photo at bottom right side of page of John Hancock V.A. Emerging
Growth Fund. Caption below reads "Fund management team members (l-r): Anurag
Pandit, Bernice Behar and Laura Allen."]
- --------------------------------------------------------------------------------
13
<PAGE>
================================================================================
JOHN HANCOCK V.A. EMERGING GROWTH FUND
"...slow but steady growth in the U.S. economy is a favorable backdrop..."
- --------------------------------------------------------------------------------
[Bar chart at top of left hand column with heading "Fund Performance". Under the
heading is a note that reads "For the year ended December 31, 1998." The chart
is scaled in increments of 5% with 0% at the bottom and 20% at the top. The
first bar represents the 15.94% total return for John Hancock V.A. Emerging
Growth Fund. The second bar represents the 1.48% total return for Average
variable annuity small-cap fund. A note below the chart 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.
- --------------------------------------------------------------------------------
Network Appliance, which benefited from growing demand for data storage. Network
Event Theater, which started as an operator of a national network of theaters on
college campuses and advanced to provide media services to large advertisers,
got a nice boost when it announced an Internet strategy aimed at college
students. Many of our drugstore and supermarket holdings also did quite well.
Genovese, Eagle Hardware & Garden and Dominick's all were winners when they were
acquired, while drugstore chain Duane Reade surged. Other recent top performers
covered a broad range of sectors, including equipment rental and leasing company
United Rentals, health-care companies MiniMed and Perclose, and Adelphia
Communications, the nation's seventh largest cable operator.
Within any portfolio, there are always stocks that don't live up to
expectations. Two Fund disappointments this year were retailers Hibbett Sporting
Goods and Stage Stores, both of which suffered from problems that stemmed in
part from hotter than normal temperatures in the Southern states they serve.
Our strategic moves among various technology sub-sectors throughout the
year generally proved beneficial for the Fund's performance. Very early on, we
focused on computer hardware companies, but later leaned in favor of software
companies. Our move was due to our belief that computer demand was likely to
slow, but that software demand would continue to grow, given businesses'
increased focus on software as a way to enhance productivity. Going into the
summer, we increased our holdings in semiconductor manufacturers and
semiconductor capital equipment makers -- such as Novellus Systems, PMC-Sierra
and Micrel -- at a time when their prices were very cheap. Those additions --
plus existing semiconductor holdings such as Semtech and ATMI -- performed
extremely well after the industry dealt with inventory excess problems. During
the summer, Internet-related stocks stopped to take a breather, fading somewhat
from their earlier stellar performance. We added to our holdings in the Internet
sector in such companies as Beyond.com, Digital River, EarthLink Network, Exodus
Communications and VeriSign, in addition to longstanding holding E*TRADE Group.
Those stocks posted outstanding performances during the latter part of the year,
and our focus on them was rewarded. More recently, we've sold some of these same
Internet-related stocks whose prices we felt had exceeded their business
prospects.
Risk management and outlook
Because we invest in aggressively growing companies, we also attempt to actively
manage the risk profile of the Fund. One way we do that is to diversify, keeping
roughly 170 to 200 different stocks in the Fund. In addition, we limit any one
stock to approximately 1.3% of the Fund's total net assets. Those strategies
help assure that the Fund's performance won't be overly dependent on the
fortunes of a small handful of holdings. In addition, we try to distinguish
between a stock that disappoints us and a company that disappoints us. When we
like a company's long-term prospects -- even though its stock has suffered a
short-term setback -- we're likely to hang on to it. We think that in most cases
our patience will be rewarded. One recent example was theme park operator
Premier Parks, which suffered a bad third quarter stemming from issues
surrounding a prior acquisition, but bounced back in the final months of the
year.
Looking ahead, we remain cautiously optimistic about small-company stocks.
The interest-rate environ ment appears favorable over the near term.
Furthermore, slow but steady growth in the U.S. economy is a favorable backdrop
to help small- company stocks continue to post earnings gains.
14
<PAGE>
JOHN HANCOCK V.A. EMERGING GROWTH FUND
A LOOK AT PERFORMANCE
For the period ended December 31, 1998
SINCE
ONE INCEPTION
YEAR (8/29/96)
---- ---------
Cumulative Total Returns 15.94% 20.24%
Average Annual Total Returns(1) 15.94% 8.20%
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 15.31% and 6.58%,
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 John Hancock 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 Russell 2000
Index and is equal to $13,792 as of December 31, 1998. The second line
represents the Russell 2000 Growth Index and is equal to $12,946 as of December
31, 1998. The third line represents the value of the hypothetical $10,000
investment made in the John Hancock V.A. Emerging Growth Fund on August 29, 1996
and is equal to $12,024 as of December 31, 1998.
- --------------------------------------------------------------------------------
15
<PAGE>
================================================================================
BY BARBARA C. FRIEDMAN, CFA, PORTFOLIO MANAGER
John Hancock
V.A. Special Opportunities Fund
U.S. stocks tumble, then rebound to new records
"When the market fell, we went shopping..."
Stock investors began the year with high hopes as the market rocketed into new
territory during the first quarter of 1998. But by April, hope had shifted to
uncertainty, as concerns grew that corporate earnings might not meet forecasts.
Investors moved into blue-chip stocks with established earnings records,
abandoning small- and mid-cap names. During the summer, financial crises in
Asia, Russia and Latin America set off a worldwide selling frenzy that shook
even high-quality, large-company stocks. Stock prices fell precipitously until
the Federal Reserve cut short-term interest rates between late September and
early November, helping the market to rebound to new highs by year end.
Amidst the past year's volatility, large-company stocks outpaced both
mid-size and small-company names. From April to October, investors overlooked
the fact that most mid-cap stocks -- which are largely domestically oriented --
were unaffected by the turmoil overseas and able to deliver solid earnings
growth. But in the fourth quarter mid-cap stocks took off, rallying more than
40% from their October 8 lows. Despite this amazing rebound, the Russell Midcap
Growth Index returned only 17.86% for 1998, compared to the Standard & Poor's
500 Stock Index's 28.58% advance, including reinvested dividends.
- --------------------------------------------------------------------------------
[Table at bottom left hand column entitled "Top Five Common Stock Holdings." The
first listing is EMC Corp. 2.2%, the second is Ascend Communications 2.1%, the
third Fred Meyer 1.6%, the fourth Jabil Circuit 1.6% and the fifth Lexmark
International Group 1.5%. A note below the table reads "As a percentage of net
assets on December 31, 1998."]
- --------------------------------------------------------------------------------
Strategy and performance review
Throughout the year, John Hancock V.A. Special Opportunities Fund maintained its
focus on the stocks of mid-size companies with market capitalizations between $1
billion and $7 billion. We also continued to target industry sectors with the
potential for above-average earnings growth. Technology, finance and health care
remained among our top long-term industry concentrations, accounting for more
than 70% of the Fund's net assets.
With this strategy, John Hancock V.A. Special Opportunities Fund returned
10.35% at net asset value from inception on January 7, 1998, through December
31, 1998. By comparison, the average variable annuity mid-cap fund -- which
typically owns some large cap stocks -- returned 19.30%, according to Lipper
Analytical Services, Inc. Additional performance information can be found on
page 18. The Fund's pure mid-cap focus, lower-than-average stake in the
top-performing technology sector and above-average investment in the weaker
finance sector hurt relative results.
- --------------------------------------------------------------------------------
[A 3" x 2 1/2" photo at bottom right side of page of John Hancock V.A. Special
Opportunities Fund. Caption below 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 at top of left hand column with heading "Fund Performance". Under the
heading is a note that reads "From January 7, 1998 to December 31, 1998." The
chart is scaled in increments of 5% with 0% at the bottom and 20% at the top.
The first bar represents the 10.35% total return for John Hancock V.A. Special
Opportunities Fund. The second bar represents the 19.30% total return for
Average variable annuity mid-cap fund. A note below the chart reads "The total
return for John Hancock V.A. Special Opportunities Fund is at net asset value
with all distributions reinvested. The average variable annuity mid-cap fund is
tracked by Lipper Analytical Services, Inc. See the following page for
additional performance information.
- --------------------------------------------------------------------------------
Fortunately, many of our technology names had strong runs. Among them were
EMC Corp., a computer data storage company; Network Associates, a company that
provides security and virus detection for computers; Jabil Circuit, a contract
manufacturer that supplies PC companies like Dell and Gateway; Ascend
Communications, a telecommunications equipment company; and Lexmark
International Group, a maker of competitive, low-cost printers. Increased demand
allowed them to grow earnings. In addition, Fred Meyer, Inc., a West Coast
supermarket chain, continued to do well even following the announcement that it
would be acquired by Kroger. Disappointments came mainly in the banking and
insurance areas, where even market leaders were hurt by the perception of weaker
prospects across the sector. A few technology and health-services stocks also
hurt performance. We held on to some, but sold companies like Aspen Technologies
- -- a software company with cost containment problems that could erode future
earnings.
Buying opportunities
When the market fell, we went shopping -- buying long-term growth companies
whose stock prices were down because of the market turmoil, rather than any
change in outlook. Stocks in a position to benefit from the rebound in demand
for personal computers held special interest. In September, we began buying
disk-drive companies like Quantum, semiconductor stocks like Linear Technology,
and contract manufacturers like Jabil Circuit and SCI Systems. With the addition
of these and other names, plus price appreciation in the sector, our technology
stake grew significantly, to 39% by year end.
In the finance sector, we found good opportunity in the financial services
area. Among the stocks we added were Fiserv, a company that provides back-office
operations for small- and mid-size banks, and Concord EFS, a company that
processes credit card and bank transactions with a strong share in supermarkets.
We also acquired shares of Northern Trust, a bank that derives more than half of
its income from its fee-based trust business. Despite these purchases, poor
performance and some trimming of our banking and property and casualty
investments reduced our finance stake to 16%. We believe current stock prices do
not reflect the sector's steady earnings growth.
In the health-care group (13% of the Fund's net assets), we used
disappointing short-term performance to add to our investment in HEALTHSOUTH, a
leading operator nationwide of rehabilitation hospitals. Health-care services
stocks have been slow to rebound because of concerns over increased government
regulations and price increase restrictions. But we believe that the
demographics of an aging population bode well for this and other health-care
services stocks long term.
Reasons for optimism
Looking ahead to 1999, conditions seem ripe for mid-cap stocks to flourish. The
economic outlook appears positive, with the expectation of continued -- although
slower -- growth and low inflation. In addition, mid-cap stocks have
historically outperformed their large-cap counterparts during the 12 months
following an interest-rate cut. The fuel is there for this to happen again,
given that current valuations (prices relative to earnings and other measures)
on mid-cap stocks are significantly cheaper than large-cap stocks and average
annual expected earnings growth is much higher. The biggest concerns continue to
be financial crises around the world. The largely domestic orientation of
mid-cap companies, however, should help them continue producing solid earnings
growth. We believe that stocks that generate good earnings will be the winners
in 1999.
"...conditions seem ripe for mid-cap stocks to flourish."
- --------------------------------------------------------------------------------
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 December 31, 1998
SINCE
INCEPTION
(1/7/98)
---------
Cumulative Total Return 10.35%
Average Annual Total Return(1) 10.35%(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 7.17%.
(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 John Hancock 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
Standard & Poor's 500 Stock Index and is equal to $12,860 as of December 31,
1998. The second line represents the Russell Midcap Growth Index and is equal to
$11,786 as of December 31, 1998. The third line represents the value of the
hypothetical $10,000 investment made in the John Hancock V.A. Special
Opportunities Fund on January 7, 1998 and is equal to $11,035 as of December 31,
1998.
- --------------------------------------------------------------------------------
18
<PAGE>
================================================================================
BY BENJAMIN A. HOCK, JR., CFA, PORTFOLIO MANAGER
John Hancock
V.A. Growth Fund
Large growth stocks lead the market up during a turbulent year
The stock market advanced by more than 20% for a record fourth straight year in
1998, but not without treating investors to dramatic shocks of volatility along
the way. After riding up to a record high by mid July, the U.S. stock market had
its biggest tumble since 1990 in the face of growing economic and financial
turmoil around the world. Optimism turned to fear, especially after Russia's
financial collapse in August, and investors fled any security with perceived
risk, sparking an impressive rally in U.S. Treasury bonds. Even the large growth
stocks that have led the market's advance for the last several years eventually
suffered. However, three interest-rate cuts by the Federal Reserve Board and
cuts by more than 50 other central banks around the world between late September
and mid November rekindled investors' enthusiasm for stocks in the fourth
quarter of the year. Stocks both large and small staged a remarkable turnaround,
propelling several major indices to new highs, led by the large technology
names. For the year, a small group of large-company growth stocks continued to
drive the market's advance. The late-stage rally caused the broad market, as
measured by the Standard & Poor's 500 Stock Index, to finish up 28.58%,
including reinvested dividends.
- --------------------------------------------------------------------------------
[Table at bottom left hand column entitled "Top Five Common Stock Holdings." The
first listing is IBM 5.0%, the second is MCI WorldCom 4.5%, the third EMC Corp.
4.3%, the fourth Compaq Computer 4.3% and the fifth Cisco Systems 4.2%. A note
below the table reads "As a percentage of net assets on December 31, 1998."]
- --------------------------------------------------------------------------------
With its emphasis on large-company stocks, including technology stocks,
John Hancock V.A. Growth Fund performed in line with the market and its peers
during the year. For the 12 months ended December 31, 1998, the Fund posted a
total return of 24.60% at net asset value, compared to the 24.94% return of the
average variable annuity growth fund, according to Lipper Analytical Services,
Inc. Historical performance information can be found on page 21.
A more streamlined portfolio
As the year progressed, we made substantial changes to the Fund's portfolio. We
weeded out holdings that were no longer performing in line with our
expectations, such as several semiconductor companies, and we sold some issues
that had experienced a solid run-up in price. For the most part, the majority of
the holdings that we sold were cyclical, energy, industrial and financial
companies. The timing of our scaleback proved advantageous, as many holdings
were sold during the early summer stock market rally. Thus, the Fund was able
"The Fund remained concentrated in three key sectors of the market..."
- --------------------------------------------------------------------------------
[A 3" x 2" photo at bottom right side of page of John Hancock V.A. Growth Fund.
Caption below reads "Fund management team members (l-r): Lisa Welch, Ben Hock,
John Golden and Linda Miller."]
- --------------------------------------------------------------------------------
19
<PAGE>
================================================================================
JOHN HANCOCK V.A. GROWTH FUND
"...targeting only those companies with consistently rising revenues and
earnings streams..."
- --------------------------------------------------------------------------------
[Bar chart at top of left hand column with heading "Fund Performance". Under the
heading is a note that reads "For the year ended December 31, 1998." The chart
is scaled in increments of 10% with 0% at the bottom and 30% at the top. The
first bar represents the 24.60% total return for John Hancock V.A. Growth Fund.
The second bar represents the 24.94% total return for Average variable annuity
growth fund. A note below the chart 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.
- --------------------------------------------------------------------------------
to avoid the worst of August's dramatic downturn. Some notable holdings from
which the Fund realized considerable profit upon sale included Coca-Cola,
Gillette, Mellon Bank Corp., Chase Manhattan Corp. and First Data Corp. In the
fourth quarter, however, we bought back several of the large brokerage stocks,
including Merrill Lynch and Bear Stearns, after their valuations had fallen to
very attractive levels. We were rewarded, because their stocks rebounded by year
end.
As the result of the consolidation process, the Fund's portfolio now
includes a more manageable number of stocks, most of them large-company
positions. The Fund remained concentrated in three key sectors of the market
that we believe offer significant long-term growth potential and a degree of
insulation from the world's widespread financial crises: technology, health care
and retail. These choices stem from our quest for companies that are able to
consistently produce strong earnings growth. A differentiated product or
service, sound management teams and resilience in the face of changing economic
conditions are other critical criteria.
While our sector targets remained the same, we shifted our emphasis
somewhat toward the end of the year. We pared back our health-care holdings
slightly, taking profits at a time of great strength in that sector, and
redeployed the assets into technology. The global dominance of U.S. technology
companies and corporate America's ongoing desire to reduce costs and enhance
productivity continue to make technology an attractive sector in which to
invest. We have focused on the major networking companies -- 3Com and Cisco
Systems -- as well as on personal computers. We established a position in PC
maker Compaq Computer in the summer when its stock price was depressed over
concerns about its purchase of Digital Equipment and about PC demand, concerns
we believed unjustified. The stock performed well in the technology-driven
fourth-quarter rally. Also falling under the wide technology umbrella are
telecommunications companies, where we increased our MCI WorldCom stake and
bought Tellabs.
On the retail front, record low unemployment, rising household incomes and
a healthy U.S. economy have served to make consumers more confident in their
spending habits. Companies such as Rite Aid, Walgreen, Costco Companies and
Wal-Mart are not only benefiting from a favorable U.S. backdrop, but they are
also benefiting from the economic slowdown in Asia. The cost of the goods they
sell has fallen dramatically as imports have become much cheaper. Additionally,
these are domestically oriented, value-focused companies that can be considered
somewhat recession-resistant.
A look ahead
Despite the market's volatility in 1998, the backdrop for growth stocks remains
favorable. Inflation is dormant, employment is strong and interest rates remain
low, under the ever watchful eye of the Federal Reserve Board. This, in turn,
serves to inject liquidity into the market, helps keep borrowing costs low and
sets the stage for a more profitable environment in which to conduct business.
It also suggests that the economy will continue to grow in 1999. That said, it
will take more time for the world's economic problems to be resolved. By
targeting only those companies with consistently rising revenues and earnings
streams, we believe we can position the Fund to weather the challenges that may
lie ahead.
20
<PAGE>
JOHN HANCOCK V.A. GROWTH FUND
A LOOK AT PERFORMANCE
For the period ended December 31, 1998
SINCE
ONE INCEPTION
YEAR (8/29/96)
---- ---------
Cumulative Total Returns 24.60% 33.70%
Average Annual Total Returns(1) 24.60% 13.22%
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 24.27% and 11.94%,
respectively.
WHAT HAPPENED TO
A $10,000 INVESTMENT...
The chart below shows how much a $10,000 investment in the John Hancock V.A.
Growth Fund would be worth, assuming all distributions were rein vested 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 John Hancock 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 Standard & Poor's 500
Stock Index and is equal to $20,036 as of December 31, 1998. The second line
represents the value of the hypothetical $10,000 investment made in the John
Hancock V.A. Growth Fund on August 29, 1996 and is equal to $13,370 as of
December 31, 1998.
- --------------------------------------------------------------------------------
21
<PAGE>
================================================================================
BY TIMOTHY E. KEEFE, CFA, PORTFOLIO MANAGER
John Hancock
V.A. Growth and Income Fund
U.S. stocks end volatile year with double-digit gains
"Our large stakes in telecommunications and finance also helped performance."
For stock investors, 1998 was a roller coaster ride. After climbing sharply
early on in the year, U.S. stocks stalled in the second quarter as uncertainties
mounted amidst signs of corporate earnings shortfalls. Over the summer, as
Asia's financial problems spread to Russia and Latin America, U.S. stocks
tumbled 19% in six weeks' time. The Federal Reserve reversed the downslide by
cutting short-term interest rates three times during the fall. Stocks soared in
the fourth quarter, pushing the Standard & Poor's 500 Stock Index to a
surprising 28.58% return for the year, including reinvested dividends.
In this volatile environment, large-company stocks far outpaced
smaller-company names with less predictable earnings. And growth stocks -- those
with a history of steady earnings growth -- beat value stocks (or stocks selling
for less than their worth). With John Hancock V.A. Growth and Income Fund's
focus on large-company value stocks, we were able to participate in much of the
market's gains. The Fund, which opened on January 6, 1998, returned 21.39% at
net asset value for the year ended December 31, 1998. This was ahead of the
average variable annuity growth and income fund, which returned 16.37% for the
same period, according to Lipper Analytical Services, Inc. Additional
- --------------------------------------------------------------------------------
[Table at bottom left hand column entitled "Top Five Common Stock Holdings." The
first listing is Ace, Ltd. 5.8%, the second is Total Renal Care Holdings 5.1%,
the third Mattel, Inc. 4.2%, the fourth Fuji JGB 4.0% and the fifth Commonwealth
Telephone Enterprises 3.9%. A note below the table reads "As a percentage of net
assets on December 31, 1998."]
- --------------------------------------------------------------------------------
performance information can be found on page 24. The Fund's sizable cash levels
during the market downturn allowed us to buy the stock of world-class companies
at bargain prices. This helped performance, as did our strategy of concentrating
assets in our top names. Our below-average stake in top-performing growth stocks
- -- especially in the technology sector -- caused us, however, to lag the overall
market.
Bargains boost performance
The market downturn gave us a terrific buying opportunity. Many of our top
investments were either new to the Fund during the past six months or
represented significant additions to our existing stakes. Our largest investment
was in insurance stocks, which suffered from soft pricing. Given its strong
long-term outlook, however, we felt confident adding to Ace, Ltd., the
Bermuda-based reinsurer. The stock made a strong comeback and by year end was
our largest holding. In the medical sector, we added shares of American Home
Products -- a well-run drug company with strong brand recog-
- --------------------------------------------------------------------------------
[A 3" x 2" photo at bottom right side of page of John Hancock V.A. Growth and
Income Fund. Caption below 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 at top of left hand column with heading "Fund Performance". Under the
heading is a note that reads "From January 6, 1998 to December 31, 1998." The
chart is scaled in increments of 5% with 0% at the bottom and 25% at the top.
The first bar represents the 21.39% total return for John Hancock V.A. Growth
and Income Fund. The second bar represents the 16.37% total return for Average
variable annuity growth and income fund. A note below the chart 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. See the following page for
additional performance information.
- --------------------------------------------------------------------------------
nition for products like Robitussin cough syrup. A new purchase was Total Renal
Care Holdings, a leading provider of dialysis services worldwide that stands to
benefit as demand increases. The stock has appreciated nicely since we bought
it.
Our large stakes in telecommunications and finance also helped
performance. We bought shares of AT&T, the leading provider worldwide of long
distance telephone services, at a very attractive price. New management is
leveraging AT&T's brand name to expand its share in high-growth businesses like
wireless services. This strategy combined with cost cutting has helped fuel the
stock's recent rise. We also did well buying Commonwealth Telephone Enterprises,
a telephone company in Eastern Pennsylvania that services mainly rural areas,
has lots of free cash flow, a shareholder-friendly management team and great
opportunities to add incremental services at low costs. In the finance sector,
we bought the preferred stock of Fuji JGB -- one of Japan's six largest banks --
when turmoil in international financial markets had beaten it down. We believe
in the long-term prospects of the bank, which has remained fundamentally sound
despite the country's banking problems. By buying its preferred rather than its
common stock, we have a more secure position in the bank's capital structure.
Some of our biggest disappointments came from the energy sector, where
stocks did poorly as oil prices reached a 12-year low. Triton Energy, a former
top holding, faced added problems when it went up for sale and found no
qualified buyers. During the second half, its stock slid to new lows. Selected
stocks in other sectors also turned in weak results. Computer Associates
International, the world's second largest software company, saw its stock fall
50% as overseas events hurt clients' business prospects, causing them to cut
back on software spending. Banking stocks like TCF Financial Corp. also faced
difficulties as industry consolidation slowed and interest rates fell. Although
we held on to these and other names with strong long-term outlooks, we decided
to take profits in stocks like Lucent Technologies, whose price had more than
doubled and in our view fully reflected the company's worth.
More volatility and opportunities ahead
Going forward, we're optimistic. Continued low interest rates, low inflation and
moderate economic growth bode well for stocks in 1999. Continued volatility is
also a plus, because it gives us more opportunities to buy shares in businesses
with good long-term prospects when their prices are cheap. With prices on
large-company growth stocks at or near their highs, it may also be time for
value stocks -- and our strategy -- to shine. In this environment, selectivity
will be more important than ever. We'll continue to add companies like Masco, a
building supplier with consistent returns which investors have misread as a
company whose fortunes move in tandem with the economy. We'll also look for
companies where a catalyst has the potential to unleash the stock's full
potential. Recent examples include Netscape, which took off once the America
Online buyout went through, and Mattel, a leading toy manufacturer with
improving prospects from its recent acquisition of The Learning Company. We
believe long-term investments like these will enable us to continue meeting our
goal of delivering above-average returns with below-average risk.
"Continued volatility is also a plus, because it gives us more opportunities to
buy..."
23
<PAGE>
================================================================================
JOHN HANCOCK V.A. GROWTH AND INCOME FUND
A LOOK AT PERFORMANCE
For the period ended December 31, 1998
SINCE
INCEPTION
(1/6/98)
---------
Cumulative Total Returns 21.39%
Average Annual Total Returns(1) 21.39%(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 21.21%.
(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 rein
vested 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 John Hancock 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 Standard
& Poor's 500 Stock Index and is equal to $12,860 as of December 31, 1998. The
second line represents the value of the hypothetical $10,000 investment made in
the John Hancock V.A. Growth and Income Fund on January 6, 1998 and is equal to
$12,139 as of December 31, 1998.
- --------------------------------------------------------------------------------
24
<PAGE>
================================================================================
BY STEPHEN LANZENDORF, FOR THE PORTFOLIO MANAGEMENT TEAM
John Hancock V.A. Independence Equity Fund
Another year of double-digit stock returns, amid heightened volatility
The stock market experienced another year of upward progress with increased
volatility. In the beginning of 1998, the combination of strong growth in the
U.S. economy, low inflation and low interest rates helped calm the fears of
investors who worried that the Asian financial crisis might spread to this
country. Although the economy did slow from its torrid first-quarter pace of
over 5%, growth remained robust enough to help both the Dow Jones Industrial
Average and the Standard and Poor's 500 Stock Index notch a series of new
all-time highs in the first half of the year.
In the third quarter, however, the market's advance was thwarted by a
confluence of negative events. The Asian crisis manifested itself in the form of
downwardly revised earnings estimates for most companies with Asian exposure,
while the overall pace of economic growth in the U.S. continued to slow. In
addition, Russia's abrupt devaluation of its currency and default on its foreign
debt took investors by surprise, causing distortions in the debt markets that
spilled over into the stock market. The result was a nearly 20% plunge in the
S&P 500, with comparable slides in the other averages.
In the fourth quarter, the stock market staged a strong comeback, aided by
solid economic fundamentals that included three cuts in short-term
- --------------------------------------------------------------------------------
[Table at bottom left hand column entitled "Top Five Common Stock Holdings." The
first listing is Microsoft 3.5%, the second is General Electric 2.8%, the third
MCI WorldCom 2.6%, the fourth TYCO International 2.1% and the fifth IBM 2.1%.
A note below the table reads "As a percentage of net assets on December 31,
1998."]
- --------------------------------------------------------------------------------
interest rates by the Federal Reserve Board. With the late-year rebound, the S&P
500 posted a total return of 28.58%, including reinvested dividends, although
much of that advance came from a relatively small group of large-company stocks.
John Hancock V.A. Independence Equity Fund ably kept pace with the Index,
returning 28.42% at net asset value for the 12 months ended December 31, 1998.
By comparison, the average variable annuity growth and income fund returned
16.37%, according to Lipper Analytical Services, Inc. Historical performance
information can be found on page 27.
The Fund's disciplined investment strategy of buying reasonably valued
stocks of companies with improving fundamentals proved its mettle, especially
during the most recent period of volatility. Early in 1998, we took a close look
at all of the Fund's multinational holdings and revalued most of them based on
the reduced earnings we foresaw for those companies over the near term due to
weak Asian demand. This analysis led us to underweight multinational companies,
a strategy which not only boosted performance during the advancing markets of
the first, second and fourth quarters,
"Consumer stocks and telecommunications were two of the stronger sectors..."
- --------------------------------------------------------------------------------
[A 3" x 2" photo at bottom right side of page of John Hancock V.A. Independence
Equity Fund. Caption below 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
"Our dual emphasis on value and growth has proven its worth..."
- --------------------------------------------------------------------------------
[Bar chart at top of left hand column with heading "Fund Performance". Under the
heading is a note that reads "For the year ended December 31, 1998." The chart
is scaled in increments of 10% with 0% at the bottom and 30% at the top. The
first bar represents the 28.42% total return for John Hancock V.A. Independence
Equity Fund. The second bar represents the 16.37% total return for Average
variable annuity growth and income fund. A note below the chart 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 helped to cushion the Fund during the third-quarter downdraft.
Telecommunications, consumer stocks
Consumer stocks and telecommunications were two of the stronger sectors for the
Fund in 1998. The buoyant economy, low unemployment and increased wages prompted
strong consumer spending in 1998. Retailers in particular were standouts,
including Lowe's, Home Depot and Staples. Another top performer was Avon
Products, which was boosted by a growing sales force and tighter inventory
controls.
In telecommunications, MCI WorldCom maintained its pattern of strong sales
and earnings growth due in large part to a worldwide network allowing
state-of-the-art data transmission. Data transmission, not voice transmission,
is the fastest-growing line of business for telecommunications network
providers. Lucent Technologies and Tellabs, two stocks that made a positive
contributions to the Fund's performance, benefited from continued growth in
spending on telecommunications equipment by the regional Bell operating
companies domestically and by their counterparts abroad.
Apparel and energy service lag
On the negative side of the ledger, apparel companies suffered because of
increased competition from Asia, where depreciated currencies made these
countries' goods cheaper in the U.S. Another negative influence was excess
inventory of some clothing lines. These problems affected Liz Claiborne, which
we sold, and Jones Apparel Group, as well as Warnaco Group, a fabric maker and
licensee of certain Calvin Klein products.
In the energy sector, the Fund's holdings were concentrated in the energy
service industry. Energy service stocks were hurt primarily by weak oil prices.
However, two announced mergers of large integrated oil companies -- pairing
British Petroleum with Amoco and Mobil with Exxon -- also raised the possi
bility of overall lower capital spending for drilling services from companies
like Baker Hughes and Rowan Drilling. As a result, we sold both of these
companies after analysts cut back their earnings estimates for stocks in the
group.
Outlook
We look for the economy to continue to slow further -- although not enough to
bring on a recession -- with inflation and interest rates remaining low. The
sectors that have done well in the past few years should, in our opinion,
continue to lead the stock market modestly higher -- technology,
telecommunications, health care and financial services. Regardless of the
sector, we will continue to apply our strategy of buying companies whose stock
prices are attractive and whose business prospects are improving. Our dual
emphasis on value and growth has proven its worth in a variety of market
environments, and we look for that trend to continue as 1999 unfolds.
26
<PAGE>
================================================================================
JOHN HANCOCK V.A. INDEPENDENCE EQUITY FUND
A LOOK AT PERFORMANCE
For the period ended December 31, 1998
SINCE
ONE INCEPTION
YEAR (8/29/96)
---- ---------
Cumulative Total Returns 28.42% 87.59%
Average Annual Total Returns(1) 28.42% 30.85%
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. For the
fiscal year ended December 31, 1998, the Fund's expenses did not exceed
0.25% (not including the management fee) of the Fund's daily average net
assets. Without the limitation of expenses, the average annual total
return since inception would have been 30.10%.
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 John Hancock 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 Standard
& Poor's 500 Stock Index and is equal to $20,036 as of December 31, 1998. The
second line represents the value of the hypothetical $10,000 investment made in
the John Hancock V.A. Independence Equity Fund on August 29, 1996 and is equal
to $18,759 as of December 31, 1998.
- --------------------------------------------------------------------------------
27
<PAGE>
================================================================================
BY JOHN F. SNYDER, III, AND BARRY H. EVANS, CFA, PORTFOLIO MANAGERS
John Hancock
V.A. Sovereign Investors Fund
"Dividend performer" stocks hold up well in the face of global turmoil
"Retailers...were our biggest winners in 1998."
As of December 31, 1998, the Fund's trustees have approved the termination of
the Fund's subadviser, Sovereign Asset Management Corporation. This termination
will not change the Fund's portfolio management team. John F. Snyder, III, and
Barry H. Evans, CFA, are presently officers of John Hancock Advisers, Inc.
Volatility is what investors will probably remember most about 1998, as the year
was filled with many heart-wrenching ups and downs. During the first half of the
year, investors worried that troubled overseas economies -- particularly in
Southeast Asia, Russia and Latin America -- would lead to a global economic
slowdown. In fact, by the end of August, it looked as if U.S. stocks were headed
for a bear market, having fallen nearly 20% from their mid-July highs. But then,
the Federal Reserve stepped in with a series of interest-rate cuts. The change
in fiscal policy propelled stock-market averages to a record-setting fourth
consecutive year of double-digit gains. The broad market, as measured by the
Standard & Poor's 500 Stock Index, posted a return of 28.58%, including
reinvested dividends.
It's important to point out, however, that only a handful of stocks drove
the strong stock gains in 1998. Technology stocks were the market's
best-performing sector, powered by a few high flying names such as Microsoft,
Intel and Dell. The one thing that
- --------------------------------------------------------------------------------
[Table at bottom left hand column entitled "Top Five Stock Holdings." The first
listing is UNUM Corp. 4.1%, the second is Albertson's, Inc. 3.7%, the third
Dayton Hudson 3.0%, the fourth Interpublic Group 2.7% and the fifth SYSCO Corp.
2.7%. A note below the table reads "As a percentage of net assets on December
31, 1998."]
- --------------------------------------------------------------------------------
this year's small group of big winners had in common was extremely high
valuations. Those stocks with reasonable valuations and solid fundamentals were,
for the most part, left behind in this year's market rally.
Performance scorecard
John Hancock V.A. Sovereign Investors Fund turned in solid performance for the
year that was in line with its peers. For the 12 months ended December 31, 1998,
the Fund returned 16.88% at net asset value. By comparison, the average variable
annuity equity income fund returned 16.75% for the same period, according to
Lipper Analytical Services, Inc. Historical performance information can be found
on page 30.
Retailers -- such as Wal-Mart, Home Depot and Dayton Hudson -- were our
biggest winners in 1998. Despite worries of an economic slowdown, consumer
spending remained particularly strong throughout the year, thanks to high
employment levels and strong wage growth. Although strong consumer spending
certainly buoyed Wal-Mart, Home Depot and Dayton Hudson, what really drove their
performance was their dominant market positions. Home Depot, for example, has
- --------------------------------------------------------------------------------
[A 3" x 2" photo at bottom right side of page of John Hancock V.A. Sovereign
Investors Fund. Caption below reads "Fund portfolio managers John Snyder (l) and
Barry Evans (R)."]
- --------------------------------------------------------------------------------
28
<PAGE>
================================================================================
JOHN HANCOCK V.A. SOVEREIGN INVESTORS FUND
- --------------------------------------------------------------------------------
[Bar chart at top of left hand column with heading "Fund Performance". Under the
heading is a note that reads "For the year ended December 31, 1998." The chart
is scaled in increments of 5% with 0% at the bottom and 20% at the top. The
first bar represents the 16.88% total return for John Hancock V.A. Sovereign
Investors Fund. The second bar represents the 16.75% total return for Average
variable annuity equity income fund. A note below the chart 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.
- --------------------------------------------------------------------------------
been able to gain market share from struggling competitors. Dayton Hudson has
also grown market share with the aggressive expansion of its mass merchandise
chain, Target.
By the same token, the Fund's performance was also impacted by what we
didn't own in the portfolio, namely technology stocks. As we've explained
before, most technology stocks simply don't meet our investment criteria. We
focus on companies that have increased their dividends consistently for at least
the past 10 years. We call these companies "dividend performers," and most
technology stocks aren't in this category.
A look at new holdings
Companies that make up the "dividend performers" universe have one thing in
common. They dominate the markets in which they compete. That is particularly
important if the economy slows in 1999 and it becomes more difficult for
companies with poor fundamentals to show attractive sales and earnings growth.
Dominant companies, however, should have the ability to gain market share,
control pricing, expand into new markets and acquire new lines of business. As
we looked for new investment opportunities in 1998, we continued to focus on
those dominant companies that will be winners in a slowing economy. Below are
some examples.
American International Group (AIG). We've added significantly to our
position in this worldwide property/casualty insurance leader. This is a perfect
example of a dominant industry leader that has been able to gain market share
from weaker competitors. With all of the financial turmoil in the Asian
economies, AIG is one of the few AAA-rated insurance companies left. As a
result, it has been able to grab tremendous market share in the wake of Asia's
financial restructuring.
Albertson's. We've recently added this supermarket chain to the portfolio.
With the supermarket industry in the midst of consolidation, the larger, more
dominant players such as Albertson's are likely to be the big winners as smaller
chains are swallowed up. In fact, the company's recent acquisition of American
Stores should help improve its profitability and pricing power.
Masco. This manufacturer of home-building and home-improvement products is
one of Home Depot's largest and most favored suppliers. Needless to say, Masco
has benefited tremendously from the strong growth of the world's largest
home-improvement retailer.
Outlook
Looking ahead to 1999, we expect the U.S. economy to be more sluggish. Although
the worst seems to be over in Southeast Asia and Japan, we don't expect those
economies to make a quick recovery in 1999. As a result, lackluster demand from
overseas is likely to continue to put pressure on the earnings of American
multinationals. It's also hard to imagine that consumers will be able to
maintain the same high levels of spending in 1999, and that could impact
top-line earnings growth. And finally, with inflation likely to remain tame,
pricing power will continue to diminish for corporations. In this environment,
increases in corporate earnings will be much harder to come by.
As for stocks, we expect the market to broaden out in 1999. With this
year's robust market gains limited to such a small group of stocks, the
opportunity lies in those companies with more reasonable valuations and solid
fundamentals that lagged the market in 1998. The key will be to invest in
companies with bulletproof earnings that won't disappoint investors.
"As for stocks, we expect the market to broaden out in 1999."
29
<PAGE>
================================================================================
JOHN HANCOCK V.A. SOVEREIGN INVESTORS FUND
A LOOK AT PERFORMANCE
For the period ended December 31, 1998
SINCE
ONE INCEPTION
YEAR (8/29/96)
---- ---------
Cumulative Total Returns 16.88% 62.57%
Average Annual Total Returns(1) 16.88% 23.08%
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. For the
fiscal year ended December 31,1998, the Fund's expenses did not exceed
0.25% (not including the management fee) of the Fund's daily average net
assets. Without the limitation of expenses, the average annual total
return since inception would have been 22.54%.
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 rein
vested 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 John Hancock 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 Standard
& Poor's 500 Stock Index and is equal to $20,036 as of December 31, 1998. The
second line represents the value of the hypothetical $10,000 investment made in
the John Hancock V.A. Sovereign Investors Fund on August 29, 1996 and is equal
to $16,257 as of December 31, 1998.
- --------------------------------------------------------------------------------
30
<PAGE>
================================================================================
BY BARRY H. EVANS, CFA, AND ROGER HAMILTON, CFA,
FOR THE RISK MANAGEMENT GROUP
John Hancock
V.A. 500 Index Fund
Technology leads S&P 500 Index to unexpectedly strong gains in 1998
"...smaller companies... seriously lagged their bigger-company counterparts."
The S&P 500 Stock Index astounded many investors in 1998 by posting
double-digit gains for an unprecedented fourth consecutive year, although its
advance was generated almost exclusively by a handful of large -- and most often
technology -- companies. For the year ended December 31, 1998, the S&P 500 Stock
Index returned 28.58%, including reinvested dividends. The Index made steady
upward progress through July against a backdrop of low inflation, a strong U.S.
economy and relatively healthy corporate earnings in the face of a weakening
global economy. In early August, however, the stock market began what amounted
to a serious, albeit short-lived, correction. Investors, already worried about
sagging Asian economies' dragging down the earnings growth of American
multinational corporations and a possible recession in the U.S., added Russia's
effective debt default to their growing list of concerns. By month's end, the
Index had suffered major losses, wiping out most of its year-to-date gains. The
market hit subsequent lows through early October before gathering another head
of steam. Three interest-rate cuts by the Federal Reserve designed to pre-empt a
recession provided the catalyst for a remarkable rebound in the S&P through year
end. Investors apparently became
- --------------------------------------------------------------------------------
[Table at bottom left hand column entitled "Top Five Common Stock Holdings." The
first listing is Microsoft 3.2%, the second is General Electric 3.1%, the third
Intel 1.9%, the fourth Wal-Mart 1.7% and the fifth Exxon 1.7%. A note below the
table reads "As a percentage of net assets on December 31, 1998."]
- --------------------------------------------------------------------------------
convinced that the Federal Reserve would take the necessary steps to avert an
economic meltdown.
But the S&P 500's record-setting 1998 results mask the pain felt by
smaller, less prominent companies. Because their earnings are less predictable,
and more cyclical -- or vulnerable to the swings in economic growth -- smaller
companies within the S&P 500 Index seriously lagged their bigger-company
counterparts.
Performance and strategy review
For the year ended December 31, 1998, John Hancock V.A. 500 Index Fund had a
total return of 28.44% at net asset value. By comparison, the average variable
annuity S&P 500 Index objective fund had a total return of 28.25%, 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 those of the S&P 500
Index, while minimizing the costs associated with buying and selling shares of
stocks. Although there are frequent changes in the composition of the Index, we
re-balance the Fund's holdings less frequently to keep our
- --------------------------------------------------------------------------------
[A 3" x 2" photo at bottom right side of page of John Hancock V.A. 500 Index
Fund. Caption below reads "Barry Evans (l) and Roger Hamilton(R)."]
- --------------------------------------------------------------------------------
31
<PAGE>
================================================================================
JOHN HANCOCK V.A. 500 INDEX FUND
"...we'd be surprised if stock gains in 1999 rivaled those of 1998."
- --------------------------------------------------------------------------------
[Bar chart at top of left hand column with heading "Fund Performance". Under the
heading is a note that reads "For the year ended December 31, 1998." The chart
is scaled in increments of 10% with 0% at the bottom and 30% at the top. The
first bar represents the 28.44% total return for John Hancock V.A. 500 Index
Fund. The second bar represents the 28.25% total return for Average variable
annuity S&P 500 Index objective fund. A note below the chart reads "The total
return for John Hancock V.A. 500 Index Fund is at net asset value with all
distributions reinvested. The average variable S&P 500 Index objective fund is
tracked by Lipper Analytical Services, Inc. See the following page for
historical performance information.
- --------------------------------------------------------------------------------
transaction costs at a minimum. When we get new money that cannot immediately be
deployed into Index components, we buy S&P 500 Stock Index futures. They allow
us to participate in the Index's performance without incurring the transaction
costs of buying stocks.
Technology leads
One factor leading to the technology sector's stellar performance was the rapid
rise of the Internet. Even though Internet companies were not added to the S&P
500 until the very end of 1998, they provided an important psychological boost
for the tech sector, based on the belief that makers of hardware and software
would benefit from the surge in Internet demand.
Topping the Index's best performers was Dell Computer, which led the way
in direct sales of personal computers and posted gains of nearly 250% for the
year. The number two and three spots went to Apple Computer, which gained 211%
and enjoyed a stunning comeback thanks to its popular I-Mac machine, and
computer storage maker EMC Corp., which advanced roughly 210% during the year.
Lucent Technologies came in fourth, with gains of 175%. Occupying the number
five spot was Cisco Systems (up nearly 150%), which provides network hardware
that is critical to the Internet, while Sun Microsystems (up 114%) formed an
alliance with leading Internet provider America Online. Other strong technology
stocks included Unisys and Novell, which posted gains of 148% and 141%,
respectively. Chip maker Intel gained 63% while computer make Compaq Computer
surged 49%. Technology companies such as Microsoft, whose earnings growth never
slowed, also were handsomely rewarded.
Only a few non-technology names were included in the Index's 15 top
performers for 1998. Gap, Inc.'s aggressive expansion across the world and MCI
WorldCom's cost cutting and rapid growth helped boost both stocks roughly 137%.
Office-supply chain Staples and home building chain Lowe's also posted gains in
excess of 110%. As a group, drug stocks -- such as Pfizer and Warner-Lambert --
performed relatively well as investors sought out their predictable earnings
growth.
Oil companies -- including Baker Hughes and Union Pacific Resources Group
- -- were among the Index's worst performers, suffering from a devastating plunge
in oil prices. Other big disappoint ments included Harnischfeger Industries,
IKON Office Solutions, Venator Group and Rowan, which suffered losses mostly due
to company-specific problems.
Outlook
We're cautiously optimistic about stocks in 1999. We believe that interest rates
- -- which provided much of the fuel for 1998's gains -- will continue to remain
low and corporate profitability will remain relatively healthy as a result.
Plus, the U.S. dollar has weakened, which should help U.S. companies that sell
goods and services overseas. Furthermore, although we think that the U.S.
economy may weaken somewhat, it will still continue to grow. That said, we'd be
surprised if stock gains in 1999 rivaled those of 1998. In addition, we believe
that some of the market's recent high-flyers may be due for a breather. No
matter what the market's performance, our goal will be to continue to closely
track the performance of the S&P 500 Index.
32
<PAGE>
================================================================================
JOHN HANCOCK V.A. 500 INDEX FUND
A LOOK AT PERFORMANCE
For the period ended December 31, 1998
SINCE
ONE INCEPTION
YEAR (8/29/96)
---- ---------
Cumulative Total Returns 28.44% 85.54%
Average Annual Total Returns(1) 28.44% 30.24%
Total return measures the change in value of an investment from the beginning to
the end of a period, assuming all distributions were reinvested. Performance
figures reflect the effect of investment-related charges on the underlying
funds, but do not include insurance and other charges levied at the separate
account level.
All figures represent past performance and are no guarantee of future results.
Keep in mind that the total return and share price of the Fund's investments
will fluctuate. As a result, your Fund's shares may be worth more or less than
their original cost, depending on when you sell them.
Notes to Performance
(1) The Adviser has agreed to limit the Fund's expenses to 0.25% (not
including management fee) of the Fund's daily average net assets. Without
the limitation of expenses, the average annual total return for the
one-year period and since inception would have been 28.12% and 29.93%,
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 John Hancock 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 Standard & Poor's 500
Stock Index and is equal to $20,036 as of December 31, 1998. The second line
represents the value of the hypothetical $10,000 investment made in the John
Hancock V.A. 500 Index Fund on August 29, 1996 and is equal to $18,554 as of
December 31, 1998.
- --------------------------------------------------------------------------------
33
<PAGE>
================================================================================
BY JAMES K. HO, CFA, PORTFOLIO MANAGER
John Hancock
V.A. Bond Fund
Though volatile world markets made it tough going,
Fund posts attractive gains
"...we became more defensive."
On October 1, 1998, the Fund's name was changed from John Hancock V.A. Sovereign
Bond Fund to John Hancock V.A. Bond Fund. The change affects the name only and
in no way alters the Fund's original investment strategy.
A spate of unsettling economic, political and financial events around the world
created bouts of intense volatility in stock and bond markets during 1998.
Japan's ongoing banking crisis, rioting in Indonesia, Latin America's deepening
woes and Russia's financial meltdown proved to be a few of the more wellknown
catalysts of capital losses. The bailout of several highly leveraged hedge funds
seemed the icing on the cake. Investor sentiment played no small part either in
exacerbating market downturns. Indeed, not since 1987 have the broad markets
been so affected by how investors felt about their money and their speculations
on international and domestic affairs.
Through careful security selection and some timely maneuvers between
different types of bonds, John Hancock V.A. Bond Fund closed fiscal 1998 with
solid results. For the 12 months ended December 31, 1998, the Fund returned a
total of 9.41% at net asset value. This compares favorably with the 8.07% return
of the average variable
- --------------------------------------------------------------------------------
[Pie chart at bottom left hand column with heading "Portfolio Diversification."
The chart is divided into four sections (from top to left): U.S. Government &
Agencies 55%, Foreign Governments 1%, Short-Term Investments & Other 5% and
Corporate Bonds 39%. A note below the chart reads "As a percentage of net assets
on December 31, 1998."]
- --------------------------------------------------------------------------------
annuity corporate debt A-rated fund, according to Lipper Analytical Services,
Inc. Historical performance information can be found on page 36.
No place to hide
Very few equity and fixed-income sectors were spared the mass exodus as
investors worldwide rushed to the relative safety of U.S. government-guaranteed
Treasury securities. What began very early in the year as a trickle of money out
of securities carrying even the slightest degree of risk turned into a veritable
deluge of assets pouring into the U.S. Treasury market by midsummer. This, in
turn, pushed up Treasury prices across the maturity spectrum and depressed
yields to levels last witnessed in the early to mid-1960s. By year's end,
long-term Treasury bonds posted gains of roughly 20%.
High-quality corporate bonds, high-yield debt and emerging-market issues
experienced severe routs. Emerging-market bonds suffered the most volatility,
while high-yield and investment-grade corporate bond prices retreated back to
1989-90 recession
- --------------------------------------------------------------------------------
[A 3" x 2 1/2" photo at bottom right side of page of John Hancock V.A. Bond
Fund. Caption below reads "Fund management team members (l-r): Ben Matthews, Lee
Crockett, Jim Ho, Tony Goodchild and Beverly Cleathero."]
- --------------------------------------------------------------------------------
34
<PAGE>
================================================================================
JOHN HANCOCK V.A. BOND FUND
- --------------------------------------------------------------------------------
[Bar chart at top of left hand column with heading "Fund Performance". Under the
heading is a note that reads "For the year ended December 31, 1998." The chart
is scaled in increments of 2% with 0% at the bottom and 10% at the top. The
first bar represents the 9.41% Total return for John Hancock V.A. Bond Fund. The
second bar represents the 8.07% total return for Average variable annuity
corporate debt A-rated fund. A note below the chart reads "The total return for
John Hancock V.A. 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."]
- --------------------------------------------------------------------------------
levels. By fall, the supply of new corporate issues ground to a halt and demand
for existing bonds vanished. Mortgage-backed and asset-backed securities were
other sectors that suffered.
By the final quarter of 1998, relative stability seemed to have returned
to the markets as investors' fears over a global doomsday subsided. The Federal
Reserve Board's three interest-rate cuts in just seven weeks' time reassured
investors that the Board remains committed to maintaining healthy economic
growth at home as well as global liquidity.
Defensive orientation takes hold
Shortly into the fiscal period, we became more defensive. We upgraded our credit
exposure within the corporate sector and stayed away from cyclical issues such
as paper, steel, oil, gas and capital goods. We also steered clear of most
emerging-market debt, which bore the brunt of investors' flight to quality.
Early in the summer, we cut back the Fund's exposure to high-yield and
investment-grade corpo rate bonds, redeploying assets into Treasury securities
- -- a substantial weighting in the Fund's portfolio already. The increased
exposure gave the portfolio somewhat of a booster shot, helping it to further
participate in the Treasury market's historic run-up.
By mid-fall, when markets had begun to calm down, liquidity returned.
High-yield and investment-grade bonds began to recover some lost ground. With
valuations having dropped to such historically low levels, higher-quality
companies were able to bring new issues to the market at extraordinarily cheap
prices. We took the opportunity to add several high-grade names to the Fund,
including IBM and Ford Motor Credit. We continued to do so throughout December.
We also favored industries that either exhibit strong growth characteristics for
any environ ment, such as telecommunications and media holdings, or those that
enjoy steady demand through all market cycles, such as utility and healthcare
names.
One strategy that proved to hinder, rather than help, performance was our
slight increase in the Fund's mortgage-backed and asset-backed allocations.
These securities also experienced downward pressure.
Duration and yield curve strategies
Throughout the year, we kept the Fund's duration relatively neutral. Duration is
a mathematical measurement of a fund's sensitivity to interest rate changes.
Typically, the longer the duration the more dramatic the price swings are when
interest rates change. Part of our conservative approach was to keep the Fund's
average duration in line with its benchmark.
We also focused on intermediate-term government securities in the middle
part of the yield curve. This type of structure historically works well when the
difference between short- and long-term Treasury securities widens, an
occurrence known as a steepening yield curve. Although the yield curve continued
to flatten rather than steepen for much of the year, we held steady in our
positioning. We were rewarded in the fall when the market began to anticipate a
Fed rate cut and the yield curve steepened.
A look ahead
We enter fiscal 1999 with a positive outlook, not only for the broad
fixed-income market, but also for the corporate arena. The underlying
fundamentals of the U.S. economy remain strong, and that bodes well for a
continued fixed-income recovery. We remain on guard, however, about the
international situation and shall monitor events closely. We are also
selectively looking at opportunities to shorten the Fund's duration slightly,
aware of the possibility that further volatility may exist.
"We enter fiscal 1999 with a positive outlook..."
35
<PAGE>
================================================================================
JOHN HANCOCK V.A. BOND FUND
A LOOK AT PERFORMANCE
For the period ended December 31, 1998
SINCE
ONE INCEPTION
YEAR (8/29/96)
---- ---------
Cumulative Total Returns 9.41% 24.88%
Average Annual Total Returns(1) 9.41% 9.96%
YIELD
For the period ended December 31, 1998
SEC 30-DAY
YIELD
----------
John Hancock V.A. Bond Fund 5.17%
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 8.82% and 8.46%,
respectively.
WHAT HAPPENED TO
A $10,000 INVESTMENT...
The chart below shows how much a $10,000 investment in the John Hancock V.A.
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 John Hancock V.A. 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 John Hancock V.A. Bond Fund on August 29, 1996 and is
equal to $12,488 as of December 31, 1998. The second line represents the Lehman
Brothers Corporate Bond Index and is equal to $12,282 as of December 31, 1998.
- --------------------------------------------------------------------------------
36
<PAGE>
================================================================================
BY FREDERICK L. CAVANAUGH, JR. AND ARTHUR N. CALAVRITINOS, CFA,
PORTFOLIO MANAGERS
John Hancock
V.A. Strategic Income Fund
U.S. Treasuries lead global bond pack
Amid falling interest rates, low inflation and a flight to quality, U.S.
Treasury bonds gathered steam mid-year and ended up outpacing most other types
of foreign and domestic bonds in 1998. In the first half, though, the reverse
was true. Investors' growing appetite for yield helped high-yield corporate
bonds outpace Treasuries. But the corporate market experienced a rather severe
sell-off in August, sparked by the devaluation of the Russian ruble and growing
worries about a global recession and its potential effect on corporate health.
In its concerted campaign to avert economic disaster both at home and abroad,
the Federal Reserve Board cut interest rates on three separate occasions in the
fall. In response to those moves and the rapidly increasing demand for the
highest-quality bonds, the yield on the benchmark 30-year U.S. Treasury bond --
which moves in the opposite direction of its price -- tumbled to 5.09% by year
end, from 5.92% at year-end 1997. Although the high-yield market regained its
footing in November, its gains through the end of the year weren't enough to
wipe out its previous losses.
Beyond the U.S., there was both good and bad news. Western European bonds
benefited from stronger demand that stemmed from the same factors that prompted
the U.S. Treasury rally.
- --------------------------------------------------------------------------------
[Table at bottom left hand column entitled "Top Five Common Stock Holdings." The
first listing is Telecommunications 30%, the second is U.S. Government 23%, the
third Media 7%, the fourth Foreign Governments 7% and the fifth Leisure 6%.
A note below the table reads "As a percentage of net assets on December 31,
1998."]
- --------------------------------------------------------------------------------
Emerging-market bonds, on the other hand, remained under severe pressure for
nearly the entire year, as investors headed for the exits in Asia, Latin America
and Eastern Europe. Japan's inability to make reforms to pull the region out of
its worst recession since World War II caused emerging Asian markets to continue
their slide. Meanwhile, growing fears that Brazil -- Latin America's largest
economy -- would devalue its currency plagued markets in that region.
Performance and strategy overview
For the year ended December 31, 1998, John Hancock V.A. Strategic Income Fund
posted a total return of 4.92% at net asset value, surpassing the 4.82% return
of the average variable annuity general bond fund, according to Lipper
Analytical Services, Inc. For historical performance information, please see
page 39.
Our increased stake in high-quality bonds was the main reason for our
slight outperformance.
"Our increased stake in high-quality bonds was the main reason for our slight
outperformance."
- --------------------------------------------------------------------------------
[A 3" x 2 1/2" photo at bottom right side of page of John Hancock V.A. Strategic
Income Fund. Caption below reads "Fund management team members (l-r): Lee
Crockett, Roger Hamilton, Fred Cavanaugh, Arthur Calavritinos and Carolee
Bongiovi."]
- --------------------------------------------------------------------------------
37
<PAGE>
================================================================================
JOHN HANCOCK V.A. STRATEGIC INCOME FUND
"...we are content to stick with high-quality bonds from the U.S., the U.K. and
Canada."
- --------------------------------------------------------------------------------
[Bar chart at top of left hand column with heading "Fund Performance". Under the
heading is a note that reads "For the year ended December 31, 1998." The chart
is scaled in increments of 1% with 0% at the bottom and 5% at the top. The first
bar represents the 4.92% total return for John Hancock V.A. Strategic Income
Fund. The second bar represents the 4.82% total return for Average variable
annuity general bond fund. A note below the chart 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.
- --------------------------------------------------------------------------------
We improved the Fund's overall credit quality primarily by upping our holdings
in U.S. Treasury bonds, which grew to 23% of investments at the end of the
period, up from 14% at the beginning of 1998.
Outside of U.S. government securities, we increased our holdings in
government bonds issued by Canada and the United Kingdom. Both high-quality
markets offered attractive yields in excess of U.S. Treasuries, as well as the
potential for price gains to be generated from expected interest-rate cuts.
Although we missed out on some of the strong performance of high-quality Western
European markets, we avoided them because of their relatively low yields and the
uncertainty over how the introduction of a single European currency in 1999
would affect the fiscal and monetary policies of participants. Our purchase of
high-quality investments coincided with our sale of lower-quality securities.
Growing uncertainty about the prospects for emerging markets prompted us to pare
back our already small holdings in those markets to less than 1% of the Fund's
net assets at the end of the period.
In light of evidence that the economy is poised to slow, we increasingly
emphasized sectors that we believe can continue to grow even if the economy
weakens somewhat. We think telecommunications companies, for example, are
powered more by technological advancements and demand for new products and
services than they are by economic conditions. Telecommunications companies --
along with the high-growth media and cable sectors -- were responsible for some
of our best performances. Nextel Communications, a combination
cellular/paging/dispatch company, was a consistently strong performer throughout
the year thanks to continued strong subscriber growth. Other good performers
included billboard company Outdoor Systems, which benefited from strong
advertising spending, and hotel/casino operator Sun International Hotels, which
was helped by strong consumer spending on leisure activities. The high-yield
sector also was responsible for some of our biggest individual disappointments
during the year. Teligent, Inc., which intends to provide video
telecommunications primarily to small- and mid-sized companies, suffered when
its third-quarter results failed to meet expectations. In fitting with our view
that the economy could slow, we avoided economically sensitive areas of the
high-yield market -- such as paper, steel and other commodity-based companies.
Outlook
We're feeling better about high-yield corporate bonds, in part because they
showed signs of renewed strength by the end of last year. Furthermore, we
believe interest rates could continue to fall as the Federal Reserve sticks to a
tack of stimulating both the U.S. and world economies. Of course, lower interest
rates are generally positive for high-yield companies because much of their
expenses are tied to paying the interest on their borrowings. As for our
government holdings, we are content to stick with high-quality bonds from the
U.S., the U.K. and Canada. Most European bonds remain unattractive given that
their yields are lower than those generated by U.S. government bonds. The lone
exception is the U.K., where yields are higher than those found here at home.
Furthermore, we think the U.K. will cut interest rates in response to its
slowing economy and in order to keep pace with declining rates in the rest of
Western Europe and the U.S.
- --------------------------------------------------------------------------------
International investing involves special risks such as political, economic and
currency risks and differences in accounting standards and financial reporting.
38
<PAGE>
JOHN HANCOCK V.A. STRATEGIC INCOME FUND
A LOOK AT PERFORMANCE
For the period ended December 31, 1998
SINCE
ONE INCEPTION
YEAR (8/29/96)
---- ---------
Cumulative Total Returns 4.92% 24.83%
Average Annual Total Returns(1) 4.92% 9.94%
YIELD
For the period ended December 31, 1998
SEC 30-DAY
YIELD
----------
John Hancock V.A. Strategic Income Fund 7.81%
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 4.84% and 9.48%,
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. govern ment bonds, U.S. corporate
bonds, and Yankee bonds.
- --------------------------------------------------------------------------------
Line chart with the heading John Hancock 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 Lehman
Brothers Government/Corporate Bond Index and is equal to $12,572 as of December
31, 1998. The second line represents the value of the hypothetical $10,000
investment made in the John Hancock V.A. Strategic Income Fund on August 29,
1996 and is equal to $12,483 as of December 31, 1998.
- --------------------------------------------------------------------------------
39
<PAGE>
================================================================================
BY ARTHUR N. CALAVRITINOS, CFA, FREDERICK L. CAVANAUGH, JR. AND
JANET L. CLAY, CFA, PORTFOLIO MANAGERS
John Hancock
V.A. High Yield Bond Fund
High-yield bonds hit by flight to safety from global economic turmoil
"We made several defensive moves in response to the turmoil."
High-yield bonds suffered through major bouts of volatility in 1998 and ended
the year lagging higher-quality corporate and government bonds. The culprit was
growing economic uncertainty around the world which caused investors to shift
sentiments from early-year optimism to caution. In August, Russia's debt default
and currency devaluation sent investors on a global flight from financial risk,
causing safe-haven U.S. Treasury bond prices to surge. Many large institutional
investors made the problem worse when they sold out of all their emerging-market
debt to meet lenders' collateral demands, causing almost a total dry-up in
liquidity. Both stocks and bonds suffered the meltdown in varying degrees,
depending on their quality. High-yield bonds were hurt more than
investment-grade issues, given their lower credit ratings. With Asia's troubles
prompting fears of economic slowdowns and lower corporate profit growth
worldwide, industrial cyclical companies, those whose earnings are more affected
by changes in the economy -- like paper, steel and energy concerns -- were hit
particularly hard. Bonds issued by emerging- market countries fared by far the
worst.
In October, financial markets calmed down, and with the Federal Reserve's
three interest-rate cuts, the stock market made a remarkable recovery, with
- --------------------------------------------------------------------------------
[Table at bottom left hand column entitled "Top Five Holdings." The first
listing is P&L Coal Holdings 2.5%, the second is Waste Systems International
2.4%, the third Stone Container Corp. 1.9%, the fourth Nextel Communications
1.8% and the fifth Gaylord Container Corp. 1.7%. A note below the table reads
"As a percentage of net assets on December 31, 1998."]
- --------------------------------------------------------------------------------
the broad market, as measured by the Standard & Poor's 500 Stock Index returning
28.58%, including reinvested dividends, for the year. High-yield bonds, which
often perform more like stocks than bonds, rebounded to a far lesser degree, as
liquidity concerns continued to plague the group. For the year ended December
31, 1998, high-yield bonds, as measured by the Lehman Brothers High-Yield Bond
Index, returned 1.87%.
Performance review
While it was a difficult period for all high-yield bond funds, it was
particularly so for John Hancock V.A. High Yield Bond Fund, which lagged its
peers. From its inception on January 6, 1998 to December 31, 1998, the Fund
posted a total return of -9.80%, compared to the 0.10% return of the average
variable annuity high current yield fund, according to Lipper Analytical
Services, Inc. Additional performance information can be found on page 42.
As the Fund built its assets during its first year, higher-than-usual
levels of cash served as both
- --------------------------------------------------------------------------------
[A 3" x 2" photo at bottom right side of page of John Hancock V.A. High Yield
Bond Fund. Caption below reads "Fund management team members (l-r): Arthur
Calavritinos, Fred Cavanaugh, Lee Crockett, Carolee Bongiovi and Janet Clay."]
- --------------------------------------------------------------------------------
40
<PAGE>
================================================================================
JOHN HANCOCK V.A. HIGH YIELD BOND FUND
- --------------------------------------------------------------------------------
[Bar chart at top of left hand column with heading "Fund Performance". Under the
heading is a note that reads "From January 6, 1998 to December 31, 1998." The
chart is scaled in increments of 5% with -10% at the bottom and 10% at the top.
The first bar represents the -9.80% total return for John Hancock V.A. High
Yield Bond Fund. The second bar represents the 0.10% total return for Average
variable annuity high current yield fund. A note below the chart 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. See the following page
for additional performance information.
- --------------------------------------------------------------------------------
a positive and a negative influence on performance. Earlier in the year when
high-yield bonds were stronger, a high cash level held us back, but later it
helped cushion the declines of the tumultuous third quarter. Our investments in
emerging-market debt and commodities-based industrial cyclical companies -- both
their bonds and stocks (to a limited degree, as allowed by prospectus) -- also
detracted from our performance. In a year where quality was key, we were also
hurt by our focus on lower- quality high-yield bonds rated B and CCC. In
addition, two of our larger holdings -- Northwest Airlines and Canadian paper
company Abitibi-Consolidated -- struggled with major labor strikes.
Industrials stay; telecommunications grows
We made several defensive moves in response to the turmoil. We opportunistically
pared some of our lesser-quality emerging-market issues, cutting our stake from
12% six months ago to 5% at year end. We also kept our cash position higher in
the third quarter. Otherwise, we held on to our core holdings and kept a
long-term perspective. We also are sticking to our value approach to investing
- -- buying and owning companies whose asset values are not truly reflected in
their stock or bond prices. Often, these companies tend to be found among the
cyclical industries that were out of favor this year, such as paper and steel.
We're keeping them, however, not only because of their compelling valuations,
but also because we believe their fundamentals and future prospects remain
solid, given the catalyst of industry consolidation. One example was Stone
Container, which did well following its merger with Jefferson Smurfit. As for
steel, we established a position in Weirton Steel after it was hurt by this
year's sharp drop in commodities prices to near-historic lows, because we
believe the market overreacted. We also believe Weirton's business prospects are
not as susceptible as other steel companies' to the vagaries of commodities
prices, because the company is the U.S. leader in producing tin plate, which is
used by the food industry, a less cyclical group.
Over the last six months, we also upped our stake in telecommunications
companies from 7% to 16% of the Fund. We especially added companies involved
with transmitting data, since the Internet has reflected a proven, growing
market for the service.
Outlook
We're guardedly optimistic about the prospects for high-yield bonds in 1999.
After a sell-off that brought their prices down to levels not seen in 10 years,
high-yield bonds represent a compelling buying opportunity. Investors clamoring
for yield in a falling interest-rate environment have already begun to notice.
The Fed's calming moves should also keep the economy growing, albeit at a slower
rate, and we may even see some signs of growth in Asia in 1999. That's not to
say we won't see more high-yield companies missing their earnings targets.
Investors should also use the last year as a reminder that high-yield bonds are
at the aggressive end of the fixed-income spectrum and require a higher level of
risk tolerance. As always, we will continue to look for companies we can buy at
attractive prices and hold on to in pursuit of both high current income and
price appreciation.
"We're guardedly optimistic about the prospects for high-yield bonds..."
- --------------------------------------------------------------------------------
International investing involves special risks such as political, economic and
currency risks and differences in accounting standards and financial reporting.
See the Fund's prospectus for a detailed list 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 December 31, 1998
SINCE
INCEPTION
(1/6/98)
---------
Cumulative Total Returns (9.80%)
Average Annual Total Returns(1) (9.80%)(2)
YIELD
For the period ended December 31, 1998
SEC 30-DAY
YIELD
----------
John Hancock V.A. High Yield Bond Fund 12.23%
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 (10.10%).
(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.
- --------------------------------------------------------------------------------
Line chart with the heading John Hancock 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 Lehman Brothers
High Yield Bond Index and is equal to $10,160 as of December 31, 1998. The
second line represents the value of the hypothetical $10,000 investment made in
the John Hancock V.A. High Yield Bond Fund on January 6, 1998 and is equal to
$9,020 as of December 31, 1998.
- --------------------------------------------------------------------------------
42
<PAGE>
================================================================================
BY ANTHONY A. GOODCHILD, FREDERICK L. CAVANAUGH, JR. AND
JAMES K. HO, CFA, PORTFOLIO MANAGERS
John Hancock
V.A. World Bond Fund
Flight to quality boosts U.S. and European bond markets
Recently, Frederick Cavanaugh and James Ho joined Anthony Goodchild on the
management team of John Hancock V.A. World Bond Fund. Messrs. Cavanaugh, senior
vice president, and Ho, executive vice president, are both managers of other
John Hancock global and domestic fixed-income funds.
U.S. and European bonds outpaced most other world bond markets during 1998,
thanks to a heady combination of low inflation, falling interest rates and
growing demand that stemmed from a global flight to quality. U.S. Treasuries
posted some of their biggest gains on record, with the benchmark 30-year
Treasury returning an amazing 17.1% during the year. Western European securities
surprised many onlookers by rivaling U.S. Treasury gains in spite of many
unanswered questions involving the move toward a unified European currency. The
Japanese bond market, meanwhile, was buffeted by concerns that Japan would be
unable to enact the required banking and structural reforms necessary to draw
itself and the rest of Asia out of a worsening recession. Southeast Asian
emerging markets remained weak throughout the year, dragged lower by ongoing
concerns about their
- --------------------------------------------------------------------------------
[Pie chart at bottom left hand column with heading "Portfolio Diversification."
The chart is divided into six sections (from top to left): Canada 4%, Latin
America 5%, Short-Term Investments & Other 10%, Germany 11%, United Kingdom 20%
and United States 50%. A note below the chart reads "As a percentage of net
assets on December 31, 1998."]
- --------------------------------------------------------------------------------
weakening economies and embattled currencies. Hopes that emerging markets could
improve diminished when Russia allowed the ruble to go into free fall, causing
renewed skepticism and massive selling of all types of riskier bonds. Although
they exhibited occasional bouts of strength, Latin American markets ended the
year in bad shape. Investor confidence in the region was severely eroded when
Brazil, the region's largest economy, was unable to implement crucial steps that
would stabilize its currency and avoid an economic downturn.
Performance and strategy review
For the 12 months ended December 31, 1998, John Hancock V.A. World Bond Fund
posted a total return of 6.76% at net asset value, outpacing the 5.15% return of
the average variable annuity global income fund, according to Lipper Analytical
Services, Inc. Historical performance information can be found on page 45.
"...relatively large stake in high-quality U.S. and European government
bonds..."
- --------------------------------------------------------------------------------
[A 3" x 2 1/2" photo at bottom right side of page of John Hancock V.A. World
Bond Fund. Caption below reads "Portfolio managers (l-r): Fred Cavanaugh, Tony
Goodchild and Jim Ho."]
- --------------------------------------------------------------------------------
43
<PAGE>
JOHN HANCOCK V.A. WORLD BOND FUND
"Our outlook calls for slower growth in Europe..."
- --------------------------------------------------------------------------------
[Bar chart at top of left hand column with heading "Fund Performance". Under the
heading is a note that reads "For the year ended December 31, 1998." The chart
is scaled in increments of 2% with 0% at the bottom and 8% at the top. The first
bar represents the 6.76% Total return for John Hancock V.A. World Bond Fund. The
second bar represents the 5.15% total return for Average variable annuity global
income fund. A note below the chart 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."]
- --------------------------------------------------------------------------------
Our relatively large stake in high-quality U.S. and European government
bonds and our reduction in emerging-market investments were the main reasons for
the Fund's outperformance. Among our U.S. government holdings -- which totaled
about 42% of net assets at the end of the period -- we focused on Treasuries and
mortgage-backed securities issued by various government agencies, both of which
posted strong gains during the year. In Europe -- which made up 39% of net
assets at the end of the period -- we focused on Germany and the United Kingdom.
As a step toward meeting the conditions required for entry into the European
Monetary Union (EMU), central banks across the continent brought interest rates
down dramatically. By investing in German government bonds as a proxy for all
EMU participants, we were able to participate in the European bond rally in the
second half of the year, after missing out on some of its gains earlier. We also
increased our holdings in U.K. government bonds during the second half of the
period. Not only did they offer yields in excess of U.S. Treasuries, but they
also posted strong price gains when interest rates in that country fell as well.
Our disappointments came mainly from our Latin American holdings, which
performed extremely poorly during the year, although we cut our stake to less
than 5% of net assets by the end of the period.
We kept our foreign currency exposure mini mal during the first six
months, with the bulk of our investments in U.S. dollar-denominated securities.
But just prior to mid-year, we began a broader diversification effort based on
all the uncertainty surrounding currency markets. We added a 19% stake in
deutschemarks with the addition of German government bonds and
deutschemark-denominated bonds issued by Ford Motor Credit Co. and Colt Telecom
Group. By adding to our U.K. government bond position, we also increased our
stake in the pound sterling to roughly 19% of investments at the end of the
period, from about 5% six months earlier.
Outlook
Our outlook calls for slower growth in Europe, which could help drive interest
rates lower across the Continent. A weaker Europe, combined with the slowing of
Asian and Latin American economies, should ultimately translate into a
cooling-off period for the U.S. economy. As for U.S. interest rates, we think
they could spike toward the high end of a trading range unless, or until, the
Federal Reserve cuts rates again -- which we do not expect during the first half
of 1999. As for Japan and emerging markets, we're expecting a continued
struggle. We also believe that the unpredictability and turbulence experienced
by global bond markets in 1998 could extend into 1999.
- --------------------------------------------------------------------------------
International investing involves special risks such as political, economic and
currency risks and differences in accounting standards and financial reporting.
44
<PAGE>
================================================================================
JOHN HANCOCK V.A. WORLD BOND FUND
A LOOK AT PERFORMANCE
For the period ended December 31, 1998
SINCE
ONE INCEPTION
YEAR (8/29/96)
---- ---------
Cumulative Total Returns 6.76% 12.61%
Average Annual Total Returns(1) 6.76% 5.20%
YIELD
For the period ended December 31, 1998
SEC 30-DAY
YIELD
----------
John Hancock V.A. World Bond Fund 4.28%
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 5.73% and 3.89%,
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 bond market performance on a worldwide basis.
- --------------------------------------------------------------------------------
Line chart with the heading John Hancock 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 Salomon Brothers World
Government Bond Index and is equal to $11,927 as of December 31, 1998. The
second line represents the value of the hypothetical $10,000 investment made in
the John Hancock V.A. World Bond Fund on August 29, 1996 and is equal to $11,261
as of December 31, 1998.
- --------------------------------------------------------------------------------
45
<PAGE>
================================================================================
BY DAWN BAILLIE, FOR THE PORTFOLIO MANAGEMENT TEAM
John Hancock
V.A. Money Market Fund
Money-market yields fall after Federal Reserve cuts interest rates
"...we kept the Fund's maturity longer than average..."
After remaining fairly steady in the first half of the year, money-market
yields fell along with interest rates in the second half. The catalysts were
growing economic turmoil worldwide and a slowdown in the U.S. economy as the
year progressed. Financial markets reached a volatile pitch in August after
Russia's debt default and currency plunge caused investors to flee any security
with perceived risk and head for the safety of U.S. Treasury bonds. Stock
markets worldwide were hard hit and the prices of Treasury bonds soared, as
their yields, which move in the opposite direction of their price, fell toward a
30-year low.
The global turmoil caused the Federal Reserve to lower the federal funds
rate three times between late September and November as a pre-emptive strike to
prevent the U.S. economy from stalling. The federal funds rate is the rate banks
charge each other for overnight loans, and it also serves as a key pricing
benchmark for money-market securities. Until its recent moves, which brought the
federal funds rate down by a total of 0.75% to 4.75%, the Fed's bias had been
toward raising rates to prevent inflation from spiking in the face of a strong
U.S. economy and low unemployment. In the first half of the year, mixed signals
about the economy's strength and the potential impact of Asia's slowdown kept
the Fed on the sidelines. However, as the year progressed, the Fed's
inflation-fighting instincts became overshadowed by its desire to calm world
markets and ease the potential for the overseas slowdown to serve as a drag on
the U.S. economy.
On December 31, 1998, John Hancock V.A. Money Market Fund had a 7-day
effective yield of 4.54%. By comparison, the average taxable money market fund
had a 7-day effective yield of 4.55%, according to Lipper Analytical Services,
Inc.
Long and short maturity
Throughout the year, we kept the Fund's maturity longer than average based on
our ongoing belief that the Fed would not raise interest rates, given the
potential for a slowing economy. We were especially intent on extending the
Fund's maturity during the tumultuous third quarter. Our goal was to lock in
higher yields in a falling-rate environment, and at one point in the third
quarter, the Fund's maturity was in the 60-day range. We shortened up the
maturity toward year end, as we always do to take advantage of year-end buying
opportunities. There weren't as many this year, however, because securities
traders kept their slates clean in anticipation of trading in the newly minted
European currency, the euro. With focus shifting toward the euro, we expect at
least a temporary result to be lower prices, and therefore higher yields, on the
types of money-market securities that we buy.
A look ahead
The Federal Reserve remains in an "easing" mode, prepared to lower interest
rates further to prevent any recession slides. However, we believe it's more
- --------------------------------------------------------------------------------
[A 3" x 2 1/2" photo at bottom right side of page of John Hancock V.A. Money
Market Fund. Caption below reads "Fund management team members (l-r): Barry
Evans, Dawn Baillie and Jeff Given."]
- --------------------------------------------------------------------------------
46
<PAGE>
JOHN HANCOCK V.A. MONEY MARKET FUND
- --------------------------------------------------------------------------------
[Bar chart at top of left hand column with heading "7-DAY EFFECTIVE YIELD".
Under the heading is a note that reads "As of December 31, 1998." The chart is
scaled in increments of 2% with 0% at the bottom and 6% at the top. The first
bar represents the 4.54% Total return for John Hancock V.A. Money Market Fund.
The second bar represents the 4.55% total return for Average taxable money
market fund. A note below the chart reads "The average taxable money market fund
is tracked by Lipper Analytical Services, Inc. Past performance is no guarantee
of future results."]
- --------------------------------------------------------------------------------
likely that the Fed will keep on the sidelines for at least the first quarter of
1999. We're still waiting to see the effect of the last three cuts, which
generally take six to nine months to play out. Furthermore, while not showing
much sign of improvement, Asia's situation has also not gotten any worse.
Domestically, the news remains positive, with unemployment at a 27-year low, but
inflation staying mute. We'll keep monitoring the monthly economic data for
clues about the U.S. economy's strength, which will dictate any Fed moves. Key
measures include the results of fourth-quarter 1998 retail sales, which can tell
a lot about the year ahead, and the employment cost index number, 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 providing a competitive level
of current income, while preserving stability of principal.
- --------------------------------------------------------------------------------
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.
"...it's more likely that the Fed will keep on the sidelines for at least the
first quarter..."
47
<PAGE>
============================= FINANCIAL STATEMENTS =============================
John Hancock Funds - Declaration Trust
Statements of Assets and Liabilities
December 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
V.A. V.A. V.A. V.A.
INTERNATIONAL REGIONAL FINANCIAL EMERGING
FUND BANK FUND INDUSTRIES FUND GROWTH FUND
---- --------- --------------- -----------
<S> <C> <C> <C> <C>
Assets:
Investments at value - Note D:
Common stocks and rights (cost - $5,870,493,
$19,689,999, $48,367,959, $6,364,218, $1,455,691
and $7,643,670, respectively) ...................... $6,752,826 $19,295,728 $51,524,729 $8,167,491
Preferred stocks (cost - $24,599, none, none, none,
none and none, respectively) ....................... 26,642 -- -- --
Joint repurchase agreements (cost - $398,000,
$872,000, $3,385,000, $181,000, $104,000 and
$589,000, respectively) ............................ 398,000 872,000 3,385,000 181,000
Corporate savings account ............................ -- 429 417 523
------------ ------------ ------------ ------------
7,177,468 20,168,157 54,910,146 8,349,014
Cash ................................................. 975 -- -- --
Foreign currency, at value (cost - $74, none, none,
none, none and none, respectively) ................. 74 -- -- --
Receivable for investments sold ...................... 34,026 251,484 127,450 313,163
Dividends and interest receivable .................... 3,303 34,913 97,019 1,453
Foreign tax receivable ............................... 7,833 -- 218 --
Receivable from John Hancock Advisers, Inc. ..........
and affiliates - Note C ............................ 7,339 -- -- --
Deferred organization expenses - Note B .............. 5,690 -- -- 5,690
Other assets ......................................... 39 -- 5,037 828
------------ ------------ ------------ ------------
Total Assets .................... 7,236,747 20,454,554 55,139,870 8,670,148
------------------------------------------------------------------------------------------------
Liabilities:
Payable for investments purchased .................... -- 167,063 484,725 400,141
Payable for shares repurchased ....................... 16,533 920 33,501 20,811
Payable to John Hancock Advisers, Inc. and
affiliates - Note C ................................ -- 16,999 36,546 2,231
Accounts payable and accrued expenses ................ 19,700 13,155 16,123 15,076
------------ ------------ ------------ ------------
Total Liabilities ............... 36,233 198,137 570,895 438,259
------------------------------------------------------------------------------------------------
Net Assets:
Capital paid-in ...................................... 6,536,862 20,612,625 51,934,023 7,083,184
Accumulated net realized gain (loss) on
investments and foreign currency transactions ...... (190,335) 35,025 (520,515) (654,556)
Net unrealized appreciation (depreciation) of
investments and foreign currency transactions ...... 884,967 (394,271) 3,156,775 1,803,273
Undistributed net investment income (distributions
in excess of net investment income) ................ (30,980) 3,038 (1,308) (12)
------------ ------------ ------------ ------------
Net Assets ...................... $7,200,514 $20,256,417 $54,568,975 $8,231,889
================================================================================================
Net Asset Value Per Share:
(Based on 590,997, 2,183,351, 3,775,402, 686,248,
161,276 and 775,921 shares, respectively, of
beneficial interest outstanding - unlimited
number of shares authorized with no par value) ..... $12.18 $9.28 $14.45 $12.00
===================================================================================================================
<CAPTION>
V.A. V.A.
SPECIAL OPPORTUNITIES GROWTH
FUND FUND
------- ----
<S> <C> <C>
Assets:
Investments at value - Note D:
Common stocks and rights (cost - $5,870,493,
$19,689,999, $48,367,959, $6,364,218, $1,455,691
and $7,643,670, respectively) ...................... $1,685,520 $9,787,313
Preferred stocks (cost - $24,599, none, none, none,
none and none, respectively) ....................... -- --
Joint repurchase agreements (cost - $398,000,
$872,000, $3,385,000, $181,000, $104,000 and
$589,000, respectively) ............................ 104,000 589,000
Corporate savings account ............................ 57 4
------------ ------------
1,789,577 10,376,317
Cash ................................................. -- --
Foreign currency, at value (cost - $74, none, none,
none, none and none, respectively) ................. -- --
Receivable for investments sold ...................... 5,145 5,425
Dividends and interest receivable .................... 494 5,153
Foreign tax receivable ............................... -- --
Receivable from John Hancock Advisers, Inc. ..........
and affiliates - Note C ............................ 24,778 --
Deferred organization expenses - Note B .............. -- 5,690
Other assets ......................................... -- 726
------------ ------------
Total Assets .................... 1,819,994 10,393,311
-----------------------------------------------------------------
Liabilities:
Payable for investments purchased .................... 2,182 --
Payable for shares repurchased ....................... 3,901 2,439
Payable to John Hancock Advisers, Inc. and
affiliates - Note C ................................ -- 4,552
Accounts payable and accrued expenses ................ 34,840 14,503
------------ ------------
Total Liabilities ............... 40,923 21,494
-----------------------------------------------------------------
Net Assets:
Capital paid-in ...................................... 1,659,857 8,419,466
Accumulated net realized gain (loss) on
investments and foreign currency transactions ...... (110,615) (191,280)
Net unrealized appreciation (depreciation) of
investments and foreign currency transactions ...... 229,829 2,143,643
Undistributed net investment income (distributions
in excess of net investment income) ................ -- (12)
------------ ------------
Net Assets ...................... $1,779,071 $10,371,817
=================================================================
Net Asset Value Per Share:
(Based on 590,997, 2,183,351, 3,775,402, 686,248,
161,276 and 775,921 shares, respectively, of
beneficial interest outstanding - unlimited
number of shares authorized with no par value) ..... $11.03 $13.37
====================================================================================
</TABLE>
The Statement of Assets and Liabilities is each Fund's balance sheet and shows
the value of what the Fund owns, is due and owes on December 31, 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)
December 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
V.A. V.A. V.A. V.A.
GROWTH AND INDEPENDENCE SOVEREIGN 500 INDEX
INCOME FUND EQUITY FUND INVESTORS FUND FUND
------------ ------------ -------------- ------------
<S> <C> <C> <C> <C>
Assets:
Investments at value - Note D:
Common stocks and rights (cost - $13,156,666, $21,607,697,
$25,462,549 and $19,556,251, respectively) ........................ $14,898,883 $26,055,826 $30,001,364 $24,885,162
Preferred stocks (cost - $568,187, none, none and none,
respectively) ..................................................... 695,600 -- -- --
U.S. government obligations (cost - none, none $2,446,719 and
none, respectively) ............................................... -- -- 2,519,060 --
Joint repurchase agreements (cost - $476,000, $1,222,000,
$3,174,000 and $1,528,000, respectively) .......................... 476,000 1,222,000 3,174,000 1,528,000
Corporate savings account ........................................... 851 923 463 --
------------ ------------ ------------ ------------
16,071,334 27,278,749 35,694,887 26,413,162
Cash ................................................................ -- -- -- 67,526
Receivable for investments sold ..................................... 1,674,890 83,890 -- --
Receivable for shares sold .......................................... -- 564 -- --
Receivable for futures variation margin - Note B .................... -- -- -- 4,250
Dividends and interest receivable ................................... 56,237 26,685 103,815 25,462
Foreign tax receivable .............................................. 9 113 -- 167
Receivable from John Hancock Advisers, Inc. and affiliates - Note C.. -- -- -- 6,253
Deferred organization expenses - Note B ............................. -- 5,690 5,690 5,690
Other assets ........................................................ -- 2,110 3,001 112
------------ ------------ ------------ ------------
Total Assets ................................... 17,802,470 27,397,801 35,807,393 26,522,622
-------------------------------------------------------------------------------------------------------------
Liabilities:
Payable for open forward foreign currency exchange contracts
sold - Note B ..................................................... 1,003 -- -- --
Payable for investments purchased ................................... 403,755 668,399 1,430,116 --
Payable for shares repurchased ...................................... 9,528 5,757 177,884 46,713
Payable to John Hancock Advisers, Inc. and affiliates - Note C ...... 6,942 18,315 17,159 --
Accounts payable and accrued expenses ............................... 12,990 14,076 12,614 18,746
------------ ------------ ------------ ------------
Total Liabilities .............................. 434,218 706,547 1,637,773 65,459
-------------------------------------------------------------------------------------------------------------
Net Assets:
Capital paid-in ..................................................... 15,513,754 22,310,098 29,715,846 20,987,579
Accumulated net realized gain (loss) on investments, financial
futures contracts and foreign currency transactions ............... (17,645) (68,552) (157,877) 105,683
Net unrealized appreciation of investments, financial
futures contracts and foreign currency transactions ............... 1,868,627 4,448,129 4,611,156 5,363,576
Undistributed net investment income ................................. 3,516 1,579 495 325
------------ ------------ ------------ ------------
Net Assets ..................................... $17,368,252 $26,691,254 $34,169,620 $26,457,163
=============================================================================================================
Net Asset Value Per Share:
(Based on 1,443,201, 1,504,303, 2,188,296 and 1,736,622 shares,
respectively, of beneficial interest outstanding - unlimited
number of shares authorized with no par value) .................... $12.03 $17.74 $15.61 $15.23
================================================================================================================================
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
49
<PAGE>
============================= FINANCIAL STATEMENTS =============================
John Hancock Funds - Declaration Trust
Statements of Assets and Liabilities (continued)
December 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
V.A. V.A. V.A. V.A. V.A.
BOND STRATEGIC HIGH YIELD WORLD BOND MONEY MARKET
FUND INCOME FUND BOND FUND FUND FUND
----------- ----------- ---------- ---------- -----------
<S> <C> <C> <C> <C> <C>
Assets:
Investments at value - Note D:
Bonds (cost - $10,018,500, $13,908,610, $7,669,500, $2,327,862
and none, respectively) ....................................... $10,137,962 $13,576,073 $6,697,664 $2,410,947 $--
Common stocks (cost - none, $120,024, $657,792, none and
none, respectively) ........................................... -- 116,991 473,792 -- --
Preferred stocks and warrants (cost - $51, $170,978, $505,912,
none and none, respectively) .................................. 257 178,820 455,988 -- --
Options (cost - none, none, none, $2,450 and none,
respectively) ................................................. -- -- -- 70 --
Short-term investments (cost - $76,880, none, none, none
and $13,480,700, respectively) ................................ 76,512 -- -- -- 13,480,700
Joint repurchase agreements (cost - $272,000, $743,000,
$359,000, $230,000 and $2,703,000, respectively) .............. 272,000 743,000 359,000 230,000 2,703,000
Corporate savings account ....................................... 295 6 585 -- --
----------- ----------- ---------- ---------- -----------
10,487,026 14,614,890 7,987,029 2,641,017 16,183,700
Cash ............................................................ -- -- -- 197 531
Receivable for open forward foreign currency exchange
contracts purchased - Note B .................................. -- -- -- 6,871 --
Receivable for open forward foreign currency exchange
contracts sold - Note B ....................................... -- 10,267 4 -- --
Receivable for investments sold ................................. 66,242 -- -- -- --
Receivable for shares sold ...................................... -- 122,728 -- -- 165,412
Dividends and interest receivable ............................... 179,996 288,578 201,479 34,862 182,727
Receivable from John Hancock Advisers, Inc. and affiliates
- Note C ..................................................... 1,853 -- -- 1,154 --
Deferred organization expenses - Note B ......................... 5,690 5,690 -- 5,690 5,690
Other assets .................................................... 785 1,040 -- 126 2,434
----------- ----------- ---------- ---------- -----------
Total Assets ............................... 10,741,592 15,043,193 8,188,512 2,689,917 16,540,494
------------------------------------------------------------------------------------------------------------
Liabilities:
Payable for closed forward foreign currency exchange
contracts - Note B ............................................ -- -- -- 31 --
Payable for open forward foreign currency exchange contracts
purchased - Note B ............................................ -- 2,003 -- -- --
Payable for investments purchased ............................... 56,017 -- 50,000 -- --
Payable for shares repurchased .................................. 334 180 214 15 --
Payable for futures variation margin - Note B ................... -- 625 -- -- --
Payable to John Hancock Advisers, Inc. and affiliates
- Note C ...................................................... -- 6,960 4,105 -- 7,225
Accounts payable and accrued expenses ........................... 15,813 14,028 14,646 12,910 13,895
----------- ----------- ---------- ---------- -----------
Total Liabilities .......................... 72,164 23,796 68,965 12,956 21,120
------------------------------------------------------------------------------------------------------------
Net Assets:
Capital paid-in ................................................. 10,552,242 15,382,494 9,476,253 2,600,464 16,519,352
Accumulated net realized gain (loss) on investments, financial
futures contracts and foreign currency transactions ........... (2,125) (37,966) (150,944) (3,832) 19
Net unrealized appreciation (depreciation) of investments,
financial futures contracts and foreign currency transactions.. 119,300 (316,202) (1,205,462) 87,743 --
Undistributed net investment income (distributions in excess of
net investment income) ........................................ 11 (8,929) (300) (7,414) 3
----------- ----------- ---------- ---------- -----------
Net Assets ................................. $10,669,428 $15,019,397 $8,119,547 $2,676,961 $16,519,374
============================================================================================================
Net Asset Value Per Share:
(Based on 1,014,753, 1,487,096, 987,900, 271,502 and 16,519,374
shares, respectively, of beneficial interest outstanding
- unlimited number of shares authorized with no par value) .... $10.51 $10.10 $8.22 $9.86 $1.00
===============================================================================================================================
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
50
<PAGE>
============================= FINANCIAL STATEMENTS =============================
John Hancock Funds - Declaration Trust
Statements of Operations
Year ended December 31, 1998
- --------------------------------------------------------------------------------
<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 $11,131,
none, $7,201, none, $5 and $134, respectively) ....... $76,236 $177,581 $699,406 $10,068
Interest ............................................... 19,309 44,707 179,397 13,703
----------- ----------- ----------- -----------
95,545 222,288 878,803 23,771
----------- ----------- ----------- -----------
Expenses:
Investment management fee - Note C ................... 49,454 72,908 324,581 43,238
Custodian fee ........................................ 100,949 14,179 21,275 30,439
Auditing fee ......................................... 12,078 11,732 12,078 12,078
Printing ............................................. 3,520 3,038 3,705 4,850
Organization expense - Note B ........................ 2,135 -- -- 2,135
Financial services fee - Note C ...................... 870 1,353 6,370 915
Miscellaneous ........................................ 339 298 1,739 133
Trustees' fees ....................................... 227 103 1,273 237
Legal fees ........................................... 90 164 790 89
Registration and filing fees ......................... 80 41 80 124
----------- ----------- ----------- -----------
Total Expenses .................... 169,742 103,816 371,891 94,238
------------------------------------------------------------------------------------------------------
Less Expense Reductions - Note C .. (106,551) (8,125) -- (36,577)
------------------------------------------------------------------------------------------------------
Net Expenses ...................... 63,191 95,691 371,891 57,661
------------------------------------------------------------------------------------------------------
Net Investment Income (Loss) ...... 32,354 126,597 506,912 (33,890)
------------------------------------------------------------------------------------------------------
Realized and Unrealized Gain (Loss) on Investments and
Foreign Currency Transactions:
Net realized gain (loss) on investments sold ........... (118,175) 42,921 (506,999) (402,195)
Net realized gain (loss) on foreign currency
transactions ......................................... (23,996) -- (1,506) 3
Change in net unrealized appreciation/depreciation
of investments ....................................... 898,702 (394,271) 1,601,187 1,479,880
Change in net unrealized appreciation/depreciation
of foreign currency transactions ..................... 407 -- 16 --
----------- ----------- ----------- -----------
Net Realized and Unrealized Gain
(Loss) on Investments and
Foreign Currency Transactions ..... 756,938 (351,350) 1,092,698 1,077,688
------------------------------------------------------------------------------------------------------
Net Increase (Decrease) in Net
Assets Resulting from Operations .. $789,292 ($224,753) $1,599,610 $1,043,798
======================================================================================================
<CAPTION>
V.A.
SPECIAL V.A.
OPPORTUNITIES GROWTH
FUND(2) FUND
----------- -----------
<S> <C> <C>
Investment Income:
Dividends (net of foreign withholding tax of $11,131,
none, $7,201, none, $5 and $134, respectively) ....... $4,992 $40,037
Interest ............................................... 5,697 24,719
----------- -----------
10,689 64,756
----------- -----------
Expenses:
Investment management fee - Note C ................... 7,546 48,603
Custodian fee ........................................ 18,580 15,873
Auditing fee ......................................... 11,732 12,953
Printing ............................................. 2,930 4,965
Organization expense - Note B ........................ -- 2,135
Financial services fee - Note C ...................... 158 1,012
Miscellaneous ........................................ 10 112
Trustees' fees ....................................... 10 234
Legal fees ........................................... 1,578 83
Registration and filing fees ......................... -- 90
----------- -----------
Total Expenses .................... 42,544 86,060
--------------------------------------------------------------------
Less Expense Reductions - Note C .. (32,482) (21,256)
--------------------------------------------------------------------
Net Expenses ...................... 10,062 64,804
--------------------------------------------------------------------
Net Investment Income (Loss) ...... 627 (48)
--------------------------------------------------------------------
Realized and Unrealized Gain (Loss) on Investments and
Foreign Currency Transactions:
Net realized gain (loss) on investments sold ........... (110,615) 17,279
Net realized gain (loss) on foreign currency
transactions ......................................... -- --
Change in net unrealized appreciation/depreciation
of investments ....................................... 229,829 1,630,671
Change in net unrealized appreciation/depreciation
of foreign currency transactions ..................... -- --
----------- -----------
Net Realized and Unrealized Gain
(Loss) on Investments and
Foreign Currency Transactions ..... 119,214 1,647,950
--------------------------------------------------------------------
Net Increase (Decrease) in Net
Assets Resulting from Operations .. $119,841 $1,647,902
====================================================================
</TABLE>
(1) Commenced operations on May 1, 1998.
(2) Commenced operations on January 7, 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)
Year ended December 31, 1998
- --------------------------------------------------------------------------------
<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 $127, $1,039,
none and $1,436, respectively) ................................... $62,843 $226,756 $330,616 $278,454
Interest ........................................................... 89,544 30,245 278,241 83,687
----------- ---------- ----------- -----------
152,387 257,001 608,857 362,141
----------- ---------- ----------- -----------
Expenses:
Investment management fee - Note C ............................... 45,181 112,746 139,125 20,232
Auditing fee ..................................................... 12,953 12,078 12,078 12,078
Custodian fee .................................................... 12,518 18,624 11,345 71,553
Printing ......................................................... 3,928 3,693 2,491 4,849
Legal fees ....................................................... 1,683 252 330 329
Financial services fee - Note C .................................. 1,136 2,523 3,643 3,237
Miscellaneous .................................................... 152 325 447 20,204
Trustees' fees ................................................... 77 580 801 1,142
Registration and filing fees ..................................... 61 80 80 80
Organization expense - Note B .................................... -- 2,135 2,135 2,135
----------- ---------- ----------- -----------
Total Expenses ................................ 77,689 153,036 172,475 135,839
------------------------------------------------------------------------------------------------------------
Less Expense Reductions - Note C .............. (13,683) -- -- (64,970)
------------------------------------------------------------------------------------------------------------
Net Expenses .................................. 64,006 153,036 172,475 70,869
------------------------------------------------------------------------------------------------------------
Net Investment Income ......................... 88,381 103,965 436,382 291,272
------------------------------------------------------------------------------------------------------------
Realized and Unrealized Gain (Loss) on Investments, Financial
Futures Contracts and Foreign Currency Transactions:
Net realized gain (loss) on investments sold ....................... (17,645) 292,353 (157,903) 883,767
Net realized gain on financial futures contracts ................... -- -- -- 235,687
Net realized loss on foreign currency transactions ................. (3,538) -- -- --
Change in net unrealized appreciation/depreciation of investments .. 1,869,630 3,818,765 3,493,431 4,432,331
Change in net unrealized appreciation/depreciation of financial
futures contracts ................................................ -- -- -- 27,340
Change in net unrealized appreciation/depreciation of foreign
currency transactions ............................................ (1,003) -- -- --
----------- ---------- ----------- -----------
Net Realized and Unrealized Gain on
Investments, Financial Futures Contracts
and Foreign Currency Transactions ............. 1,847,444 4,111,118 3,335,528 5,579,125
------------------------------------------------------------------------------------------------------------
Net Increase in Net Assets Resulting from
Operations .................................... $1,935,825 $4,215,083 $3,771,910 $5,870,397
============================================================================================================
</TABLE>
(1) Commenced operations on January 6, 1998.
SEE NOTES TO FINANCIAL STATEMENTS.
52
<PAGE>
============================= FINANCIAL STATEMENTS =============================
John Hancock Funds - Declaration Trust
Statements of Operations (continued)
Year ended December 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
V.A. V.A. V.A. V.A. V.A.
BOND STRATEGIC HIGH YIELD WORLD BOND MONEY MARKET
FUND INCOME FUND(1) BOND FUND(1) FUND FUND
--------- --------- ----------- --------- --------
<S> <C> <C> <C> <C> <C>
Investment Income:
Dividends (net of foreign withholding tax of none,
$113, $393, none and none, respectively) ..................... $-- $19,056 $17,095 $-- $--
Interest ..................................................... 475,094 929,213 560,998 156,448 668,078
--------- --------- ----------- --------- --------
475,094 948,269 578,093 156,448 668,078
--------- --------- ----------- --------- --------
Expenses:
Investment management fee - Note C ......................... 35,548 62,923 32,414 18,566 61,349
Custodian fee .............................................. 39,074 12,279 10,768 13,577 8,761
Auditing fee ............................................... 12,078 12,078 12,953 12,078 12,078
Printing ................................................... 4,195 5,244 3,048 3,174 3,368
Organization expense - Note B .............................. 2,135 2,135 -- 2,135 2,135
Financial services fee - Note C ............................ 1,109 1,645 839 395 1,914
Registration and filing fees ............................... 280 167 145 80 80
Trustees' fees ............................................. 243 366 46 138 495
Legal fees ................................................. 180 131 1,752 49 409
Miscellaneous .............................................. 139 282 98 186 366
--------- --------- ----------- --------- --------
Total Expenses .......................... 94,981 97,250 62,063 50,378 90,955
-----------------------------------------------------------------------------------------------------------
Less Expense Reductions - Note C ........ (41,650) (8,095) (16,142) (25,616) --
-----------------------------------------------------------------------------------------------------------
Net Expenses ............................ 53,331 89,155 45,921 24,762 90,955
-----------------------------------------------------------------------------------------------------------
Net Investment Income ................... 421,763 859,114 532,172 131,686 577,123
-----------------------------------------------------------------------------------------------------------
Realized and Unrealized Gain (Loss) on Investments,
Financial Futures Contracts and
Foreign Currency Transactions:
Net realized gain (loss) on investments sold ................. 155,311 18,456 (150,944) 37,603 --
Net realized gain on financial futures contracts ............. -- 2,049 -- --
Net realized loss on foreign currency transactions ........... -- (29,162) (13,812) (65,949) --
Change in net unrealized appreciation/depreciation of
investments ................................................ 72,362 (402,135) (1,205,466) 48,129 --
Change in net unrealized appreciation/depreciation of
financial futures contracts ................................ -- 2,996 -- -- --
Change in net unrealized appreciation/depreciation of
foreign currency transactions .............................. -- 1,552 4 13,443 --
--------- --------- ----------- --------- --------
Net Realized and Unrealized Gain (Loss)
on Investments, Financial Futures
Contracts and Foreign Currency
Transactions ............................ 227,673 (406,244) (1,370,218) 33,226 --
-----------------------------------------------------------------------------------------------------------
Net Increase (Decrease) in Net Assets
Resulting from Operations ............... $649,436 $452,870 ($838,046) $164,912 $577,123
===========================================================================================================
</TABLE>
(1) Commenced operations on January 6, 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 DECEMBER 31, PERIOD ENDED
--------------------------- DECEMBER 31,
1997 1998 1998(1)
----------- ------------ ------------
<S> <C> <C> <C>
Increase (Decrease) in Net Assets:
From Operations:
Net investment income ........................................... $12,662 $32,354 $126,597
Net realized gain (loss) on investments sold and foreign
currency transactions ......................................... 140,157 (142,171) 42,921
Change in net unrealized appreciation/depreciation of
investments and foreign currency transactions ................. (261,976) 899,109 (394,271)
----------- ------------ ------------
Net Increase (Decrease) in Net Assets Resulting from
Operations .................................................. (109,157) 789,292 (224,753)
----------- ------------ ------------
Distributions to Shareholders: *
Dividends from net investment income ............................ (2,558) (32,354) (123,559)
Dividends in excess of net investment income .................... -- (13,953) --
Distributions from net realized gain on investments sold
and foreign currency transactions ............................. (213,871) -- (7,896)
----------- ------------ ------------
Total Distributions to Shareholders ........................... (216,429) (46,307) (131,455)
----------- ------------ ------------
From Fund Share Transactions: **
Shares sold ..................................................... 1,809,166 3,453,932 23,505,925
Shares issued to shareholders in reinvestment of
distributions ................................................. 216,428 46,307 131,455
----------- ------------ ------------
2,025,594 3,500,239 23,637,380
Less shares repurchased ......................................... (175,125) (834,714) (3,024,755)
----------- ------------ ------------
Net Increase .................................................. 1,850,469 2,665,525 20,612,625
----------- ------------ ------------
Net Assets:
Beginning of period ............................................. 2,267,121 3,792,004 --
----------- ------------ ------------
End of period (including undistributed net investment
income (distributions in excess) of ($207), ($30,980),
$3,038, $2,075 and ($1,308), respectively) .................... $3,792,004 $7,200,514 $20,256,417
=========== ============ ============
* Distributions to Shareholders:
Per share dividends from net investment income .................. $0.0077 $0.0674 $0.0694
----------- ------------ ------------
Per share dividends in excess of net investment income .......... -- $0.0118 --
----------- ------------ ------------
Per share distributions from net realized gain on
investments sold and foreign currency transactions ............ $0.6422 -- $0.0036
----------- ------------ ------------
** Analysis of Fund Share Transactions:
Shares sold ..................................................... 152,869 300,316 2,519,857
Shares issued to shareholders in reinvestment of
distributions ................................................. 21,239 3,843 14,871
----------- ------------ ------------
174,108 304,159 2,534,728
Less shares repurchased ......................................... (14,965) (74,252) (351,377)
----------- ------------ ------------
Net Increase .................................................. 159,143 229,907 2,183,351
=========== ============ ============
<CAPTION>
V.A. FINANCIAL INDUSTRIES FUND
-------------------------------
PERIOD ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31,
1997(2) 1998
------------ ------------
<S> <C> <C>
Increase (Decrease) in Net Assets:
From Operations:
Net investment income ........................................... $67,678 $506,912
Net realized gain (loss) on investments sold and foreign
currency transactions ......................................... 15,861 (508,505)
Change in net unrealized appreciation/depreciation of
investments and foreign currency transactions ................. 1,555,572 1,601,203
------------ ------------
Net Increase (Decrease) in Net Assets Resulting from
Operations .................................................. 1,639,111 1,599,610
------------ ------------
Distributions to Shareholders: *
Dividends from net investment income ............................ (65,434) (510,853)
Dividends in excess of net investment income .................... -- --
Distributions from net realized gain on investments sold
and foreign currency transactions ............................. (14,677) (11,398)
------------ ------------
Total Distributions to Shareholders ........................... (80,111) (522,251)
------------ ------------
From Fund Share Transactions: **
Shares sold ..................................................... 18,526,866 41,125,976
Shares issued to shareholders in reinvestment of
distributions ................................................. 80,111 522,251
------------ ------------
18,606,977 41,648,227
Less shares repurchased ......................................... (1,700,536) (6,622,052)
------------ ------------
Net Increase .................................................. 16,906,441 35,026,175
------------ ------------
Net Assets:
Beginning of period ............................................. -- 18,465,441
------------ ------------
End of period (including undistributed net investment
income (distributions in excess) of ($207), ($30,980),
$3,038, $2,075 and ($1,308), respectively) .................... $18,465,441 $54,568,975
============ ============
* Distributions to Shareholders:
Per share dividends from net investment income .................. $0.0518 $0.1354
------------ ------------
Per share dividends in excess of net investment income .......... -- --
------------ ------------
Per share distributions from net realized gain on
investments sold and foreign currency transactions ............ $0.0116 $0.0030
------------ ------------
** Analysis of Fund Share Transactions:
Shares sold ..................................................... 1,501,742 2,866,051
Shares issued to shareholders in reinvestment of
distributions ................................................. 6,125 37,039
------------ ------------
1,507,867 2,903,090
Less shares repurchased ......................................... (133,780) (501,775)
------------ ------------
Net Increase .................................................. 1,374,087 2,401,315
============ ============
</TABLE>
(1) Commenced operations on May 1, 1998.
(2) Commenced operations on April 30, 1997.
The Statement of Changes in Net Assets shows how the value of each Fund's net
assets has 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. EMERGINGGROWTH FUND FUND
-------------------------- -----------
YEAR ENDED DECEMBER 31, PERIOD ENDED
-------------------------- DECEMBER 31,
1997 1998 1998(1)
----------- ----------- -----------
<S> <C> <C> <C>
Increase (Decrease) in Net Assets:
From Operations:
Net investment income (loss) ................................... ($3,029) ($33,890) $627
Net realized gain (loss) on investments sold and foreign
currency transactions ........................................ (181,115) (402,192) (110,615)
Change in net unrealized appreciation/depreciation of
investments and foreign currency transactions ................ 320,418 1,479,880 229,829
----------- ----------- -----------
Net Increase in Net Assets Resulting from Operations ......... 136,274 1,043,798 119,841
----------- ----------- -----------
Distributions to Shareholders: *
Dividends from net investment income ........................... (135) -- (627)
Tax return of capital .......................................... -- -- (125)
----------- ----------- -----------
Total Distributions to Shareholders .......................... (135) -- (752)
----------- ----------- -----------
From Fund Share Transactions: **
Shares sold .................................................... 2,985,092 4,538,788 1,858,855
Shares issued to shareholders in reinvestment of distributions.. 135 -- 752
----------- ----------- -----------
2,985,227 4,538,788 1,859,607
Less shares repurchased ........................................ (255,471) (1,191,507) (199,625)
----------- ----------- -----------
Net Increase ................................................. 2,729,756 3,347,281 1,659,982
----------- ----------- -----------
Net Assets:
Beginning of period ............................................ 974,915 3,840,810 --
----------- ----------- -----------
End of period (including undistributed net investment income
(distributions in excess) of $133, ($12), none, none and
($12), respectively) ......................................... $3,840,810 $8,231,889 $1,779,071
=========== =========== ===========
* Distributions to Shareholders:
Per share dividends from net investment income ................. $0.0004 -- $0.0040
----------- ----------- -----------
Tax return of capital .......................................... -- -- $0.0008
----------- ----------- -----------
** Analysis of Fund Share Transactions:
Shares sold .................................................... 291,749 430,241 180,723
Shares issued to shareholders in reinvestment of distributions . 14 -- 72
----------- ----------- -----------
291,763 430,241 180,795
Less shares repurchased ........................................ (25,147) (115,191) (19,519)
----------- ----------- -----------
Net Increase ................................................. 266,616 315,050 161,276
=========== =========== ===========
<CAPTION>
V.A. GROWTH FUND
---------------------------
YEAR ENDED DECEMBER 31,
---------------------------
1997 1998
----------- ------------
<S> <C> <C>
Increase (Decrease) in Net Assets:
From Operations:
Net investment income (loss) ................................... ($8,594) ($48)
Net realized gain (loss) on investments sold and foreign
currency transactions ........................................ (111,668) 17,279
Change in net unrealized appreciation/depreciation of
investments and foreign currency transactions ................ 477,636 1,630,671
----------- ------------
Net Increase in Net Assets Resulting from Operations ......... 357,374 1,647,902
----------- ------------
Distributions to Shareholders: *
Dividends from net investment income ........................... -- --
Tax return of capital .......................................... -- --
----------- ------------
Total Distributions to Shareholders .......................... -- --
----------- ------------
From Fund Share Transactions: **
Shares sold .................................................... 2,597,730 5,891,440
Shares issued to shareholders in reinvestment of distributions.. -- --
----------- ------------
2,597,730 5,891,440
Less shares repurchased ........................................ (216,250) (900,237)
----------- ------------
Net Increase ................................................. 2,381,480 4,991,203
----------- ------------
Net Assets:
Beginning of period ............................................ 993,858 3,732,712
----------- ------------
End of period (including undistributed net investment income
(distributions in excess) of $133, ($12), none, none and
($12), respectively) ......................................... $3,732,712 $10,371,817
=========== ============
* Distributions to Shareholders:
Per share dividends from net investment income ................. -- --
----------- ------------
Tax return of capital .......................................... -- --
----------- ------------
** Analysis of Fund Share Transactions:
Shares sold .................................................... 263,298 505,076
Shares issued to shareholders in reinvestment of distributions . -- --
----------- ------------
263,298 505,076
Less shares repurchased ........................................ (21,325) (76,970)
----------- ------------
Net Increase ................................................. 241,973 428,106
=========== ============
</TABLE>
(1) Commenced operations on January 7, 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 V.A. INDEPENDENCE
INCOME FUND EQUITY FUND
------------ ----------------------------
PERIOD ENDED YEAR ENDED DECEMBER 31,
DECEMBER 31, ----------------------------
1998(1) 1997 1998
------------ ------------ ------------
<S> <C> <C> <C>
Increase (Decrease) in Net Assets:
From Operations:
Net investment income ........................................ $88,381 $41,598 $103,965
Net realized gain (loss) on investments sold and foreign
currency transactions ...................................... (21,183) 137,167 292,353
Change in net unrealized appreciation/depreciation of
investments and foreign currency transactions .............. 1,868,627 544,516 3,818,765
------------ ------------ ------------
Net Increase in Net Assets Resulting from Operations ....... 1,935,825 723,281 4,215,083
------------ ------------ ------------
Distributions to Shareholders: *
Dividends from net investment income ......................... (81,327) (41,203) (102,677)
Distributions from net realized gain on investments sold and
foreign currency transactions .............................. -- (135,930) (388,348)
------------ ------------ ------------
Total Distributions to Shareholders ........................ (81,327) (177,133) (491,025)
------------ ------------ ------------
From Fund Share Transactions: **
Shares sold .................................................. 16,705,530 7,299,605 16,435,328
Shares issued to shareholders in reinvestment of
distributions .............................................. 81,327 177,133 491,025
------------ ------------ ------------
16,786,857 7,476,738 16,926,353
Less shares repurchased ...................................... (1,273,103) (452,446) (2,678,249)
------------ ------------ ------------
Net Increase ............................................... 15,513,754 7,024,292 14,248,104
------------ ------------ ------------
Net Assets:
Beginning of period .......................................... -- 1,148,652 8,719,092
------------ ------------ ------------
End of period (including undistributed net investment
income of $3,516, $395, $1,579, $804, and $495,
respectively) .............................................. $17,368,252 $8,719,092 $26,691,254
============ ============ ============
* Distributions to Shareholders:
Per share dividends from net investment income ............... $0.0962 $0.1376 $0.0967
------------ ------------ ------------
Per share distributions from net realized gain on
investments sold and foreign currency transactions ......... -- $0.2476 $0.2702
------------ ------------ ------------
** Analysis of Fund Share Transactions:
Shares sold .................................................. 1,560,370 534,688 1,023,938
Shares issued to shareholders in reinvestment of
distributions .............................................. 7,693 13,023 28,311
------------ ------------ ------------
1,568,063 547,711 1,052,249
Less shares repurchased ...................................... (124,862) (33,121) (165,911)
------------ ------------ ------------
Net Increase ............................................... 1,443,201 514,590 886,338
============ ============ ============
<CAPTION>
V.A. SOVEREIGN INVESTORS FUND
----------------------------
YEAR ENDED DECEMBER 31,
----------------------------
1997 1998
------------ ------------
<S> <C> <C>
Increase (Decrease) in Net Assets:
From Operations:
Net investment income ........................................ $84,193 $436,382
Net realized gain (loss) on investments sold and foreign
currency transactions ...................................... 17,842 (157,903)
Change in net unrealized appreciation/depreciation of
investments and foreign currency transactions .............. 1,050,550 3,493,431
------------ ------------
Net Increase in Net Assets Resulting from Operations ....... 1,152,585 3,771,910
------------ ------------
Distributions to Shareholders: *
Dividends from net investment income ......................... (83,445) (454,539)
Distributions from net realized gain on investments sold and
foreign currency transactions .............................. (6,096) --
------------ ------------
Total Distributions to Shareholders ........................ (89,541) (454,539)
------------ ------------
From Fund Share Transactions: **
Shares sold .................................................. 10,664,200 21,913,811
Shares issued to shareholders in reinvestment of
distributions .............................................. 89,541 454,539
------------ ------------
10,753,741 22,368,350
Less shares repurchased ...................................... (740,977) (3,703,040)
------------ ------------
Net Increase ............................................... 10,012,764 18,665,310
------------ ------------
Net Assets:
Beginning of period .......................................... 1,111,131 12,186,939
------------ ------------
End of period (including undistributed net investment
income of $3,516, $395, $1,579, $804, and $495,
respectively) .............................................. $12,186,939 $34,169,620
============ ============
* Distributions to Shareholders:
Per share dividends from net investment income ............... $0.1769 $0.2548
------------ ------------
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 1,514,230
Shares issued to shareholders in reinvestment of
distributions .............................................. 6,966 30,975
------------ ------------
851,425 1,545,205
Less shares repurchased ...................................... (58,189) (253,627)
------------ ------------
Net Increase ............................................... 793,236 1,291,578
============ ============
</TABLE>
(1) Commenced operations on January 6, 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. BOND FUND
---------------------------- ---------------------------
YEAR ENDED DECEMBER 31, YEAR ENDED DECEMBER 31,
---------------------------- ---------------------------
1997 1998 1997 1998
------------ ------------ ----------- ------------
<S> <C> <C> <C> <C>
Increase (Decrease) in Net Assets:
From Operations:
Net investment income ................................... $254,757 $291,272 $117,217 $421,763
Net realized gain (loss) on investments sold,
financial futures contracts and foreign currency
transactions .......................................... 812,763 1,119,454 30,656 155,311
Change in net unrealized appreciation/depreciation
of investments, financial futures contracts and
foreign currency transactions ......................... 948,655 4,459,671 33,037 72,362
------------ ------------ ----------- ------------
Net Increase in Net Assets Resulting from Operations .. 2,016,175 5,870,397 180,910 649,436
------------ ------------ ----------- ------------
Distributions to Shareholders: *
Dividends from net investment income .................... (253,122) (292,838) (117,208) (421,762)
Distributions from net realized gain on investments sold,
financial futures contracts and foreign currency
transactions .......................................... (801,442) (1,211,700) (22,285) (170,439)
------------ ------------ ----------- ------------
Total Distributions to Shareholders ................... (1,054,564) (1,504,538) (139,493) (592,201)
------------ ------------ ----------- ------------
From Fund Share Transactions: **
Shares sold ............................................. 15,055,266 15,705,605 2,851,276 8,832,995
Shares issued to shareholders in reinvestment of
distributions ......................................... 1,054,564 1,504,538 138,885 592,175
------------ ------------ ----------- ------------
16,109,830 17,210,143 2,990,161 9,425,170
Less shares repurchased ................................. (1,112,317) (15,126,656) (405,240) (2,495,458)
------------ ------------ ----------- ------------
Net Increase .......................................... 14,997,513 2,083,487 2,584,921 6,929,712
------------ ------------ ----------- ------------
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 (distributions in excess) of $1,881, $325, $9,
$11, $6,469 and ($8,929), respectively) ............... $20,007,817 $26,457,163 $3,682,481 $10,669,428
============ ============ =========== ============
* Distributions to Shareholders:
Per share dividends from net investment income .......... $0.3006 $0.1980 $0.6766 $0.6266
------------ ------------ ----------- ------------
Per share distributions from net realized gain on
investments sold, financial futures contracts and
foreign currency transactions ......................... $0.5445 $0.7583 $0.0653 $0.1710
------------ ------------ ----------- ------------
** Analysis of Fund Share Transactions:
Shares sold ............................................. 1,200,874 1,100,338 277,867 838,775
Shares issued to shareholders in reinvestment of
distributions ......................................... 86,596 99,865 13,553 56,408
------------ ------------ ----------- ------------
1,287,470 1,200,203 291,420 895,183
Less shares repurchased ................................. (90,171) (1,048,754) (39,559) (235,975)
------------ ------------ ----------- ------------
Net Increase .......................................... 1,197,299 151,449 251,861 659,208
============ ============ =========== ============
<CAPTION>
V.A. STRATEGIC INCOME FUND
----------------------------
YEAR ENDED DECEMBER 31,
----------------------------
1997 1998
------------ ------------
<S> <C> <C>
Increase (Decrease) in Net Assets:
From Operations:
Net investment income ................................... $283,099 $859,114
Net realized gain (loss) on investments sold,
financial futures contracts and foreign currency
transactions .......................................... 6,218 (8,657)
Change in net unrealized appreciation/depreciation
of investments, financial futures contracts and
foreign currency transactions ......................... 53,892 (397,587)
------------ ------------
Net Increase in Net Assets Resulting from Operations .. 343,209 452,870
------------ ------------
Distributions to Shareholders: *
Dividends from net investment income .................... (283,099) (859,114)
Distributions from net realized gain on investments sold,
financial futures contracts and foreign currency
transactions .......................................... (44,377) (33,336)
------------ ------------
Total Distributions to Shareholders ................... (327,476) (892,450)
------------ ------------
From Fund Share Transactions: **
Shares sold ............................................. 3,436,273 10,522,329
Shares issued to shareholders in reinvestment of
distributions ......................................... 327,029 892,895
------------ ------------
3,763,302 11,415,224
Less shares repurchased ................................. (370,882) (1,495,808)
------------ ------------
Net Increase .......................................... 3,392,420 9,919,416
------------ ------------
Net Assets:
Beginning of period ..................................... 2,131,408 5,539,561
------------ ------------
End of period (including undistributed net investment
income (distributions in excess) of $1,881, $325, $9,
$11, $6,469 and ($8,929), respectively) ............... $5,539,561 $15,019,397
============ ============
* Distributions to Shareholders:
Per share dividends from net investment income .......... $0.9083 $0.8496
------------ ------------
Per share distributions from net realized gain on
investments sold, financial futures contracts and
foreign currency transactions ......................... $0.0870 $0.0229
------------ ------------
** Analysis of Fund Share Transactions:
Shares sold ............................................. 326,163 1,015,843
Shares issued to shareholders in reinvestment of
distributions ......................................... 31,206 86,949
------------ ------------
357,369 1,102,792
Less shares repurchased ................................. (35,138) (144,814)
------------ ------------
Net Increase .......................................... 322,231 957,978
============ ============
</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 DECEMBER 31,
DECEMBER 31, --------------------------
1998(1) 1997 1998
------------ ----------- -----------
<S> <C> <C> <C>
Increase (Decrease) in Net Assets:
From Operations:
Net investment income .................................................... $532,172 $128,346 $131,686
Net realized loss on investments sold and foreign currency transactions .. (164,756) (87,763) (28,346)
Change in net unrealized appreciation/depreciation of investments and
foreign currency transactions .......................................... (1,205,462) (10,797) 61,572
------------ ----------- -----------
Net Increase (Decrease) in Net Assets Resulting from Operations ........ (838,046) 29,786 164,912
------------ ----------- -----------
Distributions to Shareholders: *
Dividends from net investment income ..................................... (518,660) (46,497) (75,591)
Distribution in excess of net investment income .......................... -- (19,609) (17,306)
Tax return of capital .................................................... (8,794) (62,240) (38,789)
------------ ----------- -----------
Total Distributions to Shareholders .................................... (527,454) (128,346) (131,686)
------------ ----------- -----------
From Fund Share Transactions: **
Shares sold .............................................................. 10,161,830 234,407 310,523
Shares issued to shareholders in reinvestment of distributions ........... 527,454 128,137 131,895
------------ ----------- -----------
10,689,284 362,544 442,418
Less shares repurchased .................................................. (1,204,237) (43,948) (101,279)
------------ ----------- -----------
Net Increase ........................................................... 9,485,047 318,596 341,139
------------ ----------- -----------
Net Assets:
Beginning of period ...................................................... -- 2,082,560 2,302,596
------------ ----------- -----------
End of period (including undistributed net investment income
(distributions in excess) of ($300), ($18,355), ($7,414),
none and $3, respectively) ............................................. $8,119,547 $2,302,596 $2,676,961
============ =========== ===========
* Distributions to Shareholders:
Per share dividends from net investment income ........................... $0.8426 $0.2134 $0.2977
------------ ----------- -----------
Per share distributions in excess of net investment income ............... -- $0.0900 $0.0682
------------ ----------- -----------
Tax return of capital .................................................... $0.0143 $0.2857 $0.1528
------------ ----------- -----------
** Analysis of Fund Share Transactions:
Shares sold .............................................................. 1,069,122 23,767 31,886
Shares issued to shareholders in reinvestment of distributions ........... 59,435 13,037 13,557
------------ ----------- -----------
1,128,557 36,804 45,443
Less shares repurchased .................................................. (140,657) (4,441) (10,410)
------------ ----------- -----------
Net Increase ........................................................... 987,900 32,363 35,033
============ =========== ===========
<CAPTION>
V.A. MONEY MARKET FUND
----------------------------
YEAR ENDED DECEMBER 31,
----------------------------
1997 1998
------------ ------------
<S>
Increase (Decrease) in Net Assets:
From Operations:
Net investment income .................................................... $119,827 $577,123
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 ........ 119,827 577,123
------------ ------------
Distributions to Shareholders: *
Dividends from net investment income ..................................... (119,827) (577,123)
Distribution in excess of net investment income .......................... -- --
Tax return of capital .................................................... -- --
------------ ------------
Total Distributions to Shareholders .................................... (119,827) (577,123)
------------ ------------
From Fund Share Transactions: **
Shares sold .............................................................. 9,748,620 33,372,181
Shares issued to shareholders in reinvestment of distributions ........... 118,655 578,296
------------ ------------
9,867,275 33,950,477
Less shares repurchased .................................................. (1,696,845) (25,808,161)
------------ ------------
Net Increase ........................................................... 8,170,430 8,142,316
------------ ------------
Net Assets:
Beginning of period ...................................................... 206,628 8,377,058
------------ ------------
End of period (including undistributed net investment income
(distributions in excess) of ($300), ($18,355), ($7,414),
none and $3, respectively) ............................................. $8,377,058 $16,519,374
============ ============
* Distributions to Shareholders:
Per share dividends from net investment income ........................... $0.0478 $0.0478
------------ ------------
Per share distributions in excess of net investment income ............... -- --
------------ ------------
Tax return of capital .................................................... -- --
------------ ------------
** Analysis of Fund Share Transactions:
Shares sold .............................................................. 9,748,620 33,372,181
Shares issued to shareholders in reinvestment of distributions ........... 118,655 578,296
------------ ------------
9,867,275 33,950,477
Less shares repurchased .................................................. (1,696,845) (25,808,161)
------------ ------------
Net Increase ........................................................... 8,170,430 8,142,316
============ ============
</TABLE>
(1) Commenced operations on January 6, 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
ENDED YEAR ENDED DECEMBER 31,
DECEMBER 31, ---------------------------
1996(1) 1997 1998
--------- --------- ---------
<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 0.07
Net Realized and Unrealized Gain (Loss) on
Investments and Foreign Currency Transactions ......................... 1.20 (0.13) 1.69
--------- --------- ---------
Total from Investment Operations .................................... 1.27 (0.08) 1.76
--------- --------- ---------
Less Distributions:
Dividends from Net Investment Income .................................. (0.04) (0.01) (0.07)
Dividends in Excess of Net Investment Income .......................... -- -- (0.01)
Distributions from Net Realized Gain on Investments Sold
and Foreign Currency Transactions ................................... -- (0.64) --
--------- --------- ---------
Total Distributions ................................................. (0.04) (0.65) (0.08)
--------- --------- ---------
Net Asset Value, End of Period .......................................... $11.23 $10.50 $12.18
========= ========= =========
Total Investment Return at Net Asset Value (3) .......................... 12.75%(5) (0.54%) 16.75%
Total Adjusted Investment Return at Net Asset Value (3,4) ............... 12.07%(5) (1.43%) 14.77%
Ratios and Supplemental Data
Net Assets, End of Period (000s omitted) ................................ $2,267 $3,792 $7,201
Ratio of Expenses to Average Net Assets ................................. 1.15%(6) 1.15% 1.15%
Ratio of Adjusted Expenses to Average Net Assets (7) .................... 3.13%(6) 2.04% 3.13%
Ratio of Net Investment Income to Average Net Assets .................... 2.03%(6) 0.43% 0.59%
Ratio of Adjusted Net Investment Income (Loss) to
Average Net Assets (7) ................................................ 0.05%(6) (0.46%) (1.39%)
Portfolio Turnover Rate ................................................. 14% 273% 89%
Fee Reduction Per Share (2) ............................................. $0.07 $0.10 $0.22
</TABLE>
(1) Commenced operations on August 29, 1996.
(2) Based on the average of the shares outstanding at the end of each month.
(3) Assumes dividend reinvestment.
(4) An estimated total return calculation which does not take into consideration
fee reductions by the Adviser during the periods shown.
(5) Not annualized.
(6) Annualized.
(7) Unreimbursed, without fee reduction.
The Financial Highlights summarizes the impact of the following factors on a
single share for each period indi cated: net investment income, gains (losses),
distributions and total investment return of each Fund. It shows how the Fund's
net asset value for a share has changed since the end of the previous period.
Additionally, important rela tionships 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 the
period indicated, investment returns, key ratios and supplemental data are as
follows:
- --------------------------------------------------------------------------------
V.A. REGIONAL
BANK FUND
--------------
PERIOD ENDED
DECEMBER 31,
1998(1)
----------
Per Share Operating Performance
Net Asset Value, Beginning of Period ........................ $10.00
----------
Net Investment Income (2) ................................... 0.09
Net Realized and Unrealized Loss on Investments ............. (0.74)
----------
Total from Investment Operations ........................ (0.65)
----------
Less Distributions:
Dividends from Net Investment Income ...................... (0.07)
Distributions from Net Realized Gain on Investments Sold .. (0.00)(8)
----------
Total Distributions ..................................... (0.07)
----------
Net Asset Value, End of Period .............................. $9.28
==========
Total Investment Return at Net Asset Value (3) .............. (6.43%)(5)
Total Adjusted Investment Return at Net Asset Value (3,4) ... (6.49%)(5)
Ratios and Supplemental Data
Net Assets, End of Period (000s omitted) .................... $20,256
Ratio of Expenses to Average Net Assets ..................... 1.05%(6)
Ratio of Adjusted Expenses to Average Net Assets (7) ........ 1.14%(6)
Ratio of Net Investment Income to Average Net Assets ........ 1.39%(6)
Ratio of Adjusted Net Investment Income to Average Net
Assets (7) ................................................ 1.30%(6)
Portfolio Turnover Rate ..................................... 28%
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.
(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.
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 YEAR
ENDED ENDED
DECEMBER 31, DECEMBER 31,
1997(1) 1998
---------- ----------
<S> <C> <C>
Per Share Operating Performance
Net Asset Value, Beginning of Period ................................. $10.00 $13.44
---------- ----------
Net Investment Income (2) ............................................ 0.11 0.18
Net Realized and Unrealized Gain on Investments
and Foreign Currency Transactions .................................. 3.39 0.97
---------- ----------
Total from Investment Operations ................................. 3.50 1.15
---------- ----------
Less Distributions:
Dividends from Net Investment Income ............................... (0.05) (0.14)
Distributions from Net Realized Gain on Investments Sold ........... (0.01) (0.00)(8)
---------- ----------
Total Distributions .............................................. (0.06) (0.14)
---------- ----------
Net Asset Value, End of Period ....................................... $13.44 $14.45
========== ==========
Total Investment Return at Net Asset Value (3) ....................... 35.05%(5) 8.55%
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 $54,569
Ratio of Expenses to Average Net Assets .............................. 1.05%(6) 0.92%
Ratio of Adjusted Expenses to Average Net Assets (7) ................. 1.39%(6) --
Ratio of Net Investment Income to Average Net Assets ................. 1.32%(6) 1.25%
Ratio of Adjusted Net Investment Income to Average Net Assets (7) .... 0.98%(6) --
Portfolio Turnover Rate .............................................. 11% 38%
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.
(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.
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
ENDED YEAR ENDED DECEMBER 31,
DECEMBER 31, -------------------------
1996(1) 1997 1998
--------- --------- ---------
<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) (0.06)
Net Realized and Unrealized Gain (Loss) on Investments
and Foreign Currency Transactions ............................. (0.68) 1.05 1.71
--------- --------- ---------
Total from Investment Operations ............................ (0.66) 1.03 1.65
--------- --------- ---------
Less Distributions:
Dividends from Net Investment Income .......................... (0.02) (0.00)(3) PPP
--------- --------- ---------
Net Asset Value, End of Period .................................. $9.32 $10.35 $12.00
========= ========= =========
Total Investment Return at Net Asset Value (4) .................. (6.62%)(6) 11.06% 15.94%
Total Adjusted Investment Return at Net Asset Value (4,5) ....... (8.05%)(6) 9.34% 15.31%
Ratios and Supplemental Data
Net Assets, End of Period (000s omitted) ........................ $975 $3,841 $8,232
Ratio of Expenses to Average Net Assets ......................... 1.00%(7) 1.00% 1.00%
Ratio of Adjusted Expenses to Average Net Assets (8) ............ 5.19%(7) 2.72% 1.63%
Ratio of Net Investment Income (Loss) to Average Net Assets ..... 0.62%(7) (0.16%) (0.59%)
Ratio of Adjusted Net Investment Loss to Average Net Assets (8).. (3.57%)(7) (1.88%) (1.22%)
Portfolio Turnover Rate ......................................... 31% 79% 93%
Fee Reduction Per Share (2) ..................................... $0.14 $0.17 $0.07
</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.
(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 the
period indicated, investment returns, key ratios and supplemental data are as
follows:
- --------------------------------------------------------------------------------
V.A. SPECIAL
OPPORTUNITIES FUND
-----------
PERIOD ENDED
DECEMBER 31,
1998(1)
---------
Per Share Operating Performance
Net Asset Value, Beginning of Period ......................... $10.00
---------
Net Investment Income (2) .................................... 0.01
Net Realized and Unrealized Gain on Investments .............. 1.03
---------
Total from Investment Operations ......................... 1.04
---------
Less Distributions:
Dividends from Net Investment Income ....................... (0.01)
Tax Return of Capital ...................................... (0.00)(8)
---------
Total Distributions ...................................... (0.01)
---------
Net Asset Value, End of Period ............................... $11.03
=========
Total Investment Return at Net Asset Value (3) ............... 10.35%(5)
Total Adjusted Investment Return at Net Asset Value (3,4) .... 7.17%(5)
Ratios and Supplemental Data
Net Assets, End of Period (000s omitted) ..................... $1,779
Ratio of Expenses to Average Net Assets ...................... 1.00%(6)
Ratio of Adjusted Expenses to Average Net Assets (7) ......... 4.23%(6)
Ratio of Net Investment Income to Average Net Assets ......... 0.06%(6)
Ratio of Adjusted Net Investment Loss to Average Net
Assets (7) ................................................. (3.17%)(6)
Portfolio Turnover Rate ...................................... 103%
Fee Reduction Per Share (2) .................................. $0.33
(1) Commenced operations on January 7, 1998.
(2) Based on the average of the shares outstanding at the end of each month.
(3) Assumes dividend reinvestment.
(4) An estimated total return calculation which does not take into consideration
fee reductions by the Adviser during the periods shown.
(5) Not annualized.
(6) Annualized.
(7) Unreimbursed, without fee reduction.
(8) Less than $0.01 per share.
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
ENDED YEAR ENDED DECEMBER 31,
DECEMBER 31, ---------------------------
1996(1) 1997 1998
---------- ---------- ----------
<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) (0.00)(8)
Net Realized and Unrealized Gain (Loss) on Investments .............. (0.60) 1.38 2.64
---------- ---------- ----------
Total from Investment Operations ................................ (0.61) 1.34 2.64
---------- ---------- ----------
Net Asset Value, End of Period ...................................... $9.39 $10.73 $13.37
========== ========== ==========
Total Investment Return at Net Asset Value (3) ...................... (6.10%)(5) 14.27% 24.60%
Total Adjusted Investment Return at Net Asset Value (3,4) ........... (7.39%)(5) 12.90% 24.27%
Ratios and Supplemental Data
Net Assets, End of Period (000s omitted) ............................ $994 $3,733 $10,372
Ratio of Expenses to Average Net Assets ............................. 1.00%(6) 1.00% 1.00%
Ratio of Adjusted Expenses to Average Net Assets (7) ................ 4.76%(6) 2.37% 1.33%
Ratio of Net Investment Loss to Average Net Assets .................. (0.23%)(6) (0.39%) (0.00%)
Ratio of Adjusted Net Investment Loss to Average Net Assets (7) ..... (3.99%)(6) (1.76%) (0.33%)
Portfolio Turnover Rate ............................................. 68% 136% 176%
Fee Reduction Per Share (2) ......................................... $0.13 $0.13 $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.
(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.
64
<PAGE>
============================= FINANCIAL STATEMENTS =============================
John Hancock Funds - Declaration Trust
Financial Highlights (continued)
Selected data for a share of beneficial interest outstanding throughout the
period indicated, investment returns, key ratios and supplemental data are as
follows:
- --------------------------------------------------------------------------------
V.A. GROWTH &
INCOME FUND
------------
PERIOD ENDED
DECEMBER 31,
1998(1)
----------
Per Share Operating Performance
Net Asset Value, Beginning of Period ........................ $10.00
----------
Net Investment Income (2) ................................... 0.11
Net Realized and Unrealized Gain on Investments
and Foreign Currency Transactions ......................... 2.02
----------
Total from Investment Operations ........................ 2.13
----------
Less Distributions:
Dividends from Net Investment Income ...................... (0.10)
----------
Net Asset Value, End of Period .............................. $12.03
==========
Total Investment Return at Net Asset Value (3) .............. 21.39%(5)
Total Adjusted Investment Return at Net Asset Value (3,4) ... 21.21%(5)
Ratios and Supplemental Data
Net Assets, End of Period (000s omitted) .................... $17,368
Ratio of Expenses to Average Net Assets ..................... 0.85%(6)
Ratio of Adjusted Expenses to Average Net Assets (7) ........ 1.03%(6)
Ratio of Net Investment Income to Average Net Assets ........ 1.17%(6)
Ratio of Adjusted Net Investment Income to Average Net
Assets (7) ................................................ 0.99%(6)
Portfolio Turnover Rate ..................................... 242%
Fee Reduction Per Share (2) ................................. $0.02
(1) Commenced operations on January 6, 1998.
(2) Based on the average of the shares outstanding at the end of each month.
(3) Assumes dividend reinvestment.
(4) An estimated total return calculation which does not take into consideration
fee reductions by the Adviser during the periods shown.
(5) Not annualized.
(6) Annualized.
(7) Unreimbursed, without fee reduction.
SEE NOTES TO FINANCIAL STATEMENTS.
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
ENDED YEAR ENDED DECEMBER 31,
DECEMBER 31, --------------------------
1996(1) 1997 1998
---------- ---------- ----------
<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 0.10
Net Realized and Unrealized Gain on Investments .............................. 1.12 3.23 3.90
---------- ---------- ----------
Total from Investment Operations ......................................... 1.18 3.39 4.00
---------- ---------- ----------
Less Distributions:
Dividends from Net Investment Income ....................................... (0.06) (0.14) (0.10)
Distributions from Net Realized Gain on Investments Sold ................... (0.01) (0.25) (0.27)
---------- ---------- ----------
Total Distributions ...................................................... (0.07) (0.39) (0.37)
---------- ---------- ----------
Net Asset Value, End of Period ............................................... $11.11 $14.11 $17.74
========== ========== ==========
Total Investment Return at Net Asset Value (3) ............................... 11.78%(5) 30.68% 28.42%
Total Adjusted Investment Return at Net Asset Value (3,4) .................... 10.66%(5) 30.04% --
Ratios and Supplemental Data
Net Assets, End of Period (000s omitted) ..................................... $1,149 $8,719 $26,691
Ratio of Expenses to Average Net Assets ...................................... 0.95%(6) 0.95% 0.95%
Ratio of Adjusted Expenses to Average Net Assets (7) ......................... 4.23%(6) 1.59% --
Ratio of Net Investment Income to Average Net Assets ......................... 1.60%(6) 1.24% 0.65%
Ratio of Adjusted Net Investment Income (Loss) to Average Net Assets (7) ..... (1.68%)(6) 0.60% --
Portfolio Turnover Rate ...................................................... 24% 53% 55%
Fee Reduction Per Share (2) .................................................. $0.12 $0.08 --
</TABLE>
(1) Commenced operations on August 29, 1996.
(2) Based on the average of the shares outstanding at the end of each month.
(3) Assumes dividend reinvestment.
(4) An estimated total return calculation which does not take into consideration
fee reductions by the Adviser during the periods shown.
(5) Not annualized.
(6) Annualized.
(7) Unreimbursed, without fee reduction.
SEE NOTES TO FINANCIAL STATEMENTS.
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
ENDED YEAR ENDED DECEMBER 31,
DECEMBER 31, --------------------------
1996(1) 1997 1998
---------- ---------- ----------
<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 0.27
Net Realized and Unrealized Gain on Investments ................................ 0.76 2.82 2.00
---------- ---------- ----------
Total from Investment Operations ........................................... 0.83 3.04 2.27
---------- ---------- ----------
Less Distributions:
Dividends from Net Investment Income ......................................... (0.07) (0.18) (0.25)
Distributions from Net Realized Gain on Investments Sold ..................... (0.02) (0.01) --
---------- ---------- ----------
Total Distributions ........................................................ (0.09) (0.19) (0.25)
---------- ---------- ----------
Net Asset Value, End of Period ................................................. $10.74 $13.59 $15.61
========== ========== ==========
Total Investment Return at Net Asset Value (3) ................................. 8.30%(5) 28.43% 16.88%
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 $34,170
Ratio of Expenses to Average Net Assets ........................................ 0.85%(6) 0.85% 0.74%
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% 1.88%
Ratio of Adjusted Net Investment Income (Loss) to Average Net Assets (7) ....... (1.03%)(6) 1.50% --
Portfolio Turnover Rate ........................................................ 17% 11% 19%
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.
(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
ENDED YEAR ENDED DECEMBER 31,
DECEMBER 31, ----------------------------
1996(1) 1997 1998
---------- ---------- ----------
<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 0.20
Net Realized and Unrealized Gain on Investments and Financial
Futures Contracts ...................................................... 0.98 2.72 3.37
---------- ---------- ----------
Total from Investment Operations ..................................... 1.15 3.02 3.57
---------- ---------- ----------
Less Distributions:
Dividends from Net Investment Income ................................... (0.16) (0.30) (0.20)
Distributions from Net Realized Gain on Investments Sold ............... (0.55) (0.54) (0.76)
---------- ---------- ----------
Total Distributions .................................................. (0.71) (0.84) (0.96)
---------- ---------- ----------
Net Asset Value, End of Period ........................................... $10.44 $12.62 $15.23
========== ========== ==========
Total Investment Return at Net Asset Value (3) ........................... 11.49%(5) 29.51% 28.44%
Total Adjusted Investment Return at Net Asset Value (3,4) ................ 11.25%(5) 29.27% 28.12%
Ratios and Supplemental Data
Net Assets, End of Period (000s omitted) ................................. $4,049 $20,008 $26,457
Ratio of Expenses to Average Net Assets .................................. 0.60%(6) 0.36% 0.35%
Ratio of Adjusted Expenses to Average Net Assets (7) ..................... 1.31%(6) 0.60% 0.67%
Ratio of Net Investment Income to Average Net Assets ..................... 4.57%(6) 2.45% 1.44%
Ratio of Adjusted Net Investment Income to Average Net Assets (7) ........ 3.86%(6) 2.21% 1.12%
Portfolio Turnover Rate .................................................. -- 9% 47%
Fee Reduction Per Share (2) .............................................. $0.03 $0.03 $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.
(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. BOND FUND
-----------------------------------------------
PERIOD
ENDED YEAR ENDED DECEMBER 31,
DECEMBER 31, ---------------------------
1996(1) 1997 1998
---------- ---------- ----------
<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 0.63
Net Realized and Unrealized Gain on Investments ........................... 0.21 0.24 0.32
---------- ---------- ----------
Total from Investment Operations ...................................... 0.44 0.92 0.95
---------- ---------- ----------
Less Distributions:
Dividends from Net Investment Income .................................... (0.23) (0.68) (0.63)
Distributions from Net Realized Gain on Investments Sold ................ (0.02) (0.07) (0.17)
---------- ---------- ----------
Total Distributions ................................................... (0.25) (0.75) (0.80)
---------- ---------- ----------
Net Asset Value, End of Period ............................................ $10.19 $10.36 $10.51
========== ========== ==========
Total Investment Return at Net Asset Value (3) ............................ 4.42%(5) 9.30% 9.41%
Total Adjusted Investment Return at Net Asset Value (3,4) ................. 3.25%(5) 7.52% 8.82%
Ratios and Supplemental Data
Net Assets, End of Period (000s omitted) .................................. $1,056 $3,682 $10,669
Ratio of Expenses to Average Net Assets ................................... 0.75%(6) 0.75% 0.75%
Ratio of Adjusted Expenses to Average Net Assets (7) ...................... 4.15%(6) 2.53% 1.34%
Ratio of Net Investment Income to Average Net Assets ...................... 6.69%(6) 6.57% 5.93%
Ratio of Adjusted Net Investment Income to Average Net Assets (7) ......... 3.29%(6) 4.79% 5.34%
Portfolio Turnover Rate ................................................... 45% 193% 367%
Fee Reduction Per Share (2) ............................................... $0.12 $0.18 $0.06
</TABLE>
(1) Commenced operations on August 29, 1996.
(2) Based on the average of the shares outstanding at the end of each month.
(3) Assumes dividend reinvestment.
(4) An estimated total return calculation which does not take into consideration
fee reductions by the Adviser during the periods shown.
(5) Not annualized.
(6) Annualized.
(7) Unreimbursed, without fee reduction.
SEE NOTES TO FINANCIAL STATEMENTS.
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
ENDED YEAR ENDED DECEMBER 31,
DECEMBER 31, ----------------------------
1996(1) 1997 1998
----------- ----------- -----------
<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 0.85
Net Realized and Unrealized Gain (Loss) on Investments and
Financial Futures Contracts ............................................. 0.36 0.26 (0.35)
----------- ----------- -----------
Total from Investment Operations ...................................... 0.63 1.17 0.50
----------- ----------- -----------
Less Distributions:
Dividends from Net Investment Income .................................... (0.27) (0.91) (0.85)
Distributions from Net Realized Gain on Investments Sold ................ (0.06) (0.09) (0.02)
----------- ----------- -----------
Total Distributions ................................................... (0.33) (1.00) (0.87)
----------- ----------- -----------
Net Asset Value, End of Period ............................................ $10.30 $10.47 $10.10
=========== =========== ===========
Total Investment Return at Net Asset Value (3) ............................ 6.45%(5) 11.77% 4.92%
Total Adjusted Investment Return at Net Asset Value (3,4) ................. 5.96%(5) 11.25% 4.84%
Ratios and Supplemental Data
Net Assets, End of Period (000s omitted) .................................. $2,131 $5,540 $15,019
Ratio of Expenses to Average Net Assets ................................... 0.85%(6) 0.85% 0.85%
Ratio of Adjusted Expenses to Average Net Assets (7) ...................... 2.28%(6) 1.37% 0.93%
Ratio of Net Investment Income to Average Net Assets ...................... 7.89%(6) 8.77% 8.19%
Ratio of Adjusted Net Investment Income to Average Net Assets (7) ......... 6.46%(6) 8.25% 8.11%
Portfolio Turnover Rate ................................................... 73% 110% 92%
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.
(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 the
period indicated, investment returns, key ratios and supplemental data are
listed as follows:
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
V.A. HIGH YIELD
BOND FUND
---------
PERIOD
ENDED
DECEMBER 31,
1998(1)
---------
<S> <C>
Per Share Operating Performance
Net Asset Value, Beginning of Period .................................... $10.00
---------
Net Investment Income (2) ............................................... 0.90
Net Realized and Unrealized Loss on Investments and
Foreign Currency Transactions ......................................... (1.82)
---------
Total from Investment Operations .................................... (0.92)
---------
Less Distributions:
Dividends from Net Investment Income .................................. (0.84)
Tax Return of Capital ................................................. (0.02)
---------
Total Distributions ................................................. (0.86)
---------
Net Asset Value, End of Period .......................................... $8.22
=========
Total Investment Return at Net Asset Value (3) .......................... (9.80%)(5)
Total Adjusted Investment Return at Net Asset Value (3,4) ............... (10.10%)(5)
Ratios and Supplemental Data
Net Assets, End of Period (000s omitted) ................................ $8,120
Ratio of Expenses to Average Net Assets ................................. 0.85%(6)
Ratio of Adjusted Expenses to Average Net Assets (7) .................... 1.15%(6)
Ratio of Net Investment Income to Average Net Assets .................... 9.85%(6)
Ratio of Adjusted Net Investment Income to Average Net Assets (7) ....... 9.55%(6)
Portfolio Turnover Rate ................................................. 102%
Fee Reduction Per Share (2) ............................................. $0.03
</TABLE>
(1) Commenced operations on January 6, 1998.
(2) Based on the average of the shares outstanding at the end of each month.
(3) Assumes dividend reinvestment.
(4) An estimated total return calculation which does not take into consideration
fee reductions by the Adviser during the periods shown.
(5) Not annualized.
(6) Annualized.
(7) Unreimbursed, without fee reduction.
SEE NOTES TO FINANCIAL STATEMENTS.
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
ENDED YEAR ENDED DECEMBER 31,
DECEMBER 31, ----------------------------
1996(1) 1997 1998
----------- ----------- -----------
<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 0.52
Net Realized and Unrealized Gain (Loss) on Investments and
Foreign Currency Transactions ........................................... 0.20 (0.46) 0.12
----------- ----------- -----------
Total from Investment Operations ...................................... 0.40 0.13 0.64
----------- ----------- -----------
Less Distributions:
Dividends from Net Investment Income .................................... (0.20) (0.21) (0.30)
Distributions in Excess of Net Investment Income ........................ -- (0.09) (0.07)
Tax Return of Capital ................................................... -- (0.29) (0.15)
----------- ----------- -----------
Total Distributions ................................................... (0.20) (0.59) (0.52)
----------- ----------- -----------
Net Asset Value, End of Period ............................................ $10.20 $9.74 $9.86
=========== =========== ===========
Total Investment Return at Net Asset Value (3) ............................ 4.05%(5) 1.37% 6.76%
Total Adjusted Investment Return at Net Asset Value (3,4) ................. 3.30%(5) 0.07% 5.73%
Ratios and Supplemental Data
Net Assets, End of Period (000s omitted) .................................. $2,083 $2,303 $2,677
Ratio of Expenses to Average Net Assets ................................... 1.00%(6) 1.00% 1.00%
Ratio of Adjusted Expenses to Average Net Assets (7) ...................... 3.19%(6) 2.30% 2.03%
Ratio of Net Investment Income to Average Net Assets ...................... 5.83%(6) 5.98% 5.32%
Ratio of Adjusted Net Investment Income to Average Net Assets (7) ......... 3.64%(6) 4.68% 4.29%
Portfolio Turnover Rate ................................................... 30% 176% 90%
Fee Reduction Per Share (2) ............................................... $0.08 $0.13 $0.10
</TABLE>
(1) Commenced operations on August 29, 1996.
(2) Based on the average of the shares outstanding at the end of each month.
(3) Assumes dividend reinvestment.
(4) An estimated total return calculation which does not take into consideration
fee reductions by the Adviser during the periods shown.
(5) Not annualized.
(6) Annualized.
(7) Unreimbursed, without fee reduction.
SEE NOTES TO FINANCIAL STATEMENTS.
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
ENDED YEAR ENDED DECEMBER 31,
DECEMBER 31, ----------------------------
1996(1) 1997 1998
----------- ----------- -----------
<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 0.05
----------- ----------- -----------
Less Distributions:
Dividends from Net Investment Income .................................... (0.02) (0.05) (0.05)
----------- ----------- -----------
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% 4.87%
Total Adjusted Investment Return at Net Asset Value (3,4) ................. (7.55%)(5) 4.36% --
Ratios and Supplemental Data
Net Assets, End of Period (000s omitted) .................................. $207 $8,377 $16,519
Ratio of Expenses to Average Net Assets ................................... 0.75%(6) 0.75% 0.74%
Ratio of Adjusted Expenses to Average Net Assets (7) ...................... 27.48%(6) 1.27% --
Ratio of Net Investment Income to Average Net Assets ...................... 4.68%(6) 4.86% 4.70%
Ratio of Adjusted Net Investment Income (Loss) to Average Net Assets (7) .. (22.05%)(6) 4.34% --
Fee Reduction Per Share (2) ............................................... $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.
(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
December 31, 1998
- --------------------------------------------------------------------------------
The Schedule of Investments is a complete list of all securities owned by the
V.A. International Fund on December 31, 1998. It's divided into three main
categories: common stocks and rights, preferred stocks and short-term
investments. Common stocks and rights and preferred stocks are further broken
down by country. Short-term investments, which represent the Fund's "cash"
position, are listed last.
<TABLE>
<CAPTION>
NUMBER OF MARKET
ISSUER, DESCRIPTION SHARES VALUE
- ------------------- ------ -----
<S> <C> <C>
COMMON STOCKS
Australia (1.77%)
Australia & New Zealand Banking Group Ltd.,
American Depositary Receipt (ADR)
(Banks - Foreign) ........................................... 2 $65
National Australia Bank, Ltd. (Banks - Foreign) ............... 935 14,095
News Corp., Ltd. (The) (Media) ................................ 2,000 13,212
News Corp., Ltd. (The) (ADR) (Media) .......................... 1,051 27,786
Normandy Mining, Ltd. (Metal) ................................. 15,990 14,796
Telstra Corp., Ltd. (Telecommunications) ...................... 9,508 44,455
Westpac Banking Corp., Ltd. (Banks - Foreign) ................ 2,000 13,383
-----------
127,792
-----------
Belgium (3.65%)
Electrabel SA (Utilities) ..................................... 222 96,968
Fortis AG (Insurance) ......................................... 126 45,377
Fortis AG (Certificate De Valeur Garantie) (Insurance)* ....... 42 188
Fortis AG (New shares) (Insurance)* ........................... 42 2
PetroFina SA (Oil & Gas) ...................................... 70 31,892
Tractebel SA (Utilities) ...................................... 458 88,367
-----------
262,794
-----------
Brazil (0.01%)
Embratel Participacoes SA (ADR)
(Telecommunications)* ....................................... 10 139
Tele Celular Sul Participacoes SA (ADR)
(Telecommunications)* ....................................... 1 17
Tele Centro Oeste Celular Participacoes SA (ADR)
(Telecommunications)* ....................................... 3 9
Tele Centro Sul Participacoes SA (ADR)
(Telecommunications)* ....................................... 2 84
Tele Norte Leste Participacoes SA (ADR)
(Telecommunications)* ....................................... 10 124
Tele Sudeste Celular Participacoes SA (ADR)
(Telecommunications)* ....................................... 2 41
Telecomunicacoes Brasileiras SA (ADR)
(Telecommunications) ........................................ 10 1
Telesp Celular Participacoes SA (ADR)
(Telecommunications)* ....................................... 4 70
Telesp Participacoes SA (ADR)
(Telecommunications)* ....................................... 10 221
-----------
706
-----------
Canada (4.23%)
BCE, Inc. (Telecommunications) ................................ 315 11,922
Bombardier, Inc. (Diversified Operations) ..................... 4,526 65,144
Canadian Imperial Bank of Commerce
(Banks - Foreign) ........................................... 1,795 44,314
Northern Telecom, Ltd. (Telecommunications) ................... 1,060 53,121
Royal Bank of Canada (Banks - Foreign) ........................ 1,156 57,655
Toronto-Dominion Bank (Banks - Foreign) ....................... 2,055 72,439
-----------
304,595
-----------
Denmark (0.95%)
Novo Nordisk A/S (Medical) .................................... 210 27,717
Tele Danmark A/S (Telecommunications) ......................... 300 40,491
-----------
68,208
-----------
Finland (2.02%)
Nokia AB (Telecommunications) ................................. 1,195 145,303
-----------
France (18.26%)
Accor SA (Leisure) ............................................ 430 93,060
Alstom SA (Machinery)* ........................................ 1,362 31,912
Axa SA (Insurance) ............................................ 876 126,911
Cap Gemini SA (Computers) ..................................... 467 74,924
Carrefour SA (Retail) ......................................... 41 30,939
Castorama Dubois (Retail) ..................................... 222 50,626
Danone SA (Food) .............................................. 400 114,470
Elf Aquitaine SA (Oil & Gas) .................................. 629 72,676
France Telecom SA (Telecommunications) ........................ 755 59,957
France Telecom SA (ADR) (Telecommunications) .................. 840 66,307
L'Oreal SA (Cosmetics & Personal Care) ........................ 121 87,433
Legrand SA (Electronics) ...................................... 115 30,462
Pinault-Printemps-Redoute SA (Retail) ......................... 600 114,613
Promodes (Retail) ............................................. 25 18,172
Renault SA (Automobile / Trucks) .............................. 253 11,358
Schneider SA (Machinery) ...................................... 365 22,131
Suez Lyonnaise des Eaux SA (Diversified Operations) ........... 450 92,398
Synthelabo SA (Medical) ....................................... 74 15,658
Total SA (Oil & Gas) .......................................... 646 65,397
Vivendi SA (Diversified Operations) ........................... 523 135,638
-----------
1,315,042
-----------
Germany (6.39%)
Allianz AG (Insurance) ........................................ 175 64,158
Bayerische Hypo- und Vereinsbank AG (Banks - Foreign) ......... 708 55,439
Bayerische Motoren Werke AG (Automobile / Trucks) ............. 60 46,550
Bayerische Motoren Werke AG (New shares)
(Automobile / Trucks)* ...................................... 19 14,080
Daimler-Chrysler AG (Automobile / Trucks) ..................... 341 33,658
Deutsche Telekom AG (Telecommunications) ...................... 636 20,913
Fresenius AG (Medical) ........................................ 59 10,974
Mannesmann AG (Machinery) ..................................... 610 69,909
Metro AG (Retail) ............................................. 683 54,506
Siemens AG (Diversified Operations) ........................... 409 26,382
VEBA AG (Diversified Operations) .............................. 493 29,492
Viag AG (Diversified Operations) .............................. 58 34,001
-----------
460,062
-----------
Hong Kong (0.94%)
Cheung Kong Holdings Ltd. (Real Estate Operations) ............ 1,000 7,196
HSBC Holdings Plc (Banks - Foreign) ........................... 400 9,964
Hutchison Whampoa Ltd. (Diversified Operations) ............... 1,000 7,067
Sun Hung Kai Properties Ltd. (Real Estate Operations) ......... 6,000 43,755
-----------
67,982
-----------
Ireland (2.63%)
Allied Irish Banks Plc (ADR) (Banks - Foreign) ................ 1,232 135,982
Anglo Irish Bank Corp. Plc (Banks - Foreign) .................. 7,500 21,432
CRH Plc (Building) ............................................ 1,890 32,029
-----------
189,443
-----------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
74
<PAGE>
============================= FINANCIAL STATEMENTS =============================
John Hancock Funds - Declaration Trust -- V.A. International Fund
<TABLE>
<CAPTION>
NUMBER OF MARKET
ISSUER, DESCRIPTION SHARES VALUE
- ------------------- ------ -----
<S> <C> <C>
Italy (4.53%)
Assicurazioni Generali SpA (Insurance) ........................ 450 $18,779
Banca Popolare di Brescia SpA (Banks - Foreign) ............... 1,400 34,123
Credito Italiano SpA (Banks - Foreign) ........................ 10,670 63,209
Ente Nazionale Idrocarburi SpA (Oil & Gas) .................... 3,773 24,644
Istituto Nazionale delle Assicurazioni SpA (Insurance) ........ 11,876 31,352
Telecom Italia Mobile SpA (Telecommunications) ................ 11,679 86,174
Telecom Italia SpA (Telecommunications) ....................... 7,205 61,442
Unione Immobiliare SpA (Real Estate Operations)* .............. 11,876 6,191
-----------
325,914
-----------
Japan (10.64%)
Bank of Tokyo-Mitsubishi, Ltd. (Banks - Foreign) .............. 3,000 31,048
Bridgestone Corp. (Rubber - Tires & Misc.) .................... 1,000 22,689
Fuji Photo Film Co., Ltd. (Leisure) ........................... 1,000 37,152
Fujitsu Ltd. (Computers) ...................................... 2,000 26,625
Honda Motor Co., Ltd. (Automobile / Trucks) ................... 1,000 32,817
Ito-Yokado Co., Ltd. (Retail) ................................. 1,000 69,881
Kansai Electric Power Co., Inc. (Utilities) ................... 2,000 43,786
Marui Co., Ltd. (Retail) ...................................... 1,000 19,239
Matsushita Electric Industrial Co., Ltd. (Electronics) ........ 4,000 70,730
Nippon Telegraph & Telephone Corp.
(Telecommunications) ........................................ 6 46,280
Nomura Securities Co., Ltd. (Finance) ......................... 3,000 26,139
Sankyo Co., Ltd. (Medical) .................................... 1,000 21,849
Secom Co., Ltd. (Protection - Safety Equip. & Svc.) ........... 1,000 82,795
Sony Corp. (Electronics) ...................................... 800 58,240
Takeda Chemical Industries, Ltd. (Medical) .................... 1,000 38,479
TDK Corp. (Electronics) ....................................... 1,000 91,376
Terumo Corp. (Medical) ........................................ 2,000 47,059
-----------
766,184
-----------
Netherlands (4.84%)
ABN AMRO Holding NV (ADR) (Banks - Foreign) ................... 4 87
AEGON NV (Insurance) .......................................... 712 87,394
Akzo Nobel NV (Chemicals) ..................................... 520 23,665
ING Groep NV (ADR) (Banks - Foreign) .......................... 1,740 108,206
KPN NV (Telecommunications) ................................... 500 25,017
Royal Dutch Petroleum Co. (Oil & Gas) ......................... 337 16,772
Royal Philips Electronics NV (Electronics) .................... 1,059 71,025
TNT Post Groep NV (Transport)* ................................ 500 16,102
-----------
348,268
-----------
Norway (0.76%)
Norsk Hydro ASA (Oil & Gas) ................................... 500 16,911
Orkla ASA (Diversified Operations) ............................ 2,550 38,090
-----------
55,001
-----------
Portugal (1.76%)
Electricidade de Portugal SA (Utilities) ...................... 2,986 65,772
Portugal Telecom SA (Telecommunications) ...................... 1,327 60,870
-----------
126,642
-----------
Singapore (0.39%)
Overseas-Chinese Banking Corp., Ltd. (Banks - Foreign) ........ 3,050 20,690
Singapore Telecommunications, Ltd.
(Telecommunications) ........................................ 5,000 7,632
-----------
28,322
-----------
Spain (4.30%)
Argentaria SA (Banks - Foreign) ............................... 1,020 26,376
Banco Bilbao Vizcaya SA (Banks - Foreign) ..................... 1,418 22,200
Banco Santander SA (Banks - Foreign) .......................... 32 635
Centros Comerciales Pryca SA (Retail) ......................... 690 21,362
Endesa SA (Utilities) ......................................... 1,181 31,245
Iberdrola SA (Utilities) ...................................... 742 13,862
Repsol SA (Oil & Gas) ......................................... 898 47,832
Telefonica SA (Telecommunications)* ........................... 1,704 75,656
TelePizza SA (Retail)* ........................................ 7,400 70,293
-----------
309,461
-----------
Sweden (2.44%)
Ericsson (LM) Telefonaktiebolaget
(Telecommunications) ........................................ 2,190 52,022
Investor AB (Diversified Operations) .......................... 1,264 56,940
Nordbanken Holding AB (Banks - Foreign) ....................... 7,412 47,438
Saab AB (Aerospace)* .......................................... 278 2,908
Skandia Forsakrings AB (Insurance) ............................ 1,050 16,025
-----------
175,333
-----------
Switzerland (7.39%)
Adecco SA (Business Services - Misc.) ......................... 88 40,166
Alusuisse-Lonza Group AG (Containers)* ........................ 10 11,647
Barry Callebaut AG (Food)* .................................... 73 16,580
Credit Suisse Group (Banks - Foreign) ......................... 91 14,243
Nestle SA (Food) .............................................. 56 121,890
Novartis AG (Medical) ......................................... 54 106,137
UBS AG (Banks - Foreign)* ..................................... 266 81,715
Zurich Allied AG (Insurance)* ................................. 189 139,924
-----------
532,302
-----------
United Kingdom (15.86%)
Allied Zurich Plc (Insurance)* ................................ 833 12,518
Anglian Water Plc (B shares) (Utilities)* ..................... 2,000 1,628
British American Tobacco Plc (Tobacco) ........................ 833 7,335
British Petroleum Co. Plc (Oil & Gas) ......................... 3,506 52,191
British Telecommunications Plc (Telecommunications) ........... 3,250 49,190
Diageo Plc (Beverages) ........................................ 2,843 31,529
Glaxo Wellcome Plc (Medical) .................................. 3,213 110,605
Granada Group Plc (Diversified Operations) .................... 3,000 52,583
Kingfisher Plc (Retail) ....................................... 3,000 32,497
Lloyds TSB Group Plc (Banks - Foreign) ........................ 7,972 113,507
Pearson Plc (Media) ........................................... 1,584 31,497
Pennon Group Plc (Utilities) .................................. 1,000 19,339
Royal & Sun Alliance Insurance Group Plc (Insurance) .......... 3,665 29,836
Royal Bank of Scotland Group Plc (Banks - Foreign) ............ 2,322 37,961
Scottish Hydro-Electric Plc (Utilities) ....................... 3,000 33,818
SEMA Group Plc (Computers) .................................... 3,450 33,990
SmithKline Beecham Plc (Medical) .............................. 7,047 97,666
Tesco Plc (Retail) ............................................ 8,000 23,260
Thames Water Plc (Utilities) .................................. 830 15,996
Unilever Plc (Consumer Products Misc.) ........................ 9,700 109,103
Vodafone Group Plc (Telecommunications) ....................... 5,550 90,179
WPP Group Plc (Advertising) ................................... 12,650 76,711
Zeneca Group Plc (Medical) .................................... 1,814 79,022
-----------
1,141,961
-----------
TOTAL COMMON STOCKS
(Cost $5,870,493) (93.76%) 6,751,315
------- ---------
RIGHTS
Spain (0.02%)
Telefonica S.A. (Telecommunications)* ......................... 1,704 1,511
-----------
TOTAL RIGHTS
(Cost $0) (0.02%) 1,511
----------- -----------
TOTAL COMMON STOCKS AND RIGHTS
(Cost $5,870,493) (93.78%) 6,752,826
----------- -----------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
75
<PAGE>
============================= FINANCIAL STATEMENTS =============================
John Hancock Funds - Declaration Trust -- V.A. International Fund
<TABLE>
<CAPTION>
NUMBER OF MARKET
ISSUER, DESCRIPTION SHARES VALUE
- ------------------- ------ -----
<S> <C> <C>
PREFERRED STOCKS
Germany (0.37%)
Henkel KGaA (Chemicals) ....................................... 298 $26,642
-----------
TOTAL PREFERRED STOCKS
(Cost $24,599) (0.37%) 26,642
----------- -----------
<CAPTION>
INTEREST PAR VALUE
RATE (000S OMITTED)
---- --------------
<S> <C> <C> <C>
SHORT-TERM INVESTMENTS
Joint Repurchase Agreement (5.53%)
Investment in a joint repurchase
agreement transaction with
SBC Warburg, Inc. - Dated 12-31-98,
due 01-04-99 (Secured by
U.S. Treasury Bonds, 7.50%
thru 11.75% due 02-15-10
thru 11-15-16 ) - Note B........... 4.75% $398 398,000
---------
TOTAL SHORT-TERM INVESTMENTS (5.53%) 398,000
----------- -----------
TOTAL INVESTMENTS (99.68%) 7,177,468
----------- -----------
OTHER ASSETS AND LIABILITIES, NET (0.32%) 23,046
----------- -----------
TOTAL NET ASSETS (100.00%) $7,200,514
=========== ===========
</TABLE>
*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 December 31, 1998 assigned to the various investment categories.
MARKET VALUE AS A %
INVESTMENT CATEGORIES OF FUND NET ASSETS
- --------------------- ------------------
Advertising........................................ 1.07%
Aerospace.......................................... 0.04
Automobile/ Trucks................................. 1.92
Banks - Foreign.................................... 14.25
Beverages.......................................... 0.44
Building........................................... 0.44
Business Services - Misc. ......................... 0.56
Chemicals.......................................... 0.70
Computers.......................................... 1.88
Consumer Products Misc............................. 1.52
Containers......................................... 0.16
Cosmetics & Personal Care.......................... 1.21
Diversified Operations............................. 7.47
Electronics........................................ 4.47
Finance............................................ 0.36
Food............................................... 3.51
Insurance.......................................... 7.95
Leisure............................................ 1.81
Machinery.......................................... 1.72
Media.............................................. 1.01
Medical............................................ 7.71
Metal.............................................. 0.21
Oil & Gas.......................................... 4.56
Protection - Safety Equip. & Svc................... 1.15
Real Estate Operations............................. 0.79
Retail............................................. 7.02
Rubber - Tires & Misc.............................. 0.32
Telecommunications................................. 13.88
Tobacco............................................ 0.10
Transport.......................................... 0.22
Utilities.......................................... 5.70
Short-Term Investments............................. 5.53
-----
TOTAL INVESTMENTS 99.68%
=====
SEE NOTES TO FINANCIAL STATEMENTS.
76
<PAGE>
============================= FINANCIAL STATEMENTS =============================
John Hancock Funds - Declaration Trust -- V.A. Regional Bank Fund
Schedule of Investments
December 31, 1998
- --------------------------------------------------------------------------------
The Schedule of Investments is a complete list of all securities owned by the
V.A. Regional Bank Fund on December 31, 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.
<TABLE>
<CAPTION>
NUMBER OF MARKET
ISSUER, DESCRIPTION, STATE SHARES VALUE
- -------------------------- ------ -----
<S> <C> <C>
COMMON STOCKS
Superregional Banks (7.80%)
BankAmerica Corp. (NC) ........................................ 6,050 $363,756
KeyCorp. (OH) ................................................. 11,375 364,000
Mellon Bank Corp. (PA) ........................................ 5,750 395,312
Wells Fargo & Co. (CA) ........................................ 11,425 456,286
-----------
1,579,354
-----------
Banks - United States (79.64%)
Associated Banc-Corp. (WI) .................................... 14,743 504,026
BancFirst Corp. (OK) .......................................... 8,900 319,287
BancorpSouth, Inc. (MS) ....................................... 11,950 215,847
BancWest Corp. (HI) ........................................... 9,150 439,200
Bank of the Ozarks, Inc. (AR) ................................. 11,600 265,350
BB&T Corp. (NC) ............................................... 3,500 141,094
BNCCORP, Inc.* (ND) ........................................... 10,000 107,500
Cascade Bancorp (OR) .......................................... 13,600 238,000
CCB Financial Corp. (NC) ...................................... 6,200 353,400
Centura Banks, Inc. (NC) ...................................... 4,575 340,266
Chittenden Corp. (VT) ......................................... 7,500 240,000
City National Corp. (CA) ...................................... 12,200 507,825
CNB Bancshares, Inc. (IN) ..................................... 6,180 288,142
Colonial BancGroup, Inc. (AL) ................................. 13,700 164,400
Columbia Bancorp. (OR) ........................................ 8,500 76,500
Comerica, Inc. (MI) ........................................... 7,650 521,634
Commerce Bancshares, Inc. (MO) ................................ 1,000 42,500
Community First Bankshares, Inc. (ND) ......................... 10,450 220,103
Compass Bancshares, Inc. (AL) ................................. 10,700 407,269
Crestar Financial Corp. (VA) .................................. 4,250 306,000
Cullen / Frost Bankers, Inc. (TX) ............................. 9,200 504,850
First Security Corp. (UT) ..................................... 18,550 433,606
First Tennessee National Corp. (TN) ........................... 9,300 353,981
First Virginia Banks, Inc. (VA) ............................... 6,000 282,000
First Western Bancorp., Inc. (PA) ............................. 11,125 353,219
Firstar Corp. (WI) ............................................ 1,000 93,250
FirstMerit Corp. (OH) ......................................... 18,800 505,250
HUBCO, Inc. (NJ) .............................................. 6,512 196,174
Imperial Bancorp. * (CA) ...................................... 20,000 332,500
Lamar Capital Corp. (MS) ...................................... 15,500 155,000
M & T Bank Corp. (NY) ......................................... 1,075 557,858
Marshall & Ilsley Corp. (WI) .................................. 11,400 666,188
Mercantile Bankshares Corp. (MD) .............................. 12,500 481,250
Mid-State Bancshares (CA) ..................................... 13,000 364,000
Mississippi Valley Bancshares, Inc. (MO) ...................... 5,950 200,812
North Fork Bancorp., Inc. (NY) ................................ 8,750 209,453
Old Kent Financial Corp. (MI) ................................. 7,037 327,221
Prosperity Banchares, Inc. (TX) ............................... 31,250 386,719
Regions Financial Corp. (AL) .................................. 7,000 282,188
Santa Barbara Bancorp. (CA) ................................... 13,625 350,844
Security Bank Holding Co. (OR) ................................ 10,750 94,063
Silicon Valley Bancshares* (CA) ............................... 3,900 66,422
SouthTrust Corp. (AL) ......................................... 5,750 212,391
Southwest Bancorp. of Texas, Inc.* (TX) ....................... 15,000 268,125
Sterling Bancshares, Inc. (TX) ................................ 15,300 227,588
Summit Bancshares, Inc. (TX) .................................. 13,800 255,300
Sun Bancorp., Inc. * (NJ) ..................................... 20,000 370,000
TCF Financial Corp. (MN) ...................................... 10,000 241,875
Texas Regional Bancshares, Inc. (Class A) (TX) ............... 9,600 240,600
UST Corp. (MA) ................................................ 15,125 356,383
Vail Banks, Inc.* (CO) ........................................ 15,500 188,906
West Coast Bancorp. (OR) ...................................... 9,130 191,730
Westamerica Bancorp. (CA) ..................................... 4,475 164,456
Whitney Holding Corp. (LA) .................................... 5,800 217,500
Zions Bancorp. (UT) ........................................... 4,850 302,519
-----------
16,132,564
-----------
Thrifts (7.82%)
Charter One Financial, Inc. (OH) .............................. 17,780 493,381
First Financial Holdings, Inc. (SC) ........................... 16,300 309,700
InterWest Bancorp., Inc. (WA) ................................. 7,387 163,437
Reliance Bancorp, Inc. (NY) ................................... 12,000 333,750
Washington Mutual, Inc. (WA) .................................. 7,425 283,542
-----------
1,583,810
-----------
TOTAL COMMON STOCKS
(Cost $19,689,999) (95.26%) 19,295,728
----------- -----------
<CAPTION>
INTEREST PAR VALUE
RATE (000s OMITTED)
---- --------------
<S> <C> <C> <C>
SHORT-TERM INVESTMENTS
Joint Repurchase Agreement (4.30%)
Investment in a joint repurchase
agreement transaction with
SBC Warburg, Inc. - Dated 12-31-98,
due 01-04-99 (Secured by U.S.
Treasury Bonds, 6.250% thru 9.125%
due 05-15-18 thru 08-15-23) - Note B. ..... 4.75% $872 872,000
-----------
Corporate Savings Account (0.00%)
Investors Bank & Trust Company
Daily Interest Savings Account
Current Rate 4.00% ........................ 429
-----------
TOTAL SHORT-TERM INVESTMENTS (4.30%) 872,429
----------- -----------
TOTAL INVESTMENTS (99.56%) 20,168,157
----------- -----------
OTHER ASSETS AND LIABILITIES, NET (0.44%) 88,260
----------- -----------
TOTAL NET ASSETS (100.00%) $20,256,417
=========== ===========
</TABLE>
** 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
December 31, 1998
- --------------------------------------------------------------------------------
The Schedule of Investments is a complete list of all securities owned by the
V.A. Financial Industries Fund on December 31, 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.
<TABLE>
<CAPTION>
NUMBER OF MARKET
ISSUER, DESCRIPTION SHARES VALUE
- ------------------- ------ -----
<S> <C> <C>
COMMON STOCKS
Banks - Foreign (7.54%)
Allied Irish Banks PLC, (American Depositary Receipt),
(ADR) (Ireland) ............................................. 9,000 $993,375
Anglo Irish Bank Corp., PLC (Ireland) ......................... 106,450 304,628
Banca Nazionale del Lavoro (Italy) * .......................... 51,000 152,949
Corporacion Bancaria de Espana SA (ADR) (Spain) ............... 12,930 665,895
ING Groep NV (ADR) (Netherlands) .............................. 15,000 932,812
Merita PLC (Finland) * ........................................ 100,000 635,950
Nordbanken Holding AB (Sweden) ................................ 20,200 129,591
Royal Bank of Canada (Canada) ................................. 6,000 299,250
-----------
4,114,450
-----------
Banks - Midwest (0.49%)
Oak Hill Financial, Inc. ...................................... 15,000 270,000
-----------
Banks - Money Center (2.55%)
Chase Manhattan Corp. ......................................... 9,540 649,316
Citigroup, Inc. ............................................... 15,000 742,500
-----------
1,391,816
-----------
Banks - Northeast (0.40%)
Wilmington Trust Corp. ........................................ 3,500 215,687
-----------
Banks - Southeast (2.36%)
CCB Financial Corp. ........................................... 5,000 285,000
First Tennessee National Corp. ................................ 26,300 1,001,044
-----------
1,286,044
-----------
Banks - Super Regional (6.59%)
BankBoston Corp. .............................................. 19,450 757,334
KeyCorp ....................................................... 26,371 843,872
Wells Fargo Co. ............................................... 50,000 1,996,875
-----------
3,598,081
-----------
Banks - West (2.25%)
City National Corp. ........................................... 6,400 266,400
Westamerica Bancorp ........................................... 26,200 962,850
-----------
1,229,250
-----------
Broker Services (10.79%)
Edwards (A.G.), Inc. .......................................... 44,725 1,666,006
Freedom Securities Corp. ...................................... 22,000 332,750
Legg Mason, Inc. .............................................. 74,332 2,346,104
Morgan Keegan, Inc. ........................................... 35,000 658,437
Raymond James Financial, Inc. ................................. 25,000 528,125
Stifel Financial Corp. ........................................ 34,100 355,919
-----------
5,887,341
-----------
Computer - Services (5.65%)
BISYS Group, Inc. (The)* ...................................... 9,000 464,625
First Data Corp. .............................................. 7,500 237,656
Fiserv, Inc.* ................................................. 46,237 2,378,316
-----------
3,080,597
-----------
Finance - Investment Management (11.36%)
Affiliated Managers Group, Inc. * ............................. 7,500 224,063
Conning Corp. ................................................. 15,500 321,625
Federated Investors, Inc. (Class B) ........................... 38,500 697,812
Franklin Resources, Inc. ...................................... 28,990 927,680
John Nuveen Co. (The) (Class A) ............................... 18,000 668,250
Morgan Stanley, Dean Witter & Co. ............................. 12,000 852,000
Price (T. Rowe) Associates, Inc. .............................. 41,000 1,404,250
Waddell & Reed Financial, Inc. (Class A) ...................... 42,081 996,794
Waddell & Reed Financial, Inc. (Class B) ...................... 4,653 108,182
-----------
6,200,656
-----------
Finance - Savings & Loan (0.35%)
InterWest Bancorp., Inc. ...................................... 8,550 189,169
-----------
Finance - SBIC & Commercial (1.50%)
CIT Group, Inc. (The) (Class A) ............................... 25,725 818,376
-----------
Finance - Services Misc (6.63%)
American Express Co. .......................................... 19,490 1,992,852
FINOVA Group, Inc. (The) ...................................... 7,600 409,925
MBNA Corp. .................................................... 48,650 1,213,209
-----------
3,615,986
-----------
Insurance - Accident & Health (1.48%)
Provident Cos., Inc. .......................................... 19,500 809,250
-----------
Insurance - Brokers (1.82%)
Marsh & McLennan Cos., Inc. ................................... 17,000 993,437
-----------
Insurance - Diversified (1.87%)
Aetna, Inc. ................................................... 13,000 1,022,125
-----------
Insurance - Life (7.34%)
Hartford Life, Inc. (Class A) ................................. 5,000 291,250
Lincoln National Corp. ........................................ 7,700 629,956
MONY Group, Inc. (The)* ....................................... 16,200 507,263
Protective Life Corp. ......................................... 10,000 398,125
Reinsurance Group of America, Inc. * .......................... 13,000 910,000
ReliaStar Financial Corp. ..................................... 7,000 322,875
Scottish Annuity & Life Holdings, Ltd.
(Grand Cayman)* ............................................. 20,000 275,000
Torchmark Corp. ............................................... 19,000 670,938
-----------
4,005,407
-----------
Insurance - Multi Line (2.07%)
Allmerica Financial Corp. ..................................... 14,600 844,975
Horace Mann Educators Corp. ................................... 10,000 285,000
-----------
1,129,975
-----------
Insurance - Property & Casualty (12.44%)
Ace, Ltd. ..................................................... 30,000 1,033,125
Berkshire Hathaway, Inc. (Class A)* ........................... 263 1,837,500
CNA Surety Corp. .............................................. 50,000 787,500
Donegal Group, Inc. ........................................... 24,633 384,891
EXEL Ltd. (Class A) (Bermuda) ................................. 5,000 375,000
Philadelphia Consolidated Holding Corp.* ...................... 10,000 226,250
Progressive Corp. (The) ....................................... 4,000 677,500
St. Paul Cos., Inc. ........................................... 22,700 788,825
Travelers Property Casualty Corp. (Class A) ................... 21,900 678,900
-----------
6,789,491
-----------
Mortgage & RE Services (1.49%)
Fannie Mae .................................................... 11,000 814,000
-----------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
78
<PAGE>
============================= FINANCIAL STATEMENTS =============================
John Hancock Funds - Declaration Trust -- V.A. Financial Industries Fund
<TABLE>
<CAPTION>
NUMBER OF MARKET
ISSUER, DESCRIPTION SHARES VALUE
- ------------------- ------ -----
<S> <C> <C>
REIT - Equity Trust (7.45%)
Brandywine Realty Trust ....................................... 35,225 $629,647
Colonial Properties Trust ..................................... 500 13,313
General Growth Properties, Inc. ............................... 24,000 909,000
Glenborough Realty Trust, Inc. ................................ 11,500 234,313
Macerich Co. (The) ............................................ 11,000 281,875
New Plan Excel Realty Trust ................................... 14,400 319,500
Prentiss Properties Trust ..................................... 26,440 589,942
SL Green Realty Corp. ......................................... 23,000 497,375
Spieker Properties, Inc. ...................................... 17,000 588,625
-----------
4,063,590
-----------
TOTAL COMMON STOCKS
(Cost $48,367,959) (94.42%) 51,524,729
----------- -----------
<CAPTION>
INTEREST PAR VALUE
RATE (000s OMITTED)
---- --------------
<S> <C> <C> <C>
SHORT-TERM INVESTMENTS
Joint Repurchase Agreement (6.20%)
Investment in a joint repurchase
agreement transaction with
SBC Warburg, Inc. - Dated 12-31-98,
due 01-04-99 (Secured by U.S.
Treasury Bonds, 6.250% thru 9.125%
due 05-15-18 thru 08-15-23) - Note B ..... 4.75% $3,385 3,385,000
-----------
Corporate Savings Account (0.00%)
Investors Bank & Trust Company
Daily Interest Savings Account
Current Rate 4.00% ....................... 417
-----------
TOTAL SHORT-TERM INVESTMENTS (6.20%) 3,385,417
----------- -----------
TOTAL INVESTMETNS (100.62%) 54,910,146
----------- -----------
OTHER ASSETS AND LIABILITIES, NET (0.62%) (341,171)
----------- -----------
TOTAL NET ASSETS (100.00%) $54,568,975
=========== ===========
</TABLE>
* 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
December 31, 1998
- --------------------------------------------------------------------------------
The Schedule of Investments is a complete list of all securities owned by the
V.A. Emerging Growth Fund on December 31, 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.
<TABLE>
<CAPTION>
NUMBER OF MARKET
ISSUER, DESCRIPTION SHARES VALUE
- ------------------- ------ -----
<S> <C> <C>
COMMON STOCKS
Advertising (1.87%)
Catalina Marketing Corp.* ..................................... 800 $54,700
Getty Images, Inc.* ........................................... 4,000 68,750
Outdoor Systems, Inc.* ........................................ 1,012 30,360
-----------
153,810
-----------
Automobile / Trucks (1.52%)
Gentex Corp.* ................................................. 2,600 52,000
United Rentals, Inc.* ......................................... 2,200 72,875
-----------
124,875
-----------
Banks - United States (0.49%)
Greater Bay Bancorp ........................................... 1,200 40,500
-----------
Beverages (0.54%)
Beringer Wine Estates Holdings, Inc. (Class B)* ............... 1,000 44,687
-----------
Building (1.10%)
Crossmann Communities, Inc.* .................................. 1,700 46,963
D. R. Horton, Inc. ............................................ 1,900 43,700
-----------
90,663
-----------
Business Services - Misc. (11.76%)
Abacus Direct Corp.* .......................................... 700 31,850
AnswerThink Consulting Group, Inc.* ........................... 2,500 67,187
BARRA, Inc.* .................................................. 1,200 28,350
Boron, LePore & Associates, Inc.* ............................. 1,400 48,300
Charles River Associates, Inc.* ............................... 1,900 41,562
First Consulting Group, Inc* .................................. 2,300 47,150
Forrester Research, Inc.* ..................................... 1,600 70,000
INSpire Insurance Solutions, Inc.* ............................ 2,450 45,019
Interim Services, Inc.* ....................................... 2,300 53,762
Lason, Inc.* .................................................. 700 40,731
MAXIMUS, Inc.* ................................................ 1,500 55,500
MedQuist, Inc.* ............................................... 1,700 67,150
META Group, Inc.* ............................................. 2,400 71,400
Metzler Group, Inc. (The)* .................................... 1,400 68,163
On Assignment, Inc.* .......................................... 1,700 58,650
ProBusiness Services, Inc.* ................................... 1,250 56,875
Professional Detailing, Inc.* ................................. 2,000 56,500
Profit Recovery Group International, Inc. (The)* .............. 1,600 59,900
-----------
968,049
-----------
Computers (16.27%)
AboveNet Communications, Inc.* ................................ 1,500 31,500
Advent Software, Inc.* ........................................ 1,500 70,687
ARIS Corp.* ................................................... 1,400 16,713
Aspect Development, Inc.* ..................................... 1,700 75,331
BindView Development Corp.* ................................... 2,200 60,500
Cognizant Technology Solutions Corp.* ......................... 3,300 100,237
Concentric Network Corp.* ..................................... 1,400 46,550
Concur Technologies, Inc.* .................................... 200 6,100
Dendrite International, Inc.* ................................. 1,800 44,944
E*TRADE Group, Inc.* .......................................... 700 32,747
Entrust Technologies, Inc.* ................................... 500 11,938
Exchange Applications, Inc.* .................................. 2,600 51,025
Exodus Communications, Inc.* .................................. 600 38,550
Fundtech Ltd.* ................................................ 3,000 61,875
HNC Software, Inc.* ........................................... 1,000 40,437
Hyperion Solutions Corp.* ..................................... 640 11,520
IDX Systems Corp.* ............................................ 1,100 48,400
IMRglobal Corp.* .............................................. 1,875 55,195
International Network Services, Inc.* ......................... 1,000 66,500
Manhattan Associates, Inc. * .................................. 1,900 51,775
MicroStrategy, Inc. (Class A)* ................................ 300 9,450
PSINet, Inc.* ................................................. 1,100 22,963
RealNetworks, Inc.* ........................................... 900 32,288
SOFTWORKS, Inc.* .............................................. 7,800 55,087
Symantec Corp.* ............................................... 1,800 39,150
Verio, Inc.* .................................................. 1,800 40,275
VeriSign, Inc.* ............................................... 450 26,606
Visio Corp.* .................................................. 1,100 40,219
Whittman-Hart, Inc.* .......................................... 2,800 77,350
Wind River Systems, Inc.* ..................................... 1,500 70,500
Xoom, Inc.* ................................................... 100 3,300
-----------
1,339,712
-----------
Consumer Products - Misc. (0.55%)
Select Comfort Corp.* ......................................... 1,700 44,944
-----------
Containers (0.31%)
Ivex Packaging Corp.* ......................................... 1,100 25,575
-----------
Electronics (12.50%)
Apex PC Solutions, Inc.* ...................................... 1,600 46,200
ATMI, Inc.* ................................................... 2,500 63,125
Credence Systems Corp.* ....................................... 2,200 40,700
DuPont Photomasks, Inc.* ...................................... 800 33,950
Flextronics International Ltd.* ............................... 1,000 85,625
L-3 Communications Holdings, Inc.* ............................ 200 9,313
Level One Communications, Inc.* ............................... 2,100 74,550
Micrel, Inc.* ................................................. 1,000 55,000
Microwave Power Devices, Inc.* ................................ 4,300 44,613
National Computer Systems, Inc. ............................... 1,900 70,300
National Instruments Corp.* ................................... 1,300 44,363
Network Appliance, Inc.* ...................................... 2,000 89,687
Novellus Systems, Inc.* ....................................... 1,200 59,400
PMC-Sierra, Inc. (Canada)* .................................... 900 56,812
PRI Automation, Inc.* ......................................... 1,700 44,200
RF Micro Devices, Inc.* ....................................... 1,100 51,012
Rambus, Inc.* ................................................. 700 67,375
SCM Microsystems, Inc.* ....................................... 1,000 71,062
Semtech Corp.* ................................................ 600 21,525
-----------
1,028,812
-----------
Finance (1.49%)
Financial Federal Corp.* ...................................... 1,400 34,650
Medallion Financial Corp. ..................................... 2,800 40,075
TeleBanc Financial Corp.* ..................................... 1,400 47,600
-----------
122,325
-----------
Food (0.90%)
American Italian Pasta Co. (Class A)* ......................... 2,800 73,850
-----------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
80
<PAGE>
============================= FINANCIAL STATEMENTS =============================
John Hancock Funds - Declaration Trust -- V.A. Emerging Growth Fund
<TABLE>
<CAPTION>
NUMBER OF MARKET
ISSUER, DESCRIPTION SHARES VALUE
- ------------------- ------ -----
<S> <C> <C>
Funeral Services & Related (0.90%)
Carriage Services, Inc. (Class A)* ............................ 2,600 $73,937
-----------
Insurance (1.24%)
Capital Re Corp. .............................................. 1,800 36,112
Executive Risk, Inc. .......................................... 1,200 65,925
-----------
102,037
-----------
Leasing Companies (0.50%)
Rollins Truck Leasing Corp. ................................... 2,800 41,300
-----------
Leisure (4.60%)
Cinar Films, Inc. (Class B) (Canada)* ......................... 2,600 65,975
Family Golf Centers, Inc.* .................................... 2,200 43,450
Imax Corp. (Canada)* .......................................... 2,000 63,250
Premier Parks, Inc.* .......................................... 2,300 69,575
Steiner Leisure, Ltd.* ........................................ 2,450 78,400
Travel Services International, Inc.* .......................... 1,900 57,950
-----------
378,600
-----------
Linen Supply & Related (0.65%)
G & K Services, Inc. (Class A) ................................ 1,000 53,250
-----------
Machinery (0.55%)
Applied Power, Inc. (Class A) ................................. 1,200 45,300
-----------
Media (5.72%)
Adelphia Communications Corp. (Class A)* ...................... 1,700 77,775
Heftel Broadcasting Corp. (Class A)* .......................... 900 44,325
Jacor Communications, Inc.* ................................... 400 25,750
Metro Networks, Inc.* ......................................... 900 38,362
Network Event Theater, Inc.* .................................. 7,100 91,856
Pegasus Communications Corp.* ................................. 1,700 42,606
Petersen Cos., Inc. (The) (Class A)* .......................... 1,500 50,812
Saga Communications, Inc. (Class A)* .......................... 1,100 22,550
Wiley (John) & Sons, Inc. (Class A) ........................... 1,600 77,300
-----------
471,336
-----------
Medical (9.93%)
Alkermes, Inc.* ............................................... 2,100 46,594
Alternative Living Services, Inc.* ............................ 1,300 44,525
American Healthcorp, Inc.* .................................... 3,000 29,438
CareMatrix Corp.* ............................................. 1,400 42,875
Gilead Sciences, Inc.* ........................................ 1,100 45,169
Hanger Orthopedic Group, Inc.* ................................ 2,600 58,500
Human Genome Sciences, Inc.* .................................. 1,000 35,563
IDEC Pharmaceuticals Corp.* ................................... 1,200 56,400
IMPATH, Inc.* ................................................. 1,200 31,800
Inhale Therapeutic Systems* ................................... 1,600 52,800
MiniMed, Inc.* ................................................ 500 52,375
Neurogen Corp.* ............................................... 2,000 35,000
Ocular Sciences, Inc.* ........................................ 1,700 45,475
Perclose, Inc.* ............................................... 1,800 59,625
Pharmacyclics, Inc.* .......................................... 1,800 45,900
Province Healthcare Co.* ...................................... 600 21,525
Renal Care Group, Inc.* ....................................... 1,900 54,744
Res-Care, Inc.* ............................................... 2,400 59,250
-----------
817,558
-----------
Metal (0.42%)
CompX International, Inc.* .................................... 1,300 34,288
-----------
Oil & Gas (1.97%)
Core Laboratories N.V. (Netherlands)* ......................... 2,200 42,075
Dril-Quip, Inc.* .............................................. 1,900 33,725
National-Oilwell, Inc.* ....................................... 1,400 15,663
Newfield Exploration Co.* ..................................... 1,800 37,575
Stone Energy Corp.* ........................................... 600 17,250
Tuboscope, Inc.* .............................................. 200 1,625
Veritas DGC, Inc.* ............................................ 1,100 14,300
-----------
162,213
-----------
Pollution Control (1.15%)
Eastern Environmental Services, Inc.* ......................... 2,400 71,100
Newpark Resources, Inc.* ...................................... 3,500 23,844
-----------
94,944
-----------
Printing - Commercial (0.92%)
Consolidated Graphics, Inc.* .................................. 700 47,294
Mail-Well, Inc.* .............................................. 2,500 28,594
-----------
75,888
-----------
Retail (10.34%)
99 Cents Only Stores* ......................................... 1,343 65,975
Abercrombie & Fitch Co. (Class A)* ............................ 700 49,525
Buckle, Inc. (The)* ........................................... 1,700 40,800
Columbia Sportswear Co.* ...................................... 700 11,813
CSK Auto Corp.* ............................................... 2,200 58,712
Duane Reade, Inc.* ............................................ 1,100 42,350
Eagle Hardware & Garden, Inc.* ................................ 1,400 45,500
Ethan Allen Interiors, Inc. ................................... 1,000 41,000
Furniture Brands International, Inc.* ......................... 1,500 40,875
Garden Fresh Restaurant Corp.* ................................ 2,400 34,500
Hibbett Sporting Goods, Inc.* ................................. 1,700 41,225
Hot Topic, Inc.* .............................................. 1,800 23,175
Linens `N Things, Inc.* ....................................... 1,500 59,438
Noodle Kidoodle, Inc.* ........................................ 3,700 35,150
O'Reilly Automotive, Inc.* .................................... 1,200 56,700
P.F. Chang's China Bistro, Inc.* .............................. 2,200 50,050
Saks, Inc.* ................................................... 800 25,250
Stage Stores, Inc.* ........................................... 1,500 14,063
Whole Foods Market, Inc.* ..................................... 1,200 58,050
Wild Oats Markets, Inc.* ...................................... 1,800 56,700
-----------
850,851
-----------
Schools / Education (1.22%)
Education Management Corp.* ................................... 2,600 61,425
Strayer Education, Inc. ....................................... 1,100 38,775
-----------
100,200
-----------
Telecommunications (4.60%)
Allegiance Telecom, Inc.* ..................................... 1,400 16,975
Crown Castle International Corp.* ............................. 3,400 79,900
e.spire Communications, Inc.* ................................. 4,400 28,050
Global TeleSystems Group, Inc.* ............................... 800 44,600
Metromedia Fiber Network, Inc. (Class A)* ..................... 2,300 77,050
NEXTLINK Communications, Inc. (Class A)* ...................... 2,000 56,750
Transaction Network Services, Inc.* ........................... 2,400 48,150
WinStar Communications, Inc.* ................................. 700 27,300
-----------
378,775
-----------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
81
<PAGE>
============================= FINANCIAL STATEMENTS =============================
John Hancock Funds - Declaration Trust -- V.A. Emerging Growth Fund
<TABLE>
<CAPTION>
NUMBER OF MARKET
ISSUER, DESCRIPTION SHARES VALUE
- ------------------- ------ -----
<S> <C> <C>
Textile (0.81%)
Cutter & Buck, Inc.* .......................................... 1,800 $67,050
-----------
Transport (3.82%)
Carey International, Inc.* .................................... 2,700 47,250
Eagle USA Airfreight, Inc.* ................................... 2,200 53,900
Expeditors International of Washington, Inc. .................. 1,400 58,800
MotivePower Industries, Inc.* ................................. 1,700 54,719
United Road Services, Inc.* ................................... 2,900 53,287
Westinghouse Air Brake Co. .................................... 1,900 46,431
-----------
314,387
-----------
Waste Disposal Service & Equip. (0.58%)
Waste Connections, Inc.* ...................................... 2,600 47,775
-----------
TOTAL COMMON STOCKS
(Cost $6,364,218) (99.22%) 8,167,491
----------- -----------
<CAPTION>
INTEREST PAR VALUE MARKET
ISSUER, DESCRIPTION RATE (000s OMITTED) VALUE
- ------------------- ---- -------------- -----
<S> <C> <C> <C>
SHORT-TERM INVESTMENTS
Joint Repurchase Agreement (2.20%)
Investment in a joint repurchase
agreement transaction with
SBC Warburg, Inc. - Dated 12-31-98,
due 01-04-99 (Secured by U.S.
Treasury Bonds, 6.250% thru 9.125%
due 05-15-18 thru 08-15-23) - Note B. ............ 4.75% $181 $181,000
-----------
Corporate Savings Account (0.00%)
Investors Bank & Trust Company
Daily Interest Savings Account
Current Rate 4.00% ............................... 523
-----------
TOTAL SHORT-TERM INVESTMENTS (2.20%) 181,523
----------- -----------
TOTAL INVESTMENTS (101.42%) 8,349,014
----------- -----------
OTHER ASSETS AND LIABILITIES, NET (1.42%) (117,125)
----------- -----------
TOTAL NET ASSETS (100.00%) $8,231,889
=========== ===========
</TABLE>
* 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
December 31, 1998
- --------------------------------------------------------------------------------
The Schedule of Investments is a complete list of all securities owned by the
V.A. Special Opportunities Fund on December 31, 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.
<TABLE>
<CAPTION>
NUMBER OF MARKET
ISSUER, DESCRIPTION SHARES VALUE
- ------------------- ------ -----
<S> <C> <C>
COMMON STOCKS
Advertising (2.38%)
Lamar Advertising Co.* ........................................ 500 $18,625
Outdoor Systems, Inc.* ........................................ 790 23,700
-----------
42,325
-----------
Automobile / Trucks (0.93%)
Avis Rent A Car, Inc.* ........................................ 685 16,568
-----------
Banks - United States (4.14%)
First American Corp. .......................................... 380 16,862
First Tennessee National Corp. ................................ 475 18,080
FirstMerit Corp. .............................................. 310 8,331
Northern Trust Corp. .......................................... 200 17,463
Wilmington Trust Corp. ........................................ 210 12,941
-----------
73,677
-----------
Business Services - Misc. (2.50%)
ACNielsen Corp.* .............................................. 130 3,673
Interim Services, Inc. * ...................................... 700 16,363
Modis Professional Services, Inc.* ............................ 920 13,340
Select Appointments Holdings PLC, (American Depositary
Receipts), (ADR) (United Kingdom) ........................... 515 11,072
-----------
44,448
-----------
Computers (23.11%)
Ascend Communications, Inc.* .................................. 575 37,806
BEA Systems, Inc.* ............................................ 725 8,881
BMC Software, Inc.* ........................................... 145 6,462
Cadence Design Systems, Inc.* ................................. 420 12,495
Cambridge Technology Partners, Inc.* .......................... 275 6,084
Citrix Systems, Inc.* ......................................... 225 21,839
Compuware Corp.* .............................................. 200 15,625
DST Systems, Inc.* ............................................ 150 8,559
E*TRADE Group, Inc.* .......................................... 200 9,356
Edwards (J.D.) & Co.* ......................................... 480 13,620
EMC Corp.* .................................................... 460 39,100
Excite, Inc.* ................................................. 100 4,206
Fiserv, Inc.* ................................................. 360 18,518
IDX Systems Corp.* ............................................ 200 8,800
Infoseek Corp.* ............................................... 230 11,356
Keane, Inc.* .................................................. 400 15,975
Lexmark International Group, Inc. (Class A)* .................. 260 26,130
Micron Electronics, Inc.* ..................................... 620 10,734
Network Associates, Inc.* ..................................... 375 24,844
Novell, Inc.* ................................................. 900 16,312
Quantum Corp.* ................................................ 700 14,875
Sterling Commerce, Inc.* ...................................... 400 18,000
SunGard Data Systems, Inc.* ................................... 500 19,844
Unisys Corp.* ................................................. 605 20,835
Wang Laboratories, Inc.* ...................................... 750 20,812
-----------
411,068
-----------
Cosmetics & Personal Care (1.05%)
Dial Corp. (The) .............................................. 650 18,769
-----------
Electronics (8.83%)
Analog Devices, Inc.* ......................................... 530 16,629
Applied Materials, Inc.* ...................................... 200 8,538
Artesyn Technologies, Inc.* ................................... 675 9,450
Jabil Circuit, Inc.* .......................................... 370 27,611
Linear Technology Corp. ....................................... 110 9,852
Maxim Intergrated Products, Inc.* ............................. 200 8,737
Novellus Systems, Inc.* ....................................... 150 7,425
Sanmina Corp.* ................................................ 375 23,437
SCI Systems, Inc.* ............................................ 305 17,614
Vitesse Semiconductor Corp.* .................................. 180 8,213
Waters Corp.* ................................................. 225 19,631
-----------
157,137
-----------
Finance (3.36%)
Charter One Financial, Inc. ................................... 559 15,512
CIT Group, Inc. (The) (Class A) ............................... 530 16,861
Concord EFS, Inc.* ............................................ 355 15,043
FINOVA Group, Inc. (The) ...................................... 230 12,406
-----------
59,822
-----------
Food (0.79%)
Aurora Foods, Inc.* ........................................... 490 9,708
International Home Foods, Inc.* ............................... 260 4,388
-----------
14,096
-----------
Funeral Services & Related (0.71%)
Loewen Group, Inc. (Canada) ................................... 1,500 12,656
-----------
Furniture (0.89%)
Leggett & Platt, Inc. ......................................... 720 15,840
-----------
Household (1.03%)
WestPoint Stevens, Inc.* ...................................... 580 18,306
-----------
Insurance (8.40%)
Ace, Ltd. (Bermuda) ........................................... 575 19,802
Allmerica Financial Corp. ..................................... 350 20,256
CMAC Investment Corp. ......................................... 175 8,039
Executive Risk, Inc. .......................................... 270 14,833
EXEL Ltd. (Class A) (Bermuda) ................................. 194 14,550
Horace Mann Educators Corp. ................................... 310 8,835
Mutual Risk Management Ltd. ................................... 525 20,541
Provident Cos., Inc. .......................................... 230 9,545
Reinsurance Group of America, Inc. ............................ 300 18,225
ReliaStar Financial Corp. ..................................... 195 8,994
UNUM Corp. .................................................... 100 5,838
-----------
149,458
-----------
Leisure (0.68%)
Hasbro, Inc. .................................................. 335 12,102
-----------
Media (3.83%)
Chancellor Media Corp. (Class A)* ............................. 400 19,150
Clear Channel Communications, Inc.* ........................... 350 19,075
Infinity Broadcasting Corp. (Class A)* ........................ 550 15,056
Univision Communications, Inc. (Class A)* ..................... 410 14,837
-----------
68,118
-----------
Medical (12.75%)
Allegiance Corp. .............................................. 250 11,656
Covance, Inc.* ................................................ 200 5,825
Elan Corp., PLC (ADR) (Ireland)* .............................. 280 19,478
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
83
<PAGE>
============================= FINANCIAL STATEMENTS =============================
John Hancock Funds - Declaration Trust -- V.A. Special Opportunities Fund
<TABLE>
<CAPTION>
NUMBER OF MARKET
ISSUER, DESCRIPTION SHARES VALUE
- ------------------- ------ -----
<S> <C> <C>
Medical (continued)
Forest Laboratories, Inc.* .................................... 330 $17,552
Genzyme Corp.* ................................................ 505 25,124
Genzyme Molecular Oncology* ................................... 59 192
HCR Manor Care, Inc.* ......................................... 520 15,275
Health Management Associates, Inc. (Class A)* ................. 787 17,019
HEALTHSOUTH Corp.* ............................................ 1,220 18,834
Mylan Laboratories, Inc. ...................................... 825 25,987
Omnicare, Inc. ................................................ 655 22,761
STERIS Corp.* ................................................. 540 15,356
Stryker Corp. ................................................. 280 15,418
Total Renal Care Holdings, Inc. * ............................. 550 16,259
-----------
226,736
-----------
Office (1.25%)
Office Depot, Inc.* ........................................... 600 22,163
-----------
Oil & Gas (0.97%)
Anadarko Petroleum Corp. ...................................... 110 3,396
Apache Corp. .................................................. 380 9,619
Noble Affiliates, Inc. ........................................ 170 4,186
-----------
17,201
-----------
Pollution Control (0.68%)
US Filter Corp.* .............................................. 530 12,125
-----------
Retail (7.94%)
Amazon.com, Inc.* ............................................. 30 9,637
Best Buy Co., Inc.* ........................................... 100 6,138
Circuit City Stores-Circuit City Group ........................ 250 12,484
CVS Corp. ..................................................... 410 22,550
Meyer (Fred), Inc. * .......................................... 465 28,016
Richfood Holdings, Inc. ....................................... 815 16,911
Rite Aid Corp. ................................................ 400 19,825
Staples, Inc.* ................................................ 295 12,888
SYSCO Corp. ................................................... 200 5,488
Williams-Sonoma, Inc.* ........................................ 180 7,256
-----------
141,193
-----------
Telecommunications (7.27%)
American Tower Corp. (Class A)* ............................... 625 18,477
Comverse Technology, Inc.* .................................... 170 12,070
Global Crossing Ltd.* ......................................... 450 20,306
Global TeleSystems Group, Inc.* ............................... 240 13,380
ICG Communications, Inc.* ..................................... 475 10,212
Intermedia Communications, Inc.* .............................. 460 7,935
McLeodUSA, Inc. (Class A)* .................................... 525 16,406
NEXTLINK Communications, Inc. (Class A)* ...................... 460 13,052
Qwest Communications International, Inc.* ..................... 130 6,500
Tel-Save Holdings, Inc.* ...................................... 660 11,055
-----------
129,393
-----------
Utilities (0.49%)
Montana Power Co. ............................................. 155 8,767
-----------
Waste Disposal Service & Equip. (0.76%)
Republic Services, Inc. (Class A)* ............................ 735 13,552
-----------
TOTAL COMMON STOCKS
(Cost $1,455,691) (94.74%) 1,685,520
------ -----------
<CAPTION>
INTEREST PAR VALUE MARKET
ISSUER, DESCRIPTION RATE (000s OMITTED) VALUE
- ------------------- ---- -------------- -----
<S> <C> <C> <C>
SHORT-TERM INVESTMENTS
Joint Repurchase Agreement (5.85%)
Investment in a joint repurchase
agreement transaction with SBC
Warburg, Inc. - Dated 12-31-98,
due 01-04-99 (Secured by U.S.
Treasury Bonds, 6.250% thru 9.125%
due 05-15-18 thru 08-15-23) - Note B.............. 4.75% $104 $104,000
-----------
Corporate Savings Account (0.00%)
Investors Bank & Trust Company
Daily Interest Savings Account
Current Rate 4.00% ............................... 57
-----------
TOTAL SHORT-TERM INVESTMENTS (5.85%) 104,057
----------- -----------
TOTAL INVESTMENTS (100.59%) 1,789,577
----------- -----------
OTHER ASSETS AND LIABILITIES, NET (0.59%) (10,506)
----------- -----------
TOTAL NET ASSETS (100.00%) $1,779,071
=========== ===========
</TABLE>
* 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
December 31, 1998
- --------------------------------------------------------------------------------
The Schedule of Investments is a complete list of all securities owned by the V.
A. Growth Fund on December 31, 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.
<TABLE>
<CAPTION>
NUMBER OF MARKET
ISSUER, DESCRIPTION SHARES VALUE
- ------------------- ------ -----
<S> <C> <C>
COMMON STOCKS
Advertising (0.38%)
Outdoor Systems, Inc.* ........................................ 1,300 $39,000
-----------
Aerospace (0.26%)
Raytheon Co. (Class B) ........................................ 500 26,625
-----------
Banks - United States (2.30%)
Bank One Corp. ................................................ 2,800 142,975
Wells Fargo Co. ............................................... 2,400 95,850
-----------
238,825
-----------
Broker Services (1.83%)
Bear Stearns Cos., Inc. ....................................... 800 29,900
Merrill Lynch & Co., Inc. ..................................... 2,400 160,200
-----------
190,100
-----------
Business Services - Misc (0.99%)
Paychex, Inc. ................................................. 2,000 102,875
-----------
Computers (31.40%)
3Com Corp.* ................................................... 3,000 134,437
Automatic Data Processing, Inc. ............................... 2,700 216,506
Cisco Systems, Inc.* .......................................... 4,700 436,219
Compaq Computer Corp. ......................................... 10,700 448,731
EMC Corp.* .................................................... 5,300 450,500
International Business Machines Corp. ......................... 2,800 517,300
Microsoft Corp.* .............................................. 3,000 416,063
Novell, Inc.* ................................................. 4,000 72,500
Quantum Corp.* ................................................ 1,700 36,125
Seagate Technology, Inc.* ..................................... 2,400 72,600
Sun Microsystems, Inc.* ....................................... 300 25,687
Unisys Corp.* ................................................. 12,500 430,469
-----------
3,257,137
-----------
Diversified Operations (3.27%)
Tyco International Ltd. ....................................... 4,500 339,469
-----------
Electronics (4.86%)
General Electric Co. .......................................... 3,200 326,600
Intel Corp. ................................................... 1,500 177,844
-----------
504,444
-----------
Finance (2.27%)
Morgan Stanley, Dean Witter & Co. ............................. 2,200 156,200
Providian Financial Corp. ..................................... 1,050 78,750
-----------
234,950
-----------
Media (1.16%)
Clear Channel Communications, Inc.* ........................... 2,200 119,900
-----------
Medical (12.73%)
Abbott Laboratories ........................................... 6,000 294,000
Johnson & Johnson ............................................. 1,100 92,262
Merck & Co., Inc. ............................................. 2,300 339,681
Schering-Plough Corp. ......................................... 6,000 331,500
Warner-Lambert Co. ............................................ 3,500 263,156
-----------
1,320,599
-----------
Mortgage Banking (4.72%)
Fannie Mae .................................................... 4,000 296,000
Freddie Mac ................................................... 3,000 193,313
-----------
489,313
-----------
Office (0.64%)
Pitney Bowes, Inc. ............................................ 1,000 66,063
-----------
Retail (19.75%)
Albertson's, Inc. ............................................. 3,800 242,013
Costco Cos., Inc.* ............................................ 5,000 360,937
Dayton Hudson Corp. ........................................... 500 27,125
Home Depot, Inc. (The) ........................................ 5,600 342,650
Kroger Co.* ................................................... 4,000 242,000
Rite Aid Corp. ................................................ 4,500 223,031
Wal-Mart Stores, Inc. ......................................... 5,200 423,475
Walgreen Co. .................................................. 3,200 187,400
-----------
2,048,631
-----------
Soap & Cleaning Preparations (1.52%)
Colgate-Palmolive Co. ......................................... 1,700 157,888
-----------
Telecommunications (6.28%)
MCI WorldCom, Inc.* ........................................... 6,500 466,375
Tellabs, Inc.* ................................................ 2,700 185,119
-----------
651,494
-----------
TOTAL COMMON STOCKS
(Cost $7,643,670) (94.36%) 9,787,313
------- -----------
<CAPTION>
INTEREST PAR VALUE
RATE (000s OMITTED)
---- --------------
<S> <C> <C>
SHORT-TERM INVESTMENTS
Joint Repurchase Agreement (5.68%)
Investment in a joint repurchase
agreement transaction with SBC
Warburg, Inc. - Dated 12-31-98,
due 01-04-99 (Secured by U.S.
Treasury Bonds, 6.250% thru 9.125%
due 05-15-18 thru 08-15-23) - Note B.............. 4.75% $589 589,000
-----------
Corporate Savings Account (0.00%)
Investors Bank & Trust Company
Daily Interest Savings Account
Current Rate 4.00%................................ 4
-----------
TOTAL SHORT-TERM INVESTMENTS (5.68%) 589,004
------- -----------
TOTAL INVESTMENTS (100.04%) 10,376,317
------- -----------
OTHER ASSETS AND LIABILITIES, NET (0.04%) (4,500)
------- -----------
TOTAL NET ASSETS (100.00%) $10,371,817
======= ===========
</TABLE>
*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.
85
<PAGE>
============================= FINANCIAL STATEMENTS =============================
John Hancock Funds - Declaration Trust -- V.A. Growth & Income Fund
Schedule of Investments
December 31, 1998
- --------------------------------------------------------------------------------
The Schedule of Investments is a complete list of all securities owned by the V.
A. Growth & Income Fund on December 31, 1998. It's divided into three main
categories: common stocks and rights, preferred stocks and short-term
investments. Common stocks and rights and preferred stocks are further broken
down by industry groups. Short-term investments, which represent the Fund's
"cash" position, are listed last.
<TABLE>
<CAPTION>
NUMBER OF MARKET
ISSUER, DESCRIPTION SHARES VALUE
- ------------------- ------ -----
<S> <C> <C>
COMMON STOCKS
Aerospace (0.10%)
United Technologies Corp. ..................................... 152 $16,530
-----------
Banks - United States (2.55%)
PNC Bank Corp. ................................................ 5,000 270,625
TCF Financial Corp. ........................................... 7,150 172,941
-----------
443,566
-----------
Broker Services (0.87%)
Bear Stearns Cos., Inc. ....................................... 3,000 112,125
Paine Webber Group, Inc. ...................................... 1,000 38,625
-----------
150,750
-----------
Building (3.31%)
Masco Corp. ................................................... 20,000 575,000
-----------
Business Services - Misc (1.73%)
Nielsen Media Research, Inc. .................................. 16,667 300,000
-----------
Chemicals (2.79%)
Monsanto Co. .................................................. 5,300 251,750
Solutia, Inc. ................................................. 10,375 232,141
-----------
483,891
-----------
Computers (7.01%)
Cisco Systems, Inc.* .......................................... 1,000 92,812
Computer Associates International, Inc. ....................... 9,900 421,987
Electronic Data Systems Corp. ................................. 7,000 351,750
International Business Machines Corp. ......................... 255 47,111
Netscape Communications Corp.* ................................ 5,000 303,750
-----------
1,217,410
-----------
Electronics (3.86%)
Arrow Electronics, Inc. ....................................... 12,000 320,250
SCI Systems, Inc* ............................................. 6,070 350,542
-----------
670,792
-----------
Energy (0.18%)
CalEnergy Co., Inc* ........................................... 899 31,184
-----------
Finance (6.97%)
Ambac Financial Group, Inc. ................................... 5,200 312,975
Citigroup, Inc. ............................................... 4,921 243,589
Federated Investors, Inc. (Class B) ........................... 35,000 634,375
Morgan Stanley, Dean Witter, Discover & Co. ................... 286 20,306
-----------
1,211,245
-----------
Insurance (14.98%)
Ace, Ltd. (Bermuda) ........................................... 29,000 998,688
Allstate Corp. (The) .......................................... 1,264 48,822
Everest Reinsurance Holdings, Inc. ............................ 4,000 155,750
Executive Risk, Inc. .......................................... 5,000 274,687
Financial Security Assurance Holdings Ltd. .................... 7,860 426,405
MBIA, Inc. .................................................... 2,500 163,906
Mitsui Marine and Fire Insurance Co., Ltd. (Japan) ............ 6,500 34,288
Progressive Corp. ............................................. 705 119,409
UNUM Corp. .................................................... 6,500 379,437
-----------
2,601,392
-----------
Leisure (5.54%)
Galileo International, Inc. ................................... 5,185 225,548
Mattel, Inc. .................................................. 32,300 736,844
-----------
962,392
-----------
Media (6.86%)
Central Newspapers, Inc. (Class A) ............................ 2,300 164,306
Harcourt General, Inc. ........................................ 2,349 124,937
Scripps (E.W.) Co. (Class A) .................................. 10,000 497,500
Washington Post Co. (The) (Class B) ........................... 700 404,556
-----------
1,191,299
-----------
Medical (9.56%)
American Home Products Corp. .................................. 10,022 564,364
Johnson & Johnson ............................................. 186 15,601
Lilly (Eli) & Co. ............................................. 318 28,262
Shire Pharmaceuticals Group Plc (United Kingdom)* ............. 4,000 25,656
Total Renal Care Holdings, Inc. * ............................. 30,000 886,875
Warner-Lambert Co. ............................................ 678 50,977
Wellpoint Health Networks, Inc.* .............................. 1,020 88,740
-----------
1,660,475
-----------
Mortgage Banking (0.18%)
Fannie Mae .................................................... 201 14,874
Freddie Mac ................................................... 267 17,205
-----------
32,079
-----------
Oil & Gas (1.84%)
Mobil Corp. ................................................... 272 23,698
Schlumberger Ltd. ............................................. 3,000 138,375
Triton Energy Ltd. ............................................ 5,800 46,038
YPF Sociedad Anonima, American Depository Reciept
(ADR) (Argentina) ........................................... 4,000 111,750
-----------
319,861
-----------
Retail (2.71%)
SYSCO Corp. ................................................... 2,044 56,082
Tiffany & Co. ................................................. 8,000 415,000
-----------
471,082
-----------
Telecommunications (10.76%)
AirTouch Communications, Inc. * ............................... 700 50,488
AT&T Corp. .................................................... 8,600 647,150
Commonwealth Telephone Enterprises, Inc. ...................... 20,000 670,000
MCI WorldCom, Inc.* ........................................... 505 36,234
MediaOne Group, Inc. * ........................................ 9,900 465,300
-----------
1,869,172
-----------
Tobacco (0.16%)
Philip Morris Cos., Inc. ...................................... 520 27,820
-----------
Transport (1.29%)
GATX Corp. .................................................... 4,336 164,226
Northwest Airlines Corp. (Class A)* ........................... 2,328 59,510
-----------
223,736
-----------
Utilities (2.53%)
ALLTEL Corp. .................................................. 1 30
CMS Energy Corp. .............................................. 370 17,922
Duke Energy Corp. ............................................. 283 18,130
Niagara Mohawk Power Corp.* ................................... 25,000 403,125
-----------
439,207
-----------
TOTAL COMMON STOCKS
(Cost $13,156,666) (85.78%) 14,898,883
------ -----------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
86
<PAGE>
============================= FINANCIAL STATEMENTS =============================
John Hancock Funds - Declaration Trust -- V.A. Growth & Income Fund
<TABLE>
<CAPTION>
NUMBER OF MARKET
ISSUER, DESCRIPTION SHARES VALUE
- ------------------- ------ -----
<S> <C> <C>
RIGHTS
Oil & Gas (0.00%)
Triton Energy Ltd.* ........................................... 418 $0
-----------
TOTAL RIGHTS
(Cost $0) (0.00%) 0
----------- -----------
TOTAL COMMON STOCKS AND RIGHTS
(Cost $13,156,665) (85.78%) 14,898,883
----------- -----------
PREFERRED STOCKS
Banks - Foreign (4.01%)
Fuji JGB Inv LLC, 9.87%, Ser A (Japan) (R) .................... 940 695,600
-----------
TOTAL PREFERRED STOCKS
(Cost $568,187) (4.01%) 695,600
----------- -----------
<CAPTION>
INTEREST PAR VALUE MARKET
ISSUER, DESCRIPTION RATE (000s OMITTED) VALUE
- ------------------- ---- -------------- -----
<S> <C> <C> <C>
SHORT-TERM INVESTMENTS
Joint Repurchase Agreement (2.74%)
Investment in a joint repurchase
agreement transacton with SBC
Warburg, Inc - Dated 12-31-98,
due 01-04-99. (Secured by U.S.
Treasury Bonds, 6.250% thru
9.125% due 05-15-18
thru 08-15-23) - Note B........................... 4.75% $476 $476,000
-----------
Corporate Savings Account (0.00%)
Investor's Bank & Trust Company
Daily Interest Savings Account
Current Rate 4.00% .......................................... 851
-----------
TOTAL SHORT-TERM INVESTMENTS (2.74%) 476,851
----------- -----------
TOTAL INVESTMENTS (92.53%) 16,071,334
----------- -----------
OTHER ASSETS AND LIABILITIES, NET (7.47%) 1,296,918
----------- -----------
TOTAL NET ASSETS (100.00%) $17,368,252
=========== ===========
</TABLE>
** Non-income producing security.
(R) This security is exempt from registration under Rule 144A of the
Securities Act of 1933. Such securities may be resold, normally to
qualified institutional buyers, in transactions exempt from registration.
Rule 144A securities amounted to $695,600 or 4.01% of net assets as of
December 31, 1998.
Parenthetical disclosure of a foreign country in the security description
represents country of a foreign issuer; however, the security is U. S. dollar
denominated.
The percentage shown for each investment category is the total value of that
category as a percentage of the net assets of the Fund.
SEE NOTES TO FINANCIAL STATEMENTS.
87
<PAGE>
============================= FINANCIAL STATEMENTS =============================
John Hancock Funds - Declaration Trust -- V.A. Independence Equity Fund
Schedule of Investments
December 31, 1998
- --------------------------------------------------------------------------------
The Schedule of Investments is a complete list of all securities owned by the V.
A. Independence Equity Fund on December 31, 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.
<TABLE>
<CAPTION>
NUMBER OF MARKET
ISSUER, DESCRIPTION SHARES VALUE
- ------------------- ------ -----
<S> <C> <C>
COMMON STOCKS
Advertising (0.15%)
Omnicom Group, Inc. ........................................... 700 $40,600
-----------
Aerospace (3.10%)
Goodrich (B.F.) Co. ........................................... 2,400 86,100
Lockheed Martin Corp. ......................................... 2,500 211,875
Sundstrand Corp. .............................................. 1,600 83,000
United Technologies Corp. ..................................... 4,100 445,875
-----------
826,850
-----------
Automobile / Trucks (1.92%)
Dana Corp. .................................................... 3,600 147,150
Ford Motor Co. ................................................ 4,800 281,700
Lear Corp.* ................................................... 1,300 50,050
Ryder System, Inc. ............................................ 1,300 33,800
-----------
512,700
-----------
Banks - United States (6.05%)
BankAmerica Corp. ............................................. 7,189 432,239
Chase Manhattan Corp. ......................................... 1,600 108,900
Comerica, Inc. ................................................ 3,400 231,837
First Union Corp. ............................................. 4,900 297,981
Wells Fargo Co. ............................................... 13,600 543,150
-----------
1,614,107
-----------
Beverages (1.67%)
PepsiCo, Inc. ................................................. 10,900 446,219
-----------
Building (0.28%)
Masco Corp. ................................................... 2,600 74,750
-----------
Chemicals (0.67%)
Air Products & Chemicals, Inc. ................................ 4,500 180,000
-----------
Computers (10.45%)
Autodesk, Inc. ................................................ 1,500 64,031
Cadence Design Systems, Inc.* ................................. 3,800 113,050
Compaq Computer Corp. ......................................... 13,200 553,575
Computer Associates International, Inc. ....................... 5,600 238,700
Dell Computer Corp.* .......................................... 4,400 322,025
International Business Machines Corp. ......................... 3,000 554,250
Microsoft Corp.* .............................................. 6,800 943,075
-----------
2,788,706
-----------
Cosmetics & Personal Care (1.81%)
Avon Products, Inc. ........................................... 8,500 376,125
Dial Corp. (The) .............................................. 3,100 89,513
Revlon, Inc. (Class A)* ....................................... 1,100 18,081
-----------
483,719
-----------
Diversified Operations (2.69%)
National Service Industries, Inc. ............................. 700 26,600
Ogden Corp. ................................................... 2,600 65,162
Textron, Inc. ................................................. 800 60,750
Tyco International Ltd. ....................................... 7,500 565,781
-----------
718,293
-----------
Electronics (6.06%)
General Electric Co. .......................................... 7,300 745,056
Honeywell, Inc. ............................................... 7,000 527,188
Intel Corp. ................................................... 2,900 343,831
-----------
1,616,075
-----------
Finance (2.63%)
Associates First Capital Corp. (Class A) ...................... 4,800 203,400
Citigroup, Inc. ............................................... 10,050 497,475
-----------
700,875
-----------
Food (2.98%)
Flowers Industries, Inc. ...................................... 5,900 141,231
General Mills, Inc. ........................................... 1,900 147,725
Heinz (H.J.) Co. .............................................. 7,700 436,012
Quaker Oats Co. ............................................... 1,200 71,400
-----------
796,368
-----------
Insurance (5.71%)
Allstate Corp. (The) .......................................... 4,900 189,262
American International Group, Inc. ............................ 3,600 347,850
CIGNA Corp. ................................................... 3,300 255,131
Equitable Companies., Inc. (The) .............................. 700 40,513
Hartford Financial Services Group, Inc. (The) ................. 3,400 186,575
Hartford Life, Inc. (Class A) ................................. 1,500 87,375
Marsh & McLennan Cos., Inc. ................................... 6,100 356,469
Travelers Property Casualty Corp. (Class A) ................... 2,000 62,000
-----------
1,525,175
-----------
Machinery (0.97%)
Ingersoll-Rand Co. ............................................ 5,500 258,156
-----------
Media (1.53%)
Viacom, Inc. (Class B)* ....................................... 5,500 407,000
-----------
Medical (13.41%)
Abbott Laboratories ........................................... 3,600 176,400
Amgen, Inc.* .................................................. 4,400 460,075
Becton, Dickinson & Co. ....................................... 2,300 98,181
Bristol-Myers Squibb Co. ...................................... 2,400 321,150
Cardinal Health, Inc. ......................................... 5,850 443,869
Glaxo Wellcome PLC, American Depositary Receipts
(ADR) (United Kingdom) ...................................... 500 34,750
Guidant Corp. ................................................. 1,300 143,325
Health Management Associates, Inc. (Class A)* ................. 2,100 45,413
HEALTHSOUTH Corp.* ............................................ 13,400 206,862
Lilly (Eli) & Co. ............................................. 2,000 177,750
Lincare Holdings, Inc.* ....................................... 2,100 85,181
McKesson HBOC, Inc.* .......................................... 900 71,156
Merck & Co., Inc. ............................................. 1,700 251,069
Mylan Laboratories, Inc. ...................................... 2,200 69,300
Pfizer, Inc. .................................................. 2,200 275,962
Schering-Plough Corp. ......................................... 5,000 276,250
Sepracor, Inc. * .............................................. 900 79,312
Universal Health Services, Inc. (Class B)* .................... 600 31,125
Warner-Lambert Co. ............................................ 2,800 210,525
Wellpoint Health Networks, Inc.* .............................. 1,400 121,800
-----------
3,579,455
-----------
Mortgage Banking (1.41%)
Fannie Mae .................................................... 5,100 377,400
-----------
Office (1.46%)
Pitney Bowes, Inc. ............................................ 5,900 389,769
-----------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
88
<PAGE>
============================= FINANCIAL STATEMENTS =============================
John Hancock Funds - Declaration Trust -- V.A. Independence Equity Fund
<TABLE>
<CAPTION>
NUMBER OF MARKET
ISSUER, DESCRIPTION SHARES VALUE
- ------------------- ------ -----
<S> <C> <C>
Oil & Gas (3.02%)
British Petroleum Co. PLC (ADR) (United Kingdom) .............. 1,500 $142,500
Exxon Corp. ................................................... 3,800 277,875
Halliburton Co. ............................................... 4,300 127,387
Phillips Petroleum Co. ........................................ 2,100 89,513
Sunoco, Inc. .................................................. 2,000 72,125
USX - Marathon Group .......................................... 3,200 96,400
-----------
805,800
-----------
Paper & Paper Products (0.33%)
Fort James Corp. .............................................. 2,200 88,000
-----------
Real Estate Operations (0.34%)
Webb (Del E.) Corp. ........................................... 3,300 90,956
-----------
Retail (5.80%)
Albertson's, Inc. ............................................. 1,400 89,163
Dayton Hudson Corp. ........................................... 1,200 65,100
Home Depot, Inc. (The) ........................................ 6,300 385,481
Lowe's Cos., Inc. ............................................. 8,100 414,619
Staples, Inc.* ................................................ 1,000 43,688
Tandy Corp. ................................................... 6,100 251,244
TJX Cos., Inc. ................................................ 2,400 69,600
Wal-Mart Stores, Inc. ......................................... 2,800 228,025
-----------
1,546,920
-----------
Soap & Cleaning Preparations (0.96%)
Procter & Gamble Co. (The) .................................... 2,800 255,675
-----------
Telecommunications (8.71%)
AT&T Corp. .................................................... 6,900 519,225
Bell Atlantic Corp. ........................................... 3,100 164,300
Lucent Technologies, Inc. ..................................... 3,500 385,000
MCI WorldCom, Inc.* ........................................... 9,600 688,800
Northern Telecom Ltd. (Canada) ................................ 7,600 380,950
Tellabs, Inc.* ................................................ 1,400 95,987
U S WEST, Inc. ................................................ 1,400 90,475
-----------
2,324,737
-----------
Textile (1.51%)
Jones Apparel Group, Inc.* .................................... 7,300 161,056
Tommy Hilfiger Corp.* ......................................... 2,500 150,000
Warnaco Group, Inc. (The) (Class A) ........................... 3,600 90,900
-----------
401,956
-----------
Tobacco (1.20%)
Philip Morris Cos., Inc. ...................................... 6,000 321,000
-----------
Transport (1.83%)
AMR Corp.* .................................................... 1,800 106,875
Burlington Northern Santa Fe Corp. ............................ 5,400 182,250
Delta Air Lines, Inc. ......................................... 1,600 83,200
Kansas City Southern Industries, Inc. ......................... 800 39,350
UAL Corp.* .................................................... 1,300 77,594
-----------
489,269
-----------
Utilities (8.64%)
Ameritech Corp. ............................................... 3,500 221,813
Baltimore Gas & Electric Co. .................................. 700 21,613
BellSouth Corp. ............................................... 7,000 349,125
Carolina Power & Light Co. .................................... 700 32,944
Consolidated Natural Gas Co. .................................. 6,600 356,400
Dominion Resources, Inc. ...................................... 2,000 93,500
El Paso Energy Corp. .......................................... 2,300 80,069
Florida Progress Corp. ........................................ 4,100 183,731
FPL Group, Inc. ............................................... 2,600 160,225
GTE Corp. ..................................................... 4,700 305,500
New Century Energies, Inc. .................................... 2,100 102,375
PECO Energy Co. ............................................... 4,700 195,638
SBC Communications, Inc. ...................................... 3,800 203,775
-----------
2,306,708
-----------
Waste Disposal Service & Equipment (0.33%)
Waste Management, Inc. ........................................ 1,900 88,588
-----------
TOTAL COMMON STOCKS
(Cost $21,607,697) (97.62%) 26,055,826
----------- -----------
<CAPTION>
INTEREST PAR VALUE
RATE (000s OMITTED)
---- --------------
<S> <C> <C> <C>
SHORT-TERM INVESTMENTS
Joint Repurchase Agreement (4.58%)
Investment in a joint repurchase
agreement transaction with SBC
Warburg, Inc. - Dated 12-31-98,
due 01-04-99 (Secured by U.S.
Treasury Bonds, 6.250% thru
9.125% due 05-15-18 thru
08-15-23) - Note B................................ 4.75% $1,222 1,222,000
-----------
Corporate Savings Account (0.00%)
Investors Bank & Trust Company
Daily Interest Savings Account
Current Rate 4.00% ............................... 923
-----------
TOTAL SHORT-TERM INVESTMENTS (4.58%) 1,222,923
----------- -----------
TOTAL INVESTMENTS (102.20%) 27,278,749
----------- -----------
OTHER ASSETS AND LIABILITIES, NET (2.20%) (587,495)
----------- -----------
TOTAL NET ASSETS (100.00%) $26,691,254
=========== ===========
</TABLE>
*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.
89
<PAGE>
==============================FINANCIAL STATEMENTS==============================
John Hancock Funds - Declaration Trust -- V.A. Sovereign Investors Fund
Schedule of Investments
December 31, 1998
Per share earnings and dividends and their compound growth rates are shown for
the most recently reported ten year periods on common stocks, as well as
price/earnings ratios, and are not audited.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
COMPOUND
NUMBER GROWTH MARKET
OF SHARES RATE VALUE
- --------- ---- -----
<S> <C> <C>
COMMON STOCKS (87.80%)
Advertising (2.71%)
11,600 Interpublic Group of Companies, Inc.
(The) @ 79 3/4.............................................................................. $925,100
-----------
One of the largest advertising agencies in the world
Earnings P/S..........................$.70, .79, .82, .95, .99, 1.19, 1.36, 1.34, 1.81, 2.18 13.5%
Dividends P/S..............................$.21, .25, .27, .30, .33, .36, .40, .44, .50, .58 11.9%
Price/Earnings Ratio....................................................................38.2
Banks (5.80%)
12,860 Banc One Corp. @ 51 1/16.................................................................... 656,664
Ohio-based bank holding company
Earnings P/S......................$.98, 1.10, 1.50, 1.88, 2.21, 2.49, 2.07, 2.60, 2.03, 3.13 4.9%
Dividends P/S.........................$.52, .57, .63, .73, .89, 1.02, 1.12, 1.24, 1.38, 1.52 13.0%
Price/Earnings Ratio....................................................................14.9
8,763 BankAmerica Corp. @ 60 1/8.................................................................. 526,875
Third largest bank holding company in the U.S.
Earnings P/S......................$1.45, 2.31, 1.67, .38, 2.26, 2.47, 3.03, 3.53, 4.07, 4.16 12.4%
Dividends P/S..........................$.55, .71, .74, .76, .82, .94, 1.04, 1.20, 1.37, 1.59 12.5%
Price/Earnings Ratio....................................................................16.5
9,000 First Tennessee National Corp. @ 38 1/16.................................................... 342,563
Tennessee-based bank holding company
Earnings P/S..........................$.57, .61, .63, .88, .76, 1.01, 1.12, 1.27, 1.49, 1.70 12.9%
Dividends P/S..............................$.24, .27, .29, .32, .38, .43, .49, .55, .62, .69 12.5%
Price/Earnings Ratio....................................................................22.1
5,200 First Union Corp. @ 60 13/16................................................................ 316,225
North Carolina-based bank holding company
Earnings P/S.....................$1.20, 1.26, 1.16, 1.45, 1.81, 2.34, 2.44, 2.41, 3.03, 2.68 9.3%
Dividends P/S...........................$.50, .54, .56, .64, .75, .86, .98, 1.10, 1.22, 1.58 13.6%
Price/Earnings Ratio....................................................................16.1
3,500 Wells Fargo Co. @ 39 15/16.................................................................. 139,781
Diversified financial services company providing banking, insurance, investments and
consumer
finance
Earnings P/S..........................$.57, .63, .68, .73, .86, 1.05, 1.21, 1.37, 1.55, 1.75 13.3%
Dividends P/S..............................$.19, .21, .24, .27, .32, .38, .45, .53, .62, .70 15.6%
Price/Earnings Ratio....................................................................22.8
-----------
1,982,108
-----------
Beverages (2.04%)
17,000 PepsiCo, Inc. @ 40 15/16.................................................................... 695,938
-----------
Second largest soft drink company
Earnings P/S............................$.57, .68, .68, .82, .87, 1.07, 1.21, .74, .81, 1.40 10.5%
Dividends P/S..............................$.16, .19, .23, .26, .31, .35, .39, .45, .49, .52 14.0%
Price/Earnings Ratio....................................................................35.2
Building (2.00%)
23,800 Masco Corp. @ 28 3/4........................................................................ 684,250
-----------
Manufactures building, home improvement and consumer products
Earnings P/S.............................$.71, .46, .14, .37, .68, .79, .55, .70, 1.14, 1.39 7.8%
Dividends P/S..............................$.25, .27, .29, .31, .33, .35, .37, .39, .41, .43 6.2%
Price/Earnings Ratio....................................................................21.5
Chemicals (3.59%)
14,000 Air Products & Chemicals, Inc. @ 40......................................................... 560,000
Producer of industrial gases
Earnings P/S.......................$.99, 1.04, 1.11, 1.23, .88, 1.03, 1.65, 1.87, 1.95, 2.54 11.0%
Dividends P/S..............................$.32, .35, .38, .42, .45, .48, .51, .54, .59, .66 8.4%
Price/Earnings Ratio....................................................................17.9
27,000 RPM, Inc. @ 16.............................................................................. 432,000
Manufacturer of specialty chemicals and coatings to waterproof and rustproof
structures
Earnings P/S...............................$.31, .34, .36, .43, .46, .64, .69, .65, .84, .91 12.7%
Dividends P/S..............................$.22, .24, .27, .29, .31, .34, .36, .39, .42, .45 8.3%
Price/Earnings Ratio....................................................................18.8
</TABLE>
The Schedule of Investments is a complete list of all securities owned by the V.
A. Sovereign Investors Fund on December 31, 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
- --------- ---- -----
<S> <C> <C>
Chemicals (continued)
8,000 Sigma - Aldrich Corp. @ 29 3/8.............................................................. $235,000
Manufacturer of biochemical and organic products used for research and diagnostics
Earnings P/S.........................$.65, .72, .62, .93, 1.04, 1.11, 1.26, 1.44, 1.61, 1.68 11.1%
Dividends P/S..............................$.09, .10, .11, .13, .15, .17, .19, .23, .26, .28 13.4%
Price/Earnings Ratio....................................................................17.7
-----------
1,227,000
-----------
Computers (1.74%)
4,000 Automatic Data Processing, Inc. @ 80 3/16................................................... 320,750
Largest independent computing services firm in
the U.S.
Earnings P/S..............................$.72, .37, .42, .47, .53, .61, .71, .81, .90, 1.05 4.3%
Dividends P/S..............................$.07, .08, .10, .11, .13, .15, .18, .21, .24, .28 16.7%
Price/Earnings Ratio....................................................................37.8
4,000 Hewlett-Packard Co. @ 68 5/16............................................................... 273,250
Manufactures and services electronic measurement, analysis and computation
instruments
Earnings P/S.........................$.88, .77, .76, .87, 1.16, 1.54, 2.32, 2.46, 3.00, 2.84 13.9%
Dividends P/S..............................$.10, .11, .13, .20, .24, .29, .38, .46, .54, .62 22.5%
Price/Earnings Ratio....................................................................23.7
-----------
594,000
-----------
Containers (2.52%)
10,700 Bemis Co., Inc. @ 37 15/16.................................................................. 405,931
Producer of a broad range of flexible packaging and equipment and pressure sensitive
materials
Earnings P/S.........................$.90, .99, .98, 1.14, .84, 1.33, 1.55, 1.84, 1.95, 2.15 10.2%
Dividends P/S..............................$.30, .36, .42, .46, .50, .54, .64, .72, .80, .88 12.7%
Price/Earnings Ratio....................................................................18.2
15,400 Sonoco Products Co. @ 29 5/8................................................................ 456,225
Leading manufacture of containers, paper products and packaging
Earnings P/S..........................$.53, .48, .97, 1.03, .90, 1.13, 1.50, 1.64, 1.67, .35 NMF
Dividends P/S..............................$.35, .39, .40, .43, .46, .48, .54, .59, .64, .70 8.0%
Price/Earnings Ratio....................................................................17.2
-----------
862,156
-----------
Diversified Operations (3.49%)
3,300 DuPont (E.I.) De Nemours & Co. @ 53 1/16.................................................... 175,106
Nation's largest chemical manufacturer
Earnings P/S.......................$1.77, 1.70, 1.57, .66, .12, 1.70, 2.72, 3.05, 2.43, 1.38 NMF
Dividends P/S..........................$.73, .81, .84, .87, .88, .91, 1.02, 1.12, 1.23, 1.37 7.2%
Price/Earnings Ratio....................................................................16.1
9,800 Johnson Controls, Inc. @ 59................................................................. 578,200
Manufactures automotive systems and building controls
Earnings P/S.....................$1.21, 1.07, 1.10, 1.43, 1.58, 1.90, 2.27, 2.55, 2.52, 3.89 13.9%
Dividends P/S..............................$.59, .61, .63, .65, .69, .74, .79, .83, .88, .94 5.3%
Price/Earnings Ratio....................................................................31.4
6,200 Minnesota Mining & Manufacturing Co. @ 71 1/8............................................... 440,975
Manufactures industrial, commercial and health
care products
Earnings P/S.....................$2.83, 2.94, 2.71, 2.76, 2.91, 2.81, 3.18, 3.36, 5.15, 3.28 1.7%
Dividends P/S....................$1.30, 1.46, 1.56, 1.60, 1.66, 1.76, 1.88, 1.92, 2.12, 2.20 6.0%
Price/Earnings Ratio....................................................................19.0
-----------
1,194,281
-----------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
90
<PAGE>
==============================FINANCIAL STATEMENTS==============================
John Hancock Funds - Declaration Trust -- V.A. Sovereign Investors Fund
<TABLE>
<CAPTION>
COMPOUND
NUMBER GROWTH MARKET
OF SHARES RATE VALUE
- --------- ---- -----
<S> <C> <C>
Electronics (5.37%)
13,700 Emerson Electric Co. @ 60 1/2............................................................... $828,850
Produces and sells electrical/electronic products
and systems
Earnings P/S.....................$1.32, 1.38, 1.42, 1.48, 1.58, 2.02, 1.95, 2.28, 2.52, 2.80 8.7%
Dividends P/S...........................$.58, .64, .67, .70, .74, .80, .92, 1.01, 1.11, 1.21 8.5%
Price/Earnings Ratio....................................................................21.5
600 General Electric Co. @ 102 1/16............................................................. 61,238
Dominant force in home appliances, electrical power and financial services
Earnings P/S.....................$1.09, 1.22, 1.27, 1.27, 1.16, 1.66, 1.89, 2.14, 2.42, 2.75 10.8%
Dividends P/S............................$.43, .48, .52, .58, .65, .75, .85, .95, 1.08, 1.25 12.6%
Price/Earnings Ratio....................................................................36.3
8,200 Grainger (W.W.), Inc. @ 41 5/8.............................................................. 341,325
Leading distributor of electrical equipment
Earnings P/S.....................$1.10, 1.16, 1.18, 1.28, 1.38, 1.64, 1.34, 1.99, 2.21, 2.42 9.2%
Dividends P/S..............................$.25, .28, .31, .33, .35, .39, .45, .49, .53, .59 10.0%
Price/Earnings Ratio....................................................................17.1
8,000 Honeywell, Inc. @ 75 5/16................................................................... 602,500
Makes automation and control systems
Earnings P/S.....................$3.55, 2.52, 2.37, 3.41, 1.78, 2.19, 2.44, 2.96, 3.51, 4.32 2.2%
Dividends P/S..........................$.57, .70, .77, .84, .91, .97, 1.01, 1.06, 1.09, 1.13 7.9%
Price/Earnings Ratio....................................................................17.2
-----------
1,833,913
-----------
Finance (0.83%)
5,750 Citigroup, Inc. @ 49 1/2.................................................................... 284,625
-----------
Diversified global financial services company offering commercial/consumer banking,
investment banking, brokerage services and insurance to consumer and corporate
customers around the world
Earnings P/S..........................$.46, .47, .55, .71, .88, 1.29, 1.28, 1.64, 2.55, 2.76 22.0%
Dividends P/S.............................$.05, .06, .075, .12, .16, .19, .27, .30, .40, .56 30.8%
Price/Earnings Ratio....................................................................19.0
Food (2.51%)
10,000 Flowers Industries, Inc. @ 23 15/16......................................................... 239,375
Produces and markets a full line of baked foods in
the United States
Earnings P/S...............................$.37, .31, .36, .35, .46, .45, .42, .44, .62, .83 9.4%
Dividends P/S..............................$.24, .28, .30, .32, .34, .35, .37, .40, .43, .48 8.0%
Price/Earnings Ratio....................................................................26.3
22,000 Sara Lee Corp. @ 28 3/16.................................................................... 620,125
Manufactures brand name packaged foods and consumer products
Earnings P/S............................$.47, .49, .71, .64, .72, .23, .84, .94, 1.05, (.43) NMF
Dividends P/S..............................$.19, .22, .24, .26, .30, .33, .35, .39, .43, .47 10.6%
Price/Earnings Ratio.....................................................................NMF
-----------
859,500
-----------
Furniture (1.87%)
29,000 Leggett & Platt, Inc. @ 22.................................................................. 638,000
-----------
Produces intermediate products for the home furnishings industry
Earnings P/S.............................$.33, .33, .16, .38, .49, .65, .78, .81, 1.05, 1.23 15.7%
Dividends P/S............................$.09, .105, .108, .12, .14, .16, .19, .23, .27, .32 15.1%
Price/Earnings Ratio....................................................................17.7
Insurance (8.23%)
7,400 AFLAC Corp. @ 44............................................................................ 325,600
Global specialty insurer
Earnings P/S...........................$.27, .38, .46, .57, .72, .90, 1.14, 1.21, 2.28, 1.74 23.0%
Dividends P/S..............................$.08, .09, .10, .11, .13, .15, .17, .19, .22, .25 13.5%
Price/Earnings Ratio....................................................................28.3
6,450 American International Group, Inc. @ 96 5/8................................................. 623,231
Broadly based property-casualty insurance
organization
Earnings P/S.....................$1.31, 1.36, 1.42, 1.46, 1.74, 1.97, 2.27, 2.64, 3.04, 3.48 11.5%
Dividends P/S...............................$.07, .08, .09, .10, .11, 13, .14, .16, .19, .21 13.0%
Price/Earnings Ratio....................................................................30.2
10,000 ReliaStar Financial Corp. @ 46 1/8.......................................................... 461,250
Financial services company engaged in life/health insurance and consumer finance
Earnings P/S.........................$.68, .79, .86, .96, 1.26, 1.53, 2.08, 2.46, 2.61, 2.89 17.4%
Dividends P/S..............................$.30, .32, .35, .37, .39, .44, .49, .55, .61, .71 10.0%
Price/Earnings Ratio....................................................................15.4
24,000 UNUM Corp. @ 58 3/8......................................................................... $1,401,000
Holding company for UNUM Life Insurance Company
of America
Earnings P/S......................$.97, 1.35, 1.51, 1.78, 1.89, 1.20, 1.88, 1.72, 2.43, 2.69 12.0%
Dividends P/S..............................$.14, .19, .25, .31, .38, .46, .52, .55, .57, .59 17.3%
Price/Earnings Ratio....................................................................21.6
-----------
2,811,081
-----------
Leisure (0.95%)
9,000 Hasbro, Inc. @ 36 1/8....................................................................... 325,125
-----------
Designs, manufactures and markets toys, games
and interactive software
Earnings P/S.........................$.69, .69, .50, 1.18, 1.45, 1.30, 1.11, 1.43, 1.68, .71 0.3%
Dividends P/S..............................$.07, .08, .10, .13, .15, .18, .21, .25, .31, .32 18.4%
Price/Earnings Ratio....................................................................22.2
Machinery (3.08%)
11,000 Dover Corp. @ 36 5/8........................................................................ 402,875
Manufactures a variety of specialized industrial products
Earnings P/S...........................$.57, .64, .56, .54, .66, .83, 1.17, 1.67, 1.72, 1.72 13.1%
Dividends P/S..............................$.18, .19, .21, .22, .23, .25, .28, .32, .36, .40 9.3%
Price/Earnings Ratio....................................................................21.7
16,300 Pentair, Inc. @ 39 13/16.................................................................... 648,944
Manufactures enclosures for electrical, electronic, woodworking and power tool
equipment
Earnings P/S.......................$.93, .96, 1.01, 1.06, 1.19, 1.20, 1.40, 1.73, 2.11, 2.57 12.0%
Dividends P/S..............................$.27, .29, .31, .33, .34, .36, .40, .50, .54, .60 9.3%
Price/Earnings Ratio....................................................................16.2
-----------
1,051,819
-----------
Media (2.66%)
8,400 Gannett Co., Inc. @ 64 1/2.................................................................. 541,800
Publishes 81 daily/50 nondaily newspapers,
operates 10 TV, 8 FM and 7 AM stations
Earnings P/S.....................$1.23, 1.17, 1.04, 1.13, 1.32, 1.53, 1.67, 1.69, 2.73, 3.42 12.0%
Dividends P/S..............................$.56, .61, .62, .63, .65, .67, .69, .71, .74, .78 3.8%
Price/Earnings Ratio....................................................................22.4
3,600 McGraw-Hill Cos., Inc. @ 101 7/8............................................................ 366,750
Provides informational products and services for business and industry
Earnings P/S.......................$.49, 1.77, 1.58, 1.58, .12, 2.00, 2.25, 2.44, 5.36, 3.39 24.0%
Dividends P/S....................$1.00, 1.08, 1.10, 1.12, 1.14, 1.16, 1.20, 1.32, 1.44, 1.56 5.1%
Price/Earnings Ratio....................................................................30.2
-----------
908,550
-----------
Medical (10.40%)
9,000 Abbott Laboratories @ 49.................................................................... 441,000
Major pharmaceutical and healthcare firm
Earnings P/S...........................$.49, .56, .61, .71, .82, .91, 1.03, 1.17, 1.32, 1.49 13.2%
Dividends P/S...................................$.17, .20, .24, .29, .33, .37, .41, .53, .59 14.8%
Price/Earnings Ratio....................................................................33.3
4,000 American Home Products Corp. @ 56 5/16...................................................... 225,250
Pharmaceutical and healthcare company
Earnings P/S.......................$.88, 1.52, 1.03, .92, 1.65, 1.23, 1.62, 1.15, 1.54, 2.06 9.9%
Dividends P/S..............................$.49, .54, .59, .67, .72, .74, .76, .78, .83, .87 6.6%
Price/Earnings Ratio....................................................................31.7
11,100 Baxter International, Inc. @ 64 5/16........................................................ 713,869
The company operates four divisions: renal, biotech, cardiovascular and intravenous
systems and international distribution
Earnings P/S....................$1.49, (.05), 2.10, 1.80, 1.69, (.62), 1.41, 2.07, .99, 1.03 NMF
Dividends P/S........................$.56, .64, .74, .86, 1.00, 1.03, 1.11, 1.17, 1.14, 1.16 8.4%
Price/Earnings Ratio....................................................................25.3
10,000 Becton, Dickinson & Co. @ 42 11/16.......................................................... 426,875
Manufactures broad line of medical supplies
Earnings P/S.............................$.68, .58, .61, .65, .68, .76, .90, 1.06, 1.20, .95 3.8%
Dividends P/S.............................$.13, .14, .15, .154, .17, .19, .21, .24, .27, .30 9.7%
Price/Earnings Ratio....................................................................30.3
</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
- --------- ---- -----
<S> <C> <C>
Medical (continued)
6,000 Bristol-Myers Squibb Co. @ 133 13/16........................................................ $802,875
Produces pharmaceuticals, medical devices, non-prescription health products
Earnings P/S......................$.72, 1.67, 1.89, 2.00, 1.61, 1.97, 2.02, 1.98, 3.13, 3.55 19.4%
Dividends P/S....................$1.02, 1.10, 1.25, 1.40, 1.45, 1.47, 1.49, 1.51, 1.53, 1.60 5.1%
Price/Earnings Ratio....................................................................37.4
6,000 Johnson & Johnson @ 83 7/8.................................................................. 503,250
Major producer of prescription and non-prescription drugs, toiletries, medical
instruments and supplies
Earnings P/S.......................$.80, .85, 1.07, 1.20, 1.35, 1.53, 1.80, 2.11, 2.42, 2.68 14.4%
Dividends P/S..............................$.28, .33, .39, .45, .51, .57, .64, .74, .85, .97 14.8%
Price/Earnings Ratio....................................................................31.4
8,000 Schering-Plough Corp. @ 55 1/4.............................................................. 442,000
Discovers, develops, manufactures and markets pharmaceutical and health care
products worldwide
Earnings P/S..............................$.27, .32, .36, .43, .51, .59, .69, .80, .94, 1.15 17.5%
Dividends P/S..............................$.11, .13, .16, .19, .22, .25, .28, .32, .37, .43 16.4%
Price/Earnings Ratio....................................................................46.8
-----------
3,555,119
-----------
Office (2.13%)
11,000 Pitney Bowes, Inc. @ 66 1/16................................................................ 726,687
-----------
Manufactures office automation equipment
Earnings P/S..........................$.60, .67, .88, .94, .95, 1.12, 1.28, 1.51, 1.73, 2.01 14.4%
Dividends P/S..............................$.26, .30, .34, .39, .45, .52, .60, .69, .80, .90 14.8%
Price/Earnings Ratio....................................................................32.1
Oil & Gas (2.97%)
5,200 Chevron Corp. @ 82 15/16.................................................................... 431,275
One of the largest integrated, international oil companies with interest in
petrochemicals
Earnings P/S......................$.37, 3.05, 2.69, 1.69, 3.14, 2.09, 3.03, 2.64, 4.35, 3.68 29.1%
Dividends P/S....................$1.40, 1.48, 1.63, 1.65, 1.75, 1.85, 1.93, 2.08, 2.28, 2.44 6.4%
Price/Earnings Ratio....................................................................28.0
600 Exxon Corp. @ 73 1/8........................................................................ 43,875
Major factor in the crude oil, natural gas and
chemical industry
Earnings P/S.....................$1.72, 1.55, 2.40, 1.80, 2.07, 1.87, 2.68, 2.69, 3.40, 3.02 6.5%
Dividends P/S....................$1.15, 1.24, 1.34, 1.42, 1.44, 1.46, 1.50, 1.56, 1.63, 1.64 4.0%
Price/Earnings Ratio....................................................................28.0
6,200 Mobil Corp. @ 87 1/8........................................................................ 540,175
One of the largest integrated, international oil companies with interest in
petrochemicals and
plastics
Earnings P/S.....................$2.20, 2.05, 2.63, 1.43, 2.74, 1.92, 2.61, 3.83, 4.05, 3.21 4.3%
Dividends P/S....................$1.28, 1.41, 1.56, 1.60, 1.63, 1.70, 1.81, 1.96, 2.12, 2.28 6.6%
Price/Earnings Ratio....................................................................29.7
-----------
1,015,325
-----------
Retail (12.34%)
20,000 Albertson's, Inc. @ 63 11/16................................................................ 1,273,750
One of the largest retail food-drug chains in the
United States
Earnings P/S.........................$.74, .83, .94, .95, 1.24, 1.58, 1.80, 1.96, 1.99, 2.24 13.1%
Dividends P/S..............................$.19, .23, .27, .31, .35, .42, .50, .58, .63, .67 15.0%
Price/Earnings Ratio....................................................................28.4
19,000 Dayton Hudson Corp. @ 54 1/4................................................................ 1,030,750
General merchandiser selling through Target and Marvyn stores
Earnings P/S............................$.89, .92, .75, .71, .76, .96, .80, 1.07, 1.48, 1.94 9.0%
Dividends P/S..............................$.19, .22, .24, .25, .27, .28, .29, .31, .33, .36 7.4%
Price/Earnings Ratio....................................................................29.2
6,000 Home Depot, Inc. (The) @ 61 3/16............................................................ 367,125
Operates a chain of retail building supply/home improvement "warehouse" stores
Earnings P/S..............................$.11, .14, .19, .25, .33, .42, .49, .61, .77, 1.03 28.2%
Dividends P/S............................$.008, .012, .02, .03, .04, .05, .06, .08, .10, .12 35.1%
Price/Earnings Ratio....................................................................61.2
7,000 McDonald's Corp. @ 76 5/8................................................................... 536,375
Develops, operates, franchises and services a worldwide system of restaurants
Earnings P/S......................$.96, 1.07, 1.16, 1.28, 1.41, 1.61, 1.90, 2.14, 2.34, 2.35 10.5%
Dividends P/S..............................$.15, .17, .18, .20, .21, .23, .26, .29, .32, .35 9.9%
Price/Earnings Ratio....................................................................30.5
33,200 SYSCO Corp. @ 27 7/16....................................................................... $910,925
Largest distributor of food service products
Earnings P/S...............................$.37, .38, .43, .47, .55, .62, .71, .68, .87, .98 11.4%
Dividends P/S..............................$.046, .05, .07, .11, .14, .18, .22, .26, .30,.36 25.7%
Price/Earnings Ratio....................................................................27.4
1,200 Wal-Mart Stores, Inc. @ 81 7/16............................................................. 97,725
Operates chain of discount department stores
Earnings P/S..........................$.48, .55, .64, .80, .97, 1.11, 1.24, 1.27, 1.47, 1.85 16.2%
Dividends P/S..............................$.06, .07, .09, .11, .13, .17, .20, .21, .27, .31 20.0%
Price/Earnings Ratio....................................................................44.0
-----------
4,216,650
-----------
Soap & Cleaning Preparations (0.32%)
3,000 Ecolab, Inc. @ 36 3/16...................................................................... 108,562
-----------
Develops and markets premium institutional
cleansing, sanitizing and maintenance products
and services
Earnings P/S..............................$.03, .49, .47, .48, .59, .68, .67, .84, .99, 1.16 50.1%
Dividends P/S..........................$.165, .168, .175, .179, .20, .23, .26, .29, .34, .49 12.9%
Price/Earnings Ratio....................................................................32.3
Tobacco (1.57%)
10,000 Philip Morris Cos., Inc. @ 53 1/2........................................................... 535,000
-----------
Global tobacco, brewing and food company
Earnings P/S.....................$1.05, 1.27, 1.45, 1.65, 1.67, 1.52, 2.08, 2.47, 2.68, 2.64 10.8%
Dividends P/S.........................$.42, .52, .64, .78, .87, 1.01, 1.22, 1.47, 1.60, 1.68 16.7%
Price/Earnings Ratio....................................................................17.0
Utilities (8.68%)
6,000 ALLTEL Corp. @ 59 13/16..................................................................... 358,875
Provides wireline and wireless communications and information services
Earnings P/S.....................$1.13, 1.20, 1.18, 1.18, 1.35, 1.56, 1.61, 1.50, 2.53, 2.24 7.9%
Dividends P/S...........................$.59, .66, .71, .76, .82, .90, .98, 1.06, 1.12, 1.18 8.0%
Price/Earnings Ratio....................................................................28.5
13,000 Ameritech Corp. @ 63 3/8.................................................................... 823,875
One of the world's largest communications
companies
Earnings P/S.....................$1.15, 1.18, 1.19, 1.13, 1.33, 1.04, 1.83, 1.78, 2.06, 3.14 11.8%
Dividends P/S..........................$.75, .81, .86, .89, .93, .97, 1.02, 1.08, 1.15, 1.22 5.6%
Price/Earnings Ratio....................................................................27.0
11,000 Bell Atlantic Corp. @ 53.................................................................... 583,000
Telecommunications company providing voice and
data services in the Mid-Atlantic region
Earnings P/S.....................$1.36, 1.69, 1.09, 1.69, 1.63, 1.63, 2.04, 2.00, 1.45, 1.83 3.4%
Dividends P/S....................$1.10, 1.18, 1.26, 1.30, 1.34, 1.38, 1.40, 1.44, 1.51, 1.54 3.8%
Price/Earnings Ratio....................................................................19.9
4,400 National Fuel Gas Co. @ 45 3/16............................................................. 198,825
Integrated natural gas system serving NY, PA and OH
Earnings P/S......................$1.93, 1.83, 1.68, 1.94, 2.21, 2.23, 2.03, 2.79, 3.02, .84 NMF
Dividends P/S....................$1.32, 1.40, 1.45, 1.49, 1.53, 1.57, 1.61, 1.67, 1.73, 1.79 3.4%
Price/Earnings Ratio....................................................................15.6
12,400 Questar Corp. @ 19 3/8...................................................................... 240,250
Diversified holding company for Utah, Wyoming and Colorado natural gas transmission,
distribution and storage
Earnings P/S...........................$.82, .78, .85, .80, 1.12, .99, .60, 1.15, 1.27, 1.21 4.4%
Dividends P/S..............................$.47, .49, .51, .52, .55, .57, .58, .60, .62, .65 3.7%
Price/Earnings Ratio....................................................................16.2
10,000 SBC Communications, Inc. @ 53 5/8........................................................... 536,250
Provides telephone service throughout the United States and internationally
Earnings P/S.....................$.91, .92, .90, 1.09, (1.37), 1.53, (1.66), 1.74, .88, 2.01 9.2%
Dividends P/S..............................$.64, .68, .71, .73, .75, .78, .82, .85, .89, .93 4.2%
Price/Earnings Ratio....................................................................25.7
</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
- --------- ---- -----
<S> <C> <C>
Utilities (continued)
8,000 Teco Energy, Inc. @ 28 3/16................................................................. $225,500
Holding company for Tampa Electric, which provides regulated electric utility
services in Florida
Earnings P/S.....................$1.18, 1.21, 1.24, 1.28, 1.30, 1.43, 1.46, 1.64, 1.67, 1.54 3.0%
Dividends P/S.........................$.75, .80, .85, .90, .95, 1.00, 1.05, 1.10, 1.17, 1.23 5.7%
Price/Earnings Ratio....................................................................16.6
-----------
2,966,575
-----------
TOTAL COMMON STOCKS
(Cost $25,462,549) 30,001,364
-----------
<CAPTION>
PAR VALUE
(000s
OMITTED)
-------
<S> <C>
UNITED STATES GOVERNMENT
AND AGENCIES OBLIGATIONS (7.37%)
$100 United States Treasury, Note 7.875%,
11-15-99 @ 102.687.......................................................................... 102,687
400 United States Treasury, Note 5.875%,
09-30-02 @ 103.937.......................................................................... 415,748
1,500 United States Treasury, Bond 10.750%,
08-15-05 @ 133.375.......................................................................... 2,000,625
-----------
TOTAL UNITED STATES GOVERNMENT
AND AGENCIES OBLIGATIONS
(Cost $2,446,719) 2,519,060
-----------
<CAPTION>
PAR VALUE INTEREST MARKET
(000s OMITTED) RATE VALUE
- -------------- ---- -----
<S> <C> <C>
SHORT-TERM INVESTMENTS (9.29%)
$3,174 Joint Repurchase Agreement (9.29%)
Investment in a joint repurchase
agreement transaction with SBC
Warburg, Inc. - Dated 12-31-98,
due 01-04-99 (Secured by
U.S. Treasury Bonds, 6.250%
thru 9.125% due 05-15-18
thru 08-15-23) - Note B.................................................................. 4.75% $3,174,000
-----------
Corporate Savings Account (0.00%)
Investors Bank & Trust Company
Daily Interest Savings Account
Current Rate 4.00%....................................................................... 463
-----------
TOTAL SHORT-TERM INVESTMENTS (9.29%) 3,174,463
------ -----------
TOTAL INVESTMENTS (104.46%) 35,694,887
------ -----------
OTHER ASSETS AND LIABILITIES, NET (4.46%) (1,525,267)
------ -----------
TOTAL NET ASSETS (100.00%) $34,169,620
====== ===========
</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.
93
<PAGE>
==============================FINANCIAL STATEMENTS==============================
John Hancock Funds - Declaration Trust -- V.A. 500 Index Fund
Schedule of Investments
December 31, 1998
- --------------------------------------------------------------------------------
NUMBER OF MARKET
ISSUER, DESCRIPTION SHARES VALUE
- ------------------- ------ -----
COMMON STOCKS
Advertising (0.20%)
Interpublic Group of Companies, Inc. (The) ... 342 $ 27,275
Omnicom Group, Inc. .......................... 426 24,707
----------
51,982
----------
Aerospace (1.02%)
Boeing Co. (The) ............................. 2,536 82,736
General Dynamics Corp. ....................... 318 18,642
Goodrich (B.F.) Co. (The) .................... 186 6,672
Lockheed Martin Corp. ........................ 491 41,612
Northrop Grumman Corp. ....................... 173 12,650
Raytheon Co. (Class B) ....................... 850 45,262
United Technologies Corp. .................... 572 62,205
----------
269,779
----------
Agricultural Operations (0.06%)
Pioneer Hi-Bred International, Inc. .......... 606 16,362
----------
Automobile / Trucks (1.29%)
Cummins Engine Co., Inc. ..................... 97 3,444
Dana Corp. ................................... 414 16,922
Eaton Corp. .................................. 179 12,653
Ford Motor Co. ............................... 3,041 178,468
General Motors Corp. ......................... 1,642 117,505
PACCAR, Inc. ................................. 196 8,061
Ryder System, Inc. ........................... 184 4,784
----------
341,837
----------
Banks - United States (6.56%)
Bank of New York Co., Inc. ................... 1,875 75,469
Bank One Corp. ............................... 2,939 150,072
BankAmerica Corp. ............................ 4,360 262,145
BankBoston Corp. ............................. 738 28,736
Bankers Trust New York Corp. ................. 241 20,590
BB&T Corp. ................................... 718 28,944
Chase Manhattan Corp. ........................ 2,149 146,265
Comerica, Inc. ............................... 390 26,593
Fifth Third Bancorp .......................... 672 47,922
First Union Corp. ............................ 2,432 147,895
Fleet Financial Group, Inc. .................. 1,425 63,680
Huntington Bancshares, Inc. .................. 531 15,963
KeyCorp ...................................... 1,104 35,328
Mellon Bank Corp. ............................ 654 44,963
Mercantile Bancorp., Inc. .................... 381 17,574
Morgan (J.P.) & Co., Inc. .................... 443 46,543
National City Corp. .......................... 827 59,958
Northern Trust Corp. ......................... 279 24,360
PNC Bank Corp. ............................... 757 40,973
Providian Financial Corp. .................... 357 26,775
Regions Financial Corp. ...................... 537 21,648
Republic New York Corp. ...................... 271 12,347
State Street Corp. ........................... 405 28,173
Summit Bancorp ............................... 436 19,048
SunTrust Banks, Inc. ......................... 524 40,086
Synovus Financial Corp. ...................... 661 16,112
U.S. Bancorp ................................. 1,864 66,172
The Schedule of Investments is a complete list of all securities owned by the V.
A. 500 Index Fund on December 31, 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
- ------------------- ------ -----
Banks - United States (continued)
Union Planters Corp. ......................... 319 $ 14,455
Wachovia Corp. ............................... 519 45,380
Wells Fargo Co. .............................. 4,058 162,065
----------
1,736,234
----------
Beverages (2.78%)
Anheuser-Busch Cos., Inc. .................... 1,210 79,406
Brown-Forman Corp. ........................... 172 13,018
Coca-Cola Enterprises, Inc. .................. 1,015 36,286
Coca-Cola Co. (The) .......................... 6,187 413,755
Coors (Adolph) Co. (Class B) ................. 91 5,136
PepsiCo, Inc. ................................ 3,696 151,305
Seagram Co. Ltd. (The) (Canada) .............. 989 37,582
----------
736,488
----------
Broker Services (0.52%)
Bear Stearns Cos., Inc. ...................... 285 10,652
Lehman Brothers Holdings, Inc. ............... 297 13,087
Merrill Lynch & Co., Inc. .................... 874 58,340
Schwab (Charles) Corp. ....................... 1,005 56,468
----------
138,547
----------
Building (0.63%)
Armstrong World Industries, Inc. ............. 100 6,031
Black & Decker Corp. ......................... 220 12,334
Centex Corp. ................................. 150 6,759
Danaher Corp. ................................ 336 18,249
Fleetwood Enterprises, Inc. .................. 86 2,989
Fluor Corp. .................................. 198 8,427
Georgia-Pacific Corp. ........................ 234 13,704
Kaufman & Broad Home Corp. ................... 100 2,875
Louisiana-Pacific Corp. ...................... 275 5,036
Masco Corp. .................................. 854 24,553
Owens Corning ................................ 136 4,820
Pulte Corp. .................................. 108 3,004
Sherwin-Williams Co. ......................... 434 12,749
Snap-on, Inc. ................................ 148 5,152
Stanley Works (The) .......................... 223 6,188
Weyerhauser Co. .............................. 499 25,355
Willamette Industries, Inc. .................. 280 9,380
----------
167,605
----------
Business Services - Misc. (0.38%)
Block, H & R, Inc. ........................... 252 11,340
Cendant Corp. * .............................. 2,153 41,042
Dun & Bradstreet Corp. ....................... 429 13,540
Equifax, Inc. ................................ 371 12,684
Paychex, Inc. ................................ 410 21,089
----------
99,695
----------
Chemicals (1.02%)
Air Products & Chemicals, Inc. ............... 581 23,240
Dow Chemical Co. ............................. 562 51,107
Eastman Chemical Co. ......................... 199 8,905
SEE NOTES TO FINANCIAL STATEMENTS.
94
<PAGE>
==============================FINANCIAL STATEMENTS==============================
John Hancock Funds - Declaration Trust -- V.A. 500 Index Fund
NUMBER OF MARKET
ISSUER, DESCRIPTION SHARES VALUE
- ------------------- ------ -----
Chemicals (continued)
Engelhard Corp. .............................. 363 $ 7,079
FMC Corp. * .................................. 87 4,872
Grace (W. R.) & Co. .......................... 190 2,981
Great Lakes Chemical Corp. ................... 148 5,920
Hercules, Inc. ............................... 237 6,488
Monsanto Co. ................................. 1,508 71,630
Morton International, Inc. ................... 327 8,012
Nalco Chemical Co. ........................... 165 5,115
PPG Industries, Inc. ......................... 444 25,863
Praxair, Inc. ................................ 397 13,994
Rohm & Haas Co. .............................. 447 13,466
Sigma-Aldrich Corp. .......................... 252 7,403
Union Carbide Corp. .......................... 339 14,408
----------
270,483
----------
Computers (11.69%)
3Com Corp.* .................................. 901 40,376
Adobe Systems, Inc. .......................... 169 7,901
Apple Computer, Inc. * ....................... 338 13,837
Ascend Communications, Inc.* ................. 542 35,637
Autodesk, Inc. ............................... 118 5,037
Automatic Data Processing, Inc. .............. 755 60,542
BMC Software, Inc.* .......................... 518 23,083
Cabletron Systems, Inc.* ..................... 413 3,459
Ceridian Corp.* .............................. 182 12,706
Cisco Systems, Inc.* ......................... 3,902 362,153
Compaq Computer Corp. ........................ 4,193 175,844
Computer Associates International, Inc. ...... 1,408 60,016
Computer Sciences Corp.* ..................... 396 25,517
Data General Corp. * ......................... 124 2,038
Dell Computer Corp.* ......................... 3,177 232,516
EMC Corp.* ................................... 1,254 106,590
Electronic Data Systems Corp. ................ 1,235 62,059
First Data Corp. ............................. 1,121 35,522
Gateway 2000, Inc.* .......................... 391 20,014
HBO & Co. .................................... 1,167 33,478
Hewlett-Packard Co. .......................... 2,608 178,158
IMS Health, Inc. ............................. 417 31,457
International Business Machines Corp. ........ 2,341 432,500
Microsoft Corp.* ............................. 6,183 857,505
Novell, Inc.* ................................ 887 16,077
Oracle Corp.* ................................ 2,443 105,354
Parametric Technology Corp.* ................. 683 11,184
PeopleSoft, Inc.* ............................ 578 10,946
Seagate Technology, Inc.* .................... 610 18,453
Shared Medical System Corp. .................. 67 3,342
Silicon Graphics, Inc.* ...................... 474 6,103
Sun Microsystems, Inc.* ...................... 951 81,429
Unisys Corp.* ................................ 638 21,971
----------
3,092,804
----------
Consumer Products Misc. (0.04%)
American Greetings Corp. (Class A) ........... 177 7,268
Jostens, Inc. ................................ 92 2,409
----------
9,677
----------
Containers (0.15%)
Ball Corp. ................................... 77 $ 3,523
Bemis Co., Inc. .............................. 134 5,084
Crown Cork & Seal Co., Inc. .................. 312 9,614
Owens-Illinois, Inc.* ........................ 390 11,944
Sealed Air Corp. * ........................... 209 10,672
----------
40,837
----------
Cosmetics & Personal Care (0.69%)
Alberto Culver Co. (Class B) ................. 138 3,683
Avon Products, Inc. .......................... 661 29,249
Gillette Co. ................................. 2,818 136,145
International Flavors & Fragrances, Inc. ..... 269 11,886
----------
180,963
----------
Diversified Operations (2.39%)
Aeroquip-Vickers, Inc. ....................... 71 2,126
Allied Signal, Inc. .......................... 1,408 62,392
Berkshire Hathaway, Inc. (Class B)* .......... 19 44,650
Corning, Inc. ................................ 582 26,190
Crane Co. .................................... 173 5,222
Du Pont (E.I.) De Nemours & Co. .............. 2,840 150,698
Fortune Brands, Inc. ......................... 434 13,725
IKON Office Solutions, Inc. .................. 340 2,911
ITT Industries, Inc. ......................... 297 11,806
Johnson Controls, Inc. ....................... 213 12,567
Laidlaw, Inc. (Canada) ....................... 828 8,332
Loews Corp. .................................. 288 28,296
Minnesota Mining & Manufacturing Co. ......... 1,014 72,121
NACCO Industries, Inc. (Class A) ............. 20 1,840
National Service Industries, Inc. ............ 104 3,952
Tenneco, Inc. ................................ 426 14,511
Textron, Inc. ................................ 411 31,210
TRW, Inc. .................................... 306 17,193
Tyco International Ltd. ...................... 1,617 121,982
----------
631,724
----------
Electronics (6.74%)
AMP, Inc. .................................... 549 28,582
Advanced Micro Devices, Inc.* ................ 361 10,446
Applied Materials, Inc.* ..................... 919 39,230
Emerson Electric Co. ......................... 1,105 66,853
General Electric Co. ......................... 8,165 833,340
Grainger (W.W.), Inc. ........................ 245 10,198
Honeywell, Inc. .............................. 317 23,874
Intel Corp. .................................. 4,216 499,860
KLA-Tencor Corp.* ............................ 218 9,456
LSI Logic Corp.* ............................. 354 5,708
Micron Technology, Inc. ...................... 535 27,051
Motorola, Inc. ............................... 1,501 91,655
National Semiconductor Corp.* ................ 412 5,562
Parker- Hannifin Corp. ....................... 277 9,072
Raychem Corp. ................................ 199 6,430
Rockwell International Corp. ................. 480 23,310
Tektronix, Inc. .............................. 119 3,577
Texas Instruments, Inc. ...................... 979 83,766
Thomas & Betts Corp. ......................... 142 6,150
----------
1,784,120
----------
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
- ------------------- ------ -----
Finance (3.20%)
American Express Co. ......................... 1,145 $ 117,076
Associates First Capital Corp. (Class A) ..... 1,738 73,648
Capital One Financial Corp. .................. 166 19,090
Citigroup, Inc. .............................. 5,737 283,982
Franklin Resources, Inc. ..................... 635 20,320
Golden West Financial Corp. .................. 145 13,295
Household International, Inc. ................ 1,236 48,977
MBNA Corp. ................................... 1,887 47,057
Morgan Stanley, Dean Witter, Discover & Co. .. 1,470 104,370
SLM Holding Corp. ............................ 420 20,160
SunAmerica, Inc. ............................. 519 42,104
Washington Mutual, Inc. ...................... 1,488 56,823
----------
846,902
----------
Food (2.17%)
Archer-Daniels-Midland Co. ................... 1,503 25,833
Bestfoods .................................... 721 38,393
Campbell Soup Co. ............................ 1,127 61,985
ConAgra, Inc. ................................ 1,225 38,588
General Mills, Inc. .......................... 388 30,167
Heinz (H.J.) Co. ............................. 909 51,472
Hershey Foods Corp. .......................... 359 22,325
Kellogg Co. .................................. 1,022 34,876
Quaker Oats Co. .............................. 342 20,349
Ralston Purina Group ......................... 783 25,350
Sara Lee Corp. ............................... 2,344 66,072
Unilever NV (Netherlands) .................... 1,606 133,198
Wrigley (WM) Jr. Co. ......................... 292 26,152
----------
574,760
----------
Funeral Services & Related (0.09%)
Service Corporation International ............ 646 24,588
----------
Household (0.22%)
Maytag Corp. ................................. 230 14,318
Newell Co. ................................... 408 16,830
Rubbermaid, Inc. ............................. 376 11,821
Springs Industries, Inc. ..................... 46 1,906
Tupperware Corp. ............................. 145 2,383
Whirlpool Corp. .............................. 191 10,577
----------
57,835
----------
Instruments - Scientific (0.10%)
EG & G, Inc. ................................. 115 3,198
Millipore Corp. .............................. 110 3,128
Perkin-Elmer Corp. (The) ..................... 123 12,000
Thermo Electron Corp.* ....................... 417 7,063
----------
25,389
----------
Insurance (3.07%)
Aetna, Inc. .................................. 362 28,462
Allstate Corp. (The) ......................... 2,079 80,301
American General Corp. ....................... 635 49,530
American International Group, Inc. ........... 2,635 254,607
Aon Corp. .................................... 424 23,479
Chubb Corp. (The) ............................ 416 26,988
CIGNA Corp. .................................. 533 41,208
Cincinnati Financial Corp. ................... 420 15,383
Conseco, Inc. ................................ 784 23,961
Hartford Financial Services Group, Inc. (The) 586 32,157
Jefferson Pilot Corp ......................... 266 19,950
Lincoln National Corp. ....................... 252 20,617
Marsh & McLennan Cos., Inc. .................. 642 37,517
MBIA, Inc. ................................... 249 16,325
MGIC Investment Corp. ........................ 284 11,307
Progressive Corp. ............................ 182 30,826
Provident Cos., Inc. ......................... 339 14,069
SAFECO Corp. ................................. 354 15,200
St. Paul Cos., Inc. .......................... 592 20,572
Torchmark Corp. .............................. 352 12,430
Transamerica Corp. ........................... 157 18,134
UNUM Corp. ................................... 347 20,256
----------
813,279
----------
Leisure (1.12%)
Brunswick Corp. .............................. 249 6,163
Disney (Walt) Co. (The) ...................... 5,141 154,230
Eastman Kodak Co. ............................ 810 58,320
Harrah's Entertainment, Inc. * ............... 254 3,985
Hasbro, Inc. ................................. 330 11,921
Hilton Hotels Corp. .......................... 654 12,508
King World Productions, Inc. * ............... 184 5,417
Marriott International, Inc. (Class A) ....... 628 18,212
Mattel, Inc. ................................. 734 16,744
Mirage Resorts, Inc. * ....................... 451 6,737
Polaroid Corp. ............................... 111 2,074
----------
296,311
----------
Machinery (0.48%)
Briggs & Stratton Corp. ...................... 61 3,042
Case Corp. ................................... 187 4,079
Caterpiller Tractor, Inc. .................... 915 42,090
Cooper Industries, Inc. ...................... 260 12,399
Deere & Co. .................................. 614 20,339
Dover Corp. .................................. 560 20,510
Foster Wheeler Corp. ......................... 102 1,345
Harnischfeger Industries, Inc. ............... 120 1,223
Ingersoll-Rand Co. ........................... 415 19,479
Milacron, Inc. ............................... 98 1,887
----------
126,393
----------
Media (2.38%)
CBS Corp. .................................... 1,797 58,852
Clear Channel Communications, Inc.* .......... 623 33,954
Comcast Corp. ................................ 927 54,403
Dow Jones & Co., Inc. ........................ 235 11,309
Gannett Co., Inc. ............................ 714 46,053
Harcourt General, Inc. ....................... 178 9,467
Knight-Ridder, Inc. .......................... 198 10,123
McGraw-Hill Cos., Inc. (The) ................. 249 25,367
Meredith Corp. ............................... 132 5,000
New York Times Co. (Class A) ................. 476 16,511
Tele-Communications, Inc. (Class A)* ......... 1,313 72,625
Time Warner, Inc. ............................ 3,008 186,684
Times Mirror Co. (Class A) ................... 218 12,208
Tribune Co. .................................. 306 20,196
Viacom, Inc. (Class B)* ...................... 898 66,452
----------
629,204
----------
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
- ------------------- ------ -----
Medical (11.47%)
Abbott Laboratories .......................... 3,864 $ 189,336
Allergan, Inc. ............................... 164 10,619
ALZA Corp.* .................................. 217 11,338
American Home Products Corp. ................. 3,302 185,944
Amgen, Inc.* ................................. 637 66,606
Bard (C.R.), Inc. ............................ 141 6,980
Bausch & Lomb, Inc. .......................... 140 8,400
Baxter International, Inc. ................... 716 46,048
Becton, Dickinson & Co. ...................... 620 26,466
Biomet, Inc. ................................. 281 11,310
Boston Scientific Corp.* ..................... 982 26,330
Bristol-Myers Squibb Co. ..................... 2,496 333,996
Cardinal Health, Inc. ........................ 502 38,089
Columbia/HCA Healthcare Corp. ................ 1,619 40,070
Guidant Corp. ................................ 378 41,675
HCR Manor Care, Inc.* ........................ 272 7,990
HEALTHSOUTH Corp.* ........................... 1,061 16,379
Humana, Inc.* ................................ 419 7,463
Johnson & Johnson ............................ 3,375 283,078
Lilly (Eli) & Co. ............................ 2,764 245,651
Mallinckrodt, Inc. ........................... 184 5,670
Medtronic, Inc. .............................. 1,178 87,467
Merck & Co., Inc. ............................ 2,989 441,438
Pall Corp. ................................... 311 7,872
Pfizer Inc. .................................. 3,279 411,310
Pharmacia & Upjohn, Inc. ..................... 1,275 72,197
Schering-Plough Corp. ........................ 3,684 203,541
St. Jude Medical, Inc. * ..................... 211 5,842
Tenet Healthcare Corp.* ...................... 774 20,318
United Healthcare Corp. ...................... 490 21,101
Warner-Lambert Co. ........................... 2,060 154,886
----------
3,035,410
----------
Metal (0.63%)
Alcan Aluminium Ltd. (Canada) ................ 571 15,453
Aluminum Co. of America ...................... 469 34,970
ASARCO, Inc. ................................. 100 1,506
Barrick Gold Corp. (Canada) .................. 936 18,252
Battle Mountain Gold Co. ..................... 577 2,380
Bethlehem Steel Corp. * ...................... 325 2,722
Cyprus Amax Minerals Co. ..................... 235 2,350
Freeport-McMoRan Copper & Gold, Inc. ......... 451 4,707
Homestake Mining Co. ......................... 600 5,513
Illinois Tool Works, Inc. .................... 627 36,366
Inco, Ltd. (Canada) .......................... 417 4,405
Newmont Mining Corp. ......................... 420 7,586
Phelps Dodge Corp. ........................... 147 7,479
Placer Dome, Inc. (Canada) ................... 627 7,211
Reynolds Metals Co. .......................... 181 9,536
Timken Co. (The) ............................. 156 2,945
Worthington Industries, Inc. ................. 243 3,038
----------
166,419
----------
Mortgage Banking (1.20%)
Countrywide Credit Industries, Inc. .......... 279 14,002
Fannie Mae ................................... 2,602 192,548
Freddie Mac .................................. 1,703 109,737
----------
316,287
----------
Office (0.63%)
Avery Dennison Corp. ......................... 294 $ 13,248
Deluxe Corp. ................................. 203 7,422
Moore Corp., Ltd. (Canada) ................... 222 2,442
Pitney Bowes, Inc. ........................... 689 45,517
Xerox Corp. .................................. 825 97,350
----------
165,979
----------
Oil & Gas (6.22%)
Amerada Hess Corp. ........................... 228 11,343
Amoco Corp. .................................. 2,395 144,598
Anadarko Petroleum Corp. ..................... 301 9,293
Apache Corp. ................................. 247 6,252
Ashland, Inc. ................................ 192 9,288
Atlantic Richfield Co. ....................... 806 52,592
Baker Hughes, Inc. ........................... 797 14,097
Burlington Resources, Inc. ................... 445 15,937
Chevron Corp. ................................ 1,642 136,183
Coastal Corp. (The) .......................... 533 18,622
Columbia Energy Group ........................ 209 12,070
Enron Corp. .................................. 827 47,191
Exxon Corp. .................................. 6,119 447,452
Halliburton Co. .............................. 1,102 32,647
Helmerich & Payne, Inc. ...................... 126 2,441
Kerr-McGee Corp. ............................. 120 4,590
McDermott International, Inc. ................ 149 3,678
Mobil Corp. .................................. 1,962 170,938
Occidental Petroleum Corp. ................... 886 14,951
Oryx Energy Co.* ............................. 267 3,588
PennzEnergy Co. .............................. 120 1,958
Pennzoil - Quaker State Co.* ................. 120 1,770
Phillips Petroleum Co. ....................... 648 27,621
Rowan Cos., Inc.* ............................ 214 2,140
Royal Dutch Petroleum Co. (Netherlands) ..... 5,381 257,614
Schlumberger, Ltd. ........................... 1,366 63,007
Sonat, Inc. .................................. 276 7,469
Sunoco, Inc. ................................. 235 8,475
Texaco, Inc. ................................. 1,345 71,117
Union Pacific Resources Group ................ 630 5,709
Unocal Corp. ................................. 606 17,688
USX - Marathon Group ......................... 772 23,257
----------
1,645,576
----------
Paper & Paper Products (0.69%)
Boise Cascade Corp. .......................... 141 4,371
Champion International Corp. ................. 240 9,720
Fort James Corp. ............................. 554 22,160
International Paper Co. ...................... 771 34,550
Kimberly-Clark Corp. ......................... 1,374 74,883
Mead Corp. (The) ............................. 261 7,651
Potlatch Corp. ............................... 73 2,692
Temple-Inland, Inc. .......................... 140 8,304
Union Camp Corp. ............................. 174 11,745
Westvaco Corp. ............................... 254 6,810
----------
182,886
----------
Pollution Control (0.05%)
Browning-Ferris Industries, Inc. ............. 436 12,399
----------
Printing - Commercial (0.06%)
Donnelley (R.R.) & Sons ...................... 349 15,291
----------
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
- ------------------- ------ -----
Retail (6.96%)
Albertson's, Inc. ............................ 617 $ 39,295
American Stores Co. .......................... 689 25,450
AutoZone, Inc.* .............................. 383 12,615
Circuit City Stores, Inc. .................... 251 12,534
Consolidated Stores Corp.* ................... 274 5,531
Costco Cos., Inc.* ........................... 543 39,198
CVS Corp. .................................... 977 53,735
Darden Restaurants, Inc. ..................... 349 6,282
Dayton Hudson Corp. .......................... 1,102 59,784
Dillards, Inc. ............................... 278 7,888
Dollar General Corp. ......................... 464 10,962
Federated Department Stores, Inc. * .......... 529 23,045
Gap, Inc. (The) .............................. 1,479 83,194
Genuine Parts Co. ............................ 448 14,980
Great Atlantic & Pacific Tea Co., Inc. ....... 96 2,844
Home Depot, Inc. (The) ....................... 3,688 225,660
Kmart Corp.* ................................. 1,236 18,926
Kohl's Corp.* ................................ 396 24,329
Kroger Co.* .................................. 644 38,962
Limited, Inc. (The) .......................... 572 16,660
Longs Drug Stores Corp. ...................... 98 3,675
Lowe's Cos., Inc. ............................ 883 45,199
May Department Stores ........................ 580 35,018
McDonald's Corp. ............................. 1,718 131,642
Meyer (Fred), Inc. * ......................... 387 23,317
Nordstrom, Inc. .............................. 373 12,938
Penney (J. C.) Co., Inc. ..................... 635 29,766
Pep Boys - Manny, Moe & Jack (The) ........... 160 2,510
Reebok International Ltd. * .................. 142 2,112
Rite Aid Corp. ............................... 648 32,117
Safeway, Inc.* ............................... 1,220 74,344
Sears, Roebuck & Co. ......................... 985 41,863
Staples, Inc.* ............................... 782 34,164
SUPERVALU, Inc. .............................. 304 8,512
Sysco Corp. .................................. 847 23,240
Tandy Corp. .................................. 252 10,379
TJX Cos., Inc. ............................... 796 23,084
Toys "R" Us, Inc.* ........................... 656 11,070
Tricon Global Restaurants, Inc. * ............ 383 19,198
Venator Group, Inc. .......................... 339 2,182
Wal-Mart Stores, Inc. ........................ 5,610 456,863
Walgreen Co. ................................. 1,248 73,086
Wendy's International, Inc. .................. 319 6,958
Winn-Dixie Stores, Inc. ...................... 373 16,738
----------
1,841,849
----------
Rubber - Tires & Misc. (0.09%)
Cooper Tire & Rubber Co. ..................... 194 3,965
Goodyear Tire & Rubber Co. (The) ............. 394 19,872
----------
23,837
----------
Shoes & Related Apparel (0.11%)
Nike, Inc. (Class B) ......................... 722 29,286
----------
Soap & Cleaning Preparations (1.58%)
Clorox Co. ................................... 261 30,488
Colgate-Palmolive Co. ........................ 742 68,913
Ecolab, Inc. ................................. 325 11,761
Procter & Gamble Co. (The) ................... 3,365 307,267
----------
418,429
----------
Steel (0.09%)
Allegheny Teledyne Inc. ...................... 494 $ 10,096
Nucor Corp. .................................. 221 9,557
USX-U.S. Steel Group, Inc. ................... 221 5,083
----------
24,736
----------
Telecommunications (6.67%)
AT&T Corp. ................................... 4,533 341,107
AirTouch Communications, Inc. * .............. 1,440 103,860
Andrew Corp.* ................................ 216 3,564
Bell Atlantic Corp. .......................... 3,898 206,593
General Instrument Corp. * ................... 420 14,254
Harris Corp. ................................. 201 7,362
Lucent Technologies, Inc. .................... 3,300 363,000
MCI WorldCom, Inc.* .......................... 4,457 319,790
MediaOne Group, Inc. * ....................... 1,529 71,863
Nextel Communications, Inc. (Class A)* ....... 717 16,939
Northern Telecom Ltd. (Canada) ............... 1,636 82,005
Scientific-Atlanta, Inc. ..................... 188 4,289
Sprint Corp. ................................. 1,079 90,771
Sprint PCS* .................................. 1,054 24,374
Tellabs, Inc.* ............................... 486 33,321
U S WEST, Inc. ............................... 1,259 81,363
----------
1,764,455
----------
Textile (0.09%)
Fruit of the Loom, Inc. (Class A)* ........... 181 2,500
Liz Claiborne, Inc. .......................... 166 5,239
Russell Corp. ................................ 91 1,848
VF Corp. ..................................... 305 14,297
----------
23,884
----------
Tobacco (1.39%)
Philip Morris Cos., Inc. ..................... 6,103 326,510
RJR Nabisco Holdings Corp. ................... 815 24,195
UST, Inc. .................................... 466 16,252
----------
366,957
----------
Transport (0.89%)
AMR Corp.* ................................... 458 27,194
Burlington Northern Santa Fe Corp. ........... 1,187 40,061
CSX Corp. .................................... 549 22,784
Delta Air Lines, Inc. ........................ 358 18,616
FDX Corp. * .................................. 370 32,930
Navistar International Corp. * ............... 168 4,788
Norfolk Southern Corp. ....................... 951 30,135
Southwest Airlines Co. ....................... 843 18,915
Union Pacific Corp. .......................... 621 27,984
US Airways Group, Inc.* ...................... 219 11,388
----------
234,795
----------
Utilities (6.00%)
AES Corp. .................................... 441 20,892
ALLTEL Corp. ................................. 688 41,151
Ameren Corp. ................................. 344 14,685
American Electric Power Co., Inc. ............ 479 22,543
Ameritech Corp. .............................. 2,766 175,294
Baltimore Gas & Electric Co. ................. 373 11,516
BellSouth Corp. .............................. 4,938 246,282
Carolina Power & Light Co. ................... 380 17,884
Central & South West Corp. ................... 533 14,624
Cinergy Corp. ................................ 398 13,681
Consolidated Edison, Inc. .................... 587 31,038
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
- ------------------- ------ -----
Utilities (continued)
Consolidated Natural Gas Co. ................. 241 $ 13,014
Dominion Resources, Inc. ..................... 493 23,048
DTE Energy Co. ............................... 364 15,607
Duke Energy Corp. ............................ 906 58,041
Eastern Enterprises .......................... 56 2,450
Edison International ......................... 887 24,725
Entergy Corp. ................................ 619 19,266
FirstEnergy Corp. * .......................... 595 19,375
FPL Group, Inc. .............................. 455 28,039
Frontier Corp. ............................... 430 14,620
GPU, Inc. .................................... 321 14,184
GTE Corp. .................................... 2,419 157,234
Houston Industries, Inc. ..................... 743 23,869
New Century Energies, Inc. ................... 280 13,650
Niagara Mohawk Power Corp.* .................. 470 7,579
NICOR, Inc. .................................. 120 5,070
Northern States Power Co. .................... 380 10,545
ONEOK, Inc. .................................. 79 2,854
PacifiCorp ................................... 746 15,713
PECO Energy Co. .............................. 559 23,268
People's Energy Corp. ........................ 89 3,549
PG&E Corp. ................................... 959 30,208
PP&L Resources, Inc. ......................... 380 10,593
Public Service Enterprise Group, Inc. ........ 582 23,280
SBC Communications, Inc. ..................... 4,912 263,405
Sempra Energy ................................ 604 15,327
Southern Co. ................................. 1,751 50,888
Texas Utilities Co. .......................... 701 32,728
Unicom Corp. ................................. 545 21,017
Williams Cos., Inc. .......................... 1,066 33,246
----------
1,585,982
----------
Waste Disposal Service & Equip. (0.25%)
Waste Management, Inc. ....................... 1,435 66,907
----------
TOTAL COMMON STOCKS
(Cost $19,556,251) ..... (94.06%) 24,885,162
---------- ----------
INTEREST PAR VALUE MARKET
ISSUER, DESCRIPTION RATE (OOOS OMITTED) VALUE
- ------------------- -------- -------------- ------
SHORT-TERM INVESTMENTS
Joint Repurchase Agreement (5.77%)
Investment in a joint repurchase
agreement transaction with SBC
Warburg, Inc. - Dated 12-31-98,
due 01-04-99 (Secured by U.S.
Treasury Bonds, 7.50% thru 11.75%
due 02-15-10 thru 11-15-16) - Note B ... 4.75% $1,528 $1,528,000
-----------
TOTAL SHORT-TERM INVESTMENTS (5.77%) 1,528,000
------ -----------
TOTAL INVESTMENTS (99.83%) 26,413,162
------ -----------
OTHER ASSETS AND LIABILITIES, NET (0.17%) 44,001
------ -----------
TOTAL NET ASSETS (100.00%) $26,457,163
====== ===========
* Non-income producing security.
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.
99
<PAGE>
==============================FINANCIAL STATEMENTS==============================
John Hancock Funds - Declaration Trust -- V.A. Bond Fund
Schedule of Investments
December 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
INTEREST CREDIT PAR VALUE MARKET
ISSUER, DESCRIPTION RATE RATING* (000s OMITTED) VALUE
- ------------------- -------- ------ -------------- -------
<S> <C> <C> <C> <C>
BONDS
Automobile / Trucks (0.51%)
ERAC USA Finance Co.,
Note 02-15-05 (R) ................... 6.625% BBB $19 $18,525
Gtd Med Term Note 06-15-00 (R) ..... 7.000 BBB 35 35,748
----------
54,273
----------
Banks - Foreign (0.70%)
Abbey National First Capital, B.V.,
Sub Note (United Kingdom)
10-15-04 (Y) ........................ 8.200 AA- 30 33,657
RBSG Capital Corp.,
Gtd Cap Note
(Scotland) 03-01-04 ................. 10.125 A 15 17,791
Scotland International Finance
No. 2 B.V., Gtd Sub Note
(Netherlands) 11-01-06 (R) (Y) ...... 8.850 A+ 20 23,664
----------
75,112
----------
Banks - United States (1.99%)
Banc One Corp.,
Sub Deb 10-15-26 .................... 7.625 A 30 34,343
BankAmerica Corp.,
Sub Note 02-15-08 ................... 6.375 A 30 31,148
Bank of New York,
Cap Security 12-01-26 (R) ........... 7.780 A- 40 43,580
NB Capital Trust IV,
Gtd Cap Security 04-15-27 ........... 8.250 A- 20 22,308
National Westminster Bank Plc -
New York Branch,
Sub Note 05-01-01 ................... 9.450 AA- 5 5,443
Norwest Corp., Med Term Sr Note
Ser G 09-15-02 ...................... 6.375 A+ 30 30,830
Security Pacific Corp.,
Sub Note 03-01-01 ................... 11.000 A 40 44,464
----------
212,116
----------
Beverages (0.28%)
Seagram (Joseph E.) & Sons, Inc.,
Gtd Sr Deb 12-15-28 ................. 7.600 BBB- 30 30,300
----------
Broker Services (0.10%)
Salomon Smith Barney Holdings, Inc.,
Note 10-15-02 ....................... 6.500 A 10 10,219
----------
Chemicals (0.42%)
Akzo Nobel, Inc.,
Gtd Note 11-15-03 (R) ............... 6.000 A 15 15,073
Monsanto Co.,
Deb 12-01-28 (R) .................... 6.600 A 30 30,075
----------
45,148
----------
Computers (1.15%)
International Business Machines Corp.,
Deb 01-15-28 ........................ 6.500 A+ 40 41,984
Med Term Note 09-22-03 .............. 5.370 A+ 35 34,910
PSINet, Inc., Sr Note 11-01-08 (R) ... 11.500 B- 20 20,850
Verio, Inc., Sr Note 12-01-08 (R) .... 11.250 B- 25 25,250
----------
122,994
----------
</TABLE>
The Schedule of Investments is a complete list of all securities owned by the V.
A. Sovereign Bond Fund on December 31, 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.
<TABLE>
<CAPTION>
INTEREST CREDIT PAR VALUE MARKET
ISSUER, DESCRIPTION RATE RATING* (000s OMITTED) VALUE
- ------------------- -------- ------ -------------- -------
<S> <C> <C> <C> <C>
Cosmetics & Personal Care (0.19%)
Revlon Consumer Products Corp.,
Sr Note 11-01-06 (R) ................ 9.000% B $20 $19,800
----------
Electronics (0.28%)
Motorola, Inc.,
Deb 11-15-28 ........................ 6.500 AA- 30 30,330
----------
Energy (0.17%)
CalEnergy Co., Inc.,
Sr Note 09-15-06 .................... 9.500 BB+ 10 11,126
P & L Coal Holdings Corp.,
Sr Sub Note 05-15-08 ................ 9.625 B 7 7,122
----------
18,248
----------
Fertilizers (0.38%)
IMC Global, Inc.,
Note 11-01-02 ....................... 7.400 BBB 40 40,500
----------
Finance (6.97%)
Associates Corp. of North America,
Sr Note 04-15-03 .................... 6.000 AA- 75 76,281
Sr Note 11-01-08 .................... 6.250 AA- 35 36,348
CIT Group Holdings, Inc.,
Med Term Note 06-17-02 .............. 7.125 A+ 35 36,775
Note 10-15-01 ....................... 5.500 A+ 35 35,095
Commercial Credit Co.,
Note 07-01-02 ....................... 6.450 A+ 45 46,347
Constitution Capital Trust I,
Gtd Cap Security 04-15-27 (R) ....... 9.150 BBB 28 36,245
DR Investments,
Sr Note (United Kingdom)
05-15-07 (R) (Y) .................... 7.450 A- 30 32,721
EES Coke Battery Co., Inc.,
Sr Sec Note Ser A 04-15-02 (R) ...... 7.125 BBB 7 7,528
Finova Capital Corp.,
Note 11-01-02 ....................... 6.250 A- 25 25,313
Ford Capital, B.V., Gtd Deb
(Netherlands) 05-15-02 (Y) .......... 9.875 A 50 56,481
Ford Motor Credit Co.,
Note 04-28-03 ....................... 6.125 A 35 35,745
General Motors Acceptance Corp.,
Note 12-01-01 ....................... 6.375 A 35 35,854
Household Finance Corp.,
Note 11-01-02 ....................... 5.875 A 40 40,096
Sr Note 09-25-04 .................... 5.875 A 40 39,040
JCP Master Credit Card Trust, Pass
Thru Ctf Ser C Class A 06-15-00 ..... 9.625 AA+ 95 99,646
Marlin Water Trust & Marlin Water
Capital, Sr Note 12-15-01 (R) ....... 7.090 BBB 35 35,105
WMC Finance (USA) Ltd.,
Gtd Note (Australia) 11-15-03 (Y) ... 6.500 A 65 65,306
Yanacocha Receivables Master Trust,
Pass Thru Cert Ser 1997-A
06-15-04 (R) ........................ 8.400 BBB- 4 3,732
----------
743,658
----------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
100
<PAGE>
==============================FINANCIAL STATEMENTS==============================
John Hancock Funds - Declaration Trust -- V.A. Bond Fund
<TABLE>
<CAPTION>
INTEREST CREDIT PAR VALUE MARKET
ISSUER, DESCRIPTION RATE RATING* (000s OMITTED) VALUE
- ------------------- -------- ------ -------------- -------
<S> <C> <C> <C> <C>
General Obligation (0.14%)
Atlanta, City of,
GO Ref Ser 1998 12-01-20 ............ 5.000% AAA $15 $14,881
----------
Government - Foreign (0.75%)
Manitoba, Province of,
Note (Canada) 10-01-08 (Y) .......... 5.500 AA- 55 55,451
Nova Scotia, Province of,
Deb (Canada) 11-15-19 (Y) ........... 8.250 A- 20 24,646
----------
80,097
----------
Government - U.S. (45.80%)
United States Treasury,
Bond 08-15-17 ....................... 8.875 AAA 422 594,425
Bond 02-15-23 ....................... 7.125 AAA 795 979,710
Note 05-15-01 ....................... 8.000 AAA 35 37,587
Note 05-15-02 ....................... 7.500 AAA 524 568,949
Note 08-15-03 ....................... 5.750 AAA 910 950,240
Note 02-15-05 ....................... 7.500 AAA 830 950,350
Note 07-15-06 ....................... 7.000 AAA 707 804,983
----------
4,886,244
----------
Government - U.S. Agencies (9.01%)
Federal Home Loan Mortgage Corp.,
CMO REMIC 1601 10-15-08 ............. 6.000 AAA 25 25,156
Federal National Mortgage Assn.,
15 Yr Pass Thru Ctf 12-01-12 ........ 6.500 AAA 44 44,757
30 Yr Pass Thru Ctf 03-01-27 ........ 6.500 AAA 91 91,640
30 Yr Pass Thru Ctf 01-01-28 ........ 6.000 AAA 24 23,539
Pass Thru Ctf Ser 1997-M8
Class A-1 01-25-22 ................ 6.940 AAA 3 3,034
Government National Mortgage Assn.,
30 Yr Pass Thru Ctf
01-15-26 to 11-15-28 ............. 7.000 AAA 525 537,437
30 Yr Pass thru Ctf 07-15-26 to
08-15-27 .......................... 8.000 AAA 47 48,422
30 Yr Pass Thru Ctf 08-15-26 ........ 7.500 AAA 41 41,994
30 Yr Pass Thru Ctf 02-15-28 to
12-15-28 .......................... 6.500 AAA 143 144,843
----------
960,822
----------
Household (0.24%)
WestPoint Stevens, Inc.,
Sr Note 06-15-05 .................... 7.875 BB 25 25,375
----------
Insurance (1.81%)
Conseco, Inc.,
Note 06-15-05 ....................... 6.800 BBB 15 14,016
Equitable Life Assurance Society of
the United States, Surplus Note
12-01-05 (R) ........................ 6.950 A 15 15,902
Fairfax Financial Holdings, Ltd.,
Note (Canada) 04-15-26 (Y) .......... 8.300 BBB+ 15 15,678
Liberty Mutual Insurance Co.,
Surplus Note 05-04-07 (R) ........... 8.200 A+ 45 51,569
Surplus Note 10-15-26 (R) ........... 7.875 A+ 15 16,512
Massachusetts Mutual Life
Insurance Co., Surplus Note
11-15-23 (R) ........................ 7.625 AA 5 5,663
NAC Re Corp.,
Note 06-15-99 ....................... 8.000 A- 5 5,052
New York Life Insurance Co.,
Surplus Note 12-15-23 (R) ........... 7.500 AA- 5 5,311
Phoenix Home Life Mutual
Insurance Co., Surplus Note
12-01-06 (R) ........................ 6.950% A+ $15 $15,837
Sun Canada Financial Co.,
Gtd Sub Note 12-15-07 (R) ........... 6.625 AA 20 20,850
URC Holdings Corp.,
Sr Note 06-30-06 (R) ................ 7.875 A- 25 27,176
----------
193,566
----------
Leisure (0.91%)
Circus Circus Enterprises, Inc.,
Deb 11-15-36 ........................ 7.000 BBB- 15 13,703
Sr Sub Note 12-01-05 ................ 9.250 BB+ 10 10,200
HMH Properties, Inc.,
Gtd Sr Sec Note Ser A 08-01-05 ...... 7.875 BB 20 19,550
Sr Note Ser C 12-01-08 .............. 8.450 BB 20 20,000
Harrah's Operating Co., Inc.,
Gtd Sr Sub Note 12-15-05 ............ 7.875 BB+ 15 15,075
Sun International Hotels Ltd.,
Gtd Sr Sub Note (Bahamas)
03-15-07 (Y) ...................... 9.000 B+ 8 8,320
12-15-07 (Y) ...................... 8.625 B+ 5 5,125
Trump Hotels & Casino Resorts
Funding, Inc./Holdings, L.P.,
Sr Note 06-15-05 .................... 15.500 B- 5 5,200
----------
97,173
----------
Manufacturing (0.26%)
Globe Manufacturing Corp.,
Sr Sub Note 08-01-08 (R) ............ 10.000 B- 30 27,150
----------
Media (2.93%)
Adelphia Communications Corp.,
Sr Note Ser B 10-01-02 .............. 9.250 B+ 17 17,935
Sr Note Ser B 07-15-03 .............. 8.125 B 10 10,225
CSC Holdings, Inc.,
Sr Note 07-15-08 .................... 7.250 BB+ 30 30,411
Continental Cablevision, Inc.,
Sr Note 05-15-06 .................... 8.300 BBB 25 27,740
Garden State Newspapers, Inc.,
Sr Sub Note 10-01-09 ................ 8.750 B+ 7 7,000
Jones Intercable, Inc.,
Sr Note 04-15-08 .................... 7.625 BB+ 35 35,700
Le Groupe Videotron Ltee,
Sr Note (Canada) 02-15-05 (Y) ....... 10.625 BBB- 40 43,310
News America Holdings, Inc.,
Gtd Sr Deb 08-10-18 ................. 8.250 BBB- 23 26,059
Rogers Cablesystems Ltd.,
Sec 2nd Priority Note (Canada)
08-01-02 (Y) ........................ 9.625 BB+ 21 22,575
Sprint Capital Corp.,
Gtd Sr Note 11-15-28 ................ 6.875 A- 30 31,047
TKR Cable I, Inc.,
Sr Deb 10-30-07 ..................... 10.500 BBB- 8 8,721
Time Warner, Inc.,
Deb 01-15-13 ........................ 9.125 BBB 28 35,447
Note 06-15-05 ....................... 7.750 BBB 15 16,591
----------
312,761
----------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
101
<PAGE>
==============================FINANCIAL STATEMENTS==============================
John Hancock Funds - Declaration Trust -- V.A. Bond Fund
<TABLE>
<CAPTION>
INTEREST CREDIT PAR VALUE MARKET
ISSUER, DESCRIPTION RATE RATING* (000s OMITTED) VALUE
- ------------------- -------- ------ -------------- -------
<S> <C> <C> <C> <C>
Medical (0.99%)
Dynacare, Inc.,
Sr Note (Canada) 01-15-06 (Y) ....... 10.750% B+ $7 $6,965
Fresenius Medical Care Capital
Trust II, Gtd Trust Preferred Security
02-01-08 ............................ 7.875 B+ 10 9,900
Genesis Health Ventures, Inc.,
Sr Sub Note 01-15-09 (R) ............ 9.875 B- 15 14,475
Integrated Health Services, Inc.,
Sr Sub Deb 01-01-01 ................. 5.750 B- 30 26,400
Sr Sub Note 01-15-08 ................ 9.250 B- 1 940
Quest Diagnostics, Inc.,
Sr Sub Note 12-15-06 ................ 10.750 B+ 3 3,330
Sola International, Inc.,
Note 03-15-08 ....................... 6.875 BBB- 10 9,462
Tenet Healthcare Corp.,
Sr Note 12-01-03 .................... 8.625 BB+ 20 20,950
Sr Sub Note 01-15-07 ................ 8.625 BB- 8 8,360
Watson Pharmaceuticals, Inc.,
Sr Note 05-15-08 .................... 7.125 BBB- 5 4,994
----------
105,776
----------
Metal (0.14%)
Golden Northwest Aluminum, Inc.,
1st Mtg Note 12-15-06 (R) .......... 12.000 BB- 15 15,188
----------
Mortgage Banking (2.99%)
Citibank Credit Card Master Trust I,
Pass Thru Ctf Ser 1997-7 Class A
08-15-02 ............................ 6.350 AAA 45 45,816
ContiMortgage Home Equity
Loan Trust, Pass Thru Ctf Ser
1995-2 Class A-5 08-15-25 .......... 8.100 AAA 10 10,491
Credit Suisse First Boston
Mortgage Securities Corp.,
Commercial Mtg Pass Thru
Ctf Ser 1998-C1 Class A-1A
12-17-07 ............................ 6.260 AAA 24 24,660
EQCC Home Equity Loan Trust,
Pass Thru Ctf Ser 1997-3
Class A-9 02-15-29 .................. 6.570 AAA 25 25,357
GMAC Commercial Mortgage
Securities, Inc., Pass Thru Ctf
Ser 1997-C2 Class A-3 11-15-07 ...... 6.566 Aaa 25 25,906
Homeside Lending, Inc.,
Med Term Sr Note 05-15-03 .......... 6.200 A+ 25 25,108
IMC Home Equity Loan Trust,
Pass Thru Ctf Ser 1998-1
Class A-4 03-20-25 .................. 6.600 AAA 15 14,850
Money Store Home Equity
Trust (The), Pass Thru Ctf Ser
1997-D Class AF-7 12-15-38 .......... 6.485 AAA 16 16,250
Morgan Stanley Capital I, Inc.,
Pass Thru Ctf Ser 1997-WF1
Class A-1 10-15-06 (R) .............. 6.830 AAA 97 99,724
Nomura Asset Securities Corp.,
Pass Thru Ctf Ser 1998-D6
Class A-1A 03-17-28 ................. 6.280 AAA 14 14,315
Mortgage Banking (continued)
Salomon Brothers Mortgage
Securities VII, Inc., Mtg Pass Thru
Ctf Ser 1997-HUD2 Class A-2
07-25-24 ............................ 6.750% Aaa $6 $6,064
UCFC Home Equity Loan Trust,
Pass Thru Ctf Ser 1997-A1
Class A-8 06-15-28 .................. 7.220 AAA 10 10,472
----------
319,013
----------
Oil & Gas (0.79%)
Camuzzi Gas Pampeana S.A.,
Bond (Argentina) 12-15-01 (Y) ....... 9.250 BBB- 10 9,600
Occidental Petroleum Corp.,
Sr Note 11-15-08 .................... 7.375 BBB 20 20,360
Petroleos Mexicanos, Gtd Sr Note
(Mexico) 12-02-08 (R) (Y) .......... 9.375 BB 10 9,850
Petroleum Geo-Services,
Sr Note (Norway) 03-30-08 (Y) ....... 6.625 BBB 30 29,286
R&B Falcon Corp.,
Sr Note 12-15-08 (R) ................ 9.500 BB+ 15 14,981
----------
84,077
----------
Paper & Paper Products (0.33%)
Fort James Corp.,
Sr Note 09-15-02 .................... 6.500 BBB- 5 5,074
S.D. Warren Co.,
Sr Sub Note Ser B 12-15-04 .......... 12.000 B+ 28 30,380
----------
35,454
----------
Real Estate Operations (0.19%)
Security Capital Group, Inc.,
Med Term Note Ser A 11-15-03 ........ 7.750 BBB 20 19,998
----------
Real Estate Investment Trust (0.31%)
American Health Properties, Inc.,
Note 01-15-07 ....................... 7.500 BBB- 20 18,800
Liberty Property L.P.,
Med Term Note 06-05-02 .............. 6.600 BBB- 10 9,650
TriNet Corporate Realty Trust, Inc.,
Note 05-15-01 ....................... 7.300 BBB- 5 5,023
----------
33,473
----------
Retail (0.88%)
Fred Meyer, Inc.,
Gtd Note 03-01-08 ................... 7.450 BB+ 30 32,369
Great Atlantic & Pacific Tea Co.,
Inc. (The), Note 04-15-07 .......... 7.750 BBB- 30 30,164
Kroger Co. (The),
Sr Note 07-15-06 .................... 8.150 BBB- 15 16,760
Safeway, Inc.,
Sr Note 11-15-01 .................... 5.875 BBB 15 15,017
----------
94,310
----------
Revenue Bonds (0.79%)
Agrilink Foods, Inc.,
Sr Sub Note 11-01-08 (R) ............ 11.875 B 10 10,200
Harris County-Houston Sports Auth,
Sr Lien Special Rev Ser 1998A
11-15-28 ............................ 5.000 AAA 15 14,658
Massachusetts Water Resource
Authority, Gen Rev Ref Ser 1997D
08-01-24 ............................ 5.000 AAA 20 19,659
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
102
<PAGE>
==============================FINANCIAL STATEMENTS==============================
John Hancock Funds - Declaration Trust -- V.A. Bond Fund
<TABLE>
<CAPTION>
INTEREST CREDIT PAR VALUE MARKET
ISSUER, DESCRIPTION RATE RATING* (000s OMITTED) VALUE
- ------------------- -------- ------ -------------- -------
<S> <C> <C> <C> <C>
Revenue Bonds (continued)
New York City Municipal Water
Finance Auth, Wtr & Swr Sys Rev
Ref Ser 1997A 06-15-21 .............. 5.125% AAA $10 $10,003
San Jose Redevelopment Agency,
Tax Alloc Merged Area Redevel Proj
08-01-26 ............................ 5.000 AAA 30 29,777
----------
84,297
----------
Steel (0.04%)
Bayou Steel Corp.,
1st Mtg Note 05-15-08 ............... 9.500 B 5 4,700
----------
Telecommunications (3.40%)
AXIA, Inc.,
Sr Sub Note 07-15-08 (R) ............ 10.750 B- 17 17,212
Call-Net Enterprises, Inc.,
Sr Note (Canada) 08-15-08 (Y) ....... 8.000 BB- 18 17,190
GTE North, Inc.,
Deb Ser H 11-15-08 .................. 5.650 AA- 20 20,220
Global Crossing Holdings Ltd.,
Sr Note 05-15-08 (R) ................ 9.625 B 15 15,900
Hermes Europe Railtel BV,**
Sr Note (Belgium) 01-15-09 (R) (Y) .. 10.375 B 15 15,300
IXC Communications, Inc.,
Sr Sub Note 04-15-08 ................ 9.000 CCC+ 20 20,150
Intermedia Communications, Inc.,
Sr Note 01-15-08 .................... 8.500 B 5 4,750
Sr Note Ser B 06-01-08 .............. 8.600 B 10 9,550
MCI WorldCom, Inc.,
Sr Note 08-15-01 .................... 6.125 BBB+ 60 60,959
McLeodUSA, Inc.,
Sr Note 11-01-08 (R) ................ 9.500 B+ 20 21,200
Metromedia Fiber Network, Inc.,
Sr Note 11-15-08 (R) ................ 10.000 B 25 25,750
MetroNet Communications Corp.,
Sr Note (Canada) 08-15-07 (Y) ....... 12.000 B 15 16,650
NTL, Inc.,
Sr Note 10-01-08 (R) ................ 11.500 B- 30 33,300
Nextel Communications, Inc.,
Sr Disc Note, Step Coupon
(9.75%, 02-15-99) 08-15-04 (A) ...... Zero CCC+ 24 23,280
NEXTLINK Communications, Inc.,
Sr Note 11-15-08 (R) ................ 10.750 B 20 20,500
Qwest Communications International,
Inc., Sr Note 11-01-08 (R) .......... 7.250 BB+ 10 10,225
Worldwide Fiber, Inc.,
Sr Note (Canada) 12-15-05 (R) (Y) ... 12.500 B- 30 30,150
----------
362,286
----------
Textile (0.34%)
Tropical Sportswear International Corp.,
Gtd Sr Sub Note Ser A
06-15-08 ............................ 11.000 B- 20 21,050
Unifi, Inc.,
Note Ser B 02-01-08 ................. 6.500 A- 15 14,858
----------
35,908
----------
Tobacco (0.73%)
Philip Morris Companies, Inc.,
Note 09-15-01 ....................... 7.250% A $35 $36,536
Note 08-15-02 ....................... 7.125 A 10 10,503
RJR Nabisco, Inc.,
Note 12-01-02 ....................... 8.625 BBB- 21 21,335
Note 09-15-03 ....................... 7.625 BBB- 10 9,745
----------
78,119
----------
Transport (2.24%)
America West Airlines, Inc.,
Pass Thru Ctf Ser B 01-02-08 ........ 6.930 A- 5 4,529
Continental Airlines,
Note 12-15-05 ....................... 8.000 BB- 25 25,000
Pass Thru Cert Ser 1998-2
Class A 04-15-07 .................. 6.410 AA+ 25 24,476
Pass Thru Ctf Ser 1997-2C 06-30-04 .. 7.206 BBB- 19 19,444
Fine Air Services, Inc.,
Sr Note 06-01-08 .................... 9.875 B 15 13,500
NWA Trust,
Sr Note Ser A 6-21-14 ............... 9.250 A2 40 48,273
Northwest Airlines, Inc.,
Gtd Note 03-15-04 ................... 8.375 BB 25 24,475
Pass Thru Ctf Ser 1996-1D
01-02-15 .......................... 8.970 BBB- 5 5,242
Primark Corp.,
Sr Sub Note 12-15-08 (R) ............ 9.250 B+ 20 20,100
U.S. Airways, Inc.,
Pass Thru Ctf Ser
1990-A1 03-19-05 .................. 11.200 BB 42 45,541
Wisconsin Central Transportation
Corp., Note 04-15-08 ................ 6.625 BBB- 8 8,120
----------
238,700
----------
Utilities (5.87%)
AES Corp.,
Sr Sub Note 07-15-06 ................ 10.250 B+ 10 10,800
Sr Sub Note 08-15-07 ................ 8.375 B+ 23 23,230
Avon Energy Partners Holdings,
Note (United Kingdom)
03-04-08 (R) (Y) .................. 6.460 A- 15 15,216
Sr Note (United Kingdom)
12-11-02 (R) (Y) .................. 6.730 A- 20 20,656
BVPS II Funding Corp., Collateralized
Lease Bond 06-01-17 ................. 8.890 BB- 5 5,725
Beaver Valley Funding Corp.,
Sec Lease Oblig Bond 06-01-17 ....... 9.000 BB- 23 25,875
CMS Energy Corp.,
Sr Note 05-15-02 .................... 8.125 BB 25 25,934
CalEnergy Co., Inc.,
Sr Bond 09-15-28 .................... 8.480 BB+ 45 50,036
Sr Sec Note 06-30-03 ................ 9.875 BB+ 30 33,595
Calpine Corp.,
Sr Note 04-01-08 .................... 7.875 BB- 15 15,150
Cleveland Electric Illuminating Co.,
1st Mtg Ser B 05-15-05 .............. 9.500 BB+ 45 49,275
Sr Sec Note Ser D 11-01-17 .......... 7.880 BB+ 20 20,670
Connecticut Light & Power Co.,
1st Mtg Bond 06-01-02 ............... 7.750 BB+ 20 20,746
</TABLE>
SEE NOTES TO FINANICAL STATEMENTS.
103
<PAGE>
==============================FINANCIAL STATEMENTS==============================
John Hancock Funds - Declaration Trust -- V.A. Bond Fund
<TABLE>
<CAPTION>
INTEREST CREDIT PAR VALUE MARKET
ISSUER, DESCRIPTION RATE RATING* (000s OMITTED) VALUE
- ------------------- -------- ------ -------------- -------
<S> <C> <C> <C> <C>
Utilities (continued)
Hydro-Quebec,
Gtd Bond (Canada) 02-01-21 (Y) ...... 9.400% A+ $15 $20,424
Gtd Bond (Canada) 01-15-22 (Y) ...... 8.400 A+ 20 24,879
Iberdrola,
Note 10-01-02 (Y) ................... 7.500 AA- 36 38,406
Marketspan Corp.,
Deb 03-15-23 ........................ 8.200 A- 40 44,400
Midland Funding Corp. I,
Deb Ser C-94 07-23-02 ............... 10.330 BB 11 11,658
Niagara Mohawk Power Corp.,
Sr Note Ser G 10-01-08 .............. 7.750 BB- 20 21,400
North Atlantic Energy Corp.,
1st Mtg Bond 06-01-02 ............... 9.050 B+ 13 13,507
Northeast Utilities,
Note Ser A 12-01-06 ................. 8.580 B+ 4 4,180
Philadelphia Electric Co.,
1st Mtg Bond 09-01-02 ............... 7.125 BBB+ 30 31,454
Puget Sound Energy Capital Trust I,
Gtd Cap Security Ser B 06-01-27 ..... 8.231 Baa2 15 15,930
U.S. West Capital Funding, Inc.,
Gtd Bond 07-15-28 ................... 6.875 A- 45 48,057
Waterford 3 Funding Corp., Sec
Lease Obligation Bond 01-02-17 ...... 8.090 BBB- 32 34,693
-----------
625,896
-----------
TOTAL BONDS
(Cost $10,018,500) (95.02%) 10,137,962
------- -----------
<CAPTION>
NUMBER OF
SHARES
---------
<S> <C> <C>
WARRANTS
Telecommunications (0.00%)
MetroNet Communications Corp. (Canada) (R) (Y) 5 257
-----------
TOTAL WARRANTS
(Cost $51) (0.00%) 257
------- -----------
<CAPTION>
INTEREST CREDIT PAR VALUE MARKET
ISSUER, DESCRIPTION RATE RATING* (000s OMITTED) VALUE
- ------------------- -------- ------ -------------- -------
<S> <C> <C> <C> <C>
SHORT-TERM INVESTMENTS
Joint Repurchase Agreement (2.55%)
Investment in a joint repurchase
agreement transaction with SBC
Warburg, Inc. - Dated 12-31-98,
due 01-04-99 (Secured by U. S.
Treasury Bonds, 6.250% thru 9.125%
due 05-15-18 thru 08-15-23)
- Note B ............................. 4.750% $272 $272,000
-----------
Short-Term Notes (0.72%)
Chrysler Financial Co. LLC,
Med Term Note Ser S 11-15-01 ......... 5.690 A+ 30 30,141
General Motors Acceptance Corp.,
Med Term Note 04-17-01 ............... 6.850 A 45 46,371
-----------
76,512
-----------
TOTAL SHORT-TERM NOTES
(Cost $76,880) (0.72%) 76,512
------- -----------
Corporate Savings Account (0.00%)
Investor's Bank & Trust Company
Daily Interest Savings Account
Current Rate 4.00%................... 295
-----------
TOTAL SHORT-TERM INVESTMENTS (3.27%) 348,807
------- -----------
TOTAL INVESTMENTS (98.29) 10,487,026
------- -----------
OTHER ASSETS AND LIABILITIES, NET (1.71%) 182,402
------- -----------
TOTAL NET ASSETS (100.00%) $10,669,428
======= ===========
</TABLE>
* Credit ratings are unaudited and rated by Standard and Poor's where
available, or Moody's Investors Service or John Hancock Advisors, Inc.
where Standard and Poor's ratings are not available.
** This security having a value of $15,300 or 0.14% of the Fund's net assets,
has been purchased as a forward commitment - that is, the Fund has agreed
on the trade date, to take delivery of and make payment for such security
on a delayed basis subsequent to the date of this schedule. The purchase
price and interest rate of such security is fixed at trade date, although
the Fund does not earn interest on such security until settlement date.
The Fund has instructed its Custodian Bank to segregate assets with the
current value at least equal to the amount of its forward commitment.
Accordingly, the market value of $16,199 of U.S. Treasury Bond, 8.875%,
08-15-17 has been segregated to cover the forward commitment.
(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 $944,050 or 8.85% of net assets as of
December 31, 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.
104
<PAGE>
==============================FINANCIAL STATEMENTS==============================
John Hancock Funds - Declaration Trust -- V.A. Strategic Income Fund
Schedule of Investments
December 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
INTEREST CREDIT PAR VALUE MARKET
ISSUER, DESCRIPTION RATE RATING* (000s OMITTED) VALUE
- ------------------- -------- ------ -------------- -------
<S> <C> <C> <C> <C>
BONDS
Advertising (0.72%)
Outdoor Systems, Inc.,
Sr Sub Note 10-15-06 ................ 9.375% B $100 $108,000
----------
Business Services - Misc. (0.66%)
United Rentals, Inc.,
Sr Sub Note 08-15-08 (R) ............ 8.800 BB- 100 98,500
----------
Computers (2.90%)
PSINet, Inc.,
Sr Note 11-01-08 (R) ................ 11.500 B- 100 104,250
Unisys Corp.,
Sr Note 10-15-04 .................... 11.750 BB- 25 29,000
Verio, Inc.,
Sr Note 12-01-08 (R) ................ 11.250 B- 300 303,000
----------
436,250
----------
Containers (0.67%)
Stone Container Corp.,
Unit (Sr Sub Deb & Supplemental
Interest Cert) 04-01-02 ............. 12.250 B- 100 100,500
----------
Diversified Operations (0.67%)
Euramax International PLC,
Sr Sub Note (United Kingdom)
10-01-06 (Y) ........................ 11.250 B 100 100,000
----------
Electronics (1.17%)
Communications Instruments, Inc.,
Gtd Sr Sub Note Ser B 09-15-04 ...... 10.000 B- 100 96,250
Zilog, Inc.,
Sr Sec Note Ser B 03-01-05 .......... 9.500 B- 100 79,000
----------
175,250
----------
Energy (1.35%)
P & L Coal Holdings Corp.,
Sr Sub Note 05-15-08 (R) ............ 9.625 B 200 203,500
----------
Finance (0.65%)
AEI Holding Co.,
Sr Note 11-15-07 (R) ................ 10.000 B- 100 98,000
----------
Food (0.68%)
Agrilink Foods, Inc.,
Sr Sub Note 11-01-08 (R) ........... 11.875 B 100 102,000
----------
Government - Foreign (6.69%)
Australia, Commonwealth of,
Government Bond (Australia)
10-15-07 # .......................... 10.000 AAA 169 139,842
Government of Canada,
Government Bond (Canada)
03-15-00 # ........................ 5.000 AAA 150 97,795
Government Bond (Canada)
03-01-01 # ........................ 7.500 AAA 325 222,840
United Kingdom of Great Britain
Treasury Gilts,
Government Bond (United Kingdom)
08-10-99 # ........................ 6.000 AAA 60 100,209
Government Bond (United Kingdom)
12-07-00 # ........................ 8.000 AAA 50 88,217
</TABLE>
The Schedule of Investments is a complete list of all securities owned by the V.
A. Strategic Income Fund on December 31, 1998. It is divided into four main
catagories: bonds, common stocks, pre ferred 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.
<TABLE>
<CAPTION>
INTEREST CREDIT PAR VALUE MARKET
ISSUER, DESCRIPTION RATE RATING* (000s OMITTED) VALUE
- ------------------- -------- ------ -------------- -------
<S> <C> <C> <C> <C>
Government - Foreign (continued)
United Kingdom of Great Britain
Treasury Gilts, (cont.),
Government Bond (United Kingdom)
06-07-02 # ........................ 7.000% AAA $70 $127,562
Government Bond (United Kingdom)
06-10-03 # ........................ 8.000 AAA 120 227,883
----------
1,004,348
----------
Government - U.S. (22.79%)
United States Treasury,
Bond 02-15-16 ....................... 9.250 Aaa 200 286,938
Bond 08-15-19 ....................... 8.125 Aaa 700 934,829
Bond 08-15-23 ....................... 6.250 Aaa 700 782,362
Bond 02-15-27 ....................... 6.625 Aaa 100 118,281
Note 08-31-02 ....................... 6.250 Aaa 500 525,545
Note 08-15-04 ....................... 7.250 Aaa 300 337,266
Note 08-15-05 ....................... 6.500 Aaa 100 109,906
Note 08-15-07 ....................... 6.125 Aaa 300 327,657
----------
3,422,784
----------
Leisure (5.85%)
Casino America, Inc.,
Sr Sec Note 08-01-03 ................ 12.500 B+ 250 276,250
Cinemark USA, Inc.,
Sr Sub Note Ser D 08-01-08 .......... 9.625 B 100 104,500
Harrah's Operating Co., Inc.,
Sr Sub Note 12-15-05 ................ 7.875 BB+ 100 100,500
HMH Properties, Inc.,
Sr Note Ser B 08-01-08 .............. 7.875 BB 100 97,500
Regal Cinemas, Inc.,
Sr Sub Note 12-15-10 (R) ........... 8.875 B 100 99,000
SFX Entertainment, Inc.,
Sr Sub Note Ser B 02-01-08 .......... 9.125 B- 100 99,000
Sun International Hotels Ltd.,
Gtd Sr Sub Note (Bahamas)
12-15-07 (Y) ........................ 8.625 B+ 100 102,500
----------
879,250
----------
Machinery (0.62%)
Columbus McKinnon Corp.,
Sr Sub Note 04-01-08 ................ 8.500 B 100 93,500
----------
Manufacturing (0.60%)
Globe Manufacturing Corp.,
Sr Sub Note 08-01-08 (R) ............ 10.000 B- 100 90,500
----------
Media (6.77%)
Capstar Radio Broadcasting Partners,
Inc., Sr Sub Note 07-01-07 (A) ...... 9.250 B- 100 104,000
Chancellor Media Corp.,
Gtd Sr Sub Note 01-15-07 ............ 10.500 Ba3 100 104,250
Citadel Broadcasting Co.,
Sr Sub Note 11-15-08 (R) ............ 9.250 B- 100 104,500
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
105
<PAGE>
==============================FINANCIAL STATEMENTS==============================
John Hancock Funds - Declaration Trust -- V.A. Strategic Income Fund
<TABLE>
<CAPTION>
INTEREST CREDIT PAR VALUE MARKET
ISSUER, DESCRIPTION RATE RATING* (000s OMITTED) VALUE
- ------------------- -------- ------ -------------- -------
<S> <C> <C> <C> <C>
Media (continued)
Cumulus Media, Inc.,
Sr Sub Note 07-01-08 ................ 10.375% CCC+ $100 $106,000
Falcon Holding Group L.P., / Falcon
Funding Corp., Sr Deb Ser B
04-15-10 ............................ 8.375 B 200 204,500
Intermedia Capital Partners,
Sr Note 08-01-06 .................... 11.250 B 100 112,500
Regional Independent Media Group
PLC, Sr Note (United Kingdom)
07-01-08 (R) (Y) .................... 10.500 B- 175 176,750
STC Broadcasting, Inc.,
Sr Sub Note 03-15-07 ................ 11.000 B- 100 105,000
----------
1,017,500
----------
Medical (0.66%)
Fresenius Medical Care Capital
Trust II, Trust Preferred Security
02-01-08 ............................ 7.875 B+ 100 99,000
----------
Metal (0.65%)
Koppers Industries, Inc.,
Gtd Sr Sub Note 12-01-07 ............ 9.875 B- 100 98,000
----------
Oil & Gas (1.04%)
Key Energy Group, Inc.,
Bridge Loan Agreement 09-15-99 ...... 11.909 B- 99 98,815
Universal Compression, Inc.,
Sr Disc Note, Step Coupon
(9.875%, 02-15-03)
02-15-08 (A) ........................ Zero B 100 58,000
----------
156,815
----------
Retail (1.00%)
United Stationers, Inc.,
Sr Sub Note 04-15-08 ................ 8.375 B 150 150,000
----------
Telecommunications (29.61%)
Allegiance Telecom, Inc.,
Sr Disc Note, Ser B, Step Coupon
(11.75%, 02-15-03)
02-15-08 (A) ........................ Zero B- 250 120,000
AMSC Acquisition Co., Inc.,
Gtd Sr Note Ser B 04-01-08 .......... 12.250 B- 100 62,000
AXIA, Inc.,
Sr Sub Note 07-15-08 ................ 10.750 B- 100 101,250
Call-Net Enterprises, Inc.,
Sr Note (Canada) 08-15-08 (Y) ....... 8.000 BB- 100 95,500
Centennial Cellular Operating Co.,
Sr Sub Note 12-15-08 (R) ............ 10.750 CCC+ 100 100,500
Clearnet Communications, Inc.,
Sr Disc Note, Step Coupon
(10.40%, 05-15-03) (Canada)
05-15-08 # .......................... Zero B3 150 51,230
COLT Telecom Group PLC,
Sr Note (Germany)
07-31-08 # .......................... 7.625 B 580 344,606
Comunicacion Celular S.A.,
Bond, Step Coupon (13.125%,
11-15-00) (Colombia)
11-15-03 (A) (Y) .................... Zero B3 100 57,750
Crown Castle International Corp.,
Sr Disc Note, Step Coupon
(10.625%, 11-15-02)
11-15-07 (A) ........................ Zero B $150 $103,500
Diva Systems Corp.,
Sr Disc Note, Step Coupon
(12.625%, 03-01-03)
03-01-08 (A) (R) .................... Zero B- 250 102,500
Dolphin Telecom PLC,
Sr Disc Note, Step Coupon
(11.50%, 06-01-03)
(United Kingdom)
06-01-08 (A) (R) (Y) ................ Zero B- 200 80,000
DTI Holdings, Inc.,
Sr Disc Note, Step Coupon
(12.50%, 03-01-03)
03-01-08 (A) ........................ Zero B- 150 38,250
Espirit Telecom Group PLC,
Sr Note (Germany)
06-15-08 # ........................ 11.000% B- 200 119,430
Sr Note (United Kingdom)
12-15-07 (Y) ...................... 11.500 B- 100 102,000
FLAG Ltd.,
Sr Note (Bermuda)
01-30-08 (Y) ........................ 8.250 B+ 100 98,000
Global Crossing Holdings Ltd.,
Sr Note 05-15-08 (R) ................ 9.625 B 100 106,000
Hermes Europe Railtel B.V.,
Sr Note (Netherlands)
08-15-07 (Y) ........................ 11.500 B 100 107,500
Intercel, Inc.,
Unit (Sr Discount Note &
Warrant) Step Coupon (12.00%,
02/01/01) 02-01-06 (A) .............. Zero B 200 147,000
Ionica PLC,
Sr Disc Note, Step
Coupon (15.00%, 05-01-02)
(United Kingdom)
05-01-07 (A) (Y) .................... Zero Caa3 200 3,000
IXC Communications, Inc.,
Sr Sub Note 04-15-08 ................ 9.000 CCC+ 100 100,750
Level 3 Communications, Inc.,
Sr Note 05-01-08 .................... 9.125 B 200 198,000
McLeodUSA Inc.,
Sr Note 11-01-08 (R) ................ 9.500 B+ 50 53,000
Sr Note 07-15-07 .................... 9.250 B+ 100 103,500
Metromedia Fiber Network, Inc.,
Sr Note 11-15-08 (R) ................ 10.000 B 300 309,000
MetroNet Communications Corp.,
Sr Discount Note, Step Coupon
(10.75%, 11-01-02) (Canada)
11-01-07 (A) (Y) .................. Zero B 200 130,000
Sr Note (Canada) 08-15-07 (Y) ....... 12.000 B 50 55,500
Nextel Communications, Inc.,
Sr Disc Note, Step Coupon
(9.75%, 02-15-99) 08-15-04 (A) .... Zero CCC+ 75 72,750
Sr Disc Note, Step Coupon (9.95%,
02-15-03) 02-15-08 (A) ............ Zero CCC+ 125 75,000
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
106
<PAGE>
==============================FINANCIAL STATEMENTS==============================
John Hancock Funds - Declaration Trust -- V.A. Strategic Income Fund
<TABLE>
<CAPTION>
INTEREST CREDIT PAR VALUE MARKET
ISSUER, DESCRIPTION RATE RATING* (000s OMITTED) VALUE
- ------------------- -------- ------ -------------- -------
<S> <C> <C> <C> <C>
Telecommunications (continued)
NEXTLINK Communications, Inc.,
Sr Note 11-15-08 (R) ................ 10.750% B $100 $102,500
NorthEast Optic Network, Inc.,
Sr Note 08-15-08 .................... 12.750 B- 100 98,000
NTL, Inc.,
Sr Note 04-01-08 (R) ................ 9.500 B- 60 91,345
Sr Note 10-01-08 (R) ................ 11.500 B- 100 111,000
Orange PLC, Sr Note
(United Kingdom) 08-01-08 (Y) ....... 8.000 B+ 100 99,750
Orion Network Systems,
Sr Note 01-15-07 .................... 11.250 B+ 100 98,000
Qwest Communications
International, Inc., Sr Note
Ser B 04-01-07 ...................... 10.875 BB+ 100 113,500
RCN Corp.,
Sr Note 10-15-07 .................... 10.000 B3 100 95,500
Teligent, Inc.,
Sr Note 12-01-07 .................... 11.500 CCC 100 93,500
Time Warner Telecom LLC,
Sr Note 07-15-08 .................... 9.750 B- 100 105,000
VersaTel Telecom B.V.,
Sr Note (Netherlands)
05-15-08 (Y) ........................ 13.250 B- 100 99,500
Viatel, Inc.,
Sr Note 04-15-08 .................... 11.250 Caa1 200 200,000
Winstar Equipment Corp.,
Sec Note 03-15-04 ................... 12.500 CCC+ 100 100,500
----------
4,445,611
----------
Transportation (1.27%)
Continental Airlines, Inc.,
Note 12-15-05 ....................... 8.000 BB- 100 100,000
Fine Air Services Corp.,
Sr Note 06-01-08 .................... 9.875 B 100 90,000
----------
190,000
----------
Utilities (3.37%)
CalEnergy Co., Inc.,
Sr Note 09-15-08 .................... 7.520 BB+ 100 105,155
Sr Note 10-15-07 .................... 7.630 BB+ 100 107,110
Calpine Corp.,
Sr Note 04-01-08 .................... 7.875 BB- 100 101,000
Midland Funding Corp. II,
Deb Ser A 07-23-05 .................. 11.750 B 100 116,500
Monterrey Power S.A. de C.V.,
Sec Bond (Mexico)
11-15-09 (R) (Y) .................... 9.625 BB 100 77,000
----------
506,765
----------
TOTAL BONDS
(Cost $13,908,610) (90.39%) 13,576,073
-------- ----------
</TABLE>
NUMBER OF
SHARES MARKET
ISSUER, DESCRIPTION OR WARRANTS VALUE
- ------------------- ----------- ------
COMMON STOCKS
KLM Royal Dutch Airlines
N.V., Common Stock
(Netherlands) ..................................... 517 $15,510
Nextel Communications, Inc.
(Class A), Common Stock ** ........................ 232 5,481
Northeast Utilities, Common Stock ** ............... 6,000 96,000
--------
TOTAL COMMON STOCKS
(COST $120,024) (0.78%) 116,991
-------- --------
PREFERRED STOCKS AND WARRANTS
Allegiance Telecom, Inc., Warrant ** ............... 250 2,250
American Mobile Satellite Corp., Warrant (R) ** .... 100 --
Comunicacion Celular S.A., Warrant (Colombia) (Y) ** 1,000 5,000
Diva Systems Corp., Warrant ** ..................... 750 --
DTI Holdings, Inc., Warrant ** ..................... 750 38
Loral Space & Communications Ltd., Warrant ** ...... 100 1,000
NEXTLINK Communications, Inc., 14.00%,
Preferred Stock ................................... 1,780 92,560
SFX Broadcasting, Inc., 12.625%, Ser E,
Preferred Stock ................................... 564 67,680
VersaTel Telecom B.V., Warrant (R) ** .............. 100 1,000
Viatel, Inc., 10.00%, Ser A, Preferred Stock ....... 101 9,292
--------
TOTAL PREFERRED STOCKS AND WARRANTS
(Cost $170,978) (1.19%) 178,820
-------- --------
SEE NOTES TO FINANCIAL STATEMENTS.
107
<PAGE>
==============================FINANCIAL STATEMENTS==============================
John Hancock Funds - Declaration Trust -- V.A. Strategic Income Fund
INTEREST PAR VALUE MARKET
ISSUER, DESCRIPTION RATE (OOOs OMITTED) VALUE
- ------------------- -------- -------------- ------
SHORT-TERM INVESTMENTS
Joint Repurchase Agreement (4.95%)
Investment in a joint repurchase
agreement transaction with SBC
Warburg, Inc. - Dated 12-31-98,
due 01-04-99 (Secured by
U.S. Treasury Bonds, 6.250%
thru 9.125% due 05-15-18
thru 08-15-23) - Note B ............ 4.75% $743 $743,000
-----------
Corporate Savings Account (0.00%)
Investors Bank & Trust Company
Daily Interest Savings Account
Current Rate 4.00% ................. 6
-----------
TOTAL SHORT-TERM INVESTMENTS (4.95%) 743,006
------ -----------
TOTAL INVESTMENTS (97.31%) 14,614,890
------ -----------
OTHER ASSETS AND LIABILITIES, NET (2.69%) 404,507
------ -----------
TOTAL NET ASSETS (100.00%) $15,019,397
====== ===========
* 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
paranthetically in security description.
(A) Cash interest will be paid on this obligation at the stated rate effective
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 $2,513,845 or 16.74% of the Fund's net
assets as of December 31, 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.
Portfolio Concentration (Unaudited)
- --------------------------------------------------------------------------------
The V. A. Strategic Income Fund invests primarily in securities issued in the
United States of America. The performance of this Fund is closely tied to the
economic and financial conditions of the countries within which it invests. The
concentration of investments by industry category for individual securities held
by the Fund is shown in the schedule of investments. In addition, con centration
of investments can be aggregated by various countries. The table below shows the
percentages of the Fund's investments at December 31, 1998 assigned to country
categories.
MARKET VALUE
AS A % OF
COUNTRY DISTRIBUTION FUND'S NET ASSETS
- -------------------- -----------------
Australia.................................. 0.93%
Bahamas.................................... 0.68
Bermuda.................................... 0.65
Canada..................................... 4.35
Colombia................................... 0.42
Germany.................................... 3.09
Mexico..................................... 0.51
Netherlands................................ 1.48
United Kingdom............................. 7.36
United States.............................. 77.84
-----
TOTAL INVESTMENTS 97.31%
=====
Additionally, the concentration of investments can be aggregated by the quality
rating for each debt security.
QUALITY DISTRIBUTION
- --------------------
AAA........................................ 29.48
BB......................................... 10.95
B.......................................... 46.78
CCC........................................ 3.16
CC......................................... 0.02
-----
TOTAL BONDS 90.39%
=====
SEE NOTES TO FINANCIAL STATEMENTS.
108
<PAGE>
==============================FINANCIAL STATEMENTS==============================
John Hancock Funds - Declaration Trust -- V.A. High Yield Bond Fund
Schedule of Investments
December 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
INTEREST CREDIT PAR VALUE MARKET
ISSUER, DESCRIPTION RATE RATING* (000s OMITTED) VALUE
- ------------------- -------- ------ -------------- -------
<S> <C> <C> <C> <C>
BONDS
Agricultural Operations (0.10%)
Iowa Select Farms L.P./ISF Finance
Inc., Sr Sub Note 12-01-05 (R) ...... 10.750% B3 $10 $8,100
----------
Automobile / Trucks (0.29%)
J.B. Poindexter & Co., Inc.,
Sr Note 05-15-04 .................... 12.500 B- 25 23,875
----------
Building (0.63%)
Nortek, Inc.,
Sr Note 08-01-08 (R) ................ 8.875 B+ 50 50,875
----------
Business Services - Misc. (0.53%)
Coinstar, Inc., Sr Disc Note,
Step Coupon (13.00%,
10-01-99) 10-01-06 .................. Zero Caa1 50 43,250
----------
Chemicals (1.32%)
American Pacific Corp.,
Sr Note 03-01-05 .................... 9.250 BB- 50 51,250
Trikem S.A.,
Bond (Brazil) 07-24-07 (R) (Y) ...... 10.625 BB- 125 56,250
----------
107,500
----------
Computers (2.38%)
ENTEX Information Services, Inc.,
Sr Sub Note 08-01-06 (R) ............ 12.500 B- 25 16,500
Exodus Communications, Inc.,
Sr Note 07-01-08 (R) ................ 11.250 B- 24 23,400
PSINet, Inc.,
Sr Note 11-01-08 (R) ................ 11.500 B- 25 26,062
Sr Note Ser B 02-15-05 .............. 10.000 B- 130 127,400
----------
193,362
----------
Consumer Products Misc. (2.25%)
Diamond Brands Operating Corp.,
Gtd Sr Sub Note 04-15-08 ............ 10.125 CCC+ 100 90,000
Indesco International, Inc.,
Sr Sub Note 04-15-08 ................ 9.750 B- 100 93,000
----------
183,000
----------
Containers (4.07%)
Gaylord Container Corp.,
Sr Note Ser B 06-15-07 .............. 9.375 B- 25 21,250
Sr Sub Note Ser B 02-15-08 .......... 9.875 CCC+ 200 140,000
Riverwood International Corp.,
Gtd Sr Sub Note 04-01-08 ............ 10.875 CCC+ 20 18,200
Stone Container Corp.,
Unit (Sr Sub Deb & Supplemental
Interest Cert) 04-01-02 ............. 12.250 B- 150 150,750
----------
330,200
----------
Cosmetics & Personal Care (1.29%)
Carson, Inc.,
Gtd Sr Sub Note Ser B 11-01-07 ...... 10.375 B3 65 45,500
Global Health Sciences, Inc.,
Gtd Sr Note 05-01-08 ................ 11.000 B+ 75 49,500
Styling Technology Corp.,
Sr Sub Note 07-01-08 (R) ............ 10.875 B- 10 9,500
----------
104,500
----------
</TABLE>
The Schedule of Investments is a complete list of all securities owned by the
V.A. High Yield Bond Fund on December 31, 1998. It is divided into four main
catagories: bonds, common stocks, pre ferred stocks and warrants and short-term
investments. Bonds are further broken down by industry group. Short-term invest
ments, which represent the Fund's "cash" position, are listed last.
<TABLE>
<CAPTION>
INTEREST CREDIT PAR VALUE MARKET
ISSUER, DESCRIPTION RATE RATING* (000s OMITTED) VALUE
- ------------------- -------- ------ -------------- -------
<S> <C> <C> <C> <C>
Electronics (0.87%)
SpinCycle, Inc.,
Unit (Sr Disc Note & Warrants),
Step Coupon (12.75%, 05-01-01)
05-01-05 (A) (R) .................... Zero CCC+ $25 $11,500
Zilog, Inc.,
Gtd Sr Sec Note Ser B 03-01-05 ...... 9.500% B- 75 59,250
----------
70,750
----------
Energy (2.51%)
P & L Coal Holdings Corp.,
Sr Sub Note 05-15-08 (R) ............ 9.625 B 200 203,500
----------
Food (2.72%)
Agrilink Foods, Inc.,
Sr Sub Note 11-01-08 (R) ............ 11.875 B 50 51,000
Mastellone Hermanos S.A.,
Sr Note (Argentina) 04-01-08 (Y) .... 11.750 B+ 75 60,000
RAB Holdings, Inc.,
Sr Note 05-01-08 (R) ................ 13.000 CCC+ 120 84,000
Specialty Foods Acquisition Corp.,
Sr Sub Note Ser B 08-15-03 .......... 11.250 CCC 50 26,000
----------
221,000
----------
Government - Foreign (0.26%)
Government of Jamaica,
Note (Jamaica) 06-10-05 (R) (Y) ..... 10.875 Ba3 25 21,000
----------
Leisure (7.08%)
Argosy Gaming Co.,
1st Mtg Note 06-01-04 ............... 13.250 B+ 100 112,125
Conv Sub Note 06-01-01 .............. 12.000 B- 24 23,610
Claridge Hotel & Casino Corp.,
1st Mtg Note 02-01-02 ............... 11.750 CCC 50 37,500
Empress Entertainment, Inc.,
Sr Sub Note 07-01-06 ................ 8.125 B+ 75 75,375
Fitzgeralds Gaming Corp.,
Gtd Sr Sec Ser B Note 12-15-04 ...... 12.250 B- 50 27,000
IHF Holdings, Inc.,
Sr Sub Disc Note
Ser B, Step Coupon
(15.00%, 11-15-99) 11-15-04 (A) ..... Zero Caa2 25 2,750
SC International Services, Inc.,
Gtd Sr Sub Note Ser B 09-01-07 ...... 9.250 B 30 30,000
SFX Entertainment, Inc.,
Gtd Sr Sub Note 02-01-08 ............ 9.125 B- 100 99,000
Six Flags Entertainment Corp.,
Gtd Sr Note 04-01-06 ................ 8.875 B- 100 103,625
Venetian Casino Resort LLC/
Las Vegas Sands, Inc.,
1st Mtg Note 11-15-04 ............... 12.250 B- 40 37,200
William Hill Finance Plc,
Sr Sub Note (United Kingdom)
04-30-08 # .......................... 10.625 B- 16 26,888
----------
575,073
----------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
109
<PAGE>
==============================FINANCIAL STATEMENTS==============================
John Hancock Funds - Declaration Trust -- V.A. High Yield Bond Fund
<TABLE>
<CAPTION>
INTEREST CREDIT PAR VALUE MARKET
ISSUER, DESCRIPTION RATE RATING* (000s OMITTED) VALUE
- ------------------- -------- ------ -------------- -------
<S> <C> <C> <C> <C>
Machinery (0.24%)
Glasstech, Inc.,
Sr Note Ser B 07-01-04 .............. 12.750% B+ $25 $19,250
----------
Manufacturing (3.55%)
AP Holdings, Inc.,
Sr Disc Note, Step Coupon
(11.25%, 03-15-03) 03-15-08 (A) ..... Zero B- 200 108,000
Coyne International Enterprises Corp.,
Sr Sub Note 06-01-08 (R) ............ 11.250 B- 65 63,700
Globe Manufacturing Corp.,
Sr Sub Note 08-01-08 (R) ............ 10.000 B- 100 90,500
Icon Health & Fitness, Inc.,
Sr Sub Note Ser B 07-15-02 .......... 13.000 CCC+ 50 26,000
----------
288,200
----------
Media (3.58%)
CD Radio, Inc.,
Sr Disc Note, Step Coupon
(15.00%, 12-01-02) 12-01-07 (A) ..... Zero CCC+ 10 6,100
Citadel Broadcasting Co.,
Sr Sub Note 11-15-08 (R) ............ 9.250 B- 75 78,375
Cumulus Media, Inc.,
Gtd Sr Sub Note 07-01-08 ............ 10.375 CCC+ 100 106,000
Digital Television Services LLC,
Gtd Sr Sub Note 08-01-07 ............ 12.500 CCC 35 37,625
Echostar Communications Corp.,
Sr Disc Note, Step Coupon
(12.875%, 06-01-99)
06-01-04 (A) ........................ Zero B- 25 25,562
Regional Independent Media Group Plc,
Sr Disc Note, Step Coupon
(12.875%, 07-01-03) (United
Kingdom) 07-01-08 (A) (Y) ......... Zero B- 20 17,970
Sr Note (United Kingdom)
07-01-08 (R) (Y) .................. 10.500 B- 5 5,050
Supercanal Holdings S.A./
Supercanal S.A., Sr Note
(Argentina) 05-15-05 (R) (Y) ........ 11.500 B 24 13,680
----------
290,362
----------
Medical (0.87%)
Integrated Health Services, Inc.,
Sr Sub Note 01-15-08 ................ 9.250 B- 75 70,500
----------
Metal (2.62%)
Doe Run Resources Corp.,
Sr Note 03-15-03 *** ................ 12.009 B+ 25 20,750
Sr Note Ser B 03-15-05 .............. 11.250 B+ 10 8,100
Freeport-McMoRan Copper & Gold,
Inc., Sr Note 11-15-06 .............. 7.500 CCC+ 75 48,000
Golden Northwest Aluminum, Inc.,
1st Mtg Note 12-15-06 (R) .......... 12.000 BB- 25 25,312
Metallurg Holdings, Inc.,
Sr Disc Note, Step Coupon
(12.75%, 07-15-03) 07-15-08 (A) ..... Zero CCC+ 40 13,200
Metallurg, Inc.,
Sr Note Ser B 12-01-07 .............. 11.000 B- 30 27,600
TVX Gold, Inc.,
Conv Sub Note
(Canada) 03-28-02 (Y) ............... 5.000 B- 100 70,000
----------
212,962
----------
Oil & Gas (6.87%)
Gothic Energy Corp.,
Sr Disc Note,
Step Coupon (14.125%, 05-01-02)
05-01-06 (A) ........................ Zero CCC- $10 $3,300
Gothic Production Corp.,
Sr Sec Note Ser B 05-01-05 .......... 11.125% B- 150 115,500
Great Lakes Acquisition Corp.,
Sr Disc Deb, Step Coupon
(13.125%, 05-15-03)
05-15-09 (A) ........................ Zero B- 200 102,000
Grey Wolf, Inc.,
Gtd Sr Note 07-01-07 ................ 8.875 B+ 75 56,250
Gtd Sr Note Ser C 07-01-07 .......... 8.875 B+ 25 18,750
Key Energy Group, Inc.,
Conv Sub Note 09-15-04 (R) .......... 5.000 B 80 36,000
Conv Sub Note 09-15-04 .............. 5.000 B 143 64,350
Note 09-14-99 (r) ................... 11.910 B- 99 98,815
Mariner Energy, Inc.,
Sr Sub Note Ser B 08-01-06 .......... 10.500 B- 10 9,000
Ocean Rig Norway A.S.,
Gtd Sr Sec Note
(Norway) 06-01-08 (Y) ............... 10.250 B- 51 40,800
PANACO, Inc.,
Gtd Sr Sub Note Ser B 10-01-04 ...... 10.625 B- 10 7,400
Universal Compression, Inc.,
Sr Disc Note, Step Coupon
(9.875%, 02-15-03)
02-15-08 (A) (R) .................... Zero B 10 5,800
----------
557,965
----------
Paper & Paper Products (3.25%)
Advance Agro Public Co.,
Sr Note (Thailand)
11-15-07 (R) (Y) .................... 13.000 CCC 50 42,500
APP Finance (VII) Mauritius Ltd.,
Gtd Note (Indonesia)
04-30-03 (R) (Y) .................... 3.500 CCC+ 10 4,900
APP International Finance Co. B.V.,
Gtd Sec Note (Indonesia)
10-01-05 (Y) ........................ 11.750 CCC+ 150 96,750
Grupo Industrial Durango, S.A.,
Note (Mexico) 08-01-03 (Y) .......... 12.625 BB- 50 43,750
Repap New Brunswick, Inc.,
Sr Sec Note (Canada)
04-15-05 (Y) ........................ 10.625 CCC+ 100 67,000
Sappi BVI Finance Ltd.,
Gtd Conv Bond (South Africa)
08-01-02 (R) (Y) .................... 7.500 BB- 10 8,600
----------
263,500
----------
Real Estate Operations (0.29%)
Signature Resorts, Inc.,
Conv Sub Note 01-15-07 .............. 5.750 B 35 23,450
----------
Retail (4.80%)
American Restaurant Group, Inc.,
Sr Sec Note 02-15-03 ................ 11.500 B 50 43,500
Corporate Express, Inc.,
Conv Note 07-01-00 .................. 4.500 B 100 84,250
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
110
<PAGE>
==============================FINANCIAL STATEMENTS==============================
John Hancock Funds - Declaration Trust -- V.A. High Yield Bond Fund
<TABLE>
<CAPTION>
INTEREST CREDIT PAR VALUE MARKET
ISSUER, DESCRIPTION RATE RATING* (000s OMITTED) VALUE
- ------------------- -------- ------ -------------- -------
<S> <C> <C> <C> <C>
Retail (continued)
Frank's Nursery & Crafts,
Sr Sub Note 03-01-08 ................ 10.250% B- $25 $24,500
Hills Stores Co.,
Sr Note Ser B 07-01-03 .............. 12.500 B- 35 24,150
Imperial Home Decor Group, Inc,
Gtd Sr Sub Note 03-15-08 ............ 11.000 B- 125 111,250
Jitney-Jungle Stores of America, Inc.,
Gtd Sr Sub Note 09-15-07 ............ 10.375 B- 100 102,500
----------
390,150
----------
Steel (4.05%)
Acindar Industria Argentina
de Aceros S.A., Bond
(Argentina) 02-15-04 (Y) ............ 11.250 B+ 25 20,000
Algoma Steel, Inc.,
1st Mtg 07-15-05 .................... 12.375 B 90 67,500
Gulf States Steel, Inc. of Alabama,
1st Mtg Bond 04-15-03 ............... 13.500 CCC 100 32,000
NSM Steel Inc./NSM Steel Ltd.,
Sr Sub Mtg Note Ser B
02-01-08 (R) ........................ 12.250 CC 75 9,000
Oregon Steel CF&I,
Note 03-31-03 (r) ................... 9.500 B 92 89,198
Weirton Steel Corp.,
Sr Note 07-01-04 .................... 11.375 B 125 111,250
----------
328,948
----------
Telecommunications (16.38%)
AMSC Acquisition Co., Inc./
American Mobil Satellite Corp.
Gtd Sr Note Ser B 04-01-08 .......... 12.250 B- 40 24,800
Call-Net Enterprises, Inc.,
Sr Note (Canada) 08-15-08 (Y) ....... 8.000 BB- 100 95,500
COLT Telecom Group Plc,
Sr Note (Germany) 07-31-08 # ........ 7.625 B 200 118,830
Crown Castle International Corp.,
Sr Disc Note, Step Coupon
(10.625%, 11-01-02)
11-15-07 (A) ........................ Zero B 10 6,900
Dolphin Telecom Plc,
Sr Disc Note, Step Coupon (11.50%,
06-01-03) (United Kingdom)
06-01-08 (R) (Y) .................... Zero CCC+ 40 16,000
Esprit Telecom Group Plc,
Sr Note (United Kingdom)
06-15-08 (Y) ...................... 10.875 B- 40 40,400
Sr Note (Germany) 06-15-08 # ........ 11.000 B- 60 35,829
FaciliCom International,
Sr Note 01-15-08 .................... 10.500 B- 100 80,000
Hermes Europe Railtel B.V.,
Sr Note (Belgium) 01-15-09 (R) (Y) .. 10.375 B 50 51,000
International Wireless
Communications, Inc.,
Sr Sec Disc Note 08-15-01 .......... Zero B- 50 5,000
ITC DeltaCom, Inc.,
Sr Note 11-15-08 (R) ................ 9.750 B 100 103,500
Long Distance International, Inc.,
Sr Note 04-15-08 (R) ................ 12.250 B- 100 82,500
McLeodUSA, Inc.,
Sr Note 11-01-08 (R) ................ 9.500 B+ 100 106,000
NEXTLINK Communications, Inc.,
Sr Note 11-15-08 (R) ................ 10.750 B 75 76,875
Telecommunications (continued)
NTL, Inc.,
Sr Note 10-01-08 (R) ................ 11.500% B- $50 $55,500
Sr Note, Step Coupon (12.375%,
10-01-03) 10-01-08 (A) (R) ........ Zero B- 100 63,500
Omnipoint Corp.,
Sr Note Ser A 08-15-06 .............. 11.625 CCC+ 16 11,200
Qwest Communications International
Inc., Sr Note 11-01-08 (R) .......... 7.500 BB+ 25 26,000
Teligent, Inc.,
Sr Note 12-01-07 .................... 11.500 CCC 16 14,960
VersaTel Telecom B.V., Sr Note
(Netherlands) 05-15-08 (R) (Y) ...... 13.250 B- 125 124,375
Viatel, Inc.,
Jr Sub Deb (Germany)
04-15-11 (R) # .................... 10.000 Caa1 9 4,927
Sr Note (Germany) 04-15-08 # ........ 11.150 Caa1 170 102,026
Sr Sec Note 04-15-08 ................ 11.250 Caa1 10 10,000
WinStar Communications, Inc.,
Sr Sub Def Note 03-15-08 ............ 11.000 CCC 34 24,140
Worldwide Fiber, Inc.,
Sr Note (Canada) 12-15-05 (R) (Y) ... 12.500 B- 50 50,250
----------
1,330,012
----------
Textile (2.47%)
Steel Heddle Group, Inc.,
Sr Disc Deb, Step Coupon (13.75%,
06-01-03) 06-01-09 (A) (R) .......... Zero CCC+ 200 60,000
Steel Heddle Manufacturing Co.,
Sr Sub Note 06-01-08 (R) ............ 10.625 CCC+ 50 35,000
Tropical Sportswear International Corp.,
Gtd Sr Sub Note Ser A 06-15-08 ...... 11.000 B- 100 105,250
----------
200,250
----------
Transport (3.06%)
Cenargo International Plc,
1st Mtg Note (United Kingdom)
06-15-08 (R) (Y) .................... 9.750 BB- 20 18,800
Fine Air Services, Inc.,
Gtd Sr Note 06-01-08 ................ 9.875 B 100 90,000
Northwest Airlines Corp.,
Gtd Note 03-15-07 ................... 8.700 BB 100 98,550
Pacific & Atlantic Holdings, Inc.,
1st Mtg Note (Greece)
05-30-08 (R) (Y) .................... 11.500 B 50 41,500
----------
248,850
----------
Utilities (1.78%)
CalEnergy Co., Inc.,
Sr Note 09-15-08 .................... 7.520 BB+ 100 105,155
Empire Gas Corp.,
Gtd Sr Sec Note 07-15-04 ............ 7.000 CC 50 39,125
----------
144,280
----------
Waste Disposal Service & Equipment (2.38%)
Waste Systems International, Inc.,
Sub Note 05-13-05 (R) ............... 7.000 CCC+ 200 193,000
----------
TOTAL BONDS
(Cost $7,669,500) (82.49%) 6,697,664
-------- ----------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
111
<PAGE>
==============================FINANCIAL STATEMENTS==============================
John Hancock Funds - Declaration Trust -- V.A. High Yield Bond Fund
<TABLE>
<CAPTION>
NUMBER OF MARKET
ISSUER, DESCRIPTION SHARES VALUE
- ------------------- ------ -----
<S> <C> <C>
COMMON STOCKS
Abitibi-Consolidated, Inc.
(Canada) (Y) .......................................... 12,500 $116,406
American Pacific Corp. ** .............................. 5,000 39,375
Galileo International, Inc. ............................ 1,500 65,250
Gaylord Container Corp. (Class A) ** ................... 6,000 36,750
Grey Wolf, Inc. ** ..................................... 3,500 2,844
KLM Royal Dutch Airlines N.V.
(Netherlands) # ....................................... 103 3,090
Northeast Utilities ** ................................. 2,000 32,000
Northwest Airlines Corp. (Class A) ** .................. 3,250 83,078
Repap Enterprises, Inc. (Canada) ** # ................. 150,000 8,295
Takefuji Corp. (Japan) # .............................. 1,000 73,141
Weatherford International, Inc. ** .................... 700 13,563
----------
TOTAL COMMON STOCKS
(Cost $657,792) (5.83%) 473,792
------- ----------
PREFERRED STOCKS AND WARRANTS
American Mobile Satellite Corp., Warrant (R) ** ........ 40 --
CD Radio, Inc., 10.50%, Ser C, Conv Preferred Stock .... 200 40,000
Cumulus Media, Inc., 13.75%, Ser A, Preferred Stock .... 29 31,175
Fuji JGB Inv LLC, 9.87%, Ser A,
Preferred Stock (Japan) (R) (Y) ....................... 135 99,900
Global Crossing Ltd., 10.50%, Payment-in-Kind,
Preferred Stock (R) ................................... 1,000 97,000
Gothic Energy Corp., Warrant ** ........................ 79 --
Long Distance International, Inc., Warrant ** .......... 100 125
Nakornthai Strip Mill Plc, Warrant (Thailand) (R) (Y) ** 63,309 63
Nextel Communications, Inc., 11.125%, Ser E,
Payment-In-Kind, Preferred Stock ...................... 163 147,515
SpinCycle, Inc., Warrant (R) ** ........................ 25 --
Stone Container Corp., $1.75, Ser E, Preferred Stock ... 2,000 38,500
VersaTel Telecom B.V., Warrant (R) ** .................. 125 1,250
Viatel, Inc., 10.00%, Ser A, Preferred Stock ........... 5 460
----------
TOTAL PREFERRED STOCKS AND WARRANTS
(Cost $505,912) ............... (5.62%) 455,988
------- ----------
<CAPTION>
INTEREST PAR VALUE
RATE (000s OMITTED)
---- ------------
<S> <C> <C> <C>
SHORT-TERM INVESTMENTS
Joint Repurchase Agreement (4.42%)
Investment in a joint repurchase
agreement transaction with SBC
Warburg, Inc. - Dated 12-31-98,
due 01-04-99 (Secured by U.S
Treasury Bonds, 6.250% thru
9.125% due 05-15-18 thru
08-15-23) - Note B........ 4.75% $359 $359,000
----------
Corporate Savings Account (0.01%)
Investors Bank & Trust Company
Daily Interest Savings Account
Current Rate 4.00%........ 585
----------
TOTAL SHORT-TERM INVESTMENTS (4.43%) 359,585
------- ----------
TOTAL INVESTMENTS (98.37%) 7,987,029
------- ----------
OTHER ASSETS AND LIABILITIES, NET (1.63%) 132,518
------- ----------
TOTAL NET ASSETS (100.00%) $8,119,547
======= ==========
</TABLE>
NOTES TO THE SCHEDULE OF INVESTMENTS
* Credit ratings are unaudited and rated by Moody's Investors Service or
John Hancock Advisers, Inc. where Standard and Poor's ratings are not
available.
** Non-income producing security.
*** Represents rate in effect on December 31, 1998.
# Par value of foreign bonds and 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 $2,252,044 or 27.74% of net assets as of
December 31, 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 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:
<TABLE>
<CAPTION>
MARKET VALUE MARKET VALUE
ACQUISITION ACQUISITION AS A %OF AS OF
ISSUER, DESCRIPTION DATE COST FUND NET ASSETS DECEMBER 31, 1998
------------------- ----------- ----------- --------------- -----------------
<S> <C> <C> <C> <C>
Key Energy Group, Inc. .. 11-06-98 $95,100 1.22% $98,815
Oregon Steel CF&I ....... 05-14-98 96,881 1.10 89,198
---- ---------
TOTALS 2.32% $188,013
==== =========
</TABLE>
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.
112
<PAGE>
==============================FINANCIAL STATEMENTS==============================
John Hancock Funds - Declaration Trust -- V.A. High Yield Bond Fund
Portfolio Concentration (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
ecomonic and financial conditions of the countries within which it invests. The
concentration of investments by industry category for individual securities held
by the Fund is shown in the schedule of investments. In addition, concentration
of investments can be aggregated by various countries. The table below shows the
percentages of the Fund's investments at December 31, 1998 assigned to country
categories.
MARKET VALUE
AS A % OF
COUNTRY DIVERSIFICATION FUND'S NET ASSETS
- ----------------------- -----------------
Argentina.................................. 1.15%
Belgium.................................... 0.63
Brazil..................................... 0.69
Canada..................................... 5.02
Germany.................................... 3.22
Greece..................................... 0.51
Indonesia.................................. 1.25
Jamaica.................................... 0.26
Japan...................................... 2.13
Mexico..................................... 0.54
Netherlands................................ 1.57
Norway..................................... 0.50
South Africa............................... 0.11
Thailand................................... 0.53
United Kingdom............................. 1.54
United States.............................. 78.72
-----
TOTAL INVESTMENTS 98.37%
=====
Additionally, the concentration of investments can be aggregated by the quality
rating for each debt security.
QUALITY DISTRIBUTION
- --------------------
BB......................................... 6.78
B.......................................... 57.78
CCC........................................ 17.34
CC......................................... 0.59
-----
TOTAL BONDS 82.49%
=====
SEE NOTES TO FINANCIAL STATEMENTS.
113
<PAGE>
==============================FINANCIAL STATEMENTS==============================
John Hancock Funds - Declaration Trust -- V.A. World Bond Fund
Schedule of Investments
December 31, 1998
- --------------------------------------------------------------------------------
The Schedule of Investments is a complete list of all securities owned by V.A.
World Bond Fund on December 31, 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.
<TABLE>
<CAPTION>
PAR VALUE
INTEREST (000s MARKET
ISSUER, DESCRIPTION RATE OMITTED)# VALUE
- ------------------- ---- --------- -----
<S> <C> <C> <C>
BONDS
British Pound Sterling (18.95%)
United Kingdom Treasury,
Bond 08-10-99 ......................... 6.000% 125 $208,463
Bond 12-07-00 ......................... 8.000 100 175,510
Bond 11-06-01 ......................... 7.000 70 123,322
----------
507,295
----------
Canadian Dollar (3.91%)
Government of Canada,
Bond 03-01-01 ......................... 7.500 75 51,717
Bond 06-01-08 ......................... 6.000 75 53,077
----------
104,794
----------
Deutsche Mark (19.32%)
Colt Telecom Group Plc (United Kingdom),
Sr Note Ser DTC 07-31-08 .............. 7.625 15 8,910
Federal Republic of Germany,
Bond Ser 121 11-20-01 ................. 4.750 465 290,813
Ford Motor Credit Co. (United States),
Bond 06-16-08 ......................... 5.250 350 217,382
----------
517,105
----------
European Currency Unit (1.09%)
Orange Plc (United Kingdom),
Sr Note 08-01-08 ...................... 7.625 25 29,186
----------
U.S. Dollar (46.79%)
Federal Home Loan Bank,
Bond 10-15-03 ......................... 5.440 $150 151,804
Bond 03-26-07 ......................... 6.945 100 110,562
Federal Home Loan Mortgage Corp.,
Giant Mtg Part Cert 07-01-12 .......... 7.000 106 108,299
Federal National Mortgage Assn.,
Note Ser MTN 10-23-02 ................. 6.080 250 257,813
Government of Jamaica (Jamaica),
Note 06-10-05 (R) ..................... 10.875 10 8,400
Republic of Costa Rica (Costa Rica),
Deb 05-01-03 (R) ...................... 8.000 25 24,875
Republic of Panama (Panama),
Note Ser REGS 02-13-02 ................ 7.875 50 48,000
United Mexican States (Mexico),
Global Bond 02-06-01 .................. 9.750 50 50,625
United States Treasury,
Bond 08-15-27 ......................... 6.375 75 86,203
Note 04-30-03 ......................... 5.750 25 26,024
Note 08-15-03 ......................... 5.250 55 56,401
Note 05-15-07 ......................... 6.625 120 134,944
Note 08-15-07 ......................... 6.125 75 81,914
Note 05-15-08 ......................... 5.625 100 106,703
----------
1,252,567
----------
TOTAL BONDS
(Cost $2,327,862) (90.06%) 2,410,947
-------- ----------
<CAPTION>
EXPIRATION
CURRENCY DATE/STRIKE MARKET
CURRENCY PURCHASED SOLD PRICE VALUE
- ------------------ ---- ----- -----
<S> <C> <C> <C>
OPTIONS
Japanese Yen......... USD 280,000 March 99/140-150 $70
----------
TOTAL OPTIONS
(Premium Paid $2,450) (0.00%) 70
-------- ----------
<CAPTION>
PAR VALUE
INTEREST (000s
ISSUER, DESCRIPTION RATE OMITTED)#
- ------------------- ---- ---------
<S> <C> <C> <C>
SHORT-TERM INVESTMENTS
Joint Repurchase Agreement (8.59%)
Investment in a joint repurchase
agreement transaction with SBC
Warburg, Inc. - Dated 12-31-98,
due 01-04-99 (Secured by U.S.
Treasury Bonds, 7.50% thru 11.75%
due 02-15-10 thru 11-15-16) - Note B .......... 4.75% $230 230,000
-------- ----------
TOTAL SHORT-TERM INVESTMENTS (8.59%) 230,000
-------- ----------
TOTAL INVESTMENTS (98.65%) 2,641,017
-------- ----------
OTHER ASSETS AND LIABILITIES, NET (1.35%) 35,944
-------- ----------
TOTAL NET ASSETS (100.00%) $2,676,961
======== ==========
</TABLE>
# Par value of non U.S. dollar denominated foreign bonds is expressed in
local currency for each country listed.
(R) These securities are exempt from registration under rule 144A of the
Securities Act of 1933. Such securities may be resold, normally to
qualified institutional buyers, in transactions exempt from registration.
Rule 144A securities amounted to $33,275 or 1.24% of the Fund's net assets
as of December 31, 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.
Portfolio Concentration (Unaudited)
- --------------------------------------------------------------------------------
The Fund primarily invests in bonds issued by the U.S. government, its agencies
or instrumentalities, foreign governments and companies. The performance of the
Fund is closely tied to the economic condition within the countries in which it
invests. The concentration of investments by currency denomination for
individual securities held by the Fund is shown in the schedule of investments.
In addition, concentration of investments can be aggregated by various
investment categories. The table below shows the percentages of the Fund's
investments at December 31, 1998 assigned to the various investment categories.
MARKET VALUE AS A
INVESTMENT CATEGORIES % OF FUND NET ASSETS
- --------------------- --------------------
Finance........................................ 8.12%
Government - Foreign........................... 38.65
Government - U.S............................... 18.39
Government - U.S. Agencies..................... 23.48
Telecommunications............................. 1.42
Options........................................ 0.00
Short-Term Investments......................... 8.59
-----
TOTAL INVESTMENTS 98.65%
=====
SEE NOTES TO FINANCIAL STATEMENTS.
114
<PAGE>
==============================FINANCIAL STATEMENTS==============================
John Hancock Funds - Declaration Trust -- V.A. Money Market Fund
Schedule of Investments
December 31, 1998
- --------------------------------------------------------------------------------
The Schedule of Investments is a complete list of all securities owned by the
V.A. Money Market Fund on December 31, 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 (2.42%)
Abbey National Treasury Services,
01-19-99 ............................ 5.375% Tier 1 $400 $399,937
-----------
TOTAL NEGOTIABLE BANK CERTIFICATES OF DEPOSIT
(Cost $399,937) (2.42%) 399,937
------- -----------
CORPORATE INTEREST BEARING OBLIGATIONS
Automotive (8.09%)
Ford Motor Credit Co.,
01-15-99 ............................ 5.625 Tier 1 750 750,028
General Motors Acceptance Corp.,
05-17-99 ............................ 6.400 Tier 1 585 586,678
-----------
1,336,706
-----------
Banking (5.91%)
Security Pacific Corp.,
05-15-99 ............................ 9.750 Tier 1 370 375,131
Wachovia Bank of North Carolina,
01-04-99 ............................ 5.375 Tier 1 200 199,994
04-14-99 ............................ 6.700 Tier 1 400 401,808
-----------
976,933
-----------
Broker Services (1.52%)
Merrill Lynch & Co., Inc.,
04-09-99 ............................ 6.640 Tier 1 250 250,565
-----------
Finance (10.06%)
American Express Credit Corp.,
02-01-99 ............................ 7.375 Tier 1 100 100,130
Associates Corp. of North America,
09-01-99 ............................ 7.250 Tier 1 380 383,784
Beneficial Corp.,
04-02-99 ............................ 8.050 Tier 1 275 276,483
International Lease Finance Corp.,
01-15-99 ............................ 5.500 Tier 1 400 400,028
01-15-99 ............................ 5.750 Tier 1 300 299,997
03-01-99 ............................ 7.500 Tier 1 200 200,600
-----------
1,661,022
-----------
Tobacco (1.82%)
Philip Morris Cos., Inc.,
03-01-99 ............................ 8.625 Tier 1 300 301,260
-----------
Utilities (3.06%)
NYNEX Capital Funding Co.,
07-19-99 ............................ 7.610 Tier 1 500 505,054
-----------
TOTAL CORPORATE INTEREST BEARING OBLIGATIONS
(COST $5,031,540) (30.46%) 5,031,540
------- -----------
U.S.GOVERNMENT OBLIGATIONS
Governmental - U.S. Agencies (48.73%)
Federal Home Loan Bank,
01-27-99 # .......................... 5.000% Tier 1 5,000 5,000,000
10-08-99 ............................ 5.070 Tier 1 550 549,868
Federal National Mortgage Association,
05-05-99 ............................ 5.630 Tier 1 500 499,890
Student Loan Marketing Association,
02-22-99 ............................ 4.838** Tier 1 2,000 1,999,465
-----------
8,049,223
-----------
TOTAL U.S. GOVERNMENT OBLIGATIONS
(Cost $8,049,223) (48.73%) 8,049,223
------- -----------
TOTAL SHORT - TERM INVESTMENTS
(Cost $13,480,700) (81.61%) 13,480,700
------- -----------
JOINT REPURCHASE AGREEMENT
Investment in a joint repurchase
agreement transaction with SBC
Warburg, Inc. - Dated 12-31-98,
due 01-04-99 (Secured by U.S.
Treasury Bonds, 7.50% and
11.75% due 02-15-10 and
11-15-16) - Note B................... 4.750 2,703 2,703,000
------- -----------
TOTAL JOINT REPURCHASE AGREEMENT (16.36%) 2,703,000
------- -----------
TOTAL INVESTMENTS (97.97%) 16,183,700
------- -----------
OTHER ASSETS AND LIABILITIES, NET (2.03%) 335,674
------- -----------
TOTAL NET ASSETS (100.00%) $16,519,374
======= ===========
</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 December 31, 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.
115
<PAGE>
==========================NOTES TO FINANCIAL STATEMENTS=========================
John Hancock Funds - Declaration Trust
NOTE A --
ORGANIZATION
John Hancock V.A. International Fund ("V.A. International Fund"), John
Hancock V.A. 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 7, 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 6, 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. Bond Fund ("V.A. 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 6, 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 October 1, 1998, V.A. Bond Fund was known as John Hancock
V.A. Sovereign Bond Fund. 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, consists of fifteen different series at December 31,
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. 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
invest ment 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 into U.S. dollars as described
in "Foreign Currency Translation." The Funds may invest
116
<PAGE>
==========================NOTES TO FINANCIAL STATEMENTS=========================
John Hancock Funds - Declaration Trust
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.
Expired capital loss carryforwards are reclassified to capital paid-in, in
the year of expiration. Additionally, net capital losses attributable to
security transactions occuring after October 31, 1998 are treated as arising on
the first day (January 1, 1999) of the Funds' next taxable year.
<TABLE>
<CAPTION>
CAPITAL LOSS CAPITAL LOSS CAPITAL LOSS POST OCTOBER 31, 1998
CARRYFORWARD CARRYFORWARD CARRYFORWARD LOSS TREATED AS ARISING
FUND EXPIRING 12/31/2004 EXPIRING 12/31/2005 EXPIRING 12/31/2006 JANUARY 1, 1999
- ---- ------------------- ------------------- ------------------- ---------------
<S> <C> <C> <C> <C>
V.A. International Fund ........... $ -- $ -- $187,201 $ --
V.A. Regional Bank Fund ........... -- -- -- --
V.A. Financial Industries
Fund ............................ -- -- -- 575,994
V.A. Emerging Growth Fund ......... 18,937 167,088 467,575 --
V.A. Special Opportunities
Fund ............................ -- -- 110,444 9,527
V.A. Growth Fund .................. -- 189,103 -- --
V.A. Growth and Income
Fund ............................ -- -- -- 664
V.A. Independence Equity
Fund ............................ -- -- -- 66,650
V.A. Sovereign Investors
Fund ............................ -- -- 157,877 --
V.A. 500 Index Fund ............... -- -- -- --
V.A. Bond Fund .................... -- -- -- 1,003
V.A. Strategic Income Fund ........ -- -- -- 47,579
V.A. High Yield Bond Fund ......... -- -- 145,743 1,209
V.A. World Bond Fund .............. -- -- -- (3,832)
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 size 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 Any 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 applicable Fund.
BANK BORROWINGS The Funds are permitted to have bank borrowings for temporary or
emergency purposes, including the meeting of redemption requests that otherwise
might require the untimely disposition of securities. These agreements enable
the Funds to participate with other funds managed
117
<PAGE>
==========================NOTES TO FINANCIAL STATEMENTS=========================
John Hancock Funds - Declaration Trust
by the Adviser in unsecured lines of credit with banks which permit borrowings
up to $800 million, collectively. Interest is charged to each of the funds,
based on its borrowings, at a rate equal to 0.50% over the Fed Funds Rate. In
addition, a commitment fee, at 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 year
ended December 31, 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 exchange contracts for the Trust at December
31, 1998 were as follows:
UNREALIZED
PRINCIPAL AMOUNT EXPIRATION APPRECIATION/
CURRENCY COVERED BY CONTRACT MONTH (DEPRECIATION)
- -------- ------------------- ----- --------------
V.A. GROWTH & INCOME FUND
Sells
Japanese Yen................. 3,705,446 MAR 99 ($ 1,003)
=======
V.A. STRATEGIC INCOME FUND
Buys
Australian Dollar............ 471,760 JAN 99 ($ 2,003)
=======
Sells
Australian Dollar............ 703,051 JAN 99 $12,624
Canadian Dollar.............. 71,232 FEB 99 (284)
Canadian Dollar.............. 508,055 MAR 99 (3,119)
Deutsche Mark................ 535,158 JAN 99 2,461
Deutsche Mark................ 957,643 MAR 99 (627)
Deutsche Mark................ 164,000 APRIL 99 (2,046)
Pound Sterling............... 62,033 FEB 99 675
Pound Sterling............... 53,758 MAR 99 583
-------
$10,267
=======
V.A. HIGH YIELD BOND FUND
Sells
Deutsche Mark................ 406,435 JAN 99 $ 2,204
Japanese Yen................. 8,573,680 MAR 99 (2,080)
Pound Sterling............... 25,270 FEB 99 (120)
-------
$ 4
=======
V.A. WORLD BOND FUND
Buys
Deutsche Mark................ 744,154 FEB 99 ($ 2,454)
Japanese Yen................. 20,380,500 JAN 99 9,325
-------
$ 6,871
=======
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 Fund instruments. At the time each Fund
enters into a financial futures contract, it will be required to deposit with
its custodian a specified amount of cash or U.S. government securities, known as
"initial margin," equal to a certain percentage of the value of the financial
futures contract being traded. Each day, the futures contract is valued at the
official settlement price on the board of trade or U.S. commodities exchange on
which it trades. Subsequent payments, known as "variation margin," to and from
the broker are made on a daily basis as the market price of the financial
futures contract fluctuates. Daily variation margin adjustments, arising from
this "mark to market," will be recorded by the Funds as unrealized gains or
losses.
When the contracts are closed, the Funds recognize a gain or loss. Risks of
entering into futures contracts include the possibility that there may be
118
<PAGE>
==========================NOTES TO FINANCIAL STATEMENTS=========================
John Hancock Funds - Declaration Trust
an illiquid market and/or that a change in the value of the contracts may not
correlate with changes in the value of the underlying securities. In addition,
the Funds could be prevented from opening or realizing the benefits of closing
out futures positions because of position limits or limits on daily price
fluctuation imposed by an exchange.
For federal income tax purposes, the amount, character and timing of the
Funds' gains and/or losses can be affected as a result of futures contracts.
Open financial futures contracts for the Trust at December 31, 1998 were as
follows:
OPEN UNREALIZED
EXPIRATION CONTRACTS POSITION APPRECIATION
- ---------- --------- -------- ------------
V.A. 500 INDEX FUND
Mar 99..................... 5 S&P 500 Long $34,665
=======
V.A. STRATEGIC INCOME FUND
Mar 99..................... 5 U.S. Treasury Notes Long $2,996
=======
At December 31, 1998, the V.A. 500 Index Fund had deposited $67,500 in a
segregated account to cover margin requirements on open financial futures
contracts. The V.A. Strategic Income Fund had deposited in a segregated account
$21,500 par value of U.S. Treasury Bond, 8.125%, 02-15-16, to cover margin
requirements on open financial futures contracts.
OPTIONS The Funds (except V.A. Money Market Fund) may enter into option
contracts. Listed options will be valued at the last quoted sales price on the
exchange on which they are primarily traded. Over-the-counter options are valued
at the mean between the last bid and asked prices. 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.
There were no written option transactions for the year ended December 31,
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. 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 Equity Fund to IIA at the following rate: 55% of
the advisory fee payable by the Fund.
Sovereign Asset Management Corporation ("SAMCorp") served as the sub-adviser
of the V.A. Sovereign Investors Fund pursuant to a separate sub-
119
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==========================NOTES TO FINANCIAL STATEMENTS=========================
John Hancock Funds - Declaration Trust
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 paid 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. Effective at the close of business on
December 31, 1998, the service agreement with SAMCorp has been eliminated. The
Adviser will now employ SAMCorp portfolio management.
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 year ended December 31, 1998
were as follows:
FUND FEE REDUCTION
- ---- -------------
V.A. International Fund............................ $106,551
V.A. Regional Bank Fund............................ 8,125
V.A. Financial Industries Fund..................... --
V.A. Emerging Growth Fund.......................... 36,577
V.A. Special Opportunities Fund.................... 32,482
V.A. Growth Fund................................... 21,256
V.A. Growth and Income Fund........................ 13,683
V.A. Independence Equity Fund...................... --
V.A. Sovereign Investors Fund...................... --
V.A. 500 Index Fund................................ 64,970
V.A. Bond Fund..................................... 41,650
V.A. Strategic Income Fund......................... 8,095
V.A. High Yield Bond Fund.......................... 16,142
V.A. World Bond Fund............................... 25,616
V.A. Money Market Fund............................. --
The Adviser reserves the right to terminate this limitation in the future.
The Funds have an agreement with the Adviser to perform necessary tax and
financial management services for the Funds. The compensation for the year was
at an annual rate of less than 0.02% of the average net assets of the Funds.
Mr. Edward J. Boudreau, Jr., Mr. Richard S. Scipione and Ms. Anne C. Hodsdon
are directors and/or officers of the Adviser and/or its affiliates, as well as
Trustees of the Funds. The compensation of unaffiliated Trustees is borne by the
Fund. The 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
December 31, 1998:
FUND SHARES OF BENEFICIAL INTEREST
- ---- -----------------------------
V.A. International Fund........................ 215,007
V.A. Regional Bank Fund........................ 50,413
V.A. Financial Industries Fund................. --
V.A. Emerging Growth Fund...................... 100,201
V.A. Special Opportunities Fund................ 50,023
V.A. Growth Fund............................... 100,000
V.A. Growth and Income Fund.................... 50,451
V.A. Independence Equity Fund.................. --
V.A. Sovereign Investors Fund.................. --
V.A. 500 Index Fund............................ --
V.A. Bond Fund................................. 118,165
V.A. Strategic Income Fund..................... 245,699
V.A. High Yield Bond Fund...................... 218,235
V.A. World Bond Fund........................... 228,312
V.A. Money Market Fund......................... 110,858
NOTE D-
INVESTMENT TRANSACTIONS
Purchases and proceeds from sales of securities for the Funds, excluding
short-term securities, during the year ended December 31, 1998, were as follows:
FUND PURCHASES SALES
- ---- --------- -----
V.A. International Fund .................... $ 7,191,360 $ 4,592,086
V.A. Regional Bank Fund .................... 22,993,554 3,346,397
V.A. Financial Industries Fund ............. 47,515,185 13,903,333
V.A. Emerging Growth Fund .................. 8,785,097 5,252,156
V.A. Special Opportunities Fund ............ 2,509,436 943,031
V.A. Growth Fund ........................... 15,301,310 10,680,221
V.A. Growth and Income Fund ................ 31,011,100 17,194,345
V.A. Independence Equity Fund .............. 22,552,732 8,658,437
V.A. Sovereign Investors Fund
U.S. Government Securities ............... 1,816,266 --
Other Investments ........................ 19,872,093 4,042,282
V.A. 500 Index Fund ........................ 9,822,330 8,938,867
V.A. Bond Fund
U.S. Government Securities ............... 20,123,256 16,932,136
Other Investments ........................ 10,913,722 7,377,814
V.A. Strategic Income Fund
U.S. Government Securities ............... 3,596,191 895,102
Other Investments ........................ 14,684,602 8,136,919
V.A. High Yield Bond Fund
U.S. Government Securities ............... 753,281 752,633
Other Investments ........................ 12,788,319 3,884,275
V.A. World Bond Fund
U.S. Government Securities ............... 652,586 1,287,629
Other Investments ........................ 1,616,146 797,474
120
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==========================NOTES TO FINANCIAL STATEMENTS=========================
John Hancock Funds - Declaration Trust
At December 31, 1998, the cost (excluding the corporate savings account) and
gross unrealized appreciation and depreciation in value of invest ments owned by
the Funds, as computed on a federal income tax basis, were as follows:
<TABLE>
<CAPTION>
GROSS GROSS NET UNREALIZED
AGGREGATE UNREALIZED UNREALIZED APPRECIATION/
FUND COST APPRECIATION DEPRECIATION (DEPRECIATION)
- ---- ---- ------------ ------------ --------------
<S> <C> <C> <C> <C>
V.A. International
Fund ............ $ 6,334,816 $ 1,131,105 $ 288,453 $ 842,652
V.A. Regional Bank
Fund ............ 20,633,763 1,065,688 1,531,723 (466,035)
V.A. Financial
Industries Fund . 51,851,235 5,582,115 2,523,621 3,058,494
V.A. Emerging
Growth Fund ..... 6,546,173 2,123,891 321,573 1,802,318
V.A. Special
Opportunities
Fund ............ 1,569,389 312,879 92,748 220,131
V.A. Growth Fund .. 8,234,847 2,168,412 26,946 2,141,466
V.A. Growth and
Income Fund ..... 14,227,094 2,386,417 543,028 1,843,389
V.A. Independence
Equity Fund ..... 22,831,599 5,071,215 624,988 4,446,227
V.A. Sovereign
Investors Fund .. 31,083,268 4,996,312 385,156 4,611,156
V.A. 500 Index Fund 21,084,251 5,926,941 598,030 5,328,911
V.A. Bond Fund .... 10,389,910 145,537 48,716 96,821
V.A. Strategic
Income Fund ..... 14,942,612 340,526 668,254 (327,728)
V.A High Yield
Bond Fund ....... 9,196,492 132,206 1,342,254 (1,210,048)
V.A. World
Bond Fund ....... 2,557,862 88,678 7,973 80,705
V.A. Money
Market Fund ..... 16,183,700 -- -- --
</TABLE>
NOTE E --
RECLASSIFICATION OF ACCOUNT
During the year ended December 31, 1998, reclassifications have been made in
each Fund's capital accounts to report these balances on a tax basis, excluding
certain temporary differences, as of December 31,1998. Additional adjustments
may be needed in subsequent reporting periods. These reclassifications, which
have no impact on the net asset value of the Funds, are primarily attributable
to differences in the treatment of net operating losses, foreign currency gains
and losses and return of capital under federal tax rules versus generally
accepted accounting principles. The calculation of net investment income per
share in the financial highlights excludes these adjustments.
<TABLE>
<CAPTION>
CAPITAL UNDISTRIBUTED NET ACCUMULATED NET
FUND PAID-IN INVESTMENT INCOME/(LOSS) REALIZED GAIN (LOSS)
- ---- ------- ------------------------ --------------------
<S> <C> <C> <C>
V.A. International Fund ....... $27 ($16,820) $16,793
V.A. Regional Bank Fund ....... -- -- --
V.A. Financial Industries
Fund ........................ 1,407 558 (1,965)
V.A. Emerging Growth Fund ..... (34,304) 33,745 559
V.A. Special Opportunities
Fund ........................ (125) 125 --
V.A. Growth Fund .............. (45) 36 9
V.A. Growth and Income
Fund ........................ -- (3,538) 3,538
V.A. Independence Equity
Fund ........................ (22) (104) 126
V.A. Sovereign Investors
Fund ........................ (32) 17,848 (17,816)
V.A. 500 Index Fund ........... (57) 10 47
V.A. Bond Fund ................ (9) 1 8
V.A. Strategic Income Fund .... (15) (15,398) 15,413
V.A. High Yield Bond Fund ..... (8,794) (5,018) 13,812
V.A. World Bond Fund .......... (38,796) 10,941 27,855
V.A. Money Market Fund ........ (22) 3 19
</TABLE>
NOTE F --
SUBSEQUENT EVENT
On December 8, 1998, the Trustees of the V.A. World Bond Fund approved a
proposed tax-free merger between the V.A. World Bond Fund and the V.A. Strategic
Income Fund. If approved by the shareholders, the reorganization will provide
for a transfer of substantially all assets and liabilities of the V.A. World
Bond Fund to the V.A. Strategic Income Fund. The transaction is planned to take
place after the close of business on March 26, 1999, at which time the V.A.
World Bond Fund will be terminated.
121
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================================================================================
John Hancock Funds - Declaration Trust
REPORT OF ERNST & YOUNG LLP
INDEPENDENT AUDITORS
To the Shareholders and Trustees of
John Hancock Declaration Trust
We have audited the accompanying statements of assets and liabilities of John
Hancock Declaration Trust (the "Trust") (comprising, respectively, 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,
V.A. Growth and Income Fund, V.A. Independence Equity Fund, V.A. Sovereign
Investors Fund, V.A. 500 Index Fund, V.A. Bond Fund, V.A. Strategic Income Fund,
V.A. High Yield Bond Fund, V.A. World Bond Fund and V.A. Money Market Fund) as
of December 31, 1998, including the schedules of investments, and the related
statements of operations for the year then ended, the statements of changes in
net assets for each of the two years in the period then ended, and the financial
highlights for each of the periods indicated therein. These financial statements
and financial highlights are the responsibility of the Trusts' management. Our
responsibility is to express an opinion on these financial statements and
financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements and financial highlights. Our procedures included confirmation of
securities owned as of December 31, 1998, by correspondence with the custodian
and brokers, and other appropriate auditing procedures where replies from
brokers were not received. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of each
of the respective funds constituting the John Hancock Declaration Trust at
December 31, 1998, the results of their operations for the year then ended, the
changes in their net assets for each of the two years in the period then ended,
and the financial highlights for each of the periods indicated therein, in
conformity with generally accepted accounting principles.
/s/ Ernst & Young LLP
Boston, Massachusetts
February 12, 1999
TAX INFORMATION (UNAUDITED)
The Funds designated the following as long-term capital gain divi dends during
the fiscal year ended December 31, 1998.
Additionally, the following dividend distributions qualify for the dividends
received deduction available to corporations.
DIVIDENDS
CAPITAL GAINS RECEIVED
FUND DESIGNATED DEDUCTION
- ---- ---------- ---------
V.A. International Fund.............. $ -- 14.63%
V.A. Regional Bank Fund.............. -- 73.60
V.A. Financial Industries Fund....... -- 99.83
V.A. Emerging Growth Fund............ -- --
V.A. Special Opportunities Fund...... -- 83.38
V.A. Growth Fund..................... -- --
V.A. Growth and Income Fund.......... -- 49.40
V.A. Independence Equity Fund........ -- 91.05
V.A. Sovereign Investors Fund ....... -- 75.75
V.A. 500 Index Fund.................. 198,842 21.65
V.A. Bond Fund ...................... 2,502 --
V.A. Strategic Income Fund .......... 33,333 2.15
V.A. High Yield Bond Fund ........... -- 1.20
V.A. World Bond Fund ................ 4,092 --
V.A. Money Market Fund .............. -- --
122
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================================================================================
John Hancock Funds - Declaration Trust
Dividend Increases (Unaudited)
Listed below are the most recent dividend increases for the common stocks held
in the V.A. Sovereign Investors Fund as of December 31, 1998.
- --------------------------------------------------------------------------------
PERCENT OF
COMPANY DIVIDEND INCREASE
- ------- -----------------
Abbott Laboratories .......................................... 11.1%
AFLAC Corp. .................................................. 13.0
Air Products & Chemicals, Inc. ............................... 13.3
Albertson's, Inc. ............................................ 6.3
ALLTEL Corp. ................................................. 5.2
American Home Products Corp. ................................. 4.7
American International Group, Inc. ........................... 12.0
Ameritech Corp. .............................................. 5.8
Automatic Data Processing, Inc. .............................. 15.1
Banc One Corp. ............................................... 10.0
BankAmerica Corp. ............................................ 18.4
Baxter International, Inc. ................................... 3.0
Becton, Dickinson & Co. ...................................... 17.2
Bell Atlantic Corp. .......................................... 4.1
Bemis Co., Inc. .............................................. 10.0
Bristol-Myers Squibb Co. ..................................... 10.3
Chevron Corp. ................................................ 5.2
Citigroup, Inc. .............................................. 44.0
Dayton Hudson Corp. .......................................... 12.5
Dover Corp. .................................................. 10.5
DuPont (E.I.) De Nemours & Co. ............................... 11.1
Ecolab, Inc. ................................................. 10.5
Emerson Electric Co. ......................................... 10.2
Exxon Corp. .................................................. 3.8
First Tennessee National Corp. ............................... 15.2
First Union Corp. ............................................ 11.9
Flowers Industries, Inc. ..................................... 2.1
Gannett Co., Inc. ............................................ 5.3
General Electric Co. ......................................... 16.7
Grainger (W.W.), Inc. ........................................ 11.1
Hasbro, Inc. ................................................. 20.0
Hewlett-Packard Co. .......................................... 14.3
Home Depot, Inc. (The) ....................................... 20.0
Honeywell, Inc. .............................................. 3.6
Interpublic Group of Companies, Inc. (The) ................... 15.4
Johnson & Johnson ............................................ 13.6
Johnson Controls, Inc. ....................................... 8.7
Leggett & Platt, Inc. ........................................ 6.7
Masco Corp. .................................................. 4.8
McDonald's Corp. ............................................. 9.1
McGraw-Hill Cos., Inc. ....................................... 8.3
Minnesota Mining & Manufacturing Co. ......................... 3.8
Mobil Corp. .................................................. 7.5
National Fuel Gas Co. ........................................ 3.4
Pentair, Inc. ................................................ 6.7
PepsiCo, Inc. ................................................ 4.0
Philip Morris Cos., Inc. ..................................... 10.0
Pitney Bowes, Inc. ........................................... 12.5
Questar Corp. ................................................ 4.8
ReliaStar Financial Corp. .................................... 19.4
RPM, Inc. .................................................... 4.9
Sara Lee Corp. ............................................... 8.7
SBC Communications, Inc. ..................................... 4.5
Schering-Plough Corp. ........................................ 15.8
Sigma - Aldrich Corp. ........................................ 3.6
Sonoco Products Co. .......................................... 10.0
SYSCO Corp. .................................................. 11.1
Teco Energy, Inc. ............................................ 5.1
UNUM Corp. ................................................... 3.5
Wal-Mart Stores, Inc. ........................................ 14.8
Wells Fargo Co. .............................................. 12.1
----
The average dividend increase for this group was 10.2%
====
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 $0.07 $10.74 $0.02
1997 896,718 0.18 $13.59 0.01
1998 2,188,296 0.25 $15.61 --
123
<PAGE>
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[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 DECOA 12/98
2/99
