John Hancock
Declaration Funds
Prospectus
December 15, 2000
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V.A. Financial Industries Fund
V.A. Strategic Income Fund
As with all mutual funds, the Securities and Exchange Commission has not
approved or disapproved these funds or determined whether the information in
this prospectus is adequate and accurate. Anyone who indicates otherwise is
committing a federal crime.
[LOGO] John Hancock(R)
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JOHN HANCOCK FUNDS
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Contents
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General information about Overview 3
the Declaration funds.
A fund-by-fund summary V.A. Financial Industries Fund 4
of goals, strategies, risks,
performance and financial V.A. Strategic Income Fund 6
highlights.
Transaction policies and Account information
other information affecting
your fund investment. Buying and selling fund shares 8
Valuing fund shares 8
Fund expenses 8
Dividends and taxes 8
Further information on the Fund details
Declaration funds.
Business structure 9
For more information back cover
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Overview
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FUND INFORMATION KEY
Concise fund-by-fund descriptions begin on the next page. Each description
provides the following information:
[Clip Art] Goal and strategy The fund's particular investment goals and the
strategies it intends to use in pursuing those goals.
[Clip Art] Main risks The major risk factors associated with the fund.
[Clip Art] Past performance The fund's total return, measured year-by-year and
over time.
[Clip Art] Financial highlights A table showing the fund's financial performance
for up to five years.
JOHN HANCOCK DECLARATION FUNDS
These funds offer investment choices for the variable annuity and variable life
insurance contracts of certain insurance companies. You should read this
prospectus together with the attached prospectus of the insurance product you
are considering.
RISKS OF MUTUAL FUNDS
Mutual funds are not bank deposits and are not insured or guaranteed by the
Federal Deposit Insurance Corporation or any other government agency. Because
you could lose money by investing in these funds, be sure to read all risk
disclosure carefully before investing.
THE MANAGEMENT FIRM
All John Hancock Declaration funds are managed by John Hancock Advisers, Inc.
Founded in 1968, John Hancock Advisers is a wholly owned subsidiary of John
Hancock Financial Services, Inc. and manages more than $30 billion in assets.
3
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V.A. Financial Industries Fund
GOAL AND STRATEGY
[Clip Art] The fund seeks capital appreciation. To pursue this goal, the fund
normally invests at least 65% of assets in stocks of U.S. and foreign financial
services companies of any size. These companies include banks, thrifts, finance
companies, brokerage and advisory firms, real estate-related firms, insurance
companies and financial holding companies.
In managing the portfolio, the managers focus primarily on stock selection
rather than industry allocation.
In choosing individual stocks, the managers use fundamental financial analysis
to identify securities that appear comparatively undervalued. Given the
industry-wide trend toward consolidation, the managers also invest in companies
that appear to be positioned for a merger. The managers generally gather
firsthand information about companies from interviews and company visits.
The fund may invest in U.S. and foreign bonds, including up to 5% of net assets
in junk bonds (those rated below BBB/Baa and their unrated equivalents). It may
also invest up to 15% of assets in investment-grade short-term securities.
The fund may make limited use of certain derivatives (investments whose value is
based on indices, securities or currencies).
In abnormal market conditions, the fund may temporarily invest up to 80% of
assets in investment-grade short-term securities. In these and other cases, the
fund might not achieve its goal.
The fund may trade securities actively, which could increase its transaction
costs, thus lowering performance.
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PORTFOLIO MANAGERS
James K. Schmidt, CFA
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Executive vice president of adviser
Joined fund team in 1997
Joined adviser in 1985
Began business career in 1979
Thomas M. Finucane
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Vice president of adviser
Joined fund team in 1997
Joined adviser in 1990
Began business career in 1990
Thomas C. Goggins
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Senior vice president of adviser
Joined fund team in 1998
Joined adviser in 1995
Began business career in 1981
PAST PERFORMANCE
[Clip Art] The graph shows how the fund's total return has varied from year to
year, while the table shows performance over time (along with a broad-based
market index for reference). This information may help provide an indication of
the fund's risks. All figures assume dividend reinvestment but do not include
variable contract charges (see attached variable product prospectus). Past
performance does not indicate future results.
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Year-by-year total returns -- calendar years
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1998 1999
8.55% 1.23%
2000 total return as of March 31: 5.05%
Best quarter: Q4 '98, 16.08%
Worst quarter: Q3 '98, -16.76%
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Average annual total returns -- for periods ending 12/31/99
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Fund Index
1 year 1.23% 21.03%
Life of fund - began 4/30/97 15.95% 27.76%
Index: Standard & Poor's 500 Stock Index, an unmanaged index of 500 stocks.
4
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MAIN RISKS
[Clip Art] The value of your investment will go up and down in response to stock
market movements. The fund's management strategy has a significant influence on
fund performance. Because the fund focuses on a single sector of the economy,
its performance depends in large part on the performance of that sector. As a
result, the value of your investment may fluctuate more widely than it would in
a fund that is diversified across sectors. For instance, when interest rates
fall or economic conditions deteriorate, the stocks of banks and financial
services companies could suffer losses. Also, rising interest rates can reduce
profits by narrowing the difference between these companies' borrowing and
lending rates.
Stocks of financial services companies as a group could fall out of favor with
the market, causing the fund to underperform funds that focus on other types of
stocks. In addition, if the managers' stock selection strategy does not perform
as expected, the fund could underperform its peers or lose money.
To the extent that the fund makes investments with additional risks, those risks
could increase volatility or reduce performance:
o Certain derivatives could produce disproportionate losses and are
generally considered more risky than direct investments.
o In a down market, higher-risk securities and derivatives could become
harder to value or to sell at a fair price.
o Foreign investments carry additional risks, including potentially
unfavorable currency exchange rates, inadequate or inaccurate financial
information and social or political instability.
o Any bonds held by the fund could be downgraded in credit rating or go into
default. Bond prices generally fall when interest rates rise. This risk is
greater for longer maturity bonds. Junk bond prices can fall on bad news
about the economy, an industry or a company.
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FINANCIAL HIGHLIGHTS
[Clip Art] This table details the performance of the fund's shares, including
total return information showing how much an investment in the fund has
increased or decreased each year.
Figures audited by Ernst & Young LLP.
<TABLE>
<CAPTION>
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Period ended: 12/97(1) 12/98 12/99
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<S> <C> <C> <C>
Per share operating performance
Net asset value, beginning of period $10.00 $13.44 $14.45
Net investment income (loss)(2) 0.11 0.18 0.11
Net realized and unrealized gain (loss) on investments and foreign currency transactions 3.39 0.97 0.06
Total from investment operations 3.50 1.15 0.17
Less distributions:
Dividends from net investment income (0.05) (0.14) (0.10)
Distributions from net realized gain on investments sold and foreign currency transactions (0.01) (0.00)(3) (0.05)
Tax return of capital -- -- (0.01)
Total distributions (0.06) (0.14) (0.16)
Net asset value, end of period $13.44 $14.45 $14.46
Total investment return at net asset value(4) (%) 35.05(5) 8.55 1.23
Total adjusted investment return at net asset value(4,6) (%) 34.71(5) -- --
Ratios and supplemental data
Net assets, end of period (000s omitted) ($) 18,465 54,569 49,312
Ratio of expenses to average net assets (%) 1.05(7) 0.92 0.90
Ratio of adjusted expenses to average net assets(8) (%) 1.39(7) -- --
Ratio of net investment income (loss) to average net assets (%) 1.32(7) 1.25 0.77
Ratio of adjusted net investment income (loss) to average net assets(8) (%) 0.98(7) -- --
Portfolio turnover rate (%) 11 38 72
Fee reduction per share(2) ($) 0.03 -- --
</TABLE>
(1) Began operations on April 30, 1997.
(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) Not annualized.
(6) An estimated total return calculation that does not take into
consideration fee reductions by the adviser during the periods shown.
(7) Annualized.
(8) Unreimbursed, without fee reduction.
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V.A. Strategic Income Fund
GOAL AND STRATEGY
[Clip Art] The fund seeks a high level of current income. In pursuing this goal,
the fund invests primarily in the following categories of securities:
o Foreign government and corporate debt securities from developed and
emerging markets
o U.S. government and agency securities
o U.S. junk bonds
In managing the portfolio, the managers allocate assets among the three major
categories based on analysis of economic factors such as projected international
interest rate movements, industry cycles and political trends. However, the
managers may invest up to 100% of assets in any one category.
Within each category, the managers look for securities that are appropriate for
the overall portfolio in terms of yield, credit quality, structure and industry
distribution. In selecting securities, relative yields and risk/reward ratios
are the primary considerations.
Although the fund invests in securities rated as low as CC/Ca and their unrated
equivalents, it generally intends to keep its average credit quality in the
investment-grade range. There is no limit on the fund's average maturity.
The fund may also invest in preferred stock and other types of debt securities.
The fund may use certain higher-risk investments, including derivatives
(investments whose value is based on indices, securities or currencies) and
restricted or illiquid securities. In addition, the fund may invest up to 10% of
net assets in U.S. or foreign stocks.
In abnormal market conditions, the fund may temporarily invest extensively in
investment-grade short-term securities. In these and other cases, the fund
might not achieve its goal.
The fund may trade securities actively, which could increase its transaction
costs, thus lowering performance.
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PORTFOLIO MANAGERS
Frederick L. Cavanaugh, Jr.
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Senior vice president of adviser
Joined fund team in 1996
Joined adviser in 1986
Began business career in 1975
Arthur N. Calavritinos, CFA
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Vice president of adviser
Joined fund team in 1996
Joined adviser in 1988
Began business career in 1986
Janet L. Clay, CFA
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Vice president of adviser
Joined fund team in 1998
Joined adviser in 1995
Began business career in 1990
Daniel S. Janis
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Second vice president of adviser
Joined fund team in 1999
Joined adviser in 1999
Began business career in 1984
PAST PERFORMANCE
[Clip Art] The graph shows how the fund's total return has varied from year to
year, while the table shows performance over time (along with a broad-based
market index for reference). This information may help provide an indication of
the fund's risks. All figures assume dividend reinvestment but do not include
variable contract charges (see attached variable product prospectus). Past
performance does not indicate future results.
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Year-by-year total returns -- calendar years
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1997 1998 1999
11.77% 4.92% 4.82%
2000 total return as of March 31: 0.59%
Best quarter: Q2 '97, 6.28%
Worst quarter: Q3 '98, -2.79%
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Average annual total returns -- for periods ending 12/31/99
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Fund Index
1 year 4.82% -2.15%
Life of fund - began 8/29/96 8.39% 6.49%
Index: Lehman Brothers Government/Corporate Bond Index, an unmanaged index of
U.S. government, U.S. corporate and Yankee bonds.
6
<PAGE>
MAIN RISKS
[Clip Art] The fund's risk profile depends on its sector allocation. In general,
investors should expect fluctuations in share price, yield and total return that
are above average for bond funds.
When interest rates rise, bond prices generally fall. Generally, an increase in
the fund's average maturity will make it more sensitive to interest rate risk.
A fall in worldwide demand for U.S. government securities could also lower the
prices of these securities.
The fund could lose money if any bonds it owns are downgraded in credit rating
or go into default. In general, lower-rated bonds have higher credit risks, and
their prices can fall on bad news about the economy, an industry or a company.
If certain allocation strategies or certain industries or investments do not
perform as the fund expects, it could underperform its peers or lose money.
To the extent that the fund makes investments with additional risks, those risks
could increase volatility or reduce performance:
o Foreign investments carry additional risks, including potentially
unfavorable currency exchange rates, inadequate or inaccurate financial
information and social or political instability. These risks are greater
in emerging markets.
o If interest rate movements cause the fund's callable securities to be paid
off substantially earlier or later than expected, the fund's share price
or yield could be hurt.
o Stock investments may go down in value due to stock market movements or
negative company or industry events.
o In a down market, higher-risk securities and derivatives could become
harder to value or to sell at a fair price.
o Certain derivatives could produce disproportionate losses and are
generally considered more risky than direct investments.
================================================================================
FINANCIAL HIGHLIGHTS
[Clip Art] This table details the performance of the fund's shares, including
total return information showing how much an investment in the fund has
increased or decreased each year.
Figures audited by Ernst & Young LLP.
<TABLE>
<CAPTION>
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Period ended: 12/96(1) 12/97 12/98 12/99
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<S> <C> <C> <C> <C>
Per share operating performance
Net asset value, beginning of period $10.00 $10.30 $10.47 $10.10
Net investment income (loss)(2) 0.27 0.91 0.85 0.80
Net realized and unrealized gain (loss) on investments and foreign
currency transactions 0.36 0.26 (0.35) (0.33)
Total from investment operations 0.63 1.17 0.50 0.47
Less distributions:
Dividends from net investment income (0.27) (0.91) (0.85) (0.80)
Distributions from net realized gain on investments sold,
financial futures contracts and foreign currency transactions (0.06) (0.09) (0.02) --
Total distributions (0.33) (1.00) (0.87) (0.80)
Net asset value, end of period $10.30 $10.47 $10.10 $9.77
Total investment return at net asset value(3) (%) 6.45(4) 11.77 4.92 4.82
Total adjusted investment return at net asset value(3,5) (%) 5.96(4) 11.25 4.84 4.80
Ratios and supplemental data
Net assets, end of period (000s omitted) ($) 2,131 5,540 15,019 22,282
Ratio of expenses to average net assets (%) 0.85(6) 0.85 0.85 0.85
Ratio of adjusted expenses to average net assets(7) (%) 2.28(6) 1.37 0.93 0.87
Ratio of net investment income (loss) to average net assets (%) 7.89(6) 8.77 8.19 8.06
Ratio of adjusted net investment income (loss) to average net assets(7) (%) 6.46(6) 8.25 8.11 8.04
Portfolio turnover rate (%) 73 110 92 53(8)
Fee reduction per share(2) ($) 0.05 0.05 0.01 0.00(9)
</TABLE>
(1) Began 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) Not annualized.
(5) An estimated total return calculation that does not take into
consideration fee reductions by the adviser during the periods shown.
(6) Annualized.
(7) Unreimbursed, without fee reduction.
(8) Porfolio turnover rate excludes merger activity.
(9) Less than $0.01 per share.
7
<PAGE>
Account information
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BUYING AND SELLING FUND SHARES
When you invest in a Declaration fund through a variable contract, your premium
payments are used to buy units of an insurance company separate account that
then buys shares of the fund. The shares are purchased at net asset value (NAV)
and are generally credited to the separate account immediately after the fund
accepts payment from the insurance company. In unusual circumstances or to
protect shareholders, a fund may refuse a purchase order, especially when the
adviser believes the order might be large enough to disrupt the fund's
management. A fund may also temporarily suspend the offering of its shares.
Shares are sold at the next NAV to be determined after the fund accepts the sell
request. The sales proceeds are normally forwarded by bank wire to the insurance
company on the next business day. In unusual circumstances, the fund may
temporarily suspend the processing of sell requests. It may also postpone the
payment of sales proceeds for up to seven days or longer, as allowed by federal
securities laws.
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VALUING FUND SHARES
The NAV for each fund is determined each business day at the close of business
on the New York Stock Exchange (typically 4:00 P.M. Eastern Time). The Exchange
is typically open Monday through Friday.
Securities in a fund's portfolio are generally valued on the basis of market
quotations and valuations provided by independent pricing services. The funds
may also value securities at fair value, especially if market quotations are not
readily available or if the securities' value has been materially affected by
events following the close of a foreign market. Fair value is determined
according to procedures approved by the funds' board of trustees. If a fund uses
this method, the securities' prices may be higher or lower than the same
securities held by another fund using market quotations.
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FUND EXPENSES
Management fees The management fees paid to the investment adviser by the John
Hancock Declaration funds last year are as follows:
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Fund % of net assets
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V.A. Financial Industries Fund 0.80%
V.A. Strategic Income Fund 0.60%
Expense limitation The adviser may reduce its fee or make other arrangements to
limit each fund's expenses to a specified percentage of average daily net
assets. The adviser has agreed to limit temporarily each fund's expenses to
0.25% of average net assets, excluding management fees, at least until April 30,
2001. If annual expenses fall below this limitation at the end of any fund's
fiscal year, the adviser can impose the full fee and recover any other payments
up to the amount of the limitation.
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DIVIDENDS AND TAXES
All income and capital gain distributions are automatically reinvested in
additional shares of the fund at net asset value and are includable in the
separate accounts holding these shares. For a discussion of the tax status of
your variable contract, including the tax consequences of withdrawals or other
payments, refer to the prospectus of your insurance company's separate account.
8 ACCOUNT INFORMATION
<PAGE>
Fund details
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BUSINESS STRUCTURE
The diagram below shows the basic business structure used by the Declaration
funds. The funds' board of trustees oversees the funds' business activities and
retains the services of the various firms that carry out the funds' operations.
The trustees of the Declaration funds have the power to change the funds'
investment goals without shareholder or contract holder approval.
[The following information was represented as a flow chart in the printed
material.]
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Variable
contract holders
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Insurance company
separate accounts
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Declaration
funds
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Investment adviser
John Hancock Advisers, Inc.
101 Huntington Avenue
Boston, MA 02199-7603
Manages the funds' business and
investment activities.
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Custodian
Investors Bank & Trust Co.
Holds the funds' assets, settles all
portfolio trades and collects most of
the valuation data required for
calculating each fund's NAV.
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Trustees
Oversee the funds' activities.
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FUND DETAILS 9
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For more information
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This prospectus should be used with the variable contract/product prospectus.
Two documents are available that offer further information on the John Hancock
Declaration funds:
Annual/Semiannual Report to Shareholders
Includes financial statements, a discussion of the market conditions and
investment strategies that significantly affected performance, as well as the
auditors' report (in annual report only).
Statement of Additional Information (SAI)
The SAI contains more detailed information on all aspects of the funds. The
current annual report is included in the SAI.
A current SAI has been filed with the Securities and Exchange Commission and is
incorporated by reference into (is legally a part of) this prospectus.
To request a free copy of the current annual/semiannual report or the SAI,
please contact John Hancock:
By mail:
John Hancock Annuity Servicing Office
529 Main St. (X-4)
Charlestown, MA 02129
By phone: 1-800-824-0335
On the Internet: www.jhfunds.com
Or you may view or obtain these documents from the SEC:
In person: at the SEC's Public Reference Room in Washington, DC. For access to
the Reference Room call 1-202-942-8090
By mail: Public Reference Section
Securities and Exchange Commission
Washington, DC 20549-0102
(duplicating fee required)
By electronic request:
[email protected]
(duplicating fee required)
On the Internet: www.sec.gov
SEC file number 811-07437
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John Hancock Funds, Inc.
MEMBER NASD
101 Huntington Avenue
Boston, MA 02199-7603
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(C)2001 JOHN HANCOCK FUNDS, INC. EVA00P XX/01
