HANCOCK JOHN DECLARATION TRUST, 485APOS, 1998-02-13

HANCOCK JOHN DECLARATION TRUST
485APOS, 1998-02-13

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File Nos. 33-64465
811-07437
---------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM N-1A

REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 [X]

Pre-Effective Amendment No. [ ]

Post-Effective Amendment No. 7 [ ]

REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 [X]

Amendment No. 7 [X]
(Check appropriate box or boxes.)
-------------
John Hancock Declaration Trust
(Exact Name of Registrant as Specified in Charter)

101 Huntington Avenue
Boston, Massachusetts 02199-7603
(Address of Principal Executive Offices)

Registrant's Telephone Number, including Area Code:
(617) 375-1760
-------------
SUSAN S. NEWTON
John Hancock Advisers, Inc.
101 Huntington Avenue
Boston, Massachusetts 02199-7603
(Name and Address of Agent for Service)

APPROXIMATE DATE OF PROPOSED PUBLIC OFFERING:

It is proposed that this filing will become effective:
( ) immediately upon filing pursuant to paragraph (b) of Rule 485
( ) (Date) pursuant to paragraph (b) of Rule 485
( ) 75 days after filing pursuant to paragraph (a) of Rule 485
(X) on May 1, 1998 pursuant to paragraph (a) of Rule 485

If appropriate, check the following box:

[ ] This post-effective amendment designates a new effective date for a
previously filed post-effective admendment.

List of all Fund in the Trust:

John Hancock V.A. International Fund
John Hancock V.A. Regional Bank Fund
John Hancock V.A. Financial Industries Fund
John Hancock V.A. Emerging Growth Fund
John Hancock V.A. Special Opportunities Fund
John Hancock V.A. Growth Fund
John Hancock V.A. Growth and Income Fund
John Hancock V.A. Independence Equity Fund
John Hancock V.A. Sovereign Investors Fund
John Hancock V.A. 500 Index Fund
John Hancock V.A. Sovereign Bond Fund
John Hancock V.A. Strategic Income Fund
John Hancock V.A. High Yield Bond Fund
John Hancock V.A. World Bond Fund
John Hancock V.A. Money Market Fund

<PAGE>

John Hancock Declaration Trust

CROSS REFERENCE SHEET

Item Number Statement of Additional
Form N-1A Part A Prospectus Caption Information Caption
- ---------------- ------------------ -------------------

1 Front Cover Page *

2 Expense Information; *
The Fund's Expenses;
Shares Price;
Additional Services and
Programs

3 The Fund's Financial *
History Performance

4 Investment Objectives and *
Policies; Organization and
Management of the Fund

5 Organization and Management *
of the Fund; The Fund's
Expenses

6 Organization and Management of *
Fund; Distribution and Taxes;
How to Redeem Shares;
Additional Services and Programs

7 Who Can Buy Shares; *
How to Buy Shares;
Shares Price; Additional
Services and Programs

8 How to Redeem Shares *

9 Not Applicable *

<PAGE>

Item Number Statement of Additional
Form N-1A Part A Prospectus Caption Information Caption
- ---------------- ------------------ -------------------

10 * Front Cover Page

11 * Table of Contents

12 * Organization of the Fund

13 * Investment Objective and
Policies; Investment
Restrictions

14 * Those Responsible for
Management

15 * Those Responsible for
Management

16 * Investment Advisory and
Other Services; Distribution
Contract; Transfer Agent
Services; Custody of Portfolio;
Independent Auditors

17 * Brokerage Allocation

18 * Description of the Fund's
Shares

19 * Net Asset Value; Additional
Services and Programs

20 * Tax Status

21 * Distribution Contract

22 * Calculation of Performance

23 * Financial Statements
<PAGE>

JOHN HANCOCK FUNDS
101 Huntington Avenue
Boston, Massachusetts 02199
JOHN HANCOCK DECLARATION TRUST

PROSPECTUS

May 1, 1998

The John Hancock Declaration Trust consists of fifteen mutual funds, each of
which is described in this Prospectus (each, a "Fund" and collectively, the
"Funds"):

JOHN HANCOCK V.A. INTERNATIONAL FUND

JOHN HANCOCK V.A. REGIONAL BANK FUND

JOHN HANCOCK V.A. FINANCIAL INDUSTRIES FUND
JOHN HANCOCK V.A. EMERGING GROWTH FUND
JOHN HANCOCK V.A. SPECIAL OPPORTUNITIES FUND
JOHN HANCOCK V.A. GROWTH FUND
JOHN HANCOCK V.A. GROWTH AND INCOME FUND
JOHN HANCOCK V.A. INDEPENDENCE EQUITY FUND
JOHN HANCOCK V.A. SOVEREIGN INVESTORS FUND
JOHN HANCOCK V.A. 500 INDEX FUND
JOHN HANCOCK V.A. SOVEREIGN BOND FUND
JOHN HANCOCK V.A. STRATEGIC INCOME FUND
JOHN HANCOCK V.A. HIGH YIELD BOND FUND
JOHN HANCOCK V.A. WORLD BOND FUND
JOHN HANCOCK V.A. MONEY MARKET FUND

- --------------------------------------------------------------------------------

<TABLE>
<CAPTION>
TABLE OF CONTENTS Page
----
<S> <C>
The Funds' Financial Highlights................................................................... 3
Investment Objective and Overview of Each Fund.................................................... 8
Investment Policies and Strategies................................................................ 10
Purchase and Redemption of Shares................................................................. 16
Investments in Shares of the Funds........................................................... 16
Share Price.................................................................................. 16
Redeeming Shares............................................................................. 16
Organization and Management of the Funds.......................................................... 17
The Funds' Expenses............................................................................... 19
Dividends and Taxes............................................................................... 20
Performance....................................................................................... 20
Risk Factors, Investments and Techniques.......................................................... 21
Appendix.......................................................................................... 29
</TABLE>

AN INVESTMENT IN JOHN HANCOCK V.A. MONEY MARKET FUND IS NEITHER INSURED NOR
GUARANTEED BY THE U.S. GOVERNMENT. THERE IS NO ASSURANCE THAT THE MONEY MARKET
FUND WILL BE ABLE TO MAINTAIN A STABLE NET ASSET VALUE OF $1.00 PER SHARE.

JOHN HANCOCK V.A. STRATEGIC INCOME FUND AND JOHN HANCOCK V.A. HIGH YIELD BOND
FUND MAY INVEST UP TO 100% OF THEIR RESPECTIVE TOTAL ASSETS IN LOWER RATED
BONDS, COMMONLY KNOWN AS "JUNK BONDS," THAT ENTAIL GREATER RISKS, INCLUDING
DEFAULT RISKS, THAN THOSE FOUND IN HIGHER RATED SECURITIES. INVESTORS SHOULD
CAREFULLY CONSIDER THESE RISKS BEFORE INVESTING. SEE "RISK FACTORS, INVESTMENTS
AND TECHNIQUES" AND THE APPENDIX.

SHARES OF THE FUNDS ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR
ENDORSED BY, ANY BANK, AND THE SHARES ARE NOT FEDERALLY INSURED BY THE FEDERAL
DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD OR ANY OTHER AGENCY.

THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION, NOR HAS THE SECURITIES AND EXCHANGE COMMISSION PASSED UPON
THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
(continued on next page)

Printed on Recycled Paper.

LOGO

<PAGE>

(continued from prior page)

This Prospectus sets forth information about the Funds that you should know
before investing. Please read and retain it for future reference. The Funds are
designed primarily to provide investment vehicles for variable annuity and
variable life insurance contracts ("Variable Contracts") of various insurance
companies. This Prospectus should be read in conjunction with the separate
account Prospectus of the specific insurance product which accompanies this
Prospectus. Except for World Bond Fund, a non-diversified series, each Fund is a
diversified series of John Hancock Declaration Trust (the "Trust").

Additional information about the Trust and the Funds has been filed with the
Securities and Exchange Commission (the "SEC"). You can obtain a copy of the
Funds' Statement of Additional Information, dated May 1, 1998, which is
incorporated by reference into this Prospectus, free of charge by writing or
telephoning: John Hancock Servicing Center ("Servicing Center"), P.O. Box 9298,
Boston, Massachusetts 02205-9298, 1-800-824-0335. Shares of a Fund may not be
available in your state due to various insurance or other regulations. Please
check with your insurance company for Funds that are available in your state.
Inclusion of a Fund in this Prospectus which is not available in your state is
not to be considered a solicitation.

<PAGE>

THE FUNDS' FINANCIAL HIGHLIGHTS

The information in the following table of Financial Highlights for the fiscal
year ended December 31, 1997 has been audited by __________, the Funds'
independent auditors, whose report is included in the Funds' 1997 Annual Report
and is included in the Statement of Additional Information. Further information
about the performance of the Funds is contained in the Funds' Annual Report to
shareholders which may be obtained free of charge by writing or telephoning John
Hancock Servicing Center at the address or telephone number listed on the front
page of this Prospectus. V.A. Regional Bank Fund, V.A. Special Opportunities
Fund, V.A. Growth and Income Fund and V.A. High Yield Bond Fund are newly
organized series of the Trust and have no operating history.

Selected data for a share outstanding throughout the period indicated is as
follows:

<TABLE>
<CAPTION>
V.A. FINANCIAL
V.A. INTERNATIONAL FUND INDUSTRIES FUND
----------------------------------------- ----------------
PERIOD ENDED PERIOD ENDED PERIOD ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31,
1996(1) 1997 1997
------------------- ---------------- ----------------
<S> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
Net Asset Value, Beginning of Period....... $ 10.00
------- ------ -------
Net Investment Income (3).................. 0.07
Net Realized and Unrealized Gain (Loss) on
Investments and Foreign Currency
Transactions............................. 1.20
------- ------ -------
Total from Investment Operations....... 1.27
------- ------ -------
Less Distributions:
Dividends from Net Investment Income..... (0.04)
Distributions from Net Realized Gain on
Investments Sold....................... --
------- ------ -------
Total Distributions.................... (0.04)
------- ------ -------
Net Asset Value, End of Period............. $ 11.23
======= ====== =======
Total Investment Return at Net Asset Value
(5)...................................... 12.75%(7)
Total Adjusted Investment Return at Net
Asset Value (5)(6)....................... 12.07%(7)
RATIOS AND SUPPLEMENTAL DATA
Net Assets, End of Period (000s omitted)... $ 2,267
Ratio of Expenses to Average Net Assets.... 1.15%(8)
Ratio of Adjusted Expenses to Average Net
Assets (9)............................... 3.13%(8)
Ratio of Net Investment Income to Average
Net Assets............................... 2.03%(8)
Ratio of Adjusted Net Investment Income to
Average Net Assets (9)................... 0.05%(8)
Portfolio Turnover Rate.................... 14%
Fee Reduction Per Share (3)................ $ 0.07
Average Brokerage Commission Rate (10)..... $0.0162

V.A. EMERGING GROWTH FUND
-----------------------------------------
PERIOD ENDED PERIOD ENDED
DECEMBER 31, DECEMBER 31,
1996(1) 1997
------------------- ----------------
<S> <C><C> <C>
PER SHARE OPERATING PERFORMANCE
Net Asset Value, Beginning of Period....... $ 10.00
------ -------
Net Investment Income (3).................. 0.02
Net Realized and Unrealized Gain (Loss) on
Investments and Foreign Currency
Transactions............................. (0.68)
------ -------
Total from Investment Operations....... (0.66)
------ -------
Less Distributions:
Dividends from Net Investment Income..... (0.02)
Distributions from Net Realized Gain on
Investments Sold....................... --
------ -------
Total Distributions.................... (0.02)
------ -------
Net Asset Value, End of Period............. $ 9.32
====== =======
Total Investment Return at Net Asset Value
(5)...................................... (6.62%)(7)
Total Adjusted Investment Return at Net
Asset Value (5)(6)....................... (8.05%)(7)
RATIOS AND SUPPLEMENTAL DATA
Net Assets, End of Period (000s omitted)... $ 975
Ratio of Expenses to Average Net Assets.... 1.00%(8)
Ratio of Adjusted Expenses to Average Net
Assets (9)............................... 5.19%(8)
Ratio of Net Investment Income to Average
Net Assets............................... 0.62%(8)
Ratio of Adjusted Net Investment Income to
Average Net Assets (9)................... (3.57%)(8)
Portfolio Turnover Rate.................... 31%
Fee Reduction Per Share (3)................ $ 0.14
Average Brokerage Commission Rate (10)..... $0.0694
</TABLE>

(1) Commenced operations on August 29, 1996.
(2) Commenced operations on April 30, 1997.
(3) Based on the average of the shares outstanding at the end of each month.
(4) Less than $0.01 per share.
(5) Assumes dividend reinvestment.
(6) An estimated total return calculation which does not take into
consideration fee reductions by the adviser during the periods shown.
(7) Not annualized.
(8) Annualized.
(9) Unreimbursed, without fee reduction.
(10) Per portfolio share traded.

<PAGE>

THE FUNDS' FINANCIAL HIGHLIGHTS

<TABLE>
<CAPTION>
V.A. GROWTH FUND
(FORMERLY V.A. DISCOVERY FUND) V.A. INDEPENDENCE EQUITY FUND
----------------------------------------- -----------------------------------------
PERIOD ENDED PERIOD ENDED PERIOD ENDED PERIOD ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31,
1996(1) 1997 1996(1) 1997
------------------- ---------------- ------------------- ----------------
<S> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
Net Asset Value, Beginning of
Period............................. $ 10.00 $ 10.00
------- ------- ------- -------
Net Investment Income (2)............ (0.01) 0.06
Net Realized and Unrealized Gain
(Loss) on Investments.............. (0.60) 1.12
------- ------- ------- -------
Total from Investment
Operations..................... (0.61) 1.18
------- ------- ------- -------
Less Distributions:
Dividends from Net Investment
Income........................... -- (0.06)
Distributions from Net Realized
Gain on Investments Sold......... -- (0.01)
------- ------- ------- -------
Total Distributions.............. -- (0.07)
------- ------- ------- -------
Net Asset Value, End of Period....... $ 9.39 $ 11.11
======= ======= ======= =======
Total Investment Return at Net Asset
Value (3).......................... (6.10%)(5) 11.78%(5)
Total Adjusted Investment Return at
Net Asset Value (3)(4)............. (7.39%)(5) 10.66%(5)
RATIOS AND SUPPLEMENTAL DATA
Net Assets, End of Period (000s
omitted)........................... $ 994 $ 1,149
Ratio of Expenses to Average Net
Assets............................. 1.00%(6) 0.95%(6)
Ratio of Adjusted Expenses to Average
Net Assets (7)..................... 4.76%(6) 4.23%(6)
Ratio of Net Investment Income to
Average Net Assets................. (0.23%)(6) 1.60%(6)
Ratio of Adjusted Net Investment
Income to Average Net Assets (7)... (3.99%)(6) (1.68%)(6)
Portfolio Turnover Rate.............. 68% 24%
Fee Reduction Per Share (2).......... $ 0.13 $ 0.12
Average Brokerage Commission Rate
(8)................................ $0.0691 $0.0210
</TABLE>

(1) Commenced operations on August 29, 1996.
(2) Based on the average of the shares outstanding at the end of each month.
(3) Assumes dividend reinvestment.
(4) An estimated total return calculation which does not take into consideration
fee reductions by the adviser during the periods shown.
(5) Not annualized.
(6) Annualized.
(7) Unreimbursed, without fee reduction.
(8) Per portfolio share traded.

<PAGE>

THE FUNDS' FINANCIAL HIGHLIGHTS

<TABLE>
<CAPTION>
V.A. 500 INDEX FUND V.A. SOVEREIGN INVESTORS FUND
----------------------------------------- -----------------------------------------
PERIOD ENDED PERIOD ENDED PERIOD ENDED PERIOD ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31,
1996(1) 1997 1996(1) 1997
------------------- ---------------- ------------------- ----------------
<S> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
Net Asset Value, Beginning of
Period.............................. $ 10.00 $ 10.00
------- ------- ------- -------
Net Investment Income (2)............. 0.17 0.07
Net Realized and Unrealized Gain
(Loss) on Investments............... 0.98 0.76
------- ------- ------- -------
Total from Investment
Operations...................... 1.15 0.83
------- ------- ------- -------
Less Distributions:
Dividends from Net Investment
Income............................ (0.16) (0.07)
Distributions from Net Realized Gain
on Investments Sold............... (0.55) (0.02)
------- ------- ------- -------
Total Distributions............... (0.71) (0.09)
------- ------- ------- -------
Net Asset Value, End of Period........ $ 10.44 $ 10.74
======= ======= ======= =======
Total Investment Return at Net Asset
Value (3)........................... 11.49%(5) 8.30%(5)
Total Adjusted Investment Return at
Net Asset Value (3)(4).............. 11.25%(5) 7.30%(5)
RATIOS AND SUPPLEMENTAL DATA
Net Assets, End of Period (000s
omitted)............................ $ 4,049 $ 1,111
Ratio of Expenses to Average Net
Assets.............................. 0.60%(6) 0.85%(6)
Ratio of Adjusted Expenses to Average
Net Assets (7)...................... 1.31%(6) 3.78%(6)
Ratio of Net Investment Income to
Average Net Assets.................. 4.57%(6) 1.90%(6)
Ratio of Adjusted Net Investment
Income to Average Net Assets (7).... 3.86%(6) (1.03%)(6)
Portfolio Turnover Rate............... -- 17%
Fee Reduction Per Share (2)........... $ 0.03 $ 0.11
Average Brokerage Commission Rate
(8)................................. $0.0000 $0.0235
</TABLE>

<PAGE>

THE FUNDS' FINANCIAL HIGHLIGHTS

<TABLE>
<CAPTION>
V.A. WORLD BOND FUND V.A. STRATEGIC INCOME FUND
------------------------------------------ ------------------------------------------
PERIOD ENDED PERIOD ENDED
DECEMBER 31, PERIOD ENDED DECEMBER 31, PERIOD ENDED
1996(1) DECEMBER 31, 1997 1996(1) DECEMBER 31, 1997
------------------- ----------------- ------------------- -----------------
<S> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
Net Asset Value, Beginning of
Period............................ $ 10.00 $ 10.00
------ ------ ------ ------
Net Investment Income (2)........... 0.20 0.27
Net Realized and Unrealized Gain
(Loss) on Investments and Foreign
Currency Transactions............. 0.20 0.36
------ ------ ------ ------
Total from Investment
Operations.................... 0.40 0.63
------ ------ ------ ------
Less Distributions:
Dividends from Net Investment
Income.......................... (0.20) (0.27)
Distributions from Net Realized
Gain on Investments Sold........ -- (0.06)
------ ------ ------ ------
Total Distributions............. (0.20) (0.33)
------ ------ ------ ------
Net Asset Value, End of Period...... $ 10.20 $ 10.30
====== ====== ====== ======
Total Investment Return at Net Asset
Value (3)......................... 4.05%(5) 6.45%(5)
Total Adjusted Investment Return at
Net Asset Value (3)(4)............ 3.30%(5) 5.96%(5)
RATIOS AND SUPPLEMENTAL DATA
Net Assets, End of Period (000s
omitted).......................... $ 2,083 $ 2,131
Ratio of Expenses to Average Net
Assets............................ 1.00%(6) 0.85%(6)
Ratio of Adjusted Expenses to
Average Net Assets (7)............ 3.19%(6) 2.28%(6)
Ratio of Net Investment Income to
Average Net Assets................ 5.83%(6) 7.89%(6)
Ratio of Adjusted Net Investment
Income to Average Net Assets
(7)............................... 3.64%(6) 6.46%(6)
Portfolio Turnover Rate............. 30% 73%
Fee Reduction Per Share (2)......... $ 0.08 $ 0.05
</TABLE>

<PAGE>

THE FUNDS' FINANCIAL HIGHLIGHTS

<TABLE>
<CAPTION>
V.A. SOVEREIGN BOND FUND V.A. MONEY MARKET FUND
------------------------------------------- -------------------------------------------
PERIOD ENDED PERIOD ENDED
DECEMBER 31, PERIOD ENDED DECEMBER 31, PERIOD ENDED
1996(1) DECEMBER 31, 1997 1996(1) DECEMBER 31, 1997
------------------- ----------------- ------------------- -----------------
<S> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
Net Asset Value, Beginning of
Period......................... $ 10.00 $ 1.00
------ ------ ------ ------
Net Investment Income (2)........ 0.23 0.02
Net Realized and Unrealized Gain
(Loss) on Investments.......... 0.21 --
------ ------ ------ ------
Total from Investment
Operations................. 0.44 0.02
------ ------ ------ ------
Less Distributions:
Dividends from Net Investment
Income....................... (0.23) (0.02)
Distributions from Net Realized
Gain on Investments Sold..... (0.02) --
------ ------ ------ ------
Total Distributions.......... (0.25) (0.02)
------ ------ ------ ------
Net Asset Value, End of Period... $ 10.19 $ 1.00
====== ====== ====== ======
Total Investment Return at Net
Asset Value (3)................ 4.42%(5) 1.61%(5)
Total Adjusted Investment Return
at Net Asset Value (3)(4)...... 3.25%(5) (7.55%)(5)
RATIOS AND SUPPLEMENTAL DATA
Net Assets, End of Period (000s
omitted)....................... $ 1,056 $ 207
Ratio of Expenses to Average Net
Assets......................... 0.75%(6) 0.75%(6)
Ratio of Adjusted Expenses to
Average Net Assets (7)......... 4.15%(6) 27.48%(6)
Ratio of Net Investment Income to
Average Net Assets............. 6.69%(6) 4.68%(6)
Ratio of Adjusted Net Investment
Income to Average Net Assets
(7)............................ 3.29%(6) (22.05%)(6)
Portfolio Turnover Rate.......... 45% --
Fee Reduction Per Share (2)...... $ 0.12 $ 0.08
</TABLE>

<PAGE>

INVESTMENT OBJECTIVE AND OVERVIEW OF EACH FUND

JOHN HANCOCK V.A. INTERNATIONAL FUND ("International Fund") seeks long-term
growth of capital. The Fund invests primarily in equity securities of foreign
companies and governments.

JOHN HANCOCK V.A. REGIONAL BANK FUND ("Regional Bank Fund") seeks long-term
capital appreciation. The Fund invests primarily in regional banks and lending
institutions, including: commercial and industrial banks, savings and loan
associations and bank holding companies.

JOHN HANCOCK V.A. FINANCIAL INDUSTRIES FUND ("Financial Industries Fund") seeks
capital appreciation primarily through investments in equity securities of
financial services companies throughout the world.

JOHN HANCOCK V.A. EMERGING GROWTH FUND ("Emerging Growth Fund") seeks long-term
growth of capital. The potential for growth of capital is the sole basis for
selection of portfolio securities. Current income is not a factor in this
selection.

JOHN HANCOCK V.A. SPECIAL OPPORTUNITIES FUND ("Special Opportunities Fund")
seeks long term capital appreciation. The Fund invests primarily in equity
securities of domestic and foreign issuers in various economic sectors, selected
according to both macroeconomic factors and the outlook for each sector.

JOHN HANCOCK V.A. GROWTH FUND ("Growth Fund") (formerly John Hancock V.A.
Discovery Fund) seeks long-term capital appreciation. The Fund invests
principally in common stocks (and in securities convertible into or with rights
to purchase common stocks) of companies which the Fund's management believes
offer outstanding growth potential over both the intermediate and long term.

JOHN HANCOCK V.A. GROWTH AND INCOME FUND ("Growth and Income Fund") seeks the
highest total return (capital appreciation plus current income) that is
consistent with reasonable safety of capital.

JOHN HANCOCK V.A. INDEPENDENCE EQUITY FUND ("Independence Equity Fund") seeks
above-average total return, consisting of capital appreciation and income. The
Fund will diversify its investments to create a portfolio focused on stocks of
companies that management believes are undervalued and have improving
fundamentals over both the intermediate and long term.

JOHN HANCOCK V.A. SOVEREIGN INVESTORS FUND ("Sovereign Investors Fund") seeks
long-term growth of capital and income without assuming undue market risks. At
times, however, because of market conditions, the Fund may find it advantageous
to invest primarily for current income. The Fund invests primarily in common
stocks of seasoned companies in sound financial condition with a long record of
paying increasing dividends.

JOHN HANCOCK V.A. 500 INDEX FUND ("500 Index Fund") seeks 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 500 Index Fund normally invests
at least 80% of the Fund's assets in common stocks of companies that comprise
the S&P 500 Index in approximately the same proportions as they are represented
in the Index.

JOHN HANCOCK V.A. SOVEREIGN BOND FUND ("Sovereign Bond Fund") seeks a high level
of current income consistent with prudent investment risk. The Fund invests
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.

JOHN HANCOCK V.A. STRATEGIC INCOME FUND ("Strategic Income Fund") seeks a high
level of current income. The Fund invests 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.

JOHN HANCOCK HIGH YIELD BOND FUND ("High Yield Bond Fund") seeks to maximize
current income without assuming undue risk. The Fund invests primarily in junk
bonds, i.e., lower-rated, higher-yielding debt securities. The Fund also seeks
capital appreciation, but only when consistent with its primary goal.

JOHN HANCOCK V.A. WORLD BOND FUND ("World Bond Fund") seeks a high total
investment return, a combination of current income and capital appreciation. The
Fund invests primarily in a global portfolio of fixed income securities.

JOHN HANCOCK V.A. MONEY MARKET FUND ("Money Market Fund") seeks maximum current
income consistent with capital preservation and liquidity. The Fund invests only
in high-quality money market instruments.

There can be no assurance that the Funds will achieve their investment
objectives. See "RISK FACTORS, INVESTMENTS AND TECHNIQUES."

<PAGE>

The investment adviser of each Fund is John Hancock Advisers, Inc. (the
"Adviser"), a wholly owned indirect subsidiary of John Hancock Mutual Life
Insurance Company (the "Life Company"). The sub-adviser of the International
Fund is John Hancock Advisers International Limited ("JHAI"), a wholly owned
subsidiary of the Adviser. The sub-adviser of the Independence Equity Fund is
Independence Investment Associates, Inc. ("IIA"), a wholly owned indirect
subsidiary of the Life Company. The sub-adviser of the Sovereign Investors Fund
is Sovereign Asset Management Corporation ("SAMCorp" and, together with IIA and
JHAI, the "Sub-advisers"), also a wholly owned indirect subsidiary of the Life
Company.

------------------------

<PAGE>

INVESTMENT POLICIES AND
STRATEGIES

THE EQUITY FUNDS

THE EQUITY FUNDS OFFER A RANGE OF INVESTMENT ALTERNATIVES FOCUSING ON
COMMON STOCKS.

The INTERNATIONAL FUND, REGIONAL BANK FUND, FINANCIAL INDUSTRIES FUND, EMERGING
GROWTH FUND, SPECIAL OPPORTUNITIES FUND, GROWTH FUND, GROWTH AND INCOME FUND,
INDEPENDENCE EQUITY FUND, SOVEREIGN INVESTORS FUND, AND 500 INDEX FUND
(collectively, the "Equity Funds") invest primarily in equity securities. Each
Equity Fund, other than the Growth and Income Fund, invests at least 65% of its
assets, and, in the case of the Emerging Growth Fund and 500 Index Fund, 80% of
its assets, in equity securities. However, under normal market conditions, the
Equity Funds (other than the Growth and Income Fund) are substantially fully
invested in common stocks. The Growth and Income Fund will allocate its assets
between equity and fixed income securities. Each Equity Fund, other than the 500
Index Fund, is managed according to traditional methods of "active" management,
which involves the buying and selling of securities based upon economic,
financial and market analysis and investment judgment. The Independence Equity
Fund is managed using model driven quantitative techniques. The 500 Index Fund
uses a "passive" or "indexing" investment approach and seeks to provide
investment results that correspond to rather than replicate the total return
performance of the S&P 500 Index by purchasing stocks for the Fund in proportion
to their weight in the S&P 500 Index. This indexing technique is achieved
through the use of stock optimization modeling.

In addition to common stocks, each Equity Fund (other than the 500 Index Fund)
may invest in preferred stock and securities convertible into common and
preferred stock. However, if deemed advisable by the Adviser or relevant
Sub-adviser, the Equity Funds may invest in cash and any other types of
securities including warrants, bonds, notes and other fixed income securities or
obligations of domestic governments and their political subdivisions or domestic
corporations. The International Fund, Regional Bank Fund, Financial Industries
Fund, Emerging Growth Fund, Special Opportunities Fund, Growth Fund and Growth
and Income Fund may also invest in obligations of foreign governments and their
political subdivisions or foreign corporations. Each Equity Fund other than
Regional Bank Fund, and Financial Industries Fund will diversify its investments
among a number of industry groups without concentrating more than 25% of its
assets in any particular industry.

THE INTERNATIONAL FUND INVESTS PRIMARILY IN EQUITY SECURITIES OF FOREIGN
COMPANIES AND GOVERNMENTS.

Under normal circumstances, at least 65% of the INTERNATIONAL FUND'S total
assets are invested in equity securities of issuers located in various countries
around the world. Generally, the Fund's portfolio contains securities of issuers
from at least three countries other than the United States. Although the Fund
may invest in both equity and fixed income securities, the Adviser and JHAI
expect that equity securities, such as common stock, preferred stock and
securities convertible into common and preferred stock, will ordinarily offer
the greatest potential for long-term growth of capital and will constitute
substantially all of the Fund's assets. However, if deemed advisable by the
Adviser and JHAI, the Fund may invest in any other types of securities that the
Adviser and JHAI believe offer long-term capital appreciation due to favorable
credit quality, interest rates or currency exchange rates. These securities
include warrants, bonds, notes and other debt securities (including Euro-dollar
securities) or obligations of domestic or foreign governments and their
political subdivisions, or domestic or foreign corporations. The Fund will
maintain a flexible investment policy and will invest in a diversified portfolio
of securities of companies and governments located throughout the world.

In choosing specific investments for the Fund, the Adviser and JHAI generally
look for companies whose earnings show a strong growth trend or companies whose
current market value per share is undervalued. The Fund will not restrict its
investments to any particular size company and, consequently, the portfolio may
include the securities of small and relatively less well-known companies. The
securities of small and, in some cases, medium sized companies may be subject to
more volatile market movements than the securities of larger, more established
companies or the stock market averages in general. See "SMALLER CAPITALIZATION
COMPANIES."

THE REGIONAL BANK FUND INVESTS PRIMARILY IN REGIONAL BANKS AND LENDING
INSTITUTIONS.

Under normal circumstances, the REGIONAL BANK FUND will invest at least 65% of
its total assets in equity securities, including common stock and securities
convertible to common stock (such as convertible bonds, convertible preferred
stock, and warrants), of regional commercial banks, industrial banks, consumer
banks, savings and loans and bank holding companies that receive a substantial
portion of their income from banks.

A regional bank is one that provides full service banking (i.e., savings
accounts, checking accounts, commercial lending and real estate lending), whose
assets are primarily of domestic origin, and which typically has a principal
office outside of New York City and Chicago. The Fund may invest in banks that
are not Federal Deposit Insurance Corporation (including any state or federally
chartered savings and loan association). Although the Adviser will primarily
seek opportunities for capital appreciation, many of the regional banks in which
the Fund may invest pay regular dividends. Accordingly, the Fund also expects to
receive moderate income.

The Fund may invest up to 35% of its assets in other financial services
companies, including companies with

<PAGE>

significant lending operations and "money center" banks. A "money center" bank
is one with a strong international banking business and a significant percentage
of international assets, which is typically located in New York or Chicago. For
a description of the investment characteristics of the Banking Industry, see
"BANKING INDUSTRY."

THE FINANCIAL INDUSTRIES FUND INVESTS PRIMARILY IN FINANCIAL SERVICES
COMPANIES LOCATED IN THE U.S. AND FOREIGN COUNTRIES.

Under ordinary circumstances, the FINANCIAL INDUSTRIES FUND invests at least 65%
of its total assets in equity securities of financial services companies. For
this purpose, equity securities include common and preferred stocks and their
equivalents (including warrants to purchase and securities convertible into such
stocks).

A financial services company is a firm that in its most recent fiscal year
either (i) derived at least 50% of its revenues or earnings from financial
services activities, or (ii) devoted at least 50% of its assets to such
activities. Financial services companies provide financial services to consumers
and businesses and include the following types of U.S. and foreign firms:
commercial banks, thrift institutions and their holding companies; consumer and
industrial finance companies; diversified financial services companies;
investment banks; securities brokerage and investment advisory firms; financial
technology companies; real estate-related firms; leasing firms; insurance
brokerages; and various firms in all segments of the insurance industry such as
multi-line, property and casualty, and life insurance companies and insurance
holding companies.

The Fund currently uses a strategy of investing in financial services companies
that are, in the opinion of the Fund's management team, currently underpriced in
consolidating or restructuring industries, or in a position to benefit from
regulatory changes. This strategy can be changed at any time. For a description
of the investment characteristics of the Financial Industries, see "FINANCIAL
INDUSTRIES."

THE EMERGING GROWTH FUND INVESTS PRIMARILY IN SMALL-SIZED COMPANIES THAT
TEND TO BE AT A STAGE OF DEVELOPMENT ASSOCIATED WITH HIGHER THAN AVERAGE
GROWTH.

The EMERGING GROWTH FUND invests in common stocks and other equity securities of
domestic and foreign issuers (including convertible securities) of rapidly
growing, small-sized companies (with a total market capitalization of up to $1
billion). In normal circumstances, the Fund invests at least 80% of its total
assets in these companies. The Adviser selects investments that it believes
offer growth potential higher than average for all companies. The Adviser
expects that common stocks of rapidly growing smaller capitalization companies
in an emerging growth stage of development generally offer the most attractive
growth prospects. However, the Fund may also invest in equity securities of
larger, more established companies that the Adviser believes offer superior
growth potential. The Fund may invest without limitation in securities of
foreign issuers.

THE SPECIAL OPPORTUNITIES FUND INVESTS PRIMARILY IN COMMON STOCKS OF
U.S. AND FOREIGN ISSUERS SELECTED FROM VARIOUS INCOME SECTORS.

The SPECIAL OPPORTUNITIES FUND seeks to achieve its investment objective by
varying the relative weighting of its portfolio securities among various
economic sectors based upon both macroeconomic factors and the outlook for each
particular sector. The Adviser selects equity securities for the Fund from
various economic sectors, including, but not limited to, the following: basic
material, energy, capital equipment, technology, consumer cyclical, retail,
consumer staple, health care, transportation, financial and utility. Under
normal circumstances, at least 75% of the Fund's equity securities is invested
in five or fewer sectors. The Fund may modify these sectors if the Adviser
believes that they no longer represent appropriate investments for the Fund, or
if other sectors offer better opportunities for investment. Subject to the
Fund's policy of investing not more that 25% of its total assets in any one
industry, issuers in any one sector may represent all of the Fund's net assets.
The Fund is "non-diversified" and may invest more than 5% of its total assets in
the securities of any one issuer. This may make the Fund susceptible to certain
risks.

In selecting securities for the Fund's portfolio, the Adviser will determine the
allocation of assets among equity securities, fixed-income securities and cash,
the sectors that will be emphasized at any given time, the distribution of
securities among the various sectors, the specific industries within each sector
and the specific securities within each industry. A sector is considered a
"sector opportunity" when, in the opinion of the Adviser, the issuers in that
sector have a high earnings potential. In selecting particular issuers, the
Adviser considers price/earnings ratios, ratios of market to book value,
earnings growth, product innovation, market share, management quality and
capitalization.

THE GROWTH FUND INVESTS PRINCIPALLY IN COMMON STOCKS OF COMPANIES WHICH
THE ADVISER BELIEVES OFFER OUTSTANDING GROWTH POTENTIAL OVER BOTH THE
INTERMEDIATE AND LONG TERM.

The GROWTH FUND invests principally in common stocks (and in securities
convertible into or with rights to purchase common stocks) of companies which
the Adviser believes offer outstanding growth potential over both the
intermediate and long term. The Adviser will pursue the strategy of investing in
common stocks of those companies whose five-year average operating earnings and
revenue growth are at least two times that of the economy, as measured by the
Gross Domestic Product. Companies selected will generally have positive
operating earnings growth for five consecutive years, although companies without
a five-year record of positive earnings growth

<PAGE>

may also be selected if, in the opinion of the Adviser, they have significant
growth potential.

THE GROWTH AND INCOME FUND INVESTS IN A DIVERSIFIED PORTFOLIO OF STOCK,
BONDS AND MONEY MARKET INSTRUMENTS.

Under normal circumstances, the GROWTH AND INCOME FUND'S equity investments
consist of common and preferred stocks which have yielded their holders a
dividend return within the preceding 12 months and have the potential to
increase dividends in the future; however, non-income producing securities may
be held for anticipated increase in value. The Fund may invest in U.S.
Government securities and corporate bonds, notes and other debt securities of
any maturity.

In selecting equity securities for the Fund, the Adviser emphasizes issuers
whose equity securities trade at valuation ratios lower than comparable issuers
or the Standard & Poor's Composite Index. Some of the valuation tools used
include price to earnings, price to cash flow and price to sales ratios and
earnings discount models. The Fund's portfolio will also include securities that
the Adviser considers to have the potential for capital appreciation, due to
potential recognition of earnings power or asset value which is not fully
reflected in the securities' current market value. The Adviser attempts to
identify investments which possess characteristics, such as high relative value,
intrinsic value, going concern value, net asset value and replacement book
value, which are believed to limit sustained downside price risk, generally
referred to as the "margin of safety" concept. The Adviser also considers an
issuer's financial strength, competitive position, projected future earnings and
dividends and other investment criteria.

THE INDEPENDENCE EQUITY FUND INVESTS PRIMARILY IN COMMON STOCKS OF
COMPANIES THAT THE ADVISER AND IIA BELIEVE ARE UNDERVALUED AND HAVE
IMPROVING FUNDAMENTALS OVER BOTH THE INTERMEDIATE AND LONG TERM.

The INDEPENDENCE EQUITY FUND diversifies its investments to create a portfolio
with a risk profile and characteristics similar to those of the S&P 500 Index.
Consequently, the Fund invests in a number of industry groups without
concentrating in any particular industry. In determining what constitutes
"value," the Adviser and the Fund's Sub-adviser, IIA, seek stocks with the
following attributes: high growth relative to price/earnings ratio; rising
dividend stream; and high asset value. To determine whether a company's stock
exhibits improving fundamentals, the Adviser and IIA look for accelerating
earnings growth, positive earnings surprises when compared to the market's
expectations and favorable cyclical timing. The Fund may also invest in
securities of foreign issuers which are U.S. dollar denominated and traded on a
U.S. exchange, in the form of common stocks or American Depository Receipts.

SOVEREIGN INVESTORS FUND GENERALLY INVESTS IN SEASONED COMPANIES IN
SOUND FINANCIAL CONDITION WITH A LONG RECORD OF PAYING DIVIDENDS.

Under normal circumstances, the SOVEREIGN INVESTORS FUND invests at least 65% of
its total assets in dividend paying securities. The Adviser expects that common
stocks will ordinarily offer the greatest dividend paying potential and will
constitute a majority of the Fund's assets. The Fund may also invest a smaller
portion of its assets in corporate and U.S. Government fixed income securities.
For defensive purposes, however, the Fund may temporarily hold a larger
percentage of high grade liquid preferred stock or fixed income securities. The
Adviser and the Fund's Sub-adviser, SAMCorp, will select securities for the
Fund's portfolio mainly for their investment character based upon generally
accepted elements of intrinsic value, including industry position, management,
financial strength, earning power, marketability and prospects for future
growth. The distribution of the Fund's assets among various types of investments
is based on general market conditions, the level of interest rates, business and
economic conditions and the availability of investments in the equity or fixed
income markets. The amount of the Fund's assets that may be invested in either
equity or fixed income securities is not restricted and is based upon the
judgment of the Adviser or SAMCorp of what might best achieve the Fund's
investment objective.

While there is considerable flexibility in the investment grade and type of
security in which the Fund may invest, the Fund currently uses a strategy of
investing only in those common stocks which have a record of having increased
their dividend payout in each of the preceding ten or more years. This "dividend
performers" strategy can be changed at any time.

USING "PASSIVE" OR "INDEXING" INVESTMENT TECHNIQUES, THE 500 INDEX FUND
SEEKS TO PROVIDE INVESTMENT RESULTS THAT CORRESPOND TO THE TOTAL RETURN
PERFORMANCE OF THE S&P 500 INDEX.

The 500 INDEX FUND normally invests 80% of the Fund's total assets in common
stocks of the companies that comprise the S&P 500 Index. The Fund tries to
allocate the stocks held in its portfolio in approximately the same proportions
as they are represented in the S&P 500 Index, in an attempt to minimize the
degree to which the Fund's investment results (before Fund expenses) differ from
those of the Index ("tracking error"). This "indexing" technique is a passive
approach to investing and is designed for long-term investors seeking a
diversified portfolio of common stocks. Unlike other equity funds which seek to
"beat" stock market averages, the Fund attempts to "match" the total return
performance of the S&P Index and thus provide a predictable return relative to
the benchmark. The degree to which the Fund's performance correlates with that
of the S&P 500 Index will depend upon the size and cash flows of the Fund, the
liquidity of the securities represented in the Index and the Fund's expenses,
among other factors. There is no fixed number of component stocks in which the
Fund will invest, and there can be no assurance that the Fund's total return
will match that of the S&P 500 Index. For a description of the investment
characteristics of the S&P 500 Index, see "THE S&P 500 INDEX."

<PAGE>

If extraordinary circumstances warrant, the Fund may exclude a stock held in the
S&P 500 Index and include a similar stock in its place if doing so will help the
Fund achieve its objective. Additionally, the Fund may invest in certain
short-term fixed income securities such as cash equivalents, although cash and
cash equivalents are normally expected to represent less than 1% of the Fund's
assets. The Fund may also enter into stock futures contracts and options in
order to invest uncommitted cash balances, to maintain liquidity to meet
shareholder redemptions, or to minimize trading costs. The Fund will not invest
in cash equivalents, futures contracts or options as part of a temporary
defensive strategy.

EACH EQUITY FUND (OTHER THAN THE 500 INDEX FUND) MAY INVEST A PORTION OF
ITS TOTAL ASSETS IN CORPORATE AND GOVERNMENTAL FIXED INCOME SECURITIES.

Although under normal market conditions each Equity Fund (other than the Growth
and Income Fund) intends to be substantially fully invested in common stocks,
each Equity Fund (other than the 500 Index Fund) may invest in fixed income
securities for purposes of managing its cash position and for temporary
defensive purposes. Fixed income investments of these Funds may include bonds,
notes, preferred stock and convertible fixed income securities issued by U.S.
corporations or the U.S. Government and its political subdivisions. The
International Fund, Regional Bank Fund, Financial Industries Fund, Emerging
Growth Fund, Special Opportunities Fund, Growth Fund and Growth and Income Fund
may also invest in fixed income securities issued by foreign corporations or
foreign governments and their political subdivisions (although no more than 25%
of Growth Fund's assets will be invested in foreign securities). The value of
fixed income securities varies inversely with interest rates. The value of
convertible issues, while influenced by the level of interest rates, will also
be affected by the changing value of the underlying common stocks into which
they are convertible.

The fixed income securities of International Fund, Emerging Growth Fund, Special
Opportunities Fund and Independence Equity Fund will be rated "investment grade"
(i.e., rated BBB or better by Standard & Poor's Ratings Group ("S&P") or Baa or
better by Moody's Investors Service, Inc. ("Moody's")) or, if unrated,
determined to be of investment grade quality by the Adviser or relevant
Sub-adviser. Growth and Income Fund may invest up to 15% of its net assets in
Junk Bonds including convertible securities, that may be rated as low as CC by
S&P, Ca by Moody's or their unrated equivalents. Fixed income securities held by
Sovereign Investors Fund and the Growth Fund may be rated as low as C by S&P or
Moody's. No more than 5% of the Sovereign Investors Fund's and the Growth Fund's
assets will be invested in fixed income securities rated lower than BBB by S&P
or Baa by Moody's or, if unrated, determined to be of comparable quality by the
Adviser.

The Regional Bank Fund may invest up to 5% of its net assets in below-investment
grade debt securities of Banks rated as low as CCC by S&P or Caa by Moody's or,
if unrated, determined to be of comparable quality by the Adviser.

The Financial Industries Fund may invest in debt securities of financial
services companies and in debt and equity securities of companies outside of the
financial services sector. The Fund may invest up to 5% of its net assets in
below-investment grade debt securities, rated as low as CCC by S&P or Caa by
Moody's or, if unrated, determined to be of comparable quality by the Adviser.

Fixed income securities rated BBB or Baa or higher normally exhibit adequate
protection parameters. However, fixed income securities rated BBB or Baa or
lower have speculative characteristics, and adverse changes in economic
conditions or other circumstances are more likely to lead to weakened capacity
to make principal and interest payments than with higher grade bonds. Fixed
income securities rated lower than BBB or Baa are high risk securities commonly
known as "junk bonds." See "LOWER RATED SECURITIES" and the APPENDIX to this
Prospectus for a description of the risks and characteristics of various ratings
categories. Each Equity Fund (other than the Sovereign Investors Fund) may
retain fixed income securities whose ratings are downgraded below the minimum
ratings described above until the Adviser or relevant Sub-adviser determines
that disposing of such securities is in the best interests of the affected Fund.
If any security in Sovereign Investors Fund's portfolio falls below the Fund's
minimum credit quality standards, as a result of a rating downgrade or the
Adviser's or Sub-adviser's determination, the Fund will dispose of the security
as promptly as possible while attempting to minimize any loss.

THE FIXED INCOME FUNDS

THE FIXED INCOME FUNDS OFFER A RANGE OF INVESTMENT ALTERNATIVES FOCUSING
PRIMARILY ON CORPORATE AND GOVERNMENTAL FIXED INCOME SECURITIES.

Under normal circumstances, the SOVEREIGN BOND FUND, STRATEGIC INCOME FUND, HIGH
YIELD BOND FUND AND WORLD BOND FUND (collectively, the "Fixed Income Funds")
each invests at least 65% of its total assets in fixed income securities. Each
Fixed Income Fund invests in a broad range of fixed income securities, including
bonds, notes, preferred stock and convertible debt securities issued by U.S.
corporations or the U.S. Government and its political subdivisions. The Funds
may invest in mortgage-backed securities and the Sovereign Bond, Strategic
Income and High Yield Bond Funds may invest in asset-backed securities. The
Fixed Income Funds may also invest in fixed income securities issued by foreign
corporations or governments and their political subdivisions. The fixed income
securities in which the Funds may invest are subject to varying credit quality
criteria. The Fixed Income Funds are not obligated to dispose of securities
whose issuers subsequently are in default or which are downgraded below the
minimum ratings noted below.

<PAGE>

The value of fixed income securities generally varies inversely with interest
rates. The longer the maturity of the fixed income security, the more volatile
will be changes in its value resulting from changes in interest rates. The value
of fixed income securities with conversion features, however, will also be
affected by changes in the value of the common stocks into which such fixed
income securities are convertible.

THE SOVEREIGN BOND FUND INVESTS PRIMARILY IN
A DIVERSIFIED PORTFOLIO OF FREELY MARKETABLE INVESTMENT GRADE FIXED
INCOME SECURITIES OF U.S. AND FOREIGN ISSUERS.

Under normal market conditions, the SOVEREIGN BOND FUND invests at least 65% of
its total assets in bonds and/or debentures. In addition, at least 75% of the
Fund's total assets will be invested in fixed income securities which have, at
the time of purchase, a rating within the four highest grades as determined by
S&P (AAA, AA, A, or BBB) or Moody's (Aaa, Aa, A or Baa) or their respective
equivalent ratings; fixed income securities of banks, the U.S. Government and
its agencies or instrumentalities and other issuers which, although not rated as
a matter of policy by either S&P or Moody's, are considered by the Adviser to
have investment quality comparable to securities receiving ratings within the
four highest grades; and cash and cash-equivalents. Fixed income securities
rated BBB or Baa and unrated debt securities of comparable credit quality are
subject to certain risks. See "INVESTMENT GRADE SECURITIES."

The Fund may also invest up to 25% of its total assets in fixed income
securities rated below BBB by S&P or below Baa by Moody's or their respective
equivalent ratings or in securities which are unrated. The Fund may invest in
securities rated as low as CC or Ca and unrated securities of comparable credit
quality as determined by the Adviser. These ratings indicate obligations that
are highly speculative and often in default. Securities rated lower than Baa or
BBB are high risk securities generally referred to as "junk bonds." See "Lower
Rated Securities" and the APPENDIX to this Prospectus for a description of the
risks and characteristics of the various ratings categories.

The Fund may acquire individual securities of any maturity and is not subject to
any limits as to the average maturity of its overall portfolio.

The Fund may invest in securities of United States and foreign issuers. It is
anticipated that under normal conditions, the Fund will not invest more than 25%
of its total assets in foreign securities (excluding U.S. dollar-denominated
Canadian securities).

THE STRATEGIC INCOME FUND SEEKS A HIGH LEVEL OF CURRENT INCOME BY
INVESTING PRIMARILY IN FIXED INCOME SECURITIES OF U.S. AND FOREIGN
ISSUERS.

The STRATEGIC INCOME FUND invests in all types of fixed income securities
including foreign government and foreign corporate securities, U.S. Government
securities and lower-rated high yield, high risk, fixed income securities of
U.S. issuers. Under normal circumstances, the Fund's assets are invested in each
of the foregoing three sectors. However, from time to time the Fund may invest
up to 100% of its total assets in any one sector. The Fund may invest up to 10%
of its net assets in common stocks and similar equity securities of U.S. and
foreign companies. No more than 25% of the Fund's total assets, at the time of
purchase, will be invested in government securities of any one foreign country.
The fixed income securities in which the Fund may invest include bonds,
debentures, notes (including variable and floating rate instruments), preferred
and preference stock, zero coupon bonds, payment-in-kind securities, increasing
rate note securities, participation interests, multiple class passthrough
securities, collateralized mortgage obligations, stripped debt securities, other
mortgage-backed securities, asset-backed securities and other derivative debt
securities. Variable and floating rate instruments, mortgage-backed securities
and asset-backed securities are derivative instruments that derive their value
from an underlying security. Derivative securities are subject to additional
risks. See "DERIVATIVE INSTRUMENTS."

The higher yields and the high income sought by the Fund are generally
obtainable from investments in the lower rating categories. The Fund may invest
up to 100% of its total assets in fixed income securities rated below Baa by
Moody's, or below BBB by S&P, or in securities which are unrated. The Fund may
invest in securities rated as low as Ca or CC, which may indicate that the
obligations are highly speculative and in default. Fixed income securities rated
below Baa or BBB are commonly called "junk bonds." See "LOWER RATED SECURITIES"
and the APPENDIX to this Prospectus for a description of the risks and
characteristics of the various ratings categories.

THE HIGH YIELD BOND FUND INVESTS PRIMARILY
IN LOWER-RATED, HIGH-YIELDING, FIXED INCOME SECURITIES.

Under normal market conditions, the HIGH YIELD BOND FUND invests at least 65% of
its total assets in bonds rated below Baa by Moody's or below BBB by S&P or in
unrated securities of comparable quality as determined by the Adviser. Up to 30%
of the fund's total assets may be invested in bonds rated Ca by Moody's or CC by
S&P or in unrated securities of comparable quality as determined by the adviser.
See "LOWER RATED SECURITIES" and the APPENDIX to this Prospectus for a
description of the risks and characteristics of the various ratings categories.
Up to 40% of the Fund's total assets may be invested in the securities of
issuers in the electric utility and telephone industries. For all other
industries, the limitation is 25% of assets. The Fund may also invest up to 20%
of its net assets in U.S. or foreign equities.

The types of debt securities in which the Fund may invest include, but are not
limited to, domestic and foreign corporate bonds, debentures, notes, convertible
securities, preferred stocks, municipal obligations and government obligations.

<PAGE>

For liquidity and flexibility, the Fund may place up to 35% of its total assets
in investment-grade short-term securities. In abnormal market conditions, it may
invest more assets in these securities as a defensive tactic. The Fund also may
invest in certain higher-risk investments, including options, futures and
restricted securities. See "RISK FACTORS, INVESTMENTS AND TECHNIQUES."

THE WORLD BOND FUND INVESTS PRIMARILY IN A GLOBAL PORTFOLIO OF FIXED
INCOME SECURITIES.

Normally, the WORLD BOND FUND invests in fixed income securities denominated in
at least three currencies or multi-currency units, including the U.S. Dollar.
Under normal circumstances, the Fund invests primarily (at least 65% of total
assets) in U.S. Government, municipal and foreign governmental securities;
obligations of supranational organizations (e.g., the International Bank for
Reconstruction and Development (the "World Bank"), the European Investment Bank,
the Asian Development Bank and the European Coal and Steel Community); and
foreign corporations or financial institutions. The Fund is "non-diversified"
and may invest more than 5% of its assets in obligations of a single foreign
government or other issuer. The Fund will not invest more than 25% of its total
assets in securities issued by any one foreign government. See "SECURITIES OF
FOREIGN ISSUERS."

The Fund may invest in fixed income securities denominated in any currency or a
multi-national currency unit. The European Currency Unit ("ECU") is a composite
currency consisting of specified amounts of each of the currencies of the member
countries of the European Economic Community. The Fund may also invest in fixed
income securities denominated in the currency of one country although issued by
a governmental entity, corporation or financial institution of another country.
For example, the Fund may invest in a Japanese yen-denominated fixed income
security issued by a U.S. corporation. This type of investment involves credit
risks associated with the issuer and currency risks associated with the currency
in which the obligation is denominated. The Fund maintains a flexible investment
policy and its portfolio assets may be shifted among fixed income securities
denominated in various foreign currencies that the Adviser expects to provide
relatively high yields or potential capital appreciation in U.S. Dollars.

The Fund will invest primarily in fixed income securities which are rated A or
better by S&P or Moody's or securities that the Adviser has determined to be of
similar credit quality. The Fund may, however, invest less than 35% of its total
assets in fixed income securities rated, at the time of investment, as low as
CCC by S&P or Caa by Moody's or their respective equivalent ratings and unrated
securities of comparable credit quality. These securities are commonly referred
to as "emerging market" or "junk" bonds. These bonds are considered speculative
and entail greater risks, including default risks, than those found in higher
rated securities. See "LOWER RATED SECURITIES" and the APPENDIX to this
Prospectus for a description of the risks and characteristics of the various
ratings categories.

The average maturity of the Fund's portfolio securities may vary based upon the
Adviser's assessment of economic and market conditions.

THE MONEY MARKET FUND

THE MONEY MARKET FUND INVESTS ONLY IN HIGH-QUALITY MONEY MARKET
INSTRUMENTS.

The MONEY MARKET FUND invests in money market instruments including, but not
limited to, U.S. Government, municipal and foreign government securities;
obligations of supranational organizations (e.g., the World Bank and the
International Monetary Fund); obligations of U.S. and foreign banks and other
lending institutions; corporate obligations; repurchase agreements and reverse
repurchase agreements. All of the Fund's investments are denominated in U.S.
dollars.

At the time the Money Market Fund acquires its investments, they will be rated
(or issued by an issuer that is rated with respect to a comparable class of
short-term debt obligations) in one of the two highest rating categories for
short-term debt obligations assigned by at least two nationally recognized
rating organizations (or one rating organization if the obligation was rated by
only one such organization). These high quality securities are divided into
"first tier" and "second tier" securities. First tier securities have received
the highest rating from at least two rating organizations while second tier
securities have received ratings within the two highest categories from at least
two rating agencies, but do not qualify as first tier securities. The Fund may
also purchase obligations that are not rated, but are determined by the Adviser,
based on procedures adopted by the Trust's Board of Trustees, to be of
comparable quality to rated first or second tier securities. The Fund may not
purchase any second tier security if, as a result of its purchase (a) more than
5% of its total assets would be invested in second tier securities or (b) more
than 1% of its total assets or $1 million (whichever is greater) would be
invested in the second tier securities of a single issuer.

The Fund seeks to maintain a constant $1.00 share price although there can be no
assurance it will do so. All of the Fund's investments will mature in 397 days
or less. The Fund will maintain an average dollar-weighted portfolio maturity of
90 days or less.

EACH FUND MAY EMPLOY CERTAIN INVESTMENT STRATEGIES AND TECHNIQUES TO
HELP ACHIEVE ITS INVESTMENT OBJECTIVE.

Each Fund (other than the Independence Equity Fund, Sovereign Investors Fund,
500 Index Fund and Money Market Fund) may invest in the securities of foreign
issuers, including American Depositary Receipts ("ADRs") and European Depositary
Receipts ("EDRs"). The Independence Equity Fund, Sovereign Investors Fund, 500
Index Fund and Money Market Fund may invest in U.S. Dollar denominated
securities of foreign issuers.

<PAGE>

Each Fund may purchase securities on a forward commitment or when-issued basis
and invest up to 15% (10% for the Money Market Fund) of its net assets in
illiquid securities. In addition, each Fund may lend portfolio securities and
may make temporary investments in short-term securities, including repurchase
agreements and other money market instruments, in order to receive a return on
uninvested cash. To avoid the need to sell equity securities to meet redemption
requests, and to provide flexibility to take advantage of investment
opportunities, Regional Bank Fund and Financial Industries Fund may invest up to
15% of its net assets in cash or in investment grade short-term securities. Each
Fund may enter into reverse repurchase agreements. See "RISK FACTORS,
INVESTMENTS AND TECHNIQUES" for more information on each Fund's investments.

When, in the opinion of the Adviser or relevant Sub-adviser, extraordinary
market or economic conditions warrant, each Fund (other than the 500 Index Fund)
may, for temporary defensive purposes, hold cash, cash equivalents or fixed
income securities without limitation. The Financial Industries Fund may hold up
to 80% of its total assets in cash, cash equivalents or fixed income securities.

Each Fund has adopted investment restrictions detailed in the Statement of
Additional Information. Some of these restrictions may help to reduce investment
risk. Those restrictions designated as fundamental may not be changed without
shareholder approval. Each Fund's investment objective, investment policies and
non-fundamental restrictions, however, may be changed by a vote of the Trustees
without shareholder approval. If there is a change in a Fund's investment
objective, investors should consider whether the Fund remains an appropriate
investment in light of their current financial position and needs.

BROKERS ARE CHOSEN FOR FUND TRANSACTIONS ON THE BASIS OF BEST PRICE AND
EXECUTION.

The primary consideration in choosing brokerage firms to carry out a Fund's
transactions is execution at the most favorable prices, taking into account the
broker's professional ability and quality of service. Pursuant to procedures
determined by the Trustees, the Adviser may place securities transactions with a
broker affiliated with the Adviser or a Sub-adviser. This broker is John Hancock
Distributors, Inc., which is indirectly owned by the Life Company, which in turn
indirectly owns the Adviser and certain Sub-advisers. Fixed income securities
are generally purchased and sold in transactions with dealers acting as
principal and involve a "spread" rather than a commission. Commission rates on
many foreign securities exchanges are fixed and are generally higher than U.S.
commission rates, which are negotiable.

PURCHASE AND REDEMPTION
OF SHARES

INVESTMENTS IN SHARES OF THE FUNDS

Each Fund sells its shares at net asset value ("NAV") directly to separate
accounts established and maintained by insurance companies for the purpose of
funding Variable Contracts. Variable Contract separate accounts may or may not
make investments in all the Funds described in this Prospectus. Investments in a
Fund (other than certain automatic investments described below under "Redeeming
Shares") are credited to an insurance company's separate account immediately
upon acceptance of the investment by the Fund. The offering of shares of any
Fund may be suspended for a period of time and each Fund reserves the right to
reject any specific purchase order. Purchase orders may be refused if, in the
Adviser's opinion, they are of a size that would disrupt the management of a
Fund.

SHARE PRICE

Shares of each Fund are offered at the NAV per share of that Fund. The NAV per
share is the value of one share and is calculated by dividing a Fund's net
assets by the number of outstanding shares of that Fund.

Securities in a Fund's portfolio are valued on the basis of market quotations
and valuations provided by independent pricing services, or at fair value as
determined in good faith according to procedures approved by the Trustees.
Short-term fixed income investments maturing within 60 days are valued at
amortized cost, which the Board of Trustees has determined approximates market
value. Foreign securities are valued on the basis of quotations from the primary
market in which they are traded, and are translated from the local currency into
U.S. dollars using current exchange rates. If quotations are not readily
available, or the value has been materially affected by events occurring after
the closing of a foreign market, assets are valued by a method that the Trustees
believe accurately reflects fair value. The NAV is calculated once daily as of
the close of regular trading on the New York Stock Exchange (generally at 4:00
p.m., New York time) on each day the Exchange is open. On any day an
international market is closed and the New York Stock Exchange is open, the
foreign securities will be valued at the prior day's close.

REDEEMING SHARES

Shares of a Fund may be redeemed on any business day. Redemptions (other than
certain automatic redemptions described below) are effected at the per share NAV
next determined after receipt and acceptance of the redemption request by a
Fund. Redemption proceeds will normally be forwarded by bank wire to the
redeeming insurance company on the next business day after receipt of the
redemption instructions by a Fund. Under unusual circumstances, a Fund may
suspend redemptions or postpone payment for up to seven

<PAGE>

(7) business days or longer, as permitted by Federal securities laws.

Purchases and redemptions arising out of an automatic transaction under an
insurance contract (such as investment of net premiums, death of insureds,
deduction of fees and charges, transfers, surrenders, loans, loan repayments,
deductions of interest on loans, lapses, reinstatements and similar automatic
transactions) are effected at the net asset value per share computed as of the
close of business on the day as of which the automatic transaction is effected,
even though the order for purchase or redemption of Fund shares is not received
until after close of business.

ORGANIZATION AND
MANAGEMENT OF THE FUNDS

THE TRUSTEES ELECT OFFICERS AND RETAIN THE ADVISER AND THE SUB-ADVISERS,
WHO ARE RESPONSIBLE FOR THE DAY-TO-DAY OPERATIONS OF THE FUNDS, SUBJECT
TO THE TRUSTEES' POLICIES AND SUPERVISION.

Each Fund is a separate portfolio of the Trust, which is an open-end, investment
management company organized as a Massachusetts business trust in 1995. The
Trust has an unlimited number of authorized shares, and currently has fifteen
distinct funds.

Each Fund currently has one class of shares with equal rights as to voting,
redemption, dividends and liquidation within that Fund. The Trustees have the
authority, without further shareholder approval, to establish additional funds
within the Trust and to classify and reclassify the shares of the Funds, or any
new fund of the Trust, into one or more classes. The Trust is not required to
hold annual shareholder meetings, although special meetings may be called for
such purposes as electing or removing Trustees, changing fundamental
restrictions or approving a management contract. 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.
For a further discussion of voting rights, please refer to your insurance
company's separate account Prospectus.

Under Massachusetts law, shareholders of a Massachusetts business trust could,
under certain circumstances, be held personally liable for acts or obligations
of the Funds. However, each Fund's Declaration of Trust contains an express
disclaimer of shareholder liability for acts, obligations or affairs of the
Fund. The Declaration of Trust also provides for indemnification out of a Fund's
assets for all losses and expenses of any shareholder held personally liable by
reason of being or having been a shareholder. Liability is, therefore, limited
to circumstances in which a Fund itself would be unable to meet its obligations,
and the possibility of this occurrence is remote. Liabilities attributable to
one Fund are not charged against the assets of any other Fund.

JOHN HANCOCK ADVISERS, INC. ADVISES INVESTMENT COMPANIES HAVING A TOTAL
ASSET VALUE OF MORE THAN $22 BILLION.

The Adviser was organized in 1968 and is a indirect wholly-owned subsidiary of
the Life Company, a financial services company. It provides the Funds, and other
investment companies in the John Hancock group of Funds, with investment
research and portfolio management services. John Hancock Funds, Inc. ("John
Hancock Funds") distributes shares of the Funds. Certain officers of the Trust
are also officers of the Adviser, the Sub-advisers and John Hancock Funds.
Pursuant to an order granted by the SEC, the Trust has adopted a deferred
compensation plan for its independent Trustees which allows Trustees' fees to be
invested by the Funds in other John Hancock funds.

John Hancock Advisers International Limited ("JHAI") serves as the sub-adviser
to the 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.

Independence Investment Associates, Inc. ("IIA") serves as the sub-adviser to
the 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 the Life Company. IIA provides investment advice and
advisory services to investment companies and institutional accounts.

Sovereign Asset Management Corporation ("SAMCorp") serves as the sub-adviser to
the Sovereign Investors Fund pursuant to a sub-advisory agreement among the
Fund, the Adviser and SAMCorp. SAMCorp was organized in 1992 and is a wholly
owned indirect subsidiary of the Life Company. SAMCorp provides investment
advice and advisory services to investment companies and private and
institutional accounts.

"Standard & Poor's(R)," "S&P(R)," "S&P 500(R)," "Standard & Poor's 500," and
"500" are trademarks of The McGraw-Hill Companies, Inc. and have been licensed
for use by the Adviser. The 500 Index Fund is not sponsored, endorsed, sold or
promoted by Standard & Poor's. Standard & Poor's makes no representation or
warranty, express or implied, to the purchasers of the Fund or any member of the
public regarding the advisability of investing in securities generally or in the
500

<PAGE>

Index Fund particularly or the ability of the S&P 500 Index to track general
stock market performance. Standard & Poor's only relationship to the Adviser is
the licensing of certain trademarks and trade names of Standard & Poor's and of
the S&P 500 Index, which is determined, composed and calculated by Standard &
Poor's without regard to the Adviser or the 500 Index Fund. Standard & Poor's
has no obligation to take the needs of the Adviser or the purchasers of the 500
Index Fund into consideration in determining, composing or calculating the S&P
500 Index. Standard & Poor's is not responsible for and has not participated in
the determination of the prices and amount of the 500 Index Fund, the timing of
the issuance or sale of the 500 Index Fund or in the determination or
calculation of the equation by which the 500 Index Fund is to be converted into
cash. Standard & Poor's has no obligation or liability in connection with the
administration, marketing or trading of the 500 Index Fund.

STANDARD & POOR'S DOES NOT GUARANTEE THE ACCURACY AND/OR THE COMPLETENESS OF THE
S&P 500 INDEX OR ANY DATA INCLUDED THEREIN AND STANDARD & POOR'S SHALL HAVE NO
LIABILITY FOR ANY ERRORS, OMISSIONS, OR INTERRUPTIONS THEREIN. STANDARD & POOR'S
MAKES NO WARRANTY, EXPRESS OR IMPLIED, AS TO RESULTS TO BE OBTAINED BY THE
ADVISER, THE TRUST, OR ANY OTHER PERSON OR ENTITY FROM THE USE OF THE S&P 500
INDEX OR ANY DATA INCLUDED THEREIN. STANDARD & POOR'S MAKES NO EXPRESS OR
IMPLIED WARRANTIES, AND EXPRESSLY DISCLAIMS ALL WARRANTIES OF MERCHANTABILITY OR
FITNESS FOR A PARTICULAR PURPOSE OR USE WITH RESPECT TO THE S&P 500 INDEX OR ANY
DATA INCLUDED THEREIN. WITHOUT LIMITING ANY OF THE FOREGOING, IN NO EVENT SHALL
STANDARD & POOR'S HAVE ANY LIABILITY FOR ANY SPECIAL, PUNITIVE, INDIRECT, OR
CONSEQUENTIAL DAMAGES (INCLUDING LOST PROFITS), EVEN IF NOTIFIED OF THE
POSSIBILITY OF SUCH DAMAGES.

The person or persons primarily responsible for the day-to-day management of
each Fund (other than the Money Market Fund) are listed below:

INTERNATIONAL FUND

Miren Etcheverry, John L.F. Wills and Gerardo J. Espinoza lead the portfolio
management team. Ms. Etcheverry and Mr. Espinoza are senior vice presidents and
joined John Hancock Funds in December 1996, having been in the investment
business since 1978 and 1979, respectively. Mr. Wills is a senior vice president
of the Adviser and managing director of the subadviser, John Hancock Advisers
International. He joined John Hancock in 1987 and has been in the investment
business since 1969.

REGIONAL BANK FUND

James K. Schmidt, CFA, leads the Fund's portfolio management team. Mr. Schmidt
is an executive vice president of the Adviser. He joined the Adviser in 1985.

FINANCIAL INDUSTRIES FUND

James K. Schmidt, CFA, and Thomas Finucane lead the Fund's portfolio management
team. Mr. Schmidt is executive vice president of the Adviser. He joined the
Adviser in 1985. Mr. Finucane is vice president of the Adviser and joined the
Adviser in 1990.

EMERGING GROWTH FUND

Bernice S. Behar, CFA, leads the Fund's portfolio management team. Ms. Behar, a
senior vice president of the Adviser, has been associated with the Adviser since
1991. She has been in the investment business since 1986.

SPECIAL OPPORTUNITIES FUND

Barbara C. Friedman, CFA, is leader of the fund's portfolio management team. A
senior vice president of the Adviser, Ms. Friedman has been a member of the
management team since joining John Hancock Funds in January 1998. Ms. Friedman
has been in the investment business since 1973.

GROWTH FUND

Anurag Pandit, CFA, leads the Fund's portfolio management team. A vice president
of the Adviser, Mr. Pandit has been a member of the management team since
joining John Hancock Funds in April 1996. Mr. Pandit has been in the investment
business since 1984.

GROWTH AND INCOME FUND

Timothy E. Keefe, CFA, leads the Fund's portfolio management team. Mr. Keefe, a
senior vice president of the Adviser, has been with the Adviser since July 1996.
He has been in the investment business since 1987.

INDEPENDENCE EQUITY FUND

All investment decisions for the Independence Equity Fund are made by a
portfolio management team of investment professionals employed by Independence
Investment Associates, Inc., the Fund's Sub-Adviser, and no single person is
primarily responsible for making recommendations for the team.

SOVEREIGN INVESTORS FUND

John F. Snyder, III and Barry H. Evans, CFA, lead the Fund's portfolio
management team. Mr. Snyder, an investment manager since 1971, is an executive
vice president of Sovereign Asset Management Corp., the Fund's Sub-adviser, and
a wholly owned subsidiary of John Hancock Funds. Mr. Evans, a senior

<PAGE>

vice president of the Adviser, joined John Hancock Funds in 1986.

500 INDEX FUND

The 500 Index Fund is "passively" managed by a portfolio management team using
computerized, quantitative techniques. The team is lead by Barry H. Evans, CFA
and Roger C. Hamilton, CFA. Mr. Evans, a senior vice president of the Adviser,
joined John Hancock Funds in 1986. Mr. Hamilton, a vice president of the
Adviser, joined John Hancock Funds in December 1994 and has been in the
investment business since 1980.

SOVEREIGN BOND FUND

James K. Ho, CFA, leader of the Fund's portfolio management team, is an
executive vice president of the Adviser. Mr. Ho joined the Adviser in 1985 and
has been in the investment business since 1977.

STRATEGIC INCOME FUND

Frederick L. Cavanaugh, Jr., leader of the Fund's portfolio management team, is
a senior vice president of the Adviser. Mr. Cavanaugh joined the Adviser in 1986
and has been in the investment business since 1973.

HIGH YIELD BOND FUND

Arthur N. Calavritinos, CFA, leader of the Fund's portfolio management team, is
a vice president of the Adviser. He joined John Hancock Funds in 1988 and has
been in the investment business since 1987.

WORLD BOND FUND

Anthony A. Goodchild, Lawrence J. Daly and Janet L. Clay lead the Fund's
portfolio management team. Messrs. Goodchild and Daly are Senior Vice Presidents
of the Adviser and joined John Hancock Funds in 1994, having been in the
investment business since 1968 and 1972, respectively. Ms. Clay, vice president
of the Adviser, joined John Hancock Funds in 1995 and has been in the investment
business since 1990.

In order to avoid any conflict with portfolio trades for the Funds, the Adviser,
the Sub-advisers and the Funds have adopted extensive restrictions on personal
securities trading by personnel of the Adviser, the Sub-advisers and their
affiliates. In the case of the Adviser, some of these restrictions are: pre-
clearance for all personal trades and a ban on the purchase of initial public
offerings, as well as contributions to specified charities of profits on
securities held for less than 91 days. The Sub-advisers have adopted similar
restrictions which may differ where appropriate as long as they have similar
intent. These restrictions are a continuation of the basic principle that the
interests of the Funds and their shareholders come before those of management.

THE FUNDS' EXPENSES

Each Fund pays a monthly fee to the Adviser for managing the Fund's investment
and business affairs, which is equal on an annual basis to a percentage of the
Fund's average daily net assets. These fees are as follows:

<TABLE>
<CAPTION>
FUND RATE
- ---- ----
<S> <C>
International Fund 0.90%
Regional Bank Fund 0.80%
Financial Industries Fund 0.80%
Emerging Growth Fund 0.75%
Special Opportunities Fund 0.75%
Growth Fund 0.75%
Growth and Income Fund 0.60%
Independence Equity Fund 0.70%
Sovereign Investors Fund 0.60%
500 Index Fund* 0.10%
Sovereign Bond Fund 0.50%
Strategic Income Fund 0.60%
High Yield Bond Fund 0.60%
World Bond Fund 0.75%
Money Market Fund 0.50%
</TABLE>

*Reflects the Adviser's Agreement to limit the management fee. Without this
limitation the management fee would be 0.35%. The Adviser may terminate this
limitation in the future.

The Adviser pays sub-advisory fees out of its own assets and no Fund is
responsible for paying a fee to its respective Sub-adviser.

The Adviser pays a portion of its advisory fee from the International Fund to
JHAI at the following rate: 70% of the advisory fee payable by the Fund.

The Adviser pays a portion of its advisory fee from the Independence Equity Fund
to IIA at the following rate: 55% of the advisory fee payable by the Fund.

The Adviser pays a portion of its fee from the Sovereign Investors Fund to
SAMCorp at the following rate: 40% of the advisory fee payable by the Fund.

The Funds also compensate the Adviser for performing tax and financial
management services. Compensation by each fund is not expected to exceed 0.02%
of its average net assets on an annual basis.

EACH FUND PAYS CERTAIN ADDITIONAL EXPENSES.

Each Fund pays fees to the Independent Trustees of the Trust, the expenses of
the continuing registration and qualification of its shares for sale, the
charges of custodians and transfer agents, and auditing and legal expenses. The
Adviser may, from time to time, agree that all or a portion of its fee will not
be imposed for specific periods or make other arrangements to limit the Funds'
expenses to not more than a specified percentage of average net assets
(currently 0.25% excluding advisory fees). The Adviser retains the right to
reimpose the fee and recover any other payments to the extent annual expenses
fall below the limit at the end of the fiscal year.

<PAGE>

DIVIDENDS AND TAXES

Dividends from net investment income are declared and paid as follows:

<TABLE>
<CAPTION>
FUND DECLARED PAID
- ---- ---------- ----------
<S> <C> <C>
International Fund......................... Annually Annually
Regional Bank Fund......................... Quarterly Quarterly
Financial Industries Fund.................. Annually Annually
Emerging Growth Fund....................... Annually Annually
Special Opportunities Fund................. Annually Annually
Growth Fund................................ Annually Annually
Growth and Income Fund..................... Quarterly Quarterly
Independence Equity Fund................... Quarterly Quarterly
Sovereign Investors Fund................... Quarterly Quarterly
500 Index Fund............................. Quarterly Quarterly
Sovereign Bond Fund........................ Daily Monthly
Strategic Income Fund...................... Daily Monthly
High Yield Bond Fund....................... Daily Monthly
World Bond Fund............................ Daily Monthly
Money Market Fund.......................... Daily Monthly
</TABLE>

Capital gains distributions are generally declared annually. Dividends are
automatically reinvested in additional shares of the Funds.

TAXATION. 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. It is suggested you
keep all statements you receive to assist in your personal record keeping.

Each Fund is treated as a separate entity for tax purposes and intends to
qualify and be treated each year as a separate regulated investment company
under Subchapter M of the Internal Revenue Code of 1986, as amended (the
"Code"). To qualify as a regulated investment company, a Fund must satisfy
certain requirements in Subchapter M of the Code relating to the sources of its
income, the diversification of its assets, and the distribution of its income to
shareholders. As a regulated investment company, each Fund will not be subject
to Federal income taxes on any net investment income and net realized capital
gains that are distributed to its shareholders in accordance with the timing
requirements of the Code. Each Fund expects to distribute to the life insurance
company separate accounts owning its shares all or substantially all of its net
investment income and net realized capital gains, if any, for each taxable year.

Distributions from a Fund's net investment income, certain net foreign exchange
gains, and any excess of net short-term capital gain over net long-term capital
loss will be treated as ordinary income, and distributions from any excess of
net long-term capital gain over net short-term capital loss so designated by a
Fund will be treated as capital gain by the investing insurance companies. Such
companies should consult their own tax advisers regarding whether such
distributions are subject to federal income tax if they are properly added to
reserves for the applicable variable contracts.

In addition to the above, each Fund also follows certain portfolio
diversification requirements imposed under the Code on separate accounts of
insurance companies that are used to fund Variable Contracts. More specific
information on these diversification requirements is contained in the Trust's
Statement of Additional Information.

If a Fund does not both qualify as a regulated investment company and satisfy
the additional diversification requirements referred to above, the holders of
Variable Contracts based on a separate account that invested in that Fund might
become subject to taxation of all income on such contracts unless the failure is
permitted to be corrected by the Internal Revenue Service.

PERFORMANCE

EACH FUND MAY ADVERTISE ITS TOTAL RETURN.

Total return is based on the overall change in value of a hypothetical
investment in a Fund. A Fund's total return shows the overall dollar or
percentage change in value, assuming the reinvestment of all dividends.
Cumulative total return shows a Fund's performance over a period of time.
Average annual total return shows the cumulative return divided over the number
of years included in the period. Because average annual total return tends to
smooth out variations in a Fund's performance, you should recognize that it is
not the same as actual year-to-year results.

Total return calculations are at net asset value because no sales charges are
incurred by Variable Contract separate accounts.

EACH FUND MAY ALSO ADVERTISE YIELD.

Yield reflects a Fund's rate of income on portfolio investments as a percentage
of its share price. Yield is computed by annualizing the result of dividing the
net investment income per share over a 30-day period by the net asset value per
share on the last day of that period.

Money Market Fund's yield refers to the income generated by an investment in the
Fund over a specified seven-day period, expressed as an annual percentage rate.
Money Market Fund's effective yield is calculated similarly, but assumes that
the income earned from investments is reinvested in shares of the Fund. Money
Market Fund's effective yield will tend to be slightly higher than its yield
because of the compounding effect of this reinvestment.

Yield is calculated according to accounting methods that are standardized for
all mutual funds. Because yield accounting methods differ from the methods used
for other accounting purposes, a Fund's yield may not equal the income paid on
shares or the income reported in the Fund's financial statements.

The value of a Fund's shares when redeemed may be more or less than their
original cost. Total return and yield are historical calculations and are not
indications of future performance.

<PAGE>

RISK FACTORS, INVESTMENTS
AND TECHNIQUES

COMMON STOCKS. Common stocks are shares of a corporation or other entity that
entitle the holder to a pro rata share of the profits of the corporation, if
any, without preference over any other shareholder or class of shareholders,
including holders of such entity's preferred stock and other senior equity.
Ownership of common stock usually carries with it the right to vote and,
frequently, an exclusive right to do so. Each Fund will diversify its
investments in common stocks of companies in a number of industry groups. Common
stocks have the potential to outperform fixed income securities over the long
term. Common stocks provide the most potential for growth, yet are the more
volatile of the two asset classes.

THE S&P 500 INDEX. The S&P 500 Index is comprised of 500 industrial, utility,
transportation and financial companies in the United States markets. Most of
these companies are listed on the New York Stock Exchange (the "Exchange").
Companies included in the S&P 500 Index represent about 73% of the Exchange's
market capitalization and 16% of the Exchange's issuers. The S&P 500 Index is a
capitalization weighted index calculated on a total return basis with dividends
reinvested. The inclusion of a stock in the S&P 500 Index in no way implies that
Standard & Poor's believes the stock to be an attractive investment.

Because of the market-value weighting, the 50 largest companies in the S&P 500
Index currently account for approximately 50.2% of the Index. Typically,
companies included in the S&P 500 Index are the largest and most dominant firms
in their respective industries. As of November 30, 1997, the five largest
companies in the Index were: General Electric (3.3%), Coca-Cola (2.4%), Exxon
Corporation (2.1%), Intel Corporation (1.7%), and Microsoft (2.3%). The largest
industry categories were: international oil companies (6.0%), major regional
banks (5.8%), pharmaceutical companies (4.8%), health care companies (4.2%) and
telephone (4.2%).

BANKING INDUSTRY. Since the Fund's investments will be concentrated in the
banking industry, it will be subject to risks in addition to those that apply to
the general equity market. Events may occur which significantly affect the
entire banking industry. Thus, the Fund's share value may at times increase or
decrease at a faster rate than the share value of a mutual fund with investments
in many industries. In addition, despite some measure of deregulation, banks and
other lending institutions are still subject to extensive governmental
regulation which limits their activities. The availability and cost of funds to
these entities is crucial to their profitability. Consequently, volatile
interest rates and general economic conditions can adversely affect their
financial performance and condition. The market value of the debt securities in
the Fund's portfolio will also tend to vary in an inverse relationship with
changes in interest rates. For example, as interest rates rise, the market value
of debt securities tends to decline. The Fund is not a complete investment
program. Because the Fund's investments are concentrated in the banking
industry, an investment in the Fund may be subject to greater market
fluctuations than a fund that does not concentrate in a particular industry.
Thus, it is recommended that an investment in the Fund be considered only one
portion of your overall investment portfolio.

Banks, finance companies and other financial services organizations are subject
to extensive governmental regulations which may limit both the amounts and types
of loans and other financial commitments which may be made and the interest
rates and fees which may be charged. The profitability of these concerns is
largely dependent upon the availability and cost of capital funds, and has shown
significant recent fluctuation as a result of volatile interest rate levels.
Volatile interest rates will also affect the market value of debt securities
held by the Fund. In addition, general economic conditions are important to the
operations of these concerns, with exposure to credit losses resulting from
possible financial difficulties of borrowers potentially having an adverse
effect.

FINANCIAL INDUSTRIES. Since the Financial Industries Fund's investments will be
concentrated in the financial services sector, it will be subject to risks in
addition to those that apply to the general equity and debt markets. Events may
occur which significantly affect the sector as a whole or a particular segment
in which the Fund invests. Accordingly, the Fund may be subject to greater
market volatility than a fund that does not concentrate in a particular economic
sector or industry. Thus, it is recommended that an investment in the Fund be
only a portion of your overall investment portfolio.

In addition, most financial services companies are subject to extensive
governmental regulation which limits their activities and may (as with insurance
rate regulation) affect the ability to earn a profit from a given line of
business. Certain financial services businesses are subject to intense
competitive pressures, including market share and price competition. The removal
of regulatory barriers to participation in certain segments of the financial
services sector may also increase competitive pressures on different types of
firms. For example, legislative proposals to remove traditional barriers between
banking and investment banking activities would allow large commercial banks to
compete for business that previously was the exclusive domain of securities
firms. Similarly, the removal of regional barriers in the banking industry has
intensified competition within the industry.

The availability and cost of funds to financial services firms is crucial to
their profitability. Consequently, volatile interest rates and general economic
conditions can adversely affect their financial performance.

Financial services companies in foreign countries are subject to similar
regulatory and interest rate concerns. In particular, government regulation in
certain foreign countries may include controls on interest rates, credit
availability, prices and currency

<PAGE>

movements. In some cases, foreign governments have taken steps to nationalize
the operations of banks and other financial services companies. See "Foreign
Issuers."

The market value of debt securities in the Fund's portfolio will tend to vary in
an inverse relationship with changes in interest rates. For example, as interest
rates rise, the market value of debt securities tends to decline.

FIXED INCOME SECURITIES. Fixed income securities of corporate and governmental
issuers are subject to the risk of an issuer's inability to meet principal and
interest payments on the obligations (credit risk) and may also be subject to
price volatility due to factors such as interest rate sensitivity, market
perception of the issuer's creditworthiness and general market liquidity (market
risk). Debt securities will be selected based upon credit risk analysis of
issuers, the characteristics of the security and interest rate sensitivity of
the various debt issues available from a particular issuer as well as analysis
of the anticipated volatility and liquidity of the fixed income instruments. The
longer a Fund's average portfolio maturity, the more the value of the portfolio
and the net asset value of the Fund's shares will fluctuate in response to
changes in interest rates. An increase in rates will generally decrease the
value of the Fund's securities, while a decline in interest rates will generally
increase their value.

PREFERRED STOCKS. Preferred stock generally has a preference as to dividends
and upon liquidation over an issuer's common stock but ranks junior to debt
securities in an issuer's capital structure. Preferred stock generally pays
dividends in cash (or additional shares of preferred stock) at a defined rate
but, unlike interest payments on debt securities, preferred stock dividends are
payable only if declared by the issuer's board of directors. Dividends on
preferred stock may be cumulative, meaning that, in the event the issuer fails
to make one or more dividend payments on the preferred stock, no dividends may
be paid on the issuer's common stock until all unpaid preferred stock dividends
have been paid. Preferred stock also may be subject to optional or mandatory
redemption provisions.

INVESTMENT GRADE SECURITIES. Each Fund other than the 500 Index Fund and Money
Market Fund may invest in securities that are rated in the lowest category of
"investment grade" (BBB by S&P or Baa by Moody's) or unrated securities
determined by the Adviser or relevant Sub-adviser to be of comparable quality.
Securities in the lowest category of investment grade are considered medium
grade obligations and normally exhibit adequate protection parameters. However,
these securities also have speculative characteristics. Adverse changes in
economic conditions or other circumstances are more likely to lead to weakened
capacity to make principal and interest payments than in the case of higher
grade obligations.

LOWER RATED SECURITIES. The Regional Bank Fund, Financial Industries Fund,
Growth and Income Fund, Sovereign Investors Fund, Growth Fund, Sovereign Bond
Fund, Strategic Income Fund, High Yield Bond Fund and World Bond Fund may invest
in securities rated below investment grade, commonly referred to as junk bonds.
Debt obligations rated in the lower rating categories, or which are unrated,
involve greater volatility of price and risk of loss of principal and income. In
addition, lower ratings reflect a greater possibility of an adverse change in
financial condition affecting the ability of the issuer to make payments of
interest and principal. The market price and liquidity of high yield, high risk,
fixed income securities generally respond to short-term economic, corporate and
market developments to a greater extent than do the price and liquidity of
higher rated securities, because these developments are perceived to have a more
direct relationship to the ability of an issuer of lower rated securities to
meet its ongoing debt obligations.

Reduced volume and liquidity in the high yield bond market or the reduced
availability of market quotations will make it more difficult to dispose of the
bonds and to value accurately the assets of the Financial Industries Fund,
Growth and Income Fund, Sovereign Investors Fund, Growth Fund, Sovereign Bond
Fund, Strategic Income Fund, High Yield Bond Fund and World Bond Fund. The
reduced availability of reliable objective data may increase these Funds'
reliance on management's judgment in valuing the high yield, high risk bonds. To
the extent that these Funds invest in high yield, high risk securities,
achieving the Funds' objectives will depend more on the Adviser's or relevant
Sub-adviser's judgment and analysis than would otherwise be the case. In
addition, these Funds' investments in high yield, high risk securities may be
susceptible to adverse publicity and investor perceptions, whether or not
justified by fundamental factors. In the past, economic downturns and increases
in interest rates have caused a higher incidence of default by the issuers of
these securities and may do so in the future, particularly with respect to
highly leveraged issuers. The market prices of zero coupon and payment-in-kind
bonds are affected to a greater extent by interest rate changes and therefore
tend to be more volatile than securities which pay cash interest periodically.
Increasing rate note securities are typically refinanced by the issuers within a
short period of time. A Fund accrues income on these securities for tax and
accounting purposes, and this income is required to be distributed to
shareholders. Because no cash is received at the time income accrues on these
securities, the Fund may be forced to liquidate other investments to make
distributions.

WARRANTS. Warrants entitle the holder to buy equity securities at a specific
price for a specific period of time. Warrants tend to be more volatile than
their underlying securities. Also, the value of the warrant does not necessarily
change with the value of the underlying securities and a warrant ceases to have
value if it is not exercised prior to the expiration date.

CONVERTIBLE SECURITIES. Each Fund (other than the 500 Index Fund and the Money
Market Fund) may invest in convertible securities, which may include corporate
notes or preferred stock but are ordinarily long-term debt obligations of the
issuer convertible at a stated exchange rate into common stock of the same or
another issuer. As with all debt securities, the market value of convertible
securities tends to decline as interest rates

<PAGE>

increase and, conversely, to increase as interest rates decline. The market
value of convertible securities can also be heavily dependent upon the changing
value of the equity securities into which these securities are convertible
depending on whether the market price of the underlying security exceeds the
conversion price. Convertible securities generally rank senior to common stocks
in an issuer's capital structure and consequently entail less risk than the
issuer's common stock. However, the extent of such risk reduction depends upon
the degree to which the convertible security sells above its value as a fixed
income security. In evaluating a convertible security, the Adviser or relevant
Sub-adviser will give primary emphasis to the attractiveness of the underlying
common stock.

SECURITIES OF FOREIGN ISSUERS. Each Fund, except for the Independence Equity
Fund, 500 Index Fund, Sovereign Investors Fund and Money Market Fund, may invest
in U.S. dollar and foreign denominated securities of foreign issuers. The
Independence Equity Fund, Sovereign Investors Fund, 500 Index Fund and Money
Market Fund may only invest in U.S. dollar denominated securities, including
those of foreign issuers which are traded on a U.S. exchange. In making the
allocation of assets for the Funds among various countries and geographic
regions, the Adviser and relevant Sub-adviser ordinarily consider factors such
as the investment attractiveness of the issuer; the strengths and weaknesses of
the currencies in which the securities are denominated; expected levels of
inflation and interest rates; government policies influencing business
conditions; the financial condition of the issuer and other pertinent financial,
tax, social, political, currency and national factors.

Investments in foreign securities may involve a greater degree of risk than
those in domestic securities due to exchange controls, less publicly available
information, more volatile or less liquid securities markets, and the
possibility of expropriation, confiscatory taxation or political, economic or
social instability. There may be difficulty in enforcing legal rights outside
the United States. Some foreign companies are not generally subject to the same
uniform accounting, auditing and financial reporting requirements as domestic
companies; also foreign regulation may differ considerably from domestic
regulation of stock exchanges, brokers and securities. Security trading
practices abroad may offer less protection to investors such as the Funds.
Additionally, because foreign securities may be denominated in currencies other
than the U.S. dollar, changes in foreign currency exchange rates will affect the
Funds' net asset values, the value of dividends and interest earned, gains and
losses realized on the sale of securities, and net investment income and gains,
if any, that the Funds distribute. Securities transactions undertaken in some
foreign markets may not be settled promptly. Therefore, the Funds' investments
in foreign securities may be less liquid and subject to the risk of fluctuating
currency exchange rates pending settlement. The expense ratios of Funds with
significant investments in foreign securities can be expected to be higher than
those of mutual funds investing solely in domestic securities since the expenses
of these Funds, such as the cost of maintaining custody of foreign securities
and advisory fees, are usually higher.

The risks of foreign investing may be intensified in emerging markets or
countries with limited or developing capital markets. These countries are
located in the Asia-Pacific region, Eastern Europe, Latin and South America and
Africa. Security prices in these markets can be significantly more volatile than
in more developed countries, reflecting the greater uncertainties of investing
in less established markets and economies. Political, legal and economic
structures in many of these emerging market countries may be undergoing
significant evolution and rapid development, and they may lack the social,
political, legal and economic stability characteristic of more developed
countries. Emerging market countries may have failed in the past to recognize
private property rights. They may have relatively unstable governments, present
the risk of nationalization of businesses, restrictions of foreign ownership, or
prohibitions on repatriation of assets, and may have less protection of property
rights than more developed countries. Their economies may be predominantly based
on only a few industries, may be highly vulnerable to changes in local or global
trade conditions, and may suffer from extreme and volatile debt burdens or
inflation rates. Local securities markets may trade a small number of securities
and may be unable to respond effectively to increases in trading volume,
potentially making prompt liquidation of substantial holdings difficult or
impossible at times. Securities of issuers located in these countries may have
limited marketability and may be subject to more abrupt or erratic price
movements.

Certain realized gains or losses on the sale of foreign currency denominated
debt obligations held by a Fund, to the extent attributable to fluctuations in
foreign currency exchange rates, as well as certain other gains or losses
attributable to exchange rate fluctuations, e.g., from transactions in foreign
currencies or currency forward contracts, may be treated as ordinary income or
loss. Such income or loss may increase or decrease (or possibly eliminate) the
Fund's income available for distribution.

DEPOSITARY RECEIPTS. Each Fund (other than the 500 Index Fund and Money Market
Fund) may also invest in securities of foreign issuers in the form of American
Depositary Receipts ("ADRs"), European Depositary Receipts ("EDRs") or other
securities convertible into securities of corporations in which the Fund is
permitted to invest. ADRs (sponsored and unsponsored) are receipts typically
issued by an American bank or trust company which evidence ownership of
underlying securities issued by a foreign corporation and are designed for
trading in United States securities markets. Issuers of the shares underlying
unsponsored ADRs are not contractually obligated to disclose material
information in the United States and, therefore, there may not be a correlation
between such information and the market value of the unsponsored ADR.

FOREIGN CURRENCY TRANSACTIONS. Each of the Funds, except the Independence
Equity Fund, 500 Index Fund, Sovereign Investors Fund and Money Market Fund, may
purchase securities denominated in foreign currencies. The value of investments
in

<PAGE>

these securities and the value of dividends and interest earned may be
significantly affected by changes in currency exchange rates. Some foreign
currency values may be volatile, and there is the possibility of governmental
controls on currency exchange or governmental intervention in currency markets,
which could adversely affect a Fund. As a result, these Funds may enter into
forward foreign currency exchange contracts to protect against changes in
foreign currency exchange rates. These Funds will not speculate in foreign
currencies or in forward foreign currency exchange contracts, but will enter
into these transactions only in connection with their hedging strategies. A
forward foreign currency exchange contract involves an obligation to purchase or
sell a specific currency at a future date at a price set at the time of the
contract. Although certain strategies could minimize the risk of loss due to a
decline in the value of the hedged foreign currency, they could also limit any
potential gain which might result from an increase in the value of the currency.

GOVERNMENT SECURITIES. Each Fund may invest in securities issued or guaranteed
by the U.S. Government, its agencies or instrumentalities. The 500 Index Fund,
however, may only invest temporarily in short-term U.S. Government securities
for liquidity purposes. Certain U.S. Government securities, including U.S.
Treasury bills, notes and bonds and Government National Mortgage Association
certificates ("Ginnie Maes"), are supported by the full faith and credit of the
United States. Certain other U.S. Government securities, issued or guaranteed by
federal agencies or government sponsored enterprises, are not supported by the
full faith and credit of the United States, but may be supported by the right of
the issuer to borrow from the U.S. Treasury. These securities include
obligations of the Federal Home Loan Mortgage Corporation ("Freddie Macs") and
Federal National Mortgage Association ("Fannie Maes"), and obligations supported
by the credit of the instrumentality, such as Student Loan Marketing Association
bonds ("Sallie Maes").

Each Fund may invest in mortgage-backed securities. A mortgage-backed security
may be an obligation of the issuer backed by a mortgage or pool of mortgages or
a direct interest in an underlying pool of mortgages. Some mortgage-backed
securities, such as collateralized mortgage obligations (CMOs), make payments of
both principal and interest at a variety of intervals; others make semiannual
interest payments at a predetermined rate and repay principal at maturity (like
a typical bond). Mortgage-backed securities are based on different types of
mortgages including those on commercial real estate or residential properties.
Mortgage-backed securities often have stated maturities of up to thirty years
when they are issued, depending upon the length of the mortgages underlying the
securities. In practice, however, unscheduled or early payments of principal and
interest on the underlying mortgages may make the securities' effective maturity
shorter than this, and the prevailing interest rates may be higher or lower than
the current yield of a Fund's portfolio at the time the Fund receives the
payments for reinvestment. Mortgage-backed securities may have less potential
for capital appreciation than comparable fixed income securities, due to the
likelihood of increased prepayments of mortgages as interest rates decline. If a
Fund buys mortgage-backed securities at a premium, mortgage foreclosures and
prepayments of principal by mortgagors (which may be made at any time without
penalty) may result in some loss of the Fund's principal investment to the
extent of the premium paid.

The value of mortgage-backed securities may also change due to shifts in the
market's perception of issuers. In addition, regulatory or tax changes may
adversely affect the mortgage securities markets as a whole. Non-governmental
mortgage-backed securities may offer higher yields than those issued by
government entities, but also may be subject to greater price changes than
governmental issues.

"Stripped" mortgage-backed securities are created when a U.S. Government agency
or a financial institution separates the interest and principal components of a
mortgage-backed security and sells them as individual securities. The holder of
the "principal-only" security ("PO") receives the principal payments made by the
underlying mortgage-backed security, while the holder of the "interest-only"
security ("IO") receives interest payments from the same underlying security.
The prices of stripped mortgage-backed securities may be particularly affected
by changes in interest rates. As interest rates fall, prepayment rates tend to
increase, which tends to reduce prices of IOs and increase prices of POs. Rising
interest rates can have the opposite effect. Although the market for these
securities is increasingly liquid, the Adviser or relevant Sub-adviser may, in
accordance with guidelines adopted by the Board of Trustees, determine that
certain stripped mortgage-backed securities issued by the U.S. Government, its
agencies or instrumentalities are not readily marketable. If so, these
securities, together with privately-issued stripped mortgage-backed securities,
will be considered illiquid for purposes of the Funds' limitation on investments
in illiquid securities.

Other types of mortgage-backed securities may be developed in the future, and a
Fund may invest in them if the Adviser or relevant Sub-adviser determines they
are consistent with the Fund's investment objectives and policies.

ASSET-BACKED SECURITIES. Sovereign Bond Fund, Strategic Income Fund and High
Yield Bond Fund may invest in securities that represent individual interests in
pools of consumer loans and trade receivables similar in structure to
mortgage-backed securities. The assets are securitized either in a pass-through
structure or in a multiple class CMO-type structure. Although the collateral
supporting asset-backed securities generally is of a shorter maturity than
mortgage loans and historically has been less likely to experience substantial
prepayments, no assurance can be given as to the actual maturity of an
asset-backed security because prepayments of principal may be made at any time.

Asset-backed securities entail certain risks not presented by mortgage-backed
securities. Asset-backed securities do not have the benefit of the same type of
security interest in the

<PAGE>

related collateral. Credit card receivables are generally unsecured and a number
of state and Federal consumer credit laws give debtors the right to set off
certain amounts owed on the credit cards, thereby reducing the outstanding
balance. In the case of automobile receivables, there is a risk that the holders
may not have either a proper or first security interest in all of the
obligations backing such receivables due to the large number of vehicles
involved in typical issuance, and technical requirements under state laws.
Therefore, recoveries on repossessed collateral may not always be available to
support payments on these securities.

MORTGAGE "DOLLAR ROLL" TRANSACTIONS. The Sovereign Bond Fund, Strategic Income
Fund and High Yield Bond Fund may enter into mortgage "dollar roll" transactions
with selected banks and broker-dealers. In a dollar roll, the Fund sells
mortgage-backed securities and simultaneously contracts to repurchase
substantially similar (same type, coupon and maturity) securities on a specified
future date. A Fund will only enter into covered rolls. A "covered roll" is a
specific type of dollar roll for which there is an offsetting cash or cash
equivalent security position which matures on or before the forward settlement
date of the dollar roll transaction. Covered rolls are not treated as a
borrowing or other senior security and will be excluded from the calculation of
a Fund's borrowings and other senior securities. For financial reporting and tax
purposes, a Fund treats mortgage dollar rolls as two separate transactions: one
involving the purchase of a security and a separate transaction involving a
sale. The Funds do not currently intend to enter into mortgage dollar roll
transactions that are accounted for as a financing.

SHORT-TERM TRADING AND PORTFOLIO TURNOVER. Short-term trading means the
purchase and subsequent sale of a security after it has been held for a
relatively brief period of time. The International Fund, Emerging Growth Fund,
Special Opportunities Fund, Growth Fund, Growth and Income Fund, Sovereign Bond
Fund, Strategic Income Fund, High Yield Bond Fund and World Bond Fund engage in
short-term trading in response to stock market conditions, changes in interest
rates or other economic trends and developments, or to take advantage of yield
disparities between various fixed income securities in order to realize capital
gains or improve income. Short term trading may have the effect of increasing
portfolio turnover rate.

The remaining Funds do not intend to invest for the purpose of seeking
short-term profits. These Funds' particular portfolio securities may be changed,
however, without regard to the holding period of these securities when the
Adviser or relevant Sub-adviser deems that this action will help achieve the
Fund's objective given a change in an issuer's operations or in general market
conditions.

The portfolio turnover rate for the Funds is shown in the section captioned "The
Funds' Financial Highlights." In the future, the estimated portfolio turnover
rate of each Equity Fund is expected to be less than 100%. The estimated
portfolio turnover rates of the remaining Funds are as follows: Sovereign Bond
Fund and High Yield Bond Fund: 100%; Strategic Income Fund: 200%; and World Bond
Fund: 300%. A high rate of portfolio turnover (100% or greater) involves
corresponding higher transaction expenses and may make it more difficult for a
Fund to qualify as a regulated investment company for Federal income tax
purposes.

OPTIONS AND FUTURES TRANSACTIONS. Each Fund (other than the Money Market Fund)
may buy and sell options contracts, financial futures contracts and options on
futures contracts. Options and futures contracts are bought and sold to manage a
Fund's exposure to changing interest rates, security prices, and currency
exchange rates. Some options and futures strategies, including selling futures,
buying puts, and writing calls, tend to hedge a Fund's investment against price
fluctuations. Other strategies, including buying futures, writing puts, and
buying calls, tend to increase market exposure. Options and futures may be
combined with each other or with forward contracts in order to adjust the risk
and return characteristics of the overall strategy. Each Fund (other than the
International Fund) may purchase and sell options and futures based on
securities, indices, or currencies, including options and futures traded on
foreign exchanges and options not traded on any exchange. International Fund may
only purchase and sell options and futures traded on a U.S. commodity exchange
or board of trade.

Options and futures can be volatile investments and involve certain risks. If
the Adviser applies a hedge at an inappropriate time or judges market conditions
incorrectly, options and futures strategies may lower a Fund's return. A Fund
can also experience losses if the prices of its options and futures positions
are poorly correlated with those of its other investments, or if it cannot close
out its positions because of an illiquid secondary market. Options and futures
do not pay interest, but may produce income, gains or losses.

A Fund will not engage in a transaction in futures or options on futures for
nonhedging purposes if, immediately thereafter, the sum of initial margin
deposits and premiums required to establish nonhedging positions in futures
contracts and options on futures would exceed 5% of the Fund's net assets. The
loss incurred by a Fund investing in futures contracts and in writing options on
futures is potentially unlimited and may exceed the amount of any premium
received. The Funds' transactions in options and futures contracts may be
limited by the requirements of the Code for qualification as a regulated
investment company.

SWAP AGREEMENTS. As one way of managing exposure to different types of
investments, Sovereign Bond Fund, Strategic Income Fund, High Yield Bond Fund
and World Bond Fund may enter into interest rate swaps and other types of swap
agreements such as caps, collars and floors. Each of these Funds may also enter
into currency swaps. In a typical interest rate swap, one party agrees to make
regular payments equal to a floating interest rate times a "notional principal
amount," in return for payments equal to a fixed rate times the same amount, for
a specified period of time. If a swap agreement provides for payments in
different currencies, the parties might

<PAGE>

agree to exchange the notional principal amount as well. Swaps may also depend
on other prices or rates, such as the value of an index or mortgage prepayment
rates.

In a typical cap or floor agreement, one party agrees to make payments only
under specified circumstances, usually in return for payment of a fee by the
other party. For example, the buyer of an interest rate cap obtains the right to
receive payments to the extent that a specified interest rate exceeds an
agreed-upon level, while the seller of an interest rate floor is obligated to
make payments to the extent that a specified interest rate falls below an
agreed-upon level. An interest rate collar combines elements of buying a cap and
selling a floor.

Swap agreements will tend to shift a Fund's investment exposure from one type of
investment to another. For example, if a Fund agrees to exchange payments in
dollars for payments in a foreign currency, the swap agreement would tend to
decrease the Fund's exposure to U.S. interest rates and increase its exposure to
foreign currency and interest rates. Caps and floors have an effect similar to
buying or writing options. Depending on how they are used, swap agreements may
increase or decrease the overall volatility of a Fund's investments and its
share price and yield.

Swap agreements are sophisticated hedging instruments that typically involve a
small investment of cash relative to the magnitude of risks assumed. As a
result, swaps can be highly volatile and may have a considerable impact on a
Fund's performance. Swap agreements are subject to the risk of a counterparty's
failure to perform, and may decline in value if the counterparty's
creditworthiness deteriorates. A Fund may also suffer losses if it is unable to
terminate outstanding swap agreements or reduce its exposure through offsetting
transactions. A Fund will maintain in a segregated account with its custodian,
cash or liquid debt securities equal to the net amount, if any, of the excess of
the Fund's obligations over its entitlements with respect to swap, cap, collar
or floor transactions.

DERIVATIVE INVESTMENTS. Consistent with its investment objective, each Fund may
purchase or enter into derivative investments to enhance return, to hedge
against fluctuations in interest rates, securities prices or currency exchange
rates, to change the duration of the Fund's fixed income portfolio or as a
substitute for the purchase or sale of securities or currency. A Fund's
investments in derivative securities may include certain mortgage-backed and
indexed securities. A Fund's transactions in derivative contracts may include
the purchase or sale of futures contracts on securities, indices or currency;
options on futures contracts; options on securities, indices or options on
futures contracts; options on securities, indices or currency; forward contracts
to purchase or sell securities or currency; currency, mortgage and interest rate
swaps; and interest rate caps, floors and collars. All of the Funds'
transactions in derivative instruments involve a risk of loss of principal due
to unanticipated adverse changes in interest rates, securities prices or
currency exchange rates. The loss on derivative contracts (other than purchased
options, caps, floors and collars) may exceed a Fund's initial investment in
these contracts. In addition, a Fund may lose the entire premium paid for
purchased options, caps, floors and collars that expire before they can be
profitably exercised by the Fund.

STRUCTURED SECURITIES. The Sovereign Bond Fund, Strategic Income Fund, High
Yield Bond Fund and World Bond Fund may invest in structured notes, bonds or
debentures, the value of the principal of and/or interest on which is to be
determined by reference to changes in the value of specific currencies, interest
rates, commodities, indices and other financial indicators (the "Reference") or
the relative change in two or more References. The interest rate or the
principal amount payable upon maturity or redemption may be increased or
decreased depending upon changes in the applicable reference. The terms of the
structured securities may provide that in certain circumstances no principal is
due at maturity and, therefore, may result in the loss of the Fund's investment.
Structured securities may be positively or negatively indexed, so that
appreciation of the Reference may produce an increase or decrease in the yield
or value of the security at maturity. In addition, the change in the yield or
the value of the security at maturity may be a multiple of the change in the
value of the Reference. Consequently, structured securities entail a greater
degree of market risk than other types of debt securities. Structured securities
may also be more volatile, less liquid and more difficult to price accurately
than less complex fixed income investments.

PARTICIPATION INTERESTS. The Sovereign Bond Fund, Strategic Income Fund and
High Yield Bond Fund may invest in participation interests. Participation
interests, which may take the form of interests in or assignments of certain
loans, are acquired from banks who have made these loans or are members of a
lending syndicate. A Fund's investments in participation interests are subject
to its 15% limitation on investments in illiquid securities.

SMALLER CAPITALIZATION COMPANIES. Each Equity Fund may invest in smaller
capitalization companies. These companies may have limited product lines, market
and financial resources, or they may be dependent on smaller or less experienced
management groups. In addition, trading volume for these securities may be
limited. Historically, the market price for these securities has been more
volatile than for securities of companies with greater capitalization. However,
securities of companies with smaller capitalization may offer greater potential
for capital appreciation since they may be overlooked and thus undervalued by
investors.

NON-DIVERSIFIED STATUS. The World Bond Fund has elected to be "non-diversified"
in order to permit it to invest more than 5% of its total assets in the
obligations of any one issuer. Since a relatively high percentage of this Fund's
assets may be invested in the obligations of a limited number of issuers, the
value of this Fund's shares may be more susceptible to any single economic,
political or regulatory event, and to the credit and market risks associated
with a single issuer, than would the shares of a diversified fund. However, this
Fund, like each of the

<PAGE>

other Funds, must satisfy certain tax diversification requirements. See
"Taxation" above.

SHORT SALES. Each Fund (other than the 500 Index Fund and Money Market Fund)
may engage in short sales "against the box," as well as short sales for hedging
purposes. The International Fund, Financial Industries Fund, Growth Fund,
Emerging Growth Fund and Special Opportunities Fund may engage in short sales to
profit from an anticipated decline in a security's value. When a Fund engages in
a short sale other than "against the box," it will place cash or liquid
securities in a segregated account and mark them to market daily in accordance
with applicable regulatory requirements. Except for short sales against the box,
a Fund is limited in the amount of the Fund's net assets that may be committed
to short sales and the securities in which short sales are made must be listed
on a national securities exchange. A short sale is "against the box" to the
extent that the Fund contemporaneously owns or has the right to obtain, at no
added cost, securities identical to those sold short. Short sales other than
"against the box" may involve an unlimited exposure to loss. SEE THE STATEMENT
OF ADDITIONAL INFORMATION.

RESTRICTED AND ILLIQUID SECURITIES. Each Fund may invest up to 15% (10% for
Money Market Fund) of its net assets in illiquid investments, which include
repurchase agreements maturing in more than seven days, certain over-the-counter
options, privately-issued stripped mortgage-backed securities, certain interest
rate swaps, caps, collars and floors, certain restricted securities and
securities that are not readily marketable. Each Fund may also invest without
limitation in restricted securities eligible for resale to certain institutional
investors pursuant to Rule 144A under the Securities Act of 1933 and, to the
extent consistent with its investment policies, foreign securities acquired in
accordance with Regulation S under the Securities Act of 1933.

LENDING OF SECURITIES AND REPURCHASE AGREEMENTS. For the purpose of realizing
additional income and as a matter of fundamental policy, each Fund may lend
portfolio securities amounting to not more than 33 1/3% of its respective total
assets taken at current value. Securities loaned by a Fund will remain subject
to fluctuations in market value. Each Fund may also enter into repurchase
agreements. In a repurchase agreement, the Fund buys a security subject to the
right and obligation to sell it back to the issuer at the same price plus
accrued interest. These transactions must be fully collateralized at all times.
However, they may involve credit risk to a Fund if the other party should
default on its obligation and that Fund is delayed in or prevented from
recovering the collateral.

REVERSE REPURCHASE AGREEMENTS. Each Fund may enter into reverse repurchase
agreements, which involve the sale of a security by the Fund to a bank or
securities firm and its agreement to repurchase the instrument at a specified
time and price plus an agreed amount of interest. A Fund will use the proceeds
to purchase other investments. Reverse repurchase agreements are considered to
be borrowings by a Fund and as an investment practice may be considered to be
speculative. A Fund will enter into a reverse repurchase agreement only when the
Adviser determines that the return to be earned from the investment of the
proceeds is likely to be greater than the interest expense of the transaction. A
Fund will enter into reverse repurchase agreements only with selected registered
broker/dealers or with federally insured banks or savings and loan associations
which are approved in advance as being creditworthy by the Board of Trustees.
Under procedures established by the Board of Trustees, the Adviser will monitor
the creditworthiness of the firms involved.

The use of reverse repurchase agreements involves leverage. Leverage allows any
investment gains made with the additional monies received (in excess of the
costs of the reverse repurchase agreement) to increase the net asset value of a
Fund's shares faster than would otherwise be the case. On the other hand, if the
additional monies received by a Fund are invested in ways that do not fully
recover the costs of such transactions, the net asset value of the Fund would
fall faster than would otherwise be the case.

WHEN-ISSUED SECURITIES. Each Fund may purchase securities on a forward or "when
issued" basis. When a Fund engages in when-issued transactions, it relies on the
seller or the buyer, as the case may be, to consummate the transaction. Failure
to consummate the transaction may result in the Fund's losing the opportunity to
obtain an advantageous price and yield.

MUNICIPAL OBLIGATIONS. The High Yield Bond Fund may invest in a variety of
municipal obligations which consist of municipal bonds, municipal notes and
municipal commercial paper.

Municipal Bonds. Municipal bonds are issued to obtain funds for various public
purposes including the construction of a wide range of public facilities such as
airports, highways, bridges, schools, hospitals, housing, mass transportation,
streets and water and sewer works. Other public purposes for which municipal
bonds may be issued include refunding outstanding obligations, obtaining funds
for general operating expenses and obtaining funds to lend to other public
institutions and facilities. In addition, certain types of industrial
development bonds are issued by or on behalf of public authorities to obtain
funds for many types of local, privately operated facilities. Such debt
instruments are considered municipal obligations if the interest paid on them is
exempt from federal income tax. The payment of principal and interest by issuers
of certain obligations purchased by the Fund may be guaranteed by a letter of
credit, note repurchase agreement, insurance or other credit facility agreement
offered by a bank or other financial institution. Such guarantees and the
creditworthiness of guarantors will be considered by the Adviser in determining
whether a municipal obligation meets the Fund's investment quality requirements.
No assurance can be given that a municipality or guarantor will be able to
satisfy the payment of principal or interest on a municipal obligation.

Municipal Notes. Municipal notes are short-term obligations of municipalities,
generally with a maturity ranging from six

<PAGE>

months to three years. The principal types of such notes include tax, bond and
revenue anticipation notes and project notes.

Municipal Commercial Paper. Municipal commercial paper is a short-term
obligation of a municipality, generally issued at a discount with a maturity of
less than one year. Such paper is likely to be issued and meet seasonal working
capital needs of a municipality or interim construction financing. Municipal
commercial paper is backed in many cases by letters of credit, lending
agreements, note repurchase agreements or other credit facility agreements
offered by banks and other institutions.

Issuers of municipal obligations are subject to the provisions of bankruptcy,
insolvency and other laws affecting the rights and remedies of creditors, such
as the Federal Bankruptcy Act, and laws, if any, which may be enacted by
Congress or state legislatures extending the time for payment of principal or
interest, or both, or imposing other constraints upon enforcement of such
obligations. There is also the possibility that as a result of litigation or
other conditions the power of ability of any one or more issuers to pay when due
the principal of and interest on their municipal obligations may be affected.

The yields of municipal bonds depend upon, among other things, general money
market conditions, general conditions of the municipal bond market, size of a
particular offering, the maturity of the obligation and rating of the issue. The
ratings of S&P, Moody's and Fitch Investors Service ("Fitch") represent their
respective opinions on the quality of the municipal bonds they undertake to
rate. It should be emphasized, however, that ratings are general and not
absolute standards of quality. Consequently, municipal bonds with the same
maturity, coupon and rating may have different yields and municipal bonds of the
same maturity and coupon with different ratings may have the same yield. Many
issuers of securities chose not to have their obligations rated. Although
unrated securities eligible for purchase by the Fund must be determined to be
comparable in quality to securities having certain specified ratings, the market
for unrated securities may not be as broad for rated securities since many
investors rely on rating organizations for credit appraisal.

PAY-IN-KIND, DELAYED AND ZERO COUPON BONDS. The Sovereign Bond Fund, Strategic
Income Fund and High Yield Bond Fund may invest in pay-in-kind, delayed and zero
coupon bonds. These are securities issued at a discount from their face value
because interest payments are typically postponed until maturity. The amount of
the discount rate varies depending on factors including the time remaining until
maturity, prevailing interest rates, the security's liquidity and the issuer's
credit quality. These securities also may take the form of debt securities that
have been stripped of their interest payments. The market prices of pay-in-kind,
delayed and zero coupon bonds generally are more volatile than the market prices
of interest-bearing securities and are likely to respond to a greater degree to
changes in interest rates than interest-bearing securities having similar
maturities and credit quality. Because no cash is received at the time income
accrues on these securities, the Fund may be forced to liquidate other
investments to make distributions. At times when the Fund invests in
pay-in-kind, delayed and zero coupon bonds, it will not be pursuing its primary
objective of maximizing current income.

INDEXED SECURITIES. High Yield Bond Fund may invest in indexed securities,
including floating rate securities that are subject to a maximum interest rate
("capped floaters") and leveraged inverse floating rate securities ("inverse
floaters") (up to 10% of the Fund's total assets). The interest rate or, in some
cases, the principal payable at the maturity of an indexed security may change
positively or inversely in relation to one or more interest rates, financial
indices or other financial indicators ("reference prices"). An indexed security
may be leveraged to the extent that the magnitude of any change in the interest
rate or principal payable on an indexed security is a multiple of the change in
the reference price. Thus, indexed securities may decline in value due to
adverse market changes in interest rates or other reference prices.

BRADY BONDS. The Sovereign Bond Fund, Strategic Income Fund and High Yield Bond
Fund may invest in Brady Bonds and other sovereign debt securities of countries
that have restructured or are in the process of restructuring sovereign debt
pursuant to the Brady Plan. Brady Bonds are debt securities described as part of
a restructuring plan created by U.S. Treasury Secretary Nicholas F. Brady in
1989 as a mechanism for debtor nations to restructure their outstanding external
indebtedness (generally, commercial bank debt). In restructuring its external
debt under the Brady Plan framework, a debtor nation negotiates with its
existing bank lenders as well as multilateral institutions such as the World
Bank and the International Monetary Fund (the "IMF"). The Brady Plan facilitates
the exchange of commercial bank debt for newly issued debt (known as Brady
Bonds). The World Bank and the IMF provide funds pursuant to loan agreements or
other arrangements which enable the debtor nation to collateralize the new Brady
Bonds or to repurchase outstanding bank debt at a discount. Under these
arrangements IMF debtor nations are required to implement domestic monetary and
fiscal reforms. These reforms have included the liberalization of trade and
foreign investment, the privatization of stateowned enterprises and the setting
of targets for public spending and borrowing. These policies and programs
promote its economic growth and development. The Brady Plan only sets forth
general guiding principles for economic reform and debt reduction, emphasizing
that solutions must be negotiated on a case-by-case basis between debtor nations
and their creditors.

SEE THE STATEMENT OF ADDITIONAL INFORMATION FOR FURTHER DISCUSSION OF THE USES
AND RISKS OF THE INVESTMENTS DESCRIBED ABOVE.

<PAGE>

APPENDIX

As described in the Prospectus, the fixed income securities offering the high
current income sought by certain of the Funds are ordinarily in the lower rating
categories (that is, rated Baa or lower by Moody's or BBB or lower by S&P or are
unrated).

Moody's describes its lower ratings for corporate bonds as follows:

Bonds that are rated Baa are considered as medium grade obligations, i.e., they
are neither highly protected nor poorly secured. Interest payments and principal
security appear adequate for the present but certain protective elements may be
lacking or may be characteristically unreliable over any great length of time.
Such bonds lack outstanding investment characteristics and in fact have
speculative characteristics as well.

Bonds which are rated Ba are judged to have speculative elements; their future
cannot be considered as well assured. Often the protection of interest and
principal payments may be very moderate and thereby not well safeguarded during
both good and bad times over the future. Uncertainty of position characterizes
bonds in this class.

Bonds which are rated B generally lack characteristics of the desirable
investment. Assurance of interest and principal payments or of maintenance of
other terms of the contract over any long period of time may be small.

Bonds which are rated Caa are of poor standing. Such issues may be in default or
there may be present elements of danger with respect to principal or interest.

Bonds which are rated Ca represent obligations which are speculative in a high
degree. Such issues are often in default or have other market shortcomings.

Bonds which are rated C are the lowest rated class of bonds and issues so rated
can be regarded as having extremely poor prospects of ever attaining any real
investment standing.

S&P describes its lower ratings for corporate bonds as follows:

Debt rated BBB is regarded as having an adequate capacity to pay interest and
repay principal. Whereas it normally exhibits adequate protection parameters,
adverse economic conditions or changing circumstances are more likely to lead to
a weakened capacity to pay interest and repay principal for debt in this
category than in higher rated categories.

Debt rated BB, B, CCC, CC or C is regarded, on balance, as predominantly
speculative with respect to the issuer's capacity to pay interest and repay
principal in accordance with the terms of the obligations. BB indicates the
lowest degree of speculation and C the highest degree of speculation. While such
debt will likely have some quality and protective characteristics, these are
outweighed by large uncertainties or major risk exposures to adverse conditions.

<PAGE>

NOTES

<PAGE>

NOTES

<PAGE>

JOHN HANCOCK DECLARATION TRUST
INVESTMENT ADVISER
John Hancock Advisers, Inc.
101 Huntington Avenue
Boston, Massachusetts 02199-7603

SUB-INVESTMENT ADVISERS
John Hancock Advisers International Limited
(International Fund)
34 Dover Street
London, England WIX3RA

Independence Investment Associates, Inc.
(Independence Equity Fund)
53 State Street
Boston, Massachusetts 02109

Sovereign Asset Management Corp. (Sovereign
Investors Fund)
1235 Westlakes Drive
Berwyn, Pennsylvania 19312

PRINCIPAL DISTRIBUTOR
John Hancock Funds, Inc.
101 Huntington Avenue
Boston, Massachusetts 02199-7603

CUSTODIANS
Investors Bank & Trust Company
200 Clarendon Street
Boston, Massachusetts 02117

State Street Bank and Trust Company
225 Franklin Street
Boston, Massachusetts 02110

SHAREHOLDER SERVICING AGENT
John Hancock Servicing Center
P.O. Box 9298
Boston, Massachusetts 02205-9298

INDEPENDENT AUDITORS
Ernst & Young LLP
200 Clarendon Street
Boston, Massachusetts 02116
HOW TO OBTAIN INFORMATION
ABOUT THE FUNDS

For Service Information
Telephone 1-800-824-0335

VAOOP 5/98

Printed on Recycled Paper.

<PAGE>

JOHN HANCOCK DECLARATION TRUST
101 Huntington Avenue
Boston, Massachusetts 02199-7603

John Hancock V.A. International Fund

John Hancock V.A. Regional Bank Fund

John Hancock V.A. Financial Industries Fund
John Hancock V.A. Emerging Growth Fund
John Hancock V.A. Special Opportunities Fund
John Hancock V.A. Growth Fund
John Hancock V.A. Growth and Income Fund
John Hancock V.A. Independence Equity Fund
John Hancock V.A. Sovereign Investors Fund
John Hancock V.A. 500 Index Fund
John Hancock V.A. Sovereign Bond Fund
John Hancock V.A. Strategic Income Fund
John Hancock V.A. High Yield Bond Fund
John Hancock V.A. World Bond Fund
John Hancock V.A. Money Market Fund

(each, a "Fund" and collectively, the "Funds")

STATEMENT OF ADDITIONAL INFORMATION

May 1, 1998

This Statement of Additional Information provides information about John Hancock
Declaration Trust (the "Trust") and the Funds, in addition to the information
that is contained in the Funds' Prospectus dated May 1, 1998 (the "Prospectus").

This Statement of Additional Information is not a prospectus. It should be read
in conjunction with the Prospectus, a copy of which can be obtained free of
charge by writing or telephoning:

John Hancock Servicing Center
P.O. Box 9298
Boston, Massachusetts 02205-9298
1-800-824-0335

VASAI 5/97
<PAGE>

TABLE OF CONTENTS

Page

Organization of the Trust............................................ 3
Eligible Investors; Investment Objectives and Policies............... 3
Investment Restrictions.............................................. 18
Those Responsible for Management..................................... 22
Investment Advisory and Other Services............................... 31
Distribution Contract................................................ 33
Net Asset Value...................................................... 33
Special Redemptions.................................................. 34
Description of the Trust's Shares.................................... 35
Tax Status........................................................... 35
Calculation of Performance........................................... 38
Brokerage Allocation................................................. 41
Shareholder Servicing Agent.......................................... 43
Custody of Portfolio................................................. 43
Independent Auditors ................................................ 43
Appendix - Description of Bond Ratings............................... 44
Financial Statements................................................. 47

2
<PAGE>

ORGANIZATION OF THE TRUST

John Hancock Declaration Trust (the "Trust") is an open-end investment
management company organized as a Massachusetts business trust under a
Declaration of Trust dated November 15, 1995. The Trust currently has fifteen
series of shares designated as: John Hancock V.A. International Fund
("International Fund"), John Hancock V.A. Regional Bank Fund ("Regional Bank
Fund"), John Hancock V.A. Financial Industries Fund ("Financial Industries"),
John Hancock V.A. Emerging Growth Fund ("Emerging Growth Fund"), John Hancock
V.A. Special Opportunities Fund ("Special Opportunities Fund"), John Hancock
V.A. Growth Fund ("Growth Fund") (formerly John Hancock V.A. Discovery Fund),
John Hancock V.A. Growth and Income Fund ("Growth and Income Fund"), John
Hancock V.A. Independence Equity Fund ("Independence Equity Fund"), John Hancock
V.A. Sovereign Investors Fund ("Sovereign Investors Fund"), John Hancock V.A.
500 Index Fund ("500 Index Fund"), John Hancock V.A. Sovereign Bond Fund
("Sovereign Bond Fund"), John Hancock V.A. Strategic Income Fund ("Strategic
Income Fund"), John Hancock V.A. High Yield Bond Fund ("High Yield Bond Fund"),
John Hancock V.A. World Bond Fund ("World Bond Fund") and John Hancock V.A.
Money Market Fund ("Money Market Fund").

The investment adviser of each Fund is John Hancock Advisers, Inc. (the
"Adviser"). The Adviser is an indirect wholly-owned subsidiary of John Hancock
Mutual Life Insurance Company (the "Life Company"), a Massachusetts life
insurance company chartered in 1862, with national headquarters at John Hancock
Place, Boston, Massachusetts. The investment sub-adviser to the International
Fund is John Hancock Advisers International Limited ("JHAI"). The investment
sub-adviser of Independence Equity Fund is Independence Investment Associates,
Inc. ("IIA"). The investment sub-adviser for Sovereign Investors Fund is
Sovereign Asset Management Corp. ("SAMCorp"). Together, JHAI, IIA and SAMCorp
are sometimes referred to herein collectively as the "Sub-advisers" or,
individually, as the "Sub-adviser." The Sub-advisers are wholly owned indirect
subsidiaries of the Life Company.

ELIGIBLE INVESTORS; INVESTMENT OBJECTIVES AND POLICIES

The following information supplements the discussion of each Fund's investment
objective and policies discussed in the Prospectus. The Funds are designed to
serve as investment vehicles for variable annuity and variable life insurance
contracts (the "Variable Contracts") offered by the separate accounts of various
insurance companies. Participating insurance companies are the owners of shares
of beneficial interest in each Fund of the Trust. In accordance with any
limitations set forth in their Variable Contracts, contract holders may direct,
through their participating insurance companies, the allocation of amounts
available for investment among the Funds. Instructions for any such allocation,
or for the purchase or redemption of shares of a Fund, must be made by the
investor's participating insurance company's separate account as the owner of
the Fund's shares. The rights of participating insurance companies as owners of
shares of a Fund are different from the rights of contract holders under their
Variable Contracts. The term "shareholder" in this Statement of Additional
Information refers only to participating insurance companies, and not to
contract holders.

3
<PAGE>

Each Fund has its own distinct investment objective and policies. In striving to
meet its objective, each Fund will face the challenges of changing business,
economic and market conditions. There is no assurance that the Funds will
achieve their investment objectives. For a further description of the Funds'
investment objectives, policies and restrictions see "Investment Objective and
Overview of each Fund" in the Prospectus and "Investment Restrictions" in this
Statement of Additional Information.

Custodial Receipts. The Funds may each acquire custodial receipts with respect
to U.S. Government securities. Such custodial receipts evidence ownership of
future interest payments, principal payments or both on certain notes or bonds.
These custodial receipts are known by various names, including Treasury
Receipts, Treasury Investors Growth Receipts ("TIGRs"), and Certificates of
Accrual on Treasury Securities ("CATS"). For certain securities law purposes,
custodial receipts are not considered U.S. Government securities.

Bank and Corporate Obligations. Each of the Funds may invest in commercial
paper. Commercial paper represents short-term unsecured promissory notes issued
in bearer form by banks or bank holding companies, corporations and finance
companies. The commercial paper purchased by the Funds consists of direct U.S.
Dollar denominated obligations of domestic or foreign issuers. Bank obligations
in which a Fund may invest include certificates of deposit, bankers' acceptances
and fixed time deposits. Certificates of deposit are negotiable certificates
issued against funds deposited in a commercial bank for a definite period of
time and earning a specified return.

Bankers' acceptances are negotiable drafts or bills of exchange, normally drawn
by an importer or exporter to pay for specific merchandise, which are "accepted"
by a bank, meaning, in effect, that the bank unconditionally agrees to pay the
face value of the instrument on maturity. Fixed time deposits are bank
obligations payable at a stated maturity date and bearing interest at a fixed
rate. Fixed time deposits may be withdrawn on demand by the investor, but may be
subject to early withdrawal penalties which vary depending upon market
conditions and the remaining maturity of the obligation. There are no
contractual restrictions on the right to transfer a beneficial interest in a
fixed time deposit to a third party, although there is no market for such
deposits. Bank notes and bankers' acceptances rank junior to domestic deposit
liabilities of the bank and pari passu with other senior, unsecured obligations
of the bank. Bank notes are not insured by the Federal Deposit Insurance
Corporation or any other insurer. Deposit notes are insured by the Federal
Deposit Insurance Corporation only to the extent of $100,000 per depositor per
bank.

Mortgage-Backed Securities. Each Fund may invest in mortgage pass-through
certificates and multiple-class pass-through securities, such as real estate
mortgage investment conduits ("REMIC") pass-through certificates, collateralized
mortgage obligations ("CMOs") and stripped mortgage-backed securities ("SMBS"),
and other types of "Mortgage-Backed Securities" that may be available in the
future.

Guaranteed Mortgage Pass-Through Securities. Guaranteed mortgage pass-through
securities represent participation interests in pools of residential mortgage
loans and are issued by U.S. Governmental or private lenders and guaranteed by
the U.S. Government or one of its agencies or instrumentalities, including but
not limited to the Government National Mortgage Association ("Ginnie Mae"), the
Federal National Mortgage Association ("Fannie Mae") and the Federal Home Loan
Mortgage Corporation ("Freddie Mac"). Ginnie Mae certificates are guaranteed by
the full faith and credit of the U.S. Government for timely payment of principal
and interest on the certificates. Fannie Mae certificates are guaranteed by
Fannie Mae, a federally chartered and privately owned corporation, for full and
timely payment of principal and interest on the certificates. Freddie Mac
certificates are guaranteed by Freddie Mac, a corporate instrumentality of the
U.S. Government, for timely payment of interest and the ultimate collection of
all principal of the related mortgage loans.

4
<PAGE>

Multiple-Class Pass-Through Securities and Collateralized Mortgage Obligations.
CMOs and REMIC pass-through or participation certificates may be issued by,
among others, U.S. Government agencies and instrumentalities as well as private
issuers. CMOs and REMIC certificates are issued in multiple classes and the
principal of and interest on the mortgage assets may be allocated among the
several classes of CMOs or REMIC certificates in various ways. Each class of
CMOs or REMIC certificates, often referred to as a "tranche," is issued at a
specific adjustable or fixed interest rate and must be fully retired no later
than its final distribution date. Generally, interest is paid or accrues on all
classes of CMOs or REMIC certificates on a monthly basis.

Typically, CMOs are collateralized by Ginnie Mae, Fannie Mae or Freddie Mac
certificates but also may be collateralized by other mortgage assets such as
whole loans or private mortgage pass- through securities. Debt service on CMOs
is provided from payments of principal and interest on collateral of mortgaged
assets and any reinvestment income thereon.

A REMIC is a CMO that qualifies for special tax treatment under the Internal
Revenue Code of 1986, as amended (the "Code"), invests in certain mortgages
primarily secured by interests in real property and other permitted investments
and issues "regular" and "residual" interests. The Funds do not intend to
acquire REMIC residual interests.

Stripped Mortgage-Backed Securities. SMBS are derivative multiple-class
mortgage-backed securities. SMBS are usually structured with two classes that
receive different proportions of interest and principal distributions on a pool
of mortgage assets. A typical SMBS will have one class receiving some of the
interest and most of the principal, while the other class will receive most of
the interest and the remaining principal. In the most extreme case, one class
will receive all of the interest (the "interest only" class) while the other
class will receive all of the principal (the "principal only" class). The yields
and market risk of interest only and principal only SMBS, respectively, may be
more volatile than those of other fixed income securities. The staff of the
Securities and Exchange Commission ("SEC") considers privately issued SMBS to be
illiquid.

Structured or Hybrid Notes. The Sovereign Bond Fund, Strategic Income Fund, High
Yield Bond Fund and World Bond Fund may invest in "structured" or "hybrid"
notes. The distinguishing feature of a structured or hybrid note is that the
amount of interest and/or principal payable on the note is based on the
performance of a benchmark asset or market other than fixed income securities or
interest rates. Examples of these benchmarks include stock prices, currency
exchange rates and physical commodity prices. Investing in a structured note
allows a Fund to gain exposure to the benchmark market while fixing the maximum
loss that the Fund may experience in the event that market does not perform as
expected. Depending on the terms of the note, a Fund may forego all or part of
the interest and principal that would be payable on a comparable conventional
note; a Fund's loss cannot exceed this foregone interest and/or principal. An
investment in structured or hybrid notes involves risks similar to those
associated with a direct investment in the benchmark asset.

Risk Factors Associated with Mortgage-Backed Securities. Investing in
Mortgage-Backed Securities involves certain risks, including the failure of a
counterparty to meet its commitments, adverse interest rate changes and the
effects of prepayments on mortgage cash flows. In addition, investing in the
lowest tranche of CMOs and REMIC certificates involves risks similar to those
associated with investing in equity securities. Further, the yield
characteristics of Mortgage-Backed Securities differ from those of traditional
fixed income securities. The major differences typically include more frequent
interest and principal payments (usually monthly), the adjustability of interest
rates, and the possibility that prepayments of principal may be made
substantially earlier than their final distribution dates.

Prepayment rates are influenced by changes in current interest rates and a
variety of economic, geographic, social and other factors and cannot be
predicted with certainty. Both adjustable rate

5
<PAGE>

mortgage loans and fixed rate mortgage loans may be subject to a greater rate of
principal prepayments in a declining interest rate environment and to a lesser
rate of principal prepayments in an increasing interest rate environment. Under
certain interest rate and prepayment rate scenarios, a Fund may fail to recoup
fully its investment in Mortgage-Backed Securities notwithstanding any direct or
indirect governmental, agency or other guarantee. When a Fund reinvests amounts
representing payments and unscheduled prepayments of principal, it may receive a
rate of interest that is lower than the rate on existing adjustable rate
mortgage pass-through securities. Thus, Mortgage-Backed Securities, and
adjustable rate mortgage pass-through securities in particular, may be less
effective than other types of U.S. Government securities as a means of "locking
in" interest rates.

Conversely, in a rising interest rate environment, a declining prepayment rate
will extend the average life of many Mortgage-Backed Securities. This
possibility is often referred to as extension risk. Extending the average life
of a Mortgage-Backed Security increases the risk of depreciation due to future
increases in market interest rates.

Asset-Backed Securities. The Sovereign Bond Fund, Strategic Income Fund and High
Yield Bond Fund may invest in securities that represent individual interests in
pools of consumer loans and trade receivables similar in structure to
Mortgage-Backed Securities. The assets are securitized either in a pass-through
structure (similar to a mortgage pass-through structure) or in a pay-through
structure (similar to a CMO structure). Although the collateral supporting
asset-backed securities generally is of a shorter maturity than mortgage loans
and historically has been less likely to experience substantial prepayments, no
assurance can be given as to the actual maturity of an asset-backed security
because prepayments of principal may be made at any time. Payments of principal
and interest typically are supported by some form of credit enhancement, such as
a letter of credit, surety bond, limited guarantee by another entity or having a
priority to certain of the borrower's other securities. The degree of credit
enhancement varies, and generally applies to only a fraction of the asset-backed
security's par value until exhausted. If the credit enhancement of an
asset-backed security held by a Fund has been exhausted, and if any required
payments of principal and interest are not made with respect to the underlying
loans, a Fund may experience losses or delays in receiving payment.

Asset-backed securities are often subject to more rapid repayment than their
stated maturity date would indicate as a result of the pass-through of
prepayments of principal on the underlying loans. During periods of declining
interest rates, prepayment of loans underlying asset-backed securities can be
expected to accelerate. Accordingly, a Fund's ability to maintain positions in
these securities will be affected by reductions in the principal amount of such
securities resulting from prepayments, and its ability to reinvest the returns
of principal at comparable yields is subject to generally prevailing interest
rates at that time.

Credit card receivables are generally unsecured and the debtors on such
receivables are entitled to the protection of a number of state and federal
consumer credit laws, many of which give such debtors the right to set-off
certain amounts owed on the credit cards, thereby reducing the balance due.
Automobile receivables generally are secured, but by automobiles rather than
residential real property. Most issuers of automobile receivables permit the
loan servicers to retain possession of the underlying obligations. If the
servicer were to sell these obligations to another party, there is a risk that
the purchaser would acquire an interest superior to that of the holders of the
asset-backed securities. In addition, because of the large number of vehicles
involved in a typical issuance and technical requirements under state laws, the
trustee for the holders of the automobile receivables may not have a proper
security interest in the underlying automobiles. Therefore, there is the
possibility that, in some cases, recoveries on repossessed collateral may not be
available to support payments on these securities.

Risks Associated With Specific Types of Derivative Debt Securities. Different
types of derivative debt securities are subject to different combinations of
prepayment, extension and/or interest rate risk. Conventional mortgage
pass-through securities and sequential pay CMOs are

6
<PAGE>

subject to all of these risks, but are typically not leveraged. Thus, the
magnitude of exposure may be less than for more leveraged Mortgage-Backed
Securities.

The risk of early prepayments is the primary risk associated with interest only
debt securities ("IOs"), leveraged floating rate securities whose yield changes
in the same direction, rather than inversely to, a referenced interest rate ("
super floaters"), other leveraged floating rate instruments and Mortgage-Backed
Securities purchased at a premium to their par value. In some instances, early
prepayments may result in a complete loss of investment in certain of these
securities.

The primary risks associated with certain other derivative debt securities are
the potential extension of average life and/or depreciation due to rising
interest rates. These securities include floating rate securities based on the
Cost of Funds Index ("COFI floaters"), other "lagging rate" floating rate
securities, floating rate securities that are subject to a maximum interest rate
("capped floaters"), Mortgage-Backed Securities purchased at a discount,
leveraged inverse floating rate securities ("inverse floaters"), principal only
debt securities ("POs"), certain residual or support tranches of CMOs and index
amortizing notes. Index amortizing notes are not Mortgage-Backed Securities, but
are subject to extension risk resulting from the issuer's failure to exercise
its option to call or redeem the notes before their stated maturity date.
Leveraged inverse IOs combine several elements of the Mortgage-Backed Securities
described above and thus present an especially intense combination of
prepayment, extension and interest rate risks.

Planned amortization class ("PAC") and target amortization class ("TAC") CMO
bonds involve less exposure to prepayment, extension and interest rate risks
than other Mortgage-Backed Securities, provided that prepayment rates remain
within expected prepayment ranges or "collars." To the extent that prepayment
rates remain within these prepayment ranges, the residual or support tranches of
PAC and TAC CMOs assume the extra prepayment, extension and interest rate risks
associated with the underlying mortgage assets.

Other types of floating rate derivative debt securities present more complex
types of interest rate risks. For example, range floaters are subject to the
risk that the coupon will be reduced to below market rates if a designated
interest rate floats outside of a specified interest rate band or collar. Dual
index or yield curve floaters are subject to depreciation in the event of an
unfavorable change in the spread between two designated interest rates. X-reset
floaters have a coupon that remains fixed for more than one accrual period.
Thus, the type of risk involved in these securities depends on the terms of each
individual X-reset floater.

Brady Bonds have recently been issued by Argentina, Brazil, Bulgaria, Costa
Rica, Dominican Republic, Ecuador, Jordan, Mexico, Nigeria, Poland, the
Philippines, Uruguay and Venezuela and may be issued by other countries. Over
$130 billion in principal amount of Brady Bonds have been issued to date, with
the largest portion issued by Argentina and Brazil. Brady Bonds may involve a
high degree of risk, may be in default or present the risk of default. Investors
should recognize however, that Brady Bonds have been issued only recently, and,
accordingly, they do not have a long payment history. Agreements implemented
under the Brady Plan to date are designed to achieve debt and debt-service
reduction through specific options negotiated by a debtor nation with its
creditors. As a result, the financial packages offered by each country differ.
The types of options have included the exchange of outstanding commercial bank
debt for bonds issued at 100% of face value of such debt, bonds issued at a
discount of face value of such debt, bonds bearing an interest rate which
increases over time and bonds issued in exchange for the advancement of new
money by existing lenders. Certain Brady Bonds have been collateralized as to
principal due at maturity by U.S. Treasury zero coupon bonds with a maturity
equal to the final maturity of such Brady Bonds, although the collateral is not
available to investors until the final maturity of the Brady Bonds. Collateral
purchases are financed by the IMF, the World Bank and the debtor nations'
reserves. In addition, the first two or three interest payments on certain types
of Brady Bonds may be collateralized by cash or securities agreed

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<PAGE>

upon by creditors. Although Brady Bonds may be collateralized by U.S. Government
securities, repayment of principal and interest is not guaranteed by the U.S.
Government.

Ratings as Investment Criteria. In general, the ratings of Moody's Investors
Service, Inc. ("Moody's), Standard & Poor's Ratings Group ("S&P") and Fitch
Investors Service ("Fitch") represent the opinions of these agencies as to the
quality of the securities which they rate. It should be emphasized, however,
that such ratings are relative and subjective and are not absolute standards of
quality. These ratings will be used by the Funds as initial criteria for the
selection of portfolio securities. Among the factors which will be considered
are the long-term ability of the issuer to pay principal and interest and
general economic trends. Appendix A contains further information concerning the
ratings of Moody's, S&P and Fitch and their significance.

Subsequent to its purchase by a Fund, an issue of securities may cease to be
rated or its rating may be reduced below the minimum required for purchase by
the Fund. Neither of these events will require the sale of the securities by the
Fund, but the Adviser will consider the event in its determination of whether
the Fund should continue to hold the securities.

Lower Rated High Yield/High Risk Debt Obligations. Strategic Income Fund,
Regional Bank Fund, Financial Industries Fund, Growth and Income Fund, Sovereign
Investors Fund, Growth Fund, Sovereign Bond Fund, High Yield Bond Fund and World
Bond Fund may invest in high yield/high risk, fixed income securities rated
below investment grade (e.g., rated below Baa by Moody's or below BBB by S&P).

Ratings are based largely on the historical financial condition of the issuer.
Consequently, the rating assigned to any particular security is not necessarily
a reflection of the issuer's current financial condition, which may be better or
worse than the rating would indicate.

See the Appendix to the Prospectus and this Statement of Additional Information
which describes the characteristics of corporate bonds in the various rating
categories. These Funds may invest in comparable quality unrated securities
which, in the opinion of the Adviser or relevant Sub-adviser, offer comparable
yields and risks to those securities which are rated.

Debt obligations rated in the lower ratings categories, or which are unrated,
involve greater volatility of price and risk of loss of principal and income. In
addition, lower ratings reflect a greater possibility of an adverse change in
financial condition affecting the ability of the issuer to make payments of
interest and principal.

The market price and liquidity of lower rated fixed income securities generally
respond to short term corporate and market developments to a greater extent than
do the price and liquidity of higher rated securities because such developments
are perceived to have a more direct relationship to the ability of an issuer of
such lower rated securities to meet its ongoing debt obligations.

Reduced volume and liquidity in the high yield/high risk bond market or the
reduced availability of market quotations will make it more difficult to dispose
of the bonds and to value accurately a Fund's assets. The reduced availability
of reliable, objective data may increase a Fund's reliance on management's
judgment in valuing high yield/high risk bonds. In addition, a Fund's
investments in high yield/high risk securities may be susceptible to adverse
publicity and investor perceptions, whether or not justified by fundamental
factors.

Foreign Currency Transactions. Each Fund (other than Independence Equity Fund,
500 Index Fund, Sovereign Investors Fund and Money Market Fund) may engage in
foreign currency transactions. The foreign currency transactions of the Funds
may be conducted on a spot (i.e., cash) basis at the spot rate for purchasing or
selling currency prevailing in the foreign exchange market. The Funds may enter
into forward foreign currency contracts involving currencies of the different
countries in which they will invest as a hedge against possible variations in
the foreign

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<PAGE>

exchange rate between these currencies. Forward contracts are agreements to
purchase or sell a specified currency at a specified future date and price set
at the time of the contract. The Funds' transactions in forward foreign currency
contracts will be limited to hedging either specific transactions or portfolio
positions. The Funds may elect to hedge less than all of their foreign portfolio
positions. The Funds will not engage in speculative forward currency
transactions.

If a Fund enters into a forward contract to purchase foreign currency, its
custodian will segregate cash or liquid securities, of any type or maturity, in
a separate account of the Fund in an amount necessary to complete the forward
contract. These assets will be marked to market daily and if the value of the
assets in the separate account declines, additional cash or liquid assets will
be added so that the value of the account will equal the amount of the Fund's
commitments in purchased forward contracts.

Hedging against a decline in the value of currency does not eliminate
fluctuations in the prices of portfolio securities or prevent losses if the
prices of such securities decline. Such transactions also preclude the
opportunity for gain if the value of the hedged currency rises. Moreover, it may
not be possible for a Fund to hedge against a devaluation that is so generally
anticipated that the Fund is not able to contract to sell the currency at a
price above the devaluation level it anticipates.

The cost to a Fund of engaging in foreign currency exchange transactions varies
with such factors as the currency involved, the length of the contract period
and the market conditions then prevailing. Since transactions in foreign
currency are usually conducted on a principal basis, no fees or commissions are
involved.

Time Deposits. World Bond's time deposits are non-negotiable deposits maintained
for a stated period of time at a stated interest rate. If the Fund purchases
time deposits maturing in seven days or more, it will treat those longer-term
time deposits as illiquid.

Foreign Securities and Emerging Countries. Each Fund except for Independence
Equity Fund, 500 Index Fund, Sovereign Investors Fund and Money Market Fund may
invest in U.S. Dollar and foreign denominated securities of foreign issuers.
Independence Equity Fund, 500 Index Fund and Money Market Fund may only invest
in U.S. dollar denominated securities including those of foreign issuers which
are traded on a U.S. Exchange. International Fund, Emerging Growth Fund,
Strategic Income Fund, High Yield Bond Fund and World Bond Fund may also invest
in debt and equity securities of corporate and governmental issuers of countries
with emerging economies or securities markets.

Investing in obligations of non-U.S. issuers and foreign banks, particularly
securities of issuers located in emerging countries, may entail greater risks
than investing in similar securities of U.S. issuers. These risks include (i)
social, political and economic instability; (ii) the small current size of the
markets for many such securities and the currently low or nonexistent volume of
trading, which may result in a lack of liquidity and in greater price
volatility; (iii) certain national policies which may restrict a Fund's
investment opportunities, including restrictions on investment in issuers or
industries deemed sensitive to national interests; (iv) foreign taxation; and
(v) the absence of developed structures governing private or foreign investment
or allowing for judicial redress for injury to private property. Investing in
securities of non-U.S. companies may entail additional risks due to the
potential political and economic instability of certain countries and the risks
of expropriation, nationalization, confiscation or the imposition of
restrictions on foreign investment and on repatriation of capital invested. In
the event of such expropriation, nationalization or other confiscation by any
country, a Fund could lose its entire investment in any such country.

In addition, even though opportunities for investment may exist in foreign
countries, and in particular emerging markets, any change in the leadership or
policies of the governments of those countries or in the leadership or policies
of any other government which exercises a significant

9
<PAGE>

influence over those countries, may halt the expansion of or reverse the
liberalization of foreign investment policies now occurring and thereby
eliminate any investment opportunities which may currently exist. Investors
should note that upon the accession to power of authoritarian regimes, the
governments of a number of Latin American countries previously expropriated
large quantities of real and personal property similar to the property which may
be represented by the securities purchased by the Funds. The claims of property
owners against those governments were never finally settled. There can be no
assurance that any property represented by foreign securities purchased by a
Fund will not also be expropriated, nationalized, or otherwise confiscated. If
such confiscation were to occur, a Fund could lose a substantial portion of its
investments in such countries. A Fund's investments would similarly be adversely
affected by exchange control regulations in any of those countries. Certain
countries in which the Funds may invest may have vocal minorities that advocate
radical religious or revolutionary philosophies or support ethnic independence.
Any disturbance on the part of such individuals could carry the potential for
widespread destruction or confiscation of property owned by individuals and
entities foreign to such country and could cause the loss of a Fund's investment
in those countries.

Certain countries prohibit or impose substantial restrictions on investments in
their capital markets, particularly their equity markets, by foreign entities
such as the Funds. As illustrations, certain countries require governmental
approval prior to investments by foreign persons, or limit the amount of
investment by foreign persons in a particular company, or limit the investment
by foreign persons to only a specific class of securities of a company that may
have less advantageous terms than securities of the company available for
purchase by nationals. Moreover, the national policies of certain countries may
restrict investment opportunities in issuers or industries deemed sensitive to
national interests. In addition, some countries require governmental approval
for the repatriation of investment income, capital or the proceeds of securities
sales by foreign investors. A Fund could be adversely affected by delays in, or
a refusal to grant, any required governmental approval for repatriation, as well
as by the application to it of other restrictions on investments.

Foreign companies are subject to accounting, auditing and financial standards
and requirements that differ, in some cases significantly, from those applicable
to U.S. companies. In particular, the assets, liabilities and profits appearing
on the financial statements of such a company may not reflect its financial
position or results of operations in the way they would be reflected had such
financial statements been prepared in accordance with U.S. generally accepted
accounting principles. Most foreign securities held by the Funds will not be
registered with the SEC and such issuers thereof will not be subject to the
SEC's reporting requirements. Thus, there will be less available information
concerning foreign issuers of securities held by the Funds than is available
concerning U.S. issuers. In instances where the financial statements of an
issuer are not deemed to reflect accurately the financial situation of the
issuer, the Adviser or relevant Sub-adviser will take appropriate steps to
evaluate the proposed investment, which may include on-site inspection of the
issuer, interviews with its management and consultations with accountants,
bankers and other specialists. There is substantially less publicly available
information about foreign companies than there are reports and ratings published
about U.S. companies and the U.S. Government. In addition, where public
information is available, it may be less reliable than such information
regarding U.S. issuers.

Because the Funds (other than Independence Equity Fund, 500 Index Fund,
Sovereign Investors Fund and Money Market Fund) may invest, and International
Fund, Emerging Growth Fund and World Bond Fund will (under normal circumstances)
invest, a substantial portion of their total assets in securities which are
denominated or quoted in foreign currencies, the strength or weakness of the
U.S. dollar against such currencies may account for part of the Funds'
investment performance. A decline in the value of any particular currency
against the U.S. dollar will cause a decline in the U.S. dollar value of a
Fund's holdings of securities denominated in such currency and, therefore, will
cause an overall decline in the Fund's net asset value and any

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<PAGE>

net investment income and capital gains to be distributed in U.S. dollars to
shareholders of the Fund.

The rate of exchange between the U.S. dollar and other currencies is determined
by several factors including the supply and demand for particular currencies,
central bank efforts to support particular currencies, the movement of interest
rates, the pace of business activity in certain other countries and the U.S.,
and other economic and financial conditions affecting the world economy.

Although the Funds value their respective assets daily in terms of U.S. dollars,
the Funds do not intend to convert their holdings of foreign currencies into
U.S. dollars on a daily basis. However, the Funds may do so from time to time,
and investors should be aware of the costs of currency conversion. Although
currency dealers do not charge a fee for conversion, they do realize a profit
based on the difference ("spread") between the prices at which they are buying
and selling various currencies. Thus, a dealer may offer to sell a foreign
currency to a Fund at one rate, while offering a lesser rate of exchange should
the Fund desire to sell that currency to the dealer.

Securities of foreign issuers, and in particular many emerging country issuers,
may be less liquid and their prices more volatile than securities of comparable
U.S. issuers. In addition, foreign securities exchanges and brokers are
generally subject to less governmental supervision and regulation than in the
U.S., and foreign securities exchange transactions are usually subject to fixed
commissions, which are generally higher than negotiated commissions on U.S.
transactions. In addition, foreign securities exchange transactions may be
subject to difficulties associated with the settlement of such transactions.
Delays in settlement could result in temporary periods when assets of a Fund are
uninvested and no return is earned thereon. The inability of a Fund to make
intended security purchases due to settlement problems could cause the Fund to
miss attractive investment opportunities. Inability to dispose of a portfolio
security due to settlement problems either could result in losses to a Fund due
to subsequent declines in value of the portfolio security or, if the Fund has
entered into a contract to sell the security, could result in possible liability
to the purchaser.

The Funds' investment income or, in some cases, capital gains from stock or
securities of foreign issuers may be subject to foreign withholding or other
foreign taxes, thereby reducing the Funds' net investment income and/or net
realized capital gains. See "Tax Status."

Repurchase Agreements. Each Fund may enter into repurchase agreements. In a
repurchase agreement the Fund buys a security for a relatively short period
(usually not more than seven days) subject to the obligation to sell it back to
the issuer at a fixed time and price plus accrued interest. Each Fund will enter
into repurchase agreements only with member banks of the Federal Reserve System
and with securities dealers. The Adviser or relevant Sub-adviser will
continuously monitor the creditworthiness of the parties with whom a Fund enters
into repurchase agreements.

Each Fund has established a procedure providing that the securities serving as
collateral for each repurchase agreement must be delivered to the Fund's
custodian either physically or in book-entry form and that the collateral must
be marked to market daily to ensure that each repurchase agreement is fully
collateralized at all times. In the event of bankruptcy or other default by a
seller of a repurchase agreement, a Fund could experience delays in liquidating
the underlying securities and could experience losses, including the possible
decline in the value of the underlying securities during the period in which the
Fund seeks to enforce its rights thereto, possible subnormal levels of income or
lack of access to income during this period, as well as the expense of enforcing
its rights. A Fund will not invest in a repurchase agreement maturing in more
than seven days, if such investment, together with other illiquid securities
held by the Fund would exceed 15% (10% for Money Market Fund) of the Fund's net
assets.

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<PAGE>

Reverse Repurchase Agreements. Each Fund may also enter into reverse repurchase
agreements which involve the sale of U.S. Government securities held in its
portfolio to a bank with an agreement that the Fund will buy back the securities
at a fixed future date at a fixed price plus an agreed amount of "interest"
which may be reflected in the repurchase price. Reverse repurchase agreements
are considered to be borrowings by a Fund. Reverse repurchase agreements involve
the risk that the market value of securities purchased by a Fund with proceeds
of the transaction may decline below the repurchase price of the securities sold
by a Fund which it is obligated to repurchase. A Fund will also continue to be
subject to the risk of a decline in the market value of the securities sold
under the agreements because it will reacquire those securities upon effecting
their repurchase. To minimize various risks associated with reverse repurchase
agreements, a Fund will establish and maintain with the Fund's custodian a
separate account consisting of highly liquid securities, of any type or
maturity, in an amount at least equal to the repurchase prices of the securities
(plus any accrued interest thereon) under such agreements. In addition, a Fund
will not enter into reverse repurchase agreements and other borrowings exceeding
in the aggregate 33 1/3% of the market value of its total assets. A Fund will
enter into reverse repurchase agreements only with selected registered
broker/dealers or with federally insured banks or savings and loan associations
which are approved in advance as being creditworthy by the Trustees. Under
procedures established by the Trustees, the Adviser will monitor the
creditworthiness of the firms involved.

Restricted Securities. Each Fund may purchase securities that are not registered
("restricted securities") under the Securities Act of 1933 ("1933 Act"),
including commercial paper issued in reliance on section 4(2) of the 1933 Act
and securities offered and sold to "qualified institutional buyers" under Rule
144A under the 1933 Act. However, the Fund will not invest more than 15% (10%
for Money Market Fund) of its net assets in illiquid investments. If the
Trustees determine, based upon a continuing review of the trading markets for
specific Section 4(2) paper or Rule 144A securities, that they are liquid, they
will not be subject to the 15% limit on illiquid investments. The Trustees may
adopt guidelines and delegate to the Adviser the daily function of determining
and monitoring the liquidity of restricted securities. The Trustees, however,
will retain sufficient oversight and be ultimately responsible for the
determinations. The Trustees will carefully monitor the Fund's investments in
these securities, focusing on such important factors, among others, as
valuation, liquidity and availability of information. This investment practice
could have the effect of increasing the level of illiquidity in the Fund if
qualified institutional buyers become for a time uninterested in purchasing
these restricted securities.

Options on Securities, Securities Indices and Currency. Each Fund (other than
the Money Market Fund) may purchase and write (sell) call and put options on any
securities in which it may invest, on any securities index based on securities
in which it may invest or on any currency in which Fund investments may be
denominated. These options may be listed on national domestic securities
exchanges or foreign securities exchanges or traded in the over-the-counter
market. Each Fund may write covered put and call options and purchase put and
call options to enhance total return, as a substitute for the purchase or sale
of securities or currency, or to protect against declines in the value of
portfolio securities and against increases in the cost of securities to be
acquired.

Writing Covered Options. A call option on securities or currency written by a
Fund obligates the Fund to sell specified securities or currency to the holder
of the option at a specified price if the option is exercised at any time before
the expiration date. A put option on securities or currency written by a Fund
obligates the Fund to purchase specified securities or currency from the option
holder at a specified price if the option is exercised at any time before the
expiration date. Options on securities indices are similar to options on
securities, except that the exercise of securities index options requires cash
settlement payments and does not involve the actual purchase or sale of
securities. In addition, securities index options are designed to reflect price
fluctuations in a group of securities or segment of the securities market rather
than price fluctuations in a single security. Writing covered call options may
deprive a Fund of the

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<PAGE>

opportunity to profit from an increase in the market price of the securities or
foreign currency assets in its portfolio. Writing covered put options may
deprive a Fund of the opportunity to profit from a decrease in the market price
of the securities or foreign currency assets to be acquired for its portfolio.

All call and put options written by the Funds are covered. A written call option
or put option may be covered by (i) maintaining cash or liquid securities,
either of which may be quoted or denominated in any currency, in a segregated
account maintained by the affected Fund's custodian with a value at least equal
to the Fund's obligation under the option, (ii) entering into an offsetting
forward commitment and/or (iii) purchasing an offsetting option or any other
option which, by virtue of its exercise price or otherwise, reduces the Fund's
net exposure on its written option position. A written call option on securities
is typically covered by maintaining the securities that are subject to the
option in a segregated account. Each Fund may cover call options on a securities
index by owning securities whose price changes are expected to be similar to
those of the underlying index.

Each Fund may terminate its obligations under an exchange traded call or put
option by purchasing an option identical to the one it has written. Obligations
under over-the-counter options may be terminated only by entering into an
offsetting transaction with the counterparty to such option. Such purchases are
referred to as "closing purchase transactions."

Purchasing Options. A Fund would normally purchase call options in anticipation
of an increase, or put options in anticipation of a decrease ("protective
puts"), in the market value of securities or currencies of the type in which it
may invest. Each Fund may also sell call and put options to close out its
purchased options.

The purchase of a call option would entitle Fund, in return for the premium
paid, to purchase specified securities or currency at a specified price during
the option period. A Fund would ordinarily realize a gain on the purchase of a
call option if, during the option period, the value of such securities or
currency exceeded the sum of the exercise price, the premium paid and
transaction costs; otherwise the Fund would realize either no gain or a loss on
the purchase of the call option.

The purchase of a put option would entitle a Fund, in exchange for the premium
paid, to sell specified securities or currency at a specified price during the
option period. The purchase of protective puts is designed to offset or hedge
against a decline in the market value of the Fund's portfolio securities or the
currencies in which they are denominated. Put options may also be purchased by a
Fund for the purpose of affirmatively benefiting from a decline in the price of
securities or currencies which it does not own. A Fund would ordinarily realize
a gain if, during the option period, the value of the underlying securities or
currency decreased below the exercise price sufficiently to cover the premium
and transaction costs; otherwise the Fund would realize either no gain or a loss
on the purchase of the put option. Gains and losses on the purchase of put
options may be offset by countervailing changes in the value of a Fund's
portfolio securities.

Each Fund's options transactions will be subject to limitations established by
each of the exchanges, boards of trade or other trading facilities on which such
options are traded. These limitations govern the maximum number of options in
each class which may be written or purchased by a single investor or group of
investors acting in concert, regardless of whether the options are written or
purchased on the same or different exchanges, boards of trade or other trading
facilities or are held or written in one or more accounts or through one or more
brokers. Thus, the number of options which a Fund may write or purchase may be
affected by options written or purchased by other investment advisory clients of
the Adviser. An exchange, board of trade or other trading facility may order the
liquidation of positions found to be in excess of these limits, and it may
impose certain other sanctions.

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<PAGE>

Risks Associated with Options Transactions. There is no assurance that a liquid
secondary market on a domestic or foreign options exchange will exist for any
particular exchange-traded option or at any particular time. If a Fund is unable
to effect a closing purchase transaction with respect to covered options it has
written, the Fund will not be able to sell the underlying securities or
currencies or dispose of assets held in a segregated account until the options
expire or are exercised. Similarly, if a Fund is unable to effect a closing sale
transaction with respect to options it has purchased, it would have to exercise
the options in order to realize any profit and will incur transaction costs upon
the purchase or sale of underlying securities or currencies.

Reasons for the absence of a liquid secondary market on an exchange include the
following: (i) there may be insufficient trading interest in certain options;
(ii) restrictions may be imposed by an exchange on opening transactions or
closing transactions or both; (iii) trading halts, suspensions or other
restrictions may be imposed with respect to particular classes or series of
options; (iv) unusual or unforeseen circumstances may interrupt normal
operations on an exchange; (v) the facilities of an exchange or the Options
Clearing Corporation may not at all times be adequate to handle current trading
volume; or (vi) one or more exchanges could, for economic or other reasons,
decide or be compelled at some future date to discontinue the trading of options
(or a particular class or series of options). If trading were discontinued, the
secondary market on that exchange (or in that class or series of options) would
cease to exist. However, outstanding options on that exchange that had been
issued by the Options Clearing Corporation as a result of trades on that
exchange would continue to be exercisable in accordance with their terms.

A Fund's ability to terminate over-the-counter options is more limited than with
exchange-traded options and may involve the risk that broker-dealers
participating in such transactions will not fulfill their obligations. The
Adviser will determine the liquidity of each over-the-counter option in
accordance with guidelines adopted by the Trustees.

The writing and purchase of options is a highly specialized activity which
involves investment techniques and risks different from those associated with
ordinary portfolio securities transactions. The successful use of options
depends in part on the Adviser's ability to predict future price fluctuations
and, for hedging transactions, the degree of correlation between the options and
securities or currency markets.

Futures Contracts and Options on Futures Contracts. To seek to increase total
return or hedge against changes in interest rates, securities prices or currency
exchange rates, each Fund (other than the Money Market Fund) may purchase and
sell various kinds of futures contracts, and purchase and write call and put
options on these futures contracts. Each Fund may also enter into closing
purchase and sale transactions with respect to any of these contracts and
options. The futures contracts may be based on various securities (such as U.S.
Government securities), securities indices, foreign currencies and any other
financial instruments and indices. All futures contracts entered into by a Fund
are traded on U.S. or foreign exchanges or boards of trade that are licensed,
regulated or approved by the Commodity Futures Trading Commission ("CFTC").

Futures Contracts. A futures contract may generally be described as an agreement
between two parties to buy and sell particular financial instruments or
currencies for an agreed price during a designated month (or to deliver the
final cash settlement price, in the case of a contract relating to an index or
otherwise not calling for physical delivery at the end of trading in the
contract).

Positions taken in the futures markets are not normally held to maturity but are
instead liquidated through offsetting transactions which may result in a profit
or a loss. While futures contracts on securities or currency will usually be
liquidated in this manner, a Fund may instead make, or take, delivery of the
underlying securities or currency whenever it appears economically advantageous
to do so. A clearing corporation associated with the exchange on which futures
contracts are traded guarantees that, if still open, the sale or purchase will
be performed on the settlement date.

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<PAGE>

Hedging and Other Strategies. Hedging is an attempt to establish with more
certainty than would otherwise be possible the effective price or rate of return
on portfolio securities or securities that a Fund proposes to acquire or the
exchange rate of currencies in which portfolio securities are quoted or
denominated. When interest rates are rising or securities prices are falling, a
Fund can seek to offset a decline in the value of its current portfolio
securities through the sale of futures contracts. When interest rates are
falling or securities prices are rising, a Fund, through the purchase of futures
contracts, can attempt to secure better rates or prices than might later be
available in the market when it effects anticipated purchases. A Fund may seek
to offset anticipated changes in the value of a currency in which its portfolio
securities, or securities that it intends to purchase, are quoted or denominated
by purchasing and selling futures contracts on such currencies.

A Fund may, for example, take a "short" position in the futures market by
selling futures contracts in an attempt to hedge against an anticipated rise in
interest rates or a decline in market prices or foreign currency rates that
would adversely affect the dollar value of the Fund's portfolio securities. Such
futures contracts may include contracts for the future delivery of securities
held by a Fund or securities with characteristics similar to those of a Fund's
portfolio securities. Similarly, a Fund may sell futures contracts on any
currencies in which its portfolio securities are quoted or denominated or in one
currency to hedge against fluctuations in the value of securities denominated in
a different currency if there is an established historical pattern of
correlation between the two currencies.

If, in the opinion of the Adviser, there is a sufficient degree of correlation
between price trends for a Fund's portfolio securities and futures contracts
based on other financial instruments, securities indices or other indices, the
Fund may also enter into such futures contracts as part of its hedging strategy.
Although under some circumstances prices of securities in a Fund's portfolio may
be more or less volatile than prices of such futures contracts, the Adviser will
attempt to estimate the extent of this volatility difference based on historical
patterns and compensate for any differential by having the Fund enter into a
greater or lesser number of futures contracts or by attempting to achieve only a
partial hedge against price changes affecting the Fund's portfolio securities.

When a short hedging position is successful, any depreciation in the value of
portfolio securities will be substantially offset by appreciation in the value
of the futures position. On the other hand, any unanticipated appreciation in
the value of a Fund's portfolio securities would be substantially offset by a
decline in the value of the futures position.

On other occasions, a Fund may take a "long" position by purchasing futures
contracts. This would be done, for example, when a Fund anticipates the
subsequent purchase of particular securities when it has the necessary cash, but
expects the prices or currency exchange rates then available in the applicable
market to be less favorable than prices that are currently available. A Fund may
also purchase futures contracts as a substitute for transactions in securities
or foreign currency, to alter the investment characteristics of or currency
exposure associated with portfolio securities or to gain or increase its
exposure to a particular securities market or currency.

Options on Futures Contracts. Each Fund (other than the Money Market Fund) may
purchase and write options on futures for the same purposes as its transactions
in futures contracts. The purchase of put and call options on futures contracts
will give a Fund the right (but not the obligation) for a specified price to
sell or to purchase, respectively, the underlying futures contract at any time
during the option period. As the purchaser of an option on a futures contract, a
Fund obtains the benefit of the futures position if prices move in a favorable
direction but limits its risk of loss in the event of an unfavorable price
movement to the loss of the premium and transaction costs.

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<PAGE>

The writing of a call option on a futures contract generates a premium which may
partially offset a decline in the value of a Fund's assets. By writing a call
option, a Fund becomes obligated, in exchange for the premium (upon exercise of
the option) to sell a futures contract if the option is exercised, which may
have a value higher than the exercise price. Conversely, the writing of a put
option on a futures contract generates a premium which may partially offset an
increase in the price of securities that a Fund intends to purchase. However, a
Fund becomes obligated (upon exercise of the option) to purchase a futures
contract if the option is exercised, which may have a value lower than the
exercise price. The loss incurred by each Fund in writing options on futures is
potentially unlimited and may exceed the amount of the premium received.

The holder or writer of an option on a futures contract may terminate its
position by selling or purchasing an offsetting option of the same series. There
is no guarantee that such closing transactions can be effected. A Fund's ability
to establish and close out positions on such options will be subject to the
development and maintenance of a liquid market.

Other Considerations. Each Fund (other than the Money Market Fund) will engage
in futures and related options transactions either for bona fide hedging
purposes or to seek to increase total return as permitted by the CFTC. To the
extent that a Fund is using futures and related options for hedging purposes,
futures contracts will be sold to protect against a decline in the price of
securities (or the currency in which they are quoted or denominated) that the
Fund owns or futures contracts will be purchased to protect the Fund against an
increase in the price of securities (or the currency in which they are quoted or
denominated) it intends to purchase. Each Fund will determine that the price
fluctuations in the futures contracts and options on futures used for hedging
purposes are substantially related to price fluctuations in securities held by
the Fund or securities or instruments which it expects to purchase. As evidence
of its hedging intent, each Fund expects that on 75% or more of the occasions on
which it takes a long futures or option position (involving the purchase of
futures contracts), the Fund will have purchased, or will be in the process of
purchasing, equivalent amounts of related securities (or assets denominated in
the related currency) in the cash market at the time when the futures or option
position is closed out. However, in particular cases, when it is economically
advantageous for the Fund to do so, a long futures position may be terminated or
an option may expire without the corresponding purchase of securities or other
assets.

To the extent that a Fund engages in nonhedging transactions in futures
contracts and options on futures, the aggregate initial margin and premiums
required to establish these nonhedging positions will not exceed 5% of the net
asset value of the Fund's portfolio, after taking into account unrealized
profits and losses on any such positions and excluding the amount by which such
options were in-the-money at the time of purchase. Each Fund will engage in
transactions in futures contracts and related options only to the extent such
transactions are consistent with the requirements of the Internal Revenue Code
of 1986, as amended (the "Code"), for maintaining its qualification as a
regulated investment company for federal income tax purposes.

Transactions in futures contracts and options on futures involve brokerage
costs, require margin deposits and, in the case of contracts and options
obligating a Fund to purchase securities or currencies, require the Fund to
establish with the custodian a segregated account consisting of cash or liquid
securities in an amount equal to the underlying value of such contracts and
options.

While transactions in futures contracts and options on futures may reduce
certain risks, these transactions themselves entail certain other risks. For
example, unanticipated changes in interest rates, securities prices or currency
exchange rates may result in a poorer overall performance for a Fund than if it
had not entered into any futures contracts or options transactions.

Perfect correlation between a Fund's futures positions and portfolio positions
will be impossible to achieve. There are no futures contracts based upon
individual securities, except certain U.S. Government securities. The only
futures contracts available to hedge a Fund's portfolio are various futures on
U.S. Government securities, securities indices and foreign currencies. In the

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event of an imperfect correlation between a futures position and a portfolio
position which is intended to be protected, the desired protection may not be
obtained and a Fund may be exposed to risk of loss. In addition, it is not
possible to hedge fully or protect against currency fluctuations affecting the
value of securities denominated in foreign currencies because the value of such
securities is likely to fluctuate as a result of independent factors not related
to currency fluctuations.

Some futures contracts or options on futures may become illiquid under adverse
market conditions. In addition, during periods of market volatility, a commodity
exchange may suspend or limit trading in a futures contract or related option,
which may make the instrument temporarily illiquid and difficult to price.
Commodity exchanges may also establish daily limits on the amount that the price
of a futures contract or related option can vary from the previous day's
settlement price. Once the daily limit is reached, no trades may be made that
day at a price beyond the limit. This may prevent a Fund from closing out
positions and limiting its losses.

Lending of Securities. Each Fund may lend portfolio securities to brokers,
dealers, and financial institutions if the loan is collateralized by cash or
U.S. Government securities according to applicable regulatory requirements. A
Fund may reinvest any cash collateral in short-term securities and money market
funds. When a Fund lends portfolio securities, there is a risk that the borrower
may fail to return the securities involved in the transaction. As a result, the
Fund may incur a loss or, in the event of the borrower's bankruptcy, the Fund
may be delayed in or prevented from liquidating the collateral. It is a
fundamental policy of the Fund not to lend portfolio securities having a total
value exceeding 33 1/3% of its total assets.

Rights and Warrants. Each Fund may purchase warrants and rights which are
securities permitting, but not obligating, their holder to purchase the
underlying securities at a predetermined price, subject to the Fund's Investment
Restrictions. Generally, warrants and stock purchase rights do not carry with
them the right to receive dividends or exercise voting rights with respect to
the underlying securities, and they do not represent any rights in the assets of
the issuer. As a result, an investment in warrants and rights may be considered
to entail greater investment risk than certain other types of investments. In
addition, the value of warrants and rights does not necessarily change with the
value of the underlying securities, and they cease to have value if they are not
exercised on or prior to their expiration date. Investment in warrants and
rights increases the potential profit or loss to be realized from the investment
of a given amount of Fund's assets as compared with investing the same amount in
the underlying stock.

Short Sales. International Fund, Growth Fund, Financial Industries Fund,
Emerging Growth Fund and Special Opportunities Fund may engage in short sales in
order to profit from an anticipated decline in the value of a security. Each
Fund (except for 500 Index Fund and Money Market Fund) may also engage in short
sales to attempt to limit its exposure to a possible market decline in the value
of its portfolio securities through short sales of securities which the Adviser
believes possess volatility characteristics similar to those being hedged. To
effect such a transaction, a Fund must borrow the security sold short to make
delivery to the buyer. A Fund then is obligated to replace the security borrowed
by purchasing it at the market price at the time of replacement. Until the
security is replaced, a Fund is required to pay to the lender any accrued
interest or dividends and may be required to pay a premium.

A Fund will realize a gain if the security declines in price between the date of
the short sale and the date on which the Fund replaces the borrowed security. On
the other hand, a Fund will incur a loss as a result of the short sale if the
price of the security increases between those dates. The amount of any gain will
be decreased, and the amount of any loss increased, by the amount of any
premium, interest or dividends a Fund may be required to pay in connection with
a short sale. The successful use of short selling as a hedging device may be
adversely affected by imperfect correlation between movements in the price of
the security sold short and the securities being hedged.

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Under applicable guidelines of the staff of the SEC, if a Fund engages in short
sales, it must put in a segregated account (not with the broker) an amount of
cash or liquid securities, of any type or maturity, equal to the difference
between (a) the market value of the securities sold short at the time they were
sold short and (b) any cash or U.S. Government securities required to be
deposited as collateral with the broker in connection with the short sale (not
including the proceeds from the short sale). In addition, until a Fund replaces
the borrowed security, it must daily maintain the segregated account at such a
level that the amount deposited in it plus the amount deposited with the broker
as collateral will equal the current market value of the securities sold short.
Except for short sales against the box, the amount of the Fund's net assets that
may be committed to short sales is limited and the securities in which short
sales are made must be listed on a national securities exchange.

Short selling may produce higher than normal portfolio turnover which may result
in increased transaction costs to a Fund and may result in gains from the sale
of securities deemed to have been held for less than three months. Such gains
must be less than 30% of the Fund's gross income in order for the Fund to
qualify as a regulated investment company under the Code.

Forward Commitment and When-Issued Securities. Each Fund may purchase securities
on a when-issued or forward commitment basis. "When-issued" refers to securities
whose terms are available and for which a market exists, but which have not been
issued. A Fund will engage in when- issued transactions with respect to
securities purchased for its portfolio in order to obtain what is considered to
be an advantageous price and yield at the time of the transaction. For
when-issued transactions, no payment is made until delivery is due, often a
month or more after the purchase. In a forward commitment transaction, a Fund
contracts to purchase securities for a fixed price at a future date beyond
customary settlement time.

When a Fund engages in forward commitment and when-issued transactions, it
relies on the seller to consummate the transaction. The failure of the issuer or
seller to consummate the transaction may result in the Fund's losing the
opportunity to obtain a price and yield considered to be advantageous. The
purchase of securities on a when-issued or forward commitment basis also
involves a risk of loss if the value of the security to be purchased declines
prior to the settlement date.

On the date a Fund enters into an agreement to purchase securities on a
when-issued or forward commitment basis, the Fund will segregate in a separate
account cash or liquid securities, of any type or maturity, equal in value to
the Fund's commitment. These assets will be valued daily at market, and
additional cash or securities will be segregated in a separate account to the
extent that the total value of the assets in the account declines below the
amount of the when-issued commitments. Alternatively, a Fund may enter into
offsetting contracts for the forward sale of other securities that it owns.

INVESTMENT RESTRICTIONS

Fundamental Investment Restrictions. Each Fund has adopted the following
fundamental investment restrictions which will not be changed without the
approval of a majority of the applicable Fund's outstanding voting securities.
Under the Investment Company Act of 1940, as amended (the "1940 Act"), and as
used in the Prospectus and this Statement of Additional Information, a "majority
of the outstanding voting securities" means approval by the lesser of (1) the
holders of 67% or more of the Fund represented at a meeting if the more than 50%
of the Fund's outstanding shares of the Fund are present in person or by proxy
or (2) more than 50% of the outstanding shares.

Each Fund (other than Money Market Fund) may not:

1. Issue senior securities, except as permitted by paragraphs 3, 6
and 7 below. For purposes of this restriction, the issuance of
shares of beneficial interest in multiple

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classes or series, the deferral of the Trustees' fees and the
purchase or sale of options, futures contracts, forward commitments,
swaps and repurchase agreements entered into in accordance with the
Fund's investment policies within the meaning of paragraph 6 below,
are not deemed to be senior securities.

2. Borrow money, except for the following extraordinary or emergency
purposes: (i) from banks for temporary or short-term purposes or
for the clearance of transactions; (ii) in connection with the
redemption of Fund shares or to finance failed settlements of
portfolio trades without immediately liquidating portfolio
securities or other assets; and (iii) in order to fulfill
commitments or plans to purchase additional securities pending
the anticipated sale of other portfolio securities or assets, but
only if after each such borrowing there is asset coverage of at
least 300% as defined in the 1940 Act. For purposes of this
investment restriction, the deferral of trustees' fees and short
sales, transactions in futures contracts and options on futures
contracts, securities or indices and forward commitment
transactions shall not constitute borrowing. This restriction
does not apply to transactions in reverse repurchase agreements
in amounts not to exceed 33 1/3% of the value of the Fund's total
assets (including the amount borrowed) taken at market value.

3. Act as an underwriter, except to the extent that, in connection with
the disposition of portfolio securities, the Fund may be deemed to
be an underwriter for purposes of the Securities Act of 1933 (the
"1933 Act").

4. Purchase or sell real estate except that the Fund may (i) acquire or
lease office space for its own use, (ii) invest in securities of
issuers that invest in real estate or interests therein, (iii)
invest in securities that are secured by real estate or interests
therein, (iv) purchase and sell mortgage-related securities and (v)
hold and sell real estate acquired by the Fund as a result of the
ownership of securities.

5. Invest in commodities, except the Fund may purchase and sell
options on securities, securities indices and currency, futures
contracts on securities, securities indices and currency and
options on such futures, forward foreign currency exchange
contracts, forward commitments, securities index put or call
warrants, interest rate and currency swaps, interest rate caps,
floors and collars and repurchase agreements entered into in
accordance with the Fund's investment policies.

6. Make loans, except that the Fund (1) may lend portfolio
securities in accordance with the Fund's investment policies up
to 33 1/3% of the Fund's total assets taken at market value, (2)
enter into repurchase agreements, and (3) purchase all or a
portion of an issue of debt securities, bank loan participation
interests, bank certificates of deposit, bankers' acceptances,
debentures or other securities, whether or not the purchase is
made upon the original issuance of the securities.

7. Purchase the securities of issuers conducting their principal
activity in the same industry if, immediately after such
purchase, the value of its investments in such industry would
equal or exceed 25% of its total assets taken at market value at
the time of such investment, except that the Regional Bank Fund
will invest and the Financial Industries Fund intends to invest
more than 25% of its total assets in the banking industry. The
Financial Industries Fund will ordinarily invest more than 25% of
its assets in the financial services sector, which includes the
banking industry. The High Yield Bond Fund may invest up to 40%
of the value of its total assets in the securities of issuers in
the electric utility and telephone industries. This limitation
does not apply to investments in obligations of the U.S.
Government or any of its agencies, instrumentalities or
authorities.

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8. For each Fund, other than World Bond Fund, with respect to 75% of
total assets, purchase securities of an issuer (other than the U.S.
Government, its agencies, instrumentalities or authorities), if:

(a) such purchase would cause more than 5% of the Fund's total
assets taken at market value to be invested in the securities
of such issuer; or

(b) such purchase would at the time result in more than 10% of the
outstanding voting securities of such issuer being held by the
Fund.

Money Market Fund may not:

1. Issue senior securities. For purposes of this restriction, the
issuance of shares of beneficial interest in multiple classes or
series, the deferral of the Trustees' fees and transactions in
repurchase agreements or reverse repurchase agreements are not
deemed to be senior securities.

2. Borrow money, except from banks to meet redemptions in amounts
not exceeding 33 1/3% (taken at the lower of cost or current
value) of its total assets (including the amount borrowed). The
Fund does not intend to borrow money during the coming year, and
will do so only as a temporary measure for extraordinary purposes
or to facilitate redemptions. The Fund will not purchase
securities while any borrowings are outstanding. This
restriction does not apply to the purchase of reverse repurchase
agreements in amounts not to exceed 33 1/3% of the value of the
Fund's total assets (including the amount borrowed) taken at
market value.

3. Act as an underwriter, except to the extent that, in connection with
the disposition of portfolio securities, the Fund may be deemed to
be an underwriter for purposes of the 1933 Act.

4. Write, purchase or otherwise invest in any put, call, straddle or
spread option or buy or sell real estate, commodities or commodity
futures contracts.

5. Make loans, except that the Fund (1) may lend portfolio
securities in accordance with the Fund's investment policies up
to 33 1/3% of the Fund's total assets taken at market value, (2)
enter into repurchase agreements, and (3) purchase all or a
portion of an issue of debt securities, bank loan participation
interests, bank certificates of deposit, bankers' acceptances,
debentures or other securities, whether or not the purchase is
made upon the original issuance of the securities.

6. Purchase the securities of issuers conducting their principal
activity in the same industry if, immediately after such purchase,
the value of its investments in such industry would equal or exceed
25% of its total assets taken at market value at the time of such
investment. This limitation does not apply to investments in
obligations of the U.S. Government or any of its agencies,
instrumentalities or authorities.

7. With respect to 75% of total assets, purchase securities of an
issuer (other than the U.S. Government, its agencies,
instrumentalities or authorities), if:

(a) such purchase would cause more than 5% of the Fund's total
assets taken at market value to be invested in the securities
of such issuer; or

(b) such purchase would at the time result in more than 10% of the
outstanding voting securities of such issuer being held by the
Fund.

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Non-Fundamental Investment Restrictions. The following restrictions are
designated as non-fundamental and may be changed by the Trustees without
shareholder approval.

Each Fund (other than Money Market Fund) may not:

1. Participate on a joint or joint-and-several basis in any securities
trading account. The "bunching" of orders for the sale or purchase
of marketable portfolio securities with other accounts under the
management of the Adviser or any Sub-adviser to save commissions or
to average prices among them is not deemed to result in a joint
securities trading account.

2. Purchase securities on margin or make short sales, unless, by
virtue of its ownership of other securities, the Fund has the
right to obtain securities equivalent in kind and amount to the
securities sold and, if the right is conditional, the sale is
made upon the same conditions, except (i) in connection with
arbitrage transactions, (ii) for hedging the Fund's exposure to
an actual or anticipated market decline in the value of its
securities, (iii) to profit from an anticipated decline in the
value of a security, and (iv) for obtaining such short-term
credits as may be necessary for the clearance of purchases and
sales of securities.

3. Purchase a security if, as a result, (i) more
than 10% of the Fund's total assets would be invested in the
securities of other investment companies, (ii) the Fund would
hold more than 3% of the total outstanding voting securities of
any one investment company, or (iii) more than 5% of the Fund's
total assets would be invested in the securities of any one
investment company. These limitations do not apply to (a) the
investment of cash collateral, received by the Fund in connection
with lending the Fund's portfolio securities, in the securities
of open-end investment companies or (b) the purchase of shares of
any investment company in connection with a merger,
consolidation, reorganization or purchase of substantially all of
the assets of another investment company. Subject to the above
percentage limitations the Fund may, in connection with the John
Hancock Group of Funds Deferred Compensation Plan for Independent
Trustees/Directors, purchase securities of other investment
companies within the John Hancock Group of Funds.

4. Invest in securities which are illiquid if, as a result, more
than 15% of its net assets would consist of such securities,
including repurchase agreements maturing in more than seven days,
securities that are not readily marketable, restricted securities
not eligible for resale pursuant to Rule 144A under the 1933 Act
and privately issued stripped mortgage-backed securities. The
adviser will determine on a case by case basis whether a
particular OTC option is illiquid.

5. Purchase securities while outstanding borrowings (other than reverse
repurchase agreements) exceed 5% of the Fund's total assets.

6. Invest for the purpose of exercising control over or management of
any company.

The Money Market Fund may not:

1. Purchase securities on margin or make short sales of securities
except for obtaining such short-term credits as may be necessary for
the clearance of purchases and sales of securities.

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2. Purchase a security if, as a result, (i) more than 10% of the Fund's
total assets would be invested in the securities of other investment
companies, (ii) the Fund would hold more than 3% of the total
outstanding voting securities of any one investment company, or
(iii) more than 5% of the Fund's total assets would be invested in
the securities of any one investment company. These limitations do
not apply to (a) the investment of cash collateral, received by the
Fund in connection with lending the Fund's portfolio securities, in
the securities of open-end investment companies or (b) the purchase
of shares of any investment company in connection with a merger,
consolidation, reorganization or purchase of substantially all of
the assets of another investment company. Subject to the above
percentage limitations the Fund may, in connection with the John
Hancock Group of Funds Deferred Compensation Plan for Independent
Trustees/Directors, purchase securities of other investment
companies within the John Hancock Group of Funds.

3. Invest in securities which are illiquid if, as a result, more than
10% of its net assets would consist of such securities, including
repurchase agreements maturing in more than seven days, securities
that are not readily marketable, restricted securities not eligible
for resale pursuant to Rule 144A under the 1933 Act, purchased OTC
options, certain assets used to cover written OTC options, and
privately issued stripped mortgage-backed securities.

4. Invest for the purpose of exercising control over or management of
any company. If a percentage restriction on investment or
utilization of assets as set forth above is adhered to at the time
an investment is made, a later change in percentage resulting from
changes in the values of a Fund's assets will not be considered a
violation of the restriction.

If a percentage restriction is adhered to at the time of investment, a later
increase or decrease in percentage resulting from a change in values of
portfolio securities or amounts of net assets will not be considered a violation
of any of the foregoing restrictions.

THOSE RESPONSIBLE FOR MANAGEMENT

The business of each Fund is managed by the Trustees of the Trust who elect
officers who are responsible for the day-to-day operations of the Funds and who
execute policies formulated by the Trustees. Several of the officers and
Trustees of the Trust are also officers and directors of the Adviser, one or
more of the Sub-advisers and/or the Fund's principal distributor, John Hancock
Funds, Inc. ("John Hancock Funds").

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