HANCOCK JOHN DECLARATION TRUST, 497, 1998-10-28

HANCOCK JOHN DECLARATION TRUST
497, 1998-10-28

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

PROSPECTUS
May 1, 1998
as revised October 21, 1998

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

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. BOND FUND
JOHN HANCOCK V.A. STRATEGIC INCOME FUND
JOHN HANCOCK V.A. HIGH YIELD BOND FUND
JOHN HANCOCK V.A. MONEY MARKET FUND

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<TABLE>
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Page
TABLE OF CONTENTS ----
<S> <C>
The Funds' Financial Highlights............................. 3
Investment Objective and Overview of Each Fund.............. 7
Investment Policies and Strategies.......................... 8
Purchase and Redemption of Shares........................... 12
Investments in Shares of the Funds..................... 12
Share Price............................................ 12
Redeeming Shares....................................... 13
Organization and Management of the Funds.................... 13
The Funds' Expenses......................................... 15
Dividends and Taxes......................................... 15
Performance................................................. 16
Risk Factors, Investments and Techniques.................... 16
Appendix.................................................... 24
</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)

[RECYCLE LOGO]Printed on Recycled Paper.

[JOHN HANCOCK FUNDS 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. 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 has been audited
by Ernst & Young LLP, the Funds' independent auditor, 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. 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
INDUSTRIES FUND V.A. EMERGING GROWTH FUND
-------------------- -------------------------------------------
PERIOD ENDED PERIOD ENDED YEAR ENDED
DECEMBER 31, 1997(2) DECEMBER 31, 1996(1) DECEMBER 31, 1997
-------------------- -------------------- -----------------
<S> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
Net Asset Value, Beginning of Period................ $ 10.00 $ 10.00 $ 9.32
------- ------- -------
Net Investment Income (loss)(3)..................... 0.11 0.02 (0.02)
Net Realized and Unrealized Gain (Loss) on
Investments and Foreign Currency Transactions..... 3.39 (0.68) 1.05
------- ------- -------
Total from Investment Operations................ 3.50 (0.66) 1.03
------- ------- -------
Less Distributions:
Dividends from Net Investment Income.............. (0.05) (0.02) (0.00)(4)
Distributions from Net Realized Gain on
Investments Sold................................ (0.01) -- --
------- ------- -------
Total Distributions............................. (0.06) (0.02) (0.00)
------- ------- -------
Net Asset Value, End of Period...................... $ 13.44 $ 9.32 $ 10.35
======= ======= =======
Total Investment Return at Net Asset Value (5)...... 35.05%(7) (6.62%)(7) 11.06%
Total Adjusted Investment Return at Net Asset Value
(5)(6)............................................ 34.71%(7) (8.05%)(7) 9.34%
RATIOS AND SUPPLEMENTAL DATA
Net Assets, End of Period (000s omitted)............ $18,465 $ 975 $ 3,841
Ratio of Expenses to Average Net Assets............. 1.05%(8) 1.00%(8) 1.00%
Ratio of Adjusted Expenses to Average Net Assets
(9)............................................... 1.39%(8) 5.19%(8) 2.72%
Ratio of Net Investment Income (loss)to Average Net
Assets............................................ 1.32%(8) 0.62%(8) (0.16%)
Ratio of Adjusted Net Investment Income (loss) to
Average Net Assets (9)............................ 0.98%(8) (3.57%)(8) (1.88%)
Portfolio Turnover Rate............................. 11% 31% 79%
Fee Reduction Per Share (3)......................... $ 0.03 $ 0.14 $ 0.17
Average Brokerage Commission Rate (10).............. $0.0696 $0.0694 $0.0687
</TABLE>

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

<PAGE>
THE FUNDS' FINANCIAL HIGHLIGHTS

<TABLE>
<CAPTION>
V.A. GROWTH FUND V.A. INDEPENDENCE EQUITY FUND
------------------------------------------- -------------------------------------------
PERIOD ENDED YEAR ENDED PERIOD ENDED YEAR ENDED
DECEMBER 31, 1996(1) DECEMBER 31, 1997 DECEMBER 31, 1996(1) DECEMBER 31, 1997
-------------------- ----------------- -------------------- -----------------
<S> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
Net Asset Value, Beginning of
Period......................... $ 10.00 $ 9.39 $ 10.00 $ 11.11
------- ------- ------- -------
Net Investment Income (loss)
(2)............................ (0.01) (0.04) 0.06 0.16
Net Realized and Unrealized Gain
(Loss) on Investments.......... (0.60) 1.38 1.12 3.23
------- ------- ------- -------
Total from Investment
Operations................. (0.61) 1.34 1.18 3.39
------- ------- ------- -------
Less Distributions:
Dividends from Net Investment
Income....................... -- -- (0.06) (0.14)
Distributions from Net Realized
Gain on Investments Sold..... -- -- (0.01) (0.25)
------- ------- ------- -------
Total Distributions.......... -- -- (0.07) (0.39)
------- ------- ------- -------
Net Asset Value, End of Period... $ 9.39 $ 10.73 $ 11.11 $ 14.11
======= ======= ======= =======
Total Investment Return at Net
Asset Value (3)................ (6.10%)(5) 14.27% 11.78%(5) 30.68%
Total Adjusted Investment Return
at Net Asset Value (3)(4)...... (7.39%)(5) 12.90% 10.66%(5) 30.04%
RATIOS AND SUPPLEMENTAL DATA
Net Assets, End of Period (000s
omitted)....................... $ 994 $ 3,733 $ 1,149 $ 8,719
Ratio of Expenses to Average Net
Assets......................... 1.00%(6) 1.00% 0.95%(6) 0.95%
Ratio of Adjusted Expenses to
Average Net Assets (7)......... 4.76%(6) 2.37% 4.23%(6) 1.59%
Ratio of Net Investment Income to
Average Net Assets............. (0.23%)(6) (0.39%) 1.60%(6) 1.24%
Ratio of Adjusted Net Investment
Income to Average Net Assets
(7)............................ (3.99%)(6) (1.76%) (1.68%)(6) 0.60%
Portfolio Turnover Rate.......... 68% 136% 24% 53%
Fee Reduction Per Share (2)...... $ 0.13 $ 0.13 $ 0.12 $ 0.08
Average Brokerage Commission Rate
(8)............................ $0.0691 $0.0694 $0.0210 $0.0249
</TABLE>

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

<PAGE>
THE FUNDS' FINANCIAL HIGHLIGHTS

<TABLE>
<CAPTION>
V.A. SOVEREIGN INVESTORS FUND V.A. STRATEGIC INCOME FUND
------------------------------------------- -------------------------------------------
PERIOD ENDED YEAR ENDED PERIOD ENDED YEAR ENDED
DECEMBER 31, 1996(1) DECEMBER 31, 1997 DECEMBER 31, 1996(1) DECEMBER 31, 1997
-------------------- ----------------- -------------------- -----------------
<S> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
Net Asset Value, Beginning of
Period......................... $ 10.00 $ 10.74 $10.00 $10.30
------- ------- ------ ------
Net Investment Income(2)......... 0.07 0.22 0.27 0.91
Net Realized and Unrealized Gain
(Loss) on Investments, Foreign
Currency Transactions and
Financial Futures Contracts.... 0.76 2.82 0.36 0.26
------- ------- ------ ------
Total from Investment
Operations................. 0.83 3.04 0.63 1.17
------- ------- ------ ------
Less Distributions:
Dividends from Net Investment
Income....................... (0.07) (0.18) (0.27) (0.91)
Distributions from Net Realized
Gain on Investments Sold..... (0.02) (0.01) (0.06) (0.09)
------- ------- ------ ------
Total Distributions.......... (0.09) (0.19) (0.33) (1.00)
------- ------- ------ ------
Net Asset Value, End of Period... $ 10.74 $ 13.59 $10.30 $10.47
======= ======= ====== ======
Total Investment Return at Net
Asset Value (3)................ 8.30%(5) 28.43% 6.45% (5) 11.77%
Total Adjusted Investment Return
at Net Asset Value (3)(4)...... 7.30%(5) 28.12% 5.96%(5) 11.25%
RATIOS AND SUPPLEMENTAL DATA
Net Assets, End of Period (000s
omitted)....................... $ 1,111 $12,187 $2,131 $5,540
Ratio of Expenses to Average Net
Assets......................... 0.85%(6) 0.85% 0.85%(6) 0.85%
Ratio of Adjusted Expenses to
Average Net Assets (7)......... 3.78%(6) 1.16% 2.28%(6) 1.37%
Ratio of Net Investment Income to
Average Net Assets............. 1.90%(6) 1.81% 7.89%(6) 8.77%
Ratio of Adjusted Net Investment
Income (loss) to Average Net
Assets (7)..................... (1.03%)(6) 1.50% 6.46%(6) 8.25%
Portfolio Turnover Rate.......... 17% 11% 73% 110%
Fee Reduction Per Share (2)...... $ 0.11 $ 0.04 $ 0.05 $ 0.05
Average Brokerage Commission Rate
(8)............................ $0.0235 $0.0700 -- --
</TABLE>

<PAGE>
THE FUNDS' FINANCIAL HIGHLIGHTS

<TABLE>
<CAPTION>
V.A. BOND FUND
(formerly V.A. SOVEREIGN BOND FUND) V.A. MONEY MARKET FUND
------------------------------------------- -------------------------------------------
PERIOD ENDED YEAR ENDED PERIOD ENDED YEAR ENDED
DECEMBER 31, 1996(1) DECEMBER 31, 1997 DECEMBER 31, 1996(1) DECEMBER 31, 1997
-------------------- ----------------- -------------------- -----------------
<S> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
Net Asset Value, Beginning of
Period......................... $10.00 $10.19 $ 1.00 $ 1.00
------ ------ ------- ------
Net Investment Income (2)........ 0.23 0.68 0.02 0.05
Net Realized and Unrealized Gain
on Investments................. 0.21 0.24 -- --
------ ------ ------- ------
Total from Investment
Operations................. 0.44 0.92 0.02 0.05
------ ------ ------- ------
Less Distributions:
Dividends from Net Investment
Income....................... (0.23) (0.68) (0.02) (0.05)
Distributions from Net Realized
Gain on Investments Sold..... (0.02) (0.07) -- --
------ ------ ------- ------
Total Distributions.......... (0.25) (0.75) (0.02) (0.05)
------ ------ ------- ------
Net Asset Value, End of Period... $10.19 $10.36 $ 1.00 $ 1.00
====== ====== ======= ======
Total Investment Return at Net
Asset Value (3)................ 4.42%(5) 9.30% 1.61%(5) 4.88%
Total Adjusted Investment Return
at Net Asset Value (3)(4)...... 3.25%(5) 7.52% (7.55%)(5) 4.36%
RATIOS AND SUPPLEMENTAL DATA
Net Assets, End of Period (000s
omitted)....................... $1,056 $3,682 $ 207 $8,377
Ratio of Expenses to Average Net
Assets......................... 0.75%(6) 0.75% 0.75%(6) 0.75%
Ratio of Adjusted Expenses to
Average Net Assets (7)......... 4.15%(6) 2.53% 27.48%(6) 1.27%
Ratio of Net Investment Income to
Average Net Assets............. 6.69%(6) 6.57% 4.68%(6) 4.86%
Ratio of Adjusted Net Investment
Income (loss) to Average Net
Assets (7)..................... 3.29%(6) 4.79% (22.05%)(6) 4.34%
Portfolio Turnover Rate.......... 45% 193% -- --
Fee Reduction Per Share (2)...... $ 0.12 $ 0.18 $ 0.08 $ 0.00(8)
</TABLE>

<PAGE>

INVESTMENT OBJECTIVE AND OVERVIEW OF EACH FUND

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") 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. BOND FUND ("Bond Fund") (formerly John Hancock V.A. 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. 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."

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 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, 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 FINANCIAL INDUSTRIES FUND, EMERGING GROWTH FUND, SPECIAL OPPORTUNITIES FUND,
GROWTH FUND, GROWTH AND INCOME FUND, INDEPENDENCE EQUITY FUND AND SOVEREIGN
INVESTORS 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, 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 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.

In addition to common stocks, each Equity 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 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
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 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 the
"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.

<PAGE>

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 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

<PAGE>

payout in each of the preceding ten or more years. This "dividend performers"
strategy can be changed at any time.

EACH EQUITY 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 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 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 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 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 BOND FUND, STRATEGIC INCOME FUND AND HIGH YIELD
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 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.

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 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 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.

<PAGE>

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.

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 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.

<PAGE>

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,
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, and Money
Market Fund may invest in U.S. Dollar denominated securities of foreign issuers.
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, 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 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

<PAGE>

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 with the current
day's exchange rate.

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 (7) 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 $30 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.

<PAGE>

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.

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

FINANCIAL INDUSTRIES FUND

James K. Schmidt, CFA, has led the fund's management team since the fund's
inception. Mr. Schmidt, executive vice president, has been in the investment
business since 1979. Other portfolio managers on the team are Thomas Finucane
and Thomas Goggins. Mr. Finucane, vice president, has been in the investment
business since joining the Adviser in 1990 and has been a member of the
management team since the fund's inception. Mr. Goggins, senior vice president,
has been in the investment business since 1986 and joined the team in 1998.

EMERGING GROWTH FUND

Bernice S. Behar, CFA, leads the fund's portfolio management team. Other team
members are managers Laura Allen, CFA and Anurag Pandit, CFA. Ms. Behar, senior
vice president, has been in the investment business since 1986 and has managed
the fund since 1996. Ms. Allen, senior vice president has been in the investment
business since 1981 and joined the fund's management team in 1998. Mr. Pandit,
vice president, has been in the investment business since 1984 and a member of
the fund's team since 1996.

SPECIAL OPPORTUNITIES FUND

Ms. Barbara C. Friedman, CFA, assisted by a team of portfolio managers and
analysts, has been primarily responsible for the management of the Fund since
1998. Ms. Friedman, a senior vice president, has been associated with the
Adviser since 1998 and in the investment business since 1973.

GROWTH FUND

Benjamin A. Hock, Jr., CFA, has led the Fund's portfolio management team since
May 1998. A senior vice president of the adviser since 1994, Mr. Hock has been
in the investment business for over 25 years.

GROWTH AND INCOME FUND

Timothy E. Keefe, CFA, has led the Fund's portfolio management team since the
Fund's inception. 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, have led the Fund's portfolio
management team since the Fund's inception. 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 vice president of the Adviser, joined John Hancock Funds in
1986.

BOND FUND

James K. Ho, CFA, leads the Fund's portfolio management team and has been
primarily responsible for the management of the Fund since its inception. Mr.
Ho, an executive vice president, has been associated with the Adviser since 1985
and in the investment business since 1977. Other team members are Mr. Anthony A.
Goodchild and Mr. Benjamin A. Matthews, vice presidents, who have been
associated with the Adviser since 1994 and 1995, respectively, and have been in
the investment business for thirty and twenty-five years, respectively.

STRATEGIC INCOME FUND

Frederick L. Cavanaugh and Arthur Calavritinos have led the fund's portfolio
management team since the fund's inception. Mr. Cavanaugh, senior vice
president, has been in the investment business since 1973. Mr. Calavritinos,
vice president, has been in the investment business since 1987 and joined the
Adviser in 1988. Roger C. Hamilton joined the team in 1998. Mr. Hamilton, a vice
president, joined John Hancock Funds in December 1994 and has been in the
investment business since 1980.

HIGH YIELD BOND FUND

Arthur Calavritinos and Fred Cavanaugh have led the fund's portfolio management
team since the Fund's inception. Mr. Calavritinos, vice president, joined the
Adviser in 1988. Mr. Cavanaugh, senior vice president, has been in the
investment business since 1973 and joined the Adviser in 1986. Janet L. Clay
joined the team in 1998. Ms. Clay, a vice

<PAGE>

president, joined John Hancock Funds in August 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.

YEAR 2000 COMPLIANCE
The Adviser has addressed the Year 2000 issue by taking steps that it believes
are reasonably designed to address the potential failure of computer programs
used by the Adviser and the Funds' service providers. There can be no assurance
that these steps will be sufficient to avoid any adverse impact to the Funds.

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>
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%
Bond Fund................................................. 0.50%
Strategic Income Fund..................................... 0.60%
High Yield Bond Fund...................................... 0.60%
Money Market Fund......................................... 0.50%
</TABLE>

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 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.

DIVIDENDS AND TAXES

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

<TABLE>
<CAPTION>
FUND DECLARED PAID
---- -------- ----
<S> <C> <C>
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
Bond Fund.................................. Daily Monthly
Strategic Income Fund...................... Daily Monthly
High Yield 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.

<PAGE>

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.

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.

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.

<PAGE>

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 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 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 Financial Industries Fund, Growth and Income Fund,
Sovereign Investors Fund, Growth Fund, Bond Fund, Strategic Income Fund and High
Yield 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, Bond Fund,
Strategic Income Fund and High Yield 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 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

<PAGE>

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 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, 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, 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 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, Sovereign Investors Fund and Money Market Fund, may purchase
securities denominated in foreign

<PAGE>

currencies. The value of investments in 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. 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. 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 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

<PAGE>

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 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. Emerging Growth Fund, Special Opportunities
Fund, Growth Fund, Growth and Income Fund, Bond Fund, Strategic Income Fund and
High Yield 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: Bond Fund and
High Yield Bond Fund: 100% and Strategic Income Fund: 200%. 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. These Funds 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.

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, Bond Fund, Strategic Income Fund and High Yield 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 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

<PAGE>

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 Bond Fund, Strategic Income Fund and High Yield 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 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 may be 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.

SHORT SALES. Each Fund (other than Money Market Fund) may engage in short sales
"against the box," as well as short sales for hedging purposes. The 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.

<PAGE>

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 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

<PAGE>

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 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 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>

<TABLE>
<CAPTION>
JOHN HANCOCK VA BOND FUND Y-T-D RATING RATING
AVERAGE % OF ASSIGNED % OF ASSIGNED % OF
YIELD PORTFOLIO BY ADVISER PORTFOLIO BY SERVICE PORTFOLIO
------- --------- ---------- --------- ---------- ---------
<S> <C> <C> <C> <C> <C> <C>
AAA.......................................... $1,229,436 67.3% 0 0.0% $1,229,436 67.3%
AA........................................... 27,890 1.5% 0 0.0% 27,890 1.5%
A............................................ 87,767 4.8% 0 0.0% 87,767 4.8%
BAA.......................................... 120,139 6.6% $ 2,291 0.1% 117,848 6.4%
BA........................................... 85,797 4.7% 0 0.0% 85,797 4.7%
B............................................ 58,052 3.2% 9,544 0.5% 48,508 2.7%
CAA.......................................... 2,321 0.1% 0 0.0% 2,321 0.1%
CA........................................... 0 0.0% 0 0.0% 0 0.0%
C............................................ 0 0.0% 0 0.0% 0 0.0%
D............................................ 0 0.0% 0 0.0% 0 0.0%
---------- ----- ------- --- ---------- ----
DEBT SECURITIES.............................. 1,611,402 88.2% $11,835 0.6% $1,599,567 87.5%
EQUITY SECURITIES............................ 0 0.0%
SHORT-TERM SECURITIES........................ 216,077 11.8%
----------
TOTAL PORTFOLIO.............................. 1,827,479 100.0%
OTHER ASSETS -- NET.......................... (8,435)
----------
NET ASSETS................................... $1,819,044
==========
</TABLE>

<PAGE>

<TABLE>
<CAPTION>
JOHN HANCOCK VA STRATEGIC INCOME FUND Y-T-D RATING RATING
AVERAGE % OF ASSIGNED % OF ASSIGNED % OF
YIELD PORTFOLIO BY ADVISER PORTFOLIO BY SERVICE PORTFOLIO
------- --------- ---------- --------- ---------- ---------
<S> <C> <C> <C> <C> <C> <C>
AAA.......................................... $ 909,853 27.9% 0 0.0% $ 909,853 27.9%
AA........................................... 113,334 3.5% 0 0.0% 113,334 3.5%
A............................................ 0 0.0% 0 0.0% 0 0.0%
BAA.......................................... 0 0.0% 0 0.0% 0 0.0%
BA........................................... 121,891 3.7% 0 0.0% 121,891 3.7%
B............................................ 1,677,265 51.6% $190,667 5.9% 1,486,599 45.6%
CAA.......................................... 52,711 1.6% 0 0.0% 52,711 1.6%
CA........................................... 0 0.0% 0 0.0% 0 0.0%
C............................................ 0 0.0% 0 0.0% 0 0.0%
D............................................ 0 0.0% 0 0.0% 0 0.0%
---------- ----- -------- --- ---------- ----
0
DEBT SECURITIES.............................. 2,875,054 88.3% $190,667 5.9% $2,684,388 82.3%
0
EQUITY SECURITIES............................ 114,843 3.5%
0
SHORT-TERM SECURITIES........................ 268,538 8.2%
----------
0
TOTAL PORTFOLIO.............................. 3,258,435 100.0%
0
OTHER ASSETS -- NET.......................... 15,803
----------
0
NET ASSETS................................... $3,274,238
==========
</TABLE>

<PAGE>

JOHN HANCOCK DECLARATION TRUST

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

SUB-INVESTMENT ADVISERS
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

PVOOP 12/98

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