HANCOCK JOHN DECLARATION TRUST
497, 2001-01-16
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                         JOHN HANCOCK DECLARATION TRUST



                       Statement of Additional Information
                                January 16, 2001


                       John Hancock V.A. Core Equity Fund
                        John Hancock V.A. 500 Index Fund
                     John Hancock V.A. Large Cap Growth Fund
                      John Hancock V.A. Mid Cap Growth Fund
                      John Hancock V.A. Relative Value Fund
                     John Hancock V.A. Small Cap Growth Fund
                   John Hancock V.A. Sovereign Investors Fund
                      John Hancock V.A. International Fund
                   John Hancock V.A. Financial Industries Fund
                      John Hancock V.A. Regional Bank Fund
                        John Hancock V.A. Technology Fund
                           John Hancock V.A. Bond Fund
                     John Hancock V.A. High Yield Bond Fund
                       John Hancock V.A. Money Market Fund
                     John Hancock V.A. Strategic Income Fund

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


This Statement of Additional Information provides information about John Hancock
Declaration  Trust (the "Trust") and the Funds,  in addition to the  information
that is contained in the Funds' current Prospectuses. (the "Prospectuses").

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



                      John Hancock Annuity Servicing Office
                              529 Main Street (X-4)
                        Charlestown, Massachusetts 02129
                                 1-800-824-0335
<PAGE>


                                Table of Contents


                                                                           Page

Organization of the Trust..............................................      3
Eligible Investors.....................................................      3
Investment Policies and Strategies.....................................      4
Equity.................................................................      4
International..........................................................      7
Sector.................................................................      8
Income.................................................................     10
Risk Factors Investments and Techniques................................     12
Investment Restrictions................................................     33
Those Responsible for Management.......................................     37
Investment Advisory and Other Services.................................     42
Distribution Contracts.................................................     47
Net Asset Value........................................................     47
Special Redemptions....................................................     48
Description of the Trust's Shares......................................     48
Dividends..............................................................     49
Tax Status.............................................................     50
Calculation of Performance.............................................     53
Brokerage Allocation...................................................     55
Shareholder Servicing Agent............................................     58
Custody of Portfolio...................................................     58
Independent Auditors ..................................................     58
Appendix - Description of Bond Ratings.................................    A-1
Financial Statements...................................................    F-1



                                       2
<PAGE>


ORGANIZATION OF THE TRUST

John Hancock Declaration Trust (the "Trust") is an open-end investment
management company organized as a Massachusetts business trust under the laws of
the Commonwealth of Massachusetts. The Trust currently has fourteen series of
shares designated as: John Hancock V.A. International Fund ("International
Fund"); John Hancock V.A. Regional Bank Fund ("Regional Bank Fund"); John
Hancock V.A. Financial Industries Fund ("Financial Industries Fund"); John
Hancock V.A. Technology Fund ("Technology Fund"); John Hancock V.A. Small Cap
Growth Fund ("Small Cap Growth Fund") (formerly John Hancock V.A. Emerging
Growth Fund); John Hancock Mid Cap Growth Fund ("Mid Cap Growth Fund") (formerly
John Hancock V.A. Special Opportunities Fund); John Hancock V.A. Large Cap
Growth Fund ("Large Cap Growth Fund") (formerly John Hancock V.A. Growth Fund);
John Hancock V.A. Relative Value Fund ("Relative Value Fund") (formerly John
Hancock V.A. Large Cap Value Fund and before that, John Hancock V.A. Growth and
Income Fund); John Hancock V.A. Core Equity Fund ("Core Equity Fund") (formerly
John Hancock V.A. Independence Equity Fund); John Hancock V.A. Sovereign
Investors Fund ("Sovereign Investors Fund"); John Hancock V.A. 500 Index Fund
("500 Index Fund"); John Hancock V.A. Bond Fund ("Bond Fund") (formerly John
Hancock V.A. Sovereign Bond Fund); John Hancock V.A. Strategic Income Fund
("Strategic Income Fund"); John Hancock V.A. High Yield Bond Fund ("High Yield
Bond Fund"); and John Hancock V.A. Money Market Fund ("Money Market Fund").


The investment adviser of each Fund is John Hancock Advisers, Inc. (the
"Adviser"). The Adviser is an indirect wholly-owned subsidiary of John Hancock
Life Insurance Company (formerly John Hancock Mutual Life Insurance Company);
(the "Life Company"), a Massachusetts life insurance company chartered in 1862,
with national headquarters at John Hancock Place, Boston, Massachusetts. The
Life Company is wholly owned by John Hancock Financial Services, Inc., a
Delaware Corporation, organized in February, 2000. The International Fund's
Sub-adviser is Nicholas-Applegate Capital Management ("Nicholas-Applegate"). The
investment Sub-adviser of Core Equity Fund is Independence Investment
Associates, Inc. ("IIA"). The Technology Fund's Sub-adviser is American Fund
Advisors, Inc. ("AFA"). Together AFA, IIA and Nicholas-Applegate are sometimes
referred to herein collectively as the "Sub-advisers" or, individually, as the
"Sub-adviser." The Sub-advisers, are responsible for providing investment advice
to their respective Funds, subject to the review of the trustees and overall
supervision of the Adviser. IIA is a wholly owned indirect subsidiary of the
Life Company.


ELIGIBLE INVESTORS

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


                                       3
<PAGE>


INVESTMENT POLICIES AND STRATEGIES

Each Fund has its own distinct investment objective and policies. In striving to
meet its  objective,  each Fund will face the  challenges of changing  business,
economic  and  market  conditions.  There is no  assurance  that the Funds  will
achieve their investment objectives.  The following information  supplements the
discussion of each Fund's investment  objective and policies as discussed in the
prospectuses.

Each  Fund has  adopted  investment  restrictions  detailed  in the  "Investment
Restrictions" section of this 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.

EQUITY

Core Equity Fund

The CORE EQUITY FUND seeks above-average total return (capital appreciation plus
income).  To pursue this goal, the Fund normally  invests at least 65% of assets
in a  diversified  portfolio  of  primarily  large  capitalization  stocks.  The
portfolio's  risk  profile is similar to that of the Standard & Poor's 500 Stock
Index.  Consequently,  the Fund invests in a number of industry  groups  without
concentrating in any particular industry.

The managers  select from a menu of stocks of  approximately  550 companies that
evolves over time. Approximately 70% to 80% of these companies also are included
in the S&P 500 Index. The Sub-adviser's investment research team is organized by
industry and tracks these companies to develop earnings  estimates and five-year
projections  for  growth.  A series  of  proprietary  computer  models  use this
in-house  research to rank the stocks  according  to their  combination  of: (1)
value,  meaning they appear to be underpriced;  and (2) improving  fundamentals,
meaning they show potential for strong growth.

The Fund may  invest  in  certain  other  types of equity  and debt  securities,
including  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  Depositary
Receipts.

The fixed income securities of the 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 Sub-adviser.

500 Index Fund

The 500 INDEX FUND seeks to provide investment results that correspond to the
total return performance of the Standard & Poor's 500 Stock Price Index ("S&P
500 Index"). To pursue this goal, the Fund normally invests at least 80% of its
total assets in common stocks of the companies that comprise the S&P 500 Index.
The Fund tries to allocate the stocks held in its portfolio in approximately the
same proportions as they are represented in the S&P 500 Index, in an attempt to
minimize the degree to which the Fund's investment results (before Fund
expenses) differ from those of the Index ("tracking error"). This "indexing"
technique is a passive approach to investing and is designed for long-term
investors seeking a diversified portfolio of common stocks. Unlike other equity


                                       4
<PAGE>


funds which seek to "beat" stock market averages, the Fund attempts to "match"
the total return performance of the S&P 500 Index and thus provide a predictable
return relative to the benchmark. The degree to which the Fund's performance
correlates with that of the S&P 500 Index will depend upon the size and cash
flows of the Fund, the liquidity of the securities represented in the Index and
the Fund's expenses, among other factors. There is no fixed number of component
stocks in which the Fund will invest, and there can be no assurance that the
Fund's total return will match that of the S&P 500 Index. For a description of
the investment characteristics of the S&P 500 Index, see "The S&P 500 Index."

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

Large Cap Growth Fund

The LARGE CAP GROWTH FUND seeks long-term capital  appreciation.  To pursue this
goal,  the  Fund  normally   invests  at  least  65%  of  assets  in  stocks  of
large-capitalization  companies  (companies in the  capitalization  range of the
Standard & Poor's 500 Stock Index,  which was $316 million to $553.02 billion as
of March 31, 2000).

In choosing  individual  securities,  the  managers  use  fundamental  financial
analysis to identify  companies  with: (1) strong cash flows;  (2) secure market
franchises; and (3) sales growth that outpaces their industries.

When management believes that current market or economic conditions warrant, the
Fund may retain cash or invest in preferred stocks and other types of equity and
debt securities. Fixed income securities held by the Fund may be rated as low as
C by S&P or  Moody's.  No more than 5% of the 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 Fund may
invest up to 15% of assets in foreign securities.


Mid Cap Growth Fund

The MID CAP GROWTH FUND seeks  long-term  capital  appreciation.  To pursue this
goal,  the Fund  normally  invests  at least  80% of  assets in stocks of medium
capitalization  companies  (companies in the capitalization range of the Russell
MidCap  Growth Index,  which was $171 million to $66.54  billion as of March 31,
2000.)

In choosing individual  securities,  the manager looks for companies with growth
stemming  from a combination  of gains in market share and  increased  operating
efficiency.  The manager considers broad economic trends,  demographic  factors,
technological changes, consolidation trends and legislative initiatives.

The Fund may invest up to 10% of total assets in the securities of foreign
issuers, including, but not limited to, common stocks, sponsored or unsponsored
American Depositary Receipts ("ADRs"), European Depositary Receipts ("EDRs"),
and Global Depositary Receipts (GDRs), convertible preferred stocks, preferred
stocks and warrants. Under normal conditions, the Fund may not invest more than
10% of assets in cash and/or cash equivalents (except cash segregated in
relation to futures, forward and option contracts). In addition, under normal
conditions, the Fund will not invest in any fixed income securities. However, in
abnormal conditions, the fund may temporarily invest in U.S. government
securities with maturities of up to three years, and may also invest more than
10% of total assets in cash and/or cash equivalents (including U.S. government
securities maturing in 90 days or less). The Fund may not invest more than 5% of
assets at the time of purchase in any one security (other than U.S. government
securities).

                                       5
<PAGE>


Relative Value Fund

The RELATIVE  VALUE FUND seeks the highest  total return  (capital  appreciation
plus current income) that is consistent with  reasonable  safety of capital.  To
pursue this goal, the Fund invests in a diversified  portfolio of stocks,  bonds
and money market  securities.  Although the Fund may concentrate in any of these
asset classes, under normal circumstances it invests primarily in stocks.

In selecting equity  securities for the Fund, the portfolio  manager  emphasizes
issuers whose equity  securities trade at valuation ratios lower than comparable
issuers.  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 manager  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  manager  attempts  to identify  investments  which  possess
characteristics  such as high relative  value,  intrinsic  value,  going concern
value, net asset value and replacement book value. The manager also considers an
issuer's financial strength, competitive position, projected future earnings and
dividends and other investment criteria.

The Fund may invest in U.S. Government securities and corporate bonds, notes and
other debt securities of any maturity.  The 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.  The Fund may also
invest up to 25% of its total assets in foreign  securities  (35% during adverse
U.S. market conditions).

The Fund is managed by Timothy E. Quinlisk, CFA. Mr. Quinlisk is a Senior Vice
President of the Adviser and has managed the Fund since 1998 except between
January and March 2000.

Small Cap Growth Fund

The SMALL CAP GROWTH FUND seeks long-term capital  appreciation.  To pursue this
goal, the Fund normally  invests at least 80% of total assets in stocks of small
capitalization  companies  (companies in the capitalization range of the Russell
2000 Growth Index, which was $23 million to $10.45 billion on March 31, 2000.)

The managers look for companies in the emerging growth phase of development that
are not yet widely recognized. The Fund also may invest in established companies
that,  because  of  new  management,   products  or  opportunities,   offer  the
possibility of accelerated earnings. For a description of some of the investment
characteristics of smaller capitalization companies, see "Smaller Capitalization
Companies."

The Fund may invest up to 10% of total assets in the securities of foreign
issuers, including, but not limited to, common stocks, sponsored or unsponsored
American Depositary Receipts ("ADRs"), European Depositary Receipts ("EDRs"),
Global Depositary Receipts (GDRs), convertible preferred stocks, preferred
stocks and warrants. Under normal conditions, the Fund may not invest more than
10% of assets in cash or cash equivalents (except cash segregated in relation to
futures, forward and option contracts). In addition, under normal conditions,
the Fund will not invest in any fixed income securities. However, in abnormal
conditions, the fund may temporarily invest in U.S. government securities and
U.S. government agency securities with maturities of up to three years, and may
also invest more than 10% of total assets in cash and/or cash equivalents
(including U.S. government securities maturing in 90 days or less). The Fund may
not invest more than 5% of total assets at time of purchase in any one security
(other than U.S. government securities).


                                       6
<PAGE>


Sovereign Investors Fund

The  SOVEREIGN  INVESTORS  FUND seeks  long-term  growth of  capital  and income
without  assuming undue market risks. To pursue these goals,  the Fund typically
invests most of its assets in a  diversified  portfolio of stocks.  Under normal
conditions, at least 80% of the Fund's stock investments are in companies within
the capitalization  range of the Standard & Poor's 500 Stock Index. On March 31,
2000, that range was $316 million to $553.02 billion.

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 at least 65% of stock  investments in companies which have a record of
having  increased  their  dividend  payout in each of the  preceding ten or more
years. This "dividend  performers" strategy can be changed at any time. 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 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
judgement  of the  management  team  of  what  might  best  achieve  the  Fund's
investment objective.

The  Fund's  portfolio  securities  are  selected  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  or mix of 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 and fixed income markets.

The fund may not invest more than 5% of total  assets at time of purchase in any
one security (other than U.S. government  securities).  Under normal conditions,
the fund may not  invest  more than 10% of  assets  in cash or cash  equivalents
(except cash segregated in relation to futures, forward and option contracts).

Fixed  income  securities  held by the  Fund  may be rated as low as C by S&P or
Moody's.  No more than 5% of the 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.  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
determination,  the Fund will  dispose of the  security  as promptly as possible
while attempting to minimize any loss.

INTERNATIONAL

International Fund

The INTERNATIONAL  FUND seeks long-term growth of capital.  To pursue this goal,
the Fund  normally  invests  at least 80% of total  assets in stocks of  foreign
companies.  The Fund may invest up to 30% of total assets in emerging markets as
classified by Morgan Stanley Capital  International (MSCI). For a description of
some of the  investment  characteristics  of foreign  securities,  see  "Foreign
Securities and Emerging  Countries."  Generally,  the Fund's portfolio  contains
securities  of  issuers  from at least  three  countries  other  than the United
States.

In managing the portfolio, the managers focus on country allocation and
securities selection. They also seek to diversify the Fund across countries and
sectors. The managers base the Fund's country allocation on a quantitative model
as well as analysis of political trends and economic factors such as projected
currency exchange rates. The Fund's foreign equities may include, but are not
limited to, common stocks, convertible preferred stocks, preferred stocks,
warrants, American Depositary Receipts ("ADRs"), European Depositary Receipts
("EDRs"), and Global Depositary Receipts (GDRs).


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<PAGE>


Under normal conditions the Fund may not invest more than 10% of total assets in
cash and/or cash  equivalents  (except cash  segregated  in relation to futures,
forward and option  contracts).  In addition,  under normal  conditions the Fund
will not invest in any fixed income securities.  However, in abnormal conditions
the  Fund  may  temporarily  invest  in  U.S.  government  securities  and  U.S.
government  agency securities with maturities of up to three years, and may also
invest more than 10% of total assets in cash and/or cash equivalents  (including
U.S. government securities maturing in 90 days or less). The Fund may not invest
more than 5% of total assets at time of purchase in any one security (other than
U.S. government securities).

SECTOR

Financial Industries Fund

The FINANCIAL INDUSTRIES FUND seeks capital  appreciation.  To pursue this goal,
the Fund normally invests at least 65% of its total assets in equity  securities
of U.S. and foreign financial services companies.

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
holding companies;  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.

In managing the  portfolio,  the  managers  focus  primarily on stock  selection
rather than  industry  allocation.  The  managers use a strategy of investing in
financial  services  companies  that are  currently  undervalued,  appear  to be
positioned  for a  merger,  or are in a  position  to  benefit  from  regulatory
changes.  This  strategy can be changed at any time.  For a  description  of the
investment   characteristics  of  the  Financial   Industries,   see  "Financial
Industries."

To avoid the need to sell equity securities to meet redemption requests,  and to
provide flexibility to take advantage of investment opportunities,  the Fund may
invest up to 15% of its net assets in investment  grade  short-term  securities.
The 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.

Regional Bank Fund

The REGIONAL  BANK FUND seeks  long-term  capital  appreciation.  To pursue this
goal,  the Fund  normally  invests  at least  65% of total  assets  in stocks of
regional banks and lending companies, including commercial and industrial banks,
savings  and loan  associations  and  bank  holding  companies  that  receive  a
substantial portion of their income from banks.

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


                                       8
<PAGE>


The Fund may  also  invest  in other  financial  services  companies,  including
companies with significant lending operations and "money center" banks. A "money
center"  bank  is  one  with  a  strong  international  banking  business  and a
significant  percentage of international  assets,  which is typically located in
New York or Chicago. In seeking growth opportunities, the Fund's management team
may target banks with some or all of the following  characteristics:  (1) strong
market position in a region with a healthy economy; (2) undiscovered fundamental
strength evidenced by a low stock price relative earnings;  (3) the potential to
benefit  from a merger  or  acquisition.  For a  description  of the  investment
characteristics of the Banking Industry, see the "Banking Industry."

To avoid the need to sell equity securities to meet redemption requests,  and to
provide flexibility to take advantage of investment opportunities,  the Fund may
invest up to 15% of its net assets in investment  grade  short-term  securities.
The Fund may  invest up to 5% of its net assets in  below-investment  grade debt
securities of Banks rated as low as CCC by S&P or Caa by Moody's or, if unrated,
determined to be of comparable quality by the Adviser.

Technology Fund

The TECHNOLOGY FUND seeks long-term growth of capital.  To pursue this goal, the
Fund invests principally in equity securities of companies that rely extensively
on technology in their product development or operations.

Under  normal  market  conditions,  at least 65% of the Fund's  total assets are
invested in  securities  of the  technology  companies  noted above.  The Fund's
portfolio  is  primarily  comprised  of  U.S.  and  foreign  common  stocks  and
securities   convertible  into  common  stocks,   including  convertible  bonds,
convertible preferred stocks and warrants.

Investments in U.S. and foreign companies that rely extensively on technology in
product  development  or operations  may be expected to benefit from  scientific
developments and the application of technical  advances resulting from improving
technology  in many  different  fields,  such as computer  software and hardware
(including  internet-related  technology),  semiconductors,  telecommunications,
defense and commercial  electronics,  data storage and retrieval,  biotechnology
and others. Generally,  investments will be made in securities of a company that
relies extensively on technology in product  development or operations only if a
significant  part of its assets are  invested in, or a  significant  part of its
total revenue or net income is derived from,  technology.  For a description  of
the   investment    characteristics    of   the   technology    industry,    see
"Technology-Intensive Companies."

The Fund may invest up to 10% of its net assets in fixed income securities that,
at the time of  investment,  are rated CC or higher by Standard & Poor's Ratings
Group ("Standard & Poor's") or Ca or higher be Moody's Investors  Service,  Inc.
("Moody's")  or  their  equivalent,  and  unrated  fixed  income  securities  of
comparable quality as determined by the Adviser.

When market conditions suggest a need for a defensive investment strategy, the
Fund may temporarily invest in short-term obligations of or securities
guaranteed by the U.S. Government or its agencies or instrumentalities, high
quality bank certificates of deposit and commercial paper. This temporary
investment strategy is not designed to achieve the Fund's primary investment
objective.


                                       9
<PAGE>


INCOME

Bond Fund

The BOND FUND seeks to generate a high level of current income  consistent  with
prudent investment risk. To pursue this goal, the Fund normally invests at least
65% of total assets in a diversified portfolio of debt securities. These include
corporate  bonds  and  debentures,   as  well  as  U.S.  government  and  agency
securities.  In addition, the Fund contemplates at least 75% of the value of its
total assets will be in (1) debt  securities that have, at the time of purchase,
a rating  within the four  highest  grades as  determined  by Moody's  Investors
Service, Inc. ("Moody's") (Aaa, Aa, A or Baa) or Standard & Poor's ("S&P") (AAA,
AA, A, or BBB);  (2) debt  securities  of  banks,  the U.S.  Government  and its
agencies or instrumentalities  and other issuers which,  although not rated as a
matter of policy by either  Moody's or S&P, are  considered  by the Fund to have
investment  quality  comparable to securities  receiving ratings within the four
highest grades; and (3) cash and cash equivalents.  Under normal conditions, the
Fund  may  not  invest  more  than  10% of  total  assets  in cash  and/or  cash
equivalents (except cash segregated in relation to futures,  forward and options
contracts).

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 "High
Yield/High  Risk  Debt   Obligations."  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).

High Yield Bond Fund

The HIGH YIELD BOND FUND seeks to maximize current income without assuming undue
risk.  Capital  appreciation is a secondary  goal. In pursuing these goals,  the
Fund normally invests at least 65% of its total assets in U.S. and foreign bonds
rated Baa or lower by Moody's or BBB or lower 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 junk  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 High Yield / High Risk Debt  Obligations." 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  telecommunications  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."


                                       10
<PAGE>


Money Market Fund

The MONEY MARKET FUND seeks the maximum  current income that is consistent  with
maintaining  liquidity and preserving capital.  The Fund invests in high-quality
money  market  instruments  including,  but not  limited  to,  U.S.  Government,
municipal  and  foreign  government  securities;  obligations  of  supranational
organizations  (e.g.,  the  World  Bank and the  International  Monetary  Fund);
obligations of U.S. and foreign banks and other lending institutions;  corporate
obligations; repurchase agreements and reverse repurchase agreements. All of the
Fund's investments are denominated in U.S. dollars.

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

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

Strategic Income Fund

The STRATEGIC INCOME FUND seeks a high level of current income. In pursuing this
goal,  the Fund invests  primarily in the following  categories  of  securities:
foreign government and foreign corporate  securities from developed and emerging
countries,  U.S.  Government and agency  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  categories.
However, from time to time the Fund may invest up to 100% of its total assets in
any one  category.  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 "Risks Associated With Specific Types of Derivative Debt Securities."

The Fund generally intends to keep its average credit quality in the investment
grade range. However, the Fund may invest up to 100% of 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 High Yield / High Risk Debt Obligations." for a
description of the risks and characteristics of the various ratings categories.


                                       11
<PAGE>


RISK FACTORS, INVESTMENTS AND TECHNIQUES

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

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

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

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

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

Financial services companies in foreign countries are subject to similar
regulatory and interest rate concerns. In particular, government regulation in
certain foreign countries may include controls on interest rates, credit
availability, prices and currency movements. In some cases, foreign governments
have taken steps to nationalize the operations of banks and other financial
services companies. See "Foreign Securities & Emerging Countries."


                                       12
<PAGE>


Technology-Intensive  Companies. Since the Technology Fund's investments will be
concentrated in  technology-intensive  companies, it will be subject to risks in
addition to those that apply to the general equity and debt markets.  Securities
prices of  technology-intensive  companies  have tended to be subject to greater
volatility than securities  prices in many other  industries,  due to particular
factors  affecting  these  industries.  Competitive  pressures  may also  have a
significant effect on the financial condition of technology-intensive companies.
For example,  if the  development of new  technology  continues to advance at an
accelerated rate, and the number of companies and product offerings continues to
expand,  the  companies  could become  increasingly  sensitive to short  product
cycles and  aggressive  pricing.  Accordingly,  the Fund's  performance  will be
particularly  susceptible to factors  affecting  these  companies as well as the
economy as a whole.

Smaller  Capitalization  Companies.  Smaller  capitalization  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.

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  (other  than  Financial
Industries  Fund,  Regional Bank Fund and  Technology  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.

Fixed  Income  Securities.  Fixed  income  investments  of each Fund 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.  Under
normal conditions, International Fund, Mid Cap Growth Fund, and Small Cap Growth
Fund will not invest in any fixed income  securities (other than preferred stock
and cash equivalents).

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. Each Fund (other than 500 Index Fund and Money Market Fund)
may invest in preferred stock. 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


                                       13
<PAGE>


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.

Convertible  Securities.  Each Fund (other than 500 Index Fund and Money  Market
Fund) may invest in convertible securities, which may include corporate notes or
preferred  stock but are  ordinarily  long-term  debt  obligations of the issuer
convertible  at a stated  exchange rate into common stock of the same or another
issuer.  The International  Fund, Mid Cap Growth Fund, and Small Cap Growth Fund
may only invest in convertible preferred stock.

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.

The S&P  500  Index.  The  S&P 500  Index  is a  capitalization  weighted  index
comprised of 500 industrial,  utility, transportation and financial companies in
the United States markets. The S&P 500 Index represents approximately 75% of the
total market  capitalization  of stocks traded in the U.S.  equity  market.  The
inclusion  of a stock in the S&P 500 Index in no way  implies  that  Standard  &
Poor's believes the stock to be an attractive investment.

Because of the market-value  weighting,  the 50 largest companies in the S&P 500
Index  currently  account  for  approximately  60.61% of the  Index.  Typically,
companies  included in the S&P 500 Index are the largest and most dominant firms
in their respective industries. As of March 31, 2000, the five largest companies
in the Index were:  Microsoft (4.36%),  Cisco Systems (4.17%),  General Electric
(4.01%), Intel (3.48%), and Exxon Mobil (2.12%). The largest industry categories
were: computer software (9.75%),  communications equipment (8.93%),  electronics
(semi-conductors)  (7.26%),  computer  systems (6.97%) and electrical  equipment
(4.55%).

"Standard & Poor's(R)," "S&P(R)," "S&P 500(R)," "Standard & Poor's 500," and
"500" are trademarks of The McGraw-Hill Companies, Inc. and have been licensed
for use by John Hancock Advisers, Inc. ("the Adviser"). The 500 Index Fund is
not sponsored, endorsed, sold or promoted by Standard & Poor's. Standard &
Poor's makes no representation or warranty, express or implied, to the
purchasers of the Fund or any member of the public regarding the advisability of
investing in securities generally or in the 500 Index Fund particularly or the
ability of the S&P 500 Index to track general stock market performance. Standard
& Poor's only relationship to the Adviser is the licensing of certain trademarks
and trade names of Standard & Poor's and of the S&P 500 Index, which is
determined, composed and calculated by Standard & Poor's without regard to the
Adviser or the 500 Index Fund. Standard & Poor's has no obligation to take the
needs of the Adviser or the purchasers of the 500 Index Fund into consideration
in determining, composing or calculating the S&P 500 Index. Standard & Poor's is
not responsible for and has not participated in the determination of the prices
and amount of the 500 Index Fund, the timing of the issuance or sale of the 500
Index Fund or in the determination or calculation of the equation by which the
500 Index Fund is to be converted into cash. Standard & Poor's has no obligation
or liability in connection with the administration, marketing or trading of the
500 Index Fund.


                                       14
<PAGE>


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

SPDRS.  The 500 Index Fund may invest in  securities  referred  to as SPDRs,  or
"spiders",  that are  designed to track the S&P 500 Index.  SPDRs  represent  an
ownership  interest in the SPDR Trust,  which holds a portfolio of common stocks
that closely  tracks the price  performance  and  dividend  yield of the S&P 500
Index.  SPDRs trade on the American  Stock Exchange like shares of common stock.
SPDRs have many of the same risks as direct  investments in common  stocks.  The
market  value of SPDRs is  expected  to rise and fall as the S&P 500 Index rises
and  falls.  If the Fund  invests in SPDRs,  it would,  in  addition  to its own
expenses, indirectly bear its ratable share of the SPDR's expenses.

Foreign  Securities  and Emerging  Countries.  Each Fund (other than Core Equity
Fund, 500 Index Fund, Sovereign Investors Fund and Money Market Fund) may invest
in U.S. Dollar and foreign denominated  securities of foreign issuers.  The Core
Equity Fund, 500 Index 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.  The International  Fund, Small Cap
Growth Fund, Technology Fund, High Yield Bond Fund and Strategic Income Fund may
also invest  securities of foreign  issuers  located in countries  with emerging
economies or securities markets.

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

In addition, even though opportunities for investment may exist in foreign
countries, and in particular emerging markets, any change in the leadership or
policies of the governments of those countries or in the leadership or policies
of any other government which exercises a significant influence over those
countries, may halt the expansion of or reverse the liberalization of foreign
investment policies now occurring and thereby eliminate any investment
opportunities which may currently exist. Investors should note that upon the
accession to power of authoritarian regimes, the governments of a number of
Latin American countries previously expropriated large quantities of real and


                                       15
<PAGE>


personal property similar to the property which may be represented by the
securities purchased by the Funds. The claims of property owners against those
governments were never finally settled. There can be no assurance that any
property represented by foreign securities purchased by a Fund will not also be
expropriated, nationalized, or otherwise confiscated. If such confiscation were
to occur, a Fund could lose a substantial portion of its investments in such
countries. A Fund's investments would similarly be adversely affected by
exchange control regulations in any of those countries. Certain countries in
which the Funds may invest may have vocal minorities that advocate radical
religious or revolutionary philosophies or support ethnic independence. Any
disturbance on the part of such individuals could carry the potential for
widespread destruction or confiscation of property owned by individuals and
entities foreign to such country and could cause the loss of a Fund's investment
in those countries.

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

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

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

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


                                       16
<PAGE>


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

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

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

Foreign Currency Transactions. Each Fund (other than Core Equity Fund, 500 Index
Fund,  Sovereign  Investors  Fund and Money  Market  Fund) may engage in foreign
currency transactions.  Foreign currency transactions may be conducted on a spot
(i.e.,  cash)  basis  at the  spot  rate  for  purchasing  or  selling  currency
prevailing in the foreign exchange market.

Each Fund (other  than Core Equity  Fund,  500 Index Fund,  Sovereign  Investors
Fund,  and Money  Market  Fund) may also enter  into  forward  foreign  currency
exchange  contracts to hedge against  fluctuations  in currency  exchange  rates
affecting a particular transaction or portfolio position.  Forward contracts are
agreements to purchase or sell a specified  currency at a specified  future date
and price set at the time of the contract.  Transaction  hedging is the purchase
or  sale  of  forward  foreign  currency  contracts  with  respect  to  specific
receivables  or payables of a Fund accruing in connection  with the purchase and
sale of its portfolio  securities  quoted or  denominated in the same or related
foreign  currencies.  Portfolio  hedging is the use of forward foreign  currency
contracts to offset portfolio  security  positions  denominated or quoted in the
same or related foreign  currencies.  A Fund may elect to hedge less than all of
its foreign portfolio positions as deemed appropriate by the Adviser.  The Funds
will not engage in speculative forward foreign currency exchange transactions.

If a Fund purchases a forward  contract,  the Fund will segregate cash or liquid
securities  in a separate  account in an amount equal to the value of the Fund's
total assets committed to the consummation of such forward contract.  The assets
in the segregated account will be valued at market daily and if the value of the
securities in the separate account declines,  additional cash or securities will
be placed in the  account  so that the  value of the  account  will be equal the
amount of the Fund's commitment in forward contracts.

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


                                       17
<PAGE>


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

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

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

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


                                       18
<PAGE>


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

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

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

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

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

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


                                       19
<PAGE>


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

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

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

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

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

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


                                       20
<PAGE>


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

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

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

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

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

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


                                       21
<PAGE>


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

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

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

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

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

Other Considerations. The International Fund, Mid Cap Growth Fund, Small Cap
Growth Fund, and Sovereign Investors Fund may each engage in futures and related
options transactions for hedging or other non-speculative purposes. Each other
Fund (except Money Market Fund) will engage in futures and related options
transactions either for bona fide hedging purposes or to seek to increase total
return as permitted by the CFTC. To the extent that a Fund is using futures and
related options for hedging purposes, futures contracts will be sold to protect
against a decline in the price of securities (or the currency in which they are
quoted or denominated) that the Fund owns or futures contracts will be purchased
to protect the Fund against an increase in the price of securities (or the
currency in which they are quoted or denominated) it intends to purchase. Each
Fund will determine that the price fluctuations in the futures contracts and
options on futures used for hedging purposes are substantially related to price


                                       22
<PAGE>


fluctuations in securities held by the Fund or securities or instruments which
it expects to purchase. As evidence of its hedging intent, each Fund expects
that on 75% or more of the occasions on which it takes a long futures or option
position (involving the purchase of futures contracts), the Fund will have
purchased, or will be in the process of purchasing, equivalent amounts of
related securities (or assets denominated in the related currency) in the cash
market at the time when the futures or option position is closed out. However,
in particular cases, when it is economically advantageous for the Fund to do so,
a long futures position may be terminated or an option may expire without the
corresponding purchase of securities or other assets.

To  the  extent  that a Fund  engages  in  nonhedging  transactions  in  futures
contracts  and options on futures,  the  aggregate  initial  margin and premiums
required to establish these  nonhedging  positions will not exceed 5% of the net
asset  value of the Fund's  portfolio,  after  taking  into  account  unrealized
profits and losses on any such  positions and excluding the amount by which such
options were in-the-money at the time of purchase.

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

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

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

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

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

Government Securities. Each Fund may invest in government securities. However,
under normal conditions, International Fund, Mid Cap Growth Fund, and Small Cap
Growth Fund will not invest in any fixed income securities, with the exception
of cash equivalents (which include U.S. Government securities maturing in 90
days or less). In abnormal conditions, these funds may temporarily invest in
U.S. Government securities and U.S. Government agency securities with maturities


                                       23
<PAGE>


of up to three years, and may also invest more than 10% of total assets in cash
and/or cash equivalents. Certain U.S. Government securities, including U.S.
Treasury bills, notes and bonds, and Government National Mortgage Association
certificates ("GNMA"), 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 ("FHLMC"), and
obligations supported by the credit of the instrumentality, such as Federal
National Mortgage Association Bonds ("FNMA"). No assurance can be given that the
U.S. Government will provide financial support to such Federal agencies,
authorities, instrumentalities and government sponsored enterprises in the
future.

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 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


                                       24
<PAGE>


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.

Swaps,  Caps,  Floors and Collars.  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  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  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.

Participation  Interests.  The Technology Fund, Bond Fund, High Yield Bond Fund,
and Strategic Income 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.  The
Technology Fund may purchase only those  participation  interests that mature in
60 days or less, or, if maturing in more than 60 days, that have a floating rate
that is automatically adjusted at least once every 60 days.

Pay-In-Kind, Delayed and Zero Coupon Bonds. The Bond Fund, Strategic Income
Fund, High Yield Bond Fund and Technology 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


                                       25
<PAGE>


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. The Funds' investments
in pay-in-kind, delayed and zero coupon bonds may require a Fund to sell certain
of its portfolio securities to generate sufficient cash to satisfy certain
income distribution requirements.

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

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.

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

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

Bankers' acceptances are negotiable drafts or bills of exchange, normally drawn
by an importer or exporter to pay for specific merchandise, which are "accepted"
by a bank, meaning, in effect, that the bank unconditionally agrees to pay the
face value of the instrument on maturity. Fixed time deposits are bank
obligations payable at a stated maturity date and bearing interest at a fixed
rate. Fixed time deposits may be withdrawn on demand by the investor, but may be
subject to early withdrawal penalties which vary depending upon market
conditions and the remaining maturity of the obligation. There are no


                                       26
<PAGE>


contractual restrictions on the right to transfer a beneficial interest in a
fixed time deposit to a third party, although there is no market for such
deposits. Bank notes and bankers' acceptances rank junior to domestic deposit
liabilities of the bank and pari passu with other senior, unsecured obligations
of the bank. Bank notes are not insured by the Federal Deposit Insurance
Corporation or any other insurer. Deposit notes are insured by the Federal
Deposit Insurance Corporation only to the extent of $100,000 per depositor per
bank.

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

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

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

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

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

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


                                       27
<PAGE>


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

Prepayment  rates are  influenced  by changes in  current  interest  rates and a
variety  of  economic,  geographic,  social  and  other  factors  and  cannot be
predicted with  certainty.  Both  adjustable  rate mortgage loans and fixed rate
mortgage  loans may be subject to a greater rate of principal  prepayments  in a
declining   interest  rate  environment  and  to  a  lesser  rate  of  principal
prepayments in an increasing  interest rate environment.  Under certain interest
rate  and  prepayment  rate  scenarios,  a Fund  may fail to  recoup  fully  its
investment in Mortgage-Backed  Securities notwithstanding any direct or indirect
governmental,   agency  or  other  guarantee.  When  a  Fund  reinvests  amounts
representing payments and unscheduled prepayments of principal, it may receive a
rate of  interest  that is  lower  than  the rate on  existing  adjustable  rate
mortgage  pass-through  securities.   Thus,   Mortgage-Backed   Securities,  and
adjustable  rate mortgage  pass-through  securities in  particular,  may be less
effective than other types of U.S. Government  securities as a means of "locking
in" interest rates.

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

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

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


                                       28
<PAGE>


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

Risks  Associated With Specific Types of Derivative Debt  Securities.  Different
types of derivative  debt  securities are subject to different  combinations  of
prepayment,   extension  and/or  interest  rate  risk.   Conventional   mortgage
pass-through  securities  and  sequential  pay CMOs are  subject to all of these
risks,  but are typically not leveraged.  Thus, the magnitude of exposure may be
less than for more leveraged Mortgage-Backed Securities.

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

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

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

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

Brady Bonds. The Bond Fund, High Yield Bond Fund and Strategic Income 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


                                       29
<PAGE>


the exchange of commercial bank debt for newly issued bonds (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 the 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 state-owned enterprises and the setting
of targets for public spending and borrowing. These policies and programs seek
to promote the debtor country's ability to service its external obligations and
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. The Adviser believes that economic reforms undertaken by
countries in connection with the issuance of Brady Bonds make the debt of
countries which have issued or have announced plans to issue Brady Bonds an
attractive opportunity for investment.

Brady Bonds may involve a high degree of risk,  may be in default or present the
risk of  default.  Agreements  implemented  under  the  Brady  Plan to date  are
designed to achieve debt and  debt-service  reduction  through  specific options
negotiated by a debtor  nation with its  creditors.  As a result,  the financial
packages offered by each country differ.  The types of options have included the
exchange of  outstanding  commercial  bank debt for bonds issued at 100% of face
value of such debt, bonds issued at a discount of face value of such debt, bonds
bearing an interest rate which  increases over time and bonds issued in exchange
for the advancement of new money by existing  lenders.  Certain Brady Bonds have
been collateralized as to principal due at maturity by U.S. Treasury zero coupon
bonds with a maturity equal to the final maturity of such Brady Bonds,  although
the  collateral  is not available to investors  until the final  maturity of the
Brady Bonds.  Collateral  purchases  are financed by the IMF, the World Bank and
the debtor  nations'  reserves.  In  addition,  the first two or three  interest
payments  on  certain  types of Brady  Bonds  may be  collateralized  by cash or
securities agreed upon by creditors.  Although Brady Bonds may be collateralized
by U.S.  Government  securities,  repayment  of  principal  and  interest is not
guaranteed by the U.S. Government.

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

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

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


                                       30
<PAGE>


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

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

Debt obligations  rated in the lower ratings  categories,  or which are unrated,
involve greater volatility of price and risk of loss of principal and income. In
addition,  lower ratings  reflect a greater  possibility of an adverse change in
financial  condition  affecting  the  ability of the issuer to make  payments of
interest  and  principal.  The market  price and  liquidity of lower rated fixed
income  securities   generally  respond  to  short  term  corporate  and  market
developments to a greater extent than do the price and liquidity of higher rated
securities  because  such  developments  are  perceived  to  have a more  direct
relationship to the ability of an issuer of such lower rated  securities to meet
its ongoing debt obligations.

Reduced  volume and  liquidity  in the high  yield/high  risk bond market or the
reduced availability of market quotations will make it more difficult to dispose
of the bonds and to value accurately a Fund's assets.  The reduced  availability
of  reliable,  objective  data may  increase a Fund's  reliance on  management's
judgment  in  valuing  high  yield/high  risk  bonds.  In  addition,   a  Fund's
investments  in high  yield/high  risk  securities may be susceptible to adverse
publicity  and investor  perceptions,  whether or not  justified by  fundamental
factors.  In the past,  economic  downturns and increases in interest rates have
caused a higher  incidence of default by the issuers of  lower-rated  securities
and may do so in the  future,  particularly  with  respect  to highly  leveraged
issuers

Each Fund (other than Money Market 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 longer the 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 interest
rates will generally reduce the value of the Fund's portfolio securities and the
Fund's shares,  while a decline in interest rates will generally  increase their
value.

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

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


                                       31
<PAGE>


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

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

Short selling may produce higher than normal portfolio turnover which may result
in increased transaction costs to a Fund.

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

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

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

Short-Term Trading and Portfolio Turnover. Short-term trading means the purchase
and subsequent sale of a security after it has been held for a relatively brief
period of time. The International Fund, Large Cap Growth Fund, Relative Value
Fund, Mid Cap Growth Fund, Small Cap Growth Fund, Technology 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.


                                       32
<PAGE>


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 each Fund is shown in the section captioned
"Financial Highlights" in the prospectuses. 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.

INVESTMENT RESTRICTIONS

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

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

         1.       Issue senior securities,  except as permitted by paragraphs 2,
                  5 and 6 below. For purposes of this restriction,  the issuance
                  of  shares of  beneficial  interest  in  multiple  classes  or
                  series, the deferral of the Trustees' fees and the purchase or
                  sale of options, futures contracts, forward commitments, swaps
                  and repurchase  agreements entered into in accordance with the
                  Fund's  investment  policies within the meaning of paragraph 6
                  below, are not deemed to be senior securities.

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

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

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


                                       33
<PAGE>


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

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

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

         8.       For  each  Fund,  with  respect  to 75% of total  assets  [see
                  non-fundamental    investment   restriction   (h)],   purchase
                  securities of an issuer (other than the U.S.  Government,  its
                  agencies, instrumentalities or authorities), if:

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

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

Money Market Fund may not:

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

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


                                       34
<PAGE>


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

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

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

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

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

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

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

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

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

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

         (b)      Purchase securities on margin or make short sales, unless,
                  by virtue of its ownership of other securities, the Fund has
                  the right to obtain securities equivalent in kind and amount
                  to the securities sold and, if the right is conditional, the
                  sale is made upon the same conditions, except (i) in
                  connection with arbitrage transactions, (ii) for hedging the
                  Fund's exposure to an actual or anticipated market decline in
                  the value of its securities, (iii) to profit from an
                  anticipated decline in the value of a security, and (iv) for
                  obtaining such short-term credits as may be necessary for the
                  clearance of purchases and sales of securities. The 500 Index
                  Fund, International Fund, Mid Cap Growth Fund, Small Cap
                  Growth Fund Sovereign Investors Fund, and Technology Fund may
                  not make short sales.

         (c)      Purchase a security if, as a result, (i) more than 10% of
                  the Fund's total assets would be invested in the securities of
                  other investment companies, (ii) the Fund would hold more than
                  3% of the total outstanding voting securities of any one
                  investment company, or (iii) more than 5% of the Fund's total
                  assets would be invested in the securities of any one
                  investment company. These limitations do not apply to (a) the
                  investment of cash collateral, received by the Fund in


                                       35
<PAGE>


                  connection with lending the Fund's portfolio securities, in
                  the securities of open-end investment companies or (b) the
                  purchase of shares of any investment company in connection
                  with a merger, consolidation, reorganization or purchase of
                  substantially all of the assets of another investment company.
                  Subject to the above percentage limitations the Fund may, in
                  connection with the John Hancock Group of Funds Deferred
                  Compensation Plan for Independent Trustees/Directors, purchase
                  securities of other investment companies within the John
                  Hancock Group of Funds.

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

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

         (f)      Invest for the purpose of exercising control over or
                  management of any company.

         In addition:

         (g)      Under normal conditions,  Bond Fund,  International  Fund, Mid
                  Cap Growth Fund, Small Cap Growth Fund and Sovereign Investors
                  Fund may not  invest  more  than 10% of total  assets  in cash
                  and/or cash equivalents (except cash segregated in relation to
                  futures, forward and option contracts).

         (h)      International Fund, Mid Cap Growth Fund, Small Cap Growth Fund
                  and  Sovereign  Investors  Fund may not invest more than 5% of
                  total  assets at time of purchase in any one  security  (other
                  than U.S. government securities).

         (i)      Under normal  conditions,  International  Fund, Mid Cap Growth
                  Fund and Small Cap  Growth  Fund will not  invest in any fixed
                  income  securities.  However,  in abnormal  conditions,  these
                  Funds may temporarily invest in U.S. government securities and
                  U.S.  government  agency  securities  with maturities of up to
                  three years, and may also invest more than 10% of total assets
                  in cash and/or cash  equivalents  (including  U.S.  government
                  securities maturing in 90 days or less).

         (j)      International  Fund  normally  invests  at least  80% of total
                  assets in a diversified  portfolio of foreign stocks from both
                  developed  and emerging  countries.  The Fund may invest up to
                  30% of total  assets in  emerging  markets  as  classified  by
                  Morgan Stanley Capital International (MSCI).  Foreign equities
                  include  but are not  limited  to common  stocks,  convertible
                  preferred stocks,  preferred stocks,  warrants, ADRs, GDRs and
                  EDRs.

         (k)      Mid Cap Growth Fund and Small Cap Growth Fund may not invest
                  more than 10% of total  assets in foreign securities.


                                       36
<PAGE>


Money Market Fund may not:

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

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

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

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

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

The Fund  will  invest  only in  countries  on the  Adviser's  Approved  Country
Listing.

THOSE RESPONSIBLE FOR MANAGEMENT

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


                                       37
<PAGE>


<TABLE>
<CAPTION>

                               Positions Held              Principal Occupation(s)
Name and Address               With the Company            During the Past Five Years
----------------               ----------------            --------------------------
      <S>                            <C>                              <C>

Stephen L. Brown*              Trustee and Chairman        Chairman and Director, John Hancock
John Hancock Place                                         Life Insurance Company (CEO until
P.O. Box 111                                               June 2000), John Hancock Financial
Boston, MA 02117                                           Services, Inc. (CEO until June
July 1937                                                  2000); John Hancock Advisers, Inc.
                                                           (the Adviser), John Hancock Funds,
                                                           Inc. (John Hancock Funds), The
                                                           Berkeley Financial Group, Inc. (The
                                                           Berkeley Group); Director, John
                                                           Hancock Subsidiaries, Inc.; John
                                                           Hancock Signature Services, Inc.
                                                           (Signature Services) (until January
                                                           1997); John Hancock Insurance
                                                           Agency, Inc.; (Insurance Agency),
                                                           (until May 1999); Independence
                                                           Investment Associates, Inc.,
                                                           Independence International
                                                           Associates, Inc,, Independence
                                                           Fixed Income Associates, Inc.;
                                                           Insurance Marketplace Standards
                                                           Association, Committee for Economic
                                                           Development, Ionics, Inc. (since
                                                           June 2000), Aspen Technology, Inc.
                                                           (since June 2000), Jobs for
                                                           Massachusetts, Federal Reserve Bank
                                                           of Boston (until March 1999);
                                                           Financial Institutions Center
                                                           (until May 1996), Freedom Trail
                                                           Foundation (until December 1996)
                                                           Beth Israel Hospital and
                                                           Corporation (until November 1996);
                                                           Director and Member (Beth
                                                           Israel/Deaconess Care Group),
                                                           Member, Commercial Club of Boston,
                                                           President (until April 1996);
                                                           Trustee, Wang Center for the
                                                           Performing Arts, Alfred P. Sloan
                                                           Foundation, John Hancock Asset
                                                           Management (until March 1997);
                                                           Member, Boston Compact Committee,
                                                           Mass. Capital Resource Company;
                                                           Chairman, Boston Coordinating
                                                           Committee ("The Vault") (until
                                                           April 1997).

Maureen R. Ford *              Trustee, Vice Chairman,     President, Broker/Dealer
101 Huntington Avenue          President and Chief         Distributor, John Hancock Life
Boston, MA  02199              Executive Officer (1,2)     Insurance Company; Vice Chairman,
December 1953                                              Director, President and Chief
                                                           Executive Officer, the Adviser, The
                                                           Berkeley Group, John Hancock Funds;
                                                           Chairman, Director and President,
                                                           Insurance Agency, Inc.; Chairman,
                                                           Director and Chief Executive
                                                           Officer, Sovereign Asset Management
                                                           Corporation (SAMCorp.); Senior Vice
                                                           President, MassMutual Insurance Co.
                                                           (until 1999); Senior Vice
                                                           President, Connecticut Mutual
                                                           Insurance Co. (until 1996).


-------------------------
*   Trustee may be deemed to be an "interested person" of the Fund as defined in
    the Investment Company Act of 1940.
(1) Member of the Executive Committee. The Executive Committee may generally
    exercise most of the powers of the Board of Trustees.
(2) A member of the Investment Committee of the Adviser.


                                       38
<PAGE>

                               Positions Held              Principal Occupation(s)
Name and Address               With the Company            During the Past Five Years
----------------               ----------------            --------------------------
      <S>                            <C>                              <C>

Dennis S. Aronowitz            Trustee                     Professor of Law, Emeritus, Boston
101 Huntington Avenue                                      University School of Law (as of
Boston, MA  02199                                          1996); Director, Brookline
June 1931                                                  Bankcorp.

Richard P. Chapman, Jr.        Trustee (1)                 Chairman, President, and Chief
101 Huntington Avenue                                      Executive Officer, Brookline
Boston, MA  02199                                          Bankcorp. (lending); Director,
February 1935                                              Lumber Insurance Companies (fire
                                                           and casualty insurance); Trustee,
                                                           Northeastern University
                                                           (education); Director, Depositors
                                                           Insurance Fund, Inc. (insurance).

William J. Cosgrove            Trustee                     Vice President, Senior Banker and
101 Huntington Avenue                                      Senior Credit Officer, Citibank,
Boston, MA  02199                                          N.A. (retired September 1991);
January 1933                                               Executive Vice President, Citadel
                                                           Group Representatives, Inc.;
                                                           Trustee, the Hudson City Savings
                                                           Bank (since 1995).

Leland O. Erdahl               Trustee                     Director of Uranium Resources
101 Huntington Avenue                                      Corporation, Hecla Mining Company,
Boston, MA  02199                                          Canyon Resources Corporation and
December 1928                                              Apollo Gold, Inc.; Director
                                                           Original Sixteen to One Mines, Inc.
                                                           (until 1999); Management Consultant
                                                           (from 1984-1987 and 1991-1998);
                                                           Director, Freeport-McMoran Copper &
                                                           Gold, Inc. (until 1997); Vice
                                                           President, Chief Financial Officer
                                                           and Director of Amax Gold, Inc.
                                                           (until 1998).

Richard A. Farrell             Trustee                     President of Farrell, Healer & Co.,
101 Huntington Avenue                                      (venture capital management firm)
Boston, MA  02199                                          (since 1980); Prior to 1980, headed
November 1932                                              the venture capital group at Bank
                                                           of Boston Corporation.

Gail D. Fosler                 Trustee                     Senior Vice President and Chief
101 Huntington Avenue                                      Economist, The Conference Board
Boston, MA  02199                                          (non-profit economic and business
December 1947                                              research); Director, Unisys Corp.;
                                                           Director DHS Singapore (Financial
                                                           Services) H.B. Fuller Company; and
                                                           DBS Holdings (Singapore) (Banking
                                                           and Financial Services); Director,
                                                           National Bureau of Economic
                                                           Research (academic).


-------------------------
*   Trustee may be deemed to be an "interested person" of the Fund as defined in
    the Investment Company Act of 1940.
(1) Member of the Executive Committee. The Executive Committee may generally
    exercise most of the powers of the Board of Trustees.
(2) A member of the Investment Committee of the Adviser.


                                       39
<PAGE>

                               Positions Held              Principal Occupation(s)
Name and Address               With the Company            During the Past Five Years
----------------               ----------------            --------------------------
      <S>                            <C>                              <C>

William F. Glavin             Trustee                      President Emeritus, Babson College
101 Huntington Avenue                                      (as of 1997); Vice Chairman, Xerox
Boston, MA  02199                                          Corporation (until June 1989);
March 1932                                                 Director, Caldor Inc., Reebok, Inc.
                                                           (since 1994) and Inco Ltd.

Dr. John A. Moore             Trustee                      President and Chief Executive
101 Huntington Avenue                                      Officer, Institute for Evaluating
Boston, MA  02199                                          Health Risks, (nonprofit
February 1939                                              institution) (since September
                                                           1989).

Patti McGill Peterson         Trustee                      Executive Director, Council for
101 Huntington Avenue                                      International Exchange of Scholars
Boston, MA  02199                                          (since January 1998), Vice
May 1943                                                   President, Institute of
                                                           International Education (since
                                                           January 1998); Senior Fellow,
                                                           Cornell Institute of Public
                                                           Affairs, Cornell University (until
                                                           December 1997); President Emerita
                                                           of Wells College and St. Lawrence
                                                           University; Director, Niagara
                                                           Mohawk Power Corporation (electric
                                                           utility).

John W. Pratt                 Trustee                      Professor of Business
101 Huntington Avenue                                      Administration Emeritus, Harvard
Boston, MA  02199                                          University Graduate School of
September 1931                                             Business Administration (as of June
                                                           1998).

William L. Braman             Executive Vice President     Executive Vice President and Chief
101 Huntington Avenue         and Chief Investment         Investment Officer, each of the
Boston, MA 02199              Officer (2)                  John Hancock Funds; Executive Vice
December 1953                                              President and Chief Investment
                                                           Officer, Barring Asset Management,
                                                           London UK (until May 2000).


-------------------------
*   Trustee may be deemed to be an "interested person" of the Fund as defined in
    the Investment Company Act of 1940.
(1) Member of the Executive Committee. The Executive Committee may generally
    exercise most of the powers of the Board of Trustees.
(2) A member of the Investment Committee of the Adviser.


                                       40
<PAGE>

                               Positions Held              Principal Occupation(s)
Name and Address               With the Company            During the Past Five Years
----------------               ----------------            --------------------------
      <S>                            <C>                              <C>

Susan S. Newton                Vice President,             Vice President and Chief Legal
101 Huntington Avenue          Secretary and Chief         Officer the Adviser; John Hancock
Boston, MA 02199               Legal Officer               Funds; Vice President Signature
March 1950                                                 Services (until May 2000), The
                                                           Berkeley Group, NM Capital and
                                                           SAMCorp.

James J. Stokowski             Vice President,             Vice President, the Adviser.
101 Huntington Avenue          Treasurer and Chief
Boston, MA  02199              Accounting Officer
November 1946

Thomas H. Connors              Vice President and          Vice President and Compliance
101 Huntington Avenue          Compliance Officer          Officer, the Adviser; Vice
Boston, MA  02199                                          President, John Hancock Funds, Inc.
September 1959


-------------------------
*   Trustee may be deemed to be an "interested person" of the Fund as defined in
    the Investment Company Act of 1940.
(1) Member of the Executive Committee. The Executive Committee may generally
    exercise most of the powers of the Board of Trustees.
(2) A member of the Investment Committee of the Adviser.
(3) A member of the Investment Committee of the Adviser.
</TABLE>

The following table provides information regarding the compensation paid by the
Funds and the other investment companies in the John Hancock Fund Complex to the
Independent Trustees for their services. Messrs. Brown and and Ms. Ford, each a
non-Independent Trustee, and each of the officers of the Funds are interested
persons of the Adviser, are compensated by the Adviser and/or its affiliates and
receive no compensation from the Funds for their services.

                          Aggregate Compensation     Total Compensation From
                          From the Funds Fiscal Year All Funds in John Hancock
Independent Trustees      Ended December 31, 1999    Fund Complex to Trustees(*)
--------------------      -----------------------    -------------------------

Dennis S. Aronowitz                 $ 1,223               $  75,250
Richard P. Chapman, Jr.+              1,223                  75,250
William J. Cosgrove+                  1,163                  72,250
Douglas M. Costle**                     845                  56,000
Leland O. Erdahl                      1,165                  72,350
Richard A. Farrell                    1,223                  75,250
Gail D. Fosler                        1,163                  72,250
William F. Glavin+                    1,090                  68,100
John A. Moore+                        1,165                  72,350
Patti McGill Peterson                 1,225                  75,350
John W. Pratt                         1,163                  72,250
                                   --------               ---------
Total                               $12,648                $786,650

(*) The total compensation paid by the John Hancock Fund Complex to the
Independent Trustees is for the calendar year ended December 31, 1999. As of
this date, there were sixty-five funds in the John Hancock Fund Complex of which
each of these Independent Trustees serving on thirty-one funds.

(**) As of December 31, 1999, Mr. Costle resigned.


                                       41
<PAGE>


+ As of December 31, 1999, the value of the aggregate accrued deferred
compensation amount from all funds in the John Hancock Fund Complex for Mr.
Chapman was $112,162, for Mr. Cosgrove was $224,553 and for Mr. Glavin was
$342,213, and for Dr. Moore was $283,877 under the John Hancock Deferred
Compensation Plan for Independent Trustees (the "Plan").

All of the  officers  listed  are  officers  or  employees  of  the  Adviser,  a
Sub-adviser or affiliated companies.  Some of the Trustees and officers may also
be  officers,  Directors  and/or  Trustees of one or more of the other funds for
which the Adviser serves as investment adviser.

As of December 31,  1999,  all shares were held by the Life Co. and the Variable
Life Co.  except the Adviser  owns the  following:  International  Fund  36.74%,
Regional Bank 2.19%,  Small Cap Growth Fund 9.71%, Mid Cap Growth 13.54%,  Large
Cap Growth Fund 7.38%,  Relative Value 2.45%, Bond Fund 9.86%,  Strategic Income
Fund 21.67%, High Yield Bond Fund 21.85% and Money Market Fund 0.35%.

At such date,  no other  person(s)  owned of record or was known by the Trust to
beneficially own as much as 5% of the outstanding  shares of the Trust or of any
of the Funds.

INVESTMENT ADVISORY AND OTHER SERVICES

The Adviser, located at 101 Huntington Avenue, Boston, Massachusetts 02199-7603,
was  organized in 1968 and has more than $30 billion in assets under  management
in its  capacity  as  investment  adviser  to the Funds and the other  funds and
publicly traded investment  companies in the John Hancock group of funds as well
as institutional  accounts. The Adviser is an affiliate of the Life Company, one
of the most recognized and respected financial  institutions in the nation. With
total assets under management of more than $100 billion, the Life Company is one
of the ten largest life insurance  companies in the United States, and carries a
high  rating from  Standard & Poor's and A.M.  Best.  Founded in 1862,  the Life
Company has been serving clients for over 130 years.

Each Fund has entered into an  investment  management  contract  (the  "Advisory
Agreement")  with the Adviser,  which was  approved by the Funds'  shareholders.
Pursuant to the Advisory Agreements,  the Adviser will: (a) furnish continuously
an  investment  program  for the Funds and  determine,  subject  to the  overall
supervision and review of the Trustees,  which investments  should be purchased,
held,  sold or exchanged,  and (b) provide  supervision  over all aspects of the
Funds'  operations  except those which are  delegated  to a custodian,  transfer
agent or other agent.

The Funds bear all costs of their organization and operation,  including but not
limited to  expenses  of  preparing,  printing  and  mailing  all  shareholders'
reports,  notices,  prospectuses,  proxy  statements  and reports to  regulatory
agencies;  expenses relating to the issuance,  registration and qualification of
shares;   government  fees;   interest   charges;   expenses  of  furnishing  to
shareholders  their account  statements;  taxes;  expenses of redeeming  shares;
brokerage  and  other  expenses   connected  with  the  execution  of  portfolio
securities  transactions;  expenses pursuant to the Funds' plan of distribution;
fees and expenses of custodians  including  those for keeping books and accounts
maintaining a committed  line of credit and  calculating  the net asset value of
shares;  fees and expenses of transfer  agents and dividend  disbursing  agents;
legal, accounting,  financial, management, tax and auditing fees and expenses of
the Funds (including an allocable portion of the cost of the Adviser's employees
rendering such services to the Funds); the compensation and expenses of Trustees
who are not  otherwise  affiliated  with the Trust,  the Adviser or any of their
affiliates;  expenses of Trustees' and shareholders' meetings; trade association
membership; insurance premiums; and any extraordinary expenses.


As of December 14, 2000, with respect to International Fund, the Adviser has
entered into a sub-investment management contract (the "sub-advisory agreement")
with Nicholas-Applegate under which, subject to the review of the Trustees and
the overall supervision of the Adviser, Nicholas-Applegate is responsible for
providing the Fund with investment advice. Nicholas-Applegate will also provide
the Fund on a continuous basis with economic, financial and political
information, research and assistance concerning international markets.
Nicholas-Applegate is a California limited partnership, with offices at 600 West
Broadway, 30th Floor, San Diego, California 92101. Nicholas-Applegate was


                                       42
<PAGE>


organized in August 1984 to manage discretionary accounts investing primarily in
publicly traded equity securities and securities convertible into or exercisable
for publicly traded equity securities, with the goal of capital appreciation. On
January 31, 2001, Nicholas-Applegate was acquired by Allianz of America, Inc.
("AZOA"). Allianz AG, the parent of AZOA, is a German Aktiengesellschaft, a
German publicly traded company, which, together with its subsidiaries, comprises
the world's largest insurance group (the "Allianz Group"). Allianz Group
currently has assets under management of approximately $690 billion, and in its
last fiscal year wrote approximately $50 billion in gross insurance premiums.
Allianz AG's address is: Koeniginstrasse 28, D-80802, Munich, Germany.

Until December 14, 2000, the Sub-adviser to International Fund was Indocam
International Investment Services ("IIIS"). IIIS is organized under the laws of
France and is a wholly owned subsidiary of Indocam, the asset management
affiliate of Credit Agricole, a French banking group. IIIS is located at 90
Boulevard Pasteur, Paris, France 75105. Indocam is an asset management firm
maintaining established relationships with institutional, corporate, and
individual investors, Credit Agricole is one of the largest banks in the world.
Until March 1, 2000, the International Fund had another Sub-adviser, John
Hancock Advisers, International Limited ("JHAI"), located at 6th Floor, Duke's
Court, 32-36 Duke Street, St. James's, London, England SW1Y6DF. JHAI was a
wholly-owned subsidiary of the Adviser formed in 1987 to provide international
investment research and advisory services to U.S. institutional clients. The
Adviser's Sub-advisory contract with JHAI was terminated effective March 1,
2000. With respect to Core Equity Fund, the Adviser has entered into a
Sub-advisory Agreement with Independence Investment Associates ("IIA"). IIA,
located at 53 State Street, Boston, Massachusetts 02109, and organized in 1982,
is a wholly owned indirect subsidiary of John Hancock Subsidiaries, Inc. With
respect to Sovereign Investors Fund, the Adviser's Sub-advisory Agreement with
SAMCorp was terminated effective January 1, 1999.


With respect to Technology Fund, the Adviser has entered into a Sub-advisory
Agreement with American Fund Advisors, Inc. ("AFA"). AFA is located at 1415
Kellum Place, Suite 205 Garden City, New York 11530 and was incorporated under
the laws of New York in 1978. AFA, subject to the supervision of the Adviser,
manages the Technology Fund's investments. AFA also provides investment advisory
and management services to individual and institutional clients.

Under each respective Sub-advisory Agreement, the corresponding Sub-adviser,
subject to the review of the Trustees and the overall supervision of the
Adviser, is responsible for managing the investment operations of the
corresponding Fund and the composition of the Fund's portfolio and furnishing
the Fund with advice and recommendations with respect to investments, investment
policies and the purchase and sale of securities.

As provided by the Advisory Agreements, each Fund pays the Adviser a fee, which
is accrued daily and paid monthly in arrears and is equal on an annual basis to
a stated percentage of the respective Fund's average daily net asset value.


                                       43
<PAGE>

------------------------------------------------ ---------------------------
Technology Fund                                  0.80%
------------------------------------------------ ---------------------------
International Fund                               0.90%
------------------------------------------------ ---------------------------
Regional Bank Fund                               0.80%
------------------------------------------------ ---------------------------
Financial Industries Fund                        0.80%
------------------------------------------------ ---------------------------
Small Cap Growth Fund                            0.75%
------------------------------------------------ ---------------------------
Mid Cap Growth Fund                              0.75%
------------------------------------------------ ---------------------------
Large Cap Growth Fund                            0.75%
------------------------------------------------ ---------------------------
Relative Value Fund                              0.60%
------------------------------------------------ ---------------------------
Core Equity Fund                                 0.70%
------------------------------------------------ ---------------------------
Sovereign Investors Fund                         0.60%
------------------------------------------------ ---------------------------
500 Index Fund                                   0.10%*
------------------------------------------------ ---------------------------
Bond Fund                                        0.50%
------------------------------------------------ ---------------------------
Strategic Income Fund                            0.60%
------------------------------------------------ ---------------------------
High Yield Bond Fund                             0.60%
------------------------------------------------ ---------------------------
Money Market Fund                                0.50%
------------------------------------------------ ---------------------------

*Reflects the Adviser's Agreement to limit the management fee. Without this
limitation the management fee would be 0.35%. The Adviser has agreed to continue
this limitation until April 30, 2001.


Under each Sub-advisory Agreement, the Adviser (not the Fund) pays a portion of
its fee to the corresponding Sub-adviser. With respect to the International
Fund, the Adviser pays a sub-advisory fee to Nicholas-Applegate equal to 55% of
the gross management fee received by the Adviser with respect to the
International Fund's average daily net assets. Until December 14, 2000, with
respect to the International Fund, the Adviser paid a sub-advisory fee to IIIS
equal to 55% of the gross management fee received by the Adviser with respect to
the International Fund's average daily net assets. Prior to March 1, 2000, the
Adviser paid JHAI a Sub-advisory fee equal to 70% of the advisory fee payable on
the International Fund's average daily net assets. JHAI agreed to waive all but
0.05% of this fee beginning January 1, 2000. The Adviser's Subadvisory Agreement
with JHAI was terminated effective March 1, 2000.


With respect to the Core Equity Fund, the Adviser pays a sub-advisory fee to IIA
equal to 55% of the advisory fee payable on the Fund's average daily net assets.
With respect to  Technology  Fund,  the Adviser pays a  sub-advisory  fee to AFA
equal to 0.10% of the Technology Fund's average daily net assets.

From time to time, the Adviser may reduce its fee or make other  arrangements to
limit the Fund's expenses to a specified percentage of average daily net assets.
The adviser has voluntarily agreed to limit each Fund's expenses,  excluding the
management  fee, to 0.25% of each Fund's  average daily net assets.  The Adviser
retains the right to reimpose a fee and recover any other payments to the extent
that, at the end of any fiscal year, the Fund's annual  expenses fall below this
limit.

Securities held by a Fund may also be held by other funds or investment advisory
clients for which the Adviser or any of its affiliates provides investment
advice. Because of different investment objectives or other factors, a
particular security may be bought for one or more funds or clients when one or
more are selling the same security. If opportunities for purchase or sale of
securities by the Adviser or Sub-adviser for a Fund or for other funds or
clients for which the Adviser or Sub-adviser renders investment advice arise for
consideration at or about the same time, transactions in such securities will be
made, insofar as feasible, for the respective funds or clients in a manner
deemed equitable to all of them. To the extent that transactions on behalf of
more than one client of the Adviser or its affiliates may increase the demand
for securities being purchased or the supply of securities being sold, there may
be an adverse effect on price.


                                       44
<PAGE>


Pursuant to each Advisory Agreement, and, where applicable, Sub-advisory
Agreement, neither the Adviser nor any Sub-adviser is liable for any error of
judgment or mistake of law or for any loss suffered by the Funds in connection
with the matters to which its respective contract relates, except a loss
resulting from willful misfeasance, bad faith or gross negligence on the part of
the Adviser or any Sub-adviser in the performance of its duties or from its
reckless disregard of the obligations and duties under the applicable agreement.

Under the Advisory Agreements,  each Fund may use the name "John Hancock" or any
name derived from or similar to it only for as long as the  applicable  advisory
agreement or any extension, renewal or amendment thereof remains in effect. If a
Fund's advisory  agreement is no longer in effect,  the Fund (to the extent that
it lawfully can) will cease to use such name or any other name  indicating  that
it is advised by or  otherwise  connected  with the Adviser.  In  addition,  the
Adviser or the Life  Company may grant the  non-exclusive  right to use the name
"John Hancock" or any similar name to any other corporation or entity, including
but not  limited  to any  investment  company  of which the Life  Company or any
subsidiary  or  affiliate  thereof  or  any  successor  to the  business  of any
subsidiary or affiliate thereof shall be the investment adviser.

For the fiscal  years ended  December  31, 1997,  1998 and 1999,  the  Adviser's
management fee for each Fund is listed below.

                                               1997
                                   Management fee received by the
  Funds                                       Adviser
  -----                                       -------

International                                  $26,618
Financial Industries                            41,060
Small Cap Growth                                14,584
Large Cap Growth                                16,677
Core Equity                                     23,457
500 Index                                       11,552*
Sovereign Investors                             27,842
Strategic Income                                19,377
Bond                                             8,924
Money Market                                    12,328



                                       45
<PAGE>


                                 1998                          1999
                        Management fee received       Management fee received
 Funds                       by the Adviser                by the Adviser
 -----                       --------------                --------------

International                   $49,454                    $  66,480
Regional Bank                    72,908                      173,090
Financial Industries            324,581                      398,471
Small Cap Growth                 43,238                       80,965
Mid Cap Growth                    7,546                       20,806
Large Cap Growth                 48,603                      121,727
Relative Value                   45,181                      147,515
Core Equity                     112,746                      254,281
Sovereign Investors             139,125                      248,937
500 Index                        20,232*                      32,613*
Bond                             35,548                       57,967
Strategic Income                 62,923                      117,404
High Yield Bond                  32,414                       54,095
Money Market                     61,349                      117,918

*Net of limitation by Adviser. For the fiscal years ended December 31, 1997,
1998 and 1999, the Adviser limited its management fee. Without this limitation,
the management fee received by the Adviser would have been $36,352, $70,811 and
$114,145, respectively.


Each Advisory Agreement, Sub-advisory Agreement and Distribution Agreement will
continue in effect from year to year if approved by either the vote of the
Fund's shareholders or the Trustees, including a vote of a majority of the
Trustees who are not parties to the agreement or "interested persons" of any
such party, cast at a meeting called for such purposes. These agreements may be
terminated on 60 days written notice by any party or by a vote of a majority of
the outstanding voting securities of the affected Fund and will terminate
automatically if assigned. On December 12, 2000, the Trustees approved the
termination of IIIS as Sub-Adviser to the International Fund and appointed
Nicholas-Applegate as Sub-adviser effective December 14, 2000. This appointment
is subject to shareholder approval before May 12, 2001.


Accounting and Legal Services Agreement. The Trust, on behalf of the Fund, is a
party to an Accounting and Legal Services Agreement with the Adviser. Pursuant
to this agreement, the Adviser provides the Fund with certain tax, accounting
and legal services.

--------------------------------------------------------------------------------
Funds                              1997               1998               1999
--------------------------------------------------------------------------------

--------------------------------------------------------------------------------
International                      535                 870               1,312
--------------------------------------------------------------------------------
Regional Bank                    --                  1,353+              3,822
--------------------------------------------------------------------------------
Financial Industries               909*              6,370               8,707
--------------------------------------------------------------------------------
Small Cap Growth                   349                 915               1,972
--------------------------------------------------------------------------------
Mid Cap Growth                   --                    158+++              511
--------------------------------------------------------------------------------
Large Cap Growth                   400               1,012               2,952
--------------------------------------------------------------------------------
Relative Value                   --                  1,136++             4,476
--------------------------------------------------------------------------------
Core Equity                        600               2,523               6,545
--------------------------------------------------------------------------------
Sovereign Investors                829               3,643               7,445
--------------------------------------------------------------------------------
500 Index                        1,862               3,237               5,834
--------------------------------------------------------------------------------
Bond                               322               1,109               2,094
--------------------------------------------------------------------------------
Strategic Income                   583               1,645               3,504
--------------------------------------------------------------------------------
High Yield Bond                  --                    839++             1,598
--------------------------------------------------------------------------------
Money Market                       439               1,914               4,300
--------------------------------------------------------------------------------


                                       46
<PAGE>


*From commencement of operations on April 30, 1997.
+From commencement of operations on May 1, 1998.
++From commencement of operations on January 6, 1998.
+++From commencement of operations on January 7, 1998.

Personnel of the Adviser, Sub-Advisers, and their affiliates may trade
securities for their personal accounts. The Funds also may hold, or may be
buying or selling, the same securities. To prevent the Funds from being
disadvantaged, the Adviser, the Sub-Adviser and their affiliates and the Funds
have adopted a code of ethics which restricts the trading activity of those
personnel.

DISTRIBUTION CONTRACTS

Distribution Agreement. John Hancock Funds, a wholly owned subsidiary of the
Adviser, serves as the principal underwriter for the Trust in connection with
the continuous offering of the shares of the Funds. John Hancock Funds has the
exclusive right, pursuant to the Distribution Agreement, to purchase shares from
the Funds at net asset value for resale to the separate accounts of insurance
companies at the public offering price.



NET ASSET VALUE

For purposes of  calculating  the net asset value ("NAV") of the Funds'  shares,
the following procedures are utilized wherever applicable.

Debt  securities are valued on the basis of valuations  furnished by a principal
market maker or a pricing service,  both of which generally  utilize  electronic
data processing techniques to determine valuations for normal institutional size
trading units of debt securities without exclusive reliance upon quoted prices.

Equity securities traded on a principal exchange or NASDAQ National Market
issues are generally valued at last sale price on the day of valuation.
Securities in the aforementioned category for which no sales are reported and
other securities traded over-the-counter are generally valued at the last
available bid price.

Short-term debt instruments  which have a remaining  maturity of 60 days or less
are generally  valued at amortized  cost which  approximates  market  value.  If
market  quotations are not readily available or if in the opinion of the Adviser
any  quotation or price is not  representative  of true market  value,  the fair
value  of any  security  may be  determined  in good  faith in  accordance  with
procedures approved by the Trustees.

Money  Market Fund  utilizes  the  amortized  cost  valuation  method of valuing
portfolio instruments in the absence of extraordinary or unusual  circumstances.
Under the amortized cost method, assets are valued by constantly amortizing over
the remaining life of an instrument the difference  between the principal amount
due at maturity and the cost of the  instrument  to the Fund.  The Trustees will
from time to time review the extent of any deviation of the net asset value,  as
determined on the basis of the amortized cost method, from net asset value as it
would  be  determined  on the  basis  of  available  market  quotations.  If any
deviation  occurs  which may result in  unfairness  either to new  investors  or
existing  shareholders,  the  Trustees  will  take  such  actions  as they  deem
appropriate  to eliminate  or reduce such  unfairness  to the extent  reasonably
practicable.  These actions may include selling  portfolio  instruments prior to
maturity to realize gains or losses or to shorten the Fund's  average  portfolio
maturity,    withholding   dividends,    splitting,   combining   or   otherwise
recapitalizing  outstanding  shares or utilizing  available market quotations to
determine net asset value per share.

Foreign securities are valued on the basis of quotations from the primary market
in which they are traded. Any assets or liabilities expressed in terms of
foreign currencies are translated into U.S. dollars by the Funds' custodian
based on London currency exchange quotations as of 5:00 p.m., London time (12:00
noon, New York time) on the date of any determination of a Fund's NAV. 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.


                                       47
<PAGE>


The NAV for each Fund is determined each business day at the close of regular
trading on the New York Stock Exchange (typically 4:00 p.m. Eastern Time) by
dividing the Fund's net assets by the number of its shares outstanding. On any
day an international market is closed and the New York Stock Exchange is open,
any foreign securities will be valued at the prior day's close with the current
day's exchange rate. Trading of foreign securities may take place on Saturdays
and U.S. business holidays on which a Fund's NAV is not calculated.
Consequently, a Fund's portfolio securities may trade and the NAV of that Fund's
shares may be significantly affected on days when a shareholder has no access to
that Fund.

SPECIAL REDEMPTIONS

Although  the Funds would not normally do so, each Fund has the right to pay the
redemption  price  of  shares  of the  Fund in  whole  or in  part in  portfolio
securities as prescribed by the Trustees.  When the shareholder  sells portfolio
securities  received in this fashion, a brokerage charge would be incurred.  Any
such  securities  would be valued for the purpose of making such  payment at the
same value as used in determining  net asset value.  Each Fund has elected to be
governed  by Rule 18f-1  under the 1940 Act.  Under  that  rule,  each Fund must
redeem its shares solely for cash, except to the extent that redemption payments
during  any  90-day  period  for any one  account,  would  exceed  the lesser of
$250,000 or 1% of the net asset value.

DESCRIPTION OF THE TRUST'S SHARES

The Trustees of the Trust are  responsible for the management and supervision of
the Funds.  The  Declaration of Trust permits the Trustees to issue an unlimited
number  of full and  fractional  shares of  beneficial  interest  of the  Funds,
without  par  value.  Under the  Declaration  of Trust,  the  Trustees  have the
authority  to create and  classify  shares of  beneficial  interest  in separate
series and classes,  without further action by  shareholders.  As of the date of
this  Statement of Additional  Information,  the Trustees  have only  authorized
shares of the Funds.  Additional series may be added in the future. The Trustees
have not authorized the issuance of additional classes of shares of the Funds.

Each share of a Fund  represents an equal  proportionate  interest in the assets
belonging  to that Fund.  When issued,  shares are fully paid and  nonassessable
except as  provided in the  Prospectuses  under the  caption  "Organization  and
Management of the Funds." In the event of  liquidation  of a Fund,  shareholders
are  entitled  to share  pro rata in the net  assets of the Fund  available  for
distribution to such shareholders.  Shares of a Fund are freely transferable and
have no preemptive, subscription or conversion rights.

In accordance with the provisions of the Declaration of Trust, the Trustees have
initially  determined that shares entitle their holders to one vote per share on
any matter on which such shares are entitled to vote. The Trustees may determine
in the future, without the vote or consent of shareholders,  that each dollar of
net asset value (number of shares owned times net asset value per share) will be
entitled to one vote on any matter on which such shares are entitled to vote.

The rights,  if any, of Variable  Contract  holders to vote the shares of a Fund
are governed by the relevant Variable Contract.  For information on these voting
rights, see the Prospectuses describing the Variable Contract.

Unless otherwise required by the 1940 Act or the Declaration of Trust, each Fund
has no intention of holding annual meetings of shareholders. Fund shareholders
may remove a Trustee by the affirmative vote of at least two-thirds of the
Trust's outstanding shares and the Trustees shall promptly call a meeting for
such purpose when requested to do so in writing by the record holders of not
less than 10% of the outstanding shares of the Trust. Shareholders may, under
certain circumstances, communicate with other shareholders in connection with
requesting a special meeting of shareholders. However, at any time that less
than a majority of the Trustees holding office were elected by the shareholders,
the Trustees will call a special meeting of shareholders for the purpose of
electing Trustees.


                                       48
<PAGE>


Under Massachusetts law, shareholders of a Massachusetts business trust could,
under certain circumstances, be held personally liable for acts or obligations
of the Trust. However, each Fund's Declaration of Trust contains an express
disclaimer of shareholder liability for acts, obligations or affairs of the
Funds. The Declaration of Trust also provides for indemnification out of the
Funds' assets for all losses and expenses of any shareholder held personally
liable by reason of being or having been a shareholder. The Declaration of Trust
also provides that no series of the Funds shall be liable for the liabilities of
any other series. Furthermore, no fund included in the Funds' Prospectuses shall
be liable for the liabilities of any other series. Liability is therefore
limited to circumstances in which the Funds would be unable to meet their
obligations, and the possibility of this occurrence is remote.

The Fund reserves the right to reject any  application  which conflicts with the
Fund's  internal  policies or the  policies of any  regulatory  authority.  John
Hancock Funds does not accept  starter,  credit card or third party checks.  All
checks  returned by the post office as  undeliverable  will be reinvested at net
asset  value in the fund or funds from which a  redemption  was made or dividend
paid.  Information  provided on the account application may be used by the Funds
to verify the accuracy of the information or for background or financial history
purposes.  A joint account will be administered as a joint tenancy with right of
survivorship,  unless the joint owners notify John Hancock Servicing Center of a
different  intent.  A  shareholder's  account  is  governed  by the  laws of The
Commonwealth of Massachusetts.  For telephone  transactions,  the transfer agent
will take  measures to verify the  identity  of the  caller,  such as asking for
name,  account  number,  Social  Security or other  taxpayer ID number and other
relevant  information.  If appropriate measures are taken, the transfer agent is
not  responsible  for  any  losses  that  may  occur  to any  account  due to an
unauthorized telephone call. Also for your protection telephone transactions are
not permitted on accounts  whose names or addresses have changed within the past
30 days. Proceeds from telephone  transactions can only be mailed to the address
of record.

Selling activities for the Fund may not take place outside the U.S., except with
U.S. military bases, APO addresses and U.S. diplomats. Brokers of record on
Non-U.S. investors' accounts with foreign mailing addresses are required to
certify that all sales activities have occurred, and in the future will occur,
only in the U.S. A foreign corporation may purchase shares of the Fund only if
it has a U.S. mailing address.

DIVIDENDS

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

FUND                                  DECLARED                   PAID
----                                  --------                   ----

Technology Fund                       Annually                   Annually
International Fund                    Annually                   Annually
Regional Bank Fund                    Quarterly                  Quarterly
Financial Industries Fund             Annually                   Annually
Small Cap Growth Fund                 Annually                   Annually
Mid Cap Growth Fund                   Annually                   Annually
Large Growth Fund                     Annually                   Annually
Relative Value Fund                   Quarterly                  Quarterly
Core Equity Fund                      Quarterly                  Quarterly
Sovereign Investors Fund              Quarterly                  Quarterly
500 Index Fund                        Quarterly                  Quarterly
Bond Fund                             Daily                      Monthly
Strategic Income Fund                 Daily                      Monthly
High Yield Bond Fund                  Daily                      Monthly
Money Market Fund                     Daily                      Monthly


                                       49
<PAGE>


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

TAX STATUS

Each Fund is treated as a separate  entity for accounting and tax purposes,  has
elected or intends to elect to be treated, as a separate  "regulated  investment
company"  under  Subchapter M of the Internal  Revenue Code of 1986,  as amended
(the "Code"),  and intends to continue to qualify for each taxable year. As such
and by  complying  with the  applicable  provisions  of the Code  regarding  the
sources of its income, the timing of its distributions,  and the diversification
of its  assets,  each Fund will not be subject to Federal  income tax on taxable
income   (including  net  realized   capital  gains)  which  is  distributed  to
shareholders in accordance with the timing requirements of the Code.

Qualification  of a Fund for treatment as a regulated  investment  company under
the Code requires,  among other things, that (a) at least 90% of a Fund's annual
gross income, without being offset for losses from the sale or other disposition
of  stock or  securities  or  other  transactions,  be  derived  from  interest,
dividends,  payments with respect to securities loans and gains from the sale or
other disposition of stock or securities or foreign currencies,  or other income
(including but not limited to gains from options, futures, or forward contracts)
derived with respect to its business of investing in such stock,  securities  or
currencies;  (b) each Fund distributes to its shareholders for each taxable year
(in compliance  with certain timing  requirements)  as dividends at least 90% of
the sum of its taxable and tax-exempt net investment  income,  the excess of net
short-term  capital gain over net long-term capital loss earned in each year and
any other net income  (except for the excess,  if any, of net long-term  capital
gain over net  short-term  capital loss,  which need not be distributed in order
for the Fund to qualify as a  regulated  investment  company but is taxed to the
Fund if it is not  distributed);  and (c) each Fund  diversifies  its  assets so
that, at the close of each quarter of its taxable year,  (i) at least 50% of the
fair market value of its total (gross) assets is comprised of cash,  cash items,
U.S. Government  securities,  securities of other regulated investment companies
and other securities  limited in respect of any one issuer to no more than 5% of
the fair  market  value of the Fund's  total  assets and 10% of the  outstanding
voting  securities  of such  issuer and (ii) no more than 25% of the fair market
value of its total assets is invested in the securities of any one issuer (other
than U.S.  Government  securities and securities of other  regulated  investment
companies)  or of two or more issuers  controlled by the Fund and engaged in the
same, similar, or related trades or businesses.

Each Fund also must, and intends to, comply with the diversification
requirements imposed by Section 817(h) of the Code and the regulations
thereunder on certain insurance company separate accounts. These requirements,
which are in addition to the diversification requirements imposed on a Fund by
the 1940 Act and Subchapter M of the Code, place certain limitations on assets
of each insurance company separate account used to fund variable contracts and,
because Section 817(h) and those regulations treat the assets of the Fund as
assets of the related separate account, the assets of a Fund that may be
invested in securities of any one, two, three and four issuers. Specifically,
the regulations provide that, except as permitted by the "safe harbor" described
below, as of the end of each calendar quarter or within 30 days thereafter no
more than 55% of the total assets of a Fund may be represented by any one


                                       50
<PAGE>


investment, no more than 70% by any two investments, no more than 80% by any
three investments and no more than 90% by any four investments. For this
purpose, all securities of the same issuer are considered a single investment,
and each U.S. Government agency and instrumentality is considered a separate
issuer. Section 817(h) provides, as a safe harbor, that a separate account will
be treated as being adequately diversified if the diversification requirements
under Subchapter M are satisfied and no more than 55% of the value of the
account's total assets is attributable to cash and cash items (including
receivables), U.S. Government securities and securities of other regulated
investment companies. Failure by a Fund to both qualify as a regulated
investment company and satisfy the Section 817(h) requirements would generally
result in treatment of the variable contract holders other than as described in
the applicable variable contract prospectuses, including possible current
inclusion in ordinary income of income accrued under the contracts for the
current and all prior taxable years. Under certain circumstances described in
the applicable Treasury regulations, inadvertent failure to satisfy the
applicable diversification requirements may be corrected, but such a correction
would require a payment to the Internal Revenue Service (the "I.R.S.") based on
the tax contract holders would have incurred if they were treated as receiving
the income on the contract for the period during which the diversification
requirements were not satisfied. Any such failure may also result in adverse tax
consequences for the insurance company issuing the contracts. Failure by a Fund
to qualify as a regulated investment company would also subject the Fund to
federal and state income taxation of all of its taxable income and gain, whether
or not distributed to shareholders.

If a Fund acquires stock in certain non-U.S.  corporations that receive at least
75% of their  annual  gross  income  from  passive  sources  (such as  interest,
dividends,  certain rents and royalties or capital gain) or hold at least 50% of
their assets in  investments  producing such passive  income  ("passive  foreign
investment  companies"),  that Fund could be  subject to Federal  income tax and
additional  interest  charges  on  "excess  distributions"  received  from  such
companies or gain from the sale of stock in such  companies,  even if all income
or gain actually received by the Fund is timely distributed to its shareholders.
The Fund  would not be able to pass  through to its  shareholders  any credit or
deduction for such a tax.  Certain  elections may  ameliorate  these adverse tax
consequences,  but any  such  election  could  require  the  applicable  Fund to
recognize  taxable  income or gain without the  concurrent  receipt of cash. Any
Fund that is permitted to acquire stock in foreign corporations may limit and/or
manage its holdings in passive foreign investment  companies to minimize its tax
liability or maximize its return from these investments.

Foreign  exchange gains and losses realized by a Fund in connection with certain
transactions  involving foreign  currency-denominated  debt securities,  certain
foreign  currency  futures and  options,  foreign  currency  forward  contracts,
foreign currencies, or payables or receivables denominated in a foreign currency
are subject to Section 988 of the Code,  which  generally  causes such gains and
losses to be treated as  ordinary  income and losses and may affect the  amount,
timing and character of  distributions to  shareholders.  Any such  transactions
that are not directly  related to a Fund's  investment  in stock or  securities,
possibly including  speculative  currency positions or currency  derivatives not
used for hedging purposes,  and could under future Treasury  regulations produce
income  not among  the types of  "qualifying  income"  from  which the Fund must
derive at least 90% of its annual  gross  income.  Income  from  investments  in
commodities,  such as gold and certain related derivative  instruments,  is also
not treated as qualifying  income under this test.  If the net foreign  exchange
loss for a year  treated as  ordinary  loss under  Section  988 were to exceed a
Fund's  investment  company taxable income computed  without regard to such loss
but after considering the post-October loss regulations (i.e., all of the Fund's
net  income  other  than any  excess  of net  long-term  capital  gain  over net
short-term capital loss) the resulting overall ordinary loss for such year would
not be deductible by the Fund or its shareholders in future years.

A Fund may be subject to withholding and other taxes imposed by foreign
countries with respect to its investments in foreign securities. Tax conventions
between certain countries and the U.S. may reduce or eliminate such taxes in
some cases.


                                       51
<PAGE>


For Federal income tax purposes, each Fund is generally permitted to carry
forward a net realized capital loss in any year to offset its own net realized
capital gains, if any, during the eight years following the year of the loss. To
the extent subsequent net realized capital gains are offset by such losses, they
would not result in Federal income tax liability to the applicable Fund and
would not be distributed as such to shareholders. As of December 31, 1999, the
following Funds had capital loss carry forwards which expire in 2006 and 2007,
respectively; Bond $0 and $67,593, Financial Industries $0 and $2,140,648,
Strategic Income $4,130 and $136,493, Sovereign Investors $157,877 and $101,159,
and High Yield Bond $122,097 and $0.

Each  Fund that  invests  in  certain  pay  in-kind  securities  ("PIKs")  (debt
securities whose interest payments may be made either in cash or in-kind),  zero
coupon  securities or certain  increasing rate securities (and, in general,  any
other  securities  with original issue  discount or with market  discount if the
Fund elects to include market  discount in income  currently) must accrue income
on such  investments  prior to the receipt of the  corresponding  cash payments.
However, each Fund must distribute,  at least annually, all or substantially all
of its net income,  including such accrued income, to shareholders to qualify as
a regulated  investment  company  under the Code and avoid  Federal  income tax.
Therefore,  a Fund  may  have  to  dispose  of its  portfolio  securities  under
disadvantageous  circumstances  to generate cash, or may have to leverage itself
by borrowing the cash, to satisfy distribution requirements.

Investments in debt  obligations  that are at risk of or are in default  present
special tax issues for any Fund that may hold such obligations, such as Relative
Value Fund,  Sovereign Investors Fund, Strategic Income Fund and High Yield Bond
Fund.  Tax rules are not entirely  clear about issues such as when the Funds may
cease to accrue interest,  original issue discount, or market discount, when and
to what extent  deductions  may be taken for bad debts or worthless  securities,
how payments  received on  obligations  in default  should be allocated  between
principal and income,  and whether  exchanges of debt  obligations  in a workout
context are  taxable.  These and other issues will be addressed by any Fund that
may  hold  such  obligations  in  order  to  reduce  the  risk  of  distributing
insufficient income to preserve its status as a regulated investment company and
seek to avoid becoming subject to Federal income tax.

Limitations imposed by the Code on regulated investment companies like the Funds
may  restrict a Fund's  ability  to enter into  futures,  options  and  currency
forward transactions.

Certain options, futures and forward foreign currency transactions undertaken by
a Fund may cause such Fund to  recognize  gains or losses from marking to market
even though its  securities or other  positions have not been sold or terminated
and affect the character as long-term or short-term  (or, in the case of certain
currency forwards,  options and futures,  as ordinary income or loss) and timing
of some capital gains and losses realized by the Fund. Also, certain of a Fund's
losses on its  transactions  involving  options,  futures  and  forward  foreign
currency  contracts and/or  offsetting or successor  portfolio  positions may be
deferred  rather than being taken into  account  currently  in  calculating  the
Fund's  taxable income or gains.  These  transactions  may therefore  affect the
amount, timing and character of a Fund's distributions to shareholders.  Certain
of the  applicable tax rules may be modified if the Fund is eligible and chooses
to make one or more of certain tax elections  that may be  available.  The Funds
will  take into  account  the  special  tax rules  (including  consideration  of
available  elections)  applicable  to options,  futures or forward  contracts in
order to minimize any potential adverse tax consequences.

The tax rules applicable to dollar rolls, currency swaps and interest rate
swaps, caps, floors and collars may be unclear in some respects, and the Funds
may be required to limit participation in such transactions in order to qualify
as regulated investment companies. Additionally, the Fund may be required to
recognize gain, but not loss, if a swap or other transaction is treated as a
constructive sale of an appreciated financial position in the Fund's portfolio.
The Fund may have to sell portfolio securities under disadvantageous
circumstances to generate cash, or borrow cash, to satisfy these distribution
requirements.


                                       52
<PAGE>


The foregoing discussion relates solely to U.S. Federal income tax law as
applicable to the Funds and certain aspects of their distributions. The
discussion does not address special tax rules applicable to insurance companies.
Shareholders should consult their own tax advisers as to the Federal, state or
local tax consequences of ownership or redemption of shares of, and receipt of
distributions from, a Fund in their particular circumstances.

The Funds are not subject to Massachusetts  corporate excise or franchise taxes.
Provided that each Fund  qualifies as a regulated  investment  company under the
Code, it will also not be required to pay any Massachusetts income tax.

CALCULATION OF PERFORMANCE

For the 30-day period ended December 31, 1999, the annualized yield was:

Bond Fund                  6.66%
Strategic Income Fund      9.17%
High Yield Bond Fund      11.87%

Yield (except for Money Market Fund). The yield of each Fund (except for Money
Market Fund) is computed by dividing net investment income per share determined
for a 30-day period by the net asset value per share on the last day of the
period and annualizing the result.

While this is the standard  accounting method for calculating yield, it does not
reflect the Fund's actual bookkeeping;  as a result, the income reported or paid
by the Fund may be  different.  The Fund's  yield is computed  according  to the
following standard formula:

                                           6
               Yield = 2 ( [ ( a- b ) + 1 ] - 1 )
                              ------
                                cd
Where:

         a =   dividends and interest earned during the period.
         b =   net expenses accrued during the period.
         c =   the average daily number of fund shares outstanding
               during the period  that would be  entitled to receive
               dividends.
         d =   the net asset value per share on the last day of the period.

Money Market Fund Yield. For the purposes of calculating yield for the Money
Market Fund, daily income per share consists of interest and discount earned on
the Fund's investments less provision for amortization of premiums and
applicable expenses, divided by the number of shares outstanding, but does not
include realized or unrealized appreciation or depreciation.

If the Fund reports its annualized yield, it will also furnish information as to
the average  portfolio  maturities of the Fund. It will also report any material
effect of realized gains or losses or unrealized appreciation on dividends which
have been excluded from the computation of yield.

Yield calculations are based on the value of a hypothetical preexisting account
with exactly one share at the beginning of the seven day period. Yield is
computed by determining the net change in the value of the account during the
base period and dividing the net change by the value of the account at the
beginning of the base period to obtain the base period return. Base period is
multiplied by 365/7 and the resulting figure is carried to the nearest 100th of
a percent. Net change in account value during the base period includes dividends
declared on the original share, dividends declared on any shares purchased with
dividends of that share and any account or sales charges that would affect an
account of average size, but excludes any capital changes.


                                       53
<PAGE>


Effective yield is computed by determining the net change,  exclusive of capital
changes, in the value of a hypothetical  preexisting account having a balance of
one share at the  beginning of the period,  subtracting  a  hypothetical  charge
reflecting deductions from shareholder accounts,  and dividing the difference by
the value of the account at the  beginning of the base period to obtain the base
period return,  and then compounding the base period return by adding 1, raising
the sum to a power equal to 365 divided by 7, and subtracting 1 from the result,
according to the following formula:

         EFFECTIVE YIELD = [(BASE PERIOD RETURN + 1)365/7]-1

Total Return. Each Fund's total return is computed by finding the average annual
compounded  rate of return  over the  indicated  period  that  would  equate the
initial  amount  invested  to  the  ending  redeemable  value  according  to the
following formula

The  average  annual  total  return  for each Fund for the 1 year  period  ended
December 31, 1999 and since, the commencement of operations through December 31,
1999 is as follows:

                                                              Commencement of
                                     1 year period ended      Operations to
Funds                                 December 31, 1999       December 31, 1999*
-----                                 -----------------       ------------------

V.A. International                          31.55%                 17.68%
V.A. Financial Industries                    1.23%                 15.95%
V.A. Regional Bank                          (4.86%)                (6.74%)
V.A. Small Cap Growth                       68.52%                 23.55%
V.A. Mid Cap Growth                         56.18%                 31.63%
V.A. Large Cap Growth                       20.71%                 15.41%
V.A. Relative Value                         56.65%                 38.26%
V.A. Core Equity                            13.89%                 25.52%
V.A. Sovereign Investors                     3.84%                 16.97%
V.A. 500 Index                              20.81%                 27.32%
V.A. Bond                                   (0.51%)                 6.72%
V.A. High Yield Bond                        13.12%                  1.02%
V.A. Strategic Income                        4.82%                  8.39%

* V.A. Financial Industries Fund commenced operations on April 30, 1997.
Relative Value Fund and High Yield Bond Fund commenced operations on January 6,
1998. Mid Cap Growth Fund commenced operations on January 7, 1998. Regional Bank
Fund commenced operations on May 1, 1998. Each of the other funds commenced
operations on August 29, 1996.

[OBJECT OMITTED]

         P =      a hypothetical initial payment of $1,000.
         T =      average annual total return.
         n =      number of years.
         ERV =    ending redeemable value of a hypothetical  $1,000 investment
                  made at the beginning of the indicated period.

This calculation assumes that all dividends and distributions are reinvested at
net asset value on the reinvestment dates during the period. The "distribution
rate" is determined by annualizing the result of dividing the declared dividends
of a Fund during the period stated by the net asset value at the end of the
period.


                                       54
<PAGE>


In addition to average annual total returns, a Fund may quote unaveraged or
cumulative total returns reflecting the simple change in value of an investment
over a stated period. Cumulative total returns may be quoted as a percentage or
as a dollar amount, and may be calculated for a single investment, a series of
investments, and/or a series of redemptions, over any time period.

From time to time, in reports and promotional literature, a Fund's yield and
total return will be compared to indices of mutual funds and bank deposit
vehicles such as Lipper Analytical Services, Inc.'s "Lipper--Fixed Income Fund
Performance Analysis," a monthly publication which tracks net assets, total
return, and yield on fixed income mutual funds in the United States. Ibottson
and Associates, CDA Weisenberger and F.C. Towers are also used for comparison
purposes, as well as the Russell and Wilshire Indices.

Performance rankings and ratings reported periodically in, and excerpts from,
national financial publications such as MONEY MAGAZINE, FORBES, BUSINESS WEEK,
THE WALL STREET JOURNAL, MICROPAL, INC., MORNINGSTAR, STANGER'S and BARRON'S,
etc. will also be utilized. A Fund's promotional and sales literature may make
reference to the Fund's "beta." Beta reflects the market-related risk of the
Fund by showing how responsive the Fund is to the market.

The  performance  of a Fund is not fixed or guaranteed.  Performance  quotations
should not be considered to be  representations of performance of a Fund for any
period in the future.  The  performance  of a Fund is a function of many factors
including its earnings,  expenses and number of outstanding shares.  Fluctuating
market  conditions;  purchases,  sales and  maturities of portfolio  securities;
sales and redemptions of shares of beneficial interest; and changes in operating
expenses  are all  examples  of items  that can  increase  or  decrease a Fund's
performance.

BROKERAGE ALLOCATION

Decisions  concerning  the  purchase and sale of  portfolio  securities  and the
allocation of brokerage commissions are made by the Adviser, any Sub-adviser and
the officers of the Trust  pursuant to  recommendations  made by its  investment
committee,  which  consists  of  officers  and  directors  of  the  Adviser  and
affiliates  and officers and Trustees who are  interested  persons of the Funds.
Orders for purchases and sales of  securities  are placed in a manner which,  in
the opinion of the Adviser or Sub-adviser,  will offer the best price and market
for the  execution of each such  transaction.  Purchases  from  underwriters  of
portfolio  securities may include a commission or commissions paid by the issuer
and transactions  with dealers serving as market makers reflect a "spread." Debt
securities are generally  traded on a net basis through dealers acting for their
own account as  principals  and not as brokers;  no  brokerage  commissions  are
payable on these transactions.

In the U.S. Government  securities market,  securities are generally traded on a
"net" basis with  dealers  acting as principal  for their own account  without a
stated commission,  although the price of the security usually includes a profit
to the  dealer.  On  occasion,  certain  money  market  instruments  and  agency
securities  may be  purchased  directly  from  the  issuer,  in  which  case  no
commissions  or  premiums  are paid.  In other  countries,  both debt and equity
securities  are traded on exchanges at fixed  commission  rates.  Commissions on
foreign  transactions are generally higher than the negotiated  commission rates
available  in the U.S.  There  is  generally  less  government  supervision  and
regulation of foreign stock exchanges and broker-dealers than in the U.S.

Each Fund's primary policy is to execute all purchases and sales of portfolio
instruments at the most favorable prices consistent with best execution,
considering all of the costs of the transaction including brokerage commissions.
This policy governs the selection of brokers and dealers and the market in which
a transaction is executed. Consistent with the foregoing primary policy, the
Conduct Rules of the NASDAQ and other policies that the Trustees may determine,
the Adviser or Sub-Adviser may consider sales of shares of the Funds as a factor
in the selection of broker-dealers to execute a Fund's portfolio transactions.


                                       55
<PAGE>


Purchases of securities for Bond Fund, Strategic Income Fund and High Yield Bond
Fund are normally  principal  transactions made directly from the issuer or from
an  underwriter or market maker for which no brokerage  commissions  are usually
paid.  Purchases from  underwriters will include a commission or concession paid
by the issuer to the  underwriter,  and purchases and sales from dealers serving
as market  makers will  usually  include a mark up or mark down.  Purchases  and
sales of  exchange-traded  options and futures will be effected  through brokers
who charge a commission for their services.

To the extent  consistent with the foregoing,  each Fund will be governed in the
selection of brokers and dealers,  and the  negotiation of brokerage  commission
rates and dealer  spreads,  by the  reliability  and  quality  of the  services,
including primarily the availability and value of research  information and to a
lesser  extent  statistical  assistance  furnished  to the  Adviser or  relevant
Sub-adviser  of the Fund,  and  their  value and  expected  contribution  to the
performance  of the  Fund.  It is not  possible  to  place  a  dollar  value  on
information  and services to be received  from brokers and dealers,  since it is
only   supplementary  to  the  research  efforts  of  the  Adviser  or  relevant
Sub-adviser.  The  receipt of  research  information  is not  expected to reduce
significantly the expenses of the Adviser or relevant Sub-adviser.  The research
information  and  statistical  assistance  furnished  by brokers and dealers may
benefit the Life  Company or other  advisory  clients of the Adviser or relevant
Sub-adviser,  and  conversely,  brokerage  commissions and spreads paid by other
advisory  clients of the Adviser or relevant  Sub-adviser may result in research
information and statistical  assistance  beneficial to the Funds. The Funds will
not make commitments to allocate portfolio transactions on any prescribed basis.
While the Adviser's officers will be primarily responsible for the allocation of
each Fund's  brokerage  business,  the policies and  practices of the Adviser in
this  regard  must be  consistent  with the  foregoing  and will at all times be
subject to review by the Trustees.

                                  1997              1998             1999
                                  Broker            Broker           Broker
Funds                             Commissions       Commissions      Commissions
-----                             -----------       -----------      -----------

International                     $17,425             $31,688         $ 44,805
Regional Bank                       0                  15,933           13,672
Financial Industries               16,780              85,961          107,541
Small Cap Growth                    4,501              10,790           15,451
Mid Cap Growth                      0                   4,603            7,790
Large Cap Growth                    7,000              28,768           55,628
Relative Value                      0                  67,087          113,466
Core Equity                         1,936              15,467           43,018
Sovereign Investors                 5,611              34,227           38,021
500 Index                          12,893               8,110            4,016
Bond                                0                   0                0
Strategic Income                    0                     455               12
High Yield Bond                     0                   2,778            1,613

As permitted by Section 28(e) of the Securities Exchange Act of 1934, a Fund may
pay to a broker which provides brokerage and research services to the Fund an
amount of disclosed commission in excess of the commission which another broker
would have charged for effecting that transaction. This practice is subject to a
good faith determination by the Trustees that the price is reasonable in light
of the services provided and to policies that the Trustees may adopt from time
to time. During the fiscal year ended December 31, 1999, Financial Industries,
High Yield Bond, International, Sovereign Investors, Regional Bank, Small Cap
Growth, Large Cap Growth, Relative Value and Mid Cap Growth directed commissions
in the amounts of $8,902, $144, $106, $2,327, $677, $1,358, $24,856, $27,300,
and $2,576, respectively, to compensate brokers for research services such as
industry, economics and company reviews and evaluations of securities.


                                       56
<PAGE>


The Adviser's indirect parent, the Life Company, is the indirect sole
shareholder of Signator Investors, Inc., a broker-dealer (until January 1, 1999,
John Hancock Distributors, Inc.) ("Signator" or "Affiliated Broker"). Credit
Agricole, IIIS parent, has several affiliates engaged in the brokerage business
in Europe and Asia: Credit Agricole Indosuez Cheuvreux; CPR Action (ex-Schelcher
Prince Cheuvreux de Virieu International Ltd, London; Cheuvreux de Virieu,
Nordic AB, Stockholm, Cheuvreux de Virieu, Espana, Madrid, Credit Agricole
Indosuez Cheuvreux Deutschland GMBH, Frankfourt/ Main; Caboto Sim in Italy; Carr
Securities; Carr Futures SNC. (Paris) and Carr Futures PTE, Singapore (all
"Affiliated Brokers"). Pursuant to procedures determined by the Trustees and
consistent with the above policy of obtaining best net results, the Funds may
execute portfolio transactions with or through Affiliated Brokers. During the
fiscal years ending December 31, 1997, 1998 and 1999, the Funds did not execute
any portfolio transactions with Affiliated Brokers.

Affiliated  Brokers  may  act as  broker  for a Fund on  exchange  transactions,
subject,  however,  to the  general  policy of the Funds set forth above and the
procedures  adopted by the  Trustees  pursuant to the  Investment  Company  Act.
Commissions paid to an Affiliated  Broker must be at least as favorable as those
which the Trustees believe to be  contemporaneously  charged by other brokers in
connection with  comparable  transactions  involving  similar  securities  being
purchased or sold. A transaction  would not be placed with an Affiliated  Broker
if a Fund would have to pay a commission rate less favorable than the Affiliated
Broker's  contemporaneous charges for comparable transactions for its other most
favored,  but  unaffiliated,   customers  except  for  accounts  for  which  the
Affiliated  Broker acts as clearing  broker for another  brokerage firm, and any
customers of the  Affiliated  Broker not comparable to a Fund as determined by a
majority  of the  Trustees  who are not  interested  persons  (as defined in the
Investment  Company  Act) of the Fund,  the  Adviser or the  Affiliated  Broker.
Because the Adviser,  which is affiliated with the Affiliated Broker, has, as an
investment adviser to the Funds, the obligation to provide investment management
services, which includes elements of research and related investment skills such
research and related skills will not be used by the Affiliated Broker as a basis
for negotiating  commissions at a rate higher than that determined in accordance
with the above criteria.

Other investment  advisory clients advised by the Adviser may also invest in the
same securities as the Funds. When these clients buy or sell the same securities
at  substantially  the same time, the Adviser may average the transactions as to
price and  allocate the amount of  available  investments  in a manner which the
Adviser believes to be equitable to each client, including the Funds. Because of
this,  client  accounts in a particular  style may sometimes not sell or acquire
securities  as quickly or at the same prices as they might if each were  managed
and traded individually.

For purchases of equity securities, when a complete order is not filled, a
partial allocation will be made to each account pro rata based on the order
size. For high demand issues (for example, initial public offerings), shares
will be allocated pro rata by account size as well as on the basis of account
objective, account size ( a small account's allocation may be increased to
provide it with a meaningful position), and the account's other holdings. In
addition, an account's allocation may be increased if that account's portfolio
manager was responsible for generating the investment idea or the portfolio
manager intends to buy more shares in the secondary market. For fixed income
accounts, generally securities will be allocated when appropriate among accounts
based on account size, except if the accounts have different objectives or if an
account is too small to get a meaningful allocation. For new issues, when a
complete order is not filled, a partial allocation will be made to each account
pro rata based on the order size. However, if a partial allocation is too small
to be meaningful, it may be reallocated based on such factors as account
objectives, duration benchmarks and credit and sector exposure. In some
instances, this investment procedure may adversely affect the price paid or
received by the Fund or the size of the position obtainable for it. On the other
hand, to the extent permitted by law, the Adviser or Sub-Adviser may aggregate
securities to be sold or purchased for the Fund with those to be sold or
purchased for other clients managed by it in order to obtain best execution.


                                       57
<PAGE>


SHAREHOLDER SERVICING AGENT

John Hancock Annuity Servicing Office, 529 Main Street,  (X-4)  Charlestown,  MA
02129, a division of the Life Company,  is the  shareholder  servicing agent for
the Funds. Currently, the Funds pay no fee.

CUSTODY OF PORTFOLIO

Portfolio  securities of the International Fund, Money Market Fund and 500 Index
Fund are held  pursuant  to a  custodian  agreement  between the Trust and State
Street Bank and Trust Company, 225 Franklin Street, Boston, Massachusetts 02205.
Portfolio  securities  of the  other  Funds  are held  pursuant  to a  custodian
agreement  between the Trust and Investors Bank & Trust  Company,  200 Clarendon
Street, Boston, MA 02117. Under the custodian agreements, the custodians perform
custody, portfolio and fund accounting services.

INDEPENDENT AUDITORS

Ernst & Young LLP, 200 Clarendon Street Boston, Massachusetts 02116, is the
independent auditor of the Trust. The financial statements of the Funds have
been audited by Ernst & Young LLP for the periods indicated in their report
thereon appearing elsewhere herein, and have been included in reliance on their
report as experts in accounting and auditing.


                                       58
<PAGE>


APPENDIX

Description of Bond Ratings

The ratings of Moody's  Investors  Service,  Inc. and Standard & Poor's  Ratings
Group  represent  their  opinions as to the quality of various debt  instruments
they  undertake to rate. It should be  emphasized  that ratings are not absolute
standards of quality.  Consequently,  debt  instruments  with the same maturity,
coupon and rating may have different  yields while debt  instruments of the same
maturity and coupon with different ratings may have the same yield.

MOODY'S INVESTORS SERVICE, INC.

Aaa: Bonds which are rated Aaa are judged to be of the best quality.  They carry
the smallest  degree of investment  risk and are generally  referred to as "gilt
edge." Interest payments are protected by a large or by an exceptionally  stable
margin and principal is secure. While the various protective elements are likely
to change,  such changes as can be  visualized  are most  unlikely to impair the
fundamentally strong position of such issues.

Aa: Bonds which are rated Aa are judged to be of high quality by all  standards.
Together with the Aaa group they comprise what are generally known as high grade
bonds.  They are rated lower than the best bonds  because  margins of protection
may not be as large as in Aaa securities or fluctuations of protective  elements
may be of greater  amplitude or there may be other  elements  present which make
the long-term risks appear somewhat larger than in Aaa securities.

A: Bonds which are rated A possess many favorable investment  attributes and are
to be considered as upper medium grade  obligations.  Factors giving security to
principal and interest are considered adequate but elements may be present which
suggest a susceptibility to impairment at some time in the future.

Baa: Bonds which 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.

Ba:  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.

B: Bonds  which are rated B  generally  lack the  characteristics  of  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.

Caa: 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.

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

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


                                      A-1
<PAGE>


STANDARD & POOR'S RATINGS GROUP

AAA: Debt rated AAA has the highest rating assigned by Standard & Poor's.
Capacity to pay interest and repay principal is extremely strong.

AA: Debt rated AA has a very strong capacity to pay interest and repay principal
and differs from the highest rated issues only in small degree.

A: Debt  rated A has a strong  capacity  to pay  interest  and repay  principal,
although it is somewhat more  susceptible  to the adverse  effects of changes in
circumstances and economic conditions than debt in higher rated categories.

BBB:  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.

BB,  B:  Debt  rated  BB,  and  B is  regarded,  on  balance,  as  predominantly
speculative  with  respect to capacity to pay  interest  and repay  principal in
accordance with the terms of the  obligation.  BB indicates the lowest degree of
speculation  and CC 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.

CCC: Debt rated 'CCC' has a currently identifiable vulnerability to default, and
is dependent upon favorable business, financial, and economic conditions to meet
timely  payment of interest and repayment of principal.  In the event of adverse
business,  financial  or  economic  conditions,  it is not  likely  to have  the
capacity to pay interest and repay principal.  The 'CCC' rating category is also
used for debt  subordinated to senior debt that is assigned an actual or implied
'B' or 'B-' rating.

CC: The rating 'CC' is typically applied to debt subordinated to senior debt
that is assigned an actual or implied 'CCC' rating.

C: The rating 'C' is typically applied to debt subordinated to senior debt which
is assigned an active or implied 'CCC-' debt rating.  The 'C' debt rating may be
used to cover a situation where a bankruptcy  petition has been filed,  but debt
service payments are continued.

FITCH INVESTORS SERVICE ("Fitch")

AAA, AA, A, BBB - Bonds rated AAA are considered to be investment grade and of
the highest quality. The obligor has an extraordinary ability to pay interest
and repay principal, which is unlikely to be affected by reasonably foreseeable
events. Bonds rated AA are considered to be investment grade and high quality.
The obligor's ability to pay interest and repay principal, while very strong, is
somewhat less than for AAA rated securities or more subject to possible change
over the term of the issue. Bonds rated A are considered to be investment grade
and of good quality. The obligor's ability to pay interest and repay principal
is considered to be strong, but may be more vulnerable to adverse changes in
economic conditions and circumstances than bonds with higher ratings. Bonds
rated BBB are considered to be investment grade and of satisfactory quality. The
obligor's ability to pay interest and repay principal is considered to be
adequate. Adverse changes in economic conditions and circumstances, however, are
more likely to weaken this ability than bonds with higher ratings.


                                       A-2
<PAGE>


CORPORATE AND TAX-EXEMPT COMMERCIAL PAPER RATINGS

Moody's -  Commercial  Paper  ratings are  opinions of the ability of issuers to
repay  punctually  promissory  obligations  not having an  original  maturity in
excess of nine months. Prime-1,  indicates highest quality repayment capacity of
rated issue and Prime-2 indicates higher quality.

S&P - Commercial  Paper ratings are a current  assessment  of the  likelihood of
timely  payment of debts  having an original  maturity of no more than 365 days.
Issuers  rated  A have  the  greatest  capacity  for a  timely  payment  and the
designation  1,2 and 3 indicates  the  relative  degree of safety.  Issues rated
"A-1=" are those with an "overwhelming degree of credit protection."

Fitch - Commercial  Paper  ratings  reflect  current  appraisal of the degree of
assurance of timely  payment.  F-1 issues are  regarded as having the  strongest
degree of assurance  for timely  payment.  (=) is used to designate the relative
position  of an issuer  within  the  rating  category.  F-2  issues  reflect  an
assurance of timely  payment  only  slightly  less in degree than the  strongest
issues.  The symbol (LOC) may follow either category and indicates that a letter
of credit issued by a commercial bank is attached to the commercial paper note.

Other  Considerations - The ratings of S&P,  Moody's,  and Fitch represent their
respective opinions of the quality of the municipal securities they undertake to
rate.  It should be  emphasized,  however,  that ratings are general and are not
absolute standards of quality. Consequently,  municipal securities with the same
maturity,  coupon and ratings may have different yields and municipal securities
of the same maturity and coupon with different ratings may have the same yield.


                                      A-3
<PAGE>


FINANCIAL STATEMENTS

The financial statements listed below are included and incorporated by reference
into Part B of the Registration Statement from the 1999 Annual Report to
Shareholder's for the year ended December 31, 1999 (filed electronically on
March 3, 2000, accession number 0000928816-00-000138, file no. 811-07437 and
33-64465).

John Hancock Declaration Trust

    Statement of Assets and Liabilities as of December 31, 1999.
    Statement of Operations for the year ended of December 31, 1999.
    Statement of Changes in Net Assets for each of the two years in the period
     ended December 31, 1999.
    Financial Highlights for each of the two years in the period ended
     December 31, 1999.
    Schedule of Investments as of December 31, 1999.
    Notes to Financial Statements.
    Report of Independent Auditors.


                                      F-1


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