<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MAY 3, 1999
REGISTRATION NOS. 33-2081
811-04490
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 [_]
PRE-EFFECTIVE AMENDMENT NO. [_]
POST-EFFECTIVE AMENDMENT NO. 21 [X]
AND/OR
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 [_]
AMENDMENT NO. 21 [X]
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JOHN HANCOCK VARIABLE SERIES TRUST I
(EXACT NAME OF REGISTRANT AS SPECIFIED IN CHARTER)
----------------
JOHN HANCOCK PLACE
P.O. BOX 111
BOSTON, MASSACHUSETTS 02117
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
(617) 572-5060
(REGISTRANT'S TELEPHONE NUMBER)
SANDRA M. DaDALT, ESQUIRE
JOHN HANCOCK PLACE
P.O. BOX 111
BOSTON, MASSACHUSETTS 02117
(NAME AND ADDRESS OF AGENT FOR SERVICE)
----------------
COPIES TO:
THOMAS C. LAUERMAN, ESQUIRE
FREEDMAN, LEVY, KROLL & SIMONDS
1050 CONNECTICUT AVENUE, N.W.
WASHINGTON, D.C. 20036
----------------
It is proposed that this filing will become effective (check appropriate
box)
[_] Immediately upon filing pursuant to paragraph (b)
[_] On (date) pursuant to paragraph (b)
[X] 60 days after filing pursuant to paragraph (a)(1)
[_] On (date) pursuant to paragraph (a)(1)
[_] 75 days after filing pursuant to paragraph (a)(2)
[_] On May 1, 1999 pursuant to paragraph (a)(2) of Rule 485.
If appropriate check the following box:
[_] This post-effective amendment designates a new effective date for a
previously filed post-effective amendment
----------------
<PAGE>
As with all mutual funds, the Securities and Exchange Commission has not judged
whether these funds are good investments or whether the information in this
prospectus is adequate and accurate. Anyone who tells you otherwise is
committing a federal crime.
JOHN HANCOCK
VARIABLE SERIES TRUST I
PROSPECTUS
MAY 3, 1999
Managed Fund
Growth & Income Fund
Equity Index Fund
Large Cap Value Fund
Large Cap Growth Fund
Mid Cap Value Fund
Mid Cap Growth Fund
Real Estate Equity Fund
Small/Mid Cap Growth
Small/Mid Cap CORE Fund
Small Cap Value Fund
Small Cap Growth Fund
Global Equity Fund
International Balanced Fund
International Equity Index Fund
International Opportunities Fund
Emerging Markets Equity Fund
Short-Term Bond Fund
Bond Index Fund
Sovereign Bond Fund
Global Bond Fund
High Yield Bond Fund
Money Market Fund
Managed by John Hancock Mutual Life Insurance Company
John Hancock Place
Boston, MA 02117
<PAGE>
Contents
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John Hancock Variable Series Trust I ("Trust")
A fund-by-fund summary of goals, strategies and risks.
Policies and instructions for opening, maintaining and closing an account in
any fund
Further information on the Trust
<TABLE>
<S> <C>
Overview 3
Your investment choices 4
Managed Fund 7
Growth & Income Fund 9
Equity Index Fund 11
Large Cap Value Fund 13
Large Cap Growth Fund 15
Mid Cap Value Fund 17
Mid Cap Growth Fund 19
Real Estate Equity Fund 21
Small/Mid Cap Growth 23
Small/Mid Cap CORE Fund 25
Small Cap Value Fund 27
Small Cap Growth Fund 29
Global Equity Fund 31
International Balanced Fund 33
International Equity Index Fund 35
International Opportunities Fund 37
Emerging Markets Equity Fund 39
Short-Term Bond Fund 41
Bond Index Fund 43
Sovereign Bond Fund 45
Global Bond Fund 47
High Yield Bond Fund 49
Money Market Fund 51
Your account 53
Investments in shares of the funds 53
Share price 53
Valuation 53
Conflicts 53
Funds' expenses 54
Dividends and taxes 54
Dividends 54
Taxes 54
Trust details 55
Business structure 55
Year 2000 Compliance 55
Appendix 56
For more information back cover
</TABLE>
<PAGE>
Overview
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Fund Information Key
Concise fund-by-fund descriptions begin on page 7. Each description provides
the following information:
Goal and Strategy The fund's particular investment goals and the principal
strategies it intends to use in pursuing those goals.
Subadviser/Manager The firm and individual(s) providing investment management
services to the fund.
Past Performance The fund's total return, measured year-by-year and over time.
Main Risks The major risk factors and other significant risk factors associated
with the fund.
Financial Highlights The fund's operating performance per share, measured year-
by-year.
THE FUNDS
The Trust offers investment choices, or funds, for the variable annuity and
variable life insurance contracts ("variable contracts") of:
. John Hancock Mutual Life Insurance Company ("John Hancock"),
. John Hancock Variable Life Insurance Company ("JHVLICO"), and
. Investors Partner Life Insurance Company and its subsidiaries ("IPL").
In some variable contract forms, the Trust is referred to as the "Fund" or "Se-
ries Fund" and the investment choices are referred to as "Portfolios."
RISKS OF FUNDS
These funds, like all mutual funds, are not bank deposits. They are not insured
or guaranteed by the FDIC or any other government agency. You could lose money
by investing in these funds. So, be sure to read all risk disclosure carefully
before investing.
MANAGEMENT
John Hancock is the investment adviser of each fund. John Hancock, chartered in
1862, is a Massachusetts mutual life insurance company. It managed, at the end
of 1998, approximately $127 billion, of which John Hancock owned over $67 bil-
lion. Most of the funds have subadvisers.
3
<PAGE>
Your Investment Choices
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The Trust offers a number of investment choices, or funds, to suit a variety
of objectives under variable contracts. There are 23 funds available under
your variable contract. Each fund has its own strategy and its own risk/reward
profile.The funds can be broadly categorized as equity funds, balanced funds,
bond funds, and international/global funds. Within these broad categories, the
funds can be further categorized as follows:
Equity Funds
Equity funds can be categorized in two ways--by capitalization and by invest-
ment style.
Capitalization Equity funds can be categorized by market capital-
ization, which is defined as the market value of
all shares of a company's stock. The following def-
initions for large, mid and small cap are based
upon statistics at year-end 1998, but are adjusted
quarterly with broad equity market movements as
represented by the Russell 3000 Index.
Large Cap Funds:
. Growth & Income Fund
These funds invest in large, well-established com-
. Equity Index Fund panies that typically are very actively traded and
provide more stable investment returns over time.
Large cap companies represent the 300 largest
stocks in the Russell 3000 Index. Each of those
companies has a market capitalization greater than
$6.6 billion as of the end of 1998. Large cap funds
are appropriate for investors who want the least
volatile investment returns within the overall
equity markets.
. Large Cap Value Fund
. Large Cap Growth Fund
Mid Cap Funds:
. Mid Cap Value Fund
These funds invest in medium-sized, less estab-
. Mid Cap Growth Fund lished companies that are less actively traded and
provide more share price volatility over time than
large cap stocks. Mid cap companies represent the
250th to 1000th largest stocks in the Russell 3000
Index. Each of those companies has a market capi-
talization between $1.3 billion and $8.1 billion as
of the end of 1998. Mid cap funds are appropriate
for investors who are willing to accept more vola-
tile investment returns within the overall equity
markets with the potential reward of higher long-
term returns.
. Small Mid/Cap Growth Fund
. Small/Mid Cap CORE Fund
. Real Estate Equity Fund
Small Cap Funds:
. Small Cap Value Fund
These funds invest in small newly established com-
. Small Cap Growth Fund panies that are less actively traded and have a
high level of share price volatility over time.
Small cap companies represent the 2000 smallest
stocks in the Russell 3000 Index. Each of those
companies has a market capitalization of less than
$1.3 billion as of the end of 1998. Small cap funds
are appropriate for investors who are willing to
accept the most volatile investment returns within
the overall equity markets for the potential reward
of higher long-term returns.
Investment Style
Value Funds:
. Large Cap Value Fund
Value funds invest in companies that are attrac-
. Mid Cap Value Fund tively priced, considering their asset and earnings
history. These stocks typically pay above average
dividends and have low stock prices relative to
measures of earnings and book value. Value funds
are appropriate for investors who want some divi-
dend income and the potential for capital gains,
but are less tolerant of share-price fluctuations.
. Small Cap Value Fund
. Real Estate Equity Fund
4
<PAGE>
Growth Funds:
. Large Cap Growth Fund
Growth funds invest in companies believed to have
. Mid Cap Growth Fund above-average prospects for capital growth due to
their strong earnings and revenue potential. Growth
stocks typically have high stock prices relative to
measures of earnings and book value. Growth funds
are appropriate for investors who are willing to
accept more share-price volatility for the poten-
tial reward of higher long-term returns.
. Small Mid/Cap Growth Fund
. Small Cap Growth Fund
Blend Funds:
. Growth & Income
Fund
Blend funds invest in both value and growth compa-
. Equity Index Fund nies. Blend funds are appropriate for investors who
seek both dividend and capital appreciation charac-
teristics.
. Small/Mid Cap CORE
Fund
Balanced Funds
. Managed Fund
Balanced funds invest in a combination of stocks
. International Bal- and bonds and actively manage the mix of stock and
anced Fund bonds within a target range. Domestic balanced
funds invest in U.S. stocks and bonds. Interna-
tional balanced funds invest in foreign stocks and
bonds.
Bond Funds
Bond funds can be categorized in two ways--by average maturity and by credit
quality:
Average Maturity Bond maturity is a key measure of interest rate
risk. A bond's maturity measures the time remaining
until the bond matures, or until the repayment of
the bond's principal comes due. The longer a bond's
maturity, the more sensitive the bond's price is to
changes in interest rates.
Short:
. Money Market Fund
These funds invest primarily in bonds with short
. Short Term Bond maturities, typically less than four years. These
Fund funds have less interest risk than intermediate-
term bond funds.
Intermediate:
. Bond Index Fund
These funds invest in bonds of all maturities and
. Sovereign Bond maintain an average maturity which is typically
Fund between four and ten years. These funds have more
interest rate risk than short-term bond funds.
. Global Bond Fund
. High Yield Bond
Fund
Credit Quality Credit quality is a measure of the ability of a
bond issuer to meet its financial obligations and
repay principal and interest. High quality bonds
have less credit risk than lower quality bonds.
Investment grade bonds typically have "high" or
"medium" credit quality ratings (as defined below),
while high-yield bonds have "low" credit quality
ratings.
High:
. Money Market Fund
These funds focus on the highest-rated, most
. Bond Index Fund creditworthy bonds and typically maintain an aver-
age credit quality rating of AAA/Aaa or AA/Aa.
. Global Bond Fund
5
<PAGE>
Medium:
. Short Term Bond
Fund
These funds invest in bonds of all credit quality
. Sovereign Bond levels with a focus on high-rated investment grade
Fund bonds. These funds typically maintain an average
credit quality rating of A or BBB/Baa.
Low:
. High Yield Bond These funds invest primarily in lower rated bonds--
Fund known as high yield or "junk" bonds. These funds
typically maintain a below investment-grade average
credit quality rating of BB/Ba or B.
International/Global Funds International funds invest primarily in securities
markets outside the United States. Global funds invest both in the United States
and abroad. These funds can be categorized by the types of markets they invest
in.
Developed Markets:
. Global Equity Fund
These funds invest primarily in the larger, well-
. International established developed or industralized markets
Opportunities Fund around the world. These funds have less foreign
securities risk than emerging market funds.
. International
Equity Index Fund
Emerging Markets:
. Emerging Markets These funds invest primarily in developing or
Equity Fund emerging markets and have more foreign securities
risk than funds that invest primarily in well-
established, developed markets.
--------------
In the following pages, any fund investment strategy that is stated as a per-
centage of a fund's assets applies at all times, not just at the time the fund
buys or sells an investment security. The trustees of the Trust can change the
investment goals and stragtegy of any fund without shareholder (i.e.,
contractowner) approval.
The financial highlights tables on the following pages detail the historical
performance of each fund, including total return information showing the
increase or decrease of an investment in the fund each year (assuming rein-
vestment of all dividends and distributions). The "total investment return"
shown for each fund does not reflect the expenses and charges of the applica-
ble separate accounts and variable contracts. Those expenses and charges vary
considerably from contract to contract and are described in the variable con-
tract prospectus to which this prospectus is attached. If the earliest period
shown in the financial highlights table is less than a full calendar year, the
two "Ratios" shown for that period have been annualized (i.e., projected as if
the fund had been in effect for a full year). However, the "total investment
return" and "turnover rate" for that period have not been annualized.
In this prospectus, the term "stock"' is used as a shorthand reference for
equity investments generally and the term "bond" is used as a shorthand refer-
ence for debt obligations generally.
6
<PAGE>
Managed Fund
GOAL AND STRATEGY
This is a balanced stock and bond fund that seeks long-term growth in income
and capital.
The Fund invests primarily in a diversified mix of:
. common stocks of large established U.S. companies;
. bonds with maturities generally greater than 12 months; and
. money market and other short-term debt securities with maturities generally
not greater than 12 months.
The manager makes ongoing decisions about the mix among the three types of
investments: stocks, bonds and short-term debt securities. The Fund has a tar-
get mix of 60% in equities and 40% in bonds.
The manager selects stocks and bonds using a combination of proprietary
research and quantitative tools. Stocks are purchased that are undervalued rel-
ative to the stock's history and have improving earnings growth prospects.
Bonds are purchased that are attractively priced and have cheap, predictable
cash flows. The Fund is managed using risk control techniques that maintain
risk and industry characteristics similar to the overall market.
The Fund normally invests its equity portion in 80 to 150 stocks, with at least
65% (usually higher) of its equity assets in large cap companies. The Fund may
invest up to 30% of its bond assets in developed foreign countries and up to
15% of its bond assets in high yield bonds. The Fund normally has 10% or less
of its assets in cash and cash equivalents.
The Fund may purchase other types of securities, for example: American Deposi-
tory Receipts (ADRs) and certain derivatives (investments whose value is based
on indices or other securities).
In abnormal market conditions, the Fund may take temporary defensive measures--
such as holding unusually large amounts of cash and cash equivalents--that are
inconsistent with the Fund's primary investment strategy. In taking those mea-
sures, the Fund may not achieve its investment goal.
- --------------------------------------------------------------------------------
SUBADVISER
Independence Investment Associates, Inc.
53 State Street
Boston, Massachusetts 02109
Owned by John Hancock
Managing since 1982
Managed approximately $31 billion in assets at end of 1998
FUND MANAGERS
Management by investment team overseen by:
John C. Forelli
(equity)
- -----------------
Senior Vice President of subadviser
Joined team in 1996
Joined subadviser in 1990
Jeffrey B. Saef
(fixed income)
- -----------------
Senior Vice President of subadviser
Joined team in 1994
Joined subadviser in 1994
PAST PERFORMANCE
The graph shows how the fund's total return has varied from year to year, while
the table shows performance over time (along with a broad-based market index
for reference). This information may also help provide an indication of the
fund's risks and potential rewards. All figures assume dividend reinvestment.
Past performance does not indicate future results. The performance figures
below do not reflect the deduction of fees and charges payable under the
variable contracts. Such fees and charges would cause the investment returns
under the contracts to be less than that shown below.
Year-by-year total returns -- calendar years
[GRAPH APPEARS HERE]
<TABLE>
<S> <C>
1989 18.90%
1990 3.80%
1991 22.00%
1992 7.70%
1993 11.60%
1994 -2.23%
1995 27.09%
1996 10.72%
1997 18.72%
1998 20.42%
</TABLE>
- --------------------------------------------------------------------------------
Best quarter: up 14.77%, fourth quarter 1998 Worst quarter: down 7.22%, third
quarter 1998
Average annual total return -- for periods ending 12/31/98
<TABLE>
<CAPTION>
Fund Index
<S> <C> <C>
1 year 20.42% 19.64%
5 years 14.48% 15.69%
10 years 13.62% 14.40%
Life of fund 12.72% 12.70%
</TABLE>
Index: 50% S&P 500 Index/50% Lehman Brothers Government/Corporate Bond Index
(for periods prior to June 1, 1998)
60% S&P 500 Index/40% Lehman Brothers Aggregate Bond Index (for periods
after June 1, 1998)
7
<PAGE>
Managed Fund (cont.)
MAIN RISKS
The following risks are major factors in the Fund's performance:
Market Risk: The value of the securities in the Fund may go down in response
to overall stock or bond market movements. Markets tend to move in cycles,
with periods of rising prices and periods of falling prices. Stocks tend to go
up and down in value more than bonds. If the Fund's investments are concen-
trated in certain sectors, the Fund's performance could be worse than the
overall market.
Manager Risk: The manager and its strategy may fail to produce the intended
results. The Fund could underperform its peers or lose money if the manager's
investment strategy does not perform as expected.
Investment Category Risk: The returns of the Fund's specific equity investment
category may lag the returns of the overall stock market. For example, the
Fund's "large cap" approach carries the risk that in certain markets large cap
stocks will underperform mid cap and small cap stocks.
Interest Rate Risk: When interest rates rise, the Fund's bond yields will gen-
erally rise and the Fund's bond prices will generally fall. When interest
rates fall, the reverse will generally occur. The longer the average remaining
maturity of bonds held by the Fund, the more sensitive the Fund is to interest
rate risk. This Fund has more interest rate risk than a short-term bond fund,
but less interest rate risk than a long-term bond fund.
Credit Risk: An issuer of a bond held by the Fund may default on its obliga-
tion to pay interest and repay principal. Also, the credit rating of a bond
held by the fund may be downgraded. In either case, the value of the bond held
by the Trust would fall. All bonds have some credit risk, but in general low-
er-rated bonds have higher credit risk.
Market Allocation Risk: The allocation of the Fund's assets among major asset
classes (i.e., stocks, bonds, and short-term debt securities) may (1) reduce
the Fund's holdings in a class whose value then increases unexpectedly, or (2)
increase the Fund's holdings in a class just prior to its experiencing a loss
of value.
-----
The following risks are not considered a major factor in the Fund's perfor-
mance because the Fund would not normally commit a large portion of its assets
to the investments involved. However, the risks are of such a nature that they
could significantly affect the Fund's performance, even if the investments are
held in relatively small amounts:
Foreign Risk: The Fund's foreign securities will pose special risks, due to
limited government regulation, lack of public information, economic, political
and social instability and foreign currency rate fluctuations. Factors such as
lack of liquidity, foreign ownership limits and restrictions on removing cur-
rency also pose special risks.
Derivatives Risk: Certain derivative instruments (such as options, futures and
swaps) can produce disproportionate gains or losses. They are generally con-
sidered more risky than direct equity investments. Also, in a down market,
derivatives could become harder to value or sell at a fair price.
High Yield Bond Risk: Junk bonds, defined as bond securities rated below BBB-
/Baa3, may be subject to more volatile or erratic price movements due to
investor sentiment. In a down market, these high yield securities become
harder to value or to sell at a fair price.
Prepayment/Call Risk: The Fund's share price or yield could be hurt if inter-
est rate movements cause the Fund's mortgage-related and callable securities
to be paid off substantially earlier than expected.
-----
The following risk is considered significant because of its potential impact
on the Fund's performance:
Turnover Risk: In general, the greater the volume of buying and selling by a
fund (i.e., the higher its "turnover rate"), the greater the impact that bro-
kerage commissions and other transaction costs will have on the fund's perfor-
mance. Any turnover rate in excess of 100% is considered relatively high. Nor-
mally, the Fund's turnover rate will be greater than 100%. The Fund has a high
turnover rate due to: (1) issue selection within the equity portion of the
portfolio, (2) issue and sector selection in the fixed income portion of the
portfolio, and (3) asset allocation between the equity and fixed income por-
tions of the portfolio.
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FINANCIAL HIGHLIGHTS (Selected data for each share interest outstanding
throughout the period indicated)
The following financial highlights have been audited by Ernst & Young LLP.
<TABLE>
<S> <C> <C> <C> <C> <C>
Period ended December
31: 1994 1995 1996 1997 1998
Net asset value,
beginning of period $ 12.81 $ 11.96 $ 13.73 $ 13.35 $ 14.35
Income from investment
operations:
Net investment income
(loss) .55 .62 .61 .59 0.46
Net realized and
unrealized gain (loss)
on investments* (.83) 2.56 .81 1.86 2.43
Total from investment
operations (.28) 3.18 1.42 2.45 2.89
Less distributions:
Distributions from net
investment income and
capital paid in (.55) (.62) (.61) (.59) (0.51)
Distributions from net
realized gain on
investments sold (.02) (.79) (1.19) (.78) (1.09)
Total distributions $ (.57) $ (1.41) $ (1.80) $ (1.45) $ (1.60)
Net asset value, end of
period 11.96 13.73 13.35 14.35 15.64
Total investment return (2.23)% 27.09% 10.72% 18.72% 20.42%
Ratios and supplemental
data
Net assets, end of
period (000s
omitted)($) $1,609,939 $2,093,964 $2,386,660 $2,800,127 $3,301,910
Ratio of expenses to
average net assets (%) .37% .38% .36% .37% 0.36%
Ratio of net investment
income (loss) to
average net assets (%) 4.50% 4.66% 4.41% 4.18% 2.99%
Turnover rate (%) 90.41% 187.67% 113.61% 200.41% 160.57%
</TABLE>
* The amount shown may not accord with the change in the aggregate gains and
losses in the fund securities for the period because of the timing of pur-
chases and withdrawals of shares in relation to the fluctuation in market
values of the fund.
8
<PAGE>
Growth & Income Fund
GOAL AND STRATEGY
This is a large cap stock fund that seeks long-term growth in income and capi-
tal.
The Fund invests primarily in a diversified mix of common stocks of large
established U.S. companies that are believed to offer:
. favorable prospects for increasing dividends and growth in capital (i.e.,
"value" companies); or
. above-average potential for growth in revenues and earnings (i.e., "growth"
companies).
The manager selects stocks using a combination of proprietary equity research
and quantitative tools. Stocks are purchased that are undervalued relative to
the stock's history and have improving earnings growth prospects. The Fund is
managed using risk control techniques that maintain risk and industry charac-
teristics similar to the S&P 500 Index.
The Fund normally invests in 80 to 150 stocks, with at least 65% (usually high-
er) of its assets in large cap companies. The Fund normally has 5% or less of
its assets in cash and cash equivalents.
The Fund may purchase other types of securities, for example: American Deposi-
tory Receipts (ADRs) and high quality short-term debt securities.
In abnormal market conditions, the Fund may take temporary defensive measures--
such as holding unusually large amounts of cash and cash equivalents--that are
inconsistent with the Fund's primary investment strategy. In taking those mea-
sures, the Fund may not achieve its investment goal.
Note: "S&P 500 Index" means the Standard & Poor's 500 Composite Stock Price
Index. "Standard & Poor's", "S&P" and "S&P 500" are trademarks of McGraw Hill,
Inc. and have been licensed for use by the Trust.
- --------------------------------------------------------------------------------
SUBADVISER
Independence Investment Associates, Inc.
53 State Street
Boston, Massachusetts 02109
Owned by John Hancock
Managing since 1982
Managed approximately $31 billion in assets at end of 1998
FUND MANAGER
Management by investment team overseen by:
Paul F. McManus
- -----------------
Senior Vice President of subadviser
Joined team in 1996
Joined subadviser in 1982
PAST PERFORMANCE
The graph shows how the fund's total return has varied from year to year, while
the table shows performance over time (along with a broad-based market index
for reference). This information may also help provide an indication of the
fund's risks and potential rewards. All figures assume dividend reinvestment.
Past performance does not indicate future results. The performance figures
below do not reflect the deduction of fees and charges payable under the
variable contracts. Such fees and charges would cause the investment returns
under the contracts to be less than that shown below.
Year-by-year total returns -- calendar years
[GRAPH APPEARS HERE]
<TABLE>
<S> <C>
1989 26.00%
1990 4.10%
1991 26.00%
1992 8.90%
1993 13.33%
1994 -0.56%
1995 34.21%
1996 20.10%
1997 29.79%
1998 30.25%
</TABLE>
- --------------------------------------------------------------------------------
Best quarter: up 24.07%, fourth quarter 1998 Worst quarter: down 12.05%, third
quarter 1998
Average annual total return -- for periods ending 12/31/98
<TABLE>
<CAPTION>
Fund Index
<S> <C> <C>
1 year 30.25% 28.58%
5 years 22.06% 24.06%
10 years 18.71% 19.19%
Life of fund 16.47% 16.24%
</TABLE>
Index:S & P 500 Index
9
<PAGE>
Growth & Income Fund (cont.)
MAIN RISKS
The following risks are major factors in the Fund's performance:
Market Risk: The value of the securities in the Fund may go down in response to
overall stock or bond market movements. Markets tend to move in cycles, with
periods of rising prices and periods of falling prices. Stocks tend to go up
and down in value more than bonds. If the Fund's investments are concentrated
in certain sectors, the Fund's performance could be worse than the overall mar-
ket.
Manager Risk: The manager and its strategy may fail to produce the intended
results. The Fund could underperform its peers or lose money if the manager's
investment strategy does not perform as expected.
Investment Category Risk: The returns of the Fund's specific equity investment
category may lag the returns of the overall stock market. For example, the
Fund's "large cap" approach carries the risk that in certain markets large cap
stocks will underperform mid cap and small cap stocks.
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS (Selected data for each share interest outstanding
throughout the period indicated)
The following financial highlights have been audited by Ernst & Young LLP.
<TABLE>
<S> <C> <C> <C> <C> <C>
Period ended December
31: 1994 1995 1996 1997 1998
Net asset value,
beginning of period $ 12.39 $ 11.50 $ 13.94 $ 14.65 $ 16.61
Income from investment
operations:
Net investment income
(loss) .34 .36 .34 .27 .23
Net realized and
unrealized gain (loss)
on investments* (.41) 3.53 2.43 4.07 4.75
Total from investment
operations (.07) 3.89 2.77 4.34 4.98
Less distributions:
Distributions from net
investment income and
capital paid in (.34) (.36) (.34) (.27) (.23)
Distributions from net
realized gain on
investments sold (.48) (1.09) (1.72) (2.11) (1.87)
Total distributions $ (.82) $ (1.45) $ (2.06) $ (2.38) $ (2.10)
Net asset value, end of
period $ 11.50 $ 13.94 $ 14.65 $ 16.61 $ 19.49
Total investment return (.56)% 34.21% 20.10% 29.79% 30.25%
Ratios and supplemental
data
Net assets, end of
period (000s
omitted)($) $1,119,864 $1,598,585 $2,047,927 $2,785,964 $3,670,785
Ratio of expenses to
average net assets (%) .27% .28% .27% .28% .27%
Ratio of net investment
income (loss) to
average net assets (%) 2.80% 2.70% 2.24% 1.61% 1.24%
Turnover rate (%) 64.12% 73.54% 81.02% 74.56% 48.45%
</TABLE>
* The amount shown may not accord with the change in the aggregate gains and
losses in the fund securities for the period because of the timing of pur-
chases and withdrawals of shares in relation to the fluctuation in market
values of the fund.
10
<PAGE>
Equity Index Fund
GOAL AND STRATEGY
This is a stock fund that seeks to track the performance of the S&P 500 Index,
which emphasizes the stocks of large U.S. companies.
The manager employs a passive management strategy by normally investing in all
500 stocks included in the Index. The manager invests in each stock in roughly
the same proportion as represented in the Index.
The manager seeks to replicate as closely as possible the aggregate risk char-
acteristics and industry diversification of the Index.
The Fund normally invests in all 500 stocks in the Index, but has no predeter-
mined number of stocks that it must hold. S&P may change the composition of the
Index from time to time. The manager will reflect those changes as soon as
practical.
The Fund is normally fully invested. The manager may buy and sell stock index
futures, and buy options on stock indexes and on stock index futures to main-
tain market exposure and manage cash flow.
The Fund may purchase other types of securities, for example: Standard & Poor's
Depository Receipts (SPDRs), American Depository Receipts (ADRs), high quality
short-term debt securities, and certain derivatives (investments whose value is
based on indices or other securities).
Note: "S&P 500 Index" means the Standard & Poor's 500 Composite Stock Price
Index. "Standard & Poor's", "S&P" and "S&P 500" are trademarks of McGraw Hill,
Inc. and have been licensed for use by the Trust.
- --------------------------------------------------------------------------------
SUBADVISER
State Street Bank and Trust Company
State Street Global Advisors Division
Two International Place
Boston, Massachusetts 02110
Managing since 1978
Managed approximately $492 billion of assets, at end of 1998
FUND MANAGERS
John A. Tucker
- -----------------
Principal, of subadviser
Joined subadviser in 1988
James B. May
- -----------------
Principal of subadviser
Joined subadviser in 1989
PAST PERFORMANCE
The graph shows how the fund's total return has varied from year to year, while
the table shows performance over time (along with a broad-based market index
for reference). This information may also help provide an indication of the
fund's risks and potential rewards. All figures assume dividend reinvestment.
Past performance does not indicate future results. The performance figures
below do not reflect the deduction of fees and charges payable under the
variable contracts. Such fees and charges would cause the investment returns
under the contracts to be less than that shown below.
Year-by-year total returns -- calendar years
[GRAPH APPEARS HERE]
<TABLE>
<S> <C>
1997 32.79%
1998 28.45%
</TABLE>
- --------------------------------------------------------------------------------
Best quarter: up 21.27%, fourth quarter 1998 Worst quarter: down 9.99%, third
quarter 1998
Average annual total return -- for periods ending 12/31/98(/1/)
<TABLE>
<CAPTION>
Fund Index
<S> <C> <C>
1 year 28.45% 28.58%
Life of fund 28.40% 29.02%
</TABLE>
Index:S&P 500 Index
(1)Began operations on May 1, 1996.
11
<PAGE>
Equity Index Fund (cont.)
MAIN RISKS
The following risks are major factors in the Fund's performance:
Index Management Risk: Certain factors such as the following may cause the
Fund to track the Index less closely:
. The securities selected by the manager may not be fully representative of
the Index.
. Transaction expenses of the Fund may result in the Fund's performance being
different than that of the Index.
. The size and timing of the Fund's cash flows may result in the Fund's per-
formance being different than that of the Index.
Also, index funds like this one will have more difficulty in taking defensive
positions in abnormal market conditions.
Market Risk: The value of the securities in the Fund may go down in response
to overall stock or bond market movements. Markets tend to move in cycles,
with periods of rising prices and periods of falling prices. Stocks tend to go
up and down in value more than bonds. If the Fund's investments are concen-
trated in certain sectors, the Fund's performance could be worse than the
overall market.
Manager Risk: The manager and its strategy may fail to produce the intended
results. The Fund could underperform its peers or lose money if the manager's
invest-ment strategy does not perform as expected.
Investment Category Risk: The returns of the Fund's specific equity investment
category may lag the returns of the overall stock market. For example, the
Fund's "large cap" approach carries the risk that in certain markets large cap
stocks will underperform mid cap and small cap stocks.
-----
The following risk is not considered a major factor in the Fund's performance
because the Fund would not normally commit a large portion of its assets to
the investments involved. However, the risk is of such a nature that it could
significantly affect the Fund's performance, even if the investments are held
in relatively small amounts:
Derivatives Risk: Certain derivative instruments (such as options, futures and
swaps) can produce disproportionate gains or losses. They are generally con-
sidered more risky than direct equity investments. Also, in a down market,
derivatives could become harder to value or sell at a fair price.
- -------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS (Selected data for each share interest outstanding
throughout the period indicated)
The following financial highlights have been audited by Ernst & Young LLP.
<TABLE>
<S> <C> <C> <C>
Period ended December 31: 1996** 1997 1998
Net asset value, beginning of period $10.00 $11.10 $14.21
Income from investment operations:
Net investment income (loss) .15 .24 0.25
Net realized and unrealized gain (loss) on
investments* 1.26 3.41 3.76
Total from investment operations 1.41 3.65 4.01
Less distributions:
Distributions from net investment income and
capital paid in (.15) (.24) (0.24)
Distributions from net realized gain on
investments sold (.10) (.25) (0.28)
Total distributions ($.31) ($.54) ($0.52)
Net asset value, end of period $11.10 $14.21 $17.70
Total investment return*** 14.23% 32.79% 28.45%
Ratios and supplemental data
Net assets, end of period (000s omitted)($) $14,650 $101,390 $232,578
Ratio of expenses to average net assets (%)**** 0.00% 0.00% 0.00%
Ratio of net investment income (loss) to average
net assets (%) 2.74% 1.97% 1.59%
Turnover rate (%) 15.72% 64.56% 43.31%
</TABLE>
* The amount shown may not accord with the change in the aggregate gains and
losses in the fund securities for the period because of the timing of pur-
chases and withdrawals of shares in relation to the fluctuation in market
values of the fund.
** Fund began operations on May 1, 1996.
*** Includes the effect of a voluntary capital contribution from John Hancock
of $0.06 per share for the period ended 1996 and $0.04 per share for year
ended 1997. The Total Investment Return without the capital contribution
would have been 13.59% for the year ended 1996 and 32.47% for the year
ended 1997.
**** Expense ratio is net of expense reimbursement. Had such reimbursement not
been made the expense ratio would have been 1.61%, .65% and .34% for the
years ended December 31, 1996, 1997, and 1998, respectively.
12
<PAGE>
Large Cap Value Fund
GOAL AND STRATEGY
This is a large cap stock fund with a value emphasis that seeks long-term
growth in capital and substantial dividend income.
The Fund invests primarily in a diversified mix of common stocks of large
established U.S. companies that are believed to offer favorable prospects for
increasing dividends and growth in capital.
The manager employs a value approach in selecting stocks using proprietary
equity research. Stocks are purchased that are undervalued by various measures
such as the stock's current price relative to its earnings potential.
The manager looks for companies with:
. established operating history;
. above-average dividend yield relative to the S&P 500 Index;
. low price/earnings ratio relative to the S&P 500 Index;
. sound balance sheet and other positive financial characteristics; and
. low stock price relative to the company's underlying value.
The Fund normally invests in 100 to 175 stocks, with at least 65% (usually
higher) of its assets in large cap companies. The Fund normally has 5% or less
of its assets in cash and cash equivalents.
The Fund may purchase other types of securities, for example: American Deposi-
tory Receipts (ADRs), foreign equity securities of developed countries, high
quality intermediate and short-term debt securities, and certain derivatives
(investments whose value is based on indices or other securities).
In abnormal market conditions, the Fund may take temporary defensive measures--
such as holding unusually large amounts of cash and cash equivalents--that are
inconsistent with the Fund's primary investment strategy. In taking those mea-
sures, the Fund may not achieve its investment goal.
Note: "S&P 500 Index" means the Standard & Poor's 500 Composite Stock Price
Index. "Standard & Poor's", "S&P" and "S&P 500" are trademarks of McGraw Hill,
Inc. and have been licensed for use by the Trust.
- --------------------------------------------------------------------------------
SUBADVISER
T. Rowe Price Associates, Inc.
100 East Pratt Street
Baltimore, Maryland 21202
Managing since 1937
Managed approximately $147 billion of assets at end of 1998
FUND MANAGERS
Management by Investment Advisory Committee
Brian C. Rogers,
- -----------------
Committee Chairman
Director of subadviser
Managed fund since 1996 (its inception)
Joined subadviser in 1982
PAST PERFORMANCE
The graph shows how the fund's total return has varied from year to year, while
the table shows performance over time (along with a broad-based market index
for reference). This information may also help provide an indication of the
fund's risks and potential rewards. All figures assume dividend reinvestment.
Past performance does not indicate future results. The performance figures
below do not reflect the deduction of fees and charges payable under the
variable contracts. Such fees and charges would cause the investment returns
under the contracts to be less than that shown below.
Year-by-year total returns -- calendar years
[BAR GRAPH APPEARS HERE]
<TABLE>
<S> <C>
1997 28.56%
1998 9.26%
</TABLE>
Best quarter: up 11.39%, second quarter 1997 Worst quarter: down 7.63%, third
quarter 1998
Average annual total return -- for periods ending 12/31/98(/1/)
<TABLE>
<CAPTION>
Fund Index
<S> <C> <C>
1 year 9.26% 15.63%
Life of fund 19.26% 24.47%
</TABLE>
Index:Russell 1000(R) Value Index
(1)Began operations on May 1, 1996.
13
<PAGE>
Large Cap Value Fund (cont.)
MAIN RISKS
The following risks are major factors in the Fund's performance:
Market Risk: The value of the securities in the Fund may go down in response to
overall stock or bond market movements. Markets tend to move in cycles, with
periods of rising prices and periods of falling prices. Stocks tend to go up
and down in value more than bonds. If the Fund's investments are concentrated
in certain sectors, the Fund's performance could be worse than the overall mar-
ket.
Manager Risk: The manager and its strategy may fail to produce the intended
results. The Fund could underperform its peers or lose money if the manager's
investment strategy does not perform as expected.
Investment Category Risk: The returns of the Fund's specific equity investment
category may lag the returns of the overall stock market. For example, the
Fund's "value" approach carries the risk that in certain markets "value" stocks
will underperform "growth" stocks. Also, the Fund's "large cap" approach car-
ries the risk that in certain markets large cap stocks will underperform small
cap and mid cap stocks.
-----
The following risks are not considered a major factor in the Fund's performance
because the Fund would not normally commit a large portion of its assets to the
investments involved. However, the risks are of such a nature that they could
significantly affect the Fund's performance, even if the investments are held
in relatively small amounts:
Foreign Risk: The Fund's foreign securities will pose special risks, due to
limited government regulation, lack of public information, economic, political
and social instability and foreign currency rate fluctuations. Factors such as
lack of liquidity, foreign ownership limits and restrictions on removing cur-
rency also pose special risks.
Derivatives Risk: Certain derivative instruments (such as options, futures and
swaps) can produce disproportionate gains or losses. They are generally consid-
ered more risky than direct equity investments. Also, in a down market, deriva-
tives could become harder to value or sell at a fair price.
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS (Selected data for each share interest outstanding
throughout the period indicated)
The following financial highlights have been audited by Ernst & Young LLP.
<TABLE>
<S> <C> <C> <C>
Period ended December 31: 1996** 1997 1998
Net asset value, beginning of period $ 10.00 $ 11.09 $ 13.57
Income from investment operations:
Net investment income (loss) .16 .29 .28
Net realized and unrealized gain (loss) on
investments* 1.22 2.84 .96
Total from investment operations 1.38 3.13 1.24
Less distributions:
Distributions from net investment income and
capital paid in (.16) (.29) (.28)
Distributions from net realized gain on
investments sold (.13) (.36) (.51)
Total distributions ($.29) ($.65) ($.79)
Net asset value, end of period $ 11.09 $ 13.57 $ 14.02
Total investment return 13.90% 28.56% 9.26%
Ratios and supplemental data
Net assets, end of period (000s omitted)($) $19,781 $73,269 $123,365
Ratio of expenses to average net assets (%)*** 1.00% 1.00% .92%
Ratio of net investment income (loss) to average
net assets (%) 2.74% 2.42% 2.08%
Turnover rate (%) 19.95% 19.21% 18.46%
</TABLE>
* The amount shown may not accord with the change in the aggregate gains and
losses in the fund securities for the period because of the timing of pur-
chases and withdrawals of shares in relation to the fluctuation in market
values of the fund.
** Fund began operations on May 1, 1996.
*** Expense ratio is net of expense reimbursement. Had such reimbursement not
been made the expense ratio would have been 1.89% and 1.06% for the years
ended December 31, 1996 and 1997, respectively.
14
<PAGE>
Large Cap Growth Fund
GOAL AND STRATEGY
This is a large cap stock fund with a growth emphasis that seeks growth in
capital.
The Fund invests primarily in a diversified mix of common stocks of large
established U.S. companies that are believed to offer above-average potential
for growth in revenues and earnings.
The manager selects stocks using a combination of proprietary equity research
and quantitative tools. Stocks are purchased that are undervalued relative to
the stock's history and have improving earnings growth prospects. The Fund is
managed using risk control techniques that maintain risk and industry charac-
teristics similar to the Russell 1000 Growth Index.
The Fund normally invests in 80 to 150 stocks, with at least 65% (usually high-
er) of its assets in large cap companies. The Fund normally has 5% or less of
its assets in cash and cash equivalents.
The Fund may purchase other types of securities, for example: American Deposi-
tory Receipts (ADRs), high quality short-term debt securities, and certain
derivatives (investments whose value is based on indices or other securities).
In abnormal market conditions, the Fund may take temporary defensive measures--
such as holding unusually large amounts of cash and cash equivalents--that are
inconsistent with the Fund's primary investment strategy. In taking those mea-
sures, the Fund may not achieve its investment goal.
- --------------------------------------------------------------------------------
SUBADVISER
Independence Investment Associates, Inc.
53 State Street
Boston, Massachusetts 02109
Owned by John Hancock
Managing since 1982
Managed approximately $31 billion in assets at end of 1998
FUND MANAGERS
Management by investment team overseen by:
Mark C. Lapman
- -----------------
Executive Vice President of subadviser
Joined team in 1996
Joined subadviser in 1982
Began career in 1979
PAST PERFORMANCE
The graph shows how the fund's total return has varied from year to year, while
the table shows performance over time (along with a broad-based market index
for reference). This information may help provide an indication of the fund's
risks and potential rewards. All figures assume dividend reinvestment. Past
performance does not indicate future results. The performance figures below do
not reflect the deduction of fees and charges payable under the variable
contracts. Such fees and charges would cause the investment returns under the
contracts to be less than that shown below.
Year-by-year total returns -- calendar years
[JOHN HANCOCK CHART APPEARS HERE]
<TABLE>
<S> <C>
1989 29.20%
1990 6.60%
1991 25.50%
1992 9.90%
1993 13.80%
1994 -0.98%
1995 31.64%
1996 18.27%
1997 30.89%
1998 39.51%
</TABLE>
Best quarter: up 27.79%, fourth quarter 1998 Worst quarter: down 11.16%, third
quarter 1998
Average annual total returns -- for periods ending 12/31/98
<TABLE>
<CAPTION>
Fund Index
<S> <C> <C>
1 year 39.51% 38.71%
5 years 23.00% 25.14%
10 years 19.87% 19.71%
Life of fund 17.24% 16.67%
</TABLE>
Index:S&P 500 Index (for periods prior to May 1, 1996)
Russell 1000(R) Growth Index (for periods after May 1, 1996)
15
<PAGE>
Large Cap Growth Fund (cont.)
MAIN RISKS
The following risks are major factors in the Fund's performance:
Market Risk: The value of the securities in the Fund may go down in response to
overall stock or bond market movements. Markets tend to move in cycles, with
periods of rising prices and periods of falling prices. Stocks tend to go up
and down in value more than bonds. If the Fund's investments are concentrated
in certain sectors, the Fund's performance could be worse than the overall mar-
ket.
Manager Risk: The manager and its strategy may fail to produce the intended
results. The Fund could underperform its peers or lose money if the manager's
investment strategy does not perform as expected.
Investment Category Risk: The returns of the Fund's specific equity investment
category may lag the returns of the overall stock market. For example, the
Fund's "growth" approach carries the risk that in certain markets "growth"
stocks will underperform "value" stocks. Also, the Fund's "large cap" approach
carries the risk that in certain markets large cap stocks will underperform
small cap and mid cap stocks.
-----
The following risk is not considered a major factor in the Fund's performance
because the Fund would not normally commit a large portion of its assets to the
investments involved. However, the risk is of such a nature that it could sig-
nificantly affect the Fund's performance, even if the investments are held in
relatively small amounts:
Derivatives Risk: Certain derivative instruments (such as options, futures and
swaps) can produce disproportionate gains or losses. They are generally consid-
ered more risky than direct equity investments. Also, in a down market, deriva-
tives could become harder to value or sell at a fair price.
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS (Selected data for each share interest outstanding
throughout the period indicated)
The following financial highlights have been audited by Ernst & Young LLP.
<TABLE>
<S> <C> <C> <C> <C> <C>
Period ended December
31: 1994 1995 1996 1997 1998
Net asset value,
beginning of period $ 15.38 $ 14.41 $ 17.37 $ 17.49 $ 20.82
Income from investment
operations:
Net investment income
(loss) .39 .44 .25 .17 .14
Net realized and
unrealized gain (loss)
on investments* (.54) 4.06 2.89 5.21 8.05
Total from investment
operations (.15) 4.50 3.14 5.38 8.19
Less distributions:
Distributions from net
investment income and
capital paid in (.39) (.44) (.25) (.17) (.14)
Distributions from net
realized gain on
investments sold (.43) (.84) (2.77) (1.88) (2.68)
Total distributions ($.82) ($1.54) ($3.02) ($2.05) ($2.82)
Net asset value, end of
period $ 14.41 $ 17.37 $ 17.49 $ 20.82 $ 26.19
Total investment return (.98)% 31.64% 18.27% 30.89% 39.51%
Ratios and supplemental
data
Net assets, end of
period (000s
omitted)($) $223,957 $380,276 $524,145 $754,398 $1,126,764
Ratio of expenses to
average net assets (%) .47% .47% .44% .44% .41%
Ratio of net investment
income (loss) to
average net assets (%) 2.69% 2.70% 1.35% .86% .59%
Turnover rate (%) 80.51% 90.18% 135.98% 83.82% 56.41%
</TABLE>
* The amount shown may not accord with the change in the aggregate gains and
losses in the fund securities for the period because of the timing of pur-
chases and withdrawals of shares in relation to the fluctuation in market
values of the fund.
16
<PAGE>
Mid Cap Value Fund
GOAL AND STRATEGY
This is a mid cap stock fund with a value emphasis that seeks long-term growth
in capital.
The Fund invests primarily in the common stocks of mid-sized U.S. companies
that are believed to sell at a discount to their intrinsic value.
The manager selects stocks using proprietary equity research. Stocks are pur-
chased that are undervalued by various measures such as the stock's current
price relative to its earnings potential.
The manager looks for undervalued companies with:
. sound balance sheet and other financial characteristics;
. consistent cash flow;
. strong position relative to the competition; and
. high level of stock ownership among management.
The Fund normally invests in 50 to 75 stocks, with at least 65% (usually high-
er) of its assets in mid cap companies. The Fund normally has 5% or less of its
assets in cash and cash equivalents.
The Fund may purchase other types of securities, for example: American Deposi-
tory Receipts (ADRs), high quality short-term debt securities, and certain
derivatives (investments whose value is based on indices or other securities).
In abnormal market conditions, the Fund may take temporary defensive measures--
such as holding unusually large amounts of cash and cash equivalents--that are
inconsistent with the Fund's primary investment strategy. In taking those mea-
sures, the Fund may not achieve its investment goal.
- --------------------------------------------------------------------------------
SUBADVISER
Neuberger Berman, LLC
605 Third Avenue
New York, New York 10158
Managing since 1939
Managed approximately $55 billion in assets at end of 1998
FUND MANAGERS
Michael M. Kassen
- -----------------
Principal of subadviser
Managed fund since 1996 (its inception)
Joined subadviser in 1990
Began career in 1978
Robert I. Gendelman
- -----------------
Principal of subadviser
Managed fund since 1996 (its inception)
Joined subadviser in 1993
Began career in 1984
S. Basu Mullick
- -----------------
Portfolio Manager of subadvisor
Joined subadvisor in 1998
Began career in 1982
Portfolio Manager, Ark Asset
Management (1993-1998)
PAST PERFORMANCE
The graph shows how the fund's total return has varied from year to year, while
the table shows performance over time (along with a broad-based market index
for reference). This information may help provide an indication of the fund's
risks and potential rewards. All figures assume dividend reinvestment. Past
performance does not indicate future results. The performance figures below do
not reflect the deduction of fees and charges payable under the variable
contracts. Such fees and charges would cause the investment returns under the
contracts to be less than that shown below.
Year-by-year total returns -- calendar years
[BAR GRAPH APPEARS HERE]
<TABLE>
<S> <C>
1997 32.17%
1998 -11.33%
</TABLE>
Best quarter: up 17.06%, third quarter 1997 Worst quarter: down 21.29%, third
quarter 1998
Average annual total returns -- for periods ending 12/31/98(/1/)
<TABLE>
<CAPTION>
Fund Index
<S> <C> <C>
1 year (11.33)% 5.08%
Life of fund 12.26% 19.12%
</TABLE>
Index:Russell Midcap(TM) Value Index
(1)Began operations on May 1, 1996.
17
<PAGE>
Mid Cap Value Fund (cont.)
MAIN RISKS
The following risks are major factors in the Fund's performance:
Small /Mid Cap Stock Risk: The Fund's investment in smaller or mid-sized compa-
nies may be subject to more erratic price movements than investment in large
established companies.
Market Risk: The value of the securities in the Fund may go down in response to
overall stock or bond market movements. Markets tend to move in cycles, with
periods of rising prices and periods of falling prices. Stocks tend to go up
and down in value more than bonds. If the Fund's investments are concentrated
in certain sectors, the Fund's performance could be worse than the overall mar-
ket.
Manager Risk: The manager and its strategy may fail to produce the intended
results. The Fund could underperform its peers or lose money if the manager's
investment strategy does not perform as expected.
Investment Category Risk: The returns of the Fund's specific equity investment
category may lag the returns of the overall stock market. For example, the
Fund's "value" approach carries the risk that in certain markets "value" stocks
will underperform "growth" stocks. Also, the Fund's "mid cap" approach carries
the risk that in certain markets mid cap stocks will underperform small cap and
large cap stocks.
Concentration Risk: The Fund's investment in securities of a smaller number of
issuers could produce more volatile performance relative to funds that invest
in a larger number of issuers. The more concentrated a fund's holdings are, the
more likely it is a specific security's poor performance will hurt the fund
significantly.
-----
The following risk is not considered a major factor in the Fund's performance
because the Fund would not normally commit a large portion of its assets to
investments involved. However, the risk is of such a nature that it could sig-
nificantly affect the Fund's performance, even if the investments are held in
relatively small amounts:
Derivatives Risk: Certain derivative instruments (such as options, futures and
swaps) can produce disproportionate gains or losses. They are generally consid-
ered more risky than direct equity investments. Also, in a down market, deriva-
tives could become harder to value or sell at a fair price.
-----
The following risk is considered significant because of its potential impact on
the Fund's performance:
Turnover Risk: In general, the greater the volume of buying and selling by a
fund (i.e., the higher its "turnover rate"), the greater the impact that bro-
kerage commissions and other transaction costs will have on the fund's perfor-
mance. Any turnover rate in excess of 100% is considered relatively high. The
Fund had an unusually high turnover rate in 1998 due to the unusually volatile
equity market that resulted in above average purchase and sale activity. Nor-
mally, the Fund's turnover rate will be less than 100%.
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS (Selected data for each share interest outstanding
throughout the period indicated)
The following financial highlights have been audited by Ernst & Young LLP.
<TABLE>
<S> <C> <C> <C>
Period ended December 31: 1996** 1997 1998
Net asset value, beginning of period $ 10.00 $ 11.35 $ 13.87
Income from investment operations:
Net investment income (loss) .04 .05 0.11
Net realized and unrealized gain (loss) on
investments* 1.57 3.59 (1.68)
Total from investment operations 1.61 3.64 (1.57)
Less distributions:
Distributions from net investment income and
capital paid in (.04) (.05) (0.11)
Distributions from net realized gain on
investments sold (.22) (1.07) --
Total distributions $ (.26) $ (1.12) (0.11)
Net asset value, end of period $ 11.35 $ 13.87 12.19
Total investment return 16.18% 32.17% (11.33)%
Ratios and supplemental data
Net assets, end of period (000s omitted)($) $10,926 $64,973 94,820
Ratio of expenses to average net assets (%)*** 1.05% 1.05% 0.96%
Ratio of net investment income (loss) to average
net assets (%) .69% .53% 0.93%
Turnover rate (%) 62.99% 93.78% 173.33%
</TABLE>
* The amount shown may not accord with the change in the aggregate gains and
losses in the fund securities for the period because of the timing of pur-
chases and withdrawals of shares in relation to the fluctuation in market
values of the fund.
** Fund began operations on May 1, 1996.
*** Expense ratio is net of expense reimbursement. Had such reimbursement not
been made the expense ratio would have been 2.15% and 1.14% for the years
ended December 31, 1996, and 1997, respectively.
18
<PAGE>
Mid Cap Growth Fund
GOAL AND STRATEGY
This is a non-diversified mid cap stock fund with a growth emphasis that seeks
long-term growth in capital.
The Fund invests primarily in the common stocks of mid-sized U.S. companies
that are believed to offer above-average potential for growth in revenues and
earnings.
The manager selects stocks using proprietary equity research. Stocks are pur-
chased that are expected to have earnings growth potential that may not be rec-
ognized by the investment community. The manager selects stocks without regard
to any pre- defined industry or sector selection criteria.
The manager looks for companies experiencing:
. above-average growth relative to their peers or the general economy; and
. positive change due to new product developments, improved regulatory environ-
ment or a new management team.
The Fund is non-diversified, which means it can take larger positions in a
smaller number of issuers. Based upon its current size and strategy, the Fund
invests in 35 to 75 stocks, with at least 65% of its assets in mid cap compa-
nies.
The Fund may purchase other types of securities, for example: American Deposi-
tory Receipts (ADRs), foreign equity securities of developed countries, high
quality short-term debt securities, and certain derivatives (investments whose
value is based on indices or other securities).
In abnormal market conditions, the Fund may take temporary defensive measures--
such as holding unusually large amounts of cash and cash equivalents--that are
inconsistent with the Fund's primary investment strategy. In taking those mea-
sures, the Fund may not achieve its investment goal.
- --------------------------------------------------------------------------------
SUBADVISER
Janus Capital Corporation
100 Fillmore Street
Denver, Colorado 80206
Managing since 1970
Managed approximately $108 billion of assets at end of 1998
FUND MANAGER
James P. Goff
- -----------------
Executive Vice President of subadviser
Managed fund since 1996 (its inception)
Joined subadviser in 1988
Began career in 1985
PAST PERFORMANCE
The graph shows how the fund's total return has varied from year to year, while
the table shows performance over time (along with a broad-based market index
for reference). This information may help provide an indication of the fund's
risks and potential rewards. All figures assume dividend reinvestment. Past
performance does not indicate future results. The performance figures below do
not reflect the deduction of fees and charges payable under the variable
contracts. Such fees and charges would cause the investment returns under the
contracts to be less than that shown below.
Year-by-year total returns -- calendar years
[BAR GRAPH APPEARS HERE]
<TABLE>
<S> <C>
1997 16.66%
1998 39.07%
</TABLE>
Best quarter: up 34.69%, fourth quarter 1998 Worst quarter: down 12.96%, third
quarter 1998
Average annual total returns -- for periods ending 12/31/98(/1/)
<TABLE>
<CAPTION>
Fund Index
<S> <C> <C>
1 year 39.07% 17.86%
Life of fund 21.08% 17.02%
</TABLE>
Index:Russell Midcap(TM) Growth Index
(1)Began operations on May 1, 1996.
19
<PAGE>
Mid Cap Growth Fund (cont.)
MAIN RISKS
The following risks are major factors in the Fund's performance:
Small /Mid Cap Stock Risk: The Fund's investment in smaller or mid-sized compa-
nies may be subject to more erratic price movements than investment in large
established companies.
Non-Diversified Fund Risk: The Fund's larger position in individual issuers and
in a smaller number of issuers could produce more volatile performance relative
to more diversified funds. The less diversified a fund's holdings are, the more
likely it is that a specific security's poor performance will hurt the fund
significantly.
Market Risk: The value of the securities in the Fund may go down in response to
overall stock or bond market movements. Markets tend to move in cycles, with
periods of rising prices and periods of falling prices. Stocks tend to go up
and down in value more than bonds. If the Fund's investments are concentrated
in certain sectors, the Fund's performance could be worse than the overall mar-
ket.
Manager Risk: The manager and its strategy may fail to produce the intended
results. The Fund could underperform its peers or lose money if the manager's
investment strategy does not perform as expected.
Investment Category Risk: The returns of the Fund's specific equity investment
category may lag the returns of the overall stock market. For example, the
Fund's "growth" approach carries the risk that in certain markets "growth"
stocks will underperform "value" stocks. Also, the Fund's "mid cap" approach
carries the risk that in certain markets mid cap stocks will underperform small
cap and large cap stocks.
Concentration Risk: The Fund's investment in securities of a smaller number of
issuers could produce more volatile performance relative to funds that invest
in a larger number of issuers. The more concentrated a fund's holdings are, the
more likely it is a specific security's poor performance will hurt the fund
significantly.
-----
The following risks are not considered a major factor in the Fund's performance
because the Fund would not normally commit a large portion of its assets to the
investments involved. However, the risks are of such a nature that they could
significantly affect the Fund's performance, even if the investments involved
are held in relatively small amounts:
Foreign Risk: The Fund's foreign securities will pose special risks, due to
limited government regulation, lack of public information, economic, political
and social instability and foreign currency rate fluctuations. Factors such as
lack of liquidity, foreign ownership limits and restrictions on removing cur-
rency also pose special risks.
Derivatives Risk: Certain derivative instruments (such as options, futures and
swaps) can produce disproportionate gains or losses. They are generally consid-
ered more risky than direct equity investments. Also, in a down market, deriva-
tives could be- come harder to value or sell at a fair price.
-----
The following risk is considered significant because of its potential impact on
the Fund's performance:
Turnover Risk: In general, the greater the volume of buying and selling by a
fund (i.e., the higher its "turnover rate"), the greater the impact that bro-
kerage commissions and other transaction costs will have on the fund's perfor-
mance. Any turnover rate in excess of 100% is considered relatively high. Nor-
mally, the Fund's turnover rate will be greater than 100%.
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS (Selected data for each share Interest outstanding
throughout the period indicated)
The following financial highlights have been audited by Ernst & Young LLP.
<TABLE>
<S> <C> <C> <C>
Period ended December 31: 1996** 1997 1998
Net asset value, beginning of period $ 10.00 $ 10.22 $ 11.93
Income from investment operations:
Net investment income (loss) .05 (.02) (0.09)
Net realized and unrealized gain (loss) on
investments* .22 1.73 4.75
Total from investment operations .27 1.71 4.66
Less distributions:
Distributions from net investment income and
capital paid in (.05) -- (0.15)
Distributions from net realized gain on
investments sold -- -- (1.32)
Total distributions (.05) -- (1.47)
Net asset value, end of period $ 10.22 $ 11.93 $ 15.12
Total investment return 2.69%(1) 16.66% 39.07%
Ratios and supplemental data
Net assets, end of period (000s omitted)($) $16,492 $40,235 $94,085
Ratio of expenses to average net assets
(%)*** 1.10%(e) 1.10% 1.10%
Ratio of net investment income (loss) to
average net assets (%) .92%(e) (.26)% (0.64)%
Turnover rate (%) 71.25%(1) 124.04% 137.01%
</TABLE>
* The amount shown may not accord with the change in the aggregate gains and
losses in the fund securities for the period because of the timing of pur-
chases and withdrawals of shares in relation to the fluctuation in market
values of the fund.
** Fund began operations May 1, 1996.
*** Expense ratio is net of expense reimbursement. Had such reimbursement not
been made the expense ratio would have been 2.34%, 1.42% and 1.13% for the
years ended December 31, 1996, 1997, and 1998, respectively.
20
<PAGE>
Real Estate Equity Fund
GOAL AND STRATEGY
This is a real estate stock fund that seeks above-average income and long-term
growth in capital.
The Fund invests primarily in:
. equity securities of real estate investment trusts (REITs) that own commer-
cial and multi-family residential real estate; and
. equity securities of real estate operating companies (i.e., companies with at
least 75% of revenue, income or fair asset value derived from real estate).
The manager selects real estate stocks using a combination of proprietary,
equity research and quantitative tools. Real estate stocks are purchased that
are undervalued relative to the stock's history and the market and have improv-
ing earnings growth prospects.
The manager looks for real estate stocks with:
. proven track records,
. strong management whose interests are aligned with shareholders,
. attractive real estate holdings, and
. a flexible financial structure.
The manager employs risk control techniques to maintain risk, style and indus-
try characteristics similar to the public equity real estate market. The Fund
normally invests in 30 to 60 securities. The Fund normally has 5% or less of
its assets in cash and cash equivalents.
The Fund also may purchase other types of securities, for example: American
Depository Receipts (ADRs), convertible securities, equity securities of non-
real estate businesses whose real estate holdings are significant in relation
to their market capitalization, high quality short-term debt securities, mort-
gage REITs, collateralized mortgage obligations, and master limited partner-
ships.
In abnormal market conditions, the Fund may take temporary defensive measures--
such as holding unusually large amounts of cash and cash equivalents--that are
inconsistent with the Fund's primary investment strategy. In taking those mea-
sures, the Fund may not achieve its investment goal.
- --------------------------------------------------------------------------------
SUBADVISER
Independence Investment Associates, Inc.
53 State Street
Boston, Massachusetts 02109
Owned by John Hancock
Managing since 1982
Managed approximately $31 billion in assets at end of 1998
FUND MANAGERS
Dalton J. Avery
- -----------------
Senior Vice President of subadviser
Managed fund since 1988 (its inception)
Joined team in 1988
Joined subadviser in 1982
David P. Canavan
- -----------------
Senior Vice President of subadviser
Joined team in 1995
Joined subadviser in 1987
PAST PERFORMANCE
The graph shows how the fund's total return has varied from year to year, while
the table shows performance over time (along with a broad-based market index
for reference). This information may help provide an indication of the fund's
risks and potential rewards. All figures assume dividend reinvestment. Past
performance does not indicate future results. The performance figures below do
not reflect the deduction of fees and charges payable under the variable
contracts. Such fees and charges would cause the investment returns under the
contracts to be less than that shown below.
Year-by-year total returns -- calendar years
[GRAPH APPEARS HERE]
<TABLE>
<S> <C>
1989 7.20%
1990 -21%
1991 33.50%
1992 16.00%
1993 17.29%
1994 2.86%
1995 12.31%
1996 33.07%
1997 17.22%
1998 -16.71%
</TABLE>
Best quarter: up 25.82%, first quarter 1991 Worst quarter: down 17.37%, third
quarter 1990
Average annual total returns -- for periods ending 12/31/98
<TABLE>
<CAPTION>
Fund Index
<S> <C> <C>
1 year -16.71% -17.43%
5 years 8.46% 9.36%
10 years 8.67% 4.70%
Life of fund 8.64% 5.29%
</TABLE>
Index: Wilshire Real Estate Securities Index
21
<PAGE>
Real Estate Equity Fund (cont.)
MAIN RISKS
The following risks are major factors in the Fund's performance:
Real Estate Securities Risk: Real estate investment trusts (REITs) or other
real estate-related equity securities may be affected by changes in the value
of the underlying property owned by the trust. Mortgage REITs may be affected
by the quality of any credit extended. Other potential risks include the possi-
bility of failing to qualify for tax-free pass-through of income under the
Internal Revenue Code or failing to maintain exemption under the Investment
Company Act of 1940.
Market Risk: The value of the securities in the Fund may go down in response to
overall stock or bond market movements. Markets tend to move in cycles, with
periods of rising prices and periods of falling prices. Stocks tend to go up
and down in value more than bonds. If the Fund's investments are concentrated
in certain sectors, the Fund's performance could be worse than the overall mar-
ket.
Manager Risk: The manager and its strategy may fail to produce the intended
results. The Fund could underperform its peers or lose money if the manager's
investment strategy does not perform as expected.
Concentration Risk: The Fund's investment in securities of a smaller number of
issuers could produce more volatile performance relative to funds that invest
in a larger number of issuers. The more concentrated a fund's holdings are, the
more likely it is a specific security's poor performance will hurt the fund
significantly.
Small /Mid Cap Stock Risk: The Fund's investment in smaller or mid-sized compa-
nies may be subject to more erratic price movements than investment in large
established companies.
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS (Selected data for each share interest outstanding
throughout the period indicated):
The following financial highlights have been audited by Ernst & Young LLP.
<TABLE>
<S> <C> <C> <C> <C> <C>
Period ended December 31: 1994 1995 1996 1997 1998
Net asset value, beginning
of period $ 11.52 $ 11.16 $ 11.70 $ 14.64 $ 15.91
Income from investment
operations:
Net investment income
(loss) .66 .77 .76 .77 .0.77
Net realized and
unrealized gain (loss) on
investments* (.34) .54 2.97 1.68 (3.38)
Total from investment
operations .32 1.31 3.73 2.45 (2.61)
Less distributions:
Distributions from net
investment income and
capital paid in (.66) (.77) (.76) (.77) (0.70)
Distributions from net
realized gain on
investments sold (.02) (.00) (.03) (.41) (0.14)
Total distributions $ (.68) $ (.77) $ (.79) $ (1.18) $ (0.84)
Net asset value, end of
period $ 11.16 $ 11.70 $14.64 $ 15.91 $ 12.46
Total investment return 2.86% 12.31% 33.07% 17.22% (16.71)%
Ratios and supplemental
data
Net assets, end of period
(000s omitted)($) $113,545 $108,782 $151,105 $204,131 $152,789
Ratio of expenses to
average net assets (%) .71% .73% .69% .69% 0.69 %
Ratio of net investment
income (loss) to average
net assets (%) 5.94% 6.85% 6.14% 5.12% 5.48 %
Turnover rate (%) 22.36% 19.81% 18.37% 20.04% 22.69 %
</TABLE>
* The amount shown may not accord with the change in the aggregate gains and
losses in the fund securities for the period because of the timing of pur-
chase and withdrawals of shares in relation to the fluctuation in market val-
ues of the fund.
22
<PAGE>
Small/Mid Cap Growth Fund
(Formerly Diversified Mid Cap Growth Fund)
GOAL AND STRATEGY
This is a small/mid cap stock fund with a growth emphasis that seeks long-term
growth in capital.
The Fund invests primarily in the common stocks of small and mid-sized U.S.
companies that are believed to offer above-average potential for growth in rev-
enues and earnings.
The manager selects stocks using a combination of proprietary quantitative and
qualitative equity research. Quantitative screening seeks to identify a group
of companies with at least three years of operating history that have above-
average growth, financial quality and profitability relative to industry peers.
Equity research seeks to identify individual companies from that group with a
higher potential for long term earnings growth and capital appreciation.
The manager buys companies that seem attractive based on the following crite-
ria, among others:
. Superior historical earnings growth,
. Prospects for continued above-average growth,
. Attractive valuations,
. Strong market positions,
. Favorable new products, and
. Superior management.
The Fund is broadly diversified by industry sector. The Fund normally invests
in 50 to 70 stocks, with at least 65% (usually higher) of its assets in small
and mid cap companies. The Fund normally has 5% or less of its assets in cash
and cash equivalents.
The Fund may purchase other types of securities, for example: American Deposi-
tory Receipts (ADRs), and high quality short-term debt securities.
In abnormal market conditions, the Fund may take temporary defensive measures--
such as holding unusually large amounts of cash and cash equivalents--that are
inconsistent with the Fund's primary investment strategy. In taking those mea-
sures, the Fund may not achieve its investment goal.
- --------------------------------------------------------------------------------
SUBADVISER
Wellington Management Company, LLP
75 State Street
Boston, Massachusetts 02109
Managing with predecessors, since 1928
Managed approximately $211 billion of assets at end of 1998
FUND MANAGER
Frank V. Wisneski
- -----------------
Senior Vice President of subadviser
Joined subadviser in 1968
ASSOCIATE FUND MANAGER
John J. Harrington, CFA
- -----------------
Vice President of subadviser
Joined subadviser in 1995
Portfolio Manager at Munder Capital Management (1991-1994)
PAST PERFORMANCE
The graph shows how the fund's total return has varied from year to year, while
the table shows performance over time (along with a broad-based market index
for reference). This information may help provide an indication of the fund's
risks and potential rewards. All figures assume dividend reinvestment. Past
performance does not indicate future results. The performance figures below do
not reflect the deduction of fees and charges payable under the variable
contracts. Such fees and charges would cause the investment returns under the
contracts to be less than that shown below.
Year-by-year total returns -- calendar years
[GRAPH APPEARS HERE]
<TABLE>
<S> <C>
1995 35.96%
1996 30.33%
1997 3.44%
1998 5.61%
</TABLE>
Best quarter: up 21.59%, fourth quarter 1998 Worst quarter: down 21.48%, third
quarter 1998
John Hancock Small/Mid Cap Growth Fund Bar Chart
- --------------------------------------------------------------------------------
Average annual total returns -- for periods ending 12/31/98(/1/)
<TABLE>
<CAPTION>
Fund Index
<S> <C> <C>
1 year 5.61% 17.86%
Life of fund 15.37% 19.55%
</TABLE>
Index:Russell Midcap(TM) Growth Index
(1)Began operations on May 1, 1994.
Note: See the Appendix to this prospectus for further performance information
relevant to this Fund.
23
<PAGE>
Small/Mid Cap Growth Fund (cont.)
MAIN RISKS
The following risks are major factors in the Fund's performance:
Small /Mid Cap Stock Risk: The Fund's investment in smaller or mid-sized compa-
nies may be subject to more erratic price movements than investment in large
established companies.
Market Risk: The value of the securities in the Fund may go down in response to
overall stock or bond market movements. Markets tend to move in cycles, with
periods of rising prices and periods of falling prices. Stocks tend to go up
and down in value more than bonds. If the Fund's investments are concentrated
in certain sectors, the Fund's performance could be worse than the overall mar-
ket.
Manager Risk: The manager and its strategy may fail to produce the intended
results. The Fund could underperform its peers or lose money if the manager's
investment strategy does not perform as expected.
Investment Category Risk: The returns of the Fund's specific equity investment
category may lag the returns of the overall stock market. For example, the
Fund's "growth" approach carries the risk that in certain markets "growth"
stocks will underperform "value" stocks. Also, the Fund's "small/mid cap"
approach carries the risk that in certain markets small/mid cap stocks will
underperform large cap stocks.
Concentration Risk: The Fund's investment in securities of a smaller number of
issuers could produce more volatile performance relative to funds that invest
in a larger number of issuers. The more concentrated a fund's holdings are, the
more likely it is a specific security's poor performance will hurt the fund
significantly.
-----
The following risk is considered significant because of its potential impact on
the Fund's performance:
Turnover Risk: In general, the greater the volume of buying and selling by a
fund (i.e., the higher its "turnover rate"), the greater the impact that bro-
kerage commissions and other transaction costs will have on the fund's perfor-
mance. Any turnover rate in excess of 100% is considered relatively high. The
Fund had a high turnover rate in 1998. However, the Fund has undergone a change
in management as of May 1, 1999. The Fund expects to have an unusually high
turnover rate in 1999 because of the change in management and a change in the
Funds investment strategy. These changes will require a restructuring of the
Fund's investments in 1999. Normally, the Fund's turnover rate will be less
than 100%.
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS (Selected data for each share interest outstanding
throughout the period indicated)
The following financial highlights have been audited by Ernst & Young LLP.
<TABLE>
<S> <C> <C> <C> <C> <C>
Small/Mid Cap Growth Fund
(formerly Diversified Mid
Cap Growth Portfolio)
Period ended December 31: 1994** 1995 1996 1997 1998
Net asset value, beginning of
period $10.00 $ 9.94 $ 13.18 $ 16.52 $ 5.39
Income from investment
operations:
Net investment income (loss) 0.11 (0.01) 0.02 0.01 (0.02)
Net realized and unrealized
gain (loss) on investments* (0.06) 3.58 3.99 0.56 0.88
Total from investment
operations 0.05 3.57 4.01 0.57 0.86
Less distributions:
Distributions from net
investment income and
capital paid in -- (0.01) (0.02) (0.01) --
Distributions from net
realized gain on
investments sold (0.11) (0.32) (0.65) (1.69) (0.31)
Total distributions (0.11) (0.33) (0.67) (1.70) (0.31)
Net asset value, end of
period 9.94 13.18 16.52 15.39 15.94
Total investment return 0.56% 35.96% 30.33% 3.44% 5.61%
Ratios and supplemental data
Net assets, end of period
(000s omitted)($) 7,181 54,486 194,108 213,612 193,332
Ratio of expenses to average
net assets (%)*** 1.00% 1.00% 0.84% 0.85% 0.89%
Ratio of net investment
income (loss) to average net
assets (%) 1.51% (0.11)% 0.18% 0.09% (0.11)%
Turnover rate (%) 26.54% 139.31% 217.84% 331.19% 162.21%
</TABLE>
* The amount shown may not accord with the change in the aggregate gains and
losses in the fund securities for the period because of the timing of pur-
chases and withdrawals of shares in relation to the fluctuation in market
values of the fund.
** Fund began operations May 1, 1994.
*** Expense ratio is net of expense reimbursement. Had such reimbursement not
been made, the expense ratio would have been 6.05% and 1.91% for the years
ended December 31, 1994, and 1995, respectively.
24
<PAGE>
Small/Mid Cap CORE Fund
GOAL AND STRATEGY
This is a small/mid cap stock fund that seeks long-term growth in capital.
The Fund invests primarily in a diversified mix of the common stocks of small
and mid-sized U.S. companies that are believed to offer:
. favorable prospects for increasing dividends and capital appreciation (i.e.,
"value" companies); and
. above-average potential for growth in revenues and earnings (i.e. "growth"
companies).
The manager selects stocks using a combination of quantitative techniques and
equity research. The manager employs an investment process known as CORE, "Com-
puter Optimized, Research-Enhanced," that employs a proprietary quantitative
model. Stocks are purchased that have strong expected earnings growth and
momentum and better valuation and risk characteristics than the Russell 2500
Index. The Fund is managed using risk control techniques to maintain risk,
style, capitalization and industry characteristics similar to the Russell 2500
Index.
The Fund normally invests in 200 to 600 stocks, with at least 65% (usually
higher) of the Fund's assets in small cap and mid cap companies. The Fund nor-
mally has 10% or less of its assets in cash and cash equivalents.
The Fund may purchase other types of securities, for example: American Deposi-
tory Receipts (ADRs), Standard & Poor's Depository Receipts (SPDRs), high qual-
ity short-term debt securities, and certain derivatives (investments whose
value is based on indices or other securities).
In abnormal market conditions, the Fund may take temporary defensive measures--
such as holding unusually large amounts of cash and cash equivalents--that are
inconsistent with the Fund's primary investment strategy. In taking those mea-
sures, the Fund may not achieve its investment goal.
- --------------------------------------------------------------------------------
SUBADVISER
Goldman Sachs Asset Management,
A separate operating division of Goldman Sachs and Co.
One New York Plaza
New York, New York 10004
Managing since 1988
Managed over $195 billion of assets at end of 1998
FUND MANAGERS
Kent A. Clark
- -----------------
Managing Director of subadviser
Joined subadviser in 1992
Robert C. Jones
- -----------------
Managing Director of subadviser
Joined subadviser in 1989
Victor H. Pinter
- -----------------
Vice President of subadviser
Joined subadviser in 1990
PAST PERFORMANCE
Because this Fund did not have a full year of operations as of December 31,
1998, no year-by-year total returns or average annual total returns can be
shown for this Fund. However, the Appendix to this prospectus contains certain
performance information that is relevant to this Fund. The Appendix starts on
page 56.
Year-by-year total returns -- calendar years
[GRAPH APPEARS HERE]
<TABLE>
<S> <C>
1998 -9.81%
</TABLE>
- --------------------------------------------------------------------------------
Best quarter: up 15.98%, fourth quarter 1998 Worst quarter: down 20.01%, third
quarter 1998
Average annual total returns -- for periods ending 12/31/98(/1/)
<TABLE>
<CAPTION>
Fund Index
<S> <C> <C>
Life of fund -14.32% -9.30%
</TABLE>
Index:Russell 2500(TM) Index
(1) Began operations on May 1, 1998.
Note: See the Appendix to this prospectus for further performance information
relevant to this Fund.
25
<PAGE>
Small/Mid Cap CORE Fund (cont.)
MAIN RISKS
The following risks are major factors in the Fund's performance:
Small /Mid Cap Stock Risk: The Fund's investment in smaller or mid-sized compa-
nies may be subject to more erratic price movements than investment in large
established companies.
Market Risk: The value of the securities in the Fund may go down in response to
overall stock or bond market movements. Markets tend to move in cycles, with
periods of rising prices and periods of falling prices. Stocks tend to go up
and down in value more than bonds. If the Fund's investments are concentrated
in certain sectors, the Fund's performance could be worse than the overall mar-
ket.
Manager Risk: The manager and its strategy may fail to produce the intended
results. The Fund could underperform its peers or lose money if the manager's
investment strategy does not perform as expected.
Investment Category Risk: The returns of the Fund's specific equity investment
category may lag the returns of the overall stock market. For example, the
Fund's "small/mid cap" approach carries the risk that in certain markets
small/mid cap stocks will underperform large cap stocks.
-----
The following risk is not considered a major factor in the Fund's performance
because the Fund would not normally commit a large portion of its assets to the
investments involved. However, the risk is of such a nature that it could sig-
nificantly affect the Fund's performance, even if the investments are held in
relatively small amounts:
Derivatives Risk: Certain derivative instruments (such as options, futures and
swaps) can produce disproportionate gains or losses. They are generally consid-
ered more risky than direct equity investments. Also, in a down market, deriva-
tives could become harder to value or sell at a fair price.
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS (Selected data for each share interest outstanding
throughout the period indicated)
The following financial highlights have been audited by Ernst & Young LLP.
<TABLE>
<S> <C>
Period ended December 31: 1998**
Net asset value, beginning of period $10.00
Income from investment operations:
Net investment income (loss) --
Net realized and unrealized gain (loss) on investments* (0.98)
Total from investment operations (0.98)
Less distributions:
Distributions from net investment income and capital paid in --
Distributions from net realized gain on investments sold --
Total distributions --
Net asset value, end of period 9.02
Total investment return (9.81)%
Ratios and supplemental data
Net assets, end of period (000s omitted)($) 5,015
Ratio of expenses to average net assets (%)*** 1.05 %
Ratio of net investment income (loss) to average net assets (%) (0.01)%
Turnover rate (%) 60.51 %
</TABLE>
* The amount shown may not accord with the change in the aggregate gains and
losses in the fund securities for the period because of the timing of pur-
chases and withdrawals of shares in relation to the fluctuation in market
values of the fund.
** Fund began operations May 1, 1998.
*** Expense ratio is net of expense reimbursement. Had such reimbursement not
been made the expense ratio would have been 4.55% for the year ended Decem-
ber 31, 1998.
26
<PAGE>
Small Cap Value Fund
GOAL AND STRATEGY
This is a small cap stock fund with a value emphasis that seeks long-term
growth in capital.
The Fund invests primarily in a diversified mix of the common stocks of small
U.S. companies that are believed to offer favorable prospects for increasing
dividends and capital appreciation.
The manager applies a combination of quantitative techniques and equity
research to identify the best values among small company stocks.
Stocks are evaluated based on 14 factors, including:
. earnings-to-price ratios;
. assets-to-price ratios;
. earnings estimate revisions;
. market strength compared to competitors;
. inventory/sales trends; and
. financial leverage.
The Fund is managed using risk control techniques to maintain risk, style, cap-
italization and industry characteristics similar to the Russell 2000 Index. The
Fund normally invests in 150 to 250 stocks, with at least 65% (usually higher)
of its assets in small cap companies. The Fund normally has 5% or less of its
assets in cash and cash equivalents.
The Fund may purchase other types of securities, for example: American Deposi-
tory Receipts (ADRs), high quality short-term debt securities, and certain
derivatives (investments whose value is based on indices or other securities).
In abnormal market conditions, the Fund may take temporary defensive measures--
such as holding unusually large amounts of cash and cash equivalents--that are
inconsistent with the Fund's primary investment strategy. In taking those mea-
sures, the Fund may not achieve its investment goal.
- --------------------------------------------------------------------------------
SUBADVISER
INVESCO Management & Research, Inc.
101 Federal Street
Boston, Massachusetts 02110
Managing since 1957
Managed approximately $5 billion of assets at end of 1998
FUND MANAGERS
Management by investment team overseen by:
Robert S. Slotpole
- -----------------
Senior Vice President of subadviser
Managed fund since 1996 (its inception)
Joined subadviser in 1993
Began career in 1975
PAST PERFORMANCE
The graph shows how the fund's total return has varied from year to year, while
the table shows performance over time (along with a broad-based market index
for reference). This information may help provide an indication of the fund's
risks and potential rewards. All figures assume dividend reinvestment. Past
performance does not indicate future results. The performance figures below do
not reflect the deduction of fees and charges payable under the variable
contracts. Such fees and charges would cause the investment returns under the
contracts to be less than that shown below.
Year-by-year total returns -- calendar years
[GRAPH APPEARS HERE]
<TABLE>
<S> <C>
1997 25.57%
1998 -5.96%
</TABLE>
- --------------------------------------------------------------------------------
Best quarter: up 18.11%, second quarter 1997 Worst quarter: down 21.06%, third
quarter 1998
Average annual total returns -- for periods ending 12/31/98(/1/)
<TABLE>
<CAPTION>
Fund Index
<S> <C> <C>
1 year -5.96% -2.55%
Life of fund 10.42% 8.88%
</TABLE>
Index:Russell 2000(R) Index
(1)Began operations on May 1, 1996.
27
<PAGE>
Small Cap Value Fund (cont.)
MAIN RISKS
The following risks are major factors in the Fund's performance:
Small /Mid Cap Stock Risk: The Fund's investment in smaller or mid-sized compa-
nies may be subject to more erratic price movements than investment in large
established companies.
Market Risk: The value of the securities in the Fund may go down in response to
overall stock or bond market movements. Markets tend to move in cycles, with
periods of rising prices and periods of falling prices. Stocks tend to go up
and down in value more than bonds. If the Fund's investments are concentrated
in certain sectors, the Fund's performance could be worse than the overall mar-
ket.
Manager Risk: The manager and its strategy may fail to produce the intended
results. The Fund could underperform its peers or lose money if the manager's
investment strategy does not perform as expected.
Investment Category Risk: The returns of the Fund's specific equity investment
category may lag the returns of the overall stock market. For example, the
Fund's "value" approach carries the risk that in certain markets "value" stocks
will underperform "growth" stocks. Also, the Fund's "small cap" approach car-
ries the risk that in certain markets small cap stocks will underperform mid
cap and large cap stocks.
-----
The following risk is not considered a major factor in the Fund's performance
because the Fund would not normally commit a large portion of its assets to
investments involved. However, the risk is of such a nature that it could sig-
nificantly affect the Fund's performance, even if the investments are held in
relatively small amounts:
Derivatives Risk: Certain derivative instruments (such as options, futures and
swaps) can produce disproportionate gains or losses. They are generally consid-
ered more risky than direct equity investments. Also, in a down market, deriva-
tives could become harder to value or sell at a fair price.
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS (Selected data for each share interest outstanding
throughout the period indicated)
The following financial highlights have been audited by Ernst & Young LLP.
<TABLE>
<S> <C> <C> <C>
Period ended December 31: 1996** 1997 1998
Net asset value, beginning of period $10.00 $10.73 $12.40
Income from investment operations:
Net investment income (loss) 0.07 0.08 0.07
Net realized and unrealized gain (loss) on
investments* 0.96 2.66 (0.81)
Total from investment operations 1.03 2.74 (0.74)
Less distributions:
Distributions from net investment income and capital
paid in (0.07) (0.08) (0.07)
Distributions from net realized gain on investments
sold (0.23) (0.99) --
Total distributions (0.30) (1.07) (0.07)
Net asset value, end of period 10.73 12.40 11.59
Total investment return 10.33% 25.57% (5.96)%
Ratios and supplemental data
Net assets, end of period (000s omitted)($) 10,541 43,261 64,095
Ratio of expenses to average net assets (%)*** 1.05% 1.05% 1.05%
Ratio of net investment income (loss) to average net
assets (%) 1.15% 0.68% 0.63%
Turnover rate (%) 66.31% 126.10% 100.83%
</TABLE>
* The amount shown may not accord with the change in the aggregate gains and
losses in the fund securities for the period because of the timing of pur-
chases and withdrawals of shares in relation to the fluctuation in market
values of the fund.
** Fund began operations on May 1, 1996.
*** Expense ratio is net of expense reimbursement. Had such reimbursement not
been made the expense ratio would have been 2.06%, 1.30% and 1.08% for the
years ended December 31, 1996, 1997, and 1998, respectively.
28
<PAGE>
Small Cap Growth Fund
GOAL AND STRATEGY
This is a small cap stock fund with a growth emphasis that seeks long-term
growth in capital.
The Fund invests primarily in a diversified mix of the common stocks of small
U.S. companies that are believed to offer above-average potential for growth in
revenues and earnings.
The manager selects stocks using proprietary equity research. Stocks are pur-
chased that are expected to have rapid earnings growth that is not yet widely
recognized by the investment community.
The manager looks for companies with:
. demonstrated 20% annual earnings growth over 3 years and similar future
growth expectations;
. dominant market niche or poised to become market leaders; and
. high quality senior management with coherent business strategies.
The Fund is highly diversified by sector and number of individual stocks. The
Fund' s sector weightings normally reflect those of the Russell 2000 Growth
Index. The Fund normally invests in 150 to 220 stocks, with at least 65% (usu-
ally higher) of its assets in small cap companies. The Fund normally has 5% or
less of its assets in cash and cash equivalents.
The Fund may purchase other types of securities, for example: American Deposi-
tory Receipts (ADRs), high quality short-term debt securities, and certain
derivatives (investments whose value is based on indices or other securities).
In abnormal market conditions, the Fund may take temporary defensive measures--
such as holding unusually large amounts of cash and cash equivalents--that are
inconsistent with the Fund's primary investment strategy. In taking those mea-
sures, the Fund may not achieve its investment goal.
- --------------------------------------------------------------------------------
SUBADVISER
John Hancock Advisers, Inc.
101 Huntington Avenue
Boston, Massachusetts 02199
Owned by John Hancock
Managing since 1968
Managed approximately $30 billion of assets at end of 1998
FUND MANAGERS
Management by investment team overseen by:
Bernice S. Behar
- -----------------
Senior Vice President of subadviser
Managed fund since 1996 (its inception)
Joined subadviser in 1991
Began career in 1986
PAST PERFORMANCE
The graph shows how the fund's total return has varied from year to year, while
the table shows performance over time (along with a broad-based market index
for reference). This information may help provide an indication of the fund's
risks and potential rewards. All figures assume dividend reinvestment. Past
performance does not indicate future results. The performance figures below do
not reflect the deduction of fees and charges payable under the variable
contracts. Such fees and charges would cause the investment returns under the
contracts to be less than that shown below.
Year-by-year total returns -- calendar years
[BAR CHART APPEARS HERE]
<TABLE>
<S> <C>
1997 14.26%
1998 14.49%
</TABLE>
Best quarter: up 34.18%, fourth quarter 1998 Worst quarter: down 21.55%, third
quarter 1998
Average annual total returns -- for periods ending 12/31/98(/1/)
<TABLE>
<CAPTION>
Fund Index
<S> <C> <C>
1 year 14.49% 1.23%
Life of fund 10.39% 4.25%
</TABLE>
Index: Russell 2000(R) Growth Index
(1)Began operations on May 1, 1996.
29
<PAGE>
Small Cap Growth Fund (cont.)
MAIN RISKS
The following risks are major factors in the Fund's performance:
Small /Mid Cap Stock Risk: The Fund's investment in smaller or mid-sized compa-
nies may be subject to more erratic price movements than investment in large
established companies.
Market Risk: The value of the securities in the Fund may go down in response to
overall stock or bond market movements. Markets tend to move in cycles, with
periods of rising prices and periods of falling prices. Stocks tend to go up
and down in value more than bonds. If the Fund's investments are concentrated
in certain sectors, the Fund's performance could be worse than the overall mar-
ket.
Manager Risk: The manager and its strategy may fail to produce the intended
results. The Fund could underperform its peers or lose money if the manager's
investment strategy does not perform as expected.
Investment Category Risk: The returns of the Fund's specific equity investment
category may lag the returns of the overall stock market. For example, the
Fund's "growth" approach carries the risk that in certain markets "growth"
stocks will underperform "value" stocks. Also, the Fund's "small cap" approach
carries the risk that in certain markets small cap stocks will underperform mid
cap and large cap stocks.
-----
The following risk is not considered a major factor in the Fund's performance
because the Fund would not normally commit a large portion of its assets to the
investments involved. However, the risk is of such a nature that it could sig-
nificantly affect the Fund's performance, even if the investments are held in
relatively small amounts:
Derivatives Risk: Certain derivative instruments (such as options, futures and
swaps) can produce disproportionate gains or losses. They are generally consid-
ered more risky than direct equity investments. Also, in a down market, deriva-
tives could become harder to value or sell at a fair price.
-----
The following risk is considered significant because of its potential impact on
the Fund's performance:
Turnover Risk: In general, the greater the volume of buying and selling by a
fund (i.e., the higher its "turnover rate"), the greater the impact that bro-
kerage commissions and other transaction costs will have on the fund's perfor-
mance. Any turnover rate in excess of 100% is considered relatively high. Nor-
mally, the Fund's turnover rate will be greater than 100%.
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS (Selected data for each share interest outstanding
throughout the period indicated)
The following financial highlights have been audited by Ernst & Young LLP.
<TABLE>
<S> <C> <C> <C>
Period ended December 31: 1996** 1997 1998
Net asset value, beginning of period $ 10.00 $ 9.93 $ 11.34
Income from investment operations:
Net investment income (loss) .01 (.02) (0.05)
Net realized and unrealized gain (loss) on
investments* (.06) 1.44 1.70
Total from investment operations (0.5) 1.42 1.65
Less distributions:
Distributions from net investment income and
capital paid in (.02) (.01) --
Distributions from net realized gain on
investments sold -- -- --
Total distributions $ (.02) $ (.01) --
Net asset value, end of period $ 9.93 $ 11.34 12.99
Total investment return (.50)% 14.26% 14.49%
Ratios and supplemental data
Net assets, end of period (000s omitted)($) $20,633 $48,761 $74,849
Ratio of expenses to average net assets (%)*** 1.00% 1.00% 1.00%
Ratio of net investment income (loss) to average
net assets (%) .12% (.28)% (0.65)%
Turnover rate (%) 50.93% 86.23% 101.16%
</TABLE>
* The amount shown may not accord with the change in the aggregate gains and
losses in the fund securities for the period because of the timing of pur-
chases and withdrawals of shares in relation to the fluctuations in market
values of the fund.
** Fund began operations on May 1, 1996.
*** Expense ratio is net of expense reimbursement. Had such reimbursement not
been made, the expense ratio would have been 1.55%, 1.12% and 1.05% for the
years ended December 31, 1996, 1997, and 1998, respectively.
30
<PAGE>
Global Equity Fund
GOAL AND STRATEGY
This is a global stock fund that seeks long-term growth in capital.
The Fund primarily invests in a diversified mix of common stocks of:
. large established U.S. companies; and
. large established foreign companies located in countries throughout the
world, including developed, newly industrialized, and emerging countries.
The manager makes ongoing decisions about the mix between U.S. and foreign
stocks. The Fund has a target mix of 40% in U.S. stocks and 60% in foreign
stocks.
The manager uses global economic and industry analysis to identify global eco-
nomic and industry themes. The manager looks for companies that will benefit
from:
. global economic trends;
. promising technologies or products; and
. specific country opportunities resulting from changing geopolitical, currency
or economic relationships.
The manager purchases stocks of companies that are:
. in growth industries;
. efficient producers; and
. undervalued relative to long-term growth potential.
The Fund invests:
. in at least 3 different countries (including the U.S.), but normally in more
than 15 countries; and
. no more than 10% of its assets in emerging markets stocks.
The Fund normally invests in 90 to 120 stocks, with at least 65% (usually high-
er) of its assets in large cap companies. The Fund normally has 5% or less of
its assets in cash and cash equivalents.
The Fund may purchase other types of securities, for example: American Deposi-
tory Receipts (ADRs), Global Depository Receipts (GDRs), European Depository
Receipts (EDRs), high quality short-term debt securities, and certain deriva-
tives (investments whose value is based on indices or other securities).
In abnormal market conditions, the Fund may take temporary defensive measures--
such as holding unusually large amounts of cash and cash equivalents or invest-
ing 100% of its assets in U.S. companies--that are inconsistent with the Fund's
primary investment strategy. In taking those measures, the Fund may not achieve
its investment goal.
- --------------------------------------------------------------------------------
SUBADVISER
Scudder Kemper Investments, Inc.
345 Park Avenue
New York, New York 10154
Managing since 1919
Managed approximately $42 billion of assets at end of 1998
FUND MANAGERS
William E. Holtzer
- -----------------
Lead Portfolio Manager of subadviser
Joined subadviser in 1980
Diego Espinosa
- -----------------
Vice President of subadvisor
Joined team in 1997
Joined subadviser in 1996
Research Analyst at Morgan
Stanley & Company (1994-1996)
Nicholas Bratt
- -----------------
Portfolio Manager of subadviser
Joined team in 1993
Joined subadviser in 1976
PAST PERFORMANCE
Because this Fund did not have a full year of operations as of December 31,
1998, no year-by-year total returns or average annual total returns can be
shown for this Fund. However, the Appendix to this prospectus contains certain
performance information that is relevant to this Fund. The Appendix starts on
page 56.
Year-by-year total returns -- calendar years
[BAR GRAPH APPEARS HERE]
<TABLE>
<S> <C>
1998 -0.55%
</TABLE>
Best quarter: up 13.58%, fourth quarter 1998 Worst quarter: down 12.39%, third
quarter 1998
Average annual total returns -- for periods ending 12/31/98(/1/)
<TABLE>
<CAPTION>
Fund Index
<S> <C> <C>
Life of fund (0.83)% 7.99%
</TABLE>
Index: Morgan Stanley Capital International (MSCI) World Index
(1) Began operations on May 1, 1998.
Note: See the Appendix to this prospectus for further performance information
relevant to this Fund.
31
<PAGE>
Global Equity Fund (cont.)
MAIN RISKS
The following risks are major factors in the Fund's performance:
Foreign Risk: The Fund's foreign securities will pose special risks, due to
limited government regulation, lack of public information, economic, political
and social instability and foreign currency rate fluctuations. Factors such as
lack of liquidity, foreign ownership limits and restrictions on removing cur-
rency also pose special risks. All foreign securities have some degree of for-
eign risk. However, to the extent the Fund invests in emerging market coun-
tries, it will have a significantly higher degree of foreign risk than if it
invested exclusively in developed or newly-industrialized countries.
Market Risk: The value of the securities in the Fund may go down in response to
overall stock or bond market movements. Markets tend to move in cycles, with
periods of rising prices and periods of falling prices. Stocks tend to go up
and down in value more than bonds. If the Fund's investments are concentrated
in certain sectors, the Fund's performance could be worse than the overall mar-
ket.
Market Allocation Risk: The allocation of the Fund's assets among domestic and
international equity regions may (1) reduce the Fund's holdings in a region
whose value then increases unexpectedly, or (2) increase the Fund's holdings in
a region just prior to its experiencing a loss of value.
Manager Risk: The manager and its strategy may fail to produce the intended
results. The Fund could underperform its peers or lose money if the manager's
investment strategy does not perform as expected.
-----
The following risk is not considered a major factor in the Fund's performance
because the Fund would not normally commit a large portion of its assets to
investments involved. However, the risk is of such a nature that it could sig-
nificantly affect the Fund's performance, even if the investments are held in
relatively small amounts:
Derivatives Risk: Certain derivative instruments (such as options, futures and
swaps) can produce disproportionate gains or losses. They are generally consid-
ered more risky than direct equity investments. Also, in a down market, deriva-
tives could become harder to value or sell at a fair price.
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS (Selected data for each share interest outstanding
throughout the period indicated)
The following financial highlights have been audited by Ernst & Young LLP.
<TABLE>
<S> <C>
Period ended December 31; 1998**
Net asset value, beginning of period $10.00
Income from investment operations:
Net investment income (loss) 0.07
Net realized and unrealized gain (loss) on investments* (0.13)
Total from investment operations (0.06)
Less distributions:
Distributions from net investment income and capital paid in (0.07)
Distributions from net realized gain on investments sold --
Total distributions (0.07)
Net asset value, end of period 9.87
Total investment return (0.55)%
Ratios and supplemental data
Net assets, end of period (000s omitted)($) 15,281
Ratio of expenses to average net assets (%)*** 1.15%
Ratio of net investment income (loss) to average net assets (%) 1.11%
Turnover rate (%) 33.17%
</TABLE>
* The amount shown may not accord with the change in the aggregate gains and
losses in the fund securities for the period because of the timing of pur-
chases and withdrawals of shares in relation to the fluctuation in market
values of the fund.
** Fund began operations May 1, 1998.
*** Expense ratio is net of expense reimbursement. Had such reimbursement not
been made the expense ratio would have been 2.47% for the year ended Decem-
ber 31, 1998.
32
<PAGE>
International Balanced Fund
GOAL AND STRATEGY
This is a non-diversified international balanced stock and bond fund that seeks
long-term growth in income and capital.
The Fund invests primarily in a mix of:
. common stocks of large foreign companies within developed markets; and
. foreign bonds with maturities generally greater than 12 months.
The manager makes ongoing decisions about the mix between stocks and bonds. The
Fund has a target mix of 65% stocks and 35% bonds.
The Fund normally invests at least 25% of its assets in bonds which are senior
securities.
The Fund invests in at least 3 different countries, but normally invests in 10
to 20 countries.
The Fund invests its assets primarily in developed countries other than the
U.S. and, to a lesser extent, in emerging markets countries.
The manager selects stocks and bonds using fundamental value analysis to iden-
tify fairly priced investments with long-term sustainable future cash flows.
The manager determines fundamental value by focusing on:
. current market prices relative to fundamental values;
. broad-based indices for stocks, bonds, and markets; and
. economic variables such as productivity, inflation and global competitive-
ness.
The Fund is non-diversified, which means that it can take larger positions in a
smaller number of issuers. However, the Fund normally invests in 200 to 300
stocks within the stock portion. The Fund normally has 10% or less of its
assets in cash and cash equivalents.
The Fund may purchase other types of securities, for example: American Deposi-
tory Receipts (ADRs), high quality short-term debt securities, and certain
derivatives (investments whose value is based on indices or other securities).
In abnormal market conditions, the Fund may take temporary defensive measures--
such as holding unusually large amounts of cash and cash equivalents--that are
inconsistent with the Fund's primary investment strategy. In taking those mea-
sures, the Fund may not achieve its investment goal.
- --------------------------------------------------------------------------------
SUBADVISER
Brinson Partners, Inc.
209 South LaSalle Street
Chicago, Illinois 60604
Managing since 1974
Managed approximately $163 billion of assets at end of 1998
FUND MANAGERS
Management by investment team overseen by:
Richard C. Carr, CFA
- -----------------
Managing Director, Global Equities, of subadviser
Joined subadviser in 1989
Began career in 1964
Denis S. Karnosky, Ph.D.
- -----------------
Managing Director, Asset Allocation/Currency, of subadviser
Joined subadviser in 1989
Began career in 1967
Norman D. Cumming
- -----------------
Managing Director, Global Fixed Income, of subadviser's affiliate UBS Brinson,
Limited
Joined subadviser in 1989
Began career in 1977
PAST PERFORMANCE
The graph shows how the fund's total return has varied from year to year, while
the table shows performance over time (along with a broad-based market index
for reference). This information may help provide an indication of the fund's
risks and potential rewards. All figures assume dividend reinvestment. Past
performance does not indicate future results. The performance figures below do
not reflect the deduction of fees and charges payable under the variable
contracts. Such fees and charges would cause the investment returns under the
contracts to be less than that shown below.
Year-by-year total returns -- calendar years
[BAR GRAPH APPEARS HERE]
<TABLE>
<S> <C>
1997 2.65%
1998 17.99%
</TABLE>
- --------------------------------------------------------------------------------
Best quarter: up 13.06%, fourth quarter 1998 Worst quarter: down 4.49%, fourth
quarter 1997
Average annual total returns -- for periods ending 12/31/98(/1/)
<TABLE>
<CAPTION>
Fund Index
<S> <C> <C>
1 year 17.99% 18.98%
Life of fund 10.09% 7.87%
</TABLE>
Index: 65% MSCI World Index (Ex US) (Net of Withholding Taxes from a U.S. Tax
Perspective)/35% Salomon Brothers Non-US Government Bond Index
(1)Began operations on May 1, 1996.
33
<PAGE>
International Balanced Fund (cont.)
MAIN RISKS
The following risks are major factors in the Fund's performance:
Foreign Risk: The Fund's foreign securities will pose special risks, due to
limited government regulation, lack of public information, economic, political
and social instability and foreign currency rate fluctuations. Factors such as
lack of liquidity, foreign ownership limits and restrictions on removing cur-
rency also pose special risks. All foreign securities have some degree of for-
eign risk. However, to the extent the Fund invests in emerging market coun-
tries, it will have a significantly higher degree of foreign risk than if it
invested exclusively in developed or newly-industrialized countries.
Non-Diversified Fund Risk: The Fund's larger position in foreign government
securities could produce more volatile performance relative to funds with
smaller positions. The less diversified a fund's holdings are, the more likely
it is that a specific security's poor performance will hurt the fund signifi-
cantly.
Market Risk: The value of the securities in the Fund may go down in response to
overall stock or bond market movements. Markets tend to move in cycles, with
periods of rising prices and periods of falling prices. Stocks tend to go up
and down in value more than bonds. If the Fund's investments are concentrated
in certain sectors, the Fund's performance could be worse than the overall mar-
ket.
Manager Risk: The manager and its strategy may fail to produce the intended
results. The Fund could underperform its peers or lose money if the manager's
investment strategy does not perform as expected.
Market Allocation Risk: The allocation of the Fund's assets between the major
asset classes (i.e., stocks and bonds) may (1) reduce the Fund's holdings in a
class whose value then increases unexpectedly, or (2) increase the Fund's hold-
ings in a class just prior to its experiencing a loss of value.
Interest Rate Risk: When interest rates rise, the Fund's bond yields will gen-
erally rise and the Fund's bond prices will generally fall. When interest rates
fall, the reverse will generally occur. The longer the average remaining matu-
rity of bonds held by the Fund, the more sensitive the Fund is to interest rate
risk. This Fund has more interest rate risk than a short-term bond fund, but
less interest rate risk than a long-term bond fund.
Credit Risk: An issuer of a bond held by the Fund may default on its obligation
to pay interest and repay principal. Also, the credit rating of a bond held by
the fund may be downgraded. In either case, the value of the bond held by the
Trust would fall. All bonds have some credit risk, but in general lower-rated
bonds have higher credit risk.
-----
The following risk is not considered a major factor in the Fund's performance
because the Fund would not normally commit a large portion of its assets to the
investments involved. However, the risk is of such a nature that it could sig-
nificantly affect the Fund's performance, even if the investments are held in
relatively small amounts:
Derivatives Risk: Certain derivative instruments (such as options, futures and
swaps) can produce disproportionate gains or losses. They are generally consid-
ered more risky than direct equity investments. Also, in a down market, deriva-
tives could become harder to value or sell at a fair price.
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS (Selected data for each share interest outstanding
throughout the period indicated)
The following financial highlights have been audited by Ernst & Young LLP.
<TABLE>
<S> <C> <C> <C>
Period ended December 31: 1996** 1997 1998
Net asset value, beginning of period $ 10.00 $ 10.39 $10.11
Income from investment operations:
Net investment income (loss) .24 .33 0.34
Net realized and unrealized gain (loss) on
investments* .41 (.05) 1.44
Total from investment operations .65 .28 1.78
Less distributions:
Distributions from net investment income and
capital paid in (.24) (.34) (0.35)
Distributions from net realized gain on investments
sold (.02) (.22) (0.42)
Total distributions $ (.26) $ (.56) (0.77)
Net asset value, end of period $ 10.39 $ 10.11 11.12
Total investment return 6.73% 2.65% 17.99%
Ratios and supplemental data
Net assets, end of period (000s omitted)($) $24.098 $25,420 30,416
Ratio of expenses to average net assets (%)*** 1.10% 1.10% 1.10%
Ratio of net investment income (loss) to average net
assets (%) 3.59% 3.18% 3.20%
Turnover rate (%) 22.21% 81.04% 103,55%
</TABLE>
* The amount shown may not accord with the change in the aggregate gains and
losses in the fund securities for the period because of the timing of pur-
chases and withdrawals of shares in relation to the fluctuation in market
values of the fund.
** Fund began operations on May 1, 1996.
*** Expense ratio is net of expense reimbursement. Had such reimbursement not
been made the expense ratio would have been 1.44%, 1.56% and 1.82% for the
years ended December 31, 1996, 1997 and 1998, respectively.
34
<PAGE>
International Equity Index Fund
GOAL AND STRATEGY
This is an international stock fund that seeks to track the performance of the
MSCI EAFE GDP Index, known as the Morgan Stanley Capital International Europe
Australasia and Far East Gross Domestic Product Weighted Index.
The Index is a broad-based equity index of foreign companies in the developed
markets of Europe and the Pacific Rim. Country index weights are based upon a
country's Gross Domestic Product (GDP), while stock index weights are based
upon market capitalization.
The manager employs a passive management strategy using quantitative techniques
to invest in a representative sample of stocks in the Index. The manager
selects stocks in an attempt to track, as closely as possible, the characteris-
tics of the Index. The Fund normally invests in 400 to 1,200 stocks.
The Index composition changes from time to time. The manager will reflect those
changes as soon as practical.
The Fund is normally fully invested. The manager may invest in stock index
futures to maintain market exposure and manage cash flow.
The Fund may invest up to 20% of its assets in emerging markets
The Fund may purchase other types of securities, for example: American Deposi-
tory Receipts (ADRs), high quality short-term debt securities, and certain
derivatives (investments whose value is based on indices or other securities).
Note: "MSCI EAFE GDP Index" is the exclusive property of Morgan Stanley & Co.,
Incorporated and is a registered service mark of Morgan Stanley Capital Inter-
national.
- --------------------------------------------------------------------------------
SUBADVISER
Independence International Associates, Inc.
53 State Street
Boston, Massachusetts 02109
Owned by John Hancock
Managing since 1986
Managed approximately $2 billion of assets at end of 1998
FUND MANAGERS
Norman H. Meltz
- -----------------
Senior Vice President of subadviser
Joined subadviser in 1996
Portfolio manager Boston International Advisors, Inc. (1986-1996)
David P. Nolan
- -----------------
Vice President of subadviser
Joined subadviser in 1996
Portfolio manager Boston
International Advisors, Inc. (1989-1996)
PAST PERFORMANCE
The graph shows how the fund's total return has varied from year to year, while
the table shows performance over time (along with a broad-based market index
for reference). This information may help provide an indication of the fund's
risks and potential rewards. All figures assume dividend reinvestment. Past
performance does not indicate future results. The performance figures below do
not reflect the deduction of fees and charges payable under the variable
contracts. Such fees and charges would cause the investment returns under the
contracts to be less than that shown below.
Year-by-year total returns -- calendar years
[BAR GRAPH APPEARS HERE]
<TABLE>
<S> <C>
1989 14.20%
1990 -7.80%
1991 23.40%
1992 -1.60%
1993 32.10%
1994 -6.26%
1995 8.01%
1996 9.19%
1997 -5.03%
1998 20.82%
</TABLE>
Best quarter: up 20.91%, fourth quarter 1998 Worst quarter: down 14.75%, third
quarter 1998
Average annual total returns -- for periods ending 12/31/98
<TABLE>
<CAPTION>
Fund Index
<S> <C> <C>
1 year 20.82% 23.41%
5 years 4.87% 10.06%
10 years 7.92% 6.12%
Life of fund 7.92% 6.67%
</TABLE>
Index:MSCI Europe, Australia, Far East (EAFE) Index (for periods prior to May
1, 1998)
MSCI EAFE GDP Weighted (for periods after May 1, 1998)
Note: See the Appendix to this prospectus for further performance information
relevant to this Fund.
35
<PAGE>
International Equity Index Fund (cont.)
MAIN RISKS
The following risks are major factors in the Fund's performance:
Foreign Risk: The Fund's foreign securities will pose special risks, due to
limited government regulation, lack of public information, economic, political
and social instability and foreign currency rate fluctuations. Factors such as
lack of liquidity, foreign ownership limits and restrictions on removing cur-
rency also pose special risks. All foreign securities have some degree of for-
eign risk. However, to the extent the Fund invests in emerging market coun-
tries, it will have a significantly higher degree of foreign risk than if it
invested exclusively in developed or newly-industrialized countries.
Index Management Risk: Certain factors such as the following may cause the Fund
to track the Index less closely:
. The securities selected by the manager may not be fully representative of the
Index.
. Transaction expenses of the Fund may result in the Fund's performance being
different than that of the Index.
. The size and timing of the Fund's cash flows may result in the Fund's perfor-
mance being different than that of the Index.
Also, index funds like this one will have more difficulty in taking defensive
positions in abnormal market conditions.
Market Risk: The value of the securities in the Fund may go down in response to
overall stock or bond market movements. Markets tend to move in cycles, with
periods of rising prices and periods of falling prices. Stocks tend to go up
and down in value more than bonds. If the Fund's investments are concentrated
in certain sectors, the Fund's performance could be worse than the overall mar-
ket.
Manager Risk: The manager and its strategy may fail to produce the intended
results. The Fund could underperform its peers or lose money if the manager's
investment strategy does not perform as expected.
-----
The following risk is not considered a major factor in the Fund's performance
because the Fund would not normally commit a large portion of its assets to the
investments involved. However, the risk is of such a nature that it could sig-
nificantly affect the Fund's performance, even if the investments are held in
relatively small amounts:
Derivatives Risk: Certain derivative instruments (such as options, futures and
swaps) can produce disproportionate gains or losses. They are generally consid-
ered more risky than direct equity investments. Also, in a down market, deriva-
tives could become harder to value or sell at a fair price.
-----
The following risk is considered significant because of its potential impact on
the Fund's performance:
Turnover Risk: In general, the greater the volume of buying and selling by a
fund (i.e., the higher its "turnover rate"), the greater the impact that bro-
kerage commissions and other transaction costs will have on the fund's perfor-
mance. Any turnover rate in excess of 100% is considered relatively high. The
Fund had an unusually high turnover rate in 1998 because of a change in the
Fund's investment strategy and the resulting need to restructure its invest-
ments. Normally, the Fund's turnover rate will be less than 100%.
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS (Selected data for each share interest outstanding
throughout the period indicated)
The following financial highlights have been audited by Ernst & Young LLP.
<TABLE>
<S> <C> <C> <C> <C> <C>
Period ended December 31: 1994 1995 1996 1997 1998
Net asset value, beginning of
period $ 15.85 $ 14.62 $ 15.61 $ 16.83 $ 15.20
Income from investment
operations:
Net investment income (loss) 0.12 0.17 0.21 0.13 0.23
Net realized and unrealized
gain (loss) on investments* (1.10) 0.99 1.22 (0.97) 2.91
Total from investment
operations (0.98) 1.16 1.43 (0.84) 3.14
Less distributions:
Distributions from net
investment income and capital
paid-in (0.12) (0.17) (0.21) (0.13) (0.23)
Distributions from net
realized gain on investments
sold (0.13) -- -- (0.66) (2.55)
Total distributions (0.25) (0.17) (0.21) (0.79) (2.78)
Net asset value, end of period 14.62 15.61 16.83 15.20 15.56
Total investment return (6.26)% 8.01% 9.19% (5.03)% 20.82%
Ratios and supplemental data
Net assets, end of period (000s
omitted)($) 119,331 126,803 155,753 152,359 173,137
Ratio of expenses to average
net assets (%)** 0.85% 0.84% 0.76% 0.79% 0.56%
Ratio of net investment income
(loss) to average net assets
(%) 0.85% 1.34% 1.30% 0.78% 1.45%
Turnover rate (%) 78.21% 65.82% 92.03% 83.13% 158.63%
</TABLE>
* The amount shown may not accord with the change in the aggregate gains and
losses in the fund securities for the period because of the timing of pur-
chases and withdrawals of shares in relation to the fluctuation in market
values of the fund.
** Expense ratio is net of expense reimbursement. Had such reimbursement not
been made the expense ratio would have been .87%, .87%, and .63% for the
years ended December 31, 1994, 1995, and 1998, respectively.
36
<PAGE>
International Opportunities Fund
GOAL AND STRATEGY
This is an international stock fund that seeks long-term growth in capital.
The Fund primarily invests in a diversified mix of common stocks of large
established and medium-sized foreign companies located throughout the world,
including developed, newly industrialized, and emerging countries.
The manager determines the distribution among countries and regions by using a
combination of fundamental research and economic analysis, emphasizing:
. prospects for relative economic growth between foreign countries;
. expected levels of inflation;
. government policies influencing business conditions; and
. outlook for currency relationships.
The manager selects stocks that have growth characteristics such as:
. leading market position or technological leadership;
. high return on invested capital;
. healthy balance sheets with relatively low debt;
. strong competitive advantage;
. strength of management; and
. earnings growth and cash flow sufficient to support growing dividends.
The Fund invests:
. in at least 3 different countries; and
. no more than 30% of its assets in emerging market stocks.
The Fund normally invests in 200 to 300 stocks in 15 to 20 countries. The Fund
normally has 10% or less of its assets in cash and cash equivalents.
The Fund also may purchase other types of securities, for example: American
Depository Receipts (ADRs), Global Depository Receipts (GDRs), European Deposi-
tory Receipts (EDRs), high quality short-term debt securities, and certain
derivatives (investments whose value is based on indices or other securities).
In abnormal market conditions, the Fund may take temporary defensive measures--
such as holding unusually large amounts of cash and cash equivalents--that are
inconsistent with the Fund's primary investment strategy. In taking those mea-
sures, the Fund may not achieve its investment goal.
- --------------------------------------------------------------------------------
SUBADVISER
Rowe Price-Fleming International, Inc.
100 East Pratt Street
Baltimore, Maryland 21201
Managing since 1979
Managed approximately $32 billion in assets at end of 1998
FUND MANAGERS
Management by Investment Advisory Group overseen by:
Martin G. Wade
- -----------------
Portfolio Manager of subadviser
Joined subadviser in 1979
Began career in 1969
David J. L. Warren
- -----------------
Portfolio Manager of subadviser
Joined subadvisor in 1983
Began career in 1981
John R. Ford
- -----------------
Portfolio Manager of subadviser
Joined subadvisor in 1982
Began career in 1980
James B. M. Seddon
- -----------------
Portfolio Manager of subadvisor
Joined subadvisor in 1987
Began career in 1987
PAST PERFORMANCE
The graph shows how the fund's total return has varied from year to year, while
the table shows performance over time (along with a broad-based market index
for reference). This information may help provide an indication of the fund's
risks and potential rewards. All figures assume dividend reinvestment. Past
performance does not indicate future results. The performance figures below do
not reflect the deduction of fees and charges payable under the variable
contracts. Such fees and charges would cause the investment returns under the
contracts to be less than that shown below.
Year-by-year total returns -- calendar years
John Hancock International Opportunities Fund Bar Chart
- --------------------------------------------------------------------------------
Year-by-year total returns-calendar years
[GRAPH APPEARS HERE]
<TABLE>
<S> <C>
1997 1.95%
1998 15.92%
</TABLE>
Best quarter: up 17.70%, fourth quarter 1998 Worst quarter: down 13.70%, third
quarter 1998
Average annual total returns -- for periods ending 12/31/98(/1/)
<TABLE>
<CAPTION>
Fund Index
<S> <C> <C>
1 year 15.92% 20.33%
Life of fund 9.08% 8.15%
</TABLE>
Index:MSCI Europe, Australia, Far East (EAFE) Index
(1)Began operations on May 1, 1996.
37
<PAGE>
International Opportunities Fund (cont.)
MAIN RISKS
The following risks are major factors in the Fund's performance:
Foreign Risk: The Fund's foreign securities will pose special risks, due to
limited government regulation, lack of public information, economic, political
and social instability and foreign currency rate fluctuations. Factors such as
lack of liquidity, foreign ownership limits and restrictions on removing cur-
rency also pose special risks. All foreign securities have some degree of for-
eign risk. However, to the extent the Fund invests in emerging market coun-
tries, it will have a significantly higher degree of foreign risk than if it
invested exclusively in developed or newly-industrialized countries.
Market Risk: The value of the securities in the Fund may go down in response to
overall stock or bond market movements. Markets tend to move in cycles, with
periods of rising prices and periods of falling prices. Stocks tend to go up
and down in value more than bonds. If the Fund's investments are concentrated
in certain sectors, the Fund's performance could be worse than the overall mar-
ket.
Manager Risk: The manager and its strategy may fail to produce the intended
results. The Fund could underperform its peers or lose money if the manager's
investment strategy does not perform as expected.
-----
The following risk is not considered a major factor in the Fund's performance
because the Fund would not normally commit a large portion of its assets to the
investments involved. However, the risk is of such a nature that it could sig-
nificantly affect the Fund's performance, even if the investments are held in
relatively small amounts:
Derivatives Risk: Certain derivative instruments (such as options, futures and
swaps) can produce disproportionate gains or losses. They are generally consid-
ered more risky than direct equity investments. Also, in a down market, deriva-
tives could become harder to value or sell at a fair price.
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS (Selected data for each share interest outstanding
throughout the period indicated)
The following financial highlights have been audited by Ernst & Young LLP.
<TABLE>
<S> <C> <C> <C>
Period ended December 31: 1996** 1997 1998
Net asset value, beginning of period $10.00 $10.60 $10.63
Income from investment operations:
Net investment income (loss) 0.07 0.10 0.11
Net realized and unrealized gain (loss) on
investments* 0.60 0.11 1.57
Total from investment operations 0.67 0.21 1.68
Less distributions:
Distributions from net investment income and capital
paid in (0.07) (0.10) (0.10)
Distributions from net realized gain on investments
sold -- (0.08) --
Total distributions (0.07) (0.18) (0.10)
Net asset value, end of period 10.60 10.63 12.21
Total investment return 6.72% 1.95% 15.92%
Ratios and supplemental data
Net assets, end of period (000s omitted)($) 17,898 30,631 64,250
Ratio of expenses to average net assets (%)*** 1.25% 1.22% 1.16%
Ratio of net investment income (loss) to average net
assets (%) 0.87% 0.65% 0.89%
Turnover rate (%) 5.46% 21.09% 18.67%
</TABLE>
* The amount shown may not accord with the change in the aggregate gains and
losses in the fund securities for the period because of the timing of pur-
chases and withdrawals of shares in relation to the fluctuation in market
values of the fund.
** Fund began operations on May 1, 1996.
*** Expense ratio is net of expense reimbursement. Had such reimbursement not
been made the expense ratio would have been 2.76%, 1.57% and 1.46% for the
years ended December 31, 1996, 1997, and 1998, respectively.
38
<PAGE>
Emerging Markets Equity Fund
GOAL AND STRATEGY
This is an emerging markets stock fund that seeks long-term growth in capital.
The Fund invests primarily in the common stocks of companies in countries hav-
ing economies or markets generally considered by the World Bank or United
Nations to be emerging or developing.
The manager identifies attractive countries and stocks using a combination of
quantitative techniques and fundamental research. Countries are selected that
are expected to provide the highest risk/return tradeoff. In making country
decisions, the manager evaluates the economic, political and social trends
within countries.
The manager selects industries and stocks using fundamental proprietary
research. The Fund normally invests:
. in at least 6 emerging markets countries; and
. no more than 35% of its assets in any single country.
The Fund currently invests in 50 to 75 stocks, but would expect to expand that
number if its assets increased significantly. The Fund normally has 5% or less
of its assets in cash and cash equivalents.
The Fund may purchase other types of securities, for example: American Deposi-
tory Receipts (ADRs), Global Depository Receipts (GDRs), European Depository
Receipts (EDRs), high quality short-term debt securities, and certain deriva-
tives (investments whose value is based on indices or other securities).
In abnormal market conditions, the Fund may take temporary defensive measures--
such as holding unusually large amounts of cash and cash equivalents--that are
inconsistent with the Fund's primary investment strategy. In taking those mea-
sures, the Fund may not achieve its investment goal.
- --------------------------------------------------------------------------------
SUBADVISER
Montgomery Asset Management, LLC
101 California Street
San Francisco, California 94111
Managing since 1990
Managed approximately $9 billion of assets at end of 1998
FUND MANAGERS
Josephine S. Jimenez, CFA
- -----------------
Principal and Senior Fund Manager of subadviser
Joined subadviser in 1992
Bryan L. Sudweeks, Ph.D, CFA
- -----------------
Principal and Senior Fund Manager of subadviser
Joined subadviser in 1992
PAST PERFORMANCE
Because this Fund did not have a full year of operations as of December 31,
1998, no year-by-year total returns or average annual total returns can be
shown for this Fund. However, the Appendix to this prospectus contains certain
performance information that is relevant to this Fund. The Appendix starts on
page 56.
39
<PAGE>
Emerging Markets Equity Fund (cont.)
MAIN RISKS
The following risks are major factors in the Fund's performance:
Foreign Risk: The Fund's foreign securities will pose special risks, due to
limited government regulation, lack of public information, economic, political
and social instability and foreign currency rate fluctuations. Factors such as
lack of liquidity, foreign ownership limits and restrictions on removing cur-
rency also pose special risks. All foreign securities have some degree of for-
eign risk. However, since the Fund invests primarily in emerging market coun-
tries, it will have a significantly higher degree of foreign risk than funds
that invest primarily in developed or newly- industrialized countries.
Market Risk: The value of the securities in the Fund may go down in response to
overall stock or bond market movements. Markets tend to move in cycles, with
periods of rising prices and periods of falling prices. Stocks tend to go up
and down in value more than bonds. If the Fund's investments are concentrated
in certain sectors, the Fund's performance could be worse than the overall mar-
ket.
Manager Risk: The manager and its strategy may fail to produce the intended
results. The Fund could underperform its peers or lose money if the manager's
investment strategy does not perform as expected.
Concentration Risk: The Fund's investment in securities of a smaller number of
issuers could produce more volatile performance relative to funds that invest
in a larger number of issuers. The more concentrated a fund's holdings are, the
more likely it is a specific security's poor performance will hurt the fund
significantly.
-----
The following risk is not considered a major factor in the Fund's performance
because the Fund would not normally commit a large portion of its assets to the
investments involved. However, the risk is of such a nature that it could sig-
nificantly affect the Fund's performance, even if the investments are held in
relatively small amounts:
Derivatives Risk: Certain derivative instruments (such as options, futures and
swaps) can produce disproportionate gains or losses. They are generally consid-
ered more risky than direct equity investments. Also, in a down market, deriva-
tives could become harder to value or sell at a fair price.
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS (Selected data for each share interest outstanding
throughout the period indicated)
The following financial highlights have been audited by Ernst & Young LLP.
<TABLE>
<S> <C>
Period ended December 31: 1998**
Net asset value, beginning of period $10.00
Income from investment operations:
Net investment income (loss) .03
Net realized and unrealized gain (loss) on investments* (2.91)
Total from investment operations (2.88)
Less distributions:
Distributions from net investment income and capital paid in (.03)
Distributions from net realized gain on investments sold --
Total distributions (.03)
Net asset value, end of period 7.09
Total investment return (28.78)%
Ratios and supplemental data
Net assets, end of period (000s omitted)($) 7,310
Ratio of expenses to average net assets (%)*** 1.55%
Ratio of net investment income (loss) to average net assets (%) .51%
Turnover rate (%) 53.95%
</TABLE>
* The amount shown may not accord with the change in the aggregate gains and
losses in the fund securities for the period because of the timing of pur-
chases and withdrawals of shares in relation to the fluctuation in market
values of the fund.
** Fund began operations on May 1, 1998.
*** Expense ratio is net of expense reimbursement. Had such reimbursement not
been made the expense ratio would have been 3.69% for the year ended Decem-
ber 31, 1998.
40
<PAGE>
Short-Term Bond Fund
GOAL AND STRATEGY
This is a short-term bond fund that seeks high income consistent with low share
price fluctuation.
The Fund primarily invests in a diversified mix of short-term and intermediate-
term investment grade debt securities including:
. U.S. Treasury and Agency securities;
. U.S. corporate bonds;
. foreign corporate bonds of companies in developed countries (if dollar-
denominated);
. foreign government and agency securities of developed countries (if dollar
denominated);
. mortgage-and asset-backed securities; and
. commercial paper and other short-term debt obligations.
The manager selects bonds using a combination of proprietary research and quan-
titative tools. Bonds are purchased that are attractively priced and that pro-
vide cheap, predictable cash flows.
The Fund normally invests:
. mostly in corporate bonds;
. no more than 15% of its assets in bonds that are below investment grade; and
. no more than 25% of its assets in foreign debt securities.
The Fund normally has:
. an average maturity between one and three and a half years;
. an average credit quality rating of "A" or higher; and
. 10% or less of its assets in cash and cash equivalents.
The Fund only invests in securities that are rated at least BB- or Ba3 at time
of purchase.
The Fund may purchase other types of securities, for example: high-quality
short-term debt securities and certain derivatives (investments whose value is
based on indexes or other securities).
In abnormal market conditions, the Fund may take temporary defensive measures--
such as holding unusually large amounts of cash and cash equivalents--that are
inconsistent with the Fund's primary investment strategy. In taking those mea-
sures, the Fund may not achieve its investment goal.
- --------------------------------------------------------------------------------
SUBADVISER
Independence Investment Associates, Inc.
53 State Street
Boston, Massachusetts 02109
Owned by John Hancock
Managing since 1982
Managed approximately $31 billion in assets at end of 1998
FUND MANAGER
Jeffrey B. Saef
- -----------------
Senior Vice President of subadviser
Joined subadviser in 1994
PAST PERFORMANCE
The graph shows how the fund's total return has varied from year to year, while
the table shows performance over time (along with a broad-based market index
for reference). This information may help provide an indication of the fund's
risks and potential rewards. All figures assume dividend reinvestment. Past
performance does not indicate future results. The performance figures below do
not reflect the deduction of fees and charges payable under the variable
contracts. Such fees and charges would cause the investment returns under the
contracts to be less than that shown below.
Year-by-year total returns -- calendar years
[GRAPH APPEARS HERE]
<TABLE>
<S> <C>
1995 11.49%
1996 3.61%
1997 6.41%
1998 5.82%
</TABLE>
Best quarter: up 3.87%, second quarter 1995 Worst quarter: down 0.39%, first
quarter 1996
Average annual total returns -- for periods ending 12/31/98(/1/)
<TABLE>
<CAPTION>
Fund Index
<S> <C> <C>
1 year 5.82% 6.95%
Life of fund 5.87% 6.88%
</TABLE>
Index:Merrill Lynch 1-5 Year U.S. Government Bond Index (for periods prior to
May 1, 1998)
65% Lehman Brothers 1-3 Year Corporate Bond Index/35% Lehman Brothers 1-3
Year Government Bond Index (for periods after May 1, 1998)
(1)Began operations on May 1, 1994.
41
<PAGE>
Short-Term Bond Fund (cont.)
MAIN RISKS
The following risks are major factors in the Fund's performance:
Market Risk: The value of the securities in the Fund may go down in response
to overall stock or bond market movements. Markets tend to move in cycles,
with periods of rising prices and periods of falling prices. Stocks tend to go
up and down in value more than bonds. If the Fund's investments are concen-
trated in certain sectors, the Fund's performance could be worse than the
overall market.
Manager Risk: The manager and its strategy may fail to produce the intended
results. The Fund could underperform its peers or lose money if the manager's
investment strategy does not perform as expected.
Interest Rate Risk: When interest rates rise, the Fund's bond yields will gen-
erally rise and the Fund's bond prices will generally fall. When interest
rates fall, the reverse will generally occur. The longer the average remaining
maturity of bonds held by the Fund, the more sensitive the Fund is to interest
rate risk. This Fund has less interest rate risk than an intermediate-term or
long-term bond fund.
Credit Risk: An issuer of a bond held by the Fund may default on its obliga-
tion to pay interest and repay principal. Also, the credit rating of a bond
held by the fund may be downgraded. In either case, the value of the bond held
by the Trust would fall. All bonds have some credit risk, but in general low-
er-rated bonds have higher credit risk.
-----
The following risks are not considered a major factor in the Fund's perfor-
mance because the Fund would not normally commit a large portion of its assets
to the investments involved. However, the risks are of such a nature that they
could significantly affect the Fund's performance, even if the investments are
held in relatively small amounts:
Foreign Risk: The Fund's foreign securities will pose special risks, due to
limited government regulation, lack of public information, and economic,
political and social instability. Factors such as lack of liquidity, foreign
ownership limits and restrictions on removing currency also pose special
risks.
Derivatives Risk: Certain derivative instruments (such as options, futures and
swaps) can produce disproportionate gains or losses. They are generally con-
sidered more risky than direct equity investments. Also, in a down market,
derivatives could become harder to value or sell at a fair price.
High Yield Bond Risk: Junk bonds, defined as bond securities rated below BBB-
/Baa3, may be subject to more volatile or erratic price movements due to
investor sentiment. In a down market, these high yield securities become
harder to value or to sell at a fair price.
Prepayment / Call Risk: The Fund's share price or yield could be hurt if
interest rate movements cause the Fund's mortgage-related and callable securi-
ties to be paid off substantially earlier than expected.
- -------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS (Selected data for each share interest outstanding
throughout the period indicated)
The following financial highlights have been audited by Ernst & Young LLP.
<TABLE>
<S> <C> <C> <C> <C> <C>
Period ended December 31: 1994** 1995 1996 1997 1998
Net asset value, beginning of
period $ 10.00 $ 9.66 $ 10.23 $ 10.05 $ 10.08
Income from investment
operations:
Net investment income (loss) .37 .50 .54 .59 0.61
Net realized and unrealized gain
(loss) on investments* (.34) .59 (.18) .03 (0.03)
Total from investment operations .03 1.09 .36 .62 (0.58)
Less distributions:
Distributions from net
investment income and capital
paid in (.37) (.50) (.54) (.59) (0.61)
Distributions from net realized
gain on investments sold -- (.02) (.00) -- --
Total distributions $ (.37) $ (.52) $ (.54) $ (.59) (0.61)
Net asset value, end of period $ 9.66 $ 10.23 $ 10.05 $ 10.08 10.05
Total investment return .33% 11.49% 3.61% 6.41% 5.82%
Ratios and supplemental data
Net assets, end of period (000s
omitted)($) $ 1,718 $17.911 $58,676 $51,120 77,194
Ratio of expenses to average net
assets (%)*** .75% .75% .75% .57% 0.53%
Ratio of net investment income
(loss) to average net assets (%) 5.82% 5.52% 5.66% 5.67% 6.17%
Turnover rate (%) 11.22% 109.77% 20.68% 108.29% 184.50%
</TABLE>
* The amount shown may not accord with the change in the aggregate gains and
losses in the fund securities for the period because of the timing of pur-
chases and withdrawals of shares in relation to the fluctuation in market
values of the fund.
** Fund began operations on May 1, 1994.
*** Expense ratio is net of expense reimbursement. Had such reimbursement not
been made, the expense ratio would have been 13.60%, 1.83% and .79% for
the years ended December 31, 1994, 1995 and 1996, respectively.
42
<PAGE>
Bond Index Fund
GOAL AND STRATEGY
This is a bond fund that seeks to track the performance of the Lehman Brothers
Government / Corporate Index.
The manager employs a passive management strategy using quantitative techniques
to select individual securities that provide a representative sample of the
securities in the Index.
If the Fund reaches approximately $50 million in total assets, the manager will
seek to match the performance of the Lehman Brothers Aggregate Bond Index, a
broader market index that also includes mortgage-backed and asset-backed secu-
rities.
Both of these Indexes consist of investment grade securities with maturities
greater than one year and outstanding par values of at least $100 million
issued primarily by:
. the U.S. Treasury and U.S. government agencies and instrumentalities;
. foreign governments and agencies; and
. U.S. and foreign corporations.
The manager selects securities to match, as closely as practical, the Index's
duration, cash flow, sector, credit quality, callability, and other key perfor-
mance characteristics. The Fund is normally fully invested.
The Index composition may change from time to time. The manager may keep secu-
rities that no longer meet the Index criteria as long as:
. such "ineligible" securities plus cash and money market instruments are less
than 20% of the Fund's assets; and
. high yield securities are less than 5% of the Fund's assets.
- --------------------------------------------------------------------------------
SUBADVISER
Mellon Bond Associates, LLP
One Mellon Bank Center
Pittsburgh, Pennsylvania 15258
Managing since 1986
Managed approximately $49 billion of assets at end of 1998
FUND MANAGERS
Gregory D. Curran
- -----------------
Senior Vice President of subadviser
Joined subadviser in 1995
Began career in 1986
Vice President of Salomon Brothers (1986-1995)
D'Ann L. Loganbill
- -----------------
Vice President of subadviser
Joined subadviser in 1997
Began career in 1987
Vice President of Smith Barney (1994-1997)
PAST PERFORMANCE
Because this Fund did not have a full year of operations as of December 31,
1998, no year-by-year total returns or average annual total returns can be
shown for this Fund. However, the Appendix to this prospectus contains certain
performance information that is relevant to this Fund. The Appendix starts on
page 56.
43
<PAGE>
Bond Index Fund (cont.)
MAIN RISKS
The following risks are major factors in the Fund's performance:
Index Management Risk: Certain factors such as the following may cause the
Fund to track the Index less closely:
. The securities selected by the manager may not be fully representative of the
Index.
. Transaction expenses of the Fund may result in the Fund's performance being
different than that of the Index.
. The size and timing of the Fund's cash flows may result in the Fund's perfor-
mance being different than that of the Index.
Also, index funds like this one will have more difficulty in taking defensive
positions in abnormal market conditions.
Market Risk: The value of the securities in the Fund may go down in response to
overall stock or bond market movements. Markets tend to move in cycles, with
periods of rising prices and periods of falling prices. Stocks tend to go up
and down in value more than bonds. If the Fund's investments are concentrated
in certain sectors, the Fund's performance could be worse than the overall mar-
ket.
Manager Risk: The manager and its strategy may fail to produce the intended
results. The Fund could underperform its peers or lose money if the manager's
investment strategy does not perform as expected.
Interest Rate Risk: When interest rates rise, the Fund's bond yields will gen-
erally rise and the Fund's bond prices will generally fall. When interest rates
fall, the reverse will generally occur. The longer the average remaining matu-
rity of bonds held by the Fund, the more sensitive the Fund is to interest rate
risk. This Fund has more interest rate risk than a short-term bond fund, but
less interest rate risk than a long-term bond fund.
Credit Risk: An issuer of a bond held by the Fund may default on its obligation
to pay interest and repay principal. Also, the credit rating of a bond held by
the fund may be downgraded. In either case, the value of the bond held by the
Trust would fall. All bonds have some credit risk, but in general lower-rated
bonds have higher credit risk.
-----
The following risk is not considered a major factor in the Fund's performance
because the Fund would not normally commit a large portion of its assets to the
investments involved. However, the risk is of such a nature that it could sig-
nificantly affect the Fund's performance, even if the investments are held in
relatively small amounts:
Foreign Risk: The Fund's foreign securities will pose special risks, due to
limited government regulation, lack of public information, and economic, polit-
ical and social instability. Factors such as lack of liquidity, foreign owner-
ship limits and restrictions on removing currency also pose special risks. All
foreign securities have some degree of foreign risk. However, to the extent the
Fund invests in emerging market countries, it will have a significantly higher
degree of foreign risk than if it invested exclusively in developed or newly-
industrialized countries.
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS (Selected data for each share interest outstanding
throughout the period indicated)
The following financial highlights have been audited by Ernst & Young LLP.
<TABLE>
<S> <C>
Period ended December 31: 1998**
Net asset value, beginning of period $ 10.00
Income from investment operations:
Net investment income (loss) 0.42
Net realized and unrealized gain (loss) on investments* 0.29
Total from investment operations 0.71
Less distributions:
Distributions from net investment income and capital paid in (0.42)
Distributions from net realized gain on investments sold (0.10)
Total distributions (0.52)
Net asset value, end of period 10.19
Total investment return 7.20%
Ratios and supplemental data
Net assets, end of period (000s omitted)($) 28,001
Ratio of expenses to average net assets (%)*** 0.40%
Ratio of net investment income (loss) to average net assets (%) 6.17%
Turnover rate (%) 21.09%
</TABLE>
* The amount shown may not accord with the change in the aggregate gains and
losses in the fund securities for the period because of the timing of pur-
chases and withdrawals of shares in relation to the fluctuation in market
values of the fund.
** Fund began operations on May 1, 1998.
*** Expense ratio is net of expense reimbursement. Had such reimbursement not
been made the expense ratio would have been .71% for the year ended Decem-
ber 31, 1998.
44
<PAGE>
Sovereign Bond Fund
GOAL AND STRATEGY
This is a bond fund that seeks long term growth in income and capital.
The Fund primarily invests in a diversified mix of debt securities including:
. U.S. Treasury and agency securities;
. foreign government and agency securities (if dollar-denominated);
. corporate bonds, both U.S. and foreign (if dollar-denominated); and
. mortgage-backed and asset-backed securities.
The manager normally invests:
. mostly in investment grade debt securities;
. no more than 25% of its assets in bonds that are below investment grade; and
. no more than 25% of its assets in foreign securities, excluding Canadian
securities.
The manager seeks to identify specific bond sectors, industries and specific
bonds that are attractively priced. The manager tries to anticipate shifts in
the business cycle, using economic and industry analysis to determine which
sectors and industries might benefit over the next 12 months. The manager uses
proprietary research to identify securities that are undervalued.
The manager evaluates bonds of all quality levels and maturities from many dif-
ferent issuers.
The manager seeks to keep the Fund's interest rate sensitivity in line with the
overall market. The Fund normally has 10% or less of its assets in cash and
cash equivalents.
The Fund may purchase other types of securities, for example: high-quality
short-term securities, and certain derivatives (investments whose value is
based on indices or other securities).
In abnormal market conditions, the Fund may take temporary defensive measures--
such as holding unusually large amounts of cash and cash equivalents--that are
inconsistent with the Fund's primary investment strategy. In taking those mea-
sures, the Fund may not achieve its investment goal.
- --------------------------------------------------------------------------------
SUBADVISER
John Hancock Advisers, Inc.
101 Huntington Avenue
Boston, Massachusetts 02199
Owned by John Hancock
Managing since 1968
Managed approximately $30 billion of assets at end of 1998
FUND MANAGER
James K. Ho, CFA
- -----------------
Executive Vice President of subadviser
Managed fund since 1995
Associated with subadviser since 1985
Began career in 1977
PAST PERFORMANCE
The graph shows how the fund's total return has varied from year to year, while
the table shows performance over time (along with a broad-based market index
for reference). This information may help provide an indication of the fund's
risks and potential rewards. All figures assume dividend reinvestment. Past
performance does not indicate future results. The performance figures below do
not reflect the deduction of fees and charges payable under the variable
contracts. Such fees and charges would cause the investment returns under the
contracts to be less than that shown below.
Year-by-year total returns -- calendar years
[BAR GRAPH APPEARS HERE]
<TABLE>
<S> <C>
1989 11.90%
1990 6.90%
1991 16.70%
1992 7.70%
1993 10.80%
1994 -2.57%
1995 19.55%
1996 4.10%
1997 10.11%
1998 8.23%
</TABLE>
Best quarter: up 7.14%, second quarter 1989 Worst quarter: down 2.51%, first
quarter 1994
Average annual total returns -- for periods ending 12/31/98
<TABLE>
<CAPTION>
Fund Index
<S> <C> <C>
1 year 8.23% 9.47%
5 years 7.64% 7.30%
10 years 9.27% 9.34%
Life of fund 8.59% 8.64%
</TABLE>
Index:Lehman Brothers Government/Corporate Bond Index
45
<PAGE>
Sovereign Bond Fund (cont.)
MAIN RISKS
The following risks are major factors in the Fund's performance:
Market Risk: The value of the securities in the Fund may go down in response
to overall stock or bond market movements. Markets tend to move in cycles,
with periods of rising prices and periods of falling prices. Stocks tend to go
up and down in value more than bonds. If the Fund's investments are concen-
trated in certain sectors, the Fund's performance could be worse than the
overall market.
Manager Risk: The manager and its strategy may fail to produce the intended
results. The Fund could underperform its peers or lose money if the manager's
investment strategy does not perform as expected.
Interest Rate Risk: When interest rates rise, the Fund's bond yields will gen-
erally rise and the Fund's bond prices will generally fall. When interest
rates fall, the reverse will generally occur. The longer the average remaining
maturity of bonds held by the Fund, the more sensitive the Fund is to interest
rate risk. This Fund has more interest rate risk than a short-term bond fund,
but less interest rate risk than a long-term bond fund.
Credit Risk: An issuer of a bond held by the Fund may default on its obliga-
tion to pay interest and repay principal. Also, the credit rating of a bond
held by the fund may be downgraded. In either case, the value of the bond held
by the Fund would fall. All bonds have some credit risk, but in general lower-
rated bonds have higher credit risk.
-----
The following risks are not considered a major factor in the Fund's perfor-
mance because the Fund would not normally commit a large portion of its assets
to the investments involved. However, the risks are of such a nature that they
could significantly affect the Fund's performance, even if the investments are
held in relatively small amounts:
Foreign Risk: The Fund's foreign securities will pose special risks, due to
limited government regulation, lack of public information, and economic,
political and social instability. Factors such as lack of liquidity, foreign
ownership limits and restrictions on removing currency also pose special
risks. All foreign securities have some degree of foreign risk. However, to
the extent the Fund invests in emerging market countries, it will have a sig-
nificantly higher degree of foreign risk than if it invested exclusively in
developed or newly-industrialized countries.
High Yield Bond Risk: Junk bonds, defined as bond securities rated below BBB-
/Baa3, may be subject to more volatile or erratic price movements due to
investor sentiment. In a down market, these high yield securities become
harder to value or to sell at a fair price.
Prepayment/Call Risk: The Fund's share price or yield could be hurt if inter-
est rate movements cause the Fund's mortgage-related and callable securities
to be paid off substantially earlier than expected.
-----
The following risk is considered significant because of its potential impact
on the Fund's performance:
Turnover Risk: In general, the greater the volume of buying and selling by a
fund (i.e., the higher its "turnover rate"), the greater the impact that bro-
kerage commissions and other transaction costs will have on the fund's perfor-
mance. Any turnover rate in excess of 100% is considered relatively high. Nor-
mally, the Fund's turnover rate will be greater than 100%. The Fund had an
unusually high turnover rate in 1998 due to: (1) unusual market volatility;
and (2) the manager's issue and sector selection strategy.
- -------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS (Selected data for each share interest outstanding
throughout the period indicated)
The following financial highlights have been audited by Ernst & Young LLP.
<TABLE>
<S> <C> <C> <C> <C> <C>
Period ended December 31: 1994 1995 1996 1997 1998
Net asset value, beginning
of period $ 10.14 $ 9.19 $ 10.13 $ 9.77 $ 9.95
Income from investment
operations:
Net investment income
(loss) .70 .71 .69 .71 0.69
Net realized and
unrealized gain (loss) on
investments* (.95) 1.03 (.31) .24 0.11
Total from investment
operations (.25) 1.74 .38 .95 0.80
Less distributions:
Distributions from net
investment income and
capital paid in (.70) (.71) (.69) (.71) (0.69)
Distributions from net
realized gain on
investments sold -- (.09) (.05) (.06) (0.14)
Total distributions $ (.70) $ (.80) $ (.74) $ (.77) (0.83)
Net asset value, end of
period $ 9.19 $ 10.13 $ 9.77 $ 9.95 9.92
Total investment return (2.57)% 19.55% 4.10% 10.11% 8.23%
Ratios and supplemental
data
Net assets, end of period
(000s omitted)($) $587,077 $700,309 $726,111 $803,770 907,121
Ratio of expenses to
average net assets (%) .29% .30% .29% .31% 0.29%
Ratio of net investment
income (loss) to average
net assets (%) 7.27% 7.20% 7.07% 7.18% 6.84%
Turnover rate (%) 21.80% 63.31% 119.12% 138.29% 228.74%
</TABLE>
* The amount shown may not accord with the change in the aggregate gains and
losses in the fund securities for the period because of the timing of pur-
chases and withdrawals of shares in relation to the fluctuation in market
values of the fund.
46
<PAGE>
Global Bond Fund
(Formerly Strategic Bond Fund)
GOAL AND STRATEGY
This is a non-diversified global bond fund that seeks current income and growth
in capital.
The manager primarily invests in investment grade debt securities of issuers in
developed countries throughout the world including:
. governments and agencies;
. state and provincial entities;
. supranational organizations (such as the World Bank); and
. corporations and banks.
The Fund invests in at least 3 countries, but normally in 5 to 20 countries.
The Fund normally has an average credit quality rating of "AA" or higher.
The manager makes ongoing decisions regarding the Fund's average maturity,
country and sector allocations and foreign currency exposures. The manager uses
proprietary research and economic analysis to try to anticipate market condi-
tions and interest rate movements and to purchase securities that appear com-
paratively undervalued.
The manager actively uses derivatives (investments whose value is based on
indices or other securities) such as futures, options and swaps to adjust the
Fund's average maturity and to implement currency strategies.
The Fund is non-diversified, which means that it can take larger positions in a
small number of issuers.
The manager actively uses cash and cash equivalents to manage the Fund's aver-
age maturity. However, the Fund normally invests 20% or less of its assets in
cash and cash equivalents.
The Fund may purchase other types of securities, for example: high-quality
short-term debt securities, high yield debt securities, and emerging market
debt securities.
In abnormal market conditions, the Fund may take temporary defensive measures--
such as holding unusually large amounts of cash and cash equivalents--that are
inconsistent with the Fund's primary investment strategy. In taking those mea-
sures, the Fund may not achieve its investment goal.
- --------------------------------------------------------------------------------
SUBADVISER
J.P. Morgan Investment Management Inc.
522 Fifth Avenue
New York, New York 10036
Managing, with predecessors, since 1861
Managed approximately $310 billion of assets at end of 1998
FUND MANAGERS
Christopher J. Durbin
- -----------------
Managing Director of subadviser
Joined subadviser in 1975
Began career in 1975
David Gibbon
- -----------------
Vice President of subadviser
Joined subadviser in 1992
Began career in 1992
PAST PERFORMANCE
The graph shows how the fund's total return has varied from year to year, while
the table shows performance over time (along with a broad-based market index
for reference). This information may help provide an indication of the fund's
risks and potential rewards. All figures assume dividend reinvestment. Past
performance does not indicate future results. The performance figures below do
not reflect the deduction of fees and charges payable under the variable
contracts. Such fees and charges would cause the investment returns under the
contracts to be less than that shown below.
Year-by-year total returns -- calendar years
[GRAPH APPEARS HERE]
<TABLE>
<S> <C>
1997 9.05%
1998 9.15%
</TABLE>
Best quarter: up 4.32%, third quarter 1998 Worst quarter: down 0.35%, first
quarter 1997
Average annual total returns -- for periods ending 12/31/98(/1/)
<TABLE>
<CAPTION>
Fund Index
<S> <C> <C>
1 year 9.15% 9.53%
Life of fund 9.38% 10.04%
</TABLE>
Index:75% Lehman Brothers Aggregate Bond Index/25% JP Morgan Non-US Government
Bond Index, Hedged
(1)Began operations on May 1, 1996.
Note: See the Appendix to this prospectus for further performance information
relevant to this Fund.
47
<PAGE>
Global Bond Fund (cont.)
MAIN RISKS
The following risks are major factors in the Fund's performance:
Foreign Risk: The Fund's foreign securities will pose special risks, due to
limited government regulation, lack of public information, economic, political
and social instability and foreign currency rate fluctuations. Factors such as
lack of liquidity, foreign ownership limits and restrictions on removing cur-
rency also pose special risks. All foreign securities have some degree of for-
eign risk. However, the Fund's investments in emerging market countries have a
significantly higher degree of foreign risk than investments in developed or
newly-industrialized countries.
Non-Diversified Fund Risk: The Fund's larger position in foreign government
securities could produce more volatile performance relative to funds with
smaller positions. The less diversified a fund's holdings are, the more likely
it is that a specific security's poor performance will hurt the fund signifi-
cantly.
Market Risk: The value of the securities in the Fund may go down in response to
overall stock or bond market movements. Markets tend to move in cycles, with
periods of rising prices and periods of falling prices. Stocks tend to go up
and down in value more than bonds. If the Fund's investments are concentrated
in certain sectors, the Fund's performance could be worse than the overall mar-
ket.
Manager Risk: The manager and its strategy may fail to produce the intended
results. The Fund could underperform its peers or lose money if the manager's
investment strategy does not perform as expected.
Interest Rate Risk: When interest rates rise, the Fund's bond yields will gen-
erally rise and the Fund's bond prices will generally fall. When interest rates
fall, the reverse will generally occur. The longer the average remaining matu-
rity of bonds held by the Fund, the more sensitive the Fund is to interest rate
risk. This Fund has more interest rate risk than a short-term bond fund, but
less interest rate risk than a long-term bond fund.
Credit Risk: An issuer of a bond held by the Fund may default on its obligation
to pay interest and repay principal. Also, the credit rating of a bond held by
the fund may be downgraded. In either case, the value of the bond held by the
Trust would fall. All bonds have some credit risk, but in general lower-rated
bonds have higher credit risk.
-----
The following risk is not considered a major factor in the Fund's performance
because the Fund would not normally commit a large portion of its assets to the
investments involved. However, the risk is of such a nature that it could sig-
nificantly affect the Fund's performance, even if the investments are held in
relatively small amounts:
Derivatives Risk: Certain derivative instruments (such as options, futures and
swaps) can produce disproportionate gains or losses. They are generally consid-
ered more risky than direct equity investments. Also, in a down market, deriva-
tives could become harder to value or sell at a fair price.
-----
The following risk is considered significant because of its potential impact on
the Fund's performance:
Turnover Risk: In general, the greater the volume of buying and selling by a
fund (i.e., the higher its "turnover rate"), the greater the impact that bro-
kerage commissions and other transaction costs will have on the fund's perfor-
mance. Any turnover rate in excess of 100% is considered relatively high. Nor-
mally, the Fund's turnover rate will be greater than 100%. The Fund had an
unusually high turnover rate in 1998 due to several factors, including the new
issuance and retirement of government bonds and changes in the composition of
the Fund's benchmark.
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS (Selected data for each share interest outstanding
throughout the period indicated)
The following financial highlights have been audited by Ernst & Young LLP.
<TABLE>
<S> <C> <C> <C>
Global Bond Fund (formerly Strategic Bond
Portfolio)-Period ended December 31: 1996** 1997 1998
Net asset value, beginning of period $ 10.00 $ 10.16 $ 10.24
Income from investment operations:
Net investment income (loss) .38 .59 .54
Net realized and unrealized gain (loss) on
investments* .28 .30 .38
Total from investment operations .66 .89 .92
Less distributions:
Distributions from net investment income and
capital paid in (.38) (.66) (.47)
Distributions from net realized gain on
investments sold (.12) (.15) (.09)
Total distributions $ (.50) $ (.81) (.56)
Net asset value, end of period $ 10.16 $ 10.24 $ 10.60
Total investment return 6.71%(1) 9.05% 9.15%
Ratios and supplemental data
Net assets, end of period (000s omitted)($) $12,907 $28,647 $66,791
Ratio of expenses to average net assets (%)*** 1.00% 1.00% 0.95%
Ratio of net investment income (loss) to
average net assets (%) 6.05% 5.80% 5.27%
Turnover rate (%) 171.39% 69.38% 186.70%
</TABLE>
* The amount shown may not accord with the change in the aggregate gains and
losses in the fund securities for the period because of the timing of pur-
chases and withdrawals of shares in relation to the fluctuation in market
values of the fund.
** Fund began operations on May 1, 1996.
*** Expense ratio is net of expense reimbursement. Had such reimbursement not
been made the expense ratio would have been 1.57%, 1.32% and 1.02% for the
years ended December 31, 1996, 1997, and 1998, respectively.
48
<PAGE>
High Yield Bond Fund
GOAL AND STRATEGY
This is a high yield bond fund that seeks high current income and growth in
capital.
The Fund invests primarily in a diversified mix of high yield debt securities,
commonly referred to as "junk bonds" (rated BB+/Ba1 or lower and their unrated
equivalents), including:
. corporate bonds, both U.S. and foreign (if dollar-denominated);
. foreign government and agency securities (if dollar-denominated);
. preferred stocks; and
. convertible securities (convertible into common stocks or other equity inter-
ests).
The manager will invest no more than 20% of the Fund's assets in emerging mar-
ket countries (with below investment-grade sovereign debt). The Fund normally
has 5% or less of its assets in cash and cash equivalents.
The manager seeks to purchase bonds with stable or improving credit quality
before the market widely perceives the improvement. Purchase and sale decisions
are primarily based upon the investment merits of the particular security.
The manager selects bonds using proprietary research, including:
. quantitative analysis of historical financial data;
. qualitative analysis of a company's future prospects; and
. economic and industry analysis.
The Fund's average maturity depends on security selection decisions rather than
interest rate decisions.
The Fund may purchase other types of securities, for example: equity securi-
ties, high quality debt securities (short-term and otherwise), certain deriva-
tives (investments whose value is based on indices or other securities), and
debt securities denominated in foreign currencies.
In abnormal market conditions, the Fund may take temporary defensive measures--
such as holding unusually large amounts of cash and cash equivalents--that are
inconsistent with the Fund's primary investment strategy. In taking those mea-
sures, the Fund may not achieve its investment goal.
- --------------------------------------------------------------------------------
SUBADVISER
Wellington Management Company, LLP
75 State Street
Boston, Massachusetts 02109
Managing, with predecessors, since 1928
Managed approximately $211 billion of assets at end of 1998
FUND MANAGER
Richard T. Crawford
- -----------------
Vice President of subadviser
Joined subadviser in 1994
Began career in 1991
Manager draws upon the other members of the High Yield team, including:
Earl E. McEvoy
- -----------------
Partner of subadviser
Joined subadviser in 1978
Began career in 1972
Catherine A. Smith
- -----------------
Partner of subadviser
Joined subadviser in 1985
Began career in 1983
PAST PERFORMANCE
Because this Fund did not have a full year of operations as of December 31,
1998, no year-by-year total returns or average annual total returns can be
shown for this Fund. However, the Appendix to this prospectus contains certain
performance information that is relevant to this Fund. The Appendix starts on
page 56.
49
<PAGE>
High Yield Bond Fund (cont.)
MAIN RISKS
The following risks are major factors in the Fund's performance:
High Yield Bond Risk: High yield or junk bonds, defined as bond securities
rated below BBB-/Baa3, may be subject to more volatile or erratic price move-
ments due to investor sentiment. In a down market, these high yield securities
may become harder to value or to sell at a fair price.
Market Risk: The value of the securities in the Fund may go down in response to
overall stock or bond market movements. Markets tend to move in cycles, with
periods of rising prices and periods of falling prices. Stocks tend to go up
and down in value more than bonds. If the Fund's investments are concentrated
in certain sectors, the Fund's performance could be worse than the overall mar-
ket.
Manager Risk: The manager and its strategy may fail to produce the intended
results. The Fund could underperform its peers or lose money if the manager's
investment strategy does not perform as expected.
Interest Rate Risk: When interest rates rise, the Fund's bond yields will gen-
erally rise and the Fund's bond prices will generally fall. When interest rates
fall, the reverse will generally occur. The longer the average remaining matu-
rity of bonds held by the Fund, the more sensitive the Fund is to interest rate
risk. This Fund has more interest rate risk than a short-term bond fund, but
less interest rate risk than a long-term bond fund.
Credit Risk: An issuer of a bond held by the Fund may default on its obligation
to pay interest and repay principal. Also, the credit rating of a bond held by
the fund may be downgraded. In either case, the value of the bond held by the
Fund would fall. All bonds have some credit risk, but in general lower-rated
bonds have higher credit risk.
-----
The following risks are not considered a major factor in the Fund's performance
because the Fund would not normally commit a large portion of its assets to the
investments involved. However, the risks are of such a nature that they could
significantly affect the Fund's performance, even if the investments are held
in relatively small amounts:
Foreign Risk: The Fund's foreign securities will pose special risks, due to
limited government regulation, lack of public information, and economic, polit-
ical and social instability. Factors such as lack of liquidity, foreign owner-
ship limits and restrictions on removing currency also pose special risks. All
foreign securities have some degree of foreign risk. However, to the extent the
Fund invests in emerging market countries, it will have a significantly higher
degree of foreign risk than if it invested exclusively in developed or newly-
industrialized countries.
Derivatives Risk: Certain derivative instruments (such as options, futures and
swaps) can produce disproportionate gains or losses. They are generally consid-
ered more risky than direct equity investments. Also, in a down market, deriva-
tives could become harder to value or sell at a fair price.
Prepayment/Call Risk: The Fund's share price or yield could be hurt if interest
rate movements cause the Fund's mortgage-related and callable securities to be
paid off substantially earlier than expected.
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS (Selected data for each share interest outstanding
throughout the period indicated)
The following financial highlights have been audited by Ernst & Young LLP.
<TABLE>
<S> <C>
Period ended December 31: 1998**
Net asset value, beginning of period $ 10.00
Income from investment operations:
Net investment income (loss) 0.46
Net realized and unrealized gain (loss) on investments* (0.76)
Total from investment operations (0.30)
Less distributions:
Distributions from net investment income and capital paid in (0.46)
Distributions from net realized gain on investments sold (0.01)
Total distributions (0.47)
Net asset value, end of period $ 9.23
Total investment return (2.98)%
Ratios and supplemental data
Net assets, end of period (000s omitted)($) $14,789
Ratio of expenses to average net assets (%)*** 0.90%
Ratio of net investment income (loss) to average net assets (%) 7.43%
Turnover rate (%) 17.67%
</TABLE>
* The amount shown may not accord with the change in the aggregate gains and
losses in the fund securities for the period because of the timing of pur-
chases and withdrawals of shares in relation to the fluctuation in market
values of the fund.
** Fund began operations on May 1, 1998.
*** Expense ratio is net of expense reimbursement. Had such reimbursement not
been made the expense ratio would have been 2.03% for the year ended Decem-
ber 31, 1998.
50
<PAGE>
Money Market Fund
GOAL AND STRATEGY
This is a money market fund that seeks current income consistent with maintain-
ing liquidity and preserving capital. The Fund intends to maintain a stable net
asset value of $10 per share.
The Fund only invests in U.S. dollar denominated money market instruments rated
within the two highest short-term credit rating categories, primarily includ-
ing:
. commercial paper;
. asset-backed commercial paper;
. bank notes and certificates of deposit;
. short-term bonds;
. U.S. Treasury and agency notes and bills; and
. repurchase and reverse repurchase agreements.
These securities have a maximum remaining maturity of 397 days (13 months) and
may be issued by:
. U.S. and foreign banks and other lending institutions;
. U.S. and foreign corporations;
. the U.S. Treasury and U.S. government agencies and instrumentalities;
. entities whose obligations are guaranteed as to principal or interest by the
U.S. Government;
. municipalities;
. foreign governments; and
. supranational organizations (such as the World Bank).
The weighted average time to maturity of the Fund's investments is 90 days or
less.
The manager may invest:
. up to 5% of assets in securities rated in the second-highest short-term cate-
gory (or unrated equivalents); and
. up to 1% of assets or $1 million (whichever is greater) in securities of a
single issuer rated in the second-highest short-term category (or unrated
equivalents).
The manager selects securities with the highest yield available among securi-
ties of comparable credit quality and maturity using proprietary research.
- --------------------------------------------------------------------------------
MANAGER
Managed By John Hancock Mutual Life Insurance Company
FUND MANAGER
Peter S. Mitsopoulos
- -----------------
Financial Officer at manager
Joined manager in 1981
PAST PERFORMANCE
The graph shows how the fund's total return has varied from year to year, while
the table shows performance over time (along with a broad-based market index
for reference). This information may also help provide an indication of the
fund's risks and potential rewards. All figures assume dividend reinvestment.
Past performance does not indicate future results. The performance figures
below do not reflect the deduction of fees and charges payable under the
variable contracts. Such fees and charges would cause the investment returns
under the contracts to be less than that shown below.
Year-by-year total returns -- calendar years
[BAR GRAPH APPEARS HERE]
<TABLE>
<S> <C>
1989 8.90%
1990 8.00%
1991 6.00%
1992 3.60%
1993 3.41%
1994 4.03%
1995 5.78%
1996 5.32%
1997 5.38%
1998 5.40%
</TABLE>
Best quarter: up 2.38%, second quarter 1989 Worst quarter: up 0.74%, second
quarter 1993
Average annual total return -- for periods ending 12/31/98
<TABLE>
<CAPTION>
Fund
<S> <C> <C>
1 year 5.40%
5 years 5.18%
10 years 5.59%
Life of fund 5.86%
</TABLE>
51
<PAGE>
Money Market Fund (cont.)
MAIN RISKS
The following risks are major factors in the Fund's performance:
Manager Risk: The manager and its strategy may fail to produce the intended
results. The Fund could underperform its peers or lose money if the manager's
investment strategy does not perform as expected.
Interest Rate Risk: When interest rates rise, yields on the Fund's investments
will generally rise and prices on the Fund's investments will generally fall.
When interest rates fall, the reverse will generally occur. The longer the
average remaining maturity of instruments held by the Fund, the more sensitive
the Fund is to interest rate risk. This Fund has less interest rate risk than
an intermediate-term or long-term bond fund.
Credit Risk: An issuer of an instrument held by the Fund may default on its
obligation to pay interest and repay principal. Also, the credit rating of an
instrument held by the Fund may be downgraded. In either case, the value of the
instrument held by the Fund would fall. All money market instruments have some
credit risk, but in general lower-rated instruments have higher credit risk.
Foreign Risk: The Fund's foreign securities will pose special risks, due to
limited government regulation, lack of public information, and economic, polit-
ical and social instability. Factors such as lack of liquidity, foreign owner-
ship limits and restrictions on removing currency also pose special risks. All
foreign securities have some degree of foreign risk. However, to the extent the
Fund invests in emerging market countries, it will have a significantly higher
degree of foreign risk than if it invested exclusively in developed or newly-
industrialized countries.
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS (Selected data for each share interest outstanding
throughout the period indicated)
The following financial highlights have been audited by Ernst & Young LLP.
<TABLE>
<S> <C> <C> <C> <C> <C>
Period ended December 31: 1994 1995 1996 1997 1998
Net asset value, beginning
of period $ 10.00 $ 10.00 $ 10.00 $ 10.00 $ 10.00
Income from investment
operations:
Net investment income
(loss) .40 .57 .52 .53 .53
Net realized and unrealized
gain (loss) on
investments* -- -- -- -- --
Total from investment
operations .40 .57 .52 .53 .53
Less distributions:
Distributions from net
investment income and
capital paid in (.40) (.57) (.52) (.53) (.53)
Distributions from net
realized gain on
investments sold -- -- -- -- --
Total distributions (.40) (.57) (.52) (.53) (.5)
Net asset value, end of
period $ 10.00 $ 10.00 $ 10.00 $ 10.00 $ 10.00
Total investment return 4.03% 5.78% 5.32% 5.38% 5.40%
Ratios and supplemental data
Net assets, end of period
(000s omitted)($) $148,668 $185,909 $213,235 $229,443 $395,195
Ratio of expenses to average
net assets (%) .32% .35% .30% .33% .31%
Ratio of net investment
income (loss) to average
net assets (%) 4.05% 5.62% 5.20% 5.32% 5.29%
</TABLE>
* The amount shown may not accord with the change in the aggregate gains and
losses in the fund securities for the period because of the timing of pur-
chases and withdrawals of shares in relation to the fluctuation in market
values of the fund.
52
<PAGE>
Your Account
Investments in shares of the funds
Each fund sells its shares directly to separate accounts of John Hancock,
JHVLICO and IPL to fund variable contracts. Each fund also buys back its shares
on redemption by the separate accounts.
Under the variable contracts, a separate account buys or redeems a fund's
shares based on:
. instructions by you and other contractowners to invest or receive back monies
under a contract (such as making a premium payment or surrendering a con-
tract), and
. the operation of a contract (such as deduction of fees and charges).
The Trust, as law permits, may:
. refuse a buy order if the adviser believes it would disrupt management
. suspend a fund's offer of shares, or
. suspend a fund's redemption obligation or postpone a fund's payment of
redemption proceeds for more than seven days.
Share price
Each fund sells and buys back its shares at the net asset value per share
("NAV") next computed after receipt by a separate account of a contractowner's
instructions.
Each fund calculates its NAV:
. by dividing its net assets by the number of its outstanding shares,
. once daily as of the close of regular trading on the New York Stock Exchange
(generally at 4 p.m. New York time) on each day the Exchange is open.
Certain funds may hold securities primarily listed on foreign exchanges that
trade on weekends or other days when the Trust does not calculate NAV. Conse-
quently, NAV may change on days when contractowners will not be able to
instruct a separate account to buy or redeem fund shares.
Valuation
The Money Market Fund values its securities at amortized cost. Each of the
other funds values securities based on:
. market quotations,
. amortized cost,
. valuations of independent pricing services, or
. fair value determined in accordance with procedures approved by the Trust's
trustees.
A fund may value securities at fair value where, for example:
.market quotations are not readily available, or
. the value of securities has been materially affected after the closing of a
foreign market.
Conflicts
The Trust's trustees monitor for possible material irreconcilable conflicts
among separate accounts buying shares of the funds. The Trust's net asset value
could decrease, if the Trust had to sell investment securities to pay redemp-
tion proceeds to a separate account withdrawing because of a conflict.
53
<PAGE>
Funds' Expenses
The advisory fee paid by each fund to the adviser last year was:
<TABLE>
<CAPTION>
Funds % of net assets
<S> <C> <C>
Managed 0.32%
Growth & Income 0.25%
Equity Index 0.14%
Large Cap Value 0.74%
Large Cap Growth 0.37%
Mid Cap Value 0.80%
Mid Cap Growth 0.85%
Real Estate Equity 0.60%
Small/Mid Cap Growth* 0.75%
Small Cap Value 0.80%
Small Cap Growth 0.75%
International Balanced 0.85%
International Equity Index 0.17%
International Opportunities 0.87%
Short-Term Bond 0.30%
Sovereign Bond 0.25%
Global Bond** 0.69%
Money Market 0.25%
</TABLE>
* Formerly Diversified Mid Cap Growth
**Formerly Strategic Bond
Funds that have not operated for a full year pay fees as a percentage of net
assets as follows:
. Small/Mid Cap CORE: .80% of first $50 million; .70% above $50 million.
. Global Equity: .90% of first $50 million; .80% of next $100 million; .70%
above $150 million
. Emerging Markets Equity: 1.30% of first $10 million; 1.20% of next $140 mil-
lion; 1.10% above $150 million.
. Bond Index: .15% of first $100 million; .13% on next $150 million; .11% above
$250 million.
. High Yield Bond: .65% of first $100 million; .60% on next $100 million; .50%
above $200 million.
The adviser pays subadvisory fees out of its own assets. No fund pays a fee to
its subadviser.
The adviser has agreed to limit each fund's annual expenses (excluding advisory
fees and certain other expenses such as brokerage and taxes) to not more than
.10 percent of the fund's average daily net assets.
Dividends and Taxes
Dividends
Each fund automatically reinvests its dividends and distributions in additional
shares of the fund at NAV.
Each fund declares and pays dividends monthly, except that the Money Market
Fund does so daily.
Funds generally declare capital gains distributions annually.
Taxes
Each fund must meet investment diversification and other requirements under the
Internal Revenue Code, in order to:
. avoid federal income tax and excise tax, and
. assure the tax-deferred treatment of variable contracts under the Code.
You should read the prospectus for your variable contract for the federal
income tax consequences for contractowners, including the consequences of a
fund's failure to meet Code requirements.
54
<PAGE>
Trust Details
Business Structure The diagram below shows the basic business structure of the
Trust. The Trust's trustees oversee the Trust's investment and business activ-
ities and hire various service providers to carry out the Trust's operations.
Year 2000 Compliance The adviser and the funds' service providers are taking
steps to address any year 2000-related computer problems. However, there is
some risk that these problems could disrupt the funds' operations or financial
markets generally.
Variable
Contractowners
John Hancock,
JHVLICO and IPL
Separate Accounts
The Trust
Trustees oversee the
Trust's investment and
business activities.
Investment Adviser Custodian
John Hancock Mutual Life State Street Bank and Trust
Insurance Company Company
Manages the Trust's Holds the Trust's assets,
investment and business settles all Trust
activities. trades and collects most of
the valuation
data required for calculat-
ing the Trust's
NAV.
Subadvisers
Brinson Partners, Inc. Mellon Bond Associates, LLP
Goldman Sachs Asset Management. Montgomery Asset Management, LLC
Independence International Associates, Inc. Neuberger Berman, LLC
Independence Investment Associates, Inc. Rowe Price-Fleming Internation-
INVESCO Management and Research, Inc. al, Inc.
J.P. Morgan Investment Management Inc. Scudder Kemper Investments, Inc.
Janus Capital Corporation State Street Bank and Trust Com-
John Hancock Advisers, Inc. pany
T. Rowe Price Associates, Inc.
Wellington Management Company,
LLP
Provide management to various funds.
55
<PAGE>
APPENDIX
Additional Performance Information
The "Past Performance" information shown earlier in this prospectus for certain
of the Funds may not be sufficient for you to make a complete assessment of the
risks and potential rewards of investing in those Funds. The Small/Mid Cap CORE
Fund, the Global Equity Fund, the Emerging Markets Equity Fund, the Bond Index
Fund, and the High Yield Bond Fund only began operations on May 1, 1998. The
International Equity Index Fund was not managed on an indexed basis prior to
May 1, 1998. Finally, the Small/Mid Cap Growth Fund and the Global Bond Fund
each implemented a significant change in strategy as of May 1, 1999.
Since each of these Funds has at best a very limited period of relevant perfor-
mance history, we have set forth below information for certain similar accounts
that are managed by the Funds' respective subadvisers. Each grouping of such
accounts is referred to as a "composite." In the case of each account included
in a composite, the total management fees and other operating expenses of the
Fund (based upon management fee schedules and allocation rules currently in
effect) have been substituted for the actual fees and expenses (other than bro-
kerage and other transaction expenses) of the account. Also, except as specifi-
cally noted below, each composite includes all of the investment company and
other accounts of the subadviser that satisfy the following requirements:
. they have been managed with investment objectives, policies, and strategies
substantially similar to those used in managing the Fund, and
. they are of sufficient size that their performance would be considered rele-
vant to the owner of a variable contract investing in that Fund.
Some of the accounts in the composites were not registered investment companies
and, therefore, were not subject to federal income tax and other legal require-
ments applicable to such companies. Had such accounts been subject to such
requirements, their performance could have been adversely affected. The perfor-
mance figures in this Appendix do not reflect the deduction of fees and charges
payable under the variable contracts. Such fees and charges would cause the
investment returns under the contacts to be less than that shown below.
The graphs below show how the composite's total return has varied from year to
year, while the tables show performance over time (along with a broad-based
index for reference). All figures assume dividend reinvestment. Past perfor-
mance does not indicate future results.
Small/Mid Cap Growth Composite (Corresponding to Small/Mid Cap Growth Fund)
The Small/Mid Cap Growth Composite is an asset-weighted composite of all
accounts managed using a substantially similar investment strategy. As of
December 31, 1998, the composite included 25 accounts with total assets of $1.4
billion.
Year-by-year total returns -- calendar years
[GRAPH APPEARS HERE]
<TABLE>
<S> <C>
1994 4.32%
1995 30.73%
1996 19.27%
1997 26.87%
1998 14.01%
</TABLE>
Best quarter: up 22.52%, fourth quarter 1998 Worst
quarter: down 15.80%, third quarter 1998
Average annual total returns -- for periods ending
12/31/98
<TABLE>
<CAPTION>
Fund Index
<S> <C> <C>
1 year 14.01% 3.10%
3 years 19.94% 10.83%
5 years 18.66% 12.41%
</TABLE>
Index:Russell 2500TM Growth Index
56
<PAGE>
Small/Mid Cap CORE Composite (Corresponding to Small/Mid Cap CORE Fund)
The Small/Mid Cap CORE Composite is an asset-weighted composite of all accounts
managed using a substantially similar investment strategy. As of December 31,
1998, the composite included 3 accounts with total assets of $127 million.
Year-by-year total returns -- calendar years
[GRAPH APPEARS HERE]
<TABLE>
<S> <C>
1996 19.58%
1997 29.49%
1998 -0.40%
</TABLE>
* Composite inception April, 1996. 1996 total return
is not annualized.
Best quarter: up 15.63%, third quarter 1997 Worst
quarter: down 20.68%, third quarter 1998
Average annual total returns -- for periods ending
12/31/98
<TABLE>
<CAPTION>
Fund Index
<S> <C> <C>
1 year -0.40% 0.38%
Since inception 17.06% 13.12%
</TABLE>
Index:Russell 2500TM Index
Global Equity Composite (Corresponding to Global Equity Fund)
The Global Equity Composite is an asset-weighted composite of all accounts (ex-
cluding mutual funds and the Global Equity Fund) managed using a substantially
similar investment strategy. As of December 31, 1998, the composite included 5
accounts with total assets of $927 million.
Year-by-year total returns -- calendar years
[GRAPH APPEARS HERE]
<TABLE>
<S> <C>
1994 -0.51%
1995 22.82%
1996 14.74%
1997 16.95%
1998 13.60%
</TABLE>
Best quarter: up 13.45%, second quarter 1997 Worst
quarter: down 12.65%, third quarter 1998
Average annual total returns -- for periods ending
12/31/98
<TABLE>
<CAPTION>
Fund Index
<S> <C> <C>
1 year 13.60% 24.80%
3 years 15.09% 18.25%
5 years 13.25% 16.19%
</TABLE>
Index:MSCI World Index
57
<PAGE>
International Equity GDP Index Composite (Corresponding to International Equity
Index Fund)
The International Equity GDP Index Composite is an asset-weighted composite of
all accounts (excluding the International Equity Index Fund) managed using a
substantially similar investment strategy. As of December 31, 1998, the compos-
ite included one mutual fund with total assets of $683 million.
Year-by-year total returns -- calendar years
[GRAPH APPEARS HERE]
<TABLE>
<S> <C>
1994 4.46%
1995 10.93%
1996 7.22%
1997 6.39%
1998 26.13%
</TABLE>
Best quarter: up 20.62%, fourth quarter 1998 Worst
quarter: down 14.35%, third quarter 1998
Average annual total returns -- for periods ending
12/31/98
<TABLE>
<CAPTION>
Fund Index
<S> <C> <C>
1 year 26.13% 27.12%
3 years 12.89% 13.40%
5 years 10.77% 11.98%
</TABLE>
Index:MSCI EAFE GDP Weighted Index
Emerging Markets Equity Composite (Corresponding to Emerging Markets Equity
Fund)
The Emerging Markets Equity Composite is an asset-weighted composite of all
accounts (excluding Montgomery mutual funds) managed using a substantially sim-
ilar investment strategy. As of December 31, 1998, the composite included 14
accounts with total assets of $876 million.
Year-by-year total returns -- calendar years
[GRAPH APPEARS HERE]
<TABLE>
<S> <C>
1994 -8.75%
1995 -6.77%
1996 13.37%
1997 -2.09%
1998 -35.14%
</TABLE>
Best quarter: up 18.80%, third quarter 1994 Worst
quarter: down 22.96%, third quarter 1998
Average annual total returns -- for periods ending
12/31/98
<TABLE>
<CAPTION>
Fund Index
<S> <C> <C>
1 year -35.14% -25.34%
3 years -10.38% -11.21%
5 years -9.34% -9.27%
</TABLE>
Index:MSCI Emerging Markets Free Index
58
<PAGE>
Government/Corporate Bond Index Composite (Corresponding to Bond Index Fund)
The Government/Corporate Bond Index Composite is an asset-weighted composite of
all fully discretionary accounts (excluding mutual funds) managed using a sub-
stantially similar investment strategy. As of December 31, 1998, the composite
included 6 accounts with total assets of $1.3 billion.
Year-by-year total returns -- calendar years
[GRAPH APPEARS HERE]
<TABLE>
<S> <C>
1994 -3.76%
1995 19.02%
1996 2.63%
1997 9.73%
1998 9.54%
</TABLE>
Best quarter: up 6.45%, second quarter 1995 Worst
quarter: down 3.24%, first quarter 1994
Average annual total returns -- for periods ending
12/31/98
<TABLE>
<CAPTION>
Fund Index
<S> <C> <C>
1 year 9.54% 9.47%
3 years 7.25% 7.33%
5 years 7.16% 7.30%
</TABLE>
Index:Lehman Brothers Government/Corporate Bond
Index
Global Bond Hedged Composite (Corresponding to Global Bond Fund)
The Global Bond Hedged Composite is an asset-
weighted composite of all fully discretionary
accounts managed using a substantially similar
investment strategy. As of December 31, 1998, the
composite included 2 accounts with total assets of
$459 million.
Year-by-year total returns -- calendar years
[GRAPH APPEARS HERE]
<TABLE>
<S> <C>
1994 -7.51%
1995 17.71%
1996 8.59%
1997 9.75%
1998 11.74%
</TABLE>
Best quarter: up 5.92%, third quarter 1998 Worst
quarter: down 4.80%, first quarter 1994
Average annual total returns -- for periods ending
12/31/98
<TABLE>
<CAPTION>
Fund Index
<S> <C> <C>
1 year 11.74% 11.41%
3 years 10.02% 10.28%
5 years 7.71% 8.70%
</TABLE>
Index:J. P. Morgan Global Government Bond Index,
U.S. Dollar Hedged.
59
<PAGE>
High Yield Bond Composite (Corresponding to High Yield Bond Fund)
The High Yield Bond Composite is an asset-weighted composite of all fully dis-
cretionary accounts managed using a substantially similar investment strategy.
As of December 31, 1998, the composite included 11 accounts with total assets
of $909 million.
Year-by-year total returns -- calendar years
[GRAPH APPEARS HERE]
<TABLE>
<S> <C>
1994 -0.72%
1995 20.53%
1996 12.81%
1997 11.90%
1998 -0.09%
</TABLE>
Best quarter: up 6.19%, second quarter 1995 Worst
quarter: down -7.90%, third quarter 1998
Average annual total returns -- for periods ending
12/31/98
<TABLE>
<CAPTION>
Fund Index
<S> <C> <C>
1 year -0.09% 1.87%
3 years 8.04% 8.55%
5 years 8.58% 8.58%
</TABLE>
Index:Lehman Brothers High Yield Bond Index.
60
<PAGE>
For more information
This prospectus Two documents are To request a free
should be used available that offer copy of the current
only with a vari- further information annual/semiannual
able contract on John Hancock report or the SAI,
prospectus. Variable Series please contact:
Trust I:
By mail:
Annual/Semiannual
Report to shareholders John Hancock Variable
Series Trust I
Includes financial John Hancock Place
statements, a dis- Boston, MA 02117
cussion of the mar-
ket conditions and
investment strate-
gies that signifi-
cantly affected per-
formance, and the
auditors' report (in
the annual report
only).
By phone: 1-800-732-
5543
Or you may view or
obtain these docu-
ments from the SEC:
In person: at the
SEC's Public Refer-
ence Room in Wash-
ington, DC
Statement of
Additional
Information (SAI)
By phone: 1-800-SEC-
The SAI contains 0330
more detailed infor-
mation on all
aspects of the
funds.
By mail: Public Refer-
ence Section Securi-
ties and Exchange Com-
mission
A current SAI has Washington, DC
been filed with the 20549-6009
Securities and (duplicating fee
Exchange Commission required)
and is incorporated
by reference into
(i.e., is legally a
part of) this pro-
spectus.
On the
Internet: www.sec.gov
SEC Number: 811-4490
John Hancock
Variable
Series Trust I
John Hancock
Place
Boston, Massachu-
setts 02117
<PAGE>
JOHN HANCOCK
VARIABLE SERIES TRUST I
STATEMENT OF ADDITIONAL INFORMATION
This Statement of Additional Information is not a prospectus. It is intended
that this Statement of Additional Information be read in conjunction with the
Prospectus of John Hancock Variable Series Trust I, dated May 1, 1999. A copy of
the Prospectus may be obtained from John Hancock Variable Series Trust I, John
Hancock Place, P.O. Box 111, Boston, Massachusetts, 02117, telephone number
1-800-REAL LIFE.
This Statement of Additional Information relates to all twenty-three of the
Fund's current portfolios.
This Statement of Additional Information is dated May 1, 1999.
1
<PAGE>
TABLE OF CONTENTS
RISK FACTORS....................................................
Debt Securities................................................
Equity Securities..............................................
Real Estate....................................................
Foreign Securities.............................................
Conservative Option and Futures Transactions...................
More Aggressive Option, Futures, and Derivative Transactions...
Risks of Reallocation..........................................
Risks of Full Investment.......................................
Non-Diversified Portfolios.....................................
CHANGING INVESTMENT OBJECTIVES AND STRATEGIES...................
INVESTMENT TECHNIQUES...........................................
Temporary Defensive Strategies.................................
Use of Options on Securities by the Equity Index, Large Cap
Value, Large Cap Growth, Mid Cap Value, Small Cap Value,
and International Opportunities Portfolios...................
Other Hedging Strategies by the Equity Index, Large Cap Value,
Large Cap Growth, Mid Cap Value, Small Cap Value, and
International Opportunities Portfolios.......................
Risks of Options and Futures Transactions......................
Use of Options and Futures by the Managed, Mid Cap Growth,
Diversified Mid Cap Growth, Small/MidCap CORE, Small Cap
Growth, Global Equity, International Balanced, International
Equity Index, Emerging Markets Equity, Short-Term Bond,
Sovereign Bond, Strategic Bond, and High Yield
Bond Portfolios..............................................
Other Derivative Transactions..................................
Further Considerations as to Options and Futures Contracts.....
Short-Term Trading.............................................
Foreign Currency Management Strategies.........................
When Issued Securities and Forward Commitments.................
Repurchase Agreements..........................................
Lending of Portfolio Securities................................
Mortgage Dollar Rolls and Reverse Repurchase Agreements........
TYPES OF INVESTMENT INSTRUMENTS AND RATINGS.....................
Foreign Securities.............................................
Debt Securities Generally......................................
Debt Securities of the International Equity Index Portfolio....
Short-Term Bond Securities.....................................
Sovereign Bond Portfolio Securities............................
Debt Securities of the High Yield Bond Portfolio...............
Debt Securities of the Global Equity Portfolio.................
U.S. Government Obligations....................................
Other Money Market Portfolio Securities........................
Commercial Paper Ratings.......................................
Corporate Bond Ratings.........................................
Rule 144A Securities...........................................
Standard and Poor's Depository Receipts........................
Financial Futures Contracts....................................
Options on Financial Futures Contracts.........................
Interest Rate Options..........................................
2
<PAGE>
Margin Requirements for Futures and Options....................
Stock Index Options............................................
Other Derivative Instruments...................................
Investment Companies...........................................
INVESTMENT INDEXES..............................................
The S&P 500....................................................
The Lehman Brothers Government/Corporate and Aggregate
Bond Indexes.................................................
The MSCI EAFE GDP Index........................................
INVESTMENT RESTRICTIONS.........................................
BOARD OF TRUSTEES AND OFFICERS OF THE FUND......................
INVESTMENT ADVISORY AND OTHER SERVICES..........................
Investment Management and Operating Expenses...................
Underwriting and Indemnity Agreement...........................
Custodian Agreement............................................
Independent Auditors...........................................
YEAR 2000 PROGRESS..............................................
PORTFOLIO TRANSACTIONS AND BROKERAGE ALLOCATION.................
THE TRUST'S ORGANIZATION AND SHARES.............................
VOTING RIGHTS...................................................
PURCHASE AND REDEMPTION OF SHARES...............................
NET ASSET VALUE.................................................
TAXES...........................................................
CALCULATION OF PERFORMANCE DATA.................................
Yield and Total Return Information for all Portfolios Other
than the Money Market Portfolio..............................
Calculation of Yield Quotations of the Money Market Portfolio..
Charges Under Variable Life Insurance and Variable Annuity
Policies.....................................................
ADDITIONAL INFORMATION..........................................
Legal Matters..................................................
Reports........................................................
Financial Statements...........................................
3
<PAGE>
BUSINESS HISTORY
John Hancock Variable Series Trust I, (the "Fund") is an open-end management
investment company which was incorporated on September 23, 1985, under the laws
of the State of Maryland and was reorganized as a Massachusetts business trust,
effective April 29, 1988. See the heading "The Trust's Organization and Shares"
below. The Fund has twenty-three separate Portfolios, each with a separate
series of shares. Shares of the Fund are currently sold to John Hancock Variable
Life Accounts U, V, and S to fund variable life insurance policies issued by
John Hancock Variable Life Insurance Company ("JHVLICO"); John Hancock Variable
Annuity Accounts U and V to fund variable annuity contracts issued by John
Hancock Mutual Life Insurance Company ("John Hancock"); John Hancock Variable
Annuity Account I to fund variable annuity contracts issued by JHVLICO and John
Hancock Mutual Variable Life Insurance Account UV to fund variable life
insurance policies issued by John Hancock. The Fund intends to sell shares to
IPL-1 to fund variable life insurance policies issued by Investors Partner Life
Insurance Company ("IPL"). It is anticipated that, in the future, Fund shares
may be sold to other separate investment accounts of JHVLICO, John Hancock and
IPL. Each of these separate accounts is hereinafter referred to as a "Separate
Account."
The Fund issues a separate series of shares of beneficial interest for each
Portfolio. Each share issued with respect to a Portfolio has a pro rata interest
in the net assets of that Portfolio. The assets of each Portfolio are charged
with the liabilities of that Portfolio and a proportionate share of the general
liabilities of the Fund. Because John Hancock Variable Annuity Accounts U, V,
and I; John Hancock Variable Life Accounts U, V, and S; John Hancock Mutual
Variable Life Insurance Account UV (and, as contemplated, Investors Partner Life
Insurance Company) currently hold all of Fund's shares, those Separate Accounts
may be deemed to control the Fund.
With the exception of the Mid Cap Growth and International Balanced
Portfolios, each of the Portfolios is a "diversified" Portfolio within the
meaning of the Investment Company Act of 1940.
The Fund is, in part, a successor to three separate investment accounts of
JHVLICO as well as the six separate accounts of John Hancock described below. On
March 28, 1986, all of the investment assets and related liabilities of the
Variable Life Stock, Bond, and Money Market Accounts were transferred to the
Stock, Bond, and Money Market Portfolios of the Fund, respectively, in exchange
for shares of these Portfolios. These transactions were effected simultaneously
pursuant to an Agreement and Plan of Reorganization dated November 5, 1985,
entered into by JHVLICO, the Variable Life Stock, Bond, and Money Market
Accounts, and the Fund.
On February 20, 1987, all of the investment assets and related liabilities of
six Variable Annuity Stock, Bond and Money Market Accounts were transferred to
the Stock, Bond and Money Market Portfolios of the Fund, respectively, in
exchange for shares of these Portfolios. These transactions were effected
simultaneously pursuant to an Agreement and Plan of Reorganization dated June
10, 1986, entered into by John Hancock, the six Variable Annuity Stock, Bond and
Money Market Accounts, and the Fund.
In 1998, the Special Opportunities Portfolio was renamed the Diversified
Mid-Cap Growth Portfolio; the International Equities Portfolio was renamed the
International Equity Index Portfolio; and the Short-Term U.S. Government
Portfolio was renamed the Short-Term Bond Portfolio. In 1996, the Stock
Portfolio was renamed the Growth & Income Portfolio, and, in 1995, the Bond
Portfolio was renamed the Sovereign Bond Portfolio; in 1995, the name of the
current International Equity Index Portfolio was changed from the "International
Portfolio" to the "International Equities Portfolio." In 1994, the name of that
Portfolio had been changed from the "Global Portfolio."
RISK FACTORS
The difference in objectives, policies, and practices of the various
Portfolios can be expected to affect each Portfolio's investment return as well
as the degree of risk to which each Portfolio is subject. The greatest risks
(but not all the risks) to which one or more of the Portfolio's of the Fund may
be subject are disclosed below.
DEBT SECURITIES
4
<PAGE>
The Money Market Portfolio invests exclusively in money market instruments; all
the other Portfolios may invest in these instruments to some extent. Because of
their nature, Money market instruments generally do not carry significant risks
of loss. The following Portfolios are primarily invested in non-money market
debt securities: the Short-Term Bond, Bond Index, Sovereign Bond, Strategic
Bond, and High Yield Bond. The Managed, Emerging Markets Equity, and
International Balanced Portfolios can vary their holdings of these securities
within a broad range. All the other Portfolios (except the Money Market
Portfolio) may invest in these securities to some extent.
At the time the Money Market Portfolio 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 Portfolio
may also purchase obligations that are not rated, but are determined by John
Hancock, based on procedures adopted by the Trust's Board of Trustees, to be of
comparable quality to rated first or second tier securities. The Portfolio 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.
Interest Rate Risk: In general, debt securities having longer maturities than
money market instruments have exposure to interest rate risk. Changes in
generally prevailing market interest rates alter a debt security's market value
and introduce volatility into the rate of return of a Portfolio that invests in
such securities. When prevailing interest rates go up, the market value of debt
securities tends to go down and vice versa. This sensitivity of the market
value of a debt security to changes in interest rates is generally related to
the duration of the instrument. The market value of a shorter-term fixed income
security is generally less sensitive to interest rate moves than that of a
longer-term security. The interest rate risk of the Short-Term Bond Portfolio,
although moderate, is below that of traditional intermediate or long-term bond
portfolios.
Credit Risk: The value of a fixed income security may also change as a result
of market perceptions regarding its default or credit risk, defined as the
ability of the borrower to repay its debts. The market value of a fixed income
security can fall when the market perceives the borrower to be less credit
worthy. Conversely, the market value of a fixed income security can increase due
to its borrower being perceived as financially stronger. All Portfolios that
invest in non-money market debt securities may have some exposure to credit
risk.
Risk of Lower-Quality Instruments: High-yield/high-risk bonds (or "junk"
bonds) are debt securities rated below investment grade as defined below under
"Sovereign Bond Portfolio Securities." The value of lower rated securities
generally is more subject to credit risk than is the case for higher rated
securities, and their values tend to respond more to changes in generally
prevailing interest rates. Issuers of high yield/high risk securities are
typically in weak financial health and their ability to pay back principal and
interest on the bonds they issue is uncertain. Some of these issuers may be in
default or bankruptcy. Compared with issuers of investment-grade bonds, they are
more likely to encounter financial difficulties and to be materially affected by
these difficulties when they do encounter them. Junk bond markets may react
strongly to adverse news about an issuer or the economy, or to the perception or
expectations of adverse news. These debt securities may also have less liquid
markets than higher rated securities.
Investments in companies issuing high-yield securities are considered to be
more speculative than higher quality instruments. As such, these securities
typically pay a higher interest rate than investment grade securities. The High
Yield Bond Portfolio intends to invest primarily in these securities. The other
Portfolios most likely to invest a significant portion of their assets in
high-yield securities are the Managed, Large Cap Value, International Balanced,
Short-Term Bond, Sovereign Bond, and Strategic Bond Portfolios. In contrast, the
Diversified Mid Cap Growth and Bond Index Portfolios will not invest in debt
securities that are not at least investment grade at the time of purchase.
However, all Portfolios (other than the Equity Index and Money Market
Portfolios) that invest in debt securities may at times have some exposure to
high yield securities.
Although not customarily referred to as "high yield" securities or "junk
bonds," debt securities that fall in the low-
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est rating within the investment grade category are considered medium grade
securities that have some speculative characteristics. Accordingly, to a lesser
degree, they may present the same risks discussed above with respect to high
yield securities.
Prepayment Risk: Prepayment risk is the risk that a borrower of a debt
security repays an outstanding loan before it is due. Such prepayment is most
likely to occur when interest rates have declined and a borrower can refinance
the debt at a lower interest rate level. Most mortgage backed, asset backed,
other public bond debt securities and 144A securities are exposed to this risk.
U.S. Government securities have minimal exposure to this risk. Issuers of public
debt securities may be required to pay a penalty in order to exercise this
prepayment right. Generally, a Portfolio reinvests the proceeds resulting from
prepayments in a lower yielding instrument. This results in a decrease in the
Portfolio's current yield. The values of securities that are subject to
prepayment risk also tend to increase less in response to declining interest
rates and decrease more in response to increasing interest rates than would the
value of otherwise similar securities that do not have prepayment features. The
Portfolios most likely to invest a significant position of their assets in debt
securities with prepayment features are Managed, Real Estate Equity,
International Balanced, Emerging Markets Equity, Short-Term Bond, Bond Index,
Sovereign Bond, Strategic Bond, and High-Yield Bond Portfolios. However, all
Portfolios that invest in debt securities (other than the Money Market
Portfolio) may at times have some exposure to prepayment risk.
Risks of "Zero Coupon" Instruments: All of the Portfolios may, in varying
degrees, invest in debt instruments that provide for payment of interest at the
maturity date of the instrument (or pay interest in the form of additional
securities), rather than paying interest in cash periodically over the life of
the instrument. The values of such instruments tend to respond more to changes
in interest rates than do otherwise comparable debt obligations that provide for
periodic interest payments. The Portfolios most likely to invest a significant
amount of their assets in instruments that are subject to this volatility risk
are the Managed, Real Estate Equity, International Balanced, Emerging Markets
Equity, Short-Term Bond, Bond Index, Sovereign Bond, Strategic Bond, and
High-Yield Bond Portfolios. However, all Portfolios that invest in debt
securities may at times have some exposure to this risk.
EQUITY SECURITIES
All of the Portfolios intend to invest to some degree in common stock or other
equity securities, except for the Short-Term Bond, Bond Index, Sovereign Bond,
Strategic Bond, and Money Market Portfolios. All of the Portfolios that invest
in equity securities expect to make such securities their primary investment
(except for the Managed Portfolio, which may nevertheless do so in the
discretion of its sub-investment manager). The Managed Portfolio and
International Balanced Portfolio, though investing in equity securities, expect
under normal conditions also to have a substantial amount of their assets
invested in debt obligations.
Equity Risk: Investments in common stock or other equity securities may offer
a higher rate of return than those in money market instruments and longer term
debt securities. However, the risks associated with investments in equity
securities may also be higher, because the investment performance of equity
securities depends upon factors which are difficult to predict. Such factors
include overall market price trends for securities and operating results of
particular issuers. The fundamental risk associated with any equity portfolio is
the risk that the value of the investments it holds might decrease in value.
Equity security values may fluctuate in response to the activities of an
individual company or in response to general market, interest rate, and/or
economic conditions. Historically, equity securities have provided greater
long-term returns and have entailed greater short-term risks than other
investment choices.
Market Capitalization Risk: Another indication of the relative risk of a
common stock investment is defined by the size of the company, which is
typically referred to as its market capitalization. Market capitalization is
computed by multiplying current market price of a share of the company's stock
by the total number of its shares outstanding. Investing in larger
capitalization companies generally involves a lesser degree of risk than
investing in smaller capitalization companies.
Three capitalization levels will be used by the Fund: large, medium ("mid"),
and small. Each of these capitalization levels will be defined by reference to
the Russell 3000 Index. The Russell 3000 Index is a broad market index and is
representative of the U.S. stock markets with a total capitalization of $8.9
trillion at the end of 1998. The Russell
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3000 Index is a service mark of Frank Russell Company, which does not sponsor
and is not in any way affiliated with the Fund. Inclusion in the index in no way
applies an opinion as to its attractiveness or appropriateness as an investment.
o Companies having a capitalization within the range of the 300 largest
companies in the Russell 3000 Index will be considered to be large
capitalization ("large cap") companies. At the end of 1998, each of the
largest 300 companies in the Russell 3000 Index had a capitalization of $6
billion or more.
o Companies having a capitalization within the range of the 700 next largest
companies in the Russell 3000 Index will be considered to be "mid cap." At
the end of 1998, such mid cap companies had capitalizations ranging from
$1.27 billion to $6 billion.
o Companies having a capitalization within the range of the remaining
companies in the Russell 3000 Index will be considered to be small
capitalization ("small cap") companies. At the end of 1998, none of these
smallest companies in the Russell 3000 Index had a market capitalization of
more than $1.27 billion.
A company will continue to qualify as a large cap, mid cap or small cap company
even though, sometime after a Portfolio invests in it, the company ceases to be
within the definition.
The equity securities of the Managed, Growth & Income, Equity Index, Large Cap
Value, Large Cap Growth, Global Equity, International Balanced, International
Equity Index, and International Opportunities Portfolios are generally expected
to represent primarily companies that qualify as large cap issuers. These
Portfolios also may invest in the equity securities of companies that qualify as
small and mid cap issuers.
The equity securities of the Mid Cap Value, Mid Cap Growth, Diversified Mid
Cap Growth, and Real Estate Equity Portfolios are generally expected to
represent primarily companies that qualify as mid cap issuers. These Portfolios
also may invest in the equity securities of companies that qualify as small or
large cap issuers.
The equity securities of the Small/Mid Cap CORE Portfolio are generally
expected to represent companies that are small cap and mid cap issuers. This
Portfolio also may invest in the equity securities of companies that qualify as
large cap issuers.
Small Cap Risk: The very nature of investing in the equity securities of
smaller companies involves greater risks and potential rewards than investing in
larger, more established companies. Emerging growth companies often have limited
product lines, markets or financial resources, and they may depend upon a small
group of inexperienced managers. Investments in such companies can be both more
volatile and more speculative. These securities may have limited marketability
and are subject to more abrupt or erratic market movements than securities of
larger companies or the market in general.
The Small Cap Value and Small Cap Growth Portfolios are generally expected to
invest primarily in equity securities of companies that qualify as small cap
issuers. Although these Portfolios also may invest significant amounts in the
equity securities of companies that qualify as mid cap issuers, it is expected
that they would only rarely invest in the equity securities of companies that
qualify only as large cap issuers.
The Emerging Markets Equity Portfolio has broad latitude to invest in
companies of any size.
REAL ESTATE
The Real Estate Equity Portfolio may invest in companies with activities
related to the real estate industry, such as mortgage real estate investment
trusts which make construction, development and long-term mortgage loans;
financial institutions, including thrift institutions and mortgage banking
companies, which originate or service mortgage loans; manufacturers and
distributors of building supplies, manufactured housing and mobile homes; and
hotel companies, entertainment companies, retailers, railroads and other
companies engaged in non-real estate businesses but whose real estate holdings
are significant in relation to the market value of their common stock.
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The securities purchased will be principally common stocks (and securities
convertible into or with rights to purchase common stocks) but a portion of the
Portfolio may be invested in preferred stock, in commercial mortgage securities
(debt obligations secured by commercial property) and in collateralized mortgage
obligations (mortgage pass-through securities secured by commercial mortgage
pools) which will primarily be of investment grade quality as defined below
under "Sovereign Bond Portfolio Securities". The Portfolio may also invest in
master limited partnerships from time to time.
Investments in the Real Estate Equity Portfolio will be affected by risks
related to the direct ownership of real estate, as well as by market risks due
to changes in interest rates and by the overall volatility of the equities
markets. The market value of shares in equity real estate investment trusts and
commercial property companies in particular is heavily dependent upon the value
of their underlying properties. Overbuilding, declines in local or regional
economic conditions, financial difficulties on the part of major tenants and
increases in real estate taxes and operating expenses all could decrease the
value of the real estate investments. In addition to the Real Estate Portfolio,
all of the other Portfolios (except for the Money Market Portfolio) may have
some exposure to real estate risks through investments in companies engaged in
real estate related businesses or investments in debt instruments secured by
real estate.
FOREIGN SECURITIES
The following Portfolios invest primarily in foreign securities: the
International Balanced, International Equity Index, International Opportunities,
and Emerging Markets Equity Portfolios. The Managed, Diversified Mid Cap Growth,
Global Equity, Short-Term Bond, Bond Index, Strategic Bond, and High-Yield Bond
Portfolios can vary their holdings of these securities within a broad range. It
is expected that the Global Equity Portfolio will spread its investments broadly
around the world. The Mid Cap Growth Portfolio may invest in foreign companies
with earnings growth potential regardless of country of origin or place of
principal business activity. All the other Portfolios can invest in these
securities to some extent, except for the Real Estate Equity Portfolio. The
Emerging Markets Equity Portfolio invests primarily in developing countries
commonly known as "emerging markets." To a lesser extent, the Global Equity,
International Balanced, International Equity Index, International Opportunities,
Short-Term Bond, Bond Index, Strategic Bond, and High-Yield Bond Portfolios may
also invest in developing countries commonly known as "emerging markets".
Currency Risk: Portfolios that invest in foreign securities typically buy the
local currency when they acquire foreign securities and sell the local currency
when they dispose of these securities. As long as Portfolios hold a security
denominated or quoted in a foreign currency, the security's value will be
affected by the value of the local currency relative to that of the U.S. dollar.
In other words, when Portfolios sell a foreign security, the security's value
may be worth more or less in U.S. dollars. Currency risk may be greater in
emerging markets. Strategies that some Portfolios may use to manage their
currency exposure also present certain risks.
Currency Management Risk: These strategies include use of forward currency
contracts, currency futures contracts and options thereon, options on
currencies, and currency derivative contracts known in the trade as "swaps,"
"caps," "floors" or "collars." These instruments may be used to facilitate
settlement of transactions in foreign securities and also to adjust a
Portfolio's exposure to various currencies. The Portfolios that are permitted
to engage in at least some types of these transactions are the Managed, Large
Cap Value, Mid Cap Value, Mid Cap Growth, Diversified Mid Cap Growth, Small Cap
Value, Small Cap Growth, Global Equity, International Balanced, International
Equity Index, International Opportunities, Emerging Markets Equity, Short-Term
Bond, Strategic Bond, and High Yield Bond. Even where intended simply to reduce
a Portfolio's risks of exposure to currencies other than U.S. dollars, there is
no guarantee that a Portfolio will not suffer losses on or otherwise be
disadvantaged by these transactions.
In general, the more foreign securities a given Portfolio invests in, the
greater its currency management activities are likely to be. Also, the Managed,
Mid Cap Growth, Global Equity, International Balanced, International Equity
Index, International Opportunities, Emerging Markets Equity, and Strategic Bond
Portfolios may use certain of these same types of instruments in currency
management strategies that expose those Portfolios to currencies other than the
U.S. dollar. Although this would not be done for the purpose of "leveraging"
the Portfolio's overall exposure to fluctuations in currency values, such
strategies could expose those Portfolios to greater risks of loss and greater
volatility than they otherwise would experience.
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Political and Economic Risk: Foreign securities are subject to heightened
political and economic risks, particularly in underdeveloped or developing
countries, which may have relatively unstable governments and economies based on
only a few industries. Foreign governments may take over the assets or
operations of a company, may impose additional taxes, or may place limits on the
removal of the Portfolio's assets from that country. However, investments in
foreign securities also offer the opportunity to diversify equity holdings and
to invest in economies whose growth may outpace that of the United States.
Regulatory Risk: Generally, there is less government supervision of foreign
markets. Foreign issuers generally are not subject to uniform accounting,
auditing, and financial reporting standards and practices applicable to domestic
issuers. There may be less publicly available information about foreign issuers
than domestic issuers. These risks may be greater in emerging markets. The
Small/Mid Cap CORE Portfolio will invest in equity securities of foreign issues
only if traded in the U.S. and if the issuer complies with U.S. accounting
standards.
Market Risk: Foreign securities markets, particularly those of underdeveloped
or developing countries, may be less liquid and more volatile than domestic
markets. Certain markets may require payments for securities before delivery and
delays may be encountered in settling securities transactions. In some foreign
markets, there may not be protection against failures by other parties to
complete transactions. There may be limited legal recourse against an issuer in
the event of a default on a debt instrument. Administrative problems and delays
may result from international action such as the planned creation of a unified
"Euro" currency for several European nations.
Transaction Costs: Transaction costs of buying and selling foreign securities,
including brokerage, tax, and custody costs, are generally higher than those
involved in domestic transactions.
CONSERVATIVE OPTION AND FUTURES TRANSACTIONS
All of the Portfolios, except Growth & Income, Real Estate Equity, Bond Index
and Money Market, can engage in certain relatively conservative strategies
involving financial futures contracts, options on such futures contracts, and
options on securities. However, if the Portfolio manager's judgments prove
incorrect, even such relatively conservative transactions can negatively affect
the Portfolio's performance.
MORE AGGRESSIVE OPTION, FUTURES, AND DERIVATIVE TRANSACTIONS
Certain Portfolios can enter into options and futures transactions that are
more speculative than, are not subject to the same limits as, or are otherwise
more risky than the transactions mentioned in the immediately preceding
paragraph. These are the Managed, Mid Cap Growth, Diversified Mid Cap Growth,
Small/Mid Cap CORE, Small Cap Growth, Global Equity, International Balanced,
International Equity Index, Emerging Market Equity, Short-Term Bond, Sovereign
Bond, Strategic Bond, and High Yield Bond Portfolios. Also, the Global Equity,
International Balanced, International Equity Index, Emerging Markets Equity,
Strategic Bond, and High Yield Bond Portfolios may enter into transactions
involving so-called "swaps," "caps," "floors" and "collars" based on interest
rates, currencies, or financial indexes. Again, these "derivative" transactions
expose these Portfolios to risks that the other Portfolios are not subject to.
RISKS OF REALLOCATION
The continual reallocation of assets among the major asset classes (e.g.,
stocks, bonds, and cash) involves the risk that the investment manager may
reduce the Portfolio's holdings in an asset class whose value increases
unexpectedly, or may increase the Portfolio's holdings in an asset class just
prior to it experiencing a loss of value. The Managed and International Balanced
Portfolios tend to exercise broad discretion in reallocating assets across asset
classes.
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The Strategic Bond Portfolio intends to exercise discretion to reallocate
assets across domestic and international fixed income asset classes. All of the
other Portfolios, with the exception of the Money Market Portfolio, generally
allow the sub-investment manager some latitude to allocate across asset classes.
Nevertheless, this latitude is expected to be exercised to a lesser degree than
in the case of the Managed and International Balanced Portfolios.
The Managed Portfolio will invest in the following investment sectors:
(1) Common stocks, convertible debentures and convertible preferred stock, and
other equity investments, including the types of securities in which the
Growth & Income and Large Cap Growth Portfolios invest;
(2) Bonds and other fixed income securities with maturities generally in
excess of twelve months, including the types of securities in which the
Sovereign Bond Portfolio invests; and
(3) Money market instruments, such as U.S. government obligations,
certificates of deposit and commercial paper, and other debt securities with
maturities generally not in excess of twelve months, including the types of
securities in which the Money Market Portfolio invests.
RISKS OF FULL INVESTMENT
The Equity Index, International Equity Index, and Bond Index Portfolios expect
to invest substantially all of their assets in equity or debt securities within
their investment objectives and policies at all times. Accordingly, these
Portfolios may carry more risk in times of declining markets than Portfolios
that are more likely to adopt a defensive investment posture in such
circumstances by reallocating their assets in a manner different from that
contemplated by their primary investment objective and strategies. Except for
the Money Market Portfolio, all of the Portfolios have authority to assume such
a defensive position, and they may or may not do so, in the discretion of the
sub-investment managers. However, the Equity Index, International Equity Index,
and Bond Index Portfolios are less likely to assume such a defensive position
than any of such other Portfolios. In any event, there can be no assurance that
the transaction costs and lost investment opportunities will not outweigh any
benefits to a Portfolio that attempts to adopt a defensive strategy.
NON-DIVERSIFIED PORTFOLIOS
The Mid Cap Growth and International Balanced Portfolios are non-diversified
Portfolios. A "non-diversified" portfolio has the ability to take larger
positions in a smaller number of issuers than "diversified" portfolios. Because
the appreciation or depreciation of a single security may have a greater impact
on the net asset value of a non-diversified portfolio, its share price can be
expected to fluctuate more than a comparable diversified portfolio.
Non-diversified Portfolios are less restricted in the extent to which they may
invest more than 5% of their assets in any issuer or purchase more than 10% of
the voting securities of any issuer. Because a relatively high percentage of a
non-diversified Portfolios' assets may be invested in the obligations of a
limited number of issuers, the value of these Portfolios' shares may be more
susceptible to any single economic, political, or regulatory event, and to
credit and market risks associated with a single issuer, than would the shares
of a diversified portfolio. Non-diversified Portfolios, like the other
Portfolios, are subject to certain federal income tax law requirements that
limit the amounts invested in a single issuer or in a small group of issuers.
See "Taxes" below.
CHANGING INVESTMENT OBJECTIVES AND STRATEGIES
The Portfolios' investment objectives and strategies may in general be changed
without the approval of shareholders. However, a "majority" of outstanding
voting shares of each affected Portfolio, as defined in the Investment Company
Act of 1940, is required to change any such objectives and strategies for the
Growth & Income, Large Cap Growth, Real Estate Equity, and Sovereign Bond
Portfolios unless otherwise there indicated.
INVESTMENT TECHNIQUES
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TEMPORARY DEFENSIVE STRATEGIES
All of the portfolios, except the Money Market, may (but are not required
to) adopt a defensive investment posture by reallocating some or all of their
assets in a manner different from that contemplated by their primary investment
objective and strategies.
The investments that a Portfolio makes for such defensive purposes must
comply with any of the investment policies and restrictions of that Portfolio
that are "fundamental" (that can be changed only by shareholder vote). Beyond
that, most of the Portfolio's are not limited as to the types of investments
they could use temporarily for defensive purposes. Thus, for example, a small
cap equity Portfolio might temporarily invest in stocks of larger cap companies
or in debt securities. A bond portfolio might shorten maturities or tighten its
investment quality parameters. An international fund might, for example, limit
the countries it would invest in or temporarily invest only in the United
States.
Several Portfolios are subject to more specific requirements, however. As
a matter of fundamental policy, assets in which the Growth & Income Portfolio
may temporarily invest outside of its regular investment program are limited to
cash equivalents. Nevertheless, that Portfolio's regular investment program
permits it also to invest substantial amounts in (among other things) debt
securities other than cash equivalents.
USE OF OPTIONS ON SECURITIES BY THE EQUITY INDEX, LARGE CAP VALUE, LARGE CAP
GROWTH, MID CAP VALUE, SMALL CAP VALUE, AND INTERNATIONAL OPPORTUNITIES
PORTFOLIOS
Writing Exchange-Traded Covered Call Options. These Portfolios may write
"covered" call options on national securities exchanges. In such transactions,
the Portfolio receives an option "premium" in return for which it agrees to sell
specific securities held in its portfolio for a specified "exercise" price at
any time prior to the expiration period of the option. Although the premium
represents income to the Portfolio, the Portfolio in effect foregoes the benefit
of any appreciation in the price of the security in excess of the exercise price
during the option period.
Purchasing Exchange-Traded Protective Put Options. These Portfolios also may
purchase "protective" put options on national securities exchanges. In such
transactions, the Portfolio pays a "premium" for the right to sell particular
securities held by it for a specified "exercise" price at any time prior to the
expiration of the option period. If, over such period, the market value of such
underlying securities remains above the exercise price, the Portfolio will, in
effect, lose the premium it has paid. The Portfolio, however, avoids the risk of
loss on the underlying securities, to the extent that the market value of the
underlying security falls below the exercise price of the put option.
Liquidity Risk. These Portfolios intend to write and purchase options only if
adequate liquidity exists. If for any reason a Portfolio cannot, however, close
out its open option position when deemed advisable, the Portfolio's investment
performance could be adversely affected.
OTHER HEDGING STRATEGIES BY THE EQUITY INDEX, LARGE CAP VALUE, LARGE CAP GROWTH,
MID CAP VALUE, SMALL CAP VALUE, AND INTERNATIONAL OPPORTUNITIES PORTFOLIOS
These Portfolios (other than the Equity Index Portfolio) may use
exchange-traded financial futures contracts and options thereon. These
Portfolios will use those instruments solely as a hedge to protect against
possible changes in interest rates, currency exchange rates, and stock prices.
These Portfolios also may purchase exchange-traded put or call options on stock
indexes; but again, solely for hedging purposes.
For example, during a market decline, the selling of the appropriate futures
contract or the purchase of the appropriate put option could enable a Portfolio
to retain securities held in its portfolio, while avoiding part or all of any
loss resulting from a decline in their value. Outright sales of such securities
may not be advantageous at that time, for example, because (in the case of debt
instruments) the proceeds would have to be invested in lower-yielding,
shorter-term instruments. Also, with respect to both debt and equity securities
held by a Portfolio, it may be difficult to liquidate positions quickly when a
market decline is anticipated. Similarly, it may be difficult to re-establish
such positions
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quickly when the decline is over or if the decline fails to materialize. These
difficulties can be reduced by, for example, selling the appropriate futures
contracts when a decline is anticipated and closing out the futures position
when such anticipations changes.
Similarly, purchasing futures contracts and call options would enable a
Portfolio to take the approximate economic equivalent of a substantial position
in bonds or equity securities more quickly or economically than may be possible
through direct purchases of debt or equity instruments. Thus, the Equity Index
Portfolio may purchase and sell stock index futures and may purchase options on
such futures contracts or on stock indexes to maintain market exposure and
manage cash flows.
Financial Futures Contracts. Financial futures contracts consist of interest
rate futures contracts, stock index futures contracts, and currency futures
contracts. An interest rate futures contract is a contract to buy or sell
specified debt securities at a future time for a fixed price. A stock index
futures contract is similar in economic effect, except that rather than being
based on specified debt securities, it is based on a specified index of stocks.
A currency futures contract is a contract to buy or sell a specified currency at
a future time for a fixed price.
To hedge against the possibility that increases in interest rates may
adversely affect the market values of debt securities held by them, these
Portfolios (other than the Equity Index Portfolio) may enter into interest rate
futures sale contracts. Similarly, to hedge against the possibility that
interest rates or other factors may result in a general decline in prices of
equity securities of a type owned by them, these Portfolios may sell stock index
futures contracts. Assuming that any decline in the securities being hedged is
accompanied by a decline in the stock index or debt instrument chosen, the
futures sale contracts on that index or instrument may generate gains which can
wholly or partially offset any decline in the value of the Portfolio securities
which have been hedged.
If they wish to hedge against the possibility of lower interest rates or
increases in equity prices, these Portfolios (other than the Equity Index
Portfolio) may purchase financial futures contracts. These Portfolios (as well
as the Equity Index Portfolio) may purchase futures contracts only when (a) they
intend to purchase securities or wish to establish or maintain market exposure
to securities that the Portfolio would be authorized to purchase and (b) the
values of such securities are expected to change by approximately the same
amount as the value of the futures contracts used to hedge them. When an
increase in the price of the securities is matched by a similar increase in the
value of the financial futures contracts, then the gains so generated will
achieve the Portfolio's objective for the hedge transaction.
Each of these Portfolios (other than the Equity Index Portfolio) may use
foreign currency futures contracts to manage their exposure to foreign
currencies. Foreign currency futures contracts could be used by a Portfolio for
this purpose in any manner that such Portfolio could use forward currency
contracts as described under "Foreign Currency Management Strategies" below.
Options on Futures Contracts and on Stock Indexes. These Portfolios (other
than the Equity Index Portfolio) also may purchase options on appropriate
financial futures contracts and stock indexes in connection with the above
hedging strategies. Similarly, the Sovereign Bond Portfolio may purchase options
on financial futures contracts in connection with such strategies. An option on
a financial futures contract gives the purchaser the right to assume a position
in the underlying futures contract, and therefore can serve the same hedging
function as owning the futures contract directly. Purchase of an option on a
stock index has a very similar economic effect.
The purchase of a put or call option entails the payment by a Portfolio of a
non-refundable option premium. The use of options for hedging purposes is in
this sense more costly to the Fund than the purchase of futures contracts
directly. Nevertheless, if a Portfolio purchases an option, the maximum loss it
can suffer is the option premium plus commission costs. The potential loss on a
futures contract transaction is not so limited, because the Portfolio would be
obligated, as the case may be, to purchase or sell the full amount of the
securities or index amount on which the futures contract is based.
Limitations. None of the Equity Index, Large Cap Value, Large Cap Growth, Mid
Cap Value, Small Cap Value, or International Opportunities Portfolios will enter
into any financial futures contract or purchase any option thereon, if,
immediately thereafter, the total amount of its assets required by commodities
exchanges to be on deposit as margin
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to secure its obligations under futures contracts, plus the amount of premiums
paid by the Portfolio for outstanding options to purchase futures contracts,
exceeds 5% of the market value of the Portfolio's total assets. For more
information about margin deposits, see "Financial Futures Contracts" below.
Nor will any of the Large Cap Value, Large Cap Growth, Mid Cap Value, or Small
Cap Value Portfolios enter into any transaction in interest rate, stock index or
currency futures, or options thereon, or stock index options, if the value of
the securities being hedged by all of such instruments would immediately
thereafter be more than one-third of the value of the Portfolio's total assets.
Nor will any Portfolio consider as "hedging" any transaction that is intended to
leverage the Portfolio's investment exposure to the type of security being
hedged or to leverage the Portfolio's currency exposure. Additional limitations
may occur as a result of the tax treatment of these hedging strategies.
RISKS OF OPTIONS AND FUTURES TRANSACTIONS
Risks of Hedging. If, after a Portfolio establishes a hedge position, the
value of the securities or currencies being hedged moves in the opposite
direction from that anticipated, the Portfolio as a whole will perform less well
than it would have had it not entered into the futures or options positions.
The success of the Portfolios in using hedging techniques depends, among other
things, on the sub-investment manager's ability to predict the direction and
volatility of price movements in the futures or options markets, as well as the
securities markets and, in some cases, currency markets, and on the
sub-investment manager's ability to select the proper type, time and duration of
hedges. The sub-investment managers have limited experience in utilizing these
hedging techniques and there can be no assurance that these techniques will
produce their intended result. Also, use of these techniques may complicate
management of the Portfolios and make compliance with the Portfolios' tax and
other restrictions more difficult.
The prices of the futures and options contracts used for hedging may not vary
as contemplated in relation to changes in the price of the securities or
currencies being hedged. Accordingly, there is a risk that transactions in these
instruments, if used by a Portfolio, may not in fact offset the impact of
adverse market developments in the manner or to the extent contemplated or that
such transactions may result in losses to the Portfolio which would not be
offset by gains with respect to corresponding portfolio securities owned or to
be purchased by that Portfolio. Although the Portfolios intend to establish
appropriate positions in these instruments only when there appears to be an
active market, there is no assurance that a liquid market will exist at a time
when the Portfolio seeks to close a particular futures or option position.
Hedging transactions also may be more, rather than less, favorable to a
Portfolio than originally anticipated.
Other Risks for the Managed, Mid Cap Growth, Diversified Mid Cap Growth,
Small/Mid Cap CORE, Small Cap Growth, Global Equity, International Balanced,
International Equity Index, Emerging Markets Equity, Short-Term Bond, Sovereign
Bond, Strategic Bond, and High Yield Bond Portfolios. These Portfolios may
engage in types of options and futures transactions not permitted to the Funds'
other Portfolios, including over-the-counter options, writing covered put
options, and more types of transactions that are not solely for hedging purposes
or that otherwise are more speculative. Also, even as to options and futures
transactions of a type that are permitted to other Portfolios, these Portfolios
are, in certain cases, not as limited regarding the amount of their assets that
may be so employed. To the extent that these Portfolios exercise their broader
authority to enter into options and futures transactions, they may incur greater
risks than the other Portfolios.
USE OF OPTIONS AND FUTURES BY THE MANAGED, MID CAP GROWTH, DIVERSIFIED MID CAP
GROWTH, SMALL/MIDCAP CORE, SMALL CAP GROWTH, GLOBAL EQUITY, INTERNATIONAL
BALANCED, INTERNATIONAL EQUITY INDEX, EMERGING MARKETS EQUITY, SHORT-TERM BOND,
SOVEREIGN BOND, STRATEGIC BOND, AND HIGH YIELD BOND PORTFOLIOS
Writing Exchange-Traded Covered Call Options and Purchasing Exchange-Traded
Protective Put Options. These Portfolios (other than the Sovereign Bond
Portfolio) may engage in the same transactions described above under "Writing
Exchange-Traded Covered Call Options" and "Purchasing Exchange-Traded Protective
Put Options."
Writing Covered Put Options. These Portfolios (other than the Sovereign Bond
Portfolio) may also write "cov-
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ered" put options on securities. A put option written by a Portfolio will be
deemed to be "covered" if the Portfolio maintains in a segregated account with
its custodian cash, U.S. Government securities or other high-grade liquid debt
securities with a value at all times at least equal to the exercise price of the
put. Put and call options written by Portfolios will also be considered to be
"covered" to the extent that the Portfolio's liabilities under these options are
fully offset by its rights under put or call options purchased by the Portfolio.
Although a Portfolio receives a "premium" for writing a covered put option, it
incurs the risk that the put will be exercised and the Portfolio will be
required to purchase the securities subject to the put for a price that is
higher than the then-current market value of such securities.
Purchasing Other Put and Call Options on Securities and Securities Indexes.
These Portfolios (which for this purpose include the Sovereign Bond Portfolio)
may also purchase put and call options in the same types of transactions
described above under "Other Hedging Strategies by the Equity Index, Large Cap
Value, Large Cap Growth, Mid Cap Value, Small Cap Value, and International
Opportunities Portfolios."
The Managed, Mid Cap Growth, Diversified Mid Cap Growth, Small/Mid Cap CORE,
Small Cap Growth, Global Equity, International Balanced, International Equity
Index, Emerging Markets Equity, Short-Term Bond, Strategic Bond, and High Yield
Bond Portfolios also may, for other purposes, purchase put and call options on
indexes composed of securities in which those Portfolios may invest.
The Managed, Mid Cap Growth, Small/Mid Cap CORE, Small Cap Growth, Global
Equity, International Balanced, International Equity Index, Emerging Markets
Equity, Strategic Bond, and High Yield Bond Portfolios may also purchase put and
call options (in addition to those described above under "Purchasing
Exchange-Traded Protective Put Options") on securities in which they may invest.
In purchasing a put or call option, a Portfolio may lose up to the entire
amount of the premium that it pays for the option, if the price of the
securities or index subject to the option moves adversely to the Portfolio's
position so that the option cannot be profitably exercised prior to its
expiration. None of these Portfolios may invest more than 5% of its total
assets, taken at market value at the time of investment, in call and put options
on domestic and foreign securities and indexes (excluding protective put options
purchased on securities and index options purchased as part of hedging
strategies).
Covered Put and Call Options Written on Securities Indexes by the Managed, Mid
Cap Growth, Diversified Mid Cap Growth, Small/Mid Cap CORE, Small Cap Growth,
Global Equity, International Balanced, International Equity Index, Short-Term
Bond, Strategic Bond, and High Yield Bond Portfolios. These Portfolios (but not
the Emerging Markets Equity or Sovereign Bond Portfolios) may also write covered
put or call options on indexes composed of securities in which the Portfolio may
invest, in any manner that such Portfolio would be permitted to write such
options on specific securities.
Using Options Traded Over-the-Counter or on Foreign Exchanges. These
Portfolios (which for this purpose include the Emerging Markets Equity Portfolio
but not the Sovereign Bond Portfolio) may also use options on securities and
options on indexes that are traded "over-the-counter" and on foreign exchanges
in any manner that they are otherwise permitted to use such options. These
Portfolios will engage in over-the-counter options only with member banks of the
Federal Reserve System and primary dealers in U.S. Government securities. These
Portfolios will treat purchased over-the-counter options and assets used to
cover written over-the-counter options as illiquid securities. However, with
respect to options written with primary dealers in U.S. Government securities
pursuant to an agreement requiring a closing purchase transaction at a formula
price, the amount of illiquid securities may be calculated with reference to the
formula price.
Using Futures Contracts and Options on Futures Contracts. These Portfolios
(which for this purpose include the Emerging Markets Equity and Sovereign Bond
Portfolios) may use futures contracts on securities or on market indexes, and
options on such futures contracts, to hedge against changes in securities
prices, interest rates, and currency exchange rates (including the techniques
described above under "Other Hedging Strategies by the Equity Index, Large Cap
Value, Large Cap Growth, Mid Cap Value, Small Cap Value, and International
Opportunities Portfolios") or for other purposes that may be more speculative.
Such futures and options contracts will in all cases be traded on U.S. commodity
exchanges, boards of trade, or other recognized exchanges and may be based upon
various securities, fi-
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nancial instruments or indexes thereof. None of these Portfolios may purchase,
sell or write futures contracts or options other than for "bona-fide" hedging
purposes (as defined by the U.S. Commodity Futures Trading Commission) if
immediately thereafter the Portfolio's initial margin deposits on such
outstanding non-hedging futures and options positions and the amount of premiums
paid by the Portfolio for such outstanding non-hedging options on futures
contracts exceeds 5% of the market value of the Portfolio's net assets. For the
purpose of this calculation, any amount by which an option is "in the money" at
the time of its purchase is excluded from the premium paid therefor.
There is no specific overall limit on the amount of the assets of these
Portfolios that may be exposed to the risks of financial futures contracts and
options thereon that are used for non-hedging purposes. Nevertheless (except
through the purchase of options, as discussed below) the Portfolios will not use
these techniques for purpose of "leveraging" the Portfolio's exposure to the
securities underlying any futures contract or option thereon or its exposure to
foreign currencies. Although this limitation does not apply to options on
futures contracts that are purchased by a Portfolio, the total amount of
premiums paid by a Portfolio for such options that are not used for bona fide
hedging is, as discussed above, limited to 5% of the Portfolio's net assets, and
the Portfolio will have no liability in connection with such options beyond
payment of the option premium and related commissions.
OTHER DERIVATIVE TRANSACTIONS
The International Balanced, International Equity Index, Strategic Bond, and
High Yield Bond Portfolios may engage in swap transactions, specifically
interest rate, currency and index swaps and in the purchase or sale of related
caps, floors and collars. The Emerging Markets Equity Portfolio may also engage
in those transactions and, in addition, may engage in equity swap transactions.
In a typical interest rate swap agreement, one party agrees to make payments
equal to a floating interest rate on a specified amount (the "notional amount")
in return for payments equal to a fixed interest rate on the same amount for a
specified period. If a swap agreement provides for payments in different
currencies, the parties might agree to exchange the notional amount as well. The
purchaser of an interest rate cap or floor, upon payment of a fee, has the right
to receive payments (and the seller of the cap is obligated to make payments) to
the extent a specified interest rate exceeds (in the case of a cap) or is less
than (in the case of a floor) a specified level over a specified period of time
or at specified dates. The purchaser of an interest rate collar, upon payment of
a fee, has the right to receive payments (and the seller of the collar is
obligated to make payments) to the extent that a specified interest rate falls
outside an agreed upon range over a specified period of time or at specified
dates.
Currency, index, and equity swaps, caps, floors, and collars are similar to
those described in the preceding paragraph, except that, rather than being
determined by variations in specified interest rates, the obligations of the
parties are determined by variations in specified currency, interest rate index,
or equity index.
The amount of a Portfolio's potential gain or loss on any swap transaction is
not subject to any fixed limit. Nor is there any fixed limit on the Portfolio's
potential loss if it sells a cap, floor or collar. If a Portfolio buys a cap,
floor or collar, however, the Portfolio's potential loss is limited to the
amount of the fee that it has paid. Swaps, caps, floors and collars tend to be
more volatile than many other types of investments. Nevertheless, a Portfolio
will use these techniques only as a risk management tool and not for purposes of
leveraging the Portfolio's market exposure or its exposure to changing interest
rates, security values or currency values. Rather, a portfolio will use these
transactions only to preserve a return or spread on a particular investment or
portion of its investments, to protect against currency fluctuations, as a
duration management technique, to protect against any increase in the price of
securities the Portfolio anticipates purchasing at a later date, or to gain
exposure to certain markets in the most economical way possible. Nor will a
Portfolio sell interest rate caps, floors or collars if it does not own
securities providing the interest that the Portfolio may be required to pay.
The use of swaps, caps, floors and collars involves investment techniques and
risks different from those associated with other portfolio security
transactions. If the sub-investment manager is incorrect in its forecasts of
market values, interest rates, currency rates and other applicable factors, the
investment performance of a Portfolio will be less favorable than if these
techniques had not been used. These instruments are typically not traded on
exchanges. Accordingly, there is a risk that the other party to certain of these
instruments will not perform its obligations to the Fund or that a Portfolio may
be unable to enter into offsetting positions to terminate its exposure or
liquidate its investment under certain of these instruments when it wishes to do
so. Such occurrences could result in losses to the Portfolio. The
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sub-investment manager, however, will consider such risks and will enter into
swap, cap, floor, and collar transactions only when it believes that the risks
are not unreasonable.
FURTHER CONSIDERATIONS AS TO OPTIONS AND FUTURES CONTRACTS
Restrictions. A Portfolio will maintain at all times in a segregated account
with its custodian cash or high-grade liquid debt at least equal to the sum of
the purchase prices of all of the Portfolio's open futures purchase positions,
plus the current value of the securities underlying all of the Portfolio's open
futures sales positions that are maintained for purposes other than bona fide
hedgings, plus the exercise price of all outstanding put options on futures
contracts written by the Portfolio, minus the amount of margin deposits with
respect thereto as marked to market each day. Regarding such margin deposits,
see "Margin Requirements for Futures and Options."
Certain Risks. Financial futures, options thereon, and stock index options, if
used by the Fund, will in most cases be based on securities or stock indexes the
components of which are not identical to the portfolio securities owned or
intended to be acquired by a Portfolio and in connection with which such
instruments are used. Furthermore, due to supply and demand imbalances and other
market factors, the price movements of financial futures, options thereon, and
stock index options do not necessarily correspond exactly to the price movements
of the securities, currencies, or stock index on which such instruments are
based. These factors increase the difficulty of implementing a successful
strategy using futures and options contracts.
The Portfolios generally will not take delivery of debt instruments pursuant
to purchasing an interest rate futures contract, nor make a delivery of debt
instruments pursuant to selling an interest rate futures contract. Nor will the
Portfolios necessarily take delivery of or deliver currencies in connection with
currency futures contracts. Instead, a Portfolio may close out such futures
positions by entering into closing futures contract transactions. Trading in
futures or options could be interrupted, for example, because of supply and
demand imbalances arising from a lack of either buyers or sellers. The futures
and options exchanges also may suspend trading after the price has risen or
fallen more than the maximum amount specified by the exchange. Exercise of
options could also be restricted or delayed because of regulatory restrictions
or other factors. Although the sub-investment managers will seek to avoid
situations where these factors would be likely to cause a problem for the Fund,
in some cases they could adversely affect the particular Portfolio's
transactions in these instruments.
Custodial Aspects. In certain circumstances, brokers may have access to
Portfolio assets posted as margin in connection with futures and options
transactions.
In such circumstances, the Fund will use only brokers in whose reliability and
financial soundness it has full confidence, and the Fund will adopt certain
other procedures and limitations to reduce the risk of loss to any Fund assets
which brokers hold or to which they may have access. Nevertheless, in the event
of a broker's insolvency or bankruptcy, it is possible that a Portfolio may
experience a delay or incur costs in recovering such assets or might recover
less than the full amount due. Also the value of such assets could decline by
the time the Fund could effect such recovery.
If on any day a Portfolio experiences net realized or unrealized gains with
respect to financial futures contracts held through a given broker, it will be
entitled immediately to receive from the broker the net amount of such gains.
The Fund will request payment of such amounts promptly after notification by the
broker that such amounts are due. Thereupon, these assets will be deposited in
the Fund's general or segregated account with the custodian, as appropriate.
SHORT-TERM TRADING
The Managed, Large Cap Value, Mid Cap Value, Mid Cap Growth, Diversified Mid
Cap Growth, Small/Mid Cap CORE, Small Cap Value, Small Cap Growth, International
Balanced, International Equity Index, International Opportunities, Short-Term
Bond, Bond Index, Sovereign Bond, Strategic Bond, High Yield Bond and Money
Market Portfolios intend to use short-term trading of securities as a means of
managing their portfolios to achieve their investment objectives. As used
herein, "short-term trading" means the purchase and subsequent sale of a
security after it has been held for a relatively brief period of time, in some
instances for less than three months. A Portfolio may engage in short--
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term trading in such instances as the following if the investment manager, or
sub-investment manager, believes the transactions, net of costs (including
commissions, if any), will benefit the Portfolio:
(a) To avoid potential depreciation in the value of a security held in the
Portfolio where the Portfolio anticipates that it may decline in market value
as a result of unfavorable earnings trends and/or an unfavorable investment
environment.
(b) To increase the return by taking advantage of yield disparities between
various fixed-income securities in order to realize capital gains or improved
income on the Portfolio.
(c) To take advantage of movements in the price of a security that the
sub-investment manager expects to be of relatively short duration.
The investment manager, or sub-investment manager, in reaching a decision to
sell one security and purchase another security at approximately the same time,
will take into account a number of factors, including the quality ratings,
interest rates, yields, maturity dates, call prices, and refunding and sinking
fund provisions of the securities under consideration, as well as historical
yield spreads and current economic information. The success of short-term
trading will depend upon the ability of the investment manager, or
sub-investment manager, to evaluate particular securities, to anticipate
relevant market factors, including trends of interest rates and earnings and
variations from such trends, to obtain relevant information, to evaluate it
promptly, and to take advantage of its evaluations by completing transactions on
a favorable basis. It is expected that the expenses involved in short-term
trading, which would not be incurred by an investment company which does not use
this portfolio technique, will be taken into account.
The Money Market Portfolio will attempt to maximize yield through portfolio
trading. For this reason, and because the Portfolio's investments will have
relatively short maturities, the Portfolio may have a significant turnover.
The High Yield Bond Portfolio will not trade in securities for short-term
profits but, when circumstance warrant, securities may be sold without regard to
length of time held.
Although the Growth & Income, Large Cap Growth and Real Estate Equity
Portfolios will not make a practice of short-term trading, purchases and sales
of securities will be made whenever believed necessary to achieve the objective
of the respective Portfolios without regard to resulting brokerage costs.
FOREIGN CURRENCY MANAGEMENT STRATEGIES
The extent to which the several Portfolios may invest in foreign securities is
summarized above under "Risk Factors--Foreign Securities." Ways in which some of
these Portfolios may use forward currency contracts, and some may use currency
option contracts, to manage their currency exposure are discussed in the
paragraphs that follow. Certain Portfolios also may use currency futures
contracts and options thereon for these purposes, as discussed above under
"Financial Futures Contracts" and "Options on Futures Contracts and Stock
Indexes." In addition to the Portfolios listed there, the Managed, Mid Cap
Growth, Diversified Mid Cap Growth, Small Cap Growth, Global Equity,
International Balanced, International Equity Index, Short-Term Bond, and
Strategic Bond Portfolios may use those same currency management techniques.
Finally, currency swaps, caps, floors or collars may also be used for these
purposes by the Global Equity, International Balanced, International Equity
Index, Emerging Markets Equity, Strategic Bond, and High Yield Bond Portfolios
to the extent discussed above under "Other Derivative Transactions" (although
the Global Equity Portfolio will not use these techniques for the other purposes
described there).
Transaction Hedging. When any Portfolio enters into a contract for purchase or
sale of a security denominated in a foreign currency, it may be required to
settle a purchase transaction in the relevant foreign currency or receive the
proceeds of a sale in that currency. In either event, the Fund may be obliged to
acquire or dispose of such foreign currency as is presented by the transaction
by selling or buying an equivalent amount of United States dollars. Furthermore,
the Portfolio may wish to "lock in" the United States dollar value of the
transaction at or near the time of a purchase or sale of securities at the
exchange rate or rates then prevailing between the United States dollar and the
currency in which the foreign security is denominated. Therefore, certain of the
Portfolios may, for a fixed amount of
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United States dollars, enter into a forward foreign exchange contract to
implement a strategy known as "transaction hedging." The Portfolios that may
enter into forward exchange contracts are the Managed, Large Cap Value, Mid Cap
Value, Mid Cap Growth, Diversified Mid Cap Growth, Small Cap Value, Small Cap
Growth, Global Equity, International Balanced, International Equity Index,
International Opportunities, Emerging Markets Equity, Short-Term Bond, Strategic
Bond, and High Yield Bond Portfolios.
To effect the translation of the amount of foreign currencies involved in the
purchase and sale of foreign securities and to effect the "transaction hedging"
described above, the Portfolio may purchase or sell such foreign currencies on a
"spot" (i.e., cash) basis. Alternatively, the Portfolios listed in the preceding
paragraph may enter into forward exchange purchase or sale contracts, whereby
the Portfolio purchases or sells a specific amount of foreign currency, at a
price set at the time of the contract, for receipt or delivery at a specified
date which may be any fixed number of days in the future. Such spot and forward
foreign exchange transactions may also be utilized to reduce the risk inherent
in fluctuations in the exchange rate between the United States dollar and the
relevant foreign currency when foreign securities are purchased or sold for
settlement beyond customary settlement time. Neither type of foreign currency
transaction will eliminate fluctuations in the prices of the Portfolio's
securities or prevent loss if the price of such securities should decline.
Portfolio Hedging. Some portion of those Portfolios that can invest in foreign
securities will be denominated or quoted in foreign currencies. As a result, the
value of each Portfolio in United States dollars is subject to fluctuations in
the exchange rate between such foreign currencies and the United States dollar.
A sub-investment manager may believe that it is desirable to limit or reduce
exposure in a foreign currency in order to moderate potential changes in the
value, expressed in U.S. dollars, of a Portfolio's assets. In that case, certain
Portfolios may enter into forward foreign currency contracts to exchange a fixed
number of U.S. dollars for an amount of foreign currency equal to the
Portfolio's carrying value for all or part of the underlying foreign portfolio
securities. This technique is known as "portfolio hedging" and moderates or
reduces the risk of change in the United States dollar value of the Portfolio's
securities only during the period before the maturity of the forward contract
(which will not be in excess of one year). The Portfolios that can engage in
this technique are those listed above that are authorized to engage in
"Transaction Hedging". Hedging against a decline in the value of currency does
not eliminate fluctuations in the prices of the Portfolio's securities or
prevent losses if the prices of such securities decline.
Except as described as to the Managed, Mid Cap Growth, Global Equity,
International Balanced, International Equity Index, International Opportunities,
and Strategic Bond Portfolios, the Portfolios may not engage in portfolio
hedging with respect to the currency of a particular country to an extent
greater than the aggregate market value (at the time of making such sale) of the
securities which the Portfolio holds denominated or quoted in that particular
foreign country. The Portfolios may or may not attempt to hedge all of their
foreign portfolio positions and will enter into such transactions only to the
extent, if any, deemed appropriate by the sub-investment managers. The
Portfolios will not use forward foreign currency exchange contracts for the
purpose of leveraging the Portfolio's currency exposure.
Proxy Currencies. In implementing the above-described currency hedging
techniques, the Managed, Mid Cap Growth, Global Equity, International Balanced,
and International Equity Index Portfolios may use a forward contract on a
"proxy" currency, instead of the currency being hedged. A proxy currency is one
that the sub-investment manager believes will bear a close relationship to the
currency being hedged and believes will approximately equal the performance of
such currency relative to the U.S. dollar.
Nevertheless, changes in the value of the currency being hedged may not
correspond to changes in the value of the proxy currency as expected, which
could result in the currency hedge being more favorable or less favorable to the
Portfolio.
Other Techniques for Managing Currency Exposure. The Managed, Mid Cap Growth,
Global Equity, International Balanced, International Equity Index, International
Opportunities, Emerging Markets Equity, and Strategic Bond Portfolios may use
additional techniques when the sub-investment manager for one of these
Portfolios believes that the currency of a particular country may suffer a
significant decline against the U.S. dollar or against another currency. In that
case, the Portfolio may enter into a currency contract to sell, for a fixed
amount of U.S. dollars or other appropriate currency, the amount of foreign
currency approximating the value of some or all of the Portfolio's securi-
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ties denominated in such foreign currency. The currency contract may call for
the Portfolio to receive a currency other than U.S. dollars, for example, if
such other currency is believed to be undervalued or necessary to bring the
Portfolio's overall exposure to various currencies into a more desirable
balance. For similar purposes, the Managed, International Balanced,
International Opportunities, and Strategic Bond Portfolios may also enter into
contracts to purchase, for a fixed amount of U.S. dollars, or other appropriate
currency, an amount of foreign currency corresponding to the value of some of
the Portfolio's securities.
If a Portfolio is to receive a currency other than U.S. dollars pursuant to a
forward currency sales contract, or if the Portfolio enters into a forward
currency purchase contract, a risk exists that the value of the currency to be
received by the Portfolio could vary differently in relation to the U.S. dollar
than does the currency in which the related securities are denominated. This
could result in gains or losses to the Portfolio.
Other Information About Foreign Currencies Exchange Transactions. If a
Portfolio enters into a portfolio hedging transaction, the Portfolio may cover
outstanding forward currency sale contracts by maintaining portfolio securities
denominated in the currency of such contracts or of an appropriate proxy
currency. To the extent a Portfolio does not thus cover all of its forward
currency sales positions with its portfolio securities, or if it has outstanding
any forward currency purchase contracts, its custodian bank will segregate cash
or liquid assets in a separate account of the Portfolio in an amount at all
times at least equal to the value of the Portfolio's net obligation with respect
to forward contracts in a particular currency or, in the case of the
International Balanced Portfolio only, the Portfolio's net "out of the money"
obligation (if any) with respect to all of the Portfolio's outstanding forward
currency contracts. If the value of the portfolio securities used to cover a
position or the value of the assets in the separate account declines, the
Portfolio will find additional cover or additional cash or liquid assets will be
placed in the account so that the value of the account will equal the amount of
the Portfolio's net obligation with respect to such contracts as described in
the preceding sentence.
At the maturity of a forward currency sale contract, a Portfolio may either
sell a portfolio security and make delivery of the foreign currency, or it may
retain the security and terminate its contractual obligation to deliver the
foreign currency by purchasing an "offsetting" contract obligating it to
purchase, on the same maturity date, the same amount of the foreign currency.
Similarly, at the maturity of a foreign currency purchase contract, a Portfolio
may take delivery of the currency, if needed to purchase a portfolio security,
or may enter into an offsetting transaction to close out its position. The
Portfolio may realize a gain or loss from currency transactions.
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 should rise. Moreover,
it may not be possible for the Portfolios to hedge against a devaluation that is
so generally anticipated that the Portfolios are not able to contract to sell
the currency at a price above the devaluation level it anticipates. The cost to
the Portfolios of engaging in foreign currency exchange transactions varies with
such factors as the currency involved, the length of the contract period and the
market conditions then prevailing. Since transactions in foreign currency
exchange are usually conducted on a principal basis, no fees or commissions are
involved.
Options on Currencies. The Managed, Mid Cap Growth, Global Equity,
International Balanced, International Equity Index, International Opportunities,
Emerging Markets Equity, Strategic Bond, and High Yield Bond Portfolios may also
purchase and write put and call options on foreign currencies (traded on U.S.
and foreign exchanges or over-the-counter markets) to manage the Portfolios'
exposure to changes in currency exchange rates or currency exchange volatility.
Call options on foreign currencies written by a Portfolio will be "covered,"
which means that the Portfolio will own at all times an equal amount of, or an
offsetting position in, the underlying foreign currency. With respect to put
options on foreign currencies written by a Portfolio, the Portfolio will
establish a segregated account with its custodian bank consisting of cash, U.S.
Government securities or other high grade liquid debt securities in an amount
equal at all times to the amount the Portfolio would be required to deliver upon
exercise of the put. The characteristics and risks of these currency option
transactions are similar to those with respect to put and call options on
securities. See "Writing Exchange-Traded Covered Call Options," "Purchasing
Exchange-Traded Protective Put Options," "Risks of Options and Futures
Transactions," and "Use of Options and Futures by the Managed, Mid Cap Growth,
Diversified Mid Cap Growth, Small/Mid Cap CORE, Small Cap Growth, Global Equity,
International Balanced, In-
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ternational Equity Index, Emerging Markets Equity, Short-Term Bond, Sovereign
Bond, Strategic Bond, and High Yield Bond Portfolios" above.
WHEN ISSUED SECURITIES AND FORWARD COMMITMENTS
The Managed, Equity Index, Large Cap Value, Mid Cap Value, Mid Cap Growth,
Diversified Mid Cap Growth, Small/Mid Cap CORE, Small Cap Value, Small Cap
Growth, Global Equity, International Balanced, International Equity Index,
International Opportunities, Emerging Markets Equity, Short-Term Bond, Bond
Index, Sovereign Bond, Strategic Bond, and High Yield Bond Portfolios may
purchase securities on a when-issued or delayed delivery basis. When such
transactions are negotiated, the price of such securities is fixed at the time
of commitment, but delivery and payment for the securities may take place a
month or more after the date of the commitment to purchase. The securities so
purchased are subject to market fluctuations, and no interest rate accrues to
the purchaser during this period.
In addition, these Portfolios may make contracts to purchase securities for a
fixed price at a future date beyond customary settlement time ("forward
commitments") because new issues of securities are typically offered to
investors on that basis. Forward commitments involve a risk of loss if the value
of the security to be purchased declines prior to the settlement date. This risk
is in addition to the risk of decline in value of the Portfolio's other assets.
Although the Portfolio will enter into such contracts with the intention of
acquiring the securities, the Portfolio may dispose of a commitment prior to
settlement if the sub-investment managers deem it appropriate to do so. The
Portfolio may realize short-term profits or losses upon the sale of forward
commitments.
Each Portfolio will maintain in a segregated account with its custodian cash
or liquid high grade debt securities that at all times equal the amount of its
when-issued and forward commitments.
REPURCHASE AGREEMENTS
A repurchase agreement is a contract under which a Portfolio would acquire a
security for a relatively short period, e.g. 7 days, subject to the seller's
obligation to repurchase the security at a fixed time and price (representing
the Portfolio's cost plus interest). Repurchase agreements will be entered into
only with member banks of the Federal Reserve System and with "primary dealers"
in United States government securities. The Managed, Growth & Income, Large Cap
Growth, Real Estate Equity, Sovereign Bond and Money Market Portfolios may not
invest in repurchase agreements maturing in more than 7 days. No more than 15%
(10% as to the Diversified Mid Cap Growth, and Short-Term Bond Portfolios) of
the net assets of any other Portfolio will be invested in repurchase agreements
maturing in more than 7 days. All of the Portfolios may enter into repurchase
agreements.
The Diversified Mid Cap Growth, Sovereign Bond, and Small Cap Growth
Portfolios, along with other registered investment companies having a management
contract with John Hancock Advisers, Inc. ("Advisers"), an indirect wholly-owned
subsidiary of John Hancock and sub-investment manager of the Diversified Mid Cap
Growth and Small Cap Growth Portfolios, may participate in a joint repurchase
agreement pursuant to an exemptive order issued by the Securities and Exchange
Commission ("SEC"). Aggregate cash balances are invested in one or more
repurchase agreements, whose underlying securities are obligations of the U.S.
Government and/or its agencies. Advisers is responsible for ensuring that the
agreement is fully collateralized at all times.
In addition, the Managed, Growth & Income, Large Cap Growth, Real Estate
Equity, Small Cap Value, International Equity Index, and Money Market Portfolios
have entered into a joint trading account pursuant to an SEC exemptive order.
Under this arrangement, John Hancock is responsible for investing the aggregate
cash balances into one or more repurchase agreements, as described above, or in
other money market instruments. In the case of repurchase agreements acquired
pursuant to this arrangement, John Hancock is responsible for ensuring that the
agreement is fully collateralized at all times. The other Portfolios also may
participate in this joint trading account advised by John Hancock or any similar
joint trading account established pursuant to an SEC exemptive order for
investment companies advised by their respective sub-investment managers.
Furthermore, Goldman Sachs Asset Management ("GSAM") has also received a
similar SEC exemptive order which permits GSAM to invest the aggregate cash
balances of the Small/Mid Cap CORE Portfolio in one or more re-
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purchase agreements with other GSAM-advised mutual funds. Janus Capital
Corporation ("Janus") has also received a similar SEC exemptive order which
permits Janus to invest the aggregate cash balances of the Mid Cap Growth
Portfolio in one or more repurchase agreements with other Janus-advised mutual
funds.
Each such Portfolio has established a procedure providing that the securities
serving as collateral for each repurchase agreement must be delivered to the
Portfolio's custodian or sub-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 a
bankruptcy or other default by a seller of a repurchase agreement, the Portfolio
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 while the Portfolio seeks to enforce its rights
thereto, possible subnormal levels of income and lack of access to income during
this period, and expenses of enforcing its rights.
LENDING OF PORTFOLIO SECURITIES
In order to generate additional income, the Equity Index, Large Cap Value, Mid
Cap Value, Mid Cap Growth, Diversified Mid Cap Growth, Small/Mid Cap CORE, Small
Cap Value, Small Cap Growth, Global Equity, International Balanced,
International Equity Index, International Opportunities, Emerging Markets
Equity, Short-Term Bond, Bond Index, Strategic Bond, and High Yield Bond
Portfolios may from time to time lend securities from their portfolios to
brokers, dealers and financial institutions such as banks and trust companies.
Such loans will be secured by collateral consisting of cash or U.S. Government
securities, which will be maintained in an amount equal to at least 100% of the
current market value of the loaned securities. During the period of the loan,
the Portfolio receives the income on the loaned securities and the compensation
for making the loan and thereby increases its return. Cash collateral may be
invested in short-term securities, which will increase the current income of the
Portfolio. Such loans will not be for more than 60 days and will be terminable
by the Portfolio at any time. The Portfolio will have the right to regain record
ownership of loaned securities in order to exercise rights of a holder thereof
including receiving interest or other distributions or exercising voting rights.
The Portfolio may pay reasonable fees to persons unaffiliated with the Portfolio
for services in arranging such loans. Lending of portfolio securities involves a
risk of failure by the borrower to return the loaned securities, in which event
the Portfolio may incur a loss. It is a fundamental restriction of the
Portfolio not to lend portfolio securities having a total value in excess of
33 1/3% of the total assets of the Portfolio from which the securities have been
lent.
MORTGAGE DOLLAR ROLLS AND REVERSE REPURCHASE AGREEMENTS
The Short-Term Bond and Money Market Portfolios may engage in reverse
repurchase agreements to facilitate portfolio liquidity, a practice common in
the mutual fund industry, or for arbitrage transactions (discussed below). In a
reverse repurchase agreement, the Portfolio sells a security and enters into an
agreement to repurchase the security at a specified future date and price. The
Portfolio generally retains the right to interest and principal payments on the
security. Since the Portfolio receives cash upon entering into a reverse
repurchase agreement, it could be considered a borrowing. For this reason, the
Portfolio will set aside permissible liquid assets in a segregated account to
secure its obligation to repurchase the security.
The Managed, Short-Term Bond, Bond Index, Sovereign Bond, and Strategic Bond
Portfolios may also enter into mortgage dollar rolls, in which the Portfolio
sells mortgage-backed securities for delivery in the current month and
simultaneously contracts to purchase substantially similar securities on a
specified future date. While the Portfolio foregoes principal and interest paid
on the mortgage-backed securities during the roll period, the Portfolio is
compensated by the difference between the current sale price and the lower price
for the future purchase as well as by any interest earned on the proceeds of the
initial sale. The Portfolio also could be compensated through the receipt of fee
income equivalent to a lower forward price. Mortgage dollar roll transactions
could also be considered a borrowing by the Portfolio. Therefore, the Portfolio
will set aside permissible liquid assets in a segregated account to secure its
obligation for the forward commitment to buy mortgage-backed securities.
The mortgage dollar rolls and reverse repurchase agreements entered into by a
Portfolio may be used as arbitrage transactions in which the Portfolio will
maintain an offsetting position in investment-grade debt obligations or repur-
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chase agreements that mature on or before the settlement date of the related
mortgage dollar roll or reverse repurchase agreement. Since the Portfolio will
receive interest on the securities or repurchase agreements in which it invests
the transaction proceeds, such transactions may involve leverage. However, since
such securities or repurchase agreements will be high quality and will mature on
or before the settlement date of the mortgage dollar roll or reverse repurchase
agreement, the sub-investment manager believes that such arbitrage transactions
do not present the risks to the Portfolio that are associated with other types
of leverage.
TYPES OF INVESTMENT INSTRUMENTS AND RATINGS
FOREIGN SECURITIES
As discussed above under "Risks Factors--Foreign Securities," all of the
Portfolios may invest at least some of their assets in foreign securities,
except for the Real Estate Equity Portfolio. The purchase of foreign securities
could involve risks not associated with domestic securities. Among others, there
may be risks of political and economic instability, foreign taxes, liquidity,
predictability of international trade patterns, and fluctuations in rates of
currency exchange. Less information with respect to a foreign issuer may be
publicly available, the accounting, auditing, and financial standards may be
lower, the issuer may be subjected to less regulation or to a greater risk of
expropriation or confiscatory taxation and, in the event of default, a judgment
against the issuer may be difficult to obtain or enforce.
The securities markets of many countries have in the past moved relatively
independent of one another, due to differing economic, financial, political and
social factors. When markets move in different directions, there may be a
corresponding reduction in risk for those Portfolios that can invest in foreign
securities as a whole. This lack of correlation among the movements in the
world's securities markets may also affect unrealized gains these Portfolios may
derive from movements in any one market. If the securities of markets moving in
different directions are combined in any of these Portfolios, total volatility
of the Portfolio is reduced.
Because these Portfolios may invest in securities denominated or quoted in
currencies other than United States dollars, changes in foreign currency
exchange rates will affect the value of the securities. Exchange rates may not
move in the same direction as the securities markets in a particular country. As
a result, the gain realized on a foreign investment may be offset by an
unfavorable exchange rate.
The Global Equity, International Balanced, International Equity Index,
International Opportunities, Emerging Markets Equity, Short-Term Bond, Strategic
Bond, and High Yield Bond Portfolios may invest in companies located in emerging
countries which, compared to the U.S. and other developed countries, may have
relatively unstable governments, economies and currencies, based on only a few
industries, and securities markets which trade only a small number of
securities. Prices on exchanges located in developing countries tend to be
volatile and, in the past, securities traded on those exchanges have offered a
greater potential for gain (and loss) than securities traded on exchanges in the
U.S. and more developed countries.
The Portfolios that are authorized to purchase foreign securities may also do
so in the form of American Depositary Receipts (ADRs), European Depositary
Receipts (EDRs) or other securities representing underlying shares of foreign
issuers. These securities may not necessarily be denominated in the same
currency as the securities into which they may be converted but rather in the
currency of the market in which they are traded. ADRs are receipts typically
issued by an American bank or trust company which evidence ownership of
underlying securities issued by a foreign corporation. EDRs are receipts issued
in Europe by banks or depositories which evidence a similar ownership
arrangement. Generally, ADRs, in registered form, are designed for use in U.S.
securities markets and EDRs, in bearer form, are designed for use in European
securities markets.
The Portfolios that are authorized to purchase foreign securities may invest
in U.S. dollar denominated debt securities issued by foreign corporations and
publicly traded in the United States (Yankees) or Europe (Euros). Because
Yankees and Euros are U.S. dollar denominated, the risks associated with foreign
currency conversions are not present.
The International Equity Index Portfolio normally invests at least 65% of its
total assets in foreign equity securi-
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ties, consisting of common stocks (including American Depository Receipts) and
preferred stocks, securities convertible to common stock (provided they are
traded on an exchange or over-the-counter), warrants and receipts. No more than
10% of the Portfolio's assets will be held in cash or cash equivalents. The
Portfolio may invest up to 20% of its net assets at time of purchase in
securities of emerging international markets, such as Mexico, Chile and Brazil,
either directly through local exchanges, through publicly-traded closed-end
country funds or through "passive foreign investment companies." A substantial
portion of the Portfolio's assets will be denominated in foreign currencies.
The International Opportunities Portfolio expects, under normal circumstances,
to invest substantially all of its assets in common stocks outside the United
States. However, the Portfolio may also invest in a variety of other
equity-related securities, such as common stocks, preferred stocks, warrants,
and convertible securities, as well as money market and short-term securities.
In determining the appropriate distribution of investments among various
countries and geographic regions, the sub-investment manager ordinarily
considers the following factors: prospects for relative economic growth between
foreign countries; expected levels of inflation; government policies influencing
business conditions; the outlook for currency relationships; and the range of
individual investment opportunities available to international investors. In
analyzing companies for investment, the sub-investment manager ordinarily looks
for one or more of the following characteristics: an above average earnings
growth per share; high return on invested capital; a healthy balance sheet;
sound financial and accounting policies and overall financial strength; strong
competitive advantages; effective research and product development and
marketing; efficient service; pricing flexibility; strength of management; and
general operating characteristics which will enable the companies to compete
successfully in their market place. While current dividend income is not a
prerequisite in the selection of portfolio companies, the companies in which the
Portfolio invests normally will have a record of paying dividends, and will
generally be expected to increase the amounts of such dividends in future years
as earnings increase.
The Emerging Markets Equity Portfolio considers a company to be an emerging
market company if its securities are principally traded in the capital market of
an emerging market country; it derives at least 50% of its total revenue from
either goods produced or services rendered in emerging market countries or from
sales made in such emerging market countries, regardless of where the securities
of such companies are principally traded; or it is organized under the laws or
and has a principal office in an emerging market country.
This Portfolio uses a proprietary, quantitative asset allocation model created
by the sub-investment manager. This model employs mean-variance optimization, a
process used in developed markets based on modern portfolio theory and
statistics. Mean-variance optimization helps determine the percentage of assets
to invest in each country to maximize expected returns for a given risk level.
The Portfolio's aims are to invest in those countries that are expected to have
the highest risk/reward trade-off when incorporated into a total portfolio
context. This "top-down" country selection is combined with "bottom-up"
fundamental industry analysis and stock selection based on original research and
publicly available information and company visits.
DEBT SECURITIES GENERALLY
The value of the debt securities in any Portfolio can be expected to vary
inversely to changes in prevailing interest rates, with the amount of such
variation depending primarily on the remaining duration of the security.
Long-term obligations usually fluctuate more in value than short-term
obligations. If interest rates increase after a security is purchased, the
security, if sold, could be sold for a loss. On the other hand, if interest
rates decline after a purchase, the security, if sold, could be sold at a
profit. If, however, the security is held to maturity, no gain or loss will be
realized as a result of interest rate fluctuations, although the day-to-day
valuation of the Portfolio could fluctuate. As in the case of any other
security, substantial redemptions could require a Portfolio to sell debt
securities at a time when a sale might not be favorable. The value of a
portfolio security may also be affected by other factors, including factors
bearing on the creditworthiness of its issuer. Generally, lower-rated securities
are subject to greater price fluctuations.
Securities having one of the four highest rating categories for debt
securities as defined by Moody's Investors Services, Inc. (Aaa, Aa, A, or Baa)
or Standard and Poor's Corporation (AAA, AA, A, or BBB) or, if unrated,
determined to be of comparable quality by the sub-investment manager, are
referred to as investment grade. The meanings of such ratings are discussed
further under "Corporate Bond Ratings," below.
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DEBT SECURITIES OF THE INTERNATIONAL EQUITY INDEX PORTFOLIO
It is the intention of the International Equity Index Portfolio generally to
invest in debt securities only for temporary defensive purposes. Accordingly,
when the sub-investment managers believe unfavorable investment conditions exist
requiring the Portfolio to assume a temporary defensive investment posture, the
Portfolio may hold cash or invest all or a portion of its assets in short-term
domestic as well as foreign instruments, including: short-term U.S. Government
securities and repurchase agreements in connection with such instruments; bank
certificates of deposit, bankers' acceptances, time deposits and letters of
credit; and commercial paper (including so called Section 4(2) paper) rated at
least A-1 or A-2 by Standard & Poor's Corporation ("S&P") or P-1 or P-2 by
Moody's Investors Service, Inc. ("Moody's") or if unrated considered by the
sub-investment managers to be of comparable quality. The Portfolio's temporary
defensive investments may also include: investment grade debt obligations of U.S
companies; commercial paper and corporate debt obligations not satisfying the
above credit standards if they are (a) subject to demand features or puts or (b)
guaranteed as to principal and interest by a domestic or foreign bank having
total assets in excess of $1 billion, by a corporation whose commercial paper
may be purchased by the Portfolio or by a foreign government having an existing
debt security rated investment grade by S&P or Moody's; and other short-term
investments which the Fund's Trustees determine present minimal credit risks and
which are of "high quality" as determined by any major rating service, or in the
case of an instrument that is not rated, of comparable quality as determined by
the sub-investment managers. If the rating of a debt security is reduced below
the minimums discussed above, the sub-investment managers will consider whatever
action is appropriate consistent with the Portfolio's investment objectives and
policies.
The Emerging Markets Equity Portfolio invests primarily in common stock, but
also may invest in other types of equity and equity derivative securities (such
as convertible debt). This includes certain debt securities issued by the
governments of emerging markets countries that are, or may be eligible for,
conversion into investments in emerging markets companies under debt conversion
programs sponsored by such governments. It may invest up to 35% of its total
assets at the time of purchase in debt securities, including up to 5% in debt
securities rated below investment grade (as defined under "Sovereign Bond
Portfolio securities" below).
SHORT-TERM BOND SECURITIES
Under normal circumstances, (a) at least 65% of the Portfolio's total assets
will be invested in debt obligations, (b) the Portfolio's average maturity will
be between one and three and one half years, and (c) securities that are below
"investment grade" will not equal more than 20% of the Portfolio's net assets.
Investments in such lower rated ("high yield") securities are subject to greater
risks of loss. The Portfolio, however, will not purchase any security unless it
is rated within the five highest categories for bonds by a nationally recognized
securities rating organization ("NRSRO") or, for any security that does not have
a bond rating, considered by the sub-investment manager to be of comparable
quality. Foreign securities will be purchased only if they are payable in United
States dollars. Under normal conditions, the Portfolio will not invest more than
25% of its net assets in foreign securities at the time of purchase.
For purposes of satisfying its investment objective and policies, the
Portfolio considers the following to be "investment grade": (a) all U.S.
Government securities; (b) other bonds or bank obligations rated within the four
highest categories for such obligations by an NRSRO or, if unrated, considered
to be of comparable quality by the sub-investment manager (see "Types of
Investment Securities and Ratings--Corporate Bond Ratings" below); (c)
commercial paper and short-term bank obligations rated in one of the three
highest grades for such instruments by an NRSRO or, if unrated, considered by
the sub-investment manager to be of comparable quality (see "Types of Investment
Securities and Ratings--Commercial Paper Ratings" in the "Statement of
Additional Information"); and (d) repurchase agreements involving
investment-grade debt securities.
The investments of the Short-Term Bond Portfolio may include convertible debt,
preferred and convertible preferred stock, and similar securities. This
Portfolio also may use, among others, the Portfolio management devices discussed
above under "Mortgage Dollar Rolls and Reverse Repurchase Agreements."
SOVEREIGN BOND PORTFOLIO SECURITIES
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It is contemplated that at least 75% of the value of the Sovereign Bond
Portfolio's total investment in debt securities (other than commercial paper)
will be represented by debt securities which have, at the time of purchase, an
investment grade rating and debt securities of banks and other issuers which,
although not rated as a matter of policy by either Moody's or S&P, are
considered by the sub-investment manager to have comparable investment quality.
The Portfolio will, as a rule, seek to purchase debt securities which have
protection against immediate refunding. In recent years, corporate debt
securities have frequently been issued which have refunding protection for a
period of five to ten years and, in some cases, longer, although there can be no
assurance that securities containing similar provisions will continue to be
issued.
The Portfolio may purchase corporate debt securities bearing fixed interest as
well as those which carry certain equity features, such as conversion or
exchange rights or warrants for the acquisition of stock of the same or a
different issuer, or participations based on revenues, sales, or profits. The
Portfolio will not exercise any such conversion, exchange or purchase rights if,
at the time, the value of all equity interests so owned would exceed 10% of the
Portfolio's total assets taken at market value.
The Portfolio may also purchase U.S. dollar-denominated securities issued by
foreign corporations and publicly traded in either the United States (Yankees)
or Europe (Euros).
The Portfolio may not purchase securities unless the issuer or any company on
whose credit the purchase was based has a record of at least three years of
continuous operation, except for investments which in the aggregate taken at
cost do not exceed 5% of the Portfolio's total assets taken at market value.
The Portfolio may include debt securities which sell at substantial discounts
from par. These securities are low coupon bonds which, during periods of high
interest rates, because of their lower acquisition cost, tend to sell on a yield
basis approximating current interest rates.
DEBT SECURITIES OF THE HIGH YIELD BOND PORTFOLIO
Under normal market and economic conditions, the High Yield Bond Portfolio
will invest at least 65% of its assets in debt obligations considered to be
below investment grade, including high yield/high risk or "junk" bonds,
preferred stock and convertible securities. High yield/high risk securities are
considered speculative and involve greater risk of default or price changes due
to changes in the issuer's creditworthiness than higher-rated securities, and
are more sensitive to changes in the issuer's capacity to pay. Investing in high
yield/high risk securities is an aggressive approach to income investing. The
1980s saw a dramatic increase in the use of high yield/high risk securities to
finance highly leveraged corporate acquisitions and restructurings. Past
experience may not provide an accurate indication of future performance of high
yield/high risk securities, especially during periods of economic recession. In
fact, from 1989 to 1991, the percentage of high yield/high risk securities that
defaulted rose significantly above prior levels.
High yield/high risk securities may be thinly traded, which can adversely
affect the prices at which they can be sold and can result in high transaction
costs. If market quotations are not available, these securities will be valued
in accordance with standards set by the Board of Trustees, including the use of
outside pricing services. Judgment plays a greater role in valuing high
yield/high risk securities than in the case of other securities for which more
extensive quotations and last-sale information are available. Adverse publicity
and changing investor perceptions may affect the ability of outside pricing
services used by the Portfolio to value its portfolio securities, and the
Portfolio's ability to dispose of the lower-rated bonds. The market prices of
high yield/high risk securities may decline significantly in periods of general
economic difficulty, which may follow periods of rising interest rates. During
an economic downturn or a prolonged period of rising interest rates, the ability
of issuers of lower-rated debt to service their payment obligations, meet
projected goals, or obtain additional financing may be impaired. The Portfolio
may choose, at its own expense or in conjunction with others, to pursue
litigation or otherwise exercise its rights as a security holder to seek to
protect the interests of security holders, if it determines this to be in the
interest of Portfolio investors.
The considerations discussed above for lower-rated debt securities also are
applicable to lower quality unrated debt instruments of all types, including
loans and other direct indebtedness of businesses with poor credit standing.
Unrated debt instruments are not necessarily of lower quality than rated
securities but they may not be attractive to as
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many buyers.
DEBT SECURITIES OF THE GLOBAL EQUITY PORTFOLIO
The Global Equity Portfolio generally invests in equity securities of
established companies listed on U.S. or foreign securities exchanges. It also
may invest in debt securities convertible into common stock, convertible and
non-convertible preferred stock, and fixed-income securities of governments,
government agencies, supranational agencies and companies when the
sub-investment manager believes the potential for appreciation will equal or
exceed that available from investments in equity securities. These debt and
fixed-income securities will be predominantly of investment grade quality (as
defined above under "Sovereign Bond Portfolio Securities"). The Portfolio may
not invest more than 5% of its total assets in debt securities of the type
commonly referred to as "high yield" or "junk" bonds. See "Risk of Lower Quality
Instruments" above.
U.S. GOVERNMENT OBLIGATIONS
U.S. Government obligations are bills, certificates of indebtedness, notes and
bonds issued or guaranteed as to principal or interest by the United States or
by agencies or authorities controlled or supervised by and acting as
instrumentalities of the U.S. Government established under the authority granted
by Congress, including, but not limited to, the Tennessee Valley Authority,
Federal Home Loan Banks, Federal Land Banks, Farm Credit System, the Federal
National Mortgage Association, World Bank, Inter-American Development Bank,
Student Loan Marketing Association, Financing Corporation, Asian Development
Bank, Federal Housing Administration, Agency for International Development,
Federal Home Loan Mortgage Corporation, Government Trust Certificates, Private
Export Funding Corporation, and Small Business Administration. Some obligations
of U.S. Government agencies, authorities, and other instrumentalities are
supported by the full faith and credit of the U.S. Treasury; others by the right
of the issuer to borrow from the Treasury; and others only by the credit of the
issuing agency, authority, or other instrumentality. U.S. Government obligations
are primarily used in the Money Market and the Short-Term Bond Portfolios. All
of the other Portfolios may also invest in U.S. Government obligations to some
extent.
OTHER MONEY MARKET PORTFOLIO SECURITIES
Certificates of Deposit--are certificates issued against funds deposited in a
bank, are for a definite period of time, earn a specified rate of return, and
are normally negotiable.
Bankers' Acceptances--are short-term credit instruments issued by corporations
to finance the import, export, transfer or storage of goods. They are termed
"accepted" when a bank guarantees their payment at maturity. These instruments
reflect the obligation of both the bank and the drawer to pay the face amount of
the instrument at maturity.
Commercial Paper--refers to promissory notes issued by corporations to finance
their short-term credit needs. See "Commercial Paper Ratings," below.
Corporate Obligations--include bonds, debentures, and notes issued by
corporations in order to finance longer term credit needs. See "Corporate Bond
Ratings," below. These instruments may be considered money market securities
when they have a relatively short remaining maturity.
The foregoing types of money market instruments are used primarily by the
Money Market Portfolio, but may also be used by each of the other Portfolios to
some extent.
COMMERCIAL PAPER RATINGS
The rating A-1 is the highest rating assigned by Standard & Poor's Corporation
("S&P") to commercial paper which is considered by S&P to have the following
characteristics: liquidity ratios of the issuer are adequate to meet cash
requirements; long-term senior debt is rated "A" or better; the issuer has
access to at least two additional channels of borrowing; basic earnings and cash
flow have an upward trend with allowance made for unusual circumstances;
typically, the issuer's industry is well established and the issuer has a strong
position within the industry.
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The rating P-1 is the highest commercial paper rating assigned by Moody's
Investors Services, Inc. (Moody's). Among the factors considered by Moody's in
assigning ratings are the following: (1) evaluation of the management of the
issuer; (2) economic evaluation of the issuer's industry or industries and an
appraisal of speculative-type risks which may be inherent in certain areas; (3)
evaluation of the issuer's products in relation to competition and customer
acceptance; (4) liquidity; (5) amount and quality of long-term debt; (6) trend
of earnings over a period of ten years; (7) financial strength of a parent
company and the relationships which exist with the issuer; and (8) recognition
by the management of obligations which may be present or may arise as a result
of public interest questions and preparations to meet such obligations.
The rating F-1 is the highest rating assigned by Fitch Investors Service.
CORPORATE BOND RATINGS
Moody's Investors Service, Inc., describes its ratings for corporate bonds as
follows:
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.
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 fluctuation 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.
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 some time in the future.
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.
Bonds which are rated Ba have speculative elements and their future cannot be
considered as well assured. 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. Bonds in this class are characterized by uncertainty of
position.
Bonds which are rated B generally lack characteristics of a desirable
investment; assurance of interest and principal payments or of maintenance of
other terms of the contract over any long period of time may be small.
Bonds which are rated Caa are of poor standing. Issues may be in default or
there may be present elements of danger with respect to principal or interest.
Bonds which are rated Ca are speculative in a high degree. They are often in
default or have other marked shortcomings.
Bonds which are rated C are the lowest rated class of bonds. They can be
regarded as having extremely poor prospects of ever attaining any real
investment standing.
Standard & Poor's Corporation describes its ratings for corporate bonds as
follows:
AAA--This is the highest rating assigned by Standard & Poor's to a debt
obligation and indicates an extremely
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strong capacity to pay principal and interest.
AA--Bonds rated AA also qualify as high-quality obligations. Capacity to pay
principal and interest is very strong, and in the majority of instances, they
differ from AAA issues only in small degree.
A--Bonds rated A have a strong capacity to pay principal and interest,
although they are somewhat more susceptible to the adverse effects of changes
in circumstances and economic conditions.
BBB--Bonds rated BBB are regarded as having an adequate capacity to pay
principal and interest. Whereas they normally exhibit protection parameters,
adverse economic conditions or changing circumstances are more likely to lead
to a weakened capacity to pay principal and interest for bonds in this
category than for bonds in the A category.
BB, B, CCC, CC, C--Bonds rated in these categories are 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 C the highest degree of speculation.
While this debt will likely have some quality and protective characteristics,
these are outweighed by large uncertainties or major risk exposures to adverse
conditions.
C1--This rating is reserved for income bonds on which no interest in being
paid.
D--Bonds rated D are in default and payment of interest and/or repayment of
principal is in arrears.
RULE 144A SECURITIES
All Portfolios, other than the Growth & Income, Large Cap Growth and Real
Estate Equity Portfolio, may purchase unregistered securities that are eligible
for resale to "qualified institutional buyers" pursuant to Rule 144A under the
Securities Act of 1933. The Trustees have directed the sub-investment manager of
each of the eligible Portfolios to determine on a case-by-case basis whether
each issue of Rule 144A securities owned by the Portfolio is an illiquid
security. If illiquid, a Rule 144A security may not be purchased by the Money
Market Portfolio, but may be purchased by any other eligible Portfolio, subject
to such Portfolio's limit on the amount of its assets that can be invested in
any illiquid securities (10% in the case of the Diversified Mid Cap Growth and
Short-Term Bond Portfolios, and 15% as to all other eligible Portfolios).
Purchasing this type of unregistered security could have the effect of
increasing the level of illiquidity and volatility in the Portfolio.
STANDARD AND POOR'S DEPOSITORY RECEIPTS
The Equity Index Portfolio may, consistent with its objectives, purchase
Standard & Poor's Depository Receipts ("SPDRs"). SPDRs are American Stock
Exchange-traded securities that represent ownership in the SPDR Trust, a trust
which has been established to accumulate and hold a portfolio of common stocks
that is intended to track the price performance and dividend yield of the S&P
500. This trust is sponsored by a subsidiary of the American Stock Exchange.
SPDRs may be used for several reasons, including but not limited to:
facilitating the handling of cash flows or trading, or reducing transaction
costs. The use of SPDRs would introduce additional risk to the Portfolio as the
price movement of the instrument does not perfectly correlate with the price
action of the underlying index.
FINANCIAL FUTURES CONTRACTS
A public market currently exists for interest rate futures contracts on United
States Treasury Bills, United States Treasury Notes, bank certificates of
deposit, and various other domestic or foreign instruments and indexes. A public
market currently exists for stock index futures contracts based on the Standard
& Poor's 500 Stock Index, the Standard & Poor's Midcap Index, the New York Stock
Exchange Composite Index, the Value Line Stock Index, and various other domestic
or foreign indexes. Stock index futures contracts bind purchaser and seller to
delivery at a future date specified in the contract of a cash amount equal to a
multiple of the difference between the value of a specified stock index on that
date and settlement price specified by the contract. That is, the seller of the
futures contract must pay and
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the purchaser would receive a multiple of any excess of the value of the index
over the settlement price, and the purchaser must pay and the seller would
receive a multiple of any excess of the settlement price over the value of the
index. Multiples reflect the denominations in which the contracts are traded.
All of the Portfolios (except for the Growth & Income, Real Estate Equity,
Diversified Bond Index, and Money Market Portfolios) may use the above-described
and other available exchange traded financial futures contracts, and options
thereon, subject to the limitations set forth herein and in the Fund's
prospectus.
OPTIONS ON FINANCIAL FUTURES CONTRACTS
The writer of an option on a financial futures contract agrees to assume a
position in such financial futures contract if the purchaser exercises the
option and thereby assumes the opposite position in the financial futures
contract. A party that writes an option receives a premium for doing so, and the
party that purchases an option pays a premium therefor. The option writer incurs
the risk that the option will be exercised and the writer will suffer a loss on
the futures contract position it is thus required to assume that exceeds the
premium the writer received.
If the price of the debt instrument or stock index on which the futures
contract is based increases (in the case of a put option written by the
Portfolio) or decreases (in the case of a call option written by the Portfolio),
the Portfolio may incur losses that exceed the amount of the premium received by
the Portfolio for writing the option. Such losses may arise because an option
written by the Portfolio on a futures contract requires the Portfolio to pay any
amount by which the fluctuating price of the underlying debt instrument or index
exceeds (in the case of a put option) or is less than (in the case of a call
option) the price specified in the futures contract to which the option relates.
INTEREST RATE OPTIONS
After payment of a specified premium at the time an interest rate option is
entered into, the purchaser of a call interest rate option obtains the right to
receive specified debt securities upon exercise of the option in exchange for
payment of a specified exercise price. The purchaser of a put option obtains the
right to sell the specified debt securities upon exercise of the option and to
receive the exercise price therefor. The writer of the interest rate option
receives a premium but has the obligation, upon exercise of the option, to
deliver the subject securities in exchange for the exercise price (in the case
of a call option) or to purchase the subject securities at the exercise price
(in the case of a put option).
Securities for which interest rate options are currently traded include United
States Treasury Bonds and United States Treasury Notes. Subject to the
limitations and conditions elsewhere set forth in this Statement of Additional
Information and in the Fund Prospectus, the Managed, Mid Cap Growth, Diversified
Mid Cap Growth, Small Cap Value, Small Cap Growth, Global Equity, International
Balanced, Short-Term Bond, Strategic Bond, and High Yield Bond Portfolios may
use these and such other interest rate options as may be available.
MARGIN REQUIREMENTS FOR FUTURES AND OPTIONS
When futures contracts are traded, both buyer and seller are required to post
an initial margin of cash or United States Treasury Bills equaling as much as 5
to 10 percent or more of the contract settlement price. The nature of the margin
requirements in futures transactions differs from traditional margin payments
made in securities transactions in that margins for futures contracts do not
involve the borrowing of funds by the customer to finance the transaction.
Instead, a customer's margin on a futures contract represents a good faith
deposit securing the customer's contractual obligations under the futures
contract. If the market moves against the Fund, so that a Portfolio has a net
loss on its outstanding futures contracts for a given day, the Portfolio
generally will be required to post additional margin to that extent. The margin
deposit is returned, assuming the Fund's obligations have been met, when the
futures contract is terminated.
Similar margin requirements will apply in connection with any transactions in
which a Portfolio writes options on futures contracts, options on securities
indexes, or interest rate options.
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<PAGE>
STOCK INDEX OPTIONS
After payment of a specified premium at the time a stock index option is
entered into, the purchaser of a stock index call option obtains the right to
receive a sum of money upon exercise of the option equal to a multiple of the
excess of a specified stock index on the exercise date over the exercise or
"strike" price specified by the option. The purchaser of a put option obtains
the right to receive a sum of money upon exercise of the option equal to a
multiple of any excess of the strike price over the stock index. The writer of a
call or put stock index option receives a premium, but has the obligation, upon
exercise of the option, to pay a multiple of the difference between the index
and the strike price.
Stock indexes for which options are currently traded include the Standard &
Poor's 100 and Standard & Poor's 500 Indexes. Subject to the limitations set
forth herein and in the Fund's prospectus, the Managed, Equity Index, Large Cap
Value, Large Cap Growth, Mid Cap Value, Mid Cap Growth, Diversified Mid Cap
Growth, Small/Mid Cap CORE Portfolio, Small Cap Value, Small Cap Growth, Global
Equity, International Balanced, International Equity Index, International
Opportunities, and Emerging Markets Growth Portfolios may use these options and
options on such other indexes as may be available.
OTHER DERIVATIVE INSTRUMENTS
Subject to the conditions set forth in the Fund's Prospectus, the Global
Equity, International Balanced, International Equity Index, Emerging Markets
Equity, Strategic Bond, and High Yield Bond Portfolios may use swaps, caps,
floors and collars. Provided the contract so permits, a Portfolio will usually
enter into swaps on a net basis; that is, the two payment streams are netted out
in a cash settlement on the payment date or dates specified in the instrument,
with the Portfolio receiving or paying, as the case may be, only the net amount
of the two payments.
Each Portfolio will maintain cash or liquid high grade debt securities in a
segregated account with its custodian in an amount sufficient at all times to
cover its current obligations under swaps, caps, floors and collars. If a
Portfolio enters into a swap agreement on a net basis, it will segregate assets
with a daily value at least equal to the excess, if any, of the Portfolio's
accrued obligations under the swap agreement over the accrued amount the
Portfolio is entitled to receive under the agreement. If a Portfolio enters into
a swap agreement on other than a net basis, or sells a cap, floor or collar, it
will segregate assets with a daily value at least equal to the full amount of
the Portfolio's accrued obligations under the agreement.
None of these Portfolios will enter into any swap, cap, floor, or collar,
unless the other party to the transaction (the "Counterparty") is deemed
creditworthy by the sub-investment manager. If a Counterparty defaults, the
Portfolio may have contractual remedies pursuant to the agreements related to
the transaction. The swap market has grown substantially in recent years, with a
large number of banks and investment banking firms acting both as principals and
as agents utilizing standardized swap documentation. As a result, the swap
market has become relatively liquid. Caps, floors and collars are more recent
innovations for which standardized documentation has not yet been fully
developed and, for that reason, they are less liquid than swaps.
The liquidity of swaps, caps, floors and collars will be determined by the
sub-investment manager based on various factors, including (1) the frequency of
trades and quotations, (2) the number of dealers and prospective purchasers in
the marketplace, (3) dealer undertakings to make a market, (4) the nature of the
instrument (including any demand or tender features) and (5) the nature of the
marketplace for trades (including the ability to assign or offset a Portfolio's
rights and obligations relating to the investment). Such determination will
govern whether the instrument will be deemed within the 15% restriction on
investments in securities that are not readily marketable.
The federal income tax treatment with respect to swaps, caps, floors, and
collars may impose limitations on the extent to which a Portfolio may engage in
such transactions.
INVESTMENT COMPANIES
Each Portfolio may invest up to 10% of its total assets in shares of other
investment companies investing exclu-
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sively in securities in which it may otherwise invest. Because of restrictions
on direct investment by U.S. entities in certain countries, other investment
companies may provide the most practical or only way for a Portfolio to invest
in certain markets. Such investments may involve the payment of substantial
premiums above the net asset value of those investment companies' portfolio
securities and are subject to limitations under the Investment Company Act. A
Portfolio also may incur tax liability to the extent it invests in the stock of
a foreign issuer that is a "passive foreign investment company" regardless of
whether such "passive foreign investment company" makes distributions to the
Portfolio. The Portfolios do not intend to invest in other investment companies
unless the potential benefits are judged to exceed the associated costs. As a
shareholder in an investment company, a Portfolio would bear its ratable share
of that investment company's expenses, including advisory and administration
fees. The Emerging Markets Equity Portfolio is the most likely to invest in
other investment companies; and John Hancock and the sub-investment manager have
agreed to waive their own management fees with respect to the portion of that
Portfolio's assets invested in other open-end (but not closed-end) investment
companies. The International Equity Index Portfolio is likely to invest in
closed-end investment companies known as "country funds" or passive foreign
investment companies.
The Mid Cap Growth Portfolio may also invest in money market funds managed by
Janus Capital, pursuant to an exemptive order received from the SEC. Janus
Capital will remit to the Mid Cap Growth Portfolio the fees it receives from the
Janus money market fund to the extent such fees are based on the Mid Cap Growth
Portfolio's assets. Janus Capital is seeking an amended and restated exemptive
order that would permit funds managed by Janus Capital to invest in the Janus
money market funds in excess of the limitations of Section 12(d)(1) of the 1940
Act. There is no assurance that such amendment will be granted.
INVESTMENT INDEXES
Investments in the Equity Index, International Equity Index, and Bond Index
Portfolios each involve the risk that the Portfolio will be unable to match the
performance of its corresponding target index. Each Portfolio's ability to match
the performance of its corresponding target index is affected by (a) the size
and timing of cash flows into and out of that Portfolio, (b) the level of the
Portfolio's expenses, including commissions and spreads, portfolio management
expenses, and other operating expenses, and (c) the degree of success of the
techniques employed by the Portfolio's sub-investment manager. Further, if the
size of a Portfolio limits the number of issues that the Portfolio can purchase,
or that size is relatively small in relation to cash flows, the greater the
potential that the Portfolio may be unable to match the performance of the
corresponding target index.
THE S&P 500
The Equity Index Portfolio seeks to provide investment results that correspond
to the total return of the U.S. market as represented by the S&P 500. As
changes are made to the S&P 500 during the year, they will be reflected in the
Portfolio as soon as deemed advisable. The Portfolio will, to the extent
feasible, remain fully invested. The S&P 500 is an index that is constructed by
the Standard & Poor's Corporation ("Standard & Poor's" or "S&P"), which chooses
stocks on the basis of market values and industry diversification. Most of the
largest 500 companies listed on the U.S. stock exchanges are included in the
index. Additional stocks that are not among the 500 largest stocks, by market
value, may be included in the S&P 500 for diversification purposes. The index is
capitalization weighted--that is, stocks with a larger capitalization (shares
outstanding times current price) have a greater weight in the index. Selection
of a stock for inclusion in the S&P 500 Index in no way implies an opinion by
S&P as to its attractiveness as an investment.
The Fund and the insurance products supported by the Fund are not sponsored,
endorsed, sold or promoted by Standard & Poor's. Standard & Poor's makes no
representation or warranty, express or implied, to the owners of the insurance
products supported by the Fund or any member of the public regarding the
advisability of investing in the Fund or such insurance products. Standard &
Poor's only relationship to the Fund is the licensing of Standard & Poor's marks
and the S&P 500 Index, which is determined, composed and calculated by Standard
& Poor's without regard to the Portfolio or the Fund. "Standard & Poor's(R),"
"S&P(R)," "S&P 500(R)," "Standard & Poor's 500," and "500" are trademarks of
McGraw-Hill, Inc. and have been licensed for use by the Fund. In determining,
composing, or calculating the S&P 500 Index, S&P has no obligation to take into
consideration the needs of the Fund or those of the owners of the insurance
products supported by the Fund. S&P is not responsible for and has not
participated in the determination of
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<PAGE>
the prices and amount of the insurance products supported by the Fund or the
timing of the issuance or sale of such products or in the determination or
calculation of the equation by which such products are to be converted into
cash. S&P has no obligation or liability in connection with the administration,
marketing, or trading of such products.
S&P DOES NOT GUARANTEE THE ACCURACY AND/OR THE COMPLETENESS OF THE S&P 500
INDEX OR ANY DATA INCLUDED THEREIN AND S&P SHALL HAVE NO LIABILITY FOR ANY
ERRORS, OMISSIONS, OR INTERRUPTIONS THEREIN. S&P MAKES NO WARRANTY, EXPRESS OR
IMPLIED, AS TO RESULTS TO BE OBTAINED BY THE FUND, OWNERS OF THE PRODUCTS
SUPPORTED BY THE FUND, OR ANY OTHER PERSON OR ENTITY FROM THE USE OF THE S&P 500
INDEX OR ANY DATA INCLUDED THEREIN. S&P 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 S&P HAVE ANY
LIABILITY FOR ANY SPECIAL, PUNITIVE, INDIRECT, OR CONSEQUENTIAL DAMAGES
(INCLUDING LOST PROFITS), EVEN IF NOTIFIED OF THE POSSIBILITY OF SUCH DAMAGES.
THE LEHMAN BROTHERS GOVERNMENT/CORPORATE AND AGGREGATE BOND INDEXES
The Lehman Brothers Government/Corporate Index (the "Government/Corporate
Index") is intended to measure the performance of the domestic, fixed-rate
investment grade debt market. The Government/Corporate Index is composed of (1)
all public obligations of the U.S. Government, its agencies and
instrumentalities (excluding "flower" bonds and pass-through issues such as GNMA
certificates) and (2) all publicly issued, fixed-rate nonconvertible, investment
grade, dollar-denominated, SEC-registered obligations of domestic corporations,
foreign governments and supranational organizations.
The Lehman Brothers Aggregate Bond Index (the "Aggregate Bond Index") covers
the U.S. investment grade fixed-rate bond market, including government and
corporate securities, agency mortgage pass-through securities, and asset-backed
securities. The Aggregate Bond Index covers those securities in the
Government/Corporate Bond Index, plus those covered by the Lehman
Mortgage-Backed Securities Index ("MBS Index") and the Lehman Asset-Backed
Securities Index ("ABS Index"). The MBS Index covers fixed-rate securities
backed by mortgage pools of the Government National Mortgage Association
("GNMA"), Freddie Mac and Fannie Mae. The ABS Index covers several
subsectors--including credit and charge cards, auto, utilities and home equity
loans--and includes pass-through, bullet, and controlled amortization
structures.
All non-U.S. Government issues in the Government/Corporate Index and the
Aggregate Bond Index are rated at least Baa by Moody's Investors Service, Inc.
("Moody's") or, if unrated by Moody's, BBB by Standard & Poor's Ratings Group
("Standard & Poor's").
The sub-investment manager of the Bond Index Portfolio will monitor to
determine whether any of the Portfolio's securities have ceased to meet any of
these criteria, and, if so, the Portfolio may dispose of such securities or
retain them, regardless of whether they have yet been removed from the relevant
index. However, such "ineligible" investments, together with cash and money
market instruments may not exceed 20% (and are not expected to exceed 10%) of
the Portfolio's net assets. Nor will more than 5% of the Portfolio's net assets
comprise either (a) cash or money-market instruments (except pending investment
of such amounts in other investments as soon as reasonably practicable) or (b)
debt securities of the type commonly referred to as "high yield" or "junk"
bonds. See "Risk of Lower-Quality Instruments" above.
Lehman Brothers, Inc. is neither a sponsor of nor in any other way affiliated
with the Portfolio or the insurance products supported by the Portfolio.
Inclusion of a security in the Government/Corporate or Aggregate Bond Indexes in
no way implies an opinion of Lehman Brothers, Inc. as to its attractiveness or
appropriateness as an investment.
THE MSCI EAFE GDP INDEX
The International Equity Index Portfolio seeks to provide investment results
that correspond to the total return of
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the MSCI EAFE GDP Index. The MSCI EAFE GDP Index weights countries such that a
country with a larger GDP will have a greater weight in the index. Stocks within
those countries are capitalization weighted; that is stocks with a larger
capitalization have a greater weight in the index.
The Portfolio attempts to track the capital appreciation and dividend income
of the MSCI EAFE GDP Index by investing in a representative portion of the
stocks which matches as closely as possible the characteristics of the stocks
which comprise the Index. The Portfolio will also invest in stock index futures.
The Portfolio will attempt to achieve a correlation between the performance of
its Portfolio and that of MSCI EAFE GDP Index of at least 0.90, without taking
into account fees and expenses. A perfect correlation would be 1.00.
The Fund, the Portfolio and the insurance products supported by the Portfolio
are not sponsored, endorsed, sold or promoted by MSCI. MSCI makes no
representation or warranty, express or implied, to the owners of the Fund, the
Portfolio or any member of the public regarding the advisability of investing in
funds generally or in the Fund or Portfolio particularly or the ability of the
MSCI EAFE GDP Index to track general stock market performance. MSCI is the
licensor of certain trademarks, service marks and trade names of MSCI and of the
MSCI EAFE GDP Index which is determined, composed and calculated by MSCI without
regard to the Fund or this Portfolio. "Morgan Stanley Capital International" is
a service mark of Morgan Stanley & Co., Incorporated, that has been licensed for
use by the Fund. MSCI has no obligation to take the needs of the Fund or the
owners of insurance products supported by this Portfolio into consideration in
determining, composing or calculating the MSCI EAFE GDP Index. MSCI is not
responsible for and has not participated in the determination of the prices or
amounts of insurance products supported by this Portfolio or the timing of the
issuance and sale of such products, or in the determination or calculation of
the equation by which such products are convertible into cash. MSCI has no
obligation or liability to owners of this Portfolio or of the insurance products
supported by this Portfolio in connection with the administration, marketing or
trading of this Portfolio.
ALTHOUGH MSCI OBTAINS INFORMATION FOR INCLUSION IN OR FOR USE IN THE
CALCULATION OF THE INDEX FROM SOURCES WHICH MSCI CONSIDERS RELIABLE, NEITHER
MSCI NOR ANY OTHER PARTY GUARANTEES THE ACCURACY AND/OR THE COMPLETENESS OF THE
INDEX OR ANY DATA INCLUDED THEREIN. NEITHER MSCI NOR ANY OTHER PARTY MAKES ANY
WARRANTY, EXPRESS OR IMPLIED, AS TO RESULTS TO BE OBTAINED BY OWNERS OF THE
FUND, OR ANY OTHER PERSON OR ENTITY FROM THE USE OF THE INDEX OR ANY DATA
INCLUDED THEREIN. NEITHER MSCI NOR ANY OTHER PARTY MAKES ANY EXPRESS OR IMPLIED
WARRANTIES, AND MSCI HEREBY EXPRESSLY DISCLAIMS ALL WARRANTIES OF
MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE WITH RESPECT TO THE INDEX OR
ANY DATA INCLUDED THEREIN. WITHOUT LIMITING ANY OF THE FOREGOING, IN NO EVENT
SHALL MSCI OR ANY OTHER PARTY HAVE ANY LIABILITY FOR ANY DIRECT, INDIRECT,
SPECIAL, PUNITIVE, CONSEQUENTIAL OR ANY OTHER DAMAGES (INCLUDING LOST PROFITS)
EVEN IF NOTIFIED OF THE POSSIBILITY OF SUCH DAMAGES.
INVESTMENT RESTRICTIONS
The Fund has adopted the following restrictions relating to the investment of
each Portfolio's assets. These restrictions are fundamental policies and may not
be changed for any Portfolio without the approval of a majority of the
outstanding voting shares of each affected Portfolio. (As used in the Prospectus
and this Statement of Additional Information, the term "majority of the
outstanding voting shares" means the lesser of (1) 67% of the shares represented
at a meeting at which more than 50% of the outstanding shares are represented or
(2) more than 50% of the outstanding shares.) A change in policy affecting only
one Portfolio may be effected with the approval of the majority of the
outstanding voting shares of that Portfolio, without the approval of a majority
of the outstanding voting shares of any other Portfolio or of the entire Fund.
No Portfolio will:
(1) Purchase real estate or any interest therein, except through the purchase
of corporate or certain government securities (including securities secured by
a mortgage or a leasehold interest or other interest in real estate). A
security issued by a real estate or mortgage investment trust or an interest
in a pool of real estate mortgage loans
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is not treated as an interest in real estate. Investments of the type
permitted in the Real Estate Equity Portfolio are not deemed interests in real
estate for the purposes of this restriction.
(2) Make loans, other than through the acquisition of obligations in which the
Portfolio may invest consistent with its objective and investment policies,
except that the Equity Index, Large Cap Value, Mid Cap Value, Mid Cap Growth,
Diversified Mid Cap Growth, Small/Mid Cap CORE, Small Cap Value, Small Cap
Growth, Global Equity, International Balanced, International Equity Index,
International Opportunities, Emerging Markets Equity, Short-Term Bond, Bond
Index, Strategic Bond, and High Yield Bond Portfolios may lend portfolio
securities not having a value in excess of 33 1/3% of the Portfolio's total
assets.
(3) Invest in commodities or in commodity contracts or in puts, calls or a
combination of both, except that
(A) the Managed, Equity Index, Large Cap Value, Large Cap Growth, Mid Cap
Value, Mid Cap Growth, Diversified Mid Cap Growth, Small/Mid Cap CORE,
Small Cap Value, Small Cap Growth, Global Equity, International Balanced,
International Equity Index, International Opportunities, Emerging Markets
Equity, Short-Term Bond, Bond Index, Strategic Bond, and High Yield Bond
Portfolios may
(i) write call options on, and purchase put options covered by,
securities held by them and purchase and sell options to close out
positions thus established, provided that no such covered call or put
option position will be established in the Large Cap Growth Portfolio if
more than one-third of the Portfolio's total assets would immediately
thereafter be subject to such call and put options,
(ii) purchase options on stock indexes and write such options to close
out positions previously established, and
(iii) enter into financial futures contracts or purchase options on such
contracts, and effect offsetting transactions to close out such
positions previously established; provided that, (a) as to the Large Cap
Value, Large Cap Growth, Mid Cap Value, and Small Cap Value Portfolios,
no position in financial futures, options thereon or options on
securities indexes will be established if, immediately thereafter, the
then-current aggregate value of all securities owned or to be acquired
by the Portfolio which are hedged by such instruments exceeds one-third
of the value of its total assets and (b) as to such Portfolios and as to
the Equity Index and International Opportunities Portfolios, no futures
position or position in options on futures will be established if,
immediately thereafter, the total of the initial margin deposits
required by commodities exchanges with respect to all open futures
positions at the time such positions were established, plus the sum of
the premiums paid for all unexpired options on futures contracts would
exceed 5% of the Portfolio's total assets;
(B) with respect to the Managed, Equity Index, Large Cap Value, Mid Cap
Value, Mid Cap Growth, Diversified Mid Cap Growth, Small/Mid Cap CORE,
Small Cap Value, Small Cap Growth, Global Equity, International Balanced,
International Equity Index, International Opportunities, Emerging Markets
Equity, Short-Term Bond, Bond Index, Sovereign Bond, Strategic Bond, and
High Yield Bond Portfolios, forward foreign exchange contracts, forward
commitments, and when-issued securities are not deemed to be commodities or
commodity contracts or puts or calls for the purposes of this restriction;
(C) the Managed, Mid Cap Growth, Diversified Mid Cap Growth, Small/Mid Cap
CORE, Small Cap Growth, Global Equity, International Balanced,
International Equity Index, Emerging Markets Equity, Short-Term Bond, Bond
Index, Strategic Bond, and High Yield Bond Portfolios may, in addition to
the activities permitted in (A) and (B) above,
(i) write put and call options on securities and market indexes, if such
positions are covered by other securities or outstanding put and call
positions of the Fund and purchase put and call options to close out any
positions thus established, and
(ii) enter into futures contracts on securities or market indexes, or
purchase or write put or call options
34
<PAGE>
on such futures contracts, for hedging or speculative (non-hedging)
purposes, and enter into offsetting transactions to close out any
positions thus established; provided that none of these Portfolios may
purchase, sell or write such futures or options other than for bona fide
hedging purposes if immediately thereafter the Portfolio's margin
deposits on such non-hedging positions, plus the amount of premiums paid
for outstanding options on futures contracts, that are not for bona fide
hedging purposes, less any amount by which any such option is "in the
money" at the time of purchase, exceeds 5% of the market value of the
Portfolio's net assets;
(D) the Sovereign Bond Portfolio may enter into futures contracts and
purchase or write options thereon to the same extent as is permitted in
(C), above, with respect to the Portfolios listed therein; and
(E) the Managed, Equity Index, Large Cap Value, Mid Cap Value, Mid Cap
Growth, Small/Mid Cap CORE, Global Equity, International Balanced,
International Equity Index, International Opportunities, Emerging Markets
Equity, Strategic Bond, and High Yield Bond Portfolios may purchase or
write put or call options on foreign currencies, may purchase put or call
options on securities, and may enter into closing transactions with respect
to any of such options.
(4) Engage in the underwriting of securities of other issuers, except to the
extent the Portfolio may be deemed an underwriter in selling as part of an
offering registered under the Securities Act of 1933 securities which it has
acquired.
(5) Borrow money, except from banks as a temporary measure where such
borrowings would not exceed 5% of the market value of total assets of the
Portfolio as of the time each such borrowing is made, or 10% as to the Small/
Mid Cap CORE, Global Equity, International Equity Index, Emerging Markets
Equity, Bond Index and High Yield Bond Portfolios, subject to a
non-fundamental policy that none of these Portfolios will make additional
investments at any time when such borrowings plus any amounts payable by the
Portfolio under reverse repurchase agreements exceed 5% of that Portfolio's
total assets.
(6) Except as set forth herein as to the Managed, Diversified Mid Cap Growth,
Short-Term Bond, and Sovereign Bond Portfolios, neither such portfolios, nor
the Growth & Income, Large Cap Growth, Real Estate Equity, or Money Market
Portfolios may purchase securities which are subject to legal or contractual
delays in or restrictions on resale. The Managed and Sovereign Bond Portfolios
may, however, purchase restricted securities, including those eligible for
resale to "qualified institutional buyers" pursuant to Rule 144A under the
securities Act of 1933, subject to a nonfundamental restriction limiting all
illiquid securities held by each Portfolio to not more than 15% of the
Portfolio's net assets.
(7) Purchase securities on margin, except for short-term credits as may be
necessary for the clearance of purchases or sales of securities, or effect a
short sale of any security. Neither the use of futures contracts as permitted
by restriction (3), above nor the use of option contracts as permitted by
restriction (3) above, shall be deemed to be the purchase of a security on
margin.
(8) Invest for the purpose of exercising control over or management of any
company.
(9) Unless received as a dividend or as a result of an offer of exchange
approved by the Securities and Exchange Commission or of a plan of
reorganization, purchase or otherwise acquire any security issued by an
investment company if the Portfolio would immediately thereafter own (a) more
than 3% of the outstanding voting stock of the investment company, (b)
securities of the investment company having an aggregate value in excess of 5%
of the Portfolio's total assets, (c) securities of investment companies having
an aggregate value in excess of 10% of the Portfolio's total assets, or (d)
together with investment companies having the same investment adviser as the
Portfolio (and companies controlled by such investment companies), more than
10% of the outstanding voting stock of any registered closed-end investment
company. A real estate or mortgage investment trust is not considered an
investment company. This restriction does not apply to the Equity Index, Large
Cap Value, Mid Cap Value, Mid Cap Growth, Small/Mid Cap CORE, Small Cap Value,
Small Cap Growth, Global Equity, International Balanced, International
Opportunities, Emerging Markets Equity, Bond Index, Strategic Bond, or High
Yield
35
<PAGE>
Bond Portfolios.
(10) Purchase securities of any issuer, if (a) with respect to 75% of the
market value of its total assets, more than 5% of the Portfolio's total assets
taken at market value would at the time be invested in the securities of such
issuer, unless such issuer is the United States Government or its agency or
instrumentality, 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
Portfolio. This restriction shall not apply to the Mid Cap Growth or
International Balanced Portfolios.
(11) Issue senior securities. For the purposes of this restriction, the
following shall not be deemed to be the issuance of a senior security: the use
of futures contracts as permitted by restriction 3, above; the use of option
contracts as permitted by restriction 3, above; and the use of foreign
currency contracts.
The Equity Index, Large Cap Value, Mid Cap Value, Mid Cap Growth, Diversified
Mid Cap Growth, Small/Mid Cap CORE, Small Cap Value, Small Cap Growth, Global
Equity, International Balanced, International Equity Index, International
Opportunities, Emerging Markets Equity, Short-Term Bond, Bond Index, Sovereign
Bond, Strategic Bond, and High Yield Bond Portfolios will not purchase the
securities of issuers conducting their principal business activity in the same
industry if, immediately after such purchase, the value of the Portfolio's
investments in such industry would exceed 25% of its total assets taken at
market value. For the purpose of this restriction, telephone, water, gas and
electric public utilities are each regarded as separate industries, and
wholly-owned finance companies are considered to be in the industry of their
parents if their activities are primarily related to financing the activities of
their parent. In conformity with its understanding of current interpretations of
the 1940 Act by the staff of the Securities and Exchange Commission, the Fund,
as a non-fundamental policy, interprets this limitation not to apply to
securities issued by the Federal government, or state and local governments
within the U.S., or political subdivisions thereof; but this exception does not
apply to securities of foreign governmental entities. If these interpretations
change, however, the Fund may modify its practices to conform to such changes.
The Diversified Mid Cap Growth and Short-Term Bond Portfolios will not
purchase any security, including any repurchase agreement maturing in more than
seven days, which is subject to legal or contractual delays in or restrictions
on resale, or which is not directly marketable, if more than 10% of the assets
of the Portfolio, taken at market value, would be invested in such securities.
For purposes of any restrictions or limitation to which the Fund is subject,
no Portfolio, by entering into any futures contract or acquiring or writing any
option thereon or on any security or market index, shall be deemed
(1) to have acquired or invested in any securities of any exchange or clearing
corporation for any such instrument or
(2) to have acquired or invested in any debt obligations or in any stocks
comprising indexes on which such instrument is based, but which the Portfolio
does not hold directly in its portfolio.
BOARD OF TRUSTEES AND OFFICERS OF THE FUND
The Board of Trustees of the Fund is responsible for the administration of the
affairs of the Fund. The Board may exercise all powers of the Fund except those
powers which are conferred upon or reserved to the shareholders. The following
is a list of the current members of the Board of Trustees and officers of the
Fund, together with their principal occupations during the past five years:
<TABLE>
<CAPTION>
<S> <C> <C>
POSITION HELD
NAME, ADDRESS AND AGE WITH FUND PRINCIPAL OCCUPATION
- --------------------- --------- --------------------
Michele G. Van Leer*.... Chairman Senior Vice President, Individual
and Trustee Retail Products, John Hancock
John Hancock Place Mutual Life Insurance Company;
Boston, Massachusetts Director, John Hancock Variable
02117 Life Insurance Company
Thomas J. Lee* ......... Vice Chairman, Vice President, Life and Annuity
President Services, John Hancock Mutual Life
John Hancock Place and Trustee Insurance Company; Director, John
Boston, Massachusetts Hancock Variable Life Insurance
02117 Company
William H. Dykstra ..... Trustee Director, Reed & Barton Corporation
(silversmiths); Certified Public
Reed & Barton Accountant; Trust Fund Commissioner,
Corporation Town of Braintree.
Taunton, Massachusetts
02780
Diane C. Kessler ....... Trustee Executive Director, Massachusetts
325 Parker Street Council of Churches
Newton Centre, Massachusetts
02159
Robert Verdonck ........ Trustee President and Chief Executive
One Bennington Street Officer, East Boston Savings Bank
East Boston, Massachusetts
02128
Elizabeth G. Cook ...... Trustee Executive Director, The Advertising
Club of Greater Boston.
85 East India Row
Boston, Massachusetts
02110
Laura L. Mangan ........ Secretary Assistant Regulatory and Compliance
Officer, John Hancock Mutual Life
John Hancock Place Insurance Company.
Boston, Massachusetts
02117
Raymond F. Skiba ....... Treasurer Director, Fund Operations, John
Hancock Mutual Life Insurance
John Hancock Place Company.
Boston, Massachusetts
02117
</TABLE>
36
<PAGE>
*Ms. Van Leer and Mr. Lee are the only Trustees who are "interested persons"
as defined in the 1940 Act, as amended, and are members of the Fund's Executive
Committee. Although Ms. Mangan and Mr. Skiba are officers of the Fund, they are
not Trustees of the Fund.
Certain members of the Fund's Board of Trustees own either variable annuity
contracts or variable life insurance policies funded by one of the Accounts and,
in that sense, have an interest in shares of the Fund.
37
<PAGE>
INVESTMENT ADVISORY AND OTHER SERVICES
INVESTMENT MANAGEMENT AND OPERATING EXPENSES
John Hancock, the Fund's investment manager, is a Massachusetts corporation.
The Fund will pay John Hancock an investment advisory fee at the following
rates:
<TABLE>
<CAPTION>
<S> <C> <C>
INVESTMENT ADVISORY FEE AS AN ANNUAL PERCENTAGE
PORTFOLIO OF EACH PORTION OF THE
--------- PORTFOLIO'S AVERAGE DAILY NET ASSETS
--------------------------------------------
Managed } ...... .40% of first $500 million; .35% of next $500
Large Cap Growth} million; .30% above $1 billion
Growth & Income...}
Sovereign Bond ....} .25%
Money Market }
Small Cap Growth .. .75%
Large Cap Value ... .75% of first $100 million; .70% of next $150 million;
.65% above $250 million
Equity Index ...... .15% of first $75 million; .14% of next $50
million; .13% above$125 million
Small Cap Value.... .80% of first $100 million; .75% of next $100
million; .65% above $200 million
Mid Cap Value...... .80% of first $100 million; .775% of next $150
million; .75% of next $250
million; .725% of next $250 million; .70% above
$750 million
Mid Cap Growth..... .85% of first $100 million; .80% above $100
million
Real Estate Equity. .60% of first $300 million; .50% of next $500
million; .40% above $800 million
Small/Mid Cap
Growth ........... .75% of first $250 million; .70% of next $250 million;
.65% above $500 million
Small/Mid Cap
CORE.............. .80% of first $50 million; .70% above $50 million
Global Equity...... .90% of first $50 million; .80% of next $100 million;
.70% above $150 million
International Balanced .85% of first $100 million; .70% above $100 million
International Equity .18% of first $100 million; .15% of next $100
Index.............. million; .11% above $200 million
International 1% of first $20 million; .85% of next $30 million;
Opportunities...... .75% above $50 million
Emerging Markets 1.30% of first $10 million; 1.20% of next $140
Equity............. million; 1.10% above $150 million
Short-Term Bond.... .30%
Bond Index......... .15% of first $100 million; .13% on next $150
million; .11% above $250 million
Global Bond........ .75% of first $25 million; .65% of next $50 million;
.55% of next $75 million;
.50% above $150 million
High Yield Bond.... .65% of first $100 million; .60% on next $100
million; .50% above $200 million
</TABLE>
38
<PAGE>
John Hancock's indirect wholly-owned subsidiary, Independence Investment
Associates, Inc. ("IIA"), serves as a sub-investment manager to the Managed,
Growth & Income, and Large Cap Growth Portfolios. For this, John Hancock pays
IIA a fee for the Large Cap Growth and Managed Portfolios at an annual rate of
.30% of the first $500,000,000 of the Portfolio's average daily net assets,
.2625% of the next $500,000,000, and .225% of all additional amounts. The
advisory fee payable to IIA by John Hancock for the Growth & Income Portfolio is
at an annual rate of .1875% of that Portfolio's average daily net assets.
IIA also serves as sub-investment manager to the Real Estate Equity Portfolio.
For this John Hancock pays IIA a fee at an annual rate of .30% of the first
$300,000,000 of the Portfolio's average daily net assets, .25% of the next
$500,000,000 and .20% of all additional amounts. Prior to May 1, 1993, John
Hancock's indirect subsidiary Hancock Realty Investors Incorporated ("HRII")
also served as a sub-investment manager to the Portfolio and was paid a fee by
John Hancock which fee is now shared by John Hancock and IIA. As of that date,
however, the personnel of HRII primarily responsible for its services to the
Portfolio became employees of John Hancock and will continue in that capacity to
provide the services formerly furnished by HRII.
IIA also serves as sub-investment manager to the Short-Term Bond Portfolio.
For this, John Hancock pays IIA a fee at an annual rate of .19% of the first
$250,000,000 of the Portfolio's average daily net assets, .17% of the next
$250,000,000, and .15% of all additional amounts.
John Hancock's indirect wholly-owned subsidiary, John Hancock Advisers, Inc.
("Advisers"), serves as sub-investment manager to the Small Cap Growth
Portfolio. For this, John Hancock pays Advisers a fee at an annual rate of .50%
of the Portfolio's average daily net assets.
Advisers also serves as sub-investment manager to the Sovereign Bond
Portfolio. For this, John Hancock pays Advisers a fee at an annual rate of
.1875% or the Portfolio's average daily net assets.
State Street Global Bank & Trust, N.A. ("State Street") serves as
sub-investment manager to the Equity Index Portfolio. For this John Hancock pays
State Street a fee at an annual rate of .07% of the first $75,000,000 of the
Portfolio's average daily net assets; .06% of the next $50,000,000; and .05% of
the next $275 million; and .03% on all additional amounts.
T. Rowe Price Associates, Inc. ("T. Rowe Price") serves as sub-investment
manager to the Large Cap Value Portfolio. For this John Hancock pays T. Rowe
Price a fee at an annual rate of .50% of the first $100 million of the
Portfolio's average daily net assets, .45% of the next $150 million, and .40% on
all additional amounts.
Neuberger Berman, LLC ("Neuberger & Berman") serves as sub-investment
manager to the Mid Cap Value Portfolio. For this John Hancock pays Neuberger &
Berman a fee at an annual rate of .50% of the first $100,000,000 of the
Portfolio's average daily net assets; .475% of the next $150,000,000; .45% of
the next $250,000,000; .425% of the next $250,000,000; and .40% of all
additional amounts.
39
<PAGE>
Janus Capital Corporation ("Janus") serves as sub-investment manager to the
Mid Cap Growth Portfolio. For this John Hancock pays Janus a fee at an annual
rate of .60% of the first $100,000,000 of the Portfolio's average daily net
assets and .55% on all additional amounts.
Goldman Sachs Asset Management ("Goldman Sachs"), a separate operating
division of Goldman, Sachs & Co., serves as sub-investment manager to the
Small/Mid Cap CORE Portfolio. For this John Hancock pays Goldman Sachs a fee at
an annual rate of .60% of the first $50 million of the Portfolio's average daily
net assets and .50% on all additional amounts.
INVESCO Management & Research, Inc. ("INVESCO") serves as sub-investment
manager to the Small Cap Value Portfolio. For this John Hancock pays INVESCO a
fee at an annual rate of .55% of the average daily net assets of the first
$100,000,000; .50% of the next $100,000,000; and .40% of all additional amounts.
Scudder Kemper Investments Inc. ("Scudder") serves as sub-investment manager
to the Global Equity Portfolio. For this John Hancock pays Scudder a fee at an
annual rate of .70% of the first $50 million of the Portfolio's average daily
net assets, .60% of the next $100 million, and .50% on all additional amounts.
Brinson Partners, Inc., ("Brinson") serves as sub-investment manager to the
International Balanced Portfolio. For this John Hancock pays Brinson a fee at an
annual rate of .50% of the first $100,000,000s of the Portfolio's average daily
net assets and .35% on all additional amounts.
Independence International Associates, Inc. ("International") serves as
sub-investment manager to the International Equity Index Portfolio. For this
John Hancock pays International a fee at an annual rate of .125% of the first
$100 million of the Portfolio's average daily net assets, .10% of the next $100
million and .06% on all additional amounts.
Rowe Price-Fleming International, Inc., ("Rowe Price-Fleming") serves as
sub-investment manager to the International Opportunities Portfolio. For this
John Hancock pays Rowe Price-Fleming a fee at an annual rate of .75% of the
first $20,000,000 of the Portfolio's average daily net assets, .60% of the next
$30,000,000, .50% of the next $150,000,000, and .50% of all the Portfolio's
assets once the Portfolio's average daily net assets reaches $200,000,000.
Montgomery Asset Management, LLC ("Montgomery"), a wholly-owned subsidiary of
Commerzbank AG, serves as sub-investment manager to the Emerging Markets Equity
Portfolio. For this John Hancock pays Montgomery a fee at an annual rate of
1.10% of the first $10 million of the Portfolio's average daily net assets, .90%
of the next $140 million, and .80% on all additional amounts.
Mellon Bond Associates, LLP ("Mellon"), which is an indirect wholly-owned
subsidiary of Mellon Bank Corporation, serves as sub-investment manager to the
Bond Index Portfolio. For this John Hancock pays Mellon a fee at an annual rate
of .08% of the first $100 million of the Portfolio's average daily net assets,
.06% of the next $150 million, and .04% on all additional amounts.
J.P. Morgan Investment Management Inc. ("JPMIM") serves as sub-investment
manager to the Strategic Bond Portfolio. For this John Hancock pays JPMIM a fee
at an annual rate of .50% of the first $25,000,000 of the Portfolio's average
daily net assets, .40% of the next $50,000,000, .30% of the next $75,000,000,
and .25% on all additional amounts.
Wellington Management Company, LLP ("Wellington") serves as sub-investment
manager to the High Yield Bond Portfolio. For this John Hancock pays Wellington
a fee at an annual rate of .50% of the first $100 million of the Portfolio'
average daily net assets, .45% of the next $100 million, and .35% on all
additional amounts.
Wellington also serves as sub-investment manager to the Small/Mid Cap Growth
Portfolio. For this John Hancock pays Wellington a fee at an annual rate of .55%
of the first $100 million of the Portfolio's average daily net assets, .45% of
the next $100 million, and .40% on all additional amounts.
Set out below are the amounts that the Fund paid to the investment manager and
that the investment manager paid
40
<PAGE>
to the sub-investment managers for the past three years:
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
INVESTMENT MANAGER SUB-INVESTMENT MANAGER
------------------ ----------------------
PORTFOLIO 1998 1997 1996 1998 1997 1996
--------- ---- ---- ---- ---- ---- ----
Managed...............................................
Growth & Income.......................................
Equity Index..........................................
Large Cap Value.......................................
Large Cap Growth......................................
Mid Cap Value.........................................
Mid Cap Growth........................................
Real Estate Equity....................................
Small/Mid Cap Growth..................................
Small/Mid Cap CORE....................................
Small Cap Value.......................................
Small Cap Growth......................................
Global Equity.........................................
International Balanced................................
International Equity Index............................
International Opportunities...........................
Emerging Markets Equity...............................
Short-Term Bond.......................................
Bond Index............................................
Sovereign Bond........................................
Global Bond...........................................
High Yield Bond.......................................
Money Market..........................................
</TABLE>
The fees of the sub-investment managers are solely the responsibility of John
Hancock and not the Fund.
Pursuant to its Investment Management Agreements, as amended, with the Fund,
John Hancock has reserved the right to its name and "logo," which the Fund must
cease using upon termination of the Agreement.
Under the Investment Management Agreements, John Hancock, a registered
investment adviser under the Investment Advisers Act of 1940, advises the Fund
in connection with policy decisions; provides administration of day-to--
41
<PAGE>
day operations; serves as the Fund's transfer agent and dividend disbursing
agent; maintains records required by the Investment Company Act of 1940;
computes income and yield of each Portfolio; and supervises activities of the
sub-investment managers referred to below and of other service providers to the
Fund. John Hancock also provides the Fund with office space, supplies and other
facilities required for the business of the Fund. It pays the compensation of
Fund officers and employees and the expenses of clerical services relating to
the administration of the Fund. Expenses not expressly assumed by John Hancock
under the Investment Management Agreement are paid by the Fund. These include,
but are not limited to, taxes, custodian and auditing fees, brokerage
commissions, advisory fees, the compensation of unaffiliated trustees, the
Fund's fidelity bond coverage, the costs of printing and distributing to
contract holders annual and semi-annual reports and voting materials, tabulating
votes, compensation for certain accounting, valuation, and compliance services,
legal, auditing, and custodian fees, registration costs, proxy costs,
organizational costs, association dues, and other expenses related to the Fund's
operations.
Under the Investment Management Agreements, for any fiscal year in which the
normal operating costs and expenses of any Portfolio of the Series, exclusive of
the investment advisory fee, interest, brokerage commissions, taxes and
extraordinary expenses outside the control of John Hancock exceed 0.10% (.25%
prior to April 23, 1999) of that Portfolio's average daily net assets, John
Hancock will reimburse that Portfolio promptly after the end of the fiscal year
in an amount equal to such excess. These reimbursements have been as follows for
the past three years (rounded to the nearest $1,000):
<TABLE>
<CAPTION>
<S> <C> <C> <C>
PORTFOLIO 1998 1997 1996
--------- ------------ ------------ ------------
Equity Index............... 543,000 $217,000 $102,000
Large Cap Value............ -- 25,000 65,000
Mid Cap Value.............. -- 29,000 55,000
Mid Cap Growth............. 15,000 86,000 64,000
Small Cap Value............ 17,000 57,000 56,000
Small Cap Growth........... 27,000 38,000 51,000
International Balanced..... 199,000 116,000 50,000
International Equity Index. 124,000 -- 38,000
International Opportunities 145,000 86,000 145,000
Short-Term Bond............ -- -- 11,000
Global Bond................ 31,000 61,000 50,000
Small/Mid Cap CORE......... 107,000 -- --
Global Equity.............. 126,000 -- --
Emerging Markets Equity.... 111,000 -- --
Bond Index................. 56,000 -- --
High Yield Bond............ 85,000 -- --
</TABLE>
UNDERWRITING AND INDEMNITY AGREEMENT
The offering of the Fund's shares is continuous. Pursuant to an Underwriting
and Indemnity Agreement, as amended May 1, 1997, John Hancock Distributors, Inc.
("Distributors") serves as the Fund's principal underwriter on a "best efforts"
basis. Neither Distributors nor John Hancock receives any additional
compensation from the Fund for the services it performs pursuant to the
Underwriting Agreement. Distributors is a wholly-owned subsidiary of John
Hancock located at 197 Clarendon Street, Boston, MA 02117.
CUSTODIAN AGREEMENT
State Street Bank and Trust Company of Boston, Massachusetts, is the custodian
of the assets of all Portfolios
42
<PAGE>
pursuant to a Custodian Agreement dated as of January 30, 1995, and amended as
of March 18, 1996 and April 14, 1998. The custodian's duties include
safeguarding and controlling the Fund's cash and investments, handling the
receipt and delivery of securities, and collecting interest and dividends on the
Fund's investments. Portfolio securities purchased in the United States are
maintained in the custody of State Street Bank, although such securities may be
deposited in the Book-entry system of the Federal Reserve System or with
Depository Trust Company. The Trustees of the Fund have determined that, except
as otherwise permitted under applicable Securities and Exchange Commission
"no-action" letters or exemptive orders, it is in the Fund's best interest to
hold foreign assets in qualified foreign banks and depositories meeting the
requirements of Rule 17f-5 under the Investment Company Act of 1940, as amended.
INDEPENDENT AUDITORS
Ernst & Young LLP, 200 Clarendon Street, Boston, Massachusetts, are the
independent auditors of the Fund.
YEAR 2000 PROGRESS
The computer systems used to administer the Fund's operations must be adjusted
to continue to perform this function after the calendar changes to a year
beginning with the numeral "2" (i.e., beginning in the year 2000). Because the
Fund has no employees and does not own or lease any computer systems, the Fund
contracts with other entities to provide the services essential to its
operation. John Hancock has assured the Fund that John Hancock's computer
systems are expected to be compliant with the year 2000 on time and in a way
that will result in no disruption to the Fund or contractholders. John Hancock
has further advised the Fund that it is seeking assurances from service
providers to John Hancock and the Fund, including sub-investment managers to the
Fund, that the computer systems of the service providers and sub-investment
managers will be compliant with the year 2000. However, risks and uncertainties
exist, and nonperformance by any of these entities, or other unforeseen
circumstances, could have a material adverse impact on the operation of the
Fund.
PORTFOLIO TRANSACTIONS AND BROKERAGE ALLOCATION
The Portfolios are charged with securities brokers' commissions, transfer
taxes, and other fees relating to their portfolio transactions. Expenses
identifiable to a particular Portfolio are charged to that Portfolio; otherwise,
expenses are prorated according to the size of the Portfolio. Investments in
debt securities are, however, generally traded on a net basis through issuers or
dealers acting for their own account as principals and not as brokers;
therefore, no brokerage commissions are payable on such transactions, although
the price to the Fund usually reflects a dealer "spread" or "mark-up."
Brokerage commissions paid by the Portfolio were as follows for the past three
years:
<TABLE>
<CAPTION>
<S> <C> <C> <C>
PORTFOLIO 1998 1997 1996
--------- --------------- ---------------- --------------
Managed.............. $1,843,929 $1,626,154 $ 411,250
Growth & Income...... 2,673,170 1,646,997 2,669,585
Equity Index......... 33,797 31,076 6,843
Large Cap Value...... 63,944 45,619 14,960
Large Cap Growth..... 815,587 680,933 1,008,291
Mid Cap Value........ 495,154 122,108 22,485
Mid Cap Growth....... 146,033 71,998 24,888
Small/Mid Cap Growth. 893,945 1,876,203 849,200
Real Estate Equity... 177,186 122,897 118,195
Small/Mid Cap CORE... 7,225 -- --
Small Cap Value...... 176,549 138,114 40,337
Small Cap Growth..... 103,248 67,492 19,090
Global Equity........ 37,426 -- --
International Balanced 51,205 27,745 41,380
International Equity
Index................ 730,529 750,416 913,461
International
Opportunities........ 117,083 63,138 46,838
Emerging Markets
Equity............... 10,018 -- --
</TABLE>
43
<PAGE>
Orders for the purchase and sale of Portfolio investments are placed by John
Hancock with respect to the Money Market Portfolio and by the respective
sub-investment managers to the other Portfolios. These Investment Managers place
orders in such manner as, in their opinion, will offer the best price and market
for the execution of each transaction. In seeking the best price and execution
for equity securities traded only in the over-the-counter market, they normally
deal directly with the principal market-makers.
The Investment Managers are governed in the selection of brokers and dealers
and the negotiation of brokerage commission rates (or the payment of net prices
in the case of debt securities) by the reliability and quality of the broker or
dealer's services. Some weight is given the availability and value of research
and statistical assistance furnished by the broker or dealer to the Investment
Manager but it is not always possible to place a dollar value on such
information and services. Because it is only supplementary to the Investment
Managers' own research efforts, the receipt of research information and
statistical assistance is not expected to reduce their expenses measurably.
Research and statistical assistance typically furnished by brokers or dealers
includes analysts' reports on companies and industries, market forecasts, and
economic analyses. Brokers or dealers may also provide reports on pertinent
federal and state legislative developments and changes in accounting practices;
direct access by telephone or meetings with leading research analysts throughout
the financial community, corporate management personnel, industry experts,
leading economists and government officials; comparative performance and
evaluation and technical performance measurement services; portfolio
optimization software; availability of economic advice; quotation services; and
services from recognized experts on investment matters of particular interest to
the sub-investment manager. In addition, the foregoing services may comprise the
use of or be delivered by computer systems whose software and hardware
components may be provided to the sub-investment manager as part of the
services. In any case in which the foregoing systems can be used for both
research and non-research purposes, the Investment Manager makes an appropriate
allocation of those uses and will permit brokers to provide only the portion of
the systems to be used for research services. Research and statistical services
furnished by brokers handling the Portfolios' transactions may be used by the
Investment Managers for the benefit of all of the accounts managed by them and
not all of such research and statistical services may be used by the Investment
Managers in connection with the Portfolios.
Except as described below with respect to the International Balanced
Portfolio, the Investment Managers or the Portfolios will not at any time make a
commitment pursuant to an agreement or understanding with a broker because of
research services provided. Nor, except as set forth below, will the Investment
Managers otherwise, through an internal allocation procedure, direct brokerage
upon any prescribed basis to a broker because of research services provided. The
sub-investment manager for each of the Small Cap Value, Mid Cap Growth, and Mid
Cap Value Portfolios may have an internal procedure for allocating transactions
in a manner consistent with its execution policy to brokers that it has
identified as providing superior executions, research, or research related
products or services which benefit its advisory clients, including the
Portfolio. In certain cases, the sub-investment manager of the International
Balanced Portfolio directs securities transactions for that Portfolio to
particular brokers, in recognition of research services the broker has provided,
pursuant to an understanding or agreement with the broker or pursuant to the
sub-investment manager's own internal allocation procedures.
Evaluations of the overall reasonableness of any broker's commissions are made
by the Investment Managers' traders for the Portfolios on the basis of their
experience and judgment. To the extent permitted by Section 28(e) of the
Securities Exchange Act of 1934, such traders are authorized to pay a brokerage
commission on a particular transaction in excess of what another broker might
have charged in recognition of the value of the broker's brokerage or research
services, although such authority is generally expected to be used very
infrequently. The Mid Cap Growth, Mid Cap Value, and International Balanced
Portfolios, however, may be more likely to use such authority.
Although the Investment Managers will be responsible for the allocation of the
Portfolios' brokerage, their policies and practices in this regard must be
consistent with the foregoing and will at all times be subject to review by the
Board of Trustees of the Fund.
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<PAGE>
The brokerage transactions for those Portfolios that can invest in securities
of companies domiciled in countries other than the United States are anticipated
to be normally conducted on the stock exchanges or other markets of those
countries in which the particular security is traded. Fixed commissions on
foreign stock exchange transactions are generally higher than negotiated
commissions available in the United States. Moreover, there is generally less
government supervision and regulation of foreign stock exchanges and
broker-dealers than in the United States. Settlement periods in non-U.S. markets
may differ from the normal settlement period in the United States.
During 1998, certain Portfolios purchased the securities of their "regular
brokers or dealers," as that term is defined under Rule 10b-1 of the Investment
Company Act of 1940. The following table sets forth the name of each such
Portfolio, the identity of each broker or dealer, and the aggregate value of the
securities of each such broker or dealer as of December 31, 1998.
<TABLE>
<CAPTION>
<S> <C>
PORTFOLIO BROKER-DEALER
--------- -------------
Mid Cap Value Equitable Companies, Inc.
Large Cap Value J. P. Morgan Securities,
Inc.
International Norman Securities
Opportunities
International Westpac Bank
Opportunities
International Nat West
Opportunities
International Deutsche Bank
Opportunities
International Banco Santander
Opportunities
</TABLE>
John Hancock also performs investment advisory services for a number of other
accounts and clients, none of which is given preference over the Fund in
allocating investment opportunities. When opportunities occur which are
consistent with the investment objective of more than one account, it is the
policy of each not to favor any one account over another, and investment
opportunities are allocated in a manner deemed equitable to the particular
accounts involved based on such factors as their respective investment
objectives and then current investment and cash positions. Subject to these
requirements, Fund orders may be combined with orders of other accounts or
clients advised by John Hancock or any of the sub-investment managers at prices
which are averaged.
Registered broker/dealers affiliated with any one of the sub-investment
managers may be used to execute a transaction on behalf of the Portfolios but
only if the price and execution is as favorable as that which would be available
from an unaffiliated broker/dealer and no less favorable than the affiliated
broker/dealer's contemporaneous charges to its other most favored, but
unaffiliated, customers. During 1997, the International Opportunities Portfolio
paid commissions of $741, $295 and $122 to Robert Fleming Securities Limited
("Robert Fleming"), Jardine Fleming & Co. ("JFC"), and Ord Minnett Group Ltd.
("Ord Minnett") respectively, which represented approximately 1.2%, 0.5% and
0.2%, respectively, of total commissions paid during 1997 by the International
Opportunities Portfolio. Information for that Portfolio, transactions effected
through Robert Fleming, JFC, and Ord Minnett represented 1.5%, 0.7% and 0.2% of
the aggregate dollar amount of transactions involving payment of commissions.
Robert Fleming and JFC are affiliates of Rowe Price-Fleming, sub-investment
manager of the International Opportunities Portfolio. Also during 1997,
Neuberger & Berman, a registered broker-dealer that also serves as
sub-investment manager of the Mid Cap Value Portfolio, executed transactions
representing approximately 56% of the aggregate dollar amount of transactions
for that Portfolio involving the payment of commissions. Commissions for the
transactions executed by Neuberger & Berman totaled approximately $68,000, which
represented just under 56% of all commissions paid by that Portfolio during
1997. The Fund may not engage in any transactions in which John Hancock, any of
the sub-investment managers, or any of their affiliates acts as principal.
45
<PAGE>
THE TRUST'S ORGANIZATION AND SHARES
On April 12, 1988, pursuant to an Agreement and Plan or Reorganization dated
February 2, 1988, a majority of the outstanding shares of each Portfolio of John
Hancock Variable Series Fund I, Inc., a Maryland corporation, voted its
reorganization as a Massachusetts business trust effective April 29, 1988. On
that date, all of the existing assets of John Hancock Variable Series Fund I,
Inc., and all of its obligations were transferred to John Hancock Variable
Series Trust I, a trust organized on February 25, 1988, for a number of full and
fractional shares of beneficial interest of the Trust equal to the number of
full and fractional shares of John Hancock Variable Series Fund I, Inc., then
outstanding.
The shares of beneficial interest of the Fund as reorganized are divided into
23 series, each corresponding to one of the Fund's 23 Portfolios. The Fund has
the right to establish additional series and issue additional shares without the
consent of the shareholders.
The assets received by the Fund for the issuance or sale of shares of each
Portfolio and all income, earnings, profits, and proceeds thereof are
specifically allocated to that Portfolio. They constitute the underlying assets
of each Portfolio, are segregated on the books of the Fund, and are to be
charged with the expenses of such Portfolio. Any assets which are not clearly
allocable to a particular Portfolio or Portfolios are allocated in a manner
determined by the Board of Trustees. Accrued liabilities which are not clearly
allocable to one or more Portfolios would generally be allocated among the
Portfolios in proportion to their relative net assets before adjustment for such
unallocated liabilities. Each issued and outstanding share in a Portfolio is
entitled to participate equally in dividends and distributions declared with
respect to such Portfolio and in the net assets of such Portfolio upon
liquidation or dissolution remaining after satisfaction of outstanding
liabilities.
The shares of each Portfolio, when issued, will be fully paid and
non-assessable, and will have no preference, preemptive, exchange or similar
rights. Shares do not have cumulative voting rights.
Under the Declaration of Trust of the Fund, the Fund is not required to hold
an Annual Meeting. Normally there will be no shareholder meetings for the
purpose of electing Trustees unless and until fewer than a majority of the
Trustees then in office have been elected by the shareholders. Trustees elected
at the Annual Meeting of shareholders on April 26, 1995, will continue in office
until the next Annual Meeting unless they die, resign or are removed, either for
cause or without cause, at any meeting of shareholders by an affirmative vote of
a majority of the outstanding shares entitled to vote for the election of
Trustees. The Trustees may elect their own successors and appoint Trustees to
fill any vacancy only if, after filling the vacancy, at least two-thirds of the
Trustees then in office have been elected by the shareholders. If at any time
less than a majority of Trustees in office have been elected by the
shareholders, the Trustees must call a special shareholders' meeting promptly
for the purpose of electing the Board of Trustees.
The Trustees shall promptly call a meeting of shareholders for the purpose of
voting upon the question of removal of any Trustee or all of the Trustees when
requested in writing to do so by holders of 10% or more of the outstanding
shares. Whenever ten or more shareholders who have been such for at least six
months and who hold in the aggregate either shares having a net asset value of
at least $25,000 or at least 1% of the outstanding shares, whichever is less,
apply to the Trustees in writing stating that they wish to communicate with
other shareholders with a view to obtaining signatures to a request for a
shareholders' meeting, for consideration of the removal of any or all of the
Trustees and accompanied by the material which they wish to transmit, the
Trustees will within five business days after receipt either afford to such
applicants access to the Fund's shareholder list or inform such applicants as to
the approximate number of shareholders of record, and the approximate cost of
mailing the material. If the Trustees elect the latter, the Trustees, upon
written request of such applicants, accompanied by the material to be mailed and
the reasonable expenses of mailing, shall promptly mail such material to all
shareholders of record, unless within five business days the Trustees shall mail
to such applicants and file with the Securities and Exchange Commission,
together with a copy of the material to be mailed, a written statement signed by
at least a majority of the Trustees to the effect that in their opinion either
such material is misleading or in violation of applicable law and specifying the
basis of such opinion.
In addition to transferring assets to the Fund through Variable Life Account U
and Variable Annuity Account U, JHVLICO also provided additional capital for the
Fund by purchasing through Variable Life Account U $350,000 worth of shares each
of the Managed and Large Cap Growth Portfolios and through Variable Life Account
V $500,000
46
<PAGE>
worth of shares each of the Diversified Mid Cap Growth, Real Estate Equity,
International Equity Index, and Short-Term Bond Portfolios. John Hancock also
provided additional capital for the Fund by purchasing the following amounts of
shares on May 1, 1998: $5 million for the Small/Mid Cap CORE Portfolio; $15
million for the Income Equity Portfolio; $10 million for the Emerging Markets
Equity Portfolio; $25 million for the Bond Index Portfolio, and $10 million for
the High Yield Bond Portfolio. JHVLICO or John Hancock may withdraw such
additional investment at some time. However, before withdrawing any part of
their interests in any Portfolio, John Hancock or JHVLICO will consider any
possible adverse impact the withdrawal might have on that Portfolio.
If the contractholders show minimal interest in any Portfolio, the Fund's
Board of Trustees, by majority vote, may eliminate the Portfolio or substitute
shares of another investment company. Any such action by the Board would be
subject to compliance with any requirements for governmental approvals or
exemptions or for shareholder approval. The contractholders of such Portfolios
will be notified in writing of the Fund's intention to eliminate the Portfolio
and given 30 days to transfer amounts from such Portfolio to other Portfolios
without incurring a transaction fee. Amounts not transferred or withdrawn will
automatically be transferred, at the discretion of the Fund's management.
A dividend from the net investment income of the Money Market Portfolio will
be declared and distributed daily. Dividends from net investment income of the
other Portfolios, except for the Diversified Mid Cap Growth Portfolio, will be
declared and distributed monthly. Dividends, if any, from net investment income
of the Diversified Mid Cap Growth Portfolio will be declared and distributed
annually. The Fund will distribute all of its net realized capital gains
annually. Dividends and capital gains distributions will normally be reinvested
in additional full or fractional shares of the Portfolio to which they relate
and will be appropriately credited to investment performance under John Hancock
and JHVLICO variable life insurance and annuity contracts.
VOTING RIGHTS
All shares of the Fund of whatever class are entitled to one vote, and the
votes of all classes are cast on an aggregate basis, except on matters where the
interests of the Portfolios differ. Where the interests of the Portfolios
differ, the voting is on a Portfolio-by-Portfolio basis. Approval or disapproval
by the shareholders in one Portfolio on such a matter would not generally be a
prerequisite of approval or disapproval by shareholders in another Portfolio;
and shareholders in a Portfolio not affected by a matter generally would not be
entitled to vote on that matter. Examples of matters which would require a
Portfolio-by-Portfolio vote are changes in the fundamental investment policy of
a particular Portfolio and approval of investment management or sub-investment
management agreements.
PURCHASE AND REDEMPTION OF SHARES
Shares of beneficial interest of each Portfolio of the Fund are offered only
to the corresponding subaccount of a Separate Account to which premiums have
been allocated by the owner of an insurance policy or an annuity contract.
Shares are sold at their net asset value as next determined after receipt of a
net premium by the Separate Account, without the addition of any selling
commission or sales load.
Shares are redeemed at their net asset value as next determined after receipt
of a surrender request by the Separate Account. No fee is charged on redemption.
Redemption payments will usually be paid within seven days after receipt of the
redemption request, except that the right of redemption may be suspended or
payments postponed whenever permitted by applicable law and regulations. Fund
shares are also purchased and redeemed as a result of transfer requests, loans,
loan repayments, and similar Separate Account transactions, in each case without
any sales load or commission and at the net asset value per share computed for
the day as of which such Separate Account transactions are effected.
Redemptions are normally made in cash, but the Fund reserves the right, at its
discretion, to make full or partial payment by assignment to the appropriate
Separate Account of portfolio securities at their value used in determining the
redemption price. In such cases, the Separate Account would incur brokerage
costs should it wish to liquidate these portfolio securities. The right to
redeem shares or to receive payment with respect to any redemption of shares of
any
47
<PAGE>
Portfolio may only be suspended (a) for any period during which trading on the
New York Stock Exchange is restricted or such Exchange is closed (other than
customary weekend and holiday closings), (b) for any period during which an
emergency exists as a result of which disposal of portfolio securities or
determination of the net asset value of that Portfolio is not reasonably
practicable, or (c) for such other periods as the Securities and Exchange
Commission may by order permit for the protection of shareholders of the
Portfolio.
NET ASSET VALUE
The net asset value per share of each Portfolio is determined once daily,
after the declaration of dividends, if any, as of 4:00 p.m., New York City time,
on each business day the New York Stock Exchange ("Exchange") is open for
regular trading. For this purpose, however, certain derivative instruments may
be valued using prices as late as 4:15.
The net asset value per share of each Portfolio is determined by adding the
value of all portfolio securities and other assets, deducting all portfolio
liabilities, and dividing by the number of outstanding shares. All Fund expenses
will be accrued daily for this purpose.
Short-term investments with a remaining maturity of 60 days or less, and all
investments of the Money Market Portfolio, are valued at amortized cost which
approximates market value. This involves valuing a security at its cost and
thereafter assuming a constant amortization to maturity of any discount or
premium, regardless of the impact of fluctuating interest rates. While this
method provides certainty in valuation, it may result in periods during which
the value of an instrument, as determined by amortized cost, is higher or lower
than the price the Portfolio would receive upon the sale of the instrument.
The valuation of the Money Market Portfolio's securities based upon their
amortized cost is subject to the Portfolio's adherence to certain procedures and
conditions. The portfolio manager will purchase U.S. dollar-denominated
securities with remaining maturities of 397 days or less and will maintain a
dollar-weighted average portfolio maturity of no more than 90 days. The
portfolio manager will invest only in securities that are judged to present
minimal credit risk and that satisfy the quality and diversification
requirements of applicable rules and regulations of the SEC.
The Board of Trustees has established procedures designed to stabilize the
Money Market Portfolio's price per share, as computed for the purpose of sales
and redemptions, at $10. There can be no assurance, however, that the Portfolio
will at all times be able to maintain a constant $10 net asset value per share.
Such procedures include review of the Portfolio's holdings at such intervals as
is deemed appropriate to determine whether the Portfolio's net asset value,
calculated by using available market quotations, deviates from $10 per share
and, if so, whether such deviation may result in material dilution, or is
otherwise unfair to existing shareholders. In the event that it is determined
that such a deviation exists, the Board of Trustees will take such corrective
action as it regards as necessary and appropriate. Such action may include
selling portfolio instruments prior to maturity to realize capital gains or
losses or to shorten average portfolio maturity, withholding dividends, or
establishing a net asset value per share by using available market quotations.
Securities and covered call and put options that are listed on a stock
exchange are normally valued at the closing sales price. If there were no sales
during the day, they are normally valued at the last previous sale or bid price
reported, as are equity securities that are traded in the over-the-counter
market.
Non-exchange traded debt securities (other than certain short-term
investments) are valued on the basis of valuations furnished by a pricing
service which uses electronic data processing techniques, without exclusive
reliance upon quoted prices.
Any other security for which market quotations are not readily available and
any other property for which valuation is not otherwise available is valued at
fair value as determined in good faith by, or under the direction of, the Board
of Trustees.
Financial futures contracts, options thereon and options on stock indexes are
valued at the last trade price of the
48
<PAGE>
day. In the absence of a trade on a given day, the value is used which is
established by the exchange on which the instrument is traded.
Trading in the Portfolios that may purchase securities on European and Far
Eastern securities exchanges and over-the-counter markets is normally completed
at various times before the close of business on each day on which the New York
Stock Exchange is open. The values of such securities used in computing net
asset value per share are normally determined as of such times. Trading of these
securities may not take place on every New York Stock Exchange business day and
may take place on days which are not business days in New York. The Fund
calculates net asset value per share as of the close of regular trading on the
New York Stock Exchange on each day on which that Exchange is open. Therefore,
such calculation does not take place contemporaneously with the determination of
the prices of many of the Portfolios' securities used in such calculation. If
events affecting the value of such securities occur between the time when their
price is determined and the time as of which the Portfolio's net asset value is
calculated, such securities may be valued at fair value under procedures
approved by the Board of Trustees in good faith.
TAXES
The Fund intends to qualify as a regulated investment company under Subchapter
M of the Internal Revenue Code ("Code"). It is the Fund's policy to comply with
the provisions of the Code regarding distribution of investment income and
capital gains so that the Fund will not be subject to Federal income tax on
amounts distributed.
In order for the Fund to qualify for Federal income tax treatment as a
regulated investment company, at least 90 percent of each Portfolio's gross
income for each taxable year must be derived from qualifying income, i.e.,
dividends, interest, income derived from loans of securities, and gains from the
sale of securities.
To avoid taxation of capital gains, the Fund will distribute to the Separate
Accounts each Portfolio's net capital gains at least annually and net investment
income at least monthly. A Portfolio's net investment income from the time of
the immediately preceding dividend declaration consists of interest accrued or
discount earned during such period (including both original issue and market
discount) on that Portfolio's securities, less amortization of premium and the
actual or estimated expenses of the Portfolio applicable to that dividend
period.
Each Portfolio must also be adequately diversified in its investments and
maintain its status as a regulated investment company ("RIC") in order that the
variable life insurance policies and annuity contracts funded through the
Separate Accounts retain their character as life insurance or an annuity and the
related tax benefits for annuity and insurance contract holders. John Hancock
will monitor continued compliance with the adequate diversification requirements
set forth in regulations issued by the Treasury Department. The diversification
requirements are briefly summarized below.
For a Portfolio to qualify as a regulated investment company ("RIC"), at the
end of each fiscal quarter of the Portfolio's taxable year, (i) at least 50% of
the market value of the Portfolio's assets must be represented by cash and cash
items, U.S. Government securities, securities of other RICs, and other
securities, with such other securities limited, in respect of any one issuer, to
an amount that does not exceed 10% of the voting securities of such issuer of 5%
of the value of the Portfolio's total assets; and (ii) not more than 25% of the
value of its assets may be invested in the securities (other than U.S.
Government securities and securities of other RICs) of any one issuer or two or
more issuers which the Portfolio controls and which are engaged in the same,
similar or related trades or businesses. Should a Portfolio, for any reason,
fail to qualify for tax treatment as a RIC, investment company, or otherwise
incur any tax liability, the investment performance of the Separate Accounts
could be adversely affected, to the detriment of the contractholders.
In addition, Treasury Department regulations require that no more than 55% of
the total value of the assets of each Portfolio be represented by any one
investment, no more than 70% by any two investments, no more than 80% by three
investments and no more than 90% by four investments. Generally, for purposes of
the regulations, all securities of the same issuer are treated as one
investment. In the context of U.S. Government securities (including any security
that is issued, guaranteed or insured by the United States or an instrumentality
of the United States), each U.S. Government
49
<PAGE>
agency or instrumentality is treated as a separate issuer.
A variable life insurance policy or annuity contract investing in a Portfolio
that failed to meet these diversification requirements would, unless and until
the failure can be corrected in a procedure afforded by the Internal Revenue
Service, subject contractholders to taxation of income in the contract or policy
for that or any subsequent period. For a discussion of the tax implications of
owning a variable annuity contract or a variable life insurance policy for which
the Fund serves as the investment medium, please refer to the Prospectus for
such contract or policy attached at the front of this Prospectus.
Those Portfolios that invest substantial amounts of their assets in foreign
securities may make an election to pass through John Hancock or JHVLICO any
taxes withheld by foreign taxing jurisdictions on foreign source income. Such an
election will result in additional taxable income and income tax to John
Hancock. The amount of additional income tax, however, may be more than offset
by credits for the foreign taxes withheld, which are also passed through. These
credits may provide a benefit to John Hancock or JHVLICO.
CALCULATION OF PERFORMANCE DATA
The Money Market Portfolio may advertise investment performance figures
including its current yield and its effective yield. (See the following section
on "Calculation of Yield Quotation of the Money Market Portfolio" for a complete
description.)
YIELD AND TOTAL RETURN INFORMATION FOR ALL PORTFOLIOS OTHER THAN THE MONEY
MARKET PORTFOLIO
The non-money market Portfolios of the Fund may also advertise investment
performance figures, including yield. Each such Portfolio's yield is based upon
a stated 30-day period and is computed by dividing the net investment income per
share earned during the period by the maximum offering price per share on the
last day of the period, according to the following formula:
YIELD = 2[([(a-b)/(cd)] + 1)/6/ -1]
Where: a = dividends and interest earned during the period
b = expenses accrued for the period (net of reimbursements, if any)
c = the average daily number of shares outstanding during the period that were
entitled to receive dividends
d = the maximum offering price (which is the net asset value) per share on the
last day of the period.
The following table shows the current yield for each of the existing
Portfolios for the 30-day period ended December 31, 1998:
<TABLE>
<CAPTION>
<S> <C>
PORTFOLIO CURRENT YIELD
--------- -------------
Managed....................................... 4.60%
Growth & Income............................... 7.48%
Equity Index.................................. 5.78%
Large Cap Value............................... 0.72%
Large Cap Growth.............................. 10.09%
Mid Cap Value................................. 2.15%
Mid Cap Growth................................ 16.55%
Real Estate Equity............................ (0.99)%
Small/Mid Cap Growth.......................... 10.59%
Small/Mid Cap CORE............................ 7.08%
Small Cap Value............................... 5.82%
Small Cap Growth.............................. 13.95%
Global Equity................................. 3.13%
International Balanced........................ 3.88%
International Equity Index.................... 4.06%
International Opportunities................... 3.38%
Emerging Markets.............................. (7.23)%
Short-Term Bond............................... 0.24%
Bond Index.................................... 0.16%
Sovereign Bond................................ 0.30%
Global Bond................................... 0.50%
High Yield Bond............................... (1.02)%
</TABLE>
50
<PAGE>
Each of the Portfolios may advertise its total return. Total return quotations
will be based upon a stated period and will be computed by finding the average
annual compounded rate of return over the stated period that would equate an
initial amount invested to the ending redeemable value of the investment
(assuming reinvestment of all distributions), according to the following
formula:
P (1 + T)/n/ = ERV
Where: P = a hypothetical initial payment of $1,000
T = average annual total return
n = number of years
ERV = ending redeemable value at the end of the stated period of a
hypothetical $1,000 payment made at the beginning of the stated period
The average annual total return for each of the Portfolios for the periods
ending December 31, 1998 is set forth in the Appendix to the prospectus.
CALCULATION OF YIELD QUOTATIONS OF THE MONEY MARKET PORTFOLIO
The Money Market Portfolio's yield is its current investment income expressed
in annualized terms. The current
51
<PAGE>
yield is based on a specified seven-calendar-day period. It is computed by (1)
determining the net change (exclusive of capital changes) in the value of a
hypothetical pre-existing account having a balance of one share at the beginning
of the period, (2)dividing the net change in account value by the value of the
account at the beginning of the base period to get the base period return, then
(3)multiplying the base period return by 52.15 (365 divided by 7). The resulting
yield figure is carried to the nearest hundredth of one percent.
The calculations include the value of additional shares purchased with any
dividends paid on the original share and the value of dividends declared on both
the original share and any such additional shares. The capital changes excluded
from the calculation are realized capital gains and losses from the sale of
securities and unrealized appreciation and depreciation.
Compound (effective) yield for the Portfolio will be computed by dividing the
seven-day annualized yield as defined above by 365, adding 1 to the quotient,
raising the sum to the 365th power, and subtracting 1 from the result.
For the seven-day period ending December 31, 1998, the Money Market
Portfolio's current yield was 5.07%; its effective yield was 5.20%.
The Portfolio's yield will fluctuate depending upon market conditions, the
type, quality, and maturity of the instruments in the Portfolio, and its
expenses. Current yield information should not be deemed comparable to bank
deposits or other investments which pay a fixed return or which calculate yields
on a different basis.
CHARGES UNDER VARIABLE LIFE INSURANCE AND VARIABLE ANNUITY POLICIES
Yield and total return quotations do not reflect any charges imposed on any
Separate Account or otherwise imposed pursuant to JHVLICO's and John Hancock's
variable life insurance and variable annuity policies. Therefore, the yield or
total return of any Portfolio is not comparable to that of a publicly available
fund. Yield or total return quotations should not be considered representative
of the Portfolio's yield or total return in any future period.
ADDITIONAL INFORMATION
LEGAL MATTERS
Freedman, Levy, Kroll & Simonds of Washington, D.C., advises the Trust on
certain legal matters relating to the Federal securities laws.
REPORTS
Annual and semi-annual reports containing financial statements of the Fund, as
well as voting instructions soliciting material for the Fund, will be sent to
variable life insurance and annuity contractholders having an interest in the
Fund.
FINANCIAL STATEMENTS
The Fund's financial statements appearing in its Fund's Annual Report to
contractholders and the report of Ernst & Young LLP, independent auditors of the
Fund, which appears therein, are incorporated by reference into the Statement of
Additional Information. No other part of such Annual Report is incorporated by
reference. A free copy of the Annual Report to contract holders may be obtained
by writing to the address or calling the number which appear above.
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<PAGE>
PART C. OTHER INFORMATION
ITEM 23. EXHIBITS
(a) Declaration of Trust of John Hancock Variable Series Trust I, dated
February 21, 1988, included in Post-Effective Amendment No. 3 to this File
No. 33-2081, filed in April, 1988.
(b) By-Laws of John Hancock Variable Series Trust I, adopted April 12,
1988, included in Post-Effective Amendment No. 3 to this File No. 33-2081,
filed in April, 1988.
(c) Not Applicable.
(d) (1) Investment Management Agreement by and between John Hancock
Variable Series Trust I, and John Hancock Mutual Life Insurance Company
dated April 12, 1988 relating to the Initial Portfolios, included in Post-
Effective Amendment No. 4 to this File No. 33-2081, filed in April, 1989.
(2) Sub-Investment Management Agreement among John Hancock Variable
Series Trust I, Independence Investment Associates, Inc., and John Hancock
Mutual Life Insurance Company dated April 29, 1988, relating to the Growth &
Income, Large Cap Growth, and Managed Portfolios, included in Post-Effective
Amendment No. 4 to this File No. 33-2081, filed in April, 1989.
(3) Sub-Investment Management Agreement Among John Hancock Variable
Series Trust I, Independence Investment Associates, and John Hancock Mutual
Life Insurance Company, pertaining to the Real Estate Equity Portfolio,
included in Post-Effective Amendment No. 9 to this File No. 33-2081, filed
March 1, 1994.
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4. Investment Management Agreement by and between John Hancock Variable
Series Trust I and John Hancock Mutual Life Insurance Company dated as of
April 12, 1988, relating to the Real Estate Equity and International Equity
Index Portfolios, included in Post-Effective Amendment No. 3 to this File No.
33-208l, filed in April, 1988.
5. Amendment dated as of May 1, 1998 to the Investment Management
Agreement dated as of April 12, 1998 relating to the Real Estate Equity and
International Equity Index Portfolios, included in Post-Effective Amendment
No. 19 to this File No. 33-2081, filed May 1, 1998.
6. Investment Management Agreement By and Between John Hancock Variable
Series Trust I and John Hancock Mutual Life Insurance Company relating to the
Short-Term Bond and Small/Mid Cap Growth Portfolios, included in Post-
Effective Amendment No. 9 to this File No. 33-2081, filed March 1, 1994.
7. Sub-Investment Management Agreement Among John Hancock Variable Series
Trust I, Independence Investment Associates, Inc. and John Hancock Mutual Life
Insurance Company relating to the Short-Term Bond Portfolio, included in Post-
Effective Amendment No. 9 to this File No. 33-2081, filed March 1, 1994.
8. Form of Sub-Investment Management Agreement Among John Hancock Variable
Series Trust I, Wellington Management Company, LLC and John Hancock Mutual
Life Insurance Company relating to the Small/Mid Cap Growth Portfolio,
included in Post-Effective Amendment No. 21 to this File No. 33-2081, filed
April 27, 1999.
9. Sub-Investment Management Agreement Among John Hancock Variable Series
Trust I, John Hancock Advisers, Inc., and John Hancock Mutual Life
Insurance Company, relating to the Sovereign Bond Portfolio, included in
Post-Effective Amendment No. 11 to this File No. 33-2081, filed April 29,
1995.
10. Investment Management Agreement By and Between John Hancock Variable
Series Trust I and John Hancock Mutual Life Insurance Company relating to
the Equity Index, Large Cap Value, Mid Cap Growth, Mid Cap Value, Small Cap
Growth, Small Cap Value, Strategic Bond, International Opportunities, and
International Balanced Portfolios, included in Post-Effective Amendment No. 13
to this File No. 33-2081, filed April 30, 1996.
11. Amendment, dated May 1, 1997, to the Investment Management Agreements
dated April 12, 1988, April 15, 1994, and March 14, 1996, to reallocate Fund
expenses and to reduce the advisory fee of the Short-Term Bond Portfolio and
the Equity Index Portfolio, included in Post-Effective Amendment No. 16 to
this File No. 33-2081, filed on May 1, 1997.
12. Sub-Investment Management Agreement Among John Hancock Variable Series
Trust I, T. Rowe Price Associates, Inc., and John Hancock Mutual Life
Insurance Company, relating to the Large Cap Value Portfolio, included in
Post-Effective Amendment No. 13 to this File No. 33-2081, filed
April 30, 1996.
13. Sub-Investment Management Agreement Among John Hancock Variable Series
Trust I, Janus Capital Corporation, and John Hancock Mutual Life Insurance
Company, relating to the Mid Cap Growth Portfolio, included in
Post-Effective Amendment No. 13 to this File No. 33-2081, filed
April 30, 1996.
14. Sub-Investment Management Agreement Among John Hancock Variable Series
Trust I, Neuberger & Berman Management, L.P., and John Hancock Mutual Life
Insurance Company, relating to the Mid Cap Value Portfolio, included in
Post-Effective Amendment No. 13 to this File No. 33-2081, filed
April 30, 1996.
15. Sub-Investment Management Agreement Among John Hancock Variable Series
Trust I, John Hancock Advisers, Inc., and John Hancock Mutual Life
Insurance Company, relating to the Small Cap Growth Portfolio, included in
Post-Effective Amendment No. 13 to this File No. 33-2081, filed
April 30, 1996.
16. Sub-Investment Management Agreement Among John Hancock Variable Series
Trust I, INVESCO Management & Research, and John Hancock Mutual Life
Insurance Company, relating to the Small Cap Value Portfolio, included in
Post-Effective Amendment No. 13 to this File No. 33-2081, filed
April 30, 1996.
17. Sub-Investment Management Agreement Among John Hancock Variable Series
Trust I, J.P. Morgan Investment Management, Inc., and John Hancock Mutual
Life Insurance Company, relating to the Strategic Bond Portfolio, included in
Post-Effective Amendment No. 13 to this File No. 33-2081, filed
April 30, 1996.
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18. Sub-Investment Management Agreement Among John Hancock Variable Series
Trust I, Rowe Price-Fleming International, Inc., and John Hancock Mutual
Life Insurance Company, relating to the International Opportunities
Portfolio, included in Post-Effective Amendment No. 13 to this
File No. 33-2081, filed April 30, 1996.
19. Sub-Investment Management Agreement Among John Hancock Variable Series
Trust I, Brinson Partners, Inc., and John Hancock Mutual Life Insurance
Company, relating to the International Balanced Portfolio, included in
Post-Effective Amendment No. 13 to this File No. 33-2081, filed
April 30, 1996.
20. Sub-Investment Management Agreement Among John Hancock Variable Series
Trust I, State Street Bank & Trust Company, and John Hancock Mutual Life
Insurance Company, relating to the Equity Index Portfolio, included in Post-
Effective Amendment No. 16 to this File No. 33-2081, filed on May 1, 1997.
21. Amendment to Sub-Investment Management Agreement among John Hancock
Variable Series Trust I, State Street Bank and Trust Company, and John Hancock
Mutual Life Insurance Company, included in Post-Effective Amendment No. 19 to
this File No. 33-2081, filed May 1, 1998.
22. Investment Management Agreement dated as of April 14, 1998 By and
Between John Hancock Variable Series Trust I and John Hancock Mutual Life
Insurance Company relating to the Small/Mid Cap CORE, Global Equity,
International Equity Index, Emerging Markets Equity, Bond Index, and High
Yield Bond Portfolio, included in Post-Effective Amendment No. 19 to this File
No. 33-2081, filed May 1, 1998.
23. Sub-Investment Management Agreement Among John Hancock Variable
Series Trust I, Goldman Sachs Asset Management, and John Hancock Mutual Life
Insurance Company, relating to the Small/Mid Cap CORE Portfolio, included in
Post-Effective Amendment No. 21 to this File No. 33-2081, filed April 27,
1999.
24. Sub-Investment Management Agreement Among John Hancock Variable Series
Trust I, Scudder Kemper Investments, Inc., and John Hancock Mutual Life
Insurance Company, relating to the Global Equity Portfolio, included in Post-
Effective Amendment No. 21 to this File No. 33-2081, filed April 27, 1999.
25. Sub-Investment Management Agreement Among John Hancock Variable
Series Trust I, Independence International Associates, Inc., and John Hancock
Mutual Life Insurance Company, relating to the International Equity Index
Portfolio, included in Post-Effective Amendment No. 21 to this File No. 33-
2081, filed April 27, 1999.
26. Sub-Investment Management Agreement Among John Hancock Variable
Series Trust I, Montgomery Asset Management, LLC, and John Hancock Mutual
Life Insurance Company, relating to the Emerging Markets Equity Portfolio,
included in Post-Effective Amendment No. 21 to this File No. 33-2081, filed
April 27, 1999.
27. Sub-Investment Management Agreement Among John Hancock Variable
Series Trust I, Mellon Bond Associates, and John Hancock Mutual Life Insurance
Company, relating to the Bond Index Portfolio, included in Post-Effective
Amendment No. 19 to this File No. 33-2081, filed May 1, 1998.
28. Sub-Investment Management Agreement Among John Hancock Variable
Series Trust I, Wellington Management Company, LLP, and John Hancock Mutual
Life Insurance Company, relating to the High Yield Bond Portfolio, included in
Post-Effective Amendment No. 19 to this File No. 33-2081, filed May 1, 1998.
29. Amendment No. 2 to the Investment Management Agreement dated as of March
14, 1996 By and Between John Hancock Variable Series Trust I and John Hancock
Mutual Life Insurance Company included in Post-Effective Amendment No. 21 to
this File No. 33-2081 filed April 27, 1999.
30. Amendment No. 3 to the Investment Management Agreement dated as of March
14, 1996 By and Between John Hancock Variable Series Trust I and John Hancock
Mutual Life Insurance Company included in Post-Effective Amendment No. 21 to
this File No. 33-2081 filed April 27, 1999.
(e) (1) Underwriting and Administrative Services Agreement by and between
John Hancock Variable Series Trust I and John Hancock Mutual Life Insurance
Company, dated April 29, 1988, included in Post-Effective Amendment No. 4 to
this File No. 33-2081, filed in April, 1989.
(2) Underwriting and Indemnity Agreement among John Hancock Variable Series
Trust I, John Hancock Distributors, Inc., and John Hancock Mutual Life
Insurance Company, previously filed electronically on February 28, 1997.
(f) Not Applicable.
(g) (1) Custodian Agreement Between John Hancock Variable Series Trust I and
State Street Bank and Trust Company, dated January 30, 1995, relating to
the International Equity Index and Small/Mid Cap CORE Portfolio, included
in Post-Effective Amendment No. 10 to this File No. 33-2081, filed March 2,
1995.
(2) Amendment dated as of March 18, 1996 to Custodian Agreement dated January
30, 1995, between John Hancock Variable Series Trust I and State Street Bank
and Trust Company, expanding the Agreement to cover additional Portfolios,
included in Post-Effective Amendment No. 13 to this File No. 33-2081, filed
April 30, 1996 .
(3) Amendment dated as of April 14, 1998 to Custodian Agreement dated January
30, 1995, between John Hancock Variable Series Trust I and State Street Bank
and Trust Company, expanding this agreement to cover additional Portfolios,
included in Post-Effective Amendment No. 19 to this File No. 33-2081, filed
May 1, 1998.
(h) Amendment dated April 29, 1988 to Transfer Agency Agreement by and
between John Hancock Variable Series Fund I, Inc., and John Hancock Mutual
Life Insurance Company, January 27, 1986, which was priorly included in
Exhibit 9 to Pre-Effective Amendment No. 1 to this File No. 33-2081, filed
March 13, 1986, included in Post-Effective Amendment No. 4 to this File No.
33-2081, filed in April, 1989.
(i) Opinion and Consent of Counsel regarding the legality of the
securities being registered, previously filed electronically on February 13,
1998.
(j) (1) Consent of Ernst & Young LLP, independent auditors (filed herewith).
(j) (2) Representation of Counsel pursuant to Rule 485(b) (filed herewith).
(k) Not Applicable.
(l) Not Applicable.
(m) Not Applicable.
(n) Financial Data Schedules (filed herewith).
(o) Not Applicable.
(p) Diagram of Subsidiaries of John Hancock Mutual Life Insurance
Company (incorporated by reference from Exhibit 13 to Post-Effective
Amendment No. 5 to Form N-4 Registration Statement of John Hancock
Variable Annuity Account H (File No. 333-08345) filed April 29, 1999).
(q) Powers of Attorney for Ms. Cook and Mr. Lee included in Post-
Effective Amendment No. 9 to this Form N-1A Registration Statement (File
No. 33-2081), filed March 1, 1994. Powers of Attorney of Mr. Dykstra, included
in Post-Effective Amendment No. 3 to this Form N-1A Registration Statement
(File No. 33-208l), filed in April, 1988. Power of Attorney for Ms. Van Leer
(filed herewith).
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ITEM 24. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT
Currently, shares of the Registrant are sold only to (1) John Hancock
Variable Life Accounts U, V and S, separate investment accounts created
pursuant to Massachusetts law, to fund variable life insurance policies issued
by John Hancock Variable Life Insurance Company ("JHVLICO"), a stock life
insurance company organized under the laws of Massachusetts; (2) John Hancock
Variable Annuity Accounts U and V, separate investment accounts created
pursuant to Massachusetts law to fund variable annuity contracts issued by
John Hancock Mutual Life Insurance Company, ("John Hancock"), a life insurance
company organized under the laws of Massachusetts; (3) John Hancock Mutual
Variable Life Insurance Account UV, a separate investment account created
pursuant to Massachusetts law to fund variable life insurance policies issued
by John Hancock; and (4) John Hancock Variable Annuity Account I, a separate
investment account created pursuant to created pursuant to Massachusetts law
to fund variable annuity contracts issued by JHVLICO. (The seven variable
accounts are hereinafter referred to as "Separate Accounts.") The purchasers
of variable life insurance policies and variable annuity contracts issued in
connection with such Separate Accounts will have the opportunity to instruct
JHVLICO and John Hancock, respectively, with regard to the voting of the
Registrant's shares held by the Separate Account as to certain matters.
Subject to such voting instructions, John Hancock and JHVLICO directly control
the Registrant, and the Separate Accounts currently are its sole shareholders.
Subsequently, shares of the Registrant may be sold to other separate
investment accounts of John Hancock and JHVLICO. A diagram of the subsidiaries
of John Hancock is attached as Exhibit (p) to this Form N-1A Registration
Statement.
ITEM 25. INDEMNIFICATION
Reference is made to Article VI of the Registrant's By-Laws (Exhibit 2 to
Post-Effective Amendment No. 3 to this Registration Statement filed in April,
1988), which provides that the Trust shall indemnify or advance any expenses
to the trustees, shareholders, officers, or employees of the Trust to the
extent set forth in the Declaration of Trust.
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<PAGE>
Sections 6.3 through 6.17 of the Declaration of Trust (Exhibit 1 to Post-
Effective Amendment No. 3 to this Registration Statement filed in April, 1988),
relate to the indemnification of trustees, shareholders, officers and
employees and are hereby incorporated by reference. It is provided that the
Registrant shall indemnify any Trustee made a party to any proceeding by
reason of service in that capacity if the Trustee (a) acted in good faith and
(b) reasonably believed, (1) in the case of conduct in the Trustee's official
capacity with the Trust, that the conduct was in the best interest of the
Trust and (2) in all other cases, that the conduct was at least not opposed to
the best interests of the Trust, and (c) in the case of any criminal
proceeding, the Trust shall indemnify the Trustee if the Trustee acted in good
faith and had no reasonable cause to believe that the conduct was unlawful.
Indemnification may not be made by the Trust unless authorized in each case by
a determination by the Board of Trustees or by special legal counsel or by the
shareholders. Neither indemnification nor advancement of expenses may be made
if the Trustee or officer has incurred liability by reason of willful
misfeasance, bad faith, gross negligence, or reckless disregard of duties
involved in the conduct of his office ("Disabling Conduct"). The means for
determining whether indemnification shall be made shall be (1) a final
decision on the merits by a court or other body before whom the proceeding was
brought that the person to be indemnified was not liable by reason of
Disabling Conduct or (2) in the absence of such a decision, a reasonable
determination, based upon a review of the facts, that such person was not
liable by reason of Disabling Conduct. Such latter determination may be made
either (a) by the vote of a majority of a quorum of Trustees who are neither
"interested persons" of the Trust (as defined in the 1940 Act, as amended) nor
parties to the proceeding or (b) by an independent legal counsel in a written
opinion. The advancement of legal expenses may not occur unless the Trustee or
officer agrees to repay the advance (unless it is ultimately determined that
he is entitled to indemnification) and at least one of three conditions is
satisfied: (1) he provides security for his agreement to repay, (2) the
Registrant is insured against loss by reason of lawful advances, or (3) a
majority of a quorum the Trustees who are not interested persons and are not
parties to the proceedings, or independent counsel in a written opinion,
determine that there is reason to believe that the Trustee or officer will be
found entitled to indemnification.
Similar types of provisions dealing with the indemnification of the
Registrant's officers and directors is included in several exhibits attached to
the original filing and subsequent amendments to this Registration Statement:
specifically, Section 14 of the Investment Management Agreement by and between
John Hancock Variable Series Trust I and John Hancock Mutual Life Insurance
Company (Exhibit 5(k) to Post-Effective Amendment No. 13 to this Registration
Statement filed April 30, 1996), Section 14 of the Investment Management
Agreement by and between John Hancock Variable Series Trust I and John Hancock
Mutual Life Insurance Company (Exhibit 5(g) to Post-Effective Amendment No. 9 to
this Registration Statement filed March 1, 1994), Section 14 of the Investment
Management Agreement by and between John Hancock Variable Series Fund I, Inc.,
and John Hancock Mutual Life Insurance Company (Exhibit 5 Post-Effective
Amendment No. 4 to this Registration Statement, filed in April, 1989), Section
14 of the Investment Management Agreement by and between John Hancock Variable
Series Trust I and John Hancock Mutual Life Insurance Company (Exhibit 5(v) to
Post-Effective Amendment No. 19 to this Registration Statement filed in 1998),
Section 7 of the Underwriting and Administrative Services Agreement by and
between John Hancock Variable Series Trust I, and John Hancock Mutual Life
Insurance Company (Exhibit 6 to Post-Effective Amendment No. 4 to this
Registration Statement filed in April, 1989), and Section 15 of the Transfer
Agency Agreement by and between John Hancock Variable Series Fund I, Inc., and
John Hancock Mutual Life Insurance Company (Exhibit 9 to Pre-Effective Amendment
No. 1 to this Registration Statement filed March 13, 1986), and Section 6 of the
Underwriting and Indemnity Agreement By and Among John Hancock Series Trust,
John Hancock Distributors, Inc., and John Hancock Mutual Life Insurance Company
(Exhibit 6.b to Post-Effective Amendment No. 14 to this Registration Statement
filed February 28, 1997).
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to trustees, officers, and controlling persons of the
Registrant pursuant to the Registrant's By-Laws or otherwise, the Registrant
has been advised that, in the opinion of the Securities and Exchange
Commission (the "Commission"), such indemnification is against public policy
as expressed in the Act and is, therefore, unenforceable. In the event that a
claim for indemnification against such liabilities (other than the payment by
the Registrant of expenses incurred or paid by a trustee, officer or
controlling person of the Registrant in the successful defense of any action,
suit, or proceeding) is asserted by such trustee, officer, or controlling
person in connection with the securities being registered, then the Registrant
will,
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<PAGE>
unless in the opinion of its counsel the matter has been settled by a
controlling precedent, submit to a court of appropriate jurisdiction the
question of whether indemnification by it is against public policy as
expressed in the Act and will be governed by the final adjudication of such
issue.
ITEM 26. BUSINESS AND OTHER CONNECTIONS OF INVESTMENT ADVISER
Information pertaining to any business and other connections of Registrant's
investment adviser, John Hancock, is hereby incorporated by reference from the
section of Part A of this Form N-1A (the "Prospectus") captioned "Management of
the Fund," Item 7 of Part II of John Hancock's Form ADV [filed separately with
the Commission (File No. 801-8352)], and Item 10 of John Hancock's Form BD
[filed separately with the Commission (File No. 8-15661)]. Information
pertaining to any business and other connections of Registrant's sub-investment
advisers, Independence Investment Associates, Inc. ("IIA"), John Hancock
Advisers Inc. ("Advisers"), John Hancock International Advisers, Limited
("International Advisers"), T. Rowe Price Associates, Inc. ("T. Rowe Price"),
Janus Capital Corporation ("Janus"), Neuberger Berman, LLC ("Neuberger Berman"),
INVESCO Management & Research ("INVESCO"), J.P. Morgan Investment Management
Inc. ("JPMIM"), Rowe Price-Fleming International, Inc. ("Rowe Price-Fleming"),
Brinson Partners, Inc. ("Brinson"), Goldman Sachs Asset Management ("Goldman
Sachs"), Scudder Kemper Investments, Inc.("Scudder Kemper"), Independence
International Associates, Inc. ("Independence International"), Montgomery Asset
Management, LLC ("Montgomery"), Mellon Bond Associates ("Mellon"), and
Wellington Management Company, LLP ("Wellington") is incorporated by reference
from the section of the Prospectus captioned "Management of the Fund" and Item 7
of Part II of the Forms ADV of IIA (File No. 801-18048), Advisers (File No. 801-
8124), Advisers International (File No. 801-29498), T. Rowe Price (File No. 801-
856), Janus (File No. 801-13991), Neuberger & Berman (File No. 801-3908),
INVESCO (File No. 801-1596), JPMIM (File No. 801-21011), Rowe Price-Fleming
(File No. 801-14713), Brinson (File No. 801-34910) Goldman Sachs (File No. 801-
3111), Scudder Kemper (File No. 801-252), Independence International (File No.
801-28785), Montgomery (File No. 801-54803), Mellon (File No. 801-50865),
Wellington (File No. 801-41552) filed separately with the Commission.
The other businesses, professions, vocations, and employment of a substantial
nature, during the past two years, of the directors and officers of John
Hancock, IIA, Advisers, Advisers International, T. Rowe Price, Janus, Neuberger
& Berman, INVESCO, JPMIM, Rowe Price-Fleming, Brinson Goldman Sachs, Scudder
Kemper, Independence International, Montgomery, Mellon, and Wellington are
hereby incorporated by reference, respectively, from Schedules A and D of John
Hancock's Form ADV and from Schedules A and D of the Forms ADV of the sub-
investment advisers.
ITEM 27. PRINCIPAL UNDERWRITERS
(a) Signator Investors, Inc. ("Signator") acts as principal underwriter and
distributor of the Registrant's shares on a best-efforts basis and receives no
fee or commission for its underwriting and distribution services. Signator does
not act as a principal underwriter, distributor, or investment advisor for any
other investment company, except that Signator serves as the principal
underwriter for the separate accounts referred to in the response to Item 24
above.
(b) The name and principal business address of each officer, director, or
partner of Signator as well as their positions and offices with Signator are
hereby incorporated by reference from Schedules A and D of Signator's Form BD
[filed separately with the Commission (Firm CRD No. 468)]. None of the directors
or partners of Signator hold positions with the Registrant.
(c) Not Applicable.
ITEM 28. LOCATION OF ACCOUNTS AND RECORDS
The following entities prepare, maintain, and preserve the records required
by Section 31(a) of the Act for the Registrant through written agreements
between the parties to the effect that such services will be provided to the
Registrant for such periods prescribed by the Rules and Regulations of the
Commission under the Act and such records will be surrendered promptly on
request:
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<PAGE>
State Street Bank and Trust Company, 225 Franklin Street, Boston,
Massachusetts 02110 serves as custodian for the Registrant and in such capacity
keeps records regarding securities in transfer, bank statements and cancelled
checks.
John Hancock, John Hancock Place, P.O. Box 111, Boston, Massachusetts 02117,
will serve as Registrant's transfer agent, investment adviser, principal
underwriter, and distributor and, in such capacities, will keep records
regarding shareholders' account records, cancelled stock certificates, and all
other records required by Section 31(a) of the Act. John Hancock, as
Investment Adviser will keep records related to transactions in the Bond and
Money Market Portfolios.
IIA, 53 State Street, Boston, Massachusetts 02109, will serve as
Registrant's sub-investment manager and, in such capacity, will keep records
related to transactions in portfolio securities of the Growth & Income, Large
Cap Growth, Managed, Real Estate Equity, and Short-Term Bond Portfolios.
Advisers, 101 Huntington Avenue, Boston, Massachusetts 02199, and
International Advisers, 37 Park Street, London W1Y3H6, England, will serve as
Registrant's sub-investment manager and, in such capacity, will keep records
related to transactions in portfolio securities of the International Equities
Portfolio.
Advisers, 101 Huntington Avenue, Boston, Massachusetts 02199, will serve as
Registrant's sub-investment manager and, in such capacity, will keep records
related to transactions in portfolio securities of the Special Opportunities,
Sovereign Bond, and Small Cap Growth Portfolios.
State Street, Two International Place, Boston, Massachusetts 02110, will serve
as Registrant's sub-investment manager and, in such capacity, will keep records
related to transactions in portfolio securities of the Equity Index
Portfolio.
T. Rowe Price, 100 East Pratt Street, Baltimore, Maryland 21202, will serve
as Registrant's sub-investment manager and, in such capacity, will keep
records related to transactions in portfolio securities of the Large Cap Value
Portfolio.
Janus, 100 Fillmore Street, Denver, Colorado 80206, will serve as
Registrant's sub-investment manager and, in such capacity, will keep records
related to transactions in portfolio securities of the Mid Cap Growth
Portfolio.
Neuberger Berman, 605 Third Avenue, New York, New York 10158, will serve
as Registrant's sub-investment manager and, in such capacity, will keep
records related to transactions in portfolio securities of the Mid Cap Value
Portfolio.
INVESCO, 101 Federal Street, Boston, Massachusetts 02110, will serve as
Registrant's sub-investment manager and, in such capacity, will keep records
related to transactions in portfolio securities of the Small Cap Value
Portfolio.
JPMIM, 522 Fifth Avenue, New York, New York, 10036, will serve as
Registrant's sub-investment manager and, in such capacity, will keep records
related to transactions in portfolio securities of the Strategic Bond
Portfolio.
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<PAGE>
Rowe Price-Fleming, 100 East Pratt Street, Baltimore, Maryland 21202, will
serve as Registrant's sub-investment manager and, in such capacity, will keep
records related to transactions in portfolio securities of the International
Opportunities Portfolio.
Brinson, 209 South LaSalle Street, Chicago, Illinois 60604, will serve as
Registrant's sub-investment manager and, in such capacity, will keep records
related to transactions in portfolio securities of the International Balanced
Portfolio.
Goldman Sachs, One New York Plaza, New York, New York 10004, will serve as
Registrant's sub-investment manager and, in such capacity, will keep the records
related to transactions in the portfolio securities of the Small/Mid Cap CORE
Equity Portfolio.
Scudder Kemper, 345 Park Avenue, New York, New York 10154, will serve as
Registrant's sub-investment manager and, in such capacity, will keep the records
related to transactions in the portfolio securities of the Global Equity
Portfolio.
Independence International, 53 State Street, Boston, Massachusetts 02109, will
serve as Registrant's sub-investment manager and, in such capacity, will keep
the records related to transactions in the portfolio securities of the
International Equity Index Portfolio.
Montgomery, 101 California Street, San Francisco, California 94111, will serve
as Registrant's sub-investment manager and, in such capacity, will keep the
records related to transactions in the portfolio securities of the Emerging
Markets Equity Portfolio.
Mellon, One Mellon Bank Center, Suite 4135, Pittsburgh, Pennsylvania 15258,
will serve as Registrant's sub-investment manager and, in such capacity, will
keep the records related to transactions in the portfolio securities of the
Diversified Bond Index Portfolio.
Wellington, 75 State Street, Boston, Massachusetts 02109, will serve as
Registrant's sub-investment manager and, in such capacity, will keep the records
related to transactions in the portfolio securities of the High Yield Bond
Portfolio.
ITEM 29. MANAGEMENT SERVICES
Not applicable.
ITEM 30. UNDERTAKINGS
Registrant undertakes to furnish to each person to whom a prospectus is
delivered with a copy of Registrant's latest annual report to shareholders,
upon request and without charge.
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<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, AS AMENDED, AND
THE INVESTMENT COMPANY ACT OF 1940, AS AMENDED, THE REGISTRANT HAS DULY CAUSED
THIS AMENDMENT TO THE REGISTRATION STATEMENT TO BE SIGNED ON ITS BEHALF BY THE
UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN THE CITY OF BOSTON, AND THE
COMMONWEALTH OF MASSACHUSETTS, ON THE 26TH DAY OF APRIL 1999.
John Hancock Variable Series
Trust I
By: /s/ Thomas J. Lee
--------------------------------
Thomas J. Lee, Vice Chairman
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS POST-
EFFECTIVE AMENDMENT TO ITS REGISTRATION STATEMENT HAS BEEN SIGNED BELOW BY THE
FOLLOWING PERSONS IN THE CAPACITIES AND ON THE DATES INDICATED.
SIGNATURE DATE
By: /s/ Raymond F. Skiba April 26, 1999
-------------------------------------
Raymond F. Skiba
Treasurer (Principal Financial and
Accounting Officer)
By: /s/ Thomas J. Lee April 26, 1999
-------------------------------------
Thomas J. Lee
Vice Chairman (Acting Principal Executive Officer)
For himself and as attorney-in-fact for:
Michele G. Van Leer
Chairman
William H. Dykstra
Trustee
Elizabeth G. Cook
Trustee
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EXHIBIT (d) 8
SUB-INVESTMENT MANAGEMENT AGREEMENT
AMONG
JOHN HANCOCK VARIABLE SERIES TRUST I
WELLINGTON MANAGEMENT COMPANY, LLP
AND
JOHN HANCOCK MUTUAL LIFE INSURANCE COMPANY
<PAGE>
SUB-INVESTMENT MANAGEMENT AGREEMENT
AGREEMENT made as of the ___ day of April, 1999 by and among John Hancock
Variable Series Trust I, a Massachusetts business trust (the "Series"),
Wellington Management Company, LLP, a Massachusetts limited liability
partnership ("Wellington Management"), and John Hancock Mutual Life Insurance
Company, a Massachusetts corporation ("JHMLICO").
WHEREAS, the Series is organized and is engaged in business as an open-end
management investment company and is so registered under the Investment Company
Act of 1940, as amended (the "1940 Act"); and
WHEREAS, JHMLICO and Wellington Management are each engaged in the business
of rendering investment advice under the Investment Advisers Act of 1940, as
amended; and
WHEREAS, the Series is authorized to issue its shares in separate classes,
with each such class representing interests in a separate portfolio of
securities and other assets; and
WHEREAS, the Series offers shares in several classes, one of which is
designated as the Small/Mid Cap Growth Portfolio (together with all other
classes established by the Series, collectively referred to as the
"Portfolios"), each of which pursues its investment objectives through separate
investment policies; and
WHEREAS, the Series has retained JHMLICO to render investment management
services to the Series pursuant to an Investment Management Agreement dated as
of April 15, 1994, as amended (the "Investment Management Agreement"), pursuant
to which it may contract with Wellington Management as a sub-investment manager
as provided for herein.
NOW, THEREFORE, WITNESSETH: That it is hereby agreed between the parties
hereto as follows:
1. APPOINTMENT OF SUB-INVESTMENT MANAGER
(a) Subject Portfolio. Wellington Management is hereby appointed and
-----------------
Wellington Management hereby accepts the appointment to act as investment
adviser and manager to the Small/Mid Cap Growth Portfolio (the "Subject
Portfolio") effective May 1, 1999 for the period and on the terms herein set
forth, and for the compensation herein provided.
(b) Additional Subject Portfolios. In the event that the Series and JHMLICO
-----------------------------
desire to retain Wellington Management to render investment advisory services
hereunder for any other Portfolio, they shall so notify Wellington Management in
writing. If it is willing to render such services, Wellington Management shall
notify the Series in writing, whereupon such Portfolio shall become a Subject
Portfolio hereunder.
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<PAGE>
(c) Incumbency Certificates. Wellington Management shall furnish to
-----------------------
JHMLICO, immediately upon execution of this Agreement, a certificate of a senior
officer of Wellington Management setting forth (by name and title, and including
specimen signatures) those officers of Wellington Management who are authorized
to give instructions for the Subject Portfolio pursuant to the provisions of
this Agreement. Wellington Management shall promptly provide supplemental
certificates in connection with each additional Subject Portfolio (if any) and
further supplemental certificates, as needed, to reflect all changes with
respect to such authorized officers for any Subject Portfolio. On behalf of the
Series, JHMLICO shall instruct the custodian for the Subject Portfolio to accept
instructions with respect to the Subject Portfolio from the officers of
Wellington Management so named.
(d) Independent Contractor. Wellington Management shall for all purposes
----------------------
herein be deemed to be an independent contractor and shall, unless otherwise
expressly provided or authorized, have no authority to act for or be deemed an
agent of the Series.
(e) Wellington Management's Representations. Wellington Management
---------------------------------------
represents, warrants and agrees (i) that it is registered as an investment
adviser under the Investment Advisers Act of 1940, as amended, and that it will
remain so registered and will comply with the requirements of said Act, and the
rules and regulations thereunder, at all times while this Agreement remains in
effect, (ii) that it will promptly notify JHMLICO if the foregoing
representation and agreement shall cease to be true in any material respect at
any time during the term of this Agreement, (iii) that it will promptly notify
JHMLICO of any material change in the ownership of Wellington Management, or of
any change in the identity of the personnel who manage the Subject Portfolio,
(iv) that it has adopted a code of ethics complying with the requirements of
Section 17(j) and Rule 17j-1 under the 1940 Act and has provided true and
complete copies of such code to the Series and to JHMLICO, and has adopted
procedures designed to prevent violations of such code, and (v) that it has
furnished the Series and JHMLICO each with a copy of Wellington Management's
Form ADV, as most recently filed with the Securities and Exchange Commission
("SEC"), and will promptly furnish copies of each future amendment thereto.
2. PROVISION OF INVESTMENT MANAGEMENT SERVICES.
Wellington Management will provide for the Subject Portfolio a continuing and
suitable investment program consistent with the investment objectives, policies,
guidelines and restrictions of said Portfolio, as established by the Series and
JHMLICO. From time to time, JHMLICO or the Series may provide Wellington
Management with additional or amended investment policies, guidelines and
restrictions. Wellington Management, as sub-investment manager, will manage the
investment and reinvestment of the assets in the Subject Portfolio, and perform
the functions set forth below, (i) subject to the overall supervision,
direction, control and review of JHMLICO and the Board of Trustees of the
Series, and (ii) consistent with the applicable investment objectives, policies,
guidelines and restrictions, the provisions of the Series' Declaration of Trust,
By-laws, prospectus, statement of additional information (each as in effect from
time to time), the 1940 Act and all other applicable laws and regulations
(including any applicable investment restrictions imposed by state insurance
laws and regulations or any other directions or instructions delivered to
Wellington Management in writing by JHMLICO or
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<PAGE>
the Series from time to time). By its signature below, Wellington Management
acknowledges receipt of a copy of the Series' Declaration of Trust, By-laws,
prospectus, and statement of additional information, each as in effect on the
date of this Agreement.
Wellington Management will, at its own expense:
(a) advise the Series in connection with investment policy decisions to be
made by its Board of Trustees or any committee thereof regarding the Subject
Portfolio and, upon request, furnish the Series with research, economic and
statistical data in connection with said Portfolio's investments and investment
policies;
(b) submit such reports and information as JHMLICO or the Series' Board of
Trustees may reasonably request, to assist the custodian in its determination of
the market value of securities held in the Subject Portfolio;
(c) place orders for purchases and sales of portfolio investments for the
Subject Portfolio;
(d) give instructions to the Subject Portfolio's custodian concerning the
delivery of securities and transfer of cash for the Subject Portfolio;
(e) maintain and preserve the records relating to its activities hereunder
required by the 1940 Act to be maintained and preserved by the Series, to the
extent not maintained by the custodian, transfer agent or JHMLICO;
(f) at or prior to the close of business each day, provide JHMLICO and the
custodian with trade information for each transaction effected for the Subject
Portfolio, and promptly provide to the custodian information on all brokerage or
dealer confirmations;
(g) as soon as practicable following the end of each calendar month, provide
JHMLICO with information on all transactions effected for the Subject Portfolio
during the month, a summary listing all investments held in such Portfolio as of
the last day of the month, and such other information as JHMLICO may reasonably
request in connection with the accounting services that JHMLICO provides for the
Subject Portfolio; and
(h) absent specific instructions to the contrary provided to it by JHMLICO
and subject to its receipt of all necessary voting materials, vote all proxies
with respect to investments of the Subject Portfolio in accordance with
Wellington Management's proxy voting policy as most recently provided to
JHMLICO.
On its own initiative, Wellington Management will apprise JHMLICO and the
Series of important political and economic developments materially affecting the
marketplace or the Subject Portfolio, and will furnish JHMLICO and the Series'
Board of Trustees from time to time such information as is appropriate for this
purpose. Wellington Management will also make its personnel available in
Boston, Massachusetts or other reasonable locations as often as quarterly to
discuss the Subject Portfolio and Wellington Management's management thereof, to
-4-
<PAGE>
educate JHMLICO sales personnel with respect thereto, and for such other
purposes as the Series or JHMLICO may reasonably request.
The Series and JHMLICO will provide timely information to Wellington
Management regarding such matters as purchases and redemptions of shares in the
Subject Portfolio and the cash requirements of, and cash available for
investment in, the Subject Portfolio. JHMLICO will timely provide Wellington
Management with monthly accounting statements for the Subject Portfolio, and
such other information (including, without limitation, reports concerning the
classification of Subject Portfolio securities for purposes of Subchapter M of
the Internal Revenue Code and Treasury Regulations Section 1.817) as may be
reasonably necessary or appropriate in order for Wellington Management to
perform its responsibilities hereunder.
3. ALLOCATION OF EXPENSES.
Each party to this Agreement shall bear the costs and expenses of performing
its obligations hereunder. In this regard, the Series specifically agrees to
assume the expense of:
(a) brokerage commissions for transactions in the portfolio investments of
the Series and similar fees and charges for the acquisition, disposition,
lending or borrowing of such portfolio investments;
(b) custodian fees and expenses;
(c) all taxes, including issuance and transfer taxes, and reserves for
taxes payable by the Series to federal, state or other governmental agencies;
and
(d) interest payable on the Series' borrowings.
Nothing in this Agreement shall alter the allocation of expenses and costs
agreed upon between the Series and JHMLICO in the Investment Management
Agreement or any other agreement to which they are parties.
4. SUB-ADVISORY FEES.
For all of the services rendered with respect to the Subject Portfolio as
herein provided, JHMLICO shall pay to Wellington Management a fee (for the
payment of which the Series shall have no obligation or liability), based on the
Current Net Assets of the Subject Portfolio, as set forth in Schedule I attached
hereto and made a part hereof. Such fee shall be accrued daily and payable
monthly, as soon as practicable after the last day of each calendar month. In
the case of termination of this Agreement with respect to the Subject Portfolio
during any calendar month, the fee with respect to such Portfolio accrued to but
excluding the date of termination shall be paid promptly following such
termination. For purposes of computing the amount of advisory fee accrued for
any day, "Current Net Assets" shall mean the Subject Portfolio's net assets as
of the most recent preceding day for which the Subject Portfolio's net assets
were computed.
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<PAGE>
Notwithstanding the foregoing provisions of this Paragraph 4 and of said
Schedule I, Wellington Management's compensation hereunder for the period prior
to approval of this Agreement by the appropriate shareholders of the Series
shall not exceed the compensation that would have been paid for such period
under the Sub-Investment Management Agreement dated April 15, 1994 by and among
the Series, JHMLICO and John Hancock Advisers Inc. had such Sub-Investment
Management Agreement not been terminated.
5. PORTFOLIO TRANSACTIONS.
In connection with the investment and reinvestment of the assets of the
Subject Portfolio, Wellington Management is authorized to select the brokers or
dealers that will execute purchase and sale transactions for the Portfolio and
to use its best efforts to obtain the best available price and most favorable
execution with respect to all such purchases and sales of portfolio securities
for said Portfolio. Wellington Management shall maintain records adequate to
demonstrate compliance with this requirement. Subject to this primary
requirement, and maintaining as its first consideration the benefits to the
Subject Portfolio and its shareholders, Wellington Management shall have the
right subject to the control of the Board of Trustees, and to the extent
authorized by the Securities Exchange Act of 1934, to follow a policy of
selecting brokers who furnish brokerage and research services to the Subject
Portfolio or to Wellington Management, and who charge a higher commission rate
to the Subject Portfolio than may result when allocating brokerage solely on the
basis of seeking the most favorable price and execution. Wellington Management
shall determine in good faith that such higher cost was reasonable in relation
to the value of the brokerage and research services provided.
Wellington Management will not receive any tender offer solicitation fees or
similar payments in connection with the tender of investments of any Portfolio.
6. OWNERSHIP OF INFORMATION, RECORDS, AND CONFIDENTIALITY.
The Series shall own and control all records maintained hereunder by
Wellington Management on the Series' behalf and, in the event of termination of
this Agreement with respect to any Portfolio for any reason, all records
relating to that Portfolio shall be promptly returned to the Series, free from
any claim or retention of rights by Wellington Management, provided that
(subject to the last paragraph of this Section 6) Wellington Management may
retain copies of such records. Wellington Management also agrees, upon request
of the Series, promptly to surrender such books and records or, at its expense,
copies thereof, to the Series or to make such books and records available for
audit or inspection by representatives of regulatory authorities, or other
persons reasonably designated by the Series. Wellington Management further
agrees to maintain, prepare and preserve such books and records in accordance
with the 1940 Act and rules thereunder, including but not limited to Section 31
and Rules 31a-1 and 31a-2, to the extent such records are not maintained by the
custodian, transfer agent or JHMLICO, and to supply all information requested by
any securities and insurance regulatory authorities to determine whether all
securities and insurance laws and regulations are being complied with.
Wellington Management shall supply the Board of Trustees and officers of the
Series and JHMLICO with all statistical information regarding investments which
is reasonably required by them and reasonably available to Wellington
Management.
-6-
<PAGE>
Wellington Management shall not disclose or use any records or information
obtained pursuant hereto in any manner whatsoever except as expressly authorized
herein, and will keep confidential any information obtained pursuant hereto, and
disclose such information only if the Series has authorized such disclosure, or
if such disclosure is expressly required by applicable federal or state
regulatory authorities.
7. LIABILITY; STANDARD OF CARE.
No provision of this Agreement shall be deemed to protect Wellington
Management or JHMLICO against any liability to the Series or its shareholders to
which it might otherwise be subject by reason of any willful misfeasance, bad
faith or negligence in the performance of its duties or the reckless disregard
of its obligations and duties under this Agreement or the Investment Management
Agreement. Nor shall any provision hereof be deemed to protect any trustee or
officer of the Series against any such liability to which he or she might
otherwise be subject by reason of any willful misfeasance, bad faith or
negligence in the performance of his or her duties or the reckless disregard of
his or her obligations and duties. Adviser shall employ only qualified
personnel to manage the Subject Portfolio; shall comply with all applicable laws
and regulations in the discharge of its duties under this Agreement; shall (as
provided in Section 2 above) comply with the investment objectives, policies,
guidelines and restrictions of the Subject Portfolio and with the provisions of
the Series' Declaration of Trust, By-laws, prospectus and statement of
additional information or any supplements thereto; shall manage the Subject
Portfolio (subject to the receipt of, and based upon the information contained
in, periodic reports from JHMLICO or the custodian concerning the classification
of Portfolio securities for such purposes) as a regulated investment company in
accordance with subchapter M of the Internal Revenue Code of 1986, as amended
(the "Code"), and Treasury Regulations Section 1.817-5(b); shall act at all
times in the best interests of the Series; and shall discharge its duties with
the care, skill, prudence and diligence under the circumstances then prevailing
that a prudent person acting in a like capacity and familiar with such matters
would use in the conduct of a similar enterprise. However, Wellington
Management shall not be obligated to perform any service not described in this
Agreement, and shall not be deemed by virtue of this Agreement to have made any
representation or warranty that any level of investment performance or level of
investment results will be achieved.
8. DURATION AND TERMINATION OF THIS AGREEMENT.
(a) Duration. This Agreement shall become effective with respect to the
--------
Subject Portfolio on May 1, 1999 and, with respect to any additional Subject
Portfolio, on the date of receipt by the Series of notice from Wellington
Management in accordance with Paragraph 1(b) hereof that it is willing to serve
with respect to such Portfolio. Unless terminated as herein provided, this
Agreement shall remain in full force and effect for two years from the date
hereof with respect to the initial Subject Portfolio and, with respect to each
additional Subject Portfolio, until two years following the date on which such
Portfolio becomes a Subject Portfolio hereunder, and shall continue in full
force and effect thereafter with respect to each Subject Portfolio only so long
as such continuance with respect to any such Portfolio is specifically approved
at least annually (a) by either the Board of Trustees of the Series or by vote
of a majority of the
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<PAGE>
outstanding voting shares of such Portfolio, and (b) in either event by the vote
of a majority of the Board of Trustees of the Series who are not parties to this
Agreement or "interested persons" of any such party, cast in person at a meeting
called for the purpose of voting on such approval.
Any approval of this Agreement by the holders of a majority of the
outstanding shares of any Subject Portfolio shall be effective to continue this
Agreement with respect to any such Portfolio notwithstanding (A) that this
Agreement has not been approved by the holders of a majority of the outstanding
shares of any other Portfolio affected hereby, and (B) that this Agreement has
not been approved by the vote of a majority of the outstanding shares of the
Series, unless such approval shall be required by any other applicable law or
otherwise. The terms "assignment," "vote of a majority of the outstanding
shares" and "interested person," when used in this Agreement, shall have the
respective meanings specified in the 1940 Act and rules thereunder.
(b) Termination. This Agreement may be terminated with respect to any
-----------
Subject Portfolio at any time, without payment of any penalty, by the Series
pursuant to a vote of the Trustees of the Series or a vote of a majority of the
outstanding shares of such Portfolio, which termination shall be effective
immediately upon delivery of written notice thereof to Wellington Management and
JHMLICO. This Agreement may be terminated by Wellington Management on at least
ninety days' prior written notice to the Series and JHMLICO, and may be
terminated by JHMLICO on at least ninety days' prior written notice to the
Series and Wellington Management.
(c) Automatic Termination. This Agreement shall automatically and
---------------------
immediately terminate in the event of its assignment or if the Investment
Management Agreement is terminated.
9. SERVICES NOT EXCLUSIVE; USE OF WELLINGTON MANAGEMENT'S NAME AND LOGO.
The services of Wellington Management to the Series are not to be deemed
exclusive and it shall be free to render similar services to others so long as
its services hereunder are not impaired thereby. It is specifically understood
that partners, officers and employees of Wellington Management and of its
subsidiaries and affiliates may continue to engage in providing portfolio
management services and advice to other investment companies, whether or not
registered, and other investment advisory clients.
During the term of this Agreement, subject to Wellington Management's consent
(which consent shall not be unreasonably withheld and which may be presumed
unless an objection is made to a proposed use as hereinafter provided), JHMLICO
and the Series shall have the non-exclusive and non-transferrable right to use
Wellington Management's name and logo in all materials relating to the Subject
Portfolio, including all prospectuses, proxy statements, reports to
shareholders, sales literature and other written materials prepared for
distribution to shareholders of the Series or the public. However, prior to
printing or distributing of any materials which refer to Wellington Management,
JHMLICO shall consult with Wellington Management and shall furnish to Wellington
Management a copy of such materials. Wellington Management agrees to cooperate
with JHMLICO and to review such materials promptly. JHMLICO shall not print or
distribute such materials if Wellington Management reasonably
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<PAGE>
objects in writing, within five (5) business days of its receipt of such copy
(or such other time as may be mutually agreed), to the manner in which its name
and logo are to be used.
10. AVOIDANCE OF INCONSISTENT POSITION.
In connection with the purchase and sale of portfolio securities of the
Subject Portfolio, Wellington Management and its partners, officers and
employees will not act as principal or agent or receive any commission. Nothing
in this Agreement, however, shall preclude the combination of orders for the
sale or purchase of portfolio securities of the Subject Portfolio with those for
other accounts managed by Wellington Management or its affiliates, if orders are
allocated in a manner deemed equitable by Wellington Management among the
accounts and at a price approximately averaged.
11. AMENDMENT.
No provision of this Agreement may be changed, waived, discharged or
terminated orally, but only by an instrument in writing. No amendment of this
Agreement shall be effective with respect to any Portfolio until approved
specifically by (a) the Board of Trustees of the Series, or by vote of a
majority of the outstanding shares of that Portfolio, and (b) by vote of a
majority of those trustees of the Series who are not interested persons of any
party to this Agreement cast in person at a meeting called for the purpose of
voting on such approval.
12. LIMITATION OF LIABILITY.
It is expressly agreed that the obligations of the Series hereunder shall not
be binding upon any of the trustees, shareholders, officers, agents or employees
of the Series personally, but only bind the trust property of the Series, as
provided in the Series' Declaration of Trust.
13. NOTICES
Notices and other communications required or permitted under this Agreement
shall be in writing, shall be deemed to be effectively delivered when actually
received, and may be delivered by US mail (first class, postage prepaid), by
facsimile transmission, by hand or by commercial overnight delivery service,
addressed as follows:
SUB-INVESTMENT MANAGER: Wellington Management Company, LLP
75 State Street
Boston, MA 02109
Attention: Regulatory Affairs
Fax #: 617-790-7760
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<PAGE>
JHMLICO: John Hancock Mutual Life Insurance Company
200 Clarendon Street
P.O. Box 111
Boston, MA 02117
Attention: Raymond F. Skiba
Fax #: 617-572-4953
SERIES: John Hancock Variable Series Trust I
200 Clarendon Street
P.O. Box 111
Boston, MA 02117
Attention: Raymond F. Skiba
Fax #: 617-572-4953
14. GOVERNING LAW.
This agreement shall be construed in accordance with the laws of the
Commonwealth of Massachusetts and the applicable provisions of the 1940 Act and
rules thereunder.
15. ASSIGNMENT.
This Agreement may not be assigned by any party, either in whole or in part.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed
as of the day first set forth above.
ATTEST: JOHN HANCOCK VARIABLE SERIES
TRUST I
By:
-----------------------------
Name: Michele G. Van Leer
Title: Chairman
ATTEST: JOHN HANCOCK MUTUAL LIFE
INSURANCE COMPANY
By:
-----------------------------
Name: Robert R. Reitano
Title: Vice President
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<PAGE>
ATTEST: WELLINGTON MANAGEMENT
COMPANY, LLP
By:
-----------------------
Name:
Title:
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<PAGE>
SCHEDULE I
FEES
----
Current Net Assets Under Management Sub-Advisory Fee
----------------------------------- ----------------
On the first $100,000,000 55 basis points (0.55%) per annum
On the next $100,000,000 45 basis points (0.45%) per annum
On amounts over $200,000,000 40 basis points (0.40%) per annum
<PAGE>
Exhibit (d) 23
SUB-INVESTMENT MANAGEMENT AGREEMENT
AMONG
JOHN HANCOCK VARIABLE SERIES TRUST I
GOLDMAN SACHS ASSET MANAGEMENT
AND
JOHN HANCOCK MUTUAL LIFE INSURANCE COMPANY
<PAGE>
SUB-INVESTMENT MANAGEMENT AGREEMENT
AGREEMENT made as of the 28th day of April, 1998 by and among John Hancock
Variable Series Trust I, a Massachusetts business trust (the "Series"),Goldman
Sachs Asset Management, a separate operating division of Goldman, Sachs & Co., a
New York limited partnership ("Advisers"), and John Hancock Mutual Life
Insurance Company, a Massachusetts corporation ("JHMLICO").
WHEREAS, the Series is organized and is engaged in business as an open-end
management investment company and is so registered under the Investment Company
Act of 1940 (the "1940 Act"); and
WHEREAS, JHMLICO and Advisers are each engaged in the business of rendering
investment advice under the Investment Advisers Act of 1940; and
WHEREAS, the Series is authorized to issue shares of capital stock in
separate classes with each such class representing interests in a separate
portfolio of securities and other assets; and
WHEREAS, the Series offers shares in several classes, one of which is
designated as the Small/Mid Cap CORE Portfolio (together with all other classes
established by the Series, collectively referred to as the "Portfolios"), each
of which pursues its investment objectives through separate investment policies;
and
WHEREAS, the Series has retained JHMLICO to render investment management
services to the Series pursuant to an Investment Management Agreement dated as
of April 14, 1998 (the "Investment Management Agreement"), pursuant to which it
may contract with Advisers as a sub-manager as provided for herein;
NOW, THEREFORE, WITNESSETH: That it is hereby agreed between the parties
hereto as follows:
1. APPOINTMENT OF SUB-MANAGER
(a) Subject Portfolio. Advisers is hereby appointed and Advisers hereby
-----------------
accepts the appointment to act as investment adviser and manager to the
Small/Mid Cap CORE Portfolio (the "Subject Portfolio") for the period and on the
terms herein set forth, for the compensation herein provided.
(b) Additional Subject Portfolios. In the event that the Series and JHMLICO
-----------------------------
desire to retain Advisers to render investment advisory services hereunder for
any other Portfolio, they shall so notify Advisers in writing. If it is willing
to render such services, Advisers shall notify the Series in writing, whereupon
such Portfolio shall become a Subject Portfolio hereunder.
<PAGE>
(c) Incumbency Certificates. Advisers shall furnish to JHMLICO, immediately
-----------------------
upon execution of this Agreement, a certificate of a senior officer of Advisers
setting forth (by name and title, and including specimen signatures) those
officers of Advisers who are authorized to make investment decisions for the
Subject Portfolio pursuant to the provisions of this Agreement. Advisers shall
promptly provide supplemental certificates in connection with each additional
Subject Portfolio (if any) and further supplemental certificates, as needed, to
reflect all changes with respect to such authorized officers for any Subject
Portfolio. On behalf of the Series, JHMLICO shall instruct the custodian for
the Subject Portfolio to accept instructions with respect to the Subject
Portfolio from the officers of Advisers so named.
(d) Independent Contractor. Advisers shall for all purposes herein be
----------------------
deemed to be an independent contractor and shall, unless otherwise expressly
provided or authorized, have no authority to act for or be deemed an agent of
the Series.
(e) Advisers' Representations. Advisers represents, warrants and agrees (i)
-------------------------
that it is registered as an investment adviser under the Investment Advisers Act
of 1940, and that it will remain so registered and will comply with the
requirements of said Act, and the rules and regulations thereunder, at all times
while this Agreement remains in effect, (ii) that it will promptly notify
JHMLICO if the foregoing representation and agreement shall cease to be true (in
any material respect) at any time during the term of this Agreement, (iii) that
it will promptly notify JHMLICO of any material change in the senior management
or ownership of Advisers, or of any change in the identity of the personnel who
manage the Subject Portfolio, (iv) that it has adopted a code of ethics
complying with the requirements of Rule 17j-1 of the Securities and Exchange
Commission (the "SEC") under the 1940 Act and has provided true and complete
copies of such code to the Series and to JHMLICO, and has adopted procedures
designed to prevent violations of such code, and (v) that it has furnished the
Series and JHMLICO each with a copy of Advisers' Form ADV, as most recently
filed with the SEC, and will promptly furnish copies of each future amendment
thereto.
2. PROVISION OF INVESTMENT MANAGEMENT SERVICES.
Advisers will provide for the Subject Portfolio a continuing and suitable
investment program consistent with the investment policies, objectives and
restrictions of said Portfolio, as established by the Series and JHMLICO. From
time to time, JHMLICO or the Series may provide Advisers with additional or
amended investment policies, guidelines and restrictions. Advisers, as sub-
manager, will manage the investment and reinvestment of the assets in the
Subject Portfolio, and perform the functions set forth below, subject to the
overall supervision, direction, control and review of JHMLICO and the Board of
Trustees of the Series, consistent with the applicable investment policies,
guidelines and restrictions, the provisions of the Series' Declaration of Trust,
Bylaws, prospectus, statement of additional information (each as in effect from
time to time), the 1940 Act and all other applicable laws and regulations
(including any applicable investment restrictions imposed by state insurance
laws and regulations or any directions or instructions delivered to Advisers in
writing by JHMLICO or the Series from time to time). By its signature below,
Advisers acknowledges receipt of a copy of the Series' Declaration of Trust,
Bylaws, prospectus, and statement of additional information, each as in effect
on the date of this Agreement.
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<PAGE>
Advisers will, at its own expense:
(a) advise the Series in connection with investment policy decisions to be
made by its Board of Trustees or any committee thereof regarding the Subject
Portfolio and, upon reasonable request, furnish the Series with research,
economic and statistical data in connection with said Portfolio's investments
and investment policies;
(b) submit such reports and information as JHMLICO or the Series' Board of
Trustees may reasonably request, to assist the custodian in its determination of
the market value of securities held in the Subject Portfolio;
(c) place orders for purchases and sales of portfolio investments for the
Subject Portfolio;
(d) give instructions to the Subject Portfolio's custodian concerning the
delivery of securities and transfer of cash for the Subject Portfolio;
(e) maintain and preserve the records relating to its activities hereunder
required by the 1940 Act to be maintained and preserved by the Series, to the
extent not maintained by the custodian, transfer agent or JHMLICO;
(f) at the close of business each day, provide JHMLICO and the custodian
with copies of trade tickets, electronic access to trade records, or other means
to verify trade data received by the custodian from third parties for each
transaction effected for the Subject Portfolio;
(g) as soon as practicable following the end of each calendar month, provide
JHMLICO with written statements showing all transactions effected for the
Subject Portfolio during the month, a summary listing all investments held in
such Portfolio as of the last day of the month, and such other information as
JHMLICO may reasonably request in connection with the accounting services that
JHMLICO provides for the Subject Portfolio; and
(h) absent specific instructions to the contrary provided to it by JHMLICO
and subject to its receipt of all necessary voting materials, vote all proxies
with respect to investments of the Subject Portfolio in accordance with
Advisers' proxy voting policy as most recently provided to JHMLICO.
On its own initiative, Advisers will apprise JHMLICO and the Series of
important political and economic developments materially affecting the
marketplace or the Subject Portfolio, and will furnish JHMLICO and the Series'
Board of Trustees from time to time such information as is appropriate for this
purpose. Advisers will also make its personnel available in Boston or other
reasonable locations as often as quarterly to discuss the Subject Portfolio and
Advisers' management thereof, to educate JHMLICO sales personnel with respect
thereto, and for such other purposes as the Series or JHMLICO may reasonably
request.
The Series and JHMLICO will provide timely information to Advisers regarding
such matters as purchases and redemptions of shares in the Subject Portfolio and
the cash requirements of, and cash
-3-
<PAGE>
available for investment in, the Portfolio. JHMLICO will timely provide Advisers
with copies of monthly accounting statements for the Subject Portfolio, and such
other information (including, without limitation, reports concerning the
classification of Portfolio securities for purposes of Subchapter M of the
Internal Revenue Code and Treasury Regulations Section 1.817) as may be
reasonably necessary or appropriate in order for Advisers to perform its
responsibilities hereunder. Without limiting the foregoing, JHMLICO will perform
quarterly and annual tax compliance tests to measure whether the Subject
Portfolio is in compliance with Subchapter M and Section 817(h) of the Internal
Revenue Code. JHMLICO will apprise Advisers promptly after each quarter end of
any non-compliance with the diversification requirements in such provisions of
the Internal Revenue Code. If so apprised, Advisers will take prompt action to
remedy any such non-compliance identified by JHMLICO and bring the Subject
Portfolio back into compliance with such diversification provisions of the
Internal Revenue Code.
3. ALLOCATION OF EXPENSES.
Each party to this Agreement shall bear the costs and expenses of performing
its obligations hereunder. In this regard, the Series specifically agrees to
assume the expense of:
(a) brokerage commissions for transactions in the portfolio investments of
the Series and similar fees and charges for the acquisition, disposition,
lending or borrowing of such portfolio investments;
(b) custodian fees and expenses;
(c) all taxes, including issuance and transfer taxes, and reserves for
taxes payable by the Series to federal, state or other governmental agencies;
and
(d) interest payable on the Series' borrowings.
Nothing in this Agreement shall alter the allocation of expenses and costs
agreed upon between the Series and JHMLICO in the Investment Management
Agreement or any other agreement to which they are parties.
4. SUB-ADVISORY FEES.
For all of the services rendered with respect to the Subject Portfolio as
herein provided, JHMLICO shall pay to Advisers a fee (for the payment of which
the Series shall have no obligation or liability), based on the Current Net
Assets of the Subject Portfolio, as set forth in Schedule I attached hereto and
made a part hereof. Such fee shall be accrued daily and payable monthly, as soon
as practicable after the last day of each calendar month. In the case of
termination of this Agreement with respect to the Subject Portfolio during any
calendar month, the fee with respect to such Portfolio accrued to but excluding
the date of termination shall be paid promptly following such termination. For
purposes of computing the amount of advisory fee accrued for any day, "Current
Net Assets" shall mean the Subject Portfolio's net assets as of the most recent
preceding day for which the Subject Portfolio's net assets were computed.
-4-
<PAGE>
5. PORTFOLIO TRANSACTIONS.
In connection with the investment and reinvestment of the assets of the
Subject Portfolio, Advisers is authorized to select the brokers or dealers
(including affiliated broker-dealers) that will execute purchase and sale
transactions for the Portfolio and to use its best efforts to obtain the best
available price and most favorable execution with respect to all such purchases
and sales of portfolio securities for said Portfolio. Advisers shall maintain
records adequate to demonstrate compliance with this requirement. Subject to
this primary requirement, and maintaining as its first consideration the
benefits to the Subject Portfolio and its shareholders, Advisers shall have the
right subject to the control of the Board of Trustees, and to the extent
authorized by the Securities Exchange Act of 1934, to follow a policy of
selecting brokers who furnish brokerage and research services to the Subject
Portfolio or to Advisers, and who charge a higher commission rate to the Subject
Portfolio than may result when allocating brokerage solely on the basis of
seeking the most favorable price and execution. Advisers shall determine in good
faith that such higher cost was reasonable in relation to the value of the
brokerage and research services provided.
Advisers will not receive any tender offer solicitation fees or similar
payments in connection with the tender of investments of any Portfolio.
6. OWNERSHIP OF INFORMATION, RECORDS, AND CONFIDENTIALITY.
The Series shall own and control all records maintained hereunder by Advisers
on the Series' behalf and, in the event of termination of this Agreement with
respect to any Portfolio for any reason, all records relating to that Portfolio
shall be promptly returned to the Series, free from any claim or retention of
rights by Advisers, provided that (subject to the last paragraph of this Section
6) Advisers may retain copies of such records. Advisers also agrees, upon
request of the Series, promptly to surrender such books and records or, at its
expense, copies thereof, to the Series or make such books and records available
for audit or inspection by representatives of regulatory authorities or other
persons reasonably designated by the Series. Advisers further agrees to
maintain, prepare and preserve such books and records in accordance with the
1940 Act and rules thereunder, including but not limited to Rules 31a-1 and 31a-
2, and to supply all information requested by any insurance regulatory
authorities to determine whether all insurance laws and regulations are being
complied with. Advisers shall supply the Board of Trustees and officers of the
Series and JHMLICO with all statistical information regarding investments which
is reasonably required by them and reasonably available to Advisers.
Advisers shall not disclose or use any records or information obtained
pursuant hereto in any manner whatsoever except as expressly authorized herein,
and will keep confidential any information obtained pursuant hereto, and
disclose such information only if the Series has authorized such disclosure, or
if such disclosure is expressly required by applicable federal or state
regulatory authorities, is required by applicable law, legal process or in
connection with any litigation arising out of the subject matter of this
Agreement, or is otherwise publicly disclosed and such public disclosure is not
in breach of any confidentiality restriction.
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<PAGE>
7. LIABILITY; STANDARD OF CARE.
No provision of this Agreement shall be deemed to protect Advisers or JHMLICO
against any liability to the Series or its shareholders to which it might
otherwise be subject by reason of any willful misfeasance, bad faith or gross
negligence in the performance of its duties or the reckless disregard of its
obligations and duties under this Agreement or the Investment Management
Agreement. Nor shall any provision hereof be deemed to protect any trustee or
officer of the Series against any such liability to which he might otherwise be
subject by reason of any willful misfeasance, bad faith or negligence in the
performance his duties or the reckless disregard of his obligations and duties.
Advisers shall employ only qualified personnel to manage the Subject Portfolio;
shall comply with all applicable laws and regulations in the discharge of its
duties under this Agreement; shall (as provided in Section 2 above) comply with
the investment policies, guidelines and restrictions of the Subject Portfolio
and with the provisions of the Series' Declaration of Trust, Bylaws, prospectus
and statement of additional information; shall manage the Subject Portfolio
(subject to the receipt of, and based upon the information contained in,
periodic reports from JHMLICO or the custodian concerning the classification of
Portfolio securities for such purposes) as a regulated investment company in
accordance with Subchapter M of the Internal Revenue Code of 1986, as amended
(the "Code"), and Treasury Regulations Section 1.817-5(b); shall act at all
times in the best interests of the Series; and shall discharge its duties with
the care, skill, prudence and diligence under the circumstances then prevailing
that a prudent person acting in a like capacity and familiar with such matters
would use in the conduct of a similar enterprise. However, Advisers shall not
be obligated to perform any service not described in this Agreement, shall not
be deemed by virtue of this Agreement to have made any representation or
warranty that any level of investment performance or level of investment results
will be achieved, and shall not be obligated to comply with any applicable
insurance laws and regulations unless previously notified thereof in writing by
JHMLICO or the Series.
8. DURATION AND TERMINATION OF THIS AGREEMENT.
(a) Duration. This Agreement shall become effective with respect to the
--------
Subject Portfolio on the date hereof and, with respect to any additional Subject
Portfolio, on the date of receipt by the Series of notice from Advisers in
accordance with Paragraph 1(b) hereof that it is willing to serve with respect
to such Portfolio. Unless terminated as herein provided, this Agreement shall
remain in full force and effect for two years from the date hereof with respect
to the initial Subject Portfolio and, with respect to each additional Subject
Portfolio, until two years following the date on which such Portfolio becomes a
Subject Portfolio hereunder, and shall continue in full force and effect
thereafter with respect to each Subject Portfolio so long as such continuance
with respect to any such Portfolio is approved at least annually (a) by either
the Board of Trustees of the Series or by vote of a majority of the outstanding
voting shares of such Portfolio, and (b) in either event by the vote of a
majority of the trustees of the Series who are not parties to this Agreement or
"interested persons" of any such party, cast in person at a meeting called for
the purpose of voting on such approval.
Any approval of this Agreement by the holders of a majority of the
outstanding shares of any Subject Portfolio shall be effective to continue this
Agreement with respect to any such Portfolio notwithstanding (A) that this
Agreement has not been approved by the holders of a majority of the outstanding
shares of any other Portfolio affected hereby, and (B) that this Agreement has
not been
-6-
<PAGE>
approved by the vote of a majority of the outstanding shares of the Series,
unless such approval shall be required by any other applicable law or otherwise.
The terms "assignment," "vote of a majority of the outstanding shares" and
"interested person," when used in this Agreement, shall have the respective
meanings specified in the 1940 Act and rules thereunder.
(b) Termination. This Agreement may be terminated with respect to any
-----------
Subject Portfolio at any time, without payment of any penalty, by the Series
pursuant to a vote of the trustees of the Series or a vote of a majority of the
outstanding shares of such Portfolio, which termination shall be effective
immediately upon delivery of notice thereof to Advisers and JHMLICO (unless a
later effective date is specified in such notice). This Agreement may be
terminated by Advisers on at least ninety days' prior written notice to the
Series and JHMLICO, and may be terminated by JHMLICO on at least ninety days'
prior written notice to the Series and Advisers. In the event of any
termination of this Agreement with respect to a Subject Portfolio, the parties
agree to cooperate and to use reasonable efforts to effect the transition of
daily management services for such Subject Portfolio from Advisers to JHMLICO
(or to another sub-investment manager identified by JHMLICO); it being
understood and agreed that Advisers shall not be liable for any loss, cost or
expense (including without limitation any loss, cost or expense arising out of
any termination pursuant to the first sentence of this Section 8(b) which is
effective upon less than 30 days' prior written notice) incurred by the Series
or by the Subject Portfolio arising out of any such termination and transition
of daily management services, except as may be caused by Advisers' willful
misfeasance, bad faith, gross negligence or reckless disregard of its duties
under this Agreement. On the effective date of any termination, Advisers shall
cease its activities under this Agreement with respect to, and shall cease to be
responsible for, the continuing management of any terminated Subject Portfolio.
(c) Automatic Termination. This Agreement shall automatically and
---------------------
immediately terminate in the event of its assignment (other than as permitted
pursuant to Section 15 below) or if the Investment Management Agreement is
terminated.
9. SERVICES NOT EXCLUSIVE; USE OF ADVISERS' NAME AND LOGO.
The services of Advisers to the Series are not to be deemed exclusive and it
shall be free to render similar services to others so long as its services
hereunder are not impaired thereby. It is specifically understood that
directors, officers and employees of Advisers and of its subsidiaries and
affiliates may continue to engage in providing portfolio management services and
advice to other investment companies, whether or not registered, and other
investment advisory clients.
During the term of this Agreement, JHMLICO and the Series shall have the non-
exclusive and non-transferable right to use Advisers' name and logo in all
materials relating to the Subject Portfolio, including all prospectuses, proxy
statements, reports to shareholders, sales literature and other written
materials prepared for distribution to shareholders of the Series or the public.
However, prior to distribution of any materials which refer to Advisers, JHMLICO
shall consult with Advisers and shall furnish to Advisers a copy of such
materials. Advisers agrees to cooperate with JHMLICO and to review such
materials promptly. JHMLICO shall not distribute such materials if Advisers
reasonably objects in writing, within five (5) business days of its receipt of
such copy (or such other time as may be mutually agreed), to the manner in which
its name and logo are used.
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<PAGE>
10. AVOIDANCE OF INCONSISTENT POSITION.
In connection with the purchase and sale of portfolio securities of the
Subject Portfolio, Advisers and its directors, officers and employees will not
act as principal or agent or receive any commission, except as may be permitted
under the 1940 Act, including but not limited to securities or futures
transactions complying with Rule 17e-1 under the 1940 Act and joint repurchase
transactions complying with the conditions of any exemptive order obtained by
Advisers. Nothing in this Agreement, however, shall preclude the combination of
orders for the sale or purchase of portfolio securities of the Subject Portfolio
with those for other registered investment companies or other clients managed by
Advisers or its affiliates, if orders are allocated in a manner deemed equitable
by Advisers among the accounts and at a price approximately averaged.
11. AMENDMENT.
No provision of this Agreement may be changed, waived, discharged or
terminated orally, but only by an instrument in writing. No amendment of this
Agreement shall be effective with respect to any Portfolio until approved
specifically by (a) the Board of Trustees of the Series, or by vote of a
majority of the outstanding shares of that Portfolio, and (b) by vote of a
majority of those trustees of the Series who are not interested persons of any
party to this Agreement cast in person at a meeting called for the purpose of
voting on such approval.
12. LIMITATION OF LIABILITY.
It is expressly agreed that the obligations of the Series hereunder shall
not be binding upon any of the trustees, shareholders, officers, agents or
employees of Series personally, but only bind the trust property of the Series,
as provided in the Series' Declaration of Trust.
13. NOTICES
Notices and other communications required or permitted under this Agreement
shall be in writing, shall be deemed to be effectively delivered when actually
received, and may be delivered by US mail (first class, postage prepaid), by
facsimile transmission, by hand or by commercial overnight delivery service,
addressed as follows:
ADVISERS: Goldman Sachs Asset Management
One New York Plaza, 42nd Floor
New York, NY 10004
Attention: Daniel Dumont
Fax #: 212-902-2561
JHMLICO: John Hancock Mutual Life Insurance Company
200 Clarendon Street
P.O. Box 111
Boston, MA 02117
Attention: Raymond F. Skiba
Fax #: 617-572-4953
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<PAGE>
SERIES: John Hancock Variable Series Trust I
200 Clarendon Street
P.O. Box 111
Boston, MA 02117
Attention: Raymond F. Skiba
Fax #: 617-572-4953
14. GOVERNING LAW.
This agreement shall be construed in accordance with the laws of the
Commonwealth of Massachusetts and the applicable provisions of the 1940 Act and
rules thereunder.
15. ASSIGNMENT.
This Agreement may not be assigned by any party, either in whole or in part,
without the prior written consent of each other party.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed
as of the day first set forth above.
ATTEST: JOHN HANCOCK VARIABLE SERIES
TRUST I
/s/ Sandra M. DaDalt By: /s/ Henry D. Shaw
- -------------------------- ------------------------------
Assistant Secretary Title: Chairman and CEO
ATTEST: JOHN HANCOCK MUTUAL LIFE
INSURANCE COMPANY
/s/ Antoniette Ricci By: /s/ Robert R. Reitano
- -------------------------- ------------------------------
Assistant Secretary Title: Vice President
ATTEST: GOLDMAN SACHS ASSET MANAGEMENT,
a separate operating division of
Goldman, Sachs & Co.
/s/ Behrl By: /s/ Robert C. Jones
- -------------------------- ------------------------------
Title: Managing Director
<PAGE>
SCHEDULE I
FEES
----
Current Net Assets Under Management Sub-Advisory Fee
- ----------------------------------- ----------------
On the first $50,000,000 60 basis points (0.60%) per annum
On amounts over $50,000,000 50 basis points (0.50%) per annum
<PAGE>
EXHIBIT (d) 24
SUB-INVESTMENT MANAGEMENT AGREEMENT
AGREEMENT made as of the 7th day of September, 1998 by and among John Hancock
Variable Series Trust I, a Massachusetts business trust (the "Series"), Scudder
Kemper Investments, Inc., a Delaware corporation ("Advisers"), and John Hancock
Mutual Life Insurance Company, a Massachusetts corporation ("JHMLICO").
WHEREAS, the Series is organized and is engaged in business as an open-end
management investment company and is so registered under the Investment Company
Act of 1940 (the "1940 Act"); and
WHEREAS, JHMLICO and Advisers are each engaged in the business of rendering
investment advice under the Investment Advisers Act of 1940; and
WHEREAS, the Series is authorized to issue shares of capital stock in
separate classes with each such class representing interests in a separate
portfolio of securities and other assets; and
WHEREAS, the Series offers shares in several classes, one of which is
designated as the Global Equity Portfolio (together with all other classes
established by the Series, collectively referred to as the "Portfolios"), each
of which pursues its investment objectives through separate investment policies;
and
WHEREAS, the Series has retained JHMLICO to render investment management
services to the Series pursuant to an Investment Management Agreement dated as
of April 14, 1998 (the "Investment Management Agreement"), pursuant to which it
may contract with Advisers as a sub-manager as provided for herein;
NOW, THEREFORE, WITNESSETH: That it is hereby agreed between the parties
hereto as follows:
1. APPOINTMENT OF SUB-MANAGER
(a) Subject Portfolio. Advisers is hereby appointed and Advisers hereby
-----------------
accepts the appointment to act as investment adviser and manager to the Global
Equity Portfolio (the "Subject Portfolio") for the period and on the terms
herein set forth, for the compensation herein provided.
(b) Additional Subject Portfolios. In the event that the Series and JHMLICO
-----------------------------
desire to retain Advisers to render investment advisory services hereunder for
any other Portfolio, they shall so notify Advisers in writing. If it is willing
to render such services, Advisers shall notify the Series in writing, whereupon
such Portfolio shall become a Subject Portfolio hereunder.
<PAGE>
(c) Incumbency Certificates. Advisers shall furnish to JHMLICO, immediately
-----------------------
upon execution of this Agreement, a certificate of a senior officer of Advisers
setting forth (by name and title, and including specimen signatures) those
officers of Advisers who are authorized to make investment decisions for the
Subject Portfolio pursuant to the provisions of this Agreement. Advisers shall
promptly provide supplemental certificates in connection with each additional
Subject Portfolio (if any) and further supplemental certificates, as needed, to
reflect all changes with respect to such authorized officers for any Subject
Portfolio. On behalf of the Series, JHMLICO shall instruct the custodian for
the Subject Portfolio to accept instructions with respect to the Subject
Portfolio from the officers of Advisers so named.
(d) Independent Contractor. Advisers shall for all purposes herein be
----------------------
deemed to be an independent contractor and shall, unless otherwise expressly
provided or authorized, have no authority to act for or be deemed an agent of
the Series.
(e) Advisers' Representations. Advisers represents, warrants and agrees (i)
-------------------------
that it is registered as an investment adviser under the Investment Advisers Act
of 1940, and that it will remain so registered and will comply with the
requirements of said Act, and the rules and regulations thereunder, at all times
while this Agreement remains in effect, (ii) that it will promptly notify
JHMLICO if the foregoing representation and agreement shall cease to be true (in
any material respect) at any time during the term of this Agreement, (iii) that
it will promptly notify JHMLICO of any material change in the senior management
or ownership of Advisers, or of any change in the identity of the personnel who
manage the Subject Portfolio, (iv) that it has adopted a code of ethics
complying with the requirements of Rule 17j-1 of the Securities and Exchange
Commission (the "SEC") under the 1940 Act and has provided true and complete
copies of such code to the Series and to JHMLICO, and has adopted procedures
designed to prevent violations of such code, and (v) that it has furnished the
Series and JHMLICO each with a copy of Advisers' Form ADV, as most recently
filed with the SEC, and will promptly furnish copies of each future amendment
thereto.
(f) JHMLICO's Representations. JHMLICO represents, warrants and agrees (i)
-------------------------
that it is registered as an investment adviser under the Investment Advisers Act
of 1940, and that it will remain so registered and will comply with the
requirements of said Act, and the rules and regulations thereunder, at all times
while this Agreement remains in effect, (ii) that it will promptly notify
Advisers if the foregoing representation and agreement shall cease to be true
(in any material respect) at any time during the term of this Agreement, (iii)
that it has adopted a code of ethics complying with the requirements of Rule
17j-1 of the Securities and Exchange Commission (the "SEC") under the 1940 Act
and has provided true and complete copies of such code to the Series, and has
adopted procedures designed to prevent violations of such code, and (iv) that as
long as this Agreement remains in effect it will furnish Advisers with a copy of
each future amendment to the Series' Declaration of Trust, Bylaws, prospectus
and statement of additional information, and no such amendment will be effective
as to Advisers until its receipt thereof.
<PAGE>
2. PROVISION OF INVESTMENT MANAGEMENT SERVICES.
Advisers will provide for the Subject Portfolio a continuing and suitable
investment program consistent with the investment policies, objectives and
restrictions of said Portfolio, as established by the Series and JHMLICO. From
time to time, JHMLICO or the Series may provide Advisers with additional or
amended investment policies, guidelines and restrictions. Advisers, as sub-
manager, will manage the investment and reinvestment of the assets in the
Subject Portfolio, and perform the functions set forth below, subject to the
overall supervision, direction, control and review of JHMLICO and the Board of
Trustees of the Series, consistent with the applicable investment policies,
guidelines and restrictions, the provisions of the Series' Declaration of Trust,
Bylaws, prospectus, statement of additional information (each as in effect from
time to time), the 1940 Act and all other applicable laws and regulations
(including any applicable investment restrictions imposed by state insurance
laws and regulations or any directions or instructions delivered to Advisers in
writing by JHMLICO or the Series from time to time). By its signature below,
Advisers acknowledges receipt of a copy of the Series' Declaration of Trust,
Bylaws, prospectus, and statement of additional information, each as in effect
on the date of this Agreement.
Advisers will, at its own expense:
(a) advise the Series in connection with investment policy decisions to be
made by its Board of Trustees or any committee thereof regarding the Subject
Portfolio and, upon reasonable request, furnish the Series with research,
economic and statistical data in connection with said Portfolio's investments
and investment policies;
(b) submit such reports and information as JHMLICO or the Series' Board of
Trustees may reasonably request, to assist the custodian in its determination of
the market value of securities held in the Subject Portfolio;
(c) place orders for purchases and sales of portfolio investments for the
Subject Portfolio;
(d) give instructions to the Subject Portfolio's custodian concerning the
delivery of securities and transfer of cash for the Subject Portfolio;
(e) maintain and preserve the records relating to its activities hereunder
required by the 1940 Act to be maintained and preserved by the Series, to the
extent not maintained by the custodian, transfer agent or JHMLICO;
(f) at the close of business each day, provide JHMLICO and the custodian
with copies of trade tickets for each transaction effected for the Subject
Portfolio, and promptly forward to the custodian copies of all brokerage or
dealer confirmations;
(g) as soon as practicable following the end of each calendar month, provide
JHMLICO with written statements showing all transactions effected for the
Subject Portfolio during the month, a summary listing all investments held in
such Portfolio as of the last day of the month, and such other information as
JHMLICO may reasonably request in connection with the accounting services that
JHMLICO provides for the Subject Portfolio; and
<PAGE>
(h) absent specific instructions to the contrary provided to it by JHMLICO
and subject to its receipt of all necessary voting materials, vote all proxies
with respect to investments of the Subject Portfolio in accordance with
Advisers' proxy voting policy as most recently provided to JHMLICO.
On its own initiative, Advisers will apprise JHMLICO and the Series of
important political and economic developments materially affecting the
marketplace or the Subject Portfolio, and will furnish JHMLICO and the Series'
Board of Trustees from time to time such information as is appropriate for this
purpose. Advisers will also make its personnel available in Boston or other
reasonable locations as often as quarterly to discuss the Subject Portfolio and
Advisers' management thereof, to educate JHMLICO sales personnel with respect
thereto, and for such other purposes as the Series or JHMLICO may reasonably
request.
The Series and JHMLICO will provide timely information to Advisers regarding
such matters as purchases and redemptions of shares in the Subject Portfolio and
the cash requirements of, and cash available for investment in, the Portfolio.
JHMLICO will timely provide Advisers with copies of monthly accounting
statements for the Subject Portfolio, and such other information (including,
without limitation, reports concerning the classification of Portfolio
securities for purposes of Subchapter M of the Internal Revenue Code and
Treasury Regulations Section 1.817) as may be reasonably necessary or
appropriate in order for Advisers to perform its responsibilities hereunder.
3. ALLOCATION OF EXPENSES.
Each party to this Agreement shall bear the costs and expenses of performing
its obligations hereunder. In this regard, the Series specifically agrees to
assume the expense of:
(a) brokerage commissions for transactions in the portfolio investments of
the Series and similar fees and charges for the acquisition, disposition,
lending or borrowing of such portfolio investments;
(b) custodian fees and expenses;
(c) all taxes, including issuance and transfer taxes, and reserves for
taxes payable by the Series to federal, state or other governmental agencies;
and
(d) interest payable on the Series' borrowings.
Nothing in this Agreement shall alter the allocation of expenses and costs
agreed upon between the Series and JHMLICO in the Investment Management
Agreement or any other agreement to which they are parties.
4. SUB-ADVISORY FEES.
<PAGE>
For all of the services rendered with respect to the Subject Portfolio as
herein provided, JHMLICO shall pay to Advisers a fee (for the payment of which
the Series shall have no obligation or liability), based on the Current Net
Assets of the Subject Portfolio, as set forth in Schedule I attached hereto and
made a part hereof. Such fee shall be accrued daily and payable monthly, within
ten (10) days after the last day of each calendar month. In the case of
termination of this Agreement with respect to the Subject Portfolio during any
calendar month, the fee with respect to such Portfolio accrued to but excluding
the date of termination shall be paid promptly following such termination. For
purposes of computing the amount of advisory fee accrued for any day, "Current
Net Assets" shall mean the Subject Portfolio's net assets as of the most recent
preceding day for which the Subject Portfolio's net assets were computed.
5. PORTFOLIO TRANSACTIONS.
In connection with the investment and reinvestment of the assets of the
Subject Portfolio, Advisers is authorized to select the brokers or dealers that
will execute purchase and sale transactions for the Portfolio (including
Advisers' affiliate, Scudder Investor Services, Inc.) and to use its best
efforts to obtain the best available price and most favorable execution with
respect to all such purchases and sales of portfolio securities for said
Portfolio. Advisers shall maintain records adequate to demonstrate compliance
with this requirement. Subject to this primary requirement, and maintaining as
its first consideration the benefits to the Subject Portfolio and its
shareholders, Advisers shall have the right subject to the control of the Board
of Trustees, and to the extent authorized by the Securities Exchange Act of
1934, to follow a policy of selecting brokers who furnish brokerage and research
services to the Subject Portfolio or to Advisers, and who charge a higher
commission rate to the Subject Portfolio than may result when allocating
brokerage solely on the basis of seeking the most favorable price and execution.
Advisers shall determine in good faith that such higher cost was reasonable in
relation to the value of the brokerage and research services provided.
Advisers will not receive any tender offer solicitation fees or similar
payments in connection with the tender of investments of any Portfolio.
6. OWNERSHIP OF INFORMATION, RECORDS, AND CONFIDENTIALITY.
The Series shall own and control all records maintained hereunder by Advisers
on the Series' behalf and, in the event of termination of this Agreement with
respect to any Portfolio for any reason, all records relating to that Portfolio
shall be promptly returned to the Series, free from any claim or retention of
rights by Advisers, provided that (subject to the last paragraph of this Section
6) Advisers may retain copies of such records. Advisers also agrees, upon
request of the Series, promptly to surrender such books and records or, at its
expense, copies thereof, to the Series or make such books and records available
for audit or inspection by representatives of regulatory authorities or other
persons reasonably designated by the Series. Advisers further agrees to
maintain, prepare and preserve such books and records in accordance with the
1940 Act and rules thereunder, including but not limited to Rules 31a-1 and 31a-
2, and to supply all information in its possession or reasonably available to
it, as may be requested by any insurance regulatory authorities to determine
whether all insurance laws and regulations are being complied with. Advisers
<PAGE>
shall supply the Board of Trustees and officers of the Series and JHMLICO with
all statistical information regarding investments which is reasonably required
by them and reasonably available to Advisers.
Advisers shall not disclose or use any records or information obtained
pursuant hereto in any manner whatsoever except as expressly authorized herein,
and will keep confidential any information obtained pursuant hereto, and
disclose such information only if the Series has authorized such disclosure, or
if such disclosure is expressly required by applicable federal or state
regulatory authorities.
It is understood that any information or recommendation supplied by Advisers
in connection with the performance of its obligations hereunder is to be
regarded as confidential and for use only by JHMLICO, the Series, or such
persons JHMLICO may designate in connection with the Subject Portfolio.
7. LIABILITY; STANDARD OF CARE.
No provision of this Agreement shall be deemed to protect Advisers or JHMLICO
against any liability to the Series or its shareholders to which it might
otherwise be subject by reason of any willful misfeasance, bad faith or
negligence in the performance of its duties or the reckless disregard of its
obligations and duties under this Agreement or the Investment Management
Agreement. Nor shall any provision hereof be deemed to protect any trustee or
officer of the Series against any such liability to which he might otherwise be
subject by reason of any willful misfeasance, bad faith or negligence in the
performance his duties or the reckless disregard of his obligations and duties.
Adviser shall employ only qualified personnel to manage the Subject Portfolio;
shall comply with all applicable laws and regulations in the discharge of its
duties under this Agreement; shall (as provided in Section 2 above) comply with
the investment policies, guidelines and restrictions of the Subject Portfolio
and with the provisions of the Series' Declaration of Trust, Bylaws, prospectus
and statement of additional information; shall manage the Subject Portfolio
(subject to the receipt of, and based upon the information contained in,
periodic reports from JHMLICO or the custodian concerning the classification of
Portfolio securities for such purposes) as a regulated investment company in
accordance with subchapter M of the Internal Revenue Code of 1986, as amended
(the "Code"), and Treasury Regulations Section 1.817-5(b); shall act at all
times in the best interests of the Series; and shall use all commercially
reasonable efforts and good faith in the performance of its services hereunder.
However, Advisers shall not be obligated to perform any service not described in
this Agreement, and shall not be deemed by virtue of this Agreement to have made
any representation or warranty that any level of investment performance or level
of investment results will be achieved.
8. DURATION AND TERMINATION OF THIS AGREEMENT.
(a) Duration. This Agreement shall become effective with respect to the
--------
Subject Portfolio on the date hereof and, with respect to any additional Subject
Portfolio, on the date of receipt by the Series of notice from Advisers in
accordance with Paragraph 1(b) hereof that it is willing to serve with respect
to such Portfolio. Unless terminated as herein provided, this Agreement shall
remain in full force and effect for two years from the date
<PAGE>
hereof with respect to the initial Subject Portfolio and, with respect to each
additional Subject Portfolio, until two years following the date on which such
Portfolio becomes a Subject Portfolio hereunder, and shall continue in full
force and effect thereafter with respect to each Subject Portfolio so long as
such continuance with respect to any such Portfolio is approved at least
annually (a) by either the Board of Trustees of the Series or by vote of a
majority of the outstanding voting shares of such Portfolio, and (b) in either
event by the vote of a majority of the trustees of the Series who are not
parties to this Agreement or "interested persons" of any such party, cast in
person at a meeting called for the purpose of voting on such approval.
Any approval of this Agreement by the holders of a majority of the
outstanding shares of any Subject Portfolio shall be effective to continue this
Agreement with respect to any such Portfolio notwithstanding (A) that this
Agreement has not been approved by the holders of a majority of the outstanding
shares of any other Portfolio affected hereby, and (B) that this Agreement has
not been approved by the vote of a majority of the outstanding shares of the
Series, unless such approval shall be required by any other applicable law or
otherwise. The terms "assignment," "vote of a majority of the outstanding
shares" and "interested person," when used in this Agreement, shall have the
respective meanings specified in the 1940 Act and rules thereunder.
(b) Termination. This Agreement may be terminated with respect to any
-----------
Subject Portfolio at any time, without payment of any penalty, by the Series
pursuant to a vote of the trustees of the Series or a vote of a majority of the
outstanding shares of such Portfolio, which termination shall be effective
immediately upon delivery of notice thereof to Advisers and JHMLICO. This
Agreement may be terminated by Advisers on at least ninety days' prior written
notice to the Series and JHMLICO, and may be terminated by JHMLICO on at least
ninety days' prior written notice to the Series and Advisers.
(c) Automatic Termination. This Agreement shall automatically and
---------------------
immediately terminate in the event of its assignment (other than as permitted
pursuant to Section 15 below) or if the Investment Management Agreement is
terminated.
9. SERVICES NOT EXCLUSIVE; USE OF ADVISERS' NAME AND LOGO.
The services of Advisers to the Series are not to be deemed exclusive and it
shall be free to render similar services to others so long as its services
hereunder are not impaired thereby. It is specifically understood that
directors, officers and employees of Advisers and of its subsidiaries and
affiliates may continue to engage in providing portfolio management services and
advice to other investment companies, whether or not registered, and other
investment advisory clients.
During the term of this Agreement, JHMLICO and the Series shall have the non-
exclusive and non-transferrable right to use Advisers' name and logo in all
materials relating to the Subject Portfolio, including all prospectuses, proxy
statements, reports to shareholders, sales literature and other written
materials prepared for distribution to shareholders of the Series or the public.
However, prior to distribution of any materials which refer to Advisers, JHMLICO
shall consult with Advisers and shall furnish to Advisers a copy of such
materials. Advisers agrees to cooperate with JHMLICO and to review such
<PAGE>
materials promptly. JHMLICO shall not distribute such materials if Advisers
reasonably objects in writing, within five (5) business days of its receipt of
such copy (or such other time as may be mutually agreed), to the manner in which
its name and logo are used.
10. AVOIDANCE OF INCONSISTENT POSITION.
In connection with the purchase and sale of portfolio securities of the
Subject Portfolio, Advisers and its directors, officers and employees will not
act as principal or agent or receive any commission. Nothing in this Agreement,
however, shall preclude the combination of orders for the sale or purchase of
portfolio securities of the Subject Portfolio with those for other registered
investment companies managed by Advisers or its affiliates, if orders are
allocated in a manner deemed equitable by Advisers among the accounts and at a
price approximately averaged.
11. AMENDMENT.
No provision of this Agreement may be changed, waived, discharged or
terminated orally, but only by an instrument in writing. No amendment of this
Agreement shall be effective with respect to any Portfolio until approved
specifically by (a) the Board of Trustees of the Series, or by vote of a
majority of the outstanding shares of that Portfolio, and (b) by vote of a
majority of those trustees of the Series who are not interested persons of any
party to this Agreement cast in person at a meeting called for the purpose of
voting on such approval.
12. LIMITATION OF LIABILITY.
It is expressly agreed that the obligations of the Series hereunder shall
not be binding upon any of the trustees, shareholders, officers, agents or
employees of Series personally, but only bind the trust property of the Series,
as provided in the Series' Declaration of Trust.
13. NOTICES
Notices and other communications required or permitted under this Agreement
shall be in writing, shall be deemed to be effectively delivered when actually
received, and may be delivered by US mail (first class, postage prepaid), by
facsimile transmission, by hand or by commercial overnight delivery service,
addressed as follows:
ADVISERS: Scudder Kemper Investments, Inc.
345 Park Avenue
New York, NY 10154
Attention: Nicholas J. Griparich
Fax #: 212-593-9093
JHMLICO: John Hancock Mutual Life Insurance Company
200 Clarendon Street
P.O. Box 111
Boston, MA 02117
Attention: Lynne E. Martel
<PAGE>
Fax #: 617-572-5029
SERIES: John Hancock Variable Series Trust I
101 Huntington Street
4th Floor
Boston, MA 02199
Attention: Raymond F. Skiba
Fax #: 617-375-4835
14. GOVERNING LAW.
This agreement shall be construed in accordance with the laws of the
Commonwealth of Massachusetts and the applicable provisions of the 1940 Act and
rules thereunder.
15. ASSIGNMENT.
This Agreement may not be assigned by any party, either in whole or in part,
without the prior written consent of each other party.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed
as of the day first set forth above.
ATTEST: JOHN HANCOCK VARIABLE SERIES
TRUST I
LAURA L. MANGAN By: HENRY D. SHAW
Laura L. Mangan Name: Henry D. Shaw
Secretary Title: Chairman
ATTEST: JOHN HANCOCK MUTUAL LIFE
INSURANCE COMPANY
ANTONIETTE RICCI By: ROBERT R. REITANO
Antoniette Ricci Name: Robert R. Reitano
Assistant Secretary Title: Vice President
ATTEST: SCUDDER KEMPER INVESTMENTS, INC.
JOHN D. LAMB By: CORNELIA M. SMALL
John D. Lamb Name: Cornelia M. Small
Vice President Title: Managing Director
<PAGE>
SCHEDULE I
FEES
----
Current Net Assets Under Management Sub-Advisory Fee
----------------------------------- ----------------
On the first $50,000,000 70 basis points (0.70%) per annum
On the next $100,000,000 60 basis points (0.60%) per annum
On amounts over $150,000,000 50 basis points (0.50%) per annum
<PAGE>
Exhibit (d) 25
SUB-INVESTMENT MANAGEMENT AGREEMENT
AMONG
JOHN HANCOCK VARIABLE SERIES TRUST I
INDEPENDENCE INTERNATIONAL ASSOCIATES, INC.
AND
JOHN HANCOCK MUTUAL LIFE INSURANCE COMPANY
<PAGE>
SUB-INVESTMENT MANAGEMENT AGREEMENT
AGREEMENT made as of the 15th day of May, 1998, by and among John Hancock
Variable Series Trust I, a Massachusetts business trust (the "Series"),
Independence International Associates, Inc., a Massachusetts corporation ("Sub-
Manager"), and John Hancock Mutual Life Insurance Company, a Massachusetts
corporation ("JHMLICO").
WHEREAS, the Series is organized and is engaged in business as an open-end
management investment company and is so registered under the Investment Company
Act of 1940 (the "1940 Act"); and
WHEREAS, JHMLICO and Sub-Manager are engaged in the business of rendering
investment advice under the Investment Advisers Act of 1940; and
WHEREAS, the Series is authorized to issue shares of capital stock in
separate classes with each such class representing interests in a separate
portfolio of securities and other assets; and
WHEREAS, the Series offers shares in several classes, one of which is
designated as the International Equity Index Portfolio, (together with all other
classes established by the Series, the "Portfolios"), each of which pursues its
investment objectives through separate investment policies; and
WHEREAS, the Series has retained JHMLICO to render investment management
services to the Series pursuant to an Investment Management Agreement dated as
of April 14, 1998 (the "Investment Management Agreement"), pursuant to which it
may contract with Sub-Manager as provided for herein;
NOW, THEREFORE, WITNESSETH: That it is hereby agreed between the parties
hereto as follows:
1. APPOINTMENT OF SUB-MANAGER
(a) Subject Portfolio. Sub-Manager is hereby appointed and Sub-Manager
-----------------
hereby accepts the appointment to act as investment adviser and manager to the
International Equity Index Portfolio (the "Subject Portfolio") for the period
and on the terms herein set forth, for the compensation herein provided.
(b) Additional Subject portfolios. In the event that the Series and JHMLICO
-----------------------------
desire to retain Sub-Manager to render investment advisory services hereunder
for any other Portfolio, they shall so notify Sub-Manager in writing. If it is
willing to render such services, Sub-Manager shall notify the Series in writing,
whereupon such Portfolio shall become a Subject Portfolio hereunder.
<PAGE>
(c) Independent Contractor. Sub-Manager shall for all purposes herein be
----------------------
deemed to be an independent contractor and shall, unless otherwise expressly
provided or authorized, have no authority to act for or be deemed an agent of
the Series.
2. PROVISION OF INVESTMENT MANAGEMENT SERVICES.
Sub-Manager will provide for the Subject Portfolio a continuing and suitable
investment program consistent with the investment policies, objectives and
restrictions of said Portfolio, as furnished to Sub-Manager by JHMLICO in
writing from time to time. Sub-Manager will manage the investment and
reinvestment of the assets in the Subject Portfolio, and perform the functions
set forth below, subject to the overall supervision, direction, control and
review of the Board of Trustees of the Series, JHMLICO and, as in effect from
time to time, the provisions of the Series' Declaration of Trust, Bylaws,
prospectus, statement of additional information (all as furnished to Sub-Manager
by JHMLICO in writing from time to time), the 1940 Act and all other applicable
laws and regulations (including any applicable investment restrictions imposed
by state insurance laws and regulations or any directions or instructions, all
as delivered to Sub-Manager in writing by JHMLICO or the Series from time to
time).
Sub-Manager will have investment discretion with respect to the Subject
Portfolio and will, at its own expense:
(a) upon request, advise the Series in connection with investment
decisions to be made by its Board of Trustees or any committee thereof regarding
the Subject Portfolio and furnish the Series with research, economic and
statistical data in connection with said Portfolio's investments and investment
policies;
-2-
<PAGE>
(b) submit such reports relating to the valuation of the Subject
Portfolio's securities as the Series' Board of Trustees may reasonably request;
(c) place orders for purchases and sales of portfolio investments for the
Subject Portfolio;
(d) maintain and preserve the records relating to its activities
hereunder, including those records required by the 1940 Act to be maintained by
it and preserved by the Series, to the extent not maintained by the Series'
custodian, transfer agent or JHMLICO; and
(e) subject to its receipt of all necessary voting materials, in its
discretion, as it deems advisable in the best interests of the Subject
Portfolio, vote any or all proxies with respect to investments of the Subject
Portfolio in accordance with Sub-Manager's proxy voting policy as most recently
provided to JHMLICO.
The Series and JHMLICO will provide timely information to the Sub-Manager
regarding such matters as purchases and redemptions of shares in the Subject
Portfolio and the cash requirements of, and cash available for investment in,
the Portfolio, and all information as may be reasonably necessary or appropriate
in order for the Sub-Manager to perform its responsibilities hereunder. On its
own initiative, the Sub-Manager will apprise JHMLICO and the Series of important
developments materially affecting the Subject Portfolio and will furnish JHMLICO
and the Series' Board of Trustees from time to time such information as is
appropriate for this purpose.
3. ALLOCATION OF EXPENSES.
Each party to this Agreement shall bear the costs and expenses of performing
its obligations hereunder. In this regard, the Series specifically agrees to
assume the expense of:
(i) brokerage commissions for transactions in the portfolio investments
of the Series and similar fees and charges for the acquisition, disposition,
lending or borrowing of such portfolio investments;
(ii) all taxes, including issuance and transfer taxes, and reserves for
taxes payable by the Series to federal, state or other governmental agencies;
and
(iii) interest payable on the Series' borrowings.
Nothing in this Agreement shall alter the allocation of expenses and costs
agreed upon between the Series and JHMLICO in the Investment Management
Agreement or any other agreement to which they are parties.
-3-
<PAGE>
4. SUB-ADVISORY FEES.
For all of the services rendered as herein provided, JHMLICO shall pay to the
Sub-Manager a fee (for payment of which the Series shall have no obligation or
liability), with respect to the Subject Portfolio, at an effective annual rate
of 0.125% on the first $100 million of the Current Net Assets of such Portfolio,
0.10% on the next $100 million of the Current Net Assets of such Portfolio, and
0.06% on all Current Net Assets in excess of $200 million. The fee shall be
accrued daily and payable monthly, as soon as practicable after the last day of
each calendar month. In the case of termination of this Agreement with respect
to the Subject Portfolio during any calendar month, the fee with respect to such
Portfolio accrued to termination shall be paid.
"Current Net Assets" of the Portfolio for purposes of computing the amount of
advisory fee accrued for any day shall mean the Portfolio's net assets as of the
most recent preceding day for which the Portfolio's net assets were computed.
5. PORTFOLIO TRANSACTIONS.
In connection with the investment and reinvestment of the assets of the
Subject Portfolio, the Sub-Manager is authorized to select the brokers or
dealers that will execute purchase and sale transactions for the Portfolio and
to use its best efforts to obtain the best available price and most favorable
execution with respect to all such purchases and sales of portfolio securities
for said Portfolio. The Sub-Manager shall maintain records adequate to
demonstrate compliance with this requirement. Subject to this primary
requirement, and maintaining as its first consideration the benefits to the
Subject Portfolio and its shareholders, the Sub-Manager shall have the right
subject to the control of the Board of Trustees, and to the extent authorized by
the Securities Exchange Act of 1934, to follow a policy of selecting brokers who
furnish brokerage and research services to the Subject Portfolio or to the Sub
Manager, and who charge a higher commission rate to the Subject Portfolio than
may result when allocating brokerage solely on the basis of seeking the most
favorable price and execution. The Sub-Manager shall determine in good faith
that such higher cost was reasonable in relation to the value of the brokerage
and research services provided.
-4-
<PAGE>
The fees payable to the Sub-Manager by JHMLICO hereunder shall be reduced by
any tender offer solicitation fees or similar payments received by the Sub-
Manager, in connection with the tender of investments of any Portfolio (less
direct expenses incurred by the Sub-Manager in connection with obtaining such
fees or payments).
6. INFORMATION, RECORDS, AND CONFIDENTIALITY.
The Series shall own and control all records maintained hereunder by the Sub-
Manager on the Series' behalf and, in the event of termination of this Agreement
with respect to any Portfolio for any reason, all records (or true and complete
copies thereof) relating to that Portfolio shall be promptly returned to the
Series, free from any claim or retention of rights by the Sub-Manager. The Sub-
Manager also agrees, upon request of the Series, promptly to surrender such
books and records or, at its expense, copies thereof, to the Series or make such
books and records available for inspection by representatives of regulatory
authorities or other persons reasonably designated by the Series. The Sub-
Manager further agrees to maintain, prepare and preserve such books and records
in accordance with the 1940 Act and rules thereunder, including but not limited
to, Rules 31a-1 and 31a-2 and to supply all information in its possession or
reasonably available to it, requested by any insurance regulatory authorities to
determine whether all insurance laws and regulations are being complied with.
The Sub-Manager shall not disclose or use any records or information obtained
pursuant hereto in any manner whatsoever except as expressly authorized herein,
and will keep confidential any information obtained pursuant hereto, and
disclose such information only (i) to Independence Investment Associates, Inc.,
John Hancock Assets Management, Inc. and John Hancock Subsidiaries, Inc., (ii)
if the Series or JHMLICO has authorized such disclosure, or (iii) if such
disclosure is expressly required by applicable federal or state regulatory
authorities or court proceedings.
The Sub-Manager shall supply the Board of Trustees and officers of the Series
and JHMLICO with all statistical information regarding investments which is
reasonably required by them and reasonably available to it.
7. LIABILITY.
No provision of this Agreement shall be deemed to protect the Sub-Manager or
JHMLICO against any liability to the Series or its shareholders to which it
might otherwise be subject by reason of any willful misfeasance, bad faith or
-5-
<PAGE>
negligence in the performance of its duties or the reckless disregard of its
obligations and duties under this Agreement or the Investment Management
Agreement, as applicable. Nor shall any provision hereof be deemed to protect
any trustee or officer of the Series against any such liability to which he
might otherwise be subject by reason of any willful misfeasance, bad faith or
negligence in the performance his duties or the reckless disregard of his
obligations and duties.
8. DURATION AND TERMINATION OF THIS AGREEMENT.
(a) Duration. This Agreement shall become effective with respect to the
--------
International Equity Index Portfolio on the date hereof and, with respect to any
additional Subject Portfolio, on the date of receipt by the Series of notice
from the Sub-Manager in accordance with Paragraph 1(b) hereof that it is willing
to serve with respect to such Portfolio. Unless terminated as herein provided,
this Agreement shall remain in full force and effect for two years from the date
hereof with respect to the initial Subject Portfolio and, with respect to each
additional Subject Portfolio, until two years following the date on which such
Portfolio becomes a Subject Portfolio hereunder, and shall continue in full
force and effect thereafter with respect to each Subject Portfolio so long as
such continuance with respect to any such Portfolio is approved at least
annually (a) by either the Board of Trustees of the Series or by vote of a
majority of the outstanding voting shares of such Portfolio, and (b) in either
event by the vote of a majority of the trustees of the Series who are not
parties to this Agreement or "interested persons" of any such party, cast in
person at a meeting called for the purpose of voting on such approval.
Any approval of this Agreement by the holders of a majority of the
outstanding shares of any Subject Portfolio shall be effective to continue this
Agreement with respect to any such Portfolio notwithstanding (A) that this
Agreement has not been approved by the holders of a majority of the outstanding
shares of any other Portfolio affected hereby, and (B) that this Agreement has
not been approved by the vote of a majority of the outstanding shares of the
Series, unless such approval shall be required by any other applicable law or
otherwise. The terms "assignment," "vote of a majority of the outstanding
shares" and "interested person," when used in this Agreement, shall have the
respective meanings specified in the 1940 Act and rules thereunder.
(b) Termination. This Agreement may be terminated with respect to any
-----------
Subject Portfolio at any time, without payment of any penalty, by vote of the
trustees of the Series, by vote of a majority of the outstanding shares of such
Portfolio, by the Sub-Manager on at least sixty days' written notice to the
Series and JHMLICO, or by JHMLICO on at
-6-
<PAGE>
least sixty days' written notice to the Series and the Sub-Manager. Transactions
already entered into by the Sub-Manager but not yet settled at the time of any
such termination shall settle for the account of the Series.
(c) Automatic Termination. This Agreement shall automatically and
---------------------
immediately terminate in the event of its assignment or if the Investment
Management Agreement is terminated.
9. SERVICES NOT EXCLUSIVE.
The services of the Sub-Manager to the Series are not to be deemed exclusive
and it shall be free to render similar services to others so long as its
services hereunder are not impaired thereby. It is specifically understood that
directors, officers and employees of the Sub-Manager and of its subsidiaries and
affiliates may continue to engage in providing portfolio management services and
advice to other investment companies, whether or not registered, and other
investment advisory clients.
Nothing in this Agreement shall limit or restrict the Sub-Manager or any of
its officers, affiliates or employees from buying, selling or trading in any
securities for its or their own accounts; provided, however, that no such person
shall purchase securities from or sell securities to the Subject Portfolio
except as permitted under applicable laws and regulations, including without
limitation the 1940 Act and the Investment Advisers Act of 1940, and the rules
and regulations thereunder. The Series acknowledges that the Sub-Manager and
its officers, affiliates and employees, and its and their other clients, may at
any time have, acquire, increase, decrease or dispose of positions in
investments which are at the same time being acquired or disposed of under this
Agreement. The Sub-Manager shall have no obligation to acquire for the Subject
Portfolio a position in any investment which the Sub-Manager, its officers,
affiliates or employees may acquire for their own accounts or for the accounts
of another client, if in the sole discretion of the Sub-Manager it is not
feasible or desirable to do so.
10. AVOIDANCE OF INCONSISTENT POSITION.
In connection with the purchase and sale of portfolio securities of the
Subject Portfolio, the Sub-Manager and its directors, officers and employees
will not act as principal or agent or receive any commission. Nothing in this
Agreement, however, shall preclude the combination of orders for the sale or
purchase of portfolio securities of the
-7-
<PAGE>
Subject Portfolio with those for other accounts managed by the Sub-Manager or
its affiliates, if orders are allocated in a manner deemed equitable by Sub-
Manager among the accounts and at a price approximately averaged.
11. AMENDMENT.
No provision of this Agreement may be changed, waived, discharged or
terminated orally, but only by an instrument in writing signed by a duly
authorized officer of the party or parties intending to be bound thereby. No
amendment of this Agreement shall be effective with respect to any Portfolio
until approved specifically by (a) the Board of Trustees of the Series, or by
vote of a majority of the outstanding shares of that Portfolio, and (b) by vote
of a majority of those Trustees of the Series who are not interested persons of
any party to this Agreement cast in person at a meeting called for the purpose
of voting on such approval.
12. LIMITATION OF LIABILITY.
It is expressly agreed that the obligations of the Series hereunder shall not
be binding upon any of the trustees, shareholders, officers, agents or employees
of Series personally, but only bind the trust property of the Series, as
provided in the Series' Declaration of Trust.
13. GOVERNING LAW.
This agreement shall be construed in accordance with the laws of the
Commonwealth of Massachusetts and the applicable provisions of the 1940 Act and
rules thereunder.
14. NOTICES.
Notices and other communications required or permitted under this Agreement
shall be in writing, shall be deemed to be effectively delivered when actually
received, and may be delivered by US mail (first class, postage prepaid), by
facsimile transmission, by hand or by commercial overnight delivery service,
addressed as follows:
SUB-MANAGER: Independence International Associates, Inc.
53 State Street
Boston, MA 02109
-8-
<PAGE>
Attention:
Fax #: 617-
JHMLICO: John Hancock Mutual Life Insurance Company
200 Clarendon Street
P.O. Box 111
Boston, MA 02117
Attention: Raymond F. Skiba
Fax #: 617-572-4953
SERIES: John Hancock Variable Series Trust I
200 Clarendon Street
P.O. Box 111
Boston, MA 02117
Attention: Raymond F. Skiba
Fax #: 617-572-4953
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed
as of the day first set forth above.
JOHN HANCOCK VARIABLE SERIES TRUST I
By: Henry D. Shaw
---------------------------------
Title: Chairman and CEO
------------------------------
JOHN HANCOCK MUTUAL LIFE INSURANCE COMPANY
By: Robert R. Reitano
---------------------------------
Title: Vice President
------------------------------
INDEPENDENCE INTERNATIONAL ASSOCIATES, INC.
By: W.C. Flilik
---------------------------------
Title: Chairman and President
------------------------------
-9-
<PAGE>
Exhibit (d) 26
SUB-INVESTMENT MANAGEMENT AGREEMENT
AMONG
JOHN HANCOCK VARIABLE SERIES TRUST I
MONTGOMERY ASSET MANAGEMENT, LLC
AND
JOHN HANCOCK MUTUAL LIFE INSURANCE COMPANY
<PAGE>
SUB-INVESTMENT MANAGEMENT AGREEMENT
AGREEMENT made as of the 27th day of April, 1998 by and among John Hancock
Variable Series Trust I, a Massachusetts business trust (the "Series"),
Montgomery Asset Management, LLC, a Delaware limited liability company
("Montgomery"), and John Hancock Mutual Life Insurance Company, a Massachusetts
corporation ("JHMLICO").
WHEREAS, the Series is organized and is engaged in business as an open-end
management investment company and is so registered under the Investment Company
Act of 1940 (the "1940 Act"); and
WHEREAS, JHMLICO and Montgomery are each engaged in the business of rendering
investment advice under the Investment Advisers Act of 1940; and
WHEREAS, the Series is authorized to issue shares of capital stock in
separate classes with each such class representing interests in a separate
portfolio of securities and other assets; and
WHEREAS, the Series offers shares in several classes, one of which is
designated as the Emerging Markets Equity Portfolio (together with all other
classes established by the Series, collectively referred to as the
"Portfolios"), each of which pursues its investment objectives through separate
investment policies; and
WHEREAS, the Series has retained JHMLICO to render investment management
services to the Series pursuant to an Investment Management Agreement dated as
of April 14, 1998 (the "Investment Management Agreement"), pursuant to which it
may contract with Montgomery as a sub-manager as provided for herein;
NOW, THEREFORE, WITNESSETH: That it is hereby agreed between the parties
hereto as follows:
1. APPOINTMENT OF SUB-MANAGER
(a) Subject Portfolio. Montgomery is hereby appointed and Montgomery hereby
-----------------
accepts the appointment to act as investment adviser and manager to the Emerging
Markets Equity Portfolio (the "Subject Portfolio") for the period and on the
terms herein set forth, for the compensation herein provided. As of the date of
this Agreement, Montgomery is the sole sub-manager of the Subject Portfolio.
Although it is not contemplated that additional sub-managers will be employed
for any portion of the Subject Portfolio, if additional sub-managers are
employed by JHMLICO and the Series for the Subject Portfolio, Montgomery's
responsibility hereunder shall be limited to that portion of the Subject
Portfolio over which it retains investment discretion.
(b) Additional Subject Portfolios. In the event that the Series and JHMLICO
-----------------------------
desire to retain Montgomery to render investment advisory services hereunder for
any other Portfolio, they shall so notify Montgomery in writing. If it is
willing to render such services, Montgomery shall notify the Series in writing,
whereupon such Portfolio shall become a Subject Portfolio hereunder.
<PAGE>
(c) Incumbency Certificates. Montgomery shall furnish to JHMLICO,
-----------------------
immediately upon execution of this Agreement, a certificate of a senior officer
of Montgomery setting forth (by name and title, and including specimen
signatures) those officers of Montgomery who are authorized to make investment
decisions for the Subject Portfolio pursuant to the provisions of this
Agreement. Montgomery shall promptly provide supplemental certificates in
connection with each additional Subject Portfolio (if any) and further
supplemental certificates, as needed, to reflect all changes with respect to
such authorized officers for any Subject Portfolio. On behalf of the Series,
JHMLICO shall instruct the custodian for the Subject Portfolio to accept
instructions with respect to the Subject Portfolio from the officers of
Montgomery so named.
(d) Independent Contractor. Montgomery shall for all purposes herein be
----------------------
deemed to be an independent contractor and shall, unless otherwise expressly
provided or authorized, have no authority to act for or be deemed an agent of
the Series.
(e) Montgomery's Representations. Montgomery represents, warrants and
----------------------------
agrees (i) that it is registered as an investment adviser under the Investment
Advisers Act of 1940, and that it will remain so registered and will comply with
the requirements of said Act, and the rules and regulations thereunder, at all
times while this Agreement remains in effect, (ii) that it will promptly notify
JHMLICO if the foregoing representation and agreement shall cease to be true (in
any material respect) at any time during the term of this Agreement, (iii) that
it will promptly notify JHMLICO of any material change in the senior management
or ownership of Montgomery, or of any change in the identity of the senior
personnel who manage the Subject Portfolio, (iv) that it has adopted a code of
ethics complying with the requirements of Rule 17j-1 of the Securities and
Exchange Commission (the "SEC") under the 1940 Act and has provided true and
complete copies of such code to the Series and to JHMLICO, and has adopted
procedures designed to prevent violations of such code, and (v) that it has
furnished the Series and JHMLICO each with a copy of Montgomery' Form ADV, as
most recently filed with the SEC, and will promptly furnish copies of each
future material amendment thereto.
(f) JHMLICO's Representations. JHMLICO represents that the Series is an
-------------------------
"accredited investor" as defined in Rule 501(a)(3) of Regulation D under the
Securities Act of 1933 (the "1933 Act"), and a "qualified institutional buyer"
as defined in Rule 144A(a)(1) under the 1933 Act.
2. PROVISION OF INVESTMENT MANAGEMENT SERVICES.
Montgomery will provide for the Subject Portfolio a continuing and suitable
investment program consistent with the investment policies, objectives and
restrictions of said Portfolio, as established by the Series and JHMLICO. From
time to time, JHMLICO or the Series may provide Montgomery with additional or
amended investment policies, guidelines and restrictions. Montgomery, as sub-
manager, will manage the investment and reinvestment of the assets in the
Subject Portfolio, and perform the functions set forth below, subject to the
overall supervision, direction, control and review of JHMLICO and the Board of
Trustees of the Series, consistent with the applicable investment policies,
guidelines and restrictions, the provisions of the Series' Declaration of Trust,
Bylaws, prospectus, statement of additional information (each as in effect from
time to time), the 1940 Act and all other applicable laws and regulations
(including any applicable investment restrictions imposed by
-2-
<PAGE>
state insurance laws and regulations or any directions or instructions delivered
to Montgomery in writing by JHMLICO or the Series from time to time). By its
signature below, Montgomery acknowledges receipt of a copy of the Series'
Declaration of Trust, Bylaws, prospectus, and statement of additional
information, each as in effect on the date of this Agreement.
Montgomery will, at its own expense:
(a) advise the Series in connection with investment policy decisions to be
made by its Board of Trustees or any committee thereof regarding the Subject
Portfolio and, upon request, furnish the Series with research, economic and
statistical data in connection with said Portfolio's investments and investment
policies;
(b) submit such reports and information as JHMLICO or the Series' Board of
Trustees may reasonably request, to assist the custodian in its determination of
the market value of securities held in the Subject Portfolio;
(c) place orders for purchases and sales of portfolio investments for the
Subject Portfolio;
(d) give instructions to the Subject Portfolio's custodian concerning the
delivery of securities and transfer of cash for the Subject Portfolio;
(e) maintain and preserve the records relating to its activities hereunder
required by the 1940 Act to be maintained and preserved by the Series, to the
extent not maintained by the custodian, transfer agent or JHMLICO;
(f) at the close of business each day, provide JHMLICO and the custodian
with copies of trade tickets, and a daily summary sufficient to verify trade
data received by the custodian from third parties for each transaction effected
for the Subject Portfolio, and promptly forward (or cause to be forwarded) to
the custodian copies of all brokerage or dealer confirmations;
(g) as soon as practicable following the end of each calendar month, provide
JHMLICO with written statements showing all transactions effected for the
Subject Portfolio during the month, a summary listing all investments held in
such Portfolio as of the last day of the month, and such other information as
JHMLICO may reasonably request in connection with the accounting services that
JHMLICO provides for the Subject Portfolio; and
(h) absent specific instructions to the contrary provided to it by JHMLICO
and subject to its receipt of all necessary voting materials, vote all proxies
with respect to investments of the Subject Portfolio in accordance with
Montgomery's proxy voting policy as most recently provided to JHMLICO.
On its own initiative, Montgomery will apprise JHMLICO and the Series of
important political and economic developments materially affecting the
marketplace or the Subject Portfolio, and will furnish JHMLICO and the Series'
Board of Trustees from time to time such information as is
-3-
<PAGE>
appropriate for this purpose. Montgomery will also make its personnel available
in Boston or other reasonable locations as often as annually to discuss the
Subject Portfolio and Montgomery's management thereof, to educate JHMLICO sales
personnel with respect thereto, and for such other purposes as the Series or
JHMLICO may reasonably request.
The Series and JHMLICO will provide timely information to Montgomery
regarding such matters as purchases and redemptions of shares in the Subject
Portfolio and the cash requirements of, and cash available for investment in,
the Portfolio. JHMLICO will timely provide Montgomery with copies of monthly
accounting statements for the Subject Portfolio, and such other information
(including, without limitation, reports concerning the classification of
Portfolio securities for purposes of Subchapter M of the Internal Revenue Code
and Treasury Regulations Section 1.817) as may be reasonably necessary or
appropriate in order for Montgomery to perform its responsibilities hereunder.
3. ALLOCATION OF EXPENSES.
Each party to this Agreement shall bear the costs and expenses of performing
its obligations hereunder. In this regard, the Series specifically agrees to
assume the expense of:
(a) brokerage commissions for transactions in the portfolio investments of
the Series and similar fees and charges for the acquisition, disposition,
lending or borrowing of such portfolio investments;
(b) custodian fees and expenses;
(c) all taxes, including issuance and transfer taxes, and reserves for
taxes payable by the Series to federal, state or other governmental agencies;
and
(d) interest payable on the Series' borrowings.
Nothing in this Agreement shall alter the allocation of expenses and costs
agreed upon between the Series and JHMLICO in the Investment Management
Agreement or any other agreement to which they are parties.
4. SUB-ADVISORY FEES.
For all of the services rendered with respect to the Subject Portfolio as
herein provided, JHMLICO shall pay to Montgomery a fee (for the payment of which
the Series shall have no obligation or liability), based on the Current Net
Assets of the Subject Portfolio, as set forth in Schedule I attached hereto and
made a part hereof. Such fee shall be accrued daily and payable monthly, as
soon as practicable after the last day of each calendar month. In the case of
termination of this Agreement with respect to the Subject Portfolio during any
calendar month, the fee with respect to such Portfolio accrued to but excluding
the date of termination shall be paid promptly following such termination. For
purposes of computing the amount of advisory fee accrued for any day, "Current
Net Assets" shall mean the Subject Portfolio's net assets as of the most recent
preceding day for which the Subject Portfolio's net assets were computed.
-4-
<PAGE>
5. PORTFOLIO TRANSACTIONS.
In connection with the investment and reinvestment of the assets of the
Subject Portfolio, Montgomery is authorized to select the brokers or dealers
that will execute purchase and sale transactions for the Portfolio and to use
its best efforts to obtain the best available price and most favorable execution
with respect to all such purchases and sales of portfolio securities for said
Portfolio. Montgomery shall maintain records adequate to demonstrate compliance
with this requirement. Subject to this primary requirement, and maintaining as
its first consideration the benefits to the Subject Portfolio and its
shareholders, Montgomery shall have the right subject to the control of the
Board of Trustees, and to the extent authorized by the Securities Exchange Act
of 1934, to follow a policy of selecting brokers who furnish brokerage and
research services to the Subject Portfolio or to Montgomery, and who charge a
higher commission rate to the Subject Portfolio than may result when allocating
brokerage solely on the basis of seeking the most favorable price and execution.
Montgomery shall determine in good faith that such higher cost was reasonable in
relation to the value of the brokerage and research services provided.
Montgomery will not receive any tender offer solicitation fees or similar
payments in connection with the tender of investments of any Portfolio.
6. OWNERSHIP OF INFORMATION, RECORDS, AND CONFIDENTIALITY.
The Series shall own and control all records maintained hereunder by
Montgomery on the Series' behalf and, in the event of termination of this
Agreement with respect to any Portfolio for any reason, all records relating to
that Portfolio shall be promptly returned to the Series, free from any claim or
retention of rights by Montgomery, provided that (subject to the last paragraph
of this Section 6) Montgomery may retain copies of such records. Montgomery
also agrees, upon request of the Series, promptly to surrender such books and
records or, at its expense, copies thereof, to the Series or make such books and
records available for audit or inspection by representatives of regulatory
authorities or other persons reasonably designated by the Series. Montgomery
further agrees to maintain, prepare and preserve such books and records in
accordance with the 1940 Act and rules thereunder, including but not limited to
Rules 31a-1 and 31a-2, and to supply all information requested by any insurance
regulatory authorities to determine whether all insurance laws and regulations
are being complied with. Montgomery shall supply the Board of Trustees and
officers of the Series and JHMLICO with all statistical information regarding
investments which is reasonably required by them and reasonably available to
Montgomery.
Montgomery shall not disclose or use any records or information obtained
pursuant hereto in any manner whatsoever except as expressly authorized herein,
and will keep confidential any information obtained pursuant hereto, and
disclose such information only if the Series has authorized such disclosure, or
if such disclosure is expressly required by applicable federal or state
regulatory authorities.
-5-
<PAGE>
7. LIABILITY; STANDARD OF CARE.
No provision of this Agreement shall be deemed to protect Montgomery or
JHMLICO against any liability to the Series or its shareholders to which it
might otherwise be subject by reason of any willful misfeasance, bad faith or
negligence in the performance of its duties or the reckless disregard of its
obligations and duties under this Agreement or the Investment Management
Agreement. Nor shall any provision hereof be deemed to protect any trustee or
officer of the Series against any such liability to which he might otherwise be
subject by reason of any willful misfeasance, bad faith or negligence in the
performance his duties or the reckless disregard of his obligations and duties.
Adviser shall employ only qualified personnel to manage the Subject Portfolio;
shall comply with all applicable laws and regulations in the discharge of its
duties under this Agreement; shall (as provided in Section 2 above) comply with
the investment policies, guidelines and restrictions of the Subject Portfolio
and with the provisions of the Series' Declaration of Trust, Bylaws, prospectus
and statement of additional information; shall manage the Subject Portfolio
(subject to the receipt of, and based upon the information contained in,
periodic reports from JHMLICO or the custodian concerning the classification of
Portfolio securities for such purposes) as a regulated investment company in
accordance with subchapter M of the Internal Revenue Code of 1986, as amended
(the "Code"), and Treasury Regulations Section 1.817-5(b); shall act at all
times in the best interests of the Series; and shall discharge its duties with
the care, skill, prudence and diligence under the circumstances then prevailing
that a prudent person acting in a like capacity and familiar with such matters
would use in the conduct of a similar enterprise. However, Montgomery shall not
be obligated to perform any service not described in this Agreement, and shall
not be deemed by virtue of this Agreement to have made any representation or
warranty that any level of investment performance or level of investment results
will be achieved.
8. DURATION AND TERMINATION OF THIS AGREEMENT.
(a) Duration. This Agreement shall become effective with respect to the
--------
Subject Portfolio on the date hereof and, with respect to any additional Subject
Portfolio, on the date of receipt by the Series of notice from Montgomery in
accordance with Paragraph 1(b) hereof that it is willing to serve with respect
to such Portfolio. Unless terminated as herein provided, this Agreement shall
remain in full force and effect for two years from the date hereof with respect
to the initial Subject Portfolio and, with respect to each additional Subject
Portfolio, until two years following the date on which such Portfolio becomes a
Subject Portfolio hereunder, and shall continue in full force and effect
thereafter with respect to each Subject Portfolio so long as such continuance
with respect to any such Portfolio is approved at least annually (a) by either
the Board of Trustees of the Series or by vote of a majority of the outstanding
voting shares of such Portfolio, and (b) in either event by the vote of a
majority of the trustees of the Series who are not parties to this Agreement or
"interested persons" of any such party, cast in person at a meeting called for
the purpose of voting on such approval.
Any approval of this Agreement by the holders of a majority of the
outstanding shares of any Subject Portfolio shall be effective to continue this
Agreement with respect to any such Portfolio notwithstanding (A) that this
Agreement has not been approved by the holders of a majority of the outstanding
shares of any other Portfolio affected hereby, and (B) that this Agreement has
not been
-6-
<PAGE>
approved by the vote of a majority of the outstanding shares of the Series,
unless such approval shall be required by any other applicable law or otherwise.
The terms "assignment," "vote of a majority of the outstanding shares" and
"interested person," when used in this Agreement, shall have the respective
meanings specified in the 1940 Act and rules thereunder.
(b) Termination. This Agreement may be terminated with respect to any
-----------
Subject Portfolio at any time, without payment of any penalty, by the Series
pursuant to a vote of the trustees of the Series or a vote of a majority of the
outstanding shares of such Portfolio, which termination shall be effective
immediately upon delivery of notice thereof to Montgomery and JHMLICO. This
Agreement may be terminated by Montgomery on at least ninety days' prior written
notice to the Series and JHMLICO, and may be terminated by JHMLICO on at least
ninety days' prior written notice to the Series and Montgomery.
(c) Automatic Termination. This Agreement shall automatically and
---------------------
immediately terminate in the event of its assignment (other than as permitted
pursuant to Section 15 below) or if the Investment Management Agreement is
terminated.
9. SERVICES NOT EXCLUSIVE; USE OF MONTGOMERY'S NAME AND LOGO.
The services of Montgomery to the Series are not to be deemed exclusive and
it shall be free to render similar services to others so long as its services
hereunder are not impaired thereby. It is specifically understood that
directors, officers and employees of Montgomery and of its subsidiaries and
affiliates may continue to engage in providing portfolio management services and
advice to other investment companies, whether or not registered, and other
investment advisory clients.
During the term of this Agreement, JHMLICO and the Series shall have the
non-exclusive and non-transferrable right to use Montgomery's name and logo in
all materials relating to the Subject Portfolio, including all prospectuses,
proxy statements, reports to shareholders, sales literature and other written
materials prepared for distribution to shareholders of the Series or the public.
However, prior to distribution of any materials which refer to Montgomery,
JHMLICO shall consult with Montgomery and shall furnish to Montgomery a copy of
such materials. Montgomery agrees to cooperate with JHMLICO and to review such
materials promptly. JHMLICO shall not distribute such materials if Montgomery
reasonably objects in writing, within five (5) business days of its receipt of
such copy (or such other time as may be mutually agreed), to the manner in which
its name and logo are used.
10. AVOIDANCE OF INCONSISTENT POSITION.
In connection with the purchase and sale of portfolio securities of the
Subject Portfolio, Montgomery and its directors, officers and employees will not
act as principal or agent or receive any commission. Nothing in this Agreement,
however, shall preclude the combination of orders for the sale or purchase of
portfolio securities of the Subject Portfolio with those for other registered
investment companies and portfolios or accounts of other advisory clients
managed by Montgomery or its affiliates, if orders are allocated in a manner
deemed equitable by Montgomery among the accounts and at a price approximately
averaged.
-7-
<PAGE>
11. AMENDMENT.
No provision of this Agreement may be changed, waived, discharged or
terminated orally, but only by an instrument in writing. No amendment of this
Agreement shall be effective with respect to any Portfolio until approved
specifically by (a) the Board of Trustees of the Series, or by vote of a
majority of the outstanding shares of that Portfolio, and (b) by vote of a
majority of those trustees of the Series who are not interested persons of any
party to this Agreement cast in person at a meeting called for the purpose of
voting on such approval.
12. LIMITATION OF LIABILITY.
It is expressly agreed that the obligations of the Series hereunder shall
not be binding upon any of the trustees, shareholders, officers, agents or
employees of Series personally, but only bind the trust property of the Series,
as provided in the Series' Declaration of Trust.
13. NOTICES
Notices and other communications required or permitted under this Agreement
shall be in writing, shall be deemed to be effectively delivered when actually
received, and may be delivered by US mail (first class, postage prepaid), by
facsimile transmission, by hand or by commercial overnight delivery service,
addressed as follows:
SUB-MANAGER: Montgomery Asset Management, LLC
101 California Street
San Francisco, CA 94117
Attn: Dana Schmidt
Fax #: 415-248-6520
JHMLICO: John Hancock Mutual Life Insurance Company
200 Clarendon Street
P.O. Box 111
Boston, MA 02117
Attention: Raymod F. Skiba
Fax #: 617-572-4953
SERIES: John Hancock Variable Series Trust I
200 Clarendon Street
P.O. Box 111
Boston, MA 02117
Attention: Raymod F. Skiba
Fax #: 617-572-4953
-8-
<PAGE>
14. GOVERNING LAW.
This agreement shall be construed in accordance with the laws of the
Commonwealth of Massachusetts and the applicable provisions of the 1940 Act and
rules thereunder.
15. ASSIGNMENT.
This Agreement may not be assigned by any party, either in whole or in part,
without the prior written consent of each other party.
16. CLIENT INFORMATION.
JHMLICO and the Series hereby consent to the disclosure to third parties by
Montgomery of (i) the identity of JHMLICO or the Series as a part of any
representative list of other clients of Montgomery, (ii) investment results and
other data of the Subject Portfolio (other than the identity of JHMLICO or the
Series) in connection with providing composite investment results of clients of
Montgomery, and (iii) investments and transactions of the Subject Portfolio
(other than the identity of JHMLICO or the Series) in connection with providing
composite information of clients of Montgomery.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed
as of the day first set forth above.
ATTEST: JOHN HANCOCK VARIABLE SERIES
TRUST I
/s/ Sandra M. DaDalt By: /s/ Henry D. Shaw
Assistant Secretary -------------------------------
Title: Chairman and CEO
ATTEST: JOHN HANCOCK MUTUAL LIFE
INSURANCE COMPANY
/s/ Antoniette Ricci By: /s/ Robert R. Reitano
Assistant Secretary -------------------------------
Title: Vice President
ATTEST: MONTGOMERY ASSET MANAGEMENT, LLC
/s/ Dana Schmidt By: /s/ Mark Geist
Vice President -------------------------------
Title: Vice President
<PAGE>
SCHEDULE I
FEES
----
Current Net Assets Under Management Sub-Advisory Fee
----------------------------------- ----------------
On the first $10,000,000 110 basis points (1.10%) per annum
On the next $140,000,000 90 basis points (0.90%) per annum
On amounts over $150,000,000 80 basis points (0.80%) per annum
<PAGE>
EXHIBIT (d) 29
Amendment No. 2 to the Investment Management Agreement
between John Hancock Variable Series Trust I and
John Hancock Mutual Life Insurance Company
Reference is made to that certain Investment Management Agreement dated as
of March 14, 1996, by and between John Hancock Variable Series Trust I and John
Hancock Mutual Life Insurance Company, as amended, (the "Agreement").
Subsection (i) of Section 5 of the Agreement, entitled "Investment Advisory
Fee and Expense Limitation," is hereby amended to read as follows:
(i) For the Equity Index Portfolio:
------------------------------
(i) 0.15% on an annual basis of the first $75,000,000 of the current
net assets of such Portfolio;
(ii) 0.14% on an annual basis of that portion of the current net
assets of such Portfolio in excess of $75,000,000 and not over
$125,000,000; and
(iii) 0.13% on an annual basis of that portion of the current net
assets of such Portfolio in excess of $125,000,000.
All other terms and provisions of the Agreement shall remain unchanged and
in full force and effect.
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
executed and to take effect as of May 1, 1998.
John Hancock Variable Series Trust I
/s/ MICHELE G. VAN LEER
-------------------------
By: Michele G. Van Leer
Title: Chairman
Attest: /s/ SANDRA M. DADAIT
--------------------
Assistant Secretary
John Hancock Mutual Life Insurance
Company
/s/ ROBERT R. REITANO
-------------------------
By: Robert R. Reitano
Title: Vice President
Attest: /s/ CORRINE L. WEBER
--------------------
Assistant Secretary
<PAGE>
EXHIBIT 30
Amendment No. 3 to the Investment Management Agreement
between John Hancock Variable Series Trust I and
John Hancock Mutual Life Insurance Company
Reference is made to that certain Investment Management Agreement dated as
of March 14, 1996, by and between John Hancock Variable Series Trust I and John
Hancock Mutual Life Insurance Company, as amended, (the "Agreement").
Subsections (d) and (g) of Section 5 of the Agreement, entitled "Investment
Advisory Fee and Expense Limitation," are hereby amended to read as follows:
(d) For the Mid Cap Value Portfolio:
-------------------------------
(i) 0.80% on an annual basis of the first $100,000,000 of the
Current Net Assets of such Portfolio;
(ii) 0.775% on an annual basis of that portion of the Current Net
Assets of such Portfolio in excess of $100,000,000 and not over
$250,000,000;
(iii) 0.750% on an annual basis of that portion of the Current Net
Assets of such Portfolio in excess of $250,000,000 and not over
$500,000,000;
(iv) 0.725% on an annual basis of that portion of the Current Net
Assets of such Portfolio in excess of $500,000,000 and not over
$750,000,000; and
(v) 0.70% on an annual basis of that portion of the Current Net
Assets of such Portfolio in excess of $750,000,000.
* * *
(g) For the Large Cap Value Portfolio:
---------------------------------
(i) 0.75% on an annual basis of the first $100,000,000 of the
Current Net Assets of such Portfolio;
(ii) 0.70% on an annual basis of that portion of the Current Net
Assets of such Portfolio in excess of $100,000,000 and not over
$250,000,000; and
(iii) 0.65% on an annual basis of that portion of the Current Net
Assets of such Portfolio in excess of $250,000,000.
All other terms and provisions of the Agreement shall remain unchanged and
in full force and effect.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
executed and to take effect for Large Cap Value as of April 1, 1999 and to take
effect for Mid Cap Value as of May 1, 1999.
John Hancock Variable Series Trust I
/s/ MICHELE G. VAN LEER
-------------------------
By: Michele G. Van Leer
Title: Chairman
Attest: /s/ SANDRA M. DADAlT
---------------------
Assistant Secretary
John Hancock Mutual Life Insurance Company
/s/ ROBERT R. REITANO
----------------------
By: Robert R. Reitano
Title: Vice President
Attest: /s/ CORRINE L. WEBER
---------------------
Assistant Secretary
<PAGE>
EXHIBIT J(1)
CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
We consent to the reference to our firm under the captions "Financial
Highlights" in the Prospectus and under the captions "Independent Auditors" and
"Financial Statements" in the Statement of Additional Information in Post-
Effective Amendment Number 21 to the Registration Statement (Form N-1A, No. 33-
2081) of John Hancock Variable Series Trust I.
We also consent to the incorporation by reference into the Statement of
Additional Information of our report dated February 10, 1999 on the financial
statements included in the Annual Report of the John Hancock Variable Series
Trust I for the year ended December 31, 1998.
/s/ ERNST & YOUNG, LLP
Boston, Massachusetts
April 28, 1999
<PAGE>
EXHIBIT J(2)
[John Hancock Mutual Life Insurance Company Letterhead]
April 28, 1999
John Hancock Variable Series Trust I
John Hancock Place
P.O. Box 111
Boston, MA 02117
Trustees:
This opinion is given in connection with the filing by John Hancock
Variable Series Trust I, a Massachusetts business trust (the "Fund") of its
Post-Effective Amendment No. 21 to its Registration Statement on Form N-1A (File
No. 33-2081; the "Registration Statement") under the Securities Act of 1933 and
the Investment Company Act of 1940, relating to an indefinite amount of its
shares of beneficial interest, which includes twenty-four separate series (i.e.,
the Managed, Growth & Income, Equity Index, Large Cap Value, Large Cap Growth,
Mid Cap Value, Mid Cap Growth, Small/Mid Cap Growth, Real Estate Equity,
Small/Mid Cap CORE Equity, Small Cap Value, Small Cap Growth, Global Equity,
International Balanced, International Equity Index, International Equities,
International Opportunities, Emerging Markets Equity, Short-Term Bond, Bond
Index, Sovereign Bond, Global Bond, High Yield Bond, and Money Market
Portfolios). The Fund's shares of beneficial interest, including the twenty-four
series of shares, are hereinafter referred to as the "shares".
I have examined the Fund's Declaration of Trust, its By-Laws, the
Registration Statement of its predecessor as originally filed on December 11,
1985, subsequent post-effective amendments and this Post-Effective Amendment No.
21, and such other records, certificates, documents and statutes that I have
deemed relevant in order to render the opinion expressed herein.
Based on such examination, I am of the opinion that:
1. The Fund is a business trust duly organized, validly existing and in
good standing under the laws of the Commonwealth of Massachusetts.
<PAGE>
-2-
2. The shares offered for sale by the Fund, when issued in the manner
contemplated by this Post-Effective Amendment to its Registration
Statement, will be legally issued, fully-paid and non-assessable.
I consent to the use of this opinion as Exhibit J(2) to the Post-
Effective Amendment to the Registration Statement and to the use of my name in
the Statement of Additional Information incorporated by reference into the
Prospectus comprising a part of the Registration Statement.
Very truly yours,
/s/ Ronald J. Bocage
--------------------
Ronald J. Bocage
Vice President and Counsel
<PAGE>
EXHIBIT Q
JOHN HANCOCK VARIABLE SERIES TRUST I
POWER OF ATTORNEY
The undersigned member of the board of Trustees of John Hancock
Variable Series Trust I does hereby constitute and appoint Michele G. Van Leer,
Ronald J. Bocage, Thomas J. Lee, Laura L. Mangan and Sandra M. DaDalt, and each
of them, with full power of substitution, his or her true and lawful attorneys
and agents to execute, in the name of, and on behalf of, the undersigned as a
member of said Board of Trustees, the Registration Statements under the
Securities Act of 1933 and the Investment Company Act of 1940, and each
amendment to the Registration Statements, to be filed for John Hancock Variable
Series Trust I with the Securities and Exchange Commission and to take any and
all action and to execute in the name of, and on behalf of, the undersigned as a
member of said Board of Trustees or otherwise any and all other instruments,
including applications for exemptions from such Acts, which said attorneys and
agents deem necessary or advisable to enable John Hancock Variable Series Trust
to comply with the Securities Act of 1933, as amended, the Investment Company
Act of 1940, as amended, and the rules, regulations and requirements of the
Securities and Exchange Commission in respect thereof; and the undersigned
hereby ratifies and confirms as his or her own act and deed all that each of
said attorneys and agents shall do or cause to be done by virtue hereof. Each of
said attorneys and agents shall have, and may exercise, all of the powers hereby
conferred.
IN WITNESS WHEREOF, the undersigned has hereunto set his or her hand on
the date shown.
March 2, 1999 /s/ Michele G. Van Leer
---------------------- -----------------------------
Date Michele G. Van Leer
Chairman
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE JOHN
HANCOCK VARIABLE SERIES TRUST I AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
SUCH FINANCIAL STATEMENTS.
</LEGEND>
<SERIES>
<NUMBER> 01
<NAME> LARGE CAP GROWTH
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<INVESTMENTS-AT-COST> 771,576
<INVESTMENTS-AT-VALUE> 1,130,641
<RECEIVABLES> 4,809
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 1,135,450
<PAYABLE-FOR-SECURITIES> 8,539
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 147
<TOTAL-LIABILITIES> 8,686
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 777,691
<SHARES-COMMON-STOCK> 43,016
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> (38)
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (1,050)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 350,085
<NET-ASSETS> 1,126,764
<DIVIDEND-INCOME> 8,574
<INTEREST-INCOME> 547
<OTHER-INCOME> 0
<EXPENSES-NET> 3,765
<NET-INVESTMENT-INCOME> 5,356
<REALIZED-GAINS-CURRENT> 104,660
<APPREC-INCREASE-CURRENT> 198,191
<NET-CHANGE-FROM-OPS> 308,207
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (5,356)
<DISTRIBUTIONS-OF-GAINS> (104,621)
<DISTRIBUTIONS-OTHER> (39)
<NUMBER-OF-SHARES-SOLD> 5,424
<NUMBER-OF-SHARES-REDEEMED> (2,861)
<SHARES-REINVESTED> 4,217
<NET-CHANGE-IN-ASSETS> 372,366
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 3,446
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 3,765
<AVERAGE-NET-ASSETS> 914,150
<PER-SHARE-NAV-BEGIN> 20.82
<PER-SHARE-NII> 0.14
<PER-SHARE-GAIN-APPREC> 8.05
<PER-SHARE-DIVIDEND> (0.14)
<PER-SHARE-DISTRIBUTIONS> (2.68)
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 26.19
<EXPENSE-RATIO> 0.41
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE JOHN
HANCOCK VARIABLE SERIES TRUST I ANNUAL REPORT DATED DECEMBER 31, 1998 AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<SERIES>
<NUMBER> 02
<NAME> SOVEREIGN BOD
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<INVESTMENTS-AT-COST> 851,738
<INVESTMENTS-AT-VALUE> 891,650
<RECEIVABLES> 19,541
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 911,191
<PAYABLE-FOR-SECURITIES> 3,856
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 214
<TOTAL-LIABILITIES> 4,070
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 882,112
<SHARES-COMMON-STOCK> 91,429
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 178
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 3,988
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 20,843
<NET-ASSETS> 907,121
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 60,699
<OTHER-INCOME> 0
<EXPENSES-NET> 2,459
<NET-INVESTMENT-INCOME> 58,240
<REALIZED-GAINS-CURRENT> 12,121
<APPREC-INCREASE-CURRENT> (3,300)
<NET-CHANGE-FROM-OPS> 67,061
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (58,240)
<DISTRIBUTIONS-OF-GAINS> (12,168)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 12,001
<NUMBER-OF-SHARES-REDEEMED> (8,405)
<SHARES-REINVESTED> 7,044
<NET-CHANGE-IN-ASSETS> 103,351
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 2,128
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 2,459
<AVERAGE-NET-ASSETS> 851,016
<PER-SHARE-NAV-BEGIN> 9.95
<PER-SHARE-NII> 0.69
<PER-SHARE-GAIN-APPREC> 0.11
<PER-SHARE-DIVIDEND> (0.69)
<PER-SHARE-DISTRIBUTIONS> (0.14)
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 9.92
<EXPENSE-RATIO> 0.29
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE JOHN
HANCOCK VARIABLE SERIES TRUST I ANNUAL REPORT DATED DECEMBER 31, 1998 AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<SERIES>
<NUMBER> 03
<NAME> MONEY MARKET
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<INVESTMENTS-AT-COST> 370,722
<INVESTMENTS-AT-VALUE> 370,722
<RECEIVABLES> 24,540
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 395,262
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 67
<TOTAL-LIABILITIES> 67
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 395,195
<SHARES-COMMON-STOCK> 39,519
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 395,195
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 16,754
<OTHER-INCOME> 0
<EXPENSES-NET> 916
<NET-INVESTMENT-INCOME> 15,838
<REALIZED-GAINS-CURRENT> 0
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 15,838
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (15,838)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 38,622
<NUMBER-OF-SHARES-REDEEMED> (23,631)
<SHARES-REINVESTED> 1,584
<NET-CHANGE-IN-ASSETS> 165,752
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 749
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 916
<AVERAGE-NET-ASSETS> 299,376
<PER-SHARE-NAV-BEGIN> 10.00
<PER-SHARE-NII> 0.53
<PER-SHARE-GAIN-APPREC> 0
<PER-SHARE-DIVIDEND> (0.53)
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 10.00
<EXPENSE-RATIO> 0.31
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE JOHN
HANCOCK VARIABLE SERIES TRUST I ANNUAL REPORT DATED DECEMBER 31, 1998 AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<SERIES>
<NUMBER> 04
<NAME> GROWTH & INCOME
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<INVESTMENTS-AT-COST> 2,538,433
<INVESTMENTS-AT-VALUE> 3,672,104
<RECEIVABLES> 4,023
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 3,676,127
<PAYABLE-FOR-SECURITIES> 4,856
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 486
<TOTAL-LIABILITIES> 5,342
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 2,550,367
<SHARES-COMMON-STOCK> 188,319
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 1,482
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (362)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 1,119,298
<NET-ASSETS> 3,670,785
<DIVIDEND-INCOME> 46,457
<INTEREST-INCOME> 1,695
<OTHER-INCOME> 0
<EXPENSES-NET> 8,747
<NET-INVESTMENT-INCOME> 39,405
<REALIZED-GAINS-CURRENT> 320,993
<APPREC-INCREASE-CURRENT> 486,604
<NET-CHANGE-FROM-OPS> 847,002
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (39,405)
<DISTRIBUTIONS-OF-GAINS> (320,993)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 14,254
<NUMBER-OF-SHARES-REDEEMED> (12,305)
<SHARES-REINVESTED> 18,579
<NET-CHANGE-IN-ASSETS> 884,821
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 7,960
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 8,747
<AVERAGE-NET-ASSETS> 3,184,087
<PER-SHARE-NAV-BEGIN> 16.61
<PER-SHARE-NII> 0.23
<PER-SHARE-GAIN-APPREC> 4.75
<PER-SHARE-DIVIDEND> (0.23)
<PER-SHARE-DISTRIBUTIONS> (1.87)
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 19.49
<EXPENSE-RATIO> 0.27
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE JOHN
HANCOCK VARIABLE SERIES TRUST I ANNUAL REPORT DATED DECEMBER 31, 1998 AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<SERIES>
<NUMBER> 05
<NAME> MANAGED
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<INVESTMENTS-AT-COST> 2,662,717
<INVESTMENTS-AT-VALUE> 3,466,578
<RECEIVABLES> 142,798
<ASSETS-OTHER> 2,197
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 3,611,573
<PAYABLE-FOR-SECURITIES> 304,113
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 5,550
<TOTAL-LIABILITIES> 309,663
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 2,698,050
<SHARES-COMMON-STOCK> 211,171
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 4,698
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (3,020)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 606,741
<NET-ASSETS> 3,301,910
<DIVIDEND-INCOME> 27,279
<INTEREST-INCOME> 74,000
<OTHER-INCOME> 0
<EXPENSES-NET> 10,967
<NET-INVESTMENT-INCOME> 90,312
<REALIZED-GAINS-CURRENT> 215,053
<APPREC-INCREASE-CURRENT> 256,886
<NET-CHANGE-FROM-OPS> 562,251
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (90,312)
<DISTRIBUTIONS-OF-GAINS> (212,457)
<DISTRIBUTIONS-OTHER> (10,444)
<NUMBER-OF-SHARES-SOLD> 12,059
<NUMBER-OF-SHARES-REDEEMED> (16,174)
<SHARES-REINVESTED> 20,147
<NET-CHANGE-IN-ASSETS> 501,783
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 9,826
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 10,967
<AVERAGE-NET-ASSETS> 3,025,277
<PER-SHARE-NAV-BEGIN> 14.35
<PER-SHARE-NII> 0.46
<PER-SHARE-GAIN-APPREC> 2.43
<PER-SHARE-DIVIDEND> (0.46)
<PER-SHARE-DISTRIBUTIONS> (1.09)
<RETURNS-OF-CAPITAL> (0.05)
<PER-SHARE-NAV-END> 15.64
<EXPENSE-RATIO> 0.36
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE JOHN
HANCOCK VARIABLE SERIES TRUST I ANNUAL REPORT DATED DECEMBER 31, 1998 AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<SERIES>
<NUMBER> 06
<NAME> INTERNATIONAL EQUITY INDEX
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<INVESTMENTS-AT-COST> 162,862
<INVESTMENTS-AT-VALUE> 172,782
<RECEIVABLES> 406
<ASSETS-OTHER> 8
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 173,196
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 59
<TOTAL-LIABILITIES> 59
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 165,702
<SHARES-COMMON-STOCK> 11,127
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> (173)
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 108
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 7,518
<NET-ASSETS> 173,137
<DIVIDEND-INCOME> 2,984
<INTEREST-INCOME> 283
<OTHER-INCOME> 0
<EXPENSES-NET> 908
<NET-INVESTMENT-INCOME> 2,359
<REALIZED-GAINS-CURRENT> 24,001
<APPREC-INCREASE-CURRENT> 4,290
<NET-CHANGE-FROM-OPS> 30,650
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (2,321)
<DISTRIBUTIONS-OF-GAINS> (24,366)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 1,470
<NUMBER-OF-SHARES-REDEEMED> (2,070)
<SHARES-REINVESTED> 1,703
<NET-CHANGE-IN-ASSETS> 20,778
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 504
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 1,032
<AVERAGE-NET-ASSETS> 163,862
<PER-SHARE-NAV-BEGIN> 15.20
<PER-SHARE-NII> 0.23
<PER-SHARE-GAIN-APPREC> 2.91
<PER-SHARE-DIVIDEND> (0.23)
<PER-SHARE-DISTRIBUTIONS> (2.55)
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 15.56
<EXPENSE-RATIO> 0.56
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE JOHN
HANCOCK VARIABLE SERIES TRUST I ANNUAL REPORT DATED DECEMBER 31, 1998 AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<SERIES>
<NUMBER> 07
<NAME> REAL ESTATE EQUITY
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<INVESTMENTS-AT-COST> 149,365
<INVESTMENTS-AT-VALUE> 151,908
<RECEIVABLES> 1,170
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 153,078
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 289
<TOTAL-LIABILITIES> 289
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 149,582
<SHARES-COMMON-STOCK> 12,263
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 2,108
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (180)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 1,279
<NET-ASSETS> 152,789
<DIVIDEND-INCOME> 10,843
<INTEREST-INCOME> 173
<OTHER-INCOME> 0
<EXPENSES-NET> 1,229
<NET-INVESTMENT-INCOME> 9,787
<REALIZED-GAINS-CURRENT> 1,614
<APPREC-INCREASE-CURRENT> (44,965)
<NET-CHANGE-FROM-OPS> (33,564)
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (8,848)
<DISTRIBUTIONS-OF-GAINS> (1,695)
<DISTRIBUTIONS-OTHER> (58)
<NUMBER-OF-SHARES-SOLD> 1,549
<NUMBER-OF-SHARES-REDEEMED> 2,894
<SHARES-REINVESTED> 778
<NET-CHANGE-IN-ASSETS> (51,342)
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 1,071
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 1,229
<AVERAGE-NET-ASSETS> 178,542
<PER-SHARE-NAV-BEGIN> 15.91
<PER-SHARE-NII> 0.77
<PER-SHARE-GAIN-APPREC> (3.38)
<PER-SHARE-DIVIDEND> (0.70)
<PER-SHARE-DISTRIBUTIONS> (0.14)
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 12.46
<EXPENSE-RATIO> 0.69
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE JOHN
HANCOCK VARIABLE SERIES TRUST I ANNUAL REPORT DATED DECEMBER 31, 1998 AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<SERIES>
<NUMBER> 08
<NAME> DIVERSIFIED MID CAP GROWTH
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<INVESTMENTS-AT-COST> 166,644
<INVESTMENTS-AT-VALUE> 194,444
<RECEIVABLES> 771
<ASSETS-OTHER> 1
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 195,216
<PAYABLE-FOR-SECURITIES> 1,752
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 132
<TOTAL-LIABILITIES> 1,884
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 170,700
<SHARES-COMMON-STOCK> 12,129
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (290)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 22,922
<NET-ASSETS> 193,332
<DIVIDEND-INCOME> 1,150
<INTEREST-INCOME> 393
<OTHER-INCOME> 0
<EXPENSES-NET> 1,760
<NET-INVESTMENT-INCOME> (217)
<REALIZED-GAINS-CURRENT> 2,111
<APPREC-INCREASE-CURRENT> 8,644
<NET-CHANGE-FROM-OPS> 10,538
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> (3,671)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 1,216
<NUMBER-OF-SHARES-REDEEMED> (3,201)
<SHARES-REINVESTED> 230
<NET-CHANGE-IN-ASSETS> (20,280)
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 1,490
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 1,760
<AVERAGE-NET-ASSETS> 198,741
<PER-SHARE-NAV-BEGIN> 15.39
<PER-SHARE-NII> (0.02)
<PER-SHARE-GAIN-APPREC> 0.88
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> (0.31)
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 15.94
<EXPENSE-RATIO> 0.89
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE JOHN
HANCOCK VARIABLE SERIES TRUST I ANNUAL REPORT DATED DECEMBER 31, 1998 AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<SERIES>
<NUMBER> 09
<NAME> SHORT TERM BOND
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<INVESTMENTS-AT-COST> 73,522
<INVESTMENTS-AT-VALUE> 76,028
<RECEIVABLES> 1,218
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 77,246
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 52
<TOTAL-LIABILITIES> 52
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 77,623
<SHARES-COMMON-STOCK> 7,682
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 87
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (208)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> (308)
<NET-ASSETS> 77,194
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 4,306
<OTHER-INCOME> 0
<EXPENSES-NET> 341
<NET-INVESTMENT-INCOME> 3,965
<REALIZED-GAINS-CURRENT> (82)
<APPREC-INCREASE-CURRENT> (325)
<NET-CHANGE-FROM-OPS> 3,558
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (3,946)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 4,790
<NUMBER-OF-SHARES-REDEEMED> (2,568)
<SHARES-REINVESTED> 390
<NET-CHANGE-IN-ASSETS> 26,074
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 193
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 341
<AVERAGE-NET-ASSETS> 64,228
<PER-SHARE-NAV-BEGIN> 10.08
<PER-SHARE-NII> 0.61
<PER-SHARE-GAIN-APPREC> (0.03)
<PER-SHARE-DIVIDEND> (0.61)
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 10.05
<EXPENSE-RATIO> 0.53
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE JOHN
HANCOCK VARIABLE SERIES TRUST I ANNUAL REPORT DATED DECEMBER 31, 1998 AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<SERIES>
<NUMBER> 10
<NAME> SMALL CAP GROWTH
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<INVESTMENTS-AT-COST> 53,256
<INVESTMENTS-AT-VALUE> 74,839
<RECEIVABLES> 2,695
<ASSETS-OTHER> 46
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 77,580
<PAYABLE-FOR-SECURITIES> 2,710
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 21
<TOTAL-LIABILITIES> 2,731
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 61,011
<SHARES-COMMON-STOCK> 5,763
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 4
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (3045)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 16,879
<NET-ASSETS> 74,849
<DIVIDEND-INCOME> 104
<INTEREST-INCOME> 94
<OTHER-INCOME> 0
<EXPENSES-NET> 561
<NET-INVESTMENT-INCOME> (363)
<REALIZED-GAINS-CURRENT> (271)
<APPREC-INCREASE-CURRENT> 10,212
<NET-CHANGE-FROM-OPS> 9,578
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 2,779
<NUMBER-OF-SHARES-REDEEMED> (1,314)
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 26,088
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 421
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 588
<AVERAGE-NET-ASSETS> 56,060
<PER-SHARE-NAV-BEGIN> 11.34
<PER-SHARE-NII> (0.05)
<PER-SHARE-GAIN-APPREC> 1.70
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 12.99
<EXPENSE-RATIO> 1.00
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE JOHN
HANCOCK VARIABLE SERIES TRUST I ANNUAL REPORT DATED DECEMBER 31, 1998 AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<SERIES>
<NUMBER> 11
<NAME> INERNATIONAL BALANCED
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<INVESTMENTS-AT-COST> 25,786
<INVESTMENTS-AT-VALUE> 29,275
<RECEIVABLES> 870
<ASSETS-OTHER> 319
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 30,464
<PAYABLE-FOR-SECURITIES> 43
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 5
<TOTAL-LIABILITIES> 48
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 27,679
<SHARES-COMMON-STOCK> 2,734
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> (829)
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 237
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 2,791
<NET-ASSETS> 30,416
<DIVIDEND-INCOME> 333
<INTEREST-INCOME> 859
<OTHER-INCOME> 0
<EXPENSES-NET> 305
<NET-INVESTMENT-INCOME> 887
<REALIZED-GAINS-CURRENT> 609
<APPREC-INCREASE-CURRENT> 3,072
<NET-CHANGE-FROM-OPS> 4,568
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (887)
<DISTRIBUTIONS-OF-GAINS> (1,103)
<DISTRIBUTIONS-OTHER> (24)
<NUMBER-OF-SHARES-SOLD> 581
<NUMBER-OF-SHARES-REDEEMED> (545)
<SHARES-REINVESTED> 184
<NET-CHANGE-IN-ASSETS> 4,996
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 236
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 504
<AVERAGE-NET-ASSETS> 27,707
<PER-SHARE-NAV-BEGIN> 10.11
<PER-SHARE-NII> 0.34
<PER-SHARE-GAIN-APPREC> 1.44
<PER-SHARE-DIVIDEND> (0.34)
<PER-SHARE-DISTRIBUTIONS> (0.42)
<RETURNS-OF-CAPITAL> (0.01)
<PER-SHARE-NAV-END> 11.12
<EXPENSE-RATIO> 1.10
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE JOHN
HANCOCK VARIABLE SERIES TRUST I ANNUAL REPORT DATED DECEMBER 31, 1998 AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<SERIES>
<NUMBER> 12
<NAME> MID CAP GROWTH
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<INVESTMENTS-AT-COST> 68,410
<INVESTMENTS-AT-VALUE> 92,304
<RECEIVABLES> 3,127
<ASSETS-OTHER> 533
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 95,964
<PAYABLE-FOR-SECURITIES> 1,862
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 17
<TOTAL-LIABILITIES> 1,879
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 72,467
<SHARES-COMMON-STOCK> 6,224
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> (69)
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (141)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 21,795
<NET-ASSETS> 94,085
<DIVIDEND-INCOME> 134
<INTEREST-INCOME> 138
<OTHER-INCOME> 0
<EXPENSES-NET> 655
<NET-INVESTMENT-INCOME> (383)
<REALIZED-GAINS-CURRENT> 8,102
<APPREC-INCREASE-CURRENT> 15,616
<NET-CHANGE-FROM-OPS> 23,335
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> (7,468)
<DISTRIBUTIONS-OTHER> (833)
<NUMBER-OF-SHARES-SOLD> 3,075
<NUMBER-OF-SHARES-REDEEMED> (774)
<SHARES-REINVESTED> 549
<NET-CHANGE-IN-ASSETS> 83,850
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 507
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 670
<AVERAGE-NET-ASSETS> 59,636
<PER-SHARE-NAV-BEGIN> 11.93
<PER-SHARE-NII> (0.09)
<PER-SHARE-GAIN-APPREC> 4.75
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> (1.32)
<RETURNS-OF-CAPITAL> (0.15)
<PER-SHARE-NAV-END> 15.12
<EXPENSE-RATIO> 1.10
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE JOHN
HANCOCK VARIABLE SERIES TRUST I ANNUAL REPORT DATED DECEMBER 31, 1998 AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<SERIES>
<NUMBER> 13
<NAME> LARGE CAP VALUE
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<INVESTMENTS-AT-COST> 106,130
<INVESTMENTS-AT-VALUE> 123,254
<RECEIVABLES> 270
<ASSETS-OTHER> 1
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 123,525
<PAYABLE-FOR-SECURITIES> 151
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 9
<TOTAL-LIABILITIES> 160
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 111,673
<SHARES-COMMON-STOCK> 8,799
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 35
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (8)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 11,665
<NET-ASSETS> 123,365
<DIVIDEND-INCOME> 2,592
<INTEREST-INCOME> 399
<OTHER-INCOME> 0
<EXPENSES-NET> 920
<NET-INVESTMENT-INCOME> 2,071
<REALIZED-GAINS-CURRENT> 4,295
<APPREC-INCREASE-CURRENT> 2,592
<NET-CHANGE-FROM-OPS> 8,958
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (2,052)
<DISTRIBUTIONS-OF-GAINS> (4,289)
<DISTRIBUTIONS-OTHER> (21)
<NUMBER-OF-SHARES-SOLD> 3,809
<NUMBER-OF-SHARES-REDEEMED> (864)
<SHARES-REINVESTED> 455
<NET-CHANGE-IN-ASSETS> 50,096
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 747
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 920
<AVERAGE-NET-ASSETS> 99,497
<PER-SHARE-NAV-BEGIN> 13.57
<PER-SHARE-NII> 0.28
<PER-SHARE-GAIN-APPREC> 0.96
<PER-SHARE-DIVIDEND> (0.28)
<PER-SHARE-DISTRIBUTIONS> (0.51)
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 14.02
<EXPENSE-RATIO> 0.92
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE JOHN
HANCOCK VARIABLE SERIES TRUST I ANNUAL REPORT DATED DECEMBER 31, 1998 AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<SERIES>
<NUMBER> 14
<NAME> MID CAP VALUE
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<INVESTMENTS-AT-COST> 94,039
<INVESTMENTS-AT-VALUE> 95,152
<RECEIVABLES> 367
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 95,519
<PAYABLE-FOR-SECURITIES> 688
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 11
<TOTAL-LIABILITIES> 699
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 104,944
<SHARES-COMMON-STOCK> 7,781
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (9,170)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> (954)
<NET-ASSETS> 94,820
<DIVIDEND-INCOME> 1,368
<INTEREST-INCOME> 303
<OTHER-INCOME> 0
<EXPENSES-NET> 851
<NET-INVESTMENT-INCOME> 820
<REALIZED-GAINS-CURRENT> (8,690)
<APPREC-INCREASE-CURRENT> (4,194)
<NET-CHANGE-FROM-OPS> (12,064)
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (820)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 4,722
<NUMBER-OF-SHARES-REDEEMED> (1,693)
<SHARES-REINVESTED> 66
<NET-CHANGE-IN-ASSETS> 29,847
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 709
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 851
<AVERAGE-NET-ASSETS> 88,520
<PER-SHARE-NAV-BEGIN> 13.87
<PER-SHARE-NII> 0.11
<PER-SHARE-GAIN-APPREC> (1.68)
<PER-SHARE-DIVIDEND> (0.11)
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 26.19
<EXPENSE-RATIO> 0.96
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE JOHN
HANCOCK VARIABLE SERIES TRUST I ANNUAL REPORT DATED DECEMBER 31, 1998 AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<SERIES>
<NUMBER> 15
<NAME> SMALL-CAP VALUE
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<INVESTMENTS-AT-COST> 60,464
<INVESTMENTS-AT-VALUE> 63,981
<RECEIVABLES> 126
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 64,107
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 12
<TOTAL-LIABILITIES> 12
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 66,361
<SHARES-COMMON-STOCK> 5,531
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 48
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (4,591)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 2,277
<NET-ASSETS> 64,095
<DIVIDEND-INCOME> 742
<INTEREST-INCOME> 195
<OTHER-INCOME> 0
<EXPENSES-NET> 585
<NET-INVESTMENT-INCOME> 352
<REALIZED-GAINS-CURRENT> (4,544)
<APPREC-INCREASE-CURRENT> 253
<NET-CHANGE-FROM-OPS> (3,939)
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (352)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 2,952
<NUMBER-OF-SHARES-REDEEMED> (940)
<SHARES-REINVESTED> 31
<NET-CHANGE-IN-ASSETS> 20,834
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 446
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 602
<AVERAGE-NET-ASSETS> 55,624
<PER-SHARE-NAV-BEGIN> 12.40
<PER-SHARE-NII> 0.07
<PER-SHARE-GAIN-APPREC> (0.81)
<PER-SHARE-DIVIDEND> (0.07)
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 11.59
<EXPENSE-RATIO> 1.05
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE JOHN
HANCOCK VARIABLE SERIES TRUST I ANNUAL REPORT DATED DECEMBER 31, 1998 AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<SERIES>
<NUMBER> 16
<NAME> INTERNATIONAL OPPORTUNITIES
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<INVESTMENTS-AT-COST> 54,893
<INVESTMENTS-AT-VALUE> 64,211
<RECEIVABLES> 78
<ASSETS-OTHER> 37
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 64,326
<PAYABLE-FOR-SECURITIES> 2
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 74
<TOTAL-LIABILITIES> 76
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 58,135
<SHARES-COMMON-STOCK> 5,260
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 52
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (392)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 6,453
<NET-ASSETS> 64,250
<DIVIDEND-INCOME> 854
<INTEREST-INCOME> 144
<OTHER-INCOME> 0
<EXPENSES-NET> 563
<NET-INVESTMENT-INCOME> 435
<REALIZED-GAINS-CURRENT> (303)
<APPREC-INCREASE-CURRENT> 6,191
<NET-CHANGE-FROM-OPS> 6,323
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (416)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 3,600
<NUMBER-OF-SHARES-REDEEMED> (1,258)
<SHARES-REINVESTED> 36
<NET-CHANGE-IN-ASSETS> 33,619
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 441
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 708
<AVERAGE-NET-ASSETS> 48,655
<PER-SHARE-NAV-BEGIN> 10.63
<PER-SHARE-NII> 0.11
<PER-SHARE-GAIN-APPREC> 1.57
<PER-SHARE-DIVIDEND> (0.10)
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 12.21
<EXPENSE-RATIO> 1.16
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE JOHN
HANCOCK VARIABLE SERIES TRUST I ANNUAL REPORT DATED DECEMBER 31, 1998 AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<SERIES>
<NUMBER> 17
<NAME> EQUITY INDEX
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<INVESTMENTS-AT-COST> 187,090
<INVESTMENTS-AT-VALUE> 233,336
<RECEIVABLES> 893
<ASSETS-OTHER> 68
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 234,297
<PAYABLE-FOR-SECURITIES> 1,719
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 0
<TOTAL-LIABILITIES> 1,719
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 186,595
<SHARES-COMMON-STOCK> 13,139
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 85
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (356)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 45,998
<NET-ASSETS> 232,578
<DIVIDEND-INCOME> 2,556
<INTEREST-INCOME> 11
<OTHER-INCOME> 0
<EXPENSES-NET> 0
<NET-INVESTMENT-INCOME> 2,567
<REALIZED-GAINS-CURRENT> 3,458
<APPREC-INCREASE-CURRENT> 34,583
<NET-CHANGE-FROM-OPS> 40,608
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (2,483)
<DISTRIBUTIONS-OF-GAINS> (3,661)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 7,345
<NUMBER-OF-SHARES-REDEEMED> (1,703)
<SHARES-REINVESTED> 363
<NET-CHANGE-IN-ASSETS> 131,188
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 271
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 543
<AVERAGE-NET-ASSETS> 161,057
<PER-SHARE-NAV-BEGIN> 14.21
<PER-SHARE-NII> 0.25
<PER-SHARE-GAIN-APPREC> 3.76
<PER-SHARE-DIVIDEND> (0.24)
<PER-SHARE-DISTRIBUTIONS> (0.28)
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 17.70
<EXPENSE-RATIO> 0
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE JOHN
HANCOCK VARIABLE SERIES TRUST I ANNUAL REPORT DATED DECEMBER 31, 1998 AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<SERIES>
<NUMBER> 18
<NAME> STRATEGIC BOND
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<INVESTMENTS-AT-COST> 60,144
<INVESTMENTS-AT-VALUE> 71,782
<RECEIVABLES> 5,853
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 77,635
<PAYABLE-FOR-SECURITIES> 10,824
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 20
<TOTAL-LIABILITIES> 10,844
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 64,192
<SHARES-COMMON-STOCK> 6,301
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> (147)
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (1)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 2,593
<NET-ASSETS> 66,791
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 2,902
<OTHER-INCOME> 0
<EXPENSES-NET> 446
<NET-INVESTMENT-INCOME> 2,456
<REALIZED-GAINS-CURRENT> (559)
<APPREC-INCREASE-CURRENT> 2,193
<NET-CHANGE-FROM-OPS> 4,090
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (1,387)
<DISTRIBUTIONS-OF-GAINS> (534)
<DISTRIBUTIONS-OTHER> (891)
<NUMBER-OF-SHARES-SOLD> 4,340
<NUMBER-OF-SHARES-REDEEMED> (1,102)
<SHARES-REINVESTED> 266
<NET-CHANGE-IN-ASSETS> 38,144
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 329
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 477
<AVERAGE-NET-ASSETS> 46,643
<PER-SHARE-NAV-BEGIN> 10.24
<PER-SHARE-NII> 0.54
<PER-SHARE-GAIN-APPREC> 0.38
<PER-SHARE-DIVIDEND> (0.29)
<PER-SHARE-DISTRIBUTIONS> (0.09)
<RETURNS-OF-CAPITAL> (0.18)
<PER-SHARE-NAV-END> 10.60
<EXPENSE-RATIO> 0.95
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE JOHN
HANCOCK VARIABLE SERIES TRUST I ANNUAL REPORT DATED DECEMBER 31, 1998 AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<SERIES>
<NUMBER> 19
<NAME> EMERGING MARKETS EQUITY
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 8-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> MAY-01-1998
<PERIOD-END> DEC-31-1998
<INVESTMENTS-AT-COST> 8,319
<INVESTMENTS-AT-VALUE> 7,296
<RECEIVABLES> 15
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 7,311
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 1
<TOTAL-LIABILITIES> 1
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 10,255
<SHARES-COMMON-STOCK> 1,032
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> (9)
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (1,624)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> (1,312)
<NET-ASSETS> 7,310
<DIVIDEND-INCOME> 84
<INTEREST-INCOME> 24
<OTHER-INCOME> 0
<EXPENSES-NET> 81
<NET-INVESTMENT-INCOME> 27
<REALIZED-GAINS-CURRENT> (1,644)
<APPREC-INCREASE-CURRENT> (1,312)
<NET-CHANGE-FROM-OPS> (2,929)
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (16)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> (11)
<NUMBER-OF-SHARES-SOLD> 1,271
<NUMBER-OF-SHARES-REDEEMED> (243)
<SHARES-REINVESTED> 4
<NET-CHANGE-IN-ASSETS> 7,310
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 68
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 192
<AVERAGE-NET-ASSETS> 7,783
<PER-SHARE-NAV-BEGIN> 10.00
<PER-SHARE-NII> 0.03
<PER-SHARE-GAIN-APPREC> (2.91)
<PER-SHARE-DIVIDEND> (0.02)
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> (0.01)
<PER-SHARE-NAV-END> 7.09
<EXPENSE-RATIO> 1.55
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE JOHN
HANCOCK VARIABLE SERIES TRUST I ANNUAL REPORT DATED DECEMBER 31, 1998 AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<SERIES>
<NUMBER> 20
<NAME> GLOBAL EQUITY
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 8-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> MAY-01-1998
<PERIOD-END> DEC-31-1998
<INVESTMENTS-AT-COST> 14,174
<INVESTMENTS-AT-VALUE> 15,264
<RECEIVABLES> 24
<ASSETS-OTHER> 1
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 15,289
<PAYABLE-FOR-SECURITIES> 4
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 4
<TOTAL-LIABILITIES> 8
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 15,474
<SHARES-COMMON-STOCK> 1,548
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> (3)
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (366)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 176
<NET-ASSETS> 15,281
<DIVIDEND-INCOME> 163
<INTEREST-INCOME> 54
<OTHER-INCOME> 0
<EXPENSES-NET> 111
<NET-INVESTMENT-INCOME> 106
<REALIZED-GAINS-CURRENT> (376)
<APPREC-INCREASE-CURRENT> 176
<NET-CHANGE-FROM-OPS> (94)
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (99)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> (7)
<NUMBER-OF-SHARES-SOLD> 1,800
<NUMBER-OF-SHARES-REDEEMED> (263)
<SHARES-REINVESTED> 11
<NET-CHANGE-IN-ASSETS> 15,281
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 87
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 237
<AVERAGE-NET-ASSETS> 14,410
<PER-SHARE-NAV-BEGIN> 10.00
<PER-SHARE-NII> 0.07
<PER-SHARE-GAIN-APPREC> (0.13)
<PER-SHARE-DIVIDEND> (0.07)
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 9.87
<EXPENSE-RATIO> 1.15
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE JOHN
HANCOCK VARIABLE SERIES TRUST I ANNUAL REPORT DATED DECEMBER 31, 1998 AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<SERIES>
<NUMBER> 21
<NAME> BOND INDEX
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 8-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> MAY-01-1998
<PERIOD-END> DEC-31-1998
<INVESTMENTS-AT-COST> 26,650
<INVESTMENTS-AT-VALUE> 27,736
<RECEIVABLES> 551
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 28,287
<PAYABLE-FOR-SECURITIES> 282
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 4
<TOTAL-LIABILITIES> 286
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 27,543
<SHARES-COMMON-STOCK> 2,748
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 458
<NET-ASSETS> 28,001
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 1,160
<OTHER-INCOME> 0
<EXPENSES-NET> 71
<NET-INVESTMENT-INCOME> 1,089
<REALIZED-GAINS-CURRENT> 267
<APPREC-INCREASE-CURRENT> 458
<NET-CHANGE-FROM-OPS> 1,814
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (1,089)
<DISTRIBUTIONS-OF-GAINS> (267)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 2,623
<NUMBER-OF-SHARES-REDEEMED> (8)
<SHARES-REINVESTED> 133
<NET-CHANGE-IN-ASSETS> 28,001
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 27
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 127
<AVERAGE-NET-ASSETS> 26,307
<PER-SHARE-NAV-BEGIN> 10.00
<PER-SHARE-NII> 0.42
<PER-SHARE-GAIN-APPREC> 0.29
<PER-SHARE-DIVIDEND> (0.42)
<PER-SHARE-DISTRIBUTIONS> (0.10)
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 10.19
<EXPENSE-RATIO> 0.40
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE JOHN
HANCOCK VARIABLE SERIES TRUST I ANNUAL REPORT DATED DECEMBER 31, 1998 AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<SERIES>
<NUMBER> 22
<NAME> SMALL/MID CAP CORE
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 8-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> MAY-01-1998
<PERIOD-END> DEC-31-1998
<INVESTMENTS-AT-COST> 4,681
<INVESTMENTS-AT-VALUE> 4,945
<RECEIVABLES> 8
<ASSETS-OTHER> 64
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 5,017
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 2
<TOTAL-LIABILITIES> 2
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 5,501
<SHARES-COMMON-STOCK> 556
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (750)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 264
<NET-ASSETS> 5,015
<DIVIDEND-INCOME> 4
<INTEREST-INCOME> 28
<OTHER-INCOME> 0
<EXPENSES-NET> 32
<NET-INVESTMENT-INCOME> 0
<REALIZED-GAINS-CURRENT> (750)
<APPREC-INCREASE-CURRENT> 264
<NET-CHANGE-FROM-OPS> (486)
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 636
<NUMBER-OF-SHARES-REDEEMED> (80)
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 5,015
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 24
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 139
<AVERAGE-NET-ASSETS> 4,561
<PER-SHARE-NAV-BEGIN> 10.00
<PER-SHARE-NII> 0
<PER-SHARE-GAIN-APPREC> (0.98)
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 9.02
<EXPENSE-RATIO> 1.05
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE JOHN
HANCOCK VARIABLE SERIES TRUST I ANNUAL REPORT DATED DECEMBER 31, 1998 AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<SERIES>
<NUMBER> 23
<NAME> HIGH YIELD BOND
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 8-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> MAY-01-1998
<PERIOD-END> DEC-31-1998
<INVESTMENTS-AT-COST> 14,870
<INVESTMENTS-AT-VALUE> 14,509
<RECEIVABLES> 308
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 14,817
<PAYABLE-FOR-SECURITIES> 27
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 1
<TOTAL-LIABILITIES> 28
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 15,355
<SHARES-COMMON-STOCK> 1,602
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> (566)
<NET-ASSETS> 14,789
<DIVIDEND-INCOME> 7
<INTEREST-INCOME> 626
<OTHER-INCOME> 0
<EXPENSES-NET> 68
<NET-INVESTMENT-INCOME> 565
<REALIZED-GAINS-CURRENT> 7
<APPREC-INCREASE-CURRENT> (566)
<NET-CHANGE-FROM-OPS> 6
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (565)
<DISTRIBUTIONS-OF-GAINS> (7)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 1,741
<NUMBER-OF-SHARES-REDEEMED> (200)
<SHARES-REINVESTED> 61
<NET-CHANGE-IN-ASSETS> 14,789
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 49
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 153
<AVERAGE-NET-ASSETS> 11,329
<PER-SHARE-NAV-BEGIN> 10.00
<PER-SHARE-NII> 0.46
<PER-SHARE-GAIN-APPREC> (0.76)
<PER-SHARE-DIVIDEND> (0.46)
<PER-SHARE-DISTRIBUTIONS> (0.01)
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 9.23
<EXPENSE-RATIO> 0
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
