HANCOCK JOHN VARIABLE SERIES TRUST I, 485APOS, 1999-07-15

HANCOCK JOHN VARIABLE SERIES TRUST I
485APOS, 1999-07-15

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AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JULY 15, 1999

REGISTRATION NOS. 33-2081
811-04490

SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM N-1A

REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 [_]
PRE-EFFECTIVE AMENDMENT NO. [_]

POST-EFFECTIVE AMENDMENT NO. 22 [X]

AND/OR

REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 [_]
AMENDMENT NO. 22 [X]

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)

RONALD J. BOCAGE, 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)

[_] 60 days after filing pursuant to paragraph (a)(1)

[_] On (date) pursuant to paragraph (a)(1)

[X] 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
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JOHN HANCOCK
VARIABLE SERIES TRUST I

PROSPECTUS

___________, 1999

As with all mutual funds, the AGGRESSIVE BALANCED FUND
Securities and Exchange EQUITY INDEX FUND
Commission has not judged LARGE CAP VALUE CORE FUND
whether these funds are good LARGE CAP AGGRESSIVE GROWTH FUND
investments or whether the LARGE/MID CAP VALUE FUND
information in this MID CAP BLEND FUND
prospectus is FUNDAMENTAL MID CAP GROWTH FUND
adequate and accurate. Anyone SMALL/MID CAP CORE FUND
who tells you otherwise is SMALL/MID CAP VALUE FUND
committing a federal crime. SMALL/MID CAP GROWTH FUND
SMALL CAP GROWTH FUND
INTERNATIONAL BALANCED FUND
INTERNATIONAL EQUITY FUND
SHORT-TERM BOND FUND
BOND INDEX FUND
HIGH YIELD BOND FUND

MANAGED BY JOHN HANCOCK MUTUAL LIFE INSURANCE COMPANY
JOHN HANCOCK PLACE
BOSTON, MA 02117

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CONTENTS

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

John Hancock Variable Series OVERVIEW 2
Trust I ("Trust")
YOUR INVESTMENT CHOICES 3
A fund-by-fund summary of Aggressive Balanced Fund 6
goals, strategies and risks. Equity Index Fund 8
Large Cap Value CORE Fund 10
Large Cap Aggressive Growth Fund 12
Large/Mid Cap Value Fund 14
Mid Cap Blend Fund 16
Fundamental Mid Cap Growth Fund 18
Small/Mid Cap CORE Fund 20
Small/Mid Cap Value Fund 22
Small/Mid Cap Growth Fund 24
Small Cap Growth Fund 26
International Balanced Fund 28
International Equity Fund 30
Short-Term Bond Fund 32
Bond Index Fund 34
High Yield Bond Fund 36

YOUR ACCOUNT 38
Policies and instructions for Investments in shares of the funds 38
opening, maintaining and Share price 38
closing an account in any Valuation 38
fund. Conflicts 38

Further information on the FUNDS' EXPENSES, DIVIDENDS AND TAXES 39
Funds Expenses 39
Dividends 39
Taxes 39

Further information on the TRUST DETAILS 40
Trust. Business structure 40
Year 2000 Compliance 40

Additional performance APPENDIX 41
information

FOR MORE INFORMATION back cover
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OVERVIEW

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FUND INFORMATION KEY
Concise fund-by-fund descriptions begin on page 6. 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
"Series 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
billion. All of the funds shown in this prospectus have subadvisers.

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YOUR INVESTMENT CHOICES

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

The Trust offers a number of investment choices, or funds, to suit a variety of
objectives under variable contracts. There are 16 of these 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 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 investment
style.

CAPITALIZATION Equity funds can be categorized by market
capitalization, which is defined as the market value of
all shares of a company's stock. The following
definitions 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:
. Equity Index Fund These funds invest in large, well-established companies
that typically are very actively traded and provide
. Large Cap Value CORE more stable investment returns over time. Large cap
Fund companies represent the 300 largest stocks in the
Russell 3000 Index. Each of those companies has a
. Large Cap Aggressive market capitalization greater than $6.6 billion as of
Growth Fund the end of 1998. Large cap funds are appropriate for
investors who want the least volatile investment
returns within the overall equity markets.

LARGE / MID CAP FUNDS:
. Large/Mid Cap Value These funds invest in large cap and mid cap companies.
Fund The capitalization of these funds can shift over time
from primarily large cap to primarily mid cap or vice
versa depending on where the manager identifies
investment opportunities. These funds are generally
more volatile than pure large cap funds, but generally
less volatile than pure mid cap funds.

MID CAP FUNDS:
. Mid Cap Blend Fund These funds invest in medium-sized, less established
companies that are less actively traded and provide
. Fundamental Mid Cap more share price volatility over time than large cap
Growth Fund stocks. Mid cap companies represent the 250th to 1000th
largest stocks in the Russell 3000 Index. Each of those
companies has a market capitalization 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 volatile investment returns within the
overall equity markets with the potential reward of
higher long-term returns.

SMALL / MID CAP FUNDS:
. Small/Mid Cap CORE These funds invest in mid cap and small cap companies.
Fund The capitalization of these funds can shift over time
from primarily mid cap to primarily small cap or vice
. Small/Mid Cap Value versa depending on where the manager identifies
Fund investment opportunities. These funds are generally
more volatile than pure mid cap funds, but generally
. Small/Mid Cap Growth less volatile than pure small cap funds.
Fund

SMALL CAP FUNDS:
. Small Cap Growth These funds invest in small newly established companies
Fund 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.

3
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INVESTMENT STYLE

VALUE FUNDS:
. Large Cap Value CORE Value funds invest in companies that are attractively
Fund priced, considering their asset and earnings history.
These stocks typically pay above average dividends and
. Large/Mid Cap Value have low stock prices relative to measures of earnings
Fund and book value. Value funds are appropriate for
investors who want some dividend income and the
. Small/Mid Cap Value potential for capital gains, but are less tolerant of
Fund share-price fluctuations.

GROWTH FUNDS:
. Large Cap Aggressive Growth funds invest in companies believed to have
Growth Fund above-average prospects for capital growth due to their
strong earnings and revenue potential. Growth stocks
. Fundamental Mid Cap typically have high stock prices relative to measures
Growth Fund of earnings and book value. Growth funds are
appropriate for investors who are willing to accept
. Small Mid/Cap Growth more share-price volatility for the potential reward of
Fund higher long-term returns.

. Small Cap Growth
Fund
BLEND FUNDS:
. Equity Index Fund Blend funds invest in both value and growth companies.
Blend funds are appropriate for investors who seek both
. Mid Cap Blend Fund dividend and capital appreciation characteristics.

. Small/Mid Cap CORE
Fund

BALANCED FUNDS
Balanced funds invest in a combination of stocks and bonds and actively
manage the mix of stock and bonds within a target range. Domestic balanced
funds invest in U.S. stocks and bonds. International balanced funds invest in
foreign stocks and bonds.

. Aggressive Balanced Fund

. International Balanced Fund

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:
. Short Term Bond Fund These funds invest primarily in bonds with short
maturities, typically less than four years. These funds
have less interest risk than intermediate-term bond
funds.

INTERMEDIATE:
. Bond Index Fund These funds invest in bonds of all maturities and
maintain an average maturity which is typically between
. High Yield Bond Fund four and ten years. These funds have more interest rate
risk than short-term bond funds.

4
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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
. Bond Index Fund 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:
These funds focus on the highest-rated, most
creditworthy bonds and typically maintain an average
credit quality rating of AAA/Aaa or AA/Aa.

MEDIUM:
. Short Term Bond Fund These funds invest in bonds of all credit quality
levels with a focus on high-rated investment grade
bonds. These funds typically maintain an average credit
quality rating of A or BBB/Baa.

LOW:
. High Yield Bond Fund These funds invest primarily in lower rated
bonds--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 FUNDS
International funds invest primarily in securities markets outside the United
States. These funds can be categorized by the types of markets they invest
in.

DEVELOPED MARKETS:
. International Equity These funds invest primarily in the larger,
Fund well-established developed or industralized markets
around the world. These funds have less foreign
securities risk than funds that invest primarily in
emerging markets.

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

In the following pages, any fund investment strategy that is stated as a
percentage 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 strategy of any fund without shareholder (i.e.,
contractowner) approval.

The financial highlights tables on the following pages detail the historical
performance of each fund that was in operation prior to December 31, 1998,
including total return information showing the increase or decrease of an
investment in the fund each year (assuming reinvestment of all dividends and
distributions). The "total investment return" shown for each fund does not
reflect the expenses and charges of the applicable separate accounts and
variable contracts. Those expenses and charges vary considerably from contract
to contract and are described in the variable contract 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 reference for
debt obligations generally.

<PAGE>

AGGRESSIVE BALANCED 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, and

. bonds with maturities generally greater than 12 months.

The manager makes ongoing decisions about the mix among stocks and bonds. The
manager has a target mix of 75% in stocks and 25% in bonds, but actively
manages the mix within +/-10% of the target mix.

The manager selects stocks and bonds using a combination of proprietary research
and quantitative tools. Stocks are purchased that are undervalued relative 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 5% or less of its
assets in cash and cash equivalents.

The Fund may purchase other types of securities, for example: American
Depository 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
measures, 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 the 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

JEFFERY B. SAEF (FIXED INCOME)
- ------------------------------

Senior Vice President of subadviser
Joined team in 1994
Joined subadviser in 1994

PAST PERFORMANCE

This is a new Fund. It was not in operation prior to the date of this
prospectus.

6
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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
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
generally 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 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.

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 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:

Derivatives Risk: Certain derivative instruments (such as options, futures and
swaps) can produce disproportionate gains or losses. They are generally
considered 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
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:

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

FINANCIAL HIGHLIGHTS -- This is a new Fund. It was not in operation prior
to the date of this prospectus.

7
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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
characteristics and industry diversification of the Index.

The Fund normally invests in all 500 stocks in the Index, but has no
predetermined 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 maintain
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 the end of 1998

FUND MANAGERS

JOHN A. TUCKER
- --------------
Principal of subadviser
Joined subadviser in 1988

JAMES B. MAY
- ------------
Principal ofsubadviser
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
- --------------------------------------------------------------------------------
1997 1998

INSERT CHART

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

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)
- --------------------------------------------------------------------------------
FUND INDEX

1 year 28.45% 28.58%
Life of fund 28.40% 29.02%

INDEX: S&P 500 Index

(1) Began operations on May 1, 1996.
<PAGE>

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
performance 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 market.

-------

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:

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

FINANCIAL HIGHLIGHTS (Selected data for each share interest outstanding
throughout the period indicated)
The following financial highlights have been audited by Ernst & Young LLP.

- --------------------------------------------------------------------------------
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%

* 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
purchases 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.

<PAGE>

LARGE CAP VALUE CORE FUND

GOAL AND STRATEGY

This is a large cap stock fund with a value emphasis that seeks long-term growth
in capital and 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 selects stocks using a combination of quantitative techniques and
fundamental equity research. The manager employs an investment process known as
CORE, "Computer Optimized, Research-Enhanced," that employs a proprietary
quantitative model. The manager identifies stocks that have strong expected
earnings growth and momentum and better valuation and risk characteristics than
the Russell 1000 Value Index.

Stocks are purchased that have:

. Low to modest valuation characteristics relative to general market
measures, such as price/earnings ratio, book value and other fundamental
accounting measures, and

. favorable prospects for capital appreciation and/or dividend paying
ability.

The Fund is managed using risk control techniques to maintain risk, style,
capitalization and industry characteristics similar to the Russell 1000 Value
Index. The Fund is broadly diversified by industry.

The Fund normally invests in 100 to 250 stocks, with at least 65% (usually
higher) of the Fund's assets in large cap companies. 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
Depository Receipts (ADRs), Standard & Poor's Depository Receipts (SPDRs), high
quality short-term debt securities, and certain derivatives (investments whose
value is based on indices or other securities).

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

SUBADVISER

GOLDMAN SACHS ASSET MANAGEMENT,
A SEPARATE OPERATING DIVISION OF
GOLDMAN, SACHS & CO.
One New York Plaza
New York, New York 10004

Managing since 1988
Managed over $195 billion
in assets at the 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

This is a new Fund. It was not in operation prior to the date of this
prospectus.

<PAGE>

MAIN RISKS

The following risks are major factors in the Fund's performance:

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
carries the risk that in certain markets large cap stocks will underperform
small and mid cap stocks.

-------

The following risk is considered significant because of the nature of the
investment involved. It 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 such investments. 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:

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

FINANCIAL HIGHLIGHTS -- This is a new Fund. It was not in operation prior
to the date of this prospectus.

<PAGE>

LARGE CAP AGGRESSIVE GROWTH FUND

GOAL AND STRATEGY

This is a non-diversified large cap stock fund with a growth emphasis that seeks
long-term growth in capital.

The Fund invests primarily in the common stocks of large established U.S.
companies that are believed to offer above-average potential for long-term
growth in revenues and earnings.

The manager selects stocks using proprietary company-specific research that
focuses on firms:

. offering superior earnings growth that is not fully reflected in current
market valuations,

. having prospective earnings growth rates substantially above that of the
S&P 500, and

. exhibiting strong management, superior industry positions and excellent
balance sheets.

The Fund employs aggressive investment strategies and invests most of its asset
in a relatively small number of companies, with the 25 most highly regarded
stocks representing at least 65% of the Fund's assets. The manager selects
stocks without regard to any predefined industry or sector selection criteria.

The manager actively trades and adjusts the Fund's holdings to capitalize on
market fluctuations. The manager typically:

. increases investment in favored securities and reduces the number of
holdings in declining markets, and

. decreases investment in favored securities and increases the number of
holdings in rising markets.

The Fund is a non-diversified fund, which means it can take larger positions in
a smaller number of issuers. The Fund normally invests in 35 to 55 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
Depository Receipts (ADRs), high quality short-term debt securities, and certain
derivatives (investments whose value is based on indices or other securities).

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

SUBADVISER

ALLIANCE CAPITAL MANAGEMENT L.P.
1345 Avenue of the Americas
New York, NY 10105

Managing since 1971
Managed approximately $287 billion
in assets at the end of 1998

FUND MANAGERS
Management by investment team overseen by:

JOHN H. FOGARTY
- ---------------
Vice president of subadviser
Joined subadviser in 1988
Began career in 1988

ALFRED HARRISON
- ---------------
Vice chairman and Director of subadviser
Joined subadviser in 1978
Began career in 1962

PAST PERFORMANCE

This is a new Fund. It was not in operation prior to the date of this
prospectus.

<PAGE>

MAIN RISKS

The following risks are major factors in the Fund's performance:

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.

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 large cap stocks will underperform small cap and mid 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 the nature of the
investment involved. It 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 such investments. However, the risk is of such a volatile nature that
it could significantly affect the Fund's performance, even if the investments
are held in relatively small amounts:

-------

The following risk is considered significant because of its potential impact on
the Fund's performance:

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

FINANCIAL HIGHLIGHTS -- This is a new Fund. It was not in operation prior
to the date of this prospectus.

<PAGE>

LARGE/MID CAP VALUE FUND

GOAL AND STRATEGY

This is a large/mid cap stock fund with a value emphasis that seeks long-term
growth in capital.

The Fund invests primarily in a diversified mix of common stocks of large- and
mid-sized 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 to identify stocks having distinct value characteristics based
on industry-specific valuation criteria.

The manager screens the investable universe for stocks with:

. dividend yields greater than the Russell 1000 Value Index, and

. price/book ratios lower than the Russell 1000 Value Index.

The Fund's assets are allocated to industry-specific sub-portfolios that are
managed by each industry analyst. The manager oversees the Fund to maintain
capitalization and industry weights similar to the Russell 1000 Value Index.

The Fund normally invests in 100 to 120 stocks, with at least 65% (usually
higher) of its assets in large and mid cap companies. The Fund normally has 5%
or less of its assets in cash and cash equivalents.

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

SUBADVISER

WELLINGTON MANAGEMENT COMPANY, LLP
75 State Street
Boston, Massachusetts 02109

Managing, with predecessors, since 1928
Managed approximately $211 billion
in assets at the end of 1998

FUND MANAGERS

DORIS DWYER CHU
- ---------------
Vice President of subadviser
Joined subadviser in 1998
Partner and portfolio manager at Grantham,
Mayo, Van Otterloo & Co. (1985 - 1998)

LAURIE A. GABRIEL
- -----------------
Managing Partner of subadviser
Joined subadviser in 1976

PAST PERFORMANCE

This is a new Fund. It was not in operation prior to the date of this
prospectus.

14
<PAGE>

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
companies may be subject to more erratic price movements than investment in
large established companies.

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 /mid cap" approach
carries the risk that large /mid cap stocks will underperform small cap stocks.

-------

The following risk is considered significant because of the nature of the
investment involved. It 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 such investments. However, the risk is of such a volatile nature that
it could significantly affect the Fund's performance, even if the investments
are held in relatively small amounts:

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

FINANCIAL HIGHLIGHTS -- This is a new Fund. It was not in operation prior
to the date of this prospectus.

<PAGE>

MID CAP BLEND FUND

GOAL AND STRATEGY

This is a mid cap stock fund that seeks long-term growth in capital.

The Fund invests primarily in a diversified mix of common stocks of 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 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
characteristics similar to the Russell Mid Cap Index.

The Fund normally invests in 100 to 150 stocks, with at least 65% (usually
higher) of its assets in mid cap companies. The Fund normally has 5% or less of
its assets in cash and cash equivalents.

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

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 the end of 1998

FUND MANAGERS
Management by investment team overseen by:

COREEN S. KRAYSLER, CFA
- -----------------------

Senior Vice President of subadviser
Joined subadviser in 1985

PAST PERFORMANCE

This is a new Fund. It was not in operation prior to the date of this
prospectus.

<PAGE>

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
companies may be subject to more erratic price movements than investment in
large established companies.

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 "mid cap" approach carries the risk that in certain markets "mid cap"
stocks will underperform "large cap" and "small cap" stocks. Also, the Fund's
"blend" style carries the risk that in certain markets, "blend" styles will
underperform "growth" and "value" styles.

-------

The following risk is considered significant because of the nature of the
investment involved. It 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 such investments. However, the risk is of such a volatile nature that
it could significantly affect the Fund's performance, even if the investments
are held in relatively small amounts:

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

FINANCIAL HIGHLIGHTS -- This is a new Fund. It was not in operation prior
to the date of this prospectus.

<PAGE>

FUNDAMENTAL MID CAP GROWTH FUND

GOAL AND STRATEGY

This is a 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 both proprietary equity research and external
consensus earnings forecasts. Stocks are purchased that are believed to offer:

. high rate of sustainable earnings growth of 15% plus,

. revenue growth generated by operating results (unit volume), and

. sustainable revenue growth of 10% plus.

The manager looks for companies with:

. innovative management and strong leadership positions in unique market niches,

. undiscovered and undervalued emerging growth opportunities, and

. new products and services.

The Fund's industry exposures are a result of stock selection as opposed to
predetermined allocations.

The Fund normally invests in 60 to 80 stocks, with at least 65% (usually higher)
of its assets in mid cap companies. The Fund normally has 5% or less of its
assets in cash and cash equivalents.

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

SUBADVISER

OPPENHEIMERFUNDS, INC.
Two World Trade Center
New York, New York, 10048

Managing since 1959
Managed approximately $95 billion
in assets at the end of 1998

FUND MANAGERS

BRUCE BARTLETT
- --------------
Senior Vice President of subadviser
Joined subadviser in 1995
Vice President of First of America
Investment Corp. (1986 - 1995)

JAMES FULLERTON TURNER II
- -------------------------

Assistant Vice President of subadviser
Joined subadviser in 1996
Equity Analyst at First of America
Investment Corp. (1994 - 1996)

PAST PERFORMANCE

This is a new Fund. It was not in operation prior to the date of this
prospectus.

18
<PAGE>

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
companies may be subject to more erratic price movements than investment in
large established companies.

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 mid cap stocks will underperform large cap and small cap
stocks.

-------

The following risk is considered significant because of the nature of the
investment involved. It 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 such investments. However, the risk is of such a volatile nature that
it could significantly affect the Fund's performance, even if the investments
are held in relatively small amounts:

-------

The following risk is considered significant because of its potential impact on
the Fund's performance:

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

FINANCIAL HIGHLIGHTS -- This is a new Fund. It was not in operation prior to the
date of this prospectus.

<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,
"Computer 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
normally has 10% or less of its assets in cash and cash equivalents.

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 measures, 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
in assets at the 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 55.

<PAGE>

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
companies 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 market.

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.

-------

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

<PAGE>

SMALL/MID CAP VALUE FUND

GOAL AND STRATEGY

This is a small/mid 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
and mid-sized U.S. companies that are believed to offer favorable prospects for
capital appreciation.

The manager selects stocks using a combination of proprietary quantitative
screening tools and fundamental equity research. The manager selects stocks
that have:

. attractive valuation characteristics, using measures such as low
price/earnings and price/book ratios,

. strong business health, as measured by overall efficiency and profitability
(return on assets and/or equity), and

. business momentum, defined as a catalyst that triggers a near-term price
increase.

The Fund is broadly diversified by sector. The Fund normally invests in 70 to
150 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.

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

SUBADVISER

THE BOSTON COMPANY ASSET MANAGEMENT, LLC
One Boston Place
Boston, Massachusetts 02108

Managing since 1970
Managed approximately $22 billion
in assets at the end of 1998

FUND MANAGERS
Management by investment team overseen by:

PETER I. HIGGINS, CFA
- ---------------------
Senior Vice President of subadviser
Joined subadviser in 1988

PAST PERFORMANCE

This is a new Fund. It was not in operation prior to the date of this
prospectus.

<PAGE>

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
companies may be subject to more erratic price movements than investment in
large established companies.

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/mid cap" approach
carries the risk that in certain markets small/mid cap stocks will underperform
large cap stocks.

-------

The following risk is considered significant because of its potential impact on
the Fund's performance:

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

FINANCIAL HIGHLIGHTS -- This is a new Fund. It was not in operation prior to the
date of this prospectus.

<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
revenues 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 criteria,
among others:

. Superior historical earnings growth

. Prospects for continued above-average growth

. Attractive valuations

. Strong market positions

. Favorable new products

. 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
Depository Receipts (ADRs), and high quality short-term debt securities.

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

SUBADVISER

WELLINGTON MANAGEMENT COMPANY, LLP
75 State Street
Boston, Massachusetts 02109

Managing with predecessors, since 1928
Managed approximately $211 billion
in assets at the 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.

INSERT CHART

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

BEST QUARTER: up 21.59%, fourth quarter 1998 WORST QUARTER: down 21.48%, third
quarter 1998

- --------------------------------------------------------------------------------
Average annual total returns -- for periods ending 12/31/98(1)
- --------------------------------------------------------------------------------
FUND INDEX

1 year 5.61% 17.86%
Life of fund 15.37% 19.55%

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.

24
<PAGE>

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
companies 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 market.

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.

-------

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
brokerage commissions and other transaction costs will have on the fund's
performance. 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.
- --------------------------------------------------------------------------------
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%

<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
purchased 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%
(usually higher) of its assets in small cap companies. The Fund normally has 5%
or less of its assets in cash and cash equivalents.

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

SUBADVISER

JOHN HANCOCK ADVISERS, INC.
101 Huntington Avenue
Boston, Massachusetts 02199

Owned by John Hancock Managing since 1968
Managed approximately $30 billion
in assets at the 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.

INSERT CHART

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

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/
- --------------------------------------------------------------------------------
FUND INDEX
1 year 14.49% 1.23%
Life of fund 10.39% 4.25%

INDEX: Russell 2000(R) Growth Index

(1) Began operations on May 1, 1996.

26
<PAGE>

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
companies 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 market.

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 considered significant because of its potential impact on
the Fund's performance:

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

FINANCIAL HIGHLIGHTS (Selected data for each share interest outstanding
throughout the period indicated)
The following financial highlights have been audited by Ernst & Young LLP.
- --------------------------------------------------------------------------------
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%

<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
identify 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 competitiveness.

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.

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

SUBADVISER

BRINSON PARTNERS, INC.
209 South LaSalle Street
Chicago, Illinois 60604

Managing since 1974
Managed approximately $163 billion
in assets at the 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.

INSERT CHART

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

BEST QUARTER: up 13.06%, fourth quarter 1998 WORST QUARTER: down 4.49%, fourth
quarter 1997

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.

<PAGE>

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
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.

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
significantly.

Market Risk: The value of the securities in the Fund may go down in response to
over-all 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 market.

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
holdings in a class just prior to its experiencing a loss of value.

-------

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

FINANCIAL HIGHLIGHTS (Selected data for each share interest outstanding
throughout the period indicated)
The following financial highlights have been audited by Ernst & Young LLP.
- --------------------------------------------------------------------------------
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%

<PAGE>

INTERNATIONAL EQUITY 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 primarily in developed
countries outside of the U.S.

The manager selects stocks using proprietary equity research that identifies
companies having:

. strong market positions within their industry,

. management with a history of excellence focusing on core businesses,

. above average return on capital within their industry, and

. demonstrated ability to create long-term shareholder value.

The manager determines the allocation among regions and countries using a
combination of qualitative and quantitative inputs, including:

. quantitative models to rank the relative attractiveness of each country region
based on valuation, credit risk and momentum, and

. qualitative assessment of regional portfolio managers to adjust model results.

The Fund's industry exposures are largely the result of stock selection,
although the Fund maintains broad industry representation. The Fund is managed
using risk control techniques that maintain overall regional diversification.
The Fund may engage in foreign currency transactions for hedging purposes and to
seek to protect against anticipated changes in foreign currency exchange rates.

The Fund invests in at least 3 different countries, but normally invests in 10
to 20 countries. The Fund will invest no more than 10% of its assets in
emerging market stocks.

The Fund normally invests in 120 to 180 stocks and 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
Depository Receipts (EDRs), U.S. high quality short-term debt securities, and
certain derivatives (investments whose value is based on indices or other
securities).

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

SUBADVISER

GOLDMAN SACHS ASSET MANAGEMENT,
A SEPARATE OPERATING DIVISION OF GOLDMAN,
SACHS & CO.
One New York Plaza
New York, New York 10004

Managing since 1988
Managed over $195 billion
in assets at the end of 1998

FUND MANAGERS
Management by investment team overseen by:

SHOGO MAEDA
- -----------
Managing Director of subadviser
Joined subadviser in 1994
Senior Portfolio Manager at Nomura Investment
Management, Inc. (1987 - 1994)

IVOR H. FARMAN
- --------------
Executive Director of subadviser
Joined subadviser in 1996
Research Analyst at Exane (1995-1996)
Research Analyst at
Banque Nationale de Paris (1993 - 1995)

SUSAN NOBLE
- -----------
Executive Director of subadviser
Joined subadviser in 1997
Portfolio Management Director at Fleming Investment
Management (1986 - 1997)

PAST PERFORMANCE

This is a new Fund. It was not in operation prior to the date of this
prospectus.

<PAGE>

MAIN RISKS

The following risks are major factors in the Fund's performance:

-------

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

FINANCIAL HIGHLIGHTS -- This is a new Fund. It was not in operation prior to the
date of this prospectus.

<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
quantitative tools. Bonds are purchased that are attractively priced and that
provide 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).

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

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 the 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.

INSERT CHART

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

BEST QUARTER: up 3.87%, second quarter 1995 WORST QUARTER: down 0.39%, first
quarter 1996

1 year 5.82% 6.95%
Life of fund 5.87% 6.88%

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.

32
<PAGE>

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 market.

Interest Rate Risk: When interest rates rise, the Fund's bond yields will
generally 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 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.

-------

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.
- --------------------------------------------------------------------------------
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 (.16) .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%

<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
securities.

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
performance characteristics. The Fund is normally fully invested.

The Index composition may change from time to time. The manager may keep
securities 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
in assets at the 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 LOGANBILL
- ---------------
Vice President of subadviser
Joined subadviser in 1997
Began career in 1987
Vice President of Smith Barney
(1994-1997)

PAST PERFORMANCE

34
<PAGE>

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
performance 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 market.

-------

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 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.
- --------------------------------------------------------------------------------
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%

<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
interests).

The manager will invest no more than 20% of the Fund's assets in emerging market
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 securities,
high quality debt securities (short-term and otherwise), certain derivatives
(investments whose value is based on indices or other securities), and debt
securities denominated in foreign currencies.

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

SUBADVISER

WELLINGTON MANAGEMENT COMPANY, LLP
75 State Street
Boston, Massachusetts 02109

Managing, with predecessors, since 1928
Managed approximately $211 billion
in assets at the 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
fo 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

36
<PAGE>

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 movements 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 market.

-------

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.
- --------------------------------------------------------------------------------
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%

<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
contract), 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.
Consequently, NAV may change on days when contractowners will not be able to
instruct a separate account to buy or redeem fund shares.

VALUATION
Each of the 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 redemption
proceeds to a separate account withdrawing because of a conflict.

<PAGE>

FUNDS' EXPENSES, DIVIDENDS AND TAXES

EXPENSES

The advisory fee paid by each of the following funds to the adviser last year
was:

- --------------------------------------------------------------------------------
Funds % of net assets
- --------------------------------------------------------------------------------
Equity Index 0.14%
Small/Mid Cap Growth* 0.75%
Small Cap Growth 0.75%
International Balanced 0.85%
Short-Term Bond 0.30%

* Formerly Diversified Mid Cap Growth

Funds that have not operated for a full year pay fees to the advisor (as a
percentage of net assets) as follows:

. Aggressive Balanced: .675% of first $250 million; .625% of next $250
million; .60% above $500 million.

. Large Cap Value CORE: .75% of first $50 million; .65% of next $150 million;
.60% above $200 million.

. Large Cap Aggressive Growth: 1.00% of first $10 million; .875% of next $10
million; .75% above $20 million.

. Large/Mid Cap Value: .95% of first $25 million; .85% of next $25 million;
.75% of next $50 million; .65% above $100 million.

. Mid Cap Blend: .75% of first $250 million; .70% of next $250 million; .65%
above $500 million.

. Fundamental Mid Cap Growth: .85% of first $50 million; .80% of next $50
million; .75% of next $50 million; .70% above $150 million.

. Small/Mid Cap CORE: .80% of first $50 million; .70% above $50 million.

. Small/Mid Cap Value: .95% of first $100 million; .90% of next $150 million;
.85% above $250 million.

. International Equity: 1.00% of first $50 million; .95% of next $150
million; .90% above $200 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
Each fund automatically reinvests its dividends and distributions in additional
shares of the fund at NAV.

Each fund declares and pays dividends monthly.

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.

<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
activities 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.

<TABLE>
<CAPTION>
VARIABLE
CONTRACTOWNERS
----------------------------------------------

JOHN HANCOCK,
JHVLICO AND IPL
SEPARATE ACCOUNTS
----------------------------------------------

THE TRUST
Trustees oversee the
Trust's investment and
business activities.
----------------------------------------------
<S> <C>
INVESTMENT ADVISER CUSTODIAN
John Hancock Mutual Life State Street Bank and Trust
Insurance Company Company

Manages the Trust's Holds the Trust's assets, settles all Trust
investment and business trades and collects most of the valuation
activities. data required for calculating the Trust's
NAV.
-------------------------------------------- ------------------------------------------------

SUBADVISERS

Alliance Capital Management, LLP John Hancock Advisers, Inc.
The Boston Company Asset Management, LLC Mellon Bond Associates, LLP
Brinson Partners, Inc. OppenheimerFunds, Inc.
Goldman Sachs Asset Management. State Street Global Advisers
Independence Investment Associates, Inc. Wellington Management Company, LLP

Provide management to various funds.
------------------------------------------------------------------------------------------------------
</TABLE>

<PAGE>

APPENDIX

ADDTIONAL 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 Bond Index Fund, and the High Yield Bond Fund only began
operations on May 1, 1998, while the Small/Mid Cap Growth Fund 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
performance 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
brokerage and other transaction expenses) of the account. Also, except as
specifically 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
relevant 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
requirements applicable to such companies. Had such accounts been subject to
such requirements, their performance could have been adversely affected. The
performance 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 PERFORMANCE
DOES NOT INDICATE FUTURE RESULTS.

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.

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

* 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
- --------------------------------------------------------------------------------
FUND INDEX
1 year 0.40% 0.38%
Since inception 17.06% 13.12%

INDEX: Russell 2500(TM) Index

<PAGE>

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.

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

BEST QUARTER: up 22.52%, fourth quarter 1998 WORST QUARTER: down 15.80%, third
quarter 1998

INDEX: Russell 2500(TM) Growth Index

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
substantially similar investment strategy. As of December 31, 1998, the
composite included 6 accounts with total assets of $1.3 billion.

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

BEST QUARTER: up 6.45%, second quarter 1995 WORST QUARTER: down 3.25%%, third
quarter 1994

INDEX: Lehman Brothers Government/Corporate Bond Index

<PAGE>

HIGH YIELD BOND COMPOSITE (Corresponding to High Yield Bond Fund)
The High Yield Bond 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 11 accounts with total
assets of $909 million.

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

BEST QUARTER: up 6.19%, second quarter 1995 WORST QUARTER: down -7.90%, third
quarter 1998

INDEX: Lehman Brothers High Yield Bond Index.

<PAGE>

FOR MORE INFORMATION

This prospectus should be used only with a variable contract prospectus.

John Hancock Variable Series Trust I
John Hancock Place
Boston, Massachusetts 02117

Two documents are available that offer further information on John Hancock
Variable Series Trust I:

ANNUAL/SEMIANNUAL REPORT TO SHAREHOLDERS

Includes financial statements, a discussion of the market conditions and
investment strategies that significantly affected performance, and the auditors'
report (in the annual report only).

STATEMENT OF ADDITIONAL INFORMATION (SAI)

The SAI contains more detailed information on all aspects of the funds.

A current SAI has been filed with the Securities and Exchange Commission and is
incorporated by reference into (i.e., is legally a part of) this prospectus.

To request a free copy of the current annual/semiannual report or the SAI,
please contact:

BY MAIL:

John Hancock Variable Series Trust I
John Hancock Place
Boston, MA 02117

BY PHONE: 1-800-732-5543

Or you may view or obtain these documents from the SEC:

IN PERSON: at the SEC's Public Reference Room in Washington, DC

BY PHONE: 1-800-SEC-0330

BY MAIL: Public Reference Section
Securities and Exchange Commission
Washington, DC 20549-6009
(duplicating fee required)

ON THE INTERNET: www.sec.gov

SEC FILE NUMBER: 811-4490
<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 ____, 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 thirty-one of the
Trust's current Funds.

This Statement of Additional Information is dated ______, 1999.

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<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 Funds..........................................

CHANGING INVESTMENT OBJECTIVES AND STRATEGIES...................

INVESTMENT TECHNIQUES...........................................
Temporary Defensive Strategies.................................
Use of Options on Securities by the Aggressive Balanced,
Equity Index, Large Cap Value, Large Cap Growth, Large Cap
Aggressive Growth, Large/Mid Cap Value, Mid Cap Value,
Fundamental Mid Cap Growth, Mid Cap Blend, Small Cap Value,
and International Opportunities Funds........................
Other Hedging-Type Strategies by the Aggressive Balanced,
Equity Index, Large Cap Value, Large Cap Growth, Large Cap
Aggressive Growth, Large/Mid Cap Value, Mid Cap Value,
Fundamental Mid Cap Growth, Mid Cap Blend, Small Cap Value,
and International Opportunities Funds........................
Risks of Options and Futures Transactions......................
Use of Options and Futures by the Managed, Large Cap Value
CORE, Mid Cap Growth, Small/Mid Cap Growth, Small/MidCap
CORE, Small Cap Growth, Global Equity, International Balanced,
International Equity Index, International Equity, Emerging
Markets Equity, Short-Term Bond, Sovereign Bond, Global Bond,
and High Yield Bond Funds....................................
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 Fund Securities.....................................
Mortgage Dollar Rolls and Reverse Repurchase Agreements........

TYPES OF INVESTMENT INSTRUMENTS AND RATINGS.....................
Foreign Securities.............................................
Debt Securities Generally......................................
High Yield Debt Securities.....................................
U.S. Government Obligations....................................
Other Money Market 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..........................................

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<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 TRUST.....................

INVESTMENT ADVISORY AND OTHER SERVICES..........................
Investment Management and Operating Expenses...................
Underwriting and Indemnity Agreement...........................
Custodian Agreement............................................
Independent Auditors...........................................

YEAR 2000 PROGRESS..............................................

FUND 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 Funds Other
than the Money Market Fund..............................
Calculation of Yield Quotations of the Money Market Fund..
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 "Trust") 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 Trust has thirty-one separate Funds, each with a separate series of
shares. Shares of the Trust 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 Trust 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, Trust 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 Trust issues a separate series of shares of beneficial interest for each
Fund. Each share issued with respect to a Fund has a pro rata interest
in the net assets of that Fund. The assets of each Fund are charged
with the liabilities of that Fund and a proportionate share of the general
liabilities of the Trust. 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 Trust's shares, those Separate Accounts
may be deemed to control the Trust.

With the exception of the Large Cap Aggressive Growth, Mid Cap Growth and
International Balanced Funds, each of the Funds is a "diversified" Fund within
the meaning of the Investment Company Act of 1940.

The Trust 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 Funds of the Trust, respectively, in exchange
for shares of these Funds. 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 Trust.

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 Funds of the Trust, respectively, in
exchange for shares of these Funds. 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 Trust.

In 1999, the Strategic Bond Fund was renamed the Global Bond Fund; and the
Diversified Mid-Cap Growth Fund was renamed the Small/Mid Cap Growth Fund. In
1998, the Special Opportunities Fund was renamed the Diversified Mid-Cap Growth
Fund; the International Equities Fund was renamed the International Equity Index
Fund; and the Short-Term U.S. Government Fund was renamed the Short-Term Bond
Fund. In 1996, the Stock Fund was renamed the Growth & Income Fund, and, in
1995, the Bond Fund was renamed the Sovereign Bond Fund; in 1995, the name of
the current International Equity Index Fund was changed from the "International
Fund" to the "International Equities Fund." In 1994, the name of that Fund had
been changed from the "Global Fund."

RISK FACTORS

The difference in objectives, policies, and practices of the various
Funds can be expected to affect each Fund's investment return as well as
the degree of risk to which each Fund is subject. The greatest risks (but
not all the risks) to which one or more of the Funds of the Trust may be
subject are disclosed below.

DEBT SECURITIES

4
<PAGE>

The Money Market Fund invests exclusively in money market instruments; all
the other Funds 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 Funds are primarily invested in non-money market
debt securities: the Short-Term Bond, Bond Index, Sovereign Bond, Global Bond,
and High Yield Bond. The Managed and International Balanced Funds can vary
their holdings of these securities within a broad range. All the other
Funds (except the Money Market Fund) may invest in these securities to
some extent.

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

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 Fund 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. For example, the interest rate risk of the Short-Term Bond
Fund, 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 Funds 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 Fund 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 Fund intends to invest primarily in these securities. The other
Funds most likely to invest a significant portion of their assets in high-
yield securities are the Managed, Aggressive Balanced, Short-Term Bond,
Sovereign Bond, and Global Bond Funds. In contrast, the Bond Index Fund will not
invest in debt securities that are not at least investment grade at the time of
purchase. However, all Funds (other than the Money Market Fund) 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-

5
<PAGE>

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 the debt 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 Fund reinvests the proceeds resulting from prepayments in a
lower yielding instrument. This results in a decrease in the Fund'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 Funds most likely to invest
a significant position of their assets in debt securities with prepayment
features are Managed, Aggressive Balanced, Real Estate Equity, International
Balanced, Short-Term Bond, Bond Index, Sovereign Bond, Global Bond, and High-
Yield Bond Funds. However, all Funds that invest in debt securities (other than
the Money Market Fund) may at times have some exposure to prepayment risk.

Risks of "Zero Coupon" Instruments: All of the Funds 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 Funds most likely to invest a significant
amount of their assets in instruments that are subject to this volatility risk
are the Managed, Aggressive Balanced, Real Estate Equity, International
Balanced, Short-Term Bond, Bond Index, Sovereign Bond, Global Bond, and High-
Yield Bond Funds. However, all Funds that invest in debt securities may at times
have some exposure to this risk.

EQUITY SECURITIES

All of the Funds 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 Funds. All of the Funds that invest in equity
securities expect to make such securities their primary investment (except for
the Managed and International Balanced Funds), which may nevertheless do so in
the discretion of its sub-investment manager). The Managed Fund, Aggressive
Balanced and International Balanced Fund, 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 Trust: 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 $11.2
trillion at the end of 1998. The Russell

6
<PAGE>

3000 Index is a service mark of Frank Russell Company, which does not sponsor
and is not in any way affiliated with the Trust. Inclusion in the index in no
way implies an opinion as to its attractiveness or appropriateness as an
investment.

o Large Cap: 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
greater than $6.6 billion.

o Mid Cap: Companies having a capitalization within the range of the 250 to
1000 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 $1.3 billion to $8.1 billion.

o Small Cap: 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 $1.3 billion.

The above definitions for large cap, mid cap and small cap are adjusted at the
end of each calendar quarter to reflect changes in the market capitalization of
the Russell 3000 Index.

The equity securities of the Managed, Growth & Income, Aggressive Balanced,
Equity Index, Large Cap Value, Large Cap CORE, Large Cap Growth, Large Cap
Aggressive Growth, Global Equity, International Balanced, International Equity
Index, and International Opportunities Funds are generally expected to represent
primarily companies that qualify as large cap issuers. These Funds also may
invest in the equity securities of companies that qualify as small and mid cap
issuers.

The equity securities of the Large/Mid Cap value and International Equity
Funds are generally expected to represent primarily large and mid cap issuers.
These Funds also may invest in the equity securities of companies that qualify
as small cap issuers.

The equity securities of the Mid Cap Value, Mid Cap Growth, Fundamental Mid
Cap Growth, and Mid Cap Blend Funds are generally expected to represent
primarily companies that qualify as mid cap issuers. These Funds 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 Value, Small/Mid Cap Growth, and
Small/Mid Cap CORE Funds are generally expected to represent companies that are
small cap and mid cap issuers. This Fund 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, in particular,
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 Funds are generally expected to
invest primarily in equity securities of companies that qualify as small cap
issuers. Although these Funds 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 Fund has broad latitude to invest in
companies of any size.

The Real Estate Equity Fund invests in real estate equity securities that have
historically been primarily mid cap, but may invest in small cap or large cap
equity securities.

REAL ESTATE

The Real Estate Equity Fund 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.

7
<PAGE>

The securities purchased will be principally common stocks (and securities
convertible into or with rights to purchase common stocks) but a portion of the
Fund 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 "Types of Investment Instruments and Ratings". The Fund may also invest in
master limited partnerships from time to time.

Investments in the Real Estate Equity Fund 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 Fund,
all of the other Funds (except for the Money Market Fund) 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 Funds invest primarily in foreign securities: the International
Balanced, International Equity Index, International Equity, International
Opportunities, Global Equity, Emerging Markets Equity, and Global Bond Funds.
The Managed, Short-Term Bond, Bond Index, Sovereign Bond, and High-Yield Bond
Funds can vary their holdings of these securities within a broad range. All the
other Funds can invest in these securities to some extent. The Emerging Markets
Equity Fund invests primarily in developing countries commonly known as
"emerging markets." To a lesser extent, the Global Equity, International
Balanced, International Equity Index, International Equity, International
Opportunities, Bond Index, Global Bond, Sovereign Bond, and High-Yield Bond
Funds may also invest in developing countries commonly known as "emerging
markets".

Currency Risk: Funds 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 Funds 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 Funds 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 Funds 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 Trust's
exposure to various currencies. Even where intended simply to reduce a Fund's
risks of exposure to currencies other than U.S. dollars, there is no guarantee
that a Fund will not suffer losses on or otherwise be disadvantaged by these
transactions.

In general, the more foreign securities a given Fund invests in, the greater
its currency management activities are likely to be. Also, the Managed,
Aggressive Balanced, Mid Cap Growth, Global Equity, International Balanced,
International Equity Index, International Equity, International Opportunities,
Emerging Markets Equity, Global Bond,International Opportunities, Emerging
Markets Equity, and Global Bond Funds may use certain of these same types of
instruments in currency management strategies that expose those Funds to
currencies other than the U.S. dollar. Although this would not be done for the
purpose of "leveraging" the Fund's overall exposure to fluctuations in currency
values, such strategies could expose those Funds to greater risks of loss and
greater volatility than they otherwise would experience.

8
<PAGE>

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 Fund'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.

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 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 Funds, 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 Fund manager's judgments prove
incorrect, even such relatively conservative transactions can negatively affect
the Fund's performance.

MORE AGGRESSIVE OPTION, FUTURES, AND DERIVATIVE TRANSACTIONS

Certain Funds 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, Large Cap Value CORE, Mid Cap Growth, Small/Mid Cap CORE,
Small Cap Growth, Global Equity, International Balanced, International Equity
Index, International Equity, Emerging Markets Equity, Short-Term Bond, Sovereign
Bond, Global Bond, and High Yield Bond Funds. Also, the Global Equity,
International Balanced, International Equity Index, International Equity,
Emerging Markets Equity, Global Bond, and High Yield Bond Funds 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 Funds to risks that the other Funds 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 Fund's holdings in an asset class whose value increases unexpectedly,
or may increase the Fund's holdings in an asset class just prior to it
experiencing a loss of value. The Managed, Aggressive Balanced and International
Balanced Funds tend to exercise broad discretion in reallocating assets across
asset classes.

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<PAGE>

The Global Bond and Global Equity Funds intend to exercise discretion to
reallocate assets across domestic and international asset classes. All of the
other Funds, with the exception of the Money Market Fund, 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, Aggressive Balanced, and International Balanced
Funds.

RISKS OF FULL INVESTMENT

The Equity Index, International Equity Index, and Bond Index Funds expect
to invest substantially all of their assets in equity or debt securities within
their investment objectives and policies at all times. Accordingly, these
Funds may carry more risk in times of declining markets than Funds
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 Fund, all of the Funds 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 Funds are less likely to assume such a defensive position
than any of such other Funds. In any event, there can be no assurance that
the transaction costs and lost investment opportunities will not outweigh any
benefits to a Fund that attempts to adopt a defensive strategy.

NON-DIVERSIFIED FUNDS

The Large Cap Aggressive Growth, Mid Cap Growth and International Balanced
Funds are non-diversified Funds. A "non-diversified" Fund has the ability to
take larger positions in a smaller number of issuers than "diversified" Funds.
Because the appreciation or depreciation of a single security may have a greater
impact on the net asset value of a non-diversified Fund, its share price can be
expected to fluctuate more than a comparable diversified Fund. Non-diversified
Funds 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 Fund's
assets may be invested in the obligations of a limited number of issuers, the
value of that Fund's 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 Fund. Non-diversified
Funds, like the other Funds, 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 Funds' investment objectives and strategies may in general be changed
without the approval of shareholders.

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INVESTMENT TECHNIQUES

TEMPORARY DEFENSIVE STRATEGIES

All of the Funds, 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.

Most of the Funds are not limited as to the types of investments they could
use temporarily for defensive purposes. Thus, for example, a small cap equity
Fund might temporarily invest in stocks of larger cap companies or in high
quality, short-term debt securities. A bond Fund 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
high quality, short-term debt securities in the United States. Several Funds are
subject to more specific requirements, however.

USE OF OPTIONS ON SECURITIES BY THE AGGRESSIVE BALANCED, EQUITY INDEX, LARGE CAP
VALUE, LARGE CAP GROWTH, LARGE CAP AGGRESSIVE GROWTH, LARGE/MID CAP VALUE, MID
CAP VALUE, FUNDAMENTAL MID CAP GROWTH, MID CAP BLEND, SMALL CAP VALUE, AND
INTERNATIONAL OPPORTUNITIES FUNDS

Writing Exchange-Traded Covered Call Options. These Funds may write
"covered" call options on national securities exchanges. In such transactions,
the Fund 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 Fund, the Fund 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 Funds also may
purchase "protective" put options on national securities exchanges. In such
transactions, the Fund 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 Fund will, in
effect, lose the premium it has paid. The Fund, 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 Funds intend to write and purchase options only if
adequate liquidity exists. If for any reason a Fund cannot, however, close
out its open option position when deemed advisable, the Fund's investment
performance could be adversely affected.

OTHER HEDGING-TYPE STRATEGIES BY THE AGGRESSIVE BALANCED, EQUITY INDEX, LARGE
CAP VALUE, LARGE CAP GROWTH, LARGE CAP AGGRESSIVE GROWTH, LARGE/MID CAP
VALUE, MID CAP VALUE, FUNDAMENTAL MID CAP GROWTH, MID CAP BLEND, SMALL CAP
VALUE, AND INTERNATIONAL OPPORTUNITIES FUNDS

These Funds may use exchange-traded financial futures contracts thereon, and
they also may purchase exchange-traded put or call options on stock indexes. All
of these Funds (except the Equity Index Fund) may use these instruments as a
hedge to protect against possible changes in interest rates and stock
prices.

For example, during a market decline, the selling of the appropriate futures
contract or the purchase of the appropriate put option could enable a Fund
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 Fund, 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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<PAGE>

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
Fund 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 following
Funds 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: Aggressive Balanced, Equity Index, Large Cap Aggressive
Growth, Large/Mid Cap Value, Fundamental Mid Cap Growth, and Mid Cap Blend.

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
Funds (other than the Equity Index Fund) 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 Funds 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 Fund securities
which have been hedged.

If they wish to hedge against the possibility of lower interest rates or
increases in equity prices, these Funds (other than the Equity Index Fund) may
purchase financial futures contracts. These Funds may purchase futures contracts
only when (a) they intend to purchase securities or (in the case of the
Aggressive Balanced, Equity Index, Large Cap Aggressive Growth, Large/Mid Cap
Value, Fundamental Mid Cap Growth, and Mid Cap Blend Funds) wish to establish or
maintain market exposure to securities that the Fund 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 Fund's objective for the hedge transaction.

Certain of these Funds may use foreign currency futures contracts to manage
their exposure to foreign currencies. Foreign currency futures contracts could
be used by a Fund for this purpose in any manner and to the extent that such
Fund is authorized to use forward currency contracts as described under "Foreign
Currency Management Strategies" below.

Options on Futures Contracts and on Stock Indexes. These Funds also may
purchase options on appropriate financial futures contracts and stock indexes
for any purpose and to the extent that it is authorized to use the financial
futures contracts described above. 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 Fund 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 Fund 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 Fund 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 Funds 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

<PAGE>

to secure its obligations under futures contracts, plus the amount of premiums
paid by the Fund for outstanding options to purchase futures contracts,
exceeds 5% of the market value of the Fund's total assets. For more
information about margin deposits, see "Financial Futures Contracts" below.

None of the Aggressive Balanced, Large Cap Aggressive Growth, Large/Mid Cap
Value, Fundamental Mid Cap Growth, Mid Cap Blend, or Small/Mid Cap Value Funds
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 Fund's initial margin deposits on such
outstanding non-hedging futures and options positions and the amount of premiums
paid by the Fund for such outstanding non-hedging options on futures contracts
exceeds 5% of the market value of the Fund'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.

Nor will any of the Large Cap Value, Large Cap Growth, Mid Cap Value, or Small
Cap Value Funds 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 Fund's total assets.
Nor will any Fund consider as "hedging" any transaction that is intended to
leverage the Fund's investment exposure to the type of security being
hedged or to leverage the Fund'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 Fund establishes a hedge position, the
value of the securities or currencies being hedged moves in the opposite
direction from that anticipated, the Fund 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 Funds 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. Certain of 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 Funds and make compliance with the Funds' 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 Fund, 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 Fund which would not be offset by gains
with respect to corresponding portfolio securities owned or to be purchased by
that Fund. Although the Funds 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 Fund seeks to close
a particular futures or option position. Hedging transactions also may be more,
rather than less, favorable to a Fund than originally anticipated.

Other Risks for the Managed, Large Cap Value CORE, Mid Cap Growth, Small/Mid
Cap Growth, Small/Mid Cap CORE, Small Cap Growth, Global Equity, International
Balanced, International Equity Index, International Equity, Emerging Markets
Equity, Short-Term Bond, Sovereign Bond, Global Bond, and High Yield Bond Funds.
These Funds may engage in types of options and futures transactions not
permitted to the other Funds, 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 Funds,
these Funds are, in certain cases, not as limited regarding the amount of their
assets that may be so employed. To the extent that these Funds exercise their
broader authority to enter into options and futures transactions, they may incur
greater risks than the other Funds.

USE OF OPTIONS AND FUTURES BY THE MANAGED, LARGE CAP VALUE CORE, MID CAP GROWTH,
SMALL/MID CAP GROWTH, SMALL/MIDCAP CORE, SMALL CAP GROWTH, GLOBAL EQUITY,
INTERNATIONAL BALANCED, INTERNATIONAL EQUITY INDEX, INTERNATIONAL EQUITY,
EMERGING MARKETS EQUITY, SHORT-TERM BOND, SOVEREIGN BOND, GLOBAL BOND, AND HIGH
YIELD BOND FUNDS

Writing Exchange-Traded Covered Call Options and Purchasing Exchange-Traded
Protective Put Options. These Funds (other than the Sovereign Bond
Fund) 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 Funds (other than the Sovereign Bond
Fund) may also write "cov-

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<PAGE>

ered" put options on securities. A put option written by a Fund will be
deemed to be "covered" if the Fund 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 Funds will also be considered to be
"covered" to the extent that the Fund's liabilities under these options are
fully offset by its rights under put or call options purchased by the Fund.
Although a Fund receives a "premium" for writing a covered put option, it
incurs the risk that the put will be exercised and the Fund 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 Funds (which for this purpose include the Sovereign Bond Fund) may also
purchase put and call options in the same types of transactions described above
under "Other Hedging-type Strategies by the Aggressive Balanced, Equity Index,
Large Cap Value, Large Cap Growth, Large Cap Aggressive Growth, Large/Mid Cap
Value, Mid Cap Value, Fundamental Mid Cap Growth, Mid Cap Blend, Small Cap
Value, and International Opportunities Funds."

The Managed, Large Cap Value CORE, Mid Cap Growth, Small/Mid Cap Growth,
Small/Mid Cap CORE, Small Cap Growth, Global Equity, International Balanced,
International Equity Index, International Equity, Emerging Markets Equity,
Short-Term Bond, Global Bond, and High Yield Bond Funds also may, for other
purposes, purchase put and call options on indexes composed of securities in
which those Funds may invest.

The Managed, Large Cap Value CORE, Mid Cap Growth, Small/Mid Cap CORE, Small
Cap Growth, Global Equity, International Balanced, International Equity Index,
International Equity, Emerging Markets Equity, Global Bond, and High Yield Bond
Funds 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 Fund 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 Fund's position so that the option
cannot be profitably exercised prior to its expiration. None of these Funds 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,
Large Cap Value CORE, Mid Cap Growth, Small/Mid Cap Growth, Small/Mid Cap CORE,
Small Cap Growth, Global Equity, International Balanced, International Equity
Index, International Equity, Short-Term Bond, Global Bond, and High Yield Bond
Funds. These Funds (but not the Emerging Markets Equity or Sovereign Bond Funds)
may also write covered put or call options on indexes composed of securities in
which the Fund may invest, in any manner that such Fund would be permitted to
write such options on specific securities.

Using Options Traded Over-the-Counter or on Foreign Exchanges. These Funds
(which for this purpose include the Emerging Markets Equity Fund but not the
Sovereign Bond Fund) 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 Funds 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 Funds 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 Funds (which
for this purpose include the Emerging Markets Equity and Sovereign Bond Funds)
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-type Strategies by the Aggressive Balanced, Equity
Index, Large Cap Value, Large Cap Growth, Large Cap Aggressive Growth, Large/Mid
Cap Value, Mid Cap Value, Fundamental Mid Cap Growth, Mid Cap Blend, Small Cap
Value, and International Opportunities Funds) 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-

14
<PAGE>

nancial instruments or indexes thereof (except that the Large Cap Value CORE
Fund will use only those futures contracts that are based on a representative
index, and options thereon). None of these Funds 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 Fund's initial margin deposits on such outstanding non-hedging
futures and options positions and the amount of premiums paid by the Fund for
such outstanding non-hedging options on futures contracts exceeds 5% of the
market value of the Fund'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
Funds 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 Funds will not use
these techniques for purpose of "leveraging" the Fund'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 Fund, the total amount of
premiums paid by a Fund for such options that are not used for bona fide
hedging is, as discussed above, limited to 5% of the Fund's net assets, and
the Fund 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, Global Bond, and High
Yield Bond Funds 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 Fund may also engage in those transactions
and, in addition, may engage in equity swap transactions. The International
Equity Fund may invest up to 10% of its total assets (at the time the swap is
entered into) in currency and equity swaps. 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 a specified currency, interest rate
index, or equity index.

The amount of a Fund's potential gain or loss on any swap transaction is
not subject to any fixed limit. Nor is there any fixed limit on the Fund's
potential loss if it sells a cap, floor or collar. If a Fund buys a cap,
floor or collar, however, the Fund'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 Fund
will use these techniques only as a risk management tool and not for purposes of
leveraging the Fund'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 Fund anticipates purchasing at a later date, or to gain
exposure to certain markets in the most economical way possible. Nor will a
Fund sell interest rate caps, floors or collars if it does not own
securities providing the interest that the Fund 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 Fund 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 Fund 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 Fund. The

15
<PAGE>

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 Fund 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 Fund's open futures purchase positions,
plus the current value of the securities underlying all of the Fund'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 Fund, 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 a 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 the Fund 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 Funds 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
Funds necessarily take delivery of or deliver currencies in connection with
currency futures contracts. Instead, a Fund 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 Trust, in some
cases they could adversely affect particular Trust transactions in these
instruments.

Custodial Aspects. In certain circumstances, brokers may have access to
Fund assets posted as margin in connection with futures and options
transactions.

In such circumstances, the Trust will use only brokers in whose reliability
and financial soundness it has full confidence, and the Trust will adopt certain
other procedures and limitations to reduce the risk of loss to any Trust 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 Fund 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 Trust could effect such recovery.

If on any day a Fund 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 Trust 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 Trust's general or segregated account with the custodian, as appropriate.

SHORT-TERM TRADING

All Funds can 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 Fund may engage in short-

16
<PAGE>

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 Fund:

(a) To avoid potential depreciation in the value of a security held in the
Fund where the Fund 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 Fund.

(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
trust 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 Fund
technique, will be taken into account.

FOREIGN CURRENCY MANAGEMENT STRATEGIES

The extent to which the several Funds may invest in foreign securities is
summarized above under "Risk Factors--Foreign Securities." Ways in which some of
these Funds 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 Funds also may use currency futures contracts and options
thereon for these purposes, as discussed above under "Other Hedging-Type
Strategies by Aggressive Balanced, Equity Index, Large Cap Value, Large Cap
Growth, Large Cap Aggressive Growth, Large/Mid Cap Value, Mid Cap Value,
Fundamental Mid Cap Growth, Mid Cap Blend, Small Cap Value, and International
Opportunities Funds." In addition to the Funds listed there, the Managed, Mid
Cap Growth, Global Equity International Balanced, International Equity Index,
and Global Bond Funds 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, International Equity, Emerging Markets Equity, Global Bond, and High
Yield Bond Funds to the extent discussed above under "Other Derivative
Transactions" (although the Global Equity Fund will not use these techniques for
the other purposes described there).

Transaction Hedging. When any Fund 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 Trust 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 Fund 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 Funds may, for a fixed amount of

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<PAGE>

United States dollars, enter into a forward foreign exchange contract to
implement a strategy known as "transaction hedging." The Funds that may enter
into forward exchange contracts are the Managed, Aggressive Balanced, Large Cap
Value, Mid Cap Growth, Global Equity, International Balanced, International
Equity Index, International Equity, International Opportunities, Emerging
Markets Equity, Global Bond, and High Yield Bond Funds.

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 Fund may purchase or sell such foreign currencies on a
"spot" (i.e., cash) basis. Alternatively, the Funds listed in the preceding
paragraph may enter into forward exchange purchase or sale contracts, whereby
the Fund 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 Fund's
securities or prevent loss if the price of such securities should decline.

Portfolio Hedging. Some portion of those Funds that can invest in foreign
securities will be denominated or quoted in foreign currencies. As a result, the
value of each Fund 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 Fund's assets. In that case, certain
Funds 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
Fund'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 Fund's
securities only during the period before the maturity of the forward contract
(which will not be in excess of one year). The Funds 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 Fund's securities or
prevent losses if the prices of such securities decline.

Except as described below as to the Managed, Aggressive Balanced, Mid Cap
Growth, Global Equity, International Balanced, International Equity Index,
International Equity, International Opportunities, and Global Bond Funds, the
Funds 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 establishing the hedge) of the securities which the Fund holds
denominated or quoted in that particular foreign country. The Funds 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 Funds will not use forward foreign currency
exchange contracts for the purpose of leveraging the Fund's currency exposure.

Proxy Currencies. In implementing the above-described currency hedging
techniques, the Managed, Aggressive Balanced, Mid Cap Growth, Global Equity,
International Balanced, International Equity Index and International Equity
Funds 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
Fund.

Other Techniques for Managing Currency Exposure. The Managed, Aggressive
Balanced, Mid Cap Growth, Global Equity, International Balanced, International
Equity Index, International Equity, International Opportunities, Emerging
Markets Equity, and Global Bond Funds may use additional techniques when the
sub-investment manager for one of these Funds 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 Fund 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 Fund's securi-

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<PAGE>

ties denominated in such foreign currency. The currency contract may call for
the Fund 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 Fund's
overall exposure to various currencies into a more desirable balance. For
similar purposes, the Managed, Aggressive Balanced, International Balanced,
International Opportunities, International Equity, and Strategic Bond Funds 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 Fund's securities.

If a Fund is to receive a currency other than U.S. dollars pursuant to a
forward currency sales contract, or if the Fund enters into a forward
currency purchase contract, a risk exists that the value of the currency to be
received by the Fund 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 Fund.

Other Information About Foreign Currencies Exchange Transactions. If a
Fund enters into a portfolio hedging transaction, the Fund 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 Fund 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 Fund in an amount at all
times at least equal to the value of the Fund's net obligation with respect
to forward contracts in a particular currency or, in the case of the
International Balanced Fund only, the Fund's net "out of the money"
obligation (if any) with respect to all of the Fund'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
Fund 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 Fund's net obligation with respect to such contracts as described in
the preceding sentence.

At the maturity of a forward currency sale contract, a Fund 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 Fund
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
Fund 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 Funds to hedge against a devaluation that is
so generally anticipated that the Funds are not able to contract to sell
the currency at a price above the devaluation level it anticipates. The cost to
the Funds 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 Equity,
International Opportunities, Emerging Markets Equity, Global Bond, and High
Yield Bond Funds 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 Funds' exposure to changes in currency exchange rates or currency
exchange volatility. Call options on foreign currencies written by a Fund will
be "covered," which means that the Fund 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 Fund, the Fund 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 Fund 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, Large Cap Value CORE, Mid Cap Growth,
Small/Mid Cap Growth, Small/Mid Cap CORE, Small Cap Growth, Global Equity,
International Balanced, In-

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<PAGE>

ternational Equity Index, International Equity, Emerging Markets Equity, Short-
Term Bond, Sovereign Bond, Global Bond, and High Yield Bond Funds" above.

WHEN ISSUED SECURITIES AND FORWARD COMMITMENTS

All Funds (other than the Growth & Income and Money Market Funds) 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 Funds 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 Fund's other assets.
Although the Fund will enter into such contracts with the intention of
acquiring the securities, the Fund may dispose of a commitment prior to
settlement if the sub-investment managers deem it appropriate to do so. The
Fund may realize short-term profits or losses upon the sale of forward
commitments.

Each Fund 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 Fund 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 Fund'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 Funds may not
invest in repurchase agreements maturing in more than 7 days. No more than 15%
of the net assets of any other Fund will be invested in repurchase agreements
maturing in more than 7 days. All of the Funds may enter into repurchase
agreements.

The Small/Mid Cap Growth, Sovereign Bond, and Small Cap Growth
Funds, 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 Small/Mid Cap
Growth and Small Cap Growth Funds, 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 Funds
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 Funds 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 Large Cap Value CORE, Small/Mid Cap CORE, and International
Equity Funds in one or more re-

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<PAGE>

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
Fund in one or more repurchase agreements with other Janus-advised mutual
funds.

Each such Fund has established a procedure providing that the securities
serving as collateral for each repurchase agreement must be delivered to the
Fund'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 Fund
could experience delays in liquidating the underlying securities and could
experience losses, including the possible decline in the value of the underlying
securities during the period while the Fund 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 FUND SECURITIES

In order to generate additional income, all Funds 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 Fund 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 Fund. Such loans will not be
for more than 60 days and will be terminable by the Fund at any time. The
Fund 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 Fund may pay
reasonable fees to persons unaffiliated with the Fund 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 Fund
may incur a loss. It is a fundamental restriction of the Fund not to lend
portfolio securities having a total value in excess of 33 1/3% of the total
assets of the Fund from which the securities have been lent.

MORTGAGE DOLLAR ROLLS AND REVERSE REPURCHASE AGREEMENTS

The Short-Term Bond and Money Market Funds 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 Fund sells a security and enters into an
agreement to repurchase the security at a specified future date and price. The
Fund generally retains the right to interest and principal payments on the
security. Since the Fund receives cash upon entering into a reverse
repurchase agreement, it could be considered a borrowing. For this reason, the
Fund 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 Global Bond
Funds may also enter into mortgage dollar rolls, in which the Fund
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 Fund foregoes principal and interest paid
on the mortgage-backed securities during the roll period, the Fund 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 Fund 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 Fund. Therefore, the Fund
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
Fund may be used as arbitrage transactions in which the Fund will
maintain an offsetting position in investment-grade debt obligations or repur-

21
<PAGE>

chase agreements that mature on or before the settlement date of the related
mortgage dollar roll or reverse repurchase agreement. Since the Fund 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 Fund 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
Funds may invest at least some of their assets in foreign securities. 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 Funds 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 Funds may
derive from movements in any one market. If the securities of markets moving in
different directions are combined in any of these Funds, total volatility
of the Fund is reduced.

Because the Funds 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 Equity, International Opportunities, Emerging Markets Equity,
Sovereign Bond, and High Yield Bond Funds 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 Funds 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 Funds 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.

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<PAGE>

DEBT SECURITIES GENERALLY

The value of the debt securities in any Fund 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 Fund could fluctuate. As in the case of any other
security, substantial redemptions could require a Fund 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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<PAGE>

HIGH YIELD DEBT 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 a Fund to value its portfolio securities, and a Fund'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. A Fund 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
Fund 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

24
<PAGE>

many buyers.

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 Funds. All
of the other Funds may also invest in U.S. Government obligations to some
extent.

OTHER MONEY MARKET 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 Fund, but may also be used by each of the other Funds 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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<PAGE>

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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<PAGE>

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 Funds, other than the Growth & Income, Large Cap Growth and Real
Estate Equity Funds, 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 Funds to determine on a case-by-case basis
whether each issue of Rule 144A securities owned by the Fund is an illiquid
security. If illiquid, a Rule 144A security may not be purchased by the Money
Market Fund, but may be purchased by any other eligible Fund, subject
to such Fund's 15% limit on the amount of its assets that can be invested in any
illiquid securities. Purchasing this type of unregistered security could have
the effect of increasing the level of illiquidity and volatility in the
Fund.

STANDARD AND POOR'S DEPOSITORY RECEIPTS

The Equity Index, Large Cap Value CORE, and Small/Mid Cap CORE Funds may,
consistent with their 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 Fund 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

27
<PAGE>

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 Funds (except for the Growth & Income, Real Estate Equity,
Diversified Bond Index, and Money Market Funds) 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 Trust'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
Fund) or decreases (in the case of a call option written by the Fund),
the Fund may incur losses that exceed the amount of the premium received by
the Fund for writing the option. Such losses may arise because an option
written by the Fund on a futures contract requires the Fund 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.

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 Trust, so that a Fund has a net
loss on its outstanding futures contracts for a given day, the Fund
generally will be required to post additional margin to that extent. The margin
deposit is returned, assuming the Trust's obligations have been met, when the
futures contract is terminated.

Similar margin requirements will apply in connection with any transactions in
which a Fund 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.

OTHER DERIVATIVE INSTRUMENTS

Subject to the conditions set forth elsewhere in this Statement of Additional
Information, the Global Equity, International Balanced, International Equity
Index, International Equity, Emerging Markets Equity, Global Bond, and High
Yield Bond Funds may use swaps, caps, floors and collars. Provided the contract
so permits, a Fund 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 Fund receiving or paying, as the
case may be, only the net amount of the two payments.

Each Fund 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
Fund 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 Fund's accrued
obligations under the swap agreement over the accrued amount the Fund is
entitled to receive under the agreement. If a Fund 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
Fund's accrued obligations under the agreement.

None of these Funds 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
Fund 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 Fund'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 Fund may engage in
such transactions.

INVESTMENT COMPANIES

Each Fund may invest up to 10% of its total assets in shares of other
investment companies investing exclu-

29
<PAGE>

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 Fund 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
Fund 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
Fund. The Funds 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 Fund would bear its ratable share of that investment
company's expenses, including advisory and administration fees. The Emerging
Markets Equity Fund 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 Fund's assets invested in
other open-end (but not closed-end) investment companies. The International
Equity Index Fund is likely to invest in closed-end investment companies known
as "country funds" or passive foreign investment companies. The International
Equity Fund may also purchase shares of investment companies investing primarily
in foreign securities, including country funds. The Large Cap Value CORE and
International Equity Funds may, subject to the limitations stated above, invest
in World Equity Benchmark Shares ("WEBS") and similar securities that represent
an interest in securities included in a foreign securities index.

The Mid Cap Growth Fund 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 Fund the fees it receives from the
Janus money market fund to the extent such fees are based on the Mid Cap Growth
Fund'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
Funds each involve the risk that the Fund will be unable to match the
performance of its corresponding target index. Each Fund'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 Fund, (b) the level of the
Fund'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 Fund's sub-investment manager. Further, if the
size of a Fund limits the number of issues that the Fund can purchase,
or that size is relatively small in relation to cash flows, the greater the
potential that the Fund may be unable to match the performance of the
corresponding target index.

THE S&P 500

The Equity Index Fund 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
Fund as soon as deemed advisable. The Fund 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 Trust and the insurance products supported by the Trust 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 Trust or any member of the public regarding the
advisability of investing in the Trust or such insurance products. Standard &
Poor's only relationship to the Trust 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 Fund or the Trust. "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 Trust. In
determining, composing, or calculating the S&P 500 Index, S&P has no obligation
to take into consideration the needs of the Trust or those of the owners of the
insurance products supported by the Trust. S&P is not responsible for and has
not participated in the determination of

30
<PAGE>

the prices and amount of the insurance products supported by the Trust 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 TRUST, OWNERS OF THE PRODUCTS
SUPPORTED BY THE TRUST, 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").

Lehman Brothers, Inc. is neither a sponsor of nor in any other way affiliated
with the Trust or the insurance products supported by the Trust. 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

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<PAGE>

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 Trust and the insurance products supported by the Trust are not sponsored,
endorsed, sold or promoted by MSCI. MSCI makes no representation or warranty,
express or implied, to the owners of the Trust, or any member of the public
regarding the advisability of investing in funds generally or in the Trust or
any Fund 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 Trust. "Morgan
Stanley Capital International" is a service mark of Morgan Stanley & Co.,
Incorporated, that has been licensed for use by the Trust. MSCI has no
obligation to take the needs of the Trust or the owners of insurance products
supported by the Trust 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 the Trust 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 the
Trust or of the insurance products supported by the Trust in connection with the
administration, marketing or trading of any Fund of the Trust.

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
TRUST, 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 Trust has adopted the following restrictions relating to the investment of
each Fund's assets. These restrictions are fundamental policies and may not
be changed for any Fund without the approval of a majority of the
outstanding voting shares of each affected Fund. (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 Fund may be effected with the approval of the majority of the
outstanding voting shares of that Fund, without the approval of a majority
of the outstanding voting shares of any other Fund or of the entire Fund. To the
extent the provisions of this Statement of Additional Information indicate
investment restrictions more restrictive than the fundamental restrictions
described below, the more restrictive limitation controls, but any such
limitation may be changed without the approval of a majority of the outstanding
voting shares of each affected Fund, subject to the below fundamental
restrictions.

No Fund 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

32
<PAGE>

is not treated as an interest in real estate. Investments of the type
permitted in the Real Estate Equity Fund 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
Fund may invest consistent with its objective and investment policies,
except that each Fund may lend portfolio securities not having a value in
excess of 33 1/3% of the Fund'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, Aggressive Balanced, Equity Index, Large Cap Value, Large
Cap Growth, Large Cap Value CORE, Large Cap Aggressive Growth, Large/Mid
Cap Value, Mid Cap Value, Mid Cap Growth, Fundamental Mid Cap Growth, Mid
Cap Blend, Small/Mid Cap Value, Small/Mid Cap Growth, Small/Mid Cap CORE,
Small Cap Value, Small Cap Growth, Global Equity, International Balanced,
International Equity Index, International Equity, International
Opportunities, Emerging Markets Equity, Short-Term Bond, Bond Index, Global
Bond, and High Yield Bond Funds 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 Fund if
more than one-third of the Fund'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 Funds,
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 Fund which are hedged by such instruments exceeds one-third
of the value of its total assets and (b) as to such Funds and as to
the Equity Index and International Opportunities Funds, 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 Fund's total assets;

(B) with respect to the Managed, Aggressive Balanced, Equity Index, Large
Cap Value, Large Cap Value CORE, Large Cap Aggressive Growth, Large/Mid Cap
Value, Mid Cap Value, Mid Cap Growth, Fundamental Mid Cap Growth, Mid Cap
Blend, Small/Mid Cap Value, Small/Mid Cap Growth, Small/Mid Cap CORE, Small
Cap Value, Small Cap Growth, Global Equity, International Balanced,
International Equity Index, International Equity, International
Opportunities, Emerging Markets Equity, Short-Term Bond, Bond Index,
Sovereign Bond, Global Bond, and High Yield Bond Funds, 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, Aggressive Balanced, Mid Cap Growth, Large Cap Value CORE,
Large Cap Aggressive Growth, Large/Mid Cap Value, Small/Mid Cap Growth,
Small/Mid Cap CORE, Small Cap Growth, Global Equity, International
Balanced, International Equity Index, International Equity, Emerging
Markets Equity, Short-Term Bond, Bond Index, Global Bond, and High Yield
Bond Funds 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

33
<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 Funds may
purchase, sell or write such futures or options other than for bona fide
hedging purposes if immediately thereafter the Fund'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
Fund's net assets;

(D) the Sovereign Bond Fund 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 Funds listed therein; and

(E) the Managed, Aggressive Balanced, Equity Index, Large Cap Value, Large
Cap Value CORE, Large Cap Aggressive Growth, Large/Mid Cap Value, Mid Cap Value,
Mid Cap Growth, Fundamental Growth, Mid Cap Blend, Small/Mid Cap Value,
Small/Mid Cap CORE, Global Equity, International Balanced, International Equity
Index, International Equity, International Opportunities, Emerging Markets
Equity, Global Bond, and High Yield Bond Funds 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 Fund 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 Fund
as of the time each such borrowing is made, or 10% as to the Aggressive
Balanced, Large Cap Value CORE, Large Cap Aggressive Growth, Large/Mid Cap
Value, Fundamental Growth, Mid Cap Blend, Small/Mid Cap Value, Small/ Mid Cap
CORE, Global Equity, International Equity Index, International Equity,
Emerging Markets Equity, Bond Index and High Yield Bond Funds, subject to a
non-fundamental policy that none of these Funds will make additional
investments at any time when such borrowings plus any amounts payable by the
Fund under reverse repurchase agreements exceed 5% of that Fund's total
assets.

(6) Except as set forth herein as to the Managed and Sovereign Bond Funds,
neither such Funds, nor the Growth & Income, Large Cap Growth, Real Estate
Equity, or Money Market Funds may purchase securities which are subject to
legal or contractual delays in or restrictions on resale. The Managed and
Sovereign Bond Funds 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 Fund to not more than 15% of the
Trust'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 Fund 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 Fund's total assets, (c) securities of investment companies having
an aggregate value in excess of 10% of the Fund's total assets, or (d)
together with investment companies having the same investment adviser as the
Fund (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 Aggressive
Balanced, Equity Index, Large Cap Value, Large Cap Value CORE, Large Cap
Aggressive Growth, Large/Mid Cap Value, Mid Cap Value, Mid Cap Growth,
Fundamental Growth, Mid Cap Blend, Small/Mid Cap Value, Small/Mid Cap CORE,
Small Cap Value, Small Cap Growth, Global Equity, International Equity,
International Balanced, International Opportunities, Emerging Markets Equity,
Bond Index, Global Bond, or High Yield

34
<PAGE>

Bond Funds.

(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 Fund'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
Fund. This restriction shall not apply to the Large Cap Aggressive Growth, Mid
Cap Growth, or International Balanced Funds.

(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 Aggressive Balanced, Equity Index, Large Cap Value, Large Cap Value CORE,
Large Cap Aggressive Growth, Large/Mid Cap Value, Mid Cap Value, Mid Cap Growth,
Fundamental Mid Cap Growth, Mid Cap Blend, Small/Mid Cap Value, Small/Mid Cap
Growth, Small/Mid Cap CORE, Small Cap Value, Small Cap Growth, Global Equity,
International Balanced, International Equity Index, International Equity,
International Opportunities, Emerging Markets Equity, Short-Term Bond, Bond
Index, Sovereign Bond, Global Bond, and High Yield Bond Funds 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 Trust'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 Trust, 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 Trust may modify its practices to conform to such changes.

For purposes of any restrictions or limitation to which the Trust is subject,
no Fund, 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 Fund
does not hold directly in its portfolio.

BOARD OF TRUSTEES AND OFFICERS OF THE TRUST

The Board of Trustees of the Trust is responsible for the administration of
the affairs of the Trust. The Board may exercise all powers of the Trust 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 Trust, together with their principal occupations during the past five
years:

<TABLE>
<CAPTION>
<S> <C> <C>
POSITION HELD
NAME, ADDRESS AND AGE WITH TRUST PRINCIPAL OCCUPATION
- --------------------- ---------- --------------------
Michele G. Van Leer* (age 41).... 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* (age 44)........ ice 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 (age 70).... Trustee Director, Reed & Barton Corporation
(silversmiths); Certified Public
Reed & Barton Accountant; Trust Fund Commissioner,
Corporation Town of Braintree.
Taunton, Massachusetts
02780

Diane C. Kessler (age 52)...... Trustee Executive Director, Massachusetts
325 Parker Street Council of Churches
Newton Centre, Massachusetts
02159

Robert Verdonck (age 53)....... Trustee President and Chief Executive
One Bennington Street Officer, East Boston Savings Bank
East Boston, Massachusetts
02128

Elizabeth G. Cook (age 61)..... Trustee Executive Director, The Advertising
Club of Greater Boston.
85 East India Row
Boston, Massachusetts
02110

Laura L. Mangan (age 35)....... Secretary Assistant Regulatory and Compliance
Officer, John Hancock Mutual Life
John Hancock Place Insurance Company.
Boston, Massachusetts
02117

Raymond F. Skiba (age 53)...... Treasurer Director, Fund Operations, John
Hancock Mutual Life Insurance
John Hancock Place Company.
Boston, Massachusetts
02117
</TABLE>

35
<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 Trust's Executive
Committee. Although Ms. Mangan and Mr. Skiba are officers of the Trust, they are
not Trustees of the Trust.

Certain members of the Trust'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 Trust.

36
<PAGE>

INVESTMENT ADVISORY AND OTHER SERVICES

INVESTMENT MANAGEMENT AND OPERATING EXPENSES

John Hancock, the Trust's investment manager, is a Massachusetts corporation.
The Trust will pay John Hancock an investment advisory fee at the following
rates:
<TABLE>
<CAPTION>

<S> <C> <C>
INVESTMENT ADVISORY FEE AS AN ANNUAL PERCENTAGE
FUND OF EACH PORTION OF THE
--------- FUND'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...}

Aggressive Balanced. .675% of first $250 million; .625% of next $250
million; .60% above $500 million

Large Cap Value CORE .75% of first $50 million; .65% of next $150
million; and .60% above $200 million

Large Cap Aggressive
Growth............. 1.00% of first $10 million; .875% of next $10
million; .75% above $20 million

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

Large/Mid Cap Value .95% of first $25 million; .85% of next $25
million; .75% of next $50 million; .65%
above $100 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

Fundamental Mid Cap
Growth............ .85% of first $50 million; .80% of next $50
million; .75% of next $50 million; .70% above
$150 million

Real Estate Equity. .60% of first $300 million; .50% of next $500
million; .40% above $800 million

Mid Cap Blend }
Small/Mid Cap
Growth ........... .75% of first $250 million; .70% of next $250
million; .65% above $500 million

Small/Mid Cap Value .95% of first $100 million; .90% of next $150
million; .85% over $250 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 Equity 1% of first $50 million; .95% next of $150
million; .90% 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>

37
<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 Funds. For this, John Hancock pays
IIA a fee for the Large Cap Growth and Managed Funds at an annual rate of
.30% of the first $500,000,000 of the Fund'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 Fund is
at an annual rate of .1875% of that Fund's average daily net assets.

IIA also serves as sub-investment manager to the Real Estate Equity Fund.
For this John Hancock pays IIA a fee at an annual rate of .30% of the first
$300,000,000 of the Fund'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 Fund 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
Fund 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 Fund.
For this, John Hancock pays IIA a fee at an annual rate of .19% of the first
$250,000,000 of the Fund's average daily net assets, .17% of the next
$250,000,000, and .15% of all additional amounts.

IIA also serves as sub-investment manager to the Aggressive Balanced Fund. For
this, John Hancock pays IIA a fee at an annual rate of .325% of the first
$250,000,000 of the Fund's average daily net assets, .275% of the next
$250,000,000, and .25% on all additional amounts.

IIA also serves as sub-investment manager to the Mid Cap Blend Fund. For this
John Hancock pays IIA a fee at an annual rate of .40% of the first $250,000,000
of the Fund's average daily net assets, .35% on the next $250,000,000, and .30%
on 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
Fund. For this, John Hancock pays Advisers a fee at an annual rate of .50%
of the Fund's average daily net assets.

Advisers also serves as sub-investment manager to the Sovereign Bond
Fund. For this, John Hancock pays Advisers a fee at an annual rate of
.1875% or the Fund's average daily net assets.

State Street Global Bank & Trust, N.A. ("State Street") serves as
sub-investment manager to the Equity Index Fund. For this John Hancock pays
State Street a fee at an annual rate of .07% of the first $75,000,000 of the
Fund'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 Fund. For this John Hancock pays T. Rowe
Price a fee at an annual rate of .50% of the first $100 million of the
Fund'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 Fund. For this John Hancock pays Neuberger &
Berman a fee at an annual rate of .50% of the first $100,000,000 of the
Fund'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.

38
<PAGE>

Janus Capital Corporation ("Janus") serves as sub-investment manager to the
Mid Cap Growth Fund. For this John Hancock pays Janus a fee at an annual
rate of .60% of the first $100,000,000 of the Fund'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 Fund. For this John Hancock pays Goldman Sachs a fee at
an annual rate of .60% of the first $50 million of the Fund's average daily
net assets and .50% on all additional amounts.

Goldman Sachs also serves as sub-investment manager to the Large Cap Value
CORE Portfolio. For this, John Hancock pays Goldman Sachs a fee at an annual
rate of .40% of the first $50,000,000 of the Fund's average daily net assets,
.30% of the next $150,000,000, and .25% on all additional amounts.

Goldman Sachs also serves as sub-investment manager to the International
Equity Fund. For this, John Hancock pays Goldman Sachs a fee at an annual rate
of .60% of the first $50,000,000 of the Fund's average daily net assets, .55%
of the next $150,000,000, and .50% on all additional amounts.

INVESCO Management & Research, Inc. ("INVESCO") serves as sub-investment
manager to the Small Cap Value Fund. 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 Fund. For this John Hancock pays Scudder a fee at an
annual rate of .70% of the first $50 million of the Fund'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 Fund. For this John Hancock pays Brinson a fee at an
annual rate of .50% of the first $100,000,000s of the Fund'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 Fund. For this
John Hancock pays International a fee at an annual rate of .125% of the first
$100 million of the Fund'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 Fund. For this
John Hancock pays Rowe Price-Fleming a fee at an annual rate of .75% of the
first $20,000,000 of the Fund's average daily net assets, .60% of the next
$30,000,000, .50% of the next $150,000,000, and .50% of all the Fund's
assets once the Fund'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
Fund. For this John Hancock pays Montgomery a fee at an annual rate of
1.10% of the first $10 million of the Fund'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 Fund. For this John Hancock pays Mellon a fee at an annual rate
of .08% of the first $100 million of the Fund'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 Fund. For this John Hancock pays JPMIM a fee
at an annual rate of .50% of the first $25,000,000 of the Fund'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 Fund. For this John Hancock pays Wellington
a fee at an annual rate of .50% of the first $100 million of the Fund'
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
Fund. For this John Hancock pays Wellington a fee at an annual rate of .55%
of the first $100 million of the Fund's average daily net assets, .45% of
the next $100 million, and .40% on all additional amounts.

Wellington also serves as sub-investment manager to the Large/Mid Cap Value
Fund. For this John Hancock pays Wellington a fee at an annual rate of .60% of
the first $25,000,000 of the Fund's average daily net assets, .50% of the next
$25,000,000, .40% of the next $50,000,000, and .30% on all additional amounts.

Alliance Capital Management, LLP ("Alliance") serves as sub-investment manager
to the Large Cap Aggressive Growth Fund. For this John Hancock pays Alliance a
fee at an annual rate of .75% of the first $10,000,000 of the Fund's average
daily net assets, .625% of the next $10,000,000, and .50% on all additional
amounts.

The Boston Company ("Boston") serves as sub-investment manager to the Large
Cap Aggressive Growth Fund. For this, John Hancock pays Boston a fee at an
annual rate of .65% of the first $100,000,000 of the Fund's average daily net
assets, .60% of the next $150,000,000, and .55% on all additional amounts.

Oppenheimer Funds, Inc. ("Oppenheimer") serves as sub-investment manager to
the Fundamental Mid Cap Growth Fund. For this, John Hancock pays Oppenheimer a
fee at an annual rate of .50% of the first $50,000,000 of the Fund's average
daily net assets, .45% of the next $50,000,000, .40% of the next $50,000,000,
and .35% of all additional amounts.

Set out below are the amounts that the Trust paid to the investment manager
and that the investment manager paid

39
<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
------------------ ----------------------
FUND 1998 1997 1996 1998 1997 1996
--------- ---- ---- ---- ---- ---- ----
Managed........................... 9,825,708 8,515,377 7,419,499 7,369,096 6,386,533 5,564,624
Growth & Income................... 7,959,851 6,125,461 4,525,131 5,970,179 4,532,841 3,348,597
Equity Index...................... 270,965 95,900 -- 134,418 33,565 --
Large Cap Value................... 746,229 328,969 54,224 497,498 219,423 36,166
Large Cap Growth.................. 3,445,963 2,520,205 1,785,423 2,584,378 1,890,154 1,339,067
Mid Cap Value..................... 708,164 251,970 39,557 486,843 173,229 27,195
Mid Cap Growth.................... 506,917 230,304 43,322 357,811 162,595 30,586
Real Estate Equity................ 1,071,226 1,052,761 711,894 535,611 526,381 355,947
Small/Mid Cap Growth.............. 1,490,558 1,564,619 900,820 993,730 1,043,601 600,847
Small/Mid Cap CORE................ 24,490 -- -- 18,367 -- --
Small Cap Value................... 444,992 187,062 43,973 305,920 128,605 30,231
Small Cap Growth.................. 420,449 251,331 69,162 280,306 167,638 46,131
Global Equity..................... 87,055 -- -- 67,708 -- --
International Balanced............ 235,511 214,682 124,297 138,538 126,233 73,086
International Equity Index........ 503,992 968,010 860,980 339,357 645,663 574,274
International Opportunities....... 440,905 234,405 96,538 821,925 175,804 72,404
Emerging Markets Equity........... 67,915 -- -- 57,466 -- --
Short-Term Bond................... 192,680 220,493 146,224 122,022 83,787 55,565
Bond Index........................ 26,490 -- -- 14,128 -- --
Sovereign Bond.................... 2,127,466 4,243,027 1,748,529 1,595,666 1,410,726 1,311,396
Global Bond....................... 328,177 142,441 65,593 211,575 95,008 43,750
High Yield Bond................... 49,428 -- -- 38,023 -- --
Money Market...................... 748,405 564,173 499,044 -- -- --
</TABLE>

The fees of the sub-investment managers are solely the responsibility of John
Hancock and not the Trust.

Pursuant to its Investment Management Agreements, as amended, with the Trust,
John Hancock has reserved the right to its name and "logo," which the Trust 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 Trust
in connection with policy decisions; provides administration of day-to-

40
<PAGE>

day operations; serves as the Trust's transfer agent and dividend disbursing
agent; maintains records required by the Investment Company Act of 1940;
computes income and yield of each Fund; and supervises activities of the
sub-investment managers referred to above and of other service providers to the
Trust. John Hancock also provides the Trust with office space, supplies and
other facilities required for the business of the Trust. It pays the
compensation of Trust officers and employees and the expenses of clerical
services relating to the administration of the Trust. Expenses not expressly
assumed by John Hancock under the Investment Management Agreement are paid by
the Trust. These include, but are not limited to, taxes, custodian and auditing
fees, brokerage commissions, advisory fees, the compensation of unaffiliated
trustees, the Trust'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 Trust's operations.

Under the Investment Management Agreements, for any fiscal year in which the
normal operating costs and expenses of any Fund of the Trust, 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 Fund's average daily net assets, John
Hancock will reimburse that Fund 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>
FUND 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 Trust's shares is continuous. Pursuant to an Underwriting
and Indemnity Agreement, as amended May 1, 1997, Signator Investors, Inc.
("Signator") serves as the Trust's principal underwriter on a "best efforts"
basis. Neither Signator nor John Hancock receives any additional compensation
from the Trust for the services it performs pursuant to the Underwriting
Agreement. Signator 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 Funds

41
<PAGE>

pursuant to a Custodian Agreement dated as of January 30, 1995, and amended as
of March 18, 1996, April 14, 1998, and May 1, 1999. The custodian's duties
include safeguarding and controlling the Trust's cash and investments, handling
the receipt and delivery of securities, and collecting interest and dividends on
the Trust's investments. Fund 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 Trust have determined that, except
as otherwise permitted under applicable Securities and Exchange Commission "no-
action" letters or exemptive orders, it is in the Trust'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 Trust.

YEAR 2000 PROGRESS

The computer systems used to administer the Trust'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 Trust has no employees and does not own or lease any computer systems, the
Trust contracts with other entities to provide the services essential to its
operation. John Hancock has assured the Trust 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 Trust or contractholders. John Hancock
has further advised the Trust that it is seeking assurances from service
providers to John Hancock and the Trust, including sub-investment managers to
the Trust, 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
Trust.

FUND TRANSACTIONS AND BROKERAGE ALLOCATION

The Funds are charged with securities brokers' commissions, transfer
taxes, and other fees relating to their portfolio transactions. Expenses
identifiable to a particular Fund are charged to that Fund; otherwise,
expenses are prorated according to the size of the Fund. 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 Trust usually reflects a dealer "spread" or "mark-up."

Brokerage commissions paid by the Fund were as follows for the past three
years:

<TABLE>

<CAPTION>
<S> <C> <C> <C>
FUND 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>

42
<PAGE>

Orders for the purchase and sale of Fund investments are placed by John
Hancock with respect to the Money Market Fund and by the respective
sub-investment managers to the other Funds. 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 Funds' 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 Funds.

Except as described below with respect to the International Balanced
Fund, the Investment Managers or the Funds 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 Funds 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
Fund. In certain cases, the sub-investment manager of the International
Balanced Fund directs securities transactions for that Fund 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 Funds 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
Funds, however, may be more likely to use such authority.

Although the Investment Managers will be responsible for the allocation of the
Funds' 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 Trust.

43
<PAGE>

The brokerage transactions for those Funds 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.

John Hancock also performs investment advisory services for a number of other
accounts and clients, none of which is given preference over the Trust 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, Trust 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 Funds 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. The Trust may not engage in any transactions in which
John Hancock, any of the sub-investment managers, or any of their affiliates
acts as principal.

44
<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 Fund 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 Trust as reorganized are divided into
31 series, each corresponding to one of the Trust's 31 Funds. The Trust has
the right to establish additional series and issue additional shares without the
consent of the shareholders.

The assets received by the Trust for the issuance or sale of shares of each
Fund and all income, earnings, profits, and proceeds thereof are
specifically allocated to that Fund. They constitute the underlying assets
of each Fund, are segregated on the books of the Trust, and are to be
charged with the expenses of such Fund. Any assets which are not clearly
allocable to a particular Fund or Funds are allocated in a manner
determined by the Board of Trustees. Accrued liabilities which are not clearly
allocable to one or more Funds would generally be allocated among the
Funds in proportion to their relative net assets before adjustment for such
unallocated liabilities. Each issued and outstanding share in a Fund is
entitled to participate equally in dividends and distributions declared with
respect to such Fund and in the net assets of such Fund upon
liquidation or dissolution remaining after satisfaction of outstanding
liabilities.

The shares of each Fund, 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 Trust's Declaration of Trust, the Trust 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 Trust'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 Trust 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 Funds and through Variable Life Account
V $500,000

45
<PAGE>

worth of shares each of the Small/Mid Cap Growth, Real Estate Equity,
International Equity Index, and Short-Term Bond Funds. John Hancock also
provided additional capital for the Trust by purchasing the following amounts of
shares on May 1, 1998: $5 million for the Small/Mid Cap CORE Fund; $15
million for the Income Equity Fund; $10 million for the Emerging Markets
Equity Fund; $25 million for the Bond Index Fund, and $10 million for
the High Yield Bond Fund. JHVLICO or John Hancock may withdraw such
additional investment at some time. However, before withdrawing any part of
their interests in any Fund, John Hancock or JHVLICO will consider any
possible adverse impact the withdrawal might have on that Fund.

If the contractholders show minimal interest in any Fund, the Trust's
Board of Trustees, by majority vote, may eliminate the Fund 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 Funds
will be notified in writing of the Trust's intention to eliminate the Fund
and given 30 days to transfer amounts from such Fund to other Funds
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 Fund will be
declared and distributed daily. Dividends from net investment income of the
other Funds will be declared and distributed monthly. The Trust 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 Fund 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 Trust 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 Funds differ. Where the interests of the Funds
differ, the voting is on a Fund-by-Fund basis. Approval or disapproval
by the shareholders in one Fund on such a matter would not generally be a
prerequisite of approval or disapproval by shareholders in another Fund;
and shareholders in a Fund not affected by a matter generally would not be
entitled to vote on that matter. Examples of matters which would require a
Fund-by-Fund vote are changes in the fundamental investment policy of
a particular Fund and approval of investment management or sub-investment
management agreements.

PURCHASE AND REDEMPTION OF SHARES

Shares of beneficial interest of each Fund of the Trust 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. Trust
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 Trust 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

46
<PAGE>

Fund 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 Fund 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
Fund.

NET ASSET VALUE

The net asset value per share of each Fund 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 Fund 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 Trust
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 Fund, 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 Fund would receive upon the sale of the instrument.

The valuation of the Money Market Fund's securities based upon their
amortized cost is subject to the Fund'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 Fund's price per share, as computed for the purpose of sales
and redemptions, at $10. There can be no assurance, however, that the Fund
will at all times be able to maintain a constant $10 net asset value per share.
Such procedures include review of the Fund's holdings at such intervals as
is deemed appropriate to determine whether the Fund'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

47
<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 Funds 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 Trust
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 Funds' 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 Fund'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 Trust intends to qualify as a regulated investment company under
Subchapter M of the Internal Revenue Code ("Code"). It is the Trust's policy to
comply with the provisions of the Code regarding distribution of investment
income and capital gains so that the Trust will not be subject to Federal income
tax on amounts distributed.

In order for the Trust to qualify for Federal income tax treatment as a
regulated investment company, at least 90 percent of each Fund'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 Trust will distribute to the Separate
Accounts each Fund's net capital gains at least annually and net investment
income at least monthly. A Fund'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 Fund's securities, less amortization of premium and the
actual or estimated expenses of the Fund applicable to that dividend
period.

Each Fund 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 Fund to qualify as a regulated investment company ("RIC"), at the
end of each fiscal quarter of the Fund's taxable year, (i) at least 50% of
the market value of the Fund'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 Fund'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 Fund controls and which are engaged in the same,
similar or related trades or businesses. Should a Fund, 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 Fund 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

48
<PAGE>

agency or instrumentality is treated as a separate issuer.

A variable life insurance policy or annuity contract investing in a Fund
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 Funds 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 Fund 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 Fund" for a complete
description.)

YIELD AND TOTAL RETURN INFORMATION FOR ALL FUNDS OTHER THAN THE MONEY
MARKET FUND

The non-money market Funds of the Trust may also advertise investment
performance figures, including yield. Each such Fund'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 then-existing
Funds for the 30-day period ended December 31, 1998:
<TABLE>

<CAPTION>
<S> <C>
FUND 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>

49
<PAGE>

Each of the Funds 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 Funds for the periods
ending December 31, 1998 is set forth in the Trust's Annual Report to
contractholders. No performance information is available for the eight Funds
that commenced operations on ___, 1999.

CALCULATION OF YIELD QUOTATIONS OF THE MONEY MARKET FUND

The Money Market Fund's yield is its current investment income expressed
in annualized terms. The current

50
<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 Fund 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 Fund's
current yield was 5.07%; its effective yield was 5.20%.

The Fund's yield will fluctuate depending upon market conditions, the
type, quality, and maturity of the instruments in the Fund, 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 Fund is not comparable to that of a publicly available
fund. Yield or total return quotations should not be considered representative
of the Fund'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 Trust,
as well as voting instructions soliciting material for the Trust, will be sent
to variable life insurance and annuity contractholders having an interest in the
Trust.

FINANCIAL STATEMENTS

The Trust's financial statements appearing in its ______ Report to
contractholders and the report of _____________ LLB, independent auditors of the
Trust, 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 ______ Report to contract holders may be
obtained by writing to the address or calling the number which appear
above.

51
<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.

(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 Funds, 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 Funds, 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 Fund,
included in Post-Effective Amendment No. 9 to this File No. 33-2081,
filed March 1, 1994.

(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 Funds, included in Post-Effective Amendment
No. 3 to this File No. 33-2081, 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 Funds, 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 Funds, 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 Fund,
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 Fund, 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 Fund, 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, Global Bond, International
Opportunities, and International Balanced Funds, 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 Fund and the Equity Index Fund, 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 Fund, 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 Fund, 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 Fund, included
in Post-Effective Amendment No. 13 to this File No. 33-2081, filed
April 30, 1996.
<PAGE>

(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 Fund, 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 Fund, 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 Global Bond Fund,
included in Post-Effective Amendment No. 13 to this File No. 33-2081,
filed April 30, 1996.

(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 Fund, 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 Fund,
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 Fund, 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 Fund, 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 Fund, 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 Fund, 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 Fund, included in Post-Effective Amendment No. 21 to this File
No. 33-02081, 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 Fund,
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 Fund, 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 Fund, 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.

(31) Form of Investment Management Agreement By and Between John Hancock
Variable Series Trust I and John Hancock Mutual Life Insurance Company
relating to the Large Cap Aggressive Growth, Fundamental Mid Cap
Growth, International Equity, Aggressive Balanced, Large Cap Value
CORE, Large/Mid Cap Value, Mid Cap Blend, and Small/Mid Cap Value
Funds to be filed by amendment.
<PAGE>

(32) Form of Sub-Investment Management Agreement relating to the Large Cap
Aggressive Growth, Fundamental Mid Cap Growth, International Equity,
Aggressive Balanced, Large Cap Value CORE, Large/Mid Cap Value, Mid
Cap Blend, Small/Mid Cap Value Funds to be filed by amendment.

(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
Fund, 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 Funds, 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 Funds, 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 (filed herewith).

(j) (1) Consent of Ernst & Young LLP, independent auditors (to be filed by
amendment).

(j) (2) Not Applicable.

(k) Not Applicable.

(l) Not Applicable.

(m) Not Applicable.

(n) Financial Data Schedules, included in Post-Effective Amendment No. 21
to this File No. 33-2081, filed April 27, 1999.

(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. 33-2081), filed in April, 1988. Power of Attorney for Ms. Van
Leer included in Post-Effective Amendment No. 21 to this Form N-1A
Registration Statement (File No. 33-2081), filed in May, 1999. Power of
Attorney for Ms. Kessler and Mr. Verdonck to be filed by amendment.
<PAGE>

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.

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,
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.
<PAGE>

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"), Alliance
Capital Management L.P. ("Alliance"), OppenheimerFunds, Inc. ("Oppenheimer"),
The Boston Company Asset Management, LLC ("Boston"), 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), Alliance (File No.
801-32361), Oppenheimer (File No. 801-8253), Boston (File No. 801-6829),
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, Alliance, Oppenheimer, Boston,
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.

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:

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
Funds.

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, Aggressive Balanced, Mid Cap Blend, and Short-Term
Bond Funds.

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 Fund.

Alliance, 1345 Avenue of the Americas, New York, New York 10105, 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 Aggressive
Growth Fund.

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 Funds.

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 Fund.
<PAGE>

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 Fund.

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 Fund.

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 Fund.

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 Fund.

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 Global Bond Fund.

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 Fund.

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
Fund.

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, International Equity, and Large Cap Value CORE Funds.

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 Fund.

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 Fund.

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 Fund.

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 Fund.

Oppenheimer, Two World Trade Center, New York, New York, 10048, will serve as
Registrant's sub-investment manager and, in such capacity, will keep records
related to transactions in portfolio securities of the Fundamental Mid Cap
Growth Fund.

Boston, One Boston Place, Boston, Massachusetts 02108, will serve as
Registrant's sub-investment manager and, in such capacity, will keep records
related to transactions in portfolio securities of the Small/Mid Cap Value Fund.

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 Small/Mid Cap Growth,
High Yield Bond, and Large/Mid Cap Value Funds.

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.
<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 ____ DAY OF _______ 1999.

John Hancock Variable Series Trust I

By: _________________________

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: _____________________

Raymond F. Skiba
Treasurer (Principal Financial and
Accounting Officer)

By: _______________________

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

Diane C. Kessler, Trustee

Robert Verdonck, Trustee

<PAGE>

EXHIBIT (i)

[John Hancock Mutual Life Insurance Company Letterhead]

July 15, 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 "Trust") of its
Post-Effective Amendment No. 22 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 thirty-one 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 Opportunities,
Emerging Markets Equity, Short-Term Bond, Bond Index, Sovereign Bond, Global
Bond, High Yield Bond, Large Cap Aggressive Growth, Fundamental Mid Cap Growth,
International Equity, Aggressive Balanced, Large Cap Value CORE, Large/Mid Cap
Value, Mid Cap Blend, Small/Mid Cap Value, and Money Market Funds). The Trust's
shares of beneficial interest, including the thirty-one series of shares, are
hereinafter referred to as the "shares".

I have examined the Trust'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.22, 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 Trust is a business trust duly organized, validly existing and
in good standing under the laws of the Commonwealth of Massachusetts.

2. The shares offered for sale by the Trust, when issued in the manner
contemplated by this Post-Effective Amendment to its Registration
Statement, will be legally issued, fully-paid and non-assessable.
<PAGE>

I consent to the use of this opinion as Exhibit (i) 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