John Hancock Funds
                            101 Huntington Avenue
                         Boston, Massachusetts 02199
                        John Hancock Declaration Trust
                                  PROSPECTUS
                               August 12, 1996
    

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


                     John Hancock V.A. International Fund
                    John Hancock V.A. Emerging Growth Fund
                       John Hancock V.A. Discovery Fund
                  John Hancock V.A. Independence Equity Fund
                  John Hancock V.A. Sovereign Investors Fund
                       John Hancock V.A. 500 Index Fund
                    John Hancock V.A. Sovereign Bond Fund
                   John Hancock V.A. Strategic Income Fund
                      John Hancock V.A. World Bond Fund
                     John Hancock V.A. Money Market Fund


TABLE OF CONTENTS
                                                Page
                                               -------
Investment Objectives of the Funds                3
Investment Policies and Strategies                4
Purchase and Redemption of Shares                 8
  Investments in Shares of the Funds              8
  Share Price                                     8
  Redeeming Shares                                8
Organization and Management of the Funds          9
The Funds' Expenses                              10
Dividends and Taxes                              11
Performance                                      11
Risk Factors, Investments and Techniques         12
Appendix                                         18


An investment in John Hancock V.A. Money Market Fund is neither insured nor
guaranteed by the U.S. Government. There is no assurance that the Money
Market Fund will be able to maintain a stable net asset value of $1.00 per
share.

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


   Shares of the Funds are not deposits or obligations of, or guaranteed or
endorsed by, any bank, and the shares are not federally insured by the
Federal Deposit Insurance Corporation, the Federal Reserve Board or any other
agency.

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


                                                      (continued on next page)


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A Global Investment Management Firm]



(continued from prior page)


This Prospectus sets forth information about the Funds that you should know
before investing. Please read and retain it for future reference. The Funds are
designed primarily to provide investment vehicles for variable annuity and
variable life insurance contracts ("Variable Contracts") of various insurance
companies. This Prospectus should be read in conjunction with the separate
account Prospectus of the specific insurance product which accompanies this
Prospectus. Except for World Bond Fund, a non-diversified series, each Fund is a
diversified series of John Hancock Declaration Trust (the "Trust").
   
Additional information about the Trust and the Funds has been filed with the
Securities and Exchange Commission (the "SEC"). You can obtain a copy of the
Funds' Statement of Additional Information, dated August 12, 1996, which is
incorporated by reference into this Prospectus, free of charge by writing or
telephoning: John Hancock Investor Services Corporation, P.O. Box 9298,
Boston, Massachusetts 02205-9116, 1-800-824-0335. Shares of a Fund may not be
available in your state due to various insurance or other regulations. Please
check with your insurance company for Funds that are available in your state.
Inclusion of a Fund in this Prospectus which is not available in your state
is not to be considered a solicitation.
    


                                      2



INVESTMENT OBJECTIVE AND OVERVIEW OF EACH FUND


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


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


John Hancock V.A. Discovery Fund   ("Discovery Fund") seeks long-term growth
of capital. The Fund invests primarily in common stocks of companies of all
levels of capitalization which are believed by the Fund's managers to offer
superior prospects for growth. Current income is not a factor of consequence
in the selection of stocks for the Fund.


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


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


John Hancock V.A. 500 Index Fund   ("500 Index Fund") seeks to provide
investment results that correspond to the total return performance of the
Standard & Poor's 500 Stock Price Index (the "S&P 500 Index"). The 500 Index
Fund normally invests at least 80% of the Fund's assets in common stocks of
companies that comprise the S&P 500 Index in approximately the same
proportions as they are represented in the Index.


John Hancock V.A. Sovereign Bond Fund   ("Sovereign Bond Fund") seeks a high
level of current income consistent with prudent investment risk. The Fund
invests primarily in a diversified portfolio of investment grade fixed income
securities of U.S. and foreign issuers, although the Fund may invest up to
25% of its total assets in lower-rated high yield, high risk, fixed income
securities.

John Hancock V.A. Strategic Income Fund   ("Strategic Income Fund") seeks a
high level of current income. The Fund invests primarily in foreign
government and corporate fixed income securities, U.S. Government securities
and lower-rated high yield, high risk, fixed income securities of U.S.
issuers.


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


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


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

"Standard & Poor's(R)," "S&P(R)," "S&P 500(R)," "Standard & Poor's 500," and
"500" are trademarks of The McGraw-Hill Companies, Inc. and have been
licensed for use by the Adviser. See "Organization and Management of the
Funds" for a description of the terms of the Adviser's license.

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

Risk Factors. Each Fund is a newly organized series of the Trust and,
therefore, has no operating history. There can be no assurance that the Funds
will achieve their investment objectives. An investment in one or more of the
Funds (except for Money Market Fund) is intended for long-term investors who
can accept the risks associated with investing primarily in equity and fixed
income securities. The Funds' investments will be subject to market
fluctuation and other risks inherent in all securities. The yield, return and
price volatility of each Fund depend on the type and quality of its
investments as well as market and other factors. In addition, a Fund's
potential investments and management techniques may entail specific risks.
For additional information about the risks associated with an investment in
one or more of the Funds, see "Risk Factors, Investments and Techniques."

                                      3


INVESTMENT POLICIES AND
STRATEGIES

The Equity Funds

    The Equity Funds offer a range of investment alternatives focusing
    on common stocks.


   The International Fund, Emerging Growth Fund, Discovery Fund, Independence
Equity Fund, Sovereign Investors Fund, and 500 Index Fund (collectively, the
"Equity Funds") will invest at least 65% of their assets, and, in the case of
the Emerging Growth Fund and 500 Index Fund, 80% of their assets, in common
stocks. However, under normal market conditions, the Equity Funds will be
substantially fully invested in common stocks. Each Equity Fund, other than
the 500 Index Fund, is managed according to traditional methods of "active"
management, which involves the buying and selling of securities based upon
economic, financial and market analysis and investment judgment. Independence
Equity Fund is managed using model driven quantitative techniques. The 500
Index Fund uses a "passive" or "indexing" investment approach and seeks to
provide investment results that correspond to rather than replicate the total
return performance of the S&P 500 Index by purchasing stocks for the Fund in
proportion to their weight in the S&P 500 Index. This indexing technique is
achieved through the use of stock optimization modeling.

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


    The International Fund invests primarily in equity securities of
    foreign companies and governments.

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

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


    The Emerging Growth Fund invests primarily in small-sized companies
    that tend to be at a stage of development associated with higher
    than average growth.

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


    The Discovery Fund invests primarily in common stocks of companies
    of all levels of capitalization which are believed by the Adviser to
    offer superior prospects for growth.


   The Discovery Fund invests primarily in companies that appear to offer
superior growth prospects. Under normal circumstances, the Fund will invest
at least 65% of its total assets in these companies. The Fund looks for
companies, including small- and medium-sized companies, that have broad
market opportunities and consistent or accelerating earnings growth.

   In selecting portfolio investments for the Fund, the Adviser will focus on
companies which may be in a relatively early stage of development, but have
usually established a record of profitability and a strong financial
position. They may possess a new technology, a unique or proprietary product,
or a profitable market niche--all of which help drive strong unit volume
growth, profitability and ultimately earnings per share growth. Other
desirable attributes of portfolio investments may include participation by a
company in an industrial sector with a favorable secular growth outlook
(e.g., medical/healthcare, communications


                                      4



or technology), a capable management team with a significant equity stake in
its company, and financial cash flows sufficient to sustain estimated growth
rates. The Fund may invest up to 25% of its total assets in foreign
securities.

    The Independence Equity Fund invests primarily in common stocks of
    companies that the Adviser and IIA believe are undervalued and have
    improving fundamentals over both the intermediate and long term.

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


    Sovereign Investors Fund generally invests in seasoned companies in
    sound financial condition with a long record of paying dividends.


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


   While there is considerable flexibility in the investment grade and type
of security in which the Fund may invest, the Fund invests only in companies
that have (together with their predecessors) been in continuous business for
at least five years and have total assets of at least $10 million. The Fund
currently uses a strategy of investing only in those common stocks which have
a record of having increased their dividend payout in each of the preceding
ten or more years. This "dividend performers" strategy can be changed at any
time.


    Using "passive" or "indexing" investment techniques, the 500 Index
    Fund seeks to provide investment results that correspond to the
    total return performance of the S&P 500 Index.

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

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

    Each Equity Fund (other than the 500 Index Fund) may invest a
    portion of its total assets in corporate and governmental fixed
    income securities.

   Although under normal market conditions each Equity Fund intends to be
substantially fully invested in common stocks, each Equity Fund (other than
the 500 Index Fund) may invest in fixed income securities for purposes of
managing its cash position and for temporary defensive purposes. Fixed income
investments of these Funds may include bonds, notes, preferred stock and
convertible fixed income securities issued by U.S. corporations or the U.S.
Government and its political subdivisions. The International Fund may also
invest in fixed income securities issued by foreign corporations or foreign
governments and their political subdivisions. The value of fixed income
securities varies inversely with interest rates. The value of convertible
issues, while influenced by the level of interest rates, will also be
affected by the changing value of the underlying common stocks into which
they are convertible.

   The fixed income securities of the Independence Equity Fund, the
International Fund, the Emerging Growth Fund and the Discovery Fund will be
rated "investment grade" (i.e., rated BBB or better by


                                      5



Standard & Poor's Ratings Group ("S&P") or Baa or better by Moody's Investors
Service, Inc. ("Moody's")) or, if unrated, determined to be of investment
grade quality by the Adviser or relevant Sub-adviser. The fixed income
securities of the Sovereign Investors Fund may be rated as low as C by S&P or
Moody's. No more than 5% of the Sovereign Investors Fund's assets will be
invested in fixed income securities rated lower than BBB by S&P or Baa by
Moody's or, if unrated, determined to be of comparable quality by the
Adviser.

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


The Fixed Income Funds

    The Fixed Income Funds offer a range of investment alternatives
    focusing primarily on corporate and governmental fixed income
    securities.


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


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


    The Sovereign Bond Fund invests primarily in a diversified portfolio
    of freely marketable investment grade fixed income securities of
    U.S. and foreign issuers.

   Under normal market conditions, the Sovereign Bond Fund invests at least
65% of its total assets in bonds and/or debentures. In addition, at least 75%
of the Fund's total investments in fixed income securities (other than
commercial paper) normally consists of securities which have, at the time of
purchase, a rating within the four highest grades as determined by S&P (AAA,
AA, A, or BBB) or Moody's (Aaa, Aa, A or Baa) or their respective equivalent
ratings and fixed income securities of banks, the U.S. Government and its
agencies or instrumentalities and other issuers which, although not rated as
a matter of policy by either S&P or Moody's, are considered by the Adviser to
have investment quality comparable to securities receiving ratings within the
four highest grades. Fixed income securities rated BBB or Baa and unrated
debt securities of comparable credit quality are subject to certain risks.
See "Investment Grade Securities."

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

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

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

    The Strategic Income Fund seeks a high level of current income by
    investing primarily in fixed income securities of U.S. and foreign
    issuers.

   The Strategic Income Fund invests in all types of fixed income securities
including foreign government and foreign corporate securities, U.S.
Government securities and lower-rated high yield, high risk, fixed income
securities of U.S. issuers. Under normal circumstances, the Fund's assets
will be invested in each of the foregoing three sectors. However, from time
to time the Fund may invest up to 100% of its total assets in any one sector.
The Fund may invest up to 10% of its net assets in common stocks and similar
equity securities of U.S. and foreign companies. No more than 25% of the
Fund's total assets, at the time of purchase, will be invested in government
securities of any one foreign country. The fixed income securities in which
the Fund may invest include bonds, debentures, notes (including variable and
floating rate instruments), preferred and preference stock, zero coupon
bonds, payment-in-kind securities, increasing rate note securities,



                                      6



participation interests, multiple class passthrough securities,
collateralized mortgage obligations, stripped debt securities, other
mortgage-backed securities, asset-backed securities and other derivative debt
securities. Variable and floating rate instruments, mortgage-backed
securities and asset-backed securities are derivative instruments that derive
their value from an underlying security. Derivative securities are subject to
additional risks. See "Derivative Instruments."

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

    The World Bond Fund invests primarily in a global portfolio of fixed
    income securities.

   Normally, the World Bond Fund will invest in fixed income securities
denominated in at least three currencies or multi-currency units, including
the U.S. Dollar. Under normal circumstances, the Fund will invest primarily
(at least 65% of total assets) in U.S. Government, municipal and foreign
governmental securities; obligations of supranational organizations (e.g.,
the World Bank, the International Bank for Reconstruction and Development,
the European Investment Bank, the Asian Development Bank and the European
Coal and Steel Community); and foreign corporations or financial
institutions. The Fund has registered as a "non-diversified" fund so that it
will be able to invest more than 5% of its assets in obligations of a single
foreign government or other issuer. The Fund will not invest more than 25% of
its total assets in securities issued by any one foreign government. See
"Securities of Foreign Issuers."


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


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

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


The Money Market Fund

    The Money Market Fund invests only in high-quality money market
    instruments.


   The Money Market Fund seeks to achieve its objective by investing in money
market instruments including, but not limited to, U.S. Government, municipal
and foreign government securities; obligations of supranational organizations
(e.g., the World Bank and the International Monetary Fund); obligations of
U.S. and foreign banks and other lending institutions; corporate obligations;
repurchase agreements and reverse repurchase agreements. All of the Fund's
investments will be denominated in U.S. dollars.

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


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

    Each Fund may employ certain investment strategies and techniques to
    help achieve its investment objective.


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



                                      7



("EDRs"). The Independence Equity Fund and Money Market Fund may invest in
U.S. Dollar denominated securities. Each Fund may purchase securities on a
forward commitment or when-issued basis and invest up to 15% (10% for the
Money Market Fund) of its net assets in illiquid securities. In addition,
each Fund may lend portfolio securities and may make temporary investments in
short-term securities, including repurchase agreements and other money
market instruments, in order to receive a return on uninvested cash. Each
Fund may enter into reverse repurchase agreements. See "Risk Factors,
Investments and Techniques" for more information on each Fund's investments.

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

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


    Brokers are chosen for Fund transactions on the basis of best price
    and execution.


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



PURCHASE AND REDEMPTION OF SHARES

Investments in Shares of the Funds


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


Share Price


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

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


Redeeming Shares


Shares of a Fund may be redeemed on any business day. Redemptions (other than
certain automatic redemptions described below) are effected at the per share
NAV next determined after receipt and acceptance of the redemption request by
a Fund. Redemption proceeds will normally be forwarded by bank wire to the
redeeming insurance company on the next business day after receipt of the
redemption instructions by a Fund. Under unusual circumstances, a Fund may
suspend redemptions or postpone payment for up to seven (7) business days or
longer, as permitted by Federal securities laws.

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



                                      8


ORGANIZATION AND
MANAGEMENT OF THE FUNDS

    The Trustees elect officers and retain the Adviser and the
    Sub-advisers, who are responsible for the day-to-day operations of
    the Funds, subject to the Trustees' policies and supervision.


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

Each Fund currently has one class of shares with equal rights as to voting,
redemption, dividends and liquidation within that Fund. The Trustees have the
authority, without further shareholder approval, to establish additional
funds within the Trust and to classify and reclassify the shares of the
Funds, or any new fund of the Trust, into one or more classes. The Trust is
not required to hold annual shareholder meetings, although special meetings
may be called for such purposes as electing or removing Trustees, changing
fundamental restrictions or approving a management contract. An insurance
company issuing a Variable Contract that participates in the Trust will vote
shares of the Funds held by the insurance company's separate accounts as
required by law. In accordance with current law and interpretations thereof,
participating insurance companies are required to request voting instructions
from policy owners and must vote shares of the Funds in proportion to the
voting instructions received. For a further discussion of voting rights,
please refer to your insurance company's separate account Prospectus.


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


    John Hancock Advisers, Inc. advises investment companies having a
    total asset value of more than $20 billion.

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

John Hancock Advisers International Limited ("JHAI") serves as the
sub-adviser to the International Fund pursuant to a sub-advisory agreement
among the Fund, the Adviser and JHAI. JHAI was formed in 1987 and is a wholly
owned subsidiary of the Adviser. JHAI provides international investment
research and advisory services to investment companies and institutional
clients.

Independence Investment Associates, Inc. ("IIA") serves as the sub-adviser to
the Independence Equity Fund pursuant to a separate sub-advisory agreement
among the Fund, the Adviser and IIA. IIA was organized in 1982 and is a
wholly owned indirect subsidiary of the Life Company. IIA provides investment
advice and advisory services to investment companies and institutional
accounts.

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

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


STANDARD & POOR'S DOES NOT GUARANTEE THE ACCURACY AND/OR THE COMPLETENESS OF
THE S&P 500 INDEX OR ANY DATA INCLUDED THEREIN AND STANDARD & POOR'S SHALL
HAVE NO LIABILITY FOR ANY ERRORS, OMISSIONS, OR INTERRUPTIONS THEREIN.
STANDARD & POOR'S MAKES NO WARRANTY, EXPRESS OR IMPLIED, AS TO RESULTS TO BE
OBTAINED BY THE ADVISER, THE TRUST, OR ANY OTHER PERSON OR ENTITY FROM THE
USE OF THE S&P 500 INDEX OR ANY DATA INCLUDED THEREIN. STANDARD & POOR'S
MAKES NO EXPRESS OR IMPLIED WARRANTIES, AND EXPRESSLY DISCLAIMS ALL
WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE OR USE WITH
RESPECT TO THE S&P 500 INDEX OR ANY DATA INCLUDED THEREIN.

                                      9


WITHOUT LIMITING ANY OF THE FOREGOING, IN NO EVENT SHALL STANDARD & POOR'S
HAVE ANY LIABILITY FOR ANY SPECIAL, PUNITIVE, INDIRECT, OR CONSEQUENTIAL
DAMAGES (INCLUDING LOST PROFITS), EVEN IF NOTIFIED OF THE POSSIBILITY OF SUCH
DAMAGES.


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


International Fund

   
John L.F. Wills leads the Fund's portfolio management team.
Mr. Wills is a Vice President of the Adviser and managing director of John
Hancock Advisers International, the Sub-Adviser. Mr. Wills joined the Adviser in
1987. 
    
Emerging Growth Fund

Bernice S. Behar leads the Fund's protfolio management team. Ms. Behar, a Senior
Vice President of the Adviser, has been associated with the Adviser since 1991.
She has been in the investment business since 1986. 

Discovery Fund

Bernice S. Behar leads the Fund's portfolio management team. Ms. Behar, a Senior
Vice President of the Adviser, has been with the Adviser since 1991. She has
been in the investment business since 1986.

Independence Equity Fund

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


Sovereign Investors Fund


John F. Snyder, III and Barry H. Evans lead the Fund's portfolio management
team. Mr. Snyder, an investment manager since 1971, is an Executive Vice
President of Sovereign Management Corp., the Fund's Sub-adviser, and a wholly
owned subsidiary of John Hancock Funds. Mr. Evans, a Senior Vice President of
the Adviser, joined John Hancock Funds in 1986. 


500 Index Fund


The 500 Index Fund is not actively managed, but is instead advised by the
Adviser's Risk Management Group using computerized, quantitative techniques.
The Risk Management Group is headed by Anne McDonley, Senior Vice President
of the Adviser since 1992. The Risk Management Group is responsible for
providing quantitative analysis to other mutual funds managed by the Adviser.


Sovereign Bond Fund


James K. Ho, leader of the Fund's portfolio management team, is an Executive
Vice President and the senior fixed-income officer of the Adviser. Mr. Ho
joined the Adviser in 1985. 


Strategic Income Fund


Frederick L. Cavanaugh, Jr., leader of the Fund's portfolio management team,
is a Senior Vice President of the Adviser. Mr. Cavanaugh joined the Adviser
in 1986 and has worked in the investment business since 1973. 

World Bond Fund

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


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

                             THE FUNDS' EXPENSES


Each Fund pays a monthly fee to the Adviser for managing the Fund's
investment and business affairs, which is equal on an annual basis to a
percentage of the Fund's average daily net assets. The Adviser pays any
sub-advisory fees out of its own assets and no Fund is responsible for paying
a fee to its respective Sub-adviser. These fees are as follows:




            Fund                Rate
 ---------------------------   ------
                            
International Fund              0.90%
Emerging Growth Fund            0.75%
Discovery Fund                  0.75%
Independence Equity Fund        0.70%
Sovereign Investors Fund        0.60%
500 Index Fund                  0.35%
Sovereign Bond Fund             0.50%
Strategic Income Fund           0.60%
World Bond Fund                 0.75%
Money Market Fund               0.50%


                                      10



While higher than the investment advisory fees paid by other investment
companies in general, the advisory fees paid by the International Fund,
Emerging Growth Fund, Discovery Fund and World Bond Fund are comparable to
those paid by other investment companies with similar investment objectives
and policies.

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

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

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

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


    Each Fund pays certain additional expenses.


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



                             DIVIDENDS AND TAXES

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

Fund                            Declared        Paid
- ---------------------------     ----------   ------------
International Fund              Annually      Annually
Emerging Growth Fund            Annually      Annually
Discovery Fund                  Annually      Annually
Independence Equity Fund        Quarterly     Quarterly
Sovereign Investors Fund        Quarterly     Quarterly
500 Index Fund                  Quarterly     Quarterly
Sovereign Bond Fund             Daily         Monthly
Strategic Income Fund           Daily         Monthly
World Bond Fund                 Daily         Monthly
Money Market Fund               Daily         Monthly

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


Taxation.   For a discussion of the tax status of your Variable Contract,
including the tax consequences of withdrawals or other payments, refer to the
Prospectus of your insurance company's separate account. It is suggested you
keep all statements you receive to assist in your personal record keeping.


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


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


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


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



                                 PERFORMANCE

    Each Fund may advertise its total return.

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


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


    Each Fund may also advertise yield.

Yield reflects a Fund's rate of income on portfolio investments as a
percentage of its share price. Yield is computed by annualizing

                                      11


the result of dividing the net investment income per share over a 30-day
period by the net asset value per share on the last day of that period.

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


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


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

RISK FACTORS, INVESTMENTS
AND TECHNIQUES

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

The S&P 500 Index.   The S&P 500 Index is comprised of 500 industrial,
utility, transportation and financial companies in the United States markets.
Most of these companies are listed on the New York Stock Exchange (the
"Exchange"). Companies included in the S&P 500 Index represent about 75% of
the Exchange's market capitalization and 30% of the Exchange's issuers. The
S&P 500 Index is a capitalization weighted index calculated on a total return
basis with dividends reinvested. The inclusion of a stock in the S&P 500
Index in no way implies that Standard & Poor's believes the stock to be an
attractive investment.


Because of the market-value weighting, the 50 largest companies in the S&P
500 Index currently account for approximately 48% of the Index. Typically,
companies included in the S&P 500 Index are the largest and most dominant
firms in their respective industries. As of June 30, 1996, the five largest
companies in the Index were: General Electric (2.9%), Coca Cola (2.4%), Exxon
Corporation (2.2%), American Telephone and Telegraph (2.0%), and Phillip
Morris (1.7%). The largest industry categories were: international oil
companies (6.6%), telephone companies (4.6%), major regional banks (4.4%),
pharmaceutical companies (4.1%) and health care companies (4.0%).

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


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


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

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



                                      12



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


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


Convertible Securities.   Each Fund (other than the 500 Index Fund and the
Money Market Fund) may invest in convertible securities, which may include
corporate notes or preferred stock but are ordinarily long-term debt
obligations of the issuer convertible at a stated exchange rate into common
stock of the same or another issuer. As with all debt securities, the market
value of convertible securities tends to decline as interest rates increase
and, conversely, to increase as interest rates decline. The market value of
convertible securities can also be heavily dependent upon the changing value
of the equity securities into which these securities are convertible
depending on whether the market price of the underlying security exceeds the
conversion price. Convertible securities generally rank senior to common
stocks in an issuer's capital structure and consequently entail less risk
than the issuer's common stock. However, the extent of such risk reduction
depends upon the degree to which the convertible security sells above its
value as a fixed income security. In evaluating a convertible security, the
Adviser or relevant Sub-adviser will give primary emphasis to the
attractiveness of the underlying common stock.

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

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


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

                                      13



difficult or impossible at times. The International Fund, Strategic Income
Fund and World Bond Fund may be required to establish special custodial or
other arrangements before making certain investments in those countries.
Securities of issuers located in these countries may have limited
marketability and may be subject to more abrupt or erratic price movements.


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


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

Foreign Currency Transactions.   Each of the Funds, except the Independence
Equity Fund, 500 Index Fund, Sovereign Investors Fund and Money Market Fund,
may purchase securities denominated in foreign currencies. The value of
investments in these securities and the value of dividends and interest
earned may be significantly affected by changes in currency exchange rates.
Some foreign currency values may be volatile, and there is the possibility of
governmental controls on currency exchange or governmental intervention in
currency markets, which could adversely affect a Fund. As a result, these
Funds may enter into forward foreign currency exchange contracts to protect
against changes in foreign currency exchange rates. These Funds will not
speculate in foreign currencies or in forward foreign currency exchange
contracts, but will enter into these transactions only in connection with
their hedging strategies. A forward foreign currency exchange contract
involves an obligation to purchase or sell a specific currency at a future
date at a price set at the time of the contract. Although certain strategies
could minimize the risk of loss due to a decline in the value of the hedged
foreign currency, they could also limit any potential gain which might result
from an increase in the value of the currency.


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


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


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


"Stripped" mortgage-backed securities are created when a U.S. Government
agency or a financial institution separates the interest and principal
components of a mortgage-backed security and sells them as individual
securities. The holder of the "principal-only" security ("PO") receives the
principal payments made by the underlying mortgage-backed security, while the
holder of the "interest-only" security ("IO") receives interest payments
from the same underlying security. The prices of stripped mortgage-backed
securities may be particularly affected by changes in interest rates. As
interest rates fall, prepayment rates tend to increase, which tends to reduce
prices of IOs and increase prices of POs. Rising interest rates can have the
opposite effect. Although the market for these securities is increasingly
liquid, the Adviser or relevant Sub-adviser may, in accordance with
guidelines adopted by the Board of Trustees, determine that certain stripped
mortgage-backed securities issued by the U.S. Government, its agencies or



                                      14


instrumentalities are not readily marketable. If so, these securities,
together with privately-issued stripped mortgage-backed securities, will be
considered illiquid for purposes of the Funds' limitation on investments in
illiquid securities.


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

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


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


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

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

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

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

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

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

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



                                      15



Swap Agreements.   As one way of managing exposure to different types of
investments, Sovereign Bond Fund, Strategic Income Fund and World Bond Fund
may enter into interest rate swaps and other types of swap agreements such as
caps, collars and floors. Each of these Funds may also enter into currency
swaps. In a typical interest rate swap, one party agrees to make regular
payments equal to a floating interest rate times a "notional principal
amount," in return for payments equal to a fixed rate times the same amount,
for a specified period of time. If a swap agreement provides for payments in
different currencies, the parties might agree to exchange the notional
principal amount as well. Swaps may also depend on other prices or rates,
such as the value of an index or mortgage prepayment rates.


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


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

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


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


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

Participation Interests.   The Sovereign Bond Fund and Strategic Income Fund
may invest in participation interests. Participation interests, which may
take the form of interests in, or assignments of certain loans, are acquired
from banks who have made these loans or are members of a lending syndicate. A
Fund's investments in participation interests are subject to its 15%
limitation on investments in illiquid securities. A Fund may purchase only
those participation interests that mature in 60 days or less, or, if maturing
in more than 60 days, that have a floating rate that is automatically
adjusted at least once every 60 days.


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


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



                                      16



associated with a single issuer, than would the shares of a diversified fund.
However, this Fund, like each of the other Funds, must satisfy certain tax
diversification requirements. See "Taxation" above.

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

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

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

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

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


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

See the Statement of Additional Information for further discussion of the
uses and risks of the investments described above.

                                      17


APPENDIX

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

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

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

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

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

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

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

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

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

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

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

                                      18


                                     NOTES




JOHN HANCOCK DECLARATION TRUST

Investment Adviser

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

Sub-Investment Advisers

John Hancock Advisers International Limited (International Fund)
34 Dover Street
London, England WIX3RA


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


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

Principal Distributor

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

Custodians


Investors Bank & Trust Company
89 South Street
Boston, Massachusetts 02205


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

Shareholder Servicing Agent


John Hancock Investor Services Corporation
P.O. Box 9298
Boston, Massachusetts 02205-9116


Independent Auditors

Ernst & Young LLP
200 Clarendon Street
Boston, Massachusetts 02116

HOW TO OBTAIN INFORMATION
ABOUT THE FUNDS


For Service Information
101 Huntington Avenue
Boston, Massachusetts 02199
Telephone 1-800-824-0335

VAORP  8/96

                                      20


   
                         JOHN HANCOCK DECLARATION TRUST
                              101 Huntington Avenue
                        Boston, Massachusetts 02199-7603
    
                      John Hancock V.A. International Fund
                     John Hancock V.A. Emerging Growth Fund
                        John Hancock V.A. Discovery Fund
                   John Hancock V.A. Independence Equity Fund
                   John Hancock V.A. Sovereign Investors Fund
                        John Hancock V.A. 500 Index Fund
                      John Hancock V.A. Sovereign Bond Fund
                     John Hancock V.A. Strategic Income Fund
                        John Hancock V.A. World Bond Fund
                       John Hancock V.A. Money Market Fund

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

                       STATEMENT OF ADDITIONAL INFORMATION
   
                                 August 12, 1996
    
   
     This Statement of Additional Information ("SAI") provides information about
John Hancock  Declaration  Trust (the "Trust") and the Funds, in addition to the
information  that is  contained in the Funds'  Prospectus  dated August 12, 1996
(the "Prospectus").
    
     This SAI is not a  prospectus.  It should be read in  conjunction  with the
Funds' Prospectus,  a copy of which can be obtained free of charge by writing or
telephoning:

                      John Hancock Investor Services Trust
                                  P.O. Box 9298
                           Boston, Massachusetts 02205
                                 1-800-824-0335



   
    






VASAI 7/96





                                TABLE OF CONTENTS

                                                                          Page

Organization of the Trust...............................................    1
Eligible Investors; Investment Objectives and Policies..................    1
Certain Investment Practices............................................    1
Investment Restrictions.................................................   15
Those Responsible for Management........................................   20
Investment Advisory and Other Services..................................   28
Distribution Contract...................................................   30
Net Asset Value.........................................................   30
Special Redemptions.....................................................   31
Tax Status..............................................................   31
Description of the Trust's Shares.......................................   34
Calculation of Performance..............................................   35
Brokerage Allocation....................................................   37
Shareholder Servicing Agent.............................................   38
Custody of Portfolio....................................................   38
Independent Auditors....................................................   39
Financial Statements....................................................  F-1
Appendix ...............................................................  A-1











                                       2


ORGANIZATION OF THE TRUST

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


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

ELIGIBLE INVESTORS; INVESTMENT OBJECTIVES AND POLICIES

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

     Each  Fund has its own  distinct  investment  objective  and  policies.  In
striving to meet its  objective,  each Fund will face the challenges of changing
business,  economic  and market  conditions.  For a further  description  of the
Funds'  investment  objectives,  policies and  restrictions see "Overview of the
Funds" in the Prospectus and "Investment Restrictions" in this SAI.

CERTAIN INVESTMENT PRACTICES

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

                                       1



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

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

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

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

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

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

                                       2



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

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

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

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

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

                                       3

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

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


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


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

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

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

                                       4



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

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

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

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

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

     In addition,  even though opportunities for investment may exist in foreign
countries,  and in particular emerging markets,  any change in the leadership or

                                       5



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

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

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

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

                                       6


dollar value of a Fund's  holdings of  securities  denominated  in such currency
and, therefore,  will cause an overall decline in the Fund's net asset value and
any net investment income and capital gains to be distributed in U.S. dollars to
shareholders of the Fund.

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

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

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

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

     Forward  Foreign  Currency  Contracts.  Each Fund (other than  Independence
Equity,  500 Index Fund,  Sovereign  Investors  Fund and Money  Market Fund) may
engage in forward foreign currency transactions. Generally, the foreign currency
exchange transactions of the Funds may be conducted on a spot (i.e., cash) basis
at the spot rate for  purchasing or selling  currency  prevailing in the foreign
exchange market.  A Fund may also enter into forward foreign  currency  exchange
contracts involving currencies of the different countries in which it may invest
as a hedge  against  possible  variations  in the foreign  exchange rate between
these  currencies.  This  is  accomplished  through  contractual  agreements  to
purchase or sell a specified  currency at a specified  future date and price set
at the time of the contract. The Funds' transactions in forward foreign currency
exchange  contracts will be limited to hedging either specified  transactions or
portfolio  positions.  Transaction  hedging is the  purchase  or sale of forward
foreign currency contracts with respect to specific receivables or payables of a
Fund  accruing  in  connection  with  the  purchase  and  sale of its  portfolio
securities  denominated in foreign  currencies.  Portfolio hedging is the use of
forward  foreign  currency  contracts  to offset  portfolio  security  positions
denominated  or quoted in such  foreign  currencies.  A Fund will not attempt to
hedge  all  of  its  foreign  portfolio  positions  and  will  enter  into  such
transactions  only to the extent,  if any, deemed  appropriate by the Adviser or

                                       7



relevant  Sub-adviser.  The Adviser,  based on a policy approved by the Board of
Trustees,  monitors the Funds' foreign currency contract transactions to seek to
assure that the Funds qualify as regulated  investment companies under the Code.
The Funds will not  engage in  speculative  forward  foreign  currency  exchange
transactions.

     If a Fund purchases a forward  contract,  its custodian bank will segregate
cash or high grade liquid debt  securities in a separate  account of the Fund in
an  amount  equal to the  value of the  Fund's  total  assets  committed  to the
consummation  of such  forward  contract.  Those assets will be valued at market
daily.  If  the  value  of the  securities  in the  separate  account  declines,
additional cash or securities will be placed in the account so that the value of
the account will be equal to the amount of the Fund's commitment with respect to
such contracts.

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

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

     Repurchase Agreements.  Each Fund may enter into repurchase  agreements.  A
repurchase agreement is a contract under which the Fund would acquire a security
for a relatively  short period  (generally  not more than seven days) subject to
the  obligation of the seller to repurchase and the Fund to resell such security
at a fixed time and price  (representing the Fund's cost plus interest).  A Fund
will enter into  repurchase  agreements  only with  member  banks of the Federal
Reserve System and with securities dealers.  The Adviser or relevant Sub-adviser
will continuously  monitor the  creditworthiness of the parties with whom a Fund
enters  into  repurchase  agreements.  Each  Fund has  established  a  procedure
providing  that  the  securities  serving  as  collateral  for  each  repurchase
agreement  must be delivered to the Fund's  custodian  either  physically  or in
book-entry form and that the collateral must be marked to market daily to ensure
that each  repurchase  agreement is fully  collateralized  at all times.  In the
event of bankruptcy or other  default by a seller of a repurchase  agreement,  a
Fund could experience delays in liquidating the underlying  securities and could
experience losses, including the possible decline in the value of the underlying
securities  during  the  period in which the Fund  seeks to  enforce  its rights
thereto, possible subnormal levels of income and lack of access to income during
this period,  and the expense of enforcing its rights. A Fund will not invest in
a repurchase  agreement  maturing in more than seven days,  if such  investment,
together with other illiquid  securities  held by the Fund would exceed 15% (10%
for Money Market Fund) of the Fund's net assets.

     Reverse  Repurchase  Agreements.  Each  Fund may also  enter  into  reverse
repurchase  agreements which involve the sale of U.S. Government securities held
in its  portfolio to a bank or securities  firm with an agreement  that the Fund
will buy back the  securities  at a fixed  future  date at a fixed price plus an
agreed  amount of  "interest"  which may be reflected in the  repurchase  price.
Reverse repurchase  agreements are considered to be borrowings by a Fund. A Fund
will use  proceeds  obtained  from the sale of  securities  pursuant  to reverse
repurchase  agreements to purchase other investments.  The use of borrowed funds
to make  investments  is a practice  known as  "leverage,"  which is  considered
speculative.  Use of reverse  repurchase  agreements is an investment  technique
that is  intended  to increase  income.  Thus,  a Fund will enter into a reverse
repurchase  agreement only when the Adviser  determines that the interest income
to be earned from the  investment  of the  proceeds is greater than the interest
expense of the transaction.  However, there is a risk that interest expense will
nevertheless exceed the income earned. Reverse repurchase agreements involve the

                                       8



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

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

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

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

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

     A Fund will  realize a gain if the security  declines in price  between the
date of the short  sale and the date on which  the Fund  replaces  the  borrowed
security.  On the other hand,  a Fund will incur a loss as a result of the short
sale if the price of the security  increases  between those dates. The amount of

                                       9



any gain will be decreased,  and the amount of any loss increased, by the amount
of any  premium  or  interest  or  dividends  a Fund may be  required  to pay in
connection  with a short sale.  The successful use of short selling as a hedging
device may be adversely affected by imperfect  correlation  between movements in
the price of the security sold short and the securities being hedged.

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

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

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

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

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

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

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

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

                                       10




     Financial Futures Contracts. To the extent set forth in the Prospectus, the
Funds may buy and sell futures contracts (and related options) on stocks,  stock
indices,  debt  securities,   currencies,   interest  rate  indices,  and  other
instruments.  Each  Fund may  hedge  its  portfolio  by  selling  or  purchasing
financial  futures  contracts  as an offset  against  the  effects of changes in
interest  rates or in  securities or foreign  currency  values.  Although  other
techniques could be used to reduce exposure to market  fluctuations,  a Fund may
be able to hedge its exposure  more  effectively  and perhaps at a lower cost by
using financial futures contracts.  The Funds (other than the Money Market Fund)
may enter into  financial  futures  contracts for hedging and other  non-hedging
purposes to the extent permitted by regulations of the Commodity Futures Trading
Commission ("CFTC").


     Financial  futures  contracts  have been  designed by boards of trade which
have been  designated  "contract  markets" by the CFTC.  Futures  contracts  are
traded on these markets in a manner that is similar to the way a stock is traded
on a stock exchange.  The boards of trade, through their clearing  corporations,
guarantee that the contracts  will be performed.  Currently,  financial  futures
contracts are based on interest rate instruments such as long-term U.S. Treasury
bonds, U.S.  Treasury notes,  Ginnie Mae modified  pass-through  mortgage-backed
securities,  three-month U.S.  Treasury bills,  90-day  commercial  paper,  bank
certificates of deposit and Eurodollar  certificates of deposit.  It is expected
that if other financial  futures  contracts are developed and traded,  the Funds
may engage in transactions in such contracts.


     Although some  financial  futures  contracts by their terms call for actual
delivery or acceptance of financial instruments, in most cases the contracts are
closed  out prior to  delivery  by  offsetting  purchases  or sales of  matching
financial  futures  contracts (same exchange,  underlying  security and delivery
month).  Other  financial  futures  contracts,  such  as  futures  contracts  on
securities indices, by their terms call for cash settlements.  If the offsetting
purchase  price is less than a Fund's  original sale price,  the Fund realizes a
gain, or if it is more, the Fund realizes a loss. Conversely,  if the offsetting
sale price is more than a Fund's original  purchase  price,  the Fund realizes a
gain, or if it is less,  the Fund realizes a loss.  The  transaction  costs must
also be  included  in these  calculations.  Each Fund will pay a  commission  in
connection with each purchase or sale of financial futures contracts,  including
a closing transaction. For a discussion of the Federal income tax considerations
of transactions in financial  futures  contracts,  see the information under the
caption "Tax Status" below.

     At the time a Fund enters into a financial futures contract, it is required
to deposit  with its  custodian  a specified  amount of cash or U.S.  Government
securities,  known as "initial margin," ranging upward from 1.1% of the value of
the financial futures contract being traded. The margin required for a financial
futures  contract is set by the board of trade or exchange on which the contract
is traded and may be  modified  during  the term of the  contract.  The  initial
margin is in the  nature of a  performance  bond or good  faith  deposit  on the
financial futures contract which is returned to the Fund upon termination of the
contract,  assuming all contractual  obligations have been satisfied.  The Funds
expect to earn interest income on their initial margin  deposits.  Each day, the
futures  contract  is valued at the  official  settlement  price of the board of
trade  or  exchange  on  which  it is  traded.  Subsequent  payments,  known  as
"variation  margin,"  to and from the  broker  are made on a daily  basis as the
market price of the financial futures contract fluctuates. This process is known
as "mark to market."  Variation margin does not represent a borrowing or lending
by the Funds but is instead a settlement between the Funds and the broker of the
amount one would owe the other if the financial  futures  contract  expired.  In
computing net asset value,  the Funds will mark to market their  respective open
financial futures positions.

     Successful hedging depends on a strong  correlation  between the market for
the underlying  securities and the futures contract market for those securities.
There are several factors that will probably prevent this correlation from being

                                       11



a perfect one, and even a correct  forecast of general  interest rate trends may
not  result  in  a  successful  hedging   transaction.   There  are  significant
differences  between the  securities  and futures  markets which could create an
imperfect  correlation between the markets and which could affect the success of
a  given  hedge.   The  degree  of  imperfection   of  correlation   depends  on
circumstances  such as  variations  in  speculative  market demand for financial
futures and debt securities,  including technical  influences in futures trading
and  differences  between  the  financial   instruments  being  hedged  and  the
instruments  underlying the standard  financial futures contracts  available for
trading  in  such   respects   as   interest   rate   levels,   maturities   and
creditworthiness  of issuers.  The degree of imperfection may be increased where
the underlying  debt  securities are lower- rated and, thus,  subject to greater
fluctuation in price than higher-rated securities.

     A decision as to whether,  when and how to hedge  involves  the exercise of
skill and judgment,  and even a well-conceived hedge may be unsuccessful to some
degree because of unexpected market or interest rate trends. The Funds will bear
the risk that the price of the securities being hedged will not move in complete
correlation  with  the  price  of  the  futures  contracts  used  as  a  hedging
instrument.  Although the Adviser and relevant  Sub-adviser believe that the use
of  financial  futures  contracts  will benefit the Funds,  an incorrect  market
prediction  could  result  in a  loss  on  both  the  hedged  securities  in the
respective  Fund's  portfolio and the hedging  vehicle so that the Fund's return
might have been better had hedging not been attempted.  However,  in the absence
of the ability to hedge,  the Adviser or relevant  Sub-adviser  might have taken
portfolio  actions in  anticipation  of the same market  movements  with similar
investment results but, presumably, at greater transaction costs. The low margin
deposits  required for futures  transactions  permit an extremely high degree of
leverage. A relatively small movement in a futures contract may result in losses
or gains in excess of the amount invested.

     Futures exchanges may limit the amount of fluctuation  permitted in certain
futures contract prices during a single trading day. The daily limit establishes
the maximum  amount the price of a futures  contract  may vary either up or down
from the previous  day's  settlement  price,  at the end of the current  trading
session.  Once the daily limit has been reached in a futures contract subject to
the limit,  no more trades may be made on that day at a price beyond that limit.
The daily limit  governs only price  movements  during a particular  trading day
and,  therefore,  does not limit potential  losses because the limit may work to
prevent the liquidation of unfavorable  positions.  For example,  futures prices
have occasionally moved to the daily limit for several  consecutive trading days
with little or no trading,  thereby  preventing prompt  liquidation of positions
and subjecting some holders of futures contracts to substantial losses.

     Finally,  although the Funds engage in financial futures  transactions only
on boards of trade or exchanges where there appears to be an adequate  secondary
market,  there is no assurance  that a liquid market will exist for a particular
futures  contract  at any given time.  The  liquidity  of the market  depends on
participants closing out contracts rather than making or taking delivery. In the
event participants decide to close out contracts,  liquidity in the market could
be reduced.  In addition,  the Funds could be prevented  from executing a buy or
sell order at a specified  price or closing out a position due to limits on open
positions or daily price  fluctuation  limits imposed by the exchanges or boards
of trade. If a Fund cannot close out a position, it must continue to meet margin
requirements until the position is closed.

     Options  on  Financial  Futures  Contracts.  To the extent set forth in the
Prospectus, the Funds may buy and sell options on financial futures contracts on
stocks, stock indices, debt securities,  currencies,  interest rate indices, and
other  instruments.  An option on a futures  contract  gives the  purchaser  the
right,  in  return  for the  premium  paid,  to assume a  position  in a futures
contract  at a  specified  exercise  price at any time  during the period of the
option. Upon exercise, the writer of the option delivers the futures contract to
the holder at the  exercise  price.  The Funds would be required to deposit with
their  custodian  initial  and  variation  margin  with  respect to put and call
options  on futures  contracts  written  by them.  Options on futures  contracts
involve  risks  similar  to the  risks  of  transactions  in  financial  futures

                                       12



contracts.  Also, an option purchased by a Fund may expire  worthless,  in which
case a Fund would lose the premium it paid for the option.

     Other  Considerations.  The  Funds  will  engage  in  futures  and  options
transactions for bona fide hedging or other  non-hedging  purposes to the extent
permitted by CFTC regulations. A Fund will determine that the price fluctuations
in the futures  contracts  and options on futures used for hedging  purposes are
substantially  related to price  fluctuations  in securities held by the Fund or
which it  expects  to  purchase.  Except as stated  below,  the  Funds'  futures
transactions  will be entered  into for  traditional  hedging  purposes -- i.e.,
futures  contracts  will be sold to  protect  against a decline  in the price of
securities that the Funds own, or futures contracts will be purchased to protect
the Funds  against an increase in the price of  securities,  or the  currency in
which they are  denominated,  that the Funds intend to purchase.  As evidence of
this hedging  intent,  the Funds expect that on 75% or more of the  occasions on
which they take a long  futures or option  position  (involving  the purchase of
futures contracts),  the Funds will have purchased, or will be in the process of
purchasing equivalent amounts of related securities or assets denominated in the
related  currency in the cash  market at the time when the  futures  contract or
option  position  is  closed  out.  However,  in  particular  cases,  when it is
economically  advantageous  for a Fund to do so, a long futures  position may be
terminated  or an option  may  expire  without  the  corresponding  purchase  of
securities or other assets.


     As an  alternative  to  literal  compliance  with  the  bona  fide  hedging
definition,  a CFTC  regulation  permits  the  Funds to elect to  comply  with a
different test, under which the aggregate  initial margin and premiums  required
to establish  nonhedging  positions in futures  contracts and options on futures
will not exceed 5% of the net asset value of the  respective  Fund's  portfolio,
after taking into account  unrealized  profits and losses on any such  positions
and excluding the amount by which such options were in-the- money at the time of
purchase. The Funds will engage in transactions in futures contracts and options
only to the extent such transactions are consistent with the requirements of the
Code for maintaining their  qualifications as regulated investment companies for
Federal income tax purposes.

     When the Funds purchase financial futures  contracts,  or write put options
or purchase call options  thereon,  cash or liquid,  high grade debt  securities
will be deposited in a segregated account with the Funds' custodian in an amount
that,  together  with the amount of initial  and  variation  margin  held in the
account of the broker, equals the market value of the futures contracts.

     Options Transactions.  To the extent set forth in the Prospectus, the Funds
may write  listed and  over-the-counter  covered  call  options  and covered put
options on  securities  in order to earn  additional  income  from the  premiums
received. In addition,  the Funds may purchase listed and over- the-counter call
and put options.  The extent to which covered  options will be used by the Funds
will  depend  upon  market   conditions  and  the  availability  of  alternative
strategies.

     A Fund will write listed and over-the-counter call options only if they are
"covered,"  which means that the Fund owns or has the immediate right to acquire
the securities underlying the options without additional cash consideration upon
conversion or exchange of other securities held in its portfolio.  A call option
written by a Fund may also be "covered"  if the Fund holds on a  share-for-share
basis a covering call on the same securities where (i) the exercise price of the
covering  call  held is equal to or less  than  the  exercise  price of the call
written or the exercise  price of the covering call is greater than the exercise
price  of the  call  written,  in the  latter  case  only if the  difference  is
maintained  by the  Fund in cash or high  grade  liquid  debt  obligations  in a
segregated account with the Fund's custodian, and (ii) the covering call expires
at the same time as or later than the call written.  If a covered call option is
not  exercised,  a Fund would keep both the option  premium  and the  underlying
security.  If the covered  call option  written by a Fund is  exercised  and the
exercise price, less the transaction  costs,  exceeds the cost of the underlying
security,  the Fund would realize a gain in addition to the amount of the option

                                       13



premium it received. If the exercise price, less transaction costs, is less than
the cost of the  underlying  security,  a Fund's  loss  would be  reduced by the
amount of the option premium.

     As the writer of a covered  put  option,  each Fund will write a put option
only with respect to securities it intends to acquire for its portfolio and will
maintain in a  segregated  account  with its  custodian  bank cash or high grade
liquid debt  securities  with a value equal to the price at which the underlying
security may be sold to the Fund in the event the put option is exercised by the
purchaser.  The Funds may also write a "covered"  put option by  purchasing on a
share-for-share  basis a put on the same security as the put written by the Fund
if the  exercise  price of the covering put held is equal to or greater than the
exercise  price of the put written and the covering put expires at the same time
as or later than the put written.

     When writing listed and over-the-counter covered put options on securities,
the Funds would earn income from the premiums received.  If a covered put option
is not  exercised,  the Funds  would  keep the  option  premium  and the  assets
maintained  to cover the option.  If the option is  exercised  and the  exercise
price,  including  transaction costs, exceeds the market price of the underlying
security,  a Fund  would  realize a loss,  but the  amount of the loss  would be
reduced by the amount of the option premium.

     If  the  writer  of an  exchange-traded  option  wishes  to  terminate  its
obligation   prior  to  its  exercise,   it  may  effect  a  "closing   purchase
transaction." This is accomplished by buying an option of the same series as the
option previously written.  The effect of the purchase is that a Fund's position
will be offset by the Options Clearing  Corporation.  The Funds may not effect a
closing purchase transaction after they have been notified of the exercise of an
option.  There  is no  guarantee  that a  closing  purchase  transaction  can be
effected.  Although the Funds will generally  write only those options for which
there appears to be an active  secondary  market,  there is no assurance  that a
liquid  secondary  market on an  exchange  or board of trade  will exist for any
particular  option or at any particular  time, and for some options no secondary
market on an exchange may exist.

     In the case of a written call option,  effecting a closing transaction will
permit a Fund to write  another  call  option on the  underlying  security  with
either a different  exercise  price,  expiration  date or both. In the case of a
written  put option,  it will  permit a Fund to write  another put option to the
extent  that  the  exercise  price  thereof  is  secured  by  deposited  cash or
short-term  securities.  Also,  effecting a closing  transaction will permit the
cash or  proceeds  from the  concurrent  sale of any  securities  subject to the
option to be used for other investments.  If a Fund desires to sell a particular
security  from its  portfolio  on which it has  written a call  option,  it will
effect  a  closing  transaction  prior  to or  concurrent  with  the sale of the
security.

     A Fund will  realize a gain from a closing  transaction  if the cost of the
closing  transaction is less than the premium  received from writing the option.
The Funds  will  realize a loss  from a closing  transaction  if the cost of the
closing  transaction  is more than the premium  received for writing the option.
However,  because  increases in the market price of a call option will generally
reflect  increases  in the market  price of the  underlying  security,  any loss
resulting  from the  repurchase of a call option is likely to be offset in whole
or in part by appreciation in the value of the underlying  security owned by the
Fund.

     Over-the-Counter Options. Funds that may engage in options transactions may
engage in options transactions on exchanges and in the over-the-counter markets.
In general, exchange-traded options are third-party contracts (i.e., performance
of  the  parties'   obligations   is  guaranteed  by  an  exchange  or  clearing
corporation)  with standardized  strike prices and expiration  dates.  Over-the-
counter  ("OTC")  transactions  are  two-party  contracts  with  price and terms
negotiated  by the buyer and seller.  A Fund will acquire only those OTC options

                                       14



for which management believes the Fund can receive on each business day at least
two  separate  bids or offers (one of which will be from an entity  other than a
party to the  option)  or those OTC  options  valued by an  independent  pricing
service. The Funds will write and purchase OTC options only with member banks of
the Federal Reserve System and primary dealers in U.S. Government  securities or
their affiliates which have capital of at least $50 million or whose obligations
are guaranteed by an entity having capital of at least $50 million.  The SEC has
taken the position  that OTC options are subject to each Fund's 15%  restriction
on illiquid investments. The SEC, however, allows a Fund to exclude from the 15%
limitation  on  illiquid  securities  a portion of the value of the OTC  options
written by the Fund,  provided that certain conditions are met. First, the other
party to the OTC options has to be a primary U.S.  Government  securities dealer
designated as such by the Federal  Reserve Bank.  Second,  the Fund must have an
absolute  contractual right to repurchase the OTC options at a formula price. If
the above  conditions are met, a Fund may treat as illiquid only that portion of
the OTC option's  value (and the value of its  underlying  securities)  which is
equal  to the  formula  price  for  repurchasing  the OTC  option,  less the OTC
option's intrinsic value.

INVESTMENT RESTRICTIONS

Fundamental Investment Restrictions

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

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

     1.   Issue senior securities,  except as permitted by paragraphs 3, 6 and 7
          below.  For  purposes of this  restriction,  the issuance of shares of
          beneficial interest in multiple classes or series, the deferral of the
          Trustees' fees and the purchase or sale of options, futures contracts,
          forward commitments,  swaps and repurchase  agreements entered into in
          accordance with the Fund's  investment  policies within the meaning of
          paragraph 6 below, are not deemed to be senior securities.

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

                                       15




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

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

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

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

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

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

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

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

Money Market Fund may not:


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

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

                                       16




          purchase of reverse repurchase  agreements in amounts not to exceed 33
          1/3% of the value of the Fund's  total  assets  (including  the amount
          borrowed) taken at market value.

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

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

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

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

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

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

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

Non-Fundamental Investment Restrictions

     The following  restrictions  are designated as  non-fundamental  and may be
changed by the Board of Trustees without the approval of shareholders.

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

     1.   Pledge, mortgage or hypothecate its assets, except to secure permitted
          borrowings and then only if such pledging, mortgaging or hypothecating
          does not exceed 33 1/3% of the  Fund's  total  assets  taken at market
          value.  Collateral  arrangements  with  respect to margin,  option and
          other risk management, when-issued and forward commitment transactions
          are not deemed to be pledges or other  encumbrances  for  purposes  of
          this restriction.

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

                                       17




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

     4.   Purchase  or  retain  securities  of an  issuer  if one or more of the
          Trustees  or  officers  of the Trust or  directors  or officers of the
          Adviser,  any Sub-adviser or any investment  management  subsidiary of
          the  Adviser  individually  owns  beneficially  more  than  of 1%  and
          together  own  beneficially  more  than 5% of the  securities  of such
          issuer.

     5.   Purchase a security  if, as a result,  (i) more than 10% of the Fund's
          assets would be invested in securities of other investment  companies,
          (ii)  such  purchase  would  result  in  more  than  3% of  the  total
          outstanding voting securities of any one such investment company being
          held by the Fund or (iii) more than 5% of the Fund's  assets  would be
          invested in any one such investment company.  These limitations do not
          apply to (a) the investment of cash  collateral,  received by the Fund
          in connection  with lending the Fund's  portfolio  securities,  in the
          securities  of open-end  investment  companies  or (b) the purchase of
          shares  of  any  investment  company  in  connection  with  a  merger,
          consolidation,  reorganization or purchase of substantially all of the
          assets of another  investment  company.  Each Fund may, in  connection
          with the John Hancock Group of Funds  Deferred  Compensation  Plan for
          Independent   Trustees,   purchase   securities  of  other  investment
          companies  within the John Hancock Group of Funds  provided that, as a
          result, (i) no more than 10% of the Fund's assets would be invested in
          securities of all other investment companies, (ii) such purchase would
          not result in more than 3% of the total outstanding  voting securities
          of any one such investment company being held by the Fund and (iii) no
          more than 5% of the Fund's  assets  would be  invested in any one such
          investment  company.  Each  Fund may not  purchase  the  shares of any
          closed-end  investment  company  except  in the open  market  where no
          commission or profit to a sponsor or dealer results from the purchase,
          other than customary brokerage fees.

     6.   Invest in securities which are illiquid if, as a result, more than 15%
          of  its  net  assets  would  consist  of  such  securities,  including
          repurchase  agreements  maturing in more than seven  days,  securities
          that are not readily  marketable,  restricted  securities not eligible
          for resale  pursuant  to Rule 144A under the 1933 Act,  purchased  OTC
          options,  certain  assets  used to  cover  written  OTC  options,  and
          privately issued stripped mortgage-backed securities.

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

     8.   Purchase  warrants  of any issuer,  if, as a result of such  purchase,
          more than 2% of the value of the Fund's total assets would be invested
          in warrants which are not listed on an exchange or more than 5% of the
          value of the total  assets of the Fund would be  invested  in warrants
          generally,  whether or not so listed. For these purposes, warrants are
          to be valued at the lesser of cost or market, but warrants acquired by
          the Fund in units with or attached to debt securities  shall be deemed
          to be without value.

                                       18




     9.   Write covered call or put options with respect to more than 25% of the
          value of its total assets, invest more than 25% of its total assets in
          protective  put options or invest more than 5% of its total  assets in
          puts, calls, spreads or straddles,  or any combination thereof,  other
          than  protective put options.  The aggregate value of premiums paid on
          all options,  other than  protective put options,  held by the Fund at
          any time will not exceed 20% of the Fund's total assets.

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

The Money Market Fund may not:

     1.   Pledge,  mortgage or  hypothecate  its portfolio  securities if at the
          time of such action the value of the securities so pledged,  mortgaged
          or  hypothecated  would exceed 10% of the Fund's total assets taken at
          market value.

     2.   Purchase  or retain the  securities  of any  issuer if any  officer or
          Trustee  of the  Trust or the  Fund or its  investment  adviser  is an
          officer or director of such issuer and beneficially owns more than 1/2
          of 1% of the securities of such issuer and all of the officers and the
          Trustees of the Trust and the Fund's  investment  adviser together own
          more than 5% of the securities of such issuer.

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

     4.   Purchase a security  if, as a result,  (i) more than 10% of the Fund's
          assets would be invested in securities of other investment  companies,
          (ii)  such  purchase  would  result  in  more  than  3% of  the  total
          outstanding voting securities of any one such investment company being
          held by the Fund or (iii) more than 5% of the Fund's  assets  would be
          invested in any one such investment company.  These limitations do not
          apply to (a) the investment of cash  collateral,  received by the Fund
          in connection  with lending the Fund's  portfolio  securities,  in the
          securities  of open-end  investment  companies  or (b) the purchase of
          shares  of  any  investment  company  in  connection  with  a  merger,
          consolidation,  reorganization or purchase of substantially all of the
          assets of another  investment  company.  Each Fund may, in  connection
          with the John Hancock Group of Funds  Deferred  Compensation  Plan for
          Independent   Trustees,   purchase   securities  of  other  investment
          companies  within the John Hancock Group of Funds  provided that, as a
          result, (i) no more than 10% of the Fund's assets would be invested in
          securities of all other investment companies, (ii) such purchase would
          not result in more than 3% of the total outstanding  voting securities
          of any one such investment company being held by the Fund and (iii) no
          more than 5% of the Fund's  assets  would be  invested in any one such
          investment  company.  Each  Fund may not  purchase  the  shares of any
          closed-end  investment  company  except  in the open  market  where no
          commission or profit to a sponsor or dealer results from the purchase,
          other than customary  brokerage fees.

     5.   Invest in securities which are illiquid if, as a result, more than 10%
          of  its  net  assets  would  consist  of  such  securities,  including
          repurchase  agreements  maturing in more than seven  days,  securities
          that are not readily  marketable,  restricted  securities not eligible
          for resale  pursuant  to Rule 144A under the 1933 Act,  purchased  OTC

                                       19




          options,  certain  assets  used to  cover  written  OTC  options,  and
          privately issued stripped mortgage-backed securities.

     6.   Invest in warrants.

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


     The Trust agrees as a matter of non-fundamental  policy that, in accordance
with  the  regulations  of  the  California  Insurance  Department,  until  such
regulations no longer require, each Fund will limit its borrowing to: (1) 10% of
net asset value when borrowing for any general  purpose and (2) 25% of net asset
value when  borrowing as a temporary  measure to  facilitate  redemptions.  (Net
asset value of a Fund is the market  value of all  investments  or assets  owned
less outstanding  liabilities of the Fund at the time that any new or additional
borrowing is undertaken.)  Each Fund will also, as a matter of non-  fundamental
policy,  follow  California  foreign country  diversification  guidelines  which
provide that:


     (1) A Fund, holding foreign  investments,  will be invested in a minimum of
     five different  foreign  countries at all times.  However,  this minimum is
     reduced to four when foreign country investments  comprise less than 80% of
     the Fund's net asset value;  to three when less than 60% of such value;  to
     two when less than 40%; and to one when less than 20%.

     (2)  Except as set  forth in items 3 and 4 below,  a Fund will have no more
     than 20% of its net asset value  invested in securities of issuers  located
     in any one country.

     (3) A Fund may have an additional  15% of its value  invested in securities
     of  issuers  located  in any  one of the  following  countries:  Australia,
     Canada, France, Japan, the United Kingdom or Germany.

     (4) A Fund's  investments  in United  States  issuers  are not  subject  to
     foreign country diversification guidelines.

THOSE RESPONSIBLE FOR MANAGEMENT

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

     The following  table sets forth the principal  occupations  of the Trustees
and principal officers of the Trust during the past five years. Unless otherwise
indicated,  the  business  address  of each is 101  Huntington  Avenue,  Boston,
Massachusetts 02199.

                                       20






Name, Address                      Position(s) Held                   Principal Occupation(s)
and Date of Birth                  With Registrant                    During Past 5 Years    
- -----------------                  ---------------                    -------------------    
                                                                
*Edward J. Boudreau, Jr.           Chairman (1,2)                     Chairman and Chief Executive       
October 1944                                                          Officer, the Adviser and The       
                                                                      Berkeley Financial Group ("The     
                                                                      Berkeley Group"); Chairman, NM     
                                                                      Capital Management, Inc. ("NM      
                                                                      Capital"); John Hancock Advisers   
                                                                      International Limited ("Advisers   
                                                                      International"); John Hancock      
                                                                      Funds; John Hancock Investor       
                                                                      Services Corporation ("Investor    
                                                                      Services") and Sovereign Asset     
                                                                      Management Corporation ("SAMCorp");
                                                                      (hereinafter the Adviser, the      
                                                                      Berkeley Group, NM Capital,        
                                                                      Advisers International, John       
                                                                      Hancock Funds, Investor Services   
                                                                      and SAMCorp are collectively       
                                                                      referred to as the "Affiliated     
                                                                      Companies"); Chairman, First       
                                                                      Signature Bank & Trust; Director,  
                                                                      John Hancock Freedom Securities    
                                                                      Corp., John Hancock Capital Corp.  
                                                                      and New England/Canada Business    
                                                                      Council; Member, Investment Company
                                                                      Institute Board of Governors;      
                                                                      Director, Asia Strategic Growth    
                                                                      Fund, Inc.; Trustee, Museum of     
                                                                      Science; Vice Chairman and         
                                                                      President, the Adviser (until July 
                                                                      1992); Chairman, John Hancock      
                                                                      Distributors, Inc. (until April    
                                                                      1994).                             

Dennis S. Aronowitz                Trustee (3)                        Professor of Law, Boston University
Boston University                                                     School of Law; Trustee, Brookline  
Boston, Massachusetts                                                 Savings Bank.                      
June 1931                                                             




- -------------------------------
*    An  "interested  person" of the Trust,  as such term is defined in the 1940
     Act.
(1)  Member of the Executive  Committee.  The Executive  Committee may generally
     exercise most of the powers of the Board of Trustees.
(2)  Member of the Investment Committee of the Adviser.
(3)  Member of the Audit Committee and the Administration Committee.

                                       21



Name, Address                      Position(s) Held                   Principal Occupation(s)
and Date of Birth                  With Registrant                    During Past 5 Years    
- -----------------                  ---------------                    -------------------    

Richard P. Chapman, Jr.            Trustee (1,3)                      President, Brookline Savings Bank; 
160 Washington Street                                                 Director, Federal Home Loan Bank of
Brookline, Massachusetts                                              Boston (lending); Director, Lumber 
February 1935                                                         Insurance Companies (fire and      
                                                                      casualty insurance); Trustee,      
                                                                      Northeastern University            
                                                                      (education); Director, Depositors  
                                                                      Insurance Fund, Inc. (insurance).  

William J. Cosgrove                Trustee (3)                        Vice President, Senior Banker and  
20 Buttonwood Place                                                   Senior Credit Officer, Citibank,   
Saddle River, New Jersey                                              N.A. (retired September 1991);     
January 1933                                                          Executive Vice President, Citadel  
                                                                      Group Representatives, Inc., EVP   
                                                                      Resource Evaluation, Inc.          
                                                                      (consulting) (until October 1993); 
                                                                      Trustee, the Hudson City Savings   
                                                                      Bank (since 1995).                 

Douglas M. Costle                  Trustee (1,3)                      Director, Chairman of the Board and
RR2 Box 480                                                           Distinguished Senior Fellow,       
Woodstock, Vermont  05091                                             Institute for Sustainable          
July 1939                                                             Communities, Montpelier, Vermont   
                                                                      (since 1991); Dean, Vermont Law    
                                                                      School (until 1991); Director, Air 
                                                                      and Water Technologies Corporation 
                                                                      (environmental services and        
                                                                      equipment), Niagara Mohawk Power   
                                                                      Company (electric services) and    
                                                                      Mitretek Systems (governmental     
                                                                      consulting services).              
                                                                      
                                             
                                             
- -------------------------------
*    An  "interested  person" of the Trust,  as such term is defined in the 1940
     Act.
(1)  Member of the Executive  Committee.  The Executive  Committee may generally
     exercise most of the powers of the Board of Trustees.
(2)  Member of the Investment Committee of the Adviser.
(3)  Member of the Audit Committee and the Administration Committee.
                                                                                          
                                       22



Name, Address                      Position(s) Held                   Principal Occupation(s)
and Date of Birth                  With Registrant                    During Past 5 Years    
- -----------------                  ---------------                    -------------------    

Leland O. Erdahl                   Trustee (3)                        Director of Santa Fe Ingredients   
9449 Navy Blue Court                                                  Company of California, Inc. and    
Las Vegas, NV  89117                                                  Santa Fe Ingredients Company, Inc. 
December 1928                                                         (private food processing           
                                                                      companies); Director of Uranium    
                                                                      Resources, Inc.; President of      
                                                                      Stolar, Inc. (from 1987-1991) and  
                                                                      President of Albuquerque Uranium   
                                                                      Corporation (from 1985-1992);      
                                                                      Director of Freeport-McMoRan Copper
                                                                      & Gold Company Inc., Hecla Mining  
                                                                      Company, Canyon Resources          
                                                                      Corporation and Original Sixteen to
                                                                      One Mine, Inc. (from 1984-1987 and 
                                                                      from 1991 to 1995) (management     
                                                                      consultant).                       

Richard A. Farrell                 Trustee (3)                        President of Farrell, Healer & Co.,
Farrell, Healer & Company, Inc.                                       (venture capital management firm)  
160 Federal Street                                                    (since 1980); Prior to 1980, headed
23rd Floor                                                            the venture capital group at Bank  
Boston, MA  02110                                                     of Boston Corporation.             
November 1932                                                         

Gail D. Fosler                     Trustee (3)                        Vice President and Chief Economist,
4104 Woodbine Street                                                  The Conference Board (non-profit   
Chevy Chase, MD                                                       economic and business research).   
December 1947                                                         

William F. Glavin                  Trustee (3)                        President, Babson College; Vice     
Babson College                                                        Chairman, Xerox Corporation (until  
Horn Library                                                          June 1989); Director, Caldor Inc.,  
Babson Park, MA 02157                                                 Reebok, Ltd. (since 1994), and Inco 
March 1931                                                            Ltd.                                
                                                                      


                                             
- -------------------------------
*    An  "interested  person" of the Trust,  as such term is defined in the 1940
     Act.
(1)  Member of the Executive  Committee.  The Executive  Committee may generally
     exercise most of the powers of the Board of Trustees.
(2)  Member of the Investment Committee of the Adviser.
(3)  Member of the Audit Committee and the Administration Committee.
                                             
                                       23



Name, Address                      Position(s) Held                   Principal Occupation(s)
and Date of Birth                  With Registrant                    During Past 5 Years    
- -----------------                  ---------------                    -------------------    

*Anne C. Hodsdon                   Trustee and President              President and Chief Operating      
April 1953                         (1,2)                              Officer, the Adviser; Executive    
                                                                      Vice President, the Adviser (until 
                                                                      December 1994); Senior Vice        
                                                                      President; the Adviser (until      
                                                                      December 1993); Vice President, the
                                                                      Adviser (until 1991).              

Dr. John A. Moore                  Trustee (3)                        President and Chief Executive    
Institute for Evaluating                                              Officer, Institute for Evaluating
 Health Risks                                                         Health Risks, (nonprofit         
1101 Vermont Avenue N.W.                                              institution) ( since September   
Suite 608                                                             1989).                           
Washington, DC  20005                                                 
February 1939

Patti McGill Peterson              Trustee (3)                        President, St. Lawrence University;
St. Lawrence University                                               Director, Niagara Mohawk Power     
110 Vilas Hall                                                        Corporation (electric utility) and 
Canton, NY  13617                                                     Security Mutual Life (insurance).  
May 1943                                                              

John W. Pratt                      Trustee (3)                        Professor of Business         
2 Gray Gardens East                                                   Administration at Harvard     
Cambridge, MA  02138                                                  University Graduate School of 
September 1931                                                        Business Administration (since
                                                                      1961).                        

*Richard S. Scipione               Trustee (1)                        General Counsel, the Life Company; 
John Hancock Place                                                    Director, the Adviser, the         
P.O. Box 111                                                          Affiliated Companies, John Hancock 
Boston, Massachusetts                                                 Distributors, Inc., JH Networking  
August 1937                                                           Insurance Agency, Inc., John       
                                                                      Hancock Subsidiaries, Inc., John   
                                                                      Hancock Property and Casualty      
                                                                      Insurance and its affiliates (until
                                                                      November, 1993).                   
                                                                      
                                             
                                             
- -------------------------------
*    An  "interested  person" of the Trust,  as such term is defined in the 1940
     Act.
(1)  Member of the Executive  Committee.  The Executive  Committee may generally
     exercise most of the powers of the Board of Trustees.
(2)  Member of the Investment Committee of the Adviser.
(3)  Member of the Audit Committee and the Administration Committee.
                                             
                                       24



Name, Address                      Position(s) Held                   Principal Occupation(s)
and Date of Birth                  With Registrant                    During Past 5 Years    
- -----------------                  ---------------                    -------------------    

Edward J. Spellman, CPA            Trustee (3)                        Partner, KPMG Peat Marwick LLP
259C Commercial Bld.                                                  (retired June 1990).          
Fort Lauderdale, FL                                                   
November 1932

*Robert G. Freedman                Vice Chairman and Chief            Vice Chairman and Chief Investment 
July 1938                          Investment Officer (2)             Officer, the Adviser; President,   
                                                                      the Adviser (until December 1994); 
                                                                      Director, the Adviser, Advisers    
                                                                      International, John Hancock Funds, 
                                                                      Investor Services, SAMCorp., and NM
                                                                      Capital; Senior Vice President, The
                                                                      Berkeley Group.                    

*James B. Little                   Senior Vice President,             Senior Vice President, the Adviser,
February 1935                      Chief Financial Officer            The Berkeley Group, John Hancock   
                                                                      Funds and Investor Services; Senior
                                                                      Vice President and Chief Financial 
                                                                      Officer, each of the John Hancock  
                                                                      funds.                             

*John A. Morin                     Vice President                     Vice President and Secretary the 
July 1950                                                             Adviser; Vice President, Investor
                                                                      Services, John Hancock Funds and 
                                                                      each of the John Hancock funds;  
                                                                      Compliance Officer, certain John 
                                                                      Hancock funds; Counsel, the Life 
                                                                      Company; Vice President and      
                                                                      Assistant Secretary, The Berkeley
                                                                      Group.                           
                                                                      
                                             
                                             
- -------------------------------
*    An  "interested  person" of the Trust,  as such term is defined in the 1940
     Act.
(1)  Member of the Executive  Committee.  The Executive  Committee may generally
     exercise most of the powers of the Board of Trustees.
(2)  Member of the Investment Committee of the Adviser.
(3)  Member of the Audit Committee and the Administration Committee.
                                             
                                       25



Name, Address                      Position(s) Held                   Principal Occupation(s)
and Date of Birth                  With Registrant                    During Past 5 Years    
- -----------------                  ---------------                    -------------------    

*Susan S. Newton                   Vice President, Secretary          Vice President and Assistant       
March 1950                                                            Secretary, the Adviser; Vice       
                                                                      President and Secretary, certain   
                                                                      John Hancock funds; Vice President 
                                                                      and Secretary, John Hancock Funds, 
                                                                      Investor Services and John Hancock 
                                                                      Distributors, Inc. (until 1994);   
                                                                      Secretary, SAMCorp; Vice President,
                                                                      The Berkeley Group.                

*James J. Stokowski                Vice President and                 Vice President, the Adviser; Vice
November 1946                      Treasurer                          President and Treasurer, each of 
                                                                      the John Hancock funds.          
                                                                  


                                             
                                             
                                             

- -------------------------------
*    An  "interested  person" of the Trust,  as such term is defined in the 1940
     Act.
(1)  Member of the Executive  Committee.  The Executive  Committee may generally
     exercise most of the powers of the Board of Trustees.
(2)  Member of the Investment Committee of the Adviser.
(3)  Member of the Audit Committee and the Administration Committee.

                                       26


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

     As of July 30, 1996, there were 100,000 shares of the Trust outstanding and
the  officers  and  Trustees as a group  beneficially  owned less than 1% of the
outstanding  shares of the Trust and of each of the  Funds.  On such  date,  the
Adviser was the only  record  holder and  beneficial  owner of 5% or more of the
shares of each Fund.

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

     Compensation  of the  Board  of  Trustees.  The  following  table  provides
information regarding the compensation paid by the other investment companies in
the John Hancock Fund Complex to the Independent Trustees for their services. No
compensation  was paid by the Funds to the  Independent  Trustees for the fiscal
year ended  December  31,  1995.  The three  non-Independent  Trustees,  Messrs.
Boudreau and Scipione and Ms. Hodsdon, and each of the officers of the Funds are
interested persons of the Adviser, are compensated by the Adviser and receive no
compensation from the Funds for their services.


                                            Total Compensation From All Funds In
                                                   John Hancock Fund            
          Independent Trustees                   Complex to Trustees(*)         
          --------------------                   ----------------------         

Dennis S. Aronowitz                                    $ 61,050

Richard P. Chapman, Jr.+                                 62,800

William J. Cosgrove.+                                    61,050

Douglas M. Costle                                        41,750

Leland O. Erdahl                                         41,750

Richard A. Farrell                                       43,250

Gail D. Fosler                                           60,800

William F. Glavin+                                       37,500

John A. Moore                                            41,750

Patti McGill Peterson                                    41,750

John W. Pratt                                            41,750

Edward J. Spellman                                       61,050

Total                                                  $596,250

*    Total compensation paid by the John Hancock Fund Complex to the Independent
     Trustees is for the calendar  year ended  December 31, 1995.  On this date,
     there were 61 funds in the John Hancock Fund  Complex.  Messrs.  Aronowitz,
     Chapman, Cosgrove and Spellman and Ms. Fosler served 16 and Messrs. Costle,
     Erdahl,  Farrell,  Glavin,  Moore and Pratt and Ms.  Peterson  served 12 of
     these funds.

                                       27




+    On December 31, 1995, the value of the aggregate deferred compensation from
     all funds in the John Hancock Fund Complex for Mr. Chapman was $54,681, for
     Mr. Cosgrove was $54,243 and for Mr. Glavin was $32,061.

INVESTMENT ADVISORY AND OTHER SERVICES

     Each of the Trustees and principal  officers  affiliated with the Trust who
is also an affiliated  person of the Adviser or any  Sub-adviser is named above,
together  with the capacity in which such person is  affiliated  with the Trust,
the Adviser or any Sub-adviser.

     The Trust, on behalf of each Fund, has entered into  investment  management
contracts  with the Adviser.  Under each  investment  management  contract,  the
Adviser provides the Funds with (i) a continuous investment program,  consistent
with each Fund's stated investment objective and policies,  and (ii) supervision
of all aspects of each Fund's  operations  except those that are  delegated to a
custodian,  transfer agent or other agent.  The Adviser is  responsible  for the
day-to-day management of each Fund's portfolio assets.


     With  respect to the  International  Fund,  the Adviser has entered  into a
sub-investment  management  contract  with JHAI.  With  respect to  Independence
Equity Fund, the Adviser has entered into a sub-investment  management  contract
with IIA. With respect to Sovereign Investors Fund, the Adviser has entered into
a  sub-investment  management  contract  with  SAMCorp.  Under  each  respective
sub-investment  management contract, the corresponding  Sub-adviser,  subject to
the review of the  Trustees  and the  overall  supervision  of the  Adviser,  is
responsible for managing the investment operations of the corresponding Fund and
the composition of the Fund's  portfolio and furnishing the Fund with advice and
recommendations  with  respect  to  investments,  investment  policies  and  the
purchase and sale of securities.  See "Organization and Management of the Funds"
and "The  Funds'  Expenses"  in the  Prospectus  for a  description  of  certain
information  concerning  each  Fund's  investment  management  contract  and the
sub-investment  management contracts of International Fund,  Independence Equity
Fund and Sovereign Investors Fund.

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

     No person other than the Adviser,  any  Sub-adviser and their directors and
employees regularly furnish advice to the Funds with respect to the desirability
of a Fund investing in, purchasing or selling  securities.  The Adviser may from
time to time receive  statistical  or other  similar  factual  information,  and
information regarding general economic factors and trends, from the Life Company
and its affiliates.

     The Adviser pays the  compensation  of all  officers  and  employees of the
Trust and of  Trustees  of the Trust  affiliated  with the  Adviser,  the office
expenses of the Funds,  including those of the Trust's  Treasurer and Secretary,
and other expenses incurred by the Adviser in connection with the performance of
its duties.

     All expenses which are not  specifically  paid by the Adviser and which are
incurred in the  operation of the Funds,  including  the fees of the Trustees of

                                       28



the Trust who are not "interested  persons," as such term is defined in the 1940
Act (the  "Independent  Trustees"),  and the continuous  public  offering of the
shares of each Fund, are borne by the Funds.

     As  provided  by the  investment  management  contract,  each Fund pays the
Adviser an investment management fee, which is accrued daily and paid monthly in
arrears and is equal on an annual basis to a stated percentage of the respective
Fund's  average  daily net asset  value.  The  Adviser,  not any Fund,  pays the
subadvisory  fees  as  described  in  the  Prospectus.   See  "Organization  and
Management of the Funds" in the Prospectus.

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

     The  Adviser,  located  at 101  Huntington  Avenue,  Boston,  Massachusetts
02199-7603,  was organized in 1968 and has more than $20 billion in total assets
under  management  in its  capacity as  investment  adviser to the Funds and the
other mutual funds and publicly traded investment  companies in the John Hancock
group of funds  having a  combined  total of over  1,060,000  shareholders.  The
Adviser is a wholly owned subsidiary of The Berkeley  Financial Group,  which is
in turn a wholly owned indirect subsidiary of John Hancock  Subsidiaries,  Inc.,
which is in turn a wholly owned subsidiary of the Life Company,  one of the most
recognized and respected financial institutions in the nation. With total assets
under management of over $80 billion, the Life Company is one of the ten largest
life insurance companies in the United States, and carries Standard & Poor's and
A.M. Best's highest ratings.  Founded in 1862, the Life Company has been serving
clients for over 130 years.


     JHAI,  located at 34 Dover Street,  London,  England,  W1X3RA,  is a wholly
owned subsidiary of the Adviser,  formed in 1987 to provide investment  research
and advisory services to U.S.  institutional  clients.  IIA, located at 53 State
Street,  Boston,  Massachusetts  02109, and organized in 1982, is a wholly owned
indirect subsidiary of John Hancock Subsidiaries,  Inc. SAMCorp, located at 1235
Westlakes Drive, Berwyn, Pennsylvania 19312, is a wholly owned subsidiary of The
Berkeley Financial Group.


     Each investment management contract and sub-investment  management contract
initially  expires on August 12, 1998,  and will continue in effect from year to
year thereafter if approved  annually by a vote of a majority of the Trustees of
the Trust who are not interested  persons of one of the parties to the contract,
cast in person at a meeting  called for the purpose of voting on such  approval,
or by either the Trustees or the holders of a majority of the applicable  Fund's
outstanding  voting  securities.  Each contract  automatically  terminates  upon
assignment.  Each contract may be terminated  without penalty on 60 days' notice
at the  option  of either  party to the  respective  contract  or by vote of the
holders of a majority of the  outstanding  voting  securities of the  applicable
Fund. Each sub-investment  management contract terminates automatically upon the
termination of the corresponding investment management contract.

     Under the investment management contract,  each Fund may use the name "John
Hancock"  or any  name  derived  from or  similar  to it only for as long as the
investment  management  contract or any extension,  renewal or amendment thereof
remains in effect.  If a Fund's investment  management  contract is no longer in
effect,  the Fund (to the extent  that it  lawfully  can) will cease to use such
name or any other name indicating  that it is advised by or otherwise  connected
with the  Adviser.  In  addition,  the Adviser or the Life Company may grant the
non-exclusive  right to use the name "John  Hancock" or any similar  name to any

                                       29



other corporation or entity, including but not limited to any investment company
of which  the  Life  Company  or any  subsidiary  or  affiliate  thereof  or any
successor to the business of any  subsidiary  or affiliate  thereof shall be the
investment adviser.

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

DISTRIBUTION CONTRACT

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


     The Distribution Agreement was initially adopted by the affirmative vote of
the Trust's Board of Trustees,  including the vote of a majority of Trustees who
are not parties to the agreement or interested  persons of any such party,  cast
in person at a meeting called for such purpose. The Distribution  Agreement will
continue in effect with respect to each Fund until August 12, 1998 and from year
to year if approved by either the vote of the Fund's  shareholders  or the Board
of  Trustees,  including  the vote of a  majority  of the  Trustees  who are not
parties to the agreement or interested persons of any such party, cast in person
at a  meeting  called  for  such  purpose.  The  Distribution  Agreement  may be
terminated  at any  time as to one or more of the  Funds,  without  penalty,  by
either party upon sixty (60) days' written  notice or by a vote of a majority of
the  outstanding   voting   securities  of  the  affected  Fund  and  terminates
automatically in the case of an assignment by John Hancock Funds.

NET ASSET VALUE

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

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

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

     Short-term debt instruments  which have a remaining  maturity of 60 days or
less are generally valued at amortized cost which approximates market value.

     If market  quotations are not readily available or if in the opinion of the
Adviser any quotation or price is not  representative  of true market value, the
fair value of any security may be determined  in good faith in  accordance  with
procedures approved by the Trustees.

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

                                       30



quotations are not readily available,  or the value has been materially effected
by events occurring after the closing of a foreign market,  assets are valued by
a method that the Trustees believe accurately reflects fair value.

     The  Funds  will not  price  their  securities  on the  following  national
holidays:   New  Year's  Day;  Presidents'  Day;  Good  Friday;   Memorial  Day;
Independence Day; Labor Day;  Thanksgiving Day; and Christmas Day. On any day an
international  market is closed and the New York  Stock  Exchange  is open,  any
foreign  securities  will be valued at the prior  day's  closing  price with the
current day's  exchange  rate.  Trading of foreign  securities may take place on
Saturdays and U.S.  business  holidays on which a Fund's NAV is not  calculated.
Consequently,  a Fund's portfolio securities may trade and the NAV of the Fund's
redeemable  shares may be significantly  affected on days when a shareholder has
no access to the Fund.

SPECIAL REDEMPTIONS

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

TAX STATUS

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

     Qualification  of a Fund for  treatment as a regulated  investment  company
under the Code requires,  among other things,  that (a) at least 90% of a Fund's
annual  gross  income,  without  being  offset for losses from the sale or other
disposition  of stock or  securities  or other  transactions,  be  derived  from
interest,  payments with respect to securities  loans,  dividends and gains from
the sale or other disposition of stock or securities or foreign  currencies,  or
other  income  (including  but not limited to gains from  options,  futures,  or
forward  contracts)  derived  with  respect to its business of investing in such
stock, securities or currencies; (b) the Fund derive less than 30% of its annual
gross income from gains  (without  deduction  for losses) from the sale or other
disposition  of any of the following held (for tax purposes) for less than three
months: (i) stock or securities; (ii) options, futures or forward contracts (not
on foreign  currencies)  or (iii)  foreign  currencies  (or options,  futures or
forward  contracts on foreign  currencies)  not  directly  related to the Fund's
principal  business of investing in stock or securities  and related  options or
futures;  (c) the Fund  distribute  at least  annually  to its  shareholders  as
dividends at least 90% of the sum of its taxable and  tax-exempt  net investment
income,  the excess of net  short-term  capital gain over net long-term  capital
loss earned in each year and any other net income  (except  for the  excess,  if
any, of net long-term capital gain over net short-term  capital loss, which need
not be  distributed  in order for the Fund to qualify as a regulated  investment
company  but is taxed to the  Fund if it is not  distributed);  and (d) the Fund
diversify  its assets so that, at the close of each quarter of its taxable year,

                                       31



(i) at least  50% of the  fair  market  value of its  total  (gross)  assets  is
comprised of cash, cash items, U.S. Government  securities,  securities of other
regulated  investment  companies and other securities  limited in respect of any
one  issuer  to no more than 5% of the fair  market  value of the  Fund's  total
assets and 10% of the outstanding  voting  securities of such issuer and (ii) no
more than 25% of the fair  market  value of its total  assets is invested in the
securities  of any  one  issuer  (other  than  U.S.  Government  securities  and
securities of other  regulated  investment  companies) or of two or more issuers
controlled by the Fund and engaged in the same,  similar,  or related  trades or
businesses.

     Each Fund also  must,  and  intends  to,  comply  with the  diversification
requirements  imposed  by  Section  817(h)  of  the  Code  and  the  regulations
thereunder.  These  requirements,  which are in addition to the  diversification
requirements  imposed  on a Fund by the 1940 Act and  Subchapter  M of the Code,
place certain  limitations on assets of each insurance  company separate account
used  to  fund  variable   contracts  and,  because  Section  817(h)  and  those
regulations  treat the  assets of the Fund as  assets  of the  related  separate
account,  the assets of a Fund that may be  invested in  securities  of any one,
two, three and four issuers.  Specifically, the regulations provide that, except
as  permitted  by the  "safe  harbor"  described  below,  as of the  end of each
calendar  quarter  or  within 30 days  thereafter  no more than 55% of the total
assets of a Fund may be represented by any one  investment,  no more than 70% by
any two investments,  no more than 80% by any three investments and no more than
90% by any four investments. For this purpose, all securities of the same issuer
are  considered  a  single  investment,  and each  U.S.  Government  agency  and
instrumentality is considered a separate issuer.  Section 817(h) provides,  as a
safe  harbor,  that a  separate  account  will be  treated  as being  adequately
diversified if the diversification requirements under Subchapter M are satisfied
and no more than 55% of the value of the account's  total assets is attributable
to cash and cash items (including  receivables),  U.S. Government securities and
securities of other regulated  investment  companies.  Failure by a Fund to both
qualify as a  regulated  investment  company  and  satisfy  the  Section  817(h)
requirements  would  generally  result in  treatment  of the  variable  contract
holders other than as described in the applicable variable contract  prospectus,
including  possible current inclusion in ordinary income of income accrued under
the  contracts  for the  current  and all prior  taxable  years.  Under  certain
circumstances  described in the  applicable  Treasury  regulations,  inadvertent
failure to satisfy the applicable diversification requirements may be corrected,
but such a correction  would require a payment to the Internal  Revenue  Service
(the "I.R.S.") based on the tax contractholders would have incurred if they were
treated as receiving  the income on the contract for the period during which the
diversification  requirements  were not  satisfied.  Any such  failure  may also
result in  adverse  tax  consequences  for the  insurance  company  issuing  the
contracts.  Failure by a Fund to qualify as a regulated investment company would
also subject the Fund to federal and state income taxation of all of its taxable
income and gain, whether or not distributed to shareholders.

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

     Foreign  exchange  gains and losses  realized by a Fund in connection  with
certain  transactions  involving foreign  currency-denominated  debt securities,
certain  foreign  currency   futures  and  options,   foreign  currency  forward

                                       32



contracts,  foreign  currencies,  or payables or  receivables  denominated  in a
foreign  currency are subject to Section 988 of the Code, which generally causes
such gains and losses to be treated as ordinary income and losses and may affect
the amount,  timing and character of  distributions  to  shareholders.  Any such
transactions  that are not directly  related to a Fund's  investment in stock or
securities,  possibly  including  speculative  currency  positions  or  currency
derivatives not used for hedging purposes, may increase the amount of gain it is
deemed to  recognize  from the sale of  certain  investments  held for less than
three  months,  which  gain is  limited  under  the Code to less than 30% of its
annual gross income, and could under future Treasury  regulations produce income
not among the types of  "qualifying  income"  from which the Fund must derive at
least 90% of its annual gross income.  Income from  investments in  commodities,
such as gold and certain related derivative instruments,  is also not treated as
qualifying  income under this test. If the net foreign  exchange loss for a year
treated as ordinary  loss under  Section 988 were to exceed a Fund's  investment
company  taxable  income  computed   without  regard  to  such  loss  but  after
considering  the  post-October  loss  regulations  (i.e.,  all of the Fund's net
income other than any excess of net long-term  capital gain over net  short-term
capital  loss) the  resulting  overall  ordinary loss for such year would not be
deductible by the Fund or its shareholders in future years.

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

     For Federal income tax purposes,  each Fund is generally permitted to carry
forward a net capital loss in any year to offset its own net capital  gains,  if
any,  during  the eight  years  following  the year of the loss.  To the  extent
subsequent net capital gains are offset by such losses, they would not result in
Federal income tax liability to the applicable Fund and would not be distributed
as such to shareholders.

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


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

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

     Certain  options,   futures  and  forward  foreign  currency   transactions
undertaken  by a Fund may cause  such  Fund to  recognize  gains or losses  from

                                       33



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

     The tax rules  applicable to currency swaps and interest rate swaps,  caps,
floors  and  collars  may be  unclear  in some  respects,  and the  Funds may be
required  to limit  participation  in such  transactions  in order to qualify as
regulated investment companies.

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


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

DESCRIPTION OF THE TRUST'S SHARES

     The  Trustees  of  the  Trust  are   responsible  for  the  management  and
supervision of the Funds. The Declaration of Trust, dated November 15, 1995 (the
"Declaration  of Trust"),  permits the Trustees to issue an unlimited  number of
full and  fractional  shares of  beneficial  interest of the Funds,  without par
value. Under the Declaration of Trust, the Trustees have the authority to create
and classify shares of beneficial  interest in separate series,  without further
action by  shareholders.  As of the date of this  SAI,  the  Trustees  have only
authorized  shares of the Funds.  Additional  series may be added in the future.
The Declaration of Trust also authorizes the Trustees to classify and reclassify
the shares of the  Funds,  or any other  series of the  Trust,  into one or more
classes.  As of the date of this  SAI,  the  Trustees  have not  authorized  the
issuance of additional classes of shares of the Funds.

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

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

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

                                       34



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

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

CALCULATION OF PERFORMANCE

     Yield  (except for Money Market  Fund).  The yield of each Fund (except for
Money  Market  Fund) is  computed by dividing  net  investment  income per share
determined  for a 30-day period by the net asset value per share on the last day
of the period, according to the following standard formula:
                                       
Yield = 2 [ (a - b + 1)6 -1]
             -----
              cd

Where:

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

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

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

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

                                       35



dividends  of that share and any account or sales  charges  that would affect an
account of average size, but excludes any capital changes.

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


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

     Total  Return.  Each Fund's total return is computed by finding the average
annual  compounded rate of return over the 1-year,  5-year,  and 10-year periods
that would equate the initial  amount  invested to the ending  redeemable  value
according to the following formula:

                                     n _____
                                T = \ /ERV/P -1

     P =   a hypothetical initial payment of $1,000.

     T =   average annual total return.

     n =   number of years.

     ERV = ending redeemable value of a hypothetical $1,000 investment made at 
           the beginning of the 1-year and life-of-fund periods.

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

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

     From time to time, in reports and  promotional  literature,  a Fund's yield
and total  return will be compared to indices of mutual  funds and bank  deposit
vehicles such as Lipper Analytical Services,  Inc.'s  "Lipper--Fixed Income Fund
Performance  Analysis," a monthly  publication  which  tracks net assets,  total
return, and yield on approximately 1,700 fixed income mutual funds in the United
States. Ibottson and Associates,  CDA Weisenberger and F.C. Towers are also used
for comparison purposes, as well as the Russell and Wilshire Indices.

     Performance   rankings  and  ratings  reported   periodically  in  national
financial publications such as MONEY MAGAZINE,  FORBES,  BUSINESS WEEK, THE WALL
STREET JOURNAL,  MICROPAL, INC., MORNINGSTAR,  STANGER'S and BARRON'S, etc. will

                                       36



also be utilized.  A Fund's  promotional and sales literature may make reference
to the Fund's  "beta."  Beta  reflects  the  market-related  risk of the Fund by
showing how responsive the Fund is to the market.

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

BROKERAGE ALLOCATION

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

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

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


     To the extent consistent with the foregoing,  each Fund will be governed in
the  selection  of  brokers  and  dealers,  and  the  negotiation  of  brokerage
commission  rates and dealer  spreads,  by the  reliability  and  quality of the
services, including primarily the availability and value of research information
and to a lesser  extent  statistical  assistance  furnished  to the  Adviser  or
relevant  Sub-adviser of the Fund, and their value and expected  contribution to
the  performance  of the Fund.  It is not  possible  to place a dollar  value on
information  and services to be received  from brokers and dealers,  since it is
only   supplementary  to  the  research  efforts  of  the  Adviser  or  relevant
Sub-adviser.  The  receipt of  research  information  is not  expected to reduce
significantly the expenses of the Adviser or relevant Sub-adviser.  The research
information  and  statistical  assistance  furnished  by brokers and dealers may
benefit the Life  Company or other  advisory  clients of the Adviser or relevant
Sub-adviser,  and  conversely,  brokerage  commissions and spreads paid by other
advisory  clients of the Adviser or relevant  Sub-adviser may result in research
information and statistical  assistance  beneficial to the Funds. The Funds will

                                       37



make no  commitments  to allocate  portfolio  transactions  upon any  prescribed
basis.  While  the  Trust's  officers  will  be  primarily  responsible  for the
allocation of each Fund's  brokerage  business,  their policies and practices in
this  regard  must be  consistent  with the  foregoing  and will at all times be
subject to review by the Trustees.

     As permitted  by Section  28(e) of the  Securities  Exchange Act of 1934, a
Fund may pay to a broker which provides  brokerage and research  services to the
Fund an amount of disclosed commission in excess of the commission which another
broker would have  charged for  effecting  that  transaction.  This  practice is
subject  to a good  faith  determination  by the  Trustees  that  the  price  is
reasonable  in light of the services  provided and to policies that the Trustees
may adopt from time to time.

     The  Adviser's  indirect  parent,  the Life  Company,  is the indirect sole
shareholder of John Hancock Freedom Securities Trust and its subsidiaries, three
of  which,  Tucker  Anthony  Incorporated   ("Tucker  Anthony"),   John  Hancock
Distributors,  Inc.  ("John  Hancock  Distributors")  and Sutro & Company,  Inc.
("Sutro"),  are broker-dealers  ("Affiliated  Brokers").  Pursuant to procedures
determined  by the  Trustees and  consistent  with the above policy of obtaining
best net results,  the Fund may execute  portfolio  transactions with or through
Tucker Anthony, Sutro or John Hancock Distributors.

     Any of the  Affiliated  Brokers  may act as broker  for a Fund on  exchange
transactions,  subject,  however,  to the  general  policy of the Fund set forth
above and the  procedures  adopted  by the  Trustees  pursuant  to the 1940 Act.
Commissions paid to an Affiliated  Broker must be at least as favorable as those
which the Trustees believe to be  contemporaneously  charged by other brokers in
connection with  comparable  transactions  involving  similar  securities  being
purchased or sold. A transaction  would not be placed with an Affiliated  Broker
if the  Fund  would  have to pay a  commission  rate  less  favorable  than  the
Affiliated Broker's  contemporaneous charges for comparable transactions for its
other most favored, but unaffiliated,  customers,  except for accounts for which
the Affiliated  Broker acts as a clearing broker for another brokerage firm, and
any customers of the Affiliated Broker not comparable to a Fund as determined by
a majority of the Trustees who are not  "interested  persons" (as defined in the
1940 Act) of the Funds,  the  Adviser or the  Affiliated  Brokers.  Because  the
Adviser,  which is affiliated with the Affiliated Brokers, has, as an investment
adviser to the Fund, the obligation to provide investment  management  services,
which includes elements of research and related investment skills, such research
and  related  skills will not be used by the  Affiliated  Brokers as a basis for
negotiating commissions at a rate higher than that determined in accordance with
the above  criteria.  The Funds  will not  effect  principal  transactions  with
Affiliated  Brokers.  The Funds may,  however,  purchase  securities  from other
members  of  underwriting  syndicates  of which  Tucker  Anthony  and  Sutro are
members,  but only in accordance  with the policy set forth above and procedures
adopted and reviewed periodically by the Trustees.

     Brokerage or other transaction  costs of a Fund are generally  commensurate
with the rate of portfolio  activity.  The estimated  portfolio turnover rate of
International  Fund, Emerging Growth Fund,  Independence Equity Fund,  Discovery
Fund,  Sovereign  Investors  Fund and 500 Index Fund is expected to be less than
100%. The estimated portfolio turnover rates for the other Funds are as follows:
Sovereign Bond Fund:  100%;  Strategic  Income Fund:  200%; and World Bond Fund:
300%. A high rate of portfolio turnover (100% or greater) involves corresponding
higher transaction expenses and may make it more difficult for a Fund to qualify
as a regulated investment company.

SHAREHOLDER SERVICING AGENT

     John Hancock Investor Services Corporation ("Investor Services"),  P.O. Box
9298, Boston, MA 02205, a wholly owned indirect  subsidiary of the Life Company,
is the shareholder  servicing  agent for the Funds.  The Fund pays an annual fee
per shareholder account plus certain out-of-pocket expenses.

                                       38



CUSTODY OF PORTFOLIO

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

INDEPENDENT AUDITORS

     The independent  auditors of the Funds are Ernst & Young LLP, 200 Clarendon
Street,  Boston,  Massachusetts 02116. The independent auditors audit and render
an opinion  on the  Funds'  annual  financial  statements  and review the Funds'
annual income tax returns.




















                                       39


                                    APPENDIX

                           Description of Bond Ratings

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

MOODY'S INVESTORS SERVICE, INC.

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

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

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

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

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

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

STANDARD & POOR'S RATINGS GROUP

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

                                      A-1



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

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

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

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
















                                      A-2


                              FINANCIAL STATEMENTS

























                                      F-1



                       JOHN HANCOCK V.A. MONEY MARKET FUND
                       STATEMENT OF ASSETS AND LIABILITIES

                                  July 22, 1996



ASSETS:
  Cash.....................................................             $100,000
  Deferred organization expenses - Note 3..................               12,500
                                                                        --------
                                                                        $112,500
                                                                        --------
LIABILITIES:
  Accrued organization expenses - Note 3...................             $ 12,500
                                                                        --------
NET ASSETS:
     Capital paid-in.......................................             $100,000
                                                                        ========
Net Asset Value Per Share:
     (based on 100,000 shares of beneficial interest
     outstanding - unlimited number of shares
     authorized with no par value).........................             $   1.00
                                                                        ========


                        See notes to financial statements

                                      F-2


                       JOHN HANCOCK V.A. MONEY MARKET FUND
                          NOTES TO FINANCIAL STATEMENT

                                  July 22, 1996


     1. John Hancock V.A. Money Market Fund (the "Fund"), a separate portfolio
of John Hancock Declaration Trust (the "Trust"), is an open-end management
investment company, registered under the Investment Company Act of 1940. The
Trust, organized as a Massachusetts business trust in 1995, consists of ten
mutual funds, including, the Fund, John Hancock V.A. International Fund, John
Hancock V.A. Emerging Growth Fund, John Hancock V.A. Discovery Fund, John
Hancock V.A. Independence Equity Fund, John Hancock V.A. Sovereign Investors
Fund, John Hancock V.A. 500 Index Fund, John Hancock V.A. Sovereign Bond Fund,
John Hancock V.A. Strategic Income Fund, and John Hancock V.A. World Bond Fund.
The Funds are designed primarily to provide investment vehicles for variable
annuity and variable life insurance contracts ("Variable Contracts") of various
insurance companies. Only shares of beneficial interest of the Fund have been
issued as of July 22, 1996.

     2. The Trust has had no operations other than those relating to
organizational matters. All of the shares of beneficial interest of the Fund are
owned by John Hancock Advisers, Inc. (the "Adviser").

     3. The costs incurred by the Fund in connection with its organization,
estimated at $12,500, have been deferred and will be charged to the Fund's
operations ratably over a five-year period from the date upon which the Fund
commences its investment activities.

     The Adviser has agreed that in the event any initial shares of the Fund are
redeemed during the amortization period, the proceeds of redemption will be
reduced by the pro-rata share of any unamortized organization expenses in the
same proportion as the number of shares redeemed bears to the number of initial
shares held at the time of redemption.

     4. The Fund has entered into an investment management contract with the
Adviser.

                                      F-3


                Report of Ernst & Young LLP, Independent Auditors


To the Board of Trustees of
John Hancock Declaration Trust


         We have audited the accompanying statement of assets and liabilities of
John  Hancock  V.A.  Money  Market  Fund (the  "Fund"),  (one of the  portfolios
constituting John Hancock Declaration Trust) as of July 22, 1996. This statement
of assets and liabilities is the  responsibility of the Fund's  management.  Our
responsibility  is to  express  an  opinion  on this  statement  of  assets  and
liabilities based on our audit.

We conducted our audit in accordance with generally accepted auditing standards.
Those standards  require that we plan and perform the audit to obtain reasonable
assurance  about  whether the  statement  of assets and  liabilities  is free of
material  misstatement.  An audit includes  examining on a test basis,  evidence
supporting  the  amounts  and   disclosures  in  the  statement  of  assets  and
liabilities. An audit also includes assessing the accounting principles used and
significant  estimates  made by  management,  as well as evaluating  the overall
statement  of assets and  liabilities  presentation.  We believe  that our audit
provides a reasonable basis for our opinion.

In our  opinion,  the  statement  of assets and  liabilities  referred  to above
presents fairly, in all material  respects,  the financial  position of the John
Hancock V.A.  Money Market Fund portfolio of John Hancock  Declaration  Trust at
July 22, 1996, in conformity with generally accepted accounting principles.



                                            ERNST & YOUNG LLP
                                            /s/ERNST & YOUNG LLP

Boston, Massachusetts
July 23, 1996