As with all mutual funds, the Securities and Exchange Commission has not judged
whether the funds of the John Hancock Variable Series Trust I are good
investments or whether the information in this prospectus is adequate and
accurate. Anyone who tells you otherwise is committing a federal crime.
This prospectus contains important information about the NAV class shares of
the Funds.
JOHN HANCOCK
VARIABLE SERIES TRUST I
May 1, 2004
PROSPECTUS
NAV shares
Equity Index Fund
Large Cap Value Fund
Large Cap Growth Fund
Large Cap Growth B Fund
Fundamental Growth Fund
Earnings Growth Fund
Growth & Income Fund
Fundamental Value Fund
Fundamental Value B Fund
Mid Cap Value Fund
Mid Cap Value B Fund
Mid Cap Growth Fund
Small Cap Value Fund
Small Cap Emerging Growth Fund
Small Cap Growth Fund
International Equity Index Fund
Overseas Equity Fund
Overseas Equity B Fund
Overseas Equity C Fund
Real Estate Equity Fund
Health Sciences Fund
Financial Industries Fund
Managed Fund
Short-Term Bond Fund
Bond Index Fund
Active Bond Fund
Total Return Bond Fund
High Yield Bond Fund
Global Bond Fund
Money Market Fund
Managed by John Hancock Life Insurance Company
John Hancock Place
Boston, MA 02117
Contents
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John Hancock Variable Series Overview 1
Trust I ("Trust")
A fund-by-fund summary of goals, Your Investment Choices 2
strategies and risks. Equity Index Fund 8
Large Cap Value Fund 10
Large Cap Growth Fund 12
Large Cap Growth B Fund 14
Fundamental Growth Fund 16
Earnings Growth Fund 18
Growth & Income Fund 20
Fundamental Value Fund 24
Fundamental Value B Fund 26
Mid Cap Value Fund 28
Mid Cap Value B Fund 30
Mid Cap Growth Fund 32
Small Cap Value Fund 34
Small Cap Emerging Growth Fund 38
Small Cap Growth Fund 40
International Equity Index Fund 42
Overseas Equity Fund 44
Overseas Equity B Fund 46
Overseas Equity C Fund 48
Real Estate Equity Fund 50
Health Sciences Fund 54
Financial Industries Fund 56
Managed Fund 58
Short-Term Bond Fund 62
Bond Index Fund 64
Active Bond Fund 66
Total Return Bond Fund 70
High Yield Bond Fund 72
Global Bond Fund 74
Money Market Fund 76
Policies and instructions for opening, Your Account 78
maintaining and closing an account in Investments in shares of the funds 78
any fund Share price 78
Valuation 78
Conflicts 78
Further information on the funds Funds' Expenses 79
Dividends and Taxes 79
Dividends 79
Taxes 79
Share Classes 79
Financial Highlights 80
Further information on the Trust Trust Business Structure 90
Additional subadviser information Appendix A 91
Appendix B 93
For more information back cover
Overview
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FUND INFORMATION KEY
Concise fund-by-fund descriptions begin on page 8. Each description provides
the following information:
Goal and Strategy The fund's particular investment goals and the principal
strategies it intends to use in pursuing those goals.
Subadviser/Manager The firm and individual(s) providing investment management
services to the fund.
Past Performance The fund's total return, measured year-by-year and over time.
Main Risks The significant risk factors associated with the fund. The risks are
categorized as "Primary" or "Secondary". The Primary Risks are considered major
factors in the fund's performance and are described first. The Secondary Risks
are not considered major factors in the fund's performance because the fund
would not normally commit a large portion of its assets to the investments
involved. However, the Secondary Risks are of such a nature that they could
significantly affect the fund's performance, even if the investments are held
in relatively small amounts.
Fees and Expenses A table describes the fund's fees and expenses and examples
show the costs over time.
THE FUNDS
The Trust offers investment choices, or funds, for the variable annuity and
variable life insurance contracts ("variable contracts") of:
.. John Hancock Life Insurance Company ("John Hancock"),
.. John Hancock Variable Life Insurance Company ("JHVLICO"), and
.. other insurance companies that may or may not be affiliated with John Hancock.
In some variable contract forms, the Trust may be referred to by some other
term (such as the "Fund" or "Series Fund") and the investment choices may also
be referred to by some other term (such as "Portfolios" or "Series").
RISKS OF FUNDS
These funds, like all mutual funds, are not bank deposits. They are not insured
or guaranteed by the FDIC or any other government agency. You could lose money
by investing in these funds. So, be sure to read all risk disclosure carefully
before investing.
MANAGEMENT
John Hancock is the investment adviser of each fund of the Trust. John Hancock
is a Massachusetts stock life insurance company. On February 1, 2000, John
Hancock changed its form of organization by "demutualizing" and becoming a
subsidiary of John Hancock Financial Services, Inc. ("JHFS"). Prior to that
date, John Hancock was "John Hancock Mutual Life Insurance Company," a mutual
life insurance company that was chartered in 1862. At the end of 2003, JHFS and
its subsidiaries (including John Hancock) managed approximately $142.5 billion
in assets, of which it owned approximately $100.1 billion.
In April 2004, JHFS was merged with a subsidiary of Manulife Financial
Corporation, a publicly-traded corporation organized under the laws of Canada.
As a consequence of the merger, John Hancock's ultimate parent is now Manulife
Financial Corporation.
All of the funds of the Trust have subadvisers. John Hancock recommends
subadvisers for the funds to the Trust, and oversees and evaluates the
subadvisers' performance. To do this, John Hancock uses both quantitative and
qualitative tools to evaluate investment expertise, performance,
diversification, style consistency and risk. This evaluation typically includes
on-site due diligence meetings with subadvisers, periodic face-to-face meetings
and other communication. While short-term investment performance is monitored,
it is not the primary factor in the selection or termination of a subadviser.
John Hancock also oversees the allocation of a fund's assets between and among
subadvisers for those funds that are "multi-managed" (Growth & Income, Small
Cap Value, Real Estate Equity, Managed and Active Bond Funds), and manages the
Trust's joint trading account for various funds' liquidity reserves.
Each subadviser has discretion to purchase and sell securities for the fund, or
the portion of a fund, that it manages. While employing their own investment
approach in managing a fund, each subadviser must also adhere to the fund's
investment goals, strategies and restrictions.
3
Your Investment Choices
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The Trust offers a number of investment choices, or funds, to suit a variety of
objectives under variable contracts. 30 of these funds are available under your
variable contract. Each fund has its own strategy and its own risk/reward
profile. The funds can be broadly categorized as equity funds, sector funds,
balanced funds, bond funds, and international/global funds. Within these broad
categories, the funds can be further categorized as follows:
EQUITY FUNDS
Equity funds can be categorized in two ways--by capitalization and by
investment style.
Capitalization Equity funds can be categorized by market capitalization, which is defined as the market
value of all shares of a company's stock. Capitalization requirements for each equity fund
are described in the "Goal and Strategy" discussion for the fund and will differ from fund
to fund within each capitalization category. For more information on these capitalization
requirements, turn to page 5. In volatile market environments, a fund's market cap ex-
posure may be allowed to shift temporarily outside of the normal range in order to avoid
unnecessary transaction costs.
Large Cap Funds:
.. Equity Index Fund These funds invest primarily in large, well-established companies that typically are very
actively traded and provide more stable investment returns over time. Large cap funds are
.. Large Cap Value Fund appropriate for investors who want the least volatile investment returns within the overall
equity markets.
.. Large Cap Growth Fund
.. Large Cap Growth B Fund
.. Fundamental Growth Fund
.. Earnings Growth Fund
.. Growth & Income Fund
.. Fundamental Value Fund
.. Fundamental Value B Fund
Mid Cap Funds:
.. Mid Cap Value Fund These funds invest primarily in medium-sized, less established companies that are less ac-
tively traded and provide more share price volatility over time than large cap stocks. Mid
.. Mid Cap Value B Fund cap funds are appropriate for investors who are willing to accept more volatile investment
returns within the overall equity markets for the potential reward of higher long-term
.. Mid Cap Growth Fund returns.
Small Cap Funds:
.. Small Cap Value Fund These funds invest primarily in small newly established companies that are less actively
traded and have a high level of share price volatility over time. Small cap funds are appro-
.. Small Cap Emerging Growth Fund priate for investors who are willing to accept the most volatile investment returns within the
overall equity markets for the potential reward of higher long-term returns.
.. Small Cap Growth Fund
Investment Style
Value Funds:
.. Large Cap Value Fund Value funds invest in companies that are attractively priced, considering their asset and
earnings history. These stocks typically pay above average dividends and have low stock
.. Fundamental Value Fund prices relative to measures of earnings and book value. Value funds are appropriate for in-
vestors who want some dividend income and the potential for capital gains, but are less tol-
.. Fundamental Value B Fund erant of share-price fluctuations.
.. Mid Cap Value Fund
.. Mid Cap Value B Fund
.. Small Cap Value Fund
4
Growth Funds:
.. Large Cap Growth Fund Growth funds invest in companies
believed to have above-average
.. Large Cap Growth B Fund prospects for capital growth due to
their strong earnings and revenue
.. Fundamental Growth Fund potential. Growth stocks typically have
high stock prices relative to measures
.. Earnings Growth Fund of earnings and book value. Growth
funds are appro-priate for investors
.. Mid Cap Growth Fund who are willing to accept more
share-price volatility for the
.. Small Cap Emerging Growth Fund potential reward of higher long-term
returns.
.. Small Cap Growth Fund
Blend Funds:
.. Equity Index Fund Blend funds invest in both value and
growth companies. Blend funds are
.. Growth & Income Fund appropriate for investors who seek both
dividend and capital appreciation
characteristics.
SECTOR FUNDS
Sector funds invest primarily in a single sector of the stock market and
may be affected by economic factors and other factors specific tothat
sector. Sector funds are appropriate for investors who are willing to
accept more volatile investment returns relative to the overallequity
market.
.. Real Estate Equity Fund
.. Health Sciences Fund
.. Financial Industries Fund
BALANCED FUNDS
Balanced funds invest in a combination of stocks and bonds and actively
manage the mix of stocks and bonds within a target range.Domestic
balanced funds invest in U.S. stocks and bonds.
.. Managed Fund
BOND FUNDS
Bond funds can be categorized in two ways--by average maturity and by
credit quality:
Average Maturity Bond maturity is a key measure of
interest rate risk. A bond's maturity
measures the time remaining until the
bond matures, or until the repayment of
the bond's principal comes due. The
longer a bond's maturity, the more
sensitive the bond's price is to
changes in interest rates.
Short:
.. Money Market Fund These funds invest primarily in bonds
with short maturities, and maintain a
.. Short-Term Bond Fund weighted aver-age effective maturity
which is typically between one and
three years. These funds have less
interest rate risk than
intermediate-term bond funds.
Intermediate:
.. Bond Index Fund These funds invest in bonds of all
maturities and maintain a weighted
.. Active Bond Fund average effective maturity which is
typically between three and ten years.
.. Total Return Bond Fund These funds have more interest rate
risk than short-term bond funds.
.. High Yield Bond Fund
.. Global Bond Fund
5
Credit Quality Credit quality is a measure of the
ability of a bond issuer to meet its
financial obligations and repay
principal and interest. High quality
bonds have less credit risk than lower
quality bonds. Investment grade bonds
typically have "high" or "medium"
credit quality ratings (as defined
below), while high-yield bonds have
"low" credit quality ratings.
High:
.. Money Market Fund These funds focus on the highest-rated,
most creditworthy bonds or money market
.. Bond Index Fund instruments and typically maintain an
average credit quality rating of
AAA/Aaa (A-1/P-1 for money market
funds).
Medium:
.. Global Bond Fund These funds invest in bonds of all
credit quality levels with a focus on
.. Short-Term Bond Fund investment grade bonds. These funds
typically maintain an average credit
.. Active Bond Fund quality rating of AA/Aa, A or BBB/Baa.
.. Total Return Bond Fund
Low:
.. High Yield Bond Fund These funds invest primarily in lower
rated bonds--known as high yield or
"junk" bonds. These funds typically
maintain a below investment-grade
average credit quality rating of BB/Ba
or B.
INTERNATIONAL EQUITY FUNDS
International funds invest primarily in securities markets outside the
United States. These funds can be categorized by the types of marketsthey
invest in.
Developed Markets:
.. International Equity Index Fund These funds invest primarily in the
larger, well-established developed or
.. Overseas Equity Fund industrialized markets around the
world. These funds have a lower level
.. Overseas Equity B Fund of foreign securities risk than
emerging market funds. (Emerging market
.. Overseas Equity C Fund funds invest primarily in developing or
emerg-ing markets.)
6
MARKET CAPITALIZATION DATA
In the following pages of this prospectus, some of the equity funds describe
their market capitalization requirements by referring to one or more indexes
that are widely recognized as a source of market capitalization data.
Publishers of an equity index typically define constituents at least annually.
The range of market capitalizations for each index changes with daily changes
in the overall equity market levels.
Market capitalization ranges for the following indexes are based on statistics
at year-end 2003:
Smallest Largest Weighted Average Used with the following
Index Stock Stock Market Capitalization Fund(s):
S&P 500 $896 Million $ 310 Billion $ 90.4 Billion Equity Index
Growth & Income
Managed
Russell 1000(R) $695 Million $ 310 Billion $ 81.6 Billion Large Cap Value
Fundamental Value
Fundamental Value B
Large Cap Growth
Large Cap Growth B
Earnings Growth
Growth & Income
Managed
Russell 1000(R) Value $695 Million $ 274 Billion $ 61.9 Billion Large Cap Value
Fundamental Value
Fundamental Value B
Russell 1000(R) Growth $695 Million $ 310 Billion $101.1 Billion Large Cap Growth
Large Cap Growth B
Fundamental Growth
Earnings Growth
Russell Mid Cap(TM) $695 Million $17.0 Billion $ 5.9 Billion Mid Cap Value
Mid Cap Value B
Mid Cap Growth
Russell Mid Cap(TM) Value $695 Million $13.9 Billion $ 5.8 Billion Mid Cap Value
Mid Cap Value B
Russell Mid Cap(TM) Growth $695 Million $17.0 Billion $ 6.1 Billion Mid Cap Growth
Russell 2000(R) $ 42 Million $ 2.0 Billion $ 860 Million Small Cap Value
Small Cap Emerging Growth
Small Cap Growth
Russell 2000(R) Value $ 42 Million $ 2.0 Billion $ 840 Million Small Cap Value
Russell 2000(R) Growth $ 63 Million $ 2.0 Billion $ 870 Million Small Cap Emerging Growth
Small Cap Growth
The Russell 1000(R) Index, Russell 1000(R) Value Index, Russell 1000(R) Growth
Index, Russell Mid Cap(TM) Index, Russell Mid Cap(TM) Value Index, Russell Mid
Cap(TM) Growth Index, Russell 2000(R) Index, Russell 2000(R) Value Index and
Russell 2000(R) Growth Index are service marks or trademarks of Frank Russell
Company, which does not sponsor and is not in any way affiliated with the
Trust. Inclusion of a security in the index in no way implies an opinion on the
part of Frank Russell Company as to its attractiveness or appropriateness as an
investment.
"S&P 500 Index" means the Standard & Poor's 500 Composite Stock Price Index.
"Standard & Poor's," "S&P" and "S&P 500" are trademarks of McGraw Hill, Inc.
and have been licensed for use by the Trust.
7
ADDITIONAL INFORMATION
Manager of Managers Arrangement
A "manager of managers" arrangement is now quite common among mutual funds that
employ subadvisers to manage investment portfolios. This type of arrangement
allows a fund, its overall investment manager and the fund's subadviser to
enter into various new or amended sub-investment management agreements without
the need to obtain additional shareholder and contract owner approval.
This arrangement permits John Hancock and the Trust, under certain
circumstances, to select or change subadvisers, enter into new agreements with
subadvisers or amend existing agreements with subadvisers, without first
obtaining shareholder approval. (The Funds must still obtain shareholder
approval of any agreement with a subadviser that is an affiliate of John
Hancock.) John Hancock believes that the arrangement permits changes in
subadvisory arrangements faster and at lower cost, since the need for the Funds
to seek additional shareholder approval for such changes will be reduced.
Shareholders for each of the Funds previously approved the arrangement.
Shareholders of a Fund will be notified of any changes in the subadviser to
that Fund.
General Information
In the following pages, any fund strategy that is stated as a percentage of a
fund's assets applies at all times, not just at the time the fund buys or sells
an investment security. However, a fund may be allowed to temporarily deviate
from its normal strategy (1) to avoid unnecessary transaction costs when
markets are are unusually volatile, or (2) when the fund experiences unusually
large cash flows. In addition, investments in a company whose market
capitalization was within the range of market capitalizations under a fund's
80% investment policy at the time of purchase may continue to be considered
within that range even after the publisher of an index changes the constituents
used by the fund to measure market capitalization. A fund may not achieve its
investment objectives when taking any of these measures. The trustees of the
Trust can change the investment goals and strategy of any fund without
shareholder (i.e., contractowner) approval.
All of the funds (except bond funds and equity index funds) may participate in
initial public offerings (IPOs). Under certain market conditions, such
participation could significantly improve a fund's total investment return.
There is no assurance that such market conditions will continue and provide the
same favorable impact on future investment returns.
If the total investment return for any fund for any given year appears
unusually high, the return may be attributable to unusually favorable market
conditions which will probably not be sustainable. For instance, a high total
investment return may reflect participation in IPOs, "hot" industries (e.g.,
internet-related companies), private placements and/or leveraging investment
techniques during the period indicated. There is no assurance that any of those
methods, or any other investment technique, will continue to have the same
impact on the fund's total investment returns.
In this prospectus, the term "stock" is used as a shorthand reference for
equity investments generally and the term "bond" is used as a shorthand
reference for debt obligations generally.
8
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9
Equity Index Fund
GOAL AND STRATEGY
This is a stock fund that seeks to track the performance of the S&P 500 Index,
which emphasizes the stocks of large U.S. companies.
The manager employs a passive management strategy by normally investing in all
stocks included in the Index. The manager normally invests in each stock in
roughly the same proportion as represented in the Index.
The manager seeks to replicate as closely as possible the aggregate risk
characteristics and sector diversification of the Index.
The Fund normally invests in all 500 stocks in the Index, and more then 80% of
its assets in securities listed in the Index, but the Fund has no predetermined
number of stocks that it must hold. S&P may change the composition of the Index
from time to time. The manager will reflect those changes as soon as practical.
The Fund is normally fully invested. The manager may invest in stock index
futures to maintain market exposure and manage cash flow.
The Fund may purchase other types of securities that are not primary investment
vehicles, for example: certain Exchange Traded Funds (ETFs), U.S. dollar
denominated foreign securities, cash equivalents, and certain derivatives
(investments whose value is based on indices or other securities).
In abnormal market conditions, the Fund may take temporary defensive
measures--such as holding unusually large amounts of cash and cash
equivalents--that are inconsistent with the Fund's primary investment strategy.
In taking those measures, the Fund may not achieve its investment goal.
- --------------------------------------------------------------------------------
SUBADVISER
SSgA Funds Management, Inc.
(formerly State Street Global Advisors, a division of State Street Bank
and Trust Company)
One Lincoln Street
Boston, Massachusetts 02111-2900
Managing, with predecessor, since 1978
Managing Fund since May, 1997
Managed approximately $92 billion in assets at the end of 2003
FUND MANAGERS
John A. Tucker, CFA
- ---------------------
Principal of subadviser
Joined subadviser in 1988
James B. May, CFA
- ---------------------
Principal of subadviser
Joined subadviser in 1989
PAST PERFORMANCE
The bar chart shows how the performance of the Fund's NAV shares has varied
from year to year, while the table shows performance over time (along with a
broad-based market index for reference). This information may also help provide
an indication of the Fund's risks and potential rewards. All figures assume
dividend reinvestment. Past performance does not indicate future results. The
performance figures below do not reflect the deduction of fees and charges
payable under the variable contracts. Such fees and charges would cause the
investment returns under the contracts to be less than that shown below.
Year-by-year total returns -- calendar years
[CHART]
1997 1998 1999 2000 2001 2002 2003
- ------ ------ ------ ------ ------- ------- ------
32.79% 28.45% 21.08% -9.15% -11.98% -22.31% 28.42%
Best quarter: up 21.27% fourth quarter 1998 Worst quarter: down 17.33% third
quarter 2002
Average annual total return -- for periods ending 12/31/2003*
Fund** Index
1 year 28.42% 28.70%
5 years -0.69% -0.57%
Life of Fund 8.59% 8.86%
Index: S&P 500 Index
* Began operations on May 1, 1996.
** Returns reflect waiver of advisory fee reimbursement of all non-advisory
fund expenses, and extra-ordinary capital contributions of $84,000 in 1996
and $250,000 in 1997.
8
MAIN RISKS
Primary
Index Management Risk: Certain factors such as the following may cause the
Fund to track the Index less closely:
.. The securities selected by the manager may not be fully representative of the
Index.
.. Transaction expenses of the Fund may result in the Fund's performance being
different than that of the Index.
.. The size and timing of the Fund's cash flows may result in the Fund's
performance being different than that of the Index.
Also, index funds like this one will have more difficulty in taking defensive
positions in abnormal market conditions.
Market Risk: The value of the securities in the Fund may go down in response
to overall stock or bond market movements. Markets tend to move in cycles, with
periods of rising prices and periods of falling prices. Stocks tend to go up
and down in value more than bonds. If the Fund's investments are concentrated
in certain sectors, the Fund's performance could be worse than the overall
market.
Manager Risk: The manager and its strategy may fail to produce the intended
results.
Investment Category Risk: The returns of the Fund's specific equity investment
category may lag the returns of the overall stock market. For example, the
Fund's "large cap" approach carries the risk that in certain markets large cap
stocks will underperform mid cap and small cap stocks.
Secondary
Derivatives Risk: Certain derivative instruments (such as options, futures and
swaps) can produce disproportionate gains or losses. They are generally
considered more risky than direct investments. Also, in a down market,
derivatives could become harder to value or sell at a fair price.
- --------------------------------------------------------------------------------
FEES AND EXPENSES OF THE FUND
These tables describe the fees and expenses you may pay if you buy and hold NAV
shares of the Fund and do not reflect the expenses and charges of the
applicable separate accounts and variable contracts. Those expenses and charges
vary considerably from contract to contract and are described in your variable
contract prospectus.
Shareholder Fees (fees paid directly from your investment) None
Annual Fund Operating Expenses (expenses that are deducted from Fund assets, as
a percentage of average net assets for the fiscal year ended December 31, 2003)
Total Annual
Investment Distribution and Fund Net Fund
Management Service Other Operating Expense Operating
Fee (12b-1) Fee Expenses Expenses Reimbursements Expenses
--- ----------- -------- -------- -------------- --------
0.13% N/A 0.08% 0.21% 0.0% 0.21%
Examples. The Examples are intended to help you compare the cost of investing
in NAV shares of the Fund with the costs of investing in other mutual funds.
The Examples assume that you invest $10,000 directly in the shares for the time
periods indicated, and then redeem all your shares at the end of those periods.
The Examples also assume that your investment has a 5% return each year, the
reinvestment of all dividends and distributions, and that the Fund's operating
expenses remain the same. Although actual Fund costs may be higher or lower,
the Examples show what the Fund costs would be based on these assumptions.
Year 1 Year 3 Year 5 Year 10
$22 $68 $118 $268
11
Large Cap Value Fund
GOAL AND STRATEGY
This is a large cap stock fund with a value emphasis that seeks long-term
capital appreciation and substantial dividend income.
The Fund invests primarily in a diversified mix of common stocks of large
established U.S. companies paying above-average dividends.
The manager employs a value approach in selecting stocks using proprietary
equity research. Stocks are purchased that are undervalued by various measures
such as the stock's current price relative to its earnings potential.
The manager looks for companies with:
.. established operating history;
.. above-average dividend yield relative to the S&P 500 Index;
.. low price/earnings ratio relative to the S&P 500 Index;
.. sound balance sheet and other positive financial characteristics; and
.. low stock price relative to the company's underlying value.
The Fund's sector exposures are broadly diversified but are primarily a result
of stock selection and therefore may vary significantly from its benchmark. The
Fund normally invests in 100 to 175 stocks, and at least 80% of its assets in
large cap companies. For the purpose of this Fund, "large cap companies" are
those with market capitalizations that are within the range of capitalization
of companies represented in the Russell 1000(R) Index or the Russell 1000(R)
Value Index. The Fund normally has 10% or less (usually lower) of its assets in
cash and cash equivalents. The Fund may invest in initial public offerings
(IPOs).
The Fund may purchase other types of securities that are not primary investment
vehicles, for example: foreign securities denominated in U.S. dollars or any
other currency, high and medium quality debt securities, certain Exchange
Traded Funds (ETFs), and certain derivatives (investments whose value is based
on indices or other securities).
In abnormal market conditions, the Fund may take temporary defensive
measures--such as holding unusually large amounts of cash and cash
equivalents--that are inconsistent with the Fund's primary investment strategy.
In taking those measures, the Fund may not achieve its investment goal.
- --------------------------------------------------------------------------------
SUBADVISER
T. Rowe Price Associates, Inc.
100 East Pratt Street
Baltimore, Maryland 21202
Managing since 1937
Managing Fund since May, 1996
Managed approximately $190 billion in assets at the end of 2003
FUND MANAGERS
Management by Investment Advisory Committee
Brian C. Rogers, CFA, CIC
- ---------------------
Chief Investment Officer and Vice President of subadviser
Joined subadviser in 1982
PAST PERFORMANCE
The bar chart shows how the performance of the Fund's NAV shares has varied
from year to year, while the table shows performance over time (along with a
broad-based market index for reference). This information may also help provide
an indication of the Fund's risks and potential rewards. All figures assume
dividend reinvestment. Past performance does not indicate future results. The
performance figures below do not reflect the deduction of fees and charges
payable under the variable contracts. Such fees and charges would cause the
investment returns under the contracts to be less than that shown below.
Year-by-year total returns -- calendar years
[CHART]
1997 1998 1999 2000 2001 2002 2003
- ------ ----- ----- ------ ----- ------- ------
28.56% 9.26% 3.28% 12.97% 1.25% -13.24% 25.51%
Best quarter: up 16.73% second quarter 2003 Worst quarter: down 17.27% third
quarter 2002
Average annual total return -- for periods ending 12/31/2003*
Fund Index
1 year 25.51% 30.03%
5 years 5.16% 3.56%
Life of fund 9.86% 10.40%
Index: Russell 1000(R) Value Index
* Began operations on May 1, 1996.
12
MAIN RISKS
Primary
Market Risk: The value of the securities in the Fund may go down in response
to overall stock or bond market movements. Markets tend to move in cycles, with
periods of rising prices and periods of falling prices. Stocks tend to go up
and down in value more than bonds. If the Fund's investments are concentrated
in certain sectors, the Fund's performance could be worse than the overall
market.
Manager Risk: The manager and its strategy may fail to produce the intended
results. The Fund could underperform its peers or lose money if the manager's
investment strategy does not perform as expected.
Investment Category Risk: The returns of the Fund's specific equity investment
category may lag the returns of the overall stock market. For example, the
Fund's "value" approach carries the risk that in certain markets "value" stocks
will underperform "growth" stocks. Also, the Fund's "large cap" approach
carries the risk that in certain markets large cap stocks will underperform
small cap and mid cap stocks.
Secondary
Foreign Risk: The Fund's foreign securities will pose special risks, due to
limited government regulation, lack of public information, economic, political
and social instability and foreign currency rate fluctuations. Factors such as
lack of liquidity, foreign ownership limits and restrictions on removing
currency also pose special risks.
Derivatives Risk: Certain derivative instruments (such as options, futures and
swaps) can produce disproportionate gains or losses. They are generally
considered more risky than direct investments. Also, in a down market,
derivatives could become harder to value or sell at a fair price.
Initial Public Offering Risk: The Fund has the ability to invest in initial
public offerings (IPOs) and a significant portion of the
Fund's return may at times be attributable to its investment in IPOs. IPOs
could have a substantial impact on performance, either positive or negative,
particularly on a fund with a small asset base. Also, the Fund's investments in
IPOs may be subject to more erratic price movements than the overall equity
market.
- --------------------------------------------------------------------------------
FEES AND EXPENSES OF THE FUND
These tables describe the fees and expenses you may pay if you buy and hold NAV
shares of the Fund and do not reflect the expenses and charges of the
applicable separate accounts and variable contracts. Those expenses and charges
vary considerably from contract to contract and are described in your variable
contract prospectus.
Shareholder Fees (fees paid directly from your investment) None
Annual Fund Operating Expenses (expenses that are deducted from Fund assets, as
a percentage of average net assets for the fiscal year ended December 31, 2003)
Total Annual
Investment Distribution and Fund Net Fund
Management Service Other Operating Expense Operating
Fee (12b-1) Fee Expenses Expenses Reimbursements Expenses
--- ----------- -------- -------- -------------- --------
0.75% N/A 0.07% 0.82% 0.00% 0.82%
Examples. The Examples are intended to help you compare the cost of investing
in NAV shares of the Fund with the costs of investing in other mutual funds.
The Examples assume that you invest $10,000 directly in the shares for the time
periods indicated, and then redeem all your shares at the end of those periods.
The Examples also assume that your investment has a 5% return each year, the
reinvestment of all dividends and distributions, and that the Fund's operating
expenses remain the same. Although actual Fund costs may be higher or lower,
the Examples show what the Fund costs would be based on these assumptions.
Year 1 Year 3 Year 5 Year 10
$84 $262 $455 $1,014
13
Large Cap Growth Fund
GOAL AND STRATEGY
This is a large cap stock fund with a growth emphasis that seeks long-term
capital appreciation.
The Fund invests primarily in a diversified mix of common stocks of large
established U.S. companies that are believed to offer above-average potential
for growth in revenues and earnings.
The manager selects stocks using a combination of proprietary equity research
and quantitative tools. Stocks are purchased that have improving fundamentals
and attractive valuations. The manager seeks to maintain risk and sector
characteristics similar to the Russell 1000(R) Growth Index.
The Fund normally invests in 75 to 160 stocks, and at least 80% of its assets
in large cap companies. For the purpose of this Fund, "large cap companies" are
those with market capitalizations that are within the range of capitalization
of companies represented in the Russell 1000(R) Index or the Russell 1000(R)
Growth Index. The Fund normally has 10% or less (usually lower) of its assets
in cash and cash equivalents. The Fund may invest in initial public offerings
(IPOs).
The Fund may purchase other types of securities that are not primary investment
vehicles, for example: U.S. dollar denominated foreign securities, certain
Exchange Traded Funds (ETFs), and certain derivatives (investments whose value
is based on indices or other securities).
In abnormal market conditions, the Fund may take temporary defensive
measures--such as holding unusually large amounts of cash and cash
equivalents--that are inconsistent with the Fund's primary investment strategy.
In taking those measures, the Fund may not achieve its investment goal.
- --------------------------------------------------------------------------------
SUBADVISER
Independence Investment LLC
53 State Street
Boston, Massachusetts 02109
Owned by John Hancock
Managing since 1982
Managing Fund and its predecessor since March, 1986
Managed approximately $11.5 billion in assets at the end of 2003
FUND MANAGERS
Management by investment team overseen by:
Paul F. McManus, Jr.
- ---------------------
Executive Vice President of subadviser
Joined subadviser in 1982
PAST PERFORMANCE
The bar chart shows how the performance of the Fund's NAV shares has varied
from year to year, while the table shows performance over time (along with a
broad-based market index for reference). This information may help provide an
indication of the Fund's risks and potential rewards. All figures assume
dividend reinvestment. Past performance does not indicate future results. The
performance figures below do not reflect the deduction of fees and charges
payable under the variable contracts. Such fees and charges would cause the
investment returns under the contracts to be less than that shown below.
Year-by-year total returns -- calendar years
[CHART]
1994 1995 1996 1997 1998 1999 2000 2001 2002 2003
- ------ ------ ------ ------ ------ ----- ------ ------- ------- -------
- -0.98% 31.64% 18.27% 30.89% 39.51% 24.07% -17.89% -17.54% -27.82% 25.62%
Best quarter: up 27.79% fourth quarter 1998 Worst quarter: down 21.05% first
quarter 2001
Average annual total returns -- for periods ending 12/31/2003
Fund Index
1 year 25.62% 29.75%
5 years -5.30% -5.11%
10 years 7.93% 9.21%
Index: Russell 1000(R) Growth Index
14
MAIN RISKS
Primary
Market Risk: The value of the securities in the Fund may go down in response
to overall stock or bond market movements. Markets tend to move in cycles, with
periods of rising prices and periods of falling prices. Stocks tend to go up
and down in value more than bonds. If the Fund's investments are concentrated
in certain sectors, the Fund's performance could be worse than the overall
market.
Manager Risk: The manager and its strategy may fail to produce the intended
results. The Fund could underperform its peers or lose money if the manager's
investment strategy does not perform as expected.
Investment Category Risk: The returns of the Fund's specific equity investment
category may lag the returns of the overall stock market. For example, the
Fund's "growth" approach carries the risk that in certain markets "growth"
stocks will underperform "value" stocks. Also, the Fund's "large cap" approach
carries the risk that in certain markets large cap stocks will underperform
small cap and mid cap stocks.
Concentration Risk: The Fund's investment in securities of a smaller number of
issuers could produce more volatile performance relative to funds that invest
in a larger number of issuers. The more concentrated a fund's holdings are, the
more likely it is a specific security's poor performance will hurt the fund
significantly.
Secondary
Derivatives Risk: Certain derivative instruments (such as options, futures and
swaps) can produce disproportionate gains or losses. They are generally
considered more risky than direct investments. Also, in a down market,
derivatives could become harder to value or sell at a fair price.
Initial Public Offering Risk: The Fund has the ability to invest in initial
public offerings (IPOs) and a significant portion of the Fund's return may at
times be attributable to its investment in IPOs. IPOs could have a substantial
impact on performance, either positive or negative, particularly on a fund with
a small asset base. Also, the Fund's investments in IPOs may be subject to more
erratic price movements than the overall equity market.
Turnover Risk: In general, the greater the volume of buying and selling by a
fund (i.e., the higher its "turnover rate"), the greater the impact that
brokerage commissions and other transaction costs will have on the fund's
performance. Any turnover rate in excess of 100% is considered relatively high.
In the future, the Fund's turnover rate may be greater than 100%.
- --------------------------------------------------------------------------------
FEES AND EXPENSES OF THE FUND
These tables describe the fees and expenses you may pay if you buy and hold NAV
shares of the Fund and do not reflect the expenses and charges of the
applicable separate accounts and variable contracts. Those expenses and charges
vary considerably from contract to contract and are described in your variable
contract prospectus.
Shareholder Fees (fees paid directly from your investment) None
Annual Fund Operating Expenses (expenses that are deducted from Fund assets, as
a percentage of average net assets for the fiscal year ended December 31, 2003)
Total Annual
Investment Distribution and Fund Net Fund
Management Service Other Operating Expense Operating
Fee (12b-1) Fee Expenses Expenses Reimbursements Expenses
--- ----------- -------- -------- -------------- --------
0.80% N/A 0.06% 0.86% 0.0% 0.86%
Examples. The Examples are intended to help you compare the cost of investing
in NAV shares of the Fund with the costs of investing in other mutual funds.
The Examples assume that you invest $10,000 directly in the shares for the time
periods indicated, and then redeem all your shares at the end of those periods.
The Examples also assume that your investment has a 5% return each year, the
reinvestment of all dividends and distributions, and that the Fund's operating
expenses remain the same. Although actual Fund costs may be higher or lower,
the Examples show what the Fund costs would be based on these assumptions.
Year 1 Year 3 Year 5 Year 10
$88 $274 $477 $1,061
15
Large Cap Growth B Fund
(formerly "Large Cap Aggressive Growth Fund")
GOAL AND STRATEGY
This is a large cap stock fund with a growth emphasis that seeks long-term
capital appreciation.
The Fund invests primarily in a diversified mix of common stocks of large
established U.S. companies that are believed to offer above-average potential
for growth in revenues and earnings.
The manager selects stocks using a combination of proprietary equity research
and quantitative tools. Stocks are purchased that have improving fundamentals
and attractive valuations. The manager seeks to maintain risk and sector
characteristics similar to the Russell 1000(R) Growth Index.
The Fund normally invests in 75 to 160 stocks, and at least 80% of its assets
in large cap companies. For the purpose of this Fund, "large cap companies" are
those with market capitalizations that are within the range of capitalization
of companies represented in the Russell 1000(R) Index or the Russell 1000(R)
Growth Index. The Fund normally has 10% or less (usually lower) of its assets
in cash and cash equivalents. The Fund may invest in initial public offerings
(IPOs).
The Fund may purchase other types of securities that are not primary investment
vehicles, for example: U.S. dollar denominated foreign securities, certain
Exchange Traded Funds (ETFs), and certain derivatives (investments whose value
is based on indices or other securities).
In abnormal market conditions, the Fund may take temporary defensive
measures--such as holding unusually large amounts of cash and cash
equivalents--that are inconsistent with the Fund's primary investment strategy.
In taking those measures, the Fund may not achieve its investment goal.
- --------------------------------------------------------------------------------
SUBADVISER
Independence Investment LLC
53 State Street
Boston, Massachusetts 02109
Owned by John Hancock
Managing since 1982
Managing Fund since December, 2003
Managed approximately $11.5 billion in assets at the end of 2003
Past Performance information set forth herein does not reflect Independence
Investment LLC services to the Fund.
FUND MANAGERS
Management by investment team overseen by:
Paul F. McManus, Jr.
- ---------------------
Executive Vice President of subadviser
Joined subadviser in 1982
PAST PERFORMANCE
The bar chart shows how the performance of the Fund's NAV shares has varied
from year to year under a different subadviser, while the table shows
performance over time (along with a broad-based market index for reference).
This information may help provide an indication of the Fund's risks and
potential rewards. All figures assume dividend reinvestment. Past performance
does not indicate future results. The performance figures below do not reflect
the deduction of fees and charges payable under the variable contracts. Such
fees and charges would cause the investment returns under the contracts to be
less than that shown below.
Year-by-year total returns -- calendar year
[CHART]
2000 2001 2002 2003
- ------- ------- ------- ------
- -18.77% -14.69% -31.36% 31.72%
Best quarter: up 20.81% fourth quarter 1999 Worst quarter: down 17.87% second
quarter 2001
Average annual total returns -- for periods ending 12/31/2003*
Fund Index
1 year 31.72% 29.75%
Life of fund -6.33% -7.67%
Index: Russell 1000(R) Growth Index
* Began operations on August 31, 1999.
16
MAIN RISKS
Primary
Market Risk: The value of the securities in the Fund may go down in response
to overall stock or bond market movements. Markets tend to move in cycles, with
periods of rising prices and periods of falling prices. Stocks tend to go up
and down in value more than bonds. If the Fund's investments are concentrated
in certain sectors, the Fund's performance could be worse than the overall
market.
Manager Risk: The manager and its strategy may fail to produce the intended
results. The Fund could underperform its peers or lose money if the manager's
investment strategy does not perform as expected.
Investment Category Risk: The returns of the Fund's specific equity investment
category may lag the returns of the overall stock market. For example, the
Fund's "growth" approach carries the risk that in certain markets "growth"
stocks will underperform "value" stocks. Also, the Fund's "large cap" approach
carries the risk that in certain markets large cap stocks will underperform
small cap and mid cap stocks.
Concentration Risk: The Fund's investment in securities of a smaller number of
issuers could produce more volatile performance relative to funds that invest
in a larger number of issuers. The more concentrated a fund's holdings are, the
more likely it is a specific security's poor performance will hurt the fund
significantly.
Secondary
Derivatives Risk: Certain derivative instruments (such as options, futures and
swaps) can produce disproportionate gains or losses. They are generally
considered more risky than direct investments. Also, in a down market,
derivatives could become harder to value or sell at a fair price.
Initial Public Offering Risk: The Fund has the ability to invest in initial
public offerings (IPOs) and a significant portion of the Fund's return may at
times be attributable to its investment in IPOs. IPOs could have a substantial
impact on performance, either positive or negative, particularly on a fund with
a small asset base. Also, the Fund's investments in IPOs may be subject to more
erratic price movements than the overall equity market.
Turnover Risk: In general, the greater the volume of buying and selling by a
fund (i.e., the higher its "turnover rate"), the greater the impact that
brokerage commissions and other transaction costs will have on the fund's
performance. Any turnover rate in excess of 100% is considered relatively high.
In the future, the Fund's turnover rate may be greater than 100%.
- --------------------------------------------------------------------------------
FEES AND EXPENSES OF THE FUND
These tables describe the fees and expenses you may pay if you buy and hold NAV
shares of the Fund and do not reflect the expenses and charges of the
applicable separate accounts and variable contracts. Those expenses and charges
vary considerably from contract to contract and are described in your variable
contract prospectus.
Shareholder Fees (fees paid directly from your investment) None
Annual Fund Operating Expenses (expenses that are deducted from Fund assets, as
a percentage of average net assets for the fiscal year ended December 31, 2003)
Total Annual
Investment Distribution and Fund Net Fund
Management Service Other Operating Expense Operating
Fee(1) (12b-1) Fee Expenses Expenses Reimbursements Expenses
------ ----------- -------- -------- -------------- --------
0.89% N/A 0.10% 0.99% 0.00% 0.99%
Examples. The Examples are intended to help you compare the cost of investing
in NAV shares of the Fund with the costs of investing in other mutual funds.
The Examples assume that you invest $10,000 directly in the shares for the time
periods indicated, and then redeem all your shares at the end of those periods.
The Examples also assume that your investment has a 5% return each year, the
reinvestment of all dividends and distributions, and that the Fund's operating
expenses remain the same. Although actual Fund costs may be higher or lower,
the Examples show what the Fund costs would be based on these assumptions.
Year 1 Year 3 Year 5 Year 10
$101 $315 $547 $1,213
17
Fundamental Growth Fund
GOAL AND STRATEGY
This is a large cap stock fund with a growth emphasis that seeks long-term
capital appreciation.
The Fund invests primarily in a diversified mix of common stocks of large
established U.S. companies that are believed to offer above-average potential
for growth in revenues and earnings.
The manager selects stocks using a combination of proprietary equity research
and quantitative tools. Stocks are purchased that have improving fundamentals
and attractive valuations. The manager seeks to maintain risk and sector
characteristics similar to the Russell 1000(R) Growth Index.
The Fund normally invests in 75 to 160 stocks, and at least 80% of its assets
in large cap companies. For the purpose of this Fund, "large cap companies" are
those with market capitalizations that are within the range of capitalization
of companies represented in the Russell 1000(R) Index or the Russell 1000(R)
Growth Index. The Fund normally has 10% or less (usually lower) of its assets
in cash and cash equivalents. The Fund may invest in initial public offerings
(IPOs).
The Fund may purchase other types of securities that are not primary investment
vehicles, for example: U.S. dollar denominated foreign securities, certain
Exchange Traded Funds (ETFs), and certain derivatives (investments whose value
is based on indices or other securities).
In abnormal market conditions, the Fund may take temporary defensive
measures--such as holding unusually large amounts of cash and cash
equivalents--that are inconsistent with the Fund's primary investment strategy.
In taking those measures, the Fund may not achieve its investment goal.
- --------------------------------------------------------------------------------
SUBADVISER
Independence Investment LLC
53 State Street
Boston, Massachusetts 02109
Owned by John Hancock
Managing since 1982
Managing Fund and its predecessor since March, 1986
Managed approximately $11.5 billion in assets at the end of 2003
Past Performance information set forth herein does not reflect
Independence Investment LLC services to the Fund.
FUND MANAGERS
Management by investment team overseen by:
Paul F. McManus, Jr.
- ---------------------
Executive Vice President of subadviser
Joined subadviser in 1982
PAST PERFORMANCE
The bar chart shows how the performance of the Fund's NAV shares has varied
from year to year, while the table shows performance over time (along with a
broad-based market index for reference). This information may help provide an
indication of the Fund's risks and potential rewards. All figures assume
dividend reinvestment. Past performance does not indicate future results. The
performance figures below do not reflect the deduction of fees and charges
payable under the variable contracts. Such fees and charges would cause the
investment returns under the contracts to be less than that shown below.
Year-by-year total returns -- calendar year
[CHART]
2000 2001 2002 2003
- ------ ------ ------ ------
- -3.03% -32.23% -30.28% 31.77%
Best quarter: up 54.57% third quarter 1999 Worst quarter: down 31.27% third
quarter 2001
Average annual total returns -- for periods ending 12/31/2003*
Fund Index 1 Index 2 Index 3**
1 year 31.77% 42.71% 29.75% 42.71%
Life of fund -1.58% 0.22% -7.67% 0.22%
Index 1: Russell Mid Cap(TM) Growth Index
Index 2: Russell 1000(R) Growth Index
Index 3: A composite index combining the performance of the following indices
over the periods indicated: Russell Mid Cap Growth(TM) Index (August, 1999
through December 2003) and Russell 1000(R) Growth Index (effective January,
2004)
* Began operations on August 31, 1999.
** John Hancock believes Index 3 is a more suitable index against which to
measure the Fund's performance for the period shown because it more closely
matches the Fund's investment strategy during that period.
18
MAIN RISKS
Primary
Market Risk: The value of the securities in the Fund may go down in response
to overall stock or bond market movements. Markets tend to move in cycles, with
periods of rising prices and periods of falling prices. Stocks tend to go up
and down in value more than bonds. If the Fund's investments are concentrated
in certain sectors, the Fund's performance could be worse than the overall
market.
Manager Risk: The manager and its strategy may fail to produce the intended
results. The Fund could underperform its peers or lose money if the manager's
investment strategy does not perform as expected.
Investment Category Risk: The returns of the Fund's specific equity investment
category may lag the returns of the overall stock market. For example, the
Fund's "growth" approach carries the risk that in certain markets "growth"
stocks will under perform "value" stocks. Also, the Fund's "large/mid cap"
approach carries the risk that large/mid cap stocks will underperform small cap
stocks.
Concentration Risk: The Fund's investment in securities of a smaller number of
issuers could produce more volatile performance relative to funds that invest
in a larger number of issuers. The more concentrated a fund's holdings are, the
more likely it is a specific security's poor performance will hurt the fund
significantly.
Secondary
Derivatives Risk: Certain derivative instruments (such as options, futures and
swaps) can produce disproportionate gains or losses. They are generally
considered more risky than direct investments. Also, in a down market,
derivatives could become harder to value or sell at a fair price.
Initial Public Offering Risk: The Fund has the ability to invest in initial
public offerings (IPOs) and a significant portion of the Fund's return may at
times be attributable to its investment in IPOs. IPOs could have a substantial
impact on performance, either positive or negative, particularly on a fund with
a small asset base. Also, the Fund's investments in IPOs may be subject to more
erratic price movements than the overall equity market.
Turnover Risk: In general, the greater the volume of buying and selling by a
fund (i.e., the higher its "turnover rate"), the greater the impact that
brokerage commissions and other transaction costs will have on the fund's
performance. Any turnover rate in excess of 100% is considered relatively high.
In the future, the Fund's turnover rate may be greater than 100%.
- --------------------------------------------------------------------------------
FEES AND EXPENSES OF THE FUND
These tables describe the fees and expenses you may pay if you buy and hold NAV
shares of the Fund and do not reflect the expenses and charges of the
applicable separate accounts and variable contracts. Those expenses and charges
vary considerably from contract to contract and are described in your variable
contract prospectus.
Shareholder Fees (fees paid directly from your investment) None
Annual Fund Operating Expenses (expenses that are deducted from Fund assets, as
a percentage of average net assets for the fiscal year ended December 31, 2003)
Total Annual
Investment Distribution and Fund Net Fund
Management Service Other Operating Expense Operating
Fee (12b-1) Fee Expenses Expenses Reimbursements(2) Expenses
--- ----------- -------- -------- ----------------- --------
0.90% NA 0.10% 1.00% 0.00% 1.00%
Examples. The Examples are intended to help you compare the cost of investing
in NAV shares of the Fund with the costs of investing in other mutual funds.
The Examples assume that you invest $10,000 directly in the shares for the time
periods indicated, and then redeem all your shares at the end of those periods.
The Examples also assume that your investment has a 5% return each year, the
reinvestment of all dividends and distributions, and that the Fund's operating
expenses remain the same. Although actual Fund costs may be higher or lower,
the Examples show what the Fund costs would be based on these assumptions.
Year 1 Year 3 Year 5 Year 10
$102 $318 $552 $1,225
19
Earnings Growth Fund
GOAL AND STRATEGY
This is a large cap stock fund with a growth emphasis that seeks long-term
capital appreciation.
The Fund invests primarily in a mix of common stocks of large U.S. companies
that are believed to offer above-average potential for long-term growth, which
may be measured by factors such as revenues or earnings.
The manager selects stocks using fundamental equity research. Stocks are
purchased that are expected to have above average earnings growth potential.
Companies with high growth potential tend to be companies with higher than
average price/earnings (P/E) or price/book (P/B) ratios. Companies with strong
growth potential often have new products, technologies, distribution channels,
or other opportunities, or have a strong industry or market position. The
stocks of these companies are often called "growth" stocks.
In buying and selling securities for the Fund, the manager uses fundamental
analysis of each issuer and its potential for success in light of its current
financial condition, its industry position, and economic and market conditions.
Factors considered include:
.. growth potential.
.. earnings estimates, and
.. management.
The Fund's sector exposures are a result of stock selection and therefore may
vary significantly from the Fund's performance benchmark (Russell 1000 Growth
Index).
The Fund normally invests in 75 to 200 stocks and at least 80% of its assets in
common stocks of companies with large market capitalizations. For the purposes
of this Fund, large capitalization companies are those with market
capitalizations within the range of market capitalizations of companies in the
Russell 1000 Index or the Russell 1000 Growth Index.
The Fund normally has 15% or less (usually lower) of its assets in cash and
cash equivalents. The Fund may invest in initial public offerings (IPOs) but
will typically have very limited exposure to these investments.
The Fund may purchase other types of securities that are not primary investment
vehicles, for example: securities of foreign issuers, certain Exchange Traded
Funds (ETFs), and certain derivatives (investments whose value is based on
indices or other securities).
In abnormal market conditions, the Fund may take temporary defensive
measures--such as holding unusually large amounts of cash and cash
equivalents--that are inconsistent with the Fund's primary investment strategy.
In taking those measures, the Fund may not achieve its investment goal.
- --------------------------------------------------------------------------------
SUBADVISER
Fidelity Management & Research Company ("FMR")
82 Devonshire Street
Boston, Massachusetts 02109
Managing since 1946
Managing Fund since March, 2003
Managed approximately $779 billion in assets at the end of 2003
FMR Co, Inc. ("FMRC") serves as a sub-subadviser for the Fund. FMRC has
day-to-day responsibility for choosing investments for the Fund. FMRC is a
wholly-owned subsidiary of Fidelity Management & Research Company.
FUND MANAGER
Joseph Day
- ---------------------
Vice President of subadviser
Joined subadviser in 1985
PAST PERFORMANCE
The bar chart shows how the performance of the Fund's NAV shares has varied
from year to year, while the table shows performance over time (along with a
broad-based market index for reference). This information may help provide an
indication of the Fund's risks and potential rewards. All figures assume
dividend reinvestment. Past performance does not indicate future results. The
performance figures below do not reflect the deduction of fees and charges
payable under the variable contracts. Such fees and charges would cause the
investment returns under the contracts to be less than that shown below.
Year-by-year total returns -- calendar years
[CHART]
1997 1998 1999 2000 2001 2002 2003
- ------ ------ ------- ------- ------- -------- ------
16.66% 39.07% 118.31% -35.86% -36.93% -32.39% 24.80%
Best quarter: up 59.33% fourth quarter 1999 Worst quarter: down 33.10% first
quarter 2001
Average annual total returns -- for periods ending 12/31/2003*
Fund Index 1 Index 2**
1 year 24.80% 29.75% 29.75%
5 years -5.71% -5.11% 0.74%
Life of fund 2.86% 6.19% 6.12%
Index 1: Russell 1000 Growth Index
Index 2: A composite index combining the performance of the following indices
over the periods indicated: Russell Mid CapTM Growth Index (from inception
through April, 2002) and Russell 1000(R) Growth Index (after April, 2002).
* Began operations on May 1, 1996.
** John Hancock believes that Index 2 is a more suitable index against which to
measure the Fund's performance because it more closely matches the Fund's
changes in investment strategy since inception.
20
MAIN RISKS
Primary
Market Risk: The value of the securities in the Fund may go down in response
to overall stock or bond market movements. Markets tend to move in cycles, with
periods of rising prices and periods of falling prices. Stocks tend to go up
and down in value more than bonds. If the Fund's investments are concentrated
in certain sectors, the Fund's performance could be worse than the overall
market.
Manager Risk: The manager and its strategy may fail to produce the intended
results. The Fund could underperform its peers or lose money if the manager's
investment strategy does not perform as expected.
Investment Category Risk: The returns of the Fund's specific equity investment
category may lag the returns of the overall stock market. For example, the
Fund's "growth" approach carries the risk that in certain markets "growth"
stocks will underperform "value" stocks. Also, the Fund's "mid cap" approach
carries the risk that in certain markets mid cap stocks will underperform small
cap and large cap stocks.
Turnover Risk: In general, the greater the volume of buying and selling by a
fund (i.e., the higher its "turnover rate"), the greater the impact that
brokerage commissions and other transaction costs will have on the fund's
performance. Any turnover rate in excess of 100% is considered relatively high.
Normally, the Fund's turnover rate will be greater than 100%.
Concentration Risk: The Fund's investment in securities of a smaller number of
issuers could produce more volatile performance relative to funds that invest
in a larger number of issuers. The more concentrated a fund's holdings are, the
more likely it is a specific security's poor performance will hurt the fund
significantly.
Secondary
Derivatives Risk: Certain derivative instruments (such as options, futures and
swaps) can produce disproportionate gains or losses. They are generally
considered more risky than direct investments. Also, in a down market,
derivatives could become harder to value or sell at a fair price.
Initial Public Offering Risk: The Fund has the ability to invest in initial
public offerings (IPOs) and a significant portion of the Fund's return may at
times be attributable to its investment in IPOs. IPOs could have a substantial
impact on performance, either positive or negative, particularly on a fund with
a small asset base. Also, the Fund's investments in IPOs may be subject to more
erratic price movements than the overall equity market.
- --------------------------------------------------------------------------------
FEES AND EXPENSES OF THE FUND
These tables describe the fees and expenses you may pay if you buy and hold NAV
shares of the Fund and do not reflect the expenses and charges of the
applicable separate accounts and variable contracts. Those expenses and charges
vary considerably from contract to contract and are described in your variable
contract prospectus.
Shareholder Fees (fees paid directly from your investment) None
Annual Fund Operating Expenses (expenses that are deducted from Fund assets, as
a percentage of average net assets for the fiscal year ended December 31, 2003)
Total Annual
Investment Distribution and Fund Net Fund
Management Service Other Operating Expense Operating
Fee (12b-1) Fee Expenses Expenses Reimbursements(1) Expenses
--- ----------- -------- -------- ----------------- --------
0.96% NA 0.11% 1.07% 0.01% 1.06%
(1) Under its current investment management agreement with the Trust, John
Hancock reimburses the Fund when the Fund's "other fund expenses" exceed
0.10% of the Fund's average daily net assets. This agreement will remain
in effect until May 1, 2005, and may be renewed each year thereafter by
the Trust.
Examples. The Examples are intended to help you compare the cost of investing
in NAV shares of the Fund with the costs of investing in other mutual funds.
The Examples assume that you invest $10,000 directly in the shares for the time
periods indicated, and then redeem all your shares at the end of those periods.
The Examples also assume that your investment has a 5% return each year, the
reinvestment of all dividends and distributions, and that the Fund's operating
expenses remain the same. Although actual Fund costs may be higher or lower,
the Examples show what the Fund costs would be based on these assumptions.
Year 1 Year 3 Year 5 Year 10
$108 $339 $589 $1,305
21
Growth & Income Fund
GOAL AND STRATEGY
This is a large cap stock fund that seeks income and long-term capital
appreciation.
The Fund invests primarily in a diversified mix of common stocks of large sized
U.S. companies.
The Fund employs a multi-style and multi-manager approach with two
sub-advisers, each of which employs its own investment approach and
independently manages its portion or portions of the Fund. The Fund uses three
distinct investment styles intended to complement each other: growth, value and
blend. The allocation across styles at the end of 2003 is approximately: growth
portion 18%, value portion 19% and blend portion 63%. All investments in the
Fund will be allocated equally between the two subadvisers, while redemptions
will be allocated on an asset-weighted basis. Moreover, the allocation between
the value and blend portions will be managed so that the value portion will be
approximately equal to the growth portion over time. All of these allocation
methodologies may change in the future.
Independence Investment LLC ("Independence") manages two portions of the
Fund--the value style portion and the blend style portion. Independence selects
stocks that have improving fundamentals and attractive valuations.
Stocks are purchased that are undervalued relative to the stock's history and
have improving earnings growth prospects.
Independence seeks to maintain risk and sector characteristics similar to the
market benchmark for its portion of the Fund. Independence normally invests its
portion of the Fund in 75 to 160 stocks with: (a) at least 80% (usually higher)
of the assets in the value portion in companies with market capitalizations
that are within the range of capitalizations of companies in the Russell
1000(R) Value Index or the Russell 1000(R) Index, and (b) at least 80% (usually
higher) of the assets in the blend portion in companies with market
capitalizations that are within the range of capitalizations of companies in
the Russell 1000(R) Index or the S&P 500 Index.
T. Rowe Price Associates, Inc. ("T. Rowe") manages the growth style portion of
the Fund and selects stocks using proprietary fundamental research. T. Rowe
generally looks for companies with:
.. Above average earnings growth and cash flow growth relative to their peers
and general economy;
.. Sustainable earnings momentum even during times of slow economic growth; and
.. Profitable niches in the economy that enables companies to expand even during
times of slow growth.
This portion of the Fund's sector exposures are broadly diversified but are
primarily a result of stock selection and may therefore vary significantly from
its benchmark. T. Rowe Price normally invests its portion of the Fund in 40 to
80 stocks, and at least 80% (usually higher) of the assets in the growth
portion of the Fund in companies with market capitalizations that are within
the range of capitalizations of companies in the Russell 1000(R) Growth Index
or the Russell 1000(R) Index.
Each portion of the Fund normally has 10% or less (usually lower) of its assets
in cash and cash equivalents. Each portion of the Fund may invest in initial
public offerings (IPOs). Each portion of the Fund may purchase other types of
securities that are not primary investment vehicles, for example: U.S. dollar
denominated foreign securities, certain Exchange Traded Funds (ETFs), and
certain derivatives (investments whose value is based on indices or other
securities).
In abnormal market conditions, each portion of the Fund may take temporary
defensive measures--such as holding unusually large amounts of cash and cash
equivalents--that are inconsistent with the Fund's primary investment strategy.
In
taking those measures, the Fund may not achieve its investment goal.
- --------------------------------------------------------------------------------
SUBADVISER
Independence Investment LLC
53 State Street
Boston, Massachusetts 02109
Owned by John Hancock
Managing since 1982
Managing Fund since December, 2003
Managed approximately $11.5 billion in assets at end of 2003
FUND MANAGERS
Management by investment team overseen by:
John C. Forelli
- ---------------------
Senior Vice President of subadviser
Joined subadviser in 1990
Thomas D. Spicer
- ---------------------
Senior Vice President of subadviser
Joined subadviser in 1991
SUBADVISER
T. Rowe Price Associates, Inc.
100 East Pratt Street
Baltimore, Maryland 21202
Managing since 1937
Managing Fund since December, 2003
Managed approximately $190 billion in assets at the end of 2003
FUND MANAGERS
Management by Investment
Advisory Committee
Robert W. Sharps, CFA, CPA
- ---------------------
Vice President of subadviser
Joined subadviser in 1998
22
MAIN RISKS
Primary
Market Risk: The value of the securities in the Fund may go down in response
to overall stock or bond market movements. Markets tend to move in cycles, with
periods of rising prices and periods of falling prices. Stocks tend to go up
and down in value more than bonds. If the Fund's investments are concentrated
in certain sectors, the Fund's performance could be worse than the overall
market.
Manager Risk: The manager and its strategy may fail to produce the intended
results. The Fund could underperform its peers or
lose money if the manager's investment strategy does not perform as expected.
Investment Category Risk: The returns of the Fund's specific equity investment
category may lag the returns of the overall stock market. For example, the
Fund's "large cap" approach carries the risk that in certain markets large cap
stocks will underperform smaller cap stocks.
Turnover Risk: In general, the greater the volume of buying and selling by a
fund (i.e.,
the higher its "turnover rate"), the greater the impact that brokerage
commissions and other transaction costs will have on the fund's performance.
Any turnover rate in excess of 100% is considered relatively high. Normally,
the Fund's turnover rate will be greater than 100%.
Secondary
Derivatives Risk: Certain derivative instruments (such as options, futures and
swaps) can produce disproportionate gains or losses. They are generally
considered more risky than direct investments. Also, in a down market,
derivatives could become harder to value or sell at a fair price.
Initial Public Offering Risk: The fund has the ability to invest in initial
public offerings (IPOs) and a significant portion of the Fund's return may at
times be attributable to its investment in IPOs. IPOs could have a substantial
impact on performance, either positive or negative, particularly on a fund with
a small asset base. Also, the Fund's investments in IPOs may be subject to more
erratic price movements than the overall equity market.
- --------------------------------------------------------------------------------
23
Growth & Income Fund -- continued
PAST PERFORMANCE
The bar chart shows how the performance of the Fund's NAV shares has varied
from year to year, while the table shows performance over time (along with a
broad-based market index for reference). This information may also help provide
an indication of the Fund's risks and potential rewards. All figures assume
dividend reinvestment. Past performance does not indicate future results. The
performance figures below do not reflect the deduction of fees and charges
payable under the variable contracts. Such fees and charges would cause the
investment returns under the contracts to be less than that shown below.
Year-by-year total returns -- calendar years
[CHART]
1994 1995 1996 1997 1998 1999 2000 2001 2002 2003
- ------ ------ ------ ------ ------ ------ ------- ------- ------- ------
- -0.56% 34.21% 20.10% 29.79% 30.25% 16.23% -13.10% -15.44% -22.18% 24.35%
Best quarter: up 24.07% fourth quarter 1998 Worst quarter: down 17.14% third
quarter 2002
Average annual total return -- for periods
ending 12/31/2003
Fund Index 1 Index 2*
1 year 24.35% 29.89% 29.89%
5 years -3.74% -0.13% -0.43%
10 years 8.40% 11.00% 11.14%
Index 1: Russell 1000 Index
Index 2: A composite index combining the performance of the following indices
over the periods indicated: S&P 500 Index (from inception through April, 2002)
and Russell 1000 Index (after April, 2002)
* John Hancock believes Index 2 is a more suitable index against which to
measure the Fund's performance because it more closely matches the Fund's
changes in investment strategy over the period shown.
24
FEES AND EXPENSES OF THE FUND
These tables describe the fees and expenses you may pay if you buy and hold NAV
shares of the Fund and do not reflect the expenses and charges of the
applicable separate accounts and variable contracts. Those expenses and charges
vary considerably from contract to contract and are described in your the
variable contract prospectus.
Shareholder Fees (fees paid directly from your investment) None
Annual Fund Operating Expenses (expenses that are deducted from Fund assets, as
a percentage of average net assets for the fiscal year ended December 31, 2003)
Total Annual
Investment Distribution and Fund Net Fund
Management Service Other Operating Expense Operating
Fee (12b-1) Fee Expenses Expenses Reimbursements Expenses
--- ----------- -------- -------- -------------- --------
0.67% N/A 0.06% 0.73% 0.0% 0.73%
Examples. The Examples are intended to help you compare the cost of investing
in NAV shares of the Fund with the costs of investing in other mutual funds.
The Examples assume that you invest $10,000 directly in the shares for the time
periods indicated, and then redeem all your shares at the end of those periods.
The Examples also assume that your investment has a 5% return each year, the
reinvestment of all dividends and distributions, and that the Fund's operating
expenses remain the same. Although actual Fund costs may be higher or lower,
the Examples show what the Fund costs would be based on these assumptions.
Year 1 Year 3 Year 5 Year 10
$75 $233 $406 $906
25
Fundamental Value Fund
GOAL AND STRATEGY
This is a large cap stock fund with a value emphasis that seeks long-term
capital appreciation.
The Fund invests primarily in a diversified mix of common stocks of large-sized
U.S. companies that are believed to offer favorable prospects for increasing
dividends and growth in capital.
The manager employs a value approach in selecting stocks, using proprietary
equity research to identify stocks having distinct value characteristics based
on industry-specific valuation criteria.
The manager screens the investable universe for:
.. stocks in the Russell 1000(R) Value Index, or
.. stocks with dividend yields greater than the Russell 1000(R) Index, or
.. stocks with price/book ratios lower than the Russell 1000(R) Index.
The Fund's assets are allocated to industry-specific sub-portfolios that are
managed by each industry analyst. The manager oversees the Fund to maintain
capitalization and sector weights similar to the Russell 1000(R) Value Index.
The Fund normally invests in 90 to 130 stocks with at least 80% (usually
higher) of its assets in companies with market capitalizations that are within
the range of capitalizations of companies in the Russell 1000(R) Value Index or
the Russell 1000(R) Index. The Fund normally has 10% or less (usually lower) of
its assets in cash and cash equivalents. The Fund may invest in initial public
offerings (IPOs).
The Fund may purchase other types of securities that are not primary investment
vehicles, for example: U.S. dollar denominated foreign securities, certain
Exchange Traded Funds (ETFs), and certain derivatives (investments whose value
is based on indices or other securities).
In abnormal market conditions, the Fund may take temporary defensive
measures--such as holding unusually large amounts of cash and cash
equivalents--that are inconsistent with the Fund's primary investment strategy.
In taking those measures, the Fund may not achieve its investment goal.
- --------------------------------------------------------------------------------
SUBADVISER
Wellington Management Company, LLP
75 State Street
Boston, Massachusetts 02109
Managing, with predecessors, since 1928
Managing Fund since August, 1999
Managed approximately $394 billion
in assets at the end of 2003
FUND MANAGERS
Management by Global Research Team coordinated by:
Cheryl M. Duckworth, CFA
- ---------------------
Vice President of subadviser
Joined subadviser in 1994
PAST PERFORMANCE
The bar chart shows how the performance of the Fund's NAV shares has varied
from year to year, while the table shows performance over time (along with a
broad-based market index for reference). This information may help provide an
indication of the Fund's risks and potential rewards. All figures assume
dividend reinvestment. Past performance does not indicate future results. The
performance figures below do not reflect the deduction of fees and charges
payable under the variable contracts. Such fees and charges would cause the
investment returns under the contracts to be less than that shown below.
Year-by-year total returns -- calendar year
[CHART]
2000 2001 2002 2003
- ------ ------- ------- ------
13.41% -6.99% -17.40% 28.70%
Best quarter: up 17.55% second quarter 2003 Worst quarter: down 17.38% third
quarter 2002
Average annual total returns -- for periods ending 12/31/2003*
Fund Index
1 year 28.70% 30.03%
Life of fund 3.77% 2.84%
Index: Russell 1000(R) Value Index
* Began operations on August 31, 1999.
26
MAIN RISKS
Primary
Market Risk: The value of the securities in the Fund may go down in response
to overall stock or bond market movements. Markets tend to move in cycles, with
periods of rising prices and periods of falling prices. Stocks tend to go up
and down in value more than bonds. If the Fund's investments are concentrated
in certain sectors, the Fund's performance could be worse than the overall
market.
Manager Risk: The manager and its strategy may fail to produce the intended
results. The Fund could underperform its peers or lose money if the manager's
investment strategy does not perform as expected.
Investment Category Risk: The returns of the Fund's specific equity investment
category may lag the returns of the overall stock market. For example, the
Fund's "value" approach carries the risk that in certain markets "value" stocks
will underperform "growth" stocks. Also, the Fund's "large cap" approach
carries the risk that large cap stocks will underperform smaller cap stocks.
Secondary
Derivatives Risk: Certain derivative instruments (such as options, futures and
swaps) can produce disproportionate gains or losses. They are generally
considered more risky than direct investments. Also, in a down market,
derivatives could become harder to value or sell at a fair price.
Initial Public Offering Risk: The Fund has the ability to invest in initial
public offerings (IPOs) and a significant portion of the Fund's return may at
times be attributable to its investment in IPOs. IPOs could have a substantial
impact on performance, either positive or negative, particularly on a fund with
a small asset base. Also, the Fund's investments in IPOs may be subject to more
erratic price movements than the overall equity market.
- --------------------------------------------------------------------------------
FEES AND EXPENSES OF THE FUND
These tables describe the fees and expenses you may pay if you buy and hold NAV
shares of the Fund and do not reflect the expenses and charges of the
applicable separate accounts and variable contracts. Those expenses and charges
vary considerably from contract to contract and are described in your variable
contract prospectus.
Shareholder Fees (fees paid directly from your investment) None
Annual Fund Operating Expenses (expenses that are deducted from Fund assets, as
a percentage of average net assets for the fiscal year ended December 31, 2003)
Total Annual
Investment Distribution and Fund Net Fund
Management Service Other Operating Expense Operating
Fee (12b-1) Fee Expenses Expenses Reimbursements(1) Expenses
--- ----------- -------- -------- ----------------- --------
0.79% N/A 0.11% 0.90% 0.01% 0.89%
(1) Under its current investment management agreement with the Trust, John
Hancock reimburses the Fund when the Fund's "other fund expenses" exceed
0.10% of the Fund's average daily net assets. The agreement will remain in
effect until May 1, 2005, and may be renewed each year thereafter by the
Trust.
Examples. The Examples are intended to help you compare the cost of investing
in NAV shares of the Fund with the costs of investing in other mutual funds.
The Examples assume that you invest $10,000 directly in the shares for the time
periods indicated, and then redeem all your shares at the end of those periods.
The Examples also assume that your investment has a 5% return each year, the
reinvestment of all dividends and distributions, and that the Fund's operating
expenses remain the same. Although actual Fund costs may be higher or lower,
the Examples show what the Fund costs would be based on these assumptions.
Year 1 Year 3 Year 5 Year 10
$91 $286 $497 $1,107
27
Fundamental Value B Fund
(formerly "Large Cap Value CORE SM Fund")
GOAL AND STRATEGY
This is a large cap stock fund with a value emphasis that seeks long-term
capital appreciation.
The Fund invests primarily in a diversified mix of common stocks of large-sized
U.S. companies that are believed to offer favorable prospects for increasing
dividends and growth in capital.
The manager employs a value approach in selecting stocks, using proprietary
equity research to identify stocks having distinct value characteristics based
on industry-specific valuation criteria.
The manager screens the investable universe for:
.. stocks in the Russell 1000(R) Value Index, or
.. stocks with dividend yields greater than the Russell 1000(R) Index, or
.. stocks with price/book ratios lower than the Russell 1000(R) Index.
The Fund's assets are allocated to industry specific sub-portfolios that are
managed by each industry analyst. The manager oversees the Fund to maintain
capitalization and sector weights similar to the Russell 1000(R) Value Index.
The Fund normally invests in 90 to 130 stocks with at least 80% (usually
higher) of its assets in companies with market capitalizations that are within
the range of capitalizations of companies in the Russell 1000(R) Value Index or
the Russell 1000(R) Index.
The Fund normally has 10% or less (usually lower) of its assets in cash and
cash equivalents. The Fund may invest in initial public offerings (IPOs).
The Fund may purchase other types of securities that are not primary investment
vehicles, for example: U.S. dollar denominated foreign securities, certain
Exchange Traded Funds (ETFs), and certain derivatives (investments whose value
is based on indices or other securities).
In abnormal market conditions, the Fund may take temporary defensive
measures--such as holding unusually large amounts of cash and cash
equivalents--that are inconsistent with the Fund's primary investment strategy.
In taking those measures, the Fund may not achieve its investment goal.
- --------------------------------------------------------------------------------
SUBADVISER
Wellington Management Company, LLP
75 State Street
Boston, Massachusetts 02109
Managing, with predecessors, since 1928
Managing Fund since May, 2004
Managed approximately $394 billion
in assets at the end of 2003
Past Performance information set forth
herein does not reflect Wellington Management Company, LLP services to the Fund.
FUND MANAGERS
Management by Global Research Team coordinated by:
Cheryl M. Duckworth, CFA
- ---------------------
Vice President of subadviser
Joined subadviser in 1994
PAST PERFORMANCE
The bar chart shows how the performance of the Fund's NAV shares has varied
from year to year, while the table shows performance over time (along with a
broad-based market index for reference). This information may help provide an
indication of the Fund's risks and potential rewards. All figures assume
dividend reinvestment. Past performance does not indicate future results. The
performance figures below do not reflect the deduction of fees and charges
payable under the variable contracts. Such fees and charges would cause the
investment returns under the contracts to be less than that shown below.
Year-by-year total returns -- calendar year
[CHART]
2000 2001 2002 2003
- ----- ------ ------- ------
5.12% -4.75% -18.21% 28.86%
Best quarter: up 14.99% second quarter 2003 Worst quarter: down 17.35% third
quarter 2002
Average annual total returns -- for periods ending 12/31/2003*
Fund Index
1 year 28.86% 30.03%
Life of fund 2.07% 2.84%
Index: Russell 1000(R) Value Index
* Began operations on August 31, 1999.
28
MAIN RISKS
Primary
Market Risk: The value of the securities in the Fund may go down in response
to overall stock or bond market movements. Markets tend to move in cycles, with
periods of rising prices and periods of falling prices. Stocks tend to go up
and down in value more than bonds. If the Fund's investments are concentrated
in certain sectors, the Fund's performance could be worse than the overall
market.
Manager Risk: The manager and its strategy may fail to produce the intended
results. The Fund could underperform its peers or lose money if the manager's
investment strategy does not perform as expected.
Investment Category Risk: The returns of the Fund's specific equity investment
category may lag the returns of the overall stock market. For example, the
Fund's "value" approach carries the risk that in certain markets "value" stocks
will underperform "growth" stocks. Also, the Fund's "large cap" approach
carries the risk that in certain markets large cap stocks will underperform
smaller cap stocks.
Secondary
Derivatives Risk: Certain derivative instruments (such as options, futures and
swaps) can produce disproportionate gains or losses. They are generally
considered more risky than direct investments. Also, in a down market,
derivatives could become harder to value or sell at a fair price.
Initial Public Offering Risk: The Fund has the ability to invest in initial
public offerings (IPOs) and a significant portion of the Fund's return may at
times be attributable to its investment in IPOs. IPOs could have a substantial
impact on performance, either positive or negative, particularly on a fund with
a small asset base. Also, the Fund's investments in IPOs may be subject to more
erratic price movements than the overall equity market.
- --------------------------------------------------------------------------------
FEES AND EXPENSES OF THE FUND
These tables describe the fees and expenses you may pay if you buy and hold NAV
shares of the Fund and do not reflect the expenses and charges of the
applicable separate accounts and variable contracts. Those expenses and charges
vary considerably from contract to contract and are described in your variable
contract prospectus.
Shareholder Fees (fees paid directly from your investment) None
Annual Fund Operating Expenses (expenses that are deducted from Fund assets, as
a percentage of average net assets for the fiscal year ended December 31, 2003)
Total Annual
Investment Distribution and Fund Net Fund
Management Service Other Operating Expense Operating
Fee(1) (12b-1) Fee Expenses Expenses Reimbursements(2) Expenses
------ ----------- -------- -------- ----------------- --------
0.91% N/A 0.19% 1.10% 0.09% 1.01%
(1) Percentages shown are calculated as if the current investment management
fee schedule was in effect throughout the period.
(2) Under its current investment management agreement with the Trust, John
Hancock reimburses the Fund when the Fund's "other fund expenses" exceed
0.10% of the Fund's average daily net assets. The agreement will remain in
effect until May 1, 2005, and may be renewed each year thereafter by the
Trust.
Examples. The Examples are intended to help you compare the cost of investing
in NAV shares of the Fund with the costs of investing in other mutual funds.
The Examples assume that you invest $10,000 directly in the shares for the time
periods indicated, and then redeem all your shares at the end of those periods.
The Examples also assume that your investment has a 5% return each year, the
reinvestment of all dividends and distributions, and that the Fund's operating
expenses remain the same. Although actual Fund costs may be higher or lower,
the Examples show what the Fund costs would be based on these assumptions.
Year 1 Year 3 Year 5 Year 10
$103 $341 $598 $1,332
29
Mid Cap Value Fund
GOAL AND STRATEGY
This is a mid cap stock fund with a value emphasis that seeks long-term capital
appreciation.
The Fund invests primarily in a diversified mix of common stocks of mid-sized
U.S. companies that are believed to be undervalued by various measures and
offer good prospects for capital appreciation.
The manager employs a value approach in selecting stocks using proprietary
fundamental equity research. The manager generally looks for companies with:
.. Low stock price relative to assets, earnings, cash flow or business franchise
value.
.. Attractive operating margins and significant cash flow generation.
.. Sound balance sheet and other positive financial characteristics.
.. Significant stock ownership by management.
The Fund's sector exposures are broadly diversified but are primarily a result
of stock selection and therefore may vary significantly from its benchmark. The
Fund normally invests in 75 to 140 stocks with at least 80% (usually higher) of
its assets in companies with market capitalizations that are within the range
of capitalizations of companies in the Russell Mid Cap/TM/ Value Index or the
Russell Mid Cap/TM/ Index.
The Fund normally has 10% or less (usually lower) of its assets in cash or cash
equivalents. The Fund may invest in initial public offerings (IPOs).
The Fund may purchase other types of securities that are not primary investment
vehicles, for example: U.S. dollar denominated foreign securities, certain
Exchange Traded Funds (ETFs), and certain derivatives (investments whose value
is based on indices or other securities).
In abnormal market conditions, the Fund may take temporary defensive
measures--such as holding unusually large amounts of cash and cash
equivalents--that are inconsistent with the Fund's primary investment strategy.
In taking those measures, the Fund may not achieve its investment goal.
- --------------------------------------------------------------------------------
SUBADVISER
T. Rowe Price Associates, Inc.
100 East Pratt Street
Baltimore, Maryland 21202
Managing since 1937
Managing Fund since May, 2003
Managed approximately $190 billion
in assets at the end of 2003
FUND MANAGERS
Management by Investment
Advisory Committee
David J. Wallack
- ---------------------
Vice President of subadviser
Joined subadviser in 1990
PAST PERFORMANCE
A bar chart will show how the performance of the Fund's NAV shares has varied
from year to year, while a table will show performance over time (along with a
broad-based market index for reference). This information may help provide an
indication of the Fund's risks and potential rewards. All figures to be shown
assume dividend reinvestment. Past performance does not indicate future
results. The performance figures will not reflect the deduction of fees and
charges payable under the variable contracts. Such fees and charges would cause
the investment returns under the contracts to be less than that to be shown.
30
MAIN RISKS
Primary
Market Risk: The value of the securities in the Fund may go down in response
to overall stock or bond market movements. Markets tend to move in cycles, with
periods of rising prices and periods of falling prices. Stocks tend to go up
and down in value more than bonds. If the Fund's investments are concentrated
in certain sectors, the Fund's performance could be worse than the overall
market.
Manager Risk: The manager and its strategy may fail to produce the intended
results. The Fund could underperform its peers or lose money if the manager's
investment strategy does not perform as expected.
Investment Category Risk: The returns of the Fund's specific equity investment
category may lag the returns of the overall stock market. For example, the
Fund's "value" approach carries the risk that in certain markets "value" stocks
will underperform "growth" stocks. Also, the Fund's "mid cap" approach carries
the risk that in certain markets mid cap stocks will underperform small cap or
large cap stocks.
Mid Cap Stock Risk: The Fund's investment in mid-sized companies may be
subject to more erratic price movements than investment in larger established
companies.
Concentration Risk: The Fund's investment in securities of a smaller number of
issuers could produce more volatile performance relative to funds that invest
in a larger number of issuers. The more concentrated a fund's holdings are, the
more likely it is a specific security's poor performance will hurt the fund
significantly.
Secondary
Derivatives Risk: Certain derivative instruments (such as options, futures and
swaps) can produce disproportionate gains or losses. They are generally
considered more risky than direct investments. Also, in a down market,
derivatives could become harder to value or sell at a fair price.
Initial Public Offering Risk: The Fund has the ability to invest in initial
public offerings (IPOs) and a significant portion of the Fund's return may at
times be attributable to its investment in IPOs. IPOs could have a substantial
impact on performance, either positive or negative, particularly on a fund with
a small asset base. Also, the Fund's investments in IPOs may be subject to more
erratic price movements than the overall equity market.
- --------------------------------------------------------------------------------
FEES AND EXPENSES OF THE FUND
These tables describe the fees and expenses you may pay if you buy and hold NAV
shares of the Fund and do not reflect the expenses and charges of the
applicable separate accounts and variable contracts. Those expenses and charges
vary considerably from contract to contract and are described in your variable
contract prospectus.
Shareholder Fees (fees paid directly from your investment) None
Annual Fund Operating Expenses (expenses that are deducted from Fund assets, as
a percentage of annualized average net assets for the fiscal year ended
December 31, 2003)
Total Annual
Investment Distribution and Fund Net Fund
Management Service Other Operating Expense Operating
Fee (12b-1) Fee Expenses Expenses Reimbursements(1) Expenses
--- ----------- -------- -------- ----------------- --------
1.10% N/A 0.37% 1.47% 0.27% 1.20%
(1) Under its current investment management agreement with the Trust, John
Hancock reimburses the Fund when the Fund's "other fund expenses" exceed
0.10% of the Fund's average daily net assets. The agreement will remain in
effect until May 1, 2005, and may be renewed each year thereafter by the
Trust.
Examples. The Examples are intended to help you compare the cost of investing
in NAV shares of the Fund with the costs of investing in other mutual funds.
The Examples assume that you invest $10,000 directly in the shares for the time
periods indicated, and then redeem all your shares at the end of those periods.
The Examples also assume that your investment has a 5% return each year, the
reinvestment of all dividends and distributions, and that the Fund's operating
expenses remain the same. Although actual Fund costs may be higher or lower,
the Examples show what the Fund costs would be based on these assumptions.
Year 1 Year 3 Year 5 Year 10
$122 $438 $777 $1,734
31
Mid Cap Value B Fund
(formerly "Small/Mid Cap CORE SM Fund")
GOAL AND STRATEGY
This is a mid cap stock fund with a value emphasis that seeks long-term capital
appreciation.
The Fund invests primarily in a diversified mix of common stocks of mid-sized
U.S. companies that are believed to be undervalued by various measures and
offer good prospects for capital appreciation.
The manager employs a value approach in selecting stocks using proprietary
fundamental equity research. The manager generally looks for companies with:
.. Low stock price relative to assets, earnings, cash flow or business franchise
value.
.. Attractive operating margins and significant cash flow generation.
.. Sound balance sheet and other positive financial characteristics.
.. Significant stock ownership by management.
The Fund's sector exposures are broadly diversified but are primarily a result
of stock selection and therefore may vary significantly from its benchmark. The
Fund normally invests in 75 to 140 stocks with at least 80% (usually higher) of
its assets in companies with market capitalizations that are within the range
of capitalizations of companies in the Russell Mid Cap/TM/ Value Index or the
Russell Mid Cap/TM/ Index. The Fund normally has 10% or less (usually lower) of
its assets in cash and cash equivalents. The Fund may invest in initial public
offerings (IPOs).
The Fund may purchase other types of securities that are not primary investment
vehicles, for example: U.S. dollar denominated foreign securities, certain
Exchange Traded Funds (ETFs), and certain derivatives (investments whose value
is based on indices or other securities).
In abnormal market conditions, the Fund may take temporary defensive
measures--such as holding unusually large amounts of cash and cash
equivalents--that are inconsistent with the Fund's primary investment strategy.
In taking those measures, the Fund may not achieve its investment goal.
- --------------------------------------------------------------------------------
SUBADVISER
T. Rowe Price Associates, Inc.
100 East Pratt Street
Baltimore, Maryland 21202
Managing since 1937
Managing Fund since May, 2004
Managed approximately $190 billion
in assets at the end of 2003
Past Performance information set forth
herein does not reflect T. Rowe Price
Associates, Inc. services to the Fund.
FUND MANAGERS
Management by Investment
Advisory Committee overseen by
David J. Wallack
- ---------------------
Vice President of subadviser
Joined subadviser in 1990
PAST PERFORMANCE
The bar chart shows how the performance of the Fund's NAV shares has varied
from year to year, while the table shows performance over time (along with
broad-based market indexes for reference). This information may help provide an
indication of the Fund's risks and potential rewards. All figures assume
dividend reinvestment. Past performance does not indicate future results. The
performance figures below do not reflect the deduction of fees and charges
payable under the variable contracts. Such fees and charges would cause the
investment returns under the contracts to be less than that shown below.
Year-by-year total returns -- calendar years
[CHART]
1999 2000 2001 2002 2003
- ------ ----- ----- ------- ------
20.54% 4.63% 0.53% -15.19% 45.15%
Best quarter: up 21.36% second quarter 2003 Worst quarter: down 20.01% fourth
quarter 1998
Average annual total returns -- for periods ending 12/31/2003*
Fund Index 1 Index 2 Index 3**
1 year 45.15% 45.51% 38.07% 45.51%
5 years 9.31% 9.40% 8.73% 9.40%
Life of fund 6.21% 6.40% 6.91% 6.40%
Index 1: Russell 2500(TM) Index
Index 2: Russell Mid Cap(TM) Value Index
Index 3: A composite index combining the performance of the following indices
over the periods indicated: Russell 2500(TM) Index (inception through April
2004) and Russell Mid Cap(TM) Value Index (effective May, 2004)
* Began operations on May 1, 1998.
** John Hancock believes Index 3 is a more suitable index against which to
measure the Fund's performance for the period shown because it more closely
matches the Fund's investment strategy during that period.
32
MAIN RISKS
Primary
Market Risk: The value of the securities in the Fund may go down in response
to overall stock or bond market movements. Markets tend to move in cycles, with
periods of rising prices and periods of falling prices. Stocks tend to go up
and down in value more than bonds. If the Fund's investments are concentrated
in certain sectors, the Fund's performance could be worse than the overall
market.
Manager Risk: The manager and its strategy may fail to produce the intended
results. The Fund could underperform its peers or lose money if the manager's
investment strategy does not perform as expected.
Investment Category Risk: The returns of the Fund's specific equity investment
category may lag the returns of the overall stock market. For example, the
Fund's "value" approach carries the risk that in certain markets "value" stocks
will underperform "growth" stocks. Also, the Fund's "mid cap" approach carries
the risk that in certain markets mid cap stocks will underperform small or
large cap stocks.
Mid Cap Stock Risk: The Fund's investment in mid-sized companies may be
subject to more erratic price movements than investment in larger established
companies.
Concentration Risk: The Fund's investment in securities of a smaller number of
issuers could produce more volatile performance relative to funds that invest
in a larger number of issuers. The more concentrated a fund's holdings are, the
more likely it is a specific security's poor performance will hurt the fund
significantly.
Secondary
Derivatives Risk: Certain derivative instruments (such as options, futures and
swaps) can produce disproportionate gains or losses. They are generally
considered more risky than direct investments. Also, in a down market,
derivatives could become harder to value or sell at a fair price.
Initial Public Offering Risk: The Fund has the ability to invest in initial
public offerings (IPOs) and a significant portion of the Fund's return may at
times be attributable to its investment in IPOs. IPOs could have a substantial
impact on performance, either positive or negative, particularly on a fund with
a small asset base. Also, the Fund's investments in IPOs may be subject to more
erratic price movements than the overall equity market.
- --------------------------------------------------------------------------------
FEES AND EXPENSES OF THE FUND
These tables describe the fees and expenses you may pay if you buy and hold NAV
shares of the Fund and do not reflect the expenses and charges of the
applicable separate accounts and variable contracts. Those expenses and charges
vary considerably from contract to contract and are described in your variable
contract prospectus.
Shareholder Fees (fees paid directly from your investment) None
Annual Fund Operating Expenses (expenses that are deducted from Fund assets, as
a percentage of average net assets for the fiscal year ended December 31, 2003)
Total Annual
Investment Distribution and Fund Net Fund
Management Service Other Operating Expense Operating
Fee (12b-1) Fee Expenses Expenses Reimbursements(1) Expenses
--- ----------- -------- -------- ----------------- --------
1.05% N/A 0.14% 1.19% 0.04% 1.15%
(1) Under its current investment management agreement with the Trust, John
Hancock reimburses the Fund when the Fund's "other fund expenses" exceed
0.10% of the Fund's average daily net assets. The agreement will remain in
effect until May 1, 2005 and may be renewed each year thereafter by the
Trust.
Examples. The Examples are intended to help you compare the cost of investing
in NAV shares of the Fund with the costs of investing in other mutual funds.
The Examples assume that you invest $10,000 directly in the shares for the time
periods indicated, and then redeem all your shares at the end of those periods.
The Examples also assume that your investment has a 5% return each year, the
reinvestment of all dividends and distributions, and that the Fund's operating
expenses remain the same. Although actual Fund costs may be higher or lower,
the Examples show what the Fund costs would be based on these assumptions.
Year 1 Year 3 Year 5 Year 10
$117 $374 $650 $1,440
33
Mid Cap Growth Fund
(formerly "Small/Mid Cap Growth Fund")
GOAL AND STRATEGY
This is a mid cap stock fund with a growth emphasis that seeks long-term
capital appreciation.
The Fund invests primarily in the common stocks of mid-sized U.S. companies
that are believed to offer above-average potential for growth in revenues and
earnings.
The manager selects stocks using a combination of proprietary quantitative and
qualitative equity research. Quantitative screening seeks to identify a group
of high-quality companies with above-average growth characteristics relative to
industry peers. Equity research seeks to identify individual companies from
that group with a higher potential for long term earnings growth and capital
appreciation.
The manager buys companies that seem attractive based on a combination of
criteria, among others:
.. Superior historical earnings growth,
.. Prospects for above-average growth,
.. Attractive valuations,
.. Strong market positions,
.. Favorable new products, and
.. Superior management.
The Fund's sector exposures are broadly diversified but are primarily a result
of stock selection and therefore may vary significantly from its benchmark. The
Fund normally invests in 60 to 110 stocks, and at least 80% of its assets in
mid cap companies. For the purpose of this Fund, "mid cap companies" are those
with market capitalizations that are within the range of capitalization of
companies represented in the Russell Mid Cap(TM) Growth Index or the Russell
Mid Cap(TM) Index. The Fund normally has 10% or less (usually lower) of its
assets in cash and cash equivalents. The Fund may invest in initial public
offerings (IPOs).
The Fund may purchase other types of securities that are not primary investment
vehicles, for example: U.S. dollar denominated foreign securities, certain
Exchange Traded Funds (ETFs), and certain derivatives (investments whose value
is based on indices or other securities).
In abnormal market conditions, the Fund may take temporary defensive
measures--such as holding unusually large amounts of cash and cash
equivalents--that are inconsistent with the Fund's primary investment strategy.
In taking those measures, the Fund may not achieve its investment goal.
- --------------------------------------------------------------------------------
SUBADVISER
Wellington Management Company, LLP
75 State Street
Boston, Massachusetts 02109
Managing, with predecessors, since 1928
Managing Fund since May, 1999
Managed approximately $394 billion in assets at the end of 2003
FUND MANAGERS
Frank J. Boggan, CFA
- ---------------------
Vice President of subadviser
Joined subadviser in 2001
Managing Director of Palladian Capital
Management (1998-2001)
Portfolio Manager at The Pioneer
Group (1991-1998)
PAST PERFORMANCE
The bar chart shows how the performance of the Fund's NAV shares has varied
from year to year, while the table shows performance over time (along with
broad-based market indexes for reference). This information may help provide an
indication of the Fund's risks and potential rewards. All figures assume
dividend reinvestment. Past performance does not indicate future results. The
performance figures below do not reflect the deduction of fees and charges
payable under the variable contracts. Such fees and charges would cause the
investment returns under the contracts to be less than that shown below.
Year-by-year total returns -- calendar years
[CHART]
1995 1996 1997 1998 1999 2000 2001 2002 2003
- ------ ------ ----- ----- ----- ----- ----- ------- -----
35.96% 30.33% 3.44% 5.61% 5.15% 9.25% 2.83% -21.13% 46.87%
Best quarter: up 24.53% second quarter 2003 Worst quarter: down 21.48% third
quarter 1998
Average annual total returns -- for periods ending 12/31/2003*
Fund Index 1 Index 2 Index 3**
1 year 46.87% 46.31% 42.71% 46.31%
5 Years 6.47% 3.83% 2.01% 4.08%
Life of fund 10.68% 8.67% 10.13% 11.28%
Index 1: Russell 2500(TM) Growth Index
Index 2: Russell Mid Cap(TM) Growth Index
Index 3: A composite index combining the performance of the following indices
over the periods indicated: Russell Mid Cap(TM) Growth Index (from inception
through April, 1999), Russell 2500(TM) Growth Index (from May 1999 to May 2004)
and Russell Mid Cap(TM) Growth Index (after May 2004)
* Began operations on May 1, 1994.
** John Hancock believes Index 3 is a more suitable index against which to
measure the fund's performance for the period shown because it more closely
matches the fund's changes in investment strategy during that period.
34
MAIN RISKS
Primary
Market Risk: The value of the securities in the Fund may go down in response
to overall stock or bond market movements. Markets tend to move in cycles, with
periods of rising prices and periods of falling prices. Stocks tend to go up
and down in value more than bonds. If the Fund's investments are concentrated
in certain sectors, the Fund's performance could be worse than the overall
market.
Manager Risk: The manager and its strategy may fail to produce the intended
results. The Fund could underperform its peers or lose money if the manager's
investment strategy does not perform as expected.
Investment Category Risk: The returns of the Fund's specific equity investment
category may lag the returns of the overall stock market. For example, the
Fund's "growth" approach carries the risk that in certain markets "growth"
stocks will underperform "value" stocks. Also, the Fund's "mid cap" approach
carries the risk that in certain markets mid cap stocks will underperform small
cap and large cap stocks.
Mid Cap Stock Risk: The Fund's investment in mid-sized companies may be
subject to more erratic price movements than investment in large established
companies.
Concentration Risk: The Fund's investment in securities of a smaller number of
issuers could produce more volatile performance relative to funds that invest
in a larger number of issuers. The more concentrated a fund's holdings are, the
more likely it is a specific security's poor performance will hurt the fund
significantly.
Turnover Risk: In general, the greater the volume of buying and selling by a
fund (i.e., the higher its "turnover rate"), the greater the impact that
brokerage commissions and other transaction costs will have on the fund's
performance. Any turnover rate in excess of 100% is considered relatively high.
Normally, the Fund's turnover rate is greater than 100%.
Secondary
Derivatives Risk: Certain derivative instruments (such as options, futures and
swaps) can produce disproportionate gains or losses. They are generally
considered more risky than direct investments. Also, in a down market,
derivatives could become harder to value or sell at a fair price.
Initial Public Offering Risk: The Fund has the ability to invest in initial
public offerings (IPOs) and a significant portion of the Fund's return may at
times be attributable to its investment in IPOs. IPOs could have a substantial
impact on performance, either positive or negative, particularly on a fund with
a small asset base. Also, the Fund's investments in IPOs may be subject to more
erratic price movements than the overall equity market.
- --------------------------------------------------------------------------------
FEES AND EXPENSES OF THE FUND
These tables describe the fees and expenses you may pay if you buy and hold NAV
shares of the Fund and do not reflect the expenses and charges of the
applicable separate accounts and variable contracts. Those expenses and charges
vary considerably from contract to contract and are described in your variable
contract prospectus.
Shareholder Fees (fees paid directly from your investment) None
Annual Fund Operating Expenses (expenses that are deducted from Fund assets as
a percentage of average net assets for the fiscal year ended December 31, 2003)
Total Annual
Investment Distribution and Fund Net Fund
Management Service Other Operating Expense Operating
Fee (12b-1) Fee Expenses Expenses Reimbursements Expenses
--- ----------- -------- -------- -------------- --------
0.96% N/A 0.10% 1.06% 0.00% 1.06%
Examples. The Examples are intended to help you compare the cost of investing
in NAV shares of the Fund with the costs of investing in other mutual funds.
The Examples assume that you invest $10,000 directly in the shares for the time
periods indicated, and then redeem all your shares at the end of those periods.
The Examples also assume that your investment has a 5% return each year, the
reinvestment of all dividends and distributions, and that the Fund's operating
expenses remain the same. Although actual Fund costs may be higher or lower,
the Examples show what the Fund costs would be based on these assumptions.
Year 1 Year 3 Year 5 Year 10
$108 $337 $585 $1,294
35
Small Cap Value Fund
GOAL AND STRATEGY
This is a small cap stock fund with a value emphasis that seeks long-term
capital appreciation.
The Fund normally invests at least 80% of its assets in small-cap companies.
For the purpose of this Fund, "small cap companies" are those with market
capitalizations that are within the range of capitalization of companies
represented in the Russell 2000(R) Value Index or the Russell 2000(R) Index.
The Fund invests primarily in a diversified mix of common stocks of small U.S.
companies that are believed to be undervalued by various measures and offer
good prospects for capital appreciation.
The Fund employs a multi-manager approach with two subadvisers, each of which
employs its own investment approach and independently manages its portion of
the Fund. This approach began on November 1, 2002, and, as of year end 2003, T.
Rowe Price managed approximately 61% of the Fund's assets and Wellington
Management managed approximately 39% of the Fund's assets. All subsequent
investments in the Fund will be allocated 25% to the T. Rowe Price portion and
75% to the Wellington Management portion, while redemptions from the Fund will
be allocated on an asset-weighted basis. These allocation methodologies may
change in the future.
T. Rowe Price Associates, Inc. ("T. Rowe Price") employs a value approach in
selecting stocks using proprietary fundamental equity research. The manager
generally looks for companies with:
.. Low price/earnings, price/book or price/cash flow ratios relative to small
cap stocks, the company's peers, or its own historical norm.
.. Low stock price relative to the company's underlying asset values.
.. Above average dividend yield relative to the company's peers or its own
historic norm.
.. A sound balance sheet and other positive financial characteristics.
.. Catalysts with the potential for value realization such as beneficial
management change, restructuring, or industry consolidation.
This portion of the Fund's sector exposures are broadly diversified but are
primarily a result of stock selection and may therefore vary significantly from
its benchmark.
T. Rowe Price normally invests in 75 to 135 stocks.
Wellington Management Company, LLP ("Wellington Management") employs a value
approach in selecting stocks, using proprietary fundamental research to
identify stocks having distinct value characteristics based on
industry-specific valuation criteria. It uses initial quantitative screens to
identify high quality conservatively valued companies with above average rates
of profitability selling at a discount relative to the overall small cap
market. Fundamental research is then used to identify those companies
demonstrating:
.. sustainable competitive advantage;
.. profitability/free cash flow;
.. strong market share position and trend;
.. quality of and share ownership by management; and
.. financial structures that are more conservative than the relevant
industry average.
This portion of the Fund's sector exposures are broadly diversified but are
primarily a result of stock selection and may therefore vary significantly from
its benchmark.
Wellington Management will normally invest its portion in 60 to 100 stocks.
Each portion of the Fund normally has 10% or less (usually lower) of its assets
in cash or cash equivalents. Each portion of the Fund may invest in initial
public offerings (IPOs).
Each portion of the Fund may purchase other types of securities that are not
primary investment vehicles, for example: real estate investment trusts or
other real estate-related equity securities, U.S. dollar denominated foreign
securities, certain Exchange Traded Funds (ETFs), and certain derivatives
(investments whose value is based on indices or other securities).
In abnormal market conditions, each portion of the Fund may take temporary
defensive measures--such as holding unusually large amounts of cash and cash
equivalents--that are inconsistent with the Fund's primary investment strategy.
In taking those measures, the Fund may not achieve its investment goal.
- --------------------------------------------------------------------------------
SUBADVISER
T. Rowe Price Associates, Inc.
100 East Pratt Street
Baltimore, Maryland 21202
Managing since 1937
Managing Fund since January, 2001
Managed approximately $190 billion
in assets at year-end 2003
FUND MANAGERS
Management by Investment
Advisory Committee
Preston G. Athey, CFA, CIC
- ---------------------
Vice President of subadviser
Joined subadviser in 1978
SUBADVISER
Wellington Management Company, LLP
75 State Street
Boston, Massachusetts 02109
Managing, with predecessors, since 1928
Managing Fund since October, 2002
Managed approximately $394 billion
in assets at year-end 2003
FUND MANAGER
Stephen T. O'Brien, CFA
- ---------------------
Vice President of subadviser
Joined subadviser in 1983
36
MAIN RISKS
Primary
Market Risk: The value of the securities in the Fund may go down in response
to overall stock or bond market movements. Markets tend to move in cycles, with
periods of rising prices and periods of falling prices. Stocks tend to go up
and down in value more than bonds. If the Fund's investments are concentrated
in certain sectors, the Fund's performance could be worse than the overall
market.
Manager Risk: The managers and their respective strategies may fail to produce
the intended results. The Fund could underperform its peers or lose money if
the managers' investment strategies do not perform as expected.
Investment Category Risk: The returns of the Fund's specific equity investment
category may lag the returns of the overall stock market. For example, the
Fund's "value" approach carries the risk that in certain markets "value" stocks
will underperform "growth" stocks. Also, the Fund's "small cap" approach
carries the risk that in certain markets small cap stocks will underperform mid
cap and large cap stocks.
Small/Mid Cap Stock Risk: The Fund's investment in smaller or mid-sized
companies may be subject to more erratic price movements than investment in
large established companies.
Secondary
Derivatives Risk: Certain derivative instruments (such as options, futures and
swaps) can produce disproportionate gains or losses. They are generally
considered more risky than direct investments. Also, in a down market,
derivatives could become harder to value or sell at a fair price.
Initial Public Offering Risk: The Fund has the ability to invest in initial
public offerings (IPOs) and a significant portion of the Fund's return may at
times be attributable to its investment in IPOs. IPOs could have a substantial
impact on performance, either positive or negative, particularly on a fund with
a small asset base. Also, the Fund's investments in IPOs may be subject to more
erratic price movements than the overall equity market.
Real Estate Securities Risk: Real estate investment trusts (REITs) or other
real estate-related equity securities may be affected by changes in the value
of the underlying property owned by the trust. Mortgage REITs may be affected
by the quality of any credit extended. Other potential risks include the
possibility of a REIT failing to qualify for tax-free pass-through of income
under the Internal Revenue Code or failing to maintain exemption under the
Investment Company Act of 1940.
- --------------------------------------------------------------------------------
37
Small Cap Value Fund -- continued
PAST PERFORMANCE
The bar chart shows how the performance of the Fund's NAV shares has varied
from year to year, while the table shows performance over time (along with a
broad-based market index for reference). This information may help provide an
indication of the Fund's risks and potential rewards. All figures assume
dividend reinvestment. Past performance does not indicate future results. The
performance figures below do not reflect the deduction of fees and charges
payable under the variable contracts. Such fees and charges would cause the
investment returns under the contracts to be less than that shown below.
Year-by-year total returns -- calendar years
[CHART]
2000 2001 2002 2003
- ------ ------ ------ ------
34.19% 19.10% -6.43% 37.97%
Best quarter: up 18.86% second quarter 2003 Worst quarter: down 17.81% third
quarter 2002
Average annual total returns -- for periods ending 12/31/2003*
Fund Index 1 Index 2**
1 year 37.97% 46.03% 46.03%
Life of fund 19.52% 14.56% 14.47%
Index 1: Russell 2000(R) Value Index
Index 2: A composite index combining the performance of the following indices
over the periods indicated: Russell 2500(R) Value Index (from inception through
December, 2000); and Russell 2000(R) Value Index (after December, 2000).
* Began operations on August 31, 1999.
** John Hancock believes Index 2 is a more suitable index against which to
measure the fund's performance because it more closely matches the fund's
changes in investment strategy since inception.
38
FEES AND EXPENSES OF THE FUND
These tables describe the fees and expenses you may pay if you buy and hold NAV
shares of the Fund and do not reflect the expenses and charges of the
applicable separate accounts and variable contracts. Those expenses and charges
vary considerably from contract to contract and are described in your variable
contract prospectus.
Shareholder Fees (fees paid directly from your investment) None
Annual Fund Operating Expenses (expenses that are deducted from Fund assets, as
a percentage of average net assets for the fiscal year ended December 31, 2003)
Distribution Total Annual
Investment and Fund Net Fund
Management Service Other Operating Expense Operating
Fee (12b-1) Fee Expenses Expenses Reimbursements(1) Expenses
--- ----------- -------- -------- ----------------- --------
0.95% N/A 0.11% 1.06% 0.1% 1.05%
(1) Under its current investment management agreement with the Trust, John
Hancock reimburses the Fund when the Fund's "other fund expenses" exceed
0.10% of the Fund's average daily net assets. The agreement will remain in
effect until May 1, 2005, and may be renewed each year thereafter by the
Trust.
Examples. The Examples are intended to help you compare the cost of investing
in NAV shares of the Fund with the costs of investing in other mutual funds.
The Examples assume that you invest $10,000 directly in the shares for the time
periods indicated, and then redeem all your shares at the end of those periods.
The Examples also assume that your investment has a 5% return each year, the
reinvestment of all dividends and distributions, and that the Fund's operating
expenses remain the same. Although actual Fund costs may be higher or lower,
the Examples show what the Fund costs would be based on these assumptions.
Year 1 Year 3 Year 5 Year 10
$107 $336 $584 $1,293
39
Small Cap Emerging Growth Fund
GOAL AND STRATEGY
This is a small cap stock fund with a growth emphasis that seeks long-term
capital appreciation.
The Fund invests primarily in the common stocks of small U.S. companies that
are believed to offer above-average potential for growth in revenues and
earnings.
The manager selects stocks using a combination of initial quantitative screens
and in-depth proprietary equity research. Quantitative screening seeks to
narrow the list of small capitalization companies and to identify a group of
companies with strong revenue growth and accelerating earnings. Fundamental
equity research seeks to identify individual companies from that group with a
higher potential for earnings growth and capital appreciation.
The manager looks for companies based on a combination of criteria including:
.. Above average and sustainable revenue growth;
.. Improving market share and strong financial trends;
.. Superior management with significant equity ownership; and
.. Attractive valuation relative to its earnings growth outlook.
The Fund is likely to experience periods of high turnover in portfolio
securities because the manager frequently adjusts the selection of companies
and/or their position size based on these criteria. The Fund's sector exposures
are broadly diversified but are primarily a result of stock selection and
therefore may vary significantly from the benchmark.
The Fund normally invests in 50 to 120 stocks, and at least 80% of its assets
in small cap companies. For the purpose of this Fund, "small cap companies" are
those with market capitalizations that are within the range of capitalization
of companies represented in the Russell 2000(R) Growth Index on the Russell
2000(R) Index. The Fund normally has 10% or less (usually lower) of its assets
in cash and cash equivalents. The Fund may invest in initial public offerings
(IPOs).
The Fund may purchase other types of securities that are not primary investment
vehicles, for example: U.S. dollar denominated foreign securities, certain
Exchange Traded Funds (ETFs), and certain derivatives (investments whose value
is based on indices or other securities).
In abnormal market conditions, the Fund may take temporary defensive
measures--such as holding unusually large amounts of cash and cash
equivalents--that are inconsistent with the Fund's primary investment strategy.
In taking those measures, the Fund may not achieve its investment goal.
- --------------------------------------------------------------------------------
SUBADVISER
Wellington Management Company, LLP
75 State Street
Boston, Massachusetts 02109
Managing, with predecessor, since 1928
Managing Fund since May, 2003
Managed approximately $394 billion
in assets at year-end 2003
FUND MANAGER
Steven C. Angeli, CFA
- ---------------------
Senior Vice President of subadviser
Joined subadviser in 1994
PAST PERFORMANCE
The bar chart shows how the performance of the Fund's NAV shares has varied
from year to year, while the table shows performance over time (along with a
broad-based market index for reference). This information may help provide an
indication of the Fund's risks and potential rewards. All figures assume
dividend reinvestment. Past performance does not indicate future results. The
performance figures below do not reflect the deduction of fees and charges
payable under the variable contracts. Such fees and charges would cause the
investment returns under the contracts to be less than that shown below.
Year-by-year total returns -- calendar years
[CHART]
1997 1998 1999 2000 2001 2002 2003
- ------ ------ ------ ------ ------ ------- ------
25.57% -5.96% -3.43% -8.89% -3.78% -28.21% 48.83%
Best quarter: up
26.90% fourth quarter 2001 Worst quarter: down 27.11% third quarter 2001
Average annual total returns -- for periods ending 12/31/2003*
Fund Index 1 Index 2 Index 3**
1 year 48.83% 48.54% 47.25% 47.62%
5 years -1.99% 0.86% 7.13% 5.51%
Life of fund 2.17% 2.02% 7.74% 8.16%
Index 1: Russell 2000(R) Growth Index
Index 2: Russell 2000(R) Index
Index 3: A composite index combining the performance of the following indices
over the periods indicated: Russell 2000(R) Value Index (from inception through
October, 2000); Russell 2000(R) Index (November, 2000 through April, 2003); and
Russell 2000(R) Growth Index (effective May, 2003)
* Began operations on May 1, 1996.
** John Hancock believes Index 3 is a more suitable index against which to
measure the fund's performance because it more closely matches the fund's
changes in investment strategy since inception.
40
MAIN RISKS
Primary
Market Risk: The value of the securities in the Fund may go down in response
to overall stock or bond market movements. Markets tend to move in cycles, with
periods of rising prices and periods of falling prices. Stocks tend to go up
and down in value more than bonds. If the Fund's investments are concentrated
in certain sectors, the Fund's performance could be worse than the overall
market.
Manager Risk: The manager and its strategy may fail to produce the intended
results. The Fund could underperform its peers or lose money if the manager's
investment strategy does not perform as expected.
Investment Category Risk: The returns of the Fund's specific equity investment
category may lag the returns of the overall stock market. For example, the
Fund's "growth" approach carries the risk that in certain markets "growth"
stocks will underperform "value" stocks. Also, the Fund's "small cap" approach
carries the risk that in certain markets small cap stocks will underperform mid
cap and large cap stocks.
Small Cap Stock Risk: The Fund's investment in smaller sized companies may be
subject to more erratic price movements than investment in large established
companies.
Concentration Risk: The Fund's investment in securities of a smaller number of
issuers could produce more volatile performance relative to funds that invest
in a larger number of issuers. The more concentrated a fund's holdings are, the
more likely it is a specific security's poor performance will hurt the fund
significantly.
Turnover Risk: In general, the greater the volume of buying and selling by a
fund (i.e., the higher its "turnover rate"), the greater the impact that
brokerage commissions and other transaction costs will have on the fund's
performance. Any turnover in excess of 100% is considered relatively high.
Normally, the Fund's turnover rate will be greater than 100%.
Secondary
Derivatives Risk: Certain derivative instruments (such as options, futures and
swaps) can produce disproportionate gains or losses. They are generally
considered more risky than direct investments. Also, in a down market,
derivatives could become harder to value or sell at a fair price.
Foreign Risk: The Fund's foreign securities will pose special risks, due to
limited government regulation, lack of public information, economic, political
and social instability and foreign currency rate fluctuations. Factors such as
lack of liquidity, foreign ownership limits and restrictions on removing
currency also pose special risks. All foreign securities have some degree of
foreign risk. However, to the extent the Fund invests in emerging market
countries, it will have a significantly higher degree of foreign risk than if
it invested exclusively in developed or newly-industrialized countries.
Initial Public Offering Risk: The Fund has the ability to invest in initial
public offerings (IPOs) and a significant portion of the Fund's return may at
times be attributable to its investment in IPOs. IPOs could have a substantial
impact on performance, either positive or negative, particularly on a fund with
a small asset base. Also, the Fund's investments in IPOs may be subject to more
erratic price movements than the overall equity market.
- --------------------------------------------------------------------------------
FEES AND EXPENSES OF THE FUND
These tables describe the fees and expenses you may pay if you buy and hold NAV
shares of the Fund and do not reflect the expenses and charges of the
applicable separate accounts and variable contracts. Those expenses and charges
vary considerably from contract to contract and are described in your variable
contract prospectus.
Shareholder Fees (fees paid directly from your investment) None
Annual Fund Operating Expenses (expenses that are deducted from Fund assets, as
a percentage of average net assets for the fiscal year ended December 31, 2003)
Distribution Total Annual
Investment and Fund Net Fund
Management Service Other Operating Expense Operating
Fee (12b-1) Fee Expenses Expenses Reimbursements(1) Expenses
--- ----------- -------- -------- ----------------- --------
1.01% N/A 0.20% 1.21% 0.10% 1.11%
(1) Under its current investment management agreement with the Trust, John
Hancock reimburses the Fund when the Fund's "other fund expenses" exceed
0.10% of the Fund's average daily net assets. The agreement will remain in
effect until May 1, 2005, and may be renewed each year thereafter by the
Trust.
Examples. The Examples are intended to help you compare the cost of investing
in NAV shares of the Fund with the costs of investing in other mutual funds.
The Examples assume that you invest $10,000 directly in the shares for the time
periods indicated, and then redeem all your shares at the end of those periods.
The Examples also assume that your investment has a 5% return each year, the
reinvestment of all dividends and distributions, and that the Fund's operating
expenses remain the same. Although actual Fund costs may be higher or lower,
the Examples show what the Fund costs would be based on these assumptions.
Year 1 Year 3 Year 5 Year 10
$113 $374 $655 $1,457
41
Small Cap Growth Fund
GOAL AND STRATEGY
This is a small cap stock fund with a growth emphasis that seeks long-term
capital appreciation.
The Fund invests primarily in the common stocks of small U.S. companies that
are believed to offer above-average potential for growth in revenues and
earnings.
The manager selects stocks using a combination of initial quantitative screens
and in-depth proprietary equity research. Quantitative screening seeks to
narrow the list of small capitalization companies and to identify a group of
companies with strong revenue growth and accelerating earnings. Fundamental
equity research seeks to identify individual companies from that group with a
higher potential for earnings growth and capital appreciation.
The manager looks for companies based on a combination of criteria including:
.. Above average and sustainable revenue growth;
.. Improving market share and strong financial trends;
.. Superior management with significant equity ownership; and
.. Attractive valuation relative to its earnings growth outlook.
The Fund is likely to experience periods of high turnover in portfolio
securities because the manager frequently adjusts the selection of companies
and/or their position size based on these criteria. The Fund's sector exposures
are broadly diversified but are primarily a result of stock selection and
therefore may vary significantly from the benchmark.
The Fund normally invests in 50 to 120 stocks, and at least 80% of its assets
in small cap companies. For the purpose of this Fund, "small cap companies" are
those with market capitalizations that are within the
range of capitalization of companies represented in the Russell 2000(R) Growth
Index or the Russell 2000(R) Index. The Fund normally has 10% or less (usually
lower) of its assets in cash and cash equivalents. The Fund may invest in
initial public offerings (IPOs).
The Fund may purchase other types of securities that are not primary investment
vehicles, for example: U.S. dollar denominated foreign securities, certain
Exchange Traded Funds (ETFs), and certain derivatives (investments whose value
is based on indices or other securities).
In abnormal market conditions, the Fund may take temporary defensive
measures--such as holding unusually large amounts of cash and cash
equivalents--that are inconsistent with the Fund's primary investment strategy.
In taking those measures, the Fund may not achieve its investment goal.
- --------------------------------------------------------------------------------
SUBADVISER
Wellington Management Company, LLP
75 State Street
Boston, Massachusetts 02109
Managing, with predecessors, since 1928
Managing Fund since May, 2004
Managed approximately $394 billion in assets at the end of 2003
Past Performance information set forth herein does not reflect Wellington
Management Company, LLP services to the Fund.
FUND MANAGER
Steven C. Angeli, CFA
- ---------------------
Senior Vice President of subadviser Joined subadviser in 1994
PAST PERFORMANCE
The bar chart shows how the performance of the Fund's NAV shares has varied
from year to year, while the table shows performance over time (along with a
broad-based market index for reference). This information may help provide an
indication of the Fund's risks and potential rewards. All figures assume
dividend reinvestment. Past performance does not indicate future results. The
performance figures below do not reflect the deduction of fees and charges
payable under the variable contracts. Such fees and charges would cause the
investment returns under the contracts to be less than that shown below.
Year-by-year total returns -- calendar years
[CHART]
1997 1998 1999 2000 2001 2002 2003
- ------ ------ ------ ------- ------- ------- ------
14.26% 14.49% 70.38% -21.43% -12.61% -29.95% 27.88%
Best quarter: up 45.57% fourth quarter 1999 Worst quarter: down 26.28% third
quarter 2001
Average annual total returns -- for periods ending 12/31/2003*
Fund Index
1 year 27.88% 48.54%
5 years 0.94% 0.86%
Life of fund 4.13% 2.02%
Index: Russell 2000(R) Growth Index
* Began operations on May 1, 1996.
42
MAIN RISKS
Primary
Market Risk: The value of the securities in the Fund may go down in response
to overall stock or bond market movements. Markets tend to move in cycles, with
periods of rising prices and periods of falling prices. Stocks tend to go up
and down in value more than bonds. If the Fund's investments are concentrated
in certain sectors, the Fund's performance could be worse than the overall
market.
Manager Risk: The manager and its strategy may fail to produce the intended
results. The Fund could underperform its peers or lose money if the manager's
investment strategy does not perform as expected.
Investment Category Risk: The returns of the Fund's specific equity investment
category may lag the returns of the overall stock market. For example, the
Fund's "growth" approach carries the risk that in certain markets "growth"
stocks will underperform "value" stocks. Also, the Fund's "small cap" approach
carries the risk that in certain markets small cap stocks will underperform mid
cap and large cap stocks.
Small Cap Stock Risk: The Fund's investment in smaller companies may be
subject to more erratic price movements than investment in larger established
companies.
Concentration Risk: The Fund's investment in securities of a smaller number of
issuers could produce more volatile performance relative to funds that invest
in a larger number of issuers. The more concentrated a fund's holdings are, the
more likely it is a specific security's poor performance will hurt the fund
significantly.
Turnover Risk: In general, the greater the volume of buying and selling by a
fund (i.e., the higher its "turnover rate"), the greater the impact that
brokerage commissions and other transaction costs will have on the fund's
performance. Any turnover rate in excess of 100% is considered relatively high.
Normally, the Fund's turnover rate will be greater than 100%.
Secondary
Derivatives Risk: Certain derivative instruments (such as options, futures and
swaps) can produce disproportionate gains or losses. They are generally
considered more risky than direct investments. Also, in a down market,
derivatives could become harder to value or sell at a fair price.
Foreign Risk: The Fund's foreign securities will pose special risks, due to
limited government regulation, lack of public information, economic, political
and social instability and foreign currency rate fluctuations. Factors such as
lack of liquidity, foreign ownership limits and restrictions on removing
currency also pose special risks.
Initial Public Offering Risk: The Fund has the ability to invest in initial
public offerings (IPOs) and a significant portion of the Fund's return may at
times be attributable to its investment in IPOs. IPOs could have a substantial
impact on performance, either positive or negative, particularly on a fund with
a small asset base. Also, the Fund's investments in IPOs may be subject to more
erratic price movements than the overall equity market.
- --------------------------------------------------------------------------------
FEES AND EXPENSES OF THE FUND
These tables describe the fees and expenses you may pay if you buy and hold NAV
shares of the Fund and do not reflect the expenses and charges of the
applicable separate accounts and variable contracts. Those expenses and charges
vary considerably from contract to contract and are described in your variable
contract prospectus.
Shareholder Fees (fees paid directly from your investment) None
Annual Fund Operating Expenses (expenses that are deducted from Fund assets, as
a percentage of average net assets for the fiscal year ended December 31, 2003)
Distribution Total Annual
Investment and Fund Net Fund
Management Service Other Operating Expense Operating
Fee (12b-1) Fee Expenses Expenses Reimbursements(1) Expenses
--- ----------- -------- -------- ----------------- --------
1.05% N/A 0.17% 1.22% 0.07% 1.15%
(1) Under its current investment management agreement with the Trust, John
Hancock reimburses the Fund when the Fund's "other fund expenses" exceed
0.10% of the Fund's average daily net assets. The agreement will remain in
effect until May 1, 2005, and may be renewed each year thereafter by the
Trust.
Examples. The Examples are intended to help you compare the cost of investing
in NAV shares of the Fund with the costs of investing in other mutual funds.
The Examples assume that you invest $10,000 directly in the shares for the time
periods indicated, and then redeem all your shares at the end of those periods.
The Examples also assume that your investment has a 5% return each year, the
reinvestment of all dividends and distributions, and that the Fund's operating
expenses remain the same. Although actual Fund costs may be higher or lower,
the Examples show what the Fund costs would be based on these assumptions.
Year 1 Year 3 Year 5 Year 10
$117 $380 $664 $1,471
43
International Equity Index Fund
GOAL AND STRATEGY
This is an international stock fund that seeks to track the performance of a
broad-based equity index of foreign companies primarily in developed countries
and, to a lesser extent, in emerging market countries.
The Fund seeks to invest more than 80% of its assets in securities included in
the Morgan Stanley Capital International All Country World Excluding U.S.
("MSCI ACW ex-US") Index. The MSCI ACW ex-US Index is a well known
international stock market index that, as of December 31, 2003, included
approximately 1,700 securities listed on the stock exchanges of 48 developed
and emerging market countries (but not the United States).
The manager employs a passive management strategy by normally investing in all
stocks included in the MSCI ACW ex-US Index. The manager normally invests in
each stock in roughly the same proportion as represented in the Index. The
manager seeks to replicate as closely as possible the aggregate risk
characteristics and country diversification of the Index. The Index composition
changes from time to time. The manager will reflect those changes as soon as
practical.
The Fund is normally fully invested. The manager may invest in stock index
futures to maintain market exposure and manage cash flow. Although the Fund may
employ foreign currency hedging techniques, the Fund normally maintains the
currency exposure of the underlying equity investments.
The Fund may purchase other types of securities that are not primary investment
vehicles, for example: American Depositary Receipts (ADRs), Global Depositary
Receipts (GDRs), European Depositary Receipts (EDRs), certain Exchange Traded
Funds (ETFs), cash equivalents, and certain derivatives (investments whose
value is based on indices or other securities). As an example of how
derivatives may be used, the Fund may invest in stock index futures to manage
cash flow.
In abnormal market conditions, the Fund may take temporary defensive
measures--such as holding unusually large amounts of cash and cash
equivalents--that are inconsistent with the Fund's primary investment strategy.
In taking those measures, the Fund may not achieve its investment goal.
- --------------------------------------------------------------------------------
SUBADVISER
SSgA Funds Management, Inc.
One Lincoln Street
Boston, Massachusetts 02111-2900
Managing, with predecessor, since 1978
Managing Fund since March, 2004
Managed approximately $92 billion
in assets at year-end 2003
Past Performance information set forth
herein does not reflect SSgA Funds Management, Inc. services to the Fund.
FUND MANAGERS
Managed by investment team overseen by:
James Francis, CFA
- ---------------------
Principal of subadviser
Joined subadviser in 1987
Jeffrey Beach
- ---------------------
Principal of subadviser
Joined subadviser in 1986
Note: "MSCI" and "MSCI All Country World ex-US Index" are the exclusive
property of Morgan Stanley & Co., Incorporated and are registered service marks
of Morgan Stanley Capital International.
PAST PERFORMANCE
The bar chart shows how the performance of the Fund's NAV shares has varied
from year to year, while the table shows performance over time (along with a
broad-based market index for reference). This information may help provide an
indication of the Fund's risks and potential rewards. All figures assume
dividend reinvestment. Past performance does not indicate future results. The
performance figures below do not reflect the deduction of fees and charges
payable under the variable contracts. Such fees and charges would cause the
investment returns under the contracts to be less than that shown below.
Year-by-year total returns -- calendar years
[CHART]
1994 1995 1996 1997 1998 1999 2000 2001 2002 2003
- ------ ----- ----- ------ ------ ------ ------- ------- ------- ------
- -6.25% 8.01% 9.19% -5.03% 20.82% 30.87% -17.42% -20.30% -15.18% 41.99%
Best quarter: up 20.91% fourth quarter 1998 Worst quarter: down 20.18% third
quarter 2002
Average annual total returns -- for periods ending 12/31/2003
Fund Index 1 Index 2 Index 3*
1 year 41.99% 41.41% 43.61% 44.58%
5 years 0.74% 1.55% 1.04% 1.43%
10 years 2.80% 4.66% 6.37% 5.65%
Index 1: MSCI ACW ex US Index
Index 2: MSCI EAFE GDP Index
Index 3: A composite index combining the performance of the following indices
over the periods indicated: MSCI EAFE Index (from January, 1994 through April,
1998); MSCI EAFE GDP Index (from May, 1998 through June, 1999); 90% MSCI EAFE
GDP Index/10% MSCI Emerging Markets Free Index (from July, 1999 through
October, 2003); MSCI ACW ex US (after November, 2003)
* John Hancock believes Index 3 is a more suitable index against which to
measure the fund's performance for the period shown because it more closely
matches the fund's changes in investment strategy during that period.
44
MAIN RISKS
Primary
Foreign Risk: The Fund's foreign securities will pose special risks, due to
limited government regulation, lack of public information, economic, political
and social instability and foreign currency rate fluctuations. Factors such as
lack of liquidity, foreign ownership limits and restrictions on removing
currency also pose special risks. All foreign securities have some degree of
foreign risk. However, to the extent the Fund invests in emerging market
countries, it will have a significantly higher degree of foreign risk than if
it invested exclusively in developed or newly-industrialized countries.
Index Management Risk: Certain factors such as the following may cause the
Fund to track the Indexes less closely:
.. The securities selected by the manager may not be fully representative of the
Indexes.
.. Transaction expenses of the Fund may result in the Fund's performance being
different than that of the Indexes.
.. The size and timing of the Fund's cash flows may result in the Fund's
performance being different than that of the Indexes.
Also, index funds like this one will have more difficulty in taking defensive
positions in abnormal market conditions.
Market Risk: The value of the securities in the Fund may go down in response
to overall stock or bond market movements. Markets tend to move in cycles, with
periods of rising prices and periods of falling prices.
Stocks tend to go up and down in value more than bonds. If the Fund's
investments are concentrated in certain sectors, the Fund's performance could
be worse than the overall market.
Manager Risk: The manager and its strategy may fail to produce the intended
results. The Fund could underperform its peers or lose money if the manager's
investment strategy does not perform as expected.
Secondary
Derivatives Risk: Certain derivative instruments (such as options, futures and
swaps) can produce disproportionate gains or losses. They are generally
considered more risky than direct investments. Also, in a down market,
derivatives could become harder to value or sell at a fair price.
- --------------------------------------------------------------------------------
FEES AND EXPENSES OF THE FUND
These tables describe the fees and expenses you may pay if you buy and hold NAV
shares of the Fund and do not reflect the expenses and charges of the
applicable separate accounts and variable contracts. Those expenses and charges
vary considerably from contract to contract and are described in your variable
contract prospectus.
Shareholder Fees (fees paid directly from your investment) None
Annual Fund Operating Expenses (expenses that are deducted from Fund assets, as
a percentage of average net assets for the fiscal year ended December 31, 2003)
Distribution Total Annual
Investment and Fund Net Fund
Management Service Other Operating Expense Operating
Fee (12b-1) Fee Expenses Expenses Reimbursements(1) Expenses
--- ----------- -------- -------- ----------------- --------
0.17% N/A 0.05% 0.22% 0.00% 0.22%
(1) Amounts shown (a) reflect discontinuance of John Hancock's agreement to
reimburse the Fund for "other fund expenses" in 2003 that exceeded 0.10%
per annum of the Fund's average daily net assets and (b) the custodian's
agreement, effective April 1, 2004, to reduce its fees for this Fund.
Examples. The Examples are intended to help you compare the cost of investing
in NAV shares of the Fund with the costs of investing in other mutual funds.
The Examples assume that you invest $10,000 directly in the shares for the time
periods indicated, and then redeem all your shares at the end of those periods.
The Examples also assume that your investment has a 5% return each year, the
reinvestment of all dividends and distributions, and that the Fund's operating
expenses remain the same. Although actual Fund costs may be higher or lower,
the Examples show what the Fund costs would be based on these assumptions.
Year 1 Year 3 Year 5 Year 10
$23 $71 $124 $280
45
Overseas Equity Fund
GOAL AND STRATEGY
This is an international stock fund that seeks long-term capital appreciation.
The Fund normally invests at least 80% of its assets in equity securities of
companies outside the U.S., in a diversified mix of large established and
medium-sized foreign companies located primarily in developed countries and in
emerging markets to a lesser extent.
The manager selects stocks using proprietary fundamental research to identify
companies that are believed to be:
.. Undervalued (i.e., with current stock price below long-term value); and
.. Asset rich with strong balance sheets and able to generate internal cash
flows to meet capital needs.
The manager employs a research intensive approach using extensive field
research and direct company contact to determine the fundamental value of a
company. A company's future prospects are determined from analyzing a company's
management, financial strength, products, markets, competitors, and future
earnings and dividends.
The Fund is managed using a multiple portfolio manager system in which the Fund
is divided into segments that are each managed by individual portfolio managers
and/or research analysts. The Fund is normally broadly diversified since its
exposures reflect the aggregate decisions of the multiple portfolio managers
and research analysts managing the Fund.
The Fund's country and regional exposures are primarily a result of stock
selection and therefore may vary significantly from the benchmark.
The Fund invests in at least 3 different countries other than the U.S., but
normally invests in 15 to 50 countries.
The Fund will invest no more than 15% of its assets in emerging market stocks.
The Fund normally invests in 150 to 300 stocks and normally has 10% or less
(usually lower) of its assets in cash and cash equivalents. The Fund may invest
in initial public offerings (IPOs).
The manager may use derivatives, such as futures and forwards, to implement
foreign currency management strategies. Currency management strategies are
primarily used for hedging purposes and to protect against anticipated changes
in foreign currency exchange rates.
The Fund also may purchase other types of securities that are not primary
investment vehicles, for example: American Depositary Receipts (ADRs), Global
Depositary Receipts (GDRs), European Depositary Receipts (EDRs), certain
Exchange Traded Funds (ETFs), and certain derivatives (investments whose value
is based on indices or other securities).
In abnormal market conditions, the Fund may take temporary defensive
measures--such as holding unusually large amounts of cash and cash
equivalents--that are inconsistent with the Fund's primary investment strategy.
In taking those measures, the Fund may not achieve its investment goal.
- --------------------------------------------------------------------------------
SUBADVISER
Capital Guardian Trust Company
333 South Hope Street
Los Angeles, California 90071
Managing since 1968
Managing Fund since November, 2000
Managed approximately $146 billion in assets at year-end 2003
FUND MANAGERS
Team managed by:
9 Portfolio Managers
- ---------------------
Average 22 years with Capital Guardian
Average 25 years industry experience
Equity Research Team
- ---------------------
32 research analysts
Average 9 years with Capital Guardian
Average 13 years industry experience
See Appendix A for more details.
PAST PERFORMANCE
The bar chart shows how the performance of the Fund's NAV shares has varied
from year to year under a different subadviser, while the table shows
performance over time (along with broad-based market indexes for reference).
This information may help provide an indication of the Fund's risks and
potential rewards. All figures assume dividend reinvestment. Past performance
does not indicate future results. The performance figures below do not reflect
the deduction of fees and charges payable under the variable contracts. Such
fees and charges would cause the investment returns under the contracts to be
less than that shown below.
Year-by-year total returns -- calendar years
[CHART]
1997 1998 1999 2000 2001 2002 2003
----- ------ ----- ------ ------ ------ ------
2.65% 17.99% 5.11% -9.08% -6.45% -6.32% 39.85%
Best quarter: up 15.11% fourth quarter 2003 Worst quarter: down 11.97% third
quarter 2002
Average annual total returns -- for periods ending 12/31/2003*
Fund Index 1 Index 2 Index 3**
1 year 39.85% 39.17% 33.76% 43.28%
5 Years 3.21% 0.26% -0.39% 5.20%
Life of fund 5.55% 2.94% 5.62% 6.21%
Index 1: MSCI EAFE Index
Index 2: Citigroup World Index
Index 3: A composite index combining the performance of the following indices
over the periods indicated: 65% MSCI World Index Ex US/35%
Citigroup Non-US Government Bond Index, Unhedged (from inception
through April, 2000); 60% MSCI World Index/40% Citigroup World
Government Bond Index, Unhedged (from May, 2000 through April,
2003); and MSCI EAFE Index (after April, 2003).
* Began operations on May 1, 1996.
** John Hancock believes Index 3 is a more suitable index against which to
measure the fund's performance because it more closely matches the fund's
changes in investment strategy since inception.
46
MAIN RISKS
Primary
Foreign Risk: The Fund's foreign securities will pose special risks, due to
limited government regulation, lack of public information, economic, political
and social instability and foreign currency rate fluctuations. Factors such as
lack of liquidity, foreign ownership limits and restrictions on removing
currency also pose special risks. All foreign securities have some degree of
foreign risk. However, to the extent the Fund invests in emerging market
countries, it will have a significantly higher degree of foreign risk than if
it invested exclusively in developed or newly-industrialized countries.
Market Risk: The value of the securities in the Fund may go down in response
to over all stock or bond market movements. Markets tend to move in cycles,
with periods of rising prices and periods of falling prices. Stocks tend to go
up and down in value more than bonds. If the Fund's investments are
concentrated in certain sectors, the Fund's performance could be worse than the
overall market.
Manager Risk: The manager and its strategy may fail to produce the intended
results. The Fund could underperform its peers or lose money if the manager's
investment strategy does not perform as expected.
Investment Category Risk: The returns of the Fund's specific equity investment
category may lag the returns of the overall stock market. For example, the
Fund's "large/mid cap" approach carries the risk that in certain markets
large/mid cap stocks will underperform small cap stocks.
Secondary
Derivatives Risk: Certain derivative instruments (such as options, futures and
swaps) can produce disproportionate gains or losses. They are generally
considered more risky than direct investments. Also, in a down market,
derivatives could become harder to value or sell at a fair price.
Initial Public Offering Risk: The Fund has the ability to invest in initial
public offerings (IPOs) and a significant portion of the Fund's return may at
times be attributable to its investment in IPOs. IPOs could have a substantial
impact on performance, either positive or negative, particularly on a fund with
a small asset base. Also, the Fund's investments in IPOs may be subject to more
erratic price movements than the overall equity market.
- --------------------------------------------------------------------------------
FEES AND EXPENSES OF THE FUND
These tables describe the fees and expenses you may pay if you buy and hold NAV
shares of the Fund and do not reflect the expenses and charges of the
applicable separate accounts and variable contracts. Those expenses and charges
vary considerably from contract to contract and are described in your variable
contract prospectus.
Shareholder Fees (fees paid directly from your investment) None
Annual Fund Operating Expenses (expenses that are deducted from Fund assets, as
a percentage of average net assets for the fiscal year ended December 31, 2003)
Distribution Total Annual
Investment and Fund Net Fund
Management(1) Service Other Operating Expense Operating
Fee (12b-1) Fee Expenses Expenses Reimbursements(1) Expenses
--- ----------- -------- -------- ----------------- --------
1.23% N/A 0.34% 1.57% 0.00% 1.57%
(1) Amounts shown reflect (a) the discontinuance of John Hancock's agreement to
reimburse the Fund for "other fund expenses" in 2003 that exceeded 0.10%
per Annum of the Fund's average daily net assets and (b) percentages which
are calculated as if the current management fee schedules, which apply to
this Fund, effective May 1, 2004, were in effect for all of 2003.
Examples. The Examples are intended to help you compare the cost of investing
in NAV shares of the Fund with the costs of investing in other mutual funds.
The Examples assume that you invest $10,000 directly in the shares for the time
periods indicated, and then redeem all your shares at the end of those periods.
The Examples also assume that your investment has a 5% return each year, the
reinvestment of all dividends and distributions, and that the Fund's operating
expenses remain the same. Although actual Fund costs may be higher or lower,
the Examples show what the Fund costs would be based on these assumptions.
Year 1 Year 3 Year 5 Year 10
$160 $496 $855 $1,867
47
Overseas Equity B Fund
(formerly "International Opportunities Fund")
GOAL AND STRATEGY
This is an international stock fund that seeks long-term capital appreciation.
The Fund normally invests at least 80% of its assets in equity securities of
companies outside the U.S., in a diversified mix of large established and
medium-sized foreign companies located primarily in developed countries and in
emerging markets to a lesser extent.
The manager selects stocks using proprietary fundamental research to identify
companies that are believed to be:
.. Undervalued (i.e., with current stock price below long-term value); and
.. Asset rich with strong balance sheets and able to generate internal cash
flows to meet capital needs.
The manager employs a research intensive approach using extensive field
research and direct company contact to determine the fundamental value of a
company. A company's future prospects are determined from analyzing a company's
management, financial strength, products, markets, competitors, and future
earnings and dividends.
The Fund is managed using a multiple portfolio manager system in which the Fund
is divided into segments that are each managed by individual portfolio managers
and/or research analysts. The Fund is normally broadly diversified since its
exposures reflect the aggregate decisions of the multiple portfolio managers
and research analysts managing the Fund.
The Fund's country and regional exposures are primarily a result of stock
selection and therefore may vary significantly from the benchmark.
The Fund invests in at least 3 different countries other than the U.S., but
normally invests in 15 to 50 countries.
The Fund will invest no more than 15% of its assets in emerging market stocks.
The Fund normally invests in 150 to 300 stocks and normally has 10% or less
(usually lower) of its assets in cash and cash equivalents. The Fund may invest
in initial public offerings (IPOs).
The manager may use derivatives, such as futures and forwards, to implement
foreign currency management strategies. Currency management strategies are
primarily used for hedging purposes and to protect against anticipated changes
in foreign currency exchange rates.
The Fund also may purchase other types of securities that are not primary
investment vehicles, for example: American Depositary Receipts (ADRs), Global
Depositary Receipts (GDRs), European Depositary Receipts (EDRs), certain
Exchange Traded Funds (ETFs), and certain derivatives (investments whose value
is based on indices or other securities).
In abnormal market conditions, the Fund may take temporary defensive
measures--such as holding unusually large amounts of cash and cash
equivalents--that are inconsistent with the Fund's primary investment strategy.
In taking those measures, the Fund may not achieve its investment goal.
- --------------------------------------------------------------------------------
SUBADVISER
Capital Guardian Trust Company
333 South Hope Street
Los Angeles, California 90071
Managing since 1968
Managing Fund since May, 2004
Managed approximately $146 billion
in assets at year-end 2003
Past Performance information set forth
herein does not reflect Capital Guardian Trust Company ("Capital Guardian")
services to the Fund.
FUND MANAGERS
Team managed by:
9 Portfolio Managers
- ---------------------
Average 22 years with Capital Guardian
Average 25 years industry experience
Equity Research Team
- ---------------------
32 research analysts
Average 8 years with Capital Guardian
Average 13 years industry experience
See Appendix A for more details.
PAST PERFORMANCE
The bar chart shows how the performance of the Fund's NAV shares has varied
from year to year, while the table shows performance over time (along with
broad-based market indexes for reference). This information may help provide an
indication of the Fund's risks and potential rewards. All figures assume
dividend reinvestment. Past performance does not indicate future results. The
performance figures below do not reflect the deduction of fees and charges
payable under the variable contracts. Such fees and charges would cause the
investment returns under the contracts to be less than that shown below.
Year-by-year total returns -- calendar years
[CHART]
1997 1998 1999 2000 2001 2002 2003
- ----- ------ ------ ------- ------- ------- ------
1.95% 15.92% 34.01% -16.36% -20.93% -18.22% 32.36%
Best quarter: up 24.44% fourth quarter 1999 Worst quarter: down 22.07% third
quarter 2002
Average annual total returns -- for periods ending 12/31/2003*
Fund Index 1 Index 2 Index 3**
1 year 32.36% 41.41% 39.17% 41.41%
5 years -0.83% 1.55% 0.26% 1.55%
Life of fund 2.51% 3.11% 2.94% 3.11%
Index 1: MSCI All Country World ex-U.S. Index
Index 2: MSCI EAFE Index (after April, 2004)
Index 3: A composite index combining the performance of the following indices
over the periods indicated: MSCI All Country World ex-US (from inception
through April 2004); MSCI EAFE (after April, 2004)
* Began operations on May 1, 1996.
** John Hancock believes Index 3 is a more suitable index against which to
measure the Fund's performance because it more closely matches the Fund's
investment strategy.
48
MAIN RISKS
Primary
Foreign Risk: The Fund's foreign securities will pose special risks, due to
limited government regulation, lack of public information, economic, political
and social instability and foreign currency rate fluctuations. Factors such as
lack of liquidity, foreign ownership limits and restrictions on removing
currency also pose special risks. All foreign securities have some degree of
foreign risk. However, to the extent the Fund invests in emerging market
countries, it will have a significantly higher degree of foreign risk than if
it invested exclusively in developed or newly-industrialized countries.
Market Risk: The value of the securities in the Fund may go down in response
to over- all stock or bond market movements. Markets tend to move in cycles,
with periods of rising prices and periods of falling prices. Stocks tend to go
up and down in value more than bonds. If the Fund's investments are
concentrated in certain sectors, the Fund's performance could be worse than the
overall market.
Manager Risk: The manager and its strategy may fail to produce the intended
results. The Fund could underperform its peers or lose money if the manager's
investment strategy does not perform as expected.
Investment Category Risk: The returns of the Fund's specific equity investment
category may lag the returns of the overall stock market. For example, the
Fund's "large/mid cap" approach carries the risk that in certain markets
large/mid cap stocks will underperform small cap stocks.
Secondary
Derivatives Risk: Certain derivative instruments (such as options, futures and
swaps) can produce disproportionate gains or losses. They are generally
considered more risky than direct investments. Also, in a down market,
derivatives could become harder to value or sell at a fair price.
Initial Public Offering Risk: The Fund has the ability to invest in initial
public offerings (IPOs) and a significant portion of the Fund's return may at
times be attributable to its investment in IPOs. IPOs could have a substantial
impact on performance, either positive or negative, particularly on a fund with
a small asset base. Also, the Fund's investments in IPOs may be subject to more
erratic price movements than the overall equity market.
- --------------------------------------------------------------------------------
FEES AND EXPENSES OF THE FUND
These tables describe the fees and expenses you may pay if you buy and hold NAV
shares of the Fund and do not reflect the expenses and charges of the
applicable separate accounts and variable contracts. Those expenses and charges
vary considerably from contract to contract and are described in your variable
contract prospectus.
Shareholder Fees (fees paid directly from your investment) None
Annual Fund Operating Expenses (expenses that are deducted from Fund assets, as
a percentage of average net assets for the fiscal year ended December 31, 2003)
Distribution Total Annual
Investment and Fund Net Fund
Management Service Other Operating Expense Operating
Fee(1) (12b-1) Fee Expenses Expenses Reimbursements(1) Expenses
------ ----------- -------- -------- ----------------- --------
1.13% N/A 0.31% 1.44% 0.00% 1.44%
(1) Amounts shown reflect (a) the discontinuance of John Hancock's agreement to
reimburse the Fund for "other fund expenses" in 2003 that exceeded 0.10%
per Annum of the Fund's average daily net assets and (b) percentages which
are calculated as if the current Management fee schedules, which apply to
this Fund, effective May 1, 2004, were in effect for all of 2003.
Examples. The Examples are intended to help you compare the cost of investing
in NAV shares of the Fund with the costs of investing in other mutual funds.
The Examples assume that you invest $10,000 directly in the shares for the time
periods indicated, and then redeem all your shares at the end of those periods.
The Examples also assume that your investment has a 5% return each year, the
reinvestment of all dividends and distributions, and that the Fund's operating
expenses remain the same. Although actual Fund costs may be higher or lower,
the Examples show what the Fund costs would be based on these assumptions.
Year 1 Year 3 Year 5 Year 10
$147 $456 $787 $1,724
49
Overseas Equity C Fund
(formerly "Emerging Markets Equity Fund")
GOAL AND STRATEGY
This is an international stock fund that seeks long-term capital appreciation.
The Fund normally invests at least 80% of its assets in equity securities of
companies outside the U.S., in a diversified mix of large established and
medium-sized foreign companies located primarily in developed countries and in
emerging markets to a lesser extent.
The manager selects stocks using proprietary fundamental research to identify
companies that are believed to be:
.. Undervalued (i.e., with current stock price below long-term value); and
.. Asset rich with strong balance sheets and able to generate internal cash
flows to meet capital needs.
The manager employs a research intensive approach using extensive field
research and direct company contact to determine the fundamental value of a
company. A company's future prospects are determined from analyzing a company's
management, financial strength, products, markets, competitors, and future
earnings and dividends.
The Fund is managed using a multiple portfolio manager system in which the Fund
is divided into segments that are each managed by individual portfolio managers
and/or research analysts. The Fund is normally broadly diversified since its
exposures reflect the aggregate decisions of the multiple portfolio managers
and research analysts managing the Fund.
The Fund's country and regional exposures are primarily a result of stock
selection and therefore may vary significantly from the benchmark.
The Fund invests in at least 3 different countries other than the U.S., but
normally invests in 15 to 50 countries.
The Fund will invest no more than 15% of its assets in emerging market stocks.
The Fund normally invests in 150 to 300 stocks and normally has 10% or less
(usually lower) of its assets in cash and cash equivalents. The Fund may invest
in initial public offerings (IPOs).
The manager may use derivatives, such as futures and forwards, to implement
foreign currency management strategies. Currency management strategies are
primarily used for hedging purposes and to protect against anticipated changes
in foreign currency exchange rates.
Although the Fund may employ foreign currency hedging techniques, the Fund
normally maintains the currency exposure of the underlying equity investments.
The Fund may purchase other types of securities that are not primary investment
vehicles, for example: American Depositary Receipts (ADRs), Global Depositary
Receipts (GDRs), European Depositary Receipts (EDRs), certain Exchange Traded
Funds (EFTS), and certain derivatives (investments whose value is based on
indices or other securities).
In abnormal market conditions, the Fund may take temporary defensive
measures--such as holding unusually large amounts of cash and cash
equivalents--that are inconsistent with the Fund's primary investment strategy.
In taking those measures, the Fund may not achieve its investment goal.
- --------------------------------------------------------------------------------
SUBADVISER
Capital Guardian Trust Company
333 South Hope Street
Los Angeles, California 90071
Managing since 1968
Managing Fund since May, 2004
Managed approximately $146 billion
in assets at year-end 2003
Past Performance information set forth
herein does not reflect Capital Guardian Trust Company ("Capital Guardian")
services to the Fund.
FUND MANAGERS
Team managed by:
9 Portfolio Managers
- ---------------------
Average 22 years with Capital Guardian
Average 25 years industry experience
Equity Research Team
- ---------------------
32 research analysts
Average 9 years with Capital Guardian
Average 13 years industry experience
See Appendix A for more details.
PAST PERFORMANCE
The bar chart shows how the performance of the Fund's NAV shares has varied
from year to year, while the table shows performance over time (along with
broad-based market indexes for reference). This information may help provide an
indication of the Fund's risks and potential rewards. All figures assume
dividend reinvestment. Past performance does not indicate future results. The
performance figures below do not reflect the deduction of fees and charges
payable under the variable contracts. Such fees and charges would cause the
investment returns under the contracts to be less than that shown below.
Year-by-year total returns -- calendar years
[CHART]
1999 2000 2001 2002 2003
- ------ ------- ------ ------ ------
81.37% -40.11% -3.63% -6.73% 56.90%
Best quarter: up 50.45% fourth quarter 1999 Worst quarter: down 22.54% third
quarter 2001
Average annual total returns -- for periods ending 12/31/2003*
Fund Index 1 Index 2 Index 3**
1 year 56.90% 56.28% 39.17% 56.28%
5 year 8.90% 10.62% 0.26% 10.62%
Life of fund 1.52% 2.92% 0.92% 2.92%
Index 1: MSCI Emerging Markets Free Index
Index 2: MSCI EAFE Index (after April, 2004)
Index 3: A composite index combining the performance of the following indices
over the periods indicated: MSCI Emerging Markets Free (from inception through
April 2004); MSCI EAFE (after April, 2004)
* Began operations on May 1, 1998.
** John Hancock believes Index 3 is a more suitable index against which to
measure the Fund's performance because it more closely matches the Fund's
investment strategy.
50
MAIN RISKS
Primary
Foreign Risk: The Fund's foreign securities will pose special risks, due to
limited government regulation, lack of public information, economic, political
and social instability and foreign currency rate fluctuations. Factors such as
lack of liquidity, foreign ownership limits and restrictions on removing
currency also pose special risks. All foreign securities have some degree of
foreign risk. However, to the extent the Fund invests in emerging market
countries, it will have a significantly higher degree of foreign risk than
funds that invest primarily in developed or newly-industrialized countries.
Market Risk: The value of the securities in the Fund may go down in response
to overall stock or bond market movements. Markets tend to move in cycles, with
periods of rising prices and periods of falling prices. Stocks tend to go up
and down in value more than bonds. If the Fund's investments are concentrated
in certain sectors, the Fund's performance could be worse than the overall
market.
Manager Risk: The manager and its strategy may fail to produce the intended
results. The Fund could underperform its peers or lose money if the manager's
investment strategy does not perform as expected.
Investment Category Risk: The returns of the Fund's specific equity investment
category may lag the returns of the overall stock market. For example, the
Fund's "large/mid cap" approach carries the risk that large/mid cap stocks will
underperform small cap stocks.
Secondary
Derivatives Risk: Certain derivative instruments (such as options, futures and
swaps) can produce disproportionate gains or losses. They are generally
considered more risky than direct investments. Also, in a down market,
derivatives could become harder to value or sell at a fair price.
Initial Public Offering Risk: The Fund has the ability to invest in initial
public offerings (IPOs) and a significant portion of the Fund's return may at
times be attributable to its investment in IPOs. IPOs could have a substantial
impact on performance, either positive or negative, particularly on a fund with
a small asset base. Also, the Fund's investments in IPOs may be subject to more
erratic price movements than the overall equity market.
- --------------------------------------------------------------------------------
FEES AND EXPENSES OF THE FUND
These tables describe the fees and expenses you may pay if you buy and hold NAV
shares of the Fund and do not reflect the expenses and charges of the
applicable separate accounts and variable contracts. Those expenses and charges
vary considerably from contract to contract and are described in your variable
contract prospectus.
Shareholder Fees (fees paid directly from your investment) None
Annual Fund Operating Expenses (expenses that are deducted from Fund assets, as
a percentage of average net assets for the fiscal year ended December 31, 2003)
Distribution Total Annual
Investment and Fund Net Fund
Management Service Other Operating Expense Operating
Fee(1) (12b-1) Fee Expenses Expenses Reimbursements(1) Expenses
------ ----------- -------- -------- ----------------- --------
1.21% N/A 0.75% 1.96% 0.00% 1.96%
(1) Amounts shown reflect (a) the discontinuance of John Hancock's agreement to
reimburse the Fund for "other fund expenses" in 2003 that exceeded 0.10%
per Annum of the Fund's average daily net assets and (b) percentages which
are calculated as if the current Management fee schedules, which apply to
this Fund, effective May 1, 2004, were in effect for all of 2003.
Examples. The Examples are intended to help you compare the cost of investing
in NAV shares of the Fund with the costs of investing in other mutual funds.
The Examples assume that you invest $10,000 directly in the shares for the time
periods indicated, and then redeem all your shares at the end of those periods.
The Examples also assume that your investment has a 5% return each year, the
reinvestment of all dividends and distributions, and that the Fund's operating
expenses remain the same. Although actual Fund costs may be higher or lower,
the Examples show what the Fund costs would be based on these assumptions.
Year 1 Year 3 Year 5 Year 10
$199 $615 $1,057 $2,285
51
Real Estate Equity Fund
GOAL AND STRATEGY
This is a non-diversified real estate stock fund that seeks above-average
income and long-term capital appreciation.
The Fund normally invests at least 80% of its assets in equity securities of
companies principally engaged in the real estate industry, including real
estate operating companies, real estate investment trusts (REITs) and other
similar specialized ownership vehicles.
The Fund invests mostly in stocks of U.S. companies but also invests to a
limited extent in foreign stocks.
The Fund employs a multi-manager approach with two subadvisers, each of which
employs its own investment approach and independently manages its portion of
the Fund. At year-end 2003, Van Kampen managed approximately 52% of the Fund's
assets and RREEF managed the remainder. Investments in and redemptions from the
Fund are evenly divided between the subadvisers. These allocation methodologies
may change in the future.
RREEF America L.L.C. ("RREEF"): The manager selects real estate stocks using a
combination of approaches:
.. top-down, market overview to identify property sectors with attractive growth
prospects and;
.. fundamental research to identify companies having strong sustainable cash
flow growth at reasonable valuations and strong management and balance sheets.
The sector exposures for RREEF's portion of the Fund may vary significantly
from the benchmark. RREEF normally invests in 30 to 60 securities in its
portion of the Fund.
Van Kampen (a registered trade name used by Morgan Stanley Investment
Management, Inc. in its role as a subadviser to the Fund)
selects real estate stocks using a combination of:
.. top-down, market overview to identify undervalued property sectors and
geographic regions; and
.. proprietary, fundamental value-driven equity research to select companies
that are attractively priced relative to the value of their underlying real
estate assets.
Van Kampen seeks to maintain broad exposure to key property sectors (i.e.,
apartments, retail and office/industrial). Van Kampen normally invests in 30 to
60 stocks in its portion of the Fund.
The Fund is "non-diversified", which means that it can take larger positions in
individual issuers. Each portion of the Fund normally has 10% or less (usually
lower) of its assets in cash and cash equivalents. Each portion of the Fund may
invest in initial public offerings (IPOs).
Each portion of the Fund also may purchase other types of securities that are
not primary investment vehicles, for example: foreign securities denominated in
U.S. dollars or any other currency, equity securities of non-real estate
businesses whose real estate holdings are significant in relation to their
market capitalization, certain Exchange Traded Funds (ETFs), and certain
derivatives (investments whose value is based on indices and other securities).
In abnormal market conditions, each portion of the Fund may take temporary
defensive measures--such as holding unusually large amounts of cash and cash
equivalents--that are inconsistent with the Fund's primary investment strategy.
In taking those measures, the Fund may not achieve its investment goal.
- --------------------------------------------------------------------------------
SUBADVISER
RREEF America L.L.C. (RREEF)
875 North Michigan Avenue
41st Floor
Chicago, IL 60611
Indirect wholly-owned subsidiary of Deutsche Bank AG
Managing since 1993
Managing Fund since May 2003
Managed approximately $21 billion in assets at year-end 2003
FUND MANAGERS
Management by investment team overseen by:
Karen J. Knudson
- ---------------------
Principal of subadviser
Joined subadviser 1995
John F. Robertson
- ---------------------
Principal of subadviser
Joined subadviser in 1997
SUBADVISER
Van Kampen
1221 Avenue of the Americas
New York, New York 10020
Managing since 1975
Managing Fund since June, 2000
Managed approximately $421 billion in assets at the end of 2003
"Van Kampen" is a registered trade name used by Morgan Stanley Investment
Management, Inc. in its role as a subadviser to the Fund
FUND MANAGERS
Management by investment team overseen by:
Theodore R. Bigman
- ---------------------
Managing Director, Global Real Estate, of subadviser
Joined subadviser in 1995
Douglas A. Funke
- ---------------------
Managing Director of subadviser
Joined subadviser in 1995
52
MAIN RISKS
Primary
Market Risk: The value of the securities in the Fund may go down in response
to overall stock or bond market movements. Markets tend to move in cycles, with
periods of rising prices and periods of falling prices. Stocks tend to go up
and down in value more than bonds.
Non-Diversified Fund Risk: The Fund's larger position in individual issuers
could produce more volatile performance relative to more diversified funds. The
less diversified a fund's holdings are, the more likely it is that a specific
security's poor performance will hurt the fund significantly.
Manager Risk: The managers and their respective strategies may fail to produce
the intended results. The Fund could underperform its peers or lose money if
the managers' investment strategies do not perform as expected.
Sector Fund Risk: The Fund's investments are concentrated in a single sector
of the stock market and the Fund's performance could be significantly affected
by developments in that particular sector. Because of this concentration, the
Fund's performance could be worse than the overall market by a wide margin or
for extended periods. Also, the Fund's performance could be more volatile
relative to funds that invest broadly across different sectors of the stock
market.
Real Estate Securities Risk: Real estate investment trusts (REITs) or other
real estate-related equity securities may be affected by changes in the value
of the underlying property owned by the trust. Mortgage REITs may be affected
by the quality of any credit extended. Other potential risks include the
possibility of a REIT failing to qualify for tax-free pass-through of income
under the Internal Revenue Code or failing to maintain exemption under the
Investment Company Act of 1940.
Concentration Risk: The Fund's investment in securities of a smaller number of
issuers could produce more volatile performance relative to funds that invest
in a larger number of issuers. The more concentrated a fund's holdings are, the
more likely it is a specific security's poor performance will hurt the fund
significantly.
Small/Mid Cap Stock Risk: The Fund's investment in smaller or mid-sized
companies may be subject to more erratic price movements than investment in
large established companies.
Interest Rate Risk: The Fund is subject to interest rate risk, which is the
possibility that changes in interest rates could hurt REIT performance. In
general, during periods of high interest rates, REITs may lose some of their
appeal for investors who may be able to obtain higher yields from other
income-producing investments, such as long-term bonds. Higher interest rates
also mean that financing for property purchases and improvements is more costly
and difficult to obtain.
Initial Public Offering Risk: The Fund has the ability to invest in initial
public offerings (IPOs) and a significant portion of the Fund's return may at
times be attributable to its investment in IPOs. IPOs could have a substantial
impact on performance, either positive or negative, particularly on a fund with
a small asset base. Also, the Fund's investments in IPOs may be subject to more
erratic price movements than the overall equity market.
Secondary
Derivatives Risk: Certain derivative instruments (such as options, futures and
swaps) can produce disproportionate gains or losses. They are generally
considered more risky than direct investments. Also, in a down market,
derivatives could become harder to value or sell at a fair price.
Foreign Risk: The Fund's foreign securities will pose special risks, due to
limited government regulation, lack of public information, and economic,
political and social instability. Factors such as lack of liquidity, foreign
ownership limits and restrictions on removing currency also pose special risks.
- --------------------------------------------------------------------------------
53
Real Estate Equity Fund -- continued
PAST PERFORMANCE
The bar chart shows how the performance of the Fund's NAV shares has varied
from year to year, while the table shows performance over time (along with a
broad-based market index for reference). This information may help provide an
indication of the Fund's risks and potential rewards. All figures assume
dividend reinvestment. Past performance does not indicate future results. The
performance figures below do not reflect the deduction of fees and charges
payable under the variable contracts. Such fees and charges would cause the
investment returns under the contracts to be less than that shown below.
Year-by-year total returns -- calendar years
[CHART]
1994 1995 1996 1997 1998 1999 2000 2001 2002 2003
- ------ ----- ------ ------ ------ ------- ------ ------ ------ ------
2.86% 12.31% 33.07% 17.22% -16.71% -1.69% 31.29% -6.61% 1.36% 36.89%
Best quarter: up
16.60% fourth quarter 1996 Worst quarter: down 10.01% third quarter 2002
Average annual total returns -- for periods ending 12/31/2003
Fund Index 1 Index 2 Index 3*
1 year 36.89% 36.18% 37.06% 36.30%
5 years 13.80% 15.14% 14.50% 14.37%
10 years 11.10% 12.24% 11.90% 11.83%
Index 1: Wilshire REIT Index
Index 2: Wilshire Real Estate Securities Index
Index 3: A composite index combining the performance of the following indices
over the periods indicated: Wilshire Real Estate Securities Index (January,
1994 through April, 2003); Wilshire REIT Index (after May, 2003)
* John Hancock believes Index 3 is a more suitable index against which to
measure the Fund's performance because it more closely matches the Fund's
changes in investment strategy for the period shown.
54
FEES AND EXPENSES OF THE FUND
These tables describe the fees and expenses you may pay if you buy and hold NAV
shares of the Fund and do not reflect the expenses and charges of the
applicable separate accounts and variable contracts. Those expenses and charges
vary considerably from contract to contract and are described in your variable
contract prospectus.
Shareholder Fees (fees paid directly from your investment) None
Annual Fund Operating Expenses (expenses that are deducted from Fund assets, as
a percentage of average net assets for the fiscal year ended December 31, 2003)
Distribution Total Annual
Investment and Fund Net Fund
Management Service Other Operating Expense Operating
Fee (12b-1) Fee Expenses Expenses Reimbursements Expenses
--- ----------- -------- -------- -------------- --------
0.98% N/A 0.09% 1.07% 0.0% 1.07%
Examples. The Examples are intended to help you compare the cost of investing
in NAV shares of the Fund with the costs of investing in other mutual funds.
The Examples assume that you invest $10,000 directly in the shares for the time
periods indicated, and then redeem all your shares at the end of those periods.
The Examples also assume that your investment has a 5% return each year, the
reinvestment of all dividends and distributions, and that the Fund's operating
expenses remain the same. Although actual Fund costs may be higher or lower,
the Examples show what the Fund costs would be based on these assumptions.
Year 1 Year 3 Year 5 Year 10
$109 $340 $590 $1,306
55
Health Sciences Fund
GOAL AND STRATEGY
This is a non-diversified health sciences stock fund that seeks long-term
capital
appreciation.
The Fund normally invests at least 80% of its assets in equity securities of
(a) companies in the health sciences industries, including pharmaceutical,
health-care services, applied research and development, biotechnology, and
medical technology, equipment and supplies industries or (b) to a more limited
extent, companies believed to have the potential for growth as a result of
their particular products, technology, patents or other market advantages in
the health sciences industries. The Fund invests mostly in stocks of U.S.
companies but also invests to a large extent in foreign stocks.
The manager selects health-science and related stocks using a combination of:
.. Top-down industry allocation decisions. The manager seeks industries with
favorable supply and demand characteristics and with opportunities to benefit
from changing demographics, global consolidation, regulatory changes and
technological advances.
.. Bottom-up fundamental equity research. The manager seeks to identify
companies with:
. strong business franchises;
. attractive new product pipelines;
. solid corporate strategy and management;
. strong competitive position; and
. attractive valuations relative to their growth prospects.
The Fund's industry exposures are broadly diversified but may vary
significantly from the benchmark. The Fund's assets are allocated to
industry-specific sub-portfolios that are managed by each industry analyst.
The Fund normally invests in 40 to 80 stocks. The Fund normally has 10% or less
(usually lower) of its assets in cash and cash equivalents. The Fund may invest
in initial public offerings (IPOs).
The Fund may purchase other types of securities that are not primary investment
vehicles, for example: foreign securities denominated in U.S. dollars or any
other currency, certain Exchange Traded Funds (ETFs), certain derivatives
(investments whose value is based on indices or other securities) and companies
with the potential for growth as a result of their particular products,
technology, patents or other market advantages in the health-sciences
industries.
Although the Fund may employ foreign currency hedging techniques, the Fund
normally maintains the currency exposure of the underlying equity investments.
In abnormal market conditions, the Fund may take temporary defensive
measures--such as holding unusually large amounts of cash and cash
equivalents--that are inconsistent with the Fund's primary investment strategy.
In taking those measures, the Fund may not achieve its investment goal.
The Fund is "non-diversified," which means it can take larger positions in
individual issuers.
- --------------------------------------------------------------------------------
SUBADVISER
Wellington Management Company, LLP
75 State Street
Boston, Massachusetts 02109
Managing, with predecessors, since 1928
Managing Fund since May, 2003
Managed approximately $394 billion in
assets at year-end 2003
FUND MANAGERS
Management by Healthcare Analysts on Global Research Team
See Appendix B for more details.
PAST PERFORMANCE
The bar chart shows how the performance of the Fund's NAV shares has varied
from year to year, while the table shows performance over time (along with a
broad-based market index for reference). This information may help provide an
indication of the Fund's risks and potential rewards. All figures assume
dividend reinvestment. Past performance does not indicate future results. The
performance figures below do not reflect the deduction of fees and charges
payable under the variable contracts. Such fees and charges would cause the
investment returns under the contracts to be less than that shown below.
Year-by-year total returns -- calendar years
[CHART]
2002 2003
------- ------
-19.99% 31.74%
Best quarter: up 16.57% second quarter 2003 Worst quarter: down 13.20% second
quarter 2002
Average annual total returns -- for periods ending 12/31/2003*
Fund Index 1 Index 2
1 year 31.74% 28.70% 23.27%
Life of Fund 1.28% -2.69% -0.15%
Index 1: S&P 500 Index
Index 2: Goldman Sachs Health Index
* Began operations on May 1, 2001.
56
MAIN RISKS
Primary
Market Risk: The value of the securities in the Fund may go down in response
to overall stock or bond market movements. Markets tend to move in cycles, with
periods of rising prices and periods of falling prices. Stocks tend to go up
and down in value more than bonds.
Non-Diversified Fund Risk: The Fund's larger position in individual issuers
could produce more volatile performance relative to more diversified funds. The
less diversified a fund's holdings are, the more likely it is that a specific
security's poor performance will hurt the fund significantly.
Manager Risk: The managers and their respective strategies may fail to produce
the intended results. The Fund could underperform its peers or lose money if
the managers' investment strategies do not perform as expected.
Sector Fund Risk: The Fund's investments are concentrated in a single sector
of the stock market and the Fund's performance could be significantly affected
by developments in that particular sector. Because of this concentration, the
Fund's performance could be worse than the overall market by a wide margin or
for extended periods. Also, the Fund's performance could be more volatile
relative to funds that invest broadly across different sectors of the stock
market.
Health Sciences and Related Securities Risk: Health sciences and related
equity securities may be affected by changes in the regulatory and competitive
environment for health sciences industries and in state and federal government
policies relating to the funding of health care services. Other risks include
(i) the possibility that regulatory approval may not be granted for new drugs
or other products, (ii) lawsuits against health care companies related to
product or service liability issues, and (iii) technological advances that make
existing health care products and services obsolete.
Small/Mid Cap Stock Risk: The Fund's investment in smaller or mid-sized
companies may be subject to more erratic price movements than investment in
large established companies.
Concentration Risk: The Fund's investment in securities of a smaller number of
issuers could produce more volatile performance relative to funds that invest
in a larger number of issuers. The more concentrated a fund's holdings are, the
more likely it is a specific security's poor performance will hurt the fund
significantly.
Foreign Risk: The Fund's foreign securities will pose special risks, due to
limited government regulation, lack of public information, and economic,
political and social instability. Factors such as lack of liquidity, foreign
ownership limits and restrictions on removing currency also pose special risks.
Turnover risk: In general, the greater the volume of buying and selling by a
fund (i.e., the higher its "turnover rate"), the greater the impact that
brokerage commissions and other transaction costs will have on the fund's
performance. Any turnover rate in excess of 100% is considered relatively high.
In the future, the Fund's turnover rate may be greater than 100%.
Secondary
Derivatives Risk: Certain derivative instruments (such as options, futures and
swaps) can produce disproportionate gains or losses. They are generally
considered more risky than direct investments. Also, in a down market,
derivatives could become harder to value or sell at a fair price.
Initial Public Offering Risk: The Fund has the ability to invest in initial
public offerings (IPOs) and a significant portion of the Fund's return may at
times be attributable to its investment in IPOs. IPOs could have a substantial
impact on performance, either positive or negative, particularly on a fund with
a small asset base. Also, the Fund's investments in IPOs may be subject to more
erratic price movements than the overall equity markets.
- --------------------------------------------------------------------------------
FEES AND EXPENSES OF THE FUND
These tables describe the fees and expenses you may pay if you buy and hold NAV
shares of the Fund and do not reflect the expenses and charges of the
applicable separate accounts and variable contracts. Those expenses and charges
vary considerably from contract to contract and are described in your variable
contract prospectus.
Shareholder Fees (fees paid directly from your investment) None
Annual Fund Operating Expenses (expenses that are deducted from Fund assets as
a percentage of average net assets for the fiscal year ended December 31, 2003)
Distribution Total Annual
Investment and Fund Net Fund
Management Service Other Operating Expense Operating
Fee (12b-1) Fee Expenses Expenses Reimbursements(1) Expenses
--- ----------- -------- -------- ----------------- --------
1.00% N/A 0.25% 1.25% 0.00% 1.25%
(1) Amounts shown reflect the discontinuance of John Hancock's agreement to
reimburse the Fund during the period for "other fund expenses" that
exceeded 0.10% per annum of the Fund's average daily net assets.
Examples. The Examples are intended to help you compare the cost of investing
in NAV shares of the Fund with the costs of investing in other mutual funds.
The Examples assume that you invest $10,000 directly in the shares for the time
periods indicated, and then redeem all your shares at the end of those periods.
The Examples also assume that your investment has a 5% return each year, the
reinvestment of all dividends and distributions, and that the Fund's operating
expenses remain the same. Although actual Fund costs may be higher or lower,
the Examples show what the Fund costs would be based on these assumptions.
Year 1 Year 3 Year 5 Year 10
$127 $397 $686 $1,511
57
Financial Industries Fund
GOAL AND STRATEGY
This is a non-diversified financial industries stock fund that seeks long-term
capital appreciation.
The Fund normally invests at least 80% of its assets in equity securities of
companies in the financial services industry including banks, thrifts, credit
and finance companies, brokerage and advisory firms, asset management
companies, insurance companies, leasing companies, real estate-related firms,
financial holding companies and similar entities. The Fund invests mostly in
stocks of U.S. companies but also invests, to a limited extent, in foreign
stocks.
The manager selects financial industry stocks using proprietary fundamental
equity research and quantitative screening. The manager uses fundamental equity
research to identify companies that:
.. are positioned to benefit from industry-wide trends such as consolidation and
regulatory changes; and
.. are comparatively undervalued relative to balance sheet and earnings.
The manager also uses quantitative tools focusing on valuation,
earnings/momentum and fundamentals/capital use to evaluate stocks and to manage
overall risk.
The Fund's industry weightings are primarily a result of stock selection and
therefore may differ significantly from its benchmark. The manager normally
invests in 40 to 100 stocks of companies of any size. The Fund normally has 10%
or less (usually lower) of its assets in cash and cash equivalents. The Fund
may invest in initial public offerings (IPOs).
The Fund may purchase other types of securities that are not primary investment
vehicles, for example: foreign securities denominated in U.S dollars or any
other currency, certain Exchange Traded Funds (ETFs) certain derivatives
(investments whose value is based on indices or other securities), and
securities of non-financial industry companies expected to benefit from
products or other market advantages in the financial service industries.
In abnormal market conditions, the Fund may take temporary defensive
measures--such as holding unusually large amounts of cash and cash
equivalents--that are inconsistent with the Fund's primary investment strategy.
In taking those measures, the Fund may not achieve its investment goal.
The Fund is "non-diversified," which means it can take larger positions in
individual issuers.
- --------------------------------------------------------------------------------
SUBADVISER
John Hancock Advisors, LLC
101 Huntington Avenue
Boston, Massachusetts 02199
Owned by John Hancock
Managing since 1968
Managing Fund since May, 2003
Managed approximately $29 billion in
assets at year-end 2003
FUND MANAGERS
Management by investment team overseen by:
James K. Schmidt, CFA
- ---------------------
Executive Vice President of subadviser Joined subadviser in 1985
Lisa A. Welch
- ---------------------
Vice President Joined subadviser in 1998 Supervisory Analyst at the Federal
Reserve Bank of Boston (1996-1998)
PAST PERFORMANCE
The bar chart shows how the performance of the Fund's NAV shares has varied
from year to year, while the table shows performance over time (along with a
broad based market index for reference). This information may help provide an
indication of the Fund's risks and potential rewards. Year-by-year and average
annual figures for the period prior to April 30, 2003 reflect the actual
performance of the V.A. Financial Industries Fund, the fund's predecessor,
which was a series of the John Hancock Declaration Trust. All figures assume
dividend reinvestment. Past performance does not indicate future results. The
performance figures below do not reflect deduction of fees and charges payable
under the variable contracts. Such fees and charges would cause the investment
returns under the contracts to be less than that shown below.
Year-by-Year Total Returns -- Calendar Year
[CHART]
1998 1999 2000 2001 2002 2003
- ------- ------- ------- ------- ------- ------
8.55% 1.23% 27.16% -17.51% -19.46% 26.03%
Best quarter: up 19.95% third quarter 2000 Worst quarter: down 16.75% third
quarter 1998
Average annual total returns -- for periods ending 12/31/2003*
Fund Index 1 Index 2
1 year 26.03% 28.70% 31.03%
5 years 1.51% -0.57% 5.91%
Life of Fund 7.09% 6.61% 10.65%
Index 1: S&P 500 Index
Index 2: Standard & Poor's Financial Index, an unmanaged index of financial
sector stocks in the S&P's 500 Index
* Predecessor fund began operations on April 30, 1997
58
MAIN RISKS
Primary
Market Risk: The value of the securities in the Fund may go down in response
to overall stock or bond market movements. Markets tend to move in cycles, with
periods of rising prices and periods of falling prices. Stocks tend to go up
and down in value more than bonds.
Non-Diversified Fund Risk: The Fund's larger position in individual issuers
could produce more volatile performance relative to more diversified funds. The
less diversified a fund's holdings are, the more likely it is that a specific
security's poor performance will hurt the fund significantly.
Manager Risk: The managers and their respective strategies may fail to produce
the intended results. The Fund could underperform its peers or lose money if
the managers' investment strategies do not perform as expected.
Sector Fund Risk: The Fund's investments are concentrated in a single sector
of the stock market and the Fund's performance could be significantly affected
by developments in that particular sector. Because of this concentration, the
Fund's performance could be worse than the overall market by a wide margin or
for extended periods. Also, the Fund's performance could be more volatile
relative to funds that invest broadly across different sectors of the stock
market.
Financial Industries and Related Securities Risk: Financial industries and
related equity securities may be affected by changes in the regulatory and
competitive environment, by inter-industry consolidation, and by changes in
interest rates and economic conditions. Profitability can be largely dependent
on the availability and cost of capital and can fluctuate significantly when
interest rates change. For example, when interest rates fall or economic
conditions deteriorate, the stocks of banks and financials industries companies
could suffer losses. Rising interest rates can reduce profits by narrowing the
difference between these companies' borrowing and lending rates. Losses
resulting from financial difficulties of borrowers, and downgrades of their
creditworthiness, can also negatively affect lending institutions.
Small/Mid Cap Stock Risk: The Fund's investment in smaller or mid-sized
companies may be subject to more erratic price movements than investments in
large established companies.
Concentration Risk: The Fund's investment in securities of a smaller number of
issuers could produce more volatile performance relative to funds that invest
in a larger number of issuers. The more concentrated a fund's holdings are, the
more likely it is a specific security's poor performance will hurt the fund
significantly.
Turnover Risk: In general, the greater the volume of buying and selling by a
fund (i.e., the higher its "turnover rate"), the greater the impact that
brokerage commissions and other transaction costs will have on the fund's
performance. Any turnover rate in excess of 100% is considered relatively high.
In future years, the Fund's turnover rate may be higher than 100%.
Secondary
Derivatives Risk: Certain derivative instruments (such as options, futures and
swaps) can produce disproportionate gains or losses. They are generally
considered more risky than direct investments. Also, in a down market,
derivatives could become harder to value or sell at a fair price.
Foreign Risk: The Fund's foreign securities will pose special risks, due to
limited government regulation, lack of public information, and economic,
political and social instability. Factors such as lack of liquidity, foreign
ownership limits and restrictions on removing currency also pose special risks.
However, to the extent the Fund invests in emerging market countries, it will
have a significantly higher degree of foreign risk than if it invested
exclusively in developed or newly industrialized countries.
Initial Public Offering Risk: The Fund has the ability to invest in initial
public offerings (IPOs) and a significant portion of the Fund's return may at
times be attributable to its investment in IPOs. IPOs could have a substantial
impact on performance, either positive or negative, particularly on a fund with
a small asset base. Also, the Fund's investments in IPOs may be subject to more
erratic price movements than the overall equity markets.
- --------------------------------------------------------------------------------
FEES AND EXPENSES OF THE FUND
These tables describe the fees and expenses you may pay if you buy and hold NAV
shares of the Fund and do not reflect the expenses and charges of the
applicable separate accounts and variable contracts. Those expenses and charges
vary considerably from contract to contract and are described in your variable
contract prospectus.
Shareholder Fees (fees paid directly from your investment) None
Annual Fund Operating Expenses (expenses that are deducted from Fund assets, as
a percentage of average net assets for the fiscal year ended December 31, 2003)
Distribution Total Annual
Investment and Fund Net Fund
Management Service Other Operating Expense Operating
Fee(1) (12b-1) Fee Expenses(1) Expenses(1) Reimbursements Expenses(1)
------ ----------- ----------- ----------- -------------- -----------
0.80% N/A 0.06% 0.86% 0.0% 0.86%
(1) The percentages shown for the Fund are based on the fund's current
management fee schedule and include the operating expenses and the average
daily assets of the Fund's predecessor prior to April 25, 2003.
Examples. The Examples are intended to help you compare the cost of investing
in NAV shares of the Fund with the costs of investing in other mutual funds.
The Examples assume that you invest $10,000 directly in the shares for the time
periods indicated, and then redeem all your shares at the end of those periods.
The Examples also assume that your investment has a 5% return each year, the
reinvestment of all dividends and distributions, and that the Fund's operating
expenses remain the same. Although actual Fund costs may be higher or lower,
the Examples show what the Fund costs would be based on these assumptions.
Year 1 Year 3 Year 5 Year 10
$88 $274 $477 $1,061
59
Managed Fund
GOAL AND STRATEGY
This is a balanced stock and bond fund that seeks income and long-term capital
appreciation.
The Fund invests primarily in a diversified mix of:
.. common stocks of large and mid sized U.S. companies, and
.. bonds with an overall intermediate term average maturity.
The Fund employs a multi-manager approach with two subadvisers, each of which
employs its own investment approach and independently manages its portion of
the Fund. At year-end 2003, Independence managed approximately 80% of the
assets of the Fund and Capital Guardian managed the remainder. All investments
in the Fund will be allocated equally between the two subadvisers, while
redemptions will be allocated on an asset-weighted basis. These allocation
methodologies may change in the future.
Independence Investment LLC ("Independence") selects stocks and bonds using a
combination of proprietary research and quantitative tools. Stocks are
purchased that have improving fundamentals and attractive valuations.
Independence seeks to maintain the equity risk and sector characteristics of
its portion of the Fund similar to those of the overall equity market.
Independence invests in bonds and bond sectors that are attractively priced
based on market fundamentals and technical factors. The manager
opportunistically emphasizes bonds with yields in excess of Treasury securities.
Independence's portion of the Fund has a target mix of 60% equities and 40%
bonds, which can fluctuate, under normal conditions, within +/- 5 percentage
points of the target mix. Independence normally invests its equity portion in
75 to 160 stocks, with at least 80% (usually higher) in companies with market
capitalizations that are within the range of capitalizations of companies in
the S&P 500 Index or the Russell 1000(R) Index. Independence normally has no
more than 10% of its bond assets in high yield bonds and normally invests in
foreign securities only if U.S. dollar denominated.
Capital Guardian Trust Company ("Capital Guardian") selects stocks and bonds
using proprietary fundamental research that focuses on identifying securities
that are believed to be undervalued (i.e., with current prices below long-term
value).
Capital Guardian's portion of the Fund has a target mix of 70% equities and 30%
bonds, but Capital Guardian actively manages the mix within +/- 15 percentage
points of the target mix.
Capital Guardian uses a multiple portfolio manager system in which the stock
and bond portions of the Fund are divided into segments that are each managed
by individual portfolio managers and/or research analysts. Capital Guardian's
strategy is normally broadly diversified since its exposures reflect the
aggregate decisions of the multiple portfolio managers and research analysts.
Capital Guardian's equity sector exposures are a result of stock selection as
opposed to predetermined allocations. Capital Guardian normally invests its
equity portion in 75 to 160 stocks, with at least 80% (usually higher) in
companies with market capitalizations that are within the range of
capitalizations of companies in the S&P 500 Index or the Russell 1000(R) Index.
Capital Guardian may invest up to 30% of its bond assets in high yield and
foreign bonds (denominated in foreign currencies).
Each portion of the Fund normally has 10% or less (usually lower) of its assets
in cash and cash equivalents. Each portion of the Fund may invest in initial
public offerings (IPOs). Each portion of the Fund may purchase other types of
securities that are not primary investment vehicles, for example: U.S. dollar
denominated foreign securities, certain Exchange Traded Funds (ETFs), and
certain derivatives (investments whose value is based on indices or other
securities).
In abnormal market conditions, each portion of the Fund may take temporary
defensive measures--such as holding unusually large amounts of cash and cash
equivalents--that are inconsistent with the Fund's primary investment strategy.
In taking those measures, the Fund may not achieve its investment goal.
- --------------------------------------------------------------------------------
SUBADVISER
Independence Investment LLC
53 State Street
Boston, Massachusetts 02109
Owned by John Hancock
Managing since 1982
Managing Fund and its predecessor since March, 1986
Managed approximately $11.5 billion in assets at the end of 2003
FUND MANAGERS
Management by investment team overseen by:
John C. Forelli (equity)
- ---------------------
Senior Vice President of subadviser
Joined subadviser in 1990
James E. Shallcross (fixed income)
- ---------------------
Senior Vice President of subadviser
Joined subadvisor in 1991
SUBADVISER
Capital Guardian Trust Company
333 South Hope Street
Los Angeles, California 90071
Managing since 1968
Managing Fund since November, 2000
Managed approximately $146 billion in assets at the end of 2003
FUND MANAGERS
Equity
Managed by team of 25 research analysts
Average of 11 years with Capital Guardian
Average of 15 years industry experience
Fixed Income
Team managed by 3 portfolio managers
Average of 13 years with Capital Guardian
Average of 18 years industry experience
See Appendix A for more details
60
MAIN RISKS
Primary
Market Risk: The value of the securities in the Fund may go down in response
to overall stock or bond market movements. Markets tend to move in cycles, with
periods of rising prices and periods of falling prices. Stocks tend to go up
and down in value more than bonds. If the Fund's investments are concentrated
in certain sectors, the Fund's performance could be worse than the overall
market.
Manager Risk: The manager and its strategy may fail to produce the intended
results. The Fund could underperform its peers or lose money if the manager's
investment strategy does not perform as expected.
Market Allocation Risk: The allocation of the Fund's assets among major asset
classes (i.e., stocks, bonds, and short-term debt securities) may (1) reduce
the Fund's holdings in a class whose value then increases unexpectedly, or (2)
increase the Fund's holdings in a class just prior to its experiencing a loss
of value.
Investment Category Risk: The returns of the Fund's specific equity investment
category may lag the returns of the overall stock market. For example, the
Fund's "large/mid cap" approach carries the risk that in certain markets
large/mid cap stocks will underperform small cap stocks.
Interest Rate Risk: When interest rates rise, the Fund's bond yields will
generally rise and the Fund's bond prices will generally fall. When interest
rates fall, the reverse will generally occur. The longer the average remaining
maturity of bonds held by the Fund, the more sensitive the Fund is to interest
rate risk. This Fund has more interest rate risk than a short-term bond fund,
but less interest rate risk than a long-term bond fund.
Credit Risk: An issuer of a bond held by the Fund may default on its
obligation to pay interest and repay principal. Also, the credit rating of a
bond held by the Fund may be downgraded. In either case, the value of the bond
held by the Fund would fall. All bonds have some credit risk, but in general
lower-rated bonds have higher credit risk.
Small/Mid Cap Stock Risk: The Fund's investment in smaller or mid-sized
companies may be subject to more erratic price movements than investment in
large established companies.
High Yield Bond Risk: Junk bonds, defined as bond securities rated below BBB-
or below Baa3, may be subject to more volatile or erratic price movements due
to investor sentiment. In a down market, these high yield securities become
harder to value or to sell at a fair price.
Prepayment/Call Risk: The Fund's share price or yield could be hurt if
interest rate movements cause the Fund's mortgage-related and callable
securities to be paid off substantially earlier than expected.
Turnover Risk: In general, the greater the volume of buying and selling by a
fund (i.e., the higher its "turnover rate"), the greater the impact that
brokerage commissions and other transaction costs will have on the fund's
performance. Any turnover rate in excess of 100% is considered relatively high.
Normally, the Fund's turnover rate will be greater than 100%.
Secondary
Foreign Risk: The Fund's foreign securities will pose special risks, due to
limited government regulation, lack of public information, economic, political
and social instability and foreign currency rate fluctuations. Factors such as
lack of liquidity, foreign ownership limits and restrictions on removing
currency also pose special risks. However, to the extent the Fund invests in
emerging market countries, it will have a significantly higher degree of
foreign risk than if it invested exclusively in developed or
newly-industrialized countries.
Derivatives Risk: Certain derivative instruments (such as options, futures and
swaps) can produce disproportionate gains or losses. They are generally
considered more risky than direct investments. Also, in a down market,
derivatives could become harder to value or sell at a fair price.
Initial Public Offering Risk: The Fund has the ability to invest in initial
public offerings (IPOs) and a significant portion of the Fund's return may at
times be attributable to its investment in IPOs. IPOs could have a substantial
impact on performance, either positive or negative, particularly on a fund with
a small asset base. Also, the Fund's investments in IPOs may be subject to more
erratic price movements than the overall equity market.
- --------------------------------------------------------------------------------
61
Managed Fund -- continued
PAST PERFORMANCE
The bar chart shows how the performance of the Fund's NAV shares has varied
from year to year, while the table shows performance over time (along with a
broad-based market index for reference). This information may also help provide
an indication of the Fund's risks and potential rewards. All figures assume
dividend reinvestment. Past performance does not indicate future results. The
performance figures below do not reflect the deduction of fees and charges
payable under the variable contracts. Such fees and charges would cause the
investment returns under the contracts to be less than that shown below.
Year-by-year total returns -- calendar years
[CHART]
1994 1995 1996 1997 1998 1999 2000 2001 2002 2003
- ------ ------ ------ ------ ------ ------ ----- ----- ------ ------
- -2.23% 27.09% 10.72% 18.72% 20.42% 9.10% 0.03% -2.84% -13.23% 19.00%
Best quarter: up 14.77% fourth quarter 1998 Worst quarter: down 10.91% third
quarter 2002
Average annual total return -- for periods ending 12/31/2003
Fund Index 1 Index 2 Index 3*
1 year 19.00% 26.70% 4.11% 18.49%
5 years 1.83% -0.57% 6.62% 2.67%
10 years 7.97% 11.06% 6.95% 9.14%
Index 1: S&P 500 Index
Index 2: Lehman Brothers Aggregate Bond Index
Index 3: A composite index combining the performance of the following indices
over the periods indicated: 50% S&P 500 Index/50% Lehman Brothers
Aggregate Bond Index (from inception through December, 1997) and
60% S&P 500 Index/40% Lehman Brothers Aggregate Bond Index (after
December, 1997)
* John Hancock believes Index 3 is a more suitable index against which to
measure the fund's performance because it more closely matches the fund's
changes in investment strategy since inception.
62
FEES AND EXPENSES OF THE FUND
These tables describe the fees and expenses you may pay if you buy and hold NAV
shares of the Fund and do not reflect the expenses and charges of the
applicable separate accounts and variable contracts. Those expenses and charges
vary considerably from contract to contract and are described in your variable
contract prospectus.
Shareholder Fees (fees paid directly from your investment) None
Annual Fund Operating Expenses (expenses that are deducted from Fund assets, as
a percentage of average net assets for the fiscal year ended December 31, 2003)
Distribution Total Annual
Investment and Fund Net Fund
Management Service Other Operating Expense Operating
Fee (12b-1) Fee Expenses Expenses Reimbursements Expenses
--- ----------- -------- -------- -------------- --------
0.68% N/A 0.06% 0.74% 0.0% 0.74%
Examples. The Examples are intended to help you compare the cost of investing
in NAV shares of the Fund with the costs of investing in other mutual funds.
The Examples assume that you invest $10,000 directly in the shares for the time
periods indicated, and then redeem all your shares at the end of those periods.
The Examples also assume that your investment has a 5% return each year, the
reinvestment of all dividends and distributions, and that the Fund's operating
expenses remain the same. Although actual Fund costs may be higher or lower,
the Examples show what the Fund costs would be based on these assumptions.
Year 1 Year 3 Year 5 Year 10
$76 $237 $411 $918
63
Short-Term Bond Fund
GOAL AND STRATEGY
This is a short-term bond fund of medium credit quality that seeks income and
capital appreciation.
The Fund normally invests at least 80% of its assets in a diversified mix of
debt securities and instruments, including but not limited to:
.. U.S. Treasury and Agency securities;
.. asset-backed securities and mortgage-backed securities including mortgage
pass-through securities, commercial mortgage backed securities ("CMBS") and
collateralized mortgage offerings ("CMOs");
.. corporate bonds, both U.S. and foreign (if dollar-denominated); and
.. foreign government and agency securities (if dollar denominated).
The manager evaluates specific bonds and bond sectors using a combination of
proprietary research and quantitative tools. The manager invests in bonds and
bond sectors that are attractively priced based upon market fundamentals and
technical factors. The manager opportunistically emphasizes bonds with yields
in excess of U.S. Treasury securities.
The Fund normally has:
.. an average credit quality rating of "A" or "AA"; and
.. a weighted average effective maturity between one and three years;
.. no more than 15% of its assets in high yield bonds;
.. 10% or less of its assets in cash and cash equivalents.
The Fund may purchase other types of securities that are not primary investment
vehicles, for example: certain derivatives (investments whose value is based on
indexes or other securities).
In abnormal market conditions, the Fund may take temporary defensive
measures--such as holding unusually large amounts of cash and cash
equivalents--that are inconsistent with the Fund's primary investment strategy.
In taking those measures, the Fund may not achieve its investment goal.
- --------------------------------------------------------------------------------
SUBADVISER
Independence Investment LLC
53 State Street
Boston, Massachusetts 02109
Owned by John Hancock
Managing since 1982
Managing Fund since May, 1994
Managed approximately $11.5 billion in assets at the end of 2003
FUND MANAGER
James E. Shallcross
- ---------------------
Senior Vice President of subadviser
Joined subadviser in 1991
Peter Farley, CFA
- ---------------------
Vice president of subadviser
Joined subadviser in 1996
PAST PERFORMANCE
The bar chart shows how the performance of the Fund's NAV shares has varied
from year to year, while the table shows performance over time (along with a
broad-based market index for reference). This information may help provide an
indication of the Fund's risks and potential rewards. All figures assume
dividend reinvestment. Past performance does not indicate future results. The
performance figures below do not reflect the deduction of fees and charges
payable under the variable contracts. Such fees and charges would cause the
investment returns under the contracts to be less than that shown below.
Year-by-year total returns -- calendar years
[CHART]
1995 1996 1997 1998 1999 2000 2001 2002 2003
- ------ ----- ----- ----- ----- ----- ----- ----- ------
11.49% 3.61% 6.41% 5.82% 2.96% 7.98% 8.09% 5.67% 2.76%
Best quarter: up 3.87% second quarter 1995 Worst quarter: down 0.41% fourth
quarter 1994
Average annual total returns -- for periods ending 12/31/2003*
Fund Index 1 Index 2 Index 3**
1 year 2.76% 2.42% 2.82% 2.42%
5 years 5.47% 5.73% 5.80% 5.80%
Life of fund 5.66% Not Available 6.21% 6.32%
Index 1: Lehman Brothers 1-3 Year Aggregate Bond Index
Index 2: Lehman Brothers 1-3 Year Government/Credit Bond Index
Index 3: A composite index combining the performance of the following indices
over the periods indicated: Merrill Lynch 1-5 Year U.S. Government Bond Index
(from inception through April, 1998) and 65% Lehman Brothers 1-3 Year Credit
Bond Index/35% Lehman Brothers 1-3 Year Government Bond Index (May, 1998
through April, 2002); Lehman Brothers 1-3 Year Aggregate Bond Index (after
April, 2002)
* Began operations on May 1, 1994.
** John Hancock believes Index 3 is a more suitable index against which to
measure the fund's performance because it more closely matches the fund's
changes in investment strategy since inception.
64
MAIN RISKS
Primary
Market Risk: The value of the securities in the Fund may go down in response
to overall stock or bond market movements. Markets tend to move in cycles, with
periods of rising prices and periods of falling prices. Stocks tend to go up
and down in value more than bonds. If the Fund's investments are concentrated
in certain sectors, the Fund's performance could be worse than the overall
market.
Manager Risk: The manager and its strategy may fail to produce the intended
results. The Fund could underperform its peers or lose money if the manager's
investment strategy does not perform as expected.
Interest Rate Risk: When interest rates rise, the Fund's bond yields will
generally rise and the Fund's bond prices will generally fall. When interest
rates fall, the reverse will generally occur. The longer the average remaining
maturity of bonds held by the Fund, the more sensitive the Fund is to interest
rate risk. This Fund has less interest rate risk than an intermediate-term or
long-term bond fund. Although U.S. government securities are considered to be
among the safest investments, they are not guaranteed against price movements
due to changing interest rates.
Credit Risk: An issuer of a bond held by the Fund may default on its
obligation to pay interest and repay principal. Also, the credit rating of a
bond held by the fund may be downgraded. In either case, the value of the bond
held by the Trust would fall. All bonds have some credit risk, but in general
lower-rated bonds have higher credit risk. Obligations issued by some U.S.
government agencies are backed by the U.S. Treasury, while others are backed
solely by the ability of the agency to borrow from the U.S. Treasury or by the
agency's own resources.
Concentration Risk: The Fund's investment in securities of a smaller number of
issuers could produce more volatile performance relative to funds that invest
in a larger number of issuers. The more concentrated a fund's holdings are, the
more likely it is a specific security's poor performance will hurt the fund
significantly.
High Yield Bond Risk: Junk bonds, defined as bond securities rated below
BBB-/or below Baa3, may be subject to more volatile or erratic price movements
due to investor sentiment. In a down market, these high yield securities become
harder to value or to sell at a fair price.
Prepayment/Call Risk: The Fund's share price or yield could be hurt if
interest rate movements cause the Fund's mortgage-related and callable
securities to be paid off substantially earlier than expected.
Turnover Risk: In general, the greater the volume of buying and selling by a
fund (i.e., the higher its "turnover rate"), the greater the impact that
brokerage commissions and other transaction costs will have on the fund's
performance. Any turnover rate in excess of 100% is considered relatively high.
In future years, the Fund's turnover rate may be greater than 100%.
Secondary
Foreign Risk: The Fund's foreign securities will pose special risks, due to
limited government regulation, lack of public information, and economic,
political and social instability. Factors such as lack of liquidity, foreign
ownership limits and restrictions on removing currency also pose special risks.
Derivatives Risk: Certain derivative instruments (such as options, futures and
swaps) can produce disproportionate gains or losses. They are generally
considered more risky than direct investments. Also, in a down market,
derivatives could become harder to value or sell at a fair price.
- --------------------------------------------------------------------------------
FEES AND EXPENSES OF THE FUND
These tables describe the fees and expenses you may pay if you buy and hold NAV
shares of the Fund and do not reflect the expenses and charges of the
applicable separate accounts and variable contracts. Those expenses and charges
vary considerably from contract to contract and are described in your variable
contract prospectus.
Shareholder Fees (fees paid directly from your investment) None
Annual Fund Operating Expenses (expenses that are deducted from Fund assets, as
a percentage of average net assets for the fiscal year ended December 31, 2003)
Distribution Total Annual
Investment and Fund Net Fund
Management Service Other Operating Expense Operating
Fee (12b-1) Fee Expenses Expenses Reimbursements Expenses
--- ------------ -------- -------- -------------- --------
0.60% N/A 0.07% 0.67% 0.00% 0.67%
Examples. The Examples are intended to help you compare the cost of investing
in NAV shares of the Fund with the costs of investing in other mutual funds.
The Examples assume that you invest $10,000 directly in the shares for the time
periods indicated, and then redeem all your shares at the end of those periods.
The Examples also assume that your investment has a 5% return each year, the
reinvestment of all dividends and distributions, and that the Fund's operating
expenses remain the same. Although actual Fund costs may be higher or lower,
the Examples show what the Fund costs would be based on these assumptions.
Year 1 Year 3 Year 5 Year 10
$68 $214 $373 $835
65
Bond Index Fund
GOAL AND STRATEGY
This is an intermediate term bond fund of high and medium credit quality that
seeks to track the performance of the Lehman Brothers Aggregate Bond Index,
which broadly represents the U.S. investment grade bond market.
The manager employs a passive management strategy using quantitative techniques
to select individual securities that provide a representative sample of the
securities in the Index.
The Index consists of dollar denominated, fixed rate, investment grade debt
securities with maturities generally greater than one year and outstanding par
values of at least $200 million including:
.. U.S. Treasury and agency securities;
.. asset-backed and mortgage-backed securities, including mortgage pass-through
securities and commercial mortgage-backed securities ("CMBS");
.. corporate bonds, both U.S. and foreign (if dollar denominated); and
..foreign government and agency securities (if dollar denominated).
The Fund normally invests more than 80% of its assets in securities listed in
the Lehman Brothers Aggregate Bond Index.
The manager selects securities to match, as closely as practicable, the Index's
duration, cash flow, sector, credit quality, callability, and other key
performance characteristics.
The Index composition may change from time to time. The manager will reflect
those changes as soon as practicable. The Fund may hold some cash and cash
equivalents, but is normally fully invested.
The Fund may purchase other types of securities that are not primary investment
vehicles. This would include, for example, certain derivatives (investments
whose value is based on indexes or other securities).
In abnormal market conditions, the Fund may take temporary defensive
measures--such as holding unusually large amounts of cash and cash
equivalents--that are inconsistent with the Fund's primary investment strategy.
In taking those measures, the Fund may not achieve its investment goal.
- --------------------------------------------------------------------------------
SUBADVISER
Standish Mellon Asset Management Company LLC
One Mellon Center
Pittsburgh, Pennsylvania 15258
Managing since 1986
Managing Fund since May, 1998
Managed approximately $201 billion in assets at the end of 2003
FUND MANAGERS
Management by investment team overseen by:
Gregory D. Curran, CFA
- ---------------------
Senior Vice President of subadviser
Joined subadviser in 1995
PAST PERFORMANCE
The bar chart shows how the performance of the Fund's NAV shares varies from
year to year, while the table shows performance over time (along with a
broad-based market index for reference). This information may help provide an
indication of the Fund's risks and potential rewards. All figures assume
dividend reinvestment. Past performance does not indicate future results. The
performance figures below do not reflect the deduction of fees and charges
payable under the variable contracts. Such fees and charges would cause the
investment returns under the contracts to be less than that shown below.
Year-by-year total returns -- calendar years
[CHART]
1999 2000 2001 2002 2003
- ------ ------ ----- ----- ------
- -2.57% 11.81% 7.76% 9.95% 3.60%
Best quarter: up 5.35% third quarter 1998 Worst quarter: down 1.27% second
quarter 1999
Average annual total returns -- for periods ending 12/31/2003*
Fund Index 1 Index 2**
1 year 3.60% 4.11% 4.11%
5 years 5.98% 6.62% 6.39%
Life of fund 6.55% 7.00% 6.93%
Index 1: Lehman Brothers Aggregate Bond Index
Index 2: A composite index combining the performance of the following indices
over the periods indicated: Lehman Brothers Government/Credit Bond Index (from
inception through January, 2001); and Lehman Brothers Aggregate Bond Index
(after January, 2001).
* Began operations on May 1, 1998.
** John Hancock believes Index 2 is a more suitable index against which to
measure the fund's performance because it more closely matches the fund's
changes in investment strategy since inception.
66
MAIN RISKS
Primary
Index Management Risk: Certain factors such as the following may cause the
Fund to track the Index less closely:
.. The securities selected by the manager may not be fully representative of the
Index.
.. Transaction expenses of the Fund may result in the Fund's performance being
different than that of the Index.
.. The size and timing of the Fund's cash flows may result in the Fund's
performance being different than that of the Index.
Also, index funds like this one will have more difficulty in taking defensive
positions in abnormal market conditions.
Market Risk: The value of the securities in the Fund may go down in response
to overall stock or bond market movements. Markets tend to move in cycles, with
periods of rising prices and periods of falling prices. Stocks tend to go up
and down in value more than bonds. If the Fund's investments are concentrated
in certain sectors, the Fund's performance could be worse than the overall
market.
Manager Risk: The manager and its strategy may fail to produce the intended
results. The Fund could underperform its peers or lose money if the manager's
investment strategy does not perform as expected.
Interest Rate Risk: When interest rates rise, the Fund's bond yields will
generally rise and the Fund's bond prices will generally fall. When interest
rates fall, the reverse will generally occur. The longer the average remaining
maturity of bonds held by the Fund, the more sensitive the Fund is to interest
rate risk. This Fund has more interest rate risk than a short-term bond fund,
but less interest rate risk than a long-term bond fund.
Credit Risk: An issuer of a bond held by the Fund may default on its
obligation to pay interest and repay principal. Also, the credit rating of a
bond held by the fund may be downgraded. In either case, the value of the bond
held by the Trust would fall. All bonds have some credit risk, but in general
lower-rated bonds have higher credit risk.
Prepayment/Call Risk: The Fund's share price or yield could be hurt if
interest rate movements cause the Fund's mortgage-related and callable
securities to be paid off substantially earlier than expected.
Secondary
Foreign Risk: The Fund's foreign securities will pose special risks, due to
limited government regulation, lack of public information, and economic,
political and social instability. Factors such as lack of liquidity, foreign
ownership limits and restrictions on removing currency also pose special risks.
All foreign securities have some degree of foreign risk. However, to the extent
the Fund invests in emerging market countries, it will have a significantly
higher degree of foreign risk than if it invested exclusively in developed or
newly-industrialized countries.
- --------------------------------------------------------------------------------
FEES AND EXPENSES OF THE FUND
These tables describe the fees and expenses you may pay if you buy and hold NAV
shares of the Fund and do not reflect the expenses and charges of the
applicable separate accounts and variable contracts. Those expenses and charges
vary considerably from contract to contract and are described in your variable
contract prospectus.
Shareholder Fees (fees paid directly from your investment) None
Annual Fund Operating Expenses (expenses that are deducted from Fund assets, as
a percentage of average net assets for the fiscal year ended December 31, 2003)
Distribution Total Annual
Investment and Fund Net Fund
Management Service Other Operating Expense Operating
Fee (12b-1) Fee Expenses Expenses Reimbursements Expenses
--- ----------- -------- -------- -------------- --------
0.14% N/A 0.10% 0.24% 0.00% 0.24%
Examples. The Examples are intended to help you compare the cost of investing
in NAV shares of the Fund with the costs of investing in other mutual funds.
The Examples assume that you invest $10,000 directly in the shares for the time
periods indicated, and then redeem all your shares at the end of those periods.
The Examples also assume that your investment has a 5% return each year, the
reinvestment of all dividends and distributions, and that the Fund's operating
expenses remain the same. Although actual Fund costs may be higher or lower,
the Examples show what the Fund costs would be based on these assumptions.
Year 1 Year 3 Year 5 Year 10
$25 $77 $135 $306
67
Active Bond Fund
GOAL AND STRATEGY
This is an intermediate term bond fund of medium credit quality that seeks
income and capital appreciation.
The Fund normally invests at least 80% of its assets in a diversified mix of
debt securities and instruments including but not limited to:
.. U.S. Treasury and agency securities;
.. Asset-backed securities and mortgage-backed securities including mortgage
pass-through securities, commercial mortgage backed securities ("CMBS") and
collateralized mortgage offerings ("CMOs");
.. Corporate bonds, both U.S. and foreign; and
.. Foreign government and agency securities.
The Fund employs a multi-manager approach with three subadvisers each of which
employs its own investment approach and independently manages its portion of
the Fund. At year-end 2003, approximately 37% of the Fund's assets were managed
by John Hancock Advisers, LLC, approximately 38% of the Fund's assets were
managed by Pacific Investment Management Company LLC and 28% by Declaration
Management & Research LLC. All subsequent investments in the Fund will be
allocated equally among the three sub- advisers, while redemptions from the
Fund will be allocated on an asset-weighted basis. These allocation
methodologies may change in the future.
John Hancock Advisers, LLC uses proprietary research to identify specific bond
sectors, industries and bonds that are attractively priced. The manager tries
to anticipate shifts in the business cycle, using economic and industry
analysis to determine which sectors and industries might benefit over the next
12 months.
This portion of the fund normally has no more than 25% of its assets in high
yield bonds, 10% or less of its assets in cash and cash equivalents, and
normally invests in foreign securities only if U.S. dollar denominated.
Declaration Management & Research LLC uses a combination of proprietary
research and quantitative tools and seeks to identify bonds and bond sectors
that are attractively priced based upon market fundamentals and technical
factors. The manager opportunistically emphasizes bonds with yields in excess
of U.S Treasury securities.
This portion of the fund normally has no more than 10% of its assets in high
yield bonds, 10% or less of its assets in cash and cash equivalents, and
normally invests in foreign securities only if U.S. dollar denominated.
Pacific Investment Management Company LLC ("PIMCO") uses proprietary
fundamental research, economic analysis and quantitative tools to:
.. determine the appropriate interest rate sensitivity and maturity exposures of
its portion of the Fund based on secular and cyclical trends in the economy
and financial markets; and,
.. identify attractively priced bond markets, sectors and securities that will
benefit from these trends.
This portion of the Fund normally has no more than 20% of its assets in high
yield bonds and no more than 30% of its assets in non-U.S. dollar denominated
foreign developed and emerging markets bonds.
Each portion of the Fund normally has an average credit rating of "A" or "AA."
The Fund may have significant exposure to derivatives (investments whose value
is based on indices or other securities), such as forwards, futures, options
and swaps. Each manager actively uses derivatives to manage the average
maturity and interest rate sensitivity for their portion of the fund.
Additionally, PIMCO actively uses a variety of derivatives techniques and
instruments to manage credit risk, to achieve exposure to a specific market
sector and / or to implement foreign currency strategies. Currency management
strategies are primarily used for hedging purposes and to protect
- --------------------------------------------------------------------------------
SUBADVISER
John Hancock Advisers, LLC
101 Huntington Avenue
Boston, Massachusetts 02199
Owned by John Hancock
Managing since 1968
Managing Fund since May, 1995
Managed approximately $29 billion in assets at the end of 2003
FUND MANAGERS
Howard C. Greene, CFA
- ---------------------
Senior Vice President of subadviser
Joined subadviser in 2002
Vice President of Sun Life Financial Services Company of Canada (1987-2002)
Benjamin A. Matthews
- ---------------------
Vice President of subadviser
Joined subadviser in 1995
SUBADVISER
Declaration Management & Research LLC
1650 Tysons Blvd
McLean, VA 22102
Owned by John Hancock
Managing since 1989
Managing Fund since June, 2003
Managed approximately $8 billion in assets at the end of 2003
FUND MANAGERS
Management by investment team overseen by:
James E. Shallcross
- ---------------------
Senior Vice President of subadviser
Joined subadviser in 1991
SUBADVISER
Pacific Investment Management Company LLC
840 Newport Center Drive
Newport Beach, California 92660
Managing since 1971
Managing Fund since June, 2003
Managed approximately $374 billion in assets at the end of 2003
FUND MANAGERS
Management by investment team overseen by:
William H. Gross, CFA
- ---------------------
Managing Director and Chief Investment Officer of subadviser
Joined subadviser in 1971
68
against changes in foreign currency exchange rates.
In abnormal market conditions, the Fund may take temporary defensive
measures--such as holding unusually large amounts of cash and cash
equivalents--that are inconsistent with the Fund's primary investment strategy.
In taking those measures, the Fund may not achieve its investment goal.
MAIN RISKS
Primary
Market Risk: The value of the securities in the Fund may go down in response
to overall stock or bond market movements. Markets tend to move in cycles, with
periods of rising prices and periods of falling prices. Stocks tend to go up
and down in value more than bonds. If the Fund's investments are concentrated
in certain sectors, the Fund's performance could be worse than the overall
market.
Manager Risk: The manager and its strategy may fail to produce the intended
results. The Fund could underperform its peers or lose money if the manager's
investment strategy does not perform as expected.
Interest Rate Risk: When interest rates rise, the Fund's bond yields will
generally rise and the Fund's bond prices will generally fall. When interest
rates fall, the reverse will generally occur. The longer the average remaining
maturity of bonds held by the Fund, the more sensitive the Fund is to interest
rate risk. This Fund has more interest rate risk than a short-term bond fund,
but less interest rate risk than a long-term bond fund.
Credit Risk: An issuer of a bond held by the Fund may default on its
obligation to pay interest and repay principal. Also, the credit rating of a
bond held by the fund may be downgraded. In either case, the value of the bond
held by the Fund would fall. All bonds have some credit risk, but in general
lower-rated bonds have higher credit risk.
High Yield Bond Risk: Junk bonds, defined as bond securities rated below
BBB-/or below Baa3, may be subject to more volatile or erratic price movements
due to investor sentiment. In a down market, these high yield securities become
harder to value or to sell at a fair price.
Foreign Risk: The Fund's foreign securities will pose special risks, due to
limited government regulation, lack of public information, and economic,
political and social instability. Factors such as lack of liquidity, foreign
ownership limits and restrictions on removing currency also pose special risks.
All foreign securities have some degree of foreign risk. However, to the extent
the Fund invests in emerging market countries, it will have a significantly
higher degree of foreign risk than if it invested exclusively in developed or
newly-industrialized countries.
Prepayment/Call Risk: The Fund's share price or yield could be hurt if
interest rate movements cause the Fund's mortgage- related and callable
securities to be paid off substantially earlier than expected.
Derivatives Risk: Certain derivative instruments (such as options, futures and
swaps) can produce disproportionate gains or losses. They are generally
considered more risky than direct investments. Also, in a down market,
derivatives could become harder to value or sell at a fair price.
Turnover Risk: In general, the greater the volume of buying and selling by a
fund (i.e., the higher its "turnover rate"), the greater the impact that
brokerage commissions and other transaction costs will have on the fund's
performance. Any turnover rate in excess of 100% is considered relatively high.
Normally, the Fund's turnover rate will be greater than 100%.
Secondary
None
- --------------------------------------------------------------------------------
69
Active Bond Fund -- continued
PAST PERFORMANCE
The bar chart shows how the performance of the Fund's NAV shares has varied
from year to year, while the table shows performance over time (along with a
broad-based market index for reference). This information may help provide an
indication of the Fund's risks and potential rewards. All figures assume
dividend reinvestment. Past performance does not indicate future results. The
performance figures below do not reflect the deduction of fees and charges
payable under the variable contracts. Such fees and charges would cause the
investment returns under the contracts to be less than that shown below.
Year-by-year total returns -- calendar years
[CHART]
1994 1995 1996 1997 1998 1999 2000 2001 2002 2003
------ ------ ----- ------ ----- ------ ------ ----- ----- ------
-2.57% 19.55% 4.10% 10.11% 8.23% -0.94% 10.45% 7.48% 7.25% 6.48%
Best quarter: up 6.72% second quarter 1995 Worst quarter: down 2.51% first
quarter 1994
Average annual total returns -- for periods ending 12/31/2003
Fund Index
1 year 6.48% 4.11%
5 years 6.07% 6.62%
10 years 6.85% 6.95%
Index: Lehman Brothers Aggregate Bond Index
70
FEES AND EXPENSES OF THE FUND
These tables describe the fees and expenses you may pay if you buy and hold NAV
shares of the Fund and do not reflect the expenses and charges of the
applicable separate accounts and variable contracts. Those expenses and charges
vary considerably from contract to contract and are described in your variable
contract prospectus.
Shareholder Fees (fees paid directly from your investment) Not applicable
Annual Fund Operating Expenses (expenses that are deducted from Fund assets, as
a percentage of average net assets for the fiscal year ended December 31, 2003)
Distribution Total Annual
Investment and Fund Net Fund
Management Service Other Operating Expense Operating
Fee (12b-1) Fee Expenses Expenses Reimbursements Expenses
--- ----------- -------- -------- -------------- --------
0.61% N/A 0.09% 0.70% 0.0% 0.70%
Examples. The Examples are intended to help you compare the cost of investing
in NAV shares of the Fund with the costs of investing in other mutual funds.
The Examples assume that you invest $10,000 directly in the shares for the time
periods indicated, and then redeem all your shares at the end of those periods.
The Examples also assume that your investment has a 5% return each year, the
reinvestment of all dividends and distributions, and that the Fund's operating
expenses remain the same. Although actual Fund costs may be higher or lower,
the Examples show what the Fund costs would be based on these assumptions.
Year 1 Year 3 Year 5 Year 10
$72 $224 $390 $871
71
Total Return Bond Fund
GOAL AND STRATEGY
This is an intermediate term bond fund of medium credit quality that seeks
income and capital appreciation.
The Fund normally invests at least 80% of its assets in a diversified mix of
debt securities and instruments including but not limited to:
.. U.S. Treasury and agency securities;
.. Asset-backed and mortgage-backed securities including mortgage pass-through
securities, commercial mortgage backed securities ("CMBS") and collateralized
mortgage offerings ("CMOs");
.. Corporate bonds, both U.S. and foreign; and
.. Foreign government and agency securities.
The manager makes ongoing decisions regarding the Fund's maturity, sector and
security exposures. The manager uses proprietary fundamental research, economic
analysis and quantitative tools to:
.. Determine the appropriate interest rate sensitivity and maturity exposures of
the Fund based on secular and cyclical trends in the economy and financial
markets; and
.. Identify attractively priced bond markets, sectors and securities that will
benefit from these trends.
The manager evaluates bonds of all quality and maturity levels and the Fund
normally has:
.. an average credit rating of "A," "AA" or higher;
.. no more than 20% of its assets in high yield bonds; and
.. no more than 30% of it's assets in foreign developed and emerging markets
bonds (denominated in foreign currencies).
The manager actively uses derivatives (investments whose value is based on
indices or other securities), such as forwards, futures, options and swaps, to
manage the Fund's average maturity and interest rate sensitivity, to achieve
exposure to a specific market sector and/or to implement foreign currency
strategies. Currency management strategies are primarily used for hedging
purposes and to protect against changes in foreign currency exchange rates.
In abnormal market conditions, the Fund may take temporary defensive
measures--such as holding unusually large amounts of cash and cash
equivalents--that are inconsistent with the Fund's primary investment strategy.
In taking those measures, the Fund may not achieve its investment goal.
- --------------------------------------------------------------------------------
SUBADVISER
Pacific Investment Management Company LLC
840 Newport Center Drive,
Newport Beach, California 92660
Managing since 1971
Managing Fund since May, 2003
Managed approximately $374 billion in
assets at the end of 2003
FUND MANAGERS
Management by investment team overseen by:
William H. Gross, CFA
- ---------------------
Managing Director and Chief Investment Officer of subadviser
Joined subadviser in 1971
PAST PERFORMANCE
A bar chart will show how the performance of the Fund's NAV shares has varied
from year to year, while a table will show performance over time (along with a
broad-based market index for reference). This information may help provide an
indication of the Fund's risks and potential rewards. All figures to be shown
assume dividend reinvestment. Past performance does not indicate future
results. The performance figures will not reflect the deduction of fees and
charges payable under the variable contracts. Such fees and charges would cause
the investment returns under the contracts to be less than that to be shown.
72
MAIN RISKS
Primary
Market Risk: The value of the securities in the Fund may go down in response
to overall stock or bond market movements. Markets tend to move in cycles, with
periods of rising prices and periods of falling prices. Stocks tend to go up
and down in value more than bonds. If the Fund's investments are concentrated
in certain sectors, the Fund's performance could be worse than the overall
market.
Manager Risk: The manager and its strategy may fail to produce the intended
results. The Fund could underperform its peers or lose money if the manager's
investment strategy does not perform as expected.
Interest Rate Risk: When interest rates rise, the Fund's bond yields will
generally rise and the Fund's bond prices will generally fall. When interest
rates fall, the reverse will generally occur. The longer the average remaining
maturity of bonds held by the Fund, the more sensitive the Fund is to interest
rate risk. This Fund has more interest rate risk than a short-term bond fund,
but less interest rate risk than a long-term bond fund.
Credit Risk: An issuer of a bond held by the Fund may default on its
obligation to pay interest and repay principal. Also, the credit rating of a
bond held by the fund may be downgraded. In either case, the value of the bond
held by the Fund would fall. All bonds have some credit risk, but in general
lower-rated bonds have higher credit risk.
High Yield Bond Risk: Junk bonds, defined as bond securities rated below
BBB-/or below Baa3, may be subject to more volatile or erratic price movements
due to investor sentiment. In a down market, these high yield securities become
harder to value or to sell at a fair price.
Foreign Risk: The Fund's foreign securities will pose special risks, due to
limited government regulation, lack of public information, and economic,
political and social instability. Factors such as lack of liquidity, foreign
ownership limits and restrictions on removing currency also pose special risks.
All foreign securities have some degree of foreign risk. However, to the extent
the Fund invests in emerging market countries, it will have a significantly
higher degree of foreign risk than if it invested exclusively in developed or
newly-industrialized countries.
Prepayment/Call Risk: The Fund's share price or yield could be hurt if
interest rate movements cause the Fund's mortgage- related and callable
securities to be paid off substantially earlier than expected.
Concentration Risk: The Fund's investment in debt securities and instruments
of a smaller number of issuers could produce more volatile performance relative
to funds that invest in a larger number of issuers. The more concentrated a
fund's holdings are, the more likely it is a specific security's poor
performance will hurt the fund significantly.
Derivatives Risk: Certain derivative instruments (such as options, futures and
swaps) can produce disproportionate gains or losses. They are generally
considered more risky than direct investments. Also, in a down market,
derivatives could become harder to value or sell at a fair price.
Turnover Risk: In general, the greater the volume of buying and selling by a
fund (i.e., the higher its "turnover rate"), the greater the impact that
brokerage commissions and other transaction costs will have on the fund's
performance. Any turnover rate in excess of 100% is considered relatively high.
Normally, the Fund's turnover rate will be greater than 100%.
Secondary
None
- --------------------------------------------------------------------------------
FEES AND EXPENSES OF THE FUND
These tables describe the fees and expenses you may pay if you buy and hold NAV
shares of the Fund and do not reflect the expenses and charges of the
applicable separate accounts and variable contracts. Those expenses and charges
vary considerably from contract to contract and are described in your variable
contract prospectus.
Shareholder Fees (fees paid directly from your investment) None
Annual Fund Operating Expenses (expenses that are deducted from Fund assets, as
a percentage of annualized average net assets for the fiscal year ended
December 31, 2003)
Distribution Total Annual
Investment and Fund Net Fund
Management Service Other Operating Expense Operating
Fee (12b-1) Fee Expenses Expenses Reimbursements Expenses
--- ----------- -------- -------- -------------- --------
0.70% N/A 0.07% 0.77% 0.0% 0.77%
Examples. The Examples are intended to help you compare the cost of investing
in NAV shares of the Fund with the costs of investing in other mutual funds.
The Examples assume that you invest $10,000 directly in the shares for the time
periods indicated, and then redeem all your shares at the end of those periods.
The Examples also assume that your investment has a 5% return each year, the
reinvestment of all dividends and distributions, and that the Fund's operating
expenses remain the same. Although actual Fund costs may be higher or lower,
the Examples show what the Fund costs would be based on these assumptions.
Year 1 Year 3 Year 5 Year 10
$79 $246 $428 $954
73
High Yield Bond Fund
GOAL AND STRATEGY
This is a high yield bond fund that seeks high income and capital appreciation.
The Fund normally invests at least 80% of its assets in a diversified mix of
high yield debt securities commonly referred to as "junk bonds" (securities
rated below BBB or Baa and unrated equivalents), including but not limited to:
.. corporate bonds, both U.S. and foreign;
.. foreign government and agency securities;
.. preferred stocks; and
.. convertible securities (convertible into common stocks or other equity
interests).
The manager normally invests no more than 20% of the Fund's assets in emerging
market countries. The Fund normally has 10% or less of its assets in cash and
cash equivalents.
The manager seeks to purchase bonds with stable or improving credit quality
before the market widely perceives the improvement. Purchase and sale decisions
are primarily based upon the investment merits of the particular security.
The manager selects bonds using proprietary research, including:
.. quantitative analysis of historical financial data;
.. qualitative analysis of a company's future prospects; and
.. economic and industry analysis.
The Fund's average maturity generally depends on security selection decisions
rather than interest rate decisions.
The Fund may purchase other types of securities that are not primary investment
vehicles, for example: equity securities, high quality debt securities
(short-term and otherwise), foreign debt securities denominated in U.S. dollars
or any other currency, and certain derivatives (investments whose value is
based on indices or other securities).
In abnormal market conditions, the Fund may take temporary defensive
measures--such as holding unusually large amounts of cash and cash
equivalents--that are inconsistent with the Fund's primary investment strategy.
In taking those measures, the Fund may not achieve its investment goal.
- --------------------------------------------------------------------------------
SUBADVISER
Wellington Management Company, LLP
75 State Street
Boston, Massachusetts 02109
Managing, with predecessors, since 1928
Managing Fund since May, 1998
Managed approximately $394 billion in assets at the end of 2003
FUND MANAGER
Earl E. McEvoy
- ---------------------
Senior Vice President and partner of subadviser
Joined subadviser in 1978
PAST PERFORMANCE
The bar chart shows how the performance of the Fund's NAV shares varies from
year to year, while the table shows performance over time (along with a
broad-based market index for reference). This information may help provide an
indication of the Fund's risks and potential rewards. All figures assume
dividend reinvestment. Past performance does not indicate future results. The
performance figures below do not reflect the deduction of fees and charges
payable under the variable contracts. Such fees and charges would cause the
investment returns under the contracts to be less than that shown below.
Year-by-year total returns -- calendar year
[CHART]
1999 2000 2001 2002 2003
- ----- ------- ----- ------ ------
5.13% -10.81% 2.13% -4.51% 16.51%
Best quarter: up 8.46% first quarter 2001 Worst quarter: down 8.80% fourth
quarter 2000
Average annual total returns -- for periods ending 12/31/2003*
Fund Index 1 Index 2 Index 3**
1 year 16.51% 23.24% 28.96% 23.24%
5 years 1.27% 5.58% 5.24% 4.29%
Life of fund 0.58% 4.91% 4.27% 3.44%
Index 1: Lehman Brothers B/BB High Yield Bond Index
Index 2: Lehman Brothers High Yield Bond Index
Index 3: A composite index combining the performance of the following indices
over the periods indicated: Lehman Brothers High Yield Bond Index (from
inception through December, 2002) and Lehman Brothers B/BB High Yield Bond
Index (after January, 2003)
* Began operations on May 1, 1998
** John Hancock believes Index 3 is a more suitable index against which to
measure the Fund's performance because it more closely matches the Fund's
changes in investment strategy since inception.
74
MAIN RISKS
Primary
High Yield Bond Risk: High yield or junk bonds, defined as bond securities
rated below BBB-/or below Baa3, may be subject to more volatile or erratic
price movements due to investor sentiment. In a down market, these high yield
securities may become harder to value or to sell at a fair price.
Market Risk: The value of the securities in the Fund may go down in response
to overall stock or bond market movements. Markets tend to move in cycles, with
periods of rising prices and periods of falling prices. Stocks tend to go up
and down in value more than bonds. If the Fund's investments are concentrated
in certain sectors, the Fund's performance could be worse than the overall
market.
Manager Risk: The manager and its strategy may fail to produce the intended
results. The Fund could underperform its peers or lose money if the manager's
investment strategy does not perform as expected.
Interest Rate Risk: When interest rates rise, the Fund's bond yields will
generally rise and the Fund's bond prices will generally fall. When interest
rates fall, the reverse will generally occur. The longer the average remaining
maturity of bonds held by the Fund, the more sensitive the Fund is to interest
rate risk. This Fund has more interest rate risk than a short-term bond fund,
but less interest rate risk than a long-term bond fund.
Credit Risk: An issuer of a bond held by the Fund may default on its
obligation to pay interest and repay principal. Also, the credit rating of a
bond held by the fund may be downgraded. In either case, the value of the bond
held by the Fund would fall. All bonds have some credit risk, but in general
lower-rated bonds have higher credit risk.
Secondary
Foreign Risk: The Fund's foreign securities will pose special risks, due to
limited government regulation, lack of public information, and economic,
political and social instability. Factors such as lack of liquidity, foreign
ownership limits and restrictions on removing currency also pose special risks.
All foreign securities have some degree of foreign risk. However, to the extent
the Fund invests in emerging market countries, it will have a significantly
higher degree of foreign risk than if it invested exclusively in developed or
newly industrialized countries.
Derivatives Risk: Certain derivative instruments (such as options, futures and
swaps) can produce disproportionate gains or losses. They are generally
considered more risky than direct investments. Also, in a down market,
derivatives could become harder to value or sell at a fair price.
Prepayment/Call Risk: The Fund's share price or yield could be hurt if
interest rate movements cause the Fund's mortgage-related and callable
securities to be paid off substantially earlier than expected.
- --------------------------------------------------------------------------------
FEES AND EXPENSES OF THE FUND
These tables describe the fees and expenses you may pay if you buy and hold NAV
shares of the Fund and do not reflect the expenses and charges of the
applicable separate accounts and variable contracts. Those expenses and charges
vary considerably from contract to contract and are described in your variable
contract prospectus.
Shareholder Fees (fees paid directly from your investment) None
Annual Fund Operating Expenses (expenses that are deducted from Fund assets, as
a percentage of average net assets for the fiscal year ended December 31, 2003)
Distribution Total Annual
Investment and Fund Net Fund
Management Service Other Operating Expense Operating
Fee (12b-1) Fee Expenses Expenses Reimbursements(1) Expenses
--- ----------- -------- -------- ----------------- --------
0.80% N/A 0.15% 0.95% 0.05% 0.90%
(1) Under its current investment management agreement with the Trust, John
Hancock reimburses the Fund when the Fund's "other fund expenses" exceed
0.10% of the Fund's average daily net assets. The agreement will remain in
effect until May 1, 2005, and may be renewed each year thereafter by the
Trust.
Examples. The Examples are intended to help you compare the cost of investing
in NAV shares of the Fund with the costs of investing in other mutual funds.
The Examples assume that you invest $10,000 directly in the shares for the time
periods indicated, and then redeem all your shares at the end of those periods.
The Examples also assume that your investment has a 5% return each year, the
reinvestment of all dividends and distributions, and that the Fund's operating
expenses remain the same. Although actual Fund costs may be higher or lower,
the Examples show what the Fund costs would be based on these assumptions.
Year 1 Year 3 Year 5 Year 10
$92 $298 $521 $1,162
75
Global Bond Fund
GOAL AND STRATEGY
This is an intermediate term, non-diversified global bond fund of medium credit
quality that seeks income and capital appreciation.
The Fund normally invests at least 80% of its assets in a diversified mix of
debt securities and instruments of issuers throughout the world, including but
not limited to:
.. U.S. Treasury and agency securities;
.. asset-backed and mortgage-backed securities, including commercial
mortgage-backed securities;
.. corporate bonds, both U.S. and foreign;
.. foreign government and agency securities; and
.. supranational securities (such as the World Bank).
The Fund has a target mix of 25% U.S. bonds and 75% non-U.S. bonds (denominated
in foreign currencies), but the manager actively manages the mix within
(+/-) 15 percentage points of the target mix.
The Fund is managed using a multiple portfolio manager system in which the Fund
is divided into segments that are managed by individual portfolio managers.
Therefore, the Fund normally has broad country, currency, sector and individual
security exposures, reflecting the aggregate decisions of the multiple
portfolio managers and research analysts managing the Fund.
The managers make ongoing decisions regarding the Fund's average maturity and
the Fund's country, sector and foreign currency exposures. The manager uses
proprietary research and economic analysis to identify attractive markets and
currencies and undervalued sectors and securities.
The Fund normally:
.. invests in at least 3 countries, but normally in 10 to 35 countries;
.. has an average credit quality rating of "A" or "AA";
.. invests up to 15% in emerging market and high yield debt securities; and
.. has 10% or less of its assets in cash and cash equivalents.
The Fund is "non-diversified," which means that it can take larger positions in
individual issuers.
The Fund may purchase other types of securities that are not primary investment
vehicles, for example: certain derivatives (investments whose value is based on
indices or other securities). The Fund may use derivatives, such as futures and
forwards, to manage the Fund's average maturity relative to the benchmark and
to implement foreign currency strategies. Currency management strategies are
primarily used for hedging purposes and to protect against anticipated changes
in foreign currency exchange rates.
In abnormal market conditions, the Fund may take temporary defensive
measures--such as holding unusually large amounts of cash and cash
equivalents--that are inconsistent with the Fund's primary investment strategy.
In taking those measures, the Fund may not achieve its investment goal.
- --------------------------------------------------------------------------------
SUBADVISER
Capital Guardian Trust Company
333 South Hope Street
Los Angeles, California 90071
Managing since 1968
Managing Fund since November, 2000
Managed approximately $146 billion in assets at the end of 2003
FUND MANAGERS
Team managed by 4 Portfolio Managers
Average 15 years with Capital Guardian
Average 23 years industry experience
See Appendix A for more details
PAST PERFORMANCE
The bar chart shows how the performance of the Fund's NAV shares has varied
from year to year, while the table shows performance over time (along with a
broad-based market index for reference). This information may help provide an
indication of the Fund's risks and potential rewards. All figures assume
dividend reinvestment. Past performance does not indicate future results. The
performance figures below do not reflect the deduction of fees and charges
payable under the variable contracts. Such fees and charges would cause the
investment returns under the contracts to be less than that shown below.
Year-by-year total returns -- calendar years
[CHART]
1997 1998 1999 2000 2001 2002 2003
- ----- ----- ------ ------ ------ ------ ------
9.05% 9.15% -2.16% 12.00% -1.45% 18.85% 15.91%
Best quarter: up 10.75% second quarter 2002 Worst quarter: down 3.18% fourth
quarter 2001
Average annual total returns -- for periods ending 12/31/2003*
Fund Index 1 Index 2**
1 year 15.91% 14.91% 14.91%
5 Years 8.27% 5.75% 9.00%
Life of fund 8.65% 6.50% 9.36%
Index 1: Citigroup World Government Bond Index, Unhedged
Index 2: A composite index combining the performance of the following indices
over the periods indicated: 75% Lehman Brothers Aggregate Bond Index / 25% JP
Morgan Non-US Government Bond Index, US Dollar Hedged (from inception through
April, 1999); JP Morgan Global Government Bond Index, US Dollar Hedged (from
May, 1999 through October, 2000); and Citigroup World Government Bond Index,
Unhedged (after October, 2000)
* Began operations on May 1, 1996.
** John Hancock believes Index 2 is a more suitable index against which to
measure the Fund's performance because it more closely matches the Fund's
changes in investment strategy since inception.
76
MAIN RISKS
Primary
Foreign Risk: The Fund's foreign securities will pose special risks, due to
limited government regulation, lack of public information, economic, political
and social instability and foreign currency rate fluctuations. Factors such as
lack of liquidity, foreign ownership limits and restrictions on removing
currency also pose special risks. All foreign securities have some degree of
foreign risk. However, the Fund's investments in emerging market countries have
a significantly higher degree of foreign risk than investments in developed or
newly-industrialized countries.
Market Risk: The value of the securities in the Fund may go down in response
to overall stock or bond market movements. Markets tend to move in cycles, with
periods of rising prices and periods of falling prices. Stocks tend to go up
and down in value more than bonds. If the Fund's investments are concentrated
in certain sectors, the Fund's performance could be worse than the overall
market.
Non-Diversified Fund Risk: The Fund's larger position in foreign government
securities could produce more volatile performance relative to funds with
smaller positions. The less diversified a fund's holdings are, the more likely
it is that a specific security's poor performance will hurt the
fund significantly.
Manager Risk: The manager and its strategy may fail to produce the intended
results. The Fund could underperform its peers or lose money if the manager's
investment strategy does not perform as expected.
Interest Rate Risk: When interest rates rise, the Fund's bond yields will
generally rise and the Fund's bond prices will generally fall. When interest
rates fall, the reverse will generally occur. The longer the average remaining
maturity of bonds held by the Fund, the more sensitive the Fund is to interest
rate risk. This Fund has more interest rate risk than a short-term bond fund,
but less interest rate risk than a long-term bond fund.
Credit Risk: An issuer of a bond held by the Fund may default on its
obligation to pay interest and repay principal. Also, the credit rating of a
bond held by the fund may be downgraded. In either case, the value of the bond
held by the Trust would fall. All bonds have some credit risk, but in general
lower-rated bonds have higher credit risk.
Concentration Risk. The Fund's investment in securities of a smaller number of
issuers could produce more volatile performance relative to funds that invest
in a larger number of issuers. The more concentrated a fund's holdings are, the
more likely it is a specific security's poor performance will hurt the fund
significantly.
Secondary
Derivatives Risk: Certain derivative instruments (such as options, futures and
swaps) can produce disproportionate gains or losses. They are generally
considered more risky than direct investments. Also, in a down market,
derivatives could become harder to value or sell at a fair price.
Prepayment/Call Risk: The Fund's share price or yield could be hurt if
interest rate movements cause the Fund's mortgage-related and callable
securities to be paid off substantially earlier than expected.
- --------------------------------------------------------------------------------
FEES AND EXPENSES OF THE FUND
These tables describe the fees and expenses you may pay if you buy and hold NAV
shares of the Fund and do not reflect the expenses and charges of the
applicable separate accounts and variable contracts. Those expenses and charges
vary considerably from contract to contract and are described in your variable
contract prospectus.
Shareholder Fees (fees paid directly from your investment) None
Annual Fund Operating Expenses (expenses that are deducted from Fund assets, as
a percentage of average net assets for the fiscal year ended December 31, 2003)
Distribution Total Annual
Investment and Fund Net Fund
Management Service Other Operating Expense Operating
Fee (12b-1) Fee Expenses Expenses Reimbursements(1) Expenses
--- ----------- -------- -------- ----------------- --------
0.85% N/A 0.13% 0.98% 0.00% 0.98%
(1) Amounts shown reflect the discontinuance of John Hancock's agreement to
reimburse the Fund for "other fund expenses" in 2003 that exceeded 0.10%
per Annum of the Fund's average daily net assets.
Examples. The Examples are intended to help you compare the cost of investing
in NAV shares of the Fund with the costs of investing in other mutual funds.
The Examples assume that you invest $10,000 directly in the shares for the time
periods indicated, and then redeem all your shares at the end of those periods.
The Examples also assume that your investment has a 5% return each year, the
reinvestment of all dividends and distributions, and that the Fund's operating
expenses remain the same. Although actual Fund costs may be higher or lower,
the Examples show what the Fund costs would be based on these assumptions.
Year 1 Year 3 Year 5 Year 10
$100 $312 $542 $1,201
77
Money Market Fund
GOAL AND STRATEGY
This is a money market fund that seeks to preserve capital and liquidity while
also seeking to achieve a competitive yield. The Fund intends to maintain a
stable net asset value of $1.00 per share.
The Fund invests in U.S. dollar denominated money market instruments rated in
one of the two highest short-term credit rating categories, primarily including:
.. commercial paper and other short-term obligations of U.S. and foreign issuers
(including asset-backed securities);
.. certificates of deposit, bank notes and other obligations of U.S. and foreign
banks and other lending institutions;
.. debt securities issued by foreign governments and agencies;
.. U.S. Treasury, agency and state and local government obligations; and,
.. repurchase agreements.
The manager's investment approach combines top-down analysis with fundamental
bottom-up security selection. The manager considers factors such as the
anticipated level of interest rates and the maturity of individual securities
to determine the Fund's overall weighted average maturity. The manager seeks
securities;
.. with an acceptable maturity;
.. issued by issuers on a sound financial footing;
.. that are marketable and liquid; and
.. that offer competitive yields.
The Fund only invests in individual securities with a maximum remaining
maturity of 397 days (13 months). The overall weighted average maturity of the
Fund's investments is 90 days or less. The Fund may invest:
.. up to 5% of assets in securities rated in the second-highest short-term
category (or unrated equivalents); and
.. up to 1% of assets or $1 million (whichever is greater) in securities of a
single issuer rated in the second-highest short-term category (or unrated
equivalents).
- --------------------------------------------------------------------------------
SUBADVISER
Wellington Management Company, LLP
75 State Street
Boston, Massachusetts 02109
Managing, with predecessors, since 1928
Managing Fund since May, 2001
Managed approximately $394 billion in assets at the end of 2003
FUND MANAGER
John Keogh
- ---------------------
Senior Vice President and Partner of subadviser
Joined subadviser in 1983
PAST PERFORMANCE
The bar chart shows how the performance of the Fund's NAV shares has varied
from year to year, while the table shows performance over time. This
information may also help provide an indication of the Fund's risks and
potential rewards. All figures assume dividend reinvestment. Past performance
does not indicate future results. The performance figures below do not reflect
the deduction of fees and charges payable under the variable contracts. Such
fees and charges would cause the investment returns under the contracts to be
less than that shown below.
Year-by-year total returns -- calendar years
[CHART]
1994 1995 1996 1997 1998 1999 2000 2001 2002 2003
- ----- ----- ----- ----- ----- ----- ----- ----- ----- ------
4.03% 5.78% 5.32% 5.38% 5.40% 5.05% 6.29% 3.93% 1.48% 0.95%
Best quarter: up 1.62% first quarter 2000 Worst quarter: up 0.21% third
quarter 2003
Average annual total return -- for periods ending 12/31/2003
Fund
1 year 0.95%
5 years 3.52%
10 years 4.36%
78
MAIN RISKS
Primary
Manager Risk: The manager and its strategy may fail to produce the intended
results. The Fund could underperform its peers or lose money if the manager's
investment strategy does not perform as expected.
Interest Rate Risk: When interest rates rise, yields on the Fund's investments
will generally rise and prices on the Fund's investments will generally fall.
When interest rates fall, the reverse will generally occur. The longer the
average remaining maturity of instruments held by the Fund, the more sensitive
the Fund is to interest rate risk. This Fund has less interest rate risk than
an intermediate-term or long-term bond fund.
Although U.S. government securities are considered to be among the safest
investments, they are not guaranteed against price movements due to changing
interest rates.
Credit Risk: An issuer of an instrument held by the Fund may default on its
obligation to pay interest and repay principal. Also, the credit rating of an
instrument held by the Fund may be downgraded. In either case, the value of the
instrument held by the Fund would fall. All money market instruments have some
credit risk, but in general lower-rated instruments have higher credit risk.
Obligations issued by some U.S. government agencies are backed by the U.S.
Treasury, while others are backed solely by the ability of the agency to borrow
from the U.S. Treasury or by the agency's own resources.
Principal Risk: An investment in the Fund is not a bank deposit and is not
guaranteed as to principal and interest. Although the Fund seeks to maintain a
stable net asset value of $1.00 per share, investors may lose money by
investing in the Fund.
Foreign Risk: The Fund's foreign securities will pose special risks, due to
limited government regulation, lack of public information, and economic,
political and social instability. Factors such as lack of liquidity, foreign
ownership limits and restrictions on removing currency also pose special risks.
All foreign securities have some degree of foreign risk.
Secondary
None
- --------------------------------------------------------------------------------
FEES AND EXPENSES OF THE FUND
These tables describe the fees and expenses you may pay if you buy and hold NAV
shares of the Fund and do not reflect the expenses and charges of the
applicable separate accounts and variable contracts. Those expenses and charges
vary considerably from contract to contract and are described in your variable
contract prospectus.
Shareholder Fees (fees paid directly from your investment) None
Annual Fund Operating Expenses (expenses that are deducted from Fund assets, as
a percentage of average net assets for the fiscal year ended December 31, 2003)
Distribution Total Annual
Investment and Fund Net Fund
Management Service Other Operating Expense Operating
Fee (12b-1) Fee Expenses Expenses Reimbursements Expenses
--- ----------- -------- -------- -------------- --------
0.25% N/A 0.06% 0.31% 0.0% 0.31%
Examples. The Examples are intended to help you compare the cost of investing
in NAV shares of the Fund with the costs of investing in other mutual funds.
The Examples assume that you invest $10,000 directly in the shares for the time
periods indicated, and then redeem all your shares at the end of those periods.
The Examples also assume that your investment has a 5% return each year, the
reinvestment of all dividends and distributions, and that the Fund's operating
expenses remain the same. Although Fund actual costs may be higher or lower,
the Examples show what the Fund costs would be based on these assumptions.
Year 1 Year 3 Year 5 Year 10
$32 $100 $174 $393
79
Your Account
Investments in shares of the funds
Each fund sells its NAV shares directly to separate accounts of John Hancock,
JHVLICO and other insurance companies to fund variable contracts. Each fund
also buys back its NAV shares on redemption by the separate accounts.
Under the variable contracts, a separate account buys or redeems a fund's
shares based on:
.. instructions by you and other contractowners to invest or receive back monies
under a contract (such as making a premium payment or surrendering a
contract), and
.. the operation of a contract (such as deduction of fees and charges).
The Trust, as law permits, may:
.. refuse a buy order if the adviser believes it would disrupt management
.. suspend a fund's offer of shares, or
.. suspend a fund's redemption obligation or postpone a fund's payment of
redemption proceeds for more than seven days.
Share price
Each fund sells and buys back its NAV shares at the net asset value per share
next computed after receipt by a separate account of a contractowner's
instructions.
Each fund calculates its net asset value per share:
.. by dividing its net assets by the number of its outstanding shares,
.. once daily as of the close of regular trading on the New York Stock Exchange
(generally at 4 p.m. New York time) on each day the Exchange is open.
Valuation
The Money Market Fund values its securities at amortized cost. Each of the
other funds values securities based on:
.. market quotations,
.. amortized cost,
.. valuations of independent pricing services, or
.. fair value determined in accordance with procedures approved by the Trust's
trustees.
A fund may value securities at fair value where, for example:
.. market quotations are not readily available, or
.. the value of securities has been materially affected after the closing of a
foreign market.
Certain funds may hold securities primarily listed on foreign exchanges that
trade on weekends or other days when the Trust does not calculate share price .
Consequently, share price may change on days when contractowners will not be
able to instruct a separate account to buy or redeem fund shares.
Conflicts
The Trust's trustees monitor for possible material irreconcilable conflicts
among separate accounts buying shares of the funds. The Trust's net asset value
could decrease, if the Trust had to sell investment securities to pay
redemption proceeds to a separate account withdrawing because of a conflict.
80
Funds' Expenses
The advisory fee paid by each fund to the adviser in 2003 was:
Funds % of net assets
Equity Index Fund .13%
Large Cap Value Fund .75%
Large Cap Growth Fund .80%
Large Cap Growth B Fund .89%
Fundamental Growth Fund .90%
Earnings Growth Fund .96%
Growth & Income Fund .67%
Fundamental Value Fund .79%
Fundamental Value B Fund* .75%
Mid Cap Value Fund 1.10%
Mid Cap Value B Fund** 1.05%
Mid Cap Growth Fund*** .96%
Small Cap Value Fund .95%
Small Cap Emerging Growth Fund 1.01%
Small Cap Growth Fund 1.05%
International Equity Index Fund .17%
Overseas Equity Fund 1.05%
Overseas Equity B Fund**** 1.13%
Overseas Equity C Fund***** 1.50%
Real Estate Equity Fund .98%
Health Sciences Fund 1.00%
Financial Industries Fund .80%
Managed Fund .68%
Short-Term Bond Fund .60%
Bond Index Fund .14%
Active Bond Fund .61%
Total Return Bond Fund .70%
High Yield Bond Fund .80%
Global Bond Fund .85%
Money Market Fund .25%
* Formerly Large Cap Value CORE/SM/
** Formerly Small/Mid Cap CORE/SM/
*** Formerly Small/Mid Cap Growth
**** Formerly International Opportunities
***** Formerly Emerging Markets Equity
The adviser pays subadvisory fees out of its own assets. No fund pays a fee to
its subadviser(s). The adviser has agreed to limit annual expenses (excluding
advisory fees and certain other expenses such as brokerage and taxes) for each
fund (other than the International Equity Index Fund, Overseas Equity Fund,
Overseas Equity B Fund, Overseas Equity C Fund, Health Sciences Fund and Global
Bond Fund) to not more than 0.10 percent of the fund's average daily net assets.
Dividends and Taxes
Dividends
Each fund automatically reinvests its dividends and distributions in additional
shares of the fund at net asset value per share.
Each fund declares and pays dividends monthly.
Funds generally declare capital gains distributions annually.
Taxes
Each fund must meet investment diversification and other requirements under the
Internal Revenue Code, in order to:
.. avoid federal income tax and excise tax, and
.. assure the tax-deferred treatment of variable contracts under the Code.
You should read the prospectus for your variable contract for the federal
income tax consequences for contractowners, including the consequences of a
fund's failure to meet Code requirements.
Share Classes
The Trust has four classes of shares: NAV shares, Series I, Series II and
Series III. Each class is identical except that Series I and Series II shares
have a distribution or "Rule 12b-1 Plan" expense that is described in the
prospectus relating to that Series' shares.
Series III shares are not currently available for sale. The offering of Series
III shares and the amount of class expenses of Series III shares are subject to
the approval of the Trustees of the Trust.
81
FINANCIAL HIGHLIGHTS
The financial highlights on the following pages detail the historical
performance of NAV shares for each fund in operation at December 31, 2003,
including total return information for the past 5 years (or such shorter period
as the fund has been in operation). The "total returns" shown represent the
rate that an investor in NAV shares would have earned (or lost) on an
investment in the fund (assuming reinvestment of all dividends and
distributions). Certain information reflects financial results for a single
fund share. The "Total Investment Return" shown for each fund does not reflect
the expenses and charges of the applicable separate accounts and variable
contracts. Those expenses and charges vary considerably from contract to
contract and are described in the variable contract prospectus to which this
prospectus is attached. Had these been included, the "Total Investment Return"
shown in the Table would be lower. The financial highlights have been audited
by Ernst & Young LLP, whose report (along with the Trust's financial
statements) are included in the Trust's annual report, which is available upon
request.
- --------------------------------------------------------------------------------
Income from Investment Operations
---------------------------------------
Net Realized
Net Asset Net and Total
Value at Investment Unrealized From
Beginning Income Gain (Loss) Investment
of Period Gain (Loss) on Investments(a) Operations
--------- ----------- ----------------- ----------
Equity Index Fund
- -----------------
Year Ended December 31,
2003.................................. $11.36 $ 0.20 $ 3.00 $ 3.20
2002.................................. 14.85 0.16 (3.48) (3.32)
2001.................................. 17.64 0.19 (2.30) (2.11)
2000.................................. 20.46 0.22 (2.09) (1.87)
1999.................................. 17.70 0.27 3.41 3.68
- -------------------------------------------------------------------------------------------
Large Cap Value Fund
- --------------------
Year Ended December 31,
2003.................................. 11.91 0.23 2.76 2.99
2002.................................. 14.15 0.22 (2.07) (1.85)
2001.................................. 14.38 0.22 (0.05) 0.17
2000.................................. 13.49 0.27 1.45 1.72
1999.................................. 14.02 0.27 0.18 0.45
- -------------------------------------------------------------------------------------------
Fundamental Value B Fund (formerly,
"Large Cap Value CORE Fund")
----------------------------
Year Ended December 31,
2003.................................. 7.95 0.12 2.15 2.27
2002.................................. 9.83 0.11 (1.88) (1.77)
2001.................................. 10.42 0.09 (0.59) (0.50)
2000.................................. 10.16 0.15 0.36 0.51
Period from August 31, to December 31,
1999 (commencement of investment
operations)........................... 10.00 0.04 0.31 0.35
- -------------------------------------------------------------------------------------------
Large Cap Growth Fund
- ---------------------
Year Ended December 31,
2003.................................. 11.18 0.06 2.80 2.86
2002.................................. 15.54 0.04 (4.36) (4.32)
2001.................................. 18.89 0.04 (3.36) (3.32)
2000.................................. 27.33 0.03 (4.89) (4.86)
1999.................................. 26.19 0.09 6.03 6.12
- -------------------------------------------------------------------------------------------
Large Cap Growth B Fund (formerly
"Large Cap Aggressive Growth Fund")
-----------------------------------
Year Ended December 31,
2003.................................. 5.57 -- (b) 1.76 1.76
2002.................................. 8.12 (0.01) (2.54) (2.55)
2001.................................. 9.52 0.01 (1.41) (1.40)
2000.................................. 11.94 (0.03) (2.21) (2.24)
Period from August 31, to December 31,
1999 (commencement of investment
operations)........................... 10.00 (0.01) 2.03 2.02
- -------------------------------------------------------------------------------------------
(a) The amount shown at this caption for each fund share outstanding throughout
the year may not accord with the change in the aggregate gains and losses
in the portfolio securities for the year because of the timing of the
purchases and withdrawals of the fund shares in relation to the fluctuating
market values of the portfolio.
(b) Amount shown is less than $0.01.
82
- --------------------------------------------------------------------------------
Less Distributions
- ---------------------------------------------------------------------------------- --------------
Distribution
Distribution From Net Distribution in Distribution Net Assets
From Net Realized Excess of From Value at Total Net Assets
Investment Gains on Net Investment Capital Total Capital End Investment End of Period
Income Investments Income/Gains Paid-in Distributions Contributions of Period Return (000s Omitted)
- ------------ ------------ --------------- ------------ ------------- ------------- ---------- ---------- --------------
$(0.31) $(0.07) $ -- $ -- $(0.38) $ -- $14.18 28.42% $ 681,681
(0.11) (0.06) -- -- (0.17) -- 11.36 (22.31)% 466,258
(0.19) (0.49) -- -- (0.68) -- 14.85 (11.98)% 538,791
(0.22) (0.72) -- (0.01) (0.95) -- 17.64 (9.15)% 525,659
(0.26) (0.66) -- -- (0.92) -- 20.46 21.08% 451,296
- ------------------------------------------------------------------------------------------------------------------------
(0.24) (0.20) -- -- (0.44) -- 14.46 (25.51)% 365,563
(0.22) (0.17) -- -- (0.39) -- 11.91 (13.24)% 260,141
(0.22) (0.18) -- -- (0.40) -- 14.15 1.25% 260,646
(0.28) (0.53) (0.01) (0.01) (0.83) -- 14.38 12.97% 204,535
(0.27) (0.71) -- -- (0.98) -- 13.49 3.28% 155,849
- ------------------------------------------------------------------------------------------------------------------------
(0.12) (0.34) -- -- (0.46) -- 9.76 28.86% 53,034
(0.11) -- -- -- (0.11) -- 7.95 (18.21)% 40,765
(0.09) -- -- -- (0.09) -- 9.83 (4.75)% 60,832
(0.15) (0.06) (0.03) (0.01) (0.25) -- 10.42 5.12% 18,164
(0.03) (0.14) (0.01) (0.01) (0.19) -- 10.16 3.58%* 6,371
- ------------------------------------------------------------------------------------------------------------------------
(0.06) (0.02) -- -- (0.08) -- 13.96 25.62% 624,401
(0.04) -- -- -- (0.04) -- 11.18 (27.82)% 496,628
(0.03) -- -- -- (0.03) -- 15.54 (17.54)% 770,915
(0.04) (2.69) (0.78) (0.07) (3.58) -- 18.89 (17.89)% 1,146,787
(0.09) (4.89) -- -- (4.98) -- 27.33 24.07% 1,382,473
- ------------------------------------------------------------------------------------------------------------------------
-- (0.97) -- -- (0.97) -- 6.36 31.72% 30,919
-- -- -- -- -- -- 5.57 (31.36)% 24,249
-- -- -- -- -- -- 8.12 (14.69)% 39,738
-- (0.01) (0.06) (0.11) (0.18) -- 9.52 (18.77)% 26,244
-- (0.08) -- -- (0.08) -- 11.94 20.18%* 15,074
- ------------------------------------------------------------------------------------------------------------------------
Ratios/Supplemental Data
- ------------------------------------
Net
Operating Investment
Expenses to Income (Loss) Portfolio
Average to Average Turnover
Net Assets Net Assets Rate
- ----------- ------------- ---------
0.21%(d) 1.59% 4.91%
0.23% 1.39% 10.63%
0.20% 1.20% 17.61%(c)
0.19% 1.12% 34.11%
0.00%(e) 1.42% 55.24%
- ---------------------------------------
0.82%(d) 1.83% 17.73%
0.83% 1.67% 16.04%
0.82% 1.54% 18.19%
0.78% 2.04% 42.12%
0.85% 1.88% 32.62%
- ---------------------------------------
0.85%(f) 1.38% 105.62%
0.84%(f) 1.18% 89.43%
0.85%(f) 0.98% 74.91%(c)
0.85%(f) 1.54% 59.15%
0.85%**(f) 1.13%** 30.90%*
- ---------------------------------------
0.86%(d) 0.51% 99.47%(c)
0.55% 0.33% 95.04%
0.41% 0.23% 63.96%
0.46% 0.10% 89.30%
0.39% 0.33% 37.42%
- ---------------------------------------
0.99%(g) (0.08)% 220.12%
0.97%(g) (0.14)% 61.67%
0.97%(g) (0.06)% 87.90%
1.00%(g) (0.37)% 75.97%
1.08%(g)** (0.39)%** 18.97%*
- ---------------------------------------
* Not Annualized.
** Annualized.
(c) Excludes merger activity.
(d) The Fund is required to calculate an expense ratio without taking into
consideration any expense reductions related to expense offset arrangements.
(e) Expense ratio is net of expense reimbursements. Had such reimbursements not
been made, the annual expense ratio would have been .22% for the year ended
December 31, 1999.
(f) Expense ratio is net of expense reimbursements. Had such reimbursements not
been made, the annual expense ratio would have been 0.94%, .97%, .88%,
1.09% and 1.17% for the years ended December 31, 2003, 2002, 2001, 2000 and
1999, respectively.
(g) Expense ratio is net of expense reimbursements. Had such reimbursements not
been made, the annual expense ratio would have been .99%, .98%, 1.06%,
1.05% and 1.17% for the years ended December 31, 2003, 2002, 2001, 2000 and
1999, respectively.
83
FINANCIAL HIGHLIGHTS (continued)
- --------------------------------------------------------------------------------
Income from Investment Operations
----------------------------------------------
Net Realized
Net Asset Net and Total
Value at Investment Unrealized From
Beginning Income Gain (Loss) Investment
of Period Gain (Loss) on Investments(a) Operations
--------- ----------- ----------------- ----------
Growth & Income Fund
- --------------------
Year Ended December 31,
2003.......................................................... $ 9.22 $ 0.10 $ 2.12 $ 2.22
2002.......................................................... 11.93 0.08 (2.71) (2.63)
2001.......................................................... 14.18 0.06 (2.25) (2.19)
2000.......................................................... 20.01 0.17 (2.77) (2.60)
1999.......................................................... 19.49 0.20 2.88 3.08
The Fund entered into new sub-advisory agreements with Putnam Investment Management, LLC during the year 2000 and with T. Rowe
Price Associates, Inc. during the year 2003.
- ------------------------------------------------------------------------------------------------------------------------------
Fundamental Value Fund
- ----------------------
Year Ended December 31,
2003.......................................................... 8.70 0.14 2.33 2.47
2002.......................................................... 10.66 0.12 (1.96) (1.84)
2001.......................................................... 11.57 0.10 (0.91) (0.81)
2000.......................................................... 10.42 0.09 1.30 1.39
Period from August 31,
to December 31, 1999 (commencement of investment operations)... 10.00 0.03 0.45 0.48
- ------------------------------------------------------------------------------------------------------------------------------
Earnings Growth Fund
- --------------------
Year Ended December 31,
2003.......................................................... 6.65 0.01 1.64 1.65
2002.......................................................... 9.84 (0.04) (3.15) (3.19)
2001.......................................................... 15.60 (0.06) (5.70) (5.76)
2000.......................................................... 29.22 (0.05) (10.49) (10.54)
1999.......................................................... 15.12 (0.19) 17.70 17.51
The Fund entered into a new sub-advisory agreement with Fidelity Management & Research Company during the year 2003.
- ------------------------------------------------------------------------------------------------------------------------------
Fundamental Growth Fund
- -----------------------
Year Ended December 31,
2003.......................................................... 5.91 (0.01) 1.88 1.87
2002.......................................................... 8.48 (0.06) (2.51) (2.57)
2001.......................................................... 12.52 (0.03) (4.01) (4.04)
2000.......................................................... 14.42 (0.02) (0.44) (0.46)
Period from August 31, to
December 31, 1999 (commencement of investment operations)...... 10.00 (0.02) 5.34 5.32
The Fund entered into new sub-advisory agreements with Putnam Investment Management, LLC during the year 2000 and with In-
dependence Investment LLC during the year 2003.
- ------------------------------------------------------------------------------------------------------------------------------
Mid Cap Value
- -------------
Period from May 1, to December 31,
2003 (commencement of investment operations).................. 10.00 0.04 3.64 3.68
- ------------------------------------------------------------------------------------------------------------------------------
Mid Cap Value B Fund (formerly "Small/Mid Cap CORE Fund")
- ---------------------------------------------------------
Year Ended December 31,
2003.......................................................... 8.28 0.04 3.69 3.73
2002.......................................................... 9.82 0.04 (1.54) (1.50)
2001.......................................................... 9.82 0.05 -- 0.05
2000.......................................................... 9.82 0.05 0.39 0.44
1999.......................................................... 9.02 0.02 1.77 1.79
- ------------------------------------------------------------------------------------------------------------------------------
Mid Cap Growth Fund (formerly "Small/Mid Cap Growth Fund")
- ----------------------------------------------------------
Year Ended December 31,
2003.......................................................... 10.98 (0.02) 5.15 5.13
2002.......................................................... 14.09 (0.09) (2.88) (2.97)
2001.......................................................... 13.70 (0.06) 0.45 0.39
2000.......................................................... 14.03 (0.02) 1.27 1.25
1999.......................................................... 15.94 (0.07) 0.74 0.67
- ------------------------------------------------------------------------------------------------------------------------------
(a) The amount shown at this caption for each fund share outstanding throughout
the year may not accord with the change in the aggregate gains and losses
in the portfolio securities for the year because of the timing of the
purchases and withdrawals of the fund shares in relation to the fluctuating
market values of the portfolio.
84
- --------------------------------------------------------------------------------
Less Distributions
- ---------------------------------------------------------------------------------- --------------
Distribution
Distribution From Net Distribution in Distribution Net Assets
From Net Realized Excess of From Value at Total Net Assets
Investment Gains on Net Investment Capital Total Capital End Investment End of Period
Income Investments Income/Gains Paid-in Distributions Contributions of Period Return (000s Omitted)
- ------------ ------------ --------------- ------------ ------------- ------------- ---------- ---------- --------------
$(0.10) $(0.05) $ -- $ -- $(0.15) $ -- $11.29 24.35% $2,128,021
(0.08) -- -- -- (0.08) -- 9.22 (22.18)% 1,762,203
(0.06) -- -- -- (0.06) -- 11.93 (15.44)% 2,476,319
(0.17) (2.69) (0.14) (0.23) (3.23) -- 14.18 (13.10)% 3,324,988
(0.20) (2.36) -- -- (2.56) -- 20.01 16.23% 4,218,841
- -------------------------------------------------------------------------------------------------------------------------
(0.14) (0.01) -- -- (0.15) -- 11.02 28.70% 138,855
(0.12) -- -- -- (0.12) -- 8.70 (17.40)% 121,102
(0.10) -- -- -- (0.10) -- 10.66 (6.99)% 161,710
(0.10) (0.08) (0.06) -- (0.24) -- 11.57 13.41% 15,728
(0.03) (0.02) (0.01) -- (0.06) -- 10.42 4.72%* 6,101
- -------------------------------------------------------------------------------------------------------------------------
-- (0.13) -- -- (0.13) -- 8.17 24.80% 196.365
-- -- -- -- -- -- 6.65 (32.39)% 159,859
-- -- -- -- -- -- 9.84 (36.93)% 245,899
-- (0.41) (1.61) (1.06) (3.08) -- 15.60 (35.86)% 393,988
-- (3.41) -- -- (3.41) -- 29.22 118.31% 452,937
- -------------------------------------------------------------------------------------------------------------------------
-- (0.65) -- -- (0.65) -- 7.13 31.77% 26,057
-- -- -- -- -- -- 5.91 (30.28)% 20,065
-- -- -- -- -- -- 8.48 (32.23)% 37,897
-- (0.76) (0.65) (0.03) (1.44) -- 12.52 (3.03)% 46,114
-- (0.90) -- -- (0.90) -- 14.42 54.57%* 9,175
- -------------------------------------------------------------------------------------------------------------------------
(0.04) (0.43) -- -- (0.47) -- 13.21 36.77%** 24,490
- -------------------------------------------------------------------------------------------------------------------------
(0.04) (0.99) -- -- (1.03) -- 10.98 45.15% 93,902
(0.04) -- -- -- (0.04) -- 8.28 (15.19)% 48,143
(0.05) -- -- -- (0.05) -- 9.82 0.53% 46,446
(0.05) (0.32) (0.05) (0.02) (0.44) -- 9.82 4.63% 21,636
(0.03) (0.96) -- -- (0.99) -- 9.82 20.54% 8,248
- -------------------------------------------------------------------------------------------------------------------------
-- (1.04) -- -- (1.04) -- 15.07 46.87% 223,022
-- (0.14) -- -- (0.14) -- 10.98 (21.13)% 140,958
-- -- -- -- -- -- 14.09 2.83% 185,232
-- (1.43) (0.15) -- (1.58) -- 13.70 9.25% 190,010
-- (2.41) -- (0.17) (2.58) -- 14.03 5.15% 181,931
- -------------------------------------------------------------------------------------------------------------------------
Ratios/Supplemental Data
- ---------------------------------------
Net
Operating Investment
Expenses to Income (Loss) Portfolio
Average to Average Turnover
Net Assets Net Assets Rate
- ----------- ------------- ---------
0.73%(d) 1.00% 91.53%(c)
0.75% 0.73% 73.60%
0.72% 0.49% 104.47%(c)
0.40% 0.84% 112.94%
0.28% 0.98% 70.16%
- ------------------------------------------
0.89%(d)(h) 1.44% 69.21%
0.85% 1.26% 82.22%
0.99%(h) 0.91% 85.20%(c)
1.05%(h) 0.97% 86.97%
1.05%(h)** 0.94%** 23.03%*
- ------------------------------------------
1.05%* 0.17% 124.28%
1.04% (0.42)% 192.54%
0.94% (0.49)% 111.69%
0.85% (0.43)% 140.94%
0.93% (0.68)% 106.06%
- ------------------------------------------
1.00% (0.38)% 201.18%
1.00%(i) (0.52)% 93.77%
1.00%(i) (0.46)% 118.01%(c)
0.96%(i) (0.38)% 250.46%
0.95%(i)** (0.55%)** 61.66%*
- ------------------------------------------
1.20%(d)(j)** 0.58%** 56.93%*
- ------------------------------------------
1.15%(k) 0.45% 125.00%
0.96%(k) 0.50% 125.11%
0.90%(k) 0.52% 96.88%
0.90%(k) 0.56% 94.78%
0.94%(k) 0.30% 109.12%
- ------------------------------------------
1.06%(d) (0.40)% 124.21%
1.07%(l) (0.72)% 130.01%
0.91%(l) (0.40)% 113.73%
0.85% (0.20)% 103.19%
0.85% (0.27)% 172.58%
- ------------------------------------------
* Not annualized.
** Annualized.
(c) Excludes merger activity.
(d) The Fund is required to calculate an expense ratio without taking into
consideration any expense reductions related to expense offset arrangements.
(h) Expense ratio is net of expense reimbursements. Had such reimbursements not
been made, the annual expense ratio would have been .90%, 1.20%, 1.36% and
1.42% for the years ended December 31, 2003, 2001, 2000 and 1999,
respectively.
(i) Expense ratio is net of expense reimbursements. Had such reimbursements not
been made, the annual expense ratio would have been 1.16%, 1.19%, 1.00% and
1.09% for the years ended December 31, 2002, 2001, 2000 and 1999,
respectively.
(j) Expense Ratio is net of expense reimbursements. Had such reimbursements not
been made, the expense ratio would have been 1.47% for the years ended
December 31, 2003.
(k) Expense ratio is net of expense reimbursements. Had such reimbursements not
been made, the annual expense ratio would have been 1.19%, 1.12%, 1.15%,
1.23%, and 2.24% for the years ended December 31, 2003, 2002, 2001, 2000,
and 1999, respectively.
(l) Expense ratio is net of expense reimbursements. Had such reimbursements not
been made, the annual expense ratio would have been 1.07% and .91% for the
years ended December 31, 2002 and 2001.
85
FINANCIAL HIGHLIGHTS (continued)
- --------------------------------------------------------------------------------
Income from Investment Operations
---------------------------------------
Net Realized
Net Asset Net and Total
Value at Investment Unrealized From
Beginning Income Gain (Loss) Investment
of Period Gain (Loss) on Investments(a) Operations
--------- ----------- ----------------- ----------
Small Cap Emerging Growth Fund
- ------------------------------
Year Ended December 31,
2003.................................. $ 6.30 $(0.03) $ 3.07 $ 3.04
2002.................................. 8.79 0.01 (2.49) (2.48)
2001.................................. 9.14 0.01 (0.35) (0.34)
2000.................................. 10.92 0.14 (1.13) (0.99)
1999.................................. 11.59 0.09 (0.50) (0.41)
The Fund entered into new sub-advisory agreements with Capital Guardian Trust Company
during the year 2000 and with Wellington Management Company during the year 2003.
- -------------------------------------------------------------------------------------------
Small Cap Value Fund
- --------------------
Year Ended December 31,
2003.................................. 12.55 0.09 4.66 4.75
2002.................................. 13.76 0.08 (0.96) (0.88)
2001.................................. 11.70 0.09 2.14 2.23
2000.................................. 10.13 0.01 3.37 3.38
Period from August 31, to December 31,
1999 (commencement of investment
operations)........................... 10.00 -- 0.49 0.49
The Fund entered into a new sub-advisory agreement with Wellington Management Company, LLP
during the year 2002. The Fund entered into a new sub- advisory agreement with T. Rowe
Price Associates during the year 2001.
- -------------------------------------------------------------------------------------------
Small Cap Growth Fund
- ---------------------
Year Ended December 31,
2003.................................. 8.25 (0.09) 2.38 2.29
2002.................................. 11.77 (0.11) (3.41) (3.52)
2001.................................. 13.47 (0.08) (1.62) (1.70)
2000.................................. 19.12 (0.02) (4.16) (4.18)
1999.................................. 12.99 (0.21) 9.06 8.85
- -------------------------------------------------------------------------------------------
International Equity Index Fund
- -------------------------------
Year Ended December 31,
2003.................................. 10.05 0.24 3.91 4.15
2002.................................. 12.07 0.21 (2.02) (1.81)
2001.................................. 15.39 0.22 (3.32) (3.10)
2000.................................. 19.64 0.23 (3.64) (3.41)
1999.................................. 15.56 0.21 4.51 4.72
- -------------------------------------------------------------------------------------------
Overseas Equity B Fund (formerly,
"International Opportunities Fund")
-----------------------------------
Year Ended December 31,
2003.................................. 7.56 0.08 2.34 2.42
2002.................................. 9.30 0.07 (1.75) (1.68)
2001.................................. 11.85 0.06 (2.53) (2.47)
2000.................................. 15.17 0.07 (2.57) (2.50)
1999.................................. 12.21 0.10 3.95 4.05
The Fund entered into a new sub-advisory agreement with T. Rowe Price International, Inc.
during the year 2000.
- -------------------------------------------------------------------------------------------
Overseas Equity Fund
- --------------------
1Year Ended December 31,
2003.................................. 7.92 0.09 3.03 3.12
2002.................................. 8.57 0.10 (0.65) (0.55)
2001.................................. 9.27 0.11 (0.70) (0.59)
2000.................................. 10.71 0.23 (1.20) (0.97)
1999.................................. 11.12 0.29 0.25 0.54
The Fund entered into a new sub-advisory contract with Capital Guardian Trust Company
during the year 2000.
- -------------------------------------------------------------------------------------------
(a) The amount shown at this caption for each fund share outstanding throughout
the year may not accord with the change in the aggregate gains and losses
in the portfolio securities for the year because of the timing of the
purchases and withdrawals of the fund shares in relation to the fluctuating
market values of the portfolio.
86
- --------------------------------------------------------------------------------
Less Distributions
- ---------------------------------------------------------------------------------- --------------
Distribution
Distribution From Net Distribution in Distribution Net Assets
From Net Realized Excess of From Value at Total Net Assets
Investment Gains on Net Investment Capital Total Capital End Investment End of Period
Income Investments Income/Gains Paid-in Distributions Contributions of Period Return(b) (000s Omitted)
- ------------ ------------ --------------- ------------ ------------- ------------- ---------- ---------- --------------
$(0.01) $(1.23) $ -- $ -- $(1.24) $ -- $ 8.10 48.83% $ 86,579
(0.01) -- -- -- (0.01) -- 6.30 (28.21)% 50,327
(0.01) -- -- -- (0.01) -- 8.79 (3.78)% 71,193
(0.15) (0.14) (0.20) (0.30) (0.79) -- 9.14 (8.89)% 70,031
(0.07) (0.01) (0.18) -- (0.26) -- 10.92 (3.43)% 68,900
- ---------------------------------------------------------------------------------------------------------------------------
(0.09) (0.65) -- -- (0.74) -- 16.56 37.97% 189,733
(0.09) (0.24) -- -- (0.33) -- 12.55 (6.43)% 120,070
(0.09) (0.08) -- -- (0.17) -- 13.76 19.10% 103,224
(0.01) (1.80) -- -- (1.81) -- 11.70 34.19% 29,436
-- (0.36) -- -- (0.36) -- 10.13 5.08%* 5,570
- ---------------------------------------------------------------------------------------------------------------------------
-- (0.14) -- -- (0.14) -- 10.40 27.88% 149,277
-- -- -- -- -- -- 8.25 (29.95)% 120,723
-- -- -- -- -- -- 11.77 (12.61)% 189,401
-- (0.12) -- (1.35) (1.47) -- 13.47 (21.43)% 234,542
-- (2.72) -- -- (2.72) -- 19.12 70.38% 179,570
- ---------------------------------------------------------------------------------------------------------------------------
(0.29) (0.09) -- -- (0.38) -- 13.82 41.99% 159,036
(0.21) -- -- -- (0.21) -- 10.05 (15.18)% 98,917
(0.17) -- -- (0.05) (0.22) -- 12.07 (20.30)% 122,020
(0.18) (0.59) -- (0.07) (0.84) -- 15.39 (17.42)% 195,012
(0.21) (0.38) (0.05) -- (0.64) -- 19.64 30.87% 244,017
- ---------------------------------------------------------------------------------------------------------------------------
(0.13) -- -- -- (0.13) -- 9.85 32.36% 125.965
(0.06) -- -- -- (0.06) -- 7.56 (18.22)% 87,278
(0.05) -- -- (0.03) (0.08) -- 9.30 (20.93)% 83,591
(0.06) (0.62) (0.05) (0.09) (0.82) -- 11.85 (16.36)%(c) 120,034
(0.11) (0.94) (0.04) -- (1.09) -- 15.17 34.01% 79,794
- ---------------------------------------------------------------------------------------------------------------------------
(0.37) (0.25) -- -- (0.62) -- 10.42 39.85% 49,176
(0.10) -- -- -- (0.10) -- 7.92 (6.32)% 29,936
-- -- -- (0.11) (0.11) -- 8.57 (6.45)% 31,290
(0.24) (0.01) (0.10) (0.12) (0.47) -- 9.27 (9.08)% 28,527
(0.29) (0.44) (0.16) (0.06) (0.95) -- 10.71 5.11% 31,577
- ---------------------------------------------------------------------------------------------------------------------------
Ratios/Supplemental Data
- -------------------------------------
Net
Operating Investment
Expenses to Income (Loss) Portfolio
Average to Average Turnover
Net Assets Net Assets Rate
- ----------- ------------- ---------
1.11%(d)(m) 0.59% 235.48%
1.00%(m) 0.19% 45.03%
1.00%(m) 0.06% 60.73%
0.92%(m) 1.25% 189.57%
0.95%(m) 0.78% 117.33%
- ----------------------------------------
1.05%(d)(n) 0.67% 29.95%
1.04%(n) 0.62% 41.46%
1.05%(n) 0.87% 60.36%
1.05%(n) 0.13% 220.80%
1.05%**(n) (0.12)%** 51.97%*
- ----------------------------------------
1.15%(o) (0.87)% 108.43%
1.13% (0.83)% 77.38%
0.91%(o) (0.55)% 91.48%(c)
0.82% (0.50)% 97.73%
0.89% (0.70)% 113.11%
- ----------------------------------------
0.27%(p) 2.13% 37.90%
0.28%(p) 1.85% 17.55%
0.27%(p) 1.66% 8.31%
0.28%(p) 1.40% 14.86%
0.31%(p) 1.26% 19.01%
- ----------------------------------------
1.23%(q) 0.95% 40.85%
1.24%(q) 0.69% 78.14%(c)
1.00%(q) 0.64% 33.31%
0.93%(q) 0.47% 37.92%(c)
1.02%(q) 0.77% 34.02%
- ----------------------------------------
1.15%(d)(r) 0.84% 89.10%
1.15%(r) 1.28% 71.20%
1.15%(r) 1.30%(s) 53.11%
0.98%(r) 2.32% 204.98%
1.00%(r) 2.73% 131.21%
- ----------------------------------------
* Not Annualized.
** Annualized.
(c) Excludes merger activity.
(d) The Fund is required to calculate an expense ratio without taking into
consideration any expense reductions related to expense offset arrangements.
(m) Expense ratio is net of expense reimbursements. Had such reimbursements not
been made, the annual expense ratio would have been 1.21%, 1.04%, 1.02%,
.95% and .96% for the years ended December 31, 2003, 2002, 2001, 2000 and
1999, respectively.
(n) Expense ratio is net of expense reimbursements. Had such reimbursements not
been made, the annual expense ratio would have been 1.06%, 1.04%, 1.08%,
1.29% and 1.61% for the years ended December 31, 2003, 2002, 2001, and 2000
and 1999, respectively.
(o) Expense ratio is net of expense reimbursements. Had such reimbursements not
been made, the annual expense ratio would have been 1.22% and 0.94% for the
years ended December 31, 2003 and 2001, respectively.
(p) Expense ratio is net of expense reimbursements. Had such reimbursements not
been made, the annual expense ratio would have been .42%, .46%, .40%, .37%
and .38% for the years ended December 31, 2003, 2002, 2001, 2000 and 1999,
respectively.
(q) Expense ratio is net of expense reimbursements. Had such reimbursements not
been made, the annual expense ratio would have been 1.44%, 1.55%, 1.16%,
1.09% and 1.15% for the years ended December 31, 2003, 2002, 2001, 2000 and
1999, respectively.
(r) Expense ratio is net of expense reimbursements. Had such reimbursements not
been made, the annual expense ratio would have been 1.39%, 1.45%, 1.36%,
1.27% and 1.31% for the years ended December 31, 2003, 2002, 2001, 2000 and
1999, respectively.
(s) Had the Fund not amortized premiums and accreted discounts on debt
securities, the annual ratio of net investment income to average net assets
would have been 1.38% for the year ended December 31, 2001.
87
FINANCIAL HIGHLIGHTS (continued)
- --------------------------------------------------------------------------------
Income from Investment Operations
----------------------------------------
Net Realized
Net Asset Net and Total
Value at Investment Unrealized From
Beginning Income Gain (Loss) Investment
of Period Gain (Loss) on Investments(a) Operations
--------- ----------- ----------------- ----------
Overseas Equity C Fund (formerly, "Emerging
Markets Equity Fund")
---------------------
Year Ended December 31,
2003....................................... $ 5.99 $ 0.09 $ 3.27 $ 3.36
2002....................................... 6.44 0.02 (0.45) (0.43)
2001....................................... 6.70 0.05 (0.29) (0.24)
2000....................................... 12.26 (0.02) (4.91) (4.93)
1999....................................... 7.09 0.03 5.35 5.38
The Fund entered into a new sub-advisory contract with Morgan Stanley Investment Management Inc.
during the year 1999.
- -------------------------------------------------------------------------------------------------
Real Estate Equity Fund
- -----------------------
Year Ended December 31,
2003....................................... 12.79 0.69 3.90 4.59
2002....................................... 13.55 0.62 (0.43) 0.19
2001....................................... 13.67 0.67 0.21 0.88
2000....................................... 11.47 0.76 2.73 3.49
1999....................................... 12.46 0.78 (0.99) (0.21)
The Fund entered into new sub-advisory agreements with Morgan Stanley Investment Management Inc.
during the year 2000 and with RREEF America LLC during the year 2003.
- -------------------------------------------------------------------------------------------------
Health Sciences Fund
- --------------------
Year Ended December 31,
2003....................................... 7.82 -- (b) 2.48 2.48
2002....................................... 9.81 0.01 (1.98) (1.97)
Period from May 1, to December 31, 2001
(commencement of investment operations).... 10.00 (0.00) (0.18) (0.18)
The Fund entered into a new sub-advisory agreement with Wellington Management Company during the
year 2003.
- -------------------------------------------------------------------------------------------------
Financial Industries Fund
- -------------------------
Year Ended December 31,
2003(commencement of investment operations) 11.60 0.18 2.82 3.00
2002....................................... 14.56 0.12 (2.95) (2.83)
2001....................................... 18.34 0.11 (3.33) (3.22)
2000....................................... 14.46 0.06 3.87 3.93
1999....................................... 14.45 0.11 0.06 0.17
Values shown for the Financial Industries Fund represent the historical performance of the
Fund's predecessor, the V.A. Financial Industries Fund, including total return information
showing how much an investment in the predecessor fund has increased or decreased each year. The
information has been audited by Ernst & Young LLP, independent auditors. Their report and the
predecessor fund's annual statements are included in the predecessor fund's Annual Report, which
is available upon request.
- -------------------------------------------------------------------------------------------------
Managed Fund
- ------------
Year Ended December 31,
2003....................................... 11.15 0.21 1.89 2.10
2002....................................... 13.08 0.21 (1.93) (1.72)
2001....................................... 13.82 0.28 (0.67) (0.39)
2000....................................... 15.45 0.44 (0.45) (0.01)
1999....................................... 15.64 0.44 0.94 1.38
The Fund entered into a new sub-advisory agreement with Capital Guardian Trust Company during
the year 2000.
- -------------------------------------------------------------------------------------------------
(a) The amount shown at this caption for each fund share outstanding throughout
the year may not accord with the change in the aggregate gains and losses
in the portfolio securities for the year because of the timing of the
purchases and withdrawals of the fund shares in relation to the fluctuating
market values of the portfolio.
(b) Amount is less than $0.01.
88
- --------------------------------------------------------------------------------
Less Distributions
- ---------------------------------------------------------------------------------- --------------
Distribution
Distribution From Net Distribution in Distribution Net Assets
From Net Realized Excess of From Value at Total Net Assets
Investment Gains on Net Investment Capital Total Capital End Investment End of Period
Income Investments Income/Gains Paid-in Distributions Contributions of Period Return (000s Omitted)
- ------------ ------------ --------------- ------------ ------------- ------------- ---------- ---------- --------------
$ (0.12) $(0.33) $ -- $ -- $(0.45) $ -- $ 8.90 56.90% 64,673
(0.02) -- -- -- (0.02) -- 5.99 (6.73)% 34,506
-- -- -- (0.02) (0.02) -- 6.44 (3.63)% 28,956
-- (0.62) -- (0.01) (0.63) -- 6.70 (40.11)% 31,010
(0.01) (0.10) (0.42) -- (0.53) 0.32 12.26 81.37%(u) 32,596
- --------------------------------------------------------------------------------------------------------------------------
(0.69) (0.47) -- -- (1.16) -- 16.22 36.89% 236,924
(0.65) (0.30) -- -- (0.95) -- 12.79 1.36% 177.926
(0.58) (0.42) -- -- (1.00) -- 13.55 (6.61)% 163,653
(0.76) (0.06) (0.17) (0.30) (1.29) -- 13.67 31.29% 158,811
(0.78) -- -- -- (0.78) -- 11.47 (1.69)% 126,214
- --------------------------------------------------------------------------------------------------------------------------
(0.02) (0.21) -- -- (0.23) -- 10.07 31.74% 34,818
(0.02) -- -- -- (0.02) -- 7.82 (19.99)% 22,670
(0.11) -- -- (0.01) (0.01) -- 9.81 (1.85)%* 29,873
- --------------------------------------------------------------------------------------------------------------------------
(0.20) (0.03) -- -- (0.23) -- 14.37 26.03%* 62,988
(0.13) -- -- -- (0.13) -- 11.60 (19.46)% 57,375
(0.09) (0.47) -- -- (0.56) -- 14.56 (17.51)% 88,920
(0.05) -- -- -- (0.05) -- 18.34 27.16% 71,367
(0.10) (0.05) (0.01) -- (0.16) -- 14.46 1.23% 49,312
- --------------------------------------------------------------------------------------------------------------------------
(0.39) (0.06) -- -- (0.45) -- 12.80 19.00% 2,070,745
(0.21) -- -- -- (0.21) -- 11.15 (13.23)% 1,936,864
(0.28) (0.07) -- -- (0.35) -- 13.08 (2.84)% 2,526,703
(0.44) (1.18) -- -- (1.62) -- 13.82 0.03% 2,995,794
(0.43) (1.14) -- -- (1.57) -- 15.45 9.10% 3,430,919
- --------------------------------------------------------------------------------------------------------------------------
Ratios/Supplemental Data
- ------------------------------------
Net
Operating Investment
Expenses to Income (Loss) Portfolio
Average to Average Turnover
Net Assets Net Assets Rate
- ----------- ------------- ---------
1.60%* 1.28% 92.85%
1.60%* 0.27% 88.40%
1.40%* 0.77% 120.72%
1.32%* (0.28)% 103.90%
1.39%* 0.19% 196.32%
- ---------------------------------------
1.07% 4.84% 38.11%
1.07% 4.60% 22.74%
1.07% 4.97% 29.07%
0.76% 5.99% 58.81%
0.70% 6.38% 12.95%
- ---------------------------------------
1.10%(v) (0.12)% 115.75%
1.07%(v) 0.10% 98.91%
1.10%(v)** (0.16)%** 37.76%*
- ---------------------------------------
0.85%** 1.35%** 50.20%*
0.90% 0.87% 2.00%
0.89% 0.71% 97.00%(c)
0.90% 0.36% 41.00%
0.90% 0.77% 72.00%
- ---------------------------------------
0.74%(d) 1.75% 216.32%
0.76% 1.77% 234.62%
0.73% 2.10%(w) 190.73%(c)
0.46% 2.86% 210.35%
0.36% 2.75% 203.86%
- ---------------------------------------
* Not annualized.
** Annualized
(c) Excludes merger activity.
(d) The Fund is required to calculate an expense ratio without taking into
consideration any expense reductions related to expense offset arrangements.
(t) Expense ratio is net of expense reimbursements. Had such reimbursements not
been made, the annual expense ratio would have been 2.24%, 3.45%, 4.02%,
2.49% and 3.44% for the years ended December 31, 2003, 2002, 2001, 2000 and
1999, respectively.
(u) The total investment return includes the effect of the capital contribution
of $.32 per share. The total investment return without the capital
contribution would have been 79.02%.
(v) Expense ratio is net of expense reimbursements. Had such reimbursements not
been made, the annual expense ratio would have been 1.25%, 1.35% and 1.19%
for the years ended December 31, 2003, 2002 and 2001.
(w) Had the Fund not amortized premiums and accreted discounts on debt
securities, the annual ratio of net investment income to average net assets
would have been 2.29% for the year ended December 31, 2001.
89
FINANCIAL HIGHLIGHTS (continued)
- --------------------------------------------------------------------------------
Income from Investment Operations
---------------------------------------
Net Realized
Net Asset Net and Total
Value at Investment Unrealized From
Beginning Income Gain (Loss) Investment
of Period Gain (Loss) on Investments(a) Operations
--------- ----------- ----------------- ----------
Short-Term Bond Fund
- --------------------
Year Ended December 31,
2003................................................................ $10.23 $0.37 $(0.10) $ 0.27
2002................................................................ 10.11 0.44 0.12 0.56
2001................................................................ 9.86 0.52 0.26 0.78
2000................................................................ 9.72 0.61 0.14 0.75
1999................................................................ 10.05 0.61 (0.33) 0.28
- --------------------------------------------------------------------------------------------------------------------------
Bond Index Fund
- ---------------
Year Ended December 31,
2003................................................................ 10.30 0.48 (0.12) 0.36
2002................................................................ 9.89 0.54 0.42 0.96
2001................................................................ 9.74 0.57 0.17 0.74
2000................................................................ 9.32 0.62 0.43 1.05
1999................................................................ 10.19 0.63 (0.89) (0.26)
- --------------------------------------------------------------------------------------------------------------------------
Active Bond Fund
- ----------------
Year Ended December 31,
2003................................................................ 9.70 0.43 0.18 0.61
2002................................................................ 9.55 0.50 0.18 0.68
2001................................................................ 9.44 0.58 0.11 0.69
2000................................................................ 9.12 0.64 0.28 0.92
1999................................................................ 9.92 0.67 (0.76) (0.09)
The Fund entered into new sub-advisory agreements with PIMCO and with Declaration Management & Research LLC during the
year 2003.
- --------------------------------------------------------------------------------------------------------------------------
Total Return Bond
- -----------------
Period from May 1, to December 31,
2003 (commencement of operations)................................... 10.00 0.12 0.08 0.20
- --------------------------------------------------------------------------------------------------------------------------
High Yield Bond Fund
- --------------------
Year Ended December 31,
2003................................................................ 5.91 0.42 0.53 0.95
2002................................................................ 6.83 0.57 (0.87) (0.30)
2001................................................................ 7.33 0.73 (0.55) 0.18
2000................................................................ 8.99 0.73 (1.65) (0.92)
1999................................................................ 9.23 0.72 (0.26) 0.46
- --------------------------------------------------------------------------------------------------------------------------
Global Bond Fund
- ----------------
Year Ended December 31,
2003................................................................ 11.06 0.40 1.36 1.76
2002................................................................ 9.74 0.40 1.43 1.83
2001................................................................ 10.34 0.38 (0.53) (0.15)
2000................................................................ 9.82 0.48 0.67 1.15
1999................................................................ 10.60 0.48 (0.70) (0.22)
The Fund entered into a new sub-advisory agreement with Capital Guardian Trust Company during the year 2000.
- --------------------------------------------------------------------------------------------------------------------------
Money Market Fund
- -----------------
Year Ended December 31,
2003................................................................ 1.00 0.01 -- 0.01
2002................................................................ 1.00 0.01 -- 0.01
2001................................................................ 1.00 0.04 -- 0.04
2000................................................................ 1.00 0.06 -- 0.06
1999................................................................ 1.00 0.04 -- 0.04
Per share amounts for the Money Market Fund have been restated to reflect a 10-for-1 stock split effective May 1, 2001.
The Fund entered into new sub-advisory agreement with Wellington Management Company, LLP during the year 2002.
- --------------------------------------------------------------------------------------------------------------------------
(a) The amount shown at this caption for each fund share outstanding throughout
the year may not accord with the change in the aggregate gains and losses
in the portfolio securities for the year because of the timing of the
purchases and withdrawals of the fund shares in relation to the fluctuating
market values of the portfolio.
90
- --------------------------------------------------------------------------------
Less Distributions
- --------------------------------------------------------------------------------
Distribution
Distribution in Excess Net
Distribution From Net of Net Distribution Assets
From Net Realized Investment From Value at Total
Investment Gains on Income/ Capital Total Capital End Investment
Income Investments Gains Paid-in Distributions Contributions of Period Return
- ------------ ------------ ------------ ------------ ------------- ------------- --------- ----------
$(0.37) $ -- $ -- $ -- (0.37) -- $10.13 2.76%
(0.41) (0.03) -- -- (0.44) -- 10.23 5.67%
(0.53) -- -- -- (0.53) -- 10.11 8.09%
(0.61) -- -- -- (0.61) -- 9.86 7.98%
(0.61) -- -- -- (0.61) -- 9.72 2.96%
- -----------------------------------------------------------------------------------------------------
(0.48) (0.05) -- -- (0.53) -- $10.13 3.60%
(0.51) (0.04) -- -- (0.55) -- 10.30 9.95%
(0.58) (0.01) -- -- (0.59) -- 9.89 7.76%
(0.63) -- -- -- (0.63) -- 9.74 11.81%
(0.61) -- -- -- (0.61) -- 9.32 (2.57)%
- -----------------------------------------------------------------------------------------------------
(0.43) (0.24) -- -- (0.67) -- 9.64 6.48%
(0.53) -- -- -- (0.53) -- 9.70 7.25%
(0.58) -- -- -- (0.58) -- 9.55 7.48%
(0.60) -- -- -- (0.60) -- 9.44 10.45%
(0.71) -- -- -- (0.71) -- 9.12 (0.94)%
- -----------------------------------------------------------------------------------------------------
(0.12) (0.04) -- -- (0.16) -- 10.04 1.99%**
- -----------------------------------------------------------------------------------------------------
(0.42) (0.02) -- -- (0.44) -- 6.42 16.51%
(0.62) -- -- -- (0.62) -- 5.91 (4.51)%
(0.68) -- -- -- (0.68) -- 6.83 2.13%
(0.74) -- -- -- (0.74) -- 7.33 (10.81)%
(0.70) -- -- -- (0.70) -- 8.99 5.13%
- -----------------------------------------------------------------------------------------------------
(0.63) (0.22) -- -- (0.85) -- 11.97 15.91%
(0.46) (0.05) -- -- (0.51) -- 11.06 18.85%
(0.45) -- -- -- (0.45) -- 9.74 (1.45)%
(0.63) -- -- -- (0.63) -- 10.34 12.00%
(0.56) -- -- -- (0.56) -- 9.82 (2.16)%
- -----------------------------------------------------------------------------------------------------
(0.01) -- -- -- (0.01) -- 1.00 0.95%
(0.01) -- -- -- (0.01) -- 1.00 1.48%
(0.04) -- -- -- (0.04) -- 1.00 3.93%
(0.06) -- -- -- (0.06) -- 1.00 6.29%(gg)
(0.04) -- -- -- (0.04) -- 1.00 5.05%
Per share amounts shown for 2001, 2000 and 1999 have been restated to reflect a 10-for-1 stock split
effective May 1, 2001.
- -----------------------------------------------------------------------------------------------------
Ratios/Supplemental Data
- ---------------------------------------------------
Net
Operating Investment
Net Assets Expenses to Income (Loss) Portfolio
End of Period Average to Average Turnover
(000s Omitted) Net Assets Net Assets Rate
- -------------- ----------- ------------- ---------
260,017 0.67% 3.68% 58.94%
241,117 0.68% 4.29% 97.00%
149,450 0.48% 5.20%(x) 86.39%
80,109 0.36% 6.27% 52.68%
68,844 0.43% 6.25% 100.04%
- ----------------------------------------------------
215,661 0.24%(z) 4.73% 40.22%
208,095 0.22%(z) 5.30% 57.31%
129,358 0.24% 5.77%(y) 68.70%
64,768 0.25%(z) 6.80% 40.46%
38,436 0.29%(z) 6.56% 17.06%
- ----------------------------------------------------
1,055,609 0.70% 4.42% 465.90%(c)
987,454 0.69% 5.24% 290.73%
947,514 0.67% 5.97%(aa)206.80%(c)
842,299 0.41%(bb) 6.98% 224.24%
850,286 0.28% 6.97% 182.90%
- ----------------------------------------------------
42,006 0.77%** 1.89%* 537.79**
- ----------------------------------------------------
97.016 0.90%(cc) 6.81% 47.82%
60,781 0.90%(cc) 9.84% 89.30%
51,274 0.80%(cc) 10.39%(dd) 32.50%
25,978 0.75%(cc) 8.88% 21.94%
19,921 0.80%(cc) 7.94% 38.62%
- ----------------------------------------------------
107,295 0.95%(ee) 2.85% 51.09%
78,471 0.95%(ee) 3.53% 64.15%
47,646 0.95%(ee) 3.73%(ff) 41.75%
68,473 0.81%(ee) 4.71% 259.60%
70,991 0.83%(ee) 4.70% 332.06%
- ----------------------------------------------------
681,633 0.31% 0.95% n/a
918,116 0.32% 1.46% n/a
745,516 0.32% 3.72% n/a
496,853 0.29% 6.05% n/a
451,235 0.31% 4.95% n/a
- ----------------------------------------------------
* Not Annualized.
** Annualized.
(c) Excludes merger activity.
(x) Had the Fund not amortized premiums and accreted discounts on debt
securities, the annual ratio of net investment income to average net assets
would have been 5.32% for the year ended December 31, 2001.
(y) Had the Fund not amortized premiums and accreted discounts on debt
securities, the annual ratio of net investment income to average net assets
would have been 6.37% for the year ended December 31, 2001.
(z) Expense ratio is net of expense reimbursements. Had such reimbursements not
been made, the annual expense ratio would have been .24%, .25%, .27%, .35%
and .71% for the years ending December 31, 2003, 2002, 2000, 1999 and 1998,
respectively.
(aa) Had the Fund not amortized premiums and accreted discounts on debt
securities, the annual ratio of net investment income to average net
assets would have been 6.28% for the year ended December 31, 2001.
(bb) Expense ratio is net of expense reimbursements. Had such reimbursements
not been made, the annual expense ratio would have been .44% for the year
ending December 31, 2000.
(cc) Expense ratio is net of expense reimbursements. Had such reimbursements
not been made, the annual expense ratio would have been .95%, .96%, .90%,
.87% and 1.04% for the years ending December 31, 2003, 2002, 2001, 2000
and 1999, respectively.
(dd) Had the Fund not amortized premiums and accreted discounts on debt
securities, the annual ratio of net investment income to average net
assets would have been 9.35% for the year ended December 31, 2001.
(ee) Expense ratio is net of reimbursements. Had such reimbursements not been
made, the annual expense ratio would have been .98%, 1.01%, .95%, .91% and
.84% for the years ended December 31, 2003, 2002, 2001, 2000 and 1999,
respectively.
(ff) Had the Fund not amortized premiums on debt securities, the annual ratio
of net investment income to average net assets would have been 3.96% for
the year ended December 31, 2001.
(gg) The total investment return includes the effect of the capital
contribution of $0.01 per share. The total investment return without the
capital contribution would have been 6.18%.
91
Trust Business Structure
The diagram below shows the basic business structure of the Trust. The Trust's
trustees oversee the Trust's investment and business activities and hire
various service providers to carry out the Trust's operations.
VARIABLE
CONTRACTOWNERS
JOHN HANCOCK,
JHVLICO OR OTHER
INSURANCE COMPANIES
THE TRUST
Trustees oversee the
Trust's investment and
business activities
INVESTMENT ADVISER CUSTODIAN
John Hancock Life State Street Bank and Trust
Insurance Company Company
Manages the Trust's
investment and business Holds the Trust's assets, settles all Trust
activities. trades and collects most of the valuation
data required for calculating the Trust's
net asset value per share.
SUBADVISERS
Capital Guardian Trust Company RREEF America LLC
Declaration Management & Research Company SSgA Funds Management, Inc.
Fidelity Management & Research Company Standish Mellon Asset Management Company LLC
Independence Investment LLC T. Rowe Price Associates, Inc.
John Hancock Advisers, LLC Van Kampen
Pacific Investment Management Company LLC Wellington Management Company, LLP
Provide management to various funds.
92
APPENDIX A
Capital Guardian Trust Company uses a multiple portfolio manager system in
which each Fund it subadvises is divided into segments that are managed by
individual portfolio managers and/or research analysts. This multiple manager
approach seeks to deliver the best ideas of individual portfolio managers and
analysts within each Fund. Each portfolio manager and research analyst decides
how their respective segment will be invested within the limits provided by the
Fund's goal and strategy and investment policies. Capital Guardian's Investment
Committee determines the specific allocation to individual portfolio managers
and the research analyst team. The equity portion of the Managed Fund and a
segment of the overseas equity funds are managed directly by the equity
research analysts, led by the Research Portfolio Coordinator, each of whom has
investment discretion over a segment of the total Portfolio. The size of each
analyst's segment will vary over time and may be based upon: (1) the level of
conviction of specific research analysts as to their designated sectors; (2)
industry weights within the relevant benchmark for the Fund; and (3) the
judgment of the Research Portfolio Coordinator in assessing the level of
conviction of research analysts compared to industry weights within the
relevant benchmark. Set forth below are details regarding the multiple
portfolio managers of Capital Guardian who are involved in the management of
the Funds indicated:
MANAGED FUND
Equity Investments:
The Equity Research team consists of the following 25 research analysts with an
average of 11 years experience with Capital Guardian and 14 years of industry
experience:
Gene Barron John A. Longhurst
Andrew F. Barth (Research Portfolio Coordinator) Reed H. Lowenstein
Terry Berkemeier Karen A. Miller
Eugene Cheah Jason M. Pilalas
Steven Connell Lars Reierson
Caroline E. Ford Carlos A. Schonfeld
Cheryl Frank Lawrence R. Solomon
Irfan M. Furniturewala Eric H. Stern
Zachary E. Guevara Suzanne Stewart
Mark Hickey Eva Sudol
Todd S. James Steven R. Wanek
Karin L. Larson Alan J. Wilson
Jin Lee
Fixed Income Investments:
Christine Cronin James R. Mulally
- ---------------- ----------------
Vice President of subadviser Senior Vice President of subadviser
Joined subadviser in 1997 Joined subadviser in 1980
Michael Locke
- -------------
Vice President of subadviser
Joined subadviser in 1996
93
OVERSEAS EQUITY FUND
OVERSEAS EQUITY FUND B
OVERSEAS EQUITY FUND C
Non-U.S. Equity Investments:
David I. Fisher Christopher A. Reed
- --------------- -------------------
Chairman of subadviser Vice President of subadviser
Joined subadviser in 1969 Joined subadviser in 1994
Harmut Giesecke Lionel M. Sauvage
- --------------- -----------------
Joined subadviser in 1971 Senior Vice President of subadviser
Joined subadviser in 1987
Arthur J. Gromadzki Nilly Sikorsky
- ------------------- --------------
Joined subadviser in 1987 President of subadviser
Joined subadviser in 1962
Richard N. Havas Rudolf M. Staehelin
- ---------------- -------------------
Senior Vice President of subadviser Senior Vice President of subadviser
Joined subadviser in 1986 Joined subadviser in 1981
Nancy I. Kyle Non-U.S. Equity Research Team
- ------------- -----------------------------
Senior Vice President of subadviser 31 Research Analysts
Joined subadviser in 1991 Average 8 Years with Capital Guardian
Average 13 Years with industry experience
Gerald du Manoir
- ----------------
Research Team Coordinator
Joined subadviser in 1990
GLOBAL BOND FUND
Mark A. Brett James R. Mulally
- ------------- ----------------
Senior Vice President of subadviser Senior Vice President of subadviser
Joined subadviser in 1993 Joined subadviser in 1980
Mark Dalzell
- ------------
Vice President of subadviser
Joined subadviser in 1988
Laurentius Harrer
- -----------------
Vice President
Joined subadviser in 1993
94
APPENDIX B
HEALTH SCIENCES FUND
Wellington Management Company, LLP uses Healthcare analysts on a global Health
Sciences Sector Team to provide day to day investment management services to
the Health Sciences Fund. Set forth below are the members of that team:
Ann C. Gallo Joseph H. Schwartz
- ------------ ------------------
Senior Vice President of subadviser Senior Vice President of subadviser
Joined subadviser in 1998 Joined subadviser in 1983
Jean M. Hynes Robert L. Deresiewicz
- ------------- ---------------------
Senior Vice President of subadviser Assistant Vice President of subadviser
Joined subadviser in 1991 Joined subadviser in 2000
Kirk J. Mayer Harvard Business School 1998-2000
- -------------
Vice President of subadviser
Joined subadviser in 1998
95
For more information
This prospectus should be used only with a variable contract prospectus.
John Hancock Variable
Series Trust I
John Hancock Place
Boston, Massachusetts 02117
Two documents are available that offer further information on John Hancock
Variable Series Trust I:
Annual/Semiannual Report to shareholders
Includes financial statements, a discussion of the market conditions and
investment strategies that significantly affected performance, and the
auditors' report (in the annual report only).
Statement of Additional Information (SAI)
The SAI contains more detailed information on all aspects of the funds.
A current SAI has been filed with the Securities and Exchange Commission and is
incorporated by reference into (i.e., is legally a part of) this prospectus.
To request a free copy of the current annual/semiannual report or the SAI, or
to make shareholder inquiries, please contact:
By mail:
John Hancock Variable Series Trust I
John Hancock Place
Boston, MA 02117
By phone: 1-800-732-5543
Or you may view or obtain these documents from the SEC:
In person: at the SEC's Public Reference Room in Washington, DC
By phone: 1-202-942-8090
By mail: Office of Public Reference Securities and Exchange Commission
450 5th Street, N.W., Room 1300
Washington, DC 20549-0102
(duplicating fee required)
By e-mail: publicinfo@SEC.gov
On the Internet: www.sec.gov
SEC File Number: 811-4490
VSTPRO-MASTER