FILE NO. 2-10156
FILE NO. 811-0560
================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-1A
---------
REGISTRATION STATEMENT UNDER
THE SECURITIES ACT OF 1933 (X)
Pre-Effective Amendment No. ( )
Post-Effective Amendment No. 75 (X)
REGISTRATION STATEMENT UNDER
THE INVESTMENT COMPANY ACT OF 1940 (X)
Amendment No. 27 (X)
---------
JOHN HANCOCK INVESTMENT TRUST
(Exact Name of Registrant as Specified in Charter)
101 Huntington Avenue
Boston, Massachusetts 02199-7603
(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, (617) 375-1700
---------
THOMAS H. DROHAN
Vice President and Secretary
John Hancock Advisers, Inc.
101 Huntington Avenue
Boston, Massachusetts 02199
(Name and Address of Agent for Service)
---------
It is proposed that this filing will become effective:
( ) immediately upon filing pursuant to paragraph (b) of Rule 485
( ) on (date) pursuant to paragraph (b) of Rule 485
( ) 60 days after filing pursuant to paragraph (a) of Rule 485
(X) on August 30, 1996 pursuant to paragraph (a) of Rule 485
Pursuant to Rule 24f-2 under the Investment Company Act of 1940, Registrant has
registered an indefinite number of securities under the Securities Act of 1933.
A Rule 24f-2 Notice for the Registrant's most recent fiscal year was filed on
October 23, 1995.
<PAGE>
<TABLE>
<CAPTION>
Item Number Form N-1A, Statement of Additional
Part A Prospectus Caption Information Caption
------ ------------------ -------------------
<S> <C> <C>
1 Front Cover Page *
2 Overview; Investor Expenses; *
3 Financial Highlights *
4 Overview; Goal and Strategy; Portfolio *
Securities; Risk Factors; Business
Structure; More About Risk
5 Overview; Business Structure; *
Manager/Subadviser; Investor Expenses
6 Choosing a Share Class; Buying Shares; *
Selling Shares; Transaction Policies;
Dividends and Account Policies;
Additional Investor Services
7 Choosing a Share Class; How Sales Charges *
are Calculated; Sales Charge Deductions
and Waivers; Opening an Account; Buying
Shares; Transaction Policies; Additional
Investor Services
8 Selling Shares; Transaction Policies; *
Dividends and Account Policies
9 Not Applicable *
10 * Front Cover Page
11 * Table of Contents
12 * Organization of the Fund
13 * Investment Objectives and Policies;
Certain Investment Practices;
Investment Restrictions
14 * Those Responsible for Management
15 * Those Responsible for Management
16 * Investment Advisory; Subadvisory
and Other Services; Distribution
Contract; Transfer Agent Services;
Custody of Portfolio; Independent
Auditors
17 * Brokerage Allocation
18 * Description of Fund's Shares
19 * Net Asset Value; Additional
Services and Programs
20 * Tax Status
21 * Distribution Contract
22 * Calculation of Performance
23 * Financial Statements
</TABLE>
<PAGE>
JOHN HANCOCK
GROWTH AND INCOME FUNDS
[JOHN HANCOCK'S GRAPHIC LOGO. A CIRCLE, DIAMOND, TRIANGLE AND A CUBE.]
PROSPECTUS
AUGUST 30, 1996
This prospectus gives vital information about these funds. For your own benefit
and protection, please read it before you invest, and keep it on hand for future
reference.
Please note that these funds:
- - are not bank deposits
- - are not federally insured
- - are not endorsed by any bank or government agency
- - are not guaranteed to achieve their goal(s)
Like all mutual fund shares, these securities have not been approved or
disapproved by the Securities and Exchange Commission or any state securities
commission, nor has the Securities and Exchange Commission or any state
securities commission passed upon the accuracy or adequacy of this prospectus.
Any representation to the contrary is a criminal offense.
- -------------------------------------------------------------------------------
GROWTH AND INCOME FUND
INDEPENDENCE EQUITY FUND
SOVEREIGN BALANCED FUND
SOVEREIGN INVESTORS FUND
SPECIAL VALUE FUND
UTILITIES FUND
[JOHN HANCOCK'S GRAPHIC LOGO. A CIRCLE, DIAMOND, TRIANGLE AND A CUBE.]
JOHN HANCOCK FUNDS
A GLOBAL INVESTMENT MANAGEMENT FIRM
101 Huntington Avenue, Boston, Massachusetts 02199-7603
<PAGE>
CONTENTS
- -------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
A fund-by-fund look at goals, GROWTH AND INCOME FUND 4
strategies, risks, expenses and
financial history. INDEPENDENCE EQUITY FUND 6
SOVEREIGN BALANCED FUND 8
SOVEREIGN INVESTORS FUND 10
SPECIAL VALUE FUND 12
UTILITIES FUND 14
Policies and instructions for opening, YOUR ACCOUNT
maintaining and closing an account
in any growth and income fund. Choosing a share class 16
How sales charges are calculated 16
Sales charge reductions and waivers 17
Opening an account 17
Buying shares 18
Selling shares 19
Transaction policies 21
Dividends and account policies 21
Additional investor services 22
Details that apply to the growth and FUND DETAILS
income funds as a group.
Business structure 23
Sales compensation 24
More about risk 26
FOR MORE INFORMATION BACK COVER
</TABLE>
<PAGE>
OVERVIEW
- -------------------------------------------------------------------------------
FUND INFORMATION KEY
Concise fund-by-fund descriptions begin on the next page. Each description
provides the following information:
[A graphic image of a bullseye with an arrow in the middle of it.] GOAL AND
STRATEGY The fund's particular investment goals and the strategies it intends to
use in pursuing those goals.
[A graphic image of a black folder that contains a couple sheets of paper.]
PORTFOLIO SECURITIES The primary types of securities in which the fund invests.
Secondary investments are described in "More about risk" at the end of the
prospectus.
[A graphic image of a line chart with a single line that depicts some peaks and
valleys.] RISK FACTORS The major risk factors associated with the fund.
[A graphic image of a generic person.] PORTFOLIO MANAGEMENT The individual or
group (including subadvisers, if any) designated by the investment adviser to
handle the fund's day-to-day management.
[A graphic image of a percent symbol.] EXPENSES The overall costs borne by an
investor in the fund, including sales charges and annual expenses.
[A graphic image of a dollar sign.] FINANCIAL HIGHLIGHTS A table showing the
fund's financial performance for up to ten years, by share class. There is also
a bar graph of year-by-year total return, which is intended to show the fund's
volatility in recent years.
GOAL OF THE GROWTH AND INCOME FUNDS
John Hancock growth and income funds invest for varying combinations of income
and capital appreciation. Each fund has its own emphasis with regard to income,
growth and total return, and its own strategy and risk/reward profile. Because
you could lose money by investing in these funds, be sure to read all risk
disclosure carefully before investing.
WHO MAY WANT TO INVEST
John Hancock growth and income funds may be appropriate for investors who:
- - seek above-average total return over the long term
- - are looking for a more conservative alternative to exclusively
growth-oriented funds
- - need an investment to form the core of a portfolio
- - are in or nearing retirement
Growth and income funds may NOT be appropriate if you:
- - are investing for maximum return over a long time horizon
- - require high degree of stability of your principal
THE MANAGEMENT FIRM
All John Hancock growth and income funds are managed by John Hancock Advisers,
Inc. Founded in 1968, John Hancock Advisers is a wholly owned subsidiary of John
Hancock Mutual Life Insurance Company and manages more than $19 billion in
assets.
3
<PAGE>
GROWTH AND INCOME FUND
REGISTRANT NAME: JOHN HANCOCK INVESTMENT TRUST
TICKER SYMBOL CLASS A: TAGRX CLASS B: TSGWX
- --------------------------------------------------------------------------------
GOAL AND STRATEGY
[A graphic image of a bullseye with an arrow in the middle of it.] The fund
seeks the highest total return (capital appreciation plus current income) that
is consistent with reasonable safety of capital. To pursue this goal, the fund
invests in a diversified portfolio of stocks, bonds and money market
instruments. The fund may invest primarily in any of these three types of
securities at any given time, but under normal circumstances invests primarily
in equity securities.
PORTFOLIO SECURITIES
[A graphic image of a black folder that contains a couple sheets of paper.] The
fund may invest in most types of securities, including:
- - common, preferred and convertible stocks, and stock warrants
- - U.S. Government and agency debt securities, including mortgage-backed
securities
- - corporate bonds, notes, debentures and other debt securities
- - short-term investment-grade securities
The fund favors stocks that have paid dividends in the past 12 months and show
potential for a dividend increase. The fund invests no more than 5% of assets in
bonds rated lower than BBB/Baa, or their unrated equivalents, and does not
invest in securities rated lower than B.
The fund may invest up to 25% of assets in foreign securities (35% during
adverse U.S. market conditions); however, foreign securities typically do not
exceed 10% of assets. To a limited extent the fund also may invest in certain
higher-risk securities, and may engage in other investment practices.
For temporary defensive purposes, the fund may invest some or all of its assets
in investment-grade securities of any type or maturity.
RISK FACTORS
[A graphic image of a line chart with a single line that depicts some peaks and
valleys.] As with any growth and income fund, the value of your investment will
fluctuate.
To the extent that it invests in certain securities, the fund may be affected by
additional risks:
- - foreign securities: currency, information, natural event and political risks
- - mortgage-backed securities: extension and prepayment risks
These risks are defined in "More about risk" starting on page 26. This section
also details other higher risk securities and practices that the fund may
utilize. Please read "More about risk" carefully before you invest.
PORTFOLIO MANAGEMENT
[A graphic image of a generic person.] Benjamin A. Hock, Jr., leader of the
fund's management team since 1995, is a vice president of the adviser. He joined
John Hancock Funds in 1994 and has worked in the investment business since 1973.
- --------------------------------------------------------------------------------
INVESTOR EXPENSES
[A graphic image of a percent symbol.] Fund investors pay various expenses,
either directly or indirectly. The figures below show the expenses for the past
year, adjusted to reflect any changes. Future expenses may be greater or less.
<TABLE>
<CAPTION>
SHAREHOLDER TRANSACTION EXPENSES CLASS A CLASS B
<S> <C> <C>
Maximum sales charge imposed on purchases
(as a percentage of offering price) 5.00% none
Maximum sales charge imposed on
reinvested dividends none none
Maximum deferred sales charge none(1) 5.00%
Redemption fee(2) none none
Exchange fee none none
<CAPTION>
ANNUAL FUND OPERATING EXPENSES (AS A % OF AVERAGE NET ASSETS)
<S> <C> <C>
Management fee 0.625% 0.625%
12b-1 fee(3) 0.25% 1.00%
Other expenses 0.445% 0.445%
Total fund operating expenses 1.32% 2.07%
</TABLE>
EXAMPLE The table below shows what you would pay if you invested $1,000 over the
various time frames indicated. The example assumes you reinvested all dividends
and that the average annual return was 5%.
<TABLE>
<CAPTION>
SHARE CLASS YEAR 1 YEAR 3 YEAR 5 YEAR 10
<S> <C> <C> <C> <C>
Class A shares $63 $90 $119 $201
Class B shares
Assuming redemption
at end of period $71 $95 $131 $221
Assuming no redemption $21 $65 $111 $221
</TABLE>
This example is for comparison purposes only and is not a representation of the
fund's actual expenses and returns, either past or future.
(1) Except for investments of $1 million or more; see "How sales charges are
calculated."
(2) Does not include wire redemption fee (currently $4.00).
(3) May include carry-over of reimbursable costs from previous year(s). Amounts
shown are the fund's current annual maximums for 12b-1 fees. Because of the
12b-1 fee, long-term shareholders may indirectly pay more than the
equivalent of the maximum permitted front-end sales charge.
4 GROWTH AND INCOME FUND
<PAGE>
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
[A graphic image of a dollar sign.] The figures below have been audited by the
fund's independent auditors, Ernst & Young LLP.
VOLATILITY, AS INDICATED BY CLASS A YEAR-BY-YEAR TOTAL INVESTMENT RETURN (%)
<TABLE>
<S> <C>
1986 19.90
1987 22.58
1988 (9.86)
1989 23.47
1990 0.18
1991 23.80
1992 10.47
1993 13.64
1994 (2.39)
1995 19.22
1996(1) 12.58(4)
</TABLE>
<TABLE>
<CAPTION>
CLASS A - YEAR ENDED AUGUST 31, 1986 1987 1988 1989 1990 1991
====================================================================================================================================
PER SHARE OPERATING PERFORMANCE
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period $ 10.42 $ 11.11 $ 12.04 $ 8.83 $ 10.19 $ 9.87
- ------------------------------------------------------------------------------------------------------------------------------------
Net investment income (loss) 0.35 0.42 0.50 0.55 0.20 0.20
- ------------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on investments 1.48 1.77 (1.73) 1.42 (0.18) 2.07
- ------------------------------------------------------------------------------------------------------------------------------------
Total from investment operations 1.83 2.19 (1.23) 1.97 0.02 2.27
- ------------------------------------------------------------------------------------------------------------------------------------
Less distributions:
- ------------------------------------------------------------------------------------------------------------------------------------
Dividends from net investment income (0.36) (0.38) (0.49) (0.61) (0.27) (0.19)
- ------------------------------------------------------------------------------------------------------------------------------------
Distributions from net realized gain on
investments sold (0.78) (0.88) (1.49) -- (0.07) (0.18)
- ------------------------------------------------------------------------------------------------------------------------------------
Total distributions (1.14) (1.26) (1.98) (0.61) (0.34) (0.37)
- ------------------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $ 11.11 $ 12.04 $ 8.83 $ 10.19 $ 9.87 $ 11.77
- ------------------------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENT RETURN AT NET ASSET VALUE(3) (%) 19.90 22.58 (9.86) 23.47 0.18 23.80
- ------------------------------------------------------------------------------------------------------------------------------------
RATIOS AND SUPPLEMENTAL DATA
- ------------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period (000s omitted) ($) 69,516 90,974 69,555 70,513 63,150 77,461
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to average net assets (%) 1.12 1.21 1.29 1.12 1.29 1.38
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income (loss) to average
net assets (%) 3.53 3.86 5.45 6.07 1.96 1.90
- ------------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate (%) 150 138 120 214 69 70
- ------------------------------------------------------------------------------------------------------------------------------------
Average brokerage commission rate ($)(6) N/A N/A N/A N/A N/A N/A
</TABLE>
<TABLE>
<CAPTION>
CLASS A - YEAR ENDED AUGUST 31, 1992 1993 1994 1995 1996(1)
=================================================================================================================================
PER SHARE OPERATING PERFORMANCE
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period $ 11.77 $ 12.43 $ 12.08 $ 11.42 $ 13.38
- --------------------------------------------------------------------------------------------------------------------------------
Net investment income (loss) 0.32(2) 0.40(2) 0.32(2) 0.21(2) 0.11
- --------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on investments 0.89 1.12 (0.61) 1.95 1.56
- --------------------------------------------------------------------------------------------------------------------------------
Total from investment operations 1.21 1.52 (0.29) 2.16 1.67
- --------------------------------------------------------------------------------------------------------------------------------
Less distributions:
- --------------------------------------------------------------------------------------------------------------------------------
Dividends from net investment income (0.25) (0.42) (0.37) (0.20) (0.11)
- --------------------------------------------------------------------------------------------------------------------------------
Distributions from net realized gain on
investments sold (0.30) (1.45) -- -- (0.15)
- --------------------------------------------------------------------------------------------------------------------------------
Total distributions (0.55) (1.87) (0.37) (0.20) (0.26)
- --------------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $ 12.43 $ 12.08 $ 11.42 $ 13.38 $ 14.79
- --------------------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENT RETURN AT NET ASSET VALUE(3) (%) 10.47 13.64 (2.39) 19.22 12.58(4)
- --------------------------------------------------------------------------------------------------------------------------------
RATIOS AND SUPPLEMENTAL DATA
- --------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period (000s omitted) ($) 89,682 115,780 121,160 130,183 135,820
- --------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to average net assets (%) 1.34 1.29 1.31 1.30 1.16(5)
- --------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income (loss) to average
net assets (%) 2.75 3.43 2.82 1.82 1.60(5)
- --------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate (%) 119 107 195 99 36
- --------------------------------------------------------------------------------------------------------------------------------
Average brokerage commission rate ($)(6) N/A N/A N/A N/A N/A
</TABLE>
<TABLE>
<CAPTION>
CLASS B - YEAR ENDED AUGUST 31, 1991(7) 1992 1993 1994 1995 1996(1)
================================================================================================================================
<S> <C> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
- --------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $11.52(8) $ 11.77 $ 12.44 $ 12.10 $ 11.44 $ 13.41
- --------------------------------------------------------------------------------------------------------------------------------
Net investment income (loss) -- 0.23(2) 0.30(2) 0.24(2) 0.13(2) 0.07
- --------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on investments 0.25 0.89 1.12 (0.61) 1.96 1.56
- --------------------------------------------------------------------------------------------------------------------------------
Total from investment operations 0.25 1.12 1.42 (0.37) 2.09 1.63
- --------------------------------------------------------------------------------------------------------------------------------
Less distributions:
- --------------------------------------------------------------------------------------------------------------------------------
Dividends from net investment income -- (0.15) (0.31) (0.29) (0.12) (0.07)
- --------------------------------------------------------------------------------------------------------------------------------
Distributions from net realized gain on
investments sold -- (0.30) (1.45) -- -- (0.15)
- --------------------------------------------------------------------------------------------------------------------------------
Total distributions -- (0.45) (1.76) (0.29) (0.12) (0.22)
- --------------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $11.77 $ 12.44 $ 12.10 $ 11.44 $ 13.41 $ 14.82
- --------------------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENT RETURN AT NET ASSET VALUE(3) (%) 2.17(4) 9.67 12.64 (3.11) 18.41 12.18(4)
- --------------------------------------------------------------------------------------------------------------------------------
RATIOS AND SUPPLEMENTAL DATA
- --------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period (000s omitted) ($) 7,690 29,826 65,010 114,025 114,723 125,071
- --------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to average net assets (%) 2.19(5) 2.07 2.19 2.06 2.03 1.87(5)
- --------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income (loss) to average
- --------------------------------------------------------------------------------------------------------------------------------
net assets (%) 1.46(5) 2.02 2.53 2.07 1.09 0.89(5)
- --------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate (%) 70 119 107 195 99 36
- --------------------------------------------------------------------------------------------------------------------------------
Average brokerage commission rate ($)(6) N/A N/A N/A N/A N/A N/A
</TABLE>
(1) Six months ended February 29, 1996. (Unaudited.)
(2) Based on the average of the shares outstanding at the end of each month.
(3) Assumes dividend reinvestment and does not reflect the effect of sales
charges.
(4) Not annualized.
(5) Annualized.
(6) Per portfolio share traded. Required for fiscal years that began September
1, 1995 or later.
(7) Class B shares commenced operations on August 22, 1991.
(8) Initial price at commencement of operations.
GROWTH AND INCOME FUND 5
<PAGE>
INDEPENDENCE EQUITY FUND
REGISTRANT NAME: JOHN HANCOCK CAPITAL SERIES
TICKER SYMBOL CLASS A: JHDCX CLASS B: N/A
- --------------------------------------------------------------------------------
GOAL AND STRATEGY
[A graphic image of a bullseye with an arrow in the middle of it.] The fund
seeks above-average total return (capital appreciation plus current income). To
pursue this goal, the fund invests primarily in a diversified stock portfolio
that is expected to track the performance of the S&P 500 index.
In choosing stocks, the fund may utilize fundamental research as well as
quantitative analysis. The fund favors stocks that appear to offer the potential
for outstanding capital growth and/or income -- typically stocks that combine
value with improving fundamentals.
PORTFOLIO SECURITIES
[A graphic image of a black folder that contains a couple sheets of paper.]
Under normal circumstances, the fund invests at least 65% of its assets in
common stocks. It may also invest in warrants, preferred stocks and
investment-grade convertible debt securities.
The fund may invest up to 35% of its assets in foreign securities, in the form
of American Depository Receipts (ADRs) and dollar-denominated securities of
foreign issuers traded on U.S. exchanges; however, they typically do not exceed
5% of assets. To a limited extent the fund also may invest in certain higher
risk securities, and may engage in other investment practices.
For temporary defensive purposes, the fund may invest some or all of its assets
in investment-grade securities of any type or maturity.
RISK FACTORS
[A graphic image of a line chart with a single line that depicts some peaks and
valleys.] As with any growth and income fund, the value of your investment will
fluctuate with the performance of financial markets and the success or failure
of the fund's investment strategies.
To the extent that it invests in foreign securities, the fund may be affected by
additional risks, such as currency, information, natural event and political
risks. These risks are defined in "More about risk" starting on page 26. This
section also details other higher-risk securities and practices the fund may
utilize. Please read "More about risk" carefully before you invest.
MANAGEMENT/SUBADVISER
[A graphic image of a genreic person.] Paul F. McManus, leader of the fund's
portfolio management team since 1991, is a vice president of Independence
Investment Associates, Inc., the fund's subadvisor and a subsidiary of John
Hancock Mutual Life Insurance Co. He has worked in the investment business since
1981.
- -------------------------------------------------------------------------------
INVESTOR EXPENSES
[A graphic image of a percent symbol.] Fund investors pay various expenses,
either directly or indirectly. The figures below show the expenses for the past
year, adjusted to reflect any changes. Future expenses may be greater or less.
<TABLE>
<CAPTION>
SHAREHOLDER TRANSACTION EXPENSES CLASS A CLASS B
============================================================================
<S> <C> <C>
Maximum sales charge imposed on purchases
(as a percentage of offering price) 5.00% none
- ----------------------------------------------------------------------------
Maximum sales charge imposed on
reinvested dividends none none
- ----------------------------------------------------------------------------
Maximum deferred sales charge none(1) 5.00%
- ----------------------------------------------------------------------------
Redemption fee(2) none none
- ----------------------------------------------------------------------------
Exchange fee none none
</TABLE>
<TABLE>
<CAPTION>
ANNUAL FUND OPERATING EXPENSES (AS A % OF AVERAGE NET ASSETS)
============================================================================
<S> <C> <C>
Management fee (after expense limitation)(3) 0.56% 0.56%
- ----------------------------------------------------------------------------
12b-1 fee(4) 0.30% 1.00%
- ----------------------------------------------------------------------------
Other expenses 0.44% 0.44%
- ----------------------------------------------------------------------------
Total fund operating expenses(3) 1.30% 2.00%
- ------------------------------------------------------------------------------
</TABLE>
EXAMPLE The table below shows what you would pay if you invested $1,000 over the
various time frames indicated. The example assumes you reinvested all dividends
and that the average annual return was 5%.
<TABLE>
<CAPTION>
SHARES CLASS YEAR 1 YEAR 3 YEAR 5 YEAR 10
==============================================================================
<S> <C> <C> <C> <C>
Class A shares $63 $89 $118 $199
- ------------------------------------------------------------------------------
Class B shares
- ------------------------------------------------------------------------------
Assuming redemption
at end of period $70 $93 $128 $215
- ------------------------------------------------------------------------------
Assuming no redemption $20 $63 $108 $215
- ------------------------------------------------------------------------------
</TABLE>
This example is for comparison purposes only and is not a representation of the
fund's actual expenses and returns, either past or future.
(1) Except for investments of $1 million or more; see "How sales charges are
calculated."
(2) Does not include wire redemption fee (currently $4.00).
(3) Reflects the investment adviser's temporary agreement to limit expenses.
Without this limitation, management fee would be 0.75% for each class and
total fund operating expenses would be 1.49% for Class A and 2.19% for
Class B.
(4) May include carry-over of reimbursable costs from previous year(s). Amounts
shown are the fund's current annual maximums for 12b-1 fees. Because of the
12b-1 fee, long-term shareholders may indirectly pay more than the
equivalent of the maximum permitted front-end sales charge.
6 INDEPENDENCE EQUITY FUND
<PAGE>
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
[A graphic image of a dollar sign.] The figures below have been audited by the
fund's independent auditors, Price Waterhouse LLP.
VOLATILITY, AS INDICATED BY CLASS A YEAR-BY-YEAR TOTAL INVESTMENT RETURN (%)
<TABLE>
<S> <C>
1992(1) 10.95(6)
1993 13.58
1994 6.60
1995 16.98
1995(2) 15.22(6)
</TABLE>
<TABLE>
<CAPTION>
CLASS A - YEAR ENDED MAY 31, 1992(1) 1993 1994 1995 1995(2)
================================================================================================================================
PER SHARE OPERATING PERFORMANCE
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period $ 10.00(3) $ 10.98 $ 12.16 $ 12.68 $14.41
- --------------------------------------------------------------------------------------------------------------------------------
Net investment income (loss) 0.15 0.22 0.28(4) 0.32(4) 0.54
- --------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on investments 0.94 1.25 0.52 1.77 1.60
- --------------------------------------------------------------------------------------------------------------------------------
Total from investment operations 1.09 1.47 0.80 2.09 2.14
- --------------------------------------------------------------------------------------------------------------------------------
Less distributions:
- --------------------------------------------------------------------------------------------------------------------------------
Dividends from net investment income (0.11) (0.23) (0.23) (0.28) (0.13)
- --------------------------------------------------------------------------------------------------------------------------------
Distributions from net realized gain on investments sold -- (0.06) (0.05) (0.08) (0.29)
- --------------------------------------------------------------------------------------------------------------------------------
Total distributions (0.11) (0.29) (0.28) (0.36) (0.42)
- --------------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $ 10.98 $ 12.16 $ 12.68 $ 14.41 $16.13
- --------------------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENT RETURN AT NET ASSET VALUE(5) (%) 10.95(6) 13.58 6.60 16.98 15.22(6)
- --------------------------------------------------------------------------------------------------------------------------------
Total adjusted investment return at net asset value(5,7) (%) 9.23(6) 11.40 6.15 16.94 14.89(6)
- --------------------------------------------------------------------------------------------------------------------------------
RATIOS AND SUPPLEMENTAL DATA
- --------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period (000s omitted) ($) 2,622 12,488 66,612 101,418 4,278
- --------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to average net assets (%) 1.66(9) 0.76 0.70 0.70 0.73(9)
- --------------------------------------------------------------------------------------------------------------------------------
Ratio of adjusted expenses to average net assets(8) (%) 3.38(9) 2.94 1.15 0.74 1.40(9)
- --------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income (loss) to average net assets (%) 1.77(9) 2.36 2.20 2.43 1.62(9)
- --------------------------------------------------------------------------------------------------------------------------------
Ratio of adjusted net investment income (loss) to average
net assets(8) (%) 0.05(9) 0.18 1.75 2.39 0.95(9)
- --------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate (%) 53 53 43 71 25
- --------------------------------------------------------------------------------------------------------------------------------
Fee reduction per share ($) 0.15 0.20 0.06(4) 0.05(4) 0.04
- --------------------------------------------------------------------------------------------------------------------------------
Average brokerage commission rate ($)(10) N/A N/A N/A N/A N/A
</TABLE>
<TABLE>
<CAPTION>
CLASS B - YEAR ENDED MAY 31, 1995(11)
================================================================================================================================
PER SHARE OPERATING PERFORMANCE
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C>
Net asset value, beginning of period $ 15.25(4)
- --------------------------------------------------------------------------------------------------------------------------------
Net investment income (loss) 0.08
- --------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on investments 0.84
- --------------------------------------------------------------------------------------------------------------------------------
Total from investment operations 0.92
- --------------------------------------------------------------------------------------------------------------------------------
Less distributions:
- --------------------------------------------------------------------------------------------------------------------------------
Dividends from net investment income (0.06)
- --------------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $ 16.11
- --------------------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENT RETURN AT NET ASSET VALUE(5) (%) 6.06(6)
- --------------------------------------------------------------------------------------------------------------------------------
Total adjusted investment return at net asset value(5,7) (%) 5.72(6)
- --------------------------------------------------------------------------------------------------------------------------------
RATIOS AND SUPPLEMENTAL DATA
- --------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period (000s omitted) ($) 2,285
- --------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to average net assets (%) 2.00(9)
- --------------------------------------------------------------------------------------------------------------------------------
Ratio of adjusted expenses to average net assets(8) (%) 3.45(9)
- --------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income (loss) to average net assets (%) 2.44(9)
- --------------------------------------------------------------------------------------------------------------------------------
Ratio of adjusted net investment income (loss) to average
net assets(8) (%) 0.98(9)
- --------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate (%) 526
- --------------------------------------------------------------------------------------------------------------------------------
Fee reduction per share ($) 0.04
- --------------------------------------------------------------------------------------------------------------------------------
Average brokerage commission rate ($)(10) N/A
</TABLE>
(1) Class A shares commenced operations on June 10, 1991.
(2) Six months ended November 30, 1995. (Unaudited.)
(3) Initial price at commencement of operations.
(4) Based on the average of the shares outstanding at the end of each month.
(5) Assumes dividend reinvestment and does not reflect the effect of sales
charges.
(6) Not annualized.
(7) An estimated total return calculation which takes into consideration fee
reductions by the adviser during the periods shown.
(8) Unreimbursed, without fee reduction.
(9) Annualized.
(10) Per portfolio share traded. Required for fiscal years that began September
1, 1995 or later.
(11) For the period September 7, 1995 (commencement of operations) to
November 30, 1995. (Unaudited.)
INDEPENDENCE EQUITY FUND 7
<PAGE>
SOVEREIGN BALANCED FUND
REGISTRANT NAME: JOHN HANCOCK SOVEREIGN INVESTORS FUND, INC.
TICKER SYMBOL CLASS A: SVBAX CLASS B: SVBBX
- --------------------------------------------------------------------------------
GOAL AND STRATEGY
[A graphic image of a bullseye with an arrow in the middle of it.] The fund
seeks current income, long-term growth of capital and income, and preservation
of capital. To pursue these goals, the fund allocates assets among a diversified
mix of debt and equity securities. While the relative weightings of debt and
equity securities will shift over time depending on portfolio management's views
of current and anticipated market trends, at least 25% of assets will be
invested in senior debt securities. The fund may not invest more than 25% of its
assets in any given industry.
PORTFOLIO SECURITIES
[A graphic image of a black folder that contains a couple sheets of paper.] The
fund may invest in any type or class of security, including (but not limited
to), stocks, warrants, U.S. Government and agency securities, corporate debt
securities, investment-grade short-term securities, foreign currencies, and
options and futures contracts.
The fund's stock investments are exclusively in companies that have increased
their dividend payout in each of the last ten years. At least 75% of the fund's
bond investments will be investment-grade.
The fund may invest up to 35% of its assets in foreign securities; however,
these typically do not exceed 5% of assets. To a limited extent the fund also
may invest in certain higher-risk securities, and may engage in other investment
practices.
For temporary defensive purposes, the fund may invest some or all of its assets
in investment-grade short-term debt securities.
RISK FACTORS
[A graphic image of a line chart with a single line that depicts some peaks and
valleys.] As with any growth and income fund, the value of your investment will
fluctuate.
To the extent that it invests in certain securities, the fund may be affected by
additional risks:
- - junk bonds: credit and economy risks
- - foreign securities: currency, information, natural event and political risks
- - mortgage-backed securities: extension and prepayment risks
These risks are defined in "More about risk" starting on page 26. This section
also details other higher risk securities and practices that the fund may
utilize. Please read "More about risk" carefully before you invest.
MANAGEMENT/SUBADVISER
[A graphic image of a generic person.] John F. Snyder III and Barry H. Evans
lead the fund's portfolio management team. Mr. Snyder, an investment manager
since 1971, is an executive vice president of Sovereign Asset Management Corp.,
a wholly-owned subsidiary of John Hancock Funds. Mr. Evans, a senior vice
president of the adviser, joined John Hancock Funds in 1986.
- --------------------------------------------------------------------------------
INVESTOR EXPENSES
[A graphic image of a percent symbol.] Fund investors pay various expenses,
either directly or indirectly. The figures below show the expenses for the past
year, adjusted to reflect any changes. Future expenses may be greater or less.
<TABLE>
<CAPTION>
SHAREHOLDER TRANSACTION EXPENSES CLASS A CLASS B
=============================================================================
<S> <C> <C>
Maximum sales charge imposed on purchases
(as a percentage of offering price) 5.00% none
- -----------------------------------------------------------------------------
Maximum sales charge imposed on
reinvested dividends none none
- -----------------------------------------------------------------------------
Maximum deferred sales charge none(1) 5.00%
- -----------------------------------------------------------------------------
Redemption fee(2) none none
- -----------------------------------------------------------------------------
Exchange fee none none
</TABLE>
<TABLE>
<CAPTION>
ANNUAL FUND OPERATING EXPENSES (AS A % OF AVERAGE NET ASSETS)
=============================================================================
<S> <C> <C>
Management fee 0.60% 0.60%
- -----------------------------------------------------------------------------
12b-1 fee(3) 0.30% 1.00%
- -----------------------------------------------------------------------------
Other expenses 0.39% 0.39%
- -----------------------------------------------------------------------------
Total fund operating expenses 1.29% 1.99%
- -----------------------------------------------------------------------------
</TABLE>
EXAMPLE The table below shows what you would pay if you invested $1,000 over the
various time frames indicated. The example assumes you reinvested all dividends
and that the average annual return was 5%.
<TABLE>
<CAPTION>
SHARE CLASS YEAR 1 YEAR 3 YEAR 5 YEAR 10
=================================================================================
<S> <C> <C> <C> <C>
Class A shares $62 $89 $117 $198
- ---------------------------------------------------------------------------------
Class B shares
- ---------------------------------------------------------------------------------
Assuming redemption
at end of period $70 $92 $127 $214
- ---------------------------------------------------------------------------------
Assuming no redemption $20 $62 $107 $214
- ---------------------------------------------------------------------------------
</TABLE>
This example is for comparison purposes only and is not a representation of the
fund's actual expenses and returns, either past or future.
(1) Except for investments of $1 million or more; see "How sales charges are
calculated."
(2) Does not include wire redemption fee (currently $4.00).
(3) May include carry-over of reimbursable costs from previous year(s). Amounts
shown are the fund's current annual maximums for 12b-1 fees. Because of the
12b-1 fee, long-term shareholders may indirectly pay more than the
equivalent of the maximum permitted front-end sales charge.
8 SOVEREIGN BALANCED FUND
<PAGE>
- -------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
[A graphic image of a dollar sign.] The figures below have been audited by the
fund's independent auditors, Ernst & Young LLP.
VOLATILITY, AS INDICATED BY CLASS A YEAR-BY-YEAR TOTAL INVESTMENT RETURN (%)
<TABLE>
<S> <C>
1992(1) 2.37(5)
1993 11.38
1994 (3.51)
1995 24.23
</TABLE>
<TABLE>
<CAPTION>
CLASS A - YEAR ENDED DECEMBER 31, 1992(1) 1993 1994 1995
=================================================================================================================================
<S> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
- ---------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 10.00(2) $ 10.19 $ 10.74 $ 9.84
- ---------------------------------------------------------------------------------------------------------------------------------
Net investment income (loss) 0.04 0.46 0.50 0.44(3)
- ---------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on investments 0.20 0.68 (0.88) 1.91
- ---------------------------------------------------------------------------------------------------------------------------------
Total from investment operations 0.24 1.14 (0.38) 2.35
- ---------------------------------------------------------------------------------------------------------------------------------
Less distributions:
- ---------------------------------------------------------------------------------------------------------------------------------
Dividends from net investment income (0.05) (0.45) (0.50) (0.44)
- ---------------------------------------------------------------------------------------------------------------------------------
Distributions from net realized gain on investments sold -- (0.14) (0.02) --
- ---------------------------------------------------------------------------------------------------------------------------------
Total distributions (0.05) (0.59) (0.52) (0.44)
- ---------------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $ 10.19 $ 10.74 $ 9.84 $ 11.75
- ---------------------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENT RETURN AT NET ASSET VALUE(4) (%) 2.37(5) 11.38 (3.51) 24.23
- ---------------------------------------------------------------------------------------------------------------------------------
RATIOS AND SUPPLEMENTAL DATA
- ---------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period (000s omitted) ($) 5,796 62,218 61,952 69,811
- ---------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to average net assets (%) 2.79(6) 1.45 1.23 1.27
- ---------------------------------------------------------------------------------------------------------------------------------
Ratio of adjusted expenses to average net assets(7) (%) 2.94(6) -- -- --
- ---------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income (loss) to average net assets (%) 3.93(6) 4.44 4.89 3.99
- ---------------------------------------------------------------------------------------------------------------------------------
Ratio of adjusted net investment income (loss) to average
- ---------------------------------------------------------------------------------------------------------------------------------
net assets(7) (%) 3.78(6) -- -- --
- ---------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate (%) 0 85 78 45
- ---------------------------------------------------------------------------------------------------------------------------------
Fee reduction per share ($) 0.0016 N/A N/A N/A
- ---------------------------------------------------------------------------------------------------------------------------------
Average brokerage commission rate ($)(8) N/A N/A N/A N/A
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
CLASS B - YEAR ENDED DECEMBER 31, 1992(1) 1993 1994 1995
=================================================================================================================================
<S> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
- ---------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 10.00(2) $ 10.20 $ 10.75 $ 9.84
- ---------------------------------------------------------------------------------------------------------------------------------
Net investment income (loss) 0.03 0.37 0.43 0.36(3)
- ---------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on investments 0.20 0.70 (0.89) 1.90
- ---------------------------------------------------------------------------------------------------------------------------------
Total from investment operations 0.23 1.07 (0.46) 2.26
- ---------------------------------------------------------------------------------------------------------------------------------
Less distributions:
- ---------------------------------------------------------------------------------------------------------------------------------
Dividends from net investment income (0.03) (0.38) (0.43) (0.36)
- ---------------------------------------------------------------------------------------------------------------------------------
Distributions from net realized gain on investments sold -- (0.14) (0.02) --
- ---------------------------------------------------------------------------------------------------------------------------------
Total distributions (0.03) (0.52) (0.45) (0.36)
- ---------------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $ 10.20 $ 10.75 $ 9.84 $ 11.74
- ---------------------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENT RETURN AT NET ASSET VALUE(4) (%) 2.29(5) 10.63 (4.22) 23.30
- ---------------------------------------------------------------------------------------------------------------------------------
RATIOS AND SUPPLEMENTAL DATA
- ---------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period (000s omitted) ($) 14,311 78,775 79,176 87,827
- ---------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to average net assets (%) 3.51(6) 2.10 1.87 1.96
- ---------------------------------------------------------------------------------------------------------------------------------
Ratio of adjusted expenses to average net assets(7) (%) 3.66(6) -- -- --
- ---------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income (loss) to average net assets (%) 3.21(6) 4.01 4.25 3.31
- ---------------------------------------------------------------------------------------------------------------------------------
Ratio of adjusted net investment income (loss) to average
- ---------------------------------------------------------------------------------------------------------------------------------
net assets(7) (%) 3.06(6) -- -- --
- ---------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate (%) 0 85 78 45
- ---------------------------------------------------------------------------------------------------------------------------------
Fee reduction per share ($) 0.0012 N/A N/A N/A
- ---------------------------------------------------------------------------------------------------------------------------------
Average brokerage commission rate ($)(8) N/A N/A N/A N/A
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Class A and Class B shares commenced operations on October 5, 1992.
This period is covered by the report of other independent auditors (not
included herein)
(2) Initial price at commencement of operations.
(3) Based on the average of the shares outstanding at the end of each month.
(4) Assumes dividend reinvestment and does not reflect the effect of sales
charges.
(5) Not annualized.
(6) Annualized.
(7) Unreimbursed, without fee reduction.
(8) Per Portfolio share traded. Required for fiscal years that began September
1, 1995 or later.
SOVEREIGN BALANCED FUND 9
<PAGE>
SOVEREIGN INVESTORS FUND
REGISTRANT NAME: JOHN HANCOCK SOVEREIGN INVESTORS FUND, INC.
TICKER SYMBOL CLASS A: SOVIX CLASS B: SOVBX
- --------------------------------------------------------------------------------
GOAL AND STRATEGY
[A graphic image of a bullseye with an arrow in the middle of it.] The fund
seeks long-term growth of capital and of income without assuming undue market
risks. Under normal circumstances, the fund invests most of its assets in a
diversified selection of stocks, although it may respond to market conditions by
investing in other types of securities, such as bonds or short-term securities.
Currently, the fund utilizes a "dividend performers" strategy in selecting
portfolio stocks, investing exclusively in companies that have increased their
dividend payout in each of the last ten years.
PORTFOLIO SECURITIES
[A graphic image of a black folder that contains a couple sheets of paper.] The
fund may invest in most types of securities, including:
- - common, preferred and convertible stocks, and stock warrants
- - U.S. Government and agency debt securities, including mortgage-backed
securities
- - corporate bonds, notes, debentures and other debt securities
- - investment-grade short-term securities
The fund's bond investments are typically investment-grade, and no more than 5%
of assets is invested in bonds rated lower than BBB/Baa, or their unrated
equivalents. To a limited extent the fund may invest in certain higher risk
securities, and may engage in other investment practices.
For temporary defensive purposes, the fund may invest some or all of its assets
in high-grade liquid preferred stocks or investment-grade debt securities.
RISK FACTORS
[A graphic image of a line chart with a single line that depicts some peaks and
valleys.] As with any growth and income fund, the value of your investment will
fluctuate.
To the extent that it invests in mortgage-backed securities, the fund may be
affected by additional risks, such as extension and prepayment risks. These
risks are defined in "More about risk" starting on page 26. This section also
details other higher risk securities and practices that the fund may utilize.
Please read "More about risk" carefully before you invest.
MANAGEMENT/SUBADVISER
[A graphic image of a generic person.] John F. Snyder III and Barry H. Evans
lead the fund's portfolio management team. Mr. Snyder, an investment manager
since 1971, is an executive vice president of Sovereign Asset Management Corp.,
a wholly-owned subsidiary of John Hancock Funds. Mr. Evans, a senior vice
president of the adviser, has been in the investment business since joining John
Hancock Funds in 1986.
- --------------------------------------------------------------------------------
INVESTOR EXPENSES
[A graphic image of a percent symbol] Fund investors pay various expenses,
either directly or indirectly. The figures below show the expenses for the past
year, adjusted to reflect any changes. Future expenses may be greater or less.
<TABLE>
<CAPTION>
SHAREHOLDER TRANSACTION EXPENSES CLASS A CLASS B
=============================================================================
<S> <C> <C>
Maximum sales charge imposed on purchases
(as a percentage of offering price) 5.00% none
- -----------------------------------------------------------------------------
Maximum sales charge imposed on
reinvested dividends none none
- -----------------------------------------------------------------------------
Maximum deferred sales charge none(1) 5.00%
- -----------------------------------------------------------------------------
Redemption fee(2) none none
- -----------------------------------------------------------------------------
Exchange fee none none
</TABLE>
<TABLE>
<CAPTION>
ANNUAL FUND OPERATING EXPENSES (AS A % OF AVERAGE NET ASSETS)
=============================================================================
<S> <C> <C>
Management fee 0.58% 0.58%
- -----------------------------------------------------------------------------
12b-1 fee(3) 0.30% 1.00%
- -----------------------------------------------------------------------------
Other expenses 0.28% 0.34%
- -----------------------------------------------------------------------------
Total fund operating expenses 1.16% 1.92%
- -----------------------------------------------------------------------------
</TABLE>
EXAMPLE The table below shows what you would pay if you invested $1,000 over the
various time frames indicated. The example assumes you reinvested all dividends
and that the average annual return was 5%.
<TABLE>
<CAPTION>
SHARE CLASS YEAR 1 YEAR 3 YEAR 5 YEAR 10
=================================================================================
<S> <C> <C> <C> <C>
Class A shares $61 $85 $111 $184
- ---------------------------------------------------------------------------------
Class B shares
- ---------------------------------------------------------------------------------
Assuming redemption
at end of period $70 $90 $124 $205
- ---------------------------------------------------------------------------------
Assuming no redemption $20 $60 $104 $205
- ---------------------------------------------------------------------------------
</TABLE>
This example is for comparison purposes only and is not a representation of the
fund's actual expenses and returns, either past or future.
(1) Except for investments of $1 million or more; see "How sales charges are
calculated."
(2) Does not include wire redemption fee (currently $4.00).
(3) May include carry-over of reimbursable costs from previous year(s). Amounts
shown are the fund's current annual maximums for 12b-1 fees. Because of the
12b-1 fee, long-term shareholders may indirectly pay more than the
equivalent of the maximum permitted front-end sales charge.
10 SOVEREIGN INVESTORS FUND
<PAGE>
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
[A graphic image of a dollar sign.] The figures below have been audited by the
fund's independent auditors, Ernst & Young LLP.
VOLATILITY, AS INDICATED BY CLASS A YEAR-BY-YEAR TOTAL INVESTMENT RETURN (%)
<TABLE>
<S> <C>
1986(1,2) 21.70
1987(1) 0.28
1988(1) 11.23
1989(1) 23.76
1990(1) 4.38
1991(1,3) 30.48
1992(1) 7.23
1993 5.71
1994 (1.85)
1995 29.15
</TABLE>
<TABLE>
<CAPTION>
CLASS A - YEAR ENDED DECEMBER 31, 1986(1,2) 1987(1) 1988(1) 1989(1) 1990(1) 1991(1,3) 1992(1) 1993
===============================================================================================================================
<S> <C> <C> <C> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
- -------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 11.31 $ 12.36 $ 10.96 $ 11.19 $ 12.60 $ 11.94 $ 14.31 $ 14.78
- -------------------------------------------------------------------------------------------------------------------------------
Net investment income (loss) 0.58 0.53 0.57 0.59 0.58 0.54 0.47 0.44
- -------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain
(loss) on investments 1.89 (0.45) 0.65 2.01 (0.05) 3.03 0.54 0.39
- -------------------------------------------------------------------------------------------------------------------------------
Total from investment operations 2.47 0.08 1.22 2.60 0.53 3.57 1.01 0.83
- -------------------------------------------------------------------------------------------------------------------------------
Less distributions:
- -------------------------------------------------------------------------------------------------------------------------------
Dividends from net investment income (0.55) (0.58) (0.61) (0.61) (0.59) (0.53) (0.45) (0.42)
- -------------------------------------------------------------------------------------------------------------------------------
Distributions from net realized gain
on investments sold (0.87) (0.90) (0.38) (0.58) (0.60) (0.67) (0.09) (0.09)
- -------------------------------------------------------------------------------------------------------------------------------
Total distributions (1.42) (1.48) (0.99) (1.19) (1.19) (1.20) (0.54) (0.51)
- -------------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $ 12.36 $ 10.96 $ 11.19 $ 12.60 $ 11.94 $ 14.31 $ 14.78 $ 15.10
- -------------------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENT RETURN AT NET ASSET
VALUE(4) (%) 21.70 0.28 11.23 23.76 4.38 30.48 7.23 5.71
- -------------------------------------------------------------------------------------------------------------------------------
RATIOS AND SUPPLEMENTAL DATA
- -------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period (000s
omitted)($) 34,708 40,564 45,861 66,466 83,470 194,055 872,932 1,258,575
- -------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to average net
assets (%) 0.70 0.85 0.86 1.07 1.14 1.18 1.13 1.10
- -------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income
(loss) to average net assets (%) 4.28 3.96 4.97 4.80 4.77 4.01 3.32 2.94
- -------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate (%) 34 59 35 40 55 67 30 46
- -------------------------------------------------------------------------------------------------------------------------------
Average brokerage commission rate ($)(5) N/A N/A N/A N/A N/A N/A N/A N/A
</TABLE>
<TABLE>
<CAPTION>
CLASS A - YEAR ENDED DECEMBER 31, 1994 1995
===============================================================
<S> <C> <C>
PER SHARE OPERATING PERFORMANCE
- ---------------------------------------------------------------
Net asset value, beginning of period $ 15.10 $ 14.24
- ---------------------------------------------------------------
Net investment income (loss) 0.46 0.40
- ---------------------------------------------------------------
Net realized and unrealized gain
(loss) on investments (0.75) 3.71
- ---------------------------------------------------------------
Total from investment operations (0.29) 4.11
- ---------------------------------------------------------------
Less distributions:
- ---------------------------------------------------------------
Dividends from net investment income (0.46) (0.40)
- ---------------------------------------------------------------
Distributions from net realized gain
on investments sold (0.11) (0.08)
- ---------------------------------------------------------------
Total distributions (0.57) (0.48)
- ---------------------------------------------------------------
Net asset value, end of period $ 14.24 $ 17.87
- ---------------------------------------------------------------
TOTAL INVESTMENT RETURN AT NET ASSET
VALUE(4) (%) (1.85) 29.15
- ---------------------------------------------------------------
RATIOS AND SUPPLEMENTAL DATA
- ---------------------------------------------------------------
Net assets, end of period (000s
omitted)($) 1,090,231 1,280,321
- ---------------------------------------------------------------
Ratio of expenses to average net
assets (%) 1.16 1.14
- ---------------------------------------------------------------
Ratio of net investment income
(loss) to average net assets (%) 3.13 2.45
- ---------------------------------------------------------------
Portfolio turnover rate (%) 45 46
- ---------------------------------------------------------------
Average brokerage commission rate ($)(5) N/A N/A
</TABLE>
<TABLE>
<CAPTION>
CLASS B - YEAR ENDED DECEMBER 31, 1994(5) 1995
================================================================================================================================
<S> <C> <C>
PER SHARE OPERATING PERFORMANCE
- --------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 15.02(7) $ 14.24
- --------------------------------------------------------------------------------------------------------------------------------
Net investment income (loss) 0.38(8) 0.27(8)
- --------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on investment (0.69) 3.71
- --------------------------------------------------------------------------------------------------------------------------------
Total from investment operations (0.31) 3.98
- --------------------------------------------------------------------------------------------------------------------------------
Less distributions:
- --------------------------------------------------------------------------------------------------------------------------------
Dividends from net investment income (0.36) (0.28)
- --------------------------------------------------------------------------------------------------------------------------------
Distributions from net realized gain on investments sold (0.11) (0.08)
- --------------------------------------------------------------------------------------------------------------------------------
Total distributions (0.47) (0.36)
- --------------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $ 14.24 $ 17.86
- --------------------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENT RETURN AT NET ASSET VALUE(4) (%) (2.04)(9) 28.16
- --------------------------------------------------------------------------------------------------------------------------------
RATIOS AND SUPPLEMENTAL DATA
- --------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period (000s omitted) ($) 128,069 257,781
- --------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to average net assets (%) 1.86(10) 1.90
- --------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income (loss) to average net assets (%) 2.57(10) 1.65
- --------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate (%) 45 46
- --------------------------------------------------------------------------------------------------------------------------------
Average brokerage commission rate ($)(5) N/A N/A
</TABLE>
(1) These periods are covered by the report of other independent auditors (not
included herein).
(2) Restated for 2 to 1 stock split effective April 29, 1987.
(3) On October 23, 1991, John Hancock Advisers, Inc. became the investment
adviser of the fund.
(4) Assumes dividend reinvestment and does not reflect the effect of sales
charges.
(5) Per portfolio share traded. required for fiscal years that began September
1, 1995 or later.
(6) Class B shares commenced operations on January 3, 1994.
(7) Initial price at commencement of operations.
(8) Based on the average of the shares outstanding at the end of each month.
(9) Not annualized.
(10) Annualized.
SOVEREIGN INVESTORS FUND 11
<PAGE>
SPECIAL VALUE FUND
REGISTRANT NAME: JOHN HANCOCK CAPITAL SERIES
TICKER SYMBOL CLASS A: SPVAX CLASS B: SPVBX
- --------------------------------------------------------------------------------
GOAL AND STRATEGY
[A graphic image of a bullseye with an arrow in the middle of it.] The fund
seeks capital appreciation, with income as secondary consideration. To pursue
this goal, the fund invests in stocks that appear out of favor or comparatively
undervalued. Under normal circumstances, the fund will invest at least 65% of
assets in these stocks. The fund looks for companies of any size whose earnings
power or asset value do not appear to be reflected in the current stock price,
and whose stocks thus have potential for appreciation. The fund also takes a
"margin of safety" approach, seeking those stocks that are believed to have
limited downside risk.
PORTFOLIO SECURITIES
[A graphic image of a black folder that contains a couple sheets of paper.] The
fund invests primarily in the common stocks of U.S. and foreign companies, as
well as in warrants, preferred stocks and convertible debt securities.
The fund may invest up to 50% of its assets in foreign securities (including
American Depository Receipts); however, foreign securities typically do not
exceed 10% of its assets. The fund also may invest in investment-grade debt
securities, although these securities typically do not exceed 10% of assets. To
a limited extent the fund also may invest in certain other higher-risk
securities, including derivatives, and may engage in other investment practices.
For temporary defensive purposes, the fund may invest some or all of its assets
in investment-grade debt securities.
RISK FACTORS
[A graphic image of a line chart with a single line that depicts some peaks and
valleys.] As with any growth and income fund, the value of your investment will
fluctuate. Even comparatively lower-priced stocks typically fall in value during
broad market declines. Small- and medium-sized company stocks, which may
comprise a portion of the fund's portfolio, tend to be more volatile than the
market as a whole.
To the extent that it invests in foreign securities, the fund may be affected by
additional risks, such as currency, information, natural event and political
risks. These risks are defined in "More about risk" starting on page 26. This
section also details other higher risk securities and practices that the fund
may utilize. Please read "More about risk" carefully before you invest.
MANAGEMENT/SUBADVISER
[A graphic image of a generic person.] Thomas S. Christopher, leader of the
fund's portfolio management team since the fund's inception in 1994, is
executive vice president and chief investment officer of NM Capital Management,
a wholly owned subsidiary of John Hancock Funds. He has worked in the investment
business since 1969.
- --------------------------------------------------------------------------------
INVESTOR EXPENSES
[A graphic image of a percent symbol.] Fund investors pay various expenses,
either directly or indirectly. The figures below show the expenses for the past
year, adjusted to reflect any changes. Future expenses may be greater or less.
<TABLE>
<CAPTION>
SHAREHOLDER TRANSACTION EXPENSES CLASS A CLASS B
=============================================================================
<S> <C> <C>
Maximum sales charge imposed on purchases
(as a percentage of offering price) 5.00% none
- -----------------------------------------------------------------------------
Maximum sales charge imposed on
reinvested dividends none none
- -----------------------------------------------------------------------------
Maximum deferred sales charge none(1) 5.00%
- -----------------------------------------------------------------------------
Redemption fee(2) none none
- -----------------------------------------------------------------------------
Exchange fee none none
</TABLE>
<TABLE>
<CAPTION>
ANNUAL FUND OPERATING EXPENSES (AS A % OF AVERAGE NET ASSETS)
=========================================================================
<S> <C> <C>
Management fee (after expense limitation)(3) 0.00% 0.00%
- -------------------------------------------------------------------------
12b-1 fee(4) 0.30% 1.00%
- -------------------------------------------------------------------------
Other expenses (after expense limitation)(3) 0.71% 0.71%
- -------------------------------------------------------------------------
Total fund operating expenses (3) 1.01% 1.71%
- -------------------------------------------------------------------------
</TABLE>
EXAMPLE The table below shows what you would pay if you invested $1,000 over the
various time frames indicated. The example assumes you reinvested all dividends
and that the average annual return was 5%.
<TABLE>
<CAPTION>
SHARE CLASS YEAR 1 YEAR 3 YEAR 5 YEAR 10
===============================================================================
<S> <C> <C> <C> <C>
Class A shares $60 $81 $103 $167
- ------------------------------------------------------------------------------
Class B shares
- ------------------------------------------------------------------------------
Assuming redemption
at end of period $67 $84 $113 $183
- ------------------------------------------------------------------------------
Assuming no redemption $17 $54 $ 93 $183
- ------------------------------------------------------------------------------
</TABLE>
This example is for comparison purposes only and is not a representation of the
fund's actual expenses and returns, either past or future.
(1) Except for investments of $1 million or more; see "How sales charges are
calculated."
(2) Does not include wire redemption fee (currently $4.00).
(3) Reflects the investment adviser's temporary agreement to limit expenses
(except for 12b-1 and transfer agent expenses). Without this limitation,
management fees would be 0.70% for each class, other expenses would be
0.90% for each class, and total fund operating expenses would be 1.90% for
Class A and 2.60% for Class B. Management fee includes a subadviser's fee
equal to 0.25% of the fund's net assets.
(4) May include carry-over of reimbursable costs from previous year(s). Amounts
shown are the fund's current annual maximums for 12b-1 fees. Because of the
12b-1 fee, long-term shareholders may indirectly pay more than the
equivalent of the maximum permitted front-end sales charge.
12 SPECIAL VALUE FUND
<PAGE>
FINANCIAL HIGHLIGHTS
The figures below have been audited by the fund's independent auditors, Ernst &
Young LLP.
VOLATILITY, AS INDICATED BY CLASS A YEAR-BY-YEAR TOTAL INVESTMENT RETURN (%)
<TABLE>
<S> <C>
1994(1) 7.81(5)
1995 20.26
</TABLE>
<TABLE>
<CAPTION>
CLASS A - YEAR ENDED DECEMBER 31, 1994(1) 1995
================================================================================================================================
<S> <C> <C>
PER SHARE OPERATING PERFORMANCE
- --------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 8.50(2) $ 8.99
- --------------------------------------------------------------------------------------------------------------------------------
Net investment income (loss) 0.18(3) 0.21(3)
- --------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on investments 0.48 1.60
- --------------------------------------------------------------------------------------------------------------------------------
Total from investment operations 0.66 1.81
- --------------------------------------------------------------------------------------------------------------------------------
Less distributions:
- --------------------------------------------------------------------------------------------------------------------------------
Dividends from net investment income (0.17) (0.20)
- --------------------------------------------------------------------------------------------------------------------------------
Distributions from net realized gain on investments sold -- (0.21)
- --------------------------------------------------------------------------------------------------------------------------------
Total distributions (0.17) (0.41)
- --------------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $ 8.99 $ 10.39
- --------------------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENT RETURN AT NET ASSET VALUE(4) (%) 7.81(5) 20.26
- --------------------------------------------------------------------------------------------------------------------------------
Total adjusted investment return at net asset value(4,6) (%) 7.30(5) 19.39
- --------------------------------------------------------------------------------------------------------------------------------
RATIOS AND SUPPLEMENTAL DATA
- --------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period (000s omitted) ($) 4,420 12,845
- --------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to average net assets (%) 0.99(7) 0.98
- --------------------------------------------------------------------------------------------------------------------------------
Ratio of adjusted expenses to average net assets(6) (%) 4.98(7) 1.85
- --------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income (loss) to average net assets (%) 2.10(7) 2.04
- --------------------------------------------------------------------------------------------------------------------------------
Ratio of adjusted net investment income (loss) to average net assets(6) (%) (1.89)(7) 1.17
- --------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate (%) 0.3 9
- --------------------------------------------------------------------------------------------------------------------------------
Fee reduction per share ($) 0.34(3) 0.09(3)
- --------------------------------------------------------------------------------------------------------------------------------
Average brokerage commission rate ($)(8) N/A N/A
</TABLE>
<TABLE>
<CAPTION>
CLASS B - YEAR ENDED DECEMBER 31, 1994(1) 1995
================================================================================================================================
<S> <C> <C>
PER SHARE OPERATING PERFORMANCE
- --------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 8.50(2) $ 9.00
- --------------------------------------------------------------------------------------------------------------------------------
Net investment income (loss) 0.13(3) 0.12(3)
- --------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on investments 0.48 1.59
- --------------------------------------------------------------------------------------------------------------------------------
Total from investment operations 0.61 1.71
- --------------------------------------------------------------------------------------------------------------------------------
Less distributions:
- --------------------------------------------------------------------------------------------------------------------------------
Dividends from net investment income (0.11) (0.12)
- --------------------------------------------------------------------------------------------------------------------------------
Distributions from net realized gain on investments sold -- (0.21)
- --------------------------------------------------------------------------------------------------------------------------------
Total distributions (0.11) (0.33)
- --------------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $ 9.00 $ 10.38
- --------------------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENT RETURN AT NET ASSET VALUE(4) (%) 7.15(5) 19.11
- --------------------------------------------------------------------------------------------------------------------------------
Total adjusted investment return at net asset value(4.6) (%) 6.64(5) 18.24
- --------------------------------------------------------------------------------------------------------------------------------
RATIOS AND SUPPLEMENTAL DATA
- --------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period (000s omitted) ($) 3,296 16,994
- --------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to average net assets (%) 1.72(7) 1.73
- --------------------------------------------------------------------------------------------------------------------------------
Ratio of adjusted expenses to average net assets(6) (%) 5.71(7) 2.60
- --------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income (loss) to average net assets (%) 1.53(7) 1.21
- --------------------------------------------------------------------------------------------------------------------------------
Ratio of adjusted net investment income (loss) to average net assets(6) (%) (2.46)(7) 0.34
- --------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate (%) 0.3 9
- --------------------------------------------------------------------------------------------------------------------------------
Fee reduction per share ($) 0.34(3) 0.09(3)
- --------------------------------------------------------------------------------------------------------------------------------
Average brokerage commission rate ($)(8) N/A N/A
</TABLE>
(1) Class A and Class B shares commenced operations on January 3, 1994.
(2) Initial price at commencement of operations.
(3) Based on the average of the shares outstanding at the end of each month.
(4) Assumes dividend reinvestment and does not reflect the effect of sales
charges.
(5) Not annualized.
(6) Unreimbursed, without fee reduction.
(7) Annualized.
(8) Per portfolio share traded. Required for fiscal years that began September
1, 1995 or later.
SPECIAL VALUE FUND 13
<PAGE>
UTILITIES FUND
REGISTRANT NAME: JOHN HANCOCK CAPITAL SERIES
TICKER SYMBOL CLASS A: JHUAX CLASS B: JHUBX
- --------------------------------------------------------------------------------
GOAL AND STRATEGY
[A graphic image of a bullseye with an arrow in the middle of it.] The fund
seeks current income and, to the extent consistent with this, growth of income
and long-term growth of capital. To pursue this goal, the fund invests in public
utilities companies, such as those whose principal business involves the
creation or handling of electricity, natural gas, water, waste management
services or non-broadcast telecommunications services. Under normal
circumstances, the fund will invest at least 65% of assets in these companies.
The fund may invest in other industries if fund management believes that it
would help the fund meet its goal.
PORTFOLIO SECURITIES
[A graphic image of a black folder that contains a couple sheets of paper.] The
fund invests primarily in the common stocks of U.S. and foreign companies, as
well as in warrants, preferred stocks and convertible debt securities.
Foreign securities (including American Depository Receipts) and investment-grade
debt securities may each comprise up to 25% of portfolio investments. However,
foreign securities typically do not exceed 15% of assets, and debt securities
15% of assets. To a limited extent the fund also may invest in certain higher-
risk securities, and may engage in other investment practices.
For temporary defensive purposes, the fund may invest some or all of its assets
in investment-grade debt securities.
RISK FACTORS
[A graphic image of a line chart with a single line that depicts some peaks and
valleys.] As with any growth and income fund, the value of your investment will
fluctuate. Because the fund concentrates on a narrow segment of the economy, its
performance is largely dependent on that segment's performance. Utilities stocks
may be adversely affected by numerous factors, including government regulation,
competitive actions and rising interest rates.
To the extent that it invests in foreign securities, the fund may be affected by
additional risks, such as currency, information, natural event and political
risks. These risks are defined in "More about risk" starting on page 26. This
section also details other higher risk securities and practices that the fund
may utilize. Please read "More about risk" carefully before you invest.
PORTFOLIO MANAGEMENT
[A graphic image of a generic person.] Gregory K. Phelps, leader of the fund's
portfolio management team since 1996, is a vice president of the adviser. He
joined John Hancock Funds in 1996 and has worked in the investment business
since 1981.
- --------------------------------------------------------------------------------
INVESTOR EXPENSES
[A graphic image of a percent symbol] Fund investors pay various expenses,
either directly or indirectly. The figures below show the expenses for the past
year, adjusted to reflect any changes. Future expenses may be greater or less.
<TABLE>
<CAPTION>
SHAREHOLDER TRANSACTION EXPENSES CLASS A CLASS B
===============================================================================
<S> <C> <C>
Maximum sales charge imposed on purchases
(as a percentage of offering price) 5.00% none
- -------------------------------------------------------------------------------
Maximum sales charge imposed on
reinvested dividends none none
- -------------------------------------------------------------------------------
Maximum deferred sales charge none(1) 5.00%
- -------------------------------------------------------------------------------
Redemption fee(2) none none
- -------------------------------------------------------------------------------
Exchange fee none none
</TABLE>
<TABLE>
<CAPTION>
ANNUAL FUND OPERATING EXPENSES (AS A % OF AVERAGE NET ASSETS)
============================================================================
<S> <C> <C>
Management fee (after expense limitation)(3) 0.04% 0.04%
- ----------------------------------------------------------------------------
12b-1 fee(4) 0.30% 1.00%
- ----------------------------------------------------------------------------
Other expenses 0.68% 0.68%
- ----------------------------------------------------------------------------
Total fund operating expenses(3) 1.02% 1.72%
- ----------------------------------------------------------------------------
</TABLE>
EXAMPLE The table below shows what you would pay if you invested $1,000 over the
various time frames indicated. The example assumes you reinvested all dividends
and that the average annual return was 5%.
<TABLE>
<CAPTION>
SHARE CLASS YEAR 1 YEAR 3 YEAR 5 YEAR 10
================================================================================
<S> <C> <C> <C> <C>
Class A shares $60 $81 $104 $169
- -------------------------------------------------------------------------------
Class B shares
- -------------------------------------------------------------------------------
Assuming redemption
at end of period $67 $84 $113 $184
- -------------------------------------------------------------------------------
Assuming no redemption $17 $54 $ 93 $184
- -------------------------------------------------------------------------------
</TABLE>
This example is for comparison purposes only and is not a representation of the
fund's actual expenses and returns, either past or future.
(1) Except for investments of $1 million or more; see "How sales charges are
calculated."
(2) Does not include wire redemption fee (currently $4.00).
(3) Reflects the investment adviser's temporary agreement to limit expenses
(except for 12b-1 and transfer agent expenses). Without this limitation,
management fees would be 0.70% for each class and total fund operating
expenses would be 1.68% for Class A and 2.38% for Class B.
(4) May include carry-over of reimbursable costs from previous year(s). Amounts
shown are the fund's current annual maximums for 12b-1 fees. Because of the
12b-1 fee, long-term shareholders may indirectly pay more than the
equivalent of the maximum permitted front-end sales charge.
14 UTILITIES FUND
<PAGE>
- -------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
[A graphic image of a dollar sign.] The figures below have been audited by the
fund's independent auditors,Price Waterhouse LLP.
VOLATILITY, AS INDICATED BY CLASS A YEAR-BY-YEAR TOTAL INVESTMENT RETURN (%)
<TABLE>
<S> <C>
1994(1) (2.82)(6)
1995 7.10
1995(2) 7.51 (6)
</TABLE>
<TABLE>
<CAPTION>
CLASS A - YEAR ENDED MAY 31, 1994(1) 1995 1995(2)
===============================================================================================================================
<S> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
- -------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 8.50(3) $ 8.26 $ 8.48
- -------------------------------------------------------------------------------------------------------------------------------
Net investment income (loss) 0.12(4) 0.44(4) 0.20(4)
- -------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on investments and
foreign currency transactions (0.36) 0.12 0.43
- -------------------------------------------------------------------------------------------------------------------------------
Total from investment operations (0.24) 0.56 0.63
- -------------------------------------------------------------------------------------------------------------------------------
Less distributions:
- -------------------------------------------------------------------------------------------------------------------------------
Dividends from net investment income -- (0.34) (0.20)
- -------------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $ 8.26 $ 8.48 $ 8.91
- -------------------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENT RETURN AT NET ASSET VALUE(5) (%) (2.82)(6) 7.10 7.51(6)
- -------------------------------------------------------------------------------------------------------------------------------
Total adjusted investment return at net asset value(5,9) (13.89)(6) 6.44 7.07(6)
- -------------------------------------------------------------------------------------------------------------------------------
RATIOS AND SUPPLEMENTAL DATA
- -------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period (000's omitted) ($) 781 19,229 23,337
- -------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to average net assets (%) 1.00(8) 1.04 1.06(8)
- -------------------------------------------------------------------------------------------------------------------------------
Ratio of adjusted expenses to average net assets(9) (%) 12.07(8) 1.70 1.50(8)
- -------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income (loss) to average net assets (%) 4.53(8) 5.39 4.42(8)
- -------------------------------------------------------------------------------------------------------------------------------
Ratio of adjusted net investment income (loss) to average net assets(9) (%) (6.54)(8) 4.73 3.98(8)
- -------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate (%) 6 98 47
- -------------------------------------------------------------------------------------------------------------------------------
Fee reduction per share ($) 0.27(4) 0.05(4) 0.02(4)
- -------------------------------------------------------------------------------------------------------------------------------
Average brokerage commission rate ($)(10) N/A N/A N/A
</TABLE>
<TABLE>
<CAPTION>
CLASS B - YEAR ENDED MAY 31, 1994(1) 1995 1995(2)
===============================================================================================================================
<S> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
- -------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 8.50(3) $ 8.25 $ 8.45
- -------------------------------------------------------------------------------------------------------------------------------
Net investment income (loss) 0.08(4) 0.38(4) 0.16
- -------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on investments and
foreign currency transactions (0.33) 0.12 0.44
- -------------------------------------------------------------------------------------------------------------------------------
Total from investment operations (0.25) 0.50 0.60
- -------------------------------------------------------------------------------------------------------------------------------
Less distributions:
- -------------------------------------------------------------------------------------------------------------------------------
Dividends from net investment income -- (0.30) (0.17)
- -------------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $ 8.25 $ 8.45 $ 8.88
- -------------------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENT RETURN AT NET ASSET VALUE(5) (%) (2.94)(6) 6.31 7.16(6)
- -------------------------------------------------------------------------------------------------------------------------------
Total adjusted investment return at net asset value(5,9) (14.01)(6) 5.65 6.72(6)
- -------------------------------------------------------------------------------------------------------------------------------
RATIOS AND SUPPLEMENTAL DATA
- -------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period (000s omitted) ($) 445 38,344 46,967
- -------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to average net assets (%) 1.72(8) 1.71 1.81(8)
- -------------------------------------------------------------------------------------------------------------------------------
Ratio of adjusted expenses to average net assets(9) (%) 12.79(8) 2.37 2.25(8)
- -------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income (loss) to average net assets (%) 4.20(8) 4.64 3.69(8)
- -------------------------------------------------------------------------------------------------------------------------------
Ratio of adjusted net investment income (loss) to average net assets(9) (%) (6.87)(8) 3.98 3.25(8)
- -------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate (%) 6 98 47
- -------------------------------------------------------------------------------------------------------------------------------
Fee reduction per share(4) ($) 0.27(4) 0.05(4) 0.02(4)
- -------------------------------------------------------------------------------------------------------------------------------
Average brokerage commission rate ($)(10) N/A N/A N/A
</TABLE>
(1) Class A and Class B shares commenced operations on February 1, 1994.
(2) For the period June 1, 1995 to November 30, 1995. (Unaudited.)
(3) Initial price at commencement of operations.
(4) Based on the average of the shares outstanding at the end of each month.
(5) Assumes dividend reinvestment and does not reflect the effect of sales
charges.
(6) Not annualized.
(7) Unreimbursed, without fee reduction.
(8) Annualized.
(9) An estimated total return calculation takes into consideration fee
reductions by the adviser during the periods shown.
(10) Per portfolio share traded. Required for fiscal years that began September
1, 1995 or later.
UTILITIES FUND 15
<PAGE>
YOUR ACCOUNT
- --------------------------------------------------------------------------------
CHOOSING A SHARE CLASS
All John Hancock growth and income funds offer two classes of shares, Class A
and Class B. Each class has its own cost structure, allowing you to choose the
one that best meets your requirements. Your financial representative can help
you decide.
CLASS A
- - Front-end sales charges, as described below. There are several ways to reduce
these charges, also described below.
- - Lower annual expenses than Class B shares.
CLASS B
- - No front-end sales charge; all your money goes to work for you right away.
- - Higher annual expenses than Class A shares.
- - A deferred sales charge on shares you sell within six years of purchase, as
described below.
- - Automatic conversion to Class A shares after eight years, thus reducing
future annual expenses.
For actual past expenses of Class A and B shares, see the fund-by-fund
information earlier in this prospectus.
Sovereign Investors Fund offers Class C shares, which have their own sales
charge and expense structure and are available to financial institutions only.
Call Investor Services or contact your financial representative for more
information (see the back cover of this prospectus).
- --------------------------------------------------------------------------------
HOW SALES CHARGES ARE CALCULATED
CLASS A Sales charges are as follows:
CLASS A SALES CHARGES
<TABLE>
<CAPTION>
As a % of As a % of your
Your investment offering price investment
- -------------------------------------------------------------------------------
<S> <C> <C>
Up to $49,999 5.00% 5.26%
$50,000 - $99,999 4.50% 4.71%
$100,000 - $249,999 3.50% 3.63%
$250,000 - $499,999 2.50% 2.56%
$500,000 - $999,999 2.00% 2.04%
$1,000,000 and over See below
</TABLE>
INVESTMENTS OF $1 MILLION OR MORE Class A shares are available with no front-end
sales charge. However, there is a contingent deferred sales charge (CDSC) on any
shares sold within one year of purchase, as follows:
CDSC ON $1 MILLION+ INVESTMENT
<TABLE>
<CAPTION>
Your investment CDSC on shares being sold
- -------------------------------------------------------------------------------
<S> <C>
First $1M - $4,999,999 1.00%
Next $1 - $5M above that 0.50%
Next $1 or more above that 0.25%
</TABLE>
For purposes of this CDSC, all purchases made during a calendar month are
counted as having been made on the LAST day of that month.
The CDSC is based on the lesser of the original purchase cost or the current
market value of the shares being sold, and is not charged on shares you acquired
by reinvesting your dividends. To keep your CDSC as low as possible, each time
you place a request to sell shares we will first sell any shares in your account
that are not subject to a CDSC.
CLASS B Shares are offered at their net asset value per share, without any
initial sales charge. However, there is a contingent deferred sales charge
(CDSC) on shares you sell within six years of buying them. There is no CDSC on
shares acquired through reinvestment of dividends. The CDSC is based on the
original purchase cost or the current market value of the shares being sold,
whichever is less. The longer the time between the purchase and the sale of
shares, the lower the rate of the CDSC:
<TABLE>
<CAPTION>
CLASS B DEFERRED CHARGES
Years after purchase CDSC on shares being sold
- -------------------------------------------------------------------------------
<S> <C>
1st year 5.0%
2nd year 4.0%
3rd or 4 year 3.0%
5th year 2.0%
6th year 1.0%
7th or more years None
</TABLE>
For purposes of this CDSC, all purchases made during a calendar month are
counted as having been made on the FIRST day of that month.
CDSC calculations are based on the number of shares involved, not on the value
of your account. To keep your CDSC as low as possible, each time you place a
request to sell shares we will first sell any shares in your account that carry
no CDSC. If there are not enough of these to meet your request, we will sell
those shares that have the lowest CDSC.
16 YOUR ACCOUNT
<PAGE>
- --------------------------------------------------------------------------------
SALES CHARGE REDUCTIONS AND WAIVERS
REDUCING YOUR CLASS A SALES CHARGES There are several ways you can combine
multiple purchases of Class A shares in John Hancock funds to take advantage of
the breakpoints in the sales charge schedule. The first three ways can be
combined in any manner.
- - Accumulation Privilege -- lets you add the value of any Class A shares you
already own to the amount of your next Class A investment for purposes of
calculating the sales charge.
- - Letter of Intention -- lets you purchase Class A shares of a fund over a
13-month period and receive the same sales charge as if all shares had been
purchased at once.
- - Combination Privilege -- lets you combine Class A shares of multiple funds
for purposes of calculating the sales charge.
To utilize: complete the appropriate section on your application, or contact
your financial representative or Investor Services to add these options to an
existing account.
GROUP INVESTMENT PROGRAM Allows established groups of four or more investors to
invest as a group. Each has an individual account, but for sales charge
purposes, their investments are lumped together, making the investors
potentially eligible for reduced sales charges. There is no charge, no
obligation to invest (although initial aggregate investments must be at least
$250), and you may terminate the program at any time.
To utilize: contact your financial representative or Investor Services to find
out how to qualify.
CDSC WAIVERS In general, the CDSC for either share class may be waived on shares
you sell for the following reasons:
- - to make payments through certain Systematic Withdrawal Plans
- - to make certain distributions from a retirement plan
- - because of shareholder death or disability
To utilize: contact your financial representative or Investor Services.
REINSTATEMENT PRIVILEGE If you sell shares in a John Hancock fund, you may
invest some or all of the proceeds in the same share class of any John Hancock
fund within 120 days without a sales charge. If you paid a CDSC when you sold
your shares, you will be credited with the amount of the CDSC. All accounts
involved must have the same registration.
To utilize: contact your financial representative or Investor Services or
consult the SAI (see the back cover of this prospectus).
WAIVERS FOR CERTAIN INVESTORS Class A shares may be offered without front-end
sales charges or CDSCs to various individuals and institutions, including:
- - government entities that are prohibited from paying mutual fund sales charges
- - financial institutions or common trust funds investing $1 million or more for
non-discretionary accounts
- - selling brokers and their employees and sales representatives
- - financial representatives utilizing fund shares in fee-based investment
products under agreement with John Hancock Funds
- - fund trustees and other individuals who are affiliated with these or other
John Hancock funds
- - individuals transferring assets to a John Hancock growth and income fund from
an employee benefit plan that has John Hancock funds
- - member of an approved affinity group financial services plan
To utilize: if you think you may be eligible for a sales charge waiver, contact
Investor Services or consult the SAI (see the back cover of this prospectus).
- --------------------------------------------------------------------------------
OPENING AN ACCOUNT
1 Read this prospectus carefully.
2 Determine how much you want to invest. The minimum initial investments for
the John Hancock growth and income funds are as follows:
- non-retirement account: $1,000
- retirement account: $250
- group investments: $250
- Monthly Automatic Accumulation Plan (MAAP): $25 to open; you must invest
at least $25 a month
3 Complete the appropriate parts of the account application, carefully
following the instructions. If you have questions, please contact your
financial representative or call Investor Services at 1-800-225-5291.
4 Complete the appropriate parts of the account privileges application. By
applying for privileges now, you can avoid the delay and inconvenience of
having to file an additional application if you want to add privileges later
on.
5 Make your initial investment using the table on the next page. You can
initiate any purchase, exchange or sale of shares through your financial
representative.
YOUR ACCOUNT 17
<PAGE>
BUYING SHARES
BY CHECK
- --------------------------------------------------------------------------------
OPENING AN ACCOUNT
[A graphic image of a blank check.]
- Make out a check for the investment amount, payable to "John
Hancock Investor Services Corporation."
- Deliver the check and your completed application to your
financial representative, or mail to Investor Services
(address on next page).
ADDING TO AN ACCOUNT
- Make out a check for the investment amount payable to "John
Hancock Investor Services Corporation."
- Fill out the detachable investment slip from an account
statement. If no slip is available, include a note specifying
the fund name, your share class, your account number, and the
name(s) in which the account is registered.
- Deliver the check and your investment slip or note to your
financial representative, or mail to Investor Services
(address on next page).
BY EXCHANGE
- --------------------------------------------------------------------------------
[A graphic image of a white arrow outlined in black that points to the right
above a black that points to the left.]
OPENING AN ACCOUNT
- Call your financial representative or Investor Services to
request an exchange.
ADDING TO AN ACCOUNT
- Call Investor Services to request an exchange.
BY WIRE
- --------------------------------------------------------------------------------
[A graphic image of a jagged white arrow outlined in black that points upwards
at a 45 degree angle.]
OPENING AN ACCOUNT
- Deliver your completed application to your financial
representative, or mail it to Investor Services.
- Obtain your account number by calling your financial
representative or Investor Services.
- Instruct your bank to wire the amount of your investment to:
First Signature Bank & Trust
Account # 900000260
Routing # 211475000
Specify the fund name, your choice of share class, the new
account number and the name(s) in which the account is
registered. Your bank may charge a fee to wire funds.
ADDING TO AN ACCOUNT
- Instruct your bank to wire the amount of your investment to:
First Signature Bank & Trust
Account # 900000260
Routing # 211475000
Specify the fund name, your share class, your account number
and the name(s) in which the account is registered. Your bank
may charge a fee to wire funds.
BY PHONE
- --------------------------------------------------------------------------------
[A graphic image of a telephone.]
OPENING AN ACCOUNT
See "By wire" and "By exchange."
ADDING TO AN ACCOUNT
- Verify that your bank or credit union is a member of the
Automated Clearing House (ACH) system.
- Complete the "Invest-By-Phone" and "Bank Information" sections
on your Account Privileges Application.
- Call Investor Services to verify that these features are in
place on your account.
- Tell the Investor Services representative the fund name, your
share class, your account number, the name(s) in which the
account is registered and the amount of your investment.
To open or add to an account using the Monthly Automatic Accumulation Program,
see "Additional investor services."
18 YOUR ACCOUNT
<PAGE>
SELLING SHARES
BY LETTER
- --------------------------------------------------------------------------------
[A graphic image of the back of an envelope.]
DESIGNED FOR
- Accounts of any type.
- Sales of any amount.
TO SELL SOME OR ALL OF YOUR SHARES
- Write a letter of instruction or stock power indicating the
fund name, your share class, your account number, the name(s)
in which the account is registered and the dollar value or
number of shares you wish to sell.
- Include all signatures and any additional documents that may
be required (see next page).
- Mail the materials to Investor Services.
- A check will be mailed to the name(s) and address in which the
account is registered, or otherwise according to your letter
of instruction.
BY PHONE
- --------------------------------------------------------------------------------
[A graphic image of a telephone.]
DESIGNED FOR
- Most accounts.
- Sales of up to $100,000.
TO SELL SOME OR ALL OF YOUR SHARES
- For automated service 24 hours a day using your Touch-Tone
phone, call the John Hancock Funds EASI-Line at
1-800-338-8080.
- To place your order with a representative at John Hancock
Funds, call Investor Services between 8 A.M. and 4 P.M. on
most business days.
BY WIRE OR ELECTRONIC FUNDS TRANSFER (EFT)
- --------------------------------------------------------------------------------
[A graphic image of a jaggged white arrow outlined in black that points upwards
at a 45 degree angle.]
DESIGNED FOR
- Requests by letter to sell any amount (accounts of any type).
- Requests by phone to sell up to $100,000 (accounts with
telephone redemption privileges).
TO SELL SOME OR ALL OF YOUR SHARES
- Fill out the "Telephone redemption" section of your new
account application.
- To verify that the telephone redemption privilege is in place
on an account, or to request the forms to add it to an
existing account, call Investor Services.
- Amounts of $1,000 or more will be wired on the next business
day. A $4 fee will be deducted from your account.
- Amounts of less than $1,000 may be sent by EFT or by check.
Funds from EFT transactions are generally available by the
second business day. Your bank may charge a fee for this
service.
BY EXCHANGE
- --------------------------------------------------------------------------------
[A graphic image of a white arrow outlined in black that points to the right
above a black that points to the left.]
DESIGNED FOR
- Accounts of any type.
- Sales of any amount.
TO SELL SOME OR ALL OF YOUR SHARES
- Obtain a current prospectus for the fund into which you are
exchanging by calling your financial representative or
Investor Services.
- Call Investor Services to request an exchange.
- ------------------------------------------
ADDRESS
John Hancock Investor Services Corporation
P.O. Box 9116 Boston, MA 02205-9116
PHONE
1-800-225-5291
Or contact your financial representative
for instructions and assistance.
- ------------------------------------------
To sell shares through a systematic withdrawal plan, see "Additional investor
services."
YOUR ACCOUNT 19
<PAGE>
SELLING SHARES IN WRITING In certain circumstances, you will need to make your
request to sell shares in writing. You may need to include additional items with
your request, as shown in the table below. You may also need to include a
signature guarantee, which protects you against fraudulent orders. You will need
a signature guarantee if:
- - your address of record has changed within the past 30 days
- - you are selling more than $100,000 worth of shares
- - you are requesting payment other than by a check mailed to the address of
record and payable to the registered owner(s)
You can generally obtain a signature guarantee from the following sources:
- - a broker or securities dealer o a federal savings, cooperative or other type
of bank
- - a savings and loan or other thrift institution
- - a credit union
- - a securities exchange or clearing agency
A notary public CANNOT provide a signature guarantee.
- --------------------------------------------------------------------------------
[A graphic image of the back of an envelope.]
SELLER
Owners of individual, joint, sole proprietorship, UGMA/UTMA (custodial accounts
for minors) or general partner accounts.
REQUIREMENTS FOR WRITTEN REQUESTS
- - Letter of instruction.
- - On the letter, the signatures and titles of all persons authorized to sign
for the account, exactly as the account is registered.
- - Signature guarantee if applicable (see above).
- --------------------------------------------------------------------------------
SELLER
Owners of corporate or association accounts.
REQUIREMENTS FOR WRITTEN REQUESTS
- - Letter of instruction.
- - Corporate resolution, certified within the past 90 days
- - On the letter and the resolution, the signature of the person(s) authorized
to sign for the account.
- - Signature guarantee if applicable (see above).
- --------------------------------------------------------------------------------
SELLER
Owners or trustees of trust accounts.
REQUIREMENTS FOR WRITTEN REQUESTS
- - Letter of instruction.
- - On the letter, the signature(s) of the trustee(s).
- - If the names of all trustees are not registered on the account, please also
provide a copy of the trust document certified within the past 60 days.
- - Signature guarantee if applicable (see above).
- --------------------------------------------------------------------------------
SELLER
Joint tenancy shareholders whose co-tenants are deceased.
REQUIREMENTS FOR WRITTEN REQUESTS
- - Letter of instruction signed by surviving tenant.
- - Copy of death certificate.
- - Signature guarantee if applicable (see above).
- --------------------------------------------------------------------------------
SELLER
Executors of shareholder estates.
REQUIREMENTS FOR WRITTEN REQUESTS
- - Letter of instruction signed by executor.
- - Copy of order appointing executor.
- - Signature guarantee if applicable (see above).
- --------------------------------------------------------------------------------
SELLER
Administrators, conservators, guardians and other sellers or account types not
listed above.
REQUIREMENTS FOR WRITTEN REQUESTS
o Call 1-800-225-5291 for instructions.
- --------------------------------------------------------------------------------
20 YOUR ACCOUNT
<PAGE>
- --------------------------------------------------------------------------------
TRANSACTION POLICIES
VALUATION OF SHARES The net asset value per share (NAV) for each fund and class
is determined each business day at the close of regular trading on the New York
Stock Exchange (typically 4 P.M. Eastern Time) by dividing a class's net assets
by the number of its shares outstanding.
BUY AND SELL PRICES When you buy shares, you pay the NAV plus any applicable
sales charges, as described earlier. When you sell shares, you receive the NAV
minus any applicable deferred sales charges, as described earlier.
EXECUTION OF REQUESTS Each fund is open on those days when the New York Stock
Exchange is open, typically Monday - Friday. Buy and sell requests are executed
at the next NAV to be calculated after your request is accepted by Investor
Services.
At times of peak activity, it may be difficult to place requests by phone.
During these times, consider using EASI-Line or sending your request in writing.
In unusual circumstances, any fund may temporarily suspend the processing of
sell requests, or may postpone payment of proceeds for up to three business days
or longer, as allowed by federal securities laws.
TELEPHONE TRANSACTIONS For your protection, telephone requests may be recorded
in order to verify their accuracy. In addition, Investor Services will take
measures to verify the identity of the caller, such as asking for name, account
number, Social Security or taxpayer ID number and other relevant information.
If these measures are not taken, Investor Services is responsible for any losses
that may occur to any account due to an unauthorized telephone call. Also for
your protection, telephone transactions are not permitted on accounts whose
names or addresses have changed within the past 30 days. Proceeds from telephone
transactions can only be mailed to the address of record.
EXCHANGES You may exchange shares of your John Hancock fund for shares of the
same class in any other John Hancock fund, generally without paying any
additional sales charges. Class B shares will continue to age from the original
date and will retain the same CDSC rate as they had before the exchange, except
that the rate will change to that of the new fund if the new fund's rate is
higher. A CDSC rate that has increased will drop again with a future exchange
into a fund with a lower rate.
To protect the interests of other investors in the fund, a fund may cancel the
exchange privileges of any parties that, in the opinion of the fund, are using
market timing strategies or making more than seven exchanges per owner or
controlling party per calendar year. A fund may change or cancel its exchange
privilege at any time, upon 60 days' notice to its shareholders. A fund may also
refuse any exchange order.
Merrill Lynch customers may exchange between Summit Cash Reserve accounts and
Class B shares of any John Hancock fund. When selling Class B shares, CDSC
calculations will be based only on the time their assets were invested in a John
Hancock fund.
CERTIFICATED SHARES Most shares are electronically recorded. If you wish to have
certificates for your shares, please write to Investor Services. Certificated
shares can only be sold by returning the certificates to Investor Services,
along with a letter of instruction or a stock power and a signature guarantee.
SALES IN ADVANCE OF PURCHASE PAYMENTS When you place a request to sell shares
for which the purchase money has not yet been collected, the request will be
executed in a timely fashion, but the fund will not release the proceeds to you
until your purchase payment clears. This may take up to ten calendar days after
the purchase.
FOREIGN CURRENCIES Purchases must be made in U.S. dollars. Purchases in foreign
currencies must be converted, which may result in a fee and delayed execution.
ELIGIBILITY BY STATE You may only invest in, or exchange into, fund shares that
are legally available in your state.
- --------------------------------------------------------------------------------
DIVIDENDS AND ACCOUNT POLICIES
ACCOUNT STATEMENTS In general, you will receive account statements as follows:
o after every transaction (except a dividend reinvestment) that affects your
account balance
o after any changes of name or address of the registered owner(s)
o in all other circumstances, every quarter.
Every year you should also receive, if applicable, a Form 1099 tax information
statement, mailed by January 31.
DIVIDENDS The funds generally distribute most or all of their net earnings in
the form of dividends.Income dividends are typically paid quarterly, and capital
gains dividends, if any, are typically paid annually.
YOUR ACCOUNT 21
<PAGE>
DIVIDEND REINVESTMENTS Most investors have their dividends reinvested in
additional shares of the same fund and class. If you choose this option, or if
you do not indicate any choice, your dividends will be reinvested on the
dividend record date. Alternatively, you can choose to have a check for your
dividends mailed to you. However, if the check is not deliverable, your
dividends will be reinvested.
TAXABILITY OF DIVIDENDS As long as a fund meets the requirements for being a
tax-qualified regulated investment company, which each fund has in the past and
intends to in the future, it pays no federal income tax on the earnings it
distributes to shareholders.
Consequently, dividends you receive from a fund, whether reinvested or taken as
cash, are generally considered taxable. Dividends from a fund's long-term
capital gains are taxable as capital gains; dividends from other sources are
generally taxable as ordinary income.
Some dividends paid in January may be taxable as if they had been paid the
previous December. Corporations may be entitled to take a dividends-received
deduction for a portion of certain dividends they receive.
The Form 1099 that is mailed to you every January details your dividends and
their federal tax category, although you should verify your tax liability with
your tax professional.
TAXABILITY OF TRANSACTIONS Any time you sell or exchange shares, it is
considered a taxable event for you. Depending on the purchase price and the sale
price of the shares you sell or exchange, you may have a gain or a loss on the
transaction. You are responsible for any tax liabilities generated by your
transactions.
SMALL ACCOUNTS (NON-RETIREMENT ONLY) If you draw down a non-retirement account
so that its total value is less than $1,000, you may be asked to purchase more
shares within 30 days. If you do not take action, your fund may close out your
account and mail you the proceeds. Alternatively, your fund's transfer agent may
charge you $10 a year to maintain your account. You will not be charged a CDSC
if your account is closed for this reason, and your account will not be closed
if its drop in value is due to fund performance or the effects of sales charges.
- --------------------------------------------------------------------------------
ADDITIONAL INVESTOR SERVICES
MONTHLY AUTOMATIC ACCUMULATION PROGRAM (MAAP) Lets you set up regular
investments from your paycheck or bank account to the John Hancock fund(s) of
your choice. You determine the frequency and amount of your investments, and you
can terminate your program at any time. To establish:
- - Complete the appropriate parts of your Account Privileges Application.
- - If you are using MAAP to open an account, make out a check ($25 minimum) for
your first investment amount payable to "John Hancock Investor Services
Corporation". Deliver your check and application to your financial
services representative or Investor Services.
SYSTEMATIC WITHDRAWAL PLAN May be used for routine bill payment or periodic
withdrawals from your account. To establish:
- - Make sure you have at least $5,000 worth of shares in your account.
- - Make sure you are not planning to invest more money in this account (buying
shares during a period when you are also selling shares of the same fund is
not advantageous to you, because of sales charges).
- - Specify the payee(s). The payee may be yourself or any other party, and there
is no limit to the number of payees you may have, as long as they are all on
the same payment schedule.
- - Determine the schedule: monthly, quarterly, semi-annually, annually or in
certain selected months.
- - Fill out the relevant part of the Account Privileges Application. To add a
Systematic Withdrawal Plan to an existing account, contact your financial
representative or Investor Services.
RETIREMENT PLANS John Hancock Funds offers a range of qualified retirement
plans, including IRAs, SEPs, SARSEPs, TSAs, 401(k) plans, 403(b) plans and
other pension and profit-sharing plans. Using these plans, you can invest in any
John Hancock fund with a low minimum investment of $250 or, for some group
plans, no minimum investment at all. To find out more, call Investor Services at
1-800-225-5291.
22 YOUR ACCOUNT
<PAGE>
FUND DETAILS
- --------------------------------------------------------------------------------
BUSINESS STRUCTURE
HOW THE FUNDS ARE ORGANIZED Each John Hancock growth and income fund is an
open-end management investment company or a series of such a company.
Each fund is supervised by a board of trustees or a board of directors, an
independent body which has ultimate responsibility for the fund's activities.
The board retains various companies to carry out the fund's operations,
including the investment adviser, custodian, transfer agent and others (see
diagram). The board has the right, and the obligation, to terminate the fund's
relationship with any of these companies and to retain a different company if
the board believes that it is in the shareholders' best interests.
At a mutual fund's inception, the initial shareholder (typically the adviser)
appoints the fund's board. Thereafter, the board and the shareholders determine
the board's membership. The boards of the John Hancock growth and income funds
may include individuals who are affiliated with the investment adviser. However,
the majority of board members must be independent.
The funds do not hold annual shareholder meetings, but may hold special meetings
for such purposes as electing or removing board members, changing fundamental
policies, approving a management contract or approving a 12b-1 plan (12b-1 fees
are explained in "Sales compensation").
[A flow chart that contains 8 rectangular-shaped boxes and illustrates the
hierachy of how the funds are organized. Within the flowchart, there are 5
tiers. The tiers are connected by shaded lines.
Shareholders represent the first tier. There is a shaded vertical arrow on the
left-hand side of the page. The arrow has arrowheads on both ends and is
contained within two horizontal, shaded lines. This is meant to highlight tiers
two and three which focus on Distribution and Shareholder Services.
Financial Services Firms and their Representatives are shown on the second tier.
Principal Distributor and Transfer Agent are shown on the third tier.
A shaded vertical arrow on the right-hand side of the page denotes those
entities involved in the Asset Management. The arrow has arrowheads on both ends
and is contained within two horizontal, shaded lines. This fourth tier includes
the Subadvisor, Investment Advisor and the Custodian.
The fifth tier contains the Trustees/Directors.]
FUND DETAILS 23
<PAGE>
ACCOUNTING COMPENSATION The funds compensate the adviser for performing tax and
financial management services. Annual compensation for 1996 is estimated to be
0.01875% of each fund's average net assets.
PORTFOLIO TRADES In placing portfolio trades, the adviser may use brokerage
firms that market the fund's shares or that are affiliated with John Hancock
Mutual Life Insurance Company, but only when the adviser believes no other firm
offers a better combination of quality execution (i.e., timeliness and
completeness) and favorable price.
ADVERTISEMENT OF PERFORMANCE The funds may include figures for yield (where
appropriate) and total return in advertisements and other sales materials, as
follows:
DEFINITIONS OF PERFORMANCE MEASURES
MEASURE
Cumulative total return
DEFINITION
Overall dollar or percentage change of a hypothetical investment over the stated
time period.
MEASURE
Average annual total return
DEFINITION
Cumulative total return divided by the number of years in the period. The result
is an average and is not the same as the actual year-to-year results.
MEASURE
Yield
DEFINITION
A measure of income, calculated by taking the net investment income per share
for a 30-day period, dividing it by the offering price per share on the last day
of the period (if there is more than one offering price, the highest price is
used) and annualizing the result. While this is the standard accounting method
for calculating yield, it does not reflect the fund's actual bookkeeping; as a
result, the income reported or paid by the fund may be different.
All performance figures assume that dividends are reinvested, and show the
effect of all applicable sales charges. Class A performance figures generally
are calculated using the maximum sales charge. Because each share class has its
own sales charge and fee structures, the classes have different performance
results.
INVESTMENT GOALS Except for [NEED FUNDS], each fund's investment goal is
fundamental and may only be changed with shareholder approval.
- --------------------------------------------------------------------------------
SALES COMPENSATION
As part of their business strategies, the funds, along with John Hancock Funds,
pay compensation to financial services firms that sell the funds' shares. These
firms typically pass along a portion of this compensation to your financial
representative.
Compensation payments originate from two sources: from sales charges and from
12b-1 fees that are paid out of the fund in assets ("12b-1" refers to the
federal securities regulation that authorizes annual fees of this type). The
12b-1 fee rates vary by fund and by share class, according to Rule 12b-1 plans
adopted by the funds' respective boards. The sales charges and 12b-1 fees paid
by investors are detailed in the fund-by-fund information. The portions of these
expenses that are reallowed to financial services firms are shown on the next
page.
INITIAL COMPENSATION Whenever you make an investment in a fund or funds, the
financial services firm receives either a reallowance from the initial sales
charge or a commission, as described below. The firm also receives the first
year's service fee at this time.
From time to time, as an additional incentive to these firms, John Hancock Funds
may increase the reallowance on Class A shares to as much as the entire
front-end sales charge.
ANNUAL COMPENSATION Beginning with the second year after an investment is made,
the financial services firm receives an annual service fee of 0.25% of its total
eligible net assets. This fee is paid quarterly in arrears. Firms affiliated
with John Hancock, which include Tucker Anthony, Sutro & Company and John
Hancock Distributors, may receive an additional fee of up to 0.05% a year of
their total eligible net assets.
24 FUND DETAILS
<PAGE>
CLASS A INVESTMENTS
<TABLE>
<CAPTION>
MAXIMUM
SALES CHARGE REALLOWANCE FIRST YEAR MAXIMUM
PAID BY INVESTORS OR COMMISSION SERVICE FEE TOTAL COMPENSATION(1)
(% of offering price) (% of offering price) (% of net investment) (% of offering price)
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Up to $49,999 5.00% 4.01% 0.25% 4.25%
$50,000 - $99,999 4.50% 3.51% 0.25% 3.75%
$100,000 - $249,999 3.50% 2.61% 0.25% 2.85%
$250,000 - $499,999 2.50% 1.86% 0.25% 2.10%
$500,000 - $999,999 2.00% 1.36% 0.25% 1.60%
REGULAR INVESTMENTS OF
$1 MILLION OR MORE
First $1M - $4,999,999 -- 1.00% 0.25% 1.24%
Next $1 - $5M above that -- 0.50% 0.25% 0.74%
Next $1 and more above that -- 0.25% 0.25% 0.49%
Waiver investments(2) -- 0.00% 0.25% 0.25%
</TABLE>
CLASS B INVESTMENTS
<TABLE>
<CAPTION>
MAXIMUM
REALLOWANCE MAXIMUM
OR COMMISSION SERVICE FEE TOTAL COMPENSATION
(% of offering price) (% of net investment) (% of offering price)
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
All amounts 3.75% 0.25% 4.00%
</TABLE>
(1) Reallowance/commission percentages and service fee percentages are
calculated from different amounts, and therefore may not equal total
compensation percentages if combined using simple addition.
(2) Refers to any investments made by municipalities, financial institutions,
trusts and affinity groups that take advantage of the sales charge waivers
described earlier in this prospectus.
CDSC revenues collected by John Hancock Funds may be used to fund commission
payments when there is no initial sales charge.
FUND DETAILS 25
<PAGE>
- --------------------------------------------------------------------------------
MORE ABOUT RISK
A fund's risk profile is largely defined by the fund's primary securities and
investment practices. You may find the most concise description of each fund's
risk profile in the fund-by-fund information.
The funds are permitted to utilize -- within limits established by the trustees
- -- certain other securities and investment practices that have higher risks and
opportunities associated with them. To the extent a fund utilizes these
securities or practices, its overall performance may be affected. On the
following pages are brief descriptions of these securities and practices, along
with the risks associated with them. The funds follow certain policies that may
reduce these risks.
As with any mutual fund, there is no guarantee that the performance of a John
Hancock growth and income fund will be positive over any period of time.
- --------------------------------------------------------------------------------
TYPES OF INVESTMENT RISK
CORRELATION RISK The risk that changes in the value of a hedging instrument will
not match those of the asset being hedged (hedging is the use of one investment
to offset the effects of another investment).
CREDIT RISK The risk that the issuer of a security, or the counterparty to a
contract, will default or otherwise become unable to honor a financial
obligation.
CURRENCY RISK The risk that fluctuations in the exchange rates between the U.S.
dollar and foreign currencies may negatively affect an investment.
INFORMATION RISK The risk that key information about a security or market is
inaccurate or unavailable.
INTEREST RATE RISK The risk of market losses attributable to changes in interest
rates. With fixed-rate securities, a rise in interest rates typically causes a
fall in values, while a fall in rates typically causes a rise in values.
LEVERAGE RISK Associated with securities or practices (such as borrowing) that
multiply small index or market movements into large changes in value.
- - HEDGED When a derivative (a security whose value is based on another security
or index) is used as a hedge against an opposite position which the fund also
holds, any loss generated by the derivative should be substantially offset by
gains on the hedged investment, and vice versa. While hedging can reduce or
eliminate losses, it can also reduce or eliminate gains.
- - SPECULATIVE To the extent that a derivative is not used as a hedge, the fund
is directly exposed to the risks of that derivative. Gains or losses from
speculative positions in a derivative may be substantially greater than the
derivative's original cost.
LIQUIDITY RISK The risk that certain securities may be difficult or impossible
to sell at the time and the price that the seller would like.
MANAGEMENT RISK The risk that a strategy used by a fund's management may fail to
produce the intended result. Common to all mutual funds.
MARKET RISK The risk that the market value of a security may move up and down,
sometimes rapidly and unpredictably. These fluctuations may cause a security to
be worth less than it was worth at an earlier time. Market risk may affect a
single issuer, industry, sector of the economy or the market as a whole. Common
to all stocks and bonds and the mutual funds that invest in them.
NATURAL EVENT RISK The risk of losses attributable to natural disasters, crop
failures and similar events.
OPPORTUNITY RISK The risk of missing out on an investment opportunity because
the assets necessary to take advantage of it are tied up in other investments.
POLITICAL RISK The risk of losses directly attributable to government or
political actions of any sort. These actions may range from changes in tax or
trade statutes to expropriation, governmental collapse and war.
VALUATION RISK The risk that a fund has valued certain of its securities at a
higher price than it can sell them for.
ANALYSIS OF FUNDS WITH 5% OR MORE IN JUNK BONDS
<TABLE>
<CAPTION>
QUALITY RATING
(S&P/MOODY'S)(1) SOVEREIGN BALANCED FUND
- ---------------------- -----------------------
<S> <C>
INVESTMENT GRADE BONDS
AAA/Aaa 15.6%
AA 2.2%
A 8.7%
BAA 7.1%
</TABLE>
- -------------------------------------------------
<TABLE>
<S> <C>
JUNK BONDS
BA 4.2%
B 7.3%
CAA 0.1%
CA 0.0%
C 0.0%
D 0.0%
</TABLE>
% OF PORTFOLIO IN BONDS 45.2%
/ / Rated by S&P or Moody's / / Rated by the advisor
(1) In cases where the S&P and Moody's ratings for a given bond issue do not
agree, the issue has been counted in the higher category.
<PAGE>
HIGHER RISK SECURITIES AND PRACTICES
This table shows each fund's investment limitations as a percentage of portfolio
assets. In each case the principal types of risk are listed (see previous page
for definitions).
10 Percent of total assets (italic type)
10 Percent of net assets (roman type)
X No policy limitation on usage; fund may be using currently
# Permitted, but has not typically been used
- - Not permitted
<TABLE>
<CAPTION>
Growth
and Independence Soverign Soverign Special
Income Equity Balanced Investors Value Utilities
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
INVESTMENT PRACTICES
REVERSE REPURCHASE AGREEMENTS The sale of a 33.3 33.3 33.3 - 33.3 33.3
security that must later be bought back at the
same price minus interest. Leverage, credit risks.
REPURCHASE AGREEMENTS The purchase of a security X X X X X X
that must later be sold back to the issuer at the
same price plus interest. Credit risk.
the issuer at the same price plus interest.
Credit risk.
SECURITIES LENDING The lending of securities to 33.3 33.3 33.3 33.3 33.3 33.3
financial institutions, which provide cash
or government securities as collateral. Credit risk.
SHORT SALES The selling of securities which
have been borrowed on the expectation that the
market price will drop.
- - Hedged. Hedged leverage, market, correlation,
liquidity, opportunity risks. - X X X X X
- - Speculative. Speculative leverage, market,
liquidity risks. - - - - - -
SHORT-TERM TRADING Selling a security soon after X X X # X X
purchase. A portfolio engaging in short-term trading
will have higher turnover and transaction expenses.
Market risk.
WHEN-ISSUED SECURITIES AND FORWARD COMMITMENTS X X X X X X
The purchase or sale of securities for delivery at
a future date; market value may change before
delivery. Market, opportunity, leverage risks.
- ------------------------------------------------------------------------------------------------------------------------------------
CONVENTIONAL SECURITIES
NON-INVESTMENT-GRADE DEBT SECURITIES Debt securities 5 - 25 5 - -
rated below BBB/Baa are considered "junk" bonds.
Credit, market, interest rate risks, liquidity,
valuation and information risks.
FOREIGN EQUITIES
- - Stocks issued by foreign companies. Market, 35 X 35 - 50 25
currency, information, natural event,
political risks.
- - American or European depository receipts, which 35 X 35 - 30 25
are dollar-denominated securities typically issued
by American or European banks and are based on
ownership of securities issued by foreign companies.
Market, currency, information, natural event,
political risks.
RESTRICTED AND ILLIQUID SECURITIES Securities not traded 15 15 15 15 15 15
on the open market. May include illiquid Rule 144A
securities. Liquidity, valuation, market risks.
- ------------------------------------------------------------------------------------------------------------------------------------
LEVERAGED DERIVATIVE SECURITIES
FINANCIAL FUTURES AND OPTIONS; SECURITIES AND INDEX OPTIONS
Contracts involving the right or obligation to deliver
or receive assets or money depending on the performance of
one or more assets or an economic index.
- - Futures and related options. Interest rate, currency, X # X # X #
market, hedged or speculative leverage, correlation,
liquidity, opportunity risks.
- - Options on securities and indices. Interest rate, 10 X 5 3 5 #
currency, market, hedged or speculative leverage,
correlation, liquidity, credit, opportunity risks.
CURRENCY CONTRACTS Contracts involving the right or
obligation to buy or sell a given amount of foreign
currency at a specified price and future date.
- - Hedged. Currency, hedged leverage, correlation,
liquidity, opportunity risks. X - X - X X
- - Speculative. Currency, speculative leverage, liquidity
risks. - - - - - -
</TABLE>
(1) Applies to purchases only.
FUND DETAILS 27
<PAGE>
FOR MORE INFORMATION
- --------------------------------------------------------------------------------
Two documents are available that offer further information on John Hancock
growth and income funds:
ANNUAL/SEMI-ANNUAL REPORT TO SHAREHOLDERS
Includes financial statements, detailed performance information, portfolio
holdings, a statement from the portfolio manager and the auditor's report.
STATEMENT OF ADDITIONAL INFORMATION (SAI)
The SAI contains more detailed information on all aspects of the funds. The
current annual/ semi-annual report is included in the SAI.
The Statement of Additional Information has been filed with the Securities and
Exchange Commission and is incorporated by reference (is legally a part of this
prospectus).
To request a free copy of the current annual/semi-annual report or the SAI,
please write or call:
John Hancock Investor Services Corporation
P.O. Box 9116
Boston, MA 02205-9116
Telephone: 1-800-225-5291
TDD: 1-800-544-6713
[John Hancock's graphic logo. A circle, diamond, triangle and a cube.]
101 Huntington Avenue
Boston, Massachusetts 02199-7603
[John Hancock script logo]
<PAGE>
JOHN HANCOCK GROWTH AND INCOME FUND
CLASS A AND CLASS B SHARES
STATEMENT OF ADDITIONAL INFORMATION
August 30, 1996
This Statement of Additional Information ("SAI") provides information about
John Hancock Growth and Income Fund (the "Fund"), a diversified series of John
Hancock Investment Trust (the "Trust"), in addition to the information that is
contained in the Fund's Prospectus, dated August 30, 1996 (the "Prospectus").
This SAI is not a prospectus. It should be read in conjunction with the
Prospectus, a copy of which can be obtained free of charge by writing or
telephoning:
John Hancock Investor Services Corporation
P.O. Box 9116
Boston, Massachusetts 02205-5291
1-800-225-5291
TABLE OF CONTENTS
Page
----
Organization of the Trust 2
Certain Investment Practices 2
Investment Restrictions 15
Those Responsible for Management 18
Investment Advisory and Other Services 29
Distribution Contract 32
Net Asset Value 34
Initial Sales Charge on Class A Shares 35
Deferred Sales Charge on Class B Shares 37
Special Redemptions 39
Additional Services and Programs 39
Description of the Fund's Shares 41
Tax Status 43
Calculation of Performance 49
Brokerage Allocation 51
Transfer Agent Services 53
Custody of Portfolio 53
Independent Auditors 53
Appendix A 55
Financial Statements F-1
<PAGE>
ORGANIZATION OF THE TRUST
The Trust is an open-end management investment company organized as a
Massachusetts business trust under a Declaration of Trust dated December 12,
1984. Prior to December 22, 1994, the Fund was called Transamerica Growth and
Income Fund.
The Fund is managed by John Hancock Advisers, Inc. (the "Adviser"), a
wholly-owned indirect subsidiary of John Hancock Mutual Life Insurance Company
(the "Life Company"), chartered in 1862 with national headquarters at John
Hancock Place, Boston, Massachusetts. John Hancock Funds, Inc. ("John Hancock
Funds") acts as principal distributor of the shares of the Fund.
CERTAIN INVESTMENT PRACTICES
Each of the investment practices described in this section, unless
otherwise specified, is deemed to be a fundamental policy and may not be changed
without the approval of the holders of a majority of the Fund's outstanding
voting securities.
Purchases of Warrants. The Fund's investment policies permit the purchase
of rights and warrants, which represent rights to purchase the common stock of
companies at designated prices. No such purchase will be made by the Fund,
however, if the Fund's holdings of warrants (valued at lower of cost or market)
would exceed 5% of the value of the Fund's total net assets as a result of the
purchase. In addition, the Fund will not purchase a warrant or right which is
not listed on the New York or American Stock Exchanges if the purchase would
result in the Fund's owning unlisted warrants in an amount exceeding 2% of its
net assets.
Lending of Portfolio Securities. The Fund may lend portfolio securities to
brokers, dealers, and financial institutions if the loan is collateralized by
cash or U.S. Government securities according to applicable regulatory
requirements. The Fund may reinvest any cash collateral in short-term
securities. When the Fund lends portfolio securities, there is a risk that the
borrower may fail to return the securities involved in the transaction. As a
result, the Fund may incur a loss or, in the event of the borrower's bankruptcy,
the Fund may be delayed in or prevented from liquidating the collateral. The
Fund may not lend portfolio securities having a total value exceeding 33% of its
total assets.
American Depository Receipts (ADRS) and European Depository Receipts
(EDRs). The Fund may invest in securities of non-U.S. issuers directly or in the
form of American Depository Receipts (ADRs), European Depository Receipts (EDRs)
2
<PAGE>
or other similar securities representing interests in the common stocks of
foreign issuers. ADRs are receipts, typically issued by a U.S. bank or trust
company, which evidence ownership of underlying securities issued by a foreign
corporation. EDRs are receipts issued in Europe which evidence a similar
ownership arrangement. Generally, ADRs, in registered form, are designed for use
in the U.S. securities markets and EDRs, in bearer form, are designed for use in
the European securities markets. The underlying securities are not always quoted
or denominated in the same currency as the ADRs or the EDRs.
Foreign Securities. The Fund may, as a matter of nonfundamental policy,
invest up to 25% (and up to 35% during times of adverse U.S. market conditions)
of its total assets in securities of foreign issuers, including debt and equity
securities of corporate and governmental issuers in countries with emerging
economies or securities markets.
Investing in securities of non-U.S. issuers, particularly securities of
issuers located in emerging countries, may entail greater risks than investing
in similar securities of U.S. issuers. These risks include (i) less social,
political and economic stability; (ii) the small current size of the markets for
many such securities and the currently low or nonexistent volume of trading,
which result in a lack of liquidity and in greater price volatility; (iii)
certain national policies which may restrict the Fund's investment
opportunities, including restrictions on investment in issuers or industries
deemed sensitive to national interests; (iv) foreign taxation; and (v) the
absence of developed structures governing private or foreign investment or
allowing for judicial redress for injury to private property.
Investing in securities of non-U.S. companies may entail additional risks
due to the potential political and economic instability of certain countries and
the risks of expropriation, nationalization, confiscation or the imposition of
restrictions on foreign investment and on repatriation of capital invested. In
the event of such expropriation, nationalization or other confiscation by any
country, the Fund could lose its entire investment in any such country.
In addition, even though opportunities for investment may exist in foreign
countries, and in particular emerging markets, any change in the leadership or
policies of the governments of those countries or in the leadership or policies
of the governments of those countries or in the leadership or policies of any
other government which exercises a significant influence over those countries,
may halt the expansion of or reverse the liberalization of foreign investment
policies now occurring and thereby eliminate any investment opportunities which
may currently exist.
Investors should note that upon the accession to power of authoritarian
regimes, the governments of a number of Latin American countries previously
3
<PAGE>
expropriated large quantities of real and personal property similar to the
property which may be represented by the securities purchased by the Fund. The
claims of property owners against those governments were never finally settled.
There can be no assurance that any property represented by foreign securities
purchased by the Fund will not also be expropriated, nationalized, or otherwise
confiscated. If such confiscation were to occur, the Fund could lose a
substantial portion of its investments in such countries. The Fund's investments
may similarly be adversely affected by exchange control regulation in any of
those countries.
Certain countries in which the Fund may invest may have vocal minorities
that advocate radical religious or revolutionary philosophies or support ethnic
independence. Any disturbance on the part of such individuals could carry the
potential for widespread destruction or confiscation of property owned by
individuals and entities foreign to such country and could cause the loss of the
Fund's investment in those countries.
Certain countries prohibit or impose substantial restrictions on
investments in their capital markets by foreign entities such as the Fund. As
illustrations, certain countries require governmental approval prior to
investments by foreign persons, or limit the amount of investment by foreign
persons in a particular company, or limit the investment by foreign persons to
only a specific class of securities of a company that may have less advantageous
terms than securities of the company available for purchase by nationals.
Moreover, the national policies of certain countries may restrict investment
opportunities in issuers or industries deemed sensitive to national interests.
In addition, some countries require governmental approval for the repatriation
of investment income, capital or the proceeds of securities sales by foreign
investors. The Fund could be adversely affected by delays in, or a refusal to
grant, any required governmental approval for repatriation, as well as by the
application to it of other restrictions on investments.
Foreign companies are subject to accounting, auditing and financial
standards and requirements that differ, in some cases significantly, from those
applicable to U.S. companies. In particular, the assets, liabilities and profits
appearing on the financial statements of such a company may not reflect its
financial position or results of operations in the way they would be reflected
had such financial statements been prepared in accordance with U.S. generally
accepted accounting principles. Most foreign securities held by the Fund will
not be registered with the Securities and Exchange Commission (the "SEC") and
the issuers thereof will not be subject to the SEC's reporting requirements.
Thus, there will be less available information concerning foreign issuers of
securities held by the Fund than is available concerning U.S. issuers. In
instances where the financial statements of an issuer are not deemed to reflect
accurately the financial situation of the issuer, the Adviser will take
appropriate steps to evaluate the proposed investment, which may include on-site
inspection of the issuer, interviews with its management and consultations with
4
<PAGE>
accountants, bankers and other specialists. There is substantially less publicly
available information about foreign companies than there are reports and ratings
published about U.S. companies and the U.S. Government. In addition, where
public information is available, it may be less reliable than such information
regarding U.S. issuers.
Because the Fund may invest up to 25% (35% during times of adverse U.S.
market conditions) of its total assets in securities which are denominated or
quoted in foreign currencies, the strength or weakness of the U.S. dollar
against such currencies may account for part of the Fund's investment
performance. A decline in the value of any particular currency against the U.S.
dollar will cause a decline in the U.S. dollar value of the Fund's holdings of
securities denominated in such currency and, therefore, will cause an overall
decline in the Fund's net asset value and any net investment income and capital
gains to be distributed in U.S. dollars to shareholders of the Fund.
The rate of exchange between the U.S. dollar and other currencies is
determined by several factors including the supply and demand for particular
currencies, central bank efforts to support particular currencies, the movement
of interest rates, the pace of business activity in certain other countries and
the U.S., and other economic and financial conditions affecting the world
economy.
Although the Fund values its assets daily in terms of U.S. dollars, the
Fund does not intend to convert its holdings of foreign currencies into U.S.
dollars on a daily basis. However, the Fund may do so from time to time, and
investors should be aware of the costs of currency conversion. Although currency
dealers do not charge a fee for conversion, they do realize a profit based on
the difference ("spread") between the prices at which they are buying and
selling various currencies. Thus, a dealer may offer to sell a foreign currency
to the Fund at one rate, while offering a lesser rate of exchange should the
Fund desire to sell that currency to the dealer.
Securities of foreign issuers, and in particular many emerging country
issuers, may be less liquid and their prices more volatile than securities of
comparable U.S. issuers. In addition, foreign securities exchanges and brokers
are generally subject to less governmental supervision and regulation than in
the U.S., and foreign securities exchange transactions are usually subject to
fixed commissions, which are generally higher than negotiated commissions on
U.S. transactions. In addition, foreign securities exchange transactions may be
subject to difficulties associated with the settlement of such transactions.
Delays in settlement could result in temporary periods when assets of the Fund
are uninvested and no return is earned thereon. The inability of the Fund to
make intended security purchases due to settlement problems could cause the Fund
to miss attractive investment opportunities. Inability to dispose of a portfolio
security due to settlement problems either could result in losses to the Fund
due to subsequent declines in value of the portfolio security or, if the Fund
5
<PAGE>
has entered into a contract to sell the security, could result in possible
liability to the purchaser.
The Fund's investment income or, in some cases, capital gains from foreign
issuers may be subject to foreign withholding or other foreign taxes, thereby
reducing the Fund's net investment income and/or net realized capital gains. See
"Tax Status."
Options on Foreign Currencies. Although the Fund has no current intention
of doing so, the Fund may purchase and write put and call options on foreign
currencies for the purpose of protecting against declines in the dollar value of
portfolio securities and against increases in the dollar cost of securities to
be acquired.
As in the case of other types of options, however, the writing of an option
on foreign currency will constitute only a partial hedge, up to the amount of
the premium received, and the Fund could be required to purchase or sell foreign
currencies at disadvantageous exchange rates, thereby incurring losses. The
purchase of an option on foreign currency may constitute an effective hedge
against fluctuations in exchange rates although, in the event of rate movements
adverse to the Fund's position, it may forfeit the entire amount of the premium
plus related transaction costs.
Options on foreign currencies are traded in a manner substantially similar
to options on securities. In particular, an option on foreign currency provides
the holder with the right to purchase, in the case of a call option, or to sell,
in the case of a put option, a stated quantity of a particular currency for a
fixed price up to a stated expiration date. The writer of the option undertakes
the obligation to deliver, in the case of a call option, or to purchase, in the
case of a put option, the quantity of the currency called for in the option,
upon exercise of the option by the holder.
As in the case of other types of options, the holder of an option on
foreign currency is required to pay a one-time, non-refundable premium, which
represents the cost of purchasing the option. The holder can lose the entire
amount of this premium, as well as related transaction costs, but not more than
this amount. The writer of the option, in contrast, generally is required to
make initial and variation margin payments similar to margin deposits required
in the trading of futures contracts and the writing of other types of options.
The writer is therefore subject to risk of loss beyond the amount originally
received and above the value of the option at the time it is entered into.
Certain options on foreign currencies, like forward contracts, are traded
over-the-counter through financial institutions acting as market- makers in such
options and the underlying currencies. Such transactions therefore involve risks
not generally associated with exchange-traded instruments. Options on foreign
currencies may also be traded on national securities exchanges regulated by the
SEC or commodities exchanges regulated by the Commodity Futures Trading
Commission.
6
<PAGE>
Forward Foreign Currency Contracts. The Fund may, as a matter of
nonfundamental policy, engage in forward foreign currency transactions.
Generally, the foreign currency exchange transactions of the Fund may be
conducted on a spot (i.e., cash) basis at the spot rate for purchasing or
selling currency prevailing in the foreign exchange market. The Fund may also
enter into forward foreign currency exchange contracts involving currencies of
the different countries in which it may invest as a hedge against possible
variations in the foreign exchange rate between these currencies. This is
accomplished through contractual agreements to purchase or sell a specified
currency at a specified future date and price set at the time of the contract.
The Fund's transactions in forward foreign currency exchange contracts will be
limited to hedging either specified transactions or portfolio positions.
Transaction hedging is the purchase or sale of forward foreign currency
contracts with respect to specific receivables or payables of the Fund accruing
in connection with the purchase and sale of its portfolio securities denominated
in foreign currencies. Portfolio hedging is the use of forward foreign currency
contracts to offset portfolio security positions denominated or quoted in such
foreign currencies. The Fund will not attempt to hedge all of its foreign
portfolio positions and will enter into such transactions only to the extent, if
any, deemed appropriate by the Adviser. The Board of Trustees has adopted a
policy of monitoring the Fund's foreign currency contract transactions to seek
to assure that the Fund qualifies as a regulated investment company under the
Internal Revenue Code of 1986, as amended (the "Code"). The Fund will not engage
in speculative forward foreign currency exchange transactions.
If the Fund enters into a forward contract to purchase foreign currency,
its custodian bank will segregate cash or high grade liquid debt securities in a
separate account of the Fund in an amount equal to the value of the Fund's total
assets committed to the consummation of such forward contract. Those assets will
be valued at market daily, and, if the value of the securities in the separate
account declines, additional cash or securities will be placed in the account so
that the value of the account will be equal to the amount of the Fund's
commitment with respect to such contracts.
Hedging against a decline in the value of currency does not eliminate
fluctuations in the prices of portfolio securities or prevent losses if the
prices of such securities decline. Such transactions also preclude the
opportunity for gain if the value of the hedged currency rises. Moreover, it may
not be possible for the Fund to hedge against a devaluation that is so generally
anticipated that the Fund is not able to contract to sell the currency at a
price above the devaluation level it anticipates.
The cost to the Fund of engaging in foreign currency exchange transactions
varies with such factors as the currency involved, the length of the contract
period and the market conditions then prevailing. Since transactions in foreign
currency are usually conducted on a principal basis, no fees or commissions are
involved.
7
<PAGE>
Lower Rated High Yield Debt Obligations. The Fund's policies with respect
to fixed income securities are nonfundamental. The Fund's investment objective
effectively places limits on the quality of its investments in corporate fixed
income securities. In general, the Fund's investments in such securities will be
limited to investment grade securities; that is, securities rated at least Baa
by Moody's Investors Service, Inc. ("Moody's") and BBB by Standard & Poor's
Ratings Group ("Standard & Poor's"). The Fund may purchase securities rated
lower than BBB or Baa only if, in the opinion of the Adviser, the assigned
rating does not accurately reflect the true quality of the issuer's credit and
these securities are determined to be comparable in quality to investment grade
securities; provided, that no more than 5% of the Fund's total assets are
invested in these securities. The Fund will not invest in any securities rated
lower than B by either Moody's or Standard & Poor's. The Fund is not obligated
to dispose of securities which are subsequently downgraded below the minimum
ratings described above. Ratings are based largely on the historical financial
condition of the issuer. Consequently, the rating assigned to any particular
security is not necessarily a reflection of the issuer's current financial
condition, which may be better or worse than the rating would indicate. See
Appendix A for a description of ratings assigned by Moody's and Standard &
Poor's.
The Fund may invest in unrated corporate fixed income securities only
where, in the opinion of the Adviser, these securities are determined to be
comparable in quality to investment grade securities.
Debt securities that are rated in the lower ratings categories, or which
are unrated, involve greater volatility of price and risk of loss of principal
and income. In addition, lower ratings reflect a greater possibility of an
adverse change in financial condition affecting the ability of the issuer to
make payments of interest and principal. The high yield fixed income market is
relatively new and its growth occurred during a period of economic expansion.
The market has not yet been fully tested by an economic recession.
The market price and liquidity of lower rated fixed income securities
generally respond to short-term corporate and market developments to a greater
extent than the price and liquidity of higher rated securities, because these
developments are perceived to have a more direct relationship to the ability of
an issuer of lower rated securities to meet its ongoing debt obligations.
Reduced volume and liquidity in the high yield bond market or the reduced
availability of market quotations will make it more difficult to dispose of
these bonds and to value them accurately. The reduced availability of reliable
objective data may increase the Fund's reliance on management's judgment in
valuing high yield bonds. In addition, the Fund's investments in such bonds may
8
<PAGE>
be susceptible to adverse publicity and investor perceptions, whether or not
justified by fundamental factors.
Government Securities. As a matter of nonfundamental policy, the Fund's
investments in fixed income securities may include U.S. Government securities,
which are obligations issued or guaranteed by the U.S. Government and its
agencies, authorities or instrumentalities. Certain U.S. Government securities,
including U.S. Treasury bills, notes and bonds, and Government National Mortgage
Association certificates ("Ginnie Maes"), are supported by the full faith and
credit of the United States. Certain other U.S. Government securities, issued or
guaranteed by Federal agencies or government sponsored enterprises, are not
supported by the full faith and credit of the United States, but may be
supported by the right of the issuer to borrow from the U.S. Treasury. These
securities include obligations of the Federal Home Loan Mortgage Corporation
("Freddie Macs"), and obligations supported by the credit of the
instrumentality, such as Federal National Mortgage Association bonds ("Fannie
Maes"). No assurance can be given that the U.S. Government will provide
financial support to such Federal agencies, authorities, instrumentalities and
government sponsored enterprises in the future.
Short-Term Bank and Corporate Obligations. As a matter of nonfundamental
policy, the Fund's investments in short-term investment grade securities may
include depository-type obligations of banks and savings and loan associations
and other high quality money market instruments consisting of short-term
obligations of the U.S. Government or its agencies and commercial paper rated at
least P-1 by Moody's or A-1 by Standard & Poor's. Commercial paper represents
short-term unsecured promissory notes issued in bearer form by banks or bank
holding companies, corporations and finance companies. Depository-type
obligations in which the Fund may invest include certificates of deposit,
bankers' acceptances and fixed time deposits. Certificates of deposit are
negotiable certificates issued against funds deposited in a commercial bank for
a definite period of time and earning a specified return.
Bankers' acceptances are negotiable drafts or bills of exchange, normally
drawn by an importer or exporter to pay for specific merchandise, which are
"accepted" by a bank, meaning, in effect, that the bank unconditionally agrees
to pay the face value of the instrument at maturity. Fixed time deposits are
bank obligations payable at a stated maturity date and bearing interest at a
fixed rate. Fixed time deposits may be withdrawn on demand by the investor, but
may be subject to early withdrawal penalties which vary depending upon market
conditions and the remaining maturity of the obligation. There are no
contractual restrictions on the right to transfer a beneficial interest in a
fixed time deposit to a third party, although there is no market for such
deposits. Bank notes and bankers' acceptances rank junior to domestic deposit
liabilities of the bank and pari passu with other senior, unsecured obligations
9
<PAGE>
of the bank. Bank notes are not insured by the Federal Deposit Insurance
Corporation or any other insurer. Deposit notes are insured by the Federal
Deposit Insurance Corporation only to the extent of $100,000 per depositor per
bank.
Repurchase Agreements. In order to enhance liquidity or preserve capital,
the Fund may invest temporarily in repurchase agreements. A repurchase agreement
is a contract under which the Fund acquires a security for a relatively short
period (usually not more than seven days) subject to the obligation of the
seller to repurchase and the Fund to resell such security at a fixed time and
price (representing the Fund's cost plus interest). The Fund will enter into
repurchase agreements only with member banks of the Federal Reserve System and
with securities dealers. The Adviser will continuously monitor the
creditworthiness of the parties with whom the Fund enters into repurchase
agreements. The Fund has established a procedure providing that the securities
serving as collateral for each repurchase agreement must be delivered to the
Fund's custodian either physically or in book-entry form and that the collateral
must be marked to market daily to ensure that each repurchase agreement is fully
collateralized at all times. In the event of bankruptcy or other default by a
seller of a repurchase agreement, the Fund could experience delays in
liquidating the underlying securities and could experience losses, including the
possible decline in the value of the underlying securities during the period in
which the Fund seeks to enforce its rights thereto, possible subnormal levels of
income and lack of access to income during this period, and the expense of
enforcing its rights. The Fund will not invest in a repurchase agreement
maturing in more than seven days, if such investment, together with other
illiquid securities held by the Fund (including restricted securities) would
exceed 10% of the Fund's net assets.
Reverse Repurchase Agreements. The Fund may also enter into reverse
repurchase agreements which involve the sale of government securities held in
its portfolio to a bank or securities firm with an agreement that the Fund will
buy back the securities at a fixed future date at a fixed price plus an agreed
amount of interest which may be reflected in the repurchase price. Reverse
repurchase agreements are considered to be borrowings by the Fund. The Fund will
use proceeds obtained from the sale of securities pursuant to reverse repurchase
agreements to purchase other investments. The use of borrowed funds to make
investment is a practice known as "leverage," which is considered speculative.
Use of reverse repurchase agreements is an investment technique that is intended
to increase income. Thus, the Fund will enter into a reverse repurchase
agreement only when the Adviser determines that the income to be earned from the
investment of the proceeds is greater than the interest expense of the
transaction. However, there is a risk that interest expense will nevertheless
exceed the income earned. Reverse repurchase agreements involve the risk that
the market value of securities purchased by the Fund with proceeds of the
transaction may decline below the repurchase price of the securities sold by the
10
<PAGE>
Fund which it is obligated to repurchase. The Fund would also continue to be
subject to the risk of a decline in the market value of the securities sold
under the agreements because it will reacquire those securities upon effecting
their repurchase. To minimize various risks associated with reverse repurchase
agreements, the Fund will establish and maintain with the Fund's custodian a
separate account consisting of highly liquid, marketable securities in an amount
at least equal to the repurchase prices of the securities (plus any accrued
interest thereon) under such agreements. In addition, the Fund will not enter
into reverse repurchase agreements exceeding in the aggregate 33 1/3% of the
market value of its total net assets. The Fund will enter into reverse
repurchase agreements only with selected registered broker/dealers or with
federally insured banks or savings and loan associations which are approved in
advance as being creditworthy by the Board of Trustees. Under procedures
established by the Board of Trustees, the Adviser will monitor the
creditworthiness of the firms involved.
Options Transactions. The Fund may write listed and over-the-counter
covered call options and covered put options on securities in which it is
authorized to invest in order to earn additional income from the premiums
received. In addition, the Fund may purchase listed and over-the-counter call
and put options. The extent to which covered options will be used by the Fund
will depend upon market conditions and the availability of alternative
strategies.
The Fund will not purchase a call or put option if as a result the premium
paid for the option together with premiums paid for all other securities options
and options on securities indexes (see "-- Options on Stock Indexes") then held
by the Fund exceed 20% of the Fund's total net assets. In addition, the Fund may
not write put options on securities or securities indexes with aggregate
exercise prices in excess of 50% of the Fund's total net assets measured at the
Fund's net asset value at the time the option is written.
The Fund will write listed and over-the-counter call options only if they
are "covered," which means that the Fund owns or has the immediate right to
acquire the securities underlying the options without additional cash
consideration upon conversion or exchange of other securities held in its
portfolio. A call option written by the Fund may also be "covered" if the Fund
holds on a share-for-share basis a covering call on the same securities where
(i) the exercise price of the covering call held is (a) equal to or less than
the exercise price of the call written or (b) greater than the exercise price of
the call written, if the difference is maintained by the Fund in cash, U.S.
Treasury bills or high grade liquid debt obligations in a segregated account
with the Fund's custodian, and (ii) the covering call expires at the same time
as or later than the call written. If a covered call option is not exercised,
the Fund would keep both the option premium and the underlying security. If the
covered call option written by the Fund is exercised and the exercise price,
less the transaction costs, exceeds the cost of the underlying security, the
Fund would realize a gain in addition to the amount of the option premium it
11
<PAGE>
received. If the exercise price, less transaction costs, is less than the cost
of the underlying security, the Fund's loss would be reduced by the amount of
the option premium.
As the writer of a covered put option, the Fund will write a put option
only with respect to securities it intends to acquire for its portfolio and will
maintain in a segregated account with its custodian bank cash, U.S. Government
securities or high- grade liquid debt securities with a value equal to the price
at which the underlying security may be sold to the Fund in the event the put
option is exercised by the purchaser. The Fund may also write a "covered" put
option by purchasing on a share-for-share basis a put on the same security as
the put written by the Fund if the exercise price of the covering put held is
equal to or greater than the exercise price of the put written and the covering
put expires at the same time or later than the put written.
When writing listed and over-the-counter covered put options on securities
in which it is authorized to invest, the Fund would earn income from the
premiums received. If a covered put option is not exercised, the Fund would keep
the option premium and the assets maintained to cover the option. If the option
is exercised and the exercise price, including transaction costs, exceeds the
market price of the underlying security, the Fund would realize a loss, but the
amount of the loss would be reduced by the amount of the option premium.
If the writer of an exchange-traded option wishes to terminate its
obligation prior to its exercise, it may effect a "closing purchase
transaction." This is accomplished by buying an option of the same series as the
option previously written. The effect of the purchase is that the Fund's
position will be offset by the Options Clearing Corporation. The Fund may not
effect a closing purchase transaction after it has been notified of the exercise
of an option. There is no guarantee that a closing purchase transaction can be
effected. Although the Fund will generally write only those options for which
there appears to be an active secondary market, there is no assurance that a
liquid secondary market on an exchange or board of trade will exist for any
particular option or at any particular time, and for some options no secondary
market on an exchange may exist.
In the case of a written call option, effecting a closing transaction will
permit the Fund to write another call option on the underlying security with
either a different exercise price, expiration date or both. In the case of a
written put option, it will permit the Fund to write another put option to the
extent that the exercise price thereof is secured by deposited cash or
short-term securities. Also, effecting a closing transaction will permit the
cash or proceeds from the concurrent sale of any securities subject to the
option to be used for other investments. If the Fund desires to sell a
particular security from its portfolio on which it has written a call option, it
will effect a closing transaction prior to or concurrent with the sale of the
security.
12
<PAGE>
The Fund will realize a gain from a closing transaction if the cost of the
closing transaction is less than the premium received from writing the option.
The Fund will realize a loss from a closing transaction if the cost of the
closing transaction is more than the premium received for writing the option.
However, because increases in the market price of a call option will generally
reflect increases in the market price of the underlying security, any loss
resulting from the repurchase of a call option is likely to be offset in whole
or in part by appreciation of the underlying security owned by the Fund.
Over-the-Counter Options. The Fund may engage in options transactions on
exchanges and in the over-the-counter markets. The Adviser does not currently
anticipate investments in options through exchanges other than domestic
securities exchanges. In general, exchange-traded options are third-party
contracts (i.e., performance of the parties' obligations is guaranteed by an
exchange or clearing corporation) with standardized strike prices and expiration
dates. Over-the-counter ("OTC") transactions are two-party contracts with price
and terms negotiated by the buyer and seller. The Fund will acquire only those
OTC options for which management believes the Fund can receive on each business
day at least two separate bids or offers (one of which will be from an entity
other than a party to the option) or those OTC options valued by an independent
pricing service. The Fund will write and purchase OTC options only with member
banks of the Federal Reserve System and primary dealers in U.S. Government
securities or their affiliates which have capital of at least $50 million or
whose obligations are guaranteed by an entity having capital of at least $50
million. The SEC has taken the position that OTC options are illiquid securities
subject to the restriction that illiquid securities are limited to not more than
10% of the Fund's net assets. The SEC, however, has a partial exemption from the
above restrictions on transactions in OTC options. The SEC allows the Fund to
exclude from the 10% limitation on illiquid securities a portion of the value of
the OTC options written by the Fund, provided that certain conditions are met.
First, the other party to the OTC options has to be a primary U.S. Government
securities dealer designated as such by the Federal Reserve Bank. Second, the
Fund must have an absolute contractual right to repurchase the OTC options at a
formula price. If the above conditions are met, the Fund may treat as illiquid
only that portion of the OTC option's value (and the value of its underlying
securities) which is equal to the formula price for repurchasing the OTC option,
less the OTC option's intrinsic value.
Risks of Options on Securities Indexes. The Fund's purchase and sale of
options on indexes of debt securities (if and when such options are traded) and
equity securities will be subject to risks applicable to options transactions
generally. In addition, the distinctive characteristics of options on indexes
create certain risks that are not present with stock options.
Index prices may be distorted if trading of certain securities included in
the index is interrupted. Trading in index options also may be interrupted in
13
<PAGE>
certain circumstances such as if trading were halted in a substantial number of
securities included in the index or if dissemination of the current level of an
underlying index is interrupted. If this occurred the Fund would not be able to
close out options which it had purchased and, if restrictions on exercise were
imposed, may be unable to exercise an option it holds, which could result in
losses to the Fund if the underlying index moves adversely before trading
resumes. However, it is the Fund's policy to purchase options only on indexes
which include a sufficient number of securities so that the likelihood of a
trading halt in the index is minimized.
The purchaser of an index option may also be subject to a timing risk. If
an option is exercised by the Fund before final determination of the closing
index value for that day, the risk exists that the level of the underlying index
may subsequently change. If such a change caused the exercised option to fall
out-of-the-money (that is the exercising of the option would result in a loss,
not a gain), the Fund would be required to pay the difference between the
closing index value and the exercise price of the option (times the applicable
multiple) to the assigned writer. Although the Fund may be able to minimize this
risk by withholding exercise instructions until just before the daily cutoff
time, it may not be possible to eliminate this risk entirely because the
exercise cutoff times for index options may be earlier than those fixed for
other types of options and may occur before definitive closing index values are
announced. Alternatively, when the index level is close to the exercise price,
the Fund may sell rather than exercise the option.
Although the markets for certain index option contracts have developed
rapidly, the markets for other index options are still relatively illiquid. The
ability to establish and close out positions on such options will be subject to
the development and maintenance of a liquid secondary market. It is not certain
that this market will develop in all index option contracts. The Fund will not
purchase or sell any index option contract unless and until in the opinion of
the Adviser the market for such options has developed sufficiently that such
risk in connection with such transactions is no greater than such risk in
connection with options on securities.
Limitation on Transactions in Options on Securities Indexes. The Fund will
write put options on indexes only if they are covered by segregating with the
Fund's custodian an amount of cash, short-term investments equal to the
aggregate exercise prices of such put options or an offsetting option. In
addition, the Fund will write call options on indexes only if, on the date on
which any such option is written, it holds securities qualified to serve as
"cover" under applicable rules of the national securities exchanges or maintains
in a segregated account an amount of cash or short- term investments equal to
the aggregate exercise price of such call options with a value at least equal to
the value of the index times the multiplier or an offsetting option. In the case
of both put and call options on indexes, the Fund will satisfy the foregoing
conditions while such options are outstanding.
14
<PAGE>
Short-Term Trading and Portfolio Turnover. Short-term trading means the
purchase and subsequent sale of a security after it has been held for a
relatively brief period of time. As a matter of nonfundamental policy, the Fund
may engage in short-term trading in response to stock market conditions, changes
in interest rates or other economic trends and developments, or to take
advantage of yield disparities between various fixed income securities in order
to realize capital gains or improve income. Short-term trading may have the
effect of increasing the Fund's portfolio turnover rate. A high rate of
portfolio turnover (100% or greater) involves correspondingly higher transaction
expenses and may make it more difficult for the Fund to qualify as a regulated
investment company for Federal income tax purposes.
Restricted and Illiquid Securities. As a matter of nonfundamental policy,
the Fund will not invest more than 10% of its total assets in securities that
are not registered ("restricted securities") under the Securities Act of 1933
(the "1933 Act"), including securities offered and sold to "qualified
institutional buyers" under Rule 144A under the 1933 Act. In addition, as a
matter of nonfundamental policy, the Fund will not invest more than 10% of its
net assets in illiquid investments, which include repurchase agreements maturing
in more than seven days, securities that are not readily marketable and
restricted securities. If the Board of Trustees determines, based upon a
continuing review of the trading markets for specific Rule 144A securities, that
they are liquid, then such securities may be purchased without regard to the 10%
limit on illiquid investments. The Trustees may adopt guidelines and delegate to
the Adviser the daily function of determining and monitoring the liquidity of
restricted securities. The Trustees, however, will retain sufficient oversight
and be ultimately responsible for the determinations. The Trustees will
carefully monitor the Fund's investments in these securities, focusing on such
important factors, among others, as valuation, liquidity and availability of
information. This investment practice could have the effect of increasing the
level of illiquidity in the Fund if qualified institutional buyers become for a
time uninterested in purchasing these restricted securities.
As a matter of nonfundamental policy, the Fund may acquire other restricted
securities, including securities for which market quotations are not readily
available. These securities may be sold only in privately negotiated
transactions or in public offerings with respect to which a registration
statement is in effect under the 1933 Act. Where registration is required, the
Fund may be obligated to pay all or part of the registration expenses and a
considerable period may elapse between the time of the decision to sell and the
time the Fund may be permitted to sell a security under an effective
registration statement. If, during such a period, adverse market conditions were
to develop, the Fund might obtain a less favorable price than prevailed when it
decided to sell. Restricted securities will be priced at fair market value as
determined in good faith by the Fund's Trustees.
15
<PAGE>
INVESTMENT RESTRICTIONS
The Fund has adopted certain fundamental investment restrictions upon its
investments as set forth below which may not be changed without the approval of
the holders of a majority of the outstanding shares of the Fund. A majority for
this purpose means: (a) more than 50% of the outstanding shares of the Fund or
(b) 67% or more of the shares represented at a meeting where more than 50% of
the outstanding shares of the Fund are represented, whichever is less. Under
these restrictions, the Fund may not:
1. Invest in real estate (including interests in real estate investment
trusts) or commodities.
2. Invest in a company having a record of less than three years'
continuous operation, which may include the operations of any
predecessor company or enterprise to which the company has succeeded
by merger, consolidation, reorganization or purchase of assets.
3. Buy securities on margin or sell short.
4. Purchase securities of a company in which any officer or trustee of
the Trust or the Adviser owns beneficially more than of 1% of the
securities of such company and all such officers and trustees own
beneficially in the aggregate more than 5% of the securities of such
company.
5. Borrow money except for temporary or emergency purposes, and then not
in excess of 10% of its gross assets taken at cost. Assets taken at
market may not be pledged to an extent greater than 15% of gross
assets taken at cost (although this would permit the Fund to pledge,
mortgage or hypothecate its portfolio securities to the extent that
the percentage of pledged securities would exceed 10% of the offering
price of the Fund's shares, it will not do so as a matter of operating
policy in order to comply with certain state statutes or investment
restrictions); any such loan must be from a bank and the value of the
Fund's assets, including the proceeds of the loan, less other
liabilities of the Fund, must be at least three times the amount of
the loan. (Although the Fund has never borrowed any money or pledged
any portion of its assets, and has no intention of doing so, in the
event that such borrowing became necessary, the Fund expects that
additional portfolio securities would not be purchased while the
borrowing is outstanding). The borrowing restriction set forth above
does not prohibit the use of reverse repurchase agreements, in an
amount (including any borrowings) not to exceed 33 1/3% of net assets.
16
<PAGE>
6. Make loans to any of its officers or trustees, or to any firms,
corporations or syndicates in which officers or trustees of the Trust
have an aggregate interest of 10% or more. It is the intention of the
Trust not to make loans of any nature, except the Fund may enter into
repurchase agreements and lend its portfolio securities (as permitted
by the Investment Company Act of 1940) as referred to under "Certain
Investment Practices" above. In addition, the purchase of a portion of
an issue of a publicly issued corporate debt security is not
considered to be the making of a loan.
7. Purchase any securities, other than obligations of domestic banks or
of the U.S. Government, or its agencies or instrumentalities, if as a
result of such purchase more than 25% of the value of the Fund's total
assets would be invested in the securities of issuers in any one
industry.
8. Issue senior securities as defined in the Investment Company Act of
1940, as amended (the "1940 Act"), and the rules thereunder; except
insofar as the Fund may be deemed to have issued a senior security by
reason of entering into a repurchase agreement or engaging in
permitted borrowings.
9. Purchase securities which will result in the Fund's holdings of the
issuer thereof to be more than 5% of the value of the Fund's total
assets (exclusive of U.S. Government securities).
10. Purchase more than 10% of the voting securities of any class of
securities of any one issuer.
The Fund has also undertaken to one or more states to abide by additional
restrictions so long as its securities are registered for sale in such states.
The most restrictive undertakings presently in effect are that the Fund shall
not invest in oil, gas or other mineral or development programs and that the
Fund's use of margin shall be only for such short-term loans as are necessary
for the clearance of purchases and sales of securities.
As a nonfundamental restriction, the Fund may not purchase a security if,
as a result, (i) more than 10% of the Fund's total assets would be invested in
the securities of other investment companies, (ii) the Fund would hold more than
3% of the total outstanding voting securities of any one investment company, or
(iii) more than 5% of the Fund's total assets would be invested in the
securities of any one investment company. These limitations do not apply to (a)
the investment of cash collateral, received by the Fund in connection with
lending the Fund's portfolio securities, in the securities of open-end
investment companies or (b) the purchase of shares of any investment company in
connection with a merger, consolidation, reorganization or purchase of
17
<PAGE>
substantially all of the assets of another investment company. Subject to the
above percentage limitations, the Fund may, in connection with the John Hancock
Group of Funds Deferred Compensation Plan for Independent Trustees/Directors,
purchase securities of other investment companies within the John Hancock Group
of Funds. In addition, as a nonfundamental restriction, the Fund may not
purchase the shares of any closed-end investment company except in the open
market where no commission or profit to a sponsor or dealer results from the
purchase, other than customary brokerage fees.
THOSE RESPONSIBLE FOR MANAGEMENT
The business of the Fund is managed by the Trust's Trustees who elect
officers who are responsible for the day-to-day operations of the Fund and who
execute policies formulated by the Trustees. Several of the officers and
Trustees of the Trust are also officers and directors of the Adviser or officers
and directors of John Hancock Funds.
Set forth below is the principal occupation or employment of the Trustees
and principal officers of the Fund during the past five years.
18
<PAGE>
<TABLE>
<CAPTION>
Position Held Principal Occupation(s)
Name and Address with the Trust During Past Five Years
- ---------------- -------------- ----------------------
<S> <C> <C>
Edward J. Boudreau, Jr.* Trustee, Chairman and Chief Chairman and Chief Executive
101 Huntington Avenue Executive Officer(3)(4) Officer, the Adviser and The
Boston, MA 02199 Berkeley Financial Group ("The
October 1944 Berkeley Group"); Chairman, NM
Capital Management, Inc. ("NM
Capital") and John Hancock Advisers
International Limited ("Advisers
International"); Chairman, Chief
Executive Officer and President,
John Hancock Funds, Inc. ("John
Hancock Funds"); John Hancock
Investor Services Corporation
("Investor Services"), First
Signature Bank and Trust Company
and Sovereign Asset Management
Corporation ("SAMCorp"); Director,
John Hancock Freedom Securities
Corporation, John Hancock Capital
Corporation and New England/ Canada
Business Council; Member,
Investment Company Institute Board
of Governors; Director, Asia
Strategic Growth Fund, Inc.;
Trustee, Museum of Science; Vice
Chairman and President, the Adviser
(until July 1992); Chairman, John
Hancock Distributors, Inc. (until
April, 1994).
* An "interested person" of the Fund, as such term is defined in the 1940
Act.
(1) Member of the Audit Committee of the Trust.
(2) Member of the Committee on Administration of the Trust.
(3) Member of the Executive Committee of the Trust. The Executive Committee may
generally exercise most powers of the Trustees between regularly scheduled
meetings of the Board of Trustees.
(4) Member of the Investment Committee of the Adviser.
19
<PAGE>
Position Held Principal Occupation(s)
Name and Address with the Trust During Past Five Years
- ---------------- -------------- ----------------------
James F. Carlin Trustee(1)(2) Chairman and CEO, Carlin
233 West Central Street Consolidated, Inc.
Natick, MA 01760 (management/investments); Director,
April 1940 Arbella Mutual Insurance Company
(insurance), Consolidated Group
Trust (insurance administration),
Carlin Insurance Agency, Inc., West
Insurance Agency, Inc. (until May
1995) and Uno Restaurant Corp.;
Chairman, Massachusetts Board of
Higher Education (since 1995);
Receiver, the City of Chelsea
(until August 1992).
William H. Cunningham Trustee(1)(2) Chancellor, University of Texas
601 Colorado Street System and former President of the
O'Henry Hall University of Texas, Austin, Texas;
Austin, TX 78701 Lee Hage and Joseph D. Jamail
January 1944 Regents Chair for Free Enterprise;
Director, LaQuinta Motor Inns, Inc.
(hotel management company);
Director, Jefferson-Pilot
Corporation (diversified life
insurance company) and LBJ
Foundation Board (education
foundation); Advisory Director,
Texas Commerce Bank - Austin.
Harold R. Hiser, Jr. Trustee(1)(2) Executive Vice President,
Schering-Plough Corporation Schering-Plough Corporation
One Giralda Farms (pharmaceuticals) (retired 1996);
Madison, NJ 07940-1000 Director, ReCapital Corporation
October 1931 (reinsurance) (until 1995).
* An "interested person" of the Fund, as such term is defined in the 1940
Act.
(1) Member of the Audit Committee of the Trust.
(2) Member of the Committee on Administration of the Trust.
(3) Member of the Executive Committee of the Trust. The Executive Committee may
generally exercise most powers of the Trustees between regularly scheduled
meetings of the Board of Trustees.
(4) Member of the Investment Committee of the Adviser.
20
<PAGE>
Position Held Principal Occupation(s)
Name and Address with the Trust During Past Five Years
- ---------------- -------------- ----------------------
Charles F. Fretz Trustee(1)(2) Retired; self-employed; Former Vice
RD #5, Box 300B President and Director, Towers,
Clothier Springs Road Perrin, Forster & Crosby, Inc.
Malvern, PA 19355 (international management
June 1928 consultants) (1952-1985).
Anne C. Hodsdon* President and President and Chief Operating
101 Huntington Avenue Trustee(3)(4) Officer, the Adviser; Executive
Boston, MA 02199 Vice President, the Adviser (until
April 1953 December 1994); Senior Vice
President, the Adviser (until
December 1993); Vice President, the
Adviser (until 1991).
Charles L. Ladner Trustee(1)(2) Director, Energy North, Inc.
UGI Corporation (public utility holding
460 North Gulph Road company)(until 1992); Senior Vice
King of Prussia, PA 19406 President, Finance UGI Corp.
February 1938 (holding company, public utilities,
LPGAS).
* An "interested person" of the Fund, as such term is defined in the 1940
Act.
(1) Member of the Audit Committee of the Trust.
(2) Member of the Committee on Administration of the Trust.
(3) Member of the Executive Committee of the Trust. The Executive Committee may
generally exercise most powers of the Trustees between regularly scheduled
meetings of the Board of Trustees.
(4) Member of the Investment Committee of the Adviser.
21
<PAGE>
Position Held Principal Occupation(s)
Name and Address with the Trust During Past Five Years
- ---------------- -------------- ----------------------
Leo E. Linbeck, Jr. Trustee(1)(2) Chairman, President, Chief
3810 W. Alabama Executive Officer and Director,
Houston, TX 77027 Linbeck Corporation (a holding
August 1934 company engaged in various phases
of the construction industry and
warehousing interests); Former
Chairman, Federal Reserve Bank of
Dallas (1992, 1993); Chairman of
the Board and Chief Executive
Officer, Linbeck Construction
Corporation; Director, PanEnergy
Eastern Corporation (a diversified
energy company), Daniel Industries,
Inc. (manufacturer of gas measuring
products and energy related
equipment), GeoQuest International,
Inc. (a geophysical consulting
firm) (1980- 1993); Director,
Greater Houston Partnership.
Patricia P. McCarter Trustee(1)(2) Director and Secretary, The
Swedesford Road McCarter Corp. (machine
RD #3, Box 121 manufacturer).
Malvern, PA 19355
May 1928
* An "interested person" of the Fund, as such term is defined in the 1940
Act.
(1) Member of the Audit Committee of the Trust.
(2) Member of the Committee on Administration of the Trust.
(3) Member of the Executive Committee of the Trust. The Executive Committee may
generally exercise most powers of the Trustees between regularly scheduled
meetings of the Board of Trustees.
(4) Member of the Investment Committee of the Adviser.
22
<PAGE>
Position Held Principal Occupation(s)
Name and Address with the Trust During Past Five Years
- ---------------- -------------- ----------------------
Steven R. Pruchansky Trustee(1)(2) Director and President, Mast
360 Horse Creek Drive, #208 Holdings, Inc. (since 1991);
Naples, FL 33942 Director, First Signature Bank &
August 1944 Trust Company (until August 1991);
Director, Mast Realty Trust
(1982-1994); President, Maxwell
Building Corp. (until 1991).
Richard S. Scipione* Trustee(3) General Counsel, John Hancock
John Hancock Place Mutual Life Insurance Company;
P.O. Box 111 Director, the Adviser, Advisers
Boston, MA 02199 International, John Hancock Funds,
August 1937 Investor Services, John Hancock
Distributors, Inc., John Hancock
Subsidiaries, Inc., John Hancock
Property and Casualty Insurance and
its affiliates (until November
1993), SAMCorp and NM Capital;
Trustee, The Berkeley Group;
Director, JH Networking Insurance
Agency, Inc.
Norman H. Smith Trustee(1)(2) Lieutenant General, USMC, Deputy
Rt. 1, Box 249 E Chief of Staff for Manpower and
Linden, VA 22642 Reserve Affairs, Headquarters
March 1933 Marine Corps; Commanding General
III Marine Expeditionary Force/3rd
Marine Division (retired 1991).
* An "interested person" of the Fund, as such term is defined in the 1940
Act.
(1) Member of the Audit Committee of the Trust.
(2) Member of the Committee on Administration of the Trust.
(3) Member of the Executive Committee of the Trust. The Executive Committee may
generally exercise most powers of the Trustees between regularly scheduled
meetings of the Board of Trustees.
(4) Member of the Investment Committee of the Adviser.
23
<PAGE>
Position Held Principal Occupation(s)
Name and Address with the Trust During Past Five Years
- ---------------- -------------- ----------------------
John P. Toolan Trustee(1)(2) Director, The Smith Barney Muni
13 Chadwell Place Bond Funds, The Smith Barney
Morristown, NJ 07960 Tax-Free Money Fund, Inc., Vantage
September 1930 Money Market Funds (mutual funds),
The Inefficient-Market Fund, Inc.
(closed-end investment company) and
Smith Barney Trust Company of
Florida; Chairman, Smith Barney
Trust Company (retired 1991);
Director, Smith Barney, Inc.,
Mutual Management Company and
Smith, Barney Advisers, Inc.
(investment advisers) (retired
1991); Senior Executive Vice
President, Director and member of
the Executive Committee, Smith
Barney, Harris Upham & Co.,
Incorporated (investment bankers)
(until 1991).
Robert G. Freedman* Vice Chairman and Chief Vice Chairman and Chief Investment
101 Huntington Avenue Investment Officer(4) Officer, the Adviser; President,
Boston, MA 02199 the Adviser (until December 1994);
July 1938 Director, the Adviser, Advisers
International, John Hancock Funds
Investor Services, SAMCorp and NM
Capital; Senior Vice President, The
Berkeley Group.
* An "interested person" of the Fund, as such term is defined in the 1940
Act.
(1) Member of the Audit Committee of the Trust.
(2) Member of the Committee on Administration of the Trust.
(3) Member of the Executive Committee of the Trust. The Executive Committee may
generally exercise most powers of the Trustees between regularly scheduled
meetings of the Board of Trustees.
(4) Member of the Investment Committee of the Adviser.
24
<PAGE>
Position Held Principal Occupation(s)
Name and Address with the Trust During Past Five Years
- ---------------- -------------- ----------------------
James B. Little* Senior Vice President and Senior Vice President, the Adviser,
101 Huntington Avenue Chief Financial Officer The Berkeley Group, John Hancock
Boston, MA 02199 Funds and Investor Services
February 1935
James J. Stokowski* Vice President and Vice President, the Adviser.
101 Huntington Avenue Treasurer
Boston, MA 02199
November 1946
Susan S. Newton* Vice President and Vice President and Assistant
101 Huntington Avenue Secretary Secretary, the Adviser; Vice
Boston, MA 02199 President and Secretary, John
March 1950 Hancock Funds, Investor Services
and John Hancock Distributors, Inc.
(until 1994); Secretary, SAMCorp;
Vice President, The Berkeley Group.
John A. Morin* Vice President Vice President, the Adviser,
101 Huntington Avenue Investor Services and John Hancock
Boston, MA 02199 Funds; Counsel, John Hancock Mutual
July 1950 Life Insurance Company; Vice
President and Assistant Secretary,
The Berkeley Group.
</TABLE>
* An "interested person" of the Fund, as such term is defined in the 1940
Act.
(1) Member of the Audit Committee of the Trust.
(2) Member of the Committee on Administration of the Trust.
(3) Member of the Executive Committee of the Trust. The Executive Committee may
generally exercise most powers of the Trustees between regularly scheduled
meetings of the Board of Trustees.
(4) Member of the Investment Committee of the Adviser.
25
<PAGE>
All of the officers listed are officers or employees of the Adviser or
affiliated companies. Some of the Trustees and officers may also be officers
and/or Trustees and/or Trustees of one or more of the other funds for which the
Adviser serves as investment adviser.
As of May 17, 1996, the officers and trustees of the Trust as a group
beneficially owned less than 1% of the outstanding shares of the Trust and the
Fund. On such date, the following shareholder was the only record holder or
beneficial owner of 5% or more of the shares of either class of the Fund's
shares:
Percentage of
Name and Address Class Shares Outstanding Shares of
of Shareholder of Shares Owned Class of Fund
-------------- --------- ----- -------------
Merrill Lynch Pierce Class B 423,931 5.03%
Fenner & Smith, Inc.
4800 Deerlake Dr. East
Jacksonville, FL
32246-6484
On such date, no other person(s) owned of record or was known by the Trust to
beneficially own as much as 5% of the outstanding shares of the Trust or of
either class of the Fund's shares.
As of December 22, 1994, the Trustees have established an Advisory Board
which acts to facilitate a smooth transition of management over a two-year
period (between Transamerica Fund Management Company ("TFMC"), the prior
investment adviser, and the Adviser). The members of the Advisory Board are
distinct from the Board of Trustees, do not serve the Fund in any other capacity
and are persons who have no power to determine what securities are purchased or
sold on behalf of the Fund. Each member of the Advisory Board may be contacted
at 101 Huntington Avenue, Boston, Massachusetts 02199.
26
<PAGE>
Members of the Advisory Board and their respective principal occupations
during the past five years are as follows:
R. Trent Campbell, President, FMS, Inc. (financial and management services);
former Chairman of the Board, Mosher Steel Company.
Mrs. Lloyd Bentsen, Formerly National Democratic Committeewoman from Texas; co-
founder, Houston Parents' League; former board member of various civic and
cultural organizations in Houston, including the Houston Symphony, Museum
of Fine Arts and YWCA. Mrs. Bentsen is presently active in various civic
and cultural activities in the Washington, D.C. area, including membership
on the Area Board for The March of Dimes and is a National Trustee for the
Botanic Gardens of Washington, D. C.
Thomas R. Powers, Formerly Chairman of the Board, President and Chief Executive
Officer, TFMC; Director, West Central Advisory Board, Texas Commerce Bank;
Trustee, Memorial Hospital System; Chairman of the Board of Regents of
Baylor University; Member, Board of Governors, National Association of
Securities Dealers, Inc.; Formerly, Chairman, Investment Company Institute;
formerly, President, Houston Chapter of Financial Executive Institute.
Thomas B. McDade, Chairman and Director, TransTexas Gas Company; Director,
Houston Industries and Houston Lighting and Power Company; Director,
TransAmerican Companies (natural gas producer and transportation); Member,
Board of Managers, Harris County Hospital District; Advisory Director,
Commercial State Bank, El Campo; Advisory Director, First National Bank of
Bryan; Advisory Director, Sterling Bancshares; Former Director and Vice
Chairman, Texas Commerce Bancshares; and Vice Chairman, Texas Commerce
Bank.
Compensation of the Board of Trustees and Advisory Board. The following
table provides information regarding the compensation paid by the Fund and the
other investment companies in the John Hancock Fund Complex to the Independent
Trustees and the Advisory Board members for their services. Ms. Hodsdon and
Messrs. Boudreau and Scipione, each a non-Independent Trustee, and each of the
officers of the Trust are interested persons of the Adviser, are compensated by
the Adviser and received no compensation from the Funds for their services. The
compensation to the Trustees from the Fund shown below is for the Fund's fiscal
year ended August 31, 1995.
27
<PAGE>
Total Compensation
Aggregate from all Funds in
Compensation John Hancock Fund
Trustees from the Fund+ Complex to Trustees**
- -------- -------------- ---------------------
James F. Carlin $ 1,718 $ 60,700
William H. Cunningham* $ 2,868 $ 69,700
Charles F. Fretz $ 0 $ 56,200
Harold R. Hiser, Jr.* $ 0 $ 60,200
Charles L. Ladner $ 2,045 $ 60,700
Leo E. Linbeck, Jr. $ 3,518 $ 73,200
Patricia P. McCarter $ 2,045 $ 60,700
Steven R. Pruchansky $ 2,122 $ 62,700
Norman H. Smith $ 2,122 $ 62,700
John P. Toolan* $ 2,045 $ 60,700
Totals $18,483 $627,500
+ Compensation made pursuant to different compensation arrangements then in
effect for the fiscal year ended August 31, 1995.
* As of December 31, 1995, the value of the aggregate accrued deferred
compensation from all Funds in the John Hancock Fund complex for Mr.
Cunningham was $54,413, for Mr. Hiser was $31,324, and for Mr. Toolan was
$71,437 under the John Hancock Deferred Compensation Plan for Trustees.
** The total compensation paid by the John Hancock Fund Complex to the
Independent Trustees is $627,500 as of the calendar year ended December 31,
1995 All Trustees are Trustees/Directors of 33 funds in the John Hancock
Fund Complex.
Aggregate Total Compensation from
Compensation all Funds in John Hancock
Advisory Board* from the Fund Fund Complex to Advisory Board*
- --------------- ------------- -------------------------------
R. Trent Campbell $ 3,714 $ 54,000
Mrs. Lloyd Bentsen $ 3,714 $ 54,000
Thomas R. Powers $ 3,714 $ 54,000
Thomas B. McDade $ 3,714 $ 54,000
TOTALS $14,856 $216,000
* As of December 31, 1995
28
<PAGE>
INVESTMENT ADVISORY AND OTHER SERVICES
As described in the Prospectus, the Fund receives its investment advice
from the Adviser. Investors should refer to the Prospectus for a description of
certain information concerning the investment management contract. Each of the
Trustees and principal officers of the Trust who is also an affiliated person of
the Adviser is named above, together with the capacity in which such person is
affiliated with the Trust and the Adviser or TFMC (the Fund's prior investment
adviser).
The Adviser, located at 101 Huntington Avenue, Boston, Massachusetts 02199-
7603, was organized in 1968 and currently has more than $18 billion in assets
under management in its capacity as investment adviser to the Fund and the other
mutual funds and publicly traded investment companies in the John Hancock group
of funds having a combined total of over 1,080,000 shareholders. The Adviser is
a wholly- owned subsidiary of The Berkeley Financial Group, which is in turn a
wholly-owned subsidiary of John Hancock Subsidiaries, Inc., which is in turn a
wholly-owned subsidiary of the Life Company, one of the most recognized and
respected financial institutions in the nation. With total assets under
management of more than $80 billion, the Life Company is one of the ten largest
life insurance companies in the United States and carries high ratings from
Standard & Poor's and A.M. Best's. Founded in 1862, the Life Company has been
serving clients for over 130 years.
The Fund has entered into an investment management contract with the
Adviser. Under the investment management contract, the Adviser provides the Fund
with (i) a continuous investment program, consistent with the Fund's stated
investment objective and policies, and (ii) supervision of all aspects of the
Fund's operations except those that are delegated to a custodian, transfer agent
or other agent. The Adviser is responsible for the day-to-day management of the
Fund's portfolio assets.
No person other than the Adviser and its directors and employees regularly
furnishes advice to the Fund with respect to the desirability of the Fund
investing in, purchasing or selling securities. The Adviser may from time to
time receive statistical or other similar factual information, and information
regarding general economic factors and trends, from the Life Company and its
affiliates.
All expenses which are not specifically paid by the Adviser and which are
incurred in the operation of the Fund including, but not limited to, (i) the
29
<PAGE>
fees of the Trustees of the Fund who are not "interested persons," as such term
is defined in the 1940 Act (the "Independent Trustees"), (ii) the fees of the
members of the Trust's Advisory Board (described above) and (iii) the continuous
public offering of the shares of the Fund are borne by the Fund. Subject to the
requirements imposed by the Internal Revenue Service on funds having a
multiple-class structure, class expenses properly allocable to any Class A or
Class B shares will be borne exclusively by such class of shares.
As provided by the investment management contract, the Fund pays the
Adviser an investment management fee, which is accrued daily and paid monthly in
arrears, equal on an annual basis to 0.625% of the Fund's average daily net
asset value.
The Adviser may voluntarily and temporarily reduce its advisory fee or make
other arrangements to limit the Fund's expenses to a specified percentage of
average daily net assets. The Adviser retains the right to re-impose the
advisory fee and recover any other payments to the extent that, at the end of
any fiscal year, the Fund's annual expenses fall below this limit.
In the event normal operating expenses of the Fund, exclusive of certain
expenses prescribed by state law, are in excess of any state limit where the
Fund is registered to sell shares of beneficial interest, the fee payable to the
Adviser will be reduced to the extent of such excess and the Adviser will make
any additional arrangements necessary to eliminate any remaining excess
expenses, if required by law. Currently, the most restrictive limit applicable
to the Fund is 2.5% of the first $30,000,000 of the Fund's average daily net
asset value, 2% of the next $70,000,000 and 1.5% of the remaining average daily
net asset value.
Pursuant to the investment management contract, the Adviser is not liable
to the Fund or its shareholders for any error of judgment or mistake of law or
for any loss suffered by the Fund in connection with the matters to which its
contract relates, except a loss resulting from willful misfeasance, bad faith or
gross negligence on the part of the Adviser in the performance of its duties or
from its reckless disregard of the obligations and duties under the applicable
contract.
The initial term of the investment management contract expires on December
22, 1996, and the contract will continue in effect from year to year thereafter
if approved annually by a vote of a majority of the Independent Trustees of the
Fund, cast in person at a meeting called for the purpose of voting on such
approval, and by either a majority of the Trustees or the holders of a majority
of the Fund's outstanding voting securities. The management contract may, on 60
days' written notice, be terminated at any time without the payment of any
penalty by the Fund by vote of a majority of the outstanding voting securities
of the Fund, by the Trustees or by the Adviser. The management contract
terminates automatically in the event of its assignment.
30
<PAGE>
Securities held by the Fund may also be held by other funds or investment
advisory clients for which the Adviser or its affiliates provide investment
advice. Because of different investment objectives or other factors, a
particular security may be bought for one or more funds or clients when one or
more are selling the same security. If opportunities for purchase or sale of
securities by the Adviser or for other funds or clients for which the Adviser
renders investment advice arise for consideration at or about the same time,
transactions in such securities will be made, insofar as feasible, for the
respective funds or clients in a manner deemed equitable to all of them. To the
extent that transactions on behalf of more than one client of the Adviser or its
affiliates may increase the demand for securities being purchased or the supply
of securities being sold, there may be an adverse effect on price.
Under the investment management contract, the Fund may use the name "John
Hancock" or any name derived from or similar to it only for so long as the
investment management contract or any extension, renewal or amendment thereof
remains in effect. If the Fund's investment management contract is no longer in
effect, the Fund (to the extent that it lawfully can) will cease to use such
name or any other name indicating that it is advised by or otherwise connected
with the Adviser. In addition, the Adviser or the Life Company may grant the
non-exclusive right to use the name "John Hancock" or any similar name to any
other corporation or entity, including but not limited to any investment company
of which the Life Company or any subsidiary or affiliate thereof or any
successor to the business of any subsidiary or affiliate thereof shall be the
investment adviser.
For the fiscal years ended August 31, 1993 and 1994 advisory fees paid by
the Fund to TFMC, the Fund's former investment adviser, amounted to $905,355 and
$1,322,162, respectively. For the fiscal year ended August 31, 1995, advisory
fees paid by the Fund to TFMC, the Fund's former investment adviser and the
Adviser amounted to $468,939 and $972,142 respectively.
Administrative Services Agreement. The Fund was a party to an
administrative services agreement with TFMC (the "Services Agreement"), pursuant
to which TFMC performed bookkeeping and accounting services and functions,
including preparing and maintaining various accounting books, records and other
documents and keeping such general ledgers and portfolio accounts as are
reasonably necessary for the operation of the Fund. Other administrative
services included communications in response to shareholder inquiries and
certain printing expenses of various financial reports. In addition, staff and
office space, facilities and equipment was provided as necessary to provide
administrative services to the Fund. The Services Agreement was amended in
connection with the appointment of the Adviser as adviser to the Fund to permit
services under the Agreement to be provided to the Fund by the Adviser and its
affiliates. The Services Agreement was terminated during the fiscal year 1995.
31
<PAGE>
For the fiscal years ended August 31, 1993, 1994 and 1995, the Fund paid to
TFMC (pursuant to the Services Agreement) $111,174, $153,060 and $31,385,
respectively, of which $92,522, $132,005 and $20,130, respectively, was retained
by TFMC and $18,652, $21,055 and $11,255, respectively, was paid for certain
data processing and pricing information services.
DISTRIBUTION CONTRACT
Distribution Contract. As discussed in the Prospectus, the Fund's shares
are sold on a continuous basis at the public offering price. John Hancock Funds,
a wholly-owned subsidiary of the Adviser, has the exclusive right, pursuant to
the Distribution Contract dated December 22, 1994 (the "Distribution Contract"),
to purchase shares from the Fund at net asset value for resale to the public or
to broker- dealers at the public offering price. Upon notice to all
broker-dealers ("Selling Brokers") with whom it has sales agreements, John
Hancock Funds may allow such Selling Brokers up to the full applicable sales
charge during periods specified in such notice. During these periods, such
Selling Brokers may be deemed to be underwriters as that term is defined in the
1933 Act.
The Distribution Contract was initially adopted by the affirmative vote of
the Fund's Board of Trustees including the vote of a majority of the Independent
Trustees, cast in person at a meeting called for such purpose. The Distribution
Contract shall continue in effect until December 22, 1996 and from year to year
thereafter if approved by either the vote of the Fund's shareholders or the
Board of Trustees, including the vote of a majority of the Independent Trustees,
cast in person at a meeting called for such purpose. The Distribution Contract
may be terminated at any time, without penalty, by either party upon sixty (60)
days' written notice or by a vote of a majority of the outstanding voting
securities of the Fund and terminates automatically in the case of an assignment
by John Hancock Funds.
Total underwriting commissions for sales of the Fund's Class A Shares for
the fiscal years ended August 31, 1993, 1994 and 1995, respectively, were
$762,955, $883,435 and $899,731, respectively. Of such amounts $56,633, $56,079
and $69,597, respectively, were retained by the Fund's former distributor,
Transamerica Fund Distributors, Inc. and the remainder was reallowed to dealers.
Distribution Plans. The Board of Trustees, including the Independent
Trustees of the Fund, approved new distribution plans pursuant to Rule 12b-1
under the 1940 Act for Class A Shares ("Class A Plan") and Class B Shares
("Class B Plan"). Such Plans were approved by a majority of the outstanding
shares of each respective class on December 16, 1994 and became effective on
December 22, 1994.
32
<PAGE>
Under the Class A Plan, the distribution or service fee will not exceed an
annual rate of 0.25% of the average daily net asset value of the Class A Shares
of the Fund. Any expenses under the Class A Plan not reimbursed within 12 months
of being presented to the Fund for repayment are forfeited and not carried over
to future years. Under the Class B Plan, the distribution or service fee to be
paid by the Fund will not exceed an annual rate of 1.00% of the average daily
net assets of the Class B Shares of the Fund; provided that the portion of such
fee used to cover Service Expenses (described below) shall not exceed an annual
rate of 0.25% of the average daily net asset value of the Class B Shares of the
Fund. In accordance with generally accepted accounting principles, the Fund does
not treat unreimbursed distribution expenses attributable to Class B shares as a
liability of the Fund and does not reduce the current net assets of Class B by
such amount, although the amount may be payable under Class B Plan in the
future.
Under the Plans, expenditures shall be calculated and accrued daily and
paid monthly or at such other intervals as the Trustees shall determine. The fee
may be spent by John Hancock Funds on Distribution Expenses or Service Expenses.
"Distribution Expenses" include any activities or expenses primarily intended to
result in the sale of shares of the relevant class of the Fund, including, but
not limited to: (i) initial and ongoing sales compensation to Selling Brokers
and others (including affiliates of John Hancock Funds) engaged in the sale of
Fund shares; (ii) marketing, promotional and overhead expenses incurred in
connection with the distribution of Fund shares; and (iii) with respect to Class
B shares only, interest expenses on unreimbursed distribution expenses. "Service
Expenses" under the Plans include payments made to, or on account of, account
executives of selected broker-dealers (including affiliates of John Hancock
Funds) and others who furnish personal and shareholder account maintenance
services to shareholders of the relevant class of the Fund. For the fiscal year
ended August 31, 1995, an aggregate of $3,463,988 of distribution expenses or
3.15% of the average net assets of the Fund's Class B shares was not reimbursed
or recovered by John Hancock Funds through the receipt of deferred sales charges
or Rule 12b-1 fees in prior periods.
During the fiscal year ended August 31, 1995, the Funds paid John Hancock
Funds the following amounts of expenses with respect to the Class A and Class B
shares of the Fund:
33
<PAGE>
Printing and
Mailing of Interest,
Prospectuses Compensation Carrying or
to New to Selling Other Finance
Advertising Shareholders Brokers Charges
----------- ------------ ------- -------
Class A shares $23,907 $887 $166,264 $ 0
Class B shares $19,812 $804 $652,464 $321,811
Each of the Plans provides that it will continue in effect only as long as
its continuance is approved at least annually by a majority of both the Trustees
and the Independent Trustees. Each of the Plans provides that it may be
terminated (a) at any time by vote of a majority of the Trustees, a majority of
the Independent Trustees, or a majority of the respective Class' outstanding
voting securities or (b) by John Hancock Funds on 60 days' notice in writing to
the Fund. Each of the Plans further provides that it may not be amended to
increase the maximum amount of the fees for the services described therein
without the approval of a majority of the outstanding shares of the class of the
Fund which has voting rights with respect to the Plan. Each of the Plans
provides that no material amendment to the Plan will, in any event, be effective
unless it is approved by a majority vote of the Trustees and the Independent
Trustees of the Fund. The holders of Class A Shares and Class B Shares have
exclusive voting rights with respect to the Plan applicable to their respective
class of shares. In adopting the Plans, the Board of Trustees has determined
that, in its judgment, there is a reasonable likelihood that each Plan will
benefit the holders of the applicable class of shares of the Fund.
Information regarding the services rendered under the Plans and the
Distribution Contract and the amounts paid therefor by the respective class of
the Fund is provided to, and reviewed by, the Board of Trustees on a quarterly
basis. In this quarterly review, the Board of Trustees considers the continued
appropriateness of the Plans and the Distribution Contract and the level of
compensation provided therein.
When the Fund seeks an Independent Trustee to fill a vacancy or as a
nominee for election by shareholders, the selection or nomination of the
Independent Trustee is, under resolutions adopted by the Trustees
contemporaneously with their adoption of the Plans, committed to the discretion
of the Committee on Administration of the Trustees. The members of the Committee
on Administration are all Independent Trustees and identified in this Statement
of Additional Information under the heading "Those Responsible for Management."
34
<PAGE>
NET ASSET VALUE
For purposes of calculating the net asset value ("NAV") of the Fund's
shares, the following procedures are utilized wherever applicable.
Debt investment securities are valued on the basis of valuations furnished
by a principal market maker or a pricing service, both of which generally
utilize electronic data processing techniques to determine valuations for normal
institutional size trading units of debt securities without exclusive reliance
upon quoted prices.
Equity securities traded on a principal exchange or NASDAQ National Market
Issues are generally valued at last sale price on the day of valuation.
Securities in the aforementioned category for which no sales are reported and
other securities traded over-the-counter are generally valued at the mean
between the current closing bid and asked prices.
Short-term debt investments which have a remaining maturity of 60 days or
less are generally valued at amortized cost, which approximates market value. If
market quotations are not readily available or if in the opinion of the Adviser
any quotation or price is not representative of true market value, the fair
value of the security may be determined in good faith in accordance with
procedures approved by the Trustees.
Any assets or liabilities expressed in terms of foreign currencies are
translated into U.S. dollars by the custodian bank based on London currency
exchange quotations as of 5:00 p.m., London time (12:00 noon, New York time) on
the date of any determination of the Fund's NAV.
The Fund will not price its securities on the following national holidays:
New Year's Day; Presidents' Day; Good Friday; Memorial Day; Independence Day;
Labor Day; Thanksgiving Day; and Christmas Day. On any day an international
market is closed and the New York Stock Exchange is open, any foreign securities
will be valued at the prior day's close with the current day's exchange rate.
Trading of foreign securities may take place on Saturdays and U.S. business
holidays on which the Fund's NAV is not calculated. Consequently, the Fund's
portfolio securities may trade and the NAV of the Fund's redeemable securities
may be significantly affected on days when a shareholder has no access to the
Fund.
INITIAL SALES CHARGE ON CLASS A SHARES
Class A shares of the Fund are offered at a price equal to their net asset
value plus a sales charge which, at the option of the purchaser, may be imposed
either at the time of purchase (the "initial sales charge alternative") or on a
contingent deferred basis (the "deferred sales charge alternative"). Share
35
<PAGE>
certificates will not be issued unless requested by the shareholder in writing,
and then they will only be issued for full shares. The Trustees reserve the
right to change or waive a Fund's minimum investment requirements and to reject
any order to purchase shares (including purchase by exchange) when in the
judgment of the Adviser such rejection is in the Fund's best interest.
The sales charges applicable to purchases of Class A shares of the Fund are
described in the Prospectus. Methods of obtaining reduced sales charges referred
to generally in the Prospectus are described in detail below. In calculating the
sales charge applicable to current purchases of Class A shares, the investor is
entitled to cumulate current purchases with the greater of the current value (at
offering price) of the Class A shares of the Fund, or if Investor Services is
notified by the investor's dealer or the investor at the time of the purchase,
the cost of the Class A shares owned.
Combined Purchases. In calculating the sales charge applicable to purchases
of Class A shares made at one time, the purchases will be combined if made by
(a) an individual, his or her spouse and their children under the age of 21
purchasing securities for his or her own account, (b) a trustee or other
fiduciary purchasing for a single trust, estate or fiduciary account and (c)
certain groups of four or more individuals making use of salary deductions or
similar group methods of payment whose funds are combined for the purchase of
mutual fund shares. Further information about combined purchases, including
certain restrictions on combined group purchases, is available from Investor
Services or a Selling Broker's representative.
Without Sales Charge. Class A shares may be offered without a front-end
sales charge or CDSC to various individuals and institutions as follows:
o Any state, county or any instrumentality, department, authority, or agency
of these entities that is prohibited by applicable investment laws from
paying a sales charge or commission when it purchases shares of any
rgistered investment mangement company.
o A bank, trust company, credit union, savings institution or other
depository institution, its trust departments or common trust funds if it
is purchasing $1 million or more for non-discretionary customers or
accounts.
36
<PAGE>
o A Trustee or officer of the Trust; a Director or officer of the Adviser and
its affiliates or Selling Brokers; employees or sales representatives of
any of the foregoing; retired officers, employees or Directors of any of
the foregoing; a member of the immediate family (spouse, children, mother,
father, sister, brother, mother-in-law, father-in-law) of any of the
foregoing; or any fund, pension, profit sharings or other benefit plan for
the individuals described above.
o A broker, dealer, financial planner, consultant or registered investment
advisor that has entered into an agreement with John Hancock Funds
providing specifically for the use of Fund shares in fee-based investment
products or services made available to their clients.
o A former participant in an employee benefit plan with John Hancock funds,
when he or she withdraws from his or her plan and transfers any or all of
his or her plan distributions directly to the Fund.
o A member of an approved affinity group financial services plan.
Class A shares may also be purchased without an initial sales charge in
connection with certain liquidation, merger or acquisition transactions
involving other investment companies or personal holding companies.
Accumulation Privilege. Investors (including investors combining purchases)
who are already Class A shareholders may also obtain the benefit of the reduced
sales charge by taking into account not only the amount then being invested but
also the purchase price or value of the Class A shares already held by such
person.
37
<PAGE>
Combination Privilege. Reduced sales charges (according to the schedule set
forth in the Prospectus) also are available to an investor based on the
aggregate amount of his concurrent and prior investments in Class A shares of
the Fund and shares of all other John Hancock funds which carry a sales charge.
Letter of Intention. The reduced sales charges are also applicable to
investments made over a specified period pursuant to a Letter of Intention
(LOI), which should be read carefully prior to its execution by an investor. The
Fund offers two options regarding the specified period for making investments
under the LOI. All investors have the option of making their investments over a
period of thirteen (13) months. Investors who are using the Fund as a funding
medium for a qualified retirement plan, however, may opt to make the necessary
investments called for by the LOI over a forty-eight (48) month period. These
qualified retirement plans include IRA'S, SEP, SARSEP, TSA, 401(k) plans, TSA
plans and Section 457 plans. Such an investment (including accumulations and
combinations) must aggregate $50,000 or more invested during the specified
period from the date of the LOI or from a date within ninety (90) days prior
thereto, upon written request to Investor Services. The sales charge applicable
to all amounts invested under the LOI is computed as if the aggregate amount
intended to be invested had been invested immediately. If such aggregate amount
is not actually invested, the difference in the sales charge actually paid and
the sales charge payable had the LOI not been in effect is due from the
investor. However, for the purchases actually made within the specified period
(either 13 or 48 months), the sales charge applicable will not be higher than
that which would have been applied (including accumulations and combinations)
had the LOI been for the amount actually invested.
The LOI authorizes Investor Services to hold in escrow sufficient Class A
shares (approximately 5% of the aggregate) to make up any difference in sales
charges on the amount intended to be invested and the amount actually invested,
until such investment is completed within the specified period, at which time
the escrow shares will be released. If the total investment specified in the LOI
is not completed, the Class A shares held in escrow may be redeemed and the
proceeds used as required to pay such sales charges as may be due. By signing
the LOI, the investor authorizes Investor Services to act as his
attorney-in-fact to redeem any escrow shares and adjust the sales charge, if
necessary. A LOI does not constitute a binding commitment by an investor to
purchase, or by the Fund to sell, any additional shares and may be terminated at
any time.
Class A shares may also be purchased without an initial sales charge in
connection with certain liquidation, merger or acquisition transactions
involving other investment companies or personal holding companies.
38
<PAGE>
DEFERRED SALES CHARGE ON CLASS B SHARES
Investments in Class B shares are purchased at net asset value per share
without the imposition of a sales charge so that the Fund will receive the full
amount of the purchase payment.
Contingent Deferred Sales Charge. Class B shares which are redeemed within
six years of purchase will be subject to a contingent deferred sales charge
("CDSC") at the rates set forth in the Prospectus as a percentage of the dollar
amount subject to the CDSC. The charge will be assessed on an amount equal to
the lesser of the current market value or the original purchase cost of the
Class B shares being redeemed. Accordingly, no CDSC will be imposed on increases
in account value above the initial purchase prices, including Class B shares
derived from reinvestment of dividends or capital gains distributions.
The amount of the CDSC, if any, will vary depending on the number of years
from the time of payment for the purchase of Class B shares until the time of
redemption of such shares. Solely for purposes of determining the number of
years from the time of any payment for the purchase of shares, all payments
during a month will be aggregated and deemed to have been made on the first day
of the month.
In determining whether a CDSC applies to a redemption, the calculation will
be determined in a manner that results in the lowest possible rate being
charged. It will be assumed that your redemption comes first from shares you
have held beyond the four-year CDSC redemption period or those you acquired
through dividend and capital gain reinvestment, and next from the shares you
have held the longest during the four-year period. For this purpose, the amount
of any increase in a share's value above its initial purchase price is not
regarded as a share exempt from CDSC. Thus, when a share that has appreciated in
value is redeemed during the CDSC period, a CDSC is assessed only on its initial
purchase price. Upon redemption, appreciation is effective only on a per share
basis for those shares being redeemed. Appreciation of shares cannot be redeemed
CDSC free at the account level.
39
<PAGE>
When requesting a redemption for a specific dollar amount please indicate
if you require the proceeds to equal the dollar amount requested. If not
indicated, only the specified dollar amount will be redeemed from your account
and the proceeds will be less any applicable CDSC.
Example:
You have purchased 100 shares at $10 per share. The second year after your
purchase, your investment's net asset value per share has increased by $2 to
$12, and you have gained 10 additional shares through dividend reinvestment. If
you redeem 50 shares at this time your CDSC will be calculated as follows:
* Proceeds of 50 shares redeemed at $12 per share $600
* Minus proceeds of 10 shares not subject to CDSC (dividend
reinvestment) -120
* Minus appreciation on remaining shares (40 shares X $2) -80
* Amount subject to CDSC $400
Proceeds from the CDSC are paid to the Distributors and are used in whole
or in part by the Distributors to defray their expenses related to providing
distribution-related services to the Fund in connection with the sale of the
Class B shares, such as the payment of compensation to select Selling Brokers
for selling Class B shares. The combination of the CDSC and the distribution and
service fees facilitates the ability of the Fund to sell the Class B shares
without a sales charge being deducted at the time of the purchase. See the
Prospectus for additional information regarding the CDSC.
Waiver of Contingent Deferred Sales Charge. The CDSC will be waived on
redemptions of Class B shares and of Class A shares that are subject to CDSC,
unless indicated otherwise, in the circumstances defined below:
40
<PAGE>
For all account types:
* Redemptions made pursuant to the Fund's right to liquidate your account if
you own shares worth less than $1,000.
* Redemptions made under certain liquidation, merger or acquisition
transactions involving other investment companies or personal holding
companies.
* Redemptions due to death or disability.
* Redemptions made under the Reinstatement Privilege, as described in "Sales
Charge Reductions and Waivers" of the Prospectus.
For Retirement Accounts (such as IRA, Rollover IRA, TSA, 457, 403(b),
401(k), Money Purchase Pension Plan, Profit-Sharing Plan and other plans
qualified under the Code) unless otherwise noted.
* Redemptions made to effect mandatory distributions under the Internal
Revenue Code after age 70 1/2.
* Returns of excess contributions made to these plans.
* Redemptions made to effect distributions to participants or beneficiaries
from employer sponsored retirement plans such as 401k, 403b, 457. In all
cases, the distribution must be free from penalty under the Code.
* Redemptions made to effect distributions from an Individual Retirement
Account either before age 59 1/2 or after age 59 1/2, as long as the
distributions are based on your life expectancy or the joint-and-last
survivor life expectancy of you and your beneficiary. These distributions
must be free from penalty under the Code.
* Redemptions from certain IRA and retirement plans that purchased shares
prior to October 1, 1992.
For non-retirement accounts (please see above for retirement account
waivers):
* Redemptions of Class B shares made under a periodic withdrawal plan, as
long as your annual redemptions do not exceed 10% of your account value at
the time you established your periodic withdrawal plan and 10% of the value
of subsequent investments (less redemptions) in that account at the time
you notify Investor Services. (Please note, this waiver does not apply to
periodic withdrawal plan redemptions of Class A shares that are subject to
a CDSC.)
Please see matrix for reference.
41
<PAGE>
CDSC Waiver Matrix for Class B Funds
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------
401(a) Plan
Type of (401(k), MPP, IRA, IRA
Distribution PSP) 403(b) 457 Rollover Non-retirement
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Death or Waived Waived Waived Waived Waived
Disability
- ------------------------------------------------------------------------------------------------------
Over 70 1/2 Waived Waived Waived Waived 10% of account
value annually
in periodic
payments
- ------------------------------------------------------------------------------------------------------
Between 59 1/2 Only Life 10% of account
and 70 1/2 Waived Waived Waived Expectancy value annually
in periodic
payments
- ------------------------------------------------------------------------------------------------------
Under 59 1/2 Waived for
rollover, or
annuity
payments. Not 10% of account
waived if paid Waived for Waived for Waived for value annually
directly to annuity annuity annuity in periodic
participant. payments payments payments payments
- ------------------------------------------------------------------------------------------------------
Loans Waived Waived N/A N/A N/A
- ------------------------------------------------------------------------------------------------------
Termination of Not Waived Not Waived Not Waived Not Waived N/A
Plan
- ------------------------------------------------------------------------------------------------------
Return of Waived Waived Waived Waived N/A
Excess
- ------------------------------------------------------------------------------------------------------
</TABLE>
If you qualify for a CDSC waiver under one of these situations, you must notify
Investor Services either directly or through your Selling Broker at the time you
make your redemption. The waiver will be granted once Investor Services has
confirmed that you are entitled to the waiver.
42
<PAGE>
SPECIAL REDEMPTIONS
Although it would not normally do so, the Fund has the right to pay the
redemption price of shares of the Fund in whole or in part in portfolio
securities as prescribed by the Trustees. When the shareholder sells portfolio
securities received in this fashion, he would incur a brokerage charge. Any such
securities would be valued for the purposes of making such payment at the same
value as used in determining net asset value. The Fund has elected to be
governed by Rule 18f-1 under the 1940 Act, pursuant to which the Fund is
obligated to redeem shares solely in cash up to the lesser of $250,000 or 1% of
the net asset value of the Fund during any 90 day period for any one account.
ADDITIONAL SERVICES AND PROGRAMS
Exchange Privilege. As described more fully in the Prospectus, the Fund
permits exchanges of shares of any class of the Fund for shares of the same
class in any other John Hancock fund offering that class.
Systematic Withdrawal Plan. As described briefly in the Prospectus, the
Fund permits the establishment of a Systematic Withdrawal Plan. Payments under
this plan represent proceeds arising from the redemption of Fund shares. Since
the redemption price of Fund shares may be more or less than the shareholder's
cost, depending upon the market value of the securities owned by the Fund at the
time of redemption, the distribution of cash pursuant to this plan may result in
recognition of gain or loss for purposes of Federal, state and local income
taxes. The maintenance of a Systematic Withdrawal Plan concurrently with
purchases of additional Class A or Class B shares of the Fund could be
disadvantageous to a shareholder because of the initial sales charge payable on
such purchases of Class A shares and the CDSC imposed on redemptions of Class B
shares and because redemptions are taxable events. Therefore, a shareholder
should not purchase Fund shares at the same time as a Systematic Withdrawal Plan
is in effect. The Fund reserves the right to modify or discontinue the
Systematic Withdrawal Plan of any shareholder on 30 days' prior written notice
to such shareholder, or to discontinue the availability of such plan in the
future. The shareholder may terminate the plan at any time by giving proper
notice to Investor Services.
Monthly Automatic Accumulation Program ("MAAP"). This program is explained
fully in the Prospectus and the Account Privileges Application. The program, as
it relates to automatic investment checks, is subject to the following
conditions:
The investments will be drawn on or about the day of the month indicated.
The privilege of making investments through the Monthly Automatic
Accumulation Program may be revoked by Investor Services without prior notice if
any investment is not honored by the shareholder's bank. The bank shall be under
no obligation to notify the shareholder as to the non-payment of any check.
43
<PAGE>
The program may be discontinued by the shareholder either by calling
Investor Services or upon written notice to Investor Services which is received
at least five (5) business days prior to the due date of any investment.
Reinvestment Privilege. A shareholder who has redeemed Fund shares may,
within 120 days after the date of redemption, reinvest without payment of a
sales charge any part of the redemption proceeds in shares of the same class of
the Fund or another John Hancock mutual fund, subject to the minimum investment
limit in that fund. The proceeds from the redemption of Class A shares may be
reinvested at net asset value without paying a sales charge in Class A shares of
the Fund or in Class A shares of another John Hancock mutual fund. If a CDSC was
paid upon a redemption, a shareholder may reinvest the proceeds from that
redemption at net asset value in additional shares of the class from which the
redemption was made. The shareholder's account will be credited with the amount
of any CDSC charged upon the prior redemption and the new shares will continue
to be subject to the CDSC. The holding period of the shares acquired through
reinvestment will, for purposes of computing the CDSC payable upon a subsequent
redemption, include the holding period of the redeemed shares. The Fund may
modify or terminate the reinvestment privilege at any time.
A redemption or exchange of Fund shares is a taxable transaction for
Federal income tax purposes even if the reinvestment privilege is exercised, and
any gain or loss realized by a shareholder on the redemption or other
disposition of Fund shares will be treated for tax purposes as described under
the caption "Tax Status."
44
<PAGE>
DESCRIPTION OF THE FUND'S SHARES
Ownership of the Fund is represented by transferable shares of beneficial
interest. The Declaration of Trust permits the Trustees to create an unlimited
number of series and classes of shares of the Fund and, with respect to each
series and class, to issue an unlimited number of full or fractional shares and
to divide or combine the shares into a greater or lesser number of shares
without thereby changing the proportionate beneficial interests of the Fund.
Each share of each series or class of the Fund represents an equal
proportionate interest with each other in that series or class, none having
priority or preference over other shares of the same series or class. The
interest of investors in the various series or classes of the Fund is separate
and distinct. All consideration received for the sales of shares of a particular
series or class of the Fund, all assets in which such consideration is invested
and all income, earnings and profits derived from such investments will be
allocated to and belong to that series or class. As such, each such share is
entitled to dividends and distributions out of the net income belonging to that
series or class as declared by the Board of Trustees. Shares of the Fund have a
par value of $0.01 per share. The assets of each series are segregated on the
Fund's books and are charged with the liabilities of that series and with a
share of the Fund's general liabilities. The Board of Trustees determines those
assets and liabilities deemed to be general assets or liabilities of the Fund,
and these items are allocated among each series in proportion to the relative
total net assets of each series.
Pursuant to the Declaration of Trust, the Trustees may authorize the
creation of additional series of shares (the proceeds of which would be invested
in separate, independently managed portfolios) and additional classes within any
series (which would be used to distinguish among the rights of different
categories of shareholders, as might be required by future regulations or other
unforeseen circumstances). As of the date of this Statement of Additional
Information, the Trustees have authorized the issuance of two classes of shares
of the Fund, designated as Class A and Class B. Class A and Class B Shares of
the Fund represent an equal proportionate interest in the aggregate net asset
values attributable to that class of the Fund. Holders of Class A Shares and
Class B Shares each have certain exclusive voting rights on matters relating to
the Class A Plan and the Class B Plan, respectively. The different classes of
the Fund may bear different expenses relating to the cost of holding shareholder
meetings necessitated by the exclusive voting rights of any class of shares.
45
<PAGE>
Dividends paid by the Fund, if any, with respect to each class of shares
will be calculated in the same manner, at the same time and on the same day and
will be in the same amount, except for differences resulting from the facts that
(i) the distribution and service fees relating to Class A and Class B shares
will be borne exclusively by that class; (ii) Class B shares will pay higher
distribution and service fees than Class A shares; and (iii) each of Class A
shares and Class B shares will bear any class expenses properly allocable to
such class of shares, subject to the requirements imposed by the Internal
Revenue Service on funds having a multiple- class structure. Accordingly, the
net asset value per share may vary depending whether Class A shares or Class B
shares are purchased.
Voting Rights. Shareholders are entitled to a full vote for each full share
held, except that for Trust-wide shareholder votes the Trustees may determine
that it is appropriate for each dollar of net asset value to be entitled to one
vote and fractional dollars to a proportional vote. The Trustees themselves have
the power to alter the number and the terms of office of Trustees, and they may
at any time lengthen their own terms or make their terms of unlimited duration
(subject to certain removal procedures) and appoint their own successors,
provided that at all times at least a majority of the Trustees have been elected
by shareholders. The voting rights of shareholders are not cumulative, so that
holders of more than 50 percent of the shares voting can, if they choose, elect
all Trustees being selected, while the holders of the remaining shares would be
unable to elect any Trustees. Although the Fund need not hold annual meetings of
shareholders, the Trustees may call special meetings of shareholders for action
by shareholder vote as may be required by the 1940 Act or the Declaration of
Trust. Also, a shareholder's meeting must be called if so requested in writing
by the holders of record of 10% or more of the outstanding shares of the Trust.
In addition, the Trustees may be removed by the action of the holders of record
of two-thirds or more of the outstanding shares.
Shareholder Liability. The Declaration of Trust provides that no Trustee,
officer, employee or agent of the Fund is liable to the Fund or to a
shareholder, nor is any Trustee, officer, employee or agent liable to any third
persons in connection with the affairs of the Fund, except as such liability may
arise from his or its own bad faith, willful misfeasance, gross negligence or
reckless disregard of his duties. It also provides that all third persons shall
look solely to the Fund's property for satisfaction of claims arising in
connection with the affairs of the Fund. With the exceptions stated, the
Declaration of Trust provides that a Trustee, officer, employee or agent is
entitled to be indemnified against all liability in connection with the affairs
of the Fund.
46
<PAGE>
As a Massachusetts business trust, the Fund is not required to issue share
certificates. The Fund shall continue without limitation of time subject to the
provisions in the Declaration of Trust concerning termination by action of the
shareholders.
Under Massachusetts law, shareholders of a Massachusetts business trust
could, under certain circumstances, be held personally liable for acts or
obligations of the trust. However, the Trust's Declaration of Trust contains an
express disclaimer of shareholder liability for acts, obligations and affairs of
the Fund. The Declaration of Trust also provides for indemnification out of the
Fund's assets for all losses and expenses of any shareholder held personally
liable by reason of being or having been a shareholder. Liability is therefore
limited to circumstances in which the Fund itself would be unable to meet its
obligations, and the possibility of this occurrence is remote.
TAX STATUS
The Fund has qualified and elected to be treated as a "regulated investment
company" under Subchapter M of the Code, and intends to continue to so qualify
in the future. As such and by complying with the applicable provisions of the
Code regarding the sources of its income, the timing of its distributions, and
the diversification of its assets, the Fund will not be subject to Federal
income tax on its taxable income (including net short-term and long-term capital
gains) which is distributed to shareholders in accordance with the timing
requirements of the Code.
The Fund will be subject to a 4% non-deductible Federal excise tax on
certain amounts not distributed (and not treated as having been distributed) on
a timely basis in accordance with annual minimum distribution requirements. The
Fund intends under normal circumstances to seek to avoid or minimize liability
for such tax by satisfying such distribution requirements.
Distributions from the Fund's current or accumulated earnings and profits
("E&P") will be taxable under the Code for investors who are subject to tax. If
these distributions are paid from the Fund's "investment company taxable
income," they will be taxable as ordinary income; and if they are paid from the
Fund's "net capital gain," they will be taxable as long-term capital gain. (Net
capital gain is the excess (if any) of net long-term capital gain over net
short-term capital loss, and investment company taxable income is all taxable
income and capital gains, other than net capital gain, after reduction by
deductible expenses.) Some distributions from investment company taxable income
and/or net capital gain may be paid in January but may be taxable to
shareholders as if they had been received on December 31 of the previous year.
The tax treatment described above will apply without regard to whether
distributions are received in cash or reinvested in additional shares of the
Fund.
47
<PAGE>
Distributions, if any, in excess of E&P will constitute a return of capital
under the Code, which will first reduce an investor's federal tax basis in Fund
shares and then, to the extent such basis is exceeded, will generally give rise
to capital gains. Shareholders who have chosen automatic reinvestment of their
distributions will have a federal tax basis in each share received pursuant to
such a reinvestment equal to the amount of cash they would have received had
they elected to receive the distribution in cash, divided by the number of
shares received in the reinvestment.
If the Fund acquires stock in certain foreign corporations that receive at
least 75% of their annual gross income from passive sources (such as interest,
dividends, rents, royalties or capital gain) or hold at least 50% of their
assets in investments producing such passive income ("passive foreign investment
companies"), the Fund could be subject to Federal income tax and additional
interest charges on "excess distributions" received from such companies or gain
from the sale of stock in such companies, even if all income or gain actually
received by the Fund is timely distributed to its shareholders. The Fund would
not be able to pass through to its shareholders any credit or deduction for such
a tax. Certain elections may, if available, ameliorate these adverse tax
consequences, but any such election would require the Fund to recognize taxable
income or gain without the concurrent receipt of cash. The Fund may limit and/or
manage its holdings in passive foreign investment companies to minimize its tax
liability or maximize its return from these investments.
Foreign exchange gains and losses realized by the Fund in connection with
certain transactions involving foreign currency-denominated debt securities,
certain foreign currency options, foreign currency forward contracts, foreign
currencies, or payables or receivables denominated in a foreign currency are
subject to Section 988 of the Code, which generally causes such gains and losses
to be treated as ordinary income and losses and may affect the amount, timing
and character of distributions to shareholders. Any such transactions that are
not directly related to the Fund's investment in stock or securities, possibly
including speculative currency positions or currency derivatives not used for
hedging purposes, may increase the amount of gain it is deemed to recognize from
the sale of certain investments or derivatives held for less than three months,
which gain is limited under the Code to less than 30% of its gross income for
each taxable year, and could under future Treasury regulations produce income
not among the types of "qualifying income" from which the Fund must derive at
least 90% of its gross income for each taxable year. If the net foreign exchange
loss for a year treated as ordinary loss under Section 988 were to exceed the
Fund's investment company taxable income computed without regard to such loss
after consideration of certain regulations on the treatment of "post-October
losses" the resulting overall ordinary loss for such year would not be
deductible by the Fund or its shareholders in future years.
48
<PAGE>
The Fund may be subject to withholding and other taxes imposed by foreign
countries with respect to its investments in foreign securities. Tax conventions
between certain countries and the U.S. may reduce or eliminate such taxes. The
Fund does not expect to qualify to pass such taxes through to its shareholders,
who consequently will not take such taxes into account on their own tax returns.
However, the Fund will deduct such taxes in determining the amount it has
available for distribution to shareholders.
The amount of the Fund's net short-term and long-term capital gains, if
any, in any given year will vary depending upon the Adviser's current investment
strategy and whether the Adviser believes it to be in the best interest of the
Fund to dispose of portfolio securities or enter into options transactions that
will generate capital gains. At the time of an investor's purchase of Fund
shares, a portion of the purchase price is often attributable to realized or
unrealized appreciation in the Fund's portfolio or undistributed taxable income
of the Fund. Consequently, subsequent distributions from such appreciation or
income may be taxable to such investor even if the net asset value of the
investor's shares is, as a result of the distributions, reduced below the
investor's cost for such shares, and the distributions in reality represent a
return of a portion of the purchase price.
Upon a redemption of shares of the Fund (including by exercise of the
exchange privilege) a shareholder may realize a taxable gain or loss depending
upon the amount of the proceeds and the investor's basis in his shares. Such
gain or loss will be treated as capital gain or loss if the shares are capital
assets in the shareholder's hands and will be long-term or short-term, depending
upon the shareholder's tax holding period for the shares and subject to the
special rules described below. A sales charge paid in purchasing Class A shares
of the Fund cannot be taken into account for purposes of determining gain or
loss on the redemption or exchange of such shares within 90 days after their
purchase to the extent shares of the Fund or another John Hancock Fund are
subsequently acquired without payment of a sales charge pursuant to the
reinvestment or exchange privilege. Such disregarded load will result in an
increase in the shareholder's tax basis in the shares subsequently acquired.
Also, any loss realized on a redemption or exchange may be disallowed to the
extent the shares disposed of are replaced with other shares of the Fund within
a period of 61 days beginning 30 days before and ending 30 days after the shares
are disposed of, such as pursuant to an election to reinvest dividends in
additional shares. In such a case, the basis of the shares acquired will be
adjusted to reflect the disallowed loss. Any loss realized upon the redemption
of shares with a tax holding period of six months or less will be treated as a
long-term capital loss to the extent of any amounts treated as distributions of
long-term capital gain with respect to such shares.
49
<PAGE>
Although its present intention is to distribute, at least annually, all net
capital gain, if any, the Fund reserves the right to retain and reinvest all or
any portion of the excess, as computed for Federal income tax purposes, of net
long-term capital gain over net short-term capital loss in any year. The Fund
will not in any event distribute net capital gain realized in any year to the
extent that a capital loss is carried forward from prior years against such
gain. To the extent such excess was retained and not exhausted by the
carryforward of prior years' capital losses, it would be subject to Federal
income tax in the hands of the Fund. Upon proper designation of this amount by
the Fund, each shareholder would be treated for Federal income tax purposes as
if the Fund had distributed to him on the last day of its taxable year his pro
rata share of such excess, and he had paid his pro rata share of the taxes paid
by the Fund and reinvested the remainder in the Fund. Accordingly, each
shareholder would (a) include his pro rata share of such excess as long-term
capital gain income in his return for his taxable year in which the last day of
the Fund's taxable year falls, (b) be entitled either to a tax credit on his
return for, or to a refund of, his pro rata share of the taxes paid by the Fund,
and (c) be entitled to increase the adjusted tax basis for his shares in the
Fund by the difference between his pro rata share of such excess and his pro
rata share of such taxes.
For Federal income tax purposes, the Fund is permitted to carry forward a
net capital loss in any year to offset its net capital gains, if any, during the
eight years following the year of the loss. To the extent subsequent net capital
gains are offset by such losses, they would not result in Federal income tax
liability to the Fund and, as noted above, would not be distributed as such to
shareholders. At August 31, 1995, the Fund has a realized capital loss
carryforward of $203,000 which will expire as follows: $152,000 in 1996; and
$51,000 in 1998.
For purposes of the dividends received deduction available to corporations,
dividends received by the Fund, if any, from U.S. domestic corporations in
respect of the stock of such corporations held by the Fund, for U.S. Federal
income tax purposes, for at least 46 days (91 days in the case of certain
preferred stock) and distributed and properly designated by the Fund may be
treated as qualifying dividends. Corporate shareholders must meet the minimum
holding period requirement stated above (46 or 91 days) with respect to their
shares of the Fund in order to qualify for the deduction and, if they have any
debt that is deemed under the Code directly attributable to such shares, may be
denied a portion of the dividends received deduction. The entire qualifying
dividend, including the otherwise deductible amount, will be included in
determining the excess (if any) of a corporate shareholder's adjusted current
earnings over its alternative minimum taxable income, which may increase its
alternative minimum tax liability, if any. Additionally, any corporate
shareholder should consult its tax adviser regarding the possibility that its
basis in its shares may be reduced, for Federal income tax purposes, by reason
of "extraordinary dividends" received with respect to the shares, for the
purpose of computing its gain or loss on redemption or other disposition of the
shares.
50
<PAGE>
The Fund is required to accrue income on any debt securities that have more
than a de minimis amount of original issue discount (or debt securities acquired
at a market discount, if the Fund elects to include market discount in income
currently) prior to the receipt of the corresponding cash payment. The mark to
market rules applicable to certain options and forward contracts may also
require the Fund to recognize income or gain without a concurrent receipt of
cash. However, the Fund must distribute to shareholders for each taxable year
substantially all of its net income and net capital gains, including such income
or gain, to qualify as a regulated investment company and avoid liability for
any federal income or excise tax. Therefore, the Fund may have to dispose of its
portfolio securities under disadvantageous circumstances to generate cash, or
may have to leverage itself by borrowing the cash, to satisfy these distribution
requirements.
A state income (and possibly local income and/or intangible property) tax
exemption is generally available to the extent (if any) the Fund's distributions
are derived from interest on (or, in the case of intangibles taxes, the value of
its assets is attributable to) certain U.S. Governmeent obligations, provided in
some states that certain thresholds for holdings of such obligations and/or
reporting requirements are satisfied. The Fund will not seek to satisfy any
threshold or reporting requirements that may apply in particular taxing
jurisdictions, although the Fund may in its sole discretion provide relevant
information to shareholders.
The Fund will be required to report to the Internal Revenue Service (the
"IRS") all taxable distributions to shareholders, as well as gross proceeds from
the redemption or exchange of Fund shares, except in the case of certain exempt
recipients, i.e., corporations and certain other investors distributions to
which are exempt from the information reporting provisions of the Code. Under
the backup withholding provisions of Code Section 3406 and applicable Treasury
regulations, all such reportable distributions and proceeds may be subject to
backup withholding of federal income tax at the rate of 31% in the case of
non-exempt shareholders who fail to furnish a Fund with their correct taxpayer
identification number and certain certifications required by the IRS or if the
IRS or a broker notifies the Fund that the number furnished by the shareholder
is incorrect or that the shareholder is subject to backup withholding as a
result of failure to report interest or dividend income. A Fund may refuse to
accept an application that does not contain any required taxpayer identification
number or certification that the number provided is correct. If the backup
51
<PAGE>
withholding provisions are applicable, any such distributions and proceeds,
whether taken in cash or reinvested in shares, will be reduced by the amounts
required to be withheld. Any amounts withheld may be credited against a
shareholder's U.S. federal income tax liability. Investors should consult their
tax advisers about the applicability of the backup withholding provisions.
Different tax treatment, including penalties on certain excess
contributions and deferrals, certain pre-retirement and post-retirement
distributions and certain prohibited transactions, is accorded to accounts
maintained as qualified retirement plans. Shareholders should consult their tax
advisers for more information.
Limitations imposed by the Code on regulated investment companies like the
Fund may restrict the Fund's ability to enter into options, foreign currency
positions, and foreign currency forward contracts.
Certain options and forward foreign currency transactions undertaken by the
Fund may cause the Fund to recognize gains or losses from marking to market even
though its positions have not been sold or terminated and affect the character
as long-term or short-term (or, in the case of certain foreign currency-related
forward contracts or options, as ordinary income or loss) and timing of some
capital gains and losses realized by the Fund. Also, certain of the Fund's
losses on its transactions involving options or forward contracts and/or
offsetting or successor portfolio positions may be deferred rather than being
taken into account currently in calculating the Fund's taxable income or gains.
Certain of such transactions may also cause the Fund to dispose of investments
sooner than would otherwise have occurred. These transactions may therefore
affect the amount, timing and character of the Fund's distributions to
shareholders. Certain of the applicable tax rules may be modified if the Fund is
eligible and chooses to make one or more of certain tax elections that may be
available. The Fund will take into account the special tax rules (including
consideration of available elections) applicable to options and forward
contracts in order to seek to minimize any potential adverse tax consequences.
The foregoing discussion relates solely to U.S. Federal income tax law as
applicable to U.S. persons (i.e., U.S. citizens or residents and U.S. domestic
corporations, partnerships, trusts or estates) subject to tax under such law.
The discussion does not address special tax rules applicable to certain classes
of investors, such as tax-exempt entities, insurance companies, and financial
institutions. Dividends, capital gain distributions, and ownership of or gains
realized on the redemption (including an exchange) of Fund shares may also be
subject to state and local taxes. Shareholders should consult their own tax
advisers as to the Federal, state or local tax consequences of ownership of
shares of, and receipt of distributions from, the Fund in their particular
circumstances.
52
<PAGE>
Non-U.S. investors not engaged in a U.S. trade or business with which their
investment in the Fund is effectively connected will be subject to U.S. Federal
income tax treatment that is different from that described above. These
investors may be subject to nonresident alien withholding tax at the rate of 30%
(or a lower rate under an applicable tax treaty) on amounts treated as ordinary
dividends from the Fund and, unless an effective IRS Form W-8 or authorized
substitute for Form W-8 is on file, to 31% backup withholding on certain other
payments from the Fund. Non-U.S. investors should consult their tax advisers
regarding such treatment and the application of foreign taxes to an investment
in the Fund.
The Fund is not subject to Massachusetts corporate excise or franchise
taxes. Provided that the Fund qualifies as a regulated investment company under
the Code, it will also not be required to pay any Massachusetts income tax.
CALCULATION OF PERFORMANCE
For the 30-day period ended February 29, 1996, the annualized yields of the
Fund's Class A shares and Class B shares were 1.13% and 0.45%, respectively. As
of February 29, 1996, the average annual total returns of the Class A shares of
the Fund for the one, five and ten year periods were 26.44%, 11.50% and 11.06%,
respectively. As of February 29, 1996, the average annual returns for the Fund's
Class B shares for the one year period and since inception on August 22, 1991
were 27.19% and 11.00%, respectively.
The Fund's yield is computed by dividing net investment income per share
determined for a 30-day period by the maximum offering price per share (which
includes the full sales charge) on the last day of the period, according to the
following standard formula:
Yield = 2 [ (a-b + 1 ) 6 -1]
---
cd
Where:
a= dividends and interest earned during the period.
b= net expenses accrued during the period.
c= the average daily number of fund shares outstanding during the period
that would be entitled to receive dividends.
d= the maximum offering price per share on the last day of the period
(NAV where applicable).
53
<PAGE>
The Fund's total return is computed by finding the average annual
compounded rate of return over the 1-year, 5-year, and 10-year periods that
would equate the initial amount invested to the ending redeemable value
according to the following formula:
n _____
T = \ /ERV/P - 1
Where:
P = a hypothetical initial investment of $1,000.
T = average annual total return.
n = number of years.
ERV = ending redeemable value of a hypothetical $1,000 investment made at
the beginning of the 1 year, 5 year and life-of-fund periods.
In the case of Class A shares or Class B shares, this calculation assumes
the maximum sales charge is included in the initial investment or the CDSC is
applied at the end of the period. This calculation also assumes that all
dividends and distributions are reinvested at net asset value on the
reinvestment dates during the period. The "distribution rate" is determined by
annualizing the result of dividing the declared dividends of the Fund during the
period stated by the maximum offering price or net asset value at the end of the
period.
In addition to average annual total returns, the Fund may quote unaveraged
or cumulative total returns reflecting the simple change in value of an
investment over a stated period. Cumulative total returns may be quoted as a
percentage or as a dollar amount, and may be calculated for a single investment,
a series of investments, and/or a series of redemptions, over any time period.
Total returns may be quoted with or without taking the Fund's maximum sales
charge on Class A shares or the CDSC on Class B shares into account. Excluding
the Fund's sales charge on Class A shares and the CDSC on Class B shares from a
total return calculation produces a higher total return figure.
From time to time, in reports and promotional literature, the Fund's yield
and total return will be compared to indices of mutual funds and bank deposit
vehicles such as Lipper Analytical Services, Inc.'s "Lipper -- Fixed Income Fund
Performance Analysis," a monthly publication which tracks net assets, total
return, and yield on approximately 1,700 fixed income mutual funds in the United
States. Ibottson and Associates, CDA Weisenberger and F.C. Towers are also used
for comparison purposes, as well as the Russell and Wilshire Indices.
54
<PAGE>
Performance rankings and ratings reported periodically in national
financial publications such as MONEY Magazine, FORBES, BUSINESS WEEK, THE WALL
STREET JOURNAL, MICROPAL, INC., MORNINGSTAR, STANGER'S and BARRON'S, etc. will
also be utilized. The Fund's promotional and sales literature may make reference
to the Fund's "beta." Beta is a reflection of the market-related risk of the
Fund by showing how responsive the Fund is to the market.
The performance of the Fund is not fixed or guaranteed. Performance
quotations should not be considered to be representations of performance of the
Fund for any period in the future. The performance of the Fund is a function of
many factors including its earnings, expenses and number of outstanding shares.
Fluctuating market conditions; purchases, sales and maturities of portfolio
securities; sales and redemptions of shares of beneficial interest; and changes
in operating expenses are all examples of items that can increase or decrease
the Fund's performance.
BROKERAGE ALLOCATION
Decisions concerning the purchase and sale of portfolio securities and the
allocation of brokerage commissions are made by the Adviser and officers of the
Fund pursuant to recommendations made by its investment committee, which
consists of officers and Trustees of the Adviser and affiliates and officers and
Trustees who are interested persons of the Fund. Orders for purchases and sales
of securities are placed in a manner which, in the opinion of the Adviser, will
offer the best price and market for the execution of each such transaction.
Purchases from underwriters of portfolio securities may include a commission or
commissions paid by the issuer and transactions with dealers serving as market
makers reflect a "spread." Investments in debt securities are generally traded
on a net basis through dealers acting for their own account as principals and
not as brokers; no brokerage commissions are payable on such transactions.
The Fund's primary policy is to execute all purchases and sales of
portfolio instruments at the most favorable prices consistent with best
execution, considering all of the costs of the transaction including brokerage
commissions. This policy governs the selection of brokers and dealers and the
market in which a transaction is executed. Consistent with the foregoing primary
policy, the Rules of Fair Practice of the NASD and other policies that the
Trustees may determine, the Adviser may consider sales of shares of the Fund as
a factor in the selection of broker-dealers to execute the Fund's portfolio
transactions.
To the extent consistent with the foregoing, the Fund will be governed in
the selection of brokers and dealers, and the negotiation of brokerage
commission rates and dealer spreads, by the reliability and quality of the
services, including primarily the availability and value of research information
and to a lesser extent statistical assistance furnished to the Adviser of the
55
<PAGE>
Fund, and their value and expected contribution to the performance of the Fund.
It is not possible to place a dollar value on information and services to be
received from brokers and dealers, since it is only supplementary to the
research efforts of the Adviser. The receipt of research information is not
expected to reduce significantly the expenses of the Adviser. The research
information and statistical assistance furnished by brokers and dealers may
benefit the Life Company or other advisory clients of the Adviser, and
conversely, brokerage commissions and spreads paid by other advisory clients of
the Adviser may result in research information and statistical assistance
beneficial to the Fund. The Fund will make no commitments to allocate portfolio
transactions upon any prescribed basis. While the Fund's officers will be
primarily responsible for the allocation of the Fund's brokerage business, their
policies and practices in this regard must be consistent with the foregoing and
will at all times be subject to review by the Trustees. For the fiscal years
ended August 31, 1995, 1994 and 1993, the aggregate dollar amount of brokerage
commissions paid were $1,135,806, $373,133 and $369,686, respectively.
As permitted by Section 28(e) of the Securities Exchange Act of 1934, the
Fund may pay to a broker which provides brokerage and research services to the
Fund an amount of disclosed commission in excess of the commission which another
broker would have charged for effecting that transaction. This practice is
subject to a good faith determination by the Trustees that the price is
reasonable in light of the services provided and to policies that the Trustees
may adopt from time to time. During the fiscal year ended August 31, 1995, the
Fund did not pay commissions as compensation to any brokers for research
services such as industry, economic and company reviews and evaluations of
securities.
The Adviser's indirect parent, the Life Company, is the indirect sole
shareholder of John Hancock Distributors, Inc. ("Distributors"), a
broker-dealer, and John Hancock Freedom Securities Corporation and its two
subsidiaries, Tucker Anthony Incorporated ("Tucker Anthony") and Sutro &
Company, Inc. ("Sutro") (each are "Affiliated Brokers"). Pursuant to procedures
determined by the Trustees and consistent with the above policy of obtaining
best net results, the Fund may execute portfolio transactions with or through
Tucker Anthony, Sutro or John Hancock Distributors. During the year ended August
31, 1995, the Fund did not execute any portfolio transactions with then
affiliated brokers.
Any of the Affiliated Brokers may act as broker for the Fund on exchange
transactions, subject, however, to the general policy of the Fund set forth
above and the procedures adopted by the Trustees pursuant to the 1940 Act.
Commissions paid to an Affiliated Broker must be at least as favorable as those
which the Trustees believe to be contemporaneously charged by other brokers in
connection with comparable transactions involving similar securities being
purchased or sold. A transaction would not be placed with an Affiliated Broker
if the Fund would have to pay a commission rate less favorable than the
56
<PAGE>
Affiliated Broker's contemporaneous charges for comparable transactions for its
other most favored, but unaffiliated, customers, except for accounts for which
the Affiliated Broker acts as a clearing broker for another brokerage firm, and
any customers of the Affiliated Broker not comparable to the Fund as determined
by a majority of the Trustees who are not interested persons (as defined in the
1940 Act) of the Fund, the Adviser or the Affiliated Brokers. Because the
Adviser, which is affiliated with the Affiliated Brokers, has, as an investment
adviser to the Fund, the obligation to provide investment management services,
which includes elements of research and related investment skills, such research
and related skills will not be used by the Affiliated Brokers as a basis for
negotiating commissions at a rate higher than that determined in accordance with
the above criteria. The Fund will not effect principal transactions with
Affiliated Brokers. The Fund may, however, purchase securities from other
members of underwriting syndicates of which Tucker Anthony, Sutro and John
Hancock Distributors are members, but only in accordance with the policy set
forth above and procedures adopted and reviewed periodically by the Trustees.
The Fund's portfolio turnover rates for the fiscal years ended August 31, 1994
and 1995 were 195% and 99%, respectively. The Fund's relatively high portfolio
turnover rate was due to changes in asset allocation between U.S. Treasury
securities cash equivalents and GNMA certificates. These changes reflected the
portfolio managers' changing assessment of market conditions and expectations in
interest rate movements.
In order to avoid conflicts with portfolio trades for the Fund, the Adviser
and the Fund have adopted extensive restrictions on personal securities trading
by personnel of the Adviser and its affiliates. Some of these restrictions are:
pre- clearance for all personal trades and a ban on the purchase of initial
public offerings, as well as contributions to specified charities of profits on
securities held for less than 91 days. These restrictions are a continuation of
the basic principle that the interests of the Fund and its shareholders come
first.
TRANSFER AGENT SERVICES
John Hancock Investor Services Corporation, P.O. Box 9116, Boston, MA
02205- 9116, a wholly owned indirect subsidiary of the Life Company, is the
transfer and dividend paying agent for the Fund. The Fund pays an annual fee of
$16.00 for each Class A shareholder and $18.50 for each Class B shareholder plus
certain out-of- pocket expenses. These expenses are aggregated and charged to
the Fund and allocated to each class on the basis of their relative net asset
values.
CUSTODY OF PORTFOLIO
Portfolio securities of the Fund are held pursuant to a custodian agreement
between the Fund and Investors Bank & Trust Company ("IBT"), 24 Federal Street,
57
<PAGE>
Boston, Massachusetts. Under the custodian agreement, IBT performs custody,
portfolio and fund accounting services.
INDEPENDENT AUDITORS
Ernst & Young LLP, 200 Clarendon Street, Boston, Massachusetts 02116, has
been selected as the independent auditors of the Fund. The financial statements
of the Fund for each of the years in the period ended August 31, 1995 in the
Prospectus and this Statement of Additional Information have been audited by
Ernst & Young LLP for the periods indicated in their report thereon appearing
elsewhere herein, and are included in reliance upon such report given upon the
authority of such firm as experts in accounting and auditing.
58
<PAGE>
APPENDIX A
Description of Bond Ratings
The ratings of Moody's Investors Service, Inc. and Standard & Poor's Ratings
Group represent their opinions as to the quality of various debt instruments
they undertake to rate. It should be emphasized that ratings are not absolute
standards of quality. Consequently, debt instruments with the same maturity,
coupon and rating may have different yields while debt instruments of the same
maturity and coupon with different ratings may have the same yield.
MOODY'S INVESTORS SERVICE, INC.
Aaa: Bonds which are rated Aaa are judged to be of the best quality. They carry
the smallest degree of investment risk and are generally referred to as "gilt
edge." Interest payments are protected by a large or by an exceptionally stable
margin and principal is secure. While the various protective elements are likely
to change, such changes as can be visualized are most unlikely to impair the
fundamentally strong position of such issues.
Aa: Bonds which are rated Aa are judged to be of high quality by all standards.
Together with the Aaa group they comprise what are generally known as high grade
bonds. They are rated lower than the best bonds because margins of protection
may not be as large as in Aaa securities or fluctuations of protective elements
may be of greater amplitude or there may be other elements present which make
the long-term risks appear somewhat larger than in Aaa securities.
A: Bonds which are rated A possess many favorable investment attributes and are
to be considered as upper medium grade obligations. Factors giving security to
principal and interest are considered adequate but elements may be present which
suggest a susceptibility to impairment at some time in the future.
Baa: Bonds which are rated Baa are considered as medium grade obligations, i.e.,
they are neither highly protected nor poorly secured. Interest payments and
principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and in
fact have speculative characteristics as well.
Ba: Bonds which are rated Ba are judged to have speculative elements; their
future cannot be considered as well assured. Often the protection of interest
and principal payments may be very moderate and thereby not well safeguarded
59
<PAGE>
during both good and bad times over the future. Uncertainty of position
characterizes bonds in this class.
B: Bonds which are rated B generally lack the characteristics of desirable
investment. Assurance of interest and principal payments or of maintenance of
other terms of the contract over any long period of time may be small.
STANDARD & POOR'S RATINGS GROUP
AAA: Debt rated AAA has the highest rating assigned by Standard & Poor's.
Capacity to pay interest and repay principal is extremely strong.
AA: Debt rated AA has a very strong capacity to pay interest and repay principal
and differs from the highest rated issues only in small degree.
A: Debt rated A has a strong capacity to pay interest and repay principal,
although it is somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions than debt in higher rated categories.
BBB: Debt rated BBB is regarded as having an adequate capacity to pay interest
and repay principal. Whereas it normally exhibits adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay interest and repay principal for
debt in this category than in higher rated categories.
BB, B: Debt rated BB, and B is regarded, on balance, as predominantly
speculative with respect to capacity to pay interest and repay principal in
accordance with the terms of the obligation. BB indicates the lowest degree of
speculation and CC the highest degree of speculation. While such debt will
likely have some quality and protective characteristics, these are outweighed by
large uncertainties or major risk exposures to adverse conditions.
60
<PAGE>
John Hancock Investment Trust
PART C.
OTHER INFORMATION
Item 24. Financial Statements and Exhibits
(a) The financial statements listed below are included in and incorporated
by reference into Part B of the Registration Statement from the 1995 Annual
Report to Shareholders for the year ended August 31, 1995 (filed electronically
on October 25, 1995; file nos. 811-0560 and 2-10156; accession number
0000950135-95-02208) and Semi-Annual Report to Shareholders for the period ended
February 29, 1996 (filed electronically on May 8, 1996; file nos. 811- 0560 and
2-10156; accession number 0000928816-96-000125).
John Hancock Growth & Income Fund
---------------------------------
Statement of Assets and Liabilities as of August 31, 1995.
Statement of Operations of the year ended August 31, 1995.
Statement of Changes in Net Asset for each of the two years ended
August 31, 1995.
Notes to Financial Statements.
Financial Highlights for each of the 10 years ended August 31, 1995.
Schedule of Investments as of August 31, 1995.
Statement of Assets and Liabilities as of February 29, 1996.
Statement of Operations of the year ended February 29, 1996.
Statement of Changes in net Asset for each of the two years ended
February 29, 1996.
Notes to Financial Statements.
Financial Highlights for each of the 10 years ended February 29, 1996.
Schedule of Investments as of February 29, 1996.
(b) Exhibits:
The exhibits to this Registration Statement are listed in the Exhibit Index
hereto and are incorporated herein by reference.
Item 25. Persons Controlled by or under Common Control with Registrant
No person is directly or indirectly controlled by or under common control
with Registrant.
Item 26. Number of Holders of Securities
As of May 31, 1996, the number of record holders of shares of the
Registrant was as follows:
Title of Class Number of Record Holders
Class A Shares - 12,533
Class B Shares - 12,848
Item 27. Indemnification
(a) Indemnification provisions relating to the Registrant's Trustees,
officers, employees and agents is set forth in Article VII of the Registrant's
By Laws included as Exhibit 2 herein.
(b) Under Section 12 of the Distribution Agreement, John Hancock Funds,
Inc. ("John Hancock Funds" ) has agreed to indemnify the Registrant and its
Trustees, officers and controlling persons against claims arising out of certain
acts and statements of John Hancock Funds.
C-1
<PAGE>
Section 9(a) of the By-Laws of John Hancock Mutual Life Insurance Company
"Insurance Company" provides, in effect, that the Insurance Company will,
subject to limitations of law, indemnify each present and former director,
officer and employee of the of the Insurance Company who serves as a Trustee or
officer of the Registrant at the direction or request of the Insurance Company
against litigation expenses and liabilities incurred while acting as such,
except that such indemnification does not cover any expense or liability
incurred or imposed in connection with any matter as to which such person shall
be finally adjudicated not to have acted in good faith in the reasonable belief
that his action was in the best interests of the Insurance Company. In addition,
no such person will be indemnified by the Insurance Company in respect of any
liability or expense incurred in connection with any matter settled without
final adjudication unless such settlement shall have been approved as in the
best interests of the Insurance Company either by vote of the Board of Directors
at a meeting composed of directors who have no interest in the outcome of such
vote, or by vote of the policyholders. The Insurance Company may pay expenses
incurred in defending an action or claim in advance of its final disposition,
but only upon receipt of an undertaking by the person indemnified to repay such
payment if he should be determined not to be entitled to indemnification.
Article IX of the respective By-Laws of John Hancock Funds and John Hancock
Advisers, Inc.("the Adviser") provide as follows:
"Section 9.01. Indemnity: Any person made or threatened to be made a party to
any action, suit or proceeding, whether civil, criminal, administrative or
investigative, by reason of the fact that he is or was at any time since the
inception of the Corporation a director, officer, employee or agent of the
corporation, or is or was at any time since the inception of the Corporation
serving at the request of the Corporation as a director, officer, employee or
agent of another corporation, partnership, joint venture, trust or other
enterprise, shall be indemnified by the Corporation against expenses (including
attorney's fees), judgments, fines and amounts paid in settlement actually and
reasonably incurred by him in connection with such action, suit or proceeding if
he acted in good faith and the liability was not incurred by reason of gross
negligence or reckless disregard of the duties involved in the conduct of his
office, and expenses in connection therewith may be advanced by the Corporation,
all to the full extent authorized by the law."
"Section 9.02. Not Exclusive; Survival of Rights: The indemnification provided
by Section 9.01 shall not be deemed exclusive of any other right to which those
indemnified may be entitled, and shall continue as to a person who has ceased to
be a director, officer, employee or agent and shall inure to the benefit of the
heirs, executors and administrators of such a person."
Insofar as indemnification for liabilities under the Securities Act of 1933 (the
"Act") may be permitted to Trustees, officers and controlling persons of the
Registrant pursuant to the Registrant's Declaration of Trust and By-Laws, the
Distribution Agreement, the By-Laws of John Hancock Funds, the Adviser, or the
Insurance Company or otherwise, the Registrant has been advised that in the
opinion of the Securities and Exchange Commission such indemnification is
against policy as expressed in the Act and is, therefore, unenforceable. In the
event that a claim for indemnification against such liabilities (other than the
payment by the Registrant in the successful defense of any action, suit or
proceeding) is asserted by such Trustee, officer or controlling person in
connection with the securities being registered, the Registrant will, unless in
C-2
<PAGE>
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether
indemnification by it is against public policy as expressed in the Act and will
be governed by the final adjudication of such issue.
Item 28. Business and Other Connections of Investment Advisers
For information as to the business, profession, vocation or employment of a
substantial nature of each of the officers and Directors of the Investment
Adviser, reference is made to Forms ADV (801-8124) filed under the Investment
Advisers Act of 1940, which is incorporated herein by reference.
Item 29. Principal Underwriters
(a) John Hancock Funds acts as principal underwriter for the Registrant and also
serves as principal underwriter or distributor of shares for John Hancock Cash
Reserve, Inc., John Hancock Bond Fund, John Hancock Current Interest, John
Hancock Series, Inc., John Hancock Tax-Free Bond Fund, John Hancock California
Tax-Free Income Fund, John Hancock Capital Series, John Hancock Limited Term
Government Fund, John Hancock Sovereign Investors Fund, Inc., John Hancock
Special Equities Fund, John Hancock Sovereign Bond Fund, John Hancock Tax-Exempt
Series, John Hancock Strategic Series, John Hancock Technology Series, Inc.,
John Hancock World Fund, John Hancock Investment Trust, John Hancock
Institutional Series Trust, Freedom Investment Trust, Freedom Investment Trust
II and Freedom Investment Trust III.
(b) The following table lists, for each director and officer of John Hancock
Funds, the information indicated.
C-3
<PAGE>
<TABLE>
<CAPTION>
Name and Principal Positions and Offices Positions and Offices
Business Address with Underwriter with Registrant
---------------- ---------------- ---------------
<S> <C> <C>
Edward J. Boudreau, Jr. Director, Chairman, President and Trustee, Chairman and Chief
101 Huntington Avenue Chief Executive Officer Executive Officer
Boston, Massachusetts
Robert H. Watts Director, Executive Vice None
John Hancock Place President and Chief Compliance
P.O. Box 111 Officer
Boston, Massachusetts
Robert G. Freedman Director Chairman and Chief
101 Huntington Avenue Investment Officer
Boston, Massachusetts
Stephen M. Blair Executive Vice President None
101 Huntington Avenue
Boston, Massachusetts
Thomas H. Drohan Senior Vice President Senior Vice President and
101 Huntington Avenue Secretary
Boston, Massachusetts
James W. McLaughlin Senior Vice President None
101 Huntington Avenue and
Boston, Massachusetts Chief Financial Officer
David A. King Director None
101 Huntington Avenue
Boston, Massachusetts
James B. Little Senior Vice President Senior Vice President and
101 Huntington Avenue Chief Financial Officer
Boston, Massachusetts
C-4
<PAGE>
Name and Principal Positions and Offices Positions and Offices
Business Address with Underwriter with Registrant
---------------- ---------------- ---------------
William S. Nichols Senior Vice President None
101 Huntington Avenue
Boston, Massachusetts
John A. Morin Vice President and Secretary Vice President
101 Huntington Avenue
Boston, Massachusetts
Susan S. Newton Vice President Vice President
101 Huntington Avenue and Compliance Officer
Boston, Massachusetts
Christopher M. Meyer Second Vice President and None
101 Huntington Avenue Treasurer
Boston, Massachusetts
Stephen L. Brown Director None
John Hancock Place
P.O. Box 111
Boston, Massachusetts
Thomas E. Moloney Director None
John Hancock Place
P.O. Box 111
Boston, Massachusetts
Jeanne M. Livermore Director None
John Hancock Place
P.O. Box 111
Boston, Massachusetts
Richard S. Scipione Director Trustee
John Hancock Place
P.O. Box 111
Boston, Massachusetts
John Goldsmith Director None
John Hancock Place
P.O. Box 111
Boston, Massachusetts
C-5
<PAGE>
Name and Principal Positions and Offices Positions and Offices
Business Address with Underwriter with Registrant
---------------- ---------------- ---------------
Richard O. Hansen Director None
John Hancock Place
P.O. Box 111
Boston, Massachusetts
John M. DeCiccio Director None
John Hancock Place
P.O. Box 111
Boston, Massachusetts
Foster L. Aborn Director None
John Hancock Place
P.O. Box 111
Boston, Massachusetts
David F. D'Alessandro Director None
John Hancock Place
P.O. Box 111
Boston, Massachusetts
William C. Fletcher Director None
53 State Street
Boston, Massachusetts
James V. Bowhers Executive Vice President None
101 Huntington avenue
Boston, Massachusetts
Michael T. Carpenter Senior Vice President None
1000 Louisiana Street
Houston, Texas
Anthony P. Petrucci Senior Vice President None
101 Huntington Avenue
Boston, Massachusetts
Charles H. Womack Senior Vice President None
6501 Americas Parkway
Suite 950
Albuquerque, New Mexico
Keith Harstein Vice President None
101 Huntington Avenue
Boston, Massachusetts
C-6
<PAGE>
Name and Principal Positions and Offices Positions and Offices
Business Address with Underwriter with Registrant
---------------- ---------------- ---------------
Griselda Lyman Vice President None
101 Huntington Avenue
Boston, Massachusetts
</TABLE>
(c) None.
Item 30. Location of Accounts and Records
Registrant maintains the records required to be maintained by it under
Rules 31a-1 (a), 31a-1(b), and 31a-2(a) under the Investment Company Act of
1940 at its principal executive offices at 101 Huntington Avenue, Boston
Massachusetts 02199-7603. Certain records, including records relating to
the Registrant's shareholders and the physical possession of its
securities, may be maintained pursuant to Rule 31a-3 at the main offices of
the Registrant's Transfer Agent and Custodian.
Item 31. Management Services
Not applicable.
Item 32. Undertakings
(a) Not Applicable
(b) Not Applicable
(c) The Registrant hereby undertakes to furnish each person to whom a
prospectus with respect to a series of the Registrant is delivered with a
copy of the latest annual report to shareholders with respect to that
series upon request and without charge.
(d) The Registrant undertakes to comply with Section 16(c) of the
Investment Company Act of 1940, as amended which relates to the assistance
to be rendered to shareholders by the Trustees of the Registrant in calling
a meeting of shareholders for the purpose of voting upon the question of
the removal of a trustee.
C-7
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant and has duly caused this
Registration Statement to be signed on its behalf by the undersigned, thereto
duly authorized, in the City of Boston and The Commonwealth of Massachusetts on
the 24th day of June, 1996.
JOHN HANCOCK INVESTMENT TRUST
By: *
Edward J. Boudreau, Jr.
Chairman and Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, the
Registration Statement has been signed below by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
* Chairman and Chief Executive
Edward J. Boudreau, Jr. Officer (Principal Executive Officer)
/s/ James B. Little
- ------------------------
James B. Little Senior Vice President and Chief June 24, 1996
Financial Officer (Principal
Financial and Accounting Officer)
* Trustee
James F. Carlin
* Trustee
William H. Cunningham
*
Charles F. Fretz Trustee
*
Harold R. Hiser, Jr. Trustee
Trustee
Anne C. Hodsdon
* Trustee
Charles L. Ladner
C-8
<PAGE>
Signature Title Date
--------- ----- ----
* Trustee
Leo E. Linbeck, Jr.
* Trustee
Patricia P. McCarter
* Trustee
Steven R. Pruchansky
* Trustee
Norman H. Smith
* Trustee
Richard S. Scipione
* Trustee
John P. Toolan
*By: /s/ Thomas H. Drohan June 24, 1996
--------------------
Thomas H. Drohan,
Attorney-in-Fact
</TABLE>
C-9
<PAGE>
Index to Exhibits
Exhibit No. Description
99.B1 Declaration of Trust dated December 12, 1984.**
99.B1.1 Amendment to Declaration of Trust dated September 16, 1986.**
99.B1.2 Amendment to Declaration of Trusst dated June 14, 1989.**
99.B1.3 Amendment to Declaration of Trust dated June 5, 1991.**
99.B1.4 Amendment to Declaration of Trust dated December 16, 1994.**
99.B1.5 Amendment to Declaration of Trust dated September 11, 1995.**
99.B2 By-Laws*
99.B3 Not Applicable.
99.B4 Form of Class A Share and Class B Share Certificates for
Growth and Income Fund.**
99.B5 Investment Advisory Agreement between John Hancock Advisers,
Inc. and the Registrant on behalf of Growth and Income Fund.*
99.B5.1 Amended and Restated Administrative Service Agreement among
Transamerica Fund Management Company, Transamerica Funds
Distributor, Inc., and the Registrant on behalf of Growth and
Income Fund.*
99.B6 Distribution Agreement between the Registrant and John
Hancock Broker Distribution Services, Inc.*
99.B6.1 Form of Soliciting Dealer Agreement between John Hancock
Funds, Inc. and the John Hancock funds.*
99.B6.2 Form of Financial Distribution Sales and Services Agreement
between John Hancock Funds, Inc. and the John Hancock funds.*
C-10
<PAGE>
Exhibit No. Description
99.B7 Not Applicable.
99.B8 Master Custodian Agreement between the John Hancock Funds and
Investors Bank & Trust company.*
99.B9 Transfer Agency Agreement between John Hancock Investor
Services Corporation and the John Hancock funds.*
99.B10 None
99.B11 Consent of Independent Auditors.+
99.B12 Not Applicable.
99.B13 Not Applicable.
99.B14 Not Applicable.
99.B15 Rule 12b-1 Plan (Class A Shares).
(i) Growth and Income Fund *
99.B15.1 Rule 12b-1 Plan (Class B Shares).
(i) Growth and Income Fund *
99.B16 Schedule for computation of each performance quotation
provided in the Registration Statement.**
27.1 Class A Annual+
27.2 Class B Annual+
27.3 Class A Semi-Annual+
27.4 Class B Semi-Annual+
* Previously filed with post-effective amendment number 73 (file nos.
811-0560; 2-10156) on May 10, 1995, accession number 0000950135-95-001122.
** Previously filed electronically with post-effective amendment number 74
(file nos. 811-0560 and 2-10156) on December 26, 1996, accession number
0000950135-95-002738.
+ File herewith.
C-11
CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
We consent to the references to our firm under the captions "Financial
Highlights" for Growth and Income Fund in the John Hancock Growth and Income
Funds Prospectus and "Independent Auditors" in the John Hancock Growth and
Income Fund Class A and Class B Shares Statement of Additional Information and
to the use of our report on the financial statements and financial highlights of
the John Hancock Growth and Income Fund dated October 16, 1995, in this
Post-Effective Amendment Number 75 to Registration Statement (Form N-1A
No.2-10156) dated August 30, 1996.
/s/ERNST & YOUNG LLP
ERNST & YOUNG LLP
Boston, Massachusetts
June 20, 1996
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 011
<NAME> JOHN HANCOCK GROWTH AND INCOME FUND - A
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> AUG-31-1995
<PERIOD-START> SEP-07-1994
<PERIOD-END> AUG-31-1995
<INVESTMENTS-AT-COST> 195,826,755
<INVESTMENTS-AT-VALUE> 242,754,625
<RECEIVABLES> 3,206,997
<ASSETS-OTHER> 78,709
<OTHER-ITEMS-ASSETS> 46,927,870
<TOTAL-ASSETS> 246,040,331
<PAYABLE-FOR-SECURITIES> 818,580
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 316,283
<TOTAL-LIABILITIES> 1,134,863
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 196,913,679
<SHARES-COMMON-STOCK> 9,726,172
<SHARES-COMMON-PRIOR> 10,608,098
<ACCUMULATED-NII-CURRENT> 503,632
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 560,287
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 46,927,870
<NET-ASSETS> 244,905,468
<DIVIDEND-INCOME> 7,063,204
<INTEREST-INCOME> 129,942
<OTHER-INCOME> 0
<EXPENSES-NET> 3,804,830
<NET-INVESTMENT-INCOME> 3,388,316
<REALIZED-GAINS-CURRENT> 6,147,562
<APPREC-INCREASE-CURRENT> 30,850,499
<NET-CHANGE-FROM-OPS> 40,386,377
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 2,080,993
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 1,688,091
<NUMBER-OF-SHARES-REDEEMED> 2,719,043
<SHARES-REINVESTED> 149,026
<NET-CHANGE-IN-ASSETS> 9,720,115
<ACCUMULATED-NII-PRIOR> 310,216
<ACCUMULATED-GAINS-PRIOR> (5,587,275)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 1,441,081
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 3,804,830
<AVERAGE-NET-ASSETS> 120,482,217
<PER-SHARE-NAV-BEGIN> 11.42
<PER-SHARE-NII> 0.21
<PER-SHARE-GAIN-APPREC> 1.95
<PER-SHARE-DIVIDEND> 0.20
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 13.38
<EXPENSE-RATIO> 1.30
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 012
<NAME> JOHN HANCOCK GROWTH AND INCOME FUND - B
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> AUG-31-1995
<PERIOD-START> SEP-01-1994
<PERIOD-END> AUG-31-1995
<INVESTMENTS-AT-COST> 195,826,755
<INVESTMENTS-AT-VALUE> 242,754,625
<RECEIVABLES> 3,206,997
<ASSETS-OTHER> 78,709
<OTHER-ITEMS-ASSETS> 46,927,870
<TOTAL-ASSETS> 246,040,331
<PAYABLE-FOR-SECURITIES> 818,580
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 316,283
<TOTAL-LIABILITIES> 1,134,863
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 196,913,679
<SHARES-COMMON-STOCK> 8,554,156
<SHARES-COMMON-PRIOR> 9,965,870
<ACCUMULATED-NII-CURRENT> 503,632
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 560,287
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 46,927,870
<NET-ASSETS> 244,905,468
<DIVIDEND-INCOME> 7,063,204
<INTEREST-INCOME> 129,942
<OTHER-INCOME> 0
<EXPENSES-NET> 3,804,830
<NET-INVESTMENT-INCOME> 3,388,316
<REALIZED-GAINS-CURRENT> 6,147,562
<APPREC-INCREASE-CURRENT> 30,850,499
<NET-CHANGE-FROM-OPS> 40,386,377
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 1,113,907
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 1,972,798
<NUMBER-OF-SHARES-REDEEMED> 3,464,943
<SHARES-REINVESTED> 80,431
<NET-CHANGE-IN-ASSETS> 9,720,115
<ACCUMULATED-NII-PRIOR> 310,216
<ACCUMULATED-GAINS-PRIOR> (5,587,275)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 1,441,081
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 3,804,830
<AVERAGE-NET-ASSETS> 110,090,656
<PER-SHARE-NAV-BEGIN> 11.44
<PER-SHARE-NII> 0.13
<PER-SHARE-GAIN-APPREC> 1.96
<PER-SHARE-DIVIDEND> 0.12
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 13.41
<EXPENSE-RATIO> 2.03
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 011
<NAME> JOHN HANCOCK GROWTH AND INCOME FUND - A
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> AUG-31-1996
<PERIOD-START> SEP-01-1995
<PERIOD-END> FEB-29-1996
<INVESTMENTS-AT-COST> 199,438,717
<INVESTMENTS-AT-VALUE> 259,534,625
<RECEIVABLES> 1,699,303
<ASSETS-OTHER> 38,374
<OTHER-ITEMS-ASSETS> 60,095,908
<TOTAL-ASSETS> 261,272,302
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 380,849
<TOTAL-LIABILITIES> 380,849
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 187,609,921
<SHARES-COMMON-STOCK> 9,184,133
<SHARES-COMMON-PRIOR> 9,726,172
<ACCUMULATED-NII-CURRENT> 487,976
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 12,697,648
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 60,095,908
<NET-ASSETS> 260,891,453
<DIVIDEND-INCOME> 3,431,530
<INTEREST-INCOME> 46,749
<OTHER-INCOME> 0
<EXPENSES-NET> 1,883,310
<NET-INVESTMENT-INCOME> 1,594,969
<REALIZED-GAINS-CURRENT> 14,677,111
<APPREC-INCREASE-CURRENT> 13,168,038
<NET-CHANGE-FROM-OPS> 29,440,118
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 1,048,412
<DISTRIBUTIONS-OF-GAINS> 1,309,129
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 706,060
<NUMBER-OF-SHARES-REDEEMED> 1,391,963
<SHARES-REINVESTED> 143,864
<NET-CHANGE-IN-ASSETS> 15,985,985
<ACCUMULATED-NII-PRIOR> 503,632
<ACCUMULATED-GAINS-PRIOR> 560,287
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 784,170
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 1,883,310
<AVERAGE-NET-ASSETS> 132,549,447
<PER-SHARE-NAV-BEGIN> 13.38
<PER-SHARE-NII> 0.11
<PER-SHARE-GAIN-APPREC> 1.56
<PER-SHARE-DIVIDEND> 0.11
<PER-SHARE-DISTRIBUTIONS> 0.15
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 14.79
<EXPENSE-RATIO> 1.16
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 012
<NAME> JOHN HANCOCK GROWTH AND INCOME FUND - B
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> AUG-31-1996
<PERIOD-START> SEP-01-1995
<PERIOD-END> FEB-29-1996
<INVESTMENTS-AT-COST> 199,438,717
<INVESTMENTS-AT-VALUE> 259,534,625
<RECEIVABLES> 1,699,303
<ASSETS-OTHER> 38,374
<OTHER-ITEMS-ASSETS> 60,095,908
<TOTAL-ASSETS> 261,272,302
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 380,849
<TOTAL-LIABILITIES> 380,849
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 187,609,921
<SHARES-COMMON-STOCK> 8,442,063
<SHARES-COMMON-PRIOR> 8,554,156
<ACCUMULATED-NII-CURRENT> 487,976
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 12,697,648
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 60,095,908
<NET-ASSETS> 260,891,453
<DIVIDEND-INCOME> 3,431,530
<INTEREST-INCOME> 46,749
<OTHER-INCOME> 0
<EXPENSES-NET> 1,883,310
<NET-INVESTMENT-INCOME> 1,594,969
<REALIZED-GAINS-CURRENT> 14,677,111
<APPREC-INCREASE-CURRENT> 13,168,038
<NET-CHANGE-FROM-OPS> 29,440,118
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 562,213
<DISTRIBUTIONS-OF-GAINS> 1,230,621
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 1,348,805
<NUMBER-OF-SHARES-REDEEMED> 1,567,571
<SHARES-REINVESTED> 111,673
<NET-CHANGE-IN-ASSETS> 15,985,985
<ACCUMULATED-NII-PRIOR> 503,632
<ACCUMULATED-GAINS-PRIOR> 560,287
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 784,170
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 1,883,310
<AVERAGE-NET-ASSETS> 119,763,763
<PER-SHARE-NAV-BEGIN> 13.41
<PER-SHARE-NII> 0.07
<PER-SHARE-GAIN-APPREC> 1.56
<PER-SHARE-DIVIDEND> 0.07
<PER-SHARE-DISTRIBUTIONS> 0.15
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 14.82
<EXPENSE-RATIO> 1.87
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
