FILE NO. 2-10156
FILE NO. 811-0560
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-1A
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REGISTRATION STATEMENT UNDER
THE SECURITIES ACT OF 1933 (X)
Pre-Effective Amendment No. ( )
Post-Effective Amendment No. 76 (X)
REGISTRATION STATEMENT UNDER
THE INVESTMENT COMPANY ACT OF 1940 (X)
Amendment No. 28 (X)
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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
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SUSAN S. NEWTON
Vice President and Secretary
John Hancock Advisers, Inc.
101 Huntington Avenue
Boston, Massachusetts 02199
(Name and Address of Agent for Service)
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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 December 2, 1996 pursuant to paragraph (a) of Rule 485
PURSUANT TO FULE 24F-2 UNDER THE INVESTMENT COMPANY ACT OF 1940, THE REGISTRANT
HAS REGISTERED AN INDEFINITE NUMBER OF SECURITIES UNDER THE SECURITIES ACT OF
1933. THE REGISTRANT FILED THE NOTICE REQUIRED BY RULE 24F-2 FOR THE MOST RECENT
FISCAL YEAR OF JOHN HANCOCK GROWTH & INCOME FUND ON OR ABOUT OCTOBER 23, 1995.
THE REGISTRANT HAS FILED THE NOTICE REQUIRED BY RULE 24F-2 FOR THE MOST RECENT
FISCAL YEAR OF JOHN HANCOCK SOVEREIGN INVESTORS FUND AND JOHN HANCOCK SOVEREIGN
BALANCED FUND ON OR ABOUT FEBRUARY 26, 1996.
<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED PROSPECTUS
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 SOVEREIGN INVESTORS -
CLASS C PROSPECTUS
CROSS
REFERENCE SHEET
<TABLE>
<CAPTION>
Item Number Statement of Additional
Form N-1A Part A Prospectus Caption Information Caption
- ---------------- ------------------ -------------------
<S> <C> <C>
1 Front Cover Page *
2 Expense Information; *
The Fund's Expenses; Share Price
3 The Fund's Financial Highlights; *
Performance
4 Investment Objective and Policies; *
Organization and Management of the Fund
5 Organization and Management of the Fund; *
The Fund's Expenses; Back Cover Page
6 Organization and Management of the Fund; *
Dividends and Taxes;
How to Buy Shares; How to Redeem Shares;
Additional Services and Programs
7 How to Buy Shares; *
Share Price; Additional Services and
Programs; Alternative Purchase
Arrangements; The Fund's Expenses; Back
Cover
Page
8 How to Redeem Shares *
9 Not Applicable *
<PAGE>
Item Number Statement of Additional
Form N-1A Part A Prospectus Caption Information Caption
- ---------------- ------------------ -------------------
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 and Other
Services;
Distribution Contracts;
Transfer Agent Services;
Custody of Portfolio;
Independent Auditors
17 * Brokerage Allocation
18 * Description of the 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 PROSPECTUS SUPPLEMENT
Effective December 2, 1996, for John Hancock Sovereign Balanced Fund and John
Hancock Sovereign Investors Fund, the Registrant name is John Hancock Investment
Trust. For John Hancock Sovereign Balanced Fund, John Hancock Sovereign
Investors Fund and John Hancock Growth and Income Fund, the date of the John
Hancock Growth and Income Funds prospectus is December 2, 1996.
John Hancock Sovereign Balanced Fund
<TABLE>
<CAPTION>
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CLASS A - YEAR ENDED DECEMBER 31, 1992(1) 1993 1994 1995 1996(9)
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<S> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
Net asset value, beginning of period $ 10.00 $ 10.19 $ 10.74 $ 9.84 $ 11.75
Net investment income (loss) 0.04 0.46 0.50 0.44(2) 0.21
Net realized and unrealized gain (loss) on investments 0.20 0.68 (0.88) 1.91 0.41
Total from investment operations 0.24 1.14 (0.38) 2.35 0.62
Less distributions:
Dividends from net investment income (0.05) (0.45) (0.50) (0.44) (0.21)
Distributions from net realized gain on investments sold -- (0.14) (0.02) -- --
Total distributions (0.05) (0.59) (0.52) (0.44) (0.21)
Net asset value, end of period $ 10.19 $ 10.74 $ 9.84 $ 11.75 $ 12.16
TOTAL INVESTMENT RETURN AT NET ASSET VALUE(3) (%) 2.37(4) 11.38 (3.51) 24.23 5.31(4)
Total adjusted investment return at net asset value(3,5) (%) 2.22(4) -- -- -- --
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period (000s omitted) ($) 5,796 62,218 61,952 69,811 70,458
Ratio of expenses to average net assets (%) 2.79(6) 1.45 1.23 1.27 1.27(6)
Ratio of adjusted expenses to average net assets(7) (%) 2.94(6) -- -- -- --
Ratio of net investment income (loss) to average net assets (%) 3.93(6) 4.44 4.89 3.99 3.48(6)
Ratio of adjusted net investment income (loss) to average
net assets(7) (%) 3.78(6) -- -- -- --
Portfolio turnover rate (%) 0 85 78 45 15
Fee reduction per share ($) 0.0016 N/A N/A N/A N/A
Average brokerage commission rate(8) ($) N/A N/A N/A N/A 0.07
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CLASS B - YEAR ENDED DECEMBER 31, 1992(1) 1993 1994 1995 1996
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PER SHARE OPERATING PERFORMANCE
Net asset value, beginning of period $ 10.00 $ 10.20 $ 10.75 $ 9.84 $ 11.74
Net investment income (loss) 0.03 0.37 0.43 0.36(2) 0.17
Net realized and unrealized gain (loss) on investments 0.20 0.70 (0.89) 1.90 0.42
Total from investment operations 0.23 1.07 (0.46) 2.26 0.59
Less distributions:
Dividends from net investment income (0.03) (0.38) (0.43) (0.36) (0.17)
Distributions from net realized gain on investments sold -- (0.14) (0.02) -- --
Total distributions (0.03) (0.52) (0.45) (0.36) (0.17)
Net asset value, end of period $ 10.20 $ 10.75 $9.84 $11.74 $ 12.16
TOTAL INVESTMENT RETURN AT NET ASSET VALUE(3) (%) 2.29(4) 10.63 (4.22) 23.30 5.04(4)
Total adjusted investment return at net asset value(3,5) (%) 2.14(4) -- -- -- --
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period (000s omitted) ($) 14,311 78,775 79,176 87,827 88,344
Ratio of expenses to average net assets (%) 3.51(6) 2.10 1.87 1.96 1.97(6)
Ratio of adjusted expenses to average net assets(7) (%) 3.66(6) -- -- -- --
Ratio of net investment income (loss) to average net assets (%) 3.21(6) 4.01 4.25 3.31 2.78(6)
Ratio of adjusted net investment income (loss) to average
net assets(7) (%) 3.06(6) -- -- -- --
Portfolio turnover rate (%) 0 85 78 45 15
Fee reduction per share ($) 0.0012 -- -- -- --
Average brokerage commission rate(8) ($) N/A N/A N/A N/A 0.07
(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) 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) An estimated total return calculation that does not take into consideration
fee reductions by the adviser during the periods shown.
(6) Annualized.
(7) Unreimbursed, without fee reduction.
(8) Per portfolio share traded. Required for fiscal years that began September
1, 1995 or later.
(9) Six months ended June 30, 1996.(Unaudited)
</TABLE>
December 2, 1996
<PAGE>
John Hancock Sovereign Investors Fund
<TABLE>
<CAPTION>
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CLASS A - YEAR ENDED DECEMBER 31, 1986(1,2) 1987(1) 1988(1) 1989(1) 1990(1) 1991(1,3) 1992(1) 1993 1994
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <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 $15.10
Net investment income (loss) 0.58 0.53 0.57 0.59 0.58 0.54 0.47 0.44 0.46
Net realized and unrealized gain (loss)
on investments 1.89 (0.45) 0.65 2.01 (0.05) 3.03 0.54 0.39 (0.75)
Total from investment operations 2.47 0.08 1.22 2.60 0.53 3.57 1.01 0.83 (0.29)
Less distributions:
Dividends from net investment income (0.55) (0.58) (0.61) (0.61) (0.59) (0.53) (0.45) (0.42) (0.46)
Distributions from net realized gain
on investments sold (0.87) (0.90) (0.38) (0.58) (0.60) (0.67) (0.09) (0.09) (0.11)
Total distributions (1.42) (1.48) (0.99) (1.19) (1.19) (1.20) (0.54) (0.51) (0.57)
Net asset value, end of period $12.36 $10.96 $11.19 $12.60 $11.94 $14.31 $14.78 $15.10 $14.24
TOTAL INVESTMENT RETURN AT NET
ASSET VALUE(4) (%) 21.70 0.28 11.23 23.76 4.38 30.48 7.23 5.71 (1.85)
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period
(000s omitted) ($) 34,708 40,564 45,861 66,466 83,470 194,055 872,932 1,258,575 1,090,231
Ratio of expenses to average
net assets (%) 0.70 0.85 0.86 1.07 1.14 1.18 1.13 1.10 1.16
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 3.13
Portfolio turnover rate (%) 34 59 35 40 55 67 30 46 45
Average brokerage commission rate(5) ($) N/A N/A N/A N/A N/A N/A N/A N/A N/A
<CAPTION>
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CLASS A - YEAR ENDED DECEMBER 31, 1995 1996(10)
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PER SHARE OPERATING PERFORMANCE
Net asset value, beginning of period $14.24 $17.87
Net investment income (loss) 0.40 0.17
Net realized and unrealized gain (loss)
on investments 3.71 1.43
Total from investment operations 4.11 1.60
Less distributions:
Dividends from net investment income (0.40) (0.17)
Distributions from net realized gain
on investments sold (0.08) --
Total distributions (0.48) (0.17)
Net asset value, end of period $17.87 $19.30
TOTAL INVESTMENT RETURN AT NET
ASSET VALUE(4) (%) 29.15 8.98(8)
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period
(000s omitted) ($) 1,280,321 1,364,566
Ratio of expenses to average
net assets (%) 1.14 1.10(9)
Ratio of net investment income
(loss) to average net assets (%) 2.45 1.87(9)
Portfolio turnover rate (%) 46 20
Average brokerage commission rate(5) ($) N/A 0.0688
<CAPTION>
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CLASS B - YEAR ENDED DECEMBER 31, 1994(6) 1995 1996(10)
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PER SHARE OPERATING PERFORMANCE
Net asset value, beginning of period $15.02 $14.24 $17.86
Net investment income (loss) 0.38 (7) 0.27(7) 0.10(7)
Net realized and unrealized gain (loss) on investment (0.69) 3.71 1.42
Total from investment operations (0.31) 3.98 1.52
Less distributions:
Dividends from net investment income (0.36) (0.28) (0.10)
Distributions from net realized gain on investments sold (0.11) (0.08) --
Total distributions (0.47) (0.36) (0.10)
Net asset value, end of period $14.24 $17.86 $19.28
TOTAL INVESTMENT RETURN AT NET ASSET VALUE(4) (%) (2.04)(8) 28.16 8.54(8)
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period (000s omitted) ($) 128,069 257,781 337,938
Ratio of expenses to average net assets (%) 1.86(9) 1.90 1.86(9)
Ratio of net investment income (loss) to average net assets (%) 2.57(9) 1.65 1.14(9)
Portfolio turnover rate (%) 45 46 20
Average brokerage commission rate(5) ($) N/A N/A 0.0688
</TABLE>
(1) These periods are covered by the report of other independent auditors (not
included herein).
(2) Restated for 2-for-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) Based on the average of the shares outstanding at the end of each month.
(8) Not annualized.
(9) Annualized.
(10) Six months ended June 30, 1996. (Unaudited)
December 2, 1996
<PAGE>
JOHN HANCOCK
GROWTH AND
INCOME FUNDS
[John Hancock's Graphic Logo. A Circle
Dianond, Triangle and a Cube]
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PROSPECTUS GROWTH AND INCOME FUND
AUGUST 30, 1996
INDEPENDENCE EQUITY FUND
This prospectus gives vital
information about these funds. SOVEREIGN BALANCED FUND
For your own benefit and
protection, please read it before SOVEREIGN INVESTORS FUND
you invest, and keep it on hand
for future reference. SPECIAL VALUE FUND
Please note that these funds: UTILITIES FUND
* 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 [LOGO]JOHN HANCOCK FUNDS
prospectus. Any representation to the A GLOBAL INVESTMENT MANAGEMENT
contrary is a criminal offense. FIRM
101 Huntington Avenue, Boston,
Massachusetts 02199-7603
<PAGE>
CONTENTS
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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 YOUR ACCOUNT
opening, maintaining and closing Choosing a share class 16
an account in any growth and How sales charges are calculated 16
income fund. 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 FUND DETAILS
and income funds as a group. Business structure 23
Sales compensation 24
More about risk 26
FOR MORE INFORMATION BACK COVER
<PAGE>
OVERVIEW
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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 has
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
FUND INFORMATION KEY These funds may be appropriate for investors who:
Concise fund-by-fund * are looking for a more conservative alternative
descriptions begin on the to exclusively growth-oriented funds
next page. Each description * need an investment to form the core of a
provides the following portfolio
information: * seek above-average total return over the long
term
[GOAL GRAPHIC]GOAL AND * are retired or nearing retirement
STRATEGY The fund's
particular investment goals Growth and income funds may NOT be appropriate if
and the strategies it you:
intends to use in pursuing * are investing for maximum return over a long
those goals. time horizon
* require a high degree of stability of your
[PORTFOLIO principal
GRAPHIC]PORTFOLIO
SECURITIES The primary THE MANAGEMENT FIRM
types of securities in
which the fund invests. All John Hancock growth and income funds are
Secondary investments are managed by John Hancock Advisers, Inc. Founded in
described in "More about 1968, John Hancock Advisers is a wholly owned
risk" at the end of the subsidiary of John Hancock Mutual Life Insurance
prospectus. Company and manages more than $19 billion in
assets.
[RISK GRAPHIC]RISK FACTORS
The major risk factors
associated with the fund.
[TORSO GRAPHIC]PORTFOLIO
MANAGEMENT The individual
or group (including
subadvisers, if any)
designated by the
investment adviser to
handle the fund's
day-to-day management.
[% GRAPHIC]EXPENSES The
overall costs borne by an
investor in the fund,
including sales charges and
annual expenses.
[$ GRAPHIC]FINANCIAL
HIGHLIGHTS A table showing
the fund's financial
performance for up to ten
years, by share class. A
bar chart showing total
return allows you to
compare the fund's
historical risk level to
those of other funds.
<PAGE>
GROWTH AND INCOME FUND
REGISTRANT NAME: JOHN HANCOCK INVESTMENT TRUST TICKER SYMBOL CLASS A: TAGRX
CLASS B: TSGWX
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GOAL AND STRATEGY
[GOAL GRAPHIC]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. Although the fund may concentrate in any of these
securities, under normal circumstances it invests primarily in stocks. The fund
may not invest more than 25% of assets in any one industry.
PORTFOLIO SECURITIES
[PORTFOLIO GRAPHIC]The fund may invest in most types of securities, including:
* common and preferred stocks, warrants and convertible securities
* U.S. Government and agency debt securities, including mortgage-backed
securities
* corporate bonds, notes and other debt securities of any maturity
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
junk bonds (bonds rated lower than BBB/Baa and their unrated equivalents), but
does not invest in bonds 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 have not
exceeded 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 securities.
RISK FACTORS
[RISK GRAPHIC]As with any growth and income fund, the value of your investment
will fluctuate in response to stock and bond market movements.
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. Before you invest, please read "More about risk" carefully.
PORTFOLIO MANAGEMENT
[TORSO GRAPHIC]Timothy E. Keefe, leader of the fund's portfolio management team
since joining John Hancock Funds in July 1996, is a senior vice president of the
adviser and has been in the investment business since 1987.
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INVESTOR EXPENSES
<TABLE>
[% GRAPHIC]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.
<CAPTION>
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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>
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ANNUAL FUND OPERATING EXPENSES (AS A % OF AVERAGE NET ASSETS)
- --------------------------------------------------------------
<S> <C> <C>
Management fee 0.625% 0.625%
12b-1 fee(3) 0.250% 1.00%
Other expenses 0.445% 0.445%
Total fund operating expenses 1.320% 2.070%
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%.
<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
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 $4.00).
(3) Because of the 12b-1 fee, long-term shareholders may indirectly pay more
than the equivalent of the maximum permitted front-end sales charge.
</TABLE>
4 GROWTH AND INCOME FUND
<PAGE>
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FINANCIAL HIGHLIGHTS
<TABLE>
[$ GRAPHIC]The figures below have
been audited by the fund's
independent auditors, Ernst & Young
LLP.
VOLATILITY, AS INDICATED BY CLASS A [BAR GRAPH]
YEAR-BY-YEAR TOTAL INVESTMENT RETURN (%) 19.90 22.58 (9.86) 23.47 0.18 23.80 10.47 13.64
<CAPTION>
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CLASS A - YEAR ENDED AUGUST 31, 1986 1987 1988 1989 1990 1991 1992 1993
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<S> <C> <C> <C> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
Net asset value, beginning of period $ 10.42 $ 11.11 $ 12.04 $ 8.83 $ 10.19 $ 9.87 $ 11.77 $ 12.43
Net investment income (loss) 0.35 0.42 0.50 0.55 0.20 0.20 0.32(2) 0.40(2)
Net realized and unrealized gain (loss)
on investments 1.48 1.77 (1.73) 1.42 (0.18) 2.07 0.89 1.12
Total from investment operations 1.83 2.19 (1.23) 1.97 0.02 2.27 1.21 1.52
Less distributions:
Dividends from net investment income (0.36) (0.38) (0.49) (0.61) (0.27) (0.19) (0.25) (0.42)
Distributions from net realized gain on
investments sold (0.78) (0.88) (1.49) -- (0.07) (0.18) (0.30) (1.45)
Total distributions (1.14) (1.26) (1.98) (0.61) (0.34) (0.37) (0.55) (1.87)
Net asset value, end of period $ 11.11 $ 12.04 $ 8.83 $ 10.19 $ 9.87 $ 11.77 $ 12.43 $ 12.08
TOTAL INVESTMENT RETURN AT NET ASSET
VALUE(3) (%) 19.90 22.58 (9.86) 23.47 0.18 23.80 10.47 13.64
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period (000s omitted)($) 69,516 90,974 69,555 70,513 63,150 77,461 89,682 115,780
Ratio of expenses to average
net assets (%) 1.12 1.21 1.29 1.12 1.29 1.38 1.34 1.29
Ratio of net investment income (loss) to
average net assets (%) 3.53 3.86 5.45 6.07 1.96 1.90 2.75 3.43
Portfolio turnover rate (%) 150 138 120 214 69 70 119 107
Average brokerage commission rate(6) ($) N/A N/A N/A N/A N/A N/A N/A N/A
VOLATILITY, AS INDICATED BY CLASS A [BAR GRAPH]
YEAR-BY-YEAR TOTAL INVESTMENT RETURN (%) (2.39) 19.22 12.58(4)
<CAPTION>
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CLASS A - YEAR ENDED AUGUST 31, 1994 1995 1996(1)
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
Net asset value, beginning of period $ 12.08 $ 11.42 $ 13.38
Net investment income (loss) 0.32(2) 0.21(2) 0.11
Net realized and unrealized gain (loss)
on investments (0.61) 1.95 1.56
Total from investment operations (0.29) 2.16 1.67
Less distributions:
Dividends from net investment income (0.37) (0.20) (0.11)
Distributions from net realized gain on
investments sold -- -- (0.15)
Total distributions (0.37) (0.20) (0.26)
Net asset value, end of period $ 11.42 $ 13.38 $ 14.79
TOTAL INVESTMENT RETURN AT NET ASSET
VALUE(3) (%) (2.39) 19.22 12.58(4)
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period (000s omitted)($) 121,160 130,183 135,820
Ratio of expenses to average
net assets (%) 1.31 1.30 1.16(5)
Ratio of net investment income (loss) to
average net assets (%) 2.82 1.82 1.60(5)
Portfolio turnover rate (%) 195 99 36
Average brokerage commission rate(6) ($) N/A N/A 0.0658
<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 $ 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 0.0658
(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.
</TABLE>
GROWTH AND INCOME FUND 5
<PAGE>
INDEPENDENCE EQUITY FUND
REGISTRANT NAME: JOHN HANCOCK CAPITAL SERIES
TICKER SYMBOL CLASS A: JHDCX
CLASS B: JHIDX
- -------------------------------------------------------------------------------
GOAL AND STRATEGY
[LOGO]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 whose risk profile is similar to that of the S&P 500
index. The fund does not invest exclusively in S&P 500 stocks.
In choosing stocks, the fund uses a proprietary computer model (NIXDEX) to
identify stocks that appear to be undervalued. The fund favors those undervalued
stocks that are selected by its model and that are believed to have improving
fundamentals. The fund may not invest more than 25% of assets in any one
industry.
PORTFOLIO SECURITIES
[LOGO]Under normal circumstances, the fund invests at least 65% of assets in
common stocks. It may also invest in warrants, preferred stocks and investment-
grade convertible debt securities.
The fund may invest in foreign securities in the form of American Depository
Receipts (ADRs) and U.S. dollar-denominated securities of foreign issuers
traded on U.S. exchanges. 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 securities.
RISK FACTORS
[LOGO]As with any growth and income fund, the value of your investment will
fluctuate in response to stock and bond market movements. Because the fund
follows an index-tracking strategy, it is likely to remain fully invested even
if the fund's managers anticipate a market downturn.
To the extent that it invests in foreign securities, the fund may be affected by
additional risks, such as 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
[LOGO]The fund's investment decisions are made by a portfolio management team,
and no individual is primarily responsible for making them. Team members are
employees of Independence Investment Associates, Inc., the fund's subadviser and
a subsidiary of John Hancock Mutual Life Insurance Company.
- -------------------------------------------------------------------------------
INVESTOR EXPENSES
[LOGO]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
- -------------------------------------------------------------------------------
ANNUAL FUND OPERATING EXPENSES (AS A % OF AVERAGE NET ASSETS)
- -------------------------------------------------------------------------------
Management fee (after expense limitation)(3) 0.00% 0.00%
12b-1 fee(4) 0.30% 1.00%
Other expenses 1.00% 1.00%
Total fund operating expenses (after limitation)(3) 1.30% 2.00%
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%.
<CAPTION>
- -------------------------------------------------------------------------------
SHARE CLASS YEAR 1 YEAR 3 YEAR 5 YEAR 10
- -------------------------------------------------------------------------------
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
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 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 2.05% for Class A and 2.75% for Class B.
Management fee includes a subadviser fee equal to 55% of the management
fee.
(4) Because of the 12b-1 fee, long-term shareholders may indirectly pay more
than the equivalent of the maximum permitted front-end sales charge.
</TABLE>
6 INDEPENDENCE EQUITY FUND
<PAGE>
- -------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
<TABLE>
[LOGO]The figures below have been audited by the fund's independent auditors,
Price Waterhouse LLP.
<CAPTION>
VOLATILITY, AS INDICATED BY CLASS A
YEAR-BY-YEAR TOTAL INVESTMENT RETURN (%) [BAR CHART 10.95(4) 13.58 6.60 16.98 29.12]
- --------------------------------------------------------------------------------------------------------------
CLASS A - YEAR ENDED MAY 31, 1992(1) 1993 1994 1995 1996
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
Net asset value, beginning of period $10.00 $ 10.98 $ 12.16 $ 12.68 $14.41
Net investment income (loss) 0.15 0.22 0.28(2) 0.32(2) 0.20(2)
Net realized and unrealized gain (loss) on investments 0.94 1.25 0.52 1.77 3.88
Total from investment operations 1.09 1.47 0.80 2.09 4.08
Less distributions:
Dividends from net investment income (0.11) (0.23) (0.23) (0.28) (0.22)
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) (0.51)
Net asset value, end of period $10.98 $ 12.16 $ 12.68 $ 14.41 $17.98
TOTAL INVESTMENT RETURN AT NET ASSET VALUE(3) (%) 10.95(4) 13.58 6.60 16.98 29.12
Total adjusted investment return at net asset
value(3,5) (%) 9.23(4) 11.40 6.15 16.94 28.47
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period (000s omitted) ($) 2,622 12,488 66,612 101,418 14,878
Ratio of expenses to average net assets (%) 1.66(6) 0.76 0.70 0.70 0.94
Ratio of adjusted expenses to average net assets(7) (%) 3.38(6) 2.94 1.15 0.74 1.59
Ratio of net investment income (loss) to average
net assets (%) 1.77(6) 2.36 2.20 2.43 1.55
Ratio of adjusted net investment income (loss) to average
net assets(7) (%) 0.05(6) 0.18 1.75 2.39 0.90
Portfolio turnover rate (%) 53 53 43 71 157
Fee reduction per share ($) 0.15 0.20 0.06(2) 0.005(2) 0.08(2)
Average brokerage commission rate(8) ($) N/A N/A N/A N/A N/A
- --------------------------------------------------------------------------------------------------------------
CLASS B - YEAR ENDED MAY 31, 1996(1)
- --------------------------------------------------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE
Net asset value, beginning of period $15.25
Net investment income (loss) 0.09 (2)
Net realized and unrealized gain (loss) on investments 2.71
Total from investment operations 2.80
Less distributions:
Dividends from net investment income (0.09)
Net asset value, end of period $17.96
TOTAL INVESTMENT RETURN AT NET ASSET VALUE(3) (%) 18.46 (4)
Total adjusted investment return at net asset value(3,5) (%) 17.59 (4)
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period (000s omitted) ($) 15,125
Ratio of expenses to average net assets (%) 2.00 (6)
Ratio of adjusted expenses to average net assets(7) (%) 3.21 (6)
Ratio of net investment income (loss) to average net assets (%) 0.78 (6)
Ratio of adjusted net investment income (loss) to average net assets(7) (%) (0.43)(6)
Portfolio turnover rate (%) 157
Fee reduction per share ($) 0.13 (2)
Average brokerage commission rate(8) ($) N/A
- ----------
(1) Class A and Class B shares commenced operations on June 10, 1991 and
September 7, 1995, respectively.
(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) An estimated total return calculation that does not take into consideration
fee reductions by the adviser during the periods shown.
(6) Annualized.
(7) Unreimbursed, without fee reduction.
(8) Per portfolio share traded. Required for fiscal years that began September
1, 1995 or later.
</TABLE>
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
[LOGO]The fund seeks current income, long-term growth of capital and income, and
preservation of capital. To pursue these goals, the fund allocates its assets
among a diversified mix of debt and equity securities. While the relative
weightings of debt and equity securities will shift over time, at least 25% of
assets will be invested in senior debt securities. The fund may not invest more
than 25% of assets in any one industry.
PORTFOLIO SECURITIES
[LOGO]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. Up to 25% of the fund's
bond investments may be rated from BB/Ba to C (junk bonds).
The fund may invest up to 35% of assets in foreign securities; however, these
typically have not exceeded 5% of assets. To a limited extent the fund also may
invest in certain higher-risk securities, and may engage in other investme nt
practices.
For temporary defensive purposes, the fund may invest some or all of its assets
in investment-grade short-term securities.
RISK FACTORS
[LOGO]As with any growth and income fund, the value of your investment will
fluctuate in response to stock and bond market movements. To the extent that it
invests in certain securities, the fund may be affected by additional risks:
* junk bonds: above-average credit, market and other risks
* foreign securities: currency, information, natural event and political risks
* mortgage-backed securities: extension and prepayment risks
These risks are listed and 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
[LOGO]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 Corporation, the fund's subadviser and a
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
<TABLE>
[LOGO]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.
<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
- -------------------------------------------------------------------------------
ANNUAL FUND OPERATING EXPENSES (AS A % OF AVERAGE NET ASSETS)
- -------------------------------------------------------------------------------
Management fee(3) 0.60% 0.60%
12b-1 fee(4) 0.30% 1.00%
Other expenses 0.39% 0.39%
Total fund operating expenses 1.29% 1.99%
</TABLE>
<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%.
<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
- ----------
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) Management fee includes a subadviser fee equal to 40% of the stock portion
of the management fee.
(4) Because of the 12b-1 fee, long-term shareholders may indirectly pay more
than the equivalent of the maximum permitted front-end sales charge.
</TABLE>
8 SOVEREIGN BALANCED FUND
<PAGE>
- -------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
<TABLE>
[LOGO]The figures below have been audited by the fund's independent auditors,
Ernst & Young LLP.
<CAPTION>
VOLATILITY, AS INDICATED BY CLASS A
YEAR-BY-YEAR TOTAL INVESTMENT RETURN (%) [BAR CHART 2.37(4) 11.38 (3.51) 24.23]
- ---------------------------------------------------------------------------------------------------------------
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 $ 10.19 $ 10.74 $ 9.84
Net investment income (loss) 0.04 0.46 0.50 0.44(2)
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(3) (%) 2.37(4) 11.38 (3.51) 24.23
Total adjusted investment return at net asset value(3,5) (%) 2.22(4) -- -- --
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
- ---------------------------------------------------------------------------------------------------------------
CLASS B - YEAR ENDED DECEMBER 31, 1992(1) 1993 1994 1995
- ---------------------------------------------------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE
Net asset value, beginning of period $ 10.00 $ 10.20 $ 10.75 $ 9.84
Net investment income (loss) 0.03 0.37 0.43 0.36(2)
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 $11.74
TOTAL INVESTMENT RETURN AT NET ASSET VALUE(3) (%) 2.29(4) 10.63 (4.22) 23.30
Total adjusted investment return at net asset value(3,5) (%) 2.14(4) -- -- --
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period (000s omitted) ($) 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 ($) 0.0012 -- -- --
Average brokerage commission rate(8) ($) N/A N/A N/A N/A
(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) 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) An estimated total return calculation that does not take into consideration
fee reductions by the adviser during the periods shown.
(6) Annualized.
(7) Unreimbursed, without fee reduction.
(8) Per portfolio share traded. Required for fiscal years that began September
1, 1995 or later.
</TABLE>
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
[LOGO]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. The fund may not invest more than 25% of assets in any one industry.
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
[LOGO]The fund may invest in most types of securities, including:
* common and preferred stocks, warrants and convertible securities
* U.S. Government and agency debt securities, including mortgage-backed
securities
* corporate bonds, notes and other debt securities of any maturity
The fund's bond investments are primarily investment-grade, although up to 5% of
assets may be invested in junk bonds rated as low as C and 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 investment-grade short-term securities.
RISK FACTORS
[LOGO]As with any growth and income fund, the value of your investment will
fluctuate in response to stock and bond market movements.
To the extent that the fund invests in higher-risk securities, it takes on
additional risks that could adversely affect its performance. Before you invest,
please read "More about risk" starting on page 26.
MANAGEMENT/SUBADVISER
[LOGO]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 Corporation, the fund's subadviser and a
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
<TABLE>
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.
<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
- -------------------------------------------------------------------------------
ANNUAL FUND OPERATING EXPENSES (AS A % OF AVERAGE NET ASSETS)
- -------------------------------------------------------------------------------
Management fee(3) 0.58% 0.58%
12b-1 fee(4) 0.30% 1.00%
Other expenses 0.28% 0.34%
Total fund operating expenses 1.16% 1.92%
</TABLE>
<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%.
<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
- ----------
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) Management fee includes a subadviser fee equal to 40% of the management
fee.
(4) Because of the 12b-1 fee, long-term shareholders may indirectly pay more
than the equivalent of the maximum permitted front-end sales charge.
</TABLE>
10 SOVEREIGN INVESTORS FUND
<PAGE>
- -------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
<TABLE>
[LOGO]The figures below have been audited by the fund's independent auditors,
Ernst & Young LLP.
VOLATILITY, AS INDICATED BY CLASS A [BAR CHART
YEAR-BY-YEAR TOTAL INVESTMENT RETURN (%) 21.70 0.28 11.23 23.76 4.38 30.48 7.23 5.71 (1.85) 29.15
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------------
CLASS A - YEAR ENDED DECEMBER 31, 1986(1,2) 1987(1) 1988(1) 1989(1) 1990(1) 1991(1,3) 1992(1) 1993 1994 1995
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <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 $ 15.10 $ 14.24
Net investment income (loss) 0.58 0.53 0.57 0.59 0.58 0.54 0.47 0.44 0.46 0.40
Net realized and unrealized gain (loss)
on investments 1.89 (0.45) 0.65 2.01 (0.05) 3.03 0.54 0.39 (0.75) 3.71
Total from investment operations 2.47 0.08 1.22 2.60 0.53 3.57 1.01 0.83 (0.29) 4.11
Less distributions:
Dividends from net investment income (0.55) (0.58) (0.61) (0.61) (0.59) (0.53) (0.45) (0.42) (0.46) (0.40)
Distributions from net realized gain
on investments sold (0.87) (0.90) (0.38) (0.58) (0.60) (0.67) (0.09) (0.09) (0.11) (0.08)
Total distributions (1.42) (1.48) (0.99) (1.19) (1.19) (1.20) (0.54) (0.51) (0.57) (0.48)
Net asset value, end of period $12.36 $10.96 $11.19 $12.60 $11.94 $ 14.31 $ 14.78 $ 15.10 $ 14.24 $ 17.87
TOTAL INVESTMENT RETURN AT NET
ASSET VALUE(4) (%) 21.70 0.28 11.23 23.76 4.38 30.48 7.23 5.71 (1.85) 29.15
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period
(000s omitted) ($) 34,708 40,564 45,861 66,466 83,470 194,055 872,932 1,258,575 1,090,231 1,280,321
Ratio of expenses to average
net assets (%) 0.70 0.85 0.86 1.07 1.14 1.18 1.13 1.10 1.16 1.14
Ratio of net investment income
(loss) to average net assets (%) 4.28 3.96 4.97 4.80 4.77 4.01 3.32 2.94 3.13 2.45
Portfolio turnover rate (%) 34 59 35 40 55 67 30 46 45 46
Average brokerage commission rate(5) ($) N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------------
CLASS B - YEAR ENDED DECEMBER 31, 1994(6) 1995
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
PER SHARE OPERATING PERFORMANCE
Net asset value, beginning of period $ 15.02 $ 14.24
Net investment income (loss) 0.38 (7) 0.27(7)
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)(8) 28.16
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period (000s omitted) ($) 128,069 257,781
Ratio of expenses to average net assets (%) 1.86(9) 1.90
Ratio of net investment income (loss) to average net assets (%) 2.57(9) 1.65
Portfolio turnover rate (%) 45 46
Average brokerage commission rate(5) ($) N/A N/A
- ----------
(1) These periods are covered by the report of other independent auditors (not
included herein).
(2) Restated for 2-for-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) Based on the average of the shares outstanding at the end of each month.
(8) Not annualized.
(9) Annualized.
</TABLE>
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
[GOAL GRAPHIC]The fund seeks capital appreciation, with income as a secondary
consideration. To pursue this goal, the fund invests primarily in stocks that
appear comparatively undervalued and are out of favor. The fund looks for
companies of any size whose earnings power or asset value does 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. The fund may not invest
more than 25% of assets in any one industry.
PORTFOLIO SECURITIES
[PORTFOLIO GRAPHIC]The fund invests primarily in the common stocks of U.S.
companies. It may also invest in warrants, preferred stocks and convertible
securities.
The fund may invest up to 50% of assets in foreign securities (including
American Depository Receipts), and under normal circumstances may invest up to
10% of net assets in investment-grade debt securities. 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 securities.
RISK FACTORS
[RISK GRAPHIC]As with any growth and income fund, the value of your investment
will fluctuate. Even comparatively undervalued stocks typically fall in price
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.
PORTFOLIO MANAGEMENT
[TORSO GRAPHIC]Timothy E. Keefe, leader of the fund's portfolio management team
since August 1996, is a senior vice president of the adviser. He joined John
Hancock Funds in July 1996 and has been in the investment business since 1987.
- --------------------------------------------------------------------------------
INVESTOR EXPENSES
<TABLE>
[% GRAPHIC]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.
<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 (after expense
limitation)(3,4) 0.00% 0.00%
12b-1 fee(5) 0.30% 1.00%
Other expenses (after limitation)(3) 0.71% 0.71%
Total fund operating expenses
(after limitation)(3) 1.01% 1.71%
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%.
<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
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 $4.00).
(3) Reflects the adviser's temporary agreement to limit expenses (except for
12b-1 and transfer agent expenses). Without this limitation, management fees
would be 0.70% for each class, other expenses would be 0.90% for each class,
and total fund operating expenses would be 1.90% for Class A and 2.60% for
Class B.
(4) Includes a subadviser fee equal to 0.40% of the management fee.
(5) Because of the 12b-1 fee, long-term shareholders may indirectly pay more
than the equivalent of the maximum permitted front-end sales charge.
</TABLE>
12 SPECIAL VALUE FUND
<PAGE>
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
<TABLE>
[$ GRAPHIC]The figures below have been audited
by the fund's independent auditors,
Ernst & Young LLP.
VOLATILITY, AS INDICATED BY CLASS A [BAR GRAPH]
YEAR-BY-YEAR TOTAL INVESTMENT RETURN (%) 7.81(4) 20.26
<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 $ 8.99
Net investment income (loss) 0.18(2) 0.21(2)
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(3) (%) 7.81(4) 20.26
Total adjusted investment return at net asset value(3,5) (%) 7.30(4) 19.39
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period (000s omitted) ($) 4,420 12,845
Ratio of expenses to average net assets (%) 0.99(6) 0.98
Ratio of adjusted expenses to average net assets(7) (%) 4.98(6) 1.85
Ratio of net investment income (loss) to average net assets (%) 2.10(6) 2.04
Ratio of adjusted net investment income (loss) to average
net assets(7) (%) (1.89)(6) 1.17
Portfolio turnover rate (%) 0.3 9
Fee reduction per share ($) 0.34(2) 0.09(2)
Average brokerage commission rate(8) ($) N/A N/A
<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 $ 9.00
Net investment income (loss) 0.13(2) 0.12(2)
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(3) (%) 7.15(4) 19.11
Total adjusted investment return at net asset value(3,5) (%) 6.64(4) 18.24
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period (000s omitted) ($) 3,296 16,994
Ratio of expenses to average net assets (%) 1.72(6) 1.73
Ratio of adjusted expenses to average net assets(7) (%) 5.71(6) 2.60
Ratio of net investment income (loss) to average net assets (%) 1.53(6) 1.21
Ratio of adjusted net investment income (loss) to average net
assets(7) (%) (2.46)(6) 0.34
Portfolio turnover rate (%) 0.3 9
Fee reduction per share ($) 0.34(2) 0.09(2)
Average brokerage commission rate(8) ($) N/A N/A
(1) Class A and Class B shares commenced operations on January 3, 1994.
(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) An estimated total return calculation that does not take into consideration fee reductions
by the adviser during the periods shown.
(6) Annualized.
(7) Unreimbursed, without fee reduction.
(8) Per portfolio share traded. Required for fiscal years that began September 1, 1995 or later.
</TABLE>
SPECIAL VALUE FUND 13
<PAGE>
UTILITIES FUND
REGISTRANT NAME: JOHN HANCOCK CAPITAL SERIES
TICKER SYMBOL CLASS A: JHUAX CLASS B: JHUBX
- -------------------------------------------------------------------------------
GOAL AND STRATEGY
[LOGO]The fund seeks current income and, to the extent consistent with this
goal, growth of income and long-term growth of capital. To pursue this goal, the
fund invests primarily in public utilities companies, such as those whose
principal business involves the generation, handling or sale 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 it would help the fund meet its goal.
PORTFOLIO SECURITIES
[LOGO]The fund invests primarily in the common stocks of U.S. and foreign
companies. It may also invest in warrants, preferred stocks and convertible
securities.
Foreign securities (including American Depository Receipts) and investment-grade
debt securities may each comprise up to 25% of portfolio investments. 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 securities.
RISK FACTORS
[LOGO]As with any growth and income fund, the value of your investment will
fluctuate in response to stock and bond market movements. 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 and deregulation,
environmental issues, competition 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
[LOGO]Gregory K. Phelps, leader of the fund's portfolio management team since
April 1996, is a vice president of the adviser. He joined John Hancock Funds in
January 1995 and has been in the investment business since 1981.
- -------------------------------------------------------------------------------
INVESTOR EXPENSES
<TABLE>
[LOGO]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.
<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
- -------------------------------------------------------------------------------
ANNUAL FUND OPERATING EXPENSES (AS A % OF AVERAGE NET ASSETS)
- -------------------------------------------------------------------------------
Management fee (after expense limitation)(3) 0.26% 0.26%
12b-1 fee(4) 0.30% 1.00%
Other expenses 0.49% 0.49%
Total fund operating expenses (after limitation)(3) 1.05% 1.75%
</TABLE>
<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%.
<CAPTION>
- -------------------------------------------------------------------------------
SHARE CLASS YEAR 1 YEAR 3 YEAR 5 YEAR 10
- -------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Class A shares $60 $82 $105 $172
Class B shares
Assuming redemption
at end of period $68 $85 $115 $188
Assuming no redemption $18 $55 $ 95 $188
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 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 1.49% for Class A and 2.19% for Class B.
(4) Because of the 12b-1 fee, long-term shareholders may indirectly pay more
than the equivalent of the maximum permitted front-end sales charge.
</TABLE>
14 UTILITIES FUND
<PAGE>
FINANCIAL HIGHLIGHTS
<TABLE>
[LOGO]The figures below have been audited by the fund's independent auditors,
Price Waterhouse LLP.
<CAPTION>
VOLATILITY, AS INDICATED BY CLASS A
YEAR-BY-YEAR TOTAL INVESTMENT RETURN (%) [BAR CHART 2.82(4) 7.10 14.44]
- ------------------------------------------------------------------------------------------------------
CLASS A - YEAR ENDED MAY 31, 1994(1) 1995 1996
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
Net asset value, beginning of period $ 8.50 $ 8.26 $ 8.48
Net investment income (loss) 0.12 (2) 0.44(2) 0.41(2)
Net realized and unrealized gain (loss) on investments and
foreign currency transactions (0.36) 0.12 0.79
Total from investment operations (0.24) 0.56 1.20
Less distributions:
Dividends from net investment income -- (0.34) (0.41)
Distributions from net realized gains on investments sold -- -- (0.10)
Total distributions -- (0.34) (0.51)
Net asset value, end of period $ 8.26 $ 8.48 $ 9.17
TOTAL INVESTMENT RETURN AT NET ASSET VALUE(3) (%) (2.82)(4) 7.10 14.44
Total adjusted investment return at net asset value(3,5) (13.89)(4) 6.44 14.01
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period (000s omitted) ($) 781 19,229 22,574
Ratio of expenses to average net assets (%) 1.00 (6) 1.04 1.04
Ratio of adjusted expenses to average net assets(7) (%) 12.07 (6) 1.70 1.47
Ratio of net investment income (loss) to average net assets (%) 4.53 (6) 5.39 4.49
Ratio of adjusted net investment income (loss) to average
net assets(7)(%) (6.54)(6) 4.73 4.06
Portfolio turnover rate (%) 6 98 124
Fee reduction per share ($) 0.27 (2) 0.05(2) 0.04(2)
Average brokerage commission rate(8) ($) N/A N/A N/A
- ------------------------------------------------------------------------------------------------------
CLASS B - YEAR ENDED MAY 31, 1994(1) 1995 1996
- ------------------------------------------------------------------------------------------------------
Per share operating performance
Net asset value, beginning of period $ 8.50 $ 8.25 $ 8.45
Net investment income (loss) 0.08 (2) 0.38(2) 0.34(2)
Net realized and unrealized gain (loss) on investments and
foreign currency transactions (0.33) 0.12 0.79
Total from investment operations (0.25) 0.50 1.13
Less distributions:
Dividends from net investment income -- (0.30) (0.34)
Distributions from net realized gains on investments sold -- -- (0.10)
Total distributions -- (0.30) (0.44)
Net asset value, end of period $ 8.25 $ 8.45 $ 9.14
TOTAL INVESTMENT RETURN AT NET ASSET VALUE(3) (%) (2.94)(4) 6.31 13.68
Total adjusted investment return at net asset value(3,5) (14.01)(4) 5.65 13.25
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period (000s omitted) ($) 445 38,344 47,759
Ratio of expenses to average net assets (%) 1.72 (6) 1.71 1.77
Ratio of adjusted expenses to average net assets(7) (%) 12.79 (6) 2.37 2.20
Ratio of net investment income (loss) to average net assets (%) 4.20 (6) 4.64 3.77
Ratio of adjusted net investment income (loss) to average
net assets(7)(%) (6.87)(6) 3.98 3.34
Portfolio turnover rate (%) 6 98 124
Fee reduction per share ($) 0.27 (2) 0.05(2) 0.04(2)
Average brokerage commission rate(8) ($) N/A N/A N/A
- ----------
(1) Class A and Class B shares commenced operations on February 1, 1994.
(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) An estimated total return calculation that does not take into consideration
fee reductions by the adviser during the periods shown.
(6) Annualized.
(7) Unreimbursed, without fee reduction.
(8) Per portfolio share traded. Required for fiscal years that began September
1, 1995 or later.
</TABLE>
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 CLASS B
- -------------------------------------------------------------------------------
* Front-end sales charges, as * No front-end sales charge;
described below. There are all your money goes to work
several ways to reduce these for you right away.
charges, also described below.
* Higher annual expenses than
* Lower annual expenses than Class A shares.
Class B 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 expense
structure and are available to financial institutions only. Call Investor
Services for more information (see the back cover of this prospectus).
- -------------------------------------------------------------------------------
HOW SALES CHARGES ARE CALCULATED
<TABLE>
CLASS A Sales charges are as follows:
<CAPTION>
- -------------------------------------------------------------------------------
CLASS A SALES CHARGES
- -------------------------------------------------------------------------------
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>
<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:
<CAPTION>
- -------------------------------------------------------------------------------
CDSC ON $1 MILLION + INVESTMENTS
- -------------------------------------------------------------------------------
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.
<TABLE>
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:
<CAPTION>
- -------------------------------------------------------------------------------
Class B deferred charges
- -------------------------------------------------------------------------------
YEARS AFTER PURCHASE CDSC ON SHARES BEING SOLD
<S> <C>
1st year 5.00%
2nd year 4.00%
3rd or 4th year 3.00%
5th year 2.00%
6th year 1.00%
After 6 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 of 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 of your application, or contact
your financial representative or Investor Services to add these options.
GROUP INVESTMENT PROGRAM Allows established groups of four or more investors to
invest as a group. Each investor has an individual account, but for sales charge
purposes the group's 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 As long as Investor Services is notified at the time you sell, the
CDSC for either share class will generally be waived in the following cases:
* to make payments through certain systematic withdrawal plans
* to make certain distributions from a retirement plan
* because of shareholder death or disability
To utilize: If you think you may be eligible for a CDSC waiver, contact your
financial representative or Investor Services, or consult the SAI (see the back
cover of this prospectus).
REINSTATEMENT PRIVILEGE If you sell shares of 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.
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 fund from an
employee benefit plan that has John Hancock funds
* members of an approved affinity group financial services program
* certain insurance company contract holders (one-year CDSC usually applies)
* participants in certain retirement plans with at least 100 members (one-year
CDSC applies)
To utilize: if you think you may be eligible for a sales charge waiver, contact
Investor Services or consult the SAI.
- -------------------------------------------------------------------------------
OPENING AN ACCOUNT
1 Read this prospectus carefully.
2 Determine how much you want to invest. The minimum initial investments for
the John Hancock 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 section of the
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.
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>
<TABLE>
- ---------------------------------------------------------------------------------------------------------------------------------
BUYING SHARES
- ---------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
OPENING AN ACCOUNT ADDING TO AN ACCOUNT
- ---------------------------------------------------------------------------------------------------------------------------------
BY CHECK
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C>
[GRAPHIC: a check]
* Make out a check for the investment amount, payable * Make out a check for the investment amount payable
to "John Hancock Investor Services Corporation." to "John Hancock Investor Services Corporation."
* Deliver the check and your completed application to * Fill out the detachable investment slip from an account
your financial representative, or mail them to Investor statement. If no slip is available, include a note specifying
Services (address on next page). 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 them to Investor
Services (address on next page).
- ---------------------------------------------------------------------------------------------------------------------------------
BY EXCHANGE
- ---------------------------------------------------------------------------------------------------------------------------------
[GRAPHIC: two arrows]
* Call your financial representative or Investor Services * Call Investor Services to request an exchange.
to request an exchange.
- ---------------------------------------------------------------------------------------------------------------------------------
BY WIRE
- ---------------------------------------------------------------------------------------------------------------------------------
[GRAPHIC: an arrow]
* Deliver your completed application to your financial * Instruct your bank to wire the amount of your
representative, or mail it to Investor Services. investment to:
First Signature Bank & Trust
* Obtain your account number by calling your financial Account # 900000260
representative or Investor Services. Routing # 211475000
Specify the fund name, your share class, your account
* Instruct your bank to wire the amount of your number and the name(s) in which the account is
investment to: registered. Your bank may charge a fee to wire funds.
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.
- ---------------------------------------------------------------------------------------------------------------------------------
BY PHONE
- ---------------------------------------------------------------------------------------------------------------------------------
[GRAPHIC: a telephone]
See "By wire" and "By exchange." * 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 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.
</TABLE>
To open or add to an account using the Monthly Automatic Accumulation
Program, see "Additional investor services."
18 YOUR ACCOUNT
<PAGE>
<TABLE>
- ------------------------------------------------------------------------------------------------------
SELLING SHARES
- ------------------------------------------------------------------------------------------------------
<CAPTION>
DESIGNED FOR TO SELL SOME OR ALL OF YOUR SHARES
- ------------------------------------------------------------------------------------------------------
BY LETTER
- ------------------------------------------------------------------------------------------------------
<S> <C>
[GRAPHIC: a business envelope]
* Accounts of any type. * Write a letter of instruction or complete a stock power
indicating the fund name, your share class, your account
* Sales of any amount. 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
- ------------------------------------------------------------------------------------------------------
[GRAPHIC: a telephone]
* Most accounts. * For automated service 24 hours a day using
your touch-tone phone, call the EASI-Line at
* Sales of up to $100,000. 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)
- ------------------------------------------------------------------------------------------------------
[GRAPHIC: an arrow]
* Requests by letter to sell any * Fill out the "Telephone Redemption" section of your
amount (accounts of any type). new account application.
* Requests by phone to sell up to * To verify that the telephone redemption privilege is in
$100,000 (accounts with telephone place on an account, or to request the forms to add it
redemption privileges). 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
- ------------------------------------------------------------------------------------------------------
[GRAPHIC: two arrows]
* Accounts of any type. * Obtain a current prospectus for the fund into which
you are exchanging by calling your financial
* Sales of any amount. representative or Investor Services.
* Call Investor Services to request an exchange.
</TABLE>
- -------------------------------------------
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
* 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.
<TABLE>
- ----------------------------------------------------------------------------------------------------------------------------------
SELLER REQUIREMENTS FOR WRITTEN REQUESTS [GRAPHIC: Envelope]
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C>
Owners of individual, joint, sole proprietorship, UGMA/UTMA * Letter of instruction.
(custodial accounts for minors) or general partner accounts.
* 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).
- ----------------------------------------------------------------------------------------------------------------------------------
Owners of corporate or association accounts. * 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).
- ----------------------------------------------------------------------------------------------------------------------------------
Owners or trustees of trust accounts. * 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).
- ----------------------------------------------------------------------------------------------------------------------------------
Joint tenancy shareholders whose co-tenants are deceased. * Letter of instruction signed by surviving tenant.
* Copy of death certificate.
* Signature guarantee if applicable (see above).
- ----------------------------------------------------------------------------------------------------------------------------------
Executors of shareholder estates. * Letter of instruction signed by executor.
* Copy of order appointing executor.
* Signature guarantee if applicable (see above).
- ----------------------------------------------------------------------------------------------------------------------------------
Administrators, conservators, guardians and other sellers or * Call 1-800-225-5291 for instructions.
account types not listed above.
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
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.
EXECUTION OF REQUESTS Each fund is open on those days when the New York Stock
Exchange is open, typically Monday through 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 other taxpayer ID number and other relevant
information. If appropriate 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 of any other, 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.
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.
ELIGIBILITY BY STATE You may only invest in, or exchange into, fund shares
legally available in your state.
- --------------------------------------------------------------------------------
DIVIDENDS AND ACCOUNT POLICIES
ACCOUNT STATEMENTS In general, you will receive account statements as follows:
* after every transaction (except a dividend reinvestment) that affects your
account balance
* after any changes of name or address of the registered owner(s)
* 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, Investor Services 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) 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 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
representative or Investor Services.
SYSTEMATIC WITHDRAWAL PLAN This 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 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, 401(k) plans, 403(b) plans (including
TSAs) 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 that 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 it is in the shareholders' best interests.
[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.]
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").
FUND DETAILS 23
<PAGE>
ACCOUNTING COMPENSATION The funds compensate the adviser for performing tax
and financial management services. Annual compensation for 1996 will not
exceed 0.02% 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 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.
INVESTMENT GOALS Except for Growth and Income Fund, Sovereign Balanced Fund
and Utilities Fund, each fund's investment goal is fundamental and may only
be changed with shareholder approval.
DIVERSIFICATION All of the growth and income funds are diversified.
- --------------------------------------------------------------------------------
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 authorizing 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.
<TABLE>
Distribution fees may be used to pay for sales compensation to financial
services firms, marketing and overhead expenses and, for Class B shares,
interest expenses.
- --------------------------------------------------------------------------------
CLASS B UNREIMBURSED DISTRIBUTION EXPENSES(1)
- --------------------------------------------------------------------------------
<CAPTION>
UNREIMBURSED AS A % OF
FUND EXPENSES NET ASSETS
<S> <C> <C>
Growth and Income $3,463,988 3.15%
- --------------------------------------------------------------------------------
Independence Equity $ 227,836 4.18%
- --------------------------------------------------------------------------------
Sovereign Balanced $3,097,061 3.72%
- --------------------------------------------------------------------------------
Sovereign Investors $1,907,573 1.00%
- --------------------------------------------------------------------------------
Special Value $ 807,110 7.50%
- --------------------------------------------------------------------------------
Utilities $1,584,645 3.41%
- --------------------------------------------------------------------------------
(1) As of the most recent fiscal year end covered by each fund's financial
highlights. These expenses may be carried forward indefinitely.
</TABLE>
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.
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.
To compensate for continuing services, John Hancock Funds will pay Merrill
Lynch, Pierce, Fenner & Smith, Inc. an annual fee equal to 0.15% of the value of
Class A shares held by its customers for more than four years.
24 FUND DETAILS
<PAGE>
<TABLE>
- ---------------------------------------------------------------------------------------------------------------------------------
CLASS A INVESTMENTS
- ---------------------------------------------------------------------------------------------------------------------------------
<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 - 0.75% 0.25% 1.00%
- ---------------------------------------------------------------------------------------------------------------------------------
Next $1 - $5M above that - 0.25% 0.25% 0.50%
- ---------------------------------------------------------------------------------------------------------------------------------
Next $1 and more above that - 0.00% 0.25% 0.25%
- ---------------------------------------------------------------------------------------------------------------------------------
WAIVER INVESTMENTS(2) - 0.00% 0.25% 0.25%
- ---------------------------------------------------------------------------------------------------------------------------------
CLASS B INVESTMENTS
- ---------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
MAXIMUM
REALLOWANCE FIRST YEAR MAXIMUM
OR COMMISSION SERVICE FEE TOTAL COMPENSATION
(% of offering price) (% of net investment) (% of offering price)
- ---------------------------------------------------------------------------------------------------------------------------------
All amounts 3.75% 0.25% 4.00%
- ---------------------------------------------------------------------------------------------------------------------------------
(1) Reallowance/commission percentages and service fee percentages are
calculated from different amounts, and therefore may not equal total
compensation percenta ges if combined using simple addition.
(2) Refers to any investments made by municipalities, financial institutions,
trusts and affinity group members that take advantage of the sales charge
waivers described earlier in this prospectus.
</TABLE>
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. On the following page 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.
EXTENSION RISK The risk that an unexpected rise in interest rates will
extend the life of a mortgage-backed security beyond the expected prepayment
time, typically reducing the security's value.
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 that 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. 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 less
advantageous investments.
POLITICAL RISK The risk of losses directly attributable to government or
political actions of any sort.
PREPAYMENT RISK The risk that unanticipated prepayments may occur, reducing
the value of mortgage-backed securities.
VALUATION RISK The risk that a fund has valued certain of its securities at
a higher price than it can sell them for.
<TABLE>
- --------------------------------------------------------------------------------
ANALYSIS OF FUNDS WITH 5% OR MORE IN JUNK BONDS(1)
- --------------------------------------------------------------------------------
<CAPTION>
QUALITY RATING
(S&P/MOODY'S)(2) SOVEREIGN BALANCED FUND
<S> <C> <C>
AAA/Aaa 16.0%
INVESTMENT- AA/Aa 2.2%
GRADE BONDS A/A 6.8%
BBB/Baa 5.7%
- --------------------------------------------------------------------------------
BB/Ba 3.5%
B/B 5.3%
JUNK BONDS CCC/Caa 0.0%
CC/Ca 0.0%
C/C 0.0%
% OF PORTFOLIO IN BONDS 39.5%
- -- Rated by S&P or Moody's.
(1) Data as of fund's last fiscal year end.
(2) 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.
</TABLE>
26 FUND DETAILS
<PAGE>
<TABLE>
- ------------------------------------------------------------------------------------------------------------------------------------
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).
Numbers in this table show allowable usage only; for actual usage, consult the fund's
annual/semi-annual reports.
<CAPTION>
10 Percent of total assets (italic type)
10 Percent of net assets (roman type)
* No policy limitation on usage; fund may be using currently
@ Permitted, but has not typically been used GROWTH INDEPENDENCE SOVEREIGN SOVEREIGN SPECIAL
- - Not permitted AND INCOME EQUITY BALANCED INVESTORS VALUE UTILITIES
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
INVESTMENT PRACTICES
BORROWING; REVERSE REPURCHASE AGREEMENTS The borrowing of money
from banks or through reverse repurchase agreements. Leverage,
credit risks. 33.3 33.3 33 - 33.3 33.3
REPURCHASE AGREEMENTS The purchase of a security that must later
be sold back to the issuer at the same price plus interest.
Credit risk. * * * * * *
SECURITIES LENDING The lending of securities to financial
institutions, which provide cash or government securities as
collateral. Credit risk. 33 33.3 33.3 33.3 33.3 33.3
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. - @ @ @ @ @
* Speculative. Speculative leverage, market, liquidity risks. - @ - - @ -
SHORT-TERM TRADING Selling a security soon after purchase. A
portfolio engaging in short-term trading will have higher
turnover and transaction expenses. Market risk. * * * * * *
WHEN-ISSUED SECURITIES AND FORWARD COMMITMENTS 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 rated
below BBB/Baa are considered junk bonds. Credit, market,
interest rate, liquidity, valuation and information risks. 5 - 25 5 - -
FOREIGN SECURITIES Securities issued by foreign companies,
as well as American or European depository receipts, which
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. 35 * 35 - 50 25
RESTRICTED AND ILLIQUID SECURITIES Securities not traded on the
open market. May include illiquid Rule 144A securities. Liquidity,
valuation, market risks. 10 15 15 15 15 15
- ------------------------------------------------------------------------------------------------------------------------------------
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, market,
hedged or speculative leverage, correlation, liquidity,
opportunity risks. * @ * - * @
* Options on securities and indices. Interest rate, currency,
market, hedged or speculative leverage, correlation, liquidity,
credit, opportunity risks. 10(1) @ 5(1) 5(1) 5(1) @
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. * - * - * *
* Speculative. Currency, speculative leverage, liquidity risks. - - - - - -
(1)Applies to purchased options only.
</TABLE>
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 portfolio management 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.
A current SAI 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
EASI-Line: 1-800-338-8080
TDD: 1-800-544-6713
[LOGO] JOHN HANCOCK FUNDS
A GLOBAL INVESTMENT MANAGEMENT FIRM
101 Huntington Avenue
Boston, Massachusetts 02199-7603
[Copyright] 1996 John Hancock Funds, Inc.
GINPN 8/96
[LOGO]
JOHN HANCOCK
FINANCIAL SERVICES
<PAGE>
JOHN HANCOCK SOVEREIGN
INVESTORS FUND
Investment Adviser
John Hancock Advisers, Inc.
101 Huntington Avenue
Boston, Massachusetts 02199-7603
Principal Distributor
John Hancock Funds, Inc.
101 Huntington Avenue
Boston, Massachusetts 02199-7603
Custodian
Investors Bank & Trust Company
89 South Street
Boston, Massachusetts 02111
Transfer Agent
John Hancock Investor Services Corporation
P.O. Box 9296
Boston, Massachusetts 02205-9296
Independent Auditors
Ernst & Young LLP
200 Clarendon St.
Boston, MA 02116
HOW TO OBTAIN INFORMATION
ABOUT THE FUND
For Service Information
For Telephone Exchange Call 1-800-755-4371
For Investment-by-Phone
For Telephone Redemption
290CP 12/96
JOHN HANCOCK
SOVEREIGN
INVESTORS
FUND
CLASS C SHARES
Prospectus
December 2, 1996
A mutual fund seeking long-term growth of capital and income without undue
market risks.
101 Huntington Avenue
Boston, Massachusetts 02199-7603
Telephone 1-800-755-4371
[recycle symbol] Printed on Recycled Paper
<PAGE>
John Hancock
Sovereign
Investors
Fund
CLASS C Shares
Prospectus
December 2, 1996
TABLE OF CONTENTS
Page
-------
Expense Information 2
The Fund's Financial Highlights 3
Investment Objective and Policies 5
Organization and Management of the Fund 7
The Fund's Expenses 8
Dividends and Taxes 9
Performance 10
Who Can Buy Class C Shares 10
How to Buy Class C Shares 10
Class C Share Price 12
How to Redeem Class C Shares 12
Additional Services and Programs 14
This Prospectus sets forth information about John Hancock Sovereign
Investors Fund (the "Fund"), a diversified series of John Hancock Investment
Trust (the "Trust"), that you should know before investing. Please read and
retain it for future reference.
Additional information about the Fund has been filed with the Securities
and Exchange Commission (the "SEC"). You can obtain a copy of the Fund's
Statement of Additional Information, dated December 2, 1996, and incorporated
by reference in this Prospectus, free of charge by writing to or by
telephoning: John Hancock Investor Services Corporation, Post Office Box
9296, Boston, Massachusetts 02205-9296, 1-800-755-4371.
Shares of the Fund are not deposits or obligations of or guaranteed or
endorsed by, any bank, and the shares are not federally insured by the
Federal Deposit Insurance Corporation, the Federal Reserve Board, or any
other agency.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION 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.
<PAGE>
EXPENSE INFORMATION
The purpose of the following information is to help you understand the
various fees and expenses that you will bear, directly or indirectly, when
you purchase Fund shares. The operating expenses included in the table and
hypothetical example below are based on fees and expenses of Class C shares
of the Fund for the fiscal year ended December 31, 1995, adjusted to reflect
current fees and expenses. Actual fees and expenses of Class C shares in the
future may be greater or less than those shown.
Class C
Shareholder Transaction Expenses Shares*
----------
Maximum sales charge imposed on purchases (as a
percentage of offering price) None
Maximum sales charge imposed on reinvested
dividends None
Maximum deferred sales charge None
Redemption fee+ None
Exchange fee None
Annual Fund Operating Expenses
(As a percentage of average net assets)
Management fee+++ 0.58
Other Expenses 0.18
Total Fund operating expenses 0.76
*The information set forth in the foregoing table relates only to Class C
shares.
+Redemption by wire fee (currently $4.00) not included.
+++The calculation of the management fee is based on average net assets for
the fiscal year ended December 31, 1995. See "The Fund's Expenses."
<TABLE>
<CAPTION>
Example: Class C Shares 1 Year 3 Years 5 Years 10 Years
<S> <C> <C> <C> <C>
You would pay the following expenses for the indicated
period of years on a hypothetical $1,000 investment,
assuming a 5% annual return $8 $24 $42 $94
</TABLE>
(This example should not be considered a representation of past or future
expenses. Actual expenses of Class C shares may be greater or less than those
shown.)
The management fee referred to above is more fully explained in this
Prospectus under the caption "The Fund's Expenses" and in the Statement of
Additional Information under the caption "Investment Advisory and Other
Services."
2
<PAGE>
THE FUND'S FINANCIAL HIGHLIGHTS
The following Financial Highlights, for each of the three years in the
period ended December 31, 1995, has been audited by Ernst & Young LLP, the
Fund's independent auditors whose unqualified report is included in the
Fund's 1995 Annual Report and is included in the Statement of Additional
Information. The Financial Highlights for the years 1986 through 1992 were
audited by other independent auditors. Further information about the
performance of the Fund is contained in the Fund's Annual Report to
Shareholders that may be obtained free of charge by writing or telephoning
John Hancock Investor Services Corporation ("Investor Services") at the
address or telephone number listed on the front page of this Prospectus.
Selected data for each class of shares outstanding throughout each period
indicated is as follows:
<TABLE>
<CAPTION>
Six Months
Ended June 30, Year Ended December 31,
1996 ------------------------------------------
(Unaudited) 1995 1994 1993 1992(f)
-------------- ------- ------- ------- ---------
<S> <C> <C> <C> <C> <C>
Class A
Per Share Operating Performance
Net Asset Value, Beginning of Period $ 17.87 $14.24 $15.10 $14.78 $14.31
------------ ----- ----- ----- -------
Net Investment Income 0.17 0.40 0.46 0.44 0.47
Net Realized and Unrealized Gain (Loss)
on Investments 1.43 3.71 (0.75) 0.39 0.54
------------ ----- ----- ----- -------
Total from Investment Operations 1.60 4.11 (0.29) 0.83 1.01
------------ ----- ----- ----- -------
Less Distributions:
Dividends from Net Investment Income (0.17) (0.40) (0.46) (0.42) (0.45)
Distributions from Net Realized Gain on
Investments Sold -- (0.08) (0.11) (0.09) (0.09)
------------ ----- ----- ----- -------
Total Distributions (0.17) (0.48) (0.57) (0.51) (0.54)
------------ ----- ----- ----- -------
Net Asset Value, End of Period $ 19.30 $17.87 $14.24 $15.10 $14.78
============ ===== ===== ===== =======
Total Investment Return at Net Asset
Value (3) 8.98%(7) 29.15% (1.85%) 5.71% 7.23%
------------ ----- ----- ----- -------
Ratios and Supplemental Data
Net Assets, End of Period (000's
omitted) $1,364,566 $1,280,321 $1,090,231 $1,258,575 $872,932
Ratio of Expenses to Average Net Assets 1.10%(8) 1.14% 1.16% 1.10% 1.13%
Ratio of Net Investment Income to
Average Net Assets 1.87%(8) 2.45% 3.13% 2.94% 3.32%
Portfolio Turnover Rate 20% 46% 45% 46% 30%
Average Brokerage Commission (4) $0.0688 N/A N/A N/A N/A
</TABLE>
<TABLE>
<CAPTION>
Year Ended December 31,
---------------------------------------------------------------
1991(f)(h) 1990(f) 1989(f) 1988(f) 1987(f) 1986(f)(i)
------- ------- ------- ------- ------- ---------
<S> <C> <C> <C> <C> <C> <C>
Class A
Per Share Operating Performance
Net Asset Value, Beginning of Period $11.94 $12.60 $11.19 $10.96 $12.36 $11.31
----- ----- ----- ----- ----- -------
Net Investment Income 0.54 0.58 0.59 0.57 0.53 0.58
Net Realized and Unrealized Gain (Loss)
on Investments 3.03 (0.05) 2.01 0.65 (0.45) 1.89
----- ----- ----- ----- ----- -------
Total from Investment Operations 3.57 0.53 2.60 1.22 0.08 2.47
----- ----- ----- ----- ----- -------
Less Distributions:
Dividends from Net Investment Income (0.53) (0.59) (0.61) (0.61) (0.58) (0.55)
Distributions from Net Realized Gain on
Investments Sold (0.67) (0.60) (0.58) (0.38) (0.90) (0.87)
----- ----- ----- ----- ----- -------
Total Distributions (1.20) (1.19) (1.19) (0.99) (1.48) (1.42)
----- ----- ----- ----- ----- -------
Net Asset Value, End of Period $14.31 $11.94 $12.60 $11.19 $10.96 $12.36
===== ===== ===== ===== ===== =======
Total Investment Return at Net Asset
Value (3) 30.48% 4.38% 23.76% 11.23% 0.28% 21.70%
----- ----- ----- ----- ----- -------
Ratios and Supplemental Data
Net Assets, End of Period (000's
omitted) $194,055 $83,470 $66,466 $45,861 $40,564 $34,708
Ratio of Expenses to Average Net Assets 1.18% 1.14% 1.07% 0.86% 0.85% 0.70%
Ratio of Net Investment Income to
Average Net Assets 4.01% 4.77% 4.80% 4.97% 3.96% 4.28%
Portfolio Turnover Rate 67% 55% 40% 35% 59% 34%
Average Brokerage Commission (4) N/A N/A N/A N/A N/A N/A
</TABLE>
3
<PAGE>
<TABLE>
<CAPTION>
Six Months
Ended June 30,
1996
(Unaudited) 1995 1994
--------------- ------- -----------
<S> <C> <C> <C>
Class B (a)
Per Share Operating Performance
Net Asset Value, Beginning of Period $ 17.86 $14.24 $15.02(d)
------------- ----- ---------
Net Investment Income 0.10(6) 0.27(e) 0.38(e)
Net Realized and Unrealized Gain (Loss) on Investments 1.42 3.71 (0.69)
------------- ----- ---------
Total from Investment Operations 1.52 3.98 (0.31)
------------- ----- ---------
Less Distributions:
Dividends from Net Investment Income (0.10) (0.28) (0.36)
Distributions from Net Realized Gain on Investments
Sold -- (0.08) (0.11)
-------------
Total Distributions (0.10) (0.36) (0.47)
-------------
Net Asset Value, End of Period $ 19.28 $17.86 $14.24
============= ===== =========
Total Investment Return at Net Asset Value (g) 8.54%(7) 28.16% (2.04%)(c)
------------- ----- ---------
Ratios and Supplemental Data
Net Assets, End of Period (000's omitted) $337,938 $257,781 $128,069
Ratio of Expenses to Average Net Assets 1.86%(8) 1.90% 1.86%*
Ratio of Net Investment Income to Average Net Assets 1.14(8) 1.65% 2.57%*
Portfolio Turnover Rate 20% 46% 45%
Average Broker Commission Rate (4) $0.0688 N/A N/A
</TABLE>
<TABLE>
<CAPTION>
Six Months Year Ended For the Period
Ended June 30, December 31 May 7, 1993
1996 ---------------- To December 31,
Class C (b) (Unaudited) 1995 1994 1993
--------------- ------ ------ -------------------
<S> <C> <C> <C> <C>
Per Share Operating Performance
Net Asset Value, Beginning of Period $17.87 $14.24 $15.11 $14.79
------------- ---- ---- -----------------
Net Investment Income 0.21 0.46(6) 0.52 0.27(6)
Net Realized and Unrealized Gain (Loss) on
Investments 1.42 3.71 (0.77) 0.48
------------- ---- ---- -----------------
Total from Investment Operations 1.63 4.17 (0.25) 0.75
------------- ---- ---- -----------------
Less Distributions:
Dividends from Net Investment Income (0.21) (0.46) (0.51) (0.34)
Distributions from Net Realized Gain on
Investments Sold -- (0.08) (0.11) (0.09)
------------- ---- ---- -----------------
Total Distributions (0.21) (0.54) (0.62) (0.43)
------------- ---- ---- -----------------
Net Asset Value, End of Period $19.29 $17.87 $14.24 $15.11
============= ==== ==== =================
Total Investment Return at Net Asset Value (g) 9.12%(7) 29.68% (1.57%) 5.13%(7)
------------- ---- ---- -----------------
Ratios and Supplemental Data
Net Assets, End of Period (000's omitted) $23,720 $19,946 $15,128 $10,189
Ratio of Expenses to Average Net Assets 0.74(8) 0.74% 0.81 0.88%(8)
Ratio of Net Investment Income to Average Net
Assets 2.25(8) 2.84% 3.53% 3.17%(8)
Portfolio Turnover Rate 20% 46% 45% 46%
Average Broker Commission Rate (4) $0.0688 N/A N/A N/A
</TABLE>
(1) These periods are covered by the report of other independent
auditors (not included herein).
(2) On October 23, 1991, John Hancock Advisers, Inc. became the
investment adviser of the fund.
(3) Assumes dividend reinvestment and dos not reflect the effect of
sales charges.
(4) Per portfolio share traded. Required for fiscal years that began
September 1, 1995 or later.
(5) Class B shares commenced operations on January 3, 1994.
(6) Based on the average of the shares outstanding at the end of each
month.
(7) Not annualized.
(8) Annualized.
(9) Class C shares commenced operations on May 3, 1993.
4
<PAGE>
INVESTMENT OBJECTIVE AND POLICIES
[sidebar] The Fund's investment objective is to seek long-term growth of
capital and income without undue market risk.
The Fund's investment objective is to provide long term growth of capital and
of income without assuming undue market risks. The Fund believes that its
shares are suitable for investment by persons who are in search of
above-average long term reward. At times, however, because of market
conditions the Fund may find it advantageous to invest primarily for current
income. The Fund will diversify its investments among a number of industry
groups without concentrating more than 25% of its assets in any particular
industry. The Fund's investments will be subject to market fluctuation and
risks inherent in all securities. There is no assurance that the Fund will
achieve its investment objective.
[sidebar] The Fund will invest primarily in common stocks, although it may
respond to market conditions by investing in other types of securities.
Common stocks will generally represent the major part of the Fund's holdings,
although, for defensive purposes, the Fund may temporarily hold a larger
percentage of high grade liquid preferred stocks or debt securities. The
Fund's portfolio securities are selected mainly for their investment
character based upon generally accepted elements of intrinsic value,
including industry position, management, financial strength, earning power,
marketability and prospects for future growth. The distribution or mix of
various types of investments is based on general market conditions, the level
of interest rates, business and economic conditions and the availability of
investments in the equity or fixed income markets. The amount of the Fund's
assets that may be invested in either equity or fixed income securities is
not restricted and is based upon management's judgment of what might best
achieve the Fund's investment objective.
[sidebar] The Fund generally invests in seasoned companies in sound financial
condition with a long record of paying dividends.
While there is considerable flexibility in the investment grade and type of
security in which the Fund may invest, the Fund may only invest in companies
who have (or whose predecessors have) been in continuous business for at
least five years and have total assets of at least $10 million. The Fund
currently uses a strategy of investing only in those common stocks which have
a record of having increased their dividend payout in each of the preceding
ten or more years. This dividend performers strategy can be changed at any
time.
Investments in corporate fixed income securities may be in bonds, convertible
debentures and preferred convertible or non-convertible stock. Convertible
issues, while influenced by the level of interest rates, are also subject to
the changing value of the underlying common stock into which they are
convertible. Fixed income securities eligible for purchase by the Fund may
have stated maturities of one to thirty years. The value of fixed income
securities varies inversely with interest rates. Although fixed income
securities in the Fund's portfolio may include securities rated as low as C
by Standard & Poor's Ratings Group ("S&P") or Moody's Investors Service, Inc.
("Moody's") and unrated securities deemed of equivalent quality by John
Hancock Advisers, Inc. (the "Adviser"), no more than 5% of the Fund's net
assets will be invested in debt securities rated lower than BBB by S&P or Baa
by Moody's or unrated securities of equivalent quality. Bonds rated BBB or
Baa normally exhibit adequate protection parameters. However, speculative
characteristics, and adverse changes in economic conditions or other
circumstances are more likely to lead to weakened capacity to make principal
and interest payments than higher grade bonds. Bonds rated lower than BBB or
Baa are high risk securities commonly known as "junk bonds." If any security
in the Fund's portfolio falls below the Fund's minimum credit quality
standards, as a result of a rating downgrade or the Adviser's determination,
the Fund will dispose of the security as promptly as possible while
attempting to minimize any loss.
5
<PAGE>
Restricted Securities. The Fund may purchase restricted securities, including
those eligible for resale to "qualified institutional buyers" pursuant to
Rule 144A under the Securities Act of 1933 (the "Securities Act"). The Board
of Trustees will monitor the Fund's investments in these securities, focusing
on certain factors, including valuation, liquidity and availability of
information. Purchases of restricted securities are subject to an investment
restriction limiting all the Fund's illiquid securities to not more than 15%
of the Fund's net assets.
Lending of 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 loaned securities. 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. It is a fundamental policy of the
Fund not to lend portfolio securities having a total value in excess of
33-1/3% of its total assets.
Government Securities. The Fund may also invest in securities issued or
guaranteed by the U.S. Government, its agencies 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 Federal National
Mortgage Association ("Fannie Maes"), and obligations supported by the credit
of the instrumentality, such as Student Loan Marketing Association Bonds
("Sallie Maes").
The Fund may invest in mortgage-backed securities which have stated
maturities of up to thirty years when they are issued, depending upon the
length of the mortgages underlying the securities. In practice, however,
unscheduled or early payments of principal and interest on the underlying
mortgages may make the securities' effective maturity shorter than this, and
the prevailing interest rates may be higher or lower than the current yield
of the Fund's portfolio at the time the Fund receives the payments for
reinvestment. Mortgage-backed securities may have less potential for capital
appreciation than comparable fixed-income securities, due to the likelihood
of increased prepayments of mortgages as interest rates decline. If the Fund
buys mortgage-backed securities at a premium, mortgage foreclosures and
prepayments of principal by mortgagors (which may be made at any time without
penalty) may result in some loss of the Fund's principal investment to the
extent of the premium paid.
Repurchase Agreements, Forward Commitments and When-Issued Securities. The
Fund may enter into repurchase agreements and may purchase securities on a
forward commitment or when-issued basis. In a repurchase agreement, the Fund
buys a security subject to the right and obligation to sell it back to the
seller at a higher price. These transactions must be fully collateralized at
all times, but involve some credit risk to the Fund if the other party
defaults on its obligations and the Fund is delayed in or prevented from
liquidating the collateral. The Fund will segregate in a separate account
cash or liquid,
6
<PAGE>
high grade debt securities equal in value to its forward commitments and
when-issued securities. Purchasing securities for future delivery or on a
when-issued basis may increase the Fund's overall investment exposure and
involves a risk of loss if the value of the securities declines before the
settlement date.
[sidebar] The Fund follows certain policies which may help to reduce
investment risk.
Investment Restrictions. The Fund has adopted certain investment restrictions
that are detailed in the Statement of Additional Information, where they are
classified as fundamental or non-fundamental. The Fund's investment objective
and those investment restrictions designated as fundamental may not be
changed without shareholder approval. The Fund's non-fundamental investment
policies and restrictions, however, may be changed by a vote of the Directors
without shareholder approval. The Fund's portfolio turnover rates for recent
years are shown in "The Fund's Financial Highlights."
[sidebar] Brokers are chosen based on best price and execution.
When choosing brokerage firms to carry out the Fund's transactions, the
Adviser gives primary consideration to execution at the most favorable
prices, taking into account the broker's professional ability and quality of
service. Consideration may also be given to the broker's sale of Fund shares.
Pursuant to procedures established by the Trustees, the Adviser may place
securities transactions with brokers affiliated with the Adviser. These
brokers include Interstate/Johnson Lane, Tucker Anthony Incorporated, John
Hancock Distributors, Inc. and Sutro & Company, Inc. which are indirectly
owned by John Hancock Mutual Life Insurance Company (the "Life Company"),
which in turn indirectly owns the Adviser.
ORGANIZATION AND MANAGEMENT OF THE FUND
[sidebar] The Directors elect officers and retain the investment adviser, who
is responsible for the day-to-day operations of the Fund, subject to the
Directors' policies and supervision.
The Fund is organized as a separate, diversified portfolio of the Trust,
which is an open-end management investment company incorporated as a Delaware
corporation in 1936, reincorporated in Maryland in 1990 and reorganized as a
Massachusetts business trust in 1996. The Trust reserves the right to create
and issue a number of series of shares, or funds or classes thereof, which
are separately managed and have different investment objectives. The Trustees
have authorized the issuance of three classes of the Fund, designated as
Class A, Class B and Class C. The shares of each class represent an interest
in the same portfolio of investments of the Fund. Each class has equal rights
as to voting, redemption, dividends and liquidation. However, each class
bears different distribution and transfer agent fees and other expenses.
Also, Class A and Class B shareholders have exclusive voting rights with
respect to their distribution plans.
The Fund is not required to and does not intend to hold annual meetings of
shareholders, although special meetings may be held for such purposes as
electing or removing Trustees, changing fundamental policies or approving a
management contract. The Fund, under certain circumstances, will assist in
shareholder communications with other shareholders.
[sidebar] John Hancock Advisers, Inc. advises investment companies having a
total asset value of more than $19 billion.
The Adviser was organized in 1968 and is a wholly-owned indirect subsidiary
of the Life Company, a financial services company. It provides the Fund, and
other investment companies in the John Hancock group of funds, with
investment research and portfolio management services. John Hancock Funds,
Inc. ("John Hancock Funds") distributes shares for all of the John Hancock
funds through selected broker-dealers ("Selling Brokers"). Certain Fund
officers are also officers of the Adviser and John
7
<PAGE>
Hancock Funds. Pursuant to an order granted by the Securities and Exchange
Commission, the Fund has adopted a deferred compensation plan for its
independent Trustees which allows Trustees' fees to be invested by the Fund
in other John Hancock funds.
Pursuant to a service agreement without the Adviser and its affiliate,
Sovereign Asset Management Corporation ("SAMCorp"), SAMCorp furnishes to the
Adviser certain portfolio management services with respect to the securities
held in the portfolio of the Fund. The Adviser supervises SAMCorp's
performance of such services and is responsible for all services required to
be provided under the Adviser's investment management contract with the Fund.
The Adviser pays to SAMCorp 40% of the fee received from the Fund by the
Adviser.
John F. Snyder III is primarily responsible for management of the equity
securities of the Fund. Barry H. Evans is primarily responsible for
management of the fixed income securities of the Fund. They are assisted by
Jere Estes and a team of analysts. Mr. Snyder has been a portfolio manager of
the Fund since 1984. He has been associated with the Adviser since 1991 when
the Adviser assumed management of the Fund. He is also co-portfolio manager
of John Hancock Sovereign Balanced Fund. Mr. Evans is Vice President and
Portfolio Manager of the Fund and also leads a team of managers on several
other Hancock funds. Mr. Evans has managed bond funds since he joined John
Hancock in 1986.
In order to avoid any conflict with portfolio trades for the Fund, the
Adviser, the Sub-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.
THE FUND'S EXPENSES
For managing its investment and business affairs, the Fund pays a fee to the
Adviser which is based on a stated percentage of the Fund's average daily net
asset value equivalent on an annual basis as follows:
$0 to 750 million 0.60%
750 million to 1.5 billion 0.55%
1.5 billion to 2.5 billion 0.50%
2.5 billion and over 0.45%
The investment management fee for the 1995 fiscal year was 0.58% of the
Fund's average daily net asset value.
From time to time, the Adviser may reduce its fee or make other arrangements
to limit the Fund's expenses to a specified percentage of average net assets.
The Adviser retains the right to impose such fee and recover any other
payments to the extent at the end of any fiscal year, the Fund's actual
expenses at year end fall below the limit.
The Fund compensates the Adviser for performing necessary tax and financial
management services. The compensation for 1996 is estimated to be at an
annual rate of 0.01875% of the average net assets of the Fund.
8
<PAGE>
Information on the Fund's total expenses is in the Fund's Financial
Highlights section of this Prospectus.
DIVIDENDS AND TAXES
[sidebar] The Fund has paid quarterly distributions continuously since 1937.
Dividends. Dividends from the Fund's net investment income are declared and
paid quarterly. Capital gains if any, are generally distributed annually.
From time to time, the Fund may declare a special dividend at year's end.
Dividends are reinvested in additional shares of your class unless you elect
the option to receive cash. If you elect the cash option and the U.S. Postal
Service cannot deliver your checks, your election will be converted to the
reinvestment option.
Taxation. The Fund has qualified and intends to continue to qualify as a
regulated investment company under Subchapter M of the Code. As a regulated
investment company, the Fund will not be subject to Federal income taxes on
any net investment income and net realized capital gains that are distributed
to its shareholders at least annually.
For institutional investors who are not exempt from Federal income taxes,
dividends from the Fund's net investment income, certain net foreign currency
gains, and net short-term capital gains are taxable to you as ordinary
income. Dividends from the Fund's net long-term capital gains are taxable as
long-term capital gain. These dividends are taxable whether you receive cash
or reinvest in additional Class C shares unless you are exempt from taxation
or entitled to tax deferral. Certain dividends paid in January of a given
year may be taxable as if you received them the previous December. Corporate
shareholders may be entitled to take the corporate dividends received
deduction for dividends received by the Fund from U.S. domestic corporations,
subject to certain restrictions under the Internal Revenue Code of 1986, as
amended (the "Code"). The Fund will send you a statement by January 31
showing the tax status of the dividends you received for the prior year.
When you redeem (sell) or exchange Class C shares, you may realize a taxable
gain or loss.
On the account application, you must certify that the taxpayer identification
number you provide is correct and that you are not subject to backup
withholding of Federal income tax. If you do not provide this information or
are otherwise subject to backup withholding, the Fund may be required to
withhold 31% of your taxable dividends, and the proceeds of redemptions and
exchanges.
In addition to Federal taxes, you may be subject to state, local or foreign
taxes, with respect to your investments in and distributions from the Fund.
In many states, a portion of the Fund's dividends that represents interest
received by the Fund on direct U.S. Government obligations may be exempt from
tax. Non-U.S. shareholders and tax-exempt shareholders are subject to a
different tax treatment not described above. Under the Code, a tax-exempt
investor in the Fund will not generally recognize unrelated business taxable
income from its investment in the Fund unless the tax-exempt investor
incurred indebtedness to acquire or continue to hold Fund shares and the
indebtedness remains unpaid. You should consult your tax adviser for specific
advice.
9
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PERFORMANCE
[sidebar] The Fund may advertise its yield and total return on Class C
shares.
Yield reflects the Fund's rate of income on portfolio investments as a
percentage of the Class C share price. Yield is computed by annualizing the
result of dividing the net investment income per share over a 30 day period
by the net asset value per Class C share on the last day of that period.
Yield is also calculated according to accounting methods that are
standardized for all stock and bond funds. Because yield accounting methods
differ from the methods used for other accounting purposes, the Fund's yield
may not equal the income paid on Class C shares or the income reported in the
Fund's financial statements.
The Fund's total return on Class C shares shows the overall dollar or
percentage change in value of a hypothetical investment in the Fund, assuming
the reinvestment of all dividends. Cumulative total return shows the Class C
shares' performance over a period of time. Average annual total return shows
the cumulative return of the Class C Fund shares divided by the number of
years included in the period. Because average annual total return tends to
smooth out variations in the performance of Class C Fund shares, you should
recognize that it is not the same as actual year-to-year results.
Neither total return nor yield calculations with respect to Class C shares
reflect the imposition of a sales charge. The value of Class C Fund shares,
when redeemed, may be more or less than their original cost. Both yield and
total return are historical calculations and are not an indication of future
performance.
WHO CAN BUY CLASS C SHARES
[sidebar] Class C shares are available to certain institutional investors.
In order to buy Class C Fund shares, you must qualify as one of the following
types of institutional investors: (i) Benefits plans (other than
self-directed plans) not affiliated with the Adviser which have at least
$25,000,000 in plan assets and either have a separate trustee vested with
investment discretion and certain limitations on the ability of the plan
beneficiaries to access their plan investments without incurring adverse tax
consequences or allow their participants to select among one or more
investment options, including the Fund ("participant-direct plans"); (ii)
Banks and insurance companies which are not affiliated with the Adviser
purchasing shares for their own account; (iii) Investment companies not
affiliated with the Adviser; (iv) Tax exempt retirement plans of the Adviser
and its affiliates, including affiliated brokers; and (v) Unit investment
trusts sponsored by John Hancock Funds and certain other sponsors and (vi)
existing full-service clients of the Life Company who were group annuity
contract holders as of September 1, 1994. Participant-directed plans include
but are not limited to 401(k), TSA and Section 457 plans.
HOW TO BUY CLASS C SHARES
[sidebar] Opening an account.
The minimum initial investment is $1,000,000, except that this requirement
may be waived at the discretion of the Fund's officers. You may qualify for
the minimum investment if you invest more than $1,000,000 in Class C shares
in the Fund and Class C shares of other funds in the John Hancock family.
This is discussed in greater detail in the Statement of Additional
Information.
Complete the Account Application attached to this Prospectus.
By Check
1. Make your check payable to John Hancock Investor Services Corporation
("Investor Services").
2. Deliver the completed application and check to your registered
representative or Selling Broker, or mail it directly to Investor
Services.
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<PAGE>
By Wire
1. Obtain an account number by contacting your registered representative or
Selling Broker or by calling 1-800-755-4371.
2. Instruct your bank to wire funds to:
First Signature Bank and Trust
John Hancock Deposit Account No. 900000260
ABA Routing No. 211475000
For credit to: John Hancock Sovereign Investors Fund
(Class C shares)
Your account number
Name(s) under which account is registered.
3. Deliver the completed application to your registered representative or
Selling Broker, or mail it directly to Investor Services.
By Telephone
[sidebar] Buying additional Class C shares.
1. Complete the "Invest-By-Phone" and "Bank Information" sections on the
Account Privileges Application designating a bank account from which funds
may be drawn. Note that in order to invest by phone, your account must be
in a bank or credit union that is a member of the Automated Clearing House
System (ACH).
2. After your authorization form has been processed, you may purchase
additional Class C shares by calling Investor Services toll-free at
1-800-755-4371.
3. Give the Investor Services representative the name(s) in which your
account is registered, the Fund name and your account number, and the
amount you wish to invest in Class C shares.
4. Your investment normally will be credited to your account the business day
following your phone request.
By Check
1. Either complete the detachable stub included on your account statement or
include a note with your investment listing the name of the Fund and the
class of shares you own, your account number and the name(s) in which the
account is registered.
2. Make your check payable to John Hancock Investor Services Corporation
3. Mail the account information and check to:
John Hancock Investor Services Corporation
P.O. Box 9296
Boston, MA 02205-9296
or deliver it to your registered representative or Selling Broker.
By Wire
Instruct your bank to wire funds to:
First Signature Bank and Trust
John Hancock Deposit Account No. 900000260
ABA Routing No. 211475000
For credit to: John Hancock Sovereign Investors Fund
(Class C Shares)
Your Account Number
Name(s) under which account is registered.
Other Requirements All purchases must be made in U.S. dollars. Checks written
on foreign banks will delay purchases until U.S. funds are received and a
collection charge may be imposed. Shares of the Fund are priced at the
offering price based on the net asset value computed after John Hancock Funds
receives notification of the dollar equivalent from the Fund's custodian
bank. Wire purchases normally take two or more hours to complete and, to be
accepted the same day, must be received by 4:00 p.m., New York time. Your
bank may charge a fee to wire funds. Telephone transactions are recorded to
verify information. Class C share certificates are not issued unless a
request is made in writing to Investor Services.
11
<PAGE>
[sidebar] You will receive account statements that you should keep to help
with your personal recordkeeping.
You will receive a statement of your account after any transactions that
affects your share balance or registration (statements related to
reinvestment of dividends will be sent to you quarterly). A tax information
statement will be mailed to you by January 31 of each year.
CLASS C SHARE PRICE
[sidebar] The offering price of your Class C shares is their net asset value.
The net asset value per share ("NAV") of a Class C share is the value of one
Class C share. The NAV is calculated by dividing the net assets of each class
by the number of outstanding shares of that class. The NAV of each class can
differ in value. Securities in the Fund's portfolio are valued on the basis
of market quotations, valuations provided by independent pricing services or
at fair value as determined in good faith in accordance with procedures
approved by the Board of Trustees. Short-term debt investments maturing
within 60 days are valued at amortized cost which the Board of Trustees has
determined to approximate market value. Foreign securities are valued on the
basis of quotations from the primary market in which they are traded, and are
translated from the local currency into U.S. dollars using current exchange
rates. If quotations are not readily available or, the value has been
materially affected by events occurring after the closing of a foreign
market, assets are valued by a method that the Directors believe accurately
reflects fair value. The NAV of Class C shares is calculated once daily as of
the close of regular trading on the New York Stock Exchange (the "Exchange")
(generally at 4:00 p.m., New York time) on each day that the Exchange is
open.
Class C shares of the Fund are sold at the offering price based on the NAV
computed after your investment request is received in good order by John
Hancock Funds. If you buy shares of the Fund through a Selling Broker, the
Selling Broker must receive your investment before the close of regular
trading on the Exchange and transmit it to John Hancock Funds prior to its
close of business to receive that day's offering price. No sales charge is
imposed on the purchase of Class C shares.
A one-time payment of up to 0.15% of the amount invested in Class C shares
may be made by John Hancock Funds to a Selling Broker for sales of Class C
shares made by that Selling Broker. A person entitled to receive compensation
for selling shares of the Fund may receive different compensation with
respect to sales of Class A shares, Class B shares and Class C shares of the
Fund. John Hancock Funds, out of its own resources, may pay to a selling
Broker an annual service fee up to 0.20% of the amount invested in Class C
shares by these clients.
HOW TO REDEEM CLASS C SHARES
You may redeem all or a portion of your Class C shares on any business day.
Your Class C shares will be redeemed at the next NAV for Class C shares
calculated after your redemption request is received in good order by
Investor Services. The Fund may hold payment until reasonably satisfied that
investments which were recently made by check or Invest-by-Phone have been
collected (which may take up to 10 calendar days).
Once your Class C shares are redeemed, the Fund generally sends you payment
on the next business day. When you redeem your Class C shares, you may
realize a taxable gain or loss depending usually on the difference between
what you paid for them and what you receive for them, subject to certain tax
rules. Under unusual circumstances, the Fund may suspend redemptions or
postpone payment for up to three business days or longer, as permitted by
Federal securities laws.
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<PAGE>
[sidebar] To assure acceptance of your redemption request, please follow the
procedures.
By Telephone
All Fund shareholders are eligible automatically for the telephone redemption
privilege. Call 1-800-755-4371, from 8:00 A.M. to 4:00 P.M. (New York Time),
Monday through Friday, excluding days on which the New York Stock Exchange is
closed. Investor Services employs the following procedures to confirm that
instructions received by telephone are genuine. Your name, the account
number, taxpayer identification number applicable to the account and other
relevant information may be requested. In addition, telephone instructions
are recorded.
You may redeem up to $100,000 by telephone and redemption proceeds may be
sent by wire or by check. Checks will be mailed to the exact name(s) and
address on the account.
You may redeem between $100,000 and $5 million by telephone but only if the
redemption proceeds will be wired to your designated corporate bank account.
If reasonable procedures, such as those described above, are not followed,
the Fund may be liable for any loss due to unauthorized or fraudulent
instructions. In all other cases, neither the Fund nor Investor Services will
be liable for any loss or expense for acting upon telephone instructions made
according with the telephone transaction procedures mentioned above.
Telephone redemption is not available for tax-qualified retirement plans or
for Class C shares of the Fund that are in certificate form.
During periods of extreme economic conditions or market changes, telephone
requests may be difficult to implement due to a large volume of calls. During
such times you should consider placing redemption requests in writing.
This feature may be elected by completing the "Telephone Redemption" section
on the Institutional Account Application that is included with this
Prospectus.
In Writing
Send a stock power or letter of instruction specifying the name of the Fund,
the dollar amount or the number of Class C shares to be redeemed, your name,
class of shares, your account number and the additional requirements listed
below that apply to your particular account.
Type of Registration Requirements
- --------------------------- ------------------------------------------
Corporation, Association A letter of instruction and a corporate
resolution signed by person(s) authorized
to act on the account. The signature(s)
must be guaranteed if redemption proceeds
will be sent by check and exceed $100,000.
Trusts A letter of instruction signed by the
Trustee(s). The signatures must be
guaranteed if redemption proceeds will be
sent by check and exceed $100,000. (If the
Trustee's name is not registered on your
account, also provide a copy of the trust
document, certified within the last 60
days.)
Redemptions of $5 million or more must always be made in writing.
If you do not fall into any of these registration categories, please call
1-800-755-4371 for further instructions.
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<PAGE>
[sidebar] Who may guarantee your signature.
A signature guarantee is a widely accepted way to protect you and the Fund by
verifying the signature on your request. It may not be provided by a notary
public. The following institutions may provide you with a signature
guarantee, provided that the institution meets credit standards established
by Investor Services: (i) a bank; (ii) a securities broker or dealer,
including a government or municipal securities broker or dealer, that is a
member of a clearing corporation or meets certain net capital requirements;
(iii) a credit union having authority to issue signature guarantees; (iv) a
savings and loan association, a building and loan association, a cooperative
bank, a federal savings bank or association; or (v) a national securities
exchange, a registered securities exchange or a clearing agency.
Through Your Broker
[sidebar] Additional information about redemptions.
Your broker may be able to initiate the redemption. Contact your broker for
instructions.
If you have certificates for your shares, you must submit them with your
stock power or a letter of instruction. You may not redeem certificated
shares by telephone.
Due to the proportionately high cost of maintaining smaller accounts, the
Fund reserves the right to redeem all Class C shares in an account which
holds fewer than 50 shares (except accounts under retirement plans) and to
mail the proceeds to the shareholder, or the transfer agent may impose an
annual fee of $10.00. No account will be involuntarily redeemed or additional
fee imposed, if the value of the account is in excess of the Fund's minimum
initial investment. Shareholders will be notified before these redemptions
are to be made or this charge is imposed and will have 30 days to purchase
additional Class C shares to bring their account balance up to the required
minimum. Unless the number of Class C shares acquired by additional purchases
and any dividend reinvestments exceeds the number of Class C shares redeemed,
repeated redemptions from a smaller account may eventually trigger this
policy.
ADDITIONAL SERVICES AND PROGRAMS
Exchange Privilege
[sidebar] You may exchange Class C shares of the Fund only for Class C shares
of another John Hancock fund.
If your investment objective changes, or if you wish to achieve further
diversification, John Hancock offers other funds with a wide range of
investment goals. Not all John Hancock funds offer Class C. Contact your
registered representative or Selling Broker and request a prospectus for the
John Hancock funds that interest you. Read the prospectus carefully before
exchanging your Class C shares. Exchanges may be made only into Class C
shares of other John Hancock funds.
Exchanges between funds are based on their respective net asset values. No
sales charge or transaction charge is imposed.
The Fund reserves the right to require you to keep previously exchanged Class
C shares (and reinvested dividends) in the Fund for 90 days before you are
permitted a new exchange. The Fund may also terminate or alter the terms of
the exchange privilege upon 60 days' notice to shareholders.
An exchange of shares is treated as a redemption of shares of one fund and
the purchase of shares of another for Federal income tax purposes. An
exchange may result in a taxable gain or loss.
When you make an exchange, your account registration must be identical in
both the existing and new account. The exchange privilege is available only
in states where the exchange can be made legally.
14
<PAGE>
Under exchange agreements with John Hancock Funds, certain dealers, brokers
and investment advisers may exchange their clients' Fund shares, subject to
the terms of those agreements and John Hancock Funds' right to reject or
suspend those exchanges at any time. Because of the restrictions and
procedures under those agreements, the exchanges may be subject to timing
limitations and other restrictions that do not apply to exchanges requested
by shareholders directly, as described above.
Because Fund performance and shareholders can be hurt by excessive trading,
the Fund reserves the right to terminate the exchange privilege for any
person or group that, in John Hancock Funds' judgment, is involved in a
pattern of exchanges that coincide with a "market timing" strategy that may
disrupt the Fund's ability to invest effectively according to its investment
objective and policies, or might otherwise affect the Fund and its
shareholders adversely. The Fund may also temporarily or permanently
terminate the exchange privilege for any person who makes seven or more
exchanges out of the Fund per calendar year. Accounts under common control or
ownership will be aggregated for this purpose. Although the Fund will attempt
to give prior notice whenever it is reasonably able to do so, it may impose
these restrictions at any time.
By Telephone
1. When you complete the application for your initial purchase of Class C
shares of the Fund, you automatically authorize exchanges by telephone
unless you check the box indicating that you do not wish to authorize the
telephone exchange privilege.
2. Call 1-800-755-4371. Have the account number of your current fund and the
exact name in which it is registered available to give to the customer
service representative.
3. Your name, the account number, taxpayer identification number applicable
to the account and other relevant information may be requested. In
addition, telephone instructions are recorded.
In Writing
1. In a letter request an exchange and list the following:
--name of the Fund whose Class C shares you currently own
--your account number
--the name(s) in which the account is registered
--the name of the fund in which you wish your exchange to be invested
--the number of Class C shares, all Class C shares or the dollar amount
you wish to exchange.
Sign your request exactly as the account is registered.
2. Mail the request and information to:
Attn: Institutional Services
John Hancock Investor Services Corporation
P.O. Box 9296
Boston, Massachusetts 02205-9296
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<PAGE>
JOHN HANCOCK GROWTH AND INCOME FUND
CLASS A AND CLASS B SHARES
STATEMENT OF ADDITIONAL INFORMATION
December 2, 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 December 2, 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..................................... 17
Investment Advisory and Other Services............................... 28
Distribution Contract................................................ 31
Net Asset Value...................................................... 33
Initial Sales Charge on Class A Shares............................... 34
Deferred Sales Charge on Class B Shares.............................. 37
Special Redemptions.................................................. 41
Additional Services and Programs..................................... 41
Description of the Fund's Shares..................................... 42
Tax Status........................................................... 45
Calculation of Performance........................................... 50
Brokerage Allocation................................................. 52
Transfer Agent Services.............................................. 55
Custody of Portfolio................................................. 55
Independent Auditors................................................. 55
Appendix A........................................................... 56
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 investment objective of the Fund is to obtain the highest total
return, a combination of capital appreciation and current income, consistent
with reasonable safety of capital.
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.
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 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 2 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
2
<PAGE>
form of American Depository Receipts (ADRs), European Depository Receipts (EDRs)
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.
3
<PAGE>
Investors should note that upon the accession to power of authoritarian
regimes, the governments of a number of Latin American countries previously
expropriated large quantities of real and personal property similar to the
property which may be represented by the securities purchased by the 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
4
<PAGE>
appropriate steps to evaluate the proposed investment, which may include on-site
inspection of the issuer, interviews with its management and consultations with
accountants, bankers and other specialists. There is substantially less publicly
available information about foreign companies than there are reports and ratings
published about U.S. companies and the U.S. Government. In addition, where
public information is available, it may be less reliable than such information
regarding U.S. issuers.
Because the 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
5
<PAGE>
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
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
6
<PAGE>
SEC or commodities exchanges regulated by the Commodity Futures Trading
Commission.
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. As a matter of nonfundamental policy, 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.
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.
If the Fund enters into a forward contract requiring it to purchase
foreign currency, its custodian bank will segregate cash or liquid 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 liquid 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.
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
7
<PAGE>
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 BBB or Baa or lower and unrated
securities can pose more risks and involve greater volatility of price and risk
of loss of principal and income than higher quality securities. These debt
securities are considered, to varying degrees, speculative in that change in
economic conditions or other circumstances are more likely to lead to a weakened
capacity to make principal and interest payments than in the case of higher
quality securities. 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 be susceptible to adverse publicity and investor perceptions,
whether or not justified by fundamental factors.
8
<PAGE>
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
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.
9
<PAGE>
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 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. 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 Fund which it is obligated to repurchase. The Fund
will also continue to be subject to the risk of a decline in the market value of
the securities sold under the agreements because it will reacquire those
securities upon effecting their repurchase. The Fund will not enter into reverse
repurchase agreements exceeding in the aggregate 33 1/3% of the market value of
its total assets. The Fund will enter into reverse repurchase agreements only
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 banks 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
10
<PAGE>
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 or liquid
securities 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 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 or liquid
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
11
<PAGE>
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.
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
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<PAGE>
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
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
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<PAGE>
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 or liquid securities 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 liquid securities 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.
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 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
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<PAGE>
days, securities that are not readily marketable and restricted securities.
However, 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.
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.
15
<PAGE>
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.
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.
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<PAGE>
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
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 the Fund's principal distributor, John Hancock Funds, Inc.
("John Hancock Funds").
The following table sets forth the principal occupation or employment
of the Trustees during the past five years:
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<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 Chairman and Chief Executive
101 Huntington Avenue Chief Executive Officer, the Adviser and The
Boston, MA 02199 Officer(3)(4) 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.
18
<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.
19
<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.
20
<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
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).
* 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
- ---------------- -------------- ----------------------
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.
22
<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).
</TABLE>
The executive officers of the Trust and their principal occupations
during the past five years are set forth below. Unless otherwise indicated, the
business address of each is 101 Huntington Avenue, Boston, Massachusetts 02199.
* 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>
<TABLE>
<CAPTION>
Position(s) held Principal Occupation(s)
Name and Date of Birth with Trust During Past 5 Years
- ---------------------- ---------- -------------------
<S> <C> <C>
Robert G. Freedman* Vice Chairman and Chief Vice Chairman and Chief Investment
July 1938 Investment Officer(4) Officer, the Adviser; President,
the Adviser (until December 1994).
James B. Little* Senior Vice President and Senior Vice President, the Adviser.
February 1935 Chief Financial Officer
James J. Stokowski* Vice President and Vice President, the Adviser.
November 1946 Treasurer
Susan S. Newton* Vice President and Vice President and Assistant
March 1950 Secretary Secretary, the Adviser.
John A. Morin* Vice President Vice President, the Adviser.
July 1950
</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.
24
<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 417,175 5.01%
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.
25
<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.
26
<PAGE>
Aggregate Total Compensation from
Compensation all Funds in John Hancock
Trustees from the Fund+ 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 all
Compensation Funds in John Hancock Fund
Advisory Board* from the 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
27
<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
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
28
<PAGE>
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.
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
29
<PAGE>
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.
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
30
<PAGE>
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.
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
31
<PAGE>
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:
<TABLE>
<CAPTION>
Printing and
Mailing of Interest,
Prospectuses Carrying or
to New Compensation to Other Finance
Advertising Shareholders Selling Brokers Charges
----------- ------------ --------------- -------
<S> <C> <C> <C> <C>
Class A shares $23,907 $887 $166,264 $ 0
Class B shares $19,812 $804 $652,464 $321,811
</TABLE>
32
<PAGE>
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."
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.
33
<PAGE>
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 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
34
<PAGE>
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
registered investment management 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.
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 sharing or other benefit plan of
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.
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<PAGE>
o A member of a class action lawsuit against insurance companies who is
investing settlement proceeds.
o Existing full service clients of the Life Company who were group annuity
contract holders as of September 1, 1994, and participant directed defined
contribution plans with at least 100 eligible employees at the inception of
the Fund account, may purchase Class A shares with no initial sales charge.
However, if the shares are redeemed within 12 months after the end of the
calendar year in which the purchase was made, a CDSC will be imposed at the
following rate:
Amount Invested CDSC Rate
--------------- ---------
$1 Million to $4,999,999 1.00%
Next $5 million to $9,999,999 0.50%
Amounts of $10 million and over 0.25%
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.
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, SEP, SARSEP, 401(k), 403(b) (including
TSAs) and 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
36
<PAGE>
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.
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.
Class B shares are not available to full-service defined contribution
plans administered by Investor Services or the LIfe Company that had more than
100 eligible employees at the inception of the Fund account.
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
37
<PAGE>
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 six-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 six-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.
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:
o Proceeds of 50 shares redeemed at $12 per share $ 600
o Minus proceeds of 10 shares not subject to CDSC
(dividend reinvestment) -120
o Minus appreciation on remaining shares (40 shares X 2) - 80
------
o Amount subject to CDSC $ 400
Proceeds from the CDSC are paid to John Hancock Funds and are used in
whole or in part by John Hancock Funds to defray its 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.
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<PAGE>
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:
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.
* Redemptions of Class B shares made under a periodic withdrawal plan, as
long as your annual redemptions do not exceed 12% of your account value,
including reinvested dividends, at the time you established your periodic
withdrawal plan and 12% of the value of subsequent investments (less
redemptions) in that account at the time you notify Investor Services.
(Please note that this waiver does not apply to periodic withdrawal plan
redemptions of Class A shares that are subject to a CDSC).
For Retirement Accounts (such as IRA, Rollover IRA, TSA, 457, 403(b), 401(k),
Money Purchase Pension Plan, Profit-Sharing Plan and other qualified plans as
described in the Internal Revenue Code) unless otherwise noted.
* Redemptions made to effect mandatory or life expectancy distributions under
the Internal Revenue Code.
* Returns of excess contributions made to these plans.
* Redemptions made to effect distributions to participants or beneficiaries
from employer sponsored retirement plans under Section 401(a) of the Code
(such as 401(k), Money Purchase Pension Plan, Profit Sharing Plan).
* Redemptions from certain IRA and retirement plans that purchased shares
prior to October 1, 1992 and certain IRA accounts that purchased shares
prior to May 15, 1995.
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<PAGE>
Please see matrix for reference.
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 for 12% of account
mandatory value annually
distributions or in periodic
12% of account payments
value annually
in periodic
payments
- ------------------------------------------------------------------------------------------------------------------------
Between 59 1/2 Waived Waived Waived Waived for Life 12% of account
and 70 1/2 Expectancy or 12% value annually
of account value in periodic
annually in payments
periodic payments
- ------------------------------------------------------------------------------------------------------------------------
Under 59 1/2 Waived Waived for annuity Waived for annuity Waived for annuity 12% of account
payments (72t)or payments (72t)or payments (72t)or value annually
12% of account 12% of account 12% of account in periodic
value annually in value annually in value annually in payments
periodic payments periodic payments periodic payments
- ------------------------------------------------------------------------------------------------------------------------
Loans Waived Waived N/A N/A N/A
- ------------------------------------------------------------------------------------------------------------------------
Termination of Not Waived Not Waived Not Waived Not Waived N/A
Plan
- ------------------------------------------------------------------------------------------------------------------------
Hardships Waived Waived Waived N/A N/A
- ------------------------------------------------------------------------------------------------------------------------
Return of
Excess Waived Waived Waived Waived N/A
- ------------------------------------------------------------------------------------------------------------------------
</TABLE>
If you qualify for a CDSC waiver under one of these situations, you
must notify Investor Services at the time you make your redemption. The waiver
will be granted once Investor Services has confirmed that you are entitled to
the waiver.
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<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.
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<PAGE>
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.
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."
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
42
<PAGE>
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.
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
43
<PAGE>
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.
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. The Declaration of Trust
also provides that no series of the Trust shall be liable for the liabilities of
any other series. 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.
Notwithstanding the fact that the Prospectus is a combined prospectus
for the Fund and other John Hancock mutual funds, the Fund shall not be liable
for the liabilities of any other John Hancock mutual fund.
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:
44
<PAGE>
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.
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.
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
45
<PAGE>
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.
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
46
<PAGE>
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.
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
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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.
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.
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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. Government
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
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
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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.
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
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10.50%, respectively. As of August 31, 1995, 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).
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
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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.
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
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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
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
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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 an indirect shareholder of 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
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.
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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
$19.00 for each Class A shareholder and $21.50 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"), 89 South
Street, 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 periods prior to 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.
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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
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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.
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JOHN HANCOCK
SOVEREIGN BALANCED FUND
CLASS A AND CLASS B SHARES
Statement of
Additional Information
December 2, 1996
This Statement of Additional Information provides information about John
Hancock Sovereign Balanced Fund (the "Fund") in addition to the information that
is contained in the Fund's Prospectus dated December 2, 1996 (the "Prospectus").
This Statement of Additional Information 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 02205-9116
1-(800)-225-5291
TABLE OF CONTENTS
Page
Organization of the Fund................................................. 3
Investment Objectives, Policies and
Risk Considerations................................................. 5
Certain Investment Practices............................................. 6
Investment Restrictions.................................................. 22
Ratings.................................................................. 26
Those Responsible for Management......................................... 26
Investment Advisory and Other Services................................... 36
Net Asset Value.......................................................... 38
Distribution Contracts................................................... 39
Initial Sales Charge on Class A Shares................................... 41
Deferred Sales Charge on Class B Shares.................................. 45
Additional Services and Programs for Class A and
Class B Shares......................................................... 49
Tax Status............................................................... 50
Description of Fund Shares............................................... 56
Calculation of Performance............................................... 58
Brokerage Allocation..................................................... 61
Transfer Agent Services.................................................. 63
<PAGE>
Custody of Portfolio..................................................... 63
Independent Auditors..................................................... 64
Appendix................................................................. A-1
Financial Statements..................................................... F-1
2
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ORGANIZATION OF FUND
John Hancock Sovereign Balanced Fund (the "Fund") is a separate diversified
portfolio of John Hancock Investment Trust (the "Trust"), an open-end investment
management company. The Trust was organized as a Massachusetts business trust
under a Declaration of Trust dated December 12, 1984. Prior to December 2, 1996,
the Fund was a separate diversified portfolio of John Hancock Sovereign
Investors Fund, Inc.
The Fund is managed by John Hancock Advisers, Inc. (the "Adviser"). The
Adviser is an indirect wholly-owned subsidiary of the John Hancock Mutual Life
Company (the "Life Company"), chartered in 1862, with national headquarters at
John Hancock Place, Boston, Massachusetts.
INVESTMENT OBJECTIVES, POLICIES AND RISK CONSIDERATIONS
The investment objectives of the Fund are to provide current income,
long-term growth of capital and income and preservation of capital without
assuming what the Adviser believes to be undue market risks. At times, however,
because of market conditions, the Fund may invest primarily for current income.
There is no assurance that the Fund's objectives will be achieved. The Fund will
allocate its investments among different types and classes of securities in
accordance with the Adviser's appraisal of economic and market conditions.
Shareholder approval is not required to effect changes in the Fund's investment
objectives.
The Fund may invest in any type or class of security. At least 25% of the
value of the Fund's total assets will be invested in fixed income senior
securities. Fixed income securities may include both convertible and
non-convertible debt securities and preferred stock, and only that portion of
their value attributed to their fixed income characteristics, as determined by
the Adviser, can be used in applying the 25% test. The balance of the Fund's
total assets may consist of cash or (i) equity securities of established
companies, (ii) equity and fixed income securities of foreign corporations,
governments or other issuers meeting applicable quality standards as determined
by the Fund's investment adviser, (iii) foreign currencies, (iv) securities that
are issued or guaranteed as to interest and principal by the U.S. Government,
its agencies, authorities or instrumentalities, (v) obligations and equity
securities of banks or savings and loan associations (including certificates of
deposit and bankers' acceptances); and (vi) to the extent available and
permissible, options and futures contracts on securities, currencies and
indices. Each of these investments is more fully described below. The Fund's
portfolio securities are selected mainly for their investment character based
upon generally accepted elements of intrinsic value, including industry
position, management, financial strength, earning power, marketability and
prospects for future growth. The distribution or mix of various types of
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investments is based on general market conditions, the level of interest rates,
business and economic conditions and the availability of investments in the
equity or fixed income markets.
While there is considerable flexibility in the investment quality and type
of securities in which the Fund may invest, the Fund's investments in equity
securities are limited to securities of companies who have (or whose
predecessors have) been in business continuously for at least five years and
have total assets of at least $10 million. Equity securities, for purposes of
the Fund's investment policy, are limited to common stocks, preferred stocks,
investment grade convertible securities and warrants. In addition, the Fund
utilizes a strategy of investing only in those common stocks which have a record
of having increased their shareholder dividend in each of the preceding ten or
more years. This dividend performers strategy may be changed at any time.
At least 75% of the Fund's total investments in fixed income securities
(other than commercial paper) will be rated within the four highest grades as
determined by Moody's Investors Service, Inc. ("Moody's") (Aaa, Aa, A or Baa) or
Standard & Poor's Ratings Group ("S&P") (AAA, AA, A or BBB). Fixed income
securities rated Baa or BBB are considered medium grade obligations with
speculative characteristics; and adverse economic conditions or changing
circumstances may weaken their issuers' capacity to pay interest and repay
principal.
The Fund diversifies its investments among a number of industry groups
without concentrating more than 25% of its assets in any particular industry.
The Fund's investments are subject to market fluctuation and the risks inherent
in all securities. There is no assurance that the Fund will achieve its
investment objectives.
Assuming relatively stable economic conditions, it is anticipated that the
annual portfolio turnover rate will not usually exceed 100%. However, under
certain economic conditions, a higher turnover may be advisable to achieve the
Fund's objectives.
Foreign Securities. The Fund may invest up to 35% of its total assets in
securities of foreign companies. The actual percentage that will be allocated to
foreign securities will vary depending on the relative yields of foreign and
U.S. securities, the economies of foreign countries, the condition of such
countries' financial markets, the interest rate climate of such countries and
the relationship of such countries' currency to the U.S. dollar. These factors
are judged on the basis of fundamental economic criteria (e.g., relative
inflation levels and trends, growth rate forecasts, balance of payments status
and economic policies) as well as technical and political data.
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Global Risks. Investments in foreign securities may involve risks not
present in domestic securities due to exchange controls, less publicly available
information, more volatile or less liquid securities markets, and the
possibility of expropriation, confiscatory taxation or political, economic or
social instability. There may be difficulty in enforcing legal rights outside
the United States. Some foreign companies are not subject to the same uniform
financial reporting requirements, accounting standards and government
supervision as domestic companies, and foreign exchange markets are regulated
differently from the U.S. stock market. Security trading practices abroad may
offer less protection to investors such as the Fund. In addition, foreign
securities may be denominated in the currency of the country in which the issuer
is located. Consequently, changes in the foreign exchange rate will affect the
value of the Fund's shares and dividends.
These risks may be intensified in the case of investments in emerging
markets or countries with limited or developing capital markets. These countries
are located in the Asia-Pacific region, Eastern Europe, Latin and South America
and Africa. Security prices in these markets can be significantly more volatile
than in more developed countries, reflecting the greater uncertainties of
investing in less established markets and economies. Political, legal and
economic structures in many of these emerging market countries may be undergoing
significant evolution and rapid development, and they may lack the social,
political, legal and economic stability characteristic of more developed
countries. Emerging market countries may have failed in the past to recognize
private property rights. They may have relatively unstable governments, present
the risk of nationalization of businesses, restrictions on foreign ownership, or
prohibitions on repatriation of assets, and may have less protection of property
rights than more developed countries. Their economies may be predominantly based
on only a few industries, may be highly vulnerable to changes in local or global
trade conditions, and may suffer from extreme and volatile debt burdens or
inflation rates. Local securities markets may trade a small number of securities
and may be unable to respond effectively to increases in trading volume,
potentially making prompt liquidation of substantial holdings difficult or
impossible at times. The Fund may be required to establish special custodial or
other arrangements before making certain investments in those countries.
Securities of issuers located in these countries may have limited marketability
and may be subject to more abrupt or erratic price movements.
CERTAIN INVESTMENT PRACTICES
Forward Commitment and When-Issued Securities. The Fund may purchase
securities on a when-issued or forward commitment basis. "When-issued" refers to
securities whose terms are available and for which a market exists, but which
have not been issued. The Fund will engage in when-issued transactions with
respect to securities purchased for its portfolio in order to obtain what is
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considered to be an advantageous price and yield at the time of the transaction.
For when-issued transactions, no payment is made until delivery is due, often a
month or more after the purchase. In a forward commitment transaction, the Fund
contracts to purchase securities for a fixed price at a future date beyond
customary settlement time.
When the Fund engages in forward commitment and when-issued transactions,
it relies on the seller to consummate the transaction. The failure of the issuer
or seller to consummate the transaction may result in the Fund's losing the
opportunity to obtain a price and yield considered to be advantageous. The
purchase of securities on a when-issued or forward commitment basis also
involves a risk of loss if the value of the security to be purchased declines
prior to the settlement date.
On the date the Fund enters into an agreement to purchase securities on a
when-issued or forward commitment basis, the Fund will segregate in a separate
account cash or liquid, high grade debt securities equal in value to the Fund's
commitment. These assets will be valued daily at market, and additional cash or
securities will be segregated in a separate account to the extent that the total
value of the assets in the account declines below the amount of the when-issued
commitments. Alternatively, the Fund may enter into offsetting contracts for the
forward sale of other securities that it owns.
Repurchase Agreements. A repurchase agreement is a contract under which the
Fund would acquire a security for a relatively short period (usually not more
than 7 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 "primary dealers" in U.S.
Government securities. The Adviser will continuously monitor the
creditworthiness of the parties with whom it 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 or be
prevented from liquidating the underlying securities and could experience
losses, including the possible decline in the value of the underlying securities
during the period while the Fund seeks to enforce its rights thereto, possible
subnormal levels of income and lack of access to income during this period, and
expense of enforcing its rights.
Reverse Repurchase Agreements. The Fund may also enter into reverse
repurchase agreements which involve the sale of U.S. Government securities held
in its portfolio to a bank with an agreement that the Fund will buy back the
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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. 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 Fund which it is obligated to repurchase. The Fund
will also continue to be subject to the risk of a decline in the market value of
the securities sold under the agreements because it will reacquire those
securities upon effecting their repurchase. In addition, the Fund will not enter
into reverse repurchase agreements and other borrowings exceeding in the
aggregate 33% of the market value of its total assets. The Fund will enter into
reverse repurchase agreements only 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 banks involved.
Financial Futures Contracts. The Fund may hedge its portfolio by selling
financial futures contracts as an offset against the effect of expected
increases in interest rates or declines in security or foreign currency values
and by purchasing such futures contracts as an offset against the effect of
expected declines in interest rates or increases in security or foreign currency
values. Although other techniques could be used to reduce the Fund's exposure to
interest rate, securities market and currency fluctuations, the Fund may be able
to hedge its exposure more effectively and perhaps at a lower cost by using
financial futures contracts. The Fund will enter into financial futures
contracts for hedging, speculative and other non-hedging purposes.
Financial futures contracts have been designed by boards of trade which
have been designated "contract markets" by the Commodity Futures Trading
Commission ("CFTC"). Futures contracts are traded on these markets in a manner
that is similar to the way a stock is traded on a stock exchange. The boards of
trade, through their clearing corporations, guarantee that the contracts will be
performed. It is expected that if new types of financial futures contracts are
developed and traded the Fund may engage in transactions in such contracts.
Although some financial futures contracts by their terms call for actual
delivery or acceptance of financial instruments, in most cases the contracts are
closed out prior to delivery by offsetting purchases or sales of matching
financial futures contracts (same exchange, underlying security or currency and
delivery month). Other financial futures contracts, such as futures contracts on
securities indices, by their terms call for cash settlements. If the offsetting
purchase price is less than the Fund's original sale price, the Fund realizes a
gain, or if it is more, the Fund realizes a loss. Conversely, if the offsetting
sale price is more than the Fund's original purchase price, the Fund realizes a
gain, or if it is less, the Fund realizes a loss. The transaction costs must
also be included in these calculations. The Fund will pay a commission in
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connection with each purchase or sale of financial futures contracts, including
a closing transaction. For a discussion of the Federal income tax considerations
of transactions in financial futures contracts, see the information under the
caption "Tax Status" below.
At the time the Fund enters into a financial futures contract, it is
required to deposit with its custodian a specified amount of cash or U.S.
Government securities, known as "initial margin." The margin required for a
financial futures contract is set by the board of trade or exchange on which the
contract is traded and may be modified during the term of the contract. The
initial margin is in the nature of a performance bond or good faith deposit on
the financial futures contract which is returned to the Fund upon termination of
the contract, assuming all contractual obligations have been satisfied. The Fund
expects to earn interest income on its initial margin deposits. Each day, the
futures contract is valued at the official settlement price of the board of
trade or exchange on which it is traded. Subsequent payments, known as
"variation margin," to and from the broker are made on a daily basis as the
market price of the financial futures contract fluctuates. This process is known
as "mark to market." Variation margin does not represent a borrowing or lending
by the Fund but is instead a settlement between the Fund and the broker of the
amount one would owe the other if the financial futures contract expired. In
computing net asset value, the Fund will mark to the market its open financial
futures positions.
Successful hedging depends on the extent of correlation between the market
for the underlying securities and the futures contract market for those
securities or currency. There are several factors that will probably prevent
this correlation from being perfect, and even a correct forecast of general
interest rate, securities market or currency trends may not result in a
successful hedging transaction. There are significant differences between the
securities or currency markets and the futures markets which could create an
imperfect correlation between the markets and which could affect the success of
a given hedge. The degree of imperfection of correlation depends on
circumstances such as: variations in speculative market demand for financial
futures and debt and equity securities, including technical influences in
futures trading and differences between the financial instruments being hedged
and the instruments underlying the standard financial futures contracts
available for trading in such respects as interest rate levels, maturities and
creditworthiness of issuers. The degree of imperfection may be increased where
the underlying debt securities are lower-rated, and, thus, subject to greater
fluctuation in price than higher-rated securities.
A decision as to whether, when and how to hedge involves the exercise of
skill and judgment, and even a well-conceived hedge may be unsuccessful to some
degree because of market behavior or unexpected interest rate, securities market
or currency trends. The Fund will bear the risk that the price of the securities
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being hedged will not move in complete correlation with the price of the futures
contracts used as a hedging instrument. Although the Adviser believes that the
use of financial futures contracts will benefit the Fund, an incorrect
prediction could result in a loss on both the hedged securities or currency in
the Fund's portfolio and the futures position so that the Fund's return might
have been better had hedging not been attempted. However, in the absence of the
ability to hedge, the Adviser might have taken portfolio actions in anticipation
of the same market movements with similar investment results but, presumably, at
greater transaction costs. The low margin deposits required for futures
transactions permit an extremely high degree of leverage. A relatively small
movement in the price of instruments underlying a futures contract may result in
losses or gains in excess of the amount invested.
Futures exchanges may limit the amount of fluctuation permitted in certain
futures contract prices during a single trading day. The daily limit establishes
the maximum amount the price of a futures contract may vary either up or down
from the previous day's settlement price, at the end of the current trading
session. Once the daily limit has been reached in a futures contract subject to
the limit, no more trades may be made on that day at a price beyond that limit.
The daily limit governs only price movements during a particular trading day
and, therefore, does not limit potential losses because the limit may work to
prevent the liquidation of unfavorable positions. For example, futures prices
have occasionally moved to the daily limit for several consecutive trading days
with little or no trading, thereby preventing prompt liquidation of positions
and subjecting some holders of futures contracts to substantial losses.
Finally, although the Fund engages in financial futures transactions only
on boards of trade or exchanges where there appears to be an adequate secondary
market, there is no assurance that a liquid market will exist for a particular
futures contract at any given time. The liquidity of the market depends on
participants closing out contracts rather than making or taking delivery. In the
event participants decide to make or take delivery, liquidity in the market
could be reduced. In addition, the Fund could be prevented from executing a buy
or sell order at a specified price or closing out a position due to limits on
open positions or daily price fluctuation limits imposed by the exchanges or
boards of trade. If the Fund cannot close out a position, it will be required to
continue to meet margin requirements until the position is closed.
The Fund will not engage in a transaction in futures or options on futures
for speculative purposes if, immediately thereafter, the sum of initial margin
deposits and premiums required to establish speculative positions in futures
contracts and options on futures would exceed 5% of the Fund's total assets. The
risk of loss on futures transactions is potentially unlimited and may exceed the
amount invested or of the premium received.
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Options on Financial Futures Contracts. The Fund may purchase and write
call and put options on financial futures contracts. An option on a futures
contract gives the purchaser the right, in return for the premium paid, to
assume a position in a futures contract at a specified exercise price at any
time during the period of the option. Upon exercise, the writer of the option
delivers the futures contract to the holder at the exercise price. The Fund
would be required to deposit with its custodian initial and variation margin
with respect to put and call options on futures contracts written by it.
Options on futures contracts involve risks similar to the risks relating to
transactions in financial futures contracts. Also, an option purchased by the
Fund may expire worthless, in which case the Fund would lose the premium paid
therefor.
Restrictions on Use of Futures Transactions and Options. The Fund intends
to comply with CFTC Regulation 4.5 and thereby avoid the status of "commodity
pool operator."
When futures contracts or options thereon are purchased to protect against
a price increase in securities intended to be purchased later, it is anticipated
that at least 75% of such intended purchases will be completed. As an
alternative to this test of bona fine hedging intent, a CFTC regulation permits
the Fund to elect to comply with a different test, under which the Fund will not
enter into a futures contract or purchase an option thereon for non-hedging
purposes if immediately thereafter the initial margin deposits and premiums
required to establish non-hedging positions in futures contracts and options on
futures would exceed 5% of the Fund's total assets.
When the Fund purchases a futures contract, writes a put option thereon or
purchases a call option thereon, an amount of cash or high grade liquid debt
securities (i.e., securities rated in one of the top three ratings categories by
Moody's or S&P will be deposited in a segregated account with the Fund's
custodian which is equal to the underlying value of the futures contract reduced
by the amount of initial and variation margin held in the account of its broker.
Options Transactions. The Fund may write listed and over-the-counter
covered call options and covered put options on securities and foreign currency
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 may purchase
listed and over-the-counter call and put options on securities and currency with
an aggregate value not exceeding 5% of the Fund's total assets.
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
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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 will also be "covered" if the Fund
holds on a share-for-share basis a covering call on the same securities where
(i) the exercise price of the covering call held is equal to or less than the
exercise price of the call written or, if the exercise price of the covering
call is greater than that of the call written, 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 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 writer of a covered put option, the Fund will write a put option only
with respect to securities it intends to acquire for the Fund's 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 can 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.
In writing listed and over-the-counter covered put options on securities,
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
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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.
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. 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 15% of the Fund's 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 15% limitation on illiquid securities a
portion of the value of the OTC options written by the Fund, provided that
certain conditions are met. First, the other party to the OTC options has to be
a primary U.S. Government securities dealer designated as such by the Federal
Reserve Bank. Second, the Fund would have an absolute contractual right to
repurchase the OTC options at a formula price. If the above conditions are met,
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a Fund must 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.
While transactions in options may reduce certain risks, they may entail
other risks. Certain risks arise due to the imperfect correlations between
movements in the price of options contracts and movements in the prices of the
securities or currency underlying the contracts.
The Fund's ability to use options to hedge or earn income successfully will
depend on the Adviser's ability to predict accurately the future direction of
interest rate changes, currency rate fluctuations and other market factors. The
success of hedging transactions will also depend on the degree of correlation
between the options markets and the securities markets. The risk of loss on
written options transactions is potentially unlimited and may exceed the amount
invested or of the premium received. In addition, the Fund could be prevented
from opening, or realizing the benefits of closing out, an options position
because of position limits or limits on daily price fluctuations imposed by an
exchange.
Lending of 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 and money market
funds. When the Fund lends portfolio securities, there is a risk that the
borrower may fail to return the loaned securities. As a result, the Fund may
incur a loss or in the event of the borrower's bankruptcy may be delayed in or
prevented from liquidating the collateral. It is a fundamental policy of the
Fund not to lend portfolio securities having a total value in excess of 33 1/3%
of its total assets.
Restricted Securities. The Fund may purchase securities that are not
registered ("restricted securities") under the Securities Act of 1933 ("1933
Act"), including securities offered and sold to "qualified institutional buyers"
under Rule 144A under the 1933 Act. However, the Fund will not invest more than
15% of its assets in illiquid investments, which include repurchase agreements
maturing in more than seven days, securities that are not readily marketable and
restricted securities. However, 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 15% limit. The Trustees may adopt guidelines and delegate to the Adviser the
daily function of determining the monitoring and 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
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illiquidity in the Fund if qualified institutional buyers become for a time
uninterested in purchasing these restricted securities.
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 Securities Act of 1933.
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. If through the appreciation of restricted securities or the
depreciation of unrestricted securities, the Fund should be in a position where
more than 15% of the value of its assets is invested in illiquid securities
(including repurchase agreements which mature in more than seven days and
options which are traded over-the-counter and their underlying securities), the
Fund will bring its holdings of illiquid securities below the 15% limitation.
Government Securities. 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.
Ginnie Maes, Freddie Macs and Fannie Maes are mortgage-backed securities
which provide monthly payments which are, in effect, a "pass-through" of the
monthly interest and principal payments (including any prepayments) made by the
individual borrowers on the pooled mortgage loans. Collateralized mortgage
obligations ("CMOs") in which the Fund may invest are securities issued by a
U.S. Government instrumentality that are collateralized by a portfolio of
mortgages or mortgage-backed securities. Mortgage-backed securities may be less
effective than traditional debt obligations of similar maturity at maintaining
yields during periods of declining interest rates. The Fund will not invest more
than 50% of its assets in mortgage-backed securities.
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Forward Foreign Currency Transactions. The foreign currency 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 contracts involving currencies
of the different countries in which it will 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 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.
If the Fund purchases a forward contract, its custodian bank will segregate
cash or liquid 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 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.
Lower Rated High Yield Securities. Up to 25% of the Fund's total
investments in fixed income securities may be in high yielding, fixed income
securities rated as low as C by Moody's or S&P. These lower rated securities are
speculative to a high degree and often have very poor prospects of attaining
real investment standing. Lower rated securities are generally referred to as
junk bonds. Ratings are based largely on the historical financial condition of
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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.
The values of lower-rated securities generally fluctuate more than those of
high- rated securities. In addition, the lower rating reflects a greater
possibility of an adverse change in financial condition affecting the ability of
the issuer to make payments of interest and principal. The Adviser seeks to
minimize these risks through diversification, investment analysis and attention
to current developments in interest rates and economic conditions. Because the
Fund invests in securities in the lower rated categories, the achievement of the
Fund's goals is more dependent on the Adviser's ability than would be the case
if the Fund were investing exclusively in securities in the higher rated
categories. See the Appendix attached to this Statement of Additional
Information which describes the characteristics of the securities in the various
ratings categories. The Fund may invest in unrated securities which, in the
opinion of the Adviser, are of comparable quality and offer yields and risks
which are comparable to those of rated securities.
The Fund may invest in pay-in-kind (PIK) securities, which pay interest in
either cash or additional securities, at the issuer's option, for a specified
period. The Fund also may invest in zero coupon bonds, which have a determined
interest rate, but payment of the interest is deferred until maturity of the
bonds. Both kinds of bonds may be more speculative and subject to greater
fluctuations in value than securities which pay interest periodically and in
cash, due to changes in interest rates.
The market value of high yield securities which carry no equity
participation usually reflects yields generally available on securities of
similar quality and type. When such yields decline, the market value of a
portfolio already invested at higher yields can be expected to rise if such
securities are protected against early call. In general, in selecting securities
for its portfolio, the Fund intends to seek protection against early call.
Similarly, when such yields increase, the market value of a portfolio already
invested at lower yields can be expected to decline. The Fund's portfolio may
include debt securities which sell at substantial discounts from par. These
securities are low coupon bonds which, during periods of high interest rates,
because of their lower acquisition cost tend to sell on a yield basis
approximating current interest rates.
Risk Factors Associated with Lower Rated Securities. The Fund is not
obligated to dispose of securities whose issuers subsequently are in default or
which are downgraded below the above-stated ratings. The credit ratings of the
rating agencies, such as those ratings described here, may not be changed by the
rating agencies in a timely fashion to reflect subsequent economic events. The
credit ratings of securities do not reflect an evaluation of market risk. Debt
obligations rated in the lower ratings categories, or which are unrated, involve
16
<PAGE>
greater price volatility and risk of principal and income loss. The market price
and liquidity of lower rated fixed income securities generally respond more to
short-term corporate and market developments than do those 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. Increasing rate note securities are typically
refinanced by the issuers within a short period of time.
Reduced volume and liquidity in the high yield market or the reduced
availability of market quotations will make it more difficult to dispose of the
securities and to value accurately the Fund's assets. The reduced availability
of reliable, objective data may increase the Fund's reliance on management's
judgment in valuing high yield securities. In addition, the Fund's investments
in lower-rated securities may be susceptible to adverse publicity and investor
perceptions, whether or not justified by fundamental factors. The Fund's
investments, and consequently its net asset value, will be subject to the market
fluctuations and risk inherent in all securities.
Investments in corporate fixed income securities may be in bonds,
convertible debentures and convertible or non-convertible preferred stock. The
value of convertible securities, while influenced by the level of interest
rates, is also affected by the changing value of the underlying common stock
into which the securities are convertible. The value of fixed income securities
varies inversely with interest rates.
Mortgage "Dollar Roll" Transactions. The Fund may enter into mortgage
"dollar roll" transactions with selected banks and broker-dealers pursuant to
which the Fund sells mortgage-backed securities and simultaneously contracts to
repurchase substantially similar (same type, coupon and maturity) securities on
a specified future date. The Fund will only enter into covered rolls. A "covered
roll" is a specific type of dollar roll for which there is an offsetting cash
position or a cash equivalent security position which matures on or before the
forward settlement date of the dollar roll transaction. Covered rolls are not
treated as a borrowing or other senior security and will be excluded from the
calculation of the Fund's borrowing and other senior securities. For financial
reporting and tax purposes, the Fund treats mortgage dollar rolls as two
separate transactions; one involving the purchase of a security and a separate
transaction involving a sale. The Fund does not currently intend to enter into
mortgage dollar roll transactions that are accounted for as a financing.
Asset-Backed Securities. The Fund may invest a portion of its assets in
asset- backed securities which are rated in the highest rating category by a
nationally recognized statistical rating organization (e.g., Standard & Poor's
Corporation or Moody's Investors Services, Inc.) or if not so rated, of
equivalent investment quality in the opinion of the Adviser.
17
<PAGE>
Asset-backed securities are often subject to more rapid repayment than
their stated maturity date would indicate as a result of the pass-through of
prepayments of principal on the underlying loans. During periods of declining
interest rates, prepayment of loans underlying asset-backed securities can be
expected to accelerate. Accordingly, the Fund's ability to maintain positions in
these securities will be affected by reductions in the principal amount of such
securities resulting from prepayments, and its ability to reinvest the returns
of principal at comparable yields is subject to generally prevailing interest
rates at that time.
Credit card receivables are generally unsecured and the debtors on such
receivables are entitled to the protection of a number of state and federal
consumer credit laws, many of which give such debtors the right to set-off
certain amounts owed on the credit cards, thereby reducing the balance due.
Automobile receivables generally are secured, but by automobiles rather than
residential real property. Most issuers of automobile receivables permit the
loan services to retain possession of the underlying obligations. If the service
were to sell these obligations to another party, there is a risk that the
purchaser would acquire an interest superior to that of the holders of the
asset-backed securities. In addition, because of the large number of vehicles
involved in a typical issuance and technical requirements under state laws, the
trustee for the holders of the automobile receivables may not have a proper
security interest in the underlying automobiles. Therefore, there is the
possibility that, in some cases, recoveries on repossessed collateral may not be
available to support payments on these securities.
Rights and Warrants. The Fund may purchase warrants and rights which are
securities permitting, but not obligating, their holder to purchase the
underlying securities at a predetermined price. Generally, warrants and stock
purchase rights do not carry with them the right to receive dividends or
exercise voting rights with respect to the underlying securities, and they do
not represent any rights in the assets of the issuer. As a result, an investment
in warrants and rights may be considered to entail greater investment risk than
certain other types of investments. In addition, the value of warrants and
rights does not necessarily change with the value of the underlying securities,
and they cease to have value if they are not exercised on or prior to their
expiration date. Investment in warrants and rights increases the potential
profit or loss to be realized from the investment of a given amount of the
Fund's assets as compared with investing the same amount in the underlying
stock.
Structured or Hybrid Notes. The Fund may invest in "structured" or "hybrid"
notes. The distinguishing feature of a structured or hybrid note is that the
amount of interest and/or principal payable on the note is based on the
performance of a benchmark asset or market other than fixed income securities or
interest rates. Examples of these benchmark include stock prices, currency
exchange rates and physical commodity prices. Investing in a structured note
allows the Fund to gain exposure to the benchmark market while fixing the
18
<PAGE>
maximum loss that the Fund may experience in the event that market does not
perform as expected. Depending on the terms of the note, the Fund may forego all
or part of the interest and principal that would be payable on a comparable
conventional note; the Fund's loss cannot exceed this foregone interest and/or
principal. An investment in structured or hybrid notes involves risks similar to
those associated with a direct investment in the benchmark asset.
Swaps, Caps, Floor and Collars. As one way of managing its exposure to
different types of investments, the Fund may enter into interest rate swaps,
currency swaps, and other types of swap agreements such as caps, collars and
floors. In a typical interest rate swap, one party agrees to make regular
payments equal to a floating interest rate times a "notional principal amount,"
in return for payments equal to a fixed rate times the same amount, for a
specified period of time. If a swap agreement provides for payment in different
currencies, the parties might agree to exchange the notional principal amount as
well. Swaps may also depend on other prices or rates, such as the value of an
index or mortgage prepayment rates.
In a typical cap or floor agreement, one party agrees to make payments only
under specified circumstances, usually in return for payment of a fee by the
other party. For example, the buyer of an interest rate cap obtains the right to
receive payments to the extent that a specified interest rate exceeds an
agreed-upon level, while the seller of an interest rate floor is obligated to
make payments to the extent that a specified interest rate falls below an
agreed-upon level. An interest rate collar combines elements of buying a cap and
selling a floor.
Swap agreements will tend to shift the Fund's investment exposure from one
type of investment to another. For example, if the Fund agreed to exchange
payments in dollars for payments in a foreign currency, the swap agreement would
tend to decrease the Fund's exposure to U.S. interest rates and increase its
exposure to foreign currency and interest rates. Caps and floors have an effect
similar to buying or writing options. Depending on how they are used, swap
agreements may increase or decrease the overall volatility of a Fund's
investments and its share price and yield.
Swap agreements are sophisticated hedging instruments that typically
involve a small investment of cash relative to the magnitude of risks assumed.
As a result, swaps can be highly volatile and may have a considerable impact on
the Fund's performance. Swap agreements are subject to risks related to the
counterpart's ability to perform, and may decline in value if the counterpart's
credit worthiness deteriorates. The Fund may also suffer losses if it is unable
to terminate outstanding swap agreements or reduce its exposure through
offsetting transactions. The Fund will maintain in a segregated account with its
custodian, cash or liquid, high grade debt securities equal to the net amount,
if any, of the excess of the Fund's obligations over its entitlement with
respect to swap, cap, collar or floor transactions.
19
<PAGE>
Participation Interests. Participation interests, which may take the form
of interests in, or assignments of certain loans, are acquired from banks who
have made these loans or are members of a lending syndicate. The Fund's
investments in participation interests are subject to its 15% limitation on
investments in liquid securities. The Fund may purchase only those participation
interest that mature in 60 days or less, or, if maturing in more than 60 days,
that have a floating rate that is automatically adjusted at least once every 60
days.
Pay-In-Kind, Delayed and Zero Coupon Bonds. The Fund may invest in pay-
in-kind, delayed and zero coupon bonds. These are securities issued at a
discount from their face value because interest payments are typically postponed
until maturity. The amount of the discount rate varies depending on factors
including the time remaining until maturity, prevailing interest rates, the
security's liquidity and the issuer's credit quality. These securities also may
take the form of debt securities that have been stripped of their interest
payments. A portion of the discount with respect to stripped tax-exempt
securities or their coupons may be taxable. The market prices in pay-in-kind,
delayed and zero coupon bonds generally are more volatile than the market prices
of interest-bearing securities and are likely to respond to a grater degree to
changes in interest rates than interest-bearing securities having similar
maturities and credit quality. The Fund's investments in pay-in-kind, delayed
and zero coupon bonds may require the Fund to sell certain of its portfolio
securities to generate sufficient cash to satisfy certain income distribution
requirements. See "Tax Status."
Brady Bonds. The Fund may also invest in so-called "Brady Bonds." The Fund
may invest in Brady Bonds and other sovereign debt securities of countries that
have restructured or are in the process of restructuring sovereign debt pursuant
to the Brady Plan. Brady Bonds are debt securities issued under the framework of
the Brady Plan, an initiative announced by U.S. Treasury Secretary Nicholas F.
Brady in 1989 as a mechanism for debtor nations to restructure their outstanding
external indebtedness (generally, commercial bank debt). In restructuring its
external debt under the Brady Plan framework, a debtor nation negotiates with
its existing bank lenders as well as multilateral institutions such as the World
Bank and the International Monetary Fund (the "IF"). The Brady Plan framework,
as it has developed, contemplates the exchange of commercial bank debt for newly
issued bonds (Brady Bonds). The World Bank and/or the IF support the
restructuring by providing funds pursuant to loan agreements or other
arrangements which enable the debtor nation to collateralize the new Brady Bonds
or to repurchase outstanding bank debt at a discount. Under these arrangements
with the World Bank and/or the IF, debtor nations have been required to agree to
the implementation of certain domestic monetary and fiscal reforms. Such reforms
have included the liberalization of trade and foreign investment, the
privatization of state-owned enterprises and the setting of targets for public
spending and borrowing. These policies and programs seek to promote the debtor
country's ability to service its external obligations and promote its economic
20
<PAGE>
growth and development. Investors should recognize that the Brady Plan only sets
forth general guiding principles for economic reform and debt reduction,
emphasizing that solutions must be negotiated on a case-by-case basis between
debtor nations and their creditors. The Adviser believes that economic reforms
undertaken by countries in connection with the issuance of Brady Bonds make the
debt of countries which have issued or have announced plans to issue Brady Bonds
an attractive opportunity for investment.
Brady Bonds have recently been issued by Argentina, Brazil, Bulgaria, Costa
Rica, Dominican Republic, Ecuador, Jordan, Mexico, Nigeria, Poland, the
Philippines, Uruguay and Venezuela and may be issued by other countries. Over
$130 billion in principal amount of Brady Bonds have been issued to date, the
largest portion having been issued by Argentina and Brazil. Brady Bonds may
involve a high degree of risk, may be in default or present the risk of default.
As of the date of this Statement of Additional Information, the Fund is not
aware of the occurrence of any payment defaults on Brady Bonds. Investors should
recognize however, that Brady Bonds have been issued only recently, and,
accordingly, they do not have a long payment history. Agreements implemented
under the Brady Plan to date are designed to achieve debt and debt- service
reduction through specific options negotiated by a debtor nation with its
creditors. As a result, the financial packages offered by each country differ.
The types of options have included the exchange of outstanding commercial bank
debt for bonds issued at 100% of face value of such debt, bonds issued at a
discount of face value of such debt, bonds bearing an interest rate which
increases over time and bonds issued in exchange for the advancement of new
money by existing lenders. Certain Brady Bonds have been collateralized as to
principal due at maturity by U.S. Treasury zero coupon bonds with a maturity
equal to the final maturity of such Brady Bonds, although the collateral is not
available to investors until the final maturity of the Brady Bonds. Collateral
purchases are financed by the IF, the World Bank and the debtor nations'
reserves. In addition, the first two or three interest payments on certain types
of Brady Bonds may be collateralized by cash or securities agreed upon by
creditors. Although Brady Bonds may be collateralized by U.S. Government
securities, repayment of principal and interest is not guaranteed by the U.S.
Government.
Short Term Trading and Portfolio Turnover. The Fund may attempt to maximize
current income through short-term portfolio trading. This will involve selling
portfolio instruments and purchasing different instruments to take advantage of
yield disparities in different segments of the market for Government
Obligations. Short-term trading may have the effect of increasing portfolio
turnover rate. A high rate of portfolio turnover (100% or greater) involves
corresponding higher transaction expenses and may make it more difficult for the
Fund to qualify as a regulated investment company for federal income tax
purposes.
21
<PAGE>
Defensive Investments. When the Adviser believes unfavorable investment
conditions exist requiring the Fund to assume a temporary defensive investment
posture, the Fund may hold cash or invest all or a portion of its assets in
short-term instruments, including: short-term U.S. Government securities and
repurchase agreements in respect thereof; bank certificates of deposit, bankers'
acceptances, time deposits and letters of credit; and commercial paper
(including so called Section 4(2) paper) rated at least A-2 by S&P or P-2 by
Moody's or if unrated, considered by the Adviser to be of comparable quality.
The Fund's temporary defensive investments may also include: debt obligations of
U.S. companies rated at least A by S&P or Moody's or, if unrated, of comparable
quality in the opinion of the Adviser; commercial paper and corporate debt
obligations not satisfying the above credit standards if they are (a) subject to
demand features or puts or (b) guaranteed as to principal and interest by a
domestic or foreign bank having total assets in excess of $1 billion, by a
company whose commercial paper may be purchased by the Fund, or by a foreign
government having an existing debt security rated at least A by S&P or Moody's;
and other short-term investments which the Adviser determines present minimal
credit risks and which are of "high quality" as determined by any major rating
service or, in the case of an instrument that is not rated, of comparable
quality as determined by the Adviser.
INVESTMENT RESTRICTIONS
Fundamental Investment Restrictions. The following investment restrictions
will not be changed without approval of a majority of the Fund's outstanding
voting securities which, as used in the Prospectus and this Statement of
Additional Information, means approval by the lesser of (1) the holders of 67%
or more of the Fund's shares represented at a meeting if at least 50% of the
Fund's outstanding shares are present in person or by proxy at the meeting or
(2) the holders of more than 50% of the Fund's outstanding shares.
The Fund observes the fundamental restrictions listed in items (1) through
(9) below.
The Fund may not:
(1) Issue senior securities, except as permitted by paragraph (2) below.
For purposes of this restriction, the issuance of shares in multiple
classes or series, the purchase or sale of options, futures contracts
and options on futures contracts, forward foreign currency exchange
contracts, forward commitments and repurchase agreements entered into
in accordance with the Fund's investment policies, and the pledge,
mortgage or hypothecation of the Fund's assets within the meaning of
paragraph (3) below, are not deemed to be senior securities.
22
<PAGE>
(2) Borrow money in amounts exceeding 33% of the Fund's total assets
(including the amount borrowed) taken at market value. Interest paid
on borrowings will reduce income available to shareholders.
(3) Pledge, mortgage or hypothecate its assets, except to secure
indebtedness permitted by paragraph (2) above and then only if the
assets subject to such pledging, mortgaging or hypothecation do not
exceed 33% of the Fund's total assets taken at market value.
(4) Act as an underwriter, except to the extent that, in connection with
the disposition of portfolio securities, the Fund may be deemed to be
an underwriter for purposes of the Securities Act of 1933.
(5) Purchase or sell real estate or any interest therein, including real
estate limited partnerships, except that the Fund may invest in
securities of corporate or governmental entities secured by real
estate or marketable interests therein or securities issued by
companies that invest in real estate or interests therein.
(6) Make loans, except for collateralized loans of portfolio securities in
accordance with the Fund's investment policies. The Fund does not, for
this purpose, consider the purchase of all or a portion of an issue of
bonds, bank certificates of deposit, bankers' acceptances, debentures
or other securities, whether or not the purchase is made upon the
original issuance of the securities, to be the making of a loan.
(7) Buy or sell commodities, commodity contracts, puts, calls or
combinations thereof, except futures contracts and options on
securities, securities indices, currency and other financial
instruments, options on such futures contracts, forward foreign
currency exchange contracts, forward commitments, interest rate or
currency swaps, securities index put or call warrants and repurchase
agreements entered into in accordance with the Fund's investment
policies.
(8) Purchase the securities of issuers conducting their principal business
activity in the same industry if, immediately after such purchase, the
value of its investments in such industry would exceed 25% of its
total assets taken at market value at the time of each investment.
This limitation does not apply to investments in obligations of the
U.S. Government or any of its agencies or instrumentalities.
(9) Purchase securities of an issuer (other than the U.S. Government, its
agencies or instrumentalities), if, with respect to 75% of the Fund's
total assets,
23
<PAGE>
(i) more than 5% of the Fund's total assets taken at market value
would be invested in the securities of such issuer, or,
(ii) such purchase would at the time result in more than 10% of the
outstanding voting securities of such issuer being held by the
Fund.
In connection with the lending of portfolio securities under item (6)
above, such loans must at all times be fully collateralized and the Fund's
custodian must take possession of the collateral either physically or in book
entry form. Securities used as collateral must be marked to market daily.
Nonfundamental Investment Restrictions. The following investment
restrictions are designated as nonfundamental and may be changed by the Board of
Trustees without shareholders' approval.
The Fund may not:
(a) Participate on a joint or joint-and-several basis in any securities
trading account. The `bunching" of orders for the sale or purchase of
marketable portfolio securities with other accounts under the
management of the Adviser to save commissions or to average prices
among them is not deemed to result in a joint securities trading
account.
(b) Purchase securities on margin (except that it may obtain such
short-term credits as may be necessary for the clearance of
transactions in securities and forward foreign currency exchange
contracts and may make margin payments in connection with transactions
in futures contracts and options on futures) or make short sales of
securities unless by virtue of its ownership of other securities, the
Fund has the right to obtain, without the payment of any additional
consideration, securities equivalent in kind and amount to the
securities sold and, if the right is conditional, the sale is made
upon the same conditions.
(c) Purchase securities of an issuer if, to the Fund's knowledge, one or
more of the Trustees or officers of the Trust or the directors or
officers of the Adviser individually owns beneficially more than 0.5%
and together own beneficially more than 5% of the securities of such
issuer.
(d) 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
24
<PAGE>
apply to (a) the investment of cash collateral, received by the Fund
in connection with lending the Fund's portfolio securities, in the
securities of open-end investment companies or (b) the purchase of
shares of any investment company in connection with a merger,
consolidation, reorganization or purchase of substantially all of the
assets of another investment company. Subject to the above percentage
limitations, the Fund may, in connection with the John Hancock Group
of Funds Deferred Compensation Plan for Independent Trustees/Trustees,
purchase securities of other investment companies within the John
Hancock Group of Funds. 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.
(e) Purchase securities of any issuer which, together with any
predecessor, has a record of less than three years' continuous
operations if such purchase would cause investments of the Fund in all
such issuers to exceed 5% of the value of the total assets of the
Fund.
(f) Invest for the purpose of exercising control over or management of any
company.
(g) Purchase warrants of any issuer, if, as a result of such purchases,
more than 2% of the value of the Fund's total assets would be invested
in warrants which are not listed on the New York Stock Exchange or the
American Stock Exchange or more than 5% of the value of the total
assets of the Fund would be invested in warrants generally, whether or
not so listed. For these purposes, warrants are to be valued at the
lesser of cost or market, but warrants acquired by the Fund in units
with or attached to debt securities shall be deemed to be without
value.
(h) Purchase any security, including any repurchase agreement maturing in
more than 7 days, which is not readily marketable, if more than 15% of
the net assets of the Fund, taken at market value, would be invested
in such securities. (The staff of the Securities and Exchange
Commission may consider over-the- counter options to be illiquid
securities subject to the 15% limit.)
(i) Purchase interests in oil, gas or other mineral leases or exploration
programs or leases; however, this policy will not prohibit the
acquisition of securities of companies engaged in the production or
transmission of oil, gas or other minerals.
(j) Purchase a security if, as a result, more than 15% of the Fund's
assets would be invested in securities which are restricted as to
disposition; however, this policy will not restrict the acquisition of
25
<PAGE>
restricted securities offered and sold to "qualified institutional
buyers" under Rule 144A under the Securities Act of 1933 or to foreign
securities purchased in accordance with Regulation S under the
Securities Act of 1933.
In order to permit the sale of shares of the Fund in certain states, the
Board of Trustees may, in its sole discretion, adopt restrictions or investment
policies more restrictive than those described above. Should the Board of
Trustees determine that any such more restrictive policy is no longer in the
best interest of the Fund and its shareholders, the Fund may cease offering
shares in the state involved and the Board may revoke such restrictive policy.
Moreover, if the states involved shall no longer require any such restrictive
policy, the Board of Trustees may, at its sole discretion, revoke such policy.
The Fund has agreed with state securities administrators that it will not
purchase the following securities:
The Fund agrees that, in accordance with the Ohio Securities Division and
until such regulations are no longer required, it will comply with rule
1301:6-3-09(E)(9) by not investing in the securities of other open-end and
closed-end investment companies except by purchase in the open market where no
commission or profit to a sponsor or dealer results from the purchase other than
the customary broker's commission, or except when the purchase is part of a plan
of merger, consolidation, reorganization or acquisition.
If a percentage restriction on investment or utilization of assets as set
forth above is adhered to at the time an investment is made, a later change in
percentage resulting from changes in the value of the Fund's assets will not be
considered a violation of the restriction.
RATINGS
As described in this Statement of Additional Information, at least 75% of
the Fund's investments in fixed income securities will be comprised of
securities in the four highest applicable ratings of S&P and Moody's or their
equivalent or unrated securities deemed of comparable quality by the Adviser.
See the Appendix attached to this Statement of Additional Information, which
describes the characteristics of the securities in the various categories.
THOSE RESPONSIBLE FOR MANAGEMENT
The business of the Fund is managed by its Board of Trustees who elect
officers who are responsible for the day-to-day operations of the Fund and who
execute policies formulated by the Board of Trustees. Several of the officers
and Trustees of the Trust are also officers or directors of the Adviser or
26
<PAGE>
officers or directors of John Hancock Funds, Inc. ("John Hancock Funds") the
Fund's principal distributor.
The following table sets forth the principal occupation or employment of
the Trustees of the Trust and principal officers of the Trust during the past
five years:
27
<PAGE>
<TABLE>
<CAPTION>
Name, Address Position(s) Held Principal Occupation(s)
and Date of Birth With Registrant During Past 5 Years
- ----------------- --------------- -------------------
<S> <C> <C>
*Edward J. Boudreau, Jr. Chairman (1,2) Chairman and Chief Executive
October, 1944 Officer, the Adviser and The
Berkeley Financial Group ("The
Berkeley Group"); Chairman NM
Capital Management, Inc. ("NM
Capital"); John Hancock Advisers
International Limited ("Advisers
International"; John Hancock Funds;
John Hancock Investor Services
Corporation ("Investor Services")
and Sovereign Asset Management
Corporation ("SAMCorp");
(hereinafter the Adviser, The
Berkeley Group, NM Capital,
Advisers International, John
Hancock Funds, Investor Services
and SAMCorp are collectively
referred to as the "Affiliated
Companies"); Chairman, First
Signature Bank & Trust; Director,
John Hancock Freedom Securities
Corp., John Hancock Capital Corp.
and New England/Canada Business
Counsel; Member, Investment Company
- ------------------
* An "interested person" of the Trust, as such term is defined in the
Investment Company Act of 1940.
(1) A Member of the Executive Committee. The Executive Committee may generally
exercise most of the powers of the Board of Trustees.
(2) A Member of the Investment Committee of the Adviser.
(3) A Member of the Audit Committee and the Administration Committee.
28
<PAGE>
Name, Address Position(s) Held Principal Occupation(s)
and Date of Birth With Registrant During Past 5 Years
- ----------------- --------------- -------------------
Institute Board of Governors;
Director, Asia Strategic Growth
Fund, Inc.; Trustee, Museum of
Science; Vice Chairman and
President, the Adviser (until July
1992); Chairman, John Hancock
Distributors, Inc. (until April
1994).
Dennis S. Aronowitz Trustee(3) Professor of Law, Boston University
Boston University School of Law; Trustee, Brookline
Boston, Massachusetts Savings Bank.
June 1931
Richard P. Chapman, Jr. Trustee (1,3) President, Brookline Savings Bank;
160 Washington Street Director, Federal Home Loan Bank of
Brookline, Massachusetts Boston (lending; Director, Lumber
February 1935 Insurance Companies (fire and
casualty insurance); Trustee,
Northeastern University
(education); Director, Depositors
Insurance Fund, Inc. (insurance).
William J. Cosgrove Trustee(3) Vice President, Senior Banker and
20 Buttonwood Place Senior Credit Officer, Citibank,
Saddle River, New Jersey N.A. (retired September 1991);
January 1933 Executive Vice President, Citadel
Group Representatives, Inc.; EVP
- ------------------
* An "interested person" of the Trust, as such term is defined in the
Investment Company Act of 1940.
(1) A Member of the Executive Committee. The Executive Committee may generally
exercise most of the powers of the Board of Trustees.
(2) A Member of the Investment Committee of the Adviser.
(3) A Member of the Audit Committee and the Administration Committee.
29
<PAGE>
Name, Address Position(s) Held Principal Occupation(s)
and Date of Birth With Registrant During Past 5 Years
- ----------------- --------------- -------------------
Resource Evaluation, Inc.
(consulting) (until October 1993);
Trustee, the Hudson City Savings
Bank (since 1995).
Douglas M. Costle Trustee (1,3) Director, Chairman of the Board and
RR2 Box 480 Distinguished Senior Fellow,
Woodstock, Vermont 05091 Institute for Sustainable
July 1939 Communities, Montpelier, Vermont
(since 1991); Dean, Vermont Law
School (until 1991); Director, Air
and Water Technologies Corporation
(environmental services and
equipment), Niagara Mohawk Power
Company (electric services) and
Mitretek Systems (governmental
consulting services).
Leland O. Erdahl Trustee (3) Director of Santa Fe Ingredients
9449 Navy Blue Court Company of California, Inc. and
Las Vegas, NV 89117 Santa Fe Ingredients Company, Inc.
December 1928 (private food processing
companies); Director of Uranium
Resources, Inc.; President of
Stolar, Inc. (from 1987-1991) and
President of Albuquerque Uranium
- ------------------
* An "interested person" of the Trust, as such term is defined in the
Investment Company Act of 1940.
(1) A Member of the Executive Committee. The Executive Committee may generally
exercise most of the powers of the Board of Trustees.
(2) A Member of the Investment Committee of the Adviser.
(3) A Member of the Audit Committee and the Administration Committee.
30
<PAGE>
Name, Address Position(s) Held Principal Occupation(s)
and Date of Birth With Registrant During Past 5 Years
- ----------------- --------------- -------------------
Corporation (from 1985-1992);
Director of Freeport-McMoRanCopper
& Cold Company Inc., Hecla Mining
Company, Canyon Resources
Corporation and Original Sixteen to
One Mine, Inc. (from 1984-1987 and
from 1991 to 1995) (management
consultant).
Richard A. Farrell Trustee (3) President of Farrell, Healer & Co.,
Farrell, Healer & Company, Inc. (venture capital management firm)
160 Federal Street (since 1980); Prior to 1980, headed
23rd Floor the venture capital group at Bank
Boston, MA 02110 of Boston Corporation.
Gail D. Fosler Trustee (3) Vice President and Chief Economist,
4104 Woodbine Street The Conference Board (non-profit
Chevy Chase, MD economic and business research).
December 1947
William F. Glavin Trustee (3) President, Babson College; Vice
Babson College Chairman, Xerox Corporation (until
Horn Library June 1989); Director, Caldor Inc.,
Babson Park, MA 02157 Reebok, Ltd. (since 1994), and Inco
March 1931 Ltd.
*Anne C. Hodson Trustee and President President and Chief Operating
April 1953 (1,2) Officer, the Adviser; Executive
Vice President, the Adviser (until
- ------------------
* An "interested person" of the Trust, as such term is defined in the
Investment Company Act of 1940.
(1) A Member of the Executive Committee. The Executive Committee may generally
exercise most of the powers of the Board of Trustees.
(2) A Member of the Investment Committee of the Adviser.
(3) A Member of the Audit Committee and the Administration Committee.
31
<PAGE>
Name, Address Position(s) Held Principal Occupation(s)
and Date of Birth With Registrant During Past 5 Years
- ----------------- --------------- -------------------
December 1994); Senior Vice
President, the Adviser (until
December 1993); Vice President, the
Adviser (until 1991).
Dr. John A. Moore Trustee (3) President and Chief Executive
Institute for Evaluating Officer, Institute for Evaluating
Health Risks Health Risks (nonprofit
1101 Vermont Avenue N.W. institution) (since September
Suite 608 1989).
Washington, DC 20005
February 1939
Patti McGill Peterson Trustee (3) Cornell Institute of Public
Institute of Public Affairs Affairs, (since August 1996);
364 Upson Hall President Emeritus of Wells College
Cornell University and St. Lawrence University;
Ithaca, NY 14853 Director, Niagara Mohawk Power
May 1943 Corporation (electric utility) and
John W. Pratt Trustee (3) Professor of Business
2 Gray Gardens East Administration at Harvard
Cambridge, MA 02138 University Graduate School of
September 1931 Business Administration (since
1961).
*Richard S. Scipione Trustee (1) General Counsel, the Life Company;
John Hancock Place Director, the Adviser, the
P.O. Box 111 Affiliated Companies, John Hancock
Boston, Massachusetts Distributors, Inc., JH Networking
August 1937
- ------------------
* An "interested person" of the Trust, as such term is defined in the
Investment Company Act of 1940.
(1) A Member of the Executive Committee. The Executive Committee may generally
exercise most of the powers of the Board of Trustees.
(2) A Member of the Investment Committee of the Adviser.
(3) A Member of the Audit Committee and the Administration Committee.
32
<PAGE>
Name, Address Position(s) Held Principal Occupation(s)
and Date of Birth With Registrant During Past 5 Years
- ----------------- --------------- -------------------
Insurance Agency, Inc., John
Hancock Subsidiaries, Inc. and John
Hancock Property and Casualty
Insurance and its affiliates (until
November, 1993).
Edward J. Spellman, CPA Trustee (3) Partner, KPMG Peat Marwick LLP
259C Commercial Bld. (retire June 1990).
Fort Lauderdale, FL
November 1932
*Robert G. Freedman Vice Chairman and Chief Vice Chairman and Chief Investment
July 1938 Investment Officer (2) Officer, the Adviser; President,
the Adviser (until December 1994);
Director, the Adviser, Advisers
International, John Hancock Funds,
Investor Services, SAMCorp and NM
Capital; Senior Vice President, The
Berkeley Group.
*James B. Little Senior Vice President and Senior Vice President, the Adviser,
February 1935 Chief Financial Officer The Berkeley Group, John Hancock
Funds and Investor Services; Senior
Vice President and Chief Financial
Officer, each of the John Hancock
funds.
- ------------------
* An "interested person" of the Trust, as such term is defined in the
Investment Company Act of 1940.
(1) A Member of the Executive Committee. The Executive Committee may generally
exercise most of the powers of the Board of Trustees.
(2) A Member of the Investment Committee of the Adviser.
(3) A Member of the Audit Committee and the Administration Committee.
33
<PAGE>
Name, Address Position(s) Held Principal Occupation(s)
and Date of Birth With Registrant During Past 5 Years
- ----------------- --------------- -------------------
*John A. Morin Vice President Vice President, the Adviser; Vice
July 1950 President, Investor Services, John
Hancock Funds and each of the John
Hancock funds; Compliance Officer,
certain John Hancock funds;
Counsel, the Life Company; Vice
President and Assistant Secretary,
The Berkeley Group.
Susan S. Newton Vice President and Vice President and Assistant
March 1950 Secretary Secretary, the Adviser; Vice
President and Secretary, certain
John Hancock funds; Vice President
and Secretary, John Hancock Funds,
Investor Services and John Hancock
Distributors, Inc. (until 1994);
Secretary, SAMCorp; Vice President,
The Berkeley Group.
*James J. Stokowski Vice President and Vice President, the Adviser; Vice
November 1946 Treasurer President and Treasurer, each of
the John Hancock funds.
</TABLE>
- ------------------
* An "interested person" of the Trust, as such term is defined in the
Investment Company Act of 1940.
(1) A Member of the Executive Committee. The Executive Committee may generally
exercise most of the powers of the Board of Trustees.
(2) A Member of the Investment Committee of the Adviser.
(3) A Member of the Audit Committee and the Administration Committee.
34
<PAGE>
As of August 30, 1996, the officers and Trustees of the Fund as a group
beneficially owned less than 1% of the outstanding shares of the Fund and to the
knowledge of the registrant, no persons owned of record or beneficially 5% or
more of any class of the registrant's outstanding securities.
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 of one or more other funds for which the Adviser serves as
investment adviser.
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 for their services for the Fund's most recently
completed fiscal year. The four non-independent Trustees, Messrs. Boudreau,
Cameron, Scipione and Ms. Hodsdon and each of the officers of the Fund are
interested persons of the Adviser, are compensated by the Adviser and received
no compensation from the Fund for their services.
Total Compensation
Aggregate From the Fund and
Independent Compensation John Hancock Fund
Trustees From the Fund Complex to Trustees(1)
--------- ------------- -----------------------
James F. Carlin $ 1,777 $ 60,700
Charles F. Fretz 2,568 56,200
Harold R. Hiser, Jr.* -- 60,200
Charles L. Ladner 1,510 60,700
Patricia P. McCarter 1,510 60,700
Steven R. Pruchansky 1,560 62,700
Norman H. Smith 1,560 62,700
John P. Toolan* -- 60,700
------- --------
$10,485 $627,500
(1) The total compensation paid by the John Hancock Fund Complex to the
Independent Trustees is as of the calendar year ended December 31, 1995. As
of this date there were sixty-one funds in the John Hancock Fund Complex,
of which each of the Independent Trustees served as Directors or Trustees
of thirty-three funds.
* As of December 31, 1995, the value of the aggregate accrued deferred
compensation from all Funds in the John Hancock Fund Complex for Mr. Hiser
was $31,324 and for Mr. Toolan was $71,437 under the John Hancock Deferred
Compensation Plan for Independent Trustees.
35
<PAGE>
INVESTMENT ADVISORY AND OTHER SERVICES
Each of the Trustees and principal officers affiliated with the Trust who
is also an affiliated person of the Adviser is named above, together with the
capacity in which such person is affiliated with the Trust or the Adviser.
The Fund has entered into an investment management contract with the
Adviser, under which the Adviser provides the Fund with a continuous investment
program, consistent with the Fund's stated investment objective and policies.
The Adviser is responsible for the day to day management of the Fund's portfolio
assets.
Securities held by the Fund may also be held by other funds or investment
advisory clients for which the Adviser or any affiliate provides investment
advice. Because of different investment objectives or other factors, a
particular security may be bought for one or more funds or clients when one or
more are selling the same security. If opportunities for purchase or sale of
securities by the Adviser for the Fund 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 affiliates may increase the demand for securities being purchased or the
supply of securities being sold, there may be an adverse effect on price.
No person other than the Adviser and its directors and employees regularly
furnish advice to the Fund with respect to the desirability of the Fund's
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 fees of Trustees of the Trust
who are not "interested persons," as such term is defined in the Investment
Company Act (the "Independent Trustees") and the continuous public offering of
the shares of the Fund are borne by the Fund but excluding certain
distribution-related activities required to be paid by the Adviser or John
Hancock Funds.
As discussed in the Prospectus and as provided by the investment management
contract, the Fund pays the Adviser monthly an investment management fee, which
is accrued daily, based on an annual rate of 0.60% of the average of the daily
net assets of the Fund. From time to time, the Adviser may reduce its fee or
make other arrangements to limit the Fund's expenses to a specified percentage
of average net assets. The Adviser retains the right to re-impose a fee and
36
<PAGE>
recover other payments to the extent that, at the end of any fiscal year, the
Fund's actual expenses at year end fall below any such limit.
Investment Advisory fees to the Adviser during the fiscal year ended
December 31, 1995, 1994 and 1993 amounted to $891,221, $864,666 and $474,915,
respectively.
The Fund compensates the Adviser for performing necessary tax and financial
management services. The compensation for 1996 is estimated to be an annual rate
of 0.01875% of the average net assets of the Fund.
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 its shares, the fee payable to the Adviser will be
reduced to the extent of such excess. At this time, the most restrictive limit
applicable to the Fund is 2.5% of the first $30,000,000 of the Fund's average
daily net assets, 2% of the next $70,000,000 of such assets and 1.5% of the
remaining average daily net assets. When calculating the Fund's expense ratio
for this purpose, the Fund may exclude interest, brokerage commissions and
extraordinary expenses.
Pursuant to the investment management contract, the Adviser is not liable
for any error of judgment or mistake of law or for any loss suffered by the Fund
in connection with the matters to which the investment management 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
reckless disregard of its obligations and duties under the investment management
contract.
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 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
an affiliate 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 S&P and A.M.
Best's. Founded in 1862, the Life Company has been serving clients for over 130
years.
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
contract or any extension, renewal or amendment thereof remains in effect. If
the contract is no longer in effect, the Fund (to the extent that it lawfully
can) will cease to use such a 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 nonexclusive right to use the name "John Hancock"
or any similar name to any other corporation or entity, including but not
37
<PAGE>
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.
The Adviser has entered into a service agreement with Sovereign Asset
Management Corporation (SAMCORP) which is an indirect wholly-owned subsidiary of
the Life Company. The service agreement provides that SAMCORP will provide to
the Adviser certain portfolio management services with respect to the equity
securities held in the portfolio of the Fund. The service agreement further
provides that the Adviser will remain ultimately responsible for all of its
obligations under the investment management contract between the Adviser and the
Fund. Subject to the supervision of the Adviser, SAMCORP furnishes the Fund with
recommendations with respect to the purchase, holding and disposition of equity
securities in the Fund's portfolio; furnishes the Fund with research, economic
and statistical data in connection with the Fund's equity investments; and
places orders for transactions in equity securities.
The Adviser pays to SAMCORP 40% of the monthly investment management fee
received by the Adviser with respect to the equity securities held in the
portfolio of the Fund during such month. The fees paid by the Fund to the
Adviser under the investment management contract are not affected by this
arrangement.
During the fiscal years ended December 31, 1995, 1994 and 1993, the Adviser
paid SAMCORP the sum of $118,896, $105,821, and $73,242, respectively, in
connection with the service agreement with SAMCORP.
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 last
available bid price.
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
38
<PAGE>
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.
Foreign securities are valued on the basis of quotations from the primary
market in which they are traded. If quotations are not readily available or the
value has been materially affected by events occurring after the closing of a
foreign market, assets are valued by a method that the Trustees believe
accurately reflects their value.
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 a 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.
DISTRIBUTION CONTRACTS
The Fund has entered into a distribution contract with John Hancock Funds.
Under the contract, John Hancock Funds is obligated to use its best efforts to
sell shares of each class of the Fund. Shares of the Fund are also sold by
selected broker-dealers (the "Selling Brokers") which have entered into selling
agency agreements with John Hancock Funds. John Hancock Funds accepts orders for
the purchase of the shares of the Fund which are continually offered at net
asset value next determined, plus any applicable sales charge. In connection
with the sale of Class A or Class B shares, John Hancock Funds and Selling
Brokers receive compensation in the form of a sales charge imposed, in the case
of Class A shares, at the time of sale or, in the case of Class B shares, on a
deferred basis. The sales charges are discussed further in the Prospectus.
The Fund's Trustees adopted Distribution Plans with respect to Class A and
Class B shares ("the Plans"), pursuant to Rule 12b-1 under the Investment
Company Act. Under the Plans, the Fund will pay distribution and service fees at
an aggregate annual rate of up to 0.30% and 1.00% respectively, of the Fund's
39
<PAGE>
daily net assets attributable to shares of that class. However, the service fee
will not exceed 0.25% of the Fund's average daily net assets attributable to
each class of shares. The distribution fees are used to reimburse John Hancock
Funds for its distribution expenses, 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. The service fees will
be used to compensate Selling Brokers for providing personal and account
maintenance services to shareholders. In the event that John Hancock Funds is
not fully reimbursed for payments it makes or expenses it incurs under the Class
A Plan, these expenses will not be carried beyond one year from the date they
were incurred. In the event that John Hancock Funds is not fully reimbursed for
expenses incurred by it under the Class B Plan in any fiscal year, John Hancock
Funds may carry these expenses forward together with interest on the balance of
these unreimbursed expenses, provided, however, that the Trustees may terminate
the Class B Plan and thus the Fund's obligation to make further payments at any
time. Accordingly, the Fund does not treat unreimbursed expenses relating to the
Class B shares as a liability of the Fund. The Plans were approved by a majority
of the voting securities of the Fund. The Plans and all amendments were approved
by the Trustees, including a majority of the Trustees who are not interested
persons of the Fund and who have no direct or indirect financial interest in the
operation of the Plans (the "Independent Trustees"), by votes cast in person at
meetings called for the purpose of voting on such Plans.
For the year ended December 31, 1995, an aggregate of $3,097,061 of
distribution expenses or 3.7% of the average net assets of Class B shares were
not reimbursed or recovered by John Hancock Funds through the receipt of
deferred sales charges or 12b-1 fees.
Pursuant to the Plans, at least quarterly, John Hancock Funds provides the
Fund with a written report of the amounts expended under the Plans and the
purpose for which the expenditures were made. The Trustees review these reports
on a quarterly basis.
During the fiscal year ended December 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 Funds:
40
<PAGE>
<TABLE>
<CAPTION>
Expense Items
Printing and Interest
Mailing of Expenses Carrying
Prospectus to of John or Other
New Compensation to Hancock Finance
Advertising Shareholders Selling Brokers Funds Charges
----------- ------------ --------------- ----- -------
<S> <C> <C> <C> <C> <C>
Class A Shares $33,515 $3,846 $ 98,915 $59,699 None
Class B Shares $53,861 $4,475 $328,674 $83,603 $351,388
</TABLE>
41
<PAGE>
Each of the Plans provides that it will continue in effect only so long as
their continuance is approved at least annually by the Board of Trustees and by
the Independent Trustees. Each of the Plans provides that it may be terminated
without penalty (a) by vote of a majority of the Independent Trustees (b) by a
majority of the Fund's outstanding shares of the applicable class having voting
rights with respect to the Plan upon 60 days' written notice to John Hancock
Funds, and (c) automatically in the event of assignment. 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 also provides that no material amendment
to the Plan will, in any event, be effective unless it is approved by a vote of
the Board of 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 Trustees concluded that, in their judgment, there is a reasonable likelihood
that each Plan will benefit the holders of the applicable class of shares of the
Fund.
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 are identified in this
Statement of Additional Information under the caption "Management of the Fund."
INITIAL SALES CHARGE ON CLASS A SHARES
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 owned by the investor, or if
John Hancock Investor Services Corporation ("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 spouse and their children under the age of 21, purchasing
securities for his or their 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
42
<PAGE>
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
registered investment management 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.
o A Trustee/Director or officer of the Fund; 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
sharing 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.
o A member of a class action lawsuit against insurance companies who is
investing settlement proceeds.
o Existing full service clients of the Life Company who were group annuity
contract holders as of September 1, 1994, and participant directed defined
contribution plans with at least 100 eligible employees at the inception of
the Fund account, may purchase Class A shares with no initial sales charge.
However, if the shares are redeemed within 12 months after the end of the
calendar year in which the purchase was made, a CDSC will be imposed at the
following rate:
Amount Invested CDSC Rate
--------------- ---------
$1 million to $4,999,999 1.00%
Next $5 million to $9,999,999 0.50%
Amounts of $10 million and over 0.25%
43
<PAGE>
Accumulation Privilege. Investors (including investors combining purchases)
who are already Class A shareholders may also obtain the benefit of a reduced
sales charge by taking into account not only the amount then being invested but
also the purchase price or current value of the Class A shares already held by
such person.
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 group IRA's, SEP, SARSEP, TSA, 401(k) plans,
403(b) 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 13-month period, at which time the
escrowed Class A 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 charge as may be due. By signing
the LOI, the investor authorizes Investor Services to act as his
attorney-in-fact to redeem any escrowed Class A 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 Class A shares and
may be terminated at any time.
44
<PAGE>
Existing full service clients of the Life Company who were group annuity
contract holders as of September 1, 1994, and participant directed defined
contribution plans with at least 100 eligible employees at the inception of the
Fund account may purchase Class A shares with no initial sales charge. However,
if the shares are redeemed within 12 months after the end of the calendar year
in which the purchase was made, a CDSC will be imposed at the above rate.
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.
DEFERRED SALES CHARGE ON CLASS B SHARES
Investments in Class B shares are purchased at net asset value per share
without the imposition of an initial 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
shares being redeemed. Accordingly, no CDSC will be imposed on increases in
account value above the initial purchase price, including shares derived from
reinvestment of dividends or capital gains distributions.
Class B shares are not available to full-service defined contribution plans
administered by Investor Services or the Life Company that had more than 100
eligible employees at the inception of the Fund account.
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 purchases 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 six-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 six-year period. For this purpose, the amount
45
<PAGE>
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.
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 Investor Services and are used in whole
or in part by Investor Services to defray its 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:
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.
46
<PAGE>
* 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.
* Redemptions of Class B shares made under a periodic withdrawal plan, as
long as your annual redemptions do not exceed 12% of your account value,
including reinvested dividends, at the time you established your periodic
withdrawal plan and 12% 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.)
For Retirement Accounts (such as IRA, Rollover IRA, TSA, 457, 403(b),
401(k), Money Purchase Pension Plan, Profit-Sharing Plan and other qualified
plans as described in the Internal Revenue Code) unless otherwise noted.
* Redemptions made to effect mandatory distributions under the Internal
Revenue Code.
* Returns of excess contributions made to these plans.
* Redemptions made to effect distributions to participants or beneficiaries
from employer sponsored retirement plans under Section 401(a) of the Code
(such as 401(k), Money Purchase Pension Plan and Profit-Sharing Plan).
* Redemptions from certain IRA and retirement plans that purchased shares
prior to October 1, 1992 and certain IRA plans that purchased shares prior
to May 15, 1995.
Please see matrix for reference.
47
<PAGE>
<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 for 12% of account
mandatory value annually
distributions or in periodic
12% of account payments
value annually
in periodic
payments
- ------------------------------------------------------------------------------------------------------------------------
Between 59 1/2 Waived Waived Waived Waived for Life 12% of account
and 70 1/2 Expectancy or 12% value annually
of account value in periodic
annually in payments
periodic payments
- ------------------------------------------------------------------------------------------------------------------------
Under 59 1/2 Waived Waived for annuity Waived for annuity Waived for annuity 12% of account
payments (72t)or payments (72t)or payments (72t)or value annually
12% of account 12% of account 12% of account in periodic
value annually in value annually in value annually in payments
periodic payments periodic payments periodic payments
- ------------------------------------------------------------------------------------------------------------------------
Loans Waived Waived N/A N/A N/A
- ------------------------------------------------------------------------------------------------------------------------
Termination of Not Waived Not Waived Not Waived Not Waived N/A
Plan
- ------------------------------------------------------------------------------------------------------------------------
Hardships Waived Waived Waived N/A N/A
- ------------------------------------------------------------------------------------------------------------------------
Return of
Excess Waived Waived Waived Waived N/A
- ------------------------------------------------------------------------------------------------------------------------
</TABLE>
If you qualify for a CDSC waiver under one of these situations, you must
notify Investor Services at the time you make your redemption. The waiver will
be granted once Investor Services has confirmed that you are entitled to the
waiver.
48
<PAGE>
ADDITIONAL SERVICES AND PROGRAMS FOR CLASS A AND CLASS B SHARES
Exchange Privilege. As described more fully in the Prospectus, the Fund
permits exchanges of shares of the Fund for shares of the same class in any
other John Hancock fund offering that class.
Systematic Withdrawal Plan. The Fund permits the establishment of a
Systematic Withdrawal Plan. Payments under this plan represent proceeds arising
from the redemption of shares of the Fund. Since the redemption price of the
shares of the Fund 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
realization 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
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 Class A or Class B 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
more fully in the Prospectus. The program, as it relates to automatic investment
drafts, 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 your bank. The bank shall
be under no obligation to notify the shareholder as to the non-payment
of any checks.
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 processing date
of any investment.
Reinvestment Privilege. A shareholder who has redeemed shares of the Fund
may, within 120 days after the date of redemption, reinvest any part of the
49
<PAGE>
redemption proceeds in shares of the same class of the Fund or in any of the
other John Hancock funds, subject to the minimum investment limit in any 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
any of the other John Hancock funds. If a CDSC was paid upon a redemption, a
shareholder may reinvest the proceeds from such redemption at net asset value in
additional shares of the class from which the redemption was made. Such
shareholder's account will be credited with the amount of any CDSC charged upon
the prior redemption and such new shares will continue to be subject to the
CDSC. For purposes of determining the amount of any CDSC imposed upon a
subsequent redemption, the holding period of the shares acquired through
reinvestment will 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 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
shares will be treated for tax purposes as described below.
TAX STATUS
Each series of the Trust, including the Fund, is treated as a separate
entity for accounting and tax purposes. The Fund has qualified and has elected
to be treated as a "regulated investment company" under Subchapter M of the
Code. As such and by complying with the applicable provisions of the Code
regarding the sources of its income, the timing of its distributions and the
diversification of its assets, the Fund will not be subject to Federal income
tax on taxable income (including net realized capital gains) which is
distributed to shareholders in accordance with the timing requirements of the
Code.
The Fund will be subject to a four percent nondeductible 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
50
<PAGE>
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.
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.
Foreign exchange gains and losses realized by the Fund in connection with
certain transactions involving foreign currency-denominated debt securities,
foreign currency forward contracts, certain foreign currency futures and
options, 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 certain currency positions or 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 may 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 the resulting overall ordinary loss for such year would not be
deductible by the Fund or its shareholders in future years.
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.
Because more than 50% of the Fund's assets at the close of any taxable year will
not consist of stocks or securities of foreign corporations, the Fund will be
unable to pass such taxes through to 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.
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
51
<PAGE>
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 there 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.
The amount of net realized capital gains, if any, in any given year will
result from sales of securities or transactions in options or futures made with
a view to the maintenance of a portfolio believed by the Fund's management to be
most likely to attain the Fund's objective. Such sales, and any resulting gains
or losses, may therefore vary considerably from year to year. At the time of an
investor's purchase of shares of the Fund, 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 on these shares 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 will ordinarily 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 Class A 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 charge will
result in an increase in the shareholder's tax basis in the Class A 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 automatic
dividend reinvestments. 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.
52
<PAGE>
Although the Fund's 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 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 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 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. The Fund has $259,999 of a capital loss carryforward available, to
the extent provided by regulations, to offset future net realized capital gains.
The carryforward expires December 31, 2002.
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.
53
<PAGE>
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.
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 payments. The mark to
market rules applicable to certain options, futures contracts, 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. Government 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 the 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. The 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
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
54
<PAGE>
shareholder's U.S. federal income tax liability. Investors should consult their
tax advisers about the applicability of the backup withholding provisions.
Investments in debt obligations that are at risk of or in default present
special tax issues for the Fund. Tax rules are not entirely clear about issues
such as when the Fund may cease to accrue interest, original issue discount, or
market discount; when and to what extent deductions may be taken for bad debts
or worthless securities; how payments received on obligations in default should
be allocated between principal and income; and whether exchanges of debt
obligations in a workout context are taxable. These and other issues will be
addressed by the Fund, in the event it invests in such securities, in order to
reduce the risk of distributing insufficient income to preserve its status as a
regulated investment company and seek to avoid becoming subject to Federal
income or excise tax.
Limitations imposed by the Code on regulated investment companies like the
Fund may restrict the Fund's ability to enter into futures, options, foreign
currency positions and foreign currency forward contracts. Certain of these
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 their character as long-term or short-term (or, in the
case of certain currency forwards, options, or futures, as ordinary income or
loss) and timing of some gains and losses realized by the Fund. Also, some of
the Fund's losses on its transactions involving options, futures and 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 gain. Certain of these transactions may also cause the Fund to dispose
of investments sooner than would otherwise have occurred. Some 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. These transactions may
therefore affect the amount, timing and character of the Fund's distributions to
shareholders. The Fund will take into account the special tax rules applicable
to options, futures and forward contracts (including consideration of any
available elections) in order 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 shares of the Fund 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.
55
<PAGE>
Non-U.S. investors not engaged in a U.S. trade or business with which their
Fund investment 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 not be required to pay any Massachusetts income tax.
DESCRIPTION OF FUND 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
56
<PAGE>
unforseen 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.
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
57
<PAGE>
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.
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. The Declaration of Trust
also provides that no series of the Trust shall be liable for the liabilities of
any other series. 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.
Notwithstanding the fact that the Prospectus is a combined prospectus for
the Fund and other John Hancock mutual funds, the Fund shall not be liable for
the liabilities of any other John Hancock mutual fund.
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.
CALCULATION OF PERFORMANCE
The average annual total return is determined separately for each class of
shares at June 30, 1996, with all distributions reinvested in shares. The
average annualized total returns for Class A shares for the 1-year period and
since the Fund's inception on October 5, 1992, were 9.99% and 8.72%,
respectively, and reflect payment of the maximum sales charge of 5.00%. The
average annualized total returns for Class B shares for the 1-year period and
cumulative since the Fund's inception on October 5, 1992, were 9.95% and 9.07%,
respectively, and reflects applicable contingent deferred sales charge (maximum
58
<PAGE>
contingent deferred sales charge of 5% declines to 0% over six years).
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 and life-of-fund periods.
This calculation assumes the maximum sales charge of 5.0% is included in
the initial investment or the CDSC is applied at the end of the period, and also
assumes that all dividends and distributions are reinvested at net asset value
on the reinvestment dates during 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 5.0% sales charge
on Class A shares or the CDSC on Class B shares into account. Excluding the
Fund's sales charge on Class A and the CDSC on Class B shares from a total
return calculation produces a higher total return figure.
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 on the
last day of the period, according to the following standard formula:
59
<PAGE>
YIELD = 2 ([(a - b) + 1] 6 - 1
----
cd
Where:
a = dividends and interest earned during the period.
b = expenses accrued during the period (net of fee reductions and
expense limitation payments, if any).
c = the average daily number of 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.
The Class A and Class B shares' yield at June 30, 1996 was 2.87% and 2.32%,
respectively. Both total return and yield calculations for Class A shares
include the effect of paying the maximum sales charge of 5.00%. Investments at
lower sales charges would result in higher performance figures. Both total
return and yield for the Class B shares reflect deduction of the applicable CDSC
imposed on a redemption of shares held for the applicable period. All
calculations assume that all dividends and distributions are reinvested at net
asset value on the reinvestment dates during the periods. The total return and
yield of Class A and Class B shares will differ; the Fund will include the total
return and yield of both classes in any advertisement or promotional material
including Fund performance data. The value of Fund shares, when redeemed, may be
more or less than their original cost. Both total return and yield are
historical calculations and are not an indication of future performance.
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 -- Fund Performance
Analysis," a publication which tracks mutual fund net assets, total return, and
yield. Comparisons may also be made to bank certificates of deposit ("CDs"),
which differ from mutual funds, such as the Fund, in several ways. The interest
rate established by the sponsoring bank is fixed for the term of a CD, there are
penalties for early withdrawal from CDs, and the principal on a CD is insured.
Performance rankings and ratings reported periodically in national
financial publications such as MONEY Magazine, FORBES, BUSINESS WEEK, the WALL
60
<PAGE>
STREET JOURNAL, MICROPAL, INC., MORNINGSTAR, BARRON'S and IBBOTION ASSOCIATES
will also be utilized as well as the RUSSELL and WILSHIRE indices. The Fund may
also cite Morningstar Mutual Values, an independent mutual fund information
service which ranks mutual funds. 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; 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 of the
Fund are made by the Adviser pursuant to recommendations made by its investment
committee, which consists of directors of the Adviser and officers and Trustees
who are interested persons of the Trust. 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
maker reflect a "spread." 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 National Association of Securities
Dealers, Inc. and such other policies as the Board of 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
61
<PAGE>
services, including primarily the availability and value of research information
and to a lesser extent statistical assistance furnished to the Adviser of the
Fund, and their value and expected contribution to the performance of the Fund.
It is not possible to place a dollar value on information and services to be
received from brokers and dealers, since it is only supplementary to the
research efforts of the Adviser. 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 commitment to allocate portfolio
transactions upon any prescribed basis. While the Adviser will be primarily
responsible for the allocation of the Fund's brokerage business, the policies
and practices of the Adviser in this regard must be consistent with the
foregoing and will at all times be subject to review by the Board of Trustees.
For the fiscal years ended December 31, 1995, 1994 and 1993, the Fund paid
brokerage commissions in the amount of $187,534, $106,785 and $163,746,
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 Board of Trustees that such price
is reasonable in light of the services provided and to such policies as the
Board may adopt from time to time.
For the fiscal year ended December 31, 1995, the Fund paid commissions in
the amount of $40,621 to compensate brokers for research services evaluations of
securities.
The Adviser's indirect parent, the Life Company, is an indirect shareholder
of Tucker Anthony Incorporated and Sutro & Company, Inc. and the indirect sole
shareholder of John Hancock Distributors, which are all broker-dealers
("Affiliated Brokers"). Pursuant to procedures determined by the Board of
Trustees and consistent with the above policy of obtaining best net results, the
Fund may execute portfolio transactions with or through Affiliated Brokers.
During the fiscal years ending December 31, 1995, 1994 and 1993, the Fund did
not execute any portfolio transactions with Affiliated Brokers.
Any of the Affiliated Brokers may act as broker for the Fund on securities
or commodities exchange transactions, subject, however, to the general policy of
the Fund set forth above and the procedures adopted by the Board of Trustees
pursuant to the Investment Company Act. Commissions paid to an Affiliated Broker
must be at least as favorable as those which the Board believes to be
62
<PAGE>
contemporaneously charged by other brokers in connection with comparable
transactions involving similar securities being purchased or sold. A transaction
would not be placed with an Affiliated Broker if the Fund would have to pay a
commission rate less favorable than the Affiliated Broker's contemporaneous
charges for comparable transactions for its other most favored, but
unaffiliated, customers, except for accounts for which the Affiliated Broker
acts as 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 Investment Company
Act) of the Trust, the Adviser or the Affiliated Broker. Any such transactions
would be subject to a good faith determination by the Board of Trustees that the
compensation paid to Affiliated Brokers is fair and reasonable. 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 Broker as a basis for
negotiating commissions at a rate higher than that determined in accordance with
the above criteria. The Fund will not engage in principal transactions with
Affiliated Brokers. The Fund may, however, purchase securities from other
members of underwriting syndicates of which Tucker Anthony and Sutro are members
but only in accordance with the policy set forth above and procedures adopted
and reviewed periodically by the Board of Trustees.
TRANSFER AGENT SERVICES
John Hancock Investors 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 Investor Services
an annual fee for Class A shares of $19.00 per shareholder account and for Class
B shares of $22.50 per shareholder account, plus certain out-of-pocket expenses.
These expenses are aggregated and charged to the Fund and allocated to each
class on the basis of the related net asset values.
CUSTODY OF PORTFOLIO
Portfolio securities of the Fund are held pursuant to a custodian agreement
between the Trust and Investors Bank & Company, 24 Federal Street, Boston,
Massachusetts 02110. Under the custodian agreement, Investors Bank & Company
performs custody, portfolio and fund accounting services. These expenses are
aggregated and charged to the Fund and allocated to each class on the basis of
their relative net asset values.
63
<PAGE>
INDEPENDENT AUDITORS
The independent auditors of the Fund are Ernst & Young LLP, 200 Clarendon
Street, Boston, Massachusetts 02116. The independent auditors audit and render
an opinion on the Fund's annual financial statements and prepare the Fund's
income tax returns.
64
<PAGE>
APPENDIX
Moody's describes its ratings for fixed income securities as follows:
Fixed income securities 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.
Fixed income securities which are rated "Aa" are judged to be of high quality by
all standards. Together with the Aaa group they are generally referred to as
"high grade" obligations. They are rated lower than the best fixed income
securities because margins of protection may not be as large as in Aaa
securities or fluctuation of protective elements may be of greater amplitude or
there may be other elements present which make the long term risks appear
somewhat larger than in Aaa securities.
Fixed income securities which are rated "A" possess many favorable investment
attributes and are to be considered as upper medium grade obligations. Factors
giving security to principal and interest are considered adequate but elements
may be present which suggest a susceptibility to impairment some time in the
future.
Fixed income securities 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 fixed income securities lack
outstanding investment characteristics and in fact have speculative
characteristics as well.
Fixed income securities which are rated "Ba" are judged to have speculative
elements; their future cannot be considered as well assured. Often the
protection of interest and principal payments may be very moderate and thereby
not well safeguarded during both good and bad times over the future. Uncertainty
of position characterizes fixed income securities in this class.
Fixed income securities which are rated "B" generally lack characteristics of
the desirable investment. Assurance of interest and principal payments or of
maintenance of other terms of the contract over any long period of time may be
small.
A-1
<PAGE>
Fixed income securities which are rated "Caa" are of poor standing. Such issues
may be in default or there may be present elements of danger with respect to
principal or interest.
Fixed income securities which are rated "Ca" represent obligations which are
speculative in a high degree. Such issues are often in default or have other
marked shortcomings.
Fixed income securities which are rated "C" are the lowest rated class of fixed
income securities and issues so rated can be regarded as having extremely poor
prospects of ever attaining any real investment standing.
S&P describes its ratings for fixed income securities as follows:
Fixed income securities rated "AAA" have the highest rating assigned by S&P.
Capacity to pay interest and repay principal is extremely strong.
Fixed income securities rated "AA" have a very strong capacity to pay interest
and repay principal and differs from the higher rated issues only in small
degree.
Fixed income securities rated "A" have a strong capacity to pay interest and
repay principal although they are somewhat more susceptible to the adverse
effects of changes in circumstances and economic conditions than fixed income
securities in higher rated categories.
Fixed income securities rated "BBB" are regarded as having an adequate capacity
to pay interest and repay principal. Whereas such securities normally exhibit
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 fixed income securities in this category than in higher
rated categories.
Fixed income securities rated "BB," "B," "CCC," "CC" and "C" are regarded, on
balance, as predominantly speculative with respect to the issuer's capacity to
pay interest and repay principal in accordance with the terms of the
obligations. "BB" indicates the lowest degree of speculation and "C" the highest
degree of speculation. While such fixed income securities will likely have some
quality and protective characteristics, these are outweighed by large
uncertainties or major risk exposures to adverse conditions.
Moody's describes its three highest ratings for commercial paper as follows:
Issuers rated "P-1" (or related supporting institutions) have a superior
capacity for repayment of short-term promissory obligations. "P-1" repayment
A-2
<PAGE>
capacity will normally be evidenced by the following characteristics: (1)
leading market positions in well- established industries; (2) high rates of
return on funds employed; (3) conservative capitalization structures with
moderate reliance on debt and ample asset protections; (4) broad margins in
earnings coverage of fixed financial charges and high internal cash generation;
and (5) well established access to a range of financial markets and assured
sources of alternate liquidity.
Issuers rated "P-2" (or related supporting institutions) have a strong capacity
for repayment of short-term promissory obligations. This will normally be
evidenced by many of the characteristics cited above but to a lesser degree.
Earnings trends and coverage ratios, while sound, will be more subject to
variation. Capitalization characteristics, while still appropriate, may be more
affected by external conditions. Ample alternative liquidity is maintained.
Issuers rated "P-3" (or supporting institutions) have an acceptable ability for
repayment of senior short-term obligations. The effect of industry
characteristics and market compositions may be more pronounced. Variability in
earnings and profitability may result in changes in the level of debt protection
measurements and may require relatively high financial leverage. Adequate
alternate liquidity is maintained.
S&P describes its three highest ratings for commercial paper as follows:
"A-1." This designation indicates that the degree of safety regarding timely
payment is very strong.
"A-2." Capacity for timely payment on issues with this designation is strong.
However, the relative degree of safety is not as overwhelming as for issues
designated "A-1."
"A-3." Issues carrying this designation have a satisfactory capacity for timely
payment. They are, however, somewhat more vulnerable to the adverse effects of
changes in circumstances than obligations carrying the higher designations.
A-3
<PAGE>
Quality Distribution
The average quality distribution of the portfolio for the fiscal year ended
December 31, 1995 was as follows:
<TABLE>
<CAPTION>
Y-T-D Rating Rating
Security Average % of Assigned % of Assigned % of
Rating Value Portfolio by Adviser Portfolio by Service Portfolio
- ------ ----- --------- ---------- --------- ---------- ---------
<S> <C> <C> <C> <C> <C> <C>
AAA $23,631,725 16.0% 0 0.0% $23,631,725 16.0%
AA 3,340,775 2.2% 0 0.0% 3,340,775 2.2%
A 9,990,026 6.8% 0 0.0% 9,990,026 6.8%
BAA 8,349,007 5.6% 0 0.0% 8,349,007 5.6%
BA 5,156,810 3.5% 0 0.0% 5,156,810 3.5%
B 7,779,377 5.3% 0 0.0% 7,779,377 5.3%
CAA 0 0.0% 0 0.0% 0 0.0%
CA 0 0.0% 0 0.0% 0 0.0%
C 0 0.0% 0 0.0% 0 0.0%
D 0 0.0% 0 0.0% 0 0.0%
=========== ===== = ==== =========== =====
0
Debt 58,247,720 39.4% 0 0.0% $58,247,720 39.4%
Securities
0
Equity 84,752,103 57.5%
Securities
0
Short- 4,512,692 3.1%
Term
Securities
0
Total 147,512,515 100.0%
Portfolio
0
Other 997,940
Assets-
Net
0
Net $148,510,455
Assets
</TABLE>
A-4
<PAGE>
JOHN HANCOCK
SOVEREIGN INVESTORS FUND
CLASS A, CLASS B and CLASS C SHARES
Statement of
Additional Information
December 2, 1996
This Statement of Additional Information provides information about John
Hancock Sovereign Investors Fund (the "Fund") in addition to the information
that is contained in the Fund's Prospectus for Class A and Class B shares, dated
December 2, 1996, and in the Fund's Prospectus for Class C shares, dated
December 2, 1996 (the "Prospectuses").
This Statement of Additional Information is not a prospectus. It should
be read in conjunction with the Fund's Prospectuses, 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 02205-9116
1-(800)-225-5291
TABLE OF CONTENTS
Statement of
Additional
Information
Page
Organization of the Fund 2
Investment Objective and Policies 2
Investment Restrictions 8
Those Responsible for Management 12
Investment Advisory and Other Services 21
Distribution Contracts 24
Net Asset Value 26
Initial Sales Charge on Class A Shares 27
Deferred Sales Charge on Class B Shares 30
Special Redemptions 33
Additional Services and Programs for Class A and
Class B Shares 34
Description of Fund Shares 35
<PAGE>
Tax Status 38
Calculation of Performance 43
Brokerage Allocation 46
Transfer Agent Services 48
Custody of Portfolio 48
Independent Auditors 48
Appendix A-1
Financial Statements F-1
ORGANIZATION OF THE FUND
John Hancock Sovereign Investors Fund (the "Fund") is a separate
diversified portfolio of John Hancock Investment Trust (the "Trust"), an
open-end investment management company. The Trust was organized as a
Massachusetts business trust under a Declaration of Trust dated December 12,
1984. Prior to December 2, 1996, the Fund was a separate diversified series of
John Hancock Sovereign Investors Fund, Inc.
The Fund is managed by John Hancock Advisers, Inc. (the "Adviser"). The
Adviser is an indirect wholly-owned subsidiary of the John Hancock Mutual Life
Insurance Company (the "Life Company"), chartered in 1862, with national
headquarters at John Hancock Place, Boston, Massachusetts.
INVESTMENT OBJECTIVE AND POLICIES
The Fund's investment objective is to provide long-term growth of
capital and of income without assuming undue market risks. There is no assurance
that the Fund's objective will be attained. At times, however, because of market
conditions, the Fund may invest primarily for current income. The Fund will make
investments in different types and classes of securities in accordance with the
Board of Trustees' and the Adviser's appraisal of economic and market
conditions. The Fund's portfolio securities are selected mainly for their
investment character based upon generally accepted elements of intrinsic value,
including industry position, management, financial strength, earning power,
marketability and prospects for future growth. The distribution or mix of
various types of investments is based on general market conditions, the level of
interest rates, business and economic conditions, and the availability of
investments in the equity and fixed income markets. The amount of the Fund's
assets that may be invested in either equity or fixed income securities is not
restricted and is based upon management's judgment of what might best achieve
the Fund's investment objectives. The securities held by the Fund are under
2
<PAGE>
continuous study by the Adviser. They are selected because they are considered
by the management to contribute to the possible achievement of the Fund's
objective. They are held or disposed of in accordance with the results of a
continuing examination of their merit.
The Fund currently uses a strategy of investing only in those common
stocks which have a record of having increased their dividend payout in each of
the preceding ten or more years. This dividend performers strategy can be
changed at any time.
The Fund has adhered to this philosophy since 1979. By investing
primarily in these companies, the portfolio management team focuses on
investments with characteristics such as: a strong management team that has
demonstrated leadership through changing market cycles; financial soundness as
evidenced by consistently rising dividends and profits, strong cash flows, high
return on equity and a balance sheet showing little debt; and strong brand
recognition and market acceptance, backed by proven products and a
well-established, often global, distribution network.
The Fund may hold all common stocks or for more defensive purposes it
may hold high grade liquid preferred stocks and debt securities or cash. In
addition, temporary investments in short term debt securities may be made so as
to receive a return on excess cash.
The investment policy of the Fund is to purchase and hold securities
for capital appreciation and investment income, although there may be a limited
number of short- term transactions incidental to the pursuit of its investment
objective. The Fund may make portfolio purchases and sales to the extent that in
its Board's opinion, relying on the Adviser or independently, such transactions
are in the interest of shareholders.
Portfolio turnover rates for the past three fiscal years were: 1993,
46%, 1994, 45% and 1995, 46%.
The Fund endeavors to achieve its objective by utilizing experienced
management and generally investing in securities of seasoned companies in sound
financial condition. While there is considerable flexibility in the investment
grade and type of security in which the Fund may invest, a company or its
predecessors must have been in continuous business for at least five years and
must have total assets of at least $10,000,000 before its securities can be
purchased by the Fund. The Fund has not purchased securities of real estate
investment trusts and has no present intention of doing so in the future.
Restricted Securities. Although the Fund has authority to purchase to a limited
extent "restricted securities" (i.e., securities that would be required to be
registered prior to distribution to the public), the Fund did not do so in its
past fiscal year and has no current intention of doing so, except that the Fund
may in the future invest in restricted securities eligible for resale to certain
institutional investors pursuant to Rule 144A under the Securities Act of 1933.
3
<PAGE>
The Fund will not invest more than 15% of its net assets in illiquid
investments, which includes repurchase agreements maturing in more than seven
days, securities that are not readily marketable and restricted securities.
However, 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 15% limit. The Board of
Trustees may adopt guidelines and delegate to the Adviser the daily function of
determining and monitoring the liquidity of restricted securities. The Board,
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 to the
extent that qualified institutional buyers become for a time uninterested in
purchasing these restricted securities. The Fund does not intend to invest more
that 5% of its net assets in Rule 144A securities in the coming year.
Diversification. The Fund's investments are diversified in a broad list of
issues, representing many different industries. Although diversification does
not eliminate market risk, it may tend to reduce it. At the same time, holdings
of a large number of shares in any one company are avoided. Thus, during periods
when general economic and political conditions are subject to rapid changes, it
may be appropriate to effect rapid changes in the Fund's investments. This can
be more readily accomplished by limiting the amount of any one investment.
As is common to all securities investments, the stock of this managed
diversified Fund is subject to fluctuation in value; its portfolio will not
necessarily prove a defense in periods of declining prices or lead the advance
in rising markets. The Fund's management will endeavor to reduce the risks
encountered in the use of any single investment by investing the assets of the
Fund in a widely diversified group of securities. Diversification, however, will
not necessarily reduce inherent market risks. Securities are selected mainly for
their investment character, based upon generally accepted elements of intrinsic
value including industry position, management, financial strength, earning
power, ready marketability and prospects for future growth.
Concentration. The Fund's policy is not to concentrate its investments in any
one industry, but investments of up to 25% of its total assets at market value
may be made in a single industry. This limitation may not be changed without the
affirmative vote of a majority of the Fund's outstanding voting securities, as
defined in the Investment Company Act of 1940, as amended (the "Investment
Company Act").
Lower Rated Bonds. The Fund may invest in debt securities rated as low as C by
Moody's Investors Service, Inc. ("Moody's") or Standard & Poor's Ratings Group
("S&P") and unrated securities deemed of equivalent quality by the Adviser.
These securities are speculative to a high degree and often have very poor
4
<PAGE>
prospects of attaining real investment standing. Lower rated securities are
generally referred to as junk bonds. No more than 5% of the Fund's net assets,
however, will be invested in securities rated lower than BBB by S&P or Baa by
Moody's. In addition, no more than 5% of the Fund's net assets may be invested
in securities rated BBB or Baa and unrated securities deemed of equivalent
quality. See the Appendix attached to this Statement of Additional Information
which describes the characteristics of the securities in the various ratings
categories. The Fund may invest in comparable quality unrated securities which,
in the opinion of the Adviser, offer comparable yields and risks to those
securities which are rated.
Debt obligations rated in the lower ratings categories, or which are
unrated, involve greater volatility of price and risk of loss of principal and
income. In addition, lower ratings reflect a greater possibility of an adverse
change in financial condition affecting the ability of the issuer to make
payments of interest and principal. The 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 do the price and liquidity of higher rated securities because such
developments are perceived to have a more direct relationship to the ability of
an issuer of such lower rated securities to meet its ongoing debt obligations.
The market prices of zero coupon bonds are affected to a greater extent by
interest rate changes, and thereby tend to be more volatile than securities
which pay interest periodically. Increasing rate note securities are typically
refinanced by the issuers within a short period of time.
Reduced volume and liquidity in the high yield bond market or the
reduced availability of market quotations will make it more difficult to dispose
of the bonds and to value accurately the Fund's assets. 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
high yield securities may be susceptible to adverse publicity and investor
perceptions, whether or not justified by fundamental factors. The Fund's
investments, and consequently its net asset value, will be subject to the market
fluctuations and risks inherent in all securities.
Options and Futures. The Fund may not invest in futures contracts or sell call
or put options. The Fund has authority to purchase put and call options,
although the Fund has no present intention of doing so in the coming fiscal
year.
Government Securities. The Fund may also invest in securities issued or
guaranteed by the U.S. Government, its agencies 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.
5
<PAGE>
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") and the Student Loan Marketing Association Bonds ("Sallie
Maes"). Ginnie Maes, Freddie Macs, Fannie Maes and Sallie Maes are
mortgage-backed securities which provide monthly payments which are, in effect,
a "pass-through" of the monthly interest and principal payments (including any
prepayments) made by the individual borrowers on the pooled mortgage loans.
Collateralized Mortgage Obligations ("CMOs") in which the Fund may invest are
securities issued by a U.S. Government instrumentality that are collateralized
by a portfolio of mortgages or mortgage-backed securities. Mortgage-backed
securities may be less effective than traditional debt obligations of similar
maturity at maintaining yields during periods of declining interest rates.
Mortgage-backed securities have stated maturities of up to thirty years
when they are issued depending upon the length of the mortgages underlying the
securities. In practice, however, unscheduled or early payments of principal and
interest on the underlying mortgages may make the securities' effective maturity
shorter than this and the prevailing interest rates may be higher or lower than
the current yield of the Fund's portfolio at the time such payments are received
by the Fund for reinvestment. Mortgage-backed securities may have less potential
for capital appreciation than comparable fixed-income securities due to the
likelihood of increased prepayments of mortgages as interest rates decline. If
the Fund buys mortgage-backed securities at a premium, mortgage foreclosures and
prepayments of principal by mortgagors (which may be made at any time without
penalty) may result in some loss of the Fund's principal investment to the
extent of the premium paid.
Lending of 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 and money market
funds. 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. It is a
fundamental policy of the Fund not to lend portfolio securities having a total
value exceeding 33 1/3% of its total assets.
Repurchase Agreements. The Fund may invest 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 7 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
6
<PAGE>
enter into repurchase agreements only with member banks of the Federal Reserve
System and with "primary dealers" in U.S. Government securities. 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 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.
Reverse Repurchase Agreements. The Fund may also enter into reverse repurchase
agreements which involve the sale of U.S. Government securities held in its
portfolio to a bank 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. 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 Fund which it is obligated to repurchase. The Fund will
also continue to be subject to the risk of a decline in the market value of the
securities sold under the agreements because it will reacquire those securities
upon effecting their repurchase. The Fund will not enter into reverse repurchase
agreements and other borrowings exceeding in the aggregate 33 1/3% of the market
value of its total assets. The Fund will enter into reverse repurchase
agreements only with federally insured banks or savings and loan associations
which are approved in advance as being creditworthy by the Board of Trustees.
Under procedures established by the Board of Trustees, the Adviser will monitor
the creditworthiness of the firms involved.
Forward Commitment and When-Issued Securities. The Fund may purchase securities
on a when-issued or forward commitment basis. "When-issued" refers to securities
whose terms are available and for which a market exists, but which have not been
issued. The Fund will engage in when-issued transactions with respect to
securities purchased for its portfolio in order to obtain what is considered to
be an advantageous price and yield at the time of the transaction. For
when-issued transactions, no payment is made until delivery is due, often a
month or more after the purchase. In a forward commitment transaction, the Fund
contracts to purchase securities for a fixed price at a future date beyond
customary settlement time.
When the Fund engages in forward commitment and when-issued
transactions, it relies on the seller to consummate the transaction. The failure
of the issuer or seller to consummate the transaction may result in the Fund's
7
<PAGE>
losing the opportunity to obtain a price and yield considered to be
advantageous. The purchase of securities on a when- issued or forward commitment
basis also involves a risk of loss if the value of the security to be purchased
declines prior to the settlement date.
On the date the Fund enters into an agreement to purchase securities on
a when- issued or forward commitment basis, the Fund will segregate in a
separate account cash or liquid securities equal in value to the Fund's
commitment. These assets will be valued daily at market, and additional cash or
securities will be segregated in a separate account to the extent that the total
value of the assets in the account declines below the amount of the when-issued
commitments. Alternatively, the Fund may enter into offsetting contracts for the
forward sale of other securities that it owns.
INVESTMENT RESTRICTIONS
Fundamental Investment Restrictions. The following investment restrictions will
not be changed without approval of a majority of the Fund's outstanding voting
securities which, as used in the Prospectuses and this Statement of Additional
Information, means approval by the lesser of (1) 67% or more of the Fund's
shares represented at a meeting if at least 50% of Fund's outstanding shares are
present in person or by proxy at the meeting or (2) 50% of the Fund's
outstanding shares.
(1) The Fund may not, with respect to 75% of its total assets, purchase
any security (other than securities issued or guaranteed by the U.S. Government,
its agencies or instrumentalities and repurchase agreements collateralized by
such securities) if, as a result: (a) more than 5% of its total assets would be
invested in the securities of any one issuer, or (b) the Fund would own more
than 10% of the voting securities of any one issuer.
(2) The Fund may not issue senior securities, except as permitted by
paragraphs (3) and (7) below. For purposes of this restriction, the issuance of
shares of common stock in multiple classes, the purchase or sale of options,
futures contracts and options on futures contracts, forward commitments, and
repurchase agreements entered into in accordance with the Fund's investment
policies, and the pledge, mortgage or hypothecation of the Fund's assets are not
deemed to be senior securities.
(3) The Fund may not borrow money except in connection with the sale or
resale of its capital stock.
(4) The Fund may not act as an underwriter, except to the extent that,
in connection with the disposition of portfolio investments, the Fund may be
deemed to be an underwriter for purposes of the Securities Act of 1933.
8
<PAGE>
(5) The Fund may not purchase or sell real estate, or any interest
therein, including real estate mortgage loans, except that the Fund may: (i)
hold and sell real estate acquired as the result of its ownership of securities,
or (ii) invest in securities of corporate or governmental entities secured by
real estate or marketable interests therein or securities issued by companies
(other that real estate limited partnerships) that invest in real estate or
interests therein.
(6) The Fund may not make loans, except that the Fund (1) may lend
portfolio securities in accordance with the Fund's investment policies in an
amount up to 331/3% of the Fund's total assets taken at market value, (2) enter
into repurchase agreements, and (3) purchase all or a portion of an issue of
debt securities, bank loan participation interests, bank certificates of
deposit, bankers' acceptances, debentures or other securities, whether or not
the purchase is made upon the original issuance of the securities.
(7) The Fund may not purchase or sell commodities or commodity
contracts; except that the Fund may purchase and sell options on securities,
securities indices, currency and other financial instruments, futures contracts
on securities, securities indices, currency and other financial instruments and
options on such futures contracts, forward commitments, interest rate swaps,
caps and floors, securities index put or call warrants and repurchase agreements
entered into in accordance with the Fund's investment policies.
(8) The Fund may not purchase securities of an issuer conducting its
principal activity in any particular industry if immediately after such purchase
the value of the Fund's investments in all issuers in this industry would exceed
25% of its total assets taken at market value.
Non Fundamental Investment Restrictions. The following restrictions may be
changed by the Fund's Board of Trustees and will not require shareholder
approval.
The Fund may not:
(a) Participate on a joint-and-several basis in any securities trading
account. The "bunching" of orders for the sale or purchase of marketable
portfolio securities with other accounts under the management of any investment
adviser to the Fund in order to save commissions or to average prices among the
accounts, and the participation of the Fund as a part of a group bidding for the
purchase of tax exempt bonds shall not be deemed to result in participation in a
securities trading account.
(b) Purchase securities on margin or make short sales unless, by virtue
of its ownership of other securities, the Fund has the right to obtain
securities equivalent in kind and amount to the securities sold short and, if
the right is conditional, the sale is made upon the same conditions, except that
the Fund may obtain such short-term credits as may be necessary for the
clearance of purchases and sales of securities.
9
<PAGE>
(c) 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 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. 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.
(d) Purchase a security of a company unless it or its predecessors have
been in continuous business for at least five years, and unless its most recent
balance sheet shows at least $10,000,000 total assets.
(e) Invest for the purpose of exercising control over or management of
any company.
(f) Purchase warrants of any issuer, if as a result, more than 2% of
the value of the Fund's total assets would be invested in warrants which are not
listed on the New York Stock Exchange or the American Stock Exchange or more
than 5% of the value of the Fund's total assets would be invested in warrants,
whether or not so listed, such warrants in each case to be valued at the lesser
of cost or market, but assigning no value to warrants acquired by the Fund in
units with or attached to debt securities.
(g) Knowingly purchase or retain securities of an issuer if one or more
of the Trustees or officers of the Fund or directors or officers of the Adviser
or any investment management subsidiary of the Adviser individually owns
beneficially more than 1/2 of 1% and together own beneficially more than 5% of
the securities of such issuer.
(h) Purchase interests in oil, gas or other mineral lease exploration
programs; however, this policy will not prohibit the acquisition of securities
of companies engaged in the production or transmission of oil, gas or other
minerals.
(i) Purchase any security, including any repurchase agreement maturing
in more than seven days, which is illiquid, if more than 15% of the net assets
of the Fund, taken at market value, would be invested in such securities. (The
10
<PAGE>
staff of the Securities and Exchange Commission currently considers
over-the-counter options to be illiquid securities subject to the 15% limit.)
(j) Write put or call options.
(k) Purchase put and call options (other than protective put options)
if, as a result, the value of the Fund's aggregate investment in such options
would exceed 5% of its total assets.
(l) Purchase interests in real estate limited partnerships.
(m) No officer or trustee of the Fund may take a short position in the
shares of the Fund, withhold orders or buy shares in anticipation of orders.
(n) No security of a bank or trust company may be purchased unless it
is a domestic corporation, and has combined capital, surplus and undivided
profits of at least $20,000,000.
In order to permit the sale of shares of the Fund in certain states,
the Trustees may, in their sole discretion, adopt restrictions on investment
policy more restrictive than those described above. Should the Trustees
determine that any such more restrictive policy is no longer in the best
interest of the Fund and its shareholders, the Fund may cease offering shares in
the state involved and the Trustees may revoke such restrictive policy.
Moreover, if the states involved shall no longer require any such restrictive
policy, the Trustees may, at their sole discretion, revoke such policy. The Fund
has agreed with state securities administrators that it will not purchase the
following securities:
The Fund agrees that, in accordance with the Ohio Securities Division
and until such regulations are no longer required, it will comply with Rule
1301:6-3-09(E)(9) by not investing in the securities of other open-end and
closed-end investment companies except by purchase in the open market where no
commission or profit to a sponsor or dealer results from the purchase other than
the customary broker's commission, or except when the purchase is part of a plan
of merger, consolidation, reorganization or acquisition.
If a percentage restriction on investment or utilization of assets as
set forth above is adhered to at the time an investment is made, a later change
in percentage resulting from changes in the value of the Fund's assets will not
be considered a violation of the restriction.
Because investments in securities of other investment companies may
result in duplication of certain fees and expenses, the Fund will invest in such
11
<PAGE>
securities only when, in the Adviser's opinion, the anticipated return on such
securities justifies any such additional expense.
THOSE RESPONSIBLE FOR MANAGEMENT
The business of the Fund is managed by its Board of 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 Fund are also officers or directors of the Adviser or officers
or directors of the Fund's principal distributor, John Hancock Funds, Inc.
("John Hancock Funds,").
The following table sets forth the principal occupation or employment
of the Trustees and principal officers of the Fund during the past five years:
12
<PAGE>
<TABLE>
<CAPTION>
Positions Held with Principal Occupation(s)
Name and Address the Registrant During Past Five Years
- ---------------- -------------- ----------------------
<S> <C> <C>
Edward J. Boudreau, Jr.* Trustee, Chairman and Chief Chairman and Chief Executive
101 Huntington Avenue Executive Officer(1)(2) 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 Trust, as such term is defined in the
Investment Company Act.
(1) Member of the Executive Committee. Under the Trust's Declaration of Trust,
the Executive Committee may generally exercise most of the powers of the
Board of Trustees.
(2) A Member of the Investment Committee of the Adviser.
(3) Member of the Audit Committee and the Administration Committee.
13
<PAGE>
Positions Held with Principal Occupation(s)
Name and Address the Registrant During Past Five Years
- ---------------- -------------- ----------------------
James F. Carlin Trustee(3) 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(3) 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.
* An "interested person" of the Trust, as such term is defined in the
Investment Company Act.
(1) Member of the Executive Committee. Under the Trust's Declaration of Trust,
the Executive Committee may generally exercise most of the powers of the
Board of Trustees.
(2) A Member of the Investment Committee of the Adviser.
(3) Member of the Audit Committee and the Administration Committee.
14
<PAGE>
Positions Held with Principal Occupation(s)
Name and Address the Registrant During Past Five Years
- ---------------- -------------- ----------------------
Harold R. Hiser, Jr. Trustee(3) 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).
Charles F. Fretz Trustee(3) 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(1)(2) 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(3) 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 Trust, as such term is defined in the
Investment Company Act.
(1) Member of the Executive Committee. Under the Trust's Declaration of Trust,
the Executive Committee may generally exercise most of the powers of the
Board of Trustees.
(2) A Member of the Investment Committee of the Adviser.
(3) Member of the Audit Committee and the Administration Committee.
15
<PAGE>
Positions Held with Principal Occupation(s)
Name and Address the Registrant During Past Five Years
- ---------------- -------------- ----------------------
Leo E. Linbeck, Jr. Trustee(3) 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(3) Director and Secretary, The
Swedesford Road McCarter Corp. (machine
RD #3, Box 121 manufacturer).
Malvern, PA 19355
May 1928
* An "interested person" of the Trust, as such term is defined in the
Investment Company Act.
(1) Member of the Executive Committee. Under the Trust's Declaration of Trust,
the Executive Committee may generally exercise most of the powers of the
Board of Trustees.
(2) A Member of the Investment Committee of the Adviser.
(3) Member of the Audit Committee and the Administration Committee.
16
<PAGE>
Positions Held with Principal Occupation(s)
Name and Address the Registrant During Past Five Years
- ---------------- -------------- ----------------------
Steven R. Pruchansky Trustee(1)(3) 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 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(3) 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 Trust, as such term is defined in the
Investment Company Act.
(1) Member of the Executive Committee. Under the Trust's Declaration of Trust,
the Executive Committee may generally exercise most of the powers of the
Board of Trustees.
(2) A Member of the Investment Committee of the Adviser.
(3) Member of the Audit Committee and the Administration Committee.
17
<PAGE>
Positions Held with Principal Occupation(s)
Name and Address the Registrant During Past Five Years
- ---------------- -------------- ----------------------
John P. Toolan Trustee(3) 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(2) 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 Trust, as such term is defined in the
Investment Company Act.
(1) Member of the Executive Committee. Under the Trust's Declaration of Trust,
the Executive Committee may generally exercise most of the powers of the
Board of Trustees.
(2) A Member of the Investment Committee of the Adviser.
(3) Member of the Audit Committee and the Administration Committee.
18
<PAGE>
Positions Held with Principal Occupation(s)
Name and Address the Registrant 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 Trust, as such term is defined in the
Investment Company Act.
(1) Member of the Executive Committee. Under the Trust's Declaration of Trust,
the Executive Committee may generally exercise most of the powers of the
Board of Trustees.
(2) A Member of the Investment Committee of the Adviser.
(3) Member of the Audit Committee and the Administration Committee.
19
<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 Directors and/or Trustees of one or more other funds for which the
Adviser serves as investment adviser.
The following table provides information regarding the compensation
paid by the Fund during its most recently completed fiscal year and the other
investment companies in the John Hancock Fund Complex to the Independent
Trustees for their services. Mr. Boudreau and each of the officers of the Fund
are interested persons of the Adviser, are compensated by the Adviser and
received no compensation from the Fund for their services. Messrs. Cunningham
and Linbeck were not Trustees of the Fund during its most recently completed
fiscal year and are therefore not included in the following table.
Total Compensation
Aggregate From the Fund and John
Compensation From Hancock Fund Complex
Independent Trustees the Fund(2) to Trustees(1)(2)
- -------------------- ----------- -----------------
James F. Carlin $ 15,878 $ 60,700
Charles F. Fretz 22,758 56,200
Harold R. Hiser, Jr.+ 25,266 60,200
Charles L. Ladner 13,422 60,700
Patricia P. McCarter 13,422 60,700
Steven R. Pruchansky 13,865 62,700
Norman H. Smith 13,865 62,700
John P. Toolan+ 13,422 60,700
-------- --------
$131,898 $484,600
(1) The total compensation paid by the John Hancock Fund Complex to the
Independent Trustees is as of the calendar year ended December 31, 1995.
(2) Compensation is for the fiscal year ended December 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. Hiser
was $31,324 and for Mr. Toolan was $71,437 under the John Hancock Deferred
Compensation Plan for Independent Trustees.
20
<PAGE>
As of August 30, 1996, the officers and Trustees of the Fund as a group owned
less than 1% of the outstanding shares of each class of the Fund and as of the
same date the following shareholders beneficially owned 5% of or more of the
outstanding shares of the Fund:
<TABLE>
<CAPTION>
Percentage of
Number of Shares total outstanding
Name and Address of Class of of beneficial shares of the class
Shareholder Shares interest owned of the Fund
----------- ------ -------------- -----------
<S> <C> <C> <C>
Mellon Bank Trustee Class C 994,933 77.50%
California Savings Plus Program shares
457 Plan A/C CSPF0135002
Attn: Bob Stein
1 Cabot Rd.
Medford, MA 02155-5158
Mellon Bank Trustee Class C 288,602 22.48%
California Savings Plus Program shares
401(K) Thrift Plan A/C CSPF0035002
Attn: Bob Stein
1 Cabot Rd.
Medford, MA 02155-5158
</TABLE>
INVESTMENT ADVISORY AND OTHER SERVICES
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 affiliated with the Fund
who is also an affiliated person of the Adviser is named above, together with
the capacity in which such person is affiliated with the Fund or the Adviser.
As described in the Prospectuses under the caption "Organization and
Management of the Fund," the Fund has entered into an investment management
contract with the Adviser. Under the investment management contract, the Adviser
provides the Fund (i) with a continuous investment program, consistent with the
Fund's stated investment objective and policies; and (ii) supervision of all
21
<PAGE>
aspects of the Fund's operations except those 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.
Securities held by the Fund may also be held by other funds or
investment advisory clients for which the Adviser or 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 for the Fund 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 affiliates may increase the demand for securities being purchased or the
supply of securities being sold, there may be an adverse effect on price.
No person other than the Adviser and its directors and employees and
SAMCorp Advisers, Inc. regularly furnish advice to the Fund with respect to the
desirability of the Fund's 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 fees of Trustees of the
Fund who are not "interested persons," as such term is defined in the Investment
Company Act but excluding certain distribution-related activities required to be
paid by the Adviser or John Hancock Funds) and the continuous public offering of
the shares of the Fund are borne by the Fund.
As discussed in the Class A and Class B Prospectus and as provided by
the investment management contract, the Fund pays the Adviser quarterly an
investment management fee, which is accrued daily, based on a stated percentage
of the average of the daily net assets of the Fund.
Investment advisory fees paid to the Adviser in 1995, 1994 and 1993
amounted to $8,017,834, $7,452,980 and 6,750,790, respectively. The Adviser paid
SAMCorp the sum of $2,672,150 in 1993, $2,997,156 in 1994 and $3,232,490 in
1995.
From time to time, the Adviser may reduce its 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 a 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
22
<PAGE>
the Fund is registered to sell shares of common stock, 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
to the extent 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
assets, 2% of the next $70,000,000 of such assets and 1.5% of the remaining
average daily net assets.
Pursuant to the investment management contract, the Adviser is not
liable for any error of judgment or mistake of law or for any loss suffered by
the Fund in connection with the matters to which the investment management
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 reckless disregard of the obligations and duties under the investment
management contract.
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
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 an affiliate 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 highest ratings from
Standard & Poor's and A.M. Best. Founded in 1862, the Life Company has been
serving clients for over 130 years.
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
contract or any extension, renewal or amendment thereof remains in effect. If
the contract is no longer in effect, the Fund (to the extent that it lawfully
can) will cease to use such a 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.
The Adviser has entered into a service agreement with SAMCorp Advisers,
Inc. ("SAMCorp"), which is an indirect wholly-owned subsidiary of the Life
Company. The service agreement provides that SAMCorp will provide to the Adviser
certain portfolio management services with respect to the securities held in the
portfolio of the Fund. The service agreement further provides that the Adviser
will remain ultimately responsible for all of its obligations under the
investment management contract between the Adviser and the Fund. Subject to the
supervision of the Adviser, SAMCorp furnishes the Fund with recommendations with
respect to the purchase, holding and disposition of equity securities in the
23
<PAGE>
Fund's portfolio; furnishes the Fund with research, economic and statistical
data in connection with the Fund's equity investments; and places orders for
transactions in equity securities.
The Adviser pays to SAMCorp 40% of the quarterly investment management
fee received by the Adviser with respect to the Fund during such quarter. The
fees paid by the Fund to the Adviser under the investment management contract
are not affected by this arrangement.
The investment management contract and the distribution contract
continue in effect from year to year thereafter if approved annually by vote of
a majority of the Independent Trustees, cast in person at a meeting called for
the purpose of voting on such approval, and by either the Trustees or the
holders of a majority of the Fund's outstanding voting securities. The contract
automatically terminates upon assignment. The contract may be terminated without
penalty on 60 days' notice at the option of either party to the respective
contract or by vote of a majority of the outstanding voting securities of the
Fund.
DISTRIBUTION CONTRACTS
The Fund has entered into a distribution contract with John Hancock
Funds. Under the contract, John Hancock Funds is obligated to use its best
efforts to sell shares of each class of the Fund. Shares of the Fund are also
sold by selected broker-dealers (the "Selling Brokers") which have entered into
selling agency agreements with John Hancock Funds. John Hancock Funds accepts
orders for the purchase of the shares of the Fund which are continually offered
at net asset value next determined, plus any applicable sales charge. In
connection with the sale of Class A or Class B shares, John Hancock Funds and
Selling Brokers receive compensation in the form of a sales charge imposed, in
the case of Class A shares, at the time of sale or, in the case of Class B
shares, on a deferred basis. The sales charges are discussed further in the
Class A and Class B Prospectus.
The Fund's Trustees adopted Distribution Plans with respect to Class A
and Class B shares ("the Plans"), pursuant to Rule 12b-1 under the Investment
Company Act. Under the Plans, the Fund will pay distribution and service fees at
an aggregate annual rate of up to 0.30% and 1.00% for Class A and Class B,
respectively, of the Fund's daily net assets attributable to shares of that
class. However, the service fee will not exceed 0.25% of the Fund's average
daily net assets attributable to each class of shares. The distribution fees
will be used to reimburse the Distributor for its distribution expenses,
including but not limited to: (i) initial and ongoing sales compensation to
Selling Brokers and others (including affiliates of the Distributor) 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
24
<PAGE>
expenses. The service fees will be used to compensate Selling Brokers for
providing personal and account maintenance services to shareholders. In the
event that John Hancock Funds is not fully reimbursed for expenses incurred by
it under the Class B Plan in any fiscal year, John Hancock Funds may carry these
expenses forward, provided, however, that the Trustees may terminate the Class B
Plan and thus the Fund's obligation to make further payments at any time.
Accordingly, the Fund does not treat unreimbursed expenses relating to the Class
B shares as a liability of the Fund. The Plans were approved by a majority of
the voting securities of the Fund. The Plans and all amendments were approved by
the Trustees, including a majority of the Trustees who are not interested
persons of the Fund and who have no direct or indirect financial interest in the
operation of the Plans (the "Independent Trustees"), by votes cast in person at
meetings called for the purpose of voting on such Plans.
Pursuant to the Plans, at least quarterly, John Hancock Funds provides
the Fund with a written report of the amounts expended under the Plans and the
purpose for which the expenditures were made. The Trustees review these reports
on a quarterly basis.
During the fiscal year ended December 31, 1995, the Fund paid John
Hancock Funds the following amounts of expenses with respect to the Class A and
Class B shares of the Fund:
<TABLE>
<CAPTION>
Expense Items
Printing and
Mailing of Interest Carrying
Prospectus to Compensation to Expenses of John or Other Finance
Advertising New Shareholders Selling Brokers Hancock Funds Charges
----------- ---------------- --------------- ------------- -------
<S> <C> <C> <C> <C>
Sovereign
Investors Fund
- --------------
Class A Shares $459,536 $28,722 $1,921,699 $1,135,643 None
Class B Shares $179,770 $13,303 $ 531,451 $ 438,931 $744,118
</TABLE>
Each of the Plans provides that it will continue in effect only so long
as its continuance is approved at least annually by the Board of Trustees and by
the Independent Trustees. Each of the Plans provides that it may be terminated
without penalty (a) by vote of a majority of the Independent Trustees (b) by a
majority of the Fund's outstanding shares of the applicable class having voting
rights with respect to the Plan upon 60 days' written notice to John Hancock
Funds, and (c) automatically in the event of assignment. 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 also provides that no material amendment
25
<PAGE>
to the Plan will, in any event, be effective unless it is approved by a vote of
the Board of 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 Trustees concluded that, in their judgment, there is a reasonable likelihood
that each Plan will benefit the holders of the applicable class of shares of the
Fund.
Class C shares of the Fund are not subject to any distribution plan.
Expenses associated with the obligation of John Hancock Funds to use its best
efforts to sell Class C shares will be paid by the Adviser or by John Hancock
Funds and will not be paid from the fees paid under Class A or Class B Plans.
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 are identified in this
Statement of Additional Information under the caption "Management of the Fund."
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 last
available bid price.
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
26
<PAGE>
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
The sales charges applicable to purchases of Class A shares of the Fund
are described in the Fund's Class A and Class B 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 of the Fund, 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 owned by the investor, 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 spouse and their children under the age of 21, purchasing
securities for his or their own account, (b) a Trustee or other fiduciary
purchasing for a single Fund, 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
registered investment management company.
27
<PAGE>
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.
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 Trustees 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.
o A member of a class action lawsuit against insurance companies who is
investing settlement proceeds.
o Existing full service clients of the Life Company who were group annuity
contract holders as of September 1, 1994, and participant-directed defined
contribution plans with at least 100 eligible employees at the inception of
the Fund account, may purchase Class A shares with no initial sales charge.
However, if the shares are redeemed within 12 months after the end of the
calendar year in which the purchase was made, a CDSC will be imposed at the
following rate:
Amount Invested CDSC Date
--------------- ---------
$1 million to $4,999,999 1.00%
Next $5 million to $9,999,999 0.50%
Amounts of $10 million and over 0.25%
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 a reduced sales
28
<PAGE>
charge by taking into account not only the amount then being invested but also
the purchase price or current value of the Class A shares already held by such
person.
Combination Privilege. Reduced sales charges (according to the schedule set
forth in the Class A and Class B 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 loads 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, SEP, SARSEP, 401(k), 403(b) (including TSAs) 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 with 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 escrowed Class A 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 charge as may be due. By
signing the LOI, the investor authorizes Investor Services to act as his
attorney-in-fact to redeem any escrowed Class A 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 Class A shares and
may be terminated at any time.
Because Class C shares are sold at net asset value without the
imposition of any sales charge, none of the privileges described under these
captions are available to Class C investors, with the following exception:
29
<PAGE>
Combination Privilege. As explained in the Prospectus for Class C Shares, a
Class C investor may qualify for the minimum $1,000,000 investment (or such
other amount as may be determined by the Fund's officers) if the aggregate
amount of his current and prior investments in Class C shares of the Fund and
Class C shares of any other John Hancock Fund exceeds $1,000,000.
DEFERRED SALES CHARGE ON CLASS B SHARES
Investments in Class B shares are purchased at net asset value per
share without the imposition of an initial 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 Class A and Class B 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. No
CDSC will be imposed on shares derived from reinvestment of dividends or capital
gains distributions.
Class B shares are not available to full-service defined contribution
plans administered by Investor Services or the Life Company that had more than
100 eligible employees at the inception of the Fund account.
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 purchases 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 six- 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 six-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.
30
<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 John Hancock Funds and are used in
whole or in part by Investor Services to defray its 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 enables the Fund to sell the Class B shares
without a sales charge being deducted at the time of the purchase. See the Class
A and Class B 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:
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.
31
<PAGE>
* Redemptions of Class B shares made under a periodic withdrawal plan, as
long as your annual redemptions do not exceed 12% of your account value,
including reinvested dividends, at the time you established your periodic
withdrawal plan and 12% of the value of subsequent investments (less
redemptions) in that account at the time you notify Investor services.
(Please note that this waiver does not apply to periodic withdrawal plan
redemptions of Class A shares that are subject to a CDSC).
For Retirement Accounts (such as IRA, Rollover IRA, TSA, 457, 403(b), 401(k),
Money Purchase Pension Plan, Profit-Sharing Plan and other qualified plans as
described in the Internal Revenue Code of 1986, as amended (the "Code")) unless
otherwise noted.
* Redemptions made to effect mandatory or life expectancy distributions under
the Internal Revenue Code.
* Returns of excess contributions made to these plans.
* Redemptions made to effect distributions to participants or beneficiaries
from employer sponsored retirement plans under Section 401(a) of the Code
(401(k), Money Purchase Pension Plan, Profit-Sharing Plan).
* Redemptions from certain IRA and retirement plans that purchased shares
prior to October 1, 1992 and certain IRA plans that purchased shares prior
to May 15, 1995.
Please see matrix for reference.
32
<PAGE>
<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 for 12% of account
mandatory value annually
distributions or in periodic
12% of account payments
value annually
in periodic
payments
- ------------------------------------------------------------------------------------------------------------------------
Between 59 1/2 Waived Waived Waived Waived for Life 12% of account
and 70 1/2 Expectancy or 12% value annually
of account value in periodic
annually in payments
periodic payments
- ------------------------------------------------------------------------------------------------------------------------
Under 59 1/2 Waived Waived for annuity Waived for annuity Waived for annuity 12% of account
payments (72t)or payments (72t)or payments (72t)or value annually
12% of account 12% of account 12% of account in periodic
value annually in value annually in value annually in payments
periodic payments periodic payments periodic payments
- ------------------------------------------------------------------------------------------------------------------------
Loans Waived Waived N/A N/A N/A
- ------------------------------------------------------------------------------------------------------------------------
Termination of Not Waived Not Waived Not Waived Not Waived N/A
Plan
- ------------------------------------------------------------------------------------------------------------------------
Hardships Waived Waived Waived N/A N/A
- ------------------------------------------------------------------------------------------------------------------------
Return of
Excess Waived Waived Waived Waived N/A
- ------------------------------------------------------------------------------------------------------------------------
</TABLE>
If you qualify for a CDSC waiver under one of these situations, you must notify
Investor Services at the time you make your redemption. The waiver will be
granted once Investor Services has confirmed that you are entitled to the
waiver.
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
33
<PAGE>
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, however, elected to
be governed by Rule 18f-1 under the Investment Company Act. Under that rule, the
Fund must redeem its shares for cash except to the extent that the redemption
payments to any shareholder during any 90-day period would exceed the lesser of
$250,000 or 1% of the Fund's net asset value at the beginning of such period.
ADDITIONAL SERVICES AND PROGRAMS FOR CLASS A AND CLASS B SHARES
Exchange Privilege. As described more fully in the Prospectuses, 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 Fund's Class A and Class
B Prospectus, the Fund permits the establishment of a Systematic Withdrawal
Plan. Payments under this plan represent proceeds arising from the redemption of
shares. Since the redemption price of the shares of the Fund 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 realization of gain or loss for purposes of Federal,
state and local income taxes. The recognition 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 Class A and Class B 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 Class A and Class B Prospectus. The program, as it relates to automatic
investment drafts, is subject to the following conditions:
The investment drafts 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
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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 checks.
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 processing date of any investment.
Reinvestment Privilege. A shareholder who has redeemed shares of the Fund 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 fund, subject to the minimum investment limit
in any 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 any other John Hancock fund. If a CDSC was paid
upon a redemption, a shareholder may reinvest the proceeds from such 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 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
shares will be treated for tax purposes as described below.
DESCRIPTION OF FUND 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
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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.
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
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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.
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. The Declaration of Trust
also provides that no series of the Trust shall be liable for the liabilities of
any other series. 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.
Notwithstanding the fact that the Prospectus is a combined prospectus
for the Fund and other John Hancock mutual funds, the Fund shall not be liable
for the liabilities of any other John Hancock mutual fund.
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
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restrictions are a continuation of the basic principle that the interests of the
Fund and its shareholders come first.
TAX STATUS
Each series of the Trust, including the Fund, is treated as a separate
entity for accounting and tax purposes. The Fund has qualified and has 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 taxable income
(including net realized capital gains) distributed to shareholders in accordance
with the timing requirements of the Code.
The Fund will be subject to a four percent nondeductible 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.
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.
The amount of net realized capital gains, if any, in any given year
will result from sales of securities made with a view to the maintenance of a
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portfolio believed by the Fund's management to be most likely to attain the
Fund's objective. Such sales, and any resulting gains or losses, may therefore
vary considerably from year to year. At the time of an investor's purchase of
shares of the Fund, a portion of the purchase price is often attributable to
realized or unrealized appreciation in the Fund's portfolio. Consequently,
subsequent distributions on these shares 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.
If the Fund acquires stock of 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.
The Fund may be subject to foreign taxes on its income from investments
in certain foreign securities, if any. Tax conventions between certain countries
and the U.S. may reduce or eliminate such taxes in some cases. Because more than
50% of the Fund's assets at the close of any taxable year will generally not
consist of stocks or securities of foreign corporations, the Fund will generally
be unable to pass such taxes through to shareholders, who will therefore
generally not be entitled to any foreign tax credit or deduction with respect to
their investment in the Fund. The Fund will deduct the foreign taxes it pays in
determining the amount it has available for distribution to shareholders.
Foreign exchange gains and losses realized by the Fund in connection
with certain transactions involving foreign currency-denominated debt
securities, foreign currencies, or payable or receivables denominated in 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.
Limitations imposed by the Code on regulated investment companies like
the Fund may restrict the Fund's ability to enter into options transactions.
Certain of these transactions may cause the Fund to recognize gains or losses
from marking to market even though its positions have not been sold or
terminated and may affect the character as long-term or short-term and timing of
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<PAGE>
some capital gains and losses realized by the Fund. Additionally, certain of the
Fund's losses on transactions involving options and any offsetting or successor
positions in its portfolio may be deferred rather than being taking into account
currently in calculating the Fund's taxable income or gain. 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. Some 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 applicable to options including consideration
of available elections, in order to seek to minimize any potential adverse tax
consequences.
Upon a redemption of shares of the Fund (including by exercise of the
exchange privilege) a shareholder will ordinarily 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 Class A 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 charge 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 automatic dividend reinvestment. 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.
Although the Fund's 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 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
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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 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 these taxes.
For Federal income tax purposes, the Fund is permitted to carry forward
a net capital loss in any year to offset 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. Presently, there are no realized capital loss carryforwards to
offset against future net realized capital gains.
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 a 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
tax 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.
The Fund is required to accrue income on any debt securities that have
more than a de minimus 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 payments. The
mark to market rules applicable to certain options and futures contracts may
also require the Fund to recognize gain within 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 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.
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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 intangible taxes,
the value of its assets is attributable to) certain U.S. Government 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 the 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 the 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. The
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 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.
Investments in debt obligations that are at risk of or in default may
present special tax issues for the Fund. Tax rules are not entirely clear about
issues such as when the Fund may cease to accrue interest, original issue
discount, or market discount; when and to what extent deductions may be taken
for bad debts or worthless securities; how payments received on obligations in
default should be allocated between principal and income; and whether exchanges
of debt obligations in a workout context are taxable. These and other issues
will be addressed by the Fund, in the event it invests in such securities, in
order to reduce the risk of distributing insufficient income to preserve its
status as a regulated investment company and seek to avoid becoming subject to
Federal income or excise tax.
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The foregoing discussion relates solely to U.S. Federal income tax laws
applicable to the 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 shares of the
Fund may also be subject to state and local taxes. The foregoing discussion
related to U.S. investors that are not exempt from U.S. Federal income tax.
Different tax consequences will apply to plan participants, tax-exempt investors
and investors that are subject to tax deferral. You should consult your tax
adviser for specific advice. Under the Code, a tax-exempt investor in the Fund
will not generally recognize unrelated business taxable income from its
investment in the Fund unless the tax-exempt investor incurred indebtedness to
acquire or continue to hold Fund shares and such indebtedness remains unpaid.
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.
Non-U.S. investors not engaged in a U.S. trade or business with which
their Fund investment 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. Provided that the Fund qualifies as a regulated investment company
under the Code, it will not be required to pay Massachusetts corporate excise,
franchise or income taxes.
CALCULATION OF PERFORMANCE
For the 30-day period ended June 30, 1996, the annualized yield on
Class A, Class B and Class C shares of the Fund was 1.76%, 1.06%, and 2.22%,
respectively. The average annual total return of the Class A shares of the Fund
for the 1, 5, 10 year periods ended June 30, 1996 was 16.18%, 11.58% and 10.40%,
respectively. The average annual total return of the Class B shares of the Fund
for the 1 year period ended June 30, 1996 and for the period from the
commencement of operations, January 3, 1994 to June 30, 1996 was 16.29% and
12.22%, respectively. The average annual total return of the Class C shares of
the Fund for the 1 year period ended June 30, 1996 and for the period from
commencement of operation, May 7, 1993 to June 30, 1996 was 22.69% and 12.87%,
respectively.
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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, 5 and 10 year periods.
This calculation assumes the maximum sales charge of 5.0% is included
in the initial investment or the CDSC is applied at the end of the period, and
also assumes that all dividends and distributions are reinvested at net asset
value on the reinvestment dates during the period. Performance calculations for
Class C shares do not include any sales charge or distribution plan fees.
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 5.0% sales charge
on Class A shares or the CDSC on Class B shares into account. 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. 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.
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
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(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 = expenses accrued during the period (net of fee reductions
and expense limitation payments, if any).
c = the average daily number of 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.
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 -- Growth
and Income Fund Performance Analysis," a monthly publication which tracks mutual
fund net assets, total return, and yield. Comparisons may also be made to bank
certificates of deposit ("CDs"), which differ from mutual funds, such as the
Fund, in several ways. The interest rate established by the sponsoring bank is
fixed for the term of a CD, there are penalties for early withdrawal from CDs,
and the principal on a CD is insured.
Performance rankings and ratings reported periodically in national
financial publications such as MONEY Magazine, FORBES, BUSINESS WEEK, the WALL
STREET JOURNAL, MICROPAL, INC., MORNINGSTAR, BARRON'S and IBBOTSON ASSOCIATES
will also be utilized as well as the Russell and Wilshire indices. The Fund may
also cite Morningstar Mutual Values, an independent mutual fund information
service which ranks mutual funds. 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. Beta is a widely accepted measurement of risk. By definition, the beta
of the market is 1.00. A fund with a higher beta is more volatile than the
market and a fund with a lower beta can be expected to rise and fall more slowly
that the market . The Standard & Poor's 500 Stock Index ( S&P 500) is an
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unmanaged index that includes 500 widely traded common stocks and is an often
used measure of the stock market performance.
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; 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 broker commissions are made by the Advisers pursuant to
recommendations made by its investment committee, which consists of officers and
Trustees of the Adviser and officers and Trustees who are interested persons of
the Fund, and by SAMCorp. 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 maker reflect
a "spread." 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 National Association of Securities
Dealers, Inc. and such other policies as 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 broker 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 and
SAMCorp, 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 and SAMCorp. The receipt of research information
is not expected to reduce significantly the expenses of the Adviser. The
46
<PAGE>
research information and statistical assistance furnished by brokers and dealers
may benefit the Life Company or other advisory clients of the Adviser and
SAMCorp, and, conversely, brokerage commissions and spreads paid by other
advisory clients of the Adviser or SAMCorp may result in research information
and statistical assistance beneficial to the Fund. The Fund will make no
commitment to allocate portfolio transactions upon any prescribed basis. While
the Adviser and SAMCorp 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 years ended on December 31, 1995, 1994 and 1993, the Fund paid
negotiated brokerage commissions in the amount of $1,652,520, $1,197,837 and
$1,517,163, 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 such price is
reasonable in light of the services provided and to such policies as the
Trustees may adopt from time to time. During the fiscal year ended December 31,
1995, the Fund directed commissions in the amount of $216,694 to compensate
brokers for research services such as industry, economic and company reviews and
evaluation of securities.
The Adviser's indirect parent, the Life Company, is the indirect sole
shareholder of John Hancock Distributors and an indirect shareholder of John
Hancock Freedom Securities Corporation and its subsidiaries, Tucker Anthony
Incorporated and Sutro & Company, Inc., all of which are broker-dealers
("Affiliated Brokers"). Pursuant to procedures determined by the Trustees and
consistent with the above policy of obtaining best net results, the Fund may
execute portfolio transactions with or through Affiliated Brokers. During the
year ended December 31, 1995, 1994 and 1993, the Fund did not execute any
portfolio transactions with Affiliated Brokers.
Any of the Affiliated Brokers may act as broker for the Fund on
securities or commodities exchange transactions, subject, however, to the
general policy of the Fund set forth above and the procedures adopted by the
Trustees pursuant to the Investment Company Act. Commissions paid to an
Affiliated Broker must be at least as favorable as those which the Trustees
believe to be contemporaneously charged by other brokers in connection with
comparable transactions involving similar securities being purchased or sold. A
transaction would not be placed with an Affiliated Broker if the Fund would have
to pay a commission rate less favorable than the Affiliated Broker's
contemporaneous charges for comparable transactions for its other most favored,
but unaffiliated, customers except for accounts for which the Affiliated Broker
acts as 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 Investment Company
47
<PAGE>
Act) of the Fund, the Adviser, SAMCorp or the Affiliated Broker. Any such
transactions would be subject to a good faith determination by the Trustees that
the compensation paid to Affiliated Brokers is fair and reasonable. Because the
Adviser and SAMCorp, which are affiliated with the Affiliated Brokers, have, as
investment advisers 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 Broker as a
basis for negotiating commissions at a rate higher than that determined in
accordance with the above criteria. The Fund will not engage in principal
transactions with Affiliated Brokers. The Fund may, however, purchase securities
from other members of underwriting syndicates of which Tucker Anthony and Sutro
are members but only in accordance with the policy set forth above and
procedures adopted and reviewed periodically by the Trustees.
TRANSFER AGENT SERVICES
John Hancock Investor Services Corporation, P.O. Box 9116, 101
Huntington Avenue, 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 $19.00 for each Class A shareholder and $21.50 for
each Class B shareholder account and 0.10% of the average daily net assets
attributable to the Class C shares, plus certain out-of-pocket expenses.
CUSTODY OF PORTFOLIO
Portfolio securities of the Fund are held pursuant to a custodian
agreement between the Fund and Investors Bank & Trust Company, 24 Federal
Street, Boston, Massachusetts 02110. Under the custodian agreement, Investors
Bank & Trust Company performs custody, portfolio and fund accounting services.
INDEPENDENT AUDITORS
The independent auditors of the Fund are Ernst & Young LLP, 200
Clarendon Street, Boston, Massachusetts 02116. The independent auditors audit
and render an opinion on the Fund's annual financial statements and prepare the
Fund's annual income tax returns.
48
<PAGE>
APPENDIX
Moody's describes its lower ratings for corporate bonds as follows:
Bonds which are rated Baa are considered as medium grade obligations, i.e., they
are neither highly protected nor poorly secured. Interest payments and principal
security appear adequate for the present but certain protective elements may be
lacking or may be characteristically unreliable over any great length of time.
Such bonds lack outstanding investment characteristics and in fact have
speculative characteristics as well.
Bonds which are rated Ba are judged to have speculative elements; their future
cannot be considered as well assured. Often the protection of interest and
principal payments may be very moderate and thereby not well safeguarded during
both good and bad times over the future. Uncertainty of position characterized
bonds in this class.
Bonds which are rated B generally lack characteristics of the desirable
investment. Assurance of interest and principal payments or of maintenance of
other terms of the contract over any long period of time may be small.
Bonds which are rated Caa are of poor standing. Such issues may be in default or
there may be present elements of danger with respect to principal or interest.
Bonds which are rated Ca represented obligations which are speculative in a high
degree. Such issues are often in default or have other marked shortcomings.
Bonds which are rated C are the lowest rated class of bonds and issues so rated
can be regarded as having extremely poor prospects of ever attaining any real
investment standing.
Standard & Poor's describes its lower ratings for corporate bonds as follows:
Debt rated 'BBB' is regarded as having an adequate capacity to pay interest and
repay principal. Whereas it normally exhibits adequate protection parameters,
adverse economic conditions or changing circumstances are more likely to lead to
a weakened capacity to pay interest and repay principal for debt in this
category than in higher rated categories.
Debt rated 'BB,' 'B,' 'CCC,' or 'CC' is regarded, on balance, as predominantly
speculative with respect to the issuer's capacity to pay interest and repay
principal in accordance with the terms of the obligations. 'BB' indicates the
lowest degree of speculation and 'CC' the highest degree of speculation. While
such debt will likely have some quality and protective characteristics, these
are outweighed by large uncertainties or major risk exposures to adverse
conditions.
A-1
<PAGE>
Moody's describes its three highest ratings for commercial paper as follows:
Issuers rated P-1 (or related supporting institutions) have a superior capacity
for repayment of short-term promissory obligations. P-1 repayment capacity will
normally be evidenced by the following characteristics: (1) leading market
positions in well- established industries; (2) high rates of return on funds
employed; (3) conservative capitalization structures with moderate reliance on
debt and ample asset protections; (4) broad margins in earnings coverage of
fixed financial charges and high internal cash generation; and (5) well
established access to a range of financial markets and assured sources of
alternate liquidity.
Issuers rated P-2 (or related supporting institutions) have a strong capacity
for repayment of short-term promissory obligations. This will normally be
evidenced by many of the characteristics cited above but to a lesser degree.
Earnings trends and coverage ratios, while sound, will be more subject to
variation. Capitalization characteristics, while still appropriate, may be more
affected by external conditions. Ample alternate liquidity is maintained.
Issuers rated P-3 (or supporting institutions) have an acceptable ability for
repayment of senior short-term obligations. The effect of industry
characteristics and market compositions may be more pronounced. Variability in
earnings and profitability may result in changes in the level of debt protection
measurements and may require relatively high financial leverage. Adequate
alternate liquidity is maintained.
Standard & Poor's describes its lower ratings for corporate bonds as follows:
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, CCC, CC, C Debt rated 'BB', 'B', 'CCC', 'CC" and 'C' 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 'C' 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.
BB Debt rated 'BB' has less near-term vulnerability to default than other
speculative issues. However, it faces major ongoing uncertainties or exposure to
adverse business, financial, or economic conditions which could lead to
inadequate capacity to meet timely interest and principal payments. The 'BB'
rating category is also used for debt subordinated to senior debt that is
assigned an actual or implied 'BBB-' rating.
A-2
<PAGE>
B Debt rated 'B' has a greater vulnerability to default but currently has the
capacity to meet interest payments and principal repayments. Adverse business,
financial or economic conditions will likely impair capacity or willingness to
pay interest and repay principal. The 'B' rating category is also used for debt
subordinated to senior debt that is assigned an actual or implied 'BB' or 'BB-'
rating.
CCC Debt rated 'CCC' has a currently identifiable vulnerability to default, and
is dependent upon favorable business, financial, and economic conditions to meet
timely payment of interest and repayment of principal. In the event of adverse
business, financial or economic conditions, it is not likely to have the
capacity to pay interest and repay principal. The 'CCC' rating category is also
used for debt subordinated to senior debt that is assigned an actual or implied
'B' or 'B-' rating.
CC The rating 'CC' is typically applied to debt subordinated to senior debt that
is assigned an actual or implied 'CCC' rating.
C The rating 'C' is typically applied to debt subordinated to senior debt which
is assigned an actual or implied 'CCC-' debt rating. The 'C' rating may be used
to cover a situation where a bankruptcy petition has been filed, but debt
service payments are continued.
Standard & Poor's describes its three highest ratings for commercial paper as
follows:
A-1. This designation indicated that the degree of safety regarding timely
payment is very strong.
A-2. Capacity for timely payment on issues with this designation is strong.
However, the relative degree of safety is not as overwhelming as for issues
designated A-1.
A-3. Issues carrying this designation have a satisfactory capacity for timely
payment. They are, however, somewhat more vulnerable to the adverse effects of
changes in circumstances than obligations carrying the higher designations.
Issuers rated P-2 (or related supporting institutions) have a strong capacity
for repayment of short-term promissory obligations. This will normally be
evidenced by many of the characteristics cited above but to a lesser degree.
Earnings trends and coverage ratios, while sound, will be more subject to
variation. Capitalization characteristics, while still appropriate, may be more
affected by external conditions. Ample alternate liquidity is maintained.
Issuers rated P-3 (or supporting institutions) have an acceptable ability for
repayment of senior short-term obligations. The effect of industry
characteristics and market compositions may be more pronounced. Variability in
earnings and profitability may result in changes in the level of debt protection
measurements and may require relatively high financial leverage. Adequate
alternate liquidity is maintained.
A-3
<PAGE>
FINANCIAL STATEMENTS
F-1
<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 Growth & Income
Fund 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 0000950135-95-002208) and Semi-Annual Report to Shareholders
for the period ended November 29, 1996 (filed electronically on May 8, 1996;
file nos. 811-0560 and 2-10156; accession number 0000928816-96-000125):
Sovereign Investors Fund and Sovereign Balanced Fund 1995 Annual Report to
Shareholders for the year ended December 31, 1995 (filed electronically on June
25, 1996; file nos. 811-115 and 2-7954; accession number 0001010521-96-000104)
and Semi-Annual Report to Shareholders for the period ended June 30, 1996 (filed
electronically on August 21, 1996, file nos. 811-115 and 2-7954; accession
number 0001010521-96-000143).
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.
Report of Independent Auditors.
Statements of Assets and Liabilities as of February 29, 1996 (unaudited).
Statement of Operations for the six months ended February 29, 1996
(unaudited).
Statement of Changes in Net Assets for each of the two years ended
August 31, 1995 and for the six months ended February 29, 1996 (unaudited).
Notes to Financial Statements (unaudited).
Financial Highlights for each of the 10 years in the period ended August
31, 1995 and for the six months ended February 29, 1996 (unaudited).
Schedule of Investments as of February 29, 1996 (unaudited).
John Hancock Sovereign Investors Fund
-------------------------------------
Statement of Assets and Liabilities as of December 31, 1995.
Statement of Operations of the year ended December 31, 1995.
Statement of Changes in Net Asset for each of the two years ended
December 31, 1995.
Notes to Financial Statements.
Financial Highlights for each of the years in the period ended
December 31, 1995.
Schedule of Investments as of December 31, 1995.
Report of Independent Auditors.
C-1
<PAGE>
Statement of Assets and Liabilities as of June 30, 1996 (unaudited).
Statement of Operations for the six months ended June 30, 1996 (unaudited).
Statement of Changes in Net Assets for each of the two years ended December
31, 1995 and for the six months ended June 30, 1996 (unaudited).
Notes to Financial Statements (unaudited).
Financial Highlights for each of the years in the period ended December
31, 1995 and for the six months ended June 30, 1996 (unaudited).
Schedule of Investments as of June 30, 1996 (unaudited).
John Hancock Sovereign Balanced Fund
------------------------------------
Statement of Assets and Liabilities as of December 31, 1995.
Statement of Operations of the year ended December 31, 1995.
Statement of Changes in Net Asset for each of the two years ended
December 31, 1995.
Notes to Financial Statements.
Financial Highlights for each of the years in the period ended
December 31, 1995.
Schedule of Investments as of December 31, 1995.
Report of Independent Auditors.
Statement of Assets and Liabilities as of June 30, 1996 (unaudited).
Statement of Operations for the six months ended June 30, 1996 (unaudited).
Statement of Changes in Net Asset for each of the two years ended December
31, 1995 and for the six months ended June 30, 1996 (unaudited).
Notes to Financial Statements (unaudited).
Financial Highlights for each of the years in the period ended December
31, 1995 and for the six months ended June 30, 1996 (unaudited).
Schedule of Investments as of June 30, 1996 (unaudited).
(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 August 30, 1996, the number of record holders of shares of Registrant
was as follows:
Title of Class Number of Record Holders
-------------- ------------------------
John Hancock Growth & Income Fund
Class A Shares - 13,084
Class B Shares - 13,493
C-2
<PAGE>
John Hancock Sovereign Investors Fund
Class A Shares - 134,558
Class B Shares - 36,106
Class C Shares - 186
John Hancock Sovereign Balanced Fund
Class A Shares - 8,796
Class B Shares - 9,397
Item 27. Indemnification
Section 4.3 of Registrant's Declaration of Trust provides that (i) every
person who is, or has been, a Trustee, officer, employee or agent of the
Trust (including any individual who serves at its request as director,
officer, partner, trustee or the like of another organization in which it
has any interest as a shareholder, creditor or otherwise) shall be
indemnified by the Trust, or by one or more Series thereof if the claim
arises from his or her conduct with respect to only such Series, to the
fullest extent permitted by law against all liability and against all
expenses reasonably incurred or paid by him in connection with any claim,
action, suit or proceeding in which he becomes involved as a party or
otherwise by virtue of his being or having been a Trustee or officer and
against amounts paid or incurred by him in the settlement thereof; and that
(ii) the words "claim," "action," "suit," or "proceeding" shall apply to
all claims, actions, suits or proceedings (civil, criminal, or other,
including appeals), actual or threatened; and the words "liability" and
"expenses" shall include, without limitation, attorneys' fees, costs,
judgments, amounts paid in settlement, fines, penalties and other
liabilities.
However, no indemnification shall be provided to a Trustee or officer (i)
against any liability to the Trust, a Series thereof or the Shareholders by
reason of willful misfeasance, bad faith, gross negligence or reckless
disregard of the duties involved in the conduct of his office; (ii) with
respect to any matter as to which he shall have been finally adjudicated
not to have acted in good faith in the reasonable belief that his action
was in the best interest of the Trust or a Series thereof; (iii) in the
event of a settlement or other disposition not involving a final
adjudication resulting in a payment by a Trustee or officer, unless there
has been a determination that such Trustee or officer did not engage in
willful misfeasance, bad faith, gross negligence or reckless disregard of
the duties involved in the conduct of his office by (A) a court by (B) a
majority of the Non- interested trustees or independent legal counsel, or
(C) a vote of the majority of the Fund's outstanding shares.
The rights of indemnification may be insured against by policies maintained
by the Trust, shall be severable, shall not affect any other rights to
which any Trustee or officer may now or hereafter be entitled, shall
continue as to a person who has ceased to be such Trustee or officer and
shall inure to the benefit of the heirs, executors, administrators and
assigns of such a person. Nothing contained herein shall affect any rights
to indemnification to which personnel of the Trust or any Series thereof
other than Trustees and officers may be entitled by contract or otherwise
under law.
Expenses of preparation and presentation of a defense to any claim, action,
suit or proceeding may be advanced by the Trust or a Series thereof before
C-3
<PAGE>
final disposition, if the recipient undertakes to repay the amount if it is
ultimately determined that he is not entitled to indemnification, provided
that either:
(i) such undertaking is secured by a surety bond or some other
appropriate security provided by the recipient, or the Trust or Series
thereof shall be insured against losses arising out of any such
advances; or (ii) a majority of the Non-interested Trustees acting on
the matter (provided that a majority of the Non-interested Trustees
act on the matter) or an independent legal counsel in a written
opinion shall determine, based upon a review of readily available
facts (as opposed to a full trial-type inquiry), that there is reason
to believe that the recipient ultimately will be found entitled to
indemnification.
For purposes of indemnification Non-interested Trustee" is one who (i)
is not an "Interested Person" of the Trust (including anyone who has
been exempted from being an "Interested Person" by any rule,
regulation or order of the Commission), and (ii) is not involved in
the claim, action, suit or proceeding.
(b) Under the Distribution Agreement. 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.
Section 9(a) of the By-Laws of the 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 to be
entitled to indemnification.
Article IX of the respective By-Laws of John Hancock Funds and 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 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
C-4
<PAGE>
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 as person."
Insofar as indemnification for liabilities under the Securities Act of 1933 (the
"Act") may be permitted to Trustees, officers and controlling persons of
Registrant pursuant to the Registrant's Amended and Restated Articles of
Incorporation, Article 10.1 of the Registrant's By-Laws, The underwriting
Agreement, the By-Laws of John Hancock Funds, the Adviser, or the Insurance
Company or otherwise, 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, Registrant will, unless in 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 Adviser
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, herein incorporated 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 Trust, John Hancock Current Interest, John
Hancock Series, Inc., John Hancock Tax-Free Bond Trust, 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 Fund, John Hancock Strategic Series, John Hancock Technology Series, Inc.
and 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-5
<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 Vice Chairman and Chief
101 Huntington Avenue Investment Officer
Boston, Massachusetts
Stephen M. Blair Executive Vice President None
101 Huntington Avenue
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
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
C-6
<PAGE>
Name and Principal Positions and Offices Positions and Offices
Business Address with Underwriter with Registrant
---------------- ---------------- ---------------
Susan S. Newton Vice President Vice President and Secretary
101 Huntington Avenue
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-7
<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, Masschusetts
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 Senior Vice President None
101 Huntington Avenue
Boston, Massachusetts
C-8
<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
Karen Walsh 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-a(b), and 31a-2(a) under the Investment Company Act of
1940 as its principal executive offices at 101 Huntington Avenue, Boston
Massachusetts 02199-7603. Certain records, including records relating to
Registrant's shareholders and the physical possession of its securities,
may be maintained pursuant to Rule 31a-3 at the main office of Registrant's
Transfer Agent and Custodian.
Item 31. Management Services
Not applicable.
Item 32. Undertakings
(a) Not applicable.
(b) Not applicable.
(c) 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.
C-9
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant 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
13th day of September, 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 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
- ------------------------ Senior Vice President and Chief September 13, 1996
James B. Little Financial Officer (Principal
Financial and Accounting Officer)
* Trustee
- ------------------------
James F. Carlin
* Trustee
- ------------------------
William H. Cunningham
* Trustee
- ------------------------
Charles F. Fretz
* Trustee
- ------------------------
Harold R. Hiser, Jr.
* Trustee
- ------------------------
Anne C. Hodsdon
- ------------------------ Trustee
Charles L. Ladner
C-10
<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/Susan S. Newton September 13, 1996
------------------
Susan S. Newton,
Attorney-in-Fact
Powers of Attorney dated
June 25, 1996, filed herewith
</TABLE>
C-11
<PAGE>
John Hancock Growth & Income Fund
John Hancock Sovereign Investors Fund
John Hancock Sovereign Balanced Fund
POWER OF ATTORNEY
The undersigned Trustee/Director of each of the above listed Trusts, each a
Massachusetts business trust, and Corporations, each a Maryland Corporation,
does hereby severally constitute and appoint EDWARD J. BOUDREAU, JR., SUSAN S.
NEWTON, AND JAMES B. LITTLE, and each acting singly, to be my true, sufficient
and lawful attorneys, with full power to each of them, and each acting singly,
to sign for me, in my name and in the capacity indicated below, any Registration
Statement on Form N-1A and any Registration Statement on Form N-14 to be filed
by the Trust under the Investment Company Act of 1940, as amended (the "1940
Act"), and under the Securities Act of 1933, as amended (the "1933 Act"), and
any and all amendments to said Registration Statements, with respect to the
offering of shares and any and all other documents and papers relating thereto,
and generally to do all such things in my name and on my behalf in the capacity
indicated to enable the Trust to comply with the 1940 Act and the 1933 Act, and
all requirements of the Securities and Exchange Commission thereunder, hereby
ratifying and confirming my signature as it may be signed by said attorneys or
each of them to any such Registration Statements and any and all amendments
thereto.
IN WITNESS WHEREOF, I have hereunder set my hand on this Instrument as of
the 25th day of June, 1996.
/s/Edward J. Boudreau, Jr. /s/Leo E. Linbeck, Jr.
- ----------------------------- --------------------------
Edward J. Boudreau, Jr. Leo E. Linbeck, Jr.
/s/ James F. Carlin /s/Patricia P. McCarter
- ----------------------------- --------------------------
James F. Carlin Patricia P. McCarter
/s/ William H. Cunningham /s/Steven R. Pruchansky
- ----------------------------- --------------------------
William H. Cunningham Steven R. Pruchansky
/s/Charles F. Fretz /s/Richard S. Scipione
- ----------------------------- --------------------------
Charles F. Fretz Richard S. Scipione
/s/Harold R. Hiser, Jr. /s/Norman H. Smith
- ----------------------------- --------------------------
Harold R. Hiser, Jr. Norman H. Smith
/s/Anne C. Hodsdon /s/John P. Toolan
- ----------------------------- --------------------------
Anne C. Hodsdon John P. Toolan
/s/Charles L. Ladner
- -----------------------------
Charles L. Ladner
C-12
<PAGE>
Index to Exhibits
Exhibit No. Description
99.B1 Amended and Restated Declaration of Trust of John Hancock
Investment Trust dated July 1, 1996.+
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-13
<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.**
27.1A Sovereign Investors Fund Annual+
27.1B Sovereign Investors Fund Annual+
27.1C Sovereign Investors Fund Annual+
27.2A Sovereign Investors Fund Semi-Annual+
27.2B Sovereign Investors Fund Semi-Annual+
27.2C Sovereign Investors Fund Semi-Annual+
27.3A Sovereign Balanced Fund Annual+
27.3B Sovereign Balanced Fund Annual+
27.4A Sovereign Balanced Fund Semi-Annual+
27.4B Sovereign Balanced Fund Semi-Annual+
27.5A Growth and Income Fund Annual+
27.5B Growth and Income Fund Annual+
27.6A Growth and Income Fund Semi-Annual+
27.6B Growth and Income Fund 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.
+ Filed herewith.
C-14
Exhibit 99.B1
AMENDED AND RESTATED
DECLARATION OF TRUST
OF
JOHN HANCOCK INVESTMENT TRUST
101 Huntington Avenue
Boston, Massachusetts 02199
Dated July 1, 1996
DECLARATION OF TRUST made this 1st day of July, 1996 by the undersigned
(together with all other persons from time to time duly elected, qualified and
serving as Trustees in accordance with the provisions of Article II hereof, the
"Trustees");
WHEREAS, pursuant to a declaration of trust executed and delivered on
December 21, 1984 (the "Original Declaration"), the Trustees established a trust
for the investment and reinvestment of funds contributed thereto;
WHEREAS, the Trustees divided the beneficial interest in the trust assets
into transferable shares of beneficial interest, as provided therein;
WHEREAS, the Trustees declared that all money and property contributed to
the trust established thereunder be held and managed in trust for the benefit of
the holders, from time to time, of the shares of beneficial interest issued
thereunder and subject to the provisions thereof;
WHEREAS, the Trustees desire to amend and restate the Original Declaration;
NOW, THEREFORE, in consideration of the foregoing premises and the
agreements contained herein, the undersigned, being all of the Trustees of the
trust, hereby amend and restate the Original Declaration as follows:
ARTICLE I
NAME AND DEFINITIONS
Section 1.1. Name. The name of the trust created hereby is "John Hancock
Investment Trust" (the "Trust").
Section 1.2. Definitions. Wherever they are used herein, the following
terms have the following respective meanings:
(a) "Administrator" means the party, other than the Trust, to the contract
described in Section 3.3 hereof.
(b) "By-laws" means the By-laws referred to in Section 2.8 hereof, as
amended from time to time.
<PAGE>
(c) "Class" means any division of shares within a Series in accordance with
the provisions of Article V.
(d) The terms "Commission" and "Interested Person" have the meanings given
them in the 1940 Act. Except as such term may be otherwise defined by the
Trustees in conjunction with the establishment of any Series, the term "vote of
a majority of the Outstanding Shares entitled to vote" shall have the same
meaning as is assigned to the term "vote of a majority of the outstanding voting
securities" in the 1940 Act.
(e) "Custodian" means any Person other than the Trust who has custody of
any Trust Property as required by Section 17(f) of the 1940 Act, but does not
include a system for the central handling of securities described in said
Section 17(f).
(f) "Declaration" means this Declaration of Trust as amended from time to
time. Reference in this Declaration of Trust to "Declaration," "hereof,"
"herein," and "hereunder" shall be deemed to refer to this Declaration rather
than exclusively to the article or section in which such words appear.
(g) "Distributor" means the party, other than the Trust, to the contract
described in Section 3.1 hereof.
(h) "Fund" or "Funds" individually or collectively, means the separate
Series of the Trust, together with the assets and liabilities assigned thereto.
(i) "Fundamental Restrictions" means the investment restrictions set forth
in the Prospectus and Statement of Additional Information for any Series and
designated as fundamental restrictions therein with respect to such Series.
(j) "His" shall include the feminine and neuter, as well as the masculine,
genders.
(k) "Investment Adviser" means the party, other than the Trust, to the
contract described in Section 3.2 hereof.
(l) The "1940 Act" means the Investment Company Act of 1940, as amended
from time to time.
(m) "Person" means and includes individuals, corporations, partnerships,
trusts, associations, joint ventures and other entities, whether or not legal
entities, and governments and agencies and political subdivisions thereof.
(n) "Prospectus" means the Prospectuses and Statements of Additional
Information included in the Registration Statement of the Trust under the
Securities Act of 1933, as amended, as such Prospectuses and Statements of
Additional Information may be amended or supplemented and filed with the
Commission from time to time.
(o) "Series" individually or collectively means the separately managed
component(s) of the Trust (or, if the Trust shall have only one such component,
then that one) as may be established and designated from time to time by the
Trustees pursuant to Section 5.11 hereof.
2
<PAGE>
(p) "Shareholder" means a record owner of Outstanding Shares.
(q) "Shares" means the equal proportionate units of interest into which the
beneficial interest in the Trust shall be divided from time to time, including
the Shares of any and all Series or of any Class within any Series (as the
context may require) which may be established by the Trustees, and includes
fractions of Shares as well as whole Shares. "Outstanding" Shares means those
Shares shown from time to time on the books of the Trust or its Transfer Agent
as then issued and outstanding, but shall not include Shares which have been
redeemed or repurchased by the Trust and which are at the time held in the
treasury of the Trust.
(r) "Transfer Agent" means any Person other than the Trust who maintains
the Shareholder records of the Trust, such as the list of Shareholders, the
number of Shares credited to each account, and the like.
(s) "Trust" means John Hancock Investment Trust.
(t) "Trustees" means the persons who have signed this Declaration, so long
as they shall continue in office in accordance with the terms hereof, and all
other persons who now serve or may from time to time be duly elected, qualified
and serving as Trustees in accordance with the provisions of Article II hereof,
and reference herein to a Trustee or the Trustees shall refer to such person or
persons in this capacity or their capacities as trustees hereunder.
(u) "Trust Property" means any and all property, real or personal, tangible
or intangible, which is owned or held by or for the account of the Trust or the
Trustees, including any and all assets of or allocated to any Series or Class,
as the context may require.
ARTICLE II
TRUSTEES
Section 2.1. General Powers. The Trustees shall have exclusive and absolute
control over the Trust Property and over the business of the Trust to the same
extent as if the Trustees were the sole owners of the Trust Property and
business in their own right, but with such powers of delegation as may be
permitted by this Declaration. The Trustees shall have power to conduct the
business of the Trust and carry on its operations in any and all of its branches
and maintain offices both within and without The Commonwealth of Massachusetts,
in any and all states of the United States of America, in the District of
Columbia, and in any and all commonwealths, territories, dependencies, colonies,
possessions, agencies or instrumentalities of the United States of America and
of foreign governments, and to do all such other things and execute all such
instruments as they deem necessary, proper or desirable in order to promote the
interests of the Trust although such things are not herein specifically
mentioned. Any determination as to what is in the interests of the Trust made by
the Trustees in good faith shall be conclusive. In construing the provisions of
this Declaration, the presumption shall be in favor of a grant of power to the
Trustees.
The enumeration of any specific power herein shall not be construed as
limiting the aforesaid powers. Such powers of the Trustees may be exercised
without order of or resort to any court.
3
<PAGE>
Section 2.2. Investments. The Trustees shall have the power:
(a) To operate as and carry on the business of an investment company, and
exercise all the powers necessary and appropriate to the conduct of such
operations.
(b) To invest in, hold for investment, or reinvest in, cash; securities,
including common, preferred and preference stocks; warrants; subscription
rights; profit-sharing interests or participations and all other contracts for
or evidence of equity interests; bonds, debentures, bills, time notes and all
other evidences of indebtedness; negotiable or non-negotiable instruments;
government securities, including securities of any state, municipality or other
political subdivision thereof, or any governmental or quasi-governmental agency
or instrumentality; and money market instruments including bank certificates of
deposit, finance paper, commercial paper, bankers' acceptances and all kinds of
repurchase agreements, of any corporation, company, trust, association, firm or
other business organization however established, and of any country, state,
municipality or other political subdivision, or any governmental or
quasi-governmental agency or instrumentality; any other security, instrument or
contract the acquisition or execution of which is not prohibited by any
Fundamental Restriction; and the Trustees shall be deemed to have the foregoing
powers with respect to any additional securities in which the Trust may invest
should the Fundamental Restrictions be amended.
(c) To acquire (by purchase, subscription or otherwise), to hold, to trade
in and deal in, to acquire any rights or options to purchase or sell, to sell or
otherwise dispose of, to lend and to pledge any such securities, to enter into
repurchase agreements, reverse repurchase agreements, firm commitment
agreements, forward foreign currency exchange contracts, interest rate, mortgage
or currency swaps, and interest rate caps, floors and collars, to purchase and
sell options on securities, indices, currency, swaps or other financial assets,
futures contracts and options on futures contracts of all descriptions and to
engage in all types of hedging, risk management or income enhancement
transactions.
(d) To exercise all rights, powers and privileges of ownership or interest
in all securities and repurchase agreements included in the Trust Property,
including the right to vote thereon and otherwise act with respect thereto and
to do all acts for the preservation, protection, improvement and enhancement in
value of all such securities and repurchase agreements.
(e) To acquire (by purchase, lease or otherwise) and to hold, use,
maintain, develop and dispose of (by sale or otherwise) any property, real or
personal, including cash or foreign currency, and any interest therein.
(f) To borrow money and in this connection issue notes or other evidence of
indebtedness; to secure borrowings by mortgaging, pledging or otherwise
subjecting as security the Trust Property; and to endorse, guarantee, or
undertake the performance of any obligation or engagement of any other Person
and to lend Trust Property.
4
<PAGE>
(g) To aid by further investment any corporation, company, trust,
association or firm, any obligation of or interest in which is included in the
Trust Property or in the affairs of which the Trustees have any direct or
indirect interest; to do all acts and things designed to protect, preserve,
improve or enhance the value of such obligation or interest; and to guarantee or
become surety on any or all of the contracts, stocks, bonds, notes, debentures
and other obligations of any such corporation, company, trust, association or
firm.
(h) To enter into a plan of distribution and any related agreements whereby
the Trust may finance directly or indirectly any activity which is primarily
intended to result in the distribution and/or servicing of Shares.
(i) To adopt on behalf of the Trust or any Series thereof an alternative
purchase plan providing for the issuance of multiple Classes of Shares (as
authorized herein at Section 5.11).
(j) In general to carry on any other business in connection with or
incidental to any of the foregoing powers, to do everything necessary, suitable
or proper for the accomplishment of any purpose or the attainment of any object
or the furtherance of any power hereinbefore set forth, either alone or in
association with others, and to do every other act or thing incidental or
appurtenant to or arising out of or connected with the aforesaid business or
purposes, objects or powers.
The foregoing clauses shall be construed both as objects and powers, and
the foregoing enumeration of specific powers shall not be held to limit or
restrict in any manner the general powers of the Trustees.
Notwithstanding any other provision herein, the Trustees shall have full
power in their discretion as contemplated in Section 8.5, without any
requirement of approval by Shareholders, to invest part or all of the Trust
Property (or part or all of the assets of any Series), or to dispose of part or
all of the Trust Property (or part or all of the assets of any Series) and
invest the proceeds of such disposition, in securities issued by one or more
other investment companies registered under the 1940 Act. Any such other
investment company may (but need not) be a trust (formed under the laws of any
state) which is classified as a partnership or corporation for federal income
tax purposes.
The Trustees shall not be limited to investing in obligations maturing
before the possible termination of the Trust, nor shall the Trustees be limited
by any law limiting the investments which may be made by fiduciaries.
Section 2.3. Legal Title. Legal title to all the Trust Property shall be
vested in the Trustees as joint tenants except that the Trustees shall have
power to cause legal title to any Trust Property to be held by or in the name of
one or more of the Trustees, or in the name of the Trust or any Series of the
Trust, or in the name of any other Person as nominee, on such terms as the
Trustees may determine, provided that the interest of the Trust therein is
deemed appropriately protected. The right, title and interest of the Trustees in
the Trust Property and the Property of each Series of the Trust shall vest
automatically in each Person who may hereafter become a Trustee. Upon the
termination of the term of office, resignation, removal or death of a Trustee he
5
<PAGE>
shall automatically cease to have any right, title or interest in any of the
Trust Property, and the right, title and interest of such Trustee in the Trust
Property shall vest automatically in the remaining Trustees. Such vesting and
cessation of title shall be effective whether or not conveyancing documents have
been executed and delivered.
Section 2.4. Issuance and Repurchase of Shares. The Trustees shall have the
power to issue, sell, repurchase, redeem, retire, cancel, acquire, hold, resell,
reissue, dispose of, transfer, and otherwise deal in Shares and, subject to the
provisions set forth in Articles VI and VII and Section 5.11 hereof, to apply to
any such repurchase, redemption, retirement, cancellation or acquisition of
Shares any funds or property of the Trust or of the particular Series with
respect to which such Shares are issued, whether capital or surplus or
otherwise, to the full extent now or hereafter permitted by the laws of The
Commonwealth of Massachusetts governing business corporations.
Section 2.5. Delegation; Committees. The Trustees shall have power,
consistent with their continuing exclusive authority over the management of the
Trust and the Trust Property, to delegate from time to time to such of their
number or to officers, employees or agents of the Trust the doing of such things
and the execution of such instruments either in the name of the Trust or any
Series of the Trust or the names of the Trustees or otherwise as the Trustees
may deem expedient, to the same extent as such delegation is permitted by the
1940 Act.
Section 2.6. Collection and Payment. The Trustees shall have power to
collect all property due to the Trust; to pay all claims, including taxes,
against the Trust Property; to prosecute, defend, compromise or abandon any
claims relating to the Trust Property; to foreclose any security interest
securing any obligations, by virtue of which any property is owed to the Trust;
and to enter into releases, agreements and other instruments.
Section 2.7. Expenses. The Trustees shall have the power to incur and pay
any expenses which in the opinion of the Trustees are necessary or incidental to
carry out any of the purposes of this Declaration, and to pay reasonable
compensation from the funds of the Trust to themselves as Trustees. The Trustees
shall fix the compensation of all officers, employees and Trustees.
Section 2.8. Manner of Acting; By-laws. Except as otherwise provided herein
or in the By-laws, any action to be taken by the Trustees may be taken by a
majority of the Trustees present at a meeting of Trustees, including any meeting
held by means of a conference telephone circuit or similar communications
equipment by means of which all persons participating in the meeting can hear
each other, or by written consents of a majority of Trustees then in office. The
Trustees may adopt By-laws not inconsistent with this Declaration to provide for
the conduct of the business of the Trust and may amend or repeal such By-laws to
the extent such power is not reserved to the Shareholders.
Notwithstanding the foregoing provisions of this Section 2.8 and in
addition to such provisions or any other provision of this Declaration or of the
By-laws, the Trustees may by resolution appoint a committee consisting of less
than the whole number of Trustees then in office, which committee may be
empowered to act for and bind the Trustees and the Trust, as if the acts of such
committee were the acts of all the Trustees then in office, with respect to the
institution, prosecution, dismissal, settlement, review or investigation of any
action, suit or proceeding which shall be pending or threatened to be brought
before any court, administrative agency or other adjudicatory body.
6
<PAGE>
Section 2.9. Miscellaneous Powers. The Trustees shall have the power to:
(a) employ or contract with such Persons as the Trustees may deem desirable for
the transaction of the business of the Trust or any Series thereof; (b) enter
into joint ventures, partnerships and any other combinations or associations;
(c) remove Trustees, fill vacancies in, add to or subtract from their number,
elect and remove such officers and appoint and terminate such agents or
employees as they consider appropriate, and appoint from their own number, and
terminate, any one or more committees which may exercise some or all of the
power and authority of the Trustees as the Trustees may determine; (d) purchase,
and pay for out of Trust Property or the property of the appropriate Series of
the Trust, insurance policies insuring the Shareholders, Trustees, officers,
employees, agents, investment advisers, administrators, distributors, selected
dealers or independent contractors of the Trust against all claims arising by
reason of holding any such position or by reason of any action taken or omitted
by any such Person in such capacity, whether or not constituting negligence, or
whether or not the Trust would have the power to indemnify such Person against
such liability; (e) establish pension, profit-sharing, share purchase, and other
retirement, incentive and benefit plans for any Trustees, officers, employees
and agents of the Trust; (f) to the extent permitted by law, indemnify any
person with whom the Trust or any Series thereof has dealings, including the
Investment Adviser, Administrator, Distributor, Transfer Agent and selected
dealers, to such extent as the Trustees shall determine; (g) guarantee
indebtedness or contractual obligations of others; (h) determine and change the
fiscal year and taxable year of the Trust or any Series thereof and the method
by which its or their accounts shall be kept; and (i) adopt a seal for the
Trust, but the absence of such seal shall not impair the validity of any
instrument executed on behalf of the Trust.
Section 2.10. Principal Transactions. Except for transactions not permitted
by the 1940 Act or rules and regulations adopted, or orders issued, by the
Commission thereunder, the Trustees may, on behalf of the Trust, buy any
securities from or sell any securities to, or lend any assets of the Trust or
any Series thereof to any Trustee or officer of the Trust or any firm of which
any such Trustee or officer is a member acting as principal, or have any such
dealings with the Investment Adviser, Distributor or Transfer Agent or with any
Interested Person of such Person; and the Trust or a Series thereof may employ
any such Person, or firm or company in which such Person is an Interested
Person, as broker, legal counsel, registrar, transfer agent, dividend disbursing
agent or custodian upon customary terms.
Section 2.11. Litigation. The Trustees shall have the power to engage in
and to prosecute, defend, compromise, abandon, or adjust by arbitration, or
otherwise, any actions, suits, proceedings, disputes, claims, and demands
relating to the Trust, and out of the assets of the Trust or any Series thereof
to pay or to satisfy any debts, claims or expenses incurred in connection
therewith, including those of litigation, and such power shall include without
limitation the power of the Trustees or any appropriate committee thereof, in
the exercise of their or its good faith business judgment, to dismiss any
action, suit, proceeding, dispute, claim, or demand, derivative or otherwise,
brought by any person, including a Shareholder in its own name or the name of
the Trust, whether or not the Trust or any of the Trustees may be named
individually therein or the subject matter arises by reason of business for or
on behalf of the Trust.
Section 2.12. Number of Trustees. The initial Trustees shall be the persons
initially signing the Original Declaration. The number of Trustees (other than
the initial Trustees) shall be such number as shall be fixed from time to time
by vote of a majority of the Trustees, provided, however, that the number of
Trustees shall in no event be less than one (1).
7
<PAGE>
Section 2.13. Election and Term. Except for the Trustees named herein or
appointed to fill vacancies pursuant to Section 2.15 hereof, the Trustees may
succeed themselves and shall be elected by the Shareholders owning of record a
plurality of the Shares voting at a meeting of Shareholders on a date fixed by
the Trustees. Except in the event of resignations or removals pursuant to
Section 2.14 hereof, each Trustee shall hold office until such time as less than
a majority of the Trustees holding office has been elected by Shareholders. In
such event the Trustees then in office shall call a Shareholders' meeting for
the election of Trustees. Except for the foregoing circumstances, the Trustees
shall continue to hold office and may appoint successor Trustees.
Section 2.14. Resignation and Removal. Any Trustee may resign his trust
(without the need for any prior or subsequent accounting) by an instrument in
writing signed by him and delivered to the other Trustees and such resignation
shall be effective upon such delivery, or at a later date according to the terms
of the instrument. Any of the Trustees may be removed (provided the aggregate
number of Trustees after such removal shall not be less than one) with cause, by
the action of two-thirds of the remaining Trustees or by action of two-thirds of
the outstanding Shares of the Trust (for purposes of determining the
circumstances and procedures under which any such removal by the Shareholders
may take place, the provisions of Section 16(c) of the 1940 Act (or any
successor provisions) shall be applicable to the same extent as if the Trust
were subject to the provisions of that Section). Upon the resignation or removal
of a Trustee, or his otherwise ceasing to be a Trustee, he shall execute and
deliver such documents as the remaining Trustees shall require for the purpose
of conveying to the Trust or the remaining Trustees any Trust Property held in
the name of the resigning or removed Trustee. Upon the incapacity or death of
any Trustee, his legal representative shall execute and deliver on his behalf
such documents as the remaining Trustees shall require as provided in the
preceding sentence.
Section 2.15. Vacancies. The term of office of a Trustee shall terminate
and a vacancy shall occur in the event of his death, retirement, resignation,
removal, bankruptcy, adjudicated incompetence or other incapacity to perform the
duties of the office of a Trustee. No such vacancy shall operate to annul the
Declaration or to revoke any existing agency created pursuant to the terms of
the Declaration. In the case of an existing vacancy, including a vacancy
existing by reason of an increase in the number of Trustees, subject to the
provisions of Section 16(a) of the 1940 Act, the remaining Trustees shall fill
such vacancy by the appointment of such other person as they in their discretion
shall see fit, made by vote of a majority of the Trustees then in office. Any
such appointment shall not become effective, however, until the person named in
the vote approving the appointment shall have accepted in writing such
appointment and agreed in writing to be bound by the terms of the Declaration.
An appointment of a Trustee may be made in anticipation of a vacancy to occur at
a later date by reason of retirement, resignation or increase in the number of
Trustees, provided that such appointment shall not become effective prior to
such retirement, resignation or increase in the number of Trustees. Whenever a
vacancy in the number of Trustees shall occur, until such vacancy is filled as
provided in this Section 2.15, the Trustees in office, regardless of their
number, shall have all the powers granted to the Trustees and shall discharge
all the duties imposed upon the Trustees by the Declaration. The vote by a
majority of the Trustees in office, fixing the number of Trustees shall be
conclusive evidence of the existence of such vacancy.
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Section 2.16. Delegation of Power to Other Trustees. Any Trustee may, by
power of attorney, delegate his power for a period not exceeding six (6) months
at any one time to any other Trustee or Trustees; provided that in no case shall
fewer than two (2) Trustees personally exercise the powers granted to the
Trustees under this Declaration except as herein otherwise expressly provided.
ARTICLE III
CONTRACTS
Section 3.1. Distribution Contract. The Trustees may in their discretion
from time to time enter into an exclusive or non-exclusive distribution contract
or contracts providing for the sale of the Shares to net the Trust or the
applicable Series of the Trust not less than the amount provided for in Section
7.1 of Article VII hereof, whereby the Trustees may either agree to sell the
Shares to the other party to the contract or appoint such other party as their
sales agent for the Shares, and in either case on such terms and conditions, if
any, as may be prescribed in the By-laws, and such further terms and conditions
as the Trustees may in their discretion determine not inconsistent with the
provisions of this Article III or of the By-laws; and such contract may also
provide for the repurchase of the Shares by such other party as agent of the
Trustees.
Section 3.2. Advisory or Management Contract. The Trustees may in their
discretion from time to time enter into one or more investment advisory or
management contracts or, if the Trustees establish multiple Series, separate
investment advisory or management contracts with respect to one or more Series
whereby the other party or parties to any such contracts shall undertake to
furnish the Trust or such Series management, investment advisory,
administration, accounting, legal, statistical and research facilities and
services, promotional or marketing activities, and such other facilities and
services, if any, as the Trustees shall from time to time consider desirable and
all upon such terms and conditions as the Trustees may in their discretion
determine. Notwithstanding any provisions of the Declaration, the Trustees may
authorize the Investment Advisers, or any of them, under any such contracts
(subject to such general or specific instructions as the Trustees may from time
to time adopt) to effect purchases, sales, loans or exchanges of portfolio
securities and other investments of the Trust on behalf of the Trustees or may
authorize any officer, employee or Trustee to effect such purchases, sales,
loans or exchanges pursuant to recommendations of such Investment Advisers, or
any of them (and all without further action by the Trustees). Any such
purchases, sales, loans and exchanges shall be deemed to have been authorized by
all of the Trustees. The Trustees may, in their sole discretion, call a meeting
of Shareholders in order to submit to a vote of Shareholders at such meeting the
approval or continuance of any such investment advisory or management contract.
If the Shareholders of any one or more of the Series of the Trust should fail to
approve any such investment advisory or management contract, the Investment
Adviser may nonetheless serve as Investment Adviser with respect to any Series
whose Shareholders approve such contract.
Section 3.3. Administration Agreement. The Trustees may in their discretion
from time to time enter into an administration agreement or, if the Trustees
establish multiple Series or Classes, separate administration agreements with
respect to each Series or Class, whereby the other party to such agreement shall
undertake to manage the business affairs of the Trust or of a
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Series or Class thereof and furnish the Trust or a Series or a Class thereof
with office facilities, and shall be responsible for the ordinary clerical,
bookkeeping and recordkeeping services at such office facilities, and other
facilities and services, if any, and all upon such terms and conditions as the
Trustees may in their discretion determine.
Section 3.4. Service Agreement. The Trustees may in their discretion from
time to time enter into Service Agreements with respect to one or more Series or
Classes thereof whereby the other parties to such Service Agreements will
provide administration and/or support services pursuant to administration plans
and service plans, and all upon such terms and conditions as the Trustees in
their discretion may determine.
Section 3.5. Transfer Agent. The Trustees may in their discretion from time
to time enter into a transfer agency and shareholder service contract whereby
the other party to such contract shall undertake to furnish transfer agency and
shareholder services to the Trust. The contract shall have such terms and
conditions as the Trustees may in their discretion determine not inconsistent
with the Declaration. Such services may be provided by one or more Persons.
Section 3.6. Custodian. The Trustees may appoint or otherwise engage one or
more banks or trust companies, each having an aggregate capital, surplus and
undivided profits (as shown in its last published report) of at least two
million dollars ($2,000,000) to serve as Custodian with authority as its agent,
but subject to such restrictions, limitations and other requirements, if any, as
may be contained in the By-laws of the Trust. The Trustees may also authorize
the Custodian to employ one or more sub-custodians, including such foreign banks
and securities depositories as meet the requirements of applicable provisions of
the 1940 Act, and upon such terms and conditions as may be agreed upon between
the Custodian and such sub-custodian, to hold securities and other assets of the
Trust and to perform the acts and services of the Custodian, subject to
applicable provisions of law and resolutions adopted by the Trustees.
Section 3.7. Affiliations of Trustees or Officers, Etc. The fact that:
(i) any of the Shareholders, Trustees or officers of the Trust or any
Series thereof is a shareholder, director, officer, partner, trustee,
employee, manager, adviser or distributor of or for any partnership,
corporation, trust, association or other organization or of or for any
parent or affiliate of any organization, with which a contract of the
character described in Sections 3.1, 3.2, 3.3 or 3.4 above or for services
as Custodian, Transfer Agent or disbursing agent or for providing
accounting, legal and printing services or for related services may have
been or may hereafter be made, or that any such organization, or any parent
or affiliate thereof, is a Shareholder of or has an interest in the Trust,
or that
(ii) any partnership, corporation, trust, association or other
organization with which a contract of the character described in Sections
3.1, 3.2, 3.3 or 3.4 above or for services as Custodian, Transfer Agent or
disbursing agent or for related services may have been or may hereafter be
made also has any one or more of such contracts with one or more other
partnerships, corporations, trusts, associations or other organizations, or
has other business or interests,
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shall not affect the validity of any such contract or disqualify any
Shareholder, Trustee or officer of the Trust from voting upon or executing the
same or create any liability or accountability to the Trust or its Shareholders.
Section 3.8. Compliance with 1940 Act. Any contract entered into pursuant
to Sections 3.1 or 3.2 shall be consistent with and subject to the requirements
of Section 15 of the 1940 Act (including any amendment thereof or other
applicable Act of Congress hereafter enacted), as modified by any applicable
order or orders of the Commission, with respect to its continuance in effect,
its termination and the method of authorization and approval of such contract or
renewal thereof.
ARTICLE IV
LIMITATIONS OF LIABILITY OF SHAREHOLDERS,
TRUSTEES AND OTHERS
Section 4.1. No Personal Liability of Shareholders, Trustees, Etc. No
Shareholder shall be subject to any personal liability whatsoever to any Person
in connection with Trust Property or the acts, obligations or affairs of the
Trust or any Series thereof. No Trustee, officer, employee or agent of the Trust
or any Series thereof shall be subject to any personal liability whatsoever to
any Person, other than to the Trust or its Shareholders, in connection with
Trust Property or the affairs of the Trust, except to the extent arising from
bad faith, willful misfeasance, gross negligence or reckless disregard of his
duties with respect to such Person; and all such Persons shall look solely to
the Trust Property, or to the Property of one or more specific Series of the
Trust if the claim arises from the conduct of such Trustee, officer, employee or
agent with respect to only such Series, for satisfaction of claims of any nature
arising in connection with the affairs of the Trust. If any Shareholder,
Trustee, officer, employee, or agent, as such, of the Trust or any Series
thereof, is made a party to any suit or proceeding to enforce any such liability
of the Trust or any Series thereof, he shall not, on account thereof, be held to
any personal liability. The Trust shall indemnify and hold each Shareholder
harmless from and against all claims and liabilities, to which such Shareholder
may become subject by reason of his being or having been a Shareholder, and
shall reimburse such Shareholder or former Shareholder (or his or her heirs,
executors, administrators or other legal representatives or in the case of a
corporation or other entity, its corporate or other general successor) out of
the Trust Property for all legal and other expenses reasonably incurred by him
in connection with any such claim or liability. The indemnification and
reimbursement required by the preceding sentence shall be made only out of
assets of the one or more Series whose Shares were held by said Shareholder at
the time the act or event occurred which gave rise to the claim against or
liability of said Shareholder. The rights accruing to a Shareholder under this
Section 4.1 shall not impair any other right to which such Shareholder may be
lawfully entitled, nor shall anything herein contained restrict the right of the
Trust or any Series thereof to indemnify or reimburse a Shareholder in any
appropriate situation even though not specifically provided herein.
Section 4.2. Non-Liability of Trustees, Etc. No Trustee, officer, employee
or agent of the Trust or any Series thereof shall be liable to the Trust, its
Shareholders, or to any Shareholder, Trustee, officer, employee, or agent
thereof for any action or failure to act (including without
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limitation the failure to compel in any way any former or acting Trustee to
redress any breach of trust) except for his own bad faith, willful misfeasance,
gross negligence or reckless disregard of the duties involved in the conduct of
his office.
Section 4.3. Mandatory Indemnification. (a) Subject to the exceptions and
limitations contained in paragraph (b) below:
(i) every person who is, or has been, a Trustee, officer, employee or
agent of the Trust (including any individual who serves at its request as
director, officer, partner, trustee or the like of another organization in
which it has any interest as a shareholder, creditor or otherwise) shall be
indemnified by the Trust, or by one or more Series thereof if the claim
arises from his or her conduct with respect to only such Series, to the
fullest extent permitted by law against all liability and against all
expenses reasonably incurred or paid by him in connection with any claim,
action, suit or proceeding in which he becomes involved as a party or
otherwise by virtue of his being or having been a Trustee or officer and
against amounts paid or incurred by him in the settlement thereof;
(ii) the words "claim," "action," "suit," or "proceeding" shall apply
to all claims, actions, suits or proceedings (civil, criminal, or other,
including appeals), actual or threatened; and the words "liability" and
"expenses" shall include, without limitation, attorneys' fees, costs,
judgments, amounts paid in settlement, fines, penalties and other
liabilities.
(b) No indemnification shall be provided hereunder to a Trustee or officer:
(i) against any liability to the Trust, a Series thereof or the
Shareholders by reason of willful misfeasance, bad faith, gross negligence
or reckless disregard of the duties involved in the conduct of his office;
(ii) with respect to any matter as to which he shall have been finally
adjudicated not to have acted in good faith in the reasonable belief that
his action was in the best interest of the Trust or a Series thereof;
(iii) in the event of a settlement or other disposition not involving
a final adjudication as provided in paragraph (b)(ii) resulting in a
payment by a Trustee or officer, unless there has been a determination that
such Trustee or officer did not engage in willful misfeasance, bad faith,
gross negligence or reckless disregard of the duties involved in the
conduct of his office:
(A) by the court or other body approving the settlement or other
disposition;
(B) based upon a review of readily available facts (as opposed to
a full trial-type inquiry) by (x) vote of a majority of the
Non-interested Trustees acting on the matter (provided that a majority
of the Non-interested Trustees then in office act on the matter) or
(y) written opinion of independent legal counsel; or
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(C) by a vote of a majority of the Shares outstanding and
entitled to vote (excluding Shares owned of record or beneficially by
such individual).
(c) The rights of indemnification herein provided may be insured against by
policies maintained by the Trust, shall be severable, shall not affect any other
rights to which any Trustee or officer may now or hereafter be entitled, shall
continue as to a person who has ceased to be such Trustee or officer and shall
inure to the benefit of the heirs, executors, administrators and assigns of such
a person. Nothing contained herein shall affect any rights to indemnification to
which personnel of the Trust or any Series thereof other than Trustees and
officers may be entitled by contract or otherwise under law.
(d) Expenses of preparation and presentation of a defense to any claim,
action, suit or proceeding of the character described in paragraph (a) of this
Section 4.3 may be advanced by the Trust or a Series thereof prior to final
disposition thereof upon receipt of an undertaking by or on behalf of the
recipient to repay such amount if it is ultimately determined that he is not
entitled to indemnification under this Section 4.3, provided that either:
(i) such undertaking is secured by a surety bond or some other
appropriate security provided by the recipient, or the Trust or Series
thereof shall be insured against losses arising out of any such advances;
or
(ii) a majority of the Non-interested Trustees acting on the matter
(provided that a majority of the Non-interested Trustees act on the matter)
or an independent legal counsel in a written opinion shall determine, based
upon a review of readily available facts (as opposed to a full trial-type
inquiry), that there is reason to believe that the recipient ultimately
will be found entitled to indemnification.
As used in this Section 4.3, a "Non-interested Trustee" is one who (i) is
not an "Interested Person" of the Trust (including anyone who has been exempted
from being an "Interested Person" by any rule, regulation or order of the
Commission), and (ii) is not involved in the claim, action, suit or proceeding.
Section 4.4. No Bond Required of Trustees. No Trustee shall be obligated to
give any bond or other security for the performance of any of his duties
hereunder.
Section 4.5. No Duty of Investigation; Notice in Trust Instruments, Etc. No
purchaser, lender, transfer agent or other Person dealing with the Trustees or
any officer, employee or agent of the Trust or a Series thereof shall be bound
to make any inquiry concerning the validity of any transaction purporting to be
made by the Trustees or by said officer, employee or agent or be liable for the
application of money or property paid, loaned, or delivered to or on the order
of the Trustees or of said officer, employee or agent. Every obligation,
contract, instrument, certificate, Share, other security of the Trust or a
Series thereof or undertaking, and every other act or thing whatsoever executed
in connection with the Trust shall be conclusively presumed to have been
executed or done by the executors thereof only in their capacity as Trustees
under this Declaration or in their capacity as officers, employees or agents of
the Trust or a Series thereof. Every written obligation, contract, instrument,
certificate, Share, other security of the Trust or a Series thereof or
undertaking made or issued by the Trustees may recite that the same is executed
or made by them not individually, but as Trustees under the Declaration, and
that the obligations
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of the Trust or a Series thereof under any such instrument are not binding upon
any of the Trustees or Shareholders individually, but bind only the Trust
Property or the Trust Property of the applicable Series, and may contain any
further recital which they may deem appropriate, but the omission of such
recital shall not operate to bind the Trustees individually. The Trustees shall
at all times maintain insurance for the protection of the Trust Property or the
Trust Property of the applicable Series, its Shareholders, Trustees, officers,
employees and agents in such amount as the Trustees shall deem adequate to cover
possible tort liability, and such other insurance as the Trustees in their sole
judgment shall deem advisable.
Section 4.6. Reliance on Experts, Etc. Each Trustee, officer or employee of
the Trust or a Series thereof shall, in the performance of his duties, be fully
and completely justified and protected with regard to any act or any failure to
act resulting from reliance in good faith upon the books of account or other
records of the Trust or a Series thereof, upon an opinion of counsel, or upon
reports made to the Trust or a Series thereof by any of its officers or
employees or by the Investment Adviser, the Administrator, the Distributor,
Transfer Agent, selected dealers, accountants, appraisers or other experts or
consultants selected with reasonable care by the Trustees, officers or employees
of the Trust, regardless of whether such counsel or expert may also be a
Trustee.
ARTICLE V
SHARES OF BENEFICIAL INTEREST
Section 5.1. Beneficial Interest. The interest of the beneficiaries
hereunder shall be divided into transferable Shares of beneficial interest
without par value. The number of such Shares of beneficial interest authorized
hereunder is unlimited. The Trustees shall have the exclusive authority without
the requirement of Shareholder approval to establish and designate one or more
Series of shares and one or more Classes thereof as the Trustees deem necessary
or desirable. Each Share of any Series shall represent an equal proportionate
Share in the assets of that Series with each other Share in that Series. Subject
to the provisions of Section 5.11 hereof, the Trustees may also authorize the
creation of additional Series of Shares (the proceeds of which may be invested
in separate, independently managed portfolios) and additional Classes of Shares
within any Series. All Shares issued hereunder including, without limitation,
Shares issued in connection with a dividend in Shares or a split in Shares,
shall be fully paid and nonassessable.
Section 5.2. Rights of Shareholders. The ownership of the Trust Property of
every description and the right to conduct any business hereinbefore described
are vested exclusively in the Trustees, and the Shareholders shall have no
interest therein other than the beneficial interest conferred by their Shares,
and they shall have no right to call for any partition or division of any
property, profits, rights or interests of the Trust nor can they be called upon
to share or assume any losses of the Trust or suffer an assessment of any kind
by virtue of their ownership of Shares. The Shares shall be personal property
giving only the rights specifically set forth in this Declaration. The Shares
shall not entitle the holder to preference, preemptive, appraisal, conversion or
exchange rights, except as the Trustees may determine with respect to any Series
or Class of Shares.
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Section 5.3. Trust Only. It is the intention of the Trustees to create only
the relationship of Trustee and beneficiary between the Trustees and each
Shareholder from time to time. It is not the intention of the Trustees to create
a general partnership, limited partnership, joint stock association,
corporation, bailment or any form of legal relationship other than a trust.
Nothing in this Declaration of Trust shall be construed to make the
Shareholders, either by themselves or with the Trustees, partners or members of
a joint stock association.
Section 5.4. Issuance of Shares. The Trustees in their discretion may, from
time to time without a vote of the Shareholders, issue Shares, in addition to
the then issued and outstanding Shares and Shares held in the treasury, to such
party or parties and for such amount and type of consideration, including cash
or property, at such time or times and on such terms as the Trustees may deem
best, except that only Shares previously contracted to be sold may be issued
during any period when the right of redemption is suspended pursuant to Section
6.9 hereof, and may in such manner acquire other assets (including the
acquisition of assets subject to, and in connection with the assumption of,
liabilities) and businesses. In connection with any issuance of Shares, the
Trustees may issue fractional Shares and Shares held in the treasury. The
Trustees may from time to time divide or combine the Shares of the Trust or, if
the Shares be divided into Series or Classes, of any Series or any Class thereof
of the Trust, into a greater or lesser number without thereby changing the
proportionate beneficial interests in the Trust or in the Trust Property
allocated or belonging to such Series or Class. Contributions to the Trust or
Series thereof may be accepted for, and Shares shall be redeemed as, whole
Shares and/or 1/1000ths of a Share or integral multiples thereof.
Section 5.5. Register of Shares. A register shall be kept at the principal
office of the Trust or an office of the Transfer Agent which shall contain the
names and addresses of the Shareholders and the number of Shares held by them
respectively and a record of all transfers thereof. Such register shall be
conclusive as to who are the holders of the Shares and who shall be entitled to
receive dividends or distributions or otherwise to exercise or enjoy the rights
of Shareholders. No Shareholder shall be entitled to receive payment of any
dividend or distribution, nor to have notice given to him as provided herein or
in the By-laws, until he has given his address to the Transfer Agent or such
other officer or agent of the Trustees as shall keep the said register for entry
thereon. It is not contemplated that certificates will be issued for the Shares;
however, the Trustees, in their discretion, may authorize the issuance of share
certificates and promulgate appropriate rules and regulations as to their use.
Section 5.6. Transfer of Shares. Shares shall be transferable on the
records of the Trust only by the record holder thereof or by his agent thereunto
duly authorized in writing, upon delivery to the Trustees or the Transfer Agent
of a duly executed instrument of transfer, together with such evidence of the
genuineness of each such execution and authorization and of other matters as may
reasonably be required. Upon such delivery the transfer shall be recorded on the
register of the Trust. Until such record is made, the Shareholder of record
shall be deemed to be the holder of such Shares for all purposes hereunder and
neither the Trustees nor any transfer agent or registrar nor any officer,
employee or agent of the Trust shall be affected by any notice of the proposed
transfer.
Any person becoming entitled to any Shares in consequence of the death,
bankruptcy, or incompetence of any Shareholder, or otherwise by operation of
law, shall be recorded on the register of Shares as the holder of such Shares
upon production of the proper evidence thereof to
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the Trustees or the Transfer Agent, but until such record is made, the
Shareholder of record shall be deemed to be the holder of such Shares for all
purposes hereunder and neither the Trustees nor any Transfer Agent or registrar
nor any officer or agent of the Trust shall be affected by any notice of such
death, bankruptcy or incompetence, or other operation of law.
Section 5.7. Notices. Any and all notices to which any Shareholder may be
entitled and any and all communications shall be deemed duly served or given if
mailed, postage prepaid, addressed to any Shareholder of record at his last
known address as recorded on the register of the Trust.
Section 5.8. Treasury Shares. Shares held in the treasury shall, until
resold pursuant to Section 5.4, not confer any voting rights on the Trustees,
nor shall such Shares be entitled to any dividends or other distributions
declared with respect to the Shares.
Section 5.9. Voting Powers. The Shareholders shall have power to vote only
(i) for the election of Trustees as provided in Section 2.13; (ii) with respect
to any investment advisory contract entered into pursuant to Section 3.2; (iii)
with respect to termination of the Trust or a Series or Class thereof as
provided in Section 8.2; (iv) with respect to any amendment of this Declaration
to the limited extent and as provided in Section 8.3; (v) with respect to a
merger, consolidation or sale of assets as provided in Section 8.4; (vi) with
respect to incorporation of the Trust to the extent and as provided in Section
8.5; (vii) to the same extent as the stockholders of a Massachusetts business
corporation as to whether or not a court action, proceeding or claim should or
should not be brought or maintained derivatively or as a class action on behalf
of the Trust or a Series thereof or the Shareholders of either; (viii) with
respect to any plan adopted pursuant to Rule 12b-1 (or any successor rule) under
the 1940 Act, and related matters; and (ix) with respect to such additional
matters relating to the Trust as may be required by this Declaration, the
By-laws or any registration of the Trust as an investment company under the 1940
Act with the Commission (or any successor agency) or as the Trustees may
consider necessary or desirable. As determined by the Trustees without the vote
or consent of shareholders, on any matter submitted to a vote of Shareholders
either (i) each whole Share shall be entitled to one vote as to any matter on
which it is entitled to vote and each fractional Share shall be entitled to a
proportionate fractional vote or (ii) each dollar of net asset value (number of
Shares owned times net asset value per share of such Series or Class, as
applicable) shall be entitled to one vote on any matter on which such Shares are
entitled to vote and each fractional dollar amount shall be entitled to a
proportionate fractional vote. The Trustees may, in conjunction with the
establishment of any further Series or any Classes of Shares, establish
conditions under which the several Series or Classes of Shares shall have
separate voting rights or no voting rights. There shall be no cumulative voting
in the election of Trustees. Until Shares are issued, the Trustees may exercise
all rights of Shareholders and may take any action required by law, this
Declaration or the By-laws to be taken by Shareholders. The By-laws may include
further provisions for Shareholders' votes and meetings and related matters.
Section 5.10. Meetings of Shareholders. No annual or regular meetings of
Shareholders are required. Special meetings of the Shareholders, including
meetings involving only the holders of Shares of one or more but less than all
Series or Classes thereof, may be called at any time by the Chairman of the
Board, President, or any Vice-President of the Trust, and shall be called by the
President or the Secretary at the request, in writing or by resolution, of a
majority of the Trustees, or at the written request of the holder or holders of
ten percent (10%) or more of the
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total number of Outstanding Shares of the Trust entitled to vote at such
meeting. Meetings of the Shareholders of any Series shall be called by the
President or the Secretary at the written request of the holder or holders of
ten percent (10%) or more of the total number of Outstanding Shares of such
Series of the Trust entitled to vote at such meeting. Any such request shall
state the purpose of the proposed meeting.
Section 5.11. Series or Class Designation. (a) Without limiting the
authority of the Trustees set forth in Section 5.1 to establish and designate
any further Series or Classes, the Trustees hereby establish the following
Series: John Hancock Growth and Income Fund and John Hancock Sovereign Balanced
Fund, each of which consists of two Class of Shares; and John Hancock Sovereign
Investors Fund, which consists of three Classes of Shares (the "Existing
Series").
(b) The Shares of the Existing Series and Class thereof herein established
and designated and any Shares of any further Series and Classes thereof that may
from time to time be established and designated by the Trustees shall be
established and designated, and the variations in the relative rights and
preferences as between the different Series shall be fixed and determined, by
the Trustees (unless the Trustees otherwise determine with respect to further
Series or Classes at the time of establishing and designating the same);
provided, that all Shares shall be identical except that there may be variations
so fixed and determined between different Series or Classes thereof as to
investment objective, policies and restrictions, purchase price, payment
obligations, distribution expenses, right of redemption, special and relative
rights as to dividends and on liquidation, conversion rights, exchange rights,
and conditions under which the several Series or Classes shall have separate
voting rights, all of which are subject to the limitations set forth below. All
references to Shares in this Declaration shall be deemed to be Shares of any or
all Series or Classes as the context may require.
(c) As to any Existing Series and Classes herein established and designated
and any further division of Shares of the Trust into additional Series or
Classes, the following provisions shall be applicable:
(i) The number of authorized Shares and the number of Shares of each Series
or Class thereof that may be issued shall be unlimited. The Trustees may
classify or reclassify any unissued Shares or any Shares previously issued and
reacquired of any Series or Class into one or more Series or one or more Classes
that may be established and designated from time to time. The Trustees may hold
as treasury shares (of the same or some other Series or Class), reissue for such
consideration and on such terms as they may determine, or cancel any Shares of
any Series or Class reacquired by the Trust at their discretion from time to
time.
(ii) All consideration received by the Trust for the issue or sale of
Shares of a particular Series or Class, together with all assets in which such
consideration is invested or reinvested, all income, earnings, profits, and
proceeds thereof, including any proceeds derived from the sale, exchange or
liquidation of such assets, and any funds or payments derived from any
reinvestment of such proceeds in whatever form the same may be, shall
irrevocably belong to that Series for all purposes, subject only to the rights
of creditors of such Series and except as may otherwise be required by
applicable tax laws, and shall be so recorded upon the books of account of the
Trust. In the event that there are any assets, income, earnings, profits, and
proceeds thereof, funds, or payments which are not readily identifiable as
belonging to any particular Series, the Trustees shall allocate them among any
one or more of the Series established and designated
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from time to time in such manner and on such basis as they, in their sole
discretion, deem fair and equitable. Each such allocation by the Trustees shall
be conclusive and binding upon the Shareholders of all Series for all purposes.
No holder of Shares of any Series shall have any claim on or right to any assets
allocated or belonging to any other Series.
(iii) The assets belonging to each particular Series shall be charged with
the liabilities of the Trust in respect of that Series or the appropriate Class
or Classes thereof and all expenses, costs, charges and reserves attributable to
that Series or Class or Classes thereof, and any general liabilities, expenses,
costs, charges or reserves of the Trust which are not readily identifiable as
belonging to any particular Series shall be allocated and charged by the
Trustees to and among any one or more of the Series established and designated
from time to time in such manner and on such basis as the Trustees in their sole
discretion deem fair and equitable. Each allocation of liabilities, expenses,
costs, charges and reserves by the Trustees shall be conclusive and binding upon
the Shareholders of all Series and Classes for all purposes. The Trustees shall
have full discretion, to the extent not inconsistent with the 1940 Act, to
determine which items are capital; and each such determination and allocation
shall be conclusive and binding upon the Shareholders. The assets of a
particular Series of the Trust shall under no circumstances be charged with
liabilities attributable to any other Series or Class thereof of the Trust. All
persons extending credit to, or contracting with or having any claim against a
particular Series or Class of the Trust shall look only to the assets of that
particular Series for payment of such credit, contract or claim.
(iv) The power of the Trustees to pay dividends and make distributions
shall be governed by Section 7.2 of this Declaration. With respect to any Series
or Class, dividends and distributions on Shares of a particular Series or Class
may be paid with such frequency as the Trustees may determine, which may be
daily or otherwise, pursuant to a standing resolution or resolutions adopted
only once or with such frequency as the Trustees may determine, to the holders
of Shares of that Series or Class, from such of the income and capital gains,
accrued or realized, from the assets belonging to that Series, as the Trustees
may determine, after providing for actual and accrued liabilities belonging to
that Series or Class. All dividends and distributions on Shares of a particular
Series or Class shall be distributed pro rata to the Shareholders of that Series
or Class in proportion to the number of Shares of that Series or Class held by
such Shareholders at the time of record established for the payment of such
dividends or distribution.
(v) Each Share of a Series of the Trust shall represent a beneficial
interest in the net assets of such Series. Each holder of Shares of a Series or
Class thereof shall be entitled to receive his pro rata share of distributions
of income and capital gains made with respect to such Series or Class net of
expenses. Upon redemption of his Shares or indemnification for liabilities
incurred by reason of his being or having been a Shareholder of a Series or
Class, such Shareholder shall be paid solely out of the funds and property of
such Series of the Trust. Upon liquidation or termination of a Series or Class
thereof of the Trust, Shareholders of such Series or Class thereof shall be
entitled to receive a pro rata share of the net assets of such Series. A
Shareholder of a particular Series of the Trust shall not be entitled to
participate in a derivative or class action on behalf of any other Series or the
Shareholders of any other Series of the Trust.
(vi) On each matter submitted to a vote of Shareholders, all Shares of all
Series and Classes shall vote as a single class; provided, however, that (1) as
to any matter with respect to which a separate vote of any Series or Class is
required by the 1940 Act or is required by attributes applicable to any Series
or Class or is required by any Rule 12b-1 plan, such
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requirements as to a separate vote by that Series or Class shall apply, (2) to
the extent that a matter referred to in clause (1) above, affects more than one
Class or Series and the interests of each such Class or Series in the matter are
identical, then, subject to clause (3) below, the Shares of all such affected
Classes or Series shall vote as a single Class; (3) as to any matter which does
not affect the interests of a particular Series or Class, only the holders of
Shares of the one or more affected Series or Classes shall be entitled to vote;
and (4) the provisions of the following sentence shall apply. On any matter that
pertains to any particular Class of a particular Series or to any Class expenses
with respect to any Series which matter may be submitted to a vote of
Shareholders, only Shares of the affected Class or that Series, as the case may
be, shall be entitled to vote except that: (i) to the extent said matter affects
Shares of another Class or Series, such other Shares shall also be entitled to
vote, and in such cases Shares of the affected Class, as the case may be, of
such Series shall be voted in the aggregate together with such other Shares; and
(ii) to the extent that said matter does not affect Shares of a particular Class
of such Series, said Shares shall not be entitled to vote (except where
otherwise required by law or permitted by the Trustees acting in their sole
discretion) even though the matter is submitted to a vote of the Shareholders of
any other Class or Series.
(vii) Except as otherwise provided in this Article V, the Trustees shall
have the power to determine the designations, preferences, privileges, payment
obligations, limitations and rights, including voting and dividend rights, of
each Class and Series of Shares. Subject to compliance with the requirements of
the 1940 Act, the Trustees shall have the authority to provide that the holders
of Shares of any Series or Class shall have the right to convert or exchange
said Shares into Shares of one or more Series or Classes of Shares in accordance
with such requirements, conditions and procedures as may be established by the
Trustees.
(viii) The establishment and designation of any Series or Classes of Shares
shall be effective upon the execution by a majority of the then Trustees of an
instrument setting forth such establishment and designation and the relative
rights and preferences of such Series or Classes, or as otherwise provided in
such instrument. At any time that there are no Shares outstanding of any
particular Series or Class previously established and designated, the Trustees
may by an instrument executed by a majority of their number abolish that Series
or Class and the establishment and designation thereof. Each instrument referred
to in this section shall have the status of an amendment to this Declaration.
Section 5.12. Assent to Declaration of Trust. Every Shareholder, by virtue
of having become a Shareholder, shall be held to have expressly assented and
agreed to the terms hereof and to have become a party hereto.
ARTICLE VI
REDEMPTION AND REPURCHASE OF SHARES
Section 6.1. Redemption of Shares. (a) All Shares of the Trust shall be
redeemable, at the redemption price determined in the manner set out in this
Declaration. Redeemed or repurchased Shares may be resold by the Trust. The
Trust may require any Shareholder to pay a sales charge to the Trust, the
underwriter, or any other person designated by the Trustees upon redemption or
repurchase of Shares in such amount and upon such conditions as shall be
determined from time to time by the Trustees.
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(b) The Trust shall redeem the Shares of the Trust or any Series or Class
thereof at the price determined as hereinafter set forth, upon the appropriately
verified written application of the record holder thereof (or upon such other
form of request as the Trustees may determine) at such office or agency as may
be designated from time to time for that purpose by the Trustees. The Trustees
may from time to time specify additional conditions, not inconsistent with the
1940 Act, regarding the redemption of Shares in the Trust's then effective
Prospectus.
Section 6.2. Price. Shares shall be redeemed at a price based on their net
asset value determined as set forth in Section 7.1 hereof as of such time as the
Trustees shall have theretofore prescribed by resolution. In the absence of such
resolution, the redemption price of Shares deposited shall be based on the net
asset value of such Shares next determined as set forth in Section 7.1 hereof
after receipt of such application. The amount of any contingent deferred sales
charge or redemption fee payable upon redemption of Shares may be deducted from
the proceeds of such redemption.
Section 6.3. Payment. Payment of the redemption price of Shares of the
Trust or any Series or Class thereof shall be made in cash or in property to the
Shareholder at such time and in the manner, not inconsistent with the 1940 Act
or other applicable laws, as may be specified from time to time in the Trust's
then effective Prospectus(es), subject to the provisions of Section 6.4 hereof.
Notwithstanding the foregoing, the Trustees may withhold from such redemption
proceeds any amount arising (i) from a liability of the redeeming Shareholder to
the Trust or (ii) in connection with any Federal or state tax withholding
requirements.
Section 6.4. Effect of Suspension of Determination of Net Asset Value. If,
pursuant to Section 6.9 hereof, the Trustees shall declare a suspension of the
determination of net asset value with respect to Shares of the Trust or of any
Series or Class thereof, the rights of Shareholders (including those who shall
have applied for redemption pursuant to Section 6.1 hereof but who shall not yet
have received payment) to have Shares redeemed and paid for by the Trust or a
Series or Class thereof shall be suspended until the termination of such
suspension is declared. Any record holder who shall have his redemption right so
suspended may, during the period of such suspension, by appropriate written
notice of revocation at the office or agency where application was made, revoke
any application for redemption not honored and withdraw any Share certificates
on deposit. The redemption price of Shares for which redemption applications
have not been revoked shall be based on the net asset value of such Shares next
determined as set forth in Section 7.1 after the termination of such suspension,
and payment shall be made within seven (7) days after the date upon which the
application was made plus the period after such application during which the
determination of net asset value was suspended.
Section 6.5. Repurchase by Agreement. The Trust may repurchase Shares
directly, or through the Distributor or another agent designated for the
purpose, by agreement with the owner thereof at a price not exceeding the net
asset value per share determined as of the time when the purchase or contract of
purchase is made or the net asset value as of any time which may be later
determined pursuant to Section 7.1 hereof, provided payment is not made for the
Shares prior to the time as of which such net asset value is determined.
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Section 6.6. Redemption of Shareholder's Interest. The Trustees, in their
sole discretion, may cause the Trust to redeem all of the Shares of one or more
Series or Class thereof held by any Shareholder if the value of such Shares held
by such Shareholder is less than the minimum amount established from time to
time by the Trustees.
Section 6.7. Redemption of Shares in Order to Qualify as Regulated
Investment Company; Disclosure of Holding. (a) If the Trustees shall, at any
time and in good faith, be of the opinion that direct or indirect ownership of
Shares or other securities of the Trust has or may become concentrated in any
Person to an extent which would disqualify the Trust or any Series of the Trust
as a regulated investment company under the Internal Revenue Code of 1986, then
the Trustees shall have the power by lot or other means deemed equitable by them
(i) to call for redemption by any such Person a number, or principal amount, of
Shares or other securities of the Trust or any Series of the Trust sufficient to
maintain or bring the direct or indirect ownership of Shares or other securities
of the Trust or any Series of the Trust into conformity with the requirements
for such qualification and (ii) to refuse to transfer or issue Shares or other
securities of the Trust or any Series of the Trust to any Person whose
acquisition of the Shares or other securities of the Trust or any Series of the
Trust in question would result in such disqualification. The redemption shall be
effected at the redemption price and in the manner provided in Section 6.1.
(b) The holders of Shares or other securities of the Trust or any Series of
the Trust shall upon demand disclose to the Trustees in writing such information
with respect to direct and indirect ownership of Shares or other securities of
the Trust or any Series of the Trust as the Trustees deem necessary to comply
with the provisions of the Internal Revenue Code of 1986, as amended, or to
comply with the requirements of any other taxing authority.
Section 6.8. Reductions in Number of Outstanding Shares Pursuant to Net
Asset Value Formula. The Trust may also reduce the number of outstanding Shares
of the Trust or of any Series of the Trust pursuant to the provisions of Section
7.3.
Section 6.9. Suspension of Right of Redemption. The Trust may declare a
suspension of the right of redemption or postpone the date of payment or
redemption for the whole or any part of any period (i) during which the New York
Stock Exchange is closed other than customary weekend and holiday closings, (ii)
during which trading on the New York Stock Exchange is restricted, (iii) during
which an emergency exists as a result of which disposal by the Trust or a Series
thereof of securities owned by it is not reasonably practicable or it is not
reasonably practicable for the Trust or a Series thereof fairly to determine the
value of its net assets, or (iv) during any other period when the Commission may
for the protection of Shareholders of the Trust by order permit suspension of
the right of redemption or postponement of the date of payment or redemption;
provided that applicable rules and regulations of the Commission shall govern as
to whether the conditions prescribed in clauses (ii), (iii), or (iv) exist. Such
suspension shall take effect at such time as the Trust shall specify but not
later than the close of business on the business day next following the
declaration of suspension, and thereafter there shall be no right of redemption
or payment on redemption until the Trust shall declare the suspension at an end,
except that the suspension shall terminate in any event on the first day on
which said stock exchange shall have reopened or the period specified in (ii) or
(iii) shall have expired (as to which
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in the absence of an official ruling by the Commission, the determination of the
Trust shall be conclusive). In the case of a suspension of the right of
redemption, a Shareholder may either withdraw his request for redemption or
receive payment based on the net asset value existing after the termination of
the suspension.
ARTICLE VII
DETERMINATION OF NET ASSET VALUE,
NET INCOME AND DISTRIBUTIONS
Section 7.1. Net Asset Value. The net asset value of each outstanding Share
of the Trust or of each Series or Class thereof shall be determined on such days
and at such time or times as the Trustees may determine. The value of the assets
of the Trust or any Series thereof may be determined (i) by a pricing service
which utilizes electronic pricing techniques based on general institutional
trading, (ii) by appraisal of the securities owned by the Trust or any Series of
the Trust, (iii) in certain cases, at amortized cost, or (iv) by such other
method as shall be deemed to reflect the fair value thereof, determined in good
faith by or under the direction of the Trustees. From the total value of said
assets, there shall be deducted all indebtedness, interest, taxes, payable or
accrued, including estimated taxes on unrealized book profits, expenses and
management charges accrued to the appraisal date, net income determined and
declared as a distribution and all other items in the nature of liabilities
which shall be deemed appropriate, as incurred by or allocated to the Trust or
any Series or Class of the Trust. The resulting amount which shall represent the
total net assets of the Trust or Series or Class thereof shall be divided by the
number of Shares of the Trust or Series or Class thereof outstanding at the time
and the quotient so obtained shall be deemed to be the net asset value of the
Shares of the Trust or Series or Class thereof. The net asset value of the
Shares shall be determined at least once on each business day, as of the close
of regular trading on the New York Stock Exchange or as of such other time or
times as the Trustees shall determine. The power and duty to make the daily
calculations may be delegated by the Trustees to the Investment Adviser, the
Administrator, the Custodian, the Transfer Agent or such other Person as the
Trustees by resolution may determine. The Trustees may suspend the daily
determination of net asset value to the extent permitted by the 1940 Act. It
shall not be a violation of any provision of this Declaration if Shares are
sold, redeemed or repurchased by the Trust at a price other than one based on
net asset value if the net asset value is affected by one or more errors
inadvertently made in the pricing of portfolio securities or in accruing income,
expenses or liabilities.
Section 7.2. Distributions to Shareholders. (a) The Trustees shall from
time to time distribute ratably among the Shareholders of the Trust or of a
Series or Class thereof such proportion of the net profits, surplus (including
paid-in surplus), capital, or assets of the Trust or such Series held by the
Trustees as they may deem proper. Such distributions may be made in cash or
property (including without limitation any type of obligations of the Trust or
Series or Class or any assets thereof), and the Trustees may distribute ratably
among the Shareholders of the Trust or Series or Class thereof additional Shares
of the Trust or Series or Class thereof issuable hereunder in such manner, at
such times, and on such terms as the Trustees may deem proper. Such
distributions may be among the Shareholders of the Trust or Series or Class
thereof at the time of declaring a distribution or among the Shareholders of the
Trust or Series or Class thereof at such other date or time or dates or times as
the Trustees shall determine. The Trustees may in their discretion determine
that, solely for the purposes of such distributions, Outstanding
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Shares shall exclude Shares for which orders have been placed subsequent to a
specified time on the date the distribution is declared or on the next preceding
day if the distribution is declared as of a day on which Boston banks are not
open for business, all as described in the then effective Prospectus under the
Securities Act of 1933. The Trustees may always retain from the net profits such
amount as they may deem necessary to pay the debts or expenses of the Trust or a
Series or Class thereof or to meet obligations of the Trust or a Series or Class
thereof, or as they may deem desirable to use in the conduct of its affairs or
to retain for future requirements or extensions of the business. The Trustees
may adopt and offer to Shareholders such dividend reinvestment plans, cash
dividend payout plans or related plans as the Trustees shall deem appropriate.
The Trustees may in their discretion determine that an account administration
fee or other similar charge may be deducted directly from the income and other
distributions paid on Shares to a Shareholder's account in each Series or Class.
(b) Inasmuch as the computation of net income and gains for Federal income
tax purposes may vary from the computation thereof on the books, the above
provisions shall be interpreted to give the Trustees the power in their
discretion to distribute for any fiscal year as ordinary dividends and as
capital gains distributions, respectively, additional amounts sufficient to
enable the Trust or a Series or Class thereof to avoid or reduce liability for
taxes.
Section 7.3. Determination of Net Income; Constant Net Asset Value;
Reduction of Outstanding Shares. Subject to Section 5.11 hereof, the net income
of the Series and Classes thereof of the Trust shall be determined in such
manner as the Trustees shall provide by resolution. Expenses of the Trust or of
a Series or Class thereof, including the advisory or management fee, shall be
accrued each day. Each Class shall bear only expenses relating to its Shares and
an allocable share of Series expenses in accordance with such policies as may be
established by the Trustees from time to time and as are not inconsistent with
the provisions of this Declaration or of any applicable document filed by the
Trust with the Commission or of the Internal Revenue Code of 1986, as amended.
Such net income may be determined by or under the direction of the Trustees as
of the close of regular trading on the New York Stock Exchange on each day on
which such market is open or as of such other time or times as the Trustees
shall determine, and, except as provided herein, all the net income of any
Series or Class, as so determined, may be declared as a dividend on the
Outstanding Shares of such Series or Class. If, for any reason, the net income
of any Series or Class determined at any time is a negative amount, or for any
other reason, the Trustees shall have the power with respect to such Series or
Class (i) to offset each Shareholder's pro rata share of such negative amount
from the accrued dividend account of such Shareholder, or (ii) to reduce the
number of Outstanding Shares of such Series or Class by reducing the number of
Shares in the account of such Shareholder by that number of full and fractional
Shares which represents the amount of such excess negative net income, or (iii)
to cause to be recorded on the books of the Trust an asset account in the amount
of such negative net income, which account may be reduced by the amount,
provided that the same shall thereupon become the property of the Trust with
respect to such Series or Class and shall not be paid to any Shareholder, of
dividends declared thereafter upon the Outstanding Shares of such Series or
Class on the day such negative net income is experienced, until such asset
account is reduced to zero. The Trustees shall have full discretion to determine
whether any cash or property received shall be treated as income or as principal
and whether any item of expense shall be charged to the income or the principal
account, and their determination made in good faith shall be conclusive upon the
Shareholders. In the case of stock dividends received, the Trustees shall have
full discretion to determine, in the light of the particular circumstances, how
much if any of the value thereof shall be treated as income, the balance, if
any, to be treated as principal.
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Section 7.4. Power to Modify Foregoing Procedures. Notwithstanding any of
the foregoing provisions of this Article VII, but subject to Section 5.11
hereof, the Trustees may prescribe, in their absolute discretion, such other
bases and times for determining the per Share net asset value of the Shares of
the Trust or a Series or Class thereof or net income of the Trust or a Series or
Class thereof, or the declaration and payment of dividends and distributions as
they may deem necessary or desirable. Without limiting the generality of the
foregoing, the Trustees may establish several Series or Classes of Shares in
accordance with Section 5.11, and declare dividends thereon in accordance with
Section 5.11(d)(iv).
ARTICLE VIII
DURATION; TERMINATION OF TRUST OR A SERIES OR CLASS;
AMENDMENT; MERGERS, ETC.
Section 8.1. Duration. The Trust shall continue without limitation of time
but subject to the provisions of this Article VIII.
Section 8.2. Termination of the Trust or a Series or a Class. The Trust or
any Series or Class thereof may be terminated by (i) the affirmative vote of the
holders of not less than two-thirds of the Outstanding Shares entitled to vote
and present in person or by proxy at any meeting of Shareholders of the Trust or
the appropriate Series or Class thereof, (ii) by an instrument or instruments in
writing without a meeting, consented to by the holders of two-thirds of the
Outstanding Shares of the Trust or a Series or Class thereof; provided, however,
that, if such termination as described in clauses (i) and (ii) is recommended by
the Trustees, the vote or written consent of the holders of a majority of the
Outstanding Shares of the Trust or a Series or Class thereof entitled to vote
shall be sufficient authorization, or (iii) notice to Shareholders by means of
an instrument in writing signed by a majority of the Trustees, stating that a
majority of the Trustees has determined that the continuation of the Trust or a
Series or a Class thereof is not in the best interest of such Series or a Class,
the Trust or their respective shareholders as a result of factors or events
adversely affecting the ability of such Series or a Class or the Trust to
conduct its business and operations in an economically viable manner. Such
factors and events may include (but are not limited to) the inability of a
Series or Class or the Trust to maintain its assets at an appropriate size,
changes in laws or regulations governing the Series or Class or the Trust or
affecting assets of the type in which such Series or Class or the Trust invests
or economic developments or trends having a significant adverse impact on the
business or operations of such Series or Class or the Trust. Upon the
termination of the Trust or the Series or Class,
(i) The Trust, Series or Class shall carry on no business except for
the purpose of winding up its affairs.
(ii) The Trustees shall proceed to wind up the affairs of the Trust,
Series or Class and all of the powers of the Trustees under this
Declaration shall continue until the affairs of the Trust, Series or Class
shall have been wound up, including the power to fulfill or discharge the
contracts of the Trust, Series or Class, collect its assets, sell, convey,
assign, exchange, transfer or otherwise dispose of all or any part of the
remaining Trust Property or Trust Property allocated or belonging to such
Series or Class to one or more persons at public or private sale for
consideration which may consist in whole or in
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part of cash, securities or other property of any kind, discharge or pay
its liabilities, and do all other acts appropriate to liquidate its
business; provided that any sale, conveyance, assignment, exchange,
transfer or other disposition of all or substantially all the Trust
Property or Trust Property allocated or belonging to such Series or Class
that requires Shareholder approval in accordance with Section 8.4 hereof
shall receive the approval so required.
(iii) After paying or adequately providing for the payment of all
liabilities, and upon receipt of such releases, indemnities and refunding
agreements as they deem necessary for their protection, the Trustees may
distribute the remaining Trust Property or the remaining property of the
terminated Series or Class, in cash or in kind or partly each, among the
Shareholders of the Trust or the Series or Class according to their
respective rights.
(b) After termination of the Trust, Series or Class and distribution to the
Shareholders as herein provided, a majority of the Trustees shall execute and
lodge among the records of the Trust and file with the Office of the Secretary
of The Commonwealth of Massachusetts an instrument in writing setting forth the
fact of such termination, and the Trustees shall thereupon be discharged from
all further liabilities and duties with respect to the Trust or the terminated
Series or Class, and the rights and interests of all Shareholders of the Trust
or the terminated Series or Class shall thereupon cease.
Section 8.3. Amendment Procedure. (a) This Declaration may be amended by a
vote of the holders of a majority of the Shares outstanding and entitled to vote
or by any instrument in writing, without a meeting, signed by a majority of the
Trustees and consented to by the holders of a majority of the Shares outstanding
and entitled to vote.
(b) This Declaration may be amended by a vote of a majority of Trustees,
without approval or consent of the Shareholders, except that no amendment can be
made by the Trustees to impair any voting or other rights of shareholders
prescribed by Federal or state law. Without limiting the foregoing, the Trustees
may amend this Declaration without the approval or consent of Shareholders (i)
to change the name of the Trust or any Series, (ii) to add to their duties or
obligations or surrender any rights or powers granted to them herein; (iii) to
cure any ambiguity, to correct or supplement any provision herein which may be
inconsistent with any other provision herein or to make any other provisions
with respect to matters or questions arising under this Declaration which will
not be inconsistent with the provisions of this Declaration; and (iv) to
eliminate or modify any provision of this Declaration which (a) incorporates,
memorializes or sets forth an existing requirement imposed by or under any
Federal or state statute or any rule, regulation or interpretation thereof or
thereunder or (b) any rule, regulation, interpretation or guideline of any
Federal or state agency, now or hereafter in effect, including without
limitation, requirements set forth in the 1940 Act and the rules and regulations
thereunder (and interpretations thereof), to the extent any change in applicable
law liberalizes, eliminates or modifies any such requirements, but the Trustees
shall not be liable for failure to do so.
(c) The Trustees may also amend this Declaration without the approval or
consent of Shareholders if they deem it necessary to conform this Declaration to
the requirements of applicable Federal or state laws or regulations or the
requirements of the regulated investment
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company provisions of the Internal Revenue Code of 1986, as amended, or if
requested or required to do so by any Federal agency or by a state Blue Sky
commissioner or similar official, but the Trustees shall not be liable for
failing so to do.
(d) Nothing contained in this Declaration shall permit the amendment of
this Declaration to impair the exemption from personal liability of the
Shareholders, Trustees, officers, employees and agents of the Trust or to permit
assessments upon Shareholders.
(e) A certificate signed by a majority of the Trustees setting forth an
amendment and reciting that it was duly adopted by the Trustees or by the
Shareholders as aforesaid or a copy of the Declaration, as amended, and executed
by a majority of the Trustees, shall be conclusive evidence of such amendment
when lodged among the records of the Trust.
Section 8.4. Merger, Consolidation and Sale of Assets. The Trust or any
Series may merge or consolidate into any other corporation, association, trust
or other organization or may sell, lease or exchange all or substantially all of
the Trust Property or Trust Property allocated or belonging to such Series,
including its good will, upon such terms and conditions and for such
consideration when and as authorized at any meeting of Shareholders called for
the purpose by the affirmative vote of the holders of two-thirds of the Shares
of the Trust or such Series outstanding and entitled to vote and present in
person or by proxy at a meeting of Shareholders, or by an instrument or
instruments in writing without a meeting, consented to by the holders of
two-thirds of the Shares of the Trust or such Series; provided, however, that,
if such merger, consolidation, sale, lease or exchange is recommended by the
Trustees, the vote or written consent of the holders of a majority of the
Outstanding Shares of the Trust or such Series entitled to vote shall be
sufficient authorization; and any such merger, consolidation, sale, lease or
exchange shall be deemed for all purposes to have been accomplished under and
pursuant to Massachusetts law.
Section 8.5. Incorporation. The Trustees may cause to be organized or
assist in organizing a corporation or corporations under the laws of any
jurisdiction or any other trust, partnership, association or other organization
to take over all or any portion of the Trust Property or the Trust Property
allocated or belonging to such Series or to carry on any business in which the
Trust shall directly or indirectly have any interest, and to sell, convey and
transfer all or any portion of the Trust Property or the Trust Property
allocated or belonging to such Series to any such corporation, trust,
association or organization in exchange for the shares or securities thereof or
otherwise, and to lend money to, subscribe for the shares or securities of, and
enter into any contracts with any such corporation, trust, partnership,
association or organization, or any corporation, partnership, trust, association
or organization in which the Trust or such Series holds or is about to acquire
shares or any other interest. The Trustees may also cause a merger or
consolidation between the Trust or any successor thereto and any such
corporation, trust, partnership, association or other organization if and to the
extent permitted by law, as provided under the law then in effect. Nothing
contained herein shall be construed as requiring approval of Shareholders for
the Trustees to organize or assist in organizing one or more corporations,
trusts, partnerships, associations or other organizations and selling, conveying
or transferring all or a portion of the Trust Property to such organization or
entities.
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ARTICLE IX
REPORTS TO SHAREHOLDERS
The Trustees shall at least semi-annually submit to the Shareholders of
each Series a written financial report of the transactions of the Trust and
Series thereof, including financial statements which shall at least annually be
certified by independent public accountants.
ARTICLE X
MISCELLANEOUS
Section 10.1. Execution and Filing. This Declaration and any amendment
hereto shall be filed in the office of the Secretary of The Commonwealth of
Massachusetts and in such other places as may be required under the laws of
Massachusetts and may also be filed or recorded in such other places as the
Trustees deem appropriate. Each amendment so filed shall be accompanied by a
certificate signed and acknowledged by a Trustee stating that such action was
duly taken in a manner provided herein, and unless such amendment or such
certificate sets forth some later time for the effectiveness of such amendment,
such amendment shall be effective upon its execution. A restated Declaration,
integrating into a single instrument all of the provisions of the Declaration
which are then in effect and operative, may be executed from time to time by a
majority of the Trustees and filed with the Secretary of The Commonwealth of
Massachusetts. A restated Declaration shall, upon execution, be conclusive
evidence of all amendments contained therein and may thereafter be referred to
in lieu of the original Declaration and the various amendments thereto.
Section 10.2. Governing Law. This Declaration is executed by the Trustees
and delivered in The Commonwealth of Massachusetts and with reference to the
laws thereof, and the rights of all parties and the validity and construction of
every provision hereof shall be subject to and construed according to the laws
of said Commonwealth.
Section 10.3. Counterparts. This Declaration may be simultaneously executed
in several counterparts, each of which shall be deemed to be an original, and
such counterparts, together, shall constitute one and the same instrument, which
shall be sufficiently evidenced by any such original counterpart.
Section 10.4. Reliance by Third Parties. Any certificate executed by an
individual who, according to the records of the Trust appears to be a Trustee
hereunder, certifying (a) the number or identity of Trustees or Shareholders,
(b) the due authorization of the execution of any instrument or writing, (c) the
form of any vote passed at a meeting of Trustees or Shareholders, (d) the fact
that the number of Trustees or Shareholders present at any meeting or executing
any written instrument satisfies the requirements of this Declaration, (e) the
form of any By-laws adopted by or the identity of any officers elected by the
Trustees, or (f) the existence of any fact or facts which in any manner relate
to the affairs of the Trust, shall be conclusive evidence as to the matters so
certified in favor of any Person dealing with the Trustees and their successors.
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Section 10.5. Provisions in Conflict with Law or Regulations. (a) The
provisions of this Declaration are severable, and if the Trustees shall
determine, with the advice of counsel, that any of such provisions is in
conflict with the 1940 Act, the regulated investment company provisions of the
Internal Revenue Code of 1986 or with other applicable laws and regulations, the
conflicting provision shall be deemed never to have constituted a part of this
Declaration; provided, however, that such determination shall not affect any of
the remaining provisions of this Declaration or render invalid or improper any
action taken or omitted prior to such determination.
(b) If any provision of this Declaration shall be held invalid or
unenforceable in any jurisdiction, such invalidity or unenforceability shall
attach only to such provision in such jurisdiction and shall not in any manner
affect such provision in any other jurisdiction or any other provision of this
Declaration in any jurisdiction.
IN WITNESS WHEREOF, the undersigned have executed this instrument as of the
1st of July, 1996.
/s/Edward J. Boudreau, Jr.
Edward J. Boudreau, Jr.
as Trustee and not individually,
34 Swan Road
Winchester, Massachusetts 01890
/s/James F. Carlin
James F. Carlin
as Trustee and not individually,
619 Washington Street
Wellesley, Massachusetts 02181
/s/William H. Cunningham
William H. Cunningham
as Trustee and not individually,
1909 Hill Oaks Court
Austin, Texas 78703
/s/Charles F. Fretz
Charles F. Fretz
as Trustee and not individually,
Clothier Springs Road
Malvern, Pennsylvania 19355
28
<PAGE>
/s/Harold R. Hiser, Jr.
Harold R. Hiser, Jr.
as Trustee and not individually,
123 Highland Avenue
Short Hill, New Jersey 07078
/s/Anne C. Hodsdon
Anne C. Hodsdon
as Trustee and not individually,
135 Woodland Road
Hampton, New Hampshire 03842
/s/Charles L. Ladner
Charles L. Ladner
as Trustee and not individually,
182 Beaumont Road
Devon, Pennsylvania 19333
/s/Leo E. Linbeck, Jr.
Leo E. Linbeck, Jr.
as Trustee and not individually,
3404 Chevy Chase
Houston, Texas 77027
/s/Patricia P. McCarter
Patricia P. McCarter
as Trustee and not individually,
1230 Brentford Road
Malvern, Pennsylvania 19355
/s/Steven R. Pruchansky
Steven R. Pruchansky
as Trustee and not individually,
6920 Daniels Road
Naples, Florida 33999
29
<PAGE>
/s/Richard S. Scipione
Richard S. Scipione
as Trustee and not individually,
4 Sentinel Road
Hingham, Massachusetts 02043
/s/Norman H. Smith
Norman H. Smith
as Trustee and not individually,
243 Mount Oriole Lane
Linden, Virginia 22642
/s/John P. Toolan
John P. Toolan
as Trustee and not individually,
13 Chadwell Place
Morristown, New Jersey 07960
30
<PAGE>
THE COMMONWEALTH OF MASSACHUSETTS
SUFFOLK COUNTY, MASSACHUSETTS
July 1, 1996
Then personally appeared the above-named persons, Edward J. Boudreau, Jr.,
James F. Carlin, William H. Cunningham, Charles F. Fretz, Harold R. Hiser, Jr.,
Anne C. Hodsdon, Charles L. Ladner, Leo E. Linbeck, Jr., Patricia P. McCarter,
Steven R. Pruchansky, Richard S. Scipione, Norman H. Smith, and John P. Toolan,
who acknowledged the foregoing instrument to be his free act and deed.
Before me,
/s/Ann Marie White
Notary Public
My commission expires: 10/20/00
31
CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
We consent to the references to our firm under the captions "Financial
Highlights" for Sovereign Balanced Fund in the John Hancock Growth and Income
Funds Prospectus and "Independent Auditors" in the John Hancock Sovereign
Balanced Fund Class A and Class B Shares Statement of Additional Information in
Post-Effective Amendment No. 76 to the Registration Statement (Form N-1A, No.
2-10156) dated December 2, 1996.
We also consent to the incorporation by reference therein of our report dated
February 9, 1996, with respect to the financial statements and financial
highlights of the John Hancock Sovereign Balanced Fund (one of the portfolios
constituting John Hancock Investment Trust) in this Form N-1A.
/s/ERNST & YOUNG LLP
ERNST & YOUNG LLP
Boston, Massachusetts
September 11, 1996
<PAGE>
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 in
Post-Effective Amendment No. 76 to the Registration Statement (Form N-1A, No.
2-10156) dated December 2, 1996.
We also consent to the incorporation by reference therein of our report dated
October 16. 1995, with respect to the financial statements and financial
highlights of the John Hancock Growth and Income Fund (one of the portfolios
constituting John Hancock Investment Trust) in this Form N-1A.
/s/ERNST & YOUNG LLP
ERNST & YOUNG LLP
Boston, Massachusetts
September 11, 1996
<PAGE>
CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
We consent to the references to our firm under the captions "Financial
Highlights" and "The Fund's Financial Highlights" for Sovereign Investors Fund
in the John Hancock Growth and Income Funds Prospectus and John Hancock
Sovereign Investors Fund Class C Shares Prospectus, respectively, and
"Independent Auditors" in the John Hancock Sovereign Investors Fund Class A,
Class B and Class C Shares Statement of Additional Information in Post-Effective
Amendment No. 76 to the Registration Statement (Form N-1A, No. 2-10156) dated
December 2, 1996.
We also consent to the incorporation by reference therein of our report dated
February 9, 1996, with respect to the financial statements and financial
highlights of the John Hancock Sovereign Investors Fund (one of the portfolios
constituting John Hancock Investment Trust) in this Form N-1A.
/s/ERNST & YOUNG LLP
ERNST & YOUNG LLP
Boston, Massachusetts
September 11, 1996
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 011
<NAME> JOHN HANCOCK SOVEREIGN INVESTORS FUND - CLASS A
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> DEC-31-1995
<INVESTMENTS-AT-COST> 1,249,306,690
<INVESTMENTS-AT-VALUE> 1,555,009,732
<RECEIVABLES> 8,578,846
<ASSETS-OTHER> 75,345
<OTHER-ITEMS-ASSETS> 305,703,042
<TOTAL-ASSETS> 1,563,663,923
<PAYABLE-FOR-SECURITIES> 2,506,250
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 3,109,673
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<PAID-IN-CAPITAL-COMMON> 1,240,630,349
<SHARES-COMMON-STOCK> 71,652,920
<SHARES-COMMON-PRIOR> 76,585,860
<ACCUMULATED-NII-CURRENT> 23,463
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 11,691,146
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 305,703,042
<NET-ASSETS> 1,558,048,000
<DIVIDEND-INCOME> 29,977,700
<INTEREST-INCOME> 19,738,678
<OTHER-INCOME> 0
<EXPENSES-NET> 17,185,344
<NET-INVESTMENT-INCOME> 32,531,034
<REALIZED-GAINS-CURRENT> 20,230,031
<APPREC-INCREASE-CURRENT> 299,815,354
<NET-CHANGE-FROM-OPS> 352,576,419
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<DISTRIBUTIONS-OF-INCOME> 28,762,733
<DISTRIBUTIONS-OF-GAINS> 5,956,805
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<NUMBER-OF-SHARES-SOLD> 13,351,175
<NUMBER-OF-SHARES-REDEEMED> 20,197,037
<SHARES-REINVESTED> 1,912,922
<NET-CHANGE-IN-ASSETS> 354,619,486
<ACCUMULATED-NII-PRIOR> 71,625
<ACCUMULATED-GAINS-PRIOR> (1,298,030)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 8,017,834
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 17,185,344
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<PER-SHARE-NAV-BEGIN> 14.24
<PER-SHARE-NII> 0.40
<PER-SHARE-GAIN-APPREC> 3.71
<PER-SHARE-DIVIDEND> 0.40
<PER-SHARE-DISTRIBUTIONS> 0.08
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 17.87
<EXPENSE-RATIO> 1.14
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 012
<NAME> JOHN HANCOCK SOVEREIGN INVESTORS FUND - CLASS B
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> DEC-31-1995
<INVESTMENTS-AT-COST> 1,249,306,690
<INVESTMENTS-AT-VALUE> 1,555,009,732
<RECEIVABLES> 8,578,846
<ASSETS-OTHER> 75,345
<OTHER-ITEMS-ASSETS> 305,703,042
<TOTAL-ASSETS> 1,563,663,923
<PAYABLE-FOR-SECURITIES> 2,506,250
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 3,109,673
<TOTAL-LIABILITIES> 5,615,923
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 1,240,630,349
<SHARES-COMMON-STOCK> 14,432,679
<SHARES-COMMON-PRIOR> 8,996,738
<ACCUMULATED-NII-CURRENT> 23,463
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 11,691,146
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 305,703,042
<NET-ASSETS> 1,558,048,000
<DIVIDEND-INCOME> 29,977,700
<INTEREST-INCOME> 19,738,678
<OTHER-INCOME> 0
<EXPENSES-NET> 17,185,344
<NET-INVESTMENT-INCOME> 32,531,034
<REALIZED-GAINS-CURRENT> 20,230,031
<APPREC-INCREASE-CURRENT> 299,815,354
<NET-CHANGE-FROM-OPS> 352,576,419
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 3,339,275
<DISTRIBUTIONS-OF-GAINS> 1,191,400
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 6,957,758
<NUMBER-OF-SHARES-REDEEMED> 1,772,868
<SHARES-REINVESTED> 251,051
<NET-CHANGE-IN-ASSETS> 354,619,486
<ACCUMULATED-NII-PRIOR> 71,625
<ACCUMULATED-GAINS-PRIOR> (1,298,030)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 8,017,834
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 17,185,344
<AVERAGE-NET-ASSETS> 190,757,274
<PER-SHARE-NAV-BEGIN> 14.24
<PER-SHARE-NII> 0.27
<PER-SHARE-GAIN-APPREC> 3.71
<PER-SHARE-DIVIDEND> 0.28
<PER-SHARE-DISTRIBUTIONS> 0.08
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 17.86
<EXPENSE-RATIO> 1.90
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 013
<NAME> JOHN HANCOCK SOVEREIGN INVESTORS FUND - CLASS C
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> DEC-31-1995
<INVESTMENTS-AT-COST> 1,249,306,690
<INVESTMENTS-AT-VALUE> 1,555,009,732
<RECEIVABLES> 8,578,846
<ASSETS-OTHER> 75,345
<OTHER-ITEMS-ASSETS> 305,703,042
<TOTAL-ASSETS> 1,563,663,923
<PAYABLE-FOR-SECURITIES> 2,506,250
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 3,109,673
<TOTAL-LIABILITIES> 5,615,923
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 1,240,630,349
<SHARES-COMMON-STOCK> 1,116,297
<SHARES-COMMON-PRIOR> 1,062,699
<ACCUMULATED-NII-CURRENT> 23,463
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 11,691,146
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 305,703,042
<NET-ASSETS> 1,558,048,000
<DIVIDEND-INCOME> 29,977,700
<INTEREST-INCOME> 19,738,678
<OTHER-INCOME> 0
<EXPENSES-NET> 17,185,344
<NET-INVESTMENT-INCOME> 32,531,034
<REALIZED-GAINS-CURRENT> 20,230,031
<APPREC-INCREASE-CURRENT> 299,815,354
<NET-CHANGE-FROM-OPS> 352,576,419
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 477,188
<DISTRIBUTIONS-OF-GAINS> 92,650
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 325,074
<NUMBER-OF-SHARES-REDEEMED> 305,670
<SHARES-REINVESTED> 34,194
<NET-CHANGE-IN-ASSETS> 354,619,486
<ACCUMULATED-NII-PRIOR> 71,625
<ACCUMULATED-GAINS-PRIOR> (1,298,030)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 8,017,834
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 17,185,344
<AVERAGE-NET-ASSETS> 16,982,182
<PER-SHARE-NAV-BEGIN> 14.24
<PER-SHARE-NII> 0.46
<PER-SHARE-GAIN-APPREC> 3.71
<PER-SHARE-DIVIDEND> 0.46
<PER-SHARE-DISTRIBUTIONS> 0.08
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 17.87
<EXPENSE-RATIO> 0.74
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 021
<NAME> JOHN HANCOCK SOVEREIGN INVESTORS FUND - CLASS A
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> JUN-30-1996
<INVESTMENTS-AT-COST> 1,361,152,243
<INVESTMENTS-AT-VALUE> 1,742,176,069
<RECEIVABLES> 10,909,350
<ASSETS-OTHER> 451,796
<OTHER-ITEMS-ASSETS> 380,658,377
<TOTAL-ASSETS> 1,753,171,766
<PAYABLE-FOR-SECURITIES> 23,482,394
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 3,464,526
<TOTAL-LIABILITIES> 26,946,920
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 1,283,602,147
<SHARES-COMMON-STOCK> 70,717,040
<SHARES-COMMON-PRIOR> 71,652,920
<ACCUMULATED-NII-CURRENT> 85,851
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 61,871,178
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 380,665,670
<NET-ASSETS> 1,726,224,846
<DIVIDEND-INCOME> 15,704,440
<INTEREST-INCOME> 8,400,863
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<EXPENSES-NET> 9,974,734
<NET-INVESTMENT-INCOME> 14,130,569
<REALIZED-GAINS-CURRENT> 50,180,032
<APPREC-INCREASE-CURRENT> 74,962,628
<NET-CHANGE-FROM-OPS> 139,273,229
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 12,088,555
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 9,268,324
<NUMBER-OF-SHARES-REDEEMED> 10,784,498
<SHARES-REINVESTED> 580,294
<NET-CHANGE-IN-ASSETS> 168,176,846
<ACCUMULATED-NII-PRIOR> 23,463
<ACCUMULATED-GAINS-PRIOR> 11,691,146
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 4,609,120
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 9,974,734
<AVERAGE-NET-ASSETS> 1,646,024,127
<PER-SHARE-NAV-BEGIN> 17.87
<PER-SHARE-NII> 0.17
<PER-SHARE-GAIN-APPREC> 1.43
<PER-SHARE-DIVIDEND> 0.17
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<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 19.30
<EXPENSE-RATIO> 1.10
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 022
<NAME> JOHN HANCOCK SOVEREIGN INVESTORS FUND - CLASS B
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> JUN-30-1996
<INVESTMENTS-AT-COST> 1,361,152,243
<INVESTMENTS-AT-VALUE> 1,742,176,069
<RECEIVABLES> 10,909,350
<ASSETS-OTHER> 451,796
<OTHER-ITEMS-ASSETS> 380,658,377
<TOTAL-ASSETS> 1,753,171,766
<PAYABLE-FOR-SECURITIES> 23,482,394
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 3,464,526
<TOTAL-LIABILITIES> 26,946,920
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 1,283,602,147
<SHARES-COMMON-STOCK> 17,523,677
<SHARES-COMMON-PRIOR> 14,432,679
<ACCUMULATED-NII-CURRENT> 85,851
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 61,871,178
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 380,665,670
<NET-ASSETS> 1,726,224,846
<DIVIDEND-INCOME> 15,704,440
<INTEREST-INCOME> 8,400,863
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<EXPENSES-NET> 9,974,734
<NET-INVESTMENT-INCOME> 14,130,569
<REALIZED-GAINS-CURRENT> 50,180,032
<APPREC-INCREASE-CURRENT> 74,962,628
<NET-CHANGE-FROM-OPS> 139,273,229
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 1,733,158
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 4,311,922
<NUMBER-OF-SHARES-REDEEMED> 1,304,580
<SHARES-REINVESTED> 83,656
<NET-CHANGE-IN-ASSETS> 168,176,846
<ACCUMULATED-NII-PRIOR> 23,463
<ACCUMULATED-GAINS-PRIOR> 11,691,146
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 4,609,120
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 9,974,734
<AVERAGE-NET-ASSETS> 1,646,024,127
<PER-SHARE-NAV-BEGIN> 17.86
<PER-SHARE-NII> 0.10
<PER-SHARE-GAIN-APPREC> 1.42
<PER-SHARE-DIVIDEND> 0.10
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 19.28
<EXPENSE-RATIO> 1.86
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 023
<NAME> JOHN HANCOCK SOVEREIGN INVESTORS FUND - CLASS C
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> JUN-30-1996
<INVESTMENTS-AT-COST> 1,361,152,243
<INVESTMENTS-AT-VALUE> 1,742,176,069
<RECEIVABLES> 10,909,350
<ASSETS-OTHER> 451,796
<OTHER-ITEMS-ASSETS> 380,658,377
<TOTAL-ASSETS> 1,753,171,766
<PAYABLE-FOR-SECURITIES> 23,482,394
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 3,464,526
<TOTAL-LIABILITIES> 26,946,920
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 1,283,602,147
<SHARES-COMMON-STOCK> 1,229,369
<SHARES-COMMON-PRIOR> 1,116,297
<ACCUMULATED-NII-CURRENT> 85,851
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 61,871,178
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 380,665,670
<NET-ASSETS> 1,726,224,846
<DIVIDEND-INCOME> 15,704,440
<INTEREST-INCOME> 8,400,863
<OTHER-INCOME> 0
<EXPENSES-NET> 9,974,734
<NET-INVESTMENT-INCOME> 14,130,569
<REALIZED-GAINS-CURRENT> 50,180,032
<APPREC-INCREASE-CURRENT> 74,962,628
<NET-CHANGE-FROM-OPS> 139,273,229
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 246,468
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 147,535
<NUMBER-OF-SHARES-REDEEMED> 47,425
<SHARES-REINVESTED> 12,962
<NET-CHANGE-IN-ASSETS> 168,176,846
<ACCUMULATED-NII-PRIOR> 23,463
<ACCUMULATED-GAINS-PRIOR> 11,691,146
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 4,609,120
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 9,974,734
<AVERAGE-NET-ASSETS> 1,646,024,127
<PER-SHARE-NAV-BEGIN> 17.87
<PER-SHARE-NII> 0.21
<PER-SHARE-GAIN-APPREC> 1.42
<PER-SHARE-DIVIDEND> 0.21
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 19.29
<EXPENSE-RATIO> 0.74
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 031
<NAME> JOHN HANCOCK SOVEREIGN BALANCED FUND - CLASS A
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> DEC-31-1995
<INVESTMENTS-AT-COST> 136,512,031
<INVESTMENTS-AT-VALUE> 156,632,412
<RECEIVABLES> 1,582,032
<ASSETS-OTHER> 48,408
<OTHER-ITEMS-ASSETS> 20,120,381
<TOTAL-ASSETS> 158,262,852
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 625,264
<TOTAL-LIABILITIES> 625,264
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 137,801,240
<SHARES-COMMON-STOCK> 5,943,279
<SHARES-COMMON-PRIOR> 6,295,898
<ACCUMULATED-NII-CURRENT> 1,435
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (285,468)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 20,120,381
<NET-ASSETS> 157,637,588
<DIVIDEND-INCOME> 2,270,131
<INTEREST-INCOME> 5,552,411
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</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 032
<NAME> JOHN HANCOCK SOVEREIGN BALANCED FUND - CLASS B
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> DEC-31-1995
<INVESTMENTS-AT-COST> 136,512,031
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<OTHER-ITEMS-ASSETS> 20,120,381
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<SHARES-COMMON-PRIOR> 8,046,236
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<OVERDISTRIBUTION-NII> 0
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<DIVIDEND-INCOME> 2,270,131
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</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 041
<NAME> JOHN HANCOCK SOVEREIGN BALANCED FUND - CLASS A
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> JUN-30-1996
<INVESTMENTS-AT-COST> 137,043,066
<INVESTMENTS-AT-VALUE> 157,606,936
<RECEIVABLES> 1,370,338
<ASSETS-OTHER> 40,119
<OTHER-ITEMS-ASSETS> 20,563,290
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<TOTAL-LIABILITIES> 214,753
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<PAID-IN-CAPITAL-COMMON> 133,501,844
<SHARES-COMMON-STOCK> 5,795,257
<SHARES-COMMON-PRIOR> 5,943,279
<ACCUMULATED-NII-CURRENT> (42,809)
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 4,778,901
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<NET-ASSETS> 158,802,060
<DIVIDEND-INCOME> 1,145,534
<INTEREST-INCOME> 2,553,983
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<NET-INVESTMENT-INCOME> 2,404,987
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<SHARES-REINVESTED> 95,973
<NET-CHANGE-IN-ASSETS> 1,164,472
<ACCUMULATED-NII-PRIOR> 1,435
<ACCUMULATED-GAINS-PRIOR> (285,468)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
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<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 0
<AVERAGE-NET-ASSETS> 158,482,153
<PER-SHARE-NAV-BEGIN> 11.75
<PER-SHARE-NII> 0.21
<PER-SHARE-GAIN-APPREC> 0.41
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</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 042
<NAME> JOHN HANCOCK SOVEREIGN BALANCED FUND - CLASS B
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> JUN-30-1996
<INVESTMENTS-AT-COST> 137,043,066
<INVESTMENTS-AT-VALUE> 157,606,936
<RECEIVABLES> 1,370,338
<ASSETS-OTHER> 40,119
<OTHER-ITEMS-ASSETS> 20,563,290
<TOTAL-ASSETS> 159,016,813
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 214,753
<TOTAL-LIABILITIES> 214,753
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<PAID-IN-CAPITAL-COMMON> 133,501,844
<SHARES-COMMON-STOCK> 7,267,307
<SHARES-COMMON-PRIOR> 7,478,401
<ACCUMULATED-NII-CURRENT> (42,809)
<OVERDISTRIBUTION-NII> 0
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<ACCUM-APPREC-OR-DEPREC> 20,564,124
<NET-ASSETS> 158,802,060
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<NET-INVESTMENT-INCOME> 2,404,987
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<SHARES-REINVESTED> 91,171
<NET-CHANGE-IN-ASSETS> 1,164,472
<ACCUMULATED-NII-PRIOR> 1,435
<ACCUMULATED-GAINS-PRIOR> (285,468)
<OVERDISTRIB-NII-PRIOR> 0
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<EXPENSE-RATIO> 1.97
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</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 051
<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
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<OTHER-ITEMS-ASSETS> 46,927,870
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<TOTAL-LIABILITIES> 1,134,863
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<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
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<NET-ASSETS> 244,905,468
<DIVIDEND-INCOME> 7,063,204
<INTEREST-INCOME> 129,942
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<NET-INVESTMENT-INCOME> 3,388,316
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<ACCUMULATED-GAINS-PRIOR> (5,587,275)
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</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 052
<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
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<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
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<DISTRIBUTIONS-OF-INCOME> 1,113,907
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<NUMBER-OF-SHARES-SOLD> 1,972,798
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<NET-CHANGE-IN-ASSETS> 9,720,115
<ACCUMULATED-NII-PRIOR> 310,216
<ACCUMULATED-GAINS-PRIOR> (5,587,275)
<OVERDISTRIB-NII-PRIOR> 0
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<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 061
<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
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<ASSETS-OTHER> 38,374
<OTHER-ITEMS-ASSETS> 60,095,908
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<OTHER-ITEMS-LIABILITIES> 380,849
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<PAID-IN-CAPITAL-COMMON> 187,609,921
<SHARES-COMMON-STOCK> 9,184,133
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<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 12,697,648
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 60,095,908
<NET-ASSETS> 260,891,453
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<INTEREST-INCOME> 46,749
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<ACCUMULATED-NII-PRIOR> 503,632
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<GROSS-EXPENSE> 1,883,310
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<PER-SHARE-NAV-BEGIN> 13.38
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<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 062
<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
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<OTHER-ITEMS-ASSETS> 60,095,908
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<PAYABLE-FOR-SECURITIES> 0
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<OTHER-ITEMS-LIABILITIES> 380,849
<TOTAL-LIABILITIES> 380,849
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<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
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<ACCUM-APPREC-OR-DEPREC> 60,095,908
<NET-ASSETS> 260,891,453
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<EXPENSES-NET> 1,883,310
<NET-INVESTMENT-INCOME> 1,594,969
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<NUMBER-OF-SHARES-SOLD> 1,348,805
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<SHARES-REINVESTED> 111,673
<NET-CHANGE-IN-ASSETS> 15,985,985
<ACCUMULATED-NII-PRIOR> 503,632
<ACCUMULATED-GAINS-PRIOR> 560,287
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<GROSS-EXPENSE> 1,883,310
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<PER-SHARE-NAV-BEGIN> 13.41
<PER-SHARE-NII> 0.07
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<PER-SHARE-NAV-END> 14.82
<EXPENSE-RATIO> 1.87
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
