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. 87 (X)
REGISTRATION STATEMENT UNDER
THE INVESTMENT COMPANY ACT OF 1940 (X)
Amendment No. 39 (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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APPROXIMATE DATE OF PROPOSED PUBLIC OFFERING:
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 March 1, 2001 pursuant to paragraph (a) of Rule 485
If appropriate, check the following box:
[ ] This post-effective amendment designates a new effective date for
a previously filed post-effective amendment.
<PAGE>
John Hancock
Institutional Funds-Class I
Prospectus
March 1, 2001
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Large Cap Value Fund
As with all mutual funds, the Securities and Exchange Commission has not
approved or disapproved this fund or determined whether the information in this
prospectus is adequate and accurate. Anyone who indicates otherwise is
committing a federal crime.
[LOGO] John Hancock(R)
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JOHN HANCOCK FUNDS
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Contents
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A summary of the fund's Large Cap Value Fund 4
goals, strategies, risks,
performance and expenses.
Policies and instructions for Your account
opening, maintaining and
closing an account. Who can buy shares 6
Opening an account 6
Buying shares 7
Selling shares 8
Transaction policies 10
Dividends and account policies 10
Business structure 11
For more information back cover
<PAGE>
Large Cap Value Fund
GOAL AND STRATEGY
[Clip Art] 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 normally invests at least 65% of assets in stocks of
large-capitalization companies (companies in the capitalization range of the
Standard & Poor's 500 Stock Index, which was $xx million to $xx billion as of
January 31, 2001).
In managing the portfolio, the managers emphasize a value-oriented approach to
individual stock selection. With the aid of proprietary financial models, the
management team looks for companies that are selling at what appear to be
substantial discounts to their long-term intrinsic and "franchise" values. These
companies often have identifiable catalysts for growth, such as new products,
business reorganizations or mergers.
The fund manages risk by typically holding between 50 and 150 large companies
that are diversified across industry sectors. The management team also uses
fundamental financial analysis to identify individual companies with substantial
cash flows, reliable revenue streams, superior competitive positions and strong
management.
The fund may attempt to take advantage of short-term market volatility by
investing in corporate restructurings or pending acquisitions.
In selecting bonds of any maturity, the managers look for the most favorable
risk/return ratios. The fund may invest up to 15% of net assets in junk bonds
rated as low as CC/Ca and their unrated equivalents.
The fund may invest up to 25% of assets in foreign securities (35% during
adverse U.S. market conditions). The fund may also make limited use of certain
derivatives (investments whose value is based on indices, securities or
currencies).
In abnormal market conditions, the fund may temporarily invest extensively in
investment-grade short-term securities. In these and other cases, the fund might
not achieve its goal.
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PORTFOLIO MANAGERS
Timothy E. Quinlisk, CFA
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Senior vice president of adviser
Joined fund team in 2000
Joined adviser in 1998
Analyst at Hagler, Mastrouita
& Hewitt (1997-1998)
Analyst at State Street Global
Advisors (1995-1997)
Began business career in 1985
James S. Yu, CFA
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Vice president of adviser
Joined fund team in 2000
Joined adviser in 2000
Analyst at Merrill Lynch Asset
Management (1998-2000)
Analyst at Gabelli & Company
(1995-1998)
Began business career in 1990
R. Scott Mayo, CFA
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Second vice president of adviser
Joined fund team in 2000
Joined adviser in 1998
Analyst at Morgan Stanley (1998)
Analyst at Grantham, Mayo
& Van Otterloo (1993-1996)
Began business career in 1993
PAST PERFORMANCE
[Clip Art] The graph shows how the fund's total return has varied from year to
year, while the table shows performance over time (along with a broad-based
market index for reference). This information may help provide an indication of
the fund's risks. Since the Class I shares have no operational history, the
year-by-year and average annual figures are for Class A shares which are offered
in a separate prospectus. Class I shares have no sales charges and lower
expenses than the Class A shares. The average annual figures reflect sales
charges; the year-by-year and index figures do not, and would be lower if they
did. All figures assume dividend reinvestment. Past performance does not
indicate future results.
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Class A year-by-year total returns -- calendar years
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1991 1992 1993 1994 1995 1996 1997 1998 1999 2000
32.29% 6.02% 9.74% -8.49% 36.74% 22.21% 36.71% 15.94% 37.89%
Best quarter: Q4 '99, 31.65%
Worst quarter: Q3 '98, -12.95%
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Average annual total returns -- for periods ending 12/31/99
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1 year 5 year 10 year
Class A 30.99% 28.25% 17.15%
Class I - no operational history
Index 21.03% 28.54% 18.19%
Index: Standard & Poor's 500 Stock Index, an unmanaged index of 500 stocks.
4
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MAIN RISKS
[Clip Art] The value of your investment will go up and down in response to stock
and bond market movements.
The fund's management strategy has a significant influence on fund performance.
Large-capitalization stocks as a group could fall out of favor with the market,
causing the fund to underperform investments that focus on small- or
medium-capitalization stocks. Similarly, value stocks could underperform growth
stocks. In addition, if the managers' securities selection strategies do not
perform as expected, the fund could underperform its peers or lose money.
To the extent that the fund makes investments with additional risks, those risks
could increase volatility or reduce performance:
o Certain derivatives could produce disproportionate losses.
o In a down market, higher-risk securities and derivatives could become
harder to value or to sell at a fair price.
o Foreign investments carry additional risks, including potentially
unfavorable currency exchange rates, inadequate or inaccurate financial
information and social or political instability.
o Any bonds held by the fund could be downgraded in credit rating or go into
default. Bond prices generally fall when interest rates rise and longer
maturity will increase volatility. Junk bond prices can fall on bad news
about the economy, an industry or a company.
The fund may trade securities actively, which could increase its transaction
costs (thus lowering performance) and increase your taxable distributions.
Investments in the fund are not bank deposits and are not insured or guaranteed
by the Federal Deposit Insurance Corporation or any other government agency. You
could lose money by investing in this fund.
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YOUR EXPENSES
[Clip Art] Operating expenses are paid from the fund's assets, and therefore are
paid by shareholders indirectly. Because Class I is new, its expenses are based
on Class A expenses, adjusted to reflect any changes.
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Annual operating expenses
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Management fee 0.625%
Other expenses 0.125%
Total fund operating expenses 0.75%
The hypothetical example below shows what your expenses would be if you
invested $10,000 over the time frames indicated, assuming you reinvested all
distributions and that the average annual return was 5%. The example is for
comparison only, and does not represent the fund's actual expenses and returns,
either past or future.
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Expenses Year 1 Year 3 Year 5 Year 10
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Class I $77 $240 $417 $930
FUND CODES
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Ticker
CUSIP
Newspaper --
SEC number 811-0560
JH fund number 537
5
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Your account
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WHO CAN BUY SHARES
John Hancock institutional funds are offered without any sales charge to certain
types of investors, as noted below:
o Retirement and other benefit plans not affiliated with the adviser.
o Certain trusts, endowment funds and foundations.
o Banks and insurance companies buying shares for their own account.
o Investment companies not affiliated with the adviser.
o Any entity that is considered a corporation for tax purposes.
o Any state, county or city, or its instrumentality, department, authority
or agency.
o Retirement plans of the adviser and its affiliates, including the
adviser's affiliated brokers.
John Hancock Funds may pay significant compensation out of its own resources to
your broker.
Your broker or agent may charge you a fee to effect transactions in fund shares.
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OPENING AN ACCOUNT
1 Read this prospectus carefully.
2 Determine if you are eligible, referring to "Who can buy shares" on the
left.
3 Determine how much you want to invest. The minimum initial investment is
$250,000, unless you invest an aggregate of at least $1 million in any of
the institutional funds or any Class I shares. There is no minimum
investment for plans with at least 350 eligible employees.
4 Complete the appropriate parts of the account application, carefully
following the instructions. You must submit additional documentation when
opening trust, corporate or power of attorney accounts. You must notify
your financial representative or Signature Services if this information
changes. If you have questions or need more details, please contact
Signature Services at 1-800-755-4371.
5 Complete the appropriate parts of the account privileges application. By
applying for privileges now, you can avoid the delay and inconvenience of
having to file an additional application if you want to add privileges
later.
6 Make your initial investment using the table on the next page.
6 YOUR ACCOUNT
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Buying shares
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Opening an account Adding to an account
By check
[Clip Art] o Make out a check for the o Make out a check for the
investment amount, payable to investment amount payable to
"John Hancock Signature "John Hancock Signature
Services, Inc." Services, Inc."
o Mail your check and completed o Fill out the detachable
application to Signature investment slip from an account
Services (address below). statement. If no slip is
available, include a note
specifying the fund name(s),
your account number and the
name(s) in which the account is
registered.
o Mail your check and investment
slip or note to Signature
Services (address below).
By exchange
[Clip Art] o Call Signature Services to o Call Signature Services to
request an exchange. You may request an exchange. You may
only exchange for shares of only exchange for shares of
other institutional funds or other institutional funds or
other Class I shares. other Class I shares.
By wire
[Clip Art] o Mail your completed o Instruct your bank to wire the
application to Signature amount of your investment to:
Services. First Signature Bank & Trust
Account # 900022260
o Obtain your account number by Routing # 211475000
calling Signature Services.
Specify the fund name(s), your
o Instruct your bank to wire the account number and the name(s) in
amount of your investment to: which the account is registered.
First Signature Bank & Trust Your bank may charge a fee to wire
Account # 900022260 funds.
Routing # 211475000
Specify the fund name(s), 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
[Clip Art] See "By wire" and "By exchange." o Verify that your bank or credit
union is a member of the
Automated Clearing House (ACH)
system.
o Complete the "Invest By Phone"
and "Bank Information" sections
on your account application.
o Call Signature Services to
verify that these features are
in place on your account.
o Tell the Signature Services
representative the fund name(s),
your account number, the name(s)
in which the account is
registered and the amount of
your investment.
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Address:
John Hancock Signature Services, Inc.
101 Huntington Avenue
Attn: Participant Service Center
5th Floor
Boston, MA 02199
Phone Number: 1-800-755-4371
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To open or add to an account using the Monthly Automatic Accumulation Program,
see "Additional investor services."
YOUR ACCOUNT 7
<PAGE>
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Selling shares
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Designed for To sell some or all of your shares
By letter
[Clip Art] o Sales of any amount; however, o Write a letter of instruction
sales of $5 million or more indicating the fund name, your
must be made by letter. account number, the name(s) in
which the account is registered
and the dollar value or number
of shares you wish to sell.
o Include all signatures and any
additional documents that may be
required (see next page).
o Mail the materials to Signature
Services.
o 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
[Clip Art] o Sales of up to $5 million. o For automated service 24 hours a
day using your touch-tone phone,
call the EASI-Line at
1-800-597-1897.
o To place your request with a
representative at John Hancock
Funds, call Signature Services
between 8 A.M. and 4 P.M.
Eastern Time on most business
days.
o Redemption proceeds of up to
$100,000 may be sent by wire or
by check. A check will be mailed
to the exact name(s) and address
on the account. Redemption
proceeds exceeding $100,000 must
be wired to your designated bank
account.
By wire or electronic funds transfer (EFT)
[Clip Art] o Requests by letter to sell any o To verify that the telephone
amount. redemption privilege is in place
on an account, or to request the
o Requests by phone to sell up forms to add it to an existing
to $5 million (accounts with account, call Signature
telephone redemption Services.
privileges).
o Amounts of $5 million or more
will be wired on the next
business day.
o Amounts up to $100,000 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
[Clip Art] o Sales of any amount. o Obtain a current prospectus for
the fund into which you are
exchanging by calling Signature
Services.
o Call Signature Services to
request an exchange. You may
only exchange for shares of
other institutional funds or
other Class I shares.
To sell shares through a systematic withdrawal plan, see "Additional investor
services."
8 YOUR ACCOUNT
<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, unless they were previously provided to Signature Services and are
still accurate. These items are 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:
o your address of record has changed within the past 30 days
o you are selling more than $100,000 worth of shares and are requesting
payment by check
o you are selling more than $5 million worth of shares
You will need to obtain your signature guarantee from a member of the Signature
Guarantee Medallion Program. Most brokers and securities dealers are members of
this program. A notary public CANNOT provide a signature guarantee.
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Seller Requirements for written requests
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[Clip Art]
Owners of corporate, sole proprietorship, o Letter of instruction.
general partner or association accounts.
o Corporate business/organization
resolution, certified within the
past 12 months, or a John
Hancock Funds business/
organization certification form.
o On the letter and the
resolution, the signature of the
person(s) authorized to sign for
the account.
o Signature guarantee if
applicable (see above).
Retirement plan or pension trust accounts. o Letter of instruction.
o On the letter, the signature(s)
of the trustee(s).
o Copy of the trust document
certified within the past 12
months or a John Hancock Funds
trust certification form.
o Signature guarantee if
applicable (see above).
Account types not listed above. o Call 1-800-755-4371 for
instructions.
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Address:
John Hancock Signature Services, Inc.
101 Huntington Avenue
Attn: Participant Service Center
5th Floor
Boston, MA 02199
Phone Number: 1-800-755-4371
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YOUR ACCOUNT 9
<PAGE>
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TRANSACTION POLICIES
Valuation of shares The net asset value per share (NAV) for the fund is
determined each business day at the close of regular trading on the New York
Stock Exchange (typically 4 P.M. Eastern Time). The fund uses market prices in
valuing portfolio securities, but may use fair-value estimates if reliable
market prices are unavailable. The fund may also value securities at fair value
if the value of these securities has been materially affected by events occuring
after the close of a foreign market. The fund may trade foreign stock or other
portfolio securities on U.S. holidays and weekends, even though the fund's
shares will not be priced on those days. This may change the fund's NAV on days
when you cannot buy or sell shares.
Buy and sell prices When you buy shares, you pay the NAV. When you sell shares,
you receive the NAV.
Execution of requests The 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 Signature Services receives your
request in good order.
At times of peak activity, it may be difficult to place requests by phone.
During these times, consider using EASI-Line, accessing www.jhfunds.com, 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. Also for your protection, telephone
redemption 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 one institutional fund for shares of any
other institutional fund or other Class I shares. The registration for both
accounts involved must be identical.
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 also refuse any exchange order.
A fund may change or cancel its exchange policies at any time, upon 60 days'
notice to its shareholders.
Certificated shares The funds no longer issue share certificates. Shares are
electronically recorded. Any existing certificated shares can only be sold by
returning the certificated shares to Signature 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 business days after
the purchase.
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DIVIDENDS AND ACCOUNT POLICIES
Account statements In general, you will receive account statements as follows:
o after every transaction (except a dividend reinvestment) that affects your
account balance
o after any changes of name or address of the registered owner(s)
o in all other circumstances, every month
Every year you should also receive, if applicable, a Form 1099 tax information
statement, mailed by January 31.
Dividends The funds declare and pay any income dividends annually. Capital
gains, if any, are distributed annually.
Dividend reinvestments Dividends will be reinvested automatically in additional
shares of the same fund 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.
10 YOUR ACCOUNT
<PAGE>
Taxability of dividends For investors who are not exempt from federal income
taxes, dividends you receive from a fund, whether reinvested or taken as cash,
are generally considered taxable. Dividends from a fund's short-term capital
gains are taxable as ordinary income. Dividends from a fund's long-term capital
gains are taxable at a lower rate. Whether gains are short-term or long-term
depends on the fund's holding period. Some dividends paid in January may be
taxable as if they had been paid the previous December.
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 if you are not exempt from federal income
taxes. 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.
Special investment privilege If you sell your shares as a result of withdrawing
from your retirement plan, you will not be able to withdraw the proceeds and
reinvest them in fund shares. However, you can reinvest in Class A shares of any
John Hancock fund without paying a front-end sales charge. This privilege is
available whether you reinvest into a taxable account or roll the proceeds into
an IRA. If you reinvest in a taxable account, you may be subject to 20% tax
withholding on the amount of your distribution.
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BUSINESS STRUCTURE
The fund's board of trustees oversees the fund's business activities and retains
the services of the various firms that carry out the fund's operations. The
trustees have the power to change the fund's investment goals without
shareholder approval.
The investment adviser John Hancock Advisers, Inc., 101 Huntington Avenue,
Boston, MA 02199-7603.
Management fees For the period ended December 31, 1999, the fund paid the
investment adviser management fees at an annual rate of 0.625% of average net
assets.
YOUR ACCOUNT 11
<PAGE>
For more information
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Two documents are available that offer further information on the John Hancock
Large Cap Value Fund:
Annual/Semiannual Report to Shareholders
Includes financial statements, a discussion of the market conditions and
investment strategies that significantly affected performance, as well as the
auditors' report (in annual report only).
Statement of Additional Information (SAI)
The SAI contains more detailed information on all aspects of the funds. The
current annual report is included in the SAI.
A current SAI has been filed with the Securities and Exchange Commission and is
incorporated by reference into (is legally a part of) this prospectus.
To request a free copy of the current annual/semiannual report or the SAI,
please contact John Hancock:
By mail:
John Hancock Signature Services, Inc.
101 Huntington Avenue
Attn: Participant Service Center
5th floor
Boston, MA 02199
By phone: 1-800-755-4371
By EASI-Line: 1-800-597-1897
By TDD: 1-800-462-0825
On the Internet: www.jhfunds.com
Or you may view or obtain these documents from the SEC:
In person: at the SEC's Public Reference Room in Washington, DC. For access to
the Reference Room call 1-202-942-8090
By mail: Public Reference Section
Securities and Exchange Commission
Washington, DC 20549-0102
(duplicating fee required)
By electronic request:
[email protected]
(duplicating fee required)
On the Internet: www.sec.gov
[LOGO] John Hancock(R)
John Hancock Funds, Inc.
MEMBER NASD
101 Huntington Avenue
Boston, MA 02199-7603
Mutual Funds
Institutional Services
Private Managed Accounts
Retirement Services
Insurance Services
(C)2001 JOHN HANCOCK FUNDS, INC. 501PN 3/01
<PAGE>
JOHN HANCOCK LARGE CAP VALUE FUND
Class I Shares
Statement of Additional Information
March 1, 2001
This Statement of Additional Information provides information about John Hancock
Large Cap Value Fund (the "Fund"), in addition to the Fund's current prospectus
for Class I shares (the "Prospectus"). The Fund is a diversified series of John
Hancock Investment Trust (the "Trust").
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 Signature Services, Inc.
1 John Hancock Way, Suite 1000
Boston, MA 02217-1000
1-800-225-5291
Table of Contents
Page
Organization of the Fund............................................... 2
Investment Objective and Policies...................................... 2
Investment Restrictions................................................ 14
Those Responsible for Management....................................... 16
Investment Advisory and Other Services................................. 21
Distribution Contracts................................................. 23
Sales Compensation..................................................... 23
Net Asset Value........................................................ 24
Special Redemptions.................................................... 24
Description of the Fund's Shares....................................... 25
Tax Status............................................................. 26
Calculation of Performance............................................. 30
Brokerage Allocation................................................... 32
Transfer Agent Services................................................ 34
Custody of Portfolio................................................... 34
Independent Auditors................................................... 34
Appendix A- Description of Investment Risk............................. A-1
Appendix B-Description of Bond Ratings................................. B-1
Financial Statements................................................... F-1
1
<PAGE>
ORGANIZATION OF THE FUND
The Fund is a series of the Trust, an open-end investment management company
organized as a Massachusetts business trust under a Declaration of Trust dated
December 12, 1984. Prior to May 1, 1999, the Fund was called John Hancock Growth
and Income Fund.
John Hancock Advisers, Inc. (the "Adviser") is the Fund's investment adviser.
The Adviser is an indirect, wholly-owned subsidiary of John Hancock Life
Insurance Company (formerly John Hancock Mutual Life Insurance Company)(the
"Life Company"), a Massachusetts life insurance company chartered in 1862, with
national headquarters at John Hancock Place, Boston, Massachusetts. The Life
Company is wholly owned by John Hancock Financial Services, Inc., a Delaware
corporation organized in February, 2000.
INVESTMENT OBJECTIVE AND POLICIES
The following information supplements the discussion of the Fund's investment
objective and policies discussed in the Prospectus. Appendix A contains further
information describing investment risk. The investment objective is
non-fundamental. There is no assurance that the Fund will achieve its investment
objective.
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 seeks to achieve its objective by
allocating its assets between equity and fixed-income securities, including
money market instruments. The Fund is designed primarily, but not exclusively,
for the long-term investor as a base or central investment which may be termed a
"core portfolio." There is no limitation as to the proportion of the Fund's
portfolio which may be invested in any type of security. The Fund does not
intend to concentrate its investments in any particular industry. Depending upon
the judgment of the Adviser as to general market and economic conditions and
other factors, the Fund may emphasize growth-oriented or income-oriented
investments at different times and in varying degrees in pursuit of its
objective.
Under normal circumstances, the Fund invests primarily in stocks. Equity
investments will consist of common and preferred stocks which have yielded their
holders a dividend return within the preceding twelve months and have the
potential to increase dividends in the future; however, non-income producing
securities may be held for anticipated increase in value.
The Fund may invest in U.S. Government and Agency securities, mortgage backed
securities and corporate bonds, notes and other debt securities of any maturity.
In selecting equity securities for the Fund, the Adviser emphasizes issuers
whose equity securities trade at valuation ratios lower than comparable issuers
or the Standard & Poor's Composite Index. Some of the valuation tools used
include price to earnings, price to cash flow and price to sales ratios and
earnings discount models. The Fund's portfolio will also include securities that
the Adviser considers to have the potential for capital appreciation, due to
potential recognition of earnings power or asset value which is not fully
reflected in the securities' current market value. The Adviser attempts to
identify investments which possess characteristics, such as high relative value,
intrinsic value, going concern value, net asset value and replacement book
value, which are believed to limit sustained downside price risk, generally
referred to as the "margin of safety" concept. The Adviser also considers an
issuer's financial strength, competitive position, projected future earnings and
dividends and other investment criteria.
2
<PAGE>
The Fund's investment policy reflects the Adviser's belief that while the
securities markets tend to be efficient, sufficiently persistent price anomalies
exist which the strategically disciplined active equity manager can exploit in
seeking to achieve an above-average rate of return.
Each of the investment practices described in the following 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.
Investment in Foreign Securities. As a matter of non-fundamental policy the Fund
may invest up to 25% (and up to 35% during time of adverse U.S. market
conditions) of its total assets in securities of foreign issuers including
securities in the form of sponsored or unsponsored American Depository Receipts
("ADRs"), European Depository Receipts ("EDRs") or other securities convertible
into securities of foreign issuers. These securities may include debt and equity
securities of corporate and governmental issuers in countries with emerging
economies or securities markets. ADRs are receipts typically issued by an
American bank or trust company which evidence ownership of underlying securities
issued by a foreign corporation. EDRs are receipts issued in Europe which
evidence a similar ownership arrangement. Issuers of unsponsored ADRs are not
contractually obligated to disclose material information, including financial
information, in the United States. Generally, ADRs are designed for use in the
United States securities markets and EDRs are designed for use in European
securities markets.
Foreign Currency Transactions. The Fund's foreign currency transactions may be
conducted on a spot (i.e., cash) basis at the spot rate for purchasing or
selling currency prevailing in the foreign exchange market.
The Fund may also enter into forward foreign currency exchange contracts to
enhance return, to hedge against fluctuations in currency exchange rates
affecting a particular transaction or portfolio position, or as a substitute for
the purchase or sale of a currency or assets denominated in that currency.
Forward contracts are 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 quoted or denominated in
the same or related foreign currencies. Portfolio hedging is the use of forward
foreign currency contracts to offset portfolio security positions denominated or
quoted in the same or related foreign currencies. The Fund may elect to hedge
less than all of its foreign portfolio positions as deemed appropriate by the
Adviser.
If the Fund purchases a forward contract or sells a forward contract for
non-hedging purposes, the Fund 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. The assets in the
segregated account 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 the
amount of the Fund's commitment with respect to such contracts.
Hedging against a decline in the value of a currency does not eliminate
fluctuations in the prices of portfolio securities or prevent losses if the
prices of such securities decline. Such transactions also preclude the
opportunity for gain if the value of the hedged currency 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.
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Risks of Foreign Securities. Investments in foreign securities may involve a
greater degree of risk than those in domestic securities. There is generally
less publicly available information about foreign companies in the form of
reports and ratings similar to those that are published about issuers in the
United States. Also, foreign issuers are generally not subject to uniform
accounting, auditing and financial reporting requirements comparable to those
applicable to United States issuers.
Because foreign securities may be denominated in currencies other than the U.S.
dollar, changes in foreign currency exchange rates will affect the fund's net
asset value, the value of dividends and interest earned, gains and losses
realized on the sale of securities, and any net investment income and gains that
the Fund distributes to shareholders. Securities transactions undertaken in some
foreign markets may not be settled promptly, so that the Fund's investments on
foreign exchanges may be less liquid and subject to the risk of fluctuating
currency exchange rates pending settlement.
Foreign securities will be purchased in the best available market whether
through over-the-counter markets or exchanges located in the countries where
principal offices of the issuers are located. Foreign securities markets are
generally not as developed or efficient as those in the United States. While
growing in volume, they usually have substantially less volume than the New York
Stock Exchange, and securities of some foreign issuers are less liquid and more
volatile than securities of comparable United States issuers. Fixed commissions
on foreign exchanges are generally higher than negotiated commissions on United
States exchanges, although the Fund will endeavor to achieve the most favorable
net results on its portfolio transactions. There is generally less government
supervision and regulation of securities exchanges, brokers and listed issuers
than in the United States.
With respect to certain foreign countries, there is the possibility of adverse
changes in investment or exchange control regulations, expropriation,
nationalization or confiscatory taxation, limitations on the removal of funds or
other assets of the Fund, political or social instability, or diplomatic
developments which could affect United States investments in those countries.
Moreover, individual foreign economies may differ favorably or unfavorably from
the United State's economy in terms of growth of gross national product, rate of
inflation, capital reinvestment, resource self-sufficiently and balance of
payments position.
The dividends in some cases, capital gains and interest payable on certain of
the Fund's foreign portfolio securities may be subject to foreign withholding or
other foreign taxes, thus reducing the net amount of income or gains available
for distribution to the Fund's shareholders.
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
less established markets and economies. Political, legal and economic structure
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
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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.
Ratings as Investment Criteria. In general, the ratings of Moody's Investors
Service, Inc. ("Moody's") and Standard & Poor's Ratings Group ("S&P") represent
opinions of these agencies as to the quality of the securities which they rate.
It should be emphasized, however, that such ratings are relative and subjective
and are not absolute standards of quality. These ratings will be used by the
Fund as initial criteria for the selection of debt securities. Among the factors
which will be considered are the long-term ability of the issuer to pay
principal and interest and general economic trends. Appendix B contains further
information concerning the rating of Moody's and S&P and their significance.
Subsequent to its purchase by the Fund, an issue of securities may cease to be
rated or its rating may be reduced below the minimum required for purchase by
the Fund. Neither of these events will require the sale of the securities by the
Fund.
Lower Rated High Yield "High Risk" Debt Obligations. As a matter of
nonfundamental policy, the Fund may invest up to 15% of its net assets in high
yielding, fixed income instruments below investment grade; that is, securities
rated as low as Ca by Moody's Investors Service, Inc. ("Moody's") or CC by
Standard & Poor's Ratings Group S&P.
Securities rated lower than Baa by Moody's or BBB by Standard & Poor's are
sometimes referred to as junk bonds. 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 Moody's and Standard &
Poor's, such as those ratings described here, may not be changed by Moody's and
Standard & Poor's in a timely fashion to reflect subsequent economic events. The
credit ratings or securities do not reflect an evaluation of market risk. 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 issuer's ability to make payments of interest
and principal. 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 on going debt obligations. The
Adviser seeks to minimize these risks through diversification, investment
analysis and attention to current developments in interest rates and economic
conditions.
Reduced volume and liquidity in the high yield high risk bond market, or the
reduced availability of market quotations, will make it more difficult to
dispose of the bonds and to value accurately 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 high risk bonds. In addition, the
Fund's investment in high yield high risk 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. Increasing rate note securities are typically refinanced by the
issuers within a short period of time. The Fund may invest in pay-in-kind (PIK)
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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 types 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 debt 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.
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.
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Repurchase Agreements. In a repurchase agreement the Fund buy a security for a
relatively short period (usually not more than seven days) subject to the
obligation to sell it back to the issuer at a fixed time and price plus accrued
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 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 decline in value of the underlying securities or lack of access to income
during this period, as well as 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 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. To minimize various risks associated with
reverse repurchase agreements, the Fund will establish and maintain a separate
account consisting of liquid securities, of any type or maturity, an amount at
least equal to the repurchase process of the securities (plus any accrued
interest thereon) under such agreements. The Fund will not enter into reverse
repurchase agreements exceeding in the aggregate 33 1/3% of the market value of
its total net assets. In addition, the Fund will not purchase additional
securities while any borrowings are outstanding. 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
Trustees. Under procedures established by the Trustees, the Adviser will monitor
the creditworthiness of the banks involved.
Restricted Securities. 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 commercial paper issued in
reliance on section 4(2) of the 1933 Act and securities offered and sold to
"qualified institutional buyers" under Rule 144A under the 1933 Act. The Fund
will not invest more than 10% of its net assets in illiquid investments. If the
Trustees determines, based upon a continuing review of the trading markets for
specific section 4(2) paper or Rule 144A securities, that are liquid, they will
not be subject to the 10% limit on illiquid investments. The Trustees have adopt
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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.
Options on Securities, Securities Indices and Currency. The Fund may purchase
and write (sell) call and put options on any securities in which it may invest,
or on any securities index based on securities in which it may invest or any
currency in which Fund investments may be denominated. These options may be
listed on national domestic securities exchanges or foreign securities exchanges
or traded in the over-the-counter market. The Fund may write covered put and
call options and purchase put and call options or securities and securities
indices to enhance total return, as a substitute for the purchase or sale of
securities or currency, or to protect against declines in the value of portfolio
securities and against increases in the cost of securities to be acquired. The
Fund may purchase and write currency options only for hedging purposes.
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 stock options and
options on stock indexes then held by the Fund, exceed 10% of the Fund's total
net assets. In addition, the Fund may not write put options on securities or
securities indices 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.
Writing Covered Options. A call option on securities or currency written by the
Fund obligates the Fund to sell specified securities or currency to the holder
of the option at a specified price if the option is exercised at any time before
the expiration date. A put option on securities or currency written by the Fund
obligates the Fund to purchase specified securities or currency from the option
holder at a specified price if the option is exercised at any time before the
expiration date. Options on securities indices are similar to options on
securities, except that the exercise of securities index options requires cash
settlement payments and does not involve the actual purchase or sale of
securities. In addition, securities index options are designed to reflect price
fluctuations in a group of securities or segment of the securities market rather
than price fluctuations in a single security. Writing covered call options may
deprive the Fund of the opportunity to profit from an increase in the market
price of the securities or foreign currency assets in its portfolio. Writing
covered put options may deprive the Fund of the opportunity to profit from a
decrease in the market price of the securities or foreign currency assets to be
acquired for its portfolio.
The Fund may not write uncovered options. 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 in 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 the exercise price of the call written or (b) greater than the
exercise price of the call written, if the difference is maintained by the Fund
in cash, U.S. Treasury bills or high grade liquid debt obligations in a
segregated account with the Fund's custodian, and (ii) the covering call expires
at the same time as the call written.
The Fund will write put options on indices only if they are covered by
segregating with the Fund's custodian an amount of cash or short-term
investments equal to the aggregate exercise prices of such put options or an
offsetting option. In additional, the Fund will write call options
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on indices only if, on the date on which any such options is written, it holds
securities qualified to serve as "cover" under the applicable rules of national
securities exchanges or maintains in a segregated account an amount of cash or
short-term investments equal to the aggregate exercise price of such call
options with a value at least equal to the value of the index times the
multiplier or an offsetting option.
The Fund may terminate its obligations under an exchange traded call or put
option by purchasing an option identical to the one it has written. Obligations
under over-the-counter options may be terminated only by entering into an
offsetting transaction with the counterparty to such option. Such purchases are
referred to as "closing purchase transactions."
Purchasing Options. The Fund would normally purchase call options in
anticipation of an increase, or put options in anticipation of a decrease
("protective puts") in the market value of securities or currencies of the type
in which it may invest. The Fund may also sell call and put options to close out
its purchased options.
The purchase of a call option would entitle the Fund, in return for the premium
paid, to purchase specified securities or currency at a specified price during
the option period. The Fund would ordinarily realize a gain on the purchase of a
call option if, during the option period, the value of such securities or
currency exceeded the sum of the exercise price, the premium paid and
transaction costs; otherwise the Fund would realize either no gain or a loss on
the purchase of the call option.
The purchase of a put option would entitle the Fund, in exchange for the premium
paid, to sell specified securities or currency at a specified price during the
option period. The purchase of protective puts is designed to offset or hedge
against a decline in the market value of the Fund's portfolio securities or the
currencies in which they are denominated. Put options may also be purchased by
the Fund for the purpose of affirmatively benefiting from a decline in the price
of securities or currencies which it does not own. The Fund would ordinarily
realize a gain if, during the option period, the value of the underlying
securities or currency decreased below the exercise price sufficiently to cover
the premium and transaction costs; otherwise the Fund would realize either no
gain or a loss on the purchase of the put option. Gains and losses on the
purchase of put options may be offset by countervailing changes in the value of
the Fund's portfolio securities.
The Fund's options transactions will be subject to limitations established by
each of the exchanges, boards of trade or other trading facilities on which such
options are traded. These limitations govern the maximum number of options in
each class which may be written or purchased by a single investor or group of
investors acting in concert, regardless of whether the options are written or
purchased on the same or different exchanges, boards of trade or other trading
facilities or are held or written in one or more accounts or through one or more
brokers. Thus, the number of options which the Fund may write or purchase may be
affected by options written or purchased by other investment advisory clients of
the Adviser. An exchange, board of trade or other trading facility may order the
liquidation of positions found to be in excess of these limits, and it may
impose certain other sanctions.
Risks Associated with Options Transactions. There is no assurance that a liquid
secondary market on a domestic or foreign options exchange will exist for any
particular exchange-traded option or at any particular time. If the Fund is
unable to effect a closing purchase transaction with respect to covered options
it has written, the Fund will not be able to sell the underlying securities or
currencies or dispose of assets held in a segregated account until the options
expire or are exercised. Similarly, if the Fund is unable to effect a closing
sale transaction with respect to options it has purchased, it would have to
exercise the options in order to realize any profit and will incur transaction
costs upon the purchase or sale of underlying securities or currencies.
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Reasons for the absence of a liquid secondary market on an exchange include the
following: (i) there may be insufficient trading interest in certain options;
(ii) restrictions may be imposed by an exchange on opening transactions or
closing transactions or both; (iii) trading halts, suspensions or other
restrictions may be imposed with respect to particular classes or series of
options; (iv) unusual or unforeseen circumstances may interrupt normal
operations on an exchange; (v) the facilities of an exchange or the Options
Clearing Corporation may not at all times be adequate to handle current trading
volume; or (vi) one or more exchanges could, for economic or other reasons,
decide or be compelled at some future date to discontinue the trading of options
(or a particular class or series of options), in which event the secondary
market on that exchange (or in that class or series of options) would cease to
exist although outstanding options on that exchange that had been issued by the
Options Clearing Corporation as a result of trades on that exchange would
continue to be exercisable in accordance with their terms.
The Fund's ability to terminate over-the-counter options is more limited than
with exchange-traded options and may involve the risk that broker-dealers
participating in such transactions will not fulfill their obligations. The
Adviser will determine the liquidity of each over-the-counter option in
accordance with guidelines adopted by the Trustees. In addition, the Fund will
acquire only those OTC options for which management believes the Fund can
receive on each business day two separate bids or offers (one of which will be
from an entity other than a party to the option) or those options valued by an
independent pricing service. Each 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 writing and purchase of options is a highly specialized activity which
involves investment techniques and risks different from those associated with
ordinary portfolio securities transactions. The successful use of options
depends in part on the Adviser's ability to predict future price fluctuations
and, for hedging transactions, the degree of correlation between the options and
securities or currency markets.
Futures Contracts and Options on Futures Contracts. To seek to increase total
return or hedge against changes in interest rates, securities prices or currency
exchange rates, the Fund may purchase and sell various kinds of futures
contracts, and purchase and write call and put options on these futures
contracts. The Fund may also enter into closing purchase and sale transactions
with respect to any of these contracts and options. The futures contracts may be
based on various securities (such as U.S. Government securities), securities
indices, foreign currencies and any other financial instruments and indices. All
futures contracts entered into by the Fund are traded on U.S. or foreign
exchanges or boards of trade that are licensed, regulated or approved by the
Commodity Futures Trading Commission ("CFTC").
Futures Contracts. A futures contract may generally be described as an agreement
between two parties to buy and sell particular financial instruments or
currencies for an agreed price during a designated month (or to deliver the
final cash settlement price, in the case of a contract relating to an index or
otherwise not calling for physical delivery at the end of trading in the
contract).
Positions taken in the futures markets are not normally held to maturity but are
instead liquidated through offsetting transactions which may result in a profit
or a loss. While futures contracts on securities or currency will usually be
liquidated in this manner, the Fund may instead make, or take, delivery of the
underlying securities or currency whenever it appears economically advantageous
to do so. A clearing corporation associated with the exchange on which futures
contracts are traded guarantees that, if still open, the sale or purchase will
be performed on the settlement date.
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Hedging and Other Strategies. Hedging is an attempt to establish with more
certainty than would otherwise be possible the effective price or rate of return
on portfolio securities or securities that the Fund proposes to acquire or the
exchange rate of currencies in which portfolio securities are quoted or
denominated. When securities prices are falling, the Fund can seek to offset a
decline in the value of its current portfolio securities through the sale of
futures contracts. When securities prices are rising, the Fund, through the
purchase of futures contracts, can attempt to secure better rates or prices than
might later be available in the market when it effects anticipated purchases.
The Fund may seek to offset anticipated changes in the value of a currency in
which its portfolio securities, or securities that it intends to purchase, are
quoted or denominated by purchasing and selling futures contracts on such
currencies.
The Fund may, for example, take a "short" position in the futures market by
selling futures contracts in an attempt to hedge against an anticipated decline
in market prices or foreign currency rates that would adversely affect the
dollar value of the Fund's portfolio securities. Such futures contracts may
include contracts for the future delivery of securities held by the Fund or
securities with characteristics similar to those of the Fund's portfolio
securities. Similarly, the Fund may sell futures contracts on any currencies in
which its portfolio securities are quoted or denominated or in one currency to
hedge against fluctuations in the value of securities denominated in a different
currency if there is an established historical pattern of correlation between
the two currencies.
If, in the opinion of the Adviser, there is a sufficient degree of correlation
between price trends for the Fund's portfolio securities and futures contracts
based on other financial instruments, securities indices or other indices, the
Fund may also enter into such futures contracts as part of its hedging strategy.
Although under some circumstances prices of securities in the Fund's portfolio
may be more or less volatile than prices of such futures contracts, the Adviser
will attempt to estimate the extent of this volatility difference based on
historical patterns and compensate for any differential by having the Fund enter
into a greater or lesser number of futures contracts or by attempting to achieve
only a partial hedge against price changes affecting the Fund's portfolio
securities.
When a short hedging position is successful, any depreciation in the value of
portfolio securities will be substantially offset by appreciation in the value
of the futures position. On the other hand, any unanticipated appreciation in
the value of the Fund's portfolio securities would be substantially offset by a
decline in the value of the futures position.
On other occasions, the Fund may take a "long" position by purchasing futures
contracts. This would be done, for example, when the Fund anticipates the
subsequent purchase of particular securities when it has the necessary cash, but
expects the prices or currency exchange rates then available in the applicable
market to be less favorable than prices that are currently available. The Fund
may also purchase futures contracts as a substitute for transactions in
securities or foreign currency, to alter the investment characteristics of or
currency exposure associated with portfolio securities or to gain or increase
its exposure to a particular securities market or currency.
Options on Futures Contracts. The Fund may purchase and write options on futures
for the same purposes as its transactions in futures contracts. The purchase of
put and call options on futures contracts will give the Fund the right (but not
the obligation) for a specified price to sell or to purchase, respectively, the
underlying futures contract at any time during the option period. As the
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<PAGE>
purchaser of an option on a futures contract, the Fund obtains the benefit of
the futures position if prices move in a favorable direction but limits its risk
of loss in the event of an unfavorable price movement to the loss of the premium
and transaction costs.
The writing of a call option on a futures contract generates a premium which may
partially offset a decline in the value of the Fund's assets. By writing a call
option, the Fund becomes obligated, in exchange for the premium (upon exercise
of the option) to sell a futures contract if the option is exercised, which may
have a value higher than the exercise price. Conversely, the writing of a put
option on a futures contract generates a premium which may partially offset an
increase in the price of securities that the Fund intends to purchase. However,
the Fund becomes obligated (upon exercise of the option) to purchase a futures
contract if the option is exercised, which may have a value lower than the
exercise price. The loss incurred by the Fund in writing options on futures is
potentially unlimited and may exceed the amount of the premium received.
The holder or writer of an option on a futures contract may terminate its
position by selling or purchasing an offsetting option of the same series. There
is no guarantee that such closing transactions can be effected. The Fund's
ability to establish and close out positions on such options will be subject to
the development and maintenance of a liquid market.
Other Considerations. The Fund will engage in futures and related options
transactions either for bona fide hedging purposes or to seek to increase total
return as permitted by the CFTC. To the extent that the Fund is using futures
and related options for hedging purposes, futures contracts will be sold to
protect against a decline in the price of securities (or the currency in which
they are quoted or denominated) that the Fund owns or futures contracts will be
purchased to protect the Fund against an increase in the price of securities (or
the currency in which they are quoted or denominated) it intends to purchase.
The Fund will determine that the price fluctuations in the futures contracts and
options on futures used for hedging purposes are substantially related to price
fluctuations in securities held by the Fund or securities or instruments which
it expects to purchase. As evidence of its hedging intent, the Fund expects that
on 75% or more of the occasions on which it takes a long futures or option
position (involving the purchase of futures contracts), the Fund will have
purchased, or will be in the process of purchasing, equivalent amounts of
related securities (or assets denominated in the related currency) in the cash
market at the time when the futures or option position is closed out. However,
in particular cases, when it is economically advantageous for the Fund to do so,
a long futures position may be terminated or an option may expire without the
corresponding purchase of securities or other assets.
To the extent that the Fund engages in nonhedging transactions in futures
contracts and options on futures, the aggregate initial margin and premiums
required to establish these nonhedging positions will not exceed 5% of the net
asset value of the Fund's portfolio, after taking into account unrealized
profits and losses on any such positions and excluding the amount by which such
options were in-the-money at the time of purchase.
Transactions in futures contracts and options on futures involve brokerage
costs, require margin deposits and, in the case of contracts and options
obligating the Fund to purchase securities or currencies, require the Fund to
establish a segregated account consisting of cash or liquid securities in an
amount equal to the underlying value of such contracts and options.
While transactions in futures contracts and options on futures may reduce
certain risks, these transactions themselves entail certain other risks. For
example, unanticipated changes in interest rates, securities prices or currency
exchange rates may result in a poorer overall performance for the Fund than if
it had not entered into any futures contracts or options transactions.
12
<PAGE>
Perfect correlation between the Fund's futures positions and portfolio positions
will be impossible to achieve. In the event of an imperfect correlation between
a futures position and a portfolio position which is intended to be protected,
the desired protection may not be obtained and the Fund may be exposed to risk
of loss. In addition, it is not possible to hedge fully or protect against
currency fluctuations affecting the value of securities denominated in foreign
currencies because the value of such securities is likely to fluctuate as a
result of independent factors not related to currency fluctuations.
Some futures contracts or options on futures may become illiquid under adverse
market conditions. In addition, during periods of market volatility, a commodity
exchange may suspend or limit trading in a futures contract or related option,
which may make the instrument temporarily illiquid and difficult to price.
Commodity exchanges may also establish daily limits on the amount that the price
of a futures contract or related option can vary from the previous day's
settlement price. Once the daily limit is reached, no trades may be made that
day at a price beyond the limit. This may prevent the Fund from closing out
positions and limiting its losses.
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. The
Fund may not lend portfolio securities having a total value exceeding 33% of its
total assets.
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, subject to the Fund's Investment
Restrictions. 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 increase 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. 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 rights or warrants which is
not listed on the New York or American Stock Exchange of the purchase would
result in the Fund's only unlisted warrants on an amount exceed of 2% of its net
assets.
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.
13
<PAGE>
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 securities, of any type or maturity, 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.
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 greater brokerage expenses. The Fund's
portfolio turnover rate is set forth in the table under the caption "Financial
Highlights" in the Prospectus.
INVESTMENT RESTRICTIONS
Fundamental Investment Restrictions. The following investment restrictions will
not be changed without the approval of a majority of the Fund's outstanding
voting securities which, as used in the Prospectus and this Statement of
Additional Information means the approval by the lesser of (1) the holders of
67% or more of the Fund's shares represented at a meeting by more than 50% of
the Fund's outstanding shares are present in person or by proxy at that meeting
or (2) more than 50% of the Fund's outstanding shares.
The Fund may not:
1. Invest in real estate (including interests in real estate
investment trusts).
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. Invest in commodities or in commodity contracts or in puts,
calls, or combinations of both except options on securities,
securities indices, currency and other financial instruments,
futures contracts on securities, securities indices, currency
and other financial instruments, options on such futures
contracts, forward commitments, forward foreign currency
exchange contracts, interest rate or currency swaps,
securities index put or call warrants and repurchase
agreements entered into in accordance with the Fund's
investment policies.
14
<PAGE>
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. Buy securities on margin or sell short.
6. 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.
7. 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. 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 total assets.
8. 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
"Investment Objectives and Policies" 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.
9. 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.
10. 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.
11. 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).
12. Purchase more than 10% of the voting securities of any class
of securities of any one issuer.
15
<PAGE>
Nonfundamental Investment Restriction. The following restrictions are designated
as nonfundamental and may be changed by the Trustees without the shareholder
approval.
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.
The fund may not purchase securities while outstanding borrowings exceed 5% of
the fund's total assets.
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.
The Fund will invest only in countries on the Adviser's Approved Country
Listing.
THOSE RESPONSIBLE FOR MANAGEMENT
The business of the Fund is managed by the 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 Fund's Adviser and/or Subadviser, or officers
and/or directors of the Fund's principal distributor, John Hancock Funds, Inc.
("John Hancock Funds").
16
<PAGE>
<TABLE>
<CAPTION>
Positions Held Principal Occupation(s)
Name and Address With the Company During the Past Five Years
---------------- ---------------- --------------------------
<S> <C> <C>
Stephen L. Brown* Trustee and Chairman Chairman and Director, John Hancock
John Hancock Place Life Insurance Company (CEO until
P.O. Box 111 June 2000), John Hancock Financial
Boston, MA 02117 Services, Inc. (CEO until June
July 1937 2000); John Hancock Advisers, Inc.
(the Adviser), John Hancock Funds,
Inc. (John Hancock Funds), The
Berkeley Financial Group, Inc. (The
Berkeley Group); Director, John
Hancock Subsidiaries, Inc.; John
Hancock Signature Services, Inc.
(Signature Services) (until January
1997); John Hancock Insurance
Agency, Inc.; (Insurance Agency),
(until May 1999); Independence
Investment Associates, Inc.,
Independence International
Associates, Inc,, Independence
Fixed Income Associates, Inc.;
Insurance Marketplace Standards
Association, Committee for Economic
Development, Ionics, Inc. (since
June 2000), Aspen Technology, Inc.
(since June 2000), Jobs for
Massachusetts, Federal Reserve Bank
of Boston (until March 1999);
Financial Institutions Center
(until May 1996), Freedom Trail
Foundation (until December 1996)
Beth Israel Hospital and
Corporation (until November 1996);
Director and Member (Beth
Israel/Deaconess Care Group),
Member, Commercial Club of Boston,
President (until April 1996);
Trustee, Wang Center for the
Performing Arts, Alfred P. Sloan
Foundation, John Hancock Asset
Management (until March 1997);
Member, Boston Compact Committee,
Mass. Capital Resource Company;
Chairman, Boston Coordinating
Committee ("The Vault") (until
April 1997).
Maureen R. Ford * Trustee, Vice Chairman, President, Broker/Dealer
101 Huntington Avenue President and Chief Distributor, John Hancock Life
Boston, MA 02199 Executive Officer (1,2) Insurance Company; Vice Chairman,
December 1953 Director, President and Chief
Executive Officer, the Adviser and
The Berkeley Group; Vice Chairman,
Director and Chief Executive
Officer, John Hancock Funds;
Chairman, Director and President,
Insurance Agency, Inc.; Chairman,
Director and Chief Executive
Officer, Sovereign Asset Management
Corporation (SAMCorp.); Senior Vice
President, MassMutual Insurance Co.
(until 1999); Senior Vice
President, Connecticut Mutual
Insurance Co. (until 1996).
-------------------
* Trustee may be deemed to be an "interested person" of the Fund as defined in
the Investment Company Act of 1940.
(1) 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.
17
<PAGE>
Positions Held Principal Occupation(s)
Name and Address With the Company During the Past Five Years
---------------- ---------------- --------------------------
<S> <C> <C>
James F. Carlin Trustee Chairman and CEO, Carlin
101 Huntington Avenue Consolidated, Inc.
Boston, MA 02199 (management/investments); Director,
April 1940 Arbella Mutual (insurance), Health
Plan Services, Inc., Massachusetts
Health and Education Tax Exempt
Trust, Flagship Healthcare, Inc.,
Carlin Insurance Agency, Inc., West
Insurance Agency, Inc. (until May
1995), Uno Restaurant Corp.;
Chairman, Massachusetts Board of
Higher Education (until July 1999).
William H. Cunningham Trustee Chancellor, University of Texas
101 Huntington Avenue System and former President of the
Boston, MA 02199 University of Texas, Austin, Texas;
January 1944 Lee Hage and Joseph D. Jamail
Regents Chair of Free Enterprise;
Director, LaQuinta Motor Inns, Inc.
(hotel management company)
(1985-1998); Jefferson-Pilot
Corporation (diversified life
insurance company) and LBJ
Foundation Board (education
foundation); Advisory Director,
Chase Bank (formerly Texas Commerce
Bank - Austin).
Ronald R. Dion Trustee Chairman and Chief Executive
101 Huntington Avenue Officer, R.M. Bradley & Co., Inc.;
Boston, MA 02199 Director, The New England Council
March 1946 and Massachusetts Roundtable;
Trustee, North Shore Medical
Center, Director, BJ's Wholesale
Club, Inc. and a corporator of the
Eastern Bank; Trustee, Emmanuel
College.
Charles L. Ladner Trustee Chairman and Trustee, DunWoody
101 Huntington Avenue Village, Inc.; Senior Vice
Boston, MA 02199 President and Chief Financial
February 1938 Officer, UGI Corporation (Public
Utility Holding Company) (retired
1998); Vice President and Director
for AmeriGas, Inc. (retired 1998);
Vice President of AmeriGas
Partners, L.P. (until 1997);
Director, EnergyNorth, Inc. (until
1995).
-------------------
* Trustee may be deemed to be an "interested person" of the Fund as defined in
the Investment Company Act of 1940.
(1) 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.
18
<PAGE>
Positions Held Principal Occupation(s)
Name and Address With the Company During the Past Five Years
---------------- ---------------- --------------------------
<S> <C> <C>
Steven R. Pruchansky Trustee (1) Chief Executive Officer, Mast
101 Huntington Avenue Holdings, Inc. (since June 1, 2000)
Boston, MA 02199 Director and President, Mast
August 1944 Holdings, Inc. (until May 31,
2000); Director, First Signature
Bank & Trust Company (until August
1991); Director, Mast Realty Trust
(until 1994); President, Maxwell
Building Corp. (until 1991).
Norman H. Smith Trustee Lieutenant General, United States
101 Huntington Avenue Marine Corps; Deputy Chief of Staff
Boston, MA 02199 for Manpower and Reserve Affairs,
March 1933 Headquarters Marine Corps;
Commanding General III Marine
Expeditionary Force/3rd Marine
Division (retired 1991).
John P. Toolan Trustee Director, The Smith Barney Muni
101 Huntington Avenue Bond Funds, The Smith Barney
Boston, MA 02199 Tax-Free Money Funds, 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 December,
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).
-------------------
* Trustee may be deemed to be an "interested person" of the Fund as defined in
the Investment Company Act of 1940.
(1) 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.
19
<PAGE>
Positions Held Principal Occupation(s)
Name and Address With the Company During the Past Five Years
---------------- ---------------- --------------------------
<S> <C> <C>
William L. Braman Executive Vice President Executive Vice President and Chief
101 Huntington Avenue and Chief Investment Investment Officer, each of the
Boston, MA 02199 Officer (2) John Hancock Funds; Executive Vice
December 1953 President and Chief Investment
Officer, Barring Asset Management,
London UK (until May 2000).
Susan S. Newton Vice President, Secretary Vice President and Chief Legal
101 Huntington Avenue and Chief Legal Officer Officer the Adviser; John Hancock
Boston, MA 02199 Funds; Vice President, Signature
March 1950 Services (until May 2000), The
Berkeley Group, NM Capital and
SAMCorp.
James J. Stokowski Vice President, Treasurer Vice President, the Adviser.
101 Huntington Avenue and Chief Accounting
Boston, MA 02199 Officer
November 1946
Thomas H. Connors Vice President and Vice President and Compliance
101 Huntington Avenue Compliance Officer Officer, the Adviser; Vice
Boston, MA 02199 President, John Hancock Funds.
September 1959
-------------------
* Trustee may be deemed to be an "interested person" of the Fund as defined in
the Investment Company Act of 1940.
(1) 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.
</TABLE>
The following table provides information regarding the compensation paid by the
Fund and other investment companies in the John Hancock Fund Complex to the
Independent Trustees for their services. Messrs. Brown and Ms. Ford, each a
non-Independent Trustee, and each of the officers of the Fund are interested
persons of the Adviser, and/or affiliates are compensated by the Adviser and
receive no compensation from the Fund for their services.
Total Compensation
Aggregate from all Funds in
Compensation John Hancock Fund Complex
Trustees from the Fund(1) to Trustees (2)
-------- ---------------- -------------------------
James F. Carlin $ 5,899 $ 72,600
William H. Cunningham* 5,899 72,250
Ronald R. Dion* 5,899 72,350
Harold R. Hiser, Jr.* (3) 5,580 68,450
Charles L. Ladner 6,168 75,450
Leo E. Linbeck, Jr.(3) 5,553 68,100
Steven R. Pruchansky* 6,160 75,350
Norman H. Smith* 6,420 78,500
John P. Toolan* 6,160 75,600
--------- ---------
Total $53,738 $658,650
20
<PAGE>
(1) Compensation is for fiscal period ended December 31, 1999.
(2) Total compensation paid by the John Hancock Fund Complex to the
Independent Trustees is for the calendar year ended December 31,
1999. As of that date, there were sixty-five funds in the John
Hancock Fund Complex, with each of these Independent Trustees
serving on thirty-four funds.
(3) Effective December 31, 1999, Messrs. Hiser and Linbeck resigned as
Trustees of the Complex.
(*) As of December 31, 1999 the value of the aggregate accrued deferred
compensation from all Funds in the John Hancock fund complex for
Mr. Cunningham was $440,889, for Mr. Dion was $38,687, for Mr.
Hiser was $166,368, for Ms. McCarter was $208,971 (resigned as of
October 1, 1998), for Mr. Pruchansky was $125,714, for Mr. Smith
was $149,232 and for Mr. Toolan was $607,294 under the John Hancock
Deferred Compensation Plan for Independent Trustees (the "Plan").
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 officers and Trustees of the Fund as a group beneficially owned less than 1%
of the outstanding shares of the Fund and no shareholders of record beneficially
owned 5% or more of the outstanding shares of the Fund.
INVESTMENT ADVISORY AND OTHER SERVICES
The Adviser, located at 101 Huntington Avenue, Boston, Massachusetts 02199-7603,
was organized in 1968 and has more than $30 billion in assets under management
in its capacity as investment adviser to the Fund and other funds in the John
Hancock group of funds, as well as retail and institutional privately managed
accounts. 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 $100 billion, the Life Company is one of the ten
largest life insurance companies in the United States, and carries a high rating
from Standard & Poor's and A.M. Best. Founded in 1862, the Life Company has been
serving clients for over 130 years. The Fund is managed by Timothy E. Quinlisk,
CFA. Mr. Quinlisk is a Senior Vice President of the Adviser and has managed the
Fund since 1998 except between January and March 2000.
The Fund has entered into an investment management contract (the "Advisory
Agreement") with the Adviser, which was approved by the Fund's shareholders.
Pursuant to the Advisory Agreement, the Adviser will: (a) furnish continuously
an investment program for the Fund and determine, subject to the overall
supervision and review of the Trustees, which investments should be purchased,
held sold or exchanged and (b) provide supervision over all aspects of the
Fund's operations except those which are delegated to a custodian, transfer
agent or other agent.
The Fund bears all costs of its organization and operation, including but not
limited to expenses of preparing, printing and mailing all shareholders'
reports, notices, prospectuses, proxy statements and reports to regulatory
agencies; expenses relating to the issuance, registration and qualification of
shares; government fees; interest charges; expenses of furnishing to
shareholders their account statements; taxes; expenses of redeeming shares;
brokerage and other expenses connected with the execution of portfolio
securities transactions; expenses pursuant to the Fund's plan of distribution;
fees and expenses of custodian including those for keeping books and accounts
21
<PAGE>
maintaining a committed line of credit and calculating the net asset value of
shares; fees and expenses of transfer agents and dividend disbursing agents;
legal, accounting, financial, management, tax and auditing fees and expenses of
the Fund (including an allocable portion of the cost of the Adviser's employees
rendering such services to the Fund; the compensation and expenses of trustees
who are not otherwise affiliated with the Trust, the Adviser or any of their
affiliates; expenses of Trustees' and shareholders' meetings; trade association
memberships; insurance premiums; and any extraordinary expenses.
As compensation for its services under the Advisory Agreement, the Fund pays the
Adviser monthly a fee based on a stated percentage of the average daily net
assets, equal on an annual basis to 0.625% 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 daily net assets.
The Adviser retains the right to reimpose 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.
For the period from September 1, 1996 to December 31, 1996, and for the fiscal
year ended December 31, 1997, the advisory fee paid by the Fund to the Adviser
amounted to $616,603 and $2,735,337, respectively. For the year ended December
31, 1998, the advisory fee paid by the Fund to the Adviser amounted to
$5,265,071, of which $150,000 was waived. For the year ended December 31, 1999,
the advisory fee paid by the Fund to the Adviser amounted to $6,705,736.
Securities held by the Fund may also be held by other funds or investment
advisory clients for which the Adviser or its affiliates provide investment
advice. Because of different investment objectives or other factors, a
particular security may be bought for one or more funds or clients when one or
more are selling the same security. If opportunities for purchase or sale of
securities by the Adviser or for other funds or clients for which the Adviser
renders investment advice arise for consideration at or about the same time,
transactions in such securities will be made, insofar as feasible, for the
respective funds or clients in a manner deemed equitable to all of them. To the
extent that transactions on behalf of more than one client of the Adviser or its
affiliates may increase the demand for securities being purchased or the supply
of securities being sold, there may be an adverse effect on price.
Pursuant to the Advisory Agreement, 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 Advisory
Agreement, 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 Advisory
Agreement.
Under the Advisory Agreement, the Fund may use the name "John Hancock" or any
name derived from or similar to it only for so long as the Advisory Agreement or
any extension, renewal or amendment thereof remains in effect. If the Fund's
Advisory Agreement 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.
22
<PAGE>
The continuation of the Advisory Agreement and Distribution Agreement (discussed
below) was last approved by all of the Trustees. The Advisory Agreement, and the
Distribution Agreement will continue in effect from year to year, provided that
its continuance is approved annually both (I) by the holders of a majority of
the outstanding voting securities of the Trust or by the Trustees, and (ii) by a
majority of the Trustees who are no parties to the Agreement or "interested
persons" of any such parties. Both agreements may be terminated on 60 days
written notice by any party or by a vote of a majority of the outstanding voting
securities of the Fund and will terminate automatically if assigned.
Accounting and Legal Services Agreement. The Trust, on behalf of the Fund, is a
party to an Accounting and Legal Services Agreement with the Adviser. Pursuant
to this Agreement, the Adviser provides the Fund with certain tax, accounting
and legal services. For the fiscal year ended December 31, 1997, 1998 and 1999,
the Fund paid the Adviser $79,241, $134,234 and $19,215, respectively, for
services under this Agreement.
Personnel of the Adviser and its affiliates may trade securities for their
personal accounts. The Fund also may hold, or may be buying or selling, the same
securities. To prevent the Fund from being disadvantaged, the adviser and its
affiliates and the Fund have adopted a code of ethics which restricts the
trading activity of those personnel.
DISTRIBUTION CONTRACT
The Fund has a Distribution Agreement with John Hancock Funds. Under the
Agreement, John Hancock Funds is obligated to use its best efforts to sell
shares of each 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. These Selling Brokers are authorized to designate other
intermediaries to receive purchase and redemption orders on behalf of the Fund.
John Hancock Funds accepts orders for the purchase of the shares of the Funds
which are continually offered at net asset value next determined.
SALES COMPENSATION
As part of its business strategy, John Hancock Funds may pay compensation to
financial services firms that sell the Fund's shares. These firms typically pass
along a portion of this compensation to your financial representative.
John Hancock Funds may make a one-time payment at the time of initial purchase
out of its own resources to a Selling Broker who sells shares of the Fund. This
payment may not exceed 0.15% of the amount invested.
In addition, from time to time, John Hancock Funds, at its expense, may provide
significant additional compensation to financial services firms which sell or
arrange for the sale of shares of the Fund. Such compensation provided by John
Hancock Funds may include, for example, financial assistance to financial
services firms in connection with their conferences or seminars, sales or
training programs for invited registered representatives and other employees,
payment for travel expenses, including lodging, incurred by registered
representatives and other employees for such seminars or training programs,
seminars for the public, advertising and sales campaigns regarding one or more
Funds, and/or other financial services firms-sponsored events or activities.
Other compensation, such as asset retention fees, finder's fees and
reimbursement for wire transfer fees, may be offered to the extent not
prohibited by law or any self-regulatory agency, such as the NASD.
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<PAGE>
NET ASSET VALUE
For purposes of calculating the net asset value ("NAV") of the Fund's shares,
the following procedures are utilized wherever applicable.
Debt investment securities are valued on the basis of valuations furnished by a
principal market maker or a pricing service, both of which generally utilize
electronic data processing techniques to determine valuations for normal
institutional size trading units of debt securities without exclusive reliance
upon quoted prices.
Equity securities traded on a principal exchange or NASDAQ National Market
Issues are generally valued at last sale price on the day of valuation.
Securities in the aforementioned category for which no sales are reported and
other securities traded over-the-counter are generally valued at the mean
between the current closing bid and asked prices.
Short-term debt investments which have a remaining maturity of 60 days or less
are generally valued at amortized cost which approximates market value. If
market quotations are not readily available or if in the opinion of the Adviser
any quotation or price is not representative of true market value, the fair
value of the security may be determined in good faith in accordance with
procedures approved by the Trustees.
Foreign securities are valued on the basis of quotations from the primary market
in which they are traded. Any assets or liabilities expressed in terms of
foreign currencies are translated into U.S. dollars by the 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. If quotations
are not readily available , or the value has been materially affected by the
events occurring after closing of a foreign market, assets are valued by a
method that the Trustees believe accurately reflects fair value.
The NAV for each fund and class is determined each business day at the close of
regular trading on the New York Stock Exchange (typically 4:00 p.m. Eastern
Time) by dividing a class's net assets by the number of its shares outstanding.
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.
SPECIAL REDEMPTIONS
Although the Funds would not normally do so, each Fund has the right to pay the
redemption price of shares of the Fund in whole or in part in portfolio
securities as prescribed by the Trustees. When the shareholder sells portfolio
securities received in this fashion, the shareholder will 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. Each Fund has,
however, elected to be governed by Rule 18f-1 under the Investment Company Act.
Under that rule, each 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 that period.
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DESCRIPTION OF THE FUND'S SHARES
The Trustees of the Trust are responsible for the management and supervision of
the Fund. The Declaration of Trust permits the Trustees to issue an unlimited
number of full and fractional shares of beneficial interest of the Fund, without
par value. Under the Declaration of Trust, the Trustees have the authority to
create and classify shares of beneficial interest in separate series and
classes, without further action by shareholders. As of the date of this
Statement of Additional Information, the Trustees have authorized shares of the
Fund and one other series. The Trustees have authorized the issuance of three
classes of shares of the Fund, designated as Class A, Class , Class C and Class
I.
The shares of each class of the Fund represent an equal proportionate interest
in the aggregate net assets attributable to that class of the Fund. Holders of
each class of shares have certain exclusive voting rights on matters relating to
their respective distribution plans. 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 each class will be borne exclusively
by that class; (ii) Class B and Class C shares will pay higher distribution and
service fees than Class A shares; and (iii) each class of shares will bear any
class expenses properly allocable to that class of shares, subject to the
conditions the Internal Revenue Service imposes with respect to the
multiple-class structures. Similarly, the net asset value per share may vary
depending on which class of shares are purchased. No interest will be paid on
uncashed dividend or redemption checks.
In the event of liquidation, shareholders of each class are entitled to share
pro rata in the net assets of the Fund available for distribution to these
shareholders. Shares entitle their holders to one vote per share, are freely
transferable and have no preemptive, subscription or conversion rights. When
issued shares are fully paid and non-assessable, except as set forth below.
Unless otherwise required by the Investment Company Act or the Declaration of
Trust, the Fund has no intention of holding annual meetings of shareholders.
Fund shareholders may remove a Trustee by the affirmative vote of at least
two-thirds of the Trust's outstanding shares and the Trustees shall promptly
call a meeting for such purpose when requested to do so in writing by the record
holders of not less than 10% of the outstanding shares of the Trust.
Shareholders may, under certain circumstances, communicate with other
shareholders in connection with a request for a special meeting of shareholders.
However, at any time that less than a majority of the Trustees holding office
were elected by the shareholders, the Trustees will call a special meeting of
shareholders for the purpose of electing Trustees.
Under Massachusetts law, shareholders of a Massachusetts business Trust could
under certain circumstances, be held personally liable for acts or obligations
of the Trust. However, 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. Furthermore, no Fund included in this Fund's prospectus shall be liable
for the liabilities of any other John Hancock fund. 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.
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<PAGE>
The Fund reserves the right to reject any application which conflicts with the
Fund's internal policies or the policies of any regulatory authority. John
Hancock Funds does not accept starter, credit card or third party checks. All
checks returned by the post office as undeliverable will be reinvested at net
asset value in the fund or funds from which a redemption was made or dividend
paid. Information provided on the account application may be used by the Fund to
verify the accuracy of the information or for background or financial history
purposes. A joint account will be administered as a joint tenancy with right of
survivorship, unless the joint owners notify Signature Services of a different
intent. A shareholder's account is governed by the laws of The Commonwealth of
Massachusetts. For telephone transactions, the transfer agent 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 taken, the transfer agent is not responsible for any
loss 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.
Selling activities for the Fund may not take place outside the U.S. except with
U.S. military bases, APO addresses and U.S. diplomats. Brokers of record on
Non-U.S. investors' accounts with foreign mailing addresses are required to
certify that all sales activities have occurred, and in the future will occur,
only in the U.S. A foreign corporation may purchase shares of the Fund only if
it has a U.S. mailing address.
TAX STATUS
The Fund, is treated as a separate entity for accounting and tax purposes has
qualified as a "regulated investment company" under Subchapter M of the Internal
Revenue Code of 1986, as amended (the "Code"), and intends to continue to so
qualify in each taxable year. 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 realized
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
26
<PAGE>
short-term capital loss, and investment company taxable income is all taxable
income and capital gains, other than those gains and losses included in
computing net capital gain, after reduction by deductible expenses.) Some
distributions 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 invests in stock (including an option to acquire stock such as is
inherent in a convertible bond) of certain foreign corporations that receive at
least 75% of their annual gross income from passive sources (such as interest,
dividends certain rents and 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.
These investments could also result in the treatment of associated capital gains
as ordinary income. The Fund would not be able to pass through to its
shareholders any credit or deduction for such a tax. An election may be
available to 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 or make an available election 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. Transactions in foreign
currencies that are not directly related to the Fund's investment in stock or
securities, including speculative currency positions, 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, 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. Some 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 realized capital gains, if any, in any given year will
vary depending upon the Adviser's current investment strategy and whether the
Adviser believes it to be in the best interest of the Fund to dispose of
portfolio securities and/or engage in options, futures or forward 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.
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<PAGE>
Upon a redemption or other disposition of shares of the Fund (including by
exercise of the exchange privilege) in a transaction that is treated as a sale
for tax purposes, 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 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. This 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 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. Shareholders should consult their own tax advisers
regarding their particular circumstances to determine whether a disposition of
Fund shares is properly treated as a sale for tax purposes, as is assumed in the
foregoing discussion.
Although its present intention is to distribute, at least annually, all net
capital gain, if any, the Fund reserves the right to retain and reinvest all or
any portion of the excess, as computed for Federal income tax purposes, of net
long-term capital gain over net short-term capital loss in any year. The Fund
will not in any event distribute net capital gain realized in any year to the
extent that a capital loss is carried forward from prior years against such
gain. To the extent such excess was retained and not exhausted by the
carryforward of prior years' capital losses, it would be subject to Federal
income tax in the hands of the Fund. Upon proper designation of this amount by
the Fund, each shareholder would be treated for Federal income tax purposes as
if the Fund had distributed to him on the last day of its taxable year his pro
rata share of such excess, and he had paid his pro rata share of the taxes paid
by the Fund and reinvested the remainder in the Fund. Accordingly, each
shareholder would (a) include his pro rata share of such excess as 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
realized 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. Presently, there are no realized capital loss carry
forwards available to offset 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) during a prescribed period extending before and after each
dividend 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
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<PAGE>
the Fund for each dividend 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 and, to the extent such basis would be reduced to zero, that current
recognition of income would be required.
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 or constructive sale applicable to certain options and forward
contracts may also require the Fund to recognize income or gain without a
concurrent receipt of cash. Additionally, some countries restrict repatriation
which may make it difficult or impossible for the Fund to obtain cash
corresponding to its earnings or assets in those countries. 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 intangible property 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.
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<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.
Limitations imposed by the Code on regulated investment companies like the Fund
may restrict the Fund's ability to enter into options, futures, foreign currency
positions, and foreign currency forward contracts.
Certain options, futures and forward foreign currency transactions undertaken by
the Fund may cause the Fund to recognize gains or losses from marking to market
even though its positions have not been sold or terminated and affect the
character as long-term or short-term (or, in the case of certain foreign
currency contracts, as ordinary income or loss) and timing of some capital gains
and losses realized by the Fund. Additionally, the Fund may be required to
recognize gain, but not loss, if an option or other transactions is treated as a
constructive sale of an appreciated financial position in the Fund's portfolio.
Also, certain of the Fund's losses on its transactions involving options,
futures 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. These transactions may therefore affect the
amount, timing and character of the Fund's distributions to shareholders.
Certain of such transactions may also cause the Fund to dispose of investments
sooner than would otherwise have occurred. The Fund will take into account the
special tax rules (including consideration of available elections) applicable to
options, futures 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 types 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 non-resident 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, Form
W-8BEN or other authorized withholding certificate 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.
The Fund anticipates that, 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
As of December 31, 1999 the average annual total returns of the Class A shares
of the Fund for the one, five and 10 year periods were 30.99%, 28.25%, and
17.15%, 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 year, 5 year and 10 year periods.
Because each class has its own sales charge and fee structure, the classes have
different performance results. In the case of each class, this calculation
assumes the maximum sales charge is included in the initial investment or the
CDSC is applied at the end of the period, respectively. This calculation also
assumes that all dividends and distributions are reinvested at net asset value
on the reinvestment dates during the period. The "distribution rate" is
determined by annualizing the result of dividing the declared dividends of the
Fund during the period stated by the maximum offering price or net asset value
at the end of the period. Excluding the Fund's sales charge from the
distribution rate produces a higher rate.
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.
The Fund may advertise yield, where appropriate. 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, if
applicable) on the last day of the period, according to the following standard
formula:
6
Yield = 2 ( [ ( a - b ) + 1 ] - 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).
From time to time, in reports and promotional literature, the Fund's total
return/ or yield 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 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.
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<PAGE>
Performance rankings and ratings reported periodically in, and excerpts from,
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 of the Fund
and the allocation of brokerage commissions are made by the Adviser and officers
of the Fund pursuant to recommendations made by its investment committee of the
Adviser, which consists of officers and Trustees of the Adviser 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 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." 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.
In the U.S. Government securities market, securities are generally traded on a
"net" basis with dealers acting as principal for their own account without a
stated commission, although the price of the security usually includes a profit
to the dealer. On occasion, certain money market instruments and agency
securities may be purchased directly from the issuer, in which case no
commissions or premiums are paid. In other countries, both debt and equity
securities are traded on exchanges at fixed commission rates. Commissions on
foreign transactions are generally higher than the negotiated commission rates
available in the U.S. There is generally less government supervision and
regulation of foreign stock exchanges and broker-dealers than in the U.S.
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 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.
32
<PAGE>
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 Advisers 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 year ended December 31, 1997,
1998 and 1999, the fund paid negotiated brokerage commissions of $1,098,874,
$1,692,538 and $ 2,739,631, respectively.
As permitted by Section 28(e) of the Securities Exchange Act of 1934, the Fund
may pay to a broker which provides brokerage and research services to the Fund
an amount of disclosed commission in excess of the commission which another
broker would have charged for effecting that transaction. This practice is
subject to a good faith determination by the Trustees that the price is
reasonable in light of the services provided and to policies that the Trustees
may adopt from time to time. During the fiscal year ended December 31, 1999, the
Fund paid $723,749 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 Signator Investors, Inc., a broker dealer (until January 1, 1999,
John Hancock Distributors, Inc.) ("Signator" or "Affiliated Broker"). 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, 1999, the Fund
did not execute any portfolio transactions with then affiliated brokers.
Signator 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 Broker. Because the Adviser, which is
affiliated with the Affiliated Broker, 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.
33
<PAGE>
Other investment advisory clients advised by the Adviser may also invest in the
same securities as the Fund. When these clients buy or sell the same securities
at substantially the same time, the Adviser may average the transactions as to
price and allocate the amount of available investments in a manner which the
Adviser believes to be equitable to each client, including the Fund. Because of
this, client accounts in a particular style may sometimes not sell or acquire
securities as quickly or at the same prices as they might if each were managed
and traded individually.
For purchases of equity securities, when a complete order is not filled, a
partial allocation will be made to each account pro rata based on the order
size. For high demand issues (for example, initial public offerings), shares
will be allocated pro rata by account size as well as on the basis of account
objective, account size ( a small account's allocation may be increased to
provide it with a meaningful position), and the account's other holdings. In
addition, an account's allocation may be increased if that account's portfolio
manager was responsible for generating the investment idea or the portfolio
manager intends to buy more shares in the secondary market. For fixed income
accounts, generally securities will be allocated when appropriate among accounts
based on account size, except if the accounts have different objectives or if an
account is too small to get a meaningful allocation. For new issues, when a
complete order is not filled, a partial allocation will be made to each account
pro rata based on the order size. However, if a partial allocation is too small
to be meaningful, it may be reallocated based on such factors as account
objectives, duration benchmarks and credit and sector exposure. For example,
value funds will likely not participate in initial public offerings s frequently
as growth funds. In some instances, this investment procedure may adversely
affect the price paid or received by the Fund or the size of the position
obtainable for it. On the other hand, to the extent permitted by law, the
Adviser may aggregate securities to be sold or purchased for the Fund with those
to be sold or purchased for other clients managed by it in order to obtain best
execution.
TRANSFER AGENT SERVICES
John Hancock Signature Services, Inc., 1 John Hancock Way, Suite 1000, Boston,
MA 02217- 1000, a wholly owned indirect subsidiary of the Life Company, is the
transfer and dividend paying agent for the Fund. The Fund pays Signature
Services an annual fee 0.05% of the average daily net assets attributable to the
Class I shares.
CUSTODY OF PORTFOLIO
Portfolio securities of the Fund are held pursuant to a custodian agreement
between the Fund and Investors Bank & Trust Company, 200 Clarendon Street,
Boston, Massachusetts 02116. Under the custodian agreement, Investor Bank &
Trust Company performs custody, portfolio and fund accounting services.
INDEPENDENT AUDITORS
The independent auditors of the Fund are ______________________, 200 Clarendon
Street, Boston, Massachusetts 02116. ___________________ audits and renders an
opinion on the Fund's annual financial statements, and reviews the Fund's annual
Federal income tax return.
34
<PAGE>
APPENDIX-A
MORE ABOUT RISK
A fund's risk profile is largely defined by the fund's principal securities and
investment practices. You may find the most concise description of the fund's
risk profile in the prospectus.
A fund is permitted to utilize -- within limits established by the trustees --
certain other securities and investment practices that have higher risks and
opportunities associated with them. To the extent that the fund utilizes these
securities or practices, its overall performance may be affected, either
positively or negatively. On the following pages are brief definitions of
certain associated risks with them, with examples of related securities and
investment practices included in brackets. See the "Investment Objectives and
Policies" and "Investment Restrictions" sections of this Statement of Additional
Information for a description of this Fund's investment policies. The fund
follows certain policies that may reduce these risks.
As with any mutual fund, there is no guarantee that the fund will earn income or
show a positive total return over any period of time -- days, months or years.
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). (e.g. short sales, financial
futures and options; securities and index options, currency contracts).
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. (e.g. Borrowing; reverse repurchase agreements, repurchase
agreements, securities lending, non-investment-grade debt securities, financial
futures and options; securities and index options).
Currency risk The risk that fluctuations in the exchange rates between the U.S.
dollar and foreign currencies may negatively affect an investment. (e.g. Foreign
securities, financial futures and options; securities and index options,
currency contracts).
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. (e.g. non-investment-grade debt securities, foreign
securities).
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. (e.g.
Non investment-grade debt securities, financial futures and options; securities
and index options).
Leverage risk Associated with securities or practices (such as borrowing) that
multiply small index or market movements into large changes in value. (e.g.
Borrowing; reverse repurchase agreements, short-sales, when-issued securities
and forward commitments; financial futures and options; securities and index
options, currency contracts).
A-1
<PAGE>
o 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.
o 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. (e.g. short sales,
non-investment-grade debt securities; restricted and illiquid securities,
financial futures and options; securities and index options, currency
contracts).
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. (e.g. Short sales, short-term trading,
when-issued securities and forward commitments, non-investment-grade securities,
foreign securities, financial futures and options; securities and index options,
restricted and illiquid securities).
Natural event risk The risk of losses attributable to natural disasters, crop
failures and similar events. (e.g. Foreign securities).
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. (e.g. Short sales, when -issued securities and forward commitments,
financial futures and options; securities and index options, currency
contracts).
Political risk The risk of losses directly attributable to government or
political actions of any sort. (e.g. Foreign securities)
Prepayment risk The risk that unanticipated prepayments may occur during periods
of falling interest rates, 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. (e.g. Non-investment-grade debt
securities, restricted and illiquid securities).
A-2
<PAGE>
APPENDIX B
Description of Bond Ratings
The ratings of Moody's Investors Service, Inc. and Standard & Poor's Ratings
Group represent their opinions as to the quality of various debt instruments
they undertake to rate. It should be emphasized that ratings are not absolute
standards of quality. Consequently, debt instruments with the same maturity,
coupon and rating may have different yields while debt instruments of the same
maturity and coupon with different ratings may have the same yield.
MOODY'S INVESTORS SERVICE, INC.
Aaa: Bonds which are rated Aaa are judged to be of the best quality. They carry
the smallest degree of investment risk and are generally referred to as "gilt
edge." Interest payments are protected by a large or by an exceptionally stable
margin and principal is secure. While the various protective elements are likely
to change, such changes as can be visualized are most unlikely to impair the
fundamentally strong position of such issues.
Aa: Bonds which are rated Aa are judged to be of high quality by all standards.
Together with the Aaa group they comprise what are generally known as high grade
bonds. They are rated lower than the best bonds because margins of protection
may not be as large as in Aaa securities or fluctuations of protective elements
may be of greater amplitude or there may be other elements present which make
the long-term risks appear somewhat larger than in Aaa securities.
A: Bonds which are rated A possess many favorable investment attributes and are
to be considered as upper medium grade obligations. Factors giving security to
principal and interest are considered adequate but elements may be present which
suggest a susceptibility to impairment at some time in the future.
Baa: Bonds which are rated Baa are considered as medium grade obligations, i.e.,
they are neither highly protected nor poorly secured. Interest payments and
principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and in
fact have speculative characteristics as well.
Ba: Bonds which are rated Ba are judged to have speculative elements; their
future cannot be considered as well assured. Often the protection of interest
and principal payments may be very moderate and thereby not well safeguarded
during both good and bad times over the future. Uncertainty of position
characterizes bonds in this class.
B: Bonds which are rated B generally lack the characteristics of desirable
investment. Assurance of interest and principal payments or of maintenance of
other terms of the contract over any long period of time may be small.
Caa: 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.
Ca: 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.
B-1
<PAGE>
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.
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.
B-2
<PAGE>
FINANCIAL STATEMENTS
F-1
<PAGE>
JOHN HANCOCK INVESTMENT TRUST
PART C.
OTHER INFORMATION
Item. 23. Exhibits:
The exhibits to this Registration Statement are listed in the Exhibit Index
hereto and are incorporated herein by reference.
Item 24. Persons Controlled by or under Common Control with Registrant.
No person is directly or indirectly controlled by or under common control with
Registrant.
Item. 25. Indemnification.
Indemnification provisions relating to the Registrant's Trustees, officers,
employees and agents is set forth in Article IV of the Registrant's Declaration
of Trust included as Exhibit 1 herein.
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 John Hancock Life Insurance Company ("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 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 final
adjudication unless such settlement shall have been approved as in the best
interests of the Insurance Company either by vote of the Board of Directors at a
meeting composed of directors who have no interest in the outcome of such vote,
or by vote of the policyholders. The Insurance Company may pay expenses incurred
in defending an action or claim in advance of its final disposition, but only
upon receipt of an undertaking by the person indemnified to repay such payment
if he should be determined not to be entitled to indemnification.
Article IX of the By-Laws of John Hancock Advisers, Inc. ("the Adviser") provide
as follows:
C-1
<PAGE>
"Section 9.01. Indemnity. Any person made or threatened to be made a party to
any action, suit or proceeding, whether civil, criminal, administrative or
investigative, by reason of the fact that he is or was at any time since the
inception of the Corporation a director, officer, employee or agent of the
Corporation or is or was at any time since the inception of the Corporation
serving at the request of the Corporation as a director, officer, employee or
agent of another corporation, partnership, joint venture, trust or other
enterprise, shall be indemnified by the Corporation against expenses (including
attorney's fees), judgments, fines and amounts paid in settlement actually and
reasonably incurred by him in connection with such action, suit or proceeding if
he acted in good faith and the liability was not incurred by reason of gross
negligence or reckless disregard of the duties involved in the conduct of his
office, and expenses in connection therewith may be advanced by the Corporation,
all to the full extent authorized by the law."
"Section 9.02. Not Exclusive; Survival of Rights: The indemnification provided
by Section 9.01 shall not be deemed exclusive of any other right to which those
indemnified may be entitled, and shall continue as to a person who has ceased to
be a director, officer, employee or agent and shall inure to the benefit of the
heirs, executors and administrators of such a person."
Insofar as indemnification for liabilities under the Securities Act of 1933 (the
"Act") may be permitted to Trustees, officers and controlling persons of the
Registrant pursuant to the Registrant's Declaration of Trust and By-Laws of John
Hancock Funds, the Adviser, or the Insurance Company or otherwise, the
Registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against policy as expressed in the Act and
is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Registrant in the
successful defense of any action, suit or proceeding) is asserted by such
Trustee, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in 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 26. Business and Other Connections of Investment Advisers.
For information as to the business, profession, vocation or employment of a
substantial nature of each of the officers and Directors of the Adviser,
reference is made to Form ADV (801-8124) filed under the Investment Advisers Act
of 1940, which is incorporated herein by reference.
Item 27. 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 Trust, John Hancock Tax-Free Bond Trust, John Hancock California
Tax-Free Income Fund, John Hancock Capital Series, John Hancock Bond Fund, John
Hancock Tax-Exempt Series, John Hancock Strategic Series, John Hancock World
Fund, John Hancock Investment
C-2
<PAGE>
Trust, John Hancock Institutional Series Trust, John Hancock Investment Trust II
and John Hancock Investment Trust III and John Hancock Equity Trust.
(b) The following table lists, for each director and officer of John Hancock
Funds, the information indicated.
C-3
<PAGE>
<TABLE>
<CAPTION>
Name and Principal Positions and Offices
------------------ ---------------------
Business Address Positions and Offices with Registrant
---------------- --------------------- ---------------
with Underwriter
----------------
<S> <C> <C>
Stephen L. Brown Director and Chairman Trustee and Chairman
John Hancock Place
P.O. Box 111
Boston, Massachusetts
Maureen R. Ford Director, Vice Chairman Trustee, Vice Chairman, President and
101 Huntington Avenue and Chief Executive Chief Executive Officer
Boston, Massachusetts Officer
Robert H. Watts Director, Executive Vice None
John Hancock Place President and Chief
P.O. Box 111 Compliance Officer
Boston, Massachusetts
David A. King Director None
380 Stuart Street
Boston, Massachusetts
</TABLE>
C-4
<PAGE>
<TABLE>
<CAPTION>
Name and Principal Positions and Offices
------------------ ---------------------
Business Address Positions and Offices with Registrant
---------------- --------------------- ---------------
With Underwriter
----------------
<S> <C> <C>
Susan S. Newton Vice President Vice President, Chief Legal
101 Huntington Avenue and Secretary Officer and Secretary
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
</TABLE>
C-5
<PAGE>
<TABLE>
<CAPTION>
Name and Principal Positions and Offices
------------------ ---------------------
Business Address Positions and Offices with Registrant
---------------- --------------------- ---------------
With Underwriter
----------------
<S> <C> <C>
John M. DeCiccio 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
Mark C. Lapman Director None
53 State Street
Boston, Massachusetts
James V. Bowhers President None
101 Huntington Avenue
Boston, Massachusetts
Keith F. Hartstein Senior Vice President None
101 Huntington Avenue
Boston, Massachusetts
Dale A. Bearden Vice President None
101 Huntington Avenue
Boston, Massachusetts
Kathleen M. Graveline Senior Vice President None
John Hancock Place
P.O. Box 111
Boston, Massachusetts
Peter F. Mawn Senior Vice President None
John Hancock Place
P.O. Box 111
Boston, Massachusetts
C-6
<PAGE>
Karen F. Walsh Vice President None
101 Huntington Avenue
Boston, Massachusetts
Gary Cronin Vice President None
101 Huntington Avenue
Boston, Massachusetts
Kristine McManus Vice President None
101 Huntington Avenue
Boston, Massachusetts
Thomas H. Connors Vice President Vice President and
101 Huntington Avenue and Compliance Compliance Officer
Boston, Massachusetts Officer
(c) None.
</TABLE>
Item 28. Location of Accounts and Records.
The 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 at 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 29. Management Services.
Not applicable.
Item 30. Undertakings.
Not applicable
C-7
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant certifies that it meets all the
requirements for effectiveness of the 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 22nd day of December, 2000.
JOHN HANCOCK INVESTMENT TRUST
By: *
-------------------------------------
Stephen L. Brown
Chairman and Trustee
Pursuant to the requirements of the Securities Act of 1933, the
Registration Statement has been signed below by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
* Chairman
-----------------------
Stephen L. Brown
*
----------------------- Trustee, Vice Chairman December 22, 2000
Maureen R. Ford and Chief Executive Officer
/s/James J. Stokowski
------------------------
James J. Stokowski Vice President, Treasurer
(Chief Accounting Officer)
* Trustee
------------------------
James F. Carlin
* Trustee
------------------------
William H. Cunningham
* Trustee
------------------------
Ronald R. Dion
* Trustee
------------------------
Charles L. Ladner
</TABLE>
C-8
<PAGE>
Signature Title Date
--------- ----- ----
* Trustee
------------------------
Steven R. Pruchansky
* Trustee
------------------------
Norman H. Smith
* Trustee
------------------------
John P. Toolan
*By: /s/Susan S. Newton
------------------ December 22, 2000
Susan S. Newton
Attorney-in-Fact
Powers of Attorney
dated December 7, 1999
C-9
<PAGE>
John Hancock Investment Trust
(File no. 2-10156)
INDEX TO EXHIBITS
99.(a) Articles of Incorporation. Amended and Restated Declaration of
Trust dated July 1, 1996.***
99.(a).1 Amendment of Section 5.11 and Establishment and Designation of New
Class C Shares and Redesignation of Existing Class C shares of
Beneficial interest of Sovereign Investors Fund.******
99.(a).2 Establishment and Designation of New Class C Shares and Redesignation
of Existing Class C shares of Beneficial interest of Growth and Income
Fund.******
99.(a).3 Amendment of Section 5.11 and Establishment and Designation of Class C
Shares of Beneficial Interest of Sovereign Balanced Fund effective
May 1, 1999.*******
99.(a).4 Establishment and Designation of Class A Shares and Class B Shares of
Beneficial Interest of John Hancock Real Estate Fund dated September
15, 1998.********
99.(a).5 Abolition of John Hancock Real Estate Fund and Amendment of Section
5.11 effective November 1, 1999.**********
99.(a).6 Instrument Changing Names of Series of Shares of the Trust for John
Hancock Sovereign Balanced Fund to John Hancock Balanced Fund and John
Hancock Growth and Income Fund to John Hancock Large Cap Value Fund
dated March 9, 1999.********
99.(a).7 Instrument Fixing the number of Trustees and appointing individual to
fill vacancy dated December 7, 1999.*********
99.(b) By-Laws. Amended and Restated By-Laws dated November 19, 1996.****
99.(c) Instruments Defining Rights of Securities Holders. See exhibits 99.(a)
and 99.(b).
99.(d) Investment Advisory Contracts. Investment Advisory Agreement between
John Hancock Large Cap Value Fund (formerly John Hancock Growth and
Income Fund) and John Hancock Advisers, Inc.*
99.(d).1 Investment Advisory Agreement between John Hancock Sovereign Investors
Fund, John Hancock Sovereign Balanced Fund and John Hancock Advisers,
Inc. dated December 2, 1996.*****
99.(d).2 Service Agreement between Registrant and Sovereign Asset Management
copration dated December 2, 1996.*****
99.(d).3 Investment Management Contract between John Hancock Real Estate Fund
and John Hancock Advisers, Inc. dated September 30, 1998.********
99.(e) Underwriting Contracts. Distribution Agreement between John Hancock
Funds, Inc. (formerly named John Hancock Broker Distribution Services,
Inc. and the Registrant dated August 1, 1991.*
99.(e).1 Amendment to Distribution Agreement between Registrant and John Hancock
Funds, Inc. dated December 2, 1996.*****
99.(e).2 Form of Soliciting Dealer Agreement between John Hancock Broker
Distribution Services ,Inc. and Selected Dealers.*
99.(e).3 Form of Financial Institution Sales and Service Agreement between John
Hancock Funds, Inc. and the John Hancock funds.*
99.(e).4 Amendment to Distribution Agreement between John Hancock Real Estate
Fund and John Hancock Funds, Inc. dated September 30, 1998.********
99.(f) Bonus or Profit Sharing Contracts. Not Applicable.
99.(g) Amended and Restated Master Custodian Agreement between John Hancock
Mutual Funds for John Hancock Growth and Income Fund, John Hancock
Sovereign Investors Fund and John Hancock Sovereign Balanced Fund and
Investors Bank and Trust Company dated March 9, 1999.********
99.(g).1 Amended and Restated Master Custodian Agreement between John Hancock
Mutual Funds for John Hancock Real Estate Fund and Brown Brothers
Harriman & Company dated March 9, 1999.********
99.(h) Other Material Contracts. Amended and Restated Master Transfer Agency
and Service Agreement between John Hancock funds and John Hancock
Signature Services, Inc. dated June 1, 1998.******
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<PAGE>
99.(h).1 Amendment to Master Transfer Agency and Service Agreement dated
September 30, 1998.********
99.(h).2 Service Agreement between Charles Schwab & Co., Inc. and John Hancock
Large Cap Value Fund, Class A, John Hancock Funds, Inc. and John
Hancock Signature Services, Inc.+
99.(i) Legal Opinion.+
99.(j) Other Opinions. Not Applicable
99.(k) Omitted Financial Statements. Not Applicable.
99.(l) Initial Capital Agreements. Not Applicable.
99.(m) Rule 12b-1 Plans. Distribution Plan between John Hancock Sovereign
Investors Fund, Classes A and B and John Hancock Funds, Inc. dated
December 2, 1996.*****
99.(m).1 Distribution Plan between John Hancock Sovereign Balanced Fund, Classes
A and B and John Hancock Funds, Inc. dated December 2, 1996.*****
99.(m).2 Classes A and B Distribution Plans between John Hancock Large Cap Value
Fund (formerlyJohn Hancock Growth and Income Fund) and John Hancock
Funds, Inc. dated December 22, 1994.*
99.(m).3 Class C Distribution Plan between John Hancock Large Cap Value Fund
(formerly John Hancock Growth and Income Fund) Sovereign Investors Fund
and John Hancock Funds, Inc. dated May 1, 1998.******
99.(m).4 Classes A and B Distribution Plans between John Hancock Real Estate
Fund and John Hancock Funds, Inc. dated September 30, 1998.********
99.(m).5 Distribution Plan between John Hancock Sovereign Balanced Fund, Class C
and John Hancock Funds, Inc. dated May 1, 1999.********
99.(n) Rule 18f-3 Plan. John Hancock Funds Class A and Class B amended and
restated Multiple Class Plan pursuant to Rule 18f-3 for John Hancock
Sovereign U.S. Government Income Fund dated May 1, 1998.******
99.(n).1 John Hancock Funds Class A, Class B and Class C amended and restated
Multiple Class Plan pursuant to Rule 18f-3 for Large Cap Value Fund
(formerly John Hancock Growth and Income Fund) and John Hancock
Sovereign Balanced Fund.******
99.(n).2 John Hancock Funds Class A, Class B, Class C and Class Y amended and
restated Multiple Class Plan pursuant to Rule 18f-3 for John Hancock
Sovereign Investors Fund dated May 1, 1998.******
99.(p) Code of Ethics for John Hancock Funds and John Hancock Investment
Companies.**********
99.(p).1 Revised Code of Ethics for John Hancock Funds and John Hancock
Investment Companies.+
* Previously filed electronically with Registration Statement and/or
post-effective amendment no. 73 file nos. 811-0560 and 2-10156 on May
10, 1995, accession number 0000950135-95-001122.
** Previously filed electronically with Registration Statement and/or
post-effective amendment no. 74 file nos. 811-0560 and 2-10156 on
December 26, 1996, accession number 0000950135-95-002738.
*** Previously filed electronically with Registration Statement and/or
post-effective amendment no. 76 file nos. 811-0560 and 2-10156 on
September 13, 1996, accession number 0001010521-96-000179.
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<PAGE>
**** Previously filed electronically with Registration Statement and/or
post-effective amendment no. 77 file nos. 811-0560 and 2-10156 on
December 20 1997, accession number 0001010521-96-000224.
***** Previously filed electronically with Registration Statement and/or
post-effective amendment no. 78 file nos. 811-0560 and 2-10156 on
February 27, 1997, accession number 0001010521-97-000228.
****** Previously filed electronically with Registration Statement and/or
post-effective amendment no. 82, file nos. 811-0560 and 2-10156 on
July 15, 1998, accession number 0001010521-98-000292.
******* Previously filed electronically with Registration Statement and/or
past-effective amendment no. 83, file nos. 811-0560 and 2-10156 on
February 23, 1999, accession number 0001010521-99-000136.
******** Previously filed electronically with Registration Statement and/or
past-effective amendment no. 84, file nos. 811-0560 and 2-10156 on
April 27, 1999, accession number 0001010521-00-000202.
********* Previously filed electronically with Registration Statement and/or
past-effective amendment no. 85, file nos. 811-0560 and 2-10156 on
February 28, 2000, accession number 0001010521-00-000202.
********** Previously filed electronically with Registration Statement and/or
past-effective amendment no. 86, file nos. 811-0560 and 2-10156 on
April 25, 2000, accession number 0001010521-00-000248.
+ Filed herewith.
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