John Hancock
Equity Funds
Prospectus
July 1, 2000
--------------------------------------------------------------------------------
Balanced Fund
Core Equity Fund
Core Growth Fund
Core Value Fund
Large Cap Growth Fund
Large Cap Value Fund
Mid Cap Growth Fund
Small Cap Growth Fund
Small Cap Value Fund
Sovereign Investors Fund
As with all mutual funds, the Securities and Exchange Commission has not
approved or disapproved these funds or determined whether the information in
this prospectus is adequate and accurate. Anyone who indicates otherwise is
committing a federal crime.
[LOGO] JOHN HANCOCK FUNDS
A Global Investment Management Firm
<PAGE>
Contents
--------------------------------------------------------------------------------
A fund-by-fund summary Balanced Fund 4
of goals, strategies, risks,
performance and expenses. Core Equity Fund 6
Core Growth Fund 8
Core Value Fund 10
Large Cap Growth Fund 12
Large Cap Value Fund 14
Mid Cap Growth Fund 16
Small Cap Growth Fund 18
Small Cap Value Fund 20
Sovereign Investors Fund 22
Policies and instructions for Your account
opening, maintaining and Choosing a share class 24
closing an account in any How sales charges are calculated 24
equity fund. Sales charge reductions and waivers 25
Opening an account 26
Buying shares 27
Selling shares 28
Transaction policies 30
Dividends and account policies 30
Additional investor services 31
Further information on the Fund details
equity funds. Business structure 32
Financial highlights 33
For more information back cover
<PAGE>
Overview
--------------------------------------------------------------------------------
FUND INFORMATION KEY
Concise fund-by-fund descriptions begin on the next page. Each description
provides the following information:
[Clip Art] Goal and strategy The fund's particular investment goals and the
strategies it intends to use in pursuing those goals.
[Clip Art] Main risks The major risk factors associated with the fund.
[Clip Art] Past performance The fund's total return, measured year-by-year and
over time.
[Clip Art] Your expenses The overall costs borne by an investor in the fund,
including sales charges and annual expenses.
JOHN HANCOCK EQUITY FUNDS
These funds seek long-term growth by investing primarily in common stocks.
However, the Balanced Fund also makes significant investments in fixed-income
securities. Each fund has its own strategy and its own risk profile.
WHO MAY WANT TO INVEST
These funds may be appropriate for investors who:
o have longer time horizons
o want to diversify their portfolios
o are seeking funds for the equity portion of an asset allocation portfolio
o are investing for retirement or other goals that are many years in the
future
Equity funds may NOT be appropriate if you:
o are investing with a shorter time horizon in mind
o are uncomfortable with an investment that may go up and down in value
RISKS OF MUTUAL FUNDS
Mutual funds are not bank deposits and are not insured or guaranteed by the
Federal Deposit Insurance Corporation or any other government agency. Because
you could lose money by investing in these funds, be sure to read all risk
disclosure carefully before investing.
THE MANAGEMENT TEAM
All John Hancock equity funds are managed by John Hancock Advisers, Inc. Founded
in 1968, John Hancock Advisers is a wholly owned subsidiary of John Hancock
Financial Services, Inc. and manages more than $30 billion in assets.
3
<PAGE>
Balanced Fund
GOAL AND STRATEGY
[Clip Art] The fund seeks current income, long-term growth of capital and income
and preservation of capital. To pursue these goals, the fund allocates its
investments among a diversified mix of debt and equity securities.
At least 75% of the fund's stock investments are "dividend performers" --
companies whose dividend payments have increased steadily for ten years. In
managing the fund's stock portfolio, the managers use fundamental financial
analysis to identify individual companies with high-quality income statements,
substantial cash reserves and identifiable catalysts for growth, which may be
new products or benefits from industrywide growth. The managers generally visit
companies to evaluate the strength and consistency of their management strategy.
Finally, the managers look for stocks that are reasonably priced relative to
their earnings and industry. Historically, companies that meet these criteria
have tended to have large or medium market capitalizations.
At least 25% of assets will be invested in senior debt securities. The fund's
debt securities are used to enhance current income and provide some added
stability. The fund's investments in bonds of any maturity are primarily
investment-grade (rated BBB or above and their unrated equivalents). However, up
to 20% of assets may be in junk bonds rated as low as C and their unrated
equivalents.
Although the fund invests primarily in U.S. securities, it may invest up to 35%
of assets in foreign securities. 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.
================================================================================
PORTFOLIO MANAGERS
John F. Snyder, III
---------------------------------------
Executive vice president of adviser
Joined team in 1994
Joined adviser in 1991
Began business career in 1971
Barry H. Evans, CFA
---------------------------------------
Senior vice president of adviser
Joined team in 1996
Joined adviser in 1986
Began business career in 1986
Peter M. Schofield, CFA
---------------------------------------
Vice president of adviser
Joined team in 1996
Joined adviser in 1996
Began business career in 1984
PAST PERFORMACE
[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. 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.
--------------------------------------------------------------------------------
Class A year-by-year total returns -- calendar years
--------------------------------------------------------------------------------
1993 1994 1995 1996 1997 1998 1999
11.38% -3.51% 24.23% 12.13% 20.79% 14.01% 3.89%
2000 total return as of March 31: -3.99%
Best quarter: Q4 '98, 11.40% Worst quarter: Q3 `99, -4.89%
--------------------------------------------------------------------------------
Average annual total returns -- for periods ending 12/31/99
--------------------------------------------------------------------------------
Life of Life of
1 year 5 year Class A Class B
Class A - began 10/5/92 -1.30% 13.61% 10.67% --
Class B - began 10/5/92 -1.83% 13.77% -- 10.70%
Class C - began 5/1/99 -- -- -- --
Index 21.03% 28.54% 21.83% 21.83%
Index: Standard & Poor's 500 Stock Index, an unmanaged index of 500 stocks.
4
<PAGE>
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- or medium- capitalization stocks as a group could fall out of favor with
the market, causing the fund to underperform investments that focus on
small-capitalization stocks. Medium-capitalization stocks tend to be more
volatile than stocks of larger companies. In addition, if the managers' security
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, these 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 Any bonds held by the fund could be downgraded in credit quality or go
into default. In addition, bond prices generally fall when interest rates
rise; this risk is greater for longer maturity bonds. Junk bond prices can
fall on bad news about the issuer, an industry or the economy in general.
o Foreign investments carry additional risks, including potentially
unfavorable currency exchange rates, inadequate or inaccurate financial
information and social or political instability.
The fund may trade securities actively, which could increase its transaction
costs (thus lowering performance) and increase your taxable distributions.
================================================================================
YOUR EXPENSES
[Clip Art] Transaction expenses are charged directly to your account. Operating
expenses are paid from the fund's assets, and therefore are paid by shareholders
indirectly.
--------------------------------------------------------------------------------
Shareholder transaction expenses(1) Class A Class B Class C
--------------------------------------------------------------------------------
Maximum sales charge (load) on purchases
as a % of purchase price 5.00% none 1.00%
Maximum deferred sales charge (load)
as a % of purchase or sale price,
whichever is less none(2) 5.00% 1.00%
--------------------------------------------------------------------------------
Annual operating expenses Class A Class B Class C
--------------------------------------------------------------------------------
Management fee 0.60% 0.60% 0.60%
Distribution and service (12b-1) fees 0.30% 1.00% 1.00%
Other expenses 0.32% 0.32% 0.32%
Total fund operating expenses 1.22% 1.92% 1.92%
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.
--------------------------------------------------------------------------------
Expenses Year 1 Year 3 Year 5 Year 10
--------------------------------------------------------------------------------
Class A $618 $868 $1,137 $1,903
Class B - with redemption $695 $903 $1,237 $2,061
- without redemption $195 $603 $1,037 $2,061
Class C - with redemption $392 $697 $1,126 $2,321
- without redemption $293 $697 $1,126 $2,321
(1) A $4.00 fee may be charged for wire redemptions.
(2) Except for investments of $1 million or more; see "How sales charges are
calculated."
FUND CODES
Class A
---------------------------------------
Ticker SVBAX
CUSIP 47803P104
Newspaper BalA
SEC number 811-0560
JH fund number 36
Class B
---------------------------------------
Ticker SVBBX
CUSIP 47803P203
Newspaper BalB
SEC number 811-0560
JH fund number 136
Class C
---------------------------------------
Ticker --
CUSIP 47803P708
Newspaper --
SEC number 811-0560
JH fund number 536
5
<PAGE>
Core Equity Fund
GOAL AND STRATEGY
[Clip Art] The fund seeks above-average total return (capital appreciation plus
income). To pursue this goal, the fund normally invests at least 65% of assets
in a diversified portfolio of equities which are primarily large-capitalization
stocks. The portfolio's risk profile is similar to that of the Standard & Poor's
500 Stock Index.
The managers select from a menu of stocks of approximately 550 companies that
evolves over time. Approximately 70% to 80% of these companies also are included
in the Standard & Poor's 500 Stock Index. The subadviser's investment research
team is organized by industry and tracks these companies to develop earnings
estimates and five-year projections for growth. A series of proprietary computer
models use this in-house research to rank the stocks according to their
combination of:
o value, meaning they appear to be underpriced
o improving fundamentals, meaning they show potential for strong growth
This process, together with a risk/ return analysis against the Standard &
Poor's 500 Stock Index, results in a portfolio of approximately 100 to 130 of
the stocks from the top 60% of the menu. The fund generally sells stocks that
fall into the bottom 20% of the menu.
In normal market conditions, the fund is almost entirely invested in stocks. The
fund may invest in dollar-denominated foreign securities and make limited use of
certain derivatives (investments whose value is based on indices or securities).
In abnormal market conditions, the fund may temporarily invest more than 35% of
assets in investment-grade short-term securities. In these and other cases, the
fund might not achieve its goal.
The fund may trade securities actively, which could increase its transaction
costs (thus lowering performance) and increase your taxable distributions.
================================================================================
SUBADVISER
Independence Investment
Associates, Inc.
---------------------------------------
Team responsible for day-to-day
investment management
A subsidiary of John Hancock Financial
Services, Inc.
Founded in 1982
Supervised by the adviser
PAST PERFORMACE
[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. The average annual figures reflect sales charges; the
year-by-year and index figures do not, and would be lower if they did. Beginning
May 1, 2000, a 1% front-end sales charge on Class C shares was imposed, which
would result in lower returns if reflected in these figures. All figures assume
dividend reinvestment. Past performance does not indicate future results.
--------------------------------------------------------------------------------
Class A year-by-year total returns -- calendar years
--------------------------------------------------------------------------------
1992 1993 1994 1995 1996 1997 1998 1999
9.01% 16.12% -2.14% 37.20% 21.24% 29.19% 28.84% 12.37%
2000 total return as of March 31: 1.90%
Best quarter: Q4 '98, 24.17% Worst quarter: Q3 '98, -12.75%
--------------------------------------------------------------------------------
Average annual total returns -- for periods ending 12/31/99
--------------------------------------------------------------------------------
Life of Life of Life of
1 year 5 year Class A Class B Class C
Class A - began 6/10/91 6.74% 24.21% 17.50% -- --
Class B - began 9/7/95 6.59% -- -- 22.07% --
Class C - began 5/1/98 10.59% -- -- -- 12.74%
Index 21.03% 28.54% 19.80% 26.58% 19.84%
Index: Standard & Poor's 500 Stock Index, an unmanaged index of 500 stocks.
6
<PAGE>
MAIN RISKS
[Clip Art] The value of your investment will go up and down in response to stock
market movements.
Large-capitalization stocks as a group could fall out of favor with the
market, causing the fund to underperform funds that focus on small- or
medium-capitalization stocks.
The fund's management strategy has a significant influence on fund
performance. If the investment research team's earnings estimates or projections
turn out to be inaccurate, or if the proprietary computer models 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
inadequate or inaccurate financial information and social or political
instability.
================================================================================
YOUR EXPENSES
[Clip Art] Transaction expenses are charged directly to your account. Operating
expenses are paid from the fund's assets, and therefore are paid by shareholders
indirectly.
--------------------------------------------------------------------------------
Shareholder transaction expenses(1) Class A Class B Class C
--------------------------------------------------------------------------------
Maximum sales charge (load) on purchases
as a % of purchase price 5.00% none 1.00%
Maximum deferred sales charge (load)
as a % of purchase or sale price,
whichever is less none(2) 5.00% 1.00%
--------------------------------------------------------------------------------
Annual operating expenses Class A Class B Class C
--------------------------------------------------------------------------------
Management fee 0.74% 0.74% 0.74%
Distribution and service (12b-1) fees 0.30% 1.00% 1.00%
Other expenses 0.33% 0.33% 0.33%
Total fund operating expenses 1.37% 2.07% 2.07%
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.
--------------------------------------------------------------------------------
Expenses Year 1 Year 3 Year 5 Year 10
--------------------------------------------------------------------------------
Class A $633 $912 $1,212 $2,064
Class B - with redemption $710 $949 $1,314 $2,221
- without redemption $210 $649 $1,114 $2,221
Class C - with redemption $407 $742 $1,202 $2,476
- without redemption $308 $742 $1,202 $2,476
(1) A $4.00 fee may be charged for wire redemptions.
(2) Except for investments of $1 million or more; see "How sales charges are
calculated."
FUND CODES
Class A
---------------------------------------
Ticker JHDCX
CUSIP 409902707
Newspaper CoreEqA
SEC number 811-1677
JH fund number 25
Class B
---------------------------------------
Ticker JHIDX
CUSIP 409902806
Newspaper CoreEqB
SEC number 811-1677
JH fund number 125
Class C
---------------------------------------
Ticker JHCEX
CUSIP 409902863
Newspaper CoreEqC
SEC number 811-1677
JH fund number 525
7
<PAGE>
Core Growth Fund
GOAL AND STRATEGY
[Clip Art] The fund seeks above-average total return. To pursue this goal, the
fund invests in a diversified portfolio of primarily large-capitalization stocks
and emphasizes stocks of companies with relatively high potential long-term
earnings growth. The portfolio's risk profile is substantially similar to that
of the Russell 1000 Growth Index.
The managers select from a menu of stocks of approximately 550 companies that
evolves over time. Approximately 40% to 50% of these companies also are included
in the Russell 1000 Growth Index. The subadviser's investment research team is
organized by industry and tracks these companies to develop earnings estimates
and five-year projections for growth. A series of proprietary computer models
use this in-house research to rank the stocks according to their combination of:
o value, meaning they appear to be underpriced
o improving fundamentals, meaning they show potential for strong growth
This process, together with a risk/return analysis against the Russell 1000
Growth Index, results in a portfolio of approximately 100 to 130 of the stocks
from the top 60% of the menu. The fund generally sells stocks that fall into the
bottom 20% of the menu.
In normal market conditions, the fund is almost entirely invested in stocks. The
fund may, however, invest in certain other types of equity securities, including
dollar-denominated foreign securities.
In abnormal market conditions, the fund may temporarily invest more than 35% of
assets in investment-grade short-term securities. In these and other cases, the
fund might not achieve its goal.
The fund may trade securities actively, which could increase its transaction
costs (thus lowering performance) and increase your taxable distributions.
================================================================================
SUBADVISER
Independence Investment
Associates, Inc.
---------------------------------------
Team responsible for day-to-day
investment management
A subsidiary of John Hancock Financial
Services, Inc.
Founded in 1982
Supervised by the adviser
PAST PERFORMACE
[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. The year-by-year and average annual figures are for Class I
shares, which are offered in a separate prospectus. Annual returns should be
substantially similar since all classes invest in the same portfolio. However,
Class I shares' average annual figures do not reflect sales charges or 12b-1
fees, which were imposed beginning July 1, 1999 for Class A, B and C shares.
Year-by-year, average annual and index figures do not reflect these charges and
would be lower if they did. All figures assume dividend reinvestment. Past
performance does not indicate future results.
--------------------------------------------------------------------------------
Class I year-by-year total returns -- calendar years
--------------------------------------------------------------------------------
1996 1997 1998 1999
20.52% 36.22% 37.94% 20.00%
2000 total return as of March 31: 8.99%
Best quarter: Q4 '98, 27.44% Worst quarter: Q3 '98, -12.00%
--------------------------------------------------------------------------------
Average annual total returns -- for periods ending 12/31/99
--------------------------------------------------------------------------------
Life of
1 year Class I
Class I - began 10/2/95 20.00% 27.96%
Class A - began 7/1/99 -- --
Class B - began 7/1/99 -- --
Class C - began 7/1/99 -- --
Index 32.27% 30.53%
Index: Russell 1000 Growth Index, an unmanaged index of growth stocks in the
Russell 1000 Index of the 1,000 largest-capitalization U.S. stocks.
8
<PAGE>
MAIN RISKS
[Clip Art] The value of your investment will go up and down in response to stock
market movements.
Large-capitalization stocks as a group could fall out of favor with the market,
causing the fund to underperform funds that focus on small- or
medium-capitalization stocks. Similarly, growth stocks could underperform value
stocks.
The fund's management strategy has a significant influence on fund performance.
If the investment research team's earnings estimates or projections turn out to
be inaccurate, or if the proprietary computer models 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 Foreign investments carry additional risks, including potentially
inadequate or inaccurate financial information and social or political
instability.
================================================================================
YOUR EXPENSES
[Clip Art] Transaction expenses are charged directly to your account. Operating
expenses are paid from the fund's assets, and therefore are paid by shareholders
indirectly.
--------------------------------------------------------------------------------
Shareholder transaction expenses(1) Class A Class B Class C
--------------------------------------------------------------------------------
Maximum sales charge (load) on purchases
as a % of purchase price 5.00% none 1.00%
Maximum deferred sales charge (load)
(as a % of purchase or sales price,
whichever is less) none(2) 5.00% 1.00%
--------------------------------------------------------------------------------
Annual operating expenses(3) Class A Class B Class C
--------------------------------------------------------------------------------
Management fee 0.80% 0.80% 0.80%
Distribution and service (12b-1) fees 0.30% 1.00% 1.00%
Other expenses 0.73% 0.73% 0.73%
Total fund operating expenses 1.83% 2.53% 2.53%
Expense reimbursement (at least until 6/30/01) 0.38% 0.38% 0.38%
Net annual operating expenses 1.45% 2.15% 2.15%
The hypothetical example below shows what your expenses would be after the
expense reimbursement (first year only) 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.
--------------------------------------------------------------------------------
Expenses Year 1 Year 3 Year 5 Year 10
--------------------------------------------------------------------------------
Class A $640 $1,012 $1,407 $2,511
Class B - with redemption $718 $1,051 $1,511 $2,665
- without redemption $218 $ 751 $1,311 $2,665
Class C - with redemption $415 $ 844 $1,398 $2,909
- without redemption $316 $ 844 $1,398 $2,909
(1) A $4.00 fee may be charged for wire redemptions.
(2) Except for investments of $1 million or more; see "How sales charges are
calculated."
(3) Expense figures show the expenses for the past year adjusted to reflect
any changes.
FUND CODES
Class A
---------------------------------------
Ticker JACGX
CUSIP 410132849
Newspaper CoreGrA
SEC number 811-8852
JHfund number 79
Class B
---------------------------------------
Ticker JBCGX
CUSIP 410132831
Newspaper CoreGrB
SEC number 811-8852
JHfund number 179
Class C
---------------------------------------
Ticker --
CUSIP 410132823
Newspaper --
SEC number 811-8852
JHfund number 579
9
<PAGE>
Core Value Fund
GOAL AND STRATEGY
[Clip Art] The fund seeks above-average total return. To pursue this goal, the
fund invests in a diversified portfolio of primarily large-capitalization stocks
and emphasizes relatively undervalued stocks and high dividend yields. The
portfolio's risk profile is substantially similar to that of the Russell 1000
Value Index.
The managers select from a menu of stocks of approximately 550 companies that
evolves over time. Approximately 50% to 60% of these companies also are included
in the Russell 1000 Value Index. The subadviser's investment research team is
organized by industry and tracks these companies to develop earnings estimates
and five-year projections for growth. A series of proprietary computer models
use this in-house research to rank the stocks according to their combination of:
o value, meaning they appear to be underpriced
o improving fundamentals, meaning they show potential for strong growth
This process, together with a risk/return analysis against the Russell 1000
Value Index, results in a portfolio of approximately 100 to 130 of the stocks
from the top 60% of the menu. The fund generally sells stocks that fall into the
bottom 20% of the menu.
In normal market conditions, the fund is almost entirely invested in stocks. The
fund may, however, invest in certain other types of equity securities, including
dollar-denominated foreign securities.
In abnormal market conditions, the fund may temporarily invest more than 35% of
assets in investment-grade short-term securities. In these and other cases, the
fund might not achieve its goal.
The fund may trade securities actively, which could increase its transaction
costs (thus lowering performance) and increase your taxable distributions.
================================================================================
SUBADVISER
Independence Investment
Associates, Inc.
---------------------------------------
Team responsible for day-to-day
investment management
A subsidiary of John Hancock Financial
Services, Inc.
Founded in 1982
Supervised by the adviser
PAST PERFORMACE
[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. Class A average annual figures reflect sales charges.
Year-by-year and index figures do not reflect these charges and would be lower
if they did. In addition, 12b-1 fees were imposed beginning July 1, 2000 for
Class A shares and would result in lower returns if reflected in these figures.
All figures assume dividend reinvestment. Past performance does not indicate
future results.
--------------------------------------------------------------------------------
Class A year-by-year total returns -- calendar years
--------------------------------------------------------------------------------
1996 1997 1998 1999
20.66% 30.63% 18.79% 4.65%
2000 total return as of March 31: -2.52%
Best quarter: Q4 '98, 18.79% Worst quarter: Q3 '98, -13.99%
--------------------------------------------------------------------------------
Average annual total returns -- for periods ending 12/31/99
--------------------------------------------------------------------------------
Life of
1 year Class A
Class A - began 10/2/95 -0.60% 17.80%
Class B - began 7/1/99 -- --
Class C - began 7/1/99 -- --
Index 7.35% 20.09%
Index: Russell 1000 Value Index, an unmanaged index of value stocks in the
Russell 1000 Index of the 1,000 largest-capitalization U.S. stocks.
10
<PAGE>
MAIN RISKS
[Clip Art] The value of your investment will go up and down in response to stock
market movements.
Large-capitalization stocks as a group could fall out of favor with the market,
causing the fund to underperform funds that focus on small- or
medium-capitalization stocks. Similarly, value stocks could underperform growth
stocks.
The fund's management strategy has a significant influence on fund performance.
If the investment research team's earnings estimates or projections turn out to
be inaccurate, or if the proprietary computer models 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 Foreign investments carry additional risks, including potentially
inadequate or inaccurate financial information and social or political
instability.
================================================================================
YOUR EXPENSES
[Clip Art] Transaction expenses are charged directly to your account. Operating
expenses are paid from the fund's assets, and therefore are paid by shareholders
indirectly.
--------------------------------------------------------------------------------
Shareholder transaction expenses(1) Class A Class B Class C
--------------------------------------------------------------------------------
Maximum sales charge (load) on purchases
as a % of purchase price 5.00% none 1.00%
Maximum deferred sales charge (load)
(as a % of purchase or sales price,
whichever is less) none(2) 5.00% 1.00%
--------------------------------------------------------------------------------
Annual operating expenses(3) Class A Class B Class C
--------------------------------------------------------------------------------
Management fee 0.80% 0.80% 0.80%
Distribution and service (12b-1) fees 0.30% 1.00% 1.00%
Other expenses 1.04% 1.04% 1.04%
Total fund operating expenses 2.14% 2.84% 2.84%
Expense reimbursement (at least until 6/30/01) 0.64% 0.64% 0.64%
Net annual operating expenses 1.50% 2.20% 2.20%
The hypothetical example below shows what your expenses would be after the
expense reimbursement (first year only) 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.
--------------------------------------------------------------------------------
Expenses Year 1 Year 3 Year 5 Year 10
--------------------------------------------------------------------------------
Class A $645 $1,078 $1,536 $2,801
Class B - with redemption $723 $1,120 $1,642 $2,953
- without redemption $223 $ 820 $1,442 $2,953
Class C - with redemption $420 $ 911 $1,528 $3,189
- without redemption $321 $ 911 $1,528 $3,189
(1) A $4.00 fee may be charged for wire redemptions.
(2) Except for investments of $1 million or more; see "How sales charges are
calculated."
(3) Expense figures show the expenses for the past year adjusted to reflect
any changes.
FUND CODES
Class A
---------------------------------------
Ticker JHIVX
CUSIP 410132807
Newspaper --
SEC number 811-8852
JHfund number 88
Class B
---------------------------------------
Ticker --
CUSIP 410132815
Newspaper --
SEC number 811-8852
JHfund number 188
Class C
---------------------------------------
Ticker --
CUSIP 410132799
Newspaper --
SEC number 811-8852
JHfund number 588
11
<PAGE>
Large Cap Growth Fund
GOAL AND STRATEGY
[Clip Art] The fund seeks long-term capital appreciation. 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 $316 million to $553 billion as of
March 31, 2000).
In choosing individual stocks, the managers use fundamental financial analysis
to identify companies with:
o strong cash flows
o secure market franchises
o sales growth that outpaces their industries
The fund generally invests in 30 to 60 U.S. companies that are diversified
across sectors. The fund has tended to emphasize, or overweight, certain sectors
such as health care, technology or consumer goods. These weightings may change
in the future.
The management team uses various means to assess the depth and stability of
companies' senior management, including interviews and company visits. The fund
favors companies for which the managers project an above- average growth rate.
The fund may invest in preferred stocks and other types of equities, and may
invest up to 15% of assets in foreign securities. 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.
The fund may trade securities actively, which could increase its transaction
costs (thus lowering performance) and increase your taxable distributions.
================================================================================
PORTFOLIO MANAGER
Team responsible for day-to-day
investment management
PAST PERFORMACE
[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. The average annual figures reflect sales charges; the
year-by-year and index figures do not, and would be lower if they did. Beginning
May 1, 2000, a 1% front-end sales charge on Class C shares was imposed, which
would result in lower returns if reflected in these figures. All figures assume
dividend reinvestment. Past performance does not indicate future results.
--------------------------------------------------------------------------------
Class A year-by-year total returns -- calendar years
--------------------------------------------------------------------------------
1990 1991 1992 1993 1994 1995 1996 1997 1998 1999
-8.34% 41.68% 6.06% 13.03% -7.50% 27.17% 20.40% 16.70% 26.42% 20.52%
2000 total return as of March 31: 1.28%
Best quarter: Q4 '98, 22.38% Worst quarter: Q3 '90, -18.75%
--------------------------------------------------------------------------------
Average annual total returns -- for periods ending 12/31/99
--------------------------------------------------------------------------------
Life of Life of
1 year 5 year 10 year Class B Class C
Class A 14.48% 20.93% 14.02% -- --
Class B - began 1/3/94 14.73% 21.11% -- 16.08% --
Class C - began 6/1/98 18.69% -- -- -- 23.26%
Index 21.03% 28.54% 18.19% 23.55% 22.32%
Index: Standard & Poor's 500 Stock Index, an unmanaged index of 500 stocks.
12
<PAGE>
MAIN RISKS
[Clip Art] The value of your investment will go up and down in response to stock
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, growth stocks could underperform value
stocks. To the extent the fund invests in a given industry, its performance will
be hurt if that industry performs poorly. In addition, if the managers' security
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, these 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.
================================================================================
YOUR EXPENSES
[Clip Art] Transaction expenses are charged directly to your account. Operating
expenses are paid from the fund's assets, and therefore are paid by shareholders
indirectly.
--------------------------------------------------------------------------------
Shareholder transaction expenses(1) Class A Class B Class C
--------------------------------------------------------------------------------
Maximum sales charge (load) on purchases
as a % of purchase price 5.00% none 1.00%
Maximum deferred sales charge (load)
as a % of purchase or sale price,
whichever is less none(2) 5.00% 1.00%
--------------------------------------------------------------------------------
Annual operating expenses Class A Class B Class C
--------------------------------------------------------------------------------
Management fee 0.75% 0.75% 0.75%
Distribution and service (12b-1) fees 0.30% 1.00% 1.00%
Other expenses 0.30% 0.30% 0.30%
Total fund operating expenses 1.35% 2.05% 2.05%
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.
--------------------------------------------------------------------------------
Expenses Year 1 Year 3 Year 5 Year 10
--------------------------------------------------------------------------------
Class A $631 $906 $1,202 $2,043
Class B - with redemption $708 $943 $1,303 $2,200
- without redemption $208 $643 $1,103 $2,200
Class C - with redemption $405 $736 $1,192 $2,455
- without redemption $306 $736 $1,192 $2,455
(1) A $4.00 fee may be charged for wire redemptions.
(2) Except for investments of $1 million or more; see "How sales charges are
calculated."
FUND CODES
Class A
---------------------------------------
Ticker JHNGX
CUSIP 409906302
Newspaper LpCpGrA
SEC number 811-4630
JHfund number 20
Class B
---------------------------------------
Ticker JHGBX
CUSIP 409906401
Newspaper LpCpGrB
SEC number 811-4630
JHfund number 120
Class C
---------------------------------------
Ticker --
CUSIP 409906849
Newspaper --
SEC number 811-4630
JHfund number 520
13
<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 $316 million to $553 billion as of
March 31, 2000).
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 manager looks 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.
================================================================================
PORTFOLIO MANAGERS
Timothy E. Quinlisk, CFA
---------------------------------------
Senior vice president of adviser
Joined team in 1998
Joined adviser in 1998
Began business career in 1985
R. Scott Mayo, CFA
---------------------------------------
Joined team in 2000
Joined adviser in 1998
Began business career in 1993
PAST PERFORMACE
[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. The average annual figures reflect sales charges; the
year-by-year and index figures do not, and would be lower if they did. Beginning
May 1, 2000, a 1% front-end sales charge on Class C shares was imposed, which
would result in lower returns if reflected in these figures. All figures assume
dividend reinvestment. Past performance does not indicate future results.
--------------------------------------------------------------------------------
Class A year-by-year total returns -- calendar years
--------------------------------------------------------------------------------
1990 1991 1992 1993 1994 1995 1996 1997 1998 1999
-0.44% 32.29% 6.02% 9.74% -8.49% 36.74% 22.21% 36.71% 15.94% 37.89%
2000 total return as of March 31: 8.07%
Best quarter: Q4 '99, 31.65% Worst quarter: Q3 '98, -12.95%
--------------------------------------------------------------------------------
Average annual total returns -- for periods ending 12/31/99
--------------------------------------------------------------------------------
Life of Life of
1 year 5 year 10 year Class B Class C
Class A 30.99% 28.25% 17.15% -- --
Class B - began 8/22/91 31.95% 28.49% -- 18.21% --
Class C - began 5/1/98 35.94% -- -- -- 21.33%
Index 21.03% 28.54% 18.19% 19.73% 19.84%
Index: Standard & Poor's 500 Stock Index, an unmanaged index of 500 stocks.
14
<PAGE>
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.
================================================================================
YOUR EXPENSES
[Clip Art] Transaction expenses are charged directly to your account. Operating
expenses are paid from the fund's assets, and therefore are paid by shareholders
indirectly.
--------------------------------------------------------------------------------
Shareholder transaction expenses(1) Class A Class B Class C
--------------------------------------------------------------------------------
Maximum sales charge (load) on purchases
as a % of purchase price 5.00% none 1.00%
Maximum deferred s ales charge (load)
as a % of purchase or sale price,
whichever is less none(2) 5.00% 1.00%
--------------------------------------------------------------------------------
Annual operating expenses Class A Class B Class C
--------------------------------------------------------------------------------
Management fee 0.625% 0.625% 0.625%
Distribution and service (12b-1) fees 0.25% 1.00% 1.00%
Other expenses 0.295% 0.295% 0.295%
Total fund operating expenses 1.17% 1.92% 1.92%
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.
--------------------------------------------------------------------------------
Expenses Year 1 Year 3 Year 5 Year 10
--------------------------------------------------------------------------------
Class A $613 $853 $1,111 $1,849
Class B - with redemption $695 $903 $1,237 $2,048
- without redemption $195 $603 $1,037 $2,048
Class C - with redemption $392 $697 $1,126 $2,321
- without redemption $293 $697 $1,126 $2,321
(1) A $4.00 fee may be charged for wire redemptions.
(2) Except for investments of $1 million or more; see "How sales charges are
calculated."
FUND CODES
Class A
---------------------------------------
Ticker TAGRX
CUSIP 41013P103
Newspaper LgCpVIA
SEC number 811-0560
JH fund number 50
Class B
---------------------------------------
Ticker TSGWX
CUSIP 41013P202
Newspaper LgCpVIB
SEC number 811-0560
JH fund number 150
Class C
---------------------------------------
Ticker JHLVX
CUSIP 41013P301
Newspaper LgCpVIC
SEC number 811-0560
JH fund number 550
15
<PAGE>
Mid Cap Growth Fund
GOAL AND STRATEGY
[Clip Art] The fund seeks long-term capital appreciation. To pursue this goal,
the fund normally invests at least 80% of assets in stocks of
medium-capitalization companies (companies in the capitalization range of the
Russell Midcap Growth Index, which was $171 million to $66.54 billion as of
March 31, 2000).
The manager conducts fundamental financial analysis to identify companies with
above-average earnings growth.
In choosing individual securities, the manager looks for companies with growth
stemming from a combination of gains in market share and increasing operating
efficiency. Before investing, the manager identifies a specific catalyst for
growth, such as a new product, business reorganization or merger.
The management team generally maintains personal contact with the senior
management of the companies the fund invests in.
The manager considers broad economic trends, demographic factors, technological
changes, consolidation trends and legislative initiatives.
The fund generally invests in more than 100 companies. The fund may not invest
more than 5% of assets in any one security.
The fund may invest up to 10% of assets in foreign securities. The fund may also
make limited use of certain derivatives (investments whose value is based on
indices or currencies).
In abnormal conditions, the fund may temporarily invest in U.S. government
securities with maturities of up to three years and more than 10% of assets in
cash or cash equivalents. In these and other cases, the fund might not achieve
its goal.
The fund may trade securities actively, which could increase its transaction
costs (thus lowering performance) and increase your taxable distributions.
================================================================================
PORTFOLIO MANAGER
Barbara C. Friedman, CFA
---------------------------------------
Senior vice president of adviser
Joined team in 1998
Joined adviser in 1998
Began business career in 1973
PAST PERFORMACE
[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 broad-based market
indices for reference). This information may help provide an indication of the
fund's risks. The average annual figures reflect sales charges; the year-by-year
and index figures do not, and would be lower if they did. Beginning May 1, 2000,
a 1% front-end sales charge on Class C shares was imposed, which would result in
lower returns if reflected in these figures. All figures assume dividend
reinvestment. Past performance does not indicate future results.
--------------------------------------------------------------------------------
Class A year-by-year total returns -- calendar years
--------------------------------------------------------------------------------
1994 1995 1996 1997 1998 1999
-8.76% 34.24% 29.05% 2.37% 6.53% 58.17%
2000 total return as of March 31: 12.79%
Best quarter: Q4 '99, 45.43% Worst quarter: Q3 '98, -21.36%
--------------------------------------------------------------------------------
Average annual total returns -- for periods ending 12/31/99
--------------------------------------------------------------------------------
Life of Life of Life of
1 year 5 year Class A Class B Class C
Class A - began 11/1/93 50.24% 23.19% 16.58% -- --
Class B - began 11/1/93 52.21% 23.44% -- 16.75% --
Class C - began 6/1/98 56.11% -- -- -- 34.27%
Index 1 21.03% 28.54% 23.07% 23.07% 22.32%
Index 2 18.23% 21.86% 17.21% 17.21% 36.63%
Index 1: Standard & Poor's 500 Stock Index, an unmanaged index of 500 stocks.
Index 2: Russell Midcap Growth Index, an unmanaged index containing those stocks
from the Russell Midcap Index with a greater-than-average growth orientation.
16
<PAGE>
MAIN RISKS
[Clip Art] The value of your investment will go up and down in response to stock
market movements.
The fund's management strategy has a significant influence on fund performance.
Medium-capitalization stocks tend to be more volatile than stocks of larger
companies, and as a group could fall out of favor with the market, causing the
fund to underperform investments that focus either on small- or on
large-capitalization stocks. Similarly, growth stocks could underperform value
stocks. To the extent the fund invests in a given industry, its performance will
be hurt if that industry performs poorly. In addition, if the manager's security
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, these 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.
================================================================================
YOUR EXPENSES
[Clip Art] Transaction expenses are charged directly to your account. Operating
expenses are paid from the fund's assets, and therefore are paid by shareholders
indirectly.
--------------------------------------------------------------------------------
Shareholder transaction expenses(1) Class A Class B Class C
--------------------------------------------------------------------------------
Maximum sales charge (load) on purchases
as a % of purchase price 5.00% none 1.00%
Maximum deferred sales charge (load)
as a % of purchase or sale price,
whichever is less none(2) 5.00% 1.00%
--------------------------------------------------------------------------------
Annual operating expenses Class A Class B Class C
--------------------------------------------------------------------------------
Management fee 0.80% 0.80% 0.80%
Distribution and service (12b-1) fees 0.30% 1.00% 1.00%
Other expenses 0.50% 0.50% 0.50%
Total fund operating expenses 1.60% 2.30% 2.30%
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.
--------------------------------------------------------------------------------
Expenses Year 1 Year 3 Year 5 Year 10
--------------------------------------------------------------------------------
Class A $655 $ 980 $1,327 $2,305
Class B - with redemption $733 $1,018 $1,430 $2,461
- without redemption $233 $ 718 $1,230 $2,461
Class C - with redemption $430 $ 811 $1,318 $2,709
- without redemption $331 $ 811 $1,318 $2,709
(1) A $4.00 fee may be charged for wire redemptions.
(2) Except for investments of $1 million or more; see "How sales charges are
calculated."
FUND CODES
Class A
---------------------------------------
Ticker SPOAX
CUSIP 409906807
Newspaper MdCpGrA
SEC number 811-4630
JH fund number 39
Class B
---------------------------------------
Ticker SPOBX
CUSIP 409906880
Newspaper MdCpGrB
SEC number 811-4630
JH fund number 139
Class C
---------------------------------------
Ticker --
CUSIP 409906823
Newspaper --
SEC number 811-4630
JH fund number 539
17
<PAGE>
Small Cap Growth Fund
GOAL AND STRATEGY
[Clip Art] The fund seeks long-term capital appreciation. To pursue this goal,
the fund normally invests at least 80% of assets in stocks of
small-capitalization companies (companies in the capitalization range of the
Russell 2000 Growth Index, which was $23 million to $10.45 billion as of March
31, 2000).
The managers look for companies in the emerging growth phase of development that
are not yet widely recognized. The fund also may invest in established companies
that, because of new management, products or opportunities, offer the
possibility of accelerating earnings.
To manage risk, the fund typically invests in 150 to 220 companies across many
industries, and does not invest more than 5% of assets in any one company.
In choosing individual securities, the managers use fundamental financial
analysis to identify rapidly growing companies. The managers favor companies
that dominate their market niches or are poised to become market leaders. They
look for strong senior management teams and coherent business strategies. They
generally maintain personal contact with the senior management of the companies
the fund invests in.
The fund may invest in preferred stocks and other types of equities, and may
invest up to 10% of assets in foreign securities. The fund may also make limited
use of certain derivatives (investments whose value is based on indices or
currencies).
In abnormal conditions, the fund may temporarily invest in U.S. government
securities with maturities of up to three years and more than 10% of assets in
cash and cash equivalents. In these and other cases, the fund might not achieve
its goal.
The fund may trade securities actively, which could increase its transaction
costs (thus lowering performance) and increase your taxable distributions.
================================================================================
PORTFOLIO MANAGERS
Bernice S. Behar, CFA
---------------------------------------
Senior vice president of adviser
Joined team in 1996
Joined adviser in 1991
Began business career in 1986
Laura J. Allen, CFA
---------------------------------------
Senior vice president of adviser
Joined team in 1998
Joined adviser in 1998
Began business career in 1981
Anurag Pandit, CFA
---------------------------------------
Vice president of adviser
Joined team in 1996
Joined adviser in 1996
Began business career in 1984
PAST PERFORMACE
[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 broad-based market
indices for reference). This information may help provide an indication of the
fund's risks. The average annual figures reflect sales charges; the year-by-year
and index figures do not, and would be lower if they did. Beginning May 1, 2000,
a 1% front-end sales charge on Class C shares was imposed, which would result in
lower returns if reflected in these figures. All figures assume dividend
reinvestment. Past performance does not indicate future results.
--------------------------------------------------------------------------------
Class B year-by-year total returns -- calendar years
--------------------------------------------------------------------------------
1990 1991 1992 1993 1994 1995 1996 1997 1998 1999
-1.15% 58.82% 12.13% 11.82% -1.49% 42.13% 12.95% 14.45% 11.65% 63.62%
2000 total return as of March 31: 14.03%
Best quarter: Q4 '99, 43.58% Worst quarter: Q3 '90, -23.09%
--------------------------------------------------------------------------------
Average annual total returns -- for periods ending 12/31/99
--------------------------------------------------------------------------------
Life of Life of
1 year 5 year 10 year Class A Class C
Class A - began 8/22/91 56.65% 27.03% -- 20.50% --
Class B 58.62% 27.25% 20.60% -- --
Class C - began 6/1/98 62.59% -- -- -- 45.00%
Index 1 21.26% 16.69% 13.40% 15.19% 7.92%
Index 2 43.09% 18.99% 13.51% 14.65% 22.94%
Index 1: Russell 2000 Index, an unmanaged index of 2,000 U.S.
small-capitalization stocks.
Index 2: Russell 2000 Growth Index, an unmanaged index containing those stocks
from the Russell 2000 Index with a greater-than-average growth orientation.
18
<PAGE>
MAIN RISKS
[Clip Art] The value of your investment will go up and down in response to stock
market movements.
The fund's management strategy has a significant influence on fund performance.
Small-capitalization stocks as a group could fall out of favor with the market,
causing the fund to underperform investments that focus on medium- or large-
capitalization stocks. Similarly, growth stocks could underperform value stocks.
To the extent the fund invests in a given industry, its performance will be hurt
if that industry performs poorly. In addition, if the managers' security
selection strategies do not perform as expected, the fund could underperform its
peers or lose money.
Stocks of smaller companies are more volatile than stocks of larger companies.
Many smaller companies have short track records, narrow product lines or niche
markets, making them highly vulnerable to isolated business setbacks.
To the extent that the fund makes investments with additional risks, these 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; this risk could also affect
small-capitalization stocks, especially those with low trading volumes.
o Foreign investments carry additional risks, including potentially
unfavorable currency exchange rates, inadequate or inaccurate financial
information and social or political instability.
================================================================================
YOUR EXPENSES
[Clip Art] Transaction expenses are charged directly to your account. Operating
expenses are paid from the fund's assets, and therefore are paid by shareholders
indirectly.
--------------------------------------------------------------------------------
Shareholder transaction expenses(1) Class A Class B Class C
--------------------------------------------------------------------------------
Maximum sales charge (load) on purchases
as a % of purchase price 5.00% none 1.00%
Maximum deferred s ales charge (load)
as a % of purchase or sale price,
whichever is less none(2) 5.00% 1.00%
--------------------------------------------------------------------------------
Annual operating expenses Class A Class B Class C
--------------------------------------------------------------------------------
Management fee 0.75% 0.75% 0.75%
Distribution and service (12b-1) fees 0.25% 1.00% 1.00%
Other expenses 0.34% 0.34% 0.34%
Total fund operating expenses 1.34% 2.09% 2.09%
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.
--------------------------------------------------------------------------------
Expenses Year 1 Year 3 Year 5 Year 10
--------------------------------------------------------------------------------
Class A $630 $903 $1,197 $2,032
Class B - with redemption $712 $955 $1,324 $2,229
- without redemption $212 $655 $1,124 $2,229
Class C - with redemption $409 $748 $1,212 $2,497
- without redemption $310 $748 $1,212 $2,497
(1) A $4.00 fee may be charged for wire redemptions.
(2) Except for investments of $1 million or more; see "How sales charges are
calculated."
FUND CODES
Class A
---------------------------------------
Ticker TAEMX
CUSIP 478032105
Newspaper SmCpGrA
SEC number 811-3392
JHfund number 60
Class B
---------------------------------------
Ticker TSEGX
CUSIP 478032204
Newspaper SmCpGrB
SEC number 811-3392
JHfund number 160
Class C
---------------------------------------
Ticker --
CUSIP 478032501
Newspaper --
SEC number 811-3392
JHfund number 560
19
<PAGE>
Small Cap Value Fund
GOAL AND STRATEGY
[Clip Art] The fund seeks capital appreciation. To pursue this goal, the fund
normally invests at least 80% of assets in stocks of small-capitalization
companies (companies in the capitalization range of the Russell 2000 Index,
which was $23 million to $10.45 billion as of March 31, 2000).
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 U.S. and foreign companies that are selling at what
appear to be substantial discounts to their long-term value. These companies
often have identifiable catalysts for growth, such as new products, business
reorganizations or mergers.
The management team uses fundamental financial analysis of individual companies
to identify those with substantial cash flows, reliable revenue streams and
strong competitive positions. The strength of companies' management teams is
also a key selection factor. The fund diversifies across industry sectors. The
fund may not invest more than 5% of assets in any one security.
The fund may invest up to 15% of assets in a basket of foreign securities or in
bonds of any maturity rated as low as CC/Ca and their unrated equivalents (bonds
below BBB/Baa are considered junk bonds). The fund may make limited use of
certain derivatives (investments whose value is based on indices or currencies).
Under normal conditions, the fund may not invest more than 10% of assets in cash
or cash equivalents.
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.
The fund may trade securities actively, which could increase its transaction
costs (thus lowering performance) and increase your taxable distributions.
================================================================================
PORTFOLIO MANAGERS
Timothy E. Quinlisk, CFA
---------------------------------------
Senior vice president of adviser
Joined team in 1998
Joined adviser in 1998
Began business career in 1985
R. Scott Mayo, CFA
---------------------------------------
Joined team in 2000
Joined adviser in 1998
Began business career in 1993
PAST PERFORMACE
[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. The average annual figures reflect sales charges; the
year-by-year and index figures do not, and would be lower if they did. Beginning
May 1, 2000, a 1% front-end sales charge on Class C shares was imposed, which
would result in lower returns if reflected in these figures. All figures assume
dividend reinvestment. Past performance does not indicate future results.
--------------------------------------------------------------------------------
Class A year-by-year total returns -- calendar years
--------------------------------------------------------------------------------
1994 1995 1996 1997 1998 1999
7.81% 20.26% 12.91% 25.25% -2.10% 98.25%
2000 total return as of March 31: 10.76%
Best quarter: Q4 '99, 47.75% Worst quarter: Q3 '98, -21.43%
--------------------------------------------------------------------------------
Average annual total returns -- for periods ending 12/31/99
--------------------------------------------------------------------------------
Life of Life of Life of
1 year 5 year Class A Class B Class C
Class A - began 1/3/94 88.27% 25.69% 22.54% -- --
Class B - began 1/3/94 92.03% 25.90% -- 22.67% --
Class C - began 5/1/98 95.94% -- -- -- 39.67%
Index 21.26% 16.69% 13.39% 13.39% 4.00%
Index: Russell 2000 Index, an unmanaged index of 2,000 U.S. small-capitalization
stocks.
20
<PAGE>
MAIN RISKS
[Clip Art] The value of your investment will go up and down in response to stock
market movements.
The fund's management strategy has a significant influence on fund performance.
Small-capitalization stocks as a group could fall out of favor with the market,
causing the fund to underperform investments that focus on medium- or
large-capitalization stocks. Similarly, value stocks could underperform growth
stocks. To the extent the fund invests in a given industry, its performance will
be hurt if that industry performs poorly. In addition, if the managers' security
selection strategies do not perform as expected, the fund could underperform its
peers or lose money.
Stocks of smaller companies are more volatile than stocks of larger companies.
Many smaller companies have short track records, narrow product lines or niche
markets, making them highly vulnerable to isolated business setbacks.
To the extent that the fund makes investments with additional risks, these 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; this risk could also affect
small-capitalization stocks, especially those with low trading volumes.
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 quality or go
into default. In addition, bond prices generally fall when interest rates
rise; this risk is greater for longer maturity bonds. Junk bond prices can
fall on bad news about the issuer, an industry or the economy in general.
================================================================================
YOUR EXPENSES
[Clip Art] Transaction expenses are charged directly to your account. Operating
expenses are paid from the fund's assets, and therefore are paid by shareholders
indirectly.
--------------------------------------------------------------------------------
Shareholder transaction expenses(1) Class A Class B Class C
--------------------------------------------------------------------------------
Maximum sales charge (load) on purchases
as a % of purchase price 5.00% none 1.00%
Maximum deferred sales charge (load)
as a % of purchase or sale price,
whichever is less none(2) 5.00% 1.00%
--------------------------------------------------------------------------------
Annual operating expenses Class A Class B Class C
--------------------------------------------------------------------------------
Management fee 0.70% 0.70% 0.70%
Distribution and service (12b-1) fees 0.30% 1.00% 1.00%
Other expenses 0.54% 0.54% 0.54%
Total fund operating expenses 1.54% 2.24% 2.24%
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.
--------------------------------------------------------------------------------
Expenses Year 1 Year 3 Year 5 Year 10
--------------------------------------------------------------------------------
Class A $649 $ 962 $1,297 $2,243
Class B - with redemption $727 $1,000 $1,400 $2,399
- without redemption $227 $ 700 $1,200 $2,399
Class C - with redemption $424 $ 793 $1,288 $2,649
- without redemption $325 $ 793 $1,288 $2,649
(1) A $4.00 fee may be charged for wire redemptions.
(2) Except for investments of $1 million or more; see "How sales charges are
calculated."
FUND CODES
Class A
---------------------------------------
Ticker SPVAX
CUSIP 409905700
Newspaper SmCpVlA
SEC number 811-3999
JHfund number 37
Class B
---------------------------------------
Ticker SPVBX
CUSIP 409905809
Newspaper SmCpVlB
SEC number 811-3999
JHfund number 137
Class C
---------------------------------------
Ticker SPVCX
CUSIP 409905882
Newspaper --
SEC number 811-3999
JHfund number 537
21
<PAGE>
Sovereign Investors Fund
GOAL AND STRATEGY
[Clip Art] The fund seeks long-term growth of capital and income without
assuming undue market risks. To pursue this goal, the fund normally invests at
least 80% of stocks in a diversified portfolio of companies with market
capitalizations within the range of the Standard & Poor's 500 Stock Index. On
March 31, 2000, that range was $316 million to $553 billion.
At least 65% of the fund's stock investments are "dividend performers" --
companies whose dividend payments have increased steadily for ten years. The
managers use fundamental financial analysis to identify individual companies
with high-quality income statements, substantial cash reserves and identifiable
catalysts for growth, which may be new products or benefits from industrywide
growth. The managers generally visit companies to evaluate the strength and
consistency of their management strategy. Finally, the managers look for stocks
that are reasonably priced relative to their earnings and industry.
Historically, companies that meet these criteria have tended to have large or
medium capitalizations.
The fund may not invest more than 5% of assets in any one security. The fund may
invest in bonds of any maturity, with up to 5% of assets in junk bonds rated as
low as C and their unrated equivalents.
The fund typically invests in U.S. companies but may invest in
dollar-denominated foreign securities. It may also make limited use of certain
derivatives (investments whose value is based on indices).
Under normal conditions, the fund may not invest more than 10% of assets in cash
or cash equivalents.
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.
The fund may trade securities actively, which could increase its transaction
costs (thus lowering performance) and increase your taxable distributions.
================================================================================
PORTFOLIO MANAGERS
John F. Snyder, III
---------------------------------------
Executive vice president of adviser
Joined team in 1983
Joined adviser in 1991
Began business career in 1971
Barry H. Evans, CFA
---------------------------------------
Senior vice president of adviser
Joined team in 1996
Joined adviser in 1986
Began business career in 1986
Peter M. Schofield, CFA
---------------------------------------
Vice president of adviser
Joined team in 1996
Joined adviser in 1996
Began business career in 1984
PAST PERFORMACE
[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. The average annual figures reflect sales charges; the
year-by-year and index figures do not, and would be lower if they did. Beginning
May 1, 2000, a 1% front-end sales charge on Class C shares was imposed, which
would result in lower returns if reflected in these figures. All figures assume
dividend reinvestment. Past performance does not indicate future results.
--------------------------------------------------------------------------------
Class A year-by-year total returns -- calendar years
--------------------------------------------------------------------------------
1990 1991 1992 1993 1994 1995 1996 1997 1998 1999
4.38% 30.48% 7.23% 5.71% -1.85% 29.15% 17.57% 29.14% 15.62% 5.91%
2000 total return as of March 31: -6.02%
Best quarter: Q4 '98, 15.56% Worst quarter: Q3 '90, -9.03%
--------------------------------------------------------------------------------
Average annual total returns -- for periods ending 12/31/99
--------------------------------------------------------------------------------
Life of Life of
1 year 5 year 10 year Class B Class C
Class A 0.60% 17.93% 13.23% -- --
Class B - began 1/3/94 0.20% 18.06% -- 14.55% --
Class C - began 5/1/98 4.17% -- -- -- 6.24%
Index 21.03% 28.54% 18.19% 23.55% 19.84%
Index: Standard & Poor's 500 Stock Index, an unmanaged index of 500 stocks.
22
<PAGE>
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- or medium-capitalization stocks as a group could fall out of favor with
the market, causing the fund to underperform funds that focus on small-
capitalization stocks. Medium-capitalization stocks tend to be more volatile
than stocks of larger companies. In addition, if the managers' securities
selection strategies do not perform as expected, the fund could under-perform
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 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.
================================================================================
YOUR EXPENSES
[Clip Art] Transaction expenses are charged directly to your account. Operating
expenses are paid from the fund's assets, and therefore are paid by shareholders
indirectly.
--------------------------------------------------------------------------------
Shareholder transaction expenses(1) Class A Class B Class C
--------------------------------------------------------------------------------
Maximum sales charge (load) on purchases
as a % of purchase price 5.00% none 1.00%
Maximum deferred sales charge (load)
as a % of purchase or sale price,
whichever is less none(2) 5.00% 1.00%
--------------------------------------------------------------------------------
Annual operating expenses Class A Class B Class C
--------------------------------------------------------------------------------
Management fee 0.54% 0.54% 0.54%
Distribution and service (12b-1) fees 0.30% 1.00% 1.00%
Other expenses 0.21% 0.21% 0.21%
Total fund operating expenses 1.05% 1.75% 1.75%
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.
--------------------------------------------------------------------------------
Expenses Year 1 Year 3 Year 5 Year 10
--------------------------------------------------------------------------------
Class A $602 $817 $1,050 $1,718
Class B - with redemption $678 $851 $1,149 $1,878
- without redemption $178 $551 $ 949 $1,878
Class C - with redemption $375 $646 $1,039 $2,142
- without redemption $276 $646 $1,039 $2,142
(1) A $4.00 fee may be charged for wire redemptions.
(2) Except for investments of $1 million or more; see "How sales charges are
calculated."
FUND CODES
Class A
---------------------------------------
Ticker SOVIX
CUSIP 47803P302
Newspaper SvInvA
SEC number 811-0560
JH fund number 29
Class B
---------------------------------------
Ticker SOVBX
CUSIP 47803P401
Newspaper SvInvB
SEC number 811-0560
JH fund number 129
Class C
---------------------------------------
Ticker SOVCX
CUSIP 47803P609
Newspaper --
SEC number 811-0560
JH fund number 529
23
<PAGE>
Your account
--------------------------------------------------------------------------------
CHOOSING A SHARE CLASS
Each share class has its own cost structure, including a Rule 12b-1 plan that
allows it to pay fees for the sale, distribution and service of its shares. Your
financial representative can help you decide which share class is best for you.
--------------------------------------------------------------------------------
Class A
--------------------------------------------------------------------------------
o A front-end sales charge, as described at right.
o Distribution and service (12b-1) fees of 0.30% (0.25% for Large Cap Value
and Small Cap Growth).
--------------------------------------------------------------------------------
Class B
--------------------------------------------------------------------------------
o No front-end sales charge; all your money goes to work for you right away.
o Distribution and service (12b-1) fees of 1.00%.
o A deferred sales charge, as described on following page.
o Automatic conversion to Class A shares after eight years, thus reducing
future annual expenses.
--------------------------------------------------------------------------------
Class C
--------------------------------------------------------------------------------
o A front-end sales charge, as described at right.
o Distribution and service (12b-1) fees of 1.00%.
o A 1.00% contingent deferred sales charge on shares sold within one year of
purchase.
o No automatic conversion to Class A shares, so annual expenses continue at
the Class C level throughout the life of your investment.
For actual past expenses of each share class, see the fund-by-fund information
earlier in this prospectus.
Because 12b-1 fees are paid on an ongoing basis, they may cost share-holders
more than other types of sales charges.
Investors purchasing $1 million or more of Class B or Class C shares may want to
consider the lower operating expenses of Class A shares.
Your broker receives a percentage of these sales charges and fees. In addition,
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.
--------------------------------------------------------------------------------
HOW SALES CHARGES ARE CALCULATED
Class A and Class C Sales charges are as follows:
--------------------------------------------------------------------------------
Class A sales charges
--------------------------------------------------------------------------------
As a % of As a % of your
Your investment offering price investment
Up to $49,999 5.00% 5.26%
$50,000 - $99,999 4.50% 4.71%
$100,000 - $249,999 3.50% 3.63%
$250,000 - $499,999 2.50% 2.56%
$500,000 - $999,999 2.00% 2.04%
$1,000,000 and over See below
--------------------------------------------------------------------------------
Class C sales charges
--------------------------------------------------------------------------------
As a % of As a % of your
Your investment offering price investment
Up to $1,000,000 1.00% 1.01%
$1,000,000 and over none
Investments of $1 million or more Class A and Class C shares are available with
no front-end sales charge. However, there is a contingent deferred sales charge
(CDSC) on any Class A shares sold within one year of purchase, as follows:
--------------------------------------------------------------------------------
CDSC on $1 million+ investments
--------------------------------------------------------------------------------
CDSC on shares
Your investment being sold
First $1M - $4,999,999 1.00%
Next $1 - $5M above that 0.50%
Next $1 or more above that 0.25%
For purposes of this CDSC, all purchases made during a calendar month are
counted as having been made on the first day of that month.
The CDSC is based on the lesser of the original purchase cost or the current
market value of the shares being sold, and is not charged on shares you acquired
by reinvesting your dividends. To keep your CDSC as low as possible, each time
you place a request to sell shares we will first sell any shares in your account
that are not subject to a CDSC.
24 YOUR ACCOUNT
<PAGE>
Class B Shares are offered at their net asset value per share, without any
initial sales charge.
Class B and Class C A CDSC may be charged if you sell Class B or Class C shares
within a certain time after you bought them, as described in the tables below.
There is no CDSC on shares acquired through reinvestment of dividends. The CDSC
is based on the original purchase cost or the current market value of the shares
being sold, whichever is less. The CDSCs are as follows:
--------------------------------------------------------------------------------
Class B deferred charges
--------------------------------------------------------------------------------
CDSC on shares
Years after purchase being sold
1st year 5.00%
2nd year 4.00%
3rd or 4th year 3.00%
5th year 2.00%
6th year 1.00%
After 6th year none
--------------------------------------------------------------------------------
Class C deferred charges
--------------------------------------------------------------------------------
Years after purchase CDSC
1st year 1.00%
After 1st year none
For purposes of these CDSCs, all purchases made during a calendar month are
counted as having been made on the first day of that month.
CDSC calculations are based on the number of shares involved, not on the value
of your account. To keep your CDSC as low as possible, each time you place a
request to sell shares we will first sell any shares in your account that carry
no CDSC. If there are not enough of these to meet your request, we will sell
those shares that have the lowest CDSC.
--------------------------------------------------------------------------------
SALES CHARGE REDUCTIONS AND WAIVERS
Reducing your Class A sales charges There are several ways you can combine
multiple purchases of Class A shares of John Hancock funds to take advantage of
the breakpoints in the sales charge schedule. The first three ways can be
combined in any manner.
o Accumulation Privilege -- lets you add the value of any Class A shares you
already own to the amount of your next Class A investment for purposes of
calculating the sales charge. Retirement plans investing $1 million in
Class B shares may add that value to Class A purchases to calculate
charges.
o Letter of Intention -- lets you purchase Class A shares of a fund over a
13-month period and receive the same sales charge as if all shares had
been purchased at once.
o Combination Privilege -- lets you combine Class A shares of multiple funds
for purposes of calculating the sales charge.
To utilize: complete the appropriate section of your application, or contact
your financial representative or Signature Services, or consult the SAI (see the
back cover of this prospectus).
Group Investment Program A group may be treated as a single purchaser under the
accumulation and combination privileges. Each investor has an individual
account, but the group's investments are lumped together for sales charge
purposes, making the investors potentially eligible for reduced sales charges.
There is no charge or obligation to invest (although initial investments must
total at least $250), and individual investors may close their accounts at any
time.
To utilize: contact your financial representative or Signature Services to find
out how to qualify, or consult the SAI (see the back cover of this prospectus).
CDSC waivers As long as Signature Services is notified at the time you sell, the
CDSC for each share class will generally be waived in the following cases:
o to make payments through certain systematic withdrawal plans
o to make certain distributions from a retirement plan
o because of shareholder death or disability
To utilize: if you think you may be eligible for a CDSC waiver, contact your
financial representative or Signature Services, or consult the SAI (see the back
cover of this prospectus).
YOUR ACCOUNT 25
<PAGE>
Reinstatement privilege If you sell shares of a John Hancock fund, you may
reinvest some or all of the proceeds in the same share class of any John Hancock
fund within 120 days without a sales charge, as long as Signature Services is
notified before you reinvest. If you paid a CDSC when you sold your shares, you
will be credited with the amount of the CDSC. All accounts involved must have
the same registration.
To utilize: contact your financial representative or Signature Services.
Waivers for certain investors Class A shares may be offered without front-end
sales charges or CDSCs to various individuals and institutions, including:
o selling brokers and their employees and sales representatives
o financial representatives utilizing fund shares in fee-based investment
products under signed agreement with John Hancock Funds
o fund trustees and other individuals who are affiliated with these or other
John Hancock funds
o individuals transferring assets from an employee benefit plan into a John
Hancock fund
o certain John Hancock insurance contract holders (one-year CDSC usually
applies)
o participants in certain retirement plans with at least 100 eligible
employees (one-year CDSC applies)
Class C shares may be offered without front-end sales charges to various
individuals and institutions, including certain retirement plans.
To utilize: if you think you may be eligible for a sales charge waiver, contact
Signature Services or consult the sai (see the back cover of this prospectus).
--------------------------------------------------------------------------------
OPENING AN ACCOUNT
1 Read this prospectus carefully.
2 Determine how much you want to invest. The minimum initial investments for
the John Hancock funds are as follows:
o non-retirement account: $1,000
o retirement account: $250
o group investments: $250
o Monthly Automatic Accumulation Plan (MAAP): $25 to open; you must
invest at least $25 a month
o fee-based clients of selling brokers who have placed at least $2
billion in John Hancock funds: $250
3 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. For more details, please contact your financial representative or
call Signature Services at 1-800-225-5291.
4 Complete the appropriate parts of the account privileges application. By
applying for privileges now, you can avoid the delay and inconvenience of
having to file an additional application if you want to add privileges
later.
5 Make your initial investment using the table on the next page. You and
your financial representative can initiate any purchase, exchange or sale
of shares.
26 YOUR ACCOUNT
<PAGE>
--------------------------------------------------------------------------------
Buying shares
--------------------------------------------------------------------------------
Opening an account Adding to an account
By check
[Clip Art] o Make out a check for o Make out a check for the investment
the investment amount, amount payable to "John Hancock
payable to "John Signature Services, Inc."
Hancock Signature
Services, Inc." o Fill out the detachable investment
slip from an account statement. If
o Deliver the check and no slip is available, include a note
your completed specifying the fund name, your share
application to your class, your account number and the
financial name(s) in which the account is
representative, or mail registered.
them to Signature
Services (address o Deliver the check and your
below). investment slip or note to your
financial representative, or mail
them to Signature Services (address
below).
By exchange
[Clip Art] o Call your financial o Log on to www.jhfunds.com to process
representative or exchanges between funds.
Signature Services to
request an exchange. o Call EASI-Line for automated service
24 hours a day using your touch-tone
phone at 1-800-338-8080.
o Call your financial representative
or Signature Services to request an
exchange.
By wire
[Clip Art] o Deliver your completed o Instruct your bank to wire the
application to your amount of your investment to:
financial First Signature Bank & Trust
representative, or mail Account # 900000260
it to Signature Routing # 211475000
Services.
Specify the fund name, your share
o Obtain your account class, your account number and the
number by calling your name(s) in which the account is
financial registered. Your bank may charge a
representative or fee to wire funds.
Signature Services.
o Instruct your bank to
wire the amount of your
investment to:
First Signature
Bank & Trust
Account # 900000260
Routing # 211475000
Specify the fund name,
your choice of share
class, the new account
number and the name(s) in
which the account is
registered. Your bank may
charge a fee to wire
funds.
By Internet
[Clip Art] See "By exchange" and "By o Verify that your bank or credit
wire." union is a member of the Automated
Clearing House (ACH) system.
o Complete the "Bank Information"
section on your account application.
o Log on to www.jhfunds.com to
initiate purchases using your
authorized bank account.
By phone
[Clip Art] See "By exchange" and "By o Verify that your bank or credit
wire." union is a member of the Automated
Clearing House (ACH) system.
o Complete the "Bank Information"
section on your account application.
o Call EASI-Line for automated service
24 hours a day using your touch-tone
phone at 1-800-338-8080.
o Call your financial representative
or Signature Services between 8 A.M.
and 4 P.M. Eastern Time on most
business days.
--------------------------------------------------------------------------------
Address:
John Hancock Signature Services, Inc.
1 John Hancock Way, Suite 1000
Boston, MA 02217-1000
Phone Number: 1-800-225-5291
Or contact your financial representative for instructions and assistance.
--------------------------------------------------------------------------------
To open or add to an account using the Monthly Automatic Accumulation Program,
see "Additional investor services."
YOUR ACCOUNT 27
<PAGE>
--------------------------------------------------------------------------------
Selling shares
--------------------------------------------------------------------------------
Designed for To sell some or all of your shares
By letter
[Clip Art] o Accounts of any type. o Write a letter of instruction or
complete a stock power indicating
o Sales of any amount. the fund name, your share class,
your account number, the name(s) in
which the account is registered and
the dollar value or number of shares
you wish to sell.
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 Internet
[Clip Art] o Most accounts. o Log on to www.jhfunds.com to
initiate redemptions from your
o Sales of up to funds.
$100,000.
By phone
[Clip Art] o Most accounts. o Call EASI-Line for automated service
24 hours a day using your touch-tone
o Sales of up to phone at 1-800-338-8080.
$100,000.
o Call your financial representative
or Signature Services between 8 A.M.
and 4 P.M. Eastern Time on most
business days.
By wire or electronic funds transfer (EFT)
[Clip Art] o Requests by letter to o To verify that the Internet or
sell any amount. telephone redemption privilege is in
place on an account, or to request
o Requests by Internet or the form to add it to an existing
phone to sell up to account, call Signature Services.
$100,000.
o Amounts of $1,000 or more will be
wired on the next business day. A $4
fee will be deducted from your
account.
o Amounts of less than $1,000 may be
sent by EFT or by check. Funds from
EFT transactions are generally
available by the second business
day. Your bank may charge a fee for
this service.
By exchange
[Clip Art] o Accounts of any type. o Obtain a current prospectus for the
fund into which you are exchanging
o Sales of any amount. by Internet or by calling your
financial representative or
Signature Services.
o Log on to www.jhfunds.com to process
exchanges between your funds.
o Call EASI-Line for automated service
24 hours a day using your touch-tone
phone at 1-800-338-8080.
o Call your financial representative
or Signature Services to request an
exchange.
To sell shares through a systematic withdrawal plan, see "Additional investor
services."
28 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
o you are requesting payment other than by a check mailed to the address of
record and payable to the registered owner(s)
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.
--------------------------------------------------------------------------------
Seller Requirements for written requests
[Clip Art]
--------------------------------------------------------------------------------
Owners of individual, joint or o Letter of instruction.
UGMA/UTMA accounts (custodial
accounts for minors). o On the letter, the signatures of all
persons authorized to sign for the
account, exactly as the account is
registered.
o Signature guarantee if applicable
(see above).
Owners of corporate, sole o Letter of instruction.
proprietorship, 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).
Owners or trustees of 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).
Joint tenancy shareholders with o Letter of instruction signed by
rights of survivorship whose surviving tenant.
co-tenants are deceased.
o Copy of death certificate.
o Signature guarantee if applicable
(see above).
Executors of shareholder estates. o Letter of instruction signed by
executor.
o Copy of order appointing executor,
certified within the past 12 months.
o Signature guarantee if applicable
(see above).
Administrators, conservators, o Call 1-800-225-5291 for
guardians and other sellers or instructions.
account types not listed above.
--------------------------------------------------------------------------------
Address:
John Hancock Signature Services, Inc.
1 John Hancock Way, Suite 1000
Boston, MA 02217-1000
Phone Number: 1-800-225-5291
Or contact your financial representative for instructions and assistance.
--------------------------------------------------------------------------------
YOUR ACCOUNT 29
<PAGE>
--------------------------------------------------------------------------------
TRANSACTION POLICIES
Valuation of shares The net asset value (NAV) per share for each fund and class
is determined each business day at the close of regular trading on the New York
Stock Exchange (typically 4 p.m. Eastern Time). The funds use market prices in
valuing portfolio securities, but may use fair-value estimates if reliable
market prices are unavailable. The funds may also value securities at fair value
if the value of these securities has been materially affected by events
occurring after the close of a foreign market. Foreign stock or other portfolio
securities held by the funds may trade on U.S. holidays and weekends, even
though the funds' shares will not be priced on those days. This may change a
fund's NAV on days when you cannot buy or sell shares.
Buy and sell prices When you buy shares, you pay the NAV plus any applicable
sales charges, as described earlier. When you sell shares, you receive the NAV
minus any applicable deferred sales charges.
Execution of requests Each fund is open on those days when the New York Stock
Exchange is open, typically Monday through Friday. Buy and sell requests are
executed at the next NAV to be calculated after 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 John Hancock fund for shares of the
same class of any other, generally without paying any additional sales charges.
The registration for both accounts involved must be identical. Class B and Class
C shares will continue to age from the original date and will retain the same
CDSC rate. However, if the new fund's CDSC rate is higher, then the rate will
increase. A CDSC rate that has increased will drop again with a future exchange
into a fund with a lower rate.
To protect the interests of other investors in the fund, a fund may cancel the
exchange privileges of any parties who, 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.
--------------------------------------------------------------------------------
DIVIDENDS AND ACCOUNT POLICIES
Account statements In general, you will receive account statements as follows:
o after every transaction (except a dividend reinvestment) that affects your
account balance
o after any changes of name or address of the registered owner(s)
o in all other circumstances, every quarter
Every year you should also receive, if applicable, a Form 1099 tax information
statement, mailed by January 31.
Dividends The funds generally distribute most or all of their net earnings in
the form of dividends. Any capital gains are distributed annually. Balanced and
Sovereign Investors funds typically pay income dividends quarterly. Core Value
typically pays income dividends annually. The other funds do not usually pay
income dividends. Most of these dividends are from capital gains.
Dividend reinvestments Most investors have their dividends reinvested in
additional shares of the same fund and class. If you choose this option, or if
you do not indicate any choice, your dividends will be reinvested on the
dividend record date. Alternatively, you can choose to have a check for your
dividends mailed to
30 YOUR ACCOUNT
<PAGE>
you. However, if the check is not deliverable, your dividends will be
reinvested.
Taxability of dividends 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. Depending on the purchase price and the sale
price of the shares you sell or exchange, you may have a gain or a loss on the
transaction. You are responsible for any tax liabilities generated by your
transactions.
Small accounts (non-retirement only) If you draw down a non-retirement account
so that its total value is less than $1,000, you may be asked to purchase more
shares within 30 days. If you do not take action, your fund may close out your
account and mail you the proceeds. Alternatively, Signature Services may charge
you $10 a year to maintain your account. You will not be charged a CDSC if your
account is closed for this reason, and your account will not be closed if its
drop in value is due to fund performance or the effects of sales charges.
--------------------------------------------------------------------------------
ADDITIONAL INVESTOR SERVICES
Monthly Automatic Accumulation Program (MAAP) MAAP lets you set up regular
investments from your paycheck or bank account to the John Hancock fund(s) of
your choice. You determine the frequency and amount of your investments, and you
can terminate your program at any time. To establish:
o Complete the appropriate parts of your account application.
o If you are using MAAP to open an account, make out a check ($25 minimum)
for your first investment amount payable to "John Hancock Signature
Services, Inc." Deliver your check and application to your financial
representative or Signature Services.
Systematic withdrawal plan This plan may be used for routine bill payments or
periodic withdrawals from your account. To establish:
o Make sure you have at least $5,000 worth of shares in your account.
o Make sure you are not planning to invest more money in this account
(buying shares during a period when you are also selling shares of the
same fund is not advantageous to you, because of sales charges).
o Specify the payee(s). The payee may be yourself or any other party, and
there is no limit to the number of payees you may have, as long as they
are all on the same payment schedule.
o Determine the schedule: monthly, quarterly, semi-annually, annually or in
certain selected months.
o Fill out the relevant part of the account application. To add a systematic
withdrawal plan to an existing account, contact your financial
representative or Signature Services.
Retirement plans John Hancock Funds offers a range of retirement plans,
including traditional and Roth IRAs, SIMPLE plans, SEPs, 401(k) plans and other
pension and profit-sharing plans. Using these plans, you can invest in any John
Hancock fund (except tax-free income funds) with a low minimum investment of
$250 or, for some group plans, no minimum investment at all. To find out more,
call Signature Services at 1-800-225-5291.
YOUR ACCOUNT 31
<PAGE>
Fund details
--------------------------------------------------------------------------------
BUSINESS STRUCTURE
The diagram below shows the basic business structure used by the John Hancock
equity funds. Each 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 of the Balanced, Core Growth, Core Value, Large Cap Value, Mid Cap
Growth and Small Cap Growth funds have the power to change these funds'
respective investment goals without shareholder approval.
Management fees The management fees paid to the investment adviser by the John
Hancock equity funds last fiscal year are as follows:
--------------------------------------------------------------------------------
Fund % of net assets
--------------------------------------------------------------------------------
Balanced 0.60%
Core Equity 0.74%
Core Growth 0.42%
Core Value 0.16%
Large Cap Growth 0.75%
Large Cap Value 0.625%
Mid Cap Growth 0.80%
Small Cap Growth 0.75%
Small Cap Value 0.70%
Sovereign Investors 0.54%
-----------------
Shareholders
-----------------
Distribution and
shareholder services
-------------------------------------------------
Financial services firms and
their representatives
Advise current and prospective share-
holders on their fund investments, often
in the context of an overall financial plan.
-------------------------------------------------
-------------------------------------------------
Principal distributor
John Hancock Funds, Inc.
Markets the funds and distributes shares
through selling brokers, financial planners
and other financial representatives.
-------------------------------------------------
------------------------------------------------------
Transfer agent
John Hancock Signature Services, Inc.
Handles shareholder services, including record-
keeping and statements, distribution of dividends
and processing of buy and sell requests.
------------------------------------------------------
Asset
management
-----------------------------
Subadviser
Independence Investment
Associates, Inc.
53 State Street
Boston, MA 02109
Provides portfolio
management to certain
funds.
-----------------------------
------------------------------------
Investment adviser
John Hancock Advisers, Inc.
101 Huntington Avenue
Boston, MA 02199-7603
Manages the funds' business and
investment activities.
-------------------------------
------------------------------------
Custodian
Investors Bank & Trust Co.
Holds the funds' assets, settles all
portfolio trades and collects most of
the valuation data required for
calculating each fund's NAV.
-------------------------------------
----------------------------------
Trustees
Oversee the funds' activities.
----------------------------------
32 FUND DETAILS
<PAGE>
--------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
These tables detail the performance of each fund's share classes, including
total return information showing how much an investment in the fund has
increased or decreased each year.
Balanced Fund
Figures audited by Ernst & Young LLP.
<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------------------------------------------
Class A - period ended: 12/95 12/96 12/97 12/98 12/99
---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Per share operating performance
Net asset value, beginning of period $9.84 $11.75 $12.27 $13.33 $14.06
Net investment income (loss)(1) 0.44 0.41 0.37 0.36 0.35
Net realized and unrealized gain (loss) on investments 1.91 0.99 2.14 1.47 0.18
Total from investment operations 2.35 1.40 2.51 1.83 0.53
Less distributions:
Dividends from net investment income (0.44) (0.41) (0.37) (0.36) (0.36)
Distributions in excess of net investment income -- -- -- -- (0.00)(2)
Distributions from net realized gain on investments sold -- (0.47) (1.08) (0.74) (0.18)
Total distributions (0.44) (0.88) (1.45) (1.10) (0.54)
Net asset value, end of period $11.75 $12.27 $13.33 $14.06 $14.05
Total investment return at net asset value(3) (%) 24.23 12.13 20.79 14.01 3.89
Ratios and supplemental data
Net assets, end of period (000s omitted) ($) 69,811 71,242 84,264 97,072 130,690
Ratio of expenses to average net assets (%) 1.27 1.29 1.22 1.21 1.22
Ratio of net investment income (loss) to average net assets (%) 3.99 3.33 2.77 2.61 2.47
Portfolio turnover rate (%) 45 80 115 83 94
<CAPTION>
---------------------------------------------------------------------------------------------------------------------------
Class B - period ended: 12/95 12/96 12/97 12/98 12/99
---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Per share operating performance
Net asset value, beginning of period $9.84 $11.74 $12.27 $13.33 $14.06
Net investment income (loss)(1) 0.36 0.32 0.28 0.27 0.26
Net realized and unrealized gain (loss) on investments 1.90 1.01 2.14 1.46 0.17
Total from investment operations 2.26 1.33 2.42 1.73 0.43
Less distributions:
Dividends from net investment income (0.36) (0.33) (0.28) (0.26) (0.26)
Distributions in excess of net investment income -- -- -- -- (0.00)(2)
Distributions from net realized gain on investments sold -- (0.47) (1.08) (0.74) (0.18)
Total distributions (0.36) (0.80) (1.36) (1.00) (0.44)
Net asset value, end of period $11.74 $12.27 $13.33 $14.06 $14.05
Total investment return at net asset value(3) (%) 23.30 11.46 19.96 13.23 3.16
Ratios and supplemental data
Net assets, end of period (000s omitted) ($) 87,827 90,855 101,249 115,682 111,564
Ratio of expenses to average net assets (%) 1.96 1.99 1.91 1.88 1.92
Ratio of net investment income (loss) to average net assets (%) 3.31 2.63 2.08 1.93 1.76
Portfolio turnover rate (%) 45 80 115 83 94
</TABLE>
FUND DETAILS 33
<PAGE>
Balanced Fund continued
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------
Class C - period ended: 12/99(4)
-----------------------------------------------------------------------------------------
<S> <C>
Per share operating performance
Net asset value, beginning of period $14.60
Net investment income (loss)(1) 0.19
Net realized and unrealized gain (loss) on investments (0.37)
Total from investment operations (0.18)
Less distributions:
Dividends from net investment income (0.19)
Distributions in excess of net investment income (0.00)(2)
Distributions from net realized gain on investments sold (0.18)
Total distributions (0.37)
Net asset value, end of period $14.05
Total investment return at net asset value(3) (%) (1.15)(5)
Ratios and supplemental data
Net assets, end of period (000s omitted) ($) 330
Ratio of expenses to average net assets (%) 1.84(6)
Ratio of net investment income (loss) to average net assets (%) 1.88(6)
Portfolio turnover rate (%) 94
</TABLE>
(1) Based on the average of the shares outstanding at the end of each month.
(2) Less than $0.01 per share.
(3) Assumes dividend reinvestment and does not reflect the effect of sales
charges.
(4) Class C shares began operations on May 1, 1999.
(5) Not annualized.
(6) Annualized.
34 FUND DETAILS
<PAGE>
Core Equity Fund
Figures audited by PricewaterhouseCoopers LLP.
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------------------------------------------
Class A - period ended: 5/95 5/96 12/96(1) 12/97 12/98 12/99
-----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Per share operating performance
Net asset value, beginning of period $12.68 $14.41 $17.98 $19.42 $23.93 $30.14
Net investment income (loss)(2) 0.32 0.20 0.13 0.10 0.05 (0.02)
Net realized and unrealized gain (loss) on investments 1.77 3.88 1.72 5.55 6.81 3.72
Total from investment operations 2.09 4.08 1.85 5.65 6.86 3.70
Less distributions:
Dividends from net investment income (0.28) (0.22) (0.14) (0.04) -- --
Distributions from net realized gain on investments sold (0.08) (0.29) (0.27) (1.10) (0.65) (0.63)
Total distributions (0.36) (0.51) (0.41) (1.14) (0.65) (0.63)
Net asset value, end of period $14.41 $17.98 $19.42 $23.93 $30.14 $33.21
Total investment return at net asset value(3) (%) 16.98 29.12 10.33(4) 29.19 28.84 12.37
Total adjusted investment return at net asset value(3,5) (%) 16.94 28.47 10.08(4) 29.17 -- --
Ratios and supplemental data
Net assets, end of period (000s omitted) ($) 101,418 14,878 31,013 92,204 200,962 393,792
Ratio of expenses to average net assets (%) 0.70 0.94 1.30(6) 1.42 1.39 1.37(7)
Ratio of adjusted expenses to average net assets(8) (%) 0.74 1.59 1.73(6) 1.44 -- --
Ratio of net investment income (loss) to average net assets (%) 2.43 1.55 1.16(6) 0.45 0.17 (0.06)
Ratio of adjusted net investment income (loss)
to average net assets(8) (%) 2.39 0.90 0.73(6) 0.43 -- --
Portfolio turnover rate (%) 71 157 35 62 50 98
Fee reduction per share(2) ($) 0.005 0.08 0.05 0.00(9) -- --
<CAPTION>
------------------------------------------------------------------------------------------------------------------------------------
Class B - period ended: 5/96(10) 12/96(1) 12/97 12/98 12/99
------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Per share operating performance
Net asset value, beginning of period $15.25 $17.96 $19.41 $23.80 $29.75
Net investment income (loss)(2) 0.09 0.05 (0.06) (0.14) (0.24)
Net realized and unrealized gain (loss) on investments 2.71 1.72 5.56 6.74 3.66
Total from investment operations 2.80 1.77 5.50 6.60 3.42
Less distributions:
Dividends from net investment income (0.09) (0.05) (0.01) -- --
Distributions from net realized gain on investments sold -- (0.27) (1.10) (0.65) (0.63)
Total distributions (0.09) (0.32) (1.11) (0.65) (0.63)
Net asset value, end of period $17.96 $19.41 $23.80 $29.75 $32.54
Total investment return at net asset value(3) (%) 18.46(4) 9.83(4) 28.39 27.90 11.59
Total adjusted investment return at net asset value(3,5) (%) 17.59(4) 9.58(4) 28.37 -- --
Ratios and supplemental data
Net assets, end of period (000s omitted) ($) 15,125 42,461 134,939 347,045 664,104
Ratio of expenses to average net assets (%) 2.00(6) 2.00(6) 2.12 2.09 2.07(7)
Ratio of adjusted expenses to average net assets(8) (%) 3.21(6) 2.43(6) 2.14 -- --
Ratio of net investment income (loss) to average net assets (%) 0.78(6) 0.45(6) (0.25) (0.53) (0.77)
Ratio of adjusted net investment income (loss)
to average net assets(8) (%) (0.43)(6) 0.02(6) (0.27) -- --
Portfolio turnover rate (%) 157 35 62 50 98
Fee reduction per share(2) ($) 0.13 0.05 0.00(9) -- --
</TABLE>
FUND DETAILS 35
<PAGE>
Core Equity Fund continued
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------------
Class C - period ended: 12/98(10) 12/99
--------------------------------------------------------------------------------------------------
<S> <C> <C>
Per share operating performance
Net asset value, beginning of period $27.81 $29.75
Net investment income (loss)(2) (0.09) (0.25)
Net realized and unrealized gain (loss) on investments 2.68 3.67
Total from investment operations 2.59 3.42
Less distributions:
Distributions from net realized gain on investments sold (0.65) (0.63)
Net asset value, end of period $29.75 $32.54
Total investment return at net asset value(3) (%) 9.46(4) 11.59
Ratios and supplemental data
Net assets, end of period (000s omitted) ($) 6,901 29,859
Ratio of expenses to average net assets (%) 2.12(6) 2.08(7)
Ratio of net investment income (loss) to average net assets (%) (0.53)(6) (0.80)
Portfolio turnover rate (%) 50 98
</TABLE>
(1) Effective December 31, 1996, the fiscal year end changed from May 31 to
December 31.
(2) Based on the average of the shares outstanding at the end of each month.
(3) Assumes dividend reinvestment and does not reflect the effect of sales
charges.
(4) Not annualized.
(5) An estimated total return calculation that does not take into consideration
fee reductions by the adviser during the periods shown.
(6) Annualized.
(7) Expense ratios do not include interest expense due to bank loans, which
amounted to less than 0.01%.
(8) Unreimbursed, without fee reduction.
(9) Less than $0.01 per share.
(10) Class B shares began operations on September 7, 1995. Class C shares began
operations on May 1, 1998.
36 FUND DETAILS
<PAGE>
Core Growth Fund
Figures audited by Deloitte & Touche LLP.
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------
Class A - period ended: 2/00(1)
------------------------------------------------------------------------------------------------
<S> <C>
Per share operating performance
Net asset value, beginning of period $18.14
Net investment income (loss)(2) (0.05)
Net realized and unrealized gain (loss) on investments 1.73
Total from investment operations 1.68
Less distributions:
Distributions from net realized gain on investments sold (0.02)
Net asset value, end of period $19.80
Total investment return at net asset value(3) (%) 9.25(4)
Total adjusted investment return at net asset value(3,5) (%) 9.00(4)
Ratios and supplemental data
Net assets, end of period (000s omitted) ($) 20,821
Ratio of expenses to average net assets (%) 1.25(6)
Ratio of adjusted expenses to average net assets(7,8) (%) 1.63(6)
Ratio of net investment income (loss) to average net assets (%) (0.39)(6)
Ratio of adjusted net investment income (loss) to average net assets(7,8) (%) (0.77)(6)
Portfolio turnover rate (%) 72
Fee reduction per share(2) ($) 0.05
<CAPTION>
------------------------------------------------------------------------------------------------
Class B - period ended: 2/00(1)
------------------------------------------------------------------------------------------------
<S> <C>
Per share operating performance
Net asset value, beginning of period $18.14
Net investment income (loss)(2) (0.13)
Net realized and unrealized gain (loss) on investments 1.74
Total from investment operations 1.61
Less distributions:
Distributions from net realized gain on investments sold (0.02)
Net asset value, end of period $19.73
Total investment return at net asset value(3) (%) 8.86(4)
Total adjusted investment return at net asset value(3,5) (%) 8.61(4)
Ratios and supplemental data
Net assets, end of period (000s omitted) ($) 22,728
Ratio of expenses to average net assets (%) 1.95(6)
Ratio of adjusted expenses to average net assets(7,8) (%) 2.33(6)
Ratio of net investment income (loss) to average net assets (%) (1.09)(6)
Ratio of adjusted net investment income (loss) to average net assets(7,8) (%) (1.47)(6)
Portfolio turnover rate (%) 72
Fee reduction per share(2) ($) 0.05
</TABLE>
FUND DETAILS 37
<PAGE>
Core Growth Fund continued
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------
Class C - period ended: 2/00(1)
------------------------------------------------------------------------------------------
<S> <C>
Per share operating performance
Net asset value, beginning of period $18.14
Net investment income (loss)(2) (0.13)
Net realized and unrealized gain (loss) on investments 1.74
Total from investment operations 1.61
Less distributions:
Distributions from net realized gain on investments sold (0.02)
Net asset value, end of period $19.73
Total investment return at net asset value(3) (%) 8.86(4)
Total adjusted investment return at net asset value(3,5) (%) 8.61(4)
Ratios and supplemental data
Net assets, end of period (000s omitted) ($) 915
Ratio of expenses to average net assets (%) 1.95(6)
Ratio of adjusted expenses to average net assets(7,8) (%) 2.33(6)
Ratio of net investment income (loss) to average net assets (%) (1.09)(6)
Ratio of adjusted net investment income (loss) to average net assets(7,8) (%) (1.47)(6)
Portfolio turnover rate (%) 72
Fee reduction per share(2) ($) 0.05
</TABLE>
(1) Began operations on July 1, 1999.
(2) Based on the average of the shares outstanding at the end of each month.
(3) Assumes dividend reinvestment and does not reflect the effect of sales
charges.
(4) Not annualized.
(5) An estimated total return calculation, which does not take into
consideration fee reductions by the adviser during the period shown.
(6) Annualized.
(7) Unreimbursed, without fee reduction.
(8) Adjusted expenses as a percentage of average net assets are expected to
decrease and adjusted net income as a percentage of average net assets is
expected to increase as the net assets of the fund grow.
38 FUND DETAILS
<PAGE>
Core Value Fund
Figures audited by Deloitte & Touche LLP.
<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------------------------------------------
Class A(1) - period ended: 2/96(2) 2/97 2/98 2/99 2/00
----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Per share operating performance
Net asset value, beginning of period $8.50 $9.47 $10.88 $13.93 $12.36
Net investment income (loss)(3) 0.10 0.23 0.21 0.15 0.13
Net realized and unrealized gain (loss) on investments 0.96 1.77 3.33 1.23 (1.01)
Total from investment operations 1.06 2.00 3.54 1.38 (0.88)
Less distributions:
Dividends from net investment income (0.09) (0.19) (0.13) (0.18) (0.08)
Distributions from net realized gain on investments sold -- (0.40) (0.36) (2.77) (0.70)
Total distributions (0.09) (0.59) (0.49) (2.95) (0.78)
Net asset value, end of period $9.47 $10.88 $13.93 $12.36 $10.70
Total investment return at net asset value(4) (%) 12.52(5) 21.36 32.97 9.87 (8.08)
Total adjusted investment return at net asset value(4,6) (%) (1.18)(5) 15.92 32.02 8.94 (8.94)
Ratios and supplemental data
Net assets, end of period (000s omitted) ($) 682 1,323 7,747 6,685 11,508
Ratio of expenses to average net assets (%) 0.95(7) 0.95 0.95 0.95 0.95
Ratio of adjusted expenses to average net assets(8,9) (%) 34.06(7) 6.39 1.90 1.88 1.89
Ratio of net investment income (loss) to average net assets (%) 2.81(7) 2.26 1.60 1.03 1.09
Ratio of adjusted net investment income (loss) to average net assets(8,9) (%) (30.30)(7) (3.18) 0.65 0.10 0.15
Portfolio turnover rate (%) 12 66 119 61 76
Fee reduction per share(3) ($) 1.22 0.55 0.12 0.13 0.09
<CAPTION>
-----------------------------------------------------------------------------------------------
Class B - period ended: 2/00(2)
-----------------------------------------------------------------------------------------------
<S> <C>
Per share operating performance
Net asset value, beginning of period $13.35
Net investment income (loss)(3) 0.02
Net realized and unrealized gain (loss) on investments (2.56)
Total from investment operations (2.54)
Less distributions:
Dividends from net investment income (0.02)
Distributions from net realized gain on investments sold (0.10)
Total distributions (0.12)
Net asset value, end of period $10.69
Total investment return at net asset value(4) (%) (19.19)(5)
Total adjusted investment return at net asset value(4,6) (%) (19.61)(5)
Ratios and supplemental data
Net assets, end of period (000s omitted) ($) 7,539
Ratio of expenses to average net assets (%) 1.95(7)
Ratio of adjusted expenses to average net assets(8,9) (%) 2.59(7)
Ratio of net investment income (loss) to average net assets (%) 0.19(7)
Ratio of adjusted net investment income (loss) to average net assets(8,9) (%) 0.45(7)
Portfolio turnover rate (%) 76
Fee reduction per share(3) ($) 0.07
</TABLE>
FUND DETAILS 39
<PAGE>
Core Value Fund continued
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------
Class C - period ended: 2/00(2)
--------------------------------------------------------------------------------------------
<S> <C>
Per share operating performance
Net asset value, beginning of period $13.35
Net investment income (loss)(3) 0.02
Net realized and unrealized gain (loss) on investments (2.56)
Total from investment operations (2.54)
Less distributions:
Dividends from net investment income (0.02)
Distributions from net realized gain on investments sold (0.10)
Total distributions (0.12)
Net asset value, end of period $10.69
Total investment return at net asset value(4) (%) (19.19)(5)
Total adjusted investment return at net asset value(4,6) (%) (19.61)(5)
Ratios and supplemental data
Net assets, end of period (000s omitted) ($) 258
Ratio of expenses to average net assets (%) 1.95(7)
Ratio of adjusted expenses to average net assets(8,9) (%) 2.59(7)
Ratio of net investment income (loss) to average net assets (%) 0.21(7)
Ratio of adjusted net investment income (loss) to average net assets(8,9) (%) (0.43)(7)
Portfolio turnover rate (%) 76
Fee reduction per share(3) ($) 0.07
</TABLE>
(1) Effective July 1, 1999, existing shares of the fund were designated Class A
shares. The fund, which had previously only been sold to institutional
investors, also became available for sale to individual investors.
(2) Class A shares began operations on October 2, 1995. Class B and Class C
shares began operations on July 1, 1999.
(3) Based on the average of the shares outstanding at the end of each month.
(4) Assumes dividend reinvestment and does not reflect the effect of sales
charges.
(5) Not annualized.
(6) An estimated total return calculation that does not take into consideration
fee reductions by the adviser during the periods shown.
(7) Annualized.
(8) Unreimbursed, without fee reduction.
(9) Adjusted expenses as a percentage of average net assets are expected to
decrease and adjusted net income as a percentage of average net assets is
expected to increase as the net assets of the fund grow.
40 FUND DETAILS
<PAGE>
Large Cap Growth Fund
Figures audited by Ernst & Young LLP.
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------------
Class A - period ended: 12/94 12/95 10/96(1) 10/97
------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Per share operating performance
Net asset value, beginning of period $17.40 $15.89 $19.51 $23.28
Net investment income (loss) (0.10) (0.09)(2) (0.13)(2) (0.12)(2)
Net realized and unrealized gain (loss) on investments (1.21) 4.40 3.90 3.49
Total from investment operations (1.31) 4.31 3.77 3.37
Less distributions:
Distributions from net realized gain on investments sold (0.20) (0.69) -- (2.28)
Net asset value, end of period $15.89 $19.51 $23.28 $24.37
Total investment return at net asset value(3) (%) (7.50) 27.17 19.32(4) 16.05
Ratios and supplemental data
Net assets, end of period (000s omitted) ($) 146,466 241,700 279,425 303,067
Ratio of expenses to average net assets (%) 1.65 1.48 1.48(5) 1.44
Ratio of net investment income (loss) to average net assets (%) (0.64) (0.46) (0.73)(5) (0.51)
Portfolio turnover rate (%) 52 68(7) 59 133
<CAPTION>
---------------------------------------------------------------------------------------------
Class A - period ended: 10/98 10/99
---------------------------------------------------------------------------------------------
<S> <C> <C>
Per share operating performance
Net asset value, beginning of period $24.37 $22.27
Net investment income (loss) (0.11)(2) (0.17)(2)
Net realized and unrealized gain (loss) on investments 2.17 5.65
Total from investment operations 2.06 5.48
Less distributions:
Distributions from net realized gain on investments sold (4.16) (2.71)
Net asset value, end of period $22.27 $25.04
Total investment return at net asset value(3) (%) 9.80 27.58
Ratios and supplemental data
Net assets, end of period (000s omitted) ($) 381,591 484,196
Ratio of expenses to average net assets (%) 1.40 1.35(6)
Ratio of net investment income (loss) to average net assets (%) (0.50) (0.70)
Portfolio turnover rate (%) 153(7) 183
<CAPTION>
------------------------------------------------------------------------------------------------------------------------
Class B - period ended: 12/94(8) 12/95 10/96(1) 10/97
------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Per share operating performance
Net asset value, beginning of period $17.16 $15.83 $19.25 $22.83
Net investment income (loss)(2) (0.20) (0.26) (0.26) (0.27)
Net realized and unrealized gain (loss) on investments (0.93) 4.37 3.84 3.42
Total from investment operations (1.13) 4.11 3.58 3.15
Less distributions:
Distributions from net realized gain on investments sold (0.20) (0.69) -- (2.28)
Net asset value, end of period $15.83 $19.25 $22.83 $23.70
Total investment return at net asset value(3) (%) (6.56)(4) 26.01 18.60(4) 15.33
Ratios and supplemental data
Net assets, end of period (000s omitted) ($) 3,807 15,913 25,474 36,430
Ratio of expenses to average net assets (%) 2.38(5) 2.31 2.18(5) 2.13
Ratio of net investment income (loss) to average net assets (%) (1.25)(5) (1.39) (1.42)(5) (1.20)
Portfolio turnover rate (%) 52 68(7) 59 133
<CAPTION>
---------------------------------------------------------------------------------------------
Class B - period ended: 10/98 10/99
---------------------------------------------------------------------------------------------
<S> <C> <C>
Per share operating performance
Net asset value, beginning of period $23.70 $21.38
Net investment income (loss)(2) (0.25) (0.31)
Net realized and unrealized gain (loss) on investments 2.09 5.38
Total from investment operations 1.84 5.07
Less distributions:
Distributions from net realized gain on investments sold (4.16) (2.71)
Net asset value, end of period $21.38 $23.74
Total investment return at net asset value(3) (%) 9.04 26.70
Ratios and supplemental data
Net assets, end of period (000s omitted) ($) 217,448 312,046
Ratio of expenses to average net assets (%) 2.08 2.02(6)
Ratio of net investment income (loss) to average net assets (%) (1.16) (1.37)
Portfolio turnover rate (%) 153(7) 183
<CAPTION>
--------------------------------------------------------------------------------------------
Class C - period ended: 10/98(8) 10/99
--------------------------------------------------------------------------------------------
<S> <C> <C>
Per share operating performance
Net asset value, beginning of period $21.43 $21.37
Net investment income (loss)(2) (0.10) (0.31)
Net realized and unrealized gain (loss) on investments 0.04 5.38
Total from investment operations (0.06) 5.07
Less distributions:
Distributions from net realized gain on investments sold -- (2.71)
Net asset value, end of period $21.37 $23.73
Total investment return at net asset value(3) (%) (0.28)(4) 26.72
Ratios and supplemental data
Net assets, end of period (000s omitted) ($) 152 1,457
Ratio of expenses to average net assets (%) 2.10(5) 2.05(6)
Ratio of net investment income (loss) to average net assets (%) (1.14)(5) (1.36)
Portfolio turnover rate (%) 153(7) 183
</TABLE>
(1) Effective October 31, 1996, the fiscal year end changed from December 31 to
October 31.
(2) Based on the average of the shares outstanding at the end of each month.
(3) Assumes dividend reinvestment and does not reflect the effect of sales
charges.
(4) Not annualized.
(5) Annualized.
(6) Expense ratios do not include interest expense due to bank loans, which
amounted to less than 0.01%.
(7) Excludes merger activity.
(8) Class B and Class C shares began operations on January 3, 1994 and June 1,
1998, respectively.
FUND DETAILS 41
<PAGE>
Large Cap Value Fund
Figures audited by Ernst & Young LLP.
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------
Class A - period ended: 8/95(1) 8/96 12/96(2) 12/97
------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Per share operating performance
Net asset value, beginning of period $11.42 $13.38 $15.07 $15.62
Net investment income (loss)(4) 0.21 0.19 0.05 0.12
Net realized and unrealized gain (loss) on investments,
financial futures contracts and foreign currency transactions 1.95 1.84 2.15 5.57
Total from investment operations 2.16 2.03 2.20 5.69
Less distributions:
Distributions from net investment income (0.20) (0.19) (0.08) (0.07)
Distributions from net realized gain on investments sold -- (0.15) (1.57) (1.92)
Total distributions (0.20) (0.34) (1.65) (1.99)
Net asset value, end of period $13.38 $15.07 $15.62 $19.32
Total investment return at net asset value(5) (%) 19.22 15.33 14.53(6) 36.71
Total adjusted investment return at net asset value(5,11) (%) -- -- -- --
Ratios and supplemental data
Net assets, end of period (000s omitted) ($) 130,183 139,548 163,154 303,313
Ratio of expenses to average net assets (%) 1.30 1.17 1.22(7) 1.12
Ratio of net investment income (loss) to average net assets (%) 1.82 1.28 0.85(7) 0.65
Portfolio turnover rate (%) 99 74 26 102(9)
<CAPTION>
------------------------------------------------------------------------------------------
Class A - period ended: 12/98 12/99
------------------------------------------------------------------------------------------
<S> <C> <C>
Per share operating performance
Net asset value, beginning of period $19.32 $21.26
Net investment income (loss)(4) 0.16 0.09(3)
Net realized and unrealized gain (loss) on investments,
financial futures contracts and foreign currency transactions 2.85 7.80
Total from investment operations 3.01 7.89
Less distributions:
Distributions from net investment income (0.14) --
Distributions from net realized gain on investments sold (0.93) (2.13)
Total distributions (1.07) (2.13)
Net asset value, end of period $21.26 $27.02
Total investment return at net asset value(5) (%) 15.94 37.89
Total adjusted investment return at net asset value(5,11) (%) 15.92 --
Ratios and supplemental data
Net assets, end of period (000s omitted) ($) 421,218 604,214
Ratio of expenses to average net assets (%) 1.16(8) 1.17
Ratio of net investment income (loss) to average net assets (%) 0.79(8) 0.40
Portfolio turnover rate (%) 64 113
<CAPTION>
----------------------------------------------------------------------------------------------------------------
Class B - period ended: 8/95(1) 8/96 12/96(2) 12/97
----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Per share operating performance
Net asset value, beginning of period $11.44 $13.41 $15.10 $15.66
Net investment income (loss)(4) 0.13 0.08 0.01 (0.02)
Net realized and unrealized gain (loss) on investments,
financial futures contracts and foreign currency transactions 1.96 1.85 2.14 5.60
Total from investment operations 2.09 1.93 2.15 5.58
Less distributions:
Distributions from net investment income (0.12) (0.09) (0.02) (0.01)
Distributions from net realized gain on investments sold -- (0.15) (1.57) (1.92)
Total distributions (0.12) (0.24) (1.59) (1.93)
Net asset value, end of period $13.41 $15.10 $15.66 $19.31
Total investment return at net asset value(5) (%) 18.41 14.49 14.15(6) 35.80
Total adjusted investment return at net asset value(5,11) (%) -- -- -- --
Ratios and supplemental data
Net assets, end of period (000s omitted) ($) 114,723 125,781 146,399 340,334
Ratio of expenses to average net assets (%) 2.03 1.90 1.98(7) 1.87
Ratio of net investment income (loss) to average net assets (%) 1.09 0.55 0.10(7) (0.10)
Portfolio turnover rate (%) 99 74 26 102(9)
<CAPTION>
---------------------------------------------------------------------------------------
Class B - period ended: 12/98 12/99
---------------------------------------------------------------------------------------
<S> <C> <C>
Per share operating performance
Net asset value, beginning of period $19.31 $21.20
Net investment income (loss)(4) 0.01 (0.07)
Net realized and unrealized gain (loss) on investments,
financial futures contracts and foreign currency transactions 2.84 7.75
Total from investment operations 2.85 7.68
Less distributions:
Distributions from net investment income (0.03) --
Distributions from net realized gain on investments sold (0.93) (2.09)
Total distributions (0.96) (2.09)
Net asset value, end of period $21.20 $26.79
Total investment return at net asset value(5) (%) 15.05 36.95
Total adjusted investment return at net asset value(5,11) (%) 15.03 --
Ratios and supplemental data
Net assets, end of period (000s omitted) ($) 547,945 768,322
Ratio of expenses to average net assets (%) 1.91(8) 1.88
Ratio of net investment income (loss) to average net assets (%) 0.05(8) (0.31)
Portfolio turnover rate (%) 64 113
</TABLE>
42 FUND DETAILS
<PAGE>
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------
Class C - period ended: 12/98(10) 12/99
------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Per share operating performance
Net asset value, beginning of period $22.03 $21.20
Net investment income (loss)(4) 0.03 (0.09)
Net realized and unrealized gain (loss) on investments, financial futures
contracts and foreign currency transactions 0.09 7.77
Total from investment operations 0.12 7.68
Less distributions:
Distributions from net investment income (0.02) --
Distributions from net realized gain on investments sold (0.93) (2.09)
Total distributions (0.95) (2.09)
Net asset value, end of period $21.20 $26.79
Total investment return at net asset value(5) (%) 0.83(6) 36.94
Total adjusted investment return at net asset value(5,11) (%) 0.82(6) --
Ratios and supplemental data
Net assets, end of period (000s omitted) ($) 4,711 12,674
Ratio of expenses to average net assets (%) 1.92(7,8) 1.92
Ratio of net investment income (loss) to average net assets (%) 0.28(7,8) (0.40)
Portfolio turnover rate (%) 64 113
</TABLE>
(1) On December 22, 1994, John Hancock Advisers, Inc. became the investment
adviser of the fund.
(2) Effective December 31, 1996, the fiscal year end changed from August 31 to
December 31.
(3) Class A has net investment income, because of its relatively lower class
expenses as compared to other share classes.
(4) Based on the average of the shares outstanding at the end of each month.
(5) Assumes dividend reinvestment and does not reflect the effect of sales
charges.
(6) Not annualized.
(7) Annualized.
(8) Reflects voluntary management fee reduction in effect during the year ended
December 31, 1998. As a result of such fee reductions, expenses of Class A,
Class B and Class C shares of the fund reflect reductions of less than
$0.01 per share. Absent such reductions, the ratio of expenses to average
net assets would have been 1.18%, 1.93% and 1.94% for Class A, Class B and
Class C shares, respectively, and the ratio of net investment income to
average net assets would have been 0.77%, 0.03% and 0.26% for Class A,
Class B and Class C shares, respectively.
(9) Portfolio turnover rate excludes merger activity.
(10) Class C shares began operations on May 1, 1998.
(11) An estimated total return calculation which does not take into
consideration fee reductions by the adviser during the periods shown.
FUND DETAILS 43
<PAGE>
Mid Cap Growth Fund
Figures audited by PricewaterhouseCoopers LLP.
<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------------------------------------
Class A - period ended: 10/95 10/96 10/97 10/98 10/99
----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Per share operating performance
Net asset value, beginning of period $7.93 $9.32 $10.92 $11.40 $9.11
Net investment income (loss)(1) (0.07) (0.11) (0.06) (0.09) (0.12)
Net realized and unrealized gain (loss) on investments 1.46 3.34 1.00 (0.89) 3.86
Total from investment operations 1.39 3.23 0.94 (0.98) 3.74
Less distributions:
Distributions from net realized gain on investments sold -- (1.63) (0.46) (1.31) --
Net asset value, end of period $9.32 $10.92 $11.40 $9.11 $12.85
Total investment return at net asset value(2) (%) 17.53 36.15 8.79 (9.40) 41.05
Ratios and supplemental data
Net assets, end of period (000s omitted) ($) 101,562 156,578 141,997 101,138 112,082
Ratio of expenses to average net assets (%) 1.59 1.59 1.59 1.59 1.60
Ratio of net investment income (loss) to average net assets (%) (0.87) (1.00) (0.57) (0.86) (1.14)
Portfolio turnover rate (%) 155 240 317 168 153
<CAPTION>
----------------------------------------------------------------------------------------------------------------------------
Class B - period ended: 10/95 10/96 10/97 10/98 10/99
----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Per share operating performance
Net asset value, beginning of period $7.87 $9.19 $10.67 $11.03 $8.72
Net investment income (loss)(1) (0.13) (0.18) (0.13) (0.15) (0.18)
Net realized and unrealized gain (loss) on investments 1.45 3.29 0.95 (0.85) 3.68
Total from investment operations 1.32 3.11 0.82 (1.00) 3.50
Less distributions:
Distributions from net realized gain on investments sold -- (1.63) (0.46) (1.31) --
Net asset value, end of period $9.19 $10.67 $11.03 $8.72 $12.22
Total investment return at net asset value(2) (%) 16.77 35.34 7.84 (9.97) 40.14
Ratios and supplemental data
Net assets, end of period (000s omitted) ($) 137,363 238,901 204,812 134,188 145,816
Ratio of expenses to average net assets (%) 2.30 2.29 2.28 2.27 2.23
Ratio of net investment income (loss) to average net assets (%) (1.55) (1.70) (1.25) (1.54) (1.77)
Portfolio turnover rate (%) 155 240 317 168 153
<CAPTION>
------------------------------------------------------------------------------------------
Class C - period ended: 10/98(3) 10/99
------------------------------------------------------------------------------------------
<S> <C> <C>
Per share operating performance
Net asset value, beginning of period $9.99 $8.72
Net investment income (loss)(1) (0.06) (0.19)
Net realized and unrealized gain (loss) on investments (1.21) 3.68
Total from investment operations (1.27) 3.49
Net asset value, end of period $8.72 $12.21
Total investment return at net asset value(2) (%) (12.71)(4) 40.02
Ratios and supplemental data
Net assets, end of period (000s omitted) ($) 100 276
Ratio of expenses to average net assets (%) 2.29(5) 2.30
Ratio of net investment income (loss) to average net assets (%) (1.66)(5) (1.82)
Portfolio turnover rate (%) 168 153
</TABLE>
(1) Based on the average of the shares outstanding at the end of each month.
(2) Assumes dividend reinvestment and does not reflect the effect of sales
charges.
(3) Class C shares began operations on June 1, 1998.
(4) Not annualized.
(5) Annualized.
44 FUND DETAILS
<PAGE>
Small Cap Growth Fund
Figures audited by Ernst & Young LLP.
<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------------------------------------------
Class A(1) - period ended: 10/95(2) 10/96 10/97 10/98 10/99
---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Per share operating performance
Net asset value, beginning of period $6.71 $9.02 $10.22 $12.35 $8.41
Net investment income (loss)(3) (0.07) (0.09) (0.07) (0.08) (0.12)
Net realized and unrealized gain (loss) on investments 2.38 1.29 2.41 (1.34) 4.59
Total from investment operations 2.31 1.20 2.34 (1.42) 4.47
Less distributions:
Distributions from net realized gain on investments sold -- -- (0.21) (2.52) (0.23)
Net asset value, end of period $9.02 $10.22 $12.35 $8.41 $12.65
Total investment return at net asset value(4) (%) 34.56 13.27 23.35 (14.14) 54.41
Ratios and supplemental data
Net assets, end of period (000s omitted) ($) 179,481 218,497 209,384 179,700 266,886
Ratio of expenses to average net assets (%) 1.38 1.32 1.29(5) 1.36(5) 1.34(5)
Ratio of net investment income (loss) to average net assets (%) (0.83) (0.86) (0.57) (1.02) (1.17)
Portfolio turnover rate (%) 23 44 96 103 1.04
<CAPTION>
--------------------------------------------------------------------------------------------------------------------------------
Class B(1) - period ended: 10/95(2) 10/96 10/97 10/98 10/99
--------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Per share operating performance
Net asset value, beginning of period $6.51 $8.70 $9.78 $11.72 $7.81
Net investment income (loss)(3) (0.11) (0.15) (0.14) (0.15) (0.18)
Net realized and unrealized gain (loss) on investments 2.30 1.23 2.29 (1.24) 4.24
Total from investment operations 2.19 1.08 2.15 (1.39) 4.06
Less distributions:
Distributions from net realized gain on investments sold -- -- (0.21) (2.52) (0.23)
Net asset value, end of period $8.70 $9.78 $11.72 $7.81 $11.64
Total investment return at net asset value(4) (%) 33.60 12.48 22.44 (14.80) 53.31
Ratios and supplemental data
Net assets, end of period (000s omitted) ($) 393,478 451,268 472,594 361,992 478,468
Ratio of expenses to average net assets (%) 2.11 2.05 2.02(5) 2.07(5) 2.03(5)
Ratio of net investment income (loss) to average net assets (%) (1.55) (1.59) (1.30) (1.73) (1.87)
Portfolio turnover rate (%) 23 44 96 103 104
<CAPTION>
--------------------------------------------------------------------------------------------------------
Class C - period ended: 10/98(6) 10/99
--------------------------------------------------------------------------------------------------------
<S> <C> <C>
Per share operating performance
Net asset value, beginning of period $8.96 $7.81
Net investment income (loss)(3) (0.03) (0.19)
Net realized and unrealized gain (loss) on investments (1.12) 4.23
Total from investment operations (1.15) 4.04
Less distributions:
Distributions from net realized gain on investments sold -- (0.23)
Net asset value, end of period $7.81 $11.62
Total investment return at net asset value(4) (%) (12.83)(7) 53.05
Ratios and supplemental data
Net assets, end of period (000s omitted) ($) 468 3,866
Ratio of expenses to average net assets (%) 2.11(5,8) 2.09(5)
Ratio of net investment income (loss) to average net assets (%) (1.86)(8) (1.94)
Portfolio turnover rate (%) 103 104
</TABLE>
(1) All per share amounts and net asset values have been restated to reflect the
four-for-one stock split effective May 1, 1998.
(2) On December 22, 1994, John Hancock Advisers, Inc. became the investment
adviser of the fund.
(3) Based on the average of the shares outstanding at the end of each month.
(4) Assumes dividend reinvestment and does not reflect the effect of sales
charges.
(5) Expense ratios do not include interest expense due to bank loans, which
amounted to less than $0.01 per share.
(6) Class C shares began operations on June 1, 1998.
(7) Not annualized.
(8) Annualized.
FUND DETAILS 45
<PAGE>
Small Cap Value Fund
Figures audited by Ernst & Young LLP.
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------------
Class A - period ended: 12/94(1) 12/95 12/96 12/97
------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Per share operating performance
Net asset value, beginning of period $8.50 $8.99 $10.39 $10.32
Net investment income (loss)(3) 0.18 0.21 0.14 0.06
Net realized and unrealized gain (loss) on investments 0.48 1.60 1.17 2.52
Total from investment operations 0.66 1.81 1.31 2.58
Less distributions:
Dividends from net investment income (0.17) (0.20) (0.14) (0.03)
Distributions from net realized gain on investments sold -- (0.21) (1.24) (0.60)
Total distributions (0.17) (0.41) (1.38) (0.63)
Net asset value, end of period $8.99 $10.39 $10.32 $12.27
Total investment return at net asset value(4) (%) 7.81(5) 20.26 12.91 25.25
Total adjusted investment return at net asset value(4,6) (%) 7.30(5) 19.39 12.20 24.65
Ratios and supplemental data
Net assets, end of period (000s omitted) ($) 4,420 12,845 15,853 20,961
Ratio of expenses to average net assets (%) 0.99(7) 0.98 0.99 0.99
Ratio of adjusted expenses to average net assets(8) (%) 4.98(7) 1.85 1.70 1.59
Ratio of net investment income (loss) to average net assets (%) 2.10(7) 2.04 1.31 0.47
Ratio of adjusted net investment income (loss) to average net assets(8) (%) (1.89)(7) 1.17 0.60 (0.13)
Portfolio turnover rate (%) 0.3 9 72 140
Fee reduction per share(3) ($) 0.34 0.09 0.08 0.07
<CAPTION>
------------------------------------------------------------------------------------------------------
Class A - period ended: 10/98(2) 10/99
------------------------------------------------------------------------------------------------------
<S> <C> <C>
Per share operating performance
Net asset value, beginning of period $12.27 $10.82
Net investment income (loss)(3) 0.02 (0.09)
Net realized and unrealized gain (loss) on investments (1.47) 6.67
Total from investment operations (1.45) 6.58
Less distributions:
Dividends from net investment income -- --
Distributions from net realized gain on investments sold -- (0.13)
Total distributions -- (0.13)
Net asset value, end of period $10.82 $17.27
Total investment return at net asset value(4) (%) (11.82)(5) 61.39
Total adjusted investment return at net asset value(4,6) (%) (12.33)(5) 61.24
Ratios and supplemental data
Net assets, end of period (000s omitted) ($) 22,528 51,746
Ratio of expenses to average net assets (%) 1.01(7) 1.39
Ratio of adjusted expenses to average net assets(8) (%) 1.62(7) 1.54
Ratio of net investment income (loss) to average net assets (%) 0.25(7) (0.67)
Ratio of adjusted net investment income (loss) to average net assets(8) (%) (0.36)(7) (0.82)
Portfolio turnover rate (%) 69 140
Fee reduction per share(3) ($) 0.06 0.02
<CAPTION>
-----------------------------------------------------------------------------------------------------------------------
Class B - period ended: 12/94(1) 12/95 12/96 12/97
-----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Per share operating performance
Net asset value, beginning of period $8.50 $9.00 $10.38 $10.31
Net investment income (loss)(3) 0.13 0.12 0.07 (0.03)
Net realized and unrealized gain (loss) on investments 0.48 1.59 1.17 2.53
Total from investment operations 0.61 1.71 1.24 2.50
Less distributions:
Dividends from net investment income (0.11) (0.12) (0.07) --
Distributions from net realized gain on investments sold -- (0.21) (1.24) (0.60)
Total distributions (0.11) (0.33) (1.31) (0.60)
Net asset value, end of period $9.00 $10.38 $10.31 $12.21
Total investment return at net asset value(4) (%) 7.15(5) 19.11 12.14 24.41
Total adjusted investment return at net asset value(4,6) (%) 6.64(5) 18.24 11.43 23.81
Ratios and supplemental data
Net assets, end of period (000s omitted) ($) 3,296 16,994 22,097 35,033
Ratio of expenses to average net assets (%) 1.72(7) 1.73 1.69 1.69
Ratio of adjusted expenses to average net assets(8) (%) 5.71(7) 2.60 2.40 2.29
Ratio of net investment income (loss) to average net assets (%) 1.53(7) 1.21 0.62 (0.24)
Ratio of adjusted net investment income (loss) to average net assets(8) (%) (2.46)(7) 0.34 (0.09) (0.84)
Portfolio turnover rate (%) 0.3 9 72 140
Fee reduction per share(3) ($) 0.34 0.09 0.08 0.07
<CAPTION>
----------------------------------------------------------------------------------------------------
Class B - period ended: 10/98(2) 10/99
----------------------------------------------------------------------------------------------------
<S> <C> <C>
Per share operating performance
Net asset value, beginning of period $12.21 $10.71
Net investment income (loss)(3) (0.04) (0.18)
Net realized and unrealized gain (loss) on investments (1.46) 6.58
Total from investment operations (1.50) 6.40
Less distributions:
Dividends from net investment income -- --
Distributions from net realized gain on investments sold -- (0.13)
Total distributions -- (0.13)
Net asset value, end of period $10.71 $16.98
Total investment return at net asset value(4) (%) (12.29)(5) 60.33
Total adjusted investment return at net asset value(4,6) (%) (12.80)(5) 60.18
Ratios and supplemental data
Net assets, end of period (000s omitted) ($) 30,637 75,103
Ratio of expenses to average net assets (%) 1.71(7) 2.06
Ratio of adjusted expenses to average net assets(8) (%) 2.32(7) 2.21
Ratio of net investment income (loss) to average net assets (%) (0.45)(7) (1.34)
Ratio of adjusted net investment income (loss) to average net assets(8) (%) (1.06)(7) (1.49)
Portfolio turnover rate (%) 69 140
Fee reduction per share(3) ($) 0.06 0.02
</TABLE>
46 FUND DETAILS
<PAGE>
<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------------------------
Class C - period ended: 10/98(1) 10/99
---------------------------------------------------------------------------------------------------------
<S> <C> <C>
Per share operating performance
Net asset value, beginning of period $13.39 $10.71
Net investment income (loss)(3) (0.03) (0.19)
Net realized and unrealized gain (loss) on investments (2.65) 6.58
Total from investment operations (2.68) 6.39
Less distributions:
Distributions from net realized gain on investments sold -- (0.13)
Net asset value, end of period $10.71 $16.97
Total investment return at net asset value(4) (%) (20.01)(5) 60.24
Total adjusted investment return at net asset value(4,6) (%) (20.32)(5) 60.09
Ratios and supplemental data
Net assets, end of period (000s omitted) ($) $422 $3,774
Ratio of expenses to average net assets (%) 1.71(7) 2.09
Ratio of adjusted expenses to average net assets(8) (%) 2.32(7) 2.29
Ratio of net investment income (loss) to average net assets (%) (0.54)(7) (1.43)
Ratio of adjusted net investment income (loss) to average net assets(8) (%) (1.15)(7) (1.58)
Portfolio turnover rate (%) 69 140
Fee reduction per share(3) ($) 0.04 0.02
</TABLE>
(1) Class A and Class B shares began operations on January 3, 1994. Class C
shares began operations on May 1, 1998.
(2) Effective October 31, 1998, the fiscal year end changed from December 31 to
October 31.
(3) Based on the average of the shares outstanding at the end of each month.
(4) Assumes dividend reinvestment and does not reflect the effect of sales
charges.
(5) Not annualized.
(6) An estimated total return calculation that does not take into consideration
fee reductions by the adviser during the periods shown.
(7) Annualized.
(8) Unreimbursed, without fee reduction.
FUND DETAILS 47
<PAGE>
Sovereign Investors Fund
Figures audited by Ernst & Young LLP.
<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------------------------------------------
Class A - period ended: 12/95 12/96 12/97 12/98 12/99
----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Per share operating performance
Net asset value, beginning of period $14.24 $17.87 $19.48 $22.41 $24.23
Net investment income (loss) 0.40 0.36(1) 0.32(1) 0.31(1) 0.30(1)
Net realized and unrealized gain (loss) on investments 3.71 2.77 5.31 3.11 1.11
Total from investment operations 4.11 3.13 5.63 3.42 1.41
Less distributions:
Dividends from net investment income (0.40) (0.36) (0.32) (0.31) (0.35)
Distributions from net realized gain on investments sold (0.08) (1.16) (2.38) (1.29) (0.78)
Total distributions (0.48) (1.52) (2.70) (1.60) (1.13)
Net asset value, end of period $17.87 $19.48 $22.41 $24.23 $24.51
Total investment return at net asset value(2) (%) 29.15 17.57 29.14 15.62 5.91
Ratios and supplemental data
Net assets, end of period (000s omitted) ($) 1,280,321 1,429,523 1,748,490 1,884,460 1,787,615
Ratio of expenses to average net assets (%) 1.14 1.13 1.06 1.03 1.05
Ratio of net investment income (loss) to average net assets (%) 2.45 1.86 1.44 1.33 1.21
Portfolio turnover rate (%) 46 59 62 51 64
<CAPTION>
---------------------------------------------------------------------------------------------------------------------------
Class B - period ended: 12/95 12/96 12/97 12/98 12/99
---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Per share operating performance
Net asset value, beginning of period $14.24 $17.86 $19.46 $22.38 $24.20
Net investment income (loss)(1) 0.27 0.21 0.16 0.14 0.13
Net realized and unrealized gain (loss) on investments 3.71 2.77 5.29 3.11 1.11
Total from investment operations 3.98 2.98 5.45 3.25 1.24
Less distributions:
Dividends from net investment income (0.28) (0.22) (0.15) (0.14) (0.18)
Distributions from net realized gain on investments sold (0.08) (1.16) (2.38) (1.29) (0.78)
Total distributions (0.36) (1.38) (2.53) (1.43) (0.96)
Net asset value, end of period $17.86 $19.46 $22.38 $24.20 $24.48
Total investment return at net asset value(2) (%) 28.16 16.67 28.14 14.79 5.20
Ratios and supplemental data
Net assets, end of period (000s omitted) ($) 257,781 406,523 610,976 790,277 819,537
Ratio of expenses to average net assets (%) 1.90 1.91 1.83 1.79 1.73
Ratio of net investment income (loss) to average net assets (%) 1.65 1.10 0.67 0.58 0.54
Portfolio turnover rate (%) 46 59 62 51 64
<CAPTION>
--------------------------------------------------------------------------------------------
Class C - period ended: 12/98(3) 12/99
--------------------------------------------------------------------------------------------
<S> <C> <C>
Per share operating performance
Net asset value, beginning of period $24.43 $24.22
Net investment income (loss)(1) 0.13 0.13
Net realized and unrealized gain (loss) on investments 1.07 1.10
Total from investment operations 1.20 1.23
Less distributions:
Distributions from net investment income (0.12) (0.17)
Distributions from net realized gain on investments sold (1.29) (0.78)
Total distributions (1.41) (0.95)
Net asset value, end of period $24.22 $24.50
Total investment return at net asset value(2) (%) 5.18(4) 5.17
Ratios and supplemental data
Net assets, end of period (000s omitted) ($) 4,627 10,591
Ratio of expenses to average net assets (%) 1.67(5) 1.75
Ratio of net investment income to average net assets (%) 0.84(5) 0.51
Portfolio turnover rate (%) 51 64
</TABLE>
(1) Based on the average of the shares outstanding at the end of each month.
(2) Assumes dividend reinvestment and does not reflect the effect of sales
charges.
(3) Class C shares began operations on May 1, 1998.
(4) Not annualized.
(5) Annualized.
48 FUND DETAILS
<PAGE>
For more information
Two documents are available that offer further information on John Hancock
equity funds:
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.
1 John Hancock Way, Suite 1000
Boston, MA 02217-1000
By phone: 1-800-225-5291
By EASI-Line: 1-800-338-8080
By TDD: 1-800-544-6713
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 FUNDS
A Global Investment Management Firm
John Hancock Funds, Inc.
101 Huntington Avenue
Boston MA 02199-7603
(C)2000 John Hancock Funds, Inc.
EQTPN 7/00
<PAGE>
John Hancock
Sovereign Investors
Fund Class Y
Prospectus
July 1, 2000
--------------------------------------------------------------------------------
The Trustees voted to suspend sales of
Class Y shares to new shareholders
as of March 1, 1995
As with all mutual funds, the Securities and Exchange Commission has not
approved or disapproved these funds or determined whether the information in
this prospectus is adequate and accurate. Anyone who indicates otherwise is
committing a federal crime.
[LOGO] JOHN HANCOCK FUNDS
A Global Investment Management Firm
<PAGE>
Contents
--------------------------------------------------------------------------------
A summary of the fund's Sovereign Investors Fund 4
goals, strategies, risks,
performance and expenses.
Policies and instructions for Your account
opening, maintaining and
closing an account. Who can buy Class Y shares 6
Opening an account 6
Buying shares 7
Selling shares 8
Transaction policies 10
Dividends and account policies 11
Further information on the Fund details
fund.
Business structure 12
Financial highlights 13
For more information back cover
3
<PAGE>
Sovereign Investors Fund
GOAL AND STRATEGY
[Clip Art] The fund seeks long-term growth of capital and income without
assuming undue market risks. To pursue this goal, the fund normally invests at
least 80% of stocks in a diversified portfolio of companies with market
capitalizations within the range of the Standard & Poor's 500 Stock Index. On
March 31, 2000, that range was $316 million to $553.02 billion.
At least 65% of the fund's stock investments are "dividend performers" --
companies whose dividend payments have increased steadily for ten years. The
managers use fundamental financial analysis to identify individual companies
with high-quality income statements, substantial cash reserves and identifiable
catalysts for growth, which may be new products or benefits from industrywide
growth. The managers generally visit companies to evaluate the strength and
consistency of their management strategy. Finally, the managers look for stocks
that are reasonably priced relative to their earnings and industry.
Historically, companies that meet these criteria have tended to have large or
medium capitalizations.
The fund may not invest more than 5% of assets in any one security. The fund may
invest in bonds of any maturity, with up to 5% of assets in junk bonds rated as
low as C and their unrated equivalents.
The fund typically invests in U.S. companies but may invest in
dollar-denominated foreign securities. It may also make limited use of certain
derivatives (investments whose value is based on indices).
Under normal conditions, the fund may not invest more than 10% of assets in cash
or cash equivalents.
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.
The fund may trade securities actively, which could increase its transaction
costs (thus lowering performance) and increase your taxable distributions.
================================================================================
PORTFOLIO MANAGERS
John F. Snyder, III
---------------------------------------
Executive vice president of adviser
Joined team in 1983
Joined adviser in 1991
Began business career in 1971
Barry H. Evans, CFA
---------------------------------------
Senior vice president of adviser
Joined team in 1996
Joined adviser in 1986
Began business career in 1986
Peter M. Schofield, CFA
---------------------------------------
Vice president of adviser
Joined team in 1996
Joined adviser in 1996
Began business career in 1984
PAST PERFORMANCE
[Clip Art] The graph shows how the fund's Class Y shares 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. All figures assume dividend reinvestment. Past
performance does not indicate future results.
--------------------------------------------------------------------------------
Class Y year-by-year total returns -- calendar years
--------------------------------------------------------------------------------
1994 1995 1996 1997 1998 1999
-1.57% 29.68% 17.99% 29.60% 16.05% 6.30%
2000 total return as of March 31: -5.97%
Best quarter: Q4 '98, 15.63% Worst quarter: Q3 '98, -7.76%
--------------------------------------------------------------------------------
Average annual total returns -- for periods ending 12/31/99
--------------------------------------------------------------------------------
Class Y Index
1 year 6.30% 21.03%
5 years 19.59% 28.54%
Life of class - began 5/7/93 14.98% 22.29%
Index: Standard & Poor's 500 Stock Index, an unmanaged index of 500 stocks.
4
<PAGE>
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- or medium-capitalization stocks as a group could fall out of favor with
the market, causing the fund to underperform funds that focus on
small-capitalization stocks. Medium-capitaization stocks tend to be more
volatile than stocks of larger companies. In addition, if the managers'
securities selection strategies do not perform as expected, the fund could
under-perform 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 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.
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.
================================================================================
YOUR EXPENSES
[Clip Art] Transaction expenses are charged directly to your account. Operating
expenses are paid from the fund's assets, and therefore are paid by shareholders
indirectly.
--------------------------------------------------------------------------------
Shareholder transaction expenses Class Y
--------------------------------------------------------------------------------
Maximum sales charge (load) on purchases
as a % of purchase price none
Maximum deferred sales charge (load)
as a % of purchase or sale price,
whichever is less none
--------------------------------------------------------------------------------
Annual operating expenses Class Y
--------------------------------------------------------------------------------
Management fee 0.54%
Distribution and service (12b-1) fees none
Other expenses 0.15%
Total fund operating expenses 0.69%
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.
--------------------------------------------------------------------------------
Expenses Year 1 Year 3 Year 5 Year 10
--------------------------------------------------------------------------------
Class Y $70 $221 $384 $859
FUND CODES
Class Y
---------------------------------------
Ticker --
CUSIP 47803P500
Newspaper SvInvY
SEC number 811-0560
JH fund number 229
5
<PAGE>
Your account
--------------------------------------------------------------------------------
WHO CAN BUY CLASS Y SHARES
Class Y shares are offered without any front-end or contingent deferred sales
charges. They are available to certain types of institutional investors, as
noted below:
o Retirement plans that are not affiliated with the adviser and have at
least $25,000,000 in assets. These can either have a separate trustee who
has full investment discretion over the plan's assets or be
participant-directed plans, such as 401(k) and TSA plans, that allow
participants to choose the fund among one or more investment options.
o Banks and insurance companies that are purchasing fund shares for their
own account and are not affiliated with the adviser.
o Investment companies not affiliated with the adviser.
o Tax-exempt retirement plans of the adviser and its affiliates.
o Unit investment trusts sponsored by John Hancock Funds, Inc. and certain
other sponsors.
o Existing full-service clients of John Hancock Life Insurance Company who
were group annuity contract holders as of September 1, 1994.
--------------------------------------------------------------------------------
OPENING AN ACCOUNT
1 Read this prospectus carefully.
2 Determine if you are eligible, referring to "Who can buy Class Y shares."
3 Determine how much you want to invest. The minimum initial investment is
$1 million unless you receive a waiver from the fund's officers. You may
qualify for the minimum if you invest more than $1 million between Class Y
shares of this fund.
4 Complete the appropriate parts of the account privileges application. By
applying for privileges now, you can avoid the delay and inconvenience of
having to file an additional application if you want to add privileges
later. If you have questions, please contact your financial representative
or Signature Services at 1-800-755-4371.
5 Submit additional documentation when opening trust, corporate or power of
attorney accounts.
6 Make your initial investment using the table on the next page. You and
your financial representative can initiate any purchase, exchange or sale
of shares.
6 YOUR ACCOUNT
<PAGE>
--------------------------------------------------------------------------------
Buying shares
--------------------------------------------------------------------------------
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
investment amount, amount payable to "John Hancock
payable to "John Hancock Signature Services, Inc."
Signature Services,
Inc." o Fill out the detachable investment
slip from an account statement. If
o Deliver the check and no slip is available, include a note
your completed specifying the fund name, your share
application to your class, your account number and the
financial name(s) in which the account is
representative, or mail registered.
them to Signature
Services (address o Deliver the check and your
below). investment slip or note to your
financial representative, or mail
them to Signature Services (address
below).
By exchange
[Clip Art] o Call your financial o Call your financial representative
representative or or Signature Services to request an
Signature Services to exchange.
request an exchange.
By wire
[Clip Art] o Deliver your completed o Instruct your bank to wire the
application to your amount of your investment to:
financial First Signature Bank & Trust
representative, or mail Account # 900022260
it to Signature Routing # 211475000
Services.
o Obtain your account Specify the fund name, your share
number by calling your class, your account number and the
financial representative name(s) in which the account is
or Signature Services. registered. Your bank may charge a fee
to wire funds.
o Instruct your bank to
wire the amount of your
investment to:
First Signature Bank
& Trust
Account # 900022260
Routing # 211475000
Specify the fund name,
your choice of share
class, the new account
number and the name(s) in
which the account is
registered. Your bank may
charge a fee to wire
funds.
By phone
[Clip Art] See "By wire" and "By o Verify that your bank or credit
exchange." 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, your
share class, your account number,
the name(s) in which the account is
registered and the amount of your
investment.
----------------------------------------
Address:
John Hancock Signature Services, Inc.
101 Huntington Avenue
Attn: Participant Service Center
5th Floor
Boston, MA 02199
Phone Number: 1-800-755-4371
----------------------------------------
YOUR ACCOUNT 7
<PAGE>
--------------------------------------------------------------------------------
Selling shares
--------------------------------------------------------------------------------
Designed for To sell some or all of your shares
By letter
[Clip Art] o Required for sales of $5 o Write a letter of instruction
million or more; indicating the fund name, your share
however, sales of any class, your account number, the
amount can be requested name(s) in which the account is
by letter. 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 o For automated service 24 hours a day
million. using your touch-tone phone, call
the EASI-Line at 1-800-597-1897.
o To place your order 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 o To verify that the telephone
sell any amount. redemption privilege is in place on
an account, or to request the form
o Requests by phone to to add it to an existing account,
sell up to $5 million call Signature Services.
(accounts with telephone
redemption privileges). o Amounts of $5 million or more will
be wired on the next business day.
o Amounts of 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 your financial
representative or Signature
Services.
o Call your financial representative
or Signature Services to request an
exchange.
8 YOUR ACCOUNT
<PAGE>
Selling shares in writing For sales of $5 million or more and in certain other
circumstances, you will need to make your request to sell shares in writing. You
may need to include additional items with your request, as shown in the table
below. You may also need to include a signature guarantee, which protects you
against fraudulent orders. You will need a signature guarantee if:
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.
--------------------------------------------------------------------------------
Seller Requirements for written requests
[Clip Art]
--------------------------------------------------------------------------------
Owners of corporate or association o Letter of instruction.
accounts.
o Corporate resolution, certified
within the past 12 months, or a John
Hancock business/organization
certification.
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 o Letter of instruction.
accounts.
o On the letter, the signature(s) of
the trustee(s).
o Provide a copy of the trust document
certified within the past 12 months
or a John Hancock trust
certification form.
o Signature guarantee if applicable
(see above).
Account types not listed above. o Call 1-800-755-4371 for
instructions.
----------------------------------------
Address:
John Hancock Signature Services, Inc.
101 Huntington Avenue
5th Floor
Attn: Participant Service Center
Boston, MA 02199
Phone Number: 1-800-755-4371
----------------------------------------
YOUR ACCOUNT 9
<PAGE>
--------------------------------------------------------------------------------
TRANSACTION POLICIES
Valuation of shares The net asset value (NAV) per share for the fund and class
is determined each business day at the close of regular trading on the New York
Stock Exchange (typically 4 P.M. Eastern Time). The fund uses market prices in
valuing portfolio securities, but may use fair-value estimates if reliable
market prices are unavailable.
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 your request is accepted by
Signature Services.
At times of peak activity, it may be difficult to place requests by phone.
During these times, consider using EASI-Line, or sending your request in
writing.
In unusual circumstances, the 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
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 John Hancock fund for shares of the
same class of any other. The registration for both accounts involved must be
identical.
To protect the interests of other investors in the fund, the fund may cancel the
exchange privileges of any parties who, 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 fund no longer issues 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.
10 YOUR ACCOUNT
<PAGE>
--------------------------------------------------------------------------------
DIVIDENDS AND ACCOUNT POLICIES
Account statements In general, you will receive account statements as follows:
o after every transaction (except a dividend reinvestment) that affects your
account balance
o after any changes of name or address of the registered owner(s)
o in all other circumstances, every quarter
Every year you should also receive, if applicable, a Form 1099 tax information
statement, mailed by January 31.
Dividends The fund generally distributes most or all of its net earnings in the
form of dividends. The fund seeks to pay income dividends quarterly and capital
gains dividends, if any, 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.
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 income and 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 reinvestment privilege If you sell your Class Y shares as a result of
withdrawing from your retirement plan, you will not be able to withdraw the
proceeds and reinvest them in Class Y 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.
YOUR ACCOUNT 11
<PAGE>
Fund details
--------------------------------------------------------------------------------
BUSINESS STRUCTURE
The diagram below shows the basic business structure used by the fund. The
fund's board of trustees oversees the business activities and retains the
services of the various firms that carry out the fund's operations.
Management fees For the last fiscal year, the fund paid the investment adviser
management fees of 0.54%.
The management firm The fund is managed by John Hancock Advisers, Inc. Founded
in 1968, John Hancock Advisers is a wholly owned subsidary of JohnHancock
Financial Services, Inc. and manages more than $30 billion in assets.
-----------------
Shareholders
-----------------
Distribution and
shareholder services
-------------------------------------------------
Financial services firms and
their representatives
Advise current and prospective share-
holders on their fund investments, often
in the context of an overall financial plan.
-------------------------------------------------
-------------------------------------------------
Principal distributor
John Hancock Funds, Inc.
Markets the fund and distributes shares
through selling brokers, financial planners
and other financial representatives.
-------------------------------------------------
------------------------------------------------------
Transfer agent
John Hancock Signature Services, Inc.
Handles shareholder services, including record-
keeping and statements, distribution of dividends,
and processing of buy and sell requests.
------------------------------------------------------
Asset
management
------------------------------------
Investment adviser
John Hancock Advisers, Inc.
101 Huntington Avenue
Boston, MA 02199-7603
Manages the fund's business and
investment activities.
------------------------------------
------------------------------------
Custodian
Investors Bank & Trust Co.
Holds the fund's assets, settles all
portfolio trades and collects most of
the valuation data required for
calculating the fund's NAV.
-------------------------------------
----------------------------------
Trustees
Oversee the fund's activities.
----------------------------------
12 FUND DETAILS
<PAGE>
--------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
The table details the performance of the fund's Class Y shares, including total
return information showing how much an investment in the fund has increased or
decreased each year.
Sovereign Investors Fund
Figures audited by Ernst & Young LLP.
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------------------------
Class Y(1) - period ended: 12/95 12/96 12/97 12/98 12/99
------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Per share operating performance
Net asset value, beginning of period $14.24 $17.87 $19.48 $22.41 $24.24
Net investment income (loss) 0.46 0.44(2) 0.41(2) 0.40(2) 0.39(2)
Net realized and unrealized gain (loss) on investments 3.71 2.76 5.30 3.11 1.11
Total from investment operations 4.17 3.20 5.71 3.51 1.50
Less distributions:
Dividends form net investment income (0.46) (0.43) (0.40) (0.39) (0.44)
Distributions from net realized gain on investments sold (0.08) (1.16) (2.38) (1.29) (0.78)
Total distributions (0.54) (1.59) (2.78) (1.68) (1.22)
Net asset value, end of period $17.87 $19.48 $22.41 $24.24 $24.52
Total investment return at net asset value(3) (%) 29.68 17.99 29.60 16.05 6.30
Ratios and supplemental data
Net assets, end of period (000s omitted) ($) 19,946 29,431 48,256 62,349 77,946
Ratio of expenses to average net assets (%) 0.74 0.75 0.71 0.69 0.69
Ratio of net investment income (loss) to average net assets (%) 2.84 2.26 1.79 1.67 1.58
Portfolio turnover rate (%) 46 59 62 51 64
</TABLE>
(1) Effective May 1, 1998, the original Class C shares were renamed Class Y
shares.
(2) Based on the average of the shares outstanding at the end of each month.
(3) Assumes dividend reinvestment.
FUND DETAILS 13
<PAGE>
For more information
--------------------------------------------------------------------------------
Two documents are available that offer further information on the 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 fund. 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 FUNDS John Hancock Funds, Inc.
A Global Investment Management Firm 101 Huntington Avenue
Boston MA 02199-7603
(C)2000 John Hancock Funds, Inc.
290YP 7/00
<PAGE>
JOHN HANCOCK SOVEREIGN INVESTORS FUND
Class A, Class B, Class C and Class Y Shares
Statement of Additional Information
July 1, 2000
This Statement of Additional Information provides information about John Hancock
Sovereign Investors Fund (the "Fund") in addition to the information that is
contained in the combined Equity Funds' current Prospectus for Class A, Class B
and Class C shares, and in the Fund's current Prospectus for Class Y shares (the
"Prospectuses"). 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 Fund's Prospectuses, 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, Massachusetts 02217-1000
1-(800)-225-5291
TABLE OF CONTENTS
Page
Organization of the Fund............................................... 2
Investment Objective and Policies...................................... 2
Investment Restrictions................................................ 8
Those Responsible for Management....................................... 10
Investment Advisory and Other Services................................. 16
Distribution Contracts................................................. 18
Sales Compensation..................................................... 20
Net Asset Value........................................................ 22
Initial Sales Charge on Class A Shares................................. 23
Deferred Sales Charge on Class B and Class C Shares.................... 25
Special Redemptions.................................................... 29
Additional Services and Programs....................................... 29
Purchase and Redemptions through Third Parties......................... 31
Description of the Fund's Shares....................................... 31
Tax Status............................................................. 32
Calculation of Performance............................................. 36
Brokerage Allocation................................................... 38
Transfer Agent Services................................................ 40
Custody of Portfolio................................................... 41
Independent Auditors................................................... 41
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 the laws of The Commonwealth
of Massachusetts. Prior to December 2, 1996, the Fund was a diversified series
of John Hancock Sovereign Investors Fund, Inc.
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 Prospectuses. Appendix A contains
further information describing investment risks. The investment objective of the
Fund is fundamental and may only be changed with shareholder approval. There is
no assurance that the Fund will achieve its investment objective.
The Fund's investment objective is to provide long-term growth of capital and of
income without assuming undue market risks. At times, however, because of market
conditions, the Fund may invest primarily for current income. The Fund will make
investments in different types and classes of securities in accordance with the
Trustees' and the Adviser's appraisal of economic and market conditions. The
Fund's portfolio securities are selected mainly for their investment character
based upon generally accepted elements of intrinsic value, including industry
position, management, financial strength, earning power, marketability and
prospects for future growth. The distribution or mix of various types of
investments is based on general market conditions, the level of interest rates,
business and economic conditions, and the availability of investments in the
equity and fixed income markets. The amount of the Fund's assets that may be
invested in either equity or fixed income securities is not restricted and is
based upon management's judgment of what might best achieve the Fund's
investment objectives. The Fund normally invest at least 80% of stocks in a
diversified portfolio of companies with market capitalizations within the range
of the Standard & Poor's 500 Stock Index. The securities held by the Fund are
under continuous study by the Adviser. They are selected because they are
considered by the management to contribute to the possible achievement of the
Fund's objective. They are held or disposed of in accordance with the results of
a continuing examination of their merit.
The Fund currently uses a strategy of investing at least 65% of stock
investments in companies which have a record of having increased their dividend
payout in each of the preceding ten or more years. This dividend performers
strategy can be changed at any time.
By investing primarily in these companies, the portfolio management team focuses
on investments with characteristics such as: a strong management team that has
demonstrated leadership through changing market cycles; financial soundness as
evidenced by consistently rising dividends and profits, strong cash flows, high
return on equity and a balance sheet showing little debt; and strong brand
recognition and market acceptance, backed by proven products and a
well-established, often global, distribution network.
Subject to the Fund's policy of investing primarily in common stocks, the Fund
may invest without limit in investment grade debt securities or investment grade
preferred stocks (equivalent to the top four bond rating categories of an
NRSRO). For temporary defensive purposes, the Fund may invest some or all of its
assets in investment grade short-term securities.
2
<PAGE>
The investment policy of the Fund is to purchase and hold securities for capital
appreciation and investment income, although there may be a limited number of
short- term transactions incidental to the pursuit of its investment objective.
The Fund may make portfolio purchases and sales to the extent that in its
Board's opinion, relying on the Adviser or independently, such transactions are
in the interest of shareholders.
The Fund endeavors to achieve its objective by utilizing experienced management
and generally investing in securities of seasoned companies in sound financial
condition. The Fund has not purchased securities of real estate investment
trusts and has no present intention of doing so in the future.
The Fund may not invest more than 5% of its total assets at time of purchase in
any one security (other than U.S. Government Securities). Under normal
conditions the Fund may not invest more than 10% of total assets in cash and/or
cash equivalents (except cash segregated in relation to futures, forward and
option contracts).
Diversification. The Fund's investments are diversified in a broad list of
issues, representing many different industries. Although diversification does
not eliminate market risk, it may tend to reduce it. At the same time, holdings
of a large number of shares in any one company are avoided. Thus, during periods
when general economic and political conditions are subject to rapid changes, it
may be appropriate to effect rapid changes in the Fund's investments. This can
be more readily accomplished by limiting the amount of any one investment.
As is common to all securities investments, the stock of this managed
diversified Fund is subject to fluctuation in value; its portfolio will not
necessarily prove a defense in periods of declining prices or lead the advance
in rising markets. The Fund's management will endeavor to reduce the risks
encountered in the use of any single investment by investing the assets of the
Fund in a widely diversified group of securities. Diversification, however, will
not necessarily reduce inherent market risks. Securities are selected mainly for
their investment character, based upon generally accepted elements of intrinsic
value including industry position, management, financial strength, earning
power, ready marketability and prospects for future growth.
Concentration. The Fund's policy is not to concentrate its investments in any
one industry, but investments of up to 25% of its total assets at market value
may be made in a single industry. This limitation may not be changed without the
affirmative vote of a majority of the Fund's outstanding voting securities, as
defined in the Investment Company Act of 1940, as amended (the "Investment
Company Act").
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
the opinions of these agencies as to the quality of the securities which they
rate. It should be emphasized however, that ratings are relative and subjective
and are not absolute standards of quality. These ratings will be used by the
Funds as initial criteria for the selection of portfolio 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. The Fund may invest up to
5% of its net assets in debt securities rated as low as C by Moody's or S&P and
unrated securities deemed of equivalent quality by the Adviser. These securities
are speculative to a high degree and often have very poor prospects of attaining
real investment standing. Lower rated securities are generally referred to as
junk bonds. See the Appendix attached to this Statement of Additional
Information which describes the characteristics of the securities in the various
rating categories.
3
<PAGE>
Securities rated lower than Baa by Moody's or BBB by Standard & Poor's are
sometimes referred to as junk bonds. See the Appendix attached to this Statement
of Additional Information which describes the characteristics of the securities
in the various ratings categories. 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 in a timely fashion to reflect subsequent economic events. The credit
ratings of securities do not reflect an evaluation of market risk. Debt
obligations rated in the lower ratings categories, or which are unrated, involve
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 ongoing 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 investments 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 investment, 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 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.
Options and Futures. The Fund may not invest in futures contracts or sell call
or put options. The Fund has authority to purchase put and call options.
Options on Securities Indices. The Fund may purchase call and put options on any
securities index based on securities in which it may invest. 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 purchase put
and call options for any non-speculative purpose. These include using options as
a substitute for the purchase or sale of securities or to protect against
declines in the value of portfolio securities and against increases in the cost
of securities to be acquired.
Purchasing Options. The Fund would normally purchase index call options in
anticipation of an increase, or index put options in anticipation of a decrease
("protective puts") in the market value of securities of the type in which it
may invest. The Fund may also sell call and put options to close out its
purchased options.
4
<PAGE>
The purchase of an index call option would entitle the Fund, in return for the
premium paid, to receive a cash payment reflecting any increase in the index
above a specified level upon exercising the option during the option period. The
Fund would ordinarily realize a gain on the purchase of a call option if the
amount of this cash payment exceeded the premium paid and transaction costs;
otherwise the Fund would realized either no gain or a loss on the purchase of
the call option.
The purchase of an index put option would entitle the Fund, in exchange for the
premium paid, to receive a cash payment reflecting any decrease in the index
below a specified level upon exercising the option 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. The Fund would ordinarily
realize a gain if, during the option period, the level of the index 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 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 an options exchange will exist for any particular
exchange-traded option or at any particular time. 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.
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). If trading were discontinued, the
secondary market on that exchange ( or in that class or series of options) would
cease to exist. However, 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.
The 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
markets.
5
<PAGE>
Government Securities. Certain U.S. Government securities, including U.S.
Treasury bills notes and bonds, and Government National Mortgage Association
certificates ("Ginnie Maes"), are supported by the full faith and credit of the
United States. Certain other U.S. Government securities issued or guaranteed by
Federal agencies or government sponsored enterprises, are not supported by the
full faith and credit of the United States, but may be supported by the right of
the issuer to borrow from the U.S. Treasury. These securities include
obligations of the Federal Home Loan Mortgage Corporation ("Freddie Macs"), and
obligations supported by the credit of the instrumentality, such as Federal
National Mortgage Association Bonds ("Fannie Maes"). No assurance can be given
that the U.S. Government will provide financial support to such Federal
agencies, authorities, instrumentalities and government sponsored enterprises in
the future.
Ginnie Maes, Freddie Macs, Fannie Maes and Sallie Maes are mortgage-backed
securities which provide monthly payments which are, in effect, a "pass-through"
of the monthly interest and principal payments (including any prepayments) made
by the individual borrowers on the pooled mortgage loans. Collateralized
Mortgage Obligations ("CMOs") in which the Fund may invest are securities issued
by a U.S. Government instrumentality that are collateralized by a portfolio of
mortgages or mortgage-backed securities. Mortgage-backed securities may be less
effective than traditional debt obligations of similar maturity at maintaining
yields during periods of declining interest rates.
Mortgage-backed securities have stated maturities of up to thirty years when
they are issued depending upon the length of the mortgages underlying the
securities. In practice, however, unscheduled or early payments of principal and
interest on the underlying mortgages may make the securities' effective maturity
shorter than this and the prevailing interest rates may be higher or lower than
the current yield of the Fund's portfolio at the time such payments are received
by the Fund for reinvestment. Mortgage-backed securities may have less potential
for capital appreciation than comparable fixed-income securities due to the
likelihood of increased prepayments of mortgages as interest rates decline. If
the Fund buys mortgage-backed securities at a premium, mortgage foreclosures and
prepayments of principal by mortgagors (which may be made at any time without
penalty) may result in some loss of the Fund's principal investment to the
extent of the premium paid.
Restricted Securities. The Fund may purchase securities that are not registered
("restricted securities") under the Securities Act of 1933 ("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 15% 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 they are liquid, they will not be subject to the 15% limit
on illiquid investments. The Trustees have adopt guidelines and delegate to the
Advisers the daily function of determining, the monitoring and liquidity of
restricted securities. The Trustees, however, will retain sufficient oversight
and be ultimately responsible for the determinations. The Trustees will
carefully monitor the Fund's investments in these securities, focusing on such
important factors, among others, as valuation, liquidity and availability of
information. This investment practice could have the effect of increasing the
level of illiquidity in the Fund if qualified institutional buyers become for a
time uninterested in purchasing these restricted securities. The Fund does not
intend to invest more than 5% of its net assets in Rule 144A securities.
Repurchase Agreements. In a repurchase agreement the Fund buys a security for a
relatively short period (usually not more than 7 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.
6
<PAGE>
The Fund has established a procedure providing that the securities serving as
collateral for each repurchase agreement must be delivered to the Fund's
custodian either physically or in book-entry form and that the collateral must
be marked to market daily to ensure that each repurchase agreement is fully
collateralized at all times. In the event of bankruptcy or other default by a
seller of a repurchase agreement, the Fund could experience delays in
liquidating the underlying securities during the period in which the Fund seeks
to enforce its rights thereto, possible subnormal levels of income decline in
value of the underlining securities or lack of access to income during this
period, as well as, the expense of enforcing its rights.
Reverse Repurchase Agreements. The Fund may also enter into reverse repurchase
agreements which involve the sale of U.S. Government securities held in its
portfolio to a bank with an agreement that the Fund will buy back the securities
at a fixed future date at a fixed price plus an agreed amount of "interest"
which may be reflected in the repurchase price. Reverse repurchase agreements
are considered to be borrowings by the Fund. Reverse repurchase agreements
involve the risk that the market value of securities purchased by the Fund with
proceeds of the transaction may decline below the repurchase price of the
securities sold by the Fund which it is obligated to repurchase. The Fund will
also continue to be subject to the risk of a decline in the market value of the
securities sold under the agreements because it will reacquire those securities
upon effecting their repurchase. To minimize various risks associated with
reverse repurchase agreements, the Fund will establish a separate account
consisting of liquid securities, of any type or maturity in an amount at least
equal to the repurchase prices of these securities (plus any accrued interest
thereon) under such agreements. In addition, the Fund may not borrow money
except in connection with the sale or resale of its shares. The Fund will not
enter into reverse repurchase agreements and other borrowings exceeding in the
aggregate 33 1/3% of the market value of its total assets. The Fund will enter
into reverse repurchase agreements only with federally insured banks 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 firms involved.
Lending of Securities. The Fund may lend portfolio securities to brokers,
dealers, and financial institutions if the loan is collateralized by cash or
U.S. Government securities according to applicable regulatory requirements. The
Fund may reinvest any cash collateral in short-term securities and money market
funds. When the Fund lends portfolio securities, there is a risk that the
borrower may fail to return the securities involved in the transaction. As a
result, the Fund may incur a loss or, in the event of the borrower's bankruptcy,
the Fund may be delayed in or prevented from liquidating the collateral. It is a
fundamental policy of the Fund not to lend portfolio securities having a total
value exceeding 33 1/3% of its total assets.
Rights and Warrants. The Fund may purchase warrants and rights which are
securities permitting, but not obligating, their holder to purchase the
underlying securities at a predetermined price. Generally, warrants and stock
purchase rights do not carry with them the right to receive dividends or
exercise voting rights with respect to the underlying securities, and they do
not represent any rights in the assets of the issuer. As a result, an investment
in warrants and rights may be considered to entail greater investment risk than
certain other types of investments. In addition, the value of warrants and
rights does not necessarily change with the value of the underlying securities,
and they cease to have value if they are not exercised on or prior to their
expiration date. Investment in warrants and rights increases the potential
profit or loss to be realized from the investment of a given amount of the
Fund's assets as compared with investing the same amount in the underlying
stock.
Short-Sales. The Fund may not engage in short sales.
-----------
7
<PAGE>
Forward Commitment and When-Issued Securities. The Fund may purchase securities
on a when-issued or forward commitment basis. "When-issued" refers to securities
whose terms are available and for which a market exists, but which have not been
issued. The Fund will engage in when-issued transactions with respect to
securities purchased for its portfolio in order to obtain what is considered to
be an advantageous price and yield at the time of the transaction. For
when-issued transactions, no payment is made until delivery is due, often a
month or more after the purchase. In a forward commitment transaction, the Fund
contracts to purchase securities for a fixed price at a future date beyond
customary settlement time.
When the Fund engages in forward commitment and when-issued transactions, it
relies on the seller to consummate the transaction. The failure of the issuer or
seller to consummate the transaction may result in the Fund's 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 beeen held for a relatively brief
period of time. 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 portfolio turnover rate. A high
rate of portfolio turnover (100% or greater) involves correspondingly higher
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 if 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) The Fund may not, with respect to 75% of its total assets,
purchase any security (other than securities issued or
guaranteed by the U.S. Government, its agencies or
instrumentalities and repurchase agreements collateralized by
such securities) if, as a result: (a) more than 5% of its
total assets would be invested in the securities of any one
issuer, or (b) the Fund would own more than 10% of the voting
securities of any one issuer. [see nonfundamental investment
restriction]
(2) The Fund may not issue senior securities, except as permitted
by paragraphs (3) and (7) below. For purposes of this
restriction, the issuance of shares of common stock in
multiple classes, the purchase or sale of options, futures
contracts and options on futures contracts, forward
commitments, and repurchase agreements entered into in
accordance with the Fund's investment policies, and the
pledge, mortgage or hypothecation of the Fund's assets are not
deemed to be senior securities.
8
<PAGE>
(3) The Fund may not borrow money except in connection with the
sale or resale of its shares.
(4) The Fund may not act as an underwriter, except to the extent
that, in connection with the disposition of portfolio
investments, the Fund may be deemed to be an underwriter for
purposes of the Securities Act of 1933.
(5) The Fund may not purchase or sell real estate, or any interest
therein, including real estate mortgage loans, except that the
Fund may: (i) hold and sell real estate acquired as the result
of its ownership of securities, or (ii) invest in securities
of corporate or governmental entities secured by real estate
or marketable interests therein or securities issued by
companies (other that real estate limited partnerships) that
invest in real estate or interests therein.
(6) The Fund may not make loans, except that the Fund (1) may lend
portfolio securities in accordance with the Fund's investment
policies in an amount up to 33 1/3% of the Fund's total assets
taken at market value, (2) enter into repurchase agreements,
and (3) purchase all or a portion of an issue of debt
securities, bank loan participation interests, bank
certificates of deposit, bankers' acceptances, debentures or
other securities, whether or not the purchase is made upon the
original issuance of the securities.
(7) The Fund may not purchase or sell commodities or commodity
contracts; except that the Fund may purchase and sell options
on securities, securities indices, currency and other
financial instruments, futures contracts on securities,
securities indices, currency and other financial instruments
and options on such futures contracts, forward commitments,
interest rate swaps, caps and floors, securities index put or
call warrants and repurchase agreements entered into in
accordance with the Fund's investment policies.
(8) The Fund may not purchase securities of an issuer conducting
its principal activity in any particular industry if
immediately after such purchase the value of the Fund's
investments in all issuers in this industry would exceed 25%
of its total assets taken at market value.
Non-fundamental Investment Restrictions. The following restrictions are
designated as non-fundamental and may be changed by the Trustees without
shareholder approval.
The Fund may not:
(a) Participate on a joint-and-several basis in any securities
trading account. The "bunching" of orders for the sale or
purchase of marketable portfolio securities with other
accounts under the management of any investment adviser to the
Fund in order to save commissions or to average prices among
the accounts, and the participation of the Fund as a part of a
group bidding for the purchase of tax exempt bonds shall not
be deemed to result in participation in a securities trading
account.
(b) Purchase securities on margin or make short sales.
(c) Purchase a security if, as a result, (i) more than 10% of
the Fund's total assets would be invested in the securities of
other investment companies, (ii) the Fund would hold more than
3% of the total outstanding voting securities of any one
investment company, or (iii) more than 5% of the Fund's total
assets would be invested in the securities of any one
investment company. These limitations do not apply to (a) the
investment of cash collateral, received by the Fund in
connection with lending the Fund's portfolio securities, in
the securities of open-end investment companies or (b) the
purchase of shares of any investment company in connection
with a merger, consolidation, reorganization or purchase of
substantially all of the assets of another investment company.
Subject to the above percentage limitations, the Fund may, in
connection with the John Hancock Group of Funds Deferred
Compensation Plan for Independent Trustees/Directors, purchase
securities of other investment companies within the John
Hancock Group of Funds.
9
<PAGE>
(d) Invest for the purpose of exercising control over or
management of any company.
(e) Invest more than 15% of its net assets in illiquid securities.
(f) Write put or call options.
(g) No officer or Trustee of the Fund may take a short position in
the shares of the Fund, withhold orders or buy shares in
anticipation of orders.
(h) The Fund may not invest more than 5% of its total assets at
time of purchase in any one securitiy (other than US
Government securities).
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").
10
<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, 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, The
Berkeley Group, 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.
11
<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
233 West Central Street Consolidated, Inc.
Natick, MA 01760 (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
601 Colorado Street System and former President of the
O'Henry Hall University of Texas, Austin, Texas;
Austin, TX 78701 Lee Hage and Joseph D. Jamail
January 1944 Regents Chair 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
R.M Bradley & Co., Inc. Officer, R.M. Bradley & Co., Inc.;
73 Tremont Street, 7th Floor Director, The New England Council
Boston, MA 02108 and Massachusetts Roundtable;
March 1946 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 Senior Vice President and Chief
P.O. Box 697 Financial Officer, UGI Corporation
444 Chandlee Drive (Public Utility Holding Company)
Berwyn, PA 19312 (retired 1998); Vice President and
February 1938 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.
12
<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
4327 Enterprise Avenue Holdings, Inc. (since June 1, 2000)
Naples, FL 34104 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).
Richard S. Scipione * Trustee (1) General Counsel, John Hancock Life
John Hancock Place Insurance Company; Director, the
P.O. Box 111 Adviser, John Hancock Funds,
Boston, MA 02117 Signator Investors, Inc., John
August 1937 Hancock Subsidiaries, Inc.,
SAMCorp., NM Capital, The Berkeley
Group, JH Networking Insurance
Agency, Inc.; Insurance Agency,
Inc. (until June 1999), Signature
Services (until January 1997).
Norman H. Smith Trustee Lieutenant General, United States
243 Mt. Oriole Lane Marine Corps; Deputy Chief of Staff
Linden, VA 22642 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
13 Chadwell Place Bond Funds, The Smith Barney
Morristown, NJ 07960 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.
13
<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 Executive Vice President and Chief
101 Huntington Avenue President and Chief Investment Officer, each of the
Boston, MA 02199 Investment Officer John Hancock Funds; Executive Vice
December 1953 President and Chief Investment
Officer, Barring Asset Management,
London UK (until May 2000).
Osbert M. Hood Executive Vice Executive Vice President and Chief
101 Huntington Avenue President and Chief Financial Officer, each of the John
Boston, MA 02199 Financial Officer (2) Hancock Funds; Executive Vice
August 1952 President, Treasurer and Chief
Financial Officer of the Adviser,
the Berkeley Group, John Hancock
Funds, SAMCorp. and NM Capital;
Senior Vice President, Chief
Financial Officer and Treasurer,
Signature Services; Director
Indocam Japan Limited; Vice
President and Chief Financial
Officer, John Hancock Mutual Life
Insurance Company, Retail Sector
(until 1997).
Susan S. Newton Vice President, Vice President and Chief Legal
101 Huntington Avenue Secretary and Chief Officer the Adviser; John Hancock
Boston, MA 02199 Legal Officer Funds; Vice President, Signature
March 1950 Services (until May 2000), The
Berkeley Group, NM Capital and
SAMCorp.
James J. Stokowski Vice President, Vice President, the Adviser.
101 Huntington Avenue Treasurer and Chief
Boston, MA 02199 Accounting Officer
November 1946
Thomas H. Connors Vice President and Vice President and Compliance Officer,
101 Huntington Avenue Compliance Officer the Adviser; Vice President,
Boston, MA 02199 John Hancock Funds, Inc.
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 Scipione 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.
14
<PAGE>
Total
Compensation from all
Aggregate Funds in John Hancock
Compensation Fund Complex to
Trustees from the Fund(1) Trustees (2)
-------- ---------------- ---------------------
James F. Carlin $ 16,367 $ 72,600
William H. Cunningham* 15,517 72,250
Ronald R. Dion* 16,367 72,350
Harold R. Hiser, Jr.* (3) 15,482 68,450
Charles L. Ladner 17,059 75,450
Leo E. Linbeck, Jr.(3) 15,449 68,100
Steven R. Pruchansky* 17,037 75,350
Norman H. Smith* 17,706 78,500
John P. Toolan* 17,037 75,600
----------- -----------
Total $148,021 $658,650
(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.
As of April 3, 2000 officers and Trustees of the Trust as a group owned less
than 1% of the outstanding shares of the Fund. To the knowledge of the Trust,
only the following persons owned of record or beneficially 5% or more of any
class of the Fund's outstanding shares of the Fund:
15
<PAGE>
Percentage of total
outstanding shares of
Name and Address of Shareholder Class of shares the class of the Fund
------------------------------- --------------- ---------------------
Mellon Bank Trustee Y 73.02%
California Savings Plus Program
457 Plan A/C CSPF0135002
Attn: Bob Stein
1 Cabot Rd.
Medford, MA 02155-5141
Mellon Bank Trustee Y 26.98%
California Savings Plus Program
401(K) Thrift Plan A/C CSPF0035002
Attn: Bob Stein
1 Cabot Rd.
Medford, MA 02155-5141
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 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 custodians including those for keeping books and accounts,
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
membership; insurance premiums; and any extraordinary expenses.
16
<PAGE>
As compensation for its services under the Advisory Agreement, the Fund pays the
Adviser quarterly a fee based on a stated percentage of the average of the daily
net assets of the Fund as follows:
Net Asset Value Annual Rates
--------------- ------------
$0 to $750 million 0.60%
750 million to 1.5 billion 0.55%
1.5 billion to 2.5. billion 0.50%
2.5 billion and over 0.45%
Investment advisory fees paid to the Adviser in 1997, 1998, and 1999 amounted to
$11,885,521, $13,903,829 and $14,700,572, respectively.
From time to time, the Adviser may reduce its fee or make other arrangements to
limit the Fund's expenses to a specified percentage of average daily net assets.
The Adviser retains the right to re-impose a fee and recover any other payments
to the extent that, at the end of any fiscal year, the Fund's annual expenses
fall below this limit.
Securities held by the Fund may also be held by other funds or investment
advisory clients for which the Adviser or affiliates provide investment advice.
Because of different investment objectives or other factors, a particular
security may be bought for one or more funds or clients when one or more are
selling the same security. If opportunities for purchase or sale of securities
by the Adviser for the Fund or for other funds or clients for which the Adviser
renders investment advice arise for consideration at or about the same time,
transactions in such securities will be made, insofar as feasible, for the
respective funds or clients in a manner deemed equitable to all of them. To the
extent that transactions on behalf of more than one client of the Adviser or
affiliates may increase the demand for securities being purchased or the supply
of securities being sold, there may be an adverse effect on price.
Pursuant to the Advisory Agreement, the Adviser is not liable for any error of
judgment or mistake of law or for any loss suffered by the Fund in connection
with the matters to which the Advisory Agreement relates, except a loss
resulting from willful misfeasance, bad faith or gross negligence on the part of
the Adviser in the performance of its duties or from reckless disregard of the
obligations and duties under the 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 Advisory
Agreement is no longer in effect, the Fund (to the extent that it lawfully can)
will cease to use such a name or any other name indicating that it is advised by
or otherwise connected with the Adviser. In addition, the Adviser or the Life
Company may grant the non-exclusive right to use the name "John Hancock" or any
similar name to any other corporation or entity, including but not limited to
any investment company of which the Life Company or any subsidiary or affiliate
thereof or any successor to the business of any subsidiary or affiliate thereof
shall be the investment adviser.
The Adviser has entered into a Sub-Advisory Agreement with Sovereign Asset
Management Corporation ("SAMCorp"), which is an indirect wholly-owned subsidiary
of the Life Company. The Sub-Advisory Agreement provides that SAMCorp will
provide to the Adviser certain portfolio management services with respect to the
securities held in the portfolio of the Fund. The Sub-Advisory Agreement further
provides that the Adviser will remain ultimately responsible for all of its
obligations under the Advisory Agreement between the Adviser and the Fund.
Subject to the supervision of the Adviser, SAMCorp furnishes the Fund with
recommendations with respect to the purchase, holding and disposition of equity
securities in the Fund's portfolio; furnishes the Fund with research, economic
and statistical data in connection with the Fund's equity investments; and
places orders for transactions in equity securities.
17
<PAGE>
The Adviser pays to SAMCorp 40% of the quarterly fee received by the Adviser
with respect to the Fund during such quarter. The fees paid by the Fund to the
Adviser under the Advisory Agreement are not affected by this arrangement. The
Sub-Advisory Agreement has been terminated effective January 1, 1999.
The continuation of the Advisory Agreement and Distribution Agreement (discussed
below) was 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 not parties to the Agreement or "interested
persons" of any such parties. Both Agreements may be terminated on 60 days
written notice by either 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 $390,993, $410,748 and $482,826, respectively, for the
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 CONTRACTS
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 class of the Fund. Shares of the Fund are also sold by selected
broker-dealers (the "Selling Brokers") that 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 Fund that are continually offered at net asset value next
determined, plus an applicable sales charge, if any. In connection with the sale
of Fund shares, John Hancock Funds and Selling Brokers receive compensation from
a sales charge imposed, in the case of Class A and C shares, at the time of
sale. In the case of Class B or Class C shares, the broker receives compensation
immediately but John Hancock Funds is compensated on a deferred basis.
Total underwriting commissions for sales of the Fund's Class A shares for the
fiscal period ended December 31, 1997, 1998 and 1999 were $3,557,117,
$3,807,415, and $1,547,341, respectively, and $557,524, $449,748, and $150,373,
were retained by John Hancock Funds in 1997, 1998 and 1999, respectively. The
remainder of the underwriting commissions were reallowed to dealers.
The Fund's Trustees adopted Distribution Plans with respect to each class of
shares (the "Plans"), pursuant to Rule 12b-1 under the Investment Company Act of
1940. Under the Plans, the Fund will pay distribution and service fees at an
aggregate annual rate of up to 0.30% for Class A and 1.00% for Class B and Class
C shares of the Fund's average daily net assets attributable to shares of that
class. However, the service fee will not exceed 0.25% of the Fund's average
daily net assets attributable to each class of shares. The distribution fees
will be used to reimburse the John Hancock Funds for its distribution expenses,
including but not limited to: (i) initial and ongoing sales compensation to
Selling Brokers and others (including affiliates of John Hancock Funds) engaged
in the sale of Fund shares; (ii) marketing, promotional and overhead expenses
incurred in connection with the distribution of Fund shares; and (iii) with
18
<PAGE>
respect to Class B and Class C shares only, interest expenses on unreimbursed
distribution expenses. The service fees will be used to compensate Selling
Brokers and others for providing personal and account maintenance services to
shareholders. In the event that John Hancock Funds is not fully reimbursed for
payments or expenses it incurs under the Class A Plan, these expenses will not
be carried beyond twelve months from the date they were incurred. Unreimbursed
expenses under the Class B and Class C Plans will be carried forward together
with interest on the balance of these unreimbursed expenses. The Fund does not
treat unreimbursed expenses under the Class B and Class C Plans as a liability
of the Fund, because the Trustees may terminate the Class B and/or Class C Plans
at any time. For the fiscal year ended December 31, 1999, an aggregate of
$11,435,607 of Distribution Expenses or 1.40% of the average net assets of the
Fund's Class B shares was not reimbursed or recovered by John Hancock Funds
through the receipt of deferred sales charges or Rule 12b-1 fees in prior
periods. For the fiscal year ended December 31, 1999, an aggregate of $37,576 of
Distribution Expenses or 0.50% of the average net assets of the Fund's Class C
shares was not reimbursed or recovered by John Hancock Funds through the receipt
of deferred sales charges or Rule 12b-1 fees.
The Plans were approved by a majority of the voting securities of the Fund. The
Plans and all amendments were approved by the Trustees, including a majority of
the Trustees who are not interested persons of the Fund and who have no direct
or indirect financial interest in the operation of the Plans (the "Independent
Trustees"), by votes cast in person at meetings called for the purpose of voting
on such Plans.
Pursuant to the Plans, at least quarterly, John Hancock Funds provides the Fund
with a written report of the amounts expended under the Plans and the purpose
for which the expenditures were made. The Trustees review these reports on a
quarterly basis to determine their continued appropriateness.
The Plans provide that they will continue in effect only so long as their
continuance is approved at least annually by a majority of both the Trustees and
by the Independent Trustees. The Plans provide that they may be terminated
without penalty (a) by a vote of a majority of the Independent Trustees, (b) by
a vote of a majority of the Fund's outstanding shares of the applicable class
upon 60 days' written notice to John Hancock Funds, and (c) automatically in the
event of assignment. The Plans further provide that they may not be amended to
increase the maximum amount of the fees for the services described therein
without the approval of a majority of the outstanding shares of the class of the
Fund which has voting rights with respect to the Plan. Each Plan provides, that
no material amendment to the Plans will be effective unless it is approved by a
majority vote of the Trustees and the Independent Trustees of the Fund. The
holders of Class A, Class B and Class C shares have exclusive voting rights with
respect to the Plan applicable to their respective class of shares. In adopting
the Plans, the Trustees concluded that, in their judgment, there is a reasonable
likelihood that the Plans will benefit the holders of the applicable class of
shares of the Fund.
Class Y shares of the Fund are not subject to any distribution plan. Expenses
associated with the obligation of John Hancock Funds to use its best efforts to
sell Class Y shares will be paid by the Adviser or by John Hancock Funds and
will not be paid from the fees paid under Class A, Class B or Class C Plans.
Amounts paid to John Hancock Funds by any class of shares of the Fund will not
be used to pay the expenses incurred with respect to any other class of shares
of the Fund; provided, however, that expenses attributable to the Fund as a
whole will be allocated, to the extent permitted by law, according to a formula
based upon gross sales dollars and/or average daily net assets of each such
class, as may be approved from time to time by vote of a majority of the
Trustees. From time to time the Fund may participate in joint distribution
activities with other Funds and the costs of those activities will be borne by
each Fund in proportion to the relative net asset value of the participating
Funds.
19
<PAGE>
During the fiscal year ended December 31, 1999, the Fund paid John Hancock Funds
the following amounts of expenses in connection with their services for the
Fund.
<TABLE>
<CAPTION>
Expense Items
-------------
Printing and
Mailing of Interest
Prospectus to Compensation to Expenses of John Carrying or Other
Shares Advertising New Shareholders Selling Brokers Hancock Funds Finance Charges
------ ----------- ---------------- --------------- ---------------- -----------------
<S> <C> <C> <C> <C> <C>
Class A $ 654,792 $11,859 $3,443,761 $1,417,699 $ 0
Class B $ 1,202,757 $20,359 $3,461,215 $2,621,404 $611,453
Class C $ 20,310 $ 605 $ 12,223 $ 41,749 $ 0
SALES COMPENSATION
As part of their business strategies, the fund, along with John Hancock Funds,
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.
The two primary sources of compensation payments are (1) the 12b-1 fees that are
paid out of the fund's assets and (2) sales charges paid by investors. The sales
charges and 12b-1 fees are detailed in the prospectus and under "Distribution
Contracts" in this Statement of Additional Information. The portions of these
expenses that are reallowed to financial services firms are shown on the next
page.
Whenever you make an investment in the Fund, the financial services firm
receives a reallowance, as described below. The firm also receives the first
year's service fee at this time. Beginning with the second year after an
investment is made, the financial services firm receives an annual service fee
of 0.25% of its total eligible fund net assets. This fee is paid quarterly in
arrears by the Fund.
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.
From time to time, John Hancock Funds may make expense reimbursements for
special training of a financial services firm's registered representatives and
other employees in group meetings or to help pay the expenses of sales contests.
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.
20
<PAGE>
First year
Sales charge Maximum service fee Maximum
paid by investors reallowance (% of net total compensation (1)
Class A investments (% of offering price) (% of offering price) investment) (3) (% of offering price)
------------------- --------------------- --------------------- --------------- ---------------------
<S> <C> <C> <C> <C>
Up to $49,999 5.00% 4.01% 0.25% 4.25%
$50,000 - $99,999 4.50% 3.51% 0.25% 3.75%
$100,000 - $249,999 3.50% 2.61% 0.25% 2.85%
$250,000 - $499,999 2.50% 1.86% 0.25% 2.10%
$500,000 - $999,999 2.00% 1.36% 0.25% 1.60%
Regular investments of
Class A shares of
$1 million or more (4)
----------------------
First $1M - $4,999,999 -- 0.75% 0.25% 1.00%
Next $1 - $5M above that -- 0.25% 0.25% 0.50% (2)
Next $1 or more above that -- 0.00% 0.25% 0.25% (2)
Retirement investments of Class
A shares of
$1 million or more*
-------------------
First $1M - $24,999,999 -- 0.75% 0.25% 1.00%
Next $25M -$49,999,999 -- 0.25% 0.25% 0.50%
Next $1 or more above that -- 0.00% 0.25% 0.25%
First year
Maximum service fee Maximum total
reallowance (% of net compensation (1)
Class B investments (% of offering price) investment) (3) (% of offering price)
------------------- --------------------- --------------- ---------------------
All amounts -- 3.75% 0.25% 4.00%
First year
Maximum service fee Maximum total
reallowance (% of net compensation (1)
Class C investments (% of offering price) investment) (3) (% of offering price)
------------------- --------------------- --------------- ---------------------
Amounts purchased at NAV -- 0.75% 0.25% 1.00%
All other amounts 1.00% 1.75% 0.25% 2.00%
First year
Maximum service fee Maximum total
reallowance (% of net compensation (1)
Class Y investments (% of offering price) investment) (3) (% of offering price)
--------------------- --------------- ---------------------
All amounts -- -- -- --
</TABLE>
(1) Reallowance percentages and service fee percentages are calculated from
different amounts, and therefore may not equal total compensation
percentages if combined using simple addition.
21
<PAGE>
(2) For Group Investment Programs sales, the maximum total compensation for
investments of $1 million or more is 1.00% of the offering price (one year
CDSC of 1.00% applies for each sale).
(3) After first year subsequent service fees are paid quarterly in arrears.
(4) Includes new investments aggregated with investments since the last
annual reset. John Hancock Funds may take recent redemptions into account
in determining if an investment qualifies as a new investment.
CDSC revenues collected by John Hancock Funds may be used to pay commissions
when there is no initial sales charge.
*Retirement investments only. These include traditional, Roth IRAs, SIMPLE IRAs,
SIMPLE 401(k), Rollover IRA, TSA, 457, 403(b), 401(k), Money Purchase Pension
Plan, profit-sharing plan and other retirement plans as described in the
Internal Revenue Code.
NET ASSET VALUE
For purposes of calculating the net asset value ("NAV") of the Fund's shares,
the following procedures are utilized wherever applicable.
Debt investment securities are valued on the basis of valuations furnished by a
principal market maker or a pricing service, both of which generally utilize
electronic data processing techniques to determine valuations for normal
institutional size trading units of debt securities without exclusive reliance
upon quoted prices.
Equity securities traded on a principal exchange or NASDAQ National Market
Issues are generally valued at last sale price on the day of valuation.
Securities in the aforementioned category for which no sales are reported and
other securities traded over-the-counter are generally valued at the last
available bid price.
Short-term debt investments which have a remaining maturity of 60 days or less
are generally valued at amortized cost which approximates market value. If
market quotations are not readily available or if in the opinion of the Adviser
any quotation or price is not representative of true market value, the fair
value of the security may be determined in good faith in accordance with
procedures approved by the Trustees.
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 events
occurring after the closing of a foreign market, assets are valued by a method
that the Trustees believe accurately reflects fair value.
The NAV 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 a 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.
22
<PAGE>
INITIAL SALES CHARGE ON CLASS A AND CLASS C SHARES
Shares of the Fund are offered at a price equal to their net asset value plus a
sales charge which, at the option of the purchaser, may be imposed either at the
time of purchase (the "initial sales charge alternative") or on a contingent
deferred basis (the "deferred sales charge alternative"). The Fund no longer
issues shares certificates. All shares are electronically recorded. The Trustees
reserve the right to change or waive the Fund's minimum investment requirements
and to reject any order to purchase shares (including purchase by exchange) when
in the judgment of the Adviser such rejection is in the Fund's best interest.
The sales charges applicable to purchases of Class A and Class C shares of the
Fund are described in the Fund's Prospectus. Methods of obtaining reduced sales
charges referred to generally in the Prospectus are described in detail below.
In calculating the sales charge applicable to current purchases of Class A
shares of the Fund, the investor is entitled to cumulate current purchases with
the greater of the current value (at offering price) of the Class A shares of
the Fund owned by the investor, or if John Hancock Signature Services, Inc.
("Signature Services") is notified by the investor's dealer or the investor at
the time of the purchase, the cost of the Class A shares owned.
Without Sales Charge. Class A shares may be offered without a front-end sales
charge or a contingent deferred sales charge ("CDSC") to various individuals and
institutions as follows:
o A Trustee or officer of the Trust; a Director or officer of
the Adviser and its affiliates or Selling Brokers; employees
or sales representatives of any of the foregoing; retired
officers, employees or Trustees of any of the foregoing; a
member of the immediate family (spouse, children,
grandchildren, mother, father, sister, brother, mother-in-law,
father-in-law, daughter-in-law, son-in-law, niece, nephew,
grandparents and same sex domestic partner) of any of the
foregoing; or any fund, pension, profit sharing or other
benefit plan for the individuals described above.
o A broker, dealer, financial planner, consultant or registered
investment advisor that has entered into a signed agreement
with John Hancock Funds providing specifically for the use of
Fund shares in fee-based investment products or services made
available to their clients.
o A former participant in an employee benefit plan with John
Hancock funds, when he or she withdraws from his or her plan
and transfers any or all of his or her plan distributions
directly to the Fund.
o A member of a class action lawsuit against insurance companies
who is investing settlement proceeds.
o Retirement plans participating in Merrill Lynch servicing
programs, if the Plan has more than $3 million in assets or
500 eligible employees at the date the Plan Sponsor signs the
Merrill Lynch Recordkeeping Service Agreement. See your
Merrill Lynch financial consultant for further information.
o Retirement plans investing through the PruArray Program
sponsored by Prudential Securities.
23
<PAGE>
o Pension plans transferring assets from John Hancock variable
annuity contract to the Fund pursuant to an exemptive
application approved by the Securities and Exchange
Commission.
o Existing full service clients of the Life Company who were
group annuity contract holders as of September 1, 1994, and
participant directed retirement plans with at least 100
eligible employees at the inception of the Fund account. Each
of these investors may purchase Class A shares with no initial
sales charge. However, if the shares are redeemed within 12
months after the end of the calendar year in which the
purchase was made, a CDSC will be imposed at the following
rate:
Amount Invested CDSC Rate
--------------- ---------
$1 to $4,999,999 1.00%
Next $5 million to $9,999,999 0.50%
Amounts of $10 million and over 0.25%
Class C shares may be offered without a front-end sales charge to:
o Retirement plans for which John Hancock Signature Services
performs employer sponsored plan recordkeeping services.
(these types of plans include 401(k), money purchase pension,
profit sharing and SIMPLE 401k).
o An investor who buys through a Merrill Lynch omnibus account.
However, a CDSC may apply if the shares are sold within 12
months of purchase.
Class A and Class C shares may also be purchased without an initial sales charge
in connection with certain liquidation, merger or acquisition transactions
involving other investment companies or personal holding companies.
Combination Privilege. In calculating the sales charge applicable to purchases
of Class A shares made at one time, the purchases will be combined to reduce
sales charges if made by (a) an individual, his or her spouse and their children
under the age of 21, purchasing securities for his or their own account, (b) a
trustee or other fiduciary purchasing for a single trust, estate or fiduciary
account and (c) groups which qualify for the Group Investment Program (see
below). A company's (not an individual's) qualified and non-qualified retirement
plan investments can be combined to take advantage of this privilege. Further
information about combined purchases, including certain restrictions on combined
group purchases, is available from Signature Services or a Selling Broker's
representative.
Accumulation Privilege. Investors (including investors combining purchases) who
are already Class A shareholders may also obtain the benefit of the reduced
sales charge by taking into account not only the amount being invested but also
the investor's purchase price or current value of the Class A shares of all John
Hancock funds which carry a sales charge already held by such person. Class A
shares of John Hancock money market funds will only be eligible for the
accumulation privilege if the investor has previously paid a sales charge on the
amount of those shares. Retirement plan investors may include the value of Class
B shares if Class B shares held are greater than $1 million. Retirement plans
must notify Signature Services to utilize. A company's (not an individual's)
qualified and non-qualified retirement plan investments can be combined to take
advantage of this privilege.
Group Investment Program. Under the Combination and Accumulation Privileges, all
members of a group may combine their individual purchases of Class A shares to
potentially qualify for breakpoints in the sales charge schedule. This feature
is provided to any group which (1) has been in existence for more than six
months, (2) has a legitimate purpose other than the purchase of mutual fund
shares at a discount for its members, (3) utilizes salary deduction or similar
group methods of payment, and (4) agrees to allow sales materials of the fund in
its mailings to members at a reduced or no cost to John Hancock Funds.
24
<PAGE>
Letter of Intention. Reduced sales charges are also applicable to investments
pursuant to a Letter of Intention (the "LOI"), which should be read carefully
prior to its execution by an investor. The Fund offers two options regarding the
specified period for making investments under the LOI. All investors have the
option of making their investments over a period of thirteen (13) months.
Investors who are using the Fund as a funding medium for a retirement plan,
however, may opt to make the necessary investments called for by the LOI over a
forty-eight (48) month period. These retirement plans include traditional, Roth
IRAs, SEP, SARSEP, 401(k), 403(b) (including TSAs), SIMPLE IRA, SIMPLE 401(k),
Money Purchase Pension, Profit Sharing and Section 457 plans. An individual's
non-qualified and qualified retirement plan investments cannot be combined to
satisfy LOI of 48 months. Such an investment (including accumulations and
combinations but not including reinvested dividends) must aggregate $50,000 or
more invested during the specified period from the date of the LOI or from a
date within ninety (90) days prior thereto, upon written request to Signature
Services. The sales charge applicable to all amounts invested under the LOI is
computed as if the aggregate amount intended to be invested had been invested
immediately. If such aggregate amount is not actually invested, the difference
in the sales charge actually paid and the sales charge payable had the LOI not
been in effect is due from the investor. However, for the purchases actually
made within the specified period (either 13 or 48 months) the sales charge
applicable will not be higher than that which would have been applied (including
accumulations and combinations) had the LOI been for the amount actually
invested.
The LOI authorizes Signature Services to hold in escrow sufficient Class A
shares (approximately 5% of the aggregate) to make up any difference in sales
charges on the amount intended to be invested and the amount actually invested,
until such investment is completed within the specified period, at which time
the escrowed Class A shares will be released. If the total investment specified
in the LOI is not completed, the Class A shares held in escrow may be redeemed
and the proceeds used as required to pay such sales charge as may be due. By
signing the LOI, the investor authorizes Signature Services to act as his
attorney-in-fact to redeem any escrowed Class A shares and adjust the sales
charge, if necessary. A LOI does not constitute a binding commitment by an
investor to purchase, or by the Fund to sell, any additional Class A shares and
may be terminated at any time.
Because Class Y shares are sold at net asset value without the imposition of any
sales charge, none of the privileges described under these captions are
available to Class Y investors, with the following exception:
Combination Privilege. As explained in the Prospectus for Class Y Shares, a
Class Y investor may qualify for the minimum $1,000,000 investment (or such
other amount as may be determined by the Fund's officers) if the aggregate
amount of his current and prior investments in Class Y shares of the Fund and
Class Y shares of any other John Hancock Fund exceeds $1,000,000.
DEFERRED SALES CHARGE ON CLASS B AND CLASS C SHARES
Investments in Class B shares are purchased at net asset value per share without
the imposition of an initial sales charge so that the Fund will receive the full
amount of the purchase payment.
Contingent Deferred Sales Charge. Class B and Class C shares which are redeemed
within six years or one year of purchase, respectively, will be subject to a
CDSC at the rates set forth in the Class A, Class B and Class C Prospectus as a
percentage of the dollar amount subject to the CDSC. The charge will be assessed
on an amount equal to the lesser of the current market value or the original
purchase cost of the Class B or Class C shares being redeemed. No CDSC will be
imposed on increases in account value above the initial purchase prices,
including all shares derived from reinvestment of dividends or capital gains
distributions.
25
<PAGE>
Class B shares are not available to full-service retirement plans administered
by Signature Services or the Life Company that had more than 100 eligible
employees at the inception of the Fund account.
The amount of the CDSC, if any, will vary depending on the number of years from
the time of payment for the purchase of Class B shares until the time of
redemption of such shares. Solely for purposes of determining the number of
years from the time of any payment for the purchase of both Class B and Class C
shares, all payments during a month will be aggregated and deemed to have been
made on the first day of the month.
In determining whether a CDSC applies to a redemption, the calculation will be
determined in a manner that results in the lowest possible rate being charged.
It will be assumed that your redemption comes first from shares you have held
beyond the six-year CDSC redemption period for Class B or one year CDSC
redemption period for Class C or those you acquired through dividend and capital
gain reinvestment, and next from the shares you have held the longest during the
six-year period for Class B shares. For this purpose, the amount of any increase
in a share's value above its initial purchase price is not regarded as a share
exempt from CDSC. Thus, when a share that has appreciated in value is redeemed
during the CDSC period, a CDSC is assessed only on its initial purchase price.
When requesting a redemption for a specific dollar amount, please indicate if
you require the proceeds to equal the dollar amount requested. If not indicated,
only the specified dollar amount will be redeemed from your account and the
proceeds will be less any applicable CDSC.
Example:
You have purchased 100 Class B shares at $10 per share. The second year after
your purchase, your investment's net asset value per share has increased by $2
to $12, and you have gained 10 additional shares through dividend reinvestment.
If you redeem 50 shares at this time your CDSC will be calculated as follows:
oProceeds of 50 shares redeemed at $12 per shares (50 x 12) $600.00
o*Minus Appreciation ($12 - $10) x 100 shares (200.00)
o Minus proceeds of 10 shares not subject to
CDSC (dividend reinvestment) (120.00)
-------
oAmount subject to CDSC $280.00
*The appreciation is based on all 100 shares in the account not just
the shares being redeemed.
Proceeds from the CDSC are paid to John Hancock Funds and are used in whole or
in part by Signature Services to defray its expenses related to providing
distribution related services to the Fund in connection with the sale of the
Class B and Class C shares, such as the payment of compensation to select
Selling Brokers for selling Class B and Class C shares. The combination of the
CDSC and the distribution and service fees enables the Fund to sell the Class B
and Class C shares without a sales charge being deducted at the time of the
purchase.
Waiver of Contingent Deferred Sales Charge. The CDSC will be waived on
redemptions of Class B and Class C shares and of Class A shares that are subject
to CDSC, unless indicated otherwise, in the circumstances defined below:
26
<PAGE>
For all account types:
* Redemptions made pursuant to the Fund's right to liquidate your account if you
own shares worth less than $1,000.
* Redemptions made under certain liquidation, merger or acquisition transactions
involving other investment companies or personal holding companies.
* Redemptions due to death or disability. (Does not apply to Trust accounts
unless Trust is being dissolved.)
* Redemptions made under the Reinstatement Privilege, as described in "Sales
Charge Reductions and Waivers" of the Prospectus.
* Redemptions of Class B (but not Class C) shares made under a periodic
withdrawal plan, or redemptions for fees charged by planners or advisors for
advisory services, as long as your annual redemptions do not exceed 12% of
your account value, including reinvested dividends, at the time you
established your periodic withdrawal plan and 12% of the value of subsequent
investments (less redemptions) in that account at the time you notify
Signature Services. (Please note that this waiver does not apply to periodi
withdrawal plan redemptions of Class A or Class C shares that are subject to a
CDSC).
* Redemptions by Retirement plans participating in Merrill Lynch servicing
programs, if the Plan has less than $3 million in assets or 500 eligible
employees at the date the Plan Sponsor signs the Merrill Lynch Recordkeeping
Service Agreement. See your Merrill Lynch financial consultant for further
information.
* Redemptions of Class A or Class C shares by retirement plans that invested
through the PruArray Program sponsored by Prudential Securities.
* Redemptions of Class A shares made after one year from the inception date of a
retirement plan at John Hancock for which John Hancock is the recordkeeper.
For Retirement Accounts (such as traditional, Roth IRAs, SIMPLE IRAs, SIMPLE
401(k), Rollover IRA,TSA, 457, 403(b), 401(k), Money Purchase Pension Plan,
Profit-Sharing Plan and other plans as described in the Internal Revenue Code of
1986, as amended (the "Code")) unless otherwise noted.
* Redemptions made to effect mandatory or life expectancy distributions under
the Internal Revenue Code.
* Returns of excess contributions made to these plans.
* Redemptions made to effect distributions to participants or beneficiaries from
employer sponsored retirement plans under sections 401(a) (such as Money
Purchase Pension Plans and Profit-Sharing Plan/401(k) Plans), 457 and 408
(SEPs and SIMPLE IRAs) of the Internal Revenue Code.
* Redemptions from certain IRA and retirement plans that purchased shares prior
to October 1, 1992 and certain IRA plans that purchased shares prior to
May 15, 1995.
Please see matrix for some examples.
27
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
----------------------- ----------------- ----------------- ---------------- ----------------- ----------------
Type of 401 (a) Plan 403 (b) 457 IRA, IRA Non-retirement
Distribution (401 (k), MPP, Rollover
PSP) 457 & 408
(SEPs & Simple
IRAs)
----------------------- ----------------- ----------------- ---------------- ----------------- ----------------
Death or Disability Waived Waived Waived Waived Waived
----------------------- ----------------- ----------------- ---------------- ----------------- ----------------
Over 70 1/2 Waived Waived Waived Waived for 12% of account
mandatory value annually
distributions in periodic
or 12% of payments
account value
annually in
periodic
payments.
----------------------- ----------------- ----------------- ---------------- ----------------- ----------------
Between 59 1/2 Waived Waived Waived Waived for Life 12% of account
and 70 1/2 Expectancy or value annually
12% of account in periodic
value annually payments
in periodic
payments.
----------------------- ----------------- ----------------- ---------------- ----------------- ----------------
Under 59 1/2 Waived for Waived for Waived for Waived for 12% of account
(Class B only) annuity annuity annuity annuity value annually
payments (72t) payments (72t) payments (72t) payments (72t) in periodic
or 12% of or 12% of or 12% of or 12% of payments
account value account value account value account value
annually in annually in annually in annually in
periodic periodic periodic periodic
payments. payments. payments. payments.
----------------------- ----------------- ----------------- ---------------- ----------------- ----------------
Loans Waived Waived N/A N/A N/A
----------------------- ----------------- ----------------- ---------------- ----------------- ----------------
Termination of Plan Not Waived Not Waived Not Waived Not Waived N/A
----------------------- ----------------- ----------------- ---------------- ----------------- ----------------
Hardships Waived Waived Waived N/A N/A
----------------------- ----------------- ----------------- ---------------- ----------------- ----------------
Qualified Domestic Waived Waived Waived N/A N/A
Relations Orders
----------------------- ----------------- ----------------- ---------------- ----------------- ----------------
Termination of Waived Waived Waived N/A N/A
Employment Before
Normal Retirement Age
----------------------- ----------------- ----------------- ---------------- ----------------- ----------------
Return of Excess Waived Waived Waived Waived N/A
----------------------- ----------------- ----------------- ---------------- ----------------- ----------------
</TABLE>
If you qualify for a CDSC waiver under one of these situations, you must notify
Signature Services at the time you make your redemption. The waiver will be
granted once Signature Services has confirmed that you are entitled to the
waiver.
28
<PAGE>
SPECIAL REDEMPTIONS
Although it would not normally do so, the Fund has the right to pay the
redemption price of shares of the Fund in whole or in part in portfolio
securities as prescribed by the Trustees. When the shareholder sells portfolio
securities received in this fashion, 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. The Fund has,
however, elected to be governed by Rule 18f-1 under the Investment Company Act.
Under that rule, the Fund must redeem its shares for cash except to the extent
that the redemption payments to any shareholder during any 90-day period would
exceed the lesser of $250,000 or 1% of the Fund's net asset value at the
beginning of such period.
ADDITIONAL SERVICES AND PROGRAMS FOR CLASSES A, B AND C SHARES
Exchange Privilege. The Fund permits exchanges of shares of any class of a fund
for shares of the same class in any other John Hancock fund offering that class.
Exchanges between funds with shares that are not subject to a CDSC are based on
their respective net asset values. No sales charge or transactions charge is
imposed. Shares of the Fund which are subject to a CDSC may be exchanged into
shares of any of the other John Hancock funds that are subject to a CDSC without
incurring the CDSC; however, the shares acquired in an exchange will be subject
to the CDSC schedule of the shares acquired if and when such shares are redeemed
(except that shares exchanged into John Hancock 500 Index Fund and John Hancock
Intermediate Government Fund will retain the exchanged fund's CDSC schedule).
For purposes of computing the CDSC payable upon redemption of shares acquired in
an exchange, the holding period of the original shares is added to the holding
period of the shares acquired in an exchange.
If a shareholder exchanges Class B shares purchased prior to January 1, 1994 for
Class B shares of any other John Hancock fund, the acquired shares will continue
to be subject to the CDSC schedule that was in effect when the exchanged shares
were purchased.
The Fund reserves the right to require that previously exchanged shares (and
reinvested dividends) be in the Fund for 90 days before a shareholder is
permitted a new exchange.
The Fund may refuse any exchange order. The Fund may change or cancel its
exchange policies at any time, upon 60 days' notice to its shareholders.
An exchange of shares is treated as a redemption of shares of one fund and the
purchase of shares of another for Federal Income Tax purposes. An exchange may
result in a taxable gain or loss. See "TAX STATUS".
Systematic Withdrawal Plan. The Fund permits the establishment of a Systematic
Withdrawal Plan. Payments under this plan represent proceeds arising from the
redemption of Fund shares, which may result in realization of gain or loss for
purposes of Federal, state and local income taxes. The maintenance of a
Systematic Withdrawal Plan concurrently with purchases of additional shares of
the Fund could be disadvantageous to a shareholder because of the initial sales
charge payable on such purchases of Class A shares and the CDSC imposed on
redemptions of Class B and Class C shares and because redemptions are taxable
events. Therefore, a shareholder should not purchase shares at the same time as
a Systematic Withdrawal Plan is in effect. The Fund reserves the right to modify
or discontinue the Systematic Withdrawal Plan of any shareholder on 30 days'
prior written notice to such shareholder, or to discontinue the availability of
such plan in the future. The shareholder may terminate the plan at any time by
giving proper notice to Signature Services.
29
<PAGE>
Monthly Automatic Accumulation Program (MAAP). The program is explained in the
Class A, Class B and Class C Prospectus. The program, as it relates to automatic
investment checks, is subject to the following conditions:
The investments will be drawn on or about the day of the month indicated.
The privilege of making investments through the MAAP may be revoked by Signature
Services without prior notice if any investment is not honored by the
shareholder's bank. The bank shall be under no obligation to notify the
shareholder as to the non-payment of any checks.
The program may be discontinued by the shareholder either by calling Signature
Services or upon written notice to Signature Services which is received at least
five (5) business days prior to the order date of any investment.
Reinstatement and Reinvestment Privilege. If Signature Services is notified
prior to reinvestment, a shareholder who has redeemed shares of the Fund may,
within 120 days after the date of redemption, reinvest without payment of a
sales charge any part of the redemption proceeds in shares of the same class of
the Fund or another John Hancock fund, subject to the minimum investment limit
in any fund. The proceeds from the redemption of Class A shares may be
reinvested at net asset value without paying a sales charge in Class A shares of
any John Hancock funds. If a CDSC was paid upon a redemption, a shareholder may
reinvest the proceeds from such redemption at net asset value in additional
shares of the class from which the redemption was made. The shareholder's
account will be credited with the amount of any CDSC charged upon the prior
redemption and the new shares will continue to be subject to the CDSC. The
holding period of the shares acquired through reinvestment will, for purposes of
computing the CDSC payable upon a subsequent redemption, include the holding
period of the redeemed shares.
To protect the interests of other investors in the Fund, the Fund may cancel the
reinvestment privilege 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. Also, the Fund may refuse any reinvestment
request.
The Fund may change or cancel its reinvestment policies at any time.
A redemption or exchange of shares is a taxable transaction for Federal income
tax purposes even if the reinvestment privilege is exercised, and any gain or
loss realized by a shareholder on the redemption or other disposition of shares
will be treated for tax purposes as described below under the caption "TAX
STATUS."
Retirement plans participating in Merrill Lynch's servicing programs:
Class A shares are available at net asset value for plans with $3 million in
plan assets or 500 eligible employees at the date the Plan Sponsor signs the
Merrill Lynch Recordkeeping Service Agreement. If the plan does not meet either
of these limits, Class A shares are not available.
For participating retirement plans investing in Class B shares, shares will
convert to Class A shares after eight years, or sooner if the plan attains
assets of $5 million (by means of a CDSC-free redemption/purchase at net asset
value).
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PURCHASES AND REDEMPTIONS THROUGH THIRD PARTIES
Shares of the Fund may be purchased or redeemed through certain broker-dealers.
Brokers may charge for their services or place limitations on the extent to
which you may use the services of the Fund. The Fund will be deemed to have
received a purchase or redemption order when an authorized broker, or if
applicable, a broker's authorized designee, receives the order. If a broker is
an agent or designee of the Fund, orders are processed at the NAV next
calculated after the broker receives the order. The broker must segregate any
orders it receives after the close of regular trading on the New York Stock
Exchange and transmit those orders to the Fund for execution at NAV next
determined. Some brokers that maintain nominee accounts with the Fund for their
clients charge an annual fee on the average net assets held in such accounts for
accounting, servicing, and distribution services they provide with respect to
the underlying Fund shares. The Adviser, the Fund, and John Hancock Funds, Inc.
(the Fund's principal distributor), share in the expense of these fees.
DESCRIPTION OF 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 two other series. The Trustees have also authorized the issuance of
four classes of shares of the Fund, designated as Class A, Class B, Class C and
Class Y.
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
Class A, Class B and Class C 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 Class A, Class B and Class C shares
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.
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Under Massachusetts law, shareholders of a Massachusetts business trust could,
under certain circumstances, be held personally liable for acts or obligations
of the Trust. However, the 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 Funds. 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.
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
losses that may occur to any account due to an unauthorized telephone call. Also
for your protection telephone transactions are not permitted on accounts whose
names or addresses have changed within the past 30 days. Proceeds from telephone
transactions can only be mailed to the address of record.
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 and elected to be treated 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 for 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 taxable income
(including net realized capital gains) distributed to shareholders in accordance
with the timing requirements of the Code.
The Fund will be subject to a 4% nondeductible Federal excise tax on certain
amounts not distributed (and not treated as having been distributed) on a timely
basis in accordance with annual minimum distribution requirements. The Fund
intends under normal circumstances to seek to avoid or minimize liability for
such tax by satisfying such distribution requirements.
Distributions from the Fund's current or accumulated earnings and profits
("E&P") will be taxable under the Code for investors who are subject to tax. If
these distributions are paid from the Fund's "investment company taxable
income," they will be taxable as ordinary income; and if they are paid from the
Fund's "net capital gain," they will be taxable as long-term capital gain. (Net
capital gain is the excess (if any) of net long-term capital gain over net
short-term capital loss, and investment company taxable income is all taxable
income and capital gains, other than 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.
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<PAGE>
Distributions, if any, in excess of E&P will constitute a return of capital
under the Code, which will first reduce an investor's federal tax basis in Fund
shares and then, to the extent such basis is exceeded, will generally give rise
to capital gains. Shareholders who have chosen automatic reinvestment of their
distributions will have a federal tax basis in each share received pursuant to
such a reinvestment equal to the amount of cash they would have received had
they elected to receive the distribution in cash, divided by the number of
shares received in the reinvestment.
The amount of net realized capital gains, if any, in any given year will result
from sales of securities made with a view to the maintenance of a portfolio
believed by the Fund's management to be most likely to attain the Fund's
objective. Such sales, and any resulting gains or losses, may therefore vary
considerably from year to year. At the time of an investor's purchase of shares
of the Fund, a portion of the purchase price is often attributable to realized
or unrealized appreciation in the Fund's portfolio. Consequently, subsequent
distributions on these shares from such appreciation or income may be taxable to
such investor even if the net asset value of the investor's shares is, as a
result of the distributions, reduced below the investor's cost for such shares
and the distributions in reality represent a return of a portion of the purchase
price.
If the Fund invests in stock (including an option to acquire stock 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 could 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.
The Fund may be subject to foreign taxes on its income from investments in
certain foreign securities, if any. Some tax conventions between certain
countries and the U.S. may reduce or eliminate such taxes. Because more than 50%
of the Fund's assets at the close of any taxable year will generally not consist
of stocks or securities of foreign corporations, the Fund will generally be
unable to pass such taxes through to shareholders, who will therefore generally
not be entitled to any foreign tax credit or deduction with respect to their
investment in the Fund. The Fund will deduct the foreign taxes it pays in
determining the amount it has available for distribution to shareholders.
Foreign exchange gains and losses realized by the Fund in connection with
certain transactions involving foreign currency-denominated debt securities,
foreign currencies, or payable or receivables denominated in foreign currency
are subject to Section 988 of the Code, which generally causes such gains and
losses to be treated as ordinary income and losses and may affect the amount,
timing and character of distributions to shareholders.
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<PAGE>
Limitations imposed by the Code on regulated investment companies like the Fund
may restrict the Fund's ability to enter into options transactions.
Certain of these transactions may cause the Fund to recognize gains or losses
from marking to market even though its positions have not been sold or
terminated and affect the character as long-term or short-term and timing of
some capital gains and losses realized by the Fund. Additionally, certain of the
Fund's losses on its transactions involving options and any offsetting or
successor portfolio positions may be deferred rather than being taking into
account currently in calculating the Fund's taxable income or gains. Certain of
such transactions may also cause the Fund to dispose of investments sooner than
would otherwise have occurred. These transactions may therefore affect the
amount, timing and character of the Fund's distributions to shareholders. The
Fund will take into account the special tax rules (including consideration of
available elections) applicable to options in order to minimize any potential
adverse tax consequences.
Upon a redemption 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 will ordinarily realize a taxable gain or loss depending upon the
amount of the proceeds and the investor's basis in his shares. Such gain or loss
will be treated as capital gain or loss if the shares are capital assets in the
shareholder's hands and will be long-term or short-term, depending upon the
shareholder's tax holding period for the shares and subject to the special rules
described below. A sales charge paid in purchasing 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 automatic dividend reinvestment. In such a case, the basis of the
shares acquired will be adjusted to reflect the disallowed loss.
Any loss realized upon the redemption of shares with a tax holding period of six
months or less will be treated as a long-term capital loss to the extent of any
amounts treated as distributions of long- term capital gain with respect to such
shares. 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 the present intention is to distribute, at least annually, all net
capital gain, if any, the Fund reserves the right to retain and reinvest all or
any portion of the excess, as computed for Federal income tax purposes, of net
gain over net short- term capital loss in any year. The Fund will not in any
event distribute net capital gain realized in any year to the extent that a
capital loss is carried forward from prior years against such gain. To the
extent such excess was retained and not exhausted by the carryforward of prior
years' capital losses, it would be subject to Federal income tax in the hands of
the Fund. Upon proper designation of this amount by the Fund, each shareholder
would be treated for Federal income tax purposes as if the Fund had distributed
to him on the last day of its taxable year his pro rata share of such excess,
and he had paid his pro rata share of the taxes paid by the Fund and reinvested
the remainder in the Fund. Accordingly, each shareholder would (a) include his
pro rata share of such excess as long-term capital gain in his return for his
taxable year in which the last day of the Fund's taxable year falls, (b) be
entitled either to a tax credit on his return for, or to a refund of, his pro
rata share of the taxes paid by the Fund, and (c) be entitled to increase the
adjusted tax basis for his shares in the Fund by the difference between his pro
rata share of such excess and his pro rata share of these taxes.
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<PAGE>
For Federal income tax purposes, the Fund is permitted to carry forward a net
capital loss in any year to offset net capital gains, if any, during the eight
years following the year of the loss. To the extent subsequent net capital gains
are offset by such losses, they would not result in Federal income tax liability
to the Fund and as noted above would not be distributed as such to shareholders.
Presently, there are no realized capital loss carryforwards 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 a
qualifying dividends. Corporate shareholders must meet the minimum holding
period requirement stated above (46 or 91 days) with respect to their shares of
the Fund 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
tax basis in its shares may be reduced, for Federal income tax purposes, by
reason of "extraordinary dividends" received with respect to the shares, for the
purpose of computing its gain or loss on redemption or other disposition of the
shares.
The Fund is required to accrue income on any debt securities that have more than
a de minimus amount of original issue discount (or debt securities acquired at a
market discount, if the Fund elects to include market discount in income
currently) prior to the receipt of the corresponding cash payments. The mark to
market rules applicable to certain options and futures contracts may also
require the Fund to recognize gain within a concurrent receipt of cash. However,
the Fund must distribute to shareholders for each taxable year substantially all
of its net income and net capital gains, including such income or liability for
any federal income or excise tax. Therefore, the Fund may have to dispose of its
portfolio securities under disadvantageous circumstances to generate cash, or
may have to leverage itself by borrowing the cash, to satisfy these distribution
requirements.
A state income (and possibly local income and/or intangible property) tax
exemption is generally available to the extent (if any) the Fund's distributions
are derived from interest on (or, in the case of intangible taxes, the value of
its assets is attributable to) certain U.S. Government obligations, provided in
some states that certain thresholds for holdings of such obligations and/or
reporting requirements are satisfied. The Fund will not seek to satisfy any
threshold or reporting requirements that may apply in particular taxing
jurisdictions, although the Fund may in its sole discretion provide relevant
information to shareholders.
The Fund will be required to report to the Internal Revenue Service (the "IRS")
all taxable distributions to shareholders, as well as gross proceeds from the
redemption or exchange of Fund shares, except in the case of certain exempt
recipients, i.e., corporations and certain other investors distributions to
which are exempt from the information reporting provisions of the Code. Under
the backup withholding provisions of the Code, Section 3406, and applicable
Treasury regulations, all such reportable distributions and proceeds may be
subject to backup withholding of federal income tax at the rate of 31% in the
case of non-exempt shareholders who fail to furnish the Fund with their correct
taxpayer identification number and certain certifications required by the IRS or
if the IRS or a broker notifies the Fund that the number furnished by the
shareholder is incorrect or that the shareholder is subject to backup
withholding as a result of failure to report interest or dividend income. The
Fund may refuse to accept an application that does not contain any required
taxpayer identification number or certification that the number provided is
correct. If the backup withholding provisions are applicable, any such
distributions and proceeds, whether taken in cash or reinvested in shares, will
be reduced by the amounts required to be withheld. Any amounts withheld may be
credited against a shareholder's U.S. federal income tax liability. Investors
should consult their tax advisers about the applicability of the backup
withholding provisions.
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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.
Investments in debt obligations that are at risk of or in default may present
special tax issues for the Fund. Tax rules are not entirely clear about issues
such as when the Fund may cease to accrue interest, original issue discount, or
market discount; when and to what extent deductions may be taken for bad debts
or worthless securities; how payments received on obligations in default should
be allocated between principal and income; and whether exchanges of debt
obligations in a workout context are taxable. These and other issues will be
addressed by the Fund, in the event it invests in such securities, in order to
reduce the risk of distributing insufficient income to preserve its status as a
regulated investment company and seek to avoid becoming subject to Federal
income or excise tax.
The foregoing discussion relates solely to U.S. Federal income tax laws
applicable to the U.S. persons (i.e., U.S. citizens or residents and U.S.
domestic corporations, partnerships, trusts or estates) subject to tax under
such law. The discussion does not address special tax rules applicable to
certain 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 shares of the
Fund may also be subject to state and local taxes. The foregoing discussion
related to U.S. investors that are not exempt from U.S. Federal income tax.
Different tax consequences will apply to plan participants, tax-exempt investors
and investors that are subject to tax deferral. You should consult your tax
adviser for specific advice. Under the Code, a tax-exempt investor in the Fund
will not generally recognize unrelated business taxable income from its
investment in the Fund unless the tax-exempt investor incurred indebtedness to
acquire or continue to hold Fund shares and such indebtedness remains unpaid.
Shareholders should consult their own tax advisers as to the Federal, state or
local tax consequences of ownership of shares of, and receipt of distributions
from, the Fund in their particular circumstances.
Non-U.S. investors not engaged in a U.S. trade or business with which their
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 not be required to pay Massachusetts
income taxes.
CALCULATION OF PERFORMANCE
For the 30-day period ended December 31, 1999 the annualized yield on Class A,
Class B, Class C and Class Y shares of the Fund was 1.03%, 0.39%, 0.39% and
1.46%, respectively. The average annual total return of the Class A shares of
the Fund for the 1, 5 and 10 year periods ended December 31, 1999 was 0.60%,
17.93% and 13.23%, respectively. The average annual total return of the Class B
shares of the Fund for the 1 year, 5 year and for the period from the
commencement of operations, January 3, 1994 to December 31, 1999 was 0.20%,
18.06% and 14.55%, respectively. The average annual total return of the Class C
shares of the Fund from commencement of operations, May 1, 1998 to December 31,
1999 was 4.17% and 6.24%, respectively. The average annual total return of the
Class Y shares of the Fund for the 1 and 5 year periods ended December 31, 1999
and for the period from commencement of operation, May 7, 1993 to December 31,
1999 was 6.30%, 19.59% and 14.98%, respectively.
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<PAGE>
The Fund's total return is computed by finding the average annual compounded
rate of return over the 1 year, 5 year and 10 year periods that would equate the
initial amount invested to the ending redeemable value according to the
following formula:
n _____
T = \ /ERV/P - 1
Where:
P = a hypothetical initial investment of $1,000.
T = average annual total return.
n = number of years.
ERV = ending redeemable value of a hypothetical $1,000 investment
made at the beginning of the 1, 5 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 Class A, Class B or Class C
shares, this calculation assumes the maximum sales charge is included in the
initial investment or the CDSC applied at the end of the period, respectively.
This calculation assumes that all dividends and distributions are reinvested at
net asset value on the reinvestment dates during the period. The "distribution
rate" is determined by annualizing the result of dividing the declared dividends
of 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. Performance calculations for Class Y
shares do not include any sales charge or distribution plan fees.
In addition to average annual total returns, the Fund may quote unaveraged or
cumulative total returns reflecting the simple change in value of an investment
over a stated period. Cumulative total returns may be quoted as a percentage or
as a dollar amount, and may be calculated for a single investment, a series of
investments, and/or a series of redemptions, over any time period. Total returns
may be quoted with or without taking the Fund's sales charge on Class A or Class
C shares or the CDSC on Class B or Class C shares into account. Excluding the
Fund's sales charge on Class A shares and the CDSC on Class B or Class C shares
from a total return calculation produces a higher total return figure.
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) on the
last day of the period, according to the following standard formula:
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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 yield/total
return will be compared to indices of mutual funds and bank deposit vehicles
such as Lipper Analytical Services, Inc.'s "Lipper -- Growth and Income Fund
Performance Analysis," a monthly publication which tracks mutual fund net
assets, total return, and yield. Comparisons may also be made to bank
certificates of deposit ("CDs"), which differ from mutual funds, such as the
Fund, in several ways. The interest rate established by the sponsoring bank is
fixed for the term of a CD, there are penalties for early withdrawal from CDs,
and the principal on a CD is insured.
Performance rankings and ratings reported periodically in, and excerpts from,
national financial publications such as MONEY Magazine, FORBES, BUSINESS WEEK,
the WALL STREET JOURNAL, MICROPAL, INC., MORNINGSTAR, BARRON'S and IBBOTSON
ASSOCIATES will also be utilized as well as the Russell and Wilshire indices.
The Fund may also cite Morningstar Mutual Values, an independent mutual fund
information service which ranks mutual funds. The Fund's promotional and sales
literature may make reference to the Fund's "beta." Beta is a reflection of the
market-related risk of the Fund by showing how responsive the Fund is to the
market.
The performance of the Fund is not fixed or guaranteed. Performance quotations
should not be considered to be representations of performance of the Fund for
any period in the future. The performance of the Fund is a function of many
factors including its earnings, expenses and number of outstanding shares.
Fluctuating market conditions; purchases, sales and maturities of portfolio
securities; sales and redemptions of shares; and changes in operating expenses
are all examples of items that can increase or decrease the Fund's performance.
BROKERAGE ALLOCATION
Decisions concerning the purchase and sale of portfolio securities and the
allocation of broker commissions are made by the Advisers pursuant to
recommendations made by an investment committee of the Adviser, which consists
of officers and Trustees of the Adviser and officers and Trustees who are
interested persons of the Fund. Orders for purchases and sales of securities are
placed in a manner, which, in the opinion of the Adviser, will offer the best
price and market for the execution of each such transaction. Purchases from
underwriters of portfolio securities may include a commission or commissions
paid by the issuer and transactions with dealers serving as market maker reflect
a "spread." Debt securities are generally traded on a net basis through dealers
acting for their own account as principals and not as brokers; no brokerage
commissions are payable on these transactions.
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<PAGE>
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 sand 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 as the Trustees may determine, the Adviser may consider
sales of shares of the Fund as a factor in the selection of broker-dealers to
execute the Fund's portfolio transactions.
To the extent consistent with the foregoing, the Fund will be governed in the
selection of broker and dealers, and the negotiation of brokerage commission
rates and dealer spreads, by the reliability and quality of the services,
including primarily the availability and value of research information and to a
lesser extent statistical assistance furnished to the Adviser of the Fund, and
their value and expected contribution to the performance of the Fund. It is not
possible to place a dollar value on information and services to be received from
brokers and dealers, since it is only supplementary to the research efforts of
the Adviser. The receipt of research information is not expected to reduce
significantly the expenses of the Adviser. The research information and
statistical assistance furnished by brokers and dealers may benefit the Life
Company or other advisory clients of the Adviser and, conversely, brokerage
commissions and spreads paid by other advisory clients of the Adviser may result
in research information and statistical assistance beneficial to the Fund. The
Fund will make no commitment to allocate portfolio transactions upon any
prescribed basis. While the Adviser will be primarily responsible for the
allocation of the Fund's brokerage business, their policies and practices in
this regard must be consistent with the foregoing and will at all times be
subject to review by the Trustees. For the years ended on December 31, 1997,
1998 and 1999, the Fund paid negotiated brokerage commissions in the amount of
$2,034,103, $2,541,224, and $1,622,709, respectively.
As permitted by Section 28(e) of the Securities Exchange Act of 1934, the Fund
may pay to a broker which provides brokerage and research services to the Fund
an amount of disclosed commission in excess of the commission which another
broker would have charged for effecting that transaction. This practice is
subject to a good faith determination by the Trustees that such price is
reasonable in light of the services provided and to these policies as the
Trustees may adopt from time to time. During the fiscal year ended December 31,
1999, the Fund paid $246,211 in commissions to compensate brokers for research
services such as industry, economic and company reviews and evaluation of
securities.
The Adviser's indirect parent, the Life Company, is the indirect sole
shareholder of 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 the Affiliated Broker. For the fiscal year ended December 31, 1997, 1998
and 1999, the Fund paid no brokerage commissions to the Affiliated Broker.
Signator may act as broker for the Fund on securities or commodities exchange
transactions, subject, however, to the general policy of the Fund set forth
above and the procedures adopted by the Trustees pursuant to the Investment
Company Act. Commissions paid to an Affiliated Broker must be at least as
favorable as those which the Trustees believe to be contemporaneously charged by
other brokers in connection with comparable transactions involving similar
securities being purchased or sold. A transaction would not be placed with an
39
<PAGE>
Affiliated Broker if the Fund would have to pay a commission rate less favorable
than the Affiliated Broker's contemporaneous charges for comparable transactions
for its other most favored, but unaffiliated, customers except for accounts for
which the Affiliated Broker acts as clearing broker for another brokerage firm,
and any customers of the Affiliated Broker not comparable to the Fund as
determined by a majority of the Trustees who are not interested persons (as
defined in the Investment Company Act) of the Fund, the Adviser or the
Affiliated Broker. Any such transactions would be subject to a good faith
determination by the Trustees that the compensation paid to Affiliated Brokers
is fair and reasonable. Because the Adviser, which is affiliated with the
Affiliated Broker, has, as 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.
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 of $19.00 for each Class A shareholder account, $21.50
for each Class B shareholder account, $20.50 for each Class C shareholder
account and 0.10% of the average daily net assets attributable to the Class Y
shares.
40
<PAGE>
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, Investors Bank &
Trust Company performs custody, portfolio and fund accounting services.
INDEPENDENT AUDITORS
Ernst & Young LLP, 200 Clarendon Street, Boston, Massachusetts 02116, has been
selected as the independent auditors of the Fund. The financial statements of
the Fund included in the Prospectus and this Statement of Additional Information
have been audited by Ernst & Young LLP for the periods indicated in their report
thereon appearing elsewhere herein, and are included in reliance upon such
report given upon the authority of such firm as experts in accounting and
auditing.
41
<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
Moody's describes its lower ratings for corporate bonds as follows:
Bonds which are rated Baa are considered as medium grade obligations, i.e., they
are neither highly protected nor poorly secured. Interest payments and principal
security appear adequate for the present but certain protective elements may be
lacking or may be characteristically unreliable over any great length of time.
Such bonds lack outstanding investment characteristics and in fact have
speculative characteristics as well.
Bonds which are rated Ba are judged to have speculative elements; their future
cannot be considered as well assured. Often the protection of interest and
principal payments may be very moderate and thereby not well safeguarded during
both good and bad times over the future. Uncertainty of position characterized
bonds in this class.
Bonds which are rated B generally lack characteristics of the desirable
investment. Assurance of interest and principal payments or of maintenance of
other terms of the contract over any long period of time may be small.
Bonds which are rated Caa are of poor standing. Such issues may be in default or
there may be present elements of danger with respect to principal or interest.
Bonds which are rated Ca represented obligations which are speculative in a high
degree. Such issues are often in default or have other marked shortcomings.
Bonds which are rated C are the lowest rated class of bonds and issues so rated
can be regarded as having extremely poor prospects of ever attaining any real
investment standing.
Standard & Poor's describes its lower ratings for corporate bonds as follows:
Debt rated 'BBB' is regarded as having an adequate capacity to pay interest and
repay principal. Whereas it normally exhibits adequate protection parameters,
adverse economic conditions or changing circumstances are more likely to lead to
a weakened capacity to pay interest and repay principal for debt in this
category than in higher rated categories.
Debt rated 'BB,' 'B,' 'CCC,' or 'CC' is regarded, on balance, as predominantly
speculative with respect to the issuer's capacity to pay interest and repay
principal in accordance with the terms of the obligations. 'BB' indicates the
lowest degree of speculation and 'CC' the highest degree of speculation. While
such debt will likely have some quality and protective characteristics, these
are outweighed by large uncertainties or major risk exposures to adverse
conditions.
Moody's describes its three highest ratings for commercial paper as follows:
Issuers rated P-1 (or related supporting institutions) have a superior capacity
for repayment of short-term promissory obligations. P-1 repayment capacity will
normally be evidenced by the following characteristics: (1) leading market
positions in well- established industries; (2) high rates of return on funds
employed; (3) conservative capitalization structures with moderate reliance on
debt and ample asset protections; (4) broad margins in earnings coverage of
fixed financial charges and high internal cash generation; and (5) well
established access to a range of financial markets and assured sources of
alternate liquidity.
B-1
<PAGE>
Issuers rated P-2 (or related supporting institutions) have a strong capacity
for repayment of short-term promissory obligations. This will normally be
evidenced by many of the characteristics cited above but to a lesser degree.
Earnings trends and coverage ratios, while sound, will be more subject to
variation. Capitalization characteristics, while still appropriate, may be more
affected by external conditions. Ample alternate liquidity is maintained.
Issuers rated P-3 (or supporting institutions) have an acceptable ability for
repayment of senior short-term obligations. The effect of industry
characteristics and market compositions may be more pronounced. Variability in
earnings and profitability may result in changes in the level of debt protection
measurements and may require relatively high financial leverage. Adequate
alternate liquidity is maintained.
Standard & Poor's describes its lower ratings for corporate bonds as follows:
BBB Debt rated BBB is regarded as having an adequate capacity to pay interest
and repay principal. Whereas it normally exhibits adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay interest and repay principal for
debt in this category than in higher rated categories.
BB, B, CCC, CC, C Debt rated 'BB', 'B', 'CCC', 'CC" and 'C' is regarded, on
balance, as predominantly speculative with respect to capacity to pay interest
and repay principal in accordance with the terms of the obligation. 'BB'
indicates the lowest degree of speculation and 'C' the highest degree of
speculation. While such debt will likely have some quality and protective
characteristics, these are outweighed by large uncertainties or major risk
exposures to adverse conditions.
BB Debt rated 'BB' has less near-term vulnerability to default than other
speculative issues. However, it faces major ongoing uncertainties or exposure to
adverse business, financial, or economic conditions which could lead to
inadequate capacity to meet timely interest and principal payments. The 'BB'
rating category is also used for debt subordinated to senior debt that is
assigned an actual or implied 'BBB-' rating.
B Debt rated 'B' has a greater vulnerability to default but currently has the
capacity to meet interest payments and principal repayments. Adverse business,
financial or economic conditions will likely impair capacity or willingness to
pay interest and repay principal. The 'B' rating category is also used for debt
subordinated to senior debt that is assigned an actual or implied 'BB' or 'BB-'
rating.
CCC Debt rated 'CCC' has a currently identifiable vulnerability to default, and
is dependent upon favorable business, financial, and economic conditions to meet
timely payment of interest and repayment of principal. In the event of adverse
business, financial or economic conditions, it is not likely to have the
capacity to pay interest and repay principal. The 'CCC' rating category is also
used for debt subordinated to senior debt that is assigned an actual or implied
'B' or 'B-' rating.
CC The rating 'CC' is typically applied to debt subordinated to senior debt that
is assigned an actual or implied 'CCC' rating.
C The rating 'C' is typically applied to debt subordinated to senior debt which
is assigned an actual or implied 'CCC-' debt rating. The 'C' rating may be used
to cover a situation where a bankruptcy petition has been filed, but debt
service payments are continued.
B-2
<PAGE>
Standard & Poor's describes its three highest ratings for commercial paper as
follows:
A-1. This designation indicated that the degree of safety regarding timely
payment is very strong.
A-2. Capacity for timely payment on issues with this designation is strong.
However, the relative degree of safety is not as overwhelming as for issues
designated A-1.
A-3. Issues carrying this designation have a satisfactory capacity for timely
payment. They are, however, somewhat more vulnerable to the adverse effects of
changes in circumstances than obligations carrying the higher designations.
Issuers rated P-2 (or related supporting institutions) have a strong capacity
for repayment of short-term promissory obligations. This will normally be
evidenced by many of the characteristics cited above but to a lesser degree.
Earnings trends and coverage ratios, while sound, will be more subject to
variation. Capitalization characteristics, while still appropriate, may be more
affected by external conditions. Ample alternate liquidity is maintained.
Issuers rated P-3 (or supporting institutions) have an acceptable ability for
repayment of senior short-term obligations. The effect of industry
characteristics and market compositions may be more pronounced. Variability in
earnings and profitability may result in changes in the level of debt protection
measurements and may require relatively high financial leverage. Adequate
alternate liquidity is maintained.
B-3
<PAGE>
FINANCIAL STATEMENTS
The financial statements listed below are included in the Fund's 1999 Annual
Report to Shareholders for the year ended December 31, 1999; (filed
electronically on February 28, 2000, accession number 0000928816-00-000114) and
are included in and incorporated by reference into Part B of the Registration
Statement for John Hancock Sovereign Investors Fund (file nos. 811-00560 and
2-10156).
John Hancock Investment Trust
John Hancock Sovereign Investors Fund
Statement of Assets and Liabilities as of December 31, 1999.
Statement of Operations for the year ended December 31, 1999.
Statement of Changes in Net Assets for each of the two years in the period
ended December 31, 1999.
Notes to Financial Statements.
Financial Highlights for each of the five years in the period ended
December 31, 1999.
Schedule of Investments as of December 31, 1999.
Report of Independent Auditors.
F-1
<PAGE>
JOHN HANCOCK BALANCED FUND
Class A, Class B and Class C Shares
Statement of Additional Information
July 1, 2000
This Statement of Additional Information provides information about John Hancock
Balanced Fund (the "Fund") in addition to the information that is contained in
the combined Equity Funds' current Prospectus (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, Massachusetts 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..................................... 22
Distribution Contracts..................................................... 24
Sales Compensation......................................................... 26
Net Asset Value............................................................ 28
Initial Sales Charge on Class A Shares..................................... 28
Deferred Sales Charge on Class B and Class C Shares........................ 31
Special Redemptions........................................................ 33
Additional Services and Programs........................................... 34
Purchase and Redemptions through Third Parties............................. 35
Description of the Fund's Shares........................................... 35
Tax Status................................................................. 37
Calculation of Performance................................................. 41
Brokerage Allocation....................................................... 42
Transfer Agent Services.................................................... 44
Custody of Portfolio....................................................... 44
Independent Auditors....................................................... 44
Appendix A- Description of Investment Risk................................. A-1
Appendix B-Description of Bond Ratings..................................... B-1
Financial Statements....................................................... F-1
1
<PAGE>
ORGANIZATION OF FUND
The Fund is a series of the Trust, an open-end investment management company
organized as a Massachusetts business trust under the laws of The Commonwealth
of Massachusetts. Prior to December 2, 1996, the Fund was a diversified series
of John Hancock Sovereign Investors Fund, Inc. Prior to May 1, 1999, the Fund
was called John Hancock Sovereign Balanced 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 risks. The investment objective of the Fund is
non-fundamental. There is no assurance that the Fund will achieve its investment
objective.
The investment objectives of the Fund are to provide current income, long-term
growth of capital and income and preservation of capital without assuming what
the Adviser believes to be undue market risks. At times, however, because of
market conditions, the Fund may invest primarily for current income. The Fund
will allocate its investments among different types and classes of securities in
accordance with the Adviser's appraisal of economic and market conditions.
Shareholder approval is not required to effect changes in the Fund's investment
objectives.
The Fund may invest in any type or class of security. At least 25% of the value
of the Fund's total assets will be invested in fixed income senior securities.
Fixed income securities may include both convertible and non-convertible debt
securities and preferred stock, and only that portion of their value attributed
to their fixed income characteristics, as determined by the Adviser, can be used
in applying the 25% test. The balance of the Fund's total assets may consist of
cash or (i) equity securities of established companies, (ii) equity and fixed
income securities of foreign corporations, governments or other issuers meeting
applicable quality standards as determined by the Fund's investment adviser,
(iii) foreign currencies, (iv) securities that are issued or guaranteed as to
interest and principal by the U.S. Government, its agencies, authorities or
instrumentalities, (v) obligations and equity securities of banks or savings and
loan associations (including certificates of deposit and bankers' acceptances);
and (vi) to the extent available and permissible, options and futures contracts
on securities, currencies and indices. Each of these investments is more fully
described below. The Fund's portfolio securities are selected mainly for their
investment character based upon generally accepted elements of intrinsic value,
including industry position, management, financial strength, earning power,
marketability and prospects for future growth. The distribution or mix of
various types of investments is based on general market conditions, the level of
interest rates, business and economic conditions and the availability of
investments in the equity or fixed income markets.
Equity securities, for purposes of the Fund's investment policy, are limited to
common stocks, preferred stocks, investment grade convertible securities and
warrants. In addition, the Fund utilizes a strategy of investing at least 75% of
stock investments in those common stocks which have a record of having increased
their shareholder dividend in each of the preceding ten or more years. This
dividend performers strategy may be changed at any time.
The Fund's total investments in fixed income securities (other than commercial
paper) will be rated primarily within the four highest grades as determined by
Moody's Investors Service, Inc. ("Moody's") (Aaa, Aa, A or Baa) or Standard &
Poor's Ratings Group ("S&P") (AAA, AA, A or BBB). Fixed income securities rated
Baa or BBB are considered medium grade obligations with speculative
characteristics; and adverse economic conditions or changing circumstances may
weaken their issuers' capacity to pay interest and repay principal.
2
<PAGE>
Up to 20% of the Fund's assets may be in high yielding, fixed income securities
(junk bonds) rated as low as C by Moody's or S&P. These lower rated securities
are speculative to a high degree and often have very poor prospects of attaining
real investment standing.
The Fund diversifies its investments among a number of industry groups without
concentrating more than 25% of its assets in any particular industry. The Fund's
investments are subject to market fluctuation and the risks inherent in all
securities.
Assuming relatively stable economic conditions, it is anticipated that the
annual portfolio turnover rate will not usually exceed 100%. However, under
certain economic conditions, a higher turnover may be advisable to achieve the
Fund's objectives.
Investment in Foreign Securities. The Fund may invest up to 35% of its total
assets in securities of foreign companies. The Fund may invest directly in the
securities of foreign issuers as well as in the form of sponsored and
unsponsored American Depository Receipts ("ADRs"). European Depository Receipts
("EDRs") or other securities convertible into securities of foreign issuers.
These securities may not necessarily be denominated in the same currency as the
securities into which they may be converted but rather in the currency of the
market in which they are traded. ADRs are receipts typically issued by a United
States bank or trust company which evidence ownership of underlying securities
issued by a foreign corporation. EDRs are receipts issued in Europe by banks or
depositories which evidence a similar ownership arrangement. Issuers of
unsponsored ADRs are not required to disclose material information in the United
States. Generally, ADRs, in registered form, are designed for use in U.S.
securities markets and EDRs, in bearer form, 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
hedge against fluctuations in currency exchange rates affecting a particular
transaction or portfolio position. 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 and Sub-Adviser.
If the Fund purchases a forward contract, 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.
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.
3
<PAGE>
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, limitation 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 States economy in terms of growth of gross national product, rate of
inflation, capital reinvestment, resource self-sufficiency 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
in less established markets and economies. Political, legal and economic
structures in many of these emerging market countries may be undergoing
significant evolution and rapid development, and they may lack the social,
political, legal and economic stability characteristic of more developed
countries. Emerging market countries may have failed in the past to recognize
private property rights. They may have relatively unstable governments, present
the risk of nationalization of businesses, restrictions on foreign ownership, or
prohibitions on repatriation of assets, and may have less protection of property
rights than more developed countries. Their economies may be predominantly based
on only a few industries, may be highly vulnerable to changes in local or global
trade conditions, and may suffer from extreme and volatile debt burdens or
inflation rates. Local securities markets may trade a small number of securities
and may be unable to respond effectively to increases in trading volume,
potentially making prompt liquidation of substantial holdings difficult or
impossible at times. The Fund may be required to establish special custodial or
other arrangements before making certain investments in those countries.
Securities of issuers located in these countries may have limited marketability
and may be subject to more abrupt or erratic price movements.
Repurchase Agreements. In a repurchase agreement the Fund buys a security for a
relatively short period (usually not more than 7 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 it enters into repurchase agreements.
The Fund has established a procedure providing that the securities serving as
collateral for each repurchase agreement must be delivered to the Fund's
custodian either physically or in book-entry form and that the collateral must
be marked to market daily to ensure that each repurchase agreement is fully
collateralized at all times. In the event of bankruptcy or other default by a
seller of a repurchase agreement, the Fund could experience delays in or be
prevented from liquidating the underlying securities and could experience
losses, including the possible decline in the value of the underlying securities
during the period while the Fund seeks to enforce its rights thereto, possible
subnormal levels of income and decline in value of the underlining securities or
of access to income during this period as well as expense of enforcing its
rights.
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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. To minimize
various risks associated with reverse repurchase agreements, the Fund will
establish a separate account consisting of liquid securities, of any type or
maturity in an amount at least equal to the repurchase prices of these
securities (plus any accrued interest thereon) under such agreements. The Fund
will also continue to be subject to the risk of a decline in the market value of
the securities sold under the agreements because it will reacquire those
securities upon effecting their repurchase. In addition, the Fund will not enter
into reverse repurchase agreements and other borrowings exceeding in the
aggregate 33% of the market value of its total assets. The Fund will enter into
reverse repurchase agreements only with federally insured banks 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 may purchase securities that are not registered
("restricted securities") under the Securities Act of 1933 ("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 15% of its net
assets on 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 they are liquid, they will not be subject to the 15% limit
on illiquid investments. The Trustees have adopt guidelines and delegate to the
Advisers the daily function of determining the monitoring and liquidity of
restricted securities. The Trustees, however, will retain sufficient oversight
and be ultimately responsible for the determinations. The Trustees will
carefully monitor the Fund's investments in these securities, focusing on such
important factors, among others, as valuation, liquidity and availability of
information. This investment practice could have the effect of increasing the
level of 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,
on any securities index based on securities in which it may invest or on 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 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.
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.
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All call and put options written by the Fund are covered. A written call option
or put option may be covered by (i) maintaining cash or liquid securities,
either of which may be quoted or denominated in any currency, in a segregated
account with a value at least equal to the Fund's obligation under the option,
(ii) entering into an offsetting forward commitment and/or (iii) purchasing an
offsetting option or any other option which, by virtue of its exercise price or
otherwise, reduces the Fund's net exposure on its written option position. A
written call option on securities is typically covered by maintaining the
securities that are subject to the option in a segregated account. The Fund may
cover call options on a securities index by owning securities whose price
changes are expected to be similar to those of the underlying index.
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). If trading were discontinued, the
secondary market on that exchange (or in that class or series of options) would
cease to exist. However, 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.
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, the Fund may purchase and
sell interest rate 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) and securities 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 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.
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. 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 Funds 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.
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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 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 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
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
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 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
8
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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. The Fund will engage in
transactions in futures contracts and related options only to the extent such
transactions are consistent with the requirements of the Internal Revenue Code
of 1986, as amended (the "Code"), for maintaining its qualification as a
regulated investment company for federal income tax purposes.
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, 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.
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 fluctuation.
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.
Government Securities. Certain U.S. Government securities, including U.S.
Treasury bills, notes and bonds, and Government National Mortgage Association
certificates ("Ginnie Maes"), are supported by the full faith and credit of the
United States. Certain other U.S. Government securities, issued or guaranteed by
Federal agencies or government sponsored enterprises, are not supported by the
full faith and credit of the United States, but may be supported by the right of
the issuer to borrow from the U.S. Treasury. These securities include
obligations of the Federal Home Loan Mortgage Corporation ("Freddie Macs"), and
obligations supported by the credit of the instrumentality, such as Federal
National Mortgage Association Bonds ("Fannie Maes"). No assurance can be given
that the U.S. Government will provide financial support to such Federal
agencies, authorities, instrumentalities and government sponsored enterprises in
the future.
Ginnie Maes, Freddie Macs and Fannie Maes are mortgage-backed securities which
provide monthly payments which are, in effect, a "pass-through" of the monthly
interest and principal payments (including any prepayments) made by the
individual borrowers on the pooled mortgage loans. Collateralized mortgage
obligations ("CMOs") in which the Fund may invest are securities issued by a
9
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U.S. Government instrumentality that are collateralized by a portfolio of
mortgages or mortgage-backed securities. Mortgage-backed securities may be less
effective than traditional debt obligations of similar maturity at maintaining
yields during periods of declining interest rates. The Fund will not invest more
than 50% of its assets in mortgage-backed securities.
Ratings as Investment Criteria. In general, the ratings of Moody's and S&P
represent the opinions of these agencies as to the quality of the securities
which they rate. It should be emphasized however, that ratings are relative and
subjective and are not absolute standards of quality. These ratings will be used
by the Funds 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" Securities. Lower rated securities are
generally referred to as junk bonds. Ratings are based largely on the historical
financial condition of the issuer.
Securities rated lower than Baa by Moody's or BBB by Standard & Poor's are
sometimes referred to as junk bonds. See the Appendix attached to this Statement
of Additional Information which describes the characteristics of the securities
in the various ratings categories. 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 of 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 ongoing 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 investments 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 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.
Investments in corporate fixed income securities may be in bonds, convertible
debentures and convertible or non-convertible preferred stock. The value of
convertible securities, while influenced by the level of interest rates, is also
affected by the changing value of the underlying common stock into which the
securities are convertible. The value of fixed income securities varies
inversely with interest rates.
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Mortgage "Dollar Roll" Transactions. The Fund may enter into mortgage "dollar
roll" transactions with selected banks and broker-dealers pursuant to which the
Fund sells mortgage-backed securities and simultaneously contracts to repurchase
substantially similar (same type, coupon and maturity) securities on a specified
future date. The Fund will only enter into covered rolls. A "covered roll" is a
specific type of dollar roll for which there is an offsetting cash position or a
cash equivalent security position which matures on or before the forward
settlement date of the dollar roll transaction. Covered rolls are not treated as
a borrowing or other senior security and will be excluded from the calculation
of the Fund's borrowing and other senior securities. For financial reporting and
tax purposes, the Fund treats mortgage dollar rolls as two separate
transactions; one involving the purchase of a security and a separate
transaction involving a sale. The Fund does not currently intend to enter into
mortgage dollar roll transactions that are accounted for as a financing.
Asset-Backed Securities. The Fund may invest a portion of its assets in
asset-backed securities. Asset-backed securities are often subject to more rapid
repayment than their stated maturity date would indicate as a result of the
pass-through of prepayments of principal on the underlying loans. During periods
of declining interest rates, prepayment of loans underlying asset-backed
securities can be expected to accelerate. Accordingly, the Fund's ability to
maintain positions in these securities will be affected by reductions in the
principal amount of such securities resulting from prepayments, and its ability
to reinvest the returns of principal at comparable yields is subject to
generally prevailing interest rates at that time.
Credit card receivables are generally unsecured and the debtors on such
receivables are entitled to the protection of a number of state and federal
consumer credit laws, many of which give such debtors the right to set-off
certain amounts owed on the credit cards, thereby reducing the balance due.
Automobile receivables generally are secured, but by automobiles rather than
residential real property. Most issuers of automobile receivables permit the
loan services to retain possession of the underlying obligations. If the service
were to sell these obligations to another party, there is a risk that the
purchaser would acquire an interest superior to that of the holders of the
asset-backed securities. In addition, because of the large number of vehicles
involved in a typical issuance and technical requirements under state laws, the
trustee for the holders of the automobile receivables may not have a proper
security interest in the underlying automobiles. Therefore, there is the
possibility that, in some cases, recoveries on repossessed collateral may not be
available to support payments on these securities.
Lending of Securities. The Fund may lend portfolio securities to brokers,
dealers, and financial institutions if the loan is collateralized by cash or
U.S. Government securities according to applicable regulatory requirements. The
Fund may reinvest any cash collateral in short-term securities and money market
funds. When the Fund lends portfolio securities, there is a risk that the
borrower may fail to return the loaned securities. As a result, the Fund may
incur a loss or in the event of the borrower's bankruptcy may be delayed in or
prevented from liquidating the collateral. It is a fundamental policy of the
Fund not to lend portfolio securities having a total value in excess of 33% 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
Fundamental Investment Restriction. Generally, warrants and stock purchase
rights do not carry with them the right to receive dividends or exercise voting
rights with respect to the underlying securities, and they do not represent any
rights in the assets of the issuer. As a result, an investment in warrants and
rights may be considered to entail greater investment risk than certain other
types of investments. In addition, the value of warrants and rights does not
necessarily change with the value of the underlying securities, and they cease
to have value if they are not exercised on or prior to their expiration date.
Investment in warrants and rights increases the potential profit or loss to be
realized from the investment of a given amount of the Fund's assets as compared
with investing the same amount in the underlying stock.
Short-Sales. The Fund may engage in short sales against the Box. In a short sale
against the box, the Fund agrees to sell at a future date a security that it
either contemporaneously owns or has the right to acquire at no extra cost. If
the price of the security has declined at the time the Fund is required to
deliver the security, the Fund will benefit from the difference in the price. If
the price of the security has increased, the Fund will be required to pay the
difference.
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Structured or Hybrid Notes. The Fund may invest in "structured" or "hybrid"
notes. The distinguishing feature of a structured or hybrid note is that the
amount of interest and/or principal payable on the note is based on the
performance of a benchmark asset or market other than fixed income securities or
interest rates. Examples of these benchmark include stock prices, currency
exchange rates and physical commodity prices. Investing in a structured note
allows the Fund to gain exposure to the benchmark market while fixing the
maximum loss that the Fund may experience in the event that market does not
perform as expected. Depending on the terms of the note, the Fund may forego all
or part of the interest and principal that would be payable on a comparable
conventional note; the Fund's loss cannot exceed this foregone interest and/or
principal. An investment in structured or hybrid notes involves risks similar to
those associated with a direct investment in the benchmark asset.
Swaps, Caps, Floor and Collars. As one way of managing its exposure to different
types of investments, the Fund may enter into interest rate swaps, currency
swaps, and other types of swap agreements such as caps, collars and floors. In a
typical interest rate swap, one party agrees to make regular payments equal to a
floating interest rate times a "notional principal amount," in return for
payments equal to a fixed rate times the same amount, for a specified period of
time. If a swap agreement provides for payment in different currencies, the
parties might agree to exchange the notional principal amount as well. Swaps may
also depend on other prices or rates, such as the value of an index or mortgage
prepayment rates.
In a typical cap or floor agreement, one party agrees to make payments only
under specified circumstances, usually in return for payment of a fee by the
other party. For example, the buyer of an interest rate cap obtains the right to
receive payments to the extent that a specified interest rate exceeds an
agreed-upon level, while the seller of an interest rate floor is obligated to
make payments to the extent that a specified interest rate falls below an
agreed-upon level. An interest rate collar combines elements of buying a cap and
selling a floor.
Swap agreements will tend to shift the Fund's investment exposure from one type
of investment to another. For example, if the Fund agreed to exchange payments
in dollars for payments in a foreign currency, the swap agreement would tend to
decrease the Fund's exposure to U.S. interest rates and increase its exposure to
foreign currency and interest rates. Caps and floors have an effect similar to
buying or writing options. Depending on how they are used, swap agreements may
increase or decrease the overall volatility of a Fund's investments and its
share price and yield.
Swap agreements are sophisticated hedging instruments that typically involve a
small investment of cash relative to the magnitude of risks assumed. As a
result, swaps can be highly volatile and may have a considerable impact on the
Fund's performance. Swap agreements are subject to risks related to the
counterpart's ability to perform, and may decline in value if the counterpart's
credit worthiness deteriorates. The Fund may also suffer losses if it is unable
to terminate outstanding swap agreements or reduce its exposure through
offsetting transactions. The Fund will maintain in a segregated account with its
custodian, cash or liquid, high grade debt securities equal to the net amount,
if any, of the excess of the Fund's obligations over its entitlement with
respect to swap, cap, collar or floor transactions.
Participation Interests. Participation interests, which may take the form of
interests in, or assignments of certain loans, are acquired from banks who have
made these loans or are members of a lending syndicate. The Fund's investments
in participation interests are subject to its 15% limitation on investments in
liquid securities.
Pay-In-Kind, Delayed and Zero Coupon Bonds. The Fund may invest in pay- in-kind,
delayed and zero coupon bonds. These are securities issued at a discount from
their face value because interest payments are typically postponed until
maturity. The amount of the discount rate varies depending on factors including
the time remaining until maturity, prevailing interest rates, the security's
liquidity and the issuer's credit quality. These securities also may take the
form of debt securities that have been stripped of their interest payments. A
portion of the discount with respect to stripped tax-exempt securities or their
coupons may be taxable. The market prices in pay-in-kind, delayed and zero
12
<PAGE>
coupon bonds generally are more volatile than the market prices of
interest-bearing securities and are likely to respond to a grater degree to
changes in interest rates than interest-bearing securities having similar
maturities and credit quality. The Fund's investments in pay-in-kind, delayed
and zero coupon bonds may require the Fund to sell certain of its portfolio
securities to generate sufficient cash to satisfy certain income distribution
requirements. See "Tax Status."
Brady Bonds. The Fund may invest in Brady Bonds and other sovereign debt
securities of countries that have restructured or are in the process of
restructuring sovereign debt pursuant to the Brady Plan. Brady Bonds are debt
securities issued by U.S. Treasury Secretary Nicholas F. Brady in 1989 as a
mechanism for debtor nations to restructure their outstanding external
indebtedness (generally, commercial bank debt). In restructuring its external
debt under the Brady Plan framework, a debtor nation negotiates with its
existing bank lenders as well as multilateral institutions such as the World
Bank and the International Monetary Fund (the "IMF"). The Brady Plan facilitate
the exchange of commercial bank debt for newly issued bonds known as Brady
Bonds. The World Bank and the IMF provide funds pursuant to loan agreements or
other arrangements which enable the debtor nation to collateralize the new Brady
Bonds or to repurchase outstanding bank debt at a discount. Under these
arrangements IMF, debtor nations are required to agree implement domestic
monetary and fiscal reforms. These reforms have included the liberalization of
trade and foreign investment, the privatization of state-owned enterprises and
the setting of targets for public spending and borrowing. These policies and
programs promote the debtor country's ability to service its external
obligations and promote its economic growth and development. The Brady Plan only
sets forth general guiding principles for economic reform and debt reduction,
emphasizing that solutions must be negotiated on a case-by-case basis between
debtor nations and their creditors. The Adviser believes that economic reforms
undertaken by countries in connection with the issuance of Brady Bonds make the
debt of countries which have issued or have announced plans to issue Brady Bonds
an attractive opportunity for investment.
Brady Bonds have recently been issued by Argentina, Brazil, Bulgaria, Costa
Rica, Dominican Republic, Ecuador, Jordan, Mexico, Nigeria, Poland, the
Philippines, Uruguay and Venezuela and may be issued by other countries. Over
$130 billion in principal amount of Brady Bonds have been issued to date, the
largest portion having been issued by Argentina and Brazil. Brady Bonds may
involve a high degree of risk, may be in default or present the risk of default.
Agreements implemented under the Brady Plan to date are designed to achieve debt
and debt-service reduction through specific options negotiated by a debtor
nation with its creditors. As a result, the financial packages offered by each
country differ. The types of options have included the exchange of outstanding
commercial bank debt for bonds issued at 100% of face value of such debt, bonds
issued at a discount of face value of such debt, bonds bearing an interest rate
which increases over time and bonds issued in exchange for the advancement of
new money by existing lenders. Certain Brady Bonds have been collateralized as
to principal due at maturity by U.S. Treasury zero coupon bonds with a maturity
equal to the final maturity of such Brady Bonds, although the collateral is not
available to investors until the final maturity of the Brady Bonds. Collateral
purchases are financed by the IMF, the World Bank and the debtor nations'
reserves. In addition, the first two or three interest payments on certain types
of Brady Bonds may be collateralized by cash or securities agreed upon by
creditors. Although Brady Bonds may be collateralized by U.S. Government
securities, repayment of principal and interest is not guaranteed by the U.S.
Government.
Forward Commitment and When-Issued Securities. The Fund may purchase securities
on a when-issued or forward commitment basis. "When-issued" refers to securities
whose terms are available and for which a market exists, but which have not been
issued. The Fund will engage in when-issued transactions with respect to
securities purchased for its portfolio in order to obtain what is considered to
be an advantageous price and yield at the time of the transaction. For
when-issued transactions, no payment is made until delivery is due, often a
month or more after the purchase. In a forward commitment transaction, the Fund
contracts to purchase securities for a fixed price at a future date beyond
customary settlement time.
When the Fund engages in forward commitment and when-issued transactions, it
relies on the seller to consummate the transaction. The failure of the issuer or
seller to consummate the transaction may result in the Fund's 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.
13
<PAGE>
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. 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 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.
Defensive Investments. For temporary defensive purposes, the Fund may invest
some or all of its assets in investment grade short-term securities.
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 if 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) Issue senior securities, except as permitted by paragraph (2)
below. For purposes of this restriction, the issuance of
shares in multiple classes or series, the purchase or sale of
options, futures contracts and options on futures contracts,
forward foreign currency exchange contracts, forward
commitments and repurchase agreements entered into in
accordance with the Fund's investment policies, and the
pledge, mortgage or hypothecation of the Fund's assets within
the meaning of paragraph (3) below, are not deemed to be
senior securities.
(2) Borrow money in amounts exceeding 33% of the Fund's total
assets (including the amount borrowed) taken at market value.
Interest paid on borrowings will reduce income available to
shareholders.
(3) Pledge, mortgage or hypothecate its assets, except to secure
indebtedness permitted by paragraph (2) above and then only if
the assets subject to such pledging, mortgaging or
hypothecation do not exceed 33% of the Fund's total assets
taken at market value.
(4) Act as an underwriter, except to the extent that, in
connection with the disposition of portfolio securities, the
Fund may be deemed to be an underwriter for purposes of the
Securities Act of 1933.
(5) Purchase or sell real estate or any interest therein,
including real estate limited partnerships, except that the
Fund may invest in securities of corporate or governmental
entities secured by real estate or marketable interests
therein or securities issued by companies that invest in real
estate or interests therein.
(6) Make loans, except for collateralized loans of portfolio
securities in accordance with the Fund's investment policies.
The Fund does not, for this purpose, consider the purchase of
all or a portion of an issue of bonds, bank certificates of
deposit, bankers' acceptances, debentures or other securities,
whether or not the purchase is made upon the original issuance
of the securities, to be the making of a loan.
14
<PAGE>
(7) Buy or sell commodities, commodity contracts, puts, calls or
combinations thereof, except futures contracts and options on
securities, securities indices, currency and other financial
instruments, options on such futures contracts, forward
foreign currency exchange contracts, forward commitments,
interest rate or currency swaps, securities index put or call
warrants and repurchase agreements entered into in accordance
with the Fund's investment policies.
(8) Purchase the securities of issuers conducting their principal
business activity in the same industry if, immediately after
such purchase, the value of its investments in such industry
would exceed 25% of its total assets taken at market value at
the time of each investment. This limitation does not apply to
investments in obligations of the U.S. Government or any of
its agencies or instrumentalities.
(9) Purchase securities of an issuer (other than the U.S.
Government, its agencies or instrumentalities), if,
with respect to 75% of the Fund's total assets,
(i) more than 5% of the Fund's total assets taken at
market value would be invested in the securities
of such issuer, or,
(ii) such purchase would at the time result in more than
10% of the outstanding voting securities of such
issuer being held by the Fund.
In connection with the lending of portfolio securities under item (6) above,
such loans must at all times be fully collateralized and the Fund's custodian
must take possession of the collateral either physically or in book entry form.
Securities used as collateral must be marked to market daily.
Non-fundamental Investment Restrictions. The following investment restrictions
are designated as non-fundamental and may be changed by the Trustees without
shareholders' approval.
The Fund may not:
(a) Participate on a joint or joint-and-several basis in any securities
trading account. The "bunching" of orders for the sale or purchase of
marketable portfolio securities with other accounts under the
management of the Adviser to save commissions or to average prices
among them is not deemed to result in a joint securities trading
account.
(b) Purchase securities on margin (except that it may obtain such
short-term credits as may be necessary for the clearance of
transactions in securities and forward foreign currency exchange
contracts and may make margin payments in connection with transactions
in futures contracts and options on futures) or make short sales of
securities unless by virtue of its ownership of other securities, the
Fund has the right to obtain, without the payment of any additional
consideration, securities equivalent in kind and amount to the
securities sold and, if the right is conditional, the sale is made upon
the same conditions.
(c) Purchase 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/Trustees,
purchase securities of other investment companies within the John
Hancock Group of Funds.
15
<PAGE>
(d) Invest for the purpose of exercising control over or management of any
company.
(e) Invest more than 15% of its net assets in illiquid securities.
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, 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, The
Berkeley Group, 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
233 West Central Street Consolidated, Inc.
Natick, MA 01760 (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
601 Colorado Street System and former President of the
O'Henry Hall University of Texas, Austin, Texas;
Austin, TX 78701 Lee Hage and Joseph D. Jamail
January 1944 Regents Chair 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
R.M Bradley & Co., Inc. Officer, R.M. Bradley & Co., Inc.;
73 Tremont Street, 7th Floor Director, The New England Council
Boston, MA 02108 and Massachusetts Roundtable;
March 1946 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 Senior Vice President and Chief
P.O. Box 697 Financial Officer, UGI Corporation
444 Chandlee Drive (Public Utility Holding Company)
Berwyn, PA 19312 (retired 1998); Vice President and
February 1938 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
4327 Enterprise Avenue Holdings, Inc. (since June 1, 2000)
Naples, FL 34104 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).
Richard S. Scipione * Trustee (1) General Counsel, John Hancock Life
John Hancock Place Insurance Company; Director, the
P.O. Box 111 Adviser, John Hancock Funds,
Boston, MA 02117 Signator Investors, Inc., John
August 1937 Hancock Subsidiaries, Inc.,
SAMCorp., NM Capital, The Berkeley
Group, JH Networking Insurance
Agency, Inc.; Insurance Agency,
Inc. (until June 1999), Signature
Services (until January 1997).
Norman H. Smith Trustee Lieutenant General, United States
243 Mt. Oriole Lane Marine Corps; Deputy Chief of Staff
Linden, VA 22642 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
13 Chadwell Place Bond Funds, The Smith Barney
Morristown, NJ 07960 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 Executive Vice President and Chief
101 Huntington Avenue President and Chief Investment Officer, each of the
Boston, MA 02199 Investment Officer John Hancock Funds; Executive Vice
December 1953 President and Chief Investment
Officer, Barring Asset Management,
London UK (until May 2000).
Osbert M. Hood Executive Vice Executive Vice President and Chief
101 Huntington Avenue President and Chief Financial Officer, each of the John
Boston, MA 02199 Financial Officer (2) Hancock Funds; Executive Vice
August 1952 President, Treasurer and Chief
Financial Officer of the Adviser,
the Berkeley Group, John Hancock
Funds, SAMCorp. and NM Capital;
Senior Vice President, Chief
Financial Officer and Treasurer,
Signature Services; Director
Indocam Japan Limited; Vice
President and Chief Financial
Officer, John Hancock Mutual Life
Insurance Company, Retail Sector
(until 1997).
Susan S. Newton Vice President, Vice President and Chief Legal
101 Huntington Avenue Secretary and Chief Officer the Adviser; John Hancock
Boston, MA 02199 Legal Officer Funds; Vice President, Signature
March 1950 Services (until May 2000), The
Berkeley Group, NM Capital and
SAMCorp.
James J. Stokowski Vice President, Vice President, the Adviser.
101 Huntington Avenue Treasurer and Chief
Boston, MA 02199 Accounting Officer
November 1946
Thomas H. Connors Vice President and Vice President and Compliance Officer,
101 Huntington Avenue Compliance Officer the Adviser; Vice President,
Boston, MA 02199 John Hancock Funds, Inc.
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 Scipione 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.
20
<PAGE>
Total
Compensation from all
Aggregate Funds in John Hancock
Compensation Fund Complex to
Trustees from the Fund(1) Trustees (2)
-------- ---------------- ---------------------
James F. Carlin $ 1,302 $ 72,600
William H. Cunningham* 1,302 72,250
Ronald R. Dion* 1,302 72,350
Harold R. Hiser, Jr.* (3) 1,232 68,450
Charles L. Ladner 1,361 75,450
Leo E. Linbeck, Jr.(3) 1,224 68,100
Steven R. Pruchansky* 1,359 75,350
Norman H. Smith* 1,416 78,500
John P. Toolan* 1,359 75,600
--------- ----------
Total $11,857 $658,650
(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 $166,369, 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.
As of April 3, 2000 officers and Trustees of the Trust as a group owned less
than 1% of the outstanding shares of the Fund. To the knowledge of the Trust,
only the following persons owned of record or beneficially 5% or more of any
class of the Fund's outstanding shares of the Fund:
21
<PAGE>
Percentage of Total
Name Address Class of outstanding Shares of the
Of Shareholders Shares Class of the Fund
--------------- ------ -----------------
Painewebber FBO C 11.62%
Peggy D. Corbett TTEE of
Corbett Revoclivtrust
485 Via Solana
La Quinta Ca
Stephen F. Gallagher C 6.64%
Brenda Pearce Gallagher
12158 W Wilmington Road
Peotone IL
Nova Industries, Inc. C 11.82%
5401 West Franklin Drive
Franklin, WI
International Development & Resource C 7.60%
10560 Main Street
Fairfax, VA
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 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 custodians including those for keeping books and accounts,
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 expense 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
membership; insurance premiums; and any extraordinary expenses.
22
<PAGE>
As compensation for its services under the Advisory Agreement, the Fund pays the
Adviser monthly a fee which is based on an annual rate of 0.60% of the average
of the daily net assets of the Fund.
From time to time, the Adviser may reduce its fee or make other arrangements to
limit the Fund's expenses to a specified percentage of average net assets. The
Adviser retains the right to re-impose a fee and recover other payments to the
extent that, at the end of any fiscal year, the Fund's actual expenses at year
end fall below this limit.
Securities held by the Fund may also be held by other funds or investment
advisory clients for which the Adviser or any affiliate provides investment
advice. Because of different investment objectives or other factors, a
particular security may be bought for one or more funds or clients when one or
more are selling the same security. If opportunities for purchase or sale of
securities by the Adviser for the Fund or for other funds or clients for which
the Adviser renders investment advice arise for consideration at or about the
same time, transactions in such securities will be made, insofar as feasible,
for the respective funds or clients in a manner deemed equitable to all of them.
To the extent that transactions on behalf of more than one client of the Adviser
or affiliates may increase the demand for securities being purchased or the
supply of securities being sold, there may be an adverse effect on price.
Pursuant to the Advisory Agreement, the Adviser is not liable for any error of
judgment or mistake of law or for any loss suffered by the Fund in connection
with the matters to which the Advisory Agreement relates, except a loss
resulting from willful misfeasance, bad faith or gross negligence on the part of
the Adviser in the performance of its duties or from reckless disregard of its
obligations and duties under the 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 Advisory
Agreement is no longer in effect, the Fund (to the extent that it lawfully can)
will cease to use such a name or any other name indicating that it is advised by
or otherwise connected with the Adviser. In addition, the Adviser or the Life
Company may grant the nonexclusive right to use the name "John Hancock" or any
similar name to any other corporation or entity, including but not limited to
any investment company of which the Life Company or any subsidiary or affiliate
thereof or any successor to the business of any subsidiary or affiliate thereof
shall be the investment adviser.
The continuation of the Advisory Agreement and Distribution Agreement (discussed
below) was approved by all 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 not 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.
Investment Advisory fees to the Adviser during the fiscal years ended December
31, 1997, 1998, and 1999 amounted to $1,043,923, $1,174,900, and $1,403,318,
respectively.
The Adviser has entered into a Sub-Advisory Agreement with Sovereign Asset
Management Corporation ("SAMCORP") which is an indirect wholly-owned subsidiary
of the Life Company. The Sub-Advisory Agreement provides that SAMCORP will
provide to the Adviser certain portfolio management services with respect to the
equity securities held in the portfolio of the Fund. The Sub-Advisory Agreement
further provides that the Adviser will remain ultimately responsible for all of
its obligations under the Advisory Agreement between the Adviser and the Fund.
Subject to the supervision of the Adviser, SAMCORP furnishes the Fund with
recommendations with respect to the purchase, holding and disposition of equity
securities in the Fund's portfolio; furnishes the Fund with research, economic
and statistical data in connection with the Fund's equity investments; and
places orders for transactions in equity securities.
23
<PAGE>
The Adviser pays to SAMCORP 40% of the monthly fee received by the Adviser with
respect to the equity securities held in the portfolio of the Fund during such
month. The fees paid by the Fund to the Adviser under the Advisory Agreement are
not affected by this arrangement. The Sub-Advisory Agreement has been terminated
effective January 1, 1999.
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 years ending December 31, 1997, 1998 and 1999,
the Fund paid the Adviser $31,635 and $31,356, and $41,436, 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 CONTRACTS
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 class of the Fund. Shares of the Fund are also sold by selected
broker-dealers (the "Selling Brokers") that 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 Fund that are continually offered at net asset value next
determined, plus an applicable sales charge, if any. In connection with the sale
of Fund shares, John Hancock Funds and Selling Brokers receive compensation from
a sales charge imposed, in the case of Class A and Class C shares, at the time
of sale. In the case of Class B or Class C shares, the broker receives
compensation immediately but John Hancock Funds is compensated on a deferred
basis.
Total underwriting commissions for sales of the Fund's Class A shares for the
fiscal period ended December 31, 1997, 1998 and 1999 were $189,374, $260,721,
and $582,294, respectively, and $30,586, $40,598 and $19,333, were retained by
John Hancock Funds in 1997, 1998, and 1999, respectively. The remainder of the
underwriting commissions were reallowed to dealers.
The Fund's Trustees adopted Distribution Plans with respect to each class of
shares ("the Plans"), pursuant to Rule 12b-1 under the Investment Company Act of
1940. Under the Plans, the Fund will pay distribution and service fees at an
aggregate annual rate of up to 0.30% for Class A and 1.00% for Class B and Class
C shares of the Fund's average daily net assets attributable to shares of that
class. However, the service fee will not exceed 0.25% of the Fund's average
daily net assets attributable to each class of shares. The distribution fees are
used to reimburse John Hancock Funds for its distribution expenses, including
but not limited to: (i) initial and ongoing sales compensation to Selling
Brokers and others (including affiliates of John Hancock Funds) engaged in the
sale of Fund shares; (ii) marketing, promotional and overhead expenses incurred
in connection with the distribution of Fund shares; and (iii) with respect to
Class B and Class C shares only, interest expenses on unreimbursed distribution
expenses. The service fees will be used to compensate Selling Brokers and others
for providing personal and account maintenance services to shareholders. In the
event that John Hancock Funds is not fully reimbursed for payments or expenses
it incurs under the Class A Plan, these expenses will not be carried beyond
twelve months from the date they were incurred. Unreimbursed expenses under the
Class B and Class C Plans will be carried forward together with interest on the
balance of these unreimbursed expenses. The Fund does not treat unreimbursed
expenses under the Class B and Class C Plans as a liability of the Fund because
the Trustees may terminate the Class B and/or Class C Plans at any time. For the
fiscal year ended December 31, 1999, an aggregate of $4,434,118 of Distribution
Expenses or 3.84% of the average net assets of the Fund's Class B shares was not
reimbursed or recovered by John Hancock Funds through the receipt of deferred
sales charges or Rule 12b-1 fees in prior periods. For the fiscal year ended
December 31, 1999, an aggregate of $0 of Distribution Expenses or 0.0% of the
average net assets of the Fund's Class C shares was not reimbursed or recovered
by John Hancock Funds through the receipt of deferred sales charges or Rule
12b-1 fees.
24
<PAGE>
The Plans were approved by a majority of the voting securities of the Fund. The
Plans and all amendments were approved by the Trustees, including a majority of
the Trustees who are not interested persons of the Fund and who have no direct
or indirect financial interest in the operation of the Plans (the "Independent
Trustees"), by votes cast in person at meetings called for the purpose of voting
on such Plans.
Pursuant to the Plans, at least quarterly, John Hancock Funds provides the Fund
with a written report of the amounts expended under the Plans and the purpose
for which the expenditures were made. The Trustees review these reports on a
quarterly basis to determine their continued appropriateness.
The Plans provide that they will continue in effect only so long as their
continuance is approved at least annually by a majority of both the Trustees and
Independent Trustees. The Plans provide that they may be terminated without
penalty (a) by a vote of a majority of the Independent Trustees (b) by a vote of
a majority of the Fund's outstanding shares of the applicable class upon 60
days' written notice to John Hancock Funds, and (c) automatically in the event
of assignment. The Plans further provide that they may not be amended to
increase the maximum amount of the fees for the services described therein
without the approval of a majority of the outstanding shares of the class of the
Fund which has voting rights with respect to the Plan. Each Plan provides, that
no material amendment to the Plans will be effective unless it is approved by a
majority vote of the Trustees and the Independent Trustees of the Fund. The
holders of Class A, Class B and Class C shares have exclusive voting rights with
respect to the Plan applicable to their respective class of shares. In adopting
the Plans, the Trustees concluded that, in their judgment, there is a reasonable
likelihood that the Plans will benefit the holders of the applicable class of
shares of the Fund.
Amounts paid to John Hancock Funds by any class of shares of the Fund will not
be used to pay the expenses incurred with respect to any other class of shares
of the Fund; provided, however, that expenses attributable to the Fund as a
whole will be allocated, to the extent permitted by law, according to a formula
based upon gross sales dollars and/or average daily net assets of each such
class, as may be approved from time to time, the Fund may participate in joint
distribution activities with other Funds and the costs of those activities will
be borne by each Fund in proportion to the relative net asset value of the
participating Funds.
For the fiscal year ended December 31, 1999, the Fund paid John Hancock Funds
the following amounts of expenses in connection with their services for the
Fund.
<TABLE>
<CAPTION>
Expense Items
-------------
Printing and Interest
Mailing of Compensation Expenses of Carrying or
Prospectus to to John Hancock Other Finance
Shares Advertising New Shareholders Selling Brokers Funds Charges
------ ----------- ---------------- --------------- ------------ -------------
<S> <C> <C> <C> <C> <C>
Class A $ 72,683 $2,224 $ 93,817 $ 185,761 0
Class B 153,710 3,327 359,301 391,497 $238,256
Class C 0 0 2,990 0 0
25
<PAGE>
SALES COMPENSATION
As part of their business strategies, the fund, along with John Hancock Funds,
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.
The two primary sources of compensation payments are (1) the 12b-1 fees that are
paid out of the fund's assets and (2) sales charges paid by investors. The sales
charges and 12b-1 fees are detailed in the prospectus and under "Distribution
Contracts" in this Statement of Additional Information. The portions of these
expenses that are reallowed to financial services firms are shown on the next
page.
Whenever you make an investment in the Fund, the financial services firm
receives a reallowance, as described below. The firm also receives the first
year's service fee at this time. Beginning with the second year after an
investment is made, the financial services firm receives an annual service fee
of 0.25% of its total eligible fund net assets. This fee is paid quarterly in
arrears by the Fund.
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.
From time to time, John Hancock Funds may make expense reimbursements for
special training of a financial services firm's registered representatives and
other employees in group meetings or to help pay the expenses of sales contests.
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.
26
<PAGE>
First year
Sales charge Maximum Service fee Maximum
paid by investors reallowance (% of net total compensation (1)
Class A investments (% of offering price) (% of offering price) investment) (3) (% of offering price)
------------------- --------------------- --------------------- --------------- ---------------------
<S> <C> <C> <C> <C>
Up to $49,999 5.00% 4.01% 0.25% 4.25%
$50,000 - $99,999 4.50% 3.51% 0.25% 3.75%
$100,000 - $249,999 3.50% 2.61% 0.25% 2.85%
$250,000 - $499,999 2.50% 1.86% 0.25% 2.10%
$500,000 - $999,999 2.00% 1.36% 0.25% 1.60%
Regular investments of
Class A shares of
$1 million or more (4)
----------------------
First $1M - $4,999,999 -- 0.75% 0.25% 1.00%
Next $1 - $5M above that -- 0.25% 0.25% 0.50% (2)
Next $1 or more above that -- 0.00% 0.25% 0.25% (2)
Retirement investments of Class
A shares of
$1 million or more*
-------------------
First $1M - $24,999,999 -- 0.75% 0.25% 1.00%
Next $25M -$49,999,999 -- 0.25% 0.25% 0.50%
Next $1 or more above that -- 0.00% 0.25% 0.25%
First year
Maximum Service fee Maximum total
reallowance (% of net compensation (1)
Class B investments (% of offering price) investment) (3) (% of offering price)
------------------- --------------------- --------------- ---------------------
All amounts -- 3.75% 0.25% 4.00%
First year
Maximum Service fee Maximum
reallowance (% of net total compensation (1)
Class C investments (% of offering price) investment) (3) (% of offering price)
------------------- --------------------- --------------- ---------------------
Amounts purchase at NAV -- 0.75% 0.25% 1.00%
All other amounts 1.00% 1.75% 0.25% 2.00%
</TABLE>
(1) Reallowance percentages and service fee percentages are calculated from
different amounts, and therefore may not equal total compensation
percentages if combined using simple addition.
(2) For Group Investment Programs sales, the maximum total compensation for
investments of $1 million or more is 1.00% of the offering price (one year
CDSC of 1.00% applies for each sale).
(3) After first year subsequent service fees are paid quarterly in arrears.
(4) Includes new investments aggregated with investments since the last
annual reset. John Hancock Funds may take recent redemptions into account
in determining if an investment qualifies as a new investment.
CDSC revenues collected by John Hancock Funds may be used to pay commissions
when there is no initial sales charge.
27
<PAGE>
*Retirement investments only. These include traditional, Roth IRAs, SIMPLE IRAs,
SIMPLE 401(k), Rollover IRA, TSA, 457, 403(b), 401(k), Money Purchase Pension
Plan, profit-sharing plan and other retirement plans as described in the
Internal Revenue Code.
NET ASSET VALUE
For purposes of calculating the net asset value ("NAV") of the Fund's shares,
the following procedures are utilized wherever applicable.
Debt investment securities are valued on the basis of valuations furnished by a
principal market maker or a pricing service, both of which generally utilize
electronic data processing techniques to determine valuations for normal
institutional size trading units of debt securities without exclusive reliance
upon quoted prices.
Equity securities traded on a principal exchange or NASDAQ National Market
Issues are generally valued at last sale price on the day of valuation.
Securities in the aforementioned category for which no sales are reported and
other securities traded over-the-counter are generally valued at the last
available bid price.
Short-term debt investments which have a remaining maturity of 60 days or less
are generally valued at amortized cost which approximates market value. If
market quotations are not readily available or if in the opinion of the Adviser
any quotation or price is not representative of true market value, the fair
value of the security may be determined in good faith in accordance with
procedures approved by the Trustees.
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 events
occurring after the closing of a foreign market, assets are valued by a method
that the Trustees believe accurately reflects fair value.
The NAV 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 a Fund's NAV is not calculated.
Consequently, the Fund's portfolio securities may trade and the NAV of the
Fund's redeemable securities may be significantly affected on days when a
shareholder has no access to the Fund.
INITIAL SALES CHARGE ON CLASS A AND CLASS C SHARES
Shares of the Fund are offered at a price equal to their net asset value plus a
sales charge which, at the option of the purchaser, may be imposed either at the
time of purchase (the "initial sales charge alternative") or on a contingent
deferred basis (the "deferred sales charge alternative"). The Fund no longer
issues shares certificates. All shares are electronically recorded. The Trustees
reserve the right to change or waive the Fund's minimum investment requirements
and to reject any order to purchase shares (including purchase by exchange) when
in the judgment of the Adviser such rejection is in the Fund's best interest.
The sales charges applicable to purchases of Class A and Class C shares of the
Fund are described in the Prospectus. Methods of obtaining reduced sales charges
referred to generally in the Prospectus are described in detail below. In
calculating the sales charge applicable to current purchases of Class A shares,
the investor is entitled to cumulate current purchases with the greater of the
current value (at offering price) of the Class A shares of the Fund owned by the
investor, or if John Hancock Signature Services, Inc. ("Signature Services") is
notified by the investor's dealer or the investor at the time of the purchase,
the cost of the Class A shares owned.
28
<PAGE>
Without Sales Charge. Class A shares may be offered without a front-end sales
charge or contingent deferred sales charge ("CDSC") to various individuals and
institutions as follows:
o A Trustee or officer of the Trust; a Director or officer of the Adviser
and its affiliates or Selling Brokers; employees or sales
representatives of any of the foregoing; retired officers, employees or
Directors of any of the foregoing; a member of the immediate family
(spouse, children, grandchildren, mother, father, sister, brother,
mother-in-law, father-in-law, daughter-in-law, son-in-law, niece,
nephew, grandparents and same sex domestic partner) of any of the
foregoing; or any fund, pension, profit sharing or other benefit plan
for the individuals described above.
o A broker, dealer, financial planner, consultant or registered
investment advisor that has entered into a signed agreement with John
Hancock Funds providing specifically for the use of Fund shares in
fee-based investment products or services made available to their
clients.
o A former participant in an employee benefit plan with John Hancock
funds, when he or she withdraws from his or her plan and transfers any
or all of his or her plan distributions directly to the Fund.
o A member of a class action lawsuit against insurance companies who is
investing settlement proceeds.
o Retirement plans participating in Merrill Lynch servicing programs, if
the Plan has more than $3 million in assets or 500 eligible employees
at the date the Plan Sponsor signs the Merrill Lynch Recordkeeping
Service Agreement. See your Merrill Lynch financial consultant for
further information.
o Retirement plans investing through the PruArray Program sponsored by
Prudential Securities.
o Pension plans transferring assets from John Hancock variable annuity
contract to the Fund pursuant to an exemptive application approved by
the Securities and Exchange Commission.
o Existing full service clients of the Life Company who were group
annuity contract holders as of September 1, 1994, and participant
directed retirement plans with at least 100 eligible employees at the
inception of the Fund account. Each of these investors may purchase
Class A shares with no initial sales charge. However, if the shares are
redeemed within 12 months after the end of the calendar year in which
the purchase was made, a CDSC will be imposed at the following rate:
Amount Invested CDSC Rate
--------------- ---------
$1 to $4,999,999 1.00%
Next $5 million to $9,999,999 0.50%
Amounts to $10 million and over 0.25%
Class C shares may be offered without a front-end sales charge to:
o Retirement plans for which John Hancock Signature Services performs
employer sponsored plan recordkeeping services. (these types of plans
include 401(k), money purchase pension, profit sharing and SIMPLE 401k)
o An investor who buys through a Merrill Lynch omnibus account. However,
a CDSC may apply if the shares are sold within 12 months of purchase.
Class A and Class C shares may also be purchased without an initial sales charge
in connection with certain liquidation, merger or acquisition transactions
involving other investment companies or personal holding companies.
29
<PAGE>
Combination Privilege. In calculating the sales charge applicable to purchases
of Class A shares made at one time, the purchases will be combined to reduce
sales charges if made by (a) an individual, his or her spouse and their children
under the age of 21, purchasing securities for his or their own account, (b) a
trustee or other fiduciary purchasing for a single trust, estate or fiduciary
account and (c) groups which qualify for the Group Investment Program (see
below). A company's (not an individual's) qualified and non-qualified retirement
plan investments can be combined to take advantage of this privilege. Further
information about combined purchases, including certain restrictions on combined
group purchases, is available from Signature Services or a Selling Broker's
representative.
Accumulation Privilege. Investors (including investors combining purchases) who
are already Class A shareholders may also obtain the benefit of the reduced
sales charge by taking into account not only the amount being invested but also
the investor's purchase price or current value of the Class A shares of all John
Hancock funds which carry a sales charge already held by such person. Class A
shares of John Hancock money market funds will only be eligible for the
accumulation privilege if the investor has previously paid a sales charge on the
amount of those shares. Retirement plan investors may include the value of Class
B shares if Class B shares held are greater than $1 million. Retirement plans
must notify Signature Services to utilize. A company's (not an individual's)
qualified and non-qualified retirement plan investments can be combined to take
advantage of this privilege.
Group Investment Program. Under the Combination and Accumulation Privileges, all
members of a group may combine their individual purchases of Class A shares to
potentially qualify for breakpoints in the sales charge schedule. This feature
is provided to any group which (1) has been in existence for more than six
months, (2) has a legitimate purpose other than the purchase of mutual fund
shares at a discount for its members, (3) utilizes salary deduction or similar
group methods of payment, and (4) agrees to allow sales materials of the fund in
its mailings to members at a reduced or no cost to John Hancock Funds.
Letter of Intention. Reduced sales charges are also applicable to investments
pursuant to a Letter of Intention (LOI), which should be read carefully prior to
its execution by an investor. The Fund offers two options regarding the
specified period for making investments under the LOI. All investors have the
option of making their investments over a period of thirteen (13) months.
Investors who are using the Fund as a funding medium for a retirement plan,
however, may opt to make the necessary investments called for by the LOI over a
forty-eight (48) month period. These retirement plans include traditional, Roth
IRAs, SEP, SARSEP, 401(k), 403(b) (including TSAs), SIMPLE IRA, SIMPLE 401(k),
Money Purchase Pension, Profit Sharing and Section 457 plans. An individual's
non-qualified and qualified retirement plans cannot be combined to satisfy the
LOI of 48 months. Such an investment (including accumulations and combinations
but not including reinvested dividends) must aggregate $50,000 or more invested
during the specified period from the date of the LOI or from a date within
ninety (90) days prior thereto, upon written request to Signature Services. The
sales charge applicable to all amounts invested under the LOI is computed as if
the aggregate amount intended to be invested had been invested immediately. If
such aggregate amount is not actually invested, the difference in the sales
charge actually paid and the sales charge payable had the LOI not been in effect
is due from the investor. However, for the purchases actually made within the
specified period (either 13 or 48 months), the sales charge applicable will not
be higher than that which would have been applied (including accumulations and
combinations) had the LOI been for the amount actually invested.
The LOI authorizes Signature Services to hold in escrow sufficient Class A
shares (approximately 5% of the aggregate) to make up any difference in sales
charges on the amount intended to be invested and the amount actually invested,
until such investment is completed within the 13-month period, at which time the
escrowed Class A shares will be released. If the total investment specified in
the LOI is not completed, the Class A shares held in escrow may be redeemed and
the proceeds used as required to pay such sales charge as may be due. By signing
the LOI, the investor authorizes Signature Services to act as his
attorney-in-fact to redeem any escrowed Class A shares and adjust the sales
charge, if necessary. A LOI does not constitute a binding commitment by an
investor to purchase, or by the Fund to sell, any additional Class A shares and
may be terminated at any time.
30
<PAGE>
DEFERRED SALES CHARGE ON CLASS B and CLASS C SHARES
Investments in Class B shares are purchased at net asset value per share without
the imposition of an initial sales charge so that the Fund will receive the full
amount of the purchase payment.
Contingent Deferred Sales Charge. Class B and Class C shares which are redeemed
within six years or one year of purchase, respectively, will be subject to a
CDSC at the rates set forth in the Prospectus as a percentage of the dollar
amount subject to the CDSC. The charge will be assessed on an amount equal to
the lesser of the current market value or the original purchase cost of the
Class B or Class C shares being redeemed. No CDSC will be imposed on increases
in account value above the initial purchase prices, including all shares derived
from reinvestment of dividends or capital gains distributions.
Class B shares are not available to full-service retirement plans administered
by Signature Services or the Life Company that had more than 100 eligible
employees at the inception of the Fund account.
The amount of the CDSC, if any, will vary depending on the number of years from
the time of payment for the purchase of Class B shares until the time of
redemption of such shares. Solely for purposes of determining the number of
years from the time of any payment for the purchases of both Class B and Class C
shares, all payments during a month will be aggregated and deemed to have been
made on the first day of the month.
In determining whether a CDSC applies to a redemption, the calculation will be
determined in a manner that results in the lowest possible rate being charged.
It will be assumed that your redemption comes first from shares you have held
beyond the six-year CDSC redemption period for Class B or one year CDSC
redemption period for Class C, or those you acquired through dividend and
capital gain reinvestment, and next from the shares you have held the longest
during the six-year period for Class B shares. For this purpose, the amount of
any increase in a share's value above its initial purchase price is not regarded
as a share exempt from CDSC. Thus, when a share that has appreciated in value is
redeemed during the CDSC period, a CDSC is assessed only on its initial purchase
price.
When requesting a redemption for a specific dollar amount, please indicate if
you require the proceeds to equal the dollar amount requested. If not indicated,
only the specified dollar amount will be redeemed from your account and the
proceeds will be less any applicable CDSC.
Example:
You have purchased 100 Class B shares at $10 per share. The second year after
your purchase, your investment's net asset value per share has increased by $2
to $12, and you have gained 10 additional shares through dividend reinvestment.
If you redeem 50 shares at this time your CDSC will be calculated as follows:
oProceeds of 50 shares redeemed at $12 per shares (50 x 12) $600.00
o*Minus Appreciation ($12 - $10) x 100 shares (200.00)
o Minus proceeds of 10 shares not subject to
CDSC (dividend reinvestment) (120.00)
-------
oAmount subject to CDSC $280.00
*The appreciation is based on all 100 shares in the account not just
the shares being redeemed.
Proceeds from the CDSC are paid to John Hancock Funds and are used in whole or
in part by John Hancock Funds to defray its expenses related to providing
distribution-related services to the Fund in connection with the sale of the
Class B and Class C shares, such as the payment of compensation to select
Selling Brokers for selling Class B and Class C shares. The combination of the
CDSC and the distribution and service fees facilitates the ability of the Fund
to sell the Class B and Class C shares without a sales charge being deducted at
the time of the purchase.
31
<PAGE>
Waiver of Contingent Deferred Sales Charge. The CDSC will be waived on
redemptions of Class B and Class C shares and of Class A shares that are subject
to CDSC, unless indicated otherwise, in the circumstances defined below:
For all account types:
* Redemptions made pursuant to the Fund's right to liquidate your account
if you own shares worth less than $1,000.
* Redemptions made under certain liquidation, merger or acquisition
transactions involving other investment companies or personal holding
companies.
* Redemptions due to death or disability. (Does not apply to Trust
accounts unless Trust is being dissolved.)
* Redemptions made under the Reinstatement Privilege, as described in
"Sales Charge Reductions and Waivers" of the Prospectus.
* Redemptions of Class B (but not Class C) shares made under a periodic
withdrawal plan, or redemptions for fees charged by planners or
advisors for advisory services, as long as your annual redemptions do
not exceed 12% of your account value, including reinvested dividends,
at the time you established your periodic withdrawal plan and 12% of
the value of subsequent investments (less redemptions) in that account
at the time you notify Signature Services. (Please note, this waiver
does not apply to periodic withdrawal plan redemptions of Class A or
Class C shares that are subject to a CDSC.)
* Redemptions by Retirement plans participating in Merrill Lynch
servicing programs, if the Plan has less than $3 million in assets or
500 eligible employees at the date the Plan Sponsor signs the Merrill
Lynch Recordkeeping Service Agreement. See your Merrill Lynch financial
consultant for further information.
* Redemptions of Class A or Class C shares by retirement plans that
invested through the PruArray Program sponsored by Prudential
Securities.
* Redemptions of Class A shares made after one year from the inception
date of a retirement plan at John Hancock for which John Hancock is the
recordkeeper.
For Retirement Accounts (such as traditional, Roth IRAs, SIMPLE IRA, SIMPLE
IRAs, SIMPLE 401(k), Rollover IRA, TSA, 457, 403(b), 401(k), Money Purchase
Pension Plan, Profit-Sharing Plan and other plans as described in the Internal
Revenue Code) unless otherwise noted.
* Redemptions made to effect mandatory or life expectancy distributions
under the Internal Revenue Code.
* Returns of excess contributions made to these plans.
* Redemptions made to effect distributions to participants or
beneficiaries from employer sponsored retirement plans under sections
401(a) (such as Money Purchase Pension Plans and Profit-Sharing/401(k)
Plans), 457 and 408 (SEPs and SIMPLE IRAs) of the Internal Revenue
Code.
* Redemptions from certain IRA and retirement plans that purchased shares
prior to October 1, 1992 and certain IRA plans that purchased shares
prior to May 15, 1995.
Please see matrix for some examples.
32
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
----------------------- ----------------- ----------------- ---------------- ----------------- ----------------
Type of 401 (a) Plan 403 (b) 457 IRA, IRA Non-retirement
Distribution (401 (k), MPP, Rollover
PSP) 457 & 408
(SEPs & Simple
IRAs)
----------------------- ----------------- ----------------- ---------------- ----------------- ----------------
Death or Disability Waived Waived Waived Waived Waived
----------------------- ----------------- ----------------- ---------------- ----------------- ----------------
Over 70 1/2 Waived Waived Waived Waived for 12% of account
mandatory value annually
distributions in periodic
or 12% of payments
account value
annually in
periodic
payments.
----------------------- ----------------- ----------------- ---------------- ----------------- ----------------
Between 59 1/2 Waived Waived Waived Waived for Life 12% of account
and 70 1/2 Expectancy or value annually
12% of account in periodic
value annually payments
in periodic
payments.
----------------------- ----------------- ----------------- ---------------- ----------------- ----------------
Under 59 1/2 Waived for Waived for Waived for Waived for 12% of account
(Class B only) annuity annuity annuity annuity value annually
payments (72t) payments (72t) payments (72t) payments (72t) in periodic
or 12% of or 12% of or 12% of or 12% of payments
account value account value account value account value
annually in annually in annually in annually in
periodic periodic periodic periodic
payments. payments. payments. payments.
----------------------- ----------------- ----------------- ---------------- ----------------- ----------------
Loans Waived Waived N/A N/A N/A
----------------------- ----------------- ----------------- ---------------- ----------------- ----------------
Termination of Plan Not Waived Not Waived Not Waived Not Waived N/A
----------------------- ----------------- ----------------- ---------------- ----------------- ----------------
Hardships Waived Waived Waived N/A N/A
----------------------- ----------------- ----------------- ---------------- ----------------- ----------------
Qualified Domestic Waived Waived Waived N/A N/A
Relations Orders
----------------------- ----------------- ----------------- ---------------- ----------------- ----------------
Termination of Waived Waived Waived N/A N/A
Employment Before
Normal Retirement Age
----------------------- ----------------- ----------------- ---------------- ----------------- ----------------
Return of Excess Waived Waived Waived Waived N/A
----------------------- ----------------- ----------------- ---------------- ----------------- ----------------
</TABLE>
If you qualify for a CDSC waiver under one of these situations, you must notify
Signature Services at the time you make your redemption. The waiver will be
granted once Signature Services has confirmed that you are entitled to the
waiver.
SPECIAL REDEMPTIONS
Although it would not normally do so, the Fund has the right to pay the
redemption price of shares of the Fund in whole or in part in portfolio
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
33
<PAGE>
payment at the same value as used in determining net asset value. The Fund has,
however, elected to be governed by Rule 18f-1 under the Investment Company Act.
Under that rule, the Fund must redeem its shares for cash except to the extent
that the redemption payments to any shareholder during any 90-day period would
exceed the lesser of $250,000 or 1% of the Fund's net asset value at the
beginning of such period.
ADDITIONAL SERVICES AND PROGRAMS
Exchange Privilege. The Fund permits exchanges of shares of any class of a fund
for shares of the same class in any other John Hancock fund offering that class.
Exchanges between funds with shares that are not subject to a CDSC are based on
their respective net asset values. No sales charge or transactions charge is
imposed. Shares of the Fund which are subject to a CDSC may be exchanged into
shares of any of the other John Hancock funds that are subject to a CDSC without
incurring the CDSC; however, the shares acquired in an exchange will be subject
to the CDSC schedule of the shares acquired if and when such shares are redeemed
(except that shares exchanged into John Hancock 500 Index Fund and John Hancock
Intermediate Government Fund will retain the exchanged fund's CDSC schedule).
For purposes of computing the CDSC payable upon redemption of shares acquired in
an exchange, the holding period of the original shares is added to the holding
period of the shares acquired in an exchange.
If a shareholder exchanges Class B shares purchased prior to January 1, 1994 for
Class B shares of any other John Hancock fund, the acquired shares will continue
to be subject to the CDSC schedule that was in effect when the exchanged shares
were purchased.
The Fund reserves the right to require that previously exchanged shares (and
reinvested dividends) be in the Fund for 90 days before a shareholder is
permitted a new exchange.
The Fund may refuse any exchange order. The Fund may change or cancel its
exchange policies at any time, upon 60 days' notice to its shareholders.
An exchange of shares is treated as a redemption of shares of one fund and the
purchase of shares of another for Federal Income Tax purposes. An exchange may
result in a taxable gain or loss. See "TAX STATUS".
Systematic Withdrawal Plan. The Fund permits the establishment of a Systematic
Withdrawal Plan. Payments under this plan represent proceeds arising from the
redemption of Fund shares, which may result in realization of gain or loss for
purposes of Federal, state and local income taxes. The maintenance of a
Systematic Withdrawal Plan concurrently with purchases of additional shares of
the Fund could be disadvantageous to a shareholder because of the initial sales
charge payable on purchases of Class A shares and the CDSC imposed on
redemptions of Class B and Class C shares and because redemptions are taxable
events. Therefore, a shareholder should not purchase shares at the same time as
a Systematic Withdrawal Plan is in effect. The Fund reserves the right to modify
or discontinue the Systematic Withdrawal Plan of any shareholder on 30 days'
prior written notice to such shareholder, or to discontinue the availability of
such plan in the future. The shareholder may terminate the plan at any time by
giving proper notice to Signature Services.
Monthly Automatic Accumulation Program (MAAP). The program is explained in the
Prospectus. The program, as it relates to automatic investment checks, is
subject to the following conditions:
The investments will be drawn on or about the day of the month indicated.
The privilege of making investments through the MAAP may be revoked by Signature
Services without prior notice if any investment is not honored by the
shareholder's bank. The bank shall be under no obligation to notify the
shareholder as to the non-payment of any checks.
The program may be discontinued by the shareholder either by calling Signature
Services or upon written notice to Signature Services which is received at least
five (5) business days prior to the order date of any investment.
34
<PAGE>
Reinstatement or Reinvestment Privilege. If Signature Services is notified prior
to reinvestment, a shareholder who has redeemed shares of the Fund may, within
120 days after the date of redemption, reinvest without payment of a sales
charge any part of the redemption proceeds in shares of the same class of the
Fund or another John Hancock fund, subject to the minimum investment limit in
any fund. The proceeds from the redemption of Class A shares may be reinvested
at net asset value without paying a sales charge in Class A shares of any John
Hancock funds. If a CDSC was paid upon a redemption, a shareholder may reinvest
the proceeds from such redemption at net asset value in additional shares of the
class from which the redemption was made. The shareholder's account will be
credited with the amount of any CDSC charged upon the prior redemption and the
new shares will continue to be subject to the CDSC. The holding period of the
shares acquired through reinvestment will, for purposes of computing the CDSC
payable upon a subsequent redemption, include the holding period of the redeemed
shares.
To protect the interests of other investors in the Fund, the Fund may cancel the
reinvestment privilege 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. Also, the Fund may refuse any reinvestment
request.
The Fund may change or cancel its reinvestment policies at any time.
A redemption or exchange of shares is a taxable transaction for Federal income
tax purposes even if the reinvestment privilege is exercised, and any gain or
loss realized by a shareholder on the redemption or other disposition of shares
will be treated for tax purposes as described under the caption "TAX STATUS."
Retirement plans participating in Merrill Lynch's servicing programs:
Class A shares are available at net asset value for plans with $3 million in
plan assets or 500 eligible employees at the date the Plan Sponsor signs the
Merrill Lynch Recordkeeping Service Agreement. If the plan does not meet either
of these limits, Class A shares are not available.
For participating retirement plans investing in Class B shares, shares will
convert to Class A shares after eight years, or sooner if the plan attains
assets of $5 million (by means of a CDSC-free redemption/purchase at net asset
value).
PURCHASES AND REDEMPTIONS THROUGH THIRD PARTIES
Shares of the Fund may be purchased or redeemed through certain broker-dealers.
Brokers may charge for their services or place limitations on the extent to
which you may use the services of the Fund. The Fund will be deemed to have
received a purchase or redemption order when an authorized broker, or if
applicable, a broker's authorized designee, receives the order. If a broker is
an agent or designee of the Fund, orders are processed at the NAV next
calculated after the broker receives the order. The broker must segregate any
orders it receives after the close of regular trading on the New York Stock
Exchange and transmit those orders to the Fund for execution at NAV next
determined. Some brokers that maintain nominee accounts with the Fund for their
clients charge an annual fee on the average net assets held in such accounts for
accounting, servicing, and distribution services they provide with respect to
the underlying Fund shares. The Adviser, the Fund, and John Hancock Funds, Inc.
(the Fund's principal distributor), share in the expense of these fees.
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 three other series. The Trustees have also authorized the issuance of
three classes of shares of the Fund, designated as Class A, Class B and Class C.
35
<PAGE>
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 of shares 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 other 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 requesting a special meeting of shareholders.
However, at any time that less than a majority of the Trustees holding office
were elected by the shareholders, the Trustees will call a special meeting of
shareholders for the purpose of electing Trustees.
Under Massachusetts law, shareholders of a Massachusetts business trust could,
under certain circumstances, be held personally liable for acts or obligations
of the Trust. However, 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 the Fund's prospectus shall be liable
for 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.
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
losses that may occur to any account due to an unauthorized telephone call. Also
for your protection telephone transactions are not permitted on accounts whose
names or addresses have changed within the past 30 days. Proceeds from telephone
transactions can only be mailed to the address of record.
36
<PAGE>
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 and elected to be treated as a "regulated investment company" under
Subchapter M of the Internal Revenue Code of 1986, as amended (the "Code"), and
intends to continue to qualify for 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% nondeductible Federal excise tax on certain
amounts not distributed (and not treated as having been distributed) on a timely
basis in accordance with annual minimum distribution requirements. The Fund
intends under normal circumstances to seek to avoid or minimize liability for
such tax by satisfying such distribution requirements.
Distributions from the Fund's current or accumulated earnings and profits
("E&P") will be taxable under the Code for investors who are subject to tax. If
these distributions are paid from the Fund's "investment company taxable
income," they will be taxable as ordinary income; and if they are paid from the
Fund's "net capital gain," they will be taxable as long-term capital gain. (Net
capital gain is the excess (if any) of net long-term capital gain over net
short-term capital loss, and investment company taxable income is all taxable
income and capital gains, other than 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 stock (including an option to acquire stock such as is
inherent in a convertible bond) in 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.
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 there
adverse tax consequences, but could require the Fund to recognize taxable income
or gain without the concurrent receipt of cash. These investments could also
result in the treatment of associated capital gains as ordinary income. 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
37
<PAGE>
securities, including certain currency positions or 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. Investors may be entitled to claim U.S. foreign tax credits or deductions
with respect to foreign income taxes or certain other foreign taxes ("qualified
foreign taxes") paid by the Fund, subject to certain provisions and limitations
contained in the Code, only if, among other things, more than 50% of the value
of the Fund's total assets at the close of any taxable year consists of stock or
securities of foreign corporations. The Fund anticipates that it normally will
not satisfy this 50% requirement and that, consequently, investors will not be
entitled to any foreign tax credits or deductions with respect to their
investments in the Fund.
The amount of the Fund's net realized capital gains, if any, in any given year
will result from sales of securities or transactions in options or futures made
with a view to the maintenance of a portfolio believed by the Fund's management
to be most likely to attain the Fund's objective. Such sales, and any resulting
gains or losses, may therefore vary considerably from year to year. At the time
of an investor's purchase of shares of the Fund, a portion of the purchase price
is often attributable to realized or unrealized appreciation in the Fund's
portfolio or undistributed taxable income of the Fund. Consequently, subsequent
distributions on these shares from such appreciation or income may be taxable to
such investor even if the net asset value of the investor's shares is, as a
result of the distributions, reduced below the investor's cost for such shares
and the distributions in reality represent a return of a portion of the purchase
price.
Upon a redemption 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 will ordinarily realize a taxable gain or loss
depending upon the amount of the proceeds and the investor's basis in his
shares. Such gain or loss will be treated as capital gain or loss if the shares
are capital assets in the shareholder's hands and will be long-term or
short-term, depending upon the shareholder's tax holding period for the shares
and subject to the special rules described below. A sales charge paid in
purchasing 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 automatic dividend reinvestments. In such a
case, the basis of the shares acquired will be adjusted to reflect the
disallowed loss. Any loss realized upon the redemption of shares with a tax
holding period of six months or less will be treated as a long-term capital loss
to the extent of any amounts treated as distributions of long- term capital gain
with respect to such shares. 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 the Fund's present intention is to distribute, at least annually, all
net capital gain, if any, the Fund reserves the right to retain and reinvest all
or any portion of the excess, as computed for Federal income tax purposes, of
net long-term capital gain over net short-term capital loss in any year. The
Fund will not in any event distribute net capital gain realized in any year to
the extent that a capital loss is carried forward from prior years against such
gain. To the extent such excess was retained and not exhausted by the
carryforward of prior years' capital losses, it would be subject to Federal
income tax in the hands of the Fund. Upon proper designation of this amount by
38
<PAGE>
the Fund, each shareholder would be treated for Federal income tax purposes as
if the Fund had distributed to him on the last day of its taxable year his pro
rata share of such excess, and he had paid his pro rata share of the taxes paid
by the Fund and reinvested the remainder in the Fund. Accordingly, each
shareholder would (a) include his pro rata share of such excess as long-term
capital gain in his return for his taxable year in which the last day of the
Fund's taxable year falls, (b) be entitled either to a tax credit on his return
for, or to a refund of, his pro rata share of the taxes paid by the Fund, and
(c) be entitled to increase the adjusted tax basis for his shares by the
difference between his pro rata share of such excess and his pro rata share of
such taxes.
For Federal income tax purposes, the Fund is permitted to carry forward a net
capital loss in any year to offset net capital gains, if any, during the eight
years following the year of the loss. To the extent subsequent net capital gains
are offset by such losses, they would not result in Federal income tax liability
to the Fund and as noted above would not be distributed as such to shareholders.
The Fund has $1,808,991 of capital loss carry forwards available to the extent
provided by regulations to offset future net realized capital gains. The carry
forwards expire as follows: December 31, 2007.
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 such
dividend and distributed and properly designated by the Fund may be treated as
qualifying dividends. Corporate shareholders must meet the holding period
requirement stated above with respect to their shares of 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, and, to the extent such basis would be
reduced below zero, that current recognition of income would be required.
Different tax treatment, including penalties on certain excess contributions and
deferrals, certain pre-retirement and post-retirement distributions and certain
prohibited transactions, is accorded to accounts maintained as qualified
retirement plans. Shareholders should consult their tax advisers for more
information.
The Fund is required to accrue income on any debt securities that have more than
a de minimis amount of original issue discount (or debt securities acquired at a
market discount, if the Fund elects to include market discount in income
currently) prior to the receipt of the corresponding cash payments. The mark to
market or constructive sale rules applicable to certain options, futures,
forwards, short sales or other transactions 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 borrow 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.
39
<PAGE>
The Fund will be required to report to the Internal Revenue Service (the "IRS")
all taxable distributions to shareholders, as well as gross proceeds from the
redemption or exchange of Fund shares, except in the case of certain exempt
recipients, i.e., corporations and certain other investors distributions to
which are exempt from the information reporting provisions of the Code. Under
the backup withholding provisions of Code Section 3406 and applicable Treasury
regulations, all such reportable distributions and proceeds may be subject to
backup withholding of federal income tax at the rate of 31% in the case of
non-exempt shareholders who fail to furnish the Fund with their correct taxpayer
identification number and certain certifications required by the IRS or if the
IRS or a broker notifies the Fund that the number furnished by the shareholder
is incorrect or that the shareholder is subject to backup withholding as a
result of failure to report interest or dividend income. The Fund may refuse to
accept an application that does not contain any required taxpayer identification
number or certification that the number provided is correct. If the backup
withholding provisions are applicable, any such distributions and proceeds,
whether taken in cash or reinvested in shares, will be reduced by the amounts
required to be withheld. Any amounts withheld may be credited against a
shareholder's U.S. federal income tax liability. Investors should consult their
tax advisers about the applicability of the backup withholding provisions.
Investments in debt obligations that are at risk of or in default present
special tax issues for the Fund. Tax rules are not entirely clear about issues
such as when the Fund may cease to accrue interest, original issue discount, or
market discount; when and to what extent deductions may be taken for bad debts
or worthless securities; how payments received on obligations in default should
be allocated between principal and income; and whether exchanges of debt
obligations in a workout context are taxable. These and other issues will be
addressed by the Fund, in the event it invests in such securities, in order to
reduce the risk of distributing insufficient income to preserve its status as a
regulated investment company and seek to avoid becoming subject to Federal
income or excise tax.
Limitations imposed by the Code on regulated investment companies like the Fund
may restrict the Fund's ability to enter into options, futures, foreign currency
positions, and foreign currency forward contracts.
Certain options, futures, and forward foreign currency contracts 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, 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, it an option, short sales or other transaction 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. Certain of these
transactions may also cause the Fund to dispose of investments sooner than would
otherwise have occurred. These transactions may therefore affect the amount,
timing and character of the Fund's distributions to shareholders. The Fund will
take into account the special tax rules (including consideration of any
available elections) applicable to options, futures or forward contracts in
order to minimize any potential adverse tax consequences.
The foregoing discussion relates solely to U.S. Federal income tax law as
applicable to U.S. persons (i.e., U.S. citizens or residents and U.S. domestic
corporations, partnerships, trusts or estates) subject to tax under such law.
The discussion does not address special tax rules applicable to certain 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 shares of the Fund may
also be subject to state and local taxes. Shareholders should consult their own
tax advisers as to the Federal, state or local tax consequences of ownership of
shares of, and receipt of distributions from, the Fund in their particular
circumstances.
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.
40
<PAGE>
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 not be required to pay any
Massachusetts income tax.
CALCULATION OF PERFORMANCE
The average annual total return is determined separately for each class of
shares as of December 31, 1999 with all distributions reinvested in shares. The
average annualized total returns for Class A shares for the 1-year and 5-year
periods and since the Fund's inception on October 5, 1992, were (1.30%), 13.61%
and 10.67%, respectively.
The average annualized total returns for Class B shares for the 1-year and
5-year periods and since the Fund's inception on October 5, 1992, were (1.83%),
13.77% and 10.70%, respectively. The average annualized total returns for Class
C shares since the Fund's inception on May 1, 1999 was (2.12%).
The Fund's total return is computed by finding the average annual compounded
rate of return over the 1 year, 5 year and life of Fund year periods that would
equate the initial amount invested to the ending redeemable value according to
the following formula:
n ______
T = \ / ERV/P - 1
Where:
P = a hypothetical initial investment of $1,000.
T = average annual total return.
n = number of years.
ERV = ending redeemable value of a hypothetical $1,000 investment
made at the beginning of the 1 year, 5 year and life-of-fund
periods.
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 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. Total returns
may be quoted with or without taking the Fund's sales charge on Class A or Class
C shares or the CDSC on Class B or Class C shares into account. Excluding the
Fund's sales charge on Class A and the CDSC on Class B or Class C shares from a
total return calculation produces a higher total return figure.
The Fund's yield is computed by dividing net investment income per share
determined for a 30-day period by the maximum offering price per share on the
last day of the period, according to the following standard formula:
41
<PAGE>
6
Yield = 2 ( [ ( a - b ) + 1 ] - 1 )
-------
cd
Where:
a = dividends and interest earned during the period.
b = expenses accrued during the period (net of fee reductions and expense
limitation payments, if any).
c = the average daily number of shares outstanding during the period that
would be entitled to receive dividends.
d = the maximum offering price per share on the last day of the period.
The Class A, Class B and C shares' yield as of December 31, 1999 was 2.04%,
1.45% and 1.45%, respectively.
From time to time, in reports and promotional literature, the Fund's yield and
total return will be compared to indices of mutual funds and bank deposit
vehicles such as Lipper Analytical Services, Inc.'s "Lipper-Fund Performance
Analysis," a publication which tracks mutual fund net assets, total return, and
yield. Comparisons may also be made to bank certificates of deposit ("CDs"),
which differ from mutual funds, such as the Fund, in several ways. The interest
rate established by the sponsoring bank is fixed for the term of a CD, there are
penalties for early withdrawal from CDs, and the principal on a CD is insured.
Performance rankings and ratings reported periodically in, and excerpts from,
national financial publications such as MONEY Magazine, FORBES, BUSINESS WEEK,
the WALL STREET JOURNAL, MICROPAL, INC., MORNINGSTAR, BARRON'S and IBBOTSON
ASSOCIATES will also be utilized as well as the RUSSELL and WILSHIRE indices.
The Fund may also cite Morningstar Mutual Values, an independent mutual fund
information service which ranks mutual funds. The Fund's promotional and sales
literature may make reference to the Fund's "beta." Beta is a reflection of the
market-related risk of the Fund by showing how responsive the Fund is to the
market.
The performance of the Fund is not fixed or guaranteed. Performance quotations
should not be considered to be representations of performance of the Fund for
any period in the future. The performance of the Fund is a function of many
factors including its earnings, expenses and number of outstanding shares.
Fluctuating market conditions; purchases, sales and maturities of portfolio
securities; sales and redemptions of shares; and changes in operating expenses
are all examples of items that can increase or decrease the Fund's performance.
BROKERAGE ALLOCATION
Decisions concerning the purchase and sale of portfolio securities are made by
the Adviser pursuant to recommendations made by an investment committee of the
Adviser, which consists of directors of the Adviser and officers and Trustees
who are interested persons of the Fund. Orders for purchases and sales of
securities are placed in a manner, which, in the opinion of the Adviser, will
offer the best price and market for the execution of each such transaction.
Purchases from underwriters of portfolio securities may include a commission or
commissions paid by the issuer and transactions with dealers serving as market
maker reflect a "spread." Debt securities are generally traded on a net basis
through dealers acting for their own account as principals and not as brokers;
no brokerage commissions are payable on these 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.
42
<PAGE>
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 as the Trustees may determine, the Adviser may consider sales
of shares of the Fund as a factor in the selection of broker-dealers to execute
the Fund's portfolio transactions.
To the extent consistent with the foregoing, the Fund will be governed in the
selection of brokers and dealers, and in 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 commitment to allocate portfolio transactions upon any
prescribed basis. While the Adviser will be primarily responsible for the
allocation of the Fund's brokerage business, the policies and practices of the
Adviser in this regard must be consistent with the foregoing and will at all
times be subject to review by the Trustees. For the fiscal years ended December
31, 1997, 1998, and 1999, the Fund paid brokerage commissions in the amount of
$159,892, $213,738 and $110,841, 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 these policies as the Board
may adopt from time to time. For the fiscal year ended December 31, 1999, the
Fund paid $10,111 in commissions to compensate 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 the Affiliated Broker. For the fiscal year ended December 31, 1997, 1998
and 1999, the Fund paid no brokerage commissions to any Affiliated Broker.
Signator may act as broker for the Fund on securities or commodities exchange
transactions, subject, however, to the general policy of the Fund set forth
above and the procedures adopted by the Trustees pursuant to the Investment
Company Act. Commissions paid to an Affiliated Broker must be at least as
favorable as those which the Board believes to be contemporaneously charged by
other brokers in connection with comparable transactions involving similar
securities being purchased or sold. A transaction would not be placed with an
Affiliated Broker if the Fund would have to pay a commission rate less favorable
than the Affiliated Broker's contemporaneous charges for comparable transactions
for its other most favored, but unaffiliated, customers, except for accounts for
which the Affiliated Broker acts as clearing broker for another brokerage firm,
and any customers of the Affiliated Broker not comparable to the Fund as
determined by a majority of the Trustees who are not interested persons (as
defined in the Investment Company Act) of the Trust, the Adviser or the
Affiliated Broker. Any such transactions would be subject to a good faith
determination by the Trustees that the compensation paid to the Affiliated
Broker is fair and reasonable. 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.
43
<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 Service
an annual fee for Class A shares of $19.00 per shareholder account, for Class B
shares of $21.50 per shareholder account and $20.50 for each Class C shareholder
account. The Fund also pays certain out-of-pocket expenses and these expenses
are aggregated and charged to the Fund and allocated to each class on the basis
of the related net asset values.
CUSTODY OF PORTFOLIO
Portfolio securities of the Fund are held pursuant to a custodian agreement
between the Trust and Investors Bank & Trust Company, 200 Clarendon Street,
Boston, Massachusetts 02116. Under the custodian agreement, Investors Bank &
Trust Company performs custody, portfolio and fund accounting services. These
expenses are aggregated and charged to the Fund and allocated to each class on
the basis of their relative net asset values.
INDEPENDENT AUDITORS
Ernst & Young LLP, 200 Clarendon Street, Boston, Massachusetts 02116, has been
selected as the independent auditors of the Fund. The financial statements of
the Fund included in the Prospectus and this Statement of Additional Information
have been audited by Ernst & Young LLP for the periods indicated in their report
thereon appearing elsewhere herein, and are included in reliance upon such
report given upon the authority of such firm as experts in accounting and
auditing.
44
<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).
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.
A-1
<PAGE>
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
Moody's describes its ratings for fixed income securities as follows:
Fixed income securities which are rated Aaa are judged to be of the best
quality. They carry the smallest degree of investment risk and are generally
referred to as "gilt edge." Interest payments are protected by a large or by an
exceptionally stable margin and principal is secure. While the various
protective elements are likely to change, such changes as can be visualized are
most unlikely to impair the fundamentally strong position of such issues.
Fixed income securities which are rated "Aa" are judged to be of high quality by
all standards. Together with the Aaa group they are generally referred to as
"high grade" obligations. They are rated lower than the best fixed income
securities because margins of protection may not be as large as in Aaa
securities or fluctuation of protective elements may be of greater amplitude or
there may be other elements present which make the long term risks appear
somewhat larger than in Aaa securities.
Fixed income securities which are rated "A" possess many favorable investment
attributes and are to be considered as upper medium grade obligations. Factors
giving security to principal and interest are considered adequate but elements
may be present which suggest a susceptibility to impairment some time in the
future.
Fixed income securities which are rated "Baa" are considered as medium grade
obligations, i.e., they are neither highly protected nor poorly secured.
Interest payments and principal security appear adequate for the present but
certain protective elements may be lacking or may be characteristically
unreliable over any great length of time. Such fixed income securities lack
outstanding investment characteristics and in fact have speculative
characteristics as well.
Fixed income securities which are rated "Ba" are judged to have speculative
elements; their future cannot be considered as well assured. Often the
protection of interest and principal payments may be very moderate and thereby
not well safeguarded during both good and bad times over the future. Uncertainty
of position characterizes fixed income securities in this class.
Fixed income securities which are rated "B" generally lack characteristics of
the desirable investment. Assurance of interest and principal payments or of
maintenance of other terms of the contract over any long period of time may be
small.
Fixed income securities which are rated "Caa" are of poor standing. Such issues
may be in default or there may be present elements of danger with respect to
principal or interest.
Fixed income securities which are rated "Ca" represent obligations which are
speculative in a high degree. Such issues are often in default or have other
marked shortcomings.
Fixed income securities which are rated "C" are the lowest rated class of fixed
income securities and issues so rated can be regarded as having extremely poor
prospects of ever attaining any real investment standing.
S&P describes its ratings for fixed income securities as follows:
Fixed income securities rated "AAA" have the highest rating assigned by S&P.
Capacity to pay interest and repay principal is extremely strong.
Fixed income securities rated "AA" have a very strong capacity to pay interest
and repay principal and differs from the higher rated issues only in small
degree.
Fixed income securities rated "A" have a strong capacity to pay interest and
repay principal although they are somewhat more susceptible to the adverse
effects of changes in circumstances and economic conditions than fixed income
securities in higher rated categories.
B-1
<PAGE>
Fixed income securities rated "BBB" are regarded as having an adequate capacity
to pay interest and repay principal. Whereas such securities normally exhibit
adequate protection parameters, adverse economic conditions or changing
circumstances are more likely to lead to a weakened capacity to pay interest and
repay principal for fixed income securities in this category than in higher
rated categories.
Fixed income securities rated "BB," "B," "CCC," "CC" and "C" are regarded, on
balance, as predominantly speculative with respect to the issuer's capacity to
pay interest and repay principal in accordance with the terms of the
obligations. "BB" indicates the lowest degree of speculation and "C" the highest
degree of speculation. While such fixed income securities will likely have some
quality and protective characteristics, these are outweighed by large
uncertainties or major risk exposures to adverse conditions.
Moody's describes its three highest ratings for commercial paper as follows:
Issuers rated "P-1" (or related supporting institutions) have a superior
capacity for repayment of short-term promissory obligations. "P-1" repayment
capacity will normally be evidenced by the following characteristics: (1)
leading market positions in well- established industries; (2) high rates of
return on funds employed; (3) conservative capitalization structures with
moderate reliance on debt and ample asset protections; (4) broad margins in
earnings coverage of fixed financial charges and high internal cash generation;
and (5) well established access to a range of financial markets and assured
sources of alternate liquidity.
Issuers rated "P-2" (or related supporting institutions) have a strong capacity
for repayment of short-term promissory obligations. This will normally be
evidenced by many of the characteristics cited above but to a lesser degree.
Earnings trends and coverage ratios, while sound, will be more subject to
variation. Capitalization characteristics, while still appropriate, may be more
affected by external conditions. Ample alternative liquidity is maintained.
Issuers rated "P-3" (or supporting institutions) have an acceptable ability for
repayment of senior short-term obligations. The effect of industry
characteristics and market compositions may be more pronounced. Variability in
earnings and profitability may result in changes in the level of debt protection
measurements and may require relatively high financial leverage. Adequate
alternate liquidity is maintained.
S&P describes its three highest ratings for commercial paper as follows:
"A-1." This designation indicates that the degree of safety regarding timely
payment is very strong.
"A-2." Capacity for timely payment on issues with this designation is strong.
However, the relative degree of safety is not as overwhelming as for issues
designated "A-1."
"A-3." Issues carrying this designation have a satisfactory capacity for timely
payment. They are, however, somewhat more vulnerable to the adverse effects of
changes in circumstances than obligations carrying the higher designations.
B-2
<PAGE>
FINANCIAL STATEMENTS
The financial statements listed below are included in the Fund's 1999 Annual
Report to Shareholders for the year ended December 31, 1999; (filed
electronically on February 28, 2000, accession number 0000928816-00-000114) and
are included in and incorporated by reference into Part B of the Registration
Statement for John Hancock Balanced Fund (file nos. 811-00560 and 2-10156).
John Hancock Investment Trust
John Hancock Balanced Fund
Statement of Assets and Liabilities as of December 31, 1999.
Statement of Operations for the year ended December 31, 1999.
Statement of Changes in Net Asset for each of the two years ended
December 31, 1999.
Notes to Financial Statements.
Financial Highlights for each of the five years in the period ended
December 31, 1999.
Schedule of Investments as of December 31, 1999.
Report of Independent Auditors.
F-1
<PAGE>
JOHN HANCOCK LARGE CAP VALUE FUND
Class A, Class B and Class C Shares
Statement of Additional Information
July 1, 2000
This Statement of Additional Information provides information about John Hancock
Large Cap Value Fund (the "Fund"), in addition to the information that is
contained in the combined Equity Funds' current Prospectus. (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................................. 22
Distribution Contracts................................................. 24
Sales Compensation..................................................... 26
Net Asset Value........................................................ 28
Initial Sales Charge on Class A Shares................................. 29
Deferred Sales Charge on Class B and Class C Shares.................... 31
Special Redemptions.................................................... 35
Additional Services and Programs ...................................... 37
Purchases and Redemptions through Third Parties........................ 37
Description of the Fund's Shares....................................... 37
Tax Status............................................................. 38
Calculation of Performance............................................. 43
Brokerage Allocation................................................... 45
Transfer Agent Services................................................ 47
Custody of Portfolio................................................... 47
Independent Auditors................................................... 47
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 financialstrength, competitive position, projected future earnings and
dividends and other investment criteria.
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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
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nationalization of businesses, restrictions on foreign ownership, or
prohibitions on repatriation of assets, and may have less protection of property
rights than more developed countries. Their economies may be predominantly based
on only a few industries, may be highly vulnerable to changes in local or global
trade conditions, and may suffer from extreme and volatile debt burdens or
inflation rates. Local securities markets may trade a small number of securities
and may be unable to respond effectively to increases in trading volume,
potentially making prompt liquidation of substantial holdings difficult or
impossible at times. The Fund may be required to establish special custodial or
other arrangements before making certain investments in those countries.
Securities of issuers located in these countries may have limited marketability
and may be subject to more abrupt or erratic price movements.
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)
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.
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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
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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
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
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.
11
<PAGE>
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, 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, The
Berkeley Group, 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
233 West Central Street Consolidated, Inc.
Natick, MA 01760 (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
601 Colorado Street System and former President of the
O'Henry Hall University of Texas, Austin, Texas;
Austin, TX 78701 Lee Hage and Joseph D. Jamail
January 1944 Regents Chair 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
R.M Bradley & Co., Inc. Officer, R.M. Bradley & Co., Inc.;
73 Tremont Street, 7th Floor Director, The New England Council
Boston, MA 02108 and Massachusetts Roundtable;
March 1946 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 Senior Vice President and Chief
P.O. Box 697 Financial Officer, UGI Corporation
444 Chandlee Drive (Public Utility Holding Company)
Berwyn, PA 19312 (retired 1998); Vice President and
February 1938 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
4327 Enterprise Avenue Holdings, Inc. (since June 1, 2000)
Naples, FL 34104 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).
Richard S. Scipione * Trustee (1) General Counsel, John Hancock Life
John Hancock Place Insurance Company; Director, the
P.O. Box 111 Adviser, John Hancock Funds,
Boston, MA 02117 Signator Investors, Inc., John
August 1937 Hancock Subsidiaries, Inc.,
SAMCorp., NM Capital, The Berkeley
Group, JH Networking Insurance
Agency, Inc.; Insurance Agency,
Inc. (until June 1999), Signature
Services (until January 1997).
Norman H. Smith Trustee Lieutenant General, United States
243 Mt. Oriole Lane Marine Corps; Deputy Chief of Staff
Linden, VA 22642 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
13 Chadwell Place Bond Funds, The Smith Barney
Morristown, NJ 07960 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 Executive Vice President and Chief
101 Huntington Avenue President and Chief Investment Officer, each of the
Boston, MA 02199 Investment Officer John Hancock Funds; Executive Vice
December 1953 President and Chief Investment
Officer, Barring Asset Management,
London UK (until May 2000).
Osbert M. Hood Executive Vice Executive Vice President and Chief
101 Huntington Avenue President and Chief Financial Officer, each of the John
Boston, MA 02199 Financial Officer (2) Hancock Funds; Executive Vice
August 1952 President, Treasurer and Chief
Financial Officer of the Adviser,
the Berkeley Group, John Hancock
Funds, SAMCorp. and NM Capital;
Senior Vice President, Chief
Financial Officer and Treasurer,
Signature Services; Director
Indocam Japan Limited; Vice
President and Chief Financial
Officer, John Hancock Mutual Life
Insurance Company, Retail Sector
(until 1997).
Susan S. Newton Vice President, Vice President and Chief Legal
101 Huntington Avenue Secretary and Chief Officer the Adviser; John Hancock
Boston, MA 02199 Legal Officer Funds; Vice President, Signature
March 1950 Services (until May 2000), The
Berkeley Group, NM Capital and
SAMCorp.
James J. Stokowski Vice President, Vice President, the Adviser.
101 Huntington Avenue Treasurer and Chief
Boston, MA 02199 Accounting Officer
November 1946
Thomas H. Connors Vice President and Vice President and Compliance Officer,
101 Huntington Avenue Compliance Officer the Adviser; Vice President,
Boston, MA 02199 John Hancock Funds, Inc.
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 Scipione 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.
20
<PAGE>
Total
Compensation from all
Aggregate Funds in John Hancock
Compensation Fund Complex to
Trustees from the Fund(1) 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
(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.
As of April 3, 2000 officers and Trustees of the Trust as a group owned less
than 1% of the outstanding shares of the Fund. To the knowledge of the Trust,
only the following persons owned of record or beneficially 5% or more of any
class of the Fund's outstanding shares of the Fund:
21
<PAGE>
Name and Address Class of Percentage of Outstanding
of Shareholder Shares Shares of Class of Fund
-------------- ------ -----------------------
MLPF&S For The Sole Benefit Of Its B 11.52%
Customers
Attn: Fund Administration
4800 Deerlake Drive East
Jacksonville FL 32246-6484
MLPF&S For The Sole Benefit Of Its C 14.83%
Customers
Attn: Fund Administration
4800 Deerlake Drive East
Jacksonville FL 32246-6484
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
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.
22
<PAGE>
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.
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.
23
<PAGE>
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 CONTRACTS
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 class of the Fund. Shares of the Fund are also sold by selected
broker-dealers (the "Selling Brokers") that 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 Fund that are continually offered at net asset value next
determined, plus an applicable sales charge, if any. In connection with the sale
of Fund shares, John Hancock Funds and Selling Brokers receive compensation from
a sales charge imposed, in the case of Class A and Class C shares, at the time
of sale. In the case of Class B or Class C shares, the broker receives
compensation immediately but John Hancock Funds is compensated on a deferred
basis.
Total underwriting commissions for sales of the Fund's Class A shares for the
fiscal periods ended December 31, 1997, 1998, and $1999, $1,420,957, $2,528,532,
and $1,227,968 and $222,283, $379,231, and $122,914 were retained by John
Hancock Funds in 1997, 1998 and 1999, respectively. The remainder of the
underwriting commissions were reallowed to dealers.
The Fund's Trustees adopted Distribution Plans with respect to each class of
shares (the "Plans") pursuant to Rule 12b-1 under the Investment Company Act of
1940. Under the Plans, the Fund will pay distribution and service fees at an
aggregate annual rate of up to 25% for Class A and 1.00% for Class B and Class C
of the Fund's average daily net assets attributable to shares of that class.
However, the service fee will not exceed 0.25% of the Fund's average daily net
assets attributable to each class of shares. The distribution fees will be used
to reimburse John Hancock Funds for their distribution expenses, including but
not limited to: (i) initial and ongoing sales compensation to Selling Brokers
and others (including affiliates of John Hancock Funds) engaged in the sale of
Fund shares; (ii) marketing, promotional and overhead expenses incurred in
connection with the distribution of Fund shares; and (iii) with respect to Class
B and Class C shares only, interest expenses on unreimbursed distribution
expenses. The service fees will be used to compensate Selling Brokers for
providing personal and account maintenance services to shareholders. In the
event the John Hancock Funds is not fully reimbursed for payments or expenses
they incur under the Class A Plan, these expenses will not be carried beyond
twelve months from the date they were incurred. Unreimbursed expenses under the
Class B and Class C Plans will be carried forward together with interest on the
balance of these unreimbursed expenses. The Fund does not treat unreimbursed
expenses under Class B and Class C Plans as a liability of the Fund, because the
Trustees may terminate the Class B and/or Class C Plans at any time. For the
fiscal year ended December 31, 1999, an aggregate of $8,887,380 of distribution
expenses or 1.48% of the average net assets of the Class B shares of the Fund,
was not reimbursed or recovered by John Hancock Funds through the receipt of
deferred sales charges or Rule 12b-1 fees in prior periods. For the fiscal year
ended December 31, 1999, an aggregate of $5,058 of distribution expenses or
0.06% of the average net assets of the Class C shares of the Fund, was not
reimbursed or recovered by John Hancock Funds through the receipt of deferred
sales charges or Rule 12b-1 fees in prior periods.
24
<PAGE>
The Plans were approved by a majority of the voting securities of the Fund. The
Plans and all amendments were approved by the Trustees, including a majority of
the Trustees who are not interested persons of the Fund and who have no direct
or indirect financial interest in the operation of the Plans (the "Independent
Trustees"), by votes cast in person at meetings called for the purpose of voting
on such Plans.
Pursuant to the Plans, at least quarterly, John Hancock Funds provides the Fund
with a written report of the amounts expended under the Plans and the purpose
for which the expenditures were made. The Trustees review these reports on a
quarterly basis to determine their continued appropriateness.
The Plans provide that they will continue in effect only so long as their
continuance is approved at least annually by a majority of both the Trustees and
Independent Trustees. The Plans provide that they may be terminated without
penalty, (a) by vote of a majority of the Independent Trustees, (b) by a vote of
a majority of the Fund's outstanding shares of the applicable class upon 60
days' written notice to John Hancock Funds, and (c) automatically in the event
of assignment. The Plans further provide that they may not be amended to
increase the maximum amount of the fees for the services described therein
without the approval of a majority of the outstanding shares of the class of the
Fund which has voting rights with respect to that Plan. Each Plan provides, that
no material amendment to the Plans will be effective unless it is approved by a
majority vote of the Trustees and the Independent Trustees of the Fund. The
holders of Class A, Class B and Class C shares have exclusive voting rights with
respect to the Plan applicable to their respective class of shares. In adopting
the Plans, the Trustees concluded that, in their judgment, these is a reasonable
likelihood that the Plans will benefit the holders of the applicable class of
shares of the Fund.
Amounts paid to John Hancock Funds by any class of shares of the Fund will not
be used to pay the expenses incurred with respect to any other class of shares
of the Fund; provided, however, that expenses attributable to the Fund as a
whole will be allocated, to the extent permitted by law, according to a formula
based upon gross sales dollars and/or average daily net assets of each such
class, as may be approved from time to time by vote of a majority of Trustees.
From time to time, the Fund may participate in joint distribution activities
with other Funds and the costs of those activities will be borne by each Fund in
proportion to the relative net asset value of the participating Funds.
During the fiscal year ended December 31, 1999, the Funds paid John Hancock
Funds the following amounts of expenses in connection with their services of the
Fund.
25
<PAGE>
<TABLE>
<CAPTION>
Expense Items
-------------
Printing and
Mailing of Interest
Prospectus to Expenses of Carrying or
New Compensation John Hancock Other Finance
Shares Advertising Shareholders to Selling Brokers Funds Charges
------ ----------- ------------ ------------------ ----- -------
<S> <C> <C> <C> <C> <C>
Class A $199,586 $ 6,779 $ 495,880 $ 454,313 $ 0
Class B $900,642 $22,345 $2,554,057 $2,063,047 $238,256
Class C $ 18,129 $ 507 $ 18,308 $ 4,943 $ 0
SALES COMPENSATION
As part of their business strategies, the fund, along with John Hancock Funds,
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.
The two primary sources of compensation payments for Class A, Class B and Class
C are (1) the 12b-1 fees that are paid out of the fund's assets and (2) sales
charges paid by investors. The sales charges and 12b-1 fees are detailed in the
prospectus and under "Distribution Contracts" in this Statement of Additional
Information. The portions of these expenses that are reallowed to financial
services firms are shown on the next page.
Whenever you make an investment in the Fund, the financial services firm
receives a reallowance, as described below. The firm also receives the first
year's service fee at this time. Beginning with the second year after an
investment is made, the financial services firm receives an annual service fee
of 0.25% of its total eligible fund net assets. This fee is paid quarterly in
arrears by the Fund.
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.
From time to time, John Hancock Funds may make expense reimbursements for
special training of a financial services firm's registered representatives and
other employees in group meetings or to help pay the expenses of sales contests.
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.
26
<PAGE>
First year
Sales charge Maximum service fee Maximum
paid by investors reallowance (% of net total compensation (1)
Class A investments (% of offering price) (% of offering price) investment) (3) (% of offering price)
------------------- --------------------- --------------------- --------------- ---------------------
<S> <C> <C> <C> <C>
Up to $49,999 5.00% 4.01% 0.25% 4.25%
$50,000 - $99,999 4.50% 3.51% 0.25% 3.75%
$100,000 - $249,999 3.50% 2.61% 0.25% 2.85%
$250,000 - $499,999 2.50% 1.86% 0.25% 2.10%
$500,000 - $999,999 2.00% 1.36% 0.25% 1.60%
Regular investments of
Class A shares of
$1 million or more (4)
----------------------
First $1M - $4,999,999 -- 0.75% 0.25% 1.00%
Next $1 - $5M above that -- 0.25% 0.25% 0.50% (2)
Next $1 or more above that -- 0.00% 0.25% 0.25% (2)
Retirement investments of
Class A shares of
$1 million or more*
-------------------
First $1M - $24,999,999 -- 0.75% 0.25% 1.00%
Next $25M -$49,999,999 -- 0.25% 0.25% 0.50%
Next $1 or more above that -- 0.00% 0.25% 0.25%
First year
Maximum service fee Maximum total
reallowance (% of net compensation (1)
Class B investments (% of offering price) investment) (3) (% of offering price)
------------------- --------------------- --------------- ---------------------
All amounts -- 3.75% 0.25% 4.00%
First year
Maximum service fee Maximum total
reallowance (% of net compensation (1)
Class C investments (% of offering price) investment) (3) (% of offering price)
------------------- --------------------- --------------- ---------------------
Amounts purchased at NAV -- 0.75% 0.25% 1.00%
All other amounts 1.00% 1.75% 0.25% 2.00%
</TABLE>
(1) Reallowance percentages and service fee percentages are calculated from
different amounts, and therefore may not equal total compensation
percentages if combined using simple addition.
(2) For Group Investment Programs sales, the maximum total compensation for
investments of $1 million or more is 1.00% of the offering price (one year
CDSC of 1.00% applies for each sale).
(3) After first year subsequent service fees are paid quarterly in arrears.
27
<PAGE>
(4) Includes new investments aggregated with investments since the last annual
reset. John Hancock Funds may take recent redemptions into account in
determining if an investment qualifies as a new investment.
CDSC revenues collected by John Hancock Funds may be used to pay commissions
when there is no initial sales charge.
*Retirement investments only. These include traditional, Roth IRAs, SIMPLE IRAs,
SIMPLE 401(k), Rollover IRA, TSA, 457, 403(b), 401(k), Money Purchase Pension
Plan, profit-sharing plan and other retirement plans as described in the
Internal Revenue Code.
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.
28
<PAGE>
INITIAL SALES CHARGE ON CLASS A AND CLASS C SHARES
Shares of the Fund are offered at a price equal to their net asset value plus a
sales charge which, at the option of the purchaser, may be imposed either at the
time of purchase (the "initial sales charge alternative") or on a contingent
deferred basis (the "deferred sales charge alternative"). The Fund no longer
issues shares certificates. All shares are electronically recorded. The Trustees
reserve the right to change or waive the Fund's minimum investment requirements
and to reject any order to purchase shares (including purchase by exchange) when
in the judgment of the Adviser such rejection is in the Fund's best interest.
The sales charges applicable to purchases of Class A and Class C shares of the
Fund are described in the Prospectus. Methods of obtaining reduced sales charges
referred to generally in the Prospectus are described in detail below. In
calculating the sales charge applicable to current purchases of Class A shares,
the investor is entitled to cumulate current purchases with the greater of the
current value (at offering price) of the Class A shares of the Fund, owned by
the Investor, or if John Hancock Signature Services, Inc. ("Signature Services")
is notified by the investor's dealer or the investor at the time of the
purchase, the cost of the Class A shares owned.
Without Sales Charge. Class A shares may be offered without a front-end sales
charge or contingent deferred sales charge ("CDSC") to various individuals and
institutions as follows:
o A Trustee or officer of the Trust; a Director or officer of the Adviser
and its affiliates or Selling Brokers; employees or sales
representatives of any of the foregoing; retired officers, employees or
Directors of any of the foregoing; a member of the immediate family
(spouse, children, grandchildren, mother, father, sister, brother,
mother-in-law, father-in-law, daughter-in-law, son-in-law, niece,
nephew, grandparents and same sex domestic partner) of any of the
foregoing; or any fund, pension, profit sharing or other benefit plan
of the individuals described above.
o A broker, dealer, financial planner, consultant or registered
investment advisor that has entered into a signed agreement with John
Hancock Funds providing specifically for the use of Fund shares in
fee-based investment products or services made available to their
clients.
o A former participant in an employee benefit plan with John Hancock
funds, when he or she withdraws from his or her plan and transfers any
or all of his or her plan distributions directly to the Fund.
o A member of a class action lawsuit against insurance companies who is
investing settlement proceeds.
o Retirement plans participating in Merrill Lynch servicing programs, if
the Plan has more than $3 million in assets or 500 eligible employees
at the date the Plan Sponsor signs the Merrill Lynch Recordkeeping
Service Agreement. See your Merrill Lynch financial consultant for
further information.
o Retirement plans investing through the PruArray Program sponsored by
Prudential Securities.
29
<PAGE>
o Pension plans transferring assets from a John Hancock variable annuity
contract to the Fund pursuant to an exemptive application approved by
the Securities and Exchange Commission.
o Existing full service clients of the Life Company who were group
annuity contract holders as of September 1, 1994, and participant
directed retirement plans with at least 100 eligible employees at the
inception of the Fund account. Each of these investors may purchase
Class A shares with no initial sales charge. However, if the shares are
redeemed within 12 months after the end of the calendar year in which
the purchase was made, a CDSC will be imposed at the following rate:
Amount Invested CDSC Rate
--------------- ---------
$1 to $4,999,999 1.00%
Next $5 million to $9,999,999 0.50%
Amounts of $10 million and over 0.25%
o Retirement plans for which John Hancock Signature Services performs
employer sponsored plan recordkeeping services. (These types of plans
include 401(k), money purchase pension, profit sharing and SIMPLE 401k)
o An investor who buys through a Merrill Lynch omnibus account. However,
a CDSC may apply if the shares are sold within 12 months of purchase.
Class A and Class C shares may also be purchased without an initial sales charge
in connection with certain liquidation, merger or acquisition transactions
involving other investment companies or personal holding companies.
Combination Privilege. In calculating the sales charge applicable to purchases
of Class A shares made at one time, the purchases will be combined to reduce
sales charges if made by (a) an individual, his or her spouse and their children
under the age of 21, purchasing securities for his or their own account, (b) a
trustee or other fiduciary purchasing for a single trust, estate or fiduciary
account and (c) groups which qualify for the Group Investment Program (see
below). A company's (not an individual's) qualified and non-qualified retirement
plan investments can be combined to take advantage of this privilege. Further
information about combined purchases, including certain restrictions on combined
group purchases, is available from Signature Services or a Selling Broker's
representative.
Accumulation Privilege. Investors (including investors combining purchases) who
are already Class A shareholders may also obtain the benefit of the reduced
sales charge by taking into account not only the amount being invested but also
the investor's purchase price or current value of the Class A shares of all John
Hancock funds which carry a sales charge already held by such person. Class A
shares of John Hancock money market funds will only be eligible for the
accumulation privilege if the investor has previously paid a sales charge on the
amount of those shares. Retirement plan investors may include the value of Class
B shares if Class B shares held are greater than $1 million. Retirement plans
must notify Signature Services to utilize. A company's (not an individual's)
qualified and non-qualified retirement plan investments can be combined to take
advantage of this privilege.
Group Investment Program. Under the Combination and Accumulation Privileges, all
members of a group may combine their individual purchases of Class A shares to
potentially qualify for breakpoints in the sales charge schedule. This feature
is provided to any group which (1) has been in existence for more than six
months, (2) has a legitimate purpose other than the purchase of mutual fund
shares at a discount for its members, (3) utilizes salary deduction or similar
group methods of payment, and (4) agrees to allow sales materials of the fund in
its mailings to members at a reduced or no cost to John Hancock Funds.
30
<PAGE>
Letter of Intention. Reduced sales charges are also applicable to investments
pursuant to a Letter of Intention (LOI), which should be read carefully prior to
its execution by an investor. The Fund offers two options regarding the
specified period for making investments under the LOI. All investors have the
option of making their investments over a period of thirteen (13) months.
Investors who are using the Fund as a funding medium for a retirement plan,
however, may opt to make the necessary investments called for by the LOI over a
forty-eight (48) month period. These retirement plans include traditional, Roth
IRAs, SEP, SARSEP, 401(k), 403(b) (including TSAs), SIMPLE IRA, SIMPLE 401(k),
Money Purchase Pension, Profit Sharing and Section 457 plans. An individual's
non-qualified and qualified retirement plan investments cannot be combined to
satisfy an LOI of 48 months. Such an investment (including accumulations and
combinations but not including reinvested dividends) must aggregate $50,000 or
more invested during the specified period from the date of the LOI or from a
date within ninety (90) days prior thereto, upon written request to Signature
Services. The sales charge applicable to all amounts invested under the LOI is
computed as if the aggregate amount intended to be invested had been invested
immediately. If such aggregate amount is not actually invested, the difference
in the sales charge actually paid and the sales charge payable had the LOI not
been in effect is due from the investor. However, for the purchases actually
made within the specified period (either 13 or 48 months) the sales charge
applicable will not be higher than that which would have applied (including
accumulations and combinations) had the LOI been for the amount actually
invested.
The LOI authorizes Signature Services to hold in escrow sufficient Class A
shares (approximately 5% of the aggregate) to make up any difference in sales
charges on the amount intended to be invested and the amount actually invested,
until such investment is completed within the specified period, at which time
the escrowed Class A shares will be released. If the total investment specified
in the LOI is not completed, the Class A shares held in escrow may be redeemed
and the proceeds used as required to pay such sales charges as may be due. By
signing the LOI, the investor authorizes Signature Services to act as his
attorney-in-fact to redeem any escrowed Class A shares and adjust the sales
charge, if necessary. A LOI does not constitute a binding commitment by an
investor to purchase, or by the Fund to sell, any additional Class A shares and
may be terminated at any time.
DEFERRED SALES CHARGE ON CLASS B AND C SHARES
Investments in Class B shares are purchased at net asset value per share without
the imposition of a initial sales charge so the Fund will receive the full
amount of the purchase payment.
Contingent Deferred Sales Charge. Class B and Class C shares which are redeemed
within six years or one year of purchase, respectively, will be subject to a
CDSC at the rates set forth in the Prospectus as a percentage of the dollar
amount subject to the CDSC. The charge will be assessed on an amount equal to
the lesser of the current market value or the original purchase cost of the
Class B and Class C shares being redeemed. No CDSC will be imposed on increases
in account value above the initial purchase prices, including all shares derived
from reinvestment of dividends or capital gains distributions.
Class B shares are not available to full-service retirement plans administered
by Signature Services or the Life Company that had more than 100 eligible
employees at the inception of the Fund account.
31
<PAGE>
The amount of the CDSC, if any, will vary depending on the number of years from
the time of payment for the purchase of Class B shares until the time of
redemption of such shares. Solely for purposes of determining the number of
years from the time of any payment for the purchases of both Class B and Class C
shares, all payments during a month will be aggregated and deemed to have been
made on the first day of the month.
In determining whether a CDSC applies to a redemption, the calculation will be
determined in a manner that results in the lowest possible rate being charged.
It will be assumed that your redemption comes first from shares you have held
beyond the six-year CDSC redemption period for Class B or one year CDSC
redemption period for Class C or those you acquired through dividend and capital
gain reinvestment, and next from the shares you have held the longest during the
six-year period for Class B shares. For this purpose, the amount of any increase
in a share's value above its initial purchase price is not regarded as a share
exempt from CDSC. Thus, when a share that has appreciated in value is redeemed
during the CDSC period, a CDSC is assessed only on its initial purchase price.
When requesting a redemption for a specific dollar amount please indicate if you
require the proceeds to equal the dollar amount requested. If not indicated,
only the specified dollar amount will be redeemed from your account and the
proceeds will be less any applicable CDSC.
Example:
You have purchased 100 Class B shares at $10 per share. The second year after
your purchase, your investment's net asset value per share has increased by $2
to $12, and you have gained 10 additional shares through dividend reinvestment.
If you redeem 50 shares at this time your CDSC will be calculated as follows:
oProceeds of 50 shares redeemed at $12 per shares (50 x 12) $600.00
o*Minus Appreciation ($12 - $10) x 100 shares (200.00)
o Minus proceeds of 10 shares not subject to
CDSC (dividend reinvestment) (120.00)
------
oAmount subject to CDSC $280.00
*The appreciation is based on all 100 shares in the account not just
the shares being redeemed.
Proceeds from the CDSC are paid to John Hancock Funds and are used in whole or
in part by John Hancock Funds to defray its expenses related to providing
distribution-related services to the Fund in connection with the sale of the
Class B and Class C shares, such as the payment of compensation to select
Selling Brokers for selling Class B and Class C shares. The combination of the
CDSC and the distribution and service fees facilitates the ability of the Fund
to sell the Class B and Class C shares without a sales charge being deducted at
the time of the purchase.
Waiver of Contingent Deferred Sales Charge. The CDSC will be waived on
redemptions of Class B shares and Class C shares and of Class A shares that are
subject to CDSC, unless indicated otherwise, in the circumstances defined below:
For all account types:
* Redemptions made pursuant to the Fund's right to liquidate your account
if you own shares worth less than $1,000.
32
<PAGE>
* Redemptions made under certain liquidation, merger or acquisition
transactions involving other investment companies or personal holding
companies.
* Redemptions due to death or disability. (Does not apply to trust
accounts unless Trust is being dissolved.)
* Redemptions made under the Reinstatement Privilege, as described in
"Sales Charge Reductions and Waivers" of the Prospectus.
* Redemptions of Class B (but not Class C) shares made under a periodic
withdrawal plan, or redemptions for fees charged by planners or
advisors for advisory services, as long as your annual redemptions do
not exceed 12% of your account value, including reinvested dividends,
at the time you established your periodic withdrawal plan and 12% of
the value of subsequent investments (less redemptions) in that account
at the time you notify Signature Services. (Please note that this
waiver does not apply to periodic withdrawal plan redemptions of Class
A or Class C shares that are subject to a CDSC).
* Redemptions by Retirement plans participating in Merrill Lynch
servicing programs, if the Plan has less than $3 million in assets or
500 eligible employees at the date the Plan Sponsor signs the Merrill
Lynch Recordkeeping Service Agreement. See your Merrill Lynch financial
consultant for further information.
* Redemptions of Class A or Class C shares by retirement plans that
invested through the PruArray Program sponsored by Prudential
Securities.
* Redemptions of Class A shares made after one year from the inception
date of a retirement plan at John Hancock for which John Hancock is the
recordkeeper.
For Retirement Accounts (such as traditional, Roth IRAs, SIMPLE IRAs, SIMPLE
401(k), Rollover IRA, TSA, 457, 403(b), 401(k), Money Purchase Pension Plan,
Profit-Sharing Plan and other plans as described in the Internal Revenue Code)
unless otherwise noted.
* Redemptions made to effect mandatory or life expectancy distributions
under the Internal Revenue Code.
* Returns of excess contributions made to these plans.
* Redemptions made to effect distributions to participants or
beneficiaries from employer sponsored retirement plans under sections
401(a) (such as Money Purchase Pension Plans and Profit-Sharing/401(k)
Plans), 457 and 408 (SEPs and SIMPLE IRAs) of the Internal Revenue
Code.
* Redemptions from certain IRA and retirement plans that purchased shares
prior to October 1, 1992 and certain IRA accounts that purchased shares
prior to May 15, 1995.
Please see matrix for some examples.
33
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
----------------------- ----------------- ----------------- ---------------- ----------------- ----------------
Type of 401 (a) Plan 403 (b) 457 IRA, IRA Non-retirement
Distribution (401 (k), MPP, Rollover
PSP) 457 & 408
(SEPs & Simple
IRAs)
----------------------- ----------------- ----------------- ---------------- ----------------- ----------------
Death or Disability Waived Waived Waived Waived Waived
----------------------- ----------------- ----------------- ---------------- ----------------- ----------------
Over 70 1/2 Waived Waived Waived Waived for 12% of account
mandatory value annually
distributions in periodic
or 12% of payments
account value
annually in
periodic
payments.
----------------------- ----------------- ----------------- ---------------- ----------------- ----------------
Between 59 1/2 Waived Waived Waived Waived for Life 12% of account
and 70 1/2 Expectancy or value annually
12% of account in periodic
value annually payments
in periodic
payments.
----------------------- ----------------- ----------------- ---------------- ----------------- ----------------
Under 59 1/2 Waived for Waived for Waived for Waived for 12% of account
(Class B only) annuity annuity annuity annuity value annually
payments (72t) payments (72t) payments (72t) payments (72t) in periodic
or 12% of or 12% of or 12% of or 12% of payments
account value account value account value account value
annually in annually in annually in annually in
periodic periodic periodic periodic
payments. payments. payments. payments.
----------------------- ----------------- ----------------- ---------------- ----------------- ----------------
Loans Waived Waived N/A N/A N/A
----------------------- ----------------- ----------------- ---------------- ----------------- ----------------
Termination of Plan Not Waived Not Waived Not Waived Not Waived N/A
----------------------- ----------------- ----------------- ---------------- ----------------- ----------------
Hardships Waived Waived Waived N/A N/A
----------------------- ----------------- ----------------- ---------------- ----------------- ----------------
Qualified Domestic Waived Waived Waived N/A N/A
Relations Orders
----------------------- ----------------- ----------------- ---------------- ----------------- ----------------
Termination of Waived Waived Waived N/A N/A
Employment Before
Normal Retirement Age
----------------------- ----------------- ----------------- ---------------- ----------------- ----------------
Return of Excess Waived Waived Waived Waived N/A
----------------------- ----------------- ----------------- ---------------- ----------------- ----------------
</TABLE>
If you qualify for a CDSC waiver under one of these situations, you must notify
Signature Services at the time you make your redemption. The waiver will be
granted once Signature Services has confirmed that you are entitled to the
waiver.
34
<PAGE>
SPECIAL REDEMPTIONS
Although it would not normally do so, the Fund has the right to pay the
redemption price of shares of the Fund in whole or in part in portfolio
securities as prescribed by the Trustees. When the shareholder sells portfolio
securities received in this fashion, 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. The Fund has
however, elected to be governed by Rule 18f-1 under the Investment Company Act.
Under that rule the Fund must redeem shares for cash except to the extent that
the redemption payment to any shareholder during any 90-day period would exceed
the lesser of $250,000 or 1% of the Fund's net asset value at the beginning of
such period.
ADDITIONAL SERVICES AND PROGRAMS
Exchange Privilege. The Fund permits exchanges of shares of any class of the
Fund for shares of the same class in any other John Hancock fund offering that
class.
Exchanges between funds with shares that are not subject to a CDSC are based on
their respective net asset values. No sales charge or transactions charge is
imposed. Shares of the Fund which are subject to a CDSC may be exchanged into
shares of any of the other John Hancock funds that are subject to a CDSC without
incurring the CDSC; however, the shares acquired in an exchange will be subject
to the CDSC schedule of the shares acquired if and when such shares are redeemed
(except that shares exchanged into John Hancock 500 Index Fund and John Hancock
Intermediate Government Fund will retain the exchanged fund's CDSC schedule).
For purposes of computing the CDSC payable upon redemption of shares acquired in
an exchange, the holding period of the original shares is added to the holding
period of the shares acquired in an exchange.
If a shareholder exchanges Class B shares purchased prior to January 1, 1994 for
Class B shares of any other John Hancock fund, the acquired shares will continue
to be subject to the CDSC schedule that was in effect when the exchanged shares
were purchased.
The Fund reserves the right to require that previously exchanged shares (and
reinvested dividends) be in the Fund for 90 days before a shareholder is
permitted a new exchange.
The Fund may refuse any exchange order. The Fund may change or cancel its
exchange policies at any time, upon 60 days' notice to its shareholders.
An exchange of shares is treated as a redemption of shares of one fund and the
purchase of shares of another for Federal Income Tax purposes. An exchange may
result in a taxable gain or loss. See "TAX STATUS".
Systematic Withdrawal Plan. The Fund permits the establishment of a Systematic
Withdrawal Plan. Payments under this plan represent proceeds arising from the
redemption of Fund shares which may result in realization of gain or loss for
purposes of Federal, state and local income taxes. The maintenance of a
Systematic Withdrawal Plan concurrently with purchases of additional shares of
the Fund could be disadvantageous to a shareholder because of the initial sales
charge payable on such purchases of Class A shares and the CDSC imposed on
redemptions of Class B and Class C shares and because redemptions are taxable
events. Therefore, a shareholder should not purchase shares at the same time a
Systematic Withdrawal Plan is in effect. The Fund reserves the right to modify
or discontinue the Systematic Withdrawal Plan of any shareholder on 30 days'
prior written notice to such shareholder, or to discontinue the availability of
such plan in the future. The shareholder may terminate the plan at any time by
giving proper notice to Signature Services.
35
<PAGE>
Monthly Automatic Accumulation Program ("MAAP"). The program is explained in the
Prospectus. The program, as it relates to automatic investment checks, is
subject to the following conditions:
The investments will be drawn on or about the day of the month indicated.
The privilege of making investments through the MAAP may be revoked by Signature
Services without prior notice if any investment is not honored by the
shareholder's bank. The bank shall be under no obligation to notify the
shareholder as to the non-payment of any checks.
The program may be discontinued by the shareholder either by calling Signature
Services or upon written notice to Signature Services which is received at least
five (5) business days prior to the due date of any investment.
Reinstatement or Reinvestment Privilege. If Signature Services is notified prior
to reinvestment, a shareholder who has redeemed Fund shares may, within 120 days
after the date of redemption, reinvest without payment of a sales charge any
part of the redemption proceeds in shares of the same class of the Fund or
another John Hancock fund, subject to the minimum investment limit of that fund.
The proceeds from the redemption of Class A shares may be reinvested at net
asset value without paying a sales charge in Class A shares of the Fund or in
Class A shares of any John Hancock fund. If a CDSC was paid upon a redemption, a
shareholder may reinvest the proceeds from this redemption at net asset value in
additional shares of the class from which the redemption was made. The
shareholder's account will be credited with the amount of any CDSC charged upon
the prior redemption and the new shares will continue to be subject to the CDSC.
The holding period of the shares acquired through reinvestment will, for
purposes of computing the CDSC payable upon a subsequent redemption, include the
holding period of the redeemed shares.
To protect the interests of other investors in the Fund, the Fund may cancel the
reinvestment privilege 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. Also, the Fund may refuse any reinvestment
request.
The Fund may change or cancel its reinvestment policies at any time.
A redemption or exchange of Fund shares is a taxable transaction for Federal
income tax purposes even if the reinvestment privilege is exercised, and any
gain or loss realized by a shareholder on the redemption or other disposition of
Fund shares will be treated for tax purposes as described under the caption "TAX
STATUS".
Retirement plans participating in Merrill Lynch's servicing programs:
Class A shares are available at net asset value for plans with $3 million in
plan assets or 500 eligible employees at the date the Plan Sponsor signs the
Merrill Lynch Recordkeeping Service Agreement. If the plan does not meet either
of these limits, Class A shares are not available.
36
<PAGE>
For participating retirement plans investing in Class B shares, shares will
convert to Class A shares after eight years, or sooner if the plan attains
assets of $5 million (by means of a CDSC-free redemption/purchase at net asset
value).
PURCHASES AND REDEMPTIONS THROUGH THIRD PARTIES
Shares of the Fund may be purchased or redeemed through certain broker-dealers.
Brokers may charge for their services or place limitations on the extent to
which you may use the services of the Fund. The Fund will be deemed to have
received a purchase or redemption order when an authorized broker, or if
applicable, a broker's authorized designee, receives the order. If a broker is
an agent or designee of the Fund, orders are processed at the NAV next
calculated after the broker receives the order. The broker must segregate any
orders it receives after the close of regular trading on the New York Stock
Exchange and transmit those orders to the Fund for execution at NAV next
determined. Some brokers that maintain nominee accounts with the Fund for their
clients charge an annual fee on the average net assets held in such accounts for
accounting, servicing, and distribution services they provide with respect to
the underlying Fund shares. The Adviser, the Fund, and John Hancock Funds, Inc.
(the Fund's principal distributor), share in the expense of these fees.
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 and Class B and Class C.
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.
37
<PAGE>
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.
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.
38
<PAGE>
The Fund will be subject to a 4% non-deductible Federal excise tax on certain
amounts not distributed (and not treated as having been distributed) on a timely
basis in accordance with annual minimum distribution requirements. The Fund
intends under normal circumstances to seek to avoid or minimize liability for
such tax by satisfying such distribution requirements.
Distributions from the Fund's current or accumulated earnings and profits
("E&P") will be taxable under the Code for investors who are subject to tax. If
these distributions are paid from the Fund's "investment company taxable
income," they will be taxable as ordinary income; and if they are paid from the
Fund's "net capital gain," they will be taxable as long term capital gain. (Net
capital gain is the excess (if any) of net long-term capital gain over net
short-term capital loss, and investment company taxable income is all taxable
income and capital gains, other than 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.
39
<PAGE>
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.
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
40
<PAGE>
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
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.
41
<PAGE>
The Fund will be required to report to the Internal Revenue Service (the "IRS")
all taxable distributions to shareholders, as well as gross proceeds from the
redemption or exchange of Fund shares, except in the case of certain exempt
recipients, i.e., corporations and certain other investors distributions to
which are exempt from the information reporting provisions of the Code. Under
the backup withholding provisions of Code Section 3406 and applicable Treasury
regulations, all such reportable distributions and proceeds may be subject to
backup withholding of federal income tax at the rate of 31% in the case of
non-exempt shareholders who fail to furnish a Fund with their correct taxpayer
identification number and certain certifications required by the IRS or if the
IRS or a broker notifies the Fund that the number furnished by the shareholder
is incorrect or that the shareholder is subject to backup withholding as a
result of failure to report interest or dividend income. A Fund may refuse to
accept an application that does not contain any required taxpayer identification
number or certification that the number provided is correct. If the backup
withholding provisions are applicable, any such distributions and proceeds,
whether taken in cash or reinvested in shares, will be reduced by the amounts
required to be withheld. Any amounts withheld may be credited against a
shareholder's U.S. federal income tax liability. Investors should consult their
tax advisers about the applicability of the backup withholding provisions.
Different tax treatment, including penalties on certain excess contributions and
deferrals, certain pre-retirement and post-retirement distributions and certain
prohibited transactions, is accorded to accounts maintained as qualified
retirement plans. Shareholders should consult their tax advisers for more
information.
Limitations imposed by the Code on regulated investment companies like the Fund
may restrict the Fund's ability to enter into options, 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.
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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. As of December 31, 1999, the average annual returns for
the Fund's Class B shares for the one and five year periods and since inception
on August 22, 1991 were 31.95%, 28.49% and 18.21%, respectively. As of December
31, 1999, the average annual returns for the Fund's Class C shares for the one
year period and since inception on May 1, 1998 were 35.94% and 21.33%,
respectivley.
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.
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In addition to average annual total returns, the Fund may quote unaveraged or
cumulative total returns reflecting the simple change in value of an investment
over a stated period. Cumulative total returns may be quoted as a percentage or
as a dollar amount, and may be calculated for a single investment, a series of
investments, and/or a series of redemptions, over any time period. Total returns
may be quoted with or without taking the Fund's maximum sales charge on Class A
or Class C shares or the CDSC on Class B or Class C shares into account.
Excluding the Fund's sales charge on Class A shares and the CDSC on Class B or
Class C shares from a total return calculation produces a higher total return
figure.
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.
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.
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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.
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.
45
<PAGE>
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.
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
46
<PAGE>
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 Service
an annual fee of $19.00 for each Class A shareholder account, $21.50 for each
Class B shareholder account and $20.50 for each Class C shareholder account. The
Fund pays certain out-of-pocket expenses and these expenses are aggregated and
charged to the Fund and allocated to each class on the basis of their relative
net asset values.
CUSTODY OF PORTFOLIO
Portfolio securities of the Fund are held pursuant to a custodian agreement
between the Fund and Investors Bank & Trust Company, 200 Clarendon Street,
Boston, Massachusetts 02116. Under the custodian agreement, Investor Bank &
Trust Company performs custody, portfolio and fund accounting services.
INDEPENDENT AUDITORS
Ernst & Young LLP, 200 Clarendon Street, Boston, Massachusetts 02116, has been
selected as the independent auditors of the Fund. The financial statements of
the Fund included in the Prospectus and this Statement of Additional Information
have been audited by Ernst & Young LLP for the periods indicated in their report
thereon appearing elsewhere herein, and are included in reliance upon such
report given upon the authority of such firm as experts in accounting and
auditing.
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APPENDIX-A
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
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FINANCIAL STATEMENTS
The financial statements listed below are included in the Fund's 1999 Annual
Report to Shareholders for the year ended December 31, 1999; (filed
electronically on February 28, 2000, accession number 0000928816-00-000114) and
are included in and incorporated by reference into Part B of the Registration
Statement for John Hancock Large Cap Value Fund (file nos. 811-00560 and
2-10156).
John Hancock Investment Trust
John Hancock Large Cap Value Fund
Statement of Assets and Liabilities as of December 31, 1999.
Statement of Operations for the year ended December 31, 1999.
Statement of Changes in Net Asset for each of the two years in the period
then ended.
Notes to Financial Statements.
Financial Highlights for each of the five years in the period ended
December 31, 1999.
Schedule of Investments as of December 31, 1999.
Report of Independent Auditors.
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