JOHN HANCOCK
International/
Global Funds
[LOGO]
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Prospectus
August 30, 1996
This prospectus gives vital information about these funds. For your own benefit
and protection, please read it before you invest, and keep it on hand for future
reference.
Please note that these funds:
o are not bank deposits
o are not federally insured
o are not endorsed by any bank
or government agency
o are not guaranteed to achieve their goal(s)
Short-Term Strategic Income Fund may invest up to 67% in junk bonds; read risk
information carefully.
Like all mutual fund shares, these securities have not been approved or
disapproved by the Securities and Exchange Commission or any state securities
commission, nor has the Securities and Exchange Commission or any state
securities commission passed upon the accuracy or adequacy of this prospectus.
Any representation to the contrary is a criminal offense.
Growth
Global Fund
Global Marketplace Fund
Global Rx Fund
Global Technology Fund
International Fund
Pacific Basin Equities Fund
Income
Short-Term Strategic Income Fund
World Bond Fund
[LOGO] JOHN HANCOCK FUNDS
A Global Investment Management Firm
101 Huntington Avenue, Boston, Massachusetts 02199-7603
<PAGE>
Contents
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A fund-by-fund look at goals, strategies, risks, expenses and financial history.
[LOGO] Growth
Global Fund 4
Global Marketplace Fund 6
Global Rx Fund 8
Global Technology Fund 10
International Fund 12
Pacific Basin Equities Fund 14
[LOGO] Income
Short-Term Strategic Income Fund 16
World Bond Fund 18
Policies and instructions for opening, maintaining and closing an account in any
international/global fund.
Your account
Choosing a share class 20
How sales charges are calculated 20
Sales charge reductions and waivers 21
Opening an account 22
Buying shares 23
Selling shares 24
Transaction policies 26
Dividends and account policies 26
Additional investor services 27
Details that apply to the international/global funds as a group.
Fund details
Business structure 28
Sales compensation 29
More about risk 31
For more information back cover
<PAGE>
Overview
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GOAL OF THE INTERNATIONAL/GLOBAL FUNDS
John Hancock international/global funds invest in foreign and U.S. securities.
Most of the funds invest primarily in stocks and seek long-term growth of
capital. Two funds invest primarily in bonds and seek current income or maximum
total return. Each fund employs its own strategy and has its own risk/reward
profile. Because you could lose money by investing in these funds, be sure to
read all risk disclosure carefully before investing.
WHO MAY WANT TO INVEST
These funds may be appropriate for investors who:
o are seeking to diversify a portfolio of domestic investments
o are seeking access to markets that can be less accessible to individual
investors
o are seeking funds for the growth or income portion of an asset allocation
portfolio
o are investing for goals that are many years in the future
International/global funds may NOT be appropriate if you:
o are investing with a shorter time horizon in mind
o are uncomfortable with an investment whose value may vary substantially
o want to limit your exposure to foreign securities
THE MANAGEMENT FIRM
All John Hancock international/global funds are managed by John Hancock
Advisers, Inc. Founded in 1968, John Hancock Advisers is a wholly owned
subsidiary of John Hancock Mutual Life Insurance Company and manages more than
$19 billion in assets.
FUND INFORMATION KEY
Concise fund-by-fund descriptions begin on the next page. Each description
provides the following information:
[LOGO] Goal and strategy The fund's particular investment goals and the
strategies it intends to use in pursuing those goals.
[LOGO] Portfolio securities The primary types of securities in which the fund
invests. Secondary investments are described in "More about risk" at the
end of the prospectus.
[LOGO] Risk factors The major risk factors associated with the fund.
[LOGO] Portfolio management The individual or group (including subadvisers, if
any) designated by the investment adviser to handle the fund's
day-to-day management.
[LOGO] Expenses The overall costs borne by an investor in the fund, including
sales charges and annual expenses.
[LOGO] Financial highlights A table showing the fund's financial performance
for up to ten years, by share class. A bar chart showing total return
allows you to compare the fund's historical risk level to those of other
funds.
<PAGE>
Global Fund
REGISTRANT NAME: FREEDOM INVESTMENT TRUST II TICKER SYMBOL CLASS A: JHGAX
CLASS B: FGLOX
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GOAL AND STRATEGY
[LOGO] The fund seeks long-term growth of capital. To pursue this goal, the fund
invests primarily in common stocks of foreign and U.S. companies. The fund
maintains a diversified portfolio of company and government securities from
around the world. Under normal circumstances, the fund expects to invest in the
securities markets of at least three countries at any one time, potentially
including the U.S.
The fund does not maintain a fixed allocation of assets, either with respect to
securities type or to geography.
PORTFOLIO SECURITIES
[LOGO] Under normal circumstances, the fund invests at least 65% of assets in
common stocks and convertible securities, but may invest in virtually any type
of security, foreign or domestic, including preferred and convertible
securities, warrants and investment-grade debt securities. Not counting
short-term securities, the fund generally expects that no more than 5% of assets
will be invested in debt securities.
For liquidity and flexibility, the fund may place up to 35% of assets in
investment-grade short-term securities. In abnormal market conditions, it may
invest up to 100% in these securities as a defensive tactic. The fund also may
invest in certain higher-risk securities, and may engage in other investment
practices.
RISK FACTORS
[LOGO] As with any growth fund, the value of your investment will fluctuate in
response to stock market movements.
Because it invests internationally, the fund carries additional risks, including
currency, information, natural event and political risks. These risks, which may
make the fund more volatile than a comparable domestic growth fund, are defined
in "More about risk" starting on page 31. The risks of international investing
are higher in emerging markets such as those of Latin America, Southeast Asia
and Eastern Europe.
To the extent that the fund utilizes higher-risk securities and practices, it
takes on further risks that could adversely affect its performance. Please read
"More about risk" carefully before investing.
MANAGEMENT/SUBADVISER
[LOGO] John L.F. Wills, leader of the fund's portfolio management team, is a
vice president of the adviser and managing director of the subadviser, John
Hancock Advisers International. He joined John Hancock Funds in 1987 and has
been in the investment business since 1969.
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INVESTOR EXPENSES
[LOGO] Fund investors pay various expenses, either directly or indirectly. The
figures below show the expenses for the past year, adjusted to reflect any
changes. Future expenses may be greater or less.
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Shareholder transaction expenses Class A Class B
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Maximum sales charge imposed on purchases
(as a percentage of offering price) 5.00% none
Maximum sales charge imposed on
reinvested dividends none none
Maximum deferred sales charge none(1) 5.00%
Redemption fee(2) none none
Exchange fee none none
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Annual fund operating expenses (as a % of average net assets)
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Management fee(3) 0.96% 0.96%
12b-1 fee(4) 0.30% 1.00%
Other expenses 0.61% 0.61%
Total fund operating expenses 1.87% 2.57%
Example The table below shows what you would pay if you invested $1,000 over the
various time frames indicated. The example assumes you reinvested all dividends
and that the average annual return was 5%.
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Share class Year 1 Year 3 Year 5 Year 10
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Class A shares $68 $106 $146 $258
Class B shares
Assuming redemption
at end of period $76 $110 $157 $273
Assuming no redemption $26 $80 $137 $273
This example is for comparison purposes only and is not a representation of the
fund's actual expenses and returns, either past or future.
(1) Except for investments of $1 million or more; see "How sales charges are
calculated."
(2) Does not include wire redemption fee (currently $4.00).
(3) Includes a subadviser fee equal to 0.70% of the fund's net assets.
(4) Because of the 12b-1 fee, long-term shareholders may indirectly pay more
than the equivalent of the maximum permitted front-end sales charge.
4 GROWTH - GLOBAL FUND
<PAGE>
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FINANCIAL HIGHLIGHTS
[LOGO] The figures below have been audited by the fund's independent auditors,
Price Waterhouse LLP.
Volatility, as indicated by Class B year-by-year total investment return (%)
[The following table was presented as a graph in the printed document]
Total
Investment
Return
At Net
Year Asset Value(4)
---- -----------
1987 (8) 35.42(5)
1987 (9) (16.97)(5)
1988 7.05
1989 30.22
1990 (10.42)
1991 14.04
1992 (3.85)
1993 34.95
1994 7.97
1995 (1.01)
1996(2) 11.71(5)
<TABLE>
<CAPTION>
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Class A - year ended October 31, 1992(1) 1993 1994 1995 1996(2)
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<S> <C> <C> <C> <C> <C>
Per share operating performance
Net asset value, beginning of period $11.31 $10.55 $14.30 $14.16 $12.67
Net investment income (loss) (0.04)(3) (0.10)(3) (0.07)(3) (0.03)(3) (0.04)
Net realized and unrealized gain (loss) on
investments and foreign currency transactions (0.72) 3.85 1.24 (0.13) 1.48
Total from investment operations (0.76) 3.75 1.17 (0.16) 1.44
Less distributions:
Distributions from net realized gain on investments
sold and foreign currency transactions -- -- (1.31) (1.33) (0.88)
Net asset value, end of period $10.55 $14.30 $14.16 $12.67 $13.23
Total investment return at net asset value(4) (%) (6.72)(5) 35.55 8.64 (0.37) 12.07(5)
Ratios and supplemental data
Net assets, end of period (000s omitted) ($) 76,980 90,787 100,973 93,597 99,606
Ratio of expenses to average net assets (%) 2.47(6) 2.12 1.98 1.87 1.89(6)
Ratio of net investment income (loss) to average
net assets (%) (0.60)(6) (0.86) (0.54) (0.23) (0.69)(6)
Portfolio turnover rate (%) 69 108 61 60 40
Average brokerage commission rate(7) ($) N/A N/A N/A N/A 0.02
</TABLE>
<TABLE>
<CAPTION>
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Class B - year ended October 31, 1987(8) 1987(9) 1988 1989 1990 1991
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<S> <C> <C> <C> <C> <C> <C>
Per share operating performance
Net asset value, beginning of period $9.60 $13.00 $10.42 $10.67 $13.58 $9.94
Net investment income (loss) 0.08 (0.05) 0.01 (0.10) (0.02) (0.01)(3)
Net realized and unrealized gain
(loss) on investments and foreign
currency transactions 3.32 (2.08) 0.69 3.25 (1.12) 1.35
Total from investment operations 3.40 (2.13) 0.70 3.15 (1.14) 1.34
Less distributions:
Distributions from net
investment income -- (0.12) -- (0.01) -- --
Distributions from net realized
gain on investments sold and
foreign currency transactions -- (0.33) (0.45) (0.23) (2.50) (0.36)
Total distributions -- (0.45) (0.45) (0.24) (2.50) (0.36)
Net asset value, end of period $13.00 $10.42 $10.67 $13.58 $9.94 $10.92
Total investment return at
net asset value(4)(%) 35.42(5) (16.97)(5) 7.05 30.22 (10.42) 14.04
Ratios and supplemental data
Net assets, end of period
(000s omitted)($) 62,264 50,883 34,380 35,596 33,281 28,686
Ratio of expenses to average
net assets (%) 2.38(6) 2.56(6) 2.55 2.30 2.46 2.60
Ratio of net investment income
(loss) to average net assets (%) 0.99(6) (0.78)(6) 0.09 (0.47) (0.59) (0.12)
Portfolio turnover rate (%) 91 81 142 138 58 106
Average brokerage commission
rate(7) ($) N/A N/A N/A N/A N/A N/A
</TABLE>
<TABLE>
<CAPTION>
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Class B - year ended October 31, (continued) 1992 1993 1994 1995 1996(2)
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<S> <C> <C> <C> <C> <C>
Per share operating performance
Net asset value, beginning of period $10.92 $10.50 $14.17 $13.93 $12.36
Net investment income (loss) (0.12)(3) (0.15)(3) (0.15)(3) (0.11)(3) (0.08)
Net realized and unrealized gain
(loss) on investments and foreign
currency transactions (0.30) 3.82 1.22 (0.13) 1.44
Total from investment operations (0.42) 3.67 1.07 (0.24) 1.36
Less distributions:
Distributions from net
investment income -- -- -- -- --
Distributions from net realized
gain on investments sold and
foreign currency transactions -- -- (1.31) (1.33) (0.88)
Total distributions -- -- (1.31) (1.33) (0.88)
Net asset value, end of period $10.50 $14.17 $13.93 $12.36 $12.84
Total investment return at
net asset value(4)(%) (3.85) 34.95 7.97 (1.01) 11.71(5)
Ratios and supplemental data
Net assets, end of period
(000s omitted)($) 11,475 19,340 31,822 24,570 27,201
Ratio of expenses to average
net assets (%) 2.68 2.49 2.59 2.57 2.55(6)
Ratio of net investment income
(loss) to average net assets (%) (1.03) (1.25) (1.12) (0.89) (1.35)(6)
Portfolio turnover rate (%) 69 108 61 60 40
Average brokerage commission
rate(7) ($) N/A N/A N/A N/A 0.02
</TABLE>
(1) Class A shares commenced operations on January 3, 1992.
(2) Six months ended April 30, 1996. (Unaudited.)
(3) Based on the average of the shares outstanding at the end of each month.
(4) Assumes dividend reinvestment and does not reflect the effect of sales
charges.
(5) Not annualized.
(6) Annualized.
(7) Per portfolio share traded. Required for fiscal years that began September
1, 1995 or later.
(8) For the period September 2, 1986 (commencement of operations) to May 31,
1987.
(9) For the period June 1, 1987 to October 31, 1987.
GROWTH - GLOBAL FUND 5
<PAGE>
Global Marketplace Fund
REGISTRANT NAME: JOHN HANCOCK WORLD FUND TICKER SYMBOL CLASS A: JHMBX
CLASS B: JHMBX
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GOAL AND STRATEGY
[LOGO] The fund seeks long-term capital appreciation. To pursue this goal, the
fund invests primarily in foreign and U.S. stocks of companies that merchandise
goods and services to consumers or to consumer companies. The fund seeks
companies of any size that appear to possess a competitive advantage, such as a
unique product or distribution method, new technologies or innovative marketing
or sales methods. Under normal circumstances, the fund invests at least 65% of
assets in these companies, and expects to invest in the securities markets of at
least three countries at any one time, potentially including the U.S.
PORTFOLIO SECURITIES
[LOGO] The fund invests primarily in the common stocks of U.S. and foreign
companies. It also may invest in warrants, preferred stocks and convertible
securities.
For liquidity and flexibility, the fund may invest up to 35% of assets in
investment-grade short-term securities. In abnormal market conditions, it may
invest up to 100% in these securities as a defensive tactic. The fund also may
invest in certain higher-risk securities, and may engage in other investment
practices.
RISK FACTORS
[LOGO] As with any growth fund, the value of your investment will fluctuate in
response to stock market movements. Because the fund concentrates on a single
sector (consumer businesses), its performance may be disproportionately affected
by a few key factors, such as economic conditions and consumer confidence
levels.
Also, because the fund invests internationally, it carries additional risks,
including currency, information, natural event and political risks. These risks,
which may make the fund more volatile than a comparable domestic growth fund,
are defined in "More about risk" starting on page 31.
To the extent that the fund invests in smaller capitalization companies or
emerging markets, or utilizes higher-risk securities and practices, it takes on
further risks that could adversely affect its performance. Please read "More
about risk" carefully before investing.
PORTFOLIO MANAGEMENT
[LOGO] Bernice S. Behar, leader of the fund's portfolio management team since
the fund's inception in September 1994, is a senior vice president of the
adviser. She joined the adviser in 1991 and has been in the investment business
since 1986.
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INVESTOR EXPENSES
[LOGO] Fund investors pay various expenses, either directly or indirectly. The
figures below are based on Class A expenses for the past year, adjusted to
reflect any changes. No Class B shares were issued or outstanding during the
last fiscal year. Future expenses may be greater or less.
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Shareholder transaction expenses Class A Class B
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Maximum sales charge imposed on purchases
(as a percentage of offering price) 5.00% none
Maximum sales charge imposed on
reinvested dividends none none
Maximum deferred sales charge none(1) 5.00%
Redemption fee(2) none none
Exchange fee none none
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Annual fund operating expenses (as a % of average net assets)
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Management fee (after expense limitation)(3) 0.00% 0.00%
12b-1 fee(4) 0.30% 1.00%
Other expenses (after limitation)(3) 1.20% 1.20%
Total fund operating expenses (after limitation)(3) 1.50% 2.20%
Example The table below shows what you would pay
if you invested $1,000 over the various time frames indicated. The example
assumes you reinvested all dividends and that the average annual return was 5%.
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Share class Year 1 Year 3 Year 5 Year 10
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Class A shares $65 $95 $128 $220
Class B shares
Assuming redemption
at end of period $72 $99 $138 $236
Assuming no redemption $22 $69 $118 $236
This example is for comparison purposes only and is not a representation of the
fund's actual expenses and returns, either past or future.
(1) Except for investments of $1 million or more; see "How sales charges are
calculated."
(2) Does not include wire redemption fee (currently $4.00).
(3) Reflects the adviser`s temporary agreement to limit expenses (except for
12b-1 and transfer agent expenses). Without this limitation, management
fees would be 0.80% for each class, other expenses would be 7.92% for each
class and total fund operating expenses would be 9.02% for Class A and
9.72% for Class B.
(4) Because of the 12b-1 fee, long-term shareholders may indirectly pay more
than the equivalent of the maximum permitted front-end sales charge.
6 GROWTH - GLOBAL MARKETPLACE FUND
<PAGE>
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FINANCIAL HIGHLIGHTS
[LOGO] The figures below have been audited by the fund's independent auditors,
Price Waterhouse LLP.
Volatility, as indicated by Class A year-by-year total investment return (%)
[The following table was presented as a graph in the printed document]
Total
Investment
Return
At Net
Year Asset Value(4)
---- -----------
1995(1) 35.61(5)
1996(2) 17.84(5)
<TABLE>
<CAPTION>
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Class A - year ended August 31, 1995(1) 1996(2)
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<S> <C> <C>
Per share operating performance
Net asset value, beginning of period $8.50 $11.49
Net investment income (loss) 0.01(3) (0.05)
Net realized and unrealized gain (loss) on investments and
foreign currency transactions 3.01 2.10
Total from investment operations 3.02 2.05
Less distributions:
Dividends from net investment income (0.01) --
Distributions in excess of net investment income (0.02) --
Total distributions (0.03) --
Net asset value, end of period $11.49 $13.54
Total investment return at net asset value(4) (%) 35.61(5) 17.84(5)
Total adjusted investment return at net asset value(4,6) (%) 28.69(5) 11.37(5)
Ratios and supplemental data
Net assets, end of period (000s omitted)($) 712 1,022
Ratio of expenses to average net assets (%) 1.50(7) 1.50(7)
Ratio of adjusted expenses to average net assets(8) (%) 9.00(7) 14.48(7)
Ratio of net investment income (loss) to average net assets(%) 0.06(7) (0.88)(7)
Ratio of adjusted net investment income (loss) to average net assets(8)(%) (7.44)(7) (13.86)(7)
Portfolio turnover rate (%) 63 86
Fee reduction per share($) 0.65(3) 0.74
Average brokerage commission rate(9)($) N/A 0.00(10)
</TABLE>
<TABLE>
<CAPTION>
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Class B - year ended August 31, 1996(11)
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<S> <C>
Per share operating performance
Net asset value, beginning of period $11.95
Net investment income (loss) (0.02)(3)
Net realized and unrealized gain (loss) on investments and
foreign currency transactions 1.60
Total from investment operations 1.58
Net asset value, end of period $13.53
Total investment return at net asset value(4) (%) 13.22(5)
Total adjusted investment return at net asset value(4,6) (%) 11.94(5)
Ratios and supplemental data
Net assets, end of period (000s omitted) ($) $218
Ratio of expenses to average net assets (%) 2.20(7)
Ratio of adjusted expenses to average net assets(8) (%) 15.18(7)
Ratio of net investment income (loss) to average net assets (%) (1.18)(7)
Ratio of adjusted net investment income (loss) to average net assets(8) (%) (14.16)(7)
Portfolio turnover rate (%) 86
Fee reduction per share ($) 0.74(3)
Average brokerage commission rate(9) ($) 0.00(10)
</TABLE>
(1) Class A shares commenced operations September 29, 1994.
(2) Six months ended February 29, 1996. (Unaudited.)
(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) Per portfolio share traded. Required for fiscal years that began September
1, 1995 or later.
(10) Less than one cent per share.
(11) For the period January 22, 1996 (commencement of operations) to February
29, 1996. (Unaudited.)
GROWTH - GLOBAL MARKETPLACE FUND 7
<PAGE>
Global Rx Fund
REGISTRANT NAME: JOHN HANCOCK WORLD FUND TICKER SYMBOL CLASS A: JHGRX
CLASS B: JHRBX
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GOAL AND STRATEGY
[LOGO] The fund seeks long-term growth of capital. To pursue this goal, the fund
invests primarily in stocks of foreign and U.S. health care companies. The fund
defines health care companies as those deriving at least half of their gross
revenues, or committing at least half of their gross assets, to health
care-related activities. Under normal circumstances, the fund will invest at
least 65% of assets in these companies, including small- and medium-sized
companies. The fund expects to invest in the securities markets of at least
three countries at any one time, potentially including the U.S. Because the fund
is non-diversified, it may invest more than 5% of assets in securities of a
single issuer.
The fund has an independent advisory board composed of scientific and medical
experts to provide advice and consultation on health care developments.
PORTFOLIO SECURITIES
[LOGO] The fund invests primarily in foreign and domestic common stocks, and may
invest in warrants, preferred stocks and convertible debt securities.
For liquidity and flexibility, the fund may place up to 35% of assets in
investment-grade short-term securities. In abnormal market conditions, it may
invest up to 100% in these securities as a defensive tactic. The fund also may
invest in certain higher-risk securities, and may engage in other investment
practices.
RISK FACTORS
[LOGO] As with any growth fund, the value of your investment will fluctuate in
response to stock market movements. Because the fund concentrates on a single
sector (health care), and because this sector has historically been volatile,
investors should expect above-average volatility.
Also, because the fund invests internationally, it carries additional risks,
including currency, information, natural event and political risks. These risks,
which may make the fund more volatile than a comparable domestic growth fund,
are defined in "More about risk" starting on page 31.
To the extent that the fund invests in smaller capitalization companies or
utilizes higher-risk securities and practices, it takes on further risks that
could adversely affect its performance. Please read "More about risk" carefully
before investing.
PORTFOLIO MANAGEMENT
[LOGO] Linda I. Miller, leader of the fund's portfolio management team since
January 1996, is a vice president of the adviser. She joined John Hancock Funds
in November 1995 and has been in the investment business with a focus on the
health care industry since 1980.
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INVESTOR EXPENSES
[LOGO] Fund investors pay various expenses, either directly or indirectly. The
figures below show the expenses for the past year, adjusted to reflect any
changes. Future expenses may be greater or less.
- --------------------------------------------------------------------------------
Shareholder transaction expenses Class A Class B
- --------------------------------------------------------------------------------
Maximum sales charge imposed on purchases
(as a percentage of offering price) 5.00% none
Maximum sales charge imposed on
reinvested dividends none none
Maximum deferred sales charge none(1) 5.00%
Redemption fee(2) none none
Exchange fee none none
- --------------------------------------------------------------------------------
Annual fund operating expenses (as a % of average net assets)
- --------------------------------------------------------------------------------
Management fee 0.80% 0.80%
12b-1 fee(3) 0.30% 1.00%
Other expenses 1.50% 1.50%
Total fund operating expenses 2.60% 3.30%
Example The table below shows what you would pay
if you invested $1,000 over the various time frames indicated. The example
assumes you reinvested all dividends and that the average annual return was 5%.
- --------------------------------------------------------------------------------
Share class Year 1 Year 3 Year 5 Year 10
- --------------------------------------------------------------------------------
Class A shares $75 $127 $181 $329
Class B shares
Assuming redemption
at end of period $83 $132 $192 $344
Assuming no redemption $33 $102 $172 $344
This example is for comparison purposes only and is not a representation of the
fund's actual expenses and returns, either past or future.
(1) Except for investments of $1 million or more; see "How sales charges are
calculated."
(2) Does not include wire redemption fee (currently $4.00).
(3) Because of the 12b-1 fee, long-term shareholders may indirectly pay more
than the equivalent of the maximum permitted front-end sales charge.
8 GROWTH - GLOBAL RX FUND
<PAGE>
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FINANCIAL HIGHLIGHTS
[LOGO] The figures below have been audited by the fund's independent auditors,
Price Waterhouse LLP.
Volatility, as indicated by Class A year-by-year total investment return (%)
[The following table was presented as a graph in the printed document]
Total
Investment
Return
At Net
Year Asset Value(4)
---- -----------
1992(1) 33.40(5)
1993 30.89
1994 23.39
1995 22.16(5)
1996(2) 0.30
<TABLE>
<CAPTION>
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Class A - year ended August 31, 1992(1) 1993 1994 1995 1996(2)
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Per share operating performance
Net asset value, beginning of period $10.00 $13.34 $13.38 $16.51 $21.61
Net investment income (loss) (0.03) (0.23) (0.32) (0.36)(3) (0.12)(3)
Net realized and unrealized gain (loss) on investments and
foreign currency transactions 3.37 0.27 3.45 5.46 4.89
Total from investment operations 3.34 0.04 3.13 5.10 4.77
Less distributions:
Distributions from net realized gain on investments sold and
foreign currency transactions -- -- -- -- (0.14)
Net asset value, end of period $13.34 $13.38 $16.51 $21.61 $26.24
Total investment return at net asset value(4) (%) 33.40(5) 0.30 23.39 30.89 22.16(5)
Total adjusted investment return at net asset value (4,6) (%) 32.11(5) 0.04 -- -- --
Ratios and supplemental data
Net assets, end of period (000s omitted) ($) 14,702 15,647 18,643 24,394 34,719
Ratio of expenses to average net assets (%) 1.98(7) 2.50 2.55 2.56 2.14(7)
Ratio of adjusted expenses to average net assets(8) (%) 3.39(7) 2.76 -- -- --
Ratio of net investment income (loss) to average net assets (%) (0.51)(7) (1.67) (2.01) (1.99) (1.08)(7)
Ratio of adjusted net investment income (loss) to average
net assets(8) (%) (1.92)(7) (1.93) -- -- --
Portfolio turnover rate (%) 48 93 52 38 12
Fee reduction per share ($) 0.085 0.035 -- -- --
Average brokerage commission rate(9) ($) N/A N/A N/A N/A 0.00(10)
</TABLE>
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------------
Class B - year ended August 31, 1994(1) 1995 1996(2)
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Per share operating performance
Net asset value, beginning of period $17.29 $16.46 $21.35
Net investment income (loss) (0.17)(3) (0.55)(3) (0.19)(3)
Net realized and unrealized gain (loss) on investments and
foreign currency transactions (0.66) 5.44 4.81
Total from investment operations (0.83) 4.89 4.62
Less distributions:
Distributions from net realized gain on investments sold and
foreign currency transactions -- -- (0.14)
Net asset value, end of period $16.46 $21.35 $25.83
Total investment return at net asset value(4) (%) (4.80)(5) 29.71 21.73(5)
Ratios and supplemental data
Net assets, end of period (000s omitted) ($) 1,071 6,333 22,185
Ratio of expenses to average net assets (%) 3.34(7) 3.45 2.79(7)
Ratio of net investment income (loss) to average net assets (%) (2.65)(7) (2.91) (1.65)(7)
Portfolio turnover rate (%) 52 38 12
Average brokerage commission rate(9) ($) N/A N/A 0.00(10)
</TABLE>
(1) Class A and Class B shares commenced operations on October 1, 1991 and
March 7, 1994, respectively.
(2) Six months ended February 29, 1996. (Unaudited.)
(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) Per portfolio share traded. Required for fiscal years that began September
1, 1995 or later.
(10) Less than one cent per share.
GROWTH - GLOBAL RX FUND 9
<PAGE>
Global Technology Fund
REGISTRANT NAME: JOHN HANCOCK TECHNOLOGY SERIES, INC. TICKER SYMBOL
CLASS A: NTTFX
CLASS B: FGTBX
- --------------------------------------------------------------------------------
GOAL AND STRATEGY
[LOGO] The fund seeks long-term growth of capital. To pursue this goal, the fund
invests primarily in stocks of foreign and U.S. companies that rely extensively
on technology in their product development or operations. Under normal
circumstances, the fund will invest at least 65% of assets in these companies,
and expects to invest in the securities markets of at least three countries at
any one time, potentially including the U.S. Income is a secondary goal.
PORTFOLIO SECURITIES
[LOGO] The fund invests primarily in foreign and domestic common stocks, and may
invest in warrants, preferred stocks and convertible debt securities. The fund
may invest up to 10% of assets in debt securities of any maturity. These may
include securities rated as low as CC/Ca and their unrated equivalents. Bonds
rated lower than BBB/Baa are considered junk bonds.
For liquidity and flexibility, the fund may place up to 35% of assets in
investment-grade short-term securities. In abnormal market conditions, it may
invest up to 100% in these securities as a defensive tactic. The fund also may
invest in certain higher-risk securities, including restricted securities, and
may engage in other investment practices.
RISK FACTORS
[LOGO] As with any growth fund, the value of your investment will fluctuate in
response to stock market movements. Because the fund concentrates on a single
sector (technology), and because this sector has historically been volatile,
investors should expect above-average volatility.
Also, because the fund invests internationally, it carries additional risks,
including currency, information, natural event and political risks. These risks,
which may make the fund more volatile than a comparable domestic growth fund,
are defined in "More about risk" starting on page 31. The risks of international
investing are higher in emerging markets such as those of Latin America, Asia
and Eastern Europe. To the extent that the fund invests in smaller
capitalization companies or junk bonds, it further increases the chances for
fluctuations in share price and total return. Please read "More about risk"
carefully before investing.
MANAGEMENT/SUBADVISER
[LOGO] Barry J. Gordon and Marc H. Klee lead the fund's management team, as they
have since the fund's inception in 1983. They are principals of American Fund
Advisors, Inc. (AFA), which was the fund's adviser until 1991. Since 1991, AFA
has been the fund's subadviser.
- --------------------------------------------------------------------------------
INVESTOR EXPENSES
[LOGO] Fund investors pay various expenses, either directly or indirectly. The
figures below show the expenses for the past year, adjusted to reflect any
changes. Future expenses may be greater or less.
- --------------------------------------------------------------------------------
Shareholder transaction expenses Class A Class B
- --------------------------------------------------------------------------------
Maximum sales charge imposed on purchases
(as a percentage of offering price) 5.00% none
Maximum sales charge imposed on
reinvested dividends none none
Maximum deferred sales charge none(1) 5.00%
Redemption fee(2) none none
Exchange fee none none
- --------------------------------------------------------------------------------
Annual fund operating expenses (as a % of average net assets)
- --------------------------------------------------------------------------------
Management fee (net of reduction)(3) 0.82% 0.82%
12b-1 fee(4) 0.30% 1.00%
Other expenses 0.55% 0.55%
Total fund operating expenses (net of reduction) 1.67% 2.37%
Example The table below shows what you would pay
if you invested $1,000 over the various time frames indicated. The example
assumes you reinvested all dividends and that the average annual return was 5%.
- --------------------------------------------------------------------------------
Share class Year 1 Year 3 Year 5 Year 10
- --------------------------------------------------------------------------------
Class A shares $66 $100 $136 $238
Class B shares
Assuming redemption
at end of period $74 $104 $147 $253
Assuming no redemption $24 $74 $127 $253
This example is for comparison purposes only and is not a representation of the
fund's actual expenses and returns, either past or future.
(1) Except for investments of $1 million or more; see "How sales charges are
calculated."
(2) Does not include wire redemption fee (currently $4.00).
(3) Includes a subadviser fee that will not exceed 0.40% of the fund's net
assets.
(4) Because of the 12b-1 fee, long-term shareholders may indirectly pay more
than the equivalent of the maximum permitted front-end sales charge.
10 GROWTH - GLOBAL TECHNOLOGY FUND
<PAGE>
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
[LOGO] The figures below have been audited by the fund's independent auditors,
Price Waterhouse LLP.
Volatility, as indicated by Class A year-by-year total investment return (%)
[The following table was presented as a graph in the printed document]
Total
Investment
Return
At Net
Year Asset Value(4)
---- -----------
1986 46.53
1987 33.05
1988 32.06
1989 16.61
1990 9.62
1991 10.48
1992 5.70
1993 2.89
1994 2.84
1995 (18.46)
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
Class A - year ended December 31, 1986 1987 1988 1989 1990
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Per share operating performance
Net asset value, beginning of period $13.57 $13.80 $13.98 $15.31 $16.93
Net investment income (loss) 0.14 0.15 0.15 0.10 (0.04)
Net realized and unrealized gain (loss) on investments
and foreign currency transactions 0.25 0.26 1.32 2.43 (3.09)
Total from investment operations 0.39 0.41 1.47 2.53 (3.13)
Less distributions:
Dividends from net investment income (0.16) (0.23) (0.14) (0.13) --
Distributions from net realized gain on investments
and foreign currency transactions -- -- -- (0.78) (1.36)
Total distributions (0.16) (0.23) (0.14) (0.91) (1.36)
Net asset value, end of period $13.80 $13.98 $15.31 $16.93 $12.44
Total investment return at net asset value(2) (%) 2.89 2.84 10.48 16.61 (18.46)
Total adjusted investment return at net asset value(2,3) -- -- -- -- --
Ratios and supplemental data
Net assets, end of period (000s omitted) ($) 56,927 44,224 38,594 40,341 28,864
Ratio of expenses to average net assets (%) 1.75 1.63 1.75 1.90 2.36
Ratio of adjusted expenses to average net assets(4) (%) -- -- -- -- --
Ratio of net investment income (loss) to average net assets (%) 0.77 0.75 0.89 0.60 (0.28)
Ratio of adjusted net investment income (loss) to
average net assets(4) (%) -- -- -- -- --
Portfolio turnover rate (%) 6 9 12 30 38
Fee reduction per share ($) -- -- -- -- --
Average brokerage commission rate(5) ($) N/A N/A N/A N/A N/A
</TABLE>
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
Class A - year ended December 31, (continued) 1991 1992 1993 1994 1995
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Per share operating performance
Net asset value, beginning of period $12.44 $15.60 $14.94 $17.45 $17.84
Net investment income (loss) 0.05 (0.15) (0.21) (0.22)(1) (0.22)(1)
Net realized and unrealized gain (loss) on investments
and foreign currency transactions 4.11 1.00 4.92 1.87 8.53
Total from investment operations 4.16 0.85 4.71 1.65 8.31
Less distributions:
Dividends from net investment income (0.04) -- -- -- --
Distributions from net realized gain on investments
and foreign currency transactions (0.96) (1.51) (2.20) (1.26) (1.64)
Total distributions (1.00) (1.51) (2.20) (1.26) (1.64)
Net asset value, end of period $15.60 $14.94 $17.45 $17.84 $24.51
Total investment return at net asset value(2) (%) 33.05 5.70 32.06 9.62 46.53
Total adjusted investment return at net asset value(2,3) -- 5.53 -- -- 46.41
Ratios and supplemental data
Net assets, end of period (000s omitted) ($) 31,580 32,094 41,749 52,193 155,001
Ratio of expenses to average net assets (%) 2.32 2.05 2.10 2.16 1.67
Ratio of adjusted expenses to average net assets(4) (%) -- 2.22 -- -- 1.79
Ratio of net investment income (loss) to average net assets (%) 0.34 (0.88) (1.49) (1.25) (0.89)
Ratio of adjusted net investment income (loss) to
average net assets(4) (%) -- (1.05) -- -- (1.01)
Portfolio turnover rate (%) 67 76 86 67 70
Fee reduction per share -- 0.03 -- -- 0.03(1)
Average brokerage commission rate(5) ($) N/A N/A N/A N/A N/A
</TABLE>
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------
Class B - year ended December 31, 1994(6) 1995
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Per share operating performance
Net asset value, beginning of period $17.24 $17.68
Net investment income (loss) (0.35)(1) (0.39)(1)
Net realized and unrealized gain (loss) on investments 2.05 8.43
Total from investment operations 1.70 8.04
Less distributions:
Distributions from net realized gain on investments sold (1.26) (1.64)
Net asset value, end of period $17.68 $24.08
Total investment return at net asset value(2) (%) 10.02 45.42
Total adjusted investment return at net asset value(2,3) -- 45.30
Ratios and supplemental data
Net assets, end of period (000s omitted) ($) 9,324 35,754
Ratio of expenses to average net assets (%) 2.90(7) 2.41
Ratio of adjusted expenses to average net assets(4) (%) -- 2.53
Ratio of net investment income (loss) to average net assets (%) (1.98)(7) (1.62)
Ratio of adjusted net investment income (loss) to
average net assets(4) (%) -- (1.74)
Portfolio turnover rate (%) 67 70
Fee reduction per share ($) -- 0.03(1)
Average brokerage commission rate(5)($) N/A N/A
</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) An estimated total return calculation that does not take into consideration
fee reductions by the adviser during the periods shown.
(4) Unreimbursed, without fee reduction.
(5) Per portfolio share traded. Required for fiscal years that began September
1, 1995 or later.
(6) Class B shares commenced operations on January 3, 1994.
(7) Annualized.
GROWTH - GLOBAL TECHNOLOGY FUND 11
<PAGE>
International Fund
REGISTRANT NAME: FREEDOM INVESTMENT TRUST II TICKER SYMBOL CLASS A: FINAX
CLASS B: FINBX
- --------------------------------------------------------------------------------
GOAL AND STRATEGY
[LOGO] The fund seeks long-term growth of capital. To pursue this goal, the fund
invests primarily in stocks of foreign companies. Under normal circumstances,
the fund will invest at least 65% of assets in these companies. The fund
maintains a diversified portfolio of company and government securities from
around the world, and generally expects that at any one time it will invest in
the securities markets of at least three non-U.S. countries.
The fund does not maintain a fixed allocation of assets, either with respect to
securities type or to geography. The fund looks for companies of any size whose
earnings show strong growth or that appear to be undervalued.
PORTFOLIO SECURITIES
[LOGO] Under normal circumstances, the fund invests primarily in common stocks
and other equity securities, but may invest in almost any type of security,
foreign or domestic, including preferred and convertible securities, warrants
and investment-grade debt securities.
For liquidity and flexibility, the fund may place up to 35% of assets in
investment-grade short-term securities. In abnormal market conditions, it may
invest up to 100% in these securities as a defensive tactic. The fund also may
invest in certain higher-risk securities, and may engage in other investment
practices.
RISK FACTORS
[LOGO] As with any growth fund, the value of your investment will fluctuate in
response to stock market movements.
Because it invests internationally, the fund carries additional risks, including
currency, information, natural event and political risks. These risks, which may
make the fund more volatile than a comparable domestic growth fund, are defined
in "More about risk" starting on page 31. The risks of international investing
are higher in emerging markets such as those of Latin America, Asia and Eastern
Europe.
To the extent that the fund invests in smaller capitalization companies or
utilizes higher-risk securities and practices, it takes on further risks that
could adversely affect its performance. Please read "More about risk" carefully
before investing.
MANAGEMENT/SUBADVISER
[LOGO] John L.F. Wills, leader of the fund's portfolio management team, is a
vice president of the adviser and managing director of the subadviser, John
Hancock Advisers International. He joined John Hancock Funds in 1987 and has
been in the investment business since 1969.
- --------------------------------------------------------------------------------
INVESTOR EXPENSES
[LOGO] Fund investors pay various expenses, either directly or indirectly. The
figures below show the expenses for the past year, adjusted to reflect any
changes. Future expenses may be greater or less.
- --------------------------------------------------------------------------------
Shareholder transaction expenses Class A Class B
- --------------------------------------------------------------------------------
Maximum sales charge imposed on purchases
(as a percentage of offering price) 5.00% none
Maximum sales charge imposed on
reinvested dividends none none
Maximum deferred sales charge none(1) 5.00%
Redemption fee(2) none none
Exchange fee none none
- --------------------------------------------------------------------------------
Annual fund operating expenses (as a % of average net assets)
- --------------------------------------------------------------------------------
Management fee (after expense limitation)(3,4) 0.00% 0.00%
12b-1 fee(5) 0.30% 1.00%
Other expenses (after limitation)(3) 1.42% 1.42%
Total fund operating expenses (after limitation)(3) 1.72% 2.42%
Example The table below shows what you would pay
if you invested $1,000 over the various time frames indicated. The example
assumes you reinvested all dividends and that the average annual return was 5%.
- --------------------------------------------------------------------------------
Share class Year 1 Year 3 Year 5 Year 10
- --------------------------------------------------------------------------------
Class A shares $67 $101 $139 $243
Class B shares
Assuming redemption
at end of period $75 $105 $149 $258
Assuming no redemption $25 $75 $129 $258
This example is for comparison purposes only and is not a representation of the
fund's actual expenses and returns, either past or future.
(1) Except for investments of $1 million or more; see "How sales charges are
calculated."
(2) Does not include wire redemption fee (currently $4.00).
(3) Reflects the adviser`s temporary agreement to limit expenses (except for
12b-1 and transfer agent expenses). Without this limitation, management
fees would be 1.00% for each class, other expenses would be 3.58% for each
class and total fund operating expenses would be 4.88% for Class A and
5.58% for Class B.
(4) Includes a subadviser fee equal to 0.70% of the fund's net assets.
(5) Because of the 12b-1 fee, long-term shareholders may indirectly pay more
than the equivalent of the maximum permitted front-end sales charge.
12 GROWTH - INTERNATIONAL FUND
<PAGE>
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
[LOGO] The figures below have been audited by the fund's independent auditors,
Price Waterhouse LLP.
Volatility, as indicated by Class A year-by-year total investment return (%)
[The following table was presented as a graph in the printed document]
Total
Investment
Return
At Net
Year Asset Value(4)
---- -----------
1994(1) 9.09(5)
1995 1.77(5)
1996(2) (4.96)
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------
Class A - year ended October 31, 1994(1) 1995 1996(2)
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Per share operating performance
Net asset value, beginning of period $8.50 $8.65 $8.14
Net investment income (loss) 0.07(3) 0.04 0.02(3)
Net realized and unrealized gain (loss) on investments and
foreign currency transactions 0.08 (0.47) 0.72
Total from investment operations 0.15 (0.43) 0.74
Less distributions:
Dividends from net investment income -- (0.03) --
Distributions from net realized gain on investments
sold and foreign currency transactions -- (0.05) --
Total distributions -- (0.08) --
Net asset value, end of period $8.65 $8.14 $8.88
Total investment return at net asset value(4) (%) 1.77(5) (4.96) 9.09(5)
Total adjusted investment return at net asset value(4,6) (%) (0.52)(5) (8.12) 8.37(5)
Ratios and supplemental data
Net assets, end of period (000s omitted) ($) 4,426 4,215 6,076
Ratio of expenses to average net assets (%) 1.50(7) 1.64 1.69(7)
Ratio of adjusted expenses to average net assets(8) (%) 3.79(7) 4.80 3.12(7)
Ratio of net investment income (loss) to average net assets (%) 1.02(7) 0.56 0.40(7)
Ratio of adjusted net investment income (loss) to average
net assets(8) (%) (1.27)(7) (2.60) (1.03)(7)
Portfolio turnover rate (%) 50 69 34
Fee reduction per share ($) 0.16(3) 0.25 0.07(3)
Average brokerage commission rate(9) ($) N/A N/A 0.00(10)
</TABLE>
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------
Class B - year ended October 31, 1994(1) 1995 1996(2)
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Per share operating performance
Net asset value, beginning of period $8.50 $8.61 $8.05
Net investment income (loss) 0.02(3) (0.03) (0.01)(3)
Net realized and unrealized gain (loss) on investments and
foreign currency transactions 0.09 (0.48) 0.72
Total from investment operations 0.11 (0.51) 0.71
Less distributions:
Distributions from net realized gain on investments
sold and foreign currency transactions -- (0.05) --
Net asset value, end of period $8.61 $8.05 $8.76
Total investment return at net asset value(4) (%) 1.29(5) (5.89) 8.82(5)
Total adjusted investment return at net asset value(4,6) (%) (1.00)(5) (9.05) 8.10(5)
Ratios and supplemental data
Net assets, end of period (000s omitted) ($) 3,948 3,990 8,192
Ratio of expenses to average net assets (%) 2.22(7) 2.52 2.39(7)
Ratio of adjusted expenses to average net assets(8) (%) 4.51(7) 5.68 3.82(7)
Ratio of net investment income (loss) to average net assets (%) 0.31(7) (0.37) (0.25)(7)
Ratio of adjusted net investment income (loss) to average
net assets(8) (%) (1.98)(7) (3.53) (1.68)(7)
Portfolio turnover rate (%) 50 69 34
Fee reduction per share ($) 0.16(3) 0.25 0.07(3)
Average brokerage commission rate(9) ($) N/A N/A 0.00(10)
</TABLE>
(1) Class A and Class B shares commenced operations on January 3, 1994.
(2) Six months ended April 30, 1996. (Unaudited.)
(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) Per portfolio share traded. Required for fiscal years that began September
1, 1995 or later.
(10) Less than one cent per share.
GROWTH - INTERNATIONAL FUND 13
<PAGE>
Pacific Basin Equities Fund
REGISTRANT NAME: JOHN HANCOCK WORLD FUND TICKER SYMBOL CLASS A: JHWPX
CLASS B: FPBBX
- --------------------------------------------------------------------------------
GOAL AND STRATEGY
[LOGO] The fund seeks long-term growth of capital. To pursue this goal, the fund
invests primarily in a diversified portfolio of stocks of companies located in
countries bordering the Pacific Ocean. Under normal circumstances, the fund will
invest at least 65% of assets in these companies, with the balance invested in
equities of companies not in the Pacific Basin countries and in investment-grade
debt securities of U.S., Japanese, Australian and New Zealand issuers.
The fund does not maintain a fixed allocation of assets. The fund may at times
invest less than 65% of assets in Pacific Basin equities.
PORTFOLIO SECURITIES
[LOGO] Under normal circumstances, the fund invests primarily in common stocks
and other equity securities, but may invest in virtually any type of security,
foreign or domestic, including preferred and convertible securities, warrants
and investment-grade debt securities.
For liquidity and flexibility, the fund may place up to 35% of assets in
investment-grade short-term securities. In abnormal market conditions, it may
invest up to 100% in these securities as a defensive tactic. The fund also may
invest in certain higher-risk securities, and may engage in other investment
practices.
RISK FACTORS
[LOGO] As with any growth fund, the value of your investment will fluctuate in
response to stock market movements. Because the fund concentrates on one region,
investors should expect above-average volatility.
Also, because the fund invests internationally, it carries additional risks,
including currency, information, natural event and political risks. These risks,
which may make the fund more volatile than a comparable domestic growth fund,
are defined in "More about risk" starting on page 31. The risks of international
investing are higher in emerging markets, a category that includes many Pacific
Basin countries.
To the extent that the fund utilizes higher-risk securities practices, it takes
on further risks that could adversely affect its performance. Please read "More
about risk" carefully before investing.
MANAGEMENT/SUBADVISERS
[LOGO] The fund's management is carried out jointly by the adviser's
international equities portfolio management team and two subadvisers, Indosuez
Asia Advisers Limited and John Hancock Advisers International. Indosuez is
majority owned by Caisse Nationale de Credit Agricole, a French banking
institution.
- --------------------------------------------------------------------------------
INVESTOR EXPENSES
[LOGO] Fund investors pay various expenses, either directly or indirectly. The
figures below show the expenses for the past year, adjusted to reflect any
changes. Future expenses may be greater or less.
- --------------------------------------------------------------------------------
Shareholder transaction expenses Class A Class B
- --------------------------------------------------------------------------------
Maximum sales charge imposed on purchases
(as a percentage of offering price) 5.00% none
Maximum sales charge imposed on
reinvested dividends none none
Maximum deferred sales charge none(1) 5.00%
Redemption fee(2) none none
Exchange fee none none
- --------------------------------------------------------------------------------
Annual fund operating expenses (as a % of average net assets)
- --------------------------------------------------------------------------------
Management fee(3) 0.80% 0.80%
12b-1 fee(4) 0.30% 1.00%
Other expenses 0.97% 0.97%
Total fund operating expenses 2.07% 2.77%
Example The table below shows what you would pay
if you invested $1,000 over the various time frames indicated. The example
assumes you reinvested all dividends and that the average annual return was 5%.
- --------------------------------------------------------------------------------
Share class Year 1 Year 3 Year 5 Year 10
- --------------------------------------------------------------------------------
Class A shares $70 $112 $156 $278
Class B shares
Assuming redemption
at end of period $78 $116 $166 $293
Assuming no redemption $28 $86 $146 $293
This example is for comparison purposes only and is not a representation of the
fund's actual expenses and returns, either past or future.
(1) Except for investments of $1 million or more; see "How sales charges are
calculated."
(2) Does not include wire redemption fee (currently $4.00).
(3) Includes a subadviser fee equal to 0.35% of the fund's net assets.
(4) Because of the 12b-1 fee, long-term shareholders may indirectly pay more
than the equivalent of the maximum permitted front-end sales charge.
14 GROWTH - PACIFIC BASIN EQUITIES FUND
<PAGE>
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
[LOGO] The figures below have been audited by the fund's independent auditors,
Price Waterhouse LLP.
Volatility, as indicated by Class A year-by-year total investment return (%)
[The following table was presented as a graph in the printed document]
Total
Investment
Return
At Net
Year Asset Value(4)
---- -----------
1988(1) 49.61
1989 22.82
1990 18.06
1991 7.80(6)
1992 (3.61)(6)
1993 (1.99)
1994 (0.44)
1995 (2.15)
1996(2) (7.65)
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Class A - year ended August 31, 1988(1) 1989 1990 1991 1992
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Per share operating performance
Net asset value, beginning of period $10.00 $9.61 $11.10 $10.34 $9.05
Net investment income (loss) 0.01 (0.02) (0.04) (0.01) (0.07)(3)
Net realized and unrealized gain (loss) on investments and
foreign currency transactions (0.37) 1.75 0.11 (0.33) (0.11)
Total from investment operations (0.36) 1.73 0.07 (0.34) (0.18)
Less distributions:
Dividends from net investment income (0.03) (0.01) -- -- --
Distributions from net realized gain on investments sold
and foreign currency transactions -- (0.23) (0.83) (0.95) --
Total distributions (0.03) (0.24) (0.83) (0.95) --
Net asset value, end of period $9.61 $11.10 $10.34 $9.05 $8.87
Total investment return at net asset value(5) (%) (3.61)(6) 18.06 (0.44) (2.15) (1.99)
Total adjusted investment return at net asset value(5,7) (%) (8.05)(6) 15.12 (2.86) (5.19) (5.57)
Ratios and supplemental data
Net assets, end of period (000s omitted) ($) 4,771 5,116 4,578 4,065 3,222
Ratio of expenses to average net assets (%) 1.75(8) 1.75 2.45 2.75 2.73
Ratio of adjusted expenses to average net assets(9) (%) 6.19(8) 4.69 4.89 5.79 6.31
Ratio of net investment income (loss) to average net assets (%) 0.04(8) (0.15) (0.28) (0.06) (0.82)
Ratio of adjusted net investment income (loss) to average
net assets(9) (%) (4.40)(8) (3.09) (2.70) (3.10) (4.40)
Portfolio turnover rate (%) 148 227 154 151 179
Fee reduction per share ($) 1.15 0.39 0.31 0.24 0.31(3)
Average brokerage commission rate(10) ($) N/A N/A N/A N/A N/A
</TABLE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Class A - year ended August 31, (continued) 1993 1994 1995 1996(2)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Per share operating performance
Net asset value, beginning of period $8.87 $13.27 $15.88 $14.11
Net investment income (loss) (0.11)(3) (0.10)(3) 0.02(3,4) (0.02)(3)
Net realized and unrealized gain (loss) on investments and
foreign currency transactions 4.51 3.12 (1.24) 1.12
Total from investment operations 4.40 3.02 (1.22) 1.10
Less distributions:
Dividends from net investment income -- -- -- --
Distributions from net realized gain on investments sold
and foreign currency transactions -- (0.41) (0.55) --
Total distributions -- (0.41) (0.55) --
Net asset value, end of period $13.27 $15.88 $14.11 $15.21
Total investment return at net asset value(5) (%) 49.61 22.82 (7.65) 7.80(6)
Total adjusted investment return at net asset value(5,7) (%) 48.31 -- -- --
Ratios and supplemental data
Net assets, end of period (000s omitted) ($) 14,568 50,261 37,417 43,051
Ratio of expenses to average net assets (%) 2.94 2.43 2.05 2.12(8)
Ratio of adjusted expenses to average net assets(9) (%) 4.24 -- -- --
Ratio of net investment income (loss) to average net assets (%) (0.98) (0.66) 0.13(4) (0.30)(8)
Ratio of adjusted net investment income (loss) to average
net assets(9) (%) (2.28) -- -- --
Portfolio turnover rate (%) 171 68 48 26
Fee reduction per share ($) 0.14(3) -- -- --
Average brokerage commission rate(10) ($) N/A N/A N/A 0.01
</TABLE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Class B - year ended August 31, 1994(1) 1995 1996(2)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Per share operating performance
Net asset value, beginning of period $15.11 $15.84 $13.96
Net investment income (loss) (0.09)(3) (0.09)(3) (0.08)(3)
Net realized and unrealized gain (loss) on investments and
foreign currency transactions 0.82 (1.24) 1.12
Total from investment operations 0.73 (1.33) 1.04
Less distributions:
Distributions from net realized gain on investments sold
and foreign currency transactions -- (0.55) --
Net asset value, end of period $15.84 $13.96 $15.00
Total investment return at net asset value(5) (%) (4.83)(6) (8.38) 7.45(6)
Ratios and supplemental data
Net assets, end of period (000s omitted) ($) 9,480 14,368 30,399
Ratio of expenses to average net assets (%) 3.00(8) 2.77 2.84(8)
Ratio of net investment income (loss) to average net assets (%) (1.40)(8) (0.66) (1.09)(8)
Portfolio turnover rate (%) 68 48 26
Average brokerage commission rate(10) ($) N/A N/A 0.01
</TABLE>
(1) Class A and Class B shares commenced operations on September 8, 1987 and
March 7, 1994, respectively.
(2) Six months ended February 29, 1996. (Unaudited.)
(3) Based on the average of the shares outstanding at the end of each month.
(4) May not accord to amounts shown elsewhere in the financial statements due
to the timing of sales and repurchases of fund shares in relation to
fluctuating market values of the investments of the fund.
(5) Assumes dividend reinvestment and does not reflect the effect of sales
charges.
(6) Not annualized.
(7) An estimated total return calculation that does not take into consideration
fee reductions by the adviser during the periods shown.
(8) Annualized.
(9) Unreimbursed, without fee reduction.
(10) Per portfolio share traded. Required for fiscal years that began September
1, 1995 or later.
GROWTH - PACIFIC BASIN EQUITIES FUND 15
<PAGE>
Short-Term Strategic Income Fund
REGISTRANT NAME: FREEDOM INVESTMENT TRUST II TICKER SYMBOL CLASS A: JHSAX
CLASS B: FRSWX
- --------------------------------------------------------------------------------
GOAL AND STRATEGY
[LOGO] The fund seeks a high level of current income. To pursue this goal, the
fund invests primarily in debt securities issued or guaranteed by:
o foreign governments and companies including those in emerging markets
o the U.S. Government, its agencies or instrumentalities
o U.S. companies
Under normal circumstances, the fund will invest assets in all three of these
sectors, but may invest up to 100% in any one sector. The fund maintains an
average portfolio maturity of three years or less.
PORTFOLIO SECURITIES
[LOGO] The fund may invest in all types of debt securities. The fund's U.S.
Government securities may include mortgage-backed securities. The fund may
invest up to 67% of assets in securities rated as low as B and their unrated
equivalents. Bonds rated lower than BBB/Baa are considered junk bonds. However,
the fund maintains an average portfolio quality rating of A, which is an
investment-grade rating.
Because the fund is non-diversified, it may invest more than 5% of assets in
securities of a single issuer, but no more than 25% of assets in the securities
of any one foreign government. The fund also may invest in certain other
investments, including derivatives, and may engage in other investment
practices.
RISK FACTORS
[LOGO] The value of your investment in the fund will fluctuate with changes in
currency exchange rates as well as interest rates. Typically, a rise in interest
rates causes a decline in the market value of fixed income securities.
International investing, particularly in emerging markets, carries additional
risks, including currency information, natural event and political risks. Junk
bonds may carry above-average credit and market risks and mortgage-backed
securities may carry extension and prepayment risks. These risks are defined in
"More about risk" starting on page 31.
To the extent that the fund utilizes higher-risk securities practices, it takes
on further risks that could adversely affect its performance. Please read "More
about risk" carefully before investing.
PORTFOLIO MANAGEMENT
[LOGO] Anthony A. Goodchild, Lawrence J. Daly and Janet L. Clay lead the
portfolio management team. Messrs. Goodchild and Daly are senior vice presidents
and joined John Hancock Funds in July 1994, having been in the investment
business since 1968 and 1972, respectively. Ms. Clay, a second vice president,
joined John Hancock Funds in August 1995 and has been in the investment business
since 1990.
- --------------------------------------------------------------------------------
INVESTOR EXPENSES
[LOGO] Fund investors pay various expenses, either directly or indirectly. The
figures below show the expenses for the past year, adjusted to reflect any
changes. Future expenses may be greater or less.
- --------------------------------------------------------------------------------
Shareholder transaction expenses Class A Class B
- --------------------------------------------------------------------------------
Maximum sales charge imposed on purchases
(as a percentage of offering price) 3.00% none
Maximum sales charge imposed on
reinvested dividends none none
Maximum deferred sales charge none(1) 3.00%
Redemption fee(2) none none
Exchange fee none none
- --------------------------------------------------------------------------------
Annual fund operating expenses (as a % of average net assets)
- --------------------------------------------------------------------------------
Management fee 0.65% 0.65%
12b-1 fee(3) 0.30% 1.00%
Other expenses 0.42% 0.42%
Total fund operating expenses 1.37% 2.07%
Example The table below shows what you would pay
if you invested $1,000 over the various time frames indicated. The example
assumes you reinvested all dividends and that the average annual return was 5%.
- --------------------------------------------------------------------------------
Share class Year 1 Year 3 Year 5 Year 10
- --------------------------------------------------------------------------------
Class A shares $44 $72 $103 $190
Class B shares
Assuming redemption
at end of period $51 $85 $111 $198
Assuming no redemption $21 $65 $111 $198
This example is for comparison purposes only and is not a representation of the
fund's actual expenses and returns, either past or future.
(1) Except for investments of $1 million or more; see "How sales charges are
calculated."
(2) Does not include wire redemption fee (currently $4.00).
(3) Because of the 12b-1 fee, long-term shareholders may indirectly pay more
than the equivalent of the maximum permitted front-end sales charge.
16 INCOME - SHORT-TERM STRATEGIC INCOME FUND
<PAGE>
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
[LOGO] The figures below have been audited by the fund's independent auditors,
Price Waterhouse LLP.
Volatility, as indicated by Class B year-by-year total investment return (%)
[The following table was presented as a graph in the printed document]
Total
Investment
Return
At Net
Year Asset Value(4)
---- -----------
1991(1) 8.85(5)
1992 7.97
1993 5.98
1994 1.93
1995 3.77(6)
1996(2) 0.64
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Class A - year ended October 31, 1992(1) 1993 1994 1995 1996(2)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Per share operating performance
Net asset value, beginning of period $9.86 $9.32 $9.12 $8.47 $8.41
Net investment income (loss) 0.65 0.83(3) 0.76(3) 0.77(3) 0.33(3)
Net realized and unrealized gain (loss) on investments and
foreign currency transactions (0.55) (0.20) (0.53) (0.06) 0.01
Total from investment operations 0.10 0.63 0.23 0.71 0.34
Less distributions:
Dividends from net investment income (0.64) (0.83) (0.62) (0.61) (0.34)
Distributions in excess of net investment income -- -- (0.04) -- --
Distributions in excess of net realized gain on investments sold -- -- (0.12) -- --
Distributions from capital paid-in -- -- (0.10) (0.16) --
Total distributions (0.64) (0.83) (0.88) (0.77) (0.34)
Net asset value, end of period $9.32 $9.12 $8.47 $8.41 $8.41
Total investment return at net asset value(4) (%) 1.16(5) 6.78 2.64 8.75 4.10(6)
Ratios and supplemental data
Net assets, end of period (000s omitted) ($) 20,468 11,130 13,091 16,997 34,290
Ratio of expenses to average net assets (%) 1.37(5) 1.21 1.26 1.33 1.40(5)
Ratio of net investment income (loss) to average net assets (%) 8.09(5) 8.59 8.71 9.13 8.05(5)
Portfolio turnover rate (%) 86 306 150 147 39
</TABLE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Class B - year ended October 31, 1991(1) 1992 1993 1994 1995 1996(2)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Per share operating performance
Net asset value, beginning of period $10.00 $10.01 $9.31 $9.11 $8.46 $8.40
Net investment income (loss) 0.76 0.87 0.75(3) 0.70(3) 0.70(3) 0.31(3)
Net realized and unrealized gain
(loss) on investments and
foreign currency transactions 0.01 (0.80) (0.20) (0.53) (0.06) 0.00
Total from investment operations 0.77 0.07 0.55 0.17 0.64 0.31
Less distributions:
Dividends from net investment income (0.76) (0.77) (0.75) (0.56) (0.56) (0.31)
Distributions in excess of net investment income -- -- -- (0.04) -- --
Distributions in excess of net realized gain
on investments sold -- -- -- (0.12) -- --
Distributions from capital paid-in -- -- -- (0.10) (0.14) --
Total distributions (0.76) (0.77) (0.75) (0.82) (0.70) (0.31)
Net asset value, end of period $10.01 $9.31 $9.11 $8.46 $8.40 $8.40
Total investment return at net asset value(4) (%) 8.85(5) 0.64 5.98 1.93 7.97 3.77(6)
Total adjusted investment return at net asset value(4,7) (%) 8.81(5) -- -- -- -- --
Ratios and supplemental data
Net assets, end of period (000s omitted) ($) 218,562 236,059 142,873 98,390 84,601 64,684
Ratio of expenses to average net assets (%) 1.89(5) 2.07 2.01 1.99 2.07 2.06(5)
Ratio of adjusted expenses to average net assets(8) (%) 1.93(5) -- -- -- -- --
Ratio of net investment income (loss) to average net assets (%) 8.72(5) 8.69 7.81 8.00 8.40 7.44(5)
Ratio of adjusted net investment income (loss) to average
net assets(8) (%) 8.68(5) -- -- -- -- --
Portfolio turnover rate (%) 22 86 306 150 147 39
Fee reduction per share ($) 0.0039 -- -- -- -- --
</TABLE>
(1) Class A and Class B shares commenced operations on January 3, 1992 and
December 28,1990, respectively.
(2) Six months ended April 30, 1996. (Unaudited.)
(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) Annualized.
(6) Not annualized.
(7) An estimated total return calculation that does not take into consideration
fee reductions by the adviser during the periods shown.
(8) Unreimbursed, without fee reduction.
INCOME - SHORT-TERM STRATEGIC INCOME FUND 17
<PAGE>
World Bond Fund
REGISTRANT NAME: FREEDOM INVESTMENT TRUST II TICKER SYMBOL CLASS A: FGLAX
CLASS B: FGLIX
- --------------------------------------------------------------------------------
GOAL AND STRATEGY
[LOGO] The fund seeks a high total investment return -- a combination of current
income and capital appreciation. To pursue this goal, the fund invests at least
65% of assets in debt securities issued or guaranteed by:
o foreign governments and companies including those in emerging markets
o multinational organizations such as the World Bank
o the U.S. Government, its agencies or instrumentalities
Under normal circumstances, the fund expects to invest in the securities markets
of at least three countries at any one time, potentially including the U.S. The
fund does not maintain a fixed allocation of assets.
PORTFOLIO SECURITIES
[LOGO] The fund may invest in all types of debt securities of any maturity,
including preferred and convertible securities. Less than 35% of assets may be
invested in junk bonds rated as low as CCC/Caa, or equivalent.
Because the fund is non-diversified, it may invest more than 5% of assets in
securities of a single issuer, but no more than 25% of assets in the securities
of any one foreign government.
For liquidity and flexibility, the fund may place up to 35% of assets in
investment-grade short-term securities. In abnormal market conditions, it may
invest more assets in these securities as a defensive tactic. The fund also may
invest in certain other investments, including derivatives, and may engage in
other investment practices.
RISK FACTORS
[LOGO] As with most bond funds, the value of your investment in the fund will
fluctuate with changes in interest rates. Typically, a rise in interest rates
causes a decline in the market value of fixed income securities.
International investing, particularly in emerging markets, carries additional
risks, including currency, information, natural event and political risks. Junk
bonds may carry above-average credit and market risks and mortgage-backed
securities may carry extension and prepayment risks. These risks are defined in
"More about risk" starting on page 31.
To the extent that the fund utilizes higher-risk securities practices, it takes
on further risks that could adversely affect its performance. Please read "More
about risk" carefully before investing.
PORTFOLIO MANAGEMENT
[LOGO] Anthony A. Goodchild, Lawrence J. Daly and Janet L. Clay lead the
portfolio management team. Messrs. Goodchild and Daly are senior vice presidents
and joined John Hancock Funds in July 1994, having been in the investment
business since 1968 and 1972, respectively. Ms. Clay, a second vice president,
joined John Hancock Funds in August 1995 and has been in the investment business
since 1990.
- --------------------------------------------------------------------------------
INVESTOR EXPENSES
[LOGO] Fund investors pay various expenses, either directly or indirectly. The
figures below show the expenses for the past year, adjusted to reflect any
changes. Future expenses may be greater or less.
- --------------------------------------------------------------------------------
Shareholder transaction expenses Class A Class B
- --------------------------------------------------------------------------------
Maximum sales charge imposed on purchases
(as a percentage of offering price) 4.50% none
Maximum sales charge imposed on
reinvested dividends none none
Maximum deferred sales charge none(1) 5.00%
Redemption fee(2) none none
Exchange fee none none
- --------------------------------------------------------------------------------
Annual fund operating expenses (as a % of average net assets)
- --------------------------------------------------------------------------------
Management fee 0.75% 0.75%
12b-1 fee(3) 0.30% 1.00%
Other expenses 0.43% 0.43%
Total fund operating expenses 1.48% 2.18%
Example The table below shows what you would pay
if you invested $1,000 over the various time frames indicated. The example
assumes you reinvested all dividends and that the average annual return was 5%.
- --------------------------------------------------------------------------------
Share class Year 1 Year 3 Year 5 Year 10
- --------------------------------------------------------------------------------
Class A shares $59 $90 $122 $214
Class B shares
Assuming redemption
at end of period $72 $98 $137 $234
Assuming no redemption $22 $68 $117 $234
This example is for comparison purposes only and is not a representation of the
fund's actual expenses and returns, either past or future.
(1) Except for investments of $1 million or more; see "How sales charges are
calculated."
(2) Does not include wire redemption fee (currently $4.00).
(3) Because of the 12b-1 fee, long-term shareholders may indirectly pay more
than the equivalent of the maximum permitted front-end sales charge.
18 INCOME - WORLD BOND FUND
<PAGE>
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
[LOGO] The figures below have been audited by the fund's independent auditors,
Price Waterhouse LLP.
Volatility, as indicated by Class B year-by-year total investment return (%)
[The following table was presented as a graph in the printed document]
Total
Investment
Return
At Net
Year Asset Value(4)
---- -----------
1987(7) 65.96(5)
1987(8) 1.59(5)
1988 20.09
1989 5.47
1990 11.84
1991 10.44
1992 1.72
1993 6.77
1994 (1.88)
1995 11.51
1996(2) 0.30(6)
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------------
Class A - year ended October 31, 1992(1) 1993 1994 1995 1996(2)
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Per share operating performance
Net asset value, beginning of period $10.57 $9.76 $9.62 $8.85 $9.30
Net investment income (loss) 0.64 0.76 0.64(3) 0.57(3) 0.25(3)
Net realized and unrealized gain (loss) on
investments and foreign currency transactions (0.74) (0.10) (0.78) 0.48 (0.19)
Total from investment operations (0.10) 0.66 (0.14) 1.05 0.06
Less distributions:
Dividends from net investment income (0.71) (0.38) (0.11) (0.59) (0.25)
Distributions in excess of net investment income -- (0.04) -- -- --
Distributions from capital paid-in -- (0.38) (0.52) (0.01) --
Total distributions (0.71) (0.80) (0.63) (0.60) (0.25)
Net asset value, end of period $9.76 $9.62 $8.85 $9.30 $9.11
Total investment return at net asset value(4) (%) (0.88)(5) 7.14 (1.30) 12.25 0.63(6)
Ratios and supplemental data
Net assets, end of period (000s omitted) ($) 12,880 12,882 8,949 35,334 31,336
Ratio of expenses to average net assets (%) 1.41(5) 1.46 1.59 1.48 1.56(5)
Ratio of net investment income (loss) to average
net assets (%) 7.64(5) 7.89 7.00 6.43 5.38(5)
Portfolio turnover rate (%) 476 363 174 263 141
</TABLE>
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------
Class B - year ended October 31, 1987(7) 1987(8) 1988 1989 1990 1991
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Per share operating performance
Net asset value, beginning of period $9.60 $10.79 $10.32 $10.98 $10.21 $10.38
Net investment income (loss) 0.31 0.25 0.67 0.83 0.85 0.90
Net realized and unrealized gain (loss) on investments
and foreign currency transactions 1.29 (0.18) 1.31 (0.27) 0.28 0.13
Total from investment operations 1.60 0.07 1.98 0.56 1.13 1.03
Less distributions:
Dividends from net investment income (0.26) (0.28) (0.68) (0.84) (0.85) (0.73)
Distributions from net realized gain on investments (0.15) (0.26) (0.64) (0.49) -- (0.24)
Distributions in excess of net investment income -- -- -- -- -- --
Distributions from capital paid-in -- -- -- -- (0.11) --
Total distributions (0.41) (0.54) (1.32) (1.33) (0.96) (0.97)
Net asset value, end of period $10.79 $10.32 $10.98 $10.21 $10.38 $10.44
Total investment return at net asset value(4) (%) 65.96(5) 1.59(5) 20.09 5.47 11.84 10.44
Ratios and supplemental data
Net assets, end of period (000s omitted) ($) 18,253 58,658 174,833 255,214 186,524 192,687
Ratio of expenses to average net assets (%) 2.41(5) 2.19(5) 1.74 1.75 1.82 1.90
Ratio of net investment income (loss) to average
net assets (%) 8.69(5) 6.32(5) 6.04 8.07 8.67 8.74
Portfolio turnover rate (%) 140(5) 152(5) 364 333 186 159
</TABLE>
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
Class B - year ended October 31, (continued) 1992 1993 1994 1995 1996(2)
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Per share operating performance
Net asset value, beginning of period $10.44 $9.74 $9.62 $8.85 $9.30
Net investment income (loss) 0.78 0.72 0.59(3) 0.55(3) 0.22(3)
Net realized and unrealized gain (loss) on investments
and foreign currency transactions (0.59) (0.09) (0.78) 0.44 (0.19)
Total from investment operations 0.19 0.63 (0.19) 0.99 0.03
Less distributions:
Dividends from net investment income (0.89) (0.33) (0.06) (0.53) (0.22)
Distributions from net realized gain on investments -- -- -- -- --
Distributions in excess of net investment income -- (0.04) -- -- --
Distributions from capital paid-in -- (0.38) (0.52) (0.01) --
Total distributions (0.89) (0.75) (0.58) (0.54) (0.22)
Net asset value, end of period $9.74 $9.62 $8.85 $9.30 $9.11
Total investment return at net asset value(4) (%) 1.72 6.77 (1.88) 11.51 0.30(6)
Ratios and supplemental data
Net assets, end of period (000s omitted) ($) 199,102 197,166 114,656 65,600 53,963
Ratio of expenses to average net assets (%) 1.91 1.91 2.17 2.16 2.22(5)
Ratio of net investment income (loss) to average
net assets (%) 7.59 7.45 6.41 6.03 4.72(5)
Portfolio turnover rate (%) 476 363 174 263 141
</TABLE>
(1) Class A shares commenced operations on January 3, 1992.
(2) Six months ended April 30, 1996. (Unaudited.)
(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) Annualized.
(6) Not annualized.
(7) For the period December 17, 1986 (commencement of operations) to May 31,
1987.
(8) For the period June 1, 1987 to October 31, 1987.
INCOME - WORLD BOND FUND 19
<PAGE>
Your account
- --------------------------------------------------------------------------------
CHOOSING A SHARE CLASS
All John Hancock international/global funds offer two classes of shares, Class A
and Class B. Each class has its own cost structure, allowing you to choose the
one that best meets your requirements. Your financial representative can help
you decide.
- --------------------------------------------------------------------------------
Class A Class B
- --------------------------------------------------------------------------------
o Front-end sales charges, as o No front-end sales charge;
described below. There are all your money goes to
several ways to reduce work for you right away.
these charges, also o Higher annual expenses
described below. than Class A shares.
o Lower annual expenses o A deferred sales charge, as
than Class B shares. described below.
o Automatic conversion to
Class A shares after eight
years (five years for Short-
Term Strategic Income
Fund), thus reducing future
annual expenses.
For actual past expenses of Class A and B shares, see the fund-by-fund
information earlier in this prospectus.
- --------------------------------------------------------------------------------
HOW SALES CHARGES ARE CALCULATED
Class A Sales charges are as follows:
- --------------------------------------------------------------------------------
Class A sales charges - Short-Term Strategic Income
- --------------------------------------------------------------------------------
As a % of As a % of your
Your investment offering price investment
Up to $99,999 3.00% 3.09%
$100,000 - $499,999 2.50% 2.56%
$500,000 - $999,999 2.00% 2.04%
$1,000,000 and over See below
- --------------------------------------------------------------------------------
Class A sales charges - World Bond
- --------------------------------------------------------------------------------
As a % of As a % of your
Your investment offering price investment
Up to $99,999 4.50% 4.71%
$100,000 - $249,999 3.75% 3.90%
$250,000 - $499,999 2.75% 2.83%
$500,000 - $999,999 2.00% 2.04%
$1,000,000 and over See below
- --------------------------------------------------------------------------------
Class A sales charges - growth funds
- --------------------------------------------------------------------------------
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
Investments of $1 million or more Class A shares are available with no front-end
sales charge. However, there is a contingent deferred sales charge (CDSC) on any
shares sold within one year of purchase, as follows:
- --------------------------------------------------------------------------------
CDSC on $1 million+ investments (all funds)
- --------------------------------------------------------------------------------
Your investment CDSC on shares 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 LAST day of that month.
The CDSC is based on the lesser of the original purchase cost or the current
market value of the shares being sold, and is not charged on shares you acquired
by reinvesting your dividends. To keep your CDSC as low as possible, each time
you place a request to sell shares we will first sell any shares in your account
that are not subject to a CDSC.
20 YOUR ACCOUNT
<PAGE>
Class B Shares are offered at their net asset value per share, without any
initial sales charge. However, there is a contingent deferred sales charge
(CDSC) on shares you sell within a certain time after you bought them, as
described in the table 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 longer
the time between the purchase and the sale of shares, the lower the rate of the
CDSC:
- --------------------------------------------------------------------------------
Class B deferred charges
- --------------------------------------------------------------------------------
Years after CDSC on Short-Term CDSC on all
purchase Strategic Income other fund shares
shares being sold being sold
1st year 3.00% 5.00%
2nd year 2.00% 4.00%
3rd year 2.00% 3.00%
4th year 1.00% 3.00%
5th year None 2.00%
6th year None 1.00%
After 6 years None None
For purposes of this CDSC, all purchases made during a calendar month are
counted as having been made on the FIRST day of that month.
CDSC calculations are based on the number of shares involved, not on the value
of your account. To keep your CDSC as low as possible, each time you place a
request to sell shares we will first sell any shares in your account that carry
no CDSC. If there are not enough of these to meet your request, we will sell
those shares that have the lowest CDSC.
- --------------------------------------------------------------------------------
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.
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 Investor Services to add these options (see the
back cover of this prospectus).
Group Investment Program Allows established groups of four or more investors to
invest as a group. Each investor has an individual account, but for sales charge
purposes the group's investments are lumped together, making the investors
potentially eligible for reduced sales charges. There is no charge, no
obligation to invest (although initial aggregate investments must be at least
$250) and you may terminate the program at any time.
To utilize: contact your financial representative or Investor Services to find
out how to qualify.
CDSC waivers As long as Investor Services is notified at the time you sell, the
CDSC for either share class will generally be waived in the following cases:
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 Investor Services, or consult the SAI (see the back
cover of this prospectus).
Reinstatement privilege If you sell shares of a John Hancock fund, you may
invest some or all of the proceeds in the same share class of any John Hancock
fund within 120 days without a sales charge. If you paid a CDSC when you sold
your shares, you will be credited with the amount of the CDSC. All accounts
involved must have the same registration.
To utilize: contact your financial representative or Investor Services.
YOUR ACCOUNT 21
<PAGE>
Waivers for certain investors Class A shares may be offered without front-end
sales charges or CDSCs to various individuals and institutions, including:
o government entities that are prohibited from paying mutual fund sales
charges
o financial institutions or common trust funds investing $1 million or more
for non-discretionary accounts
o selling brokers and their employees and sales representatives
o financial representatives utilizing fund shares in fee-based investment
products under 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 to a John Hancock growth fund from an
employee benefit plan that has John Hancock funds
o members of an approved affinity group financial services program
o certain insurance company contract holders (one-year CDSC usually applies)
o participants in certain retirement plans with at least 100 members
(one-year CDSC applies)
o clients of AFA, when their funds are transferred directly to Global
Technology Fund from accounts managed by AFA
o certain former shareholders of John Hancock National Aviation & Technology
Fund and Nova Fund (applies to Global Technology Fund only).
To utilize: if you think you may be eligible for a sales charge waiver, contact
Investor Services or consult the SAI.
- --------------------------------------------------------------------------------
OPENING AN ACCOUNT
1 Read this prospectus carefully.
2 Determine how much you want to invest. The minimum initial investments for
the John Hancock funds are as follows:
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
3 Complete the appropriate parts of the account application, carefully
following the instructions. If you have questions, please contact your
financial representative or call Investor Services at 1-800-225-5291.
4 Complete the appropriate parts of the account privileges section of the
application. By applying for privileges now, you can avoid the delay and
inconvenience of having to file an additional application if you want to
add privileges later.
5 Make your initial investment using the table on the next page. You can
initiate any purchase, exchange or sale of shares through your financial
representative.
22 YOUR ACCOUNT
<PAGE>
- --------------------------------------------------------------------------------
Buying shares
- --------------------------------------------------------------------------------
Opening an account
By check
[LOGO]
o Make out a check for the investment amount, payable to "John Hancock
Investor Services Corporation."
o Deliver the check and your completed application to your financial
representative, or mail them to Investor Services (address below).
By exchange
[LOGO]
o Call your financial representative or Investor Services to request an
exchange.
By wire
[LOGO]
o Deliver your completed application to your financial representative, or
mail it to Investor Services.
o Obtain your account number by calling your financial representative or
Investor 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 phone
[LOGO]
See "By wire" and "By exchange."
Adding to an account
By check
[LOGO]
o Make out a check for the investment amount payable to "John Hancock
Investor Services Corporation."
o Fill out the detachable investment slip from an account statement. If no
slip is available, include a note specifying the fund name, your share
class, your account number and the name(s) in which the account is
registered.
o Deliver the check and your investment slip or note to your financial
representative, or mail them to Investor Services (address below).
By exchange
[LOGO]
o Call Investor Services to request an exchange.
By wire
[LOGO]
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 share class, your account number and the
name(s) in which the account is registered. Your bank may charge a fee to
wire funds.
By phone
[LOGO]
o Verify that your bank or credit union is a member of the Automated Clearing
House (ACH) system.
o Complete the "Invest-By-Phone" and "Bank Information" sections on your
account application.
o Call Investor Services to verify that these features are in place on your
account.
o Tell the Investor Services representative the fund name, your share class,
your account number, the name(s) in which the account is registered and the
amount of your investment.
- --------------------------------------------------------------------------------
Address
John Hancock Investor Services Corporation
P.O. Box 9116 Boston, MA 02205-9116
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 23
<PAGE>
- --------------------------------------------------------------------------------
Selling shares
- --------------------------------------------------------------------------------
Designed for
- --------------------------------------------------------------------------------
By letter
- --------------------------------------------------------------------------------
[LOGO]
o Accounts of any type.
o Sales of any amount.
- --------------------------------------------------------------------------------
By phone
- --------------------------------------------------------------------------------
[LOGO]
o Most accounts.
o Sales of up to $100,000.
- --------------------------------------------------------------------------------
By wire or electronic funds transfer (EFT)
- --------------------------------------------------------------------------------
[LOGO]
o Requests by letter to sell any amount (accounts of any type).
o Requests by phone to sell up to $100,000 (accounts with telephone
redemption privileges).
- --------------------------------------------------------------------------------
By exchange
- --------------------------------------------------------------------------------
[LOGO]
o Accounts of any type.
o Sales of any amount.
- --------------------------------------------------------------------------------
By check
- --------------------------------------------------------------------------------
[LOGO]
o Short-Term Strategic Income Fund only.
o Any account with checkwriting privileges.
o Sales of over $100.
To sell some or all of your shares
- --------------------------------------------------------------------------------
By letter
- --------------------------------------------------------------------------------
[LOGO]
o Write a letter of instruction or complete a stock power indicating the fund
name, your share class, your account number, the name(s) in which the
account is registered and the dollar value or number of shares you wish to
sell.
o Include all signatures and any additional documents that may be required
(see next page).
o Mail the materials to Investor 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
- --------------------------------------------------------------------------------
[LOGO]
o For automated service 24 hours a day using your touch-tone phone, call the
EASI-Line at 1-800-338-8080.
o To place your order with a representative at John Hancock Funds, call
Investor Services between 8 A.M. and 4 P.M. on most business days.
- --------------------------------------------------------------------------------
By wire or electronic funds transfer (EFT)
- --------------------------------------------------------------------------------
[LOGO]
o Fill out the "Telephone Redemption" section of your new account
application.
o To verify that the telephone redemption privilege is in place on an
account, or to request the forms to add it to an existing account, call
Investor Services.
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
- --------------------------------------------------------------------------------
[LOGO]
o Obtain a current prospectus for the fund into which you are exchanging by
calling your financial representative or Investor Services.
o Call Investor Services to request an exchange.
- --------------------------------------------------------------------------------
By check
- --------------------------------------------------------------------------------
[LOGO]
o Request checkwriting on your account application.
o Verify that the shares to be sold were purchased more than 15 days earlier
or were purchased by wire.
o Write a check for any amount over $100.
- --------------------------------------------------------------------------------
Address
John Hancock Investor Services Corporation
P.O. Box 9116 Boston, MA 02205-9116
Phone number
1-800-225-5291
Or contact your financial representative for instructions and assistance.
- --------------------------------------------------------------------------------
To sell shares through a systematic withdrawal plan, see "Additional investor
services."
24 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, 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
o you are requesting payment other than by a check mailed to the address of
record and payable to the registered owner(s)
You can generally obtain a signature guarantee from the following sources:
o a broker or securities dealer
o a federal savings, cooperative or other type of bank
o a savings and loan or other thrift institution
o a credit union
o a securities exchange or clearing agency
A notary public CANNOT provide a signature guarantee.
- --------------------------------------------------------------------------------
Seller Requirements for written requests
- --------------------------------------------------------------------------------
[LOGO]
Owners of individual, joint, sole o Letter of instruction.
proprietorship, UGMA/UTMA
(custodial accounts for minors) or o On the letter, the signatures and
general partner accounts. titles 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 or association o Letter of instruction.
accounts.
o Corporate resolution, certified
within the past 90 days.
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 o Letter of instruction.
accounts.
o On the letter, the signature(s) of
the trustee(s).
o If the names of all trustees are not
registered on the account, please
also provide a copy of the trust
document certified within the past
60 days.
o Signature guarantee if applicable
(see above).
Joint tenancy shareholders whose o Letter of instruction signed by
co-tenants are deceased. surviving tenant.
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.
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.
YOUR ACCOUNT 25
<PAGE>
- --------------------------------------------------------------------------------
TRANSACTION POLICIES
Valuation of shares The net asset value per share (NAV) for each fund and class
is determined each business day at the close of regular trading on the New York
Stock Exchange (typically 4 P.M. Eastern Time) by dividing a class's net assets
by the number of its shares outstanding.
Buy and sell prices When you buy shares, you pay the NAV plus any applicable
sales charges, as described earlier. When you sell shares, you receive the NAV
minus any applicable deferred sales charges.
Execution of requests Each fund is open on those days when the New York Stock
Exchange is open, typically Monday through Friday. Buy and sell requests are
executed at the next NAV to be calculated after your request is accepted by
Investor Services.
At times of peak activity, it may be difficult to place requests by phone.
During these times, consider using EASI-Line or sending your request in writing.
In unusual circumstances, any fund may temporarily suspend the processing of
sell requests, or may postpone payment of proceeds for up to three business days
or longer, as allowed by federal securities laws.
Telephone transactions For your protection, telephone requests may be recorded
in order to verify their accuracy. In addition, Investor Services will take
measures to verify the identity of the caller, such as asking for name, account
number, Social Security or other taxpayer ID number and other relevant
information. If appropriate measures are not taken, Investor Services is
responsible for any losses that may occur to any account due to an unauthorized
telephone call. Also for your protection, telephone transactions are not
permitted on accounts whose names or addresses have changed within the past 30
days. Proceeds from telephone transactions can only be mailed to the address of
record.
Exchanges You may exchange shares of one John Hancock fund for shares of the
same class of any other, generally without paying any additional sales charges.
Class B shares will continue to age from the original date and will retain the
same CDSC rate as they had before the exchange, except that the rate will change
to that of the new fund if the new fund's rate is higher. A CDSC rate that has
increased will drop again with a future exchange into a fund with a lower rate.
To protect the interests of other investors in the fund, a fund may cancel the
exchange privileges of any parties that, in the opinion of the fund, are using
market timing strategies or making more than seven exchanges per owner or
controlling party per calendar year. A fund may change or cancel its exchange
privilege at any time, upon 60 days' notice to its shareholders. A fund may also
refuse any exchange order.
Certificated shares Most shares are electronically recorded. If you wish to have
certificates for your shares, please write to Investor Services. Certificated
shares can only be sold by returning the certificates to Investor Services,
along with a letter of instruction or a stock power and a signature guarantee.
Sales in advance of purchase payments When you place a request to sell shares
for which the purchase money has not yet been collected, the request will be
executed in a timely fashion, but the fund will not release the proceeds to you
until your purchase payment clears. This may take up to ten calendar days after
the purchase.
Foreign currencies Purchases must be made in U.S. dollars. Purchases in foreign
currencies must be converted, which may result in a fee and delayed execution.
Eligibility by state You may only invest in, or exchange into, fund shares
legally available in your state.
- --------------------------------------------------------------------------------
DIVIDENDS AND ACCOUNT POLICIES
Account statements In general, you will receive account statements as follows:
o after every transaction (except a dividend reinvestment) that affects your
account balance
o after any changes of name or address of the registered owner(s)
o in all other circumstances, every quarter
Every year you should also receive, if applicable, a Form 1099 tax information
statement, mailed by January 31.
26 YOUR ACCOUNT
<PAGE>
Dividends The income funds generally declare income dividends daily and pay them
monthly. These income dividends begin accruing the day after payment is received
by the fund and continue through the day your shares are actually sold. The
growth funds pay income dividends, if any, annually. All funds distribute
capital gains, if any, annually.
Dividend reinvestments Most investors have their dividends reinvested in
additional shares of the same fund and class. If you choose this option, or if
you do not indicate any choice, your dividends will be reinvested on the
dividend record date. Alternatively, you can choose to have a check for your
dividends mailed to you. However, if the check is not deliverable, your
dividends will be reinvested.
Taxability of dividends As long as a fund meets the requirements for being a
tax-qualified regulated investment company, which each fund has in the past and
intends to in the future, it pays no federal income tax on the earnings it
distributes to shareholders.
Consequently, dividends you receive from a fund, whether reinvested or taken as
cash, are generally considered taxable. Dividends from a fund's long-term
capital gains are taxable as capital gains; dividends from other sources are
generally taxable as ordinary income.
Some dividends paid in January may be taxable as if they had been paid the
previous December. Corporations may be entitled to take a dividends-received
deduction for a portion of certain dividends they receive from the growth funds.
The Form 1099 that is mailed to you every January details your dividends and
their federal tax category, although you should verify your tax liability with
your tax professional.
Taxability of transactions Any time you sell or exchange shares, it is
considered a taxable event for you. Depending on the purchase price and the sale
price of the shares you sell or exchange, you may have a gain or a loss on the
transaction. You are responsible for any tax liabilities generated by your
transactions.
Small accounts (non-retirement only) If you draw down a non-retirement account
so that its total value is less than $1,000, you may be asked to purchase more
shares within 30 days. If you do not take action, your fund may close out your
account and mail you the proceeds. Alternatively, Investor Services may charge
you $10 a year to maintain your account. You will not be charged a CDSC if your
account is closed for this reason, and your account will not be closed if its
drop in value is due to fund performance or the effects of sales charges.
- --------------------------------------------------------------------------------
ADDITIONAL INVESTOR SERVICES
Monthly Automatic Accumulation Program (MAAP) MAAP lets you set up regular
investments from your paycheck or bank account to the John Hancock fund(s) of
your choice. You determine the frequency and amount of your investments, and you
can terminate your program at any time. To establish:
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 Investor Services
Corporation." Deliver your check and application to your financial
representative or Investor Services.
Systematic withdrawal plan This plan may be used for routine bill payment or
periodic withdrawals from your account. To establish:
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 Investor Services.
Retirement plans John Hancock Funds offers a range of qualified retirement
plans, including IRAs, SEPs, SARSEPs, 401(k) plans, 403(b) plans (including
TSAs) and other pension and profit-sharing plans. Using these plans, you can
invest in any John Hancock fund with a low minimum investment of $250 or, for
some group plans, no minimum investment at all. To find out more, call Investor
Services at 1-800-225-5291.
YOUR ACCOUNT 27
<PAGE>
Fund details
- --------------------------------------------------------------------------------
BUSINESS STRUCTURE
How the funds are organized Each John Hancock international/global fund is an
open-end management investment company or a series of such a company.
Each fund is supervised by a board of trustees or a board of directors, an
independent body that has ultimate responsibility for the fund's activities. The
board retains various companies to carry out the fund's operations, including
the investment adviser, custodian, transfer agent and others (see diagram). The
board has the right, and the obligation, to terminate the fund's relationship
with any of these companies and to retain a different company if the board
believes it is in the shareholders' best interests.
At a mutual fund's inception, the initial shareholder (typically the adviser)
appoints the fund's board. Thereafter, the board and the shareholders determine
the board's membership. The boards of the John Hancock international/global
funds may include individuals who are affiliated with the investment adviser.
However, the majority of board members must be independent.
The funds do not hold annual shareholder meetings, but may hold special meetings
for such purposes as electing or removing board members, changing fundamental
policies, approving a management contract or approving a 12b-1 plan (12b-1 fees
are explained in "Sales compensation").
{The following table was presented as a flow chart in the printed document]
--------------------------------------
Shareholders
--------------------------------------
--------------------------------------
Financial service firms and
their representatives
Distribution and
shareholder services
Advise current and prospective
shareholders on their fund investments,
often in the context of an overall
financial plan.
--------------------------------------
--------------------------- -----------------------------
Principle distributor Transfer agent
John Hancock Funds, Inc. John Hancock Investor
101 Huntington Avenue Services Corporation
Boston, MA 02199-7603 P.O. Box 9116
Boston, MA 02205-9116
Markets the funds and
distributes shares through Handles shareholder services,
selling brokers, financial including record-keeping and
planners and other financial statements, distribution of
representatives. dividends and processing of
buy and sell requests
--------------------------- -----------------------------
<TABLE>
<CAPTION>
Asset management
- ------------------------------- ----------------------------- -------------------------------------
<S> <C> <C>
Subadvisers Investment Adviser Custodians
American Fund Advisers, Inc. John Hancock Advisers, Inc. Investors Bank & Trust Co.
1415 Kellum Place 101 Huntington Avenue 89 South Street
Garden City, NY 11530 Boston, MA 02199-7603 Boston, MA 02111
John Hancock Advisers Manages the funds' business State Street Bank and Trust Company
International Limited and investment activities. 225 Franklin Street
34 Dover Street Boston, MA 02110
London, UK W1X3Ra
Hold the funds' assets, settle
Indosuez Asia Advisers Limited all portfolio trades and
One Exchange Square collect most of the valuation
Hong Kong data required for calculating
each fund's NAV.
Provide portfolio management
to certain funds.
- ------------------------------- ----------------------------- -------------------------------------
</TABLE>
--------------------------------
Trustees/Directors
Supervise the funds' activities.
--------------------------------
28 FUND DETAILS
<PAGE>
Accounting compensation The funds compensate the adviser for performing tax and
financial management services. Annual compensation for 1996 will not exceed
0.02% of each fund's average net assets.
Portfolio trades In placing portfolio trades, the adviser may use brokerage
firms that market the fund's shares or are affiliated with John Hancock Mutual
Life Insurance Company, but only when the adviser believes no other firm offers
a better combination of quality execution (i.e., timeliness and completeness)
and favorable price.
Investment goals Except for Global Rx Fund, International Fund and World Bond
Fund, each fund's investment goal is fundamental and may only be changed with
shareholder approval.
Diversification Except for Global Rx Fund, Short-Term Strategic Income Fund and
World Bond Fund, all of the international/global funds are diversified.
- --------------------------------------------------------------------------------
SALES COMPENSATION
As part of their business strategies, the funds, along with John Hancock Funds,
pay compensation to financial services firms that sell the funds' shares. These
firms typically pass along a portion of this compensation to your financial
representative.
Compensation payments originate from two sources: from sales charges and from
12b-1 fees that are paid out of the fund in assets ("12b-1" refers to the
federal securities regulation authorizing annual fees of this type). The 12b-1
fee rates vary by fund and by share class, according to Rule 12b-1 plans adopted
by the funds' respective boards. The sales charges and 12b-1 fees paid by
investors are detailed in the fund-by-fund information. The portions of these
expenses that are reallowed to financial services firms are shown on the next
page.
Distribution fees may be used to pay for sales compensation to financial
services firms, marketing and overhead expenses and, for Class B shares,
interest expenses.
- --------------------------------------------------------------------------------
Class B unreimbursed distribution expenses(1)
- --------------------------------------------------------------------------------
Unreimbursed As a % of
Fund expenses net assets
Global $ 750,008 2.74%
Global Marketplace $ N/A N/A
Global Rx $ 205,352 6.09%
Global Technology $ 987,619 4.34%
International $ 358,785 9.76%
Pacific Basin Equities $ 749,799 6.06%
Short-Term Strategic Income $ 2,610,556 2.93%
World Bond $ 4,753,035 5.13%
(1) As of the most recent fiscal year end covered by each fund's financial
highlights. These expenses may be carried forward indefinitely.
Initial compensation Whenever you make an investment in a fund or funds, the
financial services firm receives either a reallowance from the initial sales
charge or a commission, as described below. The firm also receives the first
year's service fee at this time.
Annual compensation Beginning with the second year after an investment is made,
the financial services firm receives an annual service fee of 0.25% of its total
eligible net assets. This fee is paid quarterly in arrears. Firms affiliated
with John Hancock, which include Tucker Anthony, Sutro & Company and John
Hancock Distributors, may receive an additional fee of up to 0.05% a year of
their total eligible net assets.
To compensate for continuing services, John Hancock Funds will pay Merrill
Lynch, Pierce, Fenner & Smith, Inc. an annual fee equal to 0.15% of the value of
Class A shares held by its customers for more than four years.
FUND DETAILS 29
- --------------------------------------------------------------------------------
Class A investments
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Maximum
Sales charge reallowance First year Maximum
paid by investors or commission service fee total compensation(1)
(% of offering price) (% of offering price) (% of net investment) (% of offering price)
<S> <C> <C> <C> <C>
Short-Term Strategic Income Fund
Up to $99,999 3.00% 2.26% 0.25% 2.50%
$100,000 - $499,999 2.50% 2.01% 0.25% 2.25%
$500,000 - $999,999 2.00% 1.51% 0.25% 1.75%
World Bond Fund
Up to $99,999 4.50% 3.76% 0.25% 4.00%
$100,000 - $249,999 3.75% 3.01% 0.25% 3.25%
$250,000 - $499,999 2.75% 2.06% 0.25% 2.30%
$500,000 - $999,999 2.00% 1.51% 0.25% 1.75%
Growth funds
Up to $49,999 5.00% 4.01% 0.25% 4.25%
$50,000 - $99,999 4.50% 3.51% 0.25% 3.75%
$100,000 - $249,999 3.50% 2.61% 0.25% 2.85%
$250,000 - $499,999 2.50% 1.86% 0.25% 2.10%
$500,000 - $999,999 2.00% 1.36% 0.25% 1.60%
Regular investments of
$1 million or more (all funds)
First $1M - $4,999,999 -- 0.75% 0.25% 1.00%
Next $1 - $5M above that -- 0.25% 0.25% 0.50%
Next $1 and more above that -- 0.00% 0.25% 0.25%
Waiver investments(2) -- 0.00% 0.25% 0.25%
</TABLE>
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Class B investments
- --------------------------------------------------------------------------------
Maximum
reallowance First year Maximum
or commission service fee total compensation
(% of offering price) (% of net investment) (% of offering price)
<S> <C> <C> <C>
Short-Term Strategic Income Fund
All amounts 2.25% 0.25% 2.50%
All other funds
All amounts 3.75% 0.25% 4.00%
</TABLE>
(1) Reallowance/commission percentages and service fee percentages are
calculated from different amounts, and therefore may not equal total
compensation percentages if combined using simple addition.
(2) Refers to any investments made by municipalities, financial institutions,
trusts and affinity group members that take advantage of the sales charge
waivers described earlier in this prospectus.
CDSC revenues collected by John Hancock Funds may be used to fund commission
payments when there is no initial sales charge.
30 FUND DETAILS
<PAGE>
- --------------------------------------------------------------------------------
MORE ABOUT RISK
A fund's risk profile is largely defined by the fund's
primary securities and investment practices. You may find the most concise
description of each fund's risk profile in the fund-by-fund information.
The funds are permitted to utilize -- within limits established by the trustees
- -- certain other securities and investment practices that have higher risks and
opportunities associated with them. To the extent a fund utilizes these
securities or practices, its overall performance may be affected, either
positively or negatively. On the following pages are brief descriptions of these
securities and practices, along with the risks associated with them. The funds
follow certain policies that may reduce these risks.
As with any mutual fund, there is no guarantee that the performance of a John
Hancock international/global fund will be positive over any period of time --
days, months or years. However, international markets have performed better over
the past two decades than domestic markets.
- --------------------------------------------------------------------------------
TYPES OF INVESTMENT RISK
Correlation risk The risk that changes in the value of
a hedging instrument will not match those of the asset being hedged (hedging is
the use of one investment to offset the effects of another investment).
Credit risk The risk that the issuer of a security, or the counterparty to a
contract, will default or otherwise become unable to honor a financial
obligation.
Currency risk The risk that fluctuations in the exchange rates between the U.S.
dollar and foreign currencies may negatively affect an investment. Adverse
changes in exchange rates may erode or reverse any gains produced by foreign
currency denominated investments, and may widen any losses.
Extension risk The risk that an unexpected rise in interest rates will extend
the life of a mortgage-backed security beyond the expected prepayment time,
typically reducing the security's value.
Information risk The risk that key information about a security or market is
inaccurate or unavailable.
Interest rate risk The risk of market losses attributable to changes in interest
rates. With fixed-rate securities, a rise in interest rates typically causes a
fall in values, while a fall in rates typically causes a rise in values.
Leverage risk Associated with securities or practices (such as borrowing) that
multiply small index or market movements into large changes in value.
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 which
the fund also holds, any loss generated by the derivative should be
substantially offset by gains on the hedged investment, and vice versa.
While hedging can reduce or eliminate losses, it can also reduce or
eliminate gains.
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. The seller may
have to lower the price, sell other securities instead, or forego an investment
opportunity, any of which could have a negative effect on fund management or
performance.
Management risk The risk that a strategy used by a fund's management may fail to
produce the intended result. Common to all mutual funds.
Market risk The risk that the market value of a security may move up and down,
sometimes rapidly and unpredictably. These fluctuations may cause a security to
be worth less than it was worth at an earlier time. Market risk may affect a
single issuer, industry, sector of the economy or the market as a whole. Common
to all stocks and bonds and the mutual funds that invest in them.
Natural event risk The risk of losses attributable to natural disasters, crop
failures and similar events.
Opportunity risk The risk of missing out on an investment opportunity because
the assets necessary to take advantage of it are tied up in less advantageous
investments.
Political risk The risk of losses directly attributable to government or
political actions of any sort. These actions may range from changes in tax or
trade statutes to expropriation, governmental collapse and war.
Prepayment risk The risk that unanticipated prepayments may occur, reducing the
value of mortgage-backed securities.
Valuation risk The risk that a fund has valued certain of its securities at a
higher price than it can sell them for.
FUND DETAILS 31
<PAGE>
- --------------------------------------------------------------------------------
Higher-risk securities and practices
- --------------------------------------------------------------------------------
This table shows each fund's investment limitations as a percentage of portfolio
assets. In each case the principal types of risk are listed (see previous page
for definitions). Numbers in this table show allowable usage only; for actual
usage, consult the fund's annual/semi-annual reports.
[The following symbols have been modified from those presented in the
printed document in order to facilitate understanding of the EDGAR table]
* 10 Percent of total assets
+ 10 Percent of net assets
o No policy limitation on usage;
fund may be using currently
oo Permitted, but has not
typically been used
- -- Not permitted
<TABLE>
<CAPTION>
Pacific Short-Term
Global Global Global Basin Strategic World
Global Marketplace Rx Technology International Equities Income Bond
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Investment practices
Borrowing; reverse repurchase
agreements The borrowing of
money from banks or through
reverse repurchase agreements.
Leverage, credit risks. 10* 33.3* 33.3* 10+ 33.3* 33.3* 10* 10+
Currency trading The direct
trading or holding of foreign
currencies as an asset.
Currency risk. o o o o o o o o
Repurchase agreements The
purchase of a security that
must later be sold back to the
issuer at the same price plus
interest. Credit risk. o o o o o o o o
Securities lending The lending
of securities to financial
institutions, which provide
cash or government securities
as collateral. Credit risk. 10* 33.3* 33.3* 33.3* 33.3* 33.3* 30* 30*
Short sales The selling of
securities which have been
borrowed on the expectation
that the market price will
drop.
o Hedged. Hedged leverage,
market, correlation,
liquidity, opportunity
risks. -- oo oo -- oo oo -- --
o Speculative. Speculative
leverage, market,
liquidity risks. -- oo oo -- oo -- -- --
Short-term trading Selling a
security soon after purchase.
A portfolio engaging in
short-term trading will have
higher turnover and
transaction expenses. Market
risk. o o o o o o o o
When-issued securities and
forward commitments The
purchase or sale of securities
for delivery at a future date;
market value may change before
delivery. Market, opportunity,
leverage risks. o o o o o o o o
- ---------------------------------------------------------------------------------------------------------------------------------
Conventional securities
Foreign debt securities Debt
securities issued by foreign
governments or companies.
Credit, currency, interest
rate, market, political risks. 5* 35(1)* 35(1)* 10(2)+ 35(1)* 35(1)* o(1) o(1)
Non-investment-grade debt
securities Debt securities
rated below BBB/Baa are
considered junk bonds. Credit,
market, interest rate,
liquidity, valuation,
information risks. -- -- 35* 10(2)+ -- -- 67* 35*
Restricted and illiquid
securities Securities not
traded on the open market. May
include illiquid Rule 144A
securities. Liquidity,
valuation, market risks. 15+ 15+ 15+ 15+ 15+ 15+ 15+ 15+
- ---------------------------------------------------------------------------------------------------------------------------------
Unleveraged derivative securities
Asset-backed securities
Securities backed by unsecured
debt, such as credit card
debt; these securities are
often guaranteed or
over-collateralized to enhance
their credit quality. Credit,
interest rate risks. oo oo oo oo oo oo o o
Mortgage-backed securities
Securities backed by pools of
mortgages, including
passthrough certificates,
PACs, TACs and other senior
classes of collateralized
mortgage obligations (CMOs).
Credit, extension, prepayment,
interest rate risks. oo oo oo oo oo oo o o
Participation interests
Securities representing an
interest in another security
or in bank loans. Credit,
interest rate, liquidity,
valuation risks. -- -- -- 10(2)+ -- -- 15(3)+ 15(3)+
</TABLE>
32 FUND DETAILS
<PAGE>
<TABLE>
<CAPTION>
Pacific Short-Term
Global Global Global Basin Strategic World
Global Marketplace Rx Technology International Equities Income Bond
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Leveraged derivative securities
Currency contracts Contracts
involving the right or
obligation to buy or sell a
given amount of foreign
currency at a specified price
and future date.
o Hedged. Currency, hedged
leverage, correlation,
liquidity, opportunity
risks. o o o o o o o o
o Speculative. Currency,
speculative leverage,
liquidity risks. oo oo oo oo oo oo oo oo
Financial futures and options;
securities and index options
Contracts involving the right
or obligation to deliver or
receive assets or money
depending on the performance
of one or more assets or an
economic index.
o Futures and related
options. Interest rate,
currency, market, hedged
or speculative leverage,
correlation, liquidity,
opportunity risks. o o o oo o oo o o
o Options on securities and
indices. Interest rate,
currency, market, hedged
or speculative leverage,
correlation, liquidity,
credit, opportunity
risks. 5(4)* oo oo 5(4)* oo oo 5(4)* 5(4)*
Structured securities Indexed
and/or leveraged
mortgage-backed and other debt
securities, including
principal-only and
interest-only securities,
leveraged floating rate
securities, and others. These
securities tend to be highly
sensitive to interest rate
movements and their
performance may not correlate
to these movements in a
conventional fashion. Credit,
interest rate, extension,
prepayment, market,
speculative leverage,
liquidity, valuation risks. o o o 10(2)+ o oo o o
</TABLE>
(1) No more than 25% of the fund`s assets will be invested in securities of any
one foreign government.
(2) Included in the 10% limitation on debt securities.
(3) Included in the 15% limitation on illiquid securities.
(4) Applies to purchased options only.
- --------------------------------------------------------------------------------
Analysis of funds with 5% or more in junk bonds(1)
- --------------------------------------------------------------------------------
Quality rating Short-Term Strategic
(S&P/Moody's)(2) Income Fund
Investment Grade Bonds
AAA/Aaa 43.3%
AA/Aa 10.6%
A/A 8.4%
BBB/Baa 1.7%
- --------------------------------------------------------------------------------
Junk Bonds
BB/Ba 8.4%
B/B 13.5%
CCC/Caa 5.3%
CC/Ca 0.0%
C/C 0.0%
% of portfolio in bonds 91.2%
o Rated by S&P or Moody's o Rated by the adviser
(1) Data as of fund's last fiscal year end.
(2) In cases where the S&P and Moody's ratings for a given bond issue do not
agree, the issue has been counted in the higher category.
FUND DETAILS 33
<PAGE>
For more information
- --------------------------------------------------------------------------------
Two documents are available that offer further information on John Hancock
international/global funds:
ANNUAL/SEMI-ANNUAL REPORT TO SHAREHOLDERS
Includes financial statements, detailed performance information, portfolio
holdings, a statement from portfolio management and the auditor's report.
STATEMENT OF ADDITIONAL INFORMATION (SAI)
The SAI contains more detailed information on all aspects of the funds. The
current annual/ semi-annual report is included in the SAI.
A current SAI has been filed with the Securities and Exchange Commission and is
incorporated by reference (is legally a part of this prospectus).
To request a free copy of the current annual/semi-annual report or SAI, please
write or call:
John Hancock Investor Services Corporation
P.O. Box 9116
Boston, MA 02205-9116
Telephone: 1-800-225-5291
EASI-Line: 1-800-338-8080
TDD: 1-800-544-6713
[LOGO] JOHN HANCOCK FUNDS
A Global Investment Management Firm
101 Huntington Avenue,
Boston, Massachusetts 02199-7603
[LOGO]
(C) 1996 John Hancock Funds, Inc.
<PAGE>
JOHN HANCOCK
GLOBAL TECHNOLOGY FUND
Class A and Class B Shares
Statement of Additional Information
August 30, 1996
This Statement of Additional Information provides information about John
Hancock Global Technology Fund (the "Fund") in addition to the information that
is contained in the Fund's Class A and Class B Prospectus (the "Prospectus")
dated August 30, 1996.
This Statement of Additional Information is not a prospectus. It should be
read in conjunction with the Prospectus, a copy of which can be obtained free of
charge by writing or telephoning:
John Hancock Investor Services Corporation
P.O. Box 9116
Boston, Massachusetts 02205-9116
1-(800)-225-5291
TABLE OF CONTENTS
Statement of
Additional
Information
Page
ORGANIZATION OF THE FUND ......................................... 2
INVESTMENT OBJECTIVES AND POLICIES ............................... 3
INVESTMENT RESTRICTIONS .......................................... 12
THOSE RESPONSIBLE FOR MANAGEMENT ................................. 15
INVESTMENT ADVISORY AND OTHER SERVICES ........................... 25
DISTRIBUTION CONTRACT ............................................ 28
NET ASSET VALUE .................................................. 30
INITIAL SALES CHARGE ON CLASS A SHARES ........................... 31
DEFERRED SALES CHARGE ON CLASS B SHARES .......................... 34
<PAGE>
SPECIAL REDEMPTIONS .............................................. 37
ADDITIONAL SERVICES AND PROGRAMS ................................. 38
TAX STATUS ....................................................... 39
DESCRIPTION OF THE FUND'S SHARES ................................. 46
CALCULATION OF PERFORMANCE ....................................... 47
BROKERAGE ALLOCATION ............................................. 49
TRANSFER AGENT SERVICES .......................................... 51
CUSTODY OF PORTFOLIO ............................................. 51
INDEPENDENT AUDITORS ............................................. 51
APPENDIX ......................................................... A-1
FINANCIAL STATEMENTS ............................................. F-1
ORGANIZATION OF THE FUND
The Fund is a diversified series of John Hancock Technology Series, Inc.
(the "Company"), an open-end management investment company organized as a
corporation under the laws of Maryland on January 5, 1990. On May 1, 1990, the
Fund succeeded to the assets and liabilities of the National Telecommunications
& Technology Fund, Inc. On December 6, 1991, the Company changed its name from
AFA Funds, Inc. and the Fund changed its name from National Telecommunications &
Technology Fund. Effective October 1, 1992, the Fund ceased doing business as
Global Technology Fund and commenced doing business under the name John Hancock
Freedom Global Technology Fund. The Fund is managed by John Hancock Advisers,
Inc. (the "Adviser") an indirect wholly-owned subsidiary of 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, and American Fund Advisors, Inc. ("AFA" or the "Sub-
Adviser"). As of January 1, 1995, the Fund changed its name to John Hancock
Global Technology Fund.
-2-
<PAGE>
INVESTMENT OBJECTIVES AND POLICIES
The Fund's investment objectives and policies are set forth in the Fund's
Prospectus dated August 30, 1996 which is incorporated herein by reference. The
following information augments the Prospectus.
The Fund's primary investment objective is long-term growth of capital
through investments principally in equity securities of companies that rely
extensively on technology in their product development or operations. Income is
a secondary objective. There is no assurance that the Fund will achieve its
investment objectives. See "Goal and Strategy" in the Fund's Prospectus.
Investments in U.S. and foreign companies that rely extensively on
technology in product development or operations may be expected to benefit from
scientific developments and the application of technical advances resulting from
improving technology in many different fields, such as computer software and
hardware, semiconductors, telecommunications, defense and commercial
electronics, data storage and retrieval biotechnology and others. Generally,
investments will be made in securities of a company that relies extensively on
technology in product development or operations only if a significant part of
its assets are invested in, or a significant part of its total revenue or net
income is derived from, this technology.
Technology-Intensive Companies -- Considerations and Risks. Securities
prices of the companies in which the Fund invests have tended to be subject to
greater volatility than securities prices in many other industries, due to
particular factors affecting these industries. Competitive pressures may also
have a significant effect on the financial condition of technology-intensive
companies. For example, if the development of new technology continues to
advance at an accelerated rate, and the number of companies and product
offerings continues to expand, the companies could become increasingly sensitive
to short product cycles and aggressive pricing. Accordingly, the Fund's
performance will be particularly susceptible to factors affecting these
companies as well as the economy as a whole.
Foreign Currencies and Foreign Currency Transactions. Due to its
investments in foreign securities, the Fund may hold a portion of its assets in
foreign currencies. The foreign currency transactions of the Fund may be
conducted on a spot (i.e., cash) basis at the spot rate for purchasing or
selling currency prevailing in the foreign exchange market. The Fund may enter
into forward foreign currency contracts involving currencies of the different
countries in which it will invest as a hedge against possible variations in the
foreign exchange rate between these currencies. The Fund may also engage in
speculative forward currency transactions, and may use forward currency
contracts as a substitute for investing in securities denominated in that
currency or in order to create a synthetic position consisting of a security
issued in one country and denominated in the currency of another country.
Forward
-3-
<PAGE>
currency transactions are accomplished through contractual agreements to
purchase or sell a specified currency at a specified future date and price set
at the time of the contract. Transaction hedging is the purchase or sale of
forward foreign currency contracts with respect to specific receivables or
payables of the Fund accruing in connection with the purchase or sale of its
portfolio securities denominated in foreign currencies. Portfolio hedging is the
use of forward foreign currency contracts to offset portfolio security positions
denominated or quoted in such foreign currencies. The Fund will not attempt to
hedge all of its foreign portfolio positions and will enter into such
transactions only to the extent, if any, deemed appropriate by the Adviser.
If the Fund enters into a forward contract requiring it to purchase foreign
currency, its custodian bank will segregate cash or liquid securities in a
separate account of the Fund in an amount equal to the value of the Fund's total
assets committed to the consummation of such forward contract. Those assets will
be valued at market daily and if the value of the assets in the separate account
declines, additional cash or liquid assets will be placed in the account so that
the value of the account will 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 should rise. Moreover,
it may not be possible for the Fund to hedge against a devaluation that is so
generally anticipated that the Fund is not able to contract to sell the currency
at a price above the devaluation level it anticipates.
The cost to the Fund of engaging in foreign currency transactions varies
with such factors as the currency involved, the length of the contract period
and the market conditions then prevailing. Since transactions in foreign
currency are usually conducted on a principal basis, no fees or commissions are
involved.
Characteristics and Risks of Foreign Securities Markets. The Fund may
invest in securities of foreign issuers. Normally the Fund will invest at least
65% of its net assets in securities of issuers in at least three countries, that
may include the United States, but will not invest more than 25% of its net
assets in any one foreign country. The securities markets of many countries have
in the past moved relatively independently of one another, due to differing
economic, financial, political and social factors. When markets in fact move in
different directions and offset each other, there may be a corresponding
reduction in risk for the Fund's portfolio as a whole. This lack of correlation
among the movements of the world's securities markets may also affect unrealized
gains the Fund has derived from movements in any one market.
-4-
<PAGE>
If the securities of markets moving in different directions are combined
into a single portfolio, such as that of the Fund, total portfolio volatility is
reduced. Since the Fund will invest in securities denominated in currencies
other than U.S. dollars, changes in foreign currency exchange rates will affect
the value of its portfolio securities. Currency exchange rates may not move in
the same direction as the securities markets in a particular country. As a
result, market gains may be offset by unfavorable exchange rate fluctuations.
Investments in foreign securities may involve risks and considerations not
present in domestic investments. Since foreign securities generally may be
denominated and pay interest or dividends in foreign currencies, the value of
the assets of the Fund attributable to such investment as measured in U.S.
dollars may be affected favorably or unfavorably by changes in the relationship
of the U.S. dollar to other currency rates. The Fund may incur costs in
connection with the conversion of foreign currencies into U.S. dollars and may
be adversely affected by restrictions on the conversion or transfer of foreign
currencies. In addition, there may be less publicly available information about
foreign companies than U.S. companies. Foreign companies may not be subject to
accounting, auditing, and financial reporting standards, practices and
requirements comparable to those applicable to U.S. companies.
Foreign securities markets, while growing in volume, have for the most part
substantially less volume than U.S. securities markets and securities of foreign
companies are generally less liquid and at times their prices may be more
volatile than securities of comparable U.S. companies. Foreign stock exchanges,
brokers and listed companies are generally subject to less government
supervision and regulation than those in the U.S. The customary settlement time
for non-U.S. securities is less frequent than in the U.S., which could affect
the liquidity of the Fund's investments. The Adviser and the Sub-Adviser will
monitor the settlement time for foreign securities and take undue settlement
delays into account in considering the desirability of allocating investments
among specific countries.
In some countries, there is the possibility of expropriation or
confiscatory taxation, seizure or nationalization of foreign bank deposits or
other assets, establishment of exchange controls, the adoption of foreign
government restrictions or other adverse political, social or diplomatic
developments that could affect investments in these countries.
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
-5-
<PAGE>
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 these countries. Securities of issuers located in
these countries may have limited marketability and may be subject to more abrupt
or erratic price movements.
High Yield "High Risk" Fixed Income Securities. The Fund may invest up to
10% of its net assets in fixed income securities that, at the time of
investment, are rated CC or higher by Standard & Poor's Ratings Group ("Standard
& Poor's") or Ca or higher by Moody's Investors Service, Inc. ("Moody's") or
their equivalent, and unrated fixed income securities of comparable quality as
determined by the Adviser. These securities include convertible and
nonconvertible bonds and debentures, zero coupon bonds, payment-in-kind
securities, increasing rate note securities, participation interests, stripped
debt securities and other derivative debt securities. The value of fixed income
securities generally varies inversely with interest rate changes. Convertible
issues, while influenced by the level of interest rates, are also subject to the
changing value of the underlying common stock into which they are convertible.
Ratings are based largely on the historical financial condition of the
issuer. Consequently, the rating assigned to any particular security is not
necessarily a reflection of the issuer's current financial condition, which may
be better or worse than the rating would indicate. The values of lower-rated
securities and unrated securities of comparable quality generally fluctuate more
than those of high-rated securities. There is a greater possibility that an
adverse change in the financial condition of an issuer of lower-rated securities
or unrated securities of comparable quality will affect the issuer's ability to
make payments of interest and principal. Bonds rated CC or Ca are highly
speculative and are often in default or have other marked shortcomings. Lower
rated securities are generally referred to as junk bonds. Bonds that have a
rating of BBB or lower from Standard & Poor's, Baa or lower from Moody's or an
equivalent rating and unrated bonds of comparable quality are considered
speculative. In addition, the market for such bonds may be less liquid than the
market for higher quality securities. To the extent the Fund invests in
-6-
<PAGE>
lower-rated securities and unrated securities of comparable quality, the
achievement of the Fund's investment objectives is more dependent on the
Sub-Adviser's ability than it would be if the Fund were investing in higher
quality securities.
Maturity generally is not a significant factor in the Adviser's security
selection process. Accordingly, the Fund may invest in fixed income securities
of any maturity.
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 may also
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 of pay-in-kind,
delayed and zero coupon bonds generally are more volatile than the market prices
of interest-bearing securities having similar maturities and credit quality. The
Fund's investments in pay-in-kind, delayed and zero coupon securities may
require the Fund to sell certain of its portfolio securities to generate
sufficient cash to satisfy certain income distribution requirements. See "Tax
Status."
Preferred Stock. The Fund may purchase preferred stock. Preferred stocks
are equity securities, but possess certain attributes of fixed income
securities. Holders of preferred stocks normally have the right to receive
dividends at a fixed rate when and as declared by the issuer's board of
directors, but do not participate in other amounts available for distribution by
the issuing corporation. Dividends on preferred stock may be cumulative, and all
cumulative dividends usually must be paid prior to dividend payments to common
stockholders. Because of this preference, preferred stocks generally entail less
risk than common stocks. Upon liquidation, preferred stocks are entitled to a
specified liquidation preference, which is generally the same as the par or
stated value, and are senior in right of payment to common stocks. Preferred
stocks are equity securities in that they do not represent a liability of the
issuer and therefore do not offer a great a degree of protection of capital or
assurance of continued income as investments in corporate debt securities. In
addition, preferred stocks are subordinated in right of payment to all debt
obligations and creditors of the issuer, and convertible preferred stocks may be
subordinated to other preferred stock of the same issuer. See "Convertible
Securities" below for a description of certain characteristics of convertible
preferred stock.
Convertible Securities. The Fund may purchase convertible fixed income
securities and preferred stock. Convertible securities are securities that may
be converted at either a stated price or stated rate into underlying shares of
common stock of the same issuer. Convertible securities have general
characteristics similar to
-7-
<PAGE>
both fixed income and equity securities. Although to a lesser extent than with
straight debt securities, the market value of convertible securities tends to
decline as interest rates increase and, conversely, tends to increase as
interest rates decline. In addition, because of the conversion feature, the
market value of convertible securities tends to vary with fluctuations in the
market value of the underlying common stocks and therefore will also react to
variations in the general market for equity securities. A unique feature of
convertible securities is that as the market price of the underlying common
stock declines, convertible securities tend to trade increasingly on a yield
basis, and consequently may not experience market value declines to the same
extent as the underlying common stock. When the market price of the underlying
common stock increases, the prices of the convertible securities tend to rise as
a reflection of the value of the underlying common stock. While no securities
investments are without risk, investments in convertible securities generally
entail less risk than investments in common stock of the same issuer. However,
the issuers of convertible securities may default on their obligations.
Restricted Securities. The Fund may purchase securities that are not
registered ("restricted securities") under the Securities Act of 1933 ("1933
Act"), including securities offered and sold to "qualified institutional buyers"
under Rule 144A under the 1933 Act. The Fund may not invest more than 5% of its
net assets in restricted securities. Moreover, the Fund will not invest more
than 15% of its net assets in illiquid investments, which include repurchase
agreements maturing in more than seven days, securities that are not readily
marketable and restricted securities. However, if the Board of Directors
determines, based upon a continuing review of the trading markets for specific
Rule 144A securities, that they are liquid, then such securities may be
purchased without regard to the 15% limit. The Directors may adopt guidelines
and delegate to the Adviser the daily function of determining and monitoring the
liquidity of restricted securities. The Directors, however, will retain
sufficient oversight and be ultimately responsible for the determinations. The
Directors 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 may acquire other restricted securities including securities for
which market quotations are not readily available. These securities may be sold
only in privately negotiated transactions or in public offerings with respect to
which a registration statement is in effect under the Securities Act of 1933.
Where registration is required, the Fund may be obligated to pay all or part of
the registration expenses and a considerable period may elapse between the time
of the decision to sell and the time the Fund may be permitted to sell a
security under an effective registration statement. If, during such a period,
adverse market conditions were to develop, the Fund might obtain a less
favorable price than prevailed when it decided to sell.
-8-
<PAGE>
Restricted securities will be priced at fair market value as determined in good
faith by the Fund's Directors.
Repurchase Agreements. The Fund may invest in repurchase agreements. A
repurchase agreement is a contract under which the Fund acquires a security for
a relatively short period (usually not more than 7 days) subject to the
obligation of the seller to repurchase and the Fund to resell such security at a
fixed time and price (representing the Fund's cost plus interest). The Fund will
enter into repurchase agreements only with member banks of the Federal Reserve
System and with "primary dealers" in U.S. Government securities. The Advisers
will continuously monitor the creditworthiness of the parties with whom the Fund
enters into repurchase agreements.
The Fund has established a procedure providing that the securities serving
as collateral for each repurchase agreement must be delivered to the Fund's
custodian either physically or in book-entry form and that the collateral must
be marked to market daily to ensure that each repurchase agreement is fully
collateralized at all times. In the event of bankruptcy or other default by a
seller of a repurchase agreement, the Fund could experience delays in
liquidating the underlying securities during the period in which the Fund seeks
to enforce its rights thereto, possible subnormal levels of income and lack of
access to income during this period and the expense of enforcing its rights.
Lending of Securities. The Fund may lend portfolio securities to brokers,
dealers, and financial institutions if the loan is collateralized by cash or
U.S. Government securities according to applicable regulatory requirements. The
Fund may reinvest any cash collateral in short-term securities. When the Fund
lends portfolio securities, there is a risk that the borrower may fail to return
the 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.
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.
-9-
<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 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.
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 benchmarks 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.
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 limitation on
investments in illiquid securities. The Fund may purchase only those
participation interests that mature in 60 days or less, or, if maturing in more
than 60 days, that have a floating rate that is automatically adjusted at least
once every 60 days.
Covered Call Options. The Fund may sell covered call options that are
listed on a national securities exchange against its portfolio securities.
Portfolio securities underlying these call options must have an aggregate value
(determined as of the sale date) not exceeding 5% of the net assets of the Fund.
A call option gives the purchaser of the option the right to buy, and obligates
the writer to sell (if the option is exercised), the underlying security at the
exercise price at any time during the
-10-
<PAGE>
option period, regardless of the security's market price upon exercise of the
option. If the price of the underlying security rises above the exercise price
and the option is exercised, the Fund loses the opportunity to profit from that
portion of the rise which exceeds the exercise price.
The Fund will write listed call options only if they are "covered," which
means that the Fund owns or has the immediate right to acquire the securities
underlying the options without additional cash consideration upon conversion or
exchange of other securities held in its portfolio. A call option written by the
Fund may also be "covered" if the Fund holds on a share-for-share basis a
covering call on the same securities where (i) the exercise price of the
covering call held is equal to or less than the exercise price of the call
written or the exercise price of the covering call is greater than the exercise
price of the call written, in the latter case only if the difference is
maintained by the Fund in cash or liquid securities in a segregated account with
the Fund's custodian, and (ii) the covering call expires at the same time as or
later than the call written. If a covered call option is not exercised, the Fund
would keep both the option premium and the underlying security. If the covered
call option written by the Fund is exercised and the exercise price, less the
transaction costs, exceeds the cost of the underlying security, the Fund would
realize a gain in addition to the amount of the option premium it received. If
the exercise price, less transaction costs, is less than the cost of the
underlying security, the Fund's loss would be reduced by the amount of the
option premium.
If the writer of an exchange-traded option wishes to terminate its
obligation prior to its exercise, it may effect a "closing purchase
transaction." This is accomplished by buying an option of the same series as the
option previously written. The effect of the purchase is that the Fund's
position will be offset by the Options Clearing Corporation. The Fund may not
effect a closing purchase transaction after it has been notified of the exercise
of an option. There is no guarantee that a closing purchase transaction can be
effected. Although the Fund will generally write only those options for which
there appears to be an active secondary market, there is no assurance that a
liquid secondary market on an exchange or board of trade will exist for any
particular option or at any particular time, and for some options no secondary
market on an exchange may exist.
In the case of a written call option, effecting a closing transaction will
permit the Fund to write another call option on the underlying security with
either a different exercise price, expiration date or both. In the case of a
written put option, it will permit the Fund to write another put option to the
extent that the exercise price thereof is secured by deposited cash or
short-term securities. Also, effecting a closing transaction will permit the
cash or proceeds from the concurrent sale of any securities subject to the
option to be used for other investments. If the Fund desires to sell a
particular security from its portfolio on which it has written a call option, it
will effect a closing transaction prior to or concurrent with the sale of the
security.
-11-
<PAGE>
The Fund will realize a gain from a closing transaction if the cost of the
closing transaction is less than the premium received from writing the option.
The Fund will realize a loss from a closing transaction if the cost of the
closing transaction is more than the premium received for writing the option.
However, because increases in the market price of a call option will generally
reflect increases in the market price of the underlying security, any loss
resulting from the repurchase of a call option is likely to be offset in whole
or in part by appreciation in the value of the underlying security owned by the
Fund.
INVESTMENT RESTRICTIONS
Fundamental Investment Restrictions
The following investment restrictions (as well as the fund's investment
objective) will not be changed without approval of the Fund's outstanding voting
securities which, as used in the Prospectus and this Statement of Additional
Information, means approval by the lesser of (1) 67% or more of the Fund's
shares represented at a meeting if at least 50% of the Fund's outstanding shares
are present in person or by proxy at the meeting or (2) 50% of the Fund's
outstanding shares. The Fund observes the following fundamental restrictions.
The Fund may not:
(1) Invest less than 65% of the value of its total assets (exclusive of
cash, U.S. Government securities and short-term commercial paper) in securities
of companies which rely extensively on technology in product development or
operation, except temporarily during periods when economic conditions with
respect to such companies in that industry are unfavorable.
(2) 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.
(3) Issue senior securities, except as permitted by paragraphs (4) and (8)
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
(4) Borrow money, except from banks as a temporary measure for
extraordinary or emergency purposes (including meeting redemptions without
-12-
<PAGE>
immediately selling securities), but not for leveraging or investment, in an
amount not to exceed 10% of the value of net assets at the time the borrowing is
made, provided, however, that as long as such borrowings exceed 5% of the value
of net assets, the Fund will not make any investments. Under the Investment
Company Act of 1940, as amended (the "1940 Act"), asset coverage of 300% of any
borrowing must be maintained.
(5) Act as an underwriter of securities of other issuers except to the
extent that in selling portfolio securities it may be deemed to be an
underwriter for purposes of the 1933 Act.
(6) Purchase real estate or any interest therein (except real estate used
exclusively in the current operation of the Fund's affairs), but this
restriction does not prevent the Fund from investing in debt securities secured
by real estate or interests therein.
(7) 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) Make loans, except that the Fund may (1) lend portfolio securities in
accordance with the Fund's investment policies up to 33_% 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 nor the purchase is made upon the
original issuance of the securities.
Non-Fundamental Investment Restrictions
The following restrictions are designated as non-fundamental and may be
changed by the Board of Directors without shareholder approval. The Fund may
not:
(1) 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
-13-
<PAGE>
with a merger, consolidation, reorganization or purchase of substantially all of
the assets of another investment company. Subject to the above percentage
limitations, the Fund may, in connection with the John Hancock Group of Funds
Deferred Compensation Plan for Independent Trustees/Directors, purchase
securities of other investment companies within the John Hancock Group of Funds.
In addition, as a nonfundamental restriction, the Fund may not purchase the
shares of any closed-end investment company except in the open market where no
commission or profit to a sponsor or dealer results from the purchase, other
than customary brokerage fees.
(2) Purchase securities on margin, although it may obtain such short-term
credits as may be necessary for the clearance of securities purchased.
(3) Make short sales of securities or maintain a short position.
(4) Purchase or sell puts, calls, straddles, spreads or any combination
thereof, except that (i) it may sell call options listed on a national
securities exchange against its portfolio securities if such call options remain
fully covered throughout the exercise period and where such underlying
securities have an aggregate value (determined as of the date the calls are
sold) not exceeding 5% of the total assets of the Fund, and (ii) the Fund may
purchase call options in related "closing purchase transactions," where not more
than 5% of its total assets are invested in such options.
(5) Purchase securities of an issuer which, together with any predecessor,
has been in operation for less than three years (except investments in
obligations issued or guaranteed by the U.S. Government, its agencies or
instrumentalities), if, as a result, more than 5% of the Fund's total assets
would be invested in such securities.
(6) Purchase or sell interests in real estate limited partnerships or in
oil, gas or other mineral leases or exploration or development programs
(although it may invest in companies which own or invest in such interests).
(7) Purchase or retain the securities of an issuer any of the officers,
directors, trustees or security holders of which (a) is an officer or director
of the Company or a member, officer, director or trustee of its investment
adviser and (b) owns beneficially more than 1/2 of 1% of the shares or
securities of both (taken at market value) of such issuer, unless all such
individuals owning more than 1/2 of 1% of such shares or securities together own
beneficially less than 5% of such shares or securities or both.
(8) Invest more than 5% of the value of its total assets in warrants (other
than those that have been acquired in units or attached to other securities). No
more than 2% of the Fund's total assets may be invested in warrants which are
not listed on the New York Stock Exchange or the American Stock Exchange. In
applying this limitation, warrants will be valued at the lesser of cost or
market value unless
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<PAGE>
acquired by the Fund in units with, or attached to, debt securities, in which
case no value will be assigned.
(9) Invest in companies for the purpose of exercising control.
(10) Purchase any security, including any repurchase agreement maturing in
more than seven days, which is not readily marketable, if more than 15% of the
net assets of the Fund, taken at market value, would be invested in such
securities. (The staff of the Securities and Exchange Commission considers
over-the-counter options to be illiquid securities subject to the 15% limit.)
The Fund agrees that, in accordance with the Ohio Securities Division and
until such regulations are no longer required, it will comply with Rule
1301:6-3-09(E)(12) by not investing more than 15% of its total assets in the
aggregate in securities of issuers which, together with any predecessors, have a
record of less than three years continuous operation, and in securities of
issuers which are restricted as to disposition, including securities eligible
for resale pursuant to Rule 144A under the Securities Act of 1933.
THOSE RESPONSIBLE FOR MANAGEMENT
The business of the Fund is managed by the Board of Directors who elects
officers who are responsible for the day-to-day operations of the Fund and who
execute policies formulated by the Board of Directors. Several of the officers
and Directors of the Company are also officers or directors of the Adviser or
Sub-Adviser, or officers or directors of the Fund's principal distributor, John
Hancock Funds, Inc. ("John Hancock Funds").
The following table sets forth the principal occupation or employment of
the Directors and principal officers of the Company during the past five years:
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Positions Held Principal Occupation(s)
Name and Address with the Company During Past Five Years
- ---------------- ---------------- ----------------------
Edward J. Boudreau, Jr.* Director, Chairman Chairman and Chief Executive
101 Huntington Avenue and Chief Executive Officer, the Adviser and The
Boston, MA 02199 Officer(1)(2) Berkeley Financial Group ("The
October 1944 Berkeley Group"); Chairman, NM
Capital Management, Inc. ("NM
Capital") and John Hancock
Advisers International Limited
("Advisers International");
Chairman, Chief Executive
Officer and President, John
Hancock Funds, Inc. ("John
Hancock Funds"); John Hancock
Investor Services Corporation
("Investor Services"), First
Signature Bank and Trust Company
and Sovereign Asset Management
Corporation ("SAMCorp");
Director, John Hancock Freedom
Securities Corporation, John
Hancock Capital Corporation and
New England/ Canada Business
Council; Member, Investment
Company Institute Board of
Governors; Director, Asia
Strategic Growth Fund, Inc.;
Trustee, Museum of Science; Vice
Chairman and President, the
Adviser (until July 1992);
Chairman, John Hancock
Distributors, Inc. (until April,
1994).
* An "interested person" of the Company, as such term is defined in the 1940
Act.
(1) Member of the Executive Committee. Under the Company's charter, the
Executive Committee may generally exercise most of the powers of the Board
of Directors.
(2) A Member of the Investment Committee of the Adviser.
(3) Member of the Audit Committee and the Administration Committee.
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Positions Held Principal Occupation(s)
Name and Address with the Company During Past Five Years
- ---------------- ---------------- ----------------------
Thomas W.L. Cameron* Director Chairman and Director, Sovereign
101 Huntington Avenue Advisers, Inc.; Senior Vice
Boston, MA 02199 President, Interstate/Johnson
February 1927 Lane Corp. (securities dealer);
and Trustee or Director of 21
funds managed by the Adviser.
James F. Carlin Director(3) Chairman and CEO, Carlin
233 West Central Street Consolidated, Inc.
Natick, MA 01760 (management/investments);
April 1940 Director, Arbella Mutual
Insurance Company (insurance),
Consolidated Group Trust
(insurance administration),
Carlin Insurance Agency, Inc.,
West Insurance Agency, Inc.
(until May 1995) and Uno
Restaurant Corp.; Chairman,
Massachusetts Board of Higher
Education (since 1995);
Receiver, the City of Chelsea
(until August 1992).
* An "interested person" of the Company, as such term is defined in the 1940
Act.
(1) Member of the Executive Committee. Under the Company's charter, the
Executive Committee may generally exercise most of the powers of the Board
of Directors.
(2) A Member of the Investment Committee of the Adviser.
(3) Member of the Audit Committee and the Administration Committee.
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<PAGE>
Positions Held Principal Occupation(s)
Name and Address with the Company During Past Five Years
- ---------------- ---------------- ----------------------
William H. Cunningham Director(3) Chancellor, University of Texas
601 Colorado Street System and former President of
O'Henry Hall the University of Texas, Austin,
Austin, TX 78701 Texas; Lee Hage and Joseph D.
January 1944 Jamail Regents Chair for Free
Enterprise; Director, LaQuinta
Motor Inns, Inc. (hotel
management company); Director,
Jefferson-Pilot Corporation
(diversified life insurance
company) and LBJ Foundation
Board (education foundation);
Advisory Director, Texas
Commerce Bank - Austin.
Harold R. Hiser, Jr. Director(3) Executive Vice President,
Schering-Plough Schering-Plough Corporation
Corporation (pharmaceuticals) (retired
One Giralda Farms 1996); Director, ReCapital
Madison, NJ 07940-1000 Corporation (reinsurance) (until
October 1931 1995).
Charles F. Fretz Director(3) Retired; self-employed; Former
RD #5, Box 300B Vice President and Director,
Clothier Springs Road Towers, Perrin, Forster &
Malvern, PA 19355 Crosby, Inc. (international
June 1928 management consultants)
(1952-1985).
* An "interested person" of the Company, as such term is defined in the 1940
Act.
(1) Member of the Executive Committee. Under the Company's charter, the
Executive Committee may generally exercise most of the powers of the Board
of Directors.
(2) A Member of the Investment Committee of the Adviser.
(3) Member of the Audit Committee and the Administration Committee.
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<PAGE>
Positions Held Principal Occupation(s)
Name and Address with the Company During Past Five Years
- ---------------- ---------------- ----------------------
Anne C. Hodsdon* President and President and Chief Operating
101 Huntington Avenue Director(1)(2) Officer, the Adviser; Executive
Boston, MA 02199 Vice President, the Adviser
April 1953 (until December 1994); Senior
Vice President, the Adviser
(until December 1993); Vice
President, the Adviser (until
1991).
Charles L. Ladner Director(3) Director, Energy North, Inc.
UGI Corporation (public utility holding
460 North Gulph Road company)(until 1992); Senior
King of Prussia, PA 19406 Vice President, Finance UGI
February 1938 Corp. (holding company, public
utilities, LPGAS).
* An "interested person" of the Company, as such term is defined in the 1940
Act.
(1) Member of the Executive Committee. Under the Company's charter, the
Executive Committee may generally exercise most of the powers of the Board
of Directors.
(2) A Member of the Investment Committee of the Adviser.
(3) Member of the Audit Committee and the Administration Committee.
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Positions Held Principal Occupation(s)
Name and Address with the Company During Past Five Years
- ---------------- ---------------- ----------------------
Leo E. Linbeck, Jr. Director(3) Chairman, President, Chief
3810 W. Alabama Executive Officer and Director,
Houston, TX 77027 Linbeck Corporation (a holding
August 1934 company engaged in various
phases of the construction
industry and warehousing
interests); Former Chairman,
Federal Reserve Bank of Dallas
(1992, 1993); Chairman of the
Board and Chief Executive
Officer, Linbeck Construction
Corporation; Director, PanEnergy
Eastern Corporation (a
diversified energy company),
Daniel Industries, Inc.
(manufacturer of gas measuring
products and energy related
equipment), GeoQuest
International, Inc. (a
geophysical consulting firm)
(1980-1993); Director, Greater
Houston Partnership.
Patricia P. McCarter Director(3) Director and Secretary, The
Swedesford Road McCarter Corp. (machine
RD #3, Box 121 manufacturer).
Malvern, PA 19355
May 1928
* An "interested person" of the Company, as such term is defined in the 1940
Act.
(1) Member of the Executive Committee. Under the Company's charter, the
Executive Committee may generally exercise most of the powers of the Board
of Directors.
(2) A Member of the Investment Committee of the Adviser.
(3) Member of the Audit Committee and the Administration Committee.
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Positions Held Principal Occupation(s)
Name and Address with the Company During Past Five Years
- ---------------- ---------------- ----------------------
Steven R. Pruchansky Director(1)(3) Director and President, Mast
360 Horse Creek Drive, #208 Holdings, Inc. (since 1991);
Naples, FL 33942 Director, First Signature Bank &
August 1944 Trust Company (until August
1991); Director, Mast Realty
Trust (1982-1994); President,
Maxwell Building Corp. (until
1991).
Richard S. Scipione* Director General Counsel, John Hancock
John Hancock Place Mutual Life Insurance Company;
P.O. Box 111 Director, the Adviser, Advisers
Boston, MA 02199 International, John Hancock
August 1937 Funds, Investor Services, John
Hancock Distributors, Inc., John
Hancock Subsidiaries, Inc., John
Hancock Property and Casualty
Insurance and its affiliates
(until November 1993), SAMCorp
and NM Capital; Trustee, The
Berkeley Group; Director, JH
Networking Insurance Agency,
Inc.
Norman H. Smith Director(3) Lieutenant General, USMC, Deputy
Rt. 1, Box 249 E Chief of Staff for Manpower and
Linden, VA 22642 Reserve Affairs, Headquarters
March 1933 Marine Corps; Commanding General
III Marine Expeditionary
Force/3rd Marine Division
(retired 1991).
* An "interested person" of the Company, as such term is defined in the 1940
Act.
(1) Member of the Executive Committee. Under the Company's charter, the
Executive Committee may generally exercise most of the powers of the Board
of Directors.
(2) A Member of the Investment Committee of the Adviser.
(3) Member of the Audit Committee and the Administration Committee.
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Positions Held Principal Occupation(s)
Name and Address with the Company During Past Five Years
- ---------------- ---------------- ----------------------
John P. Toolan Director(3) Director, The Smith Barney Muni
13 Chadwell Place Bond Funds, The Smith Barney
Morristown, NJ 07960 Tax-Free Money Fund, Inc.,
September 1930 Vantage Money Market Funds
(mutual funds), The
Inefficient-Market Fund, Inc.
(closed-end investment company)
and Smith Barney Trust Company
of Florida; Chairman, Smith
Barney Trust Company (retired
1991); Director, Smith Barney,
Inc., Mutual Management Company
and Smith, Barney Advisers, Inc.
(investment advisers) (retired
1991); Senior Executive Vice
President, Director and member
of the Executive Committee,
Smith Barney, Harris Upham &
Co., Incorporated (investment
bankers) (until 1991).
Robert G. Freedman* Vice Chairman and Vice Chairman and Chief
101 Huntington Avenue Chief Investment Investment Officer, the Adviser;
Boston, MA 02199 Officer(2) President, the Adviser (until
July 1938 December 1994); Director, the
Adviser, Advisers International,
John Hancock Funds Investor
Services, SAMCorp and NM
Capital; Senior Vice President,
The Berkeley Group.
* An "interested person" of the Company, as such term is defined in the 1940
Act.
(1) Member of the Executive Committee. Under the Company's charter, the
Executive Committee may generally exercise most of the powers of the Board
of Directors.
(2) A Member of the Investment Committee of the Adviser.
(3) Member of the Audit Committee and the Administration Committee.
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<PAGE>
Positions Held Principal Occupation(s)
Name and Address with the Company During Past Five Years
- ---------------- ---------------- ----------------------
James B. Little* Senior Vice Senior Vice President, the
101 Huntington Avenue President and Adviser, The Berkeley Group,
Boston, MA 02199 Chief Financial John Hancock Funds and Investor
February 1935 Officer Services
James J. Stokowski* Vice President Vice President, the Adviser.
101 Huntington Avenue and Treasurer
Boston, MA 02199
November 1946
Susan S. Newton* Vice President Vice President and Assistant
101 Huntington Avenue and Secretary Secretary, the Adviser; Vice
Boston, MA 02199 President and Secretary, John
March 1950 Hancock Funds, Investor Services
and John Hancock Distributors,
Inc. (until 1994); Secretary,
SAMCorp; Vice President, The
Berkeley Group.
John A. Morin* Vice President Vice President, the Adviser,
101 Huntington Avenue Investor Services and John
Boston, MA 02199 Hancock Funds; Counsel, John
July 1950 Hancock Mutual Life Insurance
Company; Vice President and
Assistant Secretary, The
Berkeley Group.
* An "interested person" of the Company, as such term is defined in the 1940
Act.
(1) Member of the Executive Committee. Under the Company's charter, the
Executive Committee may generally exercise most of the powers of the Board
of Directors.
(2) A Member of the Investment Committee of the Adviser.
(3) Member of the Audit Committee and the Administration Committee.
-23-
<PAGE>
All of the officers listed are officers or employees of the Adviser or the
Affiliated Companies. Some of the directors and officers may also be officers
and/or directors and/or trustees of one or more other funds for which the
Adviser serves as investment adviser.
The following table provides information regarding the compensation paid by
the Fund and the other investment companies in the John Hancock Fund Complex to
the Independent Directors for their services. The four non-Independent
Directors, Messrs. Boudreau, Cameron, Scipone, and Ms. Hodsdon, and each of the
officers of the Fund (except Mr. Gordon) are interested persons of the Adviser,
are compensated by the Adviser and/or its affiliates and receive no compensation
from the Fund for their services. Mr. Gordon is an interested person of the
Sub-Adviser, is compensated by the Sub-Adviser, and receives no compensation
from the Fund for his services.
Total Compensation From the
Aggregate Compensation Fund and John Hancock Fund
Independent Directors From the Fund(1) Complex to Directors(2)
- --------------------- ---------------------- ---------------------------
Charles F. Fretz $ 1,306 $ 56,200
Jack P. Gould* 5,300 9,800
Charles L. Ladner 834 60,700
Patricia P. McCarter 834 60,700
Steven R. Pruchansky 877 62,700
Norman H. Smith 856 62,700
John P. Toolan+ 855 60,700
James F. Carlin 1,029 60,700
Harold R. Hiser, Jr.+ 1,497 60,200
William H. Cunningham+ 340 69,700
Leo E. Linbeck, Jr. 334 73,200
-------- --------
$ 14,062 $637,300
(1) Compensation for the fiscal year ended December 31, 1995.
(2) Total compensation from the Fund and the other John Hancock funds is as of
December 31, 1995.
* As of March 26, 1996, Mr. Gould resigned as a Director.
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<PAGE>
+ As of December 31, 1995, the value of the aggregate accrued deferred
compensation from all funds in the John Hancock fund complex for Mr. Cunningham
was $54,413, for Mr. Hiser was $31,324 and for Mr. Toolan was $71,437 under the
John Hancock Deferred Compensation Plan for Independent Directors.
All Directors except Messrs. Cunningham and Linbeck are Directors of 33 funds in
the John Hancock Complex. Messrs. Cunningham and Linbeck are Directors of 31
funds.
As of May 31, 1996, the officers and directors of the Fund as a group owned
less than 1% of the outstanding shares of the fund and to the knowledge of the
registrant, no persons owned of record or beneficially 5% or more of any class
of registrants outstanding securities.
As of May 31, 1996, the following shareholders beneficially owned 5% of or
more of outstanding shares of the Fund:
Number of Percentage of
shares of total outstanding
Name and Address of beneficial shares of the
Shareholder Class of Shares interest owned class of the Fund
- ------------------- --------------- -------------- -----------------
Merrill Lynch Pierce Class B shares 153,284 8.24
Fenner & Smith, Inc.
Attn: Mutual Fund
Operations
4800 Deer Lake Drive
Jacksonville FL 32246-6484
INVESTMENT ADVISORY AND OTHER SERVICES
The Fund receives its investment advice from the Adviser and the Sub-
Adviser. Investors should refer to the Prospectus and below for a description of
certain information concerning the investment management contract. Each of the
Directors and principal officers affiliated with the Company who is also an
affiliated person of the Adviser or Sub-Adviser is named above, together with
the capacity in which such person is affiliated with the Company, the Adviser or
Sub-Adviser.
The Company on behalf of the Fund has entered into an investment management
contract with the Adviser dated December 6, 1991, and amended as of January 1,
1994, under which the Adviser in conjunction with the Sub-Adviser provides the
Fund with a continuous investment program, consistent with the Fund's
-25-
<PAGE>
stated investment objectives and policies. The Adviser is responsible for the
day to day management of the Fund's portfolio assets. The Adviser has entered
into a sub-advisory contract with the Sub-Adviser dated December 6, 1991, under
which the Sub-Adviser, subject to the review of the Board of Directors and the
overall supervision of the Adviser, is responsible for providing the Fund with
investment advice.
Securities held by the Fund may also be held by other funds or investment
advisory clients for which the Adviser, the Sub-Adviser or their respective
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 the Sub-Adviser for the Fund or
for other funds or clients for which the Adviser or Sub-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, the
Sub-Adviser or their respective affiliates may increase the demand for
securities being purchased or the supply of securities being sold, there may be
an adverse effect on price.
No person other than the Adviser and Sub-Adviser and their directors and
employees regularly furnishes advice to the Fund with respect to the
desirability of the Fund's investing in, purchasing or selling securities. The
Adviser and Sub-Adviser may from time to time receive statistical or other
similar factual information, and information regarding general economic factors
and trends, from the Life Company and its affiliates.
The Adviser pays the compensation and expenses of officers and employees of
the Fund, and directors of the Company affiliated with the Adviser, the office
expenses of the Fund, including those of the Company's Treasurer's and
Secretary's offices and other expenses incurred by the Adviser in connection
with the performance of its duties. All expenses which are not specifically paid
by the Adviser and which are incurred in the operation of the Fund (including
fees of Directors of the Company who are not "interested persons," as such term
is defined in the Investment Company Act but excluding certain
distribution-related activities required to be paid by the Adviser or John
Hancock Funds) and the continuous public offering of the shares of the Fund are
borne by the Fund. Subject to the requirements imposed by the Internal Revenue
Service on funds that have a multiple-class structure, class expenses properly
allocable to any of Class A or Class B shares will be borne exclusively by such
class of shares.
As provided by the investment management contract, the Fund pays the
Adviser a fee computed daily and payable monthly, at an annual rate of 1% of the
-26-
<PAGE>
value of the net assets of the Fund up to $100 million, and 3/4 of 1% of the
value of the net assets over $100 million, as compensation for the services
rendered by the Adviser. Effective January 1, 1995, the Adviser reduced a
portion of the management fee amounting to 0.15% of the average daily net asset
value of the first $100,000,000 of the Fund. In addition to the management fee,
the Adviser receives an annual administration fee of $100,000. The annual rate
of compensation is higher than the rate paid by most registered investment
companies, but is believed to be comparable to the fees paid by funds with
comparable objectives. The Adviser, not the Fund, pays the Sub-Adviser a monthly
fee as described in the Prospectus. For the years ended December 31, 1995, 1994
and 1993, the Adviser received management fees of $1,045,680 (net of fee
reduction), $522,041 and $361,474, respectively and administration fees of
$100,000 from the Fund for each year.
In the event normal operating expenses of the Fund, exclusive of certain
expenses prescribed by state law, for any fiscal year are in excess of any
limitation imposed by a state where the shares of the Fund are registered for
sale, the fee payable to the Adviser will be reduced to the extent required by
such law and the Adviser will make any additional arrangements that the Adviser
is required by law to make. Currently, the most restrictive limit applicable to
the Fund is 2.5% of the first $30,000,000 of the Fund's average daily net asset
value, 2% of the next $70,000,000 of such assets and 1.5% of the remaining
average daily net asset value. Pursuant to the investment management contract
and sub-advisory contract, the Adviser and Sub-Adviser are 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 their respective contract relates, except a
loss resulting from willful misfeasance, bad faith or gross negligence on the
part of the Adviser or Sub-Adviser in the performance of their duties or from
their reckless disregard of the obligations and duties under the applicable
contract.
The Adviser, located at 101 Huntington Avenue, Boston, Massachusetts 02199-
7603, was organized in 1968 and currently has more than $19 billion in assets
under management in its capacity as investment adviser to the Fund and other
mutual funds and publicly traded investment companies in the John Hancock group
of funds, having a combined total of over 1,080,000 shareholders. The Adviser is
an affiliate of the Life Company, one of the most recognized and respected
financial institutions in the nation. With total assets under management of $80
billion, the Life Company is one of the ten largest life insurance companies in
the United States, and carries high ratings from Standard & Poor's and A.M.
Best. Founded in 1862, the Life Company has been serving clients for over 130
years.
The Sub-Adviser, AFA, 1415 Kellum Place, Suite 205, Garden City, New York,
11530, was incorporated under the laws of New York in 1978. The Sub-Adviser,
subject to the supervision of the Adviser, manages the Fund's investments. AFA
also
-27-
<PAGE>
provides investment advisory and management services to individual and
institutional clients.
Pursuant to the sub-advisory contract, AFA provides day-to-day portfolio
management of the Fund. AFA furnishes the Adviser and the Fund with investment
advice and recommendations consistent with the investment policies, objectives
and restrictions of the Fund. AFA pays its own costs of maintaining staff and
personnel necessary for it to perform its obligations under the sub-advisory
contract, expenses of its office rent, telephone, telecommunications and other
facilities required by it to perform services and any other expenses, including
legal, audit and professional fees and expenses, incurred by it in connection
with the performance of its duties under the sub-advisory contract.
Each of the investment management and sub-advisory contracts has an initial
two-year term commencing upon the close of business on December 6, 1991, and
thereafter continues in effect from year to year if approved annually by a vote
of a majority of the Directors who are not interested persons of one of the
parties to the contract ("Independent Directors"), cast in person at a meeting
called for the purpose of voting on such approval, and by either the Board of
Directors or the holders of a "majority" of the Fund's outstanding voting
securities as defined in the 1940 Act. Each of the contracts automatically
terminates upon assignment. Each contract may be terminated without penalty on
60 days' notice at the option of either party to the respective contract or by
vote of a majority of the outstanding voting securities of the Fund. The
sub-advisory contract will terminate upon termination of the Adviser's
investment management contract.
DISTRIBUTION CONTRACT
The Fund has a distribution contract with John Hancock Funds. Under the
contract, John Hancock Funds is obligated to use its best efforts to sell shares
of each class of the Fund. Shares of the Fund are also sold by selected
broker-dealers (the "Selling Brokers") which have entered into selling agency
agreements with John Hancock Funds. John Hancock Funds accepts orders for the
purchase of the shares of the Fund which are continually offered at the net
asset value next determined, plus the applicable sales charge. In connection
with the sale of Class A and Class B shares, John Hancock Funds and Selling
Brokers receive compensation from a sales charge imposed, in the case of Class A
shares, at the time of sale or, in the case of Class B shares, on a deferred
basis.
The Fund's Directors have adopted Distribution Plans with respect to Class
A and Class B shares (together, 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% and 1.00% for Class
A
-28-
<PAGE>
and Class B, respectively, of the Fund's average net assets attributable to
shares of that class. However, the service fee will not exceed 0.25% of the
Fund's average daily net assets attributable to each class of shares. The
distribution fees will be used to reimburse the Distributor for its distribution
expenses, including but not limited to: (i) initial and ongoing sales
compensation to Selling Brokers and others (including affiliates of the
Distributor) engaged in the sale of Fund shares; (ii) marketing, promotional and
overhead expenses incurred in connection with the distribution of Fund shares;
and (iii) with respect to Class B shares only, interest expenses on unreimbursed
distribution expenses. The service fees will be used to compensate Selling
Brokers for providing personal and account maintenance services to shareholders.
In the event that John Hancock Funds is not fully reimbursed for expenses
incurred by it under the Class B Plan in any fiscal year, John Hancock Funds may
carry these expenses forward, provided however, that the Directors may terminate
the Class B Plan and thus the Fund's obligation to make further payments at any
time. Accordingly, the Fund does not treat unreimbursed expenses relating to the
Class B shares as a liability of the Fund. For the fiscal year ended December
31, 1995, an aggregate of $987,619 of distribution expenses, or 4.34% 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
12b-1 fees in prior periods. The Plans were approved by a majority of the
Directors, including a majority of the Independent Directors, 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 such expenditures were made. The Directors review such reports
on a quarterly basis.
During the fiscal year ended December 31, 1995, the Fund paid John Hancock
Funds the following amounts of expenses with respect to the Class A and Class B
shares of the Fund:
Expense Items
<TABLE>
<CAPTION>
Printing and
Mailing of Expenses Interest,
Prospectuses Compensation of John Carrying or
to New to Selling Hancock Other Finance
Global Technology Fund Advertising Shareholders Brokers Funds Charges
- ---------------------- ----------- ------------ ------------ -------- -------------
<S> <C> <C> <C> <C> <C>
Class A Shares $56,438 $10,757 $89,300 $158,844 $ -
Class B Shares 31,799 5,883 44,891 85,964 58,569
</TABLE>
Each of the Plans provides that it will continue in effect only so long as
its continuance is approved at least annually by a majority of both the
Directors and the Independent Directors. Each of the Plans provides that it may
be terminated without penalty (a) by vote of a majority of the Independent
Directors, (b) by a majority of the Fund's outstanding shares of the applicable
class upon 60 days' written notice to
-29-
<PAGE>
John Hancock Funds, and (c) automatically in the event of assignment. Each of
the Plans further provides that it may not be amended to increase the maximum
amount of the fees for the services described therein without the approval of a
majority of the outstanding shares of the class of the Fund which has voting
rights with respect to the Plan. And finally, each of the Plans provides that no
material amendment to the Plan will, in any event, be effective unless it is
approved by a vote of a majority of both the Directors and the Independent
Directors of the Fund. The holders of Class A and Class B shares have exclusive
voting rights with respect to the Plan applicable to their respective class of
shares. In adopting the Plans the Directors concluded that, in their judgment,
there is a reasonable likelihood that each Plan will benefit the holders of the
applicable class of shares of the Fund.
When the Fund seeks an Independent Director to fill a vacancy or as a
nominee for election by shareholders, the selection or nomination of the
Independent Director is, under resolutions adopted by the Directors
contemporaneously with their adoption of the Plans, committed to the discretion
of the Committee on Administration of the Directors. The members of the
Committee on Administration are all Independent Directors and are identified in
this Statement of Additional Information under the heading "Those Responsible
for Management."
The Fund's distribution contract, discussed above, continues in effect from
year to year if approved annually by the vote of a majority of the Independent
Directors, cast in person at a meeting called for the purpose of voting on such
approval, and by either the Directors or the holders of a majority of the
outstanding shares of each class of the Fund which has voting rights with
respect to the contract. The contract automatically terminates upon assignment
and may be terminated without penalty on 60 days' notice at the option of either
party to the contract or by vote of a majority of the outstanding shares of each
class of the Fund which has voting rights with respect to the contract.
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
-30-
<PAGE>
aforementioned categories 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 Directors.
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 Directors believe accurately reflects fair value.
The Fund will not price its securities on the following national holidays:
New Year's Day; Presidents' Day; Good Friday; Memorial Day; Independence Day;
Labor Day; Thanksgiving Day; and Christmas Day. On any day an international
market is closed and the New York Stock Exchange is open, any foreign securities
will be valued at the prior day's close with the current day's exchange rate.
Trading of foreign securities may take place on Saturdays and U.S. business
holidays on which the Fund's NAV is not calculated. Consequently, the Fund's
portfolio securities may trade and the NAV of the Fund's redeemable securities
may be significantly affected on days when a shareholder has no access to the
Fund.
INITIAL SALES CHARGE ON CLASS A SHARES
The sales charges applicable to purchases of Class A shares of the Fund are
described in the Prospectus. Methods of obtaining a reduced sales charge
referred to generally in the Prospectus are described in detail below. In
calculating the sales charge applicable to current purchases of Class A shares
of the Fund, the investor is entitled to cumulate current purchases with the
greater of the current value (at offering price) of the Class A shares of the
Fund owned by the investor, or if Investor Services is notified by the
investor's dealer or the investor at the time of the purchase, the cost of the
Class A shares owned.
Combined Purchases. In calculating the sales charge applicable to purchases
of Class A shares made at one time, the purchases will be combined if made by
(a) an individual, his spouse and their children under the age of 21, purchasing
securities for his or their own account, (b) a trustee or other fiduciary
purchasing for a single trust, estate or fiduciary account, and (c) certain
groups of four or more individuals making use of salary deductions or similar
group methods of payment whose funds are combined for the purchase of mutual
fund shares. Further information about
-31-
<PAGE>
combined purchases, including certain restrictions on combined group purchases,
is available from a Investor Services or Selling Broker's representative.
Without Sales Charge. Class A shares may be offered without a front-end
sales charge or CDSC to various individuals and institutions as follows:
o Any state, county or any instrumentality, department, authority, or agency
of these entities that is prohibited by applicable investment laws from
paying a sales charge or commission when it purchases shares of any
registered investment management company.
o A bank, trust company, credit union, savings institution or other
depository institution, its trust departments or common trust funds if it
is purchasing $1 million or more for non-discretionary customers or
accounts.
o A Director or officer of the Company; a Director or officer of the Adviser
and its affiliates or Selling Brokers; employees or sales representatives
of any of the foregoing; retired officers, employees or Directors of any of
the foregoing; a member of the immediate family (spouse, children, mother,
father, sister, brother, mother-in-law, father-in-law) of any of the
foregoing; or any fund, pension, profit sharing or other benefit plan for
the individuals described above.
o A broker, dealer, financial planner, consultant or registered investment
advisor that has entered into an agreement with John Hancock Funds
providing specifically for the use of Fund shares in fee-based investment
products or services made available to their clients.
o A former participant in an employee benefit plan with John Hancock funds,
when he or she withdraws from his or her plan and transfers any or all of
his or her plan distributions directly to the Fund.
o A member of an approved affinity group financial services plan.
o A member of a class action lawsuit against insurance companies who is
investing settlement proceeds.
o Existing full service clients of the Life Company who were group annuity
contract holders as of September 1, 1994, and participant directed defined
contribution plans with at least 100 eligible employees at the inception of
the Fund account, may purchase Class A shares with no initial sales charge.
However, if the shares are redeemed within 12 months after the end of the
calendar year in which the purchase was made, a CDSC will be imposed at the
following rate:
-----------------------------------------------------------------------
Amount Invested CDSC Rate
-----------------------------------------------------------------------
$1 million to $4,999,999 1.00%
-----------------------------------------------------------------------
Next $5 million to $9,999,999 0.50%
-----------------------------------------------------------------------
Amounts of $10 million and over 0.25%
-----------------------------------------------------------------------
-32-
<PAGE>
Shareholders of the John Hancock Global Technology Fund who were
shareholders of John Hancock National Aviation & Technology Fund ("National
Aviation") who held shares prior to May 1, 1984 are permitted for an indefinite
period to purchase additional shares of the John Hancock Global Technology Fund
at net asset value, without a sales charge, provided that the purchasing
shareholder held shares of National Aviation continuously from April 30, 1984 to
July 28, 1995 (the date of the reorganization of National Aviation with the John
Hancock Global Technology Fund) and shares of the John Hancock Global Technology
Fund from that date to the date of the purchase in question.
Class A shares may also be purchased without an initial sales charge in
connection with certain liquidation, merger or acquisition transactions
involving other investment companies or personal holding companies.
Accumulation Privilege. Investors (including investors combining purchases)
who are already Class A shareholders may also obtain the benefit of a reduced
sales charge by taking into account not only the amount then being invested but
also the purchase price or current account value of the Class A shares already
held by such person.
Combination Privilege. Reduced sales charges (according to the schedule set
forth in the Prospectus) also are available to an investor based on the
aggregate amount of his concurrent and prior investments in Class A shares of
the Fund and shares of all other John Hancock funds which carry a sales charge.
Letter of Intention. Reduced sales charges are also applicable to
investments in Class A shares made over a specified period pursuant to a Letter
of Intention ("LOI"), which should be read carefully prior to its execution by
an investor. The Fund offers two options regarding the specified period for
making investments under the LOI. All investors have the option of making their
investments over a period of thirteen months. Investors who are using the Fund
as a funding medium for a qualified retirement plan, however, may opt to make
the necessary investments called for by the LOI over a forty-eight month period.
These qualified retirement plans include IRA's, SEP, SARSEP, 401(k), 403(b)
(including TSAs) and 457 plans. Such an investment (including accumulations and
combinations) must aggregate $100,000 or more invested during the specified
period from the date of the LOI or from a date within (90) days prior thereto,
upon written request to Investor Services. The sales charge applicable to all
amounts invested under the LOI is computed as if the aggregate amount intended
to be invested had been invested immediately. If such aggregate amount is not
actually invested, the difference in the sales charge actually paid and the
sales charge payable had the LOI not been in effect is due from the investor.
However, for the purchases actually made within the specified period, the sales
charge applicable will not be higher than that which would have applied
-33-
<PAGE>
(including accumulations and combinations) had the LOI been for the amount
actually invested.
The LOI authorizes Investor Services to hold in escrow sufficient Class A
shares (approximately 5% of the aggregate) to make up any difference in sales
charges on the amount intended to be invested and the amount actually invested,
until such investment is completed within the specified period, at which time
the escrow Class A shares will be released. If the total investment specified in
the LOI is not completed, the Class A shares held in escrow may be redeemed and
the proceeds used as required to pay such sales charge as may be due. By signing
the LOI, the investor authorizes Investor Services to act as his or her
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 SHARES
Investments in Class B shares are purchased at net asset value per share
without the imposition of an initial sales charge so that the Fund will receive
the full amount of the purchase payment.
Contingent Deferred Sales Charge. Class B shares which are redeemed within
six years of purchase will be subject to a contingent deferred sales charge
("CDSC") at the rates set forth in the Prospectus as a percentage of the dollar
amount subject to the CDSC. The charge will be assessed on an amount equal to
the lesser of the current market value or the original purchase cost of the
Class B shares being redeemed. Accordingly, no CDSC will be imposed on increases
in account value above the initial purchase prices, including increases in
account value derived from reinvestment of dividends or capital gains
distributions. No CDSC will be imposed on shares derived from reinvestment of
dividends or capital gains distributions.
Class B shares are not available to full-service defined contribution plans
administered by Investor Services or the Life Company that had more than 100
eligible employees at the inception of the Fund account.
The amount of the CDSC, if any, will vary depending on the number of years
from the time of payment for the purchase of Class B shares until the time of
redemption of such shares. Solely for purposes of determining this number, 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
-34-
<PAGE>
be assumed that your redemption comes first from shares you have held beyond the
six-year CDSC redemption period or those you acquired through dividend and
capital gain reinvestment, and next from the shares you have held the longest
during the six-year period. For this purpose, the amount of any increase in a
share's value above its initial purchase price is not regarded as a share exempt
from CDSC. Thus, when a share that has appreciated in value is redeemed during
the CDSC period, a CDSC is assessed only on its initial purchase price. Upon
redemption, appreciation is effective only on a per share basis for those shares
being redeemed. Appreciation of shares cannot be redeemed CDSC free at the
account level.
When requesting a redemption for a specific dollar amount please indicate
if you require the proceeds to equal the dollar amount requested. If not
indicated, only the specified dollar amount will be redeemed from your account
and the proceeds will be less any applicable CDSC.
Example:
You have purchased 100 shares at $10 per share. The second year after your
purchase, your investment's net asset value per share has increased by $2 to
$12, and you have gained 10 additional shares through dividend reinvestment. If
you redeem 50 shares at this time your CDSC will be calculated as follows:
* Proceeds of 50 shares redeemed at $12 per share $ 600
* Minus proceeds of 10 shares not
subject to CDSC (dividend reinvestment) -120
* Minus appreciation on remaining shares (40 shares X $2) -80
-----
* Amount subject to CDSC $ 400
Proceeds from the CDSC are paid to John Hancock Funds and are used in whole
or in part by John Hancock Funds to defray its expenses related to providing
distribution-related services to the Fund in connection with the sale of the
Class B shares, such as the payment of compensation to select Selling Brokers
for selling Class B shares. The combination of the CDSC and the distribution and
service fees enables the Fund to sell the Class B shares without a sales charge
being deducted at the time of the purchase. See the Prospectus for additional
information regarding the CDSC.
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.
-35-
<PAGE>
* Redemptions made under certain liquidation, merger or acquisition
transactions involving other investment companies or personal holding
companies.
* Redemptions due to death or disability.
* Redemptions made under the Reinstatement Privilege, as described in "Sales
Charge Reductions and Waivers" of the Prospectus.
* Redemptions of Class B shares made under a periodic withdrawal plan, as
long as your annual redemptions do not exceed 12% of your account value,
including reinvested dividends, at the time you established your periodic
withdrawal plan and 12% of the value of subsequent investments (less
redemptions) in that account at the time you notify Investor Services.
(Please note that this waiver does not apply to periodic withdrawal plan
redemptions of Class A shares that are subject to a CDSC.)
For Retirement Accounts (such as IRA, Rollover IRA, TSA, 457, 403(b), 401(k),
Money Purchase Pension Plan, Profit-Sharing Plan and other qualified plans as
described in the Internal Revenue Code) unless otherwise noted.
* Redemptions made to effect mandatory or life expectancy distributions under
the Internal Revenue Code.
* Returns of excess contributions made to these plans.
* Redemptions made to effect distributions to participants or beneficiaries
from employer sponsored retirement plans under Section 401(a) of the Code
(such as 401(k), Money Purchase Pension Plan, Profit-Sharing Plan).
* Redemptions from certain IRA and retirement plans that purchased shares
prior to October 1, 1992 and certain IRA plans that purchased shares prior
to May 15, 1995.
Please see matrix for reference.
-36-
<PAGE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------
401(a) Plan
Type of (401(k), MPP, IRA, IRA
Distribution PSP) 403(b) 457 Rollover Non-retirement
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Death or Waived Waived Waived Waived Waived
Disability
- ------------------------------------------------------------------------------------------
Over 70 1/2 Waived Waived Waived Waived for 12% of account
mandatory value annually
distributions in periodic
or 12% of payments
account value
annually in
periodic
payments
- ------------------------------------------------------------------------------------------
Between 59 1/2 Waived Waived Waived Waived for 12% of account
and 70 1/2 Life value annually
Expectancy in periodic
or 12% of payments
account value
annually in
periodic
payments
- ------------------------------------------------------------------------------------------
Under 59 1/2 Waived Waived for Waived for Waived for 12% of account
annuity annuity annuity value annually
payments payments payments in periodic
(72+) or (72+) or (72+) or payments
12% of 12% of 12% of
account account account
value value value
annually in annually in annually in
periodic periodic periodic
payments payments payments
- ------------------------------------------------------------------------------------------
Loans Waived Waived N/A N/A N/A
- ------------------------------------------------------------------------------------------
Termination of Not Waived Not Waived Not Waived Not Waived N/A
Plan
- ------------------------------------------------------------------------------------------
Hardships Waived Waived Waived N/A N/A
- ------------------------------------------------------------------------------------------
Return of Waived Waived Waived Waived N/A
Excess
- ------------------------------------------------------------------------------------------
</TABLE>
If you qualify for a waiver under one of these situations, you must notify
Investor Services at the time you make your redemption. The waiver will be
granted once Investor Services has confirmed 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
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prescribed by the Directors. When the shareholder sells portfolio securities
received in this fashion he would incur a brokerage charge. Any such securities
would be valued for the purposes of making such payment at the same value as
used in determining net asset value. The Fund has, however, elected to be
governed by Rule 18f-1 under the Investment Company Act. Under that rule, the
Fund must redeem its shares for cash except to the extent that the redemption
payments to any one 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.
Systematic Withdrawal Plan. The Fund permits the establishment of a
Systematic Withdrawal Plan. Payments under this plan represent proceeds arising
from the redemption of the Fund's shares. Since the redemption price of the
shares of the Fund may be more or less than the shareholder's cost, depending
upon the market value of the securities owned by the Fund at the time of
redemption, the distribution of cash pursuant to this plan may result in
recognition of gain or loss for purposes of Federal, state and local income
taxes. The maintenance of a Systematic Withdrawal Plan concurrently with
purchases of additional Class A or Class B shares of the Fund could be
disadvantageous to a shareholder because of the initial sales charge payable on
such purchases of Class A shares and the CDSC imposed on redemptions of Class B
shares and because redemptions are taxable events.
Therefore, a shareholder should not purchase Class A or Class B shares at
the same time as a Systematic Withdrawal Plan is in effect. The Fund reserves
the right to modify or discontinue the Systematic Withdrawal Plan of any
shareholder on 30 days' prior written notice to such shareholder, or to
discontinue the availability of such plan in the future. The shareholder may
terminate the plan at any time by giving proper notice to Investor Services.
Monthly Automatic Accumulation Program ("MAAP"). The program, as it relates
to automatic investing, 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 Automatic Investing Program
may be revoked by Investor Services without prior notice if any investment is
not honored by the shareholder's bank. The bank shall be under no obligation to
notify the shareholder as to the non-payment of any checks.
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The Program may be discontinued by the shareholder either by calling
Investor Services or upon notice to Investor Services which is received at least
five (5) business days prior to the processing date of any investment.
Reinvestment Privilege. A shareholder who has redeemed 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 in any of the other John Hancock funds, subject to the minimum
investment limit in that fund. The proceeds from the redemption of Class A
shares may be reinvested at net asset value without paying a sales charge in
Class A shares of the Fund or in Class A shares of any other John Hancock funds.
If a CDSC was paid upon a redemption, a shareholder may reinvest the proceeds
from such redemption at net asset value in additional shares of the class from
which the redemption was made. Such shareholder's account will be credited with
the amount of any CDSC charged upon the prior redemption and the new shares will
continue to be subject to the CDSC. The holding period of the shares acquired
through reinvestment will, for purposes of computing the CDSC payable upon a
subsequent redemption, include the holding period of the redeemed shares. The
Fund may modify or terminate the reinvestment privilege at any time.
A redemption or exchange of Fund shares is a taxable transaction for
Federal income tax purposes even if the reinvestment privilege is exercised, and
any gain or loss realized by a shareholder on the redemption or other
disposition of Fund shares will be treated as described under the heading "Tax
Status."
TAX STATUS
Each series of the Company, including the Fund, is treated as a separate
entity for tax purposes. The Fund has qualified and has elected to be treated as
a "regulated investment company" under Subchapter M of the Code, and intends to
continue to so qualify 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) which is distributed to shareholders in accordance with
the timing requirements of the Code.
The Fund will be subject to a four percent nondeductible Federal excise tax
on certain amounts not distributed (and not treated as having been distributed)
on a timely basis in accordance with annual minimum distribution requirements.
The Fund intends under normal circumstances to seek to avoid or minimize
liability for such tax by satisfying such distribution requirements.
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Distributions from the Fund's current or accumulated earnings and profits
("E&P") will be taxable under the Code for investors who are subject to tax. If
these distributions are paid from the Fund's "investment company taxable
income," they will be taxable as ordinary income; and if they are paid from the
Fund's "net capital gain," they will be taxable as long-term capital gain. (Net
capital gain is the excess (if any) of net long-term capital gain over net
short-term capital loss, and investment company taxable income is all taxable
income and capital gains, other than net capital gain, after reduction by
deductible expenses.) Some distributions from investment company taxable income
and/or net capital gain may be paid in January but may be taxable to
shareholders as if they had been received on December 31 of the previous year.
The tax treatment described above will apply without regard to whether
distributions are received in cash or reinvested in additional shares of the
Fund.
Distributions, if any, in excess of E&P will constitute a return of capital
under the Code, which will first reduce an investor's federal tax basis in Fund
shares and then, to the extent such basis is exceeded, will generally give rise
to capital gains. Shareholders who have chosen automatic reinvestment of their
distributions will have a federal tax basis in each share received pursuant to
such a reinvestment equal to the amount of cash they would have received had
they elected to receive the distribution in cash, divided by the number of
shares received in the reinvestment.
Foreign exchange gains and losses realized by the Fund in connection with
certain transactions involving foreign currency-denominated debt securities,
foreign currency forward contracts, foreign currencies, or payables or
receivables denominated in a foreign currency are subject to Section 988 of the
Code, which generally causes such gains and losses to be treated as ordinary
income and losses and may affect the amount, timing and character of
distributions to shareholders. Any such transactions that are not directly
related to the Fund's investment in stock or securities, possibly including
speculative currency positions or currency derivatives not used for hedging
purposes, may increase the amount of gain it is deemed to recognize from the
sale of certain investments or derivatives held for less than three months,
which gain is limited under the Code to less than 30% of its gross income for
each taxable year, and may under future Treasury regulations produce income not
among the types of "qualifying income" from which the Fund must derive at least
90% of its gross income for each taxable year. If the net foreign exchange loss
for a year 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.
Certain payments received by the Fund with respect to loan participations,
such as commitment fees or facility fees, may not be treated as qualifying
income under the 90% requirement referred to above if they are not properly
treated as interest under the Code.
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If the Fund invests in stock in certain non-U.S. corporations that receive
at least 75% of their annual gross income from passive sources (such as
interest, dividends, rents, royalties or capital gain) or hold at least 50% of
their assets in investments producing such passive income ("passive foreign
investment companies"), the Fund could be subject to Federal income tax and
additional interest charges on "excess distributions" received from these
passive foreign investment companies or gain from the sale of stock in such
companies, even if all income or gain actually received by the Fund is timely
distributed to its shareholders. The Fund would not be able to pass through to
its shareholders any credit or deduction for such a tax. Certain elections may,
if available, ameliorate these adverse tax consequences, but any such election
could require the Fund to recognize taxable income or gain without the
concurrent receipt of cash. The Fund may limit and/or manage its investments in
passive foreign investment companies to minimize its tax liability or maximize
its return from these investments.
Limitations imposed by the Code on regulated investment companies like the
Fund may restrict the Fund's ability to enter into options contracts, foreign
currency positions and foreign currency forward contracts. Certain of these
transactions may cause the Fund to recognize gains or losses from marking to
market even though its positions have not been sold or terminated and may affect
the character as long-term or short-term (or, in the case of certain foreign
currency options and forward contracts, as ordinary income or loss) of some
capital gains and losses realized by the Fund. Additionally, certain of the
Fund's losses on transactions involving options, forward contracts, and any
offsetting or successor positions in its portfolio may be deferred rather than
being taken into account currently in calculating the Fund's taxable income or
gain. Certain of such transactions may also cause the Fund to dispose of
investments sooner than would otherwise have occurred. These transactions may
therefore affect the amount, timing and character of the Fund's distributions to
shareholders. The Fund will take into account the special tax rules applicable
to options or forward contracts, including consideration of available elections,
in order to seek to minimize any potential adverse tax consequences.
The amount of net realized capital gains, if any, realized in any given
year will result from options transactions and 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 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
on those 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.
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Upon a redemption of shares of the Fund (including by exercise of the
exchange privilege) a shareholder will ordinarily realize a taxable gain or loss
depending upon the amount of the proceeds and the investor's basis in his
shares. Such gain or loss will be treated as capital gain or loss if the shares
are capital assets in the shareholder's hands and will be long-term or
short-term, depending upon the shareholder's tax holding period for the shares
and subject to the special rules described below. A sales charge paid in
purchasing Class A shares of the Fund cannot be taken into account for purposes
of determining gain or loss on the redemption or exchange of such shares within
90 days after their purchase to the extent Class A shares of the Fund or another
John Hancock fund are subsequently acquired without payment of a sales charge
pursuant to the reinvestment or exchange privilege. 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.
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 carry
forward 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 Fund shares by the difference between
his pro rata share of this excess and the pro rata share of these taxes.
For Federal income tax purposes, the Fund is permitted to carryforward 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
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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 capital loss carry forwards available to offset future
net capital gains.
Investment in debt obligations that are at risk of or in default presents
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 acquires or holds any such obligations,
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.
For purposes of the dividends received deduction available to corporations,
dividends received by the Fund from U.S. domestic corporations in respect of any
share of stock held by the Fund, for U.S. Federal income tax purposes, for at
least 46 days (91 days in the case of certain preferred stock) and distributed
and properly designated by the Fund may be treated as qualifying dividends.
Corporate shareholders must meet the minimum holding period requirement stated
above (46 or 91 days) with respect to their shares of the Fund in order to
qualify for the deduction and, if they have any debt that is deemed under the
Code directly attributable to Fund shares, may be denied a portion of the
dividends received deduction. The entire qualifying dividend, including the
otherwise deductible amount, will be taken into account in determining
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 may be subject to withholding and other taxes imposed by foreign
countries with respect to the Fund's investments in certain foreign securities.
Tax conventions between certain countries and the U.S. may reduce or eliminate
such taxes in some cases. 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"), subject to certain provisions and
limitations contained in the Code. Specifically, if more than 50% of the value
of Fund's total assets at the close of any taxable year consists of stock or
securities of foreign corporations, the Fund may file an election with the
Internal Revenue Service pursuant to which shareholders of the Fund will be
required to (i) include in ordinary gross income (in addition to taxable
dividends and distributions actually received) their pro rata shares of
qualified foreign taxes paid by the Fund even though not actually received
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by them, and (ii) treat such respective pro rata portions as qualified foreign
taxes paid by them.
If the Fund makes this election, shareholders may then deduct such pro rata
portions of qualified foreign taxes in computing their taxable incomes, or,
alternatively, use them as foreign tax credits, subject to applicable
limitations, against their U.S. Federal income taxes. Shareholders who do not
itemize deductions for Federal income tax purposes will not, however, be able to
deduct their pro rata portion of qualified foreign taxes paid by the Fund,
although such shareholders will be required to include their shares of such
taxes in gross income. Shareholders who claim a foreign tax credit for such
foreign taxes may be required to treat a portion of dividends received from the
Fund as separate category of income for purposes of computing the limitations on
the foreign tax credit. Tax-exempt shareholders will ordinarily not benefit from
this election. Each year, if any, that the Fund files the election described
above, its shareholders will be notified of the amount of (i) each shareholder's
pro rata share of qualified foreign taxes paid by the Fund and (ii) the portion
of Fund dividends which represents income from each foreign country. If the Fund
cannot or does not make this election, the Fund will deduct the foreign taxes it
pays in determining the amount it has available for distribution to
shareholders, and shareholders will not include these foreign taxes in their
income, nor will they be entitled to any tax deductions or credits with respect
to such taxes.
The Fund is required to accrue income on any debt securities that have more
than a de minimis amount of original issue discount (or debt securities acquired
at a market discount, if the Fund elects to include market discount in income
currently) prior to the receipt of the corresponding cash payments. The mark to
market rules applicable to certain options and forward contracts may also
require the Fund to recognize income or gain without a concurrent receipt of
cash. However, the Fund must distribute to shareholders for each taxable year
substantially all of its net income and net capital gains, including such income
or gain, to qualify as a regulated investment company and avoid liability for
any federal income or excise tax. Therefore, the Fund may have to dispose of its
portfolio securities under disadvantageous circumstances to generate cash, or
may have to leverage itself by borrowing the cash, to satisfy these distribution
requirements.
A state income (and possibly local income and/or intangible property) tax
exemption is generally available to the extent (if any) the Fund's distributions
are derived from interest on (or, in the case of intangibles taxes, the value of
its assets is attributable to) certain U.S. Government obligations, provided in
some states that certain thresholds for holdings of such obligations and/or
reporting requirements are satisfied. The Fund will not seek to satisfy any
threshold or reporting requirements that may apply in particular taxing
jurisdictions, although the Fund may in its sole discretion provide relevant
information to shareholders.
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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 provision.
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 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 this law.
The discussion does not address special tax rules applicable to certain classes
of investors, such as tax-exempt entities, insurance companies and financial
institutions. Dividends, capital gain distributions, and ownership of or gains
realized on the redemption (including an exchange) of Fund shares may also be
subject to state and local taxes. Shareholders should consult their own tax
advisers as to the Federal, state or local tax consequences of, and receipt of
distributions from, ownership of shares of the Fund in their particular
circumstances.
Non-U.S. investors not engaged in a U.S. trade or business with which their
Fund investment is effectively connected will be subject to U.S. Federal income
tax treatment that is different from that described above. These investors may
be subject to nonresident alien withholding tax at the rate of 30% (or a lower
rate under an applicable tax treaty) on amounts treated as ordinary dividends
from the Fund and, unless an effective IRS Form W-8 or authorized substitute for
Form W-8 is on file, to 31% backup withholding on certain other payments from
the Fund. Non-U.S.
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investors should consult their tax advisers regarding such treatment and the
application of foreign taxes to an investment in the Fund.
Provided that the Fund qualifies as a regulated investment company under
the Code, it will not be required to pay Massachusetts corporate excise or
franchise taxes.
DESCRIPTION OF THE FUND'S SHARES
The Company's Articles of Incorporation permit the Board of Directors to
issue 200 million shares of capital stock. The Fund consists of 100 million
shares, $0.20 par value which consists of 50 million shares for each of Class A
and Class B. Each share represents an equal proportionate interest in the Fund
with each other share. Upon liquidation of the Fund, holders are entitled to
share pro rata in the net assets of the Fund available for distribution to such
holders. Shares have no preemptive or conversion rights. Shares are fully paid
and non assessable by the Fund and are freely transferable. The shareholders of
the Company are entitled to a full vote for each full share held and to a
fractional vote for fractional shares on all matters on which they are entitled
to vote.
The Board of Directors may authorize the creation of additional series of
shares with such preferences, privileges, limitations and voting and dividend
rights as the Board of Directors may determine. The proceeds of sales of shares
of any additional series would be invested in separate, independently managed
portfolios with distinct investment objectives, policies and restrictions, and
share purchase, redemption and net asset valuation procedures. All consideration
received by the Company for sales of shares of any additional series, and all
assets in which such consideration is invested, would belong to that series
(subject only to the rights of creditors of such series) and would be subject to
the liabilities related thereto. Pursuant to the 1940 Act, shareholders of any
additional series would normally have to approve the adoption of any management
contract relating to such series and of any changes in the investment policies
related thereto.
The shares of each class of the Fund represent an equal proportionate
interest in the aggregate net assets attributable to that relevant class of the
Fund. The holders of Class A and Class B shares each have certain exclusive
voting rights on matters relating to their respective Rule 12b-1 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 and Class B shares
will be borne
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exclusively by such class, (ii) Class B 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 attributable to that class of shares, subject to
the requirements imposed by the Internal Revenue Service on Funds that have a
multiple-class structure. Similarly, the net asset value per share may vary
depending on the class of shares purchased.
The Board of Directors has the power to alter the number and the terms of
office of the Directors, to lengthen their own terms, or to make their terms of
unlimited duration, subject to certain removal procedures, and to appoint their
own successors; provided that at least a majority of Directors has been elected
by the shareholders. The voting rights of shareholders are not cumulative so
that holders of more than 50% of the shares voting can, if they choose, elect
all Directors being selected while the holders of the remaining shares would be
unable to elect any Directors. It is the intention of the Company not to hold
annual meetings of shareholders. The Directors may call special meetings of
shareholders for action by shareholder vote as may be required by either the
Investment Company Act or the Company's Charter. At any meeting called for the
purpose of removing from office any director, the shareholders may, by vote of
the holders of a majority of the outstanding shares entitled to vote, remove
from office any director and elect a successor, unless the number of directors
constituting the whole board is accordingly decreased.
Notwithstanding the fact that the Prospectus is a combined prospectus for
the Fund and other John Hancock mutual funds, the Fund shall not be liable for
the liabilities of any other John Hancock mutual fund.
In order to avoid conflicts with portfolio trades for the Fund, the Adviser
and the Fund have adopted extensive restrictions on personal securities trading
by personnel of the Adviser and its affiliates. Some of these restrictions are:
pre-clearance for all personal trades and a ban on the purchase of initial
public offerings, as well as contributions to specified charities of profits on
securities held for less than 91 days. These restrictions are a continuation of
the basic principle that the interests of the Fund and its shareholders come
first.
CALCULATION OF PERFORMANCE
The average annual total return of the Class A shares of the Fund for the 1
year, 5 year and 10 year periods ended December 31, 1995 was 39.20%, 23.25%, and
12.20%, respectively.
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The average annual total return of the Class B shares of the Fund for the 1
year period ended December 31, 1995 and since inception on January 3, 1994 was
40.42% and 25.03%, respectively.
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:
T = NROOT n(ERV/P) -1
Where:
P = a hypothetical initial investment of $1,000.
T = average annual total return.
n = number of years.
ERV = ending redeemable value of a hypothetical $1,000 investment made at the
beginning of the 1, 5 and 10 year periods.
This calculation assumes the maximum sales charge of 5.00% is included in
the initial investment or the CDSC is applied at the end of the period and also
assumes that all dividends and distributions are reinvested at net asset value
on the reinvestment dates during the period.
In addition to average annual total returns, the Fund may quote unaveraged
or cumulative total returns reflecting the simple change in value of an
investment over a stated period. The "distribution rate" is determined by
annualizing the result of dividing the declared dividends of the Fund during the
period stated by the maximum offering price or net asset value at the end of the
period. In addition to average annual total returns, the fund may quote
unaveraged or cumulative total returns reflecting the change in value of an
investment over a stated period. Cumulative total returns may be quoted as a
percentage or as a dollar amount, and may be calculated for a single investment,
a series of investments, and/or a series of redemptions, over any time period.
Total returns may be quoted with or without taking the Fund's 5.00% sales charge
on Class A shares or the CDSC on Class B shares into account. Excluding the
Fund's sales charge on Class A shares and the CDSC on Class B shares from a
total return calculation produces a higher return figure.
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From time to time, in reports and promotional literature, the Fund's total
return will be compared to indices of mutual funds such as Lipper Analytical
Services, Inc.'s "Lipper-Mutual Performance Analysis," monthly publications
which track net assets and total return on equity mutual funds in the United
States. Ibottson and Associates, CDA Weisenberger and F.C. Towers are also used
for comparison purposes, as well as the Russell and Wilshire Indices.
Performance rankings and ratings reported periodically in national
financial publications such as Money magazine, Forbes, Business Week, The Wall
Street Journal, Micropal, Inc., Morning Star Inc., Stanger's and Barron's, etc.,
will also be utilized.
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 capital stock; and changes in
operating expenses are all examples of items that can increase or decrease the
Fund's performance.
BROKERAGE ALLOCATION
Decisions concerning the purchase and sale of portfolio securities and the
allocation of brokerage commissions are made by the Adviser pursuant to
recommendations made by its investment committee, which consists of officers and
directors of the Adviser and officers and Directors of the Company who are
interested persons of the Company, and by the Sub-Adviser. 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." Investments in debt securities are
generally traded on a net basis through dealers acting for their own account as
principals and not as brokers; no brokerage commissions are payable on such
transactions.
The Fund's primary policy is to execute all purchases and sales of
portfolio instruments at the most favorable prices consistent with best
execution, considering all of the costs of the transaction including brokerage
commissions. This policy governs the selection of brokers and dealers and the
market in which a transaction is executed. Consistent with the foregoing primary
policy, the Rules of Fair Practice of the National Association of Securities
Dealers, Inc. and other policies as the Directors may determine, the Adviser and
the Sub-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.
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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 and
Sub-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 and Sub-Adviser. The
receipt of research information is not expected to reduce significantly the
expenses of the Adviser and Sub-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.
Similarly, research information and assistance provided to the Sub-Adviser by
brokers and dealers may benefit other advisory clients or affiliates of the
Sub-Adviser. The Fund will make no commitment to allocate portfolio transactions
upon any prescribed basis. While the Adviser, together with the Sub-Adviser,
will be primarily responsible for the allocation of the Fund's brokerage
business, the policies and practices of the Adviser in this regard must be
consistent with the foregoing and will at all times be subject to review by the
Board of Directors.
As permitted by Section 28(e) of the Securities Exchange Act of 1934, the
Fund may pay to a broker which provides brokerage and research services to the
Fund an amount of disclosed commission in excess of the commission which another
broker would have charged for effecting that transaction. This practice is
subject to a good faith determination by the Board of Directors that the price
is reasonable in light of the services provided and policies as the Board of
Directors may adopt from time to time. During the fiscal year ended December 31,
1995, the Fund directed commissions in the amount of $34,300 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 John Hancock Freedom Securities Corporation and its subsidiaries,
three of which, Tucker Anthony Incorporated, John Hancock Distributors, Inc. and
Sutro & Company, Inc. are broker-dealers ("Affiliated Brokers"). Pursuant to
procedures determined by the Directors and consistent with the above policy of
obtaining best net results, the Fund may execute portfolio transactions with or
through Affiliated Brokers. During the years ended December 31, 1995, 1994 and
1993, the Fund did not execute any portfolio transactions with Affiliated
Brokers.
During 1993, 1994 and 1995, the Fund paid total brokerage commissions,
excluding spreads or commissions on principal transactions, of $40,949, $81,677
and $102,799, respectively.
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<PAGE>
TRANSFER AGENT SERVICES
John Hancock Investor Services Corporation, P.O. Box 9116, Boston, MA
02205-9116, a wholly-owned indirect subsidiary of the Life Company, is the
transfer and dividend paying agent for the Fund. The Fund pays an annual fee of
$16.00 for each Class A shareholder and $18.50 for each Class B shareholder,
plus certain out-of-pocket expenses. These expenses are aggregated and charged
to the Fund and allocated to each class on the basis of the 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, 89 South Street, Boston,
Massachusetts 02111. Under the custodian agreement, Investors Bank & Trust
Company performs custody, portfolio and fund accounting services.
INDEPENDENT AUDITORS
The independent auditors of the Fund are Price Waterhouse LLP, 160 Federal
Street, Boston, Massachusetts 02110. Price Waterhouse LLP audits and renders an
opinion on the Fund's annual financial statements and reviews the Fund's annual
Federal income tax return.
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<PAGE>
APPENDIX A
DESCRIPTION OF BOND RATINGS*
Moody's Bond ratings
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 likely to impair
the fundamentally strong position of such issues.
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 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 .
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 sometime in the future.
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,
characterizes 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.
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* As described by the rating companies themselves.
A-1
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Bonds which are rated 'Ca' represent obligations which are speculative in a
high degree. Such issues are often in default or have other marked shortcomings.
Standard & Poor's Bond ratings
AAA. This is the highest rating assigned by Standard & Poor's to a debt
obligation and indicates an extremely strong capacity to pay principal and
interest.
AA. Bonds rated AA also qualify as high-quality debt obligations. Capacity
to pay principal and interest is very strong, and in the majority of instances
they differ from AAA issues only in small degree.
A. Bonds rated A have a strong capacity to pay principal and interest,
although they are somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions.
BBB. Bonds rated BBB are regarded as having an adequate capacity to pay
principal and interest. Whereas they normally exhibit protection parameters,
adverse economic conditions or changing circumstances are more likely to lead to
a weakened capacity to pay principal and interest for bonds in this category
than for bonds in the A category.
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 'CCC' rating.
CC. The rating 'CC' is typically applied to debt subordinated to senior
debt that is assigned an actual or implied 'CCC' rating.
A-2
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FINANCIAL STATEMENTS
F-1
