JOHN HANCOCK
International/
Global Funds
[Graphic]
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Prospectus
March 1, 1997*
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.
*Revised December 8, 1997
Growth
Global 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, [Clip art] Growth
strategies, risks, expenses
and financial history. Global Fund 4
Global Rx Fund 6
Global Technology Fund 8
International Fund 10
Pacific Basin Equities Fund 12
[Clip art] Income
Short-Term Strategic Income Fund 14
World Bond Fund 16
Policies and instructions for Your account
opening, maintaining and closing Choosing a share class 18
an account in any How sales charges are calculated 18
international/global fund. Sales charge reductions and waivers 19
Opening an account 20
Buying shares 21
Selling shares 22
Transaction policies 24
Dividends and account policies 24
Additional investor services 25
Details that apply to the Fund details
inter national/global funds as Business structure 26
a group. Sales compensation 27
More about risk 29
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 has its own strategy and 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
$22 billion in assets.
FUND INFORMATION KEY
Concise fund-by-fund descriptions begin on the next page. Each description
provides the following information:
[Clip art] Goal and strategy The fund's particular investment goals and the
strategies it intends to use in pursuing those goals.
[Clip art] 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.
[Clip art] Risk factors The major risk factors associated with the fund.
[Clip art] Portfolio management The individual or group (including subadvisers,
if any) designated by the investment adviser to handle the fund's day-to-day
management.
[Clip art] Expenses The overall costs borne by an investor in the fund,
including sales charges and annual expenses.
[Clip art] 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: JOHN HANCOCK INVESTMENT TRUST III
TICKER SYMBOL CLASS A: JHGAX CLASS B: FGLOX
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GOAL AND STRATEGY
[Clip art] 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
[Clip art] 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
[Clip art] 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 29. 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
[Clip art] Miren Etcheverry, John L.F. Wills, and Gerardo J. Espinoza lead the
portfolio management team. Ms. Etcheverry and Mr. Espinoza are senior vice
presidents and joined John Hancock Funds in December 1996, having been in the
investment business since 1978 and 1979, respectively. Mr. Wills is a senior
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
[Clip art] 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) 0.88% 0.88%
12b-1 fee(4) 0.30% 1.00%
Other expenses 0.63% 0.63%
Total fund operating expenses 1.81% 2.51%
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 $67 $104 $143 $252
Class B shares
Assuming redemption
at end of period $75 $108 $154 $267
Assuming no redemption $25 $78 $134 $267
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
[Clip art] The figures below have been audited by the fund's independent
auditors, Price Waterhouse LLP.
[The table below was represented as a bar graph in the printed material.]
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Volatility, as indicated by Class B
year-by-year total investment return (%) 35.42(4) (16.97)(4) 7.05 30.22 (10.42) 14.04 (3.85) 34.95 7.97 (1.01) 9.10
(scale varies from fund to fund)
</TABLE>
<TABLE>
<CAPTION>
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Class A - period ended: 10/92(1) 10/93 10/94 10/95 10/96
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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)(2) (0.10)(2) (0.07)(2) (0.03)(2) (0.02)(2)
Net realized and unrealized gain (loss) on
investments and foreign currency transactions (0.72) 3.85 1.24 (0.13) 1.20
Total from investment operations (0.76) 3.75 1.17 (0.16) 1.18
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 $12.97
Total investment return at net asset value(3) (%) (6.72)(4) 35.55 8.64 (0.37) 9.87
Ratios and supplemental data
Net assets, end of period (000s omitted) ($) 76,980 90,787 100,973 93,597 94,746
Ratio of expenses to average net assets (%) 2.47(5) 2.12 1.98 1.87 1.88
Ratio of net investment income (loss) to average
net assets (%) (0.60)(5) (0.86) (0.54) (0.23) (0.19)
Portfolio turnover rate (%) 69 108 61 60 98
Average brokerage commission rate(6) ($) N/A N/A N/A N/A 0.0221
<CAPTION>
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Class B - period ended: 5/87(7) 10/87(8) 10/88 10/89 10/90 10/91
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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)(2)
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 $10.92
Total investment return at net asset value(3) (%) 35.42(4) (16.97)(4) 7.05 30.22 (10.42) 14.04
Ratios and supplemental data
Net assets, end of period (000s omitted) ($) 62,264 50,883 34,380 35,596 33,281 28,686
Ratio of expenses to average net assets (%) 2.38(5) 2.56(5) 2.55 2.30 2.46 2.60
Ratio of net investment income (loss) to average
net assets (%) 0.99(5) (0.78)(5) 0.09 (0.47) (0.59) (0.12)
Portfolio turnover rate (%) 91 81 142 138 58 106
Average brokerage commission rate(6) ($) N/A N/A N/A N/A N/A N/A
<CAPTION>
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Class B - period ended: 10/92 10/93 10/94 10/95 10/96
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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)(2) (0.15)(2) (0.15)(2) (0.11)(2) (0.10)(2)
Net realized and unrealized gain (loss) on
investments and foreign currency transactions (0.30) 3.82 1.22 (0.13) 1.16
Total from investment operations (0.42) 3.67 1.07 (0.24) 1.06
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 $12.54
Total investment return at net asset value(3) (%) (3.85) 34.95 7.97 (1.01) 9.10
Ratios and supplemental data
Net assets, end of period (000s omitted) ($) 11,475 19,340 31,822 24,570 27,599
Ratio of expenses to average net assets (%) 2.68 2.49 2.59 2.57 2.54
Ratio of net investment income (loss) to average
net assets (%) (1.03) (1.25) (1.12) (0.89) (0.83)
Portfolio turnover rate (%) 69 108 61 60 98
Average brokerage commission rate(6) ($) N/A N/A N/A N/A 0.0221
</TABLE>
(1) Class A shares commenced operations on January 3, 1992.
(2) Based on the average of the shares outstanding at the end of each month.
(3) Assumes dividend reinvestment and does not reflect the effect of sales
charges.
(4) Not annualized.
(5) Annualized.
(6) Per portfolio share traded. Required for fiscal years that began September
1, 1995 or later.
(7) For the period September 2, 1986 (commencement of operations) to May 31,
1987.
(8) For the period June 1, 1987 to October 31, 1987.
GROWTH - GLOBAL FUND 5
<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
[Clip art] 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 invests 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
[Clip art] 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
[Clip art] 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 29.
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
[Clip art] Linda I. Miller, CFA, 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
[Clip art] 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
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Annual fund operatingexpenses (as a % of average net assets)
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Management fee 0.80% 0.80%
12b-1 fee(3) 0.30% 1.00%
Other expenses 0.82% 0.82%
Total fund operating expenses 1.92% 2.62%
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 $69 $107 $148 $263
Class B shares
Assuming redemption
at end of period $77 $111 $159 $278
Assuming no redemption $27 $ 81 $139 $278
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.
6 GROWTH - GLOBAL RX FUND
<PAGE>
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FINANCIAL HIGHLIGHTS
[Clip art] The figures below have been audited by the fund's independent
auditors, Price Waterhouse LLP.
[The table below was represented as a bar graph in the printed material.]
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
Volatility, as indicated by Class A
year-by-year total investment return (%) 33.40(5) 0.30 23.39 30.89 18.39 (1.26)(5)
(scale varies from fund to fund) two
months
</TABLE>
<TABLE>
<CAPTION>
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Class A - period ended: 8/92(1) 8/93 8/94 8/95 8/96 10/96(2)
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<S> <C> <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 $25.43
Net investment income (loss) (0.03) (0.23) (0.32) (0.36)(3) (0.19)(3) (0.05)(3)
Net realized and unrealized gain (loss) on
investments and foreign currency transactions 3.37 0.27 3.45 5.46 4.15 (0.27)
Total from investment operations 3.34 0.04 3.13 5.10 3.96 (0.32)
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 $25.43 $25.11
Total investment return at net asset value(4) (%) 33.40(5) 0.30 23.39 30.89 18.39 (1.26)(5)
Total adjusted investment return at
net asset value(4,6) (%) 32.11(5) 0.04 -- -- -- -
Ratios and supplemental data
Net assets, end of period (000s omitted) ($) 14,702 15,647 18,643 24,394 42,405 42,618
Ratio of expenses to average net assets (%) 1.98(7) 2.50 2.55 2.56 1.80 1.92(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) (0.75) (1.04)(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 68 24
Fee reduction per share ($) 0.085 0.035 -- -- -- -
Average brokerage commission rate(9) ($) N/A N/A N/A N/A 0.0181 0.0726
<CAPTION>
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Class B - period ended: 8/94(1) 8/95 8/96 10/96(2)
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<S> <C> <C> <C> <C>
Per share operating performance
Net asset value, beginning of period $17.29 $16.46 $21.35 $24.94
Net investment income (loss) (0.17)(3) (0.55)(3) (0.34)(3) (0.08)(3)
Net realized and unrealized gain (loss) on investments and
foreign currency transactions (0.66) 5.44 4.07 (0.26)
Total from investment operations (0.83) 4.89 3.73 (0.34)
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 $24.94 $24.60
Total investment return at net asset value(4) (%) (4.80)(5) 29.71 17.53 (1.36)(5)
Ratios and supplemental data
Net assets, end of period (000s omitted) ($) 1,071 6,333 36,591 37,521
Ratio of expenses to average net assets (%) 3.34(7) 3.45 2.42 2.62(7)
Ratio of net investment income (loss) to average net assets (%) (2.65)(7) (2.91) (1.33) (1.74)(7)
Portfolio turnover rate (%) 52 38 68 24
Average brokerage commission rate(9) ($) N/A N/A 0.0181 0.0726
</TABLE>
(1) Class A and Class B shares commenced operations on October 1, 1991 and
March 7, 1994, respectively.
(2) Effective October 31, 1996, the fiscal year end changed from August 31 to
October 31.
(3) Based on the average of the shares outstanding at the end of each month.
(4) Assumes dividend reinvestment and does not reflect the effect of sales
charges.
(5) Not annualized.
(6) An estimated total return calculation that does not take into consideration
fee reductions by the adviser during the periods shown.
(7) Annualized.
(8) Unreimbursed, without fee reduction.
(9) Per portfolio share traded. Required for fiscal years that began September
1, 1995 or later.
GROWTH - GLOBAL RX FUND 7
<PAGE>
Global Technology Fund
REGISTRANT NAME: JOHN HANCOCK SERIES TRUST
TICKER SYMBOL CLASS A: NTTFX CLASS B: FGTBX
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GOAL AND STRATEGY
[Clip art] 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 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. Income is a secondary
goal.
PORTFOLIO SECURITIES
[Clip art] 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
[Clip art] 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 29. 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
[Clip art] 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.
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INVESTOR EXPENSES
[Clip art] 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
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Annual fund operating expenses (as a % of average net assets)
- --------------------------------------------------------------------------------
Management fee(3) 0.79% 0.79%
12b-1 fee(4) 0.30% 1.00%
Other expenses 0.48% 0.48%
Total fund operating expenses 1.57% 2.27%
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
- --------------------------------------------------------------------------------
Class A shares $65 $97 $131 $227
Class B shares
Assuming redemption
at end of period $73 $101 $142 $243
Assuming no redemption $23 $ 71 $122 $243
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.
8 GROWTH - GLOBAL TECHNOLOGY FUND
<PAGE>
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FINANCIAL HIGHLIGHTS
[Clip art] The figures below have been audited by the fund's independent
auditors, Price Waterhouse LLP.
[The table below was represented as a bar graph in the printed material.]
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Volatility, as indicated by Class A
year-by-year total investment return (%) 2.98 2.84 10.48 16.61 (18.46) 33.05 5.70 32.06 9.62 46.53 5.22(4)
(scale varies from fund to fund) ten
months
</TABLE>
<TABLE>
<CAPTION>
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Class A - period ended: 12/86 12/87 12/88 12/89 12/90 12/91 12/92 12/93
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<S> <C> <C> <C> <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 $12.44 $15.60 $14.94
Net investment income (loss) 0.14 0.15 0.15 0.10 (0.04) 0.05 (0.15) (0.21)
Net realized and unrealized gain (loss) on
investments and foreign currency transactions 0.25 0.26 1.32 2.43 (3.09) 4.11 1.00 4.92
Total from investment operations 0.39 0.41 1.47 2.53 (3.13) 4.16 0.85 4.71
Less distributions:
Dividends from net investment income (0.16) (0.23) (0.14) (0.13) -- (0.04) -- --
Distributions from net realized gain on
investments and foreign currency transactions -- -- -- (0.78) (1.36) (0.96) (1.51) (2.20)
Total distributions (0.16) (0.23) (0.14) (0.91) (1.36) (1.00) (1.51) (2.20)
Net asset value, end of period $13.80 $13.98 $15.31 $16.93 $12.44 $15.60 $14.94 $17.45
Total investment return at net asset value(3) (%) 2.89 2.84 10.48 16.61 (18.46) 33.05 5.70 32.06
Total adjusted investment return at net asset value(3,5) -- -- -- -- -- -- 5.53 --
Ratios and supplemental data
Net assets, end of period (000s omitted) ($) 56,927 44,224 38,594 40,341 28,864 31,580 32,094 41,749
Ratio of expenses to average net assets (%) 1.75 1.63 1.75 1.90 2.36 2.32 2.05 2.10
Ratio of adjusted expenses to average net assets(7) (%) -- -- -- -- -- -- 2.22 --
Ratio of net investment income (loss) to average
net assets (%) 0.77 0.75 0.89 0.60 (0.28) 0.34 (0.88) (1.49)
Ratio of adjusted net investment income (loss) to
average net assets(7) (%) -- -- -- -- -- -- (1.05) --
Portfolio turnover rate (%) 6 9 12 30 38 67 76 86
Fee reduction per share ($) -- -- -- -- -- -- 0.03 --
Average brokerage commission rate(8) ($) N/A N/A N/A N/A N/A N/A N/A N/A
<CAPTION>
- --------------------------------------------------------------------------------------------
Class A - period ended: 12/94 12/95 10/96(1)
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Per share operating performance
Net asset value, beginning of period $17.45 $ 17.84 $ 24.51
Net investment income (loss) (0.22)(2) (0.22)(2) (0.14)(2)
Net realized and unrealized gain (loss) on
investments and foreign currency transactions 1.87 8.53 1.42
Total from investment operations 1.65 8.31 1.28
Less distributions:
Dividends from net investment income -- -- --
Distributions from net realized gain on
investments and foreign currency transactions (1.26) (1.64) --
Total distributions (1.26) (1.64) --
Net asset value, end of period $17.84 $ 24.51 $ 25.79
Total investment return at net asset value(3) (%) 9.62 46.53 5.22(4)
Total adjusted investment return at net asset value(3,5) -- 46.41 --
Ratios and supplemental data
Net assets, end of period (000s omitted) ($) 52,193 155,001 166,010
Ratio of expenses to average net assets (%) 2.16 1.67 1.57(6)
Ratio of adjusted expenses to average net assets(7) (%) -- 1.79 --
Ratio of net investment income (loss) to average
net assets (%) (1.25) (0.89) (0.68)(6)
Ratio of adjusted net investment income (loss) to
average net assets(7) (%) -- (1.01) --
Portfolio turnover rate (%) 67 70 64
Fee reduction per share ($) -- 0.02(2) --
Average brokerage commission rate(8) ($) N/A N/A 0.0685
<CAPTION>
- -----------------------------------------------------------------------------------------------------
Class B - period ended: 12/94(9) 12/95 10/96(1)
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Per share operating performance
Net asset value, beginning of period $17.24 $17.68 $24.08
Net investment income (loss) (0.35)(2) (0.39)(2) (0.28)(2)
Net realized and unrealized gain (loss) on investments 2.05 8.43 1.40
Total from investment operations 1.70 8.04 1.12
Less distributions:
Distributions from net realized gain on investments sold (1.26) (1.64) --
Net asset value, end of period $17.68 $24.08 $25.20
Total investment return at net asset value(3) (%) 10.02 45.42 4.65(4)
Total adjusted investment return at net asset value(3,5) -- 45.30 --
Ratios and supplemental data
Net assets, end of period (000s omitted) ($) 9,324 35,754 50,949
Ratio of expenses to average net assets (%) 2.90(6) 2.41 2.27(6)
Ratio of adjusted expenses to average net assets(7) (%) -- 2.53 --
Ratio of net investment income (loss) to average net assets (%) (1.98)(6) (1.62) (1.38)(6)
Ratio of adjusted net investment income (loss) to
average net assets(7) (%) -- (1.74) --
Portfolio turnover rate (%) 67 70 64
Fee reduction per share ($) -- 0.03(2) --
Average brokerage commission rate(8) ($) N/A N/A 0.0685
</TABLE>
(1) Effective October 31, 1996, the fiscal year end changed from December 31 to
October 31.
(2) Based on the average of the shares outstanding at the end of each month.
(3) Assumes dividend reinvestment and does not reflect the effect of sales
charges.
(4) Not annualized.
(5) An estimated total return calculation that does not take into consideration
fee reductions by the adviser during the periods shown.
(6) Annualized.
(7) Unreimbursed, without fee reduction.
(8) Per portfolio share traded. Required for fiscal years that began September
1, 1995 or later.
(9) Class B shares commenced operations on January 3, 1994.
GROWTH - GLOBAL TECHNOLOGY FUND 9
<PAGE>
International Fund
REGISTRANT NAME: JOHN HANCOCK INVESTMENT TRUST III
TICKER SYMBOL CLASS A: FINAX CLASS B: FINBX
- --------------------------------------------------------------------------------
GOAL AND STRATEGY
[Clip art] 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 invests 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
[Clip art] 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
[Clip art] 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 29. 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
[Clip art] Miren Etcheverry, John L.F. Wills, and Gerardo J. Espinoza lead the
fund's portfolio management team. Ms. Etcheverry and Mr. Espinoza are senior
vice presidents and joined John Hancock Funds in December 1996, having been in
the investment business since 1978 and 1979, respectively. Mr. Wills is a senior
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
[Clip art] Fund investors pay various expenses, either directly or indirectly.
The figures below show the expenses for the past fiscal 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) 1.45% 1.45%
Total fund operating expenses (after limitation)(3) 1.75% 2.45%
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 $102 $140 $246
Class B shares
Assuming redemption
at end of period $75 $106 $151 $261
Assuming no redemption $25 $76 $131 $261
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 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 2.02% for each class and
total fund operating expenses would be 3.32% for Class A and 4.02% for
Class B. The adviser may terminate this limitation at any time.
(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.
10 GROWTH - INTERNATIONAL FUND
<PAGE>
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
[Clip art] The figures below have been audited by the fund's independent
auditors, Price Waterhouse LLP.
[The table below was represented as a bar graph in the printed material.]
Volatility, as indicated by Class A
year-by-year total investment return (%) 1.77(4) (4.96) 6.88
(scale varies from fund to fund)
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------
Class A - period ended: 10/94(1) 10/95 10/96
- ----------------------------------------------------------------------------------------------------
<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(2) 0.04 0.06(2)
Net realized and unrealized gain (loss) on investments and
foreign currency transactions 0.08 (0.47) 0.50
Total from investment operations 0.15 (0.43) 0.56
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 $8.70
Total investment return at net asset value(3) (%) 1.77(4) (4.96) 6.88
Total adjusted investment return at net asset value(3,5) (%) (0.52)(4) (8.12) 5.33
Ratios and supplemental data
Net assets, end of period (000s omitted) ($) 4,426 4,215 5,098
Ratio of expenses to average net assets (%) 1.50(6) 1.64 1.75
Ratio of adjusted expenses to average net assets(7) (%) 3.79(6) 4.80 3.30
Ratio of net investment income (loss) to average net assets (%) 1.02(6) 0.56 0.68
Ratio of adjusted net investment income (loss) to average
net assets(7) (%) (1.27)(6) (2.60) (0.87)
Portfolio turnover rate (%) 50 69 83
Fee reduction per share ($) 0.16(2) 0.25(2) 0.14(2)
Average brokerage commission rate(8) ($) N/A N/A 0.0192
<CAPTION>
- ----------------------------------------------------------------------------------------------------
Class B - period ended: 10/94(1) 10/95 10/96
- ----------------------------------------------------------------------------------------------------
<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(2) (0.03) 0.00(2,9)
Net realized and unrealized gain (loss) on investments and
foreign currency transactions 0.09 (0.48) 0.50
Total from investment operations 0.11 (0.51) 0.50
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 $8.55
Total investment return at net asset value(3) (%) 1.29(4) (5.89) 6.21
Total adjusted investment return at net asset value(3,5) (%) (1.00)(4) (9.05) 4.66
Ratios and supplemental data
Net assets, end of period (000s omitted) ($) 3,948 3,990 8,175
Ratio of expenses to average net assets (%) 2.22(6) 2.52 2.45
Ratio of adjusted expenses to average net assets(7) (%) 4.51(6) 5.68 4.00
Ratio of net investment income (loss) to average net assets (%) 0.31(6) (0.37) 0.02
Ratio of adjusted net investment income (loss) to average
net assets(7) (%) (1.98)(6) (3.53) (1.53)
Portfolio turnover rate (%) 50 69 83
Fee reduction per share ($) 0.16(2) 0.25(2) 0.14(2)
Average brokerage commission rate(8) ($) N/A N/A 0.0192
</TABLE>
(1) Class A and Class B shares commenced operations on January 3, 1994.
(2) Based on the average of the shares outstanding at the end of each month.
(3) Assumes dividend reinvestment and does not reflect the effect of sales
charges.
(4) Not annualized.
(5) An estimated total return calculation that does not take into consideration
fee reductions by the adviser during the periods shown.
(6) Annualized.
(7) Unreimbursed, without fee reduction.
(8) Per portfolio share traded. Required for fiscal years that began September
1, 1995 or later.
(9) Less than one cent per share.
GROWTH - INTERNATIONAL FUND 11
<PAGE>
Pacific Basin Equities Fund
REGISTRANT NAME: JOHN HANCOCK WORLD FUND
TICKER SYMBOL CLASS A: JHWPX CLASS B: FPBBX
- --------------------------------------------------------------------------------
GOAL AND STRATEGY
[Clip art] The fund seeks long-term growth of capital. To pursue this goal, the
fund invests primarily in a diversified portfolio of stocks of Pacific Basin
companies. The Pacific Basin includes countries bordering the Pacific Ocean.
Under normal circumstances, the fund invests 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
[Clip art] 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
[Clip art] 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 29. 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
[Clip art] 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
[Clip art] 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 1.10% 1.10%
Total fund operating expenses 2.20% 2.90%
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 $71 $115 $162 $291
Class B shares
Assuming redemption
at end of period $79 $120 $173 $306
Assuming no redemption $29 $90 $153 $306
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.
12 GROWTH - PACIFIC BASIN EQUITIES FUND
<PAGE>
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
[Clip art] The figures below have been audited by the fund's independent
auditors, Price Waterhouse LLP.
[The table below was represented as a bar graph in the printed material.]
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Volatility, as indicated by Class A
year-by-year total investment return (%) (3.61)(6) 18.06 (0.44) (2.15) (1.99) 49.61 22.82 (7.65) 4.47 (1.83)(6)
(scale varies from fund to fund) two
months
</TABLE>
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------
Class A - period ended: 8/88(1) 8/89 8/90 8/91 8/92
- --------------------------------------------------------------------------------------------------------------------------
<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
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------
Class A - period ended: 8/93 8/94 8/95 8/96 10/96(2)
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Per share operating performance
Net asset value, beginning of period $8.87 $13.27 $15.88 $14.11 $14.74
Net investment income (loss) (0.11)(3) (0.10)(3) 0.02(3,4) (0.02)(3) (0.02)(3)
Net realized and unrealized gain (loss) on investments and
foreign currency transactions 4.51 3.12 (1.24) 0.65 (0.25)
Total from investment operations 4.40 3.02 (1.22) 0.63 (0.27)
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 $14.74 $14.47
Total investment return at net asset value(5) (%) 49.61 22.82 (7.65) 4.47 (1.83)(6)
Total adjusted investment return at net asset value(5,7) (%) 48.31 -- -- -- --
Ratios and supplemental data
Net assets, end of period (000s omitted) ($) 14,568 50,261 37,417 41,951 38,694
Ratio of expenses to average net assets (%) 2.94 2.43 2.05 1.97 2.21(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) (0.15) (0.83)(8)
Ratio of adjusted net investment income (loss) to average
net assets(9) (%) (2.28) -- -- -- --
Portfolio turnover rate (%) 171 68 48 73 15
Fee reduction per share ($) 0.14(3) -- -- -- --
Average brokerage commission rate(10) ($) N/A N/A N/A 0.0183 0.0221
<CAPTION>
- --------------------------------------------------------------------------------------------------------------
Class B - period ended: 8/94(1) 8/95 8/96 10/96(2)
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Per share operating performance
Net asset value, beginning of period $15.11 $15.84 $13.96 $14.49
Net investment income (loss) (0.09)(3) (0.09)(3) (0.13)(3) (0.04)(3)
Net realized and unrealized gain (loss) on investments and
foreign currency transactions 0.82 (1.24) 0.66 (0.25)
Total from investment operations 0.73 (1.33) 0.53 (0.29)
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 $14.49 $14.20
Total investment return at net asset value(5) (%) (4.83)(6) (8.38) 3.80 (2.00)(6)
Ratios and supplemental data
Net assets, end of period (000s omitted) ($) 9,480 14,368 32,342 30,147
Ratio of expenses to average net assets (%) 3.00(8) 2.77 2.64 2.90(8)
Ratio of net investment income (loss) to average net assets (%) (1.40)(8) (0.66) (0.86) (1.52)(8)
Portfolio turnover rate (%) 68 48 73 15
Average brokerage commission rate(10) ($) N/A N/A 0.0183 0.0221
</TABLE>
(1) Class A and Class B shares commenced operations on September 8, 1987 and
March 7, 1994, respectively.
(2) Effective October 31, 1996, the fiscal year end changed from August 31 to
October 31.
(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 13
<PAGE>
Short-Term Strategic Income Fund
REGISTRANT NAME: JOHN HANCOCK INVESTMENT TRUST III
TICKER SYMBOL CLASS A: JHSAX CLASS B: FRSWX
- --------------------------------------------------------------------------------
GOAL AND STRATEGY
[Clip art] 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 invests 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
[Clip art] 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
[Clip art] 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 29.
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
[Clip art] 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 vice president, joined
John Hancock Funds in August 1995 and has been in the investment business since
1990.
- --------------------------------------------------------------------------------
INVESTOR EXPENSES
[Clip art] 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 0.52% 0.52%
Total fund operating expenses 1.47% 2.17%
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 $45 $75 $108 $200
Class B shares
Assuming redemption
at end of period $52 $88 $116 $209
Assuming no redemption $22 $68 $116 $209
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.
14 INCOME - SHORT-TERM STRATEGIC INCOME FUND
<PAGE>
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
[Clip art] The figures below have been audited by the fund's independent
auditors, Price Waterhouse LLP.
[The table below was represented as a bar graph in the printed material.]
Volatility, as indicated by Class B
year-by-year total investment return (%) 8.85(4) 0.64 5.98 1.93 7.97 7.89
(scale varies from fund to fund)
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------
Class A - period ended: 10/92(1) 10/93 10/94 10/95 10/96
- -------------------------------------------------------------------------------------------------------------------------
<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(2) 0.76(2) 0.77(2) 0.65
Net realized and unrealized gain (loss) on investments and
foreign currency transactions (0.55) (0.20) (0.53) (0.06) 0.05
Total from investment operations 0.10 0.63 0.23 0.71 0.70
Less distributions:
Dividends from net investment income (0.64) (0.83) (0.62) (0.61) (0.57)
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) (0.08)
Total distributions (0.64) (0.83) (0.88) (0.77) (0.65)
Net asset value, end of period $9.32 $9.12 $8.47 $8.41 $8.46
Total investment return at net asset value(3) (%) 1.16(4) 6.78 2.64 8.75 8.60
Ratios and supplemental data
Net assets, end of period (000s omitted) ($) 20,468 11,130 13,091 16,997 49,338
Ratio of expenses to average net assets (%) 1.37(4) 1.21 1.26 1.33 1.48
Ratio of net investment income (loss) to average net assets (%) 8.09(4) 8.59 8.71 9.13 7.59
Portfolio turnover rate (%) 86 306 150 147 77
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
Class B - period ended: 10/91(1) 10/92 10/93 10/94 10/95 10/96
- -----------------------------------------------------------------------------------------------------------------------------------
<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(2) 0.70(2) 0.70(2) 0.59
Net realized and unrealized gain (loss) on investments and
foreign currency transactions 0.01 (0.80) (0.20) (0.53) (0.06) 0.05
Total from investment operations 0.77 0.07 0.55 0.17 0.64 0.64
Less distributions:
Dividends from net investment income (0.76) (0.77) (0.75) (0.56) (0.56) (0.52)
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) (0.07)
Total distributions (0.76) (0.77) (0.75) (0.82) (0.70) (0.59)
Net asset value, end of period $10.01 $9.31 $9.11 $8.46 $8.40 $8.45
Total investment return at net asset value(3) (%) 8.85(4) 0.64 5.98 1.93 7.97 7.89
Total adjusted investment return at net asset value(3,5) (%) 8.81(4) -- -- -- -- --
Ratios and supplemental data
Net assets, end of period (000s omitted) ($) 218,562 236,059 142,873 98,390 84,601 48,137
Ratio of expenses to average net assets (%) 1.89(4) 2.07 2.01 1.99 2.07 2.12
Ratio of adjusted expenses to average net assets(6) (%) 1.93(4) -- -- -- -- --
Ratio of net investment income to average net assets (%) 8.72(4) 8.69 7.81 8.00 8.40 7.07
Ratio of adjusted net investment income to average net assets(6) (%) 8.68(4) -- -- -- -- --
Portfolio turnover rate (%) 22 86 306 150 147 77
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) Based on the average of the shares outstanding at the end of each month.
(3) Assumes dividend reinvestment and does not reflect the effect of sales
charges.
(4) Annualized.
(5) An estimated total return calculation that does not take into consideration
fee reductions by the adviser during the periods shown.
(6) Unreimbursed, without fee reduction.
INCOME - SHORT-TERM STRATEGIC INCOME FUND 15
<PAGE>
World Bond Fund
REGISTRANT NAME: JOHN HANCOCK INVESTMENT TRUST III
TICKER SYMBOL CLASS A: FGLAX CLASS B: FGLIX
- --------------------------------------------------------------------------------
GOAL AND STRATEGY
[Clip art] 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
[Clip art] 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
[Clip art] 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 29.
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
[Clip art] 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 vice president, joined
John Hancock Funds in August 1995 and has been in the investment business since
1990.
- --------------------------------------------------------------------------------
INVESTOR EXPENSES
[Clip art] 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 0.54% 0.54%
Total fund operating expenses 1.59% 2.29%
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 $60 $93 $128 $225
Class B shares
Assuming redemption
at end of period $73 $102 $143 $245
Assuming no redemption $23 $72 $123 $245
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 - WORLD BOND FUND
<PAGE>
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
[Clip art] The figures below have been audited by the fund's independent
auditors, Price Waterhouse LLP.
[The table below was represented as a bar graph in the printed material.]
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Volatility, as indicated by Class B
year-by-year total investment return (%) 65.96(4) 1.59(4) 20.09 5.47 11.84 10.44 1.72 6.77 (1.88) 11.51 4.78
(scale varies from fund to fund)
</TABLE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------
Class A - period ended: 10/92(1) 10/93 10/94 10/95 10/96
- ------------------------------------------------------------------------------------------------------
<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(2) 0.57(2) 0.51(2)
Net realized and unrealized gain (loss) on
investments and foreign currency transactions (0.74) (0.10) (0.78) 0.48 (0.02)
Total from investment operations (0.10) 0.66 (0.14) 1.05 0.49
Less distributions:
Dividends from net investment income (0.71) (0.38) (0.11) (0.59) (0.50)
Distributions in excess of net investment income -- (0.04) -- -- --
Distributions from capital paid-in -- (0.38) (0.52) (0.01) (0.01)
Total distributions (0.71) (0.80) (0.63) (0.60) (0.51)
Net asset value, end of period $9.76 $9.62 $8.85 $9.30 $9.28
Total investment return at net asset value(3) (%) (0.88)(4) 7.14 (1.30) 12.25 5.48
Ratios and supplemental data
Net assets, end of period (000s omitted) ($) 12,880 12,882 8,949 35,334 27,537
Ratio of expenses to average net assets (%) 1.41(4) 1.46 1.59 1.48 1.58
Ratio of net investment income (loss) to average
net assets (%) 7.64(4) 7.89 7.00 6.43 5.54
Portfolio turnover rate (%) 476 363 174 263 214
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------------
Class B - period ended: 5/87(5) 10/87(6) 10/88 10/89 10/90 10/91 10/92
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <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 $10.44
Net investment income (loss) 0.31 0.25 0.67 0.83 0.85 0.90 0.78
Net realized and unrealized gain (loss) on investments
and foreign currency transactions 1.29 (0.18) 1.31 (0.27) 0.28 0.13 (0.59)
Total from investment operations 1.60 0.07 1.98 0.56 1.13 1.03 0.19
Less distributions:
Dividends from net investment income (0.26) (0.28) (0.68) (0.84) (0.85) (0.73) (0.89)
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) (0.89)
Net asset value, end of period $10.79 $10.32 $10.98 $10.21 $10.38 $10.44 $9.74
Total investment return at net asset value(3) (%) 65.96(4) 1.59(4) 20.09 5.47 11.84 10.44 1.72
Ratios and supplemental data
Net assets, end of period (000s omitted) ($) 18,253 58,658 174,833 255,214 186,524 192,687 199,102
Ratio of expenses to average net assets (%) 2.41(4) 2.19(4) 1.74 1.75 1.82 1.90 1.91
Ratio of net investment income (loss) to average
net assets (%) 8.69(4) 6.32(4) 6.04 8.07 8.67 8.74 7.59
Portfolio turnover rate (%) 140(4) 152(4) 364 333 186 159 476
<CAPTION>
- ------------------------------------------------------------------------------------------------------
Class B - period ended: 10/93 10/94 10/95 10/96
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Per share operating performance
Net asset value, beginning of period $9.74 $9.62 $8.85 $9.30
Net investment income (loss) 0.72 0.59(2) 0.55(2) 0.45(2)
Net realized and unrealized gain (loss) on investments
and foreign currency transactions (0.09) (0.78) 0.44 (0.02)
Total from investment operations 0.63 (0.19) 0.99 0.43
Less distributions:
Dividends from net investment income (0.33) (0.06) (0.53) (0.44)
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) (0.01)
Total distributions (0.75) (0.58) (0.54) 0.45
Net asset value, end of period $9.62 $8.85 $9.30 $9.28
Total investment return at net asset value(3) (%) 6.77 (1.88) 11.51 4.78
Ratios and supplemental data
Net assets, end of period (000s omitted) ($) 197,166 114,656 65,600 45,897
Ratio of expenses to average net assets (%) 1.91 2.17 2.16 2.25
Ratio of net investment income (loss) to average
net assets (%) 7.45 6.41 6.03 4.87
Portfolio turnover rate (%) 363 174 263 214
</TABLE>
(1) Class A shares commenced operations on January 3, 1992.
(2) Based on the average of the shares outstanding at the end of each month.
(3) Assumes dividend reinvestment and does not reflect the effect of sales
charges.
(4) Annualized.
(5) For the period December 17, 1986 (commencement of operations) to May 31,
1987.
(6) For the period June 1, 1987 to October 31, 1987.
INCOME - WORLD BOND FUND 17
<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; all
described below. There are your money goes to work for you
several ways to reduce these right away. o Higher annual
charges, also described below. expenses than Class A shares.
o Lower annual expenses than o A deferred sales charge, as
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.
18 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
- --------------------------------------------------------------------------------
CDSC on Short-Term CDSC on all
Years after Strategic Income other fund shares
purchase 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 Signature Services to add these options (see
the back cover of this prospectus).
Group Investment Program A group may be treated as a single purchase under the
accumulation and combination privileges. Each investor has an individual
account, but the group's investments are lumped together for sales charge
purposes, making the investors potentially eligible for reduced sales charges.
There is no charge, no obligation to invest (although initial investments must
total at least $250) and individual investors may close their accounts at any
time.
To utilize: contact your financial representative or Signature Services to
find out how to qualify, or consult the SAI (see the back cover of this
prospectus).
CDSC waivers As long as Signature Services is notified at the time you sell, the
CDSC for 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 Signature Services, or consult the SAI.
Reinstatement privilege If you sell shares of a John Hancock fund, you may
reinvest some or all of the proceeds in the same share class of any John Hancock
fund within 120 days without a sales charge, as long as Signature Services is
notified before you reinvest. If you paid a CDSC when you sold your shares, you
will be credited with the amount of the CDSC. All accounts involved must have
the same registration.
To utilize: contact your financial representative or Signature Services.
YOUR ACCOUNT 19
<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 from an employee benefit plan into a John
Hancock fund
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
your financial representative or Signature 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
o fee-based clients of selling brokers who placed at least $2 billion in
John Hancock funds: $500
3 Complete the appropriate parts of the account application, carefully
following the instructions. If you have questions, please contact your
financial representative or call Signature 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 and your
financial representative can initiate any purchase, exchange or sale of
shares.
20 YOUR ACCOUNT
<PAGE>
- --------------------------------------------------------------------------------
Buying shares
- --------------------------------------------------------------------------------
Opening an account Adding to an account
By check
[Clip art] o Make out a check for the o Make out a check for the
investment amount, payable investment amount payable to
to "John Hancock Signature "John Hancock Signature
Services, Inc." Services, Inc."
o Deliver the check and your o Fill out the detachable
completed application to investment slip from an
your financial account statement. If no
representative, or mail them slip is available, include a
to Signature Services (address note specifying the fund
on next page). 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 Signature Services
(address on next page).
By exchange
[Clip art] o Call your financial o Call your financial
representative or Signature representative or Signature
Services to request an Services to request an
exchange. exchange.
By wire
[Clip art] o Deliver your completed o Instruct your bank to wire
application to your the amount of your
financial representative, or investment to:
mail it to Signature First Signature Bank & Trust
Services. Account # 900000260
Routing # 211475000
o Obtain your account number Specify the fund name, your
by calling your financial share class, your account
representative or Signature number and the name(s) in
Services. which the account is
registered. Your bank may
o Instruct your bank to wire the charge a fee to wire funds.
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
[Clip art] See "By wire" and "By exchange." o Verify that your bank or
credit union is a member of
the Automated Clearing House
(ACH) system.
o Complete the
"Invest-By-Phone" and "Bank
Information" sections on
your account application.
o Call Signature Services to
verify that these features
are in place on your
account.
o Tell the Signature Services
representative the fund
name, your share class, your
account number, the name(s)
in which the account is
registered and the amount of
your investment.
- ---------------------------------------------
Address
John Hancock Signature Services, Inc.
1 John Hancock Way, Suite 1000
Boston, MA 02217-1000
Phone number
1-800-225-5291
Or contact your financial representative
for instructions and assistance.
- ---------------------------------------------
To open or add to an account using the Monthly Automatic Accumulation Program,
see "Additional investor services."
YOUR ACCOUNT 21
<PAGE>
- --------------------------------------------------------------------------------
Selling shares
Designed for To sell some or all of your shares
By letter
[Clip art] o Accounts of any type. o Write a letter of
instruction or complete a
o Sales of any amount. 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
Signature Services.
o A check will be mailed to
the name(s) and address in
which the account is
registered, or otherwise
according to your letter of
instruction.
By phone
[Clip art] o Most accounts. o For automated service 24
hours a day using your
o Sales of up to $100,000. 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
Signature Services between
8 A.M. and 4 P.M. Eastern
Time on most business days.
By wire or electronic funds transfer (EFT)
[Clip art] o Requests by letter to sell o Fill out the "Telephone
any amount (accounts of any Redemption" section of your
type). new account application.
o Requests by phone to sell o To verify that the
up to $100,000 (accounts telephone redemption
with telephone redemption privilege is in place on an
privileges). account, or to request the
forms to add it to an
existing account, call
Signature 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
[Clip art] o Accounts of any type. o Obtain a current prospectus
for the fund into which you
o Sales of any amount. are exchanging by calling
your financial representative
or Signature Services.
o Call your financial
representative or Signature
Services to request an
exchange.
By check
[Clip art] o Government Income, o Request checkwriting on your
Intermediate Maturity account application.
Government, Sovereign U.S.
Government Income and o Verify that the shares to be
Strategic Income Funds only. sold were purchased more than
10 days earlier or were
o Any account with checkwriting purchased by wire.
privileges.
o Write a check for any amount
o Sales of over $100. over $100.
----------------------------------------
Address
John Hancock Signature Services, Inc.
1 John Hancock Way, Suite 1000
Boston, MA 02217-1000
Phone number
1-800-225-5291
Or contact your financial representative
for instructions and assistance.
----------------------------------------
To sell shares through a systematic withdrawal plan, see "Additional investor
services."
22 YOUR ACCOUNT
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
[Clip art]
- --------------------------------------------------------------------------------
Owners of individual, joint, o Letter of instruction.
sole proprietorship, UGMA/UTMA o On the letter, the signatures and
(custodial accounts for minors) titles of all persons authorized to
or general partner accounts. sign for the account, exactly as
the account is registered.
o Signature guarantee if applicable
(see above).
Owners of corporate or o Letter of instruction.
association accounts. o Corporate resolution, certified
within the past twelve months.
o On the letter and the resolution,
the signature of the person(s)
authorized to sign for the account.
o Signature guarantee if applicable
(see above).
Owners or trustees of trust accounts. o Letter of instruction.
o On the letter, the signature(s) of
the trustee(s).
o 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 twelve months.
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 instruction.
account types not listed above.
YOUR ACCOUNT 23
<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
Signature Services.
At times of peak activity, it may be difficult to place requests by phone.
During these times, consider using EASI-Line or sending your request in writing.
In unusual circumstances, 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, Signature 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 taken, Signature Services is not
responsible for any losses that may occur to any account due to an unauthorized
telephone call. Also for your protection, telephone transactions are not
permitted on accounts whose names or addresses have changed within the past 30
days. Proceeds from telephone transactions can only be mailed to the address of
record.
Exchanges You may exchange shares of one John Hancock fund for shares of the
same class of any other, generally without paying any additional sales charges.
The registration for both accounts involved must be identical. Class B 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 the new
fund's rate if that 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 also refuse any exchange order.
A fund may change or cancel its exchange policies at any time, upon 60 days'
notice to its shareholders.
Certificated shares Most shares are electronically recorded. If you wish to have
certificates for your shares, please write to Signature Services. Certificated
shares can only be sold by returning the certificates to Signature Services,
along with a letter of instruction or a stock power and a signature guarantee.
Sales in advance of purchase payments When you place a request to sell shares
for which the purchase money has not yet been collected, the request will be
executed in a timely fashion, but the fund will not release the proceeds to you
until your purchase payment clears. This may take up to ten business days after
the purchase.
Foreign currencies Purchases must be made in U.S. dollars. Purchases in foreign
currencies must be con verted, which may result in a fee and delayed execution.
- --------------------------------------------------------------------------------
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.
24 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, Signature Services may charge
you $10 a year to maintain your account. You will not be charged a CDSC if your
account is closed for this reason, and your account will not be closed if its
drop in value is due to fund performance or the effects of sales charges.
- --------------------------------------------------------------------------------
ADDITIONAL INVESTOR SERVICES
Monthly Automatic Accumulation Program (MAAP) MAAP lets you set up regular
investments from your paycheck or bank account to the John Hancock fund(s) of
your choice. You determine the frequency and amount of your investments, and you
can terminate your program at any time. To establish:
o Complete the appropriate parts of your account application.
o If you are using MAAP to open an account, make out a check ($25 minimum) for
your first investment amount payable to "John Hancock Signature Services,
Inc." Deliver your check and application to your financial representative or
Signature Services.
Systematic withdrawal plan This plan may be used for routine bill payments or
periodic withdrawals from your account. To establish:
o Make sure you have at least $5,000 worth of shares in your account.
o Make sure you are not planning to invest more money in this account (buying
shares during a period when you are also selling shares of the same fund is
not advantageous to you, because of sales charges).
o Specify the payee(s). The payee may be yourself or any other party, and
there is no limit to the number of payees you may have, as long as they are
all on the same payment schedule.
o Determine the schedule: monthly, quarterly, semi-annually, annually or in
certain selected months.
o Fill out the relevant part of the account application. To add a systematic
withdrawal plan to an existing account, contact your financial
representative or Signature Services.
Retirement plans John Hancock Funds offers a range of qualified retirement
plans, including IRAs, SIMPLE plans, SEPs, 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 (except tax-free income funds) with a low
minimum investment of $250 or, for some group plans, no minimum investment at
all. To find out more, call Signature Services at 1-800-225-5291.
YOUR ACCOUNT 25
<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, 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").
----------------
Shareholders
----------------
Distribution and
shareholder services
---------------------------------------------------
Financial services firms and
their representatives
Advise current and prospective share-
holders on their fund investments, often
in the context of an overall financial plan.
---------------------------------------------------
---------------------------------------------------
Principal distributor
John Hancock Funds, Inc.
101 Huntington Avenue
Boston, MA 02199-7603
Markets the funds and distributes shares
through selling brokers, financial planners
and other financial representatives.
---------------------------------------------------
-------------------------------------------------------
Transfer agent
John Hancock Signature Services, Inc.
1 John Hancock Way, Suite 1000
Boston, MA 02217-1000
Handles shareholder services, including record-
keeping and statements, distribution of dividends
and processing of buy and sell requests.
-------------------------------------------------------
Asset management
---------------------------------------------------
Subadvisers
American Fund Advisors, Inc.
1415 Kellum Place
Garden City, NY 11530
John Hancock Advisers
International Limited
34 Dover Street
London, UK W1X3RA
Indosuez Asia Advisers Limited
One Exchange Square
Hong Kong
Provide portfolio management
to certain funds.
---------------------------------------------------
----------------------------------------
Investment adviser
John Hancock Advisers, Inc.
101 Huntington Avenue
Boston, MA 02199-7603
Manages the funds' business and
investment activities.
----------------------------------------
--------------------------------------------
Custodian
Investors Bank & Trust Co.
200 Clarendon Street
Boston, MA 02116
Holds the funds' assets, settles all
portfolio trades and collects most of
the valuation data required for
calculating each fund's NAV.
--------------------------------------------
----------------------------------------
Trustees
Supervise the funds' activities.
----------------------------------------
26 FUND DETAILS
<PAGE>
Accounting compensation The funds (except for Global Technology) compensate the
adviser for performing tax and financial management services. Annual
compensation is not expected to exceed 0.02% of each fund's average net assets.
Global Technology pays a $100,000 administration fee to the adviser.
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 funds' 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. 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 $ 800,320 3.06%
Global Rx $ 461,009 1.19%
Global Technology $1,170,398 2.59%
International $ 435,589 3.59%
Pacific Basin Equities $ 979,454 3.04%
Short-Term Strategic Income $2,532,676 3.87%
World Bond $4,967,286 9.07%
(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.
Financial services firms selling large amounts of fund shares may receive extra
compensation. This compensation, which John Hancock Funds pays out of its own
resources, may include asset retention fees as well as reimbursement for
marketing expenses.
FUND DETAILS 27
<PAGE>
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------
Class A investments
- -----------------------------------------------------------------------------------------------------------------------------
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)
Short-Term Strategic
Income Fund
<S> <C> <C> <C> <C>
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 or more above that -- 0.00% 0.25% 0.25%
Waiver investments(2) -- 0.00% 0.25% 0.25%
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------
Class B investments
- -----------------------------------------------------------------------------------------------------------------------------
Maximum
reallowance First year Maximum
or commission service fee total compensation
(% of offering price) (% of net investment) (% of offering price)
Short-Term Strategic Income Fund
<S> <C> <C> <C>
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 pay commissions
when there is no initial sales charge.
28 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 that 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 that the
fund also holds, any loss generated by the derivative should be
substantially offset by gains on the hedged investment, and vice versa.
While hedging can reduce or eliminate losses, it can also reduce or
eliminate gains.
o Speculative To the extent that a derivative is not used as a hedge, the fund
is directly exposed to the risks of that derivative. Gains or losses from
speculative positions in a derivative may be substantially greater than the
derivative's original cost.
Liquidity risk The risk that certain securities may be difficult or impossible
to sell at the time and the price that the seller would like. 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 attributable to government or political
actions, from changes in tax or trade statutes to 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 29
<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/semiannual reports.
10 Percent of total assets (italic type)
10 Percent of net assets (roman type)
* No policy limitation on usage; fund may be using currently
o Permitted, but has not typically been used
- -- Not permitted
<TABLE>
<CAPTION>
Pacific Short-Term
Global Global Basin Strategic World
Global Rx Technology International Equities Income Bond
- -------------------------------------------------------------------------------------------------------------------
<S> <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 10 33.3 33.3 10 10
Currency trading The direct trading
or holding of foreign currencies as
an asset. Currency risk. * * * * * * *
Repurchase agreements The purchase
of a security that must later be
sold back to the issuer at the same
price plus interest. Credit risk. * * * * * * *
Securities lending The lending of
securities to financial
institutions, which provide cash or
government securities as
collateral. Credit risk. 10 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. -- o -- o o -- --
o Speculative. Speculative leverage,
market, liquidity risks. -- o -- o -- -- --
Short-term trading Selling a
security soon after purchase. A
portfolio engaging in short-term
trading will have higher turnover
and transaction expenses. Market
risk. * * * * * * *
When-issued securities and forward
commitments The purchase or sale of
securities for delivery at a future
date; market value may change
before delivery. Market,
opportunity, leverage risks. * * * * * * *
- -------------------------------------------------------------------------------------------------------------------
Conventional securities
Foreign debt securities Debt
securities issued by foreign
governments or companies. Credit,
currency, interest rate, market,
political risks. 5 35(1) 10(2) 35(1) 35(1) *(1) *(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
- -------------------------------------------------------------------------------------------------------------------
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. o o o 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. o o o 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>
30 FUND DETAILS
<PAGE>
- --------------------------------------------------------------------------------
Higher-risk securities and practices (cont'd)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Pacific Short-Term
Global Global Basin Strategic World
Global Rx Technology International Equities Income Bond
- -------------------------------------------------------------------------------------------------------------------
<S> <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 Speculative. Currency,
speculative leverage, liquidity
risks. o o o o o o o
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 Options on securities and indices.
Interest rate, currency, market,
hedged or speculative leverage,
correlation, liquidity, credit,
opportunity risks. o o o o o o o
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. * * 10(2) * * * *
</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.
- --------------------------------------------------------------------------------
Analysis of funds with 5% or more in junk bonds(1)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Quality rating Short-Term Strategic Quality rating World Bond
(S&P/Moody's)(2) Income Fund (S&P/Moody's)(2) Fund
Investment-Grade Bonds Investment-Grade Bonds
<S> <C> <C> <C> <C>
AAA/Aaa 12.8% AAA/Aaa 65.7%
AA/Aa 26.6% AA/Aa 25.5%
A/A 6.0% A/A 2.3%
BBB/Baa 7.6% BBB/Baa 0.3%
<CAPTION>
- --------------------------------------------------- -----------------------------------------
Junk Bonds Junk Bonds
<S> <C> <C> <C> <C>
BB/Ba 26.2% BB/Ba 2.6%
B/B 14.9% B/B 1.3%
CCC/Caa 1.0% CCC/Caa 0.0%
CC/Ca 0.0% CC/Ca 0.0%
C/C 0.0% C/C 0.0%
D 0.2% D 0.0%
% of portfolio in bonds 95.3% % of portfolio in bonds 97.7%
</TABLE>
o Rated by Standard & Poor's or Moody's Rated by the adviser
(1) Average weighted quality distribution for the most recent fiscal year.
(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 31
<PAGE>
For more information
- --------------------------------------------------------------------------------
Two documents are available that offer further information on John Hancock
international/global funds:
ANNUAL/SEMIANNUAL 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/ semiannual 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/semiannual report or SAI, please
write or call:
John Hancock Signature Services, Inc.
1 John Hancock Way, Suite 1000
Boston, MA 02217-1000
Telephone: 1-800-225-5291
EASI-Line: 1-800-338-8080
TDD: 1-800-544-6713
Internet: www.jhancock.com/funds
[LOGO] JOHN HANCOCK FUNDS
A Global Investment Management Firm
101 Huntington Avenue
Boston, Massachusetts 02199-7603
John Hancock(R)
Financial Services
(C) 1996 John Hancock Funds, Inc.
GLIPN 12/97
<PAGE>
JOHN HANCOCK
Growth
Funds
[GRAPHIC OMITTED]
- --------------------------------------------------------------------------------
Prospectus
March 1, 1997*
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)
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.
*Revised December 8, 1997
Emerging Growth Fund
Financial Industries Fund
Growth Fund
Regional Bank Fund
Special Equities Fund
Special Opportunities Fund
[LOGO] JOHN HANCOCK FUNDS
A Global Investment Management Firm
101 Huntington Avenue, Boston, Massachusetts 02199-7603
<PAGE>
Contents
- --------------------------------------------------------------------------------
A fund-by-fund look at goals, Emerging Growth Fund 4
strategies, risks, expenses and
financial history. Financial Industries Fund 6
Growth Fund 8
Regional Bank Fund 10
Special Equities Fund 12
Special Opportunities Fund 14
Policies and instructions for Your account
opening, maintaining and closing Choosing a share class 16
an account in any growth fund. How sales charges are calculated 16
Sales charge reductions and waivers 17
Opening an account 17
Buying shares 18
Selling shares 19
Transaction policies 21
Dividends and account policies 21
Additional investor services 22
Details that apply to the growth Fund details
funds as a group. Business structure 23
Sales compensation 24
More about risk 26
For more information back cover
<PAGE>
Overview
- --------------------------------------------------------------------------------
GOAL OF THE GROWTH FUNDS
John Hancock growth funds seek long-term growth by investing primarily in common
stocks. Each fund has its own strategy and 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 have longer time horizons
o are willing to accept higher short-term risk along with higher potential
long-term returns
o want to diversify their portfolios
o are seeking funds for the growth portion of an asset allocation portfolio
o are investing for retirement or other goals that are many years in the future
Growth funds may NOT be appropriate if you:
o are investing with a shorter time horizon in mind
o are uncomfortable with an investment that will go up and down in value
THE MANAGEMENT FIRM
All John Hancock growth 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 $22 billion in assets.
FUND INFORMATION KEY
Concise fund-by-fund descriptions begin on the next page. Each description
provides the following information:
[Clipart]Goal and strategy The fund's particular investment goals and the
strategies it intends to use in pursuing those goals.
[Clipart]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.
[Clipart]Risk factors The major risk factors associated with the fund.
[Clipart]Portfolio management The individual or group (including subadvisers, if
any) designated by the investment adviser to handle the fund's day-to-day
management.
[Clipart]Expenses The overall costs borne by an investor in the fund, including
sales charges and annual expenses.
[Clipart]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>
Emerging Growth Fund
REGISTRANT NAME: JOHN HANCOCK SERIES TRUST
TICKER SYMBOL CLASS A: TAEMX CLASS B: TSEGX
- --------------------------------------------------------------------------------
GOAL AND STRATEGY
[Clipart]The fund seeks long-term capital appreciation. To pursue this goal, the
fund invests in emerging companies (market capitalization of less than $1
billion). Under normal circumstances, the fund invests at least 80% of assets in
a diversified portfolio of these companies. The fund looks for companies that
show rapid growth but are not yet widely recognized. The fund also may invest in
established companies that, because of new management, products or
opportunities, offer the possibility of accelerating earnings. The fund does not
invest for income.
PORTFOLIO SECURITIES
[Clipart]The fund invests primarily in the common stocks of U.S. and foreign
emerging growth companies, although it may invest up to 20% of assets in other
types of companies. The fund may also invest in warrants, preferred stocks and
investment-grade convertible debt securities.
For liquidity and flexibility, the fund may place up to 20% of assets in cash or
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 higher-risk securities, and may engage in other investment
practices.
RISK FACTORS
[Clipart]As with any growth fund, the value of your investment will fluctuate in
response to stock market movements. Stocks of emerging growth companies carry
higher risks than stocks of larger companies. This is because emerging growth
companies: o may be in the early stages of development o may be dependent on a
small number of products or services o may lack substantial capital reserves o
do not have proven track records
In addition, stocks of emerging companies are often traded in low volumes, which
can increase market and liquidity risks. Before you invest, please read "More
about risk" starting on page 26.
PORTFOLIO MANAGEMENT
[Clipart]Bernice S. Behar, CFA, leader of the fund's portfolio management team
since April 1996, is a senior vice president of the adviser. She joined the
adviser in 1991 and has been in the investment business since 1986.
- --------------------------------------------------------------------------------
INVESTOR EXPENSES
[Clipart]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 0.75% 0.75%
12b-1 fee(3) 0.25% 1.00%
Other expenses 0.32% 0.32%
Total fund operating expenses 1.32% 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 $63 $90 $119 $201
Class B shares
Assuming redemption
at end of period $71 $95 $131 $221
Assuming no redemption $21 $65 $111 $221
This example is for comparison purposes only and is not a representation of the
fund's actual expenses and returns, either past or future.
(1) Except for investments of $1 million or more; see "How sales charges are
calculated."
(2) Does not include wire redemption fee (currently $4.00).
(3) Because of the 12b-1 fee, long-term shareholders may indirectly pay more
than the equivalent of the maximum permitted front-end sales charge.
4 EMERGING GROWTH FUND
<PAGE>
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
[Clipart]The figures below have been audited by the fund's
independent auditors, Ernst & Young LLP.
[The table below is represented here as a bar graph.]
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Volatility, as indicated by
Class B year-by-year total
investment return (%) 0.00 33.59 27.40 (11.82) 73.78 6.19 24.53 2.80 33.60 12.48
(scale varies from fund
to fund)
</TABLE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Class A - period ended: 10/91(1) 10/92 10/93 10/94 10/95(2) 10/96
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Per share operating performance
Net asset value, beginning of period $18.12 $19.26 $20.60 $25.89 $26.82 $36.09
Net investment income (loss)(3) (0.03) (0.20) (0.16) (0.18) (0.25) (0.34)
Net realized and unrealized gain (loss) on investments 1.17 1.60 5.45 1.11 9.52 5.13
Total from investment operations 1.14 1.40 5.29 0.93 9.27 4.79
Less distributions:
Distributions from net realized gain on investments sold -- (0.06) -- -- -- --
Net asset value, end of period $19.26 $20.60 $25.89 $26.82 $36.09 $40.88
Total investment return at net asset value(4) (%) 6.29 7.32 25.68 3.59 34.56 13.27
Ratios and supplemental data
Net assets, end of period (000s omitted) ($) 38,859 46,137 81,263 131,053 179,481 218,497
Ratio of expenses to average net assets (%) 0.33 1.67 1.40 1.44 1.38 1.32
Ratio of net investment income (loss) to average
net assets (%) (0.15) (1.03) (0.70) (0.71) (0.83) (0.86)
Portfolio turnover rate (%) 66 48 29 25 23 44
Average brokerage commission rate(5) ($) N/A N/A N/A N/A N/A 0.0669
- ------------------------------------------------------------------------------------------------------------------------------------
Class B - period ended: 10/87(1) 10/88 10/89 10/90 10/91 10/92
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Per share operating performance
Net asset value, beginning of period $7.89 $7.89 $10.54 $12.76 $11.06 $19.22
Net investment income (loss)(3) (0.0021) 0.09 (0.08) (0.22) (0.30) (0.38)
Net realized and unrealized gain
(loss) on investments 0.0021 2.56 2.83 (1.26) 8.46 1.56
Total from investment operations 0.0000 2.65 2.75 (1.48) 8.16 1.18
Less distributions:
Dividends from net investment income -- -- (0.04) -- -- --
Distributions from net realized gain on
investments sold -- -- (0.49) (0.22) -- (0.06)
Total distributions -- -- (0.53) (0.22) -- (0.06)
Net asset value, end of period $7.89 $10.54 $12.76 $11.06 $19.22 $20.34
Total investment return at net asset
value(4) (%) 0.00 33.59 27.40 (11.82) 73.78 6.19
Total adjusted investment return at net asset
value(4,6) (%) (0.41) 31.00 27.37 -- -- --
Ratios and supplemental data
Net assets, end of period (000s omitted) ($) 79 3,232 7,877 11,668 52,743 86,923
Ratio of expenses to average net assets (%) 0.03 3.05 3.48 3.11 2.85 2.64
Ratio of adjusted expenses to average net assets(7) (%) 0.44 5.64 3.51 -- -- --
Ratio of net investment income (loss) to average
net assets (%) (0.03) 0.81 (0.67) (1.64) (1.83) (1.99)
Ratio of adjusted net investment income (loss) to
average net assets(7) (%) (0.44) (1.78) (0.70) -- -- --
Portfolio turnover rate (%) 0 252 90 82 66 48
Fee reduction per share ($) 0.03 0.29 0.004 -- -- --
Average brokerage commission rate(5) ($) N/A N/A N/A N/A N/A N/A
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Class B - period ended: 10/93 10/94 10/95(2) 10/96
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Per share operating performance
Net asset value, beginning of period $20.34 $25.33 $26.04 $34.79
Net investment income (loss)(3) (0.36) (0.36) (0.45) (0.60)
Net realized and unrealized gain
(loss) on investments 5.35 1.07 9.20 4.94
Total from investment operations 4.99 0.71 8.75 4.34
Less distributions:
Dividends from net investment income -- -- -- --
Distributions from net realized gain on
investments sold -- -- -- --
Total distributions -- -- -- --
Net asset value, end of period $25.33 $26.04 $34.79 $39.13
Total investment return at net asset
value(4) (%) 24.53 2.80 33.60 12.48
Total adjusted investment return at net asset
value(4,6) (%) -- -- -- --
Ratios and supplemental data
Net assets, end of period (000s omitted) ($) 219,484 283,435 393,478 451,268
Ratio of expenses to average net assets (%) 2.28 2.19 2.11 2.05
Ratio of adjusted expenses to average net assets(7) (%) -- -- -- --
Ratio of net investment income (loss) to average
net assets (%) (1.58) (1.46) (1.55) (1.59)
Ratio of adjusted net investment income (loss) to
average net assets(7) (%) -- -- -- --
Portfolio turnover rate (%) 29 25 23 44
Fee reduction per share ($) -- -- -- --
Average brokerage commission rate(5) ($) N/A N/A N/A 0.0669
</TABLE>
(1) Class A shares and Class B shares commenced operations on August 22, 1991
and October 26, 1987, respectively. (Not annualized.)
(2) On December 22, 1994, John Hancock Advisers, Inc. became the investment
adviser of the fund.
(3) Based on the average of the shares outstanding at the end of each month.
(4) Assumes dividend reinvestment and does not reflect the effect of sales
charges.
(5) Per portfolio share traded. Required for fiscal years that began September
1, 1995 or later.
(6) An estimated total return calculation that does not take into consideration
fee reductions by the adviser during the periods shown.
(7) Unreimbursed, without fee reduction.
EMERGING GROWTH FUND 5
<PAGE>
Financial Industries Fund
REGISTRANT NAME: JOHN HANCOCK INVESTMENT TRUST II
TICKER SYMBOL CLASS A: FIDAX CLASS B: FIDBX
- --------------------------------------------------------------------------------
GOAL AND STRATEGY
[Clipart]The fund seeks capital appreciation. To pursue this goal, the fund
invests in U.S. and foreign financial services companies. These include banks,
thrifts, finance companies, brokerage and advisory firms, real estate-related
firms and insurance companies.
Under normal circumstances, the fund invests at least 65% of assets in these
companies.
PORTFOLIO SECURITIES
[Clipart]The fund invests primarily in the common stocks of U.S. and foreign
companies. It may also invest in warrants, preferred stocks and debt securities.
The fund may invest up to 5% of net assets in junk bonds.
For liquidity and flexibility, the fund may place up to 15% of net assets in
cash or in investment-grade short-term securities. In abnormal market
conditions, it may invest up to 80% in these securities as a defensive tactic.
The fund may also invest in certain higher-risk securities and may engage in
other investment practices.
RISK FACTORS
[Clipart]As with any growth fund, the value of your investment will fluctuate in
response to stock market movements. Because the fund concentrates in a single
sector, its performance is largely dependent on the sector's performance, which
may differ from that of the overall stock market. Falling interest rates or
deteriorating economic conditions can adversely affect the performance of
financial services companies' stocks, while rising interest rates will cause a
decline in the value of any debt securities the fund holds. Before you invest,
please read "More about risk" starting on page 26.
PORTFOLIO MANAGEMENT
[Clipart]James K. Schmidt, CFA, and Thomas Finucane lead the fund's portfolio
management team. Mr. Schmidt has been in the investment business since 1974. He
joined the adviser in 1985 and is an executive vice president. Mr. Finucane has
been in the investment business since joining the adviser in 1990. He is a vice
president.
- --------------------------------------------------------------------------------
INVESTOR EXPENSES
[Clipart]Fund investors pay various expenses, either directly or indirectly. The
figures below are based on estimated 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 0.79% 0.79%
12b-1 fee(3) 0.30% 1.00%
Other expenses 0.41% 0.41%
Total fund operating expenses 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%.
- --------------------------------------------------------------------------------
Share class Year 1 Year 3 Year 5 Year 10
- --------------------------------------------------------------------------------
Class A shares $65 $95 $128 $220
Class B shares
Assuming redemption
at end of period $72 $99 $138 $235
Assuming no redemption $22 $69 $118 $235
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.
6 FINANCIAL INDUSTRIES FUND
<PAGE>
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
[Clipart]The figures below have been audited by the fund's
independent auditors, Price Waterhouse LLP.
[The table below is represented here as a bar graph.]
Volatility, as indicated by Class A
year-by-year total investment return (%) 29.76%
(scale varies from fund to fund)
- --------------------------------------------------------------------------------
Class A - period ended: 10/96(1)
- --------------------------------------------------------------------------------
Per share operating performance
Net asset value, beginning of period $8.50
Net investment income (loss) 0.02(2)
Net realized and unrealized gain (loss) on investments 2.51
Total from investment operations 2.53
Less distributions:
Dividends from net investment income --
Distributions from net realized gain on investments sold --
Total distributions --
Net asset value, end of period $11.03
Total investment return at net asset value(3) (%) 29.76(4)
Total adjusted investment return at net asset value(3,5) 26.04(4)
Ratios and supplemental data
Net assets, end of period (000s omitted) ($) 895
Ratio of expenses to average net assets (%) 1.20(6)
Ratio of adjusted expenses to average net assets(5) (%) 7.07(6)
Ratio of net investment income (loss) to average net assets (%) 0.37(6)
Ratio of adjusted net investment income (loss) to average net
assets(5) (%) (5.50)(6)
Portfolio turnover rate (%) 31
Average brokerage commission rate(7) ($) 0.0649
- -------------------------------------------------------------------------------
Class B - period ended: 10/96
- -------------------------------------------------------------------------------
Per share operating performance
Net asset value, beginning of period --
Net investment income (loss) --
Net realized and unrealized gain (loss) on investments --
Total from investment operations --
Less distributions:
Dividends from net investment income --
Distributions from net realized gain on investments sold --
Total distributions --
Net asset value, end of period --
Total investment return at net asset value(3) (%) --
Total adjusted investment return at net asset value(3,5) (%) --
Ratios and supplemental data
Net assets, end of period (000s omitted) ($) --
Ratio of expenses to average net assets (%) --
Ratio of adjusted expenses to average net assets(5) (%) --
Ratio of net investment income (loss) to average net assets (%) --
Ratio of adjusted net investment income (loss) to average net
assets(5)(%) --
Portfolio turnover rate (%) --
Average brokerage commission rate(7) ($) --
(1) Class A shares commenced operations on March 14, 1996.
(2) Based on the average of the shares outstanding at the end of each month.
(3) Assumes dividend reinvestment and does not reflect the effect of sales
charges.
(4) Not annualized.
(5) Unreimbursed, without fee reduction.
(6) Annualized.
(7) Per portfolio share traded. Required for fiscal years that began September
1, 1995 or later.
FINANCIAL INDUSTRIES FUND 7
<PAGE>
Growth Fund
REGISTRANT NAME: JOHN HANCOCK INVESTMENT TRUST III
TICKER SYMBOL CLASS A: JHNGX CLASS B: JHGBX
- --------------------------------------------------------------------------------
GOAL AND STRATEGY
[Clipart]The fund seeks long-term capital appreciation. To pursue this goal, the
fund invests in stocks that are diversified with regard to industries and
issuers. The fund favors stocks of companies whose operating earnings and
revenues have grown more than twice as fast as the gross domestic product over
the past five years, although not all stocks in the fund's portfolio will meet
this criterion.
PORTFOLIO SECURITIES
[Clipart]The portfolio invests primarily in the common stocks of U.S. companies.
It may also invest in warrants, preferred stocks and convertible debt
securities.
For liquidity and flexibility, the fund may invest up to 35% of net assets in
investment-grade short-term securities. In abnormal market conditions, it may
invest more than 35% in these securities as a defensive tactic. The fund may
also invest in certain higher-risk securities, and may engage in other
investment practices.
RISK FACTORS
[Clipart]As with any growth fund, the value of your investment will fluctuate in
response to stock market movements. To the extent that the fund invests in
higher-risk securities, it takes on additional risks that could adversely affect
its performance. Before you invest, please read "More about risk" starting on
page 26.
PORTFOLIO MANAGEMENT
[Clipart]Anurag Pandit, CFA, is leader of the fund's portfolio management team.
A second vice president of the adviser, Mr. Pandit has been a member of the
management team since joining John Hancock Funds in April 1996. He assumed
leadership of the team on January 1, 1997. Mr. Pandit has been in the investment
business since 1984.
- --------------------------------------------------------------------------------
INVESTOR EXPENSES
[Clipart]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 0.75% 0.75%
12b-1 fee(3) 0.30% 1.00%
Other expenses 0.39% 0.39%
Total fund operating expenses 1.44% 2.14%
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 $64 $93 $125 $214
Class B shares
Assuming redemption
at end of period $72 $97 $135 $229
Assuming no redemption $22 $67 $115 $229
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 FUND
<PAGE>
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
[Clipart]The figures below have been audited by the fund's independent auditors,
Ernst & Young LLP.
[The table below is represented here as a bar graph.]
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Volatility, as indicated
by Class A year-by-year
total investment return (%) 13.83 6.03 11.23 30.96 (8.34) 41.68 6.06 13.03 (7.50) 27.17 19.32(4)
(scale varies from ten
fund to fund) months
</TABLE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Class A - period ended: 12/86 12/87 12/88 12/89 12/90 12/91
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Per share operating performance
Net asset value, beginning of period $14.50 $14.03 $12.34 $13.33 $15.18 $12.93
Net investment income (loss) 0.11 0.22 0.23 0.28 0.16 0.04
Net realized and unrealized gain (loss)
on investments 1.79 0.64 1.16 3.81 (1.47) 5.36
Total from investment operations 1.90 0.86 1.39 4.09 (1.31) 5.40
Less distributions:
Dividends from net investment income (0.17) (0.28) (0.23) (0.29) (0.16) (0.04)
Distributions from net realized gain
on investments sold (2.20) (2.27) (0.17) (1.95) (0.78) (0.81)
Total distributions (2.37) (2.55) (0.40) (2.24) (0.94) (0.85)
Net asset value, end of period $14.03 $12.34 $13.33 $15.18 $12.93 $17.48
Total investment return at net asset value(3)(%) 13.83 6.03 11.23 30.96 (8.34) 41.68
Ratios and supplemental data
Net assets, end of period (000s omitted)($) 87,468 86,426 101,497 105,014 102,416 145,287
Ratio of expenses to average net assets(%) 1.03 1.00 1.06 0.96 1.46 1.44
Ratio of net investment income (loss)
to average net assets (%) 0.77 1.41 1.76 1.73 1.12 0.27
Portfolio turnover rate (%) 62 68 47 61 102 82
Average brokerage commission rate(7)($) N/A N/A N/A N/A N/A N/A
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Class A - period ended: 12/92 12/93 12/94 12/95 10/96(1)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Per share operating performance
Net asset value, beginning of period $17.48 $17.32 $17.40 $15.89 $19.51
Net investment income (loss) (0.06) (0.11) (0.10) (0.09)(2) (0.13)(2)
Net realized and unrealized gain (loss)
on investments 1.10 2.33 (1.21) 4.40 3.90
Total from investment operations 1.04 2.22 (1.31) 4.31 3.77
Less distributions:
Dividends from net investment income -- -- -- -- --
Distributions from net realized gain
on investments sold (1.20) (2.14) (0.20) (0.69) --
Total distributions (1.20) (2.14) (0.20) (0.69) --
Net asset value, end of period $17.32 $17.40 $15.89 $19.51 $23.28
Total investment return at net asset value(3)(%) 6.06 13.03 (7.50) 27.17 19.32(4)
Ratios and supplemental data
Net assets, end of period (000s omitted)($) 153,057 162,937 146,466 241,700 279,425
Ratio of expenses to average net assets(%) 1.60 1.56 1.65 1.48 1.48(5)
Ratio of net investment income (loss)
to average net assets(%) (0.36) (0.67) (0.64) (0.46) (0.73)(5)
Portfolio turnover rate(%) 71 68 52 68(6) 59
Average brokerage commission rate(7)($) N/A N/A N/A N/A 0.0695
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Class B - period ended: 12/94(8) 12/95 10/96(1)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Per share operating performance
Net asset value, beginning of period $17.16 $15.83 $19.25
Net investment income (loss) (0.20)(2) (0.26)(2) (0.26)(2)
Net realized and unrealized gain (loss)
on investments (0.93) 4.37 3.84
Total from investment operations (1.13) 4.11 3.58
Less distributions:
Distributions from net realized gain on
investments sold (0.20) (0.69) --
Net asset value, end of period $15.83 $19.25 $22.83
Total investment return at net asset value(3)(%) (6.56)(4) 26.01 18.60(4)
Ratios and supplemental data
Net assets, end of period (000s omitted) ($) 3,807 15,913 25,474
Ratio of expenses to average net assets (%) 2.38(8) 2.31 2.18(8)
Ratio of net investment income (loss) to
average net assets (%) (1.25)(8) (1.39) (1.42)(8)
Portfolio turnover rate (%) 52 68(6) 59
Average brokerage commission rate(7) ($) N/A N/A 0.0695
</TABLE>
(1) Effective October 31, 1996, the fiscal year end changed from December 31 to
October 31.
(2) Based on the average of the shares outstanding at the end of each month.
(3) Assumes dividend reinvestment and does not reflect the effect of sales
charges.
(4) Not annualized.
(5) Annualized.
(6) Excludes merger activity.
(7) Per portfolio share traded. Required for fiscal years that began September
1, 1995 or later.
(8) Class B shares commenced operations on January 3, 1994.
GROWTH FUND 9
<PAGE>
Regional Bank Fund
REGISTRANT NAME: JOHN HANCOCK INVESTMENT TRUST II
TICKER SYMBOL CLASS A: FRBAX CLASS B: FRBFX
- --------------------------------------------------------------------------------
GOAL AND STRATEGY
[Clipart]The fund seeks long-term capital appreciation. To pursue this goal, the
fund invests in regional banks and lending institutions, including:
o commercial and industrial banks
o savings and loan associations
o bank holding companies
These financial institutions provide full-service banking, have primarily
domestic assets and are typically based outside of New York City and Chicago.
They may or may not be members of the Federal Reserve, and their deposits may or
may not be FDIC-insured.
Under normal circumstances, the fund invests at least 65% of assets in these
companies; it may invest up to 35% of assets in other financial services
companies, including lending companies and money center banks. The fund may
invest up to 5% of net assets in stocks of non-financial services companies and
up to 5% in junk bonds issued by banks.
Because regional banks typically pay regular dividends, moderate income is an
investment goal.
PORTFOLIO SECURITIES
[Clipart]The fund invests primarily in the common stocks of U.S. companies. It
may also invest in warrants, preferred stocks and investment-grade convertible
debt securities, as well as foreign stocks.
For liquidity and flexibility, the fund may place up to 15% of net assets in
cash or in investment-grade short-term securities. In abnormal market
conditions, it may invest up to 80% in these securities as a defensive tactic.
The fund may also invest in certain higher-risk securities, and may engage in
other investment practices.
RISK FACTORS
[Clipart]As with any growth fund, the value of your investment will fluctuate in
response to stock market movements. Because the fund concentrates in a single
industry, its performance is largely dependent on the industry's performance,
which may differ in direction and degree from that of the overall stock market.
Falling interest rates or deteriorating economic conditions can adversely affect
the performance of bank stocks, while rising interest rates will cause a decline
in the value of any debt securities the fund holds. Before you invest, please
read "More about risk" starting on page 26.
PORTFOLIO MANAGEMENT
[clipart]James K. Schmidt, CFA, joined John Hancock in 1985 and has served as
the fund's portfolio manager since its inception that year. An executive vice
president of the adviser, he has been in the investment business since 1974.
The fund is temporarily closed to new investments except for existing accounts
(see the statement of additional information).
- --------------------------------------------------------------------------------
INVESTOR EXPENSES
[Clipart]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 0.76% 0.76%
12b-1 fee (3) 0.30% 1.00%
Other expenses 0.32% 0.32%
Total fund operating expenses 1.38% 2.08%
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 $63 $92 $122 $207
Class B shares
Assuming redemption
at end of period $71 $95 $132 $223
Assuming no redemption $21 $65 $112 $223
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.
10 REGIONAL BANK FUND
<PAGE>
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
[Clipart]The figures below have been audited by the fund's independent auditors,
Price Waterhouse LLP.
[The table below was represented here as a bar graph.]
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Volatility, as indicated
by Class B year-by-year
total investment return(%) 17.44 (17.36)(4) 36.89 20.46 (32.29) 75.35 37.20 36.71 5.69 30.11 27.89
(scale varies from fund
to fund)
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Class A - period ended: 10/92(1) 10/93 10/94 10/95 10/96
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Per share operating performance
Net asset value, beginning of period $13.47 $17.47 $21.62 $21.52 $27.14
Net investment income (loss) 0.21 0.26(2) 0.39(2) 0.52(2) 0.63(2)
Net realized and unrealized gain (loss)
on investments 3.98 5.84 0.91 5.92 7.04
Total from investment operations 4.19 6.10 1.30 6.44 7.67
Less distributions:
Dividends from net investment income (0.19) (0.26) (0.34) (0.48) (0.60)
Distributions from net realized gain on
investments sold -- (1.69) (1.06) (0.34 (0.22)
Total distributions (0.19) (1.95) (1.40) (0.82) (0.82)
Net asset value, end of period $17.47 $21.62 $21.52 $27.14 $33.99
Total investment return at net asset value(3) (%) 31.26(4) 37.45 6.44 31.00 28.78
Ratios and supplemental data
Net assets, end of period (000s omitted) ($) 31,306 94,158 216,978 486,631 860,843
Ratio of expenses to average net assets (%) 1.41(5) 1.35 1.34 1.39 1.36
Ratio of net investment income to average net
assets(%) 1.64(5) 1.29 1.78 2.23 2.13
Portfolio turnover rate (%) 53 35 13 14 8
Average brokerage commission rate(6)($) N/A N/A N/A N/A 0.0694
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Class B - period ended: 3/87(7) 10/87(8) 10/88 10/89 10/90 10/91
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Per share operating performance
Net asset value, beginning of period $12.51 $12.68 $10.02 $11.89 $13.00 $8.13
Net investment income (loss) 0.20 0.05 0.16 0.20 0.30 0.29
Net realized and unrealized gain (loss)
on investment 1.74 (2.17) 3.12 2.02 (4.19) 5.68
Total from investment operations 1.94 (2.12) 3.28 2.22 (3.89) 5.97
Less distributions:
Dividends from net investment income (0.26) (0.04) (0.15) (0.16) (0.19) (0.34)
Distributions from net realized gain
on investments sold (1.51) (0.50) (1.26) (0.95) (0.76) --
Distributions from capital paid-in -- -- -- -- (0.03) --
Total distributions (1.77) (0.54) (1.41) (1.11) (0.98) (0.34)
Net asset value, end of period $12.68 $10.02 $11.89 $13.00 $8.13 $13.76
Total investment return at net asset
value(3)(%) 17.44 (17.36)(4) 36.89 20.46 (32.29) 75.35
Ratios and supplemental data
Net assets, end of period (000s omitted) ($) 54,626 38,721 50,965 81,167 38,992 52,098
Ratio of expenses to average net assets (%) 1.48 2.47(5) 2.17 1.99 1.99 2.04
Ratio of net investment income (loss)
to average net assets (%) 1.62 0.73(5) 1.50 1.67 2.51 2.65
Portfolio turnover rate (%) 89 58(5) 87 85 56 75
Average brokerage commission rate(6) ($) N/A N/A N/A N/A N/A N/A
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Class B - period ended: 10/92 10/93 10/94 10/95 10/96
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Per share operating performance
Net asset value, beginning of period $13.76 $17.44 $21.56 $21.43 $27.02
Net investment income (loss) 0.18 0.15(2) 0.23(2) 0.36(2) 0.42(2)
Net realized and unrealized gain (loss)
on investment 4.56 5.83 0.91 5.89 7.01
Total from investment operations 4.74 5.98 1.14 6.25 7.43
Less distributions:
Dividends from net investment income (0.28) (0.17) (0.21) (0.32) (0.40)
Distributions from net realized gain
on investments sold (0.78) (1.69) (1.06) (0.34) (0.22)
Distributions from capital paid-in -- -- -- -- --
Total distributions (1.06) (1.86) (1.27) (0.66) (0.62)
Net asset value, end of period $17.44 $21.56 $21.43 $27.02 $33.83
Total investment return at net asset
value(3)(%) 37.20 36.71 5.69 30.11 27.89
Ratios and supplemental data
Net assets, end of period (000s omitted) ($) 56,016 171,808 522,207 1,236,447 2,408,514
Ratio of expenses to average net assets (%) 1.96 1.88 2.06 2.09 2.07
Ratio of net investment income (loss)
to average net assets (%) 1.21 0.76 1.07 1.53 1.42
Portfolio turnover rate (%) 53 35 13 14 8
Average brokerage commission rate(6) ($) N/A N/A N/A N/A 0.0694
</TABLE>
(1) Class A shares commenced operations on January 3, 1992.
(2) Based on the average of the shares outstanding at the end of each month.
(3) Assumes dividend reinvestment and does not reflect the effect of sales
charges.
(4) Not annualized.
(5) Annualized.
(6) Per portfolio share traded. Required for fiscal years that began September
1, 1995 or later.
(7) Year ended March 31, 1987.
(8) For the period April 1, 1987 to October 31, 1987.
REGIONAL BANK FUND 11
<PAGE>
Special Equities Fund
REGISTRANT NAME: JOHN HANCOCK SPECIAL EQUITIES FUND
TICKER SYMBOL CLASS A: JHNSX CLASS B: SPQBX
- --------------------------------------------------------------------------------
GOAL AND STRATEGY
[Clipart]The fund seeks long-term capital appreciation. To pursue this goal, the
fund invests in small-capitalization companies and companies in situations
offering unusual or non-recurring opportunities. Under normal circumstances, the
fund invests at least 65% of assets in a diversified portfolio of these
companies. The fund looks for companies that dominate an emerging industry or
hold a growing market share in a fragmented industry, and that have demonstrated
annual earnings and revenue growth of at least 25%, self-financing capabilities
and strong management. The fund does not invest for income.
PORTFOLIO SECURITIES
[Clipart]The fund invests primarily in the common stocks of U.S. and foreign
companies. It may also invest in warrants, preferred stocks and investment-grade
convertible debt securities.
For liquidity and flexibility, the fund may place up to 35% of assets in cash or
in investment-grade short-term securities. In abnormal market conditions, it may
invest more than 35% 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
[Clipart]As with any growth fund, the value of your investment will fluctuate in
response to stock market movements. Stocks of small-capitalization and
special-situation companies carry higher risks than stocks of larger companies.
This is because these companies: o may lack proven track records o may be
dependent on a small number of products or services o may be undercapitalized o
may have highly priced stocks that are sensitive to adverse news
In addition, stocks of these companies are often traded in low volumes, which
can increase market and liquidity risks. Before you invest, please read "More
about risk" starting on page 26.
MANAGEMENT/SUBADVISER
[Clipart]Michael P. DiCarlo is responsible for the fund's day-to-day investment
management. He has served as the fund's portfolio manager since January 1988,
and has been in the investment business since 1984. He is currently one of three
principals in DFS Advisors, LLC, which was founded in 1996 and serves as
subadviser to the fund.
This fund will be closed to new investors at the end of the day its total assets
reach $2.5 billion. Further investments will be limited to existing accounts.
- --------------------------------------------------------------------------------
INVESTOR EXPENSES
[Clipart]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) 0.81% 0.81%
12b-1 fee(4) 0.30% 1.00%
Other expenses 0.31% 0.35%
Total fund operating expenses 1.42% 2.16%
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 $64 $93 $124 $212
Class B shares
Assuming redemption
at end of period $72 $98 $136 $231
Assuming no redemption $22 $68 $116 $231
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 0.25% 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.
12 SPECIAL EQUITIES FUND
<PAGE>
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
[Clipart]The figures below have been audited by the fund's independent auditors,
Ernst & Young LLP.
[The table below was represented here as a bar graph.]
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Volatility, as indicated
by Class A year-by-year
total investment return (%) (28.68) 13.72 31.82 (21.89) 95.37 20.25 47.83 (0.12) 37.49 12.96
(scale varies from fund
to fund)
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Class A - period ended: 10/87 10/88 10/89 10/90 10/91
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Per share operating performance
Net asset value, beginning of period $6.08 $4.30 $4.89 $6.38 $4.97
Net investment income (loss) (0.03) 0.04 0.01 (0.12) (0.10)
Net realized and unrealized gain (loss)
on investments (1.26) 0.55 1.53 (1.27) 4.84
Total from investment operations (1.29) 0.59 1.54 (1.39) 4.74
Less distributions:
Dividends from net investment income -- -- (0.05) (0.02) --
Distributions from net realized gain
on investments sold (0.45) -- -- -- --
Distributions from capital paid-in (0.04) -- -- -- --
Total distributions (0.49) -- (0.05) (0.02) --
Net asset value, end of period $4.30 $4.89 $6.38 $4.97 $9.71
Total investment return at net asset value(2)(%) (28.68) 13.72 31.82 (21.89) 95.37
Total adjusted investment return at net asset
value(2.3) (29.41) 12.28 30.75 (22.21) 95.33
Ratios and supplemental data
Net assets, end of period (000s omitted)($) 10,637 11,714 12,285 8,166 19,713
Ratio of expenses to average net assets(%) 1.50 1.50 1.50 2.63 2.75
Ratio of adjusted expenses to average net
assets(4)(%) 2.23 2.94 2.57 2.95 2.79
Ratio of net investment income (loss) to average
net assets (%) (0.57) 0.82 0.47 (1.58) (2.12)
Ratio of adjusted net investment income (loss)
to average net assets(4)(%) (1.30) (0.62) (0.60) (1.90) (2.16)
Portfolio turnover rate (%) 93 91 115 113 163
Fee reduction per share ($) 0.04 0.07 0.03 0.02 0.002
Average brokerage commission rate(5) ($) N/A N/A N/A N/A N/A
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Class A - period ended: 10/92 10/93 10/94 10/95 10/96
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Per share operating performance
Net asset value, beginning of period $9.71 $10.99 $16.13 $16.11 $22.15
Net investment income (loss) (0.19)(1) (0.20)(1) (0.21)(1) (0.18)(1) (0.22)
Net realized and unrealized gain (loss)
on investments 2.14 5.43 0.19 6.22 3.06
Total from investment operations 1.95 5.23 (0.02) 6.04 2.84
Less distributions:
Dividends from net investment income -- -- -- -- --
Distributions from net realized gain
on investments sold (0.67) (0.09) -- -- (0.46)
Distributions from capital paid-in -- -- -- -- --
Total distributions (0.67) (0.09) -- -- (0.46)
Net asset value, end of period $10.99 $16.13 $16.11 $22.15 $24.53
Total investment return at net asset value(2)(%) 20.25 47.83 (0.12) 37.49 12.96
Total adjusted investment return at net asset
value(2.3) -- -- -- -- --
Ratios and supplemental data
Net assets, end of period (000s omitted)($) 44,665 296,793 310,625 555,65 972,312
Ratio of expenses to average net assets(%) 2.24 1.84 1.62 1.48 1.42
Ratio of adjusted expenses to average net
assets(4)(%) -- -- -- -- --
Ratio of net investment income (loss) to average
net assets (%) (1.91) (1.49) (1.40) (0.97) (0.89)
Ratio of adjusted net investment income (loss)
to average net assets(4)(%) -- -- -- -- --
Portfolio turnover rate (%) 114 33 66 82 59
Fee reduction per share ($) -- -- -- -- --
Average brokerage commission rate(5) ($) N/A N/A N/A N/A 0.0677
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Class B - period ended: 10/93(6) 10/94 10/95 10/96
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Per share operating performance
Net asset value, beginning of period $12.30 $16.08 $15.97 $21.81
Net investment income (loss) (0.18)(1) (0.30)(1) (0.31)(1) (0.40)(1)
Net realized and unrealized gain (loss)
on investments 3.96 0.19 6.15 3.01
Total from investment operations 3.78 (0.11) 5.84 2.61
Less distributions:
Distributions from net realized gain
on investments sold -- -- -- (0.46)
Net asset value, end of period $16.08 $15.97 $21.81 $23.96
Total investment return at net asset value(2) (%) 30.73(7) (0.68) 36.57 12.09
Ratios and supplemental data
Net assets, end of period (000s omitted) ($) 158,281 191,979 454,934 956,374
Ratio of expenses to average net assets (%) 2.34(8) 2.25 2.20 2.16
Ratio of net investment income (loss) to average
net assets (%) (2.03)(8) (2.02) (1.69) (1.65)
Portfolio turnover rate (%) 33 66 82 59
Average brokerage commission rate(5) ($) N/A N/A N/A 0.0677
</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 March 1, 1993.
(7) Not annualized.
(8) Annualized.
SPECIAL EQUITIES FUND 13
<PAGE>
Special Opportunities Fund
REGISTRANT NAME: JOHN HANCOCK INVESTMENT TRUST III
TICKER SYMBOL CLASS A: SPOAX CLASS B: SPOBX
- --------------------------------------------------------------------------------
GOAL AND STRATEGY
[Clipart]The fund seeks long-term capital appreciation. To pursue this goal, the
fund invests in those economic sectors that appear to have a higher than average
earning potential.
Under normal circumstances, at least 75% of the fund's equity securities is
invested within five or fewer sectors (e.g., financial services, energy,
technology). At times, the fund may focus on a single sector. The fund first
determines the inclusion and weighting of sectors, using macroeconomic as well
as other factors, then selects portfolio securities by seeking the most
attractive companies. The fund may add or drop sectors. Because the fund may
invest more than 5% of assets in a single issuer, it is classified as a
non-diversified fund.
PORTFOLIO SECURITIES
[Clipart]The fund invests primarily in common stocks of U.S. and foreign
companies of any size. It may also invest in warrants, preferred stocks,
convertible debt securities, U.S. Government securities and corporate bonds
rated at least BBB/Baa, or equivalent, and may invest in certain higher-risk
securities. The fund also may make short sales of securities and may engage in
other investment practices.
For liquidity and flexibility, the fund may place assets in cash or invest in
investment-grade short-term securities.
RISK FACTORS
[Clipart]As with any growth fund, the value of your investment will fluctuate in
response to stock market movements. By focusing on a relatively small number of
sectors or issuers, the fund runs the risk that any factor influencing those
sectors or issuers will have a major effect on performance. The fund may invest
in companies with smaller market capitalizations, which represent higher
near-term risks than larger capitalization companies. These factors make the
fund likely to experience higher volatility than most other types of growth
funds. Before you invest, please read "More about risk" starting on page 26.
PORTFOLIO MANAGEMENT
[Clipart]Robert G. Freedman, Benjamin A. Hock, Jr., CFA and James M. Boyd lead
the portfolio management team. Mr. Freedman is vice chairman and chief
investment officer of the adviser. He joined the adviser in 1984 and has been in
the investment business since 1968. Mr. Hock, a senior vice president, joined
the adviser in 1994 and has been in the investment business since 1974. Mr.
Boyd, an assistant portfolio manager, has been with John Hancock Funds since
1992.
- --------------------------------------------------------------------------------
INVESTOR EXPENSES
[Clipart]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 0.50% 0.50%
Total fund operating expenses 1.60% 2.30%
Example The table below shows what you would pay if you invested $1,000 over the
arious time frames indicated. The example assumes you reinvested all dividends
nd that the average annual return was 5%.
- --------------------------------------------------------------------------------
Share class Year 1 Year 3 Year 5 Year 10
- --------------------------------------------------------------------------------
Class A shares $65 $98 $133 $231
Class B shares
Assuming redemption
at end of period $73 $102 $143 $246
Assuming no redemption $23 $72 $123 $246
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.
14 SPECIAL OPPORTUNITIES FUND
<PAGE>
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
[Clipart]The figures below have been audited by the fund's independent auditors,
Price Waterhouse LLP.
[The table below was represented here by a bar graph.]
Volatility, as indicated by
Class A year-by-year total
investment return (%) (6.71) 17.53 36.15
(scale varies from fund to fund)
- --------------------------------------------------------------------------------
Class A - period ended: 10/94(1) 10/95 10/96
- --------------------------------------------------------------------------------
Per share operating performance
Net asset value, beginning of period $8.50 $7.93 $9.32
Net investment income (loss)(2) (0.03) (0.07) (0.11)
Net realized and unrealized gain (loss)
on investments (0.54) 1.46 3.34
Total from investment operations (0.57) 1.39 3.23
Less distributions:
Distributions from net realized gain on
investments sold -- -- (1.63)
Net asset value, end of period $7.93 $9.32 $10.92
Total investment return at net asset value(3)(%) (6.71) 17.53 36.15
Total adjusted investment return at net asset
value(3,4) (%) (6.83) -- --
Ratios and supplemental data
Net assets, end of period (000s omitted) ($) 92,325 101,562 156,578
Ratio of expenses to average net assets (%) 1.50 1.59 1.59
Ratio of adjusted expenses to average net
assets(5) (%) 1.62 -- --
Ratio of net investment income (loss) to
average net assets (%) (0.41) (0.87) (1.00)
Ratio of adjusted net investment (loss) to
average net assets(5) (%) (0.53) -- --
Portfolio turnover rate (%) 57 155 240
Fee reduction per share ($) 0.01(2) -- --
Average brokerage commission rate(6) ($) N/A N/A 0.0600
- --------------------------------------------------------------------------------
Class B - period ended: 10/94(1) 10/95 10/96
- --------------------------------------------------------------------------------
Per share operating performance
Net asset value, beginning of period $8.50 $7.87 $9.19
Net investment income (loss)(2) (0.09) (0.13) (0.18)
Net realized and unrealized gain (loss)
on investments (0.54) 1.45 3.29
Total from investment operations (0.63) 1.32 3.11
Less distributions:
Distributions from net realized gain
on investments sold -- -- (1.63)
Net asset value, end of period $7.87 $9.19 $10.67
Total investment return at net asset value(3)(%) (7.41)(4) 16.77 35.34
Total adjusted investment return at net asset
value(3,4)(%) (7.53) -- --
Ratios and supplemental data
Net assets, end of period (000s omitted) ($) 131,983 137,363 238,901
Ratio of expenses to average net assets (%) 2.22 2.30 2.29
Ratio of adjusted expenses to average net
assets(5) (%) 2.34 -- --
Ratio of net investment income (loss) to
average net assets (%) (1.13) (1.55) (1.70)
Ratio of adjusted net investment (loss)
to average net assets(5) (%) (1.25) -- --
Portfolio turnover rate (%) 57 155 240
Fee reduction per share ($) 0.01(2) -- --
Average brokerage commission rate(6) ($) N/A N/A 0.0600
(1) Class A and B shares commenced operations on November 1, 1993.
(2) Based on the average of the shares outstanding at the end of each month.
(3) Assumes dividend reinvestment and does not reflect the effect of sales
charges.
(4) An estimated total return calculation that does not take into consideration
fee reductions by the adviser during the periods shown.
(5) Unreimbursed, without fee reduction.
(6) Per portfolio share traded. Required for fiscal years that began September
1, 1995 or later.
SPECIAL OPPORTUNITIES FUND 15
<PAGE>
Your account
- --------------------------------------------------------------------------------
CHOOSING A SHARE CLASS
All John Hancock growth 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, o No front-end sales charge;
as described below. There all your money goes to work
are several ways to reduce for you right away.
reduce these charges, also
described below. o Higher annual expenses
than Class A shares.
o Lower annual expenses
than Class B shares. o A deferred sales charge on
shares you sell within six
years of purchase, as
described below.
o Automatic conversion to
Class A shares after eight
years, thus reducing future
annual expenses.
For actual past expenses of Class A and B shares, see the fund-by-fund
information earlier in this prospectus.
Special Equities Fund offers Class C shares, which have their own expense
structure and are available to financial institutions only. Call Signature
Services for more information (see the back cover of this prospectus).
- --------------------------------------------------------------------------------
HOW SALES CHARGES ARE CALCULATED
Class A Sales charges are as follows:
- --------------------------------------------------------------------------------
Class A sales charges
- --------------------------------------------------------------------------------
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
- --------------------------------------------------------------------------------
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.
Class B Shares are offered at their net asset value per share, without any
initial sales charge. However, there is a contingent deferred sales charge
(CDSC) on shares you sell within six years of buying them. There is no CDSC on
shares acquired through reinvestment of dividends. The CDSC is based on the
original purchase cost or the current market value of the shares being sold,
whichever is less. The longer the time between the purchase and the sale of
shares, the lower the rate of the CDSC:
- --------------------------------------------------------------------------------
Class B deferred charges
- --------------------------------------------------------------------------------
Years after purchase CDSC on shares being sold
1st year 5.00%
2nd year 4.00%
3rd or 4th year 3.00%
5th year 2.00%
6th year 1.00%
After 6 years 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.
16 YOUR ACCOUNT
<PAGE>
- --------------------------------------------------------------------------------
SALES CHARGE REDUCTIONS AND WAIVERS
Reducing your Class A sales charges There are several ways you can combine
multiple purchases of Class A shares of John Hancock funds to take advantage of
the breakpoints in the sales charge schedule. The first three ways can be
combined in any manner.
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 Signature Services to add these options to an
existing account.
Group Investment Program A group may be treated as a single purchaser under the
accumulation and combination privileges. Each investor has an individual
account, but the group's investments are lumped together for sales charge
purposes, making the investors potentially eligible for reduced sales charges.
There is no charge, no obligation to invest (although initial investments must
total at least $250) and individual investors may close their account at any
time.
To utilize: contact your financial representative or Signature Services to find
out how to qualify, or consult the SAI (see the back cover of this prospectus).
CDSC waivers As long as Signature Services is notified at the time you sell, the
CDSC for 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 Signature Services, or consult the SAI.
Reinstatement privilege If you sell shares of a John Hancock fund, you may
reinvest some or all of the proceeds in the same share class of any John Hancock
fund within 120 days without a sales charge, as long as Signature Services is
notified before you reinvest. If you paid a CDSC when you sold your shares, you
will be credited with the amount of the CDSC. All accounts involved must have
the same registration.
To utilize: contact your financial representative or Signature Services.
Waivers for certain investors Class A shares may be offered without front-end
sales charges or CDSCs to various individuals and institutions, including:
o 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 from an employee benefit plan into a John
Hancock fund
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)
To utilize: if you think you may be eligible for a sales charge waiver, contact
your financial representative or Signature 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
o fee-based clients of selling brokers who placed at least $2 billion in John
Hancock funds: $500
3 Complete the appropriate parts of the account application, carefully
following the instructions. If you have questions, please contact your
financial representative or call Signature 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 and your
financial representative can initiate any purchase, exchange or sale of
shares.
YOUR ACCOUNT 17
<PAGE>
- --------------------------------------------------------------------------------
Buying shares
- --------------------------------------------------------------------------------
Opening an account Adding to an account
By check
[Clipart} o Make out a check for the o Make out a check for the
investment amount, payable to investment amount payable
"John Hancock Signature to "John Hancock Signature
Services, Inc." Services, Inc."
o Deliver the check and your o Fill out the detachable
completed application to your investment slip from an
financial representative, or account statement. If no
mail them to Signature Services slip is available, include
(address on next page). 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 Signature Services
(address on next page).
By exchange
[Clipart] o Call your financial o Call your financial
representative or Signature representative or Signature
Services to request an Services to request an
exchange. exchange.
By wire
[Clipart] o Deliver your completed o Instruct your bank to wire
application to your financial the amount of your
representative, or mail investment to:
it to Signature Services. First Signature Bank & Trust
Account # 900000260
o Obtain your account number Routing # 211475000
by calling your financial Specify the fund name, your
representative or share class, your account
Signature Services. number and the name(s)
in which the account is
o Instruct your bank to wire registered. Your bank may
the amount of your investment charge a fee to wire funds.
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
[Clipart] See "By wire" and "By exchange." o Verify that your bank or
credit union is a member of
the Automated Clearing
House (ACH) system.
o Complete the "Invest-By-
Phone" and "Bank
Information" sections on
your account application.
o Call Signature Services to
verify that these features
are in place on your account.
o Tell the Signature Services
representative the fund name,
your share class, your
account number, the name(s)
in which the account is
registered and the amount
of your investment.
To open or add to an account using the Monthly Automatic Accumulation Program,
see "Additional investor services."
18 YOUR ACCOUNT
<PAGE>
- --------------------------------------------------------------------------------
Selling shares
- --------------------------------------------------------------------------------
Designed for To sell some or all of your shares
By letter
[Clipart] o Accounts of any type. o Write a letter of instruction
o Sales of any amount. 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 Signature
Services.
o A check will be mailed to the
name(s) and address in which
the account is registered, or
otherwise according to your
letter of instruction.
By phone
[Clipart] o Most accounts. o For automated service 24 hours
o Sales of up to $100,000. 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 Signature Services
between 8 A.M. and 4 P.M.
Eastern Time on most business
days.
By wire or electronic funds transfer (EFT)
[Clipart] o Requests by letter to o Fill out the "Telephone
sell any amount (accounts Redemption" section of your
of any type). new account application.
o Requests by phone to sell o To verify that the telephone
up to $100,000 (accounts redemption privilege is in
with telephone redemption place on an account, or to
privileges). request the forms to add it
to an existing account, call
Signature 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
[Clipart] o Accounts of any type. o Obtain a current prospectus for
o Sales of any amount. the fund into which you are
exchanging by calling your
financial representative or
Signature Services.
o Call your financial
representative or Signature
Services to request an exchange.
- ----------------------------------------
Address
John Hancock Signature Services, Inc.
1 John Hancock Way, Suite 1000
Boston, MA 02217-1000
Phone
1-800-225-5291
Or contact your financial representative
for instructions and assistance.
- ----------------------------------------
To sell shares through a systematic withdrawal plan, see "Additional investor
services."
YOUR ACCOUNT 19
<PAGE>
Selling shares in writing In certain circumstances, you will need to make your
request to sell shares in writing. You may need to include additional items with
your request, as shown in the table below. You may also need to include a
signature guarantee, which protects you against fraudulent orders. You will need
a signature guarantee if:
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
[Clipart]
- --------------------------------------------------------------------------------
Owners of individual, joint, o Letter of instruction.
sole proprietorship, UGMA/UTMA o On the letter, the signatures and
(custodial accounts for minors) titles of all persons authorized to
or general partner accounts. sign for the account, exactly as
the account is registered.
o Signature guarantee if applicable
(see above).
Owners of corporate or o Letter of instruction.
association accounts. o Corporate resolution, certified
within the past twelve months.
o On the letter and the resolution,
the signature of the person(s)
authorized to sign for the account.
o Signature guarantee if applicable
(see above).
Owners or trustees of trust accounts. o Letter of instruction.
o On the letter, the signature(s) of
the trustee(s).
o 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 twelve months.
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 instruction.
account types not listed above.
20 YOUR ACCOUNT
<PAGE>
- --------------------------------------------------------------------------------
TRANSACTION POLICIES
Valuation of shares The net asset value per share (NAV) for each fund and class
is determined each business day at the close of regular trading on the New York
Stock Exchange (typically 4 P.M. Eastern Time) by dividing a class's net assets
by the number of its shares outstanding.
Buy and sell prices When you buy shares, you pay the NAV plus any applicable
sales charges, as described earlier. When you sell shares, you receive the NAV
minus any applicable deferred sales charges.
Execution of requests Each fund is open on those days when the New York Stock
Exchange is open, typically Monday through Friday. Buy and sell requests are
executed at the next NAV to be calculated after your request is accepted by
Signature Services.
At times of peak activity, it may be difficult to place requests by phone.
During these times, consider using EASI-Line or sending your request in writing.
In unusual circumstances, 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, Signature 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 taken, Signature Services is not
responsible for any losses that may occur to any account due to an unauthorized
telephone call. Also for your protection, telephone transactions are not
permitted on accounts whose names or addresses have changed within the past 30
days. Proceeds from telephone transactions can only be mailed to the address of
record.
Exchanges You may exchange shares of one John Hancock fund for shares of the
same class of any other, generally without paying any additional sales charges.
The registration for both accounts involved must be identical. Class B 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 the new
fund's rate if that 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 also refuse any exchange order. A fund may
change or cancel its exchange policies at any time, upon 60 days' notice to its
shareholders.
Certificated shares Most shares are electronically recorded. If you wish to have
certificates for your shares, please write to Signature Services. Certificated
shares can only be sold by returning the certificates to Signature Services,
along with a letter of instruction or a stock power and a signature guarantee.
Sales in advance of purchase payments When you place a request to sell shares
for which the purchase money has not yet been collected, the request will be
executed in a timely fashion, but the fund will not release the proceeds to you
until your purchase payment clears. This may take up to ten business days after
the purchase.
- --------------------------------------------------------------------------------
DIVIDENDS AND ACCOUNT POLICIES
Account statements In general, you will receive account statements as follows:
o after every transaction (except a dividend reinvestment) that affects your
account balance
o after any changes of name or address of the registered owner(s)
o in all other circumstances, every quarter
Every year you should also receive, if applicable, a Form 1099 tax information
statement, mailed by January 31.
Dividends The funds generally distribute most or all of their net earnings in
the form of dividends.Any capital gains are distributed annually. Most of the
funds do not typically pay income dividends, with the exception of Regional Bank
Fund, which typically pays income dividends quarterly.
YOUR ACCOUNT 21
<PAGE>
Dividend reinvestments Most investors have their dividends reinvested in
additional shares of the same fund and class. If you choose this option, or if
you do not indicate any choice, your dividends will be reinvested on the
dividend record date. Alternatively, you can choose to have a check for your
dividends mailed to you. However, if the check is not deliverable, your
dividends will be reinvested.
Taxability of dividends As long as a fund meets the requirements for being a
tax-qualified regulated investment company, which each fund has in the past and
intends to in the future, it pays no federal income tax on the earnings it
distributes to shareholders.
Consequently, dividends you receive from a fund, whether reinvested or taken as
cash, are generally considered taxable. Dividends from a fund's long-term
capital gains are taxable as capital gains; dividends from other sources are
generally taxable as ordinary income.
Some dividends paid in January may be taxable as if they had been paid the
previous December. Corporations may be entitled to take a dividends-received
deduction for a portion of certain dividends they receive.
The Form 1099 that is mailed to you every January details your dividends and
their federal tax category, although you should verify your tax liability with
your tax professional.
Taxability of transactions Any time you sell or exchange shares, it is
considered a taxable event for you. Depending on the purchase price and the sale
price of the shares you sell or exchange, you may have a gain or a loss on the
transaction. You are responsible for any tax liabilities generated by your
transactions.
Small accounts (non-retirement only) If you draw down a non-retirement account
so that its total value is less than $1,000, you may be asked to purchase more
shares within 30 days. If you do not take action, your fund may close out your
account and mail you the proceeds. Alternatively, Signature Services may charge
you $10 a year to maintain your account. You will not be charged a CDSC if your
account is closed for this reason, and your account will not be closed if its
drop in value is due to fund performance or the effects of sales charges.
- --------------------------------------------------------------------------------
ADDITIONAL INVESTOR SERVICES
Monthly Automatic Accumulation Program (MAAP) MAAP lets you set up regular
investments from your paycheck or bank account to the John Hancock fund(s) of
your choice. You determine the frequency and amount of your investments, and you
can terminate your program at any time. To establish:
o Complete the appropriate parts of your account application.
o If you are using MAAP to open an account, make out a check ($25 minimum) for
your first investment amount payable to "John Hancock Signature Services,
Inc." Deliver your check and application to your financial representative or
Signature Services.
Systematic withdrawal plan This plan may be used for routine bill payments or
periodic withdrawals from your account. To establish:
o Make sure you have at least $5,000 worth of shares in your account.
o Make sure you are not planning to invest more money in this account (buying
shares during a period when you are also selling shares of the same fund is
not advantageous to you, because of sales charges).
o Specify the payee(s). The payee may be yourself or any other party, and there
is no limit to the number of payees you may have, as long as they are all on
the same payment schedule.
o Determine the schedule: monthly, quarterly, semi-annually, annually or in
certain selected months.
o Fill out the relevant part of the account application. To add a systematic
withdrawal plan to an existing account, contact your financial representative
or Signature Services.
Retirement plans John Hancock Funds offers a range of qualified retirement
plans, including IRAs, SIMPLE plans, SEPs, 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 (except tax-free income funds) with a low
minimum investment of $250 or, for some group plans, no minimum investment at
all. To find out more, call Signature Services at 1-800-225-5291.
22 YOUR ACCOUNT
<PAGE>
Fund details
- --------------------------------------------------------------------------------
BUSINESS STRUCTURE
How the funds are organized Each John Hancock growth fund is an open-end
management investment company or a series of such a company.
Each fund is supervised by a board of trustees, 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 growth 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 information was represented as a flow chart in the printed
material.]
-----------------
Shareholders
-----------------
Distribution and
shareholder services
-------------------------------------------------
Financial services firms and
their representatives
Advise current and prospective share-
holders on their fund investments, often
in the context of an overall financial plan.
-------------------------------------------------
-------------------------------------------------
Principal distributor
John Hancock Funds, Inc.
101 Huntington Avenue
Boston, MA 02199-7603
Markets the funds and distributes shares
through selling brokers, financial planners
and other financial representatives.
-------------------------------------------------
------------------------------------------------------
Transfer agent
John Hancock Signature Services, Inc.
1 John Hancock Way, Ste 1000
Boston, MA 02217-1000
Handles shareholder services, including record-
keeping and statements, distribution of dividends
and processing of buy and sell requests.
------------------------------------------------------
Asset management
------------------------------------
Subadviser
DFS Advisors LLC
75 State Street
Boston, MA 02109
Provides portfolio management
to the fund.
------------------------------------
------------------------------------
Investment adviser
John Hancock Advisers, Inc.
101 Huntington Avenue
Boston, MA 02199-7603
Manages the funds' business and
investment activities.
------------------------------------
------------------------------------
Custodian
Investors Bank & Trust co.
200 Clarendon Street
Boston, MA 02116
Holds the funds' assets, settles all
portfolio trades and collects most of
the valuation data required for
calculating each fund's NAV.
------------------------------------
------------------------------------
Trustees
Supervise the funds' activities.
------------------------------------
FUND DETAILS 23
<PAGE>
Accounting compensation The funds compensate the adviser for performing tax and
financial management services. Annual compensation is not expected to 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 Emerging Growth Fund, Financial Industries Fund and
Special Opportunities Fund, each fund's investment goal is fundamental and may
only be changed with shareholder approval.
Diversification Except for Special Opportunities Fund, all of the growth 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 funds' 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. 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
Emerging Growth $ 11,288,492 2.59%
Financial Industries N/A N/A
Growth $ 208,458 0.79%
Regional Bank $ 59,994,035 3.42%
Special Equities $ 19,220,716 2.54%
Special Opportunities $ 7,346,826 4.20%
(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.
Financial services firms selling large amounts of fund shares may receive extra
compensation. This compensation, which John Hancock Funds pays out of its own
resources, may include asset retention fees as well as reimbursement for
marketing expenses.
24 FUND DETAILS
<PAGE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Class A investments
- ------------------------------------------------------------------------------------------------------------------------------------
Maximum
Sales charge reallowance First year Maximum
paid by investors or commission service fee total compensation(1)
(% of offering price) (% of offering price) (% of net investment) (% of offering price)
<S> <C> <C> <C> <C>
Up to $49,999 5.00% 4.01% 0.25% 4.25%
$50,000 - $99,999 4.50% 3.51% 0.25% 3.75%
$100,000 - $249,999 3.50% 2.61% 0.25% 2.85%
$250,000 - $499,999 2.50% 1.86% 0.25% 2.10%
$500,000 - $999,999 2.00% 1.36% 0.25% 1.60%
Regular investments of
$1 million or more
First $1M - $4,999,999 -- 0.75% 0.25% 1.00%
Next $1 - $5M above that -- 0.25% 0.25% 0.50%
Next $1 or more above that -- 0.00% 0.25% 0.25%
Waiver investments(2) -- 0.00% 0.25% 0.25%
<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>
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 pay commissions
when there is no initial sales charge.
FUND DETAILS 25
<PAGE>
- --------------------------------------------------------------------------------
MORE ABOUT RISK
A fund's risk profile is largely defined by the fund's primary securities and
investment practices. You may find the most concise description of each fund's
risk profile in the fund-by-fund information.
The funds are permitted to utilize -- within limits established by the trustees
- -- certain other securities and investment practices that have higher risks and
opportunities associated with them. To the extent that a fund utilizes these
securities or practices, its overall performance may be affected, either
positively or negatively. On the following page are brief descriptions of these
securities and practices, along with the risks associated with them. The funds
follow certain policies that may reduce these risks.
As with any mutual fund, there is no guarantee that the performance of a John
Hancock growth fund will be positive over any period of time -- days, months or
years. However, stock funds as a category have historically performed better
over the long term than bond or money market funds.
- --------------------------------------------------------------------------------
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). Incomplete correlation can result
in unanticipated risks.
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.
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 that the fund also
holds, any loss generated by the derivative should be substantially offset by
gains on the hedged investment, and vice versa. While hedging can reduce or
eliminate losses, it can also reduce or eliminate gains.
o Speculative To the extent that a derivative is not used as a hedge, the fund
is directly exposed to the risks of that derivative. Gains or losses from
speculative positions in a derivative may be substantially greater than the
derivative's original cost.
Liquidity risk The risk that certain securities may be difficult or impossible
to sell at the time and the price that the seller would like. 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 the price originally paid for it, or 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 attributable to government or political
actions, from changes in tax or trade statutes to governmental collapse and war.
Valuation risk The risk that a fund has valued certain of its securities at a
higher price than it can sell them for.
26 FUND DETAILS
<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.
10 Percent of total assets (italic type)
10 Percent of net assets (roman type)
* No policy limitation on usage; fund may be using currently
o Permitted, but has not typically been used
- -- Not permitted
<TABLE>
<CAPTION>
Emerging Financial Regional Special Special
Growth Industries Growth Bank Equities Opportunities
- ------------------------------------------------------------------------------------------------------------------------------------
Investment practices
<S> <C> <C> <C> <C> <C> <C>
Borrowing; reverse repurchase agreements
The borrowing of money from
banks or through reverse repurchase
agreements. Leverage, credit risks 33.3 33 33.3 5 33.3 33.3
Repurchase agreements The purchase
of a security that must later be sold back
to the seller at the same price plus interest
Credit risk * * * * * *
Securities lending The lending of securities
to financial institutions, which provide
cash or government securities as collateral
Credit risk 30 33.3 33.3 -- 33.3 33.3
Short sales The selling of securities which
have been borrowed on the expectation that
the market price will drop
o Hedged. Hedged leverage, market, correlation,
liquidity, opportunity risks o o o -- o *
o Speculative. Speculative leverage, market,
liquidity risks -- o o -- o 5
Short-term trading Selling a security soon
after purchase. A portfolio engaging in short-term
trading will have higher turnover and transaction
expenses. Market risk * * * * * *
When-issued securities and forward commitments
The purchase or sale of securities for delivery
at a future date; market value may change before
delivery. Market, opportunity, leverage risks * * * * * *
- ------------------------------------------------------------------------------------------------------------------------------------
Conventional securities
Non-investment-grade securities Securities rated
below BBB/Baa are considered junk bonds. Credit, market,
interest rate, liquidity, valuation, information risks 10 5 5 5 -- --
Foreign equities
o Stocks issued by foreign companies. Market, currency,
information, natural event, political risks * * 15 o * *
o American or European depository receipts, which are
dollar-denominated securities typically issued by
American or European banks and are based on ownership
of securities issued by foreign companies. Market,
currency, information, natural event, political risks * * 15 o * *
Restricted and illiquid securities Securities not
traded on the open market. May include illiquid Rule 144A
securities. Liquidity, valuation, market risks 10 15 15 15 15 15
- ------------------------------------------------------------------------------------------------------------------------------------
Leveraged derivative securities
Financial futures and options; securities and index
options Contracts involving the right or obligation
to deliver or receive assets or money depending on the
performance of one or more assets or an economic index
o Futures and related options. Interest rate, currency,
market, hedged or speculative leverage, correlation,
liquidity, opportunity risks * o o -- o *
o Options on securities and indices. Interest rate,
currency, market, hedged or speculative leverage,
correlation, liquidity, credit, opportunity risks * o o o o *
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 Speculative. Currency, speculative leverage,
liquidity risks -- o -- -- o --
</TABLE>
FUND DETAILS 27
<PAGE>
For more information
- --------------------------------------------------------------------------------
Two documents are available that offer further information on John Hancock
growth funds:
ANNUAL/SEMIANNUAL 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/ semiannual 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/semiannual report or SAI, please
write or call:
John Hancock Signature Services, Inc.
1 John Hancock Way, Suite 1000
Boston, MA 02217-1000
Telephone: 1-800-225-5291
EASI-Line: 1-800-338-8080
TDD: 1-800-544-6713
Internet: www.jhancock.com/funds
[LOGO] JOHN HANCOCK FUNDS
A Global Investment Management Firm
101 Huntington Avenue
Boston, Massachusetts 02199-7603
John Hancock(R)
Financial Services
(C) 1996 John Hancock Funds, Inc.
GROPN 12/97
<PAGE>
JOHN HANCOCK EMERGING GROWTH FUND
CLASS A AND CLASS B SHARES
STATEMENT OF ADDITIONAL INFORMATION
March 1, 1997 as revised December 8, 1997
This Statement of Additional Information provides information about John Hancock
Emerging Growth Fund (the "Fund"), in addition to the information that is
contained in the combined Growth Fund's Prospectus, dated March 1, 1997 as
revised December 8, 1997 (the "Prospectus"). The Fund is a diversified series of
John Hancock Series Trust (the "Trust").
This Statement of Additional Information is not a prospectus. It should be read
in conjunction with the Prospectus, a copy of which can be obtained free of
charge by writing or telephoning:
John Hancock Signature Services, Inc.
1 John Hancock Way Suite 1000
Boston, Massachusetts 02217-1000
1-800-225-5291
TABLE OF CONTENTS
Page
Organization of the Trust 2
Investment Objective and Policies 2
Investment Restrictions 14
Those Responsible for Management 17
Investment Advisory and Other Services 27
Distribution Contract 29
Net Asset Value 30
Initial Sales Charge on Class A Shares 31
Deferred Sales Charge on Class B Shares 34
Special Redemptions 37
Additional Services and Programs 37
Description of the Fund's Shares 38
Tax Status 40
Calculation of Performance 44
Brokerage Allocation 45
Transfer Agent Services 47
Custody of Portfolio 47
Independent Auditors 47
Appendix A A-1
Financial Statements F-1
1
<PAGE>
ORGANIZATION OF THE TRUST
The Trust is an open-end management investment company organized as a
Massachusetts business trust under a Declaration of Trust dated December 2,
1996. Prior to December 2, 1996, the Fund was a series of John Hancock
Technology Series, Inc., a Maryland corporation. On December 2, 1996, the Trust
assumed the Registration Statement of John Hancock Technology Series, Inc. Prior
to December 22, 1994, the Fund was called Transamerica Emerging Growth Fund.
The Fund is managed by John Hancock Advisers, Inc. (the "Adviser"), a
wholly-owned indirect subsidiary of John Hancock Mutual Life Insurance Company
(the "Life Company"), chartered in 1862 with national headquarters at John
Hancock Place, Boston, Massachusetts.
INVESTMENT OBJECTIVE AND POLICIES
The following information supplements the discussion of the Fund's investment
objective and policies discussed in the Prospectus.
The Fund seeks long-term growth of capital appreciation. To pursue this goal,
the Fund invests in emerging companies (market capitalization of less than $1
billion). In normal circumstances, the Fund will invest at least 80% of its
assets in these companies. Current income is not a factor of consequence in the
selection of stocks for the Fund.
In order to achieve its objective, the Fund invests in a diversified group of
companies whose growth rates are expected to significantly exceed that of the
average industrial company. It invests in these companies early in their
corporate life cycle before they become widely recognized and well known, and
while their reputations and track records are still emerging ("emerging
companies"). Consequently, the Fund invests in the stocks of emerging companies
whose capitalization, sales and earnings are smaller than those of the Fortune
500 companies. Further, the Fund's investments in emerging company stocks may
include those of more established companies which offer the possibility of
rapidly accelerating earnings because of revitalized management, new products,
or structural changes in the economy. There can be no assurance that the Fund
will achieve its investment objective.
The nature of investing in emerging companies involves greater risk than is
customarily associated with investments in more established companies. In
particular, the value of securities of emerging companies tends to fluctuate
more widely than other types of investments. Because emerging companies may be
in the early stages of their development, they may be dependent on a relatively
few products or services. They may also lack adequate capital reserves or may be
dependent on one or two management individuals. Their stocks are often traded
"over-the-counter" or on a regional exchange, and may not be traded in volumes
typical of trading on a national exchange. Consequently, the investment risk is
higher than that normally associated with larger, older, better-known companies.
In order to help reduce this risk, the Fund allocates its investments among
different industries.
Most of the Fund's investments will be in equity securities of U.S. companies.
However, since many emerging companies are located outside the United States, a
significant portion of the Fund's investments may occasionally be invested in
equity securities of non-U.S. companies.
2
<PAGE>
While the Fund will invest primarily in emerging companies, the balance of the
Fund's assets may be invested in: (1) other common stocks; (2) preferred stocks;
(3) convertible securities (up to 10% of the Fund's total assets may be invested
in convertible securities rated as low as "B" by Standard & Poor's Ratings Group
("S&P") or Moody's Investors Service, Inc. ("Moody's") or, if unrated,
determined by John Hancock Advisers, Inc. (the "Adviser") to be comparable in
quality to those rated "B"; (4) warrants; and (5) debt obligations of the U.S.
Government, its agencies and instrumentalities.
In order to provide liquidity for the purchase of new investments and to effect
redemptions of its shares, the Fund will invest a portion of its assets in high
quality, short-term debt securities with remaining maturities of one year or
less, including U.S. Government securities, certificates of deposit, bankers'
acceptances, commercial paper, corporate debt securities and related repurchase
agreements.
During periods of unusual market conditions when the Adviser believes that
investing for temporary defensive purposes is appropriate, part or all of the
Fund's assets may be invested in cash or cash equivalents consisting of: (1)
obligations of banks (including certificates of deposit, bankers' acceptances
and repurchase agreements) with assets of $100,000,000 or more; (2) commercial
paper rated within the two highest rating categories of a nationally recognized
rating organization; (3) investment grade short-term notes; (4) obligations
issued or guaranteed by the U.S. Government or any of its agencies or
instrumentalities; and (5) related repurchase agreements.
Investment In Foreign Securities. The Fund may invest in securities of foreign
issuers including securities in the form of sponsored and unsponsored American
Depository Receipts ("ADRs") European Depository Receipts (EDRs) or other
securities convertible into securities of foreign issuers. These securities may
not necessarily be denominated in the same currency as the securities into which
they may be converted but rather in the currency of the market in which they are
traded. ADRs are receipts typically issued by an American bank or trust company
which evidence ownership of underlying securities issued by a foreign
corporation. Generally, ADRs, in registered form, are designed for use in U.S.
securities markets and EDRs are designed for use in foreign securities markets.
Issuers of unsponsored ADRs are not contractually obligated to disclose material
information including financial information, in the United States.
Foreign Securities and Investments in Emerging Markets. The Fund may invest in
securities of foreign issuers, including debt and equity securities of corporate
and governmental issuers in countries with emerging economies or securities
markets.
The securities markets of many countries have in the past moved relatively
independent 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.
If securities traded in markets moving in different directions are combined into
a single portfolio, such as that of the Fund, total portfolio volatility may be
reduced. Since the Fund may invest in securities denominated in currencies other
than U.S. dollars, changes in foreign currency exchange rates may affect the
value of its portfolio securities. 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.
3
<PAGE>
Risks of Foreign Securities. Investments in foreign securities may involve a
greater degree of risk than those in domestic securities. There is generally
less publicly available information about foreign companies in the form of
reports and ratings similar to those that are published about issuers in the
United States. Also, foreign issuers are generally not subject to uniform
accounting, auditing and financial reporting requirements comparable to those
applicable to United States issuers.
Because foreign securities may be denominated in currencies other than the U.S.
dollar, changes in foreign currency exchange rates will affect the Fund's net
asset value, the value of dividends and interest earned, gains and losses
realized on the sale of securities, an any net investment income and gains that
the Fund distributes to shareholders. Securities transactions undertaken in some
foreign markets may not be settled promptly, so that the Fund's investments on
foreign exchanges may be less liquid and subject to the risk of fluctuating
currency exchange rates pending settlement.
Foreign securities will be purchased in the best available market, whether
through over-the-counter markets or exchanges located in the countries where
principal offices of the issuers are located. Foreign securities markets are
generally not as developed or efficient as those in the United States. While
growing in volume, they usually have substantially less volume than the New York
Stock Exchange, and securities of some foreign issuers are less liquid and more
volatile than securities of comparable United States issuers. Fixed commissions
on foreign exchanges are generally higher than negotiated commissions on United
States exchanges, although the Fund will endeavor to achieve the most favorable
net results on its portfolio transactions. There is generally less government
supervision and regulation of securities exchanges, brokers and listed issuers
than in the United States.
With respect to certain foreign countries, there is the possibility of adverse
changes in investment or exchange control regulations, expropriation,
nationalization or confiscatory taxation, limitations on the removal of funds or
other assets of the Fund, political or social instability, or diplomatic
developments which could affect United States investments in those countries.
Moreover, individual foreign economies may differ favorably or unfavorably from
the United States economy in terms of growth of gross national product, rate of
inflation, capital reinvestment, resource self-sufficiency and balance of
payments position.
The dividends in some cases, capital gains, and interest payable on certain of
the Fund's foreign portfolio securities may be subject to foreign withholding or
other foreign taxes, thus reducing the net amount of income or gains available
for distribution to the Fund's shareholders.
These risks may be intensified in the case of investments in emerging markets or
countries with limited or developing capital markets. These countries are
located in the Asia-Pacific region, Eastern Europe, Latin and South America and
Africa. Security prices in these markets can be significantly more volatile than
in more developed countries, reflecting the greater uncertainties of investing
in less established markets and economies. Political, legal and economic
structures in many of these emerging market countries may be undergoing
significant evolution and rapid development, and they may lack the social,
political, legal and economic stability characteristic of more developed
countries. Emerging market countries may have failed in the past to recognize
private property rights. They may have relatively unstable governments, present
the risk of nationalization of businesses, restrictions on foreign ownership, or
prohibitions on repatriation of assets, and may have less protection of property
rights than more developed countries. Their economies may be predominantly based
on only a few industries, may be highly vulnerable to changes in local or global
4
<PAGE>
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 increase in trading volume,
potentially making prompt liquidation of substantial holdings difficult or
impossible at times. The Fund may be required to establish special custodial or
other arrangements before making certain investments in those countries.
Securities of issuers located in these countries may have limited marketability
and may be subject to more abrupt erratic price movements.
Foreign Currency Transactions. The foreign currency exchange transactions of the
Fund may be conducted on a spot (i.e., cash) basis at the spot rate for
purchasing or selling currency prevailing in the foreign exchange market. The
Fund may enter into forward foreign currency exchange contracts involving
currencies of the different countries in which it may invest as a hedge against
possible variations in the foreign exchange rate between these currencies. This
is accomplished through contractual agreements to purchase or sell a specified
currency at a specified future date and price set at the time of the contract.
The Fund's dealings in forward foreign currency contracts will be limited to
hedging either specific transactions or portfolio positions. The Fund will not
attempt to hedge all of its foreign portfolio positions and will not engage in
speculative forward currency transactions.
If the Fund enters into a forward contract to purchase foreign currency, its
custodian bank will segregate cash or liquid securities, of any type or
maturity, (i.e. securities rated more of the top three rating categories by
Moody's on S&P) in a separate account of the Fund in an amount necessary to
complete the forward contract. These assets will be marked to market daily, and,
if the value of the securities in the separate account declines, additional cash
or liquid securities will be added so that the value of the account will be
equal to the amount of the Fund's commitments in contracts.
Investments in foreign securities may involve a greater degree of risk than
those in domestic securities. There is generally less publicly available
information about foreign companies in the form of reports and ratings that are
published about issuers in the United States also, foreign issuers are generally
not subject to uniform accounting, auditing and financial reporting requirements
comparable to those applicable to United States issuers.
Because foreign securities may be denominated in currencies other than the U.S.
dollar, changes in foreign currency exchange rates will affect the Fund's net
asset value, the value of dividends and interest earned, gains and losses
realized on the sale of securities, an any net investment income and gains that
the Fund distributes to shareholders. Securities transactions undertaken in some
foreign markets may not be settled promptly, so that the Fund's investments on
foreign exchanges may be less liquid and subject to the risk of fluctuating
currency exchange rates pending settlement.
Foreign securities will be purchased in the best available market, whether
through over-the-counter markets or exchanges located in the countries where
principal offices of the issuers are located. Foreign securities markets are
generally not as developed or efficient as those in the United States. While
growing in volume, they usually have substantially less volume than the New York
Stock Exchange, and securities of some foreign issuers are less liquid and more
volatile than securities of comparable United States issuers. Fixed commissions
on foreign exchanges are generally higher than negotiated commissions on United
States exchanges, although the Fund will endeavor to achieve the most favorable
net results on its portfolio transactions. There is generally less government
supervision and regulation of securities exchanges, brokers and listed issuers
than in the United States.
5
<PAGE>
With respect to certain foreign countries, there is the possibility of adverse
changes in investment or exchange control regulations, expropriation,
nationalization or confiscatory taxation, limitations on the removal of funds or
other assets of the Fund, political or social instability, or diplomatic
developments which could affect United States investments in those countries.
Moreover, individual foreign economies may differ favorably or unfavorably from
the United States economy in terms of growth of gross national product, rate of
inflation, capital reinvestment, resource self-sufficiency and balance of
payments position.
The dividends, and, in some cases, capital gains, and interest payable on
certain of the Fund's foreign portfolio securities may be subject to foreign
withholding or other foreign taxes, thus reducing the net amount of income or
gains available for distribution to the Fund's shareholders.
Hedging against a decline in the value of currency does not eliminate
fluctuations in the prices of portfolio securities or prevent losses if the
prices of such securities decline. These transactions also preclude the
opportunity for gain if the value of the hedged currency rises. Moreover, it may
not be possible for the Fund to hedge against a devaluation that is so generally
anticipated that the Fund is not able to contract to sell the currency at a
price above the devaluation level it anticipates.
The cost to the Fund of engaging in foreign currency exchange transactions
varies with such factors as the currency involved, the length of the contract
period and the market conditions then prevailing. Since transactions in foreign
currency are usually conducted on a principal basis, no fees or commissions are
involved.
Lower Rated High Yield Debt Obligations. The Fund may invest in high yielding,
fixed income securities rated below investment grade rated Baa or lower by
Moody's and BBB or lower by S&P. See Appendix A for a description of ratings
assigned by Moody's and S&P.
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 generally fluctuate more than those of
high-rated securities. In addition, the lower rating reflects a greater
possibility of an adverse change in financial condition affecting the ability of
the issuer to make payments of interest and principal. Although the adviser
seeks to minimize these risks through diversification, investment analysis and
attention to current developments in interest rates and economic conditions,
there can be no assurance that the Adviser will be successful in limiting the
Fund's exposure to the risks associated with lower rated securities. Because the
Fund invests in securities in the lower rated categories, the achievement of the
Fund's goals is more dependent on the Adviser's ability than would be the case
if the Fund were investing in securities in the higher rated categories.
The Fund may invest in pay-in-kind (PIK) securities, which pay interest in
either cash or additional securities, at the issuer's option, for a specified
period. The Fund also may invest in zero coupon bonds, which have a determined
interest rate, but payment of the interest is deferred until maturity of the
bonds. Both types of bonds may be more speculative and subject to greater
fluctuations in value than securities which pay interest periodically and in
cash, due to changes in interest rates.
6
<PAGE>
The market value of debt securities which carry no equity participation usually
reflects yields generally available on securities of similar quality and type.
When such yields decline, the market value of a portfolio already invested at
higher yields can be expected to rise if such securities are protected against
early call. In general, in selecting securities for its portfolio, the Fund
intends to seek protection against early call. Similarly, when such yields
increase, the market value of a portfolio already invested at lower yields can
be expected to decline. The Fund's portfolio may include debt securities which
sell at substantial discounts from par. These securities are low coupon bonds
which, because of their lower acquisition cost tend to sell on a yield basis
approximating current interest rates during periods of high interest rates.
Repurchase Agreements. In a repurchase agreement the Fund buy a security for a
relatively short period (usually not more than seven days) subject to the
obligation to sell it back to the issuer at a fixed time and price plus accrued
interest. The Fund will enter into repurchase agreements only with member banks
of the Federal Reserve System and with "primary dealers" in U.S. Government
Securities. The Adviser will continuously monitor the creditworthiness of the
parties with whom the Fund enters into repurchase agreements.
The Fund has established a procedure providing that the securities serving as
collateral for each repurchase agreement must be delivered to the Fund's
custodian either physically or in book-entry form and that the collateral must
be marked to market daily to ensure that each repurchase agreement is fully
collateralized at all times. In the event of bankruptcy or other default by a
seller of a repurchase agreement, the Fund could experience delays in
liquidating the underlying securities and could experience losses, including the
possible decline in the value of the underlying securities during the period in
which the Fund seeks to enforce its rights thereto, possible subnormal levels of
income, a decline in value of the underlying securities or lack of access to
income during this period, as well as the expense of enforcing its rights. The
Fund will not invest in a repurchase agreement maturing in more than seven days,
if such investment, together with other illiquid securities held by the Fund
(including restricted securities) would exceed 10% of the Fund's net assets.
Reverse Repurchase Agreements. The Fund may also enter into reverse repurchase
agreements which involve the sale of government securities held in its portfolio
to a bank with an agreement that the Fund will buy back the securities at a
fixed future date at a fixed price plus an agreed amount of interest which may
be reflected in the repurchase price. Reverse repurchase agreements are
considered to be borrowings by the Fund. Reverse repurchase agreements involve
the risk that the market value of securities purchased by the Fund with proceeds
of the transaction may decline below the repurchase price of the securities sold
by the Fund which it is obligated to repurchase. To minimize various risks
associated with reverse repurchase agreements, the Fund will establish and
maintain with the Fund's custodian a separate account consisting of liquid
securities, of any type or maturity, in an amount at least equal to the
repurchase prices of the securities (plus any accrued interest thereon) under
such agreements. The Fund will also continue to be subject to the risk of a
decline in the market value of the securities sold under the agreements because
it will reacquire those securities upon effecting their repurchase. The Fund
will not enter into reverse repurchase agreements exceeding in the aggregate 33
1/3% of the market value of its total assets. The Fund will enter into reverse
repurchase agreements only with federally insured banks or savings and loan
associations which are approved in advance as being creditworthy by the
Trustees. Under procedures established by the Trustees, the Adviser will monitor
the creditworthiness of the banks involved.
Restricted Securities. The Fund will not invest more than 10% of its total
assets in securities that are not registered ("restricted securities") under the
Securities Act of 1933 (the "1933 Act"), including commercial paper issued in
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reliance on Section 4(2) of the 1933 act and securities offered and sold to
"qualified institutional buyers" under Rule 144A under the 1933 Act. The Fund
will not invest more than 10% of its net assets in illiquid investments. If the
Trustees determines, based upon a continuing review of the trading markets for
specific 4(2) paper or Rule 144A securities, that they are liquid, they will not
be subject to the 10% limit on illiquid investments. The Trustees may adopt
guidelines and delegate to the Adviser the daily function of determining and
monitoring the liquidity of restricted securities. The Trustees, however, will
retain sufficient oversight and be ultimately responsible for the
determinations. The Trustees will carefully monitor the Fund's investments in
these securities, focusing on such important factors, among others, as
valuation, liquidity and availability of information. This investment practice
could have the effect of increasing the level of illiquidity in the Fund if
qualified institutional buyers become for a time uninterested in purchasing
these restricted securities.
Options on Securities, Securities Indices and Currency. The Fund may purchase
and write (sell) call and put options on any securities in which it may invest,
on any securities index based on securities in which it may invest or on any
currency in which Fund investments may be denominated. These options may be
listed on national domestic securities exchanges or foreign securities exchanges
or traded in the over-the-counter market. The Fund may write covered put and
call options and purchase put and call options to enhance total return, as a
substitute for the purchase or sale of securities or currency, or to protect
against declines in the value of portfolio securities and against increases in
the cost of securities to be acquired.
Writing Covered Options. A call option on securities or currency written by the
Fund obligates the Fund to sell specified securities or currency to the holder
of the option at a specified price if the option is exercised at any time before
the expiration date. A put option on securities or currency written by the Fund
obligates the Fund to purchase specified securities or currency from the option
holder at a specified price if the option is exercised at any time before the
expiration date. Options on securities indices are similar to options on
securities, except that the exercise of securities index options requires cash
settlement payments and does not involve the actual purchase or sale of
securities. In addition, securities index options are designed to reflect price
fluctuations in a group of securities or segment of the securities market rather
than price fluctuations in a single security. Writing covered call options may
deprive the Fund of the opportunity to profit from an increase in the market
price of the securities or foreign currency assets in its portfolio. Writing
covered put options may deprive the Fund of the opportunity to profit from a
decrease in the market price of the securities or foreign currency assets to be
acquired for its portfolio.
All call and put options written by the Fund are covered. A written call option
or put option may be covered by (i) maintaining cash or liquid securities,
either of which may be quoted or denominated in any currency, in a segregated
account maintained by the Fund's custodian with a value at least equal to the
Fund's obligation under the option, (ii) entering into an offsetting forward
commitment and/or (iii) purchasing an offsetting option or any other option
which, by virtue of its exercise price or otherwise, reduces the Fund's net
exposure on its written option position. A written call option on securities is
typically covered by maintaining the securities that are subject to the option
in a segregated account. The Fund may cover call options on a securities index
by owning securities whose price changes are expected to be similar to those of
the underlying index.
The Fund may terminate its obligations under an exchange traded call or put
option by purchasing an option identical to the one it has written. Obligations
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under over-the-counter options may be terminated only by entering into an
offsetting transaction with the counterparty to such option. Such purchases are
referred to as "closing purchase transactions."
Purchasing Options. The Fund would normally purchase call options in
anticipation of an increase, or put options in anticipation of a decrease
("protective puts"), in the market value of securities or currencies of the type
in which it may invest. The Fund may also sell call and put options to close out
its purchased options.
The purchase of a call option would entitle the Fund, in return for the premium
paid, to purchase specified securities or currency at a specified price during
the option period. The Fund would ordinarily realize a gain on the purchase of a
call option if, during the option period, the value of such securities or
currency exceeded the sum of the exercise price, the premium paid and
transaction costs; otherwise the Fund would realize either no gain or a loss on
the purchase of the call option.
The purchase of a put option would entitle the Fund, in exchange for the premium
paid, to sell specified securities or currency at a specified price during the
option period. The purchase of protective puts is designed to offset or hedge
against a decline in the market value of the Fund's portfolio securities or the
currencies in which they are denominated. Put options may also be purchased by
the Fund for the purpose of affirmatively benefiting from a decline in the price
of securities or currencies which it does not own. The Fund would ordinarily
realize a gain if, during the option period, the value of the underlying
securities or currency decreased below the exercise price sufficiently to cover
the premium and transaction costs; otherwise the Fund would realize either no
gain or a loss on the purchase of the put option. Gains and losses on the
purchase of put options may be offset by countervailing changes in the value of
the Fund's portfolio securities.
The Fund's options transactions will be subject to limitations established by
each of the exchanges, boards of trade or other trading facilities on which such
options are traded. These limitations govern the maximum number of options in
each class which may be written or purchased by a single investor or group of
investors acting in concert, regardless of whether the options are written or
purchased on the same or different exchanges, boards of trade or other trading
facilities or are held or written in one or more accounts or through one or more
brokers. Thus, the number of options which the Fund may write or purchase may be
affected by options written or purchased by other investment advisory clients of
the Adviser. An exchange, board of trade or other trading facility may order the
liquidation of positions found to be in excess of these limits, and it may
impose certain other sanctions.
Risks Associated with Options Transactions. There is no assurance that a liquid
secondary market on a domestic or foreign options exchange will exist for any
particular exchange-traded option or at any particular time. If the Fund is
unable to effect a closing purchase transaction with respect to covered options
it has written, the Fund will not be able to sell the underlying securities or
currencies or dispose of assets held in a segregated account until the options
expire or are exercised. Similarly, if the Fund is unable to effect a closing
sale transaction with respect to options it has purchased, it would have to
exercise the options in order to realize any profit and will incur transaction
costs upon the purchase or sale of underlying securities or currencies.
Reasons for the absence of a liquid secondary market on an exchange include the
following: (i) there may be insufficient trading interest in certain options;
(ii) restrictions may be imposed by an exchange on opening transactions or
closing transactions or both; (iii) trading halts, suspensions or other
9
<PAGE>
restrictions may be imposed with respect to particular classes or series of
options; (iv) unusual or unforeseen circumstances may interrupt normal
operations on an exchange; (v) the facilities of an exchange or the Options
Clearing Corporation may not at all times be adequate to handle current trading
volume; or (vi) one or more exchanges could, for economic or other reasons,
decide or be compelled at some future date to discontinue the trading of options
(or a particular class or series of options). If trading were discontinued, the
secondary market on that exchange (or in that class or series of options) would
cease to exist. However, outstanding options on that exchange that had been
issued by the Options Clearing Corporation as a result of trades on that
exchange would continue to be exercisable in accordance with their terms.
The Fund's ability to terminate over-the-counter options is more limited than
with exchange-traded options and may involve the risk that broker-dealers
participating in such transactions will not fulfill their obligations. The
Adviser will determine the liquidity of each over-the-counter option in
accordance with guidelines adopted by the Trustees.
The writing and purchase of options is a highly specialized activity which
involves investment techniques and risks different from those associated with
ordinary portfolio securities transactions. The successful use of options
depends in part on the Adviser's ability to predict future price fluctuations
and, for hedging transactions, the degree of correlation between the options and
securities or currency markets.
Futures Contracts and Options on Futures Contracts. To seek to increase total
return or hedge against changes in interest rates, securities prices or currency
exchange rates, the Fund may purchase and sell various kinds of futures
contracts, and purchase and write call and put options on these futures
contracts. The Fund may also enter into closing purchase and sale transactions
with respect to any of these contracts and options. The futures contracts may be
based on various securities (such as U.S. Government securities), securities
indices, foreign currencies and any other financial instruments and indices. All
futures contracts entered into by the Fund are traded on U.S. or foreign
exchanges or boards of trade that are licensed, regulated or approved by the
Commodity Futures Trading Commission ("CFTC").
Futures Contracts. A futures contract may generally be described as an agreement
between two parties to buy and sell particular financial instruments or
currencies for an agreed price during a designated month (or to deliver the
final cash settlement price, in the case of a contract relating to an index or
otherwise not calling for physical delivery at the end of trading in the
contract).
Positions taken in the futures markets are not normally held to maturity but are
instead liquidated through offsetting transactions which may result in a profit
or a loss. While futures contracts on securities or currency will usually be
liquidated in this manner, the Fund may instead make, or take, delivery of the
underlying securities or currency whenever it appears economically advantageous
to do so. A clearing corporation associated with the exchange on which futures
contracts are traded guarantees that, if still open, the sale or purchase will
be performed on the settlement date.
Hedging and Other Strategies. Hedging is an attempt to establish with more
certainty than would otherwise be possible the effective price or rate of return
on portfolio securities or securities that the Fund proposes to acquire or the
exchange rate of currencies in which portfolio securities are quoted or
denominated. When interest rates are rising or securities prices are falling,
the Fund can seek to offset a decline in the value of its current portfolio
10
<PAGE>
securities through the sale of futures contracts. When interest rates are
falling or securities prices are rising, the Fund, through the purchase of
futures contracts, can attempt to secure better rates or prices than might later
be available in the market when it effects anticipated purchases. The Fund may
seek to offset anticipated changes in the value of a currency in which its
portfolio securities, or securities that it intends to purchase, are quoted or
denominated by purchasing and selling futures contracts on such currencies.
The Fund may, for example, take a "short" position in the futures market by
selling futures contracts in an attempt to hedge against an anticipated rise in
interest rates or a decline in market prices or foreign currency rates that
would adversely affect the dollar value of the Fund's portfolio securities. Such
futures contracts may include contracts for the future delivery of securities
held by the Fund or securities with characteristics similar to those of the
Fund's portfolio securities. Similarly, the Fund may sell futures contracts on
any currencies in which its portfolio securities are quoted or denominated or in
one currency to hedge against fluctuations in the value of securities
denominated in a different currency if there is an established historical
pattern of correlation between the two currencies.
If, in the opinion of the Adviser, there is a sufficient degree of correlation
between price trends for the Fund's portfolio securities and futures contracts
based on other fixed income securitieis, stocks indices or currencies, the Fund
may also enter into such futures contracts as part of its hedging strategy.
Although under some circumstances prices of securities in the Fund's portfolio
may be more or less volatile than prices of such futures contracts, the Adviser
will attempt to estimate the extent of this volatility difference based on
historical patterns and compensate for any differential by having the Fund enter
into a greater or lesser number of futures contracts or by attempting to achieve
only a partial hedge against price changes affecting the Fund's portfolio
securities.
When a short hedging position is successful, any depreciation in the value of
portfolio securities will be substantially offset by appreciation in the value
of the futures position. On the other hand, any unanticipated appreciation in
the value of the Fund's portfolio securities would be substantially offset by a
decline in the value of the futures position.
On other occasions, the Fund may take a "long" position by purchasing futures
contracts. This would be done, for example, when the Fund anticipates the
subsequent purchase of particular securities when it has the necessary cash, but
expects the prices or currency exchange rates then available in the applicable
market to be less favorable than prices that are currently available. The Fund
may also purchase futures contracts as a substitute for transactions in
securities or foreign currency, to alter the investment characteristics of or
currency exposure associated with portfolio securities or to gain or increase
its exposure to a particular securities market or currency.
Options on Futures Contracts. The Fund may purchase and write options on futures
for the same purposes as its transactions in futures contracts. The purchase of
put and call options on futures contracts will give the Fund the right (but not
the obligation) for a specified price to sell or to purchase, respectively, the
underlying futures contract at any time during the option period. As the
purchaser of an option on a futures contract, the Fund obtains the benefit of
the futures position if prices move in a favorable direction but limits its risk
of loss in the event of an unfavorable price movement to the loss of the premium
and transaction costs.
The writing of a call option on a futures contract generates a premium which may
partially offset a decline in the value of the Fund's assets. By writing a call
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<PAGE>
option, the Fund becomes obligated, in exchange for the premium (upon exercise
of the option) to sell a futures contract if the option is exercised, which may
have a value higher than the exercise price. Conversely, the writing of a put
option on a futures contract generates a premium which may partially offset an
increase in the price of securities that the Fund intends to purchase. However,
the Fund becomes obligated (upon exercise of the option) to purchase a futures
contract if the option is exercised, which may have a value lower than the
exercise price. The loss incurred by the Fund in writing options on futures is
potentially unlimited and may exceed the amount of the premium received.
The holder or writer of an option on a futures contract may terminate its
position by selling or purchasing an offsetting option of the same series. There
is no guarantee that such closing transactions can be effected. The Fund's
ability to establish and close out positions on such options will be subject to
the development and maintenance of a liquid market.
Other Considerations. The Fund will engage in futures and related options
transactions either for bona fide hedging purposes or to seek to increase total
return as permitted by the CFTC. To the extent that the Fund is using futures
and related options for hedging purposes, futures contracts will be sold to
protect against a decline in the price of securities (or the currency in which
they are quoted or denominated) that the Fund owns or futures contracts will be
purchased to protect the Fund against an increase in the price of securities (or
the currency in which they are quoted or denominated) it intends to purchase.
The Fund will determine that the price fluctuations in the futures contracts and
options on futures used for hedging purposes are substantially related to price
fluctuations in securities held by the Fund or securities or instruments which
it expects to purchase. As evidence of its hedging intent, the Fund expects that
on 75% or more of the occasions on which it takes a long futures or option
position (involving the purchase of futures contracts), the Fund will have
purchased, or will be in the process of purchasing, equivalent amounts of
related securities (or assets denominated in the related currency) in the cash
market at the time when the futures or option position is closed out. However,
in particular cases, when it is economically advantageous for the Fund to do so,
a long futures position may be terminated or an option may expire without the
corresponding purchase of securities or other assets.
To the extent that the Fund engages in nonhedging transactions in futures
contracts and options on futures, the aggregate initial margin and premiums
required to establish these nonhedging positions will not exceed 5% of the net
asset value of the Fund's portfolio, after taking into account unrealized
profits and losses on any such positions and excluding the amount by which such
options were in-the-money at the time of purchase. The Fund will engage in
transactions in futures contracts and related options only to the extent such
transactions are consistent with the requirements of the Internal Revenue Code
of 1986, as amended (the "Code"), for maintaining its qualification as a
regulated investment company for federal income tax purposes.
Transactions in futures contracts and options on futures involve brokerage
costs, require margin deposits and, in the case of contracts and options
obligating the Fund to purchase securities or currencies, require the Fund to
establish with the custodian a segregated account consisting of cash or liquid
securities in an amount equal to the underlying value of such contracts and
options.
While transactions in futures contracts and options on futures may reduce
certain risks, these transactions themselves entail certain other risks. For
example, unanticipated changes in interest rates, securities prices or currency
exchange rates may result in a poorer overall performance for the Fund than if
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<PAGE>
it had not entered into any futures contracts or options transactions.
Perfect correlation between the Fund's futures positions and portfolio positions
will be impossible to achieve. There are no futures contracts based upon
individual securities, except certain U.S. Government securities. The only
futures contracts available to hedge the Fund's portfolio are various futures on
U.S. Government securities, stock indices and foreign currencies. In the event
of an imperfect correlation between a futures position and a portfolio position
which is intended to be protected, the desired protection may not be obtained
and the Fund may be exposed to risk of loss. In addition, it is not possible to
hedge fully or protect against currency fluctuations affecting the value of
securities denominated in foreign currencies because the value of such
securities is likely to fluctuate as a result of independent factors not related
to currency fluctuations.
Some futures contracts or options on futures may become illiquid under adverse
market conditions. In addition, during periods of market volatility, a commodity
exchange may suspend or limit trading in a futures contract or related option,
which may make the instrument temporarily illiquid and difficult to price.
Commodity exchanges may also establish daily limits on the amount that the price
of a futures contract or related option can vary from the previous day's
settlement price. Once the daily limit is reached, no trades may be made that
day at a price beyond the limit. This may prevent the Fund from closing out
positions and limiting its losses.
Lending of Securities. The Fund may lend portfolio securities to brokers,
dealers, and financial institutions if the loan is collateralized by cash or
U.S. government securities according to applicable regulatory requirements. The
Fund may reinvest any cash collateral in short-term securities and money market
funds. When the Fund lends portfolio securities, there is a risk that the
borrower may fail to return the securities involved in the transaction. As a
result, the Fund may incur a loss or, in the event of the borrower's bankruptcy,
the Fund may be delayed in or prevented from liquidating the collateral. The
Fund may not lend portfolio securities having a total value exceeding 30% of its
total assets.
Rights and Warrants. The Fund may purchase warrants and rights which are
securities permitting, but not obligating, their holder to purchase the
underlying securities at a predetermined price subject to the Fund's Investment
Restriction. Generally, warrants and stock purchase rights do not carry with
them the right to receive dividends or exercise voting rights with respect to
the underlying securities, and they do not represent any rights in the assets of
the issuer. As a result, an investment in warrants and rights may be considered
to entail greater investment risk than certain other types of investments. In
addition, the value of warrants and rights does not necessarily change with the
value of the underlying securities, and they cease to have value if they are not
exercised on or prior to their expiration date. Investment in warrants and
rights increases the potential profit or loss to be realized from the investment
of a given amount of the Fund's assets as compared with investing the same
amount in the underlying stock.
Short Sales. The Fund may engage in short sales against the Box. In a short sale
against the box, the Fund agrees to sell at a future date a security that it
either contemporaneously owns or has the right to acquire at no extra cost. If
the price of the security has declined at the time the Fund is required to
deliver the security, the Fund will benefit from the difference in the price. If
the price of the security has increased, the Fund will be required to pay the
difference.
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Forward Commitment and When-Issued Securities. The Fund may purchase securities
on a when-issued or forward commitment basis. "When-issued" refers to securities
whose terms are available and for which a market exists, but which have not been
issued. The Fund will engage in when-issued transactions with respect to
securities purchased for its portfolio in order to obtain what is considered to
be an advantageous price and yield at the time of the transaction. For
when-issued transactions, no payment is made until delivery is due, often a
month or more after the purchase. In a forward commitment transaction, the Fund
contracts to purchase securities for a fixed price at a future date beyond
customary settlement time.
When the Fund engages in forward commitment and when-issued transactions, it
relies on the seller to consummate the transaction. The failure of the issuer or
seller to consummate the transaction may result in the Fund's losing the
opportunity to obtain a price and yield considered to be advantageous. The
purchase of securities on a when-issued or forward commitment basis also
involves a risk of loss if the value of the security to be purchased declines
prior to the settlement date.
On the date the Fund enters into an agreement to purchase securities on a
when-issued or forward commitment basis, the Fund will segregate in a separate
account cash or liquid securities, or any type or maturity, equal in value to
the Fund's commitment. These assets will be valued daily at market, and
additional cash or securities will be segregated in a separate account to the
extent that the total value of the assets in the account declines below the
amount of the when-issued commitments. Alternatively, the Fund may enter into
offsetting contracts for the forward sale of other securities that it owns.
Short-Term Trading and Portfolio Turnover. Short-term trading means the purchase
and subsequent sale of a security after it has been held for a relatively brief
period of time. As a matter of nonfundamental policy, the Fund may engage in
short-term trading in response to stock market conditions, changes in interest
rates or other economic trends and developments, or to take advantage of yield
disparities between various fixed income securities in order to realize capital
gains or improve income. Short-term trading may have the effect of increasing
the Fund's portfolio turnover rate. A high rate of portfolio turnover (100% or
greater) involves correspondingly greater brokerage expenses. The Fund's
portfolio turnover rate is set forth in the table under the caption "Financial
Highlights" in the Prospectus.
INVESTMENT RESTRICTIONS
The Fund has adopted certain fundamental investment restrictions upon its
investments as set forth below which may not be changed without the approval of
the holders of a majority of the outstanding shares of the Fund. A majority for
this purpose means: (a) more than 50% of the outstanding shares of the Fund or
(b) 67% or more of the shares represented at a meeting where more than 50% of
the outstanding shares of the Fund are represented, whichever is less. Under
these restrictions, the Fund may not:
(1) Borrow money in an amount in excess of 33-1/3% of its total assets, and
then only as a temporary measure for extraordinary or emergency
purposes (except that it may enter into a reverse repurchase agreement
within the limits described in the Prospectus or this SAI), or pledge,
mortgage or hypothecate an amount of its assets (taken at market value)
in excess of 15% of its total assets, in each case taken at the lower
of cost or market value. For the purpose of this restriction,
collateral arrangements with respect to options, futures contracts,
14
<PAGE>
options on futures contracts and collateral arrangements with respect
to initial and variation margins are not considered a pledge of assets.
(2) Underwrite securities issued by other persons except insofar as the
Fund may technically be deemed an underwriter under the Securities Act
of 1933 in selling a portfolio security.
(3) Purchase or retain real estate (including limited partnership interests
but excluding securities of companies, such as real estate investment
trusts, which deal in real estate or interests therein and securities
secured by real estate), or mineral leases, commodities or commodity
contracts, precious metals (except contracts for the future delivery of
fixed income securities, stock index and currency futures and options
on such futures) in the ordinary course of its business. The Fund
reserves the freedom of action to hold and to sell real estate or
mineral leases, commodities or commodity contracts acquired as a result
of the ownership of securities.
(4) Invest in direct participation interests in oil, gas or other mineral
exploration or development programs.
(5) Make loans to other persons except by the purchase of obligations in
which the Fund is authorized to invest and by entering into repurchase
agreements; provided that the Fund may lend its portfolio securities
not in excess of 30% of its total assets (taken at market value). Not
more than 10% of the Fund's total assets (taken at market value) will
be subject to repurchase agreements maturing in more than seven days.
For these purposes the purchase of all or a portion of an issue of debt
securities shall not be considered the making of a loan. In addition,
the Fund may purchase a portion of an issue of debt securities of types
commonly distributed privately to financial institutions.
(6) Purchase the securities of any issuer if such purchase, at the time
thereof, would cause more than 5% of its total assets (taken at market
value) to be invested in the securities of such issuer, other than
securities issued or guaranteed by the United States. In applying these
limitations, a guarantee of a security will not be considered a
security of the guarantor, provided that the value of all securities
issued or guaranteed by that guarantor, and owned by the Fund, does not
exceed 10% of the Fund's total assets. In determining the issuer of a
security, each state and each political subdivision agency, and
instrumentality of each state and each multi-state agency of which such
state is a member is a separate issuer. Where securities are backed
only by assets and revenues of a particular instrumentality, facility
or subdivision, such entity is considered the issuer.
(7) Invest in companies for the purpose of exercising control or
management.
(8) Purchase or retain in its portfolio any securities issued by an issuer
any of whose officers, directors, trustees or security holders is an
officer or Director of the Fund, or is a member, partner, officer or
Director of the Adviser, if after the purchase of the securities of
such issuer by the Fund one or more of such persons owns beneficially
more than 1/2 of 1% of the shares or securities, or both, all taken at
market value, of such issuer, and such persons owning more than 1/2 of
1% of such shares or securities together own beneficially more than 5%
of such shares or securities, or both, all taken at market value.
(9) Purchase any securities or evidences of interest therein on margin,
except that the Fund may obtain such short-term credit as may be
necessary for the clearance of purchases and sales of securities and
15
<PAGE>
the Fund may make deposits on margin in connection with futures
contracts and related options.
(10) Sell any security which the Fund does not own unless by virtue of its
ownership of other securities it has at the time of sale a right to
obtain securities without payment of further consideration equivalent
in kind and amount to the securities sold and provided that if such
right is conditional the sale is made upon equivalent conditions.
(11) Knowingly invest in securities which are subject to legal or
contractual restrictions on resale or for which there is no readily
available market (e.g., trading in the security is suspended or market
makers do not exist or will not entertain bids or offers), except for
repurchase agreements, if, as a result thereof more than 10% of the
Fund's total assets (taken at market value) would be so invested.
(12) Issue any senior security (as that term is defined in the Investment
Company Act of 1940) if such issuance is specifically prohibited by the
1940 Act or the rules and regulations promulgated thereunder. For the
purpose of this restriction, collateral arrangements with respect to
options, futures contracts and options on futures contracts and
collateral arrangements with respect to initial and variation margins
are not deemed to be the issuance of a senior security.
(13) Concentrate its investments in any particular industry, but if it is
deemed appropriate for the attainment of its investment objective, the
Fund may invest up to 25% of its assets (taken at market value at the
time of each investment) in securities of issuers in any one industry.
(14) Purchase voting securities of any issuer if such purchase, at the time
thereof, would cause more than 10% of the outstanding voting securities
of such issuer to be held by the Fund; or purchase securities of any
issuer if such purchase at the time thereof would cause more than 10%
of any class of securities of such issuer to be held by the Fund. For
this purpose all indebtedness of an issuer shall be deemed a single
class and all preferred stock of an issuer shall be deemed a single
class. In applying these limitations, a guarantee of a security will
not be considered a security of the guarantor, provided that the value
of all securities issued or guaranteed by that guarantor, and owned by
the Fund, does not exceed 10% of the Fund's total assets. In
determining the issuer of a security, each state and each political
subdivision agency, and instrumentality of each state and each
multi-state agency of which such state is a member is a separate
issuer. Where securities are backed only by assets and revenues of a
particular instrumentality, facility or subdivision, such entity is
considered the issuer.
Other Operating Policies
As a nonfundamental investment restriction, the Fund may not purchase a security
if, as a result, (i) more than 10% of the Fund's total assets would be invested
in the securities of other investment companies, (ii) the Fund would hold more
than 3% of the total outstanding voting securities of any one investment
company, or (iii) more than 5% of the Fund's total assets would be invested in
the securities of any one investment company. These limitations do not apply to
(a) the investment of cash collateral, received by the Fund in connection with
lending the Fund's portfolio securities, in the securities of open-end
investment companies or (b) the purchase of shares of any investment company in
connection with a merger, consolidation, reorganization or purchase of
substantially all of the assets of another investment company. Subject to the
above percentage limitations, the Fund may, in connection with the John Hancock
Group of Funds. Deferred Compensation Plan for Independent Trustees/Directors,
purchase securities of other investment companies within the John Hancock Group
of Funds.
16
<PAGE>
If a percentage restriction on investment or utilization of assets as set forth
above is adhered to at the time of an investment is made, a later change in
percentage resulting in changes in the values of the Fund's assets will not be
considered a violation of the restriction.
THOSE RESPONSIBLE FOR MANAGEMENT
The business of the Fund is managed by the Trust's Trustees who elect officers
who are responsible for the day-to-day operations of the Fund and who execute
policies formulated by the Trustees. Several of the officers and Trustees of the
Trust are also officers and directors of the Adviser or officers and directors
of the Fund's principal distributor, John Hancock Funds, Inc. ("John Hancock
Funds").
17
<PAGE>
<TABLE>
<CAPTION>
Positions Held Principal Occupations(s)
Name and Address With the Company During the Past Five Years
- ---------------- ---------------- --------------------------
<S> <C> <C>
Edward J. Boudreau, Jr. * Trustee, Chairman and Chief Chairman and Chief Executive
101 Huntington Avenue Executive Officer (1, 2) Officer, the Adviser and The
Boston, MA 02199 Berkeley Financial Group ("Berkeley
October 1944 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"), First
Signature Bank and Trust Company
and Sovereign Asset Management
Corporation ("SAMCorp."); Director,
John Hancock Insurance Agency, Inc.
("Insurance Agency, Inc."), 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); Director, John Hancock
Freedom Securities Corporation
(until September 1996); Director,
John Hancock Signature Services,
Inc. ("Signature Services") (until
January 1997).
- -------------------
* Trustee may be deemed to be an "interested person" of the Fund as defined
in the Investment Company Act of 1940.
(1) Member of the Executive Committee. The Executive Committee may generally
exercise most of the powers of the Board of Trustees.
(2) A member of the Investment Committee of the Adviser.
(3) Member of the Audit Committee and the Administration Committee.
18
<PAGE>
Positions Held Principal Occupations(s)
Name and Address With the Company During the Past Five Years
- ---------------- ---------------- --------------------------
James F. Carlin Trustee (3) Chairman and CEO, Carlin
233 West Central Street Consolidated, Inc.
Natick, MA 01760 (management/investments); Director,
April 1940 Arbella Mutual Insurance Company
(insurance), Consolidated Group
Trust (insurance administration),
Carlin Insurance Agency, Inc., West
Insurance Agency, Inc. (until May
1995) Uno Restaurant Corp.;
Chairman, Massachusetts Board of
Higher Education (since 1995);
Receiver, the City of Chelsea (until
August 1992).
William H. Cunningham Trustee (3) Chancellor, University of Texas
601 Colorado Street System and former President of the
O'Henry Hall University of Texas, Austin, Texas;
Austin, TX 78701 Lee Hage and Joseph D. Jamail
January 1944 Regents Chair of 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.
- -------------------
* Trustee may be deemed to be an "interested person" of the Fund as defined
in the Investment Company Act of 1940.
(1) Member of the Executive Committee. The Executive Committee may generally
exercise most of the powers of the Board of Trustees.
(2) A member of the Investment Committee of the Adviser.
(3) Member of the Audit Committee and the Administration Committee.
19
<PAGE>
Positions Held Principal Occupations(s)
Name and Address With the Company During the Past Five Years
- ---------------- ---------------- --------------------------
Charles F. Fretz Trustee (3) Retired; self employed; Former Vice
RD #5, Box 300B President and Director, Towers,
Clothier Springs Road Perrin, Foster & Crosby, Inc.
Malvern, PA 19355 (international management
June 1928 consultants) (1952-1985).
Harold R. Hiser, Jr. Trustee (3) Executive Vice President,
123 Highland Avenue Schering-Plough Corporation
Short Hill, NJ 07078 (pharmaceuticals) (retired 1996);
October 1931 Director, ReCapital Corporation
(reinsurance) (until 1995).
Anne C. Hodsdon * Trustee and President (1,2) President, Chief Operating Officer
101 Huntington Avenue and Director, the Adviser; Director,
Boston, MA 02199 The Berkeley Group, John Hancock
April 1953 Funds; Director, Advisers
International; Executive Vice
President, the Adviser (until
December 1994); Senior Vice
President, the Adviser (until
December 1993); Director, Signature
Services (until January 1997).
Charles L. Ladner Trustee (3) Director, Energy North, Inc. (public
UGI Corporation utility holding company) (until
P.O. Box 858 1992); Senior Vice President of UGI
Valley Forge, PA 19482 Corp. Holding Company Public
February 1938 Utilities, LPGAS.
- -------------------
* Trustee may be deemed to be an "interested person" of the Fund as defined
in the Investment Company Act of 1940.
(1) Member of the Executive Committee. The Executive Committee may generally
exercise most of the powers of the Board of Trustees.
(2) A member of the Investment Committee of the Adviser.
(3) Member of the Audit Committee and the Administration Committee.
20
<PAGE>
Positions Held Principal Occupations(s)
Name and Address With the Company During the Past Five Years
- ---------------- ---------------- --------------------------
Leo E. Linbeck, Jr. Trustee (3) Chairman, President, Chief Executive
3810 W. Alabama Officer and Director, Linbeck
Houston, TX 77027 Corporation (a holding company
August 1934 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
Corporation (a diversified energy
company), Daniel Industries, Inc.
(manufacturer of gas measuring
products and energy related
equipment), GeoQuest International
Holdings, Inc. (a geophysical
consulting firm) (1980-1993);
Former Director, Greater Houston
Partnership (1980 -1995).
Patricia P. McCarter Trustee (3) Director and Secretary, The McCarter
1230 Brentford Road Corp. (machine manufacturer).
Malvern, PA 19355
May 1928
- -------------------
* Trustee may be deemed to be an "interested person" of the Fund as defined
in the Investment Company Act of 1940.
(1) Member of the Executive Committee. The Executive Committee may generally
exercise most of the powers of the Board of Trustees.
(2) A member of the Investment Committee of the Adviser.
(3) Member of the Audit Committee and the Administration Committee.
21
<PAGE>
Positions Held Principal Occupations(s)
Name and Address With the Company During the Past Five Years
- ---------------- ---------------- --------------------------
Steven R. Pruchansky Trustee (1, 3) Director and President, Mast
4327 Enterprise Avenue Holdings, Inc. (since 1991);
Naples, FL 33942 Director, First Signature Bank &
August 1944 Trust Company (until August 1991);
Director, Mast Realty Trust (until
1994); President, Maxwell Building
Corp. (until 1991).
Richard S. Scipione * Trustee (1) General Counsel, John Hancock Life
John Hancock Place Company; Director, the Adviser,
P.O. Box 111 Advisers International, John Hancock
Boston, MA 02117 Funds, John Hancock Distributors,
August 1937 Inc., Insurance Agency, Inc., John
Hancock Subsidiaries, Inc.,
SAMCorp. and NM Capital; Trustee,
The Berkeley Group; Director, JH
Networking Insurance Agency, Inc.;
Director, John Hancock Property and
Casualty Insurance and its
affiliates (until November 1993);
Director, Signature Services (until
January 1997).
Norman H. Smith Trustee (3) Lieutenant General, United States
243 Mt. Oriole Lane Marine Corps; Deputy Chief of Staff
Linden, VA 22642 for Manpower and Reserve Affairs,
March 1933 Headquarters Marine Corps;
Commanding General III Marine
Expeditionary Force/3rd Marine
Division (retired 1991).
- -------------------
* Trustee may be deemed to be an "interested person" of the Fund as defined
in the Investment Company Act of 1940.
(1) Member of the Executive Committee. The Executive Committee may generally
exercise most of the powers of the Board of Trustees.
(2) A member of the Investment Committee of the Adviser.
(3) Member of the Audit Committee and the Administration Committee.
22
<PAGE>
Positions Held Principal Occupations(s)
Name and Address With the Company During the Past Five Years
- ---------------- ---------------- --------------------------
John P. Toolan Trustee (3) Director, The Smith Barney Muni Bond
13 Chadwell Place Funds, The Smith Barney Tax-Free
Morristown, NJ 07960 Money Funds, Inc., Vantage Money
September 1930 Market Funds (mutual funds), The
Inefficient-Market Fund, Inc.
(closed-end investment company) and
Smith Barney Trust Company of
Florida; Chairman, Smith Barney
Trust Company (retired December,
1991); Director, Smith Barney,
Inc., Mutual Management Company and
Smith Barney Advisers, Inc.
(investment advisers) (retired
1991); Senior Executive Vice
President, Director and member of
the Executive Committee, Smith
Barney, Harris Upham & Co.,
Incorporated (investment bankers)
(until 1991).
Robert G. Freedman Vice Chairman and Chief Investment Vice Chairman and Chief Investment
101 Huntington Avenue Officer (2) Officer, the Adviser; Director, the
Boston, MA 02199 Adviser, Advisers International,
July 1938 John Hancock Funds, SAMCorp.,
Insurance Agency, Inc.,
Southeastern Thrift & Bank Fund and
NM Capital; Senior Vice President,
The Berkeley Group; President, the
Adviser (until December 1994);
Director, Signature Services (until
January 1997).
- -------------------
* Trustee may be deemed to be an "interested person" of the Fund as defined
in the Investment Company Act of 1940.
(1) Member of the Executive Committee. The Executive Committee may generally
exercise most of the powers of the Board of Trustees.
(2) A member of the Investment Committee of the Adviser.
(3) Member of the Audit Committee and the Administration Committee.
23
<PAGE>
Positions Held Principal Occupations(s)
Name and Address With the Company During the Past Five Years
- ---------------- ---------------- --------------------------
James B. Little Senior Vice President and Chief Senior Vice President, the Adviser,
101 Huntington Avenue Financial Officer The Berkeley Group, John Hancock
Boston, MA 02199 Funds.
February 1935
John A. Morin Vice President Vice President and Secretary, the
101 Huntington Avenue Adviser, The Berkeley Group,
Boston, MA 02199 Signature Services and John Hancock
July 1950 Funds; Secretary, SAMCorp.,
Insurance Agency, Inc. and NM
Capital; Counsel, John Hancock
Mutual Life Insurance Company (until
January 1996).
Susan S. Newton Vice President and Secretary Vice President, the Adviser; John
101 Huntington Avenue Hancock Funds, Signature Services
Boston, MA 02199 and The Berkeley Group; Vice
March 1950 President, John Hancock
Distributors, Inc. (until 1994).
James J. Stokowski Vice President and Treasurer Vice President, the Adviser.
101 Huntington Avenue
Boston, MA 02199
November 1946
- -------------------
* Trustee may be deemed to be an "interested person" of the Fund as defined
in the Investment Company Act of 1940.
(1) Member of the Executive Committee. The Executive Committee may generally
exercise most of the powers of the Board of Trustees.
(2) A member of the Investment Committee of the Adviser.
(3) Member of the Audit Committee and the Administration Committee.
</TABLE>
24
<PAGE>
All of the officers listed are officers or employees of the Adviser or
affiliated companies. Some of the Trustees and officers may also be officers
and/or Trustees and/or Trustees of one or more of the other funds for which the
Adviser serves as investment adviser.
As of January 31, 1997, the officers and trustees of the Trust as a group
beneficially owned less than 1% of the outstanding shares of the Trust and the
Fund. On such date, the following shareholders were the only record holders or
beneficial owners of 5% or more of the shares of either class of the Fund's
shares:
<TABLE>
<CAPTION>
Percentage of
Outstanding
Name and Address Class Shares Shares of
of Shareholder of Shares Owned Class of Fund
-------------- --------- ----- -------------
<S> <C> <C> <C>
National Westminster Bank PLC Class A 772,273 14.18%
as Trustee of American Smaller Companies
Companies Trust
Attn: Joe D'Mello
Juno Court
24 Prescott Street
London E18BB
Merrill Lynch Fenner & Smith Class A 594,741 10.92%
Trade House Account - Book Entry Class B 2,862,992 24.30%
Team B - 3rd Floor
4800 Deerlake Drive East
Jacksonville, FL 32246-6484
</TABLE>
On such date, no other person(s) owned of record or was known by the Trust to
beneficially own as much as 5% of the outstanding shares of the Trust or of
either class of the Fund's shares.
From December 22, 1994 until December 22, 1996, the Trustees established an
Advisory Board to facilitate a smooth transition between Transamerica Fund
Management Company ("TFMC"), the prior investment adviser, and the Adviser. The
members of the Advisory Board were distinct from the Trustees, did not serve the
Fund in any other capacity and were persons who had no power to determine what
securities are purchased or sold on behalf of the Fund.
Compensation of the Trustees and Advisory Board. The following table provides
information regarding the compensation paid by the Fund and the other investment
companies in the John Hancock Fund Complex to the Independent Trustees and the
Advisory Board members for their services for the Fund's most recently completed
fiscal year. Ms. Hodsdon and Messrs. Boudreau and Scipione, each a
non-Independent Trustee, and each of the officers of the Trust are interested
persons of the Adviser, are compensated by the Adviser and received no
compensation from the Funds for their services. The compensation to the Trustees
from the Fund shown below is for the fiscal year ended October 31, 1996.
25
<PAGE>
Total
Compensation from all
Aggregate Funds in John Hancock
Compensation Fund Complex to
Trustees from the Fund Trustees**
- -------- ------------- ----------
James F. Carlin $ 6,562 $ 74,250
William H. Cunningham* 6,587 74,250
Charles F. Fretz 6,511 74,500
Harold R. Hiser, Jr.* 6,189 70,250
Charles L. Ladner 6,511 74,500
Leo E. Linbeck, Jr. 6,587 74,250
Patricia P. McCarter 6,511 74,250
Steven R. Pruchansky 6,711 77,500
Norman H. Smith 6,711 77,500
John P. Toolan* 6,488 74,250
------- --------
TOTALS $65,368 $745,500
* As of December 31, 1996 the value of the aggregate accrued deferred
compensation from all Funds in the John Hancock fund complex for
Mr. Cunningham was $131,741, for Mr. Hiser was $90,972, for Ms.
McCarter was $67,548, for Mr Purchansky was $28,731, for Mr. Smith
was $32,314 and for Mr. Toolan was $163.385 under the John Hancock
Deferred Compensation Plan for Independent Trustees (the "Plan").
** Total compensation paid by the John Hancock Fund Complex to the
Independent Trustees is for the calendar year ended December 31,
1996. As of this date, there were sixty-seven funds in the John
Hancock Fund Complex of which each of these independent trustees
served on thirty-two funds.
Total Compensation from all
Aggregate From all Funds in John
Compensation from Hancock Fund Complex
Advisory Board the Fund* to Advisory Board*
- -------------- --------- ------------------
R. Trent Campbell $ 9,228 $ 47,000
Mrs. Lloyd Bentsen 9,228 47,000
Thomas R. Powers 9,228 47,000
Thomas B McDade 9,228 47,000
TOTALS $36,912 $188,000
* For the fiscal year ended October 31, 1996.
** As of December 31, 1996.
26
<PAGE>
INVESTMENT ADVISORY AND OTHER SERVICES
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 the other
mutual funds and publicly traded investment companies in the John Hancock group
of funds having a combined total of over 1,080,000 shareholders. The Adviser is
an affiliate of the Life Company, one of the most recognized and respected
financial institutions in the nation. With total assets under management of more
than $80 billion, the Life Company is one of the ten largest life insurance
companies in the United States and carries high ratings from Standard & Poor's
and A.M. Best's. Founded in 1862, the Life Company has been serving clients for
over 130 years.
The Fund has entered into an investment management contract (the "Advisory
Agreement") with the Adviser. Pursuant to the Advisory Agreement, the Adviser
agreed to act as investment adviser and manager to the Fund. As manager and
investment adviser, the Adviser will: (a) furnish continuously an investment
program for the Fund and determine, subject to the overall supervision and
review of the Trustees, which investments should be purchased, held, sold or
exchanged, and (b) provide supervision over all aspects of the Fund's operations
except those which are delegated to a custodian, transfer agent or other agent.
The Fund bears all costs of its organization and operation, including expenses
of preparing, printing and mailing all shareholders' reports, notices,
prospectuses, proxy statements and reports to regulatory agencies, expenses
relating to the issuance, registration and qualification of shares; government
fees; interest charges; expenses of furnishing to shareholders their account
statements; taxes; expenses of redeeming shares; brokerage and other expenses
connected with the execution of portfolio securities transactions; expenses
pursuant to the Fund's plan of distribution; fees and expenses of custodians
including those for keeping books and accounts and calculating the net asset
value of shares; fees and expenses of transfer agents and dividend disbursing
agents; legal, accounting, financial, management, tax and auditing fees and
expenses of the Fund (including an allocable portion of the cost of the
Adviser's employees rendering such services to the Fund); the compensation and
expenses of Trustees who are not otherwise affiliated with the Trust, the
Adviser or any of their affiliates; expenses of Trustees' and shareholders'
meetings; trade association membership; insurance premiums; and any
extraordinary expenses.
As provided by the investment management contract, the Fund pays the Adviser an
investment management fee, which is accrued daily and paid monthly in arrears,
equal on an annual basis to 0.75% of the Fund's average daily net asset value.
From time to time, the Adviser may reduce its fee or make other arrangements to
limit the Fund's expenses to a specified percentage of average daily net assets.
The Adviser retains the right to reimpose a fee and recover any other payments
to the extent that, at the end of any fiscal year, the Fund's annual expenses
fall below this limit.
Securities held by the Fund may also be held by other funds or investment
advisory clients for which the Adviser or its affiliates provide investment
advice. Because of different investment objectives or other factors, a
particular security may be bought for one or more funds or clients when one or
more are selling the same security. If opportunities for purchase or sale of
securities by the Adviser or for other funds or clients for which the Adviser
renders investment advice arise for consideration at or about the same time,
transactions in such securities will be made, insofar as feasible, for the
respective funds or clients in a manner deemed equitable to all of them. To the
27
<PAGE>
extent that transactions on behalf of more than one client of the Adviser or its
affiliates may increase the demand for securities being purchased or the supply
of securities being sold, there may be an adverse effect on price.
Pursuant to the investment management contract, the Adviser is not liable to the
Fund or its shareholders for any error of judgment or mistake of law or for any
loss suffered by the Fund in connection with the matters to which its contract
relates, except a loss resulting from willful misfeasance, bad faith or gross
negligence on the part of the Adviser in the performance of its duties or from
its reckless disregard of the obligations and duties under the investment
management contract.
Under the investment management contract, the Fund may use the name "John
Hancock" or any name derived from or similar to it only for so long as the
investment management contract or any extension, renewal or amendment thereof
remains in effect. If the Fund's investment management contract is no longer in
effect, the Fund (to the extent that it lawfully can) will cease to use such
name or any other name indicating that it is advised by or otherwise connected
with the Adviser. In addition, the Adviser or the Life Company may grant the
non-exclusive right to use the name "John Hancock" or any similar name to any
other corporation or entity, including but not limited to any investment company
of which the Life Company or any subsidiary or affiliate thereof or any
successor to the business of any subsidiary or affiliate thereof shall be the
investment adviser.
For the period from November 1, 1994 to December 22, 1994 and for the fiscal
year ended October 31, 1994, advisory fees paid by the Fund to TFMC, the Fund's
former investment adviser, amounted to $496,208 and $2,706,438, respectively.
For the period from December 22, 1994 to October 31, 1995 and for the fiscal
year ended 1996, the advisory fees paid by the Fund to the Adviser amounted to
$2,978,791 and $4,796,777.
The Advisory Agreement was approved by all of the Trustees, including all of the
Trustees who are not parties to the Advisory Agreement or "interested persons"
of any such party. The investment management contract and the distribution
agreement discussed below, continue in effect from year to year if approved
annually by vote of a majority of the Trustees who are not interested persons of
one of the parties to the contract, cast in person at a meeting called for the
purpose of voting on such approval, and by either the Trustees or the holders of
a majority of the Fund's outstanding voting securities. Both agreements
automatically terminate upon assignment and may be terminated on 60 days'
written notice by either party or by vote of a majority of the outstanding
voting securities of the Fund.
Administrative Services Agreement.The Fund was a party to an administrative
services agreement with TFMC (the "Services Agreement"), pursuant to which TFMC
performed bookkeeping and accounting services and functions, including preparing
and maintaining various accounting books, records and other documents and
keeping such general ledgers and portfolio accounts as are reasonably necessary
for the operation of the Fund. Other administrative services included
communications in response to shareholder inquiries and certain printing
expenses of various financial reports. In addition, staff and office space,
facilities and equipment was provided as necessary to provide administrative
services to the Fund. The Services Agreement was amended in connection with the
appointment of the Adviser as adviser to the Fund to permit services under the
Agreement to be provided to the Fund by the Adviser and its affiliates. The
Services Agreement was terminated during the fiscal year 1995.
For the fiscal years ended October 31, 1995 and 1994, the Fund paid to TFMC
(pursuant to the Services Agreement) $34,231 and $222,044, respectively.
28
<PAGE>
Accounting and Legal Services Agreement. The Trust, on behalf of the fund, is a
party to an Accounting and Legal Services Agreement with the Adviser. Pursuant
to this agreement, the Adviser provides the Fund with certain tax, accounting
and legal services. For the fiscal year ended October 31, 1996, the Fund paid
the Adviser $101,864 for services under this agreement.
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.
DISTRIBUTION CONTRACTS
The Fund has a Distribution Agreement with John Hancock Funds. Under the
agreement, John Hancock Funds is obligated to use its best efforts to sell
shares of each class of the Fund. Shares of the Fund are also sold by selected
broker-dealers (the "Selling Brokers") which have entered into selling agency
agreements with John Hancock Funds. John Hancock Funds accepts orders for the
purchase of the shares of the Fund which are continually offered at net asset
value next determined, plus an applicable sales charge, if any. In connection
with the sale of Class A or Class B shares, John Hancock Funds and Selling
Brokers receive compensation in the form of a sales charge imposed, in the case
of Class A shares, at the time of sale or, in the case of Class B shares, on a
deferred basis. John Hancock Funds may pay extra compensation to the financial
service firms selling large amounts of fund shares. This calculation will be
calculated as a percentage of fund shares sold by the firm.
The Fund's Trustees adopted Distribution Plans with respect to Class A and Class
B shares (the "Plans") pursuant to Rule 12b-1 under the Investment Company Act
of 1940. Under the Plans, the Fund will pay distribution and service fees at an
aggregate annual rate of up to 0.25% and 1.00%, respectively, of the Fund's
daily net assets attributable to shares of that class. However, the service fee
will not exceed 0.25% of the Fund's average daily net assets attributable to
each class of shares. The distribution fees will be used to reimburse John
Hancock Funds for their distribution expenses, including but not limited to: (i)
initial and ongoing sales compensation to Selling Brokers and others (including
affiliates of John Hancock Funds) engaged in the sale of Fund shares; (ii)
marketing, promotional and overhead expenses incurred in connection with the
distribution of Fund shares; and (iii) with respect to Class B shares only,
interest expenses on unreimbursed distribution expenses. The service fees will
be used to compensate Selling Brokers and others for providing personal and
account maintenance services to shareholders. In the event the John Hancock
Funds is not fully reimbursed for payments or expenses they incur under the
Class A Plan, these expenses will not be carried beyond twelve months from the
date they were incurred. Unreimbursed expenses under the Class B Plan will be
carried forward together with interest on the balance of these unreimbursed
expenses. The Fund does not treat unreimbursed expenses under the Class B Plan
as a liability of the Fund because the Trustees may terminate the Class B Plan
at any time. For the fiscal year ended October 31, 1996, an aggregate of
$11,288,492 of distribution expenses or 2.59% of the average net assets of the
Class B shares of the Fund, was not reimbursed or recovered by John Hancock
Funds through the receipt of deferred sales charges or Rule 12b-1 fees in prior
periods.
The Plans were approved by a majority of the voting securities of the Fund. The
Plans and all amendments were approved by the Trustees, including a majority of
the Trustees who are not interested persons of the Fund and who have no direct
29
<PAGE>
or indirect financial interest in the operation of the Plans (the "Independent
Trustees"), by votes cast in person at meetings called for the purpose of voting
on such Plans.
Pursuant to the Plans, at least quarterly, John Hancock Funds provide the Fund
with a written report of the amounts expended under the Plans and the purpose
for which these expenditures were made. The Trustees review these reports on a
quarterly basis to determine their continued appropriateness.
The Plans provide that they will continue in effect only so long as their
continuance is approved at least annually by a majority of both the Trustees and
Independent Trustees. The Plans provide that they may be terminated without
penalty, (a) by vote of a majority of the Independent Trustees, (b) by a vote of
a majority of the Fund's outstanding shares of the applicable class upon 60
days' written notice to John Hancock Funds, and (c) automatically in the event
of assignment. The Plans further provide that they may not be amended to
increase the maximum amount of the fees for the services described therein
without the approval of a majority of the outstanding shares of the class of the
Fund which has voting rights with respect to that Plan. Each plan provides, that
no material amendment to the Plans will be effective unless it is approved by a
vote of a majority of the Trustees and the Independent Trustees 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 Trustees concluded that, in their judgment, there is a reasonable
likelihood that the Plans will benefit the holders of the applicable class of
shares of the Fund.
Amounts paid to John Hancock Funds by any class of shares of the Fund will not
be used to pay the expenses incurred with respect to any other class of shares
of the Fund; provided, however, that expenses attributable to the Fund as a
whole will be allocated, to the extent permitted by law, according to a formula
based upon gross sales dollars and/or average daily net assets of each such
class, as may be approved from time to time by vote of a majority of Trustees.
From time to time, the Fund may participate in joint distribution activities
with other Funds and the costs of those activities will be borne by each Fund in
proportion to the relative net asset value of the participating Funds.
During the fiscal year ended October 31, 1996, the Funds paid John Hancock Funds
the following amounts of expenses with respect to the Class A and Class B shares
of the Fund:
<TABLE>
<CAPTION>
Interest,
Printing and Carrying or
Mailing of Expenses of Other
Prospectuses to Compensation to John Hancock Finance
Advertising new Shareholders Selling Brokers Funds Charges
----------- ---------------- --------------- ----- -------
<S> <C> <C> <C> <C> <C>
Class A shares $ 66,685 $ 13,498 $ 183,052 $ 243,929 --
Class B shares $ 312,608 $ 49,408 $1,577,780 $1,158,533 $1,165,996
</TABLE>
NET ASSET VALUE
For purposes of calculating the net asset value ("NAV") of the Fund's shares,
the following procedures are utilized wherever applicable.
30
<PAGE>
Debt investment securities are valued on the basis of valuations furnished by a
principal market maker or a pricing service, both of which generally utilize
electronic data processing techniques to determine valuations for normal
institutional size trading units of debt securities without exclusive reliance
upon quoted prices.
Equity securities traded on a principal exchange or NASDAQ National Market
Issues are generally valued at last sale price on the day of valuation.
Securities in the aforementioned category for which no sales are reported and
other securities traded over-the-counter are generally valued at the mean
between the current closing bid and asked prices.
Short-term debt investments which have a remaining maturity of 60 days or less
are generally valued at amortized cost, which approximates market value. If
market quotations are not readily available or if in the opinion of the Adviser
any quotation or price is not representative of true market value, the fair
value of the security may be determined in good faith in accordance with
procedures approved by the Trustees.
Foreign securities are valued on the basis of quotations from the primary market
in which they are traded. Any assets or liabilities expressed in terms of
foreign currencies are translated into U.S. dollars by the custodian bank based
on London currency exchange quotations as of 5:00 p.m., London time (12:00 noon,
New York time) on the date of any determination of the Fund's NAV. If quotations
are not readily available, or the value has been materially affected by the
events occurring after closing of a foreign market, assets are valued by a
method that Trustees believed accurately reflects fair value.
The NAV for each fund and class is determined each business day at the close of
regular trading on the New York Stock Exchange (typically 4:00 p.m. Eastern
Time) by dividing a class's net assets by the number of its shares outstanding.
On any day an international market is closed and the New York Stock Exchange is
open, any foreign securities will be valued at the prior day's close with the
current day's exchange rate. Trading of foreign securities may take place on
Saturdays and U.S. business holidays on which the Fund's NAV is not calculated.
Consequently, the Fund's portfolio securities may trade and the NAV of the
Fund's redeemable securities may be significantly affected on days when a
shareholder has no access to the Fund.
INITIAL SALES CHARGE ON CLASS A SHARES
Shares of the Fund are offered at a price equal to their net asset value plus a
sales charge which, at the option of the purchaser, may be imposed either at the
time of purchase (the "initial sales charge alternative") or on a contingent
deferred basis (the "deferred sales charge alternative"). Share certificates
will not be issued unless requested by the shareholder in writing, and then they
will only be issued for full shares. The Trustees reserve the right to change or
waive a Fund's minimum investment requirements and to reject any order to
purchase shares (including purchase by exchange) when in the judgment of the
Adviser such rejection is in the Fund's best interest.
The sales charges applicable to purchases of Class A shares of the Fund are
described in the Prospectus. Methods of obtaining reduced sales charges referred
to generally in the Prospectus are described in detail below. In calculating the
sales charge applicable to current purchases of Class A shares, the investor is
entitled to cumulate current purchases with the greater of the current value (at
offering price) of the Class A shares of the Fund owned by the investor, or if
John Hancock Signature Services, Inc. ("Signature Services") is notified by the
investor's dealer or the investor at the time of the purchase, the cost of the
Class A shares owned.
31
<PAGE>
Without Sales Charge. Class A shares may be offered without a front-end sales
charge or CDSC to various individuals and institutions as follows:
o Any state, county or any instrumentality, department, authority, or
agency of these entities that is prohibited by applicable investment
laws from paying a sales charge or commission when it purchases shares
of any registered investment management company. *
o A bank, trust company, credit union, savings institution or other
depository institution, its trust departments or common trust funds if
it is purchasing $1 million or more for non-discretionary customers or
accounts. *
o A Trustee or officer of the Trust; a Director or officer of the Adviser
and its affiliates or Selling Brokers; employees or sales
representatives of any of the foregoing; retired officers, employees or
Directors of any of the foregoing; a member of the immediate family
(spouse, children, grandchildren, mother, father, sister, brother,
mother-in-law, father-in-law) of any of the foregoing; or any fund,
pension, profit sharing or other benefit plan of the individuals
described above.
o A broker, dealer, financial planner, consultant or registered
investment advisor that has entered into an agreement with John Hancock
Funds providing specifically for the use of Fund shares in fee-based
investment products or services made available to their clients.
o A former participant in an employee benefit plan with John Hancock
funds, when he or she withdraws from his or her plan and transfers any
or all of his or her plan distributions directly to the Fund.
o A member of an approved affinity group financial services plan. *
o A member of a class action lawsuit against insurance companies who is
investing settlement proceeds.
o Retirement plans participating in Merrill Lynch servicing programs, if
the Plan has more than 3 million of assets or 500 eligible employees at
the date the Plan Sponsor signs the Merrill Lynch Recordkeeping Service
Agreeement. See your Merrill Lynch financial consultant for futhur
information.
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:
32
<PAGE>
Amount Invested CDSC Rate
--------------- ---------
$1 to $4,999,999 1.00%
Next $5 million to $9,999,999 0.50%
Amounts of $10 million and over 0.25%
Class 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.
* For investments made under these provisions, John Hancock Funds may make a
payment out of its own resources to the Selling Broker in an amount not to
exceed 0.25% of the amount invested.
Combination Privilege. In calculating the sales charge applicable to purchases
of Class A shares made at one time, the purchases will be combined to reduce
sales charges if made by (a) an individual, his or her spouse and their children
under the age of 21, purchasing securities for his or their own account, (b) a
trustee or other fiduciary purchasing for a single trust, estate or fiduciary
account and (c) groups which qualify for the Group Investment Program (see
below). Further information about combined purchases, including certain
restrictions on combined group purchases, is available from Signature Services
or a Selling Broker's representative.
Accumulation Privilege. Investors (including investors combining purchases) who
are already Class A shareholders may also obtain the benefit of the reduced
sales charge by taking into account not only the amount then being invested but
also the purchase price or current value of the Class A shares of all John
Hancock funds which carry a sales charge already held by such person. Class A
shares of John Hancock money market funds will only be eligible for the
accumulation privilege if the investor has previously paid a sales charge on the
amount of those shares.
Group Investment Program. Under the Combination and Accumulation Privileges, all
members of a group may combine their individual purchases of Class A shares to
potentially qualify for breakpoints in the sales charge schedule. This feature
is provided to any group which (1) has been in existence for more than six
months, (2) has a legitimate purpose other than the purchase of mutual fund
shares at a discount for its members, (3) utilizes salary deduction or similar
group methods of payment, and (4) agrees to allow sales materials of the fund in
its mailings to members at a reduced or no cost to John Hancock Funds.
Letter of Intention. Reduced sales charges are also applicable to investments
pursuant to a Letter of Intention (LOI), which should be read carefully prior to
its execution by an investor. The Fund offers two options regarding the
specified period for making investments under the LOI. All investors have the
option of making their investments over a period of thirteen (13) months.
Investors who are using the Fund as a funding medium for a qualified retirement
plan, however, may opt to make the necessary investments called for by the LOI
over a forty-eight (48) month period. These qualified retirement plans include
IRA, SEP, SARSEP, 401(k), 403(b) (including TSAs) and 457 plans. Such an
investment (including accumulations and combinations) must aggregate $50,000 or
more invested during the specified period from the date of the LOI or from a
date within ninety (90) days prior thereto, upon written request to Signature
Services. The sales charge applicable to all amounts invested under the LOI is
computed as if the aggregate amount intended to be invested had been invested
immediately. If such aggregate amount is not actually invested, the difference
in the sales charge actually paid and the sales charge payable had the LOI not
33
<PAGE>
been in effect is due from the investor. However, for the purchases actually
made within the specified period (either 13 or 48 months) the sales charge
applicable will not be higher than that which would have been applied (including
accumulations and combinations) had the LOI been for the amount actually
invested.
The LOI authorizes Signature Services to hold in escrow sufficient Class A
shares (approximately 5% of the aggregate) to make up any difference in sales
charges on the amount intended to be invested and the amount actually invested,
until such investment is completed within the specified period, at which time
the escrowed Class A shares will be released. If the total investment specified
in the LOI is not completed, the Class A shares held in escrow may be redeemed
and the proceeds used as required to pay such sales charges as may be due. By
signing the LOI, the investor authorizes Signature Services to act as his
attorney-in-fact to redeem any escrow shares and adjust the sales charge, if
necessary. A LOI does not constitute a binding commitment by an investor to
purchase, or by the Fund to sell, any additional shares and may be terminated at
any time.
DEFERRED SALES CHARGE ON CLASS B SHARES
Investments in Class B shares are purchased at net asset value per share without
the imposition of a sales charge so 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. No CDSC will be imposed on increases in account value
above the initial purchase prices, including all shares derived from
reinvestment of dividends or capital gains distributions.
Class B shares are not available to full-service defined contribution plans
administered by Signature Services or the Life Company that had more than 100
eligible employees at the inception of the Fund account.
The amount of the CDSC, if any, will vary depending on the number of years from
the time of payment for the purchase of Class B shares until the time of
redemption of such shares. Solely for purposes of determining the number of
years, all payments during a month will be aggregated and deemed to have been
made on the first day of the month.
In determining whether a CDSC applies to a redemption, the calculation will be
determined in a manner that results in the lowest possible rate being charged.
It will be assumed that your redemption comes first from shares you have held
beyond the six-year CDSC redemption period or those you acquired through
dividend and capital gain reinvestment, and next from the shares you have held
the longest during the six-year period. For this purpose, the amount of any
increase in a share's value above its initial purchase price is not regarded as
a share exempt from CDSC. Thus, when a share that has appreciated in value is
redeemed during the CDSC period, a CDSC is assessed only on its initial purchase
price. Upon redemption, appreciation is effective only on a per share basis for
those shares being redeemed. Appreciation of shares cannot be redeemed CDSC free
at the account level.
When requesting a redemption for a specific dollar amount please indicate if you
require the proceeds to equal the dollar amount requested. If not indicated,
only the specified dollar amount will be redeemed from your account and the
proceeds will be less any applicable CDSC.
Example:
You have purchased 100 shares at $10 per share. The second year after your
purchase, your investment's net asset value per share has increased by $2 to
$12, and you have gained 10 additional shares through dividend reinvestment. If
you redeem 50 shares at this time your CDSC will be calculated as follows:
o Proceeds of 50 shares redeemed at $12 per share $ 600
o Minus proceeds of 10 shares not subject to CDSC
(dividend reinvestment) $ -120
o Minus appreciation on remaining shares
(40 shares X 2) $ -80
---------
o Amount subject to CDSC $ 400
34
<PAGE>
Proceeds from the CDSC are paid to John Hancock Funds and are used in whole or
in part by John Hancock Funds to defray its expenses related to providing
distribution-related services to the Fund in connection with the sale of the
Class B shares, such as the payment of compensation to select Selling Brokers
for selling Class B shares. The combination of the CDSC and the distribution and
service fees facilitates the ability of the Fund to sell the Class B shares
without a sales charge being deducted at the time of the purchase. See the
Prospectus for additional information regarding the CDSC.
Waiver of Contingent Deferred Sales Charge. The CDSC will be waived on
redemptions of Class B shares and of Class A shares that are subject to CDSC,
unless indicated otherwise, in the circumstances defined below:
For all account types:
* Redemptions made pursuant to the Fund's right to liquidate your account
if you own shares worth less than $1,000.
* Redemptions made under certain liquidation, merger or acquisition
transactions involving other investment companies or personal holding
companies.
* Redemptions due to death or disability.
* Redemptions made under the Reinstatement Privilege, as described in
"Sales Charge Reductions and Waivers" of the Prospectus.
* Redemptions of Class B shares made under a periodic withdrawal plan, as
long as your annual redemptions do not exceed 12% of your account
value, including reinvested dividends, at the time you established your
periodic withdrawal plan and 12% of the value of subsequent investments
(less redemptions) in that account at the time you notify Signature
Services. (Please note that this waiver does not apply to periodic
withdrawal plan redemptions of Class A shares that are subject to a
CDSC).
35
<PAGE>
* Redemption by Retirement plans participating in Merrill Lynch servicing
programs, if the Plan has less than $3 million in assets or 500
eligible employees at the date the Plan Sponsor signs the Merrill Lynch
Recordkeeping Service Agreement. See your Merrill Lynch financial
consultant for futher information.
For Retirement Accounts (such as IRA, SIMPLE, Rollover IRA, TSA, 457, 403(b),
401(k), Money Purchase Pension Plan, Profit-Sharing Plan and other qualified
plans as described in the Internal Revenue Code) unless otherwise noted.
* Redemptions made to effect mandatory or life expectancy distributions
under the Internal Revenue Code.
* Returns of excess contributions made to these plans.
* Redemptions made to effect distributions to participants or
beneficiaries from employer sponsored retirement plans under Section
401(a) of the Code (such as 401(k), Money Purchase Pension Plan, Profit
Sharing Plan).
* Redemptions from certain IRA and retirement plans that purchased shares
prior to October 1, 1992 and certain IRA accounts that purchased shares
prior to May 15, 1995.
Please see matrix for reference.
36
<PAGE>
<TABLE>
<CAPTION>
CDSC Waiver Matrix for Class B Funds
- --------------------- ------------------ ----------------- ---------------- ---------------- -----------------
Type of 401 (a) Plan 403 (b) 457 IRA, IRA Non-
Distribution (401 (k), MPP, Rollover retirement
PSP)
- --------------------- ------------------ ----------------- ---------------- ---------------- -----------------
<S> <C> <C> <C> <C> <C>
Death or Waived Waived Waived Waived Waived
Disability
- --------------------- ------------------ ----------------- ---------------- ---------------- -----------------
Over 701/2 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 591/2 Waived Waived Waived Waived for 12% of account
and 70 1/2 Life value annually
Expectancy or in periodic
12% of account payments
value annually
in periodic
payments
- --------------------- ------------------ ----------------- ---------------- ---------------- -----------------
Under 591/2 Waived Waived for Waived for Waived for 12% of account
annuity annuity annuity value annually
payments (72+) payments (72+) payments (72+) in periodic
or 12% of or 12% of or 12% of payments
account value account value account value
annually in annually in annually in
periodic periodic periodic
payments payments payments
- --------------------- ------------------ ----------------- ---------------- ---------------- -----------------
Loans Waived Waived N/A N/A N/A
- --------------------- ------------------ ----------------- ---------------- ---------------- -----------------
Termintion 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 CDSC waiver under one of these situations, you must notify
Signature Services at the time you make your redemption. The waiver will be
granted once Signature Services has confirmed that you are entitled to the
waiver.
37
<PAGE>
SPECIAL REDEMPTIONS
Although it would not normally do so, the Fund has the right to pay the
redemption price of shares of the Fund in whole or in part in portfolio
securities as prescribed by the Trustees. When the shareholder sells portfolio
securities received in this fashion, he or she will incur a brokerage charge.
Any such securities would be valued for the purposes of making such payment at
the same value as used in determining net asset value. The Fund has elected to
be governed by Rule 18f-1 under the 1940 Act, pursuant to which the Fund is
obligated to redeem shares solely in cash up to the lesser of $250,000 or 1% of
the net asset value of the Fund during any 90 day period for any one account.
ADDITIONAL SERVICES AND PROGRAMS
Exchange Privilege. The Fund permits exchanges of shares of any class of the
Fund for shares of the same class in any other John Hancock fund offering that
class.
Exchanges between funds with shares that are not subject to a CDSC are based on
their respective net asset values. No sales charge or transactions charge is
imposed. Shares of the Fund which are subject to a CDSC may be exchanged into
shares of any of the other John Hancock funds that are subject to a CDSC without
incurring the CDSC; however, the shares acquired in an exchange will be subject
to the CDSC schedule of the shares acquired if and when such shares are redeemed
(except that shares exchanged into John Hancock Short-Term Strategic Income Fund
and John Hancock Intermediate Maturity Government Fund will retain the exchanged
fund's CDSC schedule). For purposes of computing the CDSC payable upon
redemption of shares acquired in an exchange, the holding period of the original
shares is added to the holding period of the shares acquired in an exchange.
If a shareholder exchanges Class B shares purchased prior to January 1, 1994
(except John Hancock Short-Term Strategic Income Fund) for Class B shares of any
other John Hancock fund, the acquired shares will continue to be subject to the
CDSC schedule that was in effect when the exchanged shares were purchased.
The Fund reserves the right to require that previously exchanged shares (and
reinvested dividends) be in the Fund for 90 days before a shareholder is
permitted a new exchange.
The Fund may refuse any exchange order. The Fund may changed or cancel its
exchange policies at any time, upon 60 days' notice to its shareholders.
An exchange of shares is treated as a redemption of shares of one fund and the
purchase of shares of another for Federal Income Tax purposes. An exchange may
result in a taxable gain or loss. See "TAX STATUS".
Systematic Withdrawal Plan. The Fund permits the establishment of a Systematic
Withdrawal Plan. Payments under this plan represent proceeds arising from the
redemption of Fund shares. Since the redemption price of the Fund shares may be
more or less than the shareholder's cost, depending upon the market value of the
securities owned by the Fund at the time of redemption, the distribution of cash
pursuant to this plan may result in realization of gain or loss for purposes of
Federal, state and local income taxes. The maintenance of a Systematic
Withdrawal Plan concurrently with purchases of additional Class A or Class B
shares of the Fund could be disadvantageous to a shareholder because of the
initial sales charge payable on such purchases of Class A shares and the CDSC
38
<PAGE>
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 a Systematic Withdrawal Plan is in effect. The Fund reserves
the right to modify or discontinue the Systematic Withdrawal Plan of any
shareholder on 30 days' prior written notice to such shareholder, or to
discontinue the availability of such plan in the future. The shareholder may
terminate the plan at any time by giving proper notice to Signature Services.
Monthly Automatic Accumulation Program ("MAAP"). This program is explained in
the Prospectus and the Account Privileges Application. The program, as it
relates to automatic investment checks, is subject to the following conditions:
The investments will be drawn on or about the day of the month indicated.
The privilege of making investments through the Monthly Automatic Accumulation
Program may be revoked by Signature Services without prior notice if any
investment is not honored by the shareholder's bank. The bank shall be under no
obligation to notify the shareholder as to the non-payment of any checks.
The program may be discontinued by the shareholder either by calling Signature
Services or upon written notice to Signature Services which is received at least
five (5) business days prior to the due date of any investment.
Reinstatement or Reinvestment Privilege. If Signature Services is notified prior
to reinvestment, a shareholder who has redeemed Fund shares may, within 120 days
after the date of redemption, reinvest without payment of a sales charge any
part of the redemption proceeds in shares of the same class of the Fund or
another John Hancock fund, subject to the minimum investment limit 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 John Hancock fund. If a CDSC was paid upon a redemption, a
shareholder may reinvest the proceeds from this redemption at net asset value in
additional shares of the class from which the redemption was made. The
shareholder's account will be credited with the amount of any CDSC charged upon
the prior redemption and the new shares will continue to be subject to the CDSC.
The holding period of the shares acquired through reinvestment will, for
purposes of computing the CDSC payable upon a subsequent redemption, include the
holding period of the redeemed shares.
To protect the interests of other investors in the Fund, the Fund may cancel the
reinvestment privilege of any parties that, in the opinion of the Fund, are
using market timing strategies or making more than seven exchanges per owner or
controlling party per calendar year. Also, the Fund may refuse any reinvestment
request.
The Fund may change or cancel its reinvestment policies at any time.
A redemption or exchange of Fund shares is a taxable transaction for Federal
income tax purposes even if the reinvestment privilege is exercised, and any
gain or loss realized by a shareholder on the redemption or other disposition of
Fund shares will be treated for tax purposes as described under the caption "TAX
STATUS".
Retirement plans participating in Merrill Lynch's servicing programs:
Class A shares are available at net asset value for plans with $3 million in
plan assets or 500 eligible employees at the date the Plan Sponsor signs the
Merrill Lynch Recordkeeping Service Agreement. If the plan does not meet either
of these limits, Class A shares are not available.
39
<PAGE>
For participating retirement plans investing in Class B shares, shares will
convert to Class A shares after eight years, or sooner if the plan attains
assets of $5 million (by means of a CDSC-free redemption/purchase at net asset
value).
DESCRIPTION OF THE FUND'S SHARES
The Trustees of the Trust are responsible for the management and supervision of
the Fund. The Declaration of Trust permits the Trustees to issue an unlimited
number of full and fractional shares of beneficial interest of the Fund, without
par value. Under the Declaration of Trust, the Trustees have the authority to
create and classify shares of beneficial interest in separate series, without
further action by shareholders. As of the date of this Statement of Additional
Information, the Trustees have authorized shares of the Fund and one other
series. The Declaration of Trust also authorizes the Trustees to classify and
reclassify the shares of the Fund, or any new series of the Trust, into one or
more classes. As of the date of this Statement of Additional Information, the
Trustees have authorized the issuance of two classes of shares of the Fund,
designated as Class A and Class B.
The shares of each class of the Fund represent an equal proportionate interest
in the aggregate net assets attributable to that class of the Fund. Holders of
Class A shares and Class B shares have certain exclusive voting rights on
matters relating to their respective distribution plans. The different classes
of the Fund may bear different expenses relating to the cost of holding
shareholder meetings necessitated by the exclusive voting rights of any class of
shares.
Dividends paid by the Fund, if any, with respect to each class of shares will be
calculated in the same manner, at the same time and on the same day and will be
in the same amount, except for differences resulting from the facts that (i) the
distribution and service fees relating to Class A and Class B shares will be
borne exclusively by that class; (ii) Class B shares will pay higher
distribution and service fees than Class A shares; and (iii) each of Class A
shares and Class B shares will bear any class expenses properly allocable to
that class of shares, subject to the requirements imposed by the Internal
Revenue Service on funds having a multiple- class structure. Accordingly, the
net asset value per share may vary depending whether Class A shares or Class B
shares are purchased. No interest will be paid on uncashed dividend or
redemption checks.
In the event of liquidation, shareholders of each class are entitled to share
pro rata in the net assets of the Fund available for distribution to these
shareholders. Shares entitle their holders to one vote per share, are freely
transferable and have no preemptive, subscription or conversion rights. When
issued, shares are fully paid and non-assessable except as set forth below.
Unless otherwise required by the Investment Company Act or the Declaration of
Trust, the Fund has no intention of holding annual meetings of shareholders of
each class. Fund shareholders may remove a Trustee by the affirmative vote of at
least two-thirds of the Trust's outstanding shares and the Trustees shall
promptly call a meeting for such purpose when requested to do so in writing by
the record holders of not less than 10% of the outstanding shares of the Trust.
Shareholders may, under certain circumstances, communicate with other
shareholders in connection with a request for a special meeting of shareholders.
However, at any time that less than a majority of the Trustees holding office
were elected by the shareholders, the Trustees will call a special meeting of
shareholders for the purpose of electing Trustees.
40
<PAGE>
Under Massachusetts law, shareholders of a Massachusetts business trust could,
under certain circumstances, be held personally liable for acts or obligations
of the trust. However, the Trust's Declaration of Trust contains an express
disclaimer of shareholder liability for acts, obligations and affairs of the
Fund. The Declaration of Trust also provides for indemnification out of the
Fund's assets for all losses and expenses of any shareholder held personally
liable by reason of being or having been a shareholder. The Declaration of Trust
also provides that no series of the Trust shall be liable for the liabilities of
any other series.. Furthermore, no Fund included in the Fund's prospectus shall
be liable for the liabilities of any other John Hancock Fund. Liability is
therefore limited to circumstances in which the Fund itself would be unable to
meet its obligations, and the possibility of this occurrence is remote.
The Fund reserves the right to reject any application which conflicts with the
Fund's internal policies or the policies of any regulatory authority. John
Hancock Funds does not accept credit card checks. Use of information provided on
the account application may be used by the Fund to verify the accuracy of the
information or for background or financial history purposes. A joint account
will be administered as a joint tenancy with right of survivorship, unless the
joint owners notify Signature Services of a different intent. A shareholder's
account is governed by the laws of The Commonwealth of Massachusetts.
TAX STATUS
The Fund has qualified and elected to be treated as a "regulated investment
company" under Subchapter M of the Code, and intends to continue to so qualify
in the future. As such and by complying with the applicable provisions of the
Code regarding the sources of its income, the timing of its distributions, and
the diversification of its assets, the Fund will not be subject to Federal
income tax on its taxable income (including net short-term and long-term capital
gains) which is distributed to shareholders in accordance with the timing
requirements of the Code.
The Fund will be subject to a 4% non-deductible Federal excise tax on certain
amounts not distributed (and not treated as having been distributed) on a timely
basis in accordance with annual minimum distribution requirements. The Fund
intends under normal circumstances to seek to avoid or minimize liability for
such tax by satisfying such distribution requirements.
Distributions from the Fund's current or accumulated earnings and profits
("E&P") will be taxable under the Code for investors who are subject to tax. If
these distributions are paid from the Fund's "investment company taxable
income," they will be taxable as ordinary income; and if they are paid from the
Fund's "net capital gain," they will be taxable as long-term capital gain. (Net
capital gain is the excess (if any) of net long-term capital gain over net
short-term capital loss, and investment company taxable income is all taxable
income and capital gains, other than net capital gain, after reduction by
deductible expenses.) Some distributions from investment company taxable income
and/or net capital gain may be paid in January but may be taxable to
shareholders as if they had been received on December 31 of the previous year.
The tax treatment described above will apply without regard to whether
distributions are received in cash or reinvested in additional shares of the
Fund.
Distributions, if any, in excess of E&P will constitute a return of capital
under the Code, which will first reduce an investor's federal tax basis in Fund
shares and then, to the extent such basis is exceeded, will generally give rise
to capital gains. Shareholders who have chosen automatic reinvestment of their
distributions will have a federal tax basis in each share received pursuant to
such a reinvestment equal to the amount of cash they would have received had
they elected to receive the distribution in cash, divided by the number of
shares received in the reinvestment.
41
<PAGE>
If the Fund acquires stock in certain foreign corporations that receive at least
75% of their annual gross income from passive sources (such as interest,
dividends, rents, royalties or capital gain) or hold at least 50% of their
assets in investments producing such passive income ("passive foreign investment
companies"), the Fund could be subject to Federal income tax and additional
interest charges on "excess distributions" received from such companies or gain
from the sale of stock in such companies, even if all income or gain actually
received by the Fund is timely distributed to its shareholders. The Fund would
not be able to pass through to its shareholders any credit or deduction for such
a tax. Certain elections may, if available, ameliorate these adverse tax
consequences, but any such election would require the Fund to recognize taxable
income or gain without the concurrent receipt of cash. The Fund may limit and/or
manage its holdings in passive foreign investment companies to minimize its tax
liability or maximize its return from these investments.
Foreign exchange gains and losses realized by the Fund in connection with
certain transactions involving foreign currency-denominated debt securities,
certain foreign currency options, foreign currency forward contracts, foreign
currencies, or payables or receivables denominated in a foreign currency are
subject to Section 988 of the Code, which generally causes such gains and losses
to be treated as ordinary income and losses and may affect the amount, timing
and character of distributions to shareholders. Any such transactions that are
not directly related to the Fund's investment in stock or securities, possibly
including speculative currency positions or currency derivatives not used for
hedging purposes, may increase the amount of gain it is deemed to recognize from
the sale of certain investments or derivatives held for less than three months,
which gain is limited under the Code to less than 30% of its gross income for
each taxable year, and could under future Treasury regulations produce income
not among the types of "qualifying income" from which the Fund must derive at
least 90% of its gross income for each taxable year. If the net foreign exchange
loss for a year treated as ordinary loss under Section 988 were to exceed the
Fund's investment company taxable income computed without regard to such loss
after consideration of certain regulations on the treatment of "post-October
losses" the resulting overall ordinary loss for such year would not be
deductible by the Fund or its shareholders in future years.
The Fund may be subject to withholding and other taxes imposed by foreign
countries with respect to its investments in foreign securities. Tax conventions
between certain countries and the U.S. may reduce or eliminate such taxes. The
Fund does not expect to qualify to pass such taxes through to its shareholders,
who consequently will not take such taxes into account on their own tax returns.
However, the Fund will deduct such taxes in determining the amount it has
available for distribution to shareholders.
The amount of the Fund's net short-term and long-term capital gains, if any, in
any given year will vary depending upon the Adviser's current investment
strategy and whether the Adviser believes it to be in the best interest of the
Fund to dispose of portfolio securities or enter into options transactions that
will generate capital gains. At the time of an investor's purchase of Fund
shares, a portion of the purchase price is often attributable to realized or
unrealized appreciation in the Fund's portfolio or undistributed taxable income
of the Fund. Consequently, subsequent distributions from such appreciation or
income may be taxable to such investor even if the net asset value of the
investor's shares is, as a result of the distributions, reduced below the
investor's cost for such shares, and the distributions in reality represent a
return of a portion of the purchase price.
Upon a redemption of shares of the Fund (including by exercise of the exchange
privilege) a shareholder may realize a taxable gain or loss depending upon the
amount of the proceeds and the investor's basis in his shares.
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Such gain or loss will be treated as capital gain or loss if the shares are
capital assets in the shareholder's hands and will be long-term or short-term,
depending upon the shareholder's tax holding period for the shares and subject
to the special rules described below. A sales charge paid in purchasing Class A
shares of the Fund cannot be taken into account for purposes of determining gain
or loss on the redemption or exchange of such shares within 90 days after their
purchase to the extent shares of the Fund or another John Hancock Fund are
subsequently acquired without payment of a sales charge pursuant to the
reinvestment or exchange privilege. Such disregarded load will result in an
increase in the shareholder's tax basis in the shares subsequently acquired.
Also, any loss realized on a redemption or exchange may be disallowed to the
extent the shares disposed of are replaced with other shares of the Fund within
a period of 61 days beginning 30 days before and ending 30 days after the shares
are disposed of, such as pursuant to an election to reinvest dividends in
additional shares. In such a case, the basis of the shares acquired will be
adjusted to reflect the disallowed loss. Any loss realized upon the redemption
of shares with a tax holding period of six months or less will be treated as a
long-term capital loss to the extent of any amounts treated as distributions of
long-term capital gain with respect to such shares.
Although its present intention is to distribute, at least annually, all net
capital gain, if any, the Fund reserves the right to retain and reinvest all or
any portion of the excess, as computed for Federal income tax purposes, of net
long-term capital gain over net short-term capital loss in any year. The Fund
will not in any event distribute net capital gain realized in any year to the
extent that a capital loss is carried forward from prior years against such
gain. To the extent such excess was retained and not exhausted by the
carryforward of prior years' capital losses, it would be subject to Federal
income tax in the hands of the Fund. Upon proper designation of this amount by
the Fund, each shareholder would be treated for Federal income tax purposes as
if the Fund had distributed to him on the last day of its taxable year his pro
rata share of such excess, and he had paid his pro rata share of the taxes paid
by the Fund and reinvested the remainder in the Fund. Accordingly, each
shareholder would (a) include his pro rata share of such excess as long-term
capital gain income in his return for his taxable year in which the last day of
the Fund's taxable year falls, (b) be entitled either to a tax credit on his
return for, or to a refund of, his pro rata share of the taxes paid by the Fund,
and (c) be entitled to increase the adjusted tax basis for his shares in the
Fund by the difference between his pro rata share of such excess and his pro
rata share of such taxes.
For Federal income tax purposes, the Fund is permitted to carry forward a net
capital loss in any year to offset its net capital gains, if any, during the
eight years following the year of the loss. To the extent subsequent net capital
gains are offset by such losses, they would not result in Federal income tax
liability to the Fund and, as noted above, would not be distributed as such to
shareholders. Presently, there are no capital loss carryforwards available to
offset future net realized capital gains.
For purposes of the dividends received deduction available to corporations,
dividends received by the Fund, if any, from U.S. domestic corporations in
respect of the stock of such corporations held by the Fund, for U.S. Federal
income tax purposes, for at least 46 days (91 days in the case of certain
preferred stock) and distributed and properly designated by the Fund may be
treated as qualifying dividends. Corporate shareholders must meet the minimum
holding period requirement stated above (46 or 91 days) with respect to their
shares of the Fund in order to qualify for the deduction and, if they have any
debt that is deemed under the Code directly attributable to such shares, may be
denied a portion of the dividends received deduction. The entire qualifying
dividend, including the otherwise deductible amount, will be included in
determining the excess (if any) of a corporate shareholder's adjusted current
earnings over its alternative minimum taxable income, which may increase its
43
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alternative minimum tax liability, if any. Additionally, any corporate
shareholder should consult its tax adviser regarding the possibility that its
basis in its shares may be reduced, for Federal income tax purposes, by reason
of "extraordinary dividends" received with respect to the shares, for the
purpose of computing its gain or loss on redemption or other disposition of the
shares.
The Fund is required to accrue income on any debt securities that have more than
a de minimis amount of original issue discount (or debt securities acquired at a
market discount, if the Fund elects to include market discount in income
currently) prior to the receipt of the corresponding cash payment. The mark to
market rules applicable to certain options and forward contracts may also
require the Fund to recognize income or gain without a concurrent receipt of
cash. However, the Fund must distribute to shareholders for each taxable year
substantially all of its net income and net capital gains, including such income
or gain, to qualify as a regulated investment company and avoid liability for
any federal income or excise tax. Therefore, the Fund may have to dispose of its
portfolio securities under disadvantageous circumstances to generate cash, or
may have to leverage itself by borrowing the cash, to satisfy these distribution
requirements.
A state income (and possibly local income and/or intangible property) tax
exemption is generally available to the extent (if any) the Fund's distributions
are derived from interest on (or, in the case of intangibles taxes, the value of
its assets is attributable to) certain U.S. Government obligations, provided in
some states that certain thresholds for holdings of such obligations and/or
reporting requirements are satisfied. The Fund will not seek to satisfy any
threshold or reporting requirements that may apply in particular taxing
jurisdictions, although the Fund may in its sole discretion provide relevant
information to shareholders.
The Fund will be required to report to the Internal Revenue Service (the "IRS")
all taxable distributions to shareholders, as well as gross proceeds from the
redemption or exchange of Fund shares, except in the case of certain exempt
recipients, i.e., corporations and certain other investors distributions to
which are exempt from the information reporting provisions of the Code. Under
the backup withholding provisions of Code Section 3406 and applicable Treasury
regulations, all such reportable distributions and proceeds may be subject to
backup withholding of federal income tax at the rate of 31% in the case of
non-exempt shareholders who fail to furnish a Fund with their correct taxpayer
identification number and certain certifications required by the IRS or if the
IRS or a broker notifies the Fund that the number furnished by the shareholder
is incorrect or that the shareholder is subject to backup withholding as a
result of failure to report interest or dividend income. A Fund may refuse to
accept an application that does not contain any required taxpayer identification
number or certification that the number provided is correct. If the backup
withholding provisions are applicable, any such distributions and proceeds,
whether taken in cash or reinvested in shares, will be reduced by the amounts
required to be withheld. Any amounts withheld may be credited against a
shareholder's U.S. federal income tax liability. Investors should consult their
tax advisers about the applicability of the backup withholding provisions.
Different tax treatment, including penalties on certain excess contributions and
deferrals, certain pre-retirement and post-retirement distributions and certain
prohibited transactions, is accorded to accounts maintained as qualified
retirement plans. Shareholders should consult their tax advisers for more
information.
Limitations imposed by the Code on regulated investment companies like the Fund
may restrict the Fund's ability to enter into options, foreign currency
positions, and foreign currency forward contracts.
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Certain options and forward foreign currency transactions undertaken by the Fund
may cause the Fund to recognize gains or losses from marking to market even
though its positions have not been sold or terminated and affect the character
as long-term or short-term (or, in the case of certain foreign currency-related
forward contracts or options, as ordinary income or loss) and timing of some
capital gains and losses realized by the Fund. Also, certain of the Fund's
losses on its transactions involving options or forward contracts and/or
offsetting or successor portfolio positions may be deferred rather than being
taken into account currently in calculating the Fund's taxable income or gains.
Certain of such transactions may also cause the Fund to dispose of investments
sooner than would otherwise have occurred. These transactions may therefore
affect the amount, timing and character of the Fund's distributions to
shareholders. Certain of the applicable tax rules may be modified if the Fund is
eligible and chooses to make one or more of certain tax elections that may be
available. The Fund will take into account the special tax rules (including
consideration of available elections) applicable to options and forward
contracts in order to seek to minimize any potential adverse tax consequences.
The foregoing discussion relates solely to U.S. Federal income tax law as
applicable to U.S. persons (i.e., U.S. citizens or residents and U.S. domestic
corporations, partnerships, trusts or estates) subject to tax under such law.
The discussion does not address special tax rules applicable to certain classes
of investors, such as tax-exempt entities, insurance companies, and financial
institutions. Dividends, capital gain distributions, and ownership of or gains
realized on the redemption (including an exchange) of Fund shares may also be
subject to state and local taxes. Shareholders should consult their own tax
advisers as to the Federal, state or local tax consequences of ownership of
shares of, and receipt of distributions from, the Fund in their particular
circumstances.
Non-U.S. investors not engaged in a U.S. trade or business with which their
investment in the Fund is effectively connected will be subject to U.S. Federal
income tax treatment that is different from that described above. These
investors may be subject to nonresident alien withholding tax at the rate of 30%
(or a lower rate under an applicable tax treaty) on amounts treated as ordinary
dividends from the Fund and, unless an effective IRS Form W-8 or authorized
substitute for Form W-8 is on file, to 31% backup withholding on certain other
payments from the Fund. Non-U.S. investors should consult their tax advisers
regarding such treatment and the application of foreign taxes to an investment
in the Fund.
The Fund is not subject to Massachusetts corporate excise or franchise taxes.
Provided that the Fund qualifies as a regulated investment company under the
Code, it will also not be required to pay any Massachusetts income tax.
CALCULATION OF PERFORMANCE
As of October 31, 1996, the average annual returns for the Fund's Class A shares
for the one year and five year periods and since inception on August 22, 1991
were 7.61%, 5.14% and 15.90%, respectively. As of October 31, 1996, the average
annual total returns of the Class B shares of the Fund for the one and five year
periods and the life-of-the Fund since inception on October 26, 1987 were 7.48%,
15.13% and 20.40%, 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:
45
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n _____
T = \ /ERV/P - 1
Where:
P = a hypothetical initial investment of $1,000.
T = average annual total return.
n = number of years.
ERV = ending redeemable value of a hypothetical $1,000 investment made
at the beginning of the 1 year, 5 year and life-of-fund periods.
Because each share has its own sales charge and fee structure, the classes have
different performance results. In the case of Class A shares or Class B shares,
this calculation assumes the maximum sales charge is included in the initial
investment or the CDSC is applied at the end of the period. This calculation
also assumes that all dividends and distributions are reinvested at net asset
value on the reinvestment dates during the period. The "distribution rate" is
determined by annualizing the result of dividing the declared dividends of the
Fund during the period stated by the maximum offering price or net asset value
at the end of the period.
In addition to average annual total returns, the Fund may quote unaveraged or
cumulative total returns reflecting the simple change in value of an investment
over a stated period. Cumulative total returns may be quoted as a percentage or
as a dollar amount, and may be calculated for a single investment, a series of
investments, and/or a series of redemptions, over any time period. Total returns
may be quoted with or without taking the Fund's maximum sales charge on Class A
shares or the CDSC on Class B shares into account. Excluding the Fund's sales
charge on Class A shares and the CDSC on Class B shares from a total return
calculation produces a higher total return figure.
From time to time, in reports and promotional literature, the Fund's yield and
total return will be compared to indices of mutual funds and bank deposit
vehicles such as Lipper Analytical Services, Inc.'s "Lipper -- Fixed Income Fund
Performance Analysis," a monthly publication which tracks net assets, total
return, and yield on fixed income mutual funds in the United States. Ibottson
and Associates, CDA Weisenberger and F.C. Towers are also used for comparison
purposes, as well as the Russell and Wilshire Indices.
Performance rankings and ratings reported periodically in national financial
publications such as MONEY Magazine, FORBES, BUSINESS WEEK, THE WALL STREET
JOURNAL, MICROPAL, INC., MORNINGSTAR, STANGER'S and BARRON'S, etc. will also be
utilized. The Fund's promotional and sales literature may make reference to the
Fund's "beta." Beta is a reflection of the market-related risk of the Fund by
showing how responsive the Fund is to the market.
The performance of the Fund is not fixed or guaranteed. Performance quotations
should not be considered to be representations of performance of the Fund for
any period in the future. The performance of the Fund is a function of many
factors including its earnings, expenses and number of outstanding shares.
Fluctuating market conditions; purchases, sales and maturities of portfolio
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securities; sales and redemptions of shares of beneficial interest; and changes
in operating expenses are all examples of items that can increase or decrease
the Fund's performance.
BROKERAGE ALLOCATION
Decisions concerning the purchase and sale of portfolio securities and the
allocation of brokerage commissions are made by the Adviser pursuant to
recommendations made by its investment committee of the Adviser, which consists
of officers and Trustees who are interested persons of the Fund. Orders for
purchases and sales of securities are placed in a manner which, in the opinion
of the Adviser, will offer the best price and market for the execution of each
transaction. Purchases from underwriters of portfolio securities may include a
commission or commissions paid by the issuer and transactions with dealers
serving as market makers reflect a "spread." Debt securities are generally
traded on a net basis through dealers acting for their own account as principals
and not as brokers; no brokerage commissions are payable on such transactions.
In the U.S. and in some other countries, debt securities are traded principally
in the over-the-counter market on a net basis through dealers acting for their
own account and not as brokers. In other countries, both debt and equity
securities are traded on exchanges at fixed commission rates. Commissions on
foreign transactions are generally higher than the negotiated commission rates
available in the U.S. There is generally less government supervision and
regulation of foreign stock exchanges and broker-dealers than in the U.S..
The Fund's primary policy is to execute all purchases and sales of portfolio
instruments at the most favorable prices consistent with best execution,
considering all of the costs of the transaction including brokerage commissions.
This policy governs the selection of brokers and dealers and the market in which
a transaction is executed. Consistent with the foregoing primary policy, the
Rules of Fair Practice of the National Association of Securities Dealer, Inc.
and other policies that the Trustees may determine, the Adviser may consider
sales of shares of the Fund as a factor in the selection of broker-dealers to
execute the Fund's portfolio transactions.
To the extent consistent with the foregoing, the Fund will be governed in the
selection of brokers and dealers, and the negotiation of brokerage commission
rates and dealer spreads, by the reliability and quality of the services,
including primarily the availability and value of research information and to a
lesser extent statistical assistance furnished to the Adviser of the Fund, and
their value and expected contribution to the performance of the Fund. It is not
possible to place a dollar value on information and services to be received from
brokers and dealers, since it is only supplementary to the research efforts of
the Adviser. The receipt of research information is not expected to reduce
significantly the expenses of the Adviser. The research information and
statistical assistance furnished by brokers and dealers may benefit the Life
Company or other advisory clients of the Adviser, and conversely, brokerage
commissions and spreads paid by other advisory clients of the Adviser may result
in research information and statistical assistance beneficial to the Fund. The
Fund will make no commitments to allocate portfolio transactions upon any
prescribed basis. While the Adviser will be primarily responsible for the
allocation of the Fund's brokerage business, their policies and practices in
this regard must be consistent with the foregoing and will at all times be
subject to review by the Trustees. For the fiscal years ended October 31, 1996,
1995, and 1994, the Fund paid negotiated brokerage commissions of $459,477,
$263,019, and $318,023, respectively.
As permitted by Section 28(e) of the Securities Exchange Act of 1934, the Fund
may pay to a broker which provides brokerage and research services to the Fund
an amount of disclosed commission in excess of the commission which another
broker would have charged for effecting that transaction. This practice is
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<PAGE>
subject to a good faith determination by the Trustees that the price is
reasonable in light of the services provided and to policies that the Trustees
may adopt from time to time. During the fiscal year ended October 31, 1996, the
Fund pay commissions of $56,032 as compensation to any brokers for research
services such as industry, economic and company reviews and evaluations of
securities.
The Adviser's indirect parent, the Life Company, is the indirect sole
shareholder of John Hancock Distributors, Inc. ("Distributors" or "Affiliated
Broker"). Pursuant to procedures established by the Trustees and consistent with
the above policy of obtaining best net results, the Fund may execute portfolio
transactions with or through Affiliated Brokers. During the year ended October
31, 1996, the Fund did not execute any portfolio transactions with then
Affiliated Brokers.
Distributors may act as broker for the Fund on exchange transactions, subject,
however, to the general policy of the Fund set forth above and the procedures
adopted by the Trustees pursuant to the 1940 Act. Commissions paid to an
Affiliated Broker must be at least as favorable as those which the Trustees
believe to be contemporaneously charged by other brokers in connection with
comparable transactions involving similar securities being purchased or sold. A
transaction would not be placed with an Affiliated Broker if the Fund would have
to pay a commission rate less favorable than the Affiliated Broker's
contemporaneous charges for comparable transactions for its other most favored,
but unaffiliated, customers, except for accounts for which the Affiliated Broker
acts as a clearing broker for another brokerage firm, and any customers of the
Affiliated Broker not comparable to the Fund as determined by a majority of the
Trustees who are not interested persons (as defined in the 1940 Act) of the
Fund, the Adviser or the Affiliated Brokers. Because the Adviser, which is
affiliated with the Affiliated Brokers, has, as an investment adviser to the
Fund, the obligation to provide investment management services, which includes
elements of research and related investment skills, such research and related
skills will not be used by the Affiliated Brokers as a basis for negotiating
commissions at a rate higher than that determined in accordance with the above
criteria.
Other investment advisory clients advised by the Adviser may also invest in the
same securities as the Fund. When these clients buy or sell the same securities
at substantially the same time, the Adviser may average the transactions as to
price and allocate the amount of available investments in a manner which the
Adviser believes to be equitable to each client, including the Fund. In some
instances, the investment procedure may adversely affect the price paid or
received by the Fund or the size of the position obtainable for it. On the other
hand, to the extent permitted by law, the Adviser may aggregate securities to be
sold or purchased for the Fund with those to be sold or purchased for other
clients managed by it in order to obtain best execution.
TRANSFER AGENT SERVICES
John Hancock Signature Services, Inc., 1 John Hancock Way Suite 1000, Boston, MA
02217- 1000, a wholly owned indirect subsidiary of the Life Company, is the
transfer and dividend paying agent for the Fund. The Fund pays Signature
Services an annual fee of $19.00 for each Class A shareholder and $21.50 for
each Class B shareholder plus certain out-of-pocket expenses. These expenses are
aggregated and charged to the Fund and allocated to each class on the basis of
their relative net asset values.
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CUSTODY OF PORTFOLIO
Portfolio securities of the Fund are held pursuant to a custodian agreement
between the Fund and Investors Bank & Trust Company ("IBT"), 89 South Street,
Boston, Massachusetts 02116. Under the custodian agreement, IBT performs
custody, portfolio and fund accounting services.
INDEPENDENT AUDITORS
Ernst & Young LLP, 200 Clarendon Street, Boston, Massachusetts 02116, has been
selected as the independent auditors of the Fund. The financial statements of
the Fund is included in the Prospectus and this Statement of Additional
Information have been audited by Ernst & Young LLP for the periods indicated in
their report thereon appearing elsewhere herein, and are included in reliance
upon such report given upon the authority of such firm as experts in accounting
and auditing.
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APPENDIX A
Description of Bond Ratings
The ratings of Moody's Investors Service, Inc. and Standard & Poor's Ratings
Group represent their opinions as to the quality of various debt instruments
they undertake to rate. It should be emphasized that ratings are not absolute
standards of quality. Consequently, debt instruments with the same maturity,
coupon and rating may have different yields while debt instruments of the same
maturity and coupon with different ratings may have the same yield.
MOODY'S INVESTORS SERVICE, INC.
Aaa: Bonds which are rated Aaa are judged to be of the best quality. They carry
the smallest degree of investment risk and are generally referred to as "gilt
edge." Interest payments are protected by a large or by an exceptionally stable
margin and principal is secure. While the various protective elements are likely
to change, such changes as can be visualized are most unlikely to impair the
fundamentally strong position of such issues.
Aa: Bonds which are rated Aa are judged to be of high quality by all standards.
Together with the Aaa group they comprise what are generally known as high grade
bonds. They are rated lower than the best bonds because margins of protection
may not be as large as in Aaa securities or fluctuations of protective elements
may be of greater amplitude or there may be other elements present which make
the long-term risks appear somewhat larger than in Aaa securities.
A: Bonds which are rated A possess many favorable investment attributes and are
to be considered as upper medium grade obligations. Factors giving security to
principal and interest are considered adequate but elements may be present which
suggest a susceptibility to impairment at some time in the future.
Baa: Bonds which are rated Baa are considered as medium grade obligations, i.e.,
they are neither highly protected nor poorly secured. Interest payments and
principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and in
fact have speculative characteristics as well.
Ba: Bonds which are rated Ba are judged to have speculative elements; their
future cannot be considered as well assured. Often the protection of interest
and principal payments may be very moderate and thereby not well safeguarded
during both good and bad times over the future. Uncertainty of position
characterizes bonds in this class.
B: Bonds which are rated B generally lack the characteristics of desirable
investment. Assurance of interest and principal payments or of maintenance of
other terms of the contract over any long period of time may be small.
A-1
<PAGE>
STANDARD & POOR'S RATINGS GROUP
AAA: Debt rated AAA has the highest rating assigned by Standard & Poor's.
Capacity to pay interest and repay principal is extremely strong.
AA: Debt rated AA has a very strong capacity to pay interest and repay principal
and differs from the highest rated issues only in small degree.
A: Debt rated A has a strong capacity to pay interest and repay principal,
although it is somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions than debt in higher rated categories.
BBB: Debt rated BBB is regarded as having an adequate capacity to pay interest
and repay principal. Whereas it normally exhibits adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay interest and repay principal for
debt in this category than in higher rated categories.
BB, B: Debt rated BB, and B is regarded, on balance, as predominantly
speculative with respect to capacity to pay interest and repay principal in
accordance with the terms of the obligation. BB indicates the lowest degree of
speculation and CC the highest degree of speculation. While such debt will
likely have some quality and protective characteristics, these are outweighed by
large uncertainties or major risk exposures to adverse conditions.
A-2
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JOHN HANCOCK GLOBAL TECHNOLOGY FUND
Class A and Class B Shares
Statement Of Additional Information
March 1, 1997 as revised December 8, 1997
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 combined International/Global Fund's Prospectus dated March 1,
1997 as revised December 8, 1997 (the "Prospectus"). The Fund is a diversified
series of John Hancock Series Trust (the "Trust").
This Statement of Additional Information is not a prospectus. It should be read
in conjunction with the Prospectus, a copy of which can be obtained free of
charge by writing or telephoning:
John Hancock Signature Services, Inc.
1 John Hancock Way, Suite 1000
Boston, Massachusetts 02217-1000
1-(800)-225-5291
Table of Contents
Page
Organization of the Fund ................................................. 2
Investment Objectives and Policies ....................................... 2
Investment Restrictions .................................................. 14
Those Responsible for Management ......... ............................... 16
Investment Advisory and Other Services ................................... 26
Distribution Contracts ................................................... 29
Net Asset Value .......................................................... 30
Initial Sales Charge on Class A Shares ................................... 31
Deferred Sales Charge on Class B Shares .................................. 34
Special Redemptions ...................................................... 37
Additional Services and Programs ......................................... 38
Description of the Fund's Shares ......................................... 40
Tax Status ............................................................... 41
Calculation of Performance................................................ 46
Brokerage Allocation ..................................................... 47
Transfer Agent Services .................................................. 49
Custody of Portfolio ..................................................... 49
Independent Auditors ..................................................... 49
Appendix.................................................................. A-1
Financial Statements ..................................................... F-1
1
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ORGANIZATION OF THE FUND
The Fund is a series of the Trust, an open-end investment management company
organized as a Massachusetts business trust on December 2, 1996. On December 2,
1996, the Trust assumed the registration statement of John Hancock Technology
Series, Inc. (the "Company"). As of January 1, 1995, the Fund changed its name
to John Hancock Global 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.
John Hancock Advisers, Inc. (the "Adviser") is the Fund's investment adviser.
The Adviser is 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. The Fund's Sub-Adviser is American Fund Advisors, Inc. ("AFA" or
the "Sub-Adviser").
INVESTMENT OBJECTIVES AND POLICIES
The following information supplements the discussion of the Fund's investment
objective and policies discussed in 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.
Under normal market conditions, at least 65% of the Fund's total assets are
invested in securities of the technology companies noted above. The Fund's
portfolio is primarily comprised of U.S. and foreign common stocks and
securities convertible into common stocks, including convertible bonds,
convertible preferred stocks and warrants.
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
(including internet-related technology), 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, technology.
When market conditions suggest a need for a defensive investment strategy, the
Fund may temporarily invest in short-term obligations of or securities
guaranteed by the U.S. Government or its agencies or instrumentailities, high
quality bank certificates of deposit and commercial paper. This temporary
investment strategy is not designed to achieve the Fund's primary investment
objective.
Risks of Technology-Intensive Companies. 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
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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.
Investments in Foreign Securities. 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 Fund may invest in the securities of foreign issuers, including
securities in the form of sponsored or unsponsored American Depository Receipts
(ADRs), European Depository Receipts (EDRs) or other securities convertible into
securities of foreign issuers. ADRs are receipts typically issued by an American
bank or trust company which evidence ownership of underlying securities issued
by a foreign corporation. EDRs are receipts issued in Europe which evidence a
similar ownership arrangement. Issuers of unsponsored ADRs are not contractually
obligated to disclose material information, including financial information, in
the United States. Generally, ADRs are designed for use in the United States
securities markets and EDRs are designed for use in European securities markets.
Foreign Currency Transactions. The 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 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 and
Sub-Adviser.
If the Fund enters into a forward contract requiring it to purchase foreign
currency, its custodian bank will segregate cash or liquid securities, of any
type or maturity, 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 marked to market daily and if the value of the
assets in the separate account declines, additional cash or liquid assets will
be added so that the value of the account will equal the amount of the Fund's
commitment in forward 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. These transactions also preclude the
opportunity for gain if the value of the hedged currency rises. Moreover, it may
not be possible for the Fund to hedge against a devaluation that is so generally
anticipated that the Fund is not able to contract to sell the currency at a
price above the devaluation level it anticipates.
The cost to the Fund of engaging in foreign currency transactions varies with
such factors as the currency involved, the length of the contract period and the
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market conditions then prevailing. Since transactions in foreign currency are
usually conducted on a principal basis, no fees or commissions are involved.
Risks of Foreign Securities. Investments in foreign securities may involve a
greater degree of risk than those in domestic securities. There is generally
less publicly available information about foreign companies in the form of
reports and ratings similar to those that are published about issuers in the
United States. Also, foreign issuers are generally not subject to uniform
accounting, auditing and financial reporting requirements comparable to those
applicable to United States issuers.
Because foreign securities may be denominated in currencies other than the U.S.
dollar, changes in foreign currency exchange rates will affect the Fund's net
asset value, the value of dividends and interest earned, gains and losses
realized on the sale of securities, and any net investment income and gains that
the Fund distributes to shareholders. Securities transactions undertaken in some
foreign markets may not be settled promptly so that the Fund's investments on
foreign exchanges may be less liquid and subject to the risk of fluctuating
currency exchange rates pending settlement.
Foreign securities will be purchased in the best available market whether
through over-the-counter markets or exchanges located in the countries where
principal offices of the issuers are located. Foreign securities markets are
generally not as developed or efficient as those in the United States. While
growing in volume, they usually have substantially less volume than the New York
Stock Exchange, and securities of some foreign issuers are less liquid and more
volatile than securities of comparable United States issuers. Fixed commissions
on foreign exchanges are generally higher than negotiated commissions on United
States exchanges, although the fund will endeavor to achieve the most favorable
net results on its portfolio transactions. There is generally less government
supervision and regulation of securities exchanges, brokers and listed issuers
than in the United States.
With respect to certain foreign countries, there is the possibility of adverse
changes in investment or exchange control regulations, expropriation,
nationalization or confiscatory taxation, limitations on the removal of funds or
other assets of the Fund, political or social instability, or diplomatic
developments which could affect United States investments in those countries.
Moreover, individual foreign economies may differ favorably or unfavorably from
the United States' economy in terms of growth of gross national product, rate of
inflation, capital reinvestment, resource self-sufficiency and balance of
payments position.
The dividends in some cases, capital gains, and interest payable on certain of
the Fund's foreign portfolio securities, may be subject to foreign withholding
or other foreign taxes, thus reducing the net amount of income or gains
available for distribution to the Fund's shareholders.
These risks may be intensified in the case of investments in emerging markets or
countries with limited or developing capital markets. These countries are
located in the Asia-Pacific region, Eastern Europe, Latin and South America, and
Africa. Security prices in these markets can be significantly more volatile than
in more developed countries, reflecting the greater uncertainties of investing
in less established markets and economies. Political, legal and economic
structures in many of these emerging market countries may be undergoing
significant evolution and rapid development, and they may lack the social,
political, legal and economic stability characteristic of more developed
countries. Emerging market countries may have failed in the past to recognize
private property rights. They may have relatively unstable governments, present
the risk of nationalization of businesses, restrictions on foreign ownership, or
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prohibitions on repatriation of assets, and may have less protection of property
rights than more developed countries. Their economies may be predominantly based
on only a few industries, may be highly vulnerable to changes in local or global
trade conditions, and may suffer from extreme and volatile debt burdens or
inflation rates. Local securities markets may trade a small number of securities
and may be unable to respond effectively to increases in trading volume,
potentially making prompt liquidation of substantial holdings difficult or
impossible at times. The Fund may be required to establish special custodial or
other arrangements before making certain investments in these countries.
Securities of issuers located in these countries may have limited marketability
and may be subject to more abrupt or erratic price movements.
Lower Rated High Yield Debt Obligations. 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.
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.
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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 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.
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.
Repurchase Agreements. In a repurchase agreement the Fund buys a security for a
relatively short period (usually not more than 7 days) subject to the obligation
to sell it back to the issuer at a fixed time and price plus accrued interest.
The Fund will enter into repurchase agreements only with member banks of the
Federal Reserve System and with "primary dealers" in U.S. Government securities.
The Adviser will continuously monitor the creditworthiness of the parties with
whom the Fund enters into repurchase agreements.
The Fund has established a procedure providing that the securities serving as
collateral for each repurchase agreement must be delivered to the Fund's
custodian either physically or in book-entry form and that the collateral must
be marked to market daily to ensure that each repurchase agreement is fully
collateralized at all times. In the event of bankruptcy or other default by a
seller of a repurchase agreement, the Fund could experience delays in
liquidating the underlying securities during the period in which the Fund seeks
to enforce its rights thereto, possible subnormal levels of income, decline in
value of the underlying securities or lack of access to income during this
period as well as the expense of enforcing its rights.
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Reverse Repurchase Agreements. The Fund may also enter into reverse purchase
agreements which involve the sale of U.S. Government securities held in its
portfolio to a bank with an agreement that the Fund will buy back the securities
at a fixed future date at a fixed price plus an agreed amount of "interest"
which may be reflected in the repurchase price. Reverse repurchase agreements
are considered to be borrowings by the Fund. Reverse repurchase agreements
involve the risk that the market value of securities purchased by the Fund with
proceeds of the transaction may decline below the repurchase price of the
securities sold by the Fund which it is obligated to repurchase. The Fund will
also continue to be subject to the risk of a decline in the market value of the
securities sold under the agreements because it will reacquire those securities
upon effecting their repurchase. To minimize various risks associated with
reverse repurchase agreements, the Fund will establish and maintain with the
Fund's custodian a separate account consisting of liquid securities, of any type
or maturity, in an amount at least equal to the repurchase prices of the
securities (plus any accrued interest thereon) under such agreements. In
addition, the Fund will not enter into reverse repurchase agreements and other
borrowings except from banks as a temporary measure for extraordinary or
emergency purposes (including meeting redemptions without 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. The Fund will enter into reverse
repurchase agreements only with federally insured banks which are approved in
advance as being creditworthy by the Trustees. Under the procedures established
by the Trustees, the Adviser will monitor the creditworthiness of the banks
involved.
Restricted Securities. The Fund may purchase securities that are not registered
("restricted securities") under the Securities Act of 1933 ("1933 Act"),
including commercial paper issued in reliance on Section 4(2) of the 1933 act
and securities offered and sold to "qualified institutional buyers" under Rule
144A under the 1933 Act. The Fund will not invest more than 15% of its net
assets in illiquid investments. If the Trustees determine, based upon a
continuing review of the trading markets for specific Section 4(2) paper or Rule
144A securities, that they are liquid, will not be subject to the 15% limit on
illiquid investments. The Trustees may adopt guidelines and delegate to the
Adviser the daily function of determining and monitoring the liquidity of
restricted securities. The Trustees, however, will retain sufficient oversight
and be ultimately responsible for the determinations. The Trustees will
carefully monitor the Fund's investments in these securities, focusing on such
important factors, among others, as valuation, liquidity and availability of
information. This investment practice could have the effect of increasing the
level of illiquidity in the Fund if qualified institutional buyers become for a
time uninterested in purchasing these restricted securities.
Ratings as Investment Criteria. In general, the ratings of Moody's Investors
Service, Inc. ("Moody's") and Standard & Poor's Ratings Group ("S&P") represent
the opinions of these agencies as to the quality of the securities which they
rate. It should be emphasized, however, that such ratings are relative and
subjective and are not absolute standards of quality. These ratings will be used
by the Fund as initial criteria for the selection of portfolio securities. Among
the factors which will be considered are the long-term ability of the issuer to
pay principal and interest and general economic trends. Appendix A contains
further information concerning the ratings of Moody's and S&P and their
significance.
Subsequent to its purchase by the Fund, an issue of securities may cease to be
rated or its rating may be reduced below the minimum required for purchase by
the Fund. Neither of these events will require the sale of the securities by the
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Fund, but the Adviser will consider the event in its determination of whether
the Fund should continue to hold the securities.
Options on Securities, Securities Indices and Currency. The Fund may purchase
and write (sell) call and put options on any securities in which it may invest,
on any securities index based on securities in which it may invest or on any
currency in which Fund investments may be denominated. These options may be
listed on national domestic securities exchanges or foreign securities exchanges
or traded in the over-the-counter market. The Fund may write covered put and
call options and purchase put and call options to enhance total return, as a
substitute for the purchase or sale of securities or currency, or to protect
against declines in the value of portfolio securities and against increases in
the cost of securities to be acquired.
Writing Covered Options. A call option on securities or currency written by the
Fund obligates the Fund to sell specified securities or currency to the holder
of the option at a specified price if the option is exercised at any time before
the expiration date. A put option on securities or currency written by the Fund
obligates the Fund to purchase specified securities or currency from the option
holder at a specified price if the option is exercised at any time before the
expiration date. Options on securities indices are similar to options on
securities, except that the exercise of securities index options requires cash
settlement payments and does not involve the actual purchase or sale of
securities. In addition, securities index options are designed to reflect price
fluctuations in a group of securities or segment of the securities market rather
than price fluctuations in a single security. Writing covered call options may
deprive the Fund of the opportunity to profit from an increase in the market
price of the securities or foreign currency assets in its portfolio. Writing
covered put options may deprive the Fund of the opportunity to profit from a
decrease in the market price of the securities or foreign currency assets to be
acquired for its portfolio.
All call and put options written by the Fund are covered. A written call option
or put option may be covered by (i) maintaining cash or liquid securities,
either of which may be quoted or denominated in any currency, in a segregated
account maintained by the Fund's custodian with a value at least equal to the
Fund's obligation under the option, (ii) entering into an offsetting forward
commitment and/or (iii) purchasing an offsetting option or any other option
which, by virtue of its exercise price or otherwise, reduces the Fund's net
exposure on its written option position. A written call option on securities is
typically covered by maintaining the securities that are subject to the option
in a segregated account. The Fund may cover call options on a securities index
by owning securities whose price changes are expected to be similar to those of
the underlying index.
The Fund may terminate its obligations under an exchange traded call or put
option by purchasing an option identical to the one it has written. Obligations
under over-the-counter options may be terminated only by entering into an
offsetting transaction with the counterparty to such option. Such purchases are
referred to as "closing purchase transactions."
Purchasing Options. The Fund would normally purchase call options in
anticipation of an increase, or put options in anticipation of a decrease
("protective puts"), in the market value of securities or currencies of the type
in which it may invest. The Fund may also sell call and put options to close out
its purchased options.
The purchase of a call option would entitle the Fund, in return for the premium
paid, to purchase specified securities or currency at a specified price during
the option period. The Fund would ordinarily realize a gain on the purchase of a
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call option if, during the option period, the value of such securities or
currency exceeded the sum of the exercise price, the premium paid and
transaction costs; otherwise the Fund would realize either no gain or a loss on
the purchase of the call option.
The purchase of a put option would entitle the Fund, in exchange for the premium
paid, to sell specified securities or currency at a specified price during the
option period. The purchase of protective puts is designed to offset or hedge
against a decline in the market value of the Fund's portfolio securities or the
currencies in which they are denominated. Put options may also be purchased by
the Fund for the purpose of affirmatively benefiting from a decline in the price
of securities or currencies which it does not own. The Fund would ordinarily
realize a gain if, during the option period, the value of the underlying
securities or currency decreased below the exercise price sufficiently to cover
the premium and transaction costs; otherwise the Fund would realize either no
gain or a loss on the purchase of the put option. Gains and losses on the
purchase of put options may be offset by countervailing changes in the value of
the Fund's portfolio securities.
The Fund's options transactions will be subject to limitations established by
each of the exchanges, boards of trade or other trading facilities on which such
options are traded. These limitations govern the maximum number of options in
each class which may be written or purchased by a single investor or group of
investors acting in concert, regardless of whether the options are written or
purchased on the same or different exchanges, boards of trade or other trading
facilities or are held or written in one or more accounts or through one or more
brokers. Thus, the number of options which the Fund may write or purchase may be
affected by options written or purchased by other investment advisory clients of
the Adviser. An exchange, board of trade or other trading facility may order the
liquidation of positions found to be in excess of these limits, and it may
impose certain other sanctions.
Risks Associated with Options Transactions. There is no assurance that a liquid
secondary market on a domestic or foreign options exchange will exist for any
particular exchange-traded option or at any particular time. If the Fund is
unable to effect a closing purchase transaction with respect to covered options
it has written, the Fund will not be able to sell the underlying securities or
currencies or dispose of assets held in a segregated account until the options
expire or are exercised. Similarly, if the Fund is unable to effect a closing
sale transaction with respect to options it has purchased, it would have to
exercise the options in order to realize any profit and will incur transaction
costs upon the purchase or sale of underlying securities or currencies.
Reasons for the absence of a liquid secondary market on an exchange include the
following: (i) there may be insufficient trading interest in certain options;
(ii) restrictions may be imposed by an exchange on opening transactions or
closing transactions or both; (iii) trading halts, suspensions or other
restrictions may be imposed with respect to particular classes or series of
options; (iv) unusual or unforeseen circumstances may interrupt normal
operations on an exchange; (v) the facilities of an exchange or the Options
Clearing Corporation may not at all times be adequate to handle current trading
volume; or (vi) one or more exchanges could, for economic or other reasons,
decide or be compelled at some future date to discontinue the trading of options
(or a particular class or series of options). If trading were discontinued, the
secondary market on that exchange (or in that class or series of options) would
cease to exist. However, outstanding options on that exchange that had been
issued by the Options Clearing Corporation as a result of trades on that
exchange would continue to be exercisable in accordance with their terms.
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The Fund's ability to terminate over-the-counter options is more limited than
with exchange-traded options and may involve the risk that broker-dealers
participating in such transactions will not fulfill their obligations. The
Adviser will determine the liquidity of each over-the-counter option in
accordance with guidelines adopted by the Trustees.
The writing and purchase of options is a highly specialized activity which
involves investment techniques and risks different from those associated with
ordinary portfolio securities transactions. The successful use of options
depends in part on the Adviser's ability to predict future price fluctuations
and, for hedging transactions, the degree of correlation between the options and
securities or currency markets.
Futures Contracts and Options on Futures Contracts. To seek to increase total
return or hedge against changes in interest rates, securities prices or currency
exchange rates, the Fund may purchase and sell various kinds of futures
contracts, and purchase and write call and put options on these futures
contracts. The Fund may also enter into closing purchase and sale transactions
with respect to any of these contracts and options. The futures contracts may be
based on various securities (such as U.S. Government securities), securities
indices, foreign currencies and any other financial instruments and indices. All
futures contracts entered into by the Fund are traded on U.S. or foreign
exchanges or boards of trade that are licensed, regulated or approved by the
Commodity Futures Trading Commission ("CFTC").
Futures Contracts. A futures contract may generally be described as an agreement
between two parties to buy and sell particular financial instruments or
currencies for an agreed price during a designated month (or to deliver the
final cash settlement price, in the case of a contract relating to an index or
otherwise not calling for physical delivery at the end of trading in the
contract).
Positions taken in the futures markets are not normally held to maturity but are
instead liquidated through offsetting transactions which may result in a profit
or a loss. While futures contracts on securities or currency will usually be
liquidated in this manner, the Fund may instead make, or take, delivery of the
underlying securities or currency whenever it appears economically advantageous
to do so. A clearing corporation associated with the exchange on which futures
contracts are traded guarantees that, if still open, the sale or purchase will
be performed on the settlement date.
Hedging and Other Strategies. Hedging is an attempt to establish with more
certainty than would otherwise be possible the effective price or rate of return
on portfolio securities or securities that the Fund proposes to acquire or the
exchange rate of currencies in which portfolio securities are quoted or
denominated. When interest rates are rising or securities prices are falling,
the Fund can seek to offset a decline in the value of its current portfolio
securities through the sale of futures contracts. When interest rates are
falling or securities prices are rising, the Fund, through the purchase of
futures contracts, can attempt to secure better rates or prices than might later
be available in the market when it effects anticipated purchases. The Fund may
seek to offset anticipated changes in the value of a currency in which its
portfolio securities, or securities that it intends to purchase, are quoted or
denominated by purchasing and selling futures contracts on such currencies.
The Fund may, for example, take a "short" position in the futures market by
selling futures contracts in an attempt to hedge against an anticipated rise in
interest rates or a decline in market prices or foreign currency rates that
would adversely affect the dollar value of the Fund's portfolio securities. Such
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futures contracts may include contracts for the future delivery of securities
held by the Fund or securities with characteristics similar to those of the
Fund's portfolio securities. Similarly, the Fund may sell futures contracts on
any currencies in which its portfolio securities are quoted or denominated or in
one currency to hedge against fluctuations in the value of securities
denominated in a different currency if there is an established historical
pattern of correlation between the two currencies.
If, in the opinion of the Adviser, there is a sufficient degree of correlation
between price trends for the Fund's portfolio securities and futures contracts
based on other financial instruments, securities indices or other indices, the
Fund may also enter into such futures contracts as part of its hedging strategy.
Although under some circumstances prices of securities in the Fund's portfolio
may be more or less volatile than prices of such futures contracts, the Adviser
will attempt to estimate the extent of this volatility difference based on
historical patterns and compensate for any differential by having the Fund enter
into a greater or lesser number of futures contracts or by attempting to achieve
only a partial hedge against price changes affecting the Fund's portfolio
securities.
When a short hedging position is successful, any depreciation in the value of
portfolio securities will be substantially offset by appreciation in the value
of the futures position. On the other hand, any unanticipated appreciation in
the value of the Fund's portfolio securities would be substantially offset by a
decline in the value of the futures position.
On other occasions, the Fund may take a "long" position by purchasing futures
contracts. This would be done, for example, when the Fund anticipates the
subsequent purchase of particular securities when it has the necessary cash, but
expects the prices or currency exchange rates then available in the applicable
market to be less favorable than prices that are currently available. The Fund
may also purchase futures contracts as a substitute for transactions in
securities or foreign currency, to alter the investment characteristics of or
currency exposure associated with portfolio securities or to gain or increase
its exposure to a particular securities market or currency.
Options on Futures Contracts. The Fund may purchase and write options on futures
for the same purposes as its transactions in futures contracts. The purchase of
put and call options on futures contracts will give the Fund the right (but not
the obligation) for a specified price to sell or to purchase, respectively, the
underlying futures contract at any time during the option period. As the
purchaser of an option on a futures contract, the Fund obtains the benefit of
the futures position if prices move in a favorable direction but limits its risk
of loss in the event of an unfavorable price movement to the loss of the premium
and transaction costs.
The writing of a call option on a futures contract generates a premium which may
partially offset a decline in the value of the Fund's assets. By writing a call
option, the Fund becomes obligated, in exchange for the premium (upon exercise
of the option) to sell a futures contract if the option is exercised, which may
have a value higher than the exercise price. Conversely, the writing of a put
option on a futures contract generates a premium which may partially offset an
increase in the price of securities that the Fund intends to purchase. However,
the Fund becomes obligated (upon exercise of the option) to purchase a futures
contract if the option is exercised, which may have a value lower than the
exercise price. The loss incurred by the Fund in writing options on futures is
potentially unlimited and may exceed the amount of the premium received.
The holder or writer of an option on a futures contract may terminate its
position by selling or purchasing an offsetting option of the same series. There
11
<PAGE>
is no guarantee that such closing transactions can be effected. The Fund's
ability to establish and close out positions on such options will be subject to
the development and maintenance of a liquid market.
Other Considerations. The Fund will engage in futures and related options
transactions either for bona fide hedging purposes or to seek to increase total
return as permitted by the CFTC. To the extent that the Fund is using futures
and related options for hedging purposes, futures contracts will be sold to
protect against a decline in the price of securities (or the currency in which
they are quoted or denominated) that the Fund owns or futures contracts will be
purchased to protect the Fund against an increase in the price of securities (or
the currency in which they are quoted or denominated) it intends to purchase.
The Fund will determine that the price fluctuations in the futures contracts and
options on futures used for hedging purposes are substantially related to price
fluctuations in securities held by the Fund or securities or instruments which
it expects to purchase. As evidence of its hedging intent, the Fund expects that
on 75% or more of the occasions on which it takes a long futures or option
position (involving the purchase of futures contracts), the Fund will have
purchased, or will be in the process of purchasing, equivalent amounts of
related securities (or assets denominated in the related currency) in the cash
market at the time when the futures or option position is closed out. However,
in particular cases, when it is economically advantageous for the Fund to do so,
a long futures position may be terminated or an option may expire without the
corresponding purchase of securities or other assets.
To the extent that the Fund engages in nonhedging transactions in futures
contracts and options on futures, the aggregate initial margin and premiums
required to establish these nonhedging positions will not exceed 5% of the net
asset value of the Fund's portfolio, after taking into account unrealized
profits and losses on any such positions and excluding the amount by which such
options were in-the-money at the time of purchase. The Fund will engage in
transactions in futures contracts and related options only to the extent such
transactions are consistent with the requirements of the Internal Revenue Code
of 1986, as amended (the "Code"), for maintaining its qualification as a
regulated investment company for federal income tax purposes.
Transactions in futures contracts and options on futures involve brokerage
costs, require margin deposits and, in the case of contracts and options
obligating the Fund to purchase securities or currencies, require the Fund to
establish with the custodian a segregated account consisting of cash or liquid
securities in an amount equal to the underlying value of such contracts and
options.
While transactions in futures contracts and options on futures may reduce
certain risks, these transactions themselves entail certain other risks. For
example, unanticipated changes in interest rates, securities prices or currency
exchange rates may result in a poorer overall performance for the Fund than if
it had not entered into any futures contracts or options transactions.
Perfect correlation between the Fund's futures positions and portfolio positions
will be impossible to achieve. There are no futures contracts based upon
individual securities, except certain U.S. Government securities. The only
futures contracts available to hedge the Fund's portfolio are various futures on
U.S. Government securities, securities indices and foreign currencies. In the
event of an imperfect correlation between a futures position and a portfolio
position which is intended to be protected, the desired protection may not be
obtained and the Fund may be exposed to risk of loss. In addition, it is not
possible to hedge fully or protect against currency fluctuations affecting the
value of securities denominated in foreign currencies because the value of such
12
<PAGE>
securities is likely to fluctuate as a result of independent factors not related
to currency fluctuations.
Some futures contracts or options on futures may become illiquid under adverse
market conditions. In addition, during periods of market volatility, a commodity
exchange may suspend or limit trading in a futures contract or related option,
which may make the instrument temporarily illiquid and difficult to price.
Commodity exchanges may also establish daily limits on the amount that the price
of a futures contract or related option can vary from the previous day's
settlement price. Once the daily limit is reached, no trades may be made that
day at a price beyond the limit. This may prevent the Fund from closing out
positions and limiting its losses.
Lending of Securities. The Fund may lend portfolio securities to brokers,
dealers, and financial institutions if the loan is collateralized by cash or
U.S. Government securities according to applicable regulatory requirements. The
Fund may reinvest any cash collateral in short-term securities and money market
funds. When the Fund lends portfolio securities, there is a risk that the
borrower may fail to return the securities involved in the transaction. As a
result, the Fund may incur a loss or, in the event of the borrower's bankruptcy,
the Fund may be delayed in or prevented from liquidating the collateral. It is a
fundamental policy of the Fund not to lend portfolio securities having a total
value exceeding 33 1/3% of its total assets.
Rights and Warrants. The Fund may purchase warrants and rights which are
securities permitting, but not obligating, their holder to purchase the
underlying securities at a predetermined price, subject to the Fund's Investment
Restrictions. Generally, warrants and stock purchase rights do not carry with
them the right to receive dividends or exercise voting rights with respect to
the underlying securities, and they do not represent any rights in the assets of
the issuer. As a result, an investment in warrants and rights may be considered
to entail greater investment risk than certain owner types of investments. In
addition, the value of warrants and rights does not necessarily change with the
value of the underlying securities, and they cease to have value if they are not
exercised on or prior to their expiration date. Investment in warrants and
rights increases the potential profit or loss to be realized from the investment
of a given amount of the Fund's assets as compared with investing the same
amount in the underlying stock.
Forward Commitment and When-Issued Securities. The Fund may purchase securities
on a when-issued or forward commitment basis. "When-issued" refers to securities
whose terms are available and for which a market exists, but which have not been
issued. The Fund will engage in when-issued transactions with respect to
securities purchased for its portfolio in order to obtain what is considered to
be an advantageous price and yield at the time of the transaction. For
when-issued transactions, no payment is made until delivery is due, often a
month or more after the purchase. In a forward commitment transaction, the Fund
contracts to purchase securities for a fixed price at a future date beyond
customary settlement time.
When the Fund engages in forward commitment and when-issued transactions, it
relies on the seller to consummate the transaction. The failure of the issuer or
seller to consummate the transaction may result in the Fund's losing the
opportunity to obtain a price and yield considered to be advantageous. The
purchase of securities on a when-issued or forward commitment basis also
involves a risk of loss if the value of the security to be purchased declines
prior to the settlement date.
On the date the Fund enters into an agreement to purchase securities on a
when-issued or forward commitment basis, the Fund will segregate in a separate
13
<PAGE>
account cash or liquid securities, of any type or maturity, equal in value to
the Fund's commitment. These assets will be valued daily at market, and
additional cash or securities will be segregated in a separate account to the
extent that the total value of the assets in the account declines below the
amount of the when-issued commitments. Alternatively, the Fund may enter into
offsetting contracts for the forward sale of other securities that it owns.
Short Term Trading and Portfolio Turnover. Short-term trading means the purchase
and subsequent sale of a security after it has been held for a relatively brief
period of time. The Fund may engage in short-term trading in response to stock
market conditions, changes in interest rates or other economic trends and
developments, or to take advantage of yield disparities between various fixed
income securities in order to realize capital gains or improve income.
Short-term trading may have the effect of increasing portfolio turnover rate. A
high rate of portfolio turnover (100% or greater) involves correspondingly
greater brokerage expenses. The Fund's portfolio turnover rate is set forth in
the table under the caption "Financial Highlights" in the Prospectus.
INVESTMENT RESTRICTIONS
Fundamental Investment Restrictions. The following investment restrictions (as
well as the fund's investment objective) will not be changed without approval of
a majority of the Fund's outstanding voting securities which, as used in the
Prospectus and this Statement of Additional Information, means approval by the
lesser of (1) the holders of 67% or more of the Fund's shares represented at a
meeting if more than 50% of the Fund's outstanding shares are present in person
or by proxy at the meeting or (2) more than 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
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
14
<PAGE>
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 1/3% of the Fund's
total assets taken at market value, (2) enter into repurchase agreements, and
(3) purchase all or a portion of an issue of debt securities, bank loan
participation interests, bank certificates of deposit, bankers' acceptances,
debentures or other securities, whether or nor the purchase is made upon the
original issuance of the securities.
Nonfundamental Investment Restrictions. The following investment restrictions
are designated as nonfundamental and may be changed by the Trustees 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 with a merger, consolidation,
reorganization or purchase of substantially all of the assets of another
investment company. Subject to the above percentage limitations, the Fund may,
in connection with the John Hancock Group of Funds Deferred Compensation Plan
for Independent Trustees/Trustees, purchase securities of other investment
companies within the John Hancock Group of Funds.
(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
15
<PAGE>
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) Invest in companies for the purpose of exercising control.
(6) Invest more than 15% of its net assets in illiquid securities.
If a percentage restriction on investment or utilization of assets as set forth
above is adhered to at the time an investment is made, a later change in
percentage resulting from changes in the value of the Fund's assets will not be
considered a violation of the restriction.
THOSE RESPONSIBLE FOR MANAGEMENT
The business of the Fund is managed by the Trustees of the Trust who elect
officers who are responsible for the day-to-day operations of the Fund and who
execute policies formulated by the Trustees. Several of the officers and
Trustees of the Trust are also officers or Directors of the Adviser or
Sub-Adviser, or officers and Directors of the Fund's principal distributor, John
Hancock Funds, Inc. ("John Hancock Funds").
16
<PAGE>
<TABLE>
<CAPTION>
Positions Held Principal Occupations(s)
Name and Address With the Company During the Past Five Years
- ---------------- ---------------- --------------------------
<S> <C> <C>
Edward J. Boudreau, Jr. * Trustee, Chairman and Chief Chairman, Director and Chief
101 Huntington Avenue Executive Officer (1, 2) Executive Officer, the Adviser;
Boston, MA 02199 Chairman, Trustee and Chief
October 1944 Executive Officer, The Berkeley
Financial Group ("The Berkeley
Group"); Chairman and Director, NM
Capital Management, Inc. ("NM
Capital"), John Hancock Advisers
International Limited ("Advisers
International") and Sovereign Asset
Management Corporation ("SAMCorp");
Chairman, Chief Executive Officer
and President, John Hancock Funds,
Inc. ("John Hancock Funds");
Chairman, First Signature Bank and
Trust Company; Director, John
Hancock Insurance Agency, Inc.
("Insurance Agency, Inc."), John
Hancock Advisers International
(Ireland) Limited ("International
Ireland"), 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;
Director, John Hancock Freedom
Securities Corporation (until
September 1996); Director, John
Hancock Signature Services, Inc.
("Signature Services") (until
January 1997).
- -------------------
* Trustee may be deemed to be an "interested person" of the Fund as defined
in the Investment Company Act of 1940
(1) Member of the Executive Committee. The Executive Committee may generally
exercise most of the powers of the Board of Trustees.
(2) A member of the Investment Committee of the Adviser.
(3) Member of the Audit Committee and the Administration Committee.
17
<PAGE>
Positions Held Principal Occupations(s)
Name and Address With the Company During the Past Five Years
- ---------------- ---------------- --------------------------
James F. Carlin Trustee (3) Chairman and CEO, Carlin
233 West Central Street Consolidated, Inc.
Natick, MA 01760 (management/investments); Director,
April 1940 Arbella Mutual Insurance Company
(insurance), Consolidated Group
Trust (insurance administration),
Carlin Insurance Agency, Inc., West
Insurance Agency, Inc. (until May
1995) Uno Restaurant Corp.;
Chairman, Massachusetts Board of
Higher Education (since 1995).
William H. Cunningham Trustee (3) Chancellor, University of Texas
601 Colorado Street System and former President of the
O'Henry Hall University of Texas, Austin, Texas;
Austin, TX 78701 Lee Hage and Joseph D. Jamail
January 1944 Regents Chair of 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.
- -------------------
* Trustee may be deemed to be an "interested person" of the Fund as defined
in the Investment Company Act of 1940
(1) Member of the Executive Committee. The Executive Committee may generally
exercise most of the powers of the Board of Trustees.
(2) A member of the Investment Committee of the Adviser.
(3) Member of the Audit Committee and the Administration Committee.
18
<PAGE>
Positions Held Principal Occupations(s)
Name and Address With the Company During the Past Five Years
- ---------------- ---------------- --------------------------
Charles F. Fretz Trustee (3) Retired; self employed; Former Vice
RD #5, Box 300B President and Director, Towers,
Clothier Springs Road Perrin, Foster & Crosby, Inc.
Malvern, PA 19355 (international management
June 1928 consultants) (1952-1985).
Harold R. Hiser, Jr. Trustee (3) Executive Vice President,
123 Highland Avenue Schering-Plough Corporation
Short Hill, NJ 07078 (pharmaceuticals) (retired 1996);
October 1931 Director, ReCapital Corporation
(reinsurance) (until 1995).
Anne C. Hodsdon * Trustee and President (1,2) President, Chief Operating Officer
101 Huntington Avenue and Director, the Adviser; Trustee,
Boston, MA 02199 The Berkeley Group; Director, John
April 1953 Hancock Funds, Advisers
International, Insurance Agency,
Inc. and International Ireland;
President and Director, SAMCorp. and
NM Capital; Executive Vice
President, the Adviser (until
December 1994); Director, Signature
Services (until January 1997).
Charles L. Ladner Trustee (3) Director, Energy North, Inc. (public
UGI Corporation utility holding company) (until
P.O. Box 858 1992); Senior Vice President of UGI
Valley Forge, PA 19482 Corp. Holding Company Public
February 1938 Utilities, LPGAS.
- -------------------
* Trustee may be deemed to be an "interested person" of the Fund as defined
in the Investment Company Act of 1940
(1) Member of the Executive Committee. The Executive Committee may generally
exercise most of the powers of the Board of Trustees.
(2) A member of the Investment Committee of the Adviser.
(3) Member of the Audit Committee and the Administration Committee.
19
<PAGE>
Positions Held Principal Occupations(s)
Name and Address With the Company During the Past Five Years
- ---------------- ---------------- --------------------------
Leo E. Linbeck, Jr. Trustee (3) Chairman, President, Chief Executive
3810 W. Alabama Officer and Director, Linbeck
Houston, TX 77027 Corporation (a holding company
August 1934 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
Corporation (a diversified energy
company), Daniel Industries, Inc.
(manufacturer of gas measuring
products and energy related
equipment), GeoQuest International
Holdings, Inc. (a geophysical
consulting firm) (1980-1993);
Former Director, Greater Houston
Partnership (1980 -1995).
Patricia P. McCarter Trustee (3) Director and Secretary, The McCarter
1230 Brentford Road Corp. (machine manufacturer).
Malvern, PA 19355
May 1928
- -------------------
* Trustee may be deemed to be an "interested person" of the Fund as defined
in the Investment Company Act of 1940
(1) Member of the Executive Committee. The Executive Committee may generally
exercise most of the powers of the Board of Trustees.
(2) A member of the Investment Committee of the Adviser.
(3) Member of the Audit Committee and the Administration Committee.
20
<PAGE>
Positions Held Principal Occupations(s)
Name and Address With the Company During the Past Five Years
- ---------------- ---------------- --------------------------
Steven R. Pruchansky Trustee (1, 3) Director and President, Mast
4327 Enterprise Avenue Holdings, Inc. (since 1991);
Naples, FL 33942 Director, First Signature Bank &
August 1944 Trust Company (until August 1991);
Director, Mast Realty Trust (until
1994); President, Maxwell Building
Corp. (until 1991).
Richard S. Scipione * Trustee (1) General Counsel, John Hancock Life
John Hancock Place Company; Director, the Adviser,
P.O. Box 111 Advisers International, John Hancock
Boston, MA 02117 Funds, John Hancock Distributors,
August 1937 Inc., Insurance Agency, Inc., John
Hancock Subsidiaries, Inc., SAMCorp.
and NM Capital; Trustee, The
Berkeley Group; Director, JH
Networking Insurance Agency, Inc.;
Director, Signature Services (until
January 1997).
Norman H. Smith Trustee (3) Lieutenant General, United States
243 Mt. Oriole Lane Marine Corps; Deputy Chief of Staff
Linden, VA 22642 for Manpower and Reserve Affairs,
March 1933 Headquarters Marine Corps;
Commanding General III Marine
Expeditionary Force/3rd Marine
Division (retired 1991).
- -------------------
* Trustee may be deemed to be an "interested person" of the Fund as defined in the Investment Company Act of
1940
(1) Member of the Executive Committee. The Executive Committee may generally exercise most of the powers of
the Board of Trustees.
(2) A member of the Investment Committee of the Adviser.
(3) Member of the Audit Committee and the Administration Committee.
21
<PAGE>
Positions Held Principal Occupations(s)
Name and Address With the Company During the Past Five Years
- ---------------- ---------------- --------------------------
John P. Toolan Trustee (3) Director, The Smith Barney Muni Bond
13 Chadwell Place Funds, The Smith Barney Tax-Free
Morristown, NJ 07960 Money Funds, Inc., Vantage Money
September 1930 Market Funds (mutual funds), The
Inefficient-Market Fund, Inc.
(closed-end investment company) and
Smith Barney Trust Company of
Florida; Chairman, Smith Barney
Trust Company (retired December,
1991); Director, Smith Barney,
Inc., Mutual Management Company and
Smith Barney Advisers, Inc.
(investment advisers) (retired
1991); Senior Executive Vice
President, Director and member of
the Executive Committee, Smith
Barney, Harris Upham & Co.,
Incorporated (investment bankers)
(until 1991).
Robert G. Freedman Vice Chairman and Chief Investment Vice Chairman and Chief Investment
101 Huntington Avenue Officer (2) Officer, the Adviser; Director, the
Boston, MA 02199 Adviser, Advisers International,
July 1938 John Hancock Funds, SAMCorp.,
Insurance Agency, Inc.,
Southeastern Thrift & Bank Fund and
NM Capital; Senior Vice President,
The Berkeley Group; President, the
Adviser (until December 1994);
Director, Signature Services (until
January 1997).
- -------------------
* Trustee may be deemed to be an "interested person" of the Fund as defined
in the Investment Company Act of 1940
(1) Member of the Executive Committee. The Executive Committee may generally
exercise most of the powers of the Board of Trustees.
(2) A member of the Investment Committee of the Adviser.
(3) Member of the Audit Committee and the Administration Committee.
22
<PAGE>
Positions Held Principal Occupations(s)
Name and Address With the Company During the Past Five Years
- ---------------- ---------------- --------------------------
James B. Little Senior Vice President and Chief Senior Vice President, the Adviser,
101 Huntington Avenue Financial Officer The Berkeley Group, John Hancock
Boston, MA 02199 Funds.
February 1935
John A. Morin Vice President Vice President and Secretary, the
101 Huntington Avenue Adviser, The Berkeley Group,
Boston, MA 02199 Signature Services and John Hancock
July 1950 Funds; Secretary, NM Capital and
SAMCorp.; Clerk, Insurance Agency,
Inc.; Counsel, John Hancock Mutual
Life Insurance Company (until
February 1996), and Vice President
of John Hancock Distributors, Inc.
(until April 1994).
Susan S. Newton Vice President and Secretary Vice President, the Adviser; John
101 Huntington Avenue Hancock Funds, Signature Services
Boston, MA 02199 and The Berkeley Group; Vice
March 1950 President, John Hancock
Distributors, Inc. (until April
1994).
James J. Stokowski Vice President and Treasurer Vice President, the Adviser.
101 Huntington Avenue
Boston, MA 02199
November 1946
- -------------------
* Trustee may be deemed to be an "interested person" of the Fund as defined
in the Investment Company Act of 1940
(1) Member of the Executive Committee. The Executive Committee may generally
exercise most of the powers of the Board of Trustees.
(2) A member of the Investment Committee of the Adviser.
(3) Member of the Audit Committee and the Administration Committee.
23
<PAGE>
Positions Held Principal Occupations(s)
Name and Address With the Company During the Past Five Years
- ---------------- ---------------- --------------------------
Barry J. Gordon President of the Fund President and Chairman of the Board
1415 Kellum Place of American Fund Advisors, Inc.;
Suite 205 Director and President of the
Garden City, NY 11530 company and its predecessors (until
July 1945 1993); Chairman of the Board and
President of National Value Fund,
Inc. ("NVF") (until 1992); Vice
President of F.G.S.K., Inc. (since
1996); Chairman of the Board and
Chief Executive Office (since 1990)
of Baseball Entrepreneurs, Inc. and
(from 1991 until 1992) of Hamilton
Baseball Associates, Inc. (baseball
club ownership), Chairman of the
Board and Chief Executive Officer of
Minor League Sports Enterprises,
Inc. (baseball club ownership since
1992); Director of Hain Food Group
(food products) (since 1993);
Director of Sports Heroes, Inc.
(sports memorabilia) (from 1989
until 1996); Director of Winfield
Capital Corp. (SBIC) (since 1995);
Chairman of Board of ACOL
Acquisition Corp. (baseball club
ownership since 1994); and Director
of Skylands Park Management, Inc.
(Sports Management since 1996).
- -------------------
* Trustee may be deemed to be an "interested person" of the Fund as defined
in the Investment Company Act of 1940
(1) Member of the Executive Committee. The Executive Committee may generally
exercise most of the powers of the Board of Trustees.
(2) A member of the Investment Committee of the Adviser.
(3) Member of the Audit Committee and the Administration Committee.
</TABLE>
24
<PAGE>
All of the officers listed are officers or employees of the Adviser or
affiliated companies. Some of the Trustees and officers may also be officers
and/or directors and/or Trustees of one or more of the other funds for which the
Adviser serves as investment adviser.
The following table provides information regarding the compensation paid by the
Fund and the other investment companies in the John Hancock Fund Complex to the
Independent Trustees for their services. Messrs. Boudreau and Scipione, and Ms.
Hodsdon, each a non-independent Trustee, 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.
<TABLE>
<CAPTION>
Total Compensation
from all Funds in
Aggregate John Hancock
Compensation Fund Complex to
Directors from the Fund* the Trustees**
- --------- -------------- --------------
<S> <C> <C>
James F. Carlin $ 1,981 $ 74,250
William H. Cunningham+ 2,578 74,250
Charles F. Fretz 1,957 74,500
Jack P. Gould# 4,000 4,000
Harold R. Hiser. Jr.+ 1,854 70,250
Charles L. Ladner 1,957 74,500
Leo E. Linbeck, Jr. 2,578 74,250
Patricia P. McCarter+ 1,957 74,250
Steven R. Pruchansky + 2,023 77,500
Norman H. Smith+ 2,020 77,500
John P. Toolan+ 1,957 74,250
-------- ------
Total $ 24,862 $749,500
</TABLE>
* Compensation is for the fiscal period from January 1, 1996 to October
31, 1996.
** The total compensation paid by the John Hancock Fund Complex to the
Independent Trustees is as of calendar year ended December 31, 1996. On
that date there were 67 funds in the John Hancock Fund Complex, with
each of these Independent Trustees serve 32.
# As of March 26, 1996, Mr. Gould resigned as a Trustee.
+ As of December 31, 1996, the value of the aggregate accrued deferred
compensation amount from all funds in the John Hancock Fund Complex for
Mr. Cunningham was $131,741 for Mr. Hiser was $90,972, for Ms. McCarter
was $67,548, for Mr. Pruchansky was $28,731, for Mr. Smith was $32314
and for Mr. Toolan was $163,385 under the John Hancock Deferred
Compensation Plan for Independent Trustees.
25
<PAGE>
<TABLE>
<CAPTION>
Total Compensation
from all Funds in
Aggregate Compensation John Hancock
Advisory Board from the Fund* Fund Complex**
- -------------- -------------- --------------
<S> <C> <C>
R. Trent Campbell $ 4,906 $ 47,000
Mrs. Lloyd Bentsen 4,906 47,000
Thomas R. Powers 4,906 47,000
Thomas B. McDade 4,906 47,000
----- ------
Total $19,624 $188,000
</TABLE>
* Compensation is for the fiscal year ended October 31, 1996.
** Total compensation paid by the John Hancock Fund Complex is as of
calendar year ended December 31, 1996.
As of January 31, 1996, the officers and trustees of the Fund as a group owned
less than 1% of the outstanding shares of the fund.
As of January 31, 1997, the following shareholders beneficially owned 5% of or
more of outstanding shares of the Fund:
<TABLE>
<CAPTION>
Number of shares of Percentage of total
beneficial interest outstanding shares of
Name and Address of Shareholder Class of Shares owned the class of the Fund
- ------------------------------- --------------- ----- ---------------------
<S> <C> <C> <C>
MLPF& S For The Class B 190,291 8.68%
Sole Benefit of Its Customers
Attn: Fund Administration
4800 Deer Lake Drive East
Jacksonville FL 32246-6484
</TABLE>
INVESTMENT ADVISORY AND OTHER SERVICES
The Adviser, located at 101 Huntington Avenue, Boston, Massachusetts 02199-7603,
was organized in 1968 and has more than $22 billion in assets under management
in its capacity as investment adviser to the Fund and the other mutual funds and
publicly traded investment companies in the John Hancock group of funds, having
a combined total of over 1,080,000 shareholders. The Adviser is an affiliate of
the Life Company, one of the most recognized and respected financial
institutions in the nation. With total assets under management of more than $100
billion, the Life Company is one of the ten largest life insurance companies in
26
<PAGE>
the United States, and carries a high rating from Standard & Poor's and A.M.
Best's. Founded in 1862, the Life Company has been serving clients for over 130
years.
The Fund has entered into an investment management contract (the "Advisory
Agreement") 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. The Adviser and Sub-Adviser will:
(a) furnish continuously an investment program for the Fund and determine,
subject to the overall supervision and review of the Trustees, which investments
should be purchased, held, sold or exchanged, and (b) provide supervision over
all aspects of the Fund's operations except those which are delegated to a
custodian, transfer agent or other agent.
The 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
Trustees 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 any of their
respective affiliates provides investment advice. Because of different
investment objectives or other factors, a particular security may be bought for
one or more funds or clients when one or more are selling the same security. If
opportunities for purchase or sale of securities by the Adviser 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.
The Fund bears all costs of its organization and operation, including expenses
of preparing, printing and mailing all shareholders' reports, notices,
prospectuses, proxy statements and reports to regulatory agencies; expenses
relating to the issuance, registration and qualification of shares; government
fees; interest charges; expenses of furnishing to shareholders their account
statements; taxes; expenses of redeeming shares; brokerage and other expenses
connected with the execution of portfolio securities transactions; expenses
pursuant to the Fund's plan of distribution; fees and expenses of custodians
including those for keeping books and accounts and calculating the net asset
value of shares; fees and expenses of transfer agents and dividend disbursing
agents; legal, accounting, financial, management, tax and auditing fees and
expense of the Fund (including an allocable portion of the cost of the Adviser's
employees rendering such services to the Fund; the compensation and expenses of
Trustees who are not otherwise affiliated with the Trust, the Adviser or any of
their affiliates; expenses of Trustees' and shareholders' meetings; trade
association membership; insurance premiums; and any extraordinary expenses.
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 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
27
<PAGE>
fee as described in the Prospectus. For the years ended December 31, 1995, and
1994, the Adviser received management fees of $1,045,680 (net of fee reduction),
and $522,041, respectively and administration fees of $99,726 and $100,000,
respectively. For the fiscal period from January 1, through October 31, 1996,
the Adviser received management fees of $1,366,434, and administration fees of
$83,191 from the Fund for each year.
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.
Under the investment management contract, the Fund may use the name "John
Hancock" or any name derived from or similar to it only for so long as the
contract or any extension, renewal or amendment thereof remains in effect. If
the contract is no longer in effect, the Fund (to the extent that it lawfully
can) will cease to use such a name or any other name indicating that it is
advised by or otherwise connected with the Adviser. In addition, the Adviser or
the Life Company may grant the nonexclusive right to use the name "John Hancock"
or any similar name to any other corporation or entity, including but not
limited to any investment company of which the Life Company or any subsidiary or
affiliate thereof or any successor to the business of any subsidiary or
affiliate thereof shall be the investment adviser.
The 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 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.
The Advisory Agreement was approved by all of the Trustees, including all of the
Trustees who are not parties to the Advisory Agreement or "interested persons"
of any such party. The investment management contract, the sub-investment
management contracts, and the distribution agreement discussed below, continue
in effect from year to year if approved annually by vote of a majority of the
Trustees who are not interested persons of one of the parties to the contract,
cast in person at a meeting called for the purpose of voting on such approval,
and by either the Trustees or the holders of a majority of the Fund's
outstanding voting securities. Both agreements automatically terminate upon
assignment and may be terminated on 60 days' written notice by either party or
by vote of a majority of the outstanding voting securities of the Fund.
In order to avoid conflicts with portfolio trades for the Fund, the Adviser, the
Sub-Adviser and the Fund have adopted extensive restrictions on personal
securities trading by personnel of the Adviser and its affiliates. In the case
of the Adviser, some of these restrictions are: pre-clearance for all personal
trades and a ban on the purchase of initial public offerings, as well as
28
<PAGE>
contributions to specified charities of profits on securities held for less than
91 days. The Sub-Adviser has adopted similar restrictions, which may differ
where appropriate, as long as they have the dame interest. These restrictions
are a continuation of the basic principle that the interests of the Fund and its
shareholders come first.
DISTRIBUTION CONTRACTS
The Fund has a Distribution Agreement with John Hancock Funds. Under the
agreement, John Hancock Funds is obligated to use its best efforts to sell
shares of each class of the Fund. Shares of the Fund are also sold by selected
broker-dealers (the "Selling Brokers") 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 any applicable sales charge. In connection
with the sale of Class A or 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. John Hancock Funds may pay extra compensation to financial services firms
selling large amounts of fund shares. This compensation would be calculated as a
percentage of fund shares sold by the firm.
The Fund's Trustees 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%, respectively, of the
Fund's daily net assets attributable to shares of that class. However, the
service fee will not exceed 0.25% of the Fund's average daily net assets
attributable to each class of shares. The distribution fees will be used to
reimburse John Hancock Funds for its distribution expenses, including but not
limited to: (i) initial and ongoing sales compensation to Selling Brokers and
others 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 and others for providing personal and account maintenance services to
shareholders. In the event that John Hancock Funds is not fully reimbursed for
expenses incurred by it under the Class B Plan in any fiscal year, John Hancock
Funds may carry these expenses forward, provided however, that the Trustees may
terminate the Class B Plan and thus the Fund's obligation to make further
payments at any time. Accordingly, the Fund does not treat unreimbursed expenses
relating to the Class B shares as a liability of the Fund. For the fiscal year
ended December 31, 1996, an aggregate of $1,170,398 of distribution expenses, or
2.59% 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 voting securities of the Fund. The
Plans and all amendments were approved by the Trustees, including a majority of
the Trustees who are not interested persons of the Fund and who have no direct
or indirect financial interest in the operation of the Plans (the "Independent
Trustees"), by votes cast in person at meetings called for the purpose of voting
on such Plans.
Pursuant to the Plans, at least quarterly, John Hancock Funds provides the Fund
with a written report of the amounts expended under the Plans and the purpose
for which such expenditures were made. The Trustees review these reports on a
quarterly basis to determine their continued appropriateness.
29
<PAGE>
The Plans provide that they will continue in effect only so long as their
continuance is approved at least annually by a majority of both the Trustees and
Independent Trustees.
The Plans provide that they may be terminated without penalty, (a) by vote of a
majority of the Independent Trustees, (b) by a vote of a majority of the Fund's
outstanding shares of the applicable class upon 60 days' written notice to John
Hancock Funds, and (c) automatically in the event of assignment. The Plans
further provide that they may not be amended to increase the maximum amount of
the fees for the services described therein without the approval of a majority
of the outstanding shares of the class of the Fund which has voting rights with
respect to that Plan. Each plan provides, that no material amendment to the
Plans will, be effective unless it is approved by a vote of a majority of the
Trustees and the Independent Trustees 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 Trustees
concluded that, in their judgment, there is a reasonable likelihood that the
Plans will benefit the holders of the applicable class of shares of the Fund.
Amounts paid to John Hancock Funds by any class of shares of the Fund will not
be used to pay the expenses incurred with respect to any other class of shares
of the Fund; provided, however, that expenses attributable to the Fund as a
whole will be allocated, to the extent permitted by law, according to a formula
based upon gross sales dollars and/or average daily net assets of each such
class, as may be approved from time to time by vote of a majority of Trustees.
From time to time, the Fund may participate in joint distribution activities
with other Funds and the costs of those activities will be borne by each Fund in
proportion to the relative net asset value of the participating Funds.
During the period ended October 31, 1996, the Fund paid John Hancock Funds the
following amounts of expenses with respect to the Class A and Class B shares of
the Fund:
<TABLE>
<CAPTION>
Expense Items
Printing and
Global Mailing of Compensation Expenses of Interest,
Technology Prospectuses to to Selling John Hancock Carrying or Other
Fund Advertising New Shareholders Brokers Funds Finance Charges
- ---- ----------- ---------------- ------- ----- ---------------
<S> <C> <C> <C> <C> <C>
Class A Shares 58,056 9,352 143,800 189,788 $ -
Class B Shares 49,682 4,210 65,510 159,951 94,796
</TABLE>
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.
30
<PAGE>
Equity securities traded on a principal exchange or NASDAQ National Market
Issues are generally valued at last sale price on the day of valuation.
Securities in the aforementioned category for which no sales are reported and
other securities traded over-the-counter are generally valued at the last
available bid price.
Short-term debt investments which have a remaining maturity of 60 days or less
are generally valued at amortized cost which approximates market value. If
market quotations are not readily available or if in the opinion of the Adviser
any quotation or price is not representative of true market value, the fair
value of the security may be determined in good faith in accordance with
procedures approved by the Trustees.
Foreign securities are valued on the basis of quotations from the primary market
in which they are traded. Any assets or liabilities expressed in terms of
foreign currencies are translated into U.S. dollars by the custodian bank based
on London currency exchange quotations as of 5:00 p.m., London time (12:00 noon,
New York time) on the date of any determination of the Fund's NAV. If quotations
are not readily available, or the value has been materially affected by events
occurring after the closing of a foreign market, assets are valued by a method
that the Trustees believe accurately reflects fair value.
The NAV for each fund and class is determined each business day at the close of
regular trading on the New York Stock Exchange (typically 4:00 p.m. Eastern
time) by dividing a class's net assets by the number of its shares outstanding.
On any day an international market is closed and the New York Stock Exchange is
open, any foreign securities will be valued at the prior day's close with the
current day's exchange rate. Trading of foreign securities may take place on
Saturdays and U.S. business holidays on which 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
Shares of the Fund are offered at a price equal to their net asset value plus a
sales charge which, at the option of the purchaser, may be imposed either at the
time of purchase (the "initial sales charge alternative") or on a contingent
deferred basis (the "deferred sales charge alternative"). Share certificates
will not be issued unless requested by the shareholder in writing, and then they
will only be issued for full shares. The Trustees reserve the right to change or
waive the Fund's minimum investment requirements and to reject any order to
purchase shares (including purchase by exchange) when in the judgment of the
Adviser such rejection is in the Fund's best interest.
The sales charges applicable to purchases of Class A 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 John Hancock Signature Services, Inc.
("Signature Services") is notified by the investor's dealer or the investor at
the time of the purchase, the cost of the Class A shares owned.
Without Sales Charge. Class A shares may be offered without a front-end sales
charge or CDSC to various individuals and institutions as follows:
31
<PAGE>
* 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.*
* 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.*
* A Trustee or officer of the Trust; a Director or officer of the
Adviser and its affiliates or Selling Brokers; employees or sales
representatives of any of the foregoing; retired officers, employees or
Trustees of any of the foregoing; a member of the immediate family
(spouse, children, grandchildren, mother, father, sister, brother,
mother-in-law, father-in-law) of any of the foregoing; or any fund,
pension, profit sharing or other benefit plan for the individuals
described above.
* 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.
* 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.
* A member of an approved affinity group financial services plan.*
* A member of a class action lawsuit against insurance companies who is
investing settlement proceeds.
* Retirement plans participating in Merrill Lynch servicing
programs, if the Plan has more than $3 million in assets or 500 eligible
employees at the date the Plan Sponsor signs the Merrill Lynch
Recordkeeping Service Agreement. See your Merrill Lynch financial
consultant for further information.
* 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 to $4,999,999 1.00%
Next $5 million to $9,999,999 0.50%
Amounts to $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.
* For investments made under these provisions, John Hancock Funds may make a
payment out of its own resources to the Selling Broker in an amount not to
exceed 0.25% of the amount invested.
Combination Privilege. In calculating the sales charge applicable to purchases
of Class A shares made at one time, the purchases will be combined to reduce
sales charges if made by (a) an individual, his or her spouse and their children
under the age of 21, purchasing securities for his or their own account, (b) a
trustee or other fiduciary purchasing for a single trust, estate or fiduciary
account and (c) groups which qualify for the Group Investment Program (see
below). Further information about combined purchases, including certain
restrictions on combined group purchases, is available from Signature Services
or Selling Broker's representative.
Accumulation Privilege. Investors (including investors combining purchases) who
are already Class A shareholders may also obtain the benefit of the reduced
sales charge by taking into account not only the amount then being invested but
also the purchase price or current account value of the Class A shares of all
John Hancock funds which carry a sales charge already held by such person. Class
A shares of John Hancock money market funds will only be eligible for the
accumulation privilege if the investor has previously paid a sales charge on the
amount of those shares.
Group Investment Program. Under the Combination and Accumulation Privileges, all
members of a group may combine their individual purchases of Class A shares to
potentially qualify for breakpoints in the sales charge schedule. This feature
is provided to any group which (1) has been in existence for more than six
months, (2) has a legitimate purpose other than the purchase of mutual fund
shares at a discount for its members, (3) utilizes salary deduction or similar
group methods of payment, and (4) agrees to allow sales materials of the fund in
its mailings to members at a reduced or no cost to John Hancock Funds.
Letter of Intention. Reduced sales charges are also applicable to investments
pursuant to a Letter of Intention ("LOI"), which should be read carefully prior
to its execution by an investor. The Fund offers two options regarding the
specified period for making investments under the LOI. All investors have the
option of making their investments over a period of thirteen 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 IRAs, 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 Signature Services. The
sales charge applicable to all amounts invested under the LOI is computed as if
33
<PAGE>
the aggregate amount intended to be invested had been invested immediately. If
such aggregate amount is not actually invested, the difference in the sales
charge actually paid and the sales charge payable had the LOI not been in effect
is due from the investor. However, for the purchases actually made within the
specified period (either 13 or 48 months), the sales charge applicable will not
be higher than that which would have applied (including accumulations and
combinations) had the LOI been for the amount actually invested.
The LOI authorizes Signature Services to hold in escrow sufficient Class A
shares (approximately 5% of the aggregate) to make up any difference in sales
charges on the amount intended to be invested and the amount actually invested,
until such investment is completed within the specified period, at which time
the escrowed Class A shares will be released. If the total investment specified
in the LOI is not completed, the Class A shares held in escrow may be redeemed
and the proceeds used as required to pay such sales charge as may be due. By
signing the LOI, the investor authorizes Signature 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 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. No CDSC will be imposed on increases in account value
above the initial purchase prices, including all shares derived from
reinvestment of dividends or capital gains distributions.
Class B shares are not available to full-service defined contribution plans
administered by Signature Services or the Life Company that had more than 100
eligible employees at the inception of the Fund account.
The amount of the CDSC, if any, will vary depending on the number of years from
the time of payment for the purchase of Class B shares until the time of
redemption of such shares. Solely for purposes of determining 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 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. However, you cannot redeem appreciation value only in order to avoid a
CDSC.
34
<PAGE>
When requesting a redemption for a specific dollar amount, please indicate if
you require the proceeds to equal the dollar amount requested. If not indicated,
only the specified dollar amount will be redeemed from your account and the
proceeds will be less any applicable CDSC.
Example:
You have purchased 100 shares at $10 per share. The second year after your
purchase, your investment's net asset value per share has increased by $2 to
$12, and you have gained 10 additional shares through dividend reinvestment. If
you redeem 50 shares at this time your CDSC will be calculated as follows:
* Proceeds of 50 shares redeemed at $12 per share $600
* Minus proceeds of 10 shares not subject to CDSC
(dividend reinvestment) -120
* Minus appreciation on remaining shares (40 shares X $2) -80
-----
* Amount subject to CDSC $400
Proceeds from the CDSC are paid to John Hancock Funds and are used in whole or
in part by 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.
Waiver of Contingent Deferred Sales Charge. The CDSC will be waived on
redemptions of Class B shares and of Class A shares that are subject to a CDSC,
unless indicated otherwise, in the circumstances defined below.
For all account types:
* Redemptions made pursuant to the Fund's right to liquidate your account
if you own shares worth less than $1,000.
* Redemptions made under certain liquidation, merger or acquisition
transactions involving other investment companies or personal holding
companies.
* Redemptions due to death or disability.
* Redemptions made under the Reinstatement Privilege, as described in
"Sales Charge Reductions and Waivers" of the Prospectus.
* Redemptions of Class B shares made under a periodic withdrawal plan, as
long as your annual redemptions do not exceed 12% of your account
value, including reinvested dividends, at the time you established your
periodic withdrawal plan and 12% of the value of subsequent investments
(less redemptions) in that account at the time you notify Signature
Services. (Please note that this waiver does not apply to periodic
withdrawal plan redemptions of Class A shares that are subject to a
CDSC.)
* Redemptions by Retirement plans participating in Merrill Lynch
servicing programs, if the Plan has less than $3 million in assets or
500 eligible employees at the date the Plan Sponsor signs the Merrill
Lynch Recordkeeping Service Agreement. See your Merrill Lynch financial
consultant for further information.
35
<PAGE>
For Retirement Accounts (such as IRA, SIMPLE, 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>
CDSC Waiver Matrix for Class B Funds
- --------------------- ------------------ ----------------- ---------------- ---------------- -----------------
Type of 401 (a) Plan 403 (b) 457 IRA, IRA Non-
Distribution (401 (k), MPP, Rollover retirement
PSP)
- --------------------- ------------------ ----------------- ---------------- ---------------- -----------------
<S> <C> <C> <C> <C> <C>
Death or Waived Waived Waived Waived Waived
Disability
- --------------------- ------------------ ----------------- ---------------- ---------------- -----------------
Over 701/2 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 591/2 Waived Waived Waived Waived for 12% of account
and 70 1/2 Life value annually
Expectancy or in periodic
12% of account payments
value annually
in periodic
payments
- --------------------- ------------------ ----------------- ---------------- ---------------- -----------------
Under 591/2 Waived Waived for Waived for Waived for 12% of account
annuity annuity annuity value annually
payments (72+) payments (72+) payments (72+) in periodic
or 12% of or 12% of or 12% of payments
account value account value account value
annually in annually in annually in
periodic periodic periodic
payments payments payments
- --------------------- ------------------ ----------------- ---------------- ---------------- -----------------
Loans Waived Waived N/A N/A N/A
- --------------------- ------------------ ----------------- ---------------- ---------------- -----------------
Termintion 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 CDSC waiver under one of these situations, you must notify
Signature Services at the time you make your redemption. The waiver will be
granted once Signature Services has confirmed you are entitled to the waiver.
SPECIAL REDEMPTIONS
Although it would not normally do so, the Fund has the right to pay the
redemption price of shares of the Fund in whole or in part in portfolio
securities as prescribed by the Trustees. When the shareholder sells portfolio
securities received in this fashion, he would incur a brokerage charge. Any such
37
<PAGE>
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 John Hancock fund offering that class.
Exchanges between funds with shares that are not subject to a CDSC are based on
their respective net asset values. No sales charge or transactions charge is
imposed. Shares of the Fund which are subject to a CDSC may be exchanged into
shares of any of the other John Hancock funds that are subject to a CDSC without
incurring the CDSC; however, the shares acquired in an exchange will be subject
to the CDSC schedule of the shares acquired if and when such shares are redeemed
(except that shares exchanged into John Hancock Short-Term Strategic Income Fund
and John Hancock Intermediate Maturity Government Fund will retain the exchanged
fund's CDSC schedule). For purposes of computing the CDSC payable upon
redemption of shares acquired in an exchange, the holding period of the original
shares is added to the holding period of the shares acquired in an exchange.
If a shareholder exchanges Class B shares purchased prior to January 1, 1994
(except John Hancock Short-Term Strategic Income Fund) for Class B shares of any
other John Hancock fund, the acquired shares will continue to be subject to the
CDSC schedule that was in effect when the exchanged shares were purchased.
The Fund reserves the right to require that previously exchanged shares (and
reinvested dividends) be in the Fund for 90 days before a shareholder is
permitted a new exchange.
The Fund may refuse any exchange order. The Fund may changed or cancel its
exchange policies at any time, upon 60 days' notice to its shareholders.
An exchange of shares is treated as a redemption of shares of one fund and the
purchase of shares of another for Federal Income Tax purposes. An exchange may
result in a taxable gain or loss. See "TAX STATUS".
Systematic Withdrawal Plan. The Fund permits the establishment of a Systematic
Withdrawal Plan. Payments under this plan represent proceeds arising from the
redemption of Fund shares. Since the redemption price of the Fund shares may be
more or less than the shareholder's cost, depending upon the market value of the
securities owned by the Fund at the time of redemption, the distribution of cash
pursuant to this plan may result in realization of gain or loss for purposes of
Federal, state and local income taxes. The maintenance of a Systematic
Withdrawal Plan concurrently with purchases of additional Class A or Class B
shares of the Fund could be disadvantageous to a shareholder because of the
initial sales charge payable on 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 Signature Services.
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<PAGE>
Monthly Automatic Accumulation Program ("MAAP"). The program is explained in the
Prospectus. The program, as it relates to automatic investment checks, is
subject to the following conditions:
The investments will be drawn on or about the day of the month indicated.
The privilege of making investments through the MAAP may be revoked by Signature
Services without prior notice if any investment is not honored by the
shareholder's bank. The bank shall be under no obligation to notify the
shareholder as to the non-payment of any checks.
The program may be discontinued by the shareholder either by calling Signature
Services or upon written notice to Signature Services which is received at least
five (5) business days prior to the due date of any investment.
Reinstatement and Reinvestment Privilege. If Signature Services is notified
prior to reinvestment, a shareholder who has redeemed Fund shares may, within
120 days after the date of redemption, reinvest without payment of a sales
charge any part of the redemption proceeds in shares of the same class of the
Fund or another John Hancock fund, subject to the minimum investment limit 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 John Hancock fund. If a CDSC was paid upon
redemption, a shareholder may reinvest the proceeds from this redemption at net
asset value in additional shares of the class from which the redemption was
made. The shareholder's account will be credited with the amount of any CDSC
charged upon the prior redemption and the new shares will continue to be subject
to the CDSC. The holding period of the shares acquired through reinvestment
will, for purposes of computing the CDSC payable upon a subsequent redemption,
include the holding period of the redeemed shares.
To protect the interests of other investors in the Fund, the Fund may cancel the
reinvestment privilege of any parties that, in the opinion of the Fund, are
using market timing strategies or making more than seven exchanges per owner or
controlling party per calendar year. Also, the Fund may refuse any reinvestment
request.
The Fund may change or cancel its reinvestment policies at any time.
A redemption or exchange of Fund shares is a taxable transaction for Federal
income tax purposes even if the reinvestment privilege is exercised, and any
gain or loss realized by a shareholder on the redemption or other disposition of
Fund shares will be treated for tax purposes as described under the caption "TAX
STATUS".
Retirement plans participating in Merrill Lynch's servicing programs:
Class A shares are available at net asset value for plans with $3 million in
plan assets or 500 eligible employees at the date the Plan Sponsor signs the
Merrill Lynch Recordkeeping Service Agreement. If the plan does not meet either
of these limits, Class A shares are not available.
For participating retirement plans investing in Class B shares, shares will
convert to Class A shares after eight years, or sooner if the plan attains
assets of $5 million (by means of a CDSC-free redemption/purchase at net asset
value).
39
<PAGE>
DESCRIPTION OF THE FUND'S SHARES
The Trustees of the Trust are responsible for the management and supervision of
the Fund. The Declaration of Trust permits the Trustees to issue an unlimited
number of full and fractional shares of beneficial interest of the Fund, without
par value. Under the Declaration of Trust, the Trustees have the authority to
create and classify shares of beneficial interest in separate series, without
further action by shareholders. As of the date of this Statement of Additional
Information, the Trustees have authorized shares of the Fund and one other
series. Additional series may be added in the future. The Declaration of Trust
also authorizes the Trustees to classify and reclassify the shares of the Fund
or any new series of the Trust, into one or more classes. As of the date of this
Statement of Additional Information, the Trustees have authorized the issuance
of two classes of shares of the Fund, designated as Class A and Class B.
The shares of each class of the Fund represent an equal proportionate interest
in the aggregate net assets attributable to that class of the Fund. Holders of
Class A and Class B shares have certain exclusive voting rights on matters
relating to their respective distribution plans. The different classes of the
Fund may bear different expenses relating to the cost of holding shareholder
meetings necessitated by the exclusive voting rights of any class of shares.
Dividends paid by the Fund, if any, with respect to each class of shares will be
calculated in the same manner, at the same time and on the same day and will be
in the same amount, except for differences resulting from the facts that (i) the
distribution and service fees relating to Class A and Class B shares will be
borne exclusively by that class; (ii) Class B shares will pay higher
distribution and service fees than Class A shares; and (iii) each of Class A and
Class B shares will bear any class expenses properly allocable to that class of
shares, subject to the conditions the Internal Revenue Service imposes with
respect to multiple-class structures. Similarly, the net asset value per share
may vary depending on whether Class A or Class B shares are purchased.
No interest will be paid on uncashed dividend or redemption checks.
In the event of liquidation, shareholders of each class are entitled to share
pro rata in the net assets of the Fund available for distribution to these
shareholders. Shares entitle their holders to one vote per share, are freely
transferable and have no preemptive, subscription or conversion rights. When
issued, shares are fully paid and non-assessable, except as set forth below.
Unless otherwise required by the Investment Company Act or the Declaration of
Trust, the Fund has no intention of holding annual meetings of shareholders.
Fund shareholders may remove a Trustee by the affirmative vote of at least
two-thirds of the Trust's outstanding shares and the Trustees shall promptly
call a meeting for such purpose when requested to do so in writing by the record
holders of not less than 10% of the outstanding shares of the Trust.
Shareholders may, under certain circumstances, communicate with other
shareholders in connection with requesting a special meeting of shareholders.
However, at any time that less than a majority of the Trustees holding office
were elected by the shareholders, the Trustees will call a special meeting of
shareholders for the purpose of electing Trustees.
Under Massachusetts law, shareholders of a Massachusetts business trust could,
under certain circumstances, be held personally liable for acts or obligations
of the Trust. However, the Fund's Declaration of Trust contains an express
disclaimer of shareholder liability for acts, obligations and affairs of the
Fund. The Declaration of Trust also provides for indemnification out of the
Fund's assets for all losses and expenses of any shareholder held personally
liable by reason of being or having been a shareholder. The Declaration of Trust
also provides that no series of the Trust shall be liable for the liabilities of
any other series. Furthermore, no fund included in this Fund's prospectus shall
40
<PAGE>
be liable for the liabilities of any other John Hancock fund. Liability is
therefore limited to circumstances in which the Fund itself would be unable to
meet its obligations, and the possibility of this occurrence is remote.
The Fund reserves the right to reject any application which conflicts with the
Fund's internal policies or the policies of any regulatory authority. John
Hancock Funds does not accept credit card checks. Use of information provided on
the account application may be used by the Fund to verify the accuracy of the
information or for background or financial history purposes. A joint account
will be administered as a joint tenancy with right of survivorship, unless the
joint owners notify Signature Services of a different intent. A shareholder's
account is governed by the laws of The Commonwealth of Massachusetts.
TAX STATUS
Each series of the Trust, 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.
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
41
<PAGE>
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.
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
42
<PAGE>
distributions, reduced below the investor's cost for such shares and the
distributions in reality represent a return of a portion of the purchase price.
Upon a redemption of shares of the Fund (including by exercise of the exchange
privilege) a shareholder will ordinarily realize a taxable gain or loss
depending upon the amount of the proceeds and the investor's basis in his
shares. Such gain or loss will be treated as capital gain or loss if the shares
are capital assets in the shareholder's hands and will be long-term or
short-term, depending upon the shareholder's tax holding period for the shares
and subject to the special rules described below. A sales charge paid in
purchasing Class A shares of the Fund cannot be taken into account for purposes
of determining gain or loss on the redemption or exchange of such shares within
90 days after their purchase to the extent Class A shares of the Fund or another
John Hancock fund are subsequently acquired without payment of a sales charge
pursuant to the reinvestment or exchange privilege. 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 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
43
<PAGE>
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 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
44
<PAGE>
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.
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
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<PAGE>
treatment that is different from that described above. These investors may be
subject to nonresident alien withholding tax at the rate of 30% (or a lower rate
under an applicable tax treaty) on amounts treated as ordinary dividends from
the Fund and, unless an effective IRS Form W-8 or authorized substitute for Form
W-8 is on file, to 31% backup withholding on certain other payments from the
Fund. Non-U.S. investors should consult their tax advisers regarding such
treatment and the application of foreign taxes to an investment in the Fund.
Provided that the Fund qualifies as a regulated investment company under the
Code, it will not be required to pay Massachusetts corporate excise or franchise
taxes.
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 October 31, 1996 was (3.11)%, 18.43% and
12.50%, respectively.
The average annual total return of the Class B shares of the Fund for the 1 year
period ended October 31, 1996 and since inception on January 3, 1994 was (3.70)%
and 19.21%, respectively.
Total return is computed by finding the average annual compounded rate of return
over the 1 year, 5 year and 10 year periods that would equate the initial amount
invested to the ending redeemable value according to the following formula:
n ___________
T = \/ERV / P - 1
Where:
P = a hypothetical initial investment of $1,000.
T = average annual total return.
n = number of years.
ERV = ending redeemable value of a hypothetical $1,000 investment
made at the beginning of the 1, 5 and 10 year periods.
Because each share has its own sales charge and fee structure, the classes have
different performance results. In the case of Class A or Class B shares, this
calculation assumes the maximum sales charge is included in the initial
investment or the CDSC is applied at the end of the period, respectively. This
calculation assumes that all dividends and distributions are reinvested at net
asset value on the reinvestment dates during the period. The "distribution rate"
is determined by annualizing the result of dividing the declared dividends of
the Fund during the period stated by the maximum offering price or net asset
value at the end of the period. Excluding the fund's sales charge from the
distribution rate produces a higher rate.
In addition to average annual total returns, the Fund may quote unavereaged or
cumulative total returns reflecting the simple change in value of an investment
over a stated period. Cumulative total returns may be quoted as a percentage or
as a dollar amount, and may be calculated for a single investment, a series of
investments, and/or a series of redemptions,, over any time period. Total
returns may be quoted with or without taking the Fund's sales charge on Class A
shares or the CDSC on Class B shares into account. Excluding the Fund's sales
46
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charge on Class A shares and the CDSC on Class B shares from a total return
calculation produces a higher total return figure.
From time to time, in reports and promotional literature, the Fund's total
return will be compared to indices of mutual funds such as Lipper Analytical
Services, Inc.'s "Lipper-Mutual Fund Performance Analysis," a monthly
publication which tracks net assets and total return on 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
JOUNRAL, MICROPAL, INC., MORNING STAR INC., STANGER'S BARRON'S, etc., will also
be utilized. The Fund's promotional and sales literature may make reference to
the fund's "beta". Beta is a reflection of the market related risk of the Fund
by showing how responsive the Fund is to the market.
The performance of the Fund is not fixed or guaranteed. Performance quotations
should not be considered to be representations of performance of the Fund for
any period in the future. The performance of the Fund is a function of many
factors including its earnings, expenses and number of outstanding shares.
Fluctuating market conditions; purchases, sales and maturities of portfolio
securities; sales and redemptions of shares of 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 an investment committee of the Adviser which consists of
officers and directors of the Adviser, Sub-Adviser and officers and Trustees who
are interested persons of the Trust. Orders for purchases and sales of
securities are placed in a manner, which, in the opinion of the Adviser, will
offer the best price and market for the execution of each such transaction.
Purchases from underwriters of portfolio securities may include a commission or
commissions paid by the issuer and transactions with dealers serving as market
makers reflect a "spread." Investments in debt securities are generally traded
on a net basis through dealers acting for their own account as principals and
not as brokers; no brokerage commissions are payable on such transactions.
In the U.S. and in some other countries, debt securities are traded principally
in the over-the-counter market on a net basis through dealers acting for their
own account and not as brokers. In other countries, both debt and equity
securities are traded on exchanges at fixed commission rates. Commissions on
foreign transactions are generally higher than the negotiated commission rates
available in the U.S. There is generally less government supervision and
regulation of foreign stock exchanges and broker-dealers than in the U.S.
The Fund's primary policy is to execute all purchases and sales of portfolio
instruments at the most favorable prices consistent with best execution,
considering all of the costs of the transaction including brokerage commissions.
This policy governs the selection of brokers and dealers and the market in which
a transaction is executed. Consistent with the foregoing primary policy, the
Rules of Fair Practice of the National Association of Securities Dealers, Inc.
and other policies as the Trustees 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 Trustees. During the fiscal year ended
December 31, 1994 and 1995, the Fund paid total brokerage commissions, excluding
spreads or commissions on principal transactions, of $81,677 and $102,799,
respectively. During the period ended from January 1, 1996 to October 31, 1996,
the Fund paid total brokerage commissions, excluding spreads or commissions on
principal transactions of $178,841.
As permitted by Section 28(e) of the Securities Exchange Act of 1934, the Fund
may pay to a broker which provides brokerage and research services to the Fund
an amount of disclosed commission in excess of the commission which another
broker would have charged for effecting that transaction. This practice is
subject to a good faith determination by the Trustees that the price is
reasonable in light of the services provided and policies as the Trustees may
adopt from time to time. During the fiscal year ended October 31, 1996, the Fund
directed commissions in the amount of $47,250 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 Distributors, Inc., a broker-dealer ("Distributors"
or "Affiliated Broker). Pursuant to procedures determined by the Trustees and
consistent with the above policy of obtaining best net results, the Fund may
execute portfolio transactions with or through Affiliated Brokers. For the
fiscal year ended October 31, 1996, the Fund paid no brokerage commissions to
any Affiliated Broker.
Distributors may act as broker for the Fund on exchange transactions, subject,
however, to the general policy of the Fund set forth above and the procedures
adopted by the Trustees pursuant to the Investment Company Act. Commissions paid
to an Affiliated Broker must be at least as favorable as those which the
Trustees believe to be contemporaneously charged by other brokers in connection
with comparable transactions involving similar securities being purchased or
sold. A transaction would not be placed with an Affiliated Broker if the Fund
would have to pay a commission rate less favorable than the Affiliated Broker's
contemporaneous charges for comparable transactions for its other most favored,
but unaffiliated, customers except for accounts for which the Affiliated Broker
acts as clearing broker and comparable to the Fund as determined by a majority
of the Trustees who are not interested persons (as defined in the Investment
Company Act) of the Fund, the Adviser, or the Affiliated Broker. Because the
Adviser, which is affiliated with the Affiliated Brokers, has, as an investment
adviser to the Fund, the obligation to provide investment management services,
which includes elements of research and related investment skills, such research
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and related skills will not be used by the Affiliated Brokers as a basis for
negotiating commissions at a rate higher than that determined in accordance with
the above criteria.
Other investment advisory clients advised by the Adviser may also invest in the
same securities as the Fund. When these clients buy or sell the same securities
at substantially the same time, the Adviser may average the transactions as to
price and allocate the amount of available investments in a manner which the
Adviser believes to be equitable to each client, including the Fund. In some
instances, this investment procedure may adversely affect the price paid or
received by the Fund or the size of the position obtainable for it. On the other
hand, to the extent permitted by law, the Adviser may aggregate the securities
to be sold or purchased for the Fund with those to be sold or purchased for
other clients managed by it in order to obtain best execution.
TRANSFER AGENT SERVICES
John Hancock Signature Services, Inc., 1 John Hancock Way, Suite 1000, Boston,
MA 02217- 1000, a wholly-owned indirect subsidiary of the Life Company, is the
transfer and dividend paying agent for the Fund. The Fund pays Signature
Services an annual fee of $19.00 for each Class A shareholder and $21.50 for
each Class B shareholder, plus certain out-of- pocket expenses. These expenses
are aggregated and charged to the Fund and allocated to each class on the basis
of their relative net asset values.
CUSTODY OF PORTFOLIO
Portfolio securities of the Fund are held pursuant to a custodian agreement
between the Fund and Investors Bank & Trust Company, 200 Clarendon Street,
Boston, Massachusetts 02116. 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, 200 Clarendon
Street, Boston, Massachusetts 02116. 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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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.
*As described by the rating companies themselves.
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
A-1
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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
