REGISTRATION NO. 2-90305
REGISTRATION NO. 811-3999
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM N-1A
---------
REGISTRATION STATEMENT UNDER
THE SECURITIES ACT OF 1933 [X]
Pre-Effective Amendment No. [ ]
Post-Effective Amendment No. 35 [X]
and/or
REGISTRATION STATEMENT UNDER
THE INVESTMENT COMPANY ACT OF 1940 [X]
AMENDMENT NO. 35
(check appropriate box or boxes)
---------
FREEDOM INVESTMENT TRUST
(Exact name of Registrant as Specified in Charter)
101 Huntington Avenue
Boston, Massachusetts 02199-7603
(address of Principal Executive Officers)
Registrant's Telephone Number, including Area Code (617) 375-1700
----------
THOMAS H. DROHAN
Senior Vice President and Secretary
John Hancock Advisers, Inc.
101 Huntington Avenue
Boston, Massachusetts 02199-7603
(Name and Address of Agent for Service)
---------
It is proposed that this filing will become effective (check appropriate box)
[ ] immediately upon filing pursuant to paragraph (b)
[ ] on (date) pursuant to paragraph (b)
[ ] 60 days after filing pursuant to paragraph (a)
[X] on July 1, 1996 pursuant to paragraph (a) of Rule 485
Pursuant to Rule 24f-2 under the Investment Company Act of 1940, Registrant
has registered an indefinite number of shares under the Securities Act of 1933.
The Registrant filed the notice required by Rule 24f-2 for its most recent
fiscal year on or about December 26, 1995.
<PAGE>
<TABLE>
<CAPTION>
Item Number Form N-1A, Statement of Additional
Part A Prospectus Caption Information Caption
------ ------------------ -------------------
<S> <C> <C>
1 Front Cover Page *
2 Overview; Investor Expenses; *
3 Financial Highlights *
4 Overview; Goal and Strategy; Portfolio *
Securities; Risk Factors; Business
Structure; More About Risk
5 Overview; Business Structure; *
Manager/Subadviser; Investor Expenses
6 Choosing a Share Class; Buying Shares; *
Selling Shares; Transaction Policies;
Dividends and Account Policies;
Additional Investor Services
7 Choosing a Share Class; How Sales Charges *
are Calculated; Sales Charge Deductions
and Waivers; Opening an Account; Buying
Shares; Transaction Policies; Additional
Investor Services
8 Selling Shares; Transaction Policies; *
Dividends and Account Policies
9 Not Applicable *
10 * Front Cover Page
11 * Table of Contents
12 * Organization of the Fund
13 * Investment Objectives and Policies;
Certain Investment Practices;
Investment Restrictions
14 * Those Responsible for Management
15 * Those Responsible for Management
16 * Investment Advisory; Subadvisory
and Other Services; Distribution
Contract; Transfer Agent Services;
Custody of Portfolio; Independent
Auditors
17 * Brokerage Allocation
18 * Description of Fund's Shares
19 * Net Asset Value; Additional
Services and Programs
20 * Tax Status
21 * Distribution Contract
22 * Calculation of Performance
23 * Financial Statements
</TABLE>
<PAGE>
JOHN HANCOCK
GROWTH
FUNDS
[LOGO]
- -------------------------------------------------------------------------------
PROSPECTUS DISCIPLINED GROWTH FUND
JULY 1, 1996
DISCOVERY FUND
This prospectus gives vital information
about these funds. For your own benefit EMERGING GROWTH FUND
and protection, please read it before
you invest, and keep it on hand for GROWTH FUND
future reference.
REGIONAL BANK FUND
Please note that these funds:
* are not bank deposits SPECIAL EQUITIES FUND
* are not federally insured
* are not endorsed by any bank or SPECIAL OPPORTUNITIES FUND
government agency
* are not guaranteed to achieve
their goal(s)
Like all mutual fund shares, these
securities have not been approved
or disapproved by the Securities
and Exchange Commission or any
state securities commission, nor has
the Securities and Exchange
Commission or any state securities
commission passed upon the accuracy
or adequacy of this prospectus.
Any representation to the contrary [LOGO] JOHN HANCOCK FUNDS
is a criminal offense. A GLOBAL INVESTMENT MANAGEMENT FIRM
101 Huntington Avanue,
Boston, Massachusetts 02199-7603
<PAGE>
<TABLE>
CONTENTS
- -------------------------------------------------------------------------------
<S> <C> <C>
A fund-by-fund look at goals, DISCIPLINED GROWTH FUND 4
strategies, risks, expenses and
financial history. DISCOVERY FUND 6
EMERGING GROWTH FUND 8
GROWTH FUND 10
REGIONAL BANK FUND 12
SPECIAL EQUITIES FUND 14
SPECIAL OPPORTUNITIES FUND 16
Policies and instructions for opening, YOUR ACCOUNT
maintaining and closing an account Choosing a share class 18
in any growth fund. How sales charges are calculated 18
Sales charge reductions and waivers 19
Opening an account 19
Buying shares 20
Selling shares 21
Transaction policies 22
Dividends and account policies 23
Additional investor services 24
Details that apply to the growth FUND DETAILS
funds as a group. Business structure 25
Sales compensation 26
More about risk 27
Higher risk securities and
practices 29
FOR MORE INFORMATION BACK COVER
</TABLE>
<PAGE>
OVERVIEW
- --------------------------------------------------------------------------------
GOAL OF THE GROWTH FUNDS
John Hancock growth funds seek long-term growth by investing primarily in common
stocks. Each fund employs its own strategy and has its own risk/reward profile.
Because you could lose money by investing in these funds, be sure to read all
risk disclosure carefully before investing.
WHO MAY WANT TO INVEST
John Hancock growth funds may be appropriate for:
- - investors with longer time horizons
- - investors willing to accept higher short-term risk in exchange for higher
potential long-term returns
- - investors who want to diversify their portfolios
- - investors seeking funds for the growth portion of an asset allocation
portfolio
- - retirement investors or others whose goals are many years in the future
Growth funds may NOT be appropriate if you:
- - are investing with a shorter time horizon in mind
- - are uncomfortable with an investment that will go up and down in value
PORTFOLIO MANAGEMENT
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 $16 billion in assets.
FUND INFORMATION KEY
Concise fund-by-fund descriptions begin on the next page. Each description
provides the following information:
[A graphic image of a bullseye with an arrow in the middle of it.] GOAL AND
STRATEGY The fund's particular investment goals and the strategies it intends
to use in pursuing those goals.
[A graphic image of a black folder that contains a couple sheets of paper.]
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.
[A graphic image of a line chart with a single line that depicts some peaks and
valleys.] RISK FACTORS The major risk factors associated with the fund.
[A graphic image of a generic person.] PORTFOLIO MANAGER The individual or
group (including subadvisers, if any) designated by the investment adviser to
handle the fund's day-to-day management.
[A graphic image of a percent symbol.] EXPENSES The overall costs borne by an
investor in the fund, including sales charges and annual expenses.
[A graphic image of a dollar sign.] FINANCIAL HIGHLIGHTS A table showing the
fund's financial performance for up to ten years, by share class. There is also
a bar graph of year-by-year total return which is intended to show the fund's
volatility in recent years.
<PAGE>
DISCIPLINED GROWTH FUND
<TABLE>
<S> <C> <C> <C>
REGISTRANT NAME:FREEDOM INVESTMENT TRUST TICKER SYMBOL CLASS A:SVAAX CLASSB:FEQVX
- ----------------------------------------------------------------------------------------
</TABLE>
GOAL AND STRATEGY
[A graphic image of a bullseye with an arrow in the middle of it.] The fund
seeks long-term capital appreciation. To pursue this goal, the fund invests in
established, growing companies that have demonstrated superior earnings growth
and stability. In normal circumstances the fund will invest at least 65% of its
assets in these companies, without concentration in any one industry. The fund
also looks for the following characteristics:
- - a low level of debt
- - seasoned management
- - a strong market position
The fund invests for income as a secondary goal.
PORTFOLIO SECURITIES
[A graphic image of a black folder that contains a couple sheets of paper.] 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. The fund expects any foreign investments to remain below 10% of
assets. For liquidity and flexibility, the fund may place up to 15% of its net
assets in cash or in short-term investment-grade securities; in abnormal market
conditions, it may invest up to 80% in these securities as a defensive tactic.
To a limited extent, the fund also may invest in certain higher risk securities,
and may engage in other investment practices. For details, see "More about risk"
at the end of this prospectus.
RISK FACTORS
[A graphic image of a line chart with a single line that depicts some peaks and
valleys.] As with any growth fund, the value of your investment will fluctuate
with the performance of the stock market and the success or failure of the
fund's investment strategies. To the extent that the fund invests in restricted
securities, foreign securities, and junk bonds, it takes on additional risks
which could adversely affect its performance.
PORTFOLIO MANAGERS
[A graphic image of a generic person.] Thomas Weary and John Snyder III,
leaders of the fund's portfolio management team, are responsible for the
day-to-day investment management of the fund. A vice president of the investment
adviser, Mr. Weary has been a part of the fund's management team since 1992. He
joined John Hancock in 1983. Mr. Snyder is an executive vice president of the
investment adviser and has been a team member since 1992. He has been an
investment manager since 1971.
- --------------------------------------------------------------------------------
INVESTOR EXPENSES
<TABLE>
[A graphic symbol of a percent symbol.] Fund investors pay various expenses,
either directly or indirectly. The figures below show the expenses for the past
year, adjusted to reflect any changes. Future expenses may be greater or less.
<CAPTION>
================================================================================
Shareholder transaction expenses Class A Class B
================================================================================
<S> <C> <C>
Maximum sales charge imposed on purchases
(as a percentage of offering price) 5.00% none
- --------------------------------------------------------------------------------
Maximum sales charge imposed on
reinvested dividends none none
- --------------------------------------------------------------------------------
Maximum deferred sales charge none(1) 5.00%
- --------------------------------------------------------------------------------
Redemption fee(2) none none
- --------------------------------------------------------------------------------
Exchange fee none none
================================================================================
Annual fund operating expenses (as a % of average net assets)
================================================================================
Management fee 0.75% 0.75%
- --------------------------------------------------------------------------------
12b-1 fee(3) 0.30% 1.00%
- --------------------------------------------------------------------------------
Other expenses 0.40% 0.40%
- --------------------------------------------------------------------------------
Total fund operating expenses 1.45% 2.15%
- --------------------------------------------------------------------------------
</TABLE>
<TABLE>
EXAMPLE The table below shows what you would pay if you invested $1,000 over the
various time frames indicated. The example assumes you reinvested all dividends
and that the average annual return was 5%.
<CAPTION>
================================================================================
Share class Year 1 Year 3 Year 5 Year 10
================================================================================
<S> <C> <C> <C> <C>
Class A shares $64 $94 $125 $215
- --------------------------------------------------------------------------------
Class B shares
- --------------------------------------------------------------------------------
Assuming redemption at
end of period $72 $97 $135 $231
- --------------------------------------------------------------------------------
Assuming no redemption $22 $67 $115 $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) May include carry-over of reimbursable costs from previous year(s). Amounts
shown are the fund's current annual maximums for 12b-1 fees. Because of the
12b-1 fee, long-term shareholders may indirectly pay more than the
equivalent of the maximum permitted front-end sales charge.
</TABLE>
4 DISCIPLINED GROWTH FUND
<PAGE>
FINANCIAL HIGHLIGHTS
<TABLE>
[A graphic image of a dollar sign.] The figures below have been audited by the
fund's independent auditors, Price Waterhouse LLP.
VOLATILITY, AS INDICATED BY CLASS B [BAR GRAPH]
YEAR-BY-YEAR TOTAL INVESTMENT RETURN (%)
<CAPTION>
==========================================================================================================
Class A - year ended October 31, 1992(1) 1993 1994 1995
==========================================================================================================
<S> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
- ---------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $12.81 $10.99 $12.39 $12.02
- ---------------------------------------------------------------------------------------------------------
Net investment income (loss) 0.06(2) 0.08(2) 0.10 0.08(2)
- ---------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on investments (0.06) 1.34 0.07 1.29
- ---------------------------------------------------------------------------------------------------------
Total from investment operations 0.00 1.42 0.17 1.37
- ---------------------------------------------------------------------------------------------------------
Less distributions:
- ---------------------------------------------------------------------------------------------------------
Dividends from net investment income (0.07) (0.02) (0.10) (0.10)
- ---------------------------------------------------------------------------------------------------------
Distributions from net realized gain on investments sold (1.74) -- (0.44) (0.52)
- ---------------------------------------------------------------------------------------------------------
Distributions from capital paid-in (0.01) -- -- --
- ---------------------------------------------------------------------------------------------------------
Total distributions (1.82) (0.02) (0.54) (0.62)
- ---------------------------------------------------------------------------------------------------------
Net asset value, end of period $10.99 $12.39 $12.02 $12.77
- ---------------------------------------------------------------------------------------------------------
TOTAL INVESTMENT RETURN AT NET ASSET VALUE(3)(%) 0.19(4) 12.97 1.35 12.21
- ---------------------------------------------------------------------------------------------------------
RATIOS AND SUPPLEMENTAL DATA
- ---------------------------------------------------------------------------------------------------------
Net assets, end of period (000s omitted)($) 1,771 23,372 23,292 27,692
- ---------------------------------------------------------------------------------------------------------
Ratio of expenses to average net assets (%) 1.73(5) 1.60 1.53 1.46
- ---------------------------------------------------------------------------------------------------------
Ratio of net investment income (loss) to average net assets(%) 0.62(5) 0.64 0.83 0.69
- ---------------------------------------------------------------------------------------------------------
Portfolio turnover rate(%) 246 71 60 65
- ---------------------------------------------------------------------------------------------------------
Average brokerage commission rate (%) N/A N/A N/A N/A
- ---------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
=================================================================================================================================
Class B - year ended October 31, 1987(6) 1988 1989 1990 1991 1992 1993 1994 1995
=================================================================================================================================
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
- ---------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of
period $ 10.00 $ 8.34 $ 10.29 $ 11.52 $ 9.22 $ 11.71 $ 10.97 $ 12.31 $ 11.95
- ---------------------------------------------------------------------------------------------------------------------------------
Net investment income (loss) 0.06 0.13 0.19 0.18 0.07 0.01(2) 0.02(2) 0.03 0.01(2)
- ---------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) on investments (1.70) 2.05 1.25 (2.00) 2.67 1.05 1.33 0.07 1.28
- ---------------------------------------------------------------------------------------------------------------------------------
Total from investment
operations (1.64) 2.18 1.44 (1.82) 2.74 1.06 1.35 0.10 1.29
- ---------------------------------------------------------------------------------------------------------------------------------
Less distributions:
- ---------------------------------------------------------------------------------------------------------------------------------
Dividends from net investment
income (0.02) (0.09) (0.12) (0.20) (0.20) (0.03) (0.01) (0.02) (0.03)
- ---------------------------------------------------------------------------------------------------------------------------------
Distributions from net realized
gain on investments sold -- (0.14) (0.09) (0.28) (0.05) (1.76) -- (0.44) (0.52)
- ---------------------------------------------------------------------------------------------------------------------------------
Distributions from capital
paid-in -- -- -- -- -- (0.01) -- -- --
- ---------------------------------------------------------------------------------------------------------------------------------
Total distributions (0.02) (0.23) (0.21) (0.48) (0.25) (1.80) (0.01) (0.46) (0.55)
- ---------------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $ 8.34 $ 10.29 $ 11.52 $ 9.22 $ 11.71 $ 10.97 $ 12.31 $ 11.95 $ 12.69
- ---------------------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENT RETURN AT
NET ASSET VALUE(3) (%) (16.44)(4) 26.69 14.27 (16.46) 30.21 7.22 12.34 0.78 11.51
- ---------------------------------------------------------------------------------------------------------------------------------
RATIOS AND SUPPLEMENTAL DATA
- ---------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period
(000s omitted) ($) 14,016 14,927 23,813 17,714 21,826 23,525 93,853 94,431 86,178
- ---------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to average
net assets (%) 2.56(5,7) 2.61(7) 2.30 2.13 2.24 2.27 2.09 2.10 2.11
- ---------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income
(loss) to average net assets (%) 0.93(5,7) 1.46(7) 1.75 1.64 0.66 0.10 0.17 0.25 0.06
- ---------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate (%) 40(5) 54 94 165 217 246 71 60 65
- ---------------------------------------------------------------------------------------------------------------------------------
Average brokerage commission
rate (%) N/A N/A N/A N/A N/A N/A N/A N/A N/A
- ---------------------------------------------------------------------------------------------------------------------------------
(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) Class B shares commenced operations April 22, 1987.
(7) Net of advisory expense reimbursements per share of $0.01 for the fiscal
year ended October 31, 1988 and less than $.01 for the fiscal year ended
October 31, 1987.
</TABLE>
DISCIPLINED GROWTH FUND 5
<PAGE>
DISCOVERY FUND
<TABLE>
<S> <C> <C> <C>
REGISTRANT NAME: FREEDOM INVESTMENT TRUST III TICKER SYMBOL CLASS A:FRDAX CLASS B:FRIDX
- -----------------------------------------------------------------------------------------------------------
</TABLE>
GOAL AND STRATEGY
[A graphic image of a bullseye with an arrow in the middle of it.] The fund
seeks long-term capital appreciation. To pursue this goal, the fund invests in
companies that appear to offer superior growth prospects. Under normal
circumstances, the fund will invest at least 65% of its assets in these
companies. The fund looks for companies that have broad market opportunities
and consistent or accelerating earnings growth. This may include companies that:
- - occupy a profitable market niche
- - have products or technologies that are new, unique or proprietary
- - are in an industry that has a favorable long-term growth outlook
- - have a capable management team with a significant equity stake
The fund does not invest for income.
PORTFOLIO SECURITIES
[A graphic image of a black folder that contains a couple sheets of paper.]
The fund invests primarily in common stocks of U.S. companies and may also
invest in warrants, preferred stocks and investment-grade convertible debt
securities.
For liquidity and flexibility, the fund may place up to 15% of its net assets in
cash or in short-term investment-grade securities; in abnormal market
conditions, it may invest up to 80% in these securities as a defensive tactic.
The Fund may invest up to 25% of its assets in foreign securities, which carry
additional risks; however, foreign securities typically do not exceed 10% of its
assets. To a limited extent, the fund also may invest in certain higher-risk
securities, including foreign securities, and may engage in other investment
practices. For details, see "More about risk" at the end of this prospectus.
RISK FACTORS
[A graphic image of a line chart that depicts some peaks and valleys.] The
value of an investment in the fund will fluctuate with the performance of the
stock market. Small and medium-sized company stocks tend to be more volatile
than the market as a whole.
PORTFOLIO MANAGER
[A graphic image of a generic person.] Bernice S. Behar, leader of the fund's
portfolio management team since March 1994, is a senior vice president of the
investment adviser. She joined the investment adviser in 1991 and has worked as
an investment professional since 1986.
- --------------------------------------------------------------------------------
INVESTOR EXPENSES
<TABLE>
[A graphic image of a percent symbol.] Fund investors pay various expenses,
either directly or indirectly. The figures below show the expenses for the past
year, adjusted to reflect any changes. Future expenses may be greater or less.
<CAPTION>
================================================================================
Shareholder transaction expenses Class A Class B
================================================================================
<S> <C> <C>
Maximum sales charge imposed on purchases
(as a percentage of offering price) 5.00% none
- --------------------------------------------------------------------------------
Maximum sales charge imposed on
reinvested dividends none none
- --------------------------------------------------------------------------------
Maximum deferred sales charge none(1) 5.00%
- --------------------------------------------------------------------------------
Redemption fee(2) none none
- --------------------------------------------------------------------------------
Exchange fee none none
- --------------------------------------------------------------------------------
================================================================================
Annual fund operating expenses (as a % of average net assets)
================================================================================
Management fee 0.75% 0.75%
- --------------------------------------------------------------------------------
12b-1 fee(3) 0.30% 1.00%
- --------------------------------------------------------------------------------
Other expenses 0.80% 0.80%
- --------------------------------------------------------------------------------
Total fund operating expenses 1.85% 2.55%
- --------------------------------------------------------------------------------
</TABLE>
<TABLE>
EXAMPLE The table below shows what you would pay if you invested $1,000 over the
various time frames indicated. The example assumes you reinvested all dividends
and that the average annual return was 5%.
<CAPTION>
================================================================================
Share class Year 1 Year 3 Year 5 Year 10
================================================================================
<S> <C> <C> <C> <C>
Class A shares $68 $105 $145 $256
- --------------------------------------------------------------------------------
Class B shares
- --------------------------------------------------------------------------------
Assuming redemption at
end of period $76 $109 $155 $271
- --------------------------------------------------------------------------------
Assuming no redemption $26 $ 79 $135 $271
- --------------------------------------------------------------------------------
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) May include carry-over of reimbursable costs from previous year(s). Amounts
shown are the fund's current annual maximums for 12b-1 fees. Because of the
12b-1 fee, long-term shareholders may indirectly pay more than the
equivalent of the maximum permitted front-end sales charge.
</TABLE>
6 DISCOVERY FUND
<PAGE>
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
[A graphic image of a dollar sign.] The figures below for the period ended July
31, 1992, were audited by the fund's former independent auditors, Price
Waterhouse LLP. Figures for the subsequent years have been audited by the fund's
current independent auditors, Ernst & Young LLP.
VOLATILITY, AS INDICATED BY CLASS B [BAR GRAPH]
YEAR-BY-YEAR TOTAL INVESTMENT RETURN (%)
================================================================================
<TABLE>
<CAPTION>
CLASS A - YEAR ENDED JULY 31, 1992(1) 1993 1994 1995 1996(2)
====================================================================================================
<S> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
- ----------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 9.40 $ 8.95 $ 10.81 $ 8.56 $ 12.95
- ----------------------------------------------------------------------------------------------------
Net investment income (loss) (0.05) (0.16) (0.16)(3) (0.17)(3) (0.10)(3)
- ----------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss)
on investments and foreign currency
transactions (0.40) 2.15 (0.43) 4.83 0.55
- ----------------------------------------------------------------------------------------------------
Total from investment operations (0.45) 1.99 (0.59) 4.66 0.45
- ----------------------------------------------------------------------------------------------------
Less distributions:
- ----------------------------------------------------------------------------------------------------
Distributions from net realized
gain on investments sold -- (0.13) (1.66) (0.27) (0.13)
- ----------------------------------------------------------------------------------------------------
Net asset value, end of period $ 8.95 $ 10.81 $ 8.56 $12.95 $ 13.27
- ----------------------------------------------------------------------------------------------------
TOTAL INVESTMENT RETURN AT NET
ASSET VALUE(4)(%) (4.79)(5) 22.33 (6.45) 55.80 3.52(5)
- ----------------------------------------------------------------------------------------------------
RATIOS AND SUPPLEMENTAL DATA
- ----------------------------------------------------------------------------------------------------
Net assets, end of period (000s omitted) ($) 3,866 4,692 3,266 5,075 6,583
- ----------------------------------------------------------------------------------------------------
Ratio of expenses to average net assets (%) 1.78(6) 2.17 2.01 2.10 1.74(6)
- ----------------------------------------------------------------------------------------------------
Ratio of net investment income (loss)
to average net assets(%) (1.20)(6) (1.61) (1.64) (1.73) (1.51)(6)
- ----------------------------------------------------------------------------------------------------
Portfolio turnover rate (%) 138 148 108 118 73
- ----------------------------------------------------------------------------------------------------
Average brokerage commission rate(%) N/A N/A N/A N/A N/A
====================================================================================================
CLASS B - YEAR ENDED JULY 31, 1992(1) 1993 1994 1995 1996(2)
====================================================================================================
PER SHARE OPERATING PERFORMANCE
- ----------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 8.00 $ 8.87 $ 10.65 $ 8.34 $ 12.54
- ----------------------------------------------------------------------------------------------------
Net investment income (loss) (0.11) (0.23) (0.22)(3) (0.22)(3) (0.14)(3)
Net realized and unrealized gain (loss)
on investments and foreign currency
transactions 0.98 2.14 (0.43) 4.69 0.53
- ----------------------------------------------------------------------------------------------------
Total from investment operations 0.87 1.91 (0.65) 4.47 0.39
- ----------------------------------------------------------------------------------------------------
Less distributions:
- ----------------------------------------------------------------------------------------------------
Distributions from net realized
gain on investments sold -- (0.13) (1.66) (0.27) (0.13)
- ----------------------------------------------------------------------------------------------------
Net asset value, end of period $ 8.87 $ 10.65 $ 8.34 $ 12.54 $ 12.80
- ----------------------------------------------------------------------------------------------------
TOTAL INVESTMENT RETURN AT NET
ASSET VALUE(4) (%) 10.88(5) 21.63 (7.18) 54.97 3.15(5)
- ----------------------------------------------------------------------------------------------------
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period (000s omitted)($) 34,636 38,672 26,537 31,645 34,452
- ----------------------------------------------------------------------------------------------------
Ratio of expenses to average net assets (%) 2.56(6) 2.86 2.62 2.70 2.43(6)
- ----------------------------------------------------------------------------------------------------
Ratio of net investment income (loss)
to average net assets(%) (1.56)(6) (2.26) (2.24) (2.34) (2.20)(6)
- ----------------------------------------------------------------------------------------------------
Portfolio turnover rate(%) 138 148 108 118 73
- ----------------------------------------------------------------------------------------------------
Average brokerage commission rate(%) N/A N/A N/A N/A N/A
- ----------------------------------------------------------------------------------------------------
(1) Class A and Class B shares commenced operations on January 3, 1992 and
August 30, 1991, respectively.
(2) Six months ended January 31, 1996 (unaudited).
(3) Based on the average of the shares outstanding at the end of each month.
(4) Assumes dividend reinvestment and does not reflect the effect of sales
charges.
(5) Not annualized.
(6) Annualized.
</TABLE>
DISCOVERY FUND 7
<PAGE>
EMERGING GROWTH FUND
<TABLE>
<S> <C> <C> <C>
REGISTRANT NAME: JOHN HANCOCK SERIES, INC. TICKER SYMBOL CLASS A:TAEMX CLASS B:TSEGX
</TABLE>
- --------------------------------------------------------------------------------
GOAL AND STRATEGY
[A graphic image of a bullseye with an arrow in the middle of it.] The fund
seeks long-term 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 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
[A graphic image of a black folder that contains a couple sheets of paper.]
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% in cash or in
short-term investment-grade securities; in abnormal market conditions, it may
invest more assets in these securities as a defensive tactic. To a limited
extent, the fund also may invest in certain higher-risk securities, including
derivatives, and may engage in other investment practices. For details, see
"More about risk" at the end of this prospectus.
RISK FACTORS
[A graphic image of a line chart with a single line that depicts some peaks and
valleys.] As with any growth fund, the value of your investment will fluctuate
with the performance of the stock market. Stocks of emerging growth companies
carry higher risks than stocks of larger companies. This is because emerging
growth companies:
- - may be in the early stages of development
- - may be dependent on a small number of products or services
- - may lack substantial capital reserves
- - 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.
PORTFOLIO MANAGER
[A graphic image of a generic person.] Bernice S. Behar, leader of the fund's
portfolio management team since February 1996, is a senior vice president of
the investment adviser. She joined the investment adviser in 1991 and has
worked as an investment professional since 1986.
- --------------------------------------------------------------------------------
INVESTOR EXPENSES
<TABLE>
[A graphic image of a percent symbol.] Fund investors pay various expenses,
either directly or indirectly. The figures below show the expenses for the past
year, adjusted to reflect any changes. Future expenses may be greater or less.
<CAPTION>
================================================================================
Shareholder transaction expenses Class A Class B
================================================================================
<S> <C> <C>
Maximum sales charge imposed on
purchases (as a percentage of
offering price) 5.00% none
- --------------------------------------------------------------------------------
Maximum sales charge imposed on
reinvested dividends none none
- --------------------------------------------------------------------------------
Maximum deferred sales charge none(1) 5.00%
- --------------------------------------------------------------------------------
Redemption fee(2) none none
- --------------------------------------------------------------------------------
Exchange fee none none
- --------------------------------------------------------------------------------
================================================================================
Annual fund operating expenses (as a % of average net assets)
================================================================================
Management fee 0.75% 0.75%
- --------------------------------------------------------------------------------
12b-1 fee(3) 0.25% 1.00%
- --------------------------------------------------------------------------------
Other expenses 0.40% 0.40%
- --------------------------------------------------------------------------------
Total fund operating expenses 1.40% 2.15%
- --------------------------------------------------------------------------------
</TABLE>
<TABLE>
EXAMPLE The table below shows what you would pay if you invested $1,000 over the
various time frames indicated. The example assumes you reinvested all dividends
and that the average annual return was 5%.
<CAPTION>
================================================================================
Share class Year 1 Year 3 Year 5 Year 10
================================================================================
<S> <C> <C> <C> <C>
Class A shares $64 $92 $123 $210
- --------------------------------------------------------------------------------
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) May include carry-over of reimbursable costs from previous year(s). Amounts
shown are the fund's current annual maximums for 12b-1 fees. Because of the
12b-1 fee, long-term shareholders may indirectly pay more than the
equivalent of the maximum permitted front-end sales charge.
</TABLE>
8 EMERGING GROWTH FUND
<PAGE>
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
[A graphic image of a dollar sign.] The figures below have been audited by the
fund's current independent auditors, Ernst & Young LLP.
VOLATILITY, AS INDICATED BY CLASS B [BAR GRAPH]
YEAR-BY-YEAR TOTAL INVESTMENT RETURN (%)
<TABLE>
====================================================================================================
<CAPTION>
CLASS A - YEAR ENDED OCTOBER 31, 1991(1) 1992 1993 1994 1995(2)
====================================================================================================
<S> <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
- ----------------------------------------------------------------------------------------------------
Net investment income (loss)(3) (0.03) (0.20) (0.16) (0.18) (0.25)
- ----------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss)
on investments 1.17 1.60 5.45 1.11 9.52
- ----------------------------------------------------------------------------------------------------
Total from investment operations 1.14 1.40 5.29 0.93 9.27
- ----------------------------------------------------------------------------------------------------
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
- ----------------------------------------------------------------------------------------------------
TOTAL INVESTMENT RETURN AT
NET ASSET VALUE(4) (%) 6.29 7.32 25.68 3.59 34.56
- ----------------------------------------------------------------------------------------------------
RATIOS AND SUPPLEMENTAL DATA
- ----------------------------------------------------------------------------------------------------
Net assets, end of period (000s omitted)($) 38,859 46,137 81,263 131,053 179,481
- ----------------------------------------------------------------------------------------------------
Ratio of expenses to average net assets (%) 0.33 1.67 1.40 1.44 1.38
- ----------------------------------------------------------------------------------------------------
Ratio of net investment income (loss) to
average net assets (%) (0.15) (1.03) (0.70) (0.71) (0.83)
- ----------------------------------------------------------------------------------------------------
Portfolio turnover rate (%) 66 48 29 25 23
- ----------------------------------------------------------------------------------------------------
Average brokerage commission rate (%) N/A N/A N/A N/A N/A
- ----------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
================================================================================================================================
CLASS B - YEAR ENDED OCTOBER 31, 1987(5) 1988 1989 1990 1991 1992 1993 1994 1995(2)
================================================================================================================================
<S> <C> <C> <C> <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 $ 20.34 $ 25.33 $ 26.04
- --------------------------------------------------------------------------------------------------------------------------------
Net investment income (loss)(3) (0.0021) 0.09 (0.08) (0.22) (0.30) (0.38) (0.36) (0.36) (0.45)
- --------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain
(loss) on investments 0.0021 2.56 2.83 (1.26) 8.46 1.56 5.35 1.07 9.20
- --------------------------------------------------------------------------------------------------------------------------------
Total from investment operations 0.0000 2.65 2.75 (1.48) 8.16 1.18 4.99 0.71 8.75
- --------------------------------------------------------------------------------------------------------------------------------
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 $ 25.33 $ 26.04 $ 34.79
- --------------------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENT RETURN AT NET
ASSET VALUE(4) (%) 0.00 33.59 27.40 (11.82) 73.78 6.19 24.53 2.80 33.60
- --------------------------------------------------------------------------------------------------------------------------------
RATIOS AND SUPPLEMENTAL DATA
- --------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period
(000s omitted) ($) 79 3,232 7,877 11,668 52,743 86,923 219,484 283,435 393,478
- --------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to average
net assets (%) 0.44 5.64 3.51 3.11 2.85 2.64 2.28 2.19 2.11
- --------------------------------------------------------------------------------------------------------------------------------
Ratio of expense reimbursement to
average net assets (%) (0.41) (2.59) (0.03) -- -- -- -- -- --
- --------------------------------------------------------------------------------------------------------------------------------
Ratio of net expenses to
average net assets (%) 0.03 3.05 3.48 3.11 2.85 2.64 2.28 2.19 2.11
- --------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income (loss) to
average net assets (%) (0.03) 0.81 (0.67) (1.64) (1.83) (1.99) (1.58) (1.46) (1.55)
- --------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate (%) 0 252 90 82 66 48 29 25 23
- --------------------------------------------------------------------------------------------------------------------------------
Average brokerage commission rate (%) N/A N/A N/A N/A N/A N/A N/A N/A N/A
- --------------------------------------------------------------------------------------------------------------------------------
(1) Class A shares commenced operations on August 22, 1991. Financial
highlights, including total return, have not been 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) Class B shares commenced operations on October 26, 1987. Financial
highlights, including total return, have not been annualized.
</TABLE>
EMERGING GROWTH FUND 9
<PAGE>
GROWTH FUND
<TABLE>
<S> <C> <C> <C>
REGISTRANT NAME: FREEDOM INVESTMENT TRUST II TICKER SYMBOL CLASS A:JHNGX CLASS B:JHGNX
</TABLE>
- --------------------------------------------------------------------------------
GOAL AND STRATEGY
[A graphic image of a bullseye with an arrow in the middle of it.] 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 (GDP) over the past five years,
although not all stocks in the fund's portfolio will meet this criterion.
PORTFOLIO SECURITIES
[A graphic image of a black folder that contains a couple sheets of paper.]
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 its net assets
in short-term investment-grade securities; in abnormal market conditions, it may
invest more than 35% in these securities as a defensive tactic. To a limited
extent, the fund may also invest in certain higher risk securities, and may
engage in other investment practices. For details, see "More about risk" at the
end of this prospectus.
RISK FACTORS
[A graphic image of a line chart with a single line that depicts some peaks and
valleys.] As with any growth fund, the value of your investment will fluctuate
with the performance of the stock market and the success or failure of the
fund's investment strategies. To the extent that the fund invests in restricted
securities, foreign securities, and junk bonds, it takes on additional risks
which could adversely affect its performance.
PORTFOLIO MANAGER
[A graphic image of a generic person.] Bernice S. Behar, leader of the fund's
portfolio management team since September 1995, is a senior vice president of
the investment adviser. She joined the investment adviser in 1991 and has worked
as an investment professional since 1986.
- --------------------------------------------------------------------------------
INVESTOR EXPENSES
<TABLE>
[A graphic image of a percent symbol.] Fund investors pay various expenses,
either directly or indirectly. The figures below show the expenses for the past
year, adjusted to reflect any changes. Future expenses may be greater or less.
<CAPTION>
================================================================================
Shareholder transaction expenses Class A Class B
================================================================================
<S> <C> <C>
Maximum sales charge imposed on
purchases (as a percentage of
offering price) 5.00% none
- --------------------------------------------------------------------------------
Maximum sales charge imposed on
reinvested dividends none none
- --------------------------------------------------------------------------------
Maximum deferred sales charge none(1) 5.00%
- --------------------------------------------------------------------------------
Redemption fee(2) none none
- --------------------------------------------------------------------------------
Exchange fee none none
================================================================================
Annual fund operating expenses (as a % of average net assets)
================================================================================
Management fee 0.80% 0.80%
- --------------------------------------------------------------------------------
12b-1 fee(3) 0.30% 1.00%
- --------------------------------------------------------------------------------
Other expenses 0.40% 0.40%
- --------------------------------------------------------------------------------
Total fund operating expenses 1.50% 2.20%
- --------------------------------------------------------------------------------
</TABLE>
<TABLE>
EXAMPLE The table below shows what you would pay if you invested $1,000 over the
various time frames indicated. The example assumes you reinvested all dividends
and that the average annual return was 5%.
<CAPTION>
================================================================================
Share class Year 1 Year 3 Year 5 Year 10
================================================================================
<S> <C> <C> <C> <C>
Class A shares $65 $95 $128 $220
- --------------------------------------------------------------------------------
Class B shares
- --------------------------------------------------------------------------------
Assuming redemption
at end of period $72 $99 $138 $236
- --------------------------------------------------------------------------------
Assuming no redemption $22 $69 $118 $236
- --------------------------------------------------------------------------------
This example is for comparison purposes only and is not a representation of the
fund's actual expenses and returns, either past or future.
(1) Except for investments of $1 million or more; see "How sales charges are
calculated."
(2) Does not include wire redemption fee (currently $4.00).
(3) May include carry-over of reimbursable costs from previous year(s). Amounts
shown are the fund's current annual maximums for 12b-1 fees. Because of the
12b-1 fee, long-term shareholders may indirectly pay more than the
equivalent of the maximum permitted front-end sales charge.
</TABLE>
10 GROWTH FUND
<PAGE>
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
[A graphic image of a dollar sign.] The figures below have been audited by the
fund's independent auditors, Ernst & Young LLP.
VOLATILITY, AS INDICATED BY CLASS A [BAR GRAPH]
YEAR-BY-YEAR TOTAL INVESTMENT RETURN (%)
<TABLE>
<CAPTION>
====================================================================================================================================
CLASS A - YEAR ENDED DECEMBER 31, 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995
====================================================================================================================================
<S> <C> <C> <C> <C> <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 $ 17.48 $ 17.32 $ 17.40 $ 15.89
- ------------------------------------------------------------------------------------------------------------------------------------
Net investment income (loss) 0.11 0.22 0.23 0.28 0.16 0.04 (0.06) (0.11) (0.10) (0.09)(1)
- ------------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss)
on investments 1.79 0.64 1.16 3.81 (1.47) 5.36 1.10 2.33 (1.21) 4.40
- ------------------------------------------------------------------------------------------------------------------------------------
Total from investment operations 1.90 0.86 1.39 4.09 (1.31) 5.40 1.04 2.22 (1.31) 4.31
- ------------------------------------------------------------------------------------------------------------------------------------
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) (1.20) (2.14) (0.20) (0.69)
- ------------------------------------------------------------------------------------------------------------------------------------
Total distributions (2.37) (2.55) (0.40) (2.24) (0.94) (0.85) (1.20) (2.14) (0.20) (0.69)
- ------------------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $ 14.03 $12.34 $13.33 $ 15.18 $ 12.93 $ 17.48 $ 17.32 $ 17.40 $ 15.89 $ 19.51
- ------------------------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENT RETURN AT NET
ASSET VALUE(4) (%) 13.83 6.03 11.23 30.96 (8.34) 41.68 6.06 13.03 (7.50) 27.17
- ------------------------------------------------------------------------------------------------------------------------------------
RATIOS AND SUPPLEMENTAL DATA
- ------------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period
(000s omitted) ($) 87,468 86,426 101,497 105,014 102,416 145,287 153,057 162,937 146,466 241,700
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to average
net assets (%) 1.03 1.00 1.06 0.96 1.46 1.44 1.60 1.56 1.65 1.48
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income
(loss) to average net assets (%) 0.77 1.41 1.76 1.73 1.12 0.27 (0.36) (0.67) (0.64) (0.46)
- ------------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate (%) 62 68 47 61 102 82 71 68 52 68
- ------------------------------------------------------------------------------------------------------------------------------------
Average brokerage commission rate (%) N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A
</TABLE>
<TABLE>
<CAPTION>
===============================================================================
CLASS B - YEAR ENDED DECEMBER 31, 1994(2) 1995
===============================================================================
<S> <C> <C>
PER SHARE OPERATING PERFORMANCE
- -------------------------------------------------------------------------------
Net asset value, beginning of period $17.16(3) $ 15.83(1)
- -------------------------------------------------------------------------------
Net investment income (loss) (0.20)(1) (0.26)
- --------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on
investments (0.93) 4.37
- --------------------------------------------------------------------------------
Total from investment operations (1.13) 4.11
- --------------------------------------------------------------------------------
Less distributions:
- --------------------------------------------------------------------------------
Distributions from net realized
gain on investments sold (0.20) (0.69)
- --------------------------------------------------------------------------------
Net asset value, end of period $15.83 $ 19.25
- --------------------------------------------------------------------------------
TOTAL INVESTMENT RETURN AT NET ASSET VALUE(4)(%) (6.56)(5) 26.01
- --------------------------------------------------------------------------------
RATIOS AND SUPPLEMENTAL DATA
- --------------------------------------------------------------------------------
Net assets, end of period (000s omitted)($) 3,807 15,913
- --------------------------------------------------------------------------------
Ratio of expenses to average net assets (%) 2.38(6) 2.31
- --------------------------------------------------------------------------------
Ratio of net investment income (loss) to
average net assets (%) (1.25)(6) (1.39)
- --------------------------------------------------------------------------------
Portfolio turnover rate (%) 52 68
- --------------------------------------------------------------------------------
Average brokerage commission rate (%) N/A N/A
(1) Based on the average of the shares outstanding at the end of each month.
(2) Class B shares commenced operations on January 3, 1994.
(3) Initial price at commencement of operations.
(4) Assumes dividend reinvestment and does not reflect the effect of sales
charges.
(5) Not annualized.
(6) Annualized.
</TABLE>
GROWTH FUND 11
<PAGE>
REGIONAL BANK FUND
<TABLE>
<S> <C> <C> <C>
REGISTRANT NAME: FREEDOM INVESTMENT TRUST TICKER SYMBOL CLASS A:FRBAX CLASS B:FRBFX
</TABLE>
- --------------------------------------------------------------------------------
GOAL AND STRATEGY
[A graphic image of a bullseye with an arrow in the middle of it.] The fund
seeks long-term capital appreciation. To pursue this goal, the fund invests in
regional banks and lending institutions, including:
- - commercial and industrial banks
- - savings and loan associations
- - 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. In normal circumstances the fund will invest at least
65% of its assets in these companies; it may invest up to 35% of assets in other
financial services companies, including lending companies and money center
banks. Because regional banks typically pay regular dividends, moderate income
is an investment goal.
PORTFOLIO SECURITIES
[A graphic image of a black folder that contains a couple sheets of paper.]
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 15% of its net assets in
cash or in short-term investment-grade securities; in abnormal market
conditions, it may invest up to 80% in these securities as a defensive tactic.
To a limited extent, the fund may also invest in certain higher risk securities,
including derivatives, and may engage in other investment practices. For
details, see "More about risk" at the end of this prospectus.
RISK FACTORS
[A graphic image of a line chart with a single line that depicts some peaks and
valleys.] As with any growth fund, the value of your investment will fluctuate.
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.
PORTFOLIO MANAGER
[A graphic image of a generic person.] James K. Schmidt joined John Hancock in
1985 and has served as the fund's portfolio manager since its inception that
year. A senior vice president of the investment adviser, he has worked as an
investment professional since 1974.
- --------------------------------------------------------------------------------
INVESTOR EXPENSES
<TABLE>
[A graphic image of a percent symbol.] Fund investors pay various expenses,
either directly or indirectly. The figures below show the expenses for the past
year, adjusted to reflect any changes. Future expenses may be greater or less.
<CAPTION>
================================================================================
Shareholder transaction expenses Class A Class B
================================================================================
<S> <C> <C>
Maximum sales charge imposed on
purchases (as a percentage of
offering price) 5.00% none
- --------------------------------------------------------------------------------
Maximum sales charge imposed on
reinvested dividends none none
- --------------------------------------------------------------------------------
Maximum deferred sales charge none(1) 5.00%
- --------------------------------------------------------------------------------
Redemption fee(2) none none
- --------------------------------------------------------------------------------
Exchange fee none none
- --------------------------------------------------------------------------------
================================================================================
Annual fund operating expenses (as a % of average net assets)
================================================================================
Management fee 0.78% 0.78%
- --------------------------------------------------------------------------------
12b-1 fee(3) 0.30% 1.00%
- --------------------------------------------------------------------------------
Other expenses 0.31% 0.31%
- --------------------------------------------------------------------------------
Total fund operating expenses 1.39% 2.09%
- --------------------------------------------------------------------------------
</TABLE>
<TABLE>
EXAMPLE The table below shows what you would pay if you invested $1,000 over the
various time frames indicated. The example assumes you reinvested all dividends
and that the average annual return was 5%.
<CAPTION>
================================================================================
Share class Year 1 Year 3 Year 5 Year 10
================================================================================
<S> <C> <C> <C> <C>
Class A shares $63 $92 $122 $209
- --------------------------------------------------------------------------------
Class B shares
- --------------------------------------------------------------------------------
Assuming redemption at
end of period $71 $95 $132 $224
- --------------------------------------------------------------------------------
Assuming no redemption $21 $65 $112 $224
- --------------------------------------------------------------------------------
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) May include carry-over of reimbursable costs from previous year(s). Amounts
shown are the fund's current annual maximums for 12b-1 fees. Because of the
12b-1 fee, long-term shareholders may indirectly pay more than the
equivalent of the maximum permitted front-end sales charge.
</TABLE>
12 REGIONAL BANK FUND
<PAGE>
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
[A graphic image of a dollar sign.] The figures below have been audited by the
fund's independent auditors, Price Waterhouse LLP.
VOLATILITY, AS INDICATED BY CLASS B [BAR GRAPH]
YEAR-BY-YEAR TOTAL INVESTMENT RETURN (%)
<TABLE>
<CAPTION>
===================================================================================================================================
CLASS A - YEAR ENDED OCTOBER 31, 1992(1) 1993 1994 1995
===================================================================================================================================
<S> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
- -----------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 13.47 $ 17.47 $ 21.62 $ 21.52
- -----------------------------------------------------------------------------------------------------------------------------------
Net investment income (loss) 0.21 0.26(2) 0.39(2) 0.52(2)
- -----------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on investments 3.98 5.84 0.91 5.92
- -----------------------------------------------------------------------------------------------------------------------------------
Total from investment operations 4.19 6.10 1.30 6.44
- -----------------------------------------------------------------------------------------------------------------------------------
Less distributions:
- -----------------------------------------------------------------------------------------------------------------------------------
Dividends from net investment income (0.19) (0.26) (0.34) (0.48)
- -----------------------------------------------------------------------------------------------------------------------------------
Distributions from net realized gain on investments sold -- (1.69) (1.06) (0.34)
- -----------------------------------------------------------------------------------------------------------------------------------
Total distributions (0.19) (1.95) (1.40) (0.82)
- -----------------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $ 17.47 $ 21.62 $ 21.52 $ 27.14
- -----------------------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENT RETURN AT NET ASSET VALUE(3) (%) 31.26(4) 37.45 6.44 31.00
- -----------------------------------------------------------------------------------------------------------------------------------
RATIOS AND SUPPLEMENTAL DATA
- -----------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period (000s omitted)($) 31,306 94,158 216,978 486,631
- -----------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to average net assets (%) 1.41(5) 1.35 1.34 1.39
- -----------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income to average net assets (%) 1.64(5) 1.29 1.78 2.23
- -----------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate (%) 53 35 13 14
- -----------------------------------------------------------------------------------------------------------------------------------
Average brokerage commission rate (%) N/A N/A N/A N/A
</TABLE>
<TABLE>
<CAPTION>
====================================================================================================================================
CLASS B - YEAR ENDED OCTOBER 31, 1987(6) 1987(7) 1988 1989 1990 1991 1992 1993 1994 1995
====================================================================================================================================
<S> <C> <C> <C> <C> <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 $ 13.76 $ 17.44 $ 21.56 $ 21.43
- ------------------------------------------------------------------------------------------------------------------------------------
Net investment income (loss) 0.20 0.05 0.16 0.20 0.30 0.29 0.18 0.15(2) 0.23(2) 0.36(2)
- ------------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain
(loss) on investment 1.74 (2.17) 3.12 2.02 (4.19) 5.68 4.56 5.83 0.91 5.89
- ------------------------------------------------------------------------------------------------------------------------------------
Total from investment operations 1.94 (2.12) 3.28 2.22 (3.89) 5.97 4.74 5.98 1.14 6.25
Less distributions:
- ------------------------------------------------------------------------------------------------------------------------------------
Dividends from net investment income (0.26) (0.04) (0.15) (0.16) (0.19) (0.34) (0.28) (0.17) (0.21) (0.32)
- ------------------------------------------------------------------------------------------------------------------------------------
Distributions from net realized gain
on investments sold (1.51) (0.50) (1.26) (0.95) (0.76) -- (0.78) (1.69) (1.06) (0.34)
- ------------------------------------------------------------------------------------------------------------------------------------
Distributions from capital paid-in -- -- -- -- (0.03) -- -- -- -- --
- ------------------------------------------------------------------------------------------------------------------------------------
Total distributions (1.77) (0.54) (1.41) (1.11) (0.98) (0.34) (1.06) (1.86) (1.27) (0.66)
- ------------------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $ 12.68 $ 10.02 $ 11.89 $ 13.00 $ 8.13 $ 13.76 $ 17.44 $ 21.56 $ 21.43 $ 27.02
- ------------------------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENT RETURN AT NET
ASSET VALUE(3) (%) 17.44 (17.36)(4) 36.89 20.46 (32.29) 75.35 37.20 36.71 5.69 30.11
- ------------------------------------------------------------------------------------------------------------------------------------
RATIOS AND SUPPLEMENTAL DATA
- ------------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period
(000s omitted)($) 54,626 38,721 50,965 81,167 38,992 52,098 56,016 171,808 522,207 1,236,447
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to average
net assets (%) 1.48 2.47(5) 2.17 1.99 1.99 2.04 1.96 1.88 2.06 2.09
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income (loss)
to average net assets (%) 1.62 0.73(5) 1.50 1.67 2.51 2.65 1.21 0.76 1.07 1.53
- ------------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate (%) 89 58(5) 87 85 56 75 53 35 13 14
- ------------------------------------------------------------------------------------------------------------------------------------
Average brokerage commission rate (%) N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A
(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) Year ended March 31, 1987.
(7) For the period April 1, 1987 to October 31, 1987.
</TABLE>
REGIONAL BANK FUND 13
<PAGE>
SPECIAL EQUITIES FUND
<TABLE>
<S> <C> <C> <C>
REGISTRANT NAME: JOHN HANCOCK SPECIAL EQUITIES FUND TICKER SYMBOL CLASS A:JHNSX CLASS B:SPQBX
</TABLE>
- --------------------------------------------------------------------------------
GOAL AND STRATEGY
[A graphic image of a bullseye with an arrow in the middle of it.] 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. In normal circumstances the fund will invest at
least 65% of its 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 earnings and revenue
growth of at least 25%, self-financing capabilities and strong management. The
fund does not invest for income.
PORTFOLIO SECURITIES
[A graphic image of a black folder that contains a couple sheets of paper.]
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 its net assets in
cash or in short-term investment-grade securities; in abnormal market
conditions, it may invest more than 35% in these securities as a defensive
tactic. To a limited extent, the fund also may invest in certain higher risk
securities, and may engage in other investment practices. For details, see "More
about risk" at the end of this prospectus.
RISK FACTORS
[A graphic image of a line chart with a single line that depicts some peaks and
valleys.] As with any growth fund, the value of your investment will fluctuate
with the performance of the stock market. Stocks of small-capitalization and
special-situation companies carry higher risks than stocks of larger companies.
This is because these companies:
- - may lack proven track records
- - may be dependent on a small number of products or services
- - may be undercapitalized
- - may have highly priced stocks which are sensitive to adverse news
In addition, stocks of these companies are often traded in low volumes, which
can increase market and liquidity risks.
PORTFOLIO MANAGER
[A graphic image of a generic person.] Michael P. DiCarlo is responsible for the
fund's day-to-day investment management. He has served as the fund's portfolio
manager since 1988, and has worked as an investment professional 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.
- --------------------------------------------------------------------------------
INVESTOR EXPENSES
<TABLE>
[A graphic image of a percent symbol.] Fund investors pay various expenses,
either directly or indirectly. The figures below show the expenses for the past
year, adjusted to reflect any changes. Future expenses may be greater or less.
<CAPTION>
================================================================================
Shareholder transaction expenses Class A Class B
================================================================================
<S> <C> <C>
Maximum sales charge imposed on
purchases (as a percentage of
offering price) 5.00% none
- --------------------------------------------------------------------------------
Maximum sales charge imposed on
reinvested dividends none none
- --------------------------------------------------------------------------------
Maximum deferred sales charge none(1) 5.00%
- --------------------------------------------------------------------------------
Redemption fee(2) none none
- --------------------------------------------------------------------------------
Exchange fee none none
- --------------------------------------------------------------------------------
================================================================================
Annual fund operating expenses (as a % of average net assets)
================================================================================
Management fee(3) 0.82% 0.82%
- --------------------------------------------------------------------------------
12b-1 fee(4) 0.30% 1.00%
- --------------------------------------------------------------------------------
Other expenses 0.38% 0.40%
- --------------------------------------------------------------------------------
Total fund operating expenses 1.50% 2.22%
- --------------------------------------------------------------------------------
</TABLE>
<TABLE>
EXAMPLE The table below shows what you would pay if you invested $1,000 over the
various time frames indicated. The example assumes you reinvested all dividends
and that the average annual return was 5%.
<CAPTION>
================================================================================
Share class Year 1 Year 3 Year 5 Year 10
================================================================================
<S> <C> <C> <C> <C>
Class A shares $65 $95 $128 $220
- --------------------------------------------------------------------------------
Class B shares
- --------------------------------------------------------------------------------
Assuming redemption at
end of period $73 $99 $139 $237
- --------------------------------------------------------------------------------
Assuming no redemption $23 $69 $119 $237
- --------------------------------------------------------------------------------
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 25% of the management fee.
(4) May include carry-over of reimbursable costs from previous year(s). Amounts
shown are the fund's current annual maximums for 12b-1 fees. Because of the
12b-1 fee, long-term shareholders may indirectly pay more than the
equivalent of the maximum permitted front-end sales charge.
</TABLE>
14 SPECIAL EQUITIES FUND
<PAGE>
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
[A graphic image of a dollar sign.] The figures below have been audited
by the fund's independent auditors, Ernst & Young LLP.
VOLATILITY, AS INDICATED BY CLASS A [BAR GRAPH]
YEAR-BY-YEAR TOTAL INVESTMENT RETURN (%)
<TABLE>
<CAPTION>
====================================================================================================================================
CLASS A - YEAR ENDED OCTOBER 31, 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995
====================================================================================================================================
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
- ------------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 5.21 $ 6.08 $ 4.30 $ 4.89 $ 6.38 $ 4.97 $ 9.71 $ 10.99 $ 16.13 $ 16.11
- ------------------------------------------------------------------------------------------------------------------------------------
Net investment income (loss)(1) (0.03) (0.03) 0.04 0.01 (0.12) (0.10) (0.19)(2) (0.20)(2) (0.21)(2) (0.18)(2)
- ------------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss)
on investments 0.93 (1.26) 0.55 1.53 (1.27) 4.84 2.14 5.43 0.19 6.22
- ------------------------------------------------------------------------------------------------------------------------------------
Total from investment operations 0.90 (1.29) 0.59 1.54 (1.39) 4.74 1.95 5.23 (0.02) 6.04
- ------------------------------------------------------------------------------------------------------------------------------------
Less distributions:
- -----------------------------------------------------------------------------------------------------------------------------------
Dividends from net investment income (0.02) -- -- (0.05) (0.02) -- -- -- -- --
- ------------------------------------------------------------------------------------------------------------------------------------
Distributions from net realized gain
on investments sold (0.01) (0.45) -- -- -- -- (0.67) (0.09) -- --
- ------------------------------------------------------------------------------------------------------------------------------------
Distributions from capital paid-in -- (0.04) -- -- -- -- -- -- -- --
- ------------------------------------------------------------------------------------------------------------------------------------
Total distributions (0.03) (0.49) -- (0.05) (0.02) -- (0.67) (0.09) -- --
- ------------------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $ 6.08 $ 4.30 $ 4.89 $ 6.38 $ 4.97 $ 9.71 $ 10.99 $ 16.13 $ 16.11 $ 22.15
- ------------------------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENT RETURN AT NET
ASSET VALUE(1,3) (%) 17.38 (28.68) 13.72 31.82 (21.89) 95.37 20.25 47.83 (0.12) 37.49
- ------------------------------------------------------------------------------------------------------------------------------------
RATIOS AND SUPPLEMENTAL DATA
- ------------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period
(000s omitted) ($) 13,780 10,637 11,714 12,285 8,166 19,713 44,665 296,793 310,625 555,655
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to average
net assets(1) (%) 1.50 1.50 1.50 1.50 2.63 2.75 2.24 1.84 1.62 1.48
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income
(loss) to average net assets(1) (%) (0.57) (0.57) 0.82 0.47 (1.58) (2.12) (1.91) (1.49) (1.40) (0.97)
- ------------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate (%) 64 93 91 115 113 163 114 33 66 82
- ------------------------------------------------------------------------------------------------------------------------------------
Average brokerage commission rate (%) N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A
</TABLE>
<TABLE>
<CAPTION>
=========================================================================================================
CLASS B - YEAR ENDED OCTOBER 31, 1993(4) 1994 1995
=========================================================================================================
<S> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
- ---------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 12.30 $ 16.08 $ 15.97
- ---------------------------------------------------------------------------------------------------------
Net investment income (loss) (0.18)(2) (0.30)(2) (0.31)(2)
- ---------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on investments 3.96 0.19 6.15
- ---------------------------------------------------------------------------------------------------------
Total from investment operations 3.78 (0.11) 5.84
- ---------------------------------------------------------------------------------------------------------
Net asset value, end of period $ 16.08 $ 15.97 $ 21.81
- ---------------------------------------------------------------------------------------------------------
TOTAL INVESTMENT RETURN AT NET ASSET VALUE(3) (%) 30.73(5) (0.68) 36.57
- ---------------------------------------------------------------------------------------------------------
RATIOS AND SUPPLEMENTAL DATA
- ---------------------------------------------------------------------------------------------------------
Net assets, end of period (000s omitted) ($) 158,281 191,979 454,934
- ---------------------------------------------------------------------------------------------------------
Ratio of expenses to average net assets (%) 2.34(6) 2.25 2.20
- ---------------------------------------------------------------------------------------------------------
Ratio of net investment income (loss) to average net assets (%) (2.03)(6) (2.02) (1.69)
- ---------------------------------------------------------------------------------------------------------
Portfolio turnover rate (%) 33 66 82
- ---------------------------------------------------------------------------------------------------------
Average brokerage commission rate (%) N/A N/A N/A
(1) Reflects expense limitation in effect during the years ended October 31, 1986 through
1991 (see note B to the financial statements in the Statement of Additional Information).
As a result of such limitations, expenses of the Fund for the years ended October 31,
1986, 1987, 1988, 1989, 1990, and 1991 reflect reductions of $.09, $.04, $.07, $.03, $.02 and
$.002 respectively. Absent of such limitation, for the years ended October 31, 1986,
1987, 1988, 1989, 1990, and 1991, the ratio of net expenses would have been 3.47%, 2.23%,
2.94%, 2.57%, 2.95%, and 2.79% respectively, and the ratio of net investment income
(loss) to average net assets would have been (2.55%), (1.30%), (0.62%), (0.60%), (1.90%)
and (2.16%), respectively. Without the limitation, total investment return would be
lower.
(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) Class B shares commenced operations on March 1, 1993.
(5) Not annualized.
(6) Annualized.
</TABLE>
SPECIAL EQUITIES FUND 15
<PAGE>
SPECIAL OPPORTUNITIES FUND
<TABLE>
<S> <C> <C> <C>
REGISTRANT NAME: FREEDOM INVESTMENT TRUST II TICKER SYMBOL CLASS A:SPOAX CLASS B:SPOBX
</TABLE>
- --------------------------------------------------------------------------------
GOAL AND STRATEGY
[A graphic image of a bullseye with an arrow in the middle of it.] The fund
seeks long-term capital appreciation. To pursue this goal, the fund invests in
those economic sectors that appear to have a higher earning potential.
Under normal circumstances, at least 90% of the fund's equity securities will be
invested within five or fewer sectors (e.g. financial services, energy,
technology). Up to 25% may be invested in any one sector. The inclusion and
weighting of any sector is determined on the basis of macroeconomic factors as
well as the outlook for that sector. The fund may add or drop sectors. Because
the fund may invest more than 5% of its assets in a single issuer, it is
classified as a non-diversified fund.
PORTFOLIO SECURITIES
[A graphic image of a black folder that contains a couple sheets of paper.]
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.
To a limited extent, the fund also may invest in certain higher risk securities,
and may engage in other investment practices. For details, see "More about risk"
at the end of this prospectus.
RISK FACTORS
[A graphic image of a line chart with a single line that depicts some peaks and
valleys.] By focusing on a relatively small number of industries or issuers,
the fund runs the risk that any factor influencing those industries 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. The fund's use of derivatives could expose it
to losses substantially in excess of the purchase or sale price of the
derivative. These factors make the fund likely to experience higher volatility
than most other types of growth funds.
PORTFOLIO MANAGER
[A graphic image of a generic person.] Kevin R. Baker is leader of the portfolio
management for the fund. A second vice president of John Hancock Advisers, he
has been an active member of the fund's management team since joining the
investment adviser in 1994. He has worked as an investment professional since
1986.
- --------------------------------------------------------------------------------
INVESTOR EXPENSES
<TABLE>
[A graphic image of a percent symbol.] Fund investors pay various expenses,
either directly or indirectly. The figures below show the expenses for the past
year, adjusted to reflect any changes. Future expenses may be greater or less.
<CAPTION>
================================================================================
Shareholder transaction expenses Class A Class B
================================================================================
<S> <C> <C>
Maximum sales charge imposed on
purchases (as a percentage of
offering price) 5.00% none
- --------------------------------------------------------------------------------
Maximum sales charge imposed on
reinvested dividends none none
- --------------------------------------------------------------------------------
Maximum deferred sales charge none(1) 5.00%
- --------------------------------------------------------------------------------
Redemption fee(2) none none
- --------------------------------------------------------------------------------
Exchange fee none none
- --------------------------------------------------------------------------------
================================================================================
Annual fund operating expenses (as a % of average net assets)
================================================================================
Management fee 0.80% 0.80%
- --------------------------------------------------------------------------------
12b-1 fee(3) 0.30% 1.00%
- --------------------------------------------------------------------------------
Other expenses 0.49% 0.49%
- --------------------------------------------------------------------------------
Total fund operating expenses 1.59% 2.29%
- --------------------------------------------------------------------------------
</TABLE>
<TABLE>
EXAMPLE The table below shows what you would pay if you invested $1,000 over the
various time frames indicated. The example assumes you reinvested all dividends
and that the average annual return was 5%.
<CAPTION>
================================================================================
Share class Year 1 Year 3 Year 5 Year 10
================================================================================
<S> <C> <C> <C> <C>
Class A shares $65 $ 98 $132 $229
- --------------------------------------------------------------------------------
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) May include carry-over of reimbursable costs from previous year(s). Amounts
shown are the fund's current annual maximums for 12b-1 fees. Because of the
12b-1 fee, long-term shareholders may indirectly pay more than the
equivalent of the maximum permitted front-end sales charge.
</TABLE>
16 SPECIAL OPPORTUNITIES FUND
<PAGE>
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
[A graphic image of a dollar sign.] The figures below have been audited by
the fund's independent auditors, Price Waterhouse LLP.
VOLATILITY, AS INDICATED BY CLASS A [BAR GRAPH]
YEAR-BY-YEAR TOTAL INVESTMENT RETURN (%)
<TABLE>
<CAPTION>
==================================================================================
CLASS A - YEAR ENDED OCTOBER 31, 1994(1) 1995
==================================================================================
<S> <C> <C>
PER SHARE OPERATING PERFORMANCE
- ----------------------------------------------------------------------------------
Net asset value, beginning of period $ 8.50 $ 7.93
- ----------------------------------------------------------------------------------
Net investment income (loss) (0.03)(2) (0.07)(2)
- ----------------------------------------------------------------------------------
Net realized and unrealized gain (loss)
on investments (0.54) 1.46
- ----------------------------------------------------------------------------------
Total from investment operations (0.57) 1.39
- ----------------------------------------------------------------------------------
Net asset value, end of period $ 7.93 $ 9.32
- ----------------------------------------------------------------------------------
TOTAL INVESTMENT RETURN AT NET ASSET VALUE(4) (%) (6.71)(3) 17.53
- ----------------------------------------------------------------------------------
Total adjusted investment return at
net asset value(5) (%) (6.83)(6) --
- ----------------------------------------------------------------------------------
RATIOS AND SUPPLEMENTAL DATA
- ----------------------------------------------------------------------------------
Net assets, end of period (000s omitted) ($) 92,325 101,562
- ----------------------------------------------------------------------------------
Ratio of expenses to average net assets (%) 1.50 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)
- ----------------------------------------------------------------------------------
Ratio of adjusted net investment loss
to average net assets(5) (%) (0.53) --
- ----------------------------------------------------------------------------------
Portfolio turnover rate (%) 57 155
- ----------------------------------------------------------------------------------
Expense reimbursement per share (%) 0.01(2) --
- ----------------------------------------------------------------------------------
Average brokerage commission rate (%) N/A N/A
==================================================================================
CLASS B - YEAR ENDED OCTOBER 31, 1994(1) 1995
==================================================================================
<S> <C> <C>
PER SHARE OPERATING PERFORMANCE
- ----------------------------------------------------------------------------------
Net asset value, beginning of period $ 8.50 $ 7.87
- ----------------------------------------------------------------------------------
Net investment income (loss) (0.09)(2) (0.13)(2)
- ----------------------------------------------------------------------------------
Net realized and unrealized gain (loss)
on investments (0.54) 1.45
- ----------------------------------------------------------------------------------
Total from investment operations (0.63) 1.32
- ----------------------------------------------------------------------------------
Net asset value, end of period $ 7.87 $ 9.19
- ----------------------------------------------------------------------------------
TOTAL INVESTMENT RETURN AT NET ASSET VALUE(4)(%) (7.41)(3) 16.77
- ----------------------------------------------------------------------------------
Total adjusted investment return at
net asset value(5) (%) (7.53)(6) --
- ----------------------------------------------------------------------------------
RATIOS AND SUPPLEMENTAL DATA
- ----------------------------------------------------------------------------------
Net assets, end of period (000s omitted)($) 131,983 137,363
- ----------------------------------------------------------------------------------
Ratio of expenses to average net assets (%) 2.22 2.30
- ----------------------------------------------------------------------------------
Ratio of adjusted expenses to average
net assets(5) (%) 2.34 --
- ----------------------------------------------------------------------------------
Ratio of adjusted net investment income (loss) to
average net assets (%) (1.13) (1.55)
- ----------------------------------------------------------------------------------
Ratio of adjusted net investment loss to
average net assets(5) (%) (1.25) --
- ----------------------------------------------------------------------------------
Portfolio turnover rate (%) 57 155
- ----------------------------------------------------------------------------------
Expense reimbursement per share (%) 0.01(2) --
- ----------------------------------------------------------------------------------
Average brokerage commission rate (%) N/A N/A
(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) Without the reimbursement, total investment return would be lower.
(4) Assumes dividend reinvestment and does not reflect the effect of sales
charges.
(5) Unreimbursed, without expense reduction.
(6) An estimated total return calculation which takes into consideration fees
and expenses waived or borne by the adviser during the periods shown.
</TABLE>
SPECIAL OPPORTUNITIES FUND 17
<PAGE>
YOUR ACCOUNT
- --------------------------------------------------------------------------------
CHOOSING A SHARE CLASS
<TABLE>
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.
<CAPTION>
================================================================================
CLASS A CLASS B
================================================================================
<S> <C>
- - Front-end sales charges, as - No front-end sales charge; all
described below. There are of your money goes to work for
several ways to reduce these you right away.
charges, also described below.
- Higher annual expenses than
- - Lower annual expenses than Class A shares.
Class B shares.
- A deferred sales charge on
shares you sell within six
years of purchase, as
described below.
- Automatic conversion to
Class A shares after eight
years, thus reducing
future annual expenses.
For actual past expenses of Class A and B shares, see the fund-by-fund
information earlier in this prospectus.
Special Equities Fund offers Class C shares, which have their own sales charge
and expense structure and are available to financial institutions only. Call
Investor Services or contact your financial representative for more information.
</TABLE>
- --------------------------------------------------------------------------------
HOW SALES CHARGES ARE CALCULATED
<TABLE>
CLASS A Sales charges are as follows:
================================================================================
CLASS A SALES CHARGES
================================================================================
<CAPTION>
AS A % OF AS A % OF YOUR
YOUR INVESTMENTS OFFERING PRICE INVESTMENT
- --------------------------------------------------------------------------------
<S> <C> <C>
Up to $49,999 5.00% 5.26%
- --------------------------------------------------------------------------------
$50,000 - $99,999 4.50% 4.71%
- --------------------------------------------------------------------------------
$100,000 - $249,999 3.50% 3.63%
- --------------------------------------------------------------------------------
$250,000 - $499,999 2.50% 2.56%
- --------------------------------------------------------------------------------
$500,000 - $999,999 2.00% 2.04%
- --------------------------------------------------------------------------------
$1,000,000 and over See below
</TABLE>
<TABLE>
INVESTMENTS OF $1 MILLION OR MORE Class A shares are available with no
front-end sales charge. However, there is a contingent deferred sales charge
(CDSC) on any shares sold within one year of purchase, as follows:
================================================================================
CDSC ON $1 MILLION+ INVESTMENT
================================================================================
<CAPTION>
YOUR INVESTMENT CDSC ON SHARES BEING SOLD
- --------------------------------------------------------------------------------
<S> <C>
First $1M - $4,999,999 1.00%
- --------------------------------------------------------------------------------
Next $1 - $5M above that 0.50%
- --------------------------------------------------------------------------------
Next $1M or more above that 0.25%
For purposes of this CDSC, all purchases made during a calendar month are
counted as having been made on the first day of that month.
</TABLE>
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:
<TABLE>
================================================================================
CLASS B DEFERRED CHARGES
================================================================================
<CAPTION>
YEARS AFTER PURCHASE CDSC ON SHARES BEING SOLD
- --------------------------------------------------------------------------------
<S> <C>
1 year 5.0%
- --------------------------------------------------------------------------------
2 years 4.0%
- --------------------------------------------------------------------------------
3 or 4 years 3.0%
- --------------------------------------------------------------------------------
5 years 2.0%
- --------------------------------------------------------------------------------
6 years 1.0%
- --------------------------------------------------------------------------------
7 or more years None
- --------------------------------------------------------------------------------
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.
</TABLE>
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.
18 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 in John Hancock funds to take advantage of
the breakpoints in the sales charge schedule. The first three ways can be
combined in any manner.
- - Accumulation Privilege -- lets you add the value of any Class A shares you
already own to the amount of your next Class A investment for purposes of
calculating the sales charge.
- - Letter of Intention -- lets you purchase Class A shares of a fund over a
13-month period and receive the same sales charge as if all shares had been
purchased at once.
- - Combination Privilege -- lets you combine Class A shares of multiple funds
for purposes of calculating the sales charge.
To utilize: complete the appropriate section on your application, or contact
your financial representative or Investor Services to add these options to an
existing account.
GROUP INVESTMENT PROGRAM Allows four or more accountholders to declare
themselves a group. Each has an individual account, but for sales charge
purposes, their investments are lumped together, making the investors
potentially eligible for reduced sales charges. There is no charge, no
obligation to invest (although initial aggregate investments must be at least
$250), and you may terminate the program at any time.
To utilize: contact your financial representative or Investor Services to find
out how to qualify.
CDSC WAIVERS In general, the CDSC for either share class may be waived on
shares you sell for the following reasons:
- - to make payments through certain Systematic Withdrawal Plans
- - to make distributions from a retirement plan
- - because of shareholder death or disability
To utilize: contact your financial representative or Investor Services.
REINSTATEMENT PRIVILEGE If you sell shares in a John Hancock fund, you may
invest some or all of the proceeds in the same share class of any John Hancock
fund within 120 days without a sales charge. If you paid a CDSC when you sold
your shares, you will be credited with the amount of the CDSC. All accounts
involved must have the same registration.
To utilize: contact your financial representative or Investor Services.
WAIVERS FOR CERTAIN INVESTORS Class A shares may be offered without front-end
sales charges or CDSCs to various individuals and institutions, including:
- - government entities who are prohibited from paying mutual fund sales
charges
- - financial institutions or common trust funds investing $1 million or more
for non-discretionary accounts
- - selling brokers and their employees and sales representatives
- - financial representatives utilizing fund shares in fee-based investment
products under agreement with John Hancock Funds
- - fund trustees and other individuals who are affiliated with these or other
John Hancock funds
- - individuals transferring assets to a John Hancock growth fund from an
employee benefit plan that has John Hancock funds
To utilize: if you think you may be eligible for a sales charge waiver, contact
Investor Services or consult the SAI (see the back cover of this prospectus).
- --------------------------------------------------------------------------------
OPENING AN ACCOUNT
1 Read this prospectus carefully.
2 Determine how much you want to invest. The minimum initial investments for
the John Hancock growth funds are as follows:
- non-retirement account: $1,000
- retirement account: $250
- group investments: $250
- Monthly Automatic Accumulation Plan (MAAP): $25 to open; you must
invest at least $25 a month
3 Complete the appropriate parts of the Account Application, carefully
following the instructions. If you have questions, please contact your
financial representative or call Investor Services at 1-800-225-5291.
4 Complete the appropriate parts of the Account Privileges 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 on.
5 Make your initial investment using the table on the next page. You can
initiate any purchase, exchange or sale of shares through your financial
representative.
YOUR ACCOUNT 19
<PAGE>
<TABLE>
<CAPTION>
===============================================================================================================================
BUYING SHARES
===============================================================================================================================
OPENING AN ACCOUNT ADDING TO AN ACCOUNT
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C>
BY CHECK
- -------------------------------------------------------------------------------------------------------------------------------
[A graphic image of a blank check.]
- - Make out a check for the investment amount, payable - Make out a check for the investment amount payable
to "John Hancock Investor Services Corporation." to "John Hancock Investor Services Corporation."
- - Deliver the check and your completed application to - Fill out the detachable investment slip from an account
your financial representative, or mail to Investor Services statement. If no slip is available, include a note specifying
(address on next page). the fund name, your share class, your account number,
and the name(s) in which the account is registered.
- Deliver the check and your investment slip or note to
your financial representative, or mail to Investor Services
(address on next page).
- ---------------------------------------------------------------------------------------------------------------------------------
BY EXCHANGE
- ---------------------------------------------------------------------------------------------------------------------------------
[A graphic image of a white arrow outlined in black that points to the right above a black that points to the left.]
- - Call your financial representative or Investor Services - Call Investor Services to request an exchange.
to request an exchange.
- ---------------------------------------------------------------------------------------------------------------------------------
BY WIRE
- ---------------------------------------------------------------------------------------------------------------------------------
[A graphic image of a jagged white arrow outlined in black that points upwards at a 45 degree angle.]
- - Deliver your completed application to your financial - Instruct your bank to wire the amount of your
representative, or mail it to Investor Services. investment to:
First Signature Bank & Trust
- - Obtain your account number by calling your financial Account #900000260
representative or Investor Services. Routing #211475000
Specify the fund name, your share class, your account
- - Instruct your bank to wire the amount of your number, and the name(s) in which the account is registered.
investment to: Your bank may charge a fee to wire funds.
First Signature Bank & Trust
Account # 900000260
Routing # 211475000
Specify the fund name, your choice of share class, the new
account number, and the name(s) in which the account is
registered. Your bank may charge a fee to wire funds.
- -------------------------------------------------------------------------------------------------------------------------------
BY PHONE
- -------------------------------------------------------------------------------------------------------------------------------
[A graphic image of a telephone.]
See "By wire" and "By exchange." - Verify that your bank or credit union is a member of
the Automated Clearing House (ACH) system.
- Complete the "Invest-By-Phone" and "Bank Information"
sections on your Account Privileges Application.
- Call Investor Services to verify that these features are in
place on your account.
- Tell the Investor Services representative the fund name,
your share class, your account number, the name(s)
in which the account is registered, and the amount of
your investment.
To open or add to an account using the Monthly Automatic Accumulation Program, see "Additional investor services."
</TABLE>
20 YOUR ACCOUNT
<PAGE>
<TABLE>
<CAPTION>
===============================================================================================================================
SELLING SHARES
===============================================================================================================================
DESIGNED FOR TO SELL SOME OR ALL OF YOUR SHARES
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C>
BY LETTER
- -------------------------------------------------------------------------------------------------------------------------------
[A graphic image of the back of an envelope.]
- - Accounts of any type. - Write a letter of instruction or stock power indicating
the fund name, your share class, your account number,
- - Sales of any amount. the name(s) in which the account is registered, and the
dollar value or number of shares you wish to sell.
- Include all signatures and any additional documents
that may be required (see next page).
- Mail the materials to Investor Services.
- A check will be mailed to the name(s) and address in
which the account is registered, or otherwise according
to your letter of instruction.
- -------------------------------------------------------------------------------------------------------------------------------
BY PHONE
- -------------------------------------------------------------------------------------------------------------------------------
[A graphic image of a telephone.]
- - Most accounts. - For automated service 24 hours a day using your
Touch-Tone phone, call the John Hancock Funds
- - Sales of up to $100,000. EASI-Line at 1-800-338-8080.
- To place your order with a representative at John
Hancock Funds, call Investor Services between 8 a.m. and
4 p.m. on most business days.
- -------------------------------------------------------------------------------------------------------------------------------
BY WIRE OR ELECTRONIC FUNDS TRANSFER (EFT)
- -------------------------------------------------------------------------------------------------------------------------------
[A graphic image of a jagged white arrow outlined in black that points upwards at a 45 degree angle.]
- - Requests by letter to sell any amount (accounts of - Fill out the "Telephone redemption" section of your
any type). new account application.
- - Requests by phone to sell up to $100,000 (accounts - To verify that the telephone redemption privilege is in
with telephone redemption privileges). place on an account, or to request the forms to add it
to an existing account, call Investor Services.
- Amounts of $1,000 or more will be wired on the next
business day. A $4 fee will be deducted from your
account.
- Amounts of less than $1,000 may be sent by EFT or by
check. Funds from EFT transactions are generally available
by the second business day. Your bank may charge
a fee for this service.
- -------------------------------------------------------------------------------------------------------------------------------
BY EXCHANGE
- -------------------------------------------------------------------------------------------------------------------------------
[A graphic image of a white arrow outlined in black that points to the right above a black that points to the left.]
- - Accounts of any type. - Obtain a current prospectus for the fund into which
you are exchanging by calling your financial representative
- - Sales of any amount. Investor Services.
- Call Investor Services to request an exchange.
============================================
Address for opening an account
John Hancock Investor Services Corporation
P.O. Box 9115 Boston, MA 02205-9115
Address for all other transactions
John Hancock Investor Services Corporation
P.O. Box 9116 Boston, MA 02205-9116
Phone number for all transactions
1-800-225-5291
Or contact your financial representative for To sell shares through a systematic withdrawal plan,
instructions and assistance see "Additional investor services."
============================================
</TABLE>
YOUR ACCOUNT 21
<PAGE>
SELLING SHARES IN WRITING In certain circumstances, you will need to make your
request to sell shares in writing. You may need to include additional items with
your request, as shown in the table below. You may also need to include a
signature guarantee, which protects you against fraudulent orders. You will
need a signature guarantee if:
- - your address of record has changed within the past 30 days
- - you are selling more than $100,000 worth of shares
- - you are requesting payment other than by a check mailed to the address of
record and payable to the registered owner(s)
- - you are an executor
You can generally obtain a signature guarantee from the following sources:
- - a broker or securities dealer
- - a federal savings, cooperative or other type of bank
- - a savings and loan or other thrift institution
- - a credit union
- - a securities exchange or clearing agency
A notary public cannot provide a signature guarantee.
<TABLE>
<CAPTION>
===================================================================================================================================
SELLER REQUIREMENTS FOR WRITTEN REQUESTS [A graphic image of the back of
an envelope.]
===================================================================================================================================
<S> <C>
Owners of individual, joint, sole proprietorship, UGMA/UTMA - Letter of instruction
(custodial accounts for minors) or general partner accounts.
- On the letter, the signatures and titles of all persons authorized
to sign for the account, exactly as the account is registered.
- -----------------------------------------------------------------------------------------------------------------------------------
Owners of corporate or association accounts. - Letter of instruction.
- Corporate resolution.
- On the letter and the resolution, the signature of the
person(s) authorized to sign for the account.
- -----------------------------------------------------------------------------------------------------------------------------------
Owners or trustees of trust accounts. - Letter of instruction.
- On the letter, the signature(s) of the trustee(s).
- If the names of all trustees are not registered on the account,
please also provide a copy of the trust document certified
within the last 60 days.
- -----------------------------------------------------------------------------------------------------------------------------------
Joint tenancy shareholders whose co-tenants are deceased. - Letter of instruction signed by surviving tenant.
- Copy of death certificate.
- -----------------------------------------------------------------------------------------------------------------------------------
Executors of shareholder estates. - Letter of instruction signed by executor.
- Copy of order appointing executor.
- -----------------------------------------------------------------------------------------------------------------------------------
Administrators, conservators, guardians and other sellers or - Call 1-800-225-5291 for instructions.
account types not listed above.
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
22 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, as described earlier.
EXECUTION OF REQUESTS Each fund is open on those days when the New York Stock
Exchange is open, typically Monday-Friday. Buy and sell requests are executed
at the next NAV to be calculated after your request is accepted by Investor
Services.
At times of peak activity, it may be difficult to place requests by phone.
During these times, consider using EASI-Line or sending your request in writing.
In unusual circumstances, any fund may temporarily suspend the processing of
sell requests, or may postpone payment of proceeds for up to three business days
or longer, as allowed by federal securities laws.
TELEPHONE TRANSACTIONS For your protection, telephone requests may be recorded
in order to verify their accuracy. In addition, Investor Services will take
measures to verify the identity of the caller, such as asking for name,
account number, Social Security or taxpayer ID number, and other relevant
information. If these measures are not taken, Investor Services is responsible
for any losses that may occur to any account due to an unauthorized telephone
call. Also for your protection, telephone transactions are not permitted on
accounts whose names or addresses have changed within the past 30 days.
Proceeds from telephone transactions can only be mailed to the address of
record.
EXCHANGES You may exchange shares of your John Hancock fund for shares of the
same class in any other John Hancock fund. You will not be charged any front-end
sales charges, and in general any CDSC calculations will be based on the date of
your original investment (although the CDSC will generally be that of the fund
with the higher rates). Class B shares that are exchanged into a fund that has
no CDSC will retain their original CDSC terms.
To protect the interests of other investors in the fund, a fund may cancel the
exchange privileges of any parties that, in the opinion of the fund, are using
market timing strategies or making more than seven exchanges per owner or
controlling party per calendar year. A fund may change or cancel its exchange
privilege at any time, upon 60 days' notice to its shareholders. A fund may also
refuse any exchange order.
CERTIFICATED SHARES Most shares are electronically recorded. If you wish to
have certificates for your shares, please write to Investor Services.
Certificated shares can only be sold by returning the certificates to Investor
Services, along with a letter of instruction or a stock power and a signature
guarantee.
SALES IN ADVANCE OF PURCHASE PAYMENTS When you place a request to sell shares
for which the purchase money has not yet been collected, the request will be
executed in a timely fashion, but the fund will not release the proceeds to you
until your purchase payment clears. This may take up to ten calendar days after
the purchase.
FOREIGN CURRENCIES Purchases must be made in U.S. dollars. Purchases in foreign
currencies must be converted, which may result in a fee and delayed execution.
- -------------------------------------------------------------------------------
DIVIDENDS AND ACCOUNT POLICIES
ACCOUNT STATEMENTS In general, you will receive account statements as follows:
- - after every transaction (except a dividend reinvestment) that affects your
account balance
- - after any changes of name or address of the registered owner(s)
- - every quarter during which there is a transaction, an automatic
investment/withdrawal plan activity or a dividend reinvestment
- - in all other circumstances, once a year
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.Capital gains dividends, if any, are typically paid once
a year. Most of the funds do not typically pay income dividends, with the
exception of Disciplined Growth Fund and Regional Bank Fund, which typically
pay income dividends quarterly and semi-annually respectively.
YOUR ACCOUNT 23
<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, any dividends you receive from a fund, whether reinvested or taken
as cash, are 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, your fund's transfer agent
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) Lets you set up regular
investments from your paycheck or bank account to the John Hancock fund(s) of
your choice. You determine the frequency and amount of your investments, and you
can terminate your program at any time. To establish:
- - Complete the appropriate parts of your Account Privileges Application.
- - If you are using MAAP to open an account, make out a check ($25 minimum)
for your first investment amount payable to "John Hancock Investor Services
Corporation" and deliver your check and application to your financial
services representative or Investor Services.
SYSTEMATIC WITHDRAWAL PLAN May be used for routine bill payment or periodic
withdrawals from your account. To establish:
- - Make sure you have at least $5,000 worth of shares in your account.
- - Make sure you are not planning to invest more money in this account (buying
shares during a period when you are also selling shares of the same fund is
not advantageous to you, because of sales charges).
- - Specify the payee(s). The payee may be yourself or any other party, and
there is no limit to the number of payees you may have, as long as they are
all on the same payment schedule.
- - Determine the schedule: monthly, quarterly, semi-annually, annually, or in
certain selected months.
- - Fill out the relevant part of the Account Privileges Application. To add a
Systematic Withdrawal Plan to an existing account, contact your financial
representative or Investor Services.
RETIREMENT PLANS John Hancock Funds offers a range of qualified retirement
plans, including IRAs, SEPs, SARSEPs, TSAs, 401(k) plans, 403(b) plans, and
other pension and profit-sharing plans. Using these plans, you can invest in any
John Hancock fund with a low minimum investment of $250 or, for some group
plans, no minimum investment at all. To find out more, call Investor Services at
1-800-225-5291.
24 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 or a Board of Directors, an
independent body which 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 that 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").
[A flow chart that contains 9 rectangular-shaped boxes and illustrates the
hierarchy of how the funds are organized. Within the flowchart, there are 5
tiers. The tiers are connected by shaded lines.
Shareholders represent the first tier. There is a shaded vertical arrow on the
left-hand side of the page. The arrow has arrowheads on both ends and is
contained within two horizontal, shaded lines. This is meant to highlight
tiers two and three which focus on Distribution and Shareholder Services.
Financial Services Firms and their Representatives is shown on the second
tier. Principal Distributor and Transfer Agent are shown on the third tier.
A shaded vertical arrow on the right-hand side of the page denotes those
entities involved in Asset Management. The arrow has arrowheads on both ends
and is contained within two horizontal, shaded lines. This fourth tier
includes the Subadvisor, Investment Advisor and the Custodian.
The fifth tier contains the Trustees/Directors.]
FUND DETAILS 25
<PAGE>
ACCOUNTING COMPENSATION The funds compensate the adviser for performing tax and
financial management services. Annual compensation for 1996 is estimated to be
0.01875% of each fund's average net assets.
PORTFOLIO TRADES In placing portfolio trades, the adviser may give preference to
brokerage firms that market the fund's shares or that are affiliated with John
Hancock Mutual Life Insurance Company, but only in cases where no other firm
appears to offer a better combination of quality execution (i.e., timeliness and
completeness) and favorable price.
<TABLE>
ADVERTISEMENT OF PERFORMANCE The funds may include figures for yield (where
appropriate) and total return in advertisements and other sales materials, as
follows:
<CAPTION>
===============================================================================
DEFINITIONS OF PERFORMANCE MEASURES
===============================================================================
Measure Definition
<S> <C>
Cumulative total Overall dollar or percentage change of a
return hypothetical investment over the stated time
period.
Average annual Cumulative total return divided by the
total return number of years in the period. The result is
an average and is not the same as the actual
year-to-year results.
Yield A measure of income, calculated by taking
the net investment income per share for a
30-day period, dividing it by the offering
price per share on the last day of the period
(if there is more than one offering price, the
highest price is used), and annualizing the
result. While this is the standard accounting
method for calculating yield, it does not
reflect the fund's actual bookkeeping; as a
result, the income reported or paid by the
fund may be different.
</TABLE>
All performance figures assume that dividends are reinvested, and show the
effect of all applicable sales charges. Class A performance figures generally
are calculated using the maximum sales charge. Because each share class has its
own sales charge structure, the classes have different performance results.
- -------------------------------------------------------------------------------
SALES COMPENSATION As part of their business strategies, the funds, along with
John Hancock Funds, pay compensation to financial services firms that sell the
funds' shares. These firms typically pass along a portion of this compensation
to your financial representative.
Compensation payments originate from two sources: from sales charges and from
12b-1 fees that are paid out of the fund in assets (the name refers to the
federal securities regulation that authorizes annual fees of this type). The
12b-1 fee rates vary by fund and by share class, according to Rule 12b-1 plans
adopted by the funds' respective boards. The sales charges and 12b-1 fees paid
by investors are detailed in the fund-by-fund information. The portions of these
expenses that are reallowed to financial services firms are shown below.
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.
From time to time, as an additional incentive to these firms, John Hancock Funds
may increase the reallowance on Class A shares to as much as the entire
front-end sales charge.
ANNUAL COMPENSATION Beginning with the second year after an investment is made,
the financial services firm receives an annual service fee of 0.25% of its total
eligible net assets. This fee is paid quarterly in arrears. Firms affiliated
with John Hancock, which include Tucker Anthony, Sutro & Company and John
Hancock Distributors, may receive an additional fee of up to 0.05% a year of
their total eligible net assets.
STATE REGISTRATION OF FUNDS You may only invest in or exchange into funds that
are registered in the state in which you live.
INVESTMENT GOALS Except for Discovery Fund, Special Opportunities Fund and
Emerging Growth Fund, each fund's investment goal is fundamental, meaning that
it may only be changed with shareholder approval.
26 FUND DETAILS
<PAGE>
<TABLE>
<CAPTION>
==========================================================================================================================
CLASS A INVESTMENTS
==========================================================================================================================
MAXIMUM
SALES CHARGE REALLOWANCE 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 -- 1.00% 0.25% 1.24%
- --------------------------------------------------------------------------------------------------------------------------
Next $1 - $5M above that -- 0.50% 0.25% 0.74%
- --------------------------------------------------------------------------------------------------------------------------
Next $1M and more above that -- 0.25% 0.25% 0.49%
- --------------------------------------------------------------------------------------------------------------------------
Waiver investments(2) -- 0.00% 0.25% 0.25%
==========================================================================================================================
CLASS B INVESTMENTS
==========================================================================================================================
MAXIMUM
REALLOWANCE MAXIMUM
OR COMMISSION SERVICE FEE TOTAL COMPENSATION (1)
(% of offering price) (% of net investment) (% of offering price)
- --------------------------------------------------------------------------------------------------------------------------
All amounts 3.75% 0.25% 4.00%
- --------------------------------------------------------------------------------------------------------------------------
(1) Reallowance/commission percentages and service fee percentages are calculated from different amounts, and therefore
may not equal total compensation percentages if combined using simple addition.
(2) Refers to any investments made by municipalities, financial institutions and trusts that take advantage of the sales
charge waivers described earlier in this prospectus.
CDSC revenues collected by John Hancock Funds may be used to fund commission payments when there is no initial sales charge.
</TABLE>
FUND DETAILS 27
<PAGE>
- -------------------------------------------------------------------------------
MORE ABOUT RISK
A fund's risk profile is largely defined by the fund's primary securities and
investment practices. You may find the most concise description of each fund's
risk profile in the fund-by-fund information.
The funds are permitted to utilize -- within limits established by the Trustees
- -- certain other securities and investment practices that have higher risks and
opportunities associated with them. To the extent a fund utilizes these
securities or practices, its overall performance may be affected, either
positively or negatively. On the following page are brief descriptions of these
securities and practices, along with the risks associated with them. The funds
follow certain policies which 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.
Below are definitions of the types of investment risk associated with higher
risk securities and practices:
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 leverage risk.
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 losses attributable to the behavior of 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
"leverage" small changes in the value of a given index or security into large
changes.
- - HEDGED When a derivative (a security whose value is based on another
security or index) is used as a hedge against an opposite position which
the fund also holds, any loss generated by the derivative should be
substantially offset by gains on the hedged investment, and vice versa.
While hedging can reduce or eliminate losses, it can also reduce or
eliminate gains.
- - 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 affect on fund management or
performance.
MANAGEMENT RISK The risk that 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 operates on all levels of a market; it 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 other investments.
POLITICAL RISK The risk of losses directly attributable to government or
political actions of any sort. These actions may range from changes in tax or
trade statutes to expropriation, governmental collapse and war.
VALUATION RISK The risk that a fund has valued certain of its securities at a
higher price than it can sell them for.
28 FUND DETAILS
<PAGE>
<TABLE>
<CAPTION>
====================================================================================================================================
HIGHER RISK SECURITIES AND PRACTICES
====================================================================================================================================
This table shows each funs's investment limitations as
a percent of portfolio assets italic type if gross
assets, roman type if net assets). "NPL" indicates there
is no policy limit. In each case the principal types of DISICI-
risk are listed (see previous page for definitions). PLINED EMERGING REGIONAL SPECIAL SPECIAL
GROWTH DISCOVERY GROWTH GROWTH BANK EQUITIES OPPORTUNITIES
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
INVESTMENT PRACTICES
REPURCHASE AGREEMENTS The purchase of a security that must
later be sold back to the issuer at the same price plus
interest. Credit risk. NPL NPL NPL NPL NPL NPL NPL
REVERSE REPURCHASE AGREEMENTS The sale of a security that
must later be bought back at the same price minus interest.
Leverage, credit risks. 33.3% 5% 33.3% 33.3% 33.3% 33.3% 33.3%
SECURITIES LENDING The lending of securities to financial
institutions, which provide cash or government securities as
collateral. Credit risk. 5% 33.3% 30% 33.3% 0% 33.3% 33.3%
SHORT SALES The selling of securities which have been
borrowed on the expectation that the market price will drop.
- - Hedged. Hedged leverage, market, correlation, liquidity,
opportunity risks. 0% NPL NPL NPL 0% NPL NPL
- - Speculative. Speculative leverage, market, liquidity risks. 0% 0% 0% 0% 0% 0% 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. NPL NPL NPL NPL NPL NPL NPL
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. NPL NPL NPL NPL NPL NPL NPL
- ------------------------------------------------------------------------------------------------------------------------------------
SECURITIES -- NON-DERIVATIVE
NON-INVESTMENT GRADE CONVERTIBLE SECURITIES Debt securities
that convert into equity securities at a future time.
Convertibles rated below BBB/Baa are considered "junk" bonds.
Credit, market, interest rate risks, liquidity, valuation and
information risks. 0% 0% 10% 5% 0% 0% 0%
FOREIGN EQUITIES
- - Stocks issued by foreign corporations. Market, currency,
information, natural event, political risks. 0% 25% NPL 0% 0% NPL NPL
- - 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 a foreign corporation. Market, currency, information,
natural event, political risks. 10% 25% NPL 15% 0% NPL NPL
RESTRICTED AND ILLIQUID SECURITIES Securities not traded on the
open market. May include illiquid Rule 144A securities.
Liquidity, market risks. 15% 15% 10% 15% 10% 15% 15%
- -----------------------------------------------------------------------------------------------------------------------------------
SECURITIES -- DERIVATIVE
FINANCIAL FUTURES AND OPTIONS; SECURITIES AND INDEX OPTIONS
Contracts involving the right or obligation to deliver or
receive assets or money depending on the performance of one or
more assets or an economic index.
- - Futures and related options. Market, hedged or speculative
leverage, correlation, liquidity, opportunity risks. NPL NPL NPL NPL NPL NPL NPL
- - Options on securities and indices. Market, hedged or
speculative leverage, correlation, liquidity, opportunity
risks. 5% 5%(1) 10%(1) NPL 5% NPL NPL
CURRENCY CONTRACTS Contracts involving the right or obligation
to buy or sell a given amount of foreign currency at a specified
price and future date.
- - Hedged. Currency, hedged leverage, correlation, liquidity,
opportunity risks. 0% 25% NPL NPL 0% NPL NPL
- - Speculative. Currency, speculative leverage, liquidity risks. 0% 0% 0% 0% 0% 0% 0%
(1) Applies to purchases only.
</TABLE>
FUND DETAILS 29
<PAGE>
FOR MORE INFORMATION
- -------------------------------------------------------------------------------
Two documents are available that offer further information on John Hancock
Growth Funds:
ANNUAL/SEMI-ANNUAL REPORT TO SHAREHOLDERS
Includes financial statements, detailed performance information, portfolio
holdings, a statement from the portfolio manager, and the auditor's report.
STATEMENT OF ADDITIONAL INFORMATION (SAI)
The SAI contains more detailed information on all aspects of the funds. The
current annual/semi-annual report is included in the SAI.
The Statement of Additional Information has been filed with the Securities and
Exchange Commission and is incorporated by reference into this prospectus (is
legally part of this prospectus).
To request a free copy of the current annual/semi-annual report or the SAI,
please write or call:
John Hancock Investor Services Corporation
P.O. Box 9116
Boston, MA 02205-9116
Telephone: 1-800-225-5291
TDD: 1-800-544-6713
Email: http://jhancockfunds.com
[LOGO] JOHN HANCOCK FUNDS
A GLOBAL INVESTMENT MANAGEMENT FIRM
101 Huntington Avenue
Boston, Massachusetts 02199-7603
[LOGO]
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FREEDOM INVESTMENT TRUST
consisting of five series
which are included herein:
- John Hancock Sovereign U.S. Government Income Fund
- John Hancock Managed Tax-Exempt Fund
- John Hancock Gold & Government Fund
- John Hancock Disciplined Growth Fund
- John Hancock Regional Bank Fund
and
FREEDOM INVESTMENT TRUST II
consisting of five series,
two of which are included herein:
- John Hancock Global Fund
- John Hancock Global Income Fund
Class A and Class B Shares
Statement of Additional Information
July 1, 1996
(with respect to
Disciplined Growth Fund
and Regional Bank Fund)
March 1, 1996 as revised July 1, 1996
(with respect to all other Funds)
This Statement of Additional Information provides information about John Hancock
Sovereign U.S. Government Income Fund, John Hancock Managed Tax-Exempt Fund,
John Hancock Gold & Government Fund, John Hancock Global Fund and John Hancock
Global Income Fund in addition to the information that is contained in those
Funds' Class A and Class B Shares Prospectuses dated March 1, 1996 and about
John Hancock Disciplined Growth Fund and John Hancock Regional Bank Fund in
addition to the information that is contained in those Funds' combined
Prospectus dated July 1, 1996 (together with the March 1, 1996 Prospectuses, the
"Prospectuses").
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This Statement of Additional Information is not a prospectus. It should be read
in conjunction with the Funds' Prospectuses, a copy of which can be obtained
free of charge by writing or telephoning:
John Hancock Investor Services Corporation
P.O. Box 9116
Boston, Massachusetts 02205-9116
1-800-225-5291
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TABLE OF CONTENTS
Page
Organization of the Funds .................................... 3
Investment Objectives and Policies.................................. 3
- --- John Hancock Sovereign U.S. Government Income Fund.............. 4
- --- John Hancock Managed Tax-Exempt Fund........................... 7
- --- John Hancock Gold & Government Fund............................. 11
- --- John Hancock Disciplined Growth Fund............................ 14
- --- John Hancock Regional Bank Fund................................. 15
- --- John Hancock Global Fund........................................ 17
- --- John Hancock Global Income Fund................................. 17
The Funds' Options Trading Activities............................... 20
The Funds' Investments in Futures Contracts......................... 29
Certain Investment Practices ....................................... 37
Investment Restrictions............................................. 42
Tax Status.......................................................... 46
Those Responsible for Management.................................... 52
Investment Advisory and Other Services.............................. 59
Distribution Contracts.............................................. 62
Net Asset Value..................................................... 64
Initial Sales Charge on Class A Shares.............................. 65
Deferred Sales Charge on Class B Shares............................. 66
Special Redemptions................................................. 68
Additional Services and Programs.................................... 68
Description of the Funds' Shares.................................... 70
Calculation of Performance.......................................... 71
Brokerage Allocation................................................ 75
Distributions....................................................... 79
Transfer Agent Services............................................. 80
Custody of Portfolio................................................ 80
Independent Accountants............................................. 80
Financial Statements................................................ 80
Appendix A
- - Bond and Commercial Paper Ratings................................. 81
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ORGANIZATION OF THE FUNDS
Freedom Investment Trust is a diversified open-end management investment
company organized as a Massachusetts business trust on March 29, 1984. Freedom
Investment Trust was originally organized under the name Freedom Gold &
Government Trust. It changed its name to Freedom Investment Trust on July 22,
1985. The Trustees have authority to issue an unlimited number of shares of
beneficial interest of separate series without par value. To date, five series
of Freedom Investment Trust have been authorized for sale to the public by the
Board of Trustees: John Hancock Gold & Government Fund (formerly John Hancock
Freedom Gold & Government Trust), created on March 29, 1984 ("Gold & Government
Fund"), John Hancock Regional Bank Fund (formerly John Hancock Freedom Regional
Bank Fund), created on April 2, 1985 ("Regional Bank Fund"), John Hancock
Sovereign U.S. Government Income Fund (formerly Freedom Government Income Fund),
created on January 16, 1986 ("Government Fund"), John Hancock Disciplined Growth
Fund (formerly John Hancock Sovereign Achievers Fund and prior thereto Freedom
Equity Value Fund), created on January 16, 1986 ("Disciplined Growth Fund"), and
John Hancock Managed Tax-Exempt Fund (formerly John Hancock Freedom Managed Tax
Exempt Fund ("Managed Tax Exempt Fund")).
Freedom Investment Trust II is an open-end management investment company
organized as a Massachusetts business trust on March 31, 1986. Freedom
Investment Trust II currently has five series of shares, John Hancock Global
Fund (formerly John Hancock Freedom Global Fund), created on March 31, 1986
("Global Fund"), John Hancock Global Income Fund (formerly John Hancock Freedom
Global Income Fund), created on July 30, 1986 ("Global Income Fund"), John
Hancock Short-Term Strategic Income Fund (formerly John Hancock Freedom
Short-Term World Income Fund), created on July 31, 1990; John Hancock Special
Opportunities Fund, created on November 1, 1993 ("Special Opportunities Fund"),
and John Hancock International Fund (formerly John Hancock Freedom International
Fund), created on January 3, 1994 ("International Fund").
Freedom Investment Trust and Freedom Investment Trust II may be referred to
individually as a "Trust" and collectively as the "Trusts". Gold & Government
Fund, Regional Bank Fund, Government Fund, Disciplined Growth Fund, Managed
Tax-Exempt Fund, Global Fund and Global Income Fund may be referred to
individually as a "Fund" and collectively as the "Funds."
INVESTMENT OBJECTIVES AND POLICIES
The following information supplements the discussion of each Fund's
investment objectives and policies discussed in each Fund's respective
Prospectus. The investment adviser for all the Funds is John Hancock Advisers,
Inc. (the "Adviser"). John Hancock Advisers International Limited ("JH Advisers
International") is the Sub-Adviser for the Global Fund.
John Hancock Sovereign U.S. Government Income Fund
The Adviser believes that a high current income consistent with long-term
total return may be derived from: (i) interest income from Government
Securities; (ii) income from premiums from expired put and call options on
Government Securities written by the Government Fund; (iii)
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net gains from closing purchase and sale transactions with respect to options on
Government Securities; and (iv) net gains from sales of portfolio securities on
exercise of options or otherwise.
Since interest yields on Government Securities and opportunities to realize
net gains from options transactions may vary from time to time because of
general economic and market conditions and many other factors, it is anticipated
that the Government Fund's share price and yield will fluctuate, and there can
be no assurance that the Government Fund's objective will be achieved.
Government Securities
U.S. Treasury Securities. The Government Fund may invest in U.S. Treasury
securities, including Bills, Notes, Bonds and other debt securities issued by
the U.S. Treasury. These instruments are direct obligations of the U.S.
Government and differ primarily in their interest rates, the lengths of their
maturities and the times of their issuance.
Securities Issued or Guaranteed by U.S. Government Agencies and
Instrumentalities. The Government Fund may also invest in securities issued by
agencies of the U.S. Government or instrumentalities established or sponsored by
the U.S. Government. The obligations, including those which are guaranteed by
Federal agencies or instrumentalities, may or may not be backed by the "full
faith and credit" of the United States. In the case of securities not backed by
the full faith and credit of the United States, the Government Fund must look
principally to the agency issuing or guaranteeing the obligation for ultimate
repayment and may not be able to assert a claim against the United States itself
in the event the agency or instrumentality does not meet its commitments.
Securities in which the Government Fund may invest but which are not backed by
the full faith and credit of the United States include but are not limited to
obligations of the Tennessee Valley Authority, the Federal Home Loan Mortgage
Corporation ("FHLMC") and the United States Postal Service, each of which has
the right to borrow from the United States Treasury to meet its obligations, and
obligations of the Federal Farm Credit System, the Federal National Mortgage
Association ("FNMA") and the Federal Home Loan Banks, the obligations of which
may only be satisfied by the individual credit of the issuing agency.
Obligations of the Government National Mortgage Association ("GNMA"), the
Farmers Home Administration and the Export-Import Bank are backed by the full
faith and credit of the United States.
Securities of International Bank for Reconstruction and Development
The Government Fund may also purchase obligations of the International Bank
for Reconstruction and Development ("World Bank"), which, while technically not
a U.S. Government agency or instrumentality, has the right to borrow from the
participating countries, including the United States.
Mortgage-Related Securities
The Government Fund may invest in mortgage-backed securities, including
those representing an undivided ownership interest in a pool of mortgage loans,
e.g., securities of the GNMA and pass-through securities issued by the FHLMC and
FNMA.
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GNMA Certificates. Certificates of the Government National Mortgage Association
("GNMA Certificates") are mortgage-backed securities, which evidence an
undivided interest in a pool of mortgage loans. GNMA Certificates differ from
bonds in that the principal is paid back monthly by the borrower over the term
of the loan rather than returned in a lump sum at maturity. GNMA Certificates
that the Government Fund purchases are the "modified pass-through" type.
"Modified pass-through" GNMA Certificates entitle the holder to receive a share
of all interest and principal payments paid and owed on the mortgage pool, net
of fees paid to the "issuer" and GNMA, regardless of whether or not the
mortgagor actually makes the payment.
GNMA Guarantee. The National Housing Act authorizes GNMA to guarantee the timely
payment of principal and interest on securities backed by a pool of mortgages
insured by the Federal Housing Administration ("FHA") or the Farmers' Home
Administration ("FMHA"), or guaranteed by the Veterans Administration ("VA").
The GNMA guarantee is backed by the full faith and credit of the United States.
The GNMA is also empowered to borrow without limit from the U.S. Treasury if
necessary to make any payments required under its guarantee.
Life of GNMA Certificates. The average life of a GNMA Certificate is likely to
be substantially less than the original maturity of the mortgage pools
underlying the securities. Prepayments of principal by mortgagors and mortgage
foreclosures will usually result in the return of the greater part of principal
investment long before the contractual maturity of the mortgages in the pool.
Foreclosures impose no risk to principal investment because of the GNMA
guarantee. Because they represent the underlying mortgages, GNMA Certificates
may not be an effective means of locking in long-term interest rates due to the
need for the Government Fund to reinvest scheduled and unscheduled principal
payments. At the time principal payments or prepayments are received by the
Government Fund, prevailing interest rates may be higher or lower than the
current yield of the Fund's portfolio.
Statistics published by the FHA indicate that the average life of
single-family dwelling mortgages with 25 to 30-year maturities, the type of
mortgages backing the vast majority of GNMA Certificates, is approximately 12
years. However, because prepayment rates of individual mortgage pools vary
widely, it is not possible to predict accurately the average life of a
particular issue of GNMA Certificates.
Yield Characteristics of GNMA Certificates. The coupon rate of interest on GNMA
Certificates is lower than the interest rate paid on the VA-guaranteed or
FHA-insured mortgages underlying the Certificates, by the amount of the fees
paid to GNMA and the issuer.
The coupon rate by itself, however, does not indicate the yield which will
be earned on GNMA Certificates. First, GNMA Certificates may be issued at a
premium or discount, rather than at par, and, after issuance, GNMA Certificates
may trade in the secondary market at a premium or discount. Second, interest is
earned monthly, rather than semiannually as with traditional bonds; monthly
compounding raises the effective yield earned. Finally, the actual yield of a
GNMA Certificate is influenced by the prepayment experience of the mortgage pool
underlying it. For example, if the higher-yielding mortgages from the pool are
prepaid, the yield on the remaining pool will be reduced. Prepayments of
principal by mortgagors (which can be made at any time without penalty) may
increase during periods when interest rates are falling.
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FHLMC Securities. The Federal Home Loan Mortgage Corporation was created in 1970
through enactment of Title III of the Emergency Home Finance Act of 1970. Its
purpose is to promote development of a nationwide secondary market in
conventional residential mortgages.
The FHLMC issues two types of mortgage pass-through securities, mortgage
participation certificates ("PCs") and guaranteed mortgage certificates
("GMCs"). PCs resemble GNMA Certificates in that each PC represents a pro rata
share of all interest and principal payments made and owed on the underlying
pool. The FHLMC guarantees timely payment of interest on PCs and the full return
of principal.
GMC's also represent a pro rata interest in a pool of mortgages. However,
these instruments pay interest semiannually and return principal once a year in
guaranteed minimum payments.
FNMA Securities. The Federal National Mortgage Association was established in
1938 to create a secondary market in mortgages insured by the FHA.
FNMA Issued Guaranteed Mortgage Pass-through Certificates ("FNMA Certificates").
FNMA Certificates resemble GNMA Certificates in that each FNMA Certificate
represents a pro rata share of all interest and principal payments made and owed
on the underlying pool. FNMA guarantees timely payment of interest on FNMA
Certificates and the full return of principal.
Collateralized Mortgage-Backed Obligations ("CMO's"). CMOs are
fully-collateralized bonds which are the general obligations of the issuer
thereof, either the U.S. Government or a U.S. Government instrumentality. Such
bonds generally are secured by an assignment to a trustee (under the indenture
pursuant to which the bonds are issued) of collateral consisting of a pool of
mortgages. Payments with respect to the underlying mortgages generally are made
to the trustee under the indenture. Payments of principal and interest on the
underlying mortgages are not passed through to the holders of the CMOs as such
(i.e. the character of payments of principal and interest is not passed through,
and therefore payments to holders of CMOs attributable to interest paid and
principal repaid on the underlying mortgages do not necessarily constitute
income and return of capital, respectively, to such holders), but such payments
are dedicated to payment of interest on and repayment of principal of the CMOs.
CMOs often are issued in two or more classes with varying maturities and stated
rates of interest. Because interest and principal payments on the underlying
mortgages are not passed through to holders of CMOs, CMOs of varying maturities
may be secured by the same pool of mortgages, the payments on which are used to
pay interest on each class and to retire successive maturities in sequence.
Unlike other mortgage-backed securities (discussed above), CMOs are designed to
be retired as the underlying mortgages are repaid. In the event of prepayment on
such mortgages, the class of CMO first to mature generally will be paid down.
Therefore, although in most cases the issuer of CMOs will not supply additional
collateral in the event of such prepayment, there will be sufficient collateral
to secure CMOs that remain outstanding.
Inverse Floating Rate Securities. The Government Fund may invest in inverse
floating rate securities. It is the current intention of the Fund to invest no
more than 5% of its net assets in inverse floating rate securities. The interest
rate on an inverse floating rate security resets in the opposite direction from
the market rate of interest to which the inverse floating rate security is
indexed. An inverse floating rate security may be considered to be leveraged to
the extent that its
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interest rate varies by a multiple of the index rate of interest. A higher
degree of leverage in the inverse floating rate security is associated with
greater volatility in the market value of such security.
The inverse floating rate securities that the Government Fund may invest in
include but are not limited to, an inverse floating rate class of a government
agency issued CMO and a government agency issued yield curve note. Typically, an
inverse floating rate class of a CMO is one of two components created from the
cash flows from a pool of fixed rate mortgages. The other component is a
floating rate security in which the amount of interest payable varies directly
with a market interest rate index. A yield curve note is a fixed income security
that bears interest at a floating rate that is reset periodically based on an
interest rate benchmark. The interest rate resets on a yield curve note in the
opposite direction from the interest rate benchmark.
Portfolio Turnover
If the Government Fund writes a number of call options and the market
prices of the underlying securities appreciate, or if the Fund writes a number
of put options and the market prices of the underlying securities depreciate,
there may be a substantial turnover of the portfolio. While the Government Fund
will pay commissions in connection with its options transactions, Government
Securities are generally traded on a "net" basis with dealers acting as
principal for their own accounts without a stated commission. Nevertheless, high
portfolio turnover may involve correspondingly greater commissions and other
transaction costs, which will be borne directly by the Fund.
John Hancock Managed Tax-Exempt Fund
Municipal Securities
Municipal securities are issued by or on behalf of states, territories and
possessions of the United States and their political subdivisions, agencies and
instrumentalities to obtain funds for various public purposes. The interest on
these obligations is generally exempt from federal income tax in the hands of
most investors. The two principal classifications of municipal securities are
"Notes" and "Bonds".
Municipal Notes. Municipal Notes are generally used to provide for short-term
capital needs and generally have maturities of one year or less. Municipal Notes
include: Project Notes (which carry a U.S. Government guarantee), Tax
Anticipation Notes, Revenue Anticipation Notes, Bond Anticipation Notes and
Construction Loan Notes.
Project Notes are issued by public bodies (called "Local Issuing Agencies")
created under the laws of a state, territory, or U.S. possession. They have
maturities that range up to one year from the date of issuance. Project Notes
are backed by an agreement between the Local Issuing Agency and the U.S.
Department of Housing and Urban Development to provide financing for a range of
programs of financial assistance for housing, redevelopment, and related needs
such as low-income housing programs and urban renewal programs. While they are
the primary obligations of the local public housing agencies or the local urban
renewal agencies, the agreement provides for the additional security of the full
faith and credit of the U.S. Government.
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Tax Anticipation Notes are sold to finance working capital needs of
municipalities. They are generally payable from specific tax revenues expected
to be received at a future date. Revenue Anticipation Notes are issued in
expectation of receipt of other types of revenue such as federal revenues
available under the Federal Revenue Sharing Program. Tax Anticipation Notes and
Revenue Anticipation Notes are generally issued in anticipation of various
seasonal revenues such as income, sales, use, and business taxes. Bond
Anticipation Notes are sold to provide interim financing. These notes are
generally issued in anticipation of long-term financing in the market. In most
cases, these monies provide for the repayment of the notes. Construction Loan
Notes are sold to provide construction financing. After the projects are
successfully completed and accepted, many projects receive permanent financing
through the Federal Housing Administration under "Fannie Mae" (the Federal
National Mortgage Association) or "Ginnie Mae" (the Government National Mortgage
Association). There are, of course, a number of other types of notes issued for
different purposes and secured differently from those described above.
Municipal Bonds. Municipal Bonds, which meet longer term capital needs and
generally have maturities of more than one year when issued, have two principal
classifications: "General Obligation" Bonds and "Revenue" Bonds.
Issuers of General Obligation Bonds include states, counties, cities, towns
and regional districts. The proceeds of these obligations are used to fund a
wide range of public projects including the construction or improvement of
schools, highways and roads, water and sewer systems and a variety of other
public purposes. The basic security of General Obligation Bonds is the issuer's
pledge of its faith, credit, and taxing power for the payment of principal and
interest. The taxes that can be levied for the payment of debt service may be
limited or unlimited as to rate or amount of special assessments.
The principal security for a Revenue Bond is generally the net revenues
derived from a particular facility or group of facilities or, in some cases,
from the proceeds of a special excise or other specific revenue source. Revenue
Bonds have been issued to fund a wide variety of capital projects including:
electric, gas, water and sewer systems; highways, bridges and tunnels; port and
airport facilities; colleges and universities; and hospitals. Although the
principal security behind these bonds varies widely, many provide additional
security in the form of a debt service reserve fund whose monies may also be
used to make principal and interest payments on the issuer's obligations.
Housing finance authorities have a wide range of security including partially or
fully insured, rent subsidized and/or collateralized mortgages, and/or the net
revenues from housing or other public projects. In addition to a debt service
reserve fund, some authorities provide further security in the form of a state's
ability (without obligation) to make up deficiencies in the debt service reserve
fund. Lease rental revenue bonds issued by a state or local authority for
capital projects are secured by annual lease rental payments from the state or
locality to the authority sufficient to cover debt service on the authority's
obligations.
Industrial Development and Pollution Control Bonds, although nominally
issued by municipal authorities, are generally not secured by the taxing power
of the municipality but are secured by the revenues of the authority derived
from payments by the industrial user.
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John Hancock Managed Tax-Exempt Fund
Variable Floating Rate Obligations.
As discussed under "Investment Objective and Policies" in the Prospectus,
certain of the obligations in which the Fund may invest may be variable or
floating rate obligations on which the interest rate is adjusted at
predesignated periodic intervals (variable rate) or when there is a change in
the market rate of interest on which the interest rate payable on the obligation
is met is based (floating rate). Variable or floating rate obligations may
include a demand feature which entitles the purchaser to demand prepayment of
the principal amount prior to stated maturity. Also, the issuer may have a
corresponding right to prepay the principal amount prior to maturity. As with
any other type of debt security, the marketability of variable or floating rate
instruments may vary depending upon a number of factors, including the type of
issuer and the terms of the instruments. The Fund may also invest in more
recently developed floating rate instruments which are created by dividing a
municipal security's interest rate into two or more different components.
Typically, one component ("floating rate component" or "FRC") pays an interest
rate that is reset periodically through an auction process or by reference to an
interest rate index. A second component ("inverse floating rate component" or
"FRC") pays an interest rate that varies inversely with changes to market rates
of interest, because the interest paid to the IFRC holders is generally
determined by subtracting a variable or floating rate from a predetermined
amount (i.e., the difference between the total interest paid by the municipal
security and that paid by the FRC). The Fund may purchase the FRC's without
limitation. Up to 10% of the Fund's total assets may be invested in IFRC's in an
attempt to protect against a reduction in the income earned on the Fund's other
investments due to a decline in interest rates. The extent of increases and
decreases in the value of an IFRC generally will be greater than comparable
changes in value of an equal principal amount of fixed-rate municipal security
having similar credit quality, redemption provisions and maturity. To the extent
that such instruments are not readily marketable, as determined by the
Investment Adviser pursuant to the guidelines adopted by the Board of Trustees,
they will be considered illiquid for purposes of the Fund's 10% investment
restriction on investment in non-readily marketable securities. Variable and
floating rate obligations are subject to the quality characteristics for
municipal obligations described in the Appendix to this Statement of Additional
Information.
Other Municipal Securities.
There is, in addition, a variety of hybrid and special types of municipal
securities as well as numerous differences in the security of municipal
securities both within and between the two principal classifications above.
For the purpose of certain requirements of various of the Fund's investment
restrictions, identification of the "issuer" of a municipal security depends on
the terms and conditions of the security. When the assets and revenues of a
political subdivision are separate from those of the government which created
the subdivision and the security is backed only by the assets and revenues of
the subdivision, the subdivision would be deemed to be the sole issuer.
Similarly, in the case of an industrial development bond, if that bond is backed
only by the assets and revenues of the nongovernmental user, then the
nongovernmental user would be deemed to be the sole issuer. If, however, in
either case, the creating government or some other entity guarantees the
security, the guarantee would be considered a separate security and would be
treated as an issue of the government or other agency.
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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 municipal 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 Managed
Tax-Exempt Fund as initial criteria for the selection of portfolio securities,
but the Fund will also rely upon the independent advice of the Adviser to
evaluate potential investments. 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 Managed Tax-Exempt Fund, an issue of
municipal securities may cease to be rated or its rating may be reduced below
the minimum required for purchase by the Managed Tax-Exempt Fund. Neither event
will require the sale of such municipal securities by the Fund, but the Adviser
will consider such event in its determination of whether the Fund should
continue to hold the securities.
Risk Factors
The yields on municipal securities are dependent on a variety of factors,
including general economic and monetary conditions, money market factors,
conditions of the municipal securities market, size of a particular offering,
maturity of the obligation, and rating of the issue.
Municipal securities are also subject to the provisions of bankruptcy,
insolvency and other laws affecting the rights and remedies of creditors, such
as the Federal Bankruptcy Code, and laws, if any, which may be enacted by
Congress or state legislatures extending the time for payment of principal or
interest, or both, or imposing other constraints upon enforcement of such
obligations or upon the ability of municipalities to levy taxes. There is also
the possibility that as a result of litigation or other conditions the power or
ability of any one or more issuers to pay, when due, principal of and interest
on certain municipal securities may be materially affected.
From time to time, proposals to restrict or eliminate the Federal income
tax-exemption for interest on municipal securities have been introduced before
Congress. If such a proposal were enacted, the availability of municipal
securities for investment by the Managed Tax-Exempt Fund would be adversely
affected. In such event, the Fund would re-evaluate its investment objective and
policies and submit possible changes in its structure for the consideration of
shareholders.
John Hancock Gold & Government Fund
The Adviser believes that during periods of increasing inflation or
economic or monetary instability, gold and related assets have served as a
storehouse of value and their prices have tended to increase at least as rapidly
as the rate of inflation. During such periods, interest rates have tended to
increase, causing the market value of debt instruments to decline. Conversely,
during periods of disinflation (when inflationary pressures are being reversed),
the price of high grade debt instruments has tended to increase while the value
of precious metals and related instruments has tended to decline.
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The Adviser's determination as to whether the economy is in an inflationary
or disinflationary environment will be made based upon its evaluation of
numerous economic and monetary factors. These factors will include, but not
necessarily be limited to, the actual and anticipated rate of change of the
Consumer Price Index ("CPI") over specified periods of time, actual and
anticipated changes and rate of changes in the value of the U.S. dollar in
relation to other key foreign currencies (e.g., the German mark, the British
pound and the Japanese yen), actual and anticipated changes, and rate of
changes, in short and long term interest rates and real interest rates (i.e.,
inflation adjusted interest rates), actual and anticipated changes in the money
supply, and actual and anticipated governmental fiscal and monetary policy. It
should be emphasized that the Adviser will not apply a rigid, mechanical
determination in assessing whether the economy is in an inflationary or
disinflationary environment. Rather, its determination will be the result of its
subjective judgment of all factors it deems relevant.
Additional Information on Investments
Precious metal and mining securities and currencies can be extremely
volatile at times. Gold mining securities and other precious metal and mining
securities likewise fluctuate with gold, but generally even more so. Mining and
other related securities tend to fluctuate more than gold in a major cycle price
change because operating results will usually be positively or negatively
leveraged by considerable upward or downward movements of the gold price. This
is due to the fact that the costs of mining gold remain relatively fixed, so
that an increase or decrease in the price of gold has a direct effect on the
profits of the company. Also, the prices of precious metals-related securities
are likely to be further affected by changes in the currency value of the
country of domicile relative to the dollar. Additionally, precious metal mining
and other related securities generally will be more volatile than gold in a
major cycle of price change either because of a greater or lesser supply of such
securities relative to gold, or because of economic, speculative or other
factors.
Gold Bullion and Coins
The Gold & Government Fund's gold holdings ordinarily will consist of gold
bullion and bullion-type coins, such as South African Krugerrands and Canadian
Maple Leaf coins. The Fund does not expect to acquire coins for their numismatic
value. The Gold & Government Fund may purchase and sell gold coins through the
American Gold Coin Exchange or other appropriate gold coin and bullion dealers
and may purchase gold bullion through any appropriate gold bullion dealer. No
more than 10% of the Fund's portfolio may be invested in gold bullion or coins.
Unlike investments in gold or precious metals securities, which may produce
income in addition to offering potential for capital appreciation, gold bullion
or coins earn no investment income. Furthermore, the Fund will incur storage or
extra costs which may be higher than costs associated with more traditional
forms of investments.
U.S. Government Securities
The Gold & Government Fund may invest up to 5% of its total assets in
securities issued or guaranteed as to principal and interest by the U.S.
Government in the form of separately traded principal and interest components of
securities issued or guaranteed by the U.S. Treasury. The principal and interest
components of selected securities are traded independently under the Separate
Trading of Registered Interest and Principal of Securities ("STRIPS") program.
Under the STRIPS program, the principal and interest components are individually
numbered and
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separately issued by the U.S. Treasury at the request of depository financial
institutions, which then trade the component parts independently.
Risk Factors
Because of the following considerations, an investment in the Gold &
Government Fund should not be considered a complete investment program.
1. Failure to Anticipate Changes in Economic Cycles. The Gold & Government
Fund's investment success will be dependent to a high degree on the Adviser's
ability to anticipate the onset and termination of inflationary and
disinflationary cycles. A failure to anticipate a disinflationary cycle could
result in the Fund's assets being disproportionately invested in securities of
gold or other mining companies. Conversely, a failure to predict an inflationary
cycle could result in the Fund's assets being disproportionately invested in
U.S. Government securities.
2. Unanticipated Economic Activity. The Gold & Government Fund's investment
success will depend to a high degree on the validity of the premise that the
values of securities of gold and precious metals companies will move in a
different direction than the values of U.S. Government securities during periods
of inflation or disinflation. If the values of both types of securities move
down during the same period of time the value of the shareholder's investment
will decline rather than stabilize or increase, as anticipated, regardless of
whether the Fund is primarily invested in gold or government securities.
3. Concentration in and Volatility of Mining Stocks. The securities of
companies engaged in the exploration for and/or mining and processing of gold
and precious metals have been volatile historically. Mining and other related
securities tend to fluctuate as much as or more than gold during periods of
market instability because operating results will usually be positively or
negatively leveraged by considerable movements in the price of gold. Such
securities are further affected by changes in value of the currency of the
country of domicile. Since the Gold & Government Fund may from time to time, as
set forth in the Prospectus, invest up to 80% of its total assets in gold and
precious metals mining stocks, its shares may be subject to greater risks and
market fluctuations than other investment companies with investment portfolios
having a broader range of investment alternatives.
4. Investment in Gold Bullion and Coins. Precious metals prices are
affected by various factors such as economic conditions, political events and
monetary policies. In addition, gold bullion and coins do not generate income
and may subject the Gold & Government Fund to taxes and insurance, shipping and
storage costs. The sole source of return to the Fund from such investments would
be gains realized on sales; a negative return would be realized if gold is sold
at a loss. The price of gold has historically been subject to dramatic upward
and downward price movements over short periods of time. In the event of a
substantial decrease in the price of gold, the Gold & Government Fund would
incur realized or unrealized losses on its investment in gold bullion. In the
event of a substantial increase in the price of gold, the Fund may be forced to
liquidate a portion of its holdings of gold bullion to ensure that the value
thereof does not increase to the extent that, at the close of any fiscal
quarter, more than 25% of the value of the Fund's total assets are invested in
securities of any one issuer or more than 50% of its total assets are invested
in gold bullion in order to remain qualified under the Internal Revenue Code as
a regulated investment company. Therefore, the Fund may be forced to partially
liquidate its holdings of gold
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bullion even if the Adviser anticipates further increases in the price of gold.
Furthermore, Gold & Government Fund may derive no more than 10% of its gross
income in any taxable year from gross gains from transactions in gold bullion to
remain so qualified and therefore may be required either to dispose of or
continue to hold gold bullion when it would not otherwise do so for investment
reasons.
5. Tax or Currency Laws. Changes in the tax or currency laws of the U.S.
and of foreign countries, such as imposition of withholding or other taxes or
exchange controls on foreign currencies may increase the cost of, or inhibit the
Gold & Government Fund's ability to pursue, its investment program.
6. Unpredictable International Monetary Policies, Economic and Political
Conditions. There is the possibility that under unusual international monetary
or political conditions the Gold & Government Fund's assets might be less liquid
or that the change in value of its assets might be more volatile than would be
the case with other investments. In particular, because the price of gold may be
affected by unpredictable international monetary policies and economic
conditions there may be greater likelihood of a more dramatic impact upon the
market prices of securities of companies mining, processing or dealing in gold
than changes which would occur in other industries.
Although Gold & Government Fund expects to take delivery of its investments
in the United States, any investment where delivery takes place outside of the
United States will be conducted in compliance with any applicable United States
and foreign currency restrictions and other laws limiting the amount and types
of foreign investments. Since the Adviser expects to make substantially all of
the Fund's purchases and sales of securities and gold bullion in the U.S.
markets and in U.S. dollars, the Adviser does not believe that it will be
materially affected by changes in exchange rates, currency convertibility and
repatriation except to the extent the Fund holds foreign currencies, including
gold coins, as part of its cash position. However, changes in governmental
administrations or of economic or monetary policies, in the United States or
abroad, or changed circumstances in dealings between nations could result in
investment losses to the Fund and otherwise affect the Fund's operations
adversely.
7. Foreign Securities. Although the Adviser does not believe the risk to be
substantial, foreign issuers of securities in many countries are subject to less
stringent standards of disclosure and regulatory controls than are found in the
United States which may result in less reliable and less detailed information
being available to the Gold & Government Fund than would be the case with United
States companies. In addition, investments in foreign issuers may be affected by
fluctuating exchange rates and adverse changes in foreign investment or exchange
control regulation. However, the Fund's policy of generally investing in
American depository receipts ("ADRs") or other securities which can be sold for
United States dollars and for which market quotations are readily available in
New York may minimize some of these risks. (ADRs are certificates issued by
United States banks representing the right to receive securities of a foreign
issuer deposited in that bank or a correspondent bank.)
Portfolio Turnover
Gold & Government Fund's rate of portfolio turnover may vary widely from
year to year, and may be higher than many other mutual funds with similar
investment objectives. Nevertheless, high portfolio turnover in any given year
will result in the Fund's payment of
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above-average amounts of commissions and other transaction costs and may result
in the realization of greater amounts of net short-term capital gains,
distributions from which will be taxable to shareholders as ordinary income.
John Hancock Disciplined Growth Fund
American Depository Receipts and European Depository Receipts
The Disciplined Growth Fund may invest up to 10% of its portfolio in
securities of foreign issuers in the form of sponsored or unsponsored American
Depositary Receipts (ADRs), European Depositary 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.
Ratings as Investment Criteria
To avoid the need to sell equity securities in the portfolio to provide
funds for redemption, and to provide flexibility to the Disciplined Growth Fund
to take advantage of investment opportunities, the Fund may invest up to 15% of
its net assets in long-and short-term debt instruments of varying maturities,
including investment grade (i.e., rated at the time of purchase AAA, AA, A or
BBB by Standard & Poor's Ratings Group or Aaa, Aa, A or Baa by Moody's Investors
Service, Inc.) debt securities of corporations (such as commercial paper, notes,
bonds or debentures), certificates of deposit, money market securities and
obligations of the U.S. Government, its agencies and instrumentalities. When the
Adviser believes that financial conditions present unusual risks with respect to
equity securities, the Disciplined Growth Fund may invest up to 80% of the
Fund's assets in these securities, rated in the three highest categories, for
temporary defensive purposes. Medium grade obligations (i.e., those rated BBB or
Baa) lack outstanding investment characteristics and in fact have speculative
characteristics. Changes in economic conditions or other circumstances are more
likely to lead to a weakened capacity to make principal and interest payments
due on medium grade securities. In the event these are subsequently downgraded
below such ratings, the Adviser will consider this event in determining whether
the Fund should continue to hold the securities. See Appendix A to the Statement
of Additional Information for a description of the various ratings of investment
grade debt securities.
John Hancock Regional Bank Fund
The Adviser believes that the ongoing deregulation of the banking industry
continues to provide new opportunities for banks. As deregulation continues and
interstate banking becomes more likely, some Regional Banks may become
attractive acquisition candidates for large money center banks or other Regional
Banks. Typically, acquisitions accelerate the capital appreciation of the shares
of the company to be acquired.
In addition, Regional Banks located in sections of the country experiencing
strong economic growth are likely to participate in and benefit from such growth
through increased
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deposits and earnings. Many banks which are actively and aggressively managed
and are expanding services as deregulation opens up new opportunities also show
potential for capital appreciation.
The Adviser will seek to invest in those Regional Banks it believes are
well positioned to take advantage of the changes in the banking industry. A
Regional Bank may be well positioned for a number of reasons. It may be an
attractive acquisition for a bank wishing to strengthen its presence in the
geographic region or to expand into interstate activities, or it may be planning
on a regional merger to strengthen its position in the geographic area. The
Regional Bank may be located in a geographic region with strong economic growth
and be actively seeking to participate in such growth, or it may be expanding
into financial services previously unavailable to it (due to an easing of
regulatory constraints) in order to become a full service financial center.
Risk Factors
Since the Regional Bank Fund's investments will be concentrated in the
banking industry, it will be subject to risks in addition to those that apply to
the general equity market. Events may occur which significantly affect the
entire banking industry. Thus, the Fund's share value may at times increase or
decrease at a faster rate than the share value of a mutual fund with investments
in many industries. In addition, despite some measure of deregulation, banks and
other lending institutions are still subject to extensive governmental
regulation which limits their activities. The availability and cost of funds to
these entities is crucial to their profitability. Consequently, volatile
interest rates and general economic conditions can adversely affect their
financial performance and condition. The market value of the debt securities in
the Regional Bank Fund's portfolio will also tend to vary in an inverse
relationship with changes in interest rates. For example, as interest rates
rise, the market value of debt securities tends to decline. Regional Bank Fund
is not a complete investment program. Because the Regional Bank Fund's
investments are concentrated in the banking industry, an investment in the Fund
may be subject to greater market fluctuations than a fund that does not
concentrate in a particular industry. Thus, it is recommended that an investment
in the Regional Bank Fund be considered only one portion of your overall
investment portfolio.
Banks, finance companies and other financial services organizations are
subject to extensive governmental regulations which may limit both the amounts
and types of loans and other financial commitments which may be made and the
interest rates and fees which may be charged. The profitability of these
concerns is largely dependent upon the availability and cost of capital funds,
and has shown significant recent fluctuation as a result of volatile interest
rate levels. Volatile interest rates will also affect the market value of debt
securities held by the Regional Bank Fund. In addition, general economic
conditions are important to the operations of these concerns, with exposure to
credit losses resulting from possible financial difficulties of borrowers
potentially having an adverse effect.
Ratings as Investment Criteria
To avoid the need to sell equity securities in the portfolio to provide
funds for redemption, and to provide flexibility to Regional Bank Fund to take
advantage of investment opportunities, the Fund may invest up to 15% of its net
assets in short-term (less than one year) investment grade (i.e., rated at the
time of purchase AAA, AA, A or BBB by Standard & Poor's Rating Group or Aaa, Aa,
A or Baa by Moody's Investors Service, Inc.) debt securities of corporations
(such as
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commercial paper, notes, bonds or debentures), certificates of deposit, deposit
accounts, obligations of the U.S. Government, its agencies and
instrumentalities, or repurchase agreements which are fully-collateralized by
U.S. Government obligations, including repurchase agreements that mature in more
than seven days. When the Adviser believes that financial conditions warrant, it
may invest up to 80% of the Fund's assets in these securities rated in the three
highest categories, for temporary defensive purposes. Medium grade obligations
(i.e., those rated BBB or Baa) lack outstanding investment characteristics and
in fact have speculative characteristics as well and changes in economic
conditions or other circumstances are more likely to lead to a weakened capacity
to make principal and interest payments. In the event a debt security is
subsequently downgraded below medium grade, the Adviser will consider this event
in its determination of whether the Fund should continue to hold the security.
See Appendix A to the Statement of Additional Information for a description of
the various ratings of investment grade debt securities.
John Hancock Global Fund and
John Hancock Global Income Fund
Today, more than two-thirds of the world's stock market value is traded on
stock exchanges located outside of the United States. Europe is poised for
economic change. The European Economic Commission has ratified the economic
directives which will essentially create a single, unified market amongst the
European nations allowing the free movement of goods and services within a
population which is larger than that of the USA. Europe also intends to
participate in the restructuring of the social and economic policies of the
former Soviet Union and other Eastern bloc countries. The Pacific Region, which
includes Japan, Hong Kong, Korea, Taiwan, Thailand, Singapore, Malaysia and
Australia, has experienced substantial economic growth in recent years. The
Global Fund provides you with access to the stock markets of the world, enabling
you to diversify your investments among a variety of countries, companies and
industrial sectors.
In general, the securities in which Global Income Fund may invest include
debt obligations issued or guaranteed by United States or foreign governments,
political subdivisions thereof (including states, provinces and municipalities)
or their agencies and instrumentalities ("governmental entities"), or issued or
guaranteed by international organizations designated or supported by
governmental entities to promote economic reconstruction or development
("supranational entities"), or issued by corporations or financial institutions.
Examples of supranational entities include the International Bank for
Reconstruction and Development (the "World Bank"), the European Steel and Coal
Community, the Asian Development Bank and the Inter-American Development Bank.
The governmental members, or "stockholders", usually make initial capital
contributions to the supranational entity and in many cases are committed to
make additional capital contributions if the supranational entity is unable to
repay its borrowings. Securities issued by supranational entities may be
denominated in U.S. dollars, a foreign currency or a multi-national currency
unit such as the European Currency Unit ("ECU"). The ECU is a composite currency
consisting of specified amounts of each of the currencies of the member
countries of the European Economic Community. Securities of corporations and
financial institutions in which the Fund may invest include corporate and
commercial obligations, such as medium-term notes and commercial paper, which
may be indexed to foreign currency exchange rates. In accordance with guidelines
promulgated by the Staff of the Securities and Exchange Commission, the Fund
will consider as an industry any category of such supranational entities which
may have been designated by the Commission.
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American Depository Receipts and European Depository Receipts
In addition to purchasing equity securities of foreign issuers in foreign
markets, Global Fund and the Global Income Fund may invest in American
Depository Receipts ("ADRs"), European Depository Receipts ("EDRs") or other
securities convertible into securities of corporations domiciled in foreign
countries. These securities may not necessarily be denominated in the same
currency as the securities into which they may be converted. Generally, ADRs, in
registered form, are designed for use in the U.S. securities markets and EDRs,
in bearer form, are designed for use in European securities markets. ADRs are
receipts typically issued by a United States bank or trust company evidencing
ownership of the underlying securities. EDRs are European receipts evidencing a
similar arrangement. It is the current intention of JH Advisers International
that no more than 5% of the Global Fund's assets will be invested in ADRs and
EDRs.
Foreign Currency Transactions
Global Fund and Global Income Fund will conduct their foreign currency
exchange transactions either on a spot (i.e., cash) basis at the spot rate
prevailing in the foreign currency exchange market, or through entering into
forward contracts to purchase or sell foreign currencies. A forward foreign
currency exchange contract involves an obligation to purchase or sell a specific
amount of currency at a future date, which may be any fixed number of days from
the date of the contract agreed upon by the parties, at a price set at the time
of the contract. These contracts are usually traded in the interbank market
conducted directly between currency traders (usually large commercial banks) and
their customers. A forward contract generally has no deposit requirement, and no
commissions are charged at any stage for such trades.
The Global Fund and the Global Income Fund may enter into forward foreign
currency exchange contracts to enhance return, as a substitute for the purchase
or sale of currency or to hedge against fluctuations in currency exchange rates.
The Funds' hedging transactions in forward contracts may include the following.
A Fund may enter into a contract for the purchase or sale of a security
denominated in a foreign currency to "lock-in" the United States dollar price of
the security. By entering into a forward contract for a fixed amount of dollars
for the purchase or sale of the amount of foreign currency involved in the
underlying transactions, a Fund will be able to protect itself against a
possible loss resulting from an adverse change in the relationship between the
United States dollar and that foreign currency during the period between the
date on which the security is purchased or sold and the date on which payment is
made or received.
When the Adviser or JH Advisers International believes that the currency of
a particular foreign country may suffer or enjoy a substantial movement against
another currency, a Fund may enter into a forward contract to sell or buy the
amount of the former foreign currency approximating the value of some or all of
that Fund's portfolio securities denominated in such foreign currency. This
second investment practice is generally referred to as "cross-hedging". The
precise matching of the forward contract amounts and the value of the securities
involved will not generally be possible since the future value of securities in
foreign currencies will change as a consequence of market movements in the value
of these securities between the date on which the forward contract is entered
into and the date it matures. The projection of short-term currency
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market movement is extremely difficult, and the successful execution of a
short-term hedging strategy is highly uncertain.
In addition, the Funds may enter into forward contracts for non-hedging
purposes. For example, if a portfolio security with an attractive rate of return
is denominated in a currency (including the U.S. dollar) that is not expected to
perform well, a Fund may use forward contracts to offset its exposure to the
non-performing currency while retaining the security.
Under normal circumstances, consideration of the prospects for currency
exchange rates will be incorporated into a Fund's long-term investment decisions
made with regard to overall investment strategies. However, each Fund believes
that it is important to have the flexibility to enter into forward contracts
when it determines that the best interests of the Fund will thereby be served.
State Street Bank and Trust Company, the Funds' custodian, will place cash or
liquid debt securities into a segregated account of each Fund in an amount equal
to the value of that Fund's total assets committed to the consummation of
forward foreign currency exchange contracts involving the purchase of foreign
currency. If the value of the securities placed in the segregated account
declines, additional cash or securities will be placed in the account on a daily
basis so that the value of the account will equal the amount of the Fund's
commitments with respect to such contracts.
At the maturity of a forward contract, a Fund may either sell the portfolio
security and make delivery of the foreign currency, or it may retain the
security and terminate its contractual obligation to deliver the foreign
currency by purchasing an "offsetting" contract with the same currency trader
obligating it to purchase, on the same maturity date, the same amount of the
foreign currency. There can be no assurance, however, that either Fund will be
able to effect such a closing purchase transaction.
It is impossible to forecast the market value of a particular portfolio
security at the expiration of the contract. Accordingly, it may be necessary for
a Fund to purchase additional foreign currency on the spot market (and bear the
expense of such purchase) if the market value of the security is less than the
amount of foreign currency that the Fund is obligated to deliver and if a
decision is made to sell the security and make delivery of the foreign currency.
If either the Global Fund or the Global Income Fund retains the portfolio
security and engages in an offsetting transaction, that Fund will incur a gain
or a loss (as described below) to the extent that there has been movement in
forward contract prices. Should forward prices decline during the period between
a Fund's entering into a forward contract for the sale of a foreign currency and
the date it enters into an offsetting contract for the purchase of the foreign
currency, such Fund will realize a gain to the extent that the price of the
currency it has agreed to sell exceeds the price of the currency it has agreed
to purchase. Should forward prices increase, the Fund will suffer a loss to the
extent that the price of the currency it has agreed to purchase exceeds the
price of the currency it has agreed to sell.
The Funds are not required to enter into forward contracts with regard to
their foreign currency-denominated securities. It also should be realized that
this method of protecting the value of a Fund's portfolio securities against a
decline in the value of a currency does not eliminate fluctuations in the
underlying prices of the securities. It simply establishes a rate of exchange
which one can achieve at some future point in time. Additionally, although such
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contracts tend to minimize the risk of loss due to a decline in the value of the
hedged currency, at the same time, they tend to limit any potential gain which
might result should the value of such currency increase.
Although the Global Fund and the Global Income Fund value their assets
daily in terms of United States dollars, neither Fund intends to convert its
holdings of foreign currencies into United States dollars on a daily basis. A
Fund will do so from time to time, and investors should be aware of the costs of
currency conversion. Although foreign exchange dealers do not charge a fee for
conversion, they do realize a profit based on the difference (the "spread")
between the prices at which they are buying and selling various currencies.
Thus, a dealer may offer to sell a foreign currency to a Fund at one rate, while
offering a lesser rate of exchange should the Fund desire to resell the currency
to the dealer.
Portfolio Turnover
The Global Income Fund's portfolio turnover rate may vary widely from year
to year and may be higher than that of many other mutual funds with similar
investment objectives. For example, if the Global Income Fund writes a
substantial number of call options and the market prices of the underlying
securities appreciate, or if it writes a substantial number of put options and
the market prices of the underlying securities depreciate, there may be a very
substantial turnover of the portfolio. While the Fund will pay commissions in
connection with its options transactions, government securities are generally
traded on a "net" basis with dealers acting as principal for their own accounts
without a stated commission. Nevertheless, high portfolio turnover may involve
correspondingly greater commissions and other transaction costs, which will be
borne directly by the Fund.
THE FUNDS' OPTIONS TRADING ACTIVITIES
The following information supplements the discussion in the Prospectuses
regarding options transactions in which the Funds may engage.
A call option gives the purchaser of the option the right to buy, and the
writer the obligation to sell (if the option is exercised), the underlying
security or asset at the exercise price during the option period. Conversely, a
put option gives the purchaser the right to sell, and the writer the obligation
to buy, (if the option is exercised) the underlying security or asset at the
exercise price during the option period.
The principal reason for writing covered call options on a portfolio
security or foreign currency is to attempt to realize through the receipt of
premiums a greater return than would be realized on the security or foreign
currency alone. A covered call option writer, in return for the premium, has
given up the opportunity for profit from a price increase in the underlying
security or currency above the exercise price so long as its obligation
continues, but has retained the risk of loss should the price of the security
decline. The call option writer has no control over when it may be required to
sell its securities, since it may be assigned an exercise notice at any time
prior to the termination of its obligation as a writer. If an option expires,
the writer realizes a gain in the amount of the premium. Such a gain, of course,
may be offset by a decline in the market value of the underlying security during
the option period. If a call option is exercised, the writer realizes a gain or
loss from the sale of the underlying security or currency.
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It is the policy of each Fund to meet the requirements of the Internal
Revenue Code (the "Code") to qualify as a regulated investment company to
prevent double taxation of the Fund and its investors. One of these requirements
is that less than 30% of a Fund's gross income for each taxable year must be
derived from gross gains from the sale or other disposition of certain financial
assets, including stocks, securities, and most options, futures and forward
contracts, held for less than three months. The extent to which the Funds may
engage in options, futures and forward transactions may be materially limited by
this 30% test.
Disciplined Growth Fund and Regional Bank Fund
Options Transactions. To the extent set forth in the Prospectus, the Funds
may write listed and over-the-counter covered call options and covered put
options on securities in order to earn additional income from the premiums
received. In addition, the Funds may purchase listed and over-the-counter call
and put options. The extent to which covered options will be used by the Funds
will depend upon market conditions and the availability of alternative
strategies.
A Fund will write listed and over-the-counter call options only if they are
"covered," which means that the Fund owns or has the immediate right to acquire
the securities underlying the options without additional cash consideration upon
conversion or exchange of other securities held in its portfolio. A call option
written by a Fund may also be "covered" if the Fund holds on a share-for-share
basis a covering call on the same securities where (i) the exercise price of the
covering call held is equal to or less than the exercise price of the call
written or the exercise price of the covering call is greater than the exercise
price of the call written, in the latter case only if the difference is
maintained by the Fund in cash or high grade liquid debt obligations in a
segregated account with the Fund's custodian, and (ii) the covering call expires
at the same time as the call written. If a covered call option is not exercised,
a Fund would keep both the option premium and the underlying security. If the
covered call option written by a Fund is exercised and the exercise price, less
the transaction costs, exceeds the cost of the underlying security, the Fund
would realize a gain in addition to the amount of the option premium it
received. If the exercise price, less transaction costs, is less than the cost
of the underlying security, a Fund's loss would be reduced by the amount of the
option premium.
As the writer of a covered put option, each Fund will write a put option
only with respect to securities it intends to acquire for its portfolio and will
maintain in a segregated account with its custodian bank cash or high grade
liquid debt securities with a value equal to the price at which the underlying
security may be sold to the Fund in the event the put option is exercised by the
purchaser. The Funds may also write a "covered" put option by purchasing on a
share-for-share basis a put on the same security as the put written by the Fund
if the exercise price of the covering put held is equal to or greater than the
exercise price of the put written and the covering put expires at the same time
as or later than the put written.
When writing listed and over-the-counter covered put options on securities,
the Funds would earn income from the premiums received. If a covered put option
is not exercised, the Funds would keep the option premium and the assets
maintained to cover the option. If the option is exercised and the exercise
price, including transaction costs, exceeds the market price of the underlying
security, a Fund would realize a loss, but the amount of the loss would be
reduced by the amount of the option premium.
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If the writer of an exchange-traded option wishes to terminate its
obligation prior to its exercise, it may effect a "closing purchase
transaction." This is accomplished by buying an option of the same series as the
option previously written. The effect of the purchase is that a Fund's position
will be offset by the Options Clearing Corporation. The Funds may not effect a
closing purchase transaction after they have been notified of the exercise of an
option. There is no guarantee that a closing purchase transaction can be
effected. Although the Funds will generally write only those options for which
there appears to be an active secondary market, there is no assurance that a
liquid secondary market on an exchange or board of trade will exist for any
particular option or at any particular time, and for some options no secondary
market on an exchange may exist.
In the case of a written call option, effecting a closing transaction will
permit a Fund to write another call option on the underlying security with
either a different exercise price, expiration date or both. In the case of a
written put option, it will permit a Fund to write another put option to the
extent that the exercise price thereof is secured by deposited cash or
short-term securities. Also, effecting a closing transaction will permit the
cash or proceeds from the concurrent sale of any securities subject to the
option to be used for other investments. If a Fund desires to sell a particular
security from its portfolio on which it has written a call option, it will
effect a closing transaction prior to or concurrent with the sale of the
security.
A Fund will realize a gain from a closing transaction if the cost of the
closing transaction is less than the premium received from writing the option.
The Funds will realize a loss from a closing transaction if the cost of the
closing transaction is more than the premium received for writing the option.
However, because increases in the market price of a call option will generally
reflect increases in the market price of the underlying security, any loss
resulting from the repurchase of a call option is likely to be offset in whole
or in part by appreciation in the value of the underlying security owned by the
Fund.
Over-the-Counter Options. Funds that may engage in options transactions may
engage in options transactions on exchanges and in the over-the-counter markets.
In general, exchange-traded options are third-party contracts (i.e., performance
of the parties' obligations is guaranteed by an exchange or clearing
corporation) with standardized strike prices and expiration dates.
Over-the-counter ("OTC") transactions are two-party contracts with price and
terms negotiated by the buyer and seller. A Fund will acquire only those OTC
options for which management believes the Fund can receive on each business day
at least two separate bids or offers (one of which will be from an entity other
than a party to the option) or those OTC options valued by an independent
pricing service. The Funds will write and purchase OTC options only with member
banks of the Federal Reserve System and primary dealers in U.S. Government
securities or their affiliates which have capital of at least $50 million or
whose obligations are guaranteed by an entity having capital of at least $50
million. The SEC has taken the position that OTC options are subject to each
Fund's 15% restriction on illiquid investments. The SEC, however, allows a Fund
to exclude from the 15% limitation on illiquid securities a portion of the value
of the OTC options written by the Fund, provided that certain conditions are
met. First, the other party to the OTC options has to be a primary U.S.
Government securities dealer designated as such by the Federal Reserve Bank.
Second, the Fund must have an absolute contractual right to repurchase the OTC
options at a formula price. If the above conditions are met, a Fund may treat as
illiquid only that portion of the OTC option's value (and the value of its
underlying securities) which is equal to the formula price for repurchasing the
OTC option, less the OTC option's intrinsic value.
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Gold & Government Fund, Global Income Fund and
Managed Tax-Exempt Fund
Call Options
Each Fund may trade in options, including purchasing calls and writing
covered calls. Gold & Government Fund may write covered call options and
purchase put and call options on gold bullion, U.S. Government securities and
equity securities in which it may invest. Call options ("calls") may be written
(i.e., sold) by each Fund if (i) the calls are listed on a domestic exchange or
are traded over-the-counter; and (ii) the calls are covered, i.e., the Fund owns
the assets subject to the call (or other assets acceptable for escrow
arrangements) while the call is outstanding.
Each Fund may write call options to obtain additional income. When a Fund
writes a call it receives a premium and agrees to sell the callable securities
to the purchaser of the call, if the option is exercised during the call period,
at a fixed exercise price (which may differ from the market price) regardless of
market price changes during the call period. Thus, in exchange for the premium
received, the Fund foregoes any possible profit from an increase in market price
over the exercise price.
When a Fund writes a call option, an amount equal to the premium received
by it is included in that Fund's Statement of Assets and Liabilities as an asset
and as an equivalent liability. The amount of the liability is subsequently
marked to market to reflect the current market value of the option written. The
premium paid by a Fund for the purchase of a call or put option is included in
the assets section of the Statement of Assets and Liabilities as an investment
and subsequently adjusted to the current market value of the option. The current
market value of a purchased or written option is the last sale price on the
principal exchange on which such option is traded or, in the absence of a sale
or in the case of an unlisted option, the mean between the last bid and offering
prices.
To terminate its obligation on a call which it has written, each Fund may
purchase a call in a "closing purchase transaction." (As discussed below, each
Fund may also purchase calls other than as part of such transactions.) A profit
or loss will be realized depending on the amount of option transaction costs and
whether the premium previously received is more or less than the price of the
call purchased. A profit may also be realized if the call lapses unexercised,
because the Fund retains the underlying security and the premium received. Any
such profits are considered short-term gains for federal tax purposes and, when
distributed by the Fund, are taxable as ordinary income.
Each Fund may purchase calls only if the calls are listed on a domestic
exchange or traded over-the-counter. Each Fund will purchase call options to
attempt to obtain capital appreciation. When a Fund buys a call, it pays a
premium and has the right to buy the callable securities from the seller of a
call during a period at a fixed exercise price. The Fund benefits only if the
market price of the callable securities is above the call price during the call
period and the call is either exercised or sold at a profit. If the call is not
exercised or sold (whether or not at a profit), it will become worthless at its
expiration date and the Fund will lose its premium payment and the right to
purchase the underlying security.
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In the case of Gold & Government Fund, hedging by writing covered call
options on gold bullion is similar to hedging through the use of similar options
on securities as described above. In addition, Gold & Government Fund may
purchase call options on gold bullion if it desires to achieve a more rapid
exposure to anticipated increases in the price of gold mining shares or gold
bullion than is practical by buying such assets.
Put Options
Any of the Funds may purchase put options ("puts") if they are listed on a
domestic exchange or traded over-the-counter. None of the Funds may write (sell)
puts, but may resell puts previously purchased by it to third parties who are
not broker-dealers. When a Fund buys a put, it pays a premium and has the right
to sell the underlying assets to the seller of the put during the put period at
a fixed exercise price.
Each Fund may buy puts related to securities it owns ("protective puts") or
to securities it does not own ("nonprotective puts"). Buying a protective put
permits the Fund to protect itself during the put period against a decline in
the value of the underlying securities below the exercise price by selling them
through the exercise of the put. Thus, protective puts will assist the Funds in
achieving their investment objectives of capital appreciation by protecting them
against a decline in the market value of their portfolio securities.
Buying a non-protective put permits each Fund, if the market price of the
underlying securities is below the put price during the put period, either to
resell the put or to buy the underlying securities and sell them at the exercise
price. A non-protective put can enable each Fund to achieve appreciation during
a period when the price of securities underlying such put is declining. If the
market price of the underlying securities is above the exercise price and as a
result, the put is not exercised or resold (whether or not at a profit), the put
will become worthless at its expiration date.
In the case of the Gold & Government Fund, hedging by purchasing put
options on gold bullion is similar to hedging through the use of similar options
on securities as described above.
Government Fund
Writing Covered Options on Government Securities
The Government Fund may write (sell) covered call options and covered put
options on all or any part of the Fund's portfolio of Government Securities. The
Government Fund may write (i.e., sell) options which are traded on registered
securities exchanges ("Exchanges") and may also write options on Government
Securities which are traded over-the-counter. A call option gives the purchaser
of the option the right to buy, and the writer the obligation to sell, the
underlying security at the exercise price if the option is exercised during the
option period. Conversely, a put option gives the purchaser the right to sell,
and the writer the obligation to buy (if the option is exercised) the underlying
security at the exercise price during the option period. The Fund may also write
straddles (combinations of covered puts and calls on the same underlying
security).
The Government Fund writes only "covered" options. This means that as long
as the Fund is obligated as the writer of a call option, it will own the
underlying securities subject to the
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option, except that, in the case of call options on U.S. Treasury Bills, the
Fund might own U.S. Treasury Bills of a different series from those underlying
the call option, but with a principal amount corresponding to the option
contract amount and a maturity date no later than that of the securities
deliverable under the call option. See "Risk Factors Applicable to Options"
below.
The Government Fund will be considered "covered" with respect to a put
option it writes if, as long as it is obligated as the writer of a put option,
it deposits and maintains with its Custodian, cash, Government Securities or
other high-grade debt obligations having a value equal to or greater than the
exercise price of the option.
So long as the obligation of the writer continues, the writer may be
assigned an exercise notice by the broker-dealer through whom the option was
sold. The exercise notice would require the writer to deliver, in the case of a
call, or take delivery of, in the case of a put, the underlying security against
payment of the exercise price. This obligation terminates upon expiration of the
option, or at such earlier time that the writer effects a closing purchase
transaction by purchasing an option covering the same underlying security and
having the same exercise price and expiration date ("of the same series") as the
one previously sold. Once an option has been exercised, the writer may not
execute a closing purchase transaction. To secure the obligation to deliver the
underlying security in the case of a call option, the writer of the option is
required to deposit in escrow the underlying security or other assets in
accordance with the rules of the Options Clearing Corporation (the "OCC"), an
institution created to interpose itself between buyers and sellers of options.
Technically, the OCC assumes the other side of every purchase and sale
transaction on an Exchange and, by doing so, gives its guarantee to the
transaction.
The principal reason for writing options on a securities portfolio is to
attempt to realize, through the receipt of premiums, a greater return than would
be realized on the underlying securities alone. In return for the premium, the
covered call option writer has given up the opportunity for profit from a price
increase in the underlying security above the exercise price as long as the
option remains open, but retains the risk of loss should the price of the
security decline. Conversely, the put option writer gains a profit, in the form
of the premium, so long as the price of the underlying security remains above
the exercise price, but assumes an obligation to purchase the underlying
security from the buyer of the put option at the exercise price, even though the
security may fall below the exercise price, at any time during the option
period. If an option expires, the writer realizes a gain in the amount of the
premium. Such a gain may, in the case of a covered call option, be offset by a
decline in the market value of the underlying security during the option period.
If a call option is exercised, the writer realizes a gain or loss from the sale
of the underlying security. If a put option is exercised, the writer must
fulfill his obligation to purchase the underlying security at the exercise
price, which will usually exceed the then-market value of the underlying
security.
Because the Government Fund can write only covered options, it may at times
be unable to write additional options unless it sells a portion of its portfolio
holdings to obtain new debt securities against which it can write options. This
may result in higher portfolio turnover and correspondingly greater brokerage
commissions and other transaction costs.
To the extent that a secondary market is available on the Exchanges, the
covered option writer may close out options it has written prior to the
assignment of an exercise notice by purchasing, in a closing purchase
transaction, an option of the same series as the option previously
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written. If the cost of such a closing purchase, plus transaction costs, is
greater than the premium received upon writing the original option, the writer
will incur a loss in the transaction.
The extent to which the Government Fund may write covered call and put
options and enter into so-called "straddle" transactions may be limited by the
Code's requirements for qualification as a regulated investment company and the
Fund's intention to qualify as such.
Purchasing Put Options on Government Securities
The Government Fund may purchase put options on optionable Government
Securities in anticipation of a price decline in the underlying security. This
contemplates the purchase of put options at a time when the Fund does not own
the underlying security and it seeks to benefit from an anticipated decline in
the market price of the underlying security. If the put option is not sold when
it has remaining value, and if the market price of the underlying security
remains equal to or greater than the exercise price during the life of the put
option, the Fund will lose its entire investment in the put option. Further,
unless the put option is sold in a closing sale transaction, in order for the
purchase of a put option to be profitable, the market price of the underlying
security must decline sufficiently below the exercise price to cover the premium
and transaction costs.
The Government Fund may also purchase put options ("protective puts") to
protect its holdings in an underlying security against a substantial decline in
market value. Such hedge protection is provided only during the life of the put
option when the Fund as the holder of the put option is able to sell the
underlying security at the exercise price regardless of any decline in the
underlying security's market price. By using put options in this manner, the
Fund will reduce any profit it might otherwise have realized in its underlying
security by the premium paid for the put option and by transaction costs.
The Government Fund will not invest more than 5% of its net assets in put
options.
Risk Factors Applicable to Options (Government Fund, Gold & Government Fund and
Global Income Fund Only)
On Treasury Bonds and Notes. Because trading interest in Treasury Bonds and
Notes tends to center on the most recently auctioned issues, the Exchanges will
not indefinitely continue to introduce new series of options with expirations to
replace expiring options on particular issues. Instead, the expirations
introduced at the commencement of options trading on a particular issue will be
allowed to run their course, with the possible addition of a limited number of
new expirations as the original ones expire. Options trading on each series of
Bonds or Notes will thus be phased out as new options are listed on the more
recent issues, and a full range of expiration dates will not ordinarily be
available for every series on which options are traded.
On Treasury Bills. Because the deliverable Treasury Bill changes from week
to week, writers of Treasury Bill call options cannot provide in advance for
their potential exercise settlement obligations by acquiring and holding the
underlying security. However, if the Government Fund or the Gold & Government
Fund holds a long position in Treasury Bills with a principal amount
corresponding to the option contract size, such Fund may be hedged from a risk
standpoint. In addition, each Fund will maintain in a segregated account with
its custodian
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Treasury Bills maturing no later than those which would be deliverable in the
event of an assignment of an exercise notice to ensure that it can meet its open
options obligations.
Additional Risks of Options On Government Securities. The Gold & Government
Fund, the Government Fund and the Global Income Fund may purchase and sell
options on Government Securities including securities issued by the Government
National Mortgage Association. Certain options on Government Securities are
traded "over-the-counter" rather than on an exchange. This means that each of
these Funds will enter into such options with particular broker-dealers who make
markets in these options. With respect to options not traded on an exchange,
there is the additional risk that a Fund may not be able to enter into a closing
transaction with the other party to the option on satisfactory terms or that
such other party may be unable to fulfill its contractual obligations. However,
the Adviser or JH Advisers International, as the case may be, will enter into
transactions in non-listed options only with responsible dealers where it does
not believe that the foregoing factors present a material risk. There is no
assurance that the Funds will be able to effect closing transactions at any
particular time or at an acceptable price. A Fund's ability to terminate options
positions in Government Securities may involve the risk that broker-dealers
participating in such transactions will fail to meet their obligations to the
Fund. The Funds will purchase options on Government Securities only from
broker-dealers whose debt securities are investment grade (as determined by the
Boards of Trustees).
All Funds (except Regional Bank Fund and Disciplined Growth Fund)
Put and Call Options: General
A call option position may be closed out only on an exchange which provides
a secondary market for options of the same series or, in the case of an
over-the-counter option, only with the other party to the transaction. In
general, exchange-traded options are third-party contracts (i.e. performance of
the parties' obligations is guaranteed by an exchange or clearing corporation)
with standardized strike prices and expiration dates. Over-the-counter
transactions are two-party contracts with price and terms negotiated by the
buyer and seller. There is no assurance that the Funds will be able to close out
options acquired or sold over-the-counter.
The Funds will acquire only those over-the-counter options for which
management believes the Funds can receive on each business day at least two
separate bids or offers (one of which will be from an entity other than a party
to the option) or those over-the-counter options valued by an independent
pricing service. The Funds will write and purchase over-the-counter options only
with member banks of the Federal Reserve System and primary dealers in U.S.
Government securities or their affiliates which have capital of at least $50
million or whose obligations are guaranteed by an entity having capital of at
least $50 million. The SEC has taken the position that over-the-counter options
are illiquid securities, subject to the restriction that illiquid securities are
limited to not more than 15% of a Fund's assets. The SEC, however, has a partial
exemption from the above restrictions on transactions in over-the-counter
options. The SEC allows a Fund to exclude from the 15% limitation on illiquid
securities a portion of the value of the over-the-counter options written by the
fund, provided that certain conditions are met. First, the other party to the
over-the-counter options has to be a primary U.S. Government securities dealer
designated as such by the Federal Reserve Bank. Second, the Funds would have an
absolute contractual right to repurchase the over-the-counter options at a
formula price. If the
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above conditions are met, a Fund must treat as illiquid only that portion of the
over-the-counter option's value (and the value of its underlying securities)
which is equal to the formula price for repurchasing the over-the-counter
option, less the over-the-counter option's intrinsic value.
Although the Funds will generally purchase or write only those
exchange-traded options for which there appears to be an active secondary
market, there can be no assurance that a liquid secondary market on an exchange
will exist for any particular option, or at any particular time. In the event
that no liquid secondary market exists, it might not be possible to effect
closing transactions in particular options. If a Fund cannot close out an
exchange-traded or over-the-counter option which it holds, it would have to
exercise such option in order to realize any profit and would incur transaction
costs on the purchase or sale of underlying assets. If the Government Fund, Gold
& Government Fund, Disciplined Growth Fund, Regional Bank Fund, Global Fund or
Global Income Fund, as covered call option writers, are unable to effect a
closing purchase transaction, they will not be able to sell the underlying
assets until the option expires or they deliver the underlying asset upon
exercise. Accordingly, these Funds may run the risk of either foregoing the
opportunity to sell the underlying asset at a profit or being unable to sell the
underlying asset as its price declines.
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) an exchange may impose restrictions 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 or underlying securities; (iv) unusual or unforeseen circumstances may
interrupt normal operations on an exchange; (v) the exchanges and the Options
Clearing Corporation have had only limited experience with the trading of
certain options and the facilities of an exchange or the Options Clearing
Corporation may not at all times be adequate to handle current trading volume;
or (vi) one or more exchanges could, for economic or other reasons, decide or be
compelled at some future date to discontinue the trading of options (or a
particular class or series of options), in which event the secondary market on
that exchange (or in that class or series of options) would cease to exist,
although outstanding options 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 put and call options activities of Government Fund, Gold & Government
Fund, Disciplined Growth Fund, Regional Bank Fund, Global Fund and Global Income
Fund may affect their turnover rates and the amount of brokerage commissions
paid by them. The exercise of calls written by these Funds may cause them to
sell portfolio securities or other assets at times and amounts controlled by the
holder of a call, thus increasing the Funds' portfolio turnover rates and
brokerage commission payments. The exercise of puts purchased by the Fund may
also cause the sale of securities or other assets, also increasing turnover.
Although such exercise is within the Funds' control, holding a protective put
might cause the Funds to sell the underlying securities or other assets for
reasons which would not exist in the absence of the put. Holding a
non-protective put might cause the purchase of the underlying securities or
other assets to permit the Funds to exercise the put. The put and call
activities of Gold & Government Fund will be restricted by the limited
availability of options relating to mining securities and foreign investments
that are listed on domestic exchanges or quoted at some future date on NASDAQ.
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A Fund will pay a brokerage commission each time it buys or sells a put or
call or buys or sells a security in connection with the exercise of a put or
call. Such commissions may be higher than those which would apply to direct
purchases or sales of equity securities.
There is no limit as to how many times either the Global Fund's or the
Global Income Fund's options positions may be replaced and therefore the
potential risks to each Fund may be greater than 5% of its net assets.
Successful use by the Adviser or JH Advisers International of options on
securities, foreign currencies and/or forward foreign currency exchange
contracts will be based upon predictions by the Adviser or JH Advisers
International as to anticipated movements of foreign currency exchange rates
and/or interest rates.
The Funds' Custodian, or a securities depository acting for it, will act as
the Funds' escrow agent as to the securities on which they have written calls,
or as to other securities acceptable for such escrow, so that pursuant to the
rules of the Options Clearing Corporation and certain exchanges, no margin
deposit will be required of the Funds. Until the securities are released from
escrow, they cannot be sold by the Funds; this release will take place on the
expiration of the call or the Funds' entering into a closing purchase
transaction. For information on the valuation of the puts and calls, see "Net
Asset Value."
THE FUNDS' INVESTMENTS IN FUTURES CONTRACTS
The following information supplements the discussion in the Prospectuses
regarding investment by certain Funds in futures contracts and related options.
Financial Futures Contracts (Disciplined Growth Fund and Regional Bank Fund
only). To the extent set forth in the Prospectus, the Funds may buy and sell
futures contracts (and related options) on stocks, stock indices, debt
securities, currencies, interest rate indices, and other instruments. Each Fund
may hedge its portfolio by selling or purchasing financial futures contracts as
an offset against the effects of changes in interest rates or in security or
foreign currency values. Although other techniques could be used to reduce
exposure to market fluctuations, a Fund may be able to hedge its exposure more
effectively and perhaps at a lower cost by using financial futures contracts.
The Funds may enter into financial futures contracts for hedging and other
non-speculative purposes to the extent permitted by regulations of the Commodity
Futures Trading Commission ("CFTC").
Financial futures contracts have been designed by boards of trade which
have been designated "contract markets" by the CFTC. Futures contracts are
traded on these markets in a manner that is similar to the way a stock is traded
on a stock exchange. The boards of trade, through their clearing corporations,
guarantee that the contracts will be performed. Currently, financial futures
contracts are based on interest rate instruments such as long-term U.S. Treasury
bonds, U.S. Treasury notes, Government National Mortgage Association ("GNMA")
modified pass-through mortgage-backed securities, three-month U.S. Treasury
bills, 90-day commercial paper, bank certificates of deposit and Eurodollar
certificates of deposit. It is expected that if other financial futures
contracts are developed and traded the Funds may engage in transactions in such
contracts.
Although some financial futures contracts by their terms call for actual
delivery or acceptance of financial instruments, in most cases the contracts are
closed out prior to delivery by
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offsetting purchases or sales of matching financial futures contracts (same
exchange, underlying security and delivery month). Other financial futures
contracts, such as futures contracts on securities indices, by their terms call
for cash settlements. If the offsetting purchase price is less than a Fund's
original sale price, the Fund realizes a gain, or if it is more, the Fund
realizes a loss. Conversely, if the offsetting sale price is more than a Fund's
original purchase price, the Fund realizes a gain, or if it is less, the Fund
realizes a loss. The transaction costs must also be included in these
calculations. Each Fund will pay a commission in connection with each purchase
or sale of financial futures contracts, including a closing transaction. For a
discussion of the Federal income tax considerations of trading in financial
futures contracts, see the information under the caption "Tax Status" below.
At the time a Fund enters into a financial futures contract, it is required
to deposit with its custodian a specified amount of cash or U.S. Government
securities, known as "initial margin," ranging upward from 1.1% of the value of
the financial futures contract being traded. The margin required for a financial
futures contract is set by the board of trade or exchange on which the contract
is traded and may be modified during the term of the contract. The initial
margin is in the nature of a performance bond or good faith deposit on the
financial futures contract which is returned to the Fund upon termination of the
contract, assuming all contractual obligations have been satisfied. The Funds
expect to earn interest income on their initial margin deposits. Each day, the
futures contract is valued at the official settlement price of the board of
trade or exchange on which it is traded. Subsequent payments, known as
"variation margin," to and from the broker are made on a daily basis as the
market price of the financial futures contract fluctuates. This process is known
as "mark to market." Variation margin does not represent a borrowing or lending
by the Funds but is instead a settlement between the Funds and the broker of the
amount one would owe the other if the financial futures contract expired. In
computing net asset value, the Funds will mark to market their respective open
financial futures positions.
Successful hedging depends on a strong correlation between the market for
the underlying securities and the futures contract market for those securities.
There are several factors that will probably prevent this correlation from being
a perfect one, and even a correct forecast of general interest rate trends may
not result in a successful hedging transaction. There are significant
differences between the securities and futures markets which could create an
imperfect correlation between the markets and which could affect the success of
a given hedge. The degree of imperfection of correlation depends on
circumstances such as variations in speculative market demand for financial
futures and debt securities, including technical influences in futures trading
and differences between the financial instruments being hedged and the
instruments underlying the standard financial futures contracts available for
trading in such respects as interest rate levels, maturities and
creditworthiness of issuers. The degree of imperfection may be increased where
the underlying debt securities are lower-rated and, thus, subject to greater
fluctuation in price than higher-rated securities.
A decision as to whether, when and how to hedge involves the exercise of
skill and judgment, and even a well-conceived hedge may be unsuccessful to some
degree because of unexpected market or interest rate trends. The Funds will bear
the risk that the price of the securities being hedged will not move in complete
correlation with the price of the futures contracts used as a hedging
instrument. Although the Adviser believes that the use of financial futures
contracts will benefit the Funds, an incorrect market prediction could result in
a loss on both the hedged securities in the respective Fund's portfolio and the
hedging vehicle so that the Fund's return might have been better had hedging not
been attempted. However, in the absence of
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the ability to hedge, the Adviser might have taken portfolio actions in
anticipation of the same market movements with similar investment results but,
presumably, at greater transaction costs. The low margin deposits required for
futures transactions permit an extremely high degree of leverage. A relatively
small movement in a futures contract may result in losses or gains in excess of
the amount invested.
Futures exchanges may limit the amount of fluctuation permitted in certain
futures contract prices during a single trading day. The daily limit establishes
the maximum amount the price of a futures contract may vary either up or down
from the previous day's settlement price, at the end of the current trading
session. Once the daily limit has been reached in a futures contract subject to
the limit, no more trades may be made on that day at a price beyond that limit.
The daily limit governs only price movements during a particular trading day
and, therefore, does not limit potential losses because the limit may work to
prevent the liquidation of unfavorable positions. For example, futures prices
have occasionally moved to the daily limit for several consecutive trading days
with little or no trading, thereby preventing prompt liquidation of positions
and subjecting some holders of futures contracts to substantial losses.
Finally, although the Funds engage in financial futures transactions only
on boards of trade or exchanges where there appears to be an adequate secondary
market, there is no assurance that a liquid market will exist for a particular
futures contract at any given time. The liquidity of the market depends on
participants closing out contracts rather than making or taking delivery. In the
event participants decide to make or take delivery, liquidity in the market
could be reduced. In addition, the Funds could be prevented from executing a buy
or sell order at a specified price or closing out a position due to limits on
open positions or daily price fluctuation limits imposed by the exchanges or
boards of trade. If a Fund cannot close out a position, it must continue to meet
margin requirements until the position is closed.
Options on Financial Futures Contracts (Disciplined Growth Fund and
Regional Bank Fund only). To the extent set forth in the Prospectus, the Funds
may buy and sell options on financial futures contracts on stocks, stock
indices, debt securities, currencies, interest rate indices, and other
instruments. An option on a futures contract gives the purchaser the right, in
return for the premium paid, to assume a position in a futures contract at a
specified exercise price at any time during the period of the option. Upon
exercise, the writer of the option delivers the futures contract to the holder
at the exercise price. The Funds would be required to deposit with their
custodian initial and variation margin with respect to put and call options on
futures contracts written by them. Options on futures contracts involve risks
similar to the risks of transactions in financial futures contracts. Also, an
option purchased by a Fund may expire worthless, in which case a Fund would lose
the premium it paid for the option. The potential loss incurred by a Fund in
writing options on futures is unlimited and may exceed the amount of the premium
received.
Other Considerations (Disciplined Growth Fund and Regional Bank Fund only).
The Funds will engage in futures and options transactions for bona fide hedging
or other non-speculative purposes to the extent permitted by CFTC regulations. A
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 which it expects to purchase.
Except as stated below, the Funds' futures transactions will be entered into for
traditional hedging purposes -- i.e., futures contracts will be sold to protect
against a decline in the price of securities that the Funds own, or futures
contracts will be purchased to protect the Funds against an increase in the
price of securities, or the currency in which they are denominated, the
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Fund intends to purchase. As evidence of this hedging intent, the Funds expect
that on 75% or more of the occasions on which they take a long futures or option
position (involving the purchase of futures contracts), the Funds 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 contract or option position is closed out. However, in
particular cases, when it is economically advantageous for a 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.
As an alternative to literal compliance with the bona fide hedging
definition, a CFTC regulation permits the Funds to elect to comply with a
different test, under which the aggregate initial margin and premiums required
to establish nonhedging positions in futures contracts and options on futures
will not exceed 5% of the net asset value of the respective 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 Funds will engage in transactions in futures contracts only to the
extent such transactions are consistent with the requirements of the Code for
maintaining their qualifications as regulated investment companies for Federal
income tax purposes.
Gold & Government Fund, Government Fund, Managed Tax-Exempt Fund, Global Fund
and Global Income Fund
Interest Rate Futures Contracts. The Government Fund, Managed Tax-Exempt Fund,
Gold & Government Fund and Global Income Fund may invest in interest rate
futures contracts and related options that are traded on a United States or
foreign exchange or board of trade.
Currently, interest rate futures contracts can be purchased and sold with
respect to U.S. Treasury bonds, U.S. Treasury notes, Government National
Mortgage Association mortgage-backed certificates, U.S. Treasury bills and
ninety-day commercial paper.
The purpose of the purchase or sale of interest rate futures contracts by
the Funds will be to protect the Funds from fluctuations in interest rates
without necessarily buying or selling fixed income securities. For example, if a
Fund owns bonds and interest rates are expected to increase, that Fund might
sell futures contracts on debt securities having characteristics similar to
those held in the portfolio. Such a sale would have much the same effect as
selling an equivalent value of the bonds owned by the Fund. If interest rates
did increase, the value of the debt securities in the portfolio would decline,
but the value of the futures contracts to the Fund would increase at
approximately the same rate, thereby keeping the net asset value of the Fund
from declining as much as it otherwise would have.
Similarly, when it is expected that interest rates may decline, futures
contracts may be purchased to attempt to hedge against having to make an
anticipated purchase of bonds at the higher prices subsequently expected to
prevail. Since the fluctuations in the value of appropriately selected futures
contracts should be similar to that of the bonds that will be purchased, a Fund
could take advantage of the anticipated rise in the cost of the bonds without
actually buying them until the market has stabilized. At this time, that Fund
could make the intended purchase of the bonds in the cash market and the futures
contracts could be liquidated. To the extent a Fund enters into futures
contracts for this purpose, it will maintain in a segregated account assets
sufficient to cover its obligations with respect to such futures contracts,
which will consist of cash
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or U.S. Government or other high quality debt securities from its portfolio in
an amount equal to the difference between the fluctuating market value of such
futures contracts and the aggregate value of the initial and variation margin
payments made by the Fund with respect to such futures contracts.
Municipal Bond Index Futures Contracts. The Managed Tax-Exempt Fund may invest
in municipal bond index futures contracts that are traded on a United States
exchange or board of trade. Such investments may be made by the Fund solely for
the purposes of hedging against changes in the value of its portfolio securities
due to anticipated changes in interest rates and market conditions, and not for
purposes of speculation.
A municipal bond index futures contract is an agreement pursuant to which
two parties agree to take or make delivery of an amount of cash equal to the
difference between the value of the index at the close of the last trading day
of the contract and the price at which the index contract was originally
written. No physical delivery of the underlying municipal bonds in the index is
made.
The purpose of the acquisition or sale of a municipal bond index futures
contract by the Managed Tax-Exempt Fund, as the holder of long-term municipal
securities, is to protect the Fund from fluctuations in interest rates on
municipal securities without actually buying or selling long-term municipal
securities. For example, if the Fund owns long-term bonds and interest rates are
expected to increase, it might sell municipal bond index futures contracts. Such
a sale would have much the same effect as selling some of the long-term bonds in
the Fund's portfolio. If interest rates increase as anticipated by the Adviser,
the value of certain long-term municipal securities in the portfolio would
decline, but the value of the Fund's futures contracts would increase at
approximately the same rate, thereby keeping the net asset value of the Fund
from declining as much as it otherwise would have. Of course, since the value of
the municipal securities in the Managed Tax-Exempt Fund's portfolio may exceed
the value of the futures contracts sold by the Fund, an increase in the value of
the futures contracts might only mitigate - but not totally offset - the decline
in the value of the portfolio.
Similarly, when it is expected that interest rates may decline, municipal
bond index futures contracts could be purchased to hedge against the Managed
Tax-Exempt Fund's anticipated purchases of long-term municipal securities at
higher prices. Since the rate of fluctuation in the value of municipal bond
index futures contracts should be similar to that of long-term bonds, the Fund
could take advantage of the anticipated rise in the value of long-term bonds
without actually buying them until the market had stabilized. At that time, the
futures contracts could be liquidated and the Fund's cash could be used to buy
long-term bonds in the cash market. The Managed Tax-Exempt Fund could accomplish
similar results by selling municipal securities with long maturities and
investing in municipal securities with short maturities when interest rates are
expected to increase or buying municipal securities with long maturities and
selling municipal securities with short maturities when interest rates are
expected to decline. However, in circumstances when the market for municipal
securities may not be as liquid as that for the municipal bond index futures
contracts, the ability to invest in such contracts could enable the Fund to
react more quickly to anticipated changes in market conditions or interest
rates.
Gold Bullion Futures Contracts. The Gold & Government Fund may invest in gold
bullion futures contracts and related options that are traded on a United States
exchange or board of trade. Such investments may be made by the Gold &
Government Fund solely for the purpose of hedging
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against changes in the value of its portfolio securities due to anticipated
changes in gold prices, interest rates or market conditions, and not for the
purposes of speculation.
Generally, futures contracts on gold bullion are similar to the interest
rate futures contracts discussed above. By entering into gold bullion futures
contracts, the Fund will be able to establish the rate at which it will be
entitled to purchase set amounts of gold bullion in a future month. By selling
such futures, the Fund can establish the price it will receive in the delivery
month for a specified amount of gold bullion, or the Fund can attempt to "lock
in" the value of some or all of the gold bullion held in its portfolio at a
particular time.
Foreign Currency Futures Contracts. The Global Income Fund may invest in foreign
currency futures contracts and related options that are traded on a United
States foreign exchange or board of trade.
Foreign currency futures contracts can be purchased and sold with respect
to the British Pound, Deutsche Mark, Japanese Yen and other currencies or groups
of currencies in which securities held by the Global Income Fund are denominated
or which are sufficiently correlated with such currencies as to constitute an
appropriate vehicle for hedging.
Generally, foreign currency futures contracts are similar to the interest
rate futures contracts discussed above. By entering into foreign currency
futures contracts, the Global Income Fund will be able to establish the rate at
which it will be entitled to exchange U.S. dollars (or another foreign currency)
for another currency in a future month. By selling currency futures, the Fund
can establish the number of dollars (or another foreign currency) it will
receive in the delivery month for a certain amount of a foreign currency against
the U.S. dollar (or another foreign currency), or the Fund can attempt to "lock
in" the U.S. dollar value (or other foreign currency value) of some or all of
the securities held in its portfolio and denominated in that currency. By
purchasing currency futures, the Fund can establish the number of dollars it
will be required to pay for a specified amount of a foreign currency in the
delivery month. For example, if the Fund intends to buy securities in the future
and expects the U.S. dollar to decline against the relevant foreign currency
during the period before the purchase is effected, the Fund can attempt to "lock
in" the price in U.S. dollars of the securities it intends to acquire.
Foreign Debt Securities Futures Contracts. The Global Income Fund may also
invest in foreign debt futures contracts that are traded on a U.S. exchange or
board of trade or, consistent with U.S. Commodity Futures Trading Commission
regulations, traded on foreign exchanges. Such investments may be made solely
for the purpose of hedging against changes in the value of its portfolio
securities due to anticipated changes in interest rates, foreign currency
exchange rates or market conditions, and not for the purpose of speculation.
Foreign debt futures contracts are similar to the interest rate futures
contracts discussed above. By purchasing a futures contract, the Global Income
Fund will legally obligate itself to accept delivery of the underlying foreign
debt security and pay the agreed price; by selling a foreign debt futures
contract, it will legally obligate itself to make delivery of the security
against payment of the agreement price. Futures contracts for the purchase and
sale of foreign debt futures contracts currently are actively traded on the
London International Financial Futures Exchange, the Tokyo Stock Exchange and
the Paris Stock Exchange.
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Risk Factors. Unlike the purchase or sale of a security, no consideration is
paid or received by a Fund upon the purchase or sale of a futures contract.
Initially, a Fund will be required to deposit with the broker an amount of cash
or cash equivalents, known as "initial margin", as a type of performance bond or
good faith deposit which is returned to the Fund upon termination of the futures
contract, assuming all contractual obligations have been satisfied. The required
amount of initial margin is subject to change by the board of trade or exchange
on which the contract is traded and members of such board of trade or exchange
may charge a higher amount. Subsequent payments, known as "variation margin", to
and from the broker, will be made on a daily basis as the price of the futures
contract fluctuates making long and short positions in the contract more or less
valuable, a process known as marking-to-market. At any time prior to the
expiration of the contract, a Fund may elect to close the position, which will
operate to terminate the Fund's existing position in the futures contract.
There are several risks in connection with the use of futures contracts as
a hedging device. Successful use of futures contracts by the Funds is subject to
the Adviser's ability to predict correctly movements in the direction of
interest rates, gold prices or foreign currency exchange rates, as the case may
be. A decision of whether, when and how to hedge involves the exercise of skill
and judgment and even a well-conceived hedge may be unsuccessful to some degree
because of market behavior or unexpected trends in such rates and prices. In
addition, there can be no assurance that there will be a correlation between
movements in the price of the futures contracts and movements in the price of
the related securities, gold or foreign currencies which are the subject of the
hedge. The degree of imperfection or correlation depends upon various
circumstances such as, for example, variations in speculative market demand for
futures contracts and the specific securities, gold or foreign currencies being
hedged and upon the securities, gold or foreign currencies, as the case may be,
underlying the futures contracts.
Although the Funds intend to purchase or sell futures contracts only if
there is an active market for such contracts, there is no assurance that a
liquid market will exist for the contract at any particular time. Most domestic
futures exchanges and boards of trade limit the amount of fluctuation permitted
in futures contract prices during a single trading day. The daily limit
establishes the maximum amount that the price of a futures contract may vary
either up or down from the previous day's settlement price at the end of a
trading session. Once the daily limit has been reached in a particular contract,
no trades may be made that day at a price beyond that limit. The daily limit
governs only price movement during a particular trading day and therefore does
not limit potential losses because the limit may prevent the liquidation of
unfavorable positions. It is possible that futures contract prices could move to
the daily limit for several consecutive trading days with little or no trading,
thereby preventing prompt liquidation of the futures position and subjecting
some futures traders to substantial losses. In such event, it will not be
possible to close a futures position, and in the event of adverse price
movements, a Fund would be required to make daily cash payments of variation
margin. In such circumstances, an increase in the value of the portion of the
portfolio being hedged, if any, may partially or completely offset losses on the
futures contract. However, as described above, there is no guarantee that the
price of the securities, gold or foreign currencies, as the case may be, will,
in fact, correlate with the price movements in the respective futures contracts
and thus provide an offset to losses on such futures contracts.
If a Fund has hedged against the possibility of an increase in interest
rates, gold prices or foreign currency rates adversely affecting the value of
the securities, gold bullion or foreign currencies held in its portfolio and
rates decrease instead, the Fund will lose part or all of the
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benefit of the increased value of the respective securities, gold bullion or
foreign currencies which it has hedged because it will have offsetting losses in
its futures positions. In addition, in such situations, if a Fund has
insufficient cash, it may have to sell securities to meet daily variation margin
requirements. Such sales of securities may, but will not necessarily, be at
increased prices which reflect the decline in interest rates, gold prices or
foreign currency exchange rates, as the case may be. The Funds may have to sell
securities at a time when it may be disadvantageous to do so.
Options on Interest Rate, Gold Bullion and Foreign Currency Futures Contracts.
An option on a futures contract, as contrasted with the direct investment in
such a contract, gives the purchaser the right, in return for the premium paid,
to assume a position in the futures contract at a specified exercise price at
any time prior to the expiration of the option. The potential loss related to
the purchase of an option on a futures contract is limited to the premium paid
for the option (plus transaction costs).
The Funds may purchase and write put and call options on interest rate,
gold bullion and foreign currency futures contracts, as the case may be, that
are traded on a United States exchange or board of trade as a hedge against the
value of their portfolio securities due to anticipated changes in interest
rates, gold prices, foreign currency exchange rates or market conditions, and
may enter into closing transactions with respect to such options to terminate
existing positions.
In addition to the risks which apply to futures transactions generally as
described above, there are additional risks relating to options on futures
contracts. The ability to establish and close out positions on such options will
be subject to the existence of a liquid market. In addition, the purchase or
sale of put or call options will be based upon predictions as to anticipated
interest rate trends, gold bullion or foreign currency valuation trends, as the
case may be, by the Adviser which could prove to be incorrect. Even if the
expectations of the Adviser are correct, there may be an imperfect correlation
between the change in the value of the options and of the portfolio securities
hedged. In addition, the ability of the Funds to trade in futures contracts may
be materially limited by the requirements of the Internal Revenue Code.
When a Fund writes a call option or put option it will be required to
deposit initial margin and variation margin pursuant to broker's requirements
similar to those applicable to futures contracts. In addition, net option
premiums received for writing options will be included as initial margin
deposits.
There is no limit as to how many times the Gold & Government Fund's or the
Global Income Fund's options positions may be replaced, and, therefore, the
potential risks to those Funds may be greater than 5% of their net assets.
Successful use by the Adviser of options will be based upon predictions by the
Adviser as to anticipated movements of interest rates, gold prices and/or
foreign currency exchange rates.
CERTAIN INVESTMENT PRACTICES
The following information supplements the discussion of the Funds'
investment strategies and techniques in the Prospectuses.
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Investment in Foreign Securities
Because of the following considerations, shares of the Global Fund and the
Global Income Fund should not be considered a complete investment program. There
is generally less publicly available information about foreign companies and
other issuers comparable to reports and ratings that are published about issuers
in the United States. Foreign issuers are also generally not subject to uniform
accounting and auditing and financial reporting standards, practices and
requirements comparable to those applicable to United States issuers.
It is contemplated that most foreign securities will be purchased in
over-the-counter markets or on exchanges located in the countries in which the
respective principal offices of the issuers of the various securities are
located, if that is the best available market. 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. Similarly, volume
and liquidity in most foreign bond markets is less than in the United States and
at times, volatility of price can be greater than in the United States. Fixed
commissions on foreign exchanges are generally higher than negotiated
commissions on United States exchanges, although each 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 or
confiscatory taxation, limitations on the removal of funds or other assets of a
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 such respects as growth of gross national product, rate of inflation,
capital reinvestment, resource self-sufficiency and balance of payments
position.
The dividends and interest payable on certain of the Global Fund's and the
Global Income Fund's foreign portfolio securities may be subject to foreign
withholding taxes, thus reducing the net amount of income available for
distribution to each Fund's shareholders. See "Tax Status".
Investors should understand that the expense ratio of each of the Global
Fund and the Global Income Fund can be expected to be higher than that of
investment companies investing in domestic securities since the expenses of the
Funds, such as the cost of maintaining the custody of foreign securities and the
rate of advisory fees paid by the Funds, are higher.
Repurchase Agreements
A repurchase agreement is a contract under which a Fund acquires a security
for a relatively short period (usually not more than 7 days) subject to the
obligation of the seller to repurchase and the Fund to resell such security at a
fixed time and price (representing the Fund's cost plus interest). A 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 a Fund
enters into repurchase agreements.
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Each 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, a Fund could experience delays in liquidating
the underlying securities during the period in which the Fund seeks to enforce
its rights thereto, possible subnormal levels of income and lack of access to
income during this period and the expense of enforcing its rights.
Reverse Repurchase Agreements
Discipline Growth Fund and Regional Bank Fund may also enter into reverse
repurchase agreements which involve the sale of U.S. Government securities held
in their portfolio to a bank or securities firm 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 a Fund. A Fund
will use proceeds obtained from the sale of securities pursuant to reverse
repurchase agreements to purchase other investments. The use of borrowed funds
to make investments is a practice known as "leverage," which is considered
speculative. Use of reverse repurchase agreements is an investment technique
that is intended to increase income. Thus, a Fund will enter into a reverse
repurchase agreement only when the Adviser determines that the interest income
to be earned from the investment of the proceeds is greater than the interest
expense of the transaction. However, there is a risk that interest expense will
nevertheless exceed the income earned. Reverse repurchase agreements involve the
risk that the market value of securities purchased by a 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. A 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, a Fund will establish and maintain with the Fund's custodian a
separate account consisting of highly liquid, marketable securities in an amount
at least equal to the repurchase prices of the securities (plus any accrued
interest thereon) under such agreements. In addition, a Fund will not enter into
reverse repurchase agreements and other borrowings exceeding in the aggregate 33
1/3% of the market value of its total assets. A Fund will enter into reverse
repurchase agreements only with selected registered broker/dealers or with
federally insured banks or savings and loan associations which are approved in
advance as being creditworthy by the Board of Trustees. Under procedures
established by the Board of Trustees, the Adviser will monitor the
creditworthiness of the firms involved.
Short Term Trading and Portfolio Turnover
Disciplined Growth Fund and Regional Bank Fund may engage in short-term
trading. Short-term trading means the purchase and subsequent sale of a security
after it has been held for a relatively brief period of time. A 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 corresponding higher transaction expenses and may make it more
difficult for a Fund to qualify as a regulated investment company for federal
income tax purposes.
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Forward Commitment and When-Issued Securities
Managed Tax-Exempt Fund, Gold & Government Fund, Disciplined Growth Fund
and Regional Bank 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. A 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, a Fund contracts to purchase securities for a
fixed price at a future date beyond customary settlement time.
When a 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 a 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 a Fund enters into an agreement to purchase securities on a
when-issued or forward commitment basis, the Fund will segregate in a separate
account cash or liquid, high grade debt securities equal in value to the Fund's
commitment. These assets will be valued daily at market, and additional cash or
securities will be segregated in a separate account to the extent that the total
value of the assets in the account declines below the amount of the when-issued
commitments. Alternatively, a Fund may enter into offsetting contracts for the
forward sale of other securities that it owns.
The Managed Tax-Exempt Fund expects that commitments to purchase
when-issued securities will not normally exceed 25% of its net asset value.
Stand-By Commitments
When the Managed Tax-Exempt Fund exercises a stand-by commitment that it
has acquired from a dealer with respect to a municipal security held in its
portfolio, the dealer will normally pay to the Managed Tax-Exempt Fund an amount
equal to: (1) the Fund's acquisition cost of the municipal securities (excluding
any accrued interest which the Fund paid on their acquisition), less any
amortized market premium or plus any amortized market or original issue discount
during the period the Fund owned the securities, plus (2) all interest accrued
on the securities since the last interest payment date or the date the
securities were purchased by the Fund, whichever is later. The Fund's right to
exercise stand-by commitments would be unconditional and unqualified. A stand-by
commitment would not be transferable by the Managed Tax-Exempt Fund, although it
could sell the underlying municipal securities to a third party at any time.
The Managed Tax-Exempt Fund intends to enter into stand-by commitments only
with those banks which, in the opinion of the Adviser, present minimal credit
risk. The Managed Tax-Exempt Fund may pay for stand-by commitments either
separately, in cash or by paying a higher price for portfolio securities which
are acquired subject to such a commitment (thus reducing the
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yield to maturity otherwise available for the same securities). The total amount
paid for outstanding stand-by commitments held by the Managed Tax-Exempt Fund is
not expected to exceed 1/2 of 1% of the Fund's total asset value calculated
immediately after each stand-by commitment is acquired. The Fund intends to
acquire stand-by commitments solely to facilitate portfolio liquidity and does
not intend to exercise its rights thereunder for trading purposes. The
acquisition of a stand-by commitment would not ordinarily affect the valuation
or maturity of the underlying municipal securities. Stand-by commitments
acquired by the Managed Tax-Exempt Fund would be valued at zero in determining
net asset value. Where the Fund paid directly or indirectly for a stand-by
commitment, its cost would be amortized over the period the commitment is held
by the Fund. Although Federal income tax law may not be entirely clear in
certain cases, the Fund intends to take the position that it is the owner of
municipal securities it holds subject to stand-by commitments.
Leverage Through Borrowing
The Government Fund may borrow from banks to increase its portfolio
holdings of Government Securities. Such borrowings will be unsecured. The 1940
Act requires the Fund to maintain continuous asset coverage of not less than
300% with respect to such borrowings. This allows the Fund to borrow for such
purposes an amount (when taken together with any borrowings for temporary
extraordinary or emergency purposes as described below) equal to as much as 50%
of the value of its net assets (not including such borrowings). If such asset
coverage should decline to less than 300% due to market fluctuations or other
reasons, the Fund may be required to sell some of its portfolio holdings within
three days in order to reduce the Fund's debt and restore the 300% asset
coverage, even though it may be disadvantageous from an investment standpoint to
sell securities at that time. Leveraging will exaggerate any increase or
decrease in the net asset value of the Fund's portfolio, and in that respect may
be considered a speculative practice. Money borrowed for leveraging will be
subject to interest costs which may or may not exceed the investment return
received from the securities purchased.
The Fund may also borrow money for temporary extraordinary or emergency
purposes. Such borrowings may not exceed 5% of the value of the Fund's total
assets when the loan is made. The Fund may pledge up to 10% of the lesser of
cost or value of its total assets to secure such borrowings.
Trading of Securities
The Government Fund may trade those Government Securities which are not
covering outstanding options positions and are not on loan to broker-dealers if
the Fund's Adviser believes that there are opportunities to exploit
differentials in prices and yields or fluctuations in interest rates, consistent
with its investment objective.
Restricted Securities
Each Fund may purchase securities that are not registered ("restricted
securities") under the Securities Act of 1933 ("1933 Act"), including securities
offered and sold to "qualified institutional buyers" under Rule 144A under the
1933 Act. However, a Fund will not invest more than 15% of its assets in
illiquid investments, which include repurchase agreements maturing in more than
seven days, securities that are not readily marketable and restricted
securities.
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However, if the Board of Trustees determines, based upon a continuing review of
the trading markets for specific Rule 144A securities, that they are liquid,
then such securities may be purchased without regard to the 15% limit. The
Trustees may adopt guidelines and delegate to the Adviser the daily function of
determining the monitoring and liquidity of restricted securities. The Trustees,
however, will retain sufficient oversight and be ultimately responsible for the
determinations. The Trustees will carefully monitor a 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 a Fund if
qualified institutional buyers become for a time uninterested in purchasing
these restricted securities.
A Fund may acquire other restricted securities including securities for
which market quotations are not readily available. These securities may be sold
only in privately negotiated transactions or in public offerings with respect to
which a registration statement is in effect under the Securities Act of 1933.
Where registration is required, a Fund may be obligated to pay all or part of
the registration expenses and a considerable period may elapse between the time
of the decision to sell and the time a Fund may be permitted to sell a security
under an effective registration statement. If, during such a period, adverse
market conditions were to develop, a Fund might obtain a less favorable price
than prevailed when it decided to sell. Restricted securities will be priced at
fair market value as determined in good faith by the Funds' Trustees. If through
the appreciation of restricted securities or the depreciation of unrestricted
securities, a Fund should be in a position where more than 15% of the value of
its assets is invested in illiquid securities (including repurchase agreements
which mature in more than seven days and options which are traded
over-the-counter and their underlying securities), a Fund will bring its
holdings of illiquid securities below the 15% limitation.
The Funds (other than Disciplined Growth Fund and Regional Bank Fund) will
not invest more than 5% of their total assets in Rule 144A securities without
first supplementing the prospectuses and providing additional information to
shareholders.
Lending of Securities
Disciplined Growth 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.
Disciplined Growth Fund may reinvest any cash collateral in short-term
securities. When the Fund lends portfolio securities, there is a risk that the
borrower may fail to return the securities involved in the transaction. As a
result, the Fund may incur a loss or, in the event of the borrower's bankruptcy,
the Fund may be delayed in or prevented from liquidating the collateral. It is a
fundamental policy of the Disciplined Growth Fund not to lend portfolio
securities having a total value exceeding 5% of its total assets.
INVESTMENT RESTRICTIONS
Fundamental Investment Restrictions
The following investment restrictions will not be changed without approval
of a majority of the Fund's outstanding voting securities which, as used in the
Prospectuses and this Statement of Additional Information, means approval by the
lesser of (1) 67% or more of the Fund's shares
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represented at a meeting if at least 50% of the Fund's outstanding shares are
present in person or by proxy at the meeting or (2) 50% of the Fund's
outstanding shares.
A Fund may not:
1. Purchases on Margin and Short Sales. Purchase securities on margin or
sell short, except that a Fund may obtain such short term credits as are
necessary for the clearance of securities transactions. The deposit or payment
by a Fund of initial or maintenance margin in connection with futures contracts
or related options transactions is not considered the purchase of a security on
margin.
2. Borrowing. Borrow money, except from banks temporarily for extraordinary
or emergency purposes (not for leveraging or investment) and then in an
aggregate amount not in excess of (a) 5% of the value of the Fund's net assets
at the time of such borrowing with respect to the Gold & Government Fund,
Regional Bank Fund and Disciplined Growth Fund; (b) 10% of the value of the
Fund's total assets at the time of such borrowing with respect to the Managed
Tax-Exempt Fund, Global Fund and Global Income Fund, provided that the Fund will
not purchase securities for investment while borrowings equaling 5% or more of
the Fund's total assets are outstanding; and (c) with respect to the Government
Fund, 33 1/3% of the value of the Fund's total assets (including the amount
borrowed) less liabilities (not including the amount borrowed).
3. Underwriting Securities. Act as an underwriter of securities of other
issuers, except to the extent that it may be deemed to act as an underwriter in
certain cases when disposing of restricted securities. (See also Restriction
12.)
4. Senior Securities. Issue senior securities except as appropriate to
evidence indebtedness which a Fund is permitted to incur, provided that, to the
extent applicable, (i) the purchase and sale of futures contracts or related
options, (ii) collateral arrangements with respect to futures contracts, related
options, forward foreign currency exchange contracts or other permitted
investments of a Fund as described in the Prospectus, including deposits of
initial and variation margin, and (iii) the establishment of separate classes of
shares of a Fund for providing alternative distribution methods are not
considered to be the issuance of senior securities for purposes of this
restriction.
5. Warrants. With respect to the Managed Tax-Exempt Fund and Government
Fund, invest in marketable warrants to purchase common stock; with respect to
the Gold & Government Fund, Regional Bank Fund and Disciplined Growth Fund,
invest more than 5% of the value of the Fund's net assets in marketable warrants
to purchase common stock; and with respect to the Global Fund and the Global
Income Fund, invest more than 5% of the Fund's total assets in warrants, whether
or not the warrants are listed on the New York or American Stock Exchanges, or
more than 2% of the value of the Fund's total assets in warrants which are not
listed on those exchanges. Warrants acquired in units or attached to securities
are not included in this restriction.
6. Single Issuer Limitation/Diversification. Purchase securities of any one
issuer, except securities issued or guaranteed by the U.S. Government, its
agencies or instrumentalities, if immediately after such purchase more than 5%
of the value of a Fund's total assets would be invested in such issuer or the
Fund would own or hold more than 10% of the outstanding voting securities of
such issuer; provided, however, that with respect to all Funds, up to 25% of the
value
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<PAGE>
of a Fund's total assets may be invested without regard to these limitations.
This restriction does not apply to Global Income Fund, which is a
non-diversified fund under the 1940 Act.
7. Real Estate. Purchase or sell real estate although a Fund may purchase
and sell securities which are secured by real estate, mortgages or interests
therein, or issued by companies which invest in real estate or interests
therein; provided, however, that no Fund will purchase real estate limited
partnership interests.
8. Commodities; Commodity Futures; Oil and Gas Exploration and Development
Programs. Purchase or sell commodities or commodity futures contracts or
interests in oil, gas or other mineral exploration or development programs,
except a Fund (other than the Regional Bank Fund) may engage in such forward
foreign currency contracts and/or purchase or sell such futures contracts and
options thereon as described in the Prospectus.
9. Making Loans. Make loans, except that a Fund may purchase or hold debt
instruments and may enter into repurchase agreements (subject to Restriction 12)
in accordance with its investment objectives and policies and, with respect to
the Disciplined Growth Fund, Government Fund, Global Fund and Global Income
Fund, make loans of portfolio securities provided that as a result, no more than
5% of the Disciplined Growth Fund's total assets, 10% of the Global Fund's total
assets and 30% of the total assets of the Government Fund or Global Income Fund,
taken at current value would be so loaned.
10. Industry Concentration. Purchase any securities which would cause more
than 25% of the market value of a Fund's total assets at the time of such
purchase to be invested in the securities of one or more issuers having their
principal business activities in the same industry, provided that there is no
limitation with respect to investments in obligations issued or guaranteed by
the U.S. Government, its agencies or instrumentalities; provided that,
notwithstanding the foregoing, (A) the Gold & Government Fund will invest more
than 25% of its total assets in gold and gold mining industries, and will not at
any time have less than 65% of its total assets invested in some combination of
gold and gold mining securities and obligations issued or guaranteed by the U.S.
Government, its agencies or instrumentalities; and (B) the Regional Bank Fund
will invest more than 25% of its total assets in issuers in the banking
industry; all as more fully set forth in the Prospectus. For purposes of this
Restriction, with respect to the Managed Tax-Exempt Fund, state and municipal
governments and their political subdivisions are not considered members of any
industry. With respect to Managed Tax-Exempt Fund, this limitation shall not be
applicable to investments in Tax-Exempt securities issued by any state and
municipal governments and their political subdivisions. With respect to Global
Income Fund, this restriction will apply to obligations of a foreign government
unless the Securities and Exchange Commission permits their exclusion.
Nonfundamental Investment Restrictions
The following restrictions are designated as nonfundamental and may be
changed by the Board of Trustees without shareholder approval.
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A Fund may not:
11. Options Transactions. Write, purchase, or sell puts, calls or
combinations thereof except that a Fund may write, purchase or sell puts and
calls on securities as described in the Prospectuses, and the Global Income Fund
may purchase or sell puts and calls on foreign currencies as described in the
Prospectus.
12. Illiquid Securities. Purchase or otherwise acquire any security if, as
a result, more than 15% of a Fund's net assets (taken at current value) would be
invested in securities that are illiquid by virtue of the absence of a readily
available market or legal or contractual restrictions on resale. This policy
includes repurchase agreements maturing in more than seven days. This policy
does not include restricted securities eligible for resale pursuant to Rule 144A
under the Securities Act of l933 which the Board of Trustees or the Adviser has
determined under Board-approved guidelines are liquid.
13. Acquisition for Control Purposes. Purchase securities of any issuer for
the purpose of exercising control or management, except in connection with a
merger, consolidation, acquisition or reorganization.
14. Unseasoned Issuers. Purchase securities of any issuer with a record of
less than three years continuous operations, including predecessors, if such
purchase would cause the investments of a Fund in all such issuers to exceed 5%
of the total assets of the Fund taken at market value, except this restriction
shall not apply to (i) obligations of the U.S. Government, its agencies or
instrumentalities and (ii) securities of such issuers which are rated by at
least one nationally recognized statistical rating organization. With respect to
Managed Tax-Exempt Fund, this restriction shall not apply to municipal
obligations for the payment of which is pledged the faith, credit and taxing
power of any person authorized to issue such securities. With respect to the
Global Income Fund, this restriction shall not apply to obligations issued or
guaranteed by any foreign government or its agencies or instrumentalities.
15. Beneficial Ownership of Officers and Directors of Fund and Adviser.
Purchase or retain the securities of any issuer if those officers or trustees of
a Fund or officers or directors of the Adviser who each own beneficially more
than 1/2 of 1% of the securities of that issuer together own more than 5% of the
securities of such issuer.
16. Hypothecating, Mortgaging and Pledging Assets. Hypothecate, mortgage or
pledge any of its assets except (a) with respect to the Gold & Government Fund,
Regional Bank Fund, Disciplined Growth Fund and Managed Tax-Exempt Fund, to
secure loans as a temporary measure for extraordinary purposes and (b) with
respect to Government Fund, Global Fund and Global Income Fund, as may be
necessary in connection with permitted borrowings and then not in excess of 5%
of the Fund's total assets, taken at cost. For the purpose of this restriction,
(i) forward foreign currency exchange contracts are not deemed to be a pledge of
assets, (ii) the purchase or sale of securities by a Fund on a when-issued or
delayed delivery basis and collateral arrangements with respect to the writing
of options on debt securities or on futures contracts are not deemed to be a
pledge of assets; and (iii) the deposit in escrow of underlying securities in
connection with the writing of call options is not deemed to be a pledge of
assets.
17. Joint Trading Accounts. Participate on a joint or joint and several
basis in any trading account in securities (except for a joint account with
other funds managed by the Adviser
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<PAGE>
for repurchase agreements permitted by the Securities and Exchange Commission
pursuant to an exemptive order).
18. Securities of Other Investment Companies. Purchase a security if, as a
result, (i) more than 10% of the Fund's total assets would be invested in the
securities of other investment companies, (ii) the Fund would hold more than 3%
of the total outstanding voting securities of any one investment company, or
(iii) more than 5% of the Fund's total assets would be invested in the
securities of any one investment company. These limitations do not apply to (a)
the investment of cash collateral, received by the Fund in connection with
lending the Fund's portfolio securities, in the securities of open-end
investment companies or (b) the purchase of shares of any investment company in
connection with a merger, consolidation, reorganization or purchase of
substantially all of the assets of another investment company. Subject to the
above percentage limitations, the Fund may, in connection with the John Hancock
Group of Funds Deferred Compensation Plan for Independent Trustees/Directors,
purchase securities of other investment companies within the John Hancock Group
of Funds. The Fund may not purchase the shares of any closed-end investment
company except in the open market where no commission or profit to a sponsor or
dealer results from the purchase, other than customary brokerage fees.
If a percentage restriction is adhered to at the time of investment, a
later increase or decrease in percentage resulting from a change in values of
portfolio securities or amounts of net assets will not be considered a violation
of any of the foregoing restrictions (with the exception of Restriction 2
permitting Government Fund to borrow up to 33 1/3%, and Disciplined Growth Fund
to borrow up to 5% of the value of their total assets).
The Global Income Fund has registered as a "non-diversified" investment
company under the Investment Company Act of 1940. However, the Fund intends to
limit its investments to the extent required by the diversification requirements
of the Internal Revenue Code. See "Taxes".
In addition, it is a fundamental policy of the Managed Tax-Exempt Fund that
the Managed Tax-Exempt Fund will invest at least 80% of its total assets in
municipal securities with varying maturities, the interest from which is, in the
opinion of bond counsel for the issuer, exempt from federal income tax.
TAX STATUS
Each Fund is treated as a separate entity for accounting and tax purposes.
Each Fund has qualified and elected to be treated as a "regulated investment
company" under Subchapter M of the Internal Revenue Code of 1986, as amended
(the "Code"), and intends to continue to so qualify for each taxable year. As
such and by complying with the applicable provisions of the Code regarding the
sources of its income, the timing of its distributions, and the diversification
if its assets, each Fund will not be subject to Federal income tax on taxable
income (including net short-term and long-term capital gains from the
disposition of portfolio securities or the right to when-issued securities prior
to issuance or the lapse, exercise, delivery under or closing out of certain
options, futures and forward contracts, income from repurchase agreements and
other taxable securities, income attributable to accrued market discount, and a
portion of the discount from certain stripped tax-exempt obligations or their
coupons) which is distributed to shareholders at least annually in accordance
with the timing requirements of the Code.
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Each Fund will be subject to a 4% nondeductible Federal excise tax on
certain amounts not distributed (and not treated as having been distributed) on
a timely basis in accordance with annual minimum distribution requirements. Each
Fund intends under normal circumstances to avoid liability for such tax by
satisfying such distribution requirements.
Distributions from a Fund's current or accumulated earnings and profits
("E&P"), as computed for Federal income tax purposes, will be taxable as
described in the Funds' Prospectuses whether taken in shares or in cash. Amounts
that are not allowable as a deduction in computing taxable income, including
expenses associated with earning tax-exempt interest income, do not reduce
current E&P for this purpose. Distributions, if any, in excess of an investor's
tax basis in Fund shares and thereafter (after such basis is reduced to zero)
will generally give rise to capital gains. Shareholders electing to receive
distributions in the form of additional shares will have a cost basis for
Federal income tax purposes in each share so received equal to the amount of
cash they would have received had they elected to receive the distributions in
cash, divided by the number of shares received.
Distributions of tax-exempt interest ("exempt-interest dividend") timely
designated as such by the Managed Tax-Exempt Fund to its shareholders will be
treated as tax-exempt interest under the Code, provided that such Fund qualifies
as a regulated investment company and at least 50% of the value of its assets at
the end of each quarter of its taxable year is invested in tax-exempt
obligations. Shareholders are required to report their receipt of tax-exempt
interest, including such distributions, on their Federal income tax returns. The
portion of the Managed Tax-Exempt Fund's distributions designated as
exempt-interest dividends may differ from the actual percentage that its
tax-exempt income comprised of its total income during the period of any
particular shareholder's investment. This Fund will report to Shareholders the
amount designated as exempt-interest dividends for each year.
Interest income from certain types of tax-exempt bonds that are private
activity bonds in which the Managed Tax-Exempt Fund may invest is treated as an
item of tax preference for purposes of the Federal alternative minimum tax. To
the extent that the Managed Tax-Exempt Fund invests in these types of tax-exempt
bonds, shareholders will be required to treat as an item of tax preference for
Federal alternative minimum purposes that part of such Fund's exempt-interest
dividends which is derived from interest on these tax-exempt bonds.
Exempt-interest dividends derived from interest income from all tax-exempt bonds
may be included in corporate "adjusted current earnings" for purposes of
computing the alternative minimum tax liability, if any, of corporate
shareholders of the Managed Tax-Exempt Fund.
If a Fund invests in stock of certain non-U.S. corporations that receive at
least 75% of their annual gross income from passive sources (such as interest
producing investments, dividends, rents, royalties or capital gain) or hold at
least 50% of their assets in investments producing such passive income ("passive
foreign investment companies"), that Fund could be subject to Federal income tax
and additional interest charges on "excess distributions" received from these
passive foreign investment 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 applicable Fund to
recognize taxable income or gain without concurrent receipt of cash. Any Fund
that is permitted to acquire stock in foreign corporations may limit and/or
manage its holdings in passive foreign investment companies to minimize its tax
liability or maximize its return from these investments.
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<PAGE>
Foreign exchange gains and losses realized by a Fund in connection with
certain transactions involving foreign currency-denominated debt securities,
certain foreign currency futures and 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 a 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 held for less than
three months, which gain is limited under the Code to less than 30% of its
annual gross income, 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 annual gross income. Income from investments in commodities,
such as gold and certain related derivative instruments, is also not treated as
qualifying income under this test. If the net foreign exchange loss for a year
treated as ordinary loss under Section 988 were to exceed a Fund's investment
company taxable income computed without regard to such loss (i.e., all of the
Fund's net income other than any excess of net long-term capital gain over net
short-term capital loss) the resulting overall ordinary loss for such year would
not be deductible by the Fund or its shareholders in future years.
Some Funds may be subject to withholding and other taxes imposed by foreign
countries with respect to their investments in foreign securities. Tax
conventions between certain countries and the U.S. may reduce or eliminate such
taxes. Investors may be entitled to claim U.S. foreign tax credits with respect
to such taxes, subject to certain provisions and limitations contained in the
Code. Specifically, if more than 50% of the value of a 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 actually received) their
pro rata shares of foreign income taxes paid by the Fund even though not
actually received by them, and (ii) treat such respective pro rata portions as
foreign income taxes paid by them.
If a Fund makes this election, shareholders may then deduct such pro rata
portions of foreign income 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 foreign income taxes paid by the Fund, although
such shareholders will be required to include their share 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 a separate
category of income for purposes of computing the limitations on the foreign tax
credits. Tax-exempt shareholders will ordinarily not benefit from this
elections. Each year that a Fund files the election described above, its
shareholders will be notified of the amount of (i) each shareholder's pro rata
share of foreign income taxes paid by the Fund and (ii) the portion of Fund
dividends which represents income from each foreign country. A Fund that cannot
or does not make this election may deduct such taxes in computing its taxable
income.
For each Fund, the amount of net realized 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 or
futures 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
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or unrealized appreciation in the Fund's portfolio or undistributed taxable
income of the Fund. Consequently, subsequent distributions on those shares from
such appreciation or income may be taxable to such investor even if the net
asset value of the investor's shares is, as a result of the distributions,
reduced below the investor's cost for such shares, and the distributions in
reality represent a return of a portion of the purchase price.
Upon a redemption of shares of a Fund (including by exercise of the
exchange privilege) a shareholder may realize a taxable gain or loss depending
upon his 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. A sales charge paid in purchasing Class A shares of a Fund cannot be
taken into account for purposes of determining gain or loss on the redemption or
exchange of such 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 the Automatic Dividend Reinvestment Plan.
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 disallowed to the extent of all
exempt-interest dividends paid with respect to such shares and 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 all net short-term and
long-term capital gains, if any, each Fund reserves the right to retain and
reinvest all or any portion of its "net capital gain", which is the excess, as
computer for Federal income tax purposes, of net long-term capital gain over net
short-term capital loss in any year. The Funds will not in any event distribute
net long-term capital gains realized in any year to the extend 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 a
Fund. Each shareholder would be treated for Federal income tax purposes as if
such 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 of 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 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, each Fund is permitted to carryforward a
net capital loss in any year to offset its own 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 applicable Fund, as noted above, would not be distributed
as such to shareholders. The capital loss carryforwards for each of the Funds
are as follows: John Hancock Sovereign U.S. Government Income Fund has
$43,025,223 of capital loss carryforwards which will expire October 31, 1997 --
$282,637, October 31, 2002-- $16,549,431 and October 31, 2003 -- $26,193,155.
John Hancock Managed Tax Exempt Fund has no capital loss
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carryforwards. John Hancock Gold & Government Fund has $11,789,591 of capital
loss carryforwards which will expire October 31, 2002 -- $8,066,420 and October
31, 2003 -- $3,723,171. John Hancock Disciplined Growth Fund has no capital loss
carryforwards. John Hancock Regional Bank Fund has no capital loss
carryforwards. John Hancock Global Fund has no capital loss carryforwards. John
Hancock Global Income Fund has $3,413,372 which will expire October 31, 2002.
Interest on indebtedness incurred by a shareholder to purchase or carry
shares of the Managed Tax-Exempt Fund will not be deductible for Federal income
tax purposes to the extent it is deemed related to exempt-interest dividends
paid by such Fund. Pursuant to published guidelines, the Internal Revenue
Service may deem indebtedness to have been incurred for the purpose of
purchasing or carrying shares of this Fund even though the borrowed funds may
not be directly traceable to the purchase of shares.
For purposes of the dividends received deduction available to corporations,
dividends received by a Fund, if any, 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 designated by the Fund may be treated as qualifying dividends.
Only Disciplined Growth Fund and Regional Bank Fund would generally have any
significant portion of its distributions 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 applicable Fund in
order to qualify for the deduction and, if they borrow to acquire such shares,
may be denied a portion of the dividends received deduction. The entire
qualifying dividend, including the otherwise deductible amount, will be included
in determining the excess (if any) of a corporate shareholder's adjusted current
earnings over its alternative minimum taxable income, which may increase its
alternative minimum tax liability, if any. Additionally, any corporate
shareholder should consult its tax adviser regarding the possibility that its
tax basis in its shares may be reduced, for Federal income tax purposes, by
reason of "extraordinary dividends" received with respect to the shares, for the
purpose of computing its gain or loss on redemption or other disposition of the
shares.
Investment in debt obligations that are at risk of or in default presents
special tax issues for any Fund that may hold such obligations. Tax rules are
not entirely clear about issues such as when the Fund may cease to accrue
interest, original issue discount, or market discount, when and to what extent
deductions may be taken for bad debts or worthless securities, how payments
received on obligations in default should be allocated between principal and
income, and whether exchanges of debt obligations in a workout context are
taxable. These and other issues will be addressed by any Fund that may hold 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.
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
Funds may restrict each Fund's ability to enter into futures, options, and
forward transactions.
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Certain options, futures and forward foreign currency transactions
undertaken by a 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
currency forward, options and futures, as ordinary income or loss) and timing of
some capital gains and losses realized by the Fund. Also, certain of a Fund's
losses on its transactions involving options, futures or forward contracts
and/or offsetting portfolio positions may be deferred rather than being taken
into account currently in calculating the Fund's taxable income. Certain of the
applicable tax rules may be modified if a Fund is eligible and chooses to make
one or more of certain tax elections that may be available. These transactions
may therefore affect the amount, timing and character of a Fund's distributions
to shareholders. The Funds will take into account the special tax rules
(including consideration of available elections) applicable to options, futures
or forward contracts in order to minimize any potential adverse tax
consequences.
The foregoing discussion relates solely to U.S. Federal income tax law as
applicable to U.S. persons (i.e., U.S. citizens or residents and U.S. domestic
corporations, partnerships, trusts or estates) subject to tax under such law.
The discussion does not address special tax rules applicable to certain 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 Funds in their particular
circumstances.
Non-U.S. investors not engaged in a U.S. trade or business with which their
investment in a 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 a tax treaty) on amounts treated as
ordinary dividends from a Fund and, unless an effective IRS Form W-8 or
authorized substitute 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 any Fund.
The Funds are not subject to Massachusetts corporate excise or franchise
taxes, provided that a fund qualifies as a regulated investment company under
the Code, it will also not be required to pay any Massachusetts income tax.
THOSE RESPONSIBLE FOR MANAGEMENT
The business of each Fund is managed by its Trustees, who elect officers
who are responsible for the day-to-day operations of the Trusts and who execute
policies formulated by the Trustees. Several of the officers and Trustees of the
Trusts are also officers and directors of the Adviser or officers and Directors
of the Funds' principal distributor, John Hancock Funds, Inc. ("John Hancock
Funds").
The following table sets forth the principal occupation of employment of
the Trustees and principal officers of the Funds during the past five years:
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<TABLE>
<CAPTION>
Name, Address Position(s) Held Principal Occupation(s)
and Date of Birth With Registrants During Past 5 Years
- ----------------- ---------------- -------------------
<S> <C> <C>
*Edward J. Boudreau, Jr. Chairman (3,4) Chairman and Chief Executive
October 1944 Officer, the Adviser and The
Berkeley Financial Group ("The
Berkeley Group"); Chairman, NM
Capital Management, Inc. ("NM
Capital"); John Hancock Advisers
International Limited; ("Advisers
International"); John Hancock
Funds, Inc., ("John Hancock
Funds"); John Hancock Investor
Services Corporation ("Investor
Services"), Transamerica Fund
Management Company ("TFMC") and
Sovereign Asset Management
Corporation ("SAMCorp");
(hereinafter the Adviser, the
Berkeley Group, NM Capital,
Advisers International, John
Hancock Funds, Investor Services
and SAMCorp are collectively
referred to as the "Affiliated
Companies"); Chairman, First
Signature Bank & Trust; Director,
John Hancock Freedom Securities
Corp., John Hancock Capital Corp.,
New England/Canada Business
Council; Member, Investment Company
Institute Board of Governors;
Director, Asia Strategic Growth
Fund, Inc.; Trustee, Museum of
Science; President, the Adviser
(until July 1992); Chairman, John
Hancock Distributors, Inc.
("Distributors") until April 1994.
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Dennis S. Aronowitz Trustee (1,2) Professor of Law, Boston University
Boston University School of Law; Trustee, Brookline
Boston, Massachusetts Savings Bank.
June 1931
Richard P. Chapman, Jr. Trustee (1,2) President, Brookline Savings Bank.
160 Washington Street Director, Federal Home Loan Bank of
Brookline, Massachusetts Boston (lending); Director, Lumber
February 1935 Insurance Companies (fire and
casualty insurance); Trustee,
Northeastern University
(education); Director, Depositors
Insurance Fund, Inc. (insurance).
William J. Cosgrove Trustee (1,2) Vice President, Senior Banker and
20 Buttonwood Place Senior Credit Officer, Citibank,
Saddle River, New Jersey N.A. (retired September 1991);
January 1933 Executive Vice President, Citadel
Group Representatives, Inc.; EVP
Resource Evaluation Inc.
(consulting, October 1991 - October
1993); Trustee, the Hudson City
Savings Bank (until October 1995).
Douglas M. Costle Trustee (1,2,3) Director, Chairman of the Board and
RR2 Box 480 Distinguished Senior Fellow,
Woodstock, Vermont 05091 Institute for Sustainable
July 1939 Communities, Montpelier, Vermont
(since 1991). Dean Vermont Law
School (until 1991). Director, Air
and Water Technologies Corporation
(environmental services and
equipment), Niagara Mohawk Power
Company (electric services) and
MITRE Corporation (governmental
consulting services).
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<PAGE>
Leland O. Erdahl Trustee (1,2) Director of Santa Fe Ingredients
9449 Navy Blue Court Company of California, Inc. and
Las Vegas, NV 89117 Santa Fe Ingredients Company, Inc.
December 1928 (private food processing
companies); Director of Uranium
Resources, Inc.; President of
Stolar, Inc. (from 1987-1991) and
President of Albuquerque Uranium
Corporation (from 1985-1992);
Director of Freeport-McMoRan Copper
& Cold Company Inc., Hecla Mining
Company, Canyon Resources
Corporation and Original Sixteen to
One Mine, Inc. (from 1984-1987 and
from 1991 to 1995) (management
consultant).
Richard A. Farrell Trustee (1,2) President of Farrell, Healer & Co.,
Farrell, Healer & (venture capital management firm
Company, Inc. (since 1980); Prior to 1980, headed
160 Federal Street the venture capital group at Bank
23rd Floor of Boston Corporation.
Boston, MA 02110
November 1932
Gail D. Fosler Trustee (1,2) Vice President and Chief Economist,
4104 Woodbine Street The Conference Board (non-profit
Chevy Chase, MD economic and business research).
December 1947
William F. Glavin Trustee (1,2) President, Babson College; Vice
Babson College Chairman, Xerox Corporation until
Horn Library June 1989; Director, Caldor Inc.,
Babson Park, MA 02157 Reebok, Ltd. (since 1994), and Inco
March 1931 Ltd.
-53-
<PAGE>
Bayard Henry Trustee (1,2) Corporate Advisor; Director,
31 Milk Street Fiduciary Trust Company (a trust
Boston, Massachusetts company); Director, Groundwater
July 1931 Technology, Inc. (remediation);
Samuel Cabot, Inc.; Advisor,
Kestrel Venture Management.
Dr. John A. Moore Trustee (1,2) President and Chief Executive
Institute for Evaluating Officer, Institute for (nonprofit
Health Risks institution) ( since September
1101 Vermont Avenue N.W. 1989).
Suite 608
Washington, DC 20005
February 1939
Evaluating Health Risks,
Patti McGill Peterson Trustee (1,2) President, St. Lawrence University;
St. Lawrence University Director, Niagara Mohawk Power
110 Vilas Hall Corporation and Security Mutual
Canton, NY 13617 Life.
May 1943
John W. Pratt Trustee (1,2) Professor of Business
2 Gray Gardens East Administration at Harvard
Cambridge, MA 02138 University Graduate School of
September 1931 Business Administration (since
*Richard S. Scipione Trustee (3) General Counsel, the Life Insurance
John Hancock Place Company; Director, the Adviser, the
P.O. Box 111 Affiliated Companies, John Hancock
Boston, Massachusetts Distributors, Inc., JH Networking
August 1937 Insurance Agency, Inc., John
Hancock Subsidiaries, Inc.,
SAMCorp, NM Capital and John
Hancock Property and Casualty
Insurance and its affiliates (until
November, 1993); Trustee; The
Berkeley Group.
Edward J. Spellman, CPA Trustee (1,2,4) Partner, KPMG Peat Marwick LLP
259C Commercial Bld. (retired June 1990).
Lauderdale, FL
November 1932
</TABLE>
-54-
<PAGE>
The executive officers of the Trusts and their principal occupations during the
past five years are set forth below. Unless otherwise indicated, the business
address of each is 101 Huntington Avenue, Boston, Massachusetts 02199.
<TABLE>
<CAPTION>
Name, Address Position(s) Held Principal Occupation(s)
and Date of Birth With Registrants During Past 5 Years
- ----------------- ---------------- -------------------
<S> <C> <C>
Robert G. Freedman Vice Chairman and Chief Vice Chairman and Chief Investment
July 1938 Investment Officer (4) Officer, the Adviser; President
(until December 1994). Anne C.
Hodsdon Trustee and President (4)
President and Chief Operating
August 1953 Officer, the Adviser;
Executive Vice President, the
Adviser (until December 1994);
Senior Vice President; the Adviser
(until December 1993); Vice
President, the Adviser, 1991.
James B. Little Senior Vice President, Senior Vice President, the Adviser.
February 1935 Chief Financial Officer
Thomas H. Drohan Senior Vice President Senior Vice President and
December 1936 and Secretary Secretary, the Adviser.
John A. Morin Vice President Vice President, the Adviser.
July 1950
Susan S. Newton Vice President, Assistant Vice President and Assistant
March 1950 Secretary and Compliance Secretary, the Adviser.
Officer
James J. Stokowski Vice President and Vice President, the Adviser.
November 1946 Treasurer
</TABLE>
- -----------
* Trustee may be deemed to be an "interested person" of the Trust as defined in
the Investment Company Act of 1940.
(1) Member of the Audit Committee of the Trusts.
(2) Member of the Committee on Administration of the Trusts.
(3) Member of the Executive Committee of the Trusts. The Executive Committee
may generally exercise most powers of the Trustees between regularly
scheduled meetings of the Board of Trustees.
(4) Member of the Investment Committee of the Adviser.
-55-
<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 Funds and the other investment companies in the John Hancock Fund Complex to
the Independent Trustees for their services. Mr. Boudreau, and each of the
officers of the Funds are interested persons of the Adviser, are compensated by
the Adviser and receive no compensation from the Funds for their services.
Aggregate Compensation
Sovereign U.S. Managed- Gold and
Independent Trustees Government* Tax-Exempt* Government
- -------------------- ----------- ----------- ----------
Denis S. Aronowitz* $ 0 $ 0 $ 0
William A. Barron, III**+ 9,344 4,232 704
Richard P. Chapman, Jr.* 0 0 0
William J. Cosgrove* 0 0 0
Douglas M. Costle** 9,344 4,232 704
Leland O. Erdahl** 9,344 4,232 704
Richard A. Farrell** 9,690 4,388 731
Gail D. Fosler* 0 0 0
William F. Glavin** 2,774 1,275 84
Patrick Grant**+ 9,805 4,440 740
Bayard Henry * 0 0 0
Ralph Lowell, Jr.** 9,344 4,232 704
Dr. John A. Moore** 9,344 4,232 704
Patti McGill Peterson** 9,344 4,232 704
John W. Pratt** 9,344 4,232 704
Edward J. Spellman* 0 0 0
Totals $87,677 $39,727 $6,483
<TABLE>
<CAPTION>
Aggregate Compensation
Disciplined Regional Global
Independent Trustees Growth Bank* Global* Income*
<S> <C> <C> <C> <C>
Denis S. Aronowitz* $ 0 $ 0 $ 0 $ 0
William A. Barron, III**+ 2,105 13,754 2,283 2,190
Richard P. Chapman,Jr.* 0 0 0 0
William J. Cosgrove* 0 0 0 0
Douglas M. Costle** 2,105 13,754 2,283 2,190
-56-
<PAGE>
Leland O. Erdahl** 2,105 13,754 2,283 2,190
Richard A. Farrell** 2,183 14,218 2,367 2,271
Gail D. Fosler* 0 0 0 0
William F. Glavin** 630 4,214 670 651
Patrick Grant**+ 2,208 14,372 2,395 2,299
Bayard Henry* 0 0 0 0
Ralph Lowell, Jr.** 2,105 13,754 2,283 2,190
Dr. John A. Moore** 2,105 13,754 2,283 2,190
Patti McGill Peterson** 2,105 13,754 2,283 2,190
John W. Pratt** 2,105 13,754 2,283 2,190
Edward J. Spellman* 0 0 0 0
Totals $19,756 $129,082 $21,413 $20,551
</TABLE>
Pension or Total Compensation
Retirement Benefits From Funds and
Accrued as Part of John Hancock Fund
Independent Trustees Each Fund's Expenses Complex to Trustees1
Denis S. Aronowitz* $ 0 $ 0
William A. Barron, III**_ $ $ 41,750
Richard P. Chapman, Jr.* 0 0
William J. Cosgrove* 0 0
Douglas M. Costle 41,750
Leland O. Erdahl 0 41,750
Richard A. Farrell 0 43,250
Gail D. Fosler* 0 0
William F. Glavin 20,715 37,500
Patrick Grant**_ 0 43,750
Bayard Henry* 0 0
Ralph Lowell, Jr.** 0 41,750
Dr. John A. Moore 0 41,750
Patti McGill Peterson 0 41,750
John W. Pratt 0 41,750
Edward J. Spellman* 0 0
Totals $20,715 $416,750
1 The total compensation paid the John Hancock Fund Complex to the
Independent Trustees is as of calendar year ended December 31, 1995.
-57-
<PAGE>
* Trustees of 17 funds in the John Hancock Complex. As of the Funds' most
recently completed fiscal year, these persons were not yet Trustees of the
Fund and did not receive any compensation from the Funds during such fiscal
year.
** Trustees of 10 funds in the John Hancock Complex.
+ As of the date of this document, these persons no longer serve as Trustees
of the Fund.
The nominees of the Funds may at times be the record holders of in excess
of 5% of shares of any one or more Funds by virtue of holding shares in "street
name." As of March 31, 1996 the officers and trustees of the Trusts as a group
owned less than 1% of the outstanding shares of each class of each of the Funds.
As of March 31, 1996, the following shareholders beneficially owned 5% of
or more of the outstanding shares of the Funds listed below:
<TABLE>
<CAPTION>
Number of shares Percentage of total
Name and Fund and of beneficial outstanding shares of
Address of Shareholder Class of Shares Interest Owned the Class of the Fund
- ---------------------- --------------- -------------- ---------------------
<S> <C> <C> <C>
Merrill Lynch Pierce Regional Bank Fund 2,713,066 12.34%
Fenner & Smith Inc. Class A
Attn: Mutual Fund Operations
4800 Deer Lake Drive East
Jacksonville, FL 32246-6484
Merrill Lynch Pierce Regional Bank Fund 18,178,416 31.14%
Fenner & Smith Inc. Class B
Attn: Mutual Fund Operations
4800 Deer Lake Drive East
Jacksonville, FL 32246-6484
</TABLE>
INVESTMENT ADVISORY AND OTHER SERVICES
The investment adviser for each of the Funds is John Hancock Advisers,
Inc., a Massachusetts corporation (the "Adviser"), with offices at 101
Huntington Avenue, Boston, Massachusetts 02199-7603. The Adviser is a registered
investment advisory firm which maintains a securities research department, the
efforts of which will be made available to the Funds.
The Adviser was organized in 1968 and presently has more than $16 billion
in assets under management in its capacity as investment adviser to the Funds
and the other mutual funds and publicly traded investment companies in the John
Hancock group of funds having a combined
-58-
<PAGE>
total of approximately 1,080,000 shareholders. The Adviser is an affiliate of
John Hancock Mutual Life Insurance Company (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 Trusts have entered into investment advisory agreements (the
"Advisory Agreements") dated as of November 6, 1986 as amended and restated
January 1, 1994 between Freedom Investment Trust and the Adviser, and dated as
of June 26, 1986 as amended and restated January 1, 1994 between Freedom
Investment Trust II and the Adviser. Pursuant to the Advisory Agreements, the
Adviser agreed to act as investment adviser and manager to the Funds. As manager
and investment adviser, the Adviser will: (a) furnish continuously an investment
program for each of the Funds and determine, subject to the overall supervision
and review of the Boards of Trustees, which investments should be purchased,
held, sold or exchanged, (b) provide supervision over all aspects of each Fund's
operations except those which are delegated to a custodian, transfer agent or
other agent, and (c) provide each of the Funds with such executive,
administrative and clerical personnel, officers and equipment as are deemed
necessary for the conduct of their business.
As compensation for its services under the Advisory Agreements, the Adviser
receives from each Fund a fee computed and paid monthly based upon the following
annual rates: (a) for each of Regional Bank Fund and Gold & Government Fund,
0.80% of each respective Fund's first $500 million of average daily net assets,
and 0.75% of average daily net assets over $500 million; (b) for the Disciplined
Growth Fund, 0.75% of the Fund's first $500 million of average daily net assets,
and 0.65% of average daily net assets in excess of that amount; (c) for
Government Fund, 0.50% of the Fund's first $500 million of average daily net
assets, and 0.45% of average daily net assets in excess of that amount; (d) for
Managed Tax-Exempt Fund, 0.60% of the Fund's first $250 million of average daily
net assets, 0.50% of the next $500 million of average daily net assets, and
0.45% of average daily net assets in excess of that amount; (e) for Global Fund,
1% on the first $100 million of average daily net assets of the Fund, 0.80% on
the next $200 million of average net assets, 0.75% on the next $200 million of
average net assets and 0.625% of average net assets in excess of $500 million;
and (f) for the Global Income Fund 0.75% on the first $250 million of average
daily net assets, and 0.70% of average net assets in excess of $250 million. The
rates for some Funds are higher than those for others because of the extensive
amount of research required to manage such portfolios in comparison to the
portfolios of other Funds.
The Global Fund and the Adviser have entered into a sub-investment
management contract with John Hancock Advisers International Limited under which
John Hancock Advisers International, subject to the review of the Trustees and
the overall supervision of the Adviser, is responsible for providing the Fund
with advice with respect to that portion of the assets invested in countries
other than the United States and Canada. As compensation for its services under
the Sub-Advisory Agreement, JH Advisers International receives from the Adviser
a monthly fee equal to 0.70% on an annual basis of the average daily net asset
value of the Global Fund for each calendar month up to $200 million of average
daily net assets; and 0.6375% on an annual basis of the average daily net asset
value over $200 million. The Sub-Adviser, with offices located at 34 Dover
Street, London, England W1X 3RA, is a wholly-owned subsidiary of the Adviser
formed in
-59-
<PAGE>
1987 to provide international investment research and advisory services to U.S.
institutional clients.
The Adviser has entered into a service agreement with Sovereign Asset
Management Corporation ("SAMCorp"), which is an indirect wholly-owned subsidiary
of the Life Company. The service agreement provides that SAMCorp will provide to
the Adviser certain portfolio management services with respect to the equity
securities held in the portfolio of the Disciplined Growth Fund. The service
agreement further provides that the Adviser will remain ultimately responsible
for all of its obligations under the investment management contract between the
Adviser and the Disciplined Growth Fund. Subject to the supervision of the
Adviser, SAMCorp furnishes the Disciplined Growth Fund with recommendations with
respect to the purchase, holding and disposition of equity securities in the
Disciplined Growth Fund's portfolio; furnishes the Disciplined Growth Fund with
research, economic and statistical data in connection with the Disciplined
Growth Fund's equity investments; and places orders for transactions in equity
securities. The Adviser pays to SAMCorp 40% of the monthly investment management
fee received by the Adviser with respect to the equity securities held in the
portfolio of the Disciplined Growth Fund during such month. The fees paid by the
Disciplined Growth Fund to the Adviser under the investment management contract
are not affected by this arrangement.
All expenses which are not specifically paid by the Adviser and which are
incurred in the operation of the Fund (including fees of Trustees of the Fund
who are not "interested persons," as such term is defined in the Investment
Company Act, but excluding certain distribution-related activities required to
be paid by the Adviser or John Hancock Funds) and the continuous public offering
of the shares of the Fund are borne by the Fund. Class expenses properly
allocable to either Class A or Class B shares will be borne exclusively by such
class of shares, subject to certain conditions imposed by the Internal Revenue
Service with respect to multiple-class structures.
The State of California imposes a limitation on the expenses of the Funds.
The Advisory Agreement provides that if, in any fiscal year, the total expenses
of a Fund (excluding taxes, interest, brokerage commissions and extraordinary
items, but including the management fee) exceed the expense limitations
applicable to a Fund imposed by the securities regulations of any state in which
it is then registered to sell shares, the Adviser will reduce it's fee for that
Fund in the amount of that excess up to the amount of its management fee during
that fiscal year. The Adviser and JH Advisers International have agreed that if,
in any fiscal year, the total expenses of the Global Fund (excluding taxes,
interest, brokerage commissions and extraordinary items, but including the
Adviser's fee and the portion thereof paid to JH Advisers International) exceed
the expense limitations applicable to such Fund, the Adviser and JH Advisers
International will each reduce it's fee for that Fund in the amount of that
excess up to the amount of its fee during that fiscal year. Although there is no
certainty that any limitations will be in effect in the future, the California
limitation on an annual basis currently is 2.5% of the first $30 million of
average net assets, 2.0% of the next $70 million of net assets and 1.5% of the
remaining net assets.
The continuation of the Advisory Agreement for Freedom Investment Trust was
last approved on May 1, 1995 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 shareholders of Gold & Government Fund, Regional Bank
Fund and Government Fund also approved the Advisory
-60-
<PAGE>
Agreement on November 6, 1986. The Advisory Agreement was approved by the
respective shareholders of the Disciplined Growth Fund and the Managed
Tax-Exempt Fund on February 26, 1988. An amendment to the Advisory Agreement to
increase the fee payable thereunder effective January 1, 1994, was approved by
the respective shareholders of Gold & Government Fund and Regional Bank Fund on
October 28, 1993. The Advisory Agreement will continue in effect from year to
year, provided that its continuance is approved annually both (i) by the holders
of a majority of the outstanding voting securities of the Trust or by the Board
of Trustees, and (ii) by a majority of the Trustees who are not parties to the
Advisory Agreement or "interested persons" of any such party. The Advisory
Agreement may be terminated on 60 days written notice by any party and will
terminate automatically if it is assigned.
For the fiscal year ended October 31, 1993, Freedom Investment Trust paid
the Adviser an investment advisory fee of $6,061,838 pursuant to the Advisory
Agreement. Of this amount, $451,050 was attributable to the Gold & Government
Fund, $1,354,664 was attributable to the Regional Bank Fund, $2,862,505 was
attributable to the Government Fund, $583,838 was attributable to the
Disciplined Growth Fund and $809,781 was attributable to the Managed Tax-Exempt
Fund. Under the terms of the Advisory Agreement the Adviser may voluntarily not
impose all or part of its management fees. During the year ended October 31,
1993, for the Managed Tax-Exempt Fund, the Adviser agreed not to impose
management fees in the amount of $733,749.
For the fiscal year ended October 31, 1994, Freedom Investment Trust paid
the Adviser, the Funds' previous Adviser, an investment advisory fee of
$9,390,998 pursuant to the Advisory Agreement. Of this amount, $530,798 was
attributable to the Gold & Government Fund, $3,686,366 was attributable to the
Regional Bank Fund, $2,839,185 was attributable to the Government Fund, $902,465
was attributable to the Disciplined Growth Fund and $1,432,184 was attributable
to the Managed Tax-Exempt Fund. During the year ended October 31, 1994, for the
Managed Tax-Exempt Fund, the Adviser agreed not to impose management fees in the
amount of $131,878. The Adviser's expense limitation may be discontinued at any
time.
For the fiscal year ended October 31, 1995, Freedom Investment Trust paid
the Adviser and Freedom Capital, the Funds' previous Adviser, an investment
advisory fee of $12,627,864 pursuant to the Advisory Agreement. Of this amount,
$354,905 was attributable to the Gold & Government Fund, $7,644,892 was
attributable to the Regional Bank Fund, $2,514,147 was attributable to the
Government Fund, $1,247,519 was attributable to the Managed Tax-Exempt Fund, and
$866,401 was attributable to the Disciplined Growth Fund. Under the terms of the
Advisory Agreement the Adviser may voluntarily not impose all or part of its
management fees. During the year ended October 31, 1995, for the Managed
Tax-Exempt Fund the Adviser and Freedom Capital agreed not to impose management
fees in the amount of $113,411.
The continuation of the Advisory Agreement for the Global Fund and for the
Global Income Fund were approved on May 1, 1995 by all of the Trustees of
Freedom Investment Trust II, including all of the Trustees who are not parties
to the Agreements or "interested persons" of any such party. The current
Sub-Advisory Agreement between the Adviser and JH Advisers International was
approved by all of the Trustees of Freedom Investment Trust II on June 25, 1992
and became effective on August 1, 1992. The shareholders of each Fund approved
the Advisory Agreement with respect to each Fund on May 8, 1987 and the
shareholders of the Global Fund approved the Sub-Advisory Agreement on September
25, 1992. An amendment to the Advisory
-61-
<PAGE>
Agreement to increase the fee payable thereunder effective January 1, 1994 was
approved by the shareholders of Global Income Fund on October 28, 1993. The
Agreements will continue in effect for a period of two years from the date of
their execution and thereafter from year to year, provided that their
continuance is approved annually both (i) by the holders of a majority of the
outstanding voting securities of each Fund or by the Board of Trustees of
Freedom Investment Trust II, and (ii) by a majority of the Trustees who are not
parties to the Agreements or "interested persons" of any such party. The
Agreements may be terminated on 60 days' written notice by either party and will
terminate automatically if they are assigned.
For the fiscal year ended October 31, 1993, Freedom Investment Trust II
paid the Adviser investment advisory fees of $922,722 with respect to the Global
Fund and $1,441,163 with respect to the Global Income Fund. For the fiscal year
ended October 31, 1994, Freedom Investment Trust II the Adviser investment
advisory fees of $1,175,313 with respect to the Global Fund and $1,207,673 with
respect to the Global Income Fund. For the fiscal year ended October 31, 1995,
Freedom Investment Trust II paid the Adviser and Freedom Capital, the Funds'
previous Adviser, investment advisory fees of $1,169,884 with respect to the
Global Fund and $840,527 with respect to the Global Income Fund.
DISTRIBUTION CONTRACT
Freedom Investment Trust and Freedom Investment Trust II have entered into
Distribution Agreements with John Hancock Funds, Inc. and Freedom Distributors
Corporation (together the "Distributors") whereby the Distributors act as
exclusive selling agent of the Funds, selling shares of each class of each Fund
on a "best efforts" basis. Shares of each class of each Fund are sold to
selected broker-dealers (the "Selling Brokers") who have entered into selling
agency agreements with the Distributors.
The Distributors accept orders for the purchase of the shares of the Funds
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 of the Funds, the Distributors and Selling Brokers receive compensation
in the form of a sales charge imposed, in the case of Class A shares at the time
of sale or, in the case of Class B shares, on a deferred basis. The sales
charges are discussed further in the Prospectuses.
The Trustees have 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, each 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 applicable Fund's average daily net
assets attributable to each class of shares. The distribution fees will be used
to reimburse the Distributor for its distribution expenses, including but not
limited to: (i) initial and ongoing sales compensation to Selling Brokers and
others (including affiliates of the Distributor) engaged in the sale of Fund
shares; (ii) marketing, promotional and overhead expenses incurred in connection
with the distribution of Fund shares; and (iii) with respect to Class B shares
only, interest expenses on unreimbursed distribution expenses. The service fees
will be used to compensate Selling Brokers for providing personal and account
maintenance services to shareholders. In the event that the Distributors are not
fully reimbursed for expenses they incur
-62-
<PAGE>
under the Class B Plan in any fiscal year, the Distributors may carry these
expenses forward, provided, however, that the Trustees may terminate the Class B
Plan and thus any Fund's obligation to make further payments at any time.
Accordingly, the Funds do not treat unreimbursed expenses relating to the Class
B shares as a liability. The Plans were approved by a majority of the voting
securities of each Fund. The Plans and all amendments were approved by the
Trustees, including a majority of the Trustees who are not interested persons of
the applicable 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, the Distributors provide the
Funds 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.
Each of the Plans provides that it will continue in effect only so long as
its continuance is approved at least annually by a majority of both the Trustees
and the Independent Trustees. Each of the Plans provides that it may be
terminated without penalty, (a) by vote of a majority of the Independent
Trustees, (b) by a vote of a majority of the applicable Fund's outstanding
shares of the applicable class in each case upon 60 day's written notice to the
Distributors and (c) automatically in the event of assignment. Each of the Plans
further provides that it may not be amended to increase the maximum amount of
the fees for the services described therein without the approval of a majority
of the outstanding shares of the class of the applicable Fund which has voting
rights with respect to the Plan. And finally, each of the Plans provides that no
material amendment to the Plan will, in any event, be effective unless it is
approved by a vote of the Trustees and the Independent Trustees of the
applicable 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
shares of each Fund.
During the fiscal year ended October 31, 1995, the Funds paid the
Distributors the following amounts of expenses with respect to the Class A
shares and Class B shares of each of the Funds:
-63-
<PAGE>
<TABLE>
<CAPTION>
Expense Items
Printing and
Mailing of Compensation Interest,
Prospectuses to Carrying or
to New Expenses of Selling Other Finance
Advertising Shareholders DistributorS Brokers Charges
----------- ------------ ------------ ------- -------
<S> <C> <C> <C> <C> <C>
Government Fund
Class A Shares $63,551 $4,397 $ 182,706 $ 754,114 None
Class B Shares $63,450 $2,609 $ 190,722 $ 822,023 $ 598,399
Managed Tax-Exempt Fund
Class A Shares $11,757 $ 515 $ 32,699 $ 38,408 None
Class B Shares $72,409 $ 0 $ 184,775 $ 978,828 $ 731,696
Gold & Government Fund
Class A Shares $10,961 $ 0 $ 10,419 $ 28,494 None
Class B Shares $27,231 $ 0 $ 36,262 $ 199,842 $ 10,819
Disciplined Growth Fund
Class A Shares $10,326 $1,951 $ 24,700 $ 37,502 None
Class B Shares $40,251 $6,420 $ 93,473 $ 370,936 $ 361,952
Regional Bank Fund
Class A Shares $51,794 $9,160 $ 599,005 $ 89,574 None
Class B Shares $04,125 $4,026 $3,220,715 $1,018,102 $1,831,112
Global Fund
Class A Shares $50,361 $9,469 $ 75,361 $ 145,419 None
Class B Shares $47,508 $2,409 $ 70,676 $ 80,745 $ 69,530
Global Income Fund
Class A Shares $10,013 $3,810 $ 20,681 $ 23,930 None
Class B Shares $59,062 $1,035 $ 70,074 $ 270,650 $ 516,687
</TABLE>
NET ASSET VALUE
For purposes of calculating the net asset value ("NAV") of a Fund's shares,
the following procedures are utilized wherever applicable.
Debt investment securities are valued on the basis of valuations furnished
by a principal market maker or a pricing service, both of which generally
utilize electronic data processing techniques to determine valuations for normal
institutional size trading units of debt securities without exclusive reliance
upon quoted prices.
Equity securities traded on a principal exchange or NASDAQ National Market
Issues are generally valued at last sale price on the day of valuation.
Securities in the aforementioned categories for which no sales are reported and
other securities traded over-the-counter are generally valued at the mean
between the current closing bid and asked prices.
Short-term debt investments which have a remaining maturity of 60 days or
less are generally valued at amortized cost which approximates market value. If
market quotations are not readily available or if in the opinion of the Adviser
any quotation or price is not representative of true market value, the fair
value of the security may be determined in good faith in accordance with
procedures approved by the Trustees.
Any assets or liabilities expressed in terms of foreign currencies are
translated into U.S. dollars by the custodian bank based on London currency
exchange quotations as of 5:00 p.m., London time ( 12:00 noon, New York time) on
the date of any determination of a Fund's NAV.
A Fund will not price its securities on the following national holidays:
New Year's Day; Presidents' Day; Good Friday; Memorial Day; Independence Day;
Labor Day; Thanksgiving Day; and Christmas Day. On any day an international
market is closed and the New York Stock Exchange is open, any foreign securities
will be valued at the prior day's close with the current day's exchange rate.
Trading of foreign securities may take place on Saturdays and U.S. business
holidays on which a Fund's NAV is not calculated. Consequently, a Fund's
portfolio securities may trade and the NAV of the Fund's redeemable securities
may be significantly affected on days when a shareholder has no access to the
Fund.
INITIAL SALES CHARGE ON CLASS A SHARES
The sales charges applicable to purchases of Class A shares of the Funds
are described in the Funds' Prospectuses. Methods of obtaining reduced sales
charges referred to generally in the Prospectuses 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 Funds,
owned by the investor, or if Investor Services is notified by the investor's
dealer or the investor at the time of the purchase, the cost of the Class A
shares owned.
Combined Purchases. In calculating the sales charge applicable to purchases of
Class A shares made at one time, the purchases will be combined if made by (a)
an individual, his or her spouse and their children under the age of 21,
purchasing securities for his, her or their own account, (b) a
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trustee or other fiduciary purchasing for a single trust, estate or fiduciary
account and (c) certain groups of four or more individuals making use of salary
deductions or similar group methods of payment whose funds are combined for the
purchase of mutual fund shares. Further information about combined purchases,
including certain restrictions on combined group purchases, is available from
Investor Services or a Selling Broker's representative.
Without Sales Charges. As described in the Prospectuses, Class A shares of the
Funds may be sold without a sales charge to certain persons described in the
Prospectuses.
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 already
held by such person.
Combination Privilege. Reduced sales charges (according to the schedule set
forth in the Prospectuses) are also available to an investor based on the
aggregate amount of his concurrent and prior investments in Class A shares and
shares of all other John Hancock funds which carry a sales charge.
Letter of Intention. The reduced sales charges are also applicable to
investments made over a specified period pursuant to a Letter of Intention (the
"LOI"), which should be read carefully prior to its execution by an investor.
The Fund offers two options regarding the specified period for making
investments under the LOI. All investors have the option of making their
investments over a specified period of thirteen (13) months. Investors who are
using the Fund as a funding medium for a qualified retirement plan, however, may
opt to make the necessary investments called for by the LOI over a forty-eight
(48) month period. These qualified retirement plans include group IRA, SEP,
SARSEP, TSA, 401(k), ISA and Section 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 ninety (90)
days prior thereto, upon written request to Investor Services. The sales charge
applicable to all amounts invested under the LOI is computed as if the aggregate
amount intended to be invested had been invested immediately. If such aggregate
amount is not actually invested, the difference in the sales charge actually
paid and the sales charge payable had the LOI not been in effect is due from the
investor. However, for the purchases actually made within the specified period
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 Investor Services to hold in escrow a number of Class A
shares (approximately 5% of the aggregate) sufficient to make up any difference
in sales charges on the amount intended to be invested and the amount actually
invested, until such investment is completed within the specified period, at
which time the escrow shares will be released. If the total investment specified
in the LOI is not completed, the Class A shares held in escrow may be redeemed
and the proceeds used as required to pay such sales charge as may be due. By
signing the LOI, the investor authorizes Investor Services to act as his or her
attorney-in-fact to redeem any escrowed shares and adjust the sales charge, if
necessary. A LOI does not constitute a binding commitment by an investor to
purchase, or by the Funds to sell, any additional Class A shares and may be
terminated at any time.
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Class A shares may also be purchased without an initial sales charge in
connection with certain liquidation, merger or acquisition transactions
involving other investment companies or personal holding companies.
DEFERRED SALES CHARGE ON CLASS B SHARES
Investments in Class B shares are purchased at net asset value per share
without the imposition of an initial sales charge so that the Funds will receive
the full amount of the purchase price.
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 Prospectuses as a percentage of the dollar amount
subject to the CDSC. The charge will be assessed on an amount equal to the
lesser of the current market value or the original purchase cost of the Class B
shares being redeemed. Accordingly, no CDSC will be imposed on increases in
account value above the initial purchase prices, including Class B shares
derived from reinvestment of dividends or capital gains distributions.
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
last day of the month.
Proceeds from the CDSC are paid to John Hancock Funds not "the
Distributors" and are used in whole or in part by John Hancock Funds to defray
its expenses related to providing distribution-related services to the Funds 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 Funds to sell the Class B shares without a sales charge being
deducted at the time of the purchase. See the Prospectuses 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:
- - Redemptions of Class B shares made under a Systematic Withdrawal Plan, as
long as your annual redemptions do not exceed 10% of your account value at
the time you established your Systematic Withdrawal Plan and 10% of the
value of subsequent investments (less redemptions) in that account at the
time you notify Investor Services. This waiver does not apply to Systematic
Withdrawal Plan redemptions of Class A shares that are subject to a CDSC.
- - Redemptions made to effect distributions from an Individual Retirement
Account either before or after age 59 1/2, as long as the distributions are
based on your life expectancy or the joint-and-last survivor life
expectancy of you and your beneficiary. These distributions must be free
from penalty under the Code.
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- - Redemptions made to effect mandatory distributions under the Code after age
70 1/2from a tax-deferred retirement plan.
- - Redemptions made to effect distributions to participants or beneficiaries
from certain employer-sponsored retirement plans including those qualified
under Section 401(a) of the Code, custodial accounts under Section
403(b)(7) of the Code and deferred compensation plans under Section 457 of
the Code. The waiver also applies to certain returns of excess
contributions made to these plans. In all cases, the distributions must be
free from penalty under the Code.
- - Redemptions due to death or disability.
- - Redemptions made under the Reinstatement Privilege, as described in "Sales
Charge Reductions and Waivers" of this Prospectus.
- - 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 from certain IRA and retirement plans that purchase shares
prior to October 1, 1992.
If you qualify for a CDSC waiver under one of these situations, you must notify
Investor Services either directly or through your Selling Broker at the time you
make your redemption. The waiver will be granted once Investor Services has
confirmed that you are entitled to the waiver.
SPECIAL REDEMPTIONS
Although they would not normally do so, the Funds have the right to pay the
redemption price of shares of the Funds in whole or in part in portfolio
securities as prescribed by the Trustees. If the shareholder were to sell
portfolio securities received in this fashion, he would incur a brokerage
charge. Any such securities would be valued for the purposes of making such
payment at the same value as used in determining net asset value. The Funds
have, however, elected to be governed by Rule 18f-1 under the Investment Company
Act. Under that rule, the Funds must redeem their shares for cash except to the
extent that the redemption payments to any shareholder during any 90-day period
would exceed the lesser of $250,000 or 1% of the applicable Fund's net asset
value at the beginning of such period.
ADDITIONAL SERVICES AND PROGRAMS
Exchange Privilege. As described more fully in the Prospectuses, the Funds
permit exchanges of shares of any class of a Fund for shares of the same class
in any other John Hancock fund offering that class.
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Exchanges between funds with shares that are not subject to a CDSC are
based on their respective net asset values. No sales charge or transaction
charge is imposed. Shares of the Funds 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, John Hancock Intermediate Maturity Government Fund and
John Hancock Limited-Term 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.
Shares of each class may be exchanged only for shares of the same class in
another John Hancock fund.
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.
Each 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 Funds may also terminate or alter the terms of the
exchange privilege upon 60 days' notice to shareholders.
An exchange of shares is treated as a redemption of shares of one fund and
the purchase of shares of another for Federal income tax purposes. An exchange
may result in a taxable gain or loss. See "Tax Status."
To make an exchange, the account registration in both the existing and new
account, must be identical. The exchange privilege is available only in states
where the exchange can be made legally.
Systematic Withdrawal Plan. As described briefly in the Prospectuses, each Fund
permits the establishment of a Systematic Withdrawal Plan. Payments under this
plan represent proceeds from the redemption of shares of the applicable Fund.
Since the redemption price of the shares of a Fund may be more or less than the
shareholder's cost, depending upon the market value of the securities owned by
the Fund at the time of redemption, the distribution of cash pursuant to this
plan may result in realization of gain or loss for purposes of Federal, state
and local income taxes. The maintenance of a Systematic Withdrawal Plan
concurrently with purchases of additional Class A or Class B shares 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 a Systematic
Withdrawal Plan is in effect. The Funds reserve the right to modify or
discontinue the Systematic Withdrawal Plan of any shareholder on 30 days' prior
written notice to such shareholder, or to discontinue the availability of such
plan in the future. The shareholder may terminate the plan at any time by giving
proper notice to Investor Services.
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Monthly Automatic Accumulation Program ("MAAP"). This program is explained in
the Prospectuses. 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 Investor Services without prior notice if
any investment is not honored by the shareholder's bank. The bank shall be under
no obligation to notify the shareholder as to the non-payment of any checks.
The program may be discontinued by the shareholder either by calling
Investor Services or upon written notice to Investor Services which is received
at least five (5) business days prior to the processing date of any investment.
Reinvestment Privilege. A shareholder who has redeemed 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
same Fund or in any other John Hancock funds, subject to the minimum investment
limit in that fund. The proceeds from the redemption of Class A shares may be
reinvested at net asset value without paying a sales charge in Class A shares of
the same Fund or in Class A shares of another 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. The Funds may
modify or terminate the reinvestment privilege at any time.
A redemption or exchange of Fund shares is a taxable transaction for
Federal income tax purposes even if the reinvestment privilege is exercised, and
any gain or loss realized by a shareholder on the redemption or other
disposition of Fund shares will be treated for tax purposes as described under
the caption "Tax Status."
DESCRIPTION OF THE FUNDS' SHARES
The Trustees of the Trust are responsible for the management and
supervision of the Funds. 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 the issuance of a new
Fund named, John Hancock Financial Industries Fund, Class A and Class B, under
Freedom Investment Trust.
The shares of each class of a Fund represent an equal proportionate
interest in the aggregate net assets attributable to the classes of the Fund.
Class A and Class B shares of the Funds will be sold exclusively to members of
the public (other than the institutional investors described in the
Prospectuses) at net asset value. A sales charge will be imposed either at the
time
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of the purchase, for Class A shares, or on a contingent deferred basis, for
Class B shares. For Class A shares, no sales charge is payable at the time of
purchase on investments of $1 million or more, but for such investments a CDSC
may be imposed in the event of certain redemption transactions within one year
of purchase.
Class A and Class B shares have certain exclusive voting rights on matters
relating to their respective distribution plans. The different classes of a 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 will be in the same
amount, except that (i) the distribution and service fees relating the 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)
Class A and Class B shares will bear any other class expenses properly allocable
to such class of shares, subject to the conditions set forth in a private letter
ruling that each Fund has received from the Internal Revenue Service relating to
its multiple-class structure. Similarly, the net asset value per share may vary
depending on whether Class A or Class B shares are purchased.
In the event of liquidation, shareholders are entitled to share pro rata in
the net assets of the applicable Fund available for distribution to such
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, by the Trusts, except as set
forth below.
Unless otherwise required by the Investment Company Act or the Declaration
of Trust, each Fund has no intention of holding annual meetings of shareholders.
Fund shareholders may remove a Trustee by the affirmative vote of at least
two-thirds of the Trust's outstanding shares, and the Trustees shall promptly
call a meeting for such purpose when requested to do so in writing by the record
holders of not less than 10% of the outstanding shares of the Trust.
Shareholders may, under certain circumstances, communicate with other
shareholders in connection with a request for a special meeting of shareholders.
However, at any time that less than a majority of the Trustees holding office
were elected by the shareholders, the Trustees will call a special meeting of
shareholders for the purpose of electing Trustees.
Under Massachusetts law, shareholders of a Massachusetts business trust
could, under certain circumstances, be held personally liable for acts or
obligations of the Trust. However, each Fund's Declaration of Trust contains an
express disclaimer of shareholder liability for acts, obligations or affairs of
the Fund. The Declaration of Trust also provides for indemnification out of the
Funds' assets for all losses and expenses of any shareholder held personally
liable by reason of being or having been a shareholder. Liability is therefore
limited to circumstances in which a Fund itself would be unable to meet its
obligations, and the possibility of this occurrence is remote.
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
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securities held for less than 91 days. These restrictions are a continuation of
the basic principle that the interests of the Fund and its shareholders come
first.
CALCULATION OF PERFORMANCE
The following information supplements the discussion in the Prospectuses
regarding performance information.
Total Return. Average annual total return is determined separately for each
class of shares.
Set forth below are tables showing the performance on a total return basis
(i.e., with all dividends and distributions reinvested) of a hypothetical $1,000
investment in the Class A and Class B shares of the Gold & Government Fund,
Regional Bank Fund, Government Fund, Managed Tax-Exempt Fund, Disciplined Growth
Fund, Global Fund and Global Income Fund. The performance information for each
Fund is stated for the fiscal year ended October 31, 1995 and for the five year
period ended October 31, 1995 with respect to the Class B shares of each Fund
for the one year period of Class A shares of each Fund and for the period from
the commencement of operations (indicated by an asterisk), or the ten year
period, of the Class A and Class B shares of each Fund to October 31, 1995.
Gold & Governmental Fund
Class A Shares Class A Shares Class B Shares Class B Shares Class B Shares
One Year Ended 1/3/92* to One Year Ended Five Years Ended 9/26/84* to
10/31/95 10/31/95 10/31/95 10/31/95 10/31/95
(10.40%) (0.64%) (11.02%) 2.65% 5.59%
Regional Bank Fund
Class A Shares Class A Shares Class B Shares Class B Shares Class B Shares
One Year Ended 1/3/92* to One Year Ended Five Years Ended 9/26/84* to
10/31/95 10/31/95 10/31/95 10/31/95 10/31/95
24.46% 25.58% 25.11% 35.11% 19.97%
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Governmental Income Fund
Class A Shares Class A Shares Class B Shares Class B Shares Class B Shares
One Year Ended 1/3/92* to One Year Ended Five Years Ended 9/26/84* to
10/31/95 10/31/95 10/31/95 10/31/95 10/31/95
11.05% 5.29% 9.34% 8.03% 8.20%
Managed Tax-Exempt Fund
Class A Shares Class A Shares Class B Shares Class B Shares Class B Shares
One Year Ended 1/3/92* to One Year Ended Five Years Ended 9/26/84* to
10/31/95 10/31/95 10/31/95 10/31/95 10/31/95
8.56% 5.82% 7.96% 6.22% 8.31%
Disciplined Growth Fund
Class A Shares Class A Shares Class B Shares Class B Shares Class B Shares
One Year Ended 1/3/92* to One Year Ended Five Years Ended 9/26/84* to
10/31/95 10/31/95 10/31/95 10/31/95 10/31/95
6.62% 5.40% 6.51% 12.17% 7.23%
Global Fund
Class A Shares Class A Shares Class B Shares Class B Shares Class B Shares
One Year Ended 1/3/92* to One Year Ended Five Years Ended 9/26/84* to
10/31/95 10/31/95 10/31/95 10/31/95 10/31/95
(5.38%) 7.09% (5.96%) 9.30% 9.31%
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Global Income Fund
Class A Shares Class A Shares Class B Shares Class B Shares Class B Shares
One Year Ended 1/3/92* to One Year Ended Five Years Ended 9/26/84* to
10/31/95 10/31/95 10/31/95 10/31/95 10/31/95
7.15% 3.13% 6.61% 5.34% 9.14%
* Commencement of operations.
The "distribution rate" is determined by annualizing the result of dividing
the declared dividends of a Fund during the period stated by the maximum
offering price and net asset value at the end of the period. Excluding a Fund's
sales load from the distribution rate produces a higher rate.
Total return is computed by finding the average annual compounded rates of
return over the designated periods that would equate the initial amount invested
to the ending redeemable value, according to the following formula:
n
--------
T = \/ ERV/P - 1
-----------------
Where:
P = a hypothetical initial investment of $1,000.
T = average annual total return.
n = number of years.
ERV = ending redeemable value of a hypothetical $1,000 investment
made at the beginning of the 1 year, 5 years, and life-of-fund
periods.
This calculation assumes that the maximum sales charge for Class A shares
of 5% for Gold & Government Fund, Disciplined Growth Fund, Regional Bank Fund
and Global Fund and 4.5% for Government Income Fund, Managed Tax-Exempt Fund,
and Global Income Fund is included in the initial investment or, for Class B
shares, the applicable 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.
In addition to average annual total returns, the Funds 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
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any time period. Total returns may be quoted with or without taking the Funds'
sales charge on Class A shares or the CDSC on Class B shares into account.
Excluding the Funds' sales charge on Class A shares and the CDSC on Class B
shares from a total return calculation produces a higher total return figure.
Yield. Yield is determined separately for Class A and Class B shares. The yields
for the Class A shares of the Gold & Government Fund, Government Fund, Managed
Tax-Exempt Fund and Global Income Fund for the thirty days ended October 31,
1995 were 1.42%, 5.62%, 4.74% and 5.80%, respectively. The yields for the Class
B shares of the Gold & Government Fund, Government Fund, Managed Tax-Exempt Fund
and Global Income Fund for the thirty days ended October 31, 1995 were 0.87%,
5.24%, 4.32% and 5.21%, respectively.
Yield is computed by dividing the net investment income per share earned
during a specified 30 day period by the maximum offering price per share on the
last day of such period, according to the following formula:
----------------
Yield = 2 ( a-b + 1)6 - 1
---
cd
----------------
Where: a= dividends and interest earned during the period
b= net expenses accrued for the period
c= the average daily number of share outstanding during the period
that were entitled to receive dividends
d= the maximum offering price per share on the last day of the period.
To calculate interest earned (for the purpose of "a" above) on debt
obligations, a Fund computes the yield to maturity of each obligation held by
the Fund based on the market value of the obligation (including actual accrued
interest) at the close of last business day of the period, or, with respect to
obligations purchased during the period, the purchase price (plus actual accrued
interest). The yield to maturity is then divided by 360 and the quotient is
multiplied by the market value of the obligation (including actual accrued
interest) to determine the interest income on the obligation for each day of the
subsequent period that the obligation is in the portfolio.
Managed Tax-Exempt Fund only. In the case of a tax-exempt obligation issued
without original issue discount and having a current market discount, the coupon
rate of interest is used in lieu of the yield to maturity. Where, in the case of
a tax-exempt obligation with original issue discount, the discount based on the
current market value exceeds the then-remaining portion of original issue
discount (market discount), the yield to maturity is the imputed rate based on
the original issue discount calculation. Where, in the case of a tax-exempt
obligation with original issue discount, the discount based on the current
market value is less than the then-remaining portion of original issue discount
(market premium), the yield to maturity is based on the market value.
Government Fund and Gold & Government Fund only. With respect to the
treatment of discount and premium on mortgage or other receivables-backed
obligations which are expected to
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be subject to monthly payments of principal and interest ("paydowns") each Fund
accounts for gain or loss attributable to actual monthly paydowns as an increase
or decrease to interest income during the period.
Global Income Fund only. To calculate interest earned (for the purpose of
"a" above) on foreign debt obligations, the Fund computes the yield to maturity
of each obligation based on the local foreign currency market value of the
obligation (including actual accrued interest) at the beginning of the period,
or, with respect to obligations purchased during the period, the purchase price
plus accrued interest. The yield to maturity is then divided by 360 and the
quotient is multiplied by the current market value of the obligation (including
actual accrued interest in local currency denomination), then converted to U.S.
dollars using exchange rates from the close of the last business day of the
period to determine the interest income on the obligation for each day of the
subsequent period that the obligation is in the portfolio. Applicable foreign
withholding taxes, net of reclaim, are included in the "b" expense component.
Solely for the purpose of computing yield, each Fund recognizes dividend
income by accruing 1/360 of the stated dividend rate of a security each day that
a security is in the portfolio.
Undeclared earned income, computed in accordance with generally accepted
accounting principles, may be subtracted from the maximum offering price.
Undeclared earned income is the net investment income which, at the end of the
base period, has not been declared as a dividend, but is reasonably expected to
be declared as a dividend shortly thereafter.
All accrued expenses are taken to account as described later herein.
From time to time, in reports and promotional literature, the Funds' total
return and yield will be compared to indices of mutual funds such as Lipper
Analytical Services, Inc.'s "Lipper-Mutual Performance Analysis," a monthly
publication which tracks net assets, total return, and yield 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 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, MORNINGSTAR, STANGER'S and BARRON'S, etc. may also be utilized.
The performance of the Funds is not fixed or guaranteed. Performance
quotations should not be considered to be representations of performance of the
Funds for any period in the future. The performance of any Fund is a function of
many factors including its earnings, expenses and number of outstanding shares.
Fluctuating market conditions; purchases, sales, and maturities of portfolio
securities; sales and redemptions of shares of beneficial interest; and changes
in operating expenses are all examples of items that can increase or decrease
the Funds' performances.
BROKERAGE ALLOCATION
Each Advisory Agreement authorizes the Adviser (subject to the control of
the Boards of Trustees) to select brokers and dealers to execute purchases and
sales of portfolio securities and
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gold bullion and coins. It directs the Adviser to use its best efforts to obtain
the best overall terms for the Funds, taking into account such factors as price
(including dealer spread), the size, type and difficulty of the transaction
involved, and the financial condition and execution capability of the broker or
dealer.
The Sub-Advisory Agreement between the Adviser and JH Advisers
International authorizes JH Advisers International (subject to the control of
the Board of Trustees of Freedom Investment Trust II) to provide the Global Fund
with a continuing and suitable investment program with respect to investments by
the Fund in countries other than the United States and Canada.
To the extent that the execution and price offered by more than one dealer
are comparable, the Adviser or JH Advisers International, as the case may be,
may, in their discretion, decide to effect transactions in portfolio securities
with dealers on the basis of the dealer's sales of shares of the Funds or with
dealers who provide the Funds, the Adviser or JH Advisers International with
services such as research and the provision of statistical or pricing
information. In addition, the Funds may pay brokerage commissions to brokers or
dealers in excess of those otherwise available upon a determination that the
commission is reasonable in relation to the value of the brokerage services
provided, viewed in terms of either a specific transaction or overall brokerage
services provided with respect to the Funds' portfolio transactions by such
broker or dealer. Any such research services would be available for use on all
investment advisory accounts of the Adviser or JH Advisers International. The
Funds may from time to time allocate brokerage on the basis of sales of their
shares. Review of compliance with these policies, including evaluation of the
overall reasonableness of brokerage commissions paid, is made by the Board of
Trustees.
The Adviser places all orders for purchases and sales of portfolio
securities of the Funds. In selecting broker-dealers, the Adviser may consider
research and brokerage services furnished to them. The Adviser may use this
research information in managing the Funds' assets, as well as assets of other
clients.
Municipal securities, foreign debt securities and Government Securities are
generally traded on the over-the-counter market on a "net" basis without a
stated commission, through dealers acting for their own account and not as
brokers. The Managed Tax-Exempt Fund, Global Income Fund, Sovereign Government
Fund and Gold & Government Fund (with respect to Government Securities in its
portfolio) will primarily engage in transactions with these dealers or deal
directly with the issuer. Prices paid to the dealer will generally include a
"spread", which is the difference between the prices at which the dealer is
willing to purchase and sell the specific security at that time.
During the fiscal year ended October 31, 1993, Freedom Investment Trust
paid $161,459 in negotiated brokerage commissions on behalf of the Funds of
which $22,233 was attributable to the Gold & Government Fund, $3,000 was
attributable to Sovereign Government Fund, $49,951 was attributable to the
Regional Bank Fund and $86,275 was attributable to the Fund. During the fiscal
year ended October 31, 1994, Freedom Investment Trust paid $833,722 in brokerage
commissions on behalf of the Funds, of which $10,051 was attributable to the
Managed Tax-Exempt Fund, $512,936 was attributed to the Regional Bank Fund,
$232,625 was attributable to the Disciplined Growth Fund, $48,650 was
attributable to the Gold & Government Fund and $29,450 was attributable to
Sovereign Government Fund. During the fiscal year ended October
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31, 1995, Freedom Investment Trust paid $1,043,663 in negotiated brokerage
commissions on behalf of the Funds of which $109,757 was attributable to the
Gold & Government Fund, $589,066 was attributable to the Regional Bank Fund and
$237,015 was attributable to the Disciplined Growth Fund and $107,825 was
attributable to Sovereign U.S. Government Income Fund.
During the fiscal year ended October 31, 1993, Freedom Investment Trust II
paid $806,269 in brokerage commissions on behalf of the Global Fund and none on
behalf of the Global Income Fund. During the fiscal year ended October 31, 1994,
Freedom Investment Trust II paid $509,845 in brokerage commissions on behalf of
the Global Fund and no brokerage commissions on behalf of the Global Income
Fund. During the fiscal year ended October 31, 1995, Freedom Investment Trust II
paid $525,839 in negotiated brokerage commissions on behalf of the Global Fund
and $24,400 on behalf of the Global Income Fund.
When a Fund engages in an option transaction, ordinarily the same broker
will be used for the purchase or sale of the option and any transactions in the
securities to which the option relates. The writing of calls and the purchase of
puts and calls by a Fund will be subject to limitations established (and changed
from time to time) by each of the Exchanges governing the maximum number of puts
and calls covering the same underlying security 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, held or written in one or more accounts or through one or
more brokers. Thus, the number of options which a Fund may write or purchase may
be affected by options written or purchased by other investment companies and
other investment advisory clients of the Adviser and its affiliates or JH
Advisers International. An Exchange may order the liquidation of positions found
to be in violation of these limits, and it may impose certain other sanctions.
In the U.S. Government securities market, securities are generally traded
on a "net" basis with dealers acting as principal for their own account without
a stated commission, although the price of the security usually includes a
profit to the dealer. On occasion, certain money market instruments and agency
securities may be purchased directly from the issuer, in which case no
commissions or premiums are paid.
Municipal securities are generally traded on the over-the-counter market on
a "net" basis without a stated commission, through dealers acting for their own
account and not as brokers. The Managed Tax-Exempt Fund will primarily engage in
transactions with these dealers or deal directly with the issuer. Prices paid to
a municipal securities dealer will generally include a "spread", which is the
difference between the prices at which the dealer is willing to purchase and
sell the specific security at that time.
The Adviser's indirect parent, the Life Company, is the indirect sole
shareholder of John Hancock Freedom Securities Corporation and its subsidiaries,
two of which, Tucker Anthony Incorporated ("Tucker Anthony"), John Hancock
Distributors, Inc. and Sutro & Company, Inc. ("Sutro"), are broker dealers
(together, "Affiliated Brokers"). The Trusts' Boards of Trustees have
established that any portfolio transaction for the Funds may be executed through
Affiliated Brokers if, in the judgment of the Adviser or JH Advisers
International, as the case may be, the use of Affiliated Brokers is likely to
result in price and execution at least as favorable as those of other qualified
brokers, and if, in the transaction, Affiliated Brokers charges the Funds a
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<PAGE>
commission rate consistent with those charged by Affiliated Brokers to
comparable unaffiliated customers in similar transactions. Affiliated Brokers
will not participate in commissions in brokerage given by a Fund to other
brokers or dealers and neither will receive any reciprocal brokerage business
resulting therefrom. Over-the-counter purchases and sales are transacted
directly with principal market makers except in those cases in which better
prices and executions may be obtained elsewhere. Affiliated Brokers will not
receive any brokerage commissions for orders they execute for a Fund in the
over-the-counter market. A Fund will in no event effect principal transactions
with Affiliated Brokers in the over-the-counter securities in which Affiliated
Brokers makes a market.
Approximately 0.5% of Freedom Investment Trust's aggregate dollar amount of
transactions involving the payment of commissions were effected through Tucker
Anthony for the fiscal year ended October 31, 1993. During the fiscal year ended
October 31, 1993, Freedom Investment Trust paid $7,303 in brokerage commissions
to Tucker Anthony, $6,620 of which was attributable to Gold & Government Trust
and $683 of which was attributable to Regional Bank Fund. Commissions paid to
Tucker Anthony represent approximately 3.5% of the total brokerage commissions
paid by Freedom Investment Trust for the fiscal year ended October 31, 1993.
During the fiscal year ended October 31, 1994, Freedom Investment Trust paid
$3,962 in brokerage commissions to Tucker Anthony, $1,750 of which was
attributable to Gold & Government Fund. Commissions paid to Tucker Anthony
represent approximately 0.5% of the total brokerage commissions paid by Freedom
Investment Trust for the fiscal year ended October 31, 1994. Approximately 2% of
Freedom Investment Trust's aggregate dollar amount of transactions involving the
payment of commissions were effected through Tucker Anthony for the fiscal year
ended October 31, 1994. During the fiscal year ended October 31, 1995, Freedom
Investment Trust paid $2,800 in brokerage commissions to Tucker Anthony which
was attributable to Regional Bank Fund. Commissions paid to Tucker Anthony
represent less than 1% of the total brokerage commissions paid by Freedom
Investment Trust for the fiscal year ended October 31, 1995.
During the fiscal periods ended October 31, 1993, 1994 and 1995 no
brokerage commissions were paid to Affiliated Brokers in connection with the
portfolio transactions of either the Global Fund or the Global Income Fund.
Other investment advisory clients advised by the Adviser or JH Advisers
International, as the case may be, may also invest in the same securities as a
Fund. When these clients buy or sell the same securities at substantially the
same time, the Adviser or JH Advisers International may average the transactions
as to price and allocate the amount of available investments in a manner which
the Adviser or JH Advisers International believes to be equitable to each
client, including the Funds. In some instances, this investment procedure may
adversely affect the price paid or received by a Fund or the size of the
position obtainable for it. On the other hand, to the extent permitted by law,
the Adviser or JH Advisers International may aggregate the securities to be sold
or purchased for a Fund with those to be sold or purchased for other clients
managed by it in order to obtain best execution.
As permitted by Section 28(e) of the Securities Exchange Act of 1934, the
Fund may pay to a broker which provides brokerage and research services to the
Fund an amount of disclosed commission in excess of the commission which another
broker would have charged for effecting that transaction. This practice is
subject to a good faith determination by the trustees that such
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price is reasonable in light of the services provided and to such policies as
the Trustees may adopt from time to time. During the fiscal year ended October
31, 1995, Regional Bank paid $159,705, Disciplined Growth paid $36,176, Gold &
Government paid $16,150, Global paid $4,704 and Special Opportunities paid
$70,270.
DISTRIBUTIONS
Government Fund, Managed Tax-Exempt Fund and Global Income Fund declare
dividends from net investment income daily and pay dividends monthly.
Distribution of net long-term capital gains, if any, recognized on other
portfolio investments for the fiscal year, which ends October 31, will be made
at least annually.
Quarterly each shareholder of Government Fund, Managed Tax-Exempt Fund and
Global Income Fund will receive a statement setting forth the amount of the
monthly or daily dividends, as the case may be, paid that month from net
investment income for the preceding period. If any of such monthly or daily
dividends were made from sources other than (i) net income for the current or
preceding fiscal year, or accumulated undistributed net income, or both (not
including in either case profits or losses from the sale of securities or other
assets) or (ii) accumulated undistributed net profits from the sale of
securities or other assets (in each case determined in accordance with generally
accepted accounting principles), such statement will indicate what portion of
the distribution per share was made from the sources referred to in (i) and (ii)
above and from paid-in surplus or other capital sources.
A shareholder of Government Fund, Managed Tax-Exempt Fund and/or Global
Income Fund will not be credited with a monthly or daily dividend, as the case
may be, until payment for shares purchased is received by the Funds' transfer
agent. Dividends normally will be paid in the form of additional full and
fractional shares at the net asset value determined on the payment date, unless
the shareholder elects to receive dividends in cash as described in the
respective Prospectus. If a shareholder redeems the entire value of his account
in any of these Funds, the amount of dividends declared but unpaid on his shares
through the date preceding the date of redemption will be paid on the next
succeeding dividend payment date.
Gold & Government Fund and Regional Bank Fund. Each Fund will distribute
net short-term capital gains, if any, quarterly, and net long-term capital
gains, if any, at least annually after the close of their fiscal year (October
31). Disciplined Growth will distribute net short-term capital gains, if any,
semi-annually, and net long-term capital gains, if any, at least annually after
the close of their fiscal year (October 31).
Managed Tax-Exempt Fund. Dividends from net investment income are declared
daily and paid monthly. You will not be credited with a daily dividend or become
a shareholder until payment for shares of a Fund is received by Fund Services,
the Funds' transfer agent. The net investment income of the Fund for dividend
purposes consists of interest earned on portfolio securities, less expenses, in
each case computed since the most recent determination of the net asset value.
If you redeem the entire value of your account in a Fund, you will receive a
separate amount by check or wire representing all dividends declared but unpaid,
in addition to the net asset value of the shares redeemed. The Funds will
distribute net realized short-term capital gains,
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if any, quarterly and the Fund will distribute net realized long-term capital
gains, if any, at least annually after the close of our fiscal year (October
31).
Certain realized gains or losses on the sale or retirement of international
bonds held by the Global Income Fund, to the extent attributable to fluctuations
in currency exchange rates, as well as certain other gains or losses
attributable to exchange rate fluctuations, must be treated as ordinary income
or loss for federal income tax purposes. Such income or loss may increase or
decrease (or possibly eliminate) the Fund's investment income available for
distribution. If, under rules governing the tax treatment of foreign currency
gains and losses, the Fund's investment income available for distribution is
decreased or eliminated, all or a portion of the dividends declared by the Fund
may be treated for federal income tax purposes as a return of capital or, in
some circumstances, as capital gain. Your tax basis in your Global Income Fund
shares will be reduced to the extent that an amount distributed to you is
treated as a return of capital and distributions after your basis has been
reduced on zero will generally be treated as capital gains.
The per share dividends on the Class B shares will be lower than the per
share dividends on the Class A shares of the Funds as a result of the higher
distribution fee applicable with respect to the Class B shares.
TRANSFER AGENT SERVICES
John Hancock Investor Services Corporation ("Investor Services"), P.O. Box
9116, Boston, MA 02205-9116 a wholly-owned indirect subsidiary of the Life
Company is the transfer and dividend paying agent for the Funds. The Gold &
Government Fund, Regional Bank Fund, Disciplined Growth Fund and Global Fund
pays Investor Services an annual fee of $16.00 for each Class A shareholder and
of $18.50 for each Class B shareholder. The Government Fund and Global Income
Fund pay Investor Services an annual fee of $20.00 for each Class A shareholder
and $22.50 for each Class B shareholder. The Managed Tax Exempt Fund pays
Investor Services an annual fee of $19.00 for each Class A shareholder and
$21.50 for each Class B shareholder. Each Fund also pays certain out-of-pocket
expenses and these expenses are aggregated and charged to each Fund and
allocated to each class on the basis of the relative net asset values.
CUSTODY OF PORTFOLIO
Portfolio securities of the Funds are held pursuant to a custodian
agreement between the Trust and Investors Bank & Trust Company, 24 Federal
Street, Boston, Massachusetts 02110. Under the custodian agreement, Investors
Bank & Trust Company performs custody, portfolio and fund accounting services.
INDEPENDENT AUDITORS
The independent auditors of the Funds are Price Waterhouse LLP, 160 Federal
Street, Boston, Massachusetts, 02110. Price Waterhouse LLP audits and renders an
opinion on each Fund's annual financial statements and reviews each Fund's
annual Federal income tax return.
FINANCIAL STATEMENTS
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APPENDIX A
DESCRIPTION OF BOND RATINGS*
Moody's Bond ratings
Bonds. "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 grater 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.
Where no rating has been assigned or where a rating has been suspended or
withdrawn, it may be for reasons unrelated to the quality of the issue. Should
no rating be assigned, the reason may be one of the following: (i) an
application for rating was not received or accepted; (ii) the issue or issuer
belongs to a group of securities that are not rated as a matter of policy; (iii)
there is a lack of essential data pertaining to the issue or issuer; or (iv) the
issue was privately placed, in which case the rating is not published in Moody's
publications.
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*As described by the rating companies themselves.
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Suspension or withdrawal may occur if new and material circumstances arise, the
effects of which preclude satisfactory analysis; if there is no longer available
reasonable up-to-date data to permit a judgment to be formed; if a bond is
called for redemption; or for other reasons.
Standard & Poor's Bond ratings
"AAA. Debt rated 'AAA' has the highest rating 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 higher 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 adequate capacity to pay interest
and repay principal. Whereas it normally exhibits adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay interest and repay principal for
debt in this category than in higher rated categories."
Debt rated "BB," or "B," is regarded, on balance, as predominantly speculative
with respect to the issuer's capacity to pay interest and pay 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 may be outweighed
by large uncertainties or major risk exposures to adverse conditions.
Unrated. This indicates that no rating has been requested, that there is
insufficient information on which to base a rating, or that Standard & Poor's
does not rate a particular type of obligation as a matter of policy.
COMMERCIAL PAPER RATINGS
Moody's Commercial Paper Ratings
Moody's ratings for commercial paper are opinions of the ability of issuers to
repay punctually promissory obligations not having an original maturity in
excess of nine months. Moody's two highest commercial paper rating categories
are as follows:
"P-1 -- "Prime-1" indicates the highest quality repayment capacity of the rated
issues.
"P-2 -- "Prime-2" indicates that the issuer has a strong capacity for repayment
of short-term promissory obligations. Earnings trends and coverage ratios, while
sound, will be more subjective to variation. Capitalization characteristics,
while still appropriate, may be more affected by external conditions. Ample
alternate liquidity is maintained."
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Standard & Poor's Commercial Paper Ratings
Standard & Poor's commercial paper ratings are current assessments of the
likelihood of timely payment of debts having an original maturity of no more
than 365 days. Standard & Poor's two highest commercial paper rating categories
are as follows:
"A-1 -- This designation indicates that the degree of safety regarding timely
payment is very strong. Those issues determined to possess overwhelming safety
characteristics will be denoted with a plus (+) sign designation.
"A-2 -- Capacity for timely payment on issues with this designation is strong.
However, the relative degree of safety is not as high as for issues designated
A-1."
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PART C.
OTHER INFORMATION
Item 24. Financial Statements and Exhibits
(a) The financial statements listed below are included in and incorporated
by reference into Part B of the Registration Statement from the 1995 Annual
Report to Shareholders for the year ended October 31, 1995 (filed electronically
on January 3, 1996; file nos. 811-3999 and 2-90305; accession numbers
0000950135-96-000047 and 0000950135-96-000053):
Freedom Investment Trust
John Hancock Regional Bank Fund
John Hancock Disciplined Growth Fund
Satement of Assets and Liabilities as of October 31, 1995.
Statement of Operations for the year ended October 31, 1995.
Statement of Changes in Net Assets for each of the two years in the
period ended October 31, 1995.
Financial Highlights for each of the 10 years ended October 31, 1995.
Schedule of Investments as of October 31, 1995.
Notes to Financial Statements
(b) Exhibits:
The exhibits to this Registration Statement are listed in the Exhibit Index
hereto and are incorporated herein by reference.
Item 25. Persons Controlled by or under Common Control with Registrant
No person is directly or indirectly controlled by or under common control
with Registrant.
Item 26. Number of Holders of Securities
As of March 29, 1996 the number of record holders of shares of Registrant
was as follows:
Title of Class Number of Record Holders
Class A Class B
John Hancock Gold & Government Fund 1,851 1,576
John Hancock Regional Bank Fund 50,902 102,960
John Hancock Managed Tax-Exempt Fund 1,268 1,268
John Hancock Disciplined Growth Fund 3,249 7,885
John Hancock Sovereign U.S. Government Income Fund 38,195 6,100
John Hancock Financial Services Fund 16 0
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Item 27. Indemnification
(a) Under Article VI of the Registrant's Master Trust Agreement each of its
Trustees and Officers or person serving in such capacity with another entity at
the request of the Registrant ("Covered Person") shall be indemnified against
all liabilities, including, but not limited to, amounts paid in satisfaction of
judgments, in compromises or as fines or penalties, and expenses, including
reasonable legal and accounting fees, in connection with the defense or
disposition of any action, suit or other proceeding, whether civil or criminal,
before any court or administrative or legislative body, in which such Covered
Person may be or may have been involved as a party or otherwise or with which
such person may be or may have been threatened, while in office or thereafter,
by reason of being or having been such a Trustee or officer, director or
trustee, except with respect to any matter as to which it has been determined
that such Covered Person (i) did not act in good faith in the reasonable belief
that such Covered Person's action was in or not opposed to the best interests of
the Trust or (ii) had acted with willful misfeasance, bad faith, gross
negligence or reckless disregard of the duties involved in the conduct of such
Covered Person's office (either and both of the conduct described in (i) and
(ii) being referred to hereafter as "Disabling Conduct"). A determination that
the Covered Person is entitled to indemnification may be made by (i) a final
decision on the merits by a court or other body before whom the proceeding was
brought that the person to be indemnified was not liable by reason of Disabling
Conduct, (ii) dismissal of a court action or an administrative proceeding
against a Covered Person for insufficiency of evidence of Disabling Conduct, or
(iii) a reasonable determination, based upon a review of the facts, that the
indemnitee was not liable by reason of Disabling Conduct by (a) a vote of a
majority of a quorum of Trustees who are neither "interested persons" of the
Trust as defined in section 2(a)(19) of the 1940 Act nor parties to the
proceeding, or (b) an independent legal counsel in a written opinion.
(b) Under the Distribution Agreement. Under Section 12 of the Distribution
Agreement, John Hancock Funds, Inc. ("John Hancock Funds" ) has agreed to
indemnify the Registrant and its Trustees, officers and controlling persons
against claims arising out of certain acts and statements of John Hancock Funds.
Section 9(a) of the By-Laws of the Insurance Company provides, in effect,
that the Insurance Company will, subject to limitations of law, indemnify each
present and former director, officer and employee of the of the Insurance
Company who serves as a Trustee or officer of the Registrant at the direction or
request of the Insurance Company against litigation expenses and liabilities
incurred while acting as such, except that such indemnification does not cover
any expense or liability incurred or imposed in connection with any matter as to
which such person shall be finally adjudicated not to have acted in good faith
in the reasonable belief that his action was in the best interests of the
Insurance Company. In addition, no such person will be indemnified by the
Insurance Company in respect of any liability or expense incurred in connection
with any matter settled without final adjudication unless such settlement shall
have been approved as in the best interests of the Insurance Company either by
vote of the Board of Directors at a meeting composed of directors who have no
interest in the outcome of such vote, or by vote of the policyholders. The
Insurance Company may pay expenses incurred in defending an action or claim in
advance of its final disposition, but only upon receipt of an undertaking by the
person indemnified to repay such payment if he should be determined to be
entitled to indemnification.
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Article IX of the respective By-Laws of John Hancock Funds and the Adviser
provide as follows:
"Section 9.01. Indemnity: Any person made or threatened to be made a party to
any action, suit or proceeding, whether civil, criminal, administrative or
investigative, by reason of the fact that he is or was at any time since the
inception of the Corporation serving at the request of the Corporation as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise, shall be indemnified by the Corporation
against expenses (including attorney's fees), judgments, fines and amounts paid
in settlement actually and reasonably incurred by him in connection with such
action, suit or proceeding if he acted in good faith and the liability was not
incurred by reason of gross negligence or reckless disregard of the duties
involved in the conduct of his office, and expenses in connection therewith may
be advanced by the Corporation, all to the full extent authorized by the law."
"Section 9.02. Not Exclusive; Survival of Rights: The indemnification provided
by Section 9.01 shall not be deemed exclusive of any other right to which those
indemnified may be entitled, and shall continue as to a person who has ceased to
be a director, officer, employee or agent and shall inure to the benefit of the
heirs, executors and administrators of such as person."
Insofar as indemnification for liabilities under the Securities Act of 1933 (the
"Act") may be permitted to Trustees, officers and controlling persons of
Registrant pursuant to the Registrant's Amended and Restated Articles of
Incorporation, Article 10.1 of the Registrant's By-Laws, The underwriting
Agreement, the By-Laws of Distributors, the Adviser, or the Insurance Company or
otherwise, Registrant has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against policy as expressed in the
Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
Registrant in the successful defense of any action, suit or proceeding) is
asserted by such Trustee, officer or controlling person in connection with the
securities being registered, Registrant will, unless in the opinion of its
counsel the matter has been settled by controlling precedent, submit to a court
of appropriate jurisdiction the question whether indemnification by it is
against public policy as expressed in the Act and will be governed by the final
adjudication of such issue.
Item 28. Business and other Connections of Investment Adviser
For information as to the business, profession, vocation or employment of a
substantial nature of each of the officers and Directors of the Investment
Adviser, reference is made to Forms ADV filed (801-8124) under the Investment
Advisers Act of 1940, herein incorporated by reference.
Item 29. Principal Underwriters
(a) The Funds have two distributors. One distributor, Freedom Distributors
Corporation ("Freedom") also acts as co-distributor with Tucker Anthony
Incorporated for two other registered investment companies; Freedom Group of Tax
Exempt Funds and Freedom Mutual Fund. John Hancock Funds acts as principal
underwriter for the Registrant and also serves as principal underwriter or
distributor of shares for John Hancock Cash Reserve, Inc., John Hancock Bond
Fund, John Hancock Current Interest, John Hancock Series, Inc., John Hancock
Tax-Free Bond Fund, John Hancock California Tax-Free Income Fund, John
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Hancock Capital Series, John Hancock Limited-Term Government Fund, John Hancock
Tax-Exempt Income Fund, John Hancock Sovereign Investors Fund, Inc., John
Hancock Special Equities Fund, John Hancock Sovereign Bond Fund, John Hancock
Tax-Exempt Series, John Hancock Strategic Series, John Hancock Technology
Series, Inc., John Hancock World Fund, John Hancock Investment Trust, John
Hancock Institutional Series Trust, Freedom Investment Trust, Freedom Investment
Trust II and Freedom Investment Trust III.
(b) The following table lists, for each director and officer of John
Hancock Funds, the information indicated.
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<TABLE>
<CAPTION>
Name and Principal Positions and Offices Positions and Offices
Business Address with Underwriter with Registrant
<S> <C> <C>
Edward J. Boudreau, Jr. Chairman, President and Chief Chairman
101 Huntington Avenue Executive Officer
Boston, Massachusetts
Robert H. Watts Director, Executive Vice None
John Hancock Place President and Chief Compliance
P.O. Box 111 Officer
Boston, Massachusetts
James V. Bowhers Executive Vice President None
101 Huntington Avenue
Boston, Massachusetts
Robert G. Freedman Director Vice Chairman, Chief
101 Huntington Avenue Investment Officer
Boston, Massachusetts
Stephen M. Blair Executive Vice President None
101 Huntington Avenue
Boston, Massachusetts
Thomas H. Drohan Senior Vice President Senior Vice President and
101 Huntington Avenue Secretary
Boston, Massachusetts
James W. McLaughlin Senior Vice President None
101 Huntington Avenue and
Boston, Massachusetts Chief Financial Officer
David A. King Director and Senior Vice None
101 Huntington Avenue President
Boston, Massachusetts
James B. Little Senior Vice President Senior Vice President and
101 Huntington Avenue Chief Financial Officer
Boston, Massachusetts
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Name and Principal Positions and Offices Positions and Offices
Business Address with Underwriter with Registrant
Michael T. Carpenter Senior Vice President None
101 Huntington Avenue
Boston, Massachusetts
Charles H. Womack Senior Vice President None
6501 Americas Parkway
Suite 950
Albuquerque, New Mexico
Anthony P. Petrucci Senior Vice President None
101 Huntington Avenue
Boston, Massachusetts
William S. Nichols Senior Vice President None
101 Huntington Avenue
Boston, Massachusetts
John A. Morin Vice President Vice President
101 Huntington Avenue
Boston, Massachusetts
Susan S. Newton Vice President and Secretary Vice President,
101 Huntington Avenue Assistant Secretary
Boston, Massachusetts and Compliance Officer
Keith Harstein Vice President None
101 Huntington Avenue
Boston, Massachusetts
Griselda Lyman Vice President None
101 Huntington Avenue
Boston, Massachusetts
Christopher M. Meyer Treasurer None
101 Huntington Avenue
Boston, Massachusetts
Stephen L. Brown Director None
John Hancock Place
P.O. Box 111
Boston, Massachusetts
C-6
<PAGE>
Name and Principal Positions and Offices Positions and Offices
Business Address with Underwriter with Registrant
Thomas E. Moloney Director None
John Hancock Place
P.O. Box 111
Boston, Massachusetts
Jeanne M. Livermore Director None
John Hancock Place
P.O. Box 111
Boston, Massachusetts
Richard S. Scipione Director None
John Hancock Place
P.O. Box 111
Boston, Massachusetts
John Goldsmith Director None
One Beacon Street
Boston, Massachusetts
Richard O. Hansen Director None
John Hancock Place
P.O. Box 111
Boston, Massachusetts
John M. DeCiccio Director None
John Hancock Place
P.O. Box 111
Boston, Massachusetts
Foster L. Aborn Director None
John Hancock Place
P.O. Box 111
Boston, Massachusetts
David F. D'Alessandro Director None
John Hancock Place
P.O. Box 111
Boston, Massachusetts
William C. Fletcher Director None
53 State Street
Boston, Massachusetts
</TABLE>
C-7
<PAGE>
(b) The name of each director and officer of Freedom, together with the
offices held by such person with Freedom and the Registrant, are set forth
below.
<TABLE>
<CAPTION>
Name and Principal Business Positions and Offices Positions and Offices
Address with Underwriter with Registrant
<S> <C> <C>
John J. Danello President, Director None
One Beacon Street and Clerk
Boston, Massachusetts
Thomas J. Brown Treasurer and Director None
One Beacon Street
Boston, Massachusetts
Dexter A. Dodge Vice President None
One Beacon Street
Boston, Massachusetts
</TABLE>
(b) None
(c) None.
Item 30. Location of Accounts and Records
Registrant maintains the records required to be maintained by it under Rules
31a-1 (a), 31a-a(b), and 31a-2(a) under the Investment Company Act of 1940 as
its principal executive offices at 101 Huntington Avenue, Boston Massachusetts
02199-7603. Certain records, including records relating to Registrant's
shareholders and the physical possession of its securities, may be maintained
pursuant to Rule 31a-3 at the main office of Registrant's Transfer Agent and
Custodian.
Item 31. Management Services
Not applicable.
Item 32. Undertakings
(a) Not applicable.
(b) Not applicable.
(c) Registrant hereby undertakes to furnish each person to whom a
prospectus with respect to a series of the Registrant is delivered with a copy
of the latest annual report to shareholders with respect to that series upon
request and without charge.
C-8
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940 the registrant has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Boston, and the Commonwealth of Massachusetts on the
19th day of April, 1996.
FREEDOM INVESTMENT TRUST
By: *
Edward J. Boudreau, Jr.
Chairman
Pursuant to the requirements of the Securities Act of 1933, the
Registration has been signed below by the following persons in the capacities
and on the dates indicated.
Signature Title Date
* Chairman
Edward J. Boudreau, Jr. (Principal Executive Officer)
/s/James B. Little
James B. Little Senior Vice President and Chief April 19, 1996
Financial Officer (Principal
Financial and Accounting Officer)
* Trustee
Douglas M. Costle
* Trustee
Leland O. Erdahl
* Trustee
Richard A. Farrell
* Trustee
William F. Glavin
C-9
<PAGE>
Signature Title Date
* Trustee
John A. Moore
* Trustee
Patti McGill Peterson
* Trustee
John W. Pratt
*By: /s/Thomas H. Drohan April 19, 1996
-------------------
Thomas H. Drohan, Attorney-in-Fact
under Powers of Attorney dated June 25, 1992,
December 14, 1992, and August 17, 1993.
C-10
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT INDEX
Exhibit No. Description Page Number
<S> <C> <C>
99.B1 Master Trust Agreement (Agreement and Declaration of Trust)
amended and restated dated September 10, 1991; Amendment
No. 1 to the Master Trust Agreement dated June 25, 1992;
Amendment No.2 to the Master Trust Agreement dated June 25,
1992; Amendment No. 3 to the Master Trust Agreement dated
September 16, 1992; Amendment to the Master Trust Agreement
dated August 3, 1993; Amendment to the Master Trust
Agreement dated September 2, 1994; Amendment to the Master
Trust Agreement dated September 27, 1994. *
99.B1.1 Amendment to the Master Trust Agreement Abolition of Class C
Shares of Beneficial Interest of John Hancock U.S. Government
Income Fund dated May 1, 1995.**
99.B1.2 Amendment to the Master Trust Agreement dated December
11, 1995.*
99.B2 By-Laws as amended September 16, 1992.*
99.B3 None.
99.B4 Designation of Classes dated December 14, 1992.*
99.B4.1 Specimen share certificate for Regional Bank Fund (Classes A
and B).*
.
99.B4.2 Specimen share certificate for Sovereign U.S. Government Income
Fund (Classes A, B and C).*
99.B4.3 Specimen shares certificate for Managed Tax Exempt Fund
(Classes A and B).*
99.B4.4 Specimen shares certificate for Gold & Government Fund (Classes
A and B).*
99.B4.5 Specimen Shares certificate for Sovereign Achievers Fund
(Classes A and B).*
99.B5 Advisory Agreement restated January 1, 1994.*
C-11
<PAGE>
Exhibit No. Description Page Number
99.B5.1 Investment Management Contract between the Registrant on behalf
of John Hancock Financial Services Fund and John Hancock
Advisers, Inc.**
99.B6 Distribution Agreement with John Hancock Broker Distribution
Services, Inc. and Freedom Distributors Corporation.*
99.B6.1 Form of Financial Institution Sales and Service Agreement.*
99.B6.2 Form of Soliciting Dealer Agreement between John Hancock Broker
Distribution Services, Inc. and Selected Dealers.*
99.B6.3 Form of Amendment to Distribution Agreement between John
Hancock Funds.*
99.B7 None.
99.B8 Custodian Contract with Investors Bank and Trust Company Bank,
dated December 15, 1992.*
99.B9 Transfer Agency and Service Agreement with John Hancock Fund
Services, Inc.*
99.B9.1 Service Agreement between John Hancock Advisers, Inc. and
Berkeley Investment Partners (now TBFG Advisers, Inc.) dated
October 1, 1992.*
99.B10 Legal opinion and consent of Goodwin, Procter & Hoar dated May
16, 1986.*
99.B10.1 Legal opinion and consent of Goodwin, Procter & Hoar dated
February 3, 1986.*
99.B10.2 Legal opinion and consent of Goodwin, Procter & Hoar dated
March 27, 1987.*
99.B10.3 Legal opinion and consent of Goodwin, Procter & Hoar dated
December 20, 1991.*
99.B10.4 Legal opinion and consent of Goodwin, Procter & Hoar dated
December 27, 1992.*
99.B11 Consent of Auditors+
99.B11.1 Consent of Morningstar Mutual Fund Values.*
C-12
<PAGE>
Exhibit No. Description Page Number
99.B12 Not applicable
99.B13 None
99.B15 Plan of Distribution pursuant to Rule 12b-1 as amended and
restated January 1, 1994.*
99.B15.1 Class A Distribution Plan between Registrant and John Hancock
Funds, Inc.***
99.B15.2 Class B Distribution Plan between Registrant and John Hancock
Funds, Inc.***
99.B16 Working papers showing yield calculation for yield and total
return.***
27.1A John Hancock Regional Bank Fund 50,902
27.1B John Hancock Regional Bank Fund 102,960
27.2A John Hancock Disciplined Growth Fund 3,249
27.2B John Hancock Disciplined Growth Fund 7,885
</TABLE>
* Previously filed electronically with post-effective amendment number 32
(file nos. 811-3999 and 2-90305) on February 27, 1995, accession number
0000950135-95-000311.
** Previously filed electronically with post-effective amendment number 33
(file nos. 811-3999 and 2-90305) on December 21, 1995, accession number
0000950146-95-000814.
*** Previously filed electronically with post-effective amendment number 34
(file nos. 811-3999 and 2-90305) on February 28, 1996, accession number
0000950135-96-001219.
+ Filed herewith.
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in the Statement of Additional Information
constituting part of this Post Effective Amendment No.35 to the Registration
Statement on Form N-1A (the "Registration Statement") for John Hancock Regional
Bank Fund and John Hancock Sovereign Achievers Fund (the "Funds"), each a series
of Freedom Investment Trust, of our reports dated December 14, 1995, relating to
the financial statements and financial highlights appearing in the October 31,
1995 Annual Reports to Shareholders of the Funds which appear in such Statement
of Additional Information and to the incorporation by reference of our reports
on the Funds into the Prospectus which constitutes part of this Registration
Statement. We also consent to the references to us under the heading
"Independent Auditors" in such Statement of Additional Information and to the
references to us under the headings "Financial Highlights" and "Fund Details" in
such Prospectus.
/s/Price Waterhouse LLP
PRICE WATERHOUSE LLP
Boston, Massachusetts
April 17, 1996
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 021
<NAME> JOHN HANCOCK REGIONAL BANK FUND - CLASS A
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> OCT-31-1995
<PERIOD-START> NOV-01-1994
<PERIOD-END> OCT-31-1995
<INVESTMENTS-AT-COST> 1,454,969,319
<INVESTMENTS-AT-VALUE> 1,733,199,078
<RECEIVABLES> 23,856,523
<ASSETS-OTHER> 1,062,390
<OTHER-ITEMS-ASSETS> 278,229,759
<TOTAL-ASSETS> 1,758,117,991
<PAYABLE-FOR-SECURITIES> 30,954,539
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 4,085,076
<TOTAL-LIABILITIES> 35,039,615
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 1,428,161,434
<SHARES-COMMON-STOCK> 17,931,218
<SHARES-COMMON-PRIOR> 10,084,092
<ACCUMULATED-NII-CURRENT> 2,036,461
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 14,650,722
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 278,229,759
<NET-ASSETS> 1,723,078,376
<DIVIDEND-INCOME> 27,706,275
<INTEREST-INCOME> 7,993,341
<OTHER-INCOME> 0
<EXPENSES-NET> 18,655,946
<NET-INVESTMENT-INCOME> 17,043,670
<REALIZED-GAINS-CURRENT> 14,650,736
<APPREC-INCREASE-CURRENT> 235,518,324
<NET-CHANGE-FROM-OPS> 267,212,730
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 5,715,567
<DISTRIBUTIONS-OF-GAINS> 11,425,856
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 14,405,492
<NUMBER-OF-SHARES-REDEEMED> 7,018,102
<SHARES-REINVESTED> 359,736
<NET-CHANGE-IN-ASSETS> 983,893,382
<ACCUMULATED-NII-PRIOR> 224,712
<ACCUMULATED-GAINS-PRIOR> 11,425,842
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 7,644,892
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 18,655,946
<AVERAGE-NET-ASSETS> 283,177,798
<PER-SHARE-NAV-BEGIN> 21.52
<PER-SHARE-NII> 0.52
<PER-SHARE-GAIN-APPREC> 5.92
<PER-SHARE-DIVIDEND> 0.48
<PER-SHARE-DISTRIBUTIONS> 0.34
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 27.14
<EXPENSE-RATIO> 1.39
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 022
<NAME> JOHN HANCOCK REGIONAL BANK FUND - CLASS B
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> OCT-31-1995
<PERIOD-START> NOV-01-1994
<PERIOD-END> OCT-31-1995
<INVESTMENTS-AT-COST> 1,454,969,319
<INVESTMENTS-AT-VALUE> 1,733,199,078
<RECEIVABLES> 23,856,523
<ASSETS-OTHER> 1,062,390
<OTHER-ITEMS-ASSETS> 278,229,759
<TOTAL-ASSETS> 1,758,117,991
<PAYABLE-FOR-SECURITIES> 30,954,539
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 4,085,076
<TOTAL-LIABILITIES> 35,039,615
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 1,428,161,434
<SHARES-COMMON-STOCK> 45,761,124
<SHARES-COMMON-PRIOR> 24,369,889
<ACCUMULATED-NII-CURRENT> 2,036,461
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 14,650,722
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 278,229,759
<NET-ASSETS> 1,723,078,376
<DIVIDEND-INCOME> 27,706,275
<INTEREST-INCOME> 7,993,341
<OTHER-INCOME> 0
<EXPENSES-NET> 18,655,946
<NET-INVESTMENT-INCOME> 17,043,670
<REALIZED-GAINS-CURRENT> 14,650,736
<APPREC-INCREASE-CURRENT> 235,518,324
<NET-CHANGE-FROM-OPS> 267,212,730
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 9,516,354
<DISTRIBUTIONS-OF-GAINS> 11,425,856
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 26,194,033
<NUMBER-OF-SHARES-REDEEMED> 5,396,234
<SHARES-REINVESTED> 593,436
<NET-CHANGE-IN-ASSETS> 983,893,382
<ACCUMULATED-NII-PRIOR> 224,712
<ACCUMULATED-GAINS-PRIOR> 11,425,842
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 7,644,892
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 18,655,946
<AVERAGE-NET-ASSETS> 702,808,025
<PER-SHARE-NAV-BEGIN> 21.43
<PER-SHARE-NII> 0.36
<PER-SHARE-GAIN-APPREC> 5.89
<PER-SHARE-DIVIDEND> 0.32
<PER-SHARE-DISTRIBUTIONS> 0.34
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 27.02
<EXPENSE-RATIO> 2.09
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 061
<NAME> JOHN HANCOCK SOVEREIGN ACHIEVERS FUND - CLASS A
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> OCT-31-1995
<PERIOD-START> NOV-01-1994
<PERIOD-END> OCT-31-1995
<INVESTMENTS-AT-COST> 103,952,204
<INVESTMENTS-AT-VALUE> 115,039,000
<RECEIVABLES> 146,180
<ASSETS-OTHER> 12,794
<OTHER-ITEMS-ASSETS> 11,086,796
<TOTAL-ASSETS> 115,197,974
<PAYABLE-FOR-SECURITIES> 1,077,100
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 251,209
<TOTAL-LIABILITIES> 1,328,309
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 101,872,756
<SHARES-COMMON-STOCK> 2,168,607
<SHARES-COMMON-PRIOR> 1,938,449
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 910,113
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 11,086,796
<NET-ASSETS> 113,869,665
<DIVIDEND-INCOME> 1,979,608
<INTEREST-INCOME> 526,784
<OTHER-INCOME> 0
<EXPENSES-NET> 2,275,696
<NET-INVESTMENT-INCOME> 230,696
<REALIZED-GAINS-CURRENT> 890,733
<APPREC-INCREASE-CURRENT> 11,617,034
<NET-CHANGE-FROM-OPS> 12,738,463
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 213,064
<DISTRIBUTIONS-OF-GAINS> 999,954
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 665,977
<NUMBER-OF-SHARES-REDEEMED> 542,110
<SHARES-REINVESTED> 106,291
<NET-CHANGE-IN-ASSETS> (3,853,703)
<ACCUMULATED-NII-PRIOR> 198,462
<ACCUMULATED-GAINS-PRIOR> 5,080,826
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 866,401
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 2,275,696
<AVERAGE-NET-ASSETS> 24,826,368
<PER-SHARE-NAV-BEGIN> 12.02
<PER-SHARE-NII> 0.08
<PER-SHARE-GAIN-APPREC> 1.29
<PER-SHARE-DIVIDEND> 0.10
<PER-SHARE-DISTRIBUTIONS> 0.52
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 12.77
<EXPENSE-RATIO> 1.46
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 062
<NAME> JOHN HANCOCK SOVEREIGN ACHIEVERS FUND - CLASS B
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> OCT-31-1995
<PERIOD-START> NOV-01-1994
<PERIOD-END> OCT-31-1995
<INVESTMENTS-AT-COST> 103,952,204
<INVESTMENTS-AT-VALUE> 115,039,000
<RECEIVABLES> 146,180
<ASSETS-OTHER> 12,794
<OTHER-ITEMS-ASSETS> 11,086,796
<TOTAL-ASSETS> 115,197,974
<PAYABLE-FOR-SECURITIES> 1,077,100
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 251,209
<TOTAL-LIABILITIES> 1,328,309
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 101,872,756
<SHARES-COMMON-STOCK> 6,790,262
<SHARES-COMMON-PRIOR> 7,902,050
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 910,113
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 11,086,796
<NET-ASSETS> 113,869,665
<DIVIDEND-INCOME> 1,979,608
<INTEREST-INCOME> 526,784
<OTHER-INCOME> 0
<EXPENSES-NET> 2,275,696
<NET-INVESTMENT-INCOME> 230,696
<REALIZED-GAINS-CURRENT> 890,733
<APPREC-INCREASE-CURRENT> 11,617,034
<NET-CHANGE-FROM-OPS> 12,738,463
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 216,094
<DISTRIBUTIONS-OF-GAINS> 4,061,492
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 531,328
<NUMBER-OF-SHARES-REDEEMED> 2,003,631
<SHARES-REINVESTED> 360,515
<NET-CHANGE-IN-ASSETS> (3,853,703)
<ACCUMULATED-NII-PRIOR> 198,462
<ACCUMULATED-GAINS-PRIOR> 5,080,826
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 866,401
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 2,275,696
<AVERAGE-NET-ASSETS> 90,693,742
<PER-SHARE-NAV-BEGIN> 11.95
<PER-SHARE-NII> 0.01
<PER-SHARE-GAIN-APPREC> 1.28
<PER-SHARE-DIVIDEND> 0.03
<PER-SHARE-DISTRIBUTIONS> 0.52
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 12.69
<EXPENSE-RATIO> 2.11
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
