John Hancock
Financial
Industries Fund
Class A and Class B Shares
Prospectus
March 6, 1996
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TABLE OF CONTENTS
Page
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Expense Information ...................................................... 2
The Fund's Financial Highlights .......................................... 3
Investment Objective and Policies ........................................ 4
Organization and Management of the Fund .................................. 9
Alternative Purchase Arrangements ........................................ 9
The Fund's Expenses ...................................................... 11
Dividends and Taxes ...................................................... 12
Performance .............................................................. 12
How to Buy Shares ........................................................ 14
Share Price .............................................................. 15
How to Redeem Shares ..................................................... 20
Additional Services and Programs ......................................... 22
This Prospectus sets forth information about John Hancock Financial
Industries Fund (the "Fund"), a diversified series of Freedom Investment Trust,
that you should know before investing. Please read and retain it for future
reference.
Additional information about the Fund has been filed with the Securities and
Exchange Commission (the "SEC"). You can obtain a copy of the Fund's Statement
of Additional Information, dated March 6, 1996, free of charge by writing or
telephon- ing: John Hancock Investor Services Corporation, P.O. Box 9116,
Boston, Massachusetts 02205-9116, 1-800-225-5291, (1-800-554-6713 TDD).
Shares of the Fund are not deposits or obligations of, or guaranteed or
endorsed by, any bank, and the shares are not federally insured by the Federal
Deposit Insurance Corporation, the Federal Reserve board, or any other agency.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
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EXPENSE INFORMATION
The purpose of the following information is to help you to understand the
various fees and expenses that you will bear, directly or indirectly, when you
purchase Fund shares. Since the Fund does not yet have any operating history,
the cost and expenses included in the table and hypothetical example below are
based on estimated fees and expenses of Class A and Class B shares for the
fiscal year ended October 31, 1996 and should not be considered as
representative of future expenses. Actual fees and expenses may be greater or
less than those indicated.
Class A Class B
Shares Shares
------ ------
Shareholder Transaction Expenses
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* 5.00%
Redemption fee+ ............................................ None None
Exchange fee ............................................... None None
Annual Fund Operating Expenses (as a percentage of
average net assets)
Management fee (net of reduction) .......................... 0.00% 0.00%
12b-1 fee** ................................................ 0.30% 1.00%
Other expenses (net of reduction) .......................... 0.90% 0.90%
----- -----
Total Fund operating expenses (net of reduction) ........... 1.20% 1.90%
===== =====
* No sales charge is payable at the time of purchase on investments of $1
million or more, a contingent deferred sales charge of up to 1.00% may be
imposed but for these investments, as described under the caption "Share
Price," in the event of certain redemption transactions within one year of
purchase.
** The amount of the 12b-1 fee used to cover service expenses will be up to
0.25% of average daily net assets, and the remaining portion will be used
to cover distribution expenses.
*** Other expenses include transfer agent, legal, audit, custody and other
expenses.
(a) Expenses reflect a temporary agreement by the Fund's investment adviser to
limit expenses, not including Rule 12b-1 fees or any other class specific
expenses. Without such a limitation, the management fee, other expenses and
total Fund operating expenses of the Class A and Class B shares, respectively,
would have been estimated as 0.80% and 0.80%; and 7.80% and 7.80%; and 8.90% and
9.60%.
+ Redemption by wire fee (currently $4.00) not included.
<TABLE>
<CAPTION>
Example: 1 Year 3 Years
<S> <C> <C>
You would pay the following expenses on a $1,000 investment,
assuming a 5% annual return throughout the periods and
reinvestment of all dividends:
Class A Shares ............................................................ $62 $86
Class B Shares ............................................................
--Assuming complete redemption at end of period .......................... $69 $90
--Assuming no redemption ................................................. $19 $60
</TABLE>
(The example should not be considered as a representation of past or future
expenses or future investment returns. Actual expenses may be greater or less
than shown.)
The Fund's payment of a distribution fee may result in a long-term
shareholder indirectly paying more than the economic equivalent of the maximum
front-end sales charge permitted under the National Association of Securities
Dealers Rules of Fair Practice.
The management and 12b-1 fees referred to above are more fully explained in
this Prospectus under the caption "The Fund's Expenses" and in the Statement of
Additional Information under the captions "Investment Advisory and Other
Services" and "Distribution Contract."
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INVESTMENT OBJECTIVE AND POLICIES
The Fund seeks capital appreciation primarily through investments in equity
securities of financial services companies throughout the world.
The Fund's investment objective is capital appreciation. The Fund seeks its
objective primarily through investments in financial services companies (defined
below) located in the U.S. and foreign countries. There is no assurance that the
Fund will achieve its investment objective.
Under ordinary circumstances, the Fund will invest at least 65% of its total
assets in equity securities of financial services companies. For this purpose,
equity securities include common and preferred stocks and their equivalents
(including warrants to purchase and securities convertible into such stocks).
Financial services companies include various types of firms.
A financial services company is a firm that in its most recent fiscal year
either (i) derived at least 50% of its revenues or earnings from financial
services activities, or (ii) devoted at least 50% of its assets to such
activities. Financial services companies provide financial services to consumers
and businesses and include the following types of U.S. and foreign firms:
commercial banks, thrift institutions and their holding companies; consumer and
industrial finance companies; diversified financial services companies;
investment banks; securities brokerage and investment advisory firms; real
estate financing firms; leasing financing firms; insurance brokerages; and
various firms in all segments of the insurance industry such as multi-line,
property and casualty, and life insurance companies and insurance holding
companies.
The Fund may also invest in debt securities of financial services companies and
in debt and equity securities of certain other companies.
The Fund may invest in debt securities of financial services companies. The Fund
may also invest in equity and debt securities of companies outside of the
financial services sector if, in the Adviser's opinion, such nonfinancial
services companies will benefit from developments in the financial services
sector. The Fund may invest up to 5% of its net assets in a combination of
below-investment grade debt securities of financial service companies and
equities of non-financial services companies.
To avoid the need to sell equity securities in the Fund's portfolio to meet
redemption requests, and to provide flexibility to the Fund to take advantage of
investment opportunities, the Fund may invest up to 15% of its net assets in
short-term, investment grade debt securities. Short-term debt securities have a
maturity of less than one year. Investment grade securities are rated at the
time of purchase BBB or higher by Standard & Poor's Rating Group ("S&P") or Baa
or higher by Moody's Investors Service, Inc. ("Moody's"). Debt securities
include corporate obligations (such as commercial paper, notes, bonds or
debentures), certificates of deposit, deposit accounts, obligations of the U.S.
Government, its agencies and instrumentalities, and repurchase agreements. When
the Adviser believes that financial conditions warrant, it may for temporary
defensive purposes invest up to 80% of the Fund's assets in these securities
rated in the three highest categories of S&P or Moody's. Medium grade
obligations (i.e., those rated BBB or Baa) lack outstanding investment
characteristics and 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 on these obligations. In the event a
debt security is subsequently downgraded below medium grade, the Adviser will
consider this event in determining 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.
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Risk Factors and Special Considerations
Since the Fund's investments will be concentrated in the financial services
sector, it will be subject to risks in addition to those that apply to the
general equity and debt markets. Events may occur which significantly affect the
sector as a whole or a particular segment in which the Fund invests.
Accordingly, the Fund may be subject to greater market volatility than a fund
that does not concentrate in a particular economic sector or industry. Thus, it
is recommended that an investment in the Fund be only a portion of your overall
investment portfolio.
In addition, most financial services companies are subject to extensive
governmental regulation which limits their activities and may (as with insurance
rate regulation) affect the ability to earn a profit from a given line of
business. Certain financial services businesses are subject to intense
competitive pressures, including market share and price competition. The removal
of regulatory barriers to participation in certain segments of the financial
services sector may also increase competitive pressures on different types of
firms. For example, legislative proposals to remove traditional barriers between
banking and investment banking activities would allow large commercial banks to
compete for business that previously was the exclusive domain of securities
firms. Similarly, the removal of regional barriers in the banking industry has
intensified competition within the industry.
The availability and cost of funds to financial services firms is crucial to
their profitability. Consequently, volatile interest rates and general economic
conditions can adversely affect their financial performance.
Financial services companies in foreign countries are subject to similar
regulatory and interest rate concerns. In particular, government regulation in
certain foreign countries may include controls on interest rates, credit
availability, prices and currency movements. In some cases, foreign governments
have taken steps to nationalize the operations of banks and other financial
services companies. See "Foreign Issuers."
The market value of debt securities in the Fund's portfolio will 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.
The Fund may employ certain investment strategies to help achieve its investment
objective.
Options and Futures Transactions. The Fund may invest up to 5% of its assets in
purchased put and call options and may write (sell) covered call options on up
to 30% of its portfolio securities. The Fund may deal in exchange listed or
over-the-counter options.
The Fund's ability to use options to hedge or earn income successfully will
depend on the Adviser's ability accurately to predict market movements.
Successful hedging also depends on a strong correlation between the market for
the underlying security and the related options market. There is no assurance
that a liquid market for options will always exist. In addition, the Fund could
be prevented from opening or closing out an options position on favorable terms
because of exchange imposed limits on positions or on daily price fluctuations.
The Fund may buy and sell options contracts on securities and stock indices,
stock index futures contracts and options on such futures contracts. Options and
futures contracts are bought and sold to manage the Fund's exposure to changing
interest
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rates and security prices. Some options and futures strategies, including
selling futures, buying puts and writing calls, tend to hedge a Fund's
investment against price fluctuations. Other strategies, including buying
futures, writing puts, and buying calls, tend to increase market exposure.
Options and futures may be combined with each other or with forward contracts in
order to adjust the risk and return characteristics of the overall portfolio.
Options and futures can be volatile investments and involve certain risks. If
the Adviser applies a hedge at an inappropriate time or judges market conditions
incorrectly, options and futures strategies may lower the Fund's return. The
Fund could also experience losses if the prices of its options and futures
positions are poorly correlated with its other investments, or if it can not
close out its positions because of an illiquid secondary market.
The Fund will not engage in a transaction in futures or options on futures if,
immediately thereafter, the sum of initial margin deposits and premiums required
to establish speculative positions in futures contracts and options on futures
would exceed 5% of the Fund's net assets. The loss incurred by the Fund from
transactions in futures contracts and writing options on futures is potentially
unlimited and may exceed the amount of any premium received. The Fund's
transactions in options and futures contracts may be limited by the requirements
of the Internal Revenue Code of 1986, as amended (the "Code") for qualification
as a regulated investment company. See the Statement of Additional Information
for further discussion of options and futures transactions, including tax
effects and investment risks.
Restricted Securities. The Fund may purchase restricted securities eligible for
resale to "qualified institutional buyers" pursuant to Rule 144A under the
Securities Act of 1933 (the "Securities Act"). The Trustees will monitor the
Fund's investments in these securities, focusing on certain factors, including
valuation, liquidity and availability of information. Purchases of other
restricted securities are subject to an investment restriction limiting the
Fund's illiquid securities to not more than 15% of its net assets.
Lending of Securities. The Fund may lend portfolio securities to brokers,
dealers, and financial institutions if the loan is collateralized by cash or
U.S. Government securities according to applicable regulatory requirements. The
Fund may reinvest any cash collateral in short-term securities and money market
fund shares. When the Fund lends portfolio securities, there is a risk that the
borrower may fail to return the loaned securities. As a result, the Fund may
incur a loss or, in the event of the borrower's bankruptcy, the Fund may be
delayed in or prevented from liquidating the collateral. It is a fundamental
policy of the Fund not to lend portfolio securities having a total value in
excess of 33-1/3% of its total assets.
Repurchase Agreements, Forward Commitments and When-Issued Securities. The Fund
may enter into repurchase agreemens and may purchase securities on a for- ward
commitment or when-issued basis. In a repurchase agreement, the Fund buys a
security subject to the right and obligation to sell it back to the seller at a
higher price. These transactions must be fully collateralized at all times, but
involve some credit risk to the Fund if the other party defaults on its
obligation and the Fund is delayed in or prevented from liquidating the
collateral. The Fund will segregate in a
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separate account cash or liquid, high grade debt securities equal in value to
its forward commitments and when-issued securities. Purchasing securities for
future delivery or on a when-issued basis may increase the Fund's overall
investment exposure and involves a risk of loss if the value of the securities
declines before the settlement date.
Short Sales. The Fund may engage in short sales "against the box," as well as
short sales to hedge against or to profit from an anticipated decline in the
value of a security. When the Fund engages in a short sale, it will place in a
segregated account and mark to market daily cash or U.S. government securities
according to applicable regulatory requirements. See the Statement of Additional
Information.
Foreign Currencies. Due to its investments in foreign securities, the Fund may
hold a portion of its assets in foreign currencies. As a result, the Fund may
enter into forward foreign currency exchange contracts to protect against
changes in foreign currency exchange rates. A forward foreign currency exchange
contract involves an obligation to purchase a specific currency at a future date
at a price set at the time of the contract. Although these contracts could
reduce the risk of loss due to a decline in the value of the hedged foreign
currency, they could also limit any potential gain which might result from an
increase in the value of that currency.
The Fund follows certain policies which may help to reduce investment risk.
The Fund has adopted certain investment restrictions which are enumerated in
detail in the Statement of Additional Information, where they are classified as
fundamental or nonfundamental. Those investment restrictions designated as
fundamental may not be changed without shareholder approval. The Fund's
investment objective and its nonfundamental investment policies and
restrictions, however, may be changed by a vote of the Trustees without
shareholder approval. Under normal market conditions, the Fund's portfolio
turnover rate for the current fiscal year is expected to be no more than 100%.
Depository Receipts. The Fund may invest in securities of foreign issuers in the
form of American Depository Receipts ("ADRs"), European Depository Receipts
("EDRs") or other securities convertible into securities of corporations in
which the Fund is permitted to invest. ADRs (sponsored and unsponsored) are
receipts typically issued by an American bank or trust company which evidence
ownership of underlying securities issued by a foreign corporation, and are
designed for trading in the United States securities markets. Issuers of the
shares underlying unsponsored ADRs are not contractually obligated to disclose
material information in the United States and, therefore, there may not be a
correlation between such information and the market value of the unsponsored
ADR.
Global Risks. Investments in foreign securities may involve risks not present in
domestic securities due to exchange controls, less publicly available
information, more volatile or less liquid securities markets, and the
possibility of expropriation, confiscatory taxation or political, economic or
social instability. There may be difficulty in enforcing legal rights outside
the United States. Some foreign companies are not subject to the same uniform
financial reporting requirements, accounting standards and government
supervision as domestic companies, and foreign exchange markets are regulated
differently from the U.S. stock market. Additionally, because foreign securities
may be denominated in currencies other than the U.S. dollar,
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<PAGE>
changes in foreign currency exchange rates will affect the Fund's net asset
value, the value of dividends and interest earned, gains and losses realized on
the sale of securities, and net investment income and gains, if any, that the
Fund distributes to shareholders. Securities transactions undertaken in some
foreign markets may not be settled promptly. Therefore, the Fund's investments
on foreign exchanges may be less liquid and subject to the risk of fluctuating
currency exchange rates pending settlement. The expense ratio of the Fund can be
expected to be higher than that of mutual funds investing only in domestic
securities since the expenses of the Fund, such as the cost of maintaining
custody of foreign securities and advisory fees, are higher.
Brokers are chosen based on best price and execution.
In choosing brokerage firms to carry out the Fund's transactions the Adviser
gives primary consideration to execution at the most favorable price, taking
into account the broker's professional ability and quality of service.
Consideration may also be given to the broker's sales of Fund shares. Pursuant
to procedures established by the Trustees, the Adviser may place securities
transactions with brokers affiliated with the Adviser. These brokers include
Tucker Anthony Incorporated, John Hancock Distributors, Inc. and Sutro &
Company, Inc., which are indirectly owned by John Hancock Mutual Life Insurance
Company (the "Life Company"), which in turn indirectly owns the Adviser.
ORGANIZATION AND MANAGEMENT OF THE FUND
The Fund is a diversified series of Freedom Investment Trust, an open-end
management investment company organized as a Massachusetts business trust in
1984 (the "Trust"). The Trust reserves the right to create and issue a number of
series of shares, or funds or classes of shares of those series, which are
separately managed and have different investment objectives. The Trust is not
required and does not intend to hold annual meetings of shareholders, although
special meetings may be held for such purposes as electing or removing Trustees,
changing fundamental policies or approving a management contract. The Trust,
under certain circumstances, will assist in shareholder communications with
other shareholders.
John Hancock Advisers, Inc. advises investment companies having a total asset
value of more than $16 billion.
The Adviser was organized in 1968 and is a wholly-owned indirect subsidiary of
the Life Insurance Company, a financial services company. The Adviser provides
the Fund, and other investment companies in the John Hancock group of funds,
with investment research and portfolio management services. John Hancock Funds,
Inc. ("John Hancock Funds") distributes shares for all of the John Hancock funds
directly and through selected broker-dealers ("Selling Brokers"). Certain Trust
officers are also officers of the Adviser and John Hancock Funds. Pursuant to an
order granted by the Securities and Exchange Commission, the Trust has adopted a
deferred compensation plan for its independent Trustees, which allows Trustees'
fees to be invested by the Trust in other John Hancock funds.
James K. Schmidt is primarily responsible for management of the Fund. He is
assisted by a team of co-portfolio managers and analysts in the day-to-day
management of the Fund. Mr. Schmidt is Senior Vice President and portfolio
manager of John Hancock Regional Bank Fund, John Hancock Bank and Thrift
Opportunity Fund and The Southeastern Thrift and Bank Fund, Inc., a closed-end
fund. He joined the Adviser in 1985.
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
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Adviser and its affiliates. Some of these restrictions are: pre-clearance for
all personal trades and a ban on the purchase of initial public offerings, as
well as contributions to specified charities of profits on securities held for
less than 91 days. These restrictions are a continuation of the basic principle
that the interests of the Fund and its shareholders come first.
ALTERNATIVE PURCHASE ARRANGEMENTS
You can purchase shares of the Fund at a price equal to their net asset value
per share, plus a sales charge. At your election this charge may be imposed
either at the time of the purchase (see "Initial Sales Charge Alternative,"
Class A Shares) or on a contingent deferred basis (see "Contingent Deferred
Sales Charge Alternative," Class B Shares). If you do not specify on your
account application the class of shares you are purchasing, it will be assumed
that you are investing in Class A shares.
Investments in Class A shares are subject to an initial sales charge.
Class A Shares. If you elect to purchase Class A shares, you will incur an
initial sales charge unless the amount you purchase is $1 million or more. If
you purchase $1 million or more of Class A shares, you will not be subject to an
initial sales charge, but you will incur a sales charge of up to 1.00% if you
redeem your shares within one year of purchase. Class A shares are subject to
ongoing distribution and service fees at a combined annual rate of up to 0.30%
of the Fund's average daily net assets attributable to the Class A shares.
Certain purchases of Class A shares qualify for reduced initial sales charges.
See "Share Price--Qualifying for a Reduced Sales Charge."
Investments in Class B Shares are subject to a contingent deferred sales charge.
Class B Shares. You will not incur a sales charge when you purchase Class B
shares, but the shares are subject to a sales charge if you redeem them within
six years of purchase (the "contingent deferred sales charge" or the "CDSC").
Class B shares are subject to ongoing distribution and service fees at a
combined annual rate of up to 1.00% of the Fund's average daily net assets
attributable to the Class B shares. Investing in Class B shares permits all of
your dollars to work from the time you make your investment, but the higher
ongoing distribution fee will cause the shares to have higher expenses than
Class A shares. To the extent that any dividends are paid by the Fund, these
higher expenses will also result in lower dividends than those paid on Class A
shares.
Class B shares are not available to full-service defined contribution plans
administered by John Hancock Investor Services Corporation or the Life Company
that had more than 100 eligible employees at the inception of the Fund account.
Factors to Consider in Choosing an Alternative
You should consider which class of shares would be more beneficial for you.
The alternative purchase arrangement allows you to choose the most beneficial
way to buy shares given the amount of your purchase, the length of time you
expect to hold your shares and other circumstances. You should consider whether,
during the anticipated life of your Fund investment, the CDSC and accumulated
fees on Class B shares would be less than the initial sales charge and
accumulated fees on Class A shares purchased at the same time; and to what
extent this differential would be offset by the Class A shares' lower expenses.
To help you make this determination, the table under the caption "Expense
Information" on the inside cover page of this Prospectus shows examples of the
charges applicable to each class of shares. Class
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A shares will normally be more beneficial if you qualify for reduced sales
charges. See "Share Price--Qualifying for a Reduced Sales Charge."
Class A shares are subject to lower distribution and service fees and,
accordingly, pay correspondingly higher dividends per share, to the extent any
dividends are paid. However, because initial sales charges are deducted at the
time of purchase, you would not have all of your funds invested initially and,
therefore, would initially own fewer shares. If you do not qualify for reduced
initial sales charges and expect to maintain your investment for an extended
period of time, you might consider purchasing Class A shares. This is because
the accumulated distribution and service charges on Class B shares may exceed
the initial sales charge and accumulated distribution and service charges on
Class A shares during the life of your investment.
Alternatively, you might determine that it is more advantageous to purchase
Class B shares in order to have all your funds invested initially. However, you
will be subject to higher distribution charges and, for a six-year period, a
CDSC.
In the case of Class A shares, the distribution expenses that John Hancock Funds
incurs in connection with the sale of the shares will be paid from the proceeds
of the initial sales charge and the ongoing distribution and service fees. In
the case of Class B shares, the expenses will be paid from the proceeds of the
ongoing distribution and service fees, as well as from CDSC incurred upon
redemption within six years of purchase. The purpose and function of the Class B
shares' CDSC and ongoing distribution and service fees are the same as those of
the Class A shares' initial sales charge and ongoing distribution and service
fees. Sales personnel distributing the Fund's shares may receive different
compensation for selling each class of shares.
Dividends, if any, on Class A and Class B shares will be calculated in the same
manner, at the same time, and on the same day. They will also be in the same
amount, except for differences resulting from each class bearing only its own
distribution and service fees, shareholder meeting expenses and any incremental
transfer agency costs. See "Dividends and Taxes."
THE FUND'S EXPENSES
For managing its investment and business affairs, the Fund pays a monthly fee to
the Adviser which is based upon the average daily net asset value of the Fund at
the annual rate of 0.80% of first $500 million of average daily net assets and
0.75% of average daily net assets in excess of $500 million.
The investment management fee is higher than the fees paid to most mutual funds,
but comparable to fees paid by funds that invest in similar securities.
From time to time, the Adviser may reduce its fee or make other arrangements to
limit the Fund's expenses to not more than a specified percentage of average
daily net assets. The Adviser retains the right to re-impose a fee and recover
any other payments to the extent that, at the end of any fiscal year, the Fund's
annual expenses fall below the limit.
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The Fund pays distribution and service fees for marketing and sales-related
shareholder servicing.
The Class A and Class B shareholders have adopted distribution plans (each a
"Plan") pursuant to Rule 12b-1 under the Investment Company Act of 1940. Under
these Plans, the Fund will pay distribution and services fees at an aggregate
annual rate of 0.30% of the Class A shares' average daily net assets and an
aggregate annual rate of 1.00% of the Class B shares' average daily net assets.
In each case, up to 0.25% is for service expenses and the remaining amount is
for distribution expenses. The distribution fees are used to reimburse John
Hancock Funds for its distribution expenses including but not limited to: (i)
initial and ongoing sales compensation to Selling Brokers and others (including
affiliates of John Hancock Funds) engaged in the sale of Fund shares; (ii)
marketing, promotional and overhead expenses incurred in connection with the
distribution of Fund shares; and (iii) with respect to Class B shares only,
interest expenses on unreimbursed distribution expenses. In the event John
Hancock Funds is not fully reimbursed for payments made or expenses incurred by
it under the Class A Plan, these expenses will not be carried beyond one year
from the date they were incurred. Unreimbursed expenses under the Class B Plan
will be carried forward together with interest on the balance of these
unreimbursed expenses.
DIVIDENDS AND TAXES
Dividends. Dividends from the Fund's net investment income and capital gains, if
any, are generally declared annually. Dividends are reinvested in additional
shares of your class unless you elect the option to receive them in cash. If you
elect the cash option and the U.S. Postal Service cannot deliver your checks,
your election will be converted to the reinvestment option. Because of the
higher expenses associated with Class B shares, any dividends from the Fund's
net investment income on these shares will be lower than those of Class A
shares. See "Share Price."
Taxation. Dividends from the Fund's net investment income, certain net foreign
currency gains, gains on certain foreign corporations and net short-term capital
gains are taxable to you as ordinary income. Dividends from the Fund's net
long-term capital gains are taxable as long-term capital gains. These dividends
are taxable whether received in cash or reinvested in additional shares. Certain
dividends may be paid by the Fund in January of a given year but may be taxable
to you as if you received them the prior December. The Fund will send you a
statement by January 31 showing the tax status of the dividends you received for
the prior year.
The Fund intends to qualify as a regulated investment company under Subchapter M
of the Code for each taxable year. As a regulated investment company, the Fund
will not be subject to Federal income tax on any net investment income and net
realized capital gains that are distributed to its shareholders within the time
period prescribed by the Code. When you redeem (sell) or exchange shares, you
may realize a taxable gain or loss.
On the account application, you must certify that the social security or other
taxpayer identification number you provide is your correct number and that you
are not subject to backup withholding of Federal income tax. If you do not
provide this information, or are otherwise subject to backup withholding, the
Fund may be required to withhold 31% of your dividends and proceeds of
redemptions and exchanges.
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In addition to Federal taxes, you may be subject to state and local or foreign
taxes with respect to your investment in and distributions from the Fund. In
many states, any portion of the Fund's dividends that represents interest
received by the Fund on direct U.S. Government obligations may be exempt from
tax. You should consult your tax advisor for specific advice.
PERFORMANCE
The Fund may advertise its total return.
Total return is based on the overall change in value of a hypothetical
investment in the Fund. The Fund's total return shows the overall dollar or
percentage change in value, assuming the reinvestment of all dividends.
Cumulative total return shows the Fund's performance over a period of time.
Average annual total return shows the cumulative return divided over the number
of years included in the period. Because average annual total return tends to
smooth out variations in the Fund's performance, you should recognize that it is
not the same as actual year-to-year results.
Total return for Class A shares includes the effect of paying the maximum sales
charge (except as shown in "The Fund's Financial Highlights"). Investments at
lower sales charges would result in higher performance figures. Total return for
the Class B shares reflects deduction of the applicable contingent deferred
sales charge imposed on a redemption of shares held for the applicable period.
All calculations assume that all dividends are reinvested at net asset value on
the reinvestment dates during the periods. The total return of Class A and Class
B shares will be calculated separately and, because each class is subject to
certain different expenses, the total return with respect to that class for the
same period may differ. The relative performance of the Class A and Class B
shares will be affected by a variety of factors, including the higher operating
expenses attributable to the Class B shares, whether the Fund's investment
performance is better in the earlier or later portions of the period measured,
and the level of net assets of the classes during the period. The Fund will
include the total return of both classes in any advertisement or promotional
materials including Fund performance data. Total return is an historical
calculation and is not an indication of future performance. The value of the
Fund's shares, when redeemed, may be more or less than their original cost. See
"Factors to Consider in Choosing an Alternative."
11
<PAGE>
HOW TO BUY SHARES
- --------------------------------------------------------------------------------
The minimum initial investment in Class A or Class B shares is $1,000 ($250 for
group investments and retirement plans).
Complete the Account Application attached to this Prospectus. Indicate whether
you are purchasing Class A or Class B shares. If you do not specify which class
of shares you are purchasing, Investor Services will assume that you are
investing in Class A shares.
Opening an account.
- --------------------------------------------------------------------------------
By Check 1. Make your check payable to John Hancock Investor
Services Corporation.
2. Deliver the completed application and check to your
registered representative or, Selling Broker, or mail
it directly to Investor Services.
- --------------------------------------------------------------------------------
By Wire 1. Obtain an account number by contacting your registered
representative or Selling Broker, or by calling
1-800-225-5291.
2. Instruct your bank to wire funds to:
First Signature Bank & Trust
John Hancock Deposit Account No. 900000260
ABA Routing No. 211475000
For Credit To: John Hancock Financial Industries Fund
(Class A or Class B shares)
Your Account Number
Name(s) under which account is registered
3. Deliver the completed application to your registered
representative or Selling Broker or mail it directly to
Investor Services.
Buying additional Class A and Class B shares.
- --------------------------------------------------------------------------------
Monthly Automatic 1. Complete the "Automatic Investing" and "Bank
Accumulation Information" sections on the Account Privileges
Program (MAAP) Application, designating a bank account from which your
funds may be drawn.
2. The amount you elect to invest will be automatically
withdrawn from your bank or credit union account.
- --------------------------------------------------------------------------------
By Telephone 1. Complete the "Invest-By-Phone" and "Bank Information"
section on the Account Privileges Application,
designating a bank account from which your funds may be
drawn. Note that in order to invest by phone, your
account must be in a bank or credit union that is a
member of the Automated Clearing House system (ACH).
2. After your authorization form has been processed, you
may purchase additional Class A or Class B shares by
calling Investor Services toll-free at 1-800-225-5291.
3. Give the Investor Services representative the name(s)
in which your account is registered, the Fund name, the
class of shares you own, your account number, and the
amount you wish to invest.
4. Your investment normally will be credited to your
account the business day following your phone request.
- --------------------------------------------------------------------------------
By Check 1. Either complete the detachable stub included on your
account statement or include a note with your
investment listing the name of the Fund, the class of
shares you own, your account number and the name(s) in
which the account is registered.
2. Make your check payable to John Hancock Investor
Services Corporation.
3. Mail the account information and check to:
John Hancock Investor Services Corporation
P.O. Box 9115
Boston, MA 02205-9115
or deliver it to your registered representative or
Selling Broker.
- --------------------------------------------------------------------------------
12
<PAGE>
- --------------------------------------------------------------------------------
By Wire Instruct your bank to wire funds to:
First Signature Bank & Trust
John Hancock Deposit Account No. 900000260
ABA Routing No. 211475000
For credit to: John Hancock Financial Industries Fund
(Class A or Class B shares)
Your Account Number
Name(s) under which account is registered
- --------------------------------------------------------------------------------
Other Requirements: All purchases must be made in U.S. dollars. Checks written
on foreign banks will delay purchases until U.S. funds are received, and a
collection charge may be imposed. Shares of the Fund are priced at the offering
price listed or the net asset value computed after John Hancock Funds receives
notification of the dollar equivalent from the Fund's custodian bank. Wire
purchases normally take two or more hours to complete and, to be accepted the
same day, must be received by 4:00 P.M., New York time. Your bank may charge a
fee to wire funds. Telephone transactions are recorded to verify information.
Certificates are not issued unless a request is made in writing to Investor
Services.
- --------------------------------------------------------------------------------
You will receive account statements, which you should keep to help with your
personal recordkeeping.
You will receive a statement of your account after any transaction that affects
your share balance or registration (statements related to reinvestment of
dividends and automatic investment/withdrawal plans will be sent to you
quarterly). A tax information statement will be mailed to you by January 31 of
each year.
SHARE PRICE
The offering price of your shares is their net asset value plus a sales charge,
if applicable, which will vary with the purchase alternative you choose.
The net asset value per share (the "NAV") is the value of one share. The NAV is
calculated by dividing the net assets of each class by the number of outstanding
shares of that class. The NAV of each class can differ. Securities in the Fund's
portfolio are valued on the basis of market quotations, valuations provided by
independent pricing services, or at fair value as determined in good faith
according to procedures approved by the Trustees. Short-term debt investments
maturing within 60 days are valued at amortized cost, which the Trustees has
determined to approximate market value. Foreign securities are valued on the
basis of quotations from the primary market in which they are traded, and are
translated from the local currency into U.S. dollars using current exchange
rates. If quotations are not readily available, or the value has been materially
affected by events occurring after the closing of a foreign market, assets are
valued by a method that the Trustees believe accurately reflects fair value. The
NAV is calculated once daily as of the close of regular trading on the New York
Stock Exchange (the "Exchange") (generally at 4:00 p.m., New York time) on each
day that the Exchange is open.
Shares of the Fund are sold at the offering price based on the NAV computed
after your investment request is received in good order by John Hancock Funds.
If you buy shares of the Fund through a Selling Broker, the Selling Broker must
receive your investment before the close of regular trading on the New York
Stock Exchange and transmit it to John Hancock Funds before its close of
business to receive that day's offering price.
Initial Sales Charge Alternative--Class A Shares. The offering price you pay for
Class A shares of the Fund equals the NAV plus a sales charge, as follows:
13
<PAGE>
<TABLE>
<CAPTION>
Sales Sales Combined Reallowance
Charge Charge Reallowance to Selling
as a as a and Service Brokers as a
Percentage Percentage Fee as a Percentage
of the of the Percentage of the
Amount Invested Offering Amount of Offering Offering
(Including Sales Charge) Price Invested Price(+) Price (*)
- ------------------------ ----- -------- -------- ---------
<S> <C> <C> <C> <C> <C>
Less than $50,000 5.00% 5.26% 4.25% 4.01%
$50,000 to $99,999 4.50% 4.71% 3.75% 3.51%
$100,000 to $249,999 3.50% 3.63% 2.85% 2.61%
$250,000 to $499,999 2.50% 2.56% 2.10% 1.86%
$500,000 to $999,999 2.00% 2.04% 1.60% 1.36%
$1,000,000 and over 0.00%(**) 0.00%(**) (***) 0.00%(***)
</TABLE>
(*) Upon notice to Selling Brokers with whom it has sales agreements, John
Hancock Funds may reallow an amount up to the full applicable sales charge.
A Selling Broker to whom substantially the entire sales charge is reallowed
may be deemed to be an underwriter under the Securities Act of 1933.
(**) No sales charge is payable at the time of purchase of Class A shares of $1
million or more, but a contingent deferred sales charge of up to 1.00% may
be imposed in the event of certain redemption transactions made within one
year of purchase.
(***)John Hancock Funds may pay a commission and first year's service fee (as
described in (+) below) to Selling Brokers who initiate and are responsible
for purchases of Class A shares of $1 million or more in the aggregate as
follows: 1% on sales up to $4,999,999, 0.50% on the next $5 million and
0.25% on $10 million and over.
(+) At the time of sale, John Hancock Funds pays to Selling Brokers the first
year's service fee in advance, in an amount equal to 0.25% of the net
assets invested in the Fund. Thereafter, it pays the service fee
periodically in arrears in an amount up to 0.25% of the Fund's average
annual net assets. Selling Brokers receive the fee as compensation for
providing personal and account maintenance services to shareholders.
Sales charges ARE NOT APPLIED to any dividends that are reinvested in additional
shares of the Fund.
John Hancock Funds will pay certain affiliated Selling Brokers at an annual rate
of up to 0.05% of the daily net assets of the accounts attributable to these
brokers.
Under certain circumstances as described below, investors in Class A shares may
be entitled to pay reduced sales charges. See "Qualifying for a Reduced Sales
Charge."
Contingent Deferred Sales Charge--Investments of $1 million or more in Class A
Shares. Purchases of $1 million or more of the Class A shares will be made at
net asset value with no initial sales charge, but if the shares are redeemed
within 12 months after the end of the calendar month in which the purchase was
made (the contingent deferred sales charge period), a contingent deferred sales
charge will be imposed. The rate of the CDSC will depend on the amount invested
as follows:
Amount Invested CDSC Rate
- --------------- ---------
$1 Million to $4,999,999 1.00%
Next $5 Million to $9,999,999 0.50%
Amounts of $10 Million and over 0.25%
Existing full service clients of the Life Company who were group annuity
contract holders as of September 1, 1994, and participant directed defined
contribution plans
14
<PAGE>
with at least 100 eligible employees at the inception of the Fund account, may
purchase Class A shares with no initial sales charge. However, if the shares are
redeemed within 12 months after the end of the calendar year in which the
purchase was made, a CDSC will be imposed at the above rate.
The CDSC will be assessed on an amount equal to the lesser of the current market
value or the original purchase cost of the redeemed Class A shares. Accordingly,
no CDSC will be imposed on increases in account value above the initial purchase
price, including any dividends which have been reinvested in additional Class A
shares.
In determining whether a CDSC is applicable to a redemption of Class A shares,
the calculation will be determined in a manner that results in the lowest
possible rate being charged. Therefore, it will be assumed that the redemption
is first made from any shares in the shareholder's account that are not subject
to the CDSC. The CDSC is waived on redemptions in certain circumstances. See
"Waiver of Contingent Deferred Sales Charge" below.
You may qualify for a reduced sales charge on your investment in Class A Shares.
Qualifying for a Reduced Sales Charge--Class A Shares. If you invest more than
$50,000 in Class A shares of the Fund or a combination of John Hancock funds
(except money market funds), you may qualify for a reduced sales charge on your
investments in Class A shares through a LETTER OF INTENTION. You may also be
able to use the ACCUMULATION PRIVILEGE and COMBINATION PRIVILEGE to take
advantage of the value of your previous investments in shares of John Hancock
funds in meeting the breakpoints for a reduced sales charge. For the
ACCUMULATION PRIVILEGE and COMBINATION PRIVILEGE the applicable sales charge
will be based on the total of:
1. Your current purchase of Class A shares of the Fund;
2. The net asset value (at the close of business on the previous day) of (a)
all Class A shares of the Fund you hold, and (b) all Class A shares of any
other John Hancock mutual fund you hold; and
3. The net asset value of all shares held by another shareholder eligible to
combine his or her holdings with you into a single "purchase."
Example:
If you hold Class A shares of a John Hancock mutual fund with a net asset value
of $20,000 and, subsequently, invested $30,000 in Class A shares of the Fund,
the sales charge on this subsequent investment would be 4.50% and not 5.00%.
This is the rate that would otherwise be applicable to investments of less than
$50,000. See "Initial Sales Charge Alternative--Class A Shares."
Class A Shares may be available without a sales charge to certain individuals
and organizations.
If you are in under one of the following categories, you may purchase Class A
shares of the Fund without paying a sales charge:
o A Trustee/Director or officer of the Trust/Company; a Director or officer of
the Adviser and its affiliates or Selling Brokers; employees or sales
representatives of any of the foregoing; retired officers, employees or
Directors of any of the foregoing; a
15
<PAGE>
member of the immediate family of any of the foregoing; or any fund, pension,
profit sharing or other benefit plan for the individuals described above.
o Any state, county, city or any instrumentality, department, authority or
agency of these entities which is prohibited by applicable investment laws from
paying a sales charge or commission when it purchases shares of any registered
investment management company.*
o A bank, trust company, credit union, savings institution or other type of
depository institution, its trust department or common trust funds if it is
purchasing $1 million or more for non-discretionary customers or accounts.*
o A broker, dealer, financial planner, consultant or registered investment
adviser that has entered into an agreement with John Hancock Funds providing
specifically for the use of Fund shares in fee-based investment products or
services made available to their clients.
o A former participant in an employee benefit plan with John Hancock funds, when
he or she withdraws from his or her plan and transfers any or all of his or her
plan distributions to the Fund.
o A member of an approved affinity group financial services plan.*
- ----------
* For investments made under these provisions, John Hancock Funds may make a
payment out of its own resources to the Selling Broker in an amount not to
exceed 0.25% of the amount invested.
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.
Contingent Deferred Sales Charge Alternative--Class B Shares. Class B shares are
offered at net asset value per share without an initial sales charge, so that
your entire investment will go to work at the time of purchase. However, Class B
shares redeemed within six years of purchase will be subject to a CDSC at the
rates set forth below. The charge will be assessed on an amount equal to the
lesser of the current market value or the original purchase cost of the shares
being redeemed. Accordingly, you will not be assessed a CDSC on increases in
account value above the initial purchase price, including shares derived from
dividend reinvestment.
In determining whether a CDSC applies to a redemption, the calculation will be
determined in a manner that results in the lowest possible rate being charged.
It will be assumed that your redemption comes first from shares you have held
beyond the six-year CDSC redemption period or those you acquired through
reinvestment of dividends, and next from the shares you have held the longest
during the six-year period. The CDSC is waived on redemptions in certain
circumstances. See the discussion "Waiver of Contingent Deferred Sales Charges"
below.
Example:
You have purchased 100 shares at $10 per share. The second year after your
purchase, your investment's net asset value per share has increased by $2 to
$12, and you have gained 10 additional shares through dividend reinvestment. If
you redeem 50 shares at this time, your CDSC will be calculated as follows:
16
<PAGE>
<TABLE>
<S> <C>
o Proceeds of 50 shares redeemed at $12 per share $600
o Minus proceeds of 10 shares not subject to CDSC because they were acquired
through dividend reinvestment (10 x $12) -120
o Minus appreciation on remaining shares, also not subject to CDSC (40 x $2) -80
---
o Amount subject to CDSC $400
</TABLE>
Proceeds from the CDSC are paid to John Hancock Funds. John Hancock Funds will
use all or part of them to defray its expenses related to providing the Fund
with distribution services in connection with the sale of the Class B shares,
such as compensating selected Selling Brokers for selling Class B shares. The
combination of the CDSC and the distribution and service fees makes it possible
for the Fund to sell the Class B shares without an initial sales charge.
The amount of the CDSC, if any, will vary depending on the number of years from
the time you purchase your Class B shares until the time you redeem them. Solely
for purposes of determining this holding period, any payments you make during
the month will be aggregated and deemed to have been made on the last day of the
month.
Contingent Deferred Sales
Year in Which Class B Shares Charge As a Percentage of
Redeemed Following Purchase Dollar Amount Subject to CDSC
- --------------------------- -----------------------------
First 5.0%
Second 4.0%
Third 3.0%
Fourth 3.0%
Fifth 2.0%
Sixth 1.0%
Seventh and thereafter None
John Hancock Funds pays to Selling Brokers a commission equal to 3.75% of the
amount invested and a first year's service fee equal to 0.25% of the amount
invested. The initial service fee is paid in advance at the time of sale for the
provision of personal and account maintenance services to shareholders during
the twelve months following the sale and thereafter the service fee is paid in
arrears.
Under certain circumstances, the CDSC on Class B share redemptions will be
waived.
Waiver of Contingent Deferred Sales Charge. The CDSC will be waived on
redemptions of Class B shares and of Class A shares that are subject to a CDSC,
unless indicated otherwise, in these circumstances:
o Redemptions of Class B shares made under a Systematic Withdrawal Plan (see
"How to Redeem Shares"), 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.
o 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 Internal Revenue Code (the "Code").
17
<PAGE>
o Redemptions made to effect mandatory distributions under the Code after age
70-1/2 from a tax-deferred retirement plan.
o 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.
o Redemptions due to death or disability.
o Redemptions made under the Reinvestment Privilege, as described in
"Additional Services and Programs" of this Prospectus.
o Redemptions made pursuant to the Fund's right to liquidate your account if
you own fewer than 50 shares.
o Redemptions made under certain liquidation, merger or acquisition
transactions involving other investment companies or personal holding
companies.
o Redemptions from certain IRA and retirement plans that purchased 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.
Conversion of Class B Shares. Your Class B shares and an appropriate portion of
reinvested dividends on those shares will be converted into Class A shares
automatically. This will occur no later than the month following eight years
after the shares were purchased, resulting in lower annual distribution fees. If
you exchanged Class B shares into this Fund from another John Hancock fund, the
conversion will be based on the time you purchase the shares in the original
fund. The Fund has been advised that the conversion of Class B shares to Class A
shares should not be taxable for Federal income tax purposes, nor should it
change your tax basis or tax holding period for the converted shares.
HOW TO REDEEM SHARES
To assure acceptance of your redemption request, please follow these procedures.
You may redeem all or a portion of your shares on any business day. Your shares
will be redeemed at the next NAV calculated after your redemption request is
received in good order by Investor Services less any applicable CDSC. The Fund
may hold payment until reasonably satisfied that investments which were recently
made by check or Invest-by-Phone have been collected (which may take up to 10
calendar days).
18
<PAGE>
Once your shares are redeemed, the Fund generally sends you payment on the next
business day. When you redeem your shares, you may realize a taxable gain or
loss depending usually on the difference between what you paid for them and what
you receive for them, subject to certain tax rules. Under unusual circumstances,
the Fund may suspend redemptions or postpone payment for up to three business
days or longer, as permitted by Federal securities laws.
- --------------------------------------------------------------------------------
By Telephone All Fund shareholders are eligible automatically for the
telephone redemption privilege. Call 1-800-225-5291, from
8:00 A.M. to 4:00 P.M. (New York time), Monday through
Friday, excluding days on which the New York Stock Exchange
is closed. Investor Services employs the following
procedures to confirm that instructions received by
telephone are genuine. Your name, the account number,
taxpayer identification number applicable to the account and
other relevant information may be requested. In addition,
telephone instructions are recorded.
You may redeem up to $100,000 by telephone, but the address
on the account must not have changed for the last 30 days. A
check will be mailed to the exact name(s) and address shown
on the account.
If reasonable procedures, such as those described above, are
not followed, the Fund may be liable for any loss due to
unauthorized or fraudulent telephone instructions. In all
other cases, neither the Fund nor Investor Services will be
liable for any loss or expense for acting upon telephone
instructions made according to the telephone transaction
procedures mentioned above.
Telephone redemption is not available for IRAs or other
tax-qualified retirement plans or shares of the Fund that
are in certificate form.
During periods of extreme economic conditions or market
changes, telephone requests may be difficult to implement
due to a large volume of calls. During these times you
should consider placing redemption requests in writing or
using EASI-Line. EASI-Line's telephone number is
1-800-338-8080.
- --------------------------------------------------------------------------------
By Wire If you have a telephone redemption form on file with the
Fund, redemption proceeds of $1,000 or more can be wired on
the next business day to your designated bank account and a
fee (currently $4.00) will be deducted. You may also use
electronic funds transfer to your assigned bank account and
the funds are usually collectable after two business days.
Your bank may or may not charge for this service.
Redemptions of less than $1,000 will be sent by check or
electronic funds transfer.
This feature may be elected by completing the "Telephone
Redemption" section on the Account Privileges Application
that is included with this Prospectus.
- --------------------------------------------------------------------------------
In Writing Send a stock power or letter of instruction specifying the
name of the Fund, the dollar amount or the number of shares
to be redeemed, your name, class of shares, your account
number, and the additional requirements listed below that
apply to your particular account.
- --------------------------------------------------------------------------------
19
<PAGE>
Type of Registration Requirements
- -------------------- ------------
Individual, Joint Tenants, A letter of instruction signed (with titles
Sole Proprietorship, where applicable) by all persons Corporation,
Custodial (Uniform Association A letter of instruction and a
Gifts or Transfer to Minors corporate authorized to sign for the account,
Act), General Partners. exactly resolution, signed by person(s)
authorized to as it is registered, with act
on the account with the signature(s) the
signature(s) guaranteed. guaranteed.
Trusts A letter of instruction signed by the
Trustee(s) with the signature(s) guaranteed.
(If the Trustee's name is not registered on
your account, also provide a copy of the
trust document, certified within the last 60
days.)
If you do not fall into any of these registration categories, please call
1-800-225-5291 for further instructions.
- --------------------------------------------------------------------------------
Who may guarantee your signature.
A signature guarantee is a widely accepted way to protect you and the Fund by
verifying the signature on your request. It may not be provided by a notary
public. If the net asset value of the shares redeemed is $100,000 or less, John
Hancock Funds may guarantee the signature. The following institutions may
provide you with a signature guarantee, provided that any such institution meets
credit standards established by Investor Services: (i) a bank; (ii) a securities
broker or dealer, including a government or municipal securities broker or
dealer, that is a member of a clearing corporation or meets certain net capital
requirements; (iii) a credit union having authority to issue signature
guarantees; (iv) a savings and loan association, a building and loan
association, a cooperative bank, a federal savings bank or association; or (v) a
national securities exchange, a registered securities exchange or a clearing
agency.
- --------------------------------------------------------------------------------
Through your broker. Your broker may be able to initiate instructions. Contact
him or her for instructions.
- --------------------------------------------------------------------------------
Additional information about redemptions.
If you have certificates for your shares, you must submit them with your stock
power or a letter of instruction. Unless you specify to the contrary, any
outstanding Class A shares will be redeemed before Class B shares. Redemptions
of certificated shares may not be made by telephone.
Due to the proportionately high cost of maintaining small accounts, the Fund
reserves the right to redeem at net asset value all shares in an account which
holds fewer than 50 shares (except accounts under retirement plans) and to mail
the proceeds to the shareholder, or the transfer agent may impose an annual fee
of $10.00. No account will be involuntarily redeemed or any additional fee
imposed, if the value of the account is in excess of the Fund's minimum initial
investment. No CDSC will be imposed on involuntary redemptions of shares.
Shareholders will be notified before these redemptions are to be made or this
fee is imposed, and will have 30 days to purchase additional shares to bring
their account balance up to the required minimum. Unless the number of shares
acquired by additional purchases and any dividend reinvestments, exceeds the
number of shares redeemed, repeated redemptions from a smaller account may
eventually trigger this redemption policy.
- --------------------------------------------------------------------------------
ADDITIONAL SERVICES AND PROGRAMS
Exchange Privilege
You may exchange shares of the Fund only for shares of the same class of another
John Hancock fund.
If your investment objective changes, or if you wish to achieve further
diversification, John Hancock offers other funds with a wide range of investment
goals. Contact your registered representative or Selling Broker and request a
prospectus for the John Hancock mutual funds that interest you. Please read the
prospectus carefully before exchanging your shares. You can exchange shares of
each class of the Fund only for shares of the same class of another John Hancock
fund. For this purpose, John Hancock funds with only one class of shares will be
treated as Class A whether or not they have been so designated.
Exchanges between funds that are not subject to a CDSC are based on their
respective net asset values. No sales charge or transaction charge is imposed.
Class B shares
20
<PAGE>
of the Fund which are subject to a CDSC may be exchanged for Class B shares of
another John Hancock fund without incurring the CDSC; however these shares will
be subject to the CDSC schedule of the shares acquired (except that shares
exchanged into John Hancock Short-Term Strategic Income Fund, John Hancock
Intermediate Maturity Government Trust and John Hancock Limited-Term Government
Fund, will be subject to the initial fund's CDSC). 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.
The Fund reserves the right to require that you keep previously exchanged shares
(and reinvested dividends) in the Fund for 90 days before you are permitted to
execute a new exchange. The Fund 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 in another for Federal income tax purposes. An exchange may
result in a taxable gain or loss.
When you make an exchange your account registration must be identical in both
the existing and new account. The exchange privilege is available only in states
where the exchange can be made legally.
Under exchange agreements with John Hancock Funds, certain dealers, brokers and
investment advisers may exchange their clients' Fund shares, subject to the
terms of those agreements and John Hancock Funds' right to reject or suspend
those exchanges at any time. Because of the restrictions and procedures under
those agreements, the exchanges may be subject to timing limitations and other
restrictions that do not apply to exchanges requested by shareholders directly,
as described above.
Because Fund performance and shareholders can be hurt by excessive trading, the
Fund reserves the right to terminate the exchange privilege for any person or
group that, in John Hancock Funds' judgment, is involved in a pattern of
exchanges that coincide with a "market timing" strategy that may disrupt the
Fund's ability to invest effectively according to its investment objective and
policies, or might otherwise affect the Fund and its shareholders adversely. The
Fund may determine that a pattern of market timing exists regardless of the
number of exchanges made. The Fund may also temporarily or permanently terminate
the exchange privilege for any person who makes seven or more exchanges out of
the Fund per calendar year regardless of any market timing intent. Accounts
under common control or ownership will be aggregated for this purpose. Although
the Fund will attempt to give prior notice whenever it is reasonably able to do
so, it may impose these restrictions at any time.
By Telephone
1. When you complete the application for your initial purchase of Fund shares,
you automatically authorize exchanges by telephone unless you check the box
indicating that you do not wish to authorize telephone exchanges.
21
<PAGE>
2. Call 1-800-225-5291. Have the account number of your current fund and the
exact name in which it is registered available to give to the telephone
representative.
3. Your name, the account number, taxpayer identification number applicable to
the account and other relevant information may be requested. In addition,
telephone instructions are recorded.
In Writing
1. In a letter request an exchange and list the following:
- -- the name and class of the fund whose shares you currently own
- -- your account number
- -- the name(s) in which the account is registered
- -- the name of the fund in which you wish your exchange to be invested
- -- the number of shares, all shares or the dollar amount you wish to exchange
Sign your request exactly as the account is registered.
2. Mail the request and information to:
John Hancock Investor Services Corporation
P.O. Box 9116
Boston, Massachusetts 02205-9116
Reinvestment Privilege
If you redeem shares of the Fund, you may be able to reinvest all or part of the
proceeds in shares of this or another John Hancock fund without paying an
additional sales charge.
1. You will not be subject to a sales charge on Class A shares that you
reinvested in John Hancock funds that is otherwise subject to a sales
charge as long as you invest within 120 days of the redemption date. If you
paid a CDSC upon a redemption, you may reinvest at net asset value in the
same class of shares from which you redeemed within 120 days. Your account
will be credited with the amount of the CDSC previously charged and the
reinvested shares will continue to be subject to a CDSC. The holding period
of the shares you acquired through reinvestment for the purpose of
computing the CDSC payable upon a subsequent redemption, will include the
holding period of the redeemed shares.
2. Any portion of the redemption may be reinvested in the Fund or in any of
the other John Hancock funds, subject to the minimum investment limit of
that fund.
3. To reinvest, you must notify Investor Services in writing. Include the
Fund(s) name, account number and class from which your shares were
originally redeemed.
Systematic Withdrawal Plan
You can pay routine bills from your account, or make periodic disbursements from
your retirement accounts to comply with IRS regulations.
1. You can elect the Systematic Withdrawal Plan at any time by completing the
attached Account Privileges Application which is attached to this
Prospectus. You can also obtain the application from your registered
representative or by calling 1-800-225-5291.
2. To be eligible, you must have at least $5,000 in your account.
3. Payments from your account can be made monthly, quarterly, semi-annually or
on a selected monthly basis and they can be sent to you or any other
designated payee.
22
<PAGE>
4. There is no limit on the number of payees you may authorize, but all
payments must be made at the same time or intervals.
5. It is not advantageous to maintain a Systematic Withdrawal Plan
concurrently with purchases of additional shares, because you may be
subject to initial sales charges on purchases of Class A shares or you will
be subject to a CDSC imposed on redemptions of Class B shares. In addition,
your redemptions are taxable events.
6. Redemptions will be discontinued if the U.S. Postal Service cannot deliver
your checks, or if deposits to a bank account are returned for any reason.
Monthly Automatic Accumulation Program (MAAP)
You can make automatic investments and simplify your investing.
1. You can authorize an investment to be withdrawn automatically drawn each
month on your bank for investment in the Fund shares, under the "Automatic
Investing" and "Bank Information" sections on the Account Privileges
Application.
2. You can also authorize automatic investing through payroll deduction by
completing the "Direct Deposit Investing" section of the Account Privileges
Application.
3. You can terminate your Monthly Automatic Accumulation Program at any time.
4. There is no charge to you for this program, and there is no cost to the
Fund.
5. If you have payments withdrawn from a bank account and we are notified that
the account has been closed, your withdrawals will be discontinued.
Group Investment Program
Organized groups of at least four persons may establish accounts.
1. An individual account will be established for each participant, but the
sales charge for Class A shares will be based on the aggregate dollar
amount of all participants' investments. To determine how to qualify for
this program, contact your registered representative or call
1-800-225-5291.
2. The initial aggregate investment of all participants in the group must be
at least $250.
3. There is no additional charge for this program. There is no obligation to
make investments beyond the minimum, and you may terminate the program at
any time.
Retirement Plans
1. You may use the Fund for various types of qualified retirement plans,
including Individual Retirement Accounts, Keogh Plans (H.R. 10), Pension
and Profit- Sharing Plans (including 401(k) Plans), Tax-Sheltered Annuity
Retirement Plans, (403(b) or TSA Plans), and Section 457 Plans.
2. The initial investment minimum or aggregate minimum for any of these plans
is $250. However, accounts being established as group IRA, SEP, SARSEP,
TSA, 401(k) and Section 457 plans will be accepted without an initial
minimum investment.
23
<PAGE>
JOHN HANCOCK
FINANCIAL INDUSTRIES FUND
Investment Adviser
John Hancock Advisers, Inc.
101 Huntington Avenue
Boston, Massachusetts 02199-7603
Principal Distributor
John Hancock Funds, Inc.
101 Huntington Avenue
Boston, Massachusetts 02199-7603
Custodian
Investors Bank & Trust Company
24 Federal Street
Boston, Massachusetts 02110
Transfer Agent
John Hancock Investor Services Corporation
P.O. Box 9116
Boston, Massachusetts 02205-9116
Independent Auditors
Price Waterhouse LLP
160 Federal Street
Boston, Massachusetts 02110
HOW TO OBTAIN INFORMATION
ABOUT THE FUND
For: Service Information
Telephone Exchange call 1-800-225-5291
Investment-by-Phone
Telephone Redemption
For: TDD call 1-800-544-6713
JHD-
JOHN HANCOCK
FINANCIAL
INDUSTRIES
FUND
Class A and Class B Shares
Prospectus
March 6, 1996
A mutual fund seeking capital appreciation primarily through investments in
financial services companies.
101 Huntington Avenue
Boston, Massachusetts 02199-7603
Telephone 1-800-225-5291
[RECYCLE LOGO] Printed on recycled paper using soybean ink
<PAGE>
John Hancock Financial Industries Fund
Class A and Class B Shares
Statement of Additional Information
March 6, 1996
This Statement of Additional Information provides information about
John Hancock Financial Industries Fund (the "Fund") in addition to the
information that is contained in the Fund's Class A and Class B Shares
Prospectus dated March 6, 1996 (the "Prospectus"). The Fund is one of six
separate series of Freedom Investment Trust (the "Trust"). Information about
the other five series of the Trust is provided in separate prospectuses and a
statement of additional information covering all five series.
This Statement of Additional Information is not a prospectus. It
should be read in conjunction with the Fund's Prospectus, a copy of which can
be obtained free of charge by writing or telephoning:
John Hancock Investor Services Corporation
P.O. Box 9116
Boston, Massachusetts 02205-9116
1-800-225-5291
<PAGE>
TABLE OF CONTENTS
Statement of
Additional
Information
Page
ORGANIZATION OF THE FUND .............................................. 3
INVESTMENT OBJECTIVE AND POLICIES....................................... 3
THE FUND'S OPTIONS TRADING ACTIVITIES................................ 7
THE FUND'S INVESTMENTS IN FUTURES CONTRACTS.......................... 11
CERTAIN INVESTMENT PRACTICES......................................... 15
INVESTMENT RESTRICTIONS.............................................. 19
THOSE RESPONSIBLE FOR MANAGEMENT..................................... 23
INVESTMENT ADVISORY AND OTHER SERVICES............................... 28
DISTRIBUTION CONTRACTS............................................... 30
NET ASSET VALUE...................................................... 31
INITIAL SALES CHARGE ON CLASS A SHARES............................... 32
DEFERRED SALES CHARGE ON CLASS B SHARES.............................. 34
SPECIAL REDEMPTIONS.................................................. 34
ADDITIONAL SERVICES AND PROGRAMS..................................... 35
DESCRIPTION OF THE FUND'S SHARES..................................... 36
TAX STATUS........................................................... 38
CALCULATION OF PERFORMANCE........................................... 43
BROKERAGE ALLOCATION................................................. 44
DISTRIBUTIONS........................................................ 46
TRANSFER AGENT SERVICES.............................................. 46
CUSTODY OF PORTFOLIO................................................. 46
INDEPENDENT AUDITORS ................................................ 46
- 2 -
<PAGE>
ORGANIZATION OF THE FUND
Freedom Investment Trust (the "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. The Fund was created as a separate series of the Trust on December 11,
1995. To date, five other 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, John Hancock Regional Bank Fund (formerly
John Hancock Freedom Regional Bank Fund), created on April 2, 1985, John
Hancock Sovereign U.S. Government Income Fund (formerly Freedom Government
Income Fund), created on January 16, 1986, John Hancock Sovereign Achievers
Fund (formerly Freedom Equity Value Fund), created on January 16, 1986, and
John Hancock Managed Tax-Exempt Fund (formerly John Hancock Freedom Managed
Tax Exempt Fund). As indicated above, each of these five other series of
the Trust is offered pursuant to a separate prospectus and Statement of
Information.
INVESTMENT OBJECTIVE AND POLICIES
The following information supplements the discussion of the Fund's investment
objective and policies discussed in the Prospectus. The Adviser for the Fund
is John Hancock Advisers, Inc. (the "Adviser").
The Adviser believes that the ongoing deregulation of many segments of the
financial services sector continues to provide new opportunities for issuers
in this sector. As deregulation of various financial services businesses
continues and new segments of the financial services sector are opened to
certain larger financial services firms formerly prohibited from doing
business in these segments, (such as national and money center banks) certain
established companies in these market segments (such as regional banks or
securities firms) may become attractive acquisition candidates for the larger
firm seeking entrance into the segment. Typically, acquisitions accelerate
the capital appreciation of the shares of the company to be acquired.
In addition, financial services companies in growth segments (such as
securities firms during times of stock market expansion) or geographically
linked to areas experiencing strong economic growth (such as certain regional
banks) are likely to participate in and benefit from such growth through
increased demand for their products and services. Many financial services
companies which are actively and aggressively managed and are expanding
services as deregulation opens up new opportunities also show potential for
capital appreciation, particularly in expanding into areas where
nonregulatory barriers to entry are low.
The Adviser will seek to invest in those financial services companies that it
believes are well positioned to take advantage of the ongoing changes in the
financial services sector. A financial services company may be well
positioned for a number of reasons. It may be an attractive acquisition for
another company wishing to strengthen its presence in a line of business or a
geographic region or to expand into new lines of business or geographic
regions, or it may be planning a merger to strengthen its position in a line
of business or a geographic area. The financial services company may be
engaged in a line or lines of business experiencing or likely to experience
strong economic growth; it be linked to a geographic region experiencing or
likely to experience strong economic growth and be actively seeking to
participate in such growth; or it may be expanding into financial services or
geographic regions previously unavailable to it (due to an easing of
regulatory constraints) in order to take advantage of new market
opportunities.
Risk Factors
Most financial services companies are subject to extensive governmental
regulations which limit their activities and may (such as insurance rate
regulation) affect the ability to earn a profit from a given line of
business. Certain financial services businesses are subject to intense
competitive pressures, including market share and price competition. The
removal of regulatory barriers to participation in certain segments of the
financial services sector may also increase competitive pressures on
different types of firms. The availability and cost of funds to financial
services firms is crucial to their profitability. Consequently, volatile
interest rates and general economic conditions can adversely affect their
financial performance.
Financial services companies in foreign countries are subject to similar
regulatory and interest rate concerns. In particular, government regulation
in certain foreign countries may include controls on interest rates, credit
availability, prices and currency movements. In some cases, foreign
governments have taken steps to nationalize the operations of banks and other
financial services companies.
American Depository Receipts and European Depository Receipts
In addition to purchasing equity securities of foreign issuers in foreign
markets, the 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.
Foreign Currency Transactions
The Fund will conduct its 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 Fund may enter into forward foreign currency exchange contracts in two
circumstances. First, when the Fund enters into a contract for the purchase
or sale of a security denominated in a foreign currency, the Fund may desire
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, the 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 such 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.
Second, when the Adviser believes that the currency of a particular foreign
country may suffer or benefit from a substantial movement against another
currency, the 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 the Fund's portfolio securities denominated in such foreign currency. 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 market movement is extremely difficult, and the
successful execution of a short-term hedging strategy is highly uncertain.
The Fund will not enter into such forward contracts or maintain a net
exposure to such contracts if the consummation of the contracts would
obligate the Fund to deliver an amount of foreign currency in excess of the
value of the Fund's portfolio securities or other assets denominated in that
currency.
Under normal circumstances, consideration of the prospects for currency
exchange rates will be incorporated into the Fund's long-term investment
decisions made with regard to overall investment strategies. However, the
Fund believes that it is important to have the flexibility to enter into such
forward contracts when it determines that the best interests of the Fund will
thereby be served. Investors Bank & Trust Company, the Fund's custodian (the
"Custodian"), will place cash or liquid high grade debt securities into a
segregated account of the Fund in an amount equal to the value of the Fund's
total assets committed to the consummation of forward contracts to purchase
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. The Fund will not
enter into any forward contract with a term of greater than one year. At the
maturity of a forward contract to sell foreign currency, the 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 the 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 the 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 the Fund retains the portfolio security and engages in an offsetting
transaction, the 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 the 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, the
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 Fund's transactions in forward foreign currency exchange contracts will
be limited to those described above. The Fund is not required to enter into
such transactions with regard to its foreign currency-denominated
securities. It also should be realized that this method of protecting the
value of the 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 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 Fund values its assets daily in terms of United States dollars,
the Fund does not intend to convert its holdings of foreign currencies into
United States dollars on a daily basis. The Fund will do so from time to
time, which will involve transaction costs. 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 the Fund at one rate, while offering a lesser rate of exchange
should the Fund desire to resell that currency to the dealer.
Portfolio Turnover
The 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 Fund writes a substantial number of call
options and the market prices of the underlying securities appreciate, 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 FUND'S OPTIONS ACTIVITIES
The following information supplements the discussion in the Prospectus
regarding options transactions in which the Fund may engage.
The Fund may purchase and write options, including purchasing puts and calls
and writing covered calls. 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.
It is the policy of the Fund to meet the requirements of the Internal Revenue
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 the 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 Fund may
engage in options, futures and forward transactions may be materially limited
by this 30% test.
Call Options
Call options ("calls") may be written (i.e., sold) by the 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.
The Fund may write call options to obtain additional income. When the 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 the Fund writes a call option, an amount equal to the premium received
by it is included in the 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 the 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, the Fund may
purchase a call in a "closing purchase transaction." 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.
The Fund may purchase calls only if the calls are listed on a domestic
exchange or traded over-the-counter. The Fund will purchase call options to
attempt to obtain capital appreciation. When the 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.
Put Options
The Fund may purchase put options ("puts") if they are listed on a domestic
exchange or traded over-the-counter. The Fund may not write (sell) puts, but
may resell puts previously purchased by it to third parties who are not
broker-dealers. When the 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.
The 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
Fund in achieving its investment objective of capital appreciation by
protecting it against a decline in the market value of its portfolio
securities.
Buying a non-protective put permits the 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 the 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.
Risk Factors Applicable to Options
A call option 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 options are two-party contracts with prices and terms
negotiated by the buyer and seller. There is no assurance that the Fund will
be able to close out options acquired or sold over-the-counter.
The Fund will acquire only those over-the-counter 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 over-the-counter options valued by an
independent pricing service. The Fund 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 15% restriction on illiquid investments. The SEC, however, allows the
Fund to exclude from the 15% limitation on illiquid investments 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 must 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 over-the-counter options at a formula
price. If the above conditions are met, the Fund may 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 Fund 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 the Fund cannot close out a purchased
exchange-traded or over-the-counter option, 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.
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 options transactions of the Fund may affect its turnover rates and the
amount of brokerage commissions paid by it. The exercise of calls written by
the Fund may cause it to sell portfolio securities or other assets at times
and amounts controlled by the holder of a call, thus increasing the Fund's
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
Fund's control, holding a protective put might cause the Fund 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 Fund to
exercise the put.
The 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 on how many times the Fund's options positions may be
replaced. Therefore more than 5% of the Fund's assets may be at risk. The
successful use by the Fund of options on securities will depend upon the
Adviser's ability to anticipate movements of securities prices.
The Fund's Custodian, or a securities depository acting for it, will act as
the Fund's escrow agent for the securities underlying written calls, or for
other escrowed securities. Until the securities are released from escrow,
they cannot be sold by the Fund; this release will take place on the
exercise, termination or expiration of the call. For information on the
valuation of the puts and calls, see "Net Asset Value."
THE FUND'S INVESTMENTS IN FUTURES CONTRACTS
The following information supplements the discussion in the Prospectus
regarding investment by the Fund in futures contracts and related options.
Financial Futures Contracts. The Fund may buy and sell futures contracts
(and related options) on stocks and stock indices. The Fund may hedge its
portfolio by selling or purchasing financial futures contracts as an offset
against changes in security values. Although other techniques could be used
to reduce such exposure, the Fund may be able to hedge its exposure more
effectively and perhaps at a lower cost by using financial futures
contracts. The Fund may enter into financial futures contracts for hedging
and 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 as "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, though their clearing
corporations, guarantee that the contracts will be performed.
Although some financial futures contracts by their terms call for actual
delivery or acceptance of a financial instrument, in most cases the contracts
are closed out prior to delivery by offsetting purchases or sales of matching
financial futures contracts (same exchange, underlying security and delivery
month). Most financial futures contracts on securities indices by their
terms call for cash settlement. If the offsetting purchase price is less
than the 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 the 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. The 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 in entering into financial futures contracts, see the
information under "Tax Status" below.
At the time the Fund enters into a financial futures contact, it is required
to deposit with the 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. 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 contact. 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 Fund expects to earn interest income on its 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 Fund but is instead a
settlement between the Fund and the broker of the amount one would owe the
other if the financial futures contract expired early. In computing its net
asset value, the Fund will mark to market its open financial futures
positions.
Successful hedging depends on a strong correlation between the market for the
underlying securities and the relevant futures market. There are several
factors that will probably prevent this correlation from being perfect, 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. For example, the degree of imperfection of correlation depends on
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.
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 market behavior or unexpected interest rate trends.
The Fund 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 may benefit the Fund, an incorrect prediction
could result in a loss on both the hedged portfolio securities and the
futures contract so that the Fund's return might have been better had hedging
not been attempted. However, in the absence of the ability to hedge, the
Fund might have engaged in portfolio transactions 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
contact 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 Fund engages 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 contact 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 Fund 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 will be required to continue to meet margin requirements
until the position is closed.
Options on Futures Contracts. The Fund may also buy and sell options on
futures contracts that it could trade directly. An option on a futures
contract give 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 Fund would be required to deposit with the Custodian initial margin with
respect to put and call options on futures contracts written by it. Options
on futures contracts involve risks similar to the risks relating to
transactions in financial futures contracts. Also, an option purchased by
the Fund may expire worthless, in which case the Fund would lose the premium
it paid for the option.
Other Considerations. The Fund will engage in futures and options
transactions for bona fide hedging or speculative purposes if consistent with
its investment policies, to the extent permitted by CFTC regulations. The
Fund will determine that the price fluctuations in the futures contracts and
options on futures used for hedging purposes are substantially related to
price fluctuations in securities held by the Fund or which it expects to
purchase. Except as stated below, the Fund's 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 Fund
owns, or futures contracts will be purchased to protect the Fund against an
increase in the price of securities the Fund intends to purchase. As
evidence of this hedging intent, the Fund expects that on 75% or more of the
occasions on which it takes a long futures or option position (involving the
purchase of futures contracts), the Fund will have purchased, or will be in
the process of purchasing equivalent amounts of related securities at the
time when the futures contract or option position is closed out. However, in
particular cases, when it is economically advantageous for the Fund to do so,
a long futures position may be terminated or an option may expire without the
corresponding purchase of securities or other assets.
As an alternative to literal compliance with the bona fide hedging
definition, a CFTC regulation permits the Fund to elect to comply with a
different test, under which the aggregate initial margin and premiums
required to establish speculative positions in futures contracts and options
on futures will not exceed 5% of the net asset value of the Fund's portfolio,
after taking into account unrealized profits and losses on any such positions
and excluding the amount by which such options were in-the-money at the time
of purchase. The Fund will engage in transactions in futures contracts only
to the extent such transactions are consistent with the requirements of the
Internal Revenue Code for maintaining its qualification as a regulated
investment company for Federal income tax purposes.
When the Fund purchases financial futures contracts, or writes put options or
purchases call options thereon, cash or liquid, high grade debt securities
will be deposited in a segregated account with the Fund's custodian in an
amount that, together with the amount of initial and variation margin held in
the account of its broker, equals the market value of the purchased futures
contracts.
CERTAIN INVESTMENT PRACTICES
Investment in Foreign Securities
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 the Fund will endeavor to achieve the most favorable net results on
its portfolio transactions. There is generally less government supervision
and regulation of securities exchanges, brokers and listed issuers than in
the United States.
With respect to certain foreign countries, there is the possibility of
adverse changes in investment or exchange control regulations, expropriation
or confiscatory taxation, limitations on the removal of funds or other assets
of the Fund, political or social instability, or diplomatic developments
which could affect United States investments in those countries. Moreover,
individual foreign economies may differ favorably or unfavorably from the
United States' economy in such respects as growth of gross national product,
rate of inflation, capital reinvestment, resource self-sufficiency and
balance of payments position.
The dividends, interest or capital gains from certain of the Fund's foreign
portfolio securities may be subject to foreign withholding or other foreign
taxes, thus reducing the net amount of income available for distribution to
the Fund's shareholders. See "Tax Status".
The expense ratio of the Fund can be expected to be higher than that of
investment companies investing exclusively in domestic securities since the
expenses of the Fund, such as the cost of maintaining custody of foreign
securities, are higher.
Repurchase Agreements
The Fund may enter into repurchase agreements with domestic broker-dealers,
banks and financial institutions, but may not invest more than 15% of its net
assets, together with other illiquid investments, in repurchase agreements
having maturities of greater than seven days.
A repurchase agreement is a contract pursuant to which the Fund, against
receipt of securities of at least equal value including accrued interest,
agrees to advance a specified sum to a broker-dealer, bank or financial
institution which agrees to reacquire the securities at a mutually agreed
upon time and price. Repurchase agreements, which are usually for periods of
one week or less, enable the Fund to invest its cash reserves at fixed rates
of return. The Fund may enter into repurchase agreements with domestic
broker-dealers, banks and other financial institutions, provided the Fund's
Custodian always has possession of collateral whose market value at least
equals the amount of the institution's repurchase obligation. To minimize
the risk of loss the Fund will enter into repurchase agreements only with
institutions and dealers which the Board of Trustees of the Trust consider to
be creditworthy. If an institution enters an insolvency proceeding, the
resulting delay in liquidation of the collateral could cause losses to the
Fund, as well as legal expense, if the value of the collateral declines prior
to liquidation.
Forward Commitments and When-Issued Securities
As stated in the Prospectus, the Fund may purchase and sell securities on a
forward commitment or when-issued basis. Forward commitments or when-issued
transactions arise when securities are purchased or sold by the Fund with
payment and delivery taking place in the future in order to secure what is
considered to be an advantageous price. When the Fund engages in these
transactions, it relies on the seller or buyer, as the case may be, to
consummate the sale. Failure to do so may result in the Fund missing the
opportunity of obtaining a price considered to be advantageous. No payment
or delivery is made by the Fund until it receives delivery or payment from
the other party to the transaction.
To the extent that the Fund remains substantially fully invested at the same
time that it has purchased when-issued securities, as it would normally
expect to do, there may be greater fluctuations in its net asset value per
share than if the Fund set aside cash to satisfy its purchase commitment.
When the Fund purchases securities on a when-issued basis, it will maintain
in a segregated account with its Custodian cash or liquid high-grade debt
obligations with an aggregate value equal to the amount of such purchase
commitments until payment is made. If necessary, additional assets will be
placed in the account daily so that the value of the account will equal or
exceed the amount of the Fund's purchase commitment.
Short Sales
The Fund may engage in short sales in order to profit from an anticipated
decline in the value of a security. The Fund may also engage in short sales
to attempt to limit its exposure to a possible market decline in the value of
its portfolio securities. The Fund may sell short securities that are not
in the Fund's portfolio, but which the Adviser believes possess volatility
characteristics similar to those being hedged. To effect such a transaction,
the Fund must borrow the security sold short to make delivery to the buyer.
The Fund is then obligated to replace the security borrowed by purchasing it
at the market price at the time of replacement. Until the security is
replaced, the Fund is required to pay to the lender any accrued interest or
dividends and may be required to pay a premium. The Fund will realize a gain
if the security declines in price between the date of the short sale and the
date on which the Fund replaces the borrowed security. On the other hand,
the Fund will incur a loss as a result of the short sale if the price of the
security increases between those dates. The amount of any gain will be
decreased, and the amount of any loss increased, by the amount of any premium
or interest or dividends the Fund may be required to pay in connection with a
short sale. The successful use of short selling as a hedging device may be
impaired by imperfect correlation between movements in the price of the
security sold short and the securities being hedged.
Under applicable guidelines of the staff of the SEC, if the Fund engages in
short sales of the type referred to in fundamental Investment Restriction No.
(2) below, it must put in a segregated account (not with the broker) an
amount of cash or U.S. Government securities equal to the difference between
(a) the market value of the securities sold short at the time they were sold
short and (b) any cash or U.S. Government securities required to be deposited
as collateral with the broker in connection with the short sale (not
including the proceeds from the short sale). In addition, until the Fund
replaces the borrowed security, it must daily maintain the segregated account
at such a level that (1) the amount deposited in it plus the amount deposited
with the broker as collateral will equal the current market valued of the
securities sold short, and (2) the amount deposited in it plus the amount
deposited with the broker as collateral will not be less than the market
value of the securities at the time they were sold short. Except for short
sales against the box, the amount of the Fund's net assets that may be
committed to short sales and the securities in which short sales are made
must be listed on national securities exchange.
Short selling may produce higher than normal portfolio turnover which may
result in increased transaction costs to the Fund. In addition, short sales
may result in gains from the sales of securities deemed to have been held for
three months, which gains must be less than 30% of the Fund's gross income in
order for the Fund to qualify as a regulated investment company under the
Internal Revenue Code, as amended.
Rule 144A Securities and Other Restricted Securities
The Fund may purchase restricted securities eligible for resale to "qualified
institutional buyers" pursuant to Rule 144A under the Securities Act of 1933
if the Fund's Board of Trustees or the Adviser have determined under
Board-approved guidelines that such restricted securities are liquid. The
Adviser will determine the liquidity of Rule 144A securities in the Fund's
portfolio using the guidelines set forth below.
In its determination of liquidity, the Adviser will consider the following
factors, among others: (1) the frequency of trades and quotes for the
security, (2) the number of dealers willing to purchase or sell the security
and the number of other potential purchasers, (3) dealer undertakings to make
a market in the security, and (4) the nature of the security and the nature
of the marketplace trades (e.g., the time needed to dispose of the security,
the method of soliciting offers, and the mechanics of transfer). In
accordance with Rule 144A, the Board has delegated its responsibility to the
Adviser to determine the liquidity of each restricted security purchased by
the Fund pursuant to Rule 144A, subject to the Board's oversight and review.
Investing in Rule 144A securities could have the effect of increasing the
level of illiquidity in the Fund to the extent that qualified institutional
buyers become for a time uninterested in purchasing the Rule 144A
securities.
The Fund may acquire other restricted securities. These securities may be
sold only in privately negotiated transactions or in public offerings with
respect to which a registration statement is in effect under the Securities
Act of 1933. Where registration is required, the Fund may be obligated to
pay all or part of the registration expenses and a considerable period may
elapse between the time of the decision to sell and the time the Fund may be
permitted to sell a security under an effective registration statement. If,
during such a period, adverse market conditions were to develop, the Fund
might obtain a less favorable price than when it decided to sell. Restricted
securities will be priced at fair value as determined in good faith in
accordance with procedures adopted by the Fund's Board of Trustees.
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
Prospectus and this Statement of Additional Information, means approval of
the lesser of (1) the holders of 67% or more of the Fund's shares represented
at a meeting if the holders of more than 50% of the outstanding shares are
present in person or by proxy or (2) the holders of more than 50% of the
outstanding shares of the Fund.
The Fund may not:
1. Issue senior securities, except as permitted by paragraph 3
below. For purposes of this restriction, the issuance of shares of
beneficial interest in multiple classes or series, the deferral of
Trustees' fees, the purchase or sale of options, futures contracts,
forward commitments and repurchase agreements entered into in
accordance with the Fund's investment policies or within the meaning
of paragraph 6 below, are not deemed to be senior securities.
2. Purchase securities on margin or make short sales, or unless, by
virtue of its ownership of other securities, the Fund has the right
to obtain securities equivalent in kind and amount to the securities
sold and, if the right is conditional, the sale is made upon the same
conditions, except (i) in connection with arbitrage transactions,
(ii) for hedging the Fund's exposure to an actual or anticipated
market decline in the value of its securities, (iii) to profit from
an anticipated decline in the value of a security, and (iv) obtaining
such short-term credits as may be necessary for the clearance of
purchases and sales of securities.
3. Borrow money, except for the following extraordinary or emergency
purposes: (i) from banks for temporary or short-term purposes or for
the clearance of transactions in amounts not to exceed 33 1/3% of the
value of the Fund's total assets (including the amount borrowed)
taken at market value; (ii) in connection with the redemption of Fund
shares or to finance failed settlements of portfolio trades without
immediately liquidating portfolio securities or other assets; and
(iii) in order to fulfill commitments or plans to purchase additional
securities pending the anticipated sale of other portfolio securities
or assets. For purposes of this investment restriction, the deferral
of Trustees' fees and transactions in short sales, futures contracts,
options on futures contracts, securities or indices and forward
commitment transactions shall not constitute borrowing.
4. Act as an underwriter, except to the extent that in connection with
the disposition of portfolio securities, the Fund may be deemed to be
an underwriter for purposes of the 1933 Act.
5. Purchase or sell real estate except that the Fund may (i) acquire or
lease office space for its own use, (ii) invest in securities of
issuers that invest in real estate or interest therein, (iii) invest
in securities that are secured by real estate or interests therein,
(iv) purchase and sell mortgage-related securities and (v) hold and
sell real estate acquired by the Fund as a result of the ownership of
securities.
6. Invest in commodities, except the Fund may purchase and sell options
on securities, securities indices and currency, futures contracts on
securities, securities indices and currency and options on such
futures, forward foreign currency exchange contracts, forward
commitments, securities index put or call warrants and repurchase
agreements entered into in accordance with the Fund's investment
policies.
7. Make loans, except that the Fund (1) may lend portfolio securities in
accordance with the Fund's investment policies up to 33 1/3% of the
Fund's total assets taken at market value, (2) enter into repurchase
agreements, and (3) purchase all or a portion of an issue of debt
securities, bank loan participation interests, bank certificates of
deposit, bankers' acceptances, debentures or other securities,
whether or not the purchase is made upon the original issuance of the
securities.
8. Purchase the securities of issuers conducting their principal
activity in the same industry if, immediately after such purchase,
the value of its investments in such industry would exceed 25% of its
total assets taken at market value at the time of such investment;
except that the Fund intends to invest more than 25% of its total assets
in the banking industry and will ordinarily invest more than 25% of its
assets in the financial services sector, which includes the banking
industry. This limitation does not apply to investments in obligations
of the U.S. Government or any of its agencies, instrumentalities or
authorities.
9. With respect to 75% of the Fund's total assets, purchase securities
of an issuer (other than the U.S. Government, its agencies,
instrumentalities or authorities), if:
a. such purchase would cause more than 5% of the Fund's total
assets taken at market value to be invested in the securities
of such issuer; or
b. such purchase would at the time result in more than 10% of the
outstanding voting securities of such issuer being held by
the Fund.
Nonfundamental Investment Restrictions
The following restrictions are designated as nonfundamental and may be
changed by the Board of Trustees without shareholder approval.
The Fund may not:
10. Pledge, mortgage or hypothecate its assets, except to secure permitted
borrowings and then only if such pledging, mortgaging or hypothecating
does not exceed 33 1/3% of the Fund's total assets taken at market
value. Collateral arrangements with respect to margin, option, short
sale and other risk management and when-issued and forward commitment
transactions are not deemed to be pledges or other encumbrances for
purposes of this restriction.
11. Participate on a joint-and-several basis in any securities trading
account. The "bunching" of orders for the sale or purchase of
marketable portfolio securities with other accounts under the
management of the Adviser to save commissions or to average prices
among them is not deemed to result in a joint securities trading
account.
12. Purchase or retain securities of an issuer if one or more of the
Trustees or officers of the Trust or directors or officers of the
Adviser, or any investment management subsidiary of the Adviser
individually owns beneficially more than 0.5% and together own
beneficially more than 5% of the securities of such issuer.
13. Purchase a security if, as a result, (i) more than 10% of the Fund's
assets would be invested in securities of other investment companies,
(ii) such purchase would result in more than 3% of the total
outstanding voting securities of any one such investment company being
held by the Fund or (iii) more than 5% of the Fund's assets would be
invested in any one such investment company. The Fund will not
purchase the securities of any open-end investment company except when
such purchase is part of a plan of merger, consolidation,
reorganization or purchase of substantially all of the assets of any
other 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. Notwithstanding the foregoing, 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 provided that, as a result, (i) no more than 10% of the
Fund's assets would be invested in securities of all other investment
companies; (ii) such purchase would not result in more than 3% of the
total outstanding voting securities of any one such investment company
being held by the Fund and (iii) no more than 5% of the Fund's assets
would be invested in any one such investment company.
14. Invest more than 15% of its total assets in the aggregate in (1)
securities of any issuer which, together with its predecessors, has
been in operation for less than three years and (2) restricted
securities, excluding securities eligible for resale pursuant to Rule
144A under the 1933 Act or foreign securities which are offered or
sold outside the United States in accordance with Regulation S under
the 1933 Act; provided, however, that the Fund may not invest more
than 15% of its net assets in restricted securities including those
eligible for resale under Rule 144A.
15. Invest in securities which are illiquid if, as a result, more than 15%
of its net assets would consist of such securities, including
repurchase agreements maturing in more than seven days, securities
that are not readily marketable, restricted securities not eligible
for resale pursuant to Rule 144A under the 1933 Act, purchased OTC
options, certain assets under to cover written OTC options, and
privately issued stripped mortgage-backed securities.
16. Borrow money to purchase securities in excess of 5% of the Fund's
total assets.
17. Invest in real estate limited partnership interest.
18. Purchase warrants of any issuer, if, as a result of such purchase,
more than 2% of the value of the Fund's total assets would be invested
in warrants which are not listed on the New York or American Stock
Exchange or more than 5% of the value of the total assets of the Fund
would be invested in warrants generally, whether or not so listed.
For these purposes, warrants are to be valued at the lesser of cost or
market, but warrants acquired by the Fund in units with or attached to
debt securities shall be deemed to be without value.
19. Purchase interests in oil, gas, or other mineral exploration programs
or mineral leases; however, this policy will not prohibit the
acquisition of securities of companies engaged in the production or
transmission of oil, gas, or other minerals.
20. Write covered call or put options with respect to more than 25% of the
value of its total assets, invest more than 25% of its total
assets in protective put options or invest more than 5% of its total
assets in puts, calls, spreads or straddles, or any combination
thereof, other than protective put options. The aggregate value of
premiums paid on all options, other than protective put options, held
by the Fund at any time will not exceed 20% of the Fund's total assets.
21. Invest for the purpose of exercising control over or management of any
company
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. In order to permit the sale
of shares of the Fund in certain states, the Trustees may, in their sole
discretion, adopt restrictions on investment policy more restrictive than
those described above. Should the Trustees determine that any such more
restrictive policy is no longer in the best interest of the Fund and its
shareholders, the Fund may cease offering shares in the state involved and
the Trustees may revoke such restrictive policy. Moreover, if the states
involved shall no longer require any such restrictive policy, the Trustees
may, at their sole discretion, revoke such policy.
The Fund agrees that, in accordance with Texas Blue Sky Regulations, until
such regulations no longer require, it will not engage in short sales (other
than short sales against the box) unless (i) the dollar amount of the short
sales does not exceed 25% of the net assets of the Fund; (ii) the value of
the securities of any one issuer in which the Fund maintains a short position
does not exceed the lesser of (a) 2% of the net asset value of the Fund or
(b) 2% of the securities of any class of any issuer; and (iii) the securities
in which short sales are made are listed on a national securities exchange.
THOSE RESPONSIBLE FOR MANAGEMENT
The business of the Fund is managed by the Trustees, who elect officers who
are responsible for the day-to-day operations of the Fund and who execute
policies formulated by the Trustees. Several of the officers and Trustees of
the Trust are also officers and directors of the Adviser or directors of the
Fund's principal distributor, John Hancock Funds, Inc. ("John Hancock Funds").
The following table sets forth the principal occupation of the Trustees and
principal officers of the Trust during the past five years:
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
Name and Address Position(s) Principal Occupation(s)
Held With Trust During Past 5 Years
*Edward J. Boudreau, Jr. Chairman (3) Chairman and Chief Executive
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") 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.
____________
*An "interested person" of the Fund as defined in the Investment Company Act
of 1940.
(1) Member of the Audit Committee.
(2) Member of the Committee on Administration.
(3) Member of the Executive Committee. The Executive Committee may
generally exercise most powers of the Trustees between regularly scheduled
meetings of the Board of Trustees.
<PAGE>
Name and Address Position(s) Principal Occupation(s)
Held With Trust During Past 5 Years
Douglas M. Costle Trustee (1,2) Distinguished Senior Fellow,
RR2 Box 480 Institute for Sustainable
Woodstock, Vermont Communities, Vermont Law School,
05091 until 1991. Director, Air and
Water Technologies Corporation
(environmental services and
equipment), Niagara Mohawk Power
Company (electric services) and
MITRE Corporation (governmental
consulting services).
Leland O. Erdahl Trustee (1,2) Director of Santa Fe Ingredients
161 Camino Barranca Company of California, Inc. and
Placitas, New Mexico Santa Fe Ingredients Company,
87043 Inc., private food processing
companies; Director of Uranium
Resources, Inc. President of
Stolar Inc. from 1987 to 1991
and President of Albuquerque
Uranium Corporation from 1985 to
1992. Director of
Freeport-McMoRan Copper & Gold
Company, Inc., Hecla Mining
Company, Canyon Resources
Corporation and Original Sixteen
to One Mines, Inc. from 1984 to
1987 and from 1991 to 1995,
management consultant.
Richard A. Farrell Trustee (1,2) President of Farrell, Healer &
Farrell, Healer & Co., a venture capital
Company, Inc. management firm, since 1980.
160 Federal Street Prior to that date, Mr. Farrell
23rd Floor headed the venture capital group
Boston, MA 02110 at Bank of Boston Corporation.
William F. Glavin Trustee (1,2) President, Babson College; Vice
Babson College Chairman, Xerox Corporation
Horn Libarary until June 1989. Director,
Babson Park, MA 02157 Caldor, Inc. Reebok Ltd. (since 1994)
and Inco Ltd.
___________
*An "interested person" of the Fund as defined in the Investment Company Act
of 1940.
(1) Member of the Audit Committee.
(2) Member of the Committee on Administration.
(3) Member of the Executive Committee. The Executive Committee may
generally exercise most powers of the Trustees between regularly scheduled
meetings of the Board of Trustees.
<PAGE>
Name and Address Position(s) Principal Occupation(s)
Held With Trust During Past 5 Years
Dr. John A. Moore Trustee (1,2) President and Chief Executive
Institute for Officer, Institute for
Evaluating Health Risks Evaluating Health Risks, a
1101 Vermont Avenue N.W. nonprofit institution, since
Suite 608 1989. Assistant Administrator
Washington, DC 20005 of the Office of Pesticides and
Toxic Substances at the
Environmental Protection Agency
from December 1983 to July 1989.
Patti McGill Peterson Trustee (1,2) President, St. Lawrence
St. Lawrence University University; Director, Niagara
110 Vilas Hall Mohawk Power Corporation and
Canton, NY 13617 Security, Mutual Life.
John W. Pratt Trustee (1,2) Professor of
2 Gray Gardens East Business Administration at
Cambridge, MA 02138 Harvard University Graduate
School of Business
Administration, since 1961.
____________
*An "interested person" of the Fund as defined in the Investment Company Act
of 1940.
(1) Member of the Audit Committee.
(2) Member of the Committee on Administration.
(3) Member of the Executive Committee. The Executive Committee may
generally exercise most powers of the Trustees between regularly scheduled
meetings of the Board of Trustees.
<PAGE>
Name and Address Position(s) Principal Occupation(s)
Held With Trust During Past 5 Years
*Robert G. Freedman Vice Chairman and Vice Chairman and Chief
Chief Investment Investment Officer, the Adviser;
Officer President (until December 1994).
*Anne C. Hodsdon President President and Chief Operations
Officer, the Adviser; Executive
Vice President, the Adviser
(until December 1994); Senior
Vice President, the Adviser
(until December 1993).
*James B. Little Senior Vice Senior Vice President, the
President, Chief Adviser.
Financial Officer
*Thomas H. Drohan Senior Vice Senior Vice President and
President and Secretary, the Adviser.
Secretary
*John A. Morin Vice President Vice President, the Adviser.
*Susan S. Newton Vice President, Vice President and Assistant
Assistant Secretary Secretary, the Adviser.
and Compliance
Officer
*James J. Stokowski Vice President and Vice President, the Adviser.
Treasurer
____________
*An "interested person" of the Fund as defined in the Investment Company Act
of 1940.
(1) Member of the Audit Committee.
(2) Member of the Committee on Administration.
(3) Member of the Executive Committee. The Executive Committee may
generally exercise most powers of the Trustees between regularly scheduled
meetings of the Board of Trustees.
</TABLE>
<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 expected
to be paid by the Fund in its 1996 fiscal year as well as the aggregate
compensation paid by the other investment companies in the John Hancock Fund
Complex to the Independent Trustees for their services during the 1995
calendar year. Mr. Boudreau, a non-independent Trustee, and each of the
officers of the Fund who are interested persons of the Adviser, are
compensated by the Adviser and receive no compensation from the Fund for
their services.
Aggregate Compensation
<TABLE>
<CAPTION>
Independent Aggregate Pension or Total Compensation
Trustees Compensation From Retirement Benefits From All John Hancock
Fund During its Accrued as Part of Funds (2)
Current Fiscal Year(1) the Fund's Expenses (Total of 11 Funds)
<S> <C> <C> <C>
William A. Barron, III - $ 41,750
Douglas M. Costle - 41,750
Leland O. Erdahl - 41,750
Richard A. Farrell - 43,250
William F. Glavin - 37,500
Patrick Grant - 43,750
Ralph Lowell, Jr. - 41,750
Dr. John A. Moore - 41,750
Patti McGill Peterson - 41,750
John W. Pratt - 41,750
--------
Totals $416,750
</TABLE>
(1) Based upon the Fund's fiscal year ending October 31, 1996.
(2) The total compensation paid by the John Hancock Fund Complex to the
Independent Trustees is as of the calendar year ended December 31, 1995.
INVESTMENT ADVISORY AND OTHER SERVICES
The investment adviser for the Fund is the Adviser, a Massachusetts
corporation, 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 Fund.
The Adviser was organized in 1968 and presently has over $16 billion in
assets under management in its capacity as investment adviser to the Fund and
the other mutual funds and publicly traded investment companies in the John
Hancock group of funds having a combined total of over 1,060,000
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 approximately $80 billion, the Life Company is one of the 10
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 Trust, on behalf of the Fund, has entered into an investment advisory
agreement (the "Advisory Agreement") dated as of March 6, 1996 with the
Adviser. As the Fund's manager and investment adviser, the Adviser will:
(a) furnish continuously an investment program for the Fund and determine,
subject to the overall supervision and review of the Board of Trustees, which
investments should be purchased, held, sold or exchanged, (b) provide
supervision over all aspects of the Fund's operations except those which are
delegated to a custodian, transfer agent or other agent, and (c) provide the
Fund with such executive, administrative and clerical personnel, officers and
equipment as are deemed necessary for the conduct of the Fund's business.
As compensation for its services under the Advisory Agreement, the Adviser
receives from the Fund a fee computed and paid monthly at an annual rate of
0.80% of the Fund's average daily net assets. The rates for the Fund are
higher than those for many other mutual funds because of the extensive amount
of research required to manage the Fund's portfolio in comparison to the
portfolios of other funds.
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 defined in the Investment Company Act of
1940 ("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 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 in issuing rulings to funds with a
multiple-class structure.
The Adviser has agreed that if, in any fiscal year, the total expenses of the
Fund (excluding taxes, interest, brokerage commissions and extraordinary
items, but including the Adviser's fee) exceed the expense limitation
applicable to the Fund, the Adviser will reduce its fee for the 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 most restrictive state expense limitation 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 Advisory Agreement was approved on December 11, 1995 by all of the
Trustees, including all of the Trustees who are not parties to the Advisory
Agreement or "interested persons" of any party thereto. The sole initial
shareholder of the Fund also approved the Advisory Agreement on March 6,
1996. The Advisory Agreement will continue in effect until June 30, 1997 and
from year to year thereafter, provided that its continuance is approved
annually both (i) by the holders of a majority of the outstanding voting
securities of the Fund 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.
DISTRIBUTION CONTRACT
The Trust has entered into a Distribution Agreement with John Hancock Funds.
Under the contract John Hancock Funds is obligated to use its best efforts to
sell shares of each class on behalf of the Fund. Shares of the Fund are also
sold by selected broker-dealers who have entered into dealer agreements with
John Hancock Funds (the "Selling Brokers").
John Hancock Funds accepts orders for the purchase of the shares of the Fund
which are continually offered at net asset value next determined plus any
applicable sales charge. In connection with the sale of Class A or Class B
shares of the Fund, John Hancock Funds and Selling Brokers receive
compensation in the form of a sales charge imposed, in the case of Class A
shares, at the time of sale or, in the case of Class B shares, on a deferred
basis. The sales charges are discussed further in the Prospectus.
The Trustees adopted Distribution Plans with respect to Class A and Class B
shares ("the Plans"), pursuant to Rule 12b-1 under the Investment Company Act
of 1940. Under the Class A and Class B Plans, the Fund will pay distribution
and service fees at an aggregate annual rate of up to 0.30% and 1.00%
respectively, of each class' average daily net assets. However, the amount
of the service fee will not exceed 0.25% of the Fund's average daily net
assets attributable to each class of shares. The distribution fees reimburse
John Hancock Funds for distribution costs incurred in the promotion of sales
of shares of the Fund, and the service fees compensate Selling Brokers for
providing personal and account maintenance services to shareholders. In the
event that John Hancock Funds is not fully reimbursed for expenses incurred
by it under the Class B Plan in any fiscal year, the Distributors may carry
these expenses forward, provided, however, that the Trustees may terminate
the Class B Plan and thus the Fund's obligation to make further payments at
any time. Accordingly, the Fund does not treat unreimbursed expenses
relating to the Class B shares as a liability. The Plans were approved by
the sole initial shareholder of the Fund. The Plans were approved by the
Trustees, including a majority of the Trustees who are not interested persons
of the Fund and who have no direct or indirect financial interest in the
operation of the Plans (the "Independent Trustees"), by votes cast in person
at a meeting called for the purpose of voting on such Plans.
Pursuant to the Plans, at least quarterly, the Distributors provide the Fund
with a written report of the amounts expended under the Plans and the purpose
for which these expenditures were made. The Trustees review these reports on
a quarterly basis.
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 class of
the Fund's outstanding shares upon 60 day's written notice to John Hancock
Funds and (c) automatically in the event of assignment. Each of the Plans
further provides that it may not be amended to increase the maximum amount of
the fees for the services described therein without the approval of a
majority of the outstanding shares of the class of the Fund which has voting
rights with respect to the Plan. Finally, each of the Plans provides that no
material amendment to the Plan will be effective unless it is approved by a
vote of the Trustees and the Independent Trustees of the Trust. The holders
of Class A and Class B shares have exclusive voting rights with respect to
the Plan applicable to their respective class of shares. In adopting the
Plans the Trustees concluded that, in their judgment, there is a reasonable
likelihood that the Plans will benefit the holders of the applicable class of
shares of the Fund.
When the Trust seeks an Independent Trustee to fill a vancancy or as a
nominee for election by shareholders, the selection or nomination of the
Independent Trustee is, under resolutions adopted by the Trustees
contemporaneously with their adoption of the Plan, committed to the
discretion of the Committee on Administration of the Trustees. The members
of the Committee on Administration are all Independent Trustees and
identified in this Statement of Additional Information under the heading
"Those Responsible for Management".
NET ASSET VALUE
For purposes of calculating the net asset value ("NAV") of the Fund's shares,
the following procedures are utilized wherever applicable.
Debt 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 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 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 denominated or quoted in foreign currencies are
translated into U.S. dollars by the Custodian based on London currency
exchange quotations as of 5:00 p.m., London time (12:00 noon, New York time)
on the valuation date.
The Fund will not price its securities on the following national holidays:
New Year's Day; Presidents' Day; Good Friday; Memorial Day; Independence Day;
Labor Day; Thanksgiving Day; and Christmas Day. On any day an international
market is closed and the New York Stock Exchange is open, any foreign
securities will be valued at the prior day's close with the current day's
exchange rate. Trading of foreign securities may take place on Saturdays and
U.S. business holidays on which the Fund's NAV is not calculated.
Consequently, the Fund's portfolio securities may trade and the NAV of the
Fund's shares may be significantly affected on days when a shareholder has no
access to the Fund.
INITIAL SALES CHARGE ON CLASS A SHARES
The sales charge applicable to purchases of Class A shares of the Fund is
described in the Prospectus. Methods of obtaining reduced sales charges
referred to generally in the Prospectus are described in detail below. In
calculating the sales charge applicable to current purchases of Class A
shares, the investor is entitled to cumulate current purchases with the
greater of the current value (at offering price) of the Class A shares of the
Fund, 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 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 Prospectus, Class A shares of the
Fund may be sold without a sales charge to certain persons described in the
Prospectus.
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 of the Class A shares already held by
such person.
Combination Privilege. Reduced sales charges (according to the schedule set
forth in the Prospectus) are also available to an investor based on the
aggregate amount of his concurrent and prior investments in Class A shares of
the Fund and shares of all other John Hancock funds which carry a sales
charge.
Letter of Intention. 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 457 plans. Such an investment
(including accumulations and combinations) must aggregate $50,000 or more
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 purchases
actually made within the specified period the applicable sales charge 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 Fund to
sell, any additional Class A shares and may be terminated at any time.
DEFERRED SALES CHARGE ON CLASS B SHARES
Investments in Class B shares are purchased at net asset value per share
without the imposition of an initial sales charge so that the Fund will
receive the full amount of the purchase 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 Prospectus as a percentage of the
dollar amount subject to the CDSC. The charge will be assessed on an amount
equal to the lesser of the current market value or the original purchase cost
of the Class B shares being redeemed. Accordingly, no CDSC will be imposed on
increases in account value above the initial purchase prices, including
increases in account value derived from reinvestment of dividends or capital
gains distributions.
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 Freedom
Distributors Corporation) and are used in whole or in part by John Hancock
Funds to defray its expenses related to providing distribution-related
services to the Fund in connection with the sale of the Class - B shares, such
as the payment of compensation to select Selling Brokers for selling Class - B
shares. The combination of the CDSC and the distribution and service fees
facilitates the ability of the Fund to sell the Class B shares without a
sales charge being deducted at the time of the purchase. See the Prospectus
for additional information regarding the CDSC.
SPECIAL REDEMPTIONS
Although it would not normally do so, the Fund has the right to pay the
redemption price of shares of the Fund in whole or in part in portfolio
securities as prescribed by the Trustees. 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 Fund
has, however, elected to be governed by Rule 18f-1 under the Investment
Company Act. Under that rule, the Fund must redeem its shares for cash
except to the extent that the redemption payments to any shareholder during
any 90-day period would exceed the lesser of $250,000 or 1% of the Fund's net
asset value at the beginning of such period.
ADDITIONAL SERVICES AND PROGRAMS
Exchange Privilege. As described more fully in the Prospectus, the Fund
permits exchanges of shares of any class of the Fund for shares of the same
class in any other John Hancock fund offering that class.
Systematic Withdrawal Plan. As described briefly in the Prospectus, the Fund
permits the establishment of a Systematic Withdrawal Plan. Payments under
this plan represent proceeds from the redemption of shares of the Fund. Since
the redemption price of the shares of the Fund may be more or less than the
shareholder's cost, depending upon the market value of the securities owned
by the Fund at the time of redemption, the distribution of cash pursuant to
this plan may result in realization of gain or loss for purposes of Federal,
state and local income taxes. The maintenance of a Systematic Withdrawal
Plan concurrently with purchases of additional Class A or Class B shares of
the Fund could be disadvantageous to a shareholder because of the initial
sales charge payable on such purchases of Class A shares and the CDSC imposed
on redemptions of Class B shares and because redemptions are taxable events.
Therefore, a shareholder should not purchase Class A or Class B shares of the
Fund at the same time a Systematic Withdrawal Plan is in effect. The Fund
reserves the right to modify or discontinue the Systematic Withdrawal Plan of
any shareholder on 30 days' prior written notice to such shareholder, or to
discontinue the availability of such plan in the future. The shareholder may
terminate the plan at any time by giving proper notice to Investor Services.
Monthly Automatic Accumulation Program ("MAAP"). This program is explained
more fully in the Fund's Prospectus and the Account Privileges Application.
The program, as it relates to automatic investment checks, is subject to the
following conditions:
The investments will be drawn on or about the day of the month indicated.
The privilege of making investments through the Monthly Automatic
Accumulation Program may be revoked by 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
check.
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 Fund or in any other John Hancock fund, subject to the minimum
investment limit of that fund. The proceeds from the redemption of Class A
shares may be reinvested at net asset value without paying a sales charge in
Class A shares of the Fund or in Class A shares of 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 Fund may modify or terminate the reinvestment
privilege at any time.
A redemption or exchange of Fund shares is a taxable transaction for Federal
income tax purposes even if the reinvestment privilege is exercised, and any
gain or loss realized by a shareholder on the redemption or other disposition
of Fund shares will be treated for tax purposes as described under the
caption "Tax Status."
DESCRIPTION OF THE FUND'S SHARES
The Trustees of the Trust are responsible for the management and supervision
of the Fund. The Declaration of Trust permits the Trustees to issue an
unlimited number of full and fractional shares of beneficial interest of the
Trust, 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 two classes of shares of the Fund, designated as Class A and
Class B.
The shares of each class of the Fund represent an equal proportionate
interest in the aggregate net assets attributable to the classes of the
Fund. Class A shares and Class B shares of the Fund will be sold exclusively
to members of the public at net asset value. A sales charge will be imposed
either at the time 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 contingent deferred sales charge may be imposed in the
event of certain redemption transactions within one year of purchase.
Holders of Class A shares and Class B shares have certain exclusive voting
rights on matters relating to their respective distribution plans. The
different classes of the Fund may bear different expenses relating to the
cost of holding shareholder meetings necessitated by the exclusive voting
rights of any class of shares.
Dividends paid by the Fund, if any, with respect to each class of shares will
be calculated in the same manner, at the same time and will be in the same
amount, except that (i) the distribution and service fees relating to 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 shares and Class B shares will bear any other class
expenses properly allocable to such class of shares, subject to the
conditions that the Internal Revenue Service imposes in issuing rulings to
funds that have a multiple-class structure. The net asset value per share
may vary depending on whether Class A shares or Class B shares are
purchased. In the event of liquidation, shareholders are entitled to share
pro rata in the net assets of the 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 except as set forth in the
Prospectus.
Unless otherwise required by the Investment Company Act or the Declaration of
Trust, the Trust has no intention of holding annual meetings of
shareholders. Trust 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, the Trust'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 Fund's assets for all losses and expenses of any
shareholder held personally liable by reason of being or having been a
shareholder. Liability is therefor limited to circumstances in which the
Fund itself would be unable to meet its obligations, and the possibility of
this occurrence is remote.
TAX STATUS
The Fund is treated as a separate entity for accounting and tax purposes.
The Fund intends to elect to be treated and qualify each year as a "regulated
investment company" under Subchapter M of the Internal Revenue Code of 1986,
as amended (the "Code"). 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, the Fund will not be
subject to Federal income tax on taxable income (including net short-term and
long-term capital gains) which is distributed to shareholders in accordance
with the timing requirements of the Code.
The Fund will be subject to a 4% nondeductible Federal excise tax on certain
amounts not distributed (and not treated as having been distributed) on a
timely basis in accordance with annual minimum distribution requirements.
The Fund intends under normal circumstances to avoid liability for such tax
by satisfying such distribution requirements.
Distributions from the Fund's current or accumulated earnings and profits
("E&P"), as computed for Federal income tax purposes, will be taxable as
described in the Fund's Prospectus whether taken in shares or in cash.
Distributions, if any, in excess of E & P will constitute a return of
capital, which will first reduce 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.
If the Fund acquires stock in certain non-U.S. corporations that receive at
least 75% of their annual gross income from passive sources (such as
interest, dividends, rents, royalties or capital gain) or hold at least 50%
of their assets in investments producing such passive income ("passive
foreign investment companies"), the Fund could be subject to Federal income
tax and additional interest charges on "excess distributions" received from
such companies or gain from the sale of stock in such companies, even if all
income or gain actually received by the Fund is timely distributed to its
shareholders. The Fund would not be able to pass through to its shareholders
any credit or deduction for such a tax. Certain elections may, if available,
ameliorate these adverse tax consequences, but any such election could
require the Fund to recognize taxable income or gain without the concurrent
receipt of cash. The Fund may limit and/or manage its holdings in passive
foreign investment companies to minimize its tax liability or maximize its
return from these investments.
Foreign exchange gains and losses realized by the Fund in connection with
certain transactions involving foreign currency-denominated debt securities,
foreign currency forward contracts, foreign currencies, or payables or
receivables denominated in a foreign currency are subject to Section 988 of
the Code, which generally causes such gains and losses to be treated as
ordinary income and losses and may affect the amount, timing and character of
distributions to shareholders. Any such transactions that are not directly
related to the Fund's investment in stock or securities, possibly including
speculative currency positions or currency derivatives not used for hedging
purposes, may increase the amount of gain it is deemed to recognize from the
sale of certain investments 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. If the net foreign exchange loss for a year treated as
ordinary loss under Section 988 were to exceed the Fund's investment company
taxable income (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) computed without
regard to such loss after taking into account Treasury regulations resulting
in deferral of certain post-October losses, the resulting overall ordinary
loss for such year would not be deductible by the Fund or its shareholders in
future years.
The Fund may be subject to withholding and other taxes imposed by foreign
countries with respect to its investments in foreign securities. Tax
conventions between certain countries and the U.S. may reduce or eliminate
such taxes. Investors may be entitled to claim U.S. foreign tax credits or
deductions with respect to such taxes, subject to certain provisions and
limitations contained in the Code. Specifically, if more than 50% of the
value of the Fund's total assets at the close of any taxable year consists of
stock or securities of foreign corporations, the Fund 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 the 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 credit. Tax-exempt shareholders will
ordinarily not benefit from this election. Each year that the Fund files the
election described above, its shareholders will be notified of the amount of
(i) each shareholder's pro rata share of foreign income taxes paid by the
Fund and (ii) the portion of Fund dividends which represents income from each
foreign country. If the Fund cannot or does not make this election it may
deduct such taxes in computing its taxable income.
The amount of the Fund's net short-term and long-term capital gains, if any,
in any given year will vary depending upon the Adviser's current investment
strategy and whether the Adviser believes it to be in the best interest of
the Fund to dispose of portfolio securities or enter into options 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 or unrealized appreciation in the Fund's portfolio
or undistributed taxable income of the Fund. Consequently, subsequent
distributions from such appreciation or income may be taxable to such
investor even if the net asset value of the investor's shares is, as a result
of the distributions, reduced below the investor's cost for such shares, and
the distributions in reality represent a return of a portion of the purchase
price.
Upon a redemption of shares of the Fund (including by exercise of the
exchange privilege) a shareholder may realize a taxable gain or loss
depending upon 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 the Fund cannot be taken into account for purposes of determining
gain or loss on the redemption or exchange of such shares within 90 days
after their purchase to the extent shares of the Fund or another John Hancock
fund are subsequently acquired without payment of a sales charge pursuant to
the reinvestment or exchange privilege. Such disregarded load will result in
an increase in the shareholder's tax basis in the shares subsequently
acquired. Also, any loss realized on a redemption or exchange may be
disallowed to the extent the shares disposed of are replaced with other
shares of the Fund within a period of 61 days beginning 30 days before and
ending 30 days after the shares are disposed of, such as pursuant to
automatic dividend reinvestments. In such a case, the basis of the shares
acquired will be adjusted to reflect the disallowed loss. Any loss realized
upon the redemption of shares with a tax holding period of six months or less
will be treated as a long-term capital loss to the extent of any amounts
treated as distributions of long-term capital gain with respect to such
shares.
Although its present intention is to distribute all net short-term and
long-term capital gains, if any, the Fund reserves the right to retain and
reinvest all or any portion of its "net capital gain", which is the excess,
as computed for Federal income tax purposes, of net long-term capital gain
over net short-term capital loss in any year. The Fund will not in any event
distribute net long-term capital gains realized in any year to the extent
that a capital loss is carried forward from prior years against such gain.
To the extent such excess was retained and not exhausted by the carryforward
of prior years' capital losses, it would be subject to Federal income tax in
the hands of the Fund. Each shareholder would be treated for Federal income
tax purposes as if the Fund had distributed to him on the last day of its
taxable year his pro rata share of such excess, and he had paid his pro rata
share of the taxes paid by the Fund and reinvested the remainder in the
Fund. Accordingly, each shareholder would (a) include his pro rata share of
such excess as long-term capital gain in his return for his taxable year in
which the last day of the Fund's taxable year falls, (b) be entitled either
to a tax credit on his return for, or a refund of, his pro rata share of the
taxes paid by the Fund, and (c) be entitled to increase the adjusted tax
basis for his shares in the Fund by the difference between his pro rata share
of such excess and his pro rata share of such taxes.
For Federal income tax purposes, the Fund is permitted to carry forward a net
capital loss in any year to offset its 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 Fund, as noted above, and would not be
distributed as such to shareholders. As a newly formed series of the Trust,
the Fund has no capital loss carryforwards.
For purposes of the dividends received deduction available to corporations,
dividends received by the Fund, if any, from U.S. domestic corporations in
respect of the stock of such corporations held by the Fund, for U.S. Federal
income tax purposes, for at least 46 days (91 days in the case of certain
preferred stock) and distributed and designated by the Fund may be treated as
qualifying dividends. The Fund expects that a portion of its income
distributions will generally be treated as qualifying dividends. Corporate
shareholders must meet the minimum holding period requirement stated above
(46 or 91 days) with respect to their shares of the Fund in order to qualify
for the deduction and, if they 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. Additionally, any corporate shareholder
should consult its tax adviser regarding the possibility that its basis in
its shares may be reduced, for Federal income tax purposes, by reason of
"extraordinary dividends" received with respect to the shares, for the
purpose of computing its gain or loss on redemption or other disposition of
the shares.
Different tax treatment, including penalties on certain excess contributions
and deferrals, certain pre-retirement and post-retirement distributions and
certain prohibited transactions, is accorded to accounts maintained as
qualified retirement plans. Shareholders should consult their tax advisers
for more information.
Limitations imposed by the Code on regulated investment companies like the
Fund may restrict the Fund's ability to enter into futures, options, and
forward transactions.
Certain options, futures and forward foreign currency transactions undertaken
by the Fund may cause the Fund to recognize gains or losses from marking to
market even though its positions have not been sold or terminated and affect
the character as long-term or short-term (or, in the case of certain 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 the 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 the 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 the
Fund's distributions to shareholders. The Fund 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 Fund in their particular circumstances.
Non-U.S. investors not engaged in a U.S. trade or business with which their
investment in the Fund is effectively connected will be subject to U.S.
Federal income tax treatment that is different from that described above.
These investors may be subject to nonresident alien withholding tax at the
rate of 30% (or a lower rate under an applicable tax treaty) on amounts
treated as ordinary dividends from the Fund and, unless an effective IRS Form
W-8 or authorized substitute is on file, to 31% backup withholding on certain
other payments from the Fund. Non-U.S. investors should consult their tax
advisers regarding such treatment and the application of foreign taxes to an
investment in the Fund.
The Fund is not subject to Massachusetts corporate excise or franchise
taxes. Provided that the Fund qualifies as a regulated investment company
under the Code, it will also not be required to pay any Massachusetts income
tax.
CALCULATION OF PERFORMANCE
The following information supplements the discussion in the Prospectus
regarding performance information.
Total Return. Average annual total return is determined separately for each
class of shares. 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:
_______
T = \n/ ERV/P-1
Where:
P = a hypothetical initial investment of $1,000.
T = average annual total return.
n = number of years.
ERV = ending redeemable value of a hypothetical $1,000 investment made at
the beginning of the 1 year and life-of-fund periods.
The calculation of total return assumes that the maximum sales charge for
Class A shares of 5% 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 Fund may quote unaveraged or
cumulative total returns reflecting the simple change in value of an
investment over a stated period. Cumulative total returns may be quoted as a
percentage or as a dollar amount, and may be calculated for a single
investment, a series of investments, and/or a series of redemptions, over any
time period. Total returns may be quoted with or without taking the Fund's
sales charge on Class A shares or the CDSC on Class B shares into account.
Excluding the Fund's sales charge on Class A shares and the CDSC on Class B
shares from a total return calculation produces a higher total return figure.
Performance Comparisons. From time to time, in reports and promotional
literature, the Fund's total return will be ranked or 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 the Russell and Wilshire indices.
Performance rankings and ratings reported periodically in national financial
publications such as MONEY MAGAZINE, FORBES, BUSINESS WEEK, THE WALL STREET
JOURNAL, MORNINGSTAR, STANGER'S and BARRON'S will also be utilized.
The performance of the Fund is not fixed or guaranteed. Performance
quotations should not be considered to be representations of performance of
the Fund for any period in the future. The performance of the Fund is a
function of many factors including its earnings, expenses and number of
outstanding shares. Fluctuating market conditions; purchases, sales, and
maturities of portfolio securities; sales and redemptions of shares of
beneficial interest; and changes in operating expenses are all examples of
items that can increase or decrease the Fund's performances.
BROKERAGE ALLOCATION
Decisions concerning the purchase and sale of portfolio securities and the
allocation of brokerage commissions are made by the officers of the Trust
pursuant to recommendations made by an investment committee of the Adviser,
which consists of officers and directors of the Adviser and affiliates and
officers and Trustees who are interested persons of the Fund. Orders for
purchases and sales of securities are placed in a manner which, in the
opinion of the officers of the Trust, will offer the best price and market
for the execution of each such transaction. Purchases from underwriters of
portfolio securities may include a commission or commissions paid by the
issuer and transactions with dealers serving as market makers reflect a
"spread". Debt securities are generally traded on a net basis through
dealers acting for their own account as principals and not as brokers; no
brokerages commissions are payable on such transactions.
The Fund's primary policy is to execute all purchases and sales of portfolio
instruments at the most favorable prices consistent with best execution,
considering all of the costs of the transaction including brokerage
commissions. This policy governs the selection of brokers and dealers and
the market in which a transaction is executed. Consistent with the foregoing
primary policy, the Rules of Fair Practice of the National Association of
Securities Dealers, Inc. and other policies that the Trustees may determine,
the Adviser may consider sales of shares of the Fund as a factor in the
selection of broker-dealers to execute the Fund's portfolio transactions.
To the extent consistent with the foregoing, the Fund will be governed in the
selection of brokers and dealers, and the negotiation of brokerage commission
rates and dealer spreads, by the reliability and quality of services,
including primarily the availability and value of research information and to
a lesser extent statistical assistance furnished to the Adviser of the Fund,
and their value and expected contribution to the performance of the Fund. It
is not possible to place a dollar value on information and services to be
received from brokers and dealers, since it is only supplementary to the
research efforts of the Adviser. The receipt of research information is not
expected to reduce significantly the expenses of the Adviser. The research
information and statistical assistance furnished by brokers and dealers may
benefit the Life Company or other advisory clients of the Adviser, and,
conversely, brokerage commissions and spreads paid by other advisory clients
of the Adviser may result in research information and statistical assistance
beneficial to the Fund. The Fund will not make commitments to allocate
portfolio transactions upon any prescribed basis. While the Trust's officers
will be primarily responsible for the allocation of the Fund's brokerage
business, their policies and practices in this regard must be consistent with
the foregoing and will at all times be subject to review by the Trustees.
As permitted by Section 28(e) of the Securities Exchange Act of 1934, the
Fund may pay 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 good faith determination by the Trustees that the
commission is reasonable in light of the services provided and to policies
that the Trustees may adopt from time to time.
The Adviser's indirect parent, the Life Company, is the indirect sole
shareholder of John Hancock Distributors, Inc. (Distributors), a
broker-dealer subsidiaries, Tucker Anthoy Incorporated ("Tucker Anthony") and
Sutro & Company ("Sutro"), (each, are "Affiliated Brokers"). Pursuant to
procedures determined by the Trustees and consistent with the above policy of
obtaining best net results, the Fund may execute portfolio transactions with
or through Tucker Anthony, Sutro or Distributors.
Any of the Affiliated Brokers may act as broker for the Fund on exchange
transactions, subject, however, to the general policy of the Fund set forth
above and the procedures adopted by the trustees pursuant to the Investment
Company Act. Commissions paid to an Affiliated Broker must be at least as
favorable as those which the Trustees believe to be contemporaneously charged
by other brokers in connection with comparable transactions involving similar
securities being purchased or sold. A transaction would not be placed with
an Affiliated Broker if the Fund would have to pay a commission rate less
favorable than the Affiliated Broker's contemporaneous charges for comparable
transactions for its other most favored, but unaffiliated, customers except
for accounts for which the Affiliated Broker acts as clearing broker for
another brokerage firm, and any customers of the Affiliated Broker not
comparable to the Fund as determined by the majority of the Trustees who are
not "interested persons" (as defined in the Investment Company Act) of the
Fund, the Adviser or the Affiliated Broker. Because the Adviser, which is
affiliated with the Affiliated Brokers, has, as an investment adviser to the
Fund, the obligation to provide investment management services, which include
elements of research and related investment skills, such research and related
skills will not be used by the Affiliated Broker as a basis for negotiating
commissions at a rate higher than that determined in accordance with the
above criteria. The Fund will not effect principal transactions with
Affiliated Brokers.
DISTRIBUTIONS
The per share dividends from the Fund's net investment income [on the Class B
shares will be lower than the per share dividends on the Class A shares of
the Fund as a result of the higher distribution fee applicable with respect
to the Class B shares.
TRANSFER AGENT SERVICES
John Hancock Investor Services Corporation, P.O. Box 9116, Boston, MA
02205-9116, a wholly-owned indirect subsidiary of the Life Company, is the
transfer and dividend paying agent for the Fund. The Fund pays an annual fee
of $16.00 for each Class A shareholder and $18.50 for each Class B
shareholder plus certain out-of-pocket expenses. These expenses are
aggregated and charged to the Fund and allocated to each class on the basis
of the relative net asset values.
CUSTODY OF PORTFOLIO
Portfolio securities of the Fund are held pursuant to a custodian agreement
between the 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
Price Waterhouse LLP, 160 Federal Street, Boston, Massachusetts serves as the
Fund's independent auditors, providing services including (1) examination of
annual financial statements, (2) assistance and consultation in connection
with Securities and Exchange Commission filings, and (3) preparation of the
annual Federal income tax returns filed on behalf of the Fund.
