REGISTRATION NO. 2-90305
REGISTRATION NO. 811-3999
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM N-1A
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REGISTRATION STATEMENT UNDER
THE SECURITIES ACT OF 1933 [X]
Pre-Effective Amendment No. [ ]
Post-Effective Amendment No. 38 [X]
and/or
REGISTRATION STATEMENT UNDER
THE INVESTMENT COMPANY ACT OF 1940 [X]
AMENDMENT NO. 38
(check appropriate box or boxes)
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JOHN HANCOCK INVESTMENT TRUST II
(Exact name of Registrant as Specified in Charter)
101 Huntington Avenue
Boston, Massachusetts 02199-7603
(address of Principal Executive Officers)
Registrant's Telephone Number, including Area Code (617) 375-1700
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SUSAN S. NEWTON
Vice President and Secretary
John Hancock Advisers, Inc.
101 Huntington Avenue
Boston, Massachusetts 02199-7603
(Name and Address of Agent for Service)
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It is proposed that this filing will become effective (check appropriate box)
[ ] immediately upon filing pursuant to paragraph (b)
[X] on March 1, 1998 pursuant to paragraph (b)
[ ] 60 days after filing pursuant to paragraph (a)
[ ] on (date) pursuant to paragraph (a) of Rule 485
If appropriate, check the following box:
[ ] This post-effective amendment designates a new effective date for a
previously filed post-effective amendment.
List of funds included in the filing:
-John Hancock Regional Bank Fund
-John Hancock Financial Industries Fund
<PAGE>
INVESTMENT TRUST II
CROSS
REFERENCE SHEET
<TABLE>
<CAPTION>
Item Number Statement of Additional
Form N-1A Part A Prospectus Caption Information Caption
- ---------------- ------------------ -------------------
<S> <C> <C>
1 Front Cover Page *
2 Expense Information; *
The Fund's Expenses; Share Price
3 The Fund's Financial Highlights; *
Performance
4 Investment Objective and Policies; *
Organization and Management of the Fund
5 Organization and Management of the Fund; *
The Fund's Expenses; Back Cover Page
6 Organization and Management of the Fund; *
Dividends and Taxes;
How to Buy Shares; How to Redeem Shares;
Additional Services and Programs
7 How to Buy Shares; *
Share Price; Additional Services and
Programs; Alternative Purchase
Arrangements; The Fund's Expenses; Back
Cover
Page
8 How to Redeem Shares *
9 Not Applicable *
<PAGE>
Item Number Statement of Additional
Form N-1A Part A Prospectus Caption Information Caption
- ---------------- ------------------ -------------------
10 * Front Cover Page
11 * Table of Contents
12 * Organization of the Fund
13 * Investment Objectives and
Policies; Certain Investment
Practices; Investment
Restrictions
14 * Those Responsible for
Management
15 * Those Responsible for
Management
16 * Investment Advisory and Other
Services;
Distribution Contracts;
Transfer Agent Services;
Custody of Portfolio;
Independent Auditors
17 * Brokerage Allocation
18 * Description of the Fund's
Shares
19 * Net Asset Value; Additional
Services and Programs
20 * Tax Status
21 * Distribution Contract
22 * Calculation of Performance
23 * Financial Statements
</TABLE>
<PAGE>
JOHN HANCOCK
Growth
Funds
[LOGO]
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Prospectus
March 1, 1998
This prospectus gives vital information about these funds. For your own benefit
and protection, please read it before you invest, and keep it on hand for future
reference.
Please note that these funds:
o are not bank deposits
o are not federally insured
o are not endorsed by any bank or government agency
o are not guaranteed to achieve their goal(s)
Like all mutual fund shares, these securities have not been approved or
disapproved by the Securities and Exchange Commission or any state securities
commission, nor has the Securities and Exchange Commission or any state
securities commission passed upon the accuracy or adequacy of this prospectus.
Any representation to the contrary is a criminal offense.
Emerging Growth Fund
Financial Industries Fund
Growth Fund
Regional Bank Fund
Special Equities Fund
Special Opportunities Fund
[LOGO] JOHN HANCOCK FUNDS
A Global Investment Management Firm
101 Huntington Avenue, Boston, Massachusetts 02199-7603
<PAGE>
Contents
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A fund-by-fund look at goals, Emerging Growth Fund 4
strategies, risks, expenses and
financial history. Financial Industries Fund 6
Growth Fund 8
Regional Bank Fund 10
Special Equities Fund 12
Special Opportunities Fund 14
Policies and instructions for Your account
opening, maintaining and closing
an account in any growth fund. Choosing a share class 16
How sales charges are calculated 16
Sales charge reductions and waivers 17
Opening an account 17
Buying shares 18
Selling shares 19
Transaction policies 21
Dividends and account policies 21
Additional investor services 22
Details that apply to the Fund details
growth funds as a group.
Business structure 23
Sales compensation 24
More about risk 26
For more information back cover
<PAGE>
Overview
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FUND INFORMATION KEY
Concise fund-by-fund descriptions begin on the next page. Each description
provides the following information:
[Clip art] Goal and strategy The fund's particular investment goals and the
strategies it intends to use in pursuing those goals.
[Clip art] Portfolio securities The primary types of securities in which the
fund invests. Secondary investments are described in "More about risk" at the
end of the prospectus.
[Clip art] Risk factors The major risk factors associated with the fund.
[Clip art] Portfolio management The individual or group (including subadvisers,
if any) designated by the investment adviser to handle the fund's day-to-day
management.
[Clip art] Expenses The overall costs borne by an investor in the fund,
including sales charges and annual expenses.
[Clip art] Financial highlights A table showing the fund's financial performance
for up to ten years, by share class. A bar chart showing total return allows you
to compare the fund's historical risk level to those of other funds.
GOAL OF THE GROWTH FUNDS
John Hancock growth funds seek long-term growth by investing primarily in common
stocks. Each fund has its own strategy and its own risk/reward profile. Because
you could lose money by investing in these funds, be sure to read all risk
disclosure carefully before investing.
WHO MAY WANT TO INVEST
These funds may be appropriate for investors who:
o have longer time horizons
o are willing to accept higher short-term risk along with higher potential
long-term returns
o want to diversify their portfolios
o are seeking funds for the growth portion of an asset allocation portfolio
o are investing for retirement or other goals that are many years in the
future
Growth funds may NOT be appropriate if you:
o are investing with a shorter time horizon in mind
o are uncomfortable with an investment that will go up and down in value
THE MANAGEMENT FIRM
All John Hancock growth funds are managed by John Hancock Advisers, Inc. Founded
in 1968, John Hancock Advisers is a wholly owned subsidiary of John Hancock
Mutual Life Insurance Company and manages more than $26 billion in assets.
<PAGE>
Emerging Growth Fund
REGISTRANT NAME: JOHN HANCOCK SERIES TRUST
TICKER SYMBOL CLASS A: TAEMX CLASS B: TSEGX
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GOAL AND STRATEGY
[Clip art] The fund seeks long-term capital appreciation. To pursue this goal,
the fund invests in emerging companies (market capitalization of less than $1
billion). Under normal circumstances, the fund invests at least 80% of assets in
a diversified portfolio of these companies. The fund looks for companies that
show rapid growth but are not yet widely recognized. The fund also may invest in
established companies that, because of new management, products or
opportunities, offer the possibility of accelerating earnings. The fund does not
invest for income.
PORTFOLIO SECURITIES
[Clip art] The fund invests primarily in the common stocks of U.S. and foreign
emerging growth companies, although it may invest up to 20% of assets in other
types of companies. The fund may also invest in warrants, preferred stocks and
investment-grade convertible debt securities.
For liquidity and flexibility, the fund may place up to 20% of assets in cash or
in investment-grade short-term securities. In abnormal market conditions, it may
invest more assets in these securities as a defensive tactic. The fund also may
invest in certain higher-risk securities, and may engage in other investment
practices.
RISK FACTORS
[Clip art] As with any growth fund, the value of your investment will fluctuate
in response to stock market movements. Stocks of emerging growth companies carry
higher risks than stocks of larger companies. This is because emerging growth
companies:
o may be in the early stages of development
o may be dependent on a small number of products or services
o may lack substantial capital reserves
o do not have proven track records
In addition, stocks of emerging companies are often traded in low volumes, which
can increase market and liquidity risks. Before you invest, please read "More
about risk" starting on page 26.
PORTFOLIO MANAGEMENT
[Clip art] Bernice S. Behar, CFA, leads the fund's portfolio management team.
Other team members are managers Laura Allen, CFA, Anurag Pandit, CFA, and Andrew
Slabin. Ms. Behar, senior vice president, has been in the investment business
since 1986 and has managed the fund since 1996. Ms. Allen, senior vice
president, has been in the investment business since 1991 and joined the fund's
management team in 1998. Mr. Pandit, vice president, has been in the investment
business since 1984 and a member of the fund's team since 1996. Mr. Slabin has
been with John Hancock Funds since 1993 and joined the team in 1996.
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INVESTOR EXPENSES
[Clip art] Fund investors pay various expenses, either directly or indirectly.
The figures below show the expenses for the past year, adjusted to reflect any
changes. Future expenses may be greater or less.
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Shareholder transaction expenses Class A Class B
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Maximum sales charge imposed on purchases
(as a percentage of offering price) 5.00% none
Maximum sales charge imposed on
reinvested dividends none none
Maximum deferred sales charge none(1) 5.00%
Redemption fee(2) none none
Exchange fee none none
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Annual fund operating expenses (as a % of average net assets)
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Management fee 0.75% 0.75%
12b-1 fee(3) 0.25% 1.00%
Other expenses 0.29% 0.29%
Total fund operating expenses 1.29% 2.04%
Example The table below shows what you would pay if you invested $1,000 over the
various time frames indicated. The example assumes you reinvested all dividends
and that the average annual return was 5%.
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Share class Year 1 Year 3 Year 5 Year 10
- --------------------------------------------------------------------------------
Class A shares $62 $87 $117 $198
Class B shares
Assuming redemption
at end of period $71 $94 $130 $217
Assuming no redemption $21 $64 $110 $217
This example is for comparison purposes only and is not a representation of the
fund's actual expenses and returns, either past or future.
(1) Except for investments of $1 million or more; see "How sales charges are
calculated."
(2) Does not include wire redemption fee (currently $4.00).
(3) Because of the 12b-1 fee, long-term shareholders may indirectly pay more
than the equivalent of the maximum permitted front-end sales charge.
4 EMERGING GROWTH FUND
<PAGE>
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FINANCIAL HIGHLIGHTS
[Clip art] The figures below have been audited
by the fund's independent auditors,
Ernst & Young LLP.
[The following table was originally a bar chart in the printed materials.]
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Volatility, as indicated by Class B
year-by-year total investment return (%) 33.59 27.40 (11.82) 73.78 6.19 24.53 2.80 33.60 12.48 22.44
(scale varies from fund to fund)
</TABLE>
<TABLE>
<CAPTION>
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Class A - period ended: 10/91(1) 10/92 10/93 10/94 10/95(2) 10/96 10/97
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Per share operating performance
Net asset value, beginning of period $18.12 $19.26 $20.60 $25.89 $26.82 $36.09 $40.88
Net investment income (loss)(3) (0.03) (0.20) (0.16) (0.18) (0.25) (0.34) (0.25)
Net realized and unrealized gain (loss)
on investments 1.17 1.60 5.45 1.11 9.52 5.13 9.62
Total from investment operations 1.14 1.40 5.29 0.93 9.27 4.79 9.37
Less distributions:
Distributions from net realized gain on
investments sold -- (0.06) -- -- -- -- (0.85)
Net asset value, end of period $19.26 $20.60 $25.89 $26.82 $36.09 $40.88 $49.40
Total investment return at net asset value(4) (%) 6.29 7.32 25.68 3.59 34.56 13.27 23.35
Ratios and supplemental data
Net assets, end of period (000s omitted) ($) 38,859 46,137 81,263 131,053 179,481 218,497 209,384
Ratio of expenses to average net assets (%) 0.33 1.67 1.40 1.44 1.38 1.32 1.29(5)
Ratio of net investment income (loss)
to average net assets (%) (0.15) (1.03) (0.70) (0.71) (0.83) (0.86) (0.57)
Portfolio turnover rate (%) 66 48 29 25 23 44 96
Average brokerage commission rate(6) ($) N/A N/A N/A N/A N/A 0.0669 0.0694
<CAPTION>
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Class B - period ended: 10/88 10/89 10/90 10/91 10/92
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<S> <C> <C> <C> <C> <C>
Per share operating performance
Net asset value, beginning of period $7.89 $10.54 $12.76 $11.06 $19.22
Net investment income (loss)(3) 0.09 (0.08) (0.22) (0.30) (0.38)
Net realized and unrealized gain (loss) on investments 2.56 2.83 (1.26) 8.46 1.56
Total from investment operations 2.65 2.75 (1.48) 8.16 1.18
Less distributions:
Dividends from net investment income -- (0.04) -- -- --
Distributions from net realized gain on investments sold -- (0.49) (0.22) -- (0.06)
Total distributions -- (0.53) (0.22) -- (0.06)
Net asset value, end of period $10.54 $12.76 $11.06 $19.22 $20.34
Total investment return at net asset value(4) (%) 33.59 27.40 (11.82) 73.78 6.19
Total adjusted investment return at net asset value(4,7) (%) 31.00 27.37 -- -- --
Ratios and supplemental data
Net assets, end of period (000s omitted) ($) 3,232 7,877 11,668 52,743 86,923
Ratio of expenses to average net assets (%) 3.05 3.48 3.11 2.85 2.64
Ratio of adjusted expenses to average net assets(8) (%) 5.64 3.51 -- -- --
Ratio of net investment income (loss) to average net assets (%) 0.81 (0.67) (1.64) (1.83) (1.99)
Ratio of adjusted net investment income (loss) to
average net assets(8) (%) (1.78) (0.70) -- -- --
Portfolio turnover rate (%) 252 90 82 66 48
Fee reduction per share ($) 0.29 0.004 -- -- --
Average brokerage commission rate(6) ($) N/A N/A N/A N/A N/A
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Class B - period ended: 10/93 10/94 10/95(2) 10/96 10/97
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<S> <C> <C> <C> <C> <C>
Per share operating performance
Net asset value, beginning of period $20.34 $25.33 $26.04 $34.79 $39.13
Net investment income (loss)(3) (0.36) (0.36) (0.45) (0.60) (0.54)
Net realized and unrealized gain (loss) on investments 5.35 1.07 9.20 4.94 9.15
Total from investment operations 4.99 0.71 8.75 4.34 8.61
Less distributions:
Dividends from net investment income -- -- -- -- --
Distributions from net realized gain on investments sold -- -- -- -- (0.85)
Total distributions -- -- -- -- --
Net asset value, end of period $25.33 $26.04 $34.79 $39.13 $46.89
Total investment return at net asset value(4) (%) 24.53 2.80 33.60 12.48 22.44
Total adjusted investment return at net asset value(4,7) (%) -- -- -- -- --
Ratios and supplemental data
Net assets, end of period (000s omitted) ($) 219,484 283,435 393,478 451,268 472,594
Ratio of expenses to average net assets (%) 2.28 2.19 2.11 2.05 2.02(5)
Ratio of adjusted expenses to average net assets(8) (%) -- -- -- -- --
Ratio of net investment income (loss) to average net assets (%) (1.58) (1.46) (1.55) (1.59) (1.30)
Ratio of adjusted net investment income (loss) to
average net assets(8) (%) -- -- -- -- --
Portfolio turnover rate (%) 29 25 23 44 96
Fee reduction per share ($) -- -- -- -- --
Average brokerage commission rate(6) ($) N/A N/A N/A 0.0669 0.0694
</TABLE>
(1) Class A shares commenced operations on August 22, 1991. (Not annualized.)
(2) On December 22, 1994, John Hancock Advisers, Inc. became the investment
adviser of the fund.
(3) Based on the average of the shares outstanding at the end of each month.
(4) Assumes dividend reinvestment and does not reflect the effect of sales
charges.
(5) Expense ratios do not include interest expense due to bank loans, which
amounted to less than $0.01 cents per share.
(6) Per portfolio share traded. Required for fiscal years that began September
1, 1995 or later.
(7) An estimated total return calculation that does not take into
consideration fee reductions by the adviser during the periods shown.
(8) Unreimbursed, without fee reduction.
EMERGING GROWTH FUND 5
<PAGE>
Financial Industries Fund
REGISTRANT NAME: JOHN HANCOCK INVESTMENT TRUST II
TICKER SYMBOL CLASS A: FIDAX CLASS B: FIDBX
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GOAL AND STRATEGY
[Clip art] The fund seeks capital appreciation. To pursue this goal, the fund
invests in U.S. and foreign financial services companies. These include banks,
thrifts, finance companies, brokerage and advisory firms, real estate-related
firms and insurance companies.
Under normal circumstances, the fund invests at least 65% of assets in these
companies.
PORTFOLIO SECURITIES
[Clip art] The fund invests primarily in the common stocks of U.S. and foreign
companies. It may also invest in warrants, preferred stocks and debt securities.
The fund may invest up to 5% of net assets in junk bonds.
For liquidity and flexibility, the fund may place up to 15% of net assets in
cash or in investment-grade short-term securities. In abnormal market
conditions, it may invest up to 80% in these securities as a defensive tactic.
The fund may also invest in certain higher-risk securities and may engage in
other investment practices.
RISK FACTORS
[Clip art] As with any growth fund, the value of your investment will fluctuate
in response to stock market movements. Because the fund concentrates in a single
sector, its performance is largely dependent on the sector's performance, which
may differ from that of the overall stock market. Falling interest rates or
deteriorating economic conditions can adversely affect the performance of
financial services companies' stocks, while rising interest rates will cause a
decline in the value of any debt securities the fund holds. Before you invest,
please read "More about risk" starting on page 26.
PORTFOLIO MANAGEMENT
[Clip art] James K. Schmidt, CFA, leads the fund's management team. Mr. Schmidt,
executive vice president, has been in the investment business since 1979 and has
served as the fund's portfolio manager since 1985. Other portfolio managers on
the team are Thomas Finucane, vice president, who has been in the investment
business since joining the adviser in 1990 and Thomas Goggins, senior vice
president, who has been in the investment business since 1986 and joined the
adviser in 1995.
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INVESTOR EXPENSES
[Clip art] Fund investors pay various expenses, either directly or indirectly.
The figures below are based on estimated expenses for the past year, adjusted to
reflect any changes. Future expenses may be greater or less.
- --------------------------------------------------------------------------------
Shareholder transaction expenses Class A Class B
- --------------------------------------------------------------------------------
Maximum sales charge imposed on purchases
(as a percentage of offering price) 5.00% none
Maximum sales charge imposed on
reinvested dividends none none
Maximum deferred sales charge none(1) 5.00%
Redemption fee(2) none none
Exchange fee none none
- --------------------------------------------------------------------------------
Annual fund operating expenses (as a % of average net assets)
- --------------------------------------------------------------------------------
Management fee 0.79% 0.79%
12b-1 fee(3) 0.30% 1.00%
Other expenses 0.38% 0.38%
Total fund operating expenses 1.47% 2.17%
Example The table below shows what you would pay if you invested $1,000 over the
various time frames indicated. The example assumes you reinvested all dividends
and that the average annual return was 5%.
- --------------------------------------------------------------------------------
Share class Year 1 Year 3 Year 5 Year 10
- --------------------------------------------------------------------------------
Class A shares $64 $94 $126 $217
Class B shares
Assuming redemption
at end of period $72 $98 $136 $232
Assuming no redemption $22 $68 $116 $232
This example is for comparison purposes only and is not a representation of the
fund's actual expenses and returns, either past or future.
(1) Except for investments of $1 million or more; see "How sales charges are
calculated."
(2) Does not include wire redemption fee (currently $4.00).
(3) Because of the 12b-1 fee, long-term shareholders may indirectly pay more
than the equivalent of the maximum permitted front-end sales charge.
6 FINANCIAL INDUSTRIES FUND
<PAGE>
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FINANCIAL HIGHLIGHTS
[Clip art] The figures below have been audited
by the fund's independent auditors,
Price Waterhouse LLP.
[The following table was originally a bar chart in the printed materials.]
Volatility, as indicated by Class A
year-by-year total investment return (%) 29.76(4) 37.19
(scale varies from fund to fund)
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Class A - period ended: 10/96(1) 10/97
- --------------------------------------------------------------------------------
Per share operating performance
Net asset value, beginning of period $8.50 $11.03
Net investment income (loss)(2) 0.02 0.14
Net realized and unrealized gain (loss)
on investments 2.51 3.77
Total from investment operations 2.53 3.91
Less distributions:
Dividends from net investment income -- (0.03)
Distributions from net realized gain
on investments sold -- (0.65)
Total distributions -- (0.68)
Net asset value, end of period $11.03 $14.26
Total investment return at net asset value(3) (%) 29.76(4) 37.19
Total adjusted investment return at net
asset value(3,5) (%) 26.04(4) 36.92
Ratios and supplemental data
Net assets, end of period (000s omitted) ($) 895 416,698
Ratio of expenses to average net assets (%) 1.20(6) 1.20
Ratio of adjusted expenses to average net
assets(7) (%) 7.07(6) 1.47
Ratio of net investment income (loss) to average
net assets (%) 0.37(6) 1.10
Ratio of adjusted net investment income (loss) to
average net assets(7) (%) (5.50)(6) 0.83
Portfolio turnover rate (%) 31 6
Fee reduction per share(2) ($) 0.38 0.03
Average brokerage commission rate(8) ($) 0.0649 0.0661
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Class B - period ended: 10/97(1)
- --------------------------------------------------------------------------------
Per share operating performance
Net asset value, beginning of period $11.43
Net investment income (loss)(2) 0.04
Net realized and unrealized gain (loss) on
investments 2.71
Total from investment operations 2.75
Less distributions:
Dividends from net investment income --
Distributions from net realized gain on
investments sold --
Total distributions --
Net asset value, end of period $14.18
Total investment return at net asset value(3) (%) 24.06(4)
Total adjusted investment return at net asset
value(3,5) (%) 23.85(4)
Ratios and supplemental data
Net assets, end of period (000s omitted) ($) 1,308,946
Ratio of expenses to average net assets (%) 1.90(6)
Ratio of adjusted expenses to average net assets(7) (%) 2.17(6)
Ratio of net investment income (loss) to average
net assets (%) 0.40(6)
Ratio of adjusted net investment income (loss) to
average net assets(7) (%) 0.13(6)
Portfolio turnover rate (%) 6
Fee reduction per share(2) ($) 0.03
Average brokerage commission rate(8) ($) 0.0661
(1) Class A and Class B shares commenced operations on March 14, 1996 and
January 14, 1997, respectively.
(2) Based on the average of the shares outstanding at the end of each month.
(3) Assumes dividend reinvestment and does not reflect the effect of sales
charges.
(4) Not annualized.
(5) An estimated total return calculation that does no take into consideration
fee reductions by the adviser during the periods shown.
(6) Annualized.
(7) Unreimbursed, without fee reduction.
(8) Per portfolio share traded. Required for fiscal years that began September
1, 1995 or later.
FINANCIAL INDUSTRIES FUND 7
<PAGE>
Growth Fund
REGISTRANT NAME: JOHN HANCOCK INVESTMENT TRUST III
TICKER SYMBOL CLASS A: JHNGX CLASS B: JHGBX
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GOAL AND STRATEGY
[Clip art] The fund seeks long-term capital appreciation. To pursue this goal,
the fund invests in stocks that are diversified with regard to industries and
issuers. The fund favors stocks of companies whose operating earnings and
revenues have grown more than twice as fast as the gross domestic product over
the past five years, although not all stocks in the fund's portfolio will meet
this criterion.
PORTFOLIO SECURITIES
[Clip art] The portfolio invests primarily in the common stocks of U.S.
companies. It may also invest in warrants, preferred stocks and convertible debt
securities.
For liquidity and flexibility, the fund may invest up to 35% of net assets in
investment-grade short-term securities. In abnormal market conditions, it may
invest more than 35% in these securities as a defensive tactic. The fund may
also invest in certain higher-risk securities, and may engage in other
investment practices.
RISK FACTORS
[Clip art] As with any growth fund, the value of your investment will fluctuate
in response to stock market movements. To the extent that the fund invests in
higher-risk securities, it takes on additional risks that could adversely affect
its performance. Before you invest, please read "More about risk" starting on
page 26.
PORTFOLIO MANAGEMENT
[Clip art] Anurag Pandit, CFA, is leader of the fund's portfolio management
team. A vice president of the adviser, Mr. Pandit has been a member of the
management team since joining John Hancock Funds in April 1996. He assumed
leadership of the team on January 1, 1997. Mr. Pandit has been in the investment
business since 1984.
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INVESTOR EXPENSES
[Clip art] Fund investors pay various expenses, either directly or indirectly.
The figures below show the expenses for the past year, adjusted to reflect any
changes. Future expenses may be greater or less.
- --------------------------------------------------------------------------------
Shareholder transaction expenses Class A Class B
- --------------------------------------------------------------------------------
Maximum sales charge imposed on purchases
(as a percentage of offering price) 5.00% none
Maximum sales charge imposed on
reinvested dividends none none
Maximum deferred sales charge none(1) 5.00%
Redemption fee(2) none none
Exchange fee none none
- --------------------------------------------------------------------------------
Annual fund operating expenses (as a % of average net assets)
- --------------------------------------------------------------------------------
Management fee 0.75% 0.75%
12b-1 fee(3) 0.30% 1.00%
Other expenses 0.35% 0.35%
Total fund operating expenses 1.40% 2.10%
Example The table below shows what you would pay if you invested $1,000 over the
various time frames indicated. The example assumes you reinvested all dividends
and that the average annual return was 5%.
- --------------------------------------------------------------------------------
Share class Year 1 Year 3 Year 5 Year 10
- --------------------------------------------------------------------------------
Class A shares $64 $92 $123 $210
Class B shares
Assuming redemption
at end of period $71 $96 $133 $225
Assuming no redemption $21 $66 $113 $225
This example is for comparison purposes only and is not a representation of the
fund's actual expenses and returns, either past or future.
(1) Except for investments of $1 million or more; see "How sales charges are
calculated."
(2) Does not include wire redemption fee (currently $4.00).
(3) Because of the 12b-1 fee, long-term shareholders may indirectly pay more
than the equivalent of the maximum permitted front-end sales charge.
8 GROWTH FUND
<PAGE>
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
[Clip art] The figures below have been audited
by the fund's independent auditors,
Ernst & Young LLP.
[The following table was originally a bar chart in the printed materials.]
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Volatility, as indicated by Class A
year-by-year total investment return (%) 6.03 11.23 30.96 (8.34) 41.68 6.06 13.03 (7.50) 27.17 19.32(4) 16.05
(scale varies from fund to fund) ten
months
</TABLE>
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------------
Class A - period ended: 12/87 12/88 12/89 12/90 12/91 12/92
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Per share operating performance
Net asset value, beginning of period $14.03 $12.34 $13.33 $15.18 $12.93 $17.48
Net investment income (loss) 0.22 0.23 0.28 0.16 0.04 (0.06)
Net realized and unrealized gain (loss) on investments 0.64 1.16 3.81 (1.47) 5.36 1.10
Total from investment operations 0.86 1.39 4.09 (1.31) 5.40 1.04
Less distributions:
Dividends from net investment income (0.28) (0.23) (0.29) (0.16) (0.04) --
Distributions from net realized gain on
investments sold (2.27) (0.17) (1.95) (0.78) (0.81) (1.20)
Total distributions (2.55) (0.40) (2.24) (0.94) (0.85) (1.20)
Net asset value, end of period $12.34 $13.33 $15.18 $12.93 $17.48 $17.32
Total investment return at net asset value(3) (%) 6.03 11.23 30.96 (8.34) 41.68 6.06
Ratios and supplemental data
Net assets, end of period (000s omitted) ($) 86,426 101,497 105,014 102,416 145,287 153,057
Ratio of expenses to average net assets (%) 1.00 1.06 0.96 1.46 1.44 1.60
Ratio of net investment income (loss) to average
net assets (%) 1.41 1.76 1.73 1.12 0.27 (0.36)
Portfolio turnover rate (%) 68 47 61 102 82 71
Average brokerage commission rate(7) ($) N/A N/A N/A N/A N/A N/A
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------------
Class A - period ended: 12/93 12/94 12/95 10/96(1) 10/97
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Per share operating performance
Net asset value, beginning of period $17.32 $17.40 $15.89 $19.51 $23.28
Net investment income (loss) (0.11) (0.10) (0.09)(2) (0.13)(2) (0.12)(2)
Net realized and unrealized gain (loss) on investments 2.33 (1.21) 4.40 3.90 3.49
Total from investment operations 2.22 (1.31) 4.31 3.77 3.37
Less distributions:
Dividends from net investment income -- -- -- -- (2.28)
Distributions from net realized gain on
investments sold (2.14) (0.20) (0.69) -- --
Total distributions (2.14) (0.20) (0.69) -- --
Net asset value, end of period $17.40 $15.89 $19.51 $23.28 $24.37
Total investment return at net asset value(3) (%) 13.03 (7.50) 27.17 19.32(4) 16.05
Ratios and supplemental data
Net assets, end of period (000s omitted) ($) 162,937 146,466 241,700 279,425 303,067
Ratio of expenses to average net assets (%) 1.56 1.65 1.48 1.48(5) 1.44
Ratio of net investment income (loss) to average
net assets (%) (0.67) (0.64) (0.46) (0.73)(5) (0.51)
Portfolio turnover rate (%) 68 52 68(6) 59 133
Average brokerage commission rate(7) ($) N/A N/A N/A 0.0695 0.0697
<CAPTION>
- ----------------------------------------------------------------------------------------------------
Class B - period ended: 12/94(8) 12/95 10/96(1) 10/97
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Per share operating performance
Net asset value, beginning of period $17.16 $15.83 $19.25 $22.83
Net investment income (loss) (2) (0.20) (0.26) (0.26) (0.27)
Net realized and unrealized gain (loss)
on investments (0.93) 4.37 3.84 3.42
Total from investment operations (1.13) 4.11 3.58 3.15
Less distributions:
Distributions from net realized gain on
investments sold (0.20) (0.69) -- (2.28)
Net asset value, end of period $15.83 $19.25 $22.83 $23.70
Total investment return at net asset value(3) (%) (6.56)(4) 26.01 18.60(4) 15.33
Ratios and supplemental data
Net assets, end of period (000s omitted) ($) 3,807 15,913 25,474 36,430
Ratio of expenses to average net assets (%) 2.38(5) 2.31 2.18(5) 2.13
Ratio of net investment income (loss) to
average net assets (%) (1.25)(5) (1.39) (1.42)(5) (1.20)
Portfolio turnover rate (%) 52 68(6) 59 133
Average brokerage commission rate(7) ($) N/A N/A 0.0695 0.0697
</TABLE>
(1) Effective October 31, 1996, the fiscal year end changed from December 31
to October 31.
(2) Based on the average of the shares outstanding at the end of each month.
(3) Assumes dividend reinvestment and does not reflect the effect of sales
charges.
(4) Not annualized.
(5) Annualized.
(6) Excludes merger activity.
(7) Per portfolio share traded. Required for fiscal years that began September
1, 1995 or later.
(8) Class B shares commenced operations on January 3, 1994.
GROWTH FUND 9
<PAGE>
Regional Bank Fund This fund is temporarily closed
to new investments except for
existing accounts (see the
statement of additional information).
REGISTRANT NAME: JOHN HANCOCK INVESTMENT TRUST II
TICKER SYMBOL CLASS A: FRBAX CLASS B: FRBFX
- --------------------------------------------------------------------------------
GOAL AND STRATEGY
[Clip art] The fund seeks long-term capital appreciation. To pursue this goal,
the fund invests in regional banks and lending institutions, including: o
commercial and industrial banks o savings and loan associations o bank holding
companies
These financial institutions provide full-service banking, have primarily
domestic assets and are typically based outside of New York City and Chicago.
They may or may not be members of the Federal Reserve, and their deposits may or
may not be FDIC-insured.
Under normal circumstances, the fund invests at least 65% of assets in these
companies; it may invest up to 35% of assets in other financial services
companies, including lending companies and money center banks. The fund may
invest up to 5% of net assets in stocks of non-financial services companies and
up to 5% in junk bonds issued by banks.
Because regional banks typically pay regular dividends, moderate income is an
investment goal.
PORTFOLIO SECURITIES
[Clip art] The fund invests primarily in the common stocks of U.S. companies. It
may also invest in warrants, preferred stocks and investment-grade convertible
debt securities, as well as foreign stocks.
For liquidity and flexibility, the fund may place up to 15% of net assets in
cash or in investment-grade short-term securities. In abnormal market
conditions, it may invest up to 80% in these securities as a defensive tactic.
The fund may also invest in certain higher-risk securities, and may engage in
other investment practices.
RISK FACTORS
[Clip art] As with any growth fund, the value of your investment will fluctuate
in response to stock market movements. Because the fund concentrates in a single
industry, its performance is largely dependent on the industry's performance,
which may differ in direction and degree from that of the overall stock market.
Falling interest rates or deteriorating economic conditions can adversely affect
the performance of bank stocks, while rising interest rates will cause a decline
in the value of any debt securities the fund holds. Before you invest, please
read "More about risk" starting on page 26.
PORTFOLIO MANAGEMENT
[Clip art] James K. Schmidt, CFA, leads the fund's management team. Mr. Schmidt,
executive vice president, has been in the investment business since 1979 and has
served as the fund's portfolio manager since 1985. Other portfolio managers on
the team are Thomas Finucane, vice president, who has been in the investment
business since joining the adviser in 1990 and Thomas Goggins, senior vice
president, who has been in the investment business since 1986 and joined the
adviser in 1995.
- --------------------------------------------------------------------------------
INVESTOR EXPENSES
[Clip art] Fund investors pay various expenses, either directly or indirectly.
The figures below show the expenses for the past year, adjusted to reflect any
changes. Future expenses may be greater or less.
- --------------------------------------------------------------------------------
Shareholder transaction expenses Class A Class B
- --------------------------------------------------------------------------------
Maximum sales charge imposed on purchases
(as a percentage of offering price) 5.00% none
Maximum sales charge imposed on
reinvested dividends none none
Maximum deferred sales charge none(1) 5.00%
Redemption fee(2) none none
Exchange fee none none
- --------------------------------------------------------------------------------
Annual fund operating expenses (as a % of average net assets)
- --------------------------------------------------------------------------------
Management fee 0.75% 0.75%
12b-1 fee(3) 0.30% 1.00%
Other expenses 0.25% 0.25%
Total fund operating expenses 1.30% 2.00%
Example The table below shows what you would pay if you invested $1,000 over the
various time frames indicated. The example assumes you reinvested all dividends
and that the average annual return was 5%.
- --------------------------------------------------------------------------------
Share class Year 1 Year 3 Year 5 Year 10
- --------------------------------------------------------------------------------
Class A shares $63 $89 $118 $199
Class B shares
Assuming redemption
at end of period $70 $93 $128 $214
Assuming no redemption $20 $63 $108 $214
This example is for comparison purposes only and is not a representation of the
fund's actual expenses and returns, either past or future.
(1) Except for investments of $1 million or more; see "How sales charges are
calculated."
(2) Does not include wire redemption fee (currently $4.00).
(3) Because of the 12b-1 fee, long-term shareholders may indirectly pay more
than the equivalent of the maximum permitted front-end sales charge.
10 REGIONAL BANK FUND
<PAGE>
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
[Clip art] The figures below have been audited
by the fund's independent auditors,
Price Waterhouse LLP.
[The following table was originally a bar chart in the printed materials.]
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Volatility, as indicated by Class B
year-by-year total investment return (%) 36.89 20.46 (32.29) 75.35 37.20 36.71 5.69 30.11 27.89 45.78
(scale varies from fund to fund)
</TABLE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Class A - period ended: 10/92(1) 10/93 10/94 10/95 10/96 10/97
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Per share operating performance
Net asset value, beginning of period $13.47 $17.47 $21.62 $21.52 $27.14 $33.99
Net investment income (loss) 0.21 0.26(2) 0.39(2) 0.52(2) 0.63(2) 0.64(2)
Net realized and unrealized gain (loss) on
investments 3.98 5.84 0.91 5.92 7.04 15.02
Total from investment operations 4.19 6.10 1.30 6.44 7.67 15.66
Less distributions:
Dividends from net investment income (0.19) (0.26) (0.34) (0.48) (0.60) (0.61)
Distributions from net realized gain on
investments sold -- (1.69) (1.06) (0.34) (0.22) (0.31)
Total distributions (0.19) (1.95) (1.40) (0.82) (0.82) (0.92)
Net asset value, end of period $17.47 $21.62 $21.52 $27.14 $33.99 $48.73
Total investment return at net asset value(3)(%) 31.26(4) 37.45 6.44 31.00 28.78 46.79
Ratios and supplemental data
Net assets, end of period (000s omitted) ($) 31,306 94,158 216,978 486,631 860,843 1,596,836
Ratio of expenses to average net assets (%) 1.41(5) 1.35 1.34 1.39 1.36 1.30
Ratio of net investment income to average net
assets (%) 1.64(5) 1.29 1.78 2.23 2.13 1.55
Portfolio turnover rate (%) 53 35 13 14 8 5
Average brokerage commission rate(6) ($) N/A N/A N/A N/A 0.0694 0.0694
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------
Class B - period ended: 10/88 10/89 10/90 10/91 10/92
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Per share operating performance
Net asset value, beginning of period $10.02 $11.89 $13.00 $8.13 $13.76
Net investment income (loss) 0.16 0.20 0.30 0.29 0.18
Net realized and unrealized gain (loss)
on investments 3.12 2.02 (4.19) 5.68 4.56
Total from investment operations 3.28 2.22 (3.89) 5.97 4.74
Less distributions:
Dividends from net investment income (0.15) (0.16) (0.19) (0.34) (0.28)
Distributions from net realized gain on
investments sold (1.26) (0.95) (0.76) -- (0.78)
Distributions from capital paid-in -- -- (0.03) -- --
Total distributions (1.41) (1.11) (0.98) (0.34) (1.06)
Net asset value, end of period $11.89 $13.00 $8.13 $13.76 $17.44
Total investment return at net asset value(3)(%) 36.89 20.46 (32.29) 75.35 37.20
Ratios and supplemental data
Net assets, end of period (000s omitted) ($) 50,965 81,167 38,992 52,098 56,016
Ratio of expenses to average net assets (%) 2.17 1.99 1.99 2.04 1.96
Ratio of net investment income (loss) to average
net assets (%) 1.50 1.67 2.51 2.65 1.21
Portfolio turnover rate (%) 87 85 56 75 53
Average brokerage commission rate(6) ($) N/A N/A N/A N/A N/A
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------------
Class B - period ended: 10/93 10/94 10/95 10/96 10/97
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Per share operating performance
Net asset value, beginning of period $17.44 $21.56 $21.43 $27.02 $33.83
Net investment income (loss) 0.15(2) 0.23(2) 0.36(2) 0.42(2) 0.35(2)
Net realized and unrealized gain (loss)
on investments 5.83 0.91 5.89 7.01 14.95
Total from investment operations 5.98 1.14 6.25 7.43 15.30
Less distributions:
Dividends from net investment income (0.17) (0.21) (0.32) (0.40) (0.34)
Distributions from net realized gain on
investments sold (1.69) (1.06) (0.34) (0.22) (0.31)
Distributions from capital paid-in -- -- -- -- --
Total distributions (1.86) (1.27) (0.66) (0.62) (0.65)
Net asset value, end of period $21.56 $21.43 $27.02 $33.83 $48.48
Total investment return at net asset value(3)(%) 36.71 5.69 30.11 27.89 45.78
Ratios and supplemental data
Net assets, end of period (000s omitted) ($) 171,808 522,207 1,236,447 2,408,514 4,847,755
Ratio of expenses to average net assets (%) 1.88 2.06 2.09 2.07 2.00
Ratio of net investment income (loss) to average
net assets (%) 0.76 1.07 1.53 1.42 0.84
Portfolio turnover rate (%) 35 13 14 8 5
Average brokerage commission rate(6) ($) N/A N/A N/A 0.0694 0.0694
</TABLE>
(1) Class A shares commenced operations on January 3, 1992.
(2) Based on the average of the shares outstanding at the end of each month.
(3) Assumes dividend reinvestment and does not reflect the effect of sales
charges.
(4) Not annualized.
(5) Annualized.
(6) Per portfolio share traded. Required for fiscal years that began September
1, 1995 or later.
REGIONAL BANK FUND 11
<PAGE>
Special Equities Fund
REGISTRANT NAME: JOHN HANCOCK SPECIAL EQUITIES FUND
TICKER SYMBOL CLASS A: JHNSX CLASS B: SPQBX
- --------------------------------------------------------------------------------
GOAL AND STRATEGY
[Clip art] The fund seeks long-term capital appreciation. To pursue this goal,
the fund invests in small-capitalization companies and companies in situations
offering unusual or non-recurring opportunities. Under normal circumstances, the
fund invests at least 65% of assets in a diversified portfolio of these
companies. The fund looks for companies that dominate an emerging industry or
hold a growing market share in a fragmented industry, and that have demonstrated
annual earnings and revenue growth of at least 25%, self-financing capabilities
and strong management. The fund does not invest for income.
PORTFOLIO SECURITIES
[Clip art] The fund invests primarily in the common stocks of U.S. and foreign
companies. It may also invest in warrants, preferred stocks and investment-grade
convertible debt securities.
For liquidity and flexibility, the fund may place up to 35% of assets in cash or
in investment-grade short-term securities. In abnormal market conditions, it may
invest more than 35% in these securities as a defensive tactic. The fund also
may invest in certain higher-risk securities, and may engage in other investment
practices.
RISK FACTORS
[Clip art] As with any growth fund, the value of your investment will fluctuate
in response to stock market movements. Stocks of small-capitalization and
special-situation companies carry higher risks than stocks of larger companies.
This is because these companies:
o may lack proven track records
o may be dependent on a small number of products or services
o may be undercapitalized
o may have highly priced stocks that are sensitive to adverse news
In addition, stocks of these companies are often traded in low volumes, which
can increase market and liquidity risks. Before you invest, please read "More
about risk" starting on page 26.
MANAGEMENT/SUBADVISER
[Clip art] Michael P. DiCarlo is responsible for the fund's day-to-day
investment management. He has served as the fund's portfolio manager since
January 1988, and has been in the investment business since 1984. He is
currently one of three principals in DFS Advisors, LLC, which was founded in
1996 and serves as subadviser to the fund.
This fund will be closed to new investors at the end of the day its total assets
reach $2.5 billion. Further investments will be limited to existing accounts.
- --------------------------------------------------------------------------------
INVESTOR EXPENSES
[Clip art] Fund investors pay various expenses, either directly or indirectly.
The figures below show the expenses for the past year, adjusted to reflect any
changes. Future expenses may be greater or less.
- --------------------------------------------------------------------------------
Shareholder transaction expenses Class A Class B
Maximum sales charge imposed on purchases
(as a percentage of offering price) 5.00% none
Maximum sales charge imposed on
reinvested dividends none none
Maximum deferred sales charge none(1) 5.00%
Redemption fee(2) none none
Exchange fee none none
- --------------------------------------------------------------------------------
Annual fund operating expenses (as a % of average net assets)
- --------------------------------------------------------------------------------
Management fee(3) 0.81% 0.81%
12b-1 fee(4) 0.30% 1.00%
Other expenses 0.32% 0.38%
Total fund operating expenses 1.43% 2.19%
Example The table below shows what you would pay if you invested $1,000 over the
various time frames indicated. The example assumes you reinvested all dividends
and that the average annual return was 5%.
- --------------------------------------------------------------------------------
Share class Year 1 Year 3 Year 5 Year 10
- --------------------------------------------------------------------------------
Class A shares $64 $93 $124 $213
Class B shares
Assuming redemption
at end of period $72 $99 $137 $233
Assuming no redemption $22 $69 $117 $233
This example is for comparison purposes only and is not a representation of the
fund's actual expenses and returns, either past or future.
(1) Except for investments of $1 million or more; see "How sales charges are
calculated."
(2) Does not include wire redemption fee (currently $4.00).
(3) Includes a subadviser fee equal to 0.25% of the fund's net assets.
(4) Because of the 12b-1 fee, long-term shareholders may indirectly pay more
than the equivalent of the maximum permitted front-end sales charge.
12 SPECIAL EQUITIES FUND
<PAGE>
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
[Clip art] The figures below have been audited
by the fund's independent auditors,
Ernst & Young LLP.
[The following table was originally a bar chart in the printed materials.]
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Volatility, as indicated by Class A
year-by-year total investment return (%) 13.72 31.82 (21.89) 95.37 20.25 47.83 (0.12) 37.49 12.96 7.30
(scale varies from fund to fund)
</TABLE>
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------------
Class A - period ended: 10/88 10/89 10/90 10/91 10/92
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Per share operating performance
Net asset value, beginning of period $4.30 $4.89 $6.38 $4.97 $9.71
Net investment income (loss) 0.04 0.01 (0.12) (0.10) (0.19)(1)
Net realized and unrealized gain (loss) on investments 0.55 1.53 (1.27) 4.84 2.14
Total from investment operations 0.59 1.54 (1.39) 4.74 1.95
Less distributions:
Dividends from net investment income -- (0.05) (0.02) -- --
Distributions from net realized gain on investments sold -- -- -- -- (0.67)
Total distributions -- (0.05) (0.02) -- (0.67)
Net asset value, end of period $4.89 $6.38 $4.97 $9.71 $10.99
Total investment return at net asset value(2) (%) 13.72 31.82 (21.89) 95.37 20.25
Total adjusted investment return at net asset value(2,3) 12.28 30.75 (22.21) 95.33 --
Ratios and supplemental data
Net assets, end of period (000s omitted) ($) 11,714 12,285 8,166 19,713 44,665
Ratio of expenses to average net assets (%) 1.50 1.50 2.63 2.75 2.24
Ratio of adjusted expenses to average net assets(4) (%) 2.94 2.57 2.95 2.79 --
Ratio of net investment income (loss) to average net assets (%) 0.82 0.47 (1.58) (2.12) (1.91)
Ratio of adjusted net investment income (loss) to average
net assets(4) (%) (0.62) (0.60) (1.90) (2.16) --
Portfolio turnover rate (%) 91 115 113 163 114
Fee reduction per share ($) 0.07 0.03 0.02 0.002 --
Average brokerage commission rate(5) ($) N/A N/A N/A N/A N/A
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
Class A - period ended: 10/93 10/94 10/95 10/96 10/97
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Per share operating performance
Net asset value, beginning of period $10.99 $16.13 $16.11 $22.15 $24.53
Net investment income (loss) (0.20)(1) (0.21)(1) (0.18)(1) (0.22)(1) (0.29)(1)
Net realized and unrealized gain (loss) on investments 5.43 0.19 6.22 3.06 2.08
Total from investment operations 5.23 (0.02) 6.04 2.84 1.79
Less distributions:
Dividends from net investment income -- -- -- -- --
Distributions from net realized gain on investments sold (0.09) -- -- (0.46) --
Total distributions (0.09) -- -- (0.46) --
Net asset value, end of period $16.13 $16.11 $22.15 $24.53 $26.32
Total investment return at net asset value(2) (%) 47.83 (0.12) 37.49 12.96 7.30
Total adjusted investment return at net asset value(2,3) -- -- -- -- --
Ratios and supplemental data
Net assets, end of period (000s omitted) ($) 296,793 310,625 555,655 972,312 807,371
Ratio of expenses to average net assets (%) 1.84 1.62 1.48 1.42 1.43
Ratio of adjusted expenses to average net assets(4) (%) -- -- -- -- --
Ratio of net investment income (loss) to average net assets (%) (1.49) (1.40) (0.97) (0.89) (1.18)
Ratio of adjusted net investment income (loss) to average
net assets(4) (%) -- -- -- -- --
Portfolio turnover rate (%) 33 66 82 59 41
Fee reduction per share ($) -- -- -- -- --
Average brokerage commission rate(5) ($) N/A N/A N/A 0.0677 0.0649
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------------
Class B - period ended: 10/93(6) 10/94 10/95 10/96 10/97
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Per share operating performance
Net asset value, beginning of period $12.30 $16.08 $15.97 $21.81 $23.96
Net investment income (loss)(1) (0.18) (0.30) (0.31) (0.40) (0.46)
Net realized and unrealized gain (loss) on investments 3.96 0.19 6.15 3.01 2.02
Total from investment operations 3.78 (0.11) 5.84 2.61 1.56
Less distributions:
Distributions from net realized gain on investments sold -- -- -- (0.46) --
Net asset value, end of period $16.08 $15.97 $21.81 $23.96 $25.52
Total investment return at net asset value(2) (%) 30.73(7) (0.68) 36.57 12.09 6.51
Ratios and supplemental data
Net assets, end of period (000s omitted) ($) 158,281 191,979 454,934 956,374 951,449
Ratio of expenses to average net assets (%) 2.34(8) 2.25 2.20 2.16 2.19
Ratio of net investment income (loss) to average net assets (%) (2.03)(8) (2.02) (1.69) (1.65) (1.95)
Portfolio turnover rate (%) 33 66 82 59 41
Average brokerage commission rate(5) ($) N/A N/A N/A 0.0677 0.0649
</TABLE>
(1) Based on the average of the shares outstanding at the end of each month.
(2) Assumes dividend reinvestment and does not reflect the effect of sales
charges.
(3) An estimated total return calculation that does not take into
consideration fee reductions by the adviser during the periods shown.
(4) Unreimbursed, without fee reduction.
(5) Per portfolio share traded. Required for fiscal years that began September
1, 1995 or later.
(6) Class B shares commenced operations on March 1, 1993.
(7) Not annualized.
(8) Annualized.
SPECIAL EQUITIES FUND 13
<PAGE>
Special Opportunities Fund
REGISTRANT NAME: JOHN HANCOCK INVESTMENT TRUST III
TICKER SYMBOL CLASS A: SPOAX CLASS B: SPOBX
- --------------------------------------------------------------------------------
GOAL AND STRATEGY
[Clip art] The fund seeks long-term capital appreciation. To pursue this goal,
the fund invests in those economic sectors that appear to have a higher than
average earning potential.
Under normal circumstances, at least 75% of the fund's equity securities is
invested within five or fewer sectors (e.g., financial services, energy,
technology). At times, the fund may focus on a single sector. The fund first
determines the inclusion and weighting of sectors, using macroeconomic as well
as other factors, then selects portfolio securities by seeking the most
attractive companies. The fund may add or drop sectors. Because the fund may
invest more than 5% of assets in a single issuer, it is classified as a
non-diversified fund.
PORTFOLIO SECURITIES
[Clip art] The fund invests primarily in common stocks of U.S. and foreign
companies of any size. It may also invest in warrants, preferred stocks,
convertible debt securities, U.S. Government securities and corporate bonds
rated at least BBB/Baa, or equivalent, and may invest in certain higher-risk
securities. The fund also may make short sales of securities and may engage in
other investment practices.
For liquidity and flexibility, the fund may place assets in cash or invest in
investment-grade short-term securities.
RISK FACTORS
[Clip art] As with any growth fund, the value of your investment will fluctuate
in response to stock market movements. By focusing on a relatively small number
of sectors or issuers, the fund runs the risk that any factor influencing those
sectors or issuers will have a major effect on performance. The fund may invest
in companies with smaller market capitalizations, which represent higher
near-term risks than larger capitalization companies. These factors make the
fund likely to experience higher volatility than most other types of growth
funds. Before you invest, please read "More about risk" starting on page 26.
PORTFOLIO MANAGEMENT
[Clip art] Barbara C. Friedman, CFA, is leader of the fund's portfolio
management team. A senior vice president of the adviser, Ms. Friedman has been a
member of the management team since joining John Hancock Funds in January 1998.
Ms. Friedman has been in the investment business since 1973.
- --------------------------------------------------------------------------------
INVESTOR EXPENSES
[Clip art] Fund investors pay various expenses, either directly or indirectly.
The figures below show the expenses for the past year, adjusted to reflect any
changes. Future expenses may be greater or less.
- --------------------------------------------------------------------------------
Shareholder transaction expenses Class A Class B
- --------------------------------------------------------------------------------
Maximum sales charge imposed on purchases
(as a percentage of offering price) 5.00% none
Maximum sales charge imposed on
reinvested dividends none none
Maximum deferred sales charge none(1) 5.00%
Redemption fee(2) none none
Exchange fee none none
- --------------------------------------------------------------------------------
Annual fund operating expenses (as a % of average net assets)
- --------------------------------------------------------------------------------
Management fee 0.80% 0.80%
12b-1 fee(3) 0.30% 1.00%
Other expenses 0.49% 0.49%
Total fund operating expenses 1.59% 2.29%
Example The table below shows what you would pay if you invested $1,000 over the
various time frames indicated. The example assumes you reinvested all dividends
and that the average annual return was 5%.
- --------------------------------------------------------------------------------
Share class Year 1 Year 3 Year 5 Year 10
- --------------------------------------------------------------------------------
Class A shares $65 $98 $132 $229
Class B shares
Assuming redemption
at end of period $73 $102 $143 $245
Assuming no redemption $23 $72 $123 $245
This example is for comparison purposes only and is not a representation of the
fund's actual expenses and returns, either past or future.
(1) Except for investments of $1 million or more; see "How sales charges are
calculated."
(2) Does not include wire redemption fee (currently $4.00).
(3) Because of the 12b-1 fee, long-term shareholders may indirectly pay more
than the equivalent of the maximum permitted front-end sales charge.
14 SPECIAL OPPORTUNITIES FUND
<PAGE>
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
[Clip art] The figures below have been audited by the fund's
independent auditors, Price Waterhouse LLP.
[The following table was originally a bar chart in the printed materials.]
Volatility, as indicated by Class A
year-by-year total investment return (%) (6.71) 17.53 36.15 8.79
(scale varies from fund to fund)
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
Class A - period ended: 10/94(1) 10/95 10/96 10/97
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Per share operating performance
Net asset value, beginning of period $8.50 $7.93 $9.32 $10.92
Net investment income (loss)(2) (0.03) (0.07) (0.11) (0.06)
Net realized and unrealized gain (loss) on investments (0.54) 1.46 3.34 1.00
Total from investment operations (0.57) 1.39 3.23 0.94
Less distributions:
Distributions from net realized gain on investments sold -- -- (1.63) (0.46)
Net asset value, end of period $7.93 $9.32 $10.92 $11.40
Total investment return at net asset value(3) (%) (6.71) 17.53 36.15 8.79
Total adjusted investment return at net asset value(3,4) (%) (6.83) -- -- --
Ratios and supplemental data
Net assets, end of period (000s omitted) ($) 92,325 101,562 156,578 141,997
Ratio of expenses to average net assets (%) 1.50 1.59 1.59 1.59
Ratio of adjusted expenses to average net assets(5) (%) 1.62 -- -- --
Ratio of net investment income (loss) to average net assets (%) (0.41) (0.87) (1.00) (0.57)
Ratio of adjusted net investment (loss) to average net assets(5) (%) (0.53) -- -- --
Portfolio turnover rate (%) 57 155 240 317
Fee reduction per share ($) 0.01(2) -- -- --
Average brokerage commission rate(6) ($) N/A N/A 0.0600 0.0645
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
Class B - period ended: 10/94(1) 10/95 10/96 10/97
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Per share operating performance
Net asset value, beginning of period $8.50 $7.87 $9.19 $10.67
Net investment income (loss)(2) (0.09) (0.13) (0.18) (0.13)
Net realized and unrealized gain (loss) on investments (0.54) 1.45 3.29 0.95
Total from investment operations (0.63) 1.32 3.11 0.82
Less distributions:
Distributions from net realized gain on investments sold -- -- (1.63) (0.46)
Net asset value, end of period $7.87 $9.19 $10.67 $11.03
Total investment return at net asset value(3) (%) (7.41) 16.77 35.34 7.84
Total adjusted investment return at net asset value(3,4) (%) (7.53) -- -- --
Ratios and supplemental data
Net assets, end of period (000s omitted) ($) 131,983 137,363 238,901 204,812
Ratio of expenses to average net assets (%) 2.22 2.30 2.29 2.28
Ratio of adjusted expenses to average net assets(5) (%) 2.34 -- -- --
Ratio of net investment income (loss) to average net assets (%) (1.13) (1.55) (1.70) (1.25)
Ratio of adjusted net investment (loss) to average net assets(5) (%) (1.25) -- -- --
Portfolio turnover rate (%) 57 155 240 317
Fee reduction per share ($) 0.01(2) -- -- --
Average brokerage commission rate(6) ($) N/A N/A 0.0600 0.0645
</TABLE>
(1) Class A and B shares commenced operations on November 1, 1993.
(2) Based on the average of the shares outstanding at the end of each month.
(3) Assumes dividend reinvestment and does not reflect the effect of sales
charges.
(4) An estimated total return calculation that does not take into
consideration fee reductions by the adviser during the periods shown.
(5) Unreimbursed, without fee reduction.
(6) Per portfolio share traded. Required for fiscal years that began September
1, 1995 or later.
SPECIAL OPPORTUNITIES FUND 15
<PAGE>
Your account
- --------------------------------------------------------------------------------
CHOOSING A SHARE CLASS
All John Hancock growth funds offer two classes of shares, Class A and Class B.
Each class has its own cost structure, allowing you to choose the one that best
meets your requirements. Your financial representative can help you decide.
- --------------------------------------------------------------------------------
Class A Class B
- --------------------------------------------------------------------------------
o Front-end sales charges, o No front-end sales charge;
as described below. There all your money goes to work
are several ways to reduce for you right away.
these charges, also described
below. o Higher annual expenses than
Class A shares.
o Lower annual expenses than
Class B shares. o A deferred sales charge on
shares you sell within six
years of purchase, as
described below.
o Automatic conversion to Class A
shares after eight years, thus
reducing future annual
expenses.
For actual past expenses of Class A and B shares, see the fund-by-fund
information earlier in this prospectus.
Special Equities Fund offers Class C shares, which have their own expense
structure and are available to financial institutions only. Call Signature
Services for more information (see the back cover of this prospectus).
- --------------------------------------------------------------------------------
HOW SALES CHARGES ARE CALCULATED
Class A Sales charges are as follows:
- --------------------------------------------------------------------------------
Class A sales charges
- --------------------------------------------------------------------------------
As a % of As a % of your
Your investment offering price investment
Up to $49,999 5.00% 5.26%
$50,000 - $99,999 4.50% 4.71%
$100,000 - $249,999 3.50% 3.63%
$250,000 - $499,999 2.50% 2.56%
$500,000 - $999,999 2.00% 2.04%
$1,000,000 and over See below
Investments of $1 million or more Class A shares are available with no front-end
sales charge. However, there is a contingent deferred sales charge (CDSC) on any
shares sold within one year of purchase, as follows:
- --------------------------------------------------------------------------------
CDSC on $1 million+ investments
- --------------------------------------------------------------------------------
Your investment CDSC on shares being sold
First $1M - $4,999,999 1.00%
Next $1 - $5M above that 0.50%
Next $1 or more above that 0.25%
For purposes of this CDSC, all purchases made during a calendar month are
counted as having been made on the LAST day of that month.
The CDSC is based on the lesser of the original purchase cost or the current
market value of the shares being sold, and is not charged on shares you acquired
by reinvesting your dividends. To keep your CDSC as low as possible, each time
you place a request to sell shares we will first sell any shares in your account
that are not subject to a CDSC.
Class B Shares are offered at their net asset value per share, without any
initial sales charge. However, there is a contingent deferred sales charge
(CDSC) on shares you sell within six years of buying them. There is no CDSC on
shares acquired through reinvestment of dividends. The CDSC is based on the
original purchase cost or the current market value of the shares being sold,
whichever is less. The longer the time between the purchase and the sale of
shares, the lower the rate of the CDSC:
- --------------------------------------------------------------------------------
Class B deferred charges
- --------------------------------------------------------------------------------
Years after purchase CDSC on shares being sold
1st year 5.00%
2nd year 4.00%
3rd or 4th year 3.00%
5th year 2.00%
6th year 1.00%
After 6 years None
For purposes of this CDSC, all purchases made during a calendar month are
counted as having been made on the FIRST day of that month.
CDSC calculations are based on the number of shares involved, not on the value
of your account. To keep your CDSC as low as possible, each time you place a
request to sell shares we will first sell any shares in your account that carry
no CDSC. If there are not enough of these to meet your request, we will sell
those shares that have the lowest CDSC.
16 YOUR ACCOUNT
<PAGE>
- --------------------------------------------------------------------------------
SALES CHARGE REDUCTIONS AND WAIVERS
Reducing your Class A sales charges There are several ways you can combine
multiple purchases of Class A shares of John Hancock funds to take advantage of
the breakpoints in the sales charge schedule. The first three ways can be
combined in any manner.
o Accumulation Privilege -- lets you add the value of any Class A shares you
already own to the amount of your next Class A investment for purposes of
calculating the sales charge.
o Letter of Intention -- lets you purchase Class A shares of a fund over a
13-month period and receive the same sales charge as if all shares had
been purchased at once.
o Combination Privilege -- lets you combine Class A shares of multiple funds
for purposes of calculating the sales charge.
To utilize: complete the appropriate section of your application, or contact
your financial representative or Signature Services to add these options to an
existing account.
Group Investment Program A group may be treated as a single purchaser under the
accumulation and combination privileges. Each investor has an individual
account, but the group's investments are lumped together for sales charge
purposes, making the investors potentially eligible for reduced sales charges.
There is no charge, no obligation to invest (although initial investments must
total at least $250) and individual investors may close their account at any
time.
To utilize: contact your financial representative or Signature Services to find
out how to qualify, or consult the SAI (see the back cover of this prospectus).
CDSC waivers As long as Signature Services is notified at the time you sell, the
CDSC for either share class will generally be waived in the following cases:
o to make payments through certain systematic withdrawal plans
o to make certain distributions from a retirement plan
o because of shareholder death or disability
To utilize: if you think you may be eligible for a CDSC waiver, contact your
financial representative or Signature Services, or consult the SAI.
Reinstatement privilege If you sell shares of a John Hancock fund, you may
reinvest some or all of the proceeds in the same share class of any John Hancock
fund within 120 days without a sales charge, as long as Signature Services is
notified before you reinvest. If you paid a CDSC when you sold your shares, you
will be credited with the amount of the CDSC. All accounts involved must have
the same registration.
To utilize: contact your financial representative or Signature Services.
Waivers for certain investors Class A shares may be offered without front-end
sales charges or CDSCs to various individuals and institutions, including:
o government entities that are prohibited from paying mutual fund sales
charges
o financial institutions or common trust funds investing $1 million or more
for non-discretionary accounts
o selling brokers and their employees and sales representatives
o financial representatives utilizing fund shares in fee-based investment
products under agreement with John Hancock Funds
o fund trustees and other individuals who are affiliated with these or other
John Hancock funds
o individuals transferring assets from an employee benefit plan into a John
Hancock fund
o members of an approved affinity group financial services program
o certain insurance company contract holders (one-year CDSC usually applies)
o participants in certain retirement plans with at least 100 members
(one-year CDSC applies)
To utilize: if you think you may be eligible for a sales charge waiver, contact
your financial representative or Signature Services, or consult the SAI.
- --------------------------------------------------------------------------------
OPENING AN ACCOUNT
1 Read this prospectus carefully.
2 Determine how much you want to invest. The minimum initial investments for
the John Hancock funds are as follows:
o non-retirement account: $1,000
o retirement account: $250
o group investments: $250
o Monthly Automatic Accumulation Plan (MAAP): $25 to open; you must
invest at least $25 a month
o fee-based clients of selling brokers who placed at least $2 billion
in John Hancock funds: $250
3 Complete the appropriate parts of the account application, carefully
following the instructions. If you have questions, please contact your
financial representative or call Signature Services at 1-800-225-5291.
4 Complete the appropriate parts of the account privileges section of the
application. By applying for privileges now, you can avoid the delay and
inconvenience of having to file an additional application if you want to
add privileges later.
5 Make your initial investment using the table on the next page. You and
your financial representative can initiate any purchase, exchange or sale
of shares.
YOUR ACCOUNT 17
<PAGE>
- --------------------------------------------------------------------------------
Buying shares
- --------------------------------------------------------------------------------
Opening an account Adding to an account
By check
[Clip art] o Make out a check for the o Make out a check for the
investment amount, payable to investment amount payable to
"John Hancock Signature "John Hancock Signature
Services, Inc." Services, Inc."
o Deliver the check and your o Fill out the detachable
completed application to your investment slip from an
financial representative, or account statement. If no slip
mail them to Signature is available, include a note
Services (address on next specifying the fund name,
page). your share class, your
account number and the
name(s) in which the account
is registered.
o Deliver the check and your
investment slip or note to
your financial
representative, or mail them
to Signature Services
(address on next page).
By exchange
[Clip art] o Call your financial o Call your financial
representative or Signature representative or Signature
Services to request an Services to request an
exchange. exchange.
By wire
[Clip art] o Deliver your completed o Instruct your bank to wire
application to your financial the amount of your investment
representative, or mail it to to:
Signature Services. First Signature Bank & Trust
Account # 900000260
o Obtain your account number by Routing # 211475000
calling your financial Specify the fund name, your
representative or Signature share class, your account
Services. number and the name(s) in
which the account is
o Instruct your bank to wire registered. Your bank may
the amount of your investment charge a fee to wire funds.
to:
First Signature Bank & Trust
Account # 900000260
Routing # 211475000
Specify the fund name, your
choice of share class, the
new account number and the
name(s) in which the account
is registered. Your bank may
charge a fee to wire funds.
By phone
[Clip art] See "By wire" and "By exchange." o Verify that your bank or
credit union is a member of
the Automated Clearing House
(ACH) system.
o Complete the
"Invest-By-Phone" and "Bank
Information" sections on your
account application.
o Call Signature Services to
verify that these features
are in place on your account.
o Tell the Signature Services
representative the fund name,
your share class, your
account number, the name(s)
in which the account is
registered and the amount of
your investment.
To open or add to an account using the Monthly Automatic Accumulation Program,
see "Additional investor services."
18 YOUR ACCOUNT
<PAGE>
- --------------------------------------------------------------------------------
Selling shares
- --------------------------------------------------------------------------------
Designed for To sell some or all of your shares
By letter
[Clip art] o Accounts of any type. o Write a letter of
instruction or complete a
o Sales of any amount. stock power indicating the
fund name, your share
class, your account
number, the name(s) in
which the account is
registered and the dollar
value or number of shares
you wish to sell.
o Include all signatures and
any additional documents
that may be required (see
next page).
o Mail the materials to
Signature Services.
o A check will be mailed to
the name(s) and address in
which the account is
registered, or otherwise
according to your letter
of instruction.
By phone
[Clip art] o Most accounts. o For automated service 24
hours a day using your
o Sales of up to $100,000. touch-tone phone, call the
EASI-Line at 1-800-338-8080.
o To place your order with a
representative at John
Hancock Funds, call
Signature Services between 8
A.M. and 4 P.M. Eastern Time
on most business days.
By wire or electronic funds transfer (EFT)
[Clip art] o Requests by letter to sell o Fill out the "Telephone
any amount (accounts of any Redemption" section of your
type). new account application.
o Requests by phone to sell up o To verify that the telephone
to $100,000 (accounts with redemption privilege is in
telephone redemption place on an account, or to
privileges). request the forms to add it
to an existing account, call
Signature Services.
o Amounts of $1,000 or more
will be wired on the next
business day. A $4 fee will
be deducted from your
account.
o Amounts of less than $1,000
may be sent by EFT or by
check. Funds from EFT
transactions are generally
available by the second
business day. Your bank may
charge a fee for this
service.
By exchange
[Clip art] o Accounts of any type. o Obtain a current prospectus
for the fund into which you
o Sales of any amount. are exchanging by calling
your financial representative
or Signature Services.
o Call your financial
representative or Signature
Services to request an
exchange.
- ----------------------------------------
Address
John Hancock Signature Services, Inc.
1 John Hancock Way, Suite 1000
Boston, MA 02217-1000
Phone number
1-800-225-5291
Or contact your financial representative
for instructions and assistance.
- ----------------------------------------
To sell shares through a systematic withdrawal plan, see "Additional investor
services."
YOUR ACCOUNT 19
<PAGE>
Selling shares in writing In certain circumstances, you will need to make your
request to sell shares in writing. You may need to include additional items with
your request, as shown in the table below. You may also need to include a
signature guarantee, which protects you against fraudulent orders. You will need
a signature guarantee if:
o your address of record has changed within the past 30 days
o you are selling more than $100,000 worth of shares
o you are requesting payment other than by a check mailed to the address of
record and payable to the registered owner(s)
You can generally obtain a signature guarantee from the following sources:
o a broker or securities dealer
o a federal savings, cooperative or other type of bank
o a savings and loan or other thrift institution
o a credit union
o a securities exchange or clearing agency
A notary public CANNOT provide a signature guarantee.
- --------------------------------------------------------------------------------
Seller Requirements for written requests
- --------------------------------------------------------------------------------
[Clipart]
Owners of individual, joint, sole o Letter of instruction.
proprietorship, UGMA/UTMA (custodial
accounts for minors) or general o On the letter, the signatures and
partner accounts titles of all persons authorized to
sign for the account, exactly as
the account is registered.
o Signature guarantee if applicable
(see above).
Owners of corporate or association o Letter of instruction.
accounts.
o Corporate resolution, certified
within the past twelve months.
o On the letter and the resolution,
the signature of the person(s)
authorized to sign for the account.
o Signature guarantee if applicable
(see above).
Owners or trustees of trust accounts. o Letter of instruction.
o On the letter, the signature(s) of
the trustee(s).
o If the names of all trustees are
not registered on the account,
please also provide a copy of the
trust document certified within the
past twelve months.
o Signature guarantee if applicable
(see above).
Joint tenancy shareholders whose o Letter of instruction signed by
co-tenants are deceased. surviving tenant.
o Copy of death certificate.
o Signature guarantee if applicable
(see above).
Executors of shareholder estates. o Letter of instruction signed by
executor.
o Copy of order appointing executor.
o Signature guarantee if applicable
(see above).
Administrators, conservators,
guardians and other sellers or account o Call 1-800-225-5291 for
types not listed above. instructions.
20 YOUR ACCOUNT
<PAGE>
- --------------------------------------------------------------------------------
TRANSACTION POLICIES
Valuation of shares The net asset value per share (NAV) for each fund and class
is determined each business day at the close of regular trading on the New York
Stock Exchange (typically 4 P.M. Eastern Time) by dividing a class's net assets
by the number of its shares outstanding.
Buy and sell prices When you buy shares, you pay the NAV plus any applicable
sales charges, as described earlier. When you sell shares, you receive the NAV
minus any applicable deferred sales charges.
Execution of requests Each fund is open on those days when the New York Stock
Exchange is open, typically Monday through Friday. Buy and sell requests are
executed at the next NAV to be calculated after your request is accepted by
Signature Services.
At times of peak activity, it may be difficult to place requests by phone.
During these times, consider using EASI-Line or sending your request in writing.
In unusual circumstances, any fund may temporarily suspend the processing of
sell requests, or may postpone payment of proceeds for up to three business days
or longer, as allowed by federal securities laws.
Telephone transactions For your protection, telephone requests may be recorded
in order to verify their accuracy. In addition, Signature Services will take
measures to verify the identity of the caller, such as asking for name, account
number, Social Security or other taxpayer ID number and other relevant
information. If appropriate measures are taken, Signature Services is not
responsible for any losses that may occur to any account due to an unauthorized
telephone call. Also for your protection, telephone transactions are not
permitted on accounts whose names or addresses have changed within the past 30
days. Proceeds from telephone transactions can only be mailed to the address of
record.
Exchanges You may exchange shares of one John Hancock fund for shares of the
same class of any other, generally without paying any additional sales charges.
The registration for both accounts involved must be identical. Class B shares
will continue to age from the original date and will retain the same CDSC rate
as they had before the exchange, except that the rate will change to the new
fund's rate if that rate is higher. A CDSC rate that has increased will drop
again with a future exchange into a fund with a lower rate.
To protect the interests of other investors in the fund, a fund may cancel the
exchange privileges of any parties that, in the opinion of the fund, are using
market timing strategies or making more than seven exchanges per owner or
controlling party per calendar year. A fund may also refuse any exchange order.
A fund may change or cancel its exchange policies at any time, upon 60 days'
notice to its shareholders.
Certificated shares Most shares are electronically recorded. If you wish to have
certificates for your shares, please write to Signature Services. Certificated
shares can only be sold by returning the certificates to Signature Services,
along with a letter of instruction or a stock power and a signature guarantee.
Sales in advance of purchase payments When you place a request to sell shares
for which the purchase money has not yet been collected, the request will be
executed in a timely fashion, but the fund will not release the proceeds to you
until your purchase payment clears. This may take up to ten business days after
the purchase.
- --------------------------------------------------------------------------------
DIVIDENDS AND ACCOUNT POLICIES
Account statements In general, you will receive account statements as follows:
o after every transaction (except a dividend reinvestment) that affects your
account balance
o after any changes of name or address of the registered owner(s)
o in all other circumstances, every quarter
Every year you should also receive, if applicable, a Form 1099 tax information
statement, mailed by January 31.
Dividends The funds generally distribute most or all of their net earnings in
the form of dividends.Any capital gains are distributed annually. Regional Bank
Fund typically pays income dividends quarterly and Financial Industries Fund
typically pays income dividends annually. The other funds do not usually pay
income dividends.
YOUR ACCOUNT 21
<PAGE>
Dividend reinvestments Most investors have their dividends reinvested in
additional shares of the same fund and class. If you choose this option, or if
you do not indicate any choice, your dividends will be reinvested on the
dividend record date. Alternatively, you can choose to have a check for your
dividends mailed to you. However, if the check is not deliverable, your
dividends will be reinvested.
Taxability of dividends As long as a fund meets the requirements for being a
tax-qualified regulated investment company, which each fund has in the past and
intends to in the future, it pays no federal income tax on the earnings it
distributes to shareholders.
Consequently, dividends you receive from a fund, whether reinvested or taken as
cash, are generally considered taxable. Dividends from a fund's long-term
capital gains are taxable as capital gains; dividends from other sources are
generally taxable as ordinary income.
Some dividends paid in January may be taxable as if they had been paid the
previous December. Corporations may be entitled to take a dividends-received
deduction for a portion of certain dividends they receive.
The Form 1099 that is mailed to you every January details your dividends and
their federal tax category, although you should verify your tax liability with
your tax professional.
Taxability of transactions Any time you sell or exchange shares, it is
considered a taxable event for you. Depending on the purchase price and the sale
price of the shares you sell or exchange, you may have a gain or a loss on the
transaction. You are responsible for any tax liabilities generated by your
transactions.
Small accounts (non-retirement only) If you draw down a non-retirement account
so that its total value is less than $1,000, you may be asked to purchase more
shares within 30 days. If you do not take action, your fund may close out your
account and mail you the proceeds. Alternatively, Signature Services may charge
you $10 a year to maintain your account. You will not be charged a CDSC if your
account is closed for this reason, and your account will not be closed if its
drop in value is due to fund performance or the effects of sales charges.
- --------------------------------------------------------------------------------
ADDITIONAL INVESTOR SERVICES
Monthly Automatic Accumulation Program (MAAP)
MAAP lets you set up regular investments from your paycheck or bank account to
the John Hancock fund(s) of your choice. You determine the frequency and amount
of your investments, and you can terminate your program at any time. To
establish:
o Complete the appropriate parts of your account application.
o If you are using MAAP to open an account, make out a check ($25 minimum)
for your first investment amount payable to "John Hancock Signature
Services, Inc." Deliver your check and application to your financial
representative or Signature Services.
Systematic withdrawal plan This plan may be used for routine bill payments or
periodic withdrawals from your account. To establish:
o Make sure you have at least $5,000 worth of shares in your account.
o Make sure you are not planning to invest more money in this account
(buying shares during a period when you are also selling shares of the
same fund is not advantageous to you, because of sales charges).
o Specify the payee(s). The payee may be yourself or any other party, and
there is no limit to the number of payees you may have, as long as they
are all on the same payment schedule.
o Determine the schedule: monthly, quarterly, semi-annually, annually or in
certain selected months.
o Fill out the relevant part of the account application. To add a systematic
withdrawal plan to an existing account, contact your financial
representative or Signature Services.
Retirement plans John Hancock Funds offers a range of retirement plans,
including IRAs, SIMPLE IRAs, SIMPLE 401(k)s, SEPs, 401(k)s, money purchase
pension and profit-sharing plans. Using these plans, you can invest in any John
Hancock fund (except tax-free income funds) with a low minimum investment of
$250 or, for some group plans, no minimum investment at all. To find out more,
call Signature Services at 1-800-225-5291.
22 YOUR ACCOUNT
<PAGE>
Fund details
- --------------------------------------------------------------------------------
BUSINESS STRUCTURE
How the funds are organized Each John Hancock growth fund is an open-end
management investment company or a series of such a company.
Each fund is supervised by a board of trustees, an independent body that has
ultimate responsibility for the fund's activities. The board retains various
companies to carry out the fund's operations, including the investment adviser,
custodian, transfer agent and others (see diagram). The board has the right, and
the obligation, to terminate the fund's relationship with any of these companies
and to retain a different company if the board believes it is in the
shareholders' best interests.
At a mutual fund's inception, the initial shareholder (typically the adviser)
appoints the fund's board. Thereafter, the board and the shareholders determine
the board's membership. The boards of the John Hancock growth funds may include
individuals who are affiliated with the investment adviser. However, the
majority of board members must be independent.
The funds do not hold annual shareholder meetings, but may hold special meetings
for such purposes as electing or removing board members, changing fundamental
policies, approving a management contract or approving a 12b-1 plan (12b-1 fees
are explained in "Sales compensation").
-----------------
Shareholders
-----------------
Distribution and
shareholder services
-------------------------------------------------
Financial services firms and
their representatives
Advise current and prospective share-
holders on their fund investments, often
in the context of an overall financial plan.
-------------------------------------------------
-------------------------------------------------
Principal distributor
John Hancock Funds, Inc.
101 Huntington Avenue
Boston, MA 02199-7603
Markets the funds and distributes shares
through selling brokers, financial planners
and other financial representatives.
-------------------------------------------------
------------------------------------------------------
Transfer agent
John Hancock Signature Services, Inc.
1 John Hancock Way, Suite 1000
Boston, MA 02217-1000
Handles shareholder services, including record-
keeping and statements, distribution of dividends
and processing of buy and sell requests.
------------------------------------------------------
Asset
management
--------------------------------------
Subadvisers
DFS Advisors LLC
75 State Street
Boston, MA 02109
Provide portfolio management
services to Special Equities funds
--------------------------------------
------------------------------------
Investment adviser
John Hancock Advisers, Inc.
101 Huntington Avenue
Boston, MA 02199-7603
Manages the funds' business and
investment activities.
------------------------------------
------------------------------------
Custodians
Investors Bank & Trust co.
200 Clarendon Street
Boston, MA 02116
State Street Bank and Trust Company
225 Franklin Street
Boston, MA 02110
Holds the funds' assets, settles all
portfolio trades and collect most of
the valuation data required for
calculating each fund's NAV.
------------------------------------
------------------------------------
Trustees
Supervise the funds' activities.
------------------------------------
FUND DETAILS 23
<PAGE>
Accounting compensation The funds compensate the adviser for performing tax and
financial management services. Annual compensation is not expected to exceed
0.02% of each fund's average net assets.
Portfolio trades In placing portfolio trades, the adviser may use brokerage
firms that market the fund's shares or are affiliated with John Hancock Mutual
Life Insurance Company, but only when the adviser believes no other firm offers
a better combination of quality execution (i.e., timeliness and completeness)
and favorable price.
Investment goals Except for Emerging Growth Fund, Financial Industries Fund and
Special Opportunities Fund, each fund's investment goal is fundamental and may
only be changed with shareholder approval.
Diversification Except for Special Opportunities Fund, all of the growth funds
are diversified.
- --------------------------------------------------------------------------------
SALES COMPENSATION
As part of their business strategies, the funds, along with John Hancock Funds,
pay compensation to financial services firms that sell the funds' shares. These
firms typically pass along a portion of this compensation to your financial
representative.
Compensation payments originate from two sources: from sales charges and from
12b-1 fees that are paid out of the funds' assets ("12b-1" refers to the federal
securities regulation authorizing annual fees of this type). The 12b-1 fee rates
vary by fund and by share class, according to Rule 12b-1 plans adopted by the
funds. The sales charges and 12b-1 fees paid by investors are detailed in the
fund-by-fund information. The portions of these expenses that are reallowed to
financial services firms are shown on the next page.
Distribution fees may be used to pay for sales compensation to financial
services firms, marketing and overhead expenses and, for Class B shares,
interest expenses.
- --------------------------------------------------------------------------------
Class B unreimbursed distribution expenses(1)
- --------------------------------------------------------------------------------
Unreimbursed As a % of
Fund expenses net assets
Emerging Growth $ 12,476,287 2.75%
Financial Industries $ 7,546,464 1.29%
Growth $ 162,442 0.51%
Regional Bank $ 58,931,361 1.55%
Special Equities $ 4,156,261 0.45%
Special Opportunities $ 7,659,598 3.39%
(1) As of the most recent fiscal year end covered by each fund's financial
highlights. These expenses may be carried forward indefinitely.
Initial compensation Whenever you make an investment in a fund or funds, the
financial services firm receives either a reallowance from the initial sales
charge or a commission, as described below. The firm also receives the first
year's service fee at this time.
Annual compensation Beginning with the second year after an investment is made,
the financial services firm receives an annual service fee of 0.25% of its total
eligible net assets. This fee is paid quarterly in arrears.
Financial services firms selling large amounts of fund shares may receive extra
compensation. This compensation, which John Hancock Funds pays out of its own
resources, may include asset retention fees as well as reimbursement for
marketing expenses.
24 FUND DETAILS
<PAGE>
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------
Class A investments
- ----------------------------------------------------------------------------------------------------------------------------
Maximum
Sales charge reallowance First year Maximum
paid by investors or commission service fee total compensation(1)
(% of offering price) (% of offering price) (% of net investment) (% of offering price)
<S> <C> <C> <C> <C>
Up to $49,999 5.00% 4.01% 0.25% 4.25%
$50,000 - $99,999 4.50% 3.51% 0.25% 3.75%
$100,000 - $249,999 3.50% 2.61% 0.25% 2.85%
$250,000 - $499,999 2.50% 1.86% 0.25% 2.10%
$500,000 - $999,999 2.00% 1.36% 0.25% 1.60%
Regular investments of
$1 million or more
<S> <C> <C> <C> <C>
First $1M - $4,999,999 -- 0.75% 0.25% 1.00%
Next $1 - $5M above that -- 0.25% 0.25% 0.50%
Next $1 or more above that -- 0.00% 0.25% 0.25%
Waiver investments(2) -- 0.00% 0.25% 0.25%
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------
Class B investments
- ----------------------------------------------------------------------------------------------------------------------------
Maximum
reallowance First year Maximum
or commission service fee total compensation
(% of offering price) (% of net investment) (% of offering price)
<S> <C> <C> <C>
All amounts 3.75% 0.25% 4.00%
</TABLE>
(1) Reallowance/commission percentages and service fee percentages are
calculated from different amounts, and therefore may not equal total
compensation percentages if combined using simple addition.
(2) Refers to any investments made by municipalities, financial institutions,
trusts and affinity group members that take advantage of the sales charge
waivers described earlier in this prospectus.
CDSC revenues collected by John Hancock Funds may be used to pay commissions
when there is no initial sales charge.
FUND DETAILS 25
<PAGE>
- --------------------------------------------------------------------------------
MORE ABOUT RISK
A fund's risk profile is largely defined by the fund's primary securities and
investment practices. You may find the most concise description of each fund's
risk profile in the fund-by-fund information.
The funds are permitted to utilize -- within limits established by the trustees
- -- certain other securities and investment practices that have higher risks and
opportunities associated with them. To the extent that a fund utilizes these
securities or practices, its overall performance may be affected, either
positively or negatively. On the following page are brief descriptions of these
securities and practices, along with the risks associated with them. The funds
follow certain policies that may reduce these risks.
As with any mutual fund, there is no guarantee that the performance of a John
Hancock growth fund will be positive over any period of time -- days, months or
years. However, stock funds as a category have historically performed better
over the long term than bond or money market funds.
- --------------------------------------------------------------------------------
TYPES OF INVESTMENT RISK
Correlation risk The risk that changes in the value of a hedging instrument will
not match those of the asset being hedged (hedging is the use of one investment
to offset the effects of another investment). Incomplete correlation can result
in unanticipated risks.
Credit risk The risk that the issuer of a security, or the counterparty to a
contract, will default or otherwise become unable to honor a financial
obligation.
Currency risk The risk that fluctuations in the exchange rates between the U.S.
dollar and foreign currencies may negatively affect an investment. Adverse
changes in exchange rates may erode or reverse any gains produced by foreign
currency denominated investments and may widen any losses.
Information risk The risk that key information about a security or market is
inaccurate or unavailable.
Interest rate risk The risk of market losses attributable to changes in interest
rates. With fixed-rate securities, a rise in interest rates typically causes a
fall in values, while a fall in rates typically causes a rise in values.
Leverage risk Associated with securities or practices (such as borrowing) that
multiply small index or market movements into large changes in value.
o Hedged When a derivative (a security whose value is based on another
security or index) is used as a hedge against an opposite position that
the fund also holds, any loss generated by the derivative should be
substantially offset by gains on the hedged investment, and vice versa.
While hedging can reduce or eliminate losses, it can also reduce or
eliminate gains.
o Speculative To the extent that a derivative is not used as a hedge, the
fund is directly exposed to the risks of that derivative. Gains or losses
from speculative positions in a derivative may be substantially greater
than the derivative's original cost.
Liquidity risk The risk that certain securities may be difficult or impossible
to sell at the time and the price that the seller would like. The seller may
have to lower the price, sell other securities instead or forego an investment
opportunity, any of which could have a negative effect on fund management or
performance.
Management risk The risk that a strategy used by a fund's management may fail to
produce the intended result. Common to all mutual funds.
Market risk The risk that the market value of a security may move up and down,
sometimes rapidly and unpredictably. These fluctuations may cause a security to
be worth less than the price originally paid for it, or less than it was worth
at an earlier time. Market risk may affect a single issuer, industry, sector of
the economy or the market as a whole. Common to all stocks and bonds and the
mutual funds that invest in them.
Natural event risk The risk of losses attributable to natural disasters, crop
failures and similar events.
Opportunity risk The risk of missing out on an investment opportunity because
the assets necessary to take advantage of it are tied up in less advantageous
investments.
Political risk The risk of losses attributable to government or political
actions, from changes in tax or trade statutes to governmental collapse and war.
Valuation risk The risk that a fund has valued certain of its securities at a
higher price than it can sell them for.
26 FUND DETAILS
<PAGE>
- --------------------------------------------------------------------------------
Higher-risk securities and practices
- --------------------------------------------------------------------------------
This table shows each fund's investment limitations as a percentage of portfolio
assets. In each case the principal types of risk are listed (see previous page
for definitions). Numbers in this table show allowable usage only; for actual
usage, consult the fund's annual/semi-annual reports.
10 Percent of total assets (italic type)
10 Percent of net assets (roman type)
l No policy limitation on usage; fund may be using currently
o Permitted, but has not typically been used
- -- Not permitted
<TABLE>
<CAPTION>
Emerging Financial Regional Special Special
Growth Industries Growth Bank Equities Opportunities
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Investment practices
Borrowing; reverse repurchase agreements The borrowing
of money from banks or through reverse repurchase
agreements. Leverage, credit risks 33.3 33 33.3 5 33.3 33.3
Repurchase agreements The purchase of a security that
must later be sold back to the seller at the same price
plus interest. Credit risk l l l l l l
Securities lending The lending of securities to
financial institutions, which provide cash or government
securities as collateral. Credit risk 30 33.3 33.3 -- 33.3 33.3
Short sales The selling of securities which have been
borrowed on the expectation that the market price will
drop
o Hedged. Hedged leverage, market, correlation,
liquidity, opportunity risks o o o -- o l
o Speculative. Speculative leverage, market,
liquidity risks -- o o -- o 5
Short-term trading Selling a security soon after
purchase. A portfolio engag ing in short-term trading
will have higher turnover and transaction expenses
Market risk l l l l l l
When-issued securities and forward commitments The
purchase or sale of securities for delivery at a future
date; market value may change before delivery. Market,
opportunity, leverage risks l l l l l l
- ------------------------------------------------------------------------------------------------------------------------------------
Conventional securities
Non-investment-grade securities Securities rated below
BBB/Baa are considered junk bonds. Credit, market,
interest rate, liquidity, valuation, information risks 10 5 5 5 -- --
Foreign equities
o Stocks issued by foreign companies. Market,
currency, information, natural event, political
risks l l 15 o l l
o American or European depository receipts, which
are dollar-denominated securities typically issued
by American or European banks and are based on
ownership of securities issued by foreign
companies. Market, currency, information, natural
event, political risks l l 15 o l l
Restricted and illiquid securities Securities not traded
on the open market. May include illiquid Rule 144A
securities. Liquidity, valuation, market risks 10 15 15 15 15 15
- ------------------------------------------------------------------------------------------------------------------------------------
Leveraged derivative securities
Financial futures and options; securities and index
options Contracts involving the right or obligation to
deliver or receive assets or money depending on the
performance of one or more assets or an economic index
o Futures and related options. Interest rate,
currency, market, hedged or speculative leverage,
correlation, liquidity, opportunity risks l o o -- o l
o Options on securities and indices. Interest rate,
currency, market, hedged or speculative leverage,
correlation, liquidity, credit, opportunity risks l o o o o l
Currency contracts Contracts involving the right or
obligation to buy or sell a given amount of foreign
currency at a specified price and future date
o Hedged. Currency, hedged leverage, correlation,
liquidity, opportunity risks l o l -- o l
o Speculative. Currency, speculative leverage,
liquidity risks -- o -- -- o --
</TABLE>
FUND DETAILS 27
<PAGE>
For more information
- --------------------------------------------------------------------------------
Two documents are available that offer further information on John Hancock
growth funds:
ANNUAL/SEMIANNUAL REPORT TO SHAREHOLDERS
Includes financial statements, detailed performance information, portfolio
holdings, a statement from portfolio management and the auditor's report.
STATEMENT OF ADDITIONAL INFORMATION (SAI)
The SAI contains more detailed information on all aspects of the funds. The
current annual/ semiannual report is included in the SAI.
A current SAI has been filed with the Securities and Exchange Commission and is
incorporated by reference (is legally a part of this prospectus). You may visit
the Securities and Exchange Commission's Internet website (www.sec.gov) to view
the SAI, material incorporated by reference and other information.
To request a free copy of the current annual/semiannual report or SAI, please
write or call:
John Hancock Signature Services, Inc.
1 John Hancock Way, Suite 1000
Boston, MA 02217-1000
Telephone: 1-800-225-5291
EASI-Line: 1-800-338-8080
TDD: 1-800-544-6713
Internet website: www.jhancock.com/funds
[LOGO] JOHN HANCOCK FUNDS
A Global Investment Management Firm
101 Huntington Avenue
Boston, Massachusetts 02199-7603
[JOHN HANCOCK FINANCIAL SERVICES LOGO]
(C) 1996 John Hancock Funds, Inc.
GROPN 3/98
<PAGE>
JOHN HANCOCK FINANCIAL INDUSTRIES FUND
Class A and Class B Shares
Statement of Additional Information
March 1, 1998
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 combined Growth Funds' Prospectus dated March 1, 1998 (the
"Prospectus"). The Fund is a diversified series of John Hancock Investment Trust
II, (the "Trust"), formerly Freedom Investment Trust.
This Statement of Additional Information is not a prospectus. It should be read
in conjunction with the Prospectus, a copy of which can be obtained free of
charge by writing or telephoning:
John Hancock Signature Services, Inc.
1 John Hancock Way, Suite 1000
Boston MA 02217-1000
1-800-225-5291
Table of Contents
Page
Organization of the Fund................................................ 2
Investment Objective and Policies....................................... 2
Investment Restrictions.................................................13
Those Responsible for Management........................................15
Investment Advisory and Other Services..................................24
Distribution Contracts..................................................26
Net Asset Value.........................................................28
Initial Sales Charge on Class A Shares..................................29
Deferred Sales Charge on Class B Shares.................................31
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
Transfer Agent Services.................................................46
Custody of Portfolio....................................................46
Independent Auditors....................................................46
Appendix A.............................................................A-1
Financial Statements...................................................F-1
1
<PAGE>
ORGANIZATION OF THE FUND
The Fund is a series of the Trust, an open-end investment management company
organized as a Massachusetts business trust under the laws of the Commonwealth
of Massachusetts. The Fund was created as a separate series of the Trust on
December 11, 1995.
John Hancock Advisers, Inc. (the "Adviser") is the Fund's investment adviser.
The Adviser is an indirect wholly-owned subsidiary of John Hancock Mutual Life
Insurance Company (the "Life Company"), a Massachusetts life insurance company
chartered in 1862, with national headquarters at John Hancock Place, Boston,
Massachusetts.
INVESTMENT OBJECTIVE AND POLICIES
The following information supplements the discussion of the Fund's investment
objective and policies discussed in the Prospectus. 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).
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; financial
technology companies; real estate-related firms; leasing 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 currently uses a strategy of investing in financial services companies
that are, in the opinion of the Fund's management team, currently underfollowed
and/or underpriced, in consolidating or restructuring industries, or in a
position to benefit from regulatory changes. Some catalysts for growth in these
industries are: (1) an ongoing pattern of consolidation existing in the banking
and investment sectors; (2) the Federal Reserve's change to rules under Section
20 of the Glass-Steagall Act allowing the nation's 10,000 banks to earn 25% of
their revenue from securities subsidiaries, up from 10%; (3) the proposed repeal
of the Glass-Steagall Act would allow banks to acquire investment and insurance
firms. This strategy can be changed at any time.
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.
2
<PAGE>
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.
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.
Investments in Debt Securities. The Fund may invest in debt securities of
financial services companies and in equity and debt securities of companies
outside of the financial services sector. The Fund may invest up to 5% of its
net assets in below-investment grade debt securities rated at
3
<PAGE>
the time of purchase as low as CCC by Standard & Poor's Rating Group ("S&P") or
Caa by Moody's Investor Services, Inc. ("Moody's"). The Fund may invest in
unrated securities which, in the opinion of the Adviser, offer comparable yields
and risks to those securities which are rated.
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 S&P or Baa or higher by 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 four highest categories of S&P or Moody's.
Ratings as Investment Criteria. In general, the ratings of Moody's and S&P
represent the opinions of these agencies as to the quality of the securities
which they rate. It should be emphasized however, that ratings are relative and
subjective and are not absolute standards of quality. These ratings will be used
by the Fund as initial criteria for the selection of portfolio securities. Among
the factors which will be considered are the long-term ability of the issuer to
pay principal and interest and general economic trends. Appendix A contains
further information concerning the rating of Moody's and S&P and their
significance. Subsequent to its purchase by the Fund, an issue of securities may
cease to be rated, or its rating may be reduced below minimum required for
purchase by the Fund. Neither of these events will require the sale of the
securities by the Fund.
Investments in Foreign Securities. 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's foreign currency exchange transactions
may be conducted on a spot (i.e., cash) basis at the spot rate for purchasing or
selling currency prevailing in the foreign exchange market. The Fund may also
enter into forward foreign currency exchange contracts to enhance return, to
hedge against fluctuations in currency exchange rates affecting a particular
transaction or portfolio position, or as a substitute for the purchase or sale
of a currency or assets denominated in that currency. Forward contracts are
agreements to purchase or sell a specified currency at a specified future date
and price set at the time of the contract. Transaction hedging is the purchase
or sale of forward foreign currency contracts with respect to a specific
receivables or payables of the Fund accruing in connection with the purchase and
sale of its portfolio securities quoted or denominated in the same or related
foreign currencies. Portfolio hedging is the use of forward foreign currency
contracts to offset portfolio security positions denominated or quoted in the
same or related foreign currencies. The Fund may elect to hedge less than all of
its foreign portfolio positions deemed appropriate by the Adviser and
Sub-Advisers.
4
<PAGE>
If the Fund purchases a forward contract or sells a forward contract for
non-hedging purposes, its custodian will segregate cash or liquid securities, of
any type or maturity, in a separate account of the Fund in an amount equal to
the value of the Fund's total assets committed to the consummation of such
forward contract. The assets in the segregated account will be valued at market
daily and if the value of the securities in the separate account declines,
additional cash or securities will be placed in the account so that the value of
the account will equal to the amount of the Fund's commitment with respect to
such contracts.
Hedging against a decline in the value of a currency does not eliminate
fluctuations in the prices of portfolio securities or prevent losses if the
prices of such securities decline. Such transactions also preclude the
opportunity for gain if the value of the hedged currency rises. Moreover, it may
not be possible for the Fund to hedge against a devaluation that is so generally
anticipated that the Fund is not able to contract to sell the currency at a
price above the devaluation level it anticipates.
The cost to the Fund of engaging in foreign currency transactions varies with
such factors as the currency involved, the length of the contract period and the
market conditions then prevailing. Since transactions in foreign currency are
usually conducted on a principal basis, no fees or commissions are involved.
Risks of Foreign Securities. Investments in foreign securities may involve a
greater degree of risk than those in domestic securities. There is generally
less publicly available information about foreign companies in the form of
reports and ratings similar to those that are published about issuers in the
United States. Also, foreign issuers are generally not subject to uniform
accounting, auditing and financial reporting requirements comparable to those
applicable to United States issuers.
Because foreign securities may be denominated in currencies other than the U.S.
dollar, changes in foreign currency exchange rates will affect the Fund's net
asset value, the value of dividends and interest earned, gains and losses
realized on the sale of securities, and any net investment income and gains that
the Fund distributes to shareholders. Securities transactions undertaken in some
foreign markets may not be settled promptly so that the Fund's investments on
foreign exchanges may be less liquid and subject to the risk of fluctuating
currency exchange rates pending settlement.
Foreign securities will be purchased in the best available market, whether
through over-the-counter markets or exchanges located in the countries where
principal offices of the issuers are located. Foreign securities markets are
generally not as developed or efficient as those in the United States. While
growing in volume, they usually have substantially less volume than the New York
Stock Exchange, and securities of some foreign issuers are less liquid and more
volatile than securities of comparable United States issuers. Fixed commissions
on foreign exchanges are generally higher than negotiated commissions on United
States exchanges, although the Fund will endeavor to achieve the most favorable
net results on its portfolio transactions. There is generally less government
supervision and regulation of securities exchanges, brokers and listed issuers
than in the United States.
With respect to certain foreign countries, there is the possibility of adverse
changes in investment or exchange control regulations, expropriation,
nationalization or confiscatory taxation limitations on the removal of funds or
other assets of the Fund, political or social instability, or diplomatic
developments which could affect United States investments in those countries.
5
<PAGE>
Moreover, individual foreign economies may differ favorably or unfavorably from
the United States' economy in terms of growth of gross national product, rate of
inflation, capital reinvestment, resource self-sufficiency and balance of
payments position.
The dividends, in some cases capital gains and interest payable on certain of
the Fund's foreign portfolio securities, may be subject to foreign withholding
or other foreign taxes, thus reducing the net amount of income or gains
available for distribution to the Fund's shareholders.
Repurchase Agreements. In a repurchase agreement the Fund buys a security for a
relatively short period (usually not more than 7 days) subject to the obligation
to sell it back to the issuer at a fixed time and price plus accrued interest.
The Fund will enter into repurchase agreements only with member banks of the
Federal Reserve System and with "primary dealers" in U.S. Government securities.
The Adviser will continuously monitor the creditworthiness of the parties with
whom it enters into repurchase agreements.
The Fund has established a procedure providing that the securities serving as
collateral for each repurchase agreement must be delivered to the Fund's
custodian either physically or in book-entry form and that the collateral must
be marked to market daily to ensure that each repurchase agreement is fully
collateralized at all times. In the event of bankruptcy or other default by a
seller of a repurchase agreement, the Fund could experience delays in
liquidating the underlying securities during the period while the Fund seeks to
enforce its rights thereto, possible subnormal levels of income, decline in
value of the underlying securities or lack of access to income during this
period as well as the expense of enforcing its rights.
Reverse Repurchase Agreements. The Fund may also enter into reverse repurchase
agreements which involve the sale of U.S. Government securities held in its
portfolio to a bank with an agreement that the Fund will buy back the securities
at a fixed future date at a fixed price plus an agreed amount of "interest"
which may be reflected in the repurchase price. Reverse repurchase agreements
are considered to be borrowings by the Fund. Reverse repurchase agreements
involve the risk that the market value of securities purchased by the Fund with
proceeds of the transaction may decline below the repurchase price of the
securities sold by the Fund which it is obligated to repurchase. The Fund will
also continue to be subject to the risk of a decline in the market value of the
securities sold under the agreements because it will reacquire those securities
upon effecting their repurchase. To minimize various risks associated with
reverse repurchase agreements, the Fund will establish and maintain with the
Fund's custodian a separate account consisting of liquid securities, of any type
or maturity, in an amount at least equal to the repurchase prices of the
securities (plus any accrued interest thereon) under such agreements. In
addition, the Fund will not borrow money or enter into reverse repurchase
agreements 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
redemption of Fund shares or to finance failed settlement 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. The Fund will enter into reverse repurchase agreements only with
federally insured banks which are approved in advance as being creditworthy by
the Trustees. Under procedures established by the Trustees, the Adviser will
monitor the creditworthiness of the banks involved.
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Restricted Securities. The Fund may purchase securities that are not registered
("restricted securities") under the Securities Act of 1933 ("1933 Act"),
including commercial paper issued in reliance on Section 4(2) of the 1933 Act
and securities offered and sold to "qualified institutional buyers" under Rule
144A under the 1933 Act. The Fund will not invest more than 15% of its net
assets in illiquid investments, which includes repurchase agreements maturing in
more than seven days, OTC options, securities that are not readily marketable
and restricted securities. If the Trustees determine, based upon a continuing
review of the trading markets for specific Section 4 (2) paper or Rule 144A
securities, that they are liquid, they will not be subject to the 15% limit on
illiquid investments. The Trustees may adopt guidelines and delegate to the
Adviser the daily function of determining and monitoring the liquidity of
restricted securities. The Trustees, however, will retain sufficient oversight
and be ultimately responsible for the determinations. The Trustees will
carefully monitor the Fund's investments in these securities, focusing on such
important factors, among others, as valuation, liquidity and availability of
information. This investment practice could have the effect of increasing the
level of illiquidity in the Fund to the extent that qualified institutional
buyers become for a time uninterested in purchasing these restricted securities.
Options on Securities, Securities Indices and Currency. The Fund may purchase
and write (sell) call and put options on any securities in which it may invest,
on any securities index based on securities in which it may invest or on any
currency in which Fund investments may be denominated. These options may be
listed on national domestic securities exchanges or foreign securities exchanges
or traded in the over-the-counter market. The Fund may write covered put and
call options and purchase put and call options to enhance total return, as a
substitute for the purchase or sale of securities or currency, or to protect
against declines in the value of portfolio securities and against increases in
the cost of securities to be acquired.
Writing Covered Options. A call option on securities or currency written by the
Fund obligates the Fund to sell specified securities or currency to the holder
of the option at a specified price if the option is exercised at any time before
the expiration date. A put option on securities or currency written by the Fund
obligates the Fund to purchase specified securities or currency from the option
holder at a specified price if the option is exercised at any time before the
expiration date. Options on securities indices are similar to options on
securities, except that the exercise of securities index options requires cash
settlement payments and does not involve the actual purchase or sale of
securities. In addition, securities index options are designed to reflect price
fluctuations in a group of securities or segment of the securities market rather
than price fluctuations in a single security. Writing covered call options may
deprive the Fund of the opportunity to profit from an increase in the market
price of the securities or foreign currency assets in its portfolio. Writing
covered put options may deprive the Fund of the opportunity to profit from a
decrease in the market price of the securities or foreign currency assets to be
acquired for its portfolio.
All call and put options written by the Fund are covered. A written call option
or put option may be covered by (i) maintaining cash or liquid securities,
either of which may be quoted or denominated in any currency, in a segregated
account maintained by the Fund's custodian with a value at least equal to the
Fund's obligation under the option, (ii) entering into an offsetting forward
commitment and/or (iii) purchasing an offsetting option or any other option
which, by virtue of its exercise price or otherwise, reduces the Fund's net
exposure on its written option position. A written call option on securities is
typically covered by maintaining the securities that are subject to the option
in a segregated account. The Fund may cover call options on a securities index
by owning securities whose price changes are expected to be similar to those of
the underlying index.
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The Fund may terminate its obligations under an exchange traded call or put
option by purchasing an option identical to the one it has written. Obligations
under over-the-counter options may be terminated only by entering into an
offsetting transaction with the counterparty to such option. Such purchases are
referred to as "closing purchase transactions."
Purchasing Options. The Fund would normally purchase call options in
anticipation of an increase, or put options in anticipation of a decrease
("protective puts"), in the market value of securities or currencies of the type
in which it may invest. The Fund may also sell call and put options to close out
its purchased options.
The purchase of a call option would entitle the Fund, in return for the premium
paid, to purchase specified securities or currency at a specified price during
the option period. The Fund would ordinarily realize a gain on the purchase of a
call option if, during the option period, the value of such securities or
currency exceeded the sum of the exercise price, the premium paid and
transaction costs; otherwise the Fund would realize either no gain or a loss on
the purchase of the call option.
The purchase of a put option would entitle the Fund, in exchange for the premium
paid, to sell specified securities or currency at a specified price during the
option period. The purchase of protective puts is designed to offset or hedge
against a decline in the market value of the Fund's portfolio securities or the
currencies in which they are denominated. Put options may also be purchased by
the Fund for the purpose of affirmatively benefiting from a decline in the price
of securities or currencies which it does not own. The Fund would ordinarily
realize a gain if, during the option period, the value of the underlying
securities or currency decreased below the exercise price sufficiently to cover
the premium and transaction costs; otherwise the Fund would realize either no
gain or a loss on the purchase of the put option. Gains and losses on the
purchase of put options may be offset by countervailing changes in the value of
the Fund's portfolio securities.
The Fund's options transactions will be subject to limitations established by
each of the exchanges, boards of trade or other trading facilities on which such
options are traded. These limitations govern the maximum number of options in
each class which may be written or purchased by a single investor or group of
investors acting in concert, regardless of whether the options are written or
purchased on the same or different exchanges, boards of trade or other trading
facilities or are held or written in one or more accounts or through one or more
brokers. Thus, the number of options which the Fund may write or purchase may be
affected by options written or purchased by other investment advisory clients of
the Adviser. An exchange, board of trade or other trading facility may order the
liquidation of positions found to be in excess of these limits, and it may
impose certain other sanctions.
Risks Associated with Options Transactions. There is no assurance that a liquid
secondary market on a domestic or foreign options exchange will exist for any
particular exchange-traded option or at any particular time. If the Fund is
unable to effect a closing purchase transaction with respect to covered options
it has written, the Fund will not be able to sell the underlying securities or
currencies or dispose of assets held in a segregated account until the options
expire or are exercised. Similarly, if the Fund is unable to effect a closing
sale transaction with respect to options it has purchased, it would have to
exercise the options in order to realize any profit and will incur transaction
costs upon the purchase or sale of underlying securities or currencies.
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Reasons for the absence of a liquid secondary market on an exchange include the
following: (i) there may be insufficient trading interest in certain options;
(ii) restrictions may be imposed by an exchange on opening transactions or
closing transactions or both; (iii) trading halts, suspensions or other
restrictions may be imposed with respect to particular classes or series of
options; (iv) unusual or unforeseen circumstances may interrupt normal
operations on an exchange; (v) the facilities of an exchange or the Options
Clearing Corporation may not at all times be adequate to handle current trading
volume; or (vi) one or more exchanges could, for economic or other reasons,
decide or be compelled at some future date to discontinue the trading of options
(or a particular class or series of options). If trading were discontinued, the
secondary market on that exchange (or in that class or series of options) would
cease to exist. However, outstanding options on that exchange that had been
issued by the Options Clearing Corporation as a result of trades on that
exchange would continue to be exercisable in accordance with their terms.
The Fund's ability to terminate over-the-counter options is more limited than
with exchange-traded options and may involve the risk that broker-dealers
participating in such transactions will not fulfill their obligations. The
Adviser will determine the liquidity of each over-the-counter option in
accordance with guidelines adopted by the Trustees.
The writing and purchase of options is a highly specialized activity which
involves investment techniques and risks different from those associated with
ordinary portfolio securities transactions. The successful use of options
depends in part on the Adviser's ability to predict future price fluctuations
and, for hedging transactions, the degree of correlation between the options and
securities or currency markets.
Futures Contracts and Options on Futures Contracts. To seek to increase total
return or hedge against changes in interest rates, securities prices or currency
exchange rates, the Fund may purchase and sell various kinds of futures
contracts, and purchase and write call and put options on these futures
contracts. The Fund may also enter into closing purchase and sale transactions
with respect to any of these contracts and options. The futures contracts may be
based on various securities (such as U.S. Government securities), securities
indices, foreign currencies and any other financial instruments and indices. All
futures contracts entered into by the Fund are traded on U.S. or foreign
exchanges or boards of trade that are licensed, regulated or approved by the
Commodity Futures Trading Commission ("CFTC").
Futures Contracts. A futures contract may generally be described as an agreement
between two parties to buy and sell particular financial instruments or
currencies for an agreed price during a designated month (or to deliver the
final cash settlement price, in the case of a contract relating to an index or
otherwise not calling for physical delivery at the end of trading in the
contract).
Positions taken in the futures markets are not normally held to maturity but are
instead liquidated through offsetting transactions which may result in a profit
or a loss. While futures contracts on securities or currency will usually be
liquidated in this manner, the Fund may instead make, or take, delivery of the
underlying securities or currency whenever it appears economically advantageous
to do so. A clearing corporation associated with the exchange on which futures
contracts are traded guarantees that, if still open, the sale or purchase will
be performed on the settlement date.
Hedging and Other Strategies. Hedging is an attempt to establish with more
certainty than would otherwise be possible the effective price or rate of return
on portfolio securities or securities that the Fund proposes to acquire or the
exchange rate of currencies in which portfolio securities are
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quoted or denominated. When interest rates are rising or securities prices are
falling, the Fund can seek to offset a decline in the value of its current
portfolio securities through the sale of futures contracts. When interest rates
are falling or securities prices are rising, the Fund, through the purchase of
futures contracts, can attempt to secure better rates or prices than might later
be available in the market when it effects anticipated purchases. The Fund may
seek to offset anticipated changes in the value of a currency in which its
portfolio securities, or securities that it intends to purchase, are quoted or
denominated by purchasing and selling futures contracts on such currencies.
The Fund may, for example, take a "short" position in the futures market by
selling futures contracts in an attempt to hedge against an anticipated rise in
interest rates or a decline in market prices or foreign currency rates that
would adversely affect the dollar value of the Fund's portfolio securities. Such
futures contracts may include contracts for the future delivery of securities
held by the Fund or securities with characteristics similar to those of the
Fund's portfolio securities. Similarly, the Fund may sell futures contracts on
any currencies in which its portfolio securities are quoted or denominated or in
one currency to hedge against fluctuations in the value of securities
denominated in a different currency if there is an established historical
pattern of correlation between the two currencies.
If, in the opinion of the Adviser, there is a sufficient degree of correlation
between price trends for the Fund's portfolio securities and futures contracts
based on other financial instruments, securities indices or other indices, the
Fund may also enter into such futures contracts as part of its hedging strategy.
Although under some circumstances prices of securities in the Fund's portfolio
may be more or less volatile than prices of such futures contracts, the Adviser
will attempt to estimate the extent of this volatility difference based on
historical patterns and compensate for any differential by having the Fund enter
into a greater or lesser number of futures contracts or by attempting to achieve
only a partial hedge against price changes affecting the Fund's portfolio
securities.
When a short hedging position is successful, any depreciation in the value of
portfolio securities will be substantially offset by appreciation in the value
of the futures position. On the other hand, any unanticipated appreciation in
the value of the Fund's portfolio securities would be substantially offset by a
decline in the value of the futures position.
On other occasions, the Fund may take a "long" position by purchasing futures
contracts. This would be done, for example, when the Fund anticipates the
subsequent purchase of particular securities when it has the necessary cash, but
expects the prices or currency exchange rates then available in the applicable
market to be less favorable than prices that are currently available. The Fund
may also purchase futures contracts as a substitute for transactions in
securities or foreign currency, to alter the investment characteristics of or
currency exposure associated with portfolio securities or to gain or increase
its exposure to a particular securities market or currency.
Options on Futures Contracts. The Fund may purchase and write options on futures
for the same purposes as its transactions in futures contracts. The purchase of
put and call options on futures contracts will give the Fund the right (but not
the obligation) for a specified price to sell or to purchase, respectively, the
underlying futures contract at any time during the option period. As the
purchaser of an option on a futures contract, the Fund obtains the benefit of
the futures position if prices move in a favorable direction but limits its risk
of loss in the event of an unfavorable price movement to the loss of the premium
and transaction costs.
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The writing of a call option on a futures contract generates a premium which may
partially offset a decline in the value of the Fund's assets. By writing a call
option, the Fund becomes obligated, in exchange for the premium (upon exercise
of the option) to sell a futures contract if the option is exercised, which may
have a value higher than the exercise price. Conversely, the writing of a put
option on a futures contract generates a premium which may partially offset an
increase in the price of securities that the Fund intends to purchase. However,
the Fund becomes obligated (upon exercise of the option) to purchase a futures
contract if the option is exercised, which may have a value lower than the
exercise price. The loss incurred by the Fund in writing options on futures is
potentially unlimited and may exceed the amount of the premium received.
The holder or writer of an option on a futures contract may terminate its
position by selling or purchasing an offsetting option of the same series. There
is no guarantee that such closing transactions can be effected. The Fund's
ability to establish and close out positions on such options will be subject to
the development and maintenance of a liquid market.
Other Considerations. The Fund will engage in futures and related options
transactions either for bona fide hedging purposes or to seek to increase total
return as permitted by the CFTC. To the extent that the Fund is using futures
and related options for hedging purposes, futures contracts will be sold to
protect against a decline in the price of securities (or the currency in which
they are quoted or denominated) that the Fund owns or futures contracts will be
purchased to protect the Fund against an increase in the price of securities (or
the currency in which they are quoted or denominated) it intends to purchase.
The Fund will determine that the price fluctuations in the futures contracts and
options on futures used for hedging purposes are substantially related to price
fluctuations in securities held by the Fund or securities or instruments which
it expects to purchase. As evidence of its hedging intent, the Fund expects that
on 75% or more of the occasions on which it takes a long futures or option
position (involving the purchase of futures contracts), the Fund will have
purchased, or will be in the process of purchasing, equivalent amounts of
related securities (or assets denominated in the related currency) in the cash
market at the time when the futures or option position is closed out. However,
in particular cases, when it is economically advantageous for the Fund to do so,
a long futures position may be terminated or an option may expire without the
corresponding purchase of securities or other assets.
To the extent that the Fund engages in nonhedging transactions in futures
contracts and options on futures, the aggregate initial margin and premiums
required to establish these nonhedging positions will not exceed 5% of the net
asset value of the Fund's portfolio, after taking into account unrealized
profits and losses on any such positions and excluding the amount by which such
options were in-the-money at the time of purchase. The Fund will engage in
transactions in futures contracts and related options only to the extent such
transactions are consistent with the requirements of the Internal Revenue Code
of 1986, as amended (the "Code"), for maintaining its qualification as a
regulated investment company for federal income tax purposes.
Transactions in futures contracts and options on futures involve brokerage
costs, require margin deposits and, in the case of contracts and options
obligating the Fund to purchase securities or currencies, require the Fund to
establish with the custodian a segregated account consisting of cash or liquid
securities in an amount equal to the underlying value of such contracts and
options.
While transactions in futures contracts and options on futures may reduce
certain risks, these transactions themselves entail certain other risks. For
example, unanticipated changes in interest rates, securities prices or currency
exchange rates may result in a poorer overall performance for the Fund than if
it had not entered into any futures contracts or options transactions.
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Perfect correlation between the Fund's futures positions and portfolio positions
will be impossible to achieve. There are no futures contracts based upon
individual securities, except certain U.S. Government securities. The only
futures contracts available to hedge the Fund's portfolio are various futures on
U.S. Government securities, securities indices and foreign currencies. In the
event of an imperfect correlation between a futures position and a portfolio
position which is intended to be protected, the desired protection may not be
obtained and the Fund may be exposed to risk of loss. In addition, it is not
possible to hedge fully or protect against currency fluctuations affecting the
value of securities denominated in foreign currencies because the value of such
securities is likely to fluctuate as a result of independent factors not related
to currency fluctuations.
Some futures contracts or options on futures may become illiquid under adverse
market conditions. In addition, during periods of market volatility, a commodity
exchange may suspend or limit trading in a futures contract or related option,
which may make the instrument temporarily illiquid and difficult to price.
Commodity exchanges may also establish daily limits on the amount that the price
of a futures contract or related option can vary from the previous day's
settlement price. Once the daily limit is reached, no trades may be made that
day at a price beyond the limit. This may prevent the Fund from closing out
positions and limiting its losses.
Lending Securities. The Fund may lend portfolio securities to brokers, dealers,
and financial institutions if the loan is collateralized by cash or U.S.
Government securities according to applicable regulatory requirements. The Fund
may reinvest any cash collateral in short-term securities and money market
funds. When the Fund lends portfolio securities, there is a risk that the
borrower may fail to return the securities involved in the transaction. As a
result, the Fund may incur a loss or, in the event of the borrower's bankruptcy,
the Fund may be delayed in or prevented from liquidating the collateral. It is a
fundamental policy of the Fund not to lend portfolio securities having a total
value exceeding 33 1/3% of its total assets.
Rights and Warrants. The Fund may purchase warrants and rights which are
securities permitting, but not obligating, their holder to purchase the
underlying securities at a predetermined price, subject to the Fund's Investment
Restrictions. Generally, warrants and stock purchase rights do not carry with
them the right to receive dividends or exercise voting rights with respect to
the underlying securities, and they do not represent any rights in the assets of
the issuer. As a result, an investment in warrants and rights may be considered
to entail greater investment risk than certain other types of investments. In
addition, the value of warrants and rights does not necessarily change with the
value of the underlying securities, and they cease to have value if they are not
exercised on or prior to their expiration date. Investment in warrants and
rights increases the potential profit or loss to be realized from the investment
of a given amount of the Fund's assets as compared with investing the same
amount in the underlying stock.
Short Sales. The Fund may engage in short sales 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.
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Forward Commitments and When-Issued Securities. 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 securities, of any type or maturity,
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-Term Trading and Portfolio Turnover. Short-term trading means the purchase
and subsequent sale of a security after it has been held for a relatively brief
period of time. The Fund may engage in short-term trading in response to stock
market conditions, changes in interest rates or other economic trends and
developments, or to take advantage of yield disparities between various fixed
income securities in order to realize capital gains or improve income.
Short-term trading may have the effect of increasing portfolio turnover rate. A
high rate of portfolio turnover (100% or greater) involves correspondingly
greater brokerage expenses. The Fund's portfolio turnover rate is set forth in
the table under the caption "Financial Highlights" in the Prospectus.
INVESTMENT RESTRICTIONS
Fundamental Investment Restrictions. The following investment restrictions will
not be changed without the approval of a majority of the Fund's outstanding
voting securities which, as used in the Prospectus and this Statement of
Additional Information, means the approval 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 Fund's outstanding shares are present in person or by proxy at
that meeting or (2) more than 50% of the Fund's outstanding shares.
The Fund may not:
1. Issue senior securities, except as permitted by paragraph 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
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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.
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Non-Fundamental Investment Restrictions. The following restrictions are
designated as non-fundamental and may be changed by the Trustees without
shareholder approval.
The Fund may not:
10. 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.
11. Purchase a security if, as a result, (i) more than 10% of the Fund's total
assets would be invested in the securities of other investment companies, (ii)
the Fund would hold more than 3% of the total outstanding voting securities of
any one investment company, or (iii) more than 5% of the Fund's total assets
would be invested in the securities of any one investment company. These
limitations do not apply to (a) the investment of cash collateral, received by
the Fund in connection with lending the Fund's portfolio securities, in the
securities of open-end investment companies or (b) the purchase of shares of any
investment company in connection with a merger, consolidation, reorganization or
purchase of substantially all of the assets of another investment company.
Subject to the above percentage limitations, the Fund may, in connection with
the John Hancock Group of Funds Deferred Compensation Plan for Independent
Trustees/Directors, purchase securities of other investment companies within the
John Hancock Group of Funds.
12. Invest more than 15% of its net assets in illiquid securities.
13. Purchase securities while outstanding borrowings (other than reverse
repurchase agreements) exceed 5% of the Fund's total assets.
14. 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.
THOSE RESPONSIBLE FOR MANAGEMENT
The business of the Fund is managed by its Trustees, who elect officers who are
responsible for the day-to-day operations of the Fund and who execute policies
formulated by the Trustees. Several of the officers and Trustees of the Fund are
also officers and Directors of the Adviser or officers and Directors of the
Fund's principal distributor, John Hancock Funds, Inc.
("John Hancock Funds").
15
<PAGE>
Positions Held Principal Occupation(s)
Name and Address With the Company During the Past Five Years
- ---------------- ---------------- --------------------------
Edward J. Boudreau, Jr. * Trustee, Chairman and Chairman, Director and
101 Huntington Avenue Chief Executive Officer Chief Executive Officer,
Boston, MA 02199 (1, 2) the Adviser; Chairman,
October 1944 Trustee and Chief
Executive Officer, The
Berkeley Financial Group
("The Berkeley Group");
Chairman and Director, NM
Capital Management, Inc.
("NM Capital"), John
Hancock Advisers
International Limited
("Advisers International")
and Sovereign Asset
Management Corporation
("SAMCorp"); Chairman,
Chief Executive Officer
and President, John
Hancock Funds, Inc. ("John
Hancock Funds"); Chairman,
First Signature Bank and
Trust Company; Director,
John Hancock Insurance
Agency, Inc. ("Insurance
Agency, Inc."), John
Hancock Advisers
International (Ireland)
Limited ("International
Ireland"), John Hancock
Capital Corporation and
New England/Canada
Business Council; Member,
Investment Company
Institute Board of
Governors; Director, Asia
Strategic Growth Fund,
Inc.; Trustee, Museum of
Science; Director, John
Hancock Freedom Securities
Corporation (until
September 1996); Director,
John Hancock Signature
Services, Inc. ("Signature
Services") (until January
1997).
- ----------
* Trustee may be deemed to be an "interested person" of the Fund as defined
in the Investment Company Act of 1940
(1) Member of the Executive Committee. The Executive Committee may generally
exercise most of the powers of the Board of Trustees.
(2) A member of the Investment Committee of the Adviser.
(3) Member of the Audit Committee and the Administration Committee.
16
<PAGE>
Positions Held Principal Occupation(s)
Name and Address With the Company During the Past Five Years
- ---------------- ---------------- --------------------------
Dennis S. Aronowitz Trustee (3) Professor of Law,
1216 Falls Boulevard Emeritus, Boston
Fort Lauderdale, FL 33327 University School of Law
June 1931 (as of 1997); Trustee,
Brookline Savings Bank.
Richard P. Chapman, Jr. Trustee (1, 3) President, Brookline
160 Washington Street Savings Bank; Director,
Brookline, MA 02147 Federal Home Loan Bank
February 1935 of Boston (lending);
Director, Lumber
Insurance Companies
(fire and casualty
insurance); Trustee,
Northeastern University
(education); Director,
Depositors Insurance
Fund, Inc. (insurance).
William J. Cosgrove Trustee (3) Vice President, Senior
20 Buttonwood Place Banker and Senior Credit
Saddle River, NJ 07458 Officer, Citibank, N.A.
January 1933 (retired September
1991); Executive Vice
President, Citadel Group
Representatives, Inc.;
EVP Resource Evaluation,
Inc. (consulting) (until
October 1993); Trustee,
the Hudson City Savings
Bank (since 1995).
- ----------
* Trustee may be deemed to be an "interested person" of the Fund as defined
in the Investment Company Act of 1940
(1) Member of the Executive Committee. The Executive Committee may generally
exercise most of the powers of the Board of Trustees.
(2) A member of the Investment Committee of the Adviser.
(3) Member of the Audit Committee and the Administration Committee.
17
<PAGE>
Positions Held Principal Occupation(s)
Name and Address With the Company During the Past Five Years
- ---------------- ---------------- --------------------------
Douglas M. Costle Trustee (1, 3) Director, Chairman of
RR2 Box 480 the Board and
Woodstock, VT 05091 Distinguished Senior
July 1939 Fellow, Institute for
Sustainable Communities,
Montpelier, Vermont (since
1991); Dean Vermont Law
School (until 1991);
Director, Air and Water
Technologies Corporation
(environmental services
and equipment), Niagara
Mohawk Power Company
(electric services) and
Mitretek Systems
(governmental consulting
services).
Leland O. Erdahl Trustee (3) Vice President, Chief
8046 Mackenzie Court Financial Officer and
Las Vegas, NV 89129 Director of Amax Gold,
December 1928 Inc.; Director, Santa Fe
Ingredients Company of
California, Inc. and
Santa Fe Ingredients
Company, Inc. (private
food processing
companies), Uranium
Resources Corporation;
Freeport-McMoRan Copper
& Gold Company, Inc.,
Hecla Mining Company,
Canyon Resources
Corporation and Original
Sixteen to One Mines,
Inc. (1984-1987 and
1991-1995) (management
consultant).
- ----------
* Trustee may be deemed to be an "interested person" of the Fund as defined
in the Investment Company Act of 1940
(1) Member of the Executive Committee. The Executive Committee may generally
exercise most of the powers of the Board of Trustees.
(2) A member of the Investment Committee of the Adviser.
(3) Member of the Audit Committee and the Administration Committee.
18
<PAGE>
Positions Held Principal Occupation(s)
Name and Address With the Company During the Past Five Years
- ---------------- ---------------- --------------------------
Richard A. Farrell Trustee(3) President of Farrell,
Venture Capital Partners Healer & Co., (venture
160 Federal Street capital management firm)
23rd Floor (since 1980); Prior to
Boston, MA 02110 1980, headed the venture
November 1932 capital group at Bank of
Boston Corporation.
Gail D. Fosler Trustee (3) Vice President and Chief
3054 So. Abingdon Street Economist, The
Arlington, VA 22206 Conference Board
December 1947 (non-profit economic and
business research);
Director, Unisys Corp.;
and H.B. Fuller Company.
William F. Glavin Trustee (3) President Emeritus,
120 Paget Court - John's Babson College (as of
Island 1997); Vice Chairman,
Vero Beach, FL 32963 Xerox Corporation (until
March 1932 June 1989); Director,
Caldor Inc., Reebok,
Inc. (since 1994) and
Inco Ltd.
Anne C. Hodsdon * Trustee and President President, Chief
101 Huntington Avenue (1,2) Operating Officer and
Boston, MA 02199 Director, the Adviser;
April 1953 Trustee, The Berkeley
Group; Director, John
Hancock Funds, Advisers
International, Insurance
Agency, Inc. and
International Ireland;
President and Director,
SAMCorp. and NM Capital;
Executive Vice
President, the Adviser
(until December 1994);
Director, Signature
Services (until January
1997).
- ----------
* Trustee may be deemed to be an "interested person" of the Fund as defined
in the Investment Company Act of 1940
(1) Member of the Executive Committee. The Executive Committee may generally
exercise most of the powers of the Board of Trustees.
(2) A member of the Investment Committee of the Adviser.
(3) Member of the Audit Committee and the Administration Committee.
19
<PAGE>
Positions Held Principal Occupation(s)
Name and Address With the Company During the Past Five Years
- ---------------- ---------------- --------------------------
Dr. John A. Moore Trustee (3) President and Chief
Institute for Evaluating Executive Officer,
Health Risks Institute for Evaluating
1629 K Street NW Health Risks, (nonprofit
Suite 402 institution) (since
Washington, DC 20006-1602 September 1989).
February 1939
Patti McGill Peterson Trustee (3) Executive Director,
Council for International Council for
Exchange of Scholars International Exchange
3007 Tilden Street, N.W., of Scholars (since
Suite 5L January 1998), Vice
Washington, DC 20008-30009 President, Institute of
May 1943 International Education
(since January 1998);
Cornell Institute of
Public Affairs, Cornell
University (until December
1997); President Emeritus
of Wells College and St.
Lawrence University;
Director, Niagara Mohawk
Power Corporation
(electric utility) and
Security Mutual Life
(insurance).
John W. Pratt Trustee (3) Professor of Business
2 Gray Gardens East Administration at
Cambridge, MA 02138 Harvard University
September 1931 Graduate School of
Business Administration
(since 1961).
- ----------
* Trustee may be deemed to be an "interested person" of the Fund as defined
in the Investment Company Act of 1940
(1) Member of the Executive Committee. The Executive Committee may generally
exercise most of the powers of the Board of Trustees.
(2) A member of the Investment Committee of the Adviser.
(3) Member of the Audit Committee and the Administration Committee.
20
<PAGE>
Positions Held Principal Occupation(s)
Name and Address With the Company During the Past Five Years
- ---------------- ---------------- --------------------------
Richard S. Scipione * Trustee (1) General Counsel, John
John Hancock Place Hancock Life Company;
P.O. Box 111 Director, the Adviser,
Boston, MA 02117 Advisers International,
August 1937 John Hancock Funds, John
Hancock Distributors,
Inc., Insurance Agency,
Inc., John Hancock
Subsidiaries, Inc.,
SAMCorp. and NM Capital;
Trustee, The Berkeley
Group; Director, JH
Networking Insurance
Agency, Inc.; Director,
Signature Services
(until January 1997).
Edward J. Spellman, CPA Trustee (3) Partner, KPMG Peat
259C Commercial Bld. Marwick LLP (retired
Ft. Lauderdale, FL 33308 June 1990).
November 1932
Robert G. Freedman Vice Chairman and Chief Vice Chairman and Chief
101 Huntington Avenue Investment Officer (2) Investment Officer, the
Boston, MA 02199 Adviser; Director, the
July 1938 Adviser, Advisers
International, John
Hancock Funds, SAMCorp.,
Insurance Agency, Inc.,
Southeastern Thrift & Bank
Fund and NM Capital;
Senior Vice President, The
Berkeley Group; President,
the Adviser (until
December 1994); Director,
Signature Services (until
January 1997).
- ----------
* Trustee may be deemed to be an "interested person" of the Fund as defined
in the Investment Company Act of 1940
(1) Member of the Executive Committee. The Executive Committee may generally
exercise most of the powers of the Board of Trustees.
(2) A member of the Investment Committee of the Adviser.
(3) Member of the Audit Committee and the Administration Committee.
21
<PAGE>
Positions Held Principal Occupation(s)
Name and Address With the Company During the Past Five Years
- ---------------- ---------------- --------------------------
James B. Little Senior Vice President and Senior Vice President,
101 Huntington Avenue Chief Financial Officer the Adviser, The
Boston, MA 02199 Berkeley Group, John
February 1935 Hancock Funds.
John A. Morin Vice President Vice President and
101 Huntington Avenue Secretary, the Adviser,
Boston, MA 02199 The Berkeley Group,
July 1950 Signature Services and
John Hancock Funds;
Secretary, NM Capital and
SAMCorp.; Clerk, Insurance
Agency, Inc.; Counsel,
John Hancock Mutual Life
Insurance Company (until
February 1996), and Vice
President of John Hancock
Distributors, Inc. (until
April 1994).
Susan S. Newton Vice President and Vice President, the
101 Huntington Avenue Secretary Adviser; John Hancock
Boston, MA 02199 Funds, Signature
March 1950 Services and The
Berkeley Group; Vice
President, John Hancock
Distributors, Inc.
(until April 1994).
James J. Stokowski Vice President and Vice President, the
101 Huntington Avenue Treasurer Adviser.
Boston, MA 02199
November 1946
- ----------
* Trustee may be deemed to be an "interested person" of the Fund as defined
in the Investment Company Act of 1940
(1) Member of the Executive Committee. The Executive Committee may generally
exercise most of the powers of the Board of Trustees.
(2) A member of the Investment Committee of the Adviser.
(3) Member of the Audit Committee and the Administration Committee.
22
<PAGE>
The following table provides information regarding the compensation paid by the
Fund and other investment companies in the John Hancock Fund Complex to the
Independent Trustees for their services. Messrs. Boudreau and Scipione and Ms.
Hodsdon, each a non-independent Trustee, and each of the officers of the Fund
are interested persons of the Adviser, and/or affiliates are compensated by the
Adviser and receive no compensation from the Fund for their services.
Aggregate Compensation
Total Compensation From
Aggregate All Funds in John
Compensation From Hancock Complex to
Independent Trustees Fund** Trustees*
- -------------------- ------ ---------
Dennis S. Aronowitz $ 427 $ 72,000
Richard P. Chapman, Jr.+ 505 75,000
William J. Cosgrove+ 427 72,000
Douglas M. Costle 505 75,000
Leland O. Erdahl 427 72,000
Richard A. Farrell 505 75,000
Gail D. Fosler 427 72,000
William F. Glavin + 427 72,000
John A. Moore+ 427 72,000
Patti McGill Peterson 427 72,000
John W. Pratt 427 72,000
Edward J. Spellman 505 75,000
------ --------
Total $5,436 $876,000
*Total compensation paid by the John Hancock Fund Complex to the Independent
Trustees is for the calendar year ended December 31, 1997. As of that date,
there were sixty-seven funds in the John Hancock Funds Complex, with each of
these Independent Trustees serving on thirty-two funds.
**Compensation is for the fiscal year ended October 31, 1997.
+As of December 31, 1997, the value of the aggregate deferred compensation from
all funds in the John Hancock Fund Complex for Mr. Chapman was $69,148, for Mr.
Cosgrove was $167,829, for Mr. Glavin was $193,514 and for Mr. Moore was $84,315
under the John Hancock Deferred Compensation Plan for Independent Trustees.
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.
As of February 2, 1998, the officers and Trustees of the Fund as a group
beneficially owned less than 1% of the outstanding shares of the Fund. As of
that date, the following shareholders beneficially owned 5% or more of the
outstanding shares of the Fund.
23
<PAGE>
Percentage of Total
Name Address outstanding Shares of
of Shareholders Class of Shares the Class of the Fund
--------------- --------------- ---------------------
MLPF&S For The Sole A 23.29%
Benefit Of Its Customers
Attn: Fund Administration
4800 Deerlake Drive East
Jacksonville FL 32246-6484
MLPF&S For The Sole B 40.66%
Benefit Of Its Customers
Attn: Fund Administration
4800 Deerlake Drive East
Jacksonville FL 32246-6484
INVESTMENT ADVISORY AND OTHER SERVICES
The Adviser, located at 101 Huntington Avenue, Boston, Massachusetts 02199-7603,
was organized in 1968 and has more than $26 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 1,400,000 shareholders. The Adviser is an affiliate of
the Life Company, one of the most recognized and respected financial
institutions in the nation. With total assets under management of more than $100
billion, the Life Company is one of the ten largest life insurance companies in
the United States, and carries a high rating from Standard & Poor's and A.M.
Best's. Founded in 1862, the Life Company has been serving clients for over 130
years.
The Fund has entered into an investment management contract (the "Advisory
Agreement") with the Adviser which was approved by the Fund's shareholders.
Pursuant to the Advisory Agreement, the Adviser will: (a) furnish continuously
an investment program for the Fund and determine, subject to the overall
supervision and review of the Trustees, which investments should be purchased,
held, sold or exchanged, and (b) provide supervision over all aspects of the
Fund's operations except those which are delegated to a custodian, transfer
agent or other agent.
The Fund bears all costs of its organization and operation, including expenses
of preparing, printing and mailing all shareholders' reports, notices,
prospectuses, proxy statements and reports to regulatory agencies; expenses
relating to the issuance, registration and qualification of shares; government
fees; interest charges; expenses of furnishing to shareholders their account
statements; taxes; expenses of redeeming shares; brokerage and other expenses
connected with the execution of portfolio securities transactions; expenses
pursuant to the Fund's plan of distribution; fees and expenses of custodians
including those for keeping books and accounts and calculating the net asset
value of shares; fees and expenses of transfer agents and dividend disbursing
agents; legal, accounting, financial, management, tax and auditing fees and
expenses of the Fund (including an allocable portion of the cost of the
Adviser's employees rendering such services to the Fund; the compensation and
expenses of Trustees who are not otherwise affiliated with the Trust, the
Adviser or any of their affiliates; expenses of Trustees' and shareholders'
meetings; trade association membership; insurance premiums; and any
extraordinary expenses.
24
<PAGE>
As compensation for its services under the Advisory Agreement, the Fund pays the
Adviser monthly a fee based on a stated percentage of the average daily net
assets of the Fund as follows:
Net Asset Value Annual Rate
--------------- -----------
First $500,000,000 0.80%
Next $500,000,000 0.75%
From time to time, the Adviser may reduce its fee or make other arrangements to
limit the Fund's expenses to a specified percentage of average daily net assets.
The Adviser retains the right to reimpose a fee and recover any other payments
to the extent that, at the end of any fiscal year, the Fund's annual expenses
fall below this limit.
Securities held by the Fund may also be held by other funds or investment
advisory clients for which the Adviser or its affiliates provide investment
advice. Because of different investment objectives or other factors, a
particular security may be bought for one or more funds or clients when one or
more are selling the same security. If opportunities for purchase or sale of
securities by the Adviser for the Fund or for other funds or clients for which
the Adviser renders investment advice arise for consideration at or about the
same time, transactions in such securities will be made insofar as feasible, for
the respective funds or clients in a manner deemed equitable to all of them. To
the extent that transactions on behalf of more than one client of the Adviser or
its affiliates may increase the demand for securities being purchased or the
supply of securities being sold, there may be an adverse effect on price.
Pursuant to the Advisory Agreement, the Adviser is not liable to the Fund or its
shareholders for any error of judgment or mistake of law or for any loss
suffered by the Fund in connection with the matters to which the Advisory
Agreement relates, except a loss resulting from willful misfeasance, bad faith
or gross negligence on the part of the Adviser in the performance of its duties
or from reckless disregard by the Adviser of its obligations and duties under
the Advisory Agreement.
Under the Advisory Agreement, the Fund may use the name "John Hancock" or any
name derived from or similar to it only for so long as the Advisory Agreement or
any extension, renewal or amendment thereof remains in effect. If the Advisory
Agreement is no longer in effect, the Fund (to the extent that it lawfully can)
will cease to use such a name or any other name indicating that it is advised by
or otherwise connected with the Adviser. In addition, the Adviser or the Life
Company may grant the nonexclusive right to use the name "John Hancock" or any
similar name to any other corporation or entity, including but not limited to
any investment company of which the Life Company or any subsidiary or affiliate
thereof or any successor to the business of any subsidiary or affiliate thereof
shall be the investment adviser.
The continuation of the Advisory Agreement and Distribution Agreement (discussed
below) was approved by all of the Trustees. The Advisory Agreement and the
Distribution Agreement, will continue in effect from year to year, provided that
its continuance is approved annually both (i) by the holders of a majority of
the outstanding voting securities of the Trust or by the Trustees, and (ii) by a
majority of the Trustees who are not parties to the Agreement or "interested
persons" of any such parties. Both agreements may be terminated on 60 days
written notice by any party or by vote of a majority of the outstanding voting
securities of the Fund and will terminate automatically if assigned.
For the fiscal period from March 14, 1996 to October 31, 1996, the Adviser's
management fee was $3,842. After the expense reduction by the Adviser, the Fund
paid no management fee for
25
<PAGE>
the period. For the fiscal year ended October 31, 1997, the Adviser's management
fee was $4,842,498. After the expense reduction by the Adviser, the Fund paid a
management fee of $3,171,442 for that period.
Accounting and Legal Services Agreement. The Trust, on behalf of the Fund, is a
party to an Accounting and Legal Services Agreement with the Adviser. Pursuant
to this agreement, the Adviser provides the Fund with certain tax, accounting
and legal services. For the fiscal year ended October 31, 1996, the Fund paid
the Adviser $51 for services under this agreement from the effective date of
July 1, 1996. For the fiscal year ended October 31, 1997, the Fund paid the
Adviser $110,155 for services under this Agreement.
In order to avoid conflicts with portfolio trades for the Fund, the Adviser and
the Fund have adopted extensive restrictions on personal securities trading by
personnel of the Adviser and its affiliates. Some of these restrictions are:
pre-clearance for all personal trades and a ban on the purchase of initial
public offerings, as well as contributions to specified charities of profits on
securities held for less than 91 days. These restrictions are a continuation of
the basic principle that the interests of the Fund and its shareholders come
first.
DISTRIBUTION CONTRACTS
The Fund has a Distribution Agreement with John Hancock Funds. Under the
agreement John Hancock Funds is obligated to use its best efforts to sell shares
of each class of the Fund. Shares of the Fund are also sold by selected
broker-dealers (the "Selling Brokers") which have entered into selling agency
agreements with John Hancock Funds. John Hancock Funds accepts orders for the
purchase of the shares of the Fund which are continually offered at net asset
value next determined, plus any applicable sales charge, if any. In connection
with the sale of Class A or Class B shares, John Hancock Funds and Selling
Brokers receive compensation from a sales charge imposed, in the case of Class A
shares, at the time of sale. In the case of Class B shares, the broker receives
compensation immediately but John Hancock Funds is compensated on a deferred
basis. John Hancock Funds may pay extra compensation to financial services firms
selling large amounts of fund shares. This compensation would be calculated as a
percentage of fund shares sold by the firm.
Total underwriting commissions for sales of the Fund's Class A shares for the
fiscal year ended October 31, 1997 and for the period from March 14, 1996 to
October 31, 1996 were $12,457,549 and $43, respectively, and $1,938,173 and $1
were retained by John Hancock Funds in 1997 and 1996, respectively. The
remainder of the underwriting commissions were reallowed to dealers.
The Fund's Trustees adopted Distribution Plans with respect to Class A and Class
B shares (the "Plans"), pursuant to Rule 12b-1 under the Investment Company Act
of 1940. Under the Plans, the Fund will pay distribution and service fees at an
aggregate annual rate of up to 0.30% and 1.00%, respectively, of the Fund's
average daily net assets attributable to shares of that class. However, the
service fee will not exceed 0.25% of the Fund's average daily net assets
attributable to each class of shares. The distribution fees will be used to
reimburse John Hancock Funds for 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. The services fees
will be used to compensate Selling Brokers and others for providing personal and
account maintenance services to shareholders. In the event the John Hancock
Funds is not fully reimbursed for payments or expenses they incur
26
<PAGE>
under the Class A Plan, these expenses will not be carried beyond twelve months
from the date they were incurred. Unreimbursed expenses under the Class B Plan
will be carried forward together with interest on the balance of these
unreimbursed expenses. The Fund does not treat unreimbursed expenses under the
Class B Plan as a liability of the Fund because the Trustees may terminate the
Class B Plan at any time. For the fiscal year ended October 31, 1997, an
aggregate of $7,546,464 of distribution expenses or 1.29% of the average net
assets of the Class B shares of the Fund, were not reimbursed or recovered by
John Hancock Funds through the receipt of deferred sales charges or Rule 12b-1
fees.
The Plans were approved by a majority of the voting securities of the Fund. The
Plans and all amendments were approved by the Trustees, including a majority of
the Trustees who are not interested persons of the Fund and who have no direct
or indirect financial interest in the operation of the Plans (the "Independent
Trustees"), by votes cast in person at a meeting called for the purpose of
voting on such Plans.
Pursuant to the Plans, at least quarterly, John Hancock Funds provides the Fund
with a written report of the amounts expended under the Plans and the purpose
for which these expenditures were made. The Trustees review these reports on a
quarterly basis to determine their continued appropriateness.
The Plans provide that they will continue in effect only so long as its
continuance is approved at least annually by a majority of both the Trustees and
the Independent Trustees. The Plans provide that they may be terminated without
penalty, (a) by vote of a majority of the Independent Trustees, (b) by a vote of
a majority of the Fund's outstanding shares of the applicable class upon 60
day's written notice to John Hancock Funds, and (c) automatically in the event
of assignment. The Plans further provide that they may not be amended to
increase the maximum amount of the fees for the services described therein
without the approval of a majority of the outstanding shares of the class of the
Fund which has voting rights with respect to the Plan. Each plan provides, that
no material amendment to the Plans will be effective unless it is approved by a
majority vote of the Trustees and the Independent Trustees of the Fund. The
holders of Class A and Class B shares have exclusive voting rights with respect
to the Plan applicable to their respective class of shares. In adopting the
Plans, the Trustees concluded that, in their judgment, there is a reasonable
likelihood that the Plans will benefit the holders of the applicable class of
shares of the Fund.
Amounts paid to John Hancock Funds by any class of shares of the Fund will not
be used to pay the expenses incurred with respect to any other class of shares
of the Fund; provided, however, that expenses attributable to the Fund as a
whole will be allocated, to the extent permitted by law, according to a formula
based upon gross sales dollars and/or average daily net assets of each such
class, as may be approved from time to time by vote of a majority of Trustees.
From time to time, the Fund may participate in joint distribution activities
with other Funds and the costs of those activities will be borne by each Fund in
proportion to the relative net asset value of the participating Funds.
During the fiscal year ended October 31, 1997, the Fund paid John Hancock Funds
the following amounts of expenses in connection with their services for the
Fund:
27
<PAGE>
Expense Items
-------------
Printing
and
Mailing of Compensation Interest,
Prospectuses Expenses of to Selling Carrying or
to New John Hancock Brokers Other
Shares Advertising Shareholders Funds Charges Finance
- ------ ----------- ------------ ----- ------- -------
Class A $ 88,729 $ 3,510 $ 345,156 $ 9,429 $ --
Class B $914,349 $33,997 $3,560,553 $53,728 $71,296
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 in the aforementioned category for which no sales are reported and
other securities traded over-the-counter are generally valued at the mean
between the current closing bid and asked prices.
Short-term debt investments which have a remaining maturity of 60 days or less
are generally valued at amortized cost which approximates market value. If
market quotations are not readily available or if in the opinion of the Adviser
any quotation or price is not representative of market value, the fair value of
the security may be determined in good faith in accordance with procedures
approved by the Trustees.
Foreign securities are valued on the basis of quotations from the primary market
in which they are traded. Any assets or liabilities expressed in terms of
foreign currencies are translated into U.S. dollars by the custodian bank based
on London currency exchange quotations as of 5:00 p.m., London time (12:00 noon,
New York time) on the date of any determination of the Fund's NAV If quotations
are not readily available, or the value has been materially affected by events
occurring after the closing of a foreign market, assets are valued by a method
that the Trustees believe accurately reflects fair value.
The NAV for each fund and class is determined each business day at the close of
regular trading on the New York Stock Exchange (typically 4:00 p.m. Eastern
Time) by dividing a class's net assets by the number of its shares outstanding.
On any day an international market is closed and the New York Stock Exchange is
open, any foreign securities will be valued at the prior day's close with the
current day's exchange rate. Trading of foreign securities may take place on
Saturdays and U.S. business holidays on which the Fund's NAV is not calculated.
Consequently, the Fund's portfolio securities may trade and the NAV of the
Fund's shares may be significantly affected on days when a shareholder has no
access to the Fund.
28
<PAGE>
INITIAL SALES CHARGE ON CLASS A SHARES
Shares of the Fund are offered at a price equal to their net asset value plus a
sales charge which, at the option of the purchaser, may be imposed either at the
time of purchase (the "initial sales charge alternative") or on a contingent
deferred basis (the "deferred sales charge alternative"). Share certificates
will not be issued unless requested by the shareholder in writing, and then they
will only be issued for full shares. The Trustees reserve the right to change or
waive the Fund's minimum investment requirements and to reject any order to
purchase shares (including purchase by exchange) when in the judgment of the
Adviser such rejection is in the Fund's best interest.
The sales charges applicable to purchases of Class A shares of the Fund are
described in the Prospectus. Methods of obtaining a reduced sales charges
referred to generally in the Prospectus are described in detail below. In
calculating the sales charge applicable to current purchases of Class A shares
of the Fund, the investor is entitled to accumulate current purchases with the
greater of the current value (at offering price) of the Class A shares of the
Fund, owned by the investor, or, if John Hancock Signature Services, Inc.
("Signature Services") is notified by the investor's dealer or the investor at
the time of the purchase, the cost of the Class A shares owned.
Without Sales Charges. Class A shares of the Fund may be offered without a
front-end sales charge or CDSC to various individuals and institutions as
follows:
o Any state, county or any instrumentality, department, authority, or agency
of these entities that is prohibited by applicable investment laws from
paying a sales charge or commission when it purchases shares of any
registered investment management company.*
o A bank, trust company, credit union, savings institution or other
depository institution, its trust departments or common trust funds if it
is purchasing $1 million or more for non-discretionary customers or
accounts.*
o A Trustee or officer of the Trust; a Director or officer of the Adviser
and its affiliates or Selling Brokers; employees or sales
representatives of any of the foregoing; retired officers, employees or
Directors of any of the foregoing; a member of the immediate family
(spouse, children, grandchildren, mother, father, sister, brother,
mother-in-law, father-in-law) of any of the foregoing; or any fund,
pension, profit sharing or other benefit plan for the individuals
described above.
o A broker, dealer, financial planner, consultant or registered investment
advisor that has entered into an agreement with John Hancock Funds
providing specifically for the use of Fund shares in fee-based investment
products or services made available to their clients.
o A former participant in an employee benefit plan with John Hancock funds,
when he or she withdraws from his or her plan and transfers any or all of
his or her plan distributions directly to the Fund.
o A member of an approved affinity group financial services plan.*
o A member of a class action lawsuit against insurance companies who is
investing settlement proceeds.
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o Retirement plans participating in Merrill Lynch servicing programs, if the
Plan has more than $3 million in assets or 500 eligible employees at the
date the Plan Sponsor signs the Merrill Lynch Recordkeeping Service
Agreement. See your Merrill Lynch financial consultant for further
information.
o Existing full service clients of the Life Company who were group annuity
contract holders as of September 1, 1994, and participant directed defined
contribution plans with at least 100 eligible employees at the inception
of the Fund account, may purchase Class A shares with no initial sales
charge. However, if the shares are redeemed within 12 months after the end
of the calendar year in which the purchase was made, a CDSC will be
imposed at the following rate:
Amount Invested CDSC Rate
--------------- ---------
$1 to $4,999,999 1.00%
Next $5 million to $9,999,999 0.50%
Amounts of $10 million and over 0.25%
Class A shares may also be purchased without an initial sales charge in
connection with certain liquidation, merger or acquisition transactions
involving other investment companies or personal holding companies.
*For investments made under these provisions, John Hancock Funds may make a
payment out of its own resources to the Selling Broker in an amount not to
exceed 0.25% of the amount invested.
Combination Privilege. In calculating the sales charge applicable to purchases
of Class A shares made at one time, the purchases will be combined to reduce
sales charges if made by (a) an individual, his or her spouse and their children
under the age of 21, purchasing securities for his or their own account, (b) a
trustee or other fiduciary purchasing for a single trust, estate or fiduciary
account and (c) groups which qualify for the Group Investment Program (see
below). Further information about combined purchases, including certain
restrictions on combined group purchases, is available from Signature Services
or a Selling Broker's representative.
Accumulation Privilege. Investors (including investors combining purchases) who
are already Class A shareholders may also obtain the benefit of the reduced
sales charge by taking into account not only the amount then being invested but
also the purchase price or current value of the Class A shares of all John
Hancock funds which carry a sales charge already held by such person. Class A
shares of John Hancock money market funds will only be eligible for the
accumulation privilege if the investor has previously paid a sales charge on the
amount of those shares.
Group Investment Program. Under the Combination and Accumulation Privileges, all
members of a group may combine their individual purchases of Class A shares to
potentially qualify for breakpoints in the sales charge schedule. This feature
is provided to any group which (1) has been in existence for more than six
months, (2) has a legitimate purpose other than the purchase of mutual fund
shares at a discount for its members, (3) utilizes salary deduction or similar
group methods of payment, and (4) agrees to allow sales materials of the fund in
its mailings to members at a reduced or no cost to John Hancock Funds.
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<PAGE>
Letter of Intention. Reduced sales charges are also applicable to investments
made 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
retirement plan, however, may opt to make the necessary investments called for
by the LOI over a forty-eight (48) month period. These retirement plans include
IRAs, SEP, SARSEP, 401(k), 403(b) (including TSAs), SIMPLE IRA, SIMPLE 401(k),
Money Purchase Pension, Profit Sharing and Section 457 plans. Such an investment
(including accumulations and combinations) must aggregate $50,000 or more
invested during the specified period from the date of the LOI or from a date
within ninety (90) days prior thereto, upon written request to Signature
Services. The sales charge applicable to all amounts invested under the LOI is
computed as if the aggregate amount intended to be invested had been invested
immediately. If such aggregate amount is not actually invested, the difference
in the sales charge actually paid and the sales charge payable had the LOI not
been in effect is due from the investor. However, for the purchases actually
made within the specified period (either 13 or 48 months) the sales charge
applicable will not be higher than that which would have applied (including
accumulations and combinations) had the LOI been for the amount actually
invested.
The LOI authorizes Signature Services to hold in escrow a sufficient Class A
shares (approximately 5% of the aggregate) to make up any difference in sales
charges on the amount intended to be invested and the amount actually invested,
until such investment is completed within the specified period, at which time
the escrowed Class A shares will be released. If the total investment specified
in the LOI is not completed, the Class A shares held in escrow may be redeemed
and the proceeds used as required to pay such sales charge as may be due. By
signing the LOI, the investor authorizes Signature Services to act as his or her
attorney-in-fact to redeem any escrowed Class A shares and adjust the sales
charge, if necessary. A LOI does not constitute a binding commitment by an
investor to purchase, or by the Fund to sell, any additional Class A shares and
may be terminated at any time.
DEFERRED SALES CHARGE ON CLASS B SHARES
Investments in Class B shares are purchased at net asset value per share without
the imposition of an initial sales charge so the Fund will receive the full
amount of the purchase payment.
Contingent Deferred Sales Charge. Class B shares which are redeemed within six
years of purchase will be subject to a contingent deferred sales charge ("CDSC")
at the rates set forth in the Prospectus as a percentage of the dollar amount
subject to the CDSC. The charge will be assessed on an amount equal to the
lesser of the current market value or the original purchase cost of the Class B
shares being redeemed. No CDSC will be imposed on increases in account value
above the initial purchase prices, including all shares derived from
reinvestment of dividends or capital gains distributions.
Class B shares are not available to full-service defined contribution plans
administered by Signature Services or the Life Company that had more than 100
eligible employees at the inception of the Fund account.
The amount of the CDSC, if any, will vary depending on the number of years from
the time of payment for the purchase of Class B shares until the time of
redemption of such shares. Solely for purposes of determining this number of
years from the time of any payment for the purchases
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<PAGE>
of shares, all payments during a month will be aggregated and deemed to have
been made on the first day of the month.
In determining whether a CDSC applies to a redemption, the calculation will be
determined in a manner that results in the lowest possible rate being charged.
It will be assumed that your redemption comes first from shares you have held
beyond the six-year CDSC redemption period or those you acquired through
dividend and capital gain reinvestment, and next from the shares you have held
the longest during the six-year period. For this purpose, the amount of any
increase in a share's value above its initial purchase price is not regarded as
a share exempt from CDSC. Thus, when a share that has appreciated in value is
redeemed during the CDSC period, a CDSC is assessed only on its initial purchase
price.
When requesting a redemption for a specific dollar amount, please indicate if
you require the proceeds to equal the dollar amount requested. If not indicated,
only the specified dollar amount will be redeemed from your account and the
proceeds will be less any applicable CDSC.
Example:
You have purchased 100 shares at $10 per share. The second year after your
purchase, your investment's net asset value per share has increased by $2 to
$12, and you have gained 10 additional shares through dividend reinvestment. If
you redeem 50 shares at this time your CDSC will be calculated as follows:
o Proceeds of 50 shares redeemed at $12 per shares (50 x 12) $600.00
o*Minus Appreciation ($12 - $10) x 100 shares (200.00)
o Minus proceeds of 10 shares not subject to CDSC
(dividend reinvestment) (120.00)
-------
o Amount subject to CDSC $280.00
*The appreciation is based on all 100 shares in the lot not just the shares
being redeemed.
Proceeds from the CDSC are paid to John Hancock Funds and are used in whole or
in part by John Hancock Funds to defray its expenses related to providing
distribution-related services to the Fund in connection with the sale of the
Class B 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.
Waiver of Contingent Deferred Sales Charge. The CDSC will be waived on
redemptions of Class B shares and of Class A shares that are subject to CDSC,
unless indicated otherwise, in the circumstances defined below:
For all account types:
* Redemptions made pursuant to the Fund's right to liquidate your account if
you own shares worth less than $1,000.
* Redemptions made under certain liquidation, merger or acquisition
transactions involving other investment companies or personal holding
companies.
* Redemptions due to death or disability.
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<PAGE>
* Redemptions made under the Reinstatement Privilege, as described in
"Sales Charge Reductions and Waivers" in the Prospectus.
* Redemptions of Class B shares made under a periodic withdrawal plan, as
long as your annual redemptions do not exceed 12% of your account
value, including reinvested dividends, at the time you established your
periodic withdrawal plan and 12% of the value of subsequent investments
(less redemptions) in that account at the time you notify Signature
Services. (Please note, this waiver does not apply to periodic
withdrawal plan redemptions of Class A shares that are subject to a
CDSC.)
* Redemptions by Retirement plans participating in Merrill Lynch servicing
programs, if the Plan has less than $3 million in assets or 500 eligible
employees at the date the Plan Sponsor signs the Merrill Lynch
Recordkeeping Service Agreement. See your Merrill Lynch financial
consultant for further information.
For Retirement Accounts (such as IRA, SIMPLE IRA, SIMPLE 401(k), Rollover IRA,
TSA, 457, 403(b), 401(k), Money Purchase Pension Plan, Profit-Sharing Plan and
other plans as described in the Internal Revenue Code) unless otherwise noted.
* Redemptions made to effect mandatory or life expectancy distributions
under the Internal Revenue Code.
* Returns of excess contributions made to these plans.
* IRA plans that Redemptions made to effect distributions to participants or
beneficiaries from employer sponsored retirement plans under section
401(a) of the Code (such as 401(k), Money Purchase Pension Plan,
Profit-Sharing Plan).
* Redemptions from certain IRA and retirement plans that purchased shares
prior to October 1, 1992 and certain purchased shares prior to May 15,
1995.
Please see matrix for reference.
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<PAGE>
CDSC Waiver Matrix for Class B Funds
- -----------------------------------------------------------------------------
Type of 401(a) Plan 403(b) 457 IRA, IRA Non-
Distribution (401(k), Rollover Retirement
MPP, PSP)
- -----------------------------------------------------------------------------
Death or Waived Waived Waived Waived Waived
Disability
- -----------------------------------------------------------------------------
Over 70 1/2 Waived Waived Waived Waived for 12% of
mandatory account
distribution value
or 12% of annually
acct value in
annually periodic
in payments
periodic
payments
- -----------------------------------------------------------------------------
Between 59 Waived Waived Waived Waived for 12% of
1/2 and 70 1/2 Expectancy account
or 12% of value
acct value annually
annually in
in periodic
periodic payments
payments
- -----------------------------------------------------------------------------
Under 59 1/2 Waived for Waived for Waived for Waived for 12% of
annuity annuity annuity annuity account
payments payments payments payments value
(72t) or 12% (72t) or (72t) or (72t) or annually
of acct 12% of 12% of 12% of in
value acct value acct value acct value periodic
annually in annually annually annually payments
periodic in in in
payments. periodic periodic periodic
payments. payments. payments.
- -----------------------------------------------------------------------------
Loans Waived Waived N/A N/A N/A
- -----------------------------------------------------------------------------
Termination Not Waived Not Waived Not Waived Not Waived N/A
of Plan
- -----------------------------------------------------------------------------
Hardships Waived Waived Waived N/A N/A
- -----------------------------------------------------------------------------
Return of Waived Waived Waived Waived N/A
Excess
- -----------------------------------------------------------------------------
If you qualify for a CDSC waiver under one of these situations, you must notify
Signature Services at the time you make your redemption. The waiver will be
granted once Signature Services has confirmed that you are entitled to the
waiver.
SPECIAL REDEMPTIONS
Although it would not normally do so, the Fund has the right to pay the
redemption price of shares of the Fund in whole or in part in portfolio
securities as prescribed by the Trustees. When the shareholder sells portfolio
securities received in this fashion, the shareholder will incur a brokerage
charge. Any such securities would be valued for the purposes of making such
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
34
<PAGE>
shareholder during any 90-day period would exceed the lesser of $250,000 or 1%
of the Fund's net asset value at the beginning of such period.
ADDITIONAL SERVICES AND PROGRAMS
Exchange Privilege. The Fund permits exchanges of shares of any class of a fund
for shares of the same class in any other John Hancock fund offering that class.
Exchanges between funds with shares that are not subject to a CDSC are based on
their respective net asset values. No sales charge or transaction charge is
imposed. Shares of the Fund which are subject to a CDSC may be exchanged into
shares of any of the other John Hancock funds that are subject to a CDSC without
incurring the CDSC; however, the shares acquired in an exchange will be subject
to the CDSC schedule of the shares acquired if and when such shares are redeemed
(except that shares exchanged into John Hancock Short-Term Strategic Income Fund
and John Hancock Intermediate Maturity Government Fund will retain the exchanged
fund's CDSC schedule). For purposes of computing the CDSC payable upon
redemption of shares acquired in an exchange, the holding period of the original
shares is added to the holding period of the shares acquired in an exchange.
If a shareholder exchanges Class B shares purchased prior to January 1, 1994
(except John Hancock Short-Term Strategic Income Fund) for Class B shares of any
other John Hancock fund, the acquired shares will continue to be subject to the
CDSC schedule that was in effect when the exchanged shares were purchased.
The Fund reserves the right to require that previously exchanged shares (and
reinvested dividends) be in the Fund for 90 days before a shareholder is
permitted a new exchange.
The Fund may refuse any exchange order. The Fund may change or cancel its
exchange policies at any time, upon 60 days' notice to its shareholders.
An exchange of shares is treated as a redemption of shares of one fund and the
purchase of shares of another for Federal Income Tax purposes. An exchange may
result in a taxable gain or loss. See "TAX STATUS".
Systematic Withdrawal Plan. The Fund permits the establishment of a Systematic
Withdrawal Plan. Payments under this plan represent proceeds arising from the
redemption of Fund shares which may result in realization of gain or loss for
purposes of Federal, state and local income taxes. The maintenance of a
Systematic Withdrawal Plan concurrently with purchases of additional Class A or
Class B shares of the Fund could be disadvantageous to a shareholder because of
the initial sales charge payable on such purchases of Class A shares and the
CDSC imposed on redemptions of Class B shares and because redemptions are
taxable events. Therefore, a shareholder should not purchase Class A or Class B
shares at the same time a Systematic Withdrawal Plan is in effect. The Fund
reserves the right to modify or discontinue the Systematic Withdrawal Plan of
any shareholder on 30 days' prior written notice to such shareholder, or to
discontinue the availability of such plan in the future. The shareholder may
terminate the plan at any time by giving proper notice to Signature Services.
Monthly Automatic Accumulation Program ("MAAP"). The program is explained in the
Prospectus. The program, as it relates to automatic investment checks, is
subject to the following conditions:
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<PAGE>
The investments will be drawn on or about the day of the month indicated.
The privilege of making investments through the MAAP may be revoked by Signature
Services without prior notice if any investment is not honored by the
shareholder's bank. The bank shall be under no obligation to notify the
shareholder as to the non-payment of any checks.
The program may be discontinued by the shareholder either by calling Signature
Services or upon written notice to Signature Services which is received at least
five (5) business days prior to the due date of any investment.
Reinstatement or Reinvestment Privilege. If Signature Services is notified prior
to reinvestment, a shareholder who has redeemed Fund shares may, within 120 days
after the date of redemption, reinvest without payment of a sales charge any
part of the redemption proceeds in shares of the same class of the Fund or
another John Hancock fund, subject to the minimum investment limit in that fund.
The proceeds from the redemption of Class A shares may be reinvested at net
asset value without paying a sales charge in Class A shares of the Fund or in
Class A shares of any John Hancock fund. If a CDSC was paid upon a redemption, a
shareholder may reinvest the proceeds from this redemption at net asset value in
additional shares of the class from which the redemption was made. The
shareholder's account will be credited with the amount of any CDSC charged upon
the prior redemption and the new shares will continue to be subject to the CDSC.
The holding period of the shares acquired through reinvestment will, for
purposes of computing the CDSC payable upon a subsequent redemption, include the
holding period of the redeemed shares.
To protect the interests of other investors in the Fund, the Fund may cancel the
reinvestment privilege of any parties that, in the opinion of the Fund, are
using market timing strategies or making more than seven exchanges per owner or
controlling party per calendar year. Also, the Fund may refuse any reinvestment
request.
The Fund may change or cancel its reinvestment policies at any time.
A redemption or exchange of Fund shares is a taxable transaction for Federal
income tax purposes even if the reinvestment privilege is exercised, and any
gain or loss realized by a shareholder on the redemption or other disposition of
Fund shares will be treated for tax purposes as described under the caption "TAX
STATUS."
Retirement plans participating in Merrill Lynch's servicing programs:
Class A shares are available at net asset value for plans with $3 million in
plan assets or 500 eligible employees at the date the Plan Sponsor signs the
Merrill Lynch Recordkeeping Service Agreement. If the plan does not meet either
of these limits, Class A shares are not available.
For participating retirement plans investing in Class B shares, shares will
convert to Class A shares after eight years, or sooner if the plan attains
assets of $5 million (by means of a CDSC-free redemption/purchase at net asset
value).
DESCRIPTION OF THE FUND'S SHARES
The Trustees of the Trust are responsible for the management and supervision of
the Fund. The Declaration of Trust permits the Trustees to issue an unlimited
number of full and fractional shares of beneficial interest of the Fund, without
par value. Under the Declaration of Trust, the
36
<PAGE>
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 that class of the Fund. Holders of
Class A shares and Class B shares have certain exclusive voting rights on
matters relating to their respective distribution plans. The different classes
of the Fund may bear different expenses relating to the cost of holding
shareholder meetings necessitated by the exclusive voting rights of any class of
shares.
Dividends paid by the Fund, if any, with respect to each class of shares will be
calculated in the same manner, at the same time and on the same day will be in
the same amount, except for differences resulting from the fact 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) each of Class A and
Class B shares will bear any other class expenses properly allocable to that
class of shares, subject to the conditions the Internal Revenue Service imposes
with respect to multiple-class structures. Similarly, the net asset value per
share may vary depending on whether Class A shares or Class B shares are
purchased. No interest will be paid on uncashed dividend or redemption checks.
In the event of liquidation, shareholders of each class are entitled to share
pro rata in the net assets of the Fund available for distribution to these
shareholders. Shares entitle their holders to one vote per share, are freely
transferable and have no preemptive, subscription or conversion rights. When
issued, shares are fully paid and non-assessable except as set forth in the
Prospectus.
Unless otherwise required by the Investment Company Act or the Declaration of
Trust, the Fund has no intention of holding annual meetings of shareholders.
Fund shareholders may remove a Trustee by the affirmative vote of at least
two-thirds of the Trust's outstanding shares, and the Trustees shall promptly
call a meeting for such purpose when requested to do so in writing by the record
holders of not less than 10% of the outstanding shares of the Trust.
Shareholders may, under certain circumstances, communicate with other
shareholders in connection with requesting a special meeting of shareholders.
However, at any time that less than a majority of the Trustees holding office
were elected by the shareholders, the Trustees will call a special meeting of
shareholders for the purpose of electing Trustees.
Under Massachusetts law, shareholders of a Massachusetts business trust could,
under certain circumstances, be held personally liable for acts or obligations
of the Trust. However, the Fund's Declaration of Trust contains an express
disclaimer of shareholder liability for acts, obligations 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. The Declaration of Trust
also provides that no series of the Trust shall be liable for the liabilities of
any other series. Furthermore, no fund included in this Fund's prospectus shall
be liable for the liabilities of any other John Hancock fund. Liability is
therefor limited to circumstances in which the Fund itself would be unable to
meet its obligations, and the possibility of this occurrence is remote.
The Fund reserves the right to reject any application which conflicts with the
Fund's internal policies or the policies of any regulatory authority. John
Hancock Funds does not accept credit card checks. Use of information provided on
the account application may be used by the Fund to
37
<PAGE>
verify the accuracy of the information or for background or financial history
purposes. A joint account will be administered as a joint tenancy with right of
survivorship, unless the joint owners notify Signature Services of a different
intent. A shareholder's account is governed by the laws of The Commonwealth of
Massachusetts.
TAX STATUS
Each series of the Trust, including the Fund, is treated as a separate entity
for tax purposes. The Fund has qualified as a "regulated investment company"
under Subchapter M of the Internal Revenue Code of 1986, as amended (the
"Code"), and intends to continue to qualify for each taxable year. As such and
by complying with the applicable provisions of the Code regarding the sources of
its income, the timing of its distributions, and the diversification of its
assets, the Fund will not be subject to Federal income tax on its taxable income
(including net realized capital gains) which is distributed to shareholders in
accordance with the timing requirements of the Code.
The Fund will be subject to a 4% nondeductible Federal excise tax on certain
amounts not distributed (and not treated as having been distributed) on a timely
basis in accordance with annual minimum distribution requirements. The Fund
intends under normal circumstances to avoid liability for such tax by satisfying
such distribution requirements.
Distributions from the Fund's current or accumulated earnings and profits
("E&P"), will be taxable under the Code for investors who are subject to tax. If
these distributions are paid from the Fund's "investment company taxable
income," they will be taxable as ordinary income; and if they are paid from the
Fund's "net capital gain," they will be taxable as capital gains. (Net capital
gain is the excess (if any) of net long-term capital gain over net short-term
capital loss, and investment company taxable income is all taxable income and
capital gains, other than those gains and losses included in computing net
capital gain, after reduction by deductible expenses.) As a result of federal
tax legislation enacted on August 5, 1997 (the "Act"), gain recognized after May
6, 1997 from the sale of a capital asset is taxable to individual (noncorporate)
investors at different maximum federal income tax rates, depending generally
upon the tax holding period for the asset, the federal income tax bracket of the
taxpayer, and the dates the asset was acquired and/or sold. The Treasury
Department has issued guidance under the Act that enables the Fund to pass
through to its shareholders the benefits of the capital gains rates enacted in
the Act. Shareholders should consult their own tax advisers on the correct
application of these new rules in their particular circumstances. Some
distributions may be paid in January but may be taxable to shareholders as if
they had been received December 31 of the previous year. The tax treatment
described above will apply without regard to whether distributions are received
in cash or reinvested in additional shares of the Fund.
Distributions, if any, in excess of E&P will constitute a return of capital
under the Code, which will first reduce an investor's federal tax basis in Fund
shares and then, to the extent such basis is exceeded, will generally give rise
to capital gains. Shareholders who have chosen automatic reinvestment of their
distributions will have a federal tax basis in each share received pursuant to
such a reinvestment equal to the amount of cash they would have received had
they elected to receive the distribution in cash, dividend by the number of
shares received in the reinvestment.
If the Fund invests in stock (including an option to acquire stock such as is
inherent in a convertible bond) of certain foreign corporations that receive at
least 75% of their annual gross income from passive sources (such as interest,
dividends, certain rents and royalties or capital gain) or hold at least 50% of
their assets in investments producing such passive income ("passive foreign
investment companies"), the Fund could be subject to Federal income tax and
additional
38
<PAGE>
interest charges on "excess distributions" received from such companies or gain
from the sale of stock in such companies, even if all income or gain actually
received by the Fund is timely distributed to its shareholders. The Fund would
not be able to pass through to its shareholders any credit or deduction for such
a tax. An election may be available to ameliorate these adverse tax
consequences, but could require the Fund to recognize taxable income or gain
without the concurrent receipt of cash. These investments could also result in
the treatment of associated capital gains as ordinary income. The Fund may limit
and/or manage its holdings in passive foreign investment companies or make an
available election to minimize its tax liability or maximize its return from
these investments.
Foreign exchange gains and losses realized by the Fund in connection with
certain transactions involving foreign currency-denominated debt securities,
foreign currency forward contracts, foreign currencies, or payables or
receivables denominated in a foreign currency are subject to Section 988 of the
Code, which generally causes such gains and losses to be treated as ordinary
income and losses and may affect the amount, timing and character of
distributions to shareholders. Transactions in foreign currencies that are not
directly related to the Fund's investment in stock or securities, including
speculative currency positions could under future Treasury regulations produce
income not among the types of "qualifying income" from which the Fund must
derive at least 90% of its gross income for each taxable year. If the net
foreign exchange loss for a year treated as ordinary loss under Section 988 were
to exceed the Fund's investment company taxable income computed without regard
to such loss, the resulting overall ordinary loss for such year would not be
deductible by the Fund or its shareholders in future years.
The Fund may be subject to withholding and other taxes imposed by foreign
countries with respect to its investments in foreign securities. Some tax
conventions between certain countries and the U.S. may reduce or eliminate such
taxes. Investors may be entitled to claim U.S. foreign tax credits or deductions
with respect to foreign income taxes, or certain other foreign taxes ("qualified
foreign taxes"), paid by the Fund, subject to certain provisions and limitations
contained in the Code, if the Fund so elects. 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 and distributions actually received) their pro rata shares of
qualified foreign taxes paid by the Fund even though not actually received by
them, and (ii) treat such respective pro rata portions as foreign 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 income, 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.
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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 realized capital gains, if any, in any given year
will vary depending upon the Adviser's current investment strategy and whether
the Adviser believes it to be in the best interest of the Fund to dispose of
portfolio securities and/or engage in options, futures or forward transactions
that will generate capital gains. At the time of an investor's purchase of Fund
shares, a portion of the purchase price is often attributable to realized or
unrealized appreciation in the Fund's portfolio or undistributed taxable income
of the Fund. Consequently, subsequent distributions from such appreciation or
income may be taxable to such investor even if the net asset value of the
investor's shares is, as a result of the distributions, reduced below the
investor's cost for such shares, and the distributions in reality represent a
return of a portion of the purchase price.
Upon a redemption, or other disposition of shares of the Fund (including by
exercise of the exchange privilege) in a transaction that is treated as a sale
for tax purposes, a shareholder may realize a taxable gain or loss depending
upon 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. 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. This
disregarded charge will result in an increase in the shareholder's tax basis in
the shares subsequently acquired. Also, any loss realized on a redemption or
exchange may be disallowed to the extent the shares disposed of are replaced
with other shares of the Fund within a period of 61 days beginning 30 days
before and ending 30 days after the shares are disposed of, such as pursuant to
automatic dividend reinvestments. In such a case, the basis of the shares
acquired will be adjusted to reflect the disallowed loss. Any loss realized upon
the redemption of shares with a tax holding period of six months or less will be
treated as a long-term capital loss to the extent of any amounts treated as
distributions of long-term capital gain with respect to such shares.
Shareholders should consult their own tax advisers regarding their particular
circumstances to determine whether a disposition of Fund shares is properly
treated as a sale for tax purposes, as is assumed in the foregoing discussion.
Also, future Treasury Department guidance issued to implement the Act may
contain additional rules for determining the tax treatment of sales of Fund
shares held for various periods, including the treatment of losses on the sales
of shares held for six months or less that are recharacterized as long-term
capital losses, as described above.
Although its present intention is to distribute, at least annually, all net
capital gain, if any, the Fund reserves the right to retain and reinvest all or
any portion of the excess, as computed for Federal income tax purposes, of net
long-term capital gain over net short-term capital loss in any year. The Fund
will not in any event distribute net capital gain realized in any year to the
extent that a capital loss is carried forward from prior years against such
gain. To the extent such excess was retained and not exhausted by the
carryforward of prior years' capital losses, it would be subject to Federal
income tax in the hands of the Fund. Upon proper designation of this amount by
the Fund, each shareholder would be treated for Federal income tax purposes as
if the Fund had distributed to him on the last day of its taxable year his pro
rata share of such excess, and he had paid his pro rata share of the taxes paid
by the Fund and reinvested the remainder in the Fund. Accordingly, each
shareholder would (a) include his pro rata share of such excess as capital gain
in his return for his taxable year in which the last day of the Fund's taxable
year falls, (b) be entitled either to a tax credit on his return for, or to a
refund of, his pro rata share of the
40
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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. The Fund does not have any 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) during a prescribed period extending before and after each such
dividend and distributed and properly designated by the Fund may be treated as
qualifying dividends. The Fund would generally have a portion of its
distributions treated as qualifying dividends. Corporate shareholders must meet
the holding period requirements stated above with respect to their shares of the
Fund for each dividend in order to qualify for the deduction and, if they have
any debt that is deemed under the Code directly attributable to such shares, may
be denied a portion of the dividends received deduction. The entire qualifying
dividend, including the otherwise deductible amount, will be included in
determining the alternative minimum tax liability, if any. Additionally, any
corporate shareholder should consult its tax adviser regarding the possibility
that its tax basis in its shares may be reduced, for Federal income tax
purposes, by reason of "extraordinary dividends" received with respect to the
shares and, to the extent such basis would be reduced below zero, that current
recognition of income would be required.
The Fund is required to accrue income on any debt securities that have more than
a de minimis amount of original issue discount (or debt securities acquired at a
market discount, if the Fund elects to include market discount in income
currently) prior to the receipt of the corresponding cash payments. The mark to
market or constructive sale rules applicable to certain options, futures,
forwards, short sales or other transactions may also require the Fund to
recognize income or gain without a concurrent receipt of cash. Additionally,
some countries restrict repatriation which may make it difficult or impossible
for the Fund to obtain cash corresponding to its earnings or assets in those
countries. However, the Fund must distribute to shareholders for each taxable
year substantially all of its net income and net capital gains, including such
income or gain, to qualify as a regulated investment company and avoid liability
for any federal income or excise tax. Therefore, the Fund may have to dispose of
its portfolio securities under disadvantageous circumstances to generate cash,
or borrow cash, to satisfy these distribution requirements.
A state income (and possibly local income and/or intangible property) tax
exemption is generally available to the extent (if any) the Fund's distributions
are derived from interest on (or, in the case of intangible property taxes, the
value of its assets is attributable to) certain U.S. Government obligations,
provided in some states that certain thresholds for holdings of such obligations
and/or reporting requirements are satisfied. The Fund will not seek to satisfy
any threshold or reporting requirements that may apply in particular taxing
jurisdictions, although the Fund may in its sole discretion provide relevant
information to shareholders.
The Fund will be required to report to the Internal Revenue Service (the "IRS")
all taxable distributions to shareholders, as well as gross proceeds from the
redemption or exchange of Fund shares, except in the case of certain exempt
recipients, i.e., corporations and certain other
41
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investors distributions to which are exempt from the information reporting
provisions of the Code. Under the backup withholding provisions of Code Section
3406 and applicable Treasury regulations, all such reportable distributions and
proceeds may be subject to backup withholding of federal income tax at the rate
of 31% in the case of non-exempt shareholders who fail to furnish the Fund with
their correct taxpayer identification number and certain certifications required
by the IRS or if the IRS or a broker notifies the Fund that the number furnished
by the shareholder is incorrect or that the shareholder is subject to backup
withholding as a result of failure to report interest or dividend income. The
Fund may refuse to accept an application that does not contain any required
taxpayer identification number or certification that the number provided is
correct. If the backup withholding provisions are applicable, any such
distributions and proceeds, whether taken in cash or reinvested in shares, will
be reduced by the amounts required to be withheld. Any amounts withheld may be
credited against a shareholder's U.S. federal income tax liability. Investors
should consult their tax advisers about the applicability of the backup
withholding provisions.
Different tax treatment, including penalties on certain excess contributions and
deferrals, certain pre-retirement and post-retirement distributions and certain
prohibited transactions, is accorded to accounts maintained as qualified
retirement plans. Shareholders should consult their tax advisers for more
information.
Limitations imposed by the Code on regulated investment companies like the Fund
may restrict the Fund's ability to enter into options, futures, foreign currency
positions, and foreign currency forward contracts.
Certain options, futures and forward foreign currency contracts undertaken by
the Fund may cause the Fund to recognize gains or losses from marking to market
even though its positions have not been sold or terminated and affect the
character as long-term or short-term (or, in the case of foreign currency
contracts, as ordinary income or loss) and timing of some capital gains and
losses realized by the Fund. Additionally, the Fund may be required to recognize
gain, but not loss, if an option is treated as a constructive sale of an
appreciated financial position in the Fund's portfolio. Also, certain of the
Fund's losses on its transactions involving options, futures or forward
contracts and/or offsetting or successor portfolio positions may be deferred
rather than being taken into account currently in calculating the Fund's taxable
income or gains. Certain of these transactions may also cause the Fund to
dispose of investments sooner than otherwise would have occurred. These
transactions may therefore affect the amount, timing and character of the Fund's
distributions to shareholders. The Fund will take into account the special tax
rules (including consideration of available elections) applicable to options,
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
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different from that described above. These investors may be subject to
nonresident alien withholding tax at the rate of 30% (or a lower rate under an
applicable tax treaty) on amounts treated as ordinary dividends from the Fund
and, unless an effective IRS Form W-8 or authorized substitute for Form W-8 is
on file, to 31% backup withholding on certain other payments from the Fund.
Non-U.S. investors should consult their tax advisers regarding such treatment
and the application of foreign taxes to an investment in the Fund.
The Fund is not subject to Massachusetts corporate excise or franchise taxes.
The Fund anticipates that, provided that the Fund qualifies as a regulated
investment company under the Code, it will also not be required to pay any
Massachusetts income tax.
CALCULATION OF PERFORMANCE
The average annual total return for Class A shares of the Fund for the 1 year
period ended October 31, 1997 and from commencement of operations on March 14,
1996 through October 31, 1996 was 30.33% and 37.96%, respectively.
The cumulative total return of the Class B shares of the Fund for the one year
fiscal period from January 14, 1997 to October 31, 1997 was 19.06%.
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 = ((ERV/P)^(1/n)) - 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.
Because each class has its own sales charge and fee structure, the classes have
different performance results. In the case of Class A or Class B shares, this
calculation assumes the maximum sales charge is included in the initial
investment or the CDSC is applied at the end of the period, respectively. This
calculation assumes that all dividends and distributions are reinvested at net
asset value on the reinvestment dates during the period. The "distribution rate"
is determined by annualizing the result of dividing the declared dividends of
the Fund during the period stated by the maximum offering price or net asset
value at the end of the period. Excluding the Fund's sales charge from the
distribution rate produces a high rate.
In addition to average annual total returns, the Fund may quote unaveraged or
cumulative total returns reflecting the simple change in value of an investment
over a stated period. Cumulative total returns may be quoted as a percentage or
as a dollar amount, and may be calculated for a single investment, a series of
investments, and/or a series of redemptions, over any time period. Total returns
may be quoted with or without taking the Fund's sales charge on Class A shares
or the CDSC on Class B shares into account. Excluding the Fund's sales charge on
Class A shares
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and the CDSC on Class B shares from a total return calculation produces a higher
total return figure.
From time to time, in reports and promotional literature, the Fund's total
return will be compared to indices of mutual funds such as Lipper Analytical
Services, Inc.'s "Lipper Mutual 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, etc. may also be utilized. The
Fund's promotional and sales literature may make reference to the Fund's "beta".
Beta is a reflection of the market related risk of the Fund by showing how
responsive the Fund is to the market.
The performance of the Fund is not fixed or guaranteed. Performance quotations
should not be considered to be representations of performance of the Fund for
any period in the future. The performance of the Fund is a function of many
factors including its earnings, expenses and number of outstanding shares.
Fluctuating market conditions; purchases, sales, and maturities of portfolio
securities; sales and redemptions of shares of beneficial interest; and changes
in operating expenses are all examples of items that can increase or decrease
the Fund's performances.
BROKERAGE ALLOCATION
Decisions concerning the purchase and sale of portfolio securities and the
allocation of brokerage commissions are made by the Adviser pursuant to
recommendations made by an investment committee of the Adviser, which consists
of officers and directors of the Adviser and affiliates and officers and
Trustees who are interested persons of the Trust. Orders for purchases and sales
of securities are placed in a manner which, in the opinion of the officers of
the Adviser, will offer the best price and market for the execution of each such
transaction. Purchases from underwriters of portfolio securities may include a
commission or commissions paid by the issuer and transactions with dealers
serving as market makers reflect a "spread". Debt securities are generally
traded on a net basis through dealers acting for their own account as principals
and not as brokers; no brokerage commissions are payable on these transactions.
In the U.S. and in some other countries, debt securities are traded principally
in the over-the-counter market on a net basis through dealers acting for their
own account and not as brokers. In other countries, both debt and equity
securities are traded on exchanges at fixed commission rates. Commissions on
foreign transactions are generally higher than the negotiated commission rates
available in the U.S. There is generally less government supervision and
regulation of foreign stock exchanges and broker-dealers than in the U.S.
The Fund's primary policy is to execute all purchases and sales of portfolio
instruments at the most favorable prices consistent with best execution,
considering all of the costs of the transaction including brokerage commissions.
This policy governs the selection of brokers and dealers and the market in which
a transaction is executed. Consistent with the foregoing primary policy, the
Rules of Fair Practice of the National Association of Securities Dealers, Inc.
and other policies 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.
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To the extent consistent with the foregoing, the Fund will be governed in the
selection of brokers and dealers, and the negotiation of brokerage commission
rates and dealer spreads, by the reliability and quality of 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 Adviser's officers will be primarily responsible for
the allocation of the Fund's brokerage business, the policies and practices of
the Adviser in this regard must be consistent with the foregoing and at all
times be subject to review by the Trustees. For the fiscal years ended October
31, 1997 and 1996, the Fund paid negotiate brokerage commissions of $1,819,800
and $710, respectively.
As permitted by Section 28(e) of the Securities Exchange Act of 1934, the Fund
may pay to a broker-dealer which provides brokerage and research services to the
Fund an amount of disclosed commission in excess of the commission which another
broker-dealer would have charged for effecting that transaction. This practice
is subject to a good faith determination by the Trustees that such price is
reasonable in light of the services provided and to such policies as the
Trustees may adopt from time to time. During the fiscal year ended October 31,
1997, the Fund directed commissions in the amount of $249,227 to compensate
brokers for research services such as industry, economic and company reviews and
evaluations of securities.
The Adviser's indirect parent, the Life Company, is the indirect sole
shareholder of John Hancock Distributors, Inc., a broker-dealer ("Distributors"
or "Affiliated Broker"). Pursuant to procedures determined by the Trustees and
consistent with the above policy of obtaining best net results, the Fund may
execute portfolio transactions with or through Affiliated Brokers. For the
fiscal year ended October 31, 1997, the Fund paid no brokerage commissions to
any Affiliated Broker.
Distributors may act as broker for the Fund on exchange transactions, subject,
however, to the general policy of the Fund set forth above and the procedures
adopted by the Trustees pursuant to the Investment Company Act. Commissions paid
to an Affiliated Broker must be at least as favorable as those which the
Trustees believe to be contemporaneously charged by other brokers in connection
with comparable transactions involving similar securities being purchased or
sold. A transaction would not be placed with an Affiliated Broker if the Fund
would have to pay a commission rate less favorable than the Affiliated Broker's
contemporaneous charges for comparable transactions for its other most favored,
but unaffiliated, customers except for accounts for which the Affiliated Broker
acts as clearing broker 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 Broker, 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.
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Other investment advisory clients advised by the Adviser may also invest in the
same securities as the Fund. When these clients buy or sell the same securities
at substantially the same time, the Adviser may average the transactions as to
price and allocate the amount of available investments in a manner which the
Adviser believes to be equitable to each client, including the Fund. In some
instances, this investment procedure may adversely affect the price paid or
received by the Fund or the size of the position obtainable for it. On the other
hand, to the extent permitted by law, the Adviser may aggregate securities to be
sold or purchased for the Fund with those to be sold or purchased for other
clients managed by it in order to obtain best execution
TRANSFER AGENT SERVICES
John Hancock Signature Services, Inc., 1 John Hancock Way, Suite 1000, Boston,
MA 02217-1000, a wholly-owned indirect subsidiary of the Life Company, is the
transfer and dividend paying agent for the Fund. The Fund pays Signature
Services an annual fee of $19.00 for each Class A shareholder account and $21.50
for each Class B shareholder account, plus certain out-of-pocket expenses. These
expenses are aggregated and charged to the Fund and allocated to each class on
the basis of their relative net asset values.
CUSTODY OF PORTFOLIO
Portfolio securities of the Fund are held pursuant to a custodian agreement
between the Trust and Investors Bank & Trust Company, 200 Clarendon Street,
Boston, Massachusetts 02116. Under the custodian agreement, Investors Bank &
Trust Company performs custody, portfolio and fund accounting services.
INDEPENDENT AUDITORS
The independent auditors of the Funds are Price Waterhouse LLP, 160 Federal
Street, Boston, Massachusetts 02110. Price Waterhouse LLP audits and renders an
opinion on the Fund's annual financial statements and reviews the Fund's Federal
income tax return.
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APPENDIX A
DESCRIPTION OF BOND RATINGS*
Moody's Bond ratings
Bonds which are rated 'Aaa' are judged to be of the best quality. They
carry the smallest degree of investment risk and are generally referred to as
'gilt edge.' Interest payments are protected by a large or by an exceptionally
stable margin and principal is secure. While the various protective elements are
likely to change, such changes as can be visualized are most unlikely to impair
the fundamentally strong position of such issues.
Bonds which are rated 'Aa' are judged to be of high quality by all
standards. Together with the 'Aaa' group they comprise what are generally known
as high grade bonds. They are rated lower than the best bonds because margins of
protection may not be as large as in 'Aaa' securities or fluctuation of
protective elements may be of greater amplitude or there may be other elements
present which make the long term risks appear somewhat larger than in 'Aaa'
securities .
Bonds which are rated 'A' possess many favorable investment attributes and
are to be considered as upper medium grade obligations. Factors giving security
to principal and interest are considered adequate but elements may be present
which suggest a susceptibility to impairment sometime in the future.
Bonds which are rated 'Baa' are considered as medium grade obligations,
i.e., they are neither highly protected nor poorly secured. Interest payments
and principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and in
fact have speculative characteristics as well.
Bonds which are rated 'Ba' are judged to have speculative elements; their
future cannot be considered as well assured. Often the protection of interest
and principal payments may be very moderate and thereby not well safeguarded
during both good and bad times over the future. Uncertainty of position
characterizes bonds in this class.
Bonds which are rated 'B' generally lack characteristics of the desirable
investment. Assurance of interest and principal payments or of maintenance of
other terms of the contract over any long period of time may be small.
Bonds which are rated 'Caa' are of poor standing. Such issues may be in
default or there may be present elements of danger with respect to principal or
interest.
*As described by the rating companies themselves.
A-1
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Standard & Poor's Bond ratings
AAA. This is the highest rating assigned by Standard & Poor's to a
debt obligation and indicates an extremely strong capacity to pay principal
and interest.
AA. Bonds rated AA also qualify as high-quality debt obligations. Capacity
to pay principal and interest is very strong, and in the majority of instances
they differ from AAA issues only in small degree.
A. Bonds rated A have a strong capacity to pay principal and interest,
although they are somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions.
BBB. Bonds rated BBB are regarded as having an adequate capacity to pay
principal and interest. Whereas they normally exhibit protection parameters,
adverse economic conditions or changing circumstances are more likely to lead to
a weakened capacity to pay principal and interest for bonds in this category
than for bonds in the A category.
BB. Debt rated BB has less near-term vulnerability to default than other
speculative issues. However, it faces major ongoing uncertainties or exposure to
adverse business, financial or economic conditions which could lead to
inadequate capacity to meet timely interest and principal payments. The BB
rating category is also used for debt subordinated to senior debt that is
assigned an actual or implied BBB- rating.
B. Debt rated B has a greater vulnerability to default but currently has
the capacity to meet interest payments and principal repayments. Adverse
business, financial, or economic conditions will likely impair capacity or
willingness to pay interest and repay principal. The B rating category is also
used for debt subordinated to senior debt that is assigned an actual or implied
BB or BB- rating.
CCC. Debt rated CCC has a currently identifiable vulnerability to default,
and is dependent upon favorable business, financial and economic conditions to
meet timely payment of interest and repayment of principal. In the event of
adverse business, financial, or economic conditions, it is not likely to have
the capacity to pay interest and repay principal. The 'CCC' rating category is
also used for debt subordinated to senior debt that is assigned an actual or
implied CCC rating.
CC. The rating CC is typically applied to debt subordinated to senior debt
that is assigned an actual or implied 'CCC' rating.
A-2
<PAGE>
FINANCIAL STATEMENTS
The financial statements listed below are included in the Fund's 1997 Annual
Report to Shareholder's for the year ended October 31, 1997 (filed
electronically on January 5, 1998, accession number 0001010521-98-000010) and
are included in and incorporated by reference into Part B of the Registration
Statement for John Hancock Financial Industries Fund (file no. 811-3999 and
2-90305).
John Hancock Investment Trust II
John Hancock Financial Industries Fund
Statement of Assets and Liabilities as of October 31, 1997
Statement of Operations for the year ended of October 31, 1997.
Statement of Changes in Net Asset for the period ended October 31, 1997.
Financial Highlights for the period ended October 31, 1997.
Schedule of Investments as of October 31, 1997.
Notes to Financial Statements.
Report of Independent Auditors.
F-1
<PAGE>
JOHN HANCOCK REGIONAL BANK FUND
Class A and Class B Shares
Statement of Additional Information
March 1, 1998
This Statement of Additional Information provides information about John Hancock
Regional Bank Fund (the "Fund"), in addition to the information that is
contained in the combined Growth Funds' Prospectus dated March 1, 1998 (the
"Prospectus"). The Fund is a diversified series of John Hancock Investment Trust
II (the "Trust").
This Statement of Additional Information is not a prospectus. It should be read
in conjunction with the Prospectus, a copy of which can be obtained free of
charge by writing or telephoning:
John Hancock Signature Services, Inc.
1 John Hancock Way, Suite 1000
Boston MA 02217-1000
1-800-225-5291
Table of Contents
Page
Organization of the Fund................................................ 2
Investment Objective and Policies....................................... 2
Investment Restrictions..................................................9
Those Responsible for Management........................................11
Investment Advisory and Other Services..................................20
Distribution Contracts..................................................22
Net Asset Value.........................................................24
Initial Sales Charge on Class A Shares..................................25
Deferred Sales Charge on Class B Shares.................................27
Special Redemptions.....................................................31
Additional Services and Programs........................................31
Description of the Fund's Shares........................................33
Tax Status..............................................................34
Calculation of Performance..............................................39
Brokerage Allocation....................................................41
Transfer Agent Services.................................................42
Custody of Portfolio....................................................43
Independent Auditors....................................................43
Appendix A.............................................................A-1
- -Bond and Commercial Paper Ratings
Financial Statements.................................................. F-1
1
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ORGANIZATION OF THE FUND
The Fund is a series of the Trust, an open-end investment management company
organized as a Massachusetts business trust under the laws of The Commonwealth
of Massachusetts. Prior to March 1997, the Trust was named Freedom Investment
Trust.
John Hancock Advisers, Inc. (the "Adviser") is the Fund's investment adviser.
The Adviser is an indirect wholly-owned subsidiary of John Hancock Mutual Life
Insurance Company (the "Life Company") a Massachusetts life insurance company
chartered in 1862, with national headquarters at John Hancock Place, Boston,
Massachusetts.
Sales of the Fund to new investors are temporarily suspended. At the present
time, only shareholders with existing accounts are able to purchase shares of
the Fund. The duration of the suspension will depend on market conditions, but
is expected to remain in effect for the near future.
New accounts can be opened only by participants in existing employer-sponsored
retirement plans that already offer the Fund.
In addition, the Fund will reject additional purchase orders from transferees if
the purchase appears to have been made for the purpose of evading the suspension
limitations.
INVESTMENT OBJECTIVE AND POLICIES
The following information supplements the discussion of the Fund's investment
objective and policies discussed in the Prospectus. There is no assurance that
the Fund will achieve its investment objective.
The Fund's investment objective is to achieve capital appreciation from a
portfolio of equity securities of regional banks and lending institutions.
Moderate income is a secondary objective. Under ordinary circumstances, the Fund
will invest at least 65% of its total assets in equity securities, including
common stock and securities convertible to common stock (such as convertible
bonds, convertible preferred stock, and warrants), of regional commercial banks,
industrial banks, consumer banks, savings and loans and bank holding companies
that receive a substantial portion of their income from banks.
A regional bank is one that provides full service banking (i.e., savings
accounts, checking accounts, commercial lending and real estate lending), whose
assets are primarily of domestic origin, and which typically has a principal
office outside of New York City and Chicago. The Fund may invest in banks that
are not Federal Deposit Insurance Corporation (including any state or federally
chartered savings and loan association). Although the Adviser will primarily
seek opportunities for capital appreciation, many of the regional banks in which
the Fund may invest pay regular dividends. Accordingly, the Fund also expects to
receive moderate income.
The Fund may invest some or all of its assets that are not invested in equity
securities of regional banks in the equity securities of financial services
companies, companies with significant lending operations or "money center"
banks. A "money center" bank is one with a strong international banking business
and a significant percentage of international assets, which is typically located
in New York or Chicago. The Fund may invest up to 5% of its net assets in
below-investment grade
2
<PAGE>
debt securities (rated as low as CCC) of banks. The Fund may invest in unrated
securities which, in the opinion of the Adviser, offer comparable yields and
risks to these securities which are rated. The Fund may also invest up to 5% of
its net assets in non-financial services equities.
Since the Fund's investments will be concentrated in the banking industry, it
will be subject to risks in addition to those that apply to the general equity
market. Events may occur which significantly affect the entire banking industry.
Thus, the Fund's share value may at times increase or decrease at a faster rate
than the share value of a mutual fund with investments in many industries. In
addition, despite some measure of deregulation, banks and other lending
institutions are still subject to extensive governmental regulation which limits
their activities. The availability and cost of funds to these entities is
crucial to their profitability. Consequently, volatile interest rates and
general economic conditions can adversely affect their financial performance and
condition. The market value of the debt securities in the Fund's portfolio will
also tend to vary in an inverse relationship with changes in interest rates. For
example, as interest rates rise, the market value of debt securities tends to
decline. The Fund is not a complete investment program. Because the Fund's
investments are concentrated in the banking industry, an investment in the Fund
may be subject to greater market fluctuations than a fund that does not
concentrate in a particular industry. Thus, it is recommended that an investment
in the Fund be considered only one portion of your overall investment portfolio.
Banks, finance companies and other financial services organizations are subject
to extensive governmental regulations which may limit both the amounts and types
of loans and other financial commitments which may be made and the interest
rates and fees which may be charged. The profitability of these concerns is
largely dependent upon the availability and cost of capital funds, and has shown
significant recent fluctuation as a result of volatile interest rate levels.
Volatile interest rates will also affect the market value of debt securities
held by the Fund. In addition, general economic conditions are important to the
operations of these concerns, with exposure to credit losses resulting from
possible financial difficulties of borrowers potentially having an adverse
effect.
To avoid the need to sell equity securities in the portfolio to provide funds
for redemption, and to provide flexibility for the Fund to take advantage of
investment opportunities, the Fund may invest up to 15% of its net assets in
short-term (less than one year) investment grade (i.e., rated at the time of
purchase AAA, AA, A or BBB by Standard & Poor's Ratings Group ("S&P") or Aaa,
Aa, A or Baa by Moody's Investors Services, Inc. ("Moody's")) debt securities of
corporations (such as commercial paper, notes, bonds or debentures),
certificates of deposit, deposit accounts, obligations of the U.S. Government,
its agencies and instrumentalities, or repurchase agreements which are
fully-collateralized by U.S. Government obligations, including repurchase
agreements that mature in more than seven days. When the Adviser believes that
financial conditions present unusual risks with respect to equity securities,
the Fund may invest up to 80% of their assets in these securities, rated in the
four highest categories, for temporary defensive purposes.
Ratings as Investment Criteria. In general, the ratings of Moody's and S&P
represent the opinions of these agencies as to the quality of the securities
which they rate. It should be emphasized, however, that such ratings are
relative and subjective and are not absolute standards of quality. These ratings
will be used by the Fund as initial criteria for the selection of portfolio
securities. Among the factors which will be considered are the long-term ability
of the issuer to pay principal and interest and general economic trends.
Appendix A contains further information concerning the ratings of Moody's and
S&P and their significance.
3
<PAGE>
Subsequent to its purchase by the Fund, an issue of securities may cease to be
rated or its rating may be reduced below the minimum required for purchase by
the Fund. Neither of these events will require the sale of the securities by the
Fund, but the Adviser will consider the event in its determination of whether
the Fund should continue to hold the securities.
Investments in Foreign Securities. The Fund may invest in the securities of
foreign issuers, including securities in the form of sponsored and unsponsored
American Depository Receipts (ADRs), European Depository Receipts (EDRs) or
other securities convertible into securities of foreign issuers. ADRs are
receipts typically issued by an American bank or trust company which evidence
ownership of underlying securities issued by a foreign corporation. EDRs are
receipts issued in Europe which evidence a similar ownership arrangement.
Issuers of unsponsored ADRs are not contractually obligated to disclose material
information, including financial information, in the United States. Generally,
ADRs are designed for use in the United States securities markets and EDRs are
designed for use in European securities markets.
Risks of Foreign Securities. Investments in foreign securities may involve a
greater degree of risk than those in domestic securities. There is generally
less publicly available information about foreign companies in the form of
reports and ratings similar to those that are published about issuers in the
United States. Also, foreign issuers are generally not subject to uniform
accounting, auditing and financial reporting requirements comparable to United
States issuers.
Because foreign securities may be denominated in currencies other than the U.S.
dollar, changes in foreign currency exchange rates will affect the Fund's net
asset value, the value of dividends and interest earned, gains and losses
realized on the sale of securities, and any net investment income and gains that
the Fund distributes to shareholders. Securities transactions undertaken in some
foreign markets may not be settled promptly, so that the Fund's investments on
foreign exchanges may be less liquid and subject to the risk of fluctuating
currency exchange rates pending settlement.
Foreign securities will be purchased in the best available market, whether
through over-the-counter markets or exchanges located in the countries where
principal offices of the issuers are located. Foreign securities markets are
generally not as developed or efficient as those in the United States. While
growing in volume, they usually have substantially less volume than the New York
Stock Exchange, and securities of some foreign issuers are less liquid and more
volatile than securities of comparable United States issuers. Fixed commissions
on foreign exchanges are generally higher than negotiated commissions on United
States exchanges, although the Fund will endeavor to achieve the most favorable
net results on its portfolio transactions. There is generally less government
supervision and regulation of securities exchanges, brokers and listed issuers
than in the United States.
With respect to certain foreign countries, there is the possibility of adverse
changes in investment or exchange control regulations, expropriation,
nationalization or confiscatory taxation, limitations on the removal of funds or
other assets of the Fund, political or social instability, or diplomatic
developments which could affect United States investments in those countries.
Moreover, individual foreign economies may differ favorably or unfavorably from
the United States' economy in terms of growth of gross national product, rate of
inflation, capital reinvestment, resource self-sufficiency and balance of
payments position.
The dividends, in some cases, capital gains, and interest payable on certain of
the Fund's foreign portfolio securities, may be subject to foreign withholding
or other foreign taxes, thus reducing the net amount of income or gains
available for distribution to the Fund's shareholders.
4
<PAGE>
Repurchase Agreements. In a repurchase agreement the Fund buys a security for a
relatively short period (usually not more than 7 days) subject to the obligation
to sell it back to the issuer at a fixed time and price, plus accrued interest.
The Fund will enter into repurchase agreements only with member banks of the
Federal Reserve System and with "primary dealers" in U.S. Government securities.
The Adviser will continuously monitor the creditworthiness of the parties with
whom the Fund enters into repurchase agreements.
The Fund has established a procedure providing that the securities serving as
collateral for each repurchase agreement must be delivered to the Fund's
custodian either physically or in book-entry form and that the collateral must
be marked to market daily to ensure that each repurchase agreement is fully
collateralized at all times. In the event of bankruptcy or other default by a
seller of a repurchase agreement, the Fund could experience delays in
liquidating the underlying securities during the period in which the Fund seeks
to enforce its rights thereto, possible subnormal levels of income decline in
value of the underlying securities or lack of access to income during this
period and the expense of enforcing its rights.
Reverse Repurchase Agreements. The Fund may also enter into reverse repurchase
agreements which involve the sale of U.S. Government securities held in its
portfolio to a bank with an agreement that the Fund will buy back the securities
at a fixed future date at a fixed price plus an agreed amount of "interest"
which may be reflected in the repurchase price. Reverse repurchase agreements
are considered to be borrowings by the Fund. Reverse repurchase agreements
involve the risk that the market value of securities purchased by the Fund
with proceeds of the transaction may decline below the repurchase price of the
securities sold by the Fund which it is obligated to repurchase. The Fund will
also continue to be subject to the risk of a decline in the market value of the
securities sold under the agreements because it will reacquire those securities
upon effecting their repurchase. To minimize various risks associated with
reverse repurchase agreements, the Fund will establish and maintain with its
custodian a separate account consisting of liquid securities, of any type or
maturity, in an amount at least equal to the repurchase prices of the securities
(plus any accrued interest thereon) under such agreements. In addition, the Fund
will not borrow money or enter into reverse repurchase agreements except from
banks temporarily for extraordinary emergency purposes (not leveraging or
investment) and then in an aggregate amount not in excess of 5% of the value of
the Fund's net assets at the time of such borrowing. The Fund will enter into
reverse repurchase agreements only with federally insured banks which are
approved in advance as being creditworthy by the Trustees. Under procedures
established by the Trustees, the Adviser will monitor the creditworthiness of
the banks involved.
Restricted Securities. The Fund may purchase securities that are not registered
("restricted securities") under the Securities Act of 1933 ("1933 Act"),
including commercial paper issued in reliance on Section 4(2) of the 1933 Act
and securities offered and sold to "qualified institutional buyers" under Rule
144A under the 1933 Act. The Fund will not invest more than 15% of its net
assets in illiquid investments. If the Trustees determine, based upon a
continuing review of the trading markets for specific Section 4(2) paper or Rule
144A securities, that they are liquid, they will not be subject to the 15% limit
on illiquid investments. The Trustees may adopt guidelines and delegate to the
Adviser the daily function of determining and monitoring the liquidity of
restricted securities. The Trustees, however, will retain sufficient oversight
and be ultimately responsible for the determinations. The Trustees will
carefully monitor the Fund's investments in these securities, focusing on such
important factors, among others, as valuation, liquidity and availability of
information. This investment practice could have the effect of increasing the
level of illiquidity in
5
<PAGE>
the Fund if qualified institutional buyers become for a time uninterested in
purchasing these restricted securities.
Options on Securities and Securities Indices. The Fund may purchase and write
(sell) call and put options on any securities in which it may invest or on any
securities index based on securities in which it may invest. These options may
be listed on national domestic securities exchanges or traded in the
over-the-counter market. The Fund may write covered put and call options and
purchase put and call options to enhance total return, as a substitute for the
purchase or sale of securities, or to protect against declines in the value of
portfolio securities and against increases in the cost of securities to be
acquired.
Writing Covered Options. A call option on securities written by the Fund
obligates the Fund to sell specified securities to the holder of the option at a
specified price if the option is exercised at any time before the expiration
date. A put option on securities written by the Fund obligates the Fund to
purchase specified securities from the option holder at a specified price if the
option is exercised at any time before the expiration date. Options on
securities indices are similar to options on securities, except that the
exercise of securities index options requires cash settlement payments and does
not involve the actual purchase or sale of securities. In addition, securities
index options are designed to reflect price fluctuations in a group of
securities or segment of the securities market rather than price fluctuations in
a single security. Writing covered call options may deprive the Fund of the
opportunity to profit from an increase in the market price of the securities in
its portfolio. Writing covered put options may deprive the Fund of the
opportunity to profit from a decrease in the market price of the securities to
be acquired for its portfolio.
All call and put options written by the Fund are covered. A written call option
or put option may be covered by (i) maintaining cash or liquid securities in a
segregated account maintained by the Fund's custodian with a value at least
equal to the Fund's obligation under the option, (ii) entering into an
offsetting forward commitment and/or (iii) purchasing an offsetting option or
any other option which, by virtue of its exercise price or otherwise, reduces
the Fund's net exposure on its written option position. A written call option on
securities is typically covered by maintaining the securities that are subject
to the option in a segregated account. The Fund may cover call options on a
securities index by owning securities whose price changes are expected to be
similar to those of the underlying index.
The Fund may terminate its obligations under an exchange traded call or put
option by purchasing an option identical to the one it has written. Obligations
under over-the-counter options may be terminated only by entering into an
offsetting transaction with the counterparty to such option. Such purchases are
referred to as "closing purchase transactions."
Purchasing Options. The Fund would normally purchase call options in
anticipation of an increase, or put options in anticipation of a decrease
("protective puts") in the market value of securities of the type in which it
may invest. The Fund may also sell call and put options to close out its
purchased options.
The purchase of a call option would entitle the Fund, in return for the premium
paid, to purchase specified securities at a specified price during the option
period. The Fund would ordinarily realize a gain on the purchase of a call
option if, during the option period, the value of such securities exceeded the
sum of the exercise price, the premium paid and transaction costs; otherwise the
Fund would realize either no gain or a loss on the purchase of the call option.
6
<PAGE>
The purchase of a put option would entitle the Fund, in exchange for the premium
paid, to sell specified securities at a specified price during the option
period. The purchase of protective puts is designed to offset or hedge against a
decline in the market value of the Fund's portfolio securities. Put options may
also be purchased by the Fund for the purpose of affirmatively benefiting from a
decline in the price of securities which it does not own. The Fund would
ordinarily realize a gain if, during the option period, the value of the
underlying securities decreased below the exercise price sufficiently to cover
the premium and transaction costs; otherwise the Fund would realize either no
gain or a loss on the purchase of the put option. Gains and losses on the
purchase of put options may be offset by countervailing changes in the value of
the Fund's portfolio securities.
The Fund's options transactions will be subject to limitations established by
each of the exchanges, boards of trade or other trading facilities on which such
options are traded. These limitations govern the maximum number of options in
each class which may be written or purchased by a single investor or group of
investors acting in concert, regardless of whether the options are written or
purchased on the same or different exchanges, boards of trade or other trading
facilities or are held or written in one or more accounts or through one or more
brokers. Thus, the number of options which the Fund may write or purchase may be
affected by options written or purchased by other investment advisory clients of
the Adviser. An exchange, board of trade or other trading facility may order the
liquidation of positions found to be in excess of these limits, and it may
impose certain other sanctions.
Risks Associated with Options Transactions. There is no assurance that a liquid
secondary market on a domestic or foreign options exchange will exist for any
particular exchange-traded option or at any particular time. If the Fund is
unable to effect a closing purchase transaction with respect to covered options
it has written, the Fund will not be able to sell the underlying securities or
dispose of assets held in a segregated account until the options expire or are
exercised. Similarly, if the Fund is unable to effect a closing sale transaction
with respect to options it has purchased, it would have to exercise the options
in order to realize any profit and will incur transaction costs upon the
purchase or sale of underlying securities.
Reasons for the absence of a liquid secondary market on an exchange include the
following: (i) there may be insufficient trading interest in certain options;
(ii) restrictions may be imposed by an exchange on opening transactions or
closing transactions or both; (iii) trading halts, suspensions or other
restrictions may be imposed with respect to particular classes or series of
options; (iv) unusual or unforeseen circumstances may interrupt normal
operations on an exchange; (v) the facilities of an exchange or the Options
Clearing Corporation may not at all times be adequate to handle current trading
volume; or (vi) one or more exchanges could, for economic or other reasons,
decide or be compelled at some future date to discontinue the trading of options
(or a particular class or series of options). If trading were discontinued, the
secondary market on that exchange (or in that class or series of options) would
cease to exist. However, outstanding options on that exchange that had been
issued by the Options Clearing Corporation as a result of trades on that
exchange would continue to be exercisable in accordance with their terms.
The Fund's ability to terminate over-the-counter options is more limited than
with exchange-traded options and may involve the risk that broker-dealers
participating in such transactions will not fulfill their obligations. The
Adviser will determine the liquidity of each over-the-counter option in
accordance with guidelines adopted by the Trustees.
The writing and purchase of options is a highly specialized activity which
involves investment techniques and risks different from those associated with
ordinary portfolio securities transactions.
7
<PAGE>
The successful use of options depends in part on the Adviser's ability to
predict future price fluctuations and, for hedging transactions, the degree of
correlation between the options and securities markets.
Forward Commitment and When-Issued Securities. The Fund may purchase securities
on a when-issued or forward commitment basis. "When-issued" refers to securities
whose terms are available and for which a market exists, but which have not been
issued. The Fund will engage in when-issued transactions with respect to
securities purchased for its portfolio in order to obtain what is considered to
be an advantageous price and yield at the time of the transaction. For
when-issued transactions, no payment is made until delivery is due, often a
month or more after the purchase. In a forward commitment transaction, the Fund
contracts to purchase securities for a fixed price at a future date beyond
customary settlement time.
When the Fund engages in forward commitment and when-issued transactions, it
relies on the seller to consummate the transaction. The failure of the issuer or
seller to consummate the transaction may result in the Fund's losing the
opportunity to obtain a price and yield considered to be advantageous. The
purchase of securities on a when-issued or forward commitment basis also
involves a risk of loss if the value of the security to be purchased declines
prior to the settlement date.
On the date the Fund enters into an agreement to purchase securities on a
when-issued or forward commitment basis, the Fund will segregate in a separate
account cash or liquid securities, of any type or maturity, equal in value to
the Fund's commitment. These assets will be valued daily at market, and
additional cash or securities will be segregated in a separate account to the
extent that the total value of the assets in the account declines below the
amount of the when-issued commitments. Alternatively, the Fund may enter into
offsetting contracts for the forward sale of other securities that it owns.
Rights and Warrants. The Fund may purchase warrants and rights which are
securities permitting, but not obligating, their holder to purchase the
underlying securities at a predetermined price, subject to the Fund's Investment
Restrictions. Generally, warrants and stock purchase rights do not carry with
them the right to receive dividends or exercise voting rights with respect to
the underlying securities, and they do not represent any rights in the assets of
the issuer. As a result, an investment in warrants and rights may be considered
to entail greater investment risk than certain other types of investments. In
addition, the value of warrants and rights does not necessarily change with the
value of the underlying securities, and they cease to have value if they are not
exercised on or prior to their expiration date. Investment in warrants and
rights increases the potential profit or loss to be realized from the investment
of a given amount of the Fund's assets as compared with investing the same
amount in the underlying stock.
Short-Term Trading and Portfolio Turnover. Short-term trading means the purchase
and subsequent sale of a security after it has been held for a relatively brief
period of time. The Fund may engage in short-term trading in response to stock
market conditions, changes in interest rates or other economic trends and
developments, or to take advantage of yield disparities between various fixed
income securities in order to realize capital gains or improve income.
Short-term trading may have the effect of increasing portfolio turnover rate. A
high rate of portfolio turnover (100% or greater) involves correspondingly
greater brokerage expenses. The Fund's portfolio turnover rate is set forth in
the table under the caption "Financial Highlights" in the Prospectus.
8
<PAGE>
INVESTMENT RESTRICTIONS
Fundamental Investment Restrictions. The following investment restrictions will
not be changed without the approval of a majority of the Fund's outstanding
voting securities which, as used in the Prospectus and this Statement of
Additional Information, means the approval by the lesser of (1) the holders of
67% or more of the Fund's shares represented at a meeting if more than 50% of
the Fund's outstanding shares are present in person or by proxy at that meeting
or (2) more than 50% of the Fund's outstanding shares.
The Fund may not:
1. Purchases on Margin and Short Sales. Purchase securities on margin or
sell short, except that the Fund may obtain such short term credits as are
necessary for the clearance of securities transactions. The deposit or payment
by the Fund of initial or maintenance margin in connection with futures
contracts or related options transactions is not considered the purchase of a
security on margin.
2. Borrowing. Borrow money, except from banks temporarily for
extraordinary or emergency purposes (not for leveraging or investment) and then
in an aggregate amount not in excess of 5% of the value of the Fund's net assets
at the time of such borrowing.
3. Underwriting Securities. Act as an underwriter of securities of other
issuers, except to the extent that it may be deemed to act as an underwriter in
certain cases when disposing of restricted securities.
4. Senior Securities. Issue senior securities except as appropriate to
evidence indebtedness which the Fund is permitted to incur, provided that, to
the extent applicable, (i) the purchase and sale of futures contracts or related
options, (ii) collateral arrangements with respect to futures contracts, related
options, forward foreign currency exchange contracts or other permitted
investments of the Fund as described in the Prospectus, including deposits of
initial and variation margin, and (iii) the establishment of separate classes of
shares of the Fund for providing alternative distribution methods are not
considered to be the issuance of senior securities for purposes of this
restriction.
5. Warrants. Invest more than 5% of the value of the Fund's net assets in
marketable warrants to purchase common stock. Warrants acquired in units or
attached to securities are not included in this restriction.
6. Single Issuer Limitation/Diversification. Purchase securities of any
one issuer, except securities issued or guaranteed by the U.S. Government, its
agencies or instrumentalities, if immediately after such purchase more than 5%
of the value of the Fund's total assets would be invested in such issuer or the
Fund would own or hold more than 10% of the outstanding voting securities of
such issuer; provided, however, that with respect to all Funds, up to 25% of the
value of the Fund's total assets may be invested without regard to these
limitations.
7. Real Estate. Purchase or sell real estate although the Fund may
purchase and sell securities which are secured by real estate, mortgages or
interests therein, or issued by companies which invest in real estate or
interests therein; provided, however, that the Fund will not purchase real
estate limited partnership interests.
9
<PAGE>
8. Commodities; Commodity Futures; Oil and Gas Exploration and Development
Programs. Purchase or sell commodities or commodity futures contracts including
forward foreign currency contracts, futures contracts and options thereon or
interests in oil, gas or other mineral exploration or development programs.
9. Making Loans. Make loans, except that the Fund may purchase or hold
debt instruments and may enter into repurchase agreements (subject to
Restriction 12) in accordance with its investment objective and policies.
10. Industry Concentration. Purchase any securities which would cause more
than 25% of the market value of the Fund's total assets at the time of such
purchase to be invested in the securities of one or more issuers having their
principal business activities in the same industry, provided that there is no
limitation with respect to investments in obligations issued or guaranteed by
the U.S. Government, its agencies or instrumentalities; provided that,
notwithstanding the foregoing, the Fund will invest more than 25% of its total
assets in issuers in the banking industry; all as more fully set forth in the
Prospectus.
Non-fundamental Investment Restrictions. The following investment restrictions
are designated as non-fundamental and may be changed by the Trustees without
shareholder approval.
The Fund may not:
11. Options Transactions. Write, purchase, or sell puts, calls or
combinations thereof except that the Fund may write, purchase or sell puts and
calls on securities.
12. Invest more than 15% of its net assets in illiquid securities.
13. Acquisition for Control Purposes. Purchase securities of any issuer
for the purpose of exercising control or management, except in connection with a
merger, consolidation, acquisition or reorganization.
14. Joint Trading Accounts. Participate on a joint or joint and several
basis in any trading account in securities (except for a joint account with
other funds managed by the Adviser for repurchase agreements permitted by the
Securities and Exchange Commission pursuant to an exemptive order).
15. Securities of Other Investment Companies. Purchase a security if, as a
result, (i) more than 10% of the Fund's total assets would be invested in the
securities of other investment companies, (ii) the Fund would hold more than 3%
of the total outstanding voting securities of any one investment company, or
(iii) more than 5% of the Fund's total assets would be invested in the
securities of any one investment company. These limitations do not apply to (a)
the investment of cash collateral, received by the Fund in connection with
lending the Fund's portfolio securities, in the securities of open-end
investment companies or (b) the purchase of shares of any investment company in
connection with a merger, consolidation, reorganization or purchase of
substantially all of the assets of another investment company. Subject to the
above percentage limitations, the Fund may, in connection with the John Hancock
Group of Funds Deferred Compensation Plan for Independent Trustees, purchase
securities of other investment companies within the John Hancock Group of
10
<PAGE>
If a percentage restriction on investment or utilization of assets as set forth
above is adhered to at the time an investment is made, a later change in
percentage resulting from changes in the value of the Fund's assets will not be
considered a violation of the restriction.
THOSE RESPONSIBLE FOR MANAGEMENT
The business of the Fund is managed by its Trustees, who elect officers who are
responsible for the day-to-day operations of the Fund and who execute policies
formulated by the Trustees. Several of the officers and Trustees of the Fund are
also officers and Directors of the Adviser or officers and Directors of the
Fund's principal distributor, John Hancock Funds, Inc. ("John Hancock Funds").
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Positions Held Principal Occupation(s)
Name and Address With the Company During the Past Five Years
- ---------------- ---------------- --------------------------
Edward J. Boudreau, Jr. * Trustee, Chairman and Chairman, Director and
101 Huntington Avenue Chief Executive Officer Chief Executive Officer,
Boston, MA 02199 (1, 2) the Adviser; Chairman,
October 1944 Trustee and Chief
Executive Officer, The
Berkeley Financial Group
("The Berkeley Group");
Chairman and Director, NM
Capital Management, Inc.
("NM Capital"), John
Hancock Advisers
International Limited
("Advisers International")
and Sovereign Asset
Management Corporation
("SAMCorp"); Chairman,
Chief Executive Officer
and President, John
Hancock Funds, Inc. ("John
Hancock Funds"); Chairman,
First Signature Bank and
Trust Company; Director,
John Hancock Insurance
Agency, Inc. ("Insurance
Agency, Inc."), John
Hancock Advisers
International (Ireland)
Limited ("International
Ireland"), John Hancock
Capital Corporation and
New England/Canada
Business Council; Member,
Investment Company
Institute Board of
Governors; Director, Asia
Strategic Growth Fund,
Inc.; Trustee, Museum of
Science; Director, John
Hancock Freedom Securities
Corporation (until
September 1996); Director,
John Hancock Signature
Services, Inc. ("Signature
Services") (until January
1997).
- ----------
* Trustee may be deemed to be an "interested person" of the Fund as defined
in the Investment Company Act of 1940.
(1) Member of the Executive Committee. The Executive Committee may generally
exercise most of the powers of the Board of Trustees.
(2) A member of the Investment Committee of the Adviser.
(3) Member of the Audit Committee and the Administration Committee.
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Positions Held Principal Occupation(s)
Name and Address With the Company During the Past Five Years
- ---------------- ---------------- --------------------------
Dennis S. Aronowitz Trustee (3) Professor of Law,
1216 Falls Boulevard Emeritus, Boston
Fort Lauderdale, FL 33327 University School of Law
June 1931 (as of 1997); Trustee,
Brookline Savings Bank.
Richard P. Chapman, Jr. Trustee (1, 3) President, Brookline
160 Washington Street Savings Bank; Director,
Brookline, MA 02147 Federal Home Loan Bank
February 1935 of Boston (lending);
Director, Lumber
Insurance Companies
(fire and casualty
insurance); Trustee,
Northeastern University
(education); Director,
Depositors Insurance
Fund, Inc. (insurance).
William J. Cosgrove Trustee (3) Vice President, Senior
20 Buttonwood Place Banker and Senior Credit
Saddle River, NJ 07458 Officer, Citibank, N.A.
January 1933 (retired September
1991); Executive Vice
President, Citadel Group
Representatives, Inc.;
EVP Resource Evaluation,
Inc. (consulting) (until
October 1993); Trustee,
the Hudson City Savings
Bank (since 1995).
- ----------
* Trustee may be deemed to be an "interested person" of the Fund as defined
in the Investment Company Act of 1940.
(1) Member of the Executive Committee. The Executive Committee may generally
exercise most of the powers of the Board of Trustees.
(2) A member of the Investment Committee of the Adviser.
(3) Member of the Audit Committee and the Administration Committee.
13
<PAGE>
Positions Held Principal Occupation(s)
Name and Address With the Company During the Past Five Years
- ---------------- ---------------- --------------------------
Douglas M. Costle Trustee (1, 3) Director, Chairman of
RR2 Box 480 the Board and
Woodstock, VT 05091 Distinguished Senior
July 1939 Fellow, Institute for
Sustainable Communities,
Montpelier, Vermont (since
1991); Dean Vermont Law
School (until 1991);
Director, Air and Water
Technologies Corporation
(environmental services
and equipment), Niagara
Mohawk Power Company
(electric services) and
Mitretek Systems
(governmental consulting
services).
Leland O. Erdahl Trustee (3) Vice President, Chief
8046 Mackenzie Court Financial Officer and
Las Vegas, NV 89129 Director of Amax Gold,
December 1928 Inc.; Director, Santa Fe
Ingredients Company of
California, Inc. and
Santa Fe Ingredients
Company, Inc. (private
food processing
companies), Uranium
Resources Corporation;
Freeport-McMoRan Copper
& Gold Company, Inc.,
Hecla Mining Company,
Canyon Resources
Corporation and Original
Sixteen to One Mines,
Inc. (1984-1987 and
1991-1995) (management
consultant).
- ----------
* Trustee may be deemed to be an "interested person" of the Fund as defined
in the Investment Company Act of 1940.
(1) Member of the Executive Committee. The Executive Committee may generally
exercise most of the powers of the Board of Trustees.
(2) A member of the Investment Committee of the Adviser.
(3) Member of the Audit Committee and the Administration Committee.
14
<PAGE>
Positions Held Principal Occupation(s)
Name and Address With the Company During the Past Five Years
- ---------------- ---------------- --------------------------
Richard A. Farrell Trustee(3) President of Farrell,
Venture Capital Partners Healer & Co., (venture
160 Federal Street capital management firm)
23rd Floor (since 1980); Prior to
Boston, MA 02110 1980, headed the venture
November 1932 capital group at Bank of
Boston Corporation.
Gail D. Fosler Trustee (3) Vice President and Chief
3054 So. Abingdon Street Economist, The
Arlington, VA 22206 Conference Board
December 1947 (non-profit economic and
business research);
Director, Unisys Corp.;
and H.B. Fuller Company.
William F. Glavin Trustee (3) President Emeritus,
120 Paget Court - John's Babson College (as of
Island 1997); Vice Chairman,
Vero Beach, FL 32963 Xerox Corporation (until
March 1932 June 1989); Director,
Caldor Inc., Reebok,
Inc. (since 1994) and
Inco Ltd.
Anne C. Hodsdon * Trustee and President President, Chief
101 Huntington Avenue (1,2) Operating Officer and
Boston, MA 02199 Director, the Adviser;
April 1953 Trustee, The Berkeley
Group; Director, John
Hancock Funds, Advisers
International, Insurance
Agency, Inc. and
International Ireland;
President and Director,
SAMCorp. and NM Capital;
Executive Vice
President, the Adviser
(until December 1994);
Director, Signature
Services (until January
1997).
- ----------
* Trustee may be deemed to be an "interested person" of the Fund as defined
in the Investment Company Act of 1940.
(1) Member of the Executive Committee. The Executive Committee may generally
exercise most of the powers of the Board of Trustees.
(2) A member of the Investment Committee of the Adviser.
(3) Member of the Audit Committee and the Administration Committee.
15
<PAGE>
Positions Held Principal Occupation(s)
Name and Address With the Company During the Past Five Years
- ---------------- ---------------- --------------------------
Dr. John A. Moore Trustee (3) President and Chief
Institute for Evaluating Executive Officer,
Health Risks Institute for Evaluating
1629 K Street NW Health Risks, (nonprofit
Suite 402 institution) (since
Washington, DC 20006-1602 September 1989).
February 1939
Patti McGill Peterson Trustee (3) Executive Director,
Council for International Council for
Exchange of Scholars International Exchange
3007 Tilden Street, N.W., Suite 5L of Scholars (since
Washington, DC 20008-3009 January 1998), Vice
May 1943 President, Institute of
International Education
(since January 1998);
Cornell Institute of
Public Affairs, Cornell
University (until December
1997); President Emeritus
of Wells College and St.
Lawrence University;
Director, Niagara Mohawk
Power Corporation
(electric utility) and
Security Mutual Life
(insurance).
John W. Pratt Trustee (3) Professor of Business
2 Gray Gardens East Administration at
Cambridge, MA 02138 Harvard University
September 1931 Graduate School of
Business Administration
(since 1961).
- ----------
* Trustee may be deemed to be an "interested person" of the Fund as defined
in the Investment Company Act of 1940.
(1) Member of the Executive Committee. The Executive Committee may generally
exercise most of the powers of the Board of Trustees.
(2) A member of the Investment Committee of the Adviser.
(3) Member of the Audit Committee and the Administration Committee.
16
<PAGE>
Positions Held Principal Occupation(s)
Name and Address With the Company During the Past Five Years
- ---------------- ---------------- --------------------------
Richard S. Scipione * Trustee (1) General Counsel, John
John Hancock Place Hancock Life Company;
P.O. Box 111 Director, the Adviser,
Boston, MA 02117 Advisers International,
August 1937 John Hancock Funds, John
Hancock Distributors,
Inc., Insurance Agency,
Inc., John Hancock
Subsidiaries, Inc.,
SAMCorp. and NM Capital;
Trustee, The Berkeley
Group; Director, JH
Networking Insurance
Agency, Inc.; Director,
Signature Services
(until January 1997).
Edward J. Spellman, CPA Trustee (3) Partner, KPMG Peat
259C Commercial Bld. Marwick LLP (retired
Ft. Lauderdale, FL 33308 June 1990).
November 1932
Robert G. Freedman Vice Chairman and Chief Vice Chairman and Chief
101 Huntington Avenue Investment Officer (2) Investment Officer, the
Boston, MA 02199 Adviser; Director, the
July 1938 Adviser, Advisers
International, John
Hancock Funds, SAMCorp.,
Insurance Agency, Inc.,
Southeastern Thrift & Bank
Fund and NM Capital;
Senior Vice President, The
Berkeley Group; President,
the Adviser (until
December 1994); Director,
Signature Services (until
January 1997).
- ----------
* Trustee may be deemed to be an "interested person" of the Fund as defined
in the Investment Company Act of 1940.
(1) Member of the Executive Committee. The Executive Committee may generally
exercise most of the powers of the Board of Trustees.
(2) A member of the Investment Committee of the Adviser.
(3) Member of the Audit Committee and the Administration Committee.
17
<PAGE>
Positions Held Principal Occupation(s)
Name and Address With the Company During the Past Five Years
- ---------------- ---------------- --------------------------
James B. Little Senior Vice President and Senior Vice President,
101 Huntington Avenue Chief Financial Officer the Adviser, The
Boston, MA 02199 Berkeley Group, John
February 1935 Hancock Funds.
John A. Morin Vice President Vice President and
101 Huntington Avenue Secretary, the Adviser,
Boston, MA 02199 The Berkeley Group,
July 1950 Signature Services and
John Hancock Funds;
Secretary, NM Capital and
SAMCorp.; Clerk, Insurance
Agency, Inc.; Counsel,
John Hancock Mutual Life
Insurance Company (until
February 1996), and Vice
President of John Hancock
Distributors, Inc. (until
April 1994).
Susan S. Newton Vice President and Vice President, the
101 Huntington Avenue Secretary Adviser; John Hancock
Boston, MA 02199 Funds, Signature
March 1950 Services and The
Berkeley Group; Vice
President, John Hancock
Distributors, Inc.
(until April 1994).
James J. Stokowski Vice President and Vice President, the
101 Huntington Avenue Treasurer Adviser.
Boston, MA 02199
November 1946
- ----------
* Trustee may be deemed to be an "interested person" of the Fund as defined
in the Investment Company Act of 1940.
(1) Member of the Executive Committee. The Executive Committee may generally
exercise most of the powers of the Board of Trustees.
(2) A member of the Investment Committee of the Adviser.
(3) Member of the Audit Committee and the Administration Committee.
18
<PAGE>
The following table provides information regarding the compensation paid by the
Fund and the other investment companies in the John Hancock Fund Complex to the
Independent Trustees for their services. Messrs. Boudreau and Scipione and Ms.
Hodsdon, each a non-Independent Trustee, and each of the officers of the Fund
are interested persons of the Adviser, are compensated by the Adviser and
receive no compensation from the Fund for their services.
Total Compensation
From the Fund and
Aggregate Compensation John Hancock Fund
Independent Trustees From the Fund(1) Complex to Trustees (2)
- -------------------- ---------------- -----------------------
Dennis J. Aronowitz $ 25,157 $ 72,000
Richard P. Chapman+ 26,301 75,000
William J. Cosgrove+ 25,157 72,000
Douglas M. Costle 26,301 75,000
Leland O. Erdahl 25,517 72,000
Richard A. Farrell 26,301 75,000
Gail D. Fosler 25,157 72,000
William F. Glavin+ 25,128 72,000
John A. Moore+ 25,157 72,000
Patti McGill Peterson 25,157 72,000
John W. Pratt 25,157 72,000
Edward J. Spellman 26,301 75,000
-------- --------
Total $306,431 $876,000
(1) Compensation is for the fiscal year ended October 31, 1997.
(2) Total compensation paid by the John Hancock Fund Complex to the Independent
Trustees is for the calendar year ended December 31, 1997. As of that date,
there were sixty-seven funds in the John Hancock Fund Complex, with each of
these Independent Trustees serving on thirty-two funds.
+ As of December 31, 1997, the value of the aggregate accrued deferred
compensation amount from all funds in the John Hancock Fund Complex for Mr.
Chapman was $69,148, for Mr. Cosgrove was $167,829, for Mr. Glavin was $193,514
and for Mr. Moore was $84,315 under the John Hancock Deferred Compensation Plan
for Independent Trustees.
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
Trustees of one or more of the other funds for which the Adviser serves as
investment adviser.
As of February 2, 1998, the officers and Trustees of the Fund as a group
beneficially owned less than 1% of the outstanding shares. As of that date, the
following shareholders beneficially owned 5% or more of the outstanding shares
of the Fund listed below:
19
<PAGE>
Percentage of total
Name and Address Outstanding Shares of
of Shareholder Class of Shares the Class of the Fund
- -------------- --------------- ---------------------
MLPF&S For The Sole A 12.26%
Benefit Of Its Customers
Attn: Fund Administration
4800 Deerlake Drive East
Jacksonville FL 32246-6484
MLPF&S For The Sole B 31.16%
Benefit Of Its Customers
Attn: Fund Administration
4800 Deerlake Drive East
Jacksonville FL 32246-6484
INVESTMENT ADVISORY AND OTHER SERVICES
The Adviser, located at 101 Huntington Avenue, Boston, Massachusetts 02199-7603,
was organized in 1968 and has more than $26 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 1,400,000 shareholders. The Adviser is an affiliate of
the Life Company, one of the most recognized and respected financial
institutions in the nation. With total assets under management of more than $100
billion, the Life Company is one of the ten largest life insurance companies in
the United States, and carries a high rating from Standard & Poor's and A.M.
Best's. Founded in 1862, the Life Company has been serving clients for over 130
years.
The Fund has entered into an investment management contract (the "Advisory
Agreement"), with the Adviser which was approved by the Fund's shareholders.
Pursuant to the Advisory Agreement, the Adviser will: (a) furnish continuously
an investment program for the Fund and determine, subject to the overall
supervision and review of the Trustees, which investments should be purchased,
held, sold or exchanged, and (b) provide supervision over all aspects of the
Fund's operations except those which are delegated to a custodian, transfer
agent or other agent.
The Fund bears all costs of its organization and operation, including expenses
of preparing, printing and mailing all shareholders' reports, notices,
prospectuses, proxy statements and reports to regulatory agencies; expenses
relating to the issuance, registration and qualification of shares; government
fees; interest charges; expenses of furnishing to shareholders their account
statements; taxes; expenses of redeeming shares; brokerage and other expenses
connected with the execution of portfolio securities transactions; expenses
pursuant to the Fund's plan of distribution; fees and expenses of custodians
including those for keeping books and accounts and calculating the net asset
value of shares; fees and expenses of transfer agents and dividend disbursing
agents; legal, accounting, financial, management, tax and auditing fees and
expenses of the Fund (including an allowable portion of the cost of the
Adviser's employees rendering such services to the Fund); the compensation and
expenses of Trustees who are not otherwise affiliated with the Trust, the
Adviser or any of their affiliates; expenses of Trustees' and shareholders'
meetings; trade association memberships; insurance premiums; and any
extraordinary expenses.
20
<PAGE>
As compensation for its services under the Advisory Agreement, the Fund pays
the Adviser monthly a fee based on a stated percentage of the average of the
daily net assets of the Fund as follows:
Net Asset Value Annual Rate
--------------- -----------
First $500,000,000 0.80%
Amount over $500,000,000 0.75%
From time to time, the Adviser may reduce its fee or make other arrangements to
limit the Fund's expenses to a specified percentage of average daily net assets.
The Adviser retains the right to reimpose a fee and recover any other payments
to the extent that, at the end of any fiscal year, the Fund's annual expenses
fall below this limit.
Securities held by the Fund may also be held by other funds or investment
advisory clients for which the Adviser or its affiliates provide investment
advice. Because of different investment objectives or other factors, a
particular security may be bought for one or more funds or clients when one or
more are selling the same security. If opportunities for purchase or sale of
securities by the Adviser for the Fund or for other funds or clients, for which
the Adviser renders investment advice, arise for consideration at or about the
same time, transactions in such securities will be made, insofar as feasible,
for the respective funds or clients in a manner deemed equitable to all of them.
To the extent that transactions on behalf of more than one client of the Adviser
or its affiliates may increase the demand for securities being purchased or the
supply of securities being sold, there may be an adverse effect on price.
Pursuant to the Advisory Agreement, the Adviser is not liable for any error of
judgment or mistake of law or for any loss suffered by the Fund in connection
with the matters to which its Advisory Agreement relates, except a loss
resulting from willful misfeasance, bad faith or gross negligence on the part of
the Adviser in the performance of its duties or from reckless disregard of the
obligations and duties under the Advisory Agreement.
Under the Advisory Agreement, the Fund may use the name "John Hancock" or any
name derived from or similar to it only for so long as the Advisory Agreement or
any extension, renewal or amendment thereof remains in effect. If the Advisory
Agreement is no longer in effect, the Fund (to the extent that it lawfully can)
will cease to use such a name or any other name indicating that it is advised by
or otherwise connected with the Adviser. In addition, the Adviser or the Life
Company may grant the nonexclusive right to use the name "John Hancock" or any
similar name to any other corporation or entity, including but not limited to
any investment company of which the Life Company or any subsidiary or affiliate
thereof or any successor to the business of any subsidiary or affiliate thereof
shall be the investment adviser.
The continuation of the Advisory Agreement and Distribution Agreement (discussed
below) was approved by all of the Trustees. The Advisory Agreement and the
Distribution Agreement, will continue in effect from year to year, provided that
its continuance is approved annually both (i) by the holders of a majority of
the outstanding voting securities of the Trust or by the Trustees, and (ii) by a
majority of the Trustees who are not parties to the Agreement or "interested
persons" of any such parties. Both agreements may be terminated on 60 days
written notice by any party or by vote of a majority of the outstanding voting
securities of the Fund and will terminate automatically if assigned.
21
<PAGE>
For the fiscal years ended October 31, 1995, 1996 and 1997, the Fund paid the
Adviser fees of $7,644,892 $18,308,016 and $38,590,925, respectively.
Accounting and Legal Services Agreement. The Trust, on behalf of the Fund, is a
party to an Accounting and Legal Services Agreement with the Adviser. Pursuant
to this agreement, the Adviser provides the Fund with certain tax, accounting
and legal services. For the fiscal years ended October 31, 1997 and 1996, the
Fund paid the Adviser $936,142 and $176,938, respectively, for services under
this Agreement.
In order to avoid conflicts with portfolio trades for the Fund, the Adviser and
the Fund have adopted extensive restrictions on personal securities trading by
personnel of the Adviser and its affiliates. Some of these restrictions are:
pre-clearance for all personal trades and a ban on the purchase of initial
public offerings, as well as contributions to specified charities of profits on
securities held for less than 91 days. These restrictions are a continuation of
the basic principle that the interests of the Fund and its shareholders come
first.
DISTRIBUTION CONTRACTS
The Fund has a Distribution Agreement with John Hancock Funds. Under the
agreement, John Hancock Funds is obligated to use its best efforts to sell
shares of each class on behalf of the Fund. Shares of the Fund are sold by
selected broker-dealers (the "Selling Brokers") which have entered into selling
agency agreements with John Hancock Funds. John Hancock Funds accepts orders for
the purchase of the shares of the Fund which are continually offered at net
asset value next determined, plus an applicable sales charge, if any. In
connection with the sale of Class A or Class B shares, John Hancock Funds and
Selling Brokers receive compensation from a sales charge imposed, in the case of
Class A shares, at the time of sale. In the case of Class B shares, the broker
receives compensation immediately but John Hancock Funds is compensated on a
deferred basis. John Hancock Funds may pay extra compensation to financial
services firms selling large amounts of fund shares. This compensation would be
calculated as a percentage of fund shares sold by the firm.
Total underwriting commissions for sales of the Fund's Class A shares for the
fiscal periods ended October 31, 1997, 1996 and 1995 were $13,953,243,
$9,917,365 and $8,366,103, respectively, and $2,179,219, $1,595,850 and
$1,308,517, respectively, were retained by John Hancock Funds in 1997, 1996 and
1995, respectively. The remainder of the underwriting commissions were reallowed
to dealers.
The Fund's Trustees adopted Distribution Plans with respect to Class A and Class
B shares (the "Plans"), pursuant to Rule 12b-1 under the Investment Company Act
of 1940. Under the Plans, the Fund will pay distribution and service fees at an
aggregate annual rate of up to 0.30% and 1.00%, respectively, of the Fund's
average daily net assets attributable to shares of that class. However, the
service fee will not exceed 0.25% of the Fund's average daily net assets
attributable to each class of shares. The distribution fees will be used to
reimburse John Hancock Funds for 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. The service fees
will be used to compensate Selling Brokers and others for providing personal and
account maintenance services to shareholders. In the event that John Hancock
Funds is not fully reimbursed for payments or expenses they incur under the
Class A Plan,
22
<PAGE>
these expenses will not be carried beyond twelve months from the date they were
incurred. Unreimbursed expenses under the Class B Plan will be carried forward
together with interest on the balance of these unreimbursed expenses. The Funds
does not treat unreimbursed expenses under the Class B Plan as a liability of
the Fund because the Trustees may terminate the Class B Plan at any time. For
the fiscal year ended October 31, 1997, an aggregate of $58,931,361 of
distribution expenses or 1.55% of the average net assets of the Class B shares
of the Fund, were not reimbursed or recovered by John Hancock Funds through the
receipt of deferred sales charges or Rule 12b-1 fees in prior periods.
The Plans were approved by a majority of the voting securities of the Fund. The
Plans and all amendments were approved by the Trustees, including a majority of
the Trustees who are not interested persons of the Fund and who have no direct
or indirect financial interest in the operation of the Plans (the "Independent
Trustees"), by votes cast in person at meetings called for the purpose of voting
on these Plans.
Pursuant to the Plans, at least quarterly, John Hancock Funds provides the Fund
with a written report of the amounts expended under the Plans and the purpose
for which these expenditures were made. The Trustees review these reports on a
quarterly basis to determine their continued appropriateness.
The Plans provide that they will continue in effect only so long as their
continuance is approved at least annually by a majority of both the Trustees and
the Independent Trustees. The Plans provide that they may be terminated without
penalty, (a) by a vote of a majority of the Independent Trustees, (b) by a vote
of a majority of the Fund's outstanding shares of the applicable class upon 60
days written notice to John Hancock Funds, and (c) automatically in the event of
assignment. The Plans further provide that they may not be amended to increase
the maximum amount of the fees for the services described therein without the
approval of a majority of the outstanding shares of the class of the Fund which
has voting rights with respect to the Plan. Each Plan provides that no material
amendment to the Plans will be effective unless it is approved by a majority
vote of the Trustees and the Independent Trustees of the Fund. The holders of
Class A and Class B shares have exclusive voting rights with respect to the Plan
applicable to their respective class of shares. In adopting the Plans the
Trustees concluded that, in their judgment, there is a reasonable likelihood
that the Plans will benefit the holders of the applicable class of shares of the
Fund.
Amounts paid to John Hancock Funds by any class of shares of the Fund will not
be used to pay the expenses incurred with respect to any other class of shares
of the Fund; provided, however, that expenses attributable to the Fund as a
whole will be allocated, to the extent permitted by law, according to the
formula based upon gross sales dollars and/or average daily net assets of each
such class, as may be approved from time to time by vote of a majority of the
Trustees. From time to time, the Fund may participate in joint distribution
activities with other Funds and the costs of those activities will be borne by
each Fund in proportion to the relative net asset value of the participating
Funds.
During the fiscal year ended October 31, 1997, the Fund paid John Hancock Funds
the following amounts of expenses with in connection with their services for the
Fund:
23
<PAGE>
<TABLE>
<CAPTION>
Expense Items
-------------
Printing and Interest,
Mailing of Expenses of Carrying,
Prospectuses to Compensation of John or other
to New to Selling Hancock Finance
Advertising Shareholders Brokers Funds Charges
----------- ------------ ------- ----- -------
<S> <C> <C> <C> <C> <C>
Class A Shares $ 448,655 $ 26,117 $ 1,618,284 $ 1,802,582 $--
Class B Shares $3,602,267 $215,231 $12,294,689 $14,383,498 $7,640,082
</TABLE>
NET ASSET VALUE
For purposes of calculating the net asset value ("NAV") of the Fund's shares,
the following procedures are utilized wherever applicable.
Debt investment securities are valued on the basis of valuations furnished by a
principal market maker or a pricing service, both of which generally utilize
electronic data processing techniques to determine valuations for normal
institutional size trading units of debt securities without exclusive reliance
upon quoted prices.
Equity securities traded on a principal exchange or NASDAQ National Market
Issues are generally valued at last sale price on the day of valuation.
Securities in the aforementioned category for which no sales are reported and
other securities traded over-the-counter are generally valued at the mean
between the current closing bid and asked prices.
Short-term debt investments which have a remaining maturity of 60 days or less
are generally valued at amortized cost which approximates market value. If
market quotations are not readily available or if in the opinion of the Adviser
any quotation or price is not representative of true market value, the fair
value of the security may be determined in good faith in accordance with
procedures approved by the Trustees.
Foreign securities are valued on the basis of quotations from the primary market
in which they are traded. Any assets or liabilities expressed in terms of
foreign currencies are translated into U.S. dollars by the custodian bank based
on London currency exchange quotations as of 5:00 p.m., London time ( 12:00
noon, New York time) on the date of any determination of the Fund's NAV. If
quotations are not readily available or the value has been materially affected
by events occurring after the closing of a foreign market, assets are valued by
a method that the Trustees believe accurately reflects fair value.
The NAV for each fund and class is determined each business day at the close of
regular trading on the New York Stock Exchange (typically 4:00 p.m. Eastern
Time) by dividing a class's net assets by the number of its shares outstanding.
On any day an international market is closed and the New York Stock Exchange is
open, any foreign securities will be valued at the prior day's close with the
current day's exchange rate. Trading of foreign securities may take place on
Saturdays and U.S. business holidays on which the Fund's NAV is not calculated.
Consequently, the Fund's portfolio securities may trade and the NAV of the
Fund's redeemable securities may be significantly affected on days when a
shareholder has no access to the Fund.
24
<PAGE>
INITIAL SALES CHARGE ON CLASS A SHARES
Shares of the Fund are offered at a price equal to their net asset value plus a
sales charge which, at the option of the purchaser, may be imposed either at the
time of purchase (the "initial sales charge alternative") or on a contingent
deferred basis (the "deferred sales charge alternative"). Share certificates
will not be issued unless requested by the shareholder in writing, and then they
will only be issued for full shares. The Trustees reserve the right to change or
waive the Fund's minimum investment requirements and to reject any order to
purchase shares (including purchase by exchange) when in the judgment of the
Adviser such rejection is in the Fund's best interest.
The sales charges applicable to purchases of Class A shares of the Fund are
described in the Prospectus. Methods of obtaining reduced sales charges referred
to generally in the Prospectus are described in detail below. In calculating the
sales charge applicable to current purchases of Class A shares of the Fund, the
investor is entitled to accumulate current purchases with the greater of the
current value (at offering price) of the Class A shares of the Fund, owned by
the investor, or if John Hancock Signature Services, Inc. ("Signature Services")
is notified by the investor's dealer or the investor at the time of the
purchase, the cost of the Class A shares owned.
Without Sales Charges. Class A shares may be offered without a front-end sales
charge or CDSC to various individuals and institutions as follows:
o Any state, county or any instrumentality, department, authority, or
agency of these entities that is prohibited by applicable investment laws
from paying a sales charge or commission when it purchases shares of any
registered investment management company.*
o A bank, trust company, credit union, savings institution or other
depository institution, its trust departments or common trust funds if it
is purchasing $1 million or more for non-discretionary customers or
accounts.*
o A Trustee or officer of the Trust; a Director or officer of the Adviser
and its affiliates or Selling Brokers; employees or sales representatives
of any of the foregoing; retired officers, employees or Directors of any
of the foregoing; a member of the immediate family (spouse, children,
grandchildren, mother, father, sister, brother, mother-in-law,
father-in-law) of any of the foregoing; or any fund, pension, profit
sharing or other benefit plan for the individuals described above.
o A broker, dealer, financial planner, consultant or registered investment
advisor that has entered into an agreement with John Hancock Funds
providing specifically for the use of Fund shares in fee-based investment
products or services made available to their clients.
o A former participant in an employee benefit plan with John Hancock
funds, when he or she withdraws from his or her plan and transfers any or
all of his or her plan distributions directly to the Fund.
o A member of an approved affinity group financial services plan.*
o A member of a class action lawsuit against insurance companies who is
investing settlement proceeds.
25
<PAGE>
o Retirement plans participating in Merrill Lynch servicing programs, if
the Plan has more than $3 million in assets or 500 eligible employees at
the date the Plan Sponsor signs the Merrill Lynch Recordkeeping Service
Agreement. See your Merrill Lynch financial consultant for further
information.
o Existing full service clients of the Life Company who were group annuity
contract holders as of September 1, 1994, and participant directed defined
contribution plans with at least 100 eligible employees at the inception
of the Fund account, may purchase Class A shares with no initial sales
charge. However, if the shares are redeemed within 12 months after the end
of the calendar year in which the purchase was made, a CDSC will be
imposed at the following rate:
Amount Invested CDSC Rate
--------------- ---------
$1 to $4,999,999 1.00%
Next $5 million to $9,999,999 0.50%
Amounts to $10 million and over 0.25%
Class A shares may also be purchased without an initial sales charge in
connection with certain liquidation, merger or acquisition transactions
involving other investment companies or personal holding companies.
*For investments made under these provisions, John Hancock Funds may make a
payment out of its own resources to the Selling Broker in an amount not to
exceed 0.25% of the amount invested.
Combination Privilege. In calculating the sales charge applicable to purchases
of Class A shares made at one time, the purchases will be combined to reduce
sales charges if made by (a) an individual, his or her spouse and their children
under the age of 21, purchasing securities for his or their own account, (b) a
trustee or other fiduciary purchasing for a single trust, estate or fiduciary
account and (c) groups which qualify for the Group Investment Program (see
below). Further information about combined purchases, including certain
restrictions on combined group purchases, is available from Signature Services
or a Selling Broker's representative.
Accumulation Privilege. Investors (including investors combining purchases) who
are already Class A shareholders may also obtain the benefit of the reduced
sales charge by taking into account not only the amount then being invested but
also the purchase price or current account value of the Class A shares of all
John Hancock funds which carry a sales charge already held by such person. Class
A shares of John Hancock money market funds will only be eligible for the
accumulation privilege if the investor has previously paid a sales charge on the
amount of those shares.
Group Investment Program. Under the Combination and Accumulation Privileges, all
members of a group may combine their individual purchases of Class A shares to
potentially qualify for breakpoints in the sales charge schedule. This feature
is provided to any group which (1) has been in existence for more than six
months, (2) has a legitimate purpose other than the purchase of mutual fund
shares at a discount for its members, (3) utilizes salary deduction or similar
group methods of payment, and (4) agrees to allow sales materials of the fund in
its mailings to members at a reduced or no cost to John Hancock Funds.
Letter of Intention. Reduced sales charges also are applicable to investments
made pursuant to a Letter of Intention (the "LOI"), which should be read
carefully prior to its execution by an investor.
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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 retirement plan, however, may opt to
make the necessary investments called for by the LOI over a forty-eight (48)
month period. These retirement plans include IRAs, SEP, SARSEP, 401(k), 403(b)
(including TSAs), SIMPLE IRA, SIMPLE 401(k), Money Purchase Pension, Profit
Sharing and Section 457 plans. Such an investment (including accumulations and
combinations) must aggregate $50,000 or more invested during the specified
period from the date of the LOI or from a date within ninety (90) days prior
thereto, upon written request to Signature Services. The sales charge applicable
to all amounts invested under the LOI is computed as if the aggregate amount
intended to be invested had been invested immediately. If such aggregate amount
is not actually invested, the difference in the sales charge actually paid and
the sales charge payable had the LOI not been in effect is due from the
investor. However, for the purchases actually made within the specified period
(either 13 or 48 months) the sales charge applicable will not be higher than
that which would have applied (including accumulations and combinations) had the
LOI been for the amount actually invested.
The LOI authorizes Signature Services to hold in escrow sufficient Class A
shares (approximately 5% of the aggregate) to make up any difference in sales
charges on the amount intended to be invested and the amount actually invested,
until such investment is completed within the specified period, at which time
the escrowed Class A shares will be released. If the total investment specified
in the LOI is not completed, the Class A shares held in escrow may be redeemed
and the proceeds used as required to pay such sales charge as may be due. By
signing the LOI, the investor authorizes Signature Services to act as his or her
attorney-in-fact to redeem any escrowed Class A shares and adjust the sales
charge, if necessary. A LOI does not constitute a binding commitment by an
investor to purchase, or by the Fund to sell, any additional Class A shares and
may be terminated at any time.
DEFERRED SALES CHARGE ON CLASS B SHARES
Investments in Class B shares are purchased at net asset value per share without
the imposition of an initial sales charge so the Fund will receive the full
amount of the purchase payment.
Contingent Deferred Sales Charge. Class B shares which are redeemed within six
years of purchase will be subject to a contingent deferred sales charge ("CDSC")
at the rates set forth in the Prospectus as a percentage of the dollar amount
subject to the CDSC. The charge will be assessed on an amount equal to the
lesser of the current market value or the original purchase cost of the Class B
shares being redeemed. No CDSC will be imposed on increases in account value
above the initial purchase prices, including all shares derived from
reinvestment of dividends or capital gains distributions.
Class B shares are not available to full-service defined contribution plans
administered by Signature Services or the Life Company that had more than 100
eligible employees at the inception of the Fund account.
The amount of the CDSC, if any, will vary depending on the number of years from
the time of payment for the purchase of Class B shares until the time of
redemption of such shares. Solely for purposes of determining the number of
years from the time of any payment for the purchases of shares, all payments
during a month will be aggregated and deemed to have been made on the first day
of the month.
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<PAGE>
In determining whether a CDSC applies to a redemption, the calculation will be
determined in a manner that results in the lowest possible rate being charged.
It will be assumed that your redemption comes first from shares you have held
beyond the six-year CDSC redemption period or those you acquired through
dividend and capital gain reinvestment, and next from the shares you have held
the longest during the six-year period. For this purpose, the amount of any
increase in a share's value above its initial purchase price is not regarded as
a share exempt from CDSC. Thus, when a share that has appreciated in value is
redeemed during the CDSC period, a CDSC is assessed only on its initial purchase
price.
When requesting a redemption for a specific dollar amount, please indicate if
you require the proceeds to equal the dollar amount requested. If not indicated,
only the specified dollar amount will be redeemed from your account and the
proceeds will be less any applicable CDSC.
Example:
You have purchased 100 shares at $10 per share. The second year after your
purchase, your investment's net asset value per share has increased by $2 to
$12, and you have gained 10 additional shares through dividend reinvestment. If
you redeem 50 shares at this time your CDSC will be calculated as follows:
o Proceeds of 50 shares redeemed at $12 per shares (50 x 12) $600.00
o Minus Appreciation ($12 - $10) x 100 shares (200.00)
o Minus proceeds of 10 shares not subject to CDSC
(dividend reinvestment) (120.00)
-------
o Amount subject to CDSC $280.00
*The appreciation is based on all 100 shares in the lot not just the
shares being redeemed.
Proceeds from the CDSC are paid to John Hancock Funds and are used in whole or
in part by John Hancock Funds to defray its expenses related to providing
distribution-related services to the Fund in connection with the sale of the
Class B 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.
Waiver of Contingent Deferred Sales Charge. The CDSC will be waived on
redemptions of Class B shares and of Class A shares that are subject to a CDSC,
unless indicated otherwise, in the circumstances defined below:
For all account types:
* Redemptions made pursuant to the Fund's right to liquidate your account if
you own shares worth less than $1,000.
* Redemptions made under certain liquidation, merger or acquisition
transactions involving other investment companies or personal holding
companies.
* Redemptions due to death or disability.
* Redemptions made under the Reinstatement Privilege, as described in "Sales
Charge Reductions and Waivers" of the Prospectus.
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<PAGE>
* Redemptions of Class B shares made under a periodic withdrawal plan, as
long as your annual redemptions do not exceed 12% of your account value,
including reinvested dividends, at the time you established your periodic
withdrawal plan and 12% of the value of subsequent investments (less
redemptions) in that account at the time you notify Signature Services.
(Please note that this waiver does not apply to periodic withdrawal plan
redemptions of Class A shares that are subject to a CDSC.)
* Redemptions by Retirement plans participating in Merrill Lynch servicing
programs, if the Plan has less than $3 million in assets or 500 eligible
employees at the date the Plan Sponsor signs the Merrill Lynch
Recordkeeping Service Agreement. See your Merrill Lynch financial
consultant for further information.
For Retirement Accounts (such as IRA, SIMPLE IRA, SIMPLE 401(k), Rollover IRA,
TSA, 457, 403(b), 401(k), Money Purchase Pension Plan, Profit-Sharing Plan and
other plans as described in the Internal Revenue Code) unless otherwise noted.
* Redemptions made to effect mandatory or life expectancy distributions
under the Internal Revenue Code.
* Returns of excess contributions made to these plans.
* Redemptions made to effect distributions to participants or beneficiaries
from employer sponsored retirement plans under Section 401(a) of the Code
(such as 401(k), Money Purchase Pension Plan, Profit-Sharing Plan).
* Redemptions from certain IRA and retirement plans that purchased shares
prior to October 1, 1992 and certain IRA plans that purchased shares prior
to May 15, 1995.
Please see matrix for reference.
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<PAGE>
CDSC Waiver Matrix for Class B Funds.
- --------------------------------------------------------------------------------
Type of 401(a) Plan 403(b) 457 IRA, IRA Non-
Distribution (401(k), Rollover Retirement
MPP, PSP)
- --------------------------------------------------------------------------------
Death or Waived Waived Waived Waived Waived
Disability
- --------------------------------------------------------------------------------
Over 70 1/2 Waived Waived Waived Waived for 12% of
mandatory account
distribution value
or 12% of annually
account in
value periodic
annually payments
in
periodic
payments.
- --------------------------------------------------------------------------------
Between 59 Waived Waived Waived Waived for 12% of
1/2 and 70 1/2 Life account
Expectancy value
or 12% of annually
account in
value periodic
annually payments
in
periodic
payments.
- --------------------------------------------------------------------------------
Under 59 1/2 Waived for Waived for Waived for Waived for 12% of
annuity annuity annuity annuity account
payments payments payments payments value
(72t) or 12% (72t) or (72t) or (72t) or annually
of account 12% of 12% of 12% of in
value account account account periodic
annually in value value value payments
periodic annually annually annually
payments. in in in
periodic periodic periodic
payments. payments. payments.
- --------------------------------------------------------------------------------
Loans Waived Waived N/A N/A N/A
- --------------------------------------------------------------------------------
Termination Not Waived Not Waived Not Waived Not Waived N/A
of Plan
- --------------------------------------------------------------------------------
Hardships Waived Waived Waived N/A N/A
- --------------------------------------------------------------------------------
Return of Waived Waived Waived Waived N/A
Excess
- --------------------------------------------------------------------------------
If you qualify for a CDSC waiver under one of these situations, you must notify
Signature Services at the time you make your redemption. The waiver will be
granted once Signature Services has confirmed that you are entitled to the
waiver.
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<PAGE>
SPECIAL REDEMPTIONS
Although it would not normally do so, the Fund has the right to pay the
redemption price of shares of the Fund in whole or in part in portfolio
securities as prescribed by the Trustees. When the shareholder sells portfolio
securities received in this fashion, the shareholder will incur a brokerage
charge. Any such securities would be valued for the purposes of making such
payment at the same value as used in determining net asset value. The Fund has
elected to be governed by Rule 18f-1 under the Investment Company Act. Under
that rule, the Fund must redeem its shares for cash except to the extent that
the redemption payments to any shareholder during any 90-day period would exceed
the lesser of $250,000 or 1% of the Fund's net asset value at the beginning of
such period.
ADDITIONAL SERVICES AND PROGRAMS
Exchange Privilege. The Fund permits exchanges of shares of any class of a fund
for shares of the same class in any other John Hancock fund offering that class.
Exchanges between funds with shares that are not subject to a CDSC are based on
their respective net asset values. No sales charge or transaction charge is
imposed. Shares of the Fund which are subject to a CDSC may be exchanged into
shares of any of the other John Hancock funds that are subject to a CDSC without
incurring the CDSC; however, the shares acquired in an exchange will be subject
to the CDSC schedule of the shares acquired if and when such shares are redeemed
(except that shares exchanged into John Hancock Short-Term Strategic Income Fund
and John Hancock Intermediate Maturity Government Fund will retain the exchanged
fund's CDSC schedule). For purposes of computing the CDSC payable upon
redemption of shares acquired in an exchange, the holding period of the original
shares is added to the holding period of the shares acquired in an exchange.
If a shareholder exchanges Class B shares purchased prior to January 1, 1994
(except John Hancock Short-Term Strategic Income Fund) for Class B shares of any
other John Hancock fund, the acquired shares will continue to be subject to the
CDSC schedule that was in effect when the exchanged shares were purchased.
The Fund reserves the right to require that previously exchanged shares (and
reinvested dividends) be in the Fund for 90 days before a shareholder is
permitted a new exchange.
The Fund may refuse any exchange order. The Fund may change or cancel its
exchange policies at any time, upon 60 days' notice to its shareholders.
An exchange of shares is treated as a redemption of shares of one fund and the
purchase of shares of another for Federal Income Tax purposes. An exchange may
result in a taxable gain or loss. See "TAX STATUS".
Systematic Withdrawal Plan. The Fund permits the establishment of a Systematic
Withdrawal Plan. Payments under this plan represent proceeds arising from the
redemption of Fund shares which may result in realization of gain or loss for
purposes of Federal, state and local income taxes. The maintenance of a
Systematic Withdrawal Plan concurrently with purchases of additional 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
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<PAGE>
Class B shares and because redemptions are taxable events. Therefore, a
shareholder should not purchase Class A or Class B shares at the same time a
Systematic Withdrawal Plan is in effect. The Fund reserves the right to modify
or discontinue the Systematic Withdrawal Plan of any shareholder on 30 days'
prior written notice to such shareholder, or to discontinue the availability of
such plan in the future. The shareholder may terminate the plan at any time by
giving proper notice to Signature Services.
Monthly Automatic Accumulation Program ("MAAP"). The program is explained in
the Prospectus. The program, as it relates to automatic investment checks, is
subject to the following conditions:
The investments will be drawn on or about the day of the month indicated.
The privilege of making investments through the MAAP may be revoked by Signature
Services without prior notice if any investment is not honored by the
shareholder's bank. The bank shall be under no obligation to notify the
shareholder as to the non-payment of any checks.
The program may be discontinued by the shareholder either by calling Signature
Services or upon written notice to Signature Services which is received at least
five (5) business days prior to the due date of any investment.
Reinstatement or Reinvestment Privilege. If Signature Services is notified prior
to reinvestment, a shareholder who has redeemed Fund shares may, within 120 days
after the date of redemption, reinvest without payment of a sales charge any
part of the redemption proceeds in shares of the same class of the Fund or
another John Hancock fund, subject to the minimum investment limit in that fund.
The proceeds from the redemption of Class A shares may be reinvested at net
asset value without paying a sales charge in Class A shares of the Fund or in
Class A shares of any John Hancock fund. If a CDSC was paid upon a redemption, a
shareholder may reinvest the proceeds from this redemption at net asset value in
additional shares of the class from which the redemption was made. The
shareholder's account will be credited with the amount of any CDSC charged upon
the prior redemption and the new shares will continue to be subject to the CDSC.
The holding period of the shares acquired through reinvestment will, for
purposes of computing the CDSC payable upon a subsequent redemption, include the
holding period of the redeemed shares.
To protect the interests of other investors in the Fund, the Fund may cancel the
reinvestment privilege of any parties that, in the opinion of the Fund, are
using market timing strategies or making more than seven exchanges per owner or
controlling party per calendar year. Also, the Fund may refuse any reinvestment
request.
The Fund may change or cancel its reinvestment policies at any time.
A redemption or exchange of Fund shares is a taxable transaction for Federal
income tax purposes even if the reinvestment privilege is exercised, and any
gain or loss realized by a shareholder on the redemption or other disposition of
Fund shares will be treated for tax purposes as described under the caption "TAX
STATUS."
Retirement plans participating in Merrill Lynch's servicing programs:
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<PAGE>
Class A shares are available at net asset value for plans with $3 million in
plan assets or 500 eligible employees at the date the Plan Sponsor signs the
Merrill Lynch Recordkeeping Service Agreement. If the plan does not meet either
of these limits, Class A shares are not available.
For participating retirement plans investing in Class B shares, shares will
convert to Class A shares after eight years, or sooner if the plan attains
assets of $5 million (by means of a CDSC-free redemption/purchase at net asset
value).
DESCRIPTION OF THE FUND'S SHARES
The Trustees of the Trust are responsible for the management and supervision of
the Fund. The Declaration of Trust permits the Trustees to issue an unlimited
number of full and fractional shares of beneficial interest of the Fund, without
par value. Under the Declaration of Trust, the Trustees have the authority to
create and classify shares of beneficial interest in separate series, without
further action by shareholders. As of the date of this Statement of Additional
Information, the Trustees have authorized shares of the Fund and one other
series, John Hancock Financial Industries Fund. Additional series may be added
in the future. The Declaration of Trust also authorizes the Trustees to classify
and reclassify the shares of the Fund, or any new series of the Trust, into one
or more classes. As of the date of this Statement of Additional Information, the
Trustees have authorized the issuance of two classes of shares of the Fund,
designated as Class A and Class B.
The shares of each class of the Fund represent an equal proportionate interest
in the aggregate net assets attributable to that class of the Fund. Holders of
Class A and Class B shares have certain exclusive voting rights on matters
relating to their respective distribution plans. The different classes of the
Fund may bear different expenses relating to the cost of holding shareholder
meetings necessitated by the exclusive voting rights of any class of shares.
Dividends paid by the Fund, if any, with respect to each class of shares will be
calculated in the same manner, at the same time and on the same day and will be
in the same amount, except for differences resulting from the facts that (i) the
distribution and service fees relating to 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) each of Class A and
Class B shares will bear any class expenses properly allocable to that class of
shares, subject to the conditions the Internal Revenue Service imposes with
respect to the multiple-class structures. Similarly, the net asset value per
share may vary depending on whether Class A or Class B shares are purchased. No
interest will be paid on uncashed dividend or redemption checks.
In the event of liquidation, shareholders of each class are entitled to share
pro rata in the net assets of the Fund available for distribution to these
shareholders. Shares entitle their holders to one vote per share, are freely
transferable and have no preemptive, subscription or conversion rights. When
issued, shares are fully paid and non-assessable, except as set forth below.
Unless otherwise required by the Investment Company Act or the Declaration of
Trust, the Fund has no intention of holding annual meetings of shareholders.
Fund shareholders may remove a Trustee by the affirmative vote of at least
two-thirds of the Trust's outstanding shares, and the Trustees shall promptly
call a meeting for such purpose when requested to do so in writing by the record
holders of not less than 10% of the outstanding shares of the Trust.
Shareholders may, under certain circumstances, communicate with other
shareholders in connection with a request for a special meeting of shareholders.
However, at any time that less than a majority of the Trustees holding
33
<PAGE>
office were elected by the shareholders, the Trustees will call a special
meeting of shareholders for the purpose of electing Trustees.
Under Massachusetts law, shareholders of a Massachusetts business trust could,
under certain circumstances, be held personally liable for acts or obligations
of the Trust. However, the Fund's Declaration of Trust contains an express
disclaimer of shareholder liability for acts, obligations 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. The Declaration of Trust
also provides that no series of the Trust shall be liable for the liabilities of
any other series. Furthermore, no fund included in the Fund's prospectus shall
be liable for the liabilities of any other John Hancock Ffund. Liability is
therefore limited to circumstances in which the Fund itself would be unable to
meet its obligations, and the possibility of this occurrence is remote.
The Fund reserves the right to reject any application which conflicts with the
Fund's internal policies or the policies of any regulatory authority. John
Hancock Funds does not accept credit card checks. Use of information provided on
the account application may be used by the Fund to verify the accuracy of the
information or for background or financial history purposes. A joint account
will be administered as a joint tenancy with right of survivorship, unless the
joint owners notify Signature Services of a different intent. A shareholder's
account is governed by the laws of The Commonwealth of Massachusetts.
TAX STATUS
Each series of the Trust, including the Fund, is treated as a separate entity
for tax purposes. The Fund has qualified as a "regulated investment company"
under Subchapter M of the Internal Revenue Code of 1986, as amended (the
"Code"), and intends to continue to so qualify for each taxable year. As such
and by complying with the applicable provisions of the Code regarding the
sources of its income, the timing of its distributions, and the diversification
of its assets, the Fund will not be subject to Federal income tax on its taxable
income ((including net realized capital gains) which is distributed to
shareholders in accordance with the timing requirements of the Code.
The Fund will be subject to a 4% nondeductible Federal excise tax on certain
amounts not distributed (and not treated as having been distributed) on a timely
basis in accordance with annual minimum distribution requirements. TEache Fund
intends under normal circumstances to seek to avoid or minimize liability for
such tax by satisfying such distribution requirements.
Distributions from the Fund's current or accumulated earnings and profits
("E&P") will be taxable under the Code for investors who are subject to tax. If
these distributions are paid from the Fund's "investment company taxable
income," they will be taxable as ordinary income; and if they are paid from the
Fund's "net capital gain," they will be taxable as capital gain. (Net capital
gain is the excess (if any) of net long-term capital gain over net short-term
capital loss, and investment company taxable income is all taxable income and
capital gains, other than those gains and losses included in computing net
capital gain, after reduction by deductible expenses.) As a result of federal
tax legislation enacted on August 5, 1997 (the "Act"), gain recognized after May
6, 1997 from the sale of capital asset is taxable to individual (noncorporate)
investors at different maximum federal income tax rates, depending generally
upon the tax holding period for the asset, the federal income tax bracket of the
taxpayer, and the dates the asset was acquired and/or sold. The Treasury
Department has issued guidance under the Act that enables the Fund to pass
through to its shareholders the benefits of the capital gains rates enacted in
the Act. Shareholders should consult
34
<PAGE>
their own tax advisers on the correct application of these new rules in their
particular circumstances. Some distributions may be paid in January but may be
taxable to shareholders as if they had been received on December 31 of the
previous year. The tax treatment described above will apply without regard to
whether distributions are received in cash or reinvested in additional shares of
the Fund.
Distributions, if any, in excess of E&P will constitute a return of capital
under the Code, which will first reduce an investor's federal tax basis in Fund
shares and then, to the extent such basis is exceeded, will generally give rise
to capital gains. Shareholders who have chosen automatic reinvestment of their
distributions will have a federal tax basis in each share received pursuant to
such a reinvestment equal to the amount of cash they would have received had
they elected to receive the distribution in cash, divided by the number of
shares received in the reinvestment.
If the Fund invests in stock (including an option to acquire stock such as is
inherent in a convertible bond) of certain foreign corporations that receive at
least 75% of their annual gross income from passive sources (such as interest,
dividends, certain rents and royalties, or capital gain) or hold at least 50% of
their assets in investments producing such passive income ("passive foreign
investment companies"), the Fund could be subject to Federal income tax and
additional interest charges on "excess distributions" received from these
passive foreign investment companies or gain from the sale of stock in such
companies, even if all income or gain actually received by the Fund is timely
distributed to its shareholders. The Fund would not be able to pass through to
its shareholders any credit or deduction for such a tax. An election may be
available to ameliorate these adverse tax consequences, but could require the
Fund to recognize taxable income or gain without the concurrent receipt of cash.
These investments could also result in the treatment of associated capital gains
as ordinary income. The Fund may limit and/or manage its holdings in passive
foreign investment companies or make an available election to minimize its tax
liability or maximize its return from these investments.
Foreign exchange gains and losses realized by the Fund in connection with
certain transactions involving foreign currency-denominated debt securities,
foreign currencies, or payables or receivables denominated in a foreign currency
are subject to Section 988 of the Code, which generally causes such gains and
losses to be treated as ordinary income and losses and may affect the amount,
timing and character of distributions to shareholders. Transactions in foreign
currencies that are not directly related to thea Fund's investment in stock or
securities, including speculative currency positions, could under future
Treasury regulations produce income not among the types of "qualifying income"
from which the Fund must derive at least 90% of its gross income for each
taxable year. If the net foreign exchange loss for a year treated as ordinary
loss under Section 988 were to exceed the Fund's investment company taxable
income computed without regard to such loss, the resulting overall ordinary loss
for such year would not be deductible by the Fund or its shareholders in future
years.
The Fund may be subject to withholding and other taxes imposed by foreign
countries with respect to its investments in foreign securities. Some tax
conventions between certain countries and the U.S. may reduce or eliminate such
taxes. Investors may be entitled to claim U.S. foreign tax credits or deductions
with respect to foreign income taxes or certain other foreign taxes ("qualified
foreign taxes") paid by the Fund, subject to certain provisions and limitations
contained in the Code, only if, among other things, more than 50% of the value
of the Fund's total assets at the close of any taxable year consists of stock or
securities of foreign corporations. The Fund anticipates that it normally will
not satisfy this 50% requirement and that, consequently, investors will not be
entitled to any foreign tax credits or deductions with respect to their
investments in the Fund.
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<PAGE>
The amount of the Fund's net realized capital gains, if any, in any given year
will vary depending upon the Adviser's current investment strategy and whether
the Adviser believes it to be in the best interest of the Fund to dispose of
portfolio securities and/or engage in options 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 on those shares from such
appreciation or income may be taxable to such investor even if the net asset
value of the investor's shares is, as a result of the distributions, reduced
below the investor's cost for such shares, and the distributions in reality
represent a return of a portion of the purchase price.
Upon a redemption or other disposition of shares of the Fund (including by
exercise of the exchange privilege) in a transaction that is treated as a sale
for tax purposes, a shareholder may realize a taxable gain or loss depending
upon the amount of the proceeds and the investor's basis in his shares. Such
gain or loss will be treated as capital gain or loss if the shares are capital
assets in the shareholder's hands. 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. This disregarded charge will result in an
increase in the shareholder's tax basis in the shares subsequently acquired.
Also, any loss realized on a redemption or exchange may be disallowed to the
extent the shares disposed of are replaced with other shares of the Fund within
a period of 61 days beginning 30 days before and ending 30 days after the shares
are disposed of, such as pursuant to automatic dividend reinvestments. In such a
case, the basis of the shares acquired will be adjusted to reflect the
disallowed loss. Any loss realized upon the redemption of shares with a tax
holding period of six months or less will be treated as a long-term capital loss
to the extent of any amounts treated as distributions of long-term capital gain
with respect to such shares. Shareholders should consult their own tax advisers
regarding their particular circumstances to determine whether a disposition of
Fund shares is properly treated as a sale for tax purposes, as is assumed in the
foregoing discussion. Also, future Treasury Department guidance issued to
implement the Act may contain additional rules for determining the tax treatment
of sales of Fund shares held for various periods including the treatment of
losses on the sales of shares held for six months or less that are
recharacterized as long-term capital losses, as described above.
Although its present intention is to distribute, at least annually, all net
capital gain, if any, the Fund reserves the right to retain and reinvest all or
any portion of the excess, as computed for Federal income tax purposes, of net
long-term capital gain over net short-term capital loss in any year. The Fund
will not in any event distribute net capital gain realized in any year to the
extend that a capital loss is carried forward from prior years against such
gain. To the extent such excess was retained and not exhausted by the
carryforward of prior years' capital losses, it would be subject to Federal
income tax in the hands of the Fund. Upon proper designation of this amount by
the Fund, each shareholder would be treated for Federal income tax purposes as
if such Fund had distributed to him on the last day of its taxable year his pro
rata share of such excess, and he had paid his pro rata share of the taxes paid
by the Fund and reinvested the remainder of the Fund. Accordingly, each
shareholder would (a) include his pro rata share of such excess as ccapital 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.
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<PAGE>
For Federal income tax purposes, the Fund is permitted to carry forward a net
capital loss in any year to offset 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 and, as noted above, would not be distributed as such to
shareholders. The Fund does not have any 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 any share of stock held by the Fund, for U.S. Federal income tax
purposes, for at least 46 days (91 days in the case of certain preferred stock)
during a prescribed period extending before and after each such dividend and
distributed and properly designated by the Fund may be treated as qualifying
dividends. The Fund would generally have a portion of its distributions treated
as qualifying dividends. Corporate shareholders must meet the holding period
requirements stated above with respect to their shares of the Fund for each
dividend in order to qualify for the deduction and, if they have any debt that
is deemed under the Code directly attributable to such shares, may be denied a
portion of the dividends received deduction. The entire qualifying dividend,
including the otherwise deductible amount, will be included in determining the
excess (if any) of a corporate shareholder's adjusted current earnings over its
alternative minimum taxable income, which may increase its alternative minimum
tax liability, if any. Additionally, any corporate shareholder should consult
its tax adviser regarding the possibility that its tax basis in its shares may
be reduced, for Federal income tax purposes, by reason of "extraordinary
dividends" received with respect to the shares and, to the extent such basis
would be reduced below zero, that current recognition of income would be
required.
Investment in debt obligations that are at risk of or in default presents
special tax issues for any fund that holds these obligations. Tax rules are not
entirely clear about issues such as when the Fund may cease to accrue interest,
original issue discount, or market discount, when and to what extent deductions
may be taken for bad debts or worthless securities, how payments received on
obligations in default should be allocated between principal and income, and
whether exchanges of debt obligations in a workout context are taxable. These
and other issues will be addressed by the Fund if it acquires such obligations
in order to reduce the risk of distributing insufficient income to preserve its
status as a regulated investment company and seek to avoid becoming subject to
Federal income or excise tax.
The Fund is required to accrue income on any debt securities that have more than
a de minimis amount of original issue discount (or debt securities acquired at a
market discount, if the Fund elects to include market discount in income
currently) prior to the receipt of the corresponding cash payments. The mark to
market or constructive sale rules applicable to certain options may also require
the Fund to recognize income or gain without a concurrent receipt of cash.
Additionally, some countries restrict repatriation which may make it difficult
or impossible for the Fund to obtain cash corresponding to its earnings or
assets in those countries. However, the Fund must distribute to shareholders for
each taxable year substantially all of its net income and net capital gains,
including such income or gain, to qualify as a regulated investment company and
avoid liability for any federal income or excise tax. Therefore, the Fund may
have to dispose of its portfolio securities under disadvantageous circumstances
to generate cash, or borrow cash, to satisfy these distribution requirements.
A state income (and possibly local income and/or intangible property) tax
exemption is generally available to the extent (if any) the Fund's distributions
are derived from interest on (or, in the case of intangible property taxes, the
value of its assets is attributable to) certain U.S. Government obligations,
provided in some states that certain thresholds for holdings of such obligations
and/or
37
<PAGE>
reporting requirements are satisfied. The Fund will not seek to satisfy any
threshold or reporting requirements that may apply in particular taxing
jurisdictions, although the Fund may in its sole discretion provide relevant
information to shareholders.
The Fund will be required to report to the Internal Revenue Service (the "IRS")
all taxable distributions to shareholders, as well as gross proceeds from the
redemption or exchange of Fund shares, except in the case of certain exempt
recipients, i.e., corporations and certain other investors distributions to
which are exempt from the information reporting provisions of the Code. Under
the backup withholding provisions of Code Section 3406 and applicable Treasury
regulations, all such reportable distributions and proceeds may be subject to
backup withholding of federal income tax at the rate of 31% in the case of
non-exempt shareholders who fail to furnish the Fund with their correct taxpayer
identification number and certain certifications required by the IRS or if the
IRS or a broker notifies the Fund that the number furnished by the shareholder
is incorrect or that the shareholder is subject to backup withholding as a
result of failure to report interest or dividend income. The Fund may refuse to
accept an application that does not contain any required taxpayer identification
number or certification that the number provided is correct. If the backup
withholding provisions are applicable, any such distributions and proceeds,
whether taken in cash or reinvested in shares, will be reduced by the amounts
required to be withheld. Any amounts withheld may be credited against a
shareholder's U.S. federal income tax liability. Investors should consult their
tax advisers about the applicability of the backup withholding provisions.
Different tax treatment, including penalties on certain excess contributions and
deferrals, certain pre-retirement and post-retirement distributions and certain
prohibited transactions, is accorded to accounts maintained as qualified
retirement plans. Shareholders should consult their tax advisers for more
information.
Limitations imposed by the Code on regulated investment companies like the Funds
may restrict the Fund's ability to enter into options transactions.
Certain options 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
and timing of some capital gains and losses realized by the Fund. Additionally,
the Fund may be required to recognize gain, but not loss, if an option is
treated as a constructive sale of an appreciated financial position in the
Fund's portfolio. Also, certain of the Fund's losses on its options transactions
and/or offsetting or successor portfolio positions may be deferred rather than
being taken into account currently in calculating the Fund's taxable income or
gain. Certain options transactions may also cause the Fund to dispose of
investments sooner than would otherwise have occurred. These options
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
transactions in order to seek to minimize any potential adverse tax
consequences.
The foregoing discussion relates solely to U.S. Federal income tax law as
applicable to U.S. persons (i.e., U.S. citizens or residents and U.S. domestic
corporations, partnerships, trusts or estates) subject to tax under such law.
The discussion does not address special tax rules applicable to certain classes
of investors, such as tax-exempt entities, insurance companies, and financial
institutions. Dividends, capital gain distributions, and ownership of or gains
realized on the redemption (including an exchange) of Fund shares may also be
subject to state and local taxes. Shareholders should consult their own tax
advisers as to the Federal, state or local tax consequences
38
<PAGE>
of ownership of shares of, and receipt of distributions from, the Fund in
their particular circumstances.
Non-U.S. investors not engaged in a U.S. trade or business with which their
investment in the Fund is effectively connected will be subject to U.S. Federal
income tax treatment that is different from that described above. These
investors may be subject to nonresident alien withholding tax at the rate of 30%
(or a lower rate under an applicable tax treaty) on amounts treated as ordinary
dividends from the Fund and, unless an effective IRS Form W-8 or authorized
substitute for Form W-8 is on file, to 31% backup withholding on certain other
payments from the Fund. Non-U.S. investors should consult their tax advisers
regarding such treatment and the application of foreign taxes to an investment
in the Fund.
The Fund is not subject to Massachusetts corporate excise or franchise taxes.
The Fund anticipates that, provided that the Fund qualifies as a regulated
investment company under the Code, it will also not be required to pay any
Massachusetts income tax.
CALCULATION OF PERFORMANCE
The average annual total return on Class A shares for the 1 year, 5 year and
period from January 3, 1992 (commencement of operations) to October 31, 1997
were 39.45%, 28.04% and 29.53% , respectively. The average annual total return
on Class B shares of the Fund for the 1 year, 5 year and 10 year periods ended
October 31, 1997 was 40.78%, 28.35% and 25.12%, respectively.
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 = ((ERV/P)^(1/n)) - 1
Where:
P = a hypothetical initial investment of $1,000.
T = average annual total return.
n = number of years.
ERV = ending redeemable value of a hypothetical
$1,000 investment made at the beginning of
the 1 year, 5 years, and 10 year periods.
Because each class has its own sales charge and fee structure, the classes have
different performance results. In the case of Class A or Class B shares, this
calculation assumes the maximum sales charge is included in the initial
investment or the CDSC applied at the end of the period, respectively. This
calculation assumes that all dividends and distributions are reinvested at net
asset value on the reinvestment dates during the period. The "distribution rate"
is determined by annualizing the result of dividing the declared dividends of
the Fund during the period stated by the maximum offering price or net asset
value at the end of the period. Excluding the Fund's sales charge from the
distribution rate produces a higher rate.
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
39
<PAGE>
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.
From time to time, in reports and promotional literature, the Fund's total
return and/or yield will be compared to indices of mutual funds such as Lipper
Analytical Services, Inc.'s "Lipper-Mutual Fund Performance Analysis," a monthly
publication which tracks net assets, total return, and yield on mutual funds in
the United States. Ibottson and Associates, CDA Weisenberger and F.C. Towers are
also used for comparison purposes, as well as Russell and Wilshire Indices.
The Fund may advertise yield, where appropriate. The Fund's yield is computed by
dividing the net investment income per share determined for a 30 day period by
the maximum offering price per share (which includes a full sales charge, where
applicable) on the last day of such period, according to the following standard
formula:
Yield = 2([(a-b/cd)+1] ^6 - 1)
Where:
a= dividends and interest earned during the period.
b= net expenses accrued for the period.
c= the average daily number of fund shares outstanding
during the period that would be entitled to receive
dividends.
d= the maximum offering price per share on the last day
of the period (NAV where applicable).
Performance rankings and ratings reported periodically in national financial
publications such as MONEY Magazine, FORBES, BUSINESS WEEK, THE WALL STREET
JOURNAL, MICROPAL, INC., MORNINGSTAR, STANGER'S and BARRON'S, etc. may also be
utilized. The Fund's promotional and sales literature may make reference to the
Fund's "beta". Beta is a reflection of the market-related risk of the Fund by
showing how responsive the Fund is to the market.
The performance of the Fund is not fixed or guaranteed. Performance quotations
should not be considered to be representations of performance of the Fund for
any period in the future. The performance of the Fund is a function of many
factors including its earnings, expenses and number of outstanding shares.
Fluctuating market conditions; purchases, sales, and maturities of portfolio
securities; sales and redemptions of shares of beneficial interest; and changes
in operating expenses are all examples of items that can increase or decrease
the Fund's performances.
40
<PAGE>
BROKERAGE ALLOCATION
Decisions concerning the purchase and sale of portfolio securities and the
allocation of brokerage commissions are made by the Adviser pursuant to
recommendations made by an investment committee of the Adviser, which consists
of officers and directors of the Adviser and affiliates, 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 Adviser, will
offer the best price and market for the execution of each such transaction.
Purchases from underwriters of portfolio securities may include a commission or
commissions paid by the issuer and transactions with dealers serving as market
maker reflect a "spread." Debt securities are generally traded on a net basis
through dealers acting for their own account as principals and not as brokers;
no brokerage commissions are payable on these transactions.
In the U.S. and in some other countries, debt securities are traded principally
in the over-the-counter market on a net basis through dealers acting for their
own account and not as brokers. In other countries, both debt and equity
securities are traded on exchanges at fixed commission rates. Commissions on
foreign transactions are generally higher than the negotiated commission rates
available in the U.S. There is generally less government supervision and
regulation of foreign stock exchanges and broker-dealers than in the U.S.
The Fund's primary policy is to execute all purchases and sales of portfolio
instruments at the most favorable prices consistent with best execution,
considering all of the costs of the transaction including brokerage commissions.
This policy governs the selection of brokers and dealers and the market in which
a transaction is executed. Consistent with the foregoing primary policy, the
Rules of Fair Practice of the National Association of Securities Dealers, Inc.
and such other policies as the Trustees may determine, the Adviser may consider
sales of shares of the Fund as a factor in the selection of broker-dealers to
execute the Fund's portfolio transactions.
To the extent consistent with the foregoing, the Fund will be governed in the
selection of brokers and dealers, and the negotiation of brokerage commission
rates and dealer spreads, by the reliability and quality of the services,
including primarily the availability and value of research information and to a
lesser extent statistical assistance furnished to the Adviser of the Fund, and
their value and expected contribution to the performance of the Fund. It is not
possible to place a dollar value on information and services to be received from
brokers and dealers, since it is only supplementary to the research efforts of
the Adviser. The receipt of research information is not expected to reduce
significantly the expenses of the Adviser. The research information and
statistical assistance furnished by brokers and dealers may benefit the Life
Company or other advisory clients of the Adviser, and conversely, brokerage
commissions and spreads paid by other advisory clients of the Adviser may result
in research information and statistical assistance beneficial to the Fund. The
Fund will make no commitment to allocate portfolio transactions upon any
prescribed basis. While the Adviser's officers, will be primarily responsible
for the allocation of the Fund's brokerage business, the policies and practices
of the Adviser in this regard must be consistent with the foregoing and at all
times be subject to review by the Trustees. During the fiscal years ended
October 31, 1995, 1996 and 1997, the Fund paid $589,066, $937,631 and $1,443,493
in negotiated brokerage commissions.
As permitted by Section 28(e) of the Securities Exchange Act of 1934, the Fund
may pay to a broker which provides brokerage and research services to the Fund
an amount of disclosed commission in excess of the commission which another
broker would have charged for effecting that transaction. This practice is
subject to a good faith determination by the Trustees that such
41
<PAGE>
price is reasonable in light of the services provided and to such policies as
the Trustees may adopt from time to time. During the fiscal year ended October
31, 1997, the Fund directed commissions in the amount of $70,175 to compensate
brokers for research services such as industry, economic and company reviews and
evaluations of securities.
The Adviser's indirect parent, the Life Company, is the indirect sole
shareholder of John Hancock Distributors, Inc., a broker dealer ("Distributors"
or "Affiliated Broker"). Pursuant to procedures determined by the Trustees and
consistent with the above policy of obtaining best net results, the Fund may
execute portfolio transactions with or through Affiliated Brokers. During the
fiscal year ended October 31, 1997, the Fund paid no brokerage commissions to
any Affiliated Broker.
Distributors may act as broker for the Fund on exchange transactions, subject,
however, to the general policy of the Fund set forth above and the procedures
adopted by the Trustees pursuant to the Investment Company Act. Commissions paid
to an Affiliated Broker must be at least as favorable as those which the
Trustees believe to be contemporaneously charged by other brokers in connection
with comparable transactions involving similar securities being purchased or
sold. A transaction would not be placed with an Affiliated Broker if the Fund
would have to pay a commission rate less favorable than the Affiliated Broker's
contemporaneous charges for comparable transactions for its other most favored,
but unaffiliated, customers except for accounts for which the Affiliated Broker
acts as clearing broker for another brokerage firm, and any customers of the
Affiliated Broker not comparable to the Fund as determined by a majority of the
Trustees who are not interested persons (as defined in the Investment Company
Act) of the Fund, the Adviser or the Affiliated Broker. Because the Adviser,
which is affiliated with the Affiliated Broker, have, as investment advisers to
the Fund, the obligation to provide investment management services, which
includes elements of research and related investment skills, such research and
related skills will not be used by the Affiliated Broker as a basis for
negotiation commissions at a rate higher than that determined in accordance with
the above criteria.
Other investment advisory clients advised by the Adviser may also invest in the
same securities as the Fund. When these clients buy or sell the same securities
at substantially the same time, the Adviser may average the transactions as to
price and allocate the amount of available investments in a manner which the
Adviser believes to be equitable to each client, including the Fund. In some
instances, this investment procedure may adversely affect the price paid or
received by the Fund or the size of the position obtainable for it. On the other
hand, to the extent permitted by law, the Adviser may aggregate the securities
to be sold or purchased for the Fund with those to be sold or purchased for
other clients managed by it in order to obtain best execution.
TRANSFER AGENT SERVICES
John Hancock Signature Services, Inc., 1 John Hancock Way, Suite 1000, Boston,
MA 02217-1000, a wholly-owned indirect subsidiary of the Life Company, is the
transfer and dividend paying agent for the Fund. The Fund pays Signature
Services an annual fee of $19.00 for each Class A shareholder account and of
$21.50 for each Class B shareholder account, plus certain out-of-pocket
expenses. These expenses are aggregated and charged to the Fund and allocated to
each class on the basis of their relative net asset values.
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<PAGE>
CUSTODY OF PORTFOLIO
Portfolio securities of the Fund are held pursuant to a custodian agreement
between the Fund and Investors Bank & Trust Company, 200 Clarendon Street,
Boston, Massachusetts 02116. Under the custodian agreement, Investors Bank and
Trust Company performs custody, portfolio and fund accounting services.
INDEPENDENT AUDITORS
The independent auditors of the Fund are Price Waterhouse LLP, 160 Federal
Street, Boston, Massachusetts 02110. Price Waterhouse LLP audits and renders an
opinion on the Fund's annual financial statements and reviews the Fund's annual
Federal income tax return.
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APPENDIX A
DESCRIPTION OF BOND RATINGS*
Moody's Bond ratings
Bonds which are rated 'Aaa' are judged to be of the best quality. They
carry the smallest degree of investment risk and are generally referred to as
'gilt edge.' Interest payments are protected by a large or by an exceptionally
stable margin and principal is secure. While the various protective elements are
likely to change, such changes as can be visualized are most unlikely to impair
the fundamentally strong position of such issues.
Bonds which are rated 'Aa' are judged to be of high quality by all
standards. Together with the 'Aaa' group they comprise what are generally known
as high grade bonds. They are rated lower than the best bonds because margins of
protection may not be as large as in 'Aaa' securities or fluctuation of
protective elements may be of greater amplitude or there may be other elements
present which make the long term risks appear somewhat larger than in 'Aaa'
securities .
Bonds which are rated 'A' possess many favorable investment attributes and
are to be considered as upper medium grade obligations. Factors giving security
to principal and interest are considered adequate but elements may be present
which suggest a susceptibility to impairment sometime in the future.
Bonds which are rated 'Baa' are considered as medium grade obligations,
i.e., they are neither highly protected nor poorly secured. Interest payments
and principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and in
fact have speculative characteristics as well.
Bonds which are rated 'Ba' are judged to have speculative elements; their
future cannot be considered as well assured. Often the protection of interest
and principal payments may be very moderate and thereby not well safeguarded
during both good and bad times over the future. Uncertainty of position
characterizes bonds in this class.
Bonds which are rated 'B' generally lack characteristics of the desirable
investment. Assurance of interest and principal payments or of maintenance of
other terms of the contract over any long period of time may be small.
Bonds which are rated 'Caa' are of poor standing. Such issues may be in
default or there may be present elements of danger with respect to principal or
interest.
*As described by the rating companies themselves.
A-1
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Standard & Poor's Bond ratings
AAA. This is the highest rating assigned by Standard & Poor's to a
debt obligation and indicates an extremely strong capacity to pay principal
and interest.
AA. Bonds rated AA also qualify as high-quality debt obligations. Capacity
to pay principal and interest is very strong, and in the majority of instances
they differ from AAA issues only in small degree.
A. Bonds rated A have a strong capacity to pay principal and interest,
although they are somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions.
BBB. Bonds rated BBB are regarded as having an adequate capacity to pay
principal and interest. Whereas they normally exhibit protection parameters,
adverse economic conditions or changing circumstances are more likely to lead to
a weakened capacity to pay principal and interest for bonds in this category
than for bonds in the A category.
BB. Debt rated BB has less near-term vulnerability to default than other
speculative issues. However, it faces major ongoing uncertainties or exposure to
adverse business, financial or economic conditions which could lead to
inadequate capacity to meet timely interest and principal payments. The BB
rating category is also used for debt subordinated to senior debt that is
assigned an actual or implied BBB- rating.
B. Debt rated B has a greater vulnerability to default but currently has
the capacity to meet interest payments and principal repayments. Adverse
business, financial, or economic conditions will likely impair capacity or
willingness to pay interest and repay principal. The B rating category is also
used for debt subordinated to senior debt that is assigned an actual or implied
BB or BB- rating.
CCC. Debt rated CCC has a currently identifiable vulnerability to default,
and is dependent upon favorable business, financial and economic conditions to
meet timely payment of interest and repayment of principal. In the event of
adverse business, financial, or economic conditions, it is not likely to have
the capacity to pay interest and repay principal. The 'CCC' rating category is
also used for debt subordinated to senior debt that is assigned an actual or
implied CCC rating.
CC. The rating CC is typically applied to debt subordinated to senior
debt that is assigned an actual or implied 'CCC' rating.
A-2
<PAGE>
COMMERCIAL PAPER RATINGS
Moody's Commercial Paper Ratings
Moody's ratings for commercial paper are opinions of the ability of issuers to
repay punctually promissory obligations not having an original maturity in
excess of nine months. Moody's two highest commercial paper rating categories
are as follows:
"P-1 -- "Prime-1" indicates the highest quality repayment capacity of the rated
issues.
"P-2 -- "Prime-2" indicates that the issuer has a strong capacity for repayment
of short-term promissory obligations. Earnings trends and coverage ratios, while
sound, will be more subjective to variation. Capitalization characteristics,
while still appropriate, may be more affected by external conditions. Ample
alternate liquidity is maintained."
Standard & Poor's Commercial Paper Ratings
Standard & Poor's commercial paper ratings are current assessments of the
likelihood of timely payment of debts having an original maturity of no more
than 365 days. Standard & Poor's two highest commercial paper rating categories
are as follows:
"A-1 -- This designation indicates that the degree of safety regarding timely
payment is very strong. Those issues determined to possess overwhelming safety
characteristics will be denoted with a plus (+) sign designation.
"A-2 -- Capacity for timely payment on issues with this designation is
strong. However, the relative degree of safety is not as high as for issues
designated A-1."
A-3
<PAGE>
FINANCIAL STATEMENTS
The financial statements listed below are included in the Fund's 1997 Annual
Report to Shareholder's for the year ended October 31, 1997 (filed
electronically on January 5, 1998, accession number 0001010521-98-000010) and
are included in and incorporated by reference into Part B of the Registration
Statement for John Hancock Regional Bank Fund (file no. 811-3999 and 2-90305).
John Hancock Investment Trust II
John Hancock Regional Bank Fund
Statement of Assets and Liabilities as of October 31, 1997
Statement of Operations for the year ended of October 31, 1997.
Statement of Changes in Net Asset for the period ended October 31, 1997.
Financial Highlights for the period ended October 31, 1997.
Schedule of Investments as of October 31, 1997.
Notes to Financial Statements.
Report of Independent Auditors.
F-1
<PAGE>
PART C.
OTHER INFORMATION
Item 24. Financial Statements and Exhibits
(a) The financial statements listed below are included in and incorporated
by reference into Part B of the Registration Statement from the 1997 Annual
Report to Shareholders for the year ended October 31, 1997 (filed electronically
on January 5, 1998 accession number 0001010521-98-000010 (file nos. 811-3999 and
2-90305).
John Hancock Regional Bank Fund
Satement of Assets and Liabilities as of October 31, 1997.
Statement of Operations for the year ended October 31, 1997.
Statement of Changes in Net Assets for the period ended
October 31, 1997.
Financial Highlights for the period ended October 31, 1997.
Schedule of Investments as of October 31, 1997.
Notes to Financial Statements.
John Hancock Financial Industries Fund
Statement of Assets and Liabilities as of October 31, 1997.
Statement of Operations for the year ended October 31, 1997.
Statement of Changes in Net Assets for the period ended October 31, 1997.
Financial Highlights for the period ended October 31, 1997.
Schedule of Investments as of October 31, 1997.
Notes to Financial Statements.
(b) Exhibits:
The exhibits to this Registration Statement are listed in the Exhibit Index
hereto and are incorporated herein by reference.
Item 25. Persons Controlled by or under Common Control with Registrant
No person is directly or indirectly controlled by or under common control
with Registrant.
C-1
<PAGE>
Item 26. Number of Holders of Securities
As of February 2, 1998 the number of record holders of shares of
Registrant was as follows:
Title of Class Number of Record Holders
-------------- ------------------------
Class A Class B
------- -------
John Hancock Regional Bank Fund 112,798 245,602
John Hancock Financial Industries Fund 52,519 104,739
Item 27. Indemnification
(a) Under Article VI of the Registrant's Master Trust Agreement each of its
Trustees and Officers or person serving in such capacity with another entity at
the request of the Registrant ("Covered Person") shall be indemnified against
all liabilities, including, but not limited to, amounts paid in satisfaction of
judgments, in compromises or as fines or penalties, and expenses, including
reasonable legal and accounting fees, in connection with the defense or
disposition of any action, suit or other proceeding, whether civil or criminal,
before any court or administrative or legislative body, in which such Covered
Person may be or may have been involved as a party or otherwise or with which
such person may be or may have been threatened, while in office or thereafter,
by reason of being or having been such a Trustee or officer, director or
trustee, except with respect to any matter as to which it has been determined
that such Covered Person (i) did not act in good faith in the reasonable belief
that such Covered Person's action was in or not opposed to the best interests of
the Trust or (ii) had acted with willful misfeasance, bad faith, gross
negligence or reckless disregard of the duties involved in the conduct of such
Covered Person's office (either and both of the conduct described in (i) and
(ii) being referred to hereafter as "Disabling Conduct"). A determination that
the Covered Person is entitled to indemnification may be made by (i) a final
decision on the merits by a court or other body before whom the proceeding was
brought that the person to be indemnified was not liable by reason of Disabling
Conduct, (ii) dismissal of a court action or an administrative proceeding
against a Covered Person for insufficiency of evidence of Disabling Conduct, or
(iii) a reasonable determination, based upon a review of the facts, that the
indemnitee was not liable by reason of Disabling Conduct by (a) a vote of a
majority of a quorum of Trustees who are neither "interested persons" of the
Trust as defined in section 2(a)(19) of the 1940 Act nor parties to the
proceeding, or (b) an independent legal counsel in a written opinion.
(b) Under the Distribution Agreement. Under Section 12 of the Distribution
Agreement, John Hancock Funds, Inc. ("John Hancock Funds" ) has agreed to
indemnify the Registrant and its Trustees, officers and controlling persons
against claims arising out of certain acts and statements of John Hancock Funds.
Section 9(a) of the By-Laws of the Insurance Company provides, in effect,
that the Insurance Company will, subject to limitations of law, indemnify each
present and former director, officer and employee of the of the Insurance
Company who serves as a Trustee or officer of the Registrant at the direction or
request of the Insurance Company against litigation expenses and liabilities
incurred while acting as such, except that such indemnification does not cover
any expense or liability incurred or imposed in connection with any matter as to
which such person shall be finally adjudicated not to have acted in good faith
in the reasonable belief that his action was in the best interests of the
Insurance Company. In addition, no such person will be indemnified by the
Insurance Company in respect of any liability or expense incurred in connection
with any matter settled without final adjudication unless such settlement shall
have been approved as in the best interests of the Insurance Company either by
vote of the Board of Directors at a meeting composed of directors who have no
interest in the outcome of such vote, or by vote of the policyholders. The
Insurance Company may pay expenses incurred in defending an action or claim in
advance of its final disposition, but only upon receipt of an undertaking by the
person indemnified to repay such payment if he should be determined to be
entitled to indemnification.
C-2
<PAGE>
Article IX of the respective By-Laws of John Hancock Funds and the Adviser
provide as follows:
"Section 9.01. Indemnity: Any person made or threatened to be made a party to
any action, suit or proceeding, whether civil, criminal, administrative or
investigative, by reason of the fact that he is or was at any time since the
inception of the Corporation serving at the request of the Corporation as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise, shall be indemnified by the Corporation
against expenses (including attorney's fees), judgments, fines and amounts paid
in settlement actually and reasonably incurred by him in connection with such
action, suit or proceeding if he acted in good faith and the liability was not
incurred by reason of gross negligence or reckless disregard of the duties
involved in the conduct of his office, and expenses in connection therewith may
be advanced by the Corporation, all to the full extent authorized by the law."
"Section 9.02. Not Exclusive; Survival of Rights: The indemnification provided
by Section 9.01 shall not be deemed exclusive of any other right to which those
indemnified may be entitled, and shall continue as to a person who has ceased to
be a director, officer, employee or agent and shall inure to the benefit of the
heirs, executors and administrators of such as person."
Insofar as indemnification for liabilities under the Securities Act of 1933 (the
"Act") may be permitted to Trustees, officers and controlling persons of
Registrant pursuant to the Registrant's Amended and Restated Articles of
Incorporation, Article 10.1 of the Registrant's By-Laws, The underwriting
Agreement, the By-Laws of Distributors, the Adviser, or the Insurance Company or
otherwise, Registrant has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against policy as expressed in the
Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
Registrant in the successful defense of any action, suit or proceeding) is
asserted by such Trustee, officer or controlling person in connection with the
securities being registered, Registrant will, unless in the opinion of its
counsel the matter has been settled by controlling precedent, submit to a court
of appropriate jurisdiction the question whether indemnification by it is
against public policy as expressed in the Act and will be governed by the final
adjudication of such issue.
Item 28. Business and other Connections of Investment Adviser
For information as to the business, profession, vocation or employment of a
substantial nature of each of the officers and Directors of the Investment
Adviser, reference is made to Forms ADV filed (801-8124) under the Investment
Advisers Act of 1940, herein incorporated by reference.
Item 29. Principal Underwriters
(a) John Hancock Funds acts as principal underwriter for the Registrant and
also serves as principal underwriter or distributor of shares for John Hancock
Cash Reserve, Inc., John Hancock Bond Trust, John Hancock Current Interest, John
Hancock Series Trust, John Hancock Tax-Free Bond Trust, John Hancock California
Tax-Free Income Fund, John Hancock Capital Series, John Hancock Special Equities
Fund, John Hancock Sovereign Bond Fund, John Hancock Tax-Exempt Series Fund,
John Hancock Strategic Series, John Hancock World Fund, John Hancock Investment
Trust, John Hancock Institutional Series Trust, John Hancock Investment Trust
II, John Hancock Investment Trust III and John Hancock Investment Trust IV.
(b) The following table lists, for each director and officer of John
Hancock Funds, the information indicated.
C-3
<PAGE>
<TABLE>
<CAPTION>
Name and Principal Positions and Offices Positions and Offices
Business Address with Underwriter with Registrant
---------------- ---------------- ---------------
<S> <C> <C>
Edward J. Boudreau, Jr. Director, Chairman, President Chairman and Chief
101 Huntington Avenue and Chief Executive Officer Executive Officer
Boston, Massachusetts
Robert H. Watts Director, Executive Vice Vice Chairman and Chief
John Hancock Place President and Chief Compliance Financial Officer
P.O. Box 111 Officer
Boston, Massachusetts
James V. Bowhers Executive Vice President None
101 Huntington Avenue
Boston, Massachusetts
Robert G. Freedman Director, Executive President, Trustee
101 Huntington Avenue Vice President
Boston, Massachusetts
Anne C. Hodsdon Director, Executive President, Trustee
101 Huntington Avenue Vice President
Boston, Massachusetts
Osbert M. Hood Senior Vice President None
101 Huntington Avenue and
Boston, Massachusetts Chief Financial Officer
David A. King Director None
101 Huntington Avenue
Boston, Massachusetts
James B. Little Senior Vice President Senior Vice President and
101 Huntington Avenue Chief Financial Officer
Boston, Massachusetts
C-4
<PAGE>
Name and Principal Positions and Offices Positions and Offices
Business Address with Underwriter with Registrant
---------------- ---------------- ---------------
Charles H. Womack Senior Vice President None
6501 Americas Parkway
Suite 950
Albuquerque, New Mexico
Anthony P. Petrucci Director and Executive None
101 Huntington Avenue Vice President
Boston, Massachusetts
J. William Benintende Vice President None
101 Huntington Avenue
Boston, Massachusetts
Gary Cronin Vice President None
101 Huntington Avenue
Boston, Massachusetts
John A. Morin Vice President and Secretary Vice President
101 Huntington Avenue
Boston, Massachusetts
Susan S. Newton Vice President Vice President and
101 Huntington Avenue Secretary
Boston, Massachusetts
Keith F. Hartstein Senior Vice President None
101 Huntington Avenue
Boston, Massachusetts
Griselda Lyman Vice President None
101 Huntington Avenue
Boston, Massachusetts
Karen F. Walsh Vice President None
101 Huntington Avenue
Boston, Massachusetts
Kristine Pancare Vice President None
101 Huntington Avenue
Boston, Massachusetts
Christopher M. Meyer Vice President and None
101 Huntington Avenue Treasurer
Boston, Massachusetts
Stephen L. Brown Director None
John Hancock Place
P.O. Box 111
Boston, Massachusetts
C-5
<PAGE>
Name and Principal Positions and Offices Positions and Offices
Business Address with Underwriter with Registrant
---------------- ---------------- ---------------
Thomas E. Moloney Director None
John Hancock Place
P.O. Box 111
Boston, Massachusetts
Jeanne M. Livermore Director None
John Hancock Place
P.O. Box 111
Boston, Massachusetts
Richard S. Scipione Director None
John Hancock Place
P.O. Box 111
Boston, Massachusetts
Richard O. Hansen Senior Vice President None
101 Huntington Avenue
Boston, Massachusetts
John M. DeCiccio Director None
John Hancock Place
P.O. Box 111
Boston, Massachusetts
Foster L. Aborn Director None
John Hancock Place
P.O. Box 111
Boston, Massachusetts
David F. D'Alessandro Director None
John Hancock Place
P.O. Box 111
Boston, Massachusetts
William C. Fletcher Director None
53 State Street
Boston, Massachusetts
</TABLE>
C-6
<PAGE>
(b) None
(c) None.
Item 30. Location of Accounts and Records
Registrant maintains the records required to be maintained by it under Rules
31a-1 (a), 31a-a(b), and 31a-2(a) under the Investment Company Act of 1940 as
its principal executive offices at 101 Huntington Avenue, Boston Massachusetts
02199-7603. Certain records, including records relating to Registrant's
shareholders and the physical possession of its securities, may be maintained
pursuant to Rule 31a-3 at the main office of Registrant's Transfer Agent and
Custodian.
Item 31. Management Services
Not applicable.
Item 32. Undertakings
(a) Not applicable.
(b) Not applicable.
(c) Registrant hereby undertakes to furnish each person to whom a
prospectus with respect to a series of the Registrant is delivered with a copy
of the latest annual report to shareholders with respect to that series upon
request and without charge.
C-7
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant certifies that it meets all the
requirements for effectiveness of this Registration Statement pursuant to Rule
485 (b) under the Securities Act of 1933 and has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Boston, and the Commonwealth of Massachusetts on the
24th day of February, 1998.
JOHN HANCOCK INVESTMENT TRUST II
By: *
-----------------------
Edward J. Boudreau, Jr.
Chairman
Pursuant to the requirements of the Securities Act of 1933, the
Registration has been signed below by the following persons in the capacities
and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
*
- ------------------------ Chairman
Edward J. Boudreau, Jr. (Principal Executive Officer)
/s/James B. Little
- ------------------------ Senior Vice President and Chief February 24, 1998
James B. Little Financial Officer (Principal
Financial and Accounting Officer)
*
- ------------------------ Trustee
Dennis S. Aronowitz
*
- ------------------------ Trustee
Richard P. Chapman, Jr.
*
- ------------------------ Trustee
William J. Cosgrove
*
- ------------------------ Trustee
Douglas M. Costle
C-8
<PAGE>
Signature Title Date
--------- ----- ----
*
- ------------------------ Trustee
Leland O. Erdahl
*
- ------------------------ Trustee
Richard A. Farrell
*
- ------------------------ Trustee
Gail D. Fosler
*
- ------------------------ Trustee
William F. Glavin
*
- ------------------------ Trustee
Anne C. Hodsdon
*
- ------------------------ Trustee
John A. Moore
*
- ------------------------ Trustee
Patti McGill Peterson
*
- ------------------------ Trustee
John W. Pratt
*
- ------------------------ Trustee
Richard S. Scipione
*
- ------------------------ Trustee
Edward J. Spellman
*By: /s/Susan S. Newton February 24, 1998
-------------------
Susan S. Newton
Attorney-in-Fact under
Powers of Attorney dated
May 21, 1996 and August
27, 1996.
</TABLE>
C-9
<PAGE>
EXHIBIT INDEX
Exhibit No. Description
- ----------- -----------
99.B1 Amended and Restated Declaration of Trust dated
July 1, 1996.****
99.B1.1 Abolition of John Hancock Gold and Government Fund Class A and
Class B dated August 27, 1996.*****
99.B1.3 Instrument Changing Name of Trust dated November 13, 1996.+
99.B1.2 Abolition of John Hancock Sovereign U.S. Government Income Fund
Class A and Class B dated August 27, 1996.*****
99.B2 Amended and Restated By-Laws dated March 6, 1996.****
99.B3 None.
99.B4 Designation of Classes dated December 14, 1992.*
99.B4.1 Specimen share certificate for Regional Bank Fund (Classes A
and B).*
.
99.B4.2 Specimen shares certificate for Managed Tax Exempt Fund
(Classes A and B).*
99.B4.3 Specimen shares certificate for Gold & Government Fund (Classes
A and B).*
99.B4.4 Specimen Shares certificate for Sovereign Achievers Fund
(Classes A and B).*
99.B5 Investment Management Contract between the Registrant on behalf
of John Hancock Financial Industries Fund and John Hancock
Advisers, Inc. dated July 1, 1996.****
99.B5.1 Investment Management Contract between the Registrant on behalf
of John hancock Disciplined Growth Fund and John Hancock
Advisers, Inc. dated July 1, 1996.****
99.B5.2 Investment Management Contract between the Registrant on behalf
of John Hancock Regional Bank Fund and John Hancock Advisers,
Inc. dated July 1, 1996.****
99.B5.3 Investment Management Contract between the Registrant on behalf
of John Hancock Managed Tax-Exempt Fund and John Hancock
Advisers, Inc. dated July 1, 1996.****
99.B6 Distribution Agreement with John Hancock Broker Distribution
Services, Inc. and Freedom Distributors Corporation.*
99.B6.1 Distribution Agreement between John Hancock Funds, Inc. and the
Registrant.*****
99.B6.2 Form of Financial Institution Sales and Service Agreement.*
99.B6.3 Form of Soliciting Dealer Agreement between John Hancock Broker
Distribution Services, Inc. and Selected Dealers.*
99.B6.4 Form of Amendment to Distribution Agreement between John
Hancock Funds.*
C-10
<PAGE>
Exhibit No. Description
- ----------- -----------
99.B7 None.
99.B8 Custodian Contract with Investors Bank and Trust Company Bank,
dated December 15, 1992.*
99.B8.1 Amendment to Custodian Contract dated March 6, 1996.****
99.B9 Transfer Agency and Service Agreement with John Hancock Fund
Services, Inc.*
99.B9.1 Amendment to Transfer Agency and Service Agreement dated March
6, 1996.****
99.B9.2 Service Agreement between John Hancock Advisers, Inc. and
Berkeley Investment Partners (now TBFG Advisers, Inc.) dated
October 1, 1992.*
99.B10 Not applicable.
99.B11 Consent of Independent Accountants.+
99.B11.1 Consent of Morningstar Mutual Fund Values.*
99.B12 Not applicable.
99.B13 None
99.B15 Plan of Distribution pursuant to Rule 12b-1 as amended and
restated January 1, 1994.*
99.B15.1 Class A Distribution Plan between Registrant and John Hancock
Funds, Inc.***
99.B15.2 Class B Distribution Plan between Registrant and John Hancock
Funds, Inc.***
99.B15.3 Amended and Restated Distribution Plan for Class A Shares
between John Hancock Financial Industries Fund and John
Hancock Funds, Inc. dated June 3, 1997.+
99.B15.4 Amended and Restated Distribution Plan for Class B Shares
between John Hancock Financial Industries Fund and John Hancock
Funds, Inc. dated June 3, 1997.+
C-11
<PAGE>
Exhibit No. Description
- ----------- -----------
99.B15.5 Amended and Restated Distribution Plan for Class A Shares
between John Hancock Regional Bank Fund and John Hancock Funds,
Inc. dated June 3, 1997.+
99.B15.6 Amended and Restated Distribution Plan for Class B Shares
between John Hancock Regional Bank Fund and John Hancock Funds,
Inc. dated June 3, 1997.+
99.B16 Working papers showing yield calculation for yield and total
return.***
99.27.1A John Hancock Financial Industries Fund+
99.27.1B John Hancock Financial Industries Fund+
99.27.2A John Hancock Regional Bank Fund+
99.27.2B John Hancock Regional Bank Fund+
* Previously filed electronically with post-effective amendment number 32
(file nos. 811-3999 and 2-90305) on February 27, 1995, accession number
0000950135-95-000311.
** Previously filed electronically with post-effective amendment number 33
(file nos. 811-3999 and 2-90305) on December 21, 1995, accession number
0000950146-95-000814.
*** Previously filed electronically with post-effective amendment number 34
(file nos. 811-3999 and 2-90305) on February 28, 1996, accession number
0000950135-96-001219.
**** Previously filed electronically with post-effective amendment number 36
(file nos. 811-3999 and 2-90305) on September 3, 1996, accession number
0001010521-96-000152.
***** Previously filed electronically with post-effective amendment number 37
(file nos. 811-3999 and 2-90305) on February 26, 1997, accession number
0001010521-97-000224.
+ Filed herewith.
C-12
FREEDOM INVESTMENT TRUST
Instrument Changing Name of Trust
The Trustees of Freedom Investment Trust (the "Trust"), hereby amend the
Trust's Amended and Restated Declaration of Trust, dated July 1, 1996, to the
extent necessary to reflect the change of name of the Trust to John Hancock
Investment Trust II, effective March 1, 1997.
IN WITNESS WHEREOF, the undersigned has executed this instrument on the
13th day of November 1996.
/s/Dennis S. Aronowitz
- ---------------------------- -------------------------
Dennis S. Aronowitz William F. Glavin
/s/Edward J. Boudreau, Jr. /s/Anne C. Hodsdon
- ---------------------------- -------------------------
Edward J. Boudreau, Jr. Anne C. Hodsdon
/s/Richard P. Chapman, Jr. /s/John A. Moore
- ---------------------------- -------------------------
Richard P. Chapman, Jr. John A. Moore
/s/William J. Cosgrove /s/Patti McGill Peterson
- ---------------------------- -------------------------
William J. Cosgrove Patti McGill Peterson
/s/Douglas M. Costle /s/John W. Pratt
- ---------------------------- -------------------------
Douglas M. Costle John W. Pratt
/s/Leland O. Erdahl
- ---------------------------- -------------------------
Leland O. Erdahl Richard S. Scipione
/s/Richard A. Farrell /s/Edward J. Spellman
- ---------------------------- -------------------------
Richard A. Farrell Edward J. Spellman
/s/Gail D. Fosler
- ----------------------------
Gail D. Fosler
The Declaration of Trust, a copy of which, together with all amendments
thereto, is on file in the office of the Secretary of State of The Commonwealth
of Massachusetts, provides that no Trustee, officer, employee or agent of the
Trust or any Series thereof shall be subject to any personal liability
whatsoever to any Person, other than to the Trust or its shareholders, in
connection with Trust Property or the affairs of the Trust, save only that
arising from bad faith, willful misfeasance, gross negligence or reckless
disregard of his/her duties with respect to such Person; and all such Persons
shall look solely to the Trust Property, or to the Trust Property of one or more
specific Series of the Trust if the claim arises from the conduct of such
Trustee, officer, employee or agent with respect to only such Series, for
satisfaction of claims of any nature arising in connection with the affairs of
the Trust.
<PAGE>
COMMONWEALTH OF MASSACHUSETTS )
)ss
COUNTY OF SUFFOLK )
Then personally appeared the above-named Dennis S. Aronowitz, Edward J.
Boudreau, Jr., Richard P. Chapman, Jr., William J. Cosgrove, Douglas M. Costle,
Leland O. Erdahl, Richard A. Farrell, Gail D. Fosler, Anne C. Hodsdon, John A.
Moore, Patti McGill Peterson, John W. Pratt, and Edward J. Spellman, who
acknowledged the foregoing instrument to be his or her free act and deed, before
me, this 13th day of November, 1996.
/s/Ann Marie White
-----------------------
Notary Public
My commission expires: 10/20/00
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Prospectus and
Statements of Additional Information constituting parts of this Post Effective
Amendment No. 38 to the registration statement on Form N-1A (the "Registration
Statement") of our reports dated December 15, 1997, relating to the financial
statements and the financial highlights appearing in the October 31, 1997 Annual
Reports to Shareholders of the John Hancock Financial Industries Fund and the
John Hancock Regional Bank Fund, which are also incorporated by reference into
the Registration Statement. We also consent to the references to us under the
headings "Financial Highlights" in the Prospectus and under the heading
"Independent Auditors" in the Statements of Additional Information.
/s/Price Waterhouse LLP
PRICE WATERHOUSE LLP
Boston, Massachusetts
February 24, 1998
consent5
JOHN HANCOCK INVESTMENT TRUST II
JOHN HANCOCK FINANCIAL INDUSTRIES FUND
Amended and Restated Distribution Plan
Class A Shares
June 3, 1997
Article I. This Plan
This amended and restated Distribution Plan (the "Plan") sets forth the
terms and conditions on which John Hancock Investment Trust II (the "Trust"), on
behalf of John Hancock Financial Industries Fund (the "Fund"), a series
portfolio of the Trust, on behalf of its Class A shares, will, after the
effective date hereof, pay certain amounts to John Hancock Funds, Inc. ("JH
Funds") in connection with the provision by JH Funds of certain services to the
Fund and its Class A shareholders, as set forth herein. Certain of such payments
by the Fund may, under Rule 12b-1 of the Securities and Exchange Commission, as
from time to time amended (the "Rule"), under the Investment Company Act of
1940, as amended (the "Act"), be deemed to constitute the financing of
distribution by the Fund of its shares. This Plan describes all material aspects
of such financing as contemplated by the Rule and shall be administered and
interpreted, and implemented and continued, in a manner consistent with the
Rule. The Trust and JH Funds heretofore entered into a Distribution Agreement,
dated November 13, 1996 (the "Agreement"), the terms of which, as heretofore and
from time to time continued, are incorporated herein by reference.
Article II. Distribution and Service Expenses
The Fund shall pay to JH Funds a fee in the amount specified in Article
III hereof. Such fee may be spent by JH Funds on any activities or expenses
primarily intended to result in the sale of Class A shares of the Fund,
including, but not limited to the payment of Distribution Expenses (as defined
below) and Service Expenses (as defined below). Distribution Expenses include
but are not limited to, (a) initial and ongoing sales compensation out of such
fee as it is received by JH Funds or other broker-dealers ("Selling Brokers")
that have entered into an agreement with JH Funds for the sale of Class A shares
of the Fund, (b) direct out-of-pocket expenses incurred in connection with the
distribution of Class A shares of the Fund, including expenses related to
printing of prospectuses and reports to other than existing Class A shareholders
of the Fund, and preparation, printing and distribution of sales literature and
advertising materials, (c) an allocation of overhead and other branch office
expenses of JH Funds related to the distribution of Class A shares of the Fund,
and (d) distribution expenses incurred in connection with the distribution of a
corresponding class of any open-end, registered investment company which sells
all or substantially all its assets to the Fund or which merges or otherwise
combines with the Fund.
Service Expenses include payments made to, or on account of, account
executives of selected broker-dealers (including affiliates of JH Funds) and
others who furnish personal and shareholder account maintenance services to
Class A shareholders of the Fund.
-1-
<PAGE>
Article III. Maximum Expenditures
The expenditures to be made by the Fund pursuant to this Plan, and the
basis upon which such expenditures will be made, shall be determined by the
Fund, and in no event shall such expenditures exceed 0.30% of the average daily
net asset value of the Class A shares of the Fund (determined in accordance with
the Fund's prospectus as from time to time in effect) on an annual basis to
cover Distribution Expenses and Service Expenses, provided that the portion of
such fee used to cover Service Expenses shall not exceed an annual rate of up to
0.25% of the average daily net asset value of the Class A shares of the Fund.
These expenditures shall be calculated and accrued daily and paid monthly or at
such other intervals as the Trustees shall determine. In the event JH Funds is
not fully reimbursed for payments made or other expenses incurred by it under
this Plan, these expenses will not be carried beyond one year from the date the
expenses were incurred. Any fees paid to JH Funds under this Plan during any
fiscal year of the Fund and not expended or allocated by JH Funds for actual or
budgeted Distribution Expenses and Service Expenses during that fiscal year will
be promptly returned to the Fund.
Article IV. Expenses Borne by the Fund
Notwithstanding any other provision of this Plan, the Trust, the Fund
and its investment adviser, John Hancock Advisers, Inc. (the "Adviser"), shall
bear the respective expenses to be borne by them under the Investment Management
Contract, dated July 1, 1996, (the "Management Contract"), and under the Fund's
current prospectus as it is from time to time in effect. Except as otherwise
contemplated by this Plan, the Trust and the Fund shall not, directly or
indirectly, engage in financing any activity which is primarily intended to or
should reasonably result in the sale of shares of the Fund.
Article V. Approval by Trustees, etc.
This Plan shall not take effect until it has been approved, together
with any related agreements, by votes, cast in person at a meeting called for
the purpose of voting on this Plan or such agreements, of a majority (or
whatever greater percentage may, from time to time, be required by Section 12(b)
of the Act or the rules and regulations thereunder) of (a) all of the Trustees
of the Fund and (b) those Trustees of the Fund who are not "interested persons"
of the Fund, as such term may be from time to time defined under the Act, and
have no direct or indirect financial interest in the operation of this Plan or
any agreements related to it (the "Independent Trustees").
Article VI. Continuance
This Plan and any related agreements shall continue in effect for so
long as such continuance is specifically approved at least annually in advance
in the manner provided for the approval of this Plan in Article V.
-2-
<PAGE>
Article VII. Information
JH Funds shall furnish the Fund and its Trustees quarterly, or at such
other intervals as the Fund shall specify, a written report of amounts expended
or incurred for Distribution Expenses and Service Expenses pursuant to this Plan
and the purposes for which such expenditures were made and such other
information as the Trustees may request.
Article VIII. Termination
This Plan may be terminated (a) at any time by vote of a majority of
the Trustees, a majority of the Independent Trustees, or a majority of the
Fund's outstanding voting Class A shares, or (b) by JH Funds on 60 days' notice
in writing to the Fund.
Article IX. Agreements
Each agreement with any person relating to implementation of this Plan
shall be in writing, and each agreement related to this Plan shall provide:
(a) That, with respect to the Fund, such agreement may be
terminated at any time, without payment of any penalty, by
vote of a majority of the Independent Trustees or by vote of a
majority of the Fund's then outstanding voting Class A shares.
(b) That such agreement shall terminate automatically in the event
of its assignment.
Article X. Amendments
This Plan may not be amended to increase the maximum amount of the fees
payable by the Fund hereunder without the approval of a majority of the
outstanding voting Class A shares of the Fund. No material amendment to the Plan
shall, in any event, be effective unless it is approved in the same manner as is
provided for approval of this Plan in Article V.
Article XI. Limitation of Liability
The names "John Hancock Investment Trust II" and "John Hancock
Financial Industries Fund" are the designations of the Trustees under the
Amended and Restated Declaration of Trust dated July 1, 1996, as amended from
time to time. The Amended and Restated Declaration of Trust has been filed with
the Secretary of State of the Commonwealth of Massachusetts. The obligations of
the Trust and the Fund are not personally binding upon, nor shall resort be had
to the private property of, any of the Trustees, shareholders, officers,
employees or agents of the Fund, but only the Fund's property shall be bound. No
series of the Trust shall be responsible for the obligations of any other series
of the Trust.
-3-
<PAGE>
IN WITNESS WHEREOF, the Fund has executed this Distribution Plan
effective as of the 3rd day of June, 1997 in Boston, Massachusetts.
JOHN HANCOCK INVESTMENT TRUST II --
JOHN HANCOCK FINANCIAL INDUSTRIES FUND
By /s/Anne C. Hodsdon
------------------------------
President
JOHN HANCOCK FUNDS, INC.
By /s/Edward J. Boudreau, Jr.
------------------------------
Chairman, President & CEO
-4-
JOHN HANCOCK INVESTMENT TRUST II
JOHN HANCOCK FINANCIAL INDUSTRIES FUND
Amended and Restated Distribution Plan
Class B Shares
June 3, 1997
Article I. This Plan
This Amended and Restated Distribution Plan (the "Plan") sets forth the
terms and conditions on which John Hancock Investment Trust II (the "Trust") on
behalf of John Hancock Financial Industries Fund (the "Fund"), a series
portfolio of the Trust, on behalf of its Class B shares, will, after the
effective date hereof, pay certain amounts to John Hancock Funds, Inc. ("JH
Funds") in connection with the provision by JH Funds of certain services to the
Fund and its Class B shareholders, as set forth herein. Certain of such payments
by the Fund may, under Rule 12b-1 of the Securities and Exchange Commission, as
from time to time amended (the "Rule"), under the Investment Company Act of
1940, as amended (the "Act"), be deemed to constitute the financing of
distribution by the Fund of its shares. This Plan describes all material aspects
of such financing as contemplated by the Rule and shall be administered and
interpreted, and implemented and continued, in a manner consistent with the
Rule. The Trust and JH Funds heretofore entered into a Distribution Agreement,
dated November 13, 1996 (the "Agreement"), the terms of which, as heretofore and
from time to time continued, are incorporated herein by reference.
Article II. Distribution and Service Expenses
The Fund shall pay to JH Funds a fee in the amount specified in Article
III hereof. Such fee may be spent by JH Funds on any activities or expenses
primarily intended to result in the sale of Class B shares of the Fund,
including, but not limited to the payment of Distribution Expenses (as defined
below) and Service Expenses (as defined below). Distribution Expenses include
but are not limited to, (a) initial and ongoing sales compensation out of such
fee as it is received by JH Funds or other broker-dealers ("Selling Brokers")
that have entered into an agreement with JH Funds for the sale of Class B shares
of the Fund, (b) direct out-of pocket expenses incurred in connection with the
distribution of Class B shares of the Fund, including expenses related to
printing of prospectuses and reports to other than existing Class B shareholders
of the Fund, and preparation, printing and distribution of sales literature and
advertising materials, (c) an allocation of overhead and other branch office
expenses of JH Funds related to the distribution of Class B shares of the Fund,
(d) interest expenses on unreimbursed distribution expenses related to Class B
shares, as described in Article IV and (e) distribution expenses incurred in
connection with the distribution of a corresponding class of any open-end,
registered investment company which sells all or substantially all its assets to
the Fund or which merges or otherwise combines with the Fund.
-1-
<PAGE>
Service Expenses include payments made to, or on account of, account
executives of selected broker-dealers (including affiliates of JH Funds) and
others who furnish personal and shareholder account maintenance services to
Class B shareholders of the Fund.
Article III. Maximum Expenditures
The expenditures to be made by the Fund pursuant to this Plan, and the
basis upon which such expenditures will be made, shall be determined by the
Fund, and in no event shall such expenditures exceed 1.00% of the average daily
net asset value of the Class B shares of the Fund (determined in accordance with
the Fund's prospectus as from time to time in effect) on an annual basis to
cover Distribution Expenses and Service Expenses, provided that the portion of
such fee used to cover Service Expenses, shall not exceed an annual rate of up
to 0.25% of the average daily net asset value of the Class B shares of the Fund.
These expenditures shall be calculated and accrued daily and paid monthly or at
such other intervals as the Trustees shall determine.
Article IV. Unreimbursed Distribution Expenses
In the event that JH Funds is not fully reimbursed for payments made or
expenses incurred by it under this Plan, in any fiscal year, JH Funds shall be
entitled to carry forward these expenses to subsequent fiscal years for
submission to the Class B shares of the Fund for payment, subject always to the
annual maximum expenditures set forth in Article III hereof; provided, however,
that nothing herein shall prohibit or limit the Trustees from terminating this
Plan and all payments hereunder at any time pursuant to Article IX hereof.
Article V. Expenses Borne by the Fund
Notwithstanding any other provision of this Plan, the Trust, the Fund
and its investment adviser, John Hancock Advisers, Inc. (the "Adviser"), shall
bear the respective expenses to be borne by them under the Investment Management
Contract, dated July 1, 1996 (the "Management Contract"), and under the Fund's
current prospectus as it is from time to time in effect. Except as otherwise
contemplated by this Plan, the Trust and the Fund shall not, directly or
indirectly, engage in financing any activity which is primarily intended to or
should reasonably result in the sale of shares of the Fund.
Article VI. Approval by Trustees, etc.
This Plan shall not take effect until it has been approved, together
with any related agreements, by votes, cast in person at a meeting called for
the purpose of voting on this Plan or such agreements, of a majority (or
whatever greater percentage may, from time to time, be required by Section 12(b)
of the Act or the rules and regulations thereunder) of (a) all of the Trustees
of the Fund and (b) those Trustees of the Fund who are not "interested persons"
of the Fund, as such term may be from time to time defined under the Act, and
have no direct or indirect financial interest in the operation of this Plan or
any agreements related to it (the "Independent Trustees").
-2-
<PAGE>
Article VII. Continuance
This Plan and any related agreements shall continue in effect for so
long as such continuance is specifically approved at least annually in advance
in the manner provided for the approval of this Plan in Article VI.
Article VIII. Information
JH Funds shall furnish the Fund and its Trustees quarterly, or at such
other intervals as the Fund shall specify, a written report of amounts expended
or incurred for Distribution Expenses and Services Expenses pursuant to this
Plan and the purposes for which such expenditures were made and such other
information as the Trustees may request.
Article IX. Termination
This Plan may be terminated (a) at any time by vote of a majority of
the Trustees, a majority of the Independent Trustees, or a majority of the
Fund's outstanding voting Class B shares, or (b) by JH Funds on 60 days' notice
in writing to the Fund.
Article X. Agreements
Each Agreement with any person relating to implementation of this Plan
shall be in writing, and each agreement related to this Plan shall provide:
(a) That, with respect to the Fund, such agreement may be
terminated at any time, without payment of any penalty, by
vote of a majority of the Independent Trustees or by vote of a
majority of the Fund's then outstanding voting Class B shares.
(b) That such agreement shall terminate automatically in the event
of its assignment.
Article XI. Amendments
This Plan may not be amended to increase the maximum amount of the fees
payable by the Fund hereunder without the approval of a majority of the
outstanding voting Class B shares of the Fund. No material amendment to the Plan
shall, in any event, be effective unless it is approved in the same manner as is
provided for approval of this Plan in Article VII.
Article XII. Limitation of Liability
The names "John Hancock Investment Trust II" and "John Hancock
Financial Industries Fund" are the designations of the Trustees under the
Amended and Restated Declaration of Trust, dated July 1, 1996, as amended from
time to time. The Amended and Restated Declaration of Trust has been filed with
the Secretary of State of the Commonwealth of Massachusetts. The obligations of
the Trust and the Fund are not personally binding upon, nor shall resort be had
to the private property of, any of the Trustees, shareholders, officers,
employees or agents of the Fund, but only the Fund's property shall be bound. No
series of the Trust shall be responsible for the obligations of any other series
of the Trust.
-3-
<PAGE>
IN WITNESS WHEREOF, the Fund has executed this Distribution Plan
effective as of the 3rd day of June, 1997 in Boston, Massachusetts.
JOHN HANCOCK INVESTMENT TRUST II --
JOHN HANCOCK FINANCIAL INDUSTRIES FUND
By: /s/Anne C. Hodsdon
-----------------------------
President
JOHN HANCOCK FUNDS, INC.
By: /s/Edward J. Boudreau, Jr.
-----------------------------
Chairman, President & CEO
-4-
JOHN HANCOCK INVESTMENT TRUST II
JOHN HANCOCK REGIONAL BANK FUND
Amended and Restated Distribution Plan
Class A Shares
June 3, 1997
Article I. This Plan
This amended and restated Distribution Plan (the "Plan") sets forth the
terms and conditions on which John Hancock Investment Trust II (the "Trust"), on
behalf of John Hancock Regional Bank Fund (the "Fund"), a series portfolio of
the Trust, on behalf of its Class A shares, will, after the effective date
hereof, pay certain amounts to John Hancock Funds, Inc. ("JH Funds") in
connection with the provision by JH Funds of certain services to the Fund and
its Class A shareholders, as set forth herein. Certain of such payments by the
Fund may, under Rule 12b-1 of the Securities and Exchange Commission, as from
time to time amended (the "Rule"), under the Investment Company Act of 1940, as
amended (the "Act"), be deemed to constitute the financing of distribution by
the Fund of its shares. This Plan describes all material aspects of such
financing as contemplated by the Rule and shall be administered and interpreted,
and implemented and continued, in a manner consistent with the Rule. The Trust
and JH Funds heretofore entered into a Distribution Agreement, dated November
13, 1996 (the "Agreement"), the terms of which, as heretofore and from time to
time continued, are incorporated herein by reference.
Article II. Distribution and Service Expenses
The Fund shall pay to JH Funds a fee in the amount specified in Article
III hereof. Such fee may be spent by JH Funds on any activities or expenses
primarily intended to result in the sale of Class A shares of the Fund,
including, but not limited to the payment of Distribution Expenses (as defined
below) and Service Expenses (as defined below). Distribution Expenses include
but are not limited to, (a) initial and ongoing sales compensation out of such
fee as it is received by JH Funds or other broker-dealers ("Selling Brokers")
that have entered into an agreement with JH Funds for the sale of Class A shares
of the Fund, (b) direct out-of-pocket expenses incurred in connection with the
distribution of Class A shares of the Fund, including expenses related to
printing of prospectuses and reports to other than existing Class A shareholders
of the Fund, and preparation, printing and distribution of sales literature and
advertising materials, (c) an allocation of overhead and other branch office
expenses of JH Funds related to the distribution of Class A shares of the Fund,
and (d) distribution expenses incurred in connection with the distribution of a
corresponding class of any open-end, registered investment company which sells
all or substantially all its assets to the Fund or which merges or otherwise
combines with the Fund.
Service Expenses include payments made to, or on account of, account
executives of selected broker-dealers (including affiliates of JH Funds) and
others who furnish personal and shareholder account maintenance services to
Class A shareholders of the Fund.
-1-
<PAGE>
Article III. Maximum Expenditures
The expenditures to be made by the Fund pursuant to this Plan, and the
basis upon which such expenditures will be made, shall be determined by the
Fund, and in no event shall such expenditures exceed 0.30% of the average daily
net asset value of the Class A shares of the Fund (determined in accordance with
the Fund's prospectus as from time to time in effect) on an annual basis to
cover Distribution Expenses and Service Expenses, provided that the portion of
such fee used to cover Service Expenses shall not exceed an annual rate of up to
0.25% of the average daily net asset value of the Class A shares of the Fund.
These expenditures shall be calculated and accrued daily and paid monthly or at
such other intervals as the Trustees shall determine. In the event JH Funds is
not fully reimbursed for payments made or other expenses incurred by it under
this Plan, these expenses will not be carried beyond one year from the date the
expenses were incurred. Any fees paid to JH Funds under this Plan during any
fiscal year of the Fund and not expended or allocated by JH Funds for actual or
budgeted Distribution Expenses and Service Expenses during that fiscal year will
be promptly returned to the Fund.
Article IV. Expenses Borne by the Fund
Notwithstanding any other provision of this Plan, the Trust, the Fund
and its investment adviser, John Hancock Advisers, Inc. (the "Adviser"), shall
bear the respective expenses to be borne by them under the Investment Management
Contract, dated July 1, 1996, (the "Management Contract"), and under the Fund's
current prospectus as it is from time to time in effect. Except as otherwise
contemplated by this Plan, the Trust and the Fund shall not, directly or
indirectly, engage in financing any activity which is primarily intended to or
should reasonably result in the sale of shares of the Fund.
Article V. Approval by Trustees, etc.
This Plan shall not take effect until it has been approved, together
with any related agreements, by votes, cast in person at a meeting called for
the purpose of voting on this Plan or such agreements, of a majority (or
whatever greater percentage may, from time to time, be required by Section 12(b)
of the Act or the rules and regulations thereunder) of (a) all of the Trustees
of the Fund and (b) those Trustees of the Fund who are not "interested persons"
of the Fund, as such term may be from time to time defined under the Act, and
have no direct or indirect financial interest in the operation of this Plan or
any agreements related to it (the "Independent Trustees").
Article VI. Continuance
This Plan and any related agreements shall continue in effect for so
long as such continuance is specifically approved at least annually in advance
in the manner provided for the approval of this Plan in Article V.
-2-
<PAGE>
Article VII. Information
JH Funds shall furnish the Fund and its Trustees quarterly, or at such
other intervals as the Fund shall specify, a written report of amounts expended
or incurred for Distribution Expenses and Service Expenses pursuant to this Plan
and the purposes for which such expenditures were made and such other
information as the Trustees may request.
Article VIII. Termination
This Plan may be terminated (a) at any time by vote of a majority of
the Trustees, a majority of the Independent Trustees, or a majority of the
Fund's outstanding voting Class A shares, or (b) by JH Funds on 60 days' notice
in writing to the Fund.
Article IX. Agreements
Each agreement with any person relating to implementation of this Plan
shall be in writing, and each agreement related to this Plan shall provide:
(a) That, with respect to the Fund, such agreement may be
terminated at any time, without payment of any penalty, by
vote of a majority of the Independent Trustees or by vote of a
majority of the Fund's then outstanding voting Class A shares.
(b) That such agreement shall terminate automatically in the event
of its assignment.
Article X. Amendments
This Plan may not be amended to increase the maximum amount of the fees
payable by the Fund hereunder without the approval of a majority of the
outstanding voting Class A shares of the Fund. No material amendment to the Plan
shall, in any event, be effective unless it is approved in the same manner as is
provided for approval of this Plan in Article V.
Article XI. Limitation of Liability
The names "John Hancock Investment Trust II" and "John Hancock Regional
Bank Fund" are the designations of the Trustees under the Amended and Restated
Declaration of Trust dated July 1, 1996, as amended from time to time. The
Amended and Restated Declaration of Trust has been filed with the Secretary of
State of the Commonwealth of Massachusetts. The obligations of the Trust and the
Fund are not personally binding upon, nor shall resort be had to the private
property of, any of the Trustees, shareholders, officers, employees or agents of
the Fund, but only the Fund's property shall be bound. No series of the Trust
shall be responsible for the obligations of any other series of the Trust.
-3-
<PAGE>
IN WITNESS WHEREOF, the Fund has executed this Distribution Plan
effective as of the 3rd day of June, 1997 in Boston, Massachusetts.
JOHN HANCOCK INVESTMENT TRUST II --
JOHN HANCOCK REGIONAL BANK FUND
By /s/Anne C. Hodsdon
-----------------------------
President
JOHN HANCOCK FUNDS, INC.
By /s/Edward J. Boudreau, Jr.
-----------------------------
Chairman, President & CEO
-4-
JOHN HANCOCK INVESTMENT TRUST II
JOHN HANCOCK REGIONAL BANK FUND
Amended and Restated Distribution Plan
Class B Shares
June 3, 1997
Article I. This Plan
This Amended and Restated Distribution Plan (the "Plan") sets forth the
terms and conditions on which John Hancock Investment Trust II (the "Trust") on
behalf of John Hancock Regional Bank Fund (the "Fund"), a series portfolio of
the Trust, on behalf of its Class B shares, will, after the effective date
hereof, pay certain amounts to John Hancock Funds, Inc. ("JH Funds") in
connection with the provision by JH Funds of certain services to the Fund and
its Class B shareholders, as set forth herein. Certain of such payments by the
Fund may, under Rule 12b-1 of the Securities and Exchange Commission, as from
time to time amended (the "Rule"), under the Investment Company Act of 1940, as
amended (the "Act"), be deemed to constitute the financing of distribution by
the Fund of its shares. This Plan describes all material aspects of such
financing as contemplated by the Rule and shall be administered and interpreted,
and implemented and continued, in a manner consistent with the Rule. The Trust
and JH Funds heretofore entered into a Distribution Agreement, dated November
13, 1996 (the "Agreement"), the terms of which, as heretofore and from time to
time continued, are incorporated herein by reference.
Article II. Distribution and Service Expenses
The Fund shall pay to JH Funds a fee in the amount specified in Article
III hereof. Such fee may be spent by JH Funds on any activities or expenses
primarily intended to result in the sale of Class B shares of the Fund,
including, but not limited to the payment of Distribution Expenses (as defined
below) and Service Expenses (as defined below). Distribution Expenses include
but are not limited to, (a) initial and ongoing sales compensation out of such
fee as it is received by JH Funds or other broker-dealers ("Selling Brokers")
that have entered into an agreement with JH Funds for the sale of Class B shares
of the Fund, (b) direct out-of pocket expenses incurred in connection with the
distribution of Class B shares of the Fund, including expenses related to
printing of prospectuses and reports to other than existing Class B shareholders
of the Fund, and preparation, printing and distribution of sales literature and
advertising materials, (c) an allocation of overhead and other branch office
expenses of JH Funds related to the distribution of Class B shares of the Fund,
(d) interest expenses on unreimbursed distribution expenses related to Class B
shares, as described in Article IV and (e) distribution expenses incurred in
connection with the distribution of a corresponding class of any open-end,
registered investment company which sells all or substantially all its assets to
the Fund or which merges or otherwise combines with the Fund.
-1-
<PAGE>
Service Expenses include payments made to, or on account of, account
executives of selected broker-dealers (including affiliates of JH Funds) and
others who furnish personal and shareholder account maintenance services to
Class B shareholders of the Fund.
Article III. Maximum Expenditures
The expenditures to be made by the Fund pursuant to this Plan, and the
basis upon which such expenditures will be made, shall be determined by the
Fund, and in no event shall such expenditures exceed 1.00% of the average daily
net asset value of the Class B shares of the Fund (determined in accordance with
the Fund's prospectus as from time to time in effect) on an annual basis to
cover Distribution Expenses and Service Expenses, provided that the portion of
such fee used to cover Service Expenses, shall not exceed an annual rate of up
to 0.25% of the average daily net asset value of the Class B shares of the Fund.
These expenditures shall be calculated and accrued daily and paid monthly or at
such other intervals as the Trustees shall determine.
Article IV. Unreimbursed Distribution Expenses
In the event that JH Funds is not fully reimbursed for payments made or
expenses incurred by it under this Plan, in any fiscal year, JH Funds shall be
entitled to carry forward these expenses to subsequent fiscal years for
submission to the Class B shares of the Fund for payment, subject always to the
annual maximum expenditures set forth in Article III hereof; provided, however,
that nothing herein shall prohibit or limit the Trustees from terminating this
Plan and all payments hereunder at any time pursuant to Article IX hereof.
Article V. Expenses Borne by the Fund
Notwithstanding any other provision of this Plan, the Trust, the Fund
and its investment adviser, John Hancock Advisers, Inc. (the "Adviser"), shall
bear the respective expenses to be borne by them under the Investment Management
Contract, dated July 1, 1996 (the "Management Contract"), and under the Fund's
current prospectus as it is from time to time in effect. Except as otherwise
contemplated by this Plan, the Trust and the Fund shall not, directly or
indirectly, engage in financing any activity which is primarily intended to or
should reasonably result in the sale of shares of the Fund.
Article VI. Approval by Trustees, etc.
This Plan shall not take effect until it has been approved, together
with any related agreements, by votes, cast in person at a meeting called for
the purpose of voting on this Plan or such agreements, of a majority (or
whatever greater percentage may, from time to time, be required by Section 12(b)
of the Act or the rules and regulations thereunder) of (a) all of the Trustees
of the Fund and (b) those Trustees of the Fund who are not "interested persons"
of the Fund, as such term may be from time to time defined under the Act, and
have no direct or indirect financial interest in the operation of this Plan or
any agreements related to it (the "Independent Trustees").
-2-
<PAGE>
Article VII. Continuance
This Plan and any related agreements shall continue in effect for so
long as such continuance is specifically approved at least annually in advance
in the manner provided for the approval of this Plan in Article VI.
Article VIII. Information
JH Funds shall furnish the Fund and its Trustees quarterly, or at such
other intervals as the Fund shall specify, a written report of amounts expended
or incurred for Distribution Expenses and Services Expenses pursuant to this
Plan and the purposes for which such expenditures were made and such other
information as the Trustees may request.
Article IX. Termination
This Plan may be terminated (a) at any time by vote of a majority of
the Trustees, a majority of the Independent Trustees, or a majority of the
Fund's outstanding voting Class B shares, or (b) by JH Funds on 60 days' notice
in writing to the Fund.
Article X. Agreements
Each Agreement with any person relating to implementation of this Plan
shall be in writing, and each agreement related to this Plan shall provide:
(a) That, with respect to the Fund, such agreement may be
terminated at any time, without payment of any penalty, by
vote of a majority of the Independent Trustees or by vote of a
majority of the Fund's then outstanding voting Class B shares.
(b) That such agreement shall terminate automatically in the event
of its assignment.
Article XI. Amendments
This Plan may not be amended to increase the maximum amount of the fees
payable by the Fund hereunder without the approval of a majority of the
outstanding voting Class B shares of the Fund. No material amendment to the Plan
shall, in any event, be effective unless it is approved in the same manner as is
provided for approval of this Plan in Article VII.
Article XII. Limitation of Liability
The names "John Hancock Investment Trust II" and "John Hancock Regional
Bank Fund" are the designations of the Trustees under the Amended and Restated
Declaration of Trust, dated July 1, 1996, as amended from time to time. The
Amended and Restated Declaration of Trust has been filed with the Secretary of
State of the Commonwealth of Massachusetts. The obligations of the Trust and the
Fund are not personally binding upon, nor shall resort be had to the private
property of, any of the Trustees, shareholders, officers, employees or agents of
the Fund, but only the Fund's property shall be bound. No series of the Trust
shall be responsible for the obligations of any other series of the Trust.
-3-
<PAGE>
IN WITNESS WHEREOF, the Fund has executed this Distribution Plan
effective as of the 3rd day of June, 1997 in Boston, Massachusetts.
JOHN HANCOCK INVESTMENT TRUST II --
JOHN HANCOCK REGIONAL BANK FUND
By: /s/Anne C. Hodsdon
-----------------------------
President
JOHN HANCOCK FUNDS, INC.
By: /s/Edward J. Boudreau, Jr.
-----------------------------
Chairman, President & CEO
-4-
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 081
<NAME> JOHN HANCOCK FINANCIAL INDUSTRIES FUND - CLASS A
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> OCT-31-1997
<PERIOD-START> NOV-01-1996
<PERIOD-END> OCT-31-1997
<INVESTMENTS-AT-COST> 1,563,646,337
<INVESTMENTS-AT-VALUE> 1,724,874,477
<RECEIVABLES> 28,907,052
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 17,149
<TOTAL-ASSETS> 1,753,798,678
<PAYABLE-FOR-SECURITIES> 25,432,754
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 2,721,413
<TOTAL-LIABILITIES> 28,154,167
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 1,559,388,659
<SHARES-COMMON-STOCK> 29,215,418
<SHARES-COMMON-PRIOR> 81,137
<ACCUMULATED-NII-CURRENT> 3,515,792
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 1,530,386
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 161,209,674
<NET-ASSETS> 1,725,644,511
<DIVIDEND-INCOME> 10,396,565
<INTEREST-INCOME> 3,686,872
<OTHER-INCOME> 0
<EXPENSES-NET> 10,591,744
<NET-INVESTMENT-INCOME> 3,491,693
<REALIZED-GAINS-CURRENT> 1,555,050
<APPREC-INCREASE-CURRENT> 161,081,288
<NET-CHANGE-FROM-OPS> 166,128,031
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 2,341
<DISTRIBUTIONS-OF-GAINS> 52,523
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 31,103,168
<NUMBER-OF-SHARES-REDEEMED> 1,970,382
<SHARES-REINVESTED> 1,495
<NET-CHANGE-IN-ASSETS> 1,724,479,219
<ACCUMULATED-NII-PRIOR> 1,776
<ACCUMULATED-GAINS-PRIOR> 53,523
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 4,842,498
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 12,262,800
<AVERAGE-NET-ASSETS> 148,940,886
<PER-SHARE-NAV-BEGIN> 11.03
<PER-SHARE-NII> 0.14
<PER-SHARE-GAIN-APPREC> 3.77
<PER-SHARE-DIVIDEND> (0.03)
<PER-SHARE-DISTRIBUTIONS> (0.65)
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 14.26
<EXPENSE-RATIO> 1.20
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 082
<NAME> JOHN HANCOCK FINANCIAL INDUSTRIES FUND - CLASS B
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> OCT-31-1997
<PERIOD-START> NOV-01-1996
<PERIOD-END> OCT-31-1997
<INVESTMENTS-AT-COST> 1,563,646,337
<INVESTMENTS-AT-VALUE> 1,724,874,477
<RECEIVABLES> 28,907,052
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 17,149
<TOTAL-ASSETS> 1,753,798,678
<PAYABLE-FOR-SECURITIES> 25,432,754
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 2,721,413
<TOTAL-LIABILITIES> 28,154,167
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 1,559,388,659
<SHARES-COMMON-STOCK> 92,292,702
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 3,515,792
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 1,530,386
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 161,209,674
<NET-ASSETS> 1,725,644,511
<DIVIDEND-INCOME> 10,396,565
<INTEREST-INCOME> 3,686,872
<OTHER-INCOME> 0
<EXPENSES-NET> 10,591,744
<NET-INVESTMENT-INCOME> 3,491,693
<REALIZED-GAINS-CURRENT> 1,555,050
<APPREC-INCREASE-CURRENT> 161,081,288
<NET-CHANGE-FROM-OPS> 166,128,031
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 98,841,897
<NUMBER-OF-SHARES-REDEEMED> 2,549,195
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 1,724,479,219
<ACCUMULATED-NII-PRIOR> 1,776
<ACCUMULATED-GAINS-PRIOR> 53,523
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 4,842,498
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 12,262,800
<AVERAGE-NET-ASSETS> 583,235,067
<PER-SHARE-NAV-BEGIN> 11.43
<PER-SHARE-NII> 0.04
<PER-SHARE-GAIN-APPREC> 2.71
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 14.18
<EXPENSE-RATIO> 1.90
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 021
<NAME> JOHN HANCOCK REGIONAL BANK FUND - CLASS A
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> OCT-31-1997
<PERIOD-START> NOV-01-1996
<PERIOD-END> OCT-31-1997
<INVESTMENTS-AT-COST> 3,846,128,902
<INVESTMENTS-AT-VALUE> 6,455,901,494
<RECEIVABLES> 25,221,943
<ASSETS-OTHER> 59,405
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 6,481,182,842
<PAYABLE-FOR-SECURITIES> 25,432,661
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 11,158,415
<TOTAL-LIABILITIES> 36,591,076
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 3,777,914,480
<SHARES-COMMON-STOCK> 32,767,337
<SHARES-COMMON-PRIOR> 25,326,453
<ACCUMULATED-NII-CURRENT> 4,943,179
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 51,955,393
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 2,609,778,714
<NET-ASSETS> 6,444,591,766
<DIVIDEND-INCOME> 102,142,475
<INTEREST-INCOME> 43,308,969
<OTHER-INCOME> 0
<EXPENSES-NET> 93,149,751
<NET-INVESTMENT-INCOME> 52,301,693
<REALIZED-GAINS-CURRENT> 59,106,829
<APPREC-INCREASE-CURRENT> 1,780,828,190
<NET-CHANGE-FROM-OPS> 1,892,236,712
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (19,020,629)
<DISTRIBUTIONS-OF-GAINS> (8,142,308)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 38,788,657
<NUMBER-OF-SHARES-REDEEMED> (31,907,187)
<SHARES-REINVESTED> 559,414
<NET-CHANGE-IN-ASSETS> 3,175,235,112
<ACCUMULATED-NII-PRIOR> 4,107,673
<ACCUMULATED-GAINS-PRIOR> 32,405,772
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 38,590,925
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 93,149,751
<AVERAGE-NET-ASSETS> 1,298,546,796
<PER-SHARE-NAV-BEGIN> 33.99
<PER-SHARE-NII> 0.64
<PER-SHARE-GAIN-APPREC> 15.02
<PER-SHARE-DIVIDEND> (0.61)
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<NAME> JOHN HANCOCK REGIONAL BANK FUND - CLASS B
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