John Hancock
Equity Funds
Prospectus
July 1, 2000
--------------------------------------------------------------------------------
Balanced Fund
Core Equity Fund
Core Growth Fund
Core Value Fund
Large Cap Growth Fund
Large Cap Value Fund
Mid Cap Growth Fund
Small Cap Growth Fund
Small Cap Value Fund
Sovereign Investors Fund
As with all mutual funds, the Securities and Exchange Commission has not
approved or disapproved these funds or determined whether the information in
this prospectus is adequate and accurate. Anyone who indicates otherwise is
committing a federal crime.
[LOGO] JOHN HANCOCK FUNDS
A Global Investment Management Firm
<PAGE>
Contents
--------------------------------------------------------------------------------
A fund-by-fund summary Balanced Fund 4
of goals, strategies, risks,
performance and expenses. Core Equity Fund 6
Core Growth Fund 8
Core Value Fund 10
Large Cap Growth Fund 12
Large Cap Value Fund 14
Mid Cap Growth Fund 16
Small Cap Growth Fund 18
Small Cap Value Fund 20
Sovereign Investors Fund 22
Policies and instructions for Your account
opening, maintaining and Choosing a share class 24
closing an account in any How sales charges are calculated 24
equity fund. Sales charge reductions and waivers 25
Opening an account 26
Buying shares 27
Selling shares 28
Transaction policies 30
Dividends and account policies 30
Additional investor services 31
Further information on the Fund details
equity funds. Business structure 32
Financial highlights 33
For more information back cover
<PAGE>
Overview
--------------------------------------------------------------------------------
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] Main risks The major risk factors associated with the fund.
[Clip Art] Past performance The fund's total return, measured year-by-year and
over time.
[Clip Art] Your expenses The overall costs borne by an investor in the fund,
including sales charges and annual expenses.
JOHN HANCOCK EQUITY FUNDS
These funds seek long-term growth by investing primarily in common stocks.
However, the Balanced Fund also makes significant investments in fixed-income
securities. Each fund has its own strategy and its own risk profile.
WHO MAY WANT TO INVEST
These funds may be appropriate for investors who:
o have longer time horizons
o want to diversify their portfolios
o are seeking funds for the equity portion of an asset allocation portfolio
o are investing for retirement or other goals that are many years in the
future
Equity funds may NOT be appropriate if you:
o are investing with a shorter time horizon in mind
o are uncomfortable with an investment that may go up and down in value
RISKS OF MUTUAL FUNDS
Mutual funds are not bank deposits and are not insured or guaranteed by the
Federal Deposit Insurance Corporation or any other government agency. Because
you could lose money by investing in these funds, be sure to read all risk
disclosure carefully before investing.
THE MANAGEMENT TEAM
All John Hancock equity funds are managed by John Hancock Advisers, Inc. Founded
in 1968, John Hancock Advisers is a wholly owned subsidiary of John Hancock
Financial Services, Inc. and manages more than $30 billion in assets.
3
<PAGE>
Balanced Fund
GOAL AND STRATEGY
[Clip Art] The fund seeks current income, long-term growth of capital and income
and preservation of capital. To pursue these goals, the fund allocates its
investments among a diversified mix of debt and equity securities.
At least 75% of the fund's stock investments are "dividend performers" --
companies whose dividend payments have increased steadily for ten years. In
managing the fund's stock portfolio, the managers use fundamental financial
analysis to identify individual companies with high-quality income statements,
substantial cash reserves and identifiable catalysts for growth, which may be
new products or benefits from industrywide growth. The managers generally visit
companies to evaluate the strength and consistency of their management strategy.
Finally, the managers look for stocks that are reasonably priced relative to
their earnings and industry. Historically, companies that meet these criteria
have tended to have large or medium market capitalizations.
At least 25% of assets will be invested in senior debt securities. The fund's
debt securities are used to enhance current income and provide some added
stability. The fund's investments in bonds of any maturity are primarily
investment-grade (rated BBB or above and their unrated equivalents). However, up
to 20% of assets may be in junk bonds rated as low as C and their unrated
equivalents.
Although the fund invests primarily in U.S. securities, it may invest up to 35%
of assets in foreign securities. The fund may also make limited use of certain
derivatives (investments whose value is based on indices, securities or
currencies).
In abnormal market conditions, the fund may temporarily invest extensively in
investment-grade short- term securities. In these and other cases, the fund
might not achieve its goal.
================================================================================
PORTFOLIO MANAGERS
John F. Snyder, III
---------------------------------------
Executive vice president of adviser
Joined team in 1994
Joined adviser in 1991
Began business career in 1971
Barry H. Evans, CFA
---------------------------------------
Senior vice president of adviser
Joined team in 1996
Joined adviser in 1986
Began business career in 1986
Peter M. Schofield, CFA
---------------------------------------
Vice president of adviser
Joined team in 1996
Joined adviser in 1996
Began business career in 1984
PAST PERFORMACE
[Clip Art] The graph shows how the fund's total return has varied from year to
year, while the table shows performance over time (along with a broad-based
market index for reference). This information may help provide an indication of
the fund's risks. The average annual figures reflect sales charges; the
year-by-year and index figures do not, and would be lower if they did. All
figures assume dividend reinvestment. Past performance does not indicate future
results.
--------------------------------------------------------------------------------
Class A year-by-year total returns -- calendar years
--------------------------------------------------------------------------------
1993 1994 1995 1996 1997 1998 1999
11.38% -3.51% 24.23% 12.13% 20.79% 14.01% 3.89%
2000 total return as of March 31: -3.99%
Best quarter: Q4 '98, 11.40% Worst quarter: Q3 `99, -4.89%
--------------------------------------------------------------------------------
Average annual total returns -- for periods ending 12/31/99
--------------------------------------------------------------------------------
Life of Life of
1 year 5 year Class A Class B
Class A - began 10/5/92 -1.30% 13.61% 10.67% --
Class B - began 10/5/92 -1.83% 13.77% -- 10.70%
Class C - began 5/1/99 -- -- -- --
Index 21.03% 28.54% 21.83% 21.83%
Index: Standard & Poor's 500 Stock Index, an unmanaged index of 500 stocks.
4
<PAGE>
MAIN RISKS
[Clip Art] The value of your investment will go up and down in response to stock
and bond market movements.
The fund's management strategy has a significant influence on fund performance.
Large- or medium- capitalization stocks as a group could fall out of favor with
the market, causing the fund to underperform investments that focus on
small-capitalization stocks. Medium-capitalization stocks tend to be more
volatile than stocks of larger companies. In addition, if the managers' security
selection strategies do not perform as expected, the fund could underperform its
peers or lose money.
To the extent that the fund makes investments with additional risks, these risks
could increase volatility or reduce performance:
o Certain derivatives could produce disproportionate losses.
o In a down market, higher-risk securities and derivatives could become
harder to value or to sell at a fair price.
o Any bonds held by the fund could be downgraded in credit quality or go
into default. In addition, bond prices generally fall when interest rates
rise; this risk is greater for longer maturity bonds. Junk bond prices can
fall on bad news about the issuer, an industry or the economy in general.
o Foreign investments carry additional risks, including potentially
unfavorable currency exchange rates, inadequate or inaccurate financial
information and social or political instability.
The fund may trade securities actively, which could increase its transaction
costs (thus lowering performance) and increase your taxable distributions.
================================================================================
YOUR EXPENSES
[Clip Art] Transaction expenses are charged directly to your account. Operating
expenses are paid from the fund's assets, and therefore are paid by shareholders
indirectly.
--------------------------------------------------------------------------------
Shareholder transaction expenses(1) Class A Class B Class C
--------------------------------------------------------------------------------
Maximum sales charge (load) on purchases
as a % of purchase price 5.00% none 1.00%
Maximum deferred sales charge (load)
as a % of purchase or sale price,
whichever is less none(2) 5.00% 1.00%
--------------------------------------------------------------------------------
Annual operating expenses Class A Class B Class C
--------------------------------------------------------------------------------
Management fee 0.60% 0.60% 0.60%
Distribution and service (12b-1) fees 0.30% 1.00% 1.00%
Other expenses 0.32% 0.32% 0.32%
Total fund operating expenses 1.22% 1.92% 1.92%
The hypothetical example below shows what your expenses would be if you
invested $10,000 over the time frames indicated, assuming you reinvested all
distributions and that the average annual return was 5%. The example is for
comparison only, and does not represent the fund's actual expenses and returns,
either past or future.
--------------------------------------------------------------------------------
Expenses Year 1 Year 3 Year 5 Year 10
--------------------------------------------------------------------------------
Class A $618 $868 $1,137 $1,903
Class B - with redemption $695 $903 $1,237 $2,061
- without redemption $195 $603 $1,037 $2,061
Class C - with redemption $392 $697 $1,126 $2,321
- without redemption $293 $697 $1,126 $2,321
(1) A $4.00 fee may be charged for wire redemptions.
(2) Except for investments of $1 million or more; see "How sales charges are
calculated."
FUND CODES
Class A
---------------------------------------
Ticker SVBAX
CUSIP 47803P104
Newspaper BalA
SEC number 811-0560
JH fund number 36
Class B
---------------------------------------
Ticker SVBBX
CUSIP 47803P203
Newspaper BalB
SEC number 811-0560
JH fund number 136
Class C
---------------------------------------
Ticker --
CUSIP 47803P708
Newspaper --
SEC number 811-0560
JH fund number 536
5
<PAGE>
Core Equity Fund
GOAL AND STRATEGY
[Clip Art] The fund seeks above-average total return (capital appreciation plus
income). To pursue this goal, the fund normally invests at least 65% of assets
in a diversified portfolio of equities which are primarily large-capitalization
stocks. The portfolio's risk profile is similar to that of the Standard & Poor's
500 Stock Index.
The managers select from a menu of stocks of approximately 550 companies that
evolves over time. Approximately 70% to 80% of these companies also are included
in the Standard & Poor's 500 Stock Index. The subadviser's investment research
team is organized by industry and tracks these companies to develop earnings
estimates and five-year projections for growth. A series of proprietary computer
models use this in-house research to rank the stocks according to their
combination of:
o value, meaning they appear to be underpriced
o improving fundamentals, meaning they show potential for strong growth
This process, together with a risk/ return analysis against the Standard &
Poor's 500 Stock Index, results in a portfolio of approximately 100 to 130 of
the stocks from the top 60% of the menu. The fund generally sells stocks that
fall into the bottom 20% of the menu.
In normal market conditions, the fund is almost entirely invested in stocks. The
fund may invest in dollar-denominated foreign securities and make limited use of
certain derivatives (investments whose value is based on indices or securities).
In abnormal market conditions, the fund may temporarily invest more than 35% of
assets in investment-grade short-term securities. In these and other cases, the
fund might not achieve its goal.
The fund may trade securities actively, which could increase its transaction
costs (thus lowering performance) and increase your taxable distributions.
================================================================================
SUBADVISER
Independence Investment
Associates, Inc.
---------------------------------------
Team responsible for day-to-day
investment management
A subsidiary of John Hancock Financial
Services, Inc.
Founded in 1982
Supervised by the adviser
PAST PERFORMACE
[Clip Art] The graph shows how the fund's total return has varied from year to
year, while the table shows performance over time (along with a broad-based
market index for reference). This information may help provide an indication of
the fund's risks. The average annual figures reflect sales charges; the
year-by-year and index figures do not, and would be lower if they did. Beginning
May 1, 2000, a 1% front-end sales charge on Class C shares was imposed, which
would result in lower returns if reflected in these figures. All figures assume
dividend reinvestment. Past performance does not indicate future results.
--------------------------------------------------------------------------------
Class A year-by-year total returns -- calendar years
--------------------------------------------------------------------------------
1992 1993 1994 1995 1996 1997 1998 1999
9.01% 16.12% -2.14% 37.20% 21.24% 29.19% 28.84% 12.37%
2000 total return as of March 31: 1.90%
Best quarter: Q4 '98, 24.17% Worst quarter: Q3 '98, -12.75%
--------------------------------------------------------------------------------
Average annual total returns -- for periods ending 12/31/99
--------------------------------------------------------------------------------
Life of Life of Life of
1 year 5 year Class A Class B Class C
Class A - began 6/10/91 6.74% 24.21% 17.50% -- --
Class B - began 9/7/95 6.59% -- -- 22.07% --
Class C - began 5/1/98 10.59% -- -- -- 12.74%
Index 21.03% 28.54% 19.80% 26.58% 19.84%
Index: Standard & Poor's 500 Stock Index, an unmanaged index of 500 stocks.
6
<PAGE>
MAIN RISKS
[Clip Art] The value of your investment will go up and down in response to stock
market movements.
Large-capitalization stocks as a group could fall out of favor with the
market, causing the fund to underperform funds that focus on small- or
medium-capitalization stocks.
The fund's management strategy has a significant influence on fund
performance. If the investment research team's earnings estimates or projections
turn out to be inaccurate, or if the proprietary computer models do not perform
as expected, the fund could underperform its peers or lose money.
To the extent that the fund makes investments with additional risks, those risks
could increase volatility or reduce performance:
o Certain derivatives could produce disproportionate losses.
o In a down market, higher-risk securities and derivatives could become
harder to value or to sell at a fair price.
o Foreign investments carry additional risks, including potentially
inadequate or inaccurate financial information and social or political
instability.
================================================================================
YOUR EXPENSES
[Clip Art] Transaction expenses are charged directly to your account. Operating
expenses are paid from the fund's assets, and therefore are paid by shareholders
indirectly.
--------------------------------------------------------------------------------
Shareholder transaction expenses(1) Class A Class B Class C
--------------------------------------------------------------------------------
Maximum sales charge (load) on purchases
as a % of purchase price 5.00% none 1.00%
Maximum deferred sales charge (load)
as a % of purchase or sale price,
whichever is less none(2) 5.00% 1.00%
--------------------------------------------------------------------------------
Annual operating expenses Class A Class B Class C
--------------------------------------------------------------------------------
Management fee 0.74% 0.74% 0.74%
Distribution and service (12b-1) fees 0.30% 1.00% 1.00%
Other expenses 0.33% 0.33% 0.33%
Total fund operating expenses 1.37% 2.07% 2.07%
The hypothetical example below shows what your expenses would be if you
invested $10,000 over the time frames indicated, assuming you reinvested all
distributions and that the average annual return was 5%. The example is for
comparison only, and does not represent the fund's actual expenses and returns,
either past or future.
--------------------------------------------------------------------------------
Expenses Year 1 Year 3 Year 5 Year 10
--------------------------------------------------------------------------------
Class A $633 $912 $1,212 $2,064
Class B - with redemption $710 $949 $1,314 $2,221
- without redemption $210 $649 $1,114 $2,221
Class C - with redemption $407 $742 $1,202 $2,476
- without redemption $308 $742 $1,202 $2,476
(1) A $4.00 fee may be charged for wire redemptions.
(2) Except for investments of $1 million or more; see "How sales charges are
calculated."
FUND CODES
Class A
---------------------------------------
Ticker JHDCX
CUSIP 409902707
Newspaper CoreEqA
SEC number 811-1677
JH fund number 25
Class B
---------------------------------------
Ticker JHIDX
CUSIP 409902806
Newspaper CoreEqB
SEC number 811-1677
JH fund number 125
Class C
---------------------------------------
Ticker JHCEX
CUSIP 409902863
Newspaper CoreEqC
SEC number 811-1677
JH fund number 525
7
<PAGE>
Core Growth Fund
GOAL AND STRATEGY
[Clip Art] The fund seeks above-average total return. To pursue this goal, the
fund invests in a diversified portfolio of primarily large-capitalization stocks
and emphasizes stocks of companies with relatively high potential long-term
earnings growth. The portfolio's risk profile is substantially similar to that
of the Russell 1000 Growth Index.
The managers select from a menu of stocks of approximately 550 companies that
evolves over time. Approximately 40% to 50% of these companies also are included
in the Russell 1000 Growth Index. The subadviser's investment research team is
organized by industry and tracks these companies to develop earnings estimates
and five-year projections for growth. A series of proprietary computer models
use this in-house research to rank the stocks according to their combination of:
o value, meaning they appear to be underpriced
o improving fundamentals, meaning they show potential for strong growth
This process, together with a risk/return analysis against the Russell 1000
Growth Index, results in a portfolio of approximately 100 to 130 of the stocks
from the top 60% of the menu. The fund generally sells stocks that fall into the
bottom 20% of the menu.
In normal market conditions, the fund is almost entirely invested in stocks. The
fund may, however, invest in certain other types of equity securities, including
dollar-denominated foreign securities.
In abnormal market conditions, the fund may temporarily invest more than 35% of
assets in investment-grade short-term securities. In these and other cases, the
fund might not achieve its goal.
The fund may trade securities actively, which could increase its transaction
costs (thus lowering performance) and increase your taxable distributions.
================================================================================
SUBADVISER
Independence Investment
Associates, Inc.
---------------------------------------
Team responsible for day-to-day
investment management
A subsidiary of John Hancock Financial
Services, Inc.
Founded in 1982
Supervised by the adviser
PAST PERFORMACE
[Clip Art] The graph shows how the fund's total return has varied from year to
year, while the table shows performance over time (along with a broad-based
market index for reference). This information may help provide an indication of
the fund's risks. The year-by-year and average annual figures are for Class I
shares, which are offered in a separate prospectus. Annual returns should be
substantially similar since all classes invest in the same portfolio. However,
Class I shares' average annual figures do not reflect sales charges or 12b-1
fees, which were imposed beginning July 1, 1999 for Class A, B and C shares.
Year-by-year, average annual and index figures do not reflect these charges and
would be lower if they did. All figures assume dividend reinvestment. Past
performance does not indicate future results.
--------------------------------------------------------------------------------
Class I year-by-year total returns -- calendar years
--------------------------------------------------------------------------------
1996 1997 1998 1999
20.52% 36.22% 37.94% 20.00%
2000 total return as of March 31: 8.99%
Best quarter: Q4 '98, 27.44% Worst quarter: Q3 '98, -12.00%
--------------------------------------------------------------------------------
Average annual total returns -- for periods ending 12/31/99
--------------------------------------------------------------------------------
Life of
1 year Class I
Class I - began 10/2/95 20.00% 27.96%
Class A - began 7/1/99 -- --
Class B - began 7/1/99 -- --
Class C - began 7/1/99 -- --
Index 32.27% 30.53%
Index: Russell 1000 Growth Index, an unmanaged index of growth stocks in the
Russell 1000 Index of the 1,000 largest-capitalization U.S. stocks.
8
<PAGE>
MAIN RISKS
[Clip Art] The value of your investment will go up and down in response to stock
market movements.
Large-capitalization stocks as a group could fall out of favor with the market,
causing the fund to underperform funds that focus on small- or
medium-capitalization stocks. Similarly, growth stocks could underperform value
stocks.
The fund's management strategy has a significant influence on fund performance.
If the investment research team's earnings estimates or projections turn out to
be inaccurate, or if the proprietary computer models do not perform as expected,
the fund could underperform its peers or lose money.
To the extent that the fund makes investments with additional risks, those risks
could increase volatility or reduce performance:
o Foreign investments carry additional risks, including potentially
inadequate or inaccurate financial information and social or political
instability.
================================================================================
YOUR EXPENSES
[Clip Art] Transaction expenses are charged directly to your account. Operating
expenses are paid from the fund's assets, and therefore are paid by shareholders
indirectly.
--------------------------------------------------------------------------------
Shareholder transaction expenses(1) Class A Class B Class C
--------------------------------------------------------------------------------
Maximum sales charge (load) on purchases
as a % of purchase price 5.00% none 1.00%
Maximum deferred sales charge (load)
(as a % of purchase or sales price,
whichever is less) none(2) 5.00% 1.00%
--------------------------------------------------------------------------------
Annual operating expenses(3) Class A Class B Class C
--------------------------------------------------------------------------------
Management fee 0.80% 0.80% 0.80%
Distribution and service (12b-1) fees 0.30% 1.00% 1.00%
Other expenses 0.73% 0.73% 0.73%
Total fund operating expenses 1.83% 2.53% 2.53%
Expense reimbursement (at least until 6/30/01) 0.38% 0.38% 0.38%
Net annual operating expenses 1.45% 2.15% 2.15%
The hypothetical example below shows what your expenses would be after the
expense reimbursement (first year only) if you invested $10,000 over the time
frames indicated, assuming you reinvested all distributions and that the
average annual return was 5%. The example is for comparison only, and does not
represent the fund's actual expenses and returns, either past or future.
--------------------------------------------------------------------------------
Expenses Year 1 Year 3 Year 5 Year 10
--------------------------------------------------------------------------------
Class A $640 $1,012 $1,407 $2,511
Class B - with redemption $718 $1,051 $1,511 $2,665
- without redemption $218 $ 751 $1,311 $2,665
Class C - with redemption $415 $ 844 $1,398 $2,909
- without redemption $316 $ 844 $1,398 $2,909
(1) A $4.00 fee may be charged for wire redemptions.
(2) Except for investments of $1 million or more; see "How sales charges are
calculated."
(3) Expense figures show the expenses for the past year adjusted to reflect
any changes.
FUND CODES
Class A
---------------------------------------
Ticker JACGX
CUSIP 410132849
Newspaper CoreGrA
SEC number 811-8852
JHfund number 79
Class B
---------------------------------------
Ticker JBCGX
CUSIP 410132831
Newspaper CoreGrB
SEC number 811-8852
JHfund number 179
Class C
---------------------------------------
Ticker --
CUSIP 410132823
Newspaper --
SEC number 811-8852
JHfund number 579
9
<PAGE>
Core Value Fund
GOAL AND STRATEGY
[Clip Art] The fund seeks above-average total return. To pursue this goal, the
fund invests in a diversified portfolio of primarily large-capitalization stocks
and emphasizes relatively undervalued stocks and high dividend yields. The
portfolio's risk profile is substantially similar to that of the Russell 1000
Value Index.
The managers select from a menu of stocks of approximately 550 companies that
evolves over time. Approximately 50% to 60% of these companies also are included
in the Russell 1000 Value Index. The subadviser's investment research team is
organized by industry and tracks these companies to develop earnings estimates
and five-year projections for growth. A series of proprietary computer models
use this in-house research to rank the stocks according to their combination of:
o value, meaning they appear to be underpriced
o improving fundamentals, meaning they show potential for strong growth
This process, together with a risk/return analysis against the Russell 1000
Value Index, results in a portfolio of approximately 100 to 130 of the stocks
from the top 60% of the menu. The fund generally sells stocks that fall into the
bottom 20% of the menu.
In normal market conditions, the fund is almost entirely invested in stocks. The
fund may, however, invest in certain other types of equity securities, including
dollar-denominated foreign securities.
In abnormal market conditions, the fund may temporarily invest more than 35% of
assets in investment-grade short-term securities. In these and other cases, the
fund might not achieve its goal.
The fund may trade securities actively, which could increase its transaction
costs (thus lowering performance) and increase your taxable distributions.
================================================================================
SUBADVISER
Independence Investment
Associates, Inc.
---------------------------------------
Team responsible for day-to-day
investment management
A subsidiary of John Hancock Financial
Services, Inc.
Founded in 1982
Supervised by the adviser
PAST PERFORMACE
[Clip Art] The graph shows how the fund's total return has varied from year to
year, while the table shows performance over time (along with a broad-based
market index for reference). This information may help provide an indication of
the fund's risks. Class A average annual figures reflect sales charges.
Year-by-year and index figures do not reflect these charges and would be lower
if they did. In addition, 12b-1 fees were imposed beginning July 1, 2000 for
Class A shares and would result in lower returns if reflected in these figures.
All figures assume dividend reinvestment. Past performance does not indicate
future results.
--------------------------------------------------------------------------------
Class A year-by-year total returns -- calendar years
--------------------------------------------------------------------------------
1996 1997 1998 1999
20.66% 30.63% 18.79% 4.65%
2000 total return as of March 31: -2.52%
Best quarter: Q4 '98, 18.79% Worst quarter: Q3 '98, -13.99%
--------------------------------------------------------------------------------
Average annual total returns -- for periods ending 12/31/99
--------------------------------------------------------------------------------
Life of
1 year Class A
Class A - began 10/2/95 -0.60% 17.80%
Class B - began 7/1/99 -- --
Class C - began 7/1/99 -- --
Index 7.35% 20.09%
Index: Russell 1000 Value Index, an unmanaged index of value stocks in the
Russell 1000 Index of the 1,000 largest-capitalization U.S. stocks.
10
<PAGE>
MAIN RISKS
[Clip Art] The value of your investment will go up and down in response to stock
market movements.
Large-capitalization stocks as a group could fall out of favor with the market,
causing the fund to underperform funds that focus on small- or
medium-capitalization stocks. Similarly, value stocks could underperform growth
stocks.
The fund's management strategy has a significant influence on fund performance.
If the investment research team's earnings estimates or projections turn out to
be inaccurate, or if the proprietary computer models do not perform as expected,
the fund could underperform its peers or lose money.
To the extent that the fund makes investments with additional risks, those risks
could increase volatility or reduce performance:
o Foreign investments carry additional risks, including potentially
inadequate or inaccurate financial information and social or political
instability.
================================================================================
YOUR EXPENSES
[Clip Art] Transaction expenses are charged directly to your account. Operating
expenses are paid from the fund's assets, and therefore are paid by shareholders
indirectly.
--------------------------------------------------------------------------------
Shareholder transaction expenses(1) Class A Class B Class C
--------------------------------------------------------------------------------
Maximum sales charge (load) on purchases
as a % of purchase price 5.00% none 1.00%
Maximum deferred sales charge (load)
(as a % of purchase or sales price,
whichever is less) none(2) 5.00% 1.00%
--------------------------------------------------------------------------------
Annual operating expenses(3) Class A Class B Class C
--------------------------------------------------------------------------------
Management fee 0.80% 0.80% 0.80%
Distribution and service (12b-1) fees 0.30% 1.00% 1.00%
Other expenses 1.04% 1.04% 1.04%
Total fund operating expenses 2.14% 2.84% 2.84%
Expense reimbursement (at least until 6/30/01) 0.64% 0.64% 0.64%
Net annual operating expenses 1.50% 2.20% 2.20%
The hypothetical example below shows what your expenses would be after the
expense reimbursement (first year only) if you invested $10,000 over the time
frames indicated, assuming you reinvested all distributions and that the
average annual return was 5%. The example is for comparison only, and does not
represent the fund's actual expenses and returns, either past or future.
--------------------------------------------------------------------------------
Expenses Year 1 Year 3 Year 5 Year 10
--------------------------------------------------------------------------------
Class A $645 $1,078 $1,536 $2,801
Class B - with redemption $723 $1,120 $1,642 $2,953
- without redemption $223 $ 820 $1,442 $2,953
Class C - with redemption $420 $ 911 $1,528 $3,189
- without redemption $321 $ 911 $1,528 $3,189
(1) A $4.00 fee may be charged for wire redemptions.
(2) Except for investments of $1 million or more; see "How sales charges are
calculated."
(3) Expense figures show the expenses for the past year adjusted to reflect
any changes.
FUND CODES
Class A
---------------------------------------
Ticker JHIVX
CUSIP 410132807
Newspaper --
SEC number 811-8852
JHfund number 88
Class B
---------------------------------------
Ticker --
CUSIP 410132815
Newspaper --
SEC number 811-8852
JHfund number 188
Class C
---------------------------------------
Ticker --
CUSIP 410132799
Newspaper --
SEC number 811-8852
JHfund number 588
11
<PAGE>
Large Cap Growth Fund
GOAL AND STRATEGY
[Clip Art] The fund seeks long-term capital appreciation. To pursue this goal,
the fund normally invests at least 65% of assets in stocks of
large-capitalization companies (companies in the capitalization range of the
Standard & Poor's 500 Stock Index, which was $316 million to $553 billion as of
March 31, 2000).
In choosing individual stocks, the managers use fundamental financial analysis
to identify companies with:
o strong cash flows
o secure market franchises
o sales growth that outpaces their industries
The fund generally invests in 30 to 60 U.S. companies that are diversified
across sectors. The fund has tended to emphasize, or overweight, certain sectors
such as health care, technology or consumer goods. These weightings may change
in the future.
The management team uses various means to assess the depth and stability of
companies' senior management, including interviews and company visits. The fund
favors companies for which the managers project an above- average growth rate.
The fund may invest in preferred stocks and other types of equities, and may
invest up to 15% of assets in foreign securities. The fund may also make limited
use of certain derivatives (investments whose value is based on indices,
securities or currencies).
In abnormal market conditions, the fund may temporarily invest extensively in
investment-grade short-term securities. In these and other cases, the fund might
not achieve its goal.
The fund may trade securities actively, which could increase its transaction
costs (thus lowering performance) and increase your taxable distributions.
================================================================================
PORTFOLIO MANAGER
Team responsible for day-to-day
investment management
PAST PERFORMACE
[Clip Art] The graph shows how the fund's total return has varied from year to
year, while the table shows performance over time (along with a broad-based
market index for reference). This information may help provide an indication of
the fund's risks. The average annual figures reflect sales charges; the
year-by-year and index figures do not, and would be lower if they did. Beginning
May 1, 2000, a 1% front-end sales charge on Class C shares was imposed, which
would result in lower returns if reflected in these figures. All figures assume
dividend reinvestment. Past performance does not indicate future results.
--------------------------------------------------------------------------------
Class A year-by-year total returns -- calendar years
--------------------------------------------------------------------------------
1990 1991 1992 1993 1994 1995 1996 1997 1998 1999
-8.34% 41.68% 6.06% 13.03% -7.50% 27.17% 20.40% 16.70% 26.42% 20.52%
2000 total return as of March 31: 1.28%
Best quarter: Q4 '98, 22.38% Worst quarter: Q3 '90, -18.75%
--------------------------------------------------------------------------------
Average annual total returns -- for periods ending 12/31/99
--------------------------------------------------------------------------------
Life of Life of
1 year 5 year 10 year Class B Class C
Class A 14.48% 20.93% 14.02% -- --
Class B - began 1/3/94 14.73% 21.11% -- 16.08% --
Class C - began 6/1/98 18.69% -- -- -- 23.26%
Index 21.03% 28.54% 18.19% 23.55% 22.32%
Index: Standard & Poor's 500 Stock Index, an unmanaged index of 500 stocks.
12
<PAGE>
MAIN RISKS
[Clip Art] The value of your investment will go up and down in response to stock
market movements.
The fund's management strategy has a significant influence on fund performance.
Large-capitalization stocks as a group could fall out of favor with the market,
causing the fund to underperform investments that focus on small- or
medium-capitalization stocks. Similarly, growth stocks could underperform value
stocks. To the extent the fund invests in a given industry, its performance will
be hurt if that industry performs poorly. In addition, if the managers' security
selection strategies do not perform as expected, the fund could underperform its
peers or lose money.
To the extent that the fund makes investments with additional risks, these risks
could increase volatility or reduce performance:
o Certain derivatives could produce disproportionate losses.
o In a down market, higher-risk securities and derivatives could become
harder to value or to sell at a fair price.
o Foreign investments carry additional risks, including potentially
unfavorable currency exchange rates, inadequate or inaccurate financial
information and social or political instability.
================================================================================
YOUR EXPENSES
[Clip Art] Transaction expenses are charged directly to your account. Operating
expenses are paid from the fund's assets, and therefore are paid by shareholders
indirectly.
--------------------------------------------------------------------------------
Shareholder transaction expenses(1) Class A Class B Class C
--------------------------------------------------------------------------------
Maximum sales charge (load) on purchases
as a % of purchase price 5.00% none 1.00%
Maximum deferred sales charge (load)
as a % of purchase or sale price,
whichever is less none(2) 5.00% 1.00%
--------------------------------------------------------------------------------
Annual operating expenses Class A Class B Class C
--------------------------------------------------------------------------------
Management fee 0.75% 0.75% 0.75%
Distribution and service (12b-1) fees 0.30% 1.00% 1.00%
Other expenses 0.30% 0.30% 0.30%
Total fund operating expenses 1.35% 2.05% 2.05%
The hypothetical example below shows what your expenses would be if you
invested $10,000 over the time frames indicated, assuming you reinvested all
distributions and that the average annual return was 5%. The example is for
comparison only, and does not represent the fund's actual expenses and returns,
either past or future.
--------------------------------------------------------------------------------
Expenses Year 1 Year 3 Year 5 Year 10
--------------------------------------------------------------------------------
Class A $631 $906 $1,202 $2,043
Class B - with redemption $708 $943 $1,303 $2,200
- without redemption $208 $643 $1,103 $2,200
Class C - with redemption $405 $736 $1,192 $2,455
- without redemption $306 $736 $1,192 $2,455
(1) A $4.00 fee may be charged for wire redemptions.
(2) Except for investments of $1 million or more; see "How sales charges are
calculated."
FUND CODES
Class A
---------------------------------------
Ticker JHNGX
CUSIP 409906302
Newspaper LpCpGrA
SEC number 811-4630
JHfund number 20
Class B
---------------------------------------
Ticker JHGBX
CUSIP 409906401
Newspaper LpCpGrB
SEC number 811-4630
JHfund number 120
Class C
---------------------------------------
Ticker --
CUSIP 409906849
Newspaper --
SEC number 811-4630
JHfund number 520
13
<PAGE>
Large Cap Value Fund
GOAL AND STRATEGY
[Clip Art] The fund seeks the highest total return (capital appreciation plus
current income) that is consistent with reasonable safety of capital. To pursue
this goal, the fund normally invests at least 65% of assets in stocks of
large-capitalization companies (companies in the capitalization range of the
Standard & Poor's 500 Stock Index, which was $316 million to $553 billion as of
March 31, 2000).
In managing the portfolio, the managers emphasize a value-oriented approach to
individual stock selection. With the aid of proprietary financial models, the
management team looks for companies that are selling at what appear to be
substantial discounts to their long-term intrinsic and "franchise" values. These
companies often have identifiable catalysts for growth, such as new products,
business reorganizations or mergers.
The fund manages risk by typically holding between 50 and 150 large companies
that are diversified across industry sectors. The management team also uses
fundamental financial analysis to identify individual companies with substantial
cash flows, reliable revenue streams, superior competitive positions and strong
management.
The fund may attempt to take advantage of short-term market volatility by
investing in corporate restructurings or pending acquisitions.
In selecting bonds of any maturity, the manager looks for the most favorable
risk/return ratios. The fund may invest up to 15% of net assets in junk bonds
rated as low as CC/Ca and their unrated equivalents.
The fund may invest up to 25% of assets in foreign securities (35% during
adverse U.S. market conditions). The fund may also make limited use of certain
derivatives (investments whose value is based on indices, securities or
currencies).
In abnormal market conditions, the fund may temporarily invest extensively in
investment-grade short-term securities. In these and other cases, the fund might
not achieve its goal.
================================================================================
PORTFOLIO MANAGERS
Timothy E. Quinlisk, CFA
---------------------------------------
Senior vice president of adviser
Joined team in 1998
Joined adviser in 1998
Began business career in 1985
R. Scott Mayo, CFA
---------------------------------------
Joined team in 2000
Joined adviser in 1998
Began business career in 1993
PAST PERFORMACE
[Clip Art] The graph shows how the fund's total return has varied from year to
year, while the table shows performance over time (along with a broad-based
market index for reference). This information may help provide an indication of
the fund's risks. The average annual figures reflect sales charges; the
year-by-year and index figures do not, and would be lower if they did. Beginning
May 1, 2000, a 1% front-end sales charge on Class C shares was imposed, which
would result in lower returns if reflected in these figures. All figures assume
dividend reinvestment. Past performance does not indicate future results.
--------------------------------------------------------------------------------
Class A year-by-year total returns -- calendar years
--------------------------------------------------------------------------------
1990 1991 1992 1993 1994 1995 1996 1997 1998 1999
-0.44% 32.29% 6.02% 9.74% -8.49% 36.74% 22.21% 36.71% 15.94% 37.89%
2000 total return as of March 31: 8.07%
Best quarter: Q4 '99, 31.65% Worst quarter: Q3 '98, -12.95%
--------------------------------------------------------------------------------
Average annual total returns -- for periods ending 12/31/99
--------------------------------------------------------------------------------
Life of Life of
1 year 5 year 10 year Class B Class C
Class A 30.99% 28.25% 17.15% -- --
Class B - began 8/22/91 31.95% 28.49% -- 18.21% --
Class C - began 5/1/98 35.94% -- -- -- 21.33%
Index 21.03% 28.54% 18.19% 19.73% 19.84%
Index: Standard & Poor's 500 Stock Index, an unmanaged index of 500 stocks.
14
<PAGE>
MAIN RISKS
[Clip Art] The value of your investment will go up and down in response to stock
and bond market movements.
The fund's management strategy has a significant influence on fund performance.
Large-capitalization stocks as a group could fall out of favor with the market,
causing the fund to underperform investments that focus on small- or
medium-capitalization stocks. Similarly, value stocks could underperform growth
stocks. In addition, if the managers' securities selection strategies do not
perform as expected, the fund could underperform its peers or lose money.
To the extent that the fund makes investments with additional risks, those risks
could increase volatility or reduce performance:
o Certain derivatives could produce disproportionate losses.
o In a down market, higher-risk securities and derivatives could become
harder to value or to sell at a fair price.
o Foreign investments carry additional risks, including potentially
unfavorable currency exchange rates, inadequate or inaccurate financial
information and social or political instability.
o Any bonds held by the fund could be downgraded in credit rating or go into
default. Bond prices generally fall when interest rates rise and longer
maturity will increase volatility. Junk bond prices can fall on bad news
about the economy, an industry or a company.
The fund may trade securities actively, which could increase its transaction
costs (thus lowering performance) and increase your taxable distributions.
================================================================================
YOUR EXPENSES
[Clip Art] Transaction expenses are charged directly to your account. Operating
expenses are paid from the fund's assets, and therefore are paid by shareholders
indirectly.
--------------------------------------------------------------------------------
Shareholder transaction expenses(1) Class A Class B Class C
--------------------------------------------------------------------------------
Maximum sales charge (load) on purchases
as a % of purchase price 5.00% none 1.00%
Maximum deferred s ales charge (load)
as a % of purchase or sale price,
whichever is less none(2) 5.00% 1.00%
--------------------------------------------------------------------------------
Annual operating expenses Class A Class B Class C
--------------------------------------------------------------------------------
Management fee 0.625% 0.625% 0.625%
Distribution and service (12b-1) fees 0.25% 1.00% 1.00%
Other expenses 0.295% 0.295% 0.295%
Total fund operating expenses 1.17% 1.92% 1.92%
The hypothetical example below shows what your expenses would be if you
invested $10,000 over the time frames indicated, assuming you reinvested all
distributions and that the average annual return was 5%. The example is for
comparison only, and does not represent the fund's actual expenses and returns,
either past or future.
--------------------------------------------------------------------------------
Expenses Year 1 Year 3 Year 5 Year 10
--------------------------------------------------------------------------------
Class A $613 $853 $1,111 $1,849
Class B - with redemption $695 $903 $1,237 $2,048
- without redemption $195 $603 $1,037 $2,048
Class C - with redemption $392 $697 $1,126 $2,321
- without redemption $293 $697 $1,126 $2,321
(1) A $4.00 fee may be charged for wire redemptions.
(2) Except for investments of $1 million or more; see "How sales charges are
calculated."
FUND CODES
Class A
---------------------------------------
Ticker TAGRX
CUSIP 41013P103
Newspaper LgCpVIA
SEC number 811-0560
JH fund number 50
Class B
---------------------------------------
Ticker TSGWX
CUSIP 41013P202
Newspaper LgCpVIB
SEC number 811-0560
JH fund number 150
Class C
---------------------------------------
Ticker JHLVX
CUSIP 41013P301
Newspaper LgCpVIC
SEC number 811-0560
JH fund number 550
15
<PAGE>
Mid Cap Growth Fund
GOAL AND STRATEGY
[Clip Art] The fund seeks long-term capital appreciation. To pursue this goal,
the fund normally invests at least 80% of assets in stocks of
medium-capitalization companies (companies in the capitalization range of the
Russell Midcap Growth Index, which was $171 million to $66.54 billion as of
March 31, 2000).
The manager conducts fundamental financial analysis to identify companies with
above-average earnings growth.
In choosing individual securities, the manager looks for companies with growth
stemming from a combination of gains in market share and increasing operating
efficiency. Before investing, the manager identifies a specific catalyst for
growth, such as a new product, business reorganization or merger.
The management team generally maintains personal contact with the senior
management of the companies the fund invests in.
The manager considers broad economic trends, demographic factors, technological
changes, consolidation trends and legislative initiatives.
The fund generally invests in more than 100 companies. The fund may not invest
more than 5% of assets in any one security.
The fund may invest up to 10% of assets in foreign securities. The fund may also
make limited use of certain derivatives (investments whose value is based on
indices or currencies).
In abnormal conditions, the fund may temporarily invest in U.S. government
securities with maturities of up to three years and more than 10% of assets in
cash or cash equivalents. In these and other cases, the fund might not achieve
its goal.
The fund may trade securities actively, which could increase its transaction
costs (thus lowering performance) and increase your taxable distributions.
================================================================================
PORTFOLIO MANAGER
Barbara C. Friedman, CFA
---------------------------------------
Senior vice president of adviser
Joined team in 1998
Joined adviser in 1998
Began business career in 1973
PAST PERFORMACE
[Clip Art] The graph shows how the fund's total return has varied from year to
year, while the table shows performance over time (along with broad-based market
indices for reference). This information may help provide an indication of the
fund's risks. The average annual figures reflect sales charges; the year-by-year
and index figures do not, and would be lower if they did. Beginning May 1, 2000,
a 1% front-end sales charge on Class C shares was imposed, which would result in
lower returns if reflected in these figures. All figures assume dividend
reinvestment. Past performance does not indicate future results.
--------------------------------------------------------------------------------
Class A year-by-year total returns -- calendar years
--------------------------------------------------------------------------------
1994 1995 1996 1997 1998 1999
-8.76% 34.24% 29.05% 2.37% 6.53% 58.17%
2000 total return as of March 31: 12.79%
Best quarter: Q4 '99, 45.43% Worst quarter: Q3 '98, -21.36%
--------------------------------------------------------------------------------
Average annual total returns -- for periods ending 12/31/99
--------------------------------------------------------------------------------
Life of Life of Life of
1 year 5 year Class A Class B Class C
Class A - began 11/1/93 50.24% 23.19% 16.58% -- --
Class B - began 11/1/93 52.21% 23.44% -- 16.75% --
Class C - began 6/1/98 56.11% -- -- -- 34.27%
Index 1 21.03% 28.54% 23.07% 23.07% 22.32%
Index 2 18.23% 21.86% 17.21% 17.21% 36.63%
Index 1: Standard & Poor's 500 Stock Index, an unmanaged index of 500 stocks.
Index 2: Russell Midcap Growth Index, an unmanaged index containing those stocks
from the Russell Midcap Index with a greater-than-average growth orientation.
16
<PAGE>
MAIN RISKS
[Clip Art] The value of your investment will go up and down in response to stock
market movements.
The fund's management strategy has a significant influence on fund performance.
Medium-capitalization stocks tend to be more volatile than stocks of larger
companies, and as a group could fall out of favor with the market, causing the
fund to underperform investments that focus either on small- or on
large-capitalization stocks. Similarly, growth stocks could underperform value
stocks. To the extent the fund invests in a given industry, its performance will
be hurt if that industry performs poorly. In addition, if the manager's security
selection strategies do not perform as expected, the fund could underperform its
peers or lose money.
To the extent that the fund makes investments with additional risks, these risks
could increase volatility or reduce performance:
o Certain derivatives could produce disproportionate losses.
o In a down market, higher-risk securities and derivatives could become
harder to value or to sell at a fair price.
o Foreign investments carry additional risks, including potentially
unfavorable currency exchange rates, inadequate or inaccurate financial
information and social or political instability.
================================================================================
YOUR EXPENSES
[Clip Art] Transaction expenses are charged directly to your account. Operating
expenses are paid from the fund's assets, and therefore are paid by shareholders
indirectly.
--------------------------------------------------------------------------------
Shareholder transaction expenses(1) Class A Class B Class C
--------------------------------------------------------------------------------
Maximum sales charge (load) on purchases
as a % of purchase price 5.00% none 1.00%
Maximum deferred sales charge (load)
as a % of purchase or sale price,
whichever is less none(2) 5.00% 1.00%
--------------------------------------------------------------------------------
Annual operating expenses Class A Class B Class C
--------------------------------------------------------------------------------
Management fee 0.80% 0.80% 0.80%
Distribution and service (12b-1) fees 0.30% 1.00% 1.00%
Other expenses 0.50% 0.50% 0.50%
Total fund operating expenses 1.60% 2.30% 2.30%
The hypothetical example below shows what your expenses would be if you
invested $10,000 over the time frames indicated, assuming you reinvested all
distributions and that the average annual return was 5%. The example is for
comparison only, and does not represent the fund's actual expenses and returns,
either past or future.
--------------------------------------------------------------------------------
Expenses Year 1 Year 3 Year 5 Year 10
--------------------------------------------------------------------------------
Class A $655 $ 980 $1,327 $2,305
Class B - with redemption $733 $1,018 $1,430 $2,461
- without redemption $233 $ 718 $1,230 $2,461
Class C - with redemption $430 $ 811 $1,318 $2,709
- without redemption $331 $ 811 $1,318 $2,709
(1) A $4.00 fee may be charged for wire redemptions.
(2) Except for investments of $1 million or more; see "How sales charges are
calculated."
FUND CODES
Class A
---------------------------------------
Ticker SPOAX
CUSIP 409906807
Newspaper MdCpGrA
SEC number 811-4630
JH fund number 39
Class B
---------------------------------------
Ticker SPOBX
CUSIP 409906880
Newspaper MdCpGrB
SEC number 811-4630
JH fund number 139
Class C
---------------------------------------
Ticker --
CUSIP 409906823
Newspaper --
SEC number 811-4630
JH fund number 539
17
<PAGE>
Small Cap Growth Fund
GOAL AND STRATEGY
[Clip Art] The fund seeks long-term capital appreciation. To pursue this goal,
the fund normally invests at least 80% of assets in stocks of
small-capitalization companies (companies in the capitalization range of the
Russell 2000 Growth Index, which was $23 million to $10.45 billion as of March
31, 2000).
The managers look for companies in the emerging growth phase of development that
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.
To manage risk, the fund typically invests in 150 to 220 companies across many
industries, and does not invest more than 5% of assets in any one company.
In choosing individual securities, the managers use fundamental financial
analysis to identify rapidly growing companies. The managers favor companies
that dominate their market niches or are poised to become market leaders. They
look for strong senior management teams and coherent business strategies. They
generally maintain personal contact with the senior management of the companies
the fund invests in.
The fund may invest in preferred stocks and other types of equities, and may
invest up to 10% of assets in foreign securities. The fund may also make limited
use of certain derivatives (investments whose value is based on indices or
currencies).
In abnormal conditions, the fund may temporarily invest in U.S. government
securities with maturities of up to three years and more than 10% of assets in
cash and cash equivalents. In these and other cases, the fund might not achieve
its goal.
The fund may trade securities actively, which could increase its transaction
costs (thus lowering performance) and increase your taxable distributions.
================================================================================
PORTFOLIO MANAGERS
Bernice S. Behar, CFA
---------------------------------------
Senior vice president of adviser
Joined team in 1996
Joined adviser in 1991
Began business career in 1986
Laura J. Allen, CFA
---------------------------------------
Senior vice president of adviser
Joined team in 1998
Joined adviser in 1998
Began business career in 1981
Anurag Pandit, CFA
---------------------------------------
Vice president of adviser
Joined team in 1996
Joined adviser in 1996
Began business career in 1984
PAST PERFORMACE
[Clip Art] The graph shows how the fund's total return has varied from year to
year, while the table shows performance over time (along with broad-based market
indices for reference). This information may help provide an indication of the
fund's risks. The average annual figures reflect sales charges; the year-by-year
and index figures do not, and would be lower if they did. Beginning May 1, 2000,
a 1% front-end sales charge on Class C shares was imposed, which would result in
lower returns if reflected in these figures. All figures assume dividend
reinvestment. Past performance does not indicate future results.
--------------------------------------------------------------------------------
Class B year-by-year total returns -- calendar years
--------------------------------------------------------------------------------
1990 1991 1992 1993 1994 1995 1996 1997 1998 1999
-1.15% 58.82% 12.13% 11.82% -1.49% 42.13% 12.95% 14.45% 11.65% 63.62%
2000 total return as of March 31: 14.03%
Best quarter: Q4 '99, 43.58% Worst quarter: Q3 '90, -23.09%
--------------------------------------------------------------------------------
Average annual total returns -- for periods ending 12/31/99
--------------------------------------------------------------------------------
Life of Life of
1 year 5 year 10 year Class A Class C
Class A - began 8/22/91 56.65% 27.03% -- 20.50% --
Class B 58.62% 27.25% 20.60% -- --
Class C - began 6/1/98 62.59% -- -- -- 45.00%
Index 1 21.26% 16.69% 13.40% 15.19% 7.92%
Index 2 43.09% 18.99% 13.51% 14.65% 22.94%
Index 1: Russell 2000 Index, an unmanaged index of 2,000 U.S.
small-capitalization stocks.
Index 2: Russell 2000 Growth Index, an unmanaged index containing those stocks
from the Russell 2000 Index with a greater-than-average growth orientation.
18
<PAGE>
MAIN RISKS
[Clip Art] The value of your investment will go up and down in response to stock
market movements.
The fund's management strategy has a significant influence on fund performance.
Small-capitalization stocks as a group could fall out of favor with the market,
causing the fund to underperform investments that focus on medium- or large-
capitalization stocks. Similarly, growth stocks could underperform value stocks.
To the extent the fund invests in a given industry, its performance will be hurt
if that industry performs poorly. In addition, if the managers' security
selection strategies do not perform as expected, the fund could underperform its
peers or lose money.
Stocks of smaller companies are more volatile than stocks of larger companies.
Many smaller companies have short track records, narrow product lines or niche
markets, making them highly vulnerable to isolated business setbacks.
To the extent that the fund makes investments with additional risks, these risks
could increase volatility or reduce performance:
o Certain derivatives could produce disproportionate losses.
o In a down market, higher-risk securities and derivatives could become
harder to value or to sell at a fair price; this risk could also affect
small-capitalization stocks, especially those with low trading volumes.
o Foreign investments carry additional risks, including potentially
unfavorable currency exchange rates, inadequate or inaccurate financial
information and social or political instability.
================================================================================
YOUR EXPENSES
[Clip Art] Transaction expenses are charged directly to your account. Operating
expenses are paid from the fund's assets, and therefore are paid by shareholders
indirectly.
--------------------------------------------------------------------------------
Shareholder transaction expenses(1) Class A Class B Class C
--------------------------------------------------------------------------------
Maximum sales charge (load) on purchases
as a % of purchase price 5.00% none 1.00%
Maximum deferred s ales charge (load)
as a % of purchase or sale price,
whichever is less none(2) 5.00% 1.00%
--------------------------------------------------------------------------------
Annual operating expenses Class A Class B Class C
--------------------------------------------------------------------------------
Management fee 0.75% 0.75% 0.75%
Distribution and service (12b-1) fees 0.25% 1.00% 1.00%
Other expenses 0.34% 0.34% 0.34%
Total fund operating expenses 1.34% 2.09% 2.09%
The hypothetical example below shows what your expenses would be if you
invested $10,000 over the time frames indicated, assuming you reinvested all
distributions and that the average annual return was 5%. The example is for
comparison only, and does not represent the fund's actual expenses and returns,
either past or future.
--------------------------------------------------------------------------------
Expenses Year 1 Year 3 Year 5 Year 10
--------------------------------------------------------------------------------
Class A $630 $903 $1,197 $2,032
Class B - with redemption $712 $955 $1,324 $2,229
- without redemption $212 $655 $1,124 $2,229
Class C - with redemption $409 $748 $1,212 $2,497
- without redemption $310 $748 $1,212 $2,497
(1) A $4.00 fee may be charged for wire redemptions.
(2) Except for investments of $1 million or more; see "How sales charges are
calculated."
FUND CODES
Class A
---------------------------------------
Ticker TAEMX
CUSIP 478032105
Newspaper SmCpGrA
SEC number 811-3392
JHfund number 60
Class B
---------------------------------------
Ticker TSEGX
CUSIP 478032204
Newspaper SmCpGrB
SEC number 811-3392
JHfund number 160
Class C
---------------------------------------
Ticker --
CUSIP 478032501
Newspaper --
SEC number 811-3392
JHfund number 560
19
<PAGE>
Small Cap Value Fund
GOAL AND STRATEGY
[Clip Art] The fund seeks capital appreciation. To pursue this goal, the fund
normally invests at least 80% of assets in stocks of small-capitalization
companies (companies in the capitalization range of the Russell 2000 Index,
which was $23 million to $10.45 billion as of March 31, 2000).
In managing the portfolio, the managers emphasize a value-oriented approach to
individual stock selection. With the aid of proprietary financial models, the
management team looks for U.S. and foreign companies that are selling at what
appear to be substantial discounts to their long-term value. These companies
often have identifiable catalysts for growth, such as new products, business
reorganizations or mergers.
The management team uses fundamental financial analysis of individual companies
to identify those with substantial cash flows, reliable revenue streams and
strong competitive positions. The strength of companies' management teams is
also a key selection factor. The fund diversifies across industry sectors. The
fund may not invest more than 5% of assets in any one security.
The fund may invest up to 15% of assets in a basket of foreign securities or in
bonds of any maturity rated as low as CC/Ca and their unrated equivalents (bonds
below BBB/Baa are considered junk bonds). The fund may make limited use of
certain derivatives (investments whose value is based on indices or currencies).
Under normal conditions, the fund may not invest more than 10% of assets in cash
or cash equivalents.
In abnormal market conditions, the fund may temporarily invest extensively in
investment-grade short-term securities. In these and other cases, the fund might
not achieve its goal.
The fund may trade securities actively, which could increase its transaction
costs (thus lowering performance) and increase your taxable distributions.
================================================================================
PORTFOLIO MANAGERS
Timothy E. Quinlisk, CFA
---------------------------------------
Senior vice president of adviser
Joined team in 1998
Joined adviser in 1998
Began business career in 1985
R. Scott Mayo, CFA
---------------------------------------
Joined team in 2000
Joined adviser in 1998
Began business career in 1993
PAST PERFORMACE
[Clip Art] The graph shows how the fund's total return has varied from year to
year, while the table shows performance over time (along with a broad-based
market index for reference). This information may help provide an indication of
the fund's risks. The average annual figures reflect sales charges; the
year-by-year and index figures do not, and would be lower if they did. Beginning
May 1, 2000, a 1% front-end sales charge on Class C shares was imposed, which
would result in lower returns if reflected in these figures. All figures assume
dividend reinvestment. Past performance does not indicate future results.
--------------------------------------------------------------------------------
Class A year-by-year total returns -- calendar years
--------------------------------------------------------------------------------
1994 1995 1996 1997 1998 1999
7.81% 20.26% 12.91% 25.25% -2.10% 98.25%
2000 total return as of March 31: 10.76%
Best quarter: Q4 '99, 47.75% Worst quarter: Q3 '98, -21.43%
--------------------------------------------------------------------------------
Average annual total returns -- for periods ending 12/31/99
--------------------------------------------------------------------------------
Life of Life of Life of
1 year 5 year Class A Class B Class C
Class A - began 1/3/94 88.27% 25.69% 22.54% -- --
Class B - began 1/3/94 92.03% 25.90% -- 22.67% --
Class C - began 5/1/98 95.94% -- -- -- 39.67%
Index 21.26% 16.69% 13.39% 13.39% 4.00%
Index: Russell 2000 Index, an unmanaged index of 2,000 U.S. small-capitalization
stocks.
20
<PAGE>
MAIN RISKS
[Clip Art] The value of your investment will go up and down in response to stock
market movements.
The fund's management strategy has a significant influence on fund performance.
Small-capitalization stocks as a group could fall out of favor with the market,
causing the fund to underperform investments that focus on medium- or
large-capitalization stocks. Similarly, value stocks could underperform growth
stocks. To the extent the fund invests in a given industry, its performance will
be hurt if that industry performs poorly. In addition, if the managers' security
selection strategies do not perform as expected, the fund could underperform its
peers or lose money.
Stocks of smaller companies are more volatile than stocks of larger companies.
Many smaller companies have short track records, narrow product lines or niche
markets, making them highly vulnerable to isolated business setbacks.
To the extent that the fund makes investments with additional risks, these risks
could increase volatility or reduce performance:
o Certain derivatives could produce disproportionate losses.
o In a down market, higher-risk securities and derivatives could become
harder to value or to sell at a fair price; this risk could also affect
small-capitalization stocks, especially those with low trading volumes.
o Foreign investments carry additional risks, including potentially
unfavorable currency exchange rates, inadequate or inaccurate financial
information and social or political instability.
o Any bonds held by the fund could be downgraded in credit quality or go
into default. In addition, bond prices generally fall when interest rates
rise; this risk is greater for longer maturity bonds. Junk bond prices can
fall on bad news about the issuer, an industry or the economy in general.
================================================================================
YOUR EXPENSES
[Clip Art] Transaction expenses are charged directly to your account. Operating
expenses are paid from the fund's assets, and therefore are paid by shareholders
indirectly.
--------------------------------------------------------------------------------
Shareholder transaction expenses(1) Class A Class B Class C
--------------------------------------------------------------------------------
Maximum sales charge (load) on purchases
as a % of purchase price 5.00% none 1.00%
Maximum deferred sales charge (load)
as a % of purchase or sale price,
whichever is less none(2) 5.00% 1.00%
--------------------------------------------------------------------------------
Annual operating expenses Class A Class B Class C
--------------------------------------------------------------------------------
Management fee 0.70% 0.70% 0.70%
Distribution and service (12b-1) fees 0.30% 1.00% 1.00%
Other expenses 0.54% 0.54% 0.54%
Total fund operating expenses 1.54% 2.24% 2.24%
The hypothetical example below shows what your expenses would be if you
invested $10,000 over the time frames indicated, assuming you reinvested all
distributions and that the average annual return was 5%. The example is for
comparison only, and does not represent the fund's actual expenses and returns,
either past or future.
--------------------------------------------------------------------------------
Expenses Year 1 Year 3 Year 5 Year 10
--------------------------------------------------------------------------------
Class A $649 $ 962 $1,297 $2,243
Class B - with redemption $727 $1,000 $1,400 $2,399
- without redemption $227 $ 700 $1,200 $2,399
Class C - with redemption $424 $ 793 $1,288 $2,649
- without redemption $325 $ 793 $1,288 $2,649
(1) A $4.00 fee may be charged for wire redemptions.
(2) Except for investments of $1 million or more; see "How sales charges are
calculated."
FUND CODES
Class A
---------------------------------------
Ticker SPVAX
CUSIP 409905700
Newspaper SmCpVlA
SEC number 811-3999
JHfund number 37
Class B
---------------------------------------
Ticker SPVBX
CUSIP 409905809
Newspaper SmCpVlB
SEC number 811-3999
JHfund number 137
Class C
---------------------------------------
Ticker SPVCX
CUSIP 409905882
Newspaper --
SEC number 811-3999
JHfund number 537
21
<PAGE>
Sovereign Investors Fund
GOAL AND STRATEGY
[Clip Art] The fund seeks long-term growth of capital and income without
assuming undue market risks. To pursue this goal, the fund normally invests at
least 80% of stocks in a diversified portfolio of companies with market
capitalizations within the range of the Standard & Poor's 500 Stock Index. On
March 31, 2000, that range was $316 million to $553 billion.
At least 65% of the fund's stock investments are "dividend performers" --
companies whose dividend payments have increased steadily for ten years. The
managers use fundamental financial analysis to identify individual companies
with high-quality income statements, substantial cash reserves and identifiable
catalysts for growth, which may be new products or benefits from industrywide
growth. The managers generally visit companies to evaluate the strength and
consistency of their management strategy. Finally, the managers look for stocks
that are reasonably priced relative to their earnings and industry.
Historically, companies that meet these criteria have tended to have large or
medium capitalizations.
The fund may not invest more than 5% of assets in any one security. The fund may
invest in bonds of any maturity, with up to 5% of assets in junk bonds rated as
low as C and their unrated equivalents.
The fund typically invests in U.S. companies but may invest in
dollar-denominated foreign securities. It may also make limited use of certain
derivatives (investments whose value is based on indices).
Under normal conditions, the fund may not invest more than 10% of assets in cash
or cash equivalents.
In abnormal market conditions, the fund may temporarily invest extensively in
investment-grade short-term securities. In these and other cases, the fund might
not achieve its goal.
The fund may trade securities actively, which could increase its transaction
costs (thus lowering performance) and increase your taxable distributions.
================================================================================
PORTFOLIO MANAGERS
John F. Snyder, III
---------------------------------------
Executive vice president of adviser
Joined team in 1983
Joined adviser in 1991
Began business career in 1971
Barry H. Evans, CFA
---------------------------------------
Senior vice president of adviser
Joined team in 1996
Joined adviser in 1986
Began business career in 1986
Peter M. Schofield, CFA
---------------------------------------
Vice president of adviser
Joined team in 1996
Joined adviser in 1996
Began business career in 1984
PAST PERFORMACE
[Clip Art] The graph shows how the fund's total return has varied from year to
year, while the table shows performance over time (along with a broad-based
market index for reference). This information may help provide an indication of
the fund's risks. The average annual figures reflect sales charges; the
year-by-year and index figures do not, and would be lower if they did. Beginning
May 1, 2000, a 1% front-end sales charge on Class C shares was imposed, which
would result in lower returns if reflected in these figures. All figures assume
dividend reinvestment. Past performance does not indicate future results.
--------------------------------------------------------------------------------
Class A year-by-year total returns -- calendar years
--------------------------------------------------------------------------------
1990 1991 1992 1993 1994 1995 1996 1997 1998 1999
4.38% 30.48% 7.23% 5.71% -1.85% 29.15% 17.57% 29.14% 15.62% 5.91%
2000 total return as of March 31: -6.02%
Best quarter: Q4 '98, 15.56% Worst quarter: Q3 '90, -9.03%
--------------------------------------------------------------------------------
Average annual total returns -- for periods ending 12/31/99
--------------------------------------------------------------------------------
Life of Life of
1 year 5 year 10 year Class B Class C
Class A 0.60% 17.93% 13.23% -- --
Class B - began 1/3/94 0.20% 18.06% -- 14.55% --
Class C - began 5/1/98 4.17% -- -- -- 6.24%
Index 21.03% 28.54% 18.19% 23.55% 19.84%
Index: Standard & Poor's 500 Stock Index, an unmanaged index of 500 stocks.
22
<PAGE>
MAIN RISKS
[Clip Art] The value of your investment will go up and down in response to stock
and bond market movements.
The fund's management strategy has a significant influence on fund performance.
Large- or medium-capitalization stocks as a group could fall out of favor with
the market, causing the fund to underperform funds that focus on small-
capitalization stocks. Medium-capitalization stocks tend to be more volatile
than stocks of larger companies. In addition, if the managers' securities
selection strategies do not perform as expected, the fund could under-perform
its peers or lose money.
To the extent that the fund makes investments with additional risks, those risks
could increase volatility or reduce performance:
o Certain derivatives could produce disproportionate losses.
o In a down market, higher-risk securities and derivatives could become
harder to value or to sell at a fair price.
o Foreign investments carry additional risks, including inadequate or
inaccurate financial information and social or political instability.
o Any bonds held by the fund could be downgraded in credit rating or go into
default. Bond prices generally fall when interest rates rise and longer
maturity will increase volatility. Junk bond prices can fall on bad news
about the economy, an industry or a company.
================================================================================
YOUR EXPENSES
[Clip Art] Transaction expenses are charged directly to your account. Operating
expenses are paid from the fund's assets, and therefore are paid by shareholders
indirectly.
--------------------------------------------------------------------------------
Shareholder transaction expenses(1) Class A Class B Class C
--------------------------------------------------------------------------------
Maximum sales charge (load) on purchases
as a % of purchase price 5.00% none 1.00%
Maximum deferred sales charge (load)
as a % of purchase or sale price,
whichever is less none(2) 5.00% 1.00%
--------------------------------------------------------------------------------
Annual operating expenses Class A Class B Class C
--------------------------------------------------------------------------------
Management fee 0.54% 0.54% 0.54%
Distribution and service (12b-1) fees 0.30% 1.00% 1.00%
Other expenses 0.21% 0.21% 0.21%
Total fund operating expenses 1.05% 1.75% 1.75%
The hypothetical example below shows what your expenses would be if you
invested $10,000 over the time frames indicated, assuming you reinvested all
distributions and that the average annual return was 5%. The example is for
comparison only, and does not represent the fund's actual expenses and returns,
either past or future.
--------------------------------------------------------------------------------
Expenses Year 1 Year 3 Year 5 Year 10
--------------------------------------------------------------------------------
Class A $602 $817 $1,050 $1,718
Class B - with redemption $678 $851 $1,149 $1,878
- without redemption $178 $551 $ 949 $1,878
Class C - with redemption $375 $646 $1,039 $2,142
- without redemption $276 $646 $1,039 $2,142
(1) A $4.00 fee may be charged for wire redemptions.
(2) Except for investments of $1 million or more; see "How sales charges are
calculated."
FUND CODES
Class A
---------------------------------------
Ticker SOVIX
CUSIP 47803P302
Newspaper SvInvA
SEC number 811-0560
JH fund number 29
Class B
---------------------------------------
Ticker SOVBX
CUSIP 47803P401
Newspaper SvInvB
SEC number 811-0560
JH fund number 129
Class C
---------------------------------------
Ticker SOVCX
CUSIP 47803P609
Newspaper --
SEC number 811-0560
JH fund number 529
23
<PAGE>
Your account
--------------------------------------------------------------------------------
CHOOSING A SHARE CLASS
Each share class has its own cost structure, including a Rule 12b-1 plan that
allows it to pay fees for the sale, distribution and service of its shares. Your
financial representative can help you decide which share class is best for you.
--------------------------------------------------------------------------------
Class A
--------------------------------------------------------------------------------
o A front-end sales charge, as described at right.
o Distribution and service (12b-1) fees of 0.30% (0.25% for Large Cap Value
and Small Cap Growth).
--------------------------------------------------------------------------------
Class B
--------------------------------------------------------------------------------
o No front-end sales charge; all your money goes to work for you right away.
o Distribution and service (12b-1) fees of 1.00%.
o A deferred sales charge, as described on following page.
o Automatic conversion to Class A shares after eight years, thus reducing
future annual expenses.
--------------------------------------------------------------------------------
Class C
--------------------------------------------------------------------------------
o A front-end sales charge, as described at right.
o Distribution and service (12b-1) fees of 1.00%.
o A 1.00% contingent deferred sales charge on shares sold within one year of
purchase.
o No automatic conversion to Class A shares, so annual expenses continue at
the Class C level throughout the life of your investment.
For actual past expenses of each share class, see the fund-by-fund information
earlier in this prospectus.
Because 12b-1 fees are paid on an ongoing basis, they may cost share-holders
more than other types of sales charges.
Investors purchasing $1 million or more of Class B or Class C shares may want to
consider the lower operating expenses of Class A shares.
Your broker receives a percentage of these sales charges and fees. In addition,
John Hancock Funds may pay significant compensation out of its own resources to
your broker.
Your broker or agent may charge you a fee to effect transactions in fund shares.
--------------------------------------------------------------------------------
HOW SALES CHARGES ARE CALCULATED
Class A and Class C 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
--------------------------------------------------------------------------------
Class C sales charges
--------------------------------------------------------------------------------
As a % of As a % of your
Your investment offering price investment
Up to $1,000,000 1.00% 1.01%
$1,000,000 and over none
Investments of $1 million or more Class A and Class C shares are available with
no front-end sales charge. However, there is a contingent deferred sales charge
(CDSC) on any Class A shares sold within one year of purchase, as follows:
--------------------------------------------------------------------------------
CDSC on $1 million+ investments
--------------------------------------------------------------------------------
CDSC on shares
Your investment 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 first 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.
24 YOUR ACCOUNT
<PAGE>
Class B Shares are offered at their net asset value per share, without any
initial sales charge.
Class B and Class C A CDSC may be charged if you sell Class B or Class C shares
within a certain time after you bought them, as described in the tables below.
There is no CDSC on shares acquired through reinvestment of dividends. The CDSC
is based on the original purchase cost or the current market value of the shares
being sold, whichever is less. The CDSCs are as follows:
--------------------------------------------------------------------------------
Class B deferred charges
--------------------------------------------------------------------------------
CDSC on shares
Years after purchase 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 6th year none
--------------------------------------------------------------------------------
Class C deferred charges
--------------------------------------------------------------------------------
Years after purchase CDSC
1st year 1.00%
After 1st year none
For purposes of these CDSCs, all purchases made during a calendar month are
counted as having been made on the first day of that month.
CDSC calculations are based on the number of shares involved, not on the value
of your account. To keep your CDSC as low as possible, each time you place a
request to sell shares we will first sell any shares in your account that carry
no CDSC. If there are not enough of these to meet your request, we will sell
those shares that have the lowest CDSC.
--------------------------------------------------------------------------------
SALES CHARGE REDUCTIONS AND WAIVERS
Reducing your Class A sales charges There are several ways you can combine
multiple purchases of Class A shares of John Hancock funds to take advantage of
the breakpoints in the sales charge schedule. The first three ways can be
combined in any manner.
o Accumulation Privilege -- lets you add the value of any Class A shares you
already own to the amount of your next Class A investment for purposes of
calculating the sales charge. Retirement plans investing $1 million in
Class B shares may add that value to Class A purchases to calculate
charges.
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, or consult the SAI (see the
back cover of this prospectus).
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 or obligation to invest (although initial investments must
total at least $250), and individual investors may close their accounts at any
time.
To utilize: contact your financial representative or Signature Services to find
out how to qualify, or consult the SAI (see the back cover of this prospectus).
CDSC waivers As long as Signature Services is notified at the time you sell, the
CDSC for each 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 (see the back
cover of this prospectus).
YOUR ACCOUNT 25
<PAGE>
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 selling brokers and their employees and sales representatives
o financial representatives utilizing fund shares in fee-based investment
products under signed 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 certain John Hancock insurance contract holders (one-year CDSC usually
applies)
o participants in certain retirement plans with at least 100 eligible
employees (one-year CDSC applies)
Class C shares may be offered without front-end sales charges to various
individuals and institutions, including certain retirement plans.
To utilize: if you think you may be eligible for a sales charge waiver, contact
Signature Services or consult the sai (see the back cover of this prospectus).
--------------------------------------------------------------------------------
OPENING AN ACCOUNT
1 Read this prospectus carefully.
2 Determine how much you want to invest. The minimum initial investments for
the John Hancock 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 have placed at least $2
billion in John Hancock funds: $250
3 Complete the appropriate parts of the account application, carefully
following the instructions. You must submit additional documentation when
opening trust, corporate or power of attorney accounts. You must notify
your financial representative or Signature Services if this information
changes. For more details, please contact your financial representative or
call Signature Services at 1-800-225-5291.
4 Complete the appropriate parts of the account privileges application. By
applying for privileges now, you can avoid the delay and inconvenience of
having to file an additional application if you want to add privileges
later.
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.
26 YOUR ACCOUNT
<PAGE>
--------------------------------------------------------------------------------
Buying shares
--------------------------------------------------------------------------------
Opening an account Adding to an account
By check
[Clip Art] o Make out a check for o Make out a check for the investment
the investment amount, amount payable to "John Hancock
payable to "John Signature Services, Inc."
Hancock Signature
Services, Inc." o Fill out the detachable investment
slip from an account statement. If
o Deliver the check and no slip is available, include a note
your completed specifying the fund name, your share
application to your class, your account number and the
financial name(s) in which the account is
representative, or mail registered.
them to Signature
Services (address o Deliver the check and your
below). investment slip or note to your
financial representative, or mail
them to Signature Services (address
below).
By exchange
[Clip Art] o Call your financial o Log on to www.jhfunds.com to process
representative or exchanges between funds.
Signature Services to
request an exchange. o Call EASI-Line for automated service
24 hours a day using your touch-tone
phone at 1-800-338-8080.
o Call your financial representative
or Signature Services to request an
exchange.
By wire
[Clip Art] o Deliver your completed o Instruct your bank to wire the
application to your amount of your investment to:
financial First Signature Bank & Trust
representative, or mail Account # 900000260
it to Signature Routing # 211475000
Services.
Specify the fund name, your share
o Obtain your account class, your account number and the
number by calling your name(s) in which the account is
financial registered. Your bank may charge a
representative or fee to wire funds.
Signature Services.
o Instruct your bank to
wire the amount of your
investment to:
First Signature
Bank & Trust
Account # 900000260
Routing # 211475000
Specify the fund name,
your choice of share
class, the new account
number and the name(s) in
which the account is
registered. Your bank may
charge a fee to wire
funds.
By Internet
[Clip Art] See "By exchange" and "By o Verify that your bank or credit
wire." union is a member of the Automated
Clearing House (ACH) system.
o Complete the "Bank Information"
section on your account application.
o Log on to www.jhfunds.com to
initiate purchases using your
authorized bank account.
By phone
[Clip Art] See "By exchange" and "By o Verify that your bank or credit
wire." union is a member of the Automated
Clearing House (ACH) system.
o Complete the "Bank Information"
section on your account application.
o Call EASI-Line for automated service
24 hours a day using your touch-tone
phone at 1-800-338-8080.
o Call your financial representative
or Signature Services between 8 A.M.
and 4 P.M. Eastern Time on most
business days.
--------------------------------------------------------------------------------
Address:
John Hancock Signature Services, Inc.
1 John Hancock Way, Suite 1000
Boston, MA 02217-1000
Phone Number: 1-800-225-5291
Or contact your financial representative for instructions and assistance.
--------------------------------------------------------------------------------
To open or add to an account using the Monthly Automatic Accumulation Program,
see "Additional investor services."
YOUR ACCOUNT 27
<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 stock power indicating
o Sales of any amount. 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 Internet
[Clip Art] o Most accounts. o Log on to www.jhfunds.com to
initiate redemptions from your
o Sales of up to funds.
$100,000.
By phone
[Clip Art] o Most accounts. o Call EASI-Line for automated service
24 hours a day using your touch-tone
o Sales of up to phone at 1-800-338-8080.
$100,000.
o Call your financial representative
or 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 o To verify that the Internet or
sell any amount. telephone redemption privilege is in
place on an account, or to request
o Requests by Internet or the form to add it to an existing
phone to sell up to account, call Signature Services.
$100,000.
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 are exchanging
o Sales of any amount. by Internet or by calling your
financial representative or
Signature Services.
o Log on to www.jhfunds.com to process
exchanges between your funds.
o Call EASI-Line for automated service
24 hours a day using your touch-tone
phone at 1-800-338-8080.
o Call your financial representative
or Signature Services to request an
exchange.
To sell shares through a systematic withdrawal plan, see "Additional investor
services."
28 YOUR ACCOUNT
<PAGE>
Selling shares in writing In certain circumstances, you will need to make your
request to sell shares in writing. You may need to include additional items with
your request unless they were previously provided to Signature Services and are
still accurate. These items are 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 will need to obtain your signature guarantee from
a member of the Signature Guarantee Medallion Program. Most brokers and
securities dealers are members of this program. A notary public CANNOT provide a
signature guarantee.
--------------------------------------------------------------------------------
Seller Requirements for written requests
[Clip Art]
--------------------------------------------------------------------------------
Owners of individual, joint or o Letter of instruction.
UGMA/UTMA accounts (custodial
accounts for minors). o On the letter, the signatures 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, sole o Letter of instruction.
proprietorship, general partner or
association accounts. o Corporate business/organization
resolution, certified within the
past 12 months, or a John Hancock
Funds business/ organization
certification form.
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 Copy of the trust document certified
within the past 12 months or a John
Hancock Funds trust certification
form.
o Signature guarantee if applicable
(see above).
Joint tenancy shareholders with o Letter of instruction signed by
rights of survivorship whose surviving tenant.
co-tenants are deceased.
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,
certified within the past 12 months.
o Signature guarantee if applicable
(see above).
Administrators, conservators, o Call 1-800-225-5291 for
guardians and other sellers or instructions.
account types not listed above.
--------------------------------------------------------------------------------
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.
--------------------------------------------------------------------------------
YOUR ACCOUNT 29
<PAGE>
--------------------------------------------------------------------------------
TRANSACTION POLICIES
Valuation of shares The net asset value (NAV) per share 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). The funds use market prices in
valuing portfolio securities, but may use fair-value estimates if reliable
market prices are unavailable. The funds may also value securities at fair value
if the value of these securities has been materially affected by events
occurring after the close of a foreign market. Foreign stock or other portfolio
securities held by the funds may trade on U.S. holidays and weekends, even
though the funds' shares will not be priced on those days. This may change a
fund's NAV on days when you cannot buy or sell shares.
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 Signature Services receives your
request in good order.
At times of peak activity, it may be difficult to place requests by phone.
During these times, consider using EASI-Line, accessing www.jhfunds.com, 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. Also for your protection, telephone
redemption 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 and Class
C shares will continue to age from the original date and will retain the same
CDSC rate. However, if the new fund's CDSC rate is higher, then the rate will
increase. 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 who, 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 The funds no longer issue share certificates. Shares are
electronically recorded. Any existing certificated shares can only be sold by
returning the certificated shares 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. Balanced and
Sovereign Investors funds typically pay income dividends quarterly. Core Value
typically pays income dividends annually. The other funds do not usually pay
income dividends. Most of these dividends are from capital gains.
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
30 YOUR ACCOUNT
<PAGE>
you. However, if the check is not deliverable, your dividends will be
reinvested.
Taxability of dividends Dividends you receive from a fund, whether reinvested or
taken as cash, are generally considered taxable. Dividends from a fund's
short-term capital gains are taxable as ordinary income. Dividends from a fund's
long-term capital gains are taxable at a lower rate. Whether gains are
short-term or long-term depends on the fund's holding period. Some dividends
paid in January may be taxable as if they had been paid the previous December.
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 traditional and Roth IRAs, SIMPLE plans, SEPs, 401(k) plans and other
pension and profit-sharing plans. Using these plans, you can invest in any John
Hancock fund (except tax-free income funds) with a low minimum investment of
$250 or, for some group plans, no minimum investment at all. To find out more,
call Signature Services at 1-800-225-5291.
YOUR ACCOUNT 31
<PAGE>
Fund details
--------------------------------------------------------------------------------
BUSINESS STRUCTURE
The diagram below shows the basic business structure used by the John Hancock
equity funds. Each fund's board of trustees oversees the fund's business
activities and retains the services of the various firms that carry out the
fund's operations.
The trustees of the Balanced, Core Growth, Core Value, Large Cap Value, Mid Cap
Growth and Small Cap Growth funds have the power to change these funds'
respective investment goals without shareholder approval.
Management fees The management fees paid to the investment adviser by the John
Hancock equity funds last fiscal year are as follows:
--------------------------------------------------------------------------------
Fund % of net assets
--------------------------------------------------------------------------------
Balanced 0.60%
Core Equity 0.74%
Core Growth 0.42%
Core Value 0.16%
Large Cap Growth 0.75%
Large Cap Value 0.625%
Mid Cap Growth 0.80%
Small Cap Growth 0.75%
Small Cap Value 0.70%
Sovereign Investors 0.54%
-----------------
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.
Markets the funds and distributes shares
through selling brokers, financial planners
and other financial representatives.
-------------------------------------------------
------------------------------------------------------
Transfer agent
John Hancock Signature Services, Inc.
Handles shareholder services, including record-
keeping and statements, distribution of dividends
and processing of buy and sell requests.
------------------------------------------------------
Asset
management
-----------------------------
Subadviser
Independence Investment
Associates, Inc.
53 State Street
Boston, MA 02109
Provides portfolio
management to certain
funds.
-----------------------------
------------------------------------
Investment adviser
John Hancock Advisers, Inc.
101 Huntington Avenue
Boston, MA 02199-7603
Manages the funds' business and
investment activities.
-------------------------------
------------------------------------
Custodian
Investors Bank & Trust Co.
Holds the funds' assets, settles all
portfolio trades and collects most of
the valuation data required for
calculating each fund's NAV.
-------------------------------------
----------------------------------
Trustees
Oversee the funds' activities.
----------------------------------
32 FUND DETAILS
<PAGE>
--------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
These tables detail the performance of each fund's share classes, including
total return information showing how much an investment in the fund has
increased or decreased each year.
Balanced Fund
Figures audited by Ernst & Young LLP.
<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------------------------------------------
Class A - period ended: 12/95 12/96 12/97 12/98 12/99
---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Per share operating performance
Net asset value, beginning of period $9.84 $11.75 $12.27 $13.33 $14.06
Net investment income (loss)(1) 0.44 0.41 0.37 0.36 0.35
Net realized and unrealized gain (loss) on investments 1.91 0.99 2.14 1.47 0.18
Total from investment operations 2.35 1.40 2.51 1.83 0.53
Less distributions:
Dividends from net investment income (0.44) (0.41) (0.37) (0.36) (0.36)
Distributions in excess of net investment income -- -- -- -- (0.00)(2)
Distributions from net realized gain on investments sold -- (0.47) (1.08) (0.74) (0.18)
Total distributions (0.44) (0.88) (1.45) (1.10) (0.54)
Net asset value, end of period $11.75 $12.27 $13.33 $14.06 $14.05
Total investment return at net asset value(3) (%) 24.23 12.13 20.79 14.01 3.89
Ratios and supplemental data
Net assets, end of period (000s omitted) ($) 69,811 71,242 84,264 97,072 130,690
Ratio of expenses to average net assets (%) 1.27 1.29 1.22 1.21 1.22
Ratio of net investment income (loss) to average net assets (%) 3.99 3.33 2.77 2.61 2.47
Portfolio turnover rate (%) 45 80 115 83 94
<CAPTION>
---------------------------------------------------------------------------------------------------------------------------
Class B - period ended: 12/95 12/96 12/97 12/98 12/99
---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Per share operating performance
Net asset value, beginning of period $9.84 $11.74 $12.27 $13.33 $14.06
Net investment income (loss)(1) 0.36 0.32 0.28 0.27 0.26
Net realized and unrealized gain (loss) on investments 1.90 1.01 2.14 1.46 0.17
Total from investment operations 2.26 1.33 2.42 1.73 0.43
Less distributions:
Dividends from net investment income (0.36) (0.33) (0.28) (0.26) (0.26)
Distributions in excess of net investment income -- -- -- -- (0.00)(2)
Distributions from net realized gain on investments sold -- (0.47) (1.08) (0.74) (0.18)
Total distributions (0.36) (0.80) (1.36) (1.00) (0.44)
Net asset value, end of period $11.74 $12.27 $13.33 $14.06 $14.05
Total investment return at net asset value(3) (%) 23.30 11.46 19.96 13.23 3.16
Ratios and supplemental data
Net assets, end of period (000s omitted) ($) 87,827 90,855 101,249 115,682 111,564
Ratio of expenses to average net assets (%) 1.96 1.99 1.91 1.88 1.92
Ratio of net investment income (loss) to average net assets (%) 3.31 2.63 2.08 1.93 1.76
Portfolio turnover rate (%) 45 80 115 83 94
</TABLE>
FUND DETAILS 33
<PAGE>
Balanced Fund continued
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------
Class C - period ended: 12/99(4)
-----------------------------------------------------------------------------------------
<S> <C>
Per share operating performance
Net asset value, beginning of period $14.60
Net investment income (loss)(1) 0.19
Net realized and unrealized gain (loss) on investments (0.37)
Total from investment operations (0.18)
Less distributions:
Dividends from net investment income (0.19)
Distributions in excess of net investment income (0.00)(2)
Distributions from net realized gain on investments sold (0.18)
Total distributions (0.37)
Net asset value, end of period $14.05
Total investment return at net asset value(3) (%) (1.15)(5)
Ratios and supplemental data
Net assets, end of period (000s omitted) ($) 330
Ratio of expenses to average net assets (%) 1.84(6)
Ratio of net investment income (loss) to average net assets (%) 1.88(6)
Portfolio turnover rate (%) 94
</TABLE>
(1) Based on the average of the shares outstanding at the end of each month.
(2) Less than $0.01 per share.
(3) Assumes dividend reinvestment and does not reflect the effect of sales
charges.
(4) Class C shares began operations on May 1, 1999.
(5) Not annualized.
(6) Annualized.
34 FUND DETAILS
<PAGE>
Core Equity Fund
Figures audited by PricewaterhouseCoopers LLP.
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------------------------------------------
Class A - period ended: 5/95 5/96 12/96(1) 12/97 12/98 12/99
-----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Per share operating performance
Net asset value, beginning of period $12.68 $14.41 $17.98 $19.42 $23.93 $30.14
Net investment income (loss)(2) 0.32 0.20 0.13 0.10 0.05 (0.02)
Net realized and unrealized gain (loss) on investments 1.77 3.88 1.72 5.55 6.81 3.72
Total from investment operations 2.09 4.08 1.85 5.65 6.86 3.70
Less distributions:
Dividends from net investment income (0.28) (0.22) (0.14) (0.04) -- --
Distributions from net realized gain on investments sold (0.08) (0.29) (0.27) (1.10) (0.65) (0.63)
Total distributions (0.36) (0.51) (0.41) (1.14) (0.65) (0.63)
Net asset value, end of period $14.41 $17.98 $19.42 $23.93 $30.14 $33.21
Total investment return at net asset value(3) (%) 16.98 29.12 10.33(4) 29.19 28.84 12.37
Total adjusted investment return at net asset value(3,5) (%) 16.94 28.47 10.08(4) 29.17 -- --
Ratios and supplemental data
Net assets, end of period (000s omitted) ($) 101,418 14,878 31,013 92,204 200,962 393,792
Ratio of expenses to average net assets (%) 0.70 0.94 1.30(6) 1.42 1.39 1.37(7)
Ratio of adjusted expenses to average net assets(8) (%) 0.74 1.59 1.73(6) 1.44 -- --
Ratio of net investment income (loss) to average net assets (%) 2.43 1.55 1.16(6) 0.45 0.17 (0.06)
Ratio of adjusted net investment income (loss)
to average net assets(8) (%) 2.39 0.90 0.73(6) 0.43 -- --
Portfolio turnover rate (%) 71 157 35 62 50 98
Fee reduction per share(2) ($) 0.005 0.08 0.05 0.00(9) -- --
<CAPTION>
------------------------------------------------------------------------------------------------------------------------------------
Class B - period ended: 5/96(10) 12/96(1) 12/97 12/98 12/99
------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Per share operating performance
Net asset value, beginning of period $15.25 $17.96 $19.41 $23.80 $29.75
Net investment income (loss)(2) 0.09 0.05 (0.06) (0.14) (0.24)
Net realized and unrealized gain (loss) on investments 2.71 1.72 5.56 6.74 3.66
Total from investment operations 2.80 1.77 5.50 6.60 3.42
Less distributions:
Dividends from net investment income (0.09) (0.05) (0.01) -- --
Distributions from net realized gain on investments sold -- (0.27) (1.10) (0.65) (0.63)
Total distributions (0.09) (0.32) (1.11) (0.65) (0.63)
Net asset value, end of period $17.96 $19.41 $23.80 $29.75 $32.54
Total investment return at net asset value(3) (%) 18.46(4) 9.83(4) 28.39 27.90 11.59
Total adjusted investment return at net asset value(3,5) (%) 17.59(4) 9.58(4) 28.37 -- --
Ratios and supplemental data
Net assets, end of period (000s omitted) ($) 15,125 42,461 134,939 347,045 664,104
Ratio of expenses to average net assets (%) 2.00(6) 2.00(6) 2.12 2.09 2.07(7)
Ratio of adjusted expenses to average net assets(8) (%) 3.21(6) 2.43(6) 2.14 -- --
Ratio of net investment income (loss) to average net assets (%) 0.78(6) 0.45(6) (0.25) (0.53) (0.77)
Ratio of adjusted net investment income (loss)
to average net assets(8) (%) (0.43)(6) 0.02(6) (0.27) -- --
Portfolio turnover rate (%) 157 35 62 50 98
Fee reduction per share(2) ($) 0.13 0.05 0.00(9) -- --
</TABLE>
FUND DETAILS 35
<PAGE>
Core Equity Fund continued
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------------
Class C - period ended: 12/98(10) 12/99
--------------------------------------------------------------------------------------------------
<S> <C> <C>
Per share operating performance
Net asset value, beginning of period $27.81 $29.75
Net investment income (loss)(2) (0.09) (0.25)
Net realized and unrealized gain (loss) on investments 2.68 3.67
Total from investment operations 2.59 3.42
Less distributions:
Distributions from net realized gain on investments sold (0.65) (0.63)
Net asset value, end of period $29.75 $32.54
Total investment return at net asset value(3) (%) 9.46(4) 11.59
Ratios and supplemental data
Net assets, end of period (000s omitted) ($) 6,901 29,859
Ratio of expenses to average net assets (%) 2.12(6) 2.08(7)
Ratio of net investment income (loss) to average net assets (%) (0.53)(6) (0.80)
Portfolio turnover rate (%) 50 98
</TABLE>
(1) Effective December 31, 1996, the fiscal year end changed from May 31 to
December 31.
(2) Based on the average of the shares outstanding at the end of each month.
(3) Assumes dividend reinvestment and does not reflect the effect of sales
charges.
(4) Not annualized.
(5) An estimated total return calculation that does not take into consideration
fee reductions by the adviser during the periods shown.
(6) Annualized.
(7) Expense ratios do not include interest expense due to bank loans, which
amounted to less than 0.01%.
(8) Unreimbursed, without fee reduction.
(9) Less than $0.01 per share.
(10) Class B shares began operations on September 7, 1995. Class C shares began
operations on May 1, 1998.
36 FUND DETAILS
<PAGE>
Core Growth Fund
Figures audited by Deloitte & Touche LLP.
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------
Class A - period ended: 2/00(1)
------------------------------------------------------------------------------------------------
<S> <C>
Per share operating performance
Net asset value, beginning of period $18.14
Net investment income (loss)(2) (0.05)
Net realized and unrealized gain (loss) on investments 1.73
Total from investment operations 1.68
Less distributions:
Distributions from net realized gain on investments sold (0.02)
Net asset value, end of period $19.80
Total investment return at net asset value(3) (%) 9.25(4)
Total adjusted investment return at net asset value(3,5) (%) 9.00(4)
Ratios and supplemental data
Net assets, end of period (000s omitted) ($) 20,821
Ratio of expenses to average net assets (%) 1.25(6)
Ratio of adjusted expenses to average net assets(7,8) (%) 1.63(6)
Ratio of net investment income (loss) to average net assets (%) (0.39)(6)
Ratio of adjusted net investment income (loss) to average net assets(7,8) (%) (0.77)(6)
Portfolio turnover rate (%) 72
Fee reduction per share(2) ($) 0.05
<CAPTION>
------------------------------------------------------------------------------------------------
Class B - period ended: 2/00(1)
------------------------------------------------------------------------------------------------
<S> <C>
Per share operating performance
Net asset value, beginning of period $18.14
Net investment income (loss)(2) (0.13)
Net realized and unrealized gain (loss) on investments 1.74
Total from investment operations 1.61
Less distributions:
Distributions from net realized gain on investments sold (0.02)
Net asset value, end of period $19.73
Total investment return at net asset value(3) (%) 8.86(4)
Total adjusted investment return at net asset value(3,5) (%) 8.61(4)
Ratios and supplemental data
Net assets, end of period (000s omitted) ($) 22,728
Ratio of expenses to average net assets (%) 1.95(6)
Ratio of adjusted expenses to average net assets(7,8) (%) 2.33(6)
Ratio of net investment income (loss) to average net assets (%) (1.09)(6)
Ratio of adjusted net investment income (loss) to average net assets(7,8) (%) (1.47)(6)
Portfolio turnover rate (%) 72
Fee reduction per share(2) ($) 0.05
</TABLE>
FUND DETAILS 37
<PAGE>
Core Growth Fund continued
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------
Class C - period ended: 2/00(1)
------------------------------------------------------------------------------------------
<S> <C>
Per share operating performance
Net asset value, beginning of period $18.14
Net investment income (loss)(2) (0.13)
Net realized and unrealized gain (loss) on investments 1.74
Total from investment operations 1.61
Less distributions:
Distributions from net realized gain on investments sold (0.02)
Net asset value, end of period $19.73
Total investment return at net asset value(3) (%) 8.86(4)
Total adjusted investment return at net asset value(3,5) (%) 8.61(4)
Ratios and supplemental data
Net assets, end of period (000s omitted) ($) 915
Ratio of expenses to average net assets (%) 1.95(6)
Ratio of adjusted expenses to average net assets(7,8) (%) 2.33(6)
Ratio of net investment income (loss) to average net assets (%) (1.09)(6)
Ratio of adjusted net investment income (loss) to average net assets(7,8) (%) (1.47)(6)
Portfolio turnover rate (%) 72
Fee reduction per share(2) ($) 0.05
</TABLE>
(1) Began operations on July 1, 1999.
(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, which does not take into
consideration fee reductions by the adviser during the period shown.
(6) Annualized.
(7) Unreimbursed, without fee reduction.
(8) Adjusted expenses as a percentage of average net assets are expected to
decrease and adjusted net income as a percentage of average net assets is
expected to increase as the net assets of the fund grow.
38 FUND DETAILS
<PAGE>
Core Value Fund
Figures audited by Deloitte & Touche LLP.
<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------------------------------------------
Class A(1) - period ended: 2/96(2) 2/97 2/98 2/99 2/00
----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Per share operating performance
Net asset value, beginning of period $8.50 $9.47 $10.88 $13.93 $12.36
Net investment income (loss)(3) 0.10 0.23 0.21 0.15 0.13
Net realized and unrealized gain (loss) on investments 0.96 1.77 3.33 1.23 (1.01)
Total from investment operations 1.06 2.00 3.54 1.38 (0.88)
Less distributions:
Dividends from net investment income (0.09) (0.19) (0.13) (0.18) (0.08)
Distributions from net realized gain on investments sold -- (0.40) (0.36) (2.77) (0.70)
Total distributions (0.09) (0.59) (0.49) (2.95) (0.78)
Net asset value, end of period $9.47 $10.88 $13.93 $12.36 $10.70
Total investment return at net asset value(4) (%) 12.52(5) 21.36 32.97 9.87 (8.08)
Total adjusted investment return at net asset value(4,6) (%) (1.18)(5) 15.92 32.02 8.94 (8.94)
Ratios and supplemental data
Net assets, end of period (000s omitted) ($) 682 1,323 7,747 6,685 11,508
Ratio of expenses to average net assets (%) 0.95(7) 0.95 0.95 0.95 0.95
Ratio of adjusted expenses to average net assets(8,9) (%) 34.06(7) 6.39 1.90 1.88 1.89
Ratio of net investment income (loss) to average net assets (%) 2.81(7) 2.26 1.60 1.03 1.09
Ratio of adjusted net investment income (loss) to average net assets(8,9) (%) (30.30)(7) (3.18) 0.65 0.10 0.15
Portfolio turnover rate (%) 12 66 119 61 76
Fee reduction per share(3) ($) 1.22 0.55 0.12 0.13 0.09
<CAPTION>
-----------------------------------------------------------------------------------------------
Class B - period ended: 2/00(2)
-----------------------------------------------------------------------------------------------
<S> <C>
Per share operating performance
Net asset value, beginning of period $13.35
Net investment income (loss)(3) 0.02
Net realized and unrealized gain (loss) on investments (2.56)
Total from investment operations (2.54)
Less distributions:
Dividends from net investment income (0.02)
Distributions from net realized gain on investments sold (0.10)
Total distributions (0.12)
Net asset value, end of period $10.69
Total investment return at net asset value(4) (%) (19.19)(5)
Total adjusted investment return at net asset value(4,6) (%) (19.61)(5)
Ratios and supplemental data
Net assets, end of period (000s omitted) ($) 7,539
Ratio of expenses to average net assets (%) 1.95(7)
Ratio of adjusted expenses to average net assets(8,9) (%) 2.59(7)
Ratio of net investment income (loss) to average net assets (%) 0.19(7)
Ratio of adjusted net investment income (loss) to average net assets(8,9) (%) 0.45(7)
Portfolio turnover rate (%) 76
Fee reduction per share(3) ($) 0.07
</TABLE>
FUND DETAILS 39
<PAGE>
Core Value Fund continued
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------
Class C - period ended: 2/00(2)
--------------------------------------------------------------------------------------------
<S> <C>
Per share operating performance
Net asset value, beginning of period $13.35
Net investment income (loss)(3) 0.02
Net realized and unrealized gain (loss) on investments (2.56)
Total from investment operations (2.54)
Less distributions:
Dividends from net investment income (0.02)
Distributions from net realized gain on investments sold (0.10)
Total distributions (0.12)
Net asset value, end of period $10.69
Total investment return at net asset value(4) (%) (19.19)(5)
Total adjusted investment return at net asset value(4,6) (%) (19.61)(5)
Ratios and supplemental data
Net assets, end of period (000s omitted) ($) 258
Ratio of expenses to average net assets (%) 1.95(7)
Ratio of adjusted expenses to average net assets(8,9) (%) 2.59(7)
Ratio of net investment income (loss) to average net assets (%) 0.21(7)
Ratio of adjusted net investment income (loss) to average net assets(8,9) (%) (0.43)(7)
Portfolio turnover rate (%) 76
Fee reduction per share(3) ($) 0.07
</TABLE>
(1) Effective July 1, 1999, existing shares of the fund were designated Class A
shares. The fund, which had previously only been sold to institutional
investors, also became available for sale to individual investors.
(2) Class A shares began operations on October 2, 1995. Class B and Class C
shares began operations on July 1, 1999.
(3) Based on the average of the shares outstanding at the end of each month.
(4) Assumes dividend reinvestment and does not reflect the effect of sales
charges.
(5) Not annualized.
(6) An estimated total return calculation that does not take into consideration
fee reductions by the adviser during the periods shown.
(7) Annualized.
(8) Unreimbursed, without fee reduction.
(9) Adjusted expenses as a percentage of average net assets are expected to
decrease and adjusted net income as a percentage of average net assets is
expected to increase as the net assets of the fund grow.
40 FUND DETAILS
<PAGE>
Large Cap Growth Fund
Figures audited by Ernst & Young LLP.
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------------
Class A - period ended: 12/94 12/95 10/96(1) 10/97
------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Per share operating performance
Net asset value, beginning of period $17.40 $15.89 $19.51 $23.28
Net investment income (loss) (0.10) (0.09)(2) (0.13)(2) (0.12)(2)
Net realized and unrealized gain (loss) on investments (1.21) 4.40 3.90 3.49
Total from investment operations (1.31) 4.31 3.77 3.37
Less distributions:
Distributions from net realized gain on investments sold (0.20) (0.69) -- (2.28)
Net asset value, end of period $15.89 $19.51 $23.28 $24.37
Total investment return at net asset value(3) (%) (7.50) 27.17 19.32(4) 16.05
Ratios and supplemental data
Net assets, end of period (000s omitted) ($) 146,466 241,700 279,425 303,067
Ratio of expenses to average net assets (%) 1.65 1.48 1.48(5) 1.44
Ratio of net investment income (loss) to average net assets (%) (0.64) (0.46) (0.73)(5) (0.51)
Portfolio turnover rate (%) 52 68(7) 59 133
<CAPTION>
---------------------------------------------------------------------------------------------
Class A - period ended: 10/98 10/99
---------------------------------------------------------------------------------------------
<S> <C> <C>
Per share operating performance
Net asset value, beginning of period $24.37 $22.27
Net investment income (loss) (0.11)(2) (0.17)(2)
Net realized and unrealized gain (loss) on investments 2.17 5.65
Total from investment operations 2.06 5.48
Less distributions:
Distributions from net realized gain on investments sold (4.16) (2.71)
Net asset value, end of period $22.27 $25.04
Total investment return at net asset value(3) (%) 9.80 27.58
Ratios and supplemental data
Net assets, end of period (000s omitted) ($) 381,591 484,196
Ratio of expenses to average net assets (%) 1.40 1.35(6)
Ratio of net investment income (loss) to average net assets (%) (0.50) (0.70)
Portfolio turnover rate (%) 153(7) 183
<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(7) 59 133
<CAPTION>
---------------------------------------------------------------------------------------------
Class B - period ended: 10/98 10/99
---------------------------------------------------------------------------------------------
<S> <C> <C>
Per share operating performance
Net asset value, beginning of period $23.70 $21.38
Net investment income (loss)(2) (0.25) (0.31)
Net realized and unrealized gain (loss) on investments 2.09 5.38
Total from investment operations 1.84 5.07
Less distributions:
Distributions from net realized gain on investments sold (4.16) (2.71)
Net asset value, end of period $21.38 $23.74
Total investment return at net asset value(3) (%) 9.04 26.70
Ratios and supplemental data
Net assets, end of period (000s omitted) ($) 217,448 312,046
Ratio of expenses to average net assets (%) 2.08 2.02(6)
Ratio of net investment income (loss) to average net assets (%) (1.16) (1.37)
Portfolio turnover rate (%) 153(7) 183
<CAPTION>
--------------------------------------------------------------------------------------------
Class C - period ended: 10/98(8) 10/99
--------------------------------------------------------------------------------------------
<S> <C> <C>
Per share operating performance
Net asset value, beginning of period $21.43 $21.37
Net investment income (loss)(2) (0.10) (0.31)
Net realized and unrealized gain (loss) on investments 0.04 5.38
Total from investment operations (0.06) 5.07
Less distributions:
Distributions from net realized gain on investments sold -- (2.71)
Net asset value, end of period $21.37 $23.73
Total investment return at net asset value(3) (%) (0.28)(4) 26.72
Ratios and supplemental data
Net assets, end of period (000s omitted) ($) 152 1,457
Ratio of expenses to average net assets (%) 2.10(5) 2.05(6)
Ratio of net investment income (loss) to average net assets (%) (1.14)(5) (1.36)
Portfolio turnover rate (%) 153(7) 183
</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) Expense ratios do not include interest expense due to bank loans, which
amounted to less than 0.01%.
(7) Excludes merger activity.
(8) Class B and Class C shares began operations on January 3, 1994 and June 1,
1998, respectively.
FUND DETAILS 41
<PAGE>
Large Cap Value Fund
Figures audited by Ernst & Young LLP.
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------
Class A - period ended: 8/95(1) 8/96 12/96(2) 12/97
------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Per share operating performance
Net asset value, beginning of period $11.42 $13.38 $15.07 $15.62
Net investment income (loss)(4) 0.21 0.19 0.05 0.12
Net realized and unrealized gain (loss) on investments,
financial futures contracts and foreign currency transactions 1.95 1.84 2.15 5.57
Total from investment operations 2.16 2.03 2.20 5.69
Less distributions:
Distributions from net investment income (0.20) (0.19) (0.08) (0.07)
Distributions from net realized gain on investments sold -- (0.15) (1.57) (1.92)
Total distributions (0.20) (0.34) (1.65) (1.99)
Net asset value, end of period $13.38 $15.07 $15.62 $19.32
Total investment return at net asset value(5) (%) 19.22 15.33 14.53(6) 36.71
Total adjusted investment return at net asset value(5,11) (%) -- -- -- --
Ratios and supplemental data
Net assets, end of period (000s omitted) ($) 130,183 139,548 163,154 303,313
Ratio of expenses to average net assets (%) 1.30 1.17 1.22(7) 1.12
Ratio of net investment income (loss) to average net assets (%) 1.82 1.28 0.85(7) 0.65
Portfolio turnover rate (%) 99 74 26 102(9)
<CAPTION>
------------------------------------------------------------------------------------------
Class A - period ended: 12/98 12/99
------------------------------------------------------------------------------------------
<S> <C> <C>
Per share operating performance
Net asset value, beginning of period $19.32 $21.26
Net investment income (loss)(4) 0.16 0.09(3)
Net realized and unrealized gain (loss) on investments,
financial futures contracts and foreign currency transactions 2.85 7.80
Total from investment operations 3.01 7.89
Less distributions:
Distributions from net investment income (0.14) --
Distributions from net realized gain on investments sold (0.93) (2.13)
Total distributions (1.07) (2.13)
Net asset value, end of period $21.26 $27.02
Total investment return at net asset value(5) (%) 15.94 37.89
Total adjusted investment return at net asset value(5,11) (%) 15.92 --
Ratios and supplemental data
Net assets, end of period (000s omitted) ($) 421,218 604,214
Ratio of expenses to average net assets (%) 1.16(8) 1.17
Ratio of net investment income (loss) to average net assets (%) 0.79(8) 0.40
Portfolio turnover rate (%) 64 113
<CAPTION>
----------------------------------------------------------------------------------------------------------------
Class B - period ended: 8/95(1) 8/96 12/96(2) 12/97
----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Per share operating performance
Net asset value, beginning of period $11.44 $13.41 $15.10 $15.66
Net investment income (loss)(4) 0.13 0.08 0.01 (0.02)
Net realized and unrealized gain (loss) on investments,
financial futures contracts and foreign currency transactions 1.96 1.85 2.14 5.60
Total from investment operations 2.09 1.93 2.15 5.58
Less distributions:
Distributions from net investment income (0.12) (0.09) (0.02) (0.01)
Distributions from net realized gain on investments sold -- (0.15) (1.57) (1.92)
Total distributions (0.12) (0.24) (1.59) (1.93)
Net asset value, end of period $13.41 $15.10 $15.66 $19.31
Total investment return at net asset value(5) (%) 18.41 14.49 14.15(6) 35.80
Total adjusted investment return at net asset value(5,11) (%) -- -- -- --
Ratios and supplemental data
Net assets, end of period (000s omitted) ($) 114,723 125,781 146,399 340,334
Ratio of expenses to average net assets (%) 2.03 1.90 1.98(7) 1.87
Ratio of net investment income (loss) to average net assets (%) 1.09 0.55 0.10(7) (0.10)
Portfolio turnover rate (%) 99 74 26 102(9)
<CAPTION>
---------------------------------------------------------------------------------------
Class B - period ended: 12/98 12/99
---------------------------------------------------------------------------------------
<S> <C> <C>
Per share operating performance
Net asset value, beginning of period $19.31 $21.20
Net investment income (loss)(4) 0.01 (0.07)
Net realized and unrealized gain (loss) on investments,
financial futures contracts and foreign currency transactions 2.84 7.75
Total from investment operations 2.85 7.68
Less distributions:
Distributions from net investment income (0.03) --
Distributions from net realized gain on investments sold (0.93) (2.09)
Total distributions (0.96) (2.09)
Net asset value, end of period $21.20 $26.79
Total investment return at net asset value(5) (%) 15.05 36.95
Total adjusted investment return at net asset value(5,11) (%) 15.03 --
Ratios and supplemental data
Net assets, end of period (000s omitted) ($) 547,945 768,322
Ratio of expenses to average net assets (%) 1.91(8) 1.88
Ratio of net investment income (loss) to average net assets (%) 0.05(8) (0.31)
Portfolio turnover rate (%) 64 113
</TABLE>
42 FUND DETAILS
<PAGE>
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------
Class C - period ended: 12/98(10) 12/99
------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Per share operating performance
Net asset value, beginning of period $22.03 $21.20
Net investment income (loss)(4) 0.03 (0.09)
Net realized and unrealized gain (loss) on investments, financial futures
contracts and foreign currency transactions 0.09 7.77
Total from investment operations 0.12 7.68
Less distributions:
Distributions from net investment income (0.02) --
Distributions from net realized gain on investments sold (0.93) (2.09)
Total distributions (0.95) (2.09)
Net asset value, end of period $21.20 $26.79
Total investment return at net asset value(5) (%) 0.83(6) 36.94
Total adjusted investment return at net asset value(5,11) (%) 0.82(6) --
Ratios and supplemental data
Net assets, end of period (000s omitted) ($) 4,711 12,674
Ratio of expenses to average net assets (%) 1.92(7,8) 1.92
Ratio of net investment income (loss) to average net assets (%) 0.28(7,8) (0.40)
Portfolio turnover rate (%) 64 113
</TABLE>
(1) On December 22, 1994, John Hancock Advisers, Inc. became the investment
adviser of the fund.
(2) Effective December 31, 1996, the fiscal year end changed from August 31 to
December 31.
(3) Class A has net investment income, because of its relatively lower class
expenses as compared to other share classes.
(4) Based on the average of the shares outstanding at the end of each month.
(5) Assumes dividend reinvestment and does not reflect the effect of sales
charges.
(6) Not annualized.
(7) Annualized.
(8) Reflects voluntary management fee reduction in effect during the year ended
December 31, 1998. As a result of such fee reductions, expenses of Class A,
Class B and Class C shares of the fund reflect reductions of less than
$0.01 per share. Absent such reductions, the ratio of expenses to average
net assets would have been 1.18%, 1.93% and 1.94% for Class A, Class B and
Class C shares, respectively, and the ratio of net investment income to
average net assets would have been 0.77%, 0.03% and 0.26% for Class A,
Class B and Class C shares, respectively.
(9) Portfolio turnover rate excludes merger activity.
(10) Class C shares began operations on May 1, 1998.
(11) An estimated total return calculation which does not take into
consideration fee reductions by the adviser during the periods shown.
FUND DETAILS 43
<PAGE>
Mid Cap Growth Fund
Figures audited by PricewaterhouseCoopers LLP.
<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------------------------------------
Class A - period ended: 10/95 10/96 10/97 10/98 10/99
----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Per share operating performance
Net asset value, beginning of period $7.93 $9.32 $10.92 $11.40 $9.11
Net investment income (loss)(1) (0.07) (0.11) (0.06) (0.09) (0.12)
Net realized and unrealized gain (loss) on investments 1.46 3.34 1.00 (0.89) 3.86
Total from investment operations 1.39 3.23 0.94 (0.98) 3.74
Less distributions:
Distributions from net realized gain on investments sold -- (1.63) (0.46) (1.31) --
Net asset value, end of period $9.32 $10.92 $11.40 $9.11 $12.85
Total investment return at net asset value(2) (%) 17.53 36.15 8.79 (9.40) 41.05
Ratios and supplemental data
Net assets, end of period (000s omitted) ($) 101,562 156,578 141,997 101,138 112,082
Ratio of expenses to average net assets (%) 1.59 1.59 1.59 1.59 1.60
Ratio of net investment income (loss) to average net assets (%) (0.87) (1.00) (0.57) (0.86) (1.14)
Portfolio turnover rate (%) 155 240 317 168 153
<CAPTION>
----------------------------------------------------------------------------------------------------------------------------
Class B - period ended: 10/95 10/96 10/97 10/98 10/99
----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Per share operating performance
Net asset value, beginning of period $7.87 $9.19 $10.67 $11.03 $8.72
Net investment income (loss)(1) (0.13) (0.18) (0.13) (0.15) (0.18)
Net realized and unrealized gain (loss) on investments 1.45 3.29 0.95 (0.85) 3.68
Total from investment operations 1.32 3.11 0.82 (1.00) 3.50
Less distributions:
Distributions from net realized gain on investments sold -- (1.63) (0.46) (1.31) --
Net asset value, end of period $9.19 $10.67 $11.03 $8.72 $12.22
Total investment return at net asset value(2) (%) 16.77 35.34 7.84 (9.97) 40.14
Ratios and supplemental data
Net assets, end of period (000s omitted) ($) 137,363 238,901 204,812 134,188 145,816
Ratio of expenses to average net assets (%) 2.30 2.29 2.28 2.27 2.23
Ratio of net investment income (loss) to average net assets (%) (1.55) (1.70) (1.25) (1.54) (1.77)
Portfolio turnover rate (%) 155 240 317 168 153
<CAPTION>
------------------------------------------------------------------------------------------
Class C - period ended: 10/98(3) 10/99
------------------------------------------------------------------------------------------
<S> <C> <C>
Per share operating performance
Net asset value, beginning of period $9.99 $8.72
Net investment income (loss)(1) (0.06) (0.19)
Net realized and unrealized gain (loss) on investments (1.21) 3.68
Total from investment operations (1.27) 3.49
Net asset value, end of period $8.72 $12.21
Total investment return at net asset value(2) (%) (12.71)(4) 40.02
Ratios and supplemental data
Net assets, end of period (000s omitted) ($) 100 276
Ratio of expenses to average net assets (%) 2.29(5) 2.30
Ratio of net investment income (loss) to average net assets (%) (1.66)(5) (1.82)
Portfolio turnover rate (%) 168 153
</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) Class C shares began operations on June 1, 1998.
(4) Not annualized.
(5) Annualized.
44 FUND DETAILS
<PAGE>
Small Cap Growth Fund
Figures audited by Ernst & Young LLP.
<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------------------------------------------
Class A(1) - period ended: 10/95(2) 10/96 10/97 10/98 10/99
---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Per share operating performance
Net asset value, beginning of period $6.71 $9.02 $10.22 $12.35 $8.41
Net investment income (loss)(3) (0.07) (0.09) (0.07) (0.08) (0.12)
Net realized and unrealized gain (loss) on investments 2.38 1.29 2.41 (1.34) 4.59
Total from investment operations 2.31 1.20 2.34 (1.42) 4.47
Less distributions:
Distributions from net realized gain on investments sold -- -- (0.21) (2.52) (0.23)
Net asset value, end of period $9.02 $10.22 $12.35 $8.41 $12.65
Total investment return at net asset value(4) (%) 34.56 13.27 23.35 (14.14) 54.41
Ratios and supplemental data
Net assets, end of period (000s omitted) ($) 179,481 218,497 209,384 179,700 266,886
Ratio of expenses to average net assets (%) 1.38 1.32 1.29(5) 1.36(5) 1.34(5)
Ratio of net investment income (loss) to average net assets (%) (0.83) (0.86) (0.57) (1.02) (1.17)
Portfolio turnover rate (%) 23 44 96 103 1.04
<CAPTION>
--------------------------------------------------------------------------------------------------------------------------------
Class B(1) - period ended: 10/95(2) 10/96 10/97 10/98 10/99
--------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Per share operating performance
Net asset value, beginning of period $6.51 $8.70 $9.78 $11.72 $7.81
Net investment income (loss)(3) (0.11) (0.15) (0.14) (0.15) (0.18)
Net realized and unrealized gain (loss) on investments 2.30 1.23 2.29 (1.24) 4.24
Total from investment operations 2.19 1.08 2.15 (1.39) 4.06
Less distributions:
Distributions from net realized gain on investments sold -- -- (0.21) (2.52) (0.23)
Net asset value, end of period $8.70 $9.78 $11.72 $7.81 $11.64
Total investment return at net asset value(4) (%) 33.60 12.48 22.44 (14.80) 53.31
Ratios and supplemental data
Net assets, end of period (000s omitted) ($) 393,478 451,268 472,594 361,992 478,468
Ratio of expenses to average net assets (%) 2.11 2.05 2.02(5) 2.07(5) 2.03(5)
Ratio of net investment income (loss) to average net assets (%) (1.55) (1.59) (1.30) (1.73) (1.87)
Portfolio turnover rate (%) 23 44 96 103 104
<CAPTION>
--------------------------------------------------------------------------------------------------------
Class C - period ended: 10/98(6) 10/99
--------------------------------------------------------------------------------------------------------
<S> <C> <C>
Per share operating performance
Net asset value, beginning of period $8.96 $7.81
Net investment income (loss)(3) (0.03) (0.19)
Net realized and unrealized gain (loss) on investments (1.12) 4.23
Total from investment operations (1.15) 4.04
Less distributions:
Distributions from net realized gain on investments sold -- (0.23)
Net asset value, end of period $7.81 $11.62
Total investment return at net asset value(4) (%) (12.83)(7) 53.05
Ratios and supplemental data
Net assets, end of period (000s omitted) ($) 468 3,866
Ratio of expenses to average net assets (%) 2.11(5,8) 2.09(5)
Ratio of net investment income (loss) to average net assets (%) (1.86)(8) (1.94)
Portfolio turnover rate (%) 103 104
</TABLE>
(1) All per share amounts and net asset values have been restated to reflect the
four-for-one stock split effective May 1, 1998.
(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 per share.
(6) Class C shares began operations on June 1, 1998.
(7) Not annualized.
(8) Annualized.
FUND DETAILS 45
<PAGE>
Small Cap Value Fund
Figures audited by Ernst & Young LLP.
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------------
Class A - period ended: 12/94(1) 12/95 12/96 12/97
------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Per share operating performance
Net asset value, beginning of period $8.50 $8.99 $10.39 $10.32
Net investment income (loss)(3) 0.18 0.21 0.14 0.06
Net realized and unrealized gain (loss) on investments 0.48 1.60 1.17 2.52
Total from investment operations 0.66 1.81 1.31 2.58
Less distributions:
Dividends from net investment income (0.17) (0.20) (0.14) (0.03)
Distributions from net realized gain on investments sold -- (0.21) (1.24) (0.60)
Total distributions (0.17) (0.41) (1.38) (0.63)
Net asset value, end of period $8.99 $10.39 $10.32 $12.27
Total investment return at net asset value(4) (%) 7.81(5) 20.26 12.91 25.25
Total adjusted investment return at net asset value(4,6) (%) 7.30(5) 19.39 12.20 24.65
Ratios and supplemental data
Net assets, end of period (000s omitted) ($) 4,420 12,845 15,853 20,961
Ratio of expenses to average net assets (%) 0.99(7) 0.98 0.99 0.99
Ratio of adjusted expenses to average net assets(8) (%) 4.98(7) 1.85 1.70 1.59
Ratio of net investment income (loss) to average net assets (%) 2.10(7) 2.04 1.31 0.47
Ratio of adjusted net investment income (loss) to average net assets(8) (%) (1.89)(7) 1.17 0.60 (0.13)
Portfolio turnover rate (%) 0.3 9 72 140
Fee reduction per share(3) ($) 0.34 0.09 0.08 0.07
<CAPTION>
------------------------------------------------------------------------------------------------------
Class A - period ended: 10/98(2) 10/99
------------------------------------------------------------------------------------------------------
<S> <C> <C>
Per share operating performance
Net asset value, beginning of period $12.27 $10.82
Net investment income (loss)(3) 0.02 (0.09)
Net realized and unrealized gain (loss) on investments (1.47) 6.67
Total from investment operations (1.45) 6.58
Less distributions:
Dividends from net investment income -- --
Distributions from net realized gain on investments sold -- (0.13)
Total distributions -- (0.13)
Net asset value, end of period $10.82 $17.27
Total investment return at net asset value(4) (%) (11.82)(5) 61.39
Total adjusted investment return at net asset value(4,6) (%) (12.33)(5) 61.24
Ratios and supplemental data
Net assets, end of period (000s omitted) ($) 22,528 51,746
Ratio of expenses to average net assets (%) 1.01(7) 1.39
Ratio of adjusted expenses to average net assets(8) (%) 1.62(7) 1.54
Ratio of net investment income (loss) to average net assets (%) 0.25(7) (0.67)
Ratio of adjusted net investment income (loss) to average net assets(8) (%) (0.36)(7) (0.82)
Portfolio turnover rate (%) 69 140
Fee reduction per share(3) ($) 0.06 0.02
<CAPTION>
-----------------------------------------------------------------------------------------------------------------------
Class B - period ended: 12/94(1) 12/95 12/96 12/97
-----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Per share operating performance
Net asset value, beginning of period $8.50 $9.00 $10.38 $10.31
Net investment income (loss)(3) 0.13 0.12 0.07 (0.03)
Net realized and unrealized gain (loss) on investments 0.48 1.59 1.17 2.53
Total from investment operations 0.61 1.71 1.24 2.50
Less distributions:
Dividends from net investment income (0.11) (0.12) (0.07) --
Distributions from net realized gain on investments sold -- (0.21) (1.24) (0.60)
Total distributions (0.11) (0.33) (1.31) (0.60)
Net asset value, end of period $9.00 $10.38 $10.31 $12.21
Total investment return at net asset value(4) (%) 7.15(5) 19.11 12.14 24.41
Total adjusted investment return at net asset value(4,6) (%) 6.64(5) 18.24 11.43 23.81
Ratios and supplemental data
Net assets, end of period (000s omitted) ($) 3,296 16,994 22,097 35,033
Ratio of expenses to average net assets (%) 1.72(7) 1.73 1.69 1.69
Ratio of adjusted expenses to average net assets(8) (%) 5.71(7) 2.60 2.40 2.29
Ratio of net investment income (loss) to average net assets (%) 1.53(7) 1.21 0.62 (0.24)
Ratio of adjusted net investment income (loss) to average net assets(8) (%) (2.46)(7) 0.34 (0.09) (0.84)
Portfolio turnover rate (%) 0.3 9 72 140
Fee reduction per share(3) ($) 0.34 0.09 0.08 0.07
<CAPTION>
----------------------------------------------------------------------------------------------------
Class B - period ended: 10/98(2) 10/99
----------------------------------------------------------------------------------------------------
<S> <C> <C>
Per share operating performance
Net asset value, beginning of period $12.21 $10.71
Net investment income (loss)(3) (0.04) (0.18)
Net realized and unrealized gain (loss) on investments (1.46) 6.58
Total from investment operations (1.50) 6.40
Less distributions:
Dividends from net investment income -- --
Distributions from net realized gain on investments sold -- (0.13)
Total distributions -- (0.13)
Net asset value, end of period $10.71 $16.98
Total investment return at net asset value(4) (%) (12.29)(5) 60.33
Total adjusted investment return at net asset value(4,6) (%) (12.80)(5) 60.18
Ratios and supplemental data
Net assets, end of period (000s omitted) ($) 30,637 75,103
Ratio of expenses to average net assets (%) 1.71(7) 2.06
Ratio of adjusted expenses to average net assets(8) (%) 2.32(7) 2.21
Ratio of net investment income (loss) to average net assets (%) (0.45)(7) (1.34)
Ratio of adjusted net investment income (loss) to average net assets(8) (%) (1.06)(7) (1.49)
Portfolio turnover rate (%) 69 140
Fee reduction per share(3) ($) 0.06 0.02
</TABLE>
46 FUND DETAILS
<PAGE>
<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------------------------
Class C - period ended: 10/98(1) 10/99
---------------------------------------------------------------------------------------------------------
<S> <C> <C>
Per share operating performance
Net asset value, beginning of period $13.39 $10.71
Net investment income (loss)(3) (0.03) (0.19)
Net realized and unrealized gain (loss) on investments (2.65) 6.58
Total from investment operations (2.68) 6.39
Less distributions:
Distributions from net realized gain on investments sold -- (0.13)
Net asset value, end of period $10.71 $16.97
Total investment return at net asset value(4) (%) (20.01)(5) 60.24
Total adjusted investment return at net asset value(4,6) (%) (20.32)(5) 60.09
Ratios and supplemental data
Net assets, end of period (000s omitted) ($) $422 $3,774
Ratio of expenses to average net assets (%) 1.71(7) 2.09
Ratio of adjusted expenses to average net assets(8) (%) 2.32(7) 2.29
Ratio of net investment income (loss) to average net assets (%) (0.54)(7) (1.43)
Ratio of adjusted net investment income (loss) to average net assets(8) (%) (1.15)(7) (1.58)
Portfolio turnover rate (%) 69 140
Fee reduction per share(3) ($) 0.04 0.02
</TABLE>
(1) Class A and Class B shares began operations on January 3, 1994. Class C
shares began operations on May 1, 1998.
(2) Effective October 31, 1998, the fiscal year end changed from December 31 to
October 31.
(3) Based on the average of the shares outstanding at the end of each month.
(4) Assumes dividend reinvestment and does not reflect the effect of sales
charges.
(5) Not annualized.
(6) An estimated total return calculation that does not take into consideration
fee reductions by the adviser during the periods shown.
(7) Annualized.
(8) Unreimbursed, without fee reduction.
FUND DETAILS 47
<PAGE>
Sovereign Investors Fund
Figures audited by Ernst & Young LLP.
<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------------------------------------------
Class A - period ended: 12/95 12/96 12/97 12/98 12/99
----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Per share operating performance
Net asset value, beginning of period $14.24 $17.87 $19.48 $22.41 $24.23
Net investment income (loss) 0.40 0.36(1) 0.32(1) 0.31(1) 0.30(1)
Net realized and unrealized gain (loss) on investments 3.71 2.77 5.31 3.11 1.11
Total from investment operations 4.11 3.13 5.63 3.42 1.41
Less distributions:
Dividends from net investment income (0.40) (0.36) (0.32) (0.31) (0.35)
Distributions from net realized gain on investments sold (0.08) (1.16) (2.38) (1.29) (0.78)
Total distributions (0.48) (1.52) (2.70) (1.60) (1.13)
Net asset value, end of period $17.87 $19.48 $22.41 $24.23 $24.51
Total investment return at net asset value(2) (%) 29.15 17.57 29.14 15.62 5.91
Ratios and supplemental data
Net assets, end of period (000s omitted) ($) 1,280,321 1,429,523 1,748,490 1,884,460 1,787,615
Ratio of expenses to average net assets (%) 1.14 1.13 1.06 1.03 1.05
Ratio of net investment income (loss) to average net assets (%) 2.45 1.86 1.44 1.33 1.21
Portfolio turnover rate (%) 46 59 62 51 64
<CAPTION>
---------------------------------------------------------------------------------------------------------------------------
Class B - period ended: 12/95 12/96 12/97 12/98 12/99
---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Per share operating performance
Net asset value, beginning of period $14.24 $17.86 $19.46 $22.38 $24.20
Net investment income (loss)(1) 0.27 0.21 0.16 0.14 0.13
Net realized and unrealized gain (loss) on investments 3.71 2.77 5.29 3.11 1.11
Total from investment operations 3.98 2.98 5.45 3.25 1.24
Less distributions:
Dividends from net investment income (0.28) (0.22) (0.15) (0.14) (0.18)
Distributions from net realized gain on investments sold (0.08) (1.16) (2.38) (1.29) (0.78)
Total distributions (0.36) (1.38) (2.53) (1.43) (0.96)
Net asset value, end of period $17.86 $19.46 $22.38 $24.20 $24.48
Total investment return at net asset value(2) (%) 28.16 16.67 28.14 14.79 5.20
Ratios and supplemental data
Net assets, end of period (000s omitted) ($) 257,781 406,523 610,976 790,277 819,537
Ratio of expenses to average net assets (%) 1.90 1.91 1.83 1.79 1.73
Ratio of net investment income (loss) to average net assets (%) 1.65 1.10 0.67 0.58 0.54
Portfolio turnover rate (%) 46 59 62 51 64
<CAPTION>
--------------------------------------------------------------------------------------------
Class C - period ended: 12/98(3) 12/99
--------------------------------------------------------------------------------------------
<S> <C> <C>
Per share operating performance
Net asset value, beginning of period $24.43 $24.22
Net investment income (loss)(1) 0.13 0.13
Net realized and unrealized gain (loss) on investments 1.07 1.10
Total from investment operations 1.20 1.23
Less distributions:
Distributions from net investment income (0.12) (0.17)
Distributions from net realized gain on investments sold (1.29) (0.78)
Total distributions (1.41) (0.95)
Net asset value, end of period $24.22 $24.50
Total investment return at net asset value(2) (%) 5.18(4) 5.17
Ratios and supplemental data
Net assets, end of period (000s omitted) ($) 4,627 10,591
Ratio of expenses to average net assets (%) 1.67(5) 1.75
Ratio of net investment income to average net assets (%) 0.84(5) 0.51
Portfolio turnover rate (%) 51 64
</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) Class C shares began operations on May 1, 1998.
(4) Not annualized.
(5) Annualized.
48 FUND DETAILS
<PAGE>
For more information
Two documents are available that offer further information on John Hancock
equity funds:
Annual/Semiannual Report to Shareholders
Includes financial statements, a discussion of the market conditions and
investment strategies that significantly affected performance, as well as the
auditors' report (in annual report only).
Statement of Additional Information (SAI)
The SAI contains more detailed information on all aspects of the funds. The
current annual report is included in the SAI.
A current SAI has been filed with the Securities and Exchange Commission and is
incorporated by reference into (is legally a part of) this prospectus.
To request a free copy of the current annual/semiannual report or the SAI,
please contact John Hancock:
By mail:
John Hancock Signature Services, Inc.
1 John Hancock Way, Suite 1000
Boston, MA 02217-1000
By phone: 1-800-225-5291
By EASI-Line: 1-800-338-8080
By TDD: 1-800-544-6713
On the Internet: www.jhfunds.com
Or you may view or obtain these documents from the SEC:
In person: at the SEC's Public Reference Room in Washington, DC. For access to
the Reference Room call 1-202-942-8090
By mail: Public Reference Section
Securities and Exchange Commission
Washington, DC 20549-0102
(duplicating fee required)
By electronic request:
[email protected]
(duplicating fee required)
On the Internet: www.sec.gov
[logo] JOHN HANCOCK FUNDS
A Global Investment Management Firm
John Hancock Funds, Inc.
101 Huntington Avenue
Boston MA 02199-7603
(C)2000 John Hancock Funds, Inc.
EQTPN 7/00
<PAGE>
John Hancock Financial Industries Fund
Class A, Class B and Class C Shares
Statement of Additional Information
July 1, 2000
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 Sector Funds' current Prospectus, (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................................................ 13
Those Responsible for Management....................................... 15
Investment Advisory and Other Services................................. 21
Distribution Contracts................................................. 23
Sales Compensation..................................................... 25
Net Asset Value........................................................ 27
Initial Sales Charge on Class A Shares................................. 28
Deferred Sales Charge on Class B and Class C Shares.................... 30
Special Redemptions.................................................... 34
Additional Services and Programs....................................... 34
Purchases and Redemptions through Third Parties........................ 36
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- Description of Investment Risk............................. A-1
Appendix B-Description of Bond Ratings................................. B-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.
John Hancock Advisers, Inc. (the "Adviser") is the Fund's investment adviser.
The Adviser is an indirect, wholly-owned subsidiary of John Hancock Life
Insurance Company (formerly John Hancock Mutual Life Insurance Company)(the
"Life Company"), a Massachusetts life insurance company chartered in 1862, with
national headquarters at John Hancock Place, Boston, Massachusetts. The Life
Company is wholly owned by John Hancock Financial Services, Inc., a Delaware
corporation organized in February, 2000.
INVESTMENT OBJECTIVE AND POLICIES
The following information supplements the discussion of the Fund's investment
objective and policies discussed in the Prospectus. Appendix A contains further
information describing investment risks. The investment objective of the Fund is
non-fundamental. There is no assurance that the Fund will achieve its investment
objective.
The Fund's investment objective is capital appreciation. 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; financial
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 has a fundamental investment restriction requiring at least 25% of its
total assets to be in the banking industry. A company is considered to be in the
banking industry if, in its most recent fiscal year, it either (i) derived at
least 50% of its revenues or earnings from banking activities, or (ii) devoted
at least 50% of its assets to such activities.
The Fund's management team invests in financial services companies that are
currently undervalued, appear to be positioned for a merger, or are in a
position to benefit from regulatory changes. The team believes that the
Gramm-Leach-Bliley Act, which allows banks to acquire investment and insurance
firms, should reinforce the ongoing pattern of consolidation in the banking and
investment sectors.
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, recent legislation removing traditional barriers between
banking and investment banking activities will 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 may 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.
3
<PAGE>
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 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 debt 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 B 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. The Fund may invest directly in the
securities of foreign issuers as well as 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.
Foreign Currency Transactions. The Fund's foreign currency 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 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 as deemed appropriate by the
Adviser.
4
<PAGE>
If the Fund purchases a forward contract or sells a forward contract for
non-hedging purposes, the Fund will segregate cash or liquid securities in a
separate account of the Fund in an amount equal to the value of the Fund's total
assets committed to the consummation of such forward contract. 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 be equal the
amount of the Fund's commitment with respect to such contracts.
Hedging against a decline in the value of a currency does not eliminate
fluctuations in the prices of portfolio securities or prevent losses if the
prices of such securities decline. Such transactions also preclude the
opportunity for gain if the value of the hedged currency 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.
Risks of Foreign Securities. Investments in foreign securities may involve a
greater degree of risk than those in domestic securities. There is generally
less publicly available information about foreign companies in the form of
reports and ratings similar to those that are published about issuers in the
United States. Also, foreign issuers are generally not subject to uniform
accounting, auditing and financial reporting requirements comparable to those
applicable to United States issuers.
Because foreign securities may be denominated in currencies other than the U.S.
dollar, changes in foreign currency exchange rates will affect the Fund's net
asset value, the value of dividends and interest earned, gains and losses
realized on the sale of securities, and any net investment income and gains that
the Fund distributes to shareholders. Securities transactions undertaken in some
foreign markets may not be settled promptly so that the Fund's investments on
foreign exchanges may be less liquid and subject to the risk of fluctuating
currency exchange rates pending settlement.
Foreign securities will be purchased in the best available market, whether
through over-the-counter markets or exchanges located in the countries where
principal offices of the issuers are located. Foreign securities markets are
generally not as developed or efficient as those in the United States. While
growing in volume, they usually have substantially less volume than the New York
Stock Exchange, and securities of some foreign issuers are less liquid and more
volatile than securities of comparable United States issuers. Fixed commissions
on foreign exchanges are generally higher than negotiated commissions on United
States exchanges, although the Fund will endeavor to achieve the most favorable
net results on its portfolio transactions. There is generally less government
supervision and regulation of securities exchanges, brokers and listed issuers
than in the United States.
With respect to certain foreign countries, there is the possibility of adverse
changes in investment or exchange control regulations, expropriation,
nationalization or confiscatory taxation limitations on the removal of funds or
other assets of the Fund, political or social instability, or diplomatic
developments which could affect United States investments in those countries.
Moreover, individual foreign economies may differ favorably or unfavorably from
the United States' economy in terms of growth of gross national product, rate of
inflation, capital reinvestment, resource self-sufficiency and balance of
payments position.
5
<PAGE>
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 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 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.
6
<PAGE>
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 securities. The Trustees have adopted guidelines and delegated 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 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.
7
<PAGE>
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.
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
8
<PAGE>
operations on an exchange; (v) the facilities of an exchange or the Options
Clearing Corporation may not at all times be adequate to handle current trading
volume; or (vi) one or more exchanges could, for economic or other reasons,
decide or be compelled at some future date to discontinue the trading of options
(or a particular class or series of options). If trading were discontinued, the
secondary market on that exchange (or in that class or series of options) would
cease to exist. However, outstanding options on that exchange that had been
issued by the Options Clearing Corporation as a result of trades on that
exchange would continue to be exercisable in accordance with their terms.
The Fund's ability to terminate over-the-counter options is more limited than
with exchange-traded options and may involve the risk that broker-dealers
participating in such transactions will not fulfill their obligations. The
Adviser will determine the liquidity of each over-the-counter option in
accordance with guidelines adopted by the Trustees.
The writing and purchase of options is a highly specialized activity which
involves investment techniques and risks different from those associated with
ordinary portfolio securities transactions. The successful use of options
depends in part on the Adviser's ability to predict future price fluctuations
and, for hedging transactions, the degree of correlation between the options and
securities or currency markets.
Futures Contracts and Options on Futures Contracts. To seek to increase total
return or hedge against changes in interest rates, securities prices or currency
exchange rates, the Fund may purchase and sell various kinds of futures
contracts, and purchase and write call and put options on these futures
contracts. The Fund may also enter into closing purchase and sale transactions
with respect to any of these contracts and options. The futures contracts may be
based on various securities (such as U.S. Government securities), securities
indices, foreign currencies and any other financial instruments and indices. All
futures contracts entered into by the Fund are traded on U.S. or foreign
exchanges or boards of trade that are licensed, regulated or approved by the
Commodity Futures Trading Commission ("CFTC").
Futures Contracts. A futures contract may generally be described as an agreement
between two parties to buy and sell particular financial instruments or
currencies for an agreed price during a designated month (or to deliver the
final cash settlement price, in the case of a contract relating to an index or
otherwise not calling for physical delivery at the end of trading in the
contract).
Positions taken in the futures markets are not normally held to maturity but are
instead liquidated through offsetting transactions which may result in a profit
or a loss. While futures contracts on securities or currency will usually be
liquidated in this manner, the Fund may instead make, or take, delivery of the
underlying securities or currency whenever it appears economically advantageous
to do so. A clearing corporation associated with the exchange on which futures
contracts are traded guarantees that, if still open, the sale or purchase will
be performed on the settlement date.
Hedging and Other Strategies. Hedging is an attempt to establish with more
certainty than would otherwise be possible the effective price or rate of return
on portfolio securities or securities that the Fund proposes to acquire or the
exchange rate of currencies in which portfolio securities are quoted or
denominated. When interest rates are rising or securities prices are falling,
the Fund can seek to offset a decline in the value of its current portfolio
securities through the sale of futures contracts. When interest rates are
falling or securities prices are rising, the Fund, through the purchase of
9
<PAGE>
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.
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
10
<PAGE>
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 a segregated account consisting of cash or liquid securities in an
amount equal to the underlying value of such contracts and options.
While transactions in futures contracts and options on futures may reduce
certain risks, these transactions themselves entail certain other risks. For
example, unanticipated changes in interest rates, securities prices or currency
exchange rates may result in a poorer overall performance for the Fund than if
it had not entered into any futures contracts or options transactions.
Perfect correlation between the Fund's futures positions and portfolio positions
will be impossible to achieve. 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.
11
<PAGE>
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 and may be required
to pay a premium.
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.
12
<PAGE>
When the Fund engages in forward commitment and when-issued transactions, it
relies on the seller to consummate the transaction. The failure of the issuer or
seller to consummate the transaction may result in the Fund's losing the
opportunity to obtain a price and yield considered to be advantageous. The
purchase of securities on a when-issued or forward commitment basis also
involves a risk of loss if the value of the security to be purchased declines
prior to the settlement date.
On the date the Fund enters into an agreement to purchase securities on a
when-issued or forward commitment basis, the Fund will segregate in a separate
account cash or liquid securities, of any type or maturity, equal in value to
the Fund's commitment. These assets will be valued daily at market, and
additional cash or securities will be segregated in a separate account to the
extent that the total value of the assets in the account declines below the
amount of the when-issued commitments. Alternatively, the Fund may enter into
offsetting contracts for the forward sale of other securities that it owns.
Short-Term Trading and Portfolio Turnover. Short-term trading means the purchase
and subsequent sale of a security after it has been held for a relatively brief
period of time. The Fund may engage in short-term trading in response to stock
market conditions, changes in interest rates or other economic trends and
developments, or to take advantage of yield disparities between various fixed
income securities in order to realize capital gains or improve income.
Short-term trading may have the effect of increasing portfolio turnover rate. A
high rate of portfolio turnover (100% or greater) involves correspondingly
greater brokerage expenses. The Fund's portfolio turnover rate is set forth in
the table under the caption "Financial Highlights" in the Prospectus.
INVESTMENT RESTRICTIONS
Fundamental Investment Restrictions. The following investment restrictions 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 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 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.
13
<PAGE>
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.
14
<PAGE>
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.
The Fund will invest only in countries on the Adviser's Approved Country
Listing.
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>
<TABLE>
<CAPTION>
Positions Held Principal Occupation(s)
Name and Address With the Company During the Past Five Years
---------------- ---------------- --------------------------
<S> <C> <C>
Stephen L. Brown* Trustee and Chairman Chairman and Director, John Hancock
John Hancock Place Life Insurance Company (CEO until
P.O. Box 111 June 2000), John Hancock Financial
Boston, MA 02117 Services, Inc. (CEO until June
July 1937 2000); John Hancock Advisers, Inc.
(the Adviser), John Hancock Funds,
Inc. (John Hancock Funds), The
Berkeley Financial Group, Inc. (The
Berkeley Group); Director, John
Hancock Subsidiaries, Inc.; John
Hancock Signature Services, Inc.
(Signature Services) (until January
1997); John Hancock Insurance
Agency, Inc.; (Insurance Agency),
(until May 1999); Independence
Investment Associates, Inc.,
Independence International
Associates, Inc,, Independence
Fixed Income Associates, Inc.;
Insurance Marketplace Standards
Association, Committee for Economic
Development, Jobs for
Massachusetts, Federal Reserve Bank
of Boston (until March 1999);
Financial Institutions Center
(until May 1996), Freedom Trail
Foundation (until December 1996)
Beth Israel Hospital and
Corporation (until November 1996);
Director and Member (Beth
Israel/Deaconess Care Group),
Member, Commercial Club of Boston,
President (until April 1996);
Trustee, Wang Center for the
Performing Arts, Alfred P. Sloan
Foundation, John Hancock Asset
Management (until March 1997);
Member, Boston Compact Committee,
Mass. Capital Resource Company;
Chairman, Boston Coordinating
Committee ("The Vault") (until
April 1997).
Maureen R. Ford * Trustee, Vice Chairman, President, Broker/Dealer
101 Huntington Avenue President and Chief Distributor, John Hancock Life
Boston, MA 02199 Executive Officer (1,2) Insurance Company; Vice Chairman,
March 1950 Director, President and Chief
Executive Officer, the Adviser, The
Berkeley Group, John Hancock Funds;
Chairman, Director and President,
Insurance Agency, Inc.; Chairman,
Director and Chief Executive
Officer, Sovereign Asset Management
Corporation (SAMCorp.); Senior Vice
President, MassMutual Insurance Co.
(until 1999); Senior Vice
President, Connecticut Mutual
Insurance Co. (until 1996).
-------------------
* Trustee may be deemed to be an "interested person" of the Fund as defined in
the Investment Company Act of 1940.
(1) Member of the Executive Committee. The Executive Committee may generally
exercise most of the powers of the Board of Trustees.
(2) A member of the Investment Committee of the Adviser.
16
<PAGE>
Positions Held Principal Occupation(s)
Name and Address With the Company During the Past Five Years
---------------- ---------------- --------------------------
<S> <C> <C>
Dennis S. Aronowitz Trustee Professor of Law, Emeritus, Boston
1216 Falls Boulevard University School of Law (as of
Fort Lauderdale, FL 33327 1996); Director, Brookline
June 1931 Bankcorp.
Richard P. Chapman, Jr. Trustee (1) Chairman, President, and Chief
160 Washington Street Executive Officer, Brookline
Brookline, MA 02147 Bankcorp. (lending); Director,
February 1935 Lumber Insurance Companies (fire
and casualty insurance); Trustee,
Northeastern University
(education); Director, Depositors
Insurance Fund, Inc. (insurance).
William J. Cosgrove Trustee Vice President, Senior Banker and
20 Buttonwood Place Senior Credit Officer, Citibank,
Saddle River, NJ 07458 N.A. (retired September 1991);
January 1933 Executive Vice President, Citadel
Group Representatives, Inc.;
Trustee, the Hudson City Savings
Bank (since 1995).
Leland O. Erdahl Trustee Director of Uranium Resources
279 Cielo Azul Corporation, Hecla Mining Company,
Corrales, NM 87048 Canyon Resources Corporation and
December 1928 Apollo Gold, Inc.; Director
Original Sixteen to One Mines, Inc.
(until 1999); Management Consultant
(from 1984-1987 and 1991-1998);
Director, Freeport-McMoran Copper &
Gold, Inc. (until 1997); Vice
President, Chief Financial Officer
and Director of Amax Gold, Inc.
(until 1998).
Richard A. Farrell Trustee President of Farrell, Healer & Co.,
The Venture Capital of (venture capital management firm)
New England (since 1980); Prior to 1980, headed
70 Walnut Street, Suite 120 the venture capital group at Bank
Wellesley Hills, MA 02481 of Boston Corporation.
November 1932
Gail D. Fosler Trustee Senior Vice President and Chief
4104 Woodbine Street Economist, The Conference Board
Chevy Chase, MD 20815 (non-profit economic and business
December 1947 research); Director, Unisys Corp.;
Director DHS Singapore (Financial
Services) H.B. Fuller Company; and
DBS Holdings (Singapore) (Banking
and Financial Services); Director,
National Bureau of Economic
Research (academic).
-------------------
* 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.
17
<PAGE>
Positions Held Principal Occupation(s)
Name and Address With the Company During the Past Five Years
---------------- ---------------- --------------------------
<S> <C> <C>
William F. Glavin Trustee President Emeritus, Babson College
120 Paget Court - John's Island (as of 1997); Vice Chairman, Xerox
Vero Beach, FL 32963 Corporation (until June 1989);
March 1932 Director, Caldor Inc., Reebok, Inc.
(since 1994) and Inco Ltd.
Dr. John A. Moore Trustee President and Chief Executive
1045 No Utah #310 Officer, Institute for Evaluating
Arlington, VA 22201 Health Risks, (nonprofit
February 1939 institution) (since September
1989).
Patti McGill Peterson Trustee Executive Director, Council for
Council For International International Exchange of Scholars
Exchange of Scholars (since January 1998), Vice
3007 Tilden Street, N.W. President, Institute of
Washington, D.C. 20008 International Education (since
May 1943 January 1998); Senior Fellow,
Cornell Institute of Public
Affairs, Cornell University (until
December 1997); President Emerita
of Wells College and St. Lawrence
University; Director, Niagara
Mohawk Power Corporation (electric
utility).
John W. Pratt Trustee Professor of Business
2 Gray Gardens East Administration Emeritus, Harvard
Cambridge, MA 02138 University Graduate School of
September 1931 Business Administration (as of June
1998).
Richard S. Scipione * Trustee (1) General Counsel, John Hancock Life
John Hancock Place Insurance Company; Director, the
P.O. Box 111 Adviser, John Hancock Funds,
Boston, MA 02117 Signator Investors, Inc., John
August 1937 Hancock Subsidiaries, Inc.,
SAMCorp., NM Capital, The Berkeley
Group, JH Networking Insurance
Agency, Inc.; Insurance Agency,
Inc. (until June 1999), Signature
Services (until January 1997).
William L. Braman Executive Vice Executive Vice President and Chief
101 Huntington Avenue President and Chief Investment Officer, each of the
Boston, MA 02199 Investment Officer John Hancock Funds; Executive Vice
December 1953 President and Chief Investment
Officer, Barring Asset Management,
London UK (until May 2000).
-------------------
* 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.
18
<PAGE>
Positions Held Principal Occupation(s)
Name and Address With the Company During the Past Five Years
---------------- ---------------- --------------------------
<S> <C> <C>
Osbert M. Hood Executive Vice President Executive Vice President and Chief
101 Huntington Avenue and Chief Financial Financial Officer, each of the John
Boston, MA 02199 Officer (2) Hancock Funds; Executive Vice
August 1952 President, Treasurer and Chief
Financial Officer of the Adviser,
the Berkeley Group, John Hancock
Funds, SAMCorp. And NM Capital;
Senior Vice President, Chief
Financial Officer and Treasurer,
Signature Services; Director
Indocam Japan Limited; Vice
President and Chief Financial
Officer, John Hancock Mutual Life
Insurance Company, Retail Sector
(until 1997).
Susan S. Newton Vice President, Secretary Vice President and Chief Legal Officer the
101 Huntington Avenue and Chief Legal Officer Adviser; John Hancock Funds; Vice President
Boston, MA 02199 Signature Services (until May 2000), The
March 1950 Berkeley Group, NM Capital and SAMCorp.
James J. Stokowski Vice President, Treasurer Vice President, the Adviser.
101 Huntington Avenue and Chief Accounting
Boston, MA 02199 Officer
November 1946
Thomas H. Connors Vice President and Vice President and Compliance Officer,
101 Huntington Avenue Compliance Officer the Adviser; Vice President, John Hancock
Boston, MA 02199 Funds, Inc.
September 1959
-------------------
* 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.
</TABLE>
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. Brown and Scipione and Ms.
Ford, 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.
19
<PAGE>
Aggregate Total Compensation From
Compensation the Fund and John Hancock
Independent Trustees From the Fund(1) Fund Complex to Trustees(2)
-------------------- ---------------- ---------------------------
Dennis S. Aronowitz $ 16,191 $ 75,250
Richard P. Chapman, Jr.* 16,358 75,250
William J. Cosgrove* 15,714 72,250
Douglas M. Costle (3) 13,336 56,000
Leland O. Erdahl 15,736 72,350
Richard A. Farrell 16,358 75,250
Gail D. Fosler 15,714 72,250
William F. Glavin* 14,871 68,100
Dr. John A. Moore* 15,736 72,350
Patti McGill Peterson 16,379 75,350
John W. Pratt 15,714 72,250
----------- ------
Total $ 172,107 $786,650
(1) Compensation is for the fiscal year ended October 31, 1999.
(2) Total compensation paid by the John Hancock Funds Complex to the Independent
Trustees is as of December 31, 1999. As of this date, there were sixty-five
funds in the John Hancock Fund Complex, with each of these Independent Trustees
serving on thirty-one funds.
(3) Mr. Costle retired as of December 31, 1999.
* As of December 31, 1999, the value of the aggregate accrued deferred
compensation amount from all funds in the John Hancock Funds Complex for Mr.
Chapman was $112,162, Mr. Cosgrove was $224,553, Mr. Glavin was $342,213 and for
Dr. Moore was $283,877 under the John Hancock Group of Funds 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, 2000, the officers and Trustees of the Trust as a group
beneficially owned less than 1% of the Fund's outstanding shares. On that date,
no person owned of record or beneficially as much as 5% of the outstanding
shares of the Fund.
20
<PAGE>
Percentage of Total
outstanding Shares
Class of of the Class of
Name Address of Shareholders Shares the Fund
---------------------------- -------- -------------------
MLPF&S For The Sole Benefit of Its Customers A 14.52%
Attn: Fund Administration 97M23
4800 Deer Lake Drive East 2nd Fl
Jacksonville FL 32246-6484
MLPF&S For The Sole Benefit of Its Customers B 33.74%
Attn: Fund Administration 97M76
4800 Deer Lake Drive East 2nd Fl
Jacksonville FL 32246-6484
MLPF&S For The Sole Benefit of Its Customers C 27.33%
Attn: Fund Administration 97M76
4800 Deer Lake Drive East 2nd Fl
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 $30 billion in assets under management
in its capacity as investment adviser to the Fund and other funds in the John
Hancock group of funds, as well as retail and institutional privately managed
accounts. 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. 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 but not
limited to 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,
maintaining a committed line of credit, 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.
21
<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 its 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.
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 management
fees for the period of $3,171,442. For the fiscal year ended October 31, 1998
and 1999, the Fund paid a management fee of $24,120,423 and $25,040,294 to the
Adviser.
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 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.
22
<PAGE>
Accounting and Legal Services Agreement. The Trust, on behalf of the Fund, is a
party to an Accounting and Legal Services Agreement with the Adviser. Pursuant
to this agreement, the Adviser provides the Fund with certain tax, accounting
and legal services. For the fiscal years ended October 31, 1997, 1998 and 1999
the Fund paid the Adviser $110,155, $521,376 and $539,115, respectively, for
services under this Agreement.
Personnel of the Adviser and its affiliates may trade securities for their
personal accounts. The Fund also may hold, or may be buying or selling, the same
securities. To prevent the Fund from being disadvantaged, the adviser and its
affiliates and the Fund have adopted a code of ethics which restricts the
trading activity of those personnel
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. These Selling Brokers are authorized to
designate other intermediaries to receive purchase and redemption orders on
behalf of the Fund. John Hancock Funds accepts orders for the purchase of the
shares of the Fund that are continually offered at net asset value next
determined, plus any applicable sales charge, if any. In connection with the
sale of Fund 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 or Class C shares, the broker receives compensation
immediately but John Hancock Funds is compensated on a deferred basis.
Total underwriting commissions for sales of the Fund's Class A shares for the
fiscal years ended October 31, 1997, 1998 and 1999 were $12,457,549, $18,521,423
and $2,952,139, respectively, and $1,938,173, $2,713,902 and $283,445 were
retained by John Hancock Funds in 1997, 1998 and 1999, respectively. The
remainder of the underwriting commissions were reallowed to Selling Brokers.
The Fund's Trustees adopted Distribution Plans with respect to each class of
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% for Class A and 1.00% for Class B and Class
C shares 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 and Class C shares only, interest expenses on unreimbursed
distribution expenses. The services fees will be used to compensate Selling
23
<PAGE>
Brokers and others for providing personal and account maintenance services to
shareholders. In the event the John Hancock Funds is not fully reimbursed for
payments or expenses they incur under the Class A Plan, these expenses will not
be carried beyond twelve months from the date they were incurred. Unreimbursed
expenses under the Class B and Class C Plans 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 and Class C Plans as a liability
of the Fund because the Trustees may terminate the Class B and/or Class C Plans
at any time. For the fiscal year ended October 31, 1999, an aggregate of $31,
656,236 of distribution expenses or 1.59% 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 the prior
periods. For the fiscal year ended October 31, 1999, an aggregate of $35,253 of
distribution expenses or 0.79% of the average net assets of the Class C 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 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, Class B and Class C 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 Fund.
During the fiscal year ended October 31, 1999, the Fund paid John Hancock Funds
the following amounts of expenses in connection with their services for the
Fund.
24
<PAGE>
<TABLE>
<CAPTION>
Expense Items
-------------
Printing and
Mailing of Interest,
Prospectuses Expenses of Compensation Carrying or
to New John Hancock to Selling Other Finance
Shares Advertising Shareholders Funds Brokers Charges
------ ----------- ------------ ------------ ------------ -------------
<S> <C> <C> <C> <C> <C>
Class A $ 279,239 $ 21,343 $ 1,219,417 $ 845,475 $ 0
Class B $ 3,556,667 $ 174,166 $ 14,225,799 $ 5,537,457 $ 1,386,902
Class C $ 7,517 $ 611 $ 0 $ 11,203 $ 0
SALES COMPENSATION
As part of their business strategies, the Fund, along with John Hancock Funds,
pay compensation to financial services firms that sell the fund's shares. These
firms typically pass along a portion of this compensation to your financial
representative.
The two primary sources of compensation payments are (1) 12b-1 fees that are
paid out of the fund's assets and (2) sales charges paid by investors. The sales
charges and 12b-1 fees are detailed in the prospectus and under the
"Distribution Contracts" in this Statement of Additional Information. The
portions of these expenses that are reallowed to financial services firms are
shown on the next page.
Whenever you make an investment in the Fund, the financial services firm
receives a reallowance, as described below. The firm also receives the first
year's service fee at this time. 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 fund net assets. This fee is paid quarterly in
arrears by the Fund.
In addition, from time to time, John Hancock Funds, at its expense, may provide
significant additional compensation to financial services firms which sell or
arrange for the sale of shares of the Fund. Such compensation provided by John
Hancock Funds may include, for example, financial assistance to financial
services firms in connection with their conferences or seminars, sales or
training programs for invited registered representatives and other employees,
payment for travel expenses, including lodging, incurred by registered
representatives and other employees for such seminars or training programs,
seminars for the public, advertising and sales campaigns regarding one or more
Funds, and/or other financial services firms-sponsored events or activities.
From time to time, John Hancock Funds may make expense reimbursements for
special training of a financial services firm's registered representatives and
other employees in group meetings or to help pay the expenses of sales contests.
Other compensation, such as asset retention fees, finder's fees and
reimbursement for wire transfer fees, may be offered to the extent not
prohibited by law or any self-regulatory agency, such as the NASD.
25
<PAGE>
First year
Sales charge Maximum service Maximum total
paid by investors reallowance fee (% of net compensation (1)
Class A investments (% of offering price) (% of offering price) investment) (3) (% 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 Class A share of
$1 million or more (4)
----------------------
First $1M - $4,999,999 -- 0.75% 0.25% 1.00%
Next $1 - $5M above that -- 0.25% 0.25% 0.50% (2)
Next $1 or more above that -- 0.00% 0.25% 0.25% (2)
Retirement investments
of Class A shares of
$1 million or more *
--------------------
First $1M - $24,999,999 -- 0.75% 0.25% 1.00%
Next $25M -$49,999,999 -- 0.25% 0.25% 0.50%
Next $1 or more above that -- 0.00% 0.25% 0.25%
Maximum First year Maximum total
reallowance service fee (% of compensation (1)
Class B investments (% of offering price) net investment) (3) (% of offering price)
------------------- --------------------- ------------------ ---------------------
All amounts 3.75% 0.25% 4.00%
Maximum First year Maximum total
reallowance service fee (% of compensation (1)
Class C investments (% of offering price) net investment) (3) (% of offering price)
------------------- -------------------- ------------------ ---------------------
Amounts purchased at NAV
-- 0.75% 0.25% 1.00%
All other amounts 1.00% 1.75% 0.25% 2.00%
</TABLE>
(1) Reallowance percentages and service fee percentages are calculated from
different amounts, and therefore may not equal total compensation percentages if
combined using simple addition.
(2) For Group Investment Programs sales, the maximum total compensation for
investments of $1 million or more is 1.00% of the offering price (one year CDSC
of 1.00% applies for each sale).
26
<PAGE>
(3) After first year subsequent service fees are paid quarterly in arrears.
(4) Includes new investments aggregated with investments since the last annual
reset. John Hancock Funds may take recent redemptions into account in
determining if an investment qualifies as a new investment.
CDSC revenues collected by John Hancock Funds may be used to pay commissions
when there is no initial sales charge.
*Retirement investments only. These include traditional and Roth IRAs, SIMPLE
IRAs, SIMPLE 401(k), Rollover IRA, TSA, 457, 403(b), 401(k), Money Purchase
Pension Plan, profit-sharing plan and other retirement plans as described in the
Internal Revenue Code.
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 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.
27
<PAGE>
INITIAL SALES CHARGE ON CLASS A AND CLASS C 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"). The fund no longer
issues share certificates. Shares are electronically recorded. 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 and Class C 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 contingent deferred sales charge ("CDSC") to various
individuals and institutions as follows:
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, daughter-in-law, son-in-law, niece,
nephew and same sex domestic partners) 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 a signed 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 a class action lawsuit against insurance companies who is
investing settlement proceeds.
o Retirement plans participating in Merrill Lynch servicing programs, if
the Plan has more than $3 million 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 Retirement plans investing through the PruArray Program sponsored by
Prudential Securities.
28
<PAGE>
o Pension plans transferring assets from a John Hancock variable annuity
contract to the Fund pursuant to an exemptive application approved by
the Securities and Exchange Commission.
o Existing full service clients of the Life Company who were group
annuity contract holders as of September 1, 1994, and participant
directed retirement plans with at least 100 eligible employees at the
inception of the Fund account. Each of these investors 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 C shares may be offered without a front-end sales charge to:
o Retirement plans for which John Hancock Signature Services performs
employer sponsored plan recordkeeping services. (these types of plans
include 401(k), money purchase pension, profit sharing and SIMPLE
401(k)).
o An investor who buys through a Merrill Lynch omnibus account. However,
a CDSC may apply if the shares are sold within 12 months of purchase.
Class A and Class C 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.
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). A company's (not an individual's) qualified and non-qualified retirement
plan investments can be combined to take advantage of this privilege. 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 being invested but also
the investor's 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. Retirement plan investors may include the value of Class
B shares if Class B shares held are greater than $1 million. Retirement plans
must notify Signature Services to utilize. A company's (not an individual's)
qualified and non-qualified retirement plan investments can be combined to take
advantage of this privilege.
29
<PAGE>
Group Investment Program. Under the Combination and Accumulation Privileges, all
members of a group may combine their individual purchases of Class A shares to
potentially qualify for breakpoints in the sales charge schedule. This feature
is provided to any group which (1) has been in existence for more than six
months, (2) has a legitimate purpose other than the purchase of mutual fund
shares at a discount for its members, (3) utilizes salary deduction or similar
group methods of payment, and (4) agrees to allow sales materials of the fund in
its mailings to members at a reduced or no cost to John Hancock Funds.
Letter of Intention. Reduced sales charges are also applicable to investments
pursuant to a Letter of Intention (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 traditional
and Roth IRAs, SEP, SARSEP, 401(k), 403(b) (including TSAs), SIMPLE IRA, SIMPLE
401(k), Money Purchase Pension, Profit Sharing and Section 457 plans. An
individual's non-qualified and qualified retirement plan investments cannot be
combined to satisfy LOI of 48 months. Such an investment (including
accumulations and combinations but not including reinvested dividends) must
aggregate $50,000 or more during the specified period from the date of the LOI
or from a date within ninety (90) days prior thereto, upon written request to
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 AND CLASS C SHARES
Investments in Class B shares are purchased at net asset value per share without
the imposition of an initial sales charge so that the Fund will receive the full
amount of the purchase payment.
Contingent Deferred Sales Charge. Class B and Class C shares which are redeemed
within six years or one year of purchase, respectively, will be subject to a
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 or Class C shares being redeemed. No CDSC will be imposed on increases
in account value above the initial purchase price or on shares derived from
reinvestment of dividends or capital gains distributions.
30
<PAGE>
Class B shares are not available to full-service retirement 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 of both Class B and Class C
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 for Class B or one year CDSC
redemption period for Class C, 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 Class B shares. For this purpose, the amount of
any increase in a share's value above its initial purchase price is not subject
to a 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 Class B 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:
oProceeds 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)
------
oAmount subject to CDSC $280.00
*The appreciation is based on all 100 shares in the account 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 and Class C shares, such as the payment of compensation to select
Selling Brokers for selling Class B and Class C shares. The combination of the
CDSC and the distribution and service fees facilitates the ability of the Fund
to sell the Class B and Class C shares without a sales charge being deducted at
the time of the purchase.
31
<PAGE>
Waiver of Contingent Deferred Sales Charge. The CDSC will be waived on
redemptions of Class B and Class C 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. (Does not apply to trust
accounts unless trust is being dissolved.)
* Redemptions made under the Reinstatement Privilege, as described in
"Sales Charge Reductions and Waivers" in the Prospectus.
* Redemptions of Class B (but not Class C) shares made under a periodic
withdrawal plan, or redemption for fees charged by planners or advisors
for advisory services, 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 or Class C
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.
* Redemption of Class A shares by retirement plans that invested through
the PruArray Program sponsored by Prudential Securities.
* Redemptions of Class A shares made after one year from the inception
date of a retirement plan at John Hancock for which John Hancock is the
recordkeeper.
For Retirement Accounts (such as traditional and Roth IRAs, SIMPLE IRAs, 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 sections
401(a) (such as Money Purchase Pension Plans and Profit-Sharing/401(k)
Plans), 457 and 408 (SEPs and SIMPLE IRAs of the Internal Revenue Code.
32
<PAGE>
* 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 some examples.
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
----------------------- ----------------- ----------------- ---------------- ----------------- ----------------
Type of 401 (a) Plan 403 (b) 457 IRA, IRA Non-retirement
Distribution (401 (k), MPP, Rollover
PSP) 457 & 408
(SEPs & Simple
IRAs)
----------------------- ----------------- ----------------- ---------------- ----------------- ----------------
Death or Disability Waived Waived Waived Waived Waived
----------------------- ----------------- ----------------- ---------------- ----------------- ----------------
Over 70 1/2 Waived Waived Waived Waived for 12% of account
mandatory value annually
distributions in periodic
or 12% of payments
account value
annually in
periodic
payments.
----------------------- ----------------- ----------------- ---------------- ----------------- ----------------
Between 59 1/2 Waived Waived Waived Waived for Life 12% of account
and 70 1/2 Expectancy or value annually
12% of account in periodic
value annually payments
in periodic
payments.
----------------------- ----------------- ----------------- ---------------- ----------------- ----------------
Under 59 1/2 Waived for Waived for Waived for Waived for 12% of account
(Class B only) annuity annuity annuity annuity value annually
payments (72t) payments (72t) payments (72t) payments (72t) in periodic
or 12% of or 12% of or 12% of or 12% of payments
account value account value account value account value
annually in annually in annually in annually in
periodic periodic periodic periodic
payments. payments. payments. payments.
----------------------- ----------------- ----------------- ---------------- ----------------- ----------------
Loans Waived Waived N/A N/A N/A
----------------------- ----------------- ----------------- ---------------- ----------------- ----------------
Termination of Plan Not Waived Not Waived Not Waived Not Waived N/A
----------------------- ----------------- ----------------- ---------------- ----------------- ----------------
Hardships Waived Waived Waived N/A N/A
----------------------- ----------------- ----------------- ---------------- ----------------- ----------------
Qualified Domestic Waived Waived Waived N/A N/A
Relations Orders
----------------------- ----------------- ----------------- ---------------- ----------------- ----------------
Termination of Waived Waived Waived N/A N/A
Employment Before
Normal Retirement Age
----------------------- ----------------- ----------------- ---------------- ----------------- ----------------
Return of Excess Waived Waived Waived Waived N/A
----------------------- ----------------- ----------------- ---------------- ----------------- ----------------
</TABLE>
33
<PAGE>
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 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 500 Index Fund and John Hancock
Intermediate 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 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 shares of
the Fund could be disadvantageous to a shareholder because of the initial sales
34
<PAGE>
charge payable on such purchases of Class A shares and the CDSC imposed on
redemptions of Class B and Class C shares and because redemptions are taxable
events. Therefore, a shareholder should not purchase 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 order 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."
35
<PAGE>
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).
PURCHASES AND REDEMPTIONS THROUGH THIRD PARTIES
Shares of the Fund may be purchased or redeemed through certain broker-dealers.
Brokers may charge for their services or place limitations on the extent to
which you may use the services of the Fund. The Fund will be deemed to have
received a purchase or redemption order when an authorized broker, or if
applicable, a broker's authorized designee, receives the order. If a broker is
an agent or designee of the Fund, orders are processed at the NAV next
calculated after the broker receives the order. The broker must segregate any
orders it receives after the close of regular trading on the New York Stock
Exchange and transmit those orders to the Fund for execution at NAV next
determined. Some brokers that maintain nominee accounts with the Fund for their
clients charge an annual fee on the average net assets held in such accounts for
accounting, servicing, and distribution services they provide with respect to
the underlying Fund shares. The Adviser, the Fund, and John Hancock Funds, Inc.
(the Fund's principal distributor), share in the expense of these fees.
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 and
classes, without further action by shareholders. As of the date of this
Statement of Additional Information, the Trustees have authorized shares of the
Fund and two other series. Additional series may be added in the future. The
Trustees have also authorized the issuance of three classes of shares of the
Fund, designated as Class A, Class B and Class C.
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
each class of 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 each class of shares will be borne
exclusively by that class, (ii) Class B and Class C shares will pay higher
distribution and service fees than Class A shares and (iii) each class of shares
will bear any class expenses properly allocable to that class of shares, subject
to the conditions the Internal Revenue Service imposes with respect to
multiple-class structures. Similarly, the net asset value per share may vary
depending on which class of shares are purchased. No interest will be paid on
uncashed dividend or redemption checks.
36
<PAGE>
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 starter, credit card or third party checks. All
checks returned by the post office as undeliverable will be reinvested at net
asset value in the fund or funds from which a redemption was made or dividend
paid. 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. For telephone transactions, the transfer agent 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, the transfer agent 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.
Selling activities for the Fund may not take place outside the U.S. except with
U.S. military bases, APO addresses and U.S. diplomats. Brokers of record on
Non-U.S. investors' accounts with foreign mailing addresses are required to
certify that all sales activities have occurred, and in the future will occur,
only in the U.S. A foreign corporation may purchase shares of the Fund only if
it has a U.S. mailing address.
37
<PAGE>
TAX STATUS
The Fund, is treated as a separate entity for accounting and tax purposes, has
qualified and elected to be treated as a "regulated investment company" under
Subchapter M of the Internal Revenue Code of 1986, as amended (the "Code"), and
intends to continue to 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 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 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 net capital gain, after reduction by deductible
expenses.) 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 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.
38
<PAGE>
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. 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. If the Fund cannot or does
not make this election, the Fund will deduct the foreign taxes it pays in
determining the amount it has available for distribution to shareholders, and
shareholders will not include these foreign taxes in their income, nor will they
be entitled to any tax deductions or credits with respect to such taxes.
The 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.
39
<PAGE>
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 will ordinarily 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 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.
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 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
realized 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 has $140,635,246 of capital loss carry
forwards available to the extent provided by regulations to offset net capital
gains. The carry forwards expire as follows: October 31, 2006--$2,259,735 and
October 31, 2007--$138,375,511.
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
40
<PAGE>
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 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.
41
<PAGE>
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 would otherwise have occurred. These
transactions may therefore affect the amount, timing and character of the Fund's
distributions to shareholders. The Fund will take into account the special tax
rules (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 types of
investors, such as tax-exempt entities, insurance companies, and financial
institutions. Dividends, capital gain distributions, and ownership of or gains
realized on the redemption (including an exchange) of Fund shares may also be
subject to state and local taxes. Shareholders should consult their own tax
advisers as to the Federal, state or local tax consequences of ownership of
shares of, and receipt of distributions from, the Fund in their particular
circumstances.
Non-U.S. investors not engaged in a U.S. trade or business with which their
investment in the Fund is effectively connected will be subject to U.S. Federal
income tax treatment that is different from that described above. These
investors may be subject to nonresident alien withholding tax at the rate of 30%
(or a lower rate under an applicable tax treaty) on amounts treated as ordinary
dividends from the Fund and, unless an effective IRS Form W-8, Form W-8BEN or
other authorized withholding certificate 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.
42
<PAGE>
CALCULATION OF PERFORMANCE
As of October 31, 1999, the average annual total returns for Class A shares of
the Fund for the 1 year period and since commencement of operations on March 14,
1996 were 3.25% and 19.73%, respectively.
As of October 31, 1999, the average annual total returns for Class B shares of
the Fund for the 1 year period and since commencement of operations on January
14, 1997 were 2.93% and 11.69%, respectively.
As of October 31, 1999, the cumulative total return for Class C shares of the
Fund since commencement of operations on March 1, 1999 was 0.35%.
Total return is computed by finding the average annual compounded rates of
return over the designated periods that would equate the initial amount invested
to the ending redeemable value, according to the following formula:
n ______
T = \ / ERV/P - 1
Where:
P = a hypothetical initial investment of $1,000.
T = average annual total return.
n = number of years.
ERV = ending redeemable value of a hypothetical $1,000 investment
made at the beginning of the 1 year 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 each class, 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 or Class C shares into account. Excluding the Fund's
sales charge on Class A shares and the CDSC on Class B or Class C 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.
43
<PAGE>
Performance rankings and ratings reported periodically in, and excerpts from,
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 performance.
BROKERAGE ALLOCATION
Decisions concerning the purchase and sale of portfolio securities and the
allocation of brokerage commissions are made by the Adviser pursuant to
recommendations made by an investment committee of the Adviser, which consists
of officers and directors of the Adviser 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 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. Government securities market, securities are generally traded on a
"net" basis with dealers acting as principal for their own account without a
stated commission, although the price of the security usually includes a profit
to the dealer. On occasion, certain money market instruments and agency
securities may be purchased directly from the issuer, in which case no
commissions or premiums are paid. 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.
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
44
<PAGE>
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, 1998 and 1999, the Fund paid negotiate brokerage commissions of
$1,819,800, $4,222,315, and $4,845,254, respectively.
As permitted by Section 28(e) of the Securities Exchange Act of 1934, the Fund
may pay to a broker which provides brokerage and research services to the Fund
an amount of disclosed commission in excess of the commission which another
broker would have charged for effecting that transaction. This practice is
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 years ended October 31,
1999, the Fund paid $304,997 in commissions 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 Signator Investors, Inc., a broker-dealer (until January 1, 1999,
John Hancock Distributors, Inc.) ("Signator" 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 the Affiliated Broker. For the fiscal years ended October 31, 1997, 1998
and 1999, the Fund paid no brokerage commissions to the Affiliated Broker.
Signator 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.
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. Because of
this, client accounts in a particular style may sometimes not sell or acquire
securities as quickly or at the same prices as they might if each were managed
and traded individually.
45
<PAGE>
For purchases of equity securities, when a complete order is not filled, a
partial allocation will be made to each account pro rata based on the order
size. For high demand issues (for example, initial public offerings), shares
will be allocated pro rata by account size as well as on the basis of account
objective, account size ( a small account's allocation may be increased to
provide it with a meaningful position), and the account's other holdings. In
addition, an account's allocation may be increased if that account's portfolio
manager was responsible for generating the investment idea or the portfolio
manager intends to buy more shares in the secondary market. For fixed income
accounts, generally securities will be allocated when appropriate among accounts
based on account size, except if the accounts have different objectives or if an
account is too small to get a meaningful allocation. For new issues, when a
complete order is not filled, a partial allocation will be made to each account
pro rata based on the order size. However, if a partial allocation is too small
to be meaningful, it may be reallocated based on such factors as account
objectives, duration benchmarks and credit and sector exposure. 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, $21.50
for each Class B shareholder account and $20.50 for each Class C shareholder
account. The Fund also pays certain out-of-pocket expenses and 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 Fund are PricewaterhouseCoopers LLP, 160 Federal
Street, Boston, Massachusetts 02110. PricewaterhouseCoopers LLP audits and
renders an opinion on the Fund's annual financial statements and reviews the
Fund's Federal income tax return.
46
<PAGE>
APPENDIX A - 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 the fund's
risk profile in the prospectus.
A fund is 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 the Fund utilizes these
securities or practices, its overall performance may be affected, either
positively or negatively. On the following pages are brief definitions of
certain associated risks with them with examples of related securities and
investment practices included in brackets. See the "Investment Objective and
Policies" and "Investment Restrictions" sections of this Statement of Additional
Information for a description of this Fund's investment policies. The Fund
follows certain policies that may reduce these risks.
As with any mutual fund, there is no guarantee that the Fund will earn income or
show a positive return over any period of time -- days, months or years.
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. (e.g., short sales, financial futures and options;
securities and index options, currency contracts).
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. (e.g., borrowing; reverse repurchase agreements, repurchase
agreements, securities lending, non-investment-grade securities, financial
futures and options; securities and index options).
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. (e.g., foreign
equities, financial futures and options; securities and index options, currency
contracts).
Information risk The risk that key information about a security or market is
inaccurate or unavailable. (e.g., non-investment-grade securities, foreign
equities).
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. (e.g.,
non-investment-grade securities, financial futures and options; securities and
index options).
A-1
<PAGE>
Leverage risk Associated with securities or practices (such as borrowing) that
multiply small index or market movements into large changes in value. (e.g.,
borrowing; reverse repurchase agreements, when-issued securities and forward
commitments).
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. (e.g., short sales, financial futures and options
securities and index options; currency contracts).
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. (e.g., short sales, financial futures
and options securities and index options; currency contracts).
o 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. (e.g., non-investment-grand securities,
short sales, restricted and illiquid securities, financial futures and
options securities and index options; currency contracts).
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. (e.g., short sales, short-term trading,
when-issued securities and forward commitments, non-investment-grade securities,
foreign equities, financial futures and options; securities and index options
restricted and illiquid securities).
Natural event risk The risk of losses attributable to natural disasters, crop
failures and similar events. (e.g., foreign equities).
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. (e.g., short sales, when-issued securities and forward commitments;
financial futures and options; securities and index options, currency
contracts).
A-2
<PAGE>
Political risk The risk of losses attributable to government or political
actions, from changes in tax or trade statutes to governmental collapse and
war.(e.g., foreign equities).
Valuation risk The risk that a fund has valued certain of its securities at a
higher price than it can sell them for. (e.g., non-investment-grade securities,
restricted and illiquid securities).
A-3
<PAGE>
APPENDIX B
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.
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.
B-1
<PAGE>
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.
B-2
<PAGE>
FINANCIAL STATEMENTS
The financial statements listed below are included in the Fund's 1999 annual
report to shareholder's for the year ended October 31, 1999 (filed
electronically on December 27, 1999, accession number 0000928816-99-000386) and
are included in and incorporated by reference into Part B of the Registration
Statement for (file no. 811-3999 and 2-90305) and are included in and
incorporated by reference into Part B of the Registration Statement. .
John Hancock Investment Trust II
John Hancock Financial Industries Fund
Statement of Assets and Liabilities as of October 31, 1999.
Statement of Operations for year ended October 31, 1999.
Statement of Changes in Net Assets for the two years ended October 31, 1999.
Financial Highlights.
Notes to Financial Statements.
Schedule of Investments as of October 31, 1999.
Report of Independent Auditors.
F-1
