John Hancock Disciplined Growth Fund
John Hancock Discovery Fund
John Hancock Emerging Growth Fund
John Hancock Growth Fund
John Hancock Regional Bank Fund
John Hancock Special Equities Fund
John Hancock Special Opportunities Fund
(together, the "Funds")
Supplement to Class A and B Prospectus, effective July 1, 1996
(to be distributed to investors in the State of Maryland)
The Funds' investment objectives and primary investment policies are described
from page 4 to page 17 of the prospectus. The Funds may also use additional
investment practices which have specific risks associated with them.
Particularly, please note:
o The Funds may engage in transactions in some or all of the following
derivative instruments: financial futures and related options, securities
and index options and currency contracts. The risks associated with their
use include: interest rate risk, currency risk, market risk, hedged or
speculative leverage risk, correlation risk, liquidity risk, credit risk
and opportunity risk.
o John Hancock Emerging Growth Fund may invest up to 10% of total assets in
non-investment grade convertible securities ("convertibles"), which are
debt securities that can be converted into equity securities at a future
time. Convertibles rated below BBB/Baa are considered "junk" bonds. The
risks associated with their use include: credit risk, valuation and
information risk, interest rate risk, market risk and liquidity risk.
These instruments and other "higher-risk securities and practices" are described
on page 29 of the prospectus. The risks associated with these instruments are
defined under the heading "Types of Investment Risk" on page 28 of the
prospectus.
July 1, 1996
GRMDS
<PAGE>
JOHN HANCOCK
GROWTH
FUNDS
[John Hancock's graphic logo. A
circle, diamond, triangle and a
cube.]
- --------------------------------------------------------------------------------
PROSPECTUS
JULY 1, 1996
This prospectus gives vital information about these funds. For your own benefit
and protection, please read it before you invest, and keep it on hand for future
reference.
Please note that these funds:
- - are not bank deposits
- - are not federally insured
- - are not endorsed by any bank or
government agency
- - are not guaranteed to achieve
their goal(s)
Like all mutual fund shares, these securities have not been approved or
disapproved by the Securities and Exchange Commission or any state securities
commission, nor has the Securities and Exchange Commission or any state
securities commission passed upon the accuracy or adequacy of this prospectus.
Any representation to the contrary is a criminal offense.
DISCIPLINED GROWTH FUND
DISCOVERY FUND
EMERGING GROWTH FUND
GROWTH FUND
REGIONAL BANK FUND
SPECIAL EQUITIES FUND
SPECIAL OPPORTUNITIES FUND
[John Hancock's graphic logo. A circle, diamond, triangle and a cube.]
101 Huntington Avenue, Boston, Massachusetts 02199-7603
<PAGE>
CONTENTS
- --------------------------------------------------------------------------------
A fund-by-fund look at goals, DISCIPLINED GROWTH FUND 4
strategies, risks, expenses and
financial history. DISCOVERY FUND 6
EMERGING GROWTH FUND 8
GROWTH FUND 10
REGIONAL BANK FUND 12
SPECIAL EQUITIES FUND 14
SPECIAL OPPORTUNITIES FUND 16
Policies and instructions for Your account
opening, maintaining and closing
an account in any growth fund. Choosing a share class 18
How sales charges are calculated 18
Sales charge reductions and waivers 19
Opening an account 19
Buying shares 20
Selling shares 21
Transaction policies 23
Dividends and account policies 23
Additional investor services 24
Details that apply to the growth FUND DETAILS
funds as a group.
Business structure 25
Sales compensation 26
More about risk 28
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:
[A graphic image of a bullseye with an arrow in the middle of it.] GOAL AND
STRATEGY The fund's particular investment goals and the strategies it intends
to use in pursuing those goals.
[A graphic image of a black folder that contains a couple sheets of paper.]
PORTFOLIO SECURITIES The primary types of securities in which the fund invests.
Secondary investments are described in "More about risk" at the end of the
prospectus.
[A graphic image of a line chart with a single line that depicts some peaks and
valleys.] RISK FACTORS The major risk factors associated with the fund.
[A graphic image of a generic person.] PORTFOLIO MANAGEMENT The individual or
group (including subadvisers, if any) designated by the investment adviser to
handle the fund's day-to-day management.
[A graphic image of a percent symbol.] EXPENSES The overall costs borne by an
investor in the fund, including sales charges and annual expenses.
[A graphic image of a dollar sign.] FINANCIAL HIGHLIGHTS A table showing the
fund's financial performance for up to ten years, by share class. A bar chart
showing total return allows you to compare the fund's historical risk level to
those of other funds.
GOAL OF THE GROWTH FUNDS
John Hancock growth funds seek long-term growth by investing primarily in common
stocks. Each fund employs its own strategy and has its own risk/reward profile.
Because you could lose money by investing in these funds, be sure to read all
risk disclosure carefully before investing.
WHO MAY WANT TO INVEST
These funds may be appropriate for investors who:
* have longer time horizons
* are willing to accept higher short-term risk along with higher potential
long-term returns
* want to diversify their portfolios
* are seeking funds for the growth portion of an asset allocation portfolio
* are investing for retirement or other goals that are many years in the
future
Growth funds may NOT be appropriate if you:
* are investing with a shorter time horizon in mind
* are uncomfortable with an investment that will go up and down in value
THE MANAGEMENT FIRM
All John Hancock growth funds are managed by John Hancock Advisers, Inc. Founded
in 1968, John Hancock Advisers is a wholly owned subsidiary of John Hancock
Mutual Life Insurance Company and manages more than $19 billion in assets.
<PAGE>
DISCIPLINED GROWTH FUND
<TABLE>
<S> <C>
REGISTRANT NAME: FREEDOM INVESTMENT TRUST TICKER SYMBOL CLASS A: SVAAX CLASS B: FEQVX
</TABLE>
- --------------------------------------------------------------------------------
GOAL AND STRATEGY
[A graphic image of a bullseye with an arrow in the middle of it.] The fund
seeks long-term capital appreciation. To pursue this goal, the fund invests in
established, growing companies that have demonstrated superior earnings growth
and stability. Under normal circumstances, the fund will invest at least 65% of
assets in these companies, without concentration in any one industry. The fund
also looks for the following characteristics:
* predictability of earnings
* a low level of debt
* seasoned management
* a strong market position
Many of the fund's investments are in medium or large capitalization companies.
The fund invests for income as a secondary goal.
PORTFOLIO SECURITIES
[A graphic image of a black folder that contains a couple sheets of paper.] The
fund invests primarily in the common stocks of U.S. companies. It may also
invest in warrants, preferred stocks and investment-grade convertible debt
securities.
The fund expects any foreign investments to remain below 10% of assets.
For liquidity and flexibility, the fund may place up to 15% of net assets in
cash or in investment-grade short-term securities. In abnormal market
conditions, it may invest up to 80% in these securities as a defensive tactic.
The fund also may invest in certain higher-risk securities, and may engage in
other investment practices.
RISK FACTORS
[A graphic image of a line chart with a single line that depicts some peaks and
valleys.] As with any growth fund, the value of your investment will fluctuate
in response to stock market movements. To the extent that the fund invests in
higher-risk securities, it takes on additional risks that could adversely
affect its performance. Before you invest, please read "More about risk"
starting on page 28.
PORTFOLIO MANAGEMENT
[A graphic image of a generic person.] John F. Snyder III and Jere E. Estes are
the leaders of the fund's portfolio management team. Mr. Snyder is an executive
vice president of the adviser and has been a team member since July 1992. He
has been an investment manager since 1971. Mr. Estes has been a part of the
fund's management team since joining John Hancock in July 1992. He has been in
the investment business since 1967.
- --------------------------------------------------------------------------------
INVESTOR EXPENSES
<TABLE>
[A graphic image of a percent symbol.] Fund investors pay various expenses,
either directly or indirectly. The figures below show the expenses for the
past year, adjusted to reflect any changes. Future expenses may be greater or
less.
<CAPTION>
SHAREHOLDER TRANSACTION EXPENSES CLASS A CLASS B
<S> <C> <C>
Maximum sales charge imposed on purchases
(as a percentage of offering price) 5.00% none
Maximum sales charge imposed on
reinvested dividends none none
Maximum deferred sales charge none(1) 5.00%
Redemption fee(2) none none
Exchange fee none none
ANNUAL FUND OPERATING EXPENSES (AS A % OF AVERAGE NET ASSETS)
Management fee 0.75% 0.75%
12b-1 fee(3) 0.30% 1.00%
Other expenses 0.40% 0.40%
Total fund operating expenses 1.45% 2.15%
</TABLE>
<TABLE>
EXAMPLE The table below shows what you would pay if you invested $1,000 over the
various time frames indicated. The example assumes you reinvested all dividends
and that the average annual return was 5%.
<CAPTION>
SHARE CLASS YEAR 1 YEAR 3 YEAR 5 YEAR 10
<S> <C> <C> <C> <C>
Class A shares $64 $94 $125 $215
Class B shares
Assuming redemption
at end of period $72 $97 $135 $231
Assuming no redemption $22 $67 $115 $231
This example is for comparison purposes only and is not a representation of
the fund's actual expenses and returns, either past or future.
(1) Except for investments of $1 million or more; see "How sales charges are
calculated."
(2) Does not include wire redemption fee (currently $4.00).
(3) Because of the 12b-1 fee, long-term shareholders may indirectly pay more
than the equivalent of the maximum permitted front-end sales charge.
</TABLE>
4 DISCIPLINED GROWTH FUND
<PAGE>
- --------------------------------------------------------------------------------
<TABLE>
Financial highlights
[A graphic image of a dollar sign.] The figures below have been audited by the
fund's independent auditors, Price Waterhouse LLP.
VOLATILITY, AS INDICATED BY CLASS B
YEAR-BY-YEAR TOTAL INVESTMENT RETURN (%) [BAR GRAPH]
<CAPTION>
======================================================================================================================
CLASS A - YEAR ENDED OCTOBER 31, 1992(1) 1993 1994 1995
======================================================================================================================
PER SHARE OPERATING PERFORMANCE
<S> <C> <C> <C> <C>
Net asset value, beginning of period $12.81 $ 10.99 $ 12.39 $ 12.02
Net investment income (loss) 0.06(2) 0.08(2) 0.10 0.08(2)
Net realized and unrealized gain (loss) on investments (0.06) 1.34 0.07 1.29
Total from investment operations 0.00 1.42 0.17 1.37
Less distributions:
Dividends from net investment income (0.07) (0.02) (0.10) (0.10)
Distributions from net realized gain on investments sold (1.74) -- (0.44) (0.52)
Distributions from capital paid-in (0.01) -- -- --
Total distributions (1.82) (0.02) (0.54) (0.62)
Net asset value, end of period $10.99 $ 12.39 $ 12.02 $ 12.77
TOTAL INVESTMENT RETURN AT NET ASSET VALUE(3)(%) 0.19(4) 12.97 1.35 12.21
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period (000s omitted)($) 1,771 23,372 23,292 27,692
Ratio of expenses to average net assets(%) 1.73(5) 1.60 1.53 1.46
Ratio of net investment income (loss) to average net assets(%) 0.62(5) 0.64 0.83 0.69
Portfolio turnover rate(%) 246 71 60 65
Average brokerage commission rate(6)($) N/A N/A N/A N/A
</TABLE>
<TABLE>
=========================================================================================================================
CLASS B - YEAR ENDED OCTOBER 31, 1987(1) 1988 1989 1990 1991 1992
=========================================================================================================================
PER SHARE OPERATING PERFORMANCE
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period $ 10.00 $ 8.34 $ 10.29 $ 11.52 $ 9.22 $ 11.71
Net investment income (loss) 0.06 0.13 0.19 0.18 0.07 0.01(2)
Net realized and unrealized gain (loss) on investments (1.70) 2.05 1.25 (2.00) 2.67 1.05
Total from investment operations (1.64) 2.18 1.44 (1.82) 2.74 1.06
Less distributions:
Dividends from net investment income (0.02) (0.09) (0.12) (0.20) (0.20) (0.03)
Distributions from net realized gain on investments sold -- (0.14) (0.09) (0.28) (0.05) (1.76)
Distributions from capital paid-in -- -- -- -- -- (0.01)
Total distributions (0.02) (0.23) (0.21) (0.48) (0.25) (1.80)
Net asset value, end of period $ 8.34 $ 10.29 $ 11.52 $ 9.22 $ 11.71 $ 10.97
TOTAL INVESTMENT RETURN AT NET ASSET VALUE(3)(%) (16.44)(4) 26.69 14.27 (16.46) 30.21 7.22
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period (000s omitted)($) 14,016 14,927 23,813 17,714 21,826 23,525
Ratio of expenses to average net assets(%) 2.56(5,7) 2.61(7) 2.30 2.13 2.24 2.27
Ratio of net investment income (loss) to average net assets(%) 0.93(5,7) 1.46(7) 1.75 1.64 0.66 0.10
Portfolio turnover rate(%) 40(5) 54 94 165 217 246
Average brokerage commission rate(6)($) N/A N/A N/A N/A N/A N/A
</TABLE>
<TABLE>
======================================================================================================================
CLASS B - YEAR ENDED OCTOBER 31, 1993 1994 1995
======================================================================================================================
PER SHARE OPERATING PERFORMANCE
<S> <C> <C> <C>
Net asset value, beginning of period $ 10.97 $ 12.31 $ 11.95
Net investment income (loss) 0.02(2) 0.03 0.01(2)
Net realized and unrealized gain (loss) on investments 1.33 0.07 1.28
Total from investment operations 1.35 0.10 1.29
Less distributions:
Dividends from net investment income (0.01) (0.02) (0.03)
Distributions from net realized gain on investments sold -- (0.44) (0.52)
Distributions from capital paid-in -- -- --
Total distributions (0.01) (0.46) (0.55)
Net asset value, end of period $ 12.31 $ 11.95 $ 12.69
TOTAL INVESTMENT RETURN AT NET ASSET VALUE(3)(%) 12.34 0.78 11.51
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period (000s omitted)($) 93,853 94,431 86,178
Ratio of expenses to average net assets(%) 2.09 2.10 2.11
Ratio of net investment income (loss) to average net assets(%) 0.17 0.25 0.06
Portfolio turnover rate(%) 71 60 65
Average brokerage commission rate(6)($) N/A N/A N/A
(1) Class A and Class B shares commenced operations on January 3, 1992 and
April 22, 1987, respectively.
(2) Based on the average of the shares outstanding at the end of each month.
(3) Assumes dividend reinvestment and does not reflect the effect of sales
charges.
(4) Not annualized.
(5) Annualized.
(6) Per portfolio share traded. Required for fiscal years that began September
1, 1995 or later.
(7) Net of advisory expense reimbursements per share of $0.01 for the fiscal
year ended October 31, 1988 and less than $0.01 for the fiscal year ended
October 31, 1987.
</TABLE>
DISCIPLINED GROWTH FUND 5
<PAGE>
DISCOVERY FUND
<TABLE>
<S> <C>
REGISTRANT NAME: FREEDOM INVESTMENT TRUST III TICKER SYMBOL CLASS A: FRDAX CLASS B: FRDIX
</TABLE>
- --------------------------------------------------------------------------------
GOAL AND STRATEGY
[A graphic image of a bullseye with an arrow in the middle of it.] The fund
seeks long-term capital appreciation. To pursue this goal, the fund invests in
companies that appear to offer superior growth prospects. Under normal
circumstances, the fund will invest at least 65% of assets in these companies.
The fund looks for companies, including small- and medium-sized companies, that
have broad market opportunities and consistent or accelerating earnings growth.
These companies may:
- - occupy a profitable market niche
- - have products or technologies that are new, unique or proprietary
- - are in an industry that has a favorable long-term growth outlook
- - have a capable management team with a significant equity stake
These companies may be in a relatively early stage of development, but will
usually have established a record of profitability and a strong financial
position. The fund does not invest for income.
PORTFOLIO SECURITIES
[A graphic image of a black folder that contains a couple sheets of paper.] The
fund invests primarily in common stocks of U.S. companies and may also invest
in warrants, preferred stocks and investment-grade convertible debt securities.
For liquidity and flexibility, the fund may place up to 15% of net assets in
cash or in investment-grade short-term securities. In abnormal market
conditions, it may invest up to 80% in these securities as a defensive tactic.
The fund may invest up to 25% of assets in foreign securities, which carry
additional risks. The fund also may invest in certain higher-risk securities,
and may engage in other investment practices.
RISK FACTORS
[A graphic image of a line chart with a single line that depicts some peaks and
valleys.] As with any growth fund, the value of your investment will fluctuate
in response to stock market movements. To the extent that the fund invests in
small and medium-sized company stocks, foreign securities and other higher-risk
securities, it takes on additional risks that could adversely affect its
performance. The fund may experience higher volatility than many other types of
growth funds. Before you invest, please read "More about risk" starting on page
28.
PORTFOLIO MANAGEMENT
[A graphic image of a generic person.] Bernice S. Behar, leader of the fund's
portfolio management team since March 1994, is a senior vice president of the
adviser. She joined the adviser in 1991 and has been in the investment business
since 1986.
- --------------------------------------------------------------------------------
<TABLE>
INVESTOR EXPENSES
[A graphic image of a percent symbol.] Fund investors pay various expenses,
either directly or indirectly. The figures below show the expenses for the
past year, adjusted to reflect any changes. Future expenses may be greater or
less.
<CAPTION>
SHAREHOLDER TRANSACTION EXPENSES CLASS A CLASS B
<S> <C> <C>
Maximum sales charge imposed on purchases
(as a percentage of offering price) 5.00% none
Maximum sales charge imposed on
reinvested dividends none none
Maximum deferred sales charge none(1) 5.00%
Redemption fee(2) none none
Exchange fee none none
ANNUAL FUND OPERATING EXPENSES
(AS A % OF AVERAGE NET ASSETS)
Management fee 0.75% 0.75%
12b-1 fee(3) 0.30% 1.00%
Other expenses 0.80% 0.80%
Total fund operating expenses 1.85% 2.55%
</TABLE>
<TABLE>
EXAMPLE The table below shows what you would pay if you invested $1,000 over the
various time frames indicated. The example assumes you reinvested all dividends
and that the average annual return was 5%.
<CAPTION>
SHARE CLASS YEAR 1 YEAR 3 YEAR 5 YEAR 10
<S> <C> <C> <C> <C>
Class A shares $68 $105 $145 $256
Class B shares
Assuming redemption
at end of period $76 $109 $155 $271
Assuming no redemption $26 $ 79 $135 $271
This example is for comparison purposes only and is not a representation of the
fund's actual expenses and returns, either past or future.
(1) Except for investments of $1 million or more; see "How sales charges are
calculated."
(2) Does not include wire redemption fee (currently $4.00).
(3) Because of the 12b-1 fee, long-term shareholders may indirectly pay more
than the equivalent of the maximum permitted front-end sales charge.
</TABLE>
6 DISCOVERY FUND
<PAGE>
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
<TABLE>
[A graphic image of a dollar sign.] The figures below for the period ended July
31, 1992, were audited by the fund's former independent auditors, Price
Waterhouse LLP. Figures for subsequent years have been audited by the fund's
current independent auditors, Ernst & Young LLP.
Volatility, as indicated by Class B
year-by-year total investment return (%) [BAR GRAPH]
<CAPTION>
============================================================================================================================
CLASS A - YEAR ENDED JULY 31, 1992(1) 1993 1994 1995 1996(2)
============================================================================================================================
PER SHARE OPERATING PERFORMANCE
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period $ 9.40 $ 8.95 $ 10.81 $ 8.56 $ 12.95
Net investment income (loss) (0.05) (0.16) (0.16)(3) (0.10)(3) (0.10)(3)
Net realized and unrealized gain (loss) on investments
and foreign currency transactions (0.40) 2.15 (0.43) 4.83 0.55
Total from investment operations (0.45) 1.99 (0.59) 4.66 0.45
Less distributions:
Distributions from net realized gain on investments sold -- (0.13) (1.66) (0.27) (0.13)
Net asset value, end of period $ 8.95 $ 10.81 $ 8.56 $ 12.95 $ 13.27
TOTAL INVESTMENT RETURN AT NET ASSET VALUE(4) (%) (4.79)(5) 22.33 (6.45) 55.80 3.52(5)
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period (000s omitted) ($) 3,866 4,692 3,226 5,075 6,583
Ratio of expenses to average net assets (%) 1.78(6) 2.17 2.01 2.10 1.74(6)
Ratio of net investment income (loss) to average net assets (%) (1.20)(6) (1.61) (1.64) (1.73) (1.51)(6)
Portfolio turnover rate (%) 138 148 108 118 73
Average brokerage commission rate(7) ($) N/A N/A N/A N/A N/A
<CAPTION>
===========================================================================================================================
CLASS B - YEAR ENDED JULY 31, 992(1) 1993 1994 1995 1996(2)
===========================================================================================================================
PER SHARE OPERATING PERFORMANCE
Net asset value, beginning of period $ 8.00 $ 8.87 $ 10.65 $ 8.34 $ 12.54
Net investment income (loss) (0.11) (0.23) (0.22)(3) (0.22)(3) (30.14)(3)
Net realized and unrealized gain (loss) on investments
and foreign currency transactions 0.98 2.14 (0.43) 4.69 0.53
Total from investment operations 0.87 1.91 (0.65) 4.47 0.39
Less distributions:
Distributions from net realized gain on investments sold -- (0.13) (1.66) (0.27) (0.13)
Net asset value, end of period $ 8.87 $ 10.65 $ 8.34 $ 12.54 $ 12.80
TOTAL INVESTMENT RETURN AT NET ASSET VALUE(4) (%) 10.88(5) 21.63 (7.18) 54.97 3.15(5)
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period (000's omitted) ($) 34,636 38,672 26,537 31,645 34,452
Ratio of expenses to average net assets (%) 2.56(6) 2.86 2.62 2.70 2.43(6)
Ratio of net investment income (loss) to average net assets (%) (1.56)(6) (2.26) (2.24) (2.34) (2.20)(6)
Portfolio turnover rate (%) 138 148 108 118 73
Average brokerage commission rate(7) ($) N/A N/A N/A N/A N/A
(1) Class A and Class B shares commenced operations on January 3, 1992 and
August 30, 1991, respectively.
(2) Six months ended January 31, 1996. (Unaudited.)
(3) Based on the average of the shares outstanding at the end of each month.
(4) Assumes dividend reinvestment and does not reflect the effect of sales
charges.
(5) Not annualized.
(6) Annualized.
(7) Per portfolio share traded. Required for fiscal years that began September
1, 1995 or later.
</TABLE>
DISCOVERY FUND 7
<PAGE>
EMERGING GROWTH FUND
<TABLE>
<S><C>
REGISTRANT NAME: JOHN HANCOCK SERIES, INC. TICKER SYMBOL CLASS A: TAEMX CLASS B: TSEGX
</TABLE>
- --------------------------------------------------------------------------------
GOAL AND STRATEGY
[A graphic image of a bullseye with an arrow in the middle of it.] The fund
seeks long-term capital appreciation. To pursue this goal, the fund invests in
emerging companies (market capitalization of less than $1 billion). Under
normal circumstances, the fund will invest at least 80% of assets in a
diversified portfolio of these companies. The fund looks for companies that
show rapid growth but are not yet widely recognized. The fund also may invest
in established companies that, because of new management, products or
opportunities, offer the possibility of accelerating earnings. The fund does
not invest for income.
PORTFOLIO SECURITIES
[A graphic image of a black folder that contains a couple sheets of paper.] The
fund invests primarily in the common stocks of U.S. and foreign emerging growth
companies, although it may invest up to 20% of assets in other types of
companies. The fund may also invest in warrants, preferred stocks and
investment-grade convertible debt securities.
For liquidity and flexibility, the fund may place up to 20% of net assets in
cash or in investment-grade short-term securities. In abnormal market
conditions, it may invest more assets in these securities as a defensive tactic.
The fund also may invest in certain higher-risk securities, and may engage in
other investment practices.
RISK FACTORS
[A graphic image of a line chart with a single line that depicts some peaks and
valleys.] As with any growth fund, the value of your investment will fluctuate
in response to stock market movements. Stocks of emerging growth companies carry
higher risks than stocks of larger companies. This is because emerging growth
companies:
- - may be in the early stages of development
- - may be dependent on a small number of products or services
- - may lack substantial capital reserves
- - do not have proven track records
In addition, stocks of emerging companies are often traded in low volumes,
which can increase market and liquidity risks. Before you invest, please read
"More about risk" starting on page 28.
PORTFOLIO MANAGEMENT
[A graphic image of a generic person.] Bernice S. Behar, leader of the fund's
portfolio management team since April 1996, is a senior vice president of the
adviser. She joined the adviser in 1991 and has been in the investment
business since 1986.
- --------------------------------------------------------------------------------
<TABLE>
INVESTOR EXPENSES
[A graphic image of a percent symbol.] Fund investors pay various expenses,
either directly or indirectly. The figures below show the expenses for the
past year, adjusted to reflect any changes. Future expenses may be greater or
less.
<CAPTION>
SHAREHOLDER TRANSACTION EXPENSES CLASS A CLASS B
<S> <C> <C>
Maximum sales charge imposed on purchases
(as a percentage of offering price) 5.00% none
Maximum sales charge imposed on
reinvested dividends none none
Maximum deferred sales charge none(1) 5.00%
Redemption fee(2) none none
Exchange fee none none
ANNUAL FUND OPERATING EXPENSES
(AS A % OF AVERAGE NET ASSETS)
Management fee 0.75% 0.75%
12b-1 fee(3) 0.25% 1.00%
Other expenses 0.40% 0.40%
Total fund operating expenses 1.40% 2.15%
</TABLE>
<TABLE>
EXAMPLE The table below shows what you would pay if you invested $1,000 over the
various time frames indicated. The example assumes you reinvested all dividends
and that the average annual return was 5%.
<CAPTION>
SHARE CLASS YEAR 1 YEAR 3 YEAR 5 YEAR 10
<S> <C> <C> <C> <C>
Class A shares $64 $92 $123 $210
Class B shares
Assuming redemption
at end of period $72 $97 $135 $229
Assuming no redemption $22 $67 $115 $229
This example is for comparison purposes only and is not a representation of
the fund's actual expenses and returns, either past or future.
(1) Except for investments of $1 million or more; see "How sales charges are
calculated."
(2) Does not include wire redemption fee (currently $4.00).
(3) Because of the 12b-1 fee, long-term shareholders may indirectly pay more
than the equivalent of the maximum permitted front-end sales charge.
</TABLE>
8 EMERGING GROWTH FUND
<PAGE>
- --------------------------------------------------------------------------------
<TABLE>
FINANCIAL HIGHLIGHTS
[A graphic image of a dollar sign.] The figures below have been audited by the
fund's independent auditors, Ernst & Young LLP.
VOLATILITY, AS INDICATED BY CLASS B
YEAR-BY-YEAR TOTAL INVESTMENT RETURN (%) [BAR CHART]
<CAPTION>
======================================================================================================================
CLASS A - YEAR ENDED OCTOBER 31, 1991(1) 1992 1993 1994 1995(2)
======================================================================================================================
PER SHARE OPERATING PERFORMANCE
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period $ 18.12 $ 19.26 $ 20.60 $ 25.89 $ 26.82
Net investment income (loss)(3) (0.03) (0.20) (0.16) (0.18) (0.25)
Net realized and unrealized gain (loss) on investments 1.17 1.60 5.45 1.11 9.52
Total from investment operations 1.14 1.40 5.29 0.93 9.27
Less distributions:
Distributions from net realized gain on investments sold -- (0.06) -- -- --
Net asset value, end of period $ 19.26 $ 20.60 $ 25.89 $ 26.82 $ 36.09
TOTAL INVESTMENT RETURN AT NET ASSET VALUE(4) (%) 6.29 7.32 25.68 3.59 34.56
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period (000s omitted) ($) 38,859 46,137 81,263 131,053 179,481
Ratio of expenses to average net assets (%) 0.33 1.67 1.40 1.44 1.38
Ratio of net investment income (loss) to average net assets (%) (0.15) (1.03) (0.70) (0.71) (0.83)
Portfolio turnover rate (%) 66 48 29 25 23
Average brokerage commission rate(5) ($) N/A N/A N/A N/A N/A
</TABLE>
<TABLE>
<CAPTION>
=============================================================================================================================
CLASS B - YEAR ENDED OCTOBER 31, 1987(1) 1988 1989 1990 1991 1992
=============================================================================================================================
PER SHARE OPERATING PERFORMANCE
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period $ 7.89 $ 7.89 $ 10.54 $ 12.76 $ 11.06 $ 19.22
Net investment income (loss)(3) (0.0021) 0.09 (0.08) (0.22) (0.30) (0.38)
Net realized and unrealized gain (loss) on investments 0.0021 2.56 2.83 (1.26) 8.46 1.56
Total from investment operations 0.0000 2.65 2.75 (1.48) 8.16 1.18
Less distributions:
Dividends from net investment income -- -- (0.04) -- -- --
Distributions from net realized gain on investments sold -- -- (0.49) (0.22) -- (0.06)
Total distributions -- -- (0.53) (0.22) -- (0.06)
Net asset value, end of period $ 7.89 $10.54 $ 12.76 $ 11.06 $ 19.22 $ 20.34
Total investment return at net asset value(4) (%) 0.00 33.59 27.40 (11.82) 73.78 6.19
TOTAL ADJUSTED INVESTMENT RETURN AT NET ASSET VALUE(4,6) (%) (0.41) 31.00 27.37 -- -- --
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period (000s omitted) ($) 79 3,232 7,877 11,668 52,743 86,923
Ratio of expenses to average net assets (%) 0.03 3.05 3.48 3.11 2.85 2.64
Ratio of adjusted expenses to average net assets(7) (%) 0.44 5.64 3.51 -- -- --
Ratio of net investment income (loss) to average net assets (%) (0.03) 0.81 (0.67) (1.64) (1.83) (1.99)
Ratio of adjusted net investment income (loss) to average net assets(7)(%) (0.44) (1.78) (0.70) -- -- --
Portfolio turnover rate (%) 0 252 90 82 66 48
Fee reduction per share ($) 0.03 0.29 0.004 -- -- --
Average brokerage commission rate(5) ($) N/A N/A N/A N/A N/A N/A
</TABLE>
<TABLE>
<CAPTION>
======================================================================================================================
CLASS B - YEAR ENDED OCTOBER 31, 1993 1994 1995(2)
======================================================================================================================
PER SHARE OPERATING PERFORMANCE
<S> <C> <C> <C>
Net asset value, beginning of period $ 20.34 $ 25.33 $ 26.04
Net investment income (loss)(3) (0.36) (0.36) (0.45)
Net realized and unrealized gain (loss) on investments 5.35 1.07 9.20
Total from investment operations 4.99 0.71 8.75
Less distributions:
Dividends from net investment income -- -- --
Distributions from net realized gain on investments sold -- -- --
Total distributions -- -- --
Net asset value, end of period $ 25.33 $ 26.04 $ 34.79
Total investment return at net asset value(4) (%) 24.53 2.80 33.60
Total adjusted investment return at net asset value(4,6) (%) -- -- --
Ratios and supplemental data
Net assets, end of period (000s omitted) ($) 219,484 283,435 393,478
Ratio of expenses to average net assets (%) 2.28 2.19 2.11
Ratio of adjusted expenses to average net assets(7) (%) -- --
Ratio of net investment income (loss) to average net assets (%) (1.58) (1.46) (1.55)
Ratio of adjusted net investment income (loss) to average net assets(7)(%)
Portfolio turnover rate (%) 29 25 23
Fee reduction per share ($) -- -- --
Average brokerage commission rate(5) ($) N/A N/A N/A
(1) Class A and Class B shares commenced operations on August 22, 1991 and
October 26, 1987, respectively. (Not annualized.)
(2) On December 22, 1994, John Hancock Advisers, Inc. became the investment
adviser of the fund.
(3) Based on the average of the shares outstanding at the end of each month.
(4) Assumes dividend reinvestment and does not reflect the effect of sales
charges.
(5) Per portfolio share traded. Required for fiscal years that began September
1, 1995 or later.
(6) An estimated total return calculation, which does not take into
consideration fee reductions by the adviser during the periods shown.
(7) Unreimbursed, without fee reduction.
</TABLE>
EMERGING GROWTH FUND 9
<PAGE>
GROWTH FUND
REGISTRANT NAME: FREEDOM INVESTMENT TRUST II
TICKER SYMBOL CLASS A: JHNGX CLASS B: JHGBX
- --------------------------------------------------------------------------------
GOAL AND STRATEGY
[A graphic image of a bullseye with an arrow in the middle of it.] The fund
seeks long-term capital appreciation. To pursue this goal, the fund invests in
stocks that are diversified with regard to industries and issuers. The fund
favors stocks of companies whose operating earnings and revenues have grown
more than twice as fast as the gross domestic product (GDP) over the past five
years, although not all stocks in the fund's portfolio will meet this
criterion.
PORTFOLIO SECURITIES
[A graphic image of a black folder that contains a couple sheets of paper.] The
portfolio invests primarily in the common stocks of U.S. companies. It may also
invest in warrants, preferred stocks and convertible debt securities.
For liquidity and flexibility, the fund may invest up to 35% of net assets in
investment-grade short-term securities. In abnormal market conditions, it may
invest more than 35% in these securities as a defensive tactic. The fund may
also invest in certain higher-risk securities, and may engage in other
investment practices.
RISK FACTORS
[A graphic image of a line chart with a single line that depicts some peaks and
valleys.] As with any growth fund, the value of your investment will fluctuate
in response to stock market movements. To the extent that the fund invests in
higher-risk securities, it takes on additional risks that could adversely
affect its performance. Before you invest, please read "More about risk"
starting on page 28.
PORTFOLIO MANAGEMENT
[A graphic image of a generic person.] Bernice S. Behar, leader of the fund's
portfolio management team since August 1995, is a senior vice president of the
adviser. She joined the adviser in 1991 and has been in the investment business
since 1986.
- --------------------------------------------------------------------------------
INVESTOR EXPENSES
[A graphic image of a percent symbol.] Fund investors pay various expenses,
either directly or indirectly. The figures below show the expenses for the
past year, adjusted to reflect any changes. Future expenses may be greater or
less.
SHAREHOLDER TRANSACTION EXPENSES CLASS A CLASS B
Maximum sales charge imposed on purchases
(as a percentage of offering price) 5.00% none
Maximum sales charge imposed on
reinvested dividends none none
Maximum deferred sales charge none(1) 5.00%
Redemption fee(2) none none
Exchange fee none none
ANNUAL FUND OPERATING EXPENSES
(AS A % OF AVERAGE NET ASSETS)
Management fee 0.80% 0.80%
12b-1 fee(3) 0.30% 1.00%
Other expenses 0.40% 0.40%
Total fund operating expenses 1.50% 2.20%
EXAMPLE The table below shows what you would pay if you invested $1,000 over the
various time frames indicated. The example assumes you reinvested all dividends
and that the average annual return was 5%.
SHARE CLASS YEAR 1 YEAR 3 YEAR 5 YEAR 10
Class A shares $65 $95 $128 $220
Class B shares
Assuming redemption
at end of period $72 $99 $138 $236
Assuming no redemption $22 $69 $118 $236
This example is for comparison purposes only and is not a representation of
the fund's actual expenses and returns, either past or future.
(1) Except for investments of $1 million or more; see "How sales charges are
calculated."
(2) Does not include wire redemption fee (currently $4.00).
(3) Because of the 12b-1 fee, long-term shareholders may indirectly pay more
than the equivalent of the maximum permitted front-end sales charge.
10 GROWTH FUND
<PAGE>
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
<TABLE>
[A graphic image of a dollar sign.] The figures below have been audited by the
fund's independent auditors, Ernst & Young LLP.
VOLATILITY, AS INDICATED BY CLASS A YEAR-BY-YEAR [BAR GRAPHIC]
TOTAL INVESTMENT RETURN (%)
<CAPTION>
==============================================================================================================================
CLASS A - YEAR ENDED DECEMBER 31, 1986 1987 1988 1989 1990
==============================================================================================================================
<S> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
Net asset value, beginning of period $ 14.50 $ 14.03 $ 12.34 $ 13.33 $ 15.18
Net investment income (loss) 0.11 0.22 0.23 0.28 0.16
Net realized and unrealized gain (loss) on investments 1.79 0.64 1.16 3.81 (1.47)
Total from investment operations 1.90 0.86 1.39 4.09 (1.31)
Less distributions:
Dividends from net investment income (0.17) (0.28) (0.23) (0.29) (0.16)
Distributions from net realized gain on investments sold (2.20) (2.27) (0.17) (1.95) (0.78)
Total distributions (2.37) (2.55) (0.40) (2.24) (0.94)
Net asset value, end of period $ 14.03 $ 12.34 $ 13.33 $ 15.18 $ 12.93
TOTAL INVESTMENT RETURN AT NET ASSET VALUE(2)(%) 13.83 6.03 11.23 30.96 (8.34)
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period (000s omitted)($) 87,468 86,426 101,497 105.014 102,416
Ratio of expenses to average net assets(%) 1.03 1.00 1.06 0.96 1.46
Ratio of net investment income (loss) to average net assets(%) 0.77 1.41 1.76 1.73 1.12
Portfolio turnover rate (%) 62 68 47 61 102
Average brokerage commission rate(4)($) N/A N/A N/A N/A N/A
<CAPTION>
==============================================================================================================================
CLASS A - YEAR ENDED DECEMBER 31, 1991 1992 1993 1994 1995
==============================================================================================================================
PER SHARE OPERATING PERFORMANCE
Net asset value, beginning of period $ 12.93 $ 17.48 $ 17.32 $ 17.40 $ 15.89
Net investment income (loss) 0.04 (0.06) (0.11) (0.10) (0.09)(1)
Net realized and unrealized gain (loss) on investments 5.36 1.10 2.33 (1.21) 4.40
Total from investment operations 5.40 1.04 2.22 (1.31) 4.31
Less distributions:
Dividends from net investment income (0.04) -- -- -- --
Distributions from net realized gain on investments sold (0.81) (1.20) (2.14) (0.20) (0.69)
Total distributions (0.85) (1.20) (2.14) (0.20) (0.69)
Net asset value, end of period $ 17,48 $ 17.32 $ 17.40 $ 15.89 $ 19.51
TOTAL INVESTMENT RETURN AT NET ASSET VALUE(2)(%) 41.68 6.06 13.03 (7.50) 27.17
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period (000s omitted)($) 145,287 153,057 162,937 146,466 241,700
Ratio of expenses to average net assets(%) 1.44 1.60 1.56 1.65 1.48
Ratio of net investment income (loss) to average net assets(%) 0.27 (0.36) (0.67) (0.64) (0.46)
Portfolio turnover rate (%) 82 71 68 52 68(3)
Average brokerage commission rate(4)($) N/A N/A N/A N/A N/A
</TABLE>
<TABLE>
<CAPTION>
======================================================================================================================
CLASS B - YEAR ENDED DECEMBER 31, 1994(5) 1995
======================================================================================================================
<S> <C> <C>
PER SHARE OPERATING PERFORMANCE
Net asset value, beginning of period $17.16 $15.83
Net investment income (loss) (0.20)(1) (0.26)(1)
Net realized and unrealized gain (loss) on investments (0.93) 4.73
Total from investment operations (1.13) 4.11
Less distributions:
Distributions from net realized gain on investments sold (0.20) (0.69)
Net asset value, end of period $15,83 $19.25
TOTAL INVESTMENT RETURN AT NET ASSET VALUE(2) (%) (6.56)(6) 26.01
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period (000s omitted) ($) 3,807 15,913
Ratio of expenses to average net assets (%) 2.38(7) 2.31
Ratio of net investment income (loss) to average net assets (%) (1.25)(7) (1.39)
Portfolio turnover rate (%) 52 68(3)
Average brokerage commission rate(4) ($) N/A N/A
(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) Excludes merger activity.
(4) Per portfolio share traded. Required for fiscal years that began
September 1, 1995 or later.
(5) Class B shares commenced operations on January 3, 1994.
(6) Not annualized.
(7) Annualized.
</TABLE>
GROWTH FUND 11
<PAGE>
REGIONAL BANK FUND
<TABLE>
<S> <C>
REGISTRANT NAME: FREEDOM INVESTMENT TRUST TICKER SYMBOL CLASS A: FRBAX CLASS B: FRBFX
- ----------------------------------------------------------------------------------------------
</TABLE>
GOAL AND STRATEGY
[A graphic image of a bullseye with an arrow in the middle of it.] The fund
seeks long-term capital appreciation. To pursue this goal, the fund invests in
regional banks and lending institutions, including:
- commercial and industrial banks
- savings and loan associations
- bank holding companies
These financial institutions provide full-service banking, have primarily
domestic assets and are typically based outside of New York City and Chicago.
They may or may not be members of the Federal Reserve, and their deposits may or
may not be FDIC-insured. Under normal circumstances, the fund will invest at
least 65% of assets in these companies; it may invest up to 35% of assets in
other financial services companies, including lending companies and money center
banks. Because regional banks typically pay regular dividends, moderate income
is an investment goal.
PORTFOLIO SECURITIES
[A graphic image of a black folder that contains a couple sheets of paper.] The
fund invests primarily in the common stocks of U.S. companies. It may also
invest in warrants, preferred stocks and investment-grade convertible debt
securities, as well as foreign stocks.
For liquidity and flexibility, the fund may place up to 15% of net assets in
cash or in investment-grade short-term securities. In abnormal market
conditions, it may invest up to 80% in these securities as a defensive tactic.
The fund may also invest in certain higher-risk securities, and may engage in
other investment practices.
RISK FACTORS
[A graphic image of a line chart with a single line that depicts some peaks and
valleys.] As with any growth fund, the value of your investment will fluctuate
in response to stock market movements. Because the fund concentrates in a
single industry, its performance is largely dependent on the industry's
performance, which may differ in direction and degree from that of the overall
stock market. Falling interest rates or deteriorating economic conditions can
adversely affect the performance of bank stocks, while rising interest rates
will cause a decline in the value of any debt securities the fund holds. Before
you invest, please read "More about risk" starting on page 28.
PORTFOLIO MANAGEMENT
[A graphic image of a generic person.] James K. Schmidt joined John Hancock in
1985 and has served as the fund's portfolio manager since its inception that
year. A senior vice president of the adviser, he has been in the investment
business since 1974.
- --------------------------------------------------------------------------------
INVESTOR EXPENSES
<TABLE>
[A graphic image of a percent symbol.] Fund investors pay various expenses,
either directly or indirectly. The figures below show the expenses for the
past year, adjusted to reflect any changes. Future expenses may be greater or
less.
<CAPTION>
================================================================================
SHAREHOLDER TRANSACTION EXPENSES CLASS A CLASS B
================================================================================
<S> <C> <C>
Maximum sales charge imposed on purchases
(as a percentage of offering price) 5.00% none
Maximum sales charge imposed on
reinvested dividends none none
Maximum deferred sales charge none(1) 5.00%
Redemption fee(2) none none
Exchange fee none none
================================================================================
<CAPTION>
Annual fund operating expenses (as a % of average net assets)
================================================================================
Management fee 0.78% 0.78%
12b-1 fee(3) 0.30% 1.00%
Other expenses 0.31% 0.31%
Total fund operating expenses 1.39% 2.09%
EXAMPLE The table below shows what you would pay if you invested $1,000 over the
various time frames indicated. The example assumes you reinvested all dividends
and that the average annual return was 5%.
<CAPTION>
=======================================================================================
Share class Year 1 Year 3 Year 5 Year 10
=======================================================================================
Class A shares $63 $92 $122 $209
- ---------------------------------------------------------------------------------------
Class B shares
- ---------------------------------------------------------------------------------------
Assuming redemption
at end of period $71 $95 $132 $224
- ---------------------------------------------------------------------------------------
Assuming no redemption $21 $65 $112 $224
- ---------------------------------------------------------------------------------------
This example is for comparison purposes only and is not a representation of the
fund's actual expenses and returns, either past or future.
(1) Except for investments of $1 million or more; see "How sales charges are
calculated."
(2) Does not include wire redemption fee (currently $4.00).
(3) Because of the 12b-1 fee, long-term shareholders may indirectly pay more
than the equivalent of the maximum permitted front-end sales charge.
</TABLE>
12 REGIONAL BANK FUND
<PAGE>
FINANCIAL HIGHLIGHTS
[A graphic image of a dollar sign.]
The figures below have been audited by the fund's independent auditors, Price
Waterhouse LLP.
Volatility, as indicated by Class B [Bar Graph]
year-by-year total investment return (%)
<TABLE>
<CAPTION>
======================================================================================================================
CLASS A - YEAR ENDED OCTOBER 31, 1992(1) 1993 1994 1995
======================================================================================================================
<S> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
NET ASSET VALUE, BEGINNING OF PERIOD $ 13.47 $ 17.47 $ 21.62 $ 21.52
Net investment income (loss) 0.21 0.26(2) 0.39(2) 0.52(2)
Net realized and unrealized gain (loss) on investments 3.98 5.84 0.91 5.92
Total from investment operations 4.19 6.10 1.30 6.44
Less distributions:
Dividends from net investment income (0.19) (0.26) (0.34) (0.48)
Distributions from net realized gain on investments sold -- (1.69) (1.06) (0.34)
Total distributions (0.19) (1.95) (1.40) (0.82)
Net asset value, end of period $ 17.47 $ 21.62 $ 21.52 $ 27.14
TOTAL INVESTMENT RETURN AT NET ASSET VALUE(3) (%) 31.26(4) 37.45 6.44 31.00
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period (000s omitted) ($) 31,306 94,158 216,978 486,631
Ratio of expenses to average net assets (%) 1.41(5) 1.35 1.34 1.39
Ratio of net investment income to average net assets (%) 1.64(5) 1.29 1.78 2.23
Portfolio turnover rate (%) 53 35 13 14
Average brokerage commission rate(6) ($) N/A N/A N/A N/A
</TABLE>
<TABLE>
<CAPTION>
==================================================================================================================================
CLASS B - YEAR ENDED OCTOBER 31, 1987(7) 1987(8) 1988 1989 1990
==================================================================================================================================
<S> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
Net asset value, beginning of period $ 12.51 $ 12.68 $ 10.02 $ 11.89 $ 13.00
Net investment income (loss) 0.20 0.05 0.16 0.20 0.30
Net realized and unrealized gain (loss) on investment 1.74 (2.17) 3.12 2.02 (4.19)
Total from investment operations 1.94 (2.12) 3.28 2.22 (3.89)
Less distributions:
Dividends from net investment income (0.26) (0.04) (0.15) (0.16) (0.19)
Distributions from net realized gain on investments sold (1.51) (0.50) (1.26) (0.95) (0.76)
Distributions from capital paid-in -- -- -- -- (0.03)
Total distributions (1.77) (0.54) (1.41) (1.11) (0.98)
Net asset value, end of period $ 12.68 $ 10.02 $ 11.89 $ 13.00 $ 8.13
TOTAL INVESTMENT RETURN AT NET ASSET VALUE(3) (%) 17.44 (17.36)(4) 36.89 20.46 (32.29)
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period (000s omitted) ($) 54,626 38,721 50,965 81,167 38,992
Ratio of expenses to average net assets (%) 1.48 2.47(5) 2.17 1.99 1.99
Ratio of net investment income (loss) to average net assets (%) 1.62 0.73(5) 1.50 1.67 2.51
Portfolio turnover rate (%) 89 58(5) 87 85 56
Average brokerage commission rate(6) ($) N/A N/A N/A N/A N/A
<CAPTION>
====================================================================================================================================
CLASS B - YEAR ENDED OCTOBER 31, 1991 1992 1993 1994 1995
====================================================================================================================================
<S> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
Net asset value, beginning of period $ 8.13 $ 13.76 $ 17.44 $ 21.56 $ 21.43
Net investment income (loss) 0.29 0.18 0.15(2) 0.23(2) 0.36(2)
Net realized and unrealized gain (loss) on investment 5.68 4.56 5.83 0.91 5.89
Total from investment operations 5.97 4.74 5.98 1.14 6.25
Less distributions:
Dividends from net investment income (0.34) (0.28) (0.17) (0.21) (0.32)
Distributions from net realized gain on investments sold -- (0.78) (1.69) (1.06) (0.34)
Distributions from capital paid-in -- -- -- -- --
Total distributions (0.34) (1.06) (1.86) (1.27) (0.66)
Net asset value, end of period $ 13.76 $ 17.44 $ 21.56 $ 21.43 $ 27.02
Total investment return at net asset value(3) (%) 75.35 37.20 36.71 5.69 30.11
Ratios and supplemental data
Net assets, end of period (000s omitted) ($) 52,098 56,016 171,808 522,207 1,236
Ratio of expenses to average net assets (%) 2.04 1.96 1.88 2.06 2.09
Ratio of net investment income (loss) to average net assets (%) 2.65 1.21 0.76 1.07 1.53
Portfolio turnover rate (%) 75 53 35 13 14
Average brokerage commission rate(6) ($) N/A N/A N/A N/A N/A
(1) Class A shares commenced operations on January 3, 1992.
(2) Based on the average of the shares outstanding at the end of each month.
(3) Assumes dividend reinvestment and does not reflect the effect of sales
charges.
(4) Not annualized.
(5) Annualized.
(6) Per portfolio share traded. Required for fiscal years that began September 1, 1995 or later.
(7) Year ended March 31, 1987.
(8) For the period April 1, 1987 to October 31, 1987.
</TABLE>
REGIONAL BANK FUND 13
<PAGE>
SPECIAL EQUITIES FUND
<TABLE>
<S> <C>
REGISTRANT NAME: JOHN HANCOCK SPECIAL EQUITIES FUND TICKER SYMBOL CLASS A: JHNSX CLASS B: SPQBX
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
GOAL AND STRATEGY
[A graphic image of a bullseye with an arrow in the middle of it.] The fund
seeks long-term capital appreciation. To pursue this goal, the fund invests in
small-capitalization companies and companies in situations offering unusual or
non-recurring opportunities. Under normal circumstances, the fund will invest
at least 65% of assets in a diversified portfolio of these companies. The fund
looks for companies that dominate an emerging industry or hold a growing market
share in a fragmented industry, and that have demonstrated annual earnings and
revenue growth of at least 25%, self-financing capabilities and strong
management. The fund does not invest for income.
PORTFOLIO SECURITIES
[A graphic image of a black folder that contains a couple sheets of paper.] The
fund invests primarily in the common stocks of U.S. and foreign companies. It
may also invest in warrants, preferred stocks and investment-grade convertible
debt securities. For liquidity and flexibility, the fund may place up to 35% of
assets in cash or in investment-grade short-term securities. In abnormal market
conditions, it may invest more than 35% in these securities as a defensive
tactic. The fund also may invest in certain higher-risk securities, and may
engage in other investment practices.
RISK FACTORS
[A graphic image of a line chart with a single line that depicts some peaks and
valleys.] As with any growth fund, the value of your investment will fluctuate
in response to stock market movements. Stocks of small-capitalization and
special-situation companies carry higher risks than stocks of larger companies.
This is because these companies:
- may lack proven track records
- may be dependent on a small
number of products or services
- may be undercapitalized
- may have highly priced stocks
that are sensitive to adverse news
In addition, stocks of these companies are often traded in low volumes, which
can increase market and liquidity risks. Before you invest, please read "More
about risk" starting on page 28.
MANAGEMENT/SUBADVISER
[A graphic image of a generic person.] Michael P. DiCarlo is responsible for
the fund's day-to-day investment management. He has served as the fund's
portfolio manager since January 1988, and has been in the investment business
since 1984. He is currently one of three principals in DFS Advisors, LLC, which
was founded in 1996 and serves as subadviser to the fund.
This fund will be closed to new investors at the end of the day its total assets
reach $2.5 billion. Further investments will be limited to existing accounts.
- --------------------------------------------------------------------------------
INVESTOR EXPENSES
<TABLE>
[A graphic image of a percent symbol.] Fund investors pay various expenses,
either directly or indirectly. The figures below show the expenses for the
past year, adjusted to reflect any changes. Future expenses may be greater or
less.
<CAPTION>
================================================================================
SHAREHOLDER TRANSACTION EXPENSES CLASS A CLASS B
================================================================================
<S> <C> <C>
Maximum sales charge imposed on purchases
(as a percentage of offering price) 5.00% none
Maximum sales charge imposed on
reinvested dividends none none
Maximum deferred sales charge none(1) 5.00%
Redemption fee(2) none none
Exchange fee none none
================================================================================
<CAPTION>
================================================================================
ANNUAL FUND OPERATING EXPENSES (AS A % OF AVERAGE NET ASSETS)
================================================================================
Management fee(3) 0.82% 0.82%
12b-1 fee(4) 0.30% 1.00%
Other expenses 0.38% 0.40%
Total fund operating expenses 1.50% 2.22%
</TABLE>
<TABLE>
EXAMPLE The table below shows what you would pay if you invested $1,000 over the
various time frames indicated. The example assumes you reinvested all dividends
and that the average annual return was 5%.
<CAPTION>
=======================================================================================
SHARE CLASS YEAR 1 YEAR 3 YEAR 5 YEAR 10
=======================================================================================
<S> <C> <C> <C> <C>
Class A shares $65 $95 $128 $220
Class B shares
Assuming redemption
at end of period $73 $99 $139 $237
Assuming no redemption $23 $69 $119 $237
This example is for comparison purposes only and is not a representation of the fund's
actual expenses and returns, either past or future.
(1) Except for investments of $1 million or more; see "How sales charges are
calculated."
(2) Does not include wire redemption fee (currently $4.00).
(3) Includes a subadviser fee equal to 0.25% of the fund's net assets.
(4) Because of the 12b-1 fee, long-term shareholders may indirectly pay more
than the equivalent of the maximum permitted front-end sales charge.
</TABLE>
14 SPECIAL EQUITIES FUND
<PAGE>
FINANCIAL HIGHLIGHTS
[A graphic image of a dollar sign.] The figures below have been audited by the
fund's independent auditors, Ernst & Young LLP.
VOLATILITY, AS INDICATED BY CLASS A [Bar Graph]
YEAR-BY-YEAR TOTAL INVESTMENT RETURN (%)
<TABLE>
<CAPTION>
==================================================================================================================================
CLASS A - YEAR ENDED OCTOBER 31, 1986(7) 1987(8) 1988 1989 1990
==================================================================================================================================
<S> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
Net asset value, beginning of period $ 5.21 $ 6.08 $ 4.30 $ 4.89 $ 6.38
Net investment income (loss) (0.03) (0.03) 0.04 0.01 (0.12)
Net realized and unrealized gain (loss) on investments 0.93 (1.26) 0.55 1.53 (1.27)
Total from investment operations 0.90 (1.29) 0.59 1.54 (1.39)
Less distributions:
Dividends from net investment income (0.02) -- -- (0.05) (0.02)
Distributions from net realized gain on investments sold (0.01) (0.45) -- -- --
Distributions from capital paid-in -- (0.04) -- -- --
Total distributions (0.03) (0.49) -- (0.05) (0.02)
Net asset value, end of period $ 6.08 $ 4.30 $ 4.89 $ 6.38 $ 4.97
TOTAL INVESTMENT RETURN AT NET ASSET VALUE(1,2) (%) 17.38 (28.68) 13.72 31.82 (21.89)
Total adjusted investment return at net asset value (2,3) 15.41 (29.41) 12.28 30.75 (22.21)
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period (000s omitted) ($) 13,780 10,637 11,714 12,285 8,166
Ratio of expenses to average net assets (%) 1.50 1.50 1.50 1.50 2.63
Ratio of adjusted expenses to average net assets (4) (%) 3.47 2.23 2.94 2.57 2.95
Ratio of net investment income (loss) to average net assets (%) (0.57) (0.57) 0.82 0.47 (1.58)
Ratio of adjusted net investment income (loss) to average
Portfolio turnover rate (%) 64 93 91 115 113
Fee reduction per share 0.09 0.04 0.07 0.03 0.02
Average brokerage commission rate(5) ($) N/A N/A N/A N/A N/A
<CAPTION>
====================================================================================================================================
CLASS A - YEAR ENDED OCTOBER 31, 1991 1992 1993 1994 1995
====================================================================================================================================
<S> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
Net asset value, beginning of period $ 4.97 $ 9.71 $ 10.99 $ 16.13 $ 16.11
Net investment income (loss) 0.10 0.19(1) 0.20(1) 0.21(1) 0.18(1)
Net realized and unrealized gain (loss) on investments 4.84 2.14 5.43 0.19 6.22
Total from investment operations 4.74 1.95 5.23 (0.02) 6.04
Less distributions:
Dividends from net investment income -- -- -- -- --
Distributions from net realized gain on investments sold -- (0.67) (0.09) -- --
Distributions from capital paid-in -- -- -- -- --
Total distributions -- (0.67) (0.09) -- --
Net asset value, end of period $ 9.71 $ 10.99 $ 16.13 $ 16.11 $ 22.15
TOTAL INVESTMENT RETURN AT NET ASSET VALUE(1,2) (%) 95.37 20.25 47.83 (0.12) 37.49
Total adjusted investment return at net asset value (2,3) 95.33 -- -- -- --
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period (000s omitted) ($) 19,713 44,665 296,793 310,625 555,655
Ratio of expenses to average net assets (%) 2.75 2.24 1.84 1.62 1.48
Ratio of adjusted expenses to average net assets (4) (%) (2.21) (1.91) (1.49) (1.40) (0.97)
Ratio of net investment income (loss) to average net assets (%) 2.79 -- -- -- --
Ratio of adjusted net investment income (loss) to average
net assets(4)(%) (2.12) (1.91) (1.49) (1.40) (0.97)
Portfolio turnover rate (%) (2.16) -- -- -- --
Fee reduction per share 0.09 0.04 0.07 0.03 0.02
Average brokerage commission rate(5) ($) N/A N/A N/A N/A N/A
</TABLE>
<TABLE>
<CAPTION>
==========================================================================================================
CLASS B - YEAR ENDED OCTOBER 31, 1993(6) 1994 1995
==========================================================================================================
<S> <C> <C> <C>
Per share operating performance
Net asset value, beginning of period $ 12.30 $ 16.08 $ 15.97
Net investment income (loss) 0.18(1) 0.30(1) 0.31(1)
Net realized and unrealized gain (loss) on investments 3.96 0.19 6.15
Total from investment operations 3.78 (0.11) 5.84
Net asset value, end of period $ 16.08 $ 15.97 $ 21.81
TOTAL INVESTMENT RETURN AT NET ASSET VALUE(2) (%) 30.73(7) (0.68) 36.57
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period (000s omitted) ($) 158,281 191,979 454,934
Ratio of expenses to average net assets (%) 2.34(8) 2.25 2.20
Ratio of net investment income to average net assets (%) (2.03)(8) (2.02) (1.69)
Portfolio turnover rate (%) 33 66 82
Average brokerage commission rate(5) ($) N/A N/A N/A
- -------------
(1) Based on the average of the shares outstanding at the end of each month.
(2) Assumes dividend reinvestment and does not reflect the effect of sales charges.
(3) An estimated total return calculation which does not take into
consideration fee reductions by the adviser during the periods shown.
(4) Unreimbursed, without fee reduction.
(5) Per portfolio share traded. Required for fiscal years that began September 1, 1995 or later.
(6) Class B shares commenced operations on March 1, 1993.
(7) Not annualized.
(8) Annualized.
SPECIAL EQUITIES FUND 15
</TABLE>
<PAGE>
SPECIAL OPPORTUNITIES FUND
<TABLE>
<S> <C> <C>
REGISTRANT NAME: FREEDOM INVESTMENT TRUST II TICKER SYMBOL CLASS A: SPOAX CLASS B:SPOBX
- --------------------------------------------------------------------------------------------------
</TABLE>
GOAL AND STRATEGY
[A graphic image of a bullseye with an arrow in the middle of it.] The fund
seeks long-term capital appreciation. To pursue this goal, the fund invests in
those economic sectors that appear to have a higher than average earning
potential.
Under normal circumstances, at least 90% of the fund's equity securities will be
invested within five or fewer sectors (e.g., financial serv ices, energy,
technology). At times, the fund may focus on a single sector. The fund first
determines the inclusion and weighting of sectors, using macroeconomic as well
as other factors, then selects portfolio securities by seeking the most
attractive companies. The fund may add or drop sectors. Because the fund may
invest more than 5% of assets in a single issuer, it is classified as a
non-diversified fund.
PORTFOLIO SECURITIES
[A graphic image of a black folder that contains a couple sheets of paper.] The
fund invests primarily in common stocks of U.S. and foreign companies of any
size. It may also invest in warrants, preferred stocks, convertible debt
securities, U.S. Government securities and corporate bonds rated at least
BBB/Baa, or equivalent. The fund also may invest in certain higher-risk
securities, and may engage in other investment practices.
For liquidity and flexibility, the fund may place up to 10% of net assets in
cash or investment-grade short-term securities. In abnormal market conditions,
it may invest more than 10% in these securities as a defensive tactic.
RISK FACTORS
[A graphic image of a line chart with a single line that depicts some peaks and
valleys.] As with any growth fund, the value of your investment will fluctuate
in response to stock market movements. By focusing on a relatively small number
of sectors or issuers, the fund runs the risk that any factor influencing those
sectors or issuers will have a major effect on performance. The fund may invest
in companies with smaller market capitalizations, which represent higher
near-term risks than larger capitalization companies. These factors make the
fund likely to experience higher volatility than most other types of growth
funds. Before you invest, please read "More about risk" starting on page 28.
PORTFOLIO MANAGEMENT
[A graphic image of a generic person.] Kevin R. Baker is leader of the portfolio
management team for the fund. A second vice president of the adviser, he has
been a member of the management team since joining the adviser in January 1994.
He has been in the investment business since 1986.
- --------------------------------------------------------------------------------
INVESTOR EXPENSES
[A graphic image of a percent symbol.] Fund investors pay various expenses,
either directly or indirectly. The figures below show the expenses for the past
year, adjusted to reflect any changes. Future expenses may be greater or less.
================================================================================
SHAREHOLDER TRANSACTION EXPENSES CLASS A CLASS B
================================================================================
Maximum sales charge imposed on purchases
(as a percentage of offering price) 5.00% none
Maximum sales charge imposed on
reinvested dividends none none
Maximum deferred sales charge none(1) 5.00%
Redemption fee(2) none none
Exchange fee none none
================================================================================
ANNUAL FUND OPERATING EXPENSES (AS A % OF AVERAGE NET ASSETS)
================================================================================
Management fee 0.80% 0.80%
12b-1 fee(3) 0.30% 1.00%
Other expenses 0.49% 0.49%
Total fund operating expenses 1.59% 2.29%
EXAMPLE The table below shows what you would pay if you invested $1,000 over the
various time frames indicated. The example assumes you reinvested all dividends
and that the average annual return was 5%.
================================================================================
SHARE CLASS YEAR 1 YEAR 3 YEAR 5 YEAR 10
================================================================================
Class A shares $65 $ 98 $132 $229
Class B shares
Assuming redemption
at end of period $73 $102 $143 $245
Assuming no redemption $23 $ 72 $123 $245
This example is for comparison purposes only and is not a representation of the
fund's actual expenses and returns, either past or future.
(1) Except for investments of $1 million or more; see "How sales charges are
calculated."
(2) Does not include wire redemption fee (currently $4.00).
(3) Because of the 12b-1 fee, long-term shareholders may indirectly pay more
than the equivalent of the maximum permitted front-end sales charge.
16 SPECIAL OPPORTUNITIES FUND
<PAGE>
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
[A graphic image of a dollar sign.] The figures below have been audited by the
fund's independent auditors, Price Waterhouse LLP.
VOLATILITY, AS INDICATED BY CLASS A
YEAR-BY-YEAR TOTAL INVESTMENT RETURN (%) [BAR GRAPH]
<TABLE>
<CAPTION>
============================================================================================
CLASS A - YEAR ENDED OCTOBER 31, 1994(1) 1995
============================================================================================
<S> <C> <C>
PER SHARE OPERATING PERFORMANCE
Net asset value, beginning of period $ 8.50 $ 7.93
Net investment income (loss) (0.03)(2) (0.07)(2)
Net realized and unrealized gain (loss) on investments (0.54) 1.46
Total from investment operations (0.57) 1.39
Net asset value, end of period $ 7.93 $ 9.32
TOTAL INVESTMENT RETURN AT NET ASSET VALUE(3)(%) (6.71) 17.53
Total adjusted investment return at net asset value(3,4)(%) (6.83) --
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period (000s omitted)($) 92,325 101,562
Ratio of expenses to average net assets (%) 1.50 1.59
Ratio of adjusted expenses to average net assets(5)(%) 1.62 --
Ratio of net investment income (loss) to average net assets (%) (0.41) (0.87)
Ratio of adjusted net investment (loss) to average net assets(5)(%) (0.53) --
Portfolio turnover rate (%) 57 155
Fee reduction per share ($) 0.01(2) --
Average brokerage commission rate(6)($) N/A N/A
============================================================================================
CLASS B - YEAR ENDED OCTOBER 31, 1994(1) 1995
============================================================================================
PER SHARE OPERATING PERFORMANCE
Net asset value, beginning of period $ 8.50 $ 7.87
Net investment income (loss) (0.09)(2) (0.13)(2)
Net realized and unrealized gain (loss) on investments (0.54) 1.45
Total from investment operations (0.63) 1.32
Net asset value, end of period $ 7.87 $ 9.19
Total investment return at net asset value(3)(%) (7.41)(4) 16.77
Total adjusted investment return at net asset value(3,4)(%) (7.53) --
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period (000's omitted)($) 131,983 137,363
Ratio of expenses to average net assets (%) 2.22 2.30
Ratio of adjusted expenses to average net assets(5)(%) 2.34 --
Ratio of net investment income (loss) to average net assets (%) (1.13) (1.55)
Ratio of adjusted net investment (loss) to average net assets(5)(%) (1.25) --
Portfolio turnover rate (%) 57 155
Fee reduction per share ($) 0.01(2) --
Average brokerage commission rate(6) ($) N/A N/A
- --------------
(1) Class A and B shares commenced operations on November 1, 1993.
(2) Based on the average of the shares outstanding at the end of each month.
(3) Assumes dividend reinvestment and does not reflect the effect of sales charges.
(4) An estimated total return calculation which does not take into consideration fee
reductions by the adviser during the periods shown.
(5) Unreimbursed, without fee reduction.
(6) Per portfolio share traded. Required for fiscal years that began September 1, 1995
or later.
</TABLE>
SPECIAL OPPORTUNITIES FUND 17
<PAGE>
YOUR ACCOUNT
- --------------------------------------------------------------------------------
CHOOSING A SHARE CLASS
All John Hancock growth funds offer two classes of shares, Class A and Class B.
Each class has its own cost structure, allowing you to choose the one that best
meets your requirements. Your financial representative can help you decide.
================================================================================
CLASS A CLASS B
================================================================================
- - Front-end sales charge, - No front-end sales charge; all of
as described below. There your monet goes to work for you
are several ways to right away.
reduce these charges,
also described below. - Higher annual expenses than class
A shares.
- - Lower annual expenses
than Class B shares. - A deferred sales charge on shares
you sell within six years of
purchase, as described below.
- Automatic conversion to Class A
shares after eight years, thus
reducing future annual expenses.
For actual past expenses of Class A and B shares, see the fund-by-fund
information earlier in this prospectus.
Special Equities Fund offers Class C shares, which have their own expense
structure and are available to financial institutions only. Call Investor
Services for more information (see the back cover of this prospectus).
- --------------------------------------------------------------------------------
HOW SALES CHARGES ARE CALCULATED
<TABLE>
CLASS A Sales charges are as follows:
<CAPTION>
================================================================================
CLASS A SALES CHARGES
================================================================================
<CAPTION>
AS A % OF AS A % OF YOUR
YOUR INVESTMENT OFFERING PRICE INVESTMENT
<S> <C> <C>
Up to $49,999 5.00% 5.26%
$50,000 - $99,999 4.50% 4.71%
$100,000 - $249,999 3.50% 3.63%
$250,000 - $499,999 2.50% 2.56%
$500,000 - $999,999 2.00% 2.04%
$1,000,000 and over See below
</TABLE>
INVESTMENTS OF $1 MILLION OR MORE Class A shares are available with no
front-end sales charge. However, there is a contingent deferred sales charge
(CDSC) on any shares sold within one year of purchase, as follows:
================================================================================
CDSC ON $1 MILLION+ INVESTMENT
================================================================================
YOUR INVESTMENT CDSC ON SHARES BEING SOLD
First $1M - $4,999,999 1.00%
Next $1 - $5M above that 0.50%
Next $1 or more above that 0.25%
For purposes of this CDSC, all purchases made during a calendar month are
counted as having been made on the LAST day of that month.
The CDSC is based on the lesser of the original purchase cost or the current
market value of the shares being sold, and is not charged on shares you
acquired by reinvesting your dividends. To keep your CDSC as low as possible,
each time you place a request to sell shares we will first sell any shares in
your account that are not subject to a CDSC.
CLASS B Shares are offered at their net asset value per share, without any
initial sales charge. However, there is a contingent deferred sales charge
(CDSC) on shares you sell within six years of buying them. There is no CDSC
on shares acquired through reinvestment of dividends. The CDSC is based on
the original purchase cost or the current market value of the shares being
sold, whichever is less. The longer the time between the purchase and the
sale of shares, the lower the rate of the CDSC:
================================================================================
CLASS B DEFERRED CHARGES
================================================================================
YEARS AFTER PURCHASE CDSC ON SHARES BEING SOLD
1st year 5.00%
2nd year 4.00%
3rd or 4th years 3.00%
5th year 2.00%
6th year 1.00%
After 6 years None
For purposes of this CDSC, all purchases made during a calendar month are
counted as having been made on the First day of that month.
CDSC calculations are based on the number of shares involved, not on the
value of your account. To keep your CDSC as low as possible, each time you
place a request to sell shares we will first sell any shares in your account
that carry no CDSC. If there are not enough of these to meet your request, we
will sell those shares that have the lowest CDSC.
18 YOUR ACCOUNT
<PAGE>
SALES CHARGE REDUCTIONS AND WAIVERS
REDUCING YOUR CLASS A SALES CHARGES There are several ways you can combine
multiple purchases of Class A shares in John Hancock funds to take advantage
of the breakpoints in the sales charge schedule. The first three ways can be
combined in any manner.
- - Accumulation Privilege -- lets you add the value of any Class A shares you
already own to the amount of your next Class A investment for purposes of
calculating the sales charge.
- - Letter of Intention -- lets you purchase Class A shares of a fund over a
13-month period and receive the same sales charge as if all shares had been
purchased at once.
- - Combination Privilege -- lets you combine Class A shares of multiple funds
for purposes of calculating the sales charge.
To utilize: complete the appropriate section on your application, or contact
your financial representative or Investor Services to add these options to an
existing account.
GROUP INVESTMENT PROGRAM Allows established groups of four or more investors to
invest as a group. Each has an individual account, but for sales charge
purposes, their investments are lumped together, making the investors
potentially eligible for reduced sales charges. There is no charge, no
obligation to invest (although initial aggregate investments must be at least
$250) and you may terminate the program at any time.
To utilize: contact your financial representative or Investor Services to find
out how to qualify.
CDSC WAIVERS In general, the CDSC for either share class may be waived on
shares you sell for the following reasons:
- - to make payments through certain systematic withdrawal plans
- - to make certain distributions from a retirement plan
- - because of shareholder death or disability
To utilize: contact your financial representative or Investor Services, or
consult the SAI (see the back cover of this prospectus).
REINSTATEMENT PRIVILEGE If you sell shares of a John Hancock fund, you may
invest some or all of the proceeds in the same share class of any John Hancock
fund within 120 days without a sales charge. If you paid a CDSC when you sold
your shares, you will be credited with the amount of the CDSC. All accounts
involved must have the same registration.
To utilize: contact your financial representative or Investor Services.
WAIVERS FOR CERTAIN INVESTORS Class A shares may be offered without front-end
sales charges or CDSCs to various individuals and institutions, including:
- - government entities that are prohibited from paying mutual fund sales
charges
- - financial institutions or common trust funds investing $1 million or more
for non-discretionary accounts
- - selling brokers and their employees and sales representatives
- - financial representatives utilizing fund shares in fee-based investment
products under agreement with John Hancock Funds
- - fund trustees and other individuals who are affiliated with these or other
John Hancock funds
- - individuals transferring assets to a John Hancock growth fund from an
employee benefit plan that has John Hancock funds
- - members of an approved affinity group financial services program
- - certain insurance company contract holders (one-year CDSC applies)
- - participants in certain plans with at least 100 members (one-year CDSC
applies)
To utilize: if you think you may be eligible for a sales charge waiver,
contact Investor Services or consult the SAI.
- --------------------------------------------------------------------------------
OPENING AN ACCOUNT
1 Read this prospectus carefully.
2 Determine how much you want to invest. The minimum initial investments for
the John Hancock growth funds are as follows:
- non-retirement account: $1,000
- retirement account: $250
- group investments: $250
- Monthly Automatic Accumulation Plan (MAAP): $25 to open; you must
invest at least $25 a month
3 Complete the appropriate parts of the account application, carefully
following the instructions. If you have questions, please contact your
financial representative or call Investor Services at 1-800-225-5291.
4 Complete the appropriate parts of the account privileges section of the
application. By applying for privileges now, you can avoid the delay and
inconvenience of having to file an additional application if you want to
add privileges later.
5 Make your initial investment using the table on the next page. You can
initiate any purchase, exchange or sale of shares through your financial
representative.
YOUR ACCOUNT 19
<PAGE>
<TABLE>
====================================================================================================================================
BUYING SHARES
====================================================================================================================================
<CAPTION>
OPENING AN ACCOUNT ADDING TO AN ACCOUNT
<S> <C>
BY CHECK
[A graphic image of a blank check.]
- Make out a check for the investment amount, payable - Make out a check for the investment amount payable
to "John Hancock Investor Services Corporation." to "John Hancock Investor Services Corporation."
- Deliver the check and your completed application - Fill out the detachable investment lip from an account
to your financial representative, or mail them to Investor statement. If no slip is available, include a note specifying
Services (address on next page). the fund name, your share class, your account number,
and the name(s) in which the account is registered.
- Deliver the check and your investment slip or note to
your financial representative, or mail them to Investor
Services (address on next page).
BY EXCHANGE
[A graphic image of a white arrow outlined in black that points
to the right above a black that points to the left.]
- Call your financial representative or Investor Services to - Call Investor Services to request an exchange.
request an exchange.
BY WIRE
[A graphic image of a jagged white arrow outlined in black that
points upwards at a 45 degree angle.]
- Deliver your completed application to your financial repre- - Instruct your bank to wire the amount of your
sentative, or mail it to Investor Services. investment to:
First Signature Bank & Trust
- Obtain your account number by calling your financial Account # 900000260
representative or Investor Services. Routing # 211475000
Specify the fund name, your share class, your account
- Instruct your bank to wire the amount of your number and the name(s) in which the account is regis-
investment to: tered. Your bank may charge a fee to wire funds.
First Signature Bank & Trust
Account # 900000260
Routing # 211475000
Specify the fund name, your choice of share class, the new
account number and the name(s) in which the account is
registered. Your bank may charge a fee to wire funds.
BY PHONE
[A graphic image of a telephone.]
See "By wire" and "By exchange." - Verify that your bank or credit union is a member of
the Automated Clearing House (ACH) system.
- Complete the "Invest-By-Phone" and "Bank Information"
sections on you account application.
- Call Investor Services to verify that these features are in
place on your account.
- Tell the Investor Services representative the fund name,
your share class, your account number, the name(s) in
which the account is registered and the amount of
your investment.
To open or add to an account using the Monthly Automatic Accumulation Program, see "Additional investor services."
</TABLE>
20 YOUR ACCOUNT
<PAGE>
<TABLE>
===============================================================================================================================
SELLING SHARES
===============================================================================================================================
<CAPTION>
DESIGNED FOR TO SELL SOME OR ALL OF YOUR SHARES
<S> <C>
BY LETTER
[A graphic image of the back of an envelope.]
- Accounts of any type. - Write a letter of instruction or complete a stock power
indicating the fund name, your share class, your account
- Sales of any amount. number, the name(s) in which the account is registered
and the dollar value or number of shares you wish to sell.
- Include all signatures and any additional documents
that may be required (see next page).
- Mail the materials to Investor Services.
- A check will be mailed to the name(s) and address in
which the account is registered, or otherwise according
to your letter of instruction.
BY PHONE
[A graphic image of a telephone.]
- Most accounts. - For automated service 24 hours a day using your
touch-tone phone, call the John Hancock Funds
- Sales of up to $100,000. EASI-Line at 1-800-338-8080.
- To place your order with a representative at John Han-
cock Funds, call Investor Services between 8 a.m. and
4 p.m. on most business days.
BY WIRE OR ELECTRONIC FUNDS TRANSFER (EFT)
[A graphic image of a jagged white arrow outlined in black
that points upwards at a 45 degree angle.]
- Requests by letter to sell any amount (accounts of - Fill out the "Telephone Redemption" section of your
any type). new account application.
- Requests by phone to sell up to $100,000 (accounts - To verify that the telephone redemption privilege is in
with telephone redemption privileges). place on an account, or to request the forms to add it
to an existing account, call Investor Services.
- Amounts of $1,000 or more will be wired on the next
business day. A $4 fee will be deducted from your
account.
- Amounts of less than $1,000 may be sent by EFT or by
check. Funds from EFT transactions are generally avail-
able by the second business day. Your bank may charge
a fee for this service.
BY EXCHANGE
[A graphic image of a white arrow outlined in black that
points to the right above a black that points to the left.]
- Accounts of any type. - Obtain a current prospectus for the fund into which
you are exchanging by calling your financial representa-
- Sales of any amount. tive or Investor Services.
- Call Investor Services to request an exchange.
</TABLE>
- --------------------------------------------------------------------------------
Address
John Hancock Investor Services Corporation
P.O. Box 9116 Boston, MA 02205-9116
Phone
1-800-225-5291
Or contact your financial representative for instructions and assistance.
- --------------------------------------------------------------------------------
To sell shares through a systematic withdrawal plan, see "Additional investor
services."
YOUR ACCOUNT 21
<PAGE>
SELLING SHARES IN WRITING In certain circumstances, you will need to make
your request to sell shares in writing. You may need to include additional
items with your request, as shown in the table below. You may also need to
include a signature guarantee, which protects you against fraudulent orders.
You will need a signature guarantee if:
- - your address of record has changed within the past 30 days
- - you are selling more than $100,000 worth of shares
- - you are requesting payment other than by a check mailed to the address of
record and payable to the registered owner(s)
You can generally obtain a signature guarantee from the following sources:
- - a broker or securities dealer
- - a federal savings, cooperative or other type of bank
- - a savings and loan or other thrift institution
- - a credit union
- - a securities exchange or clearing agency A notary public cannot provide a
signature guarantee.
A notary public CANNOT provide a signature guarantee.
<TABLE>
====================================================================================================== [A graphic image of the
back of an envelope.]
<CAPTION>
SELLER REQUIREMENTS FOR WRITTEN REQUESTS
======================================================================================================
<S> <C>
Owners of individual, joint, or sole propriertorship, UGMA/UTMA - Letter of instruction.
(custodial accounts for minors) or general partner accounts. - On the letter, the signatures and titles of all persons
authorized to sign for the account, exactly as the
account is registered.
- Signature garuntee if applicable (see above)
Owners of corporate or association accounts. - Letter of instruction.
- Corporate resolution, certified within the past 90 days.
- On the letter and the resolution, the signature of the
person(s) authorized to sign for the account.
- Signature garuntee if applicable (see above).
Owners or Trustees of trust accounts - Letter of instruction.
- Corporate resolution, certified within the past 90 days.
- If the names of all trustees are not registered on the
account, please also provide a copy of the trust document
certified within the past 60 days.
- Signature garuntee if applicable (see above)
Joint tenancy shareholders whose co-tenants are deceased - Letter of instruction signed by surviving tenant.
- Copy of death certificate.
- Signature garuntee if applicable (see above).
Adsministrators, conservatore, guardians and other sellers or - Call 1-800-225-5291 for instructions.
account types not listed above.
</TABLE>
22 YOUR ACCOUNT
<PAGE>
- --------------------------------------------------------------------------------
TRANSACTION POLICIES
VALUATION OF SHARES The net asset value per share (NAV) for each fund and class
is determined each business day at the close of regular trading on the New York
Stock Exchange (typically 4 p.m. Eastern Time) by dividing a class's net assets
by the number of its shares outstanding.
BUY AND SELL PRICES When you buy shares, you pay the NAV plus any applicable
sales charges, as described earlier. When you sell shares, you receive the NAV
minus any applicable deferred sales charges.
EXECUTION OF REQUESTS Each fund is open on those days when the New York Stock
Exchange is open, typically Monday - Friday. Buy and sell requests are executed
at the next NAV to be calculated after your request is accepted by Investor
Services.
At times of peak activity, it may be difficult to place requests by phone.
During these times, consider using EASI-Line or sending your request in writing.
In unusual circumstances, any fund may temporarily suspend the processing of
sell requests, or may postpone payment of proceeds for up to three business days
or longer, as allowed by federal securities laws.
TELEPHONE TRANSACTIONS For your protection, telephone requests may be recorded
in order to verify their accuracy. In addition, Investor Services will take
measures to verify the identity of the caller, such as asking for name, account
number, Social Security or taxpayer ID number and other relevant information. If
these measures are not taken, Investor Services is responsible for any losses
that may occur to any account due to an unauthorized telephone call. Also for
your protection, telephone transactions are not permitted on accounts whose
names or addresses have changed within the past 30 days. Proceeds from telephone
transactions can only be mailed to the address of record.
EXCHANGES You may exchange shares of one John Hancock fund for shares of the
same class of any other, generally without paying any additional sales charges.
Class B shares will continue to age from the original date and will retain the
same CDSC rate as they had before the exchange, except that the rate will change
to that of the new fund if the new fund's rate is higher. A CDSC rate that has
increased will drop again with a future exchange into a fund with a lower rate.
To protect the interests of other investors in the fund, a fund may cancel the
exchange privileges of any parties that, in the opinion of the fund, are using
market timing strategies or making more than seven exchanges per owner or
controlling party per calendar year. A fund may change or cancel its exchange
privilege at any time, upon 60 days' notice to its shareholders. A fund may also
refuse any exchange order.
CERTIFICATED SHARES Most shares are electronically recorded. If you wish to have
certificates for your shares, please write to Investor Services. Certificated
shares can only be sold by returning the certificates to Investor Services,
along with a letter of instruction or a stock power and a signature guarantee.
SALES IN ADVANCE OF PURCHASE PAYMENTS When you place a request to sell shares
for which the purchase money has not yet been collected, the request will be
executed in a timely fashion, but the fund will not release the proceeds to you
until your purchase payment clears. This may take up to ten calendar days after
the purchase.
ELIGIBILITY BY STATE You may only invest in, or exchange into, fund shares
legally available in your state.
- --------------------------------------------------------------------------------
DIVIDENDS AND ACCOUNT POLICIES
ACCOUNT STATEMENTS In general, you will receive account statements as follows:
- - After every transaction (except a dividend reinvestment) that affects your
account balance.
- - After any changes of name or address of the registered owner(s).
- - In all other circumstances, every quarter.
Every year you should also receive, if applicable, a Form 1099 tax information
statement, mailed by January 31.
DIVIDENDS The funds generally distribute most or all of their net earnings in
the form of dividends. Any capital gains are distributed annually. Most of the
funds do not typically pay income dividends, with the exception of Disciplined
Growth Fund and Regional Bank Fund, which typically pay income dividends
semi-annually and quarterly, respectively.
YOUR ACCOUNT 23
<PAGE>
DIVIDEND REINVESTMENTS Most investors have their dividends reinvested in
additional shares of the same fund and class. If you choose this option, or if
you do not indicate any choice, your dividends will be reinvested on the
dividend record date. Alternatively, you can choose to have a check for your
dividends mailed to you. However, if the check is not deliverable, your
dividends will be reinvested.
TAXABILITY OF DIVIDENDS As long as a fund meets the requirements for being a
tax-qualified regulated investment company, which each fund has in the past and
intends to in the future, it pays no federal income tax on the earnings it
distributes to shareholders.
Consequently, dividends you receive from a fund, whether reinvested or taken as
cash, are generally considered taxable. Dividends from a fund's long-term
capital gains are taxable as capital gains; dividends from other sources are
generally taxable as ordinary income.
Some dividends paid in January may be taxable as if they had been paid the
previous December. Corporations may be entitled to take a dividends-received
deduction for a portion of certain dividends they receive.
The Form 1099 that is mailed to you every January details your dividends and
their federal tax category, although you should verify your tax liability with
your tax professional.
TAXABILITY OF TRANSACTIONS Any time you sell or exchange shares, it is
considered a taxable event for you. Depending on the purchase price and the sale
price of the shares you sell or exchange, you may have a gain or a loss on the
transaction. You are responsible for any tax liabilities generated by your
transactions.
SMALL ACCOUNTS (NON-RETIREMENT ONLY) If you draw down a non-retirement account
so that its total value is less than $1,000, you may be asked to purchase more
shares within 30 days. If you do not take action, your fund may close out your
account and mail you the proceeds. Alternatively, Investor 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:
- - Complete the appropriate parts of your Account Application.
- - If you are using MAAP to open an account, make out a check ($25 minimum)
for your first investment amount payable to "John Hancock Investor Services
Corporation." Deliver your check and application to your financial
representative or Investor Services.
SYSTEMATIC WITHDRAWAL PLAN This plan may be used for routine bill payment or
periodic withdrawals from your account. To establish:
- - Make sure you have at least $5,000 worth of shares in your account.
- - Make sure you are not planning to invest more money in this account (buying
shares during a period when you are also selling shares of the same fund is
not advantageous to you, because of sales charges).
- - Specify the payee(s). The payee may be yourself or any other party, and
there is no limit to the number of payees you may have, as long as they are
all on the same payment schedule.
- - Determine the schedule: monthly, quarterly, semi-annually, annually or in
certain selected months.
- - Fill out the relevant part of the account application. To add a systematic
withdrawal plan to an existing account, contact your financial
representative or Investor Services.
RETIREMENT PLANS John Hancock Funds offers a range of qualified retirement
plans, including IRAs, SEPs, SARSEPs, 401(k) plans, 403(b) plans (including
TSAs) and other pension and profit-sharing plans. Using these plans, you can
invest in any John Hancock fund with a low minimum investment of $250 or, for
some group plans, no minimum investment at all. To find out more, call Investor
Services at 1-800-225-5291.
24 YOUR ACCOUNT
<PAGE>
FUND DETAILS
- --------------------------------------------------------------------------------
BUSINESS STRUCTURE
HOW THE FUNDS ARE ORGANIZED Each John Hancock growth fund is an open-end
management investment company or a series of such a company.
Each fund is supervised by a board of trustees or a board of directors, an
independent body which has ultimate responsibility for the fund's activities.
The board retains various companies to carry out the fund's operations,
including the investment adviser, custodian, transfer agent and others (see
diagram). The board has the right, and the obligation, to terminate the fund's
relationship with any of these companies and to retain a different comp any if
the board believes that it is in the shareholders' best interests.
At a mutual fund's inception, the initial shareholder (typically the adviser)
appoints the fund's board. Thereafter, the board and the shareholders determine
the board's membership. The boards of the John Hancock growth funds may include
individuals who are affiliated with the investment adviser. However, the
majority of board members must be independent.
The funds do not hold annual shareholder meetings, but may hold special meetings
for such purposes as electing or removing board members, changing fundamental
policies, approving a management contract or approving a 12b-1 plan (12b-1 fees
are explained in "Sales compensation").
[A flow chart that contains 8 rectangular-shaped boxes and illustrates the
hierarchy of how the funds are organized. Within the flowchart, there are 5
tiers. The tiers are connected by shaded lines.
Shareholders represent the first tier. There is a shaded vertical arrow on the
left-hand side of the page. The arrow has arrowheads on both ends and is
contained within two horizontal, shaded lines. This is meant to highlight tiers
two and three which focus on Distribution and Shareholder Services.
Financial Services Firms and their Representatives are shown on the second
tier. Principal Distributor and Transfer Agent are shown on the third tier.
A shaded vertical arrow on the right-hand side of the page denotes those
entities involved in the Asset Management. The arrow has arrowheads on both
ends and is contained within two horizontal, shaded lines. This fourth tier
includes the Subadvisor, Investment Advisor and the Custodian.
The fifth tier contains the Trustees/Directors.]
FUND DETAILS 25
<PAGE>
ACCOUNTING COMPENSATION The funds compensate the adviser for performing tax and
financial management services. Annual compensation for 1996 will not exceed
0.02% of each fund's average net assets.
PORTFOLIO TRADES In placing portfolio trades, the adviser may use brokerage
firms that market the fund's shares or are affiliated with John Hancock Mutual
Life Insurance Company, but only when the adviser believes no other firm offers
a better combination of quality execution (i.e., timeliness and completeness)
and favorable price.
INVESTMENT GOALS Except for Discovery Fund, Special Opportunities Fund
and Emerging Growth Fund, each fund's investment goal is fundamental and may
only be changed with shareholder approval.
DIVERSIFICATION Except for Special Opportunities Fund, all growth funds are
diversified.
- --------------------------------------------------------------------------------
SALES COMPENSATION
As part of their business strategies, the funds, along with John Hancock Funds,
pay compensation to financial services firms that sell the funds' shares. These
firms typically pass along a portion of this compensation to your financial
representative.
Compensation payments originate from two sources: from sales charges and from
12b-1 fees that are paid out of the fund's in assets ("12b-1" refers to the
federal securities regulation authorizing annual fees of this type). The 12b-1
fee rates vary by fund and by share class, according to Rule 12b-1 plans adopted
by the funds. The sales charges and 12b-1 fees paid by investors are detailed in
the fund-by-fund information. The portions of these expenses that are reallowed
to financial services firms are shown on the next page.
Distribution fees may be used to pay for sales compensation to financial
services firms, marketing and overhead expenses and, for Class B shares,
interest expenses.
- -------------------------------------------------------------------------------
<TABLE>
CLASS B UNREIMBURSED DISTRIBUTION EXPENSES(1)
UNREIMBURSED AS A % OF
FUND EXPENSES NET ASSETS
<S> <C> <C>
Disciplined Growth $ 3,620,687 3.99%
Discovery $ 552,329 1.75%
Emerging Growth $ 9,697,401 3.02%
Growth $ 165,787 2.01%
Regional Bank $41,492,867 5.90%
Special Equities $15,131,619 5.42%
Special Opportunities $ 6,051,842 4.49%
(1) As of the most recent fiscal year end covered by each fund's financial
highlights. These expenses may be carried forward indefinitely.
</TABLE>
INITIAL COMPENSATION Whenever you make an investment in a fund or funds, the
financial services firm receives either a reallowance from the initial sales
charge or a commission, as described below. The firm also receives the first
year's service fee at this time.
ANNUAL COMPENSATION Beginning with the second year after an investment is made,
the financial services firm receives an annual service fee of 0.25% of its total
eligible net assets. This fee is paid quarterly in arrears. Firms affiliated
with John Hancock, which include Tucker Anthony, Sutro & Company and John
Hancock Distributors, may receive an additional fee of up to 0.05% a year of
their total eligible net assets.
26 FUND DETAILS
<PAGE>
<TABLE>
- ------------------------------------------------------------------------------------------------------------------------------------
CLASS A INVESTMENTS
<CAPTION>
MAXIMUM
SALES CHARGE REALLOWANCE FIRST YEAR MAXIMUM
PAID BY INVESTORS OR COMMISSION SERVICE FEE TOTAL COMPENSATION(1)
(% of offering price) (% of offering price) (% of net investment) (% of offering price)
<S> <C> <C> <C> <C>
Up to $49,999 5.00% 4.01% 0.25% 4.25%
$50,000 - $99,999 4.50% 3.51% 0.25% 3.75%
$100,000 - $249,999 3.50% 2.61% 0.25% 2.85%
$250,000 - $499,999 2.50% 1.86% 0.25% 2.10%
$500,000 - $999,999 2.00% 1.36% 0.25% 1.60%
REGULAR INVESTMENTS OF
$1 MILLION OR MORE
First $1M - $4,999,999 -- 1.00% 0.25% 1.24%
Next $1 - $5M above that -- 0.50% 0.25% 0.74%
Next $1 and more above that -- 0.25% 0.25% 0.49%
Waiver investments(2) -- 0.00% 0.25% 0.25%
- ------------------------------------------------------------------------------------------------------------------------------------
CLASS B INVESTMENTS
MAXIMUM
REALLOWANCE MAXIMUM
OR COMMISSION SERVICE FEE TOTAL COMPENSATION
(% of offering price) (% of net investment) (% of offering price)
All amounts 3.75% 0.25% 4.00%
(1) Reallowance/commission percentages and service fee percentages are
calculated from different amounts, and therefore may not equal total
compensation percentages if combined using simple addition.
(2) Refers to any investments made by municipalities, financial institutions,
trusts and affinity group members that take advantage of the sales charge
waivers described earlier in this prospectus.
CDSC revenues collected by John Hancock Funds may be used to fund commission
payments when there is no initial sales charge.
</TABLE>
FUND DETAILS 27
<PAGE>
- --------------------------------------------------------------------------------
MORE ABOUT RISK
A fund's risk profile is largely defined by the fund's primary securities and
investment practices. You may find the most concise description of each fund's
risk profile in the fund-by-fund information.
The funds are permitted to utilize -- within limits established by the trustees
- -- certain other securities and investment practices that have higher risks and
opportunities associated with them. To the extent a fund utilizes these
securities or practices, its overall performance may be affected, either
positively or negatively. On the following page are brief descriptions of these
securities and practices, along with the risks associated with them. The funds
follow certain policies that may reduce these risks.
As with any mutual fund, there is no guarantee that the performance of a John
Hancock growth fund will be positive over any period of time -- days, months or
years. However, stock funds as a category have historically performed better
over the long term than bond or money market funds.
- --------------------------------------------------------------------------------
TYPES OF INVESTMENT RISK
CORRELATION RISK The risk that changes in the value of a hedging instrument will
not match those of the asset being hedged (hedging is the use of one investment
to offset the effects of another investment). Incomplete correlation can result
in unanticipated risks.
CREDIT RISK The risk that the issuer of a security, or the counterparty to a
contract, will default or otherwise become unable to honor a financial
obligation.
CURRENCY RISK The risk that fluctuations in the exchange rates
between the U.S. dollar and foreign currencies may negatively affect an
investment. Adverse changes in exchange rates may erode or reverse any gains
produced by foreign currency denominated investments and may widen any losses.
INFORMATION RISK The risk that key information about a security or market is
inaccurate or unavailable.
INTEREST RATE RISK The risk of market losses attributable to changes in interest
rates. With fixed-rate securities, a rise in interest rates typically causes a
fall in values, while a fall in rates typically causes a rise in values.
LEVERAGE RISK Associated with securities or practices (such as borrowing) that
multiply small index or market movements into large changes in value.
* HEDGED When a derivative (a security whose value is based on another
security or index) is used as a hedge against an opposite position which
the fund also holds, any loss generated by the derivative should be
substantially offset by gains on the hedged investment, and vice versa.
While hedging can reduce or eliminate losses, it can also reduce or
eliminate gains.
* SPECULATIVE To the extent that a derivative is not used as a hedge, the
fund is directly exposed to the risks of that derivative. Gains or losses
from speculative positions in a derivative may be substantially greater
than the derivative's original cost.
LIQUIDITY RISK The risk that certain securities may be difficult or impossible
to sell at the time and the price that the seller would like. The seller may
have to lower the price, sell other securities instead, or forego an investment
opportunity, any of which could have a negative effect on fund management or
performance.
MANAGEMENT RISK The risk that a strategy used by a fund's management may fail to
produce the intended result. Common to all mutual funds.
MARKET RISK The risk that the market value of a security may move up and down,
sometimes rapidly and unpredictably. These fluctuations may cause a security to
be worth less than the price originally paid for it, or less than it was worth
at an earlier time. Market risk may affect a single issuer, industry, sector of
the economy or the market as a whole. Common to all stocks and bonds and the
mutual funds that invest in them.
NATURAL EVENT RISK The risk of losses attributable to natural disasters, crop
failures and similar events.
OPPORTUNITY RISK The risk of missing out on an investment opportunity because
the assets necessary to take advantage of it are tied up in other investments.
POLITICAL RISK The risk of losses directly attributable to government or
political actions of any sort. These actions may range from changes in tax or
trade statutes to expropriation, governmental collapse and war.
VALUATION RISK The risk that a fund has valued certain of its securities at a
higher price than it can sell them for.
28 FUND DETAILS
<PAGE>
- --------------------------------------------------------------------------------
HIGHER-RISK SECURITIES AND PRACTICES
- --------------------------------------------------------------------------------
<TABLE>
This table shows each fund's investment limitations
as a percentage of portfolio assets. In each case the
principal types of risk are listed (see previous
page for definitions).
10 Percent of total assets (italic type)
<CAPTION>
10 Percent of net assets (roman type)
* No policy limitation on usage; fund may be
using currently
@ Permitted, but has not typically been used DISCIPLINED EMERGING REGIONAL SPECIAL SPECIAL
- -- Not permitted GROWTH DISCOVERY GROWTH GROWTH BANK EQUITIES OPPORTUNITIES
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
INVESTMENT PRACTICES
BORROWING; REVERSE REPURCHASE AGREEMENTS The
borrowing of money from banks or through
reverse repurchase agreements. Leverage, credit risks. 5 5 33.3 33.3 5 33.3 33.3
REPURCHASE AGREEMENTS The purchase of a security
that must later be sold back to the seller at the
same price plus interest. Credit risk. * * * * * * *
SECURITIES LENDING The lending of securities to
financial institutions, which provide cash or
government securities as collateral. Credit risk. 5 33.3 30 33.3 -- 33.3 33.3
SHORT SALES The selling of securities which have
been borrowed on the expectation that the market
price will drop.
* Hedged. Hedged leverage, market, correlation,
liquidity, opportunity risks. -- @ @ @ -- @ @
* Seculative. Speculative leverage, market,
liquidity risks. -- @ -- @ -- @ @
SHORT-TERM TRADING Selling a security soon after
purchase. A portfolio engaging in short-term
trading will have higher turnover and transaction
expenses. Market risk. * * * * * * *
WHEN-ISSUED SECURITIES AND FORWARD COMMITMENTS
The purchase or sale of securities for delivery
at a future date; market value may change before
delivery. Market, opportunity, leverage risks. * * * * * * *
- -----------------------------------------------------------------------------------------------------------------------------------
CONVENTIONAL SECURITIES
NON-INVESTMENT-GRADE CONVERTIBLE SECURITIES Debt
securities that convert into equity securities at
a future time. Convertibles rated below BBB/Baa are
considered "junk" bonds. Credit, market, interest
rate, liquidity, valuation and information risks. -- -- 10 5 5 -- --
FOREIGN EQUITIES
* Stocks issued by foreign companies. Market,
currency, information, natural event, political risks. -- 25 * 15 @ * *
* American or European depository receipts, which are
dollar-denominated securities typically issued by
American or European banks and are based on ownership
of securities issued by foreign companies. Market,
currency, information, natural event, political risks. 10 25 * 15 @ * *
RESTRICTED AND ILLIQUID SECURITIES Securities not
traded on the open market. May include illiquid Rule
144A securities. Liquidity, market risks. 15 15 10 15 15 15 15
- ------------------------------------------------------------------------------------------------------------------------------------
LEVERAGED DERIVATIVE SECURITIES
FINANCIAL FUTURES AND OPTIONS; SECURITIES AND INDEX
OPTIONS Contracts involving the right or obligation
to deliver or receive assets or money depending on the
performance of one or more assets or an economic index.
* Futures and related options. Interest rate, currency,
market, hedged or speculative leverage, correlation,
liquidity, opportunity risks. * @ * @ @ @ *
* Options on securities and indices. Interest rate,
currency, market, hedged or speculative leverage,
correlation, liquidity, credit, opportunity risks. 5(1) 5(1) 10(1) @ 5(1) @ *
CURRENCY CONTRACTS Contracts involving the right or
obligation to buy or sell a given amount of foreign
currency at a specified price and future date.
* Hedged. Currency, hedged leverage, correlation,
liquidity, opportunity risks. -- * * * @ @ *
* Speculative. Currency, speculative leverage,
liquidity risks. -- -- -- -- @ @ --
(1) Applies to purchased options only.
</TABLE>
FUND DETAILS 29
<PAGE>
<PAGE>
<PAGE>
FOR MORE INFORMATION
- --------------------------------------------------------------------------------
Two documents are available that To request a free copy of the cur-
offer further information on John rent annual/semi-annual report or
Hancock Growth Funds: SAI, please write or call:
ANNUAL/SEMI-ANNUAL John Hancock Investor Services
REPORT TO SHAREHOLDERS Corporation
Includes financial statements, P.O.Box 9116
detailed performance information Boston, MA 02205-9116
portfolio holdings, a statement from Telephone: 1-800-225-5291
portfolio management and the EASI-Line: 1-800-338-8080
auditor's report. TDD: 1-800-544-6713
STATEMENT OF ADDITIONAL
INFORMATION (SAI)
The SAI contains more detailed
information on all aspects of the
funds. The current annual/
semi-annual report is included
in the SAI.
A current SAI has been filed with
the Securities and Exchange
Commission and is incorporated
by reference into this prospectus
(is legally a part of this prospectus).
[John Hancock's graphic logo.
A circle, diamond, triangle and a cube.]
JOHN HANCOCK FUNDS
A GLOBAL INVESTMENT MANAGEMENT FILM
101 Huntington Avenue
Boston, Massachusetts 02199-7603
[Copyright] John Hancock Funds, Inc.
GROPN 7/96
[John Hancock script logo]
<PAGE>
JOHN HANCOCK SPECIAL EQUITIES FUND
CLASS A, CLASS B and CLASS C SHARES
Statement of Additional Information
July 1, 1996
This Statement of Additional Information provides information about John
Hancock Special Equities Fund (the "Fund") in addition to the information that
is contained in the combined Growth Funds' Prospectus for Class A and Class B
Shares dated July 1, 1996 and the Fund's Class C Shares Prospectus dated March
1, 1996 (together, the "Prospectuses").
This Statement of Additional Information is not a prospectus. It should be
read in conjunction with the Prospectuses, copies of which can be obtained free
of charge by writing or telephoning:
John Hancock Investor Services Corporation
P.O. Box 9116
Boston, Massachusetts 02205-9116
1-800-225-5291
TABLE OF CONTENTS
Page
Organization of the Fund 2
Investment Objective and Policies 2
Investment Restrictions 9
Those Responsible for Management 13
Investment Advisory and Other Services 20
Distribution Contract 22
Net Asset Value 24
Initial Sales Charge on Class A Shares 25
Deferred Sales Charge on Class B Shares 27
Special Redemptions 30
Additional Services and Programs 31
Description of the Fund's Shares 32
Tax Status 33
Calculation of Performance 38
Brokerage Allocation 40
Transfer Agent Services 41
Custody of Portfolio 41
Independent Auditors 42
Financial Statements 42
<PAGE>
ORGANIZATION OF THE FUND
John Hancock Special Equities Fund (the "Fund") is a diversified open-end
management investment company organized as a Massachusetts business trust under
the laws of The Commonwealth of Massachusetts. The Fund was organized in 1984 by
John Hancock Advisers, Inc. (the "Adviser"). The Adviser is an indirect
wholly-owned subsidiary of John Hancock Mutual Life Insurance Company (the "Life
Company"), a Massachusetts life insurance company chartered in 1862, with
national headquarters at John Hancock Place, Boston, Massachusetts. On March 1,
1991, the Fund changed its name from "John Hancock Special Equities Trust."
INVESTMENT OBJECTIVE AND POLICIES
The Fund's investment objective is to seek long-term capital appreciation.
The Fund seeks its objective by investing in a diversified portfolio of equity
securities consisting primarily of emerging growth companies and of companies in
"special situations," collectively referred to as "Special Equities." There is
no assurance that the Fund will achieve its investment objective. Although the
Fund may receive current income from dividends, interest and other sources,
income is an incidental consideration to seeking capital growth.
The Fund will invest at least 65% of its total assets in Special Equities.
The balance of the Fund's portfolio may be invested in:
- equity securities of established companies believed by the Adviser to
offer growth potential.
- cash or short-term investment grade securities. If in the opinion of the
Adviser, prevailing economic or market conditions require a temporary defensive
posture, the Fund may invest more than 35% of its total assets in cash and these
securities.
Special Equities, particularly equity securities of emerging growth
companies, may have limited marketability due to thin markets in which the
volume of trading for such securities is low or due to the fact that there are
only a few market makers for such securities. Such limited marketability may
make it difficult for the Fund to dispose of a large block of such securities.
To satisfy redemption requests or other needs for cash, the Fund may have to
sell these securities prematurely or at a discount from market prices or to make
many small and more costly sales over a lengthy period of time. Investments by
the Fund may be in existing as well as new issues of securities and may be
subject to wide fluctuations in market value. The Fund will not concentrate its
investments in any particular industry.
The Fund anticipates that its investments generally will be in securities
of companies which it considers to reflect the following characteristics:
- Share prices which do not appear to take into account adequately the
underlying value of the company's assets or which appear to reflect substantial
undervaluation due to factors such as prospective reversal of an unfavorable
industry trend, lack of investor recognition or disappointing earnings believed
to be temporary in comparison with previous earnings trends;
- Growth potential due to technological advances or discoveries, new
methods in marketing or production, the offering of new or unique products or
services, changes in demand for products or services or other significant new
developments; or
- Existing, contemplated or possible changes in management or management
policies, corporate structure or control, capitalization or the existence or
2
<PAGE>
possibility of some other circumstances which could be expected to have a
favorable impact on earnings or market price of such company's shares.
The Fund is intended to provide an opportunity for investors who are not
ordinarily in a position to perform the specialized type of research or analysis
involved in investing in Special Equities and who may not be able to invest
sufficient assets in such companies to provide wide diversification.
The emerging growth companies whose securities are selected for the Fund's
portfolio will generally have annual gross sales of greater than $100 million,
although companies with smaller sales which, in the opinion of the Adviser, have
significant growth potential may also be selected. Thus, there is no requirement
that a company have annual sales of a pre-selected minimum amount before the
Fund will invest in its securities. In many cases, a company may not yet be
profitable when the Fund invests in its securities.
The Fund seeks emerging growth companies that either occupy a dominant
position in an emerging industry or have a significant and growing market share
in a large, fragmented industry. The Fund seeks to invest in those companies
with potential for high growth, stable earnings, ability to self-finance, a
position of industry leadership, and strong, visionary management. The Adviser
believes that, while these companies present above-average risks, properly
selected emerging growth companies have the potential to increase their earnings
at rates substantially in excess of the growth of earnings of other companies.
This increase in earnings is likely to enhance the value of an emerging growth
company's equity securities.
The Fund may invest in equity securities of companies in special situations
that the Adviser believes present opportunities for capital growth. A company is
in a "special situation" when an unusual and possibly non-repetitive development
is anticipated or is taking place. Since every special situation involves, to
some extent, a break with past experience, the uncertainties in the appraisal of
the future value of the company's equity securities and risk of possible decline
in value of the Fund's investment are significant.
The Fund may effect portfolio transactions without regard to holding
periods, if the Adviser judges these transactions to be advisable in light of a
change in circumstances of a particular company or within a particular industry
or in general market, economic or financial conditions. The Fund does not
generally consider the length of time it has held a particular security in
making its investment decisions. Portfolio turnover rates of the Fund for recent
years are shown in the Prospectuses under "Financial Highlights."
The Fund is not intended as a complete investment program. The Fund's
shares are suitable for investment by persons who can invest without concern for
current income, who are in a financial position to assume above-average
investment risk, and who are prepared to experience above-average fluctuations
in net asset value over the intermediate and long term. Emerging growth
companies and companies in special situations will usually not pay dividends.
Generally, emerging growth companies will have high price/earnings ratios
in relation to the market. A high price/earnings ratio generally indicates that
the market value of a security is especially sensitive to developments that
could affect the company's potential for future earnings. These companies may
have limited product lines, market or financial resources, or they may be
dependent upon a limited management group. Emerging growth companies may have
operating histories of fewer than three years.
Full development of the potential of emerging growth companies frequently
takes time. For this reason, the Fund should be considered a long-term
investment and not a vehicle for seeking short-term profits and income.
3
<PAGE>
The securities in which the Fund invests will often be traded in the
over-the-counter market or on a regional securities exchange and may not be
traded every day or in the volume typical of trading on a national securities
exchange. They may be subject to wide fluctuations in market value. The trading
market for any given security may be sufficiently thin as to make it difficult
for the Fund to dispose of a substantial block of such securities. The
disposition by the Fund of portfolio securities to meet redemptions or otherwise
may require the Fund to sell these securities at a discount from market prices
or during periods when, in the Adviser's judgment, such disposition is not
desirable or to make many small sales over a lengthy period of time.
There may be additional risks inherent in the Fund's investment objective
and policies. For example, if the Fund were to assume substantial positions in
particular securities with limited trading markets, such positions could have an
adverse effect upon the liquidity and marketability of such securities and the
Fund may not be able to dispose of its holdings in these securities at then
current market prices. Circumstances could also exist (to satisfy redemption
requests, for example) when portfolio securities could have to be sold by the
Fund at times which otherwise would be considered disadvantageous so that the
Fund would receive lower proceeds from such sales than it might otherwise have
expected to realize. Investment in securities which are "restricted" in the
hands of the Fund (see the discussion below under the caption "Investment
Restrictions") could involve added expense to the Fund should the Fund be
required to bear registration costs and could involve delays in disposing of
such securities. Such delays could have an adverse effect upon the price and
timing of sales of such securities and the liquidity of the Fund with respect to
redemptions.
Debt Securities and Money Market Instruments. The Fund may purchase or sell debt
securities (including U.S. corporate bonds and notes, and obligations issued or
guaranteed by the U.S. or foreign governments or their agencies or
instrumentalities) and money market instruments (including short-term debt
obligations payable in U.S. dollars issued by certain banks, savings and loan
associations and corporations) without regard to the length of time the security
has been held to take advantage of short-term differentials in yields. The Fund
will only purchase securities meeting the requirements, including rating
qualifications, stated in the Prospectuses. See the discussion under "Ratings"
below. General changes in prevailing interest rates will affect the value of the
debt securities and money market instruments held by the Fund, the value of
which will vary inversely to the changes in such rates. For example, if interest
rates rise after a security is purchased, the value of the security would
decline.
Ratings. The Fund's investments in corporate debt must be rated Baa or better by
Moody's Investors Services, Inc. ("Moody's") or BBB or better by Standard &
Poor's Rating Group ("S&P").
Moody's describes its ratings for corporate bonds as follows:
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.
4
<PAGE>
Bonds which are rated A possess many favorable investment attributes and
are to be considered as upper medium grade obligations. Factors giving security
to principal and interest are considered adequate but elements may be present
which suggest a susceptibility to impairment at some time in the future.
Bonds which are rated Baa are considered 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.
S&P describes its ratings for corporate bonds as follows:
AAA. Debt rated "AAA" has the highest rating by S&P. Capacity to pay
interest and repay principal is extremely strong.
AA. Debt rated "AA" has a very strong capacity to pay interest and repay
principal and differs from the higher rated issues only in small degree.
A. Debt rated "A" has a strong capacity to pay interest and repay principal
although it is somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions than debt in higher rated categories.
BBB. Debt rated "BBB" is regarded as having adequate capacity to pay
interest and repay principal. Whereas it normally exhibits adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay interest and repay principal for
debt in this category than in higher rated categories.
Commercial Paper. The Fund may invest in commercial paper which is rated A-1 by
S&P or P-1 by Moody's.
Moody's ratings for commercial paper are opinions of the ability of issuers to
repay punctually promissory obligations not having an original maturity in
excess of nine months. Moody's highest commercial paper rating category is as
follows:
P-1. "Prime-1" indicates the highest quality repayment capacity of the
rated issues.
S&P commercial paper ratings are current assessments of the likelihood of timely
payment of debts having an original maturity of no more than 365 days. S&P's
highest commercial paper rating category is as follows:
A-1. This designation indicates that the degree of safety regarding timely
payment is very strong. Those issues determined to possess overwhelming safety
characteristics will be denoted with a plus (+) sign designation.
Investment in Foreign Securities. The Fund may invest in the securities of
foreign issuers, including securities in the form of sponsored or unsponsored
American Depositary Receipts (ADRs), European Depositary Receipts (EDRs) or
other securities convertible into securities of foreign issuers. ADRs are
receipts typically issued by an American bank or trust company which evidence
ownership of underlying securities issued by a foreign corporation. EDRs are
receipts issued in Europe which evidence a similar ownership arrangement.
Issuers of unsponsored ADRs are not contractually obligated to disclose material
information, including financial information, in the United States. Generally,
ADRs are designed for use in the United States securities markets and EDRs are
designed for use in European securities markets.
5
<PAGE>
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 and other issuers comparable to reports and
ratings that are published about issuers in the United States. Foreign issuers
are also generally not subject to uniform accounting and auditing and financial
reporting standards, practices and requirements comparable to those applicable
to United States issuers. Also, foreign regulation may differ considerably from
domestic regulation of stock exchanges, brokers and securities.
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. Therefore, the Fund's investments
on foreign exchanges may be less liquid and subject to the risk of fluctuating
currency exchange rates pending settlement.
It is contemplated that most foreign securities will be purchased in
over-the-counter markets or on exchanges located in the countries in which the
respective principal offices of the issuers of the various securities are
located, if that is the best available market. Foreign securities markets are
generally not as developed or efficient as those in the United States. While
growing in volume, they usually have substantially less volume than the New York
Stock Exchange, and securities of some foreign issuers are less liquid and more
volatile than securities of comparable United States issuers. 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 such respects as growth of gross national product,
rate of inflation, capital reinvestment, resource self-sufficiency and balance
of payments position.
The dividends and interest payable on certain of the Fund's foreign portfolio
securities, as well as, in some cases, capital gains, 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. A repurchase agreement is a contract under which the Fund
acquires a security for a relatively short period (usually not more than 7 days)
subject to the obligation of the seller to repurchase and the Fund to resell
such security at a fixed time and price (representing the Fund's cost plus
interest). The Fund will enter into repurchase agreements only with member banks
of the Federal Reserve System and with "primary dealers" in U.S. Government
securities. The Adviser will continuously monitor the creditworthiness of the
parties with whom the Fund enters into repurchase agreements.
The Fund has established a procedure providing that the securities serving as
collateral for each repurchase agreement must be delivered to the Fund's
custodian either physically or in book-entry form and that the collateral must
be marked to market daily to ensure that each repurchase agreement is fully
collateralized at all times. In the event of bankruptcy or other default by a
seller of a repurchase agreement, the Fund could experience delays in
liquidating the underlying securities during the period in which the Fund seeks
6
<PAGE>
to enforce its rights thereto, possible subnormal levels of income and lack of
access to income during this period and the expense of enforcing its rights.
Reverse Repurchase Agreements. The Fund may also enter into reverse repurchase
agreements which involve the sale of U.S. Government securities held in its
portfolio to a bank with an agreement that the Fund will buy back the securities
at a fixed future date at a fixed price plus an agreed amount of "interest"
which may be reflected in the repurchase price. Reverse repurchase agreements
are considered to be borrowings by the Fund. Reverse repurchase agreements
involve the risk that the market value of securities purchased by the Fund with
proceeds of the transaction may decline below the repurchase price of the
securities sold by the Fund which it is obligated to repurchase. The Fund will
also continue to be subject to the risk of a decline in the market value of the
securities sold under the agreements because it will reacquire those securities
upon effecting their repurchase. To minimize various risks associated with
reverse repurchase agreements, the Fund will establish and maintain with the
Fund's custodian a separate account consisting of highly liquid, marketable
securities in an amount at least equal to the repurchase prices of the
securities (plus any accrued interest thereon) under such agreements. In
addition, the Fund will not enter into reverse repurchase agreements and other
borrowings exceeding in the aggregate 33 1/3% of the market value of its total
assets. The Fund will enter into reverse repurchase agreements only with
federally insured banks or savings and loan associations which are approved in
advance as being creditworthy by the Board of Trustees. Under procedures
established by the Board of Trustees, the Adviser will monitor the
creditworthiness of the banks involved.
Restricted Securities. The Fund may purchase securities that are not registered
("restricted securities") under the Securities Act of 1933 ("1933 Act"),
including securities offered and sold to "qualified institutional buyers" under
Rule 144A under the 1933 Act. The Fund will not invest more than 10% of its
total assets in restricted securities (excluding securities eligible for resale
pursuant to Rule 144A under the 1933 Act) or more than 15% of its total assets
in restricted securities eligible for resale pursuant to Rule 144A. However, the
Fund will not invest more than 15% of its net assets in illiquid investments,
which include repurchase agreements maturing in more than seven days, securities
that are not readily marketable and restricted securities. However, if the Board
of Trustees determines, based upon a continuing review of the trading markets
for specific Rule 144A securities, that they are liquid, then such securities
may be purchased without regard to the 15% limit. The Trustees may adopt
guidelines and delegate to the Adviser the daily function of determining the
monitoring and liquidity of restricted securities. The Trustees, however, will
retain sufficient oversight and be ultimately responsible for the
determinations. The Trustees will carefully monitor the Fund's investments in
these securities, focusing on such important factors, among others, as
valuation, liquidity and availability of information. This investment practice
could have the effect of increasing the level of illiquidity in the Fund if
qualified institutional buyers become for a time uninterested in purchasing
these restricted securities.
The Fund may acquire other restricted securities including securities for which
market quotations are not readily available. These securities may be sold only
in privately negotiated transactions or in public offerings with respect to
which a registration statement is in effect under the Securities Act of 1933.
Where registration is required, the Fund may be obligated to pay all or part of
the registration expenses and a considerable period may elapse between the time
of the decision to sell and the time the Fund may be permitted to sell a
security under an effective registration statement. If, during such a period,
adverse market conditions were to develop, the Fund might obtain a less
favorable price than prevailed when it decided to sell. Restricted securities
will be priced at fair market value as determined in good faith by the Fund's
Trustees. If through the appreciation of restricted securities or the
depreciation of unrestricted securities, the Fund should be in a position where
more than 15% of the value of its assets is invested in illiquid securities
7
<PAGE>
(including repurchase agreements which mature in more than seven days and
options which are traded over-the-counter and their underlying securities), the
Fund will bring its holdings of illiquid securities below the 15% limitation.
Forward Commitment and When-Issued Securities. The Fund may purchase securities
on a when-issued or forward commitment basis. "When-issued" refers to securities
whose terms are available and for which a market exists, but which have not been
issued. The Fund will engage in when-issued transactions with respect to
securities purchased for its portfolio in order to obtain what is considered to
be an advantageous price and yield at the time of the transaction. For
when-issued transactions, no payment is made until delivery is due, often a
month or more after the purchase. In a forward commitment transaction, the Fund
contracts to purchase securities for a fixed price at a future date beyond
customary settlement time.
When the Fund engages in forward commitment and when-issued transactions, it
relies on the seller to consummate the transaction. The failure of the issuer or
seller to consummate the transaction may result in the Fund's losing the
opportunity to obtain a price and yield considered to be advantageous. The
purchase of securities on a when-issued or forward commitment basis also
involves a risk of loss if the value of the security to be purchased declines
prior to the settlement date.
On the date the Fund enters into an agreement to purchase securities on a
when-issued or forward commitment basis, the Fund will segregate in a separate
account cash or liquid, high grade debt securities equal in value to the Fund's
commitment. These assets will be valued daily at market, and additional cash or
securities will be segregated in a separate account to the extent that the total
value of the assets in the account declines below the amount of the when-issued
commitments. Alternatively, 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 corresponding higher
transaction expenses and may make it more difficult for a fund to qualify as a
regulated investment company for federal income tax purposes.
The Fund's rate of portfolio turnover cannot be predicted with assurance and may
vary from year to year. Future turnover rates will be governed by the
availability of investment opportunities, the desirability of continuing to hold
a portfolio security and cash requirements for redemptions of Fund shares. The
Fund's portfolio turnover rates for the years ended October 31, 1995 and 1994
were 82% and 66%, respectively.
Lending of Securities. The Fund may lend portfolio securities to brokers,
dealers, and financial institutions if the loan is collateralized by cash or
U.S. Government securities according to applicable regulatory requirements. The
Fund may reinvest any cash collateral in short-term securities. 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.
8
<PAGE>
INVESTMENT RESTRICTIONS
Fundamental Investment Restrictions. The following investment restrictions will
not be changed without approval of a majority of the Fund's outstanding voting
securities which, as used in the Prospectuses and this Statement of Additional
Information, means approval by the lesser of (1) 67% or more of the Fund's
shares represented at a meeting if at least 50% of Fund's outstanding shares are
present in person or by proxy at the meeting or (2) more than 50% of the Fund's
outstanding shares.
The Fund observes the following fundamental restrictions:
The Fund may not:
(1) Issue senior securities, except as permitted by paragraphs (2), (6) and
(7) below. For purposes of this restriction, the issuance of shares of
beneficial interest in multiple classes or series, the purchase or sale of
options, futures contracts and options on futures contracts, and forward
foreign exchange contracts, forward commitments and repurchase agreements
entered into in accordance with the Fund's investment policy, and the
pledge, mortgage or hypothecation of the Fund's assets within the meaning
of paragraph (3) below, are not deemed to be senior securities.
(2) Borrow money, except from banks as a temporary measure for
extraordinary emergency purposes in amounts not to exceed 33 1/3% of the
Fund's total assets (including the amount borrowed) taken at market value.
The Fund will not use leverage to attempt to increase income. The Fund will
not purchase securities while outstanding borrowings exceed 5% of the
Fund's total assets.
(3) Pledge, mortgage or hypothecate its assets, except to secure
indebtedness permitted by paragraph (2) above and then only if such
pledging, mortgaging or hypothecating does not exceed 33 1/3% of the Fund's
total assets taken at market value.
(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 Securities Act of 1933.
(5) Purchase or sell real estate or any interest therein, except that the
Fund may invest in securities of corporate or governmental entities secured
by real estate or marketable interests therein or securities issued by
companies that invest in real estate or interests therein.
(6) Make loans, except that the Fund may lend portfolio securities in
accordance with the Fund's investment policies. The Fund does not, for this
purpose, consider repurchase agreements, the purchase of all or a portion
of an issue of publicly distributed bonds, bank loan participation
agreements, bank certificates of deposit, bankers' acceptances, debentures
or other securities, whether or not the purchase is made upon the original
issuance of the securities, to be the making of a loan.
(7) Invest in commodities or in commodity contracts or in puts, calls, or
combinations of both, except options on securities and securities indices,
futures contracts on securities and securities indices and options on such
futures, forward foreign exchange contracts, forward commitments,
securities index put or call warrants and repurchase agreements entered
into in accordance with the Fund's investment policies.
9
<PAGE>
(8) Purchase the securities of issuers conducting their principal business
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 each investment. This
limitation does not apply to investments in obligations of the U.S.
Government or any of its agencies or instrumentalities.
(9) Purchase securities of an issuer (other than the U.S. Government, its
agencies or instrumentalities), if
(i) 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
(ii) such purchase would at the time result in more than 10% of the
outstanding voting securities of such issuer being held by the Fund.
In connection with the lending of portfolio securities under item (6)
above, such loans must at all times be fully collateralized and the Fund's
custodian must take possession of the collateral either physically or in book
entry form. Securities used as collateral must be marked to market daily.
Non-Fundamental Investment Restrictions. The following restrictions are
designated as nonfundamental and may be changed by the Board of Trustees without
shareholder approval.
The Fund may not:
(a) Participate on a joint or 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.
(b) Purchase securities on margin or make short sales, except in connection
with arbitrage transactions, 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 that the Fund may obtain such
short-term credits as may be necessary for the clearance of purchases and
sales of securities and in connection with transactions involving forward
foreign currency exchange contracts.
(c) Knowingly purchase or retain securities of an issuer if one or more of
the Trustees or officers of the Fund or directors or officers of the
Adviser or any investment management subsidiary of the Adviser individually
owns beneficially more than 0.5%, and together own beneficially more than
5%, of the securities of such issuer.
(d) Purchase a security if, as a result, (i) more than 10% of the Fund's
assets would be invested in securities of other investment companies, (ii)
such purchase would result in more than 3% of the total outstanding voting
securities of any one such investment company being held by the Fund, or
(iii) more than 5% of the Fund's assets would be invested in any one such
investment company.
(e) Purchase securities of any issuer which, together with any predecessor,
has a record of less than three years' continuous operations prior to the
purchase if such purchase would cause investments of the Fund in all such
issuers to exceed 5% of the value of the total assets of the Fund.
10
<PAGE>
(f) Invest for the purpose of exercising control over or management of any
company.
(g) Purchase warrants of any issuer, if, as a result of such purchases,
more than 2% of the value of the Fund's total assets would be invested in
warrants which are not listed on the New York Stock Exchange or the
American Stock Exchange or more than 5% of the value of the total assets of
the Fund would be invested in warrants generally, whether or not so listed.
For these purposes, warrants are to be valued at the lesser of cost or
market, but warrants acquired by the Fund in units with or attached to debt
securities shall be deemed to be without value.
(h) Purchase interests in oil, gas or other mineral leases or exploration
programs; however, this policy will not prohibit the acquisition of
securities of companies engaged in the production or transmission of oil,
gas, or other minerals.
(i) Invest more than (1) 10% of its total assets in securities which are
restricted under the Securities Act of 1933 (the "1933 Act") (excluding
securities eligible for resale pursuant to Rule 144A under the 1933 Act) or
(2) 15% of its total assets in such restricted securities (including
securities eligible for resale pursuant to Rule 144A).
(j) Purchase interests in real estate limited partnerships.
(k) Purchase any security, including any repurchase agreement maturing in
more than seven days, which is not readily marketable, if more than 15% of
the net assets of the Fund, taken at market value, would be invested in
such securities. (The staff of the Securities and Exchange Commission
considers over-the-counter options to be illiquid securities subject to the
15% limit.)
(l) The Fund may not purchase securities of any open-end investment company
except when such purchase is part of a plan of merger, consolidation,
reorganization or purchase of substantially all of the assets of any other
investment company.
(m) Notwithstanding any investment restriction to the contrary, the Fund
may, in connection with the John Hancock Group of Funds Deferred
Compensation Plan for Independent Trustees/Directors, purchase securities
of other investment companies within the John Hancock Group of Funds
provided that, as a result, (i) no more than 10% of the Fund's assets would
be invested in securities of all other investment companies, (ii) such
purchase would not result in more than 3% of the total outstanding voting
securities of any one such investment company being held by the Fund and
(iii) no more than 5% of the Fund's assets would be invested in any one
such investment company.
In order to permit the sale of shares of the Fund in certain states, the
Trustees may, in their sole discretion, adopt restrictions or investment
policies more restrictive than those described above. Should the Trustees
determine that any such more restrictive policy is no longer in the best
interests of the Fund and its shareholders, the Fund may cease offering shares
in the state involved and the Trustees may revoke such restrictive policy.
Moreover, if the states involved no longer require any such restrictive policy,
the Trustees may, at their sole discretion, revoke such policy. The Fund has
agreed with a state securities administrator that it will not purchase
securities of any open-end investment company except when such purchase is part
of a plan of merger, consolidation, reorganization or purchase of substantially
all of the assets of any other investment company.
11
<PAGE>
If a percentage restriction on investment or utilization of assets as set
forth above is adhered to at the time an investment is made, a later change in
percentage resulting from changes in the values or the total costs of the Fund's
assets will not be considered a violation of the restriction.
12
<PAGE>
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").
The following table sets forth the principal occupations of the
Trustees and principal officers of the Trust during the past five years. Unless
otherwise indicated, the business address of each is 101 Huntington Avenue,
Boston, Massachusetts 02199.
<TABLE>
<CAPTION>
Name, Address Position(s) Held Principal Occupation(s)
and Date of Birth With Registrant During Past 5 Years
- ----------------- --------------- -------------------
<S> <C> <C>
*Edward J. Boudreau, Jr. Chairman (1,2) Chairman and Chief Executive
October 1944 Officer, the Adviser and The
Berkeley Financial Group ("The
Berkeley Group"); Chairman, NM
Capital Management, Inc. ("NM
Capital"); John Hancock Advisers
International Limited ("Advisers
International"); John Hancock
Funds; John Hancock Investor
Services Corporation ("Investor
Services") and Sovereign Asset
Management Corporation ("SAMCorp");
(hereinafter the Adviser, the
Berkeley Group, NM Capital,
Advisers International, John
Hancock Funds, Investor Services
and SAMCorp are collectively
referred to as the "Affiliated
Companies"); Chairman, First
Signature Bank & Trust; Director,
John Hancock Freedom Securities
Corp., John Hancock Capital Corp.
and New England/Canada Business
Council; Member, Investment
- ----------------------------
* An "interested person" of the Trust, as such term is defined in the
Investment Company Act of 1940.
(1) Member of the Executive Committee. The Executive Committee may generally
exercise most of the powers of the Board of Trustees.
(2) A Member of the Investment Committee of the Adviser.
(3) Member of the Audit Committee and the Administration Committee.
13
<PAGE>
Name, Address Position(s) Held Principal Occupation(s)
and Date of Birth With Registrant During Past 5 Years
- ----------------- --------------- -------------------
Company Institute Board of
Governors; Director, Asia Strategic
Growth Fund, Inc.; Trustee, Museum
of Science; President, the Advisor
(until July 1992); Chairman, John
Hancock Distributors, Inc.
("Distributors") until April 1994.
Dennis S. Aronowitz Trustee (3) Professor of Law, Boston University
Boston University School of Law; Trustee, Brookline
Boston, Massachusetts Savings Bank.
June 1931
Richard P. Chapman, Jr. Trustee (1,3) President, Brookline Savings Bank;
160 Washington Street Director, Federal Home Loan Bank of
Brookline, Massachusetts Boston (lending); Director, Lumber
February 1935 Insurance Companies (fire and
casualty insurance); Trustee,
Northeastern University
(education); Director, Depositors
Insurance Fund, Inc. (insurance).
William J. Cosgrove Trustee (3) Vice President, Senior Banker and
20 Buttonwood Place Senior Credit Officer, Citibank,
Saddle River, New Jersey N.A. (retired September 1991);
January 1933 Executive Vice President, Citadel
Group Representatives, Inc., EVP
Resource Evaluation, Inc.
(consulting) (until October 1993);
Trustee, the Hudson City Savings
Bank (since 1995).
Douglas M. Costle Trustee (1,3) Director, Chairman of the Board and
RR2 Box 480 Distinguished Senior Fellow,
Woodstock, Vermont 05091 Institute for Sustainable
July 1939 Communities, Montpelier, Vermont
(since 1991); Dean, Vermont Law
- ----------------------------
* An "interested person" of the Trust, as such term is defined in the
Investment Company Act of 1940.
(1) Member of the Executive Committee. The Executive Committee may generally
exercise most of the powers of the Board of Trustees.
(2) A Member of the Investment Committee of the Adviser.
(3) Member of the Audit Committee and the Administration Committee.
14
<PAGE>
Name, Address Position(s) Held Principal Occupation(s)
and Date of Birth With Registrant During Past 5 Years
- ----------------- --------------- -------------------
School (until 1991); Director, Air
and Water Technologies Corporation
(environmental services and
equipment), Niagara Mohawk Power
Company (electric services) and
Mitretek Systems (governmental
consulting services).
Leland O. Erdahl Trustee (3) Director of Santa Fe Ingredients
9449 Navy Blue Court Company of California, Inc. and
Las Vegas, NV 89117 Santa Fe Ingredients Company, Inc.
December 1928 (private food processing
companies); Director of Uranium
Resources, Inc.; President of
Stolar, Inc. (from 1987-1991) and
President of Albuquerque Uranium
Corporation (from 1985-1992);
Director of Freeport-McMoRan Copper
& Gold Company Inc., Hecla Mining
Company, Canyon Resources
Corporation and Original Sixteen to
One Mine, Inc. (from 1984-1987 and
from 1991 to 1995) (management
consultant).
Richard A. Farrell Trustee (3) President of Farrell, Healer & Co.,
Farrell, Healer & Company, Inc. (venture capital management firm)
160 Federal Street (since 1980); Prior to 1980, headed
23rd Floor the venture capital group at Bank
Boston, MA 02110 of Boston Corporation.
November 1932
Gail D. Fosler Trustee (3) Vice President and Chief Economist,
4104 Woodbine Street The Conference Board (non-profit
Chevy Chase, MD economic and business research).
December 1947
- ----------------------------
* An "interested person" of the Trust, as such term is defined in the
Investment Company Act of 1940.
(1) Member of the Executive Committee. The Executive Committee may generally
exercise most of the powers of the Board of Trustees.
(2) A Member of the Investment Committee of the Adviser.
(3) Member of the Audit Committee and the Administration Committee.
15
<PAGE>
Name, Address Position(s) Held Principal Occupation(s)
and Date of Birth With Registrant During Past 5 Years
- ----------------- --------------- -------------------
William F. Glavin Trustee (3) President, Babson College; Vice
Babson College Chairman, Xerox Corporation (until
Horn Library June 1989); Director, Caldor Inc.,
Babson Park, MA 02157 Reebok, Ltd. (since 1994), and Inco
March 1931 Ltd.
*Anne C. Hodsdon Trustee and President (1,2) President and Chief Operating
April 1953 Officer, the Adviser; Executive
Vice President, The Adviser (until
December 1994); Senior Vice
President; the Adviser (until
December 1993); Vice President, the
Adviser (until 1991).
Dr. John A. Moore Trustee (3) President and Chief Executive
Institute for Evaluating Officer, Institute for Evaluating
Health Risks Health Risks, (nonprofit
1101 Vermont Avenue N.W. institution) (since September
Suite 608 1989).
Washington, DC 20005
February 1939
Patti McGill Peterson Trustee (3) President, St. Lawrence University;
St. Lawrence University Director, Niagara Mohawk Power
110 Vilas Hall Corporation (electric utility) and
Canton, NY 13617 Security Mutual Life (insurance).
May 1943
John W. Pratt Trustee (3) Professor of Business
2 Gray Gardens East Administration at Harvard
Cambridge, MA 02138 University Graduate School of
September 1931 Business Administration (since
1961).
*Richard S. Scipione Trustee (1) General Counsel, the Life Company;
John Hancock Place Director, the Adviser, the
P.O. Box 111 Affiliated Companies, John Hancock
Boston, Massachusetts Distributors, Inc., JH Networking
August 1937 Insurance Agency, Inc., John
Hancock Subsidiaries, Inc., John
Hancock Property and Casualty
Insurance and its affiliates (until
November, 1993).
- ----------------------------
* An "interested person" of the Trust, as such term is defined in the
Investment Company Act of 1940.
(1) Member of the Executive Committee. The Executive Committee may generally
exercise most of the powers of the Board of Trustees.
(2) A Member of the Investment Committee of the Adviser.
(3) Member of the Audit Committee and the Administration Committee.
16
<PAGE>
Name, Address Position(s) Held Principal Occupation(s)
and Date of Birth With Registrant During Past 5 Years
- ----------------- --------------- -------------------
Edward J. Spellman, CPA Trustee (3) Partner, KPMG Peat Marwick LLP
259C Commercial Bld. (retired June 1990).
Fort Lauderdale, FL
November 1932
*Robert G. Freedman Vice Chairman and Chief Vice Chairman and Chief Investment
July 1938 Investment Officer (2) Officer, the Adviser; President,
the Adviser (until December 1994);
Director, the Adviser, Advisers
International, John Hancock Funds,
Investor Services, SAMCorp., and NM
Capital; Senior Vice President, The
Berkeley Group.
*James B. Little Senior Vice President, Senior Vice President, the Adviser,
February 1935 Chief Financial Officer The Berkeley Group, John Hancock
Funds and Investor Services; Senior
Vice President and Chief Financial
Officer, each of the John Hancock
funds.
*John A. Morin Vice President Vice President and Secretary, the
July 1950 Adviser; Vice President, Investor
Services, John Hancock Funds and
each of the John Hancock funds;
Compliance Officer, certain John
Hancock funds; Counsel, the Life
Company; Vice President and
Assistant Secretary, The Berkeley
Group.
- ----------------------------
* An "interested person" of the Trust, as such term is defined in the
Investment Company Act of 1940.
(1) Member of the Executive Committee. The Executive Committee may generally
exercise most of the powers of the Board of Trustees.
(2) A Member of the Investment Committee of the Adviser.
(3) Member of the Audit Committee and the Administration Committee.
17
<PAGE>
Name, Address Position(s) Held Principal Occupation(s)
and Date of Birth With Registrant During Past 5 Years
- ----------------- --------------- -------------------
*Susan S. Newton Vice President, Secretary Vice President and Assistant
March 1950 Secretary, the Adviser; Vice
President and Secretary, certain
John Hancock funds; Vice President
and Secretary, John Hancock Funds,
Investor Services and John Hancock
Distributors, Inc. (until 1994);
Secretary, SAMCorp; Vice President,
The Berkeley Group.
*James J. Stokowski Vice President and Treasurer Vice President, the Adviser; Vice
November 1946 President and Treasurer, each of
the John Hancock funds.
</TABLE>
All of the officers listed are officers or employees of the Adviser or the
Affiliated Companies. Some of the Trustees and officers may also be officers
and/or directors and/or trustees of one or more other funds for which the
Adviser serves as investment adviser.
The following table provides information regarding the compensation paid by
the Fund during its most recently completed fiscal year and the other investment
companies in the John Hancock Fund Complex to the Independent Trustees for their
services. Trustees not listed below were not Trustees of the Fund during its
most recently completed fiscal year. The three non-Independent Trustees, Messrs.
Boudreau and Scipione and Ms. Hodsdon, and each of the officers of the Fund are
interested persons of the Adviser, are compensated by the Adviser and receive no
compensation from the Fund for their services.
- ----------------------------
* An "interested person" of the Trust, as such term is defined in the
Investment Company Act of 1940.
(1) Member of the Executive Committee. The Executive Committee may generally
exercise most of the powers of the Board of Trustees.
(2) A Member of the Investment Committee of the Adviser.
(3) Member of the Audit Committee and the Administration Committee.
18
<PAGE>
Total Compensation
Aggregate From the Fund and
Compensation John Hancock Fund
Independent Trustees From the Fund(1) Complex to Trustees(2)
- -------------------- ---------------- ----------------------
(Total of 19 Funds)
Dennis S. Aronowitz $ 8,203 $ 61,050
Richard P. Chapman, Jr.+ $ 2,416 $ 62,800
William J. Cosgrove+ $ 2,666 $ 61,050
Gail D. Fosler $ 7,953 $ 60,800
Bayard Henry* $ 7,892 $ 58,850
Edward J. Spellman $ 8,203 $ 61,050
------- --------
$37,333 $365,600
(1) Compensation made for the fiscal year ended October 31, 1995.
(2) The total compensation paid by the John Hancock Fund Complex to the
Independent Trustees is as of the calendar year ended December 31, 1995.
* Mr. Henry retired from his position as Trustee effective April 26, 1996.
+ As of December 31, 1995, the value of the aggregate accrued deferred
compensation amount from all funds in the John Hancock fund complex for Mr.
Chapman was $54,681 and for Mr. Cosgrove was $54,243 under the John Hancock
Deferred Compensation Plan for Independent Trustees.
As of March 31, 1996, the officers and Trustees of the Fund as a group owned
less than 1% of the outstanding shares of the Fund. As of March 31, 1996, the
following shareholders beneficially owned 5% or more of the outstanding shares
of the Fund listed below:
<TABLE>
<CAPTION>
Number of Shares Percentage of Total
Name and Address of Beneficial Outstanding Shares of
of Shareholder Class of Shares Interest Owned the Class of the Fund
- -------------- --------------- -------------- ---------------------
<S> <C> <C> <C>
Merrill Lynch Pierce FenneSmith Inc. Class B 4,099,924 14.25%
Attn: Mutual Fund Operations
4800 Deer Lake Drive East
Jacksonville, FL 32246-6484
John Hancock As Agent for Ttee Argo Systems Class C 513,173 39.53%
Inc. 401K Plan
Attn: Kim Jackman, Tax Account
310 North Mary Avenue
Mailstop 3-1T
Sunnyvale, CA 94066-411
19
<PAGE>
John Hancock Funds, Inc. Class C 365,694 28.25%
FBO Gilbane Building Company
Attn: Institutional Ret Services
c/o Beth Group-5th Floor
101 Huntington Avenue
Boston, MA 02199-7603
UST Inc. Class C 213,745 16.47%
c/o Wachovia Bank of NC
Attn: Teresa Almond
301 Main Street
Winston-Salem, NC 27150-0001
Gas & Co. Class C 156,843 14.39%
c/o Investors Bank & Trust
P.O. Box 1537
Boston, MA 02205
</TABLE>
INVESTMENT ADVISORY AND OTHER SERVICES
The Fund receives its investment advice from the Adviser. Investors should
refer to the Prospectuses and below for a description of certain information
concerning the investment management contract.
Each of the Trustees and principal officers of the Fund who is also an
affiliated person of the Adviser is named above, together with the capacity in
which such person is affiliated with the Fund and the Adviser.
The Fund has entered into an investment management contract with the
Adviser. Under the investment management contract, the Adviser provides the Fund
with (i) a continuous investment program, consistent with the Fund's stated
investment objective and policies and (ii) supervision of all aspects of the
Fund's operations except those delegated to a custodian, transfer agent or other
agent. The Adviser is responsible for the management of the Fund's portfolio
assets.
The Adviser has entered into a subadvisory agreement with DiCarlo, Forbes
and St. Pierre Advisors, LLC (the "Subadviser"). Under the subadvisory
agreement, the Subadviser provides the Fund with advice and recommendations
regarding the Fund's investments. The Subadviser also provides the Fund on a
continuous basis with economic and financial information, as well as other
research and assistance. Under the subadvisory agreement the Subadviser pays all
expenses that it incurs in connection with the performance of its duties under
the agreement. The Adviser, and not the Fund, pays all subadvisory fees. Under
the subadvisory agreement, the Adviser pays the Subadviser a fee at the annual
rate of 0.25% of the average daily net assets of the Fund.
20
<PAGE>
In addition, the Adviser and the Subadviser have entered into a separate
letter agreement (the "Letter Agreement"). The Letter Agreement provides for the
Adviser to receive a 10% equity interest in the Subadviser and for the payment
of compensation to the Subadviser if the subadvisory agreement is terminated
without cause within a five year period. The Letter Agreement also requires Mr.
DiCarlo to provide certain marketing services and contains a noncompetition
clause.
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 to 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.
No person other than the Adviser, the Subadviser and their directors and
employees regularly furnishes advice to the Fund with respect to the
desirability of the Fund's investing in, purchasing or selling securities. The
Adviser may from time to time receive statistical or other similar factual
information and information regarding general economic factors and trends from
the Life Company and its affiliates.
All expenses which are not specifically paid by the Adviser and which are
incurred in the operation of the Fund (including fees of Trustees of the Fund
who are not "interested persons," as such term is defined in the Investment
Company Act, but excluding certain distribution related activities required to
be paid by the Adviser or John Hancock Funds), and the continuous public
offering of the shares of the Fund are borne by the Fund.
As provided by the investment management contract, the Fund pays the
Adviser monthly an investment management fee, which is based on a stated
percentage of the Fund's average of the daily net assets as follows:
Net Asset Value Annual Rate
--------------- -----------
First $250,000,000 0.85%
Amount Over $250,000,000 0.80%
From time to time, the Adviser may reduce its fee or make other
arrangements to limit the Fund's expenses to a specified percentage of average
daily net assets. The Adviser retains the right to re-impose a fee and recover
any other payments to the extent that, at the end of any fiscal year, the Fund's
annual expenses fall below this limit.
On October 31, 1995, the net assets of the Fund were $1,024,290,165. For
the years ended October 31, 1993, 1994 and 1995 the Adviser received a fee of
$1,345,474, $3,458,972 and $5,538,912, respectively. The advisory fee figures
for 1993 and 1994 reflect the different advisory fee schedule that was in effect
before January 1, 1994.
21
<PAGE>
If the total of all ordinary business expenses of the Fund for any fiscal
year exceeds limitations prescribed in any state in which shares of the Fund are
qualified for sale, the fee payable to the Adviser will be reduced to the extent
required by these limitations. At this time, the most restrictive limit on
expenses imposed by a state requires that expenses charged to the Fund in any
fiscal year not exceed 2 1/2% of the first $30,000,000 of the Fund's average net
assets, 2% of the next $70,000,000 of such net assets, and 1 1/2% of the
remaining average net assets. When calculating the above limit, the Fund may
exclude interest, brokerage commissions and extraordinary expenses.
Pursuant to its investment management contract and the subadvisory
agreement, neither the Adviser nor the Subadviser is liable to the Fund or its
shareholders for any error of judgment or mistake of law or for any loss
suffered by the Fund in connection with the matters to which such contract
relates, except a loss resulting from willful misfeasance, bad faith or gross
negligence on the part of the Adviser or Subadviser in the performance of its
duties or from reckless disregard by the Adviser or Subadviser of its
obligations and duties under such contract.
The Adviser, located at 101 Huntington Avenue, Boston, Massachusetts
02199-7603, was organized in 1968 and presently has more than $19 billion in
assets under management in its capacity as investment adviser to the Fund and
the other mutual funds and publicly traded investment companies in the John
Hancock group of funds which have a combined total of over 1,080,000
shareholders. The Adviser is an affiliate of the Life Company, one of the most
recognized and respected financial institutions in the nation. With total assets
under management of more than $80 billion, the Life Company is one of the ten
largest life insurance companies in the United States, and carries high ratings
from S&P and A.M. Best. Founded in 1862, the Life Company has been serving
clients for over 130 years.
Under the investment management contract, the Fund may use the name "John
Hancock" or any name derived from or similar to it only for so long as the
contract or any extension, renewal or amendment thereof remains in effect. If
the contract is no longer in effect, the Fund (to the extent permitted by law)
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 investment management contract, subadvisory agreement and the
distribution contract discussed below, continue in effect from year to year if
approved annually by vote of a majority of the Fund's Trustees who are not
interested persons of one of the parties to the contract, cast in person at a
meeting called for the purpose of voting on such approval, and by either the
Fund's Trustees or the holders of a majority of the Fund's outstanding voting
securities. Each of these contracts automatically terminates upon assignment.
Each contract may be terminated without penalty on 60 days' notice at the option
of either party to the respective contract or by vote of a majority of the
outstanding voting securities of the Fund.
DISTRIBUTION CONTRACT
The Fund has entered into a distribution contract pertaining to each class
of shares with John Hancock Funds. Under the contract, John Hancock Funds is
obligated to use its best efforts to sell shares of each class on behalf of the
Fund. Shares of the Fund are also sold by selected broker-dealers (the "Selling
22
<PAGE>
Brokers") which have entered into selling agency agreements with John Hancock
Funds. John Hancock Funds accepts orders for the purchase of the shares of the
Fund which are continually offered at net asset value next determined, plus any
applicable sales charge. In connection with the sale of Class A or Class B
shares, John Hancock Funds and Selling Brokers receive compensation in the form
of a sales charge imposed, in the case of Class A shares, at the time of sale
or, in the case of Class B shares, on a deferred basis. The sales charges are
discussed further in the Class A and Class B Prospectus.
The Fund's Trustees adopted Distribution Plans with respect to Class A and
Class B shares (the "Plans"), pursuant to Rule 12b-1 under the Investment
Company Act. Under the Plans, the Fund will pay distribution and service fees at
an aggregate annual rate of up to 0.30% and 1.00% respectively, of the Fund's
daily net assets attributable to shares of that class. However, the service fee
will not exceed 0.25% of the Fund's daily net assets attributable to each class
of shares. The distribution fees will be used to reimburse the Distributor for
its distribution expenses, including but not limited to: (i) initial and ongoing
sales compensation to Selling Brokers and others (including affiliates of the
Distributor) engaged in the sale of Fund shares; (ii) marketing, promotional and
overhead expenses incurred in connection with the distribution of Fund shares;
and (iii) with respect to Class B shares only, interest expenses on unreimbursed
distribution expenses. The service fees will be used to compensate Selling
Brokers for providing personal and account maintenance services to shareholders.
In the event that John Hancock Funds is not fully reimbursed for expenses
incurred by it under the Class B Plan in any fiscal year, John Hancock Funds may
carry these expenses forward, provided, however, that the Trustees may terminate
the Class B Plan and thus the Fund's obligation to make further payments at any
time. Accordingly, the Fund does not treat unreimbursed expenses relating to the
Class B shares as a liability of the Fund. The Plans were approved by a majority
of the voting securities of the applicable class of the Fund. The Plans and all
amendments were approved by a majority of the Trustees, including a majority of
the Trustees who are not interested persons of the Fund and who have no direct
or indirect financial interest in the operation of the Plans (the "Independent
Trustees"), by votes cast in person at meetings called for the purpose of voting
on these Plans.
Pursuant to the Plans, at least quarterly, John Hancock Funds provides the
Fund with a written report of the amounts expended under the Plans and the
purpose for which such expenditures were made. The Trustees review such reports
on a quarterly basis.
During the fiscal year ended October 31, 1995 the Funds paid John Hancock
Funds the following amounts of expenses with respect to the Class A and Class B
shares of the Fund:
<TABLE>
<CAPTION>
Expense Items
Printing and
Mailing of Interest
Prospectus to Compensation Expenses of Carrying or
New to Selling John Hancock Other Finance
Special Equities Advertising Shareholders Brokers Funds Charges
- ---------------- ----------- ------------ ------- ----- -------
<S> <C> <C> <C> <C> <C>
Class A shares $206,381 $14,418 $300,871 $ 642,239 $ 0
Class B shares $377,219 $26,575 $809,487 $ 1,122,932 $456,388
</TABLE>
23
<PAGE>
Each of the Plans provides that it will continue in effect only as long as
its continuance is approved at least annually by a majority of both the Trustees
and the Independent Trustees. Each of the Plans provides that it may be
terminated without penalty (a) by vote of a majority of the Independent
Trustees, (b) by a vote of a majority of the Fund's outstanding shares of the
applicable class upon 60 days' written notice to John Hancock Funds and (c)
automatically in the event of assignment. Each of the Plans further provides
that it may not be amended to increase the maximum amount of the fees for the
services described therein without the approval of a majority of the outstanding
shares of the class of the Fund which has voting rights with respect to the
Plan. And finally, each of the Plans provides that no material amendment to the
Plan will, in any event, be effective unless it is approved by a majority vote
of both the Trustees and the Independent Trustees of the Fund. The holders of
Class A and Class B shares have exclusive voting rights with respect to the Plan
applicable to their respective class of shares. In adopting the Plans, the
Trustees concluded that, in their judgment, there is a reasonable likelihood
that each of the Plans will benefit the holders of the applicable class of
shares of the Fund.
Class C shares of the Fund are not subject to any distribution plan.
Expenses associated with the obligation of John Hancock Funds to use its best
efforts to sell Class C shares will be paid by the Adviser or by John Hancock
Funds and will not be paid from the fees paid under Class A or Class B Plans.
When the Fund seeks an Independent Trustee to fill a vacancy or as a
nominee for election by shareholders, the selection or nomination of the
Independent Trustee is, under resolutions adopted by the Trustees
contemporaneously with their adoption of the Plans, committed to the discretion
of the Committee on Administration of the Trustees. The members of the Committee
on Administration are all Independent Trustees and are identified in this
Statement of Additional Information under the caption "Those Responsible for
Management."
NET ASSET VALUE
For purposes of calculating the net asset value ("NAV") of the Fund's
shares, the following procedures are utilized wherever applicable.
Debt 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 last
available bid price.
Short-term debt investments which have a remaining maturity of 60 days or
less are generally valued at amortized cost which approximates market value. If
market quotations are not readily available or if in the opinion of the Adviser
any quotation or price is not representative of true market value, the fair
value of the security may be determined in good faith in accordance with
procedures approved by the Trustees.
24
<PAGE>
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.
The Fund will not price its securities on the following national holidays: New
Year's Day; Presidents' Day; Good Friday; Memorial Day; Independence Day; Labor
Day; Thanksgiving Day; and Christmas Day. On any day an international market is
closed and the New York Stock Exchange is open, any foreign securities will be
valued at the prior day's close with the current day's exchange rate. Trading of
foreign securities may take place on Saturdays and U.S. business holidays on
which the Fund's NAV is not calculated. Consequently, the Fund's portfolio
securities may trade and the NAV of the Fund's redeemable securities may be
significantly affected on days when a shareholder has no access to the Fund.
INITIAL SALES CHARGE ON CLASS A SHARES
Class A shares of the Fund are offered at a price equal to their net asset
value plus a sales charge which, at the option of the purchaser, may be imposed
either at the time of purchase (the "initial sales charge alternative") or on a
contingent deferred basis (the "deferred sales charge alternative"). Share
certificates will not be issued unless requested by the shareholder in writing,
and then they will only be issued for full shares. The Trustees reserve the
right to change or waive the Fund's minimum investment requirements and to
reject any order to purchase shares (including purchase by exchange) when in the
judgment of the Adviser such rejection is in the Fund's best interest.
The sales charges applicable to purchases of Class A shares of the Fund are
described in the Class A and Class B Prospectus. Methods of obtaining reduced
sales charges referred to generally in the Class A and Class B Prospectus are
described in detail below. In calculating the sales charge applicable to current
purchases of Class A shares of the Fund, the investor is entitled to cumulate
current purchases with the greater of the current value (at offering price) of
the Class A shares of the Fund owned by the investor or, if Investor Services is
notified by the investor's dealer or the investor at the time of the purchase,
the cost of the Class A shares owned.
Combined Purchases. In calculating the sales charge applicable to purchases of
Class A shares made at one time, the purchases will be combined if made by (a)
an individual, his or her spouse and their children under the age of 21
purchasing securities for his or their own account, (b) a trustee or other
fiduciary purchasing for a single trust, estate or fiduciary account and (c)
certain groups of four or more individuals making use of salary deductions or
similar group methods of payment whose funds are combined for the purchase of
mutual fund shares. Further information about combined purchases, including
certain restrictions on combined group purchases, is available from Investor
Services or a Selling Broker's representative.
Without Sales Charge. Class A shares may be offered without a front-end sales
charge or CDSC to various individuals and institutions as follows:
* Any state, county or any instrumentality, department, authority, or agency
of these entities that is prohibited by applicable investment laws from
paying a sales charge or commission when it purchases shares of any
registered investment management company.
25
<PAGE>
* A bank, trust company, credit union, savings institution or other
depository institution, its trust departments or common trust funds if it
is purchasing $1 million or more for non-discretionary customers or
accounts.
* A Trustee or officer of the Trust; a Director or officer of the Adviser and
its affiliates or Selling Brokers; employees or sales representatives of
any of the foregoing; retired officers, employees or Directors of any of
the foregoing; a member of the immediate family (spouse, children, mother,
father, sister, brother, mother-in-law, father-in-law) of any of the
foregoing; or any fund, pension, profit sharings or other benefit plan for
the individuals described above.
* A broker, dealer, financial planner, consultant or registered investment
advisor that has entered into an agreement with John Hancock Funds
providing specifically for the use of Fund shares in fee-based investment
products or services made available to their clients.
* A former participant in an employee benefit plan with John Hancock funds,
when he or she withdraws from his or her plan and transfers any or all of
his or her plan distributions directly to the Fund.
* A member of an approved affinity group financial services plan.
* Existing full service clients of the Life Company who were group annuity
contract holders as of September 1, 1994, and participant directed defined
contribution plans with at least 100 eligible employes at the inception of
the Fund account, may purchase Class A shares with no initial sales charge.
However, if the shares are redeemed within 12 months after the end of the
calendar year in which the purchase was made, a CDSC will be imposed at the
following rate:
Amount Invested CDSC Rate
--------------- ---------
$1 million to $4,999,999 1.00%
Next $5 million to $9,999,999 0.50%
Amounts of $10 million and over 0.25%
Class A shares may also be purchased without an initial sales charge in
connection with certain liquidation, merger or acquisition transactions
involving other investment companies or personal holding companies.
Accumulation Privilege. Investors (including investors combining purchases) who
are already Class A shareholders may also obtain the benefit of a reduced sales
charge by taking into account not only the amount then being invested but also
the purchase price or value of the Class A shares already held by such person.
Combination Privilege. Reduced sales charges (according to the schedule set
forth in the Class A and Class B Prospectus) also are available to an investor
based on the aggregate amount of his concurrent and prior investments in Class A
shares of the Fund and shares of all other John Hancock funds which carry a
sales charge.
Letter of Intention. The reduced sales charges are also applicable to
investments made over a specified period pursuant to a Letter of Intention (the
"LOI"), which should be read carefully prior to its execution by an investor.
The Fund offers two options regarding the specified period for making
26
<PAGE>
investments under the LOI. All investors have the option of making their
investments over a specified period of thirteen (13) months. Investors who are
using the Fund as a funding medium for a qualified retirement plan, however, may
opt to make the necessary investments called for by the LOI over a forty-eight
(48) month period. These qualified retirement plans include group IRA, SEP,
SARSEP, TSA, 401(k), TSA and Section 457 plans. Such an investment (including
accumulations and combinations) must aggregate $50,000 or more invested during
the specified period from the date of the LOI or from a date within ninety (90)
days prior thereto, upon written request to Investor Services. The sales charge
applicable to all amounts invested under the LOI is computed as if the aggregate
amount intended to be invested had been invested immediately. If such aggregate
amount is not actually invested, the difference in the sales charge actually
paid and the sales charge payable had the LOI not been in effect is due from the
investor. However, for the purchases actually made within the specified period
(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 Investor Services to hold in escrow a number of Class A
shares (approximately 5% of the aggregate) sufficient to make up any difference
in sales charges on the amount intended to be invested and the amount actually
invested, until such investment is completed within the specified period, at
which time the 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 Investor 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.
Because Class C shares are sold at net asset value without the imposition
of any sales charge, none of the privileges described under these captions is
available to Class C investors, with the following exception:
Combination Privilege. As is explained in the Prospectus for Class C shares, a
Class C investor may qualify for the minimum $1,000,000 investment (or such
other amount as may be determined by the Fund's officers) if the aggregate
amount of his or her current and prior investments in Class C shares of the Fund
and Class C shares of any other John Hancock fund exceeds $1,000,000.
DEFERRED SALES CHARGE ON CLASS B SHARES
Investments in Class B shares are purchased at net asset value per share
without the imposition of an initial sales charge so that the Fund will receive
the full amount of the purchase payment.
Contingent Deferred Sales Charge. Class B shares which are redeemed within six
years of purchase will be subject to a contingent deferred sales charge ("CDSC")
at the rates set forth in the Class A and Class B Prospectus as a percentage of
the dollar amount subject to the CDSC. The charge will be assessed on an amount
equal to the lesser of the current market value or the original purchase cost of
the Class B shares being redeemed. Accordingly, no CDSC will be imposed on
27
<PAGE>
increases in account value above the initial purchase prices, including
increases in account value attributable to shares derived from reinvestment of
dividends or capital gains distributions. No CDSC will be imposed on shares
derived from reinvestment of dividends or capital gains distributions.
Class B shares are not available to full-service defined contribution plans
administered by Investor 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, all payments during a month will be aggregated and deemed to have been
made on the first day of the month.
In determining whether a CDSC applies to a redemption, the calculation will
be determined in a manner that results in the lowest possible rate being
charged. It will be assumed that your redemption comes first from shares you
have held beyond the six-year CDSC redemption period or those you acquired
through dividend and capital gain reinvestment, and next from the shares you
have held the longest during the six-year period. For this purpose, the amount
of any increase in a share's value above its initial purchase price is not
regarded as a share exempt from CDSC. Thus, when a share that has appreciated in
value is redeemed during the CDSC period, a CDSC is assessed only on its initial
purchase price. Upon redemption, appreciation is effective only on a per share
basis for those shares being redeemed. Appreciation of shares cannot be redeemed
CDSC free at the account level.
When requesting a redemption for a specific dollar amount please indicate
if you require the proceeds to equal the dollar amount requested. If not
indicated, only the specified dollar amount will be redeemed from your account
and the proceeds will be less any applicable CDSC.
Example:
You have purchased 100 shares at $10 per share. The second year after your
purchase, your investment's net asset value per share has increased by $2 to
$12, and you have gained 10 additional shares through dividend reinvestment. If
you redeem 50 shares at this time your CDSC will be calculated as follows:
* Proceeds of 50 shares redeemed at $12 per share $600
* Minus proceeds of 10 shares not subject to CDSC
(dividend reinvestment) -120
* Minus appreciation on remaining shares (40 shares X $2) - 80
----
* Amount subject to CDSC $400
Proceeds from the CDSC are paid to John Hancock Funds and are used in whole
or in part by John Hancock Funds to defray its expenses related to providing
distribution-related services to the Fund in connection with the sale of the
Class B shares, such as the payment of compensation to select Selling Brokers
for selling Class B shares. The combination of the CDSC and the distribution and
service fees facilitates the ability of the Fund to sell the Class B shares
28
<PAGE>
without a sales charge being deducted at the time of the purchase. See the Class
A and Class B Prospectus for additional information regarding the CDSC.
Waiver of Contingent Deferred Sales Charge. The CDSC will be waived on
redemptions of Class B shares and of Class A shares that are subject to CDSC,
unless indicated otherwise, in the circumstances defined below:
For all account types:
* Redemptions made pursuant to the Fund's right to liquidate your account if
you own shares worth less than $1,000.
* Redemptions made under certain liquidation, merger or acquisition
transactions involving other investment companies or personal holding
companies.
* Redemptions due to death or disability.
* Redemptions made under the Reinstatement Privilege, as described in "Sales
Charge Reductions and Waivers" of the Prospectus.
For Retirement Accounts (such as IRA, Rollover IRA, TSA, 457, 403(b), 401(k),
Money Purchase Pension Plan, Profit-Sharing Plan and other plans qualified under
the Internal Revenue Code of 1986, as amended (the "Code") unless otherwise
noted.
* Redemptions made to effect mandatory distributions under the Internal
Revenue Code after age 70 1/2.
* Returns of excess contributions made to these plans.
* Redemptions made to effect distributions to participants or beneficiaries
from employer sponsored retirement plans such as 401(k), 403(b), 457. In
all cases, the distribution must be free from penalty under the Code.
* Redemptions made to effect distributions from an Individual Retirement
Account either before age 59 1/2 or after age 59 1/2, as long as the
distributions are based on your life expectancy or the joint-and-last
survivor life expectancy of you and your beneficiary. These distributions
must be free from penalty under the Code.
* Redemptions from certain IRA and retirement plans that purchased shares
prior to October 1, 1992 and certain IRA plans that purchased shares prior
to May 15, 1995.
For non-retirement accounts (please see above for retirement account waivers):
* Redemptions of Class B shares made under a periodic withdrawal plan, as
long as your annual redemptions do not exceed 10% of your account value at
the time you established your periodic withdrawal plan and 10% of the value
of subsequent investments (less redemptions) in that account at the time
you notify Investor Services. (Please note, this waiver does not apply to
periodic withdrawal plan redemptions of Class A shares that are subject to
a CDSC.)
Please see matrix for reference.
29
<PAGE>
<TABLE>
<CAPTION>
Type of 401(a) Plan 403(b) 457 IRA, IRA Non-Retirement
Distribution (401(k), MPP, Rollover
PSP)
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Death or Waived Waived Waived Waived Waived
Disability
- --------------------------------------------------------------------------------------------------------
Over 70 1/2 Waived Waived Waived Waived for 10% of account
mandatory value annually
distributions in periodic
payments
- --------------------------------------------------------------------------------------------------------
Between 59 1/2 Waived Waived Waived Only Life 10% of account
and 70 1/2 Expectancy value annually
in periodic
payments
- --------------------------------------------------------------------------------------------------------
Under 59 1/2 Waived for Waived for Waived for Waived for 10% of account
rollover, or annuity annuity annuity value annually
annuity payments payments payments in periodic
payments. Not payments
waived if paid
directly to
participant.
- --------------------------------------------------------------------------------------------------------
Loans Waived Waived N/A N/A N/A
- --------------------------------------------------------------------------------------------------------
Termination of Not Waived Not Waived Not Waived Not Waived N/A
Plan
- --------------------------------------------------------------------------------------------------------
Hardships Not Waived Not Waived N/A N/A N/A
- --------------------------------------------------------------------------------------------------------
Return of Waived Waived Waived Waived N/A
Excess
- --------------------------------------------------------------------------------------------------------
</TABLE>
If you qualify for a CDSC waiver under one of these situations, you must
notify Investor Services at the time you make your redemption. The waiver will
be granted once Investor Services has confirmed that you are entitled to the
waiver.
SPECIAL REDEMPTIONS
Although it would not normally do so, the Fund has the right to pay the
redemption price of shares of the Fund in whole or in part in portfolio
securities as prescribed by the Trustees. When the shareholder sells portfolio
securities received in this fashion, he or she would incur a brokerage charge.
Any such securities would be valued for the purposes of making such payment at
the same value as used in determining net asset value. The Fund has, however,
elected to be governed by Rule 18f-1 under the Investment Company Act. Under
that rule, the Fund must redeem its shares for cash except to the extent that
30
<PAGE>
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 the
Fund for shares of the same class in any other John Hancock fund offering that
class.
Systematic Withdrawal Plan. The Fund permits the establishment of a Systematic
Withdrawal Plan. Payments under this plan represent proceeds arising from the
redemption of Fund shares. Since the redemption price of Fund shares may be more
or less than the shareholder's cost, depending upon the market value of the
securities owned by the Fund at the time of redemption, the distribution of cash
pursuant to this plan may result in realization of gain or loss for purposes of
Federal, state and local income taxes. The maintenance of a Systematic
Withdrawal Plan concurrently with purchases of additional Class A or Class B
shares of the Fund could be disadvantageous to a shareholder because of the
initial sales charge payable on purchases of Class A shares and the CDSC imposed
on redemptions of Class B shares and because redemptions are taxable events.
Therefore, a shareholder should not purchase Class A or Class B shares at the
same time as a Systematic Withdrawal Plan is in effect. The Fund reserves the
right to modify or discontinue the Systematic Withdrawal Plan of any shareholder
on 30 days' prior written notice to such shareholder or to discontinue the
availability of such plan in the future. The shareholder may terminate the plan
at any time by giving proper notice to Investor Services.
Monthly Automatic Accumulation Program ("MAAP"). This program is explained more
fully in the Class A and Class B 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 Monthly Automatic Accumulation
Program may be revoked by Investor Services without prior notice if any
investment is not honored by the shareholders' bank. The bank shall be under no
obligation to notify the shareholder as to the nonpayment of any checks.
The program may be discontinued by the shareholder either by calling Investor
Services or upon written notice to Investor Services which is received at least
five (5) business days prior to the processing date of any investment.
Reinvestment Privilege. A shareholder who has redeemed shares of the Fund may,
within 120 days after the date of redemption, reinvest without payment of a
sales charge any part of the redemption proceeds in shares of the same class of
the Fund or in any of the other John Hancock funds, subject to the minimum
investment limit in that fund. The proceeds from the redemption of Class A
shares may be reinvested at net asset value without paying a sales charge in
Class A shares of the Fund or in Class A shares of any of the other John Hancock
funds. If a CDSC was paid upon a redemption, a shareholder may reinvest the
proceeds from such 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 charge 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
31
<PAGE>
payable upon a subsequent redemption, include the holding period of the redeemed
shares. The Fund may modify or terminate the reinvestment privilege at any time.
A redemption or exchange of Fund shares is a taxable transaction for
Federal income tax purposes even if the reinvestment privilege is exercised, and
any gain or loss realized by a shareholder on the redemption or other
disposition of Fund shares will be treated for tax purposes as described under
the caption "Tax Status."
DESCRIPTION OF THE FUND'S SHARES
The Trustees of the Fund are responsible for the management and supervision
of the Fund. The Declaration of Trust permits the Trustees to issue an unlimited
number of full and fractional shares of beneficial interest of the Fund without
par value. Under the Declaration of Trust, the Trustees have the authority to
create and classify shares of beneficial interest in separate series, without
further action by shareholders. As of the date of this Statement of Additional
Information, the Trustees have not authorized any additional series other than
the Fund, although they may do so in the future. The Declaration of Trust also
authorizes the Trustees to classify and reclassify the shares of the Fund, or
any new series of the Fund, into one or more classes. As of the date of this
Statement of Additional Information, the Trustees have 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.
Class C shares of the Fund are offered only to certain institutional
investors as described in the Fund's Prospectuses. Some individual investors who
are currently eligible to purchase Class A and Class B shares may also be
participants in "participant-directed plans" (as defined in the Prospectuses)
that are eligible to purchase Class C shares. The different classes of the Fund
may bear different expenses relating to the cost of holding shareholder meetings
necessitated by the exclusive voting rights of any class of shares.
Dividends paid by the Fund, if any, with respect to each class of shares
will be calculated in the same manner, at the same time and will be in the same
amount, except for differences resulting from the facts that (i) the
distribution and service fees relating to Class A and Class B shares will be
borne exclusively by that class, (ii) Class B shares will pay higher
distribution and service fees than Class A shares and (iii) each of Class A
shares, Class B shares and Class C shares will bear any other class expenses
properly allocable to such class of shares, subject to the conditions set forth
in a private letter ruling that the Fund has received from the Internal Revenue
Service relating to its multiple-class structure. Accordingly, it is expected
that the net asset value per share of the Fund's Class C shares will be higher
than the net asset value per share of the Fund's Class A and Class B shares,
each of which has a Rule 12b-1 distribution plan and sales load. Similarly, the
net asset value per share may vary depending on whether Class A or Class B
shares are purchased.
In the event of liquidation, shareholders are entitled to share pro rata in
the net assets of the Fund available for distribution to such shareholders.
Shares entitle their holders to one vote per share, are freely transferable and
have no preemptive, subscription or conversion rights. When issued, shares are
fully paid and non-assessable by the Fund, except as set forth below.
Unless otherwise required by the Investment Company Act or the Declaration
of Trust, the Fund has no intention of holding annual meetings of shareholders.
32
<PAGE>
Fund shareholders may remove a Trustee by the affirmative vote of at least
two-thirds of the Fund'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 Fund. Shareholders
may, under certain circumstances, communicate with other shareholders in
connection with a request for a special meeting of shareholders. However, at any
time that less than a majority of the Trustees holding office were elected by
the shareholders, the Trustees will call a special meeting of shareholders for
the purpose of electing Trustees.
Under Massachusetts law, shareholders of a Massachusetts business trust
could, under certain circumstances, be held personally liable for acts or
obligations of the Fund. However, the Fund's Declaration of Trust contains an
express disclaimer of shareholder liability for acts, obligations and affairs of
the Fund. The Declaration of Trust also provides for indemnification out of the
Fund's assets for all losses and expenses of any shareholder held personally
liable by reason of being or having been a shareholder. Liability is therefore
limited to circumstances in which the Fund itself would be unable to meet its
obligations, and the possibility of this occurrence is remote.
In order to avoid conflicts with portfolio trades for the Fund, the Adviser
and the Fund have adopted extensive restrictions on personal securities trading
by personnel of the Adviser and its affiliates. Some of these restrictions are:
pre-clearance for all personal trades and a ban on the purchase of initial
public offerings, as well as contributions to specified charities of profits on
securities held for less than 91 days. These restrictions are a continuation of
the basic principle that the interests of the Fund and its shareholders come
first.
TAX STATUS
The Fund has qualified and has elected to be treated as a "regulated
investment company" under Subchapter M of the Code and intends to continue to so
qualify for each taxable year. As such and by complying with the applicable
provisions of the Code regarding the sources of its income, the timing of its
distributions, and the diversification of its assets, the Fund will not be
subject to Federal income tax on taxable income (including net realized capital
gains, if any) 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 seek to avoid or minimize liability
for such tax by satisfying such distribution requirements.
Distributions from the Fund's current or accumulated earnings and profits
("E&P") will be taxable under the Code for investors who are subject to tax. If
these distributions are paid from the Fund's "investment company taxable
income," they will be taxable as ordinary income; and if they are paid from the
Fund's "net capital gain," they will be taxable as long-term capital gain. (Net
capital gain is the excess (if any) of net long-term capital gain over net
short-term capital loss, and investment company taxable income is all taxable
income and capital gains, other than net capital gain, after reduction by
deductible expenses.) Some distributions from investment company taxable income
and/or net capital gain may be paid in January but may be taxable to
shareholders as if they had been received on December 31 of the previous year.
The tax treatment described above will apply without regard to whether
distributions are received in cash or reinvested in additional shares of the
Fund.
33
<PAGE>
Distributions, if any, in excess of E&P will constitute a return of capital
under the Code, which will first reduce an investor's federal tax basis in Fund
shares and then, to the extent such basis is exceeded, will generally give rise
to capital gains. Shareholders who have chosen automatic reinvestment of their
distributions will have a federal tax basis in each share received pursuant to
such a reinvestment equal to the amount of cash they would have received had
they elected to receive the distribution in cash, divided by the number of
shares received in the reinvestment.
The amount of 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 or engage in certain other transactions or derivatives that
will generate capital gains. At the time of an investor's purchase of Fund
shares, a portion of the purchase price is often attributable to realized or
unrealized appreciation in the Fund's portfolio or undistributed taxable income
of the Fund. Consequently subsequent distributions on those shares from such
appreciation or income may be taxable to such investor even if the net asset
value of the investor's shares is, as a result of the distributions, reduced
below the investor's cost for such shares, and the distributions in reality
represent a portion of the purchase price.
Upon a redemption of shares of the Fund (including by exercise of the
exchange privilege) a shareholder may realize a taxable gain or loss depending
upon the amount of the proceeds and the investor's basis in his shares. Such
gain or loss will be treated as capital gain or loss if the shares are capital
assets in the shareholder's hands and will be long-term or short-term, depending
upon the shareholder's tax holding period for the shares and subject to the
special rules described below. A sales charge paid in purchasing Class A shares
of the Fund cannot be taken into account for purposes of determining gain or
loss on the redemption or exchange of such shares within 90 days after their
purchase to the extent Class A shares of the Fund or another John Hancock fund
are subsequently acquired without payment of a sales charge pursuant to the
reinvestment or exchange privilege. This disregarded charge will result in an
increase in the shareholder's tax basis in the Class A shares subsequently
acquired. Also, any loss realized on a redemption or exchange may be disallowed
to the extent the shares disposed of are replaced with other shares of the Fund
within a period of 61 days beginning 30 days before and ending 30 days after the
shares are disposed of, such as pursuant to automatic dividend reinvestments. In
such a case, the basis of the shares acquired will be adjusted to reflect the
disallowed loss. Any loss realized upon the redemption of shares with a tax
holding period of six months or less will be treated as a long-term capital loss
to the extent of any amounts treated as distributions of long-term capital gain
with respect to such shares.
Although its present intention is to distribute, at least annually, all net
capital gain, if any, the Fund reserves the right to retain and reinvest all or
any portion of the excess, as computed for Federal income tax purposes, of net
long-term capital gain over net short-term capital loss in any year. The Fund
will not in any event distribute net capital gain realized in any year to the
extent that a capital loss is carried forward from prior years against such
gain. To the extent such excess was retained and not exhausted by the
carryforward of prior years' capital losses, it would be subject to Federal
income tax in the hands of the Fund. Upon proper designation of this amount by
the Fund, each shareholder would be treated for Federal income tax purposes as
if the Fund had distributed to him on the last day of its taxable year his pro
rata share of such excess, and he had paid his pro rata share of the taxes paid
by the Fund and reinvested the remainder in the Fund. Accordingly, each
shareholder would (a) include his pro rata share of such excess as long-term
capital gain income in his return for his taxable year in which the last day of
34
<PAGE>
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 carryforward a
net realized capital loss in any year to offset net capital gains, if any,
during the eight years following the year of the loss. To the extent subsequent
net capital gains are offset by such losses, they would not result in Federal
income tax liability to the Fund and, as noted above, would not be distributed
as such to shareholders. Presently, there are no capital loss carryforwards
available to offset future net capital gains.
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.
For purposes of the dividends-received deduction available to corporations,
dividends received by the Fund, if any, from U.S. domestic corporations in
respect of the stock of such corporations held by the Fund, for U.S. Federal
income tax purposes, for at least 46 days (91 days in the case of certain
preferred stock) and distributed and properly designated by the Fund may be
treated as qualifying dividends. Corporate shareholders must meet the minimum
holding period requirement stated above (46 or 91 days) with respect to their
Fund shares in order to qualify for the deduction and, if they have any debt
that is deemed under the Code directly attributable to Fund shares, may be
denied a portion of the dividends received deduction. The entire qualifying
dividend, including the otherwise-deductible amount, will be included in
determining the excess (if any) of a corporate shareholder's adjusted current
earnings over its alternative minimum taxable income, which may increase its
alternative minimum tax liability. Additionally, any corporate shareholder
should consult its tax adviser regarding the possibility that its basis in its
shares may be reduced, for Federal income tax purposes, by reason of
"extraordinary dividends" received with respect to the shares, for the purpose
of computing its gain or loss on redemption or other disposition of the shares.
If the Fund acquires stock of certain foreign corporations that receive at
least 75% of their annual gross income from passive sources (such as interest,
dividends, rents, royalties or capital gain) or hold at least 50% of their
assets in investments producing such passive income ("passive foreign investment
companies"), the Fund could be subject to federal income tax and additional
interest charges on "excess distributions" received from such companies or gain
from the sale of stock in such companies, even if all income or gain actually
received by the Fund is timely distributed to its shareholders. The Fund would
not be able to pass through to its shareholders any credit or deduction for such
a tax. Certain elections may, if available, ameliorate these adverse tax
consequences, but any such election would require the Fund to recognize taxable
income or gain without the concurrent receipt of cash. The Fund may limit and/or
manage its holdings in passive foreign investment companies to minimize its tax
liability or maximize its return from these investments.
Foreign exchange gains and losses realized by the Fund in connection with
certain transactions involving foreign currency-denominated debt securities,
foreign currency forward contracts, foreign currencies, or payables or
receivables denominated in foreign currency are subject to Section 988 of the
Code, which generally causes such gains and losses to be treated as ordinary
35
<PAGE>
income and losses and may affect the amount, timing and character of
distributions to shareholders. Any such transactions that are not
directly-related to the Fund's investment in stock or securities, possibly
including any such transaction not used for hedging purposes, may increase the
amount of gain it is deemed to recognize from the sale of certain investments or
derivatives held for less than three months, which gain is limited under the
Code to less than 30% of its gross income for each taxable year, and may under
future Treasury regulations produce income not among the types of "qualifying
income" from which the Fund must derive at least 90% of its gross income for
each taxable year. If the net foreign exchange loss for a year 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.
Limitations imposed by the Code on regulated investment companies like the
Fund may restrict the Fund's ability to enter into options and futures
contracts, foreign currency positions and foreign currency forward contracts.
Certain of these transactions may cause the Fund to recognize gains or losses
from marking to market even though its positions have not been sold or
terminated and may affect the character as long-term or short-term (or, in the
case of certain foreign currency options, futures and forward contracts, as
ordinary income or loss) of some capital gains and losses realized by the Fund.
Additionally, certain of the Fund's losses on transactions involving options,
futures, forward contracts, and any offsetting or successor positions in its
portfolio may be deferred rather than being taken into account currently in
calculating the Fund's taxable income or gain. Certain of such transactions may
also cause the Fund to dispose of investments sooner than would otherwise have
occurred. These transactions may therefore affect the amount, timing and
character of the Fund's distributions to shareholders. The Fund will take into
account the special tax rules applicable to options, futures or forward
contracts, including consideration of available elections, in order to seek to
minimize any potential adverse tax consequences.
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"), subject to certain provisions and limitations contained in the
Code. Specifically, if more than 50% of the value of the Fund's total assets at
the close of any taxable year consists of stock or securities of foreign
corporations, the Fund may file an election with the Internal Revenue Service
pursuant to which shareholders of the Fund will be required to (i) include in
ordinary gross income (in addition to taxable dividends and distributions
actually received) their pro rata shares of qualified foreign taxes paid by the
Fund even though not actually received by them, and (ii) treat such respective
pro rata portions as qualified foreign taxes paid by them.
If the Fund makes this election, shareholders may then deduct such pro rata
portions of qualified foreign taxes in computing their taxable incomes, or,
alternatively, use them as foreign tax credits, subject to applicable
limitations, against their U.S. Federal income taxes. Shareholders who do not
itemize deductions for Federal income tax purposes will not, however, be able to
deduct their pro rata portion of qualified foreign taxes paid by the Fund,
although such shareholders will be required to include their 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
36
<PAGE>
this election. Each year (if any) that the Fund files the election described
above, its shareholders will be notified of the amount of (i) each shareholder's
pro rata share of qualified foreign taxes paid by the Fund and (ii) the portion
of Fund dividends which represents income from each foreign country. If the Fund
does not satisfy the 50% requirement described above or otherwise does not make
the election, the Fund will deduct the foreign taxes it pays in determining the
amount it has available for distribution to shareholders, and shareholders will
not include these foreign taxes in their income, nor will they be entitled to
any tax deductions or credits with respect to such taxes.
The Fund is required to accrue income on any debt securities that have more
than a de minimis amount of original issue discount (or debt securities acquired
at a market discount, if the Fund elects to include market discount in income
currently) prior to the receipt of the corresponding cash payments. The mark to
market rules applicable to certain options, futures and forward contracts may
also require the Fund to recognize income or gain without a concurrent receipt
of cash. However, the Fund must distribute to shareholders for each taxable year
substantially all of its net income and net capital gains, including such income
or gain, to qualify as a regulated investment company and avoid liability for
any federal income or excise tax. Therefore, the Fund may have to dispose of its
portfolio securities under disadvantageous circumstances to generate cash, or
may have to leverage itself by borrowing the cash, to satisfy these distribution
requirements.
A state income (and possibly local income and/or intangible property) tax
exemption is generally available to the extent (if any) the Fund's distributions
are derived from interest on (or, in the case of intangibles taxes, the value of
its assets is attributable to) certain U.S. Government obligations, provided in
some states that certain thresholds for holdings of such obligations and/or
reporting requirements are satisfied. The Fund will not seek to satisfy any
threshold or reporting requirements that may apply in particular taxing
jurisdictions, although it 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.
Non-U.S. investors not engaged in a U.S. trade or business with which their
Fund investment is effectively connected will be subject to U.S. Federal income
tax treatment that is different from that described above. These investors may
be subject to non-resident alien withholding tax at the rate of 30% (or a lower
rate under an applicable tax treaty) on amounts treated as ordinary dividends
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from the Fund and, unless an affective IRS Form W-8 or authorized substitute for
Form W-8 is on file, 31% backup withholding on certain other payments from the
Fund. Non-U.S. investors should consult their tax advisers regarding such
treatment and the application of foreign taxes to an investment in the Fund.
The Fund is not subject to Massachusetts corporate excise or franchise
taxes. Provided that the Fund qualifies as a regulated investment company under
the Code, it will also not be required to pay Massachusetts income tax.
The foregoing discussion relates solely to U.S. Federal income tax law as
applicable to U.S. persons (i.e., U.S. citizens or residents and U.S. domestic
corporations, partnerships, trusts or estates) subject to tax under such law.
The discussion does not address special tax rules applicable to certain classes
of investors, such as tax-exempt entities, insurance companies and financial
institutions. Dividends, capital gain distributions, and ownership of or gains
realized on the redemption (including an exchange) of shares of the Fund 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 the Fund in their particular circumstances.
CALCULATION OF PERFORMANCE
The average annual total return on Class A shares of the Fund for the 1
year, 5 year and life-of-fund periods ended October 31, 1995 was 30.60%, 35.29%,
and 17.22%, respectively, and reflect payment of the maximum sales charge of
5.00%. The average annual total return on Class A shares of the Fund for the
life-of-the-Fund period ended April 30, 1996 was %.
The average annual total return on Class B shares of the Fund for the 1
year ended October 31, 1995 and since inception on March 1, 1993 was 31.57% and
23.04%, respectively and reflects the applicable CDSC. The average annual total
return on Class B shares of the Fund for the life-of-the-Fund period ended April
30, 1996 was %. The average annual total return on Class C shares of the Fund
for the 1 year and since inception on September 1, 1993 was 38.27% and 20.67%,
respectively. The average annual total return on Class C shares of the Fund for
the life-of-the-Fund period ended April 30, 1996 was %.
The Fund's total return is computed by finding the average annual
compounded rate of return over the 1 year, 5 year and life-of-fund periods that
would equate the initial amount invested to the ending redeemable value
according to the following formula:
n _____
Where: T = \ /ERV/P - 1
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.
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This calculation assumes that all dividends and distributions are
reinvested at net asset value on the reinvestment dates during the period.
Because each share has its own sales charge and fee structures, the classes
have different performance results. In the case of Class A shares or Class B
shares, this calculation assumes the maximum sales charge is included in the
initial investment or the CDSC applied at the end of the period. 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 load from the
distribution rate produces a higher rate.
In addition to average annual total returns, the Fund may quote unaveraged
or cumulative total returns reflecting the simple change in value of an
investment over a stated period. Cumulative total returns may be quoted as a
percentage or as a dollar amount, and may be calculated for a single 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 5.0% sales charge
on Class A shares or the CDSC on Class B shares into account. Excluding the
Fund's sales charge on Class A shares and the CDSC on Class B shares from a
total return calculation produces a higher total return figure.
The Fund may advertise yield, where appropriate. The Fund's yield is
computed by dividing net investment income per share determined for a 30-day
period by the maximum offering price per share (which includes the full sales
charge) on the last day of the period, according to the following standard
formula:
Yield = 2 ([(a - b) + 1] 6 - 1)
-----
cd
Where:
a = dividends and interest earned during the period.
b = net expenses accrued during the period.
c = the average daily number of fund shares outstanding during
the period that would be entitled to receive dividends.
d = the maximum offering price per share on the last day of the period
(NAV where applicable).
From time to time, in reports and promotional literature, the Fund's total
return will be ranked or compared to indices of mutual funds such as Lipper
Analytical Services, Inc.'s "Lipper -Mutual Performance Analysis," a monthly
publication which tracks net assets, total return, and yield on equity 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.
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Performance rankings and ratings reported periodically in national
financial publications such as Money Magazine, Forbes, Business Week, The Wall
Street Journal, Micropal, Inc. Morningstar, Barron's, and Stanger's may also be
utilized.
The performance of the Fund is not fixed or guaranteed. Performance
quotations should not be considered to be representations of performance of the
Fund for any period in the future. The performance of the Fund is a function of
many factors including its earnings, expenses and number of outstanding shares.
Fluctuating market conditions; purchases, sales and maturities of portfolio
securities; sales and redemptions of shares of beneficial interest; and changes
in operating expenses are all examples of items that can increase or decrease
the Fund's performance.
BROKERAGE ALLOCATION
Decisions concerning the purchase and sale of portfolio securities of the
Fund are made by officers of the Fund pursuant to recommendations made by an
investment committee of the Adviser, which consists of officers and directors of
the Adviser and officers and Trustees who are interested persons of the Fund.
Orders for purchases and sales of securities are placed in a manner, which, in
the opinion of the officers of the Fund, will offer the best price and market
for the execution of each such transaction. Purchases from underwriters of
portfolio securities may include a commission or commissions paid by the issuer,
and transactions with dealers serving as market maker reflect a "spread." Debt
securities are generally traded on a net basis through dealers acting for their
own account as principals and not as brokers; no brokerage commissions are
payable on such transactions.
The Fund's primary policy is to execute all purchases and sales of
portfolio instruments at the most favorable prices consistent with best
execution, considering all of the costs of the transaction including brokerage
commissions. This policy governs the selection of brokers and dealers and the
market in which a transaction is executed. Consistent with the foregoing primary
policy, the Rules of Fair Practice of the National Association of Securities
Dealers, Inc. and such other policies as the Trustees may determine, the Adviser
may consider sales of shares of the Fund as a factor in the selection of
broker-dealers to execute the Fund's portfolio transactions.
To the extent consistent with the foregoing, the Fund will be governed in
the selection of brokers and dealers and the negotiation of brokerage commission
rates and dealer spreads by the reliability and quality of the services,
including primarily the availability and value of research information and, to a
lesser extent, statistical assistance furnished to the Adviser of the Fund and
their value and expected contribution to the performance of the Fund. It is not
possible to place a dollar value on information and services to be received from
brokers and dealers, since it is only supplementary to the research efforts of
the Adviser. The receipt of research information is not expected to reduce
significantly the expenses of the Adviser. The research information and
statistical assistance furnished by brokers and dealers may benefit the Life
Company or other advisory clients of the Adviser, and, conversely, brokerage
commissions and spreads paid by other advisory clients of the Adviser may result
in research information and statistical assistance beneficial to the Fund. The
Fund will make no commitment to allocate portfolio transactions upon any
prescribed basis. While the Adviser will be primarily responsible for the
allocation of the Fund's brokerage business, the policies and practices of the
Adviser in this regard must be consistent with the foregoing and will at all
times be subject to review by the Trustees. For the years ended on October 31,
1995, 1994 and 1993 the Fund paid negotiated brokerage commissions of $468,191,
$305,789 and $273,700, respectively.
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As permitted by Section 28(e) of the Securities Exchange Act of 1934, the
Fund may pay a broker which provides brokerage and research services to the Fund
an amount of disclosed commission in excess of the commission which another
broker would have charged for effecting that transaction. This practice is
subject to a good faith determination by the Trustees that such price is
reasonable in light of the services provided and to such policies as the
Trustees may adopt from time to time. During the fiscal year ended October 31,
1995, the Fund paid $45,269 in commissions to compensate brokers for research
services such as industry and company reviews and evaluations of the securities.
The Adviser's indirect parent, the Life Company, is the indirect sole
shareholder of John Hancock Freedom Securities Corporation and its subsidiaries,
three of which, Tucker Anthony Incorporated, John Hancock Distributors, Inc. and
Sutro & Company, Inc. are broker-dealers ("Affiliated Brokers"). Pursuant to
procedures established by the Trustees and consistent with the above policy of
obtaining best net results, the Fund may execute portfolio transactions with or
through Affiliated Brokers. During the year ended October 31, 1995, the Fund did
not execute any portfolio transactions with Affiliated Brokers.
Any of the Affiliated Brokers may act as broker for the Fund on exchange
transactions, subject, however, to the general policy of the Fund set forth
above and the procedures adopted by the Trustees pursuant to the Investment
Company Act. Commissions paid to an Affiliated Broker must be at least as
favorable as those which the Trustees believe to be contemporaneously charged by
other brokers in connection with comparable transactions involving similar
securities being purchased or sold. A transaction would not be placed with an
Affiliated Broker if the Fund would have to pay a commission rate less favorable
than the Affiliated Broker's contemporaneous charges for comparable transactions
for its other most favored, but unaffiliated, customers, except for accounts for
which the Affiliated Broker acts as clearing broker for another brokerage firm,
and any customers of the Affiliated Broker not comparable to the Fund as
determined by a majority of the Trustees who are not interested persons (as
defined in the Investment Company Act) of the Fund, the Adviser or the
Affiliated Broker. Because the Adviser, which is affiliated with the Affiliated
Brokers, has, as an investment adviser to the Fund, the obligation to provide
investment management services, which includes elements of research and related
investment skills, such research and related skills will not be used by the
Affiliated Broker as a basis for negotiating commissions at a rate higher than
that determined in accordance with the above criteria. The Fund will not effect
principal transactions with Affiliated Brokers.
TRANSFER AGENT SERVICES
John Hancock Investor Services Corporation, P.O. Box 9116, Boston, MA
02205-9116, a wholly-owned indirect subsidiary of the Life Company, is the
transfer and dividend paying agent for the Fund. The Fund pays an annual fee of
$16.00 for each Class A shareholder account and $18.50 for each Class B
shareholder account and 0.10% of the average daily net assets attributable to
the Class C shares, plus certain out-of-pocket expenses. These expenses are
aggregated and charged to the Fund and allocated to each class on the basis of
the relative net asset values.
CUSTODY OF PORTFOLIO
Portfolio securities of the Fund are held pursuant to a custodian agreement
between the Fund and Investors Bank & Trust Company, 89 South Street, Boston,
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Massachusetts 02110. Under the custodian agreement, Investors Bank & Trust
Company performs custody, portfolio and fund accounting services.
INDEPENDENT AUDITORS
The independent auditors of the Fund are Ernst & Young LLP, 200 Clarendon
Street, Boston, Massachusetts 02116. Ernst & Young LLP audits and renders an
opinion on the Fund's annual financial statements and prepares the Fund's annual
Federal income tax return.
FINANCIAL STATEMENTS
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42
The financial statements of John Hancock Special Equities Fund are incorporated
into this Statement of Additional Information by reference from John Hancock
Special Equities Fund's 1995 Annual Report to Shareholders for the year ended
October 31, 1995 (filed electronically on January 3, 1996; file nos. 811-4079
and 2-92548; accession no. 0000950135-96-00050).
